SEC Filing | Sun Country Airlines

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sncy-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-40217

Sun Country Airlines Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware			82-4092570
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

2005 Cargo Road
Minneapolis, Minnesota			55450
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (651) 681-3900

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

SNCY

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated Filer ☑
	Smaller reporting company ☐	Emerging growth company ☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

Number of shares outstanding by each class of common stock, as of June 30, 2022:

Common Stock, $0.01 par value – 58,143,901 shares outstanding

Table of Contents

Sun Country Airlines Holdings, Inc.

Form 10-Q

Table of Contents


		Page

Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets		3
Condensed Consolidated Statements of Operations		5
Condensed Consolidated Statements of Comprehensive Income (Loss)		6
Condensed Consolidated Statements of Changes in Stockholders’ Equity		7
Condensed Consolidated Statements of Cash Flows		8

Notes to the Condensed Consolidated Financial Statements

1	Company Background	9
2	Basis of Presentation	10
3	Impact of the COVID-19 Pandemic	14
4	Revenue	15
5	Earnings per Share	17
6	Aircraft	18
7	Debt	20
8	Fuel Derivatives and Risk Management	22
9	Investments	23
10	Fair Value Measurements	23
11	Income Taxes	24
12	Special Items, net	25
13	Commitments and Contingencies	25
14	Operating Segments	26
1 5	Subsequent Events	26

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3. Quantitative and Qualitative Disclosures About Market Risk		56
Item 4. Controls and Procedures		56

Part II. Other Information
Item 1. Legal Proceedings		58
Item 1A. Risk Factors		58
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		59
Item 3. Defaults Upon Senior Securities		59
Item 4. Mine Safety Disclosures		59
Item 5. Other Information		59
Item 6. Exhibits		59

Signatures		61

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Table of Contents

PART I. Financial Information

ITEM 1. FINANCIAL STATEMENTS

SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	June 30, 2022		December 31, 2021
	(Unaudited)
ASSETS

Current Assets:
Cash and Cash Equivalents	$	212,858	$	309,338
Restricted Cash	4,132		8,447
Investments	76,724		6,283
Accounts Receivable, net of an allowance for credit losses of $197 and $250, respectively	38,479		30,156
Short-term Lessor Maintenance Deposits	7,394		5,505
Inventory, net of a reserve for obsolescence of $1,434 and $1,275, respectively	6,320		5,405
Prepaid Expenses	16,245		8,511
Other Current Assets	1,186		1,798
Total Current Assets	363,338		375,443

Property & Equipment, net:
Aircraft and Flight Equipment	589,690		447,319
Ground Equipment and Leasehold Improvements	27,092		20,876
Computer Hardware and Software	10,161		8,785
Finance Lease Assets	251,887		209,457
Rotable Parts	10,958		9,150
Total Property & Equipment	889,788		695,587
Accumulated Depreciation & Amortization	(144,165)		(117,069)
Total Property & Equipment, net	745,623		578,518

Other Assets:
Goodwill	222,223		222,223
Other Intangible Assets, net	87,110		89,110
Operating Lease Right-of-use Assets	27,019		61,658
Aircraft Deposits	11,520		10,021
Long-term Lessor Maintenance Deposits	25,813		20,346
Deferred Tax Asset	15,813		17,608
Other Assets	8,279		5,495
Total Other Assets	397,777		426,461
Total Assets	$	1,506,738	$	1,380,422

See accompanying Notes to Condensed Consolidated Financial Statements

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SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	June 30, 2022		December 31, 2021
	(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts Payable	$	58,051	$	39,805
Accrued Salaries, Wages, and Benefits	25,342		28,527
Accrued Transportation Taxes	14,549		12,736
Air Traffic Liabilities	123,958		118,562
Over-market Liabilities	3,063		4,309
Finance Lease Obligations	29,392		11,705
Loyalty Program Liabilities	11,548		11,451
Operating Lease Obligations	10,172		17,231
Current Maturities of Long-term Debt	43,810		29,412
Income Tax Receivable Agreement Liability	1,100		—
Other Current Liabilities	10,376		7,913
Total Current Liabilities	331,361		281,651

Long-term Liabilities:
Over-market Liabilities	3,964		10,428
Finance Lease Obligations	220,229		180,450
Loyalty Program Liabilities	5,056		8,267
Operating Lease Obligations	21,410		58,810
Long-term Debt	319,733		248,014
Income Tax Receivable Agreement Liability	106,200		98,800
Other Long-term Liabilities	2,897		3,413
Total Long-term Liabilities	679,489		608,182
Total Liabilities	1,010,850		889,833

Commitments and Contingencies (see Note 1 3)

Stockholders' Equity:
Common stock, with $0.01 par value, 995,000,000 shares authorized, 58,145,724 and 57,872,452 issued at June 30, 2022 and December 31, 2021, respectively	581		579
Preferred stock, with $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at June 30, 2022 and December 31, 2021	—		—
Treasury stock, at cost, 1,823 shares held at June 30, 2022 and no shares held at December 31, 2021	(52)		—
Additional Paid-In Capital	491,492		485,638
Retained Earnings	4,087		4,372
Accumulated Other Comprehensive Loss	(220)		—
Total Stockholders' Equity	495,888		490,589
Total Liabilities and Stockholders' Equity	$	1,506,738	$	1,380,422

See accompanying Notes to Condensed Consolidated Financial Statements

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SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Operating Revenues:
Passenger	$	195,362	$	125,130	$	397,394	$	229,325
Cargo	21,190		22,098		42,243		43,684
Other	2,515		1,961		5,954		3,793
Total Operating Revenue	219,067		149,189		445,591		276,802

Operating Expenses:
Aircraft Fuel	76,947		29,709		141,492		53,984
Salaries, Wages, and Benefits	60,298		42,316		119,915		86,392
Aircraft Rent	2,211		3,815		5,397		9,414
Maintenance	12,782		11,300		24,777		20,510
Sales and Marketing	7,881		5,822		16,509		10,932
Depreciation and Amortization	16,854		14,208		32,182		26,823
Ground Handling	8,212		6,551		16,170		11,781
Landing Fees and Airport Rent	9,496		8,752		19,782		17,537
Special Items, net	—		(39,819)		—		(72,355)
Other Operating, net	21,017		16,746		44,166		31,397
Total Operating Expenses	215,698		99,400		420,390		196,415
Operating Income	3,369		49,789		25,201		80,387

Non-operating Income (Expense):
Interest Income	532		9		556		24
Interest Expense	(7,042)		(6,080)		(15,604)		(13,201)
Other, net	(1,702)		18,054		(8,577)		18,049
Total Non-operating Income (Expense), net	(8,212)		11,983		(23,625)		4,872

Income (Loss) Before Income Tax	(4,843)		61,772		1,576		85,259
Income Tax Expense (Benefit)	(921)		9,595		1,861		16,304
Net Income (Loss)	$	(3,922)	$	52,177	$	(285)	$	68,955

Net Income (Loss) per share to common stockholders:
Basic	$	(0.07)	$	0.91	$	0.00	$	1.30
Diluted	$	(0.07)	$	0.84	$	0.00	$	1.20
Shares used for computation:
Basic	58,060,716		57,156,159		57,984,608		52,850,041
Diluted	58,060,716		61,982,441		57,984,608		57,403,593

See accompanying Notes to Condensed Consolidated Financial Statements

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SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net Income (Loss)	$	(3,922)	$	52,177	$	(285)	$	68,955

Other Comprehensive Loss:
Net unrealized loss on Available-for-Sale securities, net of deferred tax benefit of $66, $—, $66 and $—, respectively	(220)		—		(220)		—
Other Comprehensive Loss	(220)		—		(220)		—
Comprehensive Income (Loss)	$	(4,142)	$	52,177	$	(505)	$	68,955

See accompanying Notes to Condensed Consolidated Financial Statements

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SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Dollars in thousands)

(Unaudited)


	Six Months Ended June 30, 2021
	Common Stock			Loans to Stockholders		Additional Paid-in Capital		Retained Earnings (Deficit)		Total
	Shares	Amount
December 31, 2020	46,839,659	$	468	$	(3,500)	$	248,525	$	38,324	$	283,817
Shares Surrendered by Stockholders	(140,737)	(1)		3,500		(3,499)		—		—
Initial Public Offering, net	10,454,545	105		—		224,552		—		224,657
Net Income	—	—		—		—		16,778		16,778
Income Tax Receivable Agreement	—	—		—		—		(115,200)		(115,200)
Amazon Warrants	—	—		—		1,400		—		1,400
Stock-based Compensation	—	—		—		2,870		—		2,870
March 31, 2021	57,153,467	$	572	$	—	$	473,848	$	(60,098)	$	414,322
Initial Public Offering Expense Adjustment	—	—		—		349		—		349
Exercise of Stock Options	5,000	—		—		27		—		27
Net Income	—	—		—		—		52,177		52,177
Amazon Warrants	—	—		—		1,400		—		1,400
Stock-based Compensation	—	—		—		744		—		744
June 30, 2021	57,158,467	$	572	$	—	$	476,368	$	(7,921)	$	469,019


	Six Months Ended June 30, 2022
	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
	Shares	Amount		Shares	Amount
December 31, 2021	57,872,452	$	579	—	$	—	$	485,638	$	4,372	$	—	$	490,589
Stock Option Exercises	91,868	1		—	—		522		—		—		523
Net Income	—	—		—	—		—		3,637		—		3,637
Amazon Warrants	—	—		—	—		1,400		—		—		1,400
Stock-based Compensation	—	—		—	—		920		—		—		920
March 31, 2022	57,964,320	$	580	—	$	—	$	488,480	$	8,009	$	—	$	497,069
Stock Issued for Stock-Based Awards	181,404	1		—	—		1,037		—		—		1,038
Net Stock Settlement of Stock-Based Awards	—	—		1,823	(52)		—		—		—		(52)
Net Loss	—	—		—	—		—		(3,922)		—		(3,922)
Amazon Warrants	—	—		—	—		1,400		—		—		1,400
Stock-based Compensation	—	—		—	—		575		—		—		575
Other Comprehensive Loss	—	—		—	—		—		—		(220)		(220)
June 30, 2022	58,145,724	$	581	1,823	$	(52)	$	491,492	$	4,087	$	(220)	$	495,888

See accompanying Notes to Condensed Consolidated Financial Statements

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SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Six Months Ended June 30,
	2022		2021
Net Income (Loss)	$	(285)	$	68,955
Adjustments to reconcile Net Income (Loss) to Cash from Operating Activities:
Depreciation and Amortization	32,182		26,823
Tax Receivable Agreement Adjustment	8,500		(18,700)
Operating Lease Right-of-use Assets	5,255		9,419
Non-Cash Gain on Asset Transactions, net	(79)		—
Unrealized Gain on Fuel Derivatives	—		(3,599)
Amortization of Over-market Liabilities	(1,687)		(3,081)
Deferred Income Taxes	1,861		16,304
Amazon Warrants Vested	2,800		2,800
Stock-based Compensation Expense	1,495		3,613
Amortization of Debt Issuance Costs and Debt Securities	515		687
Loss on Extinguishment of Debt	1,557		1,224

Changes in Operating Assets and Liabilities:
Accounts Receivable	(8,023)		4,265
Inventory	(1,184)		(224)
Prepaid Expenses	(7,733)		(6,446)
Lessor Maintenance Deposits	(7,356)		(3,220)
Aircraft Deposits	(1,720)		1,496
Other Assets	18		1,294
Accounts Payable	15,692		3,546
Accrued Transportation Taxes	1,813		7,024
Air Traffic Liabilities	5,396		12,695
Loyalty Program Liabilities	(3,113)		(1,192)
Operating Lease Obligations	(5,698)		(28,494)
Other Liabilities	(3,146)		1,615
Net Cash Provided by Operating Activities	37,060		96,804

Cash Flows from Investing Activities:
Purchases of Property & Equipment	(137,647)		(73,699)
Proceeds from the Sale of Property & Equipment	515		—
Proceeds from Insurance Settlements	8,865		—
Purchases of Investments	(71,629)		(1,436)
Proceeds from the Sale of Investments	935		984
Net Cash Used in Investing Activities	(198,961)		(74,151)

Cash Flows from Financing Activities:
Cash Received from Stock Offering	—		235,894
Costs of Stock Offering	—		(8,669)
Proceeds from Stock Option and Warrant Exercises	1,371		26
Taxes Paid for Net Stock Settlement of Stock-Based Awards	(31)		—
Proceeds from Borrowings	172,507		80,500
Repayment of Finance Lease Obligations	(24,293)		(7,864)
Repayment of Borrowings	(86,046)		(74,709)
Debt Issuance Costs	(2,402)		(2,709)
Net Cash Provided by Financing Activities	61,106		222,469

Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash	(100,795)		245,122

Cash, Cash Equivalents and Restricted Cash--Beginning of the Period	317,785		70,363

Cash, Cash Equivalents and Restricted Cash--End of the Period	$	216,990	$	315,485

SUN COUNTRY AIRLINES HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)



	Six Months Ended June 30,
	2022		2021
Non-cash transactions:
Lease Deposits Applied Against the Purchase of Aircraft	$	—	$	3,296
Aircraft and Flight Equipment Acquired through Finance Leases	19,928		42,911
Finance Lease Asset Modifications	46,311		—
Aircraft Acquired From Exercise of Finance Lease Purchase Option, net of Accumulated Depreciation	19,083		—
Derecognition of Operating Lease Right-of-Use Assets, net	—		41,135
Derecognition of Operating Lease Obligations	—		44,726

The following provides a reconciliation of Cash, Cash Equivalents and Restricted Cash to the amounts reported on the Condensed Consolidated Balance Sheets:
	June 30, 2022		June 30, 2021
Cash and Cash Equivalents	$	212,858	$	310,723
Restricted Cash	4,132		4,762
Total Cash, Cash Equivalents and Restricted Cash	$	216,990	$	315,485

See accompanying Notes to Condensed Consolidated Financial Statements

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SUN COUNTRY AIRLINES HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

1. COMPANY BACKGROUND

Sun Country Airlines Holdings, Inc. is the parent company of Sun Country, Inc., which is a certificated air carrier providing scheduled passenger service, air cargo service, charter air transportation and related services. Services are provided to the general public, cargo customers, military branches, wholesale tour operators, individual entities, schools and companies for air transportation to various U.S. and international destinations. Except as otherwise stated, the financial information, accounting policies, and activities of Sun Country Airlines Holdings, Inc. are referred to as those of the Company (the “Company” or “Sun Country”).

Equity Transactions

On April 11, 2018 (the "Acquisition Date"), certain investment funds (the “Apollo Funds”) managed by affiliates of Apollo Global Management, Inc. (“Apollo”) acquired Sun Country, Inc. For more information on the Company’s equity transactions, see Note 1 of Notes to the Consolidated Financial Statements included in Part II, Item 8 “Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the U.S. Securities and Exchange Commission (“2021 10-K”).

Initial Public Offering of Common Stock

On March 16, 2021, the Company priced its initial public offering of 9,090,909 shares of common stock to the public at $24.00 per share. The stock began trading on the NASDAQ on March 17, 2021 under the symbol "SNCY". The underwriters had an option to purchase an additional 1,363,636 shares from the Company at the public offering price, which they exercised. In total, all 10,454,545 shares were issued on March 19, 2021 and the net proceeds to the Company were $225,329 after deducting underwriting discounts and commissions, and other offering expenses.

Concurrently with the closing of the initial public offering, SCA Horus Holdings, LLC, an affiliate of investment funds managed by affiliates of Apollo (the “Apollo Stockholder”), also completed a private placement in which the Apollo Stockholder sold 2,216,312 and 2,216,308 shares of common stock to PAR Investment Partners, L.P. and certain funds or accounts managed by an investment adviser subsidiary of Blackrock, Inc., respectively. Each of the two sales was based on an aggregate purchase price of $50,000 and a price per share equal to 94% of the initial public offering price of $24.00 per share.

Secondary Offerings

During May 2021 and October 2021, the Apollo Stockholder and other selling stockholders sold 7,250,000 and 8,500,000 shares of the Company's common stock at the public offering prices of $34.50 and $32.50, respectively. Under both transactions, the underwriters were given options to purchase additional shares of the Company's common stock at the public offering price. During the May 2021 and October 2021 offerings, the underwriters elected to purchase 1,087,500 and 435,291 of the option shares, respectively. The Company incurred offering expenses of $1,763 in conjunction with the two secondary offerings and did not receive any of the proceeds from these offerings.

For more information on the 2021 secondary offerings, see Note 1 of Notes to the Consolidated Financial Statements included in Part II, Item 8 “Financial Statements” in the 2021 10-K.

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SUN COUNTRY AIRLINES HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

Amazon Agreement

On December 13, 2019, the Company signed a six-year contract (with two, two-year extension options, for a maximum term of 10 years) with Amazon.com Services, Inc. (together with its affiliates, “Amazon”) to provide cargo services under an Air Transportation Services Agreement (the “ATSA”).

In connection with the ATSA, the Company issued warrants to Amazon to purchase an aggregate of up to 9,482,606 shares of common stock at an exercise price of approximately $15.17 per share. There were 632,183 warrants that vested upon execution of the ATSA and 63,217 warrants will vest for each milestone of $8,000 in qualifying payments made by Amazon to the Company. During the six months ended June 30, 2022 and June 30, 2021, 379,304 warrants vested in each respective period. As of June 30, 2022 and June 30, 2021, the cumulative vested warrants held by Amazon were 2,022,963 and 1,264,356, respectively. The exercise period of these warrants is through the eighth anniversary of the issue date.

2. BASIS OF PRESENTATION

The Company has prepared the Condensed Consolidated Financial Statements according to U.S. Generally Accepted Accounting Principles (“GAAP”) and has included the accounts of Sun Country Airlines Holdings, Inc. and its subsidiaries. The accompanying unaudited Condensed Consolidated Financial Statements of Sun Country Airlines Holdings, Inc. should be read in conjunction with the Consolidated Financial Statements contained in the 2021 10-K. Management believes that all adjustments necessary for the fair presentation of results, consisting of normally recurring items, have been included in the unaudited Condensed Consolidated Financial Statements for the interim periods presented. The Company reclassified certain prior period amounts to conform to the current period presentation. All material intercompany balances and transactions have been eliminated in consolidation.

The preparation of financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Significant areas of judgment relate to passenger revenue recognition, maintenance under the built-in overhaul method, equity-based compensation, tax receivable agreement, lease accounting, impairment of goodwill, impairment of long-lived and intangible assets, air traffic liabilities, the loyalty program, as well as the valuation of Amazon warrants. During the six months ended June 30, 2022, there were no significant changes to the Company’s critical accounting policies.

Due to impacts from the global coronavirus (“COVID-19”) pandemic, seasonal variations in the demand for air travel, the volatility of aircraft fuel prices, uncertainties in pilot staffing and other factors, operating results for the six months ended June 30, 2022 are not necessarily indicative of operating results for future quarters or for the year ending December 31, 2022. Air travel is also significantly impacted by general economic conditions, the amount of disposable income available to consumers, unemployment levels, corporate travel budgets, extreme or severe weather and natural disasters, disease outbreaks, fears of terrorism or war, and other factors beyond the Company's control.

Revision of Previously Issued Consolidated Financial Statements

During the second quarter of 2022, the Company identified an immaterial misstatement in the Company's Condensed Consolidated Financial Statements for the quarter and year-to-date interim periods in the year ended December 31, 2021 (the "previously issued financial statements"). The error related to the improper application of Accounting Standards Codification (ASC) Topic 842, Leases regarding the treatment of the incremental difference between the net purchase price of the leased aircraft and the net operating lease recorded on the balance sheet immediately prior to the transaction. This difference should have been

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SUN COUNTRY AIRLINES HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

capitalized as part of the acquisition costs incurred to purchase the aircraft off the operating lease. The Company incorrectly expensed this amount as incurred within Special Items, net on the Condensed Consolidated Statements of Operations. The error resulted in an understatement of the benefit within Special Items, net, partially offset by incremental Depreciation and Amortization Expense for the three and six months ended June 30, 2021, and an understatement of Aircraft and Flight Equipment.

The Company assessed the materiality of the errors on the prior period financial statements in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 99, Materiality, codified in ASC 250, Presentation of Financial Statements. Management concluded it was immaterial to the Company's previously issued annual or interim financial statements.

While management believes the effect of the error is immaterial, the Company has revised the previously issued financial statements as presented in these Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. In addition, the immaterial error will be corrected in the comparative amounts presented in the Company’s subsequent quarterly and annual filings.

The impact of the revision on the Company's previously issued Consolidated Balance Sheets as of December 31, 2021 are as follows:


	December 31, 2021
	As Previously Issued		Correction		As Revised
Assets
Aircraft and Flight Equipment	$	440,356	$	6,963	$	447,319
Total Property & Equipment	688,624		6,963		695,587
Accumulated Depreciation & Amortization	(115,013)		(2,056)		(117,069)
Total Property & Equipment, net	573,611		4,907		578,518
Deferred Tax Asset	18,737		(1,129)		17,608
Total Other Assets	427,590		(1,129)		426,461
Total Assets	1,376,644		3,778		1,380,422
Stockholder's Equity
Retained Earnings	594		3,778		4,372
Total Stockholders' Equity	486,811		3,778		490,589
Total Liabilities and Stockholders' Equity	1,376,644		3,778		1,380,422

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SUN COUNTRY AIRLINES HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

The impact of the revision on the Company's previously issued Condensed Consolidated Statements of Operations for the three and six-month periods ended June 30, 2021 are as follows:


	Three Months Ended June 30, 2021						Six Months Ended June 30, 2021
	As Previously Issued		Correction		As Revised		As Previously Issued		Correction		As Revised
Operating Expenses
Depreciation and Amortization	$	13,460	$	748	$	14,208	$	26,075	$	748	$	26,823
Special Items, net	(38,520)		(1,299)		(39,819)		(65,392)		(6,963)		(72,355)
Total Operating Expenses	99,951		(551)		99,400		202,630		(6,215)		196,415

Operating Income	49,238		551		49,789		74,172		6,215		80,387
Income Before Income Tax	61,221		551		61,772		79,044		6,215		85,259
Income Tax Expense	9,468		127		9,595		14,875		1,429		16,304
Net Income	51,753		424		52,177		64,169		4,786		68,955
Basic Income per share	$	0.91	$	0.00	$	0.91	$	1.21	$	0.09	$	1.30
Diluted Income per share	$	0.83	$	0.01	$	0.84	$	1.12	$	0.08	$	1.20

The revision also impacted the Company's previously issued Condensed Consolidated Statements of Changes in Stockholders Equity as follows:


	For the Three Months Ended March 31, 2021
	As Previously Issued		Correction		As Revised
Net Income	$	12,416	$	4,362	$	16,778


	As of March 31, 2022						As of June 30, 2021						As of March 31, 2021
	As Previously Issued		Correction		As Revised		As Previously Issued		Correction		As Revised		As Previously Issued		Correction		As Revised
Retained Earnings (Deficit)	$	4,231	$	3,778	$	8,009	$	(12,707)	$	4,786	$	(7,921)	$	(64,460)	$	4,362	$	(60,098)
Total Stockholders' Equity	493,291		3,778		497,069		464,233		4,786		469,019		409,960		4,362		414,322

The Company's Condensed Consolidated Statement of Changes Stockholders' Equity as of December 31, 2021 has been corrected to reflect the changes to the impacted Stockholders' Equity accounts as described above.

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SUN COUNTRY AIRLINES HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

The impact of the revision on the Company's previously issued Condensed Consolidated Statements of Cash Flow for the six months ended June 30, 2021 is as follows:


	Six Months Ended June 30, 2021
	As Previously Issued		Correction		As Revised
Operating Activities
Net Income	$	64,169	$	4,786	$	68,955
Depreciation and Amortization	26,075		748		26,823
Non-Cash Gain on Asset Transaction, Net	(12,668)		12,668		—
Deferred Income Taxes	14,875		1,429		16,304
Operating Lease Obligations	(15,826)		(12,668)		(28,494)
Net Cash Provided by Operating Activities	89,841		6,963		96,804
Investing Activities
Purchases of Property & Equipment	(66,736)		(6,963)		(73,699)
Net Cash Used in Investing Activities	(67,188)		(6,963)		(74,151)

The revision had no impact on the Company's Net Cash Provided by Financing Activities for the six months ended June 30, 2021.

Investments

Investments consist of debt securities and Certificates of Deposit. The Certificates of Deposit are recorded at cost, plus accrued interest. These certificates serve as collateral for letters of credit required by various airports and other vendors. All of the certificates have original maturities greater than 90 days.

During the quarter ended June 30, 2022, the Company purchased $70,391 of debt securities with original maturities of three months or greater. The investments are classified as current assets on the Condensed Consolidated Balance Sheets because the securities are highly liquid and are available to be quickly converted into cash to fund current operations. Primarily all of the Company's Available-for-Sale securities will mature within one year. The Company limits its exposure to any one issuer or market sector, and largely limits its investments to investment grade quality securities.

The Company's investment securities are classified as Available-for-Sale and are reported at fair value on the Company's Condensed Consolidated Balance Sheets. Unrealized gains and losses on the Company's Available-for-Sale securities are excluded from net earnings and are reported as a component of Accumulated Other Comprehensive Income (Loss), net of income tax effects, within Stockholders' Equity on the Condensed Consolidated Balance Sheets until realized. Realized gains and losses are recorded using the specific identification method and reflected in Other, net within Non-operating Income (Expense) on the Company's Condensed Consolidated Statement of Operations. Premiums and discounts recorded on Available-for-Sale debt securities are accounted for in Other, net within Non-operating Income (Expense) on the Company's Condensed Consolidated Statement of Operations.

At each reporting period, the Company assesses its Available-for-Sale investments in an unrealized loss position to determine whether an impairment exists. The Company will record an impairment if management intends to sell an impaired security, will likely be required to sell a security before recovery of the entire amortized cost, or the same level of collectible cash flows from the security is no longer expected. The

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SUN COUNTRY AIRLINES HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

entire impairment will be included in Other, net within Non-operating Income (Expense) on the Company's Condensed Consolidated Statement of Operations.

Recently Adopted Accounting Standards

On May 3, 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This new standard provides clarification and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. On January 1, 2022, the Company adopted ASU 2021-04 on a prospective basis, as required by the Standard. There was no financial statement impact upon adoption.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance. The new standard requires additional disclosures regarding government grants and money contributions. The standard requires disclosures on the nature of the transactions and related accounting policies, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transactions. The Company adopted this standard as of January 1, 2022, see Note 3 for additional information on COVID-19 related government assistance the Company has received.

3. IMPACT OF THE COVID-19 PANDEMIC

The COVID-19 pandemic resulted in a dramatic decline in passenger demand across the U.S. airline industry. Sun Country experienced a significant decrease in demand related to the COVID-19 pandemic, which caused a material decline in 2021 revenues as compared to pre-pandemic levels, and negatively impacted the Company’s financial condition and operating results.

During the second quarter of 2022, Sun Country continued to see recovery in demand from the COVID-19 pandemic relative to demand in 2021, which may impact the comparability of results to prior periods. However, the ongoing impact of the COVID-19 pandemic on overall demand for air travel remains uncertain and cannot be predicted at this time.

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)

During 2021 and 2020, the Company received certain funds from the CARES Act. The cash awarded to the Company through the CARES Act was accounted for as grants, debt, and tax credits based on the terms and nature of the funds awarded.

During the six months ended June 30, 2021, the Company received and recognized as income within Special Items, net $71,587 from the U.S. Treasury under the Payroll Support Program Extension (“PSP2”) and the American Rescue Plan Act of 2021 ("PSP3"). The CARES Act provides an employee retention credit (“CARES Employee Retention Credit”), which is a refundable tax credit against certain employment taxes. During the six months ended June 30, 2021, the Company recorded $780 related to the CARES Employee Retention Credit within Special Items, net. Under the CARES Act Loan Program, the Company received a $45,000 loan (the “CARES Act Loan”) from the U.S. Treasury, which was repaid in full on March 24, 2021 using proceeds from the IPO. For more information on funds awarded through the CARES Act, see Note 3 of Notes to the Consolidated Financial Statements included in Part II, Item 8 “Financial Statements” in the 2021 10-K.

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SUN COUNTRY AIRLINES HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

In accordance with any grants and/or loans received under the CARES Act, the Company is required to comply with the relevant provisions of the CARES Act and the related implementing agreements which, among other things, include the following: the requirement to use the Payroll Support Payments exclusively for the continuation of payment of crewmember and employee wages, salaries and benefits; the requirement that certain levels of commercial air service be maintained through March 1, 2022, if ordered by the Department of Transportation ("DOT"); the prohibitions on share repurchases of listed securities and the payment of common stock (or equivalent) dividends through September 30, 2022; and restrictions on the payment of certain executive compensation through April 1, 2023. As of June 30, 2022, the Company was in compliance with these provisions.

4. REVENUE

Sun Country is a certificated air carrier generating Operating Revenues from Scheduled service, Charter service, Ancillary, Cargo and Other revenue. Scheduled service revenue mainly consists of base fares. Charter service revenue is primarily generated through service provided to the U.S. Department of Defense, collegiate and professional sports teams, and casinos. Ancillary revenues consist of revenue earned from air travel-related services, such as: baggage fees, seat selection fees, passenger interface fee and on-board sales. Cargo consists of revenue earned from flying cargo aircraft under the ATSA. Other revenue consists primarily of revenue from services in connection with Sun Country Vacations products.