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Spirit Airlines Reports Fourth Quarter and Full Year 2017 Results

Feb 6, 2018

MIRAMAR, Fla., Feb. 06, 2018 (GLOBE NEWSWIRE) -- Spirit Airlines, Inc. (NYSE:SAVE) today reported fourth quarter and full year 2017 financial results.

  • GAAP net income for the fourth quarter 2017 was $250.3 million ($3.63 per diluted share).  GAAP net income for the fourth quarter 2017 included a one-time non-cash $199.3 million tax credit1. Excluding the one-time tax credit and special items2, net income for the fourth quarter 2017 was $50.4 million ($0.73 per diluted share)3.
     
  • GAAP net income for the full year 2017 was $420.6 million ($6.06 per diluted share) which included the one-time tax credit1. Excluding the one-time tax credit and special items2, net income for the full year 2017 was $230.8 million ($3.33 per diluted share)3.
     
  • GAAP operating margin for the fourth quarter 2017 was 13.9 percent, or 13.4 percent excluding special items2.
     
  • GAAP operating margin for the full year 2017 was 14.7 percent, or 15.2 percent excluding special items2.
     
  • Spirit ended 2017 with unrestricted cash, cash equivalents, and short-term investments of $901.8 million.

"I want to thank the Spirit family for their contributions throughout 2017.  Together, we overcame several major operational challenges while still delivering a record on-time performance," said Robert Fornaro, Spirit's Chief Executive Officer. "Looking ahead to 2018, we are focused on finalizing a deal with our pilots union, improving upon our operational reliability, continuing to enhance our guest experience, and delivering earnings growth for our shareholders."

Revenue Performance
For the fourth quarter 2017, Spirit's total operating revenue was $667.0 million, an increase of 15.3 percent compared to the fourth quarter 2016, driven by a 10.4 percent increase in flight volume.

Total revenue per available seat mile (TRASM) for the fourth quarter 2017 decreased 1.8 percent compared to the same period last year, driven by a 2.2 percent decrease in operating yields.

On a per passenger flight segment basis, total revenue for the fourth quarter 2017 increased 1.1 percent year over year to $109.34 driven by non-ticket revenue per passenger flight segment increasing 3.8 percent to $53.91, partially offset by ticket revenue per passenger flight segment decreasing 1.4 percent to $55.43.

Cost Performance
For the fourth quarter 2017, total GAAP operating expense, including special items credit of $3.0 million2, increased 16.5 percent, or $81.4 million, year over year to $574.5 million.  Adjusted operating expense for the fourth quarter 2017 increased 19.2 percent, or $93.1 million to $577.5 million4. The year-over-year increase in both GAAP and adjusted operating expense was primarily driven by an increase in flight volume; higher other operating expense, partially driven by increased ground handling rates; higher depreciation and amortization expense; and higher fuel rates.

Aircraft fuel expense increased in the fourth quarter 2017 by 38.5 percent, or $48.7 million, compared to the same period last year, due to a 20.1 percent increase in the cost of fuel per gallon and a 15.5 percent increase in fuel gallons consumed.

Spirit reported fourth quarter 2017 cost per available seat mile ("ASM"), excluding special items and fuel ("Adjusted CASM ex-fuel"), of 5.20 cents4, a decrease of 4.4 percent compared to the same period last year.   The decrease year over year was primarily driven by lower aircraft rent and salaries, wages, and benefits per ASM, partially offset by higher depreciation and amortization per ASM.

"For the full year 2017, our team delivered an adjusted CASM ex-fuel of 5.51 cents, up 1.1 percent year over year.  This was an admirable performance considering the hurricanes and other disruptions this year," said Ted Christie, Spirit's President and Chief Financial Officer.  "Should the tentative agreement with our pilots be ratified, we will gain tools that will allow us to further improve our operational reliability and drive efficiencies, which gives us confidence that we will be able to maintain or grow our relative cost advantage."

Labor
Spirit and its pilots, represented by the Air Line Pilots Association, reached a tentative agreement in January 2018 with the assistance of the National Mediation Board.  The tentative agreement is subject to ratification.

Fleet
Spirit took delivery of four new A321ceo aircraft and two new A320ceo aircraft and returned one leased A321ceo aircraft during the fourth quarter 2017, ending the quarter with 112 aircraft in its fleet.

Share Repurchase
During the fourth quarter and full year 2017, Spirit returned approximately $45 million to shareholders by repurchasing 1.2 million shares under our share repurchase program.

Recent New Service Announcements
Columbus, Ohio - Orlando (02/15/2018)
Columbus, Ohio - Fort Lauderdale (02/15/2018)
Columbus, Ohio - Las Vegas (02/15/2018)
Columbus, Ohio - Fort Myers (02/15/2018)**
Columbus, Ohio - Tampa (02/16/2018 )**
Richmond - Orlando (03/15/2018)
Richmond - Fort Lauderdale (03/15/2018)
Baltimore - Montego Bay (03/22/2018)
Baltimore - Denver (03/22/2018)
Columbus, Ohio - New Orleans (03/22/2018)*
Fort Lauderdale - Guayaquil, Ecuador (03/22/2018)
Columbus, Ohio - Myrtle Beach (03/23/2018)*
Fort Lauderdale - Cap-Haïtien, Haiti (04/12/2018)
Fort Lauderdale - Seattle (04/12/2018)*
Minneapolis - Myrtle Beach (04/12/2018)*
Orlando - Las Vegas (04/12/2018)
Tampa - Los Angeles (04/12/2018)
Tampa - Las Vegas (04/12/2018)
Seattle - Chicago (04/12/2018)*
Seattle - Dallas/Ft. Worth (04/12/2018)*
Seattle - Minneapolis/St. Paul (04/12/2018)*
Atlantic City - New Orleans (04/13/2018)
Detroit - Portland, Oregon (04/23/2018)*
Detroit - San Diego (04/23/2018)*

* Seasonal Summer Service
** Seasonal Winter Service

Full Year 2017 Highlights

  • As measured by the Department of Transportation, achieved a record high on-time performance
  • Added Hartford; Pittsburgh; Columbus; Richmond; Cap-Haïtien, Haiti; and Guayaquil, Ecuador to its list of destinations
  • Added 17 new Airbus aircraft (6 A320ceos and 11 A321ceos) and 2 used A319 aircraft to its fleet, and returned 2 A321ceo aircraft, ending the year with 112 aircraft.  As of year-end 2017, Spirit's Fit Fleet™ had an average age of 5.1 years, the youngest fleet of any major U.S. airline
  • Returned approximately $45 million to shareholders by repurchasing approximately 1.2 million shares under our share repurchase program
  • Assisted Guests and employees in various regions affected by major hurricanes.  In addition to monetary donations, Spirit transported over 100,000 pounds of relief supplies in joint efforts with the American Red Cross, Operation Puerto Rico Care Lift, and many other organizations

Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results today, February 6, 2018, at 9:00 a.m. ET.  A live audio webcast of the conference call will be available to the public on a listen-only basis at http://ir.spirit.com.  An archive of the webcast will be available under Webcasts & Presentations for 60 days.

About Spirit Airlines:
Spirit Airlines (NYSE:SAVE) is committed to offering the lowest total price to the places we fly, on average much lower than other airlines. Our customers start with an unbundled, stripped-down Bare Fare™ and get Frill Control™ which allows them to pay only for the options they choose - like bags, seat assignments and refreshments - the things other airlines bake right into their ticket prices. We help people save money and travel more often, create new jobs and stimulate business growth in the communities we serve. With our Fit Fleet™, the youngest fleet of any major U.S. airline, we operate more than 500 daily flights to 60 destinations in the U.S., Latin America and the Caribbean. Come save with us at www.spirit.com.

Investors are encouraged to read the Company's periodic and current reports filed with or furnished to the Securities and Exchange Commission, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, for additional information regarding the Company.

End Notes
(1)  During the fourth quarter of 2017, the Company recorded a credit to income tax expense due to The Tax Cuts and Jobs Act of 2017 as a result of the difference between rates in effect when income tax expense was accrued, and the rates expected to be in effect when the income taxes will be paid.
(2)  See "Special Items" table for more details.
(3)  See "Reconciliation of Adjusted Net Income, Adjusted Pre-tax Income, and Adjusted Operating Income to GAAP Net Income" table below for more details.
(4)  See "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table below for more details.

Forward-Looking Statements
Statements in this release and certain oral statements made from time to time by representatives of the Company contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which are subject to the "safe harbor" created by those sections. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. All statements other than statements of historical facts are "forward-looking statements" for purposes of these provisions. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "project," "predict," "potential," and similar expressions intended to identify forward-looking statements. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Furthermore, such forward-looking statements speak only as of the date of this release. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Risks or uncertainties (i) that are not currently known to us, (ii) that we currently deem to be immaterial, or (iii) that could apply to any company, could also materially adversely affect our business, financial condition, or future results. References in this report to "Spirit," "we," "us," "our," or the "Company" shall mean Spirit Airlines, Inc., unless the context indicates otherwise.  Additional information concerning certain factors is contained in the Company's Securities and Exchange Commission filings, including but not limited to the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

SPIRIT AIRLINES, INC.
Condensed Statement of Operations
(unaudited, in thousands, except per share data)
 
  Three Months Ended       Year Ended    
  December 31,   Percent   December 31,   Percent
  2017   2016   Change   2017   2016   Change
Operating revenues:                      
Passenger $ 338,143     $ 300,590     12.5     $ 1,366,034     $ 1,200,621     13.8  
Non-ticket 328,864     277,761     18.4     1,281,632     1,121,335     14.3  
Total operating revenues 667,007     578,351     15.3     2,647,666     2,321,956     14.0  
                       
Operating expenses:                      
Aircraft fuel 175,205     126,535     38.5     615,581     447,553     37.5  
Salaries, wages and benefits 136,815     122,941     11.3     527,959     472,471     11.7  
Aircraft rent 42,820     50,242     (14.8 )   205,852     201,675     2.1  
Landing fees and other rents 46,117     37,583     22.7     180,655     151,679     19.1  
Depreciation and amortization 36,472     27,766     31.4     140,152     101,136     38.6  
Maintenance, materials and repairs 28,966     26,577     9.0     110,439     98,587     12.0  
Distribution 27,745     23,437     18.4     113,620     96,627     17.6  
Special charges     5,580     nm     12,629     37,189     nm  
Loss on disposal of assets 1,054     3,021     nm     4,168     4,187     nm  
Other operating 79,267     69,358     14.3     347,820     267,191     30.2  
Total operating expenses 574,461     493,040     16.5     2,258,875     1,878,295     20.3  
                       
Operating income 92,546     85,311     8.5     388,791     443,661     (12.4 )
                       
Other (income) expense:                      
Interest expense 16,065     12,066     33.1     57,302     41,654     37.6  
Capitalized interest (3,668 )   (3,542 )   3.6     (13,793 )   (12,705 )   8.6  
Interest income (2,990 )   (1,041 )   187.2     (8,736 )   (5,276 )   65.6  
Other expense 145     121     19.8     366     528     (30.7 )
Total other (income) expense 9,552     7,604     25.6     35,139     24,201     45.2  
                       
Income before income taxes 82,994     77,707     6.8     353,652     419,460     (15.7 )
Provision (benefit) for income taxes (167,344 )   29,214     (672.8 )   (66,954 )   154,581     (143.3 )
                       
Net income $ 250,338     $ 48,493     416.2     $ 420,606     $ 264,879     58.8  
Basic earnings per share $ 3.64     $ 0.70     420.0     $ 6.08     $ 3.77     61.3  
Diluted earnings per share $ 3.63     $ 0.70     418.6     $ 6.06     $ 3.76     61.2  
                       
Weighted average shares, basic 68,799     69,325     (0.8 )   69,221     70,344     (1.6 )
Weighted average shares, diluted 68,901     69,551     (0.9 )   69,377     70,508     (1.6 )
                                   

 

SPIRIT AIRLINES, INC.
Condensed Statements of Comprehensive Income
(unaudited, in thousands)
 
  Three Months Ended   Year Ended
  December 31,   December 31,
  2017   2016   2017   2016
Net income $ 250,338     $ 48,493     $ 420,606     $ 264,879  
Unrealized gain (loss) on short-term investment securities, net of deferred taxes of ($34), ($16), ($41) and ($13) (71 )   (27 )   (82 )   (23 )
Interest rate derivative losses reclassified into earnings, net of taxes of $279, $33, $372 and $130 (196 )   55     (37 )   224  
Other comprehensive income (loss) $ (267 )   $ 28     $ (119 )   $ 201  
Comprehensive income $ 250,071     $ 48,521     $ 420,487     $ 265,080  



 

SPIRIT AIRLINES, INC.
Condensed Balance Sheets
(unaudited, in thousands)
 
  December 31,   December 31,
  2017   2016
Assets      
Current assets:      
Cash and cash equivalents $ 800,849     $ 700,900  
Short-term investment securities 100,937     100,155  
Accounts receivable, net 49,323     41,136  
Aircraft maintenance deposits, net 175,616     87,035  
Income tax receivable 69,844      
Prepaid expenses and other current assets 79,687     46,619  
Total current assets 1,276,256     975,845  
       
Property and equipment:      
Flight equipment 2,291,110     1,461,525  
Ground property and equipment 155,166     126,206  
Less accumulated depreciation (207,808 )   (122,509 )
  2,238,468     1,465,222  
Deposits on flight equipment purchase contracts 253,687     325,688  
Long-term aircraft maintenance deposits 150,617     199,415  
Deferred heavy maintenance, net 99,915     75,534  
Other long-term assets 121,002     110,223  
Total assets $ 4,139,945     $ 3,151,927  
       
Liabilities and shareholders' equity      
Current liabilities:      
Accounts payable $ 5,334     $ 15,193  
Air traffic liability 246,403     206,392  
Current maturities of long-term debt 115,430     84,354  
Other current liabilities 275,854     226,011  
Total current liabilities 643,021     531,950  
       
Long-term debt, less current maturities 1,387,498     897,359  
Deferred income taxes 313,140     308,143  
Deferred gains and other long-term liabilities 19,205     19,868  
Shareholders' equity:      
Common stock 7     7  
Additional paid-in-capital 360,153     551,004  
Treasury stock, at cost (65,854 )   (218,692 )
Retained earnings 1,484,239     1,063,633  
Accumulated other comprehensive loss (1,464 )   (1,345 )
Total shareholders' equity 1,777,081     1,394,607  
Total liabilities and shareholders' equity $ 4,139,945     $ 3,151,927  
               


 

SPIRIT AIRLINES, INC.
Condensed Statement of Cash Flows (unaudited, in thousands)
 
  Year Ended December 31,
  2017   2016
Operating activities:      
Net income $ 420,606     $ 264,879  
Adjustments to reconcile net income to net cash provided by operations:      
Losses reclassified from other comprehensive income 335     354  
Stock-based compensation 8,522     7,105  
Allowance for doubtful accounts (recoveries) (53 )   80  
Amortization of deferred gains and losses and debt issuance costs 7,944     5,732  
Depreciation and amortization 140,152     101,136  
Deferred income tax expense (benefit) (1,610   86,146  
Loss on disposal of assets 4,168     4,187  
Lease termination costs 12,629     37,189  
Changes in operating assets and liabilities:      
Accounts receivable (8,134 )   (12,951 )
Aircraft maintenance deposits, net (37,930 )   (45,869 )
Long-term deposits and other assets (46,799 )   (45,558 )
Deferred heavy maintenance (78,237 )   (30,222 )
Income tax receivable (69,844 )    
Prepaid income taxes     72,278  
Accounts payable (11,458 )   (6,823 )
Air traffic liability 40,011     (11,582 )
Other liabilities 44,558     47,391  
Other 380     206  
Net cash provided by operating activities 425,240     473,678  
Investing activities:      
Purchase of available-for-sale investment securities (107,246 )   (103,258 )
Proceeds from the maturity of available-for-sale investment securities 105,906     2,842  
Proceeds from sale of property and equipment     50  
Pre-delivery deposits for flight equipment, net of refunds (149,477 )   (173,947 )
Capitalized interest (12,305 )   (10,834 )
Purchase of property and equipment (628,881 )   (541,122 )
Net cash used in investing activities (792,003 )   (826,269 )
Financing activities:      
Proceeds from issuance of long-term debt 629,725     417,275  
Proceeds from stock options exercised 45     92  
Payments on debt and capital lease obligations (102,738 )   (64,421 )
Excess tax (deficiency) benefit from equity-based compensation     (470 )
Repurchase of common stock (46,580 )   (102,510 )
Debt issuance costs (13,740 )   (107 )
Net cash provided by financing activities 466,712     249,859  
Net (decrease) increase in cash and cash equivalents 99,949     (102,732 )
Cash and cash equivalents at beginning of period 700,900     803,632  
Cash and cash equivalents at end of period $ 800,849     $ 700,900  
Supplemental disclosures      
Cash payments for:      
Interest, net of capitalized interest $ 37,902     $ 39,963  
Income taxes paid, net of refunds $ 5,826     $ (5,579 )
Non-cash transactions:      
Capital expenditures funded by capital lease borrowings $ (1,370 )   $ (31 )

Certain prior period amounts have been reclassified to conform to the current year's presentation.


 

SPIRIT AIRLINES, INC.
Selected Operating Statistics (unaudited)
 
  Three Months Ended December 31,    
Operating Statistics 2017   2016   Change
Available seat miles (ASMs) (thousands) 7,741,030     6,585,018     17.6 %
Revenue passenger miles (RPMs) (thousands) 6,319,924     5,362,518     17.9 %
Load factor (%) 81.6     81.4     0.2 pts
Passenger flight segments (thousands) 6,100     5,350     14.0 %
Block hours 112,695     99,385     13.4 %
Departures 41,957     38,019     10.4 %
Total operating revenue per ASM (TRASM) (cents) 8.62     8.78     (1.8 )%
Average yield (cents) 10.55     10.79     (2.2 )%
Average ticket revenue per passenger flight segment ($) 55.43     56.19     (1.4 )%
Average non-ticket revenue per passenger flight segment ($) 53.91     51.92     3.8 %
Total revenue per passenger flight segment ($) 109.34     108.11     1.1 %
CASM (cents) 7.42     7.49     (0.9 )%
Adjusted CASM (cents) (1) 7.46     7.36     1.4 %
Adjusted CASM ex-fuel (cents) (2) 5.20     5.44     (4.4 )%
Fuel gallons consumed (thousands) 88,838     76,930     15.5 %
Average economic fuel cost per gallon ($) 1.97     1.64     20.1 %
Aircraft at end of period 112     95     17.9 %
Average daily aircraft utilization (hours) 11.3     11.7     (3.4 )%
Average stage length (miles) 1,023     981     4.3 %

 

  Year Ended December 31,    
Operating Statistics 2017   2016   Change
Available seat miles (ASMs) (thousands) 29,592,819     25,494,645     16.1 %
Revenue passenger miles (RPMs) (thousands) 24,605,512     21,581,611     14.0 %
Load factor (%) 83.1     84.7     (1.6 ) pts
Passenger flight segments (thousands) 24,183     21,618     11.9 %
Block hours 438,728     389,914     12.5 %
Departures 165,449     149,514     10.7 %
Total operating revenue per ASM (TRASM) (cents) 8.95     9.11     (1.8 )%
Average yield (cents) 10.76     10.76     %
Average ticket revenue per passenger flight segment ($) 56.49     55.54     1.7 %
Average non-ticket revenue per passenger flight segment ($) 53.00     51.87     2.2 %
Total revenue per passenger flight segment ($) 109.49     107.41     1.9 %
CASM (cents) 7.63     7.37     3.5 %
Adjusted CASM (cents) (1) 7.59     7.21     5.3 %
Adjusted CASM ex-fuel (cents) (2) 5.51     5.45     1.1 %
Fuel gallons consumed (thousands) 343,709     302,781     13.5 %
Average economic fuel cost per gallon ($) 1.79     1.48     20.9 %
Average daily aircraft utilization (hours) 11.6     12.4     (6.5 )%
Average stage length (miles) 999     979     2.0 %

(1)   Excludes special items.
(2)   Excludes economic fuel expense and special items.

The Company is providing a reconciliation of GAAP financial information to non-GAAP financial information as it believes that non-GAAP financial measures provide management and investors the ability to measure the performance of the Company on a consistent basis.  These non-GAAP financial measures have limitations as analytical tools.  Because of these limitations, determinations of the Company's operating performance excluding unrealized gains and losses or special items should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

Special Items
(unaudited)
       
  Three Months Ended   Year Ended
  December 31,   December 31,
(in thousands) 2017   2016   2017   2016
Operating special items include the following:              
Supplemental rent credit (1) (4,086 )       (4,086 )    
Loss on disposal of assets 1,054     3,021     4,168     4,187  
Special charges     5,580     12,629     37,189  
Total operating special items $ (3,032 )   $ 8,601     $ 12,711     $ 41,376  
                               

 

Reconciliation of Adjusted Operating Expense to GAAP Operating Expense
(unaudited)
 
  Three Months Ended   Year Ended
  December 31,   December 31,
(in thousands, except CASM data in cents) 2017   2016   2017   2016
Total operating expenses, as reported $ 574,461     $ 493,040     $ 2,258,875     $ 1,878,295  
Less operating special items (1) (3,032 )   8,601     12,711     41,376  
Adjusted operating expenses, non-GAAP (2) 577,493     484,439     2,246,164     1,836,919  
Less: Economic fuel expense 175,205     126,535     615,581     447,553  
Adjusted operating expenses excluding fuel, non-GAAP (3) $ 402,288     $ 357,904     $ 1,630,583     $ 1,389,366  
               
Available seat miles 7,741,030     6,585,018     29,592,819     25,494,645  
               
CASM (cents) 7.42     7.49     7.63     7.37  
Adjusted CASM (cents) (2) 7.46     7.36     7.59     7.21  
Adjusted CASM ex-fuel (cents) (3) 5.20     5.44     5.51     5.45  

(1)   Supplemental rent adjustment for liability accrued in prior years related to certain maintenance reserves and return conditions that are no longer probable.
(2)   Excludes operating special items.
(3)   Excludes operating special items and economic fuel expense.

 

Reconciliation of Adjusted Net Income, Adjusted Pre-Tax Income, and Adjusted Operating Income to GAAP Net Income
(unaudited)
 
  Three Months Ended   Year Ended
  December 31,   December 31,
(in thousands, except per share data)   2017     2016     2017     2016
Net income, as reported $ 250,338     $ 48,493     $ 420,606     $ 264,879  
Add: Provision (benefit) for income taxes   (167,344 )     29,214       (66,954 )     154,581  
Income before income taxes, as reported   82,994       77,707       353,652       419,460  
Pre-tax margin   12.4 %     13.4 %     13.4 %     18.1 %
Add operating special items (1) $   (3,032 )   $   8,601     $   12,711     $   41,376  
Adjusted income before income taxes, non-GAAP (2)   79,962       86,308       366,363       460,836  
Adjusted pre-tax margin, non-GAAP (2)   12.0 %     14.9 %     13.8 %     19.8 %
Add:  Total other (income) expense   9,552       7,604       35,139       24,201  
Adjusted operating income, non-GAAP(2)   89,514       93,912       401,502       485,037  
Adjusted operating margin, non-GAAP(2)   13.4 %     16.2 %     15.2 %     20.9 %
               
Provision for adjusted income taxes   29,586       32,448       135,554       169,829  
Adjusted net income, non-GAAP (2) $   50,376     $   53,860     $   230,809     $   291,007  
               
Weighted average shares, diluted   68,901       69,551       69,377       70,508  
               
Adjusted net income per share, diluted (2) $   0.73     $   0.77     $   3.33     $   4.13  
               
Total operating revenues $ 667,007     $ 578,351     $ 2,647,666     $ 2,321,956  

(1)   See "Special Items" for more details.
(2)   Excludes operating special items.

The Company tracks a non-GAAP calculation of Return on Invested Capital "ROIC", as a way of measuring our efficiency in delivering returns and in allocating capital.  We calculate ROIC as Adjusted Operating Income (non-GAAP), divided by Total Invested Capital (non-GAAP), on a pre-tax and after-tax basis, expressed as a percentage.

Because a substantial portion of our aircraft fleet is held under operating leases, which do not appear on the balance sheet, a GAAP-based calculation of our total capital deployed may be considered understated (which would have the effect of overstating ROIC, if calculated solely using GAAP line items).  Accordingly, we adjust our total capital, the denominator of the ROIC measurement, by capitalizing operating leases at a multiple of seven times our aircraft rent expense, a measure used commonly in the airline industry and by analysts.

To calculate Adjusted Operating Income (non-GAAP), we add back aircraft rent to GAAP operating income, consistent with the adjustment to total capital discussed above.  In order to remove the effects of non-recurring gains and losses that may affect GAAP operating income, we also exclude special items from Adjusted Operating Income (non-GAAP). We present Adjusted Operating Income (non-GAAP) on a pre-tax basis and present Adjusted Operating Income (non-GAAP) on an after-tax basis, using our effective tax rate for the period.

Calculation of Return on Invested Capital, non-GAAP
(unaudited)
 
  Twelve Months Ended
(in thousands) December 31, 2017
Operating income $ 388,791  
Add operating special items (1) 12,711  
Adjustment for aircraft rent 205,852  
Adjusted operating income, non-GAAP 607,354  
Tax (37%) 224,721  
Adjusted operating income, after-tax, non-GAAP $ 382,633  
Invested capital:  
Total debt $ 1,502,928  
Book equity 1,777,081  
Less: Unrestricted cash, cash equivalents & short-term investments 901,786  
Add: Capitalized aircraft operating leases (7x Aircraft Rent) 1,440,964  
Total invested capital, non-GAAP $ 3,819,187  
   
Return on invested capital (ROIC), pre-tax, non-GAAP 15.9 %
Return on invested capital (ROIC), after-tax, non-GAAP 10.0 %

(1)   See "Special Items" for more details.

Investor Relations Contact:
DeAnne Gabel
InvestorRelations@spirit.com 
(954) 447-7920

Media Contact:
Stephen Schuler
Stephen.Schuler@spirit.com
(954) 364-0231