Spirit Airlines, Inc.
Spirit Airlines, Inc. (Form: 8-K, Received: 07/27/2017 08:17:51)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) : July 27, 2017
____________________
SPIRIT AIRLINES, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation)

001-35186
(Commission File Number)
38-1747023
(IRS Employer Identification Number)

2800 Executive Way
Miramar, Florida 33025
(Address of principal executive offices, including Zip Code )

(954) 447-7920
(Registrant's telephone number, including area code)
____________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
[]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
[]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
[]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
  






The information in this report furnished pursuant to Item 2.02 shall not be deemed “filed” for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liability under that section. It may only be incorporated by reference in another filing under the Exchange Act or the Securities Act of 1933, as amended (the “Securities Act”), if such subsequent filing specifically references the information furnished pursuant to Item 2.02 of this report.

Item 2.02.
Results of Operations and Financial Condition.
On July 27, 2017 , Spirit Airlines, Inc. (the “Company” or “Spirit”) issued a press release announcing its unaudited financial results for the second quarter and full year 2017 . A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Non-GAAP financial measures that reflect adjustments from historical financial data prepared under GAAP, including adjustments for special items, are included in the press release as supplemental disclosures because the Company believes they are useful indicators of the Company's operating performance for comparative purposes. These non-GAAP financial measures are well recognized performance measurements in the airline industry that are frequently used by investors, securities analysts and other interested parties in comparing the operating performance of companies in the airline industry. The non-GAAP financial measures provided have limitations as an analytical tool. Because of these limitations, non-GAAP financial measures should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. The Company has also provided in the press release reconciliations of these non-GAAP financial measures to the appropriate GAAP financial measures.


Item 9.01.
Financial Statements and Exhibits.
(d)      Exhibits

The following is furnished as an exhibit to this report and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act:

Exhibit No.
Description
 
 
99.1
Press Release regarding second quarter 2017 financial results.










SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


Date: July 27, 2017
SPIRIT AIRLINES, INC.


By: /s/ Thomas Canfield     
Name: Thomas Canfield
Title: Senior Vice President and General Counsel




EXHIBIT INDEX

Exhibit No.
Description
 
 
99.1
Press Release regarding second quarter 2017 financial results.






CONTACTS1014A02A01A06.JPG
EXHIBIT 99.1

Spirit Airlines Reports Second Quarter 2017 Results

MIRAMAR, Fla., July 27, 2017 - Spirit Airlines, Inc. (NASDAQ: SAVE) today reported second quarter 2017 financial results.
GAAP net income for the second quarter 2017 was $78.1 million ( $1.12 per diluted share), or $79.1 million ( $1.14 per diluted share) 1 excluding special items.

GAAP operating margin for the second quarter 2017 was 18.9 percent , or 19.1 percent excluding special items 1 .

Spirit ended the second quarter 2017 with unrestricted cash, cash equivalents, and short-term investments of $969.6 million .

Spirit's return on invested capital (non-GAAP, before taxes and excluding special items) for the twelve months ended June 30, 2017 was 20.3 percent 2 .

“The progress we made with our revenue initiatives, as well as the underlying revenue trends as we headed into the June quarter, were encouraging.  Unfortunately, given the level of operational disruptions and the associated financial impact, the second quarter 2017 performance overall was disappointing. We sincerely apologize to our customers who were affected by the flight disruptions during the quarter,” said Bob Fornaro, Spirit’s President and Chief Executive Officer.  “Despite our financial and operational challenges in the second quarter 2017, the changes in our pricing and revenue management strategies helped to drive year-over-year improvement in passenger and non-ticket revenue per segment -- this is the first time in over two and a half years either of these metrics increased year over year.”

Revenue Performance
For the second quarter 2017 , Spirit's total operating revenue was $701.7 million , an increase of 20.1 percent compared to the second quarter 2016 , driven by a 9.3 percent increase in flight volume and a 7.1 percent increase in operating yields.

Total revenue per available seat mile (TRASM) for the second quarter 2017 increased 5.7 percent compared to the same period last year. During the second quarter 2017, the Company's results benefited from the calendar shift of Easter, as well as Company driven revenue initiatives and a strong underlying demand environment.

On a per passenger flight segment basis, total revenue for the second quarter 2017 increased 8.5 percent year over year to $113.07 with ticket revenue per passenger flight segment increasing 13.4 percent to $59.93 and non-ticket per passenger flight segment increasing 3.5 percent to $53.14 .


1




Cost Performance
For the second quarter 2017 , total GAAP operating expense, including special items of $1.5 million 3 , increased 23.1 percent, or $106.6 million , year over year to $568.9 million . Adjusted operating expense for the second quarter 2017 increased 25.1 percent , or $113.7 million to $567.5 million 4 . The increase in both GAAP and adjusted operating expense was primarily driven by an increase in flight volume, higher passenger re-accommodation expense (recorded within other operating expenses), and higher fuel rates.

Aircraft fuel expense increased in the second quarter 2017 by 25.7 percent , or $29.1 million , compared to the same period last year, due to a 12.9 percent increase in the cost of fuel per gallon and a 11.1 percent increase in fuel gallons consumed.
 
Spirit reported second quarter 2017 cost per available seat mile ("ASM"), excluding special items and fuel (“Adjusted CASM ex-fuel”), of 5.83 cent s 4 , an increase of 10.0 percent compared to the same period last year, driven primarily by higher passenger re-accommodation expense per ASM and higher depreciation and amortization per ASM.

Pilot-Related Cancellations
During the second quarter 2017, the Company had over 850 pilot-related flight cancellations. The Company estimates these pilot-related cancellations adversely impacted its second quarter 2017 results by approximately $45 million (approximately $25 million of revenue loss and $20 million of additional operating costs, primarily related to higher passenger re-accommodation expense). The Company estimates that had these cancellations not occurred, TRASM for the second quarter would have been up approximately 6.5 percent year over year (with the Easter shift accounting for approximately 400 basis points of the year over year increase) and Adjusted CASM ex-fuel would have been up approximately 2.0 percent year over year.

“While our cost performance for the second quarter was not satisfactory, we do not believe it materially changes our long-term cost outlook and are confident that we will continue to maintain, or grow, our relative cost advantage, ”said Ted Christie, Spirit’s Executive Vice President and Chief Financial Officer.

Labor
Spirit and its pilots, represented by the Air Line Pilots Association, remain in open contract negotiations under the supervision of the National Mediation Board.

Fleet
Spirit took delivery of three new A320ceo aircraft and one new A321ceo aircraft during the second quarter 2017 , ending the quarter with 104 aircraft in its fleet.

Recent New Service Announcements
Hartford - Orlando (4/27/17)
Hartford - Myrtle Beach (4/27/17)*
Akron-Canton - Las Vegas (4/27/17)
Akron-Canton - Myrtle Beach (4/27/17)*
Newark - Houston (4/27/17)
Houston - Seattle (4/27/17)*
Baltimore - New Orleans (5/25/17)
Baltimore - Oakland (5/25/17)*
Baltimore - San Diego (5/25/17)
Baltimore - Seattle (5/25/17)
Cleveland - New Orleans (5/25/17)
Detroit - Oakland (5/25/17)*
Detroit - Seattle ( 5/25/17)*
Orlando - New Orleans (5/25/17)

2




Pittsburgh - Dallas (5/25/17)
Pittsburgh - Myrtle Beach (5/25/17)*
Hartford - Fort Lauderdale (6/15/17)
Pittsburgh - Fort Lauderdale (6/16/17)
Pittsburgh - Las Vegas (6/22/17)
Pittsburgh - Orlando (6/22/17)
Pittsburgh - Los Angeles (7/13/17)
Pittsburgh - Houston (7/13/17)
Pittsburgh -  Fort Myers (11/9/17)**
Pittsburgh - Tampa (11/9/17)**
Hartford - Fort Myers (11/9/17)**
Hartford - Tampa (11/9/17)**
Baltimore - Cancun (11/9/17)
Chicago - Cancun (11/9/17)

* Seasonal Summer Service
** Seasonal Winter Service


Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results today, July 27, 2017 , 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 (NASDAQ: 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 470 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)
See "Reconciliation of Adjusted Net Income, Adjusted Pre-tax Income, and Adjusted Operating Income to GAAP Net Income" table below for more details.
(2)
See "Calculation for Return on Invested Capital, non-GAAP" table below for more details.
(3)
See "Special Items" table for more details.
(4)
See "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table below for more details.



3




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.


4




SPIRIT AIRLINES, INC.
Statement of Operations
(unaudited, in thousands, except per share data)


 
Three Months Ended

 
 
Six Months Ended
 
 
 
June 30,
 
Percent
 
June 30,
 
Percent

2017

2016

Change
 
2017
 
2016
 
Change
Operating revenues:
 
 
 


 
 
 
 
 
 
Passenger
$
371,922

 
$
296,401


25.5

 
$
671,684

 
$
569,027

 
18.0

Non-ticket
329,760

 
287,732


14.6

 
621,744

 
553,249

 
12.4

Total operating revenues
701,682

 
584,133


20.1

 
1,293,428

 
1,122,276

 
15.3

 
 
 
 

 
 
 
 
 
 
 
Operating expenses:
 
 
 

 
 
 
 
 
 
 
Salaries, wages and benefits
129,892

 
112,930


15.0

 
257,030

 
229,340

 
12.1

Aircraft fuel
142,294

 
113,192


25.7

 
282,076

 
199,174

 
41.6

Aircraft rent
52,566

 
49,864


5.4

 
109,636

 
102,066

 
7.4

Landing fees and other rents
45,592

 
39,944


14.1

 
86,040

 
74,751

 
15.1

Depreciation and amortization
35,331

 
24,957


41.6

 
66,840

 
48,066

 
39.1

Maintenance, materials and repairs
28,985

 
20,627


40.5

 
55,297

 
41,567

 
33.0

Distribution
29,908

 
24,692


21.1

 
56,406

 
47,625

 
18.4

Special charges

 
8,052

 
nm

 
4,776

 
24,254

 
nm

Loss on disposal of assets
1,493

 
529

 
nm

 
2,598

 
743

 
nm

Other operating
102,885

 
67,511


52.4

 
180,588

 
131,556

 
37.3

Total operating expenses
568,946

 
462,298


23.1

 
1,101,287

 
899,142

 
22.5

 
 
 
 

 
 
 
 
 
 
 
Operating income
132,736

 
121,835


8.9

 
192,141

 
223,134

 
(13.9
)
 
 
 
 

 
 
 
 
 
 
 
Other (income) expense:
 
 
 

 
 
 
 
 
 
 
Interest expense
13,746

 
10,166


35.2

 
26,219

 
18,226

 
43.9

Capitalized interest
(3,342
)
 
(2,771
)

20.6

 
(6,922
)
 
(6,096
)
 
13.5

Interest income
(1,828
)
 
(1,447
)

26.3

 
(3,141
)
 
(3,013
)
 
4.2

Other expense
104

 
157


(33.8
)
 
107

 
227

 
(52.9
)
Total other (income) expense
8,680

 
6,105


42.2

 
16,263

 
9,344

 
74.0

 
 
 
 

 
 
 
 
 
 
 
Income before income taxes
124,056

 
115,730


7.2

 
175,878

 
213,790

 
(17.7
)
Provision for income taxes
45,913

 
42,646


7.7

 
65,800

 
78,786

 
(16.5
)
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
78,143

 
$
73,084


6.9

 
$
110,078

 
$
135,004

 
(18.5
)
Basic earnings per share
$
1.13

 
$
1.03


9.7

 
$
1.59

 
$
1.90

 
(16.3
)
Diluted earnings per share
$
1.12

 
$
1.03


8.7

 
$
1.58

 
$
1.89

 
(16.4
)

 
 
 

 
 
 
 
 
 
 
Weighted average shares, basic
69,370

 
70,770


(2.0
)
 
69,359

 
71,173

 
(2.5
)
Weighted average shares, diluted
69,561

 
70,913


(1.9
)
 
69,576

 
71,347

 
(2.5
)






5




SPIRIT AIRLINES, INC.
Statements of Comprehensive Income
(unaudited, in thousands)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
78,143

 
$
73,084

 
$
110,078

 
$
135,004

Unrealized gain (loss) on short-term investment securities, net of deferred taxes of ($6), $0, ($14) and $0
(11
)
 

 
(24
)
 

Interest rate derivative losses reclassified into earnings, net of taxes of $31, $32, $62 and $65
53

 
56

 
107

 
113

Other comprehensive income (loss)
$
42

 
$
56

 
$
83

 
$
113

Comprehensive income
$
78,185

 
$
73,140

 
$
110,161

 
$
135,117





6




SPIRIT AIRLINES, INC.
Balance Sheets
(unaudited, in thousands)
 
June 30,
 
December 31,
 
2017
 
2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
869,153

 
$
700,900

Short-term investment securities
100,464

 
100,155

Accounts receivable, net
47,996

 
41,136

Aircraft maintenance deposits
155,093

 
87,035

Prepaid expenses and other current assets
57,798

 
46,619

Total current assets
1,230,504

 
975,845

 
 
 
 
Property and equipment:
 
 
 
Flight equipment
1,809,747

 
1,461,525

Ground property and equipment
140,954

 
126,206

Less accumulated depreciation
(161,191
)
 
(122,509
)
 
1,789,510

 
1,465,222

Deposits on flight equipment purchase contracts
317,867

 
325,688

Long-term aircraft maintenance deposits
146,162

 
199,415

Deferred heavy maintenance, net
75,858

 
75,534

Other long-term assets
114,444

 
110,223

Total assets
$
3,674,345

 
$
3,151,927

 
 
 
 
Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
33,186

 
$
15,193

Air traffic liability
312,587

 
206,392

Current maturities of long-term debt
95,428

 
84,354

Other current liabilities
244,629

 
226,011

Total current liabilities
685,830

 
531,950

 
 
 
 
Long-term debt, less current maturities
1,089,159

 
897,359

Deferred income taxes
372,998

 
308,143

Deferred gains and other long-term liabilities
18,125

 
19,868

Shareholders’ equity:
 
 
 
Common stock
7

 
7

Additional paid-in-capital
555,704

 
551,004

Treasury stock, at cost
(219,909
)
 
(218,692
)
Retained earnings
1,173,711

 
1,063,633

Accumulated other comprehensive loss
(1,280
)
 
(1,345
)
Total shareholders’ equity
1,508,233

 
1,394,607

Total liabilities and shareholders’ equity
$
3,674,345

 
$
3,151,927



7




SPIRIT AIRLINES, INC.
Statement of Cash Flows
(unaudited, in thousands)
 
Six Months Ended June 30,
 
2017
 
2016
Operating activities:
 
 
 
Net income
$
110,078

 
$
135,004

Adjustments to reconcile net income to net cash provided by operations:
 
 
 
Losses reclassified from other comprehensive income
167

 
178

Equity-based compensation
4,671

 
3,905

Allowance for doubtful accounts (recoveries)
(51
)
 
221

Amortization of deferred gains and losses and debt issuance costs
4,761

 
2,810

Depreciation and amortization
66,840

 
48,066

Deferred income tax expense
64,789

 
45,810

Loss on disposal of assets
2,598

 
743

Lease termination costs
4,777

 
24,254

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(6,808
)
 
(12,662
)
Aircraft maintenance deposits
(17,940
)
 
(29,721
)
Prepaid income taxes
(1,598
)
 
69,444

Long-term deposits and other assets
(44,900
)
 
(22,055
)
Accounts payable
16,388

 
3,024

Air traffic liability
105,486

 
66,531

Other liabilities
14,234

 
25,269

Other
238

 

Net cash provided by operating activities
323,730

 
360,821

Investing activities:
 
 
 
Purchase of available-for-sale investment securities
(68,459
)
 

Proceeds from the maturity of available-for-sale investment securities
67,857

 

Proceeds from sale of property and equipment

 
50

Pre-delivery deposits for flight equipment, net of refunds
(79,357
)
 
(60,772
)
Capitalized interest
(6,375
)
 
(4,554
)
Purchase of property and equipment
(269,519
)
 
(303,175
)
Net cash used in investing activities
(355,853
)
 
(368,451
)
Financing activities:
 
 
 
Proceeds from issuance of long-term debt
255,827

 
300,547

Proceeds from stock options exercised
29

 
92

Payments on debt and capital lease obligations
(50,099
)
 
(19,665
)
Excess tax (deficiency) benefit from equity-based compensation

 
(511
)
Repurchase of common stock
(1,217
)
 
(62,278
)
Debt issuance costs
(4,164
)
 
(107
)
Net cash provided by financing activities
200,376

 
218,078

Net (decrease) increase in cash and cash equivalents
168,253

 
210,448

Cash and cash equivalents at beginning of period
700,900

 
803,632

Cash and cash equivalents at end of period
$
869,153

 
$
1,014,080

Supplemental disclosures
 
 
 
Cash payments for:
 
 
 
Interest, net of capitalized interest
$
16,869

 
$
21,804

Income taxes paid, net of refunds
$
4,340

 
$
(36,142
)
Non-cash transactions:
 
 
 
Capital expenditures funded by capital lease borrowings
$
(1,370
)
 
$
(31
)

8




SPIRIT AIRLINES, INC.
Selected Operating Statistics (unaudited)
 
Three Months Ended June 30,

 
Operating Statistics
2017

2016

Change
Available seat miles (ASMs) (thousands)
7,294,578


6,419,419


13.6
 %
Revenue passenger miles (RPMs) (thousands)
6,219,638


5,549,411


12.1
 %
Load factor (%)
85.3


86.4


(1.1) pts

Passenger flight segments (thousands)
6,206


5,606


10.7
 %
Block hours
109,296


98,399


11.1
 %
Departures
41,563


38,025


9.3
 %
Total operating revenue per ASM (TRASM) (cents)
9.62


9.10


5.7
 %
Average yield (cents)
11.28


10.53


7.1
 %
Average ticket revenue per passenger flight segment ($)
59.93


52.87


13.4
 %
Average non-ticket revenue per passenger flight segment ($)
53.14


51.32


3.5
 %
Total revenue per passenger flight segment ($)
113.07


104.19


8.5
 %
CASM (cents)
7.80


7.20


8.3
 %
Adjusted CASM (cents) (1)
7.78


7.07


10.0
 %
Adjusted CASM ex-fuel (cents) (2)
5.83


5.30


10.0%

Fuel gallons consumed (thousands)
85,533


77,013


11.1
 %
Average economic fuel cost per gallon ($)
1.66


1.47


12.9
 %
Aircraft at end of period
104


87


19.5
 %
Average daily aircraft utilization (hours)
11.7


12.7


(7.9)%

Average stage length (miles)
982


971


1.1
 %
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
Operating Statistics
2017

2016

Change
Available seat miles (ASMs) (thousands)
14,170,478


12,402,423


14.3
 %
Revenue passenger miles (RPMs) (thousands)
11,833,060


10,619,724


11.4
 %
Load factor (%)
83.5


85.6


(2.1
) pts
Passenger flight segments (thousands)
11,775


10,594


11.1
 %
Block hours
213,332


191,943


11.1
 %
Departures
80,893


73,185


10.5
 %
Total operating revenue per ASM (TRASM) (cents)
9.13


9.05


0.9
 %
Average yield (cents)
10.93


10.57


3.4
 %
Average ticket revenue per passenger flight segment ($)
57.04


53.71


6.2
 %
Average non-ticket revenue per passenger flight segment ($)
52.80


52.22


1.1
 %
Total revenue per passenger flight segment ($)
109.84


105.93


3.7
 %
CASM (cents)
7.77


7.25


7.2
 %
Adjusted CASM (cents) (1)
7.72


7.05


9.5
 %
Adjusted CASM ex-fuel (cents) (2)
5.73


5.44


5.3
 %
Fuel gallons consumed (thousands)
164,597


147,563


11.5
 %
Average economic fuel cost per gallon ($)
1.71


1.35


26.7
 %
Average daily aircraft utilization (hours)
11.8


12.8


(7.8)%

Average stage length (miles)
983


983


 %


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



9





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
 
June 30,
(in thousands)
2017

2016
Operating special items include the following (1):
 
 
 
Loss on disposal of assets
1,493

 
529

Special charges

 
8,052

Total operating special items
$
1,493

 
$
8,581


Reconciliation of Adjusted Operating Expense to GAAP Operating Expense
(unaudited)

 
Three Months Ended

June 30,
(in thousands, except CASM data in cents)
2017

2016
Total operating expenses, as reported
$
568,946

 
$
462,298

Less operating special items (1)
1,493

 
8,581

Adjusted operating expenses, non-GAAP (2)
567,453

 
453,717

Less: Economic fuel expense
142,294

 
113,192

Adjusted operating expenses excluding fuel, non-GAAP (3)
$
425,159

 
$
340,525


 
 
 
Available seat miles
7,294,578

 
6,419,419


 
 
 
CASM (cents)
7.80

 
7.20

Adjusted CASM (cents) (2)
7.78

 
7.07

Adjusted CASM ex-fuel (cents) (3)
5.83

 
5.30









(1)
Special items include loss on disposal of assets and special charges. Special charges are primarily related to lease termination costs.
(2)
Excludes operating special items.
(3)
Excludes operating special items and economic fuel expense as described in the "Reconciliation of Economic Fuel Expense to GAAP Fuel Expense" table below.

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Reconciliation of Adjusted Net Income, Adjusted Pre-Tax Income, and Adjusted Operating Income to GAAP Net Income
(unaudited)


 
Three Months Ended
 
June 30,
(in thousands, except per share data)
2017
 
2016
Net income, as reported
$
78,143

 
$
73,084

Add: Provision for income taxes
45,913

 
42,646

Income before income taxes, as reported
124,056

 
115,730

Pre-tax margin, GAAP
17.7
%
 
19.8
%
Add operating special items (1)
$
1,493

 
$
8,581

Adjusted income before income taxes, non-GAAP (2)
125,549

 
124,311

Adjusted pre-tax margin, non-GAAP (2)
17.9
%
 
21.3
%
Add: Total other (income) expense
8,680

 
6,105

Adjusted operating income, non-GAAP(2)
134,229

 
130,416

Adjusted operating margin, non-GAAP(2)
19.1
%
 
22.3
%
 
 
 
 
Provision for adjusted income taxes (3)
46,466

 
45,808

Adjusted net income, non-GAAP (2)(3)
$
79,083

 
$
78,503

 
 
 
 
Weighted average shares, diluted
69,561

 
70,913

 
 
 
 
Adjusted net income per share, diluted (2)(3)
$1.14
 
$1.11
 
 
 
 
Total operating revenues
$
701,682

 
$
584,133











(1)
See "Special Items" for more details.
(2)
Excludes operating special items.
(3)
Assumes same marginal tax rate as is applicable to GAAP net income.









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The Company tracks a non-GAAP calculation of Return on Invested Capital, or 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 level equal to 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, in keeping 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)
June 30, 2017
Operating income
$
412,668

Add operating special items (1)
23,753

Adjustment for aircraft rent
209,245

Adjusted operating income, non-GAAP
645,666

Tax (37.1%) (2)
239,542

Adjusted operating income, after-tax, non-GAAP
$
406,124

Invested capital:
 
Total debt
$
1,184,587

Book equity
1,508,233

Less: Unrestricted cash, cash equivalents & short-term investments
969,617

Add: Capitalized aircraft operating leases (7x Aircraft Rent)
1,464,715

Total invested capital, non-GAAP
$
3,187,918

 
 
Return on invested capital (ROIC), pre-tax, non-GAAP
20.3
%
Return on invested capital (ROIC), after-tax, non-GAAP (2)
12.7
%







(1)
See "Special Items" for more details.
(2)
Assumes same marginal tax rate as is applicable to GAAP net income for the twelve months ended June 30, 2017 .


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