Spirit Airlines, Inc.
Spirit Airlines, Inc. (Form: 8-K, Received: 10/26/2017 08:04:59)


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) : October 25, 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 October 26, 2017 , Spirit Airlines, Inc. (the “Company” or “Spirit”) issued a press release announcing its unaudited financial results for the third quarter 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 8.01.
Other Events    
On October 25, 2017, the Company's Board of Directors authorized a repurchase program of up $100 million in aggregate value of shares of Common Stock, par value $0.0001 per share, from time to time in open market or privately negotiated transactions. The authorization will expire on October 25, 2018. The timing and amount of any stock repurchases are subject to prevailing market conditions and other considerations.


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 third 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: October 26, 2017
SPIRIT AIRLINES, INC.


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




EXHIBIT INDEX

Exhibit No.
Description
 
 

 




LOGO1.JPG
EXHIBIT 99.1

Spirit Airlines Reports Third Quarter 2017 Results

MIRAMAR, Fla., October 26, 2017 - Spirit Airlines, Inc. (NASDAQ: SAVE) today reported third quarter 2017 financial results.
GAAP net income for the third quarter 2017 was $60.2 million ( $0.87 per diluted share), or $65.5 million ( $0.94 per diluted share) 1 excluding special items.

GAAP operating margin for the third quarter 2017 was 15.1 percent , or 16.4 percent excluding special items 1 .

Spirit ended the third quarter 2017 with unrestricted cash, cash equivalents, and short-term investments of $964.4 million .

Spirit's return on invested capital (non-GAAP, before taxes and excluding special items) for the twelve months ended September 30, 2017 was 18.1 percent 2 .

“Multiple hurricanes during the third quarter 2017 caused us to cancel over 1,650 flights.  In preparation for Irma, we relocated our Systems Operations Control Center and over 305 team members and their families to our backup facility in Detroit where we ran our operations for about a week.  I am very proud of how the Spirit team pulled together to assist our guests and employees in the regions affected by the storms while keeping the rest of the network running smoothly and still delivering solid financial results.  Excluding the impact of these storms, we estimate our third quarter on-time performance would have been 78.5 percent, a 2.2 percentage point improvement year over year,” said Robert Fornaro, Spirit’s President and Chief Executive Officer.  “It was a challenging quarter on many fronts and I want to thank our entire team for their dedication in going the extra mile to care for our guests and volunteering to assist with the relief efforts.”

Spirit carried over 3,000 guests and more than 800 team members and their families to safety, many of whom were elderly or at risk.  We have transported over a 100,000 pounds of relief supplies in joint efforts with the American Red Cross, Airlink Operation, Puerto Rico Care Lift and many others, have pledged to match donations up to $150,000 to the American Red Cross, and are committed to assist with ongoing relief efforts throughout the Caribbean. 

Revenue Performance
For the third quarter 2017 , Spirit's total operating revenue was $687.2 million , an increase of 10.6 percent compared to the third quarter 2016 , driven by an 11.2 percent increase in flight volume. During the third quarter 2017, Spirit canceled over 1,650 flights related to Hurricanes Harvey, Irma, and Maria. Spirit estimates these hurricanes, together with the revenue overhang from the pilot work action earlier in the year, negatively impacted third quarter 2017 revenue by approximately $40 million and operating income by approximately $39 million.



1




Total revenue per available seat mile (TRASM) for the third quarter 2017 decreased 6.3 percent compared to the same period last year, primarily driven by lower passenger yields as a result of aggressive competitive pricing action in many of our markets.

On a per passenger flight segment basis, total revenue for the third quarter 2017 decreased 0.5 percent year over year to $108.96 due to ticket revenue per passenger flight segment decreasing 3.2 percent to $56.48 , partially offset by non-ticket revenue per passenger flight segment increasing 2.6 percent to $52.48 .

Cost Performance
For the third quarter 2017 , total GAAP operating expense, including special items of $8.4 million 3 , increased 20.0 percent, or $97.0 million , year over year to $583.1 million . Adjusted operating expense for the third quarter 2017 increased 20.2 percent , or $96.4 million to $574.8 million 4 . The year-over-year 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 third quarter 2017 by 29.9 percent , or $36.5 million , compared to the same period last year, due to a 12.2 percent increase in the cost of fuel per gallon and a 15.3 percent increase in fuel gallons consumed.
 
Spirit reported third quarter 2017 cost per available seat mile ("ASM"), excluding special items and fuel (“Adjusted CASM ex-fuel”), of 5.42 cent s 4 , a decrease of 1.1 percent compared to the same period last year. The decrease year over year was primarily driven by lower maintenance and salaries, wages, and benefits per ASM, partially offset by higher passenger re-accommodation expense and depreciation and amortization per ASM.

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 A321ceo aircraft and one new A320ceo aircraft and returned one leased A321ceo aircraft during the third quarter 2017 , ending the quarter with 107 aircraft in its fleet.

Share Repurchase Authorization
On October 25, 2017, Spirit's Board of Directors authorized a repurchase program of up to $100 million in aggregate value of shares of Common Stock, par value $0.0001 per share, from time to time in open market or privately negotiated transactions. The authorization will expire on October 25, 2018. The timing and amount of any stock repurchases are subject to prevailing market conditions and other considerations.

Recent New Service Announcements
Boston - New Orleans (11/09/17)
Minneapolis-St. Paul - New Orleans (11/09/17)
Newark - New Orleans (11/09/17)
Tampa - New Orleans (11/09/17)
Newark - Las Vegas (11/09/17)
Chicago - West Palm Beach (11/09/17)*

* Seasonal Service Operates 11/9/17- 4/11/18




2




Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results today, October 26, 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 480 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.

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.


3




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


 
Three Months Ended

 
 
Nine Months Ended
 
 
 
September 30,
 
Percent
 
September 30,
 
Percent

2017

2016

Change
 
2017
 
2016
 
Change
Operating revenues:
 
 
 


 
 
 
 
 
 
Passenger
$
356,207

 
$
331,004


7.6

 
$
1,027,891

 
$
900,031

 
14.2

Non-ticket
331,024

 
290,325


14.0

 
952,768

 
843,574

 
12.9

Total operating revenues
687,231

 
621,329


10.6

 
1,980,659

 
1,743,605

 
13.6

 
 
 
 

 
 
 
 
 
 
 
Operating expenses:
 
 
 

 
 
 
 
 
 
 
Salaries, wages and benefits
134,114

 
120,190


11.6

 
391,144

 
349,530

 
11.9

Aircraft fuel
158,300

 
121,844


29.9

 
440,376

 
321,018

 
37.2

Aircraft rent
53,396

 
49,367


8.2

 
163,032

 
151,433

 
7.7

Landing fees and other rents
48,498

 
39,345


23.3

 
134,538

 
114,096

 
17.9

Depreciation and amortization
36,840

 
25,304


45.6

 
103,680

 
73,370

 
41.3

Maintenance, materials and repairs
26,176

 
30,443


(14.0
)
 
81,473

 
72,010

 
13.1

Distribution
29,469

 
25,565


15.3

 
85,875

 
73,190

 
17.3

Special charges
7,853

 
7,355

 
nm

 
12,629

 
31,609

 
nm

Loss on disposal of assets
516

 
423

 
nm

 
3,114

 
1,166

 
nm

Other operating
87,965

 
66,277


32.7

 
268,553

 
197,833

 
35.7

Total operating expenses
583,127

 
486,113


20.0

 
1,684,414

 
1,385,255

 
21.6

 
 
 
 

 
 
 
 
 
 
 
Operating income
104,104

 
135,216


(23.0
)
 
296,245

 
358,350

 
(17.3
)
 
 
 
 

 
 
 
 
 
 
 
Other (income) expense:
 
 
 

 
 
 
 
 
 
 
Interest expense
15,018

 
11,362


32.2

 
41,237

 
29,588

 
39.4

Capitalized interest
(3,203
)
 
(3,067
)

4.4

 
(10,125
)
 
(9,163
)
 
10.5

Interest income
(2,605
)
 
(1,222
)

113.2

 
(5,746
)
 
(4,235
)
 
35.7

Other expense
114

 
180


(36.7
)
 
221

 
407

 
(45.7
)
Total other (income) expense
9,324

 
7,253


28.6

 
25,587

 
16,597

 
54.2

 
 
 
 

 
 
 
 
 
 
 
Income before income taxes
94,780

 
127,963


(25.9
)
 
270,658

 
341,753

 
(20.8
)
Provision for income taxes
34,590

 
46,581


(25.7
)
 
100,390

 
125,367

 
(19.9
)
 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
60,190

 
$
81,382


(26.0
)
 
$
170,268

 
$
216,386

 
(21.3
)
Basic earnings per share
$
0.87

 
$
1.17


(25.6
)
 
$
2.45

 
$
3.06

 
(19.9
)
Diluted earnings per share
$
0.87

 
$
1.17


(25.6
)
 
$
2.45

 
$
3.05

 
(19.7
)

 
 
 

 
 
 
 
 
 
 
Weighted average shares, basic
69,370

 
69,727


(0.5
)
 
69,363

 
70,689

 
(1.9
)
Weighted average shares, diluted
69,458

 
69,808


(0.5
)
 
69,537

 
70,832

 
(1.8
)






4




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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
60,190

 
$
81,382

 
$
170,268

 
$
216,386

Unrealized gain (loss) on short-term investment securities, net of deferred taxes of $7, $3, ($6) and $3
13

 
4

 
(11
)
 
4

Interest rate derivative losses reclassified into earnings, net of taxes of $31, $32, $92 and $97
53

 
56

 
160

 
170

Other comprehensive income (loss)
$
66

 
$
60

 
$
149

 
$
174

Comprehensive income
$
60,256

 
$
81,442

 
$
170,417

 
$
216,560





5




SPIRIT AIRLINES, INC.
Condensed Balance Sheets
(unaudited, in thousands)
 
September 30,
 
December 31,
 
2017
 
2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
863,680

 
$
700,900

Short-term investment securities
100,732

 
100,155

Accounts receivable, net
46,235

 
41,136

Aircraft maintenance deposits, net
166,386

 
87,035

Prepaid expenses and other current assets
67,707

 
46,619

Total current assets
1,244,740

 
975,845

 
 
 
 
Property and equipment:
 
 
 
Flight equipment
2,017,888

 
1,461,525

Ground property and equipment
148,324

 
126,206

Less accumulated depreciation
(183,065
)
 
(122,509
)
 
1,983,147

 
1,465,222

Deposits on flight equipment purchase contracts
304,732

 
325,688

Long-term aircraft maintenance deposits
138,672

 
199,415

Deferred heavy maintenance, net
87,566

 
75,534

Other long-term assets
112,085

 
110,223

Total assets
$
3,870,942

 
$
3,151,927

 
 
 
 
Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
30,961

 
$
15,193

Air traffic liability
276,933

 
206,392

Current maturities of long-term debt
105,958

 
84,354

Other current liabilities
249,132

 
226,011

Total current liabilities
662,984

 
531,950

 
 
 
 
Long-term debt, less current maturities
1,214,138

 
897,359

Deferred income taxes
406,080

 
308,143

Deferred gains and other long-term liabilities
17,204

 
19,868

Shareholders’ equity:
 
 
 
Common stock
7

 
7

Additional paid-in-capital
557,772

 
551,004

Treasury stock, at cost
(219,930
)
 
(218,692
)
Retained earnings
1,233,901

 
1,063,633

Accumulated other comprehensive loss
(1,214
)
 
(1,345
)
Total shareholders’ equity
1,570,536

 
1,394,607

Total liabilities and shareholders’ equity
$
3,870,942

 
$
3,151,927



6




SPIRIT AIRLINES, INC.
Condensed Statement of Cash Flows
(unaudited, in thousands)
 
Nine Months Ended September 30,
 
2017
 
2016
Operating activities:
 
 
 
Net income
$
170,268

 
$
216,386

Adjustments to reconcile net income to net cash provided by operations:
 
 
 
Losses reclassified from other comprehensive income
252

 
267

Equity-based compensation
6,723

 
5,503

Allowance for doubtful accounts (recoveries)
(53
)
 
213

Amortization of deferred gains and losses and debt issuance costs
6,415

 
3,837

Depreciation and amortization
103,680

 
73,370

Deferred income tax expense
97,834

 
77,627

Loss on disposal of assets
3,114

 
1,166

Lease termination costs
12,629

 
31,609

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(5,046
)
 
(7,840
)
Aircraft maintenance deposits, net
(28,422
)
 
(38,299
)
Prepaid income taxes
(160
)
 
66,218

Long-term deposits and other assets
(81,622
)
 
(43,252
)
Accounts payable
13,829

 
(7,044
)
Air traffic liability
70,540

 
21,963

Other liabilities
16,152

 
38,317

Other
339

 

Net cash provided by operating activities
386,472

 
440,041

Investing activities:
 
 
 
Purchase of available-for-sale investment securities
(96,851
)
 
(100,076
)
Proceeds from the maturity of available-for-sale investment securities
95,881

 

Proceeds from sale of property and equipment

 
50

Pre-delivery deposits for flight equipment, net of refunds
(121,702
)
 
(109,260
)
Capitalized interest
(8,054
)
 
(7,032
)
Purchase of property and equipment
(428,061
)
 
(447,455
)
Net cash used in investing activities
(558,787
)
 
(663,773
)
Financing activities:
 
 
 
Proceeds from issuance of long-term debt
405,827

 
378,569

Proceeds from stock options exercised
45

 
92

Payments on debt and capital lease obligations
(63,643
)
 
(29,663
)
Excess tax (deficiency) benefit from equity-based compensation

 
(497
)
Repurchase of common stock
(1,238
)
 
(102,390
)
Debt issuance costs
(5,896
)
 
(107
)
Net cash provided by financing activities
335,095

 
246,004

Net (decrease) increase in cash and cash equivalents
162,780

 
22,272

Cash and cash equivalents at beginning of period
700,900

 
803,632

Cash and cash equivalents at end of period
$
863,680

 
$
825,904

Supplemental disclosures
 
 
 
Cash payments for:
 
 
 
Interest, net of capitalized interest
$
22,541

 
$
26,025

Income taxes paid, net of refunds
$
4,352

 
$
(18,169
)
Non-cash transactions:
 
 
 
Capital expenditures funded by capital lease borrowings
$
(1,370
)
 
$
(31
)

7




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

 
Operating Statistics
2017

2016

Change
Available seat miles (ASMs) (thousands)
7,681,312


6,507,204


18.0
 %
Revenue passenger miles (RPMs) (thousands)
6,452,529


5,599,370


15.2
 %
Load factor (%)
84.0


86.0


(2.0
) pts
Passenger flight segments (thousands)
6,307


5,674


11.2
 %
Block hours
112,701


98,586


14.3
 %
Departures
42,599


38,310


11.2
 %
Total operating revenue per ASM (TRASM) (cents)
8.95


9.55


(6.3
)%
Average yield (cents)
10.65


11.10


(4.1
)%
Average ticket revenue per passenger flight segment ($)
56.48


58.34


(3.2
)%
Average non-ticket revenue per passenger flight segment ($)
52.48


51.17


2.6
 %
Total revenue per passenger flight segment ($)
108.96


109.51


(0.5
)%
CASM (cents)
7.59


7.47


1.6
 %
Adjusted CASM (cents) (1)
7.48


7.35


1.8
 %
Adjusted CASM ex-fuel (cents) (2)
5.42


5.48


(1.1
)%
Fuel gallons consumed (thousands)
90,274


78,288


15.3
 %
Average economic fuel cost per gallon ($)
1.75


1.56


12.2
 %
Aircraft at end of period
107


89


20.2
 %
Average daily aircraft utilization (hours)
11.6


12.3


(5.7
)%
Average stage length (miles)
1,006


968


3.9
 %
 
 
 
 
 
 
 
Nine Months Ended September 30,
 
 
Operating Statistics
2017

2016

Change
Available seat miles (ASMs) (thousands)
21,851,789


18,909,627


15.6
 %
Revenue passenger miles (RPMs) (thousands)
18,285,588


16,219,093


12.7
 %
Load factor (%)
83.7


85.8


(2.1
) pts
Passenger flight segments (thousands)
18,083


16,268


11.2
 %
Block hours
326,033


290,529


12.2
 %
Departures
123,492


111,495


10.8
 %
Total operating revenue per ASM (TRASM) (cents)
9.06


9.22


(1.7
)%
Average yield (cents)
10.83


10.75


0.7
 %
Average ticket revenue per passenger flight segment ($)
56.84


55.32


2.7
 %
Average non-ticket revenue per passenger flight segment ($)
52.69


51.85


1.6
 %
Total revenue per passenger flight segment ($)
109.53


107.17


2.2
 %
CASM (cents)
7.71


7.33


5.2
 %
Adjusted CASM (cents) (1)
7.64


7.15


6.9
 %
Adjusted CASM ex-fuel (cents) (2)
5.62


5.45


3.1
 %
Fuel gallons consumed (thousands)
254,871


225,851


12.8
 %
Average economic fuel cost per gallon ($)
1.73


1.42


21.8
 %
Average daily aircraft utilization (hours)
11.7


12.6


(7.1
)%
Average stage length (miles)
991


978


1.3
 %

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




8




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
 
September 30,
(in thousands)
2017

2016
Operating special items include the following (1):
 
 
 
Loss on disposal of assets
516

 
423

Special charges
7,853

 
7,355

Total operating special items
$
8,369

 
$
7,778


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

 
Three Months Ended

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

2016
Total operating expenses, as reported
$
583,127

 
$
486,113

Less operating special items (1)
8,369

 
7,778

Adjusted operating expenses, non-GAAP (2)
574,758

 
478,335

Less: Economic fuel expense
158,300

 
121,844

Adjusted operating expenses excluding fuel, non-GAAP (3)
$
416,458

 
$
356,491


 
 
 
Available seat miles
7,681,312

 
6,507,204


 
 
 
CASM (cents)
7.59

 
7.47

Adjusted CASM (cents) (2)
7.48

 
7.35

Adjusted CASM ex-fuel (cents) (3)
5.42

 
5.48









(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.

9





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


 
Three Months Ended
 
September 30,
(in thousands, except per share data)
2017
 
2016
Net income, as reported
$
60,190

 
$
81,382

Add: Provision for income taxes
34,590

 
46,581

Income before income taxes, as reported
94,780

 
127,963

Pre-tax margin, GAAP
13.8
%
 
20.6
%
Add operating special items (1)
$
8,369

 
$
7,778

Adjusted income before income taxes, non-GAAP (2)
103,149

 
135,741

Adjusted pre-tax margin, non-GAAP (2)
15.0
%
 
21.8
%
Add: Total other (income) expense
9,324

 
7,253

Adjusted operating income, non-GAAP(2)
112,473

 
142,994

Adjusted operating margin, non-GAAP(2)
16.4
%
 
23.0
%
 
 
 
 
Provision for adjusted income taxes (3)
37,644

 
49,412

Adjusted net income, non-GAAP (2)(3)
$
65,505

 
$
86,329

 
 
 
 
Weighted average shares, diluted
69,458

 
69,808

 
 
 
 
Adjusted net income per share, diluted (2)(3)
$0.94
 
$1.24
 
 
 
 
Total operating revenues
$
687,231

 
$
621,329











(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.









10





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)
September 30, 2017
Operating income
$
381,556

Add operating special items (1)
24,344

Adjustment for aircraft rent
213,274

Adjusted operating income, non-GAAP
619,174

Tax (37.2%) (2)
230,333

Adjusted operating income, after-tax, non-GAAP
$
388,841

Invested capital:
 
Total debt
$
1,320,096

Book equity
1,570,536

Less: Unrestricted cash, cash equivalents & short-term investments
964,412

Add: Capitalized aircraft operating leases (7x Aircraft Rent)
1,492,918

Total invested capital, non-GAAP
$
3,419,138

 
 
Return on invested capital (ROIC), pre-tax, non-GAAP
18.1
%
Return on invested capital (ROIC), after-tax, non-GAAP (2)
11.4
%







(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 September 30, 2017 .


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