Spirit Airlines, Inc.
Spirit Airlines, Inc. (Form: 8-K, Received: 02/06/2018 08:20:21)


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) : February 6, 2018
____________________
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 February 6, 2018 , Spirit Airlines, Inc. (the “Company” or “Spirit”) issued a press release announcing its unaudited financial results for the fourth 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 fourth quarter and full year 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: February 6, 2018
SPIRIT AIRLINES, INC.


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




EXHIBIT INDEX

Exhibit No.
Description
 
 

 




CURRENTLOGOFORPRESSRELEASES0.JPG EXHIBIT 99.1

Spirit Airlines Reports Fourth Quarter and Full Year 2017 Results

MIRAMAR, Fla., February 6, 2018 - 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 credit 1 . Excluding the one-time tax credit and special items 2 , 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 credit 1 . Excluding the one-time tax credit and special items 2 , 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 items 2 .

GAAP operating margin for the full year 2017 was 14.7 percent , or 15.2 percent excluding special items 2 .

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 .





1




Cost Performance
For the fourth quarter 2017 , total GAAP operating expense, including special items credit of $3.0 million 2 , 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 million 4 . 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 cent s 4 , 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 cent s, 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)

2




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 TM 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

3




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.
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
)






5




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





6




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



7




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.

8




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.




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
 
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.

10





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.
.










11




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.



###

12