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| 8-K - 8-K THIRD QUARTER 2016 EARNINGS RELEASE - Spirit Airlines, Inc. | form8-k3q16earningsrelease.htm |
EXHIBIT 99.1
Spirit Airlines Reports Third Quarter 2016 Results
MIRAMAR, FL. (October 25, 2016) - Spirit Airlines, Inc. (NASDAQ: SAVE) today reported third quarter 2016 financial results.
• | GAAP net income for the third quarter 2016 was $81.4 million ($1.17 per diluted share), or $86.3 million ($1.24 per diluted share)1 excluding special items. |
• | GAAP operating margin for the third quarter 2016 was 21.8 percent, or 23.0 percent2 excluding special items. |
• | Spirit ended the third quarter 2016 with unrestricted cash, cash equivalents, and short-term investments of $926.0 million. |
• | Spirit's return on invested capital (before taxes and excluding special items) for the twelve months ended September 30, 2016 was 25.3 percent3. |
“During the third quarter 2016, we saw sequential improvement in total revenue directly related to our own revenue initiatives as well as a modest improvement in the industry pricing environment, and are encouraged by the constructive trends we are seeing,” said Bob Fornaro, Spirit’s President and Chief Executive Officer. “On the operations front, we made good strides toward improving our operational performance and for the months of July, August, and September, we set new company records for on-time performance. I applaud our team for the progress made to date towards achieving consistent reliability."
Revenue Performance
For the third quarter 2016, Spirit's total operating revenue was $621.3 million, an increase of 8.1 percent compared to the third quarter 2015, driven by a 12.6 percent increase in flight volume and 0.8 point increase in load factor, partially offset by a decrease in operating yields.
Total revenue per available seat mile (TRASM) for the third quarter 2016 decreased 7.0 percent compared to the same period last year, primarily driven by a decrease in passenger yield as a result of industry competitive pricing pressures. Although yields decreased year over year, throughout the third quarter 2016, the Company saw sequential improvement in the rate of decline.
On a per passenger flight segment ("PFS") basis, total revenue per PFS for the third quarter 2016 decreased 9.0 percent, or $10.84, year over year to $109.51, primarily driven by a 12.9 percent, or $8.62, decrease in ticket revenue per PFS related to industry competitive pricing pressures.
Non-ticket revenue declined 4.2 percent, or $2.22, year over year on a per PFS basis to $51.17, primarily driven by a modest decline in bag revenue per PFS.
Cost Performance
Total GAAP operating expenses, including special items of $7.8 million4 primarily related to lease termination charges, increased 16.4 percent, or $68.5 million, year over year to $486.1 million driven by
1
an increase in flight volume. Adjusted operating expense for the third quarter 2016 increased 14.6 percent, or $61.0 million, to $478.3 million5 on a capacity increase of 16.2 percent year over year.
Aircraft fuel expense increased in the third quarter 2016 by 5.1 percent, or $5.9 million, compared to the same period last year, due to a 15.7 percent increase in fuel gallons consumed, partially offset by an 8.8 percent decrease in the average economic fuel cost per gallon6.
Spirit reported third quarter 2016 cost per available seat mile ("ASM") excluding special items and fuel (“Adjusted CASM ex-fuel”)5 of 5.48 cents, an increase of 1.7 percent compared to the same period last year, primarily driven by higher salaries, wages, and benefits, and higher maintenance expense partially offset by lower aircraft rent per ASM.
"Our team continues to do a good job holding the line on core cost inflation. In addition, operational reliability improvements during the quarter produced more cost savings than we anticipated, provided a better product for our customers, and a better environment for our team members: a true "win-win-win" scenario," said Ted Christie, Spirit's Chief Financial Officer.
Labor
Spirit and its pilots, represented by the Airline Pilots Association, remain in open contract negotiations under the supervision of the National Mediation Board.
Fleet
During the third quarter 2016, Spirit took delivery of 2 new A321ceo aircraft, ending the quarter with 89 aircraft in its fleet. Also, during the quarter, Spirit purchased three A319 aircraft off lease and extended the leases for two other A319 aircraft.
Share Repurchase
During the third quarter 2016, Spirit returned $38 million to shareholders by repurchasing approximately 0.9 million shares. Year to date Spirit has returned $100 million to shareholders by repurchasing approximately 2.3 million shares.
Recent New Service Announcements
Boston - Orlando (10/7/16)
Philadelphia - Orlando (10/7/16)
Newark - Fort Lauderdale (10/30/16)
Newark - Orlando (10/30/16)
Kansas City - Orlando (11/10/16)
Akron-Canton - Fort Lauderdale (11/10/16)
Akron-Canton - Orlando (11/10/16)
Akron-Canton - Tampa (11/10/16)*
Akron-Canton - Fort Myers (11/11/16)*
Niagara Falls - Orlando (11/17/16)
Plattsburgh - Orlando (11/17/16
Baltimore - Fort Myers (11/10/16)
Baltimore - Tampa (11/10/16)
Fort Lauderdale - Havana, Cuba (12/1/16)**
Newark - Myrtle Beach (3/9/17)
Akron-Canton - Myrtle Beach (4/27/17)*
Akron-Canton - Las Vegas (4/27/17)
*seasonal
**subject to foreign government approval
2
Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results today, October 25, 2016, 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 US airline, we operate more than 400 daily flights to 56 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 to GAAP Net Income" table below for more details. |
(2) See "Reconciliation of Adjusted Operating Income to GAAP Operating Income" table below for more details.
(3) | See "Calculation for Return on Invested Capital" table below for more details. |
(4) | See "Special Items" table for more details. |
(5) See "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table below for more details.
(6) See "Reconciliation of Economic Fuel Expense to GAAP Fuel 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. Factors that could cause or contribute to such differences include, but are not limited to, those identified below. 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. Additional 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. You should carefully consider the risks described above and the other information in this release. If any of the above risks materialize, our business could be materially harmed, and our financial condition and results of operations could be materially and adversely affected. 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 these and other 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.
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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 | ||||||||||||||||||
2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||
Operating revenues: | |||||||||||||||||||||
Passenger | $ | 331,004 | $ | 319,812 | 3.5 | $ | 900,031 | $ | 901,851 | (0.2 | ) | ||||||||||
Non-ticket | 290,325 | 255,029 | 13.8 | 843,574 | 719,766 | 17.2 | |||||||||||||||
Total operating revenues | 621,329 | 574,841 | 8.1 | 1,743,605 | 1,621,617 | 7.5 | |||||||||||||||
Operating expenses: | |||||||||||||||||||||
Aircraft fuel | 121,844 | 115,899 | 5.1 | 321,018 | 356,232 | (9.9 | ) | ||||||||||||||
Salaries, wages and benefits | 120,190 | 95,081 | 26.4 | 349,530 | 281,175 | 24.3 | |||||||||||||||
Aircraft rent | 49,367 | 53,525 | (7.8 | ) | 151,433 | 159,440 | (5.0 | ) | |||||||||||||
Landing fees and other rents | 39,345 | 34,577 | 13.8 | 114,096 | 98,487 | 15.8 | |||||||||||||||
Distribution | 25,565 | 23,074 | 10.8 | 73,190 | 65,920 | 11.0 | |||||||||||||||
Maintenance, materials and repairs | 30,443 | 21,473 | 41.8 | 72,010 | 61,904 | 16.3 | |||||||||||||||
Depreciation and amortization | 25,304 | 19,628 | 28.9 | 73,370 | 51,630 | 42.1 | |||||||||||||||
Other operating | 66,277 | 54,151 | 22.4 | 197,833 | 156,071 | 26.8 | |||||||||||||||
Loss on disposal of assets | 423 | 290 | 45.9 | 1,166 | 1,300 | (10.3 | ) | ||||||||||||||
Special charges (credits) | 7,355 | (76 | ) | nm | 31,609 | 673 | nm | ||||||||||||||
Total operating expenses | 486,113 | 417,622 | 16.4 | 1,385,255 | 1,232,832 | 12.4 | |||||||||||||||
Operating income | 135,216 | 157,219 | (14.0 | ) | 358,350 | 388,785 | (7.8 | ) | |||||||||||||
Other (income) expense: | |||||||||||||||||||||
Interest expense | 11,362 | 5,951 | nm | 29,588 | 13,182 | nm | |||||||||||||||
Capitalized interest | (3,067 | ) | (3,030 | ) | 1.2 | (9,163 | ) | (8,392 | ) | 9.2 | |||||||||||
Interest income | (1,222 | ) | (233 | ) | nm | (4,235 | ) | (544 | ) | nm | |||||||||||
Other expense | 180 | 166 | 8.4 | 407 | 282 | 44.3 | |||||||||||||||
Total other (income) expense | 7,253 | 2,854 | nm | 16,597 | 4,528 | nm | |||||||||||||||
Income before income taxes | 127,963 | 154,365 | (17.1 | ) | 341,753 | 384,257 | (11.1 | ) | |||||||||||||
Provision for income taxes | 46,581 | 57,251 | (18.6 | ) | 125,367 | 141,437 | (11.4 | ) | |||||||||||||
Net income | $ | 81,382 | $ | 97,114 | (16.2 | ) | $ | 216,386 | $ | 242,820 | (10.9 | ) | |||||||||
Basic earnings per share | $ | 1.17 | $ | 1.35 | (13.3 | ) | $ | 3.06 | $ | 3.35 | (8.7 | ) | |||||||||
Diluted earnings per share | $ | 1.17 | $ | 1.35 | (13.3 | ) | $ | 3.05 | $ | 3.34 | (8.7 | ) | |||||||||
Weighted average shares, basic | 69,727 | 71,738 | (2.8 | ) | 70,689 | 72,432 | (2.4 | ) | |||||||||||||
Weighted average shares, diluted | 69,808 | 71,884 | (2.9 | ) | 70,832 | 72,680 | (2.5 | ) | |||||||||||||
5
SPIRIT AIRLINES, INC.
Condensed Statements of Comprehensive Income
(unaudited, in thousands)
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net income | $ | 81,382 | $ | 97,114 | $ | 216,386 | $ | 242,820 | |||||||
Unrealized gain (loss) on interest rate derivative instruments, net of deferred taxes of $0, ($320), $0 and ($511) | — | (553 | ) | — | (909 | ) | |||||||||
Unrealized gain (loss) on investment securities, net of deferred taxes of $3, $0, $3 and $0 | 4 | — | 4 | — | |||||||||||
Interest rate swap losses reclassified into earnings, net of taxes of $32, $15, $97 and $15 | 56 | 25 | 170 | 25 | |||||||||||
Other comprehensive income (loss) | $ | 60 | $ | (528 | ) | $ | 174 | $ | (884 | ) | |||||
Comprehensive income | $ | 81,442 | $ | 96,586 | $ | 216,560 | $ | 241,936 | |||||||
6
SPIRIT AIRLINES, INC.
Condensed Balance Sheets
(unaudited, in thousands)
September 30, | December 31, | ||||||
2016 | 2015 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 825,904 | $ | 803,632 | |||
Investment securities | 100,083 | — | |||||
Accounts receivable, net | 35,892 | 28,266 | |||||
Aircraft maintenance deposits | 87,105 | 73,415 | |||||
Prepaid income taxes | 6,060 | 72,278 | |||||
Prepaid expenses and other current assets | 48,455 | 48,749 | |||||
Total current assets | 1,103,499 | 1,026,340 | |||||
Property and equipment: | |||||||
Flight equipment | 1,386,310 | 834,927 | |||||
Ground property and equipment | 109,451 | 74,814 | |||||
Less accumulated depreciation | (105,653 | ) | (65,524 | ) | |||
1,390,108 | 844,217 | ||||||
Deposits on flight equipment purchase contracts | 272,690 | 286,837 | |||||
Long-term aircraft maintenance deposits | 198,426 | 206,485 | |||||
Deferred heavy maintenance, net | 79,878 | 89,127 | |||||
Other long-term assets | 85,024 | 77,539 | |||||
Total assets | $ | 3,129,625 | $ | 2,530,545 | |||
Liabilities and shareholders’ equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 29,906 | $ | 17,043 | |||
Air traffic liability | 238,793 | 216,831 | |||||
Current maturities of long-term debt | 84,443 | 49,637 | |||||
Other current liabilities | 217,779 | 182,729 | |||||
Total current liabilities | 570,921 | 466,240 | |||||
Long-term debt, less current maturities | 894,809 | 596,693 | |||||
Long-term deferred income taxes | 299,231 | 221,481 | |||||
Deferred gains and other long-term liabilities | 20,108 | 20,821 | |||||
Shareholders’ equity: | |||||||
Common stock | 7 | 7 | |||||
Additional paid-in-capital | 549,375 | 544,277 | |||||
Treasury stock, at cost | (218,572 | ) | (116,182 | ) | |||
Retained earnings | 1,015,140 | 798,754 | |||||
Accumulated other comprehensive loss | (1,394 | ) | (1,546 | ) | |||
Total shareholders’ equity | 1,344,556 | 1,225,310 | |||||
Total liabilities and shareholders’ equity | $ | 3,129,625 | $ | 2,530,545 | |||
7
SPIRIT AIRLINES, INC.SPIRIT AIRLINES, INC.
Condensed Statement of Cash Flows
(unaudited, in thousands)
Nine Months Ended September 30, | |||||||
2016 | 2015 | ||||||
Operating activities: | |||||||
Net income | 216,386 | 242,820 | |||||
Adjustments to reconcile net income to net cash provided by operations: | |||||||
Unrealized losses on open derivative contracts, net | — | 2,239 | |||||
Losses reclassified from other comprehensive income | 267 | — | |||||
Equity-based compensation | 5,503 | 6,999 | |||||
Allowance for doubtful accounts | 213 | 7 | |||||
Amortization of deferred gains and losses | 3,837 | 730 | |||||
Depreciation and amortization | 73,370 | 51,630 | |||||
Deferred income tax expense | 77,627 | 63,960 | |||||
Loss on disposal of assets | 1,166 | 1,300 | |||||
Lease termination cost | 31,609 | — | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (7,840 | ) | (10,374 | ) | |||
Aircraft maintenance deposits | (38,299 | ) | (17,488 | ) | |||
Prepaid income taxes | 66,218 | — | |||||
Long-term deposits and other assets | (43,252 | ) | (44,294 | ) | |||
Accounts payable | (7,044 | ) | 2,340 | ||||
Air traffic liability | 21,684 | 56,960 | |||||
Other liabilities | 38,596 | 12,161 | |||||
Net cash provided by operating activities | 440,041 | 368,990 | |||||
Investing activities: | |||||||
Proceeds from sale of property and equipment | 50 | — | |||||
Capitalized interest | (7,032 | ) | (2,707 | ) | |||
Pre-delivery deposits for flight equipment, net of refunds | (109,260 | ) | (87,658 | ) | |||
Purchase of investment securities | (100,076 | ) | — | ||||
Purchase of property and equipment | (447,455 | ) | (451,799 | ) | |||
Net cash used in investing activities | (663,773 | ) | (542,164 | ) | |||
Financing activities: | |||||||
Proceeds from issuance of long-term debt | 378,569 | 416,000 | |||||
Proceeds from stock options exercised | 92 | 32 | |||||
Payments on debt and capital lease obligations | (29,663 | ) | (16,609 | ) | |||
Proceeds from sale and leaseback transactions | — | 7,300 | |||||
Excess tax benefit (deficiency) from equity-based compensation | (497 | ) | 8,818 | ||||
Repurchase of common stock | (102,390 | ) | (112,162 | ) | |||
Debt issuance costs | (107 | ) | (14,092 | ) | |||
Net cash provided by financing activities | 246,004 | 289,287 | |||||
Net increase in cash and cash equivalents | 22,272 | 116,113 | |||||
Cash and cash equivalents at beginning of period | 803,632 | 632,784 | |||||
Cash and cash equivalents at end of period | $ | 825,904 | $ | 748,897 | |||
Supplemental disclosures | |||||||
Cash payments for: | |||||||
Interest, net of capitalized interest | $ | 26,025 | $ | 3,851 | |||
Income taxes paid, net of refunds | $ | (18,169 | ) | $ | 95,135 | ||
8
SPIRIT AIRLINES, INC.
Selected Operating Statistics (unaudited)
Three Months Ended September 30, | ||||||||
Operating Statistics | 2016 | 2015 | Change | |||||
Available seat miles (ASMs) (thousands) | 6,507,204 | 5,597,997 | 16.2 | % | ||||
Revenue passenger miles (RPMs) (thousands) | 5,599,370 | 4,768,692 | 17.4 | % | ||||
Load factor (%) | 86.0 | 85.2 | 0.8 pts | |||||
Passenger flight segments (thousands) | 5,674 | 4,776 | 18.8 | % | ||||
Block hours | 98,586 | 88,045 | 12.0 | % | ||||
Departures | 38,310 | 34,032 | 12.6 | % | ||||
Total operating revenue per ASM (TRASM) (cents) | 9.55 | 10.27 | (7.0 | )% | ||||
Average yield (cents) | 11.10 | 12.05 | (7.9 | )% | ||||
Average ticket revenue per passenger flight segment ($) | 58.34 | 66.96 | (12.9 | )% | ||||
Average non-ticket revenue per passenger flight segment ($) | 51.17 | 53.39 | (4.2 | )% | ||||
Total revenue per passenger flight segment ($) | 109.51 | 120.35 | (9.0 | )% | ||||
CASM (cents) | 7.47 | 7.46 | 0.1 | % | ||||
Adjusted CASM (cents) (1) | 7.35 | 7.45 | (1.3 | )% | ||||
Adjusted CASM ex-fuel (cents) (2) | 5.48 | 5.39 | 1.7% | |||||
Fuel gallons consumed (thousands) | 78,288 | 67,684 | 15.7 | % | ||||
Average economic fuel cost per gallon ($) | 1.56 | 1.71 | (8.8 | )% | ||||
Aircraft at end of period | 89 | 76 | 17.1 | % | ||||
Average daily aircraft utilization (hours) | 12.3 | 12.8 | (3.9)% | |||||
Average stage length (miles) | 968 | 983 | (1.5 | )% | ||||
Nine Months Ended September 30, | ||||||||
Operating Statistics | 2016 | 2015 | Change | |||||
Available seat miles (ASMs) (thousands) | 18,909,627 | 15,540,759 | 21.7 | % | ||||
Revenue passenger miles (RPMs) (thousands) | 16,219,093 | 13,267,314 | 22.2 | % | ||||
Load factor (%) | 85.8 | 85.4 | 0.4 | pts | ||||
Passenger flight segments (thousands) | 16,268 | 13,271 | 22.6 | % | ||||
Block hours | 290,529 | 248,941 | 16.7 | % | ||||
Departures | 111,495 | 95,240 | 17.1 | % | ||||
Total operating revenue per ASM (TRASM) (cents) | 9.22 | 10.43 | (11.6 | )% | ||||
Average yield (cents) | 10.75 | 12.22 | (12.0 | )% | ||||
Average ticket revenue per passenger flight segment ($) | 55.32 | 67.96 | (18.6 | )% | ||||
Average non-ticket revenue per passenger flight segment ($) | 51.85 | 54.24 | (4.4 | )% | ||||
Total revenue per passenger flight segment ($) | 107.17 | 122.20 | (12.3 | )% | ||||
CASM (cents) | 7.33 | 7.93 | (7.6 | )% | ||||
Adjusted CASM (cents) (1) | 7.15 | 7.93 | (9.8 | )% | ||||
Adjusted CASM ex-fuel (cents) (2) | 5.45 | 5.63 | (3.2 | )% | ||||
Fuel gallons consumed (thousands) | 225,851 | 187,541 | 20.4 | % | ||||
Average economic fuel cost per gallon ($) | 1.42 | 1.91 | (25.7 | )% | ||||
Average daily aircraft utilization (hours) | 12.6 | 12.8 | (1.6)% | |||||
Average stage length (miles) | 978 | 982 | (0.4 | )% | ||||
(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
Three Months Ended | |||||||
September 30, | |||||||
(in thousands) | 2016 | 2015 | |||||
Operating special items include the following (1): | |||||||
Unrealized losses (gains) related to fuel derivative contracts | $ | — | $ | 82 | |||
Loss on disposal of assets | 423 | 290 | |||||
Special charges | 7,355 | (76 | ) | ||||
Total operating special items | $ | 7,778 | $ | 296 | |||
Reconciliation of Adjusted Operating Expense to GAAP Operating Expense
(unaudited)
Three Months Ended | |||||||
September 30, | |||||||
(in thousands, except CASM data in cents) | 2016 | 2015 | |||||
Total operating expenses, as reported | $ | 486,113 | $ | 417,622 | |||
Less operating special items (1) | 7,778 | 296 | |||||
Adjusted operating expenses, non-GAAP (2) | 478,335 | 417,326 | |||||
Less: Economic fuel expense | 121,844 | 115,817 | |||||
Adjusted operating expenses excluding fuel, non-GAAP (3) | $ | 356,491 | $ | 301,509 | |||
Available seat miles | 6,507,204 | 5,597,997 | |||||
CASM (cents) | 7.47 | 7.46 | |||||
Adjusted CASM (cents) (2) | 7.35 | 7.45 | |||||
Adjusted CASM ex-fuel (cents) (3) | 5.48 | 5.39 | |||||
(1) | Special items include unrealized gains and losses related to outstanding fuel derivative contracts, loss on disposal of assets, and special charges. Special charges for the third quarter 2016 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. |
10
Reconciliation of Adjusted Net Income to GAAP Net Income
(unaudited)
Three Months Ended | |||||||
September 30, | |||||||
(in thousands, except per share data) | 2016 | 2015 | |||||
Net income, as reported | $ | 81,382 | $ | 97,114 | |||
Add: Provision for income taxes | 46,581 | 57,251 | |||||
Income before income taxes, as reported | 127,963 | 154,365 | |||||
Pre-tax margin, GAAP | 20.6 | % | 26.9 | % | |||
Add operating special items (1) | 7,778 | 296 | |||||
Income before income taxes, non-GAAP (2) | 135,741 | 154,661 | |||||
Adjusted pre-tax margin, non-GAAP (2) | 21.8 | % | 26.9 | % | |||
Provision for income taxes (3) | 49,412 | 57,361 | |||||
Adjusted net income, non-GAAP (2)(3) | $ | 86,329 | $ | 97,300 | |||
Weighted average shares, diluted | 69,808 | 71,884 | |||||
Adjusted net income per share, diluted (2)(3) | $1.24 | $1.35 | |||||
Reconciliation of Adjusted Operating Income to GAAP Operating Income
(unaudited)
Three Months Ended | |||||||
September 30, | |||||||
(in thousands) | 2016 | 2015 | |||||
Operating income, as reported | $ | 135,216 | $ | 157,219 | |||
Operating margin, GAAP | 21.8 | % | 27.3 | % | |||
Add operating special items (1) | 7,778 | 296 | |||||
Adjusted operating income, non-GAAP (2) | $ | 142,994 | $ | 157,515 | |||
Adjusted operating margin, non-GAAP (2) | 23.0 | % | 27.4 | % | |||
(1) | See "Special Items" for more details. |
(2) | Excludes operating special items. |
(3) | Assumes the same marginal tax rate as is applicable to GAAP net income. |
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The Company believes economic fuel expense is the best measure of the effect fuel prices are currently having on our business, because it most closely approximates the net cash outflow associated with purchasing fuel used for our operations during the period. Economic fuel expense is defined as into-plane fuel expense, realized gains or losses on derivative contracts, plus the economic premium expense related to fuel option contracts in the period the option is benefiting. The key difference between aircraft fuel expense as recorded in our statement of operations and economic fuel expense is unrealized mark-to-market changes in the value of aircraft fuel derivatives outstanding and the timing of premium gain or loss recognition on our outstanding fuel option contracts. Many industry analysts evaluate airline results using economic fuel expense, and it is used in our internal management reporting.
Reconciliation of Economic Fuel Expense to GAAP Fuel Expense
(unaudited)
Three Months Ended | |||||||
September 30, | |||||||
(in thousands, except per gallon data) | 2016 | 2015 | |||||
Fuel expense | |||||||
Aircraft fuel, as reported | $ | 121,844 | $ | 115,899 | |||
Less: | |||||||
Unrealized losses (gains) related to fuel derivative contracts | — | 82 | |||||
Economic fuel expense, non-GAAP | $ | 121,844 | $ | 115,817 | |||
Fuel gallons consumed | 78,288 | 67,684 | |||||
Economic fuel cost per gallon, non-GAAP | $ | 1.56 | $ | 1.71 | |||
Calculation of Return on Invested Capital
(unaudited)
Twelve Months Ended | |||
(in thousands) | September 30, 2016 | ||
Operating Income | $ | 478,687 | |
Add operating special items (1) | 31,091 | ||
Adjustment for aircraft rent | 203,524 | ||
Adjusted operating income (2) | 713,302 | ||
Tax (36.8%) (3) | 262,495 | ||
Adjusted operating income, after-tax | 450,807 | ||
Invested Capital | |||
Total debt | $ | 979,252 | |
Book equity | 1,344,556 | ||
Less: Unrestricted cash, cash equivalents & short-term investments | 925,987 | ||
Add: Capitalized aircraft operating leases (7x Aircraft Rent) | 1,424,668 | ||
Total invested capital | 2,822,489 | ||
Return on invested capital (ROIC), pre-tax (2) | 25.3 | % | |
Return on invested capital (ROIC), after-tax (2)(3) | 16.0 | % | |
(1) | Special items include unrealized gains or losses related to outstanding fuel derivative contracts, loss on disposal of assets, and special charges primarily related to lease termination costs. |
(2) | Excludes special items as described above. |
(3) | Assumes the same marginal tax rate as is applicable to GAAP net income for the twelve months ended September 30, 2016. |
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