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| 8-K - 8-K - Spirit Airlines, Inc. | a8-k4q17earningsrelease.htm |
EXHIBIT 99.1Spirit 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 credit1. Excluding the one-time tax credit and special items2, net income for the fourth quarter 2017 was $50.4 million ($0.73 per diluted share)3. |
• | GAAP net income for the full year 2017 was $420.6 million ($6.06 per diluted share) which included the one-time tax credit1. Excluding the one-time tax credit and special items2, net income for the full year 2017 was $230.8 million ($3.33 per diluted share)3. |
• | GAAP operating margin for the fourth quarter 2017 was 13.9 percent, or 13.4 percent excluding special items2. |
• | GAAP operating margin for the full year 2017 was 14.7 percent, or 15.2 percent excluding special items2. |
• | Spirit ended 2017 with unrestricted cash, cash equivalents, and short-term investments of $901.8 million. |
“I want to thank the Spirit family for their contributions throughout 2017. Together, we overcame several major operational challenges while still delivering a record on-time performance," said Robert Fornaro, Spirit’s Chief Executive Officer. “Looking ahead to 2018, we are focused on finalizing a deal with our pilots union, improving upon our operational reliability, continuing to enhance our guest experience, and delivering earnings growth for our shareholders.”
Revenue Performance
For the fourth quarter 2017, Spirit's total operating revenue was $667.0 million, an increase of 15.3 percent compared to the fourth quarter 2016, driven by a 10.4 percent increase in flight volume.
Total revenue per available seat mile (TRASM) for the fourth quarter 2017 decreased 1.8 percent compared to the same period last year, driven by a 2.2 percent decrease in operating yields.
On a per passenger flight segment basis, total revenue for the fourth quarter 2017 increased 1.1 percent year over year to $109.34 driven by non-ticket revenue per passenger flight segment increasing 3.8 percent to $53.91, partially offset by ticket revenue per passenger flight segment decreasing 1.4 percent to $55.43.
1
Cost Performance
For the fourth quarter 2017, total GAAP operating expense, including special items credit of $3.0 million2, increased 16.5 percent, or $81.4 million, year over year to $574.5 million. Adjusted operating expense for the fourth quarter 2017 increased 19.2 percent, or $93.1 million to $577.5 million4. The year-over-year increase in both GAAP and adjusted operating expense was primarily driven by an increase in flight volume; higher other operating expense, partially driven by increased ground handling rates; higher depreciation and amortization expense; and higher fuel rates.
Aircraft fuel expense increased in the fourth quarter 2017 by 38.5 percent, or $48.7 million, compared to the same period last year, due to a 20.1 percent increase in the cost of fuel per gallon and a 15.5 percent increase in fuel gallons consumed.
Spirit reported fourth quarter 2017 cost per available seat mile ("ASM"), excluding special items and fuel (“Adjusted CASM ex-fuel”), of 5.20 cents4, a decrease of 4.4 percent compared to the same period last year. The decrease year over year was primarily driven by lower aircraft rent and salaries, wages, and benefits per ASM, partially offset by higher depreciation and amortization per ASM.
“For the full year 2017, our team delivered an adjusted CASM ex-fuel of 5.51 cents, up 1.1 percent year over year. This was an admirable performance considering the hurricanes and other disruptions this year,” said Ted Christie, Spirit’s President and Chief Financial Officer. “Should the tentative agreement with our pilots be ratified, we will gain tools that will allow us to further improve our operational reliability and drive efficiencies, which gives us confidence that we will be able to maintain or grow our relative cost advantage.”
Labor
Spirit and its pilots, represented by the Air Line Pilots Association, reached a tentative agreement in January 2018 with the assistance of the National Mediation Board. The tentative agreement is subject to ratification.
Fleet
Spirit took delivery of four new A321ceo aircraft and two new A320ceo aircraft and returned one leased A321ceo aircraft during the fourth quarter 2017, ending the quarter with 112 aircraft in its fleet.
Share Repurchase
During the fourth quarter and full year 2017, Spirit returned approximately $45 million to shareholders by repurchasing 1.2 million shares under our share repurchase program.
Recent New Service Announcements
Columbus, Ohio - Orlando (02/15/2018)
Columbus, Ohio - Fort Lauderdale (02/15/2018)
Columbus, Ohio - Las Vegas (02/15/2018)
Columbus, Ohio - Fort Myers (02/15/2018)**
Columbus, Ohio - Tampa (02/16/2018 )**
Richmond - Orlando (03/15/2018)
Richmond - Fort Lauderdale (03/15/2018)
Baltimore - Montego Bay (03/22/2018)
Baltimore - Denver (03/22/2018)
Columbus, Ohio - New Orleans (03/22/2018)*
Fort Lauderdale - Guayaquil, Ecuador (03/22/2018)
Columbus, Ohio - Myrtle Beach (03/23/2018)*
Fort Lauderdale - Cap-Haïtien, Haiti (04/12/2018)
Fort Lauderdale - Seattle (04/12/2018)*
Minneapolis - Myrtle Beach (04/12/2018)*
Orlando - Las Vegas (04/12/2018)
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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.
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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 | ) | |||||||||||||
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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 | |||||||
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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 | |||
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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. |
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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. |
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