Spirit Airlines, Inc. - FORM 8-K - EX-99.1 - EARNINGS RELEASE 4Q14 - February 10, 2015

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EXHIBIT 99.1

Spirit Airlines Announces Fourth Quarter and Full Year 2014 Results;
Capacity Growth of 17.9 Percent Contributes to Adjusted Net Income Growth of 33.3 Percent for Full Year 2014

MIRAMAR, FL. (February 10, 2015) - Spirit Airlines, Inc. (NASDAQ: SAVE) today reported fourth quarter and full year 2014 financial results.
•
Adjusted net income for the fourth quarter 2014 increased 43.2 percent to $58.7 million ($0.80 per diluted share) compared to the fourth quarter 20131. GAAP net income for the fourth quarter 2014 increased 29.4 percent year over year to $55.9 million ($0.76 per diluted share).

•
Adjusted net income for the full year 2014 increased 33.3 percent year over year to $236.7 million ($3.23 per diluted share)1. GAAP net income for the full year 2014 increased 27.4 percent year over year to $225.5 million ($3.08 per diluted share).

•
Adjusted pre-tax margin for the fourth quarter 2014 was 19.7 percent, up 4.3 percentage points year over year. For the full year 2014, adjusted pre-tax margin was 19.2 percent, up 2.1 percentage points compared to 20131. On a GAAP basis, pre-tax margin for the fourth quarter 2014 was 18.8 percent and for the full year 2014 was 18.3 percent.

•
Spirit ended 2014 with an unrestricted cash and cash equivalents balance of $632.8 million.

•
Spirit's return on invested capital (before taxes and excluding special items) for the twelve months ended December 31, 2014 was 30.1 percent2.

“I want to thank our team members that contributed to our solid operational and financial performance in 2014.  During 2014, we improved our customers’ understanding of our Bare Fare™ plus Frill Control™ product design, which led to increased customer satisfaction, improved our financial results, and maintained a very high completion rate while improving our on-time performance by 600 basis points,” said Ben Baldanza, Spirit’s Chief Executive Officer.  “We have the right team, resources, and business model to continue to successfully grow our business.  I’m pleased to be a part of the Spirit team and am excited about bringing our ultra-low fares to even more people in more places.”

Revenue Performance
For the fourth quarter 2014, Spirit's total operating revenue was $474.5 million, an increase of 13.0 percent compared to the fourth quarter 2013, driven by an increase in flight volume.

Total revenue per available seat mile (“RASM”) for the fourth quarter 2014 decreased 5.1 percent compared to the fourth quarter 2013 on a capacity increase of 18.9 percent. The decrease was driven by a mix of lower passenger yields and a 1.4 point decline in load factor.

Total revenue per passenger flight segment ("PFS") for the fourth quarter 2014 decreased 3.7 percent year over year to $127.91, driven by a 6.1 percent decrease in ticket revenue per PFS and a 0.3 percent decrease in non-ticket revenue per PFS. During the fourth quarter, the Company transitioned its onboard catering to a third-party provider under a revenue share agreement. As a result of this change,

1



in the fourth quarter 2014, the Company recorded lower non-ticket revenue and correspondingly lower costs than it would have otherwise.

Cost Performance
Total operating expenses for the fourth quarter 2014, excluding $4.5 million of special items3, increased 6.9 percent to $380.0 million. Including special items, total operating expenses increased 9.3 percent year over year to $384.5 million.
 
Spirit reported fourth quarter 2014 cost per available seat mile ("ASM") excluding special items and fuel (“Adjusted CASM ex-fuel”)3 of 5.61 cents, a decrease of 2.9 percent compared to the same period last year driven in part by lower distribution expense, maintenance expense, and aircraft rent per ASM. Distribution expense per ASM in the fourth quarter 2014 was lower compared to the same period last year primarily due to a one-time litigation settlement gain of approximately $2.9 million and a larger percentage of tickets being booked directly through spirit.com, the Company's lowest cost distribution channel. The decrease in maintenance expense per ASM year over year was driven by an expense reversal in the fourth quarter 2014 associated with an insurance claim, along with a one-time $750,000 insurance deductible expense in the fourth quarter 2013. The decrease in aircraft rent per ASM was driven by a change in the mix of leased (rent recorded under aircraft rent) and purchased (amortization recorded under depreciation and amortization) aircraft.

"I am extremely proud of the cost improvements our team continues to deliver. Full year 2014 Adjusted CASM ex-fuel decreased 0.5 percent despite 200 basis points of pressure from depreciation and amortization related to the amortization of heavy maintenance events, and increases in pilot costs as a result of FAR 117," said Ted Christie, Spirit's Chief Financial Officer. "Our team's dedication and commitment to improve our ultra-low cost structure positions us well to deliver a step function change in our cost structure for 2015 and to further increase our competitive cost advantage."

Fleet
In the fourth quarter 2014, Spirit took delivery of seven new A320 aircraft, ending the year with 65 aircraft in its fleet. 

Full Year 2014 Highlights
•
Maintained its commitment to offer low fares to its valued customers; average ticket revenue per PFS for the fourth quarter 2014 was $73.21 with total revenue per PFS of $127.91.
•
Launched service in 24 new nonstop routes in 2014 and added Kansas City, Missouri as Spirit's 56th destination.
•
Announced service in 26 new nonstop routes starting in 2015, including new routes to Cleveland, Ohio as Spirit’s 57th destination.
•
Improved on-time performance and maintained one of the highest completion factors in the industry.
•
Named Value Airline of the Year by Air Transport World and the Most Fuel-efficient Airline by the International Council on Clean Transportation.
•
Announced a $100 million share buyback authorization.
•
Purchased its first A320 aircraft using on-balance sheet debt, and finished the year with four owned aircraft.
•
Revealed a new logo, revitalized digital presence, including introducing fun videos and more, all designed to help customers learn the keys to saving on Spirit.
•
Created over 600 new jobs, bringing our total number of team members to 4,338.
◦



2





Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results today, February 10, 2015, at 10:00 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 modern and fuel-efficient all-Airbus fleet, we operate more than 325 daily flights to 57 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 "Calculation for Return on Invested Capital" table below for more details.
(3)
See "Reconciliation of Adjusted Operating Expense to GAAP Operating Income" 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, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events. The words “expects,” “estimates,” “plans,” “anticipates,” “indicates,” “believes,” “forecast,” “guidance,” “outlook,” “may,” “will,” “should,” “seeks,” “targets” and similar expressions are intended to identify forward-looking statements. Similarly, statements that describe the Company's objectives, plans or goals, or actions the Company may take in the future, are forward-looking statements. Forward-looking statements include, without limitation, statements regarding the Company's intentions and expectations regarding revenues, cost of operations, the delivery schedule of aircraft on order, and announced new service routes. All forward-looking statements are based upon information available to the Company at the time the statement is made. The Company has no intent, nor undertakes any obligation, to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law. Forward-looking statements are subject to a number of factors that could cause the Company's actual results to differ materially from the Company's expectations, including the competitive environment in the airline industry; the Company's ability to keep costs low; changes in fuel costs; the impact of worldwide economic conditions on customer travel behavior; the Company's ability to generate non-ticket revenues; and government regulation. 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.


3



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

 
Three Months Ended

 
 
Year Ended
 
 
 
December 31,
 
Percent
 
December 31,
 
Percent

2014

2013

Change
 
2014
 
2013
 
Change
Operating revenues:





 
 
 
 
 
 
Passenger
$
271,569


$
246,503


10.2

 
$
1,144,972

 
$
986,018

 
16.1

Non-ticket
202,918


173,481


17.0

 
786,608

 
668,367

 
17.7

Total operating revenues
474,487


419,984


13.0

 
1,931,580

 
1,654,385

 
16.8







 
 
 
 
 
 
Operating expenses:





 
 
 
 
 
 
Aircraft fuel
138,002


139,843


(1.3
)
 
612,909

 
551,746

 
11.1

Salaries, wages and benefits
81,212


69,392


17.0

 
313,988

 
262,150

 
19.8

Aircraft rent
51,209


44,616


14.8

 
195,827

 
169,737

 
15.4

Landing fees and other rents
27,533


22,096


24.6

 
105,115

 
83,604

 
25.7

Distribution
15,893


16,607


(4.3
)
 
74,823

 
67,481

 
10.9

Maintenance, materials and repairs
17,515


16,253


7.8

 
73,956

 
60,143

 
23.0

Depreciation and amortization
13,168


9,544


38.0

 
46,971

 
31,947

 
47.0

Other operating
38,630


33,787


14.3

 
149,675

 
144,586

 
3.5

Loss on disposal of assets
1,350


99


na

 
3,008

 
525

 
na

Special charges (credits)
—


(314
)

na

 
45

 
174

 
na

Total operating expenses
384,512


351,923


9.3

 
1,576,317

 
1,372,093

 
14.9










 
 
 
 
 
 
Operating income
89,975


68,061


32.2

 
355,263

 
282,292

 
25.8







 
 
 
 
 
 
Other (income) expense:





 
 
 
 
 
 
Interest expense
1,659


74


na

 
2,747

 
214

 
na

Capitalized interest
(1,659
)

(74
)

na

 
(2,747
)
 
(214
)
 
na

Interest income
(101
)

(93
)

8.6

 
(336
)
 
(401
)
 
(16.2
)
Other expense
1,048


31


na

 
2,605

 
283

 
na

Total other (income) expense
947


(62
)

na

 
2,269

 
(118
)
 
na









 
 
 
 
 
 
Income before income taxes
89,028


68,123


30.7

 
352,994

 
282,410

 
25.0

Provision for income taxes
33,119


24,930


32.8

 
127,530

 
105,492

 
20.9

Net income
$
55,909


$
43,193


29.4

 
$
225,464

 
$
176,918

 
27.4

Basic earnings per share
$
0.77


$
0.59


30.5

 
$
3.10

 
$
2.44

 
27.0

Diluted earnings per share
$
0.76


$
0.59


28.8

 
$
3.08

 
$
2.42

 
27.3







 
 
 
 
 
 
Weighted average shares, basic
72,776


72,658


0.2

 
72,739

 
72,593

 
0.2

Weighted average shares, diluted
73,324


73,195


0.2

 
73,294

 
72,999

 
0.4






4



SPIRIT AIRLINES, INC.
Balance Sheets
(unaudited, in thousands)
 
December 31,
 
December 31,
 
2014
 
2013
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
632,784

 
$
530,631

Accounts receivable, net
22,685

 
23,246

Deferred income taxes
9,643

 
16,243

Prepaid expenses and other current assets
66,029

 
78,955

Total current assets
731,141

 
649,075

 
 
 
 
Property and equipment:
 
 
 
Flight equipment
204,462

 
12,744

Ground and other equipment
57,012

 
48,090

Less accumulated depreciation
(36,099
)
 
(25,221
)
 
225,375

 
35,613

Deposits on flight equipment purchase contracts
242,881

 
157,669

Aircraft maintenance deposits
213,147

 
161,484

Deferred heavy maintenance, net
123,108

 
125,288

Other long-term assets
67,329

 
51,636

Total assets
$
1,602,981

 
$
1,180,765

 
 
 
 
Liabilities and shareholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
13,402

 
$
23,104

Air traffic liability
188,870

 
167,627

Current maturities of long-term debt
10,431

 
—

Other current liabilities
152,921

 
145,262

Total current liabilities
365,624

 
335,993

 
 
 
 
Long-term debt less current maturities
135,817

 
—

Long-term deferred income taxes
76,010

 
48,916

Deferred gains and other long-term liabilities
22,455

 
26,739

Shareholders’ equity:
 
 
 
Common stock: Common stock, $0.0001 par value, 240,000,000 shares authorized at December 31, 2014 and 2013, respectively; 72,992,498 and 72,670,673 issued and 72,860,356 and 72,566,426 outstanding as of December 31, 2014 and 2013, respectively
7

 
7

Additional paid-in-capital
526,173

 
515,331

Treasury stock, at cost: 132,142 and 104,247 shares as of December 31, 2014 and 2013, respectively
(3,921
)
 
(2,291
)
Retained earnings
481,534

 
256,070

Accumulated other comprehensive income (loss)
(718
)
 
—

Total shareholders’ equity
1,003,075

 
769,117

Total liabilities and shareholders’ equity
$
1,602,981

 
$
1,180,765


5



SPIRIT AIRLINES, INC.
Statement of Cash Flows
(unaudited, in thousands)
 
Year Ended December 31,
 
2014
 
2013
Operating activities:
 
 
 
Net income
$
225,464

 
$
176,918

Adjustments to reconcile net income to net cash provided by operations:
 
 
 
Unrealized (gains) losses on open fuel hedge contracts
—

 
265

Non-cash restructuring credit charges, net
 
 
 
Equity-based compensation, net
8,797

 
5,689

Allowance for doubtful accounts (recoveries)
(45
)
 
143

Amortization of deferred gains and losses and debt issuance costs
(185
)
 
(558
)
Depreciation and amortization
46,971

 
31,947

Deferred income tax
34,118

 
12,047

Loss on disposal of assets
3,008

 
525

Gain on slot sale
 
 
 
Capitalized interest
(2,747
)
 
(214
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
606

 
(461
)
Prepaid maintenance reserves
(31,925
)
 
(24,058
)
Long-term deposits and other assets
(48,382
)
 
(65,654
)
Accounts payable
(10,034
)
 
(1,674
)
Air traffic liability
21,135

 
36,226

Other liabilities
13,731

 
24,235

Net cash provided by operating activities
260,512

 
195,376

 
 
 
 
Investing activities:
 
 
 
Pre-delivery deposits for flight equipment, net of refunds
(115,802
)
 
(70,288
)
Purchase of property and equipment
(186,569
)
 
(19,812
)
Net cash used in investing activities
(302,371
)
 
(90,100
)
Financing activities:
 
 
 
Proceeds from issuance of long-term debt
148,000

 
—

Proceeds from stock options exercised
174

 
852

Payments on debt and capital lease obligations
(1,233
)
 
—

Proceeds from sale and leaseback transactions
7,200

 
6,900

Payments to pre-IPO shareholders pursuant to tax receivable agreement
(5,643
)
 
—

Excess tax benefits from equity-based compensation
1,871

 
1,927

Repurchase of common stock
(1,630
)
 
(1,140
)
Debt issuance costs
(4,727
)
 
—

Net cash provided by financing activities
144,012

 
8,539

Net increase in cash and cash equivalents
102,153

 
113,815

Cash and cash equivalents at beginning of period
530,631

 
416,816

Cash and cash equivalents at end of period
$
632,784

 
$
530,631

Supplemental disclosures
 
 
 
Cash payments for:
 
 
 
Interest
$
1,318

 
$
29

Taxes
$
89,104

 
$
85,705


6



SPIRIT AIRLINES, INC.
Selected Operating Statistics (unaudited)
 
Three Months Ended December 31,

 
Operating Statistics
2014

2013

Change
Available seat miles (ASMs) (thousands)
4,372,511


3,675,972


18.9
 %
Revenue passenger miles (RPMs) (thousands)
3,707,271


3,167,376


17.0
 %
Load factor (%)
84.8


86.2


(1.4) pts

Passenger flight segments (thousands)
3,709


3,161


17.3
 %
Block hours
70,730


60,596


16.7
 %
Departures
27,167


22,957


18.3
 %
Operating revenue per ASM (RASM) (cents)
10.85


11.43


(5.1
)%
Average yield (cents)
12.80


13.26


(3.5
)%
Average ticket revenue per passenger flight segment ($)
73.21


77.98


(6.1
)%
Average non-ticket revenue per passenger flight segment ($)
54.70


54.88


(0.3
)%
Total revenue per passenger flight segment ($)
127.91


132.86


(3.7
)%
CASM (cents)
8.79


9.57


(8.2
)%
Adjusted CASM (cents) (1)
8.69


9.67


(10.1
)%
Adjusted CASM ex-fuel (cents) (2)
5.61


5.78


(2.9)%

Fuel gallons consumed (thousands)
52,732


45,100


16.9
 %
Average economic fuel cost per gallon ($)
2.56


3.17


(19.2
)%
Aircraft at end of period
65


54


20.4
 %
Average daily aircraft utilization (hours)
12.5


12.5


—

Average stage length (miles)
983


998


(1.5
)%
Airports served in the period
53


53


—

 
Year Ended December 31,
 
 
Operating Statistics
2014

2013

Change
Available seat miles (ASMs) (thousands)
16,340,142


13,861,393


17.9
 %
Revenue passenger miles (RPMs) (thousands)
14,159,860


12,001,088


18.0
 %
Load factor (%)
86.7


86.6


0.1
  pts
Passenger flight segments (thousands)
14,294


12,414


15.1
 %
Block hours
267,305


231,148


15.6
 %
Departures
102,594


90,284


13.6
 %
Operating revenue per ASM (RASM) (cents)
11.82


11.94


(1.0
)%
Average yield (cents)
13.64


13.79


(1.1
)%
Average ticket revenue per passenger flight segment ($)
80.11


79.43


0.9
 %
Average non-ticket revenue per passenger flight segment ($)
55.03


53.84


2.2
 %
Total revenue per passenger flight segment ($)
135.14


133.27


1.4
 %
CASM (cents)
9.65


9.90


(2.5
)%
Adjusted CASM (cents) (1)
9.55


9.89


(3.4
)%
Adjusted CASM ex-fuel (cents) (2)
5.88


5.91


(0.5
)%
Fuel gallons consumed (thousands)
200,498


171,931


16.6
 %
Average economic fuel cost per gallon ($)
2.99


3.21


(6.9
)%
Average daily aircraft utilization (hours)
12.7


12.7


—

Average stage length (miles)
980


958


2.3
 %

(1)
Excludes special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table below.
(2)
Excludes economic fuel expense and special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table below.


7




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 an analytical tool. 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.
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)
2014

2013
 
2014
 
2013
Operating special items include the following:
 
 
 
 
 
 
 
Prior years' additional federal excise tax
$
—

 
$
—

 
$
9,278

 
$
—

Unrealized (gains) and losses arising from mark-to-market adjustments to outstanding fuel derivatives
—

 
(3,224
)
 
—

 
265

Loss on disposal of assets
1,350

 
99

 
3,008

 
525

Special charges (credits)
—

 
(314
)
 
45

 
174

Expense recognized related to premiums paid on fuel option contracts
3,963

 
—

 
4,876

 
—

Fuel option premium realized in the period
(845
)
 
—

 
(995
)
 
—

Total special items:
$
4,468

 
$
(3,439
)
 
$
16,212

 
$
964


 
 
 
 
 
 
 
Total operating expenses, as reported
$
384,512

 
$
351,923

 
$
1,576,317

 
$
1,372,093

Less special items (1)
4,468

 
(3,439
)
 
16,212

 
964

Adjusted operating expenses, non-GAAP (2)
380,044

 
355,362

 
1,560,105

 
1,371,129

Less: Economic fuel expense
134,884

 
143,067

 
599,750

 
551,481

Adjusted operating expenses excluding fuel, non-GAAP (3)
$
245,160

 
$
212,295

 
$
960,355

 
$
819,648


 
 
 
 
 
 
 
Available seat miles
4,372,511

 
3,675,972

 
16,340,142

 
13,861,393


 
 
 
 
 
 
 
CASM (cents)
8.79

 
9.57

 
9.65

 
9.90

Adjusted CASM (cents) (2)
8.69

 
9.67

 
9.55

 
9.89

Adjusted CASM ex-fuel (cents) (3)
5.61

 
5.78

 
5.88

 
5.91



(1)
Special items include additional federal excise tax on a minority of fuel volume for the period beginning July 1, 2009 through December 31, 2013, unrealized gains and losses arising from mark-to-market adjustments to outstanding fuel derivatives, loss on disposal of assets, special charges (credits), premium expense recognized related to fuel option contracts, and realized fuel option premium expense related to options settling in the period.
(2)
Excludes special items as referred to above.
(3)
Excludes economic fuel expense as described in the "Reconciliation of Economic Fuel Expense to GAAP Fuel Expense" table below and special items as referred to above.




8



Reconciliation of Adjusted Net Income to GAAP Net Income
(unaudited)


 
Three Months Ended
 
Year Ended
 
December 31,
 
December 31,
(in thousands, except per share data)
2014
 
2013
 
2014
 
2013
Net income, as reported
$
55,909

 
$
43,193

 
$
225,464

 
$
176,918

Add: Provision for income taxes
33,119

 
24,930

 
127,530

 
105,492

Income before income taxes, as reported
89,028

 
68,123

 
352,994

 
282,410

Pre-tax margin, GAAP
18.8
%
 
16.2
%
 
18.3
%
 
17.1
%
Add special items (1)
4,468

 
(3,439
)
 
16,212

 
964

Add: Non-operating special charges (2)
—

 
—

 
1,388

 
—

Income before income taxes, non-GAAP (3)
93,496

 
64,684

 
370,594

 
283,374

Pre-tax margin, non-GAAP (3)
19.7
%
 
15.4
%
 
19.2
%
 
17.1
%
Provision for income taxes (4)
34,781

 
23,671

 
133,889

 
105,852

Adjusted net income, non-GAAP (3)
$
58,715

 
$
41,013

 
$
236,705

 
$
177,522

 
 
 
 
 
 
 
 
Weighted average shares, diluted
73,324

 
73,195

 
73,294

 
72,999

 
 
 
 
 
 
 
 
Adjusted net income per share, diluted
$0.80
 
$0.56
 
$3.23
 
$2.43



(1)
See special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table above for more details.
(2)
Non-operating special charges relate to the settlement paid to the Pre-IPO Stockholders in excess of the liability the Company had previously estimated related to the Company's Tax Receivable Agreement.
(3)
Excludes special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table above and non-operating special charges.
(4)
Assumes same marginal tax rate as is applicable to GAAP net income.



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

 
Three Months Ended
 
Year Ended

December 31,
 
December 31,
(in thousands)
2014

2013
 
2014
 
2013
Operating income, as reported
$
89,975


$
68,061

 
$
355,263

 
$
282,292

Operating margin, GAAP
19.0
%

16.2
%
 
18.4
%
 
17.1
%
Add special items (1)
4,468

 
(3,439
)
 
16,212

 
964

Operating income, non-GAAP (2)
$
94,443


$
64,622

 
$
371,475

 
$
283,256

Operating margin (2)
19.9
%

15.4
%
 
19.2
%
 
17.1
%


(1)
See special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table above for more details.
(2)
Excludes special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table above.




9



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
 
Year Ended
 
December 31,
 
December 31,
(in thousands, except per gallon data)
2014
 
2013
 
2014

2013
Fuel Expense



 



Aircraft fuel, as reported
$
138,002


$
139,843

 
$
612,909


$
551,746

Less:





 





Prior years' additional federal excise tax
—


—

 
9,278


—

Impact on fuel expense from unrealized (gains) and losses arising from mark-to-market adjustments to our outstanding fuel derivatives
—


(3,224
)
 
—


265

Expense recognized related to premiums paid on fuel option contracts
3,963


—

 
4,876


—

Add: Fuel option premium realized in the period
845


—

 
995


—

Economic fuel expense, non-GAAP
$
134,884


$
143,067

 
$
599,750


$
551,481





 



Fuel gallons consumed
52,732


45,100

 
200,498


171,931





 



Economic fuel cost per gallon, non-GAAP
$
2.56


$
3.17

 
$
2.99


$
3.21



10



Calculation of Return on Invested Capital
(unaudited)
 
Twelve Months Ended
(in thousands)
December 31, 2014
Operating Income
$
355,263

Add special items (1)
16,212

Adjustment for aircraft rent
195,827

Adjusted Operating Income (2)
567,302

Tax (36.1%) (3)
204,796

Adjusted Operating Income, after-tax
362,506

Invested Capital
 
Total debt
$
146,248

Book equity
1,003,075

Less: Unrestricted cash
632,784

Add: Capitalized aircraft operating leases (7x Aircraft Rent)
1,370,789

Total Invested Capital
1,887,328

 
 
Return on Invested Capital (ROIC), pre-tax
30.1
%
Return on Invested Capital (ROIC), after-tax
19.2
%

(1)
See special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table above for more details.
(2)
Excludes special items as described in the "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table above.
(3)
Assumes same marginal tax rate as is applicable to GAAP net income for the twelve months ended December 31, 2014.

###

11

Spirit Airlines, Inc. Reports