UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 1994.
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . . . to . . . . . .
Commission file number 1-8957
ALASKA AIR GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1292054
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19300 Pacific Highway South, Seattle, Washington 98188
(Address of principal executive offices)
Registrant's telephone number, including area code: (206) 431-7040
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes_ No_
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
The registrant has 13,353,44013,366,984 common shares, par value $1.00,
outstanding at March 31,June 30, 1994.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Attached are the following Alaska Air Group, Inc. (the Company or
Air Group) unaudited financial statements: (i) consolidated
balance sheet as of March 31,June 30, 1994 and December 31, 1993; (ii)
consolidated statements of income for the quarters and six months
ended March
31,June 30, 1994 and 1993; (iii) consolidated statement of
shareholders' equity for the threesix months ended March 31,June 30, 1994; and,
(iv) consolidated statements of cash flows for the quarters and
six months ended March 31,June 30, 1994 and 1993. Also attached are the
accompanying notes to Air Group's consolidated financial
statements that have changed significantly during the threesix months
ended March 31,June 30, 1994. These statements include all adjustments
which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods. The
adjustments made were of a normal, recurring nature.
Air Group is a holding company incorporated in Delaware in 1985.
Its principal subsidiaries are Alaska Airlines, Inc. (Alaska) and
Horizon Air Industries, Inc. (Horizon).
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
FirstSecond Quarter 1994 Compared with FirstSecond Quarter 1993
The consolidated net lossincome for the firstsecond quarter of 1994 was
$6.3$9.7 million, or $.47$.72 per share.share (primary) and $.55 per share
(fully diluted). This compares with 1993's firstsecond quarter loss
of $15.0$3.6 million, or $1.25$.33 per share. The operating lossprofit for the
firstsecond quarter of 1994 was $2.9$24.5 million, compared to $16.8$2.1
million loss for the firstsecond quarter of 1993.
Operating Revenues
Operating revenues increased 12%19% from $277.5 million to $280.4 million from $250.2$330.5
million. Passenger revenues increased 10%20% on a 49%41% increase in
passenger traffic. Traffic gains were due to a 25%30% increase in
system capacity (including new service to Reno and Las Vegas),
lower fares that stimulated traffic throughout most of the
system, and improvements in market share. Load factor increased
from 50.4%57.4% in 1993 to 60.1%62.3% in 1994. Passenger yields decreased
26%15% reflecting fare reductions. Average revenue per passenger
mile (yield) decreased 5.22.7 cents, from 20.017.5 cents in the firstsecond
quarter of 1993 to 14.8 cents in the firstsecond quarter of 1994.
Currently, a 1 cent change in yield affects annual revenues by
aboutapproximately $70 million.
Freight and mail revenues increased $3.7$2.2 million (22%(11%) due to a
military charter contract in the state of Alaska, and increased
freight volumes and increased freightrates, offset by lower mail volumes. The
lower mail volumes resulted from Alaska's decision to not bid on
certain U.S. mail contracts and mail rates.instead haul higher yielding
freight. Other-net revenues were up $3.0$2.8 million (34%(25%) due to
increased revenues from Alaska's frequent flyer program,
maintenance contracts, and inflight liquor sales.
Operating Expenses
While capacity increased 25%, operatingOperating expenses increased only
6%11% to $283.3$306.0 million compared to $267.1 million in the first
quarteron a capacity
increase of last year.30%. Operating expenses per available seat mile
(ASM) declined 15%14%, from 11.9511.21 cents in the firstsecond quarter of
1993 to 10.159.60 cents for the current quarter. The lower unit costs
were due to an intensive cost reduction effort and better
utilization of Alaska's fleet. Alaska's daily aircraft
utilization increased 35%33% from 7.27.6 hours to 9.710.1 hours. In
addition, lower fuel prices reduced operating expenses by $5.3$7.2
million in the firstsecond quarter 1994. The table below shows the
major operating expense elementsexpenses on a unit cost basis for the quarters
ended March 31,June 30, 1994 and 1993.
Operating Expenses Per ASM (In Cents)
Increase %
1994 1993 (Decrease)Change Change
Wages and benefits 3.32 3.96 (.64) (16)3.15 3.71 (.56) (15)
Aircraft fuel 1.18 1.42 (.24) (17)1.08 1.40 (.32) (23)
Aircraft maintenance .60 .85 (.25) (29).56 .62 (.06) (10)
Aircraft rent 1.41 1.64 (.23) (14)1.29 1.55 (.26) (17)
Commissions .72 .84 (.12) (14).74 .82 (.08) (10)
Depreciation & amortization .46 .64 (.18) (28).45 .59 (.14) (24)
Other 2.46 2.60 (.14) (5)2.33 2.52 (.19) (8)
Total 10.15 11.95 (1.80) (15)9.60 11.21 (1.61) (14)
Wages and benefits per ASM decreased 16%15% primarily due to
improved productivity at Alaska. The number of Alaska employees
decreased 1%increased 3% while Alaska'sits capacity increased 27%31% and traffic
increased 52%42%. During March 1994, the CompanyAlaska and the Association of
Flight Attendants concluded a new five-year contract, which iswas
effective May 1, 1994. The contract is modeled after the one
used at Southwest Airlines and provides flight attendants the
opportunity to earn increased wages through increased flying. It
also provides a lower starting rate of pay, more flexible work
rules, and reduced pension expenses.
Fuel expense per ASM decreased 17%23% primarily due to a 14%17%
decrease in the cost of fuel. The average cost per gallon was
60.2down 12.0 cents from 69.2 cents in the first quarter of 1994, down 9.7 cents from the
firstsecond quarter of 1993 price of 69.9 cents.to
57.2 cents in the current quarter. Currently, a 1 cent change in
fuel prices affects annual fuel costs by about $2.2approximately $2.3
million.
Maintenance expense per ASM decreased 29%10% due to the replacement
of older aircraft with new aircraft during the past year as well
as significant improvements in maintenance programs, techniques
and efficiencies. Aircraft rent per ASM decreased 14%17% primarily
due to a substantial increase in Alaska's average fleet
utilization, offset by higher rents for new aircraft acquired
during the past year.
Depreciation and amortization expense per ASM decreased 28%24% due
to the retirement of essentially all of Alaska's Boeing 727-200
aircraft during 1993, and increased average fleet utilization.utilization of the remaining
fleet. Other expense per ASM decreased 5%8% due to lower unit
costs for food, advertising promotion, and personnel expenses.
Other Income Tax Expense (Credit)
The Company estimates an effective annual tax rate of 43% for
1994.
Outlook
The Company expects that the higher traffic and lower yield
trends seen(Expense)
Nonoperating expense was $6.9 million in the first quarter of 1994, will continue into the second quarter of
1994.both 1994 and 1993. Interest expense was $2.6 million higher in
1994 due to higher interest rates on variable debt and higher
average debt balances. Other-net was $3.1 million higher in 1994
due to gains on debt retirements and vendor credits.
Six Months 1994 Compared with Six Months 1993
The Company is continuing its effortsconsolidated net income for the six months ended June 30,
1994 was $3.4 million, or $.25 per share. This compares with
1993's first half net loss of $18.6 million, or $1.59 per share.
Operating revenues for the 1994 period were $610.9 million, 16%
higher than the $527.7 million posted a year ago. A 28% increase
in capacity coupled with a 20% decrease in yields resulted in
passenger traffic climbing 45% for the period. The reasons noted
for the second quarter passenger revenue variation also apply for
the six-month period.
Operating expenses increased 9% to reduce operating expenses and expects the trend toward lower
operating unit costs seen$589.3 million, compared to
$542.5 million in the first half of last year. Operating
expenses per available seat mile (ASM) declined 15%, from 11.56
cents to 9.86 cents. The table below shows the major operating
expenses on a unit cost basis for the six months ended June 30,
1994 and 1993.
Operating Expenses Per ASM (In Cents)
%
1994 1993 Change Change
Wages and benefits 3.23 3.83 (.60) (16)
Aircraft fuel 1.13 1.41 (.28) (20)
Aircraft maintenance .58 .73 (.15) (21)
Aircraft rent 1.35 1.59 (.24) (15)
Commissions .73 .83 (.10) (12)
Depreciation & amortization .45 .61 (.16) (26)
Other 2.39 2.56 (.17) (7)
Total 9.86 11.56 (1.70) (15)
The reasons noted for the second quarter 1994 to continue
in 1994. In June 1994, Southwest Airlines is expected to begin
service inexpense variations also
apply for the Pacific Northwest and between the Pacific
Northwest and northern California. Most of the new service
replaces service provided by Morris Air, which was acquired by
Southwest Airlines in December 1993.six-month period.
Liquidity and Capital Resources
The table below shows the major indicators of financial condition
and liquidity at March 31,June 30, 1994 and December 31, 1993 and the
changes during the threesix months ended MarchJune 30, 1994.
June 30, December Change
1994 31, 1994.
March 31,1994 December 31, 1993 Change
(In millions, except ratios and per share)
Cash and marketable $ 97.2 $ 101.1 $ (3.9)
securities $126.8 $101.1 $25.7
Working capital (deficit) (84.4)(86.4) (61.3) (23.1)(25.1)
Total assets 1,191.61,261.3 1,135.0 56.6126.3
Long-term debt 593.4596.6 525.4 68.071.2
Shareholders' equity 160.9171.1 166.8 (5.9)4.3
Book value per common $ 12.05 $ 12.51 $ (.46)
share $12.80 $12.51 $.29
Debt/equity ratio 79%78%:21%22% 76%:24% N/A
The Company's cash and marketable securities portfolio decreasedincreased
by $3.9$25.7 million during the first quarterhalf of 1994. Operating
activities provided $36$100 million of cash in the first quarterhalf of
1994. Additional cash was provided by $78$104 million in new long-
term debt. Cash was used for the purchase of three MD-80four new MD-83
aircraft, one used B737-200C aircraft, and other capital
expenditures ($89.6130 million), repayment of short-term borrowings
($20 million), debt payments ($8.232 million) and restricted
deposits ($2.75 million).
Financing Arrangements
In Marchthe first half of 1994, three MD-80MD-83 aircraft were financed
with $78 million of interim debt. TheLater this year, the Company
plans to refinance this debt with new ten-year loans at variable
interest rates based on LIBOR. In addition, one MD-83 aircraft
was financed with a $26 million ten-year loan at a variable
interest rate based on LIBOR.
At March 31,June 30, 1994, Alaska had $70 million in lines of credit.
$20 million of the lines are available and the balancecredit which
were being used as part of the above interim financing of three MD-80MD-83
aircraft.
Commitments
During the first quarterhalf of 1994, Alaska took delivery of twothree new
B737-400 aircraft under eight-year operating leases. In April
1994, Alaska further restructured its aircraft orders with
McDonnell Douglas and replaced thean order for ten MD-90s plus
options with an order for four MD-80s.MD-83s. Two MD-80sMD-83s will be
delivered in 1996 and two in 1997. The net effect will reduce
future capital spending by approximately $360 million.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In December 1992, the U.S. Department of Justice filed suit
against most major domestic airlines, including the Company,
alleging that they have violated the antitrust laws by conspiring to
fix prices for domestic airline tickets in violation of Section 1
of the Sherman Act. During March 1994, six of the airlines,
including the Company, entered into consent decrees with the U.S.
Department of Justice. The agreement requires no refunds or
monetary cost to the Company and is expected to be approved by
the court in secondthe third quarter of 1994.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a)Air Group's annual meeting of stockholders was held on May 17,
1994.
(b)Not applicable.
(c)Three directors were elected with the following results:
Votes Against
Director Votes For or Withheld Broker Non-Votes
M.J. Fate 11,995,547 145,765 0
J.F. Kelly 12,016,625 124,687 0
B.R. Kennedy 12,026,173 115,139 0
ITEM 6. Exhibits and Reports on Form 8-K
(a)Exhibit 11 - Statement regarding computation of per-share
earnings.
(b)No reports on Form 8-K were filed during the firstsecond quarter
1994.
Signatures
Pursuant to the requirements of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ALASKA AIR GROUP, INC.
Registrant
Date: April 29,August 4, 1994
/S/ Raymond J. Vecci
Raymond J. Vecci
Chairman, President and Chief Executive Officer
J. Ray Vingo
Vice President/Finance, Chief Financial
Officer, Treasurer and Director/s/ Kathleen H.Iskra
Kathleen H. Iskra
Controller (Principal Accounting Officer)
CONSOLIDATED BALANCE SHEET
Alaska Air Group, Inc.
ASSETS
March 31, DecemberJune 30, Dec. 31,
(In Thousands) 1994 1993
Current Assets
Cash and cash equivalents $27,555$48,718 $27,179
Marketable securities 69,60678,050 73,970
Receivables - net 77,33783,276 75,274
Inventories and supplies 42,24541,313 41,269
Prepaid expenses and other assets 39,25051,767 56,498
Total Current Assets 255,993303,124 274,190
Property and Equipment
Flight equipment 705,610745,199 614,717
Other property and equipment 216,933210,044 217,967
Deposits for future flight equipment 63,67454,971 79,765
986,2171,010,214 912,449
Less accumulated depreciation and amortization 249,112256,592 247,145
737,105753,622 665,304
Capital leases
Flight and other equipment 44,381 44,381
Less accumulated amortization 19,60620,133 19,079
24,77524,248 25,302
Total Property and Equipment - Net 761,880777,870 690,606
Intangible Assets - Subsidiaries 67,20166,691 67,711
Other Assets 106,513113,612 102,447
Total Assets $1,191,587$1,261,297 $1,134,954
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEET
Alaska Air Group, Inc.
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, DecemberJune 30, Dec. 31,
(In Thousands) 1994 1993
Current Liabilities
Accounts payable $47,280$49,333 $45,582
Accrued aircraft rent 32,36435,202 39,119
Other accrued liabilities 44,53268,148 46,679
Accrued wages, vacation pay and payroll tax 41,900taxes 42,086 40,192
Short-term borrowings - 20,000
Air traffic liability 134,431153,245 108,360
Current portion of long-term debt and
capital lease obligations 39,89741,464 35,575
Total Current Liabilities 340,404389,478 335,507
Long-Term Debt and Capital Lease
Obligations 593,405596,637 525,418
Other Liabilities and Credits
Deferred income taxes 15,82623,747 20,998
Deferred income 24,88223,939 25,827
Other liabilities 56,15156,426 60,371
96,859104,112 107,196
Shareholders' Equity
Common stock, $1 par value
Authorized: 30,000,000 shares
Issued: 1994 - 16,507,03116,520,575 shares
1993 - 16,495,210 shares 16,50716,521 16,495
Capital in excess of par value 152,146152,265 152,017
Treasury stock, at cost: 1994 - 3,153,591 shares
1993 - 3,153,5893,153,576 shares (71,807) (71,807)
Deferred compensation (5,555)(5,218) (5,813)
Retained earnings 69,62879,309 75,941
160,919171,070 166,833
Total Liabilities and Shareholders' Equity $1,191,587$1,261,297 $1,134,954
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF INCOME
Alaska Air Group, Inc.
Quarter Ended March 31June 30 (In Thousands) 1994 1993
Operating Revenues
Passenger $248,221 $224,757$294,245 $246,301
Freight and mail 20,236 16,56822,359 20,115
Other - net 11,925 8,91713,871 11,067
Total Operating Revenues 280,382 250,242330,475 277,483
Operating Expenses
Wages and benefits 92,795 88,699100,334 91,299
Aircraft fuel 32,927 31,73134,415 34,310
Aircraft maintenance 16,801 19,02617,869 15,350
Aircraft rent 39,408 36,69141,104 37,997
Commissions 19,997 18,71523,654 20,177
Depreciation and amortization 12,927 14,42014,276 14,437
Other 68,455 57,80674,332 61,831
Total Operating Expenses 283,310 267,088305,984 275,401
Operating Loss (2,928) (16,846)Income 24,491 2,082
Other Income (Expense)
Interest income 1,424 1,7761,711 1,963
Interest expense (9,877) (9,863)(11,810) (9,253)
Interest capitalized 103 -
Gain (loss)95 221
Loss on sale of assets (175) 178(327) (179)
Other - net 441 892
(8,084) (7,017)
Loss3,442 381
(6,889) (6,867)
Income (loss) before income tax credit (11,012) (23,863)17,602 (4,785)
Income tax credit (4,699) (8,830)expense (credit) 7,921 (1,196)
Net Loss $(6,313) $(15,033)
Net LossIncome (Loss) $9,681 $(3,589)
Earnings (Loss) Per Common Share:
Primary -
Net loss $(6,313) $(15,033)income (loss) $9,681 $(3,589)
Preferred stock dividends - (1,645)(880)
Net lossincome (loss) applicable to common shares $(6,313) $(16,678)$9,681 $(4,469)
Average shares outstanding (000) 13,349 13,334
Net loss13,366 13,341
Earnings (loss) per common share $(0.47) $(1.25)$0.72 $(0.33)
Fully Diluted -
Income applicable to common shares $12,077
Average shares outstanding (000) 22,055 Anti-
Earnings per common share $0.55 Dilutive
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF INCOME
Alaska Air Group, Inc.
Six Months Ended June 30 (In Thousands) 1994 1993
Operating Revenues
Passenger $542,466 $471,058
Freight and mail 42,595 36,683
Other - net 25,796 19,984
Total Operating Revenues 610,857 527,725
Operating Expenses
Wages and benefits 193,129 179,998
Aircraft fuel 67,342 66,041
Aircraft maintenance 34,670 34,376
Aircraft rent 80,512 74,688
Commissions 43,651 38,892
Depreciation and amortization 27,203 28,857
Other 142,787 119,637
Total Operating Expenses 589,294 542,489
Operating Income (Loss) 21,563 (14,764)
Other Income (Expense)
Interest income 3,135 3,739
Interest expense (21,687) (19,116)
Interest capitalized 198 221
Loss on sale of assets (502) (1)
Other - net 3,883 1,273
(14,973) (13,884)
Income (loss) before income tax 6,590 (28,648)
Income tax expense (credit) 3,222 (10,026)
Net Income (Loss) $3,368 $(18,622)
Earnings (Loss) Per Common Share:
Primary -
Net income (loss) $3,368 $(18,622)
Preferred stock dividends - (2,525)
Income (loss) applicable to common shares $3,368 $(21,147)
Average shares outstanding (000) 13,364 13,337
Earnings (loss) per common share $0.25 $(1.59)
The dilutive effect of the Company's common stock equivalents and
convertible securities was anti-dilutive for 1994 and 1993.
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Alaska Air Group, Inc.
-------- Common Stock--------Stock
Capital in Treasury Deferred
$1 Par Excess of Stock Compen- Retained
(In Thousands) Value Par Value at Cost sation Earnings
Balances at December 31, 1993 $16,495 $152,017 ($71,807) ($5,813) $75,941
Net lossincome for the three monthsix months
ended March 31,June 30, 1994 (6,313)3,368
Stock issued under stock plans 12 12926 248
Employee Stock Ownership PlanPlans
shares allocated 258595
Balances at March 31,June 30, 1994 $16,507 $152,146$16,521 $152,265 ($71,807) ($5,555) $69,6285,218) $79,309
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Alaska Air Group, Inc.
Quarter Ended March 31June 30 (In Thousands) 1994 1993
Cash and cash equivalents at beginning of quarter $27,179 $6,880$27,555 $8,701
Cash flows from operating activities:
Net loss (6,313) (15,033)income (loss) 9,681 (3,589)
Adjustments to reconcile net lossincome (loss) to cash:
Depreciation and amortization 12,927 14,42014,276 14,437
Amortization of airframe and engine overhauls 4,976 7,277
Loss (gain)5,292 7,448
Gain on disposaldisposition of assets and debt retirement 175 (504)(1,218) (81)
Deferred income taxes (5,172) (11,162)
Increase7,921 (1,280)
Decrease (increase) in accounts receivable (2,063) (5,025)
Decrease(5,939) 12,190
Increase in other current assets 16,272 8,035(11,585) (8,108)
Increase in air traffic liability 26,071 11,497
Decrease18,814 29,815
Increase in other current liabilities (5,496) (4,241)28,693 6,396
Interest on zero coupon notes 2,522 2,3502,567 2,487
Leased aircraft return payments and other-net (7,904) (2,957)(4,415) (1,017)
Net cash provided by operating activities 35,995 4,65764,087 58,698
Cash flows from investing activities:
Proceeds from disposition of assets 1,727 2321,774 530
Purchases of marketable securities (132,500) (77,950)(139,000) (180,775)
Sales and maturities of marketable securities 136,864 97,072130,556 155,743
Restricted deposits (2,674) (3,997)(2,580) 1,702
Future flight equipment deposits returned 6102,505 -
Additions to future flight equipment deposits (672) -(154) (379)
Additions to property and equipment (88,902) (8,924)(39,935) (9,413)
Net cash provided by (used in)used in investing activities (85,547) 6,433(46,834) (32,592)
Cash flows from financing activities:
Repayment of short-term borrowings (20,000)Proceeds from sale and leaseback transactions - 17,500
Proceeds from issuance of long-term debt 78,00026,000 -
Long-term debt and capital lease payments (8,213) (8,146)(23,768) (3,980)
Proceeds from issuance of common stock 141 124133 60
Repurchase of preferred stock - (33,375)
Cash dividends - (1,573)(856)
Gain on debt retirement - 3261,545 260
Net cash provided by (used in) financing activities 49,928 (9,269)3,910 (20,391)
Net increase in cash and cash equivalents 376 1,82121,163 5,715
Cash and cash equivalents at end of quarter 27,555 8,701$48,718 $14,416
Supplemental disclosure of cash paid during the quarter for:
Interest (net of amount capitalized) 7,122 6,767$13,774 $7,092
Income taxes (refunds) - -(18,554)
Noncash investing and financing activities:
1994 - None
1993 - The preferred stock was repurchased in exchange for a $27 million
note payable and a $33.4 million cash payment.
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Alaska Air Group, Inc.
Six Months Ended June 30 (In Thousands) 1994 1993
Cash and cash equivalents at beginning of period $27,179 $6,880
Cash flows from operating activities:
Net income (loss) 3,368 (18,622)
Adjustments to reconcile net income (loss) to cash:
Depreciation and amortization 27,203 28,857
Amortization of airframe and engine overhauls 10,268 14,725
Gain on disposition of assets and debt retirement (1,043) (585)
Deferred income taxes 2,749 (12,442)
Decrease (increase) in accounts receivable (8,002) 7,165
Decrease (increase) in other current assets 4,687 (73)
Increase in air traffic liability 44,885 41,312
Increase in other current liabilities 23,197 2,155
Interest on zero coupon notes 5,089 4,837
Leased aircraft return payments and other-net (12,319) (3,974)
Net cash provided by operating activities 100,082 63,355
Cash flows from investing activities:
Proceeds from disposition of assets 3,501 762
Purchases of marketable securities (271,500) (258,725)
Sales and maturities of marketable securities 267,420 252,815
Restricted deposits (5,254) (2,295)
Future flight equipment deposits returned 3,115 -
Additions to future flight equipment deposits (826) (379)
Additions to property and equipment (128,837) (18,337)
Net cash used in investing activities (132,381) (26,159)
Cash flows from financing activities:
Repayment of short-term borrowings (20,000) -
Proceeds from sale and leaseback transactions - 17,500
Proceeds from issuance of long-term debt 104,000 -
Long-term debt and capital lease payments (31,981) (12,126)
Proceeds from issuance of common stock 274 184
Repurchase of preferred stock - (33,375)
Cash dividends - (2,429)
Gain on debt retirement 1,545 586
Net cash provided by (used in) financing activities 53,838 (29,660)
Net increase in cash and cash equivalents 21,539 7,536
Cash and cash equivalents at end of period $48,718 $14,416
Supplemental disclosure of cash paid during the period for:
Interest (net of amount capitalized) $20,896 $16,057
Income taxes (refunds) (6,715) (18,554)
Noncash investing and financing activities:
1994 - None
None1993 - The preferred stock was repurchased in exchange for a $27 million
note payable and a $33.4 million cash payment.
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THAT HAVE CHANGED
SIGNIFICANTLY DURING THE THREESIX MONTHS ENDED MARCH 31,JUNE 30, 1994
Alaska Air Group, Inc.
Note 1. Long-Term Debt (See Note 3 to Consolidated Financial
Statements at December 31, 1993)
In Marchthe first half of 1994, three MD-80MD-83 aircraft were financed
with $78 million of interim debt with a term of up to ten years
and variable interest rate based on LIBOR. TheDuring the second
half of 1994, the Company plans to refinance this debt with new
ten-year loans at variable interest rates based on LIBOR. In
addition, in May 1994, one MD-83 aircraft was financed with a new$26
million ten-year loan at a variable interest rate based on LIBOR.
At March 31,June 30, 1994, Alaska had $70 million in lines of credit.
$20 million of the lines are available and the balancecredit which
were being used as part of the above interim financing of three
MD-80MD-83 aircraft.
At March 31,June 30, 1994, under the most restrictive loan provisions,
Alaska had $23.8$21.2 million of excess net worth and its cash
dividend payments to Air Group were limited to $17.7 million.worth.
Note 2. Commitments (See Note 5 to Consolidated Financial
Statements at December 31, 1993)
During the first quarterhalf of 1994, Alaska took delivery of twothree new
B737-400 aircraft under eight-year operating leases. In April
1994, Alaska further restructured its aircraft orders with
McDonnell Douglas and replaced thean order for ten MD-90s plus
options with an order for four MD-80s.MD-83s. Two MD-80sMD-83s will be
delivered in 1996 and two in 1997. The net effect will reduce
future capital spending by approximately $360 million.
Note 3. Fuel Hedge Agreement (See Note 11 to Consolidated
Financial Statements at December 31, 1993)
The Company enters into hedge agreements to reduce its
exposure to fluctuations in the price of jet fuel. The
agreements establish a ceiling and floor fuel price. The
Company records income or loss if the average cost of fuel,
as determined by an index, exceeds the ceiling fuel price or
falls below the floor price, respectively.
The fuel hedges had no material effect on the first half of 1994
operating results. At June 30, 1994, the Company had a fuel
hedge agreement in place with a ceiling price of 65 cents
covering approximately 22% of the expected fuel usage through
December 1994, and a floor price of 44 cents covering
approximately 44% of the expected fuel usage through December
1994.