The Company's cash and marketable securities portfolio decreased by $91.1 million during the first six months of 2001. Operating activities provided $123.7 million of cash during this period. Additional cash was provided by the issuance of $136.5 million of new debt and the return of $50.6 million of flight equipment deposits. Cash was used for $284.6 million of capital expenditures, including the purchase of seven new Boeing 737 aircraft, flight equipment deposits, spare parts and airframe and engine overhauls, and for $117.8 million of debt repayment.
Shareholders' equity decreased $27.8 million, primarily due to the net loss of $28.4 million.
Commitments At June 30, 2001, the Company had firm orders for 48 aircraft requiring aggregate payments of approximately $1.1 billion, as set forth below. In addition, Alaska has options to acquire 26 more B737s, and Horizon has options to acquire 15 Dash 8-400s and 25 CRJ 700s. Alaska and Horizon expect to finance the new planes with leases, long-term debt or internally generated cash.
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| Delivery Period - Firm Orders
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| Aircraft
| 2001
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| 2002
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| 2003
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| 2004
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| 2005
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| Total
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| Boeing 737-700 | — | | 2 | | — | | -- | | — | | 2 | |
| Boeing 737-900 | 1 | | 2 | | 4 | * | — | | -- | | 7 | |
| de Havilland Dash 8-400 | 10 | | — | | -- | | — | | -- | | 10 | |
| Canadair RJ 700 | 8 | | 8 | | 4 | | 5 | | 4 | | 29 | |
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| Total | 19 | | 12 | | 8 | | 5 | | 4 | | 48 | |
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| Payments (Millions) | $ | 434 | | $ | 240 | | $ | 191 | | $ | 131 | | $ | 110 | | $ | 1,106 | |
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* With manufacturer approval, some of these firm orders may be converted to other Next Generation Boeing 737 aircraft.
New Accounting Standards In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations" (effective July 1, 2001) and SFAS No. 142, "Goodwill and Other Intangible Assets" (effective for the Company on January 1, 2002). SFAS 141 prohibits pooling-of-interests accounting for acquisitions. SFAS 142 specifies that goodwill and some intangible assets will no longer be amortized but instead will be subject to periodic impairment testing. The Company is in the process of evaluating the financial statement impact of adoption of SFAS 142. However, the Compamy expects that the adoption of SFAS 142 will not have a material impact on the financial statements.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Oakland Maintenance Investigation
In December 1998 the U.S. attorney for the Northern District of California initiated a grand jury investigation concerning certain 1998 maintenance activities at Alaska’s Oakland maintenance base. The investigation has also included the aircraft involved in the loss of Flight 261 in January 2000. Alaska is cooperating with this investigation. To the Company’s knowledge, no charges have been filed. The FAA has separately proposed a civil penalty of $44,000 in connection with this matter. The parties are in settlement discussions over this penalty. These proceedings are described in more detail in the Alaska Air Group, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2000.
Flight 261 Litigation
Alaska is a defendant in a number of lawsuits relating to the loss of Flight 261 on January 31, 2000. Lawsuits on behalf of all 88 passengers and crew on board have been filed against Alaska, The Boeing Company and others. The suits seek unspecified compensatory and punitive damages. In May 2001 the judge presiding over the majority of the cases ruled that punitive damages are not available against Alaska. Consistent with industry standards, the Company maintains insurance against aircraft accidents. This litigation is described in more detail in the Alaska Air Group, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2000.
FAA Audit
In April 2000, the FAA performed an audit of Alaska's maintenance and flight operations departments to ensure adherence to mandated procedures. The FAA proposed civil penalties of approximately $1 million in connection with this inspection, which the parties have settled for a negotiated amount. The Company expects no further material activity in this matter. This audit and the actions taken by the FAA and Alaska as a result are described in more detail in the Alaska Air Group, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2000.
The Company cannot predict the outcome of any of the pending civil or potential criminal proceedings described above. As a result, the Company can give no assurance that these proceedings, if determined adversely to Alaska, would not have a material adverse effect on the financial position or results of operations of the Company. However, while we cannot predict the outcome of these matters, management believes their ultimate disposition is not likely to materially affect the Company’s financial position or results of operations. This forward-looking statement is based on management’s current understanding of the relevant law and facts; it is subject to various contingencies, including the potential costs and risks associated with litigation and the actions of judges and juries. The Company is also subject to other ordinary routine litigation incidental to its business and with respect to which no material liability is expected.
ITEM 4. Submission of Matters to a Vote of Security Holders
| (a) | Air Group's annual meeting of stockholders was held on May 15, 2001. |
| (b) | Not applicable. |
| (c) | A stockholder proposal to recommend simple majority voting was approved with 13,943,194 votes for, 6,013,482 votes against, and 199,681 votes abstaining. |
A stockholder proposal to recommend the annual election of all directors was approved with 14,171,349 votes for, 5,833,576 votes against, and 151,431 votes abstaining.
A company-sponsored proposal to amend the Certificate of Incorporation to eliminate the 80% super-majority voting requirements received 19,359,036 votes for, 662,120 votes against, and 135,201 votes abstaining. However, it did not pass because it was not approved by at least 80% of the outstanding shares, as required by Delaware law.
Four directors were elected with the following results:
| | | | | | Votes Against | | Broker | |
| | Director | | Votes For | | or Withheld | | Non-Votes | |
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| | W. S. Ayer | | 23,169,194 | | 1,559,473 | | 0 | |
| | R. F. Cosgrave | | 23,161,977 | | 1,566,690 | | 0 | |
| | R. M. Langland | | 23,179,123 | | 1,549,544 | | 0 | |
| | J. V. Rindlaub | | 23,185,944 | | 1,542,723 | | 0 | |
ITEM 5. Other Information
Employees
Effective in May 2001, Alaska began paying an 11% higher rate of pay to all pilots impacted by the Boeing 737-900 aircraft.
In early 1999, a federal mediator was assigned to assist Horizon and the International Brotherhood of teamsters (IBT) in the negotiation of an initial labor contract covering pilots. In July 2001, the parties reached tentative agreement on a five-year contract covering Horizon’s pilots. The agreement is subject to a ratification vote by the pilots. The vote is expected to occur in September 2001.
ITEM 6. Exhibits and Reports on Form 8-K
On April 5, 2001, May 3, 2001, June 5, 2001 and June 13, 2001, reports on Form 8-K were filed discussing estimated financial results under regulation FD disclosure.
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: August 7, 2001
/s/ Bradley D. Tilden
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| Bradley D. Tilden | |
| Vice President/Finance and Chief Financial Officer | |
/s/ Terri K. Maupin
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| Terri K. Maupin | |
| Staff Vice President/Finance and Controller | |
