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, 1999.
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 26,362,624 common shares, par value $1.00, outstanding
at March 31, 1999.
1
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 sheets as of March 31,
1999 and December 31, 1998; (ii) consolidated statements of income for the three
months ended March 31, 1999 and 1998; (iii) consolidated statement of
shareholders' equity for the three months ended March 31, 1999; and, (iv)
consolidated statements of cash flows for the three months ended March 31, 1999
and 1998. Also attached are the accompanying notes to the Company's consolidated
financial statements that have changed significantly during the three months
ended March 31, 1999. These statements, which should be read in conjunction with
the financial statements in the Company's annual report on Form 10-K for the
year ended December 31, 1998, include all adjustments that are, in the opinion
of management, necessary for a fair presentation 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 RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
FIRST QUARTER 1999 COMPARED WITH FIRST QUARTER 1998
The consolidated net income for the first quarter of 1999 was $20.2 million, or
$0.76 per share (diluted), compared with a net income of $13.1 million, or $0.56
per share, in 1998. Consolidated operating income for the first quarter of 1999
was $28.6 million compared to $22.5 million for 1998. Financial and statistical
data for Alaska and Horizon is shown following the Air Group financial
statements. A discussion of this data follows.
ALASKA AIRLINES
REVENUES
Capacity grew by 8.4%, primarily due to above average growth in the Southern
California, Arizona and Mexico markets. Traffic grew by 9.9%, resulting in
almost a one point increase in passenger load factor. The Mexico, Canada and
Northern California markets experienced increases in load factor, while the
Seattle-Anchorage and Southeast Alaska markets experienced decreases. Lower
passenger yields in the Seattle-Anchorage, Arizona and Mexico markets
contributed to an overall 1.6% decrease in yield. The higher load factor
combined with the lower yield resulted in an essentially flat revenue per
available seat mile (ASM). Consequently, passenger revenues increased 8.1%,
essentially in line with the 8.4% increase in capacity.
Freight and mail revenues decreased 2.2%, primarily due to lower mail volumes.
Other-net revenues increased 18.9%, primarily due to increased revenue from
travel partners in Alaska's frequent flyer program and increased aircraft
maintenance services performed for other companies.
EXPENSES
Operating expenses grew by 7.5% as a result of an 8.4% increase in capacity and
a 0.8% decrease in cost per ASM. The decrease in cost per ASM was largely due to
lower fuel prices in 1999. Without
2
the lower fuel prices, cost per ASM would have increased 1%. Explanations for
year-over-year changes in the components of operating expenses are as follows:
- Wages and benefits increased 8.2% due to a 6.4% increase in the
number of employees, combined with a 1.7% increase in average wages
and benefits per employee. Employees were added in all areas to
service the 8.4% capacity (ASM) increase and the 7.3% increase in
passengers carried.
- Contracted services increased 13%, exceeding the 8% increase in
capacity, due to greater use of temporary employees (particularly in
computer systems development), higher facility repair costs incurred
and increased navigation fees in Canada and Mexico.
- Fuel expense decreased 10%, as the 8% increase in fuel consumption
was more than offset by a 16% decrease in the price of fuel.
- Maintenance expense increased 26%, exceeding the 7% increase in
block hours, due to increased engine overhaul expense.
- Aircraft rent increased 9%, primarily due to leasing six more
aircraft in 1999.
- Food and beverage expense increased 7%, in line with the 7% increase
in passengers carried.
- Commission expense increased 2% on an 8% increase in passenger
revenue. As a percentage of passenger revenue, commission expense
decreased 6%, from 7.0% to 6.6%. In 1999, 69% of ticket sales were
made through travel agents, versus 72% in 1998.
- Other selling expenses increased 13%, higher than the 8% increase in
passenger revenues, primarily due to increased credit card sales and
related commission rates.
- Landing fees and other rentals increased 26%, higher than the 8%
increase in capacity, due to a retroactive adjustment at Seattle and
rate increases at Seattle and several other airports.
- Other expense increased 2%, lower than the 8% increase in capacity,
primarily due to lower insurance rates and reduced legal expenses.
HORIZON AIR
REVENUES
Capacity grew by 27.1%, primarily due to above average growth in Canada, Montana
and Portland-Spokane markets. Traffic grew by 29.2%, resulting in a one point
increase in passenger load factor. Longer average passenger trips contributed to
a 5.3% decrease in yield. The lower yield combined with the higher load factor
resulted in a 2.7% decrease in revenue per ASM. Consequently, passenger revenues
increased 22.3%, somewhat less than the 27.1% increase in capacity.
Other-net revenues increased 173%, or $1.9 million, primarily due to recording
revenues related to aircraft manufacturer's support.
3
EXPENSES
Operating expenses grew by 20.6% as a result of an 27.1% increase in capacity
and a 5.2% decrease in cost per ASM. Explanations for year-over-year changes in
the components of operating expenses are as follows:
- Wages and benefits increased 18.2% due to a 18.8% increase in the
number of employees. Employees were added in all areas to service
the 24% increase in passengers carried.
- Contracted services increased 53%, higher than the 27% increase in
capacity, due to increased navigation fees in Canada, higher ground
handling and security charges and greater use of computer and other
consultants.
- Fuel expense increased 7%, as the 31% increase in fuel consumption
was partly offset by an 18% decrease in the price of fuel.
- Maintenance expense increased 19%, in line with a 20% increase in
block hours flown.
- Aircraft rent increased 9%, as most of the new aircraft acquired in
1998 were leased.
- Food and beverage expense increased 20%, in line with the 29%
increase in revenue passenger miles.
- Commission expense increased 18% on a 22% increase in passenger
revenue. As a percentage of passenger revenue, commission expense
decreased 13%, from 6.0% to 5.2%.
- Other selling expenses increased 23%, in line with the 22% increase
in passenger revenues.
- Depreciation and amortization expense increased 41%, primarily due
to purchase of more F-28s in 1998 and added depreciation on aircraft
spare parts and station equipment.
- Landing fees and other rentals increased 53%, higher than the 27%
increase in capacity, primarily due to rent on the new Portland
operations center and rate increases at Seattle and Portland
airports.
- Other expense increased 23%, in line with the 27% increase in
capacity.
CONSOLIDATED NONOPERATING INCOME (EXPENSE) Net nonoperating items improved $5.3
million over 1998, primarily due to lower interest expense (due to conversion of
convertible bonds in 1998 and other debt repayments) and higher interest income
(due to higher cash balances).
4
LIQUIDITY AND CAPITAL RESOURCES
The table below presents the major indicators of financial condition and
liquidity.
- -------------------------------------------------------------------------------------------
DECEMBER 31, 1998 MARCH 31, 1999 CHANGE
- -------------------------------------------------------------------------------------------
(In millions, except debt-to-equity and per share amounts)
Cash and marketable securities $ 306.6 $ 289.4 $ (17.2)
Working capital (deficit) 2.9 (25.7) (28.6)
Long-term debt and
capital lease obligations 171.5 165.0 (6.5)
Shareholders' equity 789.5 814.8 25.3
Book value per common share $ 30.11 $ 30.91 $ 0.80
Debt-to-equity 18%:82% 17%:83% NA
- ----------------------------------------------------------------------------
The Company's cash and marketable securities portfolio decreased by $17 million
during the first three months of 1999. Operating activities provided $76 million
of cash during this period. Additional cash was provided by the exercise of
stock options ($5 million). Cash was used for $95 million of capital
expenditures, including the purchase of two new B737-400 aircraft, flight
equipment deposits and airframe and engine overhauls and the repayment of debt
($6 million).
Shareholders' equity increased $25 million due to net income of $20 million and
issuance of $5 million of common stock under stock plans.
COMMITMENTS At March 31, 1999, the Company had firm orders for 51 aircraft with
a total cost of approximately $1.4 billion, as set forth below.
DELIVERY PERIOD - FIRM ORDERS
- ------------------------------------------------------------------------------------------------------------------------------
AIRCRAFT 1999 2000 2001 2002 2003-05 TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
Boeing 737-400 1 -- -- -- -- 1
Boeing 737-700 6 6 -- -- -- 12
Boeing 737-900 -- -- 5 5 -- 10
de Havilland Dash 8-200 3 -- -- -- -- 3
- ------------------------------------------------------------------------------------------------------------------------------
Canadair RJ 700 -- -- -- 4 21 25
Total 10 6 5 9 21 51
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Cost (Millions) $248 $186 $175 $267 $483 $1,359
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
YEAR 2000 COMPUTER ISSUE The Company uses a significant number of computer
software programs and embedded operating systems that were not originally
designed to process dates beyond 1999. The Company has implemented a project to
ensure that the Companyis systems will function properly in the year 2000 and
thereafter. The Company's Y2K project comprises five phases for each affected
system: inventory, assessment, remediation, testing and implementation. The
inventory and assessment phases are complete. As of March 31, 1999 the Company
has completed remediation of more than 85% of its high-priority systems. By the
end of June 1999 the Company expects to substantially complete all phases of the
project for all systems. The Company believes that, with modifications to its
existing software and systems and/or conversions to new software, the year 2000
issue will not pose significant operational problems. Most of the Company's
information technology projects in the last several years have made the affected
systems year 2000 compliant. The direct costs of projects solely intended to
correct year 2000 problems are currently estimated at less than $2 million. The
Company does not track certain costs attributable to year 2000, such as salaries
of
5
information technology staff not dedicated entirely to the project. Additional
systems currently under review may require further resources. The Company does
not expect any cost increases to have a material effect on its results of
operations.
The Company is also in contact with its significant suppliers and vendors with
which its systems interface and exchange data or upon which its business
depends. These efforts are designed to minimize the extent to which its business
will be vulnerable to their failure to remediate their own year 2000 issues. The
Companyis business is also dependent upon certain governmental organizations or
entities such as the Federal Aviation Administration (FAA) that provide
essential aviation industry infrastructure. The Company is working with the
Airline Transport Association (ATA) and the International Airline Transport
Association (IATA) to monitor the progress of FAA and airports in making their
systems year 2000 compliant. In addition, the Company is independently working
with certain rural Alaska airports not within ATA's purview. There can be no
assurance that such third parties on which the Companyis business relies will
successfully remediate their systems on a timely basis. The Companyis business,
financial condition or results of operations could be materially adversely
affected by the failure of its systems or those operated by other parties to
operate properly beyond 1999. Areas that could be adversely affected include
flight operations, maintenance, planning, reservations, sales, accounting and
the frequent flyer program.
The Company already has in place certain disaster contingency plans anticipating
the potential loss of essential services such as electricity and financial
accounting systems. The Company will leverage its year 2000 contingency planning
off these existing plans. In addition, the Company is developing and executing
additional contingency plans designed to allow continued operation in the event
of failure of key internal and third party systems or products. This planning
involves (a) making a list of critical operations processes, (b) assessing the
effect of their failure on safety, operations and revenue, (c) quantifying the
risk of failure of each, and (d) based on the foregoing, developing a discrete
contingency plan for each potential failure. The Company expects to complete its
contingency planning during the third and fourth quarters of 1999. The foregoing
Year 2000 Computer Issue comments include forward-looking statements regarding
the performance of the Company. Actual results may differ materially from these
projections. Factors that could cause results to differ include the availability
of adequate resources to complete the Companyis year 2000 plan, the ability to
identify and remediate noncompliant systems, and the success of third parties in
remediating their year 2000 issues.
6
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
ALLIANCES WITH OTHER AIRLINES
Alaska and Horizon have announced a number of new marketing alliances with other
airlines that allow reciprocal frequent flyer mileage accrual and redemption
privileges and codesharing on certain flights. The purpose of the alliances is
to enhance Alaska's and Horizon's revenues by (a) providing our customers more
value by offering them more travel destinations and better accrual/redemption
opportunities, and (b) gaining access to more connecting traffic from other
airlines. The following table shows which of these relationships are existing as
of December 31, 1998 (Existing), which are new (New) and which are planned later
in 1999 (Planned).
CODESHARING-- CODESHARING--
FREQUENT ALASKA FLIGHT # OTHER AIRLINE FLIGHT #
FLYER ON FLIGHTS OPERATED ON FLIGHTS OPERATED
AGREEMENT BY OTHER AIRLINES BY ALASKA/HORIZON
--------- ------------------- ----------------------
MAJOR U.S. OR
INTERNATIONAL AIRLINES
American Airlines New Planned None
British Airways Existing None None
Canadian Airlines New New New
Continental Airlines New New New
KLM Existing None Existing
Northwest Airlines Existing Existing Existing
Qantas Existing None New
TWA Existing None None
COMMUTER AIRLINES
- -----------------
American Eagle Existing* Existing None
Era Aviation Existing* Existing None
Harbor Airlines Existing* Existing None
Trans States Airlines Existing* Existing None
PenAir Existing* Existing None
Reeve Aleutian Airways Existing* Existing None
* This airline does not have its own frequent flyer program. However, Alaska's
Mileage Plan members can accrue and redeem miles on this airline's route system.
EMPLOYEES
During the first quarter of 1999, Alaska and the Association of Flight
Attendants began negotiation of a new labor contract covering approximately
1,700 flight attendants. Alaska and the International Association of Machinists
(IAM) are continuing negotiation of a new contract (covering approximately 1,000
rampservice and stock clerk employees) with the assistance of a federal
mediator. Alaska and the IAM are also continuing negotiation of a new contract
covering approximately 3,200 clerical, office and passenger service employees.
Alaska and the Aircraft Mechanics Fraternal Association (AMFA) are continuing
negotiation of an initial contract covering approximately 1,100 mechanics,
inspectors and cleaners.
7
During the first quarter of 1999, a federal mediator was assigned to assist
Horizon and the International Brotherhood of Teamsters in the negotiation of an
initial labor contract covering approximately 600 pilots.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 3.(ii) - Bylaws of Alaska Air Group, Inc. as amended through
January 26, 1999 Exhibit 27 - Financial data schedule.
(b) No reports on Form 8-K were filed during the first quarter of 1999.
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 28, 1999
/s/ JOHN F. KELLY
- -----------------------------------------------
John F. Kelly
Chairman, President and Chief Executive Officer
/s/ HARRY G. LEHR
- -----------------------------------------------
Harry G. Lehr
Senior Vice President/Finance
(Principal Financial Officer)
8
CONSOLIDATED BALANCE SHEET
Alaska Air Group, Inc.
ASSETS
December 31, MARCH 31,
(In Millions) 1998 1999
------------ ---------
CURRENT ASSETS
Cash and cash equivalents $29.4 $61.1
Marketable securities 277.2 228.3
Receivables - net 70.6 90.8
Inventories and supplies 44.1 45.6
Prepaid expenses and other assets 107.5 116.1
------------ ---------
TOTAL CURRENT ASSETS 528.8 541.9
------------ ---------
PROPERTY AND EQUIPMENT
Flight equipment 1,015.4 1,089.0
Other property and equipment 283.2 296.6
Deposits for future flight equipment 164.9 162.8
------------ ---------
1,463.5 1,548.4
Less accumulated depreciation and amortization 417.0 432.3
------------ ---------
1,046.5 1,116.1
------------ ---------
Capital leases:
Flight and other equipment 44.4 44.4
Less accumulated amortization 29.6 30.2
------------ ---------
14.8 14.2
------------ ---------
TOTAL PROPERTY AND EQUIPMENT - NET 1,061.3 1,130.3
------------ ---------
INTANGIBLE ASSETS - SUBSIDIARIES 57.5 57.0
------------ ---------
OTHER ASSETS 84.2 79.5
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TOTAL ASSETS $1,731.8 $1,808.7
------------ ---------
------------ ---------
See accompanying notes to consolidated financial statements.
9
CONSOLIDATED BALANCE SHEET
Alaska Air Group, Inc.
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, MARCH 31,
(In Millions) 1998 1999
------------ ---------
CURRENT LIABILITIES
Accounts payable $84.3 $86.4
Accrued aircraft rent 75.5 63.5
Accrued wages, vacation and payroll taxes 79.4 60.1
Other accrued liabilities 80.9 96.3
Air traffic liability 178.6 233.9
Current portion of long-term debt and
capital lease obligations 27.2 27.4
------------ ---------
TOTAL CURRENT LIABILITIES 525.9 567.6
------------ ---------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 171.5 165.0
------------ ---------
Other Liabilities and Credits
Deferred income taxes 99.2 111.5
Deferred income 41.5 40.5
Other liabilities 104.2 109.3
------------ ---------
244.9 261.3
------------ ---------
SHAREHOLDERS' EQUITY
Common stock, $1 par value
Authorized: 50,000,000 shares
Issued: 1998 - 28,974,107 shares
1999 - 29,110,762 shares 29.0 29.1
Capital in excess of par value 473.9 478.8
Treasury stock, at cost: 1998 - 2,750,102 shares
1999 - 2,748,138 shares (62.7) (62.7)
Deferred compensation (1.3) (1.2)
Retained earnings 350.6 370.8
------------ ---------
789.5 814.8
------------ ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,731.8 $1,808.7
------------ ---------
------------ ---------
See accompanying notes to consolidated financial statements.
10
CONSOLIDATED STATEMENT OF INCOME
Alaska Air Group, Inc.
Three Months Ended March 31
(In Millions Except Per Share Amounts) 1998 1999
------- -------
OPERATING REVENUES
Passenger $378.3 $419.4
Freight and mail 21.0 20.7
Other - net 17.1 21.1
------- -------
TOTAL OPERATING REVENUES 416.4 461.2
------- -------
OPERATING EXPENSES
Wages and benefits 136.9 151.9
Contracted services 13.6 15.6
Aircraft fuel 46.1 42.9
Aircraft maintenance 28.8 35.4
Aircraft rent 47.0 51.3
Food and beverage service 11.4 12.4
Commissions 22.6 23.7
Other selling expenses 21.5 24.6
Depreciation and amortization 17.9 19.7
Loss on sale of assets -- 0.1
Landing fees and other rentals 16.9 22.2
Other 31.2 32.8
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TOTAL OPERATING EXPENSES 393.9 432.6
------- -------
OPERATING INCOME 22.5 28.6
------- -------
NONOPERATING INCOME (EXPENSE)
Interest income 3.9 4.7
Interest expense (6.8) (3.8)
Interest capitalized 1.6 2.2
Other - net 0.8 1.7
------- -------
(0.5) 4.8
------- -------
Income before income tax 22.0 33.4
Income tax expense 8.9 13.2
------- -------
NET INCOME $13.1 $20.2
------- -------
------- -------
BASIC EARNINGS PER SHARE $0.69 $0.77
------- -------
------- -------
DILUTED EARNINGS PER SHARE $0.56 $0.76
------- -------
------- -------
Shares used for computation:
Basic 19.087 26.313
Diluted 26.384 26.504
See accompanying notes to consolidated financial statements.
11
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Alaska Air Group, Inc.
COMMON CAPITAL IN TREASURY DEFERRED
SHARES COMMON EXCESS OF STOCK COMPEN- RETAINED
(IN MILLIONS) OUTSTANDING STOCK PAR VALUE AT COST SATION EARNINGS TOTAL
----------- ------ ---------- -------- --------- -------- -------
BALANCES AT DECEMBER 31, 1998 26.224 $29.0 $473.9 $(62.7) $(1.3) $350.6 $789.5
----------- ------ ---------- -------- --------- -------- -------
Net income for the three months
ended March 31, 1999 20.2 20.2
Stock issued under stock plans 0.139 0.1 4.9 0.0 5.0
Employee Stock Ownership Plan
shares allocated 0.1 0.1
----------- ------ ---------- -------- --------- -------- -------
BALANCES AT MARCH 31, 1999 26.363 $29.1 $478.8 $(62.7) $(1.2) $370.8 $814.8
----------- ------ ---------- -------- --------- -------- -------
----------- ------ ---------- -------- --------- -------- -------
See accompanying notes to consolidated financial statements.
12
CONSOLIDATED STATEMENT OF CASH FLOWS
Alaska Air Group, Inc.
Three Months Ended March 31 (In Millions) 1998 1999
-------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $13.1 $20.2
Adjustments to reconcile net income to cash:
Depreciation and amortization 17.9 19.7
Amortization of airframe and engine overhauls 9.6 11.1
Loss on disposition of assets -- 0.1
Deferred income taxes 6.3 12.3
Increase in accounts receivable (13.5) (20.2)
Increase in other current assets (4.6) (10.1)
Increase in air traffic liability 46.8 55.3
Decrease in other current liabilities (1.2) (13.7)
Other-net (0.7) 1.6
-------- -------
Net cash provided by operating activities 73.7 76.3
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (84.2) (25.7)
Sales and maturities of marketable securities 20.9 74.6
Flight equipment deposits returned 5.7 --
Additions to flight equipment deposits (12.9) (24.1)
Additions to property and equipment (109.4) (71.2)
Restricted deposits and other (0.5) 3.1
-------- -------
Net cash used in investing activities (180.4) (43.3)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale and leaseback transactions 82.9 --
Long-term debt and capital lease payments (6.7) (6.3)
Proceeds from issuance of common stock 5.6 5.0
-------- -------
Net cash provided by (used in) financing activities 81.8 (1.3)
-------- -------
Net decrease in cash and cash equivalents (24.9) 31.7
Cash and cash equivalents at beginning of period 102.6 29.4
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $77.7 $61.1
-------- -------
-------- -------
Supplemental disclosure of cash paid during the period for:
Interest (net of amount capitalized) $4.4 $2.3
Income taxes -- $4.4
Noncash investing and financing activities:
1998 - $59.6 million of convertible debentures were converted into 1.9
million shares of common stock.
1999 - None
See accompanying notes to consolidated financial statements.
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THAT HAVE CHANGED SIGNIFICANTLY
DURING THE THREE MONTHS ENDED MARCH 31, 1999 Alaska Air Group, Inc.
NOTE 1. EARNINGS PER SHARE (SEE NOTE 9 TO CONSOLIDATED FINANCIAL STATEMENTS AT
DECEMBER 31, 1998)
Earnings per share (EPS) calculations were as follows for the three months
ended March 31, respectively (in millions except per share amounts):
1998 1999
------- -------
Net income $13.1 $20.2
Avg. shares outstanding 19.087 26.313
------- -------
------- -------
BASIC EARNINGS PER SHARE $0.69 $0.77
------- -------
------- -------
Net income $13.1 $20.2
After-tax interest on:
6-1/2% debentures 1.3 --
6-7/8% debentures 0.3 --
------- -------
DILUTED EPS INCOME $14.7 $20.2
------- -------
Avg. shares outstanding 19.087 26.313
Assumed conversion of:
6-1/2% debentures 6.002 --
6-7/8% debentures 1.036 --
Assumed exercise of stock options 0.259 0.191
------- -------
DILUTED EPS SHARES 26.384 26.504
------- -------
DILUTED EARNINGS PER SHARE $0.56 $0.76
------- -------
------- -------
NOTE 2. OPERATING SEGMENT INFORMATION (SEE NOTE 11 TO CONSOLIDATED FINANCIAL
STATEMENTS AT DECEMBER 31, 1998)
Operating segment information for Alaska Airlines, Inc. (Alaska) and Horizon
Air Industries, Inc. (Horizon) for the three months ended March 31 was as
follows (in millions):
1998 1999
------- ------
Operating revenues:
Alaska $344.1 $371.9
Horizon 75.1 93.0
Elimination of
intercompany revenues (2.8) (3.7)
------- ------
CONSOLIDATED 416.4 461.2
------- ------
Pretax income (loss):
Alaska 24.1 30.8
Horizon 0.5 3.0
Air Group (2.6) (0.4)
------- ------
CONSOLIDATED 22.0 33.4
------- ------
Total assets at end of period:
Alaska 1,450.3 1,626.3
Horizon 162.3 202.7
Air Group 683.1 814.9
Elimination of
intercompany accounts (693.4) (835.2)
------- ------
CONSOLIDATED 1,602.3 1,808.7
------- ------
------- ------
14
ALASKA AIRLINES FINANCIAL AND STATISTICAL DATA
Quarter Ended March 31
--------------------------------------
%
FINANCIAL DATA (IN MILLIONS): 1998 1999 CHANGE
----- ----- ------
Operating Revenues:
Passenger $309.8 $335.0 8.1
Freight and mail 18.4 18.0 (2.2)
Other - net 15.9 18.9 18.9
----- -----
Total Operating Revenues 344.1 371.9 8.1
----- -----
Operating Expenses:
Wages and benefits 110.7 119.8 8.2
Employee profit sharing 2.0 3.0 50.0
Contracted services 12.0 13.5 12.5
Aircraft fuel 39.1 35.4 (9.5)
Aircraft maintenance 18.3 23.0 25.7
Aircraft rent 37.2 40.5 8.9
Food and beverage service 11.0 11.8 7.3
Commissions 21.6 22.1 2.3
Other selling expenses 17.2 19.4 12.8
Depreciation and amortization 15.1 15.9 5.3
Loss on sale of assets 0.0 0.1
Landing fees and other rentals 13.3 16.7 25.6
Other 24.1 24.6 2.1
----- -----
Total Operating Expenses 321.6 345.8 7.5
----- -----
Operating Income 22.5 26.1 16.0
----- -----
Interest income 4.4 5.2
Interest expense (4.7) (3.8)
Interest capitalized 1.1 1.7
Other - net 0.8 1.6
----- -----
1.6 4.7
----- -----
Income Before Income Tax $24.1 $30.8 27.8
----- -----
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OPERATING STATISTICS:
Revenue passengers (000) 2,863 3,072 7.3
RPMs (000,000) 2,459 2,701 9.9
ASMs (000,000) 3,798 4,117 8.4
Passenger load factor 64.7% 65.6% 0.9 pts
Breakeven load factor 60.0% 59.9% (0.1)pts
Yield per passenger mile 12.60c 12.40C (1.6)
Operating revenue per ASM 9.06c 9.03C (0.3)
Operating expenses per ASM 8.47c 8.40C (0.8)
Fuel cost per gallon 57.5c 48.5C (15.8)
Fuel gallons (000,000) 67.9 73.1 7.7
Average number of employees 8,353 8,885 6.4
Aircraft utilization (block hours) 11.3 11.1 (1.8)
Operating fleet at period-end 80 86 7.5
c = cents
15
HORIZON AIR FINANCIAL AND STATISTICAL DATA
Quarter Ended March 31
-------------------------------------
%
FINANCIAL DATA (IN MILLIONS): 1998 1999 CHANGE
----- ----- ------
Operating Revenues:
Passenger $71.4 $87.3 22.3
Freight and mail 2.6 2.7 3.8
Other - net 1.1 3.0 172.7
----- -----
Total Operating Revenues 75.1 93.0 23.8
----- -----
Operating Expenses:
Wages and benefits 24.2 28.6 18.2
Employee profit sharing 0.1 0.5 400.0
Contracted services 1.7 2.6 52.9
Aircraft fuel 7.0 7.5 7.1
Aircraft maintenance 10.5 12.5 19.0
Aircraft rent 9.9 10.8 9.1
Food and beverage service 0.5 0.6 20.0
Commissions 3.8 4.5 18.4
Other selling expenses 4.3 5.3 23.3
Depreciation and amortization 2.7 3.8 40.7
Landing fees and other rentals 3.6 5.5 52.8
Other 6.4 7.9 23.4
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Total Operating Expenses 74.7 90.1 20.6
----- -----
Operating Income 0.4 2.9 625.0
----- -----
Interest expense (0.4) (0.5)
Interest capitalized 0.5 0.5
Other - net 0.0 0.1
----- -----
0.1 0.1
----- -----
Income Before Income Tax $0.5 $3.0 500.0
----- -----
----- -----
OPERATING STATISTICS:
Revenue passengers (000) 924 1,146 24.0
RPMs (000,000) 233 301 29.2
ASMs (000,000) 394 501 27.1
Passenger load factor 59.0% 60.0% 1.0 pts
Breakeven load factor 58.6% 57.8% (0.8)pts
Yield per passenger mile 30.65c 29.04C (5.3)
Operating revenue per ASM 19.06c 18.54C (2.7)
Operating expenses per ASM 18.96c 17.97C (5.2)
Fuel cost per gallon 61.8c 51.0C (17.6)
Fuel gallons (000,000) 11.3 14.8 31.0
Average number of employees 2,783 3,305 18.8
Aircraft utilization (block hours) 7.4 7.8 5.4
Operating fleet at period-end 53 61 15.1
c = cents
16