-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, qp6q5X1rx1E59tFy4nIeYxLIxf3olsqtKcRMrUUSDS4CPbAoLazfcHFMaWyHnea3 NakVwp+BxiccBfn/eugFow== 0000766421-94-000009.txt : 19940511 0000766421-94-000009.hdr.sgml : 19940511 ACCESSION NUMBER: 0000766421-94-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALASKA AIR GROUP INC CENTRAL INDEX KEY: 0000766421 STANDARD INDUSTRIAL CLASSIFICATION: 4512 IRS NUMBER: 911292054 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08957 FILM NUMBER: 94526160 BUSINESS ADDRESS: STREET 1: 19300 PACIFIC HWY SOUTH CITY: SEATTLE STATE: WA ZIP: 98188 BUSINESS PHONE: 2064317040 MAIL ADDRESS: STREET 1: PO BOX 68947 CITY: SEATTLE STATE: WA ZIP: 98168-0947 10-Q 1 ALASKA AIR GROUP INC 3/31/94 10-Q 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, 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 13,353,440 common shares, par value $1.00, outstanding at March 31, 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, 1994 and December 31, 1993; (ii) consolidated statements of income for the quarters ended March 31, 1994 and 1993; (iii) consolidated statement of shareholders' equity for the three months ended March 31, 1994; and, (iv) consolidated statements of cash flows for the quarters ended March 31, 1994 and 1993. Also attached are the accompanying notes to Air Group's consolidated financial statements that have changed significantly during the three months ended March 31, 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 First Quarter 1994 Compared with First Quarter 1993 The consolidated net loss for the first quarter of 1994 was $6.3 million, or $.47 per share. This compares with 1993's first quarter loss of $15.0 million, or $1.25 per share. The operating loss for the first quarter of 1994 was $2.9 million, compared to $16.8 million loss for the first quarter of 1993. Operating Revenues Operating revenues increased 12% to $280.4 million from $250.2 million. Passenger revenues increased 10% on a 49% increase in passenger traffic. Traffic gains were due to a 25% 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% in 1993 to 60.1% in 1994. Passenger yields decreased 26% reflecting fare reductions. Average revenue per passenger mile (yield) decreased 5.2 cents, from 20.0 cents in the first quarter of 1993 to 14.8 cents in the first quarter of 1994. Currently, a 1 cent change in yield affects annual revenues by about $70 million. Freight, and mail revenues increased $3.7 million (22%) due to a military charter contract in Alaska, increased freight volumes and increased freight and mail rates. Other-net revenues were up $3.0 million (34%) due to increased revenues from Alaska's frequent flyer program, maintenance contracts, and inflight liquor sales. Operating Expenses While capacity increased 25%, operating expenses increased only 6% to $283.3 million, compared to $267.1 million in the first quarter of last year. Operating expenses per available seat mile (ASM) declined 15%, from 11.95 cents in the first quarter of 1993 to 10.15 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% from 7.2 hours to 9.7 hours. In addition, lower fuel prices reduced operating expenses by $5.3 million in the first quarter 1994. The table below shows the major operating expense elements on a unit cost basis for the quarters ended March 31, 1994 and 1993. Operating Expenses Per ASM (In Cents) Increase % 1994 1993 (Decrease) Change Wages and benefits 3.32 3.96 (.64) (16) Aircraft fuel 1.18 1.42 (.24) (17) Aircraft maintenance .60 .85 (.25) (29) Aircraft rent 1.41 1.64 (.23) (14) Commissions .72 .84 (.12) (14) Depreciation & amortization .46 .64 (.18) (28) Other 2.46 2.60 (.14) (5) Total 10.15 11.95 (1.80) (15) Wages and benefits per ASM decreased 16% primarily due to improved productivity at Alaska. The number of Alaska employees decreased 1% while Alaska's capacity increased 27% and traffic increased 52%. During March 1994, the Company and the Association of Flight Attendants concluded a new five-year contract, which is 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% primarily due to a 14% decrease in the cost of fuel. The average cost per gallon was 60.2 cents in the first quarter of 1994, down 9.7 cents from the first quarter of 1993 price of 69.9 cents. Currently, a 1 cent change in fuel prices affects annual fuel costs by about $2.2 million. Maintenance expense per ASM decreased 29% due to the replacement of older aircraft with new aircraft during the past year as well as significant improvements in programs, techniques and efficiencies. Aircraft rent per ASM decreased 14% 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% due to the retirement of essentially all of Alaska's Boeing 727-200 aircraft during 1993, and increased average fleet utilization. Other expense per ASM decreased 5% due to lower unit costs for food, advertising, promotion, and personnel expenses. 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 in the first quarter of 1994, will continue into the second quarter of 1994. The Company is continuing its efforts to reduce operating expenses and expects the trend toward lower operating unit costs seen in the first quarter 1994 to continue in 1994. In June 1994, Southwest Airlines is expected to begin service in 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. Liquidity and Capital Resources The table below shows the major indicators of financial condition and liquidity at March 31, 1994 and December 31, 1993 and the changes during the three months ended March 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 Working capital (deficit) (84.4) (61.3) (23.1) Total assets 1,191.6 1,135.0 56.6 Long-term debt 593.4 525.4 68.0 Shareholders' equity 160.9 166.8 (5.9) Book value per common $ 12.05 $ 12.51 $ (.46) share Debt/equity ratio 79%:21% 76%:24% N/A The Company's cash and marketable securities portfolio decreased by $3.9 million during the first quarter of 1994. Operating activities provided $36 million of cash in the first quarter 1994. Additional cash was provided by $78 million in new long- term debt. Cash was used for the purchase of three MD-80 aircraft and other capital expenditures ($89.6 million), repayment of short-term borrowings ($20 million), debt payments ($8.2 million) and restricted deposits ($2.7 million). Financing Arrangements In March 1994, three MD-80 aircraft were financed with $78 million of interim debt. The Company plans to refinance this debt with a ten-year loan at a variable interest rate based on LIBOR. At March 31, 1994, Alaska had $70 million in lines of credit. $20 million of the lines are available and the balance were being used as part of the above interim financing of three MD-80 aircraft. Commitments During the first quarter of 1994, Alaska took delivery of two new B737-400 aircraft under eight-year operating leases. In April 1994, Alaska further restructured its aircraft orders with McDonnell Douglas and replaced the order for ten MD-90s plus options with an order for four MD-80s. Two MD-80s 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 second quarter 1994. 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 first 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, 1994 Raymond J. Vecci Chairman, President and Chief Executive Officer J. Ray Vingo Vice President/Finance, Chief Financial Officer, Treasurer and Director CONSOLIDATED BALANCE SHEET Alaska Air Group, Inc. ASSETS March 31, December 31, (In Thousands) 1994 1993 Current Assets Cash and cash equivalents $27,555 $27,179 Marketable securities 69,606 73,970 Receivables - net 77,337 75,274 Inventories and supplies 42,245 41,269 Prepaid expenses and other assets 39,250 56,498 Total Current Assets 255,993 274,190 Property and Equipment Flight equipment 705,610 614,717 Other property and equipment 216,933 217,967 Deposits for future flight equipment 63,674 79,765 986,217 912,449 Less accumulated depreciation and amortization 249,112 247,145 737,105 665,304 Capital leases Flight and other equipment 44,381 44,381 Less accumulated amortization 19,606 19,079 24,775 25,302 Total Property and Equipment - Net 761,880 690,606 Intangible Assets - Subsidiaries 67,201 67,711 Other Assets 106,513 102,447 Total Assets $1,191,587 $1,134,954 See accompanying notes to consolidated financial statements. CONSOLIDATED BALANCE SHEET Alaska Air Group, Inc. LIABILITIES AND SHAREHOLDERS' EQUITY March 31, December 31, (In Thousands) 1994 1993 Current Liabilities Accounts payable $47,280 $45,582 Accrued aircraft rent 32,364 39,119 Other accrued liabilities 44,532 46,679 Accrued wages, vacation pay and payroll tax 41,900 40,192 Short-term borrowings - 20,000 Air traffic liability 134,431 108,360 Current portion of long-term debt and capital lease obligations 39,897 35,575 Total Current Liabilities 340,404 335,507 Long-Term Debt and Capital Lease Obligations 593,405 525,418 Other Liabilities and Credits Deferred income taxes 15,826 20,998 Deferred income 24,882 25,827 Other liabilities 56,151 60,371 96,859 107,196 Shareholders' Equity Common stock, $1 par value Authorized: 30,000,000 shares Issued: 1994 - 16,507,031 shares 1993 - 16,495,210 shares 16,507 16,495 Capital in excess of par value 152,146 152,017 Treasury stock, at cost: 1994 - 3,153,591 1993 - 3,153,589 (71,807) (71,807) Deferred compensation (5,555) (5,813) Retained earnings 69,628 75,941 160,919 166,833 Total Liabilities and Shareholders' Equity $1,191,587 $1,134,954 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENT OF INCOME Alaska Air Group, Inc. Quarter Ended March 31 (In Thousands) 1994 1993 Operating Revenues Passenger $248,221 $224,757 Freight and mail 20,236 16,568 Other - net 11,925 8,917 Total Operating Revenues 280,382 250,242 Operating Expenses Wages and benefits 92,795 88,699 Aircraft fuel 32,927 31,731 Aircraft maintenance 16,801 19,026 Aircraft rent 39,408 36,691 Commissions 19,997 18,715 Depreciation and amortization 12,927 14,420 Other 68,455 57,806 Total Operating Expenses 283,310 267,088 Operating Loss (2,928) (16,846) Other Income (Expense) Interest income 1,424 1,776 Interest expense (9,877) (9,863) Interest capitalized 103 - Gain (loss) on sale of assets (175) 178 Other - net 441 892 (8,084) (7,017) Loss before income tax credit (11,012) (23,863) Income tax credit (4,699) (8,830) Net Loss $(6,313) $(15,033) Net Loss Per Common Share: Primary - Net loss $(6,313) $(15,033) Preferred stock dividends - (1,645) Net loss applicable to common shares $(6,313) $(16,678) Average shares outstanding (000) 13,349 13,334 Net loss per common share $(0.47) $(1.25) 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-------- 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 loss for the three month ended March 31, 1994 (6,313) Stock issued under stock plans 12 129 Employee Stock Ownership Plan shares allocated 258 Balances at March 31, 1994 $16,507 $152,146 ($71,807) ($5,555) $69,628 See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS Alaska Air Group, Inc. Quarter Ended March 31 (In Thousands) 1994 1993 Cash and cash equivalents at beginning of quarter $27,179 $6,880 Cash flows from operating activities: Net loss (6,313) (15,033) Adjustments to reconcile net loss to cash: Depreciation and amortization 12,927 14,420 Amortization of airframe and engine overhauls 4,976 7,277 Loss (gain) on disposal of assets and debt retirement 175 (504) Deferred income taxes (5,172) (11,162) Increase in accounts receivable (2,063) (5,025) Decrease in other current assets 16,272 8,035 Increase in air traffic liability 26,071 11,497 Decrease in other current liabilities (5,496) (4,241) Interest on zero coupon notes 2,522 2,350 Leased aircraft return payments and other-net (7,904) (2,957) Net cash provided by operating activities 35,995 4,657 Cash flows from investing activities: Proceeds from disposition of assets 1,727 232 Purchases of marketable securities (132,500) (77,950) Sales and maturities of marketable securities 136,864 97,072 Restricted deposits (2,674) (3,997) Future flight equipment deposits returned 610 - Additions to future flight equipment deposits (672) - Additions to property and equipment (88,902) (8,924) Net cash provided by (used in) investing activities (85,547) 6,433 Cash flows from financing activities: Repayment of short-term borrowings (20,000) - Proceeds from issuance of long-term debt 78,000 - Long-term debt and capital lease payments (8,213) (8,146) Proceeds from issuance of common stock 141 124 Cash dividends - (1,573) Gain on debt retirement - 326 Net cash provided by (used in) financing activities 49,928 (9,269) Net increase in cash and cash equivalents 376 1,821 Cash and cash equivalents at end of quarter 27,555 8,701 Supplemental disclosure of cash paid during the quarter for: Interest (net of amount capitalized) 7,122 6,767 Income taxes - - Noncash investing and financing activities None None See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THAT HAVE CHANGED SIGNIFICANTLY DURING THE THREE MONTHS ENDED MARCH 31, 1994 Alaska Air Group, Inc. Note 1. Long-Term Debt (See Note 3 to Consolidated Financial Statements at December 31, 1993) In March 1994, three MD-80 aircraft were financed with $78 million of interim debt with a term of up to ten years and variable interest rate based on LIBOR. The Company plans to refinance this debt with a new ten-year loan at a variable interest rate based on LIBOR. At March 31, 1994, Alaska had $70 million in lines of credit. $20 million of the lines are available and the balance were being used as part of the above interim financing of three MD-80 aircraft. At March 31, 1994, under the most restrictive loan provisions, Alaska had $23.8 million of excess net worth and its cash dividend payments to Air Group were limited to $17.7 million. Note 2. Commitments (See Note 5 to Consolidated Financial Statements at December 31, 1993) During the first quarter of 1994, Alaska took delivery of two new B737-400 aircraft under eight-year operating leases. In April 1994, Alaska further restructured its aircraft orders with McDonnell Douglas and replaced the order for ten MD-90s plus options with an order for four MD-80s. Two MD-80s will be delivered in 1996 and two in 1997. The net effect will reduce future capital spending by approximately $360 million. EX-11 2 EARNINGS PER SHARE CALCULATIONS Alaska Air Group, Inc. EXHIBIT 11 Computation of Earnings Per Common Share (In thousands, except per share)
Three Months Ended March 31, ------------------- 1994 1993 ------ ------ Primary - Income before accounting change ($6,313) ($15,033) Deduct dividends on preferred shares - (1,573) Deduct preferred stock accretion - (72) ------ ------ Income applicable to common shares ($6,313) ($16,678) ====== ====== Average number of shares outstanding 13,349 13,334 Assumed exercise of stock options - - ------ ------ Average shares as adjusted 13,349 13,334 ====== ====== Earnings per common share ($0.47) ($1.25) ====== ====== Fully Diluted - Net income ($6,313) ($15,033) After tax interest on convertible securities 2,428 2,317 ------ ------ Income applicable to common shares ($3,885) ($12,716) ====== ====== Average number of shares outstanding 13,349 13,334 Common stock equivalents 18 36 Common stock reserved for conversion 8,901 9,093 ------ ------ Average shares as adjusted 22,268 22,463 ====== ====== Earnings per Common Share ($0.17) ($0.57) ====== ====== * * * Anti-dilutive
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