-----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, laLiduEDIARmDAxBYQP8psI2FbdqD0FglA3Um0ScwCSx63Y3GPlKqDjMOqxg1NGT KzgEEyWge+78xlzPA+zsOg== 0000766421-95-000005.txt : 19950516 0000766421-95-000005.hdr.sgml : 19950516 ACCESSION NUMBER: 0000766421-95-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALASKA AIR GROUP INC CENTRAL INDEX KEY: 0000766421 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [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: 95538594 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 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, 1995. 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 13,402,186 common shares, par value $1.00, outstanding at March 31, 1995. 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, 1995 and December 31, 1994; (ii) consolidated statements of income for the quarters ended March 31, 1995 and 1994; (iii) consolidated statement of shareholders' equity for the three months ended March 31, 1995; and, (iv) consolidated statements of cash flows for the three months ended March 31, 1995 and 1994. Also attached are the accompanying notes to the Company's consolidated financial statements that have changed significantly during the three months ended March 31, 1995. These statements include all adjustments which 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 1995 Compared with First Quarter 1994 The consolidated net loss for the first quarter of 1995 was $16.3 million, or $1.22 per share compared with a net loss of $6.3 million, or $.47 per share, in 1994. The operating loss for the first quarter of 1995 was $18.3 million compared to an operating loss of $2.9 million for 1994. The larger loss reflects lower average fares and load factors at both Alaska Airlines and Horizon Air. A discussion of operating revenues and expenses for the two airlines follows. Alaska Airlines Operating revenues increased 2.4% to $232.7 million. Passenger revenues, which accounted for 86% of total operating revenues, increased 1.5% on a 17% rise in passenger traffic. Capacity increased 25%, primarily due to increases in the Pacific Northwest to California markets. The load factor dropped from 60.2% in 1994 to 56.4% in 1995. Passenger yields declined 13% to 11.2 cents in 1995, reflecting increased competition on the West Coast. During the fourth quarter of 1994 and the first quarter of 1995, Alaska experienced yield declines resulting from low fare offerings across its system. Although several fare increases have occurred since early February, the lingering effect of these low fare offerings will have an impact on second quarter results. In addition, for the past several months, capacity increases have exceeded traffic increases resulting in lower load factors. MarkAir, a significant competitor in the Alaska marketplace since 1992, filed for Chapter 11 bankruptcy for the second time on April 14, 1995. Since then, it has withdrawn from all Alaska markets. Freight and mail revenues increased 2.5% as higher freight volumes were partially offset by lower mail volumes. The lower mail volumes resulted from Alaska's decision, effective in March 1994, to not bid on certain U.S. mail contracts so that capacity could be made available for higher yielding freight. Other-net revenues rose 17% due to increased revenues from travel partners in Alaska's frequent flyer program. The table below shows the major operating expense elements on a unit-cost basis, based on available seat miles (ASM), for Alaska in 1995 and 1994. Alaska Airlines Operating Expenses Per ASM (In Cents) % 1995 1994 Change Change Wages and benefits 2.48 2.96 (.48) (16) Aircraft fuel 1.04 1.12 (.08) (7) Aircraft maintenance .37 .34 .03 9 Aircraft rent 1.05 1.27 (.22) (17) Commissions .50 .63 (.13) (21) Depreciation & amortization .46 .42 .04 10 Other 1.86 2.21 (.35) (16) Alaska Airlines Total 7.76 8.95 (1.19) (13) Alaska's lower unit costs were due to continuing cost reduction efforts and better utilization of aircraft. Average daily aircraft utilization increased 7% from 9.7 block hours to 10.4 block hours. Wages and benefits per ASM decreased 16% primarily due to improved productivity. The number of equivalent employees increased 10% while capacity increased 25% and traffic increased 17%. Fuel expense per ASM decreased 7%, in spite of a 1% increase in the price of fuel, due to the continued transition to more fuel-efficient aircraft and an increase in the average number of seats per aircraft. Aircraft maintenance per ASM increased 9% due to more engine repair work. Aircraft rent per ASM decreased 17% due to an increase in aircraft utilization, and a restructuring of B737-400 aircraft leases that resulted in lower rents. Commission expense per ASM decreased 21% because passenger revenues, upon which commissions are paid, did not keep pace with ASM growth. Depreciation and amortization expense per ASM increased 10% primarily due to the purchase of four MD-83 aircraft in the second quarter of 1994, and the reduction in estimated salvage value from 20% to 5% (effective January 1, 1995) for all MD80 aircraft. Other expense per ASM decreased 16% due to lower unit costs for advertising, building rentals, food, landing fees and outside services expenses. Horizon Air Operating revenues increased 17% to $62.8 million. Passenger revenues, which accounted for 95% of total operating revenues, increased 16% on a 30% rise in passenger traffic. Capacity increased 34% due to the addition of larger capacity Fokker F-28 jet and Dornier 328 turboprop aircraft. The load factor dropped from 59.4% in 1994 to 57.7% in 1995. Passenger yields declined 11% to 31.9 cents in 1995, reflecting increased competition and longer passenger trips. Freight, mail and other revenues increased 33% due to increased freight and mail volumes as well as increased revenues from providing services to other airlines. The table below shows the major operating expense elements on a unit-cost basis, based on available seat miles, for Horizon for 1995 and 1994. Horizon Air Operating Expenses Per ASM (In Cents) % 1995 1994 Change Change Wages and benefits 6.42 7.18 (.76) (11) Aircraft fuel 1.88 1.84 .04 2 Aircraft maintenance 2.71 3.32 (.61) (18) Aircraft rent 2.61 2.85 (.24) (8) Commissions 1.40 1.58 (.18) (11) Depreciation & amortization .68 .91 (.23) (25) Other 4.90 5.22 (.32) (6) Horizon Air Total 20.60 22.90 (2.30) (10) Horizon's cost per ASM declined 10% to 20.60 cents due to the acquisition of higher capacity aircraft and cost reduction efforts. Other Income (Expense) Other Income (Expense) increased $3.6 million to $11.6 million expense primarily due to higher interest rates on variable debt and higher average debt balances. Income Tax Credit Accounting standards require the Company to provide for income taxes each quarter based on its estimate of the effective tax rate for the full year. Volatility of air fares and the seasonality of the Company's business make it very difficult to estimate full-year pretax results. In addition, a relatively small change in pretax results can cause a significant change in the effective tax rate due to the magnitude of nondeductible expenses, such as goodwill amortization and employee per diem costs. In estimating the 45.4% tax rate for the first quarter of 1995, the Company considered a variety of factors, including the 45.0% tax rate used for full year 1994. This rate is evaluated each quarter and adjustments are made if necessary. Liquidity and Capital Resources The table below presents the major indicators of financial condition and liquidity. March 31, 1995 December 31, 1994 Change (In millions, except debt-to-equity and per share amounts) Cash and marketable securities $ 65.5 $ 104.9 $ (39.4) Working capital (deficit) (188.1) (147.1) (41.0) Long-term debt 579.2 589.9 (10.7) Shareholders' equity 175.3 191.3 (16.0) Book value per common share $13.08 $ 14.27 $ (1.19) Debt-to-equity 77%:23% 76%:24% NA The Company's cash and marketable securities portfolio decreased by $39 million during the first three months of 1995. Operating activities provided $16 million of cash during this period. Cash was used for airframe and engine overhauls and other capital expenditures ($21 million), the repayment of debt ($13 million), and the net repayment of short-term borrowings ($21 million). The working capital deficit increased by $41 million due to the net loss, payments for capital expenditures and debt repayments. PART II. OTHER INFORMATION ITEM 5. Other Information In May 1995, Alaska's clerical, office and passenger service employees approved an amended four-year contract between the International Association of Machinists (IAM) and Alaska. In April 1995, Horizon's mechanics and related classifications of the Transport Workers Union of America ratified a new three-year contract. ITEM 6. Exhibits and Reports on Form 8-K (a)Exhibit 11 - Statement regarding computation of per-share earnings. Exhibit 27 - Financial data schedule. (b)No reports on Form 8-K were filed during the first quarter of 1995. 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: May 11, 1995 /s/ John F. Kelly John F. Kelly Chairman, President and Chief Executive Officer /s/ Harry G. Lehr Harry G. Lehr Senior Vice President/Planning and Finance (Principal Financial Officer) CONSOLIDATED BALANCE SHEET Alaska Air Group, Inc.
ASSETS March 31, Dec 31, (In Thousands) 1995 1994 Current Assets Cash and cash equivalents $4,191 $11,605 Marketable securities 61,299 93,337 Receivables - net 77,381 70,055 Inventories and supplies 41,106 40,250 Prepaid expenses and other assets 54,094 57,396 Total Current Assets 238,071 272,643 Property and Equipment Flight equipment 789,384 776,551 Other property and equipment 213,849 208,502 Deposits for future flight equipment 52,885 52,885 1,056,118 1,037,938 Less accum. depreciation and amort. 273,489 260,001 782,629 777,937 Capital leases Flight and other equipment 103,076 103,076 Less accumulated amortization 22,789 21,676 80,287 81,400 Total Property and Equipment - Net 862,916 859,337 Intangible Assets - Subsidiaries 65,161 65,671 Other Assets 121,685 118,120 Total Assets $1,287,833 $1,315,771 See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEET Alaska Air Group, Inc.
LIABILITIES AND SHAREHOLDERS' EQUITY March 31, Dec 31, (In Thousands) 1995 1994 Current Liabilities Accounts payable $55,878 $48,592 Accrued aircraft rent 37,869 43,762 Other accrued liabilities 66,690 59,591 Accrued wages and related 41,989 47,364 Short-term borrowings 4,000 25,000 Air traffic liability 147,699 123,433 Current portion of long-term debt and capital lease obligations 72,080 72,005 Total Current Liabilities 426,205 419,747 Long-Term Debt and Capital Lease Obligations 579,236 589,904 Other Liabilities and Credits Deferred income taxes 16,957 28,585 Deferred income 23,021 23,018 Other liabilities 67,101 63,239 107,079 114,842 Shareholders' Equity Common stock, $1 par value Authorized: 30,000,000 shares Issued: 1995 - 16,555,779 shares 1994 - 16,553,679 shares 16,556 16,554 Capital in excess of par value 152,785 152,756 Treasury stock, at cost: 1995-3,153,593 sh; 1994-3,153,589 sh (71,807) (71,807) Deferred compensation (4,353) (4,697) Retained earnings 82,132 98,472 175,313 191,278 Total Liabilities and Shareholders' Equity $1,287,833 $1,315,771 See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF INCOME Alaska Air Group, Inc.
Three Months Ended March 31 (In Thousands except Per share Amounts) 1995 1994 Operating Revenues Passenger $259,382 $248,221 Freight and mail 21,098 20,236 Other - net 14,093 11,925 Total Operating Revenues 294,573 280,382 Operating Expenses Wages and benefits 99,811 92,795 Aircraft fuel 39,218 32,927 Aircraft maintenance 20,639 16,801 Aircraft rent 41,696 39,408 Commissions 20,287 19,997 Depreciation and amortization 16,938 12,927 Other 74,285 68,455 Total Operating Expenses 312,874 283,310 Operating Loss (18,301) (2,928) Other Income (Expense) Interest income 1,361 1,424 Interest expense (13,329) (9,877) Interest capitalized - 103 Loss on sale of assets (13) (175) Other - net 345 441 (11,636) (8,084) Loss before income tax credit (29,937) (11,012) Income tax credit (13,597) (4,699) Net Loss $(16,340) $(6,313) Loss Per Share $(1.22) $(0.47) Shares used for computation 13,400 13,349 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 Total Balances at December 31, 1994 $16,554 $152,756 $(71,807) $(4,697) $98,472 $191,278 Net loss for the three months ended March 31, 1995 (16,340) (16,340) Stock issued under stock plans 2 29 31 Employee Stock Ownership Plan shares allocated 344 344 Balances at March 31, 1995 $16,556 $152,785 $(71,807) $(4,353) $82,132 $175,313 See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS Alaska Air Group, Inc.
Three Months Ended March 31 (In Thousands) 1995 1994 Cash and cash equivalents at beginning of period $11,605 $27,179 Cash flows from operating activities: Net loss (16,340) (6,313) Adjustments to reconcile net loss to cash: Depreciation and amortization 16,938 12,927 Amortization of airframe and engine ovhls 5,538 4,976 Loss on disposition of assets 13 175 Deferred income taxes (11,628) (5,172) Increase in accounts receivable (7,326) (2,063) Decrease in other current assets 2,446 16,272 Increase in air traffic liability 24,266 26,071 Increase (decrease) in other current liab. 3,117 (5,496) Interest on zero coupon notes 2,233 2,522 Leased aircraft return payments and other-net (2,865) (7,904) Net cash provided by operating activities 16,392 35,995 Cash flows from investing activities: Proceeds from disposition of assets 99 1,727 Purchases of marketable securities (841) (18,568) Sales and maturities of mkt. securities 32,879 22,932 Restricted deposits (737) (2,674) Flight equipment deposits returned - 610 Additions to flight equipment deposits - (672) Additions to property and equipment (21,411) (88,902) Net cash provided by (used in) investing activities 9,989 (85,547) Cash flows from financing activities: Proceeds from short-term borrowings 4,000 - Repayment of short-term borrowings (25,000) (20,000) Proceeds from issuance of long-term debt - 78,000 Long-term debt and capital lease payments (12,826) (8,213) Proceeds from issuance of common stock 31 141 Net cash provided by (used in) financing activities (33,795) 49,928 Net increase (decrease) in cash and cash equivalents (7,414) 376 Cash and cash equivalents at end of period $4,191 $27,555 Supplemental disclosure of cash paid (received) during the period for: Interest (net of amount capitalized) $10,659 $7,122 Income taxes (refunds) (1,969) (6,715) 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, 1995 Alaska Air Group, Inc. Note 1. Summary of Significant Accounting Policies (See Note 1 to Consolidated Financial Statements at December 31, 1994) Property, Equipment and Depreciation Effective January 1, 1995, the estimated salvage value of MD-80 flight equipment was changed to 5% from 20%. The new estimate was adopted to recognize the lower expected salvage values for this aircraft type. The effect of the change on the three months ending March 31, 1995 was to increase depreciation expense $1.2 million and decrease net income $757,000 ($.06 per share). EX-11 2 Alaska Air Group, Inc. EXHIBIT 11 Computation of Earnings Per Common Share (In thousands, except per share)
Three Months Ended March 31, ------------------- 1995 1994 ------ ------ Primary - Net income ($16,340) ($6,313) ====== ====== Average number of shares outstanding 13,400 13,349 Assumed exercise of stock options reduced by the number of shares purchased with the proceeds from exercise of such options - - ------ ------ Average shares as adjusted 13,400 13,349 ====== ====== Earnings per common share ($1.22) ($0.47) ====== ====== Fully Diluted - Net income ($16,340) ($6,313) After tax interest on convertible securities 2,111 2,428 ------ ------ Income applicable to common shares ($14,229) ($3,885) ====== ====== Average number of shares outstanding 13,400 13,349 Assumed exercise of stock options 4 18 Assumed conversion of 7.75% debentures 508 518 Assumed conversion of 6.875% debentures 1,608 1,791 Assumed conversion of 7.25% zero coupon notes 3,565 4,277 Assumed conversion of preferred shares 0 0 ------ ------ Average shares as adjusted 19,085 19,953 ====== ====== Earnings per Common Share ($0.75) ($0.19) ====== ====== * * * Anti-dilutive
EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALASKA AIR GROUP INC FIRST QUARTER 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRRTY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 3-MOS DEC-31-1995 MAR-31-1995 4191 61299 77381 0 41106 238071 1159194 296278 1287833 426205 579236 16556 0 0 158757 1287833 294573 294573 312874 312874 0 0 13329 (29937) (13597) (16340) 0 0 0 (16340) (1.22) .00
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