ALASKA AIRLINES INC - 10-Q Quarterly Report

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 June 30, 2002.


( )		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 AIRLINES, INC.
(Exact name of registrant as specified in its charter)


Alaska (State or other jurisdiction of incorporation or organization)		92-0009235 (I.R.S. Employer Identification No.)

19300 Pacific Highway South, Seattle, Washington 98188
(Address of principal executive offices)

Registrant’s telephone number, including area code: (206) 431-7079

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 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 500 common shares, par value $1.00, outstanding at July 31, 2002.

Due to the restatement discussed in Note 2 and the additional work involved with this restatement, the Company’s independent public accountants have not completed their review of the financial statements included in this filing in accordance with professional standards for conducting such reviews.

Upon completion of the review by the Company’s independent accountants, if a change is required to the accompanying unaudited financial statements, the Company will amend this Quarterly Report on Form 10-Q to present the reviewed unaudited financial statements and a discussion of any material changes made.

TABLE OF CONTENTS


PART I. FINANCIAL STATEMENTS
	ITEM 1. Financial Statements
		BALANCE SHEETS (unaudited)
		NOTES TO FINANCIAL STATEMENTS (unaudited)
	ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition
	ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
PART II. OTHER INFORMATION
	ITEM 1. Legal Proceedings
	ITEM 5. Other Information
	ITEM 6. Exhibits and Reports on Form 8-K
Signatures
EXHIBIT 3.1
EXHIBIT 99.1
EXHIBIT 99.2

PART I. FINANCIAL STATEMENTS

ITEM 1. Financial Statements

BALANCE SHEETS (unaudited)
Alaska Airlines, Inc.

ASSETS


	Restated
	December 31,		June 30,
(In Millions)	2001		2002

Current Assets
Cash and cash equivalents	$	490.2	$	269.8
Marketable securities		170.4		437.0
Receivables from related companies		71.2		82.1
Receivables — net		67.0		94.4
Inventories and supplies — net		37.8		38.3
Prepaid expenses and other assets		93.1		92.2

Total Current Assets		929.7		1,013.8

Property and Equipment
Flight equipment		1,888.0		1,887.9
Other property and equipment		326.7		349.9
Deposits for future flight equipment		71.6		61.9

		2,286.3		2,299.7
Less accumulated depreciation and amortization		609.1		662.3

Total Property and Equipment — Net		1,677.2		1,637.4

Intangible Assets		12.5		12.5

Other Assets		131.7		143.6

Total Assets	$	2,751.1	$	2,807.3

See accompanying notes to financial statements.

BALANCE SHEETS (unaudited)
Alaska Airlines, Inc.

LIABILITIES AND SHAREHOLDER’S EQUITY


		Restated
		December 31,			June 30,
(In Millions Except Share Amounts)		2001			2002

Current Liabilities
Accounts payable		$	96.1		$	107.3
Payables to related companies			4.4			4.1
Accrued aircraft rent			81.7			70.7
Accrued wages, vacation and payroll taxes			70.1			73.4
Other accrued liabilities			191.3			176.6
Air traffic liability			219.5			285.8
Current portion of long-term debt and capital lease obligations			43.2			45.7

Total Current Liabilities			706.3			763.6

Long-Term Debt and Capital Lease Obligations			847.9			852.1

Other Liabilities and Credits
Deferred income taxes			188.9			176.9
Deferred revenue			165.8			167.2
Other liabilities			124.4			151.8

			479.1			495.9

Shareholder’s Equity
Common stock, $1 par value Authorized: 1,000 shares Issued: 2001 and 2002 - 500 shares			—			--
	Capital in excess of par value		324.8			324.8
Accumulated other comprehensive income (loss)			(3.1	)		4.6
Retained earnings			396.1			366.3

			717.8			695.7

Total Liabilities and Shareholder’s Equity		$	2,751.1		$	2,807.3

See accompanying notes to financial statements.

STATEMENTS OF INCOME (unaudited)
Alaska Airlines, Inc.


Three Months Ended June 30	Restated
(In Millions)	2001			2002

Operating Revenues
Passenger	$	434.7		$	433.6
Freight and mail		21.4			20.0
Other — net		15.2			23.3

Total Operating Revenues		471.3			476.9

Operating Expenses
Wages and benefits		156.4			175.2
Contracted services		18.0			19.2
Aircraft fuel		74.1			64.2
Aircraft maintenance		32.2			36.1
Aircraft rent		35.0			31.8
Food and beverage service		14.7			16.2
Commissions		18.2			14.2
Other selling expenses		26.6			27.8
Depreciation and amortization		25.3			28.8
Loss on sale of assets		0.3			0.1
Landing fees and other rentals		23.3			28.4
Other		35.7			37.1

Total Operating Expenses		459.8			479.1

Operating Income (Loss)		11.5			(2.2	)

Nonoperating Income (Expense)
Interest income		6.8			6.1
Interest expense		(10.6	)		(11.6	)
Interest capitalized		1.2			0.4
Other — net		(0.2	)		4.6

		(2.8	)		(0.5	)

Income (loss) before income tax		8.7			(2.7	)
Income tax expense (benefit)		3.6			(0.2	)

Net Income (Loss)	$	5.1		$	(2.5	)

See accompanying notes to financial statements.

STATEMENTS OF INCOME (unaudited)
Alaska Airlines, Inc.


Six Months Ended June 30	Restated
(In Millions)	2001			2002

Operating Revenues
Passenger	$	819.8		$	807.8
Freight and mail		39.7			35.9
Other — net		29.9			42.1

Total Operating Revenues		889.4			885.8

Operating Expenses
Wages and benefits		310.5			341.3
Contracted services		35.7			39.0
Aircraft fuel		148.1			119.4
Aircraft maintenance		67.5			71.7
Aircraft rent		70.3			63.6
Food and beverage service		27.9			30.1
Commissions		34.1			28.5
Other selling expenses		52.6			52.7
Depreciation and amortization		49.0			57.3
Loss on sale of assets		1.2			0.2
Landing fees and other rentals		44.8			52.1
Other		72.1			72.5

Total Operating Expenses		913.8			928.4

Operating Loss		(24.4	)		(42.6	)

Nonoperating Income (Expense)
Interest income		16.3			11.1
Interest expense		(22.7	)		(23.5	)
Interest capitalized		3.8			0.5
Other — net		(1.4	)		9.3

		(4.0	)		(2.6	)

Loss before income tax		(28.4	)		(45.2	)
Income tax benefit		(9.7	)		(15.4	)

Net Loss	$	(18.7	)	$	(29.8	)

See accompanying notes to financial statements.

STATEMENT OF SHAREHOLDER’S EQUITY (unaudited)
Alaska Airlines, Inc.


						Accumulated
				Capital in		Other
		Common		Excess of		Comprehensive			Retained
(In Millions)		Stock		Par Value		Income (Loss)			Earnings			Total

Balances at December 31, 2001:
As previously reported		$	—	$	324.8	$	(3.1	)	$	368.7		$	690.4
Prior period adjustment (see Note 2)										27.4			27.4

As restated			—		324.8		(3.1	)		396.1			717.8

Net loss for the six months ended June 30, 2002										(29.8	)		(29.8	)
Other comprehensive income (loss):
Related to fuel hedges:
	Change in fair value						17.9
	Reclassification to earnings						(6.8	)
	Income tax effect						(4.4	)

							6.7						6.7

Related to marketable securities:
	Change in fair value						0.5
	Reclassification to earnings						0.6
	Income tax effect						(0.1	)

							1.0						1.0

Total comprehensive income (loss)													(22.1	)

Balances at June 30, 2002		$	—	$	324.8	$	4.6		$	366.3		$	695.7

See accompanying notes to financial statements.

STATEMENTS OF CASH FLOWS (unaudited)
Alaska Airlines, Inc.


		Restated
Six Months Ended June 30 (In Millions)		2001			2002

Cash flows from operating activities:
Net loss		$	(18.7	)	$	(29.8	)
Adjustments to reconcile net loss to net cash provided by operating activities:
	Depreciation and amortization		49.0			57.3
	Amortization of airframe and engine overhauls		33.2			29.7
	Changes in derivative fair values		2.0			(6.8	)
	Loss on disposition of assets		1.2			0.2
	Decrease in deferred income taxes		(5.9	)		(16.6	)
	Increase in accounts receivable — net		(50.1	)		(38.3	)

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