ALASKA AIR GROUP 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 AIR GROUP, INC.
(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		91-1292054 (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) 431-7040

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 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 26,549,161 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 consolidated 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 consolidated financial statements, the Company will amend this Quarterly Report on Form 10-Q to present the reviewed unaudited consolidated financial statements and a discussion of any material changes made.

TABLE OF CONTENTS


PART I. FINANCIAL STATEMENTS
	ITEM 1. Financial Statements
		CONSOLIDATED BALANCE SHEETS (unaudited)
		CONSOLIDATED STATEMENTS OF INCOME (unaudited)
		CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (unaudited)
		CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
		NOTES TO CONSOLIDATED 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 4. Submission of Matters to a Vote of Security Holders
	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

CONSOLIDATED BALANCE SHEETS (unaudited)
Alaska Air Group, Inc.

ASSETS


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

Current Assets
Cash and cash equivalents	$	490.3	$	269.9
Marketable securities		170.4		437.0
Receivables — net		83.5		97.8
Inventories and supplies — net		71.5		71.5
Prepaid expenses and other assets		109.7		136.8

Total Current Assets		925.4		1,013.0

Property and Equipment
Flight equipment		2,002.8		2,007.2
Other property and equipment		395.5		419.4
Deposits for future flight equipment		112.4		87.9

		2,510.7		2,514.5
Less accumulated depreciation and amortization		701.3		760.2

Total Property and Equipment — Net		1,809.4		1,754.3

Intangible Assets		51.4		51.4

Other Assets		157.0		169.5

Total Assets	$	2,943.2	$	2,988.2

See accompanying notes to consolidated financial statements.

CONSOLIDATED BALANCE SHEETS (unaudited)
Alaska Air Group, Inc.

LIABILITIES AND SHAREHOLDERS’ EQUITY


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

Current Liabilities
Accounts payable	$	122.0		$	127.4
Accrued aircraft rent		90.1			79.5
Accrued wages, vacation and payroll taxes		79.9			85.1
Other accrued liabilities		207.5			192.6
Air traffic liability		220.4			286.8
Current portion of long-term debt and capital lease obligations		43.2			45.7

Total Current Liabilities		763.1			817.1

Long-Term Debt and Capital Lease Obligations		847.9			852.1

Other Liabilities and Credits
Deferred income taxes		177.6			162.7
Deferred revenue		176.6			179.5
Other liabilities		128.8			156.3

		483.0			498.5

Shareholders’ Equity
Common stock, $1 par value Authorized: 100,000,000 shares Issued: 2001 - 29,268,869 shares 2002 - 29,285,569 shares		29.3			29.3
Capital in excess of par value		482.5			482.9
Treasury stock, at cost: 2001 - 2,740,501 shares 2002 - 2,736,408 shares		(62.6	)		(62.5	)
Accumulated other comprehensive income (loss)		(3.9	)		5.5
Retained earnings		403.9			365.3

		849.2			820.5

Total Liabilities and Shareholders’ Equity	$	2,943.2		$	2,988.2

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Alaska Air Group, Inc.


Three Months Ended June 30		Restated
(In Millions Except Per Share Amounts)		2001			2002

Operating Revenues
Passenger		$	534.3		$	525.4
Freight and mail			24.1			21.3
Other — net			20.9			27.4

Total Operating Revenues			579.3			574.1

Operating Expenses
Wages and benefits			193.0			212.4
Contracted services			20.7			22.3
Aircraft fuel			89.8			75.1
Aircraft maintenance			46.9			42.4
Aircraft rent			46.3			46.8
Food and beverage service			15.4			17.0
Commissions			16.3			11.5
Other selling expenses			32.8			33.5
Depreciation and amortization			32.3			34.2
Loss on sale of assets			0.4			0.0
Landing fees and other rentals			30.7			36.1
Other			44.4			49.6

Total Operating Expenses			569.0			580.9

Operating Income (Loss)			10.3			(6.8	)

Nonoperating Income (Expense)
Interest income			5.7			5.8
Interest expense			(10.6	)		(11.6	)
Interest capitalized			2.3			0.5
Other — net			(0.6	)		5.6

			(3.2	)		0.3

Income (loss) before income tax			7.1			(6.5	)
Income tax expense (benefit)			3.2			(2.0	)

Net Income (Loss)		$	3.9		$	(4.5	)

Basic Earnings (Loss) Per Share		$	0.15		$	(0.17	)

Diluted Earnings (Loss) Per Share		$	0.15		$	(0.17	)

Shares used for computation:
	Basic		26.481			26.548
	Diluted		26.526			26.548

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Alaska Air Group, Inc.


Six Months Ended June 30		Restated
(In Millions Except Per Share Amounts)		2001			2002

Operating Revenues
Passenger		$	1,014.1		$	981.5
Freight and mail			44.7			38.4
Other — net			36.5			51.1

Total Operating Revenues			1,095.3			1,071.0

Operating Expenses
Wages and benefits			383.8			415.8
Contracted services			41.4			45.0
Aircraft fuel			179.5			139.8
Aircraft maintenance			100.4			85.5
Aircraft rent			92.5			93.3
Food and beverage service			29.4			31.3
Commissions			31.8			23.9
Other selling expenses			64.6			63.7
Depreciation and amortization			62.8			66.8
Loss (gain) on sale of assets			1.2			(0.6	)
Landing fees and other rentals			59.0			66.2
Other			90.8			98.2

Total Operating Expenses			1,137.2			1,128.9

Operating Loss			(41.9	)		(57.9	)

Nonoperating Income (Expense)
Interest income			13.8			10.2
Interest expense			(22.7	)		(23.5	)
Interest capitalized			5.9			0.7
Other — net			(2.0	)		11.0

			(5.0	)		(1.6	)

Loss before income tax			(46.9	)		(59.5	)
Income tax benefit			(16.1	)		(20.9	)

Net Loss		$	(30.8	)	$	(38.6	)

Basic Loss Per Share:		$	(1.16	)	$	(1.45	)

Diluted Loss Per Share:		$	(1.16	)	$	(1.45	)

Shares used for computation:
	Basic		26.476			26.540
	Diluted		26.476			26.540

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (unaudited)
Alaska Air Group, Inc.


											Accumulated
		Common				Capital in		Treasury			Other
		Shares		Common		Excess of		Stock,			Comprehensive			Retained
(In Millions)		Outstanding		Stock		Par Value		at Cost			Income (Loss)			Earnings			Total

Balances at December 31, 2001:
As previously reported			26.528	$	29.3	$	482.5	$	(62.6	)	$	(3.9	)	$	375.0		$	820.3
Prior period adjustment (see Note 2)															28.9			28.9

As restated			26.528		29.3		482.5		(62.6	)		(3.9	)		403.9			849.2

Net loss for the six months ended June 30, 2002															(38.6	)		(38.6	)
Other comprehensive income (loss):
Related to fuel hedges:
	Change in fair value											22.4
	Reclassification to earnings											(8.6	)
	Income tax effect											(5.4	)

												8.4						8.4

Related to marketable securities:
	Change in fair value

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