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 September 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 October 31, 2002.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	ITEM 1. Financial Statements
CONSOLIDATED BALANCE SHEETS (unaudited)
CONSOLIDATED BALANCE SHEETS (unaudited)
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
ALASKA AIRLINES FINANCIAL AND STATISTICAL DATA (unaudited)
HORIZON AIR FINANCIAL AND STATISTICAL DATA (unaudited)
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
	ITEM 4. Controls and Procedures
PART II. OTHER INFORMATION
	ITEM 1. Legal Proceedings
	ITEM 5. Other Information
	ITEM 6. Exhibits and Reports on Form 8-K
Signatures
CERTIFICATIONS
EXHIBIT 99.1
EXHIBIT 99.2

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CONSOLIDATED BALANCE SHEETS (unaudited)
Alaska Air Group, Inc.

ASSETS


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

Current Assets




Cash and cash equivalents	$	490.3	$	308.2




Marketable securities		170.4		354.4




Receivables — net		83.4		85.4




Inventories and supplies — net		71.5		71.4




Prepaid expenses and other assets		108.9		136.7

Total Current Assets		924.5		956.1

Property and Equipment




Flight equipment		2,002.8		2,039.3




Other property and equipment		395.5		432.5




Deposits for future flight equipment		112.4		87.6

		2,510.7		2,559.4




Less accumulated depreciation and amortization		701.3		786.5

Total Property and Equipment — Net		1,809.4		1,772.9

Goodwill		51.4		51.4

Other Assets		157.0		164.8

Total Assets	$	2,942.3	$	2,945.2

See accompanying notes to consolidated financial statements.

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

LIABILITIES AND SHAREHOLDERS’ EQUITY


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

Current Liabilities




Accounts payable		$	122.0		$	132.2




Accrued aircraft rent			90.1			76.4




Accrued wages, vacation and payroll taxes			79.9			87.2




Other accrued liabilities			207.6			180.8




Air traffic liability			219.4			233.7




Current portion of long-term debt and capital lease obligations			43.2			46.2

Total Current Liabilities			762.2			756.5

Long-Term Debt and Capital Lease Obligations			847.9			843.7

Other Liabilities and Credits




Deferred income taxes			177.6			171.6




Deferred revenue			176.6			177.9




Other liabilities			128.8			159.1

			483.0			508.6

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	)		10.8




Retained earnings			403.9			375.9

			849.2			836.4

Total Liabilities and Shareholders’ Equity		$	2,942.3		$	2,945.2

See accompanying notes to consolidated financial statements.

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


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

Operating Revenues




Passenger		$	536.9		$	569.8




Freight and mail			22.6			21.0




Other — net			28.5			29.3

Total Operating Revenues			588.0			620.1

Operating Expenses




Wages and benefits			204.9			224.8




Contracted services			21.4			22.0




Aircraft fuel			85.6			82.8




Aircraft maintenance			43.3			35.8




Aircraft rent			46.0			48.3




Food and beverage service			15.2			18.6




Commissions			16.0			7.2




Other selling expenses			31.8			32.5




Depreciation and amortization			34.5			34.8




Loss (gain) on sale of assets			0.3			(0.2	)




Landing fees and other rentals			33.8			38.9




Other			42.4			51.0

Total Operating Expenses			575.2			596.5

Operating Income			12.8			23.6

Nonoperating Income (Expense)




Interest income			7.1			5.8




Interest expense, net			(10.2	)		(10.5	)




U.S. government compensation			29.1			0.5




Other — net			(0.4	)		(3.0	)

			25.6			(7.2	)

Income before income tax			38.4			16.4




Income tax expense			13.1			5.8

Net Income		$	25.3		$	10.6

Basic Earnings Per Share		$	0.95		$	0.40

Diluted Earnings Per Share		$	0.95		$	0.40

Shares used for computation:




	Basic		26.514			26.549




	Diluted		26.559			26.562

See accompanying notes to consolidated financial statements.

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


Nine Months Ended September 30		Restated
(In Millions Except Share and Per Share Amounts)		2001			2002

Operating Revenues




Passenger		$	1,550.9		$	1,551.3




Freight and mail			67.3			59.4




Other — net			71.8			86.1

Total Operating Revenues			1,690.0			1,696.8

Operating Expenses




Wages and benefits			590.7			642.4




Contracted services			65.1			69.0




Aircraft fuel			265.1			222.6




Aircraft maintenance			143.7			121.3




Aircraft rent			138.5			141.6




Food and beverage service			44.6			49.9




Commissions			47.8			31.1




Other selling expenses			96.4			96.2




Depreciation and amortization			97.3			101.6




Loss (gain) on sale of assets			1.5			(0.8	)




Landing fees and other rentals			92.8			105.1




Other			135.6			151.1

Total Operating Expenses			1,719.1			1,731.1

Operating Loss			(29.1	)		(34.3	)

Nonoperating Income (Expense)




Interest income			20.9			16.0




Interest expense, net			(27.1	)		(33.3	)




U.S. government compensation			29.1			0.5




Other — net			(2.3	)		8.0

			20.6			(8.8	)

Loss before income tax			(8.5	)		(43.1	)




Income tax benefit			(3.0	)		(15.1	)

Net Loss		$	(5.5	)	$	(28.0	)

Basic Loss Per Share		$	(0.21	)	$	(1.05	)

Diluted Loss Per Share		$	(0.21	)	$	(1.05	)

Shares used for computation:




	Basic		26.489			26.543




	Diluted		26.489			26.543

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 nine months ended September 30, 2002															(28.0	)		(28.0	)




Other comprehensive income (loss):




Related to fuel hedges:




	Change in fair value											26.3




	Reclassification to earnings											(5.5	)




	Income tax effect											(8.1	)

												12.7						12.7
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