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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, 2003.
OR
o   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) 392-5040

     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 No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x   No o

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 June 30, 2003.

 


TABLE OF CONTENTS

PART I. FINANCIAL STATEMENTS
ITEM 1. Financial Statements
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 6. Exhibits and Reports on Form 8-K
Signatures
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2


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Cautionary Note regarding Forward-Looking Statements

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words “believe,” “expect,” “will,” “anticipate,” “intend,” “estimate,” “project,” “assume” or similar expressions, although not all forward-looking statements contain these identifying words. All statements in this report regarding our future strategy, future operations, projected financial position, estimated future revenues, projected costs, future prospects, and results that might be obtained by pursuing management’s current plans and objectives are forward-looking statements. You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this report was filed with the SEC. We expressly disclaim any obligation to issue any updates or revisions to our forward-looking statements, even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our stockholders. Many important factors that could cause such a difference are described in Item 1, “Business” of our most recent Annual Report on Form 10-K, all of which you should review carefully. Please consider our forward-looking statements in light of those risks as you read this report.


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PART I. FINANCIAL STATEMENTS

ITEM 1. Financial Statements
BALANCE SHEETS (unaudited)
Alaska Airlines, Inc.

ASSETS

                 
    December 31,   June 30,
(In Millions)   2002   2003

 
 
Current Assets
               
Cash and cash equivalents
  $ 268.9     $ 114.4  
Marketable securities
    366.8       606.9  
Receivables from related companies
    126.7       165.9  
Receivables - net
    81.8       98.4  
Inventories and supplies - net
    38.3       36.5  
Deferred income taxes
    60.2       74.9  
Prepaid expenses and other current assets
    47.5       40.5  
 
   
     
 
Total Current Assets
    990.2       1,137.5  
 
   
     
 
Property and Equipment
               
Flight equipment
    1,945.5       2,150.9  
Other property and equipment
    359.3       369.1  
Deposits for future flight equipment
    64.7       32.8  
 
   
     
 
 
    2,369.5       2,552.8  
Less accumulated depreciation and amortization
    709.4       763.2  
 
   
     
 
Total Property and Equipment - Net
    1,660.1       1,789.6  
 
   
     
 
Intangible Assets
    50.9       50.9  
 
   
     
 
Other Assets
    49.9       55.3  
 
   
     
 
Total Assets
  $ 2,751.1     $ 3,033.3  
 
   
     
 

See accompanying notes to financial statements.

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BALANCE SHEETS (unaudited)
Alaska Airlines, Inc.

LIABILITIES AND SHAREHOLDER’S EQUITY

                   
      December 31,   June 30,
(In Millions)   2002   2003

 
 
Current Liabilities
               
Accounts payable
  $ 118.5     $ 103.6  
Payables to related companies
    1.7       2.4  
Accrued aircraft rent
    67.5       61.9  
Accrued wages, vacation and payroll taxes
    76.3       73.1  
Other accrued liabilities
    226.5       264.0  
Air traffic liability
    211.1       297.7  
Current portion of long-term debt and capital lease obligations
    48.6       62.0  
 
   
     
 
Total Current Liabilities
    750.2       864.7  
 
   
     
 
Long-Term Debt and Capital Lease Obligations
    856.7       929.8  
 
   
     
 
Other Liabilities and Credits
               
Deferred income taxes
    153.7       164.7  
Deferred revenue
    224.5       228.6  
Other liabilities
    196.3       225.6  
 
   
     
 
 
    574.5       618.9  
 
   
     
 
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       384.8  
Accumulated other comprehensive income (loss)
    (82.0 )     (83.5 )
Retained earnings
    326.9       318.6  
 
   
     
 
 
    569.7       619.9  
 
   
     
 
Total Liabilities and Shareholder’s Equity
  $ 2,751.1     $ 3,033.3  
 
   
     
 

See accompanying notes to financial statements.

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STATEMENTS OF OPERATIONS (unaudited)
Alaska Airlines, Inc.

                 
Three Months Ended June 30                
(In Millions)   2002   2003

 
 
Operating Revenues
               
Passenger
  $ 433.6     $ 460.6  
Freight and mail
    20.0       21.0  
Other - net
    25.1       29.0  
 
   
     
 
Total Operating Revenues
    478.7       510.6  
 
   
     
 
Operating Expenses
               
Wages and benefits
    174.5       192.0  
Contracted services
    19.4       19.7  
Aircraft fuel
    64.2       69.1  
Aircraft maintenance
    36.1       44.6  
Aircraft rent
    31.8       31.2  
Food and beverage service
    16.2       14.9  
Commissions
    14.2       12.2  
Other selling expenses
    27.8       23.3  
Depreciation and amortization
    28.5       29.6  
Loss on sale of assets
    0.2       0.2  
Landing fees and other rentals
    28.5       31.2  
Other
    37.5       34.3  
 
   
     
 
Total Operating Expenses
    478.9       502.3  
 
   
     
 
Operating Income (Loss)
    (0.2 )     8.3  
 
   
     
 
Nonoperating Income (Expense)
               
Interest income
    6.1       4.5  
Interest expense
    (11.6 )     (11.4 )
Interest capitalized
    0.4       0.4  
U.S. government compensation
    0.1       52.8  
Other - net
    5.1       5.0  
 
   
     
 
 
    0.1       51.3  
 
   
     
 
Income (loss) before income tax
    (0.1 )     59.6  
Income tax expense
    0.7       22.8  
 
   
     
 
Net Income (Loss)
  $ (0.8 )   $ 36.8  
 
   
     
 

See accompanying notes to financial statements.

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STATEMENTS OF OPERATIONS (unaudited)
Alaska Airlines, Inc.

                 
Six Months Ended June 30                
(In Millions)   2002   2003

 
 
Operating Revenues
               
Passenger
  $ 807.6     $ 847.6  
Freight and mail
    35.9       38.4  
Other - net
    47.4       51.6  
 
   
     
 
Total Operating Revenues
    890.9       937.6  
 
   
     
 
Operating Expenses
               
Wages and benefits
    340.2       380.0  
Contracted services
    41.2       40.4  
Aircraft fuel
    119.4       146.0  
Aircraft maintenance
    71.7       82.5  
Aircraft rent
    63.6       61.7  
Food and beverage service
    30.1       27.8  
Commissions
    28.4       20.4  
Other selling expenses
    52.7       45.2  
Depreciation and amortization
    56.7       58.1  
Loss on sale of assets
    0.2       0.5  
Landing fees and other rentals
    52.1       59.9  
Other
    73.8       68.4  
 
   
     
 
Total Operating Expenses
    930.1       990.9  
 
   
     
 
Operating Loss
    (39.2 )     (53.3 )
 
   
     
 
Nonoperating Income (Expense)
               
Interest income
    11.1       5.7  
Interest expense
    (23.5 )     (22.7 )
Interest capitalized
    0.5       1.1  
U.S. government compensation
    0.1       52.8  
Other - net
    9.2       5.4  
 
   
     
 
 
    (2.6 )     42.3  
 
   
     
 
Loss before income tax and accounting change
    (41.8 )     (11.0 )
Income tax benefit
    (14.1 )     (2.7 )
 
   
     
 
Loss before cumulative effect of accounting change
    (27.7 )     (8.3 )
Cumulative effect of accounting change
    (12.5 )      
 
   
     
 
Net Loss
  $ (40.2 )   $ (8.3 )
 
   
     
 

See accompanying notes to financial statements.

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STATEMENTS 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, 2002
  $     $ 324.8     $ (82.0 )   $ 326.9     $ 569.7  
 
   
     
     
     
     
 
Net loss for the six months ended June 30, 2003
                            (8.3 )     (8.3 )
Other comprehensive income (loss):
                                       
 
Related to marketable securities:
                                       
   
Change in fair value
                    (3.1 )                
   
Reclassification to earnings
                    4.3                  
   
Income tax effect
                    (0.4 )                
 
                   
                 
 
                    0.8               0.8  
 
                   
             
 
 
Related to fuel hedges:
                                       
   
Change in fair value
                    8.9                  
   
Reclassification to earnings
                    (12.6 )                
   
Income tax effect
                    1.4                  
 
                   
                 
 
                    (2.3 )             (2.3 )
 
                   
             
 
Total comprehensive loss
                                    (9.8 )
Capital contribution from Air Group
            60.0                       60.0  
 
   
     
     
     
     
 
Balances at June 30, 2003
  $     $ 384.8     $ (83.5 )   $ 318.6     $ 619.9  
 
   
     
     
     
     
 

See accompanying notes to financial statements.

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

                     
Six Months Ended June 30                
(In Millions)   2002   2003

 
 
Cash flows from operating activities:
               
Net loss
  $ (40.2 )   $ (8.3 )
Adjustments to reconcile net loss to net cash provided by operating activities:
               
   
Cumulative effect of accounting change
    12.5        
   
Depreciation and amortization
    56.7       58.1  
   
Amortization of airframe and engine overhauls
    29.6       27.8  
   
Loss (gain) on marketable securities
    0.2       (0.8 )
   
Changes in derivative fair values
    (6.8 )     (0.4 )
   
Loss on sale of assets
          0.5  
   
Decrease in deferred income taxes
    (11.0 )     (2.7 )
   
Increase in accounts receivable - net
    (41.5 )     (55.8 )
   
Decrease in prepaid expenses and other current assets
    2.8       3.8  
   
Increase in air traffic liability
    67.3       86.7  
   
Increase in other current liabilities
    0.9       14.6  
   
Increase in deferred revenue and other-net
    16.9       34.4