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, 2003.


( )		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) 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 (X) No ( )

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 26,646,150 common shares, par value $1.00, outstanding at July 31, 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
	ITEM 4. Controls and Procedures
PART II. OTHER INFORMATION
	ITEM 1. Legal Proceedings
	ITEM 4. Submission of Matters to a Vote of Security Holders
	ITEM 6. Exhibits and Reports on Form 8-K
Signatures
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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.

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

ASSETS


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

Current Assets
Cash and cash equivalents	$	269.0	$	114.6
Marketable securities		366.8		606.9
Receivables — net		125.4		141.3
Inventories and supplies		71.9		70.1
Deferred income taxes		61.2		74.7
Prepaid expenses and other current assets		82.0		86.1

Total Current Assets		976.3		1,093.7

Property and Equipment
Flight equipment		2,066.4		2,279.8
Other property and equipment		430.9		441.7
Deposits for future flight equipment		93.5		80.3

		2,590.8		2,801.8
Less accumulated depreciation and amortization		811.4		870.1

Total Property and Equipment — Net		1,779.4		1,931.7

Intangible Assets		50.9		50.9

Other Assets		74.1		108.1

Total Assets	$	2,880.7	$	3,184.4

See accompanying notes to consolidated financial statements.

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

LIABILITIES AND SHAREHOLDERS’ EQUITY


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

Current Liabilities
Accounts payable		$	132.1		$	124.3
Accrued aircraft rent			76.0			63.6
Accrued wages, vacation and payroll taxes			87.4			83.7
Other accrued liabilities			222.2			261.8
Air traffic liability			211.6			298.2
Current portion of long-term debt and capital lease obligations			48.6			62.0

Total Current Liabilities			777.9			893.6

Long-Term Debt and Capital Lease Obligations			856.7			1,016.2

Other Liabilities and Credits
Deferred income taxes			157.2			165.0
Deferred revenue			232.0			235.5
Other liabilities			201.2			230.8

			590.4			631.3

Shareholders’ Equity
Common stock, $1 par value
	Authorized: 100,000,000 shares
	Issued: 2002 - 29,309,726 shares 2003 - 29,377,068 shares		29.3			29.4
	Capital in excess of par value		483.3			484.4
	Treasury stock, at cost: 2002 and 2003 - 2,736,287 shares		(62.5	)		(62.5	)
Accumulated other comprehensive income (loss)			(80.2	)		(82.7	)
Retained earnings			285.8			274.7

			655.7			643.3

Total Liabilities and Shareholders’ Equity		$	2,880.7		$	3,184.4

See accompanying notes to consolidated financial statements.

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


Three Months Ended June 30
(In Millions Except Per Share Amounts)		2002			2003

Operating Revenues
Passenger		$	525.4		$	556.9
Freight and mail			21.2			22.4
Other — net			29.1			29.8

Total Operating Revenues			575.7			609.1

Operating Expenses
Wages and benefits			211.8			232.5
Contracted services			22.4			24.4
Aircraft fuel			75.2			80.1
Aircraft maintenance			42.3			51.9
Aircraft rent			46.8			49.4
Food and beverage service			17.0			15.6
Commissions			11.5			3.5
Other selling expenses			33.5			29.0
Depreciation and amortization			34.0			33.1
Loss on sale of assets			0.1			—
Landing fees and other rentals			36.0			38.7
Other			50.1			46.9

Total Operating Expenses			580.7			605.1

Operating Income (Loss)			(5.0	)		4.0

Nonoperating Income (Expense)
Interest income			5.7			5.4
Interest expense			(11.6	)		(14.2	)
Interest capitalized			0.6			0.7
U.S. government compensation			0.1			71.4
Other — net			6.4			5.5

			1.2			68.8

Income (loss) before income tax			(3.8	)		72.8
Income tax (benefit) expense			(0.9	)		27.6

Net Income (Loss)		$	(2.9	)	$	45.2

Basic and Diluted Earnings (Loss) Per Share		$	(0.11	)	$	1.70

Shares used for computation:
	Basic		26.548			26.618
	Diluted		26.548			26.619

See accompanying notes to consolidated financial statements.

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


Six Months Ended June 30
(In Millions Except Per Share Amounts)		2002			2003

Operating Revenues
Passenger		$	981.3		$	1,032.4
Freight and mail			38.3			41.0
Other — net			56.2			54.4

Total Operating Revenues			1,075.8			1,127.8

Operating Expenses
Wages and benefits			414.7			459.6
Contracted services			47.1			50.1
Aircraft fuel			139.9			170.3
Aircraft maintenance			85.5			97.8
Aircraft rent			93.3			96.9
Food and beverage service			31.3			29.0
Commissions			23.9			6.8
Other selling expenses			63.7			56.2
Depreciation and amortization			66.3			65.5
Loss (gain) on sale of assets			(0.5	)		0.1
Landing fees and other rentals			65.8			75.8
Other			99.4			94.3

Total Operating Expenses			1,130.4			1,202.4

Operating Loss			(54.6	)		(74.6	)

Nonoperating Income (Expense)
Interest income			10.1			6.0
Interest expense			(23.5	)		(25.3	)
Interest capitalized			0.8			1.5
U.S. government compensation			0.1			71.4
Other — net			10.9			5.9

			(1.6	)		59.5

Loss before income tax and accounting change			(56.2	)		(15.1	)
Income tax (benefit)			(19.6	)		(4.0	)

Loss before accounting change			(36.6	)		(11.1	)
Cumulative effect of accounting change			(51.4	)		—

Net Loss		$	(88.0	)	$	(11.1	)

Basic and Diluted Loss Per Share:
Loss before accounting change		$	(1.38	)	$	(0.42	)
Cumulative effect of accounting change			(1.94	)		—

Net Loss Per Share		$	(3.32	)	$	(0.42	)

Shares used for computation:
	Basic		26.540			26.600
	Diluted		26.540			26.600

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, 2002:			26.573	$	29.3	$	483.3	$	(62.5	)	$	(80.2	)	$	285.8		$	655.7

Net loss for the six months ended June 30, 2003															(11.1	)		(11.1	)
Other comprehensive income (loss):
Related to marketable securities:
	Change in fair value											(3.0	)
	Reclassification to earnings											4.3
	Income tax effect											(0.5	)

												0.8						0.8

Related to fuel hedges:
	Change in fair value											9.5
	Reclassification to earnings											(14.8	)
	Income tax effect											2.0

												(3.3	)					(3.3	)

Total comprehensive loss

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