UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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, 2003. | ||
| OR | ||
| ( ) |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
Commission file number 1-8957
ALASKA AIRLINES, INC.
| 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 (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 500 common shares, par value $1.00, outstanding at October 31, 2003.
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | ||
| 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 6. | Exhibits and Reports on Form 8-K | |
| Signatures | ||
Cautionary Note regarding Forward-Looking Statements
In addition to historical information, this Quarterly Report on Form 10-Q may contain forward-looking statements that are based on the best information currently available to management. These forward-looking statements are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or our future financial performance and involve known and unknown risks and uncertainties that may cause our actual results or performance to be materially different from those indicated by any forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “forecast,” “may,” “will,” “could,” “should,” “expect,” “plan,” “believe,” “potential” or other similar words indicating future events or contingencies. Some of the things that could cause our actual results to differ from our expectations are: economic conditions; the continued impact of terrorist attacks, global instability and potential U.S. military involvement; our significant indebtedness; downgrades of our credit ratings; the competitive environment and other trends in our industry; changes in laws and regulations; changes in our operating costs including fuel; changes in our business plans; interest rates and the availability of financing; liability and other claims asserted against us; labor disputes; our ability to attract and retain qualified personnel; and inflation. For a discussion of these and other risk factors, review the information under the caption “Risk Factors” in Amendment No. 1 to our Registration Statement on Form S-1 filed August 23, 2003 as well as Item 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We disclaim any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results.
2
PART I. FINANCIAL STATEMENTS
ITEM 1. Financial Statements
BALANCE SHEETS (unaudited)
Alaska Airlines, Inc.
ASSETS
| December 31, | September 30, | |||||||
| (In Millions) | 2002 | 2003 | ||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 268.9 | $ | 221.3 | ||||
Marketable securities |
366.8 | 526.9 | ||||||
Receivables from related companies |
126.7 | 154.3 | ||||||
Receivables - net |
81.8 | 97.6 | ||||||
Inventories and supplies - net |
38.3 | 34.8 | ||||||
Deferred income taxes |
60.2 | 83.9 | ||||||
Prepaid expenses and other current assets |
47.5 | 34.9 | ||||||
Total Current Assets |
990.2 | 1,153.7 | ||||||
Property and Equipment |
||||||||
Flight equipment |
1,945.5 | 2,183.1 | ||||||
Other property and equipment |
359.3 | 376.7 | ||||||
Deposits for future flight equipment |
64.7 | 32.6 | ||||||
| 2,369.5 | 2,592.4 | |||||||
Less accumulated depreciation and amortization |
709.4 | 788.6 | ||||||
Total Property and Equipment - Net |
1,660.1 | 1,803.8 | ||||||
Intangible Assets |
50.9 | 50.9 | ||||||
Other Assets |
49.9 | 64.3 | ||||||
Total Assets |
$ | 2,751.1 | $ | 3,072.7 | ||||
See accompanying notes to financial statements.
3
BALANCE SHEETS (unaudited)
Alaska Airlines, Inc.
LIABILITIES AND SHAREHOLDER’S EQUITY
| December 31, | September 30, | ||||||||
| (In Millions) | 2002 | 2003 | |||||||
Current Liabilities |
|||||||||
Accounts payable |
$ | 118.5 | $ | 106.5 | |||||
Payables to related companies |
1.7 | 3.8 | |||||||
Accrued aircraft rent |
67.5 | 64.9 | |||||||
Accrued wages, vacation and payroll taxes |
76.3 | 74.9 | |||||||
Other accrued liabilities |
226.5 | 263.6 | |||||||
Air traffic liability |
211.1 | 265.3 | |||||||
Current portion of long-term debt and
capital lease obligations |
48.6 | 55.7 | |||||||
Total Current Liabilities |
750.2 | 834.7 | |||||||
Long-Term Debt and Capital Lease Obligations |
856.7 | 954.6 | |||||||
Other Liabilities and Credits |
|||||||||
Deferred income taxes |
153.7 | 193.3 | |||||||
Deferred revenue |
224.5 | 232.1 | |||||||
Other liabilities |
196.3 | 210.2 | |||||||
| 574.5 | 635.6 | ||||||||
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 | ) | (85.2 | ) | |||||
Retained earnings |
326.9 | 348.2 | |||||||
| 569.7 | 647.8 | ||||||||
Total Liabilities and Shareholder’s Equity |
$ | 2,751.1 | $ | 3,072.7 | |||||
See accompanying notes to financial statements.
4
STATEMENTS OF OPERATIONS (unaudited)
Alaska Airlines, Inc.
| Three Months Ended September 30 | ||||||||
| (In Millions) | 2002 | 2003 | ||||||
Operating Revenues |
||||||||
Passenger |
$ | 468.0 | $ | 532.5 | ||||
Freight and mail |
19.7 | 21.4 | ||||||
Other - net |
24.7 | 31.4 | ||||||
Total Operating Revenues |
512.4 | 585.3 | ||||||
Operating Expenses |
||||||||
Wages and benefits |
184.9 | 198.7 | ||||||
Contracted services |
18.9 | 20.5 | ||||||
Aircraft fuel |
70.7 | 81.6 | ||||||
Aircraft maintenance |
31.6 | 35.2 | ||||||
Aircraft rent |
32.1 | 31.1 | ||||||
Food and beverage service |
17.8 | 17.0 | ||||||
Commissions |
13.2 | 17.6 | ||||||
Other selling expenses |
26.1 | 25.8 | ||||||
Depreciation and amortization |
29.2 | 29.7 | ||||||
Loss on sale of assets |
0.5 | 0.8 | ||||||
Landing fees and other rentals |
30.1 | 33.6 | ||||||
Other |
38.5 | 34.5 | ||||||
Total Operating Expenses |
493.6 | 526.1 | ||||||
Operating Income |
18.8 | 59.2 | ||||||
Nonoperating Income (Expense) |
||||||||
Interest income |
6.4 | 4.6 | ||||||
Interest expense |
(11.3 | ) | (11.2 | ) | ||||
Interest capitalized |
0.5 | 0.2 | ||||||
U.S. government compensation |
0.2 | — | ||||||
Other - net |
(1.5 | ) | (2.7 | ) | ||||
| (5.7 | ) | (9.1 | ) | |||||
Income before income tax |
13.1 | 50.1 | ||||||
Income tax expense |
4.2 | 20.5 | ||||||
Net Income |
$ | 8.9 | $ | 29.6 | ||||
See accompanying notes to financial statements.
5
STATEMENTS OF OPERATIONS (unaudited)
Alaska Airlines, Inc.
| Nine Months Ended September 30 | ||||||||
| (In Millions) | 2002 | 2003 | ||||||
Operating Revenues |
||||||||
Passenger |
$ | 1,275.5 | $ | 1,380.1 | ||||
Freight and mail |
55.6 | 59.8 | ||||||
Other - net |
72.2 | 83.0 | ||||||
Total Operating Revenues |
1,403.3 | 1,522.9 | ||||||
Operating Expenses |
||||||||
Wages and benefits |
524.1 | 578.7 | ||||||
Contracted services |
59.8 | 60.9 | ||||||
Aircraft fuel |
190.1 | 227.6 | ||||||
Aircraft maintenance |
103.3 | 117.7 | ||||||
Aircraft rent |
95.7 | 92.8 | ||||||
Food and beverage service |
47.9 | 44.8 | ||||||
Commissions |
43.9 | 38.0 | ||||||
Other selling expenses |
78.8 | 71.0 | ||||||
Depreciation and amortization |
85.7 | 87.8 | ||||||
Loss on sale of assets |
0.7 | 1.3 | ||||||
Landing fees and other rentals |
82.2 | 93.5 | ||||||
Other |
111.3 | 102.9 | ||||||
Total Operating Expenses |
1,423.5 | 1,517.0 | ||||||
Operating Income (Loss) |
(20.2 | ) | 5.9 | |||||
Nonoperating Income (Expense) |
||||||||
Interest income |
17.5 | 10.3 | ||||||
Interest expense |
(35.0 | ) | (33.9 | ) | ||||
Interest capitalized |
1.0 | 1.3 | ||||||
U.S. government compensation |
0.3 | 52.8 | ||||||
Other - net |
7.7 | 2.7 | ||||||
| (8.5 | ) | 33.2 | ||||||
Income (loss) before income tax and accounting change |
(28.7 | ) | 39.1 | |||||
Income tax expense (benefit) |
(9.9 | ) | 17.8 | |||||
Income (loss) before cumulative effect of accounting change |
(18.8 | ) | 21.3 | |||||
Cumulative effect of accounting change |
(12.5 | ) | — | |||||
Net Income (Loss) |
$ | (31.3 | ) | $ | 21.3 | |||
See accompanying notes to financial statements.
6
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, 2002 |
$ | — | $ | 324.8 | $ | (82.0 | ) | $ | 326.9 | $ | 569.7 | ||||||||||
Net income for the nine months
ended September 30, 2003 |
21.3 | 21.3 | |||||||||||||||||||
Other comprehensive income (loss): |
|||||||||||||||||||||
Related to marketable securities: |
|||||||||||||||||||||
Change in fair value |
(3.6 | ) | |||||||||||||||||||
Reclassification to earnings |
3.8 | ||||||||||||||||||||
Income tax effect |
(0.1 | ) | |||||||||||||||||||
| 0.1 | 0.1 | ||||||||||||||||||||
Related to fuel hedges: |
|||||||||||||||||||||
Change in fair value |
13.2 | ||||||||||||||||||||
Reclassification to earnings |
(18.6 | ) | |||||||||||||||||||
Income tax effect |
2.1 | ||||||||||||||||||||
| (3.3 | ) | (3.3 | ) | ||||||||||||||||||
Total comprehensive loss |
18.1 | ||||||||||||||||||||
Capital contribution from Air Group |
60.0 | 60.0 | |||||||||||||||||||
Balances at September 30, 2003 |
$ | — | $ | 384.8 | $ | (85.2 | ) | $ | 348.2 | $ | 647.8 | ||||||||||
See accompanying notes to financial statements.
7
STATEMENTS OF CASH FLOWS (unaudited)
Alaska Airlines, Inc.
| Nine Months Ended September 30 | ||||||||||
| (In Millions) | 2002 | 2003 | ||||||||
Cash flows from operating activities: |
||||||||||
Net income (loss) |
$ | (31.3 | ) | $ | 21.3 | |||||
Adjustments to reconcile net loss to
net cash provided by operating activities: |
||||||||||
Cumulative effect of accounting change |
12.5 | — | ||||||||
Depreciation and amortization |
85.9 | 87.8 | ||||||||
Amortization of airframe and engine overhauls |
44.8 | 44.0 | ||||||||
Loss (gain) on marketable securities |
— | (0.1 | ) | |||||||
Changes in derivative fair values |
(4.7 | ) | 1.4 | |||||||
Loss on sale of assets |
0.7 | 1.3 | ||||||||
Decrease in deferred income taxes |
(10.3 | ) | 17.9 | |||||||
Increase in accounts receivable - net |
(30.6 | ) | (43.1 | ) | ||||||
Decrease in prepaid expenses and other current assets |
10.2 | 5.1 | ||||||||
Increase in air traffic liability |
||||||||||