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 March 31, 1996.
OR
( )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 92-0009235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19300 Pacific Highway South, Seattle, Washington 98188
(Address of principal executive offices)
Registrant's telephone number, including area code: (206) 431-7079
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 500 common shares, par value $1.00, outstanding at
March 31, 1996.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Attached are the following Alaska Airlines, Inc. (the Company or Alaska)
unaudited financial statements: (i) balance sheets as of March 31, 1996 and
December 31, 1995; (ii) statements of income for the three months ended
March 31, 1996 and 1995; (iii) statement of shareholder's equity for the
three months ended March 31, 1996; and, (iv) statements of cash flows for
the three months ended March 31, 1996 and 1995. Also attached are the
accompanying notes to the Company's financial statements that have changed
significantly during the three months ended March 31, 1996. These
statements, which should be read in conjunction with the financial
statements in the Company's annual report on Form 10-K for the year ended
December 31, 1995, include all adjustments that are, in the opinion of
management, necessary for a fair presentation of the results for the
interim periods. The adjustments made were of a normal recurring nature.
The Company is a wholly owned subsidiary of Alaska Air Group, Inc. (Air
Group) whose principal subsidiaries are Alaska Airlines, Inc. and Horizon
Air Industries, Inc.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
First Quarter 1996 Compared with First Quarter 1995 The net loss for the
first quarter of 1996 was $5.2 million compared with a net loss of $13.0
million in 1995. The operating loss for the first quarter of 1996 was $3.3
million compared to an operating loss of $14.2 million for 1995. The
smaller operating loss reflects higher average fares and load factors.
Airline financial and statistical data is shown following the financial
statements. A discussion of this data follows.
Operating revenues increased 20.5% to $280.4 million. Passenger revenues,
which accounted for 87% of total operating revenues, increased 22.6% on an
18.6% rise in passenger traffic. Capacity increased 10%, primarily due to
more flying in the Alaska, Arizona and Nevada markets. The load factor
increased from 56.4% in 1995 to 60.7% in 1996, and passenger yields rose
3.4% to 11.53 cents in 1996, reflecting an improved balance between supply
and demand for air travel on the West Coast.
Freight and mail revenues increased less than 1% as higher freight volumes
were offset by lower mail volumes and rates. Other-net revenues rose 17.7%
due to increased revenues from travel partners in Alaska's frequent flyer
program.
The table below shows the major operating expense elements on a cost per
available seat mile (ASM) basis for Alaska for the first quarters of 1996
and 1995.
Alaska Airlines Operating Expenses Per ASM (In Cents)
%
1996 1995 Change Change
Wages and benefits 2.61 2.48 .13 5
Aircraft fuel 1.22 1.04 .18 17
Aircraft maintenance .39 .37 .02 5
Aircraft rent 1.02 1.05 (.03) (3)
Commissions .56 .50 .06 12
Depreciation & amortization .41 .46 (.05) (11)
Landing fees and other rentals .34 .34
Other 1.55 1.52 .03 2
Alaska Airlines Total 8.10 7.76 .34 4
Alaska's higher unit costs were primarily due to higher fuel prices, higher
wages and benefits per employee, and heavier passenger loads. Significant
unit cost changes are discussed below.
Wages and benefits per ASM increased 5% due to higher average wage rates
per employee (in part due to longevity increases in labor contracts), and
higher expense rates for health insurance and pensions. The number of full-
time equivalent employees increased 9%, which was in line with the 10%
capacity increase. However, revenue passengers increased 23%, which
resulted in a 13% increase in productivity as measured by passengers per
employee.
Fuel expense per ASM increased 17%, due to a 14% increase in the price of
fuel. Approximately half of the fuel price increase is due to a 4.3 cent
Federal excise tax on domestic fuel consumption that began October 1, 1995.
Pending legislation in Congress to extend the exemption from this tax has
not been acted upon due to the Federal budget impasse.
Commission expense per ASM increased 12% because passenger revenues, upon
which commissions are paid, increased 23% or approximately 12 percentage
points over the 10% ASM growth.
Depreciation and amortization expense per ASM decreased 11% primarily due
to a 6% increase in aircraft utilization.
Other expense per ASM increased 2% primarily due to higher costs related to
heavier passenger loads, such as booking fees, communications charges and
credit card commissions.
Other Income (Expense) Non-operating expense decreased $2.6 million to $6.0
million due to lower interest rates on variable debt and smaller average
debt balances, and more interest income earned on higher cash balances.
Income Tax Credit Accounting standards require the Company to provide for
income taxes each quarter based on its estimate of the effective tax rate
for the full year. The volatility of air fares and the seasonality of the
Company's business make it very difficult to estimate full-year pretax
results. In addition, a relatively small change in pretax results can
cause a significant change in the effective tax rate due to the magnitude
of nondeductible expenses, such as goodwill amortization and employee per
diem costs. In estimating the 44.1% tax rate for the first quarter of
1996, the Company considered a variety of factors, including the U.S.
federal rate of 35%, estimates of nondeductible expenses and state income
taxes, and the 43.5% tax rate used for full year 1995. This rate is
evaluated each quarter and adjustments are made if necessary.
Liquidity and Capital Resources
The table below presents the major indicators of financial condition and
liquidity.
March 31, 1996 December 31, 1995 Change
(In millions, except debt-to-equity)
Cash and marketable securities $137.6 $ 134.9 $ 2.7
Working capital (deficit) (49.0) (91.4) 42.4
Long-term debt and
capital lease obligations 305.4 322.5 (17.1)
Shareholders' equity 306.2 311.4 (5.2)
Debt-to-equity 50%:50% 51%:49% NA
The Company's cash and marketable securities portfolio increased by $3
million during the first three months of 1996. Operating activities
provided $43 million of cash during this period. Additional cash was
provided by the sale and leaseback of two B737-400 aircraft ($57 million).
Cash was used for the repayment of short-term borrowings ($66 million),
airframe and engine overhauls and other capital expenditures ($17 million),
and the repayment of debt ($17 million).
The working capital deficit decreased by $42 million primarily due to the
sale and leaseback of two B737-400 aircraft.
PART II. OTHER INFORMATION
ITEM 5. Other Information
The U.S. 10% passenger ticket tax, the 6.25% cargo waybill tax and the $6
per passenger international departure tax expired on December 31, 1995.
Hence, the Company ceased collecting these taxes on January 1, 1996.
Management believes that some form of these taxes will likely be reinstated
in 1996 on a prospective basis and that it is unlikely that any
reinstatement will be retroactive.
ITEM 6. Exhibits and Reports on Form 8-K
(a)No reports on Form 8-K were filed during the first quarter of 1996.
Signatures
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ALASKA AIRLINES, INC.
Registrant
Date: May 1, 1996
/s/ John F. Kelly
John F. Kelly
Chairman, President and Chief Executive Officer
/s/ Harry G. Lehr
Harry G. Lehr
Senior Vice President/Finance
(Principal Financial Officer)
BALANCE SHEET
Alaska Airlines, Inc.
ASSETS
March 31, Dec. 31,
(In Millions) 1996 1995
Current Assets
Cash and cash equivalents $63.3 $25.6
Marketable securities 74.3 109.3
Receivables from related companies 116.3 118.6
Receivables - net 79.5 55.5
Inventories and supplies 29.4 29.0
Prepaid expenses and other assets 51.2 65.9
Total Current Assets 414.0 403.9
Property and Equipment
Flight equipment 735.8 785.3
Other property and equipment 191.0 187.9
Deposits for future flight equipment 33.1 33.1
959.9 1,006.3
Less accum. depreciation and amort. 281.9 271.6
678.0 734.7
Capital leases
Flight and other equipment 44.4 44.4
Less accumulated amortization 23.9 23.4
20.5 21.0
Total Property and Equipment - Net 698.5 755.7
Intangible Assets - Subsidiaries 15.4 15.5
Other Assets 83.3 91.4
Total Assets $1,211.2 $1,266.5
See accompanying notes to financial statements.
BALANCE SHEET
Alaska Airlines, Inc.
LIABILITIES AND SHAREHOLDER'S EQUITY
March 31, Dec. 31,
(In Millions) 1996 1995
Current Liabilities
Accounts payable $67.6 $81.4
Accrued aircraft rent 35.9 32.9
Accrued wages, vacation and payroll taxes 37.5 36.6
Other accrued liabilities 53.7 55.2
Short-term borrowings 0.0
(Interest rate: 1995 - 6.2%) - 65.9
Air traffic liability 168.9 123.7
Note payable to related company 64.8 64.8
Current portion of long-term debt and
capital lease obligations 34.6 34.8
Total Current Liabilities 463.0 495.3
Long-Term Debt and Capital Lease Obligations 305.4 322.5
Other Liabilities and Credits
Deferred income taxes 53.4 57.4
Deferred income 12.7 12.6
Other liabilities 70.5 67.3
136.6 137.3
Shareholder's Equity
Common stock, $1 par value
Authorized: 30,000,000 shares
Issued: 1996 and 1995 - 500 shares
Capital in excess of par value 225.8 225.8
Retained earnings 80.4 85.6
306.2 311.4
Total Liabilities and Shareholder's Equity $1,211.2 $1,266.5
See accompanying notes to financial statements.
STATEMENT OF INCOME
Alaska Airlines, Inc.
Three Months Ended March 31
(In Millions) 1996 1995
Operating Revenues
Passenger $245.1 $200.0
Freight and mail 18.7 18.6
Other - net 16.6 14.1
Total Operating Revenues 280.4 232.7
Operating Expenses
Wages and benefits 91.5 79.1
Aircraft fuel 42.8 33.1
Aircraft maintenance 13.6 11.9
Aircraft rent 35.6 33.3
Commissions 19.6 15.8
Depreciation and amortization 14.2 14.7
Landing fees and other rentals 11.9 10.9
Other 54.5 48.1
Total Operating Expenses 283.7 246.9
Operating Loss (3.3) (14.2)
Other Income (Expense)
Interest income 2.6 1.5
Interest expense (8.9) (10.5)
Loss on disposition of assets (0.1) 0.0
Other - net 0.4 0.4
(6.0) (8.6)
Loss before income tax (9.3) (22.8)
Income tax credit (4.1) (9.8)
Net Loss $(5.2) $(13.0)
See accompanying notes to financial statements.
STATEMENT OF SHAREHOLDER'S EQUITY
Alaska Airlines, Inc.
Common Stock
Capital in
$1 Par Excess of Retained
(In Millions) Value Par Value Earnings Total
Balances at December 31, 1995 $ - $225.8 $85.6 $311.4
Net loss for the three months
ended March 31, 1996 (5.2) (5.2)
Balances at March 31, 1996 $ - $225.8 $80.4 $306.2
See accompanying notes to financial statements.
STATEMENT OF CASH FLOWS
Alaska Airlines, Inc.
Three Months Ended March 31 (In Millions) 1996 1995
Cash and cash equivalents at beginning of year $25.6 $11.3
Cash flows from operating activities:
Net loss (5.2) (13.0)
Adjustments to reconcile net loss to cash:
Depreciation and amortization 14.2 14.7
Amortization of airframe and engine overhauls 6.5 4.7
Loss on disposition of assets 0.1 -
Decrease in deferred income taxes (4.1) (9.9)
Increase in accounts receivable (21.6) (8.4)
Decrease in other current assets 14.3 3.7
Increase in air traffic liability 45.4 24.1
Increase (decrease) in other current liabilities (11.5) (2.9)
Other-net 4.7 0.2
Net cash provided by operating activities 42.8 13.2
Cash flows from investing activities:
Proceeds from disposition of assets 0.6 0.1
Purchases of marketable securities (13.4) (0.8)
Sales and maturities of marketable securities 48.4 32.9
Restricted deposits 2.4 (0.7)
Additions to property and equipment (17.2) (22.2)
Net cash provided by investing activities 20.8 9.3
Cash flows from financing activities:
Proceeds from short-term borrowings - 4.0
Repayment of short-term borrowings (65.9) (25.0)
Proceeds from sale and leaseback transactions 57.4 -
Long-term debt and capital lease payments (17.4) (8.9)
Net cash used in financing activities (25.9) (29.9)
Net increase (decrease) in cash and cash equivalents 37.7 (7.4)
Cash and cash equivalents at end of year $63.3 $3.9
Supplemental disclosure of cash paid (received) during
Interest (net of amount capitalized) $8.9 $10.4
Income taxes (refunds) - -
Noncash investing and financing activities None None
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS THAT HAVE CHANGED SIGNIFICANTLY DURING THE
THREE MONTHS ENDED MARCH 31, 1996
Alaska Airlines, Inc.
Note 1. Commitments (See Note 6 to Financial Statements at December 31,
1995)
During the first quarter of 1996, Alaska's lease commitments increased
approximately $96 million due to the sale and leaseback of two B737-400
aircraft under 18-1/2-year operating leases.
Airline Financial and Statistical Data
Quarter Ended March 31
%
Financial Data (in millions): 1996 1995 Change
Operating Revenues:
Passenger $245.1 $200.0 22.6
Freight and mail 18.7 18.6 0.5
Other - net 16.6 14.1 17.7
Total Operating Revenues 280.4 232.7 20.5
Operating Expenses:
Wages and benefits 91.5 79.1 15.7
Aircraft fuel 42.8 33.1 29.3
Aircraft maintenance 13.6 11.9 14.3
Aircraft rent 35.6 33.3 6.9
Commissions 19.6 15.8 24.1
Depreciation and amortization 14.2 14.7 (3.4)
Landing fees and other rentals 11.9 10.9 9.2
Other 54.5 48.1 13.3
Total Operating Expenses 283.7 246.9 14.9
Operating Loss (3.3) (14.2)
Interest income 2.6 1.5
Interest expense (8.9) (10.5)
Other - net 0.3 0.4
(6.0) (8.6)
Loss before income tax credit $(9.3) $(22.8)
Operating Statistics:
Revenue passengers (000) 2,576 2,096 22.9
RPM's (000,000) 2,126 1,793 18.6
ASM's (000,000) 3,500 3,182 10.0
Passenger load factor 60.7% 56.4% 4.3 pts
Breakeven load factor 64.2% 64.4% (0.2)pts
Yield per passenger mile 11.53c 11.15c 3.4
Operating expenses per ASM 8.10c 7.76c 4.4
Fuel cost per gallon 68.5c 60.1c 14.1
Average number of employees 7,297 6,681 9.2
Aircraft utilization (block hours) 10.9 10.4 4.9
Operating fleet at period-end 74 72 2.8
c=cents
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