UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from . . . . . . . . to . . . . . . . .
Commission File Number 0-19978
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) 431-7079
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $1.00 Par Value
As of December 31, 1997, common shares outstanding totaled 500.
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 ____
The registrant meets the conditions set forth in General Instructions
(J)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K
with the reduced disclosure format. Items 4, 6, 10, 11, 12 and 13 have been
omitted in accordance with such Instruction J.
The registrant's parent, Alaska Air Group, Inc. (File No. 1-8957), files
reports with the Commission pursuant to the Securities Exchange Act of 1934,
as amended.
Exhibit Index begins on page 26.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL INFORMATION
Alaska Airlines, Inc. (Alaska or the Company) is a wholly owned
subsidiary of Alaska Air Group, Inc. Alaska Air Group, Inc. is a
holding company that also owns Horizon Air Industries, Inc. (Horizon).
Alaska is a major airline that was organized in 1932 and incorporated in
the state of Alaska in 1937. Alaska became a wholly owned subsidiary of
Alaska Air Group, Inc. in 1985 pursuant to a reorganization of Alaska
into a holding company structure. Alaska Air Group, Inc. is a
registrant pursuant to Section 12(b) of the Securities and Exchange Act
of 1934 (Commission File No. 1-8957). Alaska's executive offices are
located at 19300 Pacific Highway South, Seattle, Washington 98188. In
1997, Alaska accounted for 83% of Alaska Air Group, Inc.'s total
operating revenues.
Horizon, a Washington corporation, began service in 1981 and was
acquired by Alaska Air Group, Inc. in 1986. Horizon is a regional
airline, that operates in the Pacific Northwest, Northern California and
Western Canada.
Operations
Alaska serves 35 cities in six states (Alaska, Washington, Oregon,
California, Nevada and Arizona), one city in Canada, four cities in
Mexico and five cities in Russia. In each year since 1973, Alaska has
carried more passengers between Alaska and the U.S. mainland than any
other airline. In 1997, Alaska carried 12.3 million passengers.
Passenger traffic within Alaska and between Alaska and the U.S. mainland
accounted for 26% of Alaska's 1996 revenue passenger miles, West Coast
traffic accounted for 66%, the Mexico markets 8% and Russia less than
1%. Based on passenger enplanements, Alaska's leading airports are
Seattle, Portland, Anchorage and Los Angeles. Based on revenues, its
leading nonstop routes are Seattle-Anchorage, Seattle-Los Angeles and
Seattle-San Diego. At December 31, 1997, Alaska's operating fleet
consisted of 78 jet aircraft.
Alaska distinguishes itself from competitors by providing a higher level
of customer service. The airline's excellent service in the form of
advance seat assignments, a first class section, attention to customer
needs, high-quality food and beverage service, well-maintained aircraft
and other amenities has been recognized by independent studies and
surveys of air travelers. Alaska offers competitive fares.
The majority of Alaska flights and certain Northwest Airlines flights
are dual-designated in airline computer reservation systems as Alaska
Airlines and Northwest Airlines in order to facilitate feed traffic
between the two airlines. Alaska Airlines also serves three smaller
cities in California, three in Washington, and many small communities in
Alaska through code share marketing agreements with local carriers.
BUSINESS RISKS
The Company's operations and financial results are subject to various
uncertainties such as intense competition, volatile fuel prices, a
largely unionized labor force, the need to finance large capital
expenditures, government regulation, potential aircraft incidents and
general economic conditions.
Competition
Competition in the air transportation industry is intense. Any domestic
air carrier deemed fit by the DOT is allowed to operate scheduled
passenger service in the United States. Currently, Alaska carries
approximately 2.1% of all U.S. domestic passenger traffic. Alaska
competes with one or more domestic or foreign airlines on most of its
routes. Some of these competitors are substantially larger than Alaska
and Horizon, have greater financial resources and have more extensive
route systems. Alaska's primary competitors in the West Coast, Arizona
and Nevada markets are America West, Delta, Reno Air, Shuttle by United,
Southwest Airlines, United and United Express. Alaska also competes
with Air Canada, America West, Canadian Airlines, Continental, Delta,
Reno Air and United in the Lower 48-to-Alaska market, and with
Aeromexico, America West, Delta and Mexicana in its Mexico markets.
Some of these competitors are substantially larger than Alaska, have
greater financial resources and have more extensive route systems.
Most major U.S. carriers have developed, independently or in partnership
with others, large computerized reservation systems (CRS). Airlines,
including Alaska, are charged industry-set fees to have their flight
schedules included in the various CRS displays. These systems are
currently the predominant means of distributing airline tickets. In
order to reduce anti-competitive practices, the DOT regulates the
display of all airline schedules and fares. Alaska is exploring
alternatives to existing distribution methods.
Fuel
Fuel costs represented 15% of the Company's total operating expenses in
1997. Fuel prices, which can be volatile and are largely outside of the
Company's control, can have a significant impact on the Company's
operating results. Currently, a one cent change in the fuel price per
gallon affects annual fuel costs by approximately $2.8 million. The
Company has in the past hedged against its exposure to fluctuations in
the price of jet fuel, but does not currently do so. The Company
evaluates hedging strategies on an ongoing basis.
Unionized Labor Force
Labor costs represented 33% of the Company's total operating expenses in
1997. Wage rates can have a significant impact on the Company's
operating results. At December 31, 1997, labor unions represented 88%
of Alaska's employees. The air transportation industry is regulated
under the Railway Labor Act, which vests in the National Mediation Board
certain regulatory powers with respect to disputes between airlines and
labor unions. The Company cannot predict the outcome of union contract
negotiations nor control actions (e.g. work stoppage or slowdown) unions
might take to try to influence those negotiations.
Leverage and Future Capital Requirements
The Company, like many airlines, is highly leveraged, which increases
the volatility of its earnings. Due to high fixed costs, including
aircraft lease commitments, a decrease in revenues could result in a
disproportionately greater decrease in earnings. In addition, the
Company has an ongoing need to finance new aircraft deliveries and there
is no assurance that such financing will be available in sufficient
amounts or on acceptable terms. See Item 7 for management's discussion
of liquidity and capital resources.
Government Regulation; International Routes
The Company, like other airlines, is subject to regulation by the
Federal Aviation Administration (FAA) and the United States Department
of Transportation (DOT). The FAA, under its mandate to ensure aviation
safety, has the authority to ground aircraft and to suspend temporarily
or revoke permanently the authority of an air carrier or its licensed
personnel for failure to comply with Federal Aviation Regulations and to
levy civil penalties for such failure. The DOT has the authority to
regulate certain airline economic functions including financial and
statistical reporting, consumer protection, computerized reservations
systems, essential air transportation and international route authority.
The Company is subject to bilateral agreements between the United States
and the foreign countries to which the Company provides service. There
can be no assurance that existing bilateral agreements between the
United States and the foreign governments will continue or that the
Company's designation to operate such routes will continue.
Risk of Loss and Liability; Weather
The Company, like other airlines, is exposed to potential catastrophic
losses in the event of aircraft accidents or terrorist incidents.
Consistent with industry standards, the Company maintains insurance
against such losses. However, any aircraft accident, even if fully
insured, could cause a negative public perception of the Company with
adverse financial consequences. Unusually adverse weather, as occurred
during December 1996 in the Pacific Northwest, can significantly reduce
flight operations, resulting in lost revenues and added expenses.
OTHER INFORMATION
Frequent Flyer Program
All major airlines have developed frequent flyer programs as a way of
increasing passenger loyalty. Alaska's Mileage Plan allows members to
earn mileage by flying on Alaska, Horizon and other participating
airlines, and by using the services of non-airline partners, which
include a credit card partner, telephone companies, hotels and car
rental agencies. Alaska is paid by non-airline partners for the miles
it credits to member accounts. Alaska has the ability to change the
Mileage Plan terms, conditions, partners, mileage credits and award
levels.
Mileage can be redeemed for free or discounted travel and for other
travel industry awards. Upon accumulating the necessary mileage,
members notify Alaska of their award selection. Over 70% of the flight
awards selected are subject to blackout dates and capacity-controlled
seating. Effective in January 1996, miles have no expiration. As of
the year end 1996 and 1997, Alaska estimates that 504,000 and 652,000
round trip flight awards could have been redeemed by Mileage Plan
members who have mileage credits exceeding the 20,000 mile free round
trip domestic ticket award threshold. At December 31, 1997, fewer than
4% of these flight awards were issued and outstanding. For the years
1995, 1996 and 1997, approximately 242,000, 173,000 and 185,000 round
trip flight awards were redeemed and flown on Alaska and Horizon. These
awards represent approximately 7% for 1995, 4% for 1996, and 3% for
1997, of the total passenger miles flown for each period.
Alaska maintains a liability for its Mileage Plan obligation which is
based on its total miles outstanding, less an estimate for miles that
will never be redeemed. The net miles outstanding are allocated between
those credited for travel on Alaska, Horizon or other airline partners
and those credited for using the services of non-airline partners.
Miles credited for travel on Alaska, Horizon or other airline partners
are accrued at Alaska's incremental cost of providing the air travel.
The incremental cost includes the cost of meals, fuel, reservations and
insurance. The incremental cost does not include a contribution to
overhead, aircraft cost or profit. A portion of the proceeds received
from non-airline partners is also deferred. At December 31, 1996 and
1997, the total liability for miles outstanding was $17.3 million and
$22.3 million, respectively.
Employees
Alaska had 8,578 active full-time and part-time employees at December
31, 1997. The following is a summary of Alaska's union contracts as of
December 31, 1997:
Number of
Union Employee Group Employees Contract Status
International Mechanic, Rampservice 1,786 Amendable 9/1/97
Association of and related In negotiation
Machinists and classifications
Aerospace Workers
Clerical, Office and 3,094 Amendable 5/20/99
Passenger Service
Air Line Pilots Pilots 1,085 Amendable 5/1/03
Association International
Association of Flight Attendants 1,491 Amendable 3/14/99
Flight Attendants
Mexico Workers Mexico Airport 61 Amendable 4/1/98
Association Personnel
of Air Transport
Transport Workers Dispatchers 16 Amendable 2/9/02
Union of America
ITEM 2. PROPERTIES
Aircraft
The following table describes the aircraft operated by Alaska and their
average age at December 31, 1997.
Passenger Average Age
Aircraft Type Capacity Owned Leased Total in Years
Boeing 737-200C 111 7 1 8 17.4
Boeing 737-400 140 3 25 28 3.9
McDonnell Douglas MD-80 140 16 26 42 8.2
26 52 78 7.6
Twelve of the 26 aircraft owned by Alaska as of December 31, 1997 are
subject to liens securing long-term debt. Alaska's leased B737-200C,
B737-400 and MD-80 aircraft have lease expiration dates in 1999, between
2002 and 2015, and between 1998 and 2013, respectively. Alaska has the
option to extend most of the leases for additional periods, or the right
to purchase the aircraft at the end of the lease term, usually at the
then fair market value of the aircraft. For information regarding
obligations under capital leases and long-term operating leases, see
Notes to Financial Statements.
Special noise ordinances or agreements restrict the type of aircraft,
the timing and the number of flights operated by Alaska and other air
carriers at four Los Angeles area airports plus San Diego, Palm Springs,
San Francisco and Seattle. At December 31, 1997, all of Alaska's
aircraft meet the Stage 3 noise requirements under the Airport Noise and
Capacity Act of 1990.
Ground Facilities and Services
Alaska leases ticket counter, gates, cargo and baggage, office space and
other support areas at the majority of the airports it serves. Alaska
also owns terminal buildings at various Alaska cities.
Alaska has centralized operations in several buildings located at or
near Seattle-Tacoma International Airport (Sea-Tac) in Seattle,
Washington. The owned buildings, including land unless located on
leased airport property, include: a three-bay hangar facility with
maintenance shops; a flight operations and training center; an air cargo
facility; a reservations and office facility; a four-story office
building; its corporate headquarters; and two storage warehouses.
Alaska also leases a two-bay hangar/office facility at Sea-Tac.
Alaska's other major facilities include: a regional headquarters
building, an air cargo facility (completed in 1997) and a leased
hangar/office facility in Anchorage; a Phoenix reservations center; and
a leased two-bay maintenance facility in Oakland.
ITEM 3. LEGAL PROCEEDINGS
In October 1991, Alaska gave notice of termination of its code sharing
and frequent flyer relationship with MarkAir, an airline based in the
state of Alaska. Both companies have filed suit against one another in
connection with that termination asserting breach of contract and other
claims under state law. In June 1992, MarkAir filed for protection
under Chapter 11 of the U.S. Bankruptcy Code. In June 1997, MarkAir
claimed damages of $57 million (later revised to $70 million) in
connection with Alaska's actions. In January 1998, MarkAir's counsel
notified the Company that, after application of attorneys' fees and
prejudgement interest, its total claim was between $104 and $140
million. If MarkAir were to prevail at the $140 million amount, the
after-tax effect would be to reduce shareholders' equity by
approximately $84 million or 19%. However, the Company believes that it
has valid defenses and is vigorously defending itself against the
lawsuit. Trial is scheduled to begin in July 1998.
PART II
ITEM 5. MARKET PRICE FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
All of Alaska's outstanding common stock is held by Alaska Air Group,
Inc. and such stock is not traded in any market. No cash dividend has
been paid since 1989 and Alaska does not expect to pay regular dividends
to Alaska Air Group.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Industry Conditions
During 1997, as part of the Taxpayer Relief Act, the 10% passenger
ticket tax was replaced with a new system that combines a percentage tax
with a per passenger segment fee. Effective October 1, 1997, the ticket
tax is 9% plus $1 per segment. The percentage tax is scheduled to
decrease over time and the segment fee is scheduled to increase. The $6
international departure tax has increased to $12 and a new $12
international arrival tax has been added. However, the Act retains the
$6 rate for travel between Alaska and the U.S. mainland. This tax and
the international taxes will be indexed to the CPI beginning January 1,
1999. The Taxpayer Relief Act also included these items that will
affect the Company and the airline industry: (a) a new tax of 7.5% on
payments to air carriers for the sale of miles in frequent flyer
programs; (b) a phased-in increase from 50% to 80% for the deductible
percentage of per diems paid to flight crews; and (c) faster cost
recovery for alternative minimum tax purposes of aircraft purchased in
1999 and later years.
During 1996, fuel prices increased significantly for the Company and
most of its competitors (approximately 20% or 12 cents per gallon over
1995 levels for Alaska Airlines). During 1997, fuel prices decreased
approximately 3.5% from 1996 levels.
RESULTS OF OPERATIONS
1997 Compared with 1996 Net income in 1997 was $76.0 million, compared
with $45.6 million in 1996. Operating income was $134.3 million in 1997
compared to $90.0 million in 1996. Severe winter storms, high fuel
prices and matching of competitors' lower fares adversely affected the
1996 fourth quarter. Airline financial and statistical data is shown
following the financial statements. A discussion of this data follows.
Operating income increased 49.2% to $134.3 million, resulting in a 9.3%
operating margin as compared to a 6.9% margin in 1996. 1997 operating
revenue per available seat mile (ASM) increased 7.8% to 9.38 cents while
operating expenses per available seat mile increased 5.1% to 8.51 cents.
The increase in revenue per ASM was due to a 7.1% increase in system
passenger yield combined with a 1.3 point improvement in passenger load
factor. Most markets, including the three largest (Pacific Northwest -
Southern California, Seattle - Anchorage and Pacific Northwest -
Northern California), experienced increases in yields. Most markets
also experienced increases in load factor including the Seattle-
Anchorage market, which had a 4.9 point improvement. The higher yields
and load factors reflect a more stabilized competitive environment in
1997.
Freight and mail revenues decreased 3.6% in the first half of 1997 due
to more competition and increased 4.1% in the second half due to
increased cargo capacity and higher mail rates.
Other-net revenues were essentially unchanged because an additional $5
million of proceeds from partners in Alaska's frequent flyer program
were offset by a similar increase in the frequent flyer award liability.
The table below shows the major operating expense elements on a cost per
available seat mile (ASM) basis in 1996 and 1995.
Alaska Airlines Operating Expenses Per ASM (In Cents)
1996 1997 Change % Change
Wages and benefits 2.57 2.74 .17 7
Employee profit sharing .01 .08 .07 NM
Contracted services .25 .28 .03 12
Aircraft fuel 1.35 1.29 (.06) (4)
Aircraft maintenance .38 .44 .06 16
Aircraft rent .98 .96 (.02) (2)
Food and beverage service .30 .30 -- --
Commissions .59 .65 .06 10
Other selling expenses .43 .41 (.02) (5)
Depreciation and amortization .38 .37 (.01) (3)
Gain on sale of assets (.06) (.01) .05 NM
Landing fees and other rentals .33 .34 .01 3
Other .59 .66 .07 12
Alaska Airlines Total 8.10 8.51 .41 5
NM = Not Meaningful
Alaska's higher unit costs were primarily due to increased labor costs.
Significant unit cost changes are discussed below.
Employees increased 7.6% (primarily in reservations and customer service
positions) to service the 4.1% increase in passengers and also to
improve on-time within 15 minutes flight departure performance, which
improved from 77% on-time in 1996 to 82% on-time in 1997. Excluding
profit sharing, average wages and benefits per employee were up 2.7%,
primarily due to higher pilot wage rates and higher health insurance
costs. The net effect was that wages and benefits expense increased
more than the ASM growth, resulting in a 7% increase in cost per ASM.
Profit sharing expense increased the cost per ASM by .07 cents.
Effective for 1997, Alaska changed its profit sharing program so that
eligible employees will receive their pro rata share of 10% of Alaska's
adjusted pre-tax profits starting with the first dollar of pre-tax
profits.
Fuel expense per ASM decreased 4%, primarily due to a 3.5% decrease in
the price of fuel.
Maintenance expense per ASM increased 16% because significantly more
engine repair expense was incurred in 1997 and a smaller proportion of
airframe maintenance costs were capitalized.
Commission expense per ASM increased 10%, less than the 13% increase in
passenger revenues because a lower percentage of sales were made by
travel agents. In addition, the commission rate paid to travel agents
decreased from 10% to 8% for sales made after September 30, 1997. The
gain on sale of assets in 1996 is primarily due to the sale of three jet
aircraft.
Other expense per ASM increased 12%, primarily due to higher costs
related to property and other taxes, flight crew hotels, employee hiring
and communications.
Nonoperating Income (Expense) Nonoperating expense decreased from $15.5
million to $6.9 million, primarily due to smaller average debt balances,
lower interest rates on variable interest rate debt and more interest
capitalized.
LIQUIDITY AND CAPITAL RESOURCES
The table below presents the major indicators of financial condition and
liquidity.
Dec. 31, 1996 Dec. 31, 1997 Change
(In millions, except debt-to-equity)
Cash and marketable securities $101.6 $212.4 $110.8
Working capital (deficit) (152.0) (151.4) 0.6
Long-term debt and
capital lease obligations 217.8 215.3 (2.5)
Shareholders' equity 357.0 433.0 76.0
Debt-to-equity 38%:62% 33%:67% NA
1997 Financial Changes The Company's cash and marketable securities
portfolio increased by $111 million during 1997. Operating activities
provided $323 million of cash during this period including $122 million
received from Air Group. Additional cash was provided by the sale and
leaseback of four B737-400 aircraft ($124 million) and issuance of long-
term debt ($28 million). Cash was used for $293 million of capital
expenditures including the purchase of two new MD-83 aircraft, three new
B737-400 aircraft, a previously leased B737-400 aircraft, flight
equipment deposits and airframe and engine overhauls, net repayment of
short-term borrowings ($47 million) and the repayment of debt ($26
million).
Like most airlines, the Company has a working capital deficit. The
existence of a working capital deficit has not in the past impaired the
Company's ability to meet its obligations as they become due and it is
not expected to do so in the future.
Financing Arrangements During 1997, Alaska sold four B737-400 aircraft
and leased them back for 18 years.
In November 1997, Standard & Poors raised its corporate credit rating on
Alaska to double B minus from single B plus, citing a stabilized
competitive position and improving financial profile.
Commitments During 1997, Alaska's lease commitments increased
approximately $194 million due to the sale and leaseback of four B737-
400 aircraft. In addition, Alaska ordered 15 Boeing 737 series aircraft
along with an option to acquire 10 more. The value of the orders is
approximately $510 million. Alaska expects to finance the new planes
with either leases, long-term debt or internally generated cash.
At December 31, 1997, the Company had firm orders for 24 aircraft with a
total cost of approximately $795 million as set forth below.
Delivery Period - Firm Orders
Aircraft 1998 1999 2001 2002 Total
Boeing B737-400 9 2 -- -- 11
Boeing B737-700 -- 3 -- -- 3
Boeing B737-900 -- -- 5 5 10
Total 9 5 5 5 24
Cost (Millions) $288 $157 $175 $175 $795
The Company accrues the costs associated with returning leased aircraft
over the lease period. As leased aircraft are retired, the costs are
charged against the established reserve. At December 31, 1997, $40
million was reserved for leased aircraft returns.
Deferred Taxes At December 31, 1997, net deferred tax liabilities were
$64 million, which includes $114 million of net temporary differences
offset by $50 million of Alternative Minimum Tax (AMT) credits. The
Company believes that all of its deferred tax assets, including its AMT
credits, will be realized through profitable operations.
Year 2000 Computer Issue During the past eight years, the Company has
been engaged in a number of projects to improve its information
technology infrastructure. The Company expects to complete these
projects during 1998 and 1999 at an estimated cost of $5 to $10 million.
As a result of these activities, the Company's systems will be Year 2000
compliant. The direct cost of projects solely intended to correct Year
2000 problems is expected to be less than $1 million.
ITEM 8. FINANCIAL STATEMENTS
See Item 14.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS
ON FORM 8-K
(a) (1) Financial Statements
Page(s)
Balance Sheet as of December 31, 1996 and 1997 12-13
Statement of Income for the years ended
December 31, 1995, 1996 and 1997 14
Statement of Shareholder's Equity for the years ended
December 31, 1995, 1996 and 1997 15
Statement of Cash Flows for the years ended December 31, 1995,
1996 and 1997 16
Notes to Financial Statements as of December 31, 1997 17-22
Report of Independent Public Accountants 24
(2) Financial Statement Schedule II, Valuation and Qualifying
Accounts, for the years ended December 31, 1995, 1996 and 1997 25
(3) Exhibits
See Exhibit Index on page 26.
(b) A report on Form 8-K announcing orders for 15 Boeing 737 aircraft
was filed on November 20, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange 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.
By: /s/ John F. Kelly Date: February 10, 1998
John F. Kelly
Chairman, Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on February
10, 1998 on behalf of the registrant and in the capacities indicated.
/s/ John F. Kelly Chairman, Chief Executive Officer, President and
John F. Kelly Director
/s/ Harry G. Lehr Senior Vice President/Finance
Harry G. Lehr (Principal Financial Officer)
/s/ Bradley D. Tilden Controller
Bradley D. Tilden (Principal Accounting Officer)
/s/ Ronald F. Cosgrave Director
Ronald F. Cosgrave
/s/ Mary Jane Fate Director
Mary Jane Fate
/s/ R. Marc Langland Director
R. Marc Langland
/s/ Robert L. Parker, Jr. Director
Robert L. Parker, Jr.
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<TABLE>
BALANCE SHEET
Alaska Airlines, Inc.
<CAPTION>
ASSETS
As of December 31 (In Millions) 1996 1997
<S> <C> <C>
Current Assets
Cash and cash equivalents $49.2 $102.3
Marketable securities 52.4 110.1
Receivables from related companies 100.1 4.3
Receivables - less allowance for doubtful accounts
(1996 - $1.2; 1997 - $1.2) 59.8 65.5
Inventories and supplies 28.6 26.5
Prepaid expenses and other assets 76.8 86.6
Total Current Assets 366.9 395.3
Property and Equipment
Flight equipment 788.8 886.4
Other property and equipment 200.4 222.8
Deposits for future flight equipment 58.9 80.0
1,048.1 1,189.2
Less accumulated depreciation & amortization 282.4 324.6
765.7 864.6
Capital leases:
Flight and other equipment 44.4 44.4
Less accumulated amortization 25.4 27.5
19.0 16.9
0.0 0.0
Total Property and Equipment - Net 784.7 881.5
Intangible Assets 15.0 14.5
Other Assets 81.3 79.4
Total Assets $1,247.9 $1,370.7
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
BALANCE SHEET
Alaska Airlines, Inc.
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
As of December 31 (In Millions) 1996 1997
<S> <C> <C>
Current Liabilities
Accounts payable $71.0 $106.6
Accrued aircraft rent 42.4 47.7
Accrued wages, vacation and payroll taxes 44.1 60.5
Other accrued liabilities 74.3 83.0
Short-term borrowings
(Interest rate: 1996 - 5.6%) 47.0 -
Air traffic liability 162.0 166.2
Note payable to related company 54.0 54.0
Current portion of long-term debt and
capital lease obligations 24.1 28.7
0.0 0.0
Total Current Liabilities 518.9 546.7
0.0 0.0
Long-Term Debt & Capital Lease Obligations 217.8 215.3
Other Liabilities and Credits
Deferred income taxes 65.6 72.2
Deferred income 11.1 15.4
Other liabilities 77.5 88.1
154.2 175.7
Commitments
Shareholder's Equity
Common stock, $1 par value
Authorized: 1,000 shares
Issued: 1996 and 1997 - 500 shares - -
Capital in excess of par value 225.8 225.8
Retained earnings 131.2 207.2
357.0 433.0
Total Liabilities and Shareholder's Equity $1,247.9 $1,370.7
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
STATEMENT OF INCOME
Alaska Airlines, Inc.
<CAPTION>
Year Ended December 31
(In Millions) 1995 1996 1997
<S> <C> <C> <C>
Operating Revenues
Passenger $994.7 $1,146.8 $1,297.0
Freight and mail 84.1 82.7 82.9
Other - net 63.5 67.8 68.0
Total Operating Revenues 1,142.3 1,297.3 1,447.9
Operating Expenses
Wages and benefits 342.2 384.5 435.9
Contracted services 35.1 36.9 42.5
Aircraft fuel 153.6 200.5 199.7
Aircraft maintenance 45.2 57.1 67.4
Aircraft rent 137.7 146.0 148.5
Food and beverage service 42.4 44.2 46.7
Commissions 75.3 88.7 100.8
Other selling expenses 55.6 64.3 63.9
Depreciation and amortization 58.2 55.9 56.9
Loss (gain) on sale of assets 0.1 (9.3) (1.2)
Landing fees and other rentals 45.5 49.9 53.1
Other 79.1 88.6 99.4
Total Operating Expenses 1,070.0 1,207.3 1,313.6
Operating Income 72.3 90.0 134.3
Nonoperating Income (Expense)
Interest income 10.3 11.5 12.2
Interest expense (40.3) (29.7) (25.0)
Interest capitalized - 0.6 3.4
Other - net 1.6 2.1 2.5
(28.4) (15.5) (6.9)
Income before income tax 43.9 74.5 127.4
Income tax expense 19.1 28.9 51.4
Net Income $24.8 $45.6 $76.0
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF SHAREHOLDER'S EQUITY
Alaska Airlines, Inc.
<CAPTION>
Capital in
Common Excess of Retained
(In Millions) Stock Par Value Earnings Total
<S> <C> <C> <C> <C>
Balances at December 31, 1994 $ - $225.8 $60.8 $286.6
1995 net income 24.8 24.8
Balances at December 31, 1995 - 225.8 85.6 311.4
1996 net income 45.6 45.6
Balances at December 31, 1996 - 225.8 131.2 357.0
1997 net income 76.0 76.0
Balances at December 31, 1997 $ - $225.8 $207.2 $433.0
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CASH FLOWS
Alaska Airlines, Inc.
<CAPTION>
Year Ended December 31 (In Millions) 1995 1996 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $24.8 $45.6 $76.0
Adjustments to reconcile net income to cash:
Depreciation and amortization 58.2 55.9 56.9
Amortization of airframe and engine ovhls. 22.0 28.9 29.6
Loss (gain) on disposition of assets 0.1 (9.3) (1.2)
Increase in deferred income taxes 16.1 8.2 6.6
Decrease (increase) in accounts receivable (25.1) 14.2 90.1
Increase in other current assets (12.6) (10.5) (7.6)
Increase in air traffic liability 0.4 38.3 4.0
Increase in other current liabilities 21.5 25.7 66.2
Other-net (1.0) 6.0 2.6
Net cash provided by operating activities 104.4 203.0 323.2
Cash flows from investing activities:
Proceeds from disposition of assets 2.5 53.0 4.5
Purchases of marketable securities (169.4) (53.5) (443.6)
Sales and maturities of marketable securities 153.5 110.4 385.9
Restricted deposits (1.4) 0.1 (3.2)
Flight equipment deposits returned 8.9 - -
Additions to flight equipment deposits - (41.3) (56.4)
Additions to property and equipment (87.9) (188.6) (236.6)
Net cash used in investing activities (93.8) (119.9) (349.4)
Cash flows from financing activities:
Proceeds from short-term borrowings 69.9 47.0 56.4
Repayment of short-term borrowings (29.0) (65.9) (103.4)
Loan repayments to Alaska Air Group (3.6) (10.8) -
Proceeds from sale and leaseback transactions 56.0 85.6 124.2
Proceeds from issuance of long-term debt - - 28.0
Long-term debt and capital lease payments (89.6) (115.4) (25.9)
Net cash provided by (used in)
financing activities 3.7 (59.5) 79.3
Net increase in cash and cash equivalents 14.3 23.6 53.1
Cash and cash equivalents at beginning of year 11.3 25.6 49.2
Cash and cash equivalents at end of year $25.6 $49.2 $102.3
Supplemental disclosure of cash paid during the year for:
Interest (net of amount capitalized) $41.1 $30.0 $21.9
Income taxes 0.3 21.4 26.6
Noncash investing and financing activities: None None None
See accompanying notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Alaska Airlines, Inc.
December 31, 1997
Note 1. Summary of Significant Accounting Policies
Organization and Nature of Operations
Alaska Airlines, Inc. (Alaska), an Alaska corporation, is a wholly owned
subsidiary of Alaska Air Group, Inc. (Air Group), a Delaware
corporation. Air Group is also the parent company of Horizon Air
Industries, Inc. (Horizon). The Company is a major airline serving
Alaska, the West Coast, Mexico and Eastern Russia. It operates an all
jet fleet and its average passenger trip is 846 miles.
Basis of Presentation
Preparation of financial statements requires the use of management's
estimates. Actual results could differ from those estimates. Certain
reclassifications have been made in prior years' financial statements to
conform to the 1997 presentation.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with original
maturities of three months or less. They are carried at cost, which
approximates market. The Company reduces its cash balance when checks
are disbursed. Due to the time delay in checks clearing the banks, the
Company normally maintains a negative cash balance on its books which is
reported as a current liability. The amount of the negative cash
balance was $10.8 million and $9.0 million at December 31, 1996 and
1997, respectively.
Inventories and Supplies
Expendable and repairable aircraft parts, as well as other materials and
supplies, are stated at average cost. An allowance for obsolescence is
accrued on a straight-line basis over the estimated useful lives of the
aircraft. Inventories related to the retired B727 fleet and other
surplus items are carried at their net realizable value. The allowance
at December 31, 1996 and 1997 for all inventories was $12.1 million and
$12.6 million, respectively.
Property, Equipment and Depreciation
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives, which are as
follows:
Aircraft and other
flight equipment 14-20 years
Buildings 10-30 years
Capitalized leases and
leasehold improvements Term of lease
Other equipment 3-15 years
Assets and related obligations for items financed under capital leases
are initially recorded at an amount equal to the present value of the
future minimum lease payments. The cost of major airframe overhauls,
engine overhauls, and other modifications which extend the life or
improve the usefulness of aircraft are capitalized and amortized over
their estimated period of use. Other repair and maintenance costs are
expensed when incurred. The Company periodically reviews long-lived
assets for impairment.
Capitalized Interest
Interest is capitalized on flight equipment purchase deposits and ground
facilities progress payments as a cost of the related asset and is
depreciated over the estimated useful life of the asset.
Intangible Assets-Subsidiaries
The excess of the purchase price over the fair value of net assets
acquired is recorded as an intangible asset and is amortized over 40
years. Accumulated amortization at December 31, 1996 and 1997 was $5.4
million and $5.9 million, respectively.
Deferred Income
Deferred income results from the sale and leaseback of aircraft, the
receipt of manufacturer or vendor credits, and from the sale of foreign
tax benefits. This income is recognized over the term of the applicable
agreements.
Passenger Revenues
Passenger revenues are considered earned at the time service is
provided. Tickets sold but not yet used are reported as air traffic
liability.
Frequent Flyer Awards
Alaska operates a frequent flyer award program that provides travel
awards to members based on accumulated mileage. The estimated
incremental cost of providing free travel is recognized as an expense
and accrued as a liability as miles are accumulated. Alaska also defers
recognition of income on a portion of the payments it receives from
travel partners associated with its frequent flyer program. The
frequent flyer award liability is relieved as travel awards are issued.
Contracted Services
Contracted services includes the expenses for aircraft ground handling,
security, temporary employees and other similar services.
Other Selling Expenses
Other selling expenses includes credit card commissions, computerized
reservations systems (CRS) charges, advertising and promotional costs.
The costs of advertising are expensed the first time the advertising
takes place. Advertising expense was $12.7 million, $12.9 million, and
$8.8 million, respectively, in 1995, 1996 and 1997.
Income Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements
or tax returns.
Derivative Financial Instruments
The Company periodically enters into interest rate swap agreements to
hedge interest rate risk. The differential to be paid or received from
these agreements is accrued as interest rates change and is recognized
currently in the income statement. The Company periodically enters into
hedge agreements to reduce its exposure to fluctuations in the price of
jet fuel. A gain or loss is recorded quarterly if the fuel index
average exceeds the ceiling price or falls below the floor price.
Note 2. Marketable Securities
Marketable securities are investments that are readily convertible to
cash and have original maturities that exceed three months. They are
classified as available for sale and consisted of the following at
December 31 (in millions):
1996 1997
Cost:
U.S. government securities $48.4 $75.1
Other 4.0 35.0
$52.4 $110.1
Fair value:
U.S. government securities $48.2 $75.2
Other 4.0 35.0
$52.2 $110.2
There were no material unrealized holding gains or losses at December
31, 1996 or 1997.
Of the marketable securities on hand at December 31, 1997, 54% will
mature during 1998 and the remainder will mature during 1999. Based on
specific identification of securities sold, the following occurred in
1996 and 1997 (in millions):
1996 1997
Proceeds from sales $110.4 $385.9
Gross realized gains 0.3 0.1
Gross realized losses 0.1 0.1
Realized gains and losses are reported as a component of interest
income.
Note 3. Other Assets
Other assets consisted of the following at December 31 (in millions):
1996 1997
Restricted deposits $63.6 $66.8
Leasehold rights 8.4 5.5
Deferred costs and other 9.3 7.1
$81.3 $79.4
Leasehold rights and deferred costs are amortized over the term of the
related lease or contract.
Note 4. Related Company Transactions
In May 1991, Air Group made a $95.2 million loan to Alaska. The loan is
due on demand. Alaska made loan repayments of $6.4 million, $3.6
million and $10.8 million in 1994, 1995 and 1996, respectively. The
weighted average interest rate was 7.0% in all three years. At December
31, 1997, the loan balance outstanding was $54.0 million.
During 1993, the Company made a $34.4 million non-interest bearing
advance, which was due on demand, to Alaska Air Group. The advance was
repaid in 1997. During 1997, the Company received a $50.8 million non-
interest bearing advance, which is due on demand, from Alaska Air Group.
Note 5. Long-Term Debt and Capital Lease Obligations
At December 31, 1996 and 1997, long-term debt and capital lease
obligations were as follows (in millions):
1996 1997
8.7%* fixed rate notes payable
due through 2004 $115.5 $103.5
6.4%* variable rate notes payable
due through 2009 98.6 114.9
Capital lease obligations 27.8 25.6
Less current portion (24.1) (28.7)
$217.8 $215.3
* weighted average for 1997
At December 31, 1997, borrowings of $218.4 million are secured by flight
equipment and real property. At December 31, 1997, Alaska had a $125
million credit facility with commercial banks. Advances under this
facility may be for up to a maximum maturity of four years. Borrowings
may be used for aircraft acquisitions or other corporate purposes, and
they bear interest at a rate which varies based on LIBOR. At December
31, 1997, no borrowings were outstanding under this credit facility.
Certain Alaska loan agreements contain provisions that require
maintenance of specific levels of net worth, leverage and fixed charge
coverage, and limit investments, lease obligations, sales of assets and
additional indebtedness. At December 31, 1997, the Company was in
compliance with all loan provisions, and under the most restrictive loan
provisions, Alaska had $140 million of net worth above the minimum.
At December 31, 1997, long-term debt principal payments for the next
five years were (in millions):
1998 $26.3
1999 $26.3
2000 $57.3
2001 $47.6
2002 $14.5
Note 6. Commitments
Lease Commitments
Lease contracts for 52 aircraft have remaining lease terms of one to 18
years. The majority of airport and terminal facilities are also leased.
Total rent expense was $162.5 million, $173.3 million and $177.7
million, in 1995, 1996 and 1997, respectively. Future minimum lease
payments under long-term operating leases and capital leases as of
December 31, 1997 are shown below (in millions):
Operating Leases Capital
Aircraft Facilities Leases
1998 $142.1 $16.0 $4.1
1999 133.1 15.8 4.1
2000 124.5 14.0 4.1
2001 115.5 8.9 4.1
2002 116.5 4.2 4.1
Thereafter 672.2 28.6 6.8
Total lease payments $1,303.9 $87.5 27.3
Less amount representing interest (1.7)
Present value of capital lease payments $25.6
Aircraft Commitments
The Company has firm orders for 24 Boeing 737 series aircraft to be
delivered between 1998 and 2002. The total amount of these commitments
is approximately $795 million. As of December 31, 1997, deposits
related to these deliveries were $73.8 million. In addition to the firm
orders, the Company holds purchase options on 22 Boeing 737s.
Note 7. Employee Benefit Plans
Pension Plans
Four defined benefit and four defined contribution retirement plans
cover essentially all employees. The defined benefit plans provide
benefits based on an employee's term of service and average compensation
for a specified period of time before retirement. Pension plans are
funded as required by the Employee Retirement Income Security Act of
1974 (ERISA).
The defined benefit plan assets are primarily common stocks and fixed
income securities. Plan assets exceeded the accumulated benefit
obligation at December 31, 1996 and 1997. The following table sets forth
the funded status of the plans at December 31, 1996 and 1997 (in
millions):
1996 1997
Benefit obligation -
Vested $180.9 $211.5
Nonvested 22.1 38.4
Accumulated benefit
obligation $203.0 $249.9
Plan assets at fair value $223.7 $289.2
Projected benefit obligation 230.7 307.4
Plan assets less projected
benefit obligation (7.0) (18.2)
Unrecognized transition asset (0.8) (0.5)
Unrecognized prior service cost 2.6 60.1
Unrecognized loss 32.6 (0.8)
Prepaid pension cost $27.4 $40.6
The weighted average discount rate used to determine the projected
benefit obligation was 7.5% and 7.25% as of December 31, 1996 and 1997,
respectively. The calculation assumed a weighted average rate of
increase for future compensation levels of 5.1% and 3.2% for 1996 and
1997, respectively. The expected long-term rate of return on plan
assets used in 1996 and 1997 was 10%.
Net pension expense for the defined benefit plans included the following
components for 1995, 1996 and 1997 (in millions):
1995 1996 1997
Service cost (benefits earned
during the period) $11.4 $15.9 $17.3
Interest cost on projected
benefit obligation 12.9 15.4 17.3
Actual return on assets (37.0) (23.6) (47.6)
Net amortization
and deferral 23.3 6.5 26.4
Net pension expense $10.6 $14.2 $13.4
The defined contribution plans are deferred compensation plans under
section 401(k) of the Internal Revenue Code. Some of these plans
require Company matching contributions based on a percentage of
participants' contributions. One plan has an Employee Stock Ownership
Plan (ESOP) feature. The ESOP owns Air Group common shares which are
held in trust for eligible employees. The Company records compensation
for payments made to the Plan. As Alaska's contributions are received,
the Plan releases the shares of common stock to the employees' accounts.
Alaska also maintains an unfunded, noncontributory benefit plan for
certain elected officers. The present value of unfunded benefits for
this plan was accrued as of December 31, 1996 and 1997.
Total expense for all pension plans was $18.3 million, $22.1 million and
$24.1 million, respectively, in 1995, 1996 and 1997.
Profit Sharing Plans
Alaska has an employee profit sharing plan. Profit sharing expense for
1995, 1996 and 1997 was $-0-, $0.9 million and $12.1 million,
respectively.
Other Postretirement Benefits
The Company allows retirees to continue their medical, dental and vision
benefits by paying all or a portion of the active employee plan premium
until eligible for Medicare, currently age 65. This results in a
subsidy to retirees because the premiums received by the Company are
less than the actual cost of the retirees' claims. The accumulated
postretirement benefit obligation (APBO) for this subsidy at December
31, 1996 and 1997 was $13.5 million and $15.7 million, respectively.
The APBO is unfunded and is included with other liabilities on the
Balance Sheet. Annual expense related to this subsidy is not considered
material to disclose.
Note 8. Income Taxes
Alaska files a consolidated tax return with Air Group and other Air
Group subsidiaries. Each member of the consolidated group, including
Alaska, calculates its tax provision and tax liability, if applicable,
on a separate-entity basis. Any differences between the consolidated
amounts and the total of the subsidiaries' amounts are included in the
tax provision of the parent company.
Deferred income taxes result from temporary differences in the timing of
recognition of revenue and expense for tax and financial reporting
purposes. Deferred tax assets and liabilities comprise the following at
December 31 (in millions):
1996 1997
Excess of tax over book
depreciation $142.3 $157.0
Training expense 0.8 0.1
Other - net 1.8 1.3
Gross deferred tax liabilities 144.9 158.4
Loss carryforward (2.1) (0.5)
Alternative minimum tax (44.1) (50.2)
Capital leases (4.4) (4.5)
Ticket pricing adjustments (0.7) (1.1)
Frequent flyer program (6.5) (8.4)
Employee benefits (8.8) (6.2)
Aircraft return provisions (12.7) (14.5)
Deferred gains (1.7) (3.5)
Capitalized interest (1.3) (1.1)
Inventory obsolescence (5.9) (4.8)
Gross deferred tax assets (88.2) (94.8)
Net deferred tax liabilities $ 56.7 $63.6
Current deferred tax asset $(8.9) $(8.6)
Noncurrent deferred tax liability 65.6 72.2
Net deferred tax liabilities $56.7 $63.6
The book income and temporary differences for 1997 resulted in taxable
income of $106 million. This was partially offset by Net Operating
Losses generated in prior years. At December 31, 1997, no federal loss
carryforwards remain.
The components of income tax expense were as follows (in millions):
1995 1996 1997
Current tax expense:
Federal $3.6 $19.9 $42.6
State 0.3 0.9 1.9
Total current 3.9 20.8 44.5
Deferred tax expense:
Federal 13.0 6.9 2.5
State 2.2 1.2 4.4
Total deferred 15.2 8.1 6.9
Total tax expense $19.1 $28.9 $51.4
Income tax expense reconciles to the amount computed by applying the
U.S. federal rate of 35% to income before taxes as follows (in
millions):
1995 1996 1997
Income before
income tax $43.9 $74.5 $127.4
Expected tax expense $15.4 $26.1 $44.6
Nondeductible expenses 1.9 1.9 2.0
State income tax 1.8 0.9 4.1
Other - net -- -- 0.7
Actual tax expense $19.1 $28.9 $51.4
Effective tax rate 43.5% 38.8% 40.3%
Note 9. Financial Instruments
The estimated fair values of the Company's financial instruments were as
follows (in millions):
December 31, 1996
Carrying Fair
Amount Value
Cash and cash equivalents $49.2 $49.2
Marketable securities 52.4 52.2
Restricted deposits 63.6 63.6
Long-term debt 214.1 214.1
December 31, 1997
Carrying Fair
Amount Value
Cash and cash equivalents $102.3 $102.3
Marketable securities 110.1 110.1
Restricted deposits 66.8 66.8
Long-term debt 218.4 218.4
The fair value of cash equivalents approximates carrying value due to
the short maturity of these instruments. The fair value of marketable
securities is based on quoted market prices. The fair values of
restricted deposits and long-term debt approximate the carrying amounts.
<PAGE>
<TABLE>
Alaska Airlines Financial and Statistical Data
<CAPTION>
Quarter Ended December 31 Year Ended December 31
Financial Data (in millions): 1996 1997 % Change 1996 1997 % Change
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Passenger $254.8 $313.0 22.8 $1,146.8 $1,297.0 13.1
Freight and mail 19.3 20.7 7.3 82.7 82.9 0.2
Other - net 18.4 16.2 (12.0) 67.8 68.0 0.3
Total Operating Revenues 292.5 349.9 19.6 1,297.3 1,447.9 11.6
Operating Expenses:
Wages and benefits 96.8 106.1 9.6 383.6 423.8 10.5
Employee profit sharing (6.7) 2.4 NM 0.9 12.1 NM
Contracted services 10.3 11.6 12.6 36.9 42.5 15.2
Aircraft fuel 51.5 49.3 (4.3) 200.5 199.7 (0.4)
Aircraft maintenance 16.3 18.6 14.1 57.1 67.4 18.0
Aircraft rent 37.6 38.2 1.6 146.0 148.5 1.7
Food and beverage service 10.6 11.8 11.3 44.2 46.7 5.7
Commissions 19.7 22.9 16.2 88.7 100.8 13.6
Other selling expenses 14.5 11.7 (19.3) 64.3 63.9 (0.6)
Depreciation and amortization 13.6 14.9 9.6 55.9 56.9 1.8
Gain on sale of assets (5.7) (0.9) NM (9.3) (1.2) NM
Landing fees and other rentals 12.4 12.7 2.4 49.9 53.1 6.4
Other 22.6 26.2 15.9 88.6 99.4 12.2
Total Operating Expenses 293.5 325.5 10.9 1,207.3 1,313.6 8.8
Operating Income (Loss) (1.0) 24.4 NM 90.0 134.3 49.2
Interest income 3.1 3.9 11.5 12.2
Interest expense (6.1) (5.9) (29.7) (25.0)
Interest capitalized 0.6 1.1 0.6 3.4
Other - net 1.3 0.1 2.1 2.5
(1.1) (0.8) (15.5) (6.9)
Income (Loss) Before Income Tax $(2.1) $23.6 $74.5 $127.4
Operating Statistics:
Revenue passengers (000) 2,804 2,958 5.5 11,805 12,284 4.1
RPMs (000,000) 2,307 2,490 7.9 9,831 10,386 5.6
ASMs (000,000) 3,495 3,847 10.1 14,904 15,436 3.6
Passenger load factor 66.0% 64.7% (1.3)pts 66.0% 67.3% 1.3 pts
Breakeven load factor 69.3% 60.2% (9.1)pts 62.4% 60.5% (1.9)pts
Yield per passenger mile 11.04c 12.57c 13.8 11.67c 12.49c 7.1
Operating revenue per ASM 8.37c 9.10c 8.7 8.70c 9.38c 7.8
Operating expenses per ASM 8.40c 8.46c 0.8 8.10c 8.51c 5.1
Fuel cost per gallon 80.7c 71.7c (11.0) 75.2c 72.6c (3.5)
Fuel gallons (000,000) 63.9 68.8 7.7 266.6 275.2 3.2
Average number of employees 7,923 8,223 3.8 7,652 8,236 7.6
Aircraft utilization (block hours) 10.8 11.2 3.7 11.3 11.4 0.9
Operating fleet at period-end 74 78 5.4 74 78 5.4
NM = Not Meaningful
c=cents
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholder of Alaska Airlines, Inc.:
We have audited the accompanying balance sheet of Alaska Airlines, Inc.
(an Alaska corporation) as of December 31, 1997 and 1996, and the
related statements of income, shareholder's equity and cash flows for
each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Alaska
Airlines, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item
14(a) is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not a required part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Seattle, Washington
January 26, 1998
<PAGE>
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
Alaska Airlines, Inc. Schedule II
<CAPTION>
Additions
Beginning Charged (A) Ending
(In Millions) Balance to Expense Deductions Balance
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
(a) Reserve deducted from asset
to which it applies:
Allowance for doubtful accounts $2.1 $0.6 $(1.1) $1.6
Obsolescence allowance for flight
equipment spare parts $10.1 $2.0 $(1.2) $10.9
(b) Reserve recorded as other
long-term liabilities:
Leased aircraft return provision $22.5 $8.0 $(0.3) $30.2
Year Ended December 31, 1996
(a) Reserve deducted from asset
to which it applies:
Allowance for doubtful accounts $1.6 $0.6 $(1.0) $1.2
Obsolescence allowance for flight
equipment spare parts $10.9 $2.2 $(1.0) $12.1
(b) Reserve recorded as other
long-term liabilities:
Leased aircraft return provision $30.2 $7.6 $(2.8) $35.0
Year Ended December 31, 1997
(a) Reserve deducted from asset
to which it applies:
Allowance for doubtful accounts $1.2 $1.0 $(1.0) $1.2
Obsolescence allowance for flight
equipment spare parts $12.1 $2.0 $(1.5) $12.6
(b) Reserve recorded as other
long-term liabilities:
Leased aircraft return provision $35.0 $8.0 $(2.6) $40.4
(A) Deduction from reserve for purpose for which reserve was created.
</TABLE>
<PAGE>
EXHIBIT INDEX
Certain of the following exhibits have heretofore been filed with the
Commission and are incorporated herein by reference from the document
described in parenthesis. Certain others are filed herewith.
3.1 Articles of Incorporation of Alaska Airlines, Inc. as amended
through February 26, 1991
3.2 Bylaws of Alaska Airlines, Inc. as amended and in effect
February 26, 1991
4.1 Trust Indentures and Security Agreement for Alaska Airlines
Equipment Trust Certificates, Series A and B (Exhibit No. 4(a)(1)
to Form S-3, Amendment No. 1, Registration No. 33-46668)
4.2 Trust Indentures and Security Agreement for Alaska Airlines
Equipment Trust Certificates, Series C and D (Exhibit No. 4(a)(1)
to Form S-3, Amendment No. 2, Registration No. 33-46668)
4.3 Participation Agreement for Alaska Airlines Equipment Trust
Certificates, Series A and B (Exhibit No. 4(b)(1) to Form S-3,
Amendment No. 1, Registration No. 33-46668)
4.4 Participation Agreement for Alaska Airlines Equipment Trust
Certificates, Series C and D (Exhibit No. 4(b)(1) to Form S-3,
Amendment No. 2, Registration No. 33-46668)
4.5 Lease Agreement for Alaska Airlines Equipment Trust Certificates
(Exhibit No. 4(b)(2) to Form S-3, Registration No. 33-46668)
10.1 Lease and Assignment of Sublease Agreement dated February 1, 1979
between Alaska Airlines, Inc. and the Alaska Industrial
Development Authority
10.2 Lease and Assignment and Sublease Agreement dated April 1, 1978
between Alaska Airlines, Inc. and the Alaska Industrial
Development Authority
10.3 Management Incentive Plan (1992 Alaska Air Group, Inc. Proxy
Statement)
10.4 Loan Agreement dated as of December 1, 1984, between Alaska
Airlines, Inc. and the Industrial Development Corporation of the
Port of Seattle
#10.5 Lease Agreement dated January 22, 1990 between International
Lease Finance Corporation and Alaska Airlines, Inc. for the
lease of a B737-400 aircraft, summaries of 19 substantially
identical lease agreements and Letter Agreement #1 dated January
22, 1990 (Exhibit 10-14 to 1990 10-K)
#10.6 Agreement dated September 18, 1996 between Alaska Airlines, Inc.
and Boeing for the purchase of 12 Boeing 737-400 aircraft
(Exhibit 10.1 to Third Quarter 1996 10-Q)
*10.7 Alaska Air Group, Inc. Supplementary Retirement Plan for Elected
Officers
*10.8 1995 Elected Officers Supplementary Retirement Plan
*27 Financial Data Schedule
* Filed herewith.
# Confidential treatment was granted as to a portion of this document.
EXHIBIT 10.7
ALASKA AIRLINES, INC.
and
ALASKA AIR GROUP, INC.
Seattle, Washington
SUPPLEMENTARY RETIREMENT PLAN
FOR ELECTED OFFICERS
as amended November 7, 1994
1981 VERSION APPLICABLE TO OFFICERS
FIRST ELECTED AFTER JUNE l, 1981
PREFACE
This Supplementary Retirement Plan for Elected Officers is an unfunded
retirement plan maintained by Alaska Airlines, Inc. and Alaska Air Group,
Inc. for the purpose of providing deferred compensation for a select group
of management.
The benefits of this Plan constitute a general obligation of both
Employers. The Participants in this Plan shall have no claim against any
assets of either Employer under the Plan except as specifically provided
herein.
SECTION 1
DEFINITIONS
1.1 "Employee" shall mean any person who is customarily employed by
either Employer for 20 or more hours per week and for five or more months
per year and who is compensated on a salary basis.
1.2 "Elected Officer" shall mean a nonflight officer elected by the
Board of Directors of the officer's Employer pursuant to the Bylaws.
1.3 "Participant" shall mean:
(a) an Elected Officer who is enrolled in the Plan
(b) former Elected Officer who is partially or fully vested
hereunder, and
(c) a retiree hereunder.
1.4 "Normal Retirement Date" shall mean the first day of the month
coincident with or next following the later of:
(a) the Participant's 60th birthday, and
(b) his date of termination of employment with his Employer; but
only if, at such date, he has completed at least 15 years of
Continuous Service, of which at least the last five years shall
be as an Elected Officer, or if he has been an Elected Officer
for his last ten years of Continuous Service.
1.5 "Early Retirement Date" shall mean the first day of any month
prior to Normal Retirement Date and consented to by the officer's Employer,
occurring subsequent to both:
(a) the Participant's 55th birthday, and
(b) his completion of either 15 years of Continuous Service, at
least the last five of which shall be as an Elected Officer, or
the last ten years of his Continuous Service as an Elected
Officer.
1.6 "Final Average Compensation" shall mean the average monthly
compensation, including any salary deferrals under Alaskasaver but
excluding bonuses, for the last 60 months of service (or such lesser number
of months, as applicable, if the total service as an Elected Officer is
less than 60 months) prior to election by the Participant to receive an
early lump-sum distribution pursuant to Section 3.1(f) hereof or
termination of employment, as the case may be.
1.7 "Continuous Service" shall mean Continuous Service with either
Employer, as defined in Section 2.2 hereof.
1.8 "Actuarial Equivalent" shall mean of equal value when computed in
accordance with the actuarial assumptions most recently adopted by the
Employers.
1.9 "Administrative Committee" shall mean that Committee appointed by
the Chairman of the Board of Directors of Alaska Air Group, Inc. to
administer the Plan. The Committee will consist of three or more members,
all of whom shall be Elected Officers. The members of the Committee will
serve without compensation at the pleasure of the Chairman of the Board,
who shall be designated the Chairman of the Committee. The Committee shall
act by a majority of its members to determine all questions arising in the
administration, interpretation and application of the Plan. The Committee
shall have all powers necessary to carry out the provisions of the Plan.
In making its determinations, the Committee shall follow uniform rules
which shall be consistently applied so that all Participants similarly
situated will be treated alike.
The Committee will record its proceedings and maintain copies of the
minutes of its meetings.
1.10 "Employer" shall mean Alaska Airlines, Inc. or Alaska Air Group,
Inc., as the context requires, and "Employers" shall refer to both
companies.
1.11 "Plan" shall mean Alaska Airlines, Inc. and Alaska Air
Group, Inc. Supplementary Retirement Plan for Elected Officers.
1.12 "Change in Control" shall occur whenever:
(a) the Board of Directors of Alaska Air Group, Inc. (or, if
approval of such Board is not required as a matter of law, the
shareholders of Alaska Air Group, Inc.) shall approve
(1) any consolidation or merger of Alaska Air Group, Inc.
in which Alaska Air Group, Inc. is not the continuing or
surviving corporation or pursuant to which shares of common
stock of Alaska Air Group, Inc. would be converted into
cash, securities or other property, other than a merger of
Alaska Air Group, Inc. in which the holders of common stock
of Alaska Air Group, Inc. immediately prior to the merger
have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger;
(2) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, the assets of either Employer; or
(3) the adoption of any plan or proposal for the
liquidation or dissolution of either Employer.
(b) at any time during a period of two consecutive years,
individuals who at the beginning of such period constituted the
Board of Directors of Alaska Air Group, Inc. ("Incumbent
Directors") shall cease for any reason to constitute at least a
majority thereof, unless each new director during such two-year
period was nominated or elected by the Incumbent Directors, or a
committee of the Incumbent Directors (new directors nominated or
elected by the Incumbent Directors or by a committee of the
Incumbent Directors shall also be deemed to be Incumbent
Directors); or
(c) any person [as such term is used in Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")]
shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases or otherwise, have
become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act), directly or indirectly, of the then
outstanding securities of Alaska Air Group, Inc. ordinarily (and
apart from rights accruing under special circumstances) having
the right to vote in the election of directors ("Voting
Securities" to be calculated as provided in paragraph (d) of such
Rule 13d-3 in the case of rights to acquire common stock of
Alaska Air Group, Inc.) representing 20% or more of the combined
voting power of the then outstanding Voting Securities.
Unless the Board of Directors of Alaska Air Group, Inc. shall
determine otherwise, a Change in Control shall not be deemed to have
occurred by reason of any corporate reorganization, merger, consolidation,
transfer of assets, liquidating distribution or other transaction entered
into solely by and between Alaska Air Group, Inc. and Alaska Airlines,
Inc., or any affiliates thereof, provided such transaction has been
approved by two-thirds of the Incumbent Directors, as defined above, then
in office and voting.
SECTION 2
ELIGIBILITY
2.1 Eligibility for Benefits.
Each Employee who has completed 15 years of Continuous Service with
the Employer and has been an Elected Officer for at least the last five
years of his Continuous Service, or who has been an Elected Officer for his
last ten years of Continuous Service, may, subject to the terms and
conditions herein, be eligible for benefits under this Plan. A Participant
shall be entitled to benefits under the Plan upon:
(a) satisfaction of the service requirement contained in the
prior sentence, and elsewhere herein, and
(b) meeting all other requirements of the Plan as determined by
the Administrative Committee.
Notwithstanding any of the foregoing, in the event of a Change in
Control, an Elected Officer, without regard to age, is eligible to receive
a benefit under this Plan in accordance with Section 3.1(f) and 3.2(d)
2.2 Continuous Service.
Continuous Service of any person shall begin on the date such person
first becomes an Employee of either Employer and shall continue so long as
he remains an Employee of either Employer. Continuous Service shall not be
deemed to have been interrupted by reason of transfer between Employers, as
provided in Section 4.3 hereof, temporary layoff, or leave of absence
authorized by the officer's Employer for any purpose, including sickness,
accident or other casualty. Any Employee who enters the military service
of the United States during a national emergency or through the operation
of a compulsory military service law shall be deemed to be on authorized
leave of absence during the period of his military service and for any
period thereafter in which his reemployment rights are guaranteed by law.
Any Employee who fails to return to active employment at or before the
expiration of an authorized leave of absence shall be deemed to have
terminated his employment as of the date of commencement of his leave of
absence; provided, however, should he fail to return to work because of
death or disability, his Continuous Service shall be deemed to have
continued until the date of his death or disability. The Employers, in
granting leaves of absence under this section, shall follow uniform rules
which shall be consistently applied.
2.3 Forfeiture of Benefits for Cause.
All other provisions of this Plan notwithstanding, all rights to
benefits are forfeited under the following circumstances:
(a) Forfeiture Due to Misconduct.
Termination of employment due to misconduct shall result in
the forfeiture of all rights to benefits under this Plan. A
termination of employment due to misconduct shall be deemed to
have occurred if the reason for termination, by resignation or
discharge, was the Employee's admission to, or his Employer's
substantiation, of acts of (1) embezzlement, dishonesty, or other
fraud, conviction of felony, or conspiracy against either
Employer or (2) if such termination occurred prior to any Change
in Control, any willful or intentional injury to either Employer,
its property or employees in connection with the business or
affairs of either Employer.
The Administrative Committee shall make the determination as
to whether the provisions of this section shall be operative in
any case. Such decision shall be final, conclusive and binding
on all concerned, subject only to the right of appeal as outlined
in Section 6.1.
(b) Forfeiture on Entry into Competition.
Solicitation of business substantially similar to that
provided by either Employer, or employment with another airline
serving any of the same area served by any subsidiary of Alaska
Air Group, Inc. shall be deemed to be competing with the Employer
unless the Participant's Employer shall have issued its prior
written consent. Except after a Change in Control, any
Participant found by the Administrative Committee to be competing
with either Employer shall forfeit any and all unpaid benefits
under the Plan. The determination of competing activity shall
not be operative until the person deemed to be competing and
subject to forfeiture shall have been provided 30 days' prior
written notice of the pending forfeiture. If, at the expiration
of the 30 days following notice, the competing activity is still
being conducted, the forfeiture shall become fully operative.
This Section 2.3(b) shall be of no further force or effect after
a Change in Control.
(c) Prior to a Change in Control, any Participant who shall
terminate employment with the Employers prior to age 50 by reason
other than medical disability, with proof thereof satisfactory to
the Administrative Committee, shall be deemed to have forfeited
all rights under this Plan. After a Change in Control, any
Participant, regardless of age, who shall terminate employment
with the Employers by any reason other than for misconduct under
Section 2.3(a)(1) shall not be deemed to have forfeited any
rights under this Plan.
SECTION 3
BENEFITS
3.1 Retirement Benefits.
(a) General.
Benefits under the Plan shall be payable in the form of a
monthly income or, after a Change in Control and at the
Participant's option, a lump-sum distribution. The method by
which such benefits are paid will depend upon the payment option
selected by the Participant or his beneficiary. A Participant's
monthly income shall not commence prior to his termination of
employment with the Employers; provided, however, that a
Participant may elect and receive a lump-sum distribution prior
to termination in the event of a Change in Control.
(b) Normal Retirement.
If the Participant terminates employment with the Employers
on or after his Normal Retirement Date, his benefit under the
Plan shall commence as of the first day of the month coinciding
with or next following his date of termination. If the benefit
is to be payable under the normal option described in Section
3.1(d), such monthly benefit shall be equal to 50% of the
Participant's Final Average Compensation, or such lesser
percentage of Final Average Compensation as is appropriate based
on the Participant's years of service as outlined in Section
3.2(b) and (c), less any monthly benefit received under the
Federal Social Security System. The amount of such monthly
benefit shall change in accordance with changes in the social
security benefits for which a Participant is eligible and in
accordance with Section 3.1(e).
(c) Early Retirement.
With the consent of his Employer, a Participant may retire
at an Early Retirement Date. If the benefit is to be payable
under the normal option described in Section 3.1(d), below, such
monthly benefit shall be equal to that benefit determined as
under Section 3.1(b), reduced to the Actuarial Equivalent of that
benefit had it commenced on the Participant's Normal Retirement
Date. Such monthly benefit shall change subsequent to the date
of benefit commencement as described in Section 3.1(b).
(d) Forms of Benefit Payment.
At any time prior to his date of benefit commencement, a
Participant may elect, in appropriate written form, a payment
option under which his benefits under the Plan shall be payable.
If the Participant makes no election of a payment option prior to
his date of benefit commencement, and if a Participant is married
at the date of benefit commencement, his benefits shall be
payable under the joint & survivor option with spouse as
beneficiary, 100% continued. If the Participant is not married
at the date of benefit commencement, and no election of a payment
option has been made, his benefits shall be payable per the 10-
year certain & life specified below.
The payment options available under the Plan are as follows:
(1) Normal Option.
Under this option, the Participant's monthly benefit is
the full amount determined under Section 3.1(b) or (c).
Such benefit shall be payable from his date of benefit
commencement and shall terminate with the payment which is
due on the first day of his month of death.
(2) Joint & Survivor Option.
Under this option, the Participant's monthly benefit is
in the amount determined under Section 3.1(b) or (c),
actuarially reduced. Such reduced benefit is payable to the
first day of the month of the Participant's death. If the
Participant's spouse survives the Participant, a percentage
of such benefit shall continue to the spouse for her
lifetime. Such percentage shall be 100%, 75%, or 50% at the
election of the Participant.
(3) 10-Year Certain & Life.
Under this option, the Participant's monthly benefit is
in the amount determined under Section 3.1(b) or (c),
actuarially reduced. Such reduced benefit is payable so
long as the Participant shall live and shall terminate with
the payment due on the first day of his month of death;
except that if the Participant dies before receiving 120
monthly payments, such payments shall continue to the
beneficiary specified by the Participant until a total of
120 monthly payments have been made.
(e) Adjusted Retirement Benefits.
(1) As of each January 1 and July 1, benefits being paid
under this Plan pursuant to Section 3.1(d)(1), (2) or (3)
will be adjusted as provided in subparagraph 3.1(e)(2) and
the adjusted benefit resulting therefrom shall be payable
during the following six months.
(2) The amount of each Participant's adjusted benefit shall
be the same proportion of his initial retirement benefit,
before adjustment, that (i) bears to (ii) if greater than
one.
(i) The average of the Consumer Price Index figures
for the 24-month period ending with the May or November
immediately preceding the date as of which the
determination is to be made.
(ii) The average of the Consumer Price Index figures
for the 24-month period ending with the month
immediately preceding the Participant's retirement
date.
(f) Change in Control.
Notwithstanding any other provision of this Section 3.1, in
the event of a Change in Control a lump-sum method of
distributing benefits to which a Participant is entitled under
Section 3.2(d) shall be available to Participants, including
Participants who are still employed by either Employer and
Participants who are retired; provided, however, that no benefits
shall be payable to Participants terminated for cause pursuant to
Section 2.3(a)(1). In order to calculate the amount to be used
for purposes of determining a Participant's vested lump-sum
distribution amount under Section 3.2(d), the present value of
payments which, making standard actuarial assumptions, would have
otherwise been payable to the Participant after the date of such
lump-sum distribution under Section 3.1(b) or 3.1(c), as the case
may be, shall first be calculated.
A number of assumptions shall be made for purposes of that
calculation. First, in the case of a terminated Participant, the
calculation will assume the Participant would have retired at his
Normal Retirement Date (as that term was defined at the time the
Participant became an Elected Officer). In the case of a
Participant who is not terminated, the calculation will assume
the Participant would have retired at the later of the
Participant's age at the time of distribution or his 60th
birthday. Second, a cost of living adjustment shall be estimated
under Section 3.1(e), making standard actuarial assumptions.
Third, it shall be assumed that the Participant will receive
monthly social security benefits beginning at age sixty-two equal
to monthly social security benefits to which he would have been
entitled had the Participant been age 62 and retired on the date
of termination or on the date of distribution of the lump-sum, as
the case may be.
The amount upon which the Participant's vested lump-sum
distribution amount calculated pursuant to Section 3.2(d) will be
based is equal to the present value on the date of distribution
of the foregoing amount.
The Participant may elect such lump-sum method by filing an
appropriate election with the Administrative Committee at any
time after such Change in Control. Such election shall be made
on a form supplied by the Administrative Committee, which form
shall further provide that the Participant acknowledges that the
lump-sum amount calculated pursuant to this Section 3.1(f) and
Section 3.2(d) represents the entire distribution the Participant
is entitled to receive under the Plan and that, upon receipt of
such lump-sum amount, the Participant will have no further claim
to benefits under the Plan. The Participant's Employer shall
make such distribution on the date elected by the Participant,
but in no event shall his Employer be required to make such lump-
sum distribution any sooner than 30 days after receipt by the
Administrative Committee of an election of a lump-sum
distribution.
3.2 Termination Benefits and Vesting.
(a) Subject to Section 2.3, in the event a Participant
terminates employment with the Employers for any reason other
than retirement in accordance with Section 3.1 hereof or after a
Change in Control, then his interest and rights in this Plan
shall, subject to the terms and conditions herein, be determined
in accordance with Sections 3.2 (b) and (c).
(b) To be vested in the Plan at termination as outlined in
Section 3.2(a), or at retirement as outlined in Section 3.1(b), a
Participant must be age 50 or older and must have satisfied one
of the following service requirements:
(1) 15 years of Continuous Service, the last five of which
were as an Elected Officer, or
(2) Ten years of service as an Elected Officer, or
(3) Service as an Elected Officer after age 50, for which
immediate vesting at the rate of 10% per year is credited.
(c) If a Participant fulfills the requirements set forth in (b)
above, and is living on his 60th birthday, he shall be entitled
to receive a monthly benefit thereafter and continuing for the
duration of his eligibility. The amount of such benefit shall be
computed as follows:
(1) The result of the application of the formula specified
in Section 3.1(b) hereof shall first be determined.
(2) For Participants with service as an Elected Officer
prior to age 50, the amount of benefit shall be a percentage
of the result obtained in (1) above and determined in
accordance with the following schedule:
Service Completed
As an Elected Officer Percentage
Less than 5 years 0%
5 years 50%
6 years 60%
7 years 70%
8 years 80%
9 years 90%
10 years 100%
(3) Participants 50 years of age and older who have not
satisfied the service requirements set forth in 3.2(b)(1) or
(2) will nonetheless automatically be credited with 10% per
year for each year of service as an Elected Officer after
age 50, and the amount of benefit shall be that total
percentage times the result obtained in (1) above.
(d) Subject to Section 2.3, after a Change in Control, in lieu
of the monthly benefits calculated pursuant to Section 3.2(b) and
(c) a Participant, without regard to age, shall be entitled to
receive a lump-sum distribution pursuant to Section 3.1(f), or,
at his option and after termination, monthly benefits, all
calculated as follows:
(1) A determination shall first be made, in the case of
monthly benefits, of the result of the application of the
formula specified in Section 3.1(c) as if such Participant
had retired at an Early Retirement Date, or, in the case of
a lump-sum distribution, of the result of the application of
the formula specified in Section 3.1(f).
(2) The amount of benefit shall be a percentage of the
result obtained in (1) above determined in accordance with
the following schedule:
Service Completed
As an Elected Officer Percentage
1 year 10%
2 years 20%
3 years 30%
4 years 40%
5 years 50%
6 years 60%
7 years 70%
8 years 80%
9 years 90%
10 years 100%
3.3 Death Benefits to Beneficiary.
In the event a Participant dies prior to the commencement of any
benefits for which he is eligible under this Plan, benefits shall be paid
to the Participant's beneficiary as determined by Section 3.1(d), beginning
on the first day of the month following the date of the Participant's
death, with appropriate actuarial reduction, or as determined by Section
3.1(f).
3.4 Benefits Related to Salaried Retirement Plan.
In the event that a retirement benefit to be paid under the Alaska Air
Group Salaried Retirement Plan exceeds the maximum annual benefit which may
be paid under a qualified retirement plan as determined by relevant tax
code, such excess amount shall be paid by the Supplementary Retirement Plan
for Elected Officers. Such amount shall be paid in the same manner as
selected by the Participant for other benefits payable under the Alaska Air
Group Salaried Retirement Plan and shall not reduce or effect the benefit
amount payable under this Plan in any way.
SECTION 4
SUCCESSOR-RELATED CORPORATIONS AND PARTICIPATING EMPLOYERS
4.1 Successor Corporations.
If at any time there should be a successor corporation to either
Employer, including but not limited to an entity resulting from merger,
stock trade or any similar buy-out arrangement or from any other Change in
Control, or should there be any similar entity succeeding to either
Employer's business, it or they shall assume the obligations of this Plan
for Participants hereunder, and such successor shall be included within the
meaning of the word "Employer" and the word "Employers."
4.2 Employer Participation.
In the event at any time there be any subsidiary or subsidiaries of
either Employer or any affiliated company which would desire to be included
as an Employer under this Plan, it may elect to be joined to and adopt this
Plan by entering into an agreement with the Employers and shall thereafter
be included within the definition of the word "Employer" and the word
"Employers."
4.3 Transfer to Related Corporations.
If an Employee is transferred between the Employers or between either
Employer and its partners, subsidiaries, affiliates, predecessors or
acquired companies or their parents, subsidiaries, affiliates or
predecessors, he shall continue to be an Employee for all purposes while
employed by any such new employer. In addition, he shall immediately be
considered as having been an Employee of his new Employer for the period of
time that he has been an Employee of any Employer.
SECTION 5
AMENDMENT AND TERMINATION OF PLAN
5.1 Amendment.
Alaska Air Group, Inc. shall have the right at any time and from time
to time to amend, in whole or in part, any or all of the provisions of this
Plan by action of its Board of Directors. However, no such amendment shall
reduce the amount of benefit received or accrued by any Participant.
5.2 Termination.
Alaska Air Group, Inc. shall have the right at any time to terminate
this Plan by action of its Board of Directors. On termination of the Plan,
each Participant's benefit, based upon his Final Average Compensation
determined as of the date of termination of the Plan (calculated as if he
had terminated employment as of the date of termination of the Plan), shall
become fully vested and nonforfeitable.
SECTION 6
MISCELLANEOUS
6.1 Participants' Rights; Acquittance.
Neither the establishment of the Plan created hereby nor the
modification thereof, nor the payment of any benefits shall be construed as
giving to any person any legal or equitable rights against either Employer,
their officers, directors or Employees, except as herein provided.
Should a Participant contest a decision by the Administrative
Committee, the Participant may appeal to the Alaska Air Group Board of
Directors for review and reconsideration of such decision.
6.2 Delegation of Authority by Employer.
Whenever either Employer under the terms of this Plan is permitted or
required to do or perform any act or matter or thing, it shall be done and
performed by the Administrative Committee or any officer duly authorized by
its Board of Directors to so act.
6.3 Limitation on Liability; Legal Actions; Payment of Expenses.
It is expressly understood and agreed by each Employee who becomes a
Participant hereunder that except for their willful neglect or fraud, the
Employers shall not in any way be subject to any suit or litigation or to
any legal liability for any cause or reason or thing whatsoever in
connection with this Plan or its operation. Release is hereby granted the
Employers and all their officers, directors and agents from any and all
liability or obligation.
In any action or proceeding involving the Plan, the Employers shall be
the only necessary parties and no Employees or former Employees of either
Employer or their beneficiaries or any other person having or claiming to
have an interest under the Plan shall be entitled to any notice or process.
Any final judgment which is not appealed or appealable that may be
entered in any such action or proceeding shall be binding and conclusive on
the parties hereto and all persons having or claiming to have any interest
under the Plan.
6.4 No Assignment by Participant.
The provisions hereof are intended as personal protection for the
Participants. No Participant shall have any right to assign, anticipate or
hypothecate any benefits. No benefits under the Plan shall be subject to
the claims of any creditor of any Participant excepting only as to debts
owed to either Employer at the time benefits become payable.
6.5 Unlocated Recipients.
If, after notice of benefits is provided, the intended recipient shall
fail to disclose his existence, he shall be determined to be an unlocated
recipient. All benefits due an unlocated recipient shall be placed in
escrow for a period of two years. At the end of two years, the Employers
may, if they have not received any request for payment from the unlocated
recipient, treat all accumulated benefits due as forfeited and the Plan's
liability to the unlocated recipient as ended. Notice of benefits shall be
deemed to be provided when the responsible Employer shall have sent notice
thereof to the intended recipient at the time benefits shall first become
due. Notice shall be sent by registered mail to the most recent address of
the intended recipient then on file with the Employers.
6.6 Required Information.
Each Participant under the Plan shall provide such information to the
Employers as they shall require in order to properly determine the amount
of benefits payable hereunder or to establish the Participant's continuing
eligibility to receive benefits hereunder. Such information shall include
but not be limited to the amount of social security benefits being received
by the Participant.
If the Participant's Employer requests such information in writing and
if such information is not provided within 45 days of such request,
benefits under the Plan may be suspended until such information is received
by the Participant's Employer.
6.7 Use of Terms.
The use of specific gender pronouns such as he, him, she, her, his and
hers are meant to refer to individuals of both sexes.
This Plan was established and adopted on October 1, 1986 and amended
through November 7, 1994.
ALASKA AIR GROUP, INC.
By:____________________________
ALASKA AIRLINES, INC.
By:____________________________
EXHIBIT 10.8
ALASKA AIR GROUP, INC.
1995 ELECTED OFFICERS
SUPPLEMENTARY RETIREMENT PLAN
EFFECTIVE AUGUST 8, 1995
TABLE OF CONTENTS
Page
PREAMBLE 1
SECTION 1 - DEFINITIONS 2
1.1 Actuarial Equivalence 2
1.2 Administrative Committee 3
1.3 Affiliated Companies 3
1.4 Authorized Leave of Absence 4
1.5 Beneficiary 4
1.6 Board 4
1.7 Change of Control 4
1.8 Code 5
1.9 Company 5
1.10 Company Service 5
1.11 Compensation 5
1.12 Competing Activity 6
1.13 Disabled 6
1.14 Early Retirement Date 6
1.15 Effective Date 6
1.16 Elected Officer 7
1.17 Elected Officer Service 7
1.18 Employee 7
1.19 Employer 7
1.20 ERISA 7
1.21 Final Average Monthly Compensation 7
1.22 Hour of Service 7
1.23 Late Retirement Date 8
1.24 Normal Retirement Age 8
1.25 Normal Retirement Date 8
1.26 Participant 8
1.27 Plan 8
1.28 Plan Administrator 8
1.29 Plan Year 8
1.30 Qualified Plan 8
1.31 Qualified Plan Benefit 8
1.32 Retirement Date 8
1.33 Social Security Benefit 9
1.34 Terminate 9
1.35 Termination For Cause 9
1.36 Wages 9
1.37 Additional Definitions in Plan 9
SECTION 2 - ELIGIBILITY AND PARTICIPATION 10
2.1 Eligibility and Participation 10
2.2 Termination of Participation 10
2.3 Inactive Participation 10
SECTION 3 - RETIREMENT BENEFITS 11
3.1 Target Aggregate Benefit 11
3.2 Normal Retirement Benefit 12
3.3 Early Retirement Benefit 12
3.4 Late Retirement Benefit 12
3.5 Cost of Living Adjustment 13
SECTION 4 - PAYMENT FORMS 14
4.1 Forms of Payment 14
4.2 Automatic Form of Payment 15
4.3 Payment Form Election 15
SECTION 5 - CHANGE OF CONTROL BENEFITS 16
5.1 Change of Control Benefit 16
5.2 Form of Payment 16
5.3 Amount of Change of Control Benefit 16
SECTION 6 - DEATH BENEFITS 17
6.1 Death Benefits Prior to Benefit Commencement 17
6.2 Death Benefits After Benefit Commencement 17
SECTION 7 - VESTING 18
7.1 Vesting 18
7.2 Forfeiture 19
SECTION 8 - POWERS AND DUTIES OF THE COMMITTEE 20
8.1 Appointment of Administrative Committee 20
8.2 Powers and Duties 20
8.3 Administrative Committee Procedures 20
8.4 Appointment of Agents 21
8.5 Administrative Committee Expenses 21
8.6 Administrative Expenses 21
8.7 Determinations 21
8.8 Claim and Review Procedure 21
8.9 Exemption From Liability/Indemnification 23
SECTION 9 - AMENDMENT AND TERMINATION 24
9.1 Amendment or Termination 24
SECTION 10 - MISCELLANEOUS PROVISIONS 25
10.1 Appendices 25
10.2 ERISA Status 25
10.3 Unfunded Nature of the Obligation 25
10.4 Facility of Payment 25
10.5 Governing Law 25
10.6 Limitation on Assignment 25
10.7 No Additional Rights 25
10.8 Notice 26
10.9 Severability 26
10.10 Tax Consequences and Withholding 26
EXECUTION/SIGNATURE PAGE 27
APPENDIX I TO THE - ALASKA AIR GROUP, INC. 1995 ELECTED
OFFICERS SUPPLEMENTARY RETIREMENT PLAN 28
APPENDIX II TO THE - ALASKA AIR GROUP, INC. 1995
ELECTED OFFICERS SUPPLEMENTARY RETIREMENT PLAN 29
PREAMBLE
The purpose of this Alaska Air Group, Inc. 1995 Elected Officers
Supplementary Retirement Plan is to provide certain elected officers of
Alaska Air Group, Inc. (the "Company") and of certain affiliated companies
with supplemental retirement benefits, the receipt of which is deferred
until after the covered employee retires or terminates employment.
This Plan shall constitute a plan which is unfunded and which is
maintained primarily for the purpose of providing deferred compensation
benefits for certain elected officers who constitute a select group of
management or highly compensated employees within the meaning of Sections
201(2), 301(a)(3), and 401(a)(1) of ERISA.
The Plan set forth in the following pages is adopted by the Company,
effective August 8, 1995.
SECTION 1
DEFINITIONS
Whenever capitalized in this Plan, the following capitalized terms shall
have the meanings set forth below except where otherwise provided. As used
in the Plan, the masculine, feminine, and neuter genders shall each be
deemed to include the other or others.
1.1 Actuarial Equivalence
"Actuarial Equivalence" and its derivatives as the context requires
(such as "Actuarially") means that the present value of two (2)
payments or series of payments shall be of equal value when computed
as follows:
(a) For purposes of Sections 3.2 Normal Retirement Benefit, 4.1(c)
Ten Year Certain and Life Annuity, 4.1(d) Ten Year Certain
Installments, and 5.3 Amount of Change of Control Benefit,
Actuarial Equivalence shall be computed using the following:
(i) the annual interest rate on thirty (30) year Treasury
securities as determined under Code Section 417 (which, as
of the Effective Date, is the average annual yield on thirty
(30) year Treasury Constant Maturities) for the November
preceding the beginning of the Plan Year; and
(ii) the prevailing Commissioners' standard table described in
Code Section 807(d)(5)(A), without regard to any other
subparagraphs of Section 807(d)(5) used to determine
reserves for group annuity contracts issued on the date as
of which the present value is being determined (which as of
the Effective Date is the 1983 Group Annuity Mortality
Table, fifty percent (50%) male and fifty percent (50%)
female).
(b) For purposes of Section 4.1(b) Joint and Survivor Annuity,
Actuarial Equivalence shall be computed using the following
formula:
1.0 - (.12)(W) - (.005)[(2.0)(X) - Y - Z],
but not more than one (1),
where W equals the Joint and Survivor Annuity percentage;
X equals the Participant's age nearest birthday;
Y equals the Participant's spouse's age nearest birthday; and
Z equals the age at the Participant's Normal Retirement Date.
(c) For purposes of Section 5.3(a) After Commencement of Benefits,
the Actuarial Equivalent of the remaining benefits otherwise
payable is determined as follows:
(i) for a Participant whose benefit, as of the date of the
Change of Control, is reduced by the Participant's Social
Security Benefit, the Actuarial Equivalent of the remaining
benefits otherwise payable is determined assuming that the
Participant's Social Security Benefit does not increase
after the Change of Control date;
(ii) for a Participant whose benefit, as of the date of the
Change of Control, is not reduced by a Social Security
Benefit, the Actuarial Equivalent of the remaining benefits
otherwise payable is determined assuming that the
Participant begins receiving monthly Social Security
Benefits on the later of the Change of Control date or the
earliest date on which the Participant is eligible for a
benefit from Social Security. The amount of the monthly
Social Security Benefit assumed to be received by the
Participant is determined in accordance with the Social
Security Act in effect as of the date of the Change of
Control and is based on the following assumptions;
(1) assuming the Participant's Wages exceed the taxable
wage base provided under Section 230 of the Social
Security Act for each Plan Year beginning with the Plan
Year in which the Participant attained age twenty one
(21) and ending with the last Plan Year ending before
the Change of Control; and
(2) assuming the Participant has no Wages during or after
the Plan Year in which the Change of Control occurs;
and
(3) assuming the Social Security Benefits do not increase
after the assumed Social Security Benefit beginning
date.
(d) For purposes of Section 5.3(b) Before Commencement of Benefits
and After Termination and 5.3(c) Before Termination, the
Actuarial Equivalent of the Normal Retirement Benefit is
determined assuming that the Participant begins receiving monthly
Social Security Benefits on the later of the Change of Control
date or the earliest date on which the Participant is eligible
for a benefit from Social Security. The amount of the monthly
Social Security Benefit assumed to be received by the Participant
is determined in accordance with the Social Security Act in
effect as of the date of the Change of Control, based on the
following assumptions:
(i) assuming the Participant's Wages exceed the taxable wage
base provided under Section 230 of the Social Security Act
for each Plan Year beginning with the Plan Year in which the
Participant attained age twenty one (21) and ending with the
last Plan Year ending before the Change of Control; and
(ii) assuming the Participant has no Wages during or after the
Plan Year in which the Change of Control occurs.
(iii) For purposes of determining the Qualified Plan Benefit
under Section 1.31, Actuarial Equivalence shall be computed
using the definition of Actuarial Equivalence under the
Qualified Plan, unless the form of payment elected under
this Plan is not an option under the Qualified Plan, in
which case Actuarial Equivalence under Section 1.1(a) above
shall apply.
1.2 Administrative Committee
"Administrative Committee" means a committee appointed by the Chairman
of the Board to administer the Plan pursuant to Section 8.
1.3 Affiliated Companies
"Affiliated Companies" or "Affiliate" means:
(a) the Company;
(b) any other corporation which is a member of a controlled group of
corporations which includes the Company (as defined in Code
Section 414(b));
(c) any other trade or business under common control with the Company
(as defined in Code Section 414(c)); or
(d) any other member of an affiliated service group which includes
the Company (as defined in Code Section 414(m)).
1.4 Authorized Leave of Absence
"Authorized Leave of Absence" means any period of approved leave of
absence from the Employer taken by a Participant, and granted by the
Employer in its absolute discretion, including absences for which a
Participant is granted re-employment rights under any Federal or state
law.
1.5 Beneficiary
"Beneficiary" means the person or persons entitled to receive a
Participant's benefits payable under the Plan. The Beneficiary is the
person or persons named in the Participant's latest written
designation filed with the Administrative Committee, provided that the
consent of the Participant's spouse (if any) is required for the
election of a nonspouse Beneficiary and for any subsequent changes of
the Participant's Beneficiary designation. Spousal consent must be in
writing, name the designated Beneficiary and be notarized.
If no designation has been filed with the Administrative Committee, or
if the person or persons designated do not survive the Participant,
the Beneficiary shall be the following persons in the following order
of priority: (1) the surviving spouse (regardless of length of
marriage), and (2) the estate of the Participant.
If the Beneficiary dies after the death of the Participant, but before
full distribution has been made to that Beneficiary, the balance, if
any, shall be distributed to the estate of that deceased Beneficiary.
1.6 Board
"Board" means the Board of Directors of the Company, or a committee
composed of fewer than all of the members of the Board of Directors of
the Company that is authorized to act on behalf of the Board.
1.7 Change of Control
"Change of Control" means the occurrence of any of the following:
(a) the Board approves (or, if approval of the Board is not required
as a matter of law, the shareholders of the Company approve):
(i) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or
pursuant to which shares of common stock of the Company
would be converted into cash, securities or other property,
other than a merger of the Company in which the holders of
common stock of the Company immediately prior to the merger
have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, the assets of the Participant's Employer;
or
(iii) the adoption of any plan or proposal for the
liquidation or dissolution of the Participant's Employer;
(b) at any time during a period of twenty-four (24) months, fewer
than a majority of the members of the Board are Incumbent
Directors. "Incumbent Directors" means:
(i) individuals who constituted the Board at the beginning of
such period; and
(ii) individuals who were nominated or elected by all of, or a
committee composed entirely of, the individuals described in
(i); and
(iii) individuals who were nominated or elected by
individuals described in (ii).
(iv) any person (as such term is used in Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) shall, as a result of a tender or exchange offer,
open market purchases, privately-negotiated purchases or
otherwise, become the beneficial owner (within the meaning
of Rule 13d-3 under the Exchange Act), directly or
indirectly, of the then-outstanding securities of the
Company ordinarily (and apart from rights accruing under
special circumstances) having the right to vote in the
election of members of the Board ("Voting Securities" to be
calculated as provided in paragraph (d) of Rule 13d-3 in the
case of rights to acquire common stock of the Company)
representing 20% or more of the combined voting power of the
then-outstanding Voting Securities.
Unless the Board shall determine otherwise, a Change of Control shall
not be deemed to have occurred by reason of any corporate
reorganization, merger, consolidation, transfer of assets, liquidating
distribution or other transaction entered into solely by and between
the Company and an Employer, or any Affiliates thereof, provided such
transaction has been approved by at least two-thirds (2/3) of the
Incumbent Directors (as defined above) then in office and voting.
1.8 Code
"Code" means the Internal Revenue Code of 1986, as amended and
regulations promulgated under the Code.
1.9 Company
"Company" means Alaska Air Group, Inc., a corporation organized and
existing under the laws of the State of Delaware, and its successors
in interest.
1.10 Company Service
"Company Service" means the period of time measured in completed whole
years, commencing with the date on which an Employee first completes
an Hour of Service for an Affiliated Company during the current period
of employment and ending on the earlier of the date of Termination or
the date the Employee ceases to be an Elected Officer. Non-continuous
periods are aggregated to determine the Employee's total Company
Service. Notwithstanding the foregoing, the Board may increase an
individual's Company Service, in its absolute discretion provided that
any affected Participant shall be notified of any such adjustment.
1.11 Compensation
"Compensation" means the basic monthly salary paid to an Employee,
excluding amounts payable under the Management Incentive Program, any
other bonus, transportation allowances, repayment of expenses,
insurance payments, or similar payments or allowances, but including
any earnings deferred by an Employee for the month under the terms of
any salary deferral plan including the Alaskasaver Plan maintained by
the Company, and including any pre-tax employee contributions to a
cafeteria plan pursuant to Code Section 125.
1.12 Competing Activity
"Competing Activity" means the following activities if begun without
the prior written consent of the Participant's Employer:
(a) solicitation of business at any time within four (4) years after
Termination that is substantially similar to the business
conducted by an Employer; or
(b) employment at any time within four (4) years after Termination by
another airline serving any of the same geographic area served by
any Affiliate.
The Administrative Committee shall determine in its sole discretion
whether a Participant has or is engaged in a Competing Activity and
shall provide the Participant with written notice of the determination
and of its demand to cease the Competing Activity within thirty (30)
days after the notice. The Administrative Committee's determination
of Competing Activity shall become final and operative if the
Administrative Committee determines that the Competing Activity is
being conducted after the expiration of the thirty (30) day notice
period.
1.13 Disabled
"Disabled" means a condition resulting from demonstrable injury or
disease which will permanently, continuously and wholly prevent the
Employee from engaging in any occupation or performing any work for
remuneration or profit; provided that this term shall not include any
injury or disease which:
(a) resulted from or consists of habitual drunkenness or addiction to
narcotics;
(b) was contracted, suffered or incurred while the Employee was
engaged in, or resulted from having engaged in, a criminal
enterprise;
(c) was intentionally self-inflicted;
(d) arose while the Employee was on Authorized Leave of Absence
without pay or was absent without authorization; or
(e) arose as a result of service in the armed forces of any country.
1.14 Early Retirement Date
"Early Retirement Date" means the first day of the first month
following the later of:
(a) Termination; and
(b) the Participant's fifty-fifth (55th) birthday, provided that
Termination occurs prior to the participant's sixtieth (60th)
birthday.
If the Participant has reached age sixty (60) on the date of
Termination, Early Retirement Date shall not apply.
1.15 Effective Date
"Effective Date" means August 8, 1995.
1.16 Elected Officer
"Elected Officer" means an officer of an Employer that is elected by
the Board, pursuant to the bylaws of the Employer.
1.17 Elected Officer Service
"Elected Officer Service" means the period(s) of time measured in
completed whole years, during which an Employee is an Elected Officer
of the Company or Alaska Airlines, Inc. and the period(s) during which
an Employee is the Chief Executive Officer of Horizon Air Industries,
Inc. Non-continuous periods of Elected Officer Service are aggregated
to determine an Employee's total years of Elected Officer Service.
Notwithstanding the foregoing, the Board may increase an individual's
Elected Officer Service, in its absolute discretion provided that any
affected Participant shall be notified of any such adjustment.
1.18 Employee
"Employee" means any person who is:
(a) employed by an Employer as a common law employee;
(b) is customarily employed by the Employer for twenty (20) or more
hours per week and for at least five (5) months per calendar
year; and
(c) is compensated on a salary basis.
1.19 Employer
"Employer" means the Company and any Affiliate that adopts this Plan
in writing with the consent of the Board, and agrees to be bound by
the terms and conditions of the Plan and any amendments or
modifications thereto, and which is listed in Appendix II. In the
event an Employer ceases participation in the Plan, the date
participation ceases shall be indicated in the Appendix.
1.20 ERISA
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.21 Final Average Monthly Compensation
"Final Average Monthly Compensation" means a Participant's average
Compensation for a period of sixty (60) consecutive months ending on
the earlier of (a) the Participant's Termination or (b) the date of a
Change of Control. If an active Participant has fewer than sixty (60)
consecutive months in the period, Final Average Monthly Compensation
means average Compensation for the lesser of:
(a) the most recent sixty (60) months (whether or not consecutive);
or
(b) the total Company Service.
1.22 Hour of Service
"Hour of Service" means each hour for which an Employee is paid or
entitled to payment for the performance of duties for the Employer or
any Affiliated Company.
1.23 Late Retirement Date
"Late Retirement Date" means the first day of the month next following
the date of the Participant's Termination, provided that Termination
occurs after the Participant's sixtieth (60th) birthday.
1.24 Normal Retirement Age
"Normal Retirement Age" means the first day of the month next
following the Participant's sixtieth (60th) birthday.
1.25 Normal Retirement Date
"Normal Retirement Date" means the first day of the month next
following the Participant's sixtieth (60th) birthday provided the
Participant Terminates on the Participant's sixtieth (60th) birthday.
1.26 Participant
"Participant" means each Elected Officer who participates in this Plan
pursuant to the provisions of Section 2.
1.27 Plan
"Plan" means the Alaska Air Group, Inc. 1995 Elected Officers
Supplementary Retirement Plan, as set forth herein.
1.28 Plan Administrator
"Plan Administrator" means the Company.
1.29 Plan Year
"Plan Year" means the period beginning on the Effective Date and
ending on December 31, 1995, and thereafter each calendar year.
1.30 Qualified Plan
"Qualified Plan" means any defined benefit retirement plan that is
qualified or is intended to be qualified under Code Section 401(a) and
that is maintained by an Affiliated Company, as amended from time to
time.
1.31 Qualified Plan Benefit
"Qualified Plan Benefit" means the Actuarial Equivalent of the monthly
benefit the Participant is entitled to receive under the Qualified
Plan determined as though benefits under the Qualified Plan commence
at the same time and are payable in the same form of payment as
benefits under this Plan.
1.32 Retirement Date
"Retirement Date" means a Participant's Early, Normal or Late
Retirement Date, whichever applies.
1.33 Social Security Benefit
"Social Security Benefit" means the Primary Insurance Amount, as
defined under the Social Security Act, that is actually received by a
Participant or Beneficiary. Except as provided under Section 1.1(c)
and (d) in determining Change of Control benefits under Section 5.3,
the Administrative Committee shall deem the Participant or Beneficiary
to actually receive the greatest amount of Social Security Benefit at
the earliest date to which the Participant or Beneficiary is eligible
unless the Participant provides evidence to the contrary that is
satisfactory to the Administrative Committee.
1.34 Terminate
"Terminate" and its derivatives as the context requires (such as
"Termination") means no longer employed by an Employer or Affiliated
Company as a common law employee. An Authorized Leave of Absence is
not a Termination.
1.35 Termination For Cause
"Termination For Cause" means Termination for reason of admission by
the Employee or substantiation by the Employer of:
(a) embezzlement, dishonesty or other fraud, conviction of a felony
or conspiracy against an Employer; or
(b) if Termination occurred prior to a Change of Control, any willful
or intentional injury to either an Employer, its property, or its
employees in connection with the business affairs of an Employer.
1.36 Wages
"Wages" means a Participant's wages as defined under Code Section
3121, which are subject to Federal Insurance Contribution Act tax
under Code Section 3101.
1.37 Additional Definitions in Plan
The following terms are defined in the following Sections of the Plan:
Benefit Percentage 3.1(b)
Change of Control Benefit 5.1
Joint and Survivor Annuity 4.1(b)
Review Panel 8.8(c)
Target Aggregate Benefit 3.1(a)
Ten Year Certain and Life Annuity 4.1(c)
Ten Year Certain Installments 4.1(d)
Whole Life Annuity 4.1(a)
SECTION 2
ELIGIBILITY AND PARTICIPATION
2.1 Eligibility and Participation
An Elected Officer shall become a Participant upon the participation
commencement date specified by the Administrative Committee. Each
Participant, the Participant's participation commencement date, and
the Participant's Company Service and Elected Officer Service, if any,
on the Participant's participation commencement date shall be listed
on Appendix I.
2.2 Termination of Participation
A Participant's participation in the Plan will terminate when the
Participant's benefits under this Plan have been paid in full.
2.3 Inactive Participation
A Participant's active participation will cease when he or she
Terminates or becomes Disabled. A Participant's active participation
also will cease if the Board determines that the Participant ceases to
be an Elected Officer or the Administrative Committee determines that
the Participant failed to make tax payments under Section 10.9. The
date a Participant's active participation ceases shall be listed on
Appendix I, which shall be updated from time to time. An inactive
Participant's benefits shall be determined as though the Participant
Terminates on the date active participation ceases.
SECTION 3
RETIREMENT BENEFITS
3.1 Target Aggregate Benefit
(a) Target Aggregate Benefit Definition
A Participant's "Target Aggregate Benefit" is determined in the
form of a Whole Life Annuity commencing at Normal Retirement Age
and is equal to:
(i) the Participant's Final Average Monthly Compensation
multiplied by the Participant's Benefit Percentage; or
(ii) if greater than (i) above, the Participant's Qualified Plan
Benefit determined without application of any Code Section
the effect of which is to limit, reduce or restrict the
Participant's Qualified Plan Benefit, including without
limitation Code Sections 415 and 401(a)(17).
Notwithstanding the preceding sentence, a Participant's benefit
under this Plan is determined in accordance with Sections 3.2,
3.3, 3.4 and 3.5, whichever apply to the Participant.
(b) Benefit Percentage Definition
A Participant's "Benefit Percentage" is determined in accordance
with the following table:
Elected Officer Service
At Least 5 Years 6 Years 7 Years 8 Years 9 Years
10 or More
Years
Company Service
0 to 10 Years 50% 50% 50% 55% 55% 55%
11 to 15 Years 50% 55% 55% 60% 60% 60%
16 to 20 Years 55% 60% 60% 65% 65% 65%
21 to 25 Years 60% 65% 65% 70% 70% 70%
26 or More Years 65% 70% 70% 70% 70% 75%
Notwithstanding the above and without regard to the Participant's
Company Service, a Participant who has less than five (5) years
of Elected Officer Service on the date of a Change of Control
shall have the following "Benefit Percentage" for purposes of
determining the Participant's Change of Control benefit under
Section 5.3(b) or 5.3(c):
Elected Officer Service Benefit Percentage
At least 1 year 10%
At least 2 years 20%
At least 3 years 30%
At least 4 years 40%
3.2 Normal Retirement Benefit
A Participant's monthly Normal Retirement Benefit payable on his or
her Normal Retirement Date is the Participant's Target Aggregate
Benefit, if any, adjusted as follows:
(a) first, Actuarially adjusted for form of payment (if the form of
payment is other than a Whole Life Annuity);
(b) second, reduced by the Qualified Plan Benefit as defined in
Section 1.31;
(c) third, multiplied by the vesting percentage determined under
Section 7; and
(d) fourth, reduced by the amount of the Social Security Benefit (if
any) as defined in Section 1.33.
3.3 Early Retirement Benefit
A Participant's monthly Early Retirement Benefit payable on his or her
Early Retirement Date is the Participant's Target Aggregate Benefit,
if any, adjusted as follows:
(a) first, reduced by one one-hundred-eightieth (1/180th) for each of
the first sixty (60) months that the Participant's Early
Retirement Date precedes the Participant's Normal Retirement Age;
(b) second, Actuarially adjusted for form of payment (if the form of
payment is other than a Whole Life Annuity);
(c) third, reduced by the Qualified Plan Benefit as defined in
Section 1.31;
(d) fourth, multiplied by the vesting percentage determined under
Section 7; and
(e) fifth, reduced by the amount of the Social Security Benefit (if
any) as defined in Section 1.33.
3.4 Late Retirement Benefit
A Participant's monthly Late Retirement Benefit payable on his or her
Late Retirement Date is the Participant's Target Aggregate Benefit, if
any, determined taking into account Elected Officer Service and
Company Service and Final Average Monthly Compensation earned as of
the date of Termination (including service and compensation earned
after age sixty (60)), adjusted as follows:
(a) first, Actuarially adjusted for form of payment (if the form of
payment is other than a Whole Life Annuity);
(b) second, reduced by the Qualified Plan Benefit as defined in
Section 1.31;
(c) third, multiplied by the vesting percentage determined under
Section 7; and
(d) fourth, reduced by the amount of the Social Security Benefit as
defined in Section 1.33.
3.5 Cost of Living Adjustment
The Board may adjust the amount of benefits then being paid to any or
all Participants and Beneficiaries to reflect increases in the cost of
living. The adjustment shall be made in the amount and at the times
determined solely in the discretion of the Board.
SECTION 4
PAYMENT FORMS
4.1 Forms of Payment
The following forms of benefit payment are options under the Plan,
subject to the conditions of Sections 4.2 and 4.3.
(a) Whole Life Annuity
"Whole Life Annuity" means monthly payments beginning on the
Retirement Date and ending the first day of the month preceding
the Participant's date of death.
(b) Joint and Survivor Annuity
"Joint and Survivor Annuity" means reduced monthly payments to a
Participant from the Retirement Date to the first day of the
month preceding the Participant's date of death, and if the
Participant predeceases the Participant's Beneficiary, monthly
payments to the Participant's Beneficiary equal to fifty percent
(50%), sixty-six and two-thirds percent (66-2/3%), seventy-five
percent (75%), or one hundred percent (100%) of the reduced
amount payable to the Participant, beginning on the Participant's
date of death and ending the first day of the month preceding the
Beneficiary's date of death. The Participant shall elect which
percentage applies at the same time that the Participant elects a
Joint and Survivor Annuity. A Joint and Survivor Annuity shall
be Actuarially Equivalent to the Participant's benefit payable in
the form of a Whole Life Annuity.
If the Participant's Beneficiary dies after the Participant's
benefit payments begin, the Participant's payments will be the
same reduced amount as otherwise payable under the Joint and
Survivor Annuity. If the Participant's Beneficiary dies before
the date as of which the Participant's benefit payments are to
begin, any election of a form of benefit under this Section would
be canceled automatically. If the Participant dies before the
date as of which the Participant's benefit payments are to begin,
the Beneficiary shall not be entitled to receive any payments
under this Section. However, a spouse may be entitled to a death
benefit under Section 6.
(c) Ten Year Certain and Life Annuity
"Ten Year Certain and Life Annuity" means reduced monthly
payments from the Retirement Date to the first of the month
preceding the Participant's death, but in no event will less than
one hundred and twenty (120) equal monthly payments be made. If
the Participant dies before receiving one hundred and twenty
(120) monthly payments, the remaining payments shall continue to
be made to the Participant's Beneficiary. A Ten Year Certain and
Life Annuity shall be Actuarially Equivalent to the Participant's
benefit payable in the form of a Whole Life Annuity.
(d) Ten Year Certain Installments
"Ten Year Certain Installments" means one hundred and twenty
(120) equal monthly payments that are Actuarially Equivalent to
the Participant's benefits payable as a Whole Life Annuity. If
the Participant dies before receiving one hundred and twenty
(120) monthly payments, the remaining payments shall continue to
be made to the Participant's Beneficiary.
4.2 Automatic Form of Payment
Unless a Participant elects otherwise in accordance with Section 4.3,
the Participant's benefit shall be paid as provided below:
(a) Married Participant
A Participant who is married on the Participant's Retirement Date
shall receive his or her benefits in the form of a one hundred
percent (100%) Joint and Survivor Annuity.
(b) Unmarried Participant
A Participant who is not married on the Participant's Retirement
Date shall receive the Participant's benefits in the form of a
Ten Year Certain and Life Annuity.
4.3 Payment Form Election
(a) Advance Election
Subject to approval of the Administrative Committee, a
Participant may elect one of the forms of payment of benefits
under Section 4.1 in lieu of the automatic payment form under
Section 4.2 as long as the Participant's election is made at
least one (1) year before the Participant's Termination. Subject
to approval of the Administrative Committee, a Participant may
change a prior payment-form election, provided that the change is
made at least one (1) year before the Participant's Termination.
Once benefit payments commence, the payment form cannot be
changed by the Participant or Beneficiary.
(b) Unanticipated Changes In Life Circumstances
Notwithstanding the preceding Section 4.3(a), subject to approval
of the Administrative Committee, Participant may elect a payment
form or change a prior payment-form election less than one (1)
year before Termination, provided that the Participant
demonstrates that the Participant has experienced or will
experience an unanticipated change in life circumstances that is
involuntary and with respect to which the Participant's requested
payment form is consistent. Examples of an unanticipated change
in life circumstances that satisfy this Section 4.3 include (but
are not limited to) involuntary Termination and death of a
spouse.
(c) Form and Manner of Election
All payment-form elections shall be made in the form and manner
prescribed by the Administrative Committee and shall be subject
to approval of the Administrative Committee.
SECTION 5
CHANGE OF CONTROL BENEFITS
5.1 Change of Control Benefit
Notwithstanding any other provision of the Plan, in the event of a
Change of Control, each Participant (or his or her Beneficiary),
except a Participant Terminated For Cause before the date of the
Change of Control, shall receive a Change of Control benefit in
accordance with this Section, in lieu of all other benefits payable
under this Plan.
5.2 Form of Payment
All Change of Control Benefits shall be paid in the form of a single
lump sum payment determined under Section 5.3, within sixty (60) days
after a Change of Control. After payment of all Change of Control
Benefits, this Plan shall terminate automatically, and no Participant
or Beneficiary will have any further rights under the Plan.
5.3 Amount of Change of Control Benefit
(a) After Commencement of Benefits
If benefit payments have commenced as of the date of the Change
of Control, any Participant, spouse, or Beneficiary receiving
benefits as of the date of the Change of Control shall receive a
single lump sum payment that is the Actuarial Equivalent of the
remaining benefits otherwise payable.
(b) Before Commencement of Benefits And After Termination
If the date of the Change of Control is after a Participant's
Termination, but before benefit payments have begun, the
Participant shall receive a single lump sum payment that is
Actuarially Equivalent to the Participant's Normal Retirement
Benefit (if any).
(c) Before Termination
If the date of the Change of Control is before a Participant's
Termination, the Participant shall receive a single lump sum
payment that is Actuarially Equivalent to the Participant's
Normal Retirement Benefit (if any) determined as though the
Participant Terminated on the date of the Change of Control.
SECTION 6
DEATH BENEFITS
6.1 Death Benefits Prior to Benefit Commencement
In the event a married Participant dies before benefit payments begin,
he or she shall become one hundred percent (100%) vested upon death
pursuant to Section 7.1(c) and his or her spouse shall receive a death
benefit as described below:
(a) Death Following Early Retirement Date
If the Participant dies after reaching age fifty-five (55) but
before benefit commencement, the spouse's benefit shall be paid
monthly from the first of the month coinciding with or following
the Participant's death through the first of the month preceding
the spouse's death. The benefit shall equal the amount payable
to the surviving spouse under a one hundred percent (100%) Joint
and Survivor Annuity form of payment as if the Participant had
commenced receiving Early Retirement Benefit, Normal Retirement
Benefit, or Late Retirement Benefit payments (whichever applies)
as of the date spouse death benefits commence, based upon the
Participant's vested Target Aggregate Benefit, if any, at the
date of death.
(b) Death Prior to Early Retirement Date
If the Participant dies prior to reaching age fifty-five (55),
the spouse's death benefit shall be paid monthly from the
Participant's earliest Retirement Date (determined as if the
Participant had survived but was not employed after the date of
death) through the first of the month preceding the spouse's
death. The benefit shall equal the amount payable to the
surviving spouse under a one hundred percent (100%) Joint and
Survivor Annuity form of payment as if the Participant had
Terminated on the date of death, survived to the date spouse
benefits commence and commenced receiving Early Retirement
Benefit or Normal Retirement Benefit payments (whichever applies)
on such date. If the surviving spouse dies before benefit
payments begin, no benefits shall be payable to the spouse's
estate or beneficiaries.
6.2 Death Benefits After Benefit Commencement
In the event a Participant dies after benefit payments have commenced,
his or her Beneficiary may be entitled to receive a benefit depending
on the form of payment elected by the Participant. The benefit
payable to a Beneficiary is described in Section 4.1(b) Joint and
Survivor Annuity, 4.1(c) Ten Year Certain and Life Annuity or 4.1(d)
Ten Year Certain Installments, whichever applies according to the form
elected by the Participant.
SECTION 7
VESTING
7.1 Vesting
Except as provided in Section 7.2, each Participant shall have at all
times a vested, nonforfeitable right to his or her Target Aggregate
Benefit as adjusted pursuant to Sections 3.2, 3.3 and 3.4, if any,
multiplied by the appropriate vesting percentage determined in
accordance with whichever of the following tables produces the
greatest vesting percentage:
(a) Schedule A
A Participant who:
(i) has reached age fifty (50) and has completed Company Service
of at least fifteen (15) years; or
(ii) Terminates on or after age sixty (60)
shall have the following vesting percentage in his or her
benefit, if any:
Elected Officer Service Vesting Percentage
5 50%
6 60%
7 70%
8 80%
9 90%
10 100%
(b) Schedule B
A Participant who has reached age fifty (50) and has completed
Elected Officer Service of at least ten (10) years shall be one
hundred percent (100%) vested in his or her benefit, if any.
(c) Death or Disability
A Participant who dies prior to Termination or becomes Disabled
shall be one hundred percent (100%) vested in his or her Target
Aggregate Benefit as adjusted pursuant to Sections 3.2, 3.3 and
3.4, if any, on the date of death or Disability.
(d) Change of Control
Notwithstanding any other provision of the Plan to the contrary,
including without limitation Sections 1.10, 1.35, 7.2(a) and
7.2(b), all Participants who are Employees when a Change of
Control occurs shall be one hundred percent (100%) vested in
their Target Aggregate Benefit as adjusted pursuant to Sections
3.2, 3.3 and 3.4, if any, (without regard to the Participant's
age) in the event of a Change of Control.
(e) Termination of Plan
In the event that the Plan is Terminated in whole or in part, all
affected Participants shall be one hundred percent (100%) vested
in his or her Target Aggregate Benefit as adjusted pursuant to
Sections 3.2, 3.3 and 3.4, if any.
7.2 Forfeiture
(a) Termination
In the event a Participant Terminates:
(i) before reaching age fifty (50) and before a Change of
Control; or
(ii) before becoming one hundred percent (100%) vested;
the Participant's nonvested portion of the Target Aggregate
Benefit shall be forfeited.
(b) Termination For Cause and Competing Activity
Notwithstanding any Plan provision to the contrary other than
Section 7.1(d), a Participant's vested and nonvested Target
Aggregate Benefit and any death benefit will be forfeited in
their entirety and will not be reinstated for any reason upon:
(i) the Participant's Termination for Cause; or
(ii) a determination that the Participant is engaged in a
Competing Activity.
This forfeiture clause has no effect on benefits payable under
the Qualified Plan.
SECTION 8
POWERS AND DUTIES OF THE COMMITTEE
8.1 Appointment of Administrative Committee
The Plan shall be administered by the Administrative Committee which
shall be appointed by the Chairman of the Board. The Administrative
Committee shall be composed of at least three (3) members, all of whom
are Elected Officers. No bond or other security shall be required of
any Administrative Committee member in such capacity.
The Chairman of the Board shall be the Chairman of the Administrative
Committee. Administrative Committee members may participate in the
Plan if they are otherwise eligible to do so.
8.2 Powers and Duties
The Administrative Committee shall have the power and the duty to take
all action and to make all decisions necessary or proper to carry out
the Plan, including the discretionary authority to interpret the
provisions of the Plan and the facts and circumstances of claims for
benefits. The Administrative Committee shall have the absolute
discretion to decide all issues of fact or law. Any decision by the
Administrative Committee that is not shown to be an abuse of
discretion must be upheld by a court of law. Without limiting the
foregoing, the Administrative Committee shall have the following
administrative powers and duties:
(a) to require any Participant or Beneficiary to furnish information
as they may request for the purpose of the proper administration
of the Plan as a condition to receiving any benefit under the
Plan;
(b) to make and enforce rules and regulations and prescribe the use
of forms as they shall deem necessary for the efficient
administration of the Plan;
(c) to interpret the Plan and to resolve ambiguities, inconsistencies
and omissions in a nondiscriminatory manner;
(d) to determine tax withholding;
(e) to compute the amount of benefits which shall be payable to any
person in accordance with the provisions of the Plan; and
(f) to delegate any of their administrative powers or duties
hereunder to any of their agents or employees.
8.3 Administrative Committee Procedures
A majority of the Administrative Committee members in office may
fulfill any act which the Plan authorizes or requires of the
Administrative Committee, provided that no Administrative Committee
member who participates in the Plan shall vote on any matter that
pertains to the member or to the member's rights and/or benefits under
the Plan unless such matter pertains to all Participants or all
Participant's rights and/or benefits under the Plan. Each member of
the Administrative Committee shall be recused from voting on any
action pertaining solely to the member or members of the
Administrative Committee or their rights and/or benefits under the
Plan, and the action shall be taken by a majority of the remaining
members of the Administrative Committee, or if the remaining members
do not constitute a quorum, by the Compensation Committee of the
Board.
The action of such majority of the Administrative Committee expressed
from time to time by a vote at a meeting, or in writing without a
meeting, shall constitute the action of the Administrative Committee
and shall have the same effect for all purposes as if assented to by
all Administrative Committee members. The majority of Administrative
Committee members may delegate in writing to any of them the authority
to give certified notice in writing of any action taken by the
Administrative Committee.
8.4 Appointment of Agents
The Administrative Committee may appoint such actuaries, accountants,
counsel, specialists, and other persons or organizations as they shall
deem necessary for administration of the Plan and they shall be
entitled to prudently rely upon any tables, valuations, certificates,
opinions, or reports which shall be furnished to them by such persons
or organizations.
8.5 Administrative Committee Expenses
The Administrative Committee shall serve without compensation for
services as such, but any reasonable expenses incurred by them in the
performance of their duties as Administrative Committee members shall
be paid by the Company.
8.6 Administrative Expenses
All expenses incurred by the Administrative Committee in connection
with the administration of the Plan, including but not limited to the
compensation of any actuary, accountant, counsel, specialist, or other
persons or organizations who shall be employed by the Administrative
Committee in connection with the administration thereof, shall be paid
by the Company.
8.7 Determinations
All determinations hereunder made by the Board or the Administrative
Committee shall be made in the sole and absolute discretion of the
Board, the Compensation Committee of the Board or of the
Administrative Committee, as the case may be.
In the event that any disputed matter shall arise hereunder,
including, without in any manner limiting the generality of the
foregoing, any matter relating to the eligibility of any person to
participate under the Plan, the participation of any person under the
Plan, the amounts payable to any person under the Plan, and the
applicability and the interpretation of the provisions of the Plan,
the decision of the Administrative Committee, Board, or Compensation
Committee of the Board upon such matter shall be binding and
conclusive upon all persons, including, without in any manner limiting
the generality of the foregoing, the Company, the Board, all persons
at any time in the employ of the Company, the Participants and their
Beneficiaries, and upon the respective successors, assigns, executors,
administrators, heirs, next of kin, and distributees of all the
foregoing.
8.8 Claim and Review Procedure
(a) Application for Benefits
Any application for benefits under the Plan shall be submitted to
the Company at its principal office. Such application shall be
in writing on the prescribed form and shall be signed by the
applicant.
(b) Denial of Applications
In the event that any application for benefits is denied in whole
or in part, the Company shall notify the applicant in writing of
the right to a review of the denial. Such written notice shall
set forth, in a manner calculated to be understood by the
applicant, specific reasons for the denial, specific references
to the Plan provisions on which the denial was based, a
description of any information or material necessary to perfect
the application, an explanation of why such material is
necessary, and an explanation of the Plan's review procedure.
Such written notice shall be given to the applicant within 90
days after the Company receives the application unless special
circumstances require an extension of time for processing the
application. In no event shall such an extension exceed a period
of ninety (90) days after the end of the initial 90-day period.
If such an extension is required, written notice thereof shall be
furnished to the applicant before the end of the initial 90-day
period. Such notice shall indicate the special circumstances
requiring an extension of time and the date by which the Company
expects to render a decision. If written notice is not given to
the applicant within the period prescribed by this Subsection
(b), the application shall be deemed to have been denied for
purposes of Subsection (d) upon the expiration of such period.
(c) Review Panel
The Company from time to time shall appoint a Review Panel. The
"Review Panel" shall consist of three or more individuals who may
(but need not) be Employees of the Company and shall be the named
fiduciary with the authority to act on any Employee benefit
appeal. Members of the Administrative Committee may be appointed
to the Review Panel. The Review Panel has discretionary
authority to decide all issues of fact or law. Any decision by
the Review Panel that is not established to be an abuse of
discretion must be upheld by a court of law.
(d) Requests for Review
Any person whose application for benefits is denied in whole or
in part (or such person's duly authorized representative) may
appeal from the denial by submitting to the Review Panel a
request for a review of such application within six (6) months
after receiving written notice of the denial. The Review Panel
shall give the applicant or such representative an opportunity to
review pertinent documents in preparing such request for review
and to submit issues and comments in writing. The request for
review shall be in writing and shall be addressed to the
Company's principal office. The request for review shall set
forth all of the grounds on which it is based, all facts in
support of the request, and any other matters which the applicant
deems pertinent. The Review Panel may require the applicant to
submit such additional facts, documents or other material as it
may deem necessary or appropriate in making its review.
(e) Decisions on Review
The Review Panel shall act upon each request for review within
sixty (60) days after receipt thereof, unless special
circumstances require an extension of time for processing, but in
no event shall the decision on review be rendered more than one
hundred twenty (120) days after the Review Panel receives the
request for review. If such an extension is required, written
notice thereof shall be furnished to the applicant before the end
of the initial sixty (60)-day period. The Review Panel shall
give prompt, written notice of its decision to the applicant and
to the Company. In the event that the Review Panel confirms the
denial of the application for benefits in whole or in part, such
notice shall set forth, in a manner calculated to be understood
by the applicant, the specific reasons for such denial and
specific references to the Plan provisions on which the decision
is based. To the extent that the Review Panel overrules the
denial of the application for benefits, such benefits shall be
paid to the applicant.
(f) Rules and Procedures
The Review Panel shall adopt such rules and procedures,
consistent with ERISA and the Plan, as it deems necessary or
appropriate in carrying out its responsibilities under this
Section 8.8
(g) Exhaustion of Administrative Remedies
No legal or equitable action for benefits under the Plan shall be
brought unless and until the claimant (1) has submitted a written
application for benefits in accordance with Subsection (a); (2)
has been notified that the application is denied; (3) has filed a
written request for a review of the application in accordance
with Subsection (d); and (4) has been notified in writing that
the Review Panel has affirmed the denial of the application;
provided, however, that an action may be brought after the
Company or the Review Panel has failed to act on the claim within
the time prescribed in Subsection (b) and Subsection (e),
respectively.
8.9 Exemption From Liability/Indemnification
The members of the Administrative Committee, collectively and
individually, shall be free from all liability, joint or several, for
their acts, omissions, and conduct, and for the acts, omissions, and
conduct of their duly-appointed agents, in the administration of the
Plan, except for those acts or omissions and conduct resulting from
willful misconduct or lack of good faith.
The Company shall indemnify each member of the Administrative
Committee, and any other employee, officer, or director of the Company
against any claims, loss, damage, expense, or liability, by insurance
or otherwise (other than amounts paid in settlement not approved by
the Company), reasonably incurred by the individual in connection with
any action or failure to act by reason of membership on the
Administrative Committee or performance of an authorized duty or
responsibility for or on behalf of the Company pursuant to the Plan,
unless the same is judicially determined to be the result of the
individual's gross negligence or willful misconduct. Such
indemnification by the Company shall be made only to the extent such
expense or liability is not payable to or on behalf of such person
under any liability insurance coverage. The foregoing right to
indemnification shall be in addition to any other rights to which any
such person may be entitled as a matter of law.
SECTION 9
AMENDMENT AND TERMINATION
9.1 Amendment or Termination
(a) Right to Amend or Terminate
Except as otherwise provided in this Section, the Company
reserves the right at any time and from time to time to amend any
or all provisions of the Plan or terminate the Plan, in whole or
in part, for any reason and without consent of any person, and
without liability to any person for such amendment or
termination. Notwithstanding the preceding sentence, no
amendment of the Plan shall:
(i) adversely affect the benefits or rights of a Participant or
Beneficiary under the Plan (other than election or
availability of a form of benefit payment under Section 4)
earned and vested as of the effective date of the amendment
without the written consent of each affected Participant and
Beneficiary unless such change is required by law or
regulations or is necessary to avoid unfavorable tax
consequences; or
(ii) adversely affect the features of the Plan in effect as of
the effective date of the amendment without the written
consent of each affected Participant and Beneficiary unless
such change is required by law or regulations or is
necessary to avoid unfavorable tax consequences; or
(iii) be adopted or become effective after a Change of
Control without the written consent of all Participants and
Beneficiaries.
(b) Plan Termination
Nothing in this Plan shall be construed to require continuation
of benefit accruals under this Plan or continuation of this Plan
with respect to existing or future Participants or Beneficiaries.
Notwithstanding Section 9.1(a)(i), the Company may amend the Plan
to cease all future benefit accruals and shall pay benefits
according to the then existing or amended distribution
provisions. Notwithstanding Section 9.1(a)(i), the Company may
terminate the Plan and shall distribute all benefits as soon as
administratively feasible in the form of single lump sum payments
calculated in the same manner as lump sum benefits are calculated
in the event of a Change of Control pursuant to Section 5.3.
(c) Procedures
Any amendment or termination of the Plan shall be adopted by the
Board, made in writing, and executed on behalf of the Company by
an authorized officer of the Company.
SECTION 10
MISCELLANEOUS PROVISIONS
10.1 Appendices
Any Appendix to this Plan, as amended from time to time, is
incorporated into the Plan and made a part of the terms and conditions
of this Plan.
10.2 ERISA Status
This Plan shall constitute a plan which is unfunded and which is
maintained primarily for the purpose of providing deferred
compensation benefits for a select group of management or highly
compensated employees within the meaning of Sections 201(2),
301(a)(3), and 401(a)(1) of ERISA.
10.3 Unfunded Nature of the Obligation
The obligation to pay benefits under the Plan shall at all times be an
unfunded, unsecured obligation of the Employer. The Employer is not
obligated to purchase any annuity contracts to provide benefits under
the Plan, to establish a trust for the purpose of receiving
contributions and paying benefits under the Plan, or to otherwise set
aside funds for the purpose of providing Plan benefits.
10.4 Facility of Payment
In the event any benefit under this Plan shall be payable to a person
who is under legal disability or is in any way incapacitated so as to
be unable to manage his or her financial affairs, the Administrative
Committee may direct payment of such benefit to a duly appointed
guardian, committee or other legal representative of such person, or
in the absence of a guardian or legal representative, to a custodian
for such person under a Uniform Gifts to Minors Act or to any relative
of such person by blood or marriage, for such person's benefit. Any
payment made in good faith pursuant to this provision shall fully
discharge the Company and the Plan of any liability to the extent of
such payment.
10.5 Governing Law
The Plan shall be construed in accordance with ERISA and the laws of
the State of Washington, to the extent not preempted by ERISA.
10.6 Limitation on Assignment
Benefits under this Plan may not be assigned, sold, transferred, or
encumbered, and any attempt to do so shall be void. A Participant's
or Beneficiary's interest in benefits under the Plan shall not be
subject to debts or liabilities of any kind and shall not be subject
to attachment, garnishment or other legal process.
10.7 No Additional Rights
No person shall have any rights under the Plan, except as, and only to
the extent, expressly provided for in the Plan. Neither the
establishment or amendment of the Plan or the creation of any fund or
account, or the payment of benefits, nor any action of an Employer or
the Administrative Committee shall be held or construed to confer upon
any person any right to be continued as an employee, or, upon
dismissal, any right or interest in any account or fund other than as
herein provided. The Company and the other Employers expressly
reserve the right to discharge any employee at any time with or
without cause.
10.8 Notice
All notices, statements, reports and other communications from the
Company or Administrative Committee to any employee or other person
required or permitted under the Plan shall be deemed to have been duly
given when delivered to, or when mailed by first-class mail, postage
prepaid and addressed to, such employee, or other person at his or her
address last appearing on the Company's records.
10.9 Severability
If any provision of this Plan is held unenforceable or invalid for any
reason, such determination shall not affect the remaining provisions
of this Plan which shall be construed as if the unenforceable or
invalid provisions had never been included.
10.10 Tax Consequences and Withholding
The Company does not represent or guarantee that any particular
federal or state income, payroll, Social Security, or other tax
consequences will result from participation in the Plan. A
Participant should consult with professional tax advisors to determine
the tax consequences of his or her participation in the Plan.
All payments of federal or state income, Social Security, payroll, or
other tax required with respect to contributions or benefits under the
Plan shall be satisfied by withholding the required amount from the
Participant's salary or Plan benefit payment, or if the Participant's
salary or benefit payment is insufficient to satisfy any required tax
payments, the Participant shall satisfy the payments in a manner
approved by the Administrative Committee.
Determinations by the Administrative Committee with respect to tax
withholding shall be binding on the Participant and Beneficiaries.
EXECUTION/SIGNATURE PAGE
IN WITNESS WHEREOF, the Company has caused this Plan to be signed by
its duly authorized officer this 8th day of August, 1995.
ALASKA AIR GROUP, INC.
Witness:
By:
Keith Loveless John F. Kelly
Assistant Secretary Chairman, President and
Chief Executive Officer
APPENDIX I
TO THE
ALASKA AIR GROUP, INC.
1995 ELECTED OFFICERS SUPPLEMENTARY RETIREMENT PLAN
Pursuant to Section 2 of the Plan, the following Elected Officers shall be
Participants in the Plan beginning on the date listed below and shall cease
to be active Participants on the date listed below:
Name
Participation
Commencement
Date (PCD)
Company
Service on PCD
Elected Officer
Service on PCD
Active
Participation
Ceases
ACKNOWLEDGED AND ACCEPTED
ALASKA AIR GROUP, INC.
By: ______
John F. Kelly
Chairman and Chief Executive Officer
Date:
APPENDIX II
TO THE
ALASKA AIR GROUP, INC.
1995 ELECTED OFFICERS SUPPLEMENTARY RETIREMENT PLAN
"Employer" as defined in Section 1.19 shall also include the following
employers during the following period of time.
Employer Beginning Date Ending Date
1. Alaska Airlines, Inc. August 8, 1995
2. Horizon Air Industries, Inc. August 8, 1995
ACKNOWLEDGED AND ACCEPTED
ALASKA AIR GROUP, INC.
By: ______
John F. Kelly
Chairman and Chief Executive Officer
Date:
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