<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(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, 1998
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 1-8957
ALASKA AIR GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1292054
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19300 Pacific Highway South, Seattle, Washington 98188
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (206) 431-7040
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $1.00 Par Value New York Stock Exchange
Rights to Purchase Series A
Participating Preferred Stock New York Stock Exchange
As of December 31, 1998, common shares outstanding totaled 26,224,005. The
aggregate market value of the common shares of Alaska Air Group, Inc. held by
nonaffiliates, 26,156,752 shares, was approximately $1.157 billion
(based on the closing price of these shares, $44.25, on the New York Stock
Exchange on such date).
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( X )
DOCUMENTS TO BE INCORPORATED BY REFERENCE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
RONALD F. COSGRAVE
Mr. Cosgrave, age 67, serves on the Company's Executive Committee. He has served
on the Board of Directors since 1971, except during the period 1981 to 1983. He
was Chairman of Alaska Northwest Properties Inc. from 1979 to 1997, when he
became Executive Manager of ANP, LLC. Mr. Cosgrave is a retired Chairman and
Chief Executive Officer of Alaska Airlines. He is also Chairman Emeritus and a
director of Alaska Airlines. Mr. Cosgrave's term expires in 2001.
MARY JANE FATE
Mrs. Fate, age 65, has been a director since 1979 and serves on the Company's
Compensation Committee. She has served as General Manager of a family business
in Fairbanks, Alaska, since 1989. She was President and Executive Director of
Baan o yeel kon Corporation (an Alaska Native village corporation) from 1981 to
1989. She is a director of Alaska Airlines and Baan o yeel kon Corporation, and
a member of the University of Alaska Board of Regents. Mrs. Fate's term expires
in the year 2000.
JOHN F. KELLY
Mr. Kelly, age 54, has been a director since 1989 and serves on the Company's
Executive Committee. He was elected Chairman, President and Chief Executive
Officer of Alaska Air Group and Chairman and Chief Executive Officer of Alaska
Airlines in February 1995. He also served as President of Alaska Airlines from
1995 to 1997, Chief Operating Officer from November 1994 to February 1995 and as
Vice President/Marketing from 1981 to June 1987. He has served Horizon Air as
its Chairman since February 1991, except the period from November 1994 to
February 1995, and was President and Chief Executive Officer from June 1987 to
November 1994. He also serves on the board of the Air Transport Association and
is a director of AVISTA Corp., a public utility based in Spokane, Washington.
Mr. Kelly's term expires in the year 2000.
BRUCE R. KENNEDY
Mr. Kennedy, age 60, has been a director since 1972 and has served as Chairman
of the Company's Executive Committee since 1985, except for the period from
November 1994 to February 1995. He is Chairman Emeritus of Alaska Air Group and
served as its Chairman, Chief Executive Officer and President from 1985 to 1991.
He was also Chairman of Alaska Airlines from 1979 to 1991, Chief Executive
Officer from 1979 to 1990 and President from 1978 to 1990. He serves on the
board of directors of Horizon Air and of the ARIS Corporation, a Seattle-based
company that provides information technology services. Mr. Kennedy's term
expires in the year 2000.
R. MARC LANGLAND
Mr. Langland, age 57, has been a director since 1991. He is a member of the
Company's Compensation Committee and Chairman of the Audit Committee. He has
been President of Northrim Bank, Anchorage, Alaska, since November 1990 and
Chairman since January 1998. He was Chairman and Chief Executive Officer of Key
Bank of Alaska from 1987 to 1988 and President from 1985 to 1987. He served on
the Board of Trustees of the Alaska Permanent Fund Corporation from February
1987 to January 1991 and was Chairman from June 1990 to January 1991. He is
also a director of Alaska Airlines, Northrim Bank, Usibelli Coal Mine, and
Saltchuk Resources, Inc. Mr. Langland's term expires in 2001.
BYRON I. MALLOTT
Mr. Mallott, age 55, has been a director since 1982 and serves on the Company's
Audit Committee. He is the executive director (chief executive officer) of the
Alaska Permanent Fund Corporation, a trust managing proceeds from the state of
Alaska's oil revenues. In January 1999, he was appointed to the Board of
Directors of the 12th Federal Reserve District, Federal Reserve Bank in San
Francisco. He was a director of Sealaska Corporation, Juneau, Alaska, from 1972
to 1988; Chairman from 1976 to 1983; and Chief Executive Officer from 1982 to
1992. He owns Mallott Enterprises (personal investments) and is a director of
Horizon Air. Mr. Mallot's term expires in 2002.
JOHN V. RINDLAUB
Mr. Rindlaub, age 54, has been a director since 1996 and serves on the Company's
Audit Committee. He is Chairman of Seafirst Bank, a post he has held since
1993, and President, Bank of America, Northwest, which includes responsibility
for Washington, Oregon, Idaho and Alaska. Prior to his position at Seafirst,
Mr. Rindlaub served as Group Executive Vice President/Asia Division for Bank
America and as a managing director for Bankers Trust Company New York,
Investment Banking Group. He is also a director of Horizon Air and of 12th
Federal Reserve District, Federal Reserve Bank of San Francisco. Mr. Rindlaub's
term expires in 2001.
PATRICIA Q. STONESIFER
Ms. Stonesifer, age 42, was appointed a director of the Company in July 1998 and
serves on the Audit Committee. She is President and Chairman of Gates Learning
Foundation, Redmond, Washington, which helps provide computer technology to
schools, libraries and other public entities. In 1997, Ms. Stonesifer served as
a technology consultant to Dreamworks SKG. From 1988 to 1997 she held various
positions at Microsoft, Inc., most recently serving as senior vice president of
Microsoft's Interactive Media Division. Ms. Stonesifer currently serves on the
boards of Alaska Airlines, Amazon.com, inc., Kinko's, Inc. and the Fund for
America's Libraries. Ms. Stonesifer's term expires in 2002.
RICHARD A. WIEN
Mr. Wien, age 63, has been a director since 1982 and serves on the Company's
Compensation and Audit Committees. He played an active role in the management of
Wien Airlines until 1969, when he was elected President of Merric, Inc., an
Alaska helicopter contract and charter service company. After Merric merged with
Era Aviation in 1973, Mr. Wien served as Era's Executive Vice President until
1981. He has been Chairman and Chief Executive Officer of Florcraft, Inc.
(retail flooring), Fairbanks and Anchorage, Alaska, since 1986. He is also a
director of Horizon Air, National Bank of Alaska and Usibelli Coal Mine. Mr.
Wien's term expires in 2002.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
We do not pay directors who are also employees of the Company additional
compensation for their service as directors, except for the reimbursement of
expenses incurred in attending meetings. In 1998, compensation for nonemployee
directors included the following:
. an annual retainer of $20,000, with a minimum of 25% of the retainer paid
in the form of Alaska Air Group common stock issued under the Company's
Nonemployee Director Stock Plan;
. $1,200 for each Board or Committee meeting in which a nonemployee
director participates in person, but no more than one payment per day. If
participation is via telephone, the fee is $750;
. an annual retainer of $2,000 to committee chairpersons;
. an annual retainer of $1,000 to nonemployee directors who served on the
board of Alaska Airlines or Horizon Air; and
. expenses in connection with attending Board and committee meetings.
In addition, directors, their spouses and their dependent children are eligible
for complimentary travel privileges on Alaska Airlines and Horizon Air.
EXECUTIVE COMPENSATION
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 1998, the Compensation Committee of the Company's Board of Directors
consisted of Mr. Parker, Mrs. Fate, Mr. Langland and Mr. Wien. No member of the
Committee was an employee of the Company of any of its subsidiaries. Each
member meets the definition of "nonemployee director" under Rule 16b-3 of the
Securities Exchange Act of 1934 and is an "outside director" within the meaning
of Section 162(m) of the Internal Revenue Code.
The Committee has overall responsibility for the Company's executive
compensation policies and practices. In part, the Committee's functions
include:
. determining the compensation of the Chief Executive Officer of the Company;
. upon recommendation of the Chief Executive Officer, reviewing and approving
all executive officers' compensation, including salary and payments under the
Management Incentive Plan; and
. granting awards under stock incentive plans.
The Committee has provided the following report on the compensation policies of
the Company as they apply to its executive officers and the relationship of
Company performance to executive compensation and the Chief Executive Officer's
compensation.
EXECUTIVE COMPENSATION POLICY
The Company's policy is to pay competitive compensation. The objectives of the
Company's executive compensation policies are:
. to attract and retain highly qualified executives;
. to motivate officers to provide excellent leadership and achieve Company
goals;
. to link the interests of executives and stockholders by tying a large portion
of total compensation to Company profitability and stock value; and
. to reward outstanding performance.
Executive compensation includes competitive base salary, a cash incentive plan
tied to annual financial performance, equity-based awards and retirement
benefits.
ANNUAL BASE SALARY
1998 base salaries for executive officers are based on:
. subjective analysis of competitive market rates,
. the market demand for each executive officer's skills,
. the executive's influence on long-term Company strategies and success,
. the relationships among executive positions, and
. individual leadership performance.
To ensure that its overall compensation is appropriate, the Company periodically
reviews executive compensation for companies included in the Dow Jones Airlines
Group contained in the Performance Graph, other air carriers and similarly sized
Pacific Northwest companies and from companies in broad-based national
compensation surveys. In addition, it periodically retains the services of
outside compensation specialists. The Company does not attempt to set executive
compensation at specific target ranges of any particular survey. In 1998,
executive officers other than the CEO received increases averaging 4.7%.
MANAGEMENT INCENTIVE PLAN
Air Group's Management Incentive Plan ("MIP") places at risk a significant
portion of each executive's potential cash compensation, linking it to annual
profitability.
For awards to be paid, the Company must achieve or exceed profit goals
established annually by the Compensation Committee. In recent years, MIP goals
have been based on return-on-equity levels as determined by the Compensation
Committee each year. Beginning in 1999, the Committee has based MIP goals on
reaching return-on-invested capital targets and the Company's net earnings
growth as compared to that of peer companies. Awards increase proportionately
based on the degree to which goals are met. Through 1998, awards could range up
to 45% of executive officers' base salaries if the target was met, and up to 90%
of base salaries if profits reached the maximum goal. Beginning in 1999, awards
can range up to 50% of base pay if target goals are met, and up to 100% if the
maximum goal is reached. Award levels vary by position and can also be adjusted
for individual performance.
For 1998, payments made to the named executives shown in the Summary
Compensation Table were based on profits that exceeded the maximum goal.
For the executives in the Summary Compensation Table, the percentages of total
potential cash compensation linked to performance under the MIP in 1998 were:
. Mr. Kelly -- 47%,
. Mr. Ayer -- 41%,
. Mr. Bagley -- 41%,
. Mr. Lehr -- 38%, and
. Mr. Fowler -- 38%.
EQUITY-BASED AWARDS
Although the 1996 Long-Term Incentive Equity Plan provides for a variety of
equity-based awards, options and restricted stock awards are the only equity-
based compensation presently in use by the Company. They provide an incentive
to maximize stock values, linking the long-term interests of executives with
those of stockholders. Because the awards vest over several years, they
encourage executives to remain with the Company. The Committee grants options
at market price, so recipients benefit only if the price of the stock
appreciates and stockholders also benefit.
The Committee does not base grants on ownership targets or on the number of
options an individual has outstanding, because it believes doing so would
discourage officers from retaining options or shares. Individual grants are
determined according to base salary and position. The options granted to each
of the named executive officers in 1998 are shown in the tables on pages 7 and
8.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
Base Salary -- In setting the CEO's base salary, the Committee reviews
competitive information similar to that used for other Company executives and
periodically retains the services of an outside consultant. The Committee does
not target a specific range of competitive pay, but applies the information as
it deems appropriate. By reviewing survey data periodically, the Committee
believes it will remain mindful of compensation levels that would be required to
recruit from outside the Company.
The Board of Directors conducts an annual evaluation of the CEO's performance
based on:
. the Company's financial performance,
. the CEO's relationship with the Board,
. communication to the Board and other Company constituencies,
. investor relations,
. overall leadership, and
. strategic and succession planning.
The Committee believes that Mr. Kelly's leadership has contributed significantly
to the Company's following achievements during 1998:
Profitability -- The Company earned record net income of $124.4 million far
exceeding 1997's record of $72.4 million.
Pretax Income Margin -- Air Group's margin of 10.8% exceeded its 1988 record of
7.7%. Horizon and Alaska Airlines also set records of 5.4% and 12.2%,
respectively.
Stock Price -- The average daily closing price of the Company's common stock
during 1998 increased 66% over last year's average to $46.01 per share. In April
1998, the stock hit an all-time high of $62.5625.
Average Return on Equity was 19.7%, the best return since 1984. Return on
beginning equity was 26.2%, a near repeat of last year's return. To put this
into perspective, the Company's equity grew from $272.5 million in 1996 to
$475.3 million in 1997 to $789.5 million in 1998.
Earnings per Share increased 36% over 1997 from $3.53 to $4.81 (diluted). This
follows 1997's 72% increase.
Debt/Equity Ratio improved from 46:54 at year end 1997 to 18:82 in 1998. If you
factor in operating leases, the ratio improved from 79:21 to 67:33.
Cost -- Alaska Airlines' unit costs declined 4% from 1997 levels -- the largest
improvement of the major U.S. airlines.
Operating Margin -- Alaska Airlines' operating margin improvement was the best
among the major U.S. airlines.
In 1998, the Committee set Mr. Kelly's salary at $500,000 for two years;
therefore his salary will not increase in 1999 in spite of the Company's record-
breaking performance.
Management Incentive Plan
The MIP award is the portion of the CEO's compensation that most directly
relates to the Company's financial performance. Under the plan in effect during
1998, the CEO's award could range from zero to 45% of base salary if the profit
target was met, up to a maximum of 90% if profits reached the maximum goal. The
profit measurements on which Mr. Kelly's 1998 MIP award was based were identical
to those detailed on page 21 for all participants in the MIP. Mr. Kelly's 1998
MIP payment was $443,942.
Stock Options
In 1998, Mr. Kelly was granted a total of 57,300 stock options under the
Company's equity plans, based on the criteria outlined earlier for option grants
to executive officers in general. The Committee believes that having a
significant amount of compensation tied to stock performance further aligns the
CEO's interests with those of the Company's stockholders.
OTHER INFORMATION
Tax Law Limits on Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code eliminates the Company's ability to
deduct certain compensation over $1 million paid to the named executive officers
unless such compensation is based on performance objectives meeting certain
criteria or is otherwise excluded from the limitation. The Company intends to
qualify a sufficient amount of compensation to its executive officers so that
Section 162(m) will not materially affect the Company in an adverse way.
Compensation from the exercise of options granted to date under the Company's
stock option and equity plans qualifies for the deduction.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Robert L. Parker, Jr., Chairperson
Mary Jane Fate, Committee Member
R. Marc Langland, Committee Member
Richard A. Wien, Committee Member
PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total returns for
the Company's common stock, the Standard & Poor's 500 Index, and the Dow Jones
Airlines Group, assuming an initial investment of $100 on December 31, 1993 with
all dividends reinvested.
<TABLE>
<CAPTION>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[PERFORMANCE GRAPH APPEARS HERE]
ALASKA DOW JONES
DATE AIR GROUP S&P 500 AIRLINES*
<S> <C> <C> <C>
1993 $100.00 $100.00 $100.00
1994 106.19 101.32 69.97
1995 115.04 139.39 105.83
1996 148.67 171.40 121.98
1997 274.34 228.59 193.54
1998 313.27 293.91 170.33
</TABLE>
Information presented is as of fiscal years ended December 31.
* The companies included in the Dow Jones Airlines Group are: AMR, Southwest
Airlines, UAL, Delta Air Lines, US Airways and Northwest Airlines.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
This table shows compensation information for the Company's Chief Executive
Officer and the four other most highly paid executive officers for the last
three fiscal years. Bonus figures are based on performance in the year shown
but paid in the following year.
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
- ---------------------------------------------------------------------------------------
ALL
SECURITIES OTHER
UNDERLYING COMPEN-
NAME AND SALARY BONUS OPTIONS SATION(1)
PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- --------------------------- ---- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
John F. Kelly 1998 493,269 443,942 57,300 10,760
Chairman & CEO 1997 434,615 391,154 38,900 10,510
(Alaska) 1996 376,923 339,231 206,300(2) 10,473
William S. Ayer 1998 305,769 212,692 24,100 6,787
President 1997 224,804 138,056 17,600 6,012
(Alaska) 1996 170,746 102,448 10,800 29,939
Harry G. Lehr 1998 253,569 152,142 11,300 11,588
Senior Vice President/ 1997 236,077 141,646 9,100 11,663
Finance (Alaska) 1996 231,231 138,738 14,600 10,990
George D. Bagley 1998 235,923 165,146 15,800 11,632
President & CEO 1997 217,269 152,088 10,600 11,132
(Horizon) 1996 207,308 145,115 16,400 11,132
John R. Fowler 1998 248,003 148,802 14,300 8,632
Executive Vice President/ 1997 213,769 128,262 8,300 8,425
Technical Operations & 1996 186,231 111,738 11,800 6,694
System Controls (Alaska)
</TABLE>
(1) Represents Company-paid contributions to individual 40l(k) plan accounts and
imputed income for the value (as determined by the Internal Revenue Service
("IRS")) of a term life insurance benefit provided by the Company. In 1998,
401(k) contributions were: $5,000 each for Messrs. Kelly, Ayer, and Lehr;
$10,000 for Mr. Bagley and $4,500 for Mr. Fowler. Imputed income for term
life insurance during 1998 was: Mr. Kelly $5,760; Mr. Ayer $1,787; Mr.
Lehr $6,588; Mr. Bagley $1,632 and Mr. Fowler $4,132.
(2) Includes a special grant of 150,000 options awarded to Mr. Kelly in 1996.
STOCK OPTIONS GRANTED
- --------------------------------------------------------------------------------
This table shows the stock options granted to the named executive officers
during the last fiscal year.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN 1998
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF
UNDERLYING GRANTED TO EXERCISE STOCK PRICE
OPTIONS EMPLOYEES OR BASE APPRECIATE FOR
GRANTED(1) IN FISCAL YEAR PRICE(2) EXPIRATION OPTION TERM(3)
NAME (#) (%) ($/SH) DATE 5% ($) 10% ($)
- ------------------------- ---------- -------------- -------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
John F. Kelly 57,300 17.6 47.125 5/7/2008 1,698,181 4,303,523
William S. Ayer 24,100 7.4 47.125 5/7/2008 714,243 1,810,033
Harry G. Lehr 11,300 3.4 47.125 5/7/2008 334,894 848,688
George D. Bagley 15,800 4.8 47.125 5/7/2008 468,259 1,186,661
John R. Fowler 14,300 4.4 47.125 5/7/2008 423,804 1,074,003
</TABLE>
(1) These options were granted under the 1996 Long-Term Incentive Equity Plan.
They are:
. generally were granted as incentive stock options, subject to
limitations imposed by tax law,
. were granted at an exercise price equal to 100% of the fair market value
of the common stock on the date of grant,
. expire ten years from the date of grant, unless canceled earlier as a
result of termination of employment,
. vest in 25% increments on each anniversary date of the grant, subject to
the terms and conditions of the 1996 Long-Term Incentive Equity Plan,
and
. provide for accelerated vesting under certain circumstances, as
described under "Change-in-Control Arrangements" on page 31.
(2) Options were granted at the closing price on May 7, 1998, as reported on
the New York Stock Exchange.
(3) We are required by the Securities and Exchange Commission to use a 5% and
10% assumed rate of appreciation over the ten-year option term. This does
not represent the Company's estimate or projection of the future common
stock price. If the Company's common stock does not appreciate, these
executives will receive no benefit from the options.
STOCK OPTIONS EXERCISED
- --------------------------------------------------------------------------------
This table shows stock option exercises and the value of unexercised stock
options held by the named executive officers during the last fiscal year.
AGGREGATED OPTION EXERCISES IN 1998
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES ACQUIRED VALUE FISCAL YEAR END FISCAL YEAR END(2)
NAME ON EXERCISE REALIZED(1) (#) ($)
(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John F. Kelly 37,150 1,038,550 66,325 199,075 1,310,947 2,695,009
William S. Ayer 4,500 159,155 25,125 46,575 596,675 353,400
Harry G. Lehr 11,825 348,874 5,750 31,850 119,947 413,259
George D. Bagley 4,825 155,836 11,950 37,150 267,303 408,278
John R. Fowler 16,875 507,852 7,425 31,575 156,691 339,153
</TABLE>
(1) These values are calculated by:
. subtracting the option exercise price from the market price on the date
of exercise, and
. multiplying that by the number of options exercised.
(2) These values are calculated by:
. subtracting the option exercise price from the Company's December 31,
1998 closing price ($44.25 per share, as reported on the New York Stock
Exchange), and
. multiplying that by the number of exercisable and unexercisable options.
There is no assurance that the indicated values of any unexercised options
will actually be realized.
RETIREMENT BENEFITS
SALARIED RETIREMENT PLAN
The Company maintains a tax-qualified, defined benefit retirement plan for all
salaried Alaska Airlines employees. Benefits payable under the Alaska Airlines
Salaried Retirement Plan ("Salaried Retirement Plan") are based on years of
credited service and final average earnings for the five highest complete and
consecutive calendar years of an employee's last ten years of service. The
annual retirement benefit at age 62 (normal retirement age under the Salaried
Retirement Plan) is equal to 2% of the employee's final average earnings times
years of credited service. Annual benefits are computed on a straight life
annuity basis at normal retirement age. Benefits under the Salaried Retirement
Plan are not subject to offset for Social Security Benefits.
The following table shows estimated Salaried Retirement Plan annual benefits
payable to an employee, assuming retirement on January 1, 1999, at age 62, with
various combinations of final average earnings and years of credited service.
These estimates represent the straight life annuity benefit for an individual
who retires at normal retirement age.
<TABLE>
<CAPTION>
FINAL AVERAGE
EARNINGS ANNUAL BENEFITS BASED ON YEARS OF CREDITED SERVICE*
15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$175,000 $ 52,500 $ 70,000 $ 87,500 $105,000 $122,500
$225,000 67,500 90,000 112,500 135,000 157,500
$300,000 90,000 120,000 150,000 180,000 210,000
$350,000 105,000 140,000 175,000 210,000 245,000
$400,000 120,000 160,000 200,000 240,000 280,000
$450,000 135,000 180,000 225,000 270,000 315,000
$500,000 150,000 200,000 250,000 300,000 350,000
</TABLE>
* IRS regulations limit the annual benefits that may be paid from a tax-
qualified retirement plan. The current limit is $130,000. In addition, IRS
regulations limit the covered compensation on which annual retirement
benefits are based to $160,000 in 1999. To the extent that the amounts shown
in the table above exceed that IRS limitation, the excess is paid from the
Supplementary Plan.
RETIREMENT BENEFITS
All of the participants' base salaries, as shown in the Summary Compensation
Table, excluding bonuses, are covered under the Salaried Retirement Plan and the
Officers Supplementary Retirement Plan. The named executive officers have the
following years of credited service and final average compensation as of
December 31, 1998:
<TABLE>
<CAPTION>
NAMED YEARS OF FINAL AVERAGE
EXECUTIVE CREDITED SERVICE COMPENSATION
<S> <C> <C>
John F. Kelly 21.3(2) $365,073
William S. Ayer 3.3 $225,050
Harry G. Lehr 11.1 $220,952
George D. Bagley(1) 5.1(2) $196,993
John R. Fowler 6.2 $199,631
(1) When Mr. Bagley transferred from Alaska Airlines to Horizon Air in October
1995, he was 100% vested under the Salaried Retirement Plan. Horizon Air
does not have a similar plan, but will supplement his benefits to ensure
that his retirement benefit will be equivalent to what he would have
received had he continued with Alaska Airlines.
(2) Reflects combined service at Alaska Airlines and Horizon Air since becoming
eligible for the Salaried Retirement Plan.
</TABLE>
Officers Supplementary Retirement Plan
In addition to the benefits described above, under the Officers Supplementary
Retirement Plan ("Supplementary Plan"), elected officers of Air Group and Alaska
Airlines and Horizon Air's Chief Executive Officer can receive retirement
benefits, provided they have met service requirements. The Supplementary Plan
is a nonqualified, unfunded, noncontributory defined benefit plan. Normal
retirement benefits are payable once the officer reaches age 60 and has ten
years of service as an elected officer. Annual benefits are calculated on a
straight life annuity basis. Under the version of the Supplementary Plan
applicable to officers elected prior to August 8, 1995, benefits can be up to
50% of a participant's final average earnings, offset by Social Security
benefits. Under the version of the Supplementary Plan applicable to officers
elected on or after August 8, 1995, benefits can range from 50% to 75% of a
participant's final average earnings, offset by benefits from Company-sponsored
qualified retirement plans and by Social Security benefits. Benefits under all
versions of the Supplementary Plan are subject to vesting schedules that are
dependent on the officer's length of service.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
This table shows how much Company common stock is owned by directors, the
individuals named in the Summary Compensation Table on page 26, all executive
officers as a group, and owners of more than 5% of the Company's outstanding
common stock. Holdings are as of March 19, 1999, except for 401(k) plan shares,
which are as of December 31, 1998.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED
NUMBER PERCENT OF
OF SHARES OUTSTANDING
NAME OWNED(1) SHARES
<S> <C> <C>
The Equitable Group(2) 2,707,800 10.3%
William S. Ayer 34,324 *
George D. Bagley 8,155 *
Ronald F. Cosgrave 7,272 *
Mary Jane Fate(3) 387 *
John R. Fowler 17,543 *
John F. Kelly 58,845 *
Bruce R. Kennedy 13,557 *
R. Marc Langland 1,472 *
Harry G. Lehr 4,061 *
Byron I. Mallott 708 *
Robert L. Parker Jr. 809 *
John V. Rindlaub 3,597 *
Patricia Q. Stonesifer 1,578 *
Richard A. Wien 1,814 *
Directors and Executive Officers 235,605 .89%
as a group
(27 persons)(4)
</TABLE>
* Less than 1%.
(1) Includes shares that the named person:
. may vote or invest alone,
. shares voting and investment power with his or her spouse, or
. holds in one of the Company's 401(k) plans,
. may acquire through stock option exercises through June 1, 1999.
(2) Number of shares owned is based on information contained in a report on
Schedule 13-G filed by The Equitable Group with the Securities and Exchange
Commission on or about February 15, 1999. The address of The Equitable
Group is 1290 Avenue of the Americas, New York, NY 10104.
(3) Does not include 1,546 shares registered in the name of her husband. Mrs.
Fate disclaims beneficial ownership of those shares.
(4) Includes 1,800 shares subject to a vesting schedule, forfeiture risk and
other restrictions.
Change-in-Control Arrangements
The Boards of Directors of Alaska Air Group and Alaska Airlines have adopted
resolutions providing severance pay to all executive officers and certain other
key employees in the event they are terminated within 24 months after a change
in control of the Company. The formula provides for payments equaling from 12
to 24 months' salary, depending on length of service and the time elapsed
between a takeover and termination. Because of these and other variables to be
determined at the time of distribution, the value of this benefit cannot be
determined at this time.
Some Company benefit plans provide for accelerated vesting in the case of a
change in control. Under the Supplementary Plan applicable to officers elected
prior to August 8, 1995, after a change in control, benefits become vested at
the rate of 10% per year of a participant's service as an elected officer.
Under the Supplementary Plan applicable to officers elected on or after August
8, 1995, benefits become fully vested upon a change in control. The benefit
after a change in control is equal to 10% of final average earnings for each
year of service as an elected officer up to and including the fifth year. For
officers having five or more years of service as an elected officer, the benefit
amount ranges from 50% to 75% of final average earnings, depending on length of
service. Under all versions, the benefit remains subject to applicable offsets.
The Supplementary Plan provides that, after a change in control, benefits will
not be forfeited if an individual is terminated (other than for dishonesty or
criminal acts) or is later employed by a competitor. The value of this
provision to the named executives cannot be determined at this time as the
amount depends on a number of variables to be determined at the time of any
change in control.
Upon a change in control of the Company, outstanding options under the Company's
equity plans become fully exercisable unless the Board of Directors determines
otherwise.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this amendment on Form 10-K/A to its
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
ALASKA AIR GROUP, INC.
By: /s/ John F. Kelly Date: June 1, 1999
John F. Kelly,
Chairman, Chief Executive Officer and President
