Alaska Air Group Reports Third Quarter Results
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Alaska Air Group, Inc. today reported a third quarter net loss of $17.4 million, or $0.44 per diluted share, compared to net income of $90.2 million, or $2.71 per diluted share, in the third...
Alaska Air Group, Inc.
"The quarter’s adjusted net profit reflects the hard work of employees across our system and the progress we are making on our plan," said Bill Ayer, chairman and chief executive officer. "However, slower unit revenue growth toward the end of the quarter underscores the need to continue to reduce costs and improve processes in order to offer our customers a product they prefer at a price they are willing to pay."
In previous quarters, Alaska Air Group excluded from adjusted earnings its mark-to-market fuel hedging gains related to contracts that settle in future quarters. Consistent with that practice, the company excluded from the current quarter’s adjusted results the mark-to-market fuel hedging losses that settle in future quarters. While the recent decline in fuel prices has caused the value of the portfolio to decline, it is still in the money. The fuel hedging program saved the company approximately $27.4 million in economic fuel expense during the third quarter.
During the quarter, the company accrued an additional $1.7 million for Horizon Air employees and $3.3 million for Alaska Airlines employees in connection with various gain-sharing plans, for a year-to-date total accrual of approximately $24 million.
In addition, Alaska Airlines contributed $72 million to its defined benefit plans during 2006, and $265 million since Sept. 11, 2001.
Alaska Airlines’ passenger traffic in the third quarter increased 6.0 percent on a capacity increase of 5.6 percent. Alaska’s load factor increased 0.2 percentage points to 79.2 percent, compared to the same period in 2005. Alaska’s operating revenue per available seat mile (ASM) increased 4.4 percent, while its operating cost per ASM excluding fuel and the items noted above decreased 2.7 percent. Alaska’s pretax loss for the quarter was $27.9 million, compared to pretax income of $133.0 million in 2005. Again, excluding the items noted above, Alaska would have reported pretax income of $115.3 million for the quarter, compared to $106.0 million in the third quarter of 2005.
Horizon Air’s passenger traffic in the third quarter increased 5.7 percent on a 4.4 percent capacity increase. Horizon’s load factor increased by 0.9 percentage points to 75.9 percent, compared to the same period in 2005. Horizon’s operating revenue per ASM increased 9.9 percent, and its operating cost per ASM excluding fuel increased 8.4 percent. Horizon’s pretax income for the quarter was $5.9 million, compared to $17.3 million in 2005. Excluding the mark-to-market fuel hedge adjustments, Horizon’s pretax income would have been $15.1 million for the quarter, compared to $14.4 million in the third quarter of 2005.
Alaska Air Group had cash and short-term investments at Sept. 30, 2006, of approximately $1.1 billion compared to $983 million at Dec. 31, 2005. The company’s debt-to-capital ratio, assuming aircraft operating leases are capitalized at seven times annualized rent, was 69 percent as of Sept. 30, 2006, compared to 73 percent as of Dec. 31, 2005. The decrease from Dec. 31, 2005, is primarily due to the conversion to equity of the company’s senior convertible notes in April 2006, offset by the $41.0 million net loss for the nine months and an increase in the company’s outstanding debt resulting from new aircraft financings.
A summary of financial and statistical data for Alaska Airlines and Horizon Air, as well as a reconciliation of the reported non-GAAP financial measures, can be found on pages 6 through 10.
A conference call regarding the third quarter 2006 results will be simulcast via the Internet at 8:30 a.m. Pacific time on Oct. 24, 2006. It can be accessed through the company’s Web site at alaskaair.com. For those unable to listen to the live broadcast, a replay will be available after the conclusion of the call at alaskaair.com.
References in this report to "Air Group," "Company," "we," "us," and "our" refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified. Alaska Airlines, Inc. and Horizon Air Industries, Inc. are referred to as "Alaska" and "Horizon," respectively, and together as our "airlines."
This report contains forward-looking statements that are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or our future financial performance and involve known and unknown risks and uncertainties that may cause our actual results or performance to be materially different from those indicated by any forward-looking statements. In some cases, you can identify forward- looking statements by terminology such as "forecast," "may," "will," "could," "should," "expect," "plan," "believe," "potential" or other similar words indicating future events or contingencies. Some of the things that could cause our actual results to differ from our expectations are: the competitive environment and other trends in our industry; changes in our operating costs including fuel, which can be volatile; our ability to meet our cost reduction goals; our inability to achieve or maintain profitability and fluctuations in our quarterly results; our significant indebtedness; the implementation of our growth strategy; the timing of the MD-80 fleet disposal, and the amounts of potential lease termination payments with lessors and sublease payments from sub lessees; compliance with our financial covenants; potential downgrades of our credit ratings and the availability of financing; the concentration of our revenue from a few key markets; general economic conditions, as well as economic conditions in the geographic regions we serve; actual or threatened terrorist attacks; global instability and potential U.S. military actions or activities; insurance costs; labor disputes; our ability to attract and retain qualified personnel; an aircraft accident or incident; liability and other claims asserted against us; operational disruptions; increases in government fees and taxes; changes in laws and regulations; our reliance on automated systems; and our reliance on third-party vendors and partners. For a discussion of these and other risk factors, see Item 1A of the Company’s Annual Report on Form 10-K for the year ended Dec. 31, 2005, and Item 1A of the Company’s Quarterly Report on Form 10-Q for the three and six months ended June 30, 2006. All of the forward- looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or events described in any forward-looking statements. We disclaim any obligation to publicly update or revise any forward-looking statements after the date of this press release to conform them to actual results.
Alaska Airlines and sister carrier, Horizon Air, together serve 88 cities through an expansive network throughout Alaska, the Lower 48, Canada and Mexico. For reservations visit alaskaair.com. For more news and information, visit the Alaska Airlines/Horizon Air Newsroom at alaskaair.com/newsroom .
ALASKA AIR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In Millions Except Per Share Amounts)
Three Months Nine Months
Ended September 30 Ended September 30
2006 2005 2006 2005
Operating Revenues:
Passenger $871.5 $777.4 $2,358.4 2,061.9
Freight and mail 26.7 26.1 74.8 71.3
Other - net 37.5 42.2 110.9 111.5
Total Operating Revenues 935.7 845.7 2,544.1 2,244.7
Operating Expenses:
Wages and benefits 238.6 218.1 696.2 683.0
Variable incentive pay 5.0 3.4 24.1 10.5
Contracted services 37.6 30.8 114.3 96.2
Aircraft fuel, including
hedging gains and losses 290.8 141.2 653.7 327.4
Aircraft maintenance 49.6 55.2 168.6 174.6
Aircraft rent 43.9 46.9 136.6 140.0
Food and beverage service 13.5 13.7 38.3 37.9
Selling expenses 44.7 45.9 132.6 123.8
Depreciation and amortization 40.5 36.3 114.1 105.8
Landing fees and other rentals 52.9 50.8 152.4 152.2
Other 55.6 51.7 160.4 155.6
Fleet transition costs 58.4 -- 189.5 --
Restructuring charges
and adjustments 28.6 (1.4) 32.4 20.7
Total Operating Expenses 959.7 692.6 2,613.2 2,027.7
Operating Income (Loss) (24.0) 153.1 (69.1) 217.0
Nonoperating Income (Expense):
Interest income 14.2 8.6 39.4 21.6
Interest expense (20.4) (16.1) (57.6) (45.5)
Interest capitalized 7.1 2.8 17.6 4.9
Other - net 0.2 (1.6) (1.5) (4.5)
1.1 (6.3) (2.1) (23.5)
Income (loss) before income tax
and accounting change (22.9) 146.8 (71.2) 193.5
Income tax expense (benefit) (5.5) 56.6 (30.2) 76.0
Income (loss) before
accounting change $(17.4) $90.2 $(41.0) $117.5
Cumulative effect of
accounting change, net of tax -- -- -- (90.4)
Net Income (Loss) $(17.4) $90.2 $(41.0) $27.1
Basic Earnings (Loss) Per Share:
Income (loss) before
accounting change $(0.44) $3.28 $(1.10) $4.31
Cumulative effect
of accounting change NA NA NA (3.32)
Net Income (Loss) Per Share $(0.44) $3.28 $(1.10) $0.99
Diluted Earnings (Loss) Per Share:
Income (loss) before
accounting change $(0.44) $2.71 $(1.10) $3.62
Cumulative effect
of accounting change NA NA NA (2.69)
Net Income (Loss) Per Share $(0.44) $2.71 $(1.10) $0.93
Shares Used for Computation:
Basic 39.954 27.502 37.172 27.274
Diluted 39.954 33.857 37.172 33.523
Alaska Air Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
September 30, December 31,
(In Millions) 2006 2005
Cash and marketable securities $1,108 $983
Total current assets $1,697 $1,540
Property and equipment-net 2,251 2,032
Other assets 192 220
Total assets $4,140 $3,792
Current liabilities $1,380 $1,165
Long-term debt 946 969
Other liabilities and credits 849 830
Shareholders' equity 965 828
Total liabilities and shareholders' equity $4,140 $3,792
Alaska Airlines Financial and Statistical Data
Three Months Ended Nine Months Ended
September 30 September 30
% %
2006 2005 Change 2006 2005 Change
Financial Data (in millions):
Operating Revenues:
Passenger $698.4 $624.1 11.9 $1,882.5 $1,656.6 13.6
Freight and mail 25.7 25.2 2.0 71.8 68.4 5.0
Other - net 35.8 40.0 (10.5) 106.0 103.9 2.0
Total
Operating Revenues 759.9 689.3 10.2 2,060.3 1,828.9 12.7
Operating Expenses:
Wages and benefits 190.3 171.7 10.8 552.9 548.7 0.8
Variable incentive pay 3.3 2.8 17.9 17.3 7.5 130.7
Contracted services 32.3 27.6 17.0 98.4 87.0 13.1
Aircraft fuel,
including hedging
gains and losses 251.5 121.8 106.5 567.2 283.6 100.0
Aircraft maintenance 32.4 43.2 (25.0) 118.6 143.5 (17.4)
Aircraft rent 26.4 29.5 (10.5) 84.6 87.2 (3.0)
Food and
beverage service 12.6 13.0 (3.1) 36.1 36.0 0.3
Selling expenses 36.8 35.6 3.4 110.0 102.2 7.6
Depreciation
and amortization 35.2 31.9 10.3 99.6 92.9 7.2
Landing fees
and other rentals 40.5 38.8 4.4 117.9 117.2 0.6
Other 40.8 39.6 3.0 118.4 118.9 (0.4)
Fleet transition costs 58.4 -- NM 189.5 -- NM
Restructuring charges
and adjustments 28.6 (1.4) NM 32.4 20.7 NM
Total
Operating Expenses 789.1 554.1 42.4 2,142.9 1,645.4 30.2
Operating
Income (Loss) (29.2) 135.2 NM (82.6) 183.5 NM
Interest income 14.6 9.2 41.2 23.1
Interest expense (19.9) (13.0) (53.5) (36.9)
Interest capitalized 6.1 2.6 15.5 4.5
Other - net 0.5 (1.0) (0.7) (3.7)
1.3 (2.2) 2.5 (13.0)
Income (Loss) Before
Income Tax and
Accounting Change $(27.9) $133.0 NM $(80.1) $170.5 NM
Operating Statistics:
Revenue
passengers (000) 4,710 4,632 1.7 13,058 12,715 2.7
RPMs (000,000)
"traffic" 4,873 4,598 6.0 13,579 12,812 6.0
ASMs (000,000)
"capacity" 6,150 5,822 5.6 17,523 16,735 4.7
Passenger load factor 79.2% 79.0% 0.2pts 77.5% 76.6% 0.9pts
Yield per
passenger mile
(in cents) 14.33 13.57 5.6 13.86 12.93 7.2
Operating revenue
per ASM
(in cents) 12.36 11.84 4.4 11.76 10.93 7.6
Operating expenses
per ASM
(in cents) (a) 12.83 9.52 34.8 12.23 9.83 24.4
Operating expense
per ASM excluding
fuel, fleet transition
costs, and restructuring
charges and adjustments
(in cents) (a) 7.33 7.53 (2.7) 7.73 8.04 (3.9)
GAAP fuel
cost per gallon (a) $2.68 $1.34 100.3 $2.12 $1.08 96.7
Economic fuel
cost per gallon (a) $2.08 $1.56 33.5 $1.90 $1.46 29.7
Fuel gallons (000,000) 93.9 90.4 3.9 267.2 260.8 2.5
Average number of
full-time
equivalent employees 9,467 8,961 5.6 9,267 9,108 1.7
Aircraft utilization
(blk hrs/day) 11.4 10.9 4.6 11.1 10.8 2.8
Average aircraft
stage length (miles) 920 887 3.7 921 895 2.9
Operating fleet
at period-end 112 110 1.8 112 110 1.8
NM = Not Meaningful
(a) See Note A.
Horizon Air Financial and Statistical Data
Three Months Ended Nine Months Ended
September 30 September 30
% %
2006 2005 Change 2006 2005 Change
Financial Data (in millions):
Operating Revenues:
Passenger $173.9 $151.2 15.0 $478.1 $405.8 17.8
Freight and mail 1.0 1.0 0.0 3.0 2.9 3.4
Other - net 1.4 1.5 (6.7) 4.1 6.8 (39.7)
Total Operating
Revenues 176.3 153.7 14.7 485.2 415.5 16.8
Operating Expenses:
Wages and benefits 47.3 44.7 5.8 140.3 128.6 9.1
Variable incentive pay 1.7 0.6 183.3 6.8 3.0 126.7
Contracted services 6.7 6.1 9.8 20.1 17.7 13.6
Aircraft fuel,
including hedging
gains and losses 39.3 19.4 102.6 86.5 43.8 97.5
Aircraft maintenance 17.2 11.9 44.5 50.0 31.1 60.8
Aircraft rent 17.5 17.5 0.0 52.0 52.8 (1.5)
Food and
beverage service 0.9 0.7 28.6 2.2 1.9 15.8
Selling expenses 8.8 8.1 8.6 25.2 22.1 14.0
Depreciation
and amortization 4.9 4.1 19.5 13.6 12.0 13.3
Landing fees
and other rentals 12.7 12.2 4.1 35.3 35.7 (1.1)
Other 13.6 10.1 34.7 37.0 31.0 19.4
Total
Operating Expenses 170.6 135.4 26.0 469.0 379.7 23.5
Operating Income 5.7 18.3 NM 16.2 35.8 NM
Interest income 1.0 0.3 2.7 1.0
Interest expense (1.8) (1.6) (5.8) (4.3)
Interest capitalized 1.0 0.2 2.1 0.4
Other - net -- 0.1 -- 0.1
0.2 (1.0) (1.0) (2.8)
Income Before
Income Tax and
Accounting Change $5.9 $17.3 NM $15.2 $33.0 NM
Operating Statistics:
Revenue
passengers (000) 1,832 1,755 4.4 5,171 4,868 6.2
RPMs (000,000)
"traffic" 722 683 5.7 2,032 1,843 10.3
ASMs (000,000)
"capacity" 951 911 4.4 2,729 2,542 7.4
Passenger load factor 75.9% 75.0% 0.9pts 74.5% 72.5% 2.0pts
Yield per
passenger mile
(in cents) 24.09 22.14 8.8 23.53 22.02 6.9
Operating revenue
per ASM
(in cents) 18.54 16.87 9.9 17.78 16.35 8.8
Operating expenses
per ASM
(in cents)(a) 17.94 14.86 20.7 17.19 14.94 15.1
Operating expense
per ASM excluding fuel
(in cents) (a) 13.81 12.73 8.4 14.02 13.21 6.1
GAAP fuel
cost per gallon (a) $2.71 $1.41 92.8 $2.13 $1.13 88.6
Economic fuel
cost per gallon (a) $2.08 $1.62 28.3 $1.92 $1.54 24.8
Fuel gallons (000,000) 14.5 13.7 5.8 40.6 38.6 5.2
Average number
of full-time
equivalent employees 3,706 3,508 5.6 3,592 3,428 4.8
Aircraft utilization
(blk hrs/day) 8.8 9.0 (2.2) 8.8 8.6 2.3
Operating fleet
at period-end 69 65 6.2 69 65 6.2
NM = Not Meaningful
(a) See Note A.
Note A:
Pursuant to Item 10 of Regulation S-K, we are providing disclosure of the reconciliation of reported non-GAAP financial measures to their most directly comparable financial measures reported on a GAAP basis. The non-GAAP financial measures provide management the ability to measure and monitor performance both with and without the cost of aircraft fuel (including the gains and losses associated with our fuel hedging program where appropriate), fleet transition costs, and restructuring charges and adjustments. Because the cost and availability of aircraft fuel are subject to many economic and political factors beyond our control and we record changes in the fair value of our hedge portfolio in our income statement, it is our view that the measurement and monitoring of performance without fuel is important. In addition, we believe the disclosure of financial performance without fleet transition costs, restructuring charges, and the navigation fee refund is useful to investors. Finally, these non-GAAP financial measures are also more comparable to financial measures reported to the Department of Transportation by other major network airlines.
The following tables reconcile our non-GAAP financial measures to the most directly comparable GAAP financial measures for both Alaska Airlines, Inc. and Horizon Air Industries, Inc.:
Alaska Airlines, Inc.:
($ in millions)
Three Months Ended Nine Months Ended
September 30, September 30
2006 2005 2006 2005
Unit cost reconciliations:
Operating expenses $789.1 $554.1 $2,142.9 $1,645.4
ASMs (000,000) 6,150 5,822 17,523 16,735
Operating expenses per ASM 12.83 9.52 12.23 9.83
(in cents)
Operating expenses $789.1 $554.1 $2,142.9 $1,645.4
Less: aircraft fuel (251.5) (121.8) (567.2) (283.6)
Less: fleet transition costs (58.4) -- (189.5) --
Add: navigation fee refund -- 4.7 -- 4.7
Less: restructuring charges
and adjustments (28.6) 1.4 (32.4) (20.7)
Operating expenses excluding
fuel, fleet transition costs,
the navigation fee refund,
and restructuring charges
and adjustments $450.6 $438.4 $1,353.8 $1,345.8
ASMs (000,000) 6,150 5,822 17,523 16,735
Operating expenses per ASM
excluding fuel, fleet transition
costs, the navigation fee
refund, and restructuring
charges and adjustments
(in cents) 7.33 7.53 7.73 8.04
Reconciliation to GAAP income (loss) before taxes and accounting change:
Income (loss) before taxes
and accounting change,
excluding mark-to-market
hedging gains (losses),
fleet transition costs,
the navigation fee refund,
and restructuring charges
and adjustments $115.3 $106.0 $202.5 $85.3
Mark-to-market hedging gains
(losses) included
in aircraft fuel (56.2) 19.9 (60.7) 100.2
Less: fleet transition costs (58.4) -- (189.5) --
Add: navigation fee refund
and related interest received -- 5.7 -- 5.7
Less: restructuring charges
and adjustments (28.6) 1.4 (32.4) (20.7)
GAAP income (loss) before
taxes and accounting
change as reported $(27.9) $133.0 $(80.1) $170.5
Aircraft fuel reconciliations:*
($ in millions except per gallon amounts)
Three Months Ended September 30,
2006 2005
Cost/Gal Cost/Gal
Raw or "into-plane" fuel cost $218.9 $2.33 $179.5 $1.99
Less: gains on settled hedges (23.6) (0.25) (37.8) (0.43)
Economic fuel expense* $195.3 $2.08 $141.7 $1.56
Less: mark-to-market gains
and losses related to hedges
that settle in future
periods and the reclassification
of previously recorded
mark-to-market gains
on settled hedges 56.2 0.60 (19.9) (0.22)
GAAP fuel expense* $251.5 $2.68 $121.8 $1.34
Fuel gallons (000,000) 93.9 90.4
Nine Months Ended September 30,
2006 2005
Cost/Gal Cost/Gal
Raw or "into-plane" fuel cost $585.5 $2.19 $465.2 $1.78
Less: gains on settled hedges (79.0) (0.29) (81.4) (0.32)
Economic fuel expense* $506.5 $1.90 $383.8 $1.46
Less: mark-to-market gains
and losses related to hedges
that settle in future
periods and the reclassification
of previously recorded
mark-to-market gains
on settled hedges 60.7 0.22 (100.2) (0.38)
GAAP fuel expense* $567.2 $2.12 $283.6 $1.08
Fuel gallons (000,000) 267.2 260.8
* Beginning in the first quarter of 2006, the Company records all fuel hedging activity, including mark-to-market gains and losses, in aircraft fuel expense. Prior year amounts have been reclassified for consistency.
Horizon Air Industries, Inc.
($ in millions)
Three Months Ended Nine Months Ended
September 30, September 30
2006 2005 2006 2005
Unit cost reconciliations:
Operating expenses $170.6 $135.4 $469.0 $379.7
ASMs (000,000) 951 911 2,729 2,542
Operating expenses per ASM
(in cents) 17.94 14.86 17.19 14.94
Operating expenses $170.6 $135.4 $469.0 $379.7
Less: aircraft fuel (39.3) (19.4) (86.5) (43.8)
Operating expenses
excluding fuel $131.3 $116.0 $382.5 $335.9
ASMs (000,000) 951 911 2,729 2,542
Operating expenses per ASM
excluding fuel
(in cents) 13.81 12.73 14.02 13.21
Reconciliation to GAAP income before taxes and accounting change:
Income before taxes and
accounting change,
excluding mark-to-market
hedging gains (losses) $15.1 $14.4 $23.7 $17.4
Mark-to-market hedging gains
(losses) included
in aircraft fuel (9.2) 2.9 (8.5) 15.6
GAAP income before
taxes and accounting
change as reported $5.9 $17.3 $15.2 $33.0
Aircraft fuel reconciliations:*
($ in millions except per gallon amounts)
Three Months Ended September 30,
2006 2005
Cost/Gal Cost/Gal
Raw or "into-plane" fuel cost $33.9 $2.34 $28.0 $2.04
Less: gains on settled hedges (3.8) (0.26) (5.7) (0.42)
Economic fuel expense* $30.1 $2.08 $22.3 $1.62
Less: mark-to-market gains
and losses related to hedges
that settle in future
periods and the reclassification
of previously recorded
mark-to-market gains
on settled hedges 9.2 0.63 (2.9) (0.21)
GAAP fuel expense* $39.3 $2.71 $19.4 $1.41
Fuel gallons (000,000) 14.5 13.7
Nine Months Ended September 30,
2006 2005
Cost/Gal Cost/Gal
Raw or "into-plane" fuel cost $90.8 $2.24 $71.6 $1.85
Less: gains on settled hedges (12.8) (0.32) (12.2) (0.31)
Economic fuel expense* $78.0 $1.92 $59.4 $1.54
Less: mark-to-market gains
and losses related to hedges
that settle in future
periods and the reclassification
of previously recorded
mark-to-market gains
on settled hedges 8.5 0.21 (15.6) (0.41)
GAAP fuel expense* $86.5 $2.13 $43.8 $1.13
Fuel gallons (000,000) 40.6 38.6
* Beginning in the first quarter of 2006, the Company records all fuel hedging activity, including mark-to-market gains and losses, in aircraft fuel expense. Prior year amounts have been reclassified for consistency.
Air Group Net Income (Loss) and EPS Reconciliation:
The following table summarizes Alaska Air Group, Inc.’s net income (loss) and earnings (loss) per share during 2006 and 2005 excluding the cumulative effect of the accounting change, mark-to-market hedging gains (losses) and related reclassifications, fleet transition costs, the navigation refund, and restructuring charges and adjustments, as reported in accordance with GAAP (in millions except per share amounts):
Three Months Ended September 30,
2006** 2005
Diluted Diluted
Dollars EPS Dollars EPS
Net income and diluted EPS
excluding mark-to-market
hedging gains (losses),
fleet transition costs,
the navigation fee refund,
and restructuring charges
and adjustments* $77.9 $1.93 $71.5 $2.16
Effect of dilutive shares* NA 0.02 NA NA
Mark-to-market hedging gains
(losses), net of tax (40.9) (1.03) 14.2 0.42
Fleet transition costs,
net of tax (36.5) (0.91) -- --
Restructuring charges
and adjustments, net of tax (17.9) (0.45) 0.9 0.02
Navigation fee refund,
net of tax -- -- 3.6 0.11
Reported GAAP amounts $(17.4) $(0.44) $90.2 $2.71
Nine Months Ended September 30,
2006** 2005
Diluted Diluted
Dollars EPS Dollars EPS
Net income and diluted EPS
excluding the cumulative
effect of the accounting
change, mark-to-market
hedging gains (losses),
fleet transition costs,
the navigation fee refund,
and restructuring charges
and adjustments* $141.1 $3.56 $54.4 $1.74
Effect of dilutive shares
and interest on
convertible bonds * NA 0.24 NA NA
Cumulative effect
of accounting change,
net of tax -- -- (90.4) (2.69)
Mark-to-market hedging gains
(losses), net of tax (43.3) (1.16) 72.4 2.16
Fleet transition costs,
net of tax (118.5) (3.19) -- --
Restructuring charges
and adjustments, net of tax (20.3) (0.55) (12.9) (0.39)
Navigation fee refund,
net of tax -- -- 3.6 0.11
Reported GAAP amounts $(41.0) $(1.10) $27.1 $0.93
* Diluted earnings per share for the three and nine months ended September 30, 2006, excluding the impact of the mark-to-market losses on fuel hedges, fleet transition costs, and restructuring charges and adjustments has been calculated using the dilutive weighted average number of shares outstanding of 40.4 million and 40.0 million, respectively.
In order to reconcile the diluted earnings per share on an adjusted basis to the GAAP loss per share for the three and nine months ended September 30, 2006, the table above includes $0.02 per share and $0.24 per share, respectively, which represents the impact of the additional shares that were used in the adjusted diluted earnings per share. Additionally, $1.6 million of interest, net of tax, on the convertible senior notes that were outstanding during the first quarter of the year was added back to earnings for the three months ended September 30, 2006 in order to derive the diluted earnings per share on an adjusted basis.
The per share impact of the mark-to-market losses on fuel hedges, fleet transition costs, and restructuring and impairment charges have been presented in the table above using the basic shares outstanding of 40.0 million and 37.2 million fully diluted shares outstanding for the three months and nine months ended September 30, 2006, respectively.
** The tax rate used on all of the adjusting items for 2006 was our composite tax rate of 37.5%, yielding an effective tax rate on our adjusted net income amounts of 39.8% and 35.8 % for the three and nine months ended September 30, 2006, respectively.
The following table summarizes Alaska Air Group, Inc.’s basic and diluted per share calculations for income (loss) before the accounting change and net income (loss) (in millions except per share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Basic Earnings (Loss) Per Share:
Income (loss)
before accounting change $(17.4) $90.2 $(41.0) $117.5
Weighted average
shares outstanding 39.954 27.502 37.172 27.274
Income (loss) per share
before accounting change $(0.44) $3.28 $(1.10) $4.31
Cumulative effect of
accounting change, net of tax NA NA NA $(90.4)
Weighted average shares outstanding NA NA NA 27.274
Per share cumulative effect
of accounting change NA NA NA $(3.32)
Net income (loss) $(17.4) $90.2 $(41.0) $27.1
Weighted average
shares outstanding 39.954 27.502 37.172 27.274
Net income (loss) per share $(0.44) $3.28 $(1.10) $0.99
Diluted Earnings (Loss) Per Share:
Income (loss)
before accounting change $(17.4) $90.2 $(41.0) $117.5
Interest on convertible notes,
net of tax NA 1.5 NA 4.0
Income (loss) before
accounting change for
diluted calculation $(17.4) $91.7 $(41.0) $121.5
Weighted average
shares outstanding 39.954 33.857 37.172 33.523
Income (loss) per share
before accounting change $(0.44) $2.71 $(1.10) $3.62
Cumulative effect of
accounting change, net of tax NA NA NA $(90.4)
Weighted average shares outstanding NA NA NA 33.523
Per share cumulative effect
of accounting change NA NA NA $(2.69)
Net income (loss) $(17.4) $90.2 $(41.0) $27.1
Interest on convertible notes,
net of tax NA 1.5 NA 4.0
Net income (loss) for
diluted calculation $(17.4) $91.7 $(41.0) $31.1
Weighted average
shares outstanding 39.954 33.857 37.172 33.523
Net income (loss) per share $(0.44) $2.71 $(1.10) $0.93
Forecasted Financial Measures
During our quarterly earnings conference call, we expect to discuss forward-looking forecasted unit cost information for the remainder of 2006. This forecasted unit cost information includes non-GAAP unit cost estimates which are summarized in the following table together with the most directly comparable GAAP unit cost for both Alaska Airlines, Inc. and Horizon Air Industries, Inc.:
Alaska Airlines
Forecast Forecast Forecast Forecast Forecast
of of of of re- of total
cost per fuel cost fleet structuring operating
available per transition charges cost per
seat mile, available costs per available
excluding seat per available seat mile,
fuel and mile available seat as reported
impairment (cents) seat mile on a
charges (See mile (cents) GAAP basis
(cents) Note 1) (cents) (cents)
Fourth quarter 2006 7.9 3.2 -- -- 11.1
Full year 2006 7.8 3.2 0.8 0.1 11.9
Horizon Air
Forecast of total
Forecast of Forecast operating cost
cost per of fuel per available
available cost per seat mile, as
seat mile, available reported on a
excluding fuel seat mile GAAP basis
(cents) (See Note 1) (cents)
Fourth quarter 2006 14.7 3.3 18.0
Full year 2006 14.2 3.4 17.6
Note 1: Our forecast of fuel cost is based on anticipated gallons consumed and estimated fuel cost per gallon. The estimate also includes the expected benefit from settled hedges, net of the reclassification of previously recognized mark-to-market hedge portfolio gains and losses. Given the volatility of fuel prices and the mark-to-market adjustments on our fuel hedge portfolio, readers should be cautioned that actual fuel expense could differ significantly from the forecast above.
FCMN Contact: maria.koenig@alaskaair.com
SOURCE: Alaska Air Group, Inc.
CONTACT: media, Amanda Tobin Bielawski, Media Relations Manager,
+1-206-392-5134, or investors/analysts, Shannon Alberts, Managing Director of
Investor Relations, +1-206-392-5218, both of Alaska Air Group, Inc.
Web site: http://www.alaskaair.com/