UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996. OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from . . . . . . to . . . . . . Commission file number 1-8957 ALASKA 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 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes. No. APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The registrant has 14,466,550 common shares, par value $1.00, outstanding at September 30, 1996. PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements Attached are the following Alaska Air Group, Inc. (the Company or Air Group) unaudited financial statements: (i) consolidated balance sheets as of September 30, 1996 and December 31, 1995; (ii) consolidated statements of income for the quarters and nine months ended September 30, 1996 and 1995; (iii) consolidated statement of shareholders' equity for the nine months ended September 30, 1996; and, (iv) consolidated statements of cash flows for the nine months ended September 30, 1996 and 1995. Also attached are the accompanying notes to the Company's consolidated financial statements that have changed significantly during the nine months ended September 30, 1996. These statements, which should be read in conjunction with the financial statements in the Company's annual report on Form 10-K for the year ended December 31, 1995, include all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. The adjustments made were of a normal recurring nature. Air Group is a holding company incorporated in Delaware in 1985. Its principal subsidiaries are Alaska Airlines, Inc. (Alaska) and Horizon Air Industries, Inc. (Horizon). ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Third Quarter 1996 Compared with Third Quarter 1995 The consolidated net income for the third quarter of 1996 was $32.8 million, or $2.25 per share ($1.53 per share fully diluted), compared with net income of $27.4 million, or $2.01 per share ($1.30 per share fully diluted), in 1995. Operating income for the third quarter of 1996 was $63.0 million compared to $61.9 million for 1995. The 1996 quarter included $8.3 million for estimated employee profit sharing expense (compared to zero for 1995) and a $3.6 million gain on sale of assets (compared to a $0.7 million loss in 1995). Excluding these items, operating income increased $5.1 million reflecting higher passenger load factors at Alaska Airlines. Airline financial and statistical data is shown following the Air Group financial statements. A discussion of this data follows. Alaska Airlines Operating revenues increased 11.7% to $382.8 million. Passenger revenues, which accounted for 90% of total operating revenues, increased 13.5% on a 14.5% rise in passenger traffic. Capacity increased 7.0%, primarily due to more flying in the Alaska, Mexico and Nevada markets. Essentially all markets experienced increases in load factors, while the system load factor increased 4.6 points from 66.0% in 1995 to 70.6% in 1996. System passenger yields were down 0.8% reflecting lower fares in the Alaska and Mexico markets, offset by higher fares in the California markets. Freight and mail revenues decreased 3.0%, reflecting increased competition in the Alaska markets. Other-net revenues decreased 1.2% due to lower revenues from providing services to other airlines. The table below shows the major operating expense elements on a cost per available seat mile (ASM) basis for Alaska for the third quarters of 1996 and 1995. Alaska Airlines Operating Expenses Per ASM (In Cents) 1996 1995 Change % Change Wages and benefits 2.44 2.41 .03 1 Employee profit sharing .19 - .19 NM Aircraft fuel 1.38 1.08 .30 28 Aircraft maintenance .32 .31 .01 3 Aircraft rent .88 .91 (.03) (3) Commissions .63 .56 .07 13 Depreciation & amortization .35 .38 (.03) (8) Loss (gain) on sale of assets (.09) .02 (.11) NM Landing fees and other rentals .32 .32 - - Other 1.53 1.52 .01 1 Alaska Airlines Total 7.95 7.51 .44 6 NM = Not Meaningful Alaska's higher unit costs were primarily due to employee profit sharing and higher fuel prices. Significant unit cost changes are discussed below. Estimated profit sharing expense increased the cost per ASM by .19 cents. Actual profit sharing is based on full year results. Hence, this expense item for full year 1996 could change depending on fourth quarter results. For purposes of estimating profit sharing, the income for the fourth quarter of 1996 was assumed to be comparable to the fourth quarter of 1995. This is an assumption, not a forecast, and using this assumption, Alaska is fully accrued for estimated 1996 profit sharing expense as of September 30, 1996. Fuel expense per ASM increased 28%, due to a 27% increase in the price of fuel. Approximately one fourth of the fuel price increase was due to a 4.3 cent Federal excise tax on domestic fuel consumption that began October 1, 1995. Commission expense per ASM increased 13% because passenger revenues, upon which commissions are paid, increased more than ASM growth. Commission expense as a percentage of passenger revenue was 7.4% in 1996 compared to 7.1% in 1995. Depreciation and amortization expense per ASM decreased 8% due to the sale (and leaseback) of two aircraft at the end of the first quarter and a 4% increase in aircraft utilization. The gain on sale of assets in 1996 is primarily due to the sale of a jet aircraft. A new accounting standard requires that gains or losses on long- lived assets be included in operating income. Horizon Air Operating revenues increased 7.8% to $83.9 million. Passenger revenues, which accounted for 96% of total operating revenues, increased 8.9% on a 0.3 percent rise in passenger traffic. Capacity increased slightly, primarily due to new flying in the Seattle-Edmonton and Boise-San Jose markets, offset by less flying in the lower-yield Seattle-Spokane and Portland-Spokane markets. These actions helped boost passenger yields 8.5% to 33.7 cents in 1996. The 61.7% system load factor remained the same as in 1995. The table below shows the major operating expense elements on a cost per ASM basis for Horizon for the third quarters of 1996 and 1995. Horizon Air Operating Expenses Per ASM (In Cents) 1996 1995 Change % Change Wages and benefits 6.12 5.69 .43 8 Employee profit sharing .18 - .18 NM Aircraft fuel 2.29 1.88 .41 22 Aircraft maintenance 2.75 2.30 .45 20 Aircraft rent 2.36 2.27 .09 4 Commissions 1.34 1.32 .02 2 Depreciation & amortization .68 .59 .09 15 Loss (gain) on sale of assets .04 .01 .03 NM Landing fees and other rentals .88 .87 .01 1 Other 3.51 3.51 - - Horizon Air Total 20.15 18.44 1.71 9 NM = Not Meaningful Horizon's unit costs increased 9% primarily due to: (a) employee profit sharing and higher wage rates; (b) 23% higher fuel prices; (c) increased maintenance expense on Dash 8 aircraft, which now average 8 years in age; and (d) more depreciation expense on aircraft improvements. Consolidated Other Income (Expense) Non-operating expense decreased from $11.6 million to $6.4 million primarily due to lower interest rates on variable debt and smaller average debt balances. The 1995 period included a $2.2 million write-off of capitalized debt issuance costs for the 7-1/4% zero coupon notes that were redeemed in August 1995. Nine Months 1996 Compared with Nine Months 1995 The consolidated net income for the nine months ended September 30, 1996 was $43.6 million, or $3.06 per share ($2.22 per share fully diluted), compared with net income of $18.0 million, or $1.34 per share ($1.22 per share fully diluted), in 1995. Operating income for the first nine months of 1996 was $97.4 million compared to $67.4 million for 1995. A discussion of operating revenues and expenses for the two airlines follows. Alaska Airlines Operating revenues increased 15.7% to $1.005 billion, primarily due to a 16.4% rise in passenger traffic. Capacity increased 8.5%, primarily due to increases in the Alaska, Nevada and Mexico markets. The load factor increased 4.4 points from 61.5% in 1995 to 65.9% in 1996. Passenger yields rose 1.2% to 11.86 cents in 1996, reflecting an improved balance between supply and demand for air travel on the West Coast. Operating expenses increased 13.6% to $913.8 million on a capacity increase of 8.5%. Unit costs increased 4.7%, generally for the same reasons as noted above in the third quarter comparison. Horizon Air Operating revenues increased 10.5% to $233.0 million, due to a 3.9% rise in passenger traffic combined with a 7.1% increase in passenger yield. Capacity increased 2.5%, while load factor rose 0.8 points from 59.0% in 1995 to 59.8% in 1996. Operating expenses increased 9.2% to $225.8 million on a capacity increase of 2.5%. Unit costs increased 6.6%, generally for the same reasons as noted above in the third quarter comparison. Consolidated Other Income (Expense) Non-operating expense decreased from $34.2 million to $21.4 million generally for the same reasons as noted above in the third quarter comparison. Income Tax Expense Accounting standards require the Company to provide for income taxes each quarter based on its estimate of the effective tax rate for the full year. The volatility of air fares and the seasonality of the Company's business make it very difficult to estimate full-year pretax results. In addition, a relatively small change in pretax results can cause a significant change in the effective tax rate due to the magnitude of nondeductible expenses, such as goodwill amortization and employee per diem costs. In estimating the 42.6% tax rate for the first nine months of 1996, the Company considered a variety of factors, including the U.S. federal rate of 35%, estimates of nondeductible expenses and state income taxes, and the 49.1% tax rate used for full year 1995. This rate is evaluated each quarter and adjustments are made if necessary. LIQUIDITY AND CAPITAL RESOURCES The table below presents the major indicators of financial condition and liquidity. Sep 30, 1996 Dec 31, 1995 Change (In millions, except debt-to-equity and per share amounts) Cash and marketable securities $ 131.3 $ 135.1 $ (3.8) Working capital (deficit) (114.0) (106.4) (7.6) Long-term debt and capital lease obligations 452.9 522.4 (69.5) Shareholders' equity 277.7 212.5 65.2 Book value per common share $ 19.20 $ 15.67 $ 3.53 Debt-to-equity 62%:38% 71%:29% NA The Company's cash and marketable securities portfolio decreased by $4 million during the first nine months of 1996. Operating activities provided $222 million of cash during this period. Additional cash was provided by the sale and leaseback of three B737-400 aircraft ($86 million), the sale of one MD-80 aircraft ($17 million) and proceeds received from the issuance of common stock ($21 million). Cash was used for the purchase of two new MD-83 aircraft, one used B737-400 aircraft, one previously leased B737-200C, airframe and engine overhauls and other capital expenditures ($161 million), and aircraft purchase deposits ($51 million). Cash was also used to repay $66 million of short-term borrowings and $81 million of debt (including $52 million repaid early). Shareholders' equity increased by $65 million due to the net income of $44 million and the issuance of $21 million of common stock under stock plans. Equity increased to 38% of capital, an improvement of 9 percentage points, due to the increased equity and the early repayment of debt. Commitments During the first nine months of 1996, Alaska's lease commitments increased approximately $141 million due to the sale and leaseback of three B737-400 aircraft. In addition, Alaska ordered 12 Boeing 737-400 aircraft along with an option to acquire 12 more. The value of the order, based on the manufacturer's list price, is about $540 million. The new B737-400s will be phased in over the next three years, with the first plane scheduled to enter the fleet in June 1997. The new planes will replace 12 older McDonnell Douglas MD-80s. Horizon ordered 25 de Havilland Dash 8-200 aircraft along with an option to acquire 45 more. The value of the order, based on the manufacturer's list price, is about $270 million. Alaska and Horizon expect to finance the new planes with either leases, long-term debt or internally generated cash. Alaska has commitments, during the fourth quarter of 1996, to replace its $75 million credit facility with a $125 million credit facility with substantially the same terms and conditions. PART II. OTHER INFORMATION ITEM 5. Other Information The U.S. 10% passenger ticket tax, the 6.25% cargo waybill tax and the $6 per passenger international departure tax expired on December 31, 1995. It was reinstated effective August 27, 1996 for travel through December 31, 1996. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibit #10.1 - Agreement dated September 18, 1996 between Alaska Airlines, Inc. and Boeing for the purchase of 12 Boeing 737-400 aircraft. Exhibit #10.2 - Agreement dated August 28, 1996 between Horizon Air Industries, Inc. and Bombardier for the purchase of 25 de Havilland Dash 8- 200 aircraft. Exhibit 11 - Statement regarding computation of per-share earnings. Exhibit 27 - Financial data schedule. # Confidential treatment has been requested as to a portion of this document. (b) The following reports on Form 8-K were filed during the third quarter of 1996: (1) Amended and Restated Right Agreement filed on August 8, 1996 (2) Agreement to acquire 12 Boeing 737-400 aircraft and 25 de Havilland Dash 8-200 aircraft filed on September 24, 1996 Signatures Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALASKA AIR GROUP, INC. Registrant Date: November 4, 1996 /s/ John F. Kelly John F. Kelly Chairman, President and Chief Executive Officer /s/ Harry G. Lehr Harry G. Lehr Senior Vice President/Finance (Principal Financial Officer) CONSOLIDATED BALANCE SHEET Alaska Air Group, Inc. ASSETS Sep 30, Dec 31, (In Millions) 1996 1995 Current Assets Cash and cash equivalents $51.9 $25.8 Marketable securities 79.4 109.3 Receivables - net 77.8 88.5 Inventories and supplies 46.3 44.8 Prepaid expenses and other assets 69.6 70.0 Total Current Assets 325.0 338.4 Property and Equipment Flight equipment 863.8 845.9 Other property and equipment 231.8 219.1 Deposits for future flight equipment 74.8 40.7 1,170.4 1,105.7 Less accumulated depreciation and amortization 333.1 312.8 837.3 792.9 Capital leases Flight and other equipment 44.4 44.4 Less accumulated amortization 24.9 23.3 19.5 21.1 Total Property and Equipment - Net 856.8 814.0 Intangible Assets - Subsidiaries 62.1 63.6 Other Assets 88.0 97.4 Total Assets $1,331.9 $1,313.4 See accompanying notes to consolidated financial statements. CONSOLIDATED BALANCE SHEET Alaska Air Group, Inc. LIABILITIES AND SHAREHOLDERS' EQUITY Sep 30, Dec 31, (In Millions) 1996 1995 Current Liabilities Accounts payable $68.3 $69.2 Accrued aircraft rent 51.6 44.1 Accrued wages, vacation and payroll taxes 57.5 45.8 Other accrued liabilities 64.9 55.7 Short-term borrowings - 65.9 (Interest rate: 1995 - 6.2%) Air traffic liability 167.9 124.4 Current portion of long-term debt and capital lease obligations 28.8 39.7 Total Current Liabilities 439.0 444.8 Long-Term Debt and Capital Lease Obligations 452.9 522.4 Other Liabilities and Credits Deferred income taxes 64.4 41.0 Deferred income 18.5 20.0 Other liabilities 79.4 72.7 162.3 133.7 Shareholders' Equity Common stock, $1 par value Authorized: 50,000,000 shares Issued: 1996 - 17,215,100 shares 1995 - 16,718,684 shares 17.2 16.7 Capital in excess of par value 166.7 155.4 Treasury stock, at cost: 1996-2,748,550; 1995-3,153,608 shares (62.6) (71.8) Deferred compensation (3.0) (3.6) Retained earnings 159.4 115.8 277.7 212.5 Total Liabilities and Shareholders' Equity $1,331.9 $1,313.4 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENT OF INCOME Alaska Air Group, Inc. Three Months Ended September 30 (In Millions except Per share Amounts) 1996 1995 Operating Revenues Passenger $423.0 $377.3 Freight and mail 25.4 26.3 Other - net 16.5 16.0 Total Operating Revenues 464.9 419.6 Operating Expenses Wages and benefits 132.4 114.2 Aircraft fuel 65.5 48.5 Aircraft maintenance 23.6 20.8 Aircraft rent 45.3 43.8 Commissions 29.0 26.5 Depreciation and amortization 17.0 16.9 Loss (gain) on sale of assets (3.6) 0.7 Landing fees and other rentals 16.1 15.5 Other 76.6 70.8 Total Operating Expenses 401.9 357.7 Operating Income 63.0 61.9 Other Income (Expense) Interest income 2.6 3.4 Interest expense (9.3) (13.3) Interest capitalized 0.2 0.0 Other - net 0.1 (1.7) (6.4) (11.6) Income before income tax 56.6 50.3 Income tax expense 23.8 22.9 Net Income $32.8 $27.4 Primary Earnings Per Share $2.25 $2.01 Fully Diluted Earnings Per Share $1.53 $1.30 Shares used for computation: Primary 14.6 13.6 Fully diluted 22.7 23.0 See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENT OF INCOME Alaska Air Group, Inc. Nine Months Ended September 30 (In Millions except Per share Amounts) 1996 1995 Operating Revenues Passenger $1,109.8 $957.5 Freight and mail 71.7 71.8 Other - net 51.5 47.1 Total Operating Revenues 1,233.0 1,076.4 Operating Expenses Wages and benefits 364.2 322.5 Aircraft fuel 173.3 131.6 Aircraft maintenance 71.7 61.1 Aircraft rent 134.7 128.5 Commissions 78.9 71.8 Depreciation and amortization 51.0 50.9 Loss (gain) on sale of assets (2.8) 1.4 Landing fees and other rentals 46.8 44.5 Other 217.8 196.7 Total Operating Expenses 1,135.6 1,009.0 Operating Income 97.4 67.4 Other Income (Expense) Interest income 8.1 6.7 Interest expense (30.2) (39.7) Interest capitalized 0.2 0.0 Other - net 0.5 (1.2) (21.4) (34.2) Income before income tax 76.0 33.2 Income tax expense 32.4 15.2 Net Income $43.6 $18.0 Primary Earnings Per Share $3.06 $1.34 Fully Diluted Earnings Per Share $2.22 $1.22 Shares used for computation: Primary 14.3 13.5 Fully diluted 22.4 20.4 See accompanying notes to consolidated financial statements. <TABLE> CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Alaska Air Group, Inc. <CAPTION> Common Stock Capital in Treasury Deferred $1 Par Excess of Stock Compen- Retained (In Millions) Value Par Value at Cost sation Earnings Total <S> <C> <C> <C> <C> <C> <C> Balances at December 31, 1995 $16.7 $155.4 $(71.8) $(3.6) $115.8 $212.5 Net income for the nine months ended September 30, 1996 43.6 43.6 Stock issued under stock plans 0.5 9.6 10.1 Treasury stock purchase (4,466 shares) (0.1) (0.1) Treasury stock sold (409,524 shares) 1.7 9.3 11.0 Employee Stock Ownership Plan shares allocated 0.6 0.6 Balances at September 30, 1996 $17.2 $166.7 $(62.6) $(3.0) $159.4 $277.7 See accompanying notes to consolidated financial statements. </TABLE> CONSOLIDATED STATEMENT OF CASH FLOWS Alaska Air Group, Inc. Nine Months Ended September 30 (In Millions) 1996 1995 Cash and cash equivalents at beginning of period $25.8 $11.6 Cash flows from operating activities: Net income 43.6 18.0 Adjustments to reconcile net income to cash: Depreciation and amortization 51.0 50.9 Amortization of airframe and engine overhauls 24.9 18.7 Loss (gain) on disposal of assets and debt retired (2.8) 3.2 Increase in deferred income taxes 23.4 17.2 Decrease (increase) in accounts receivable 10.7 (35.5) Increase in other current assets (1.0) (6.8) Increase in air traffic liability 43.5 16.6 Increase in other current liabilities 27.6 33.3 Other-net 1.0 18.6 Net cash provided by operating activities 221.9 134.2 Cash flows from investing activities: Proceeds from disposition of assets 23.6 2.2 Purchases of marketable securities (45.6) (62.3) Sales and maturities of marketable securities 75.4 70.2 Flight equipment deposits returned 1.1 8.9 Additions to flight equipment deposits (50.9) - Additions to property and equipment (160.8) (47.0) Restricted deposits and other 1.2 4.6 Net cash used in investing activities (156.0) (23.4) Cash flows from financing activities: Proceeds from short-term borrowings - 4.0 Repayment of short-term borrowings (65.9) (29.0) Proceeds from sale and leaseback transactions 85.6 - Proceeds from issuance of long-term debt - 128.8 Long-term debt and capital lease payments (80.5) (168.9) Proceeds from issuance of common stock 10.1 2.6 Proceeds from sale of treasury stock 10.9 - Gain (loss) on debt retirement - (1.8) Net cash used in financing activities (39.8) (64.3) Net increase in cash and cash equivalents 26.1 46.5 Cash and cash equivalents at end of period $51.9 $58.1 Supplemental disclosure of cash paid (received) during the period for: Interest (net of amount capitalized) $33.1 $34.7 Income taxes (refunds) 6.6 (1.9) Noncash investing and financing activities None None See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THAT HAVE CHANGED SIGNIFICANTLY DURING THE NINE MONTHS ENDED SEPTEMBER 30, 1996 Alaska Air Group, Inc. Note 1. Commitments (See Note 5 to Consolidated Financial Statements at December 31, 1995) During the first quarter of 1996, Alaska's lease commitments increased approximately $96 million due to the sale and leaseback of two B737-400 aircraft under 18-1/2-year operating leases. During the third quarter of 1996, Alaska's lease commitments increased approximately $45 million due to the sale and leaseback of one B737-400 aircraft under an 18-year operating lease. During the third quarter of 1996, Horizon ordered 25 de Havilland Dash 8-200 aircraft along with an option to acquire 45 more. The value of the order, based on the manufacturer's list price, is about $270 million. During the third quarter of 1996, Alaska ordered 12 Boeing 737-400 aircraft along with an option to acquire 12 more. The value of the order, based on the manufacturer's list price, is about $540 million. Alaska Airlines Financial and Statistical Data Quarter Ended Sep 30 Nine Months Ended Sep 30 % % 1996 1995 Change 1996 1995 Change Financial Data (in millions): Operating Revenues: Passenger $344.3 $303.4 13.5 $892.1 $757.4 17.8 Freight and mail 22.6 23.3 (3.0) 63.4 63.6 (0.3) Other - net 15.9 16.1 (1.2) 49.3 47.4 4.0 Total Operating Revenues 382.8 342.8 11.7 1,004.8 868.4 15.7 Operating Expenses: Wages and benefits 100.4 92.3 8.8 286.7 258.2 11.0 Employee profit sharing 7.6 0.0 NM 7.6 0.0 NM Aircraft fuel 56.7 41.2 37.6 148.9 111.6 33.4 Aircraft maintenance 12.9 11.9 8.4 40.8 35.2 15.9 Aircraft rent 36.2 35.0 3.4 108.4 102.7 5.6 Commissions 25.6 21.4 19.6 69.0 57.2 20.6 Depreciation and amort. 14.3 14.6 (2.1) 42.4 43.9 (3.4) Loss (gain) on asset sales (3.8) 0.7 NM (3.6) 1.4 NM Landing fees and other rent 13.0 12.4 4.8 37.5 35.1 6.8 Other 62.9 58.1 8.3 176.1 159.3 10.5 Total Operating Expenses 325.8 287.6 13.3 913.8 804.6 13.6 Operating Income 57.0 55.2 3.3 91.0 63.8 42.6 Interest income 2.7 3.5 8.4 7.1 Interest expense (7.1) (10.0) (23.6) (30.7) Interest capitalized 0.1 0.0 0.1 0.0 Other - net 0.2 0.4 0.7 1.2 (4.1) (6.1) (14.4) (22.4) Income Before Income Tax $52.9 $49.1 $76.6 $41.4 Operating Statistics: Revenue passengers (000) 3,420 2,954 15.8 9,001 7,548 19.2 RPM's (000,000) 2,893 2,528 14.5 7,524 6,464 16.4 ASM's (000,000) 4,100 3,831 7.0 11,409 10,512 8.5 Passenger load factor 70.6% 66.0% 4.6 pts 65.9% 61.5% 4.4 pts Breakeven load factor 59.7% 54.4% 5.3 pts 60.4% 58.1% 2.3 pts Yield per passenger mile 11.90c 12.00c (0.8) 11.86c 11.72c 1.2 Operating revenue per ASM 9.34c 8.95c 4.4 8.81c 8.26c 6.6 Operating expenses per ASM 7.95c 7.51c 5.8 8.01c 7.65c 4.7 Fuel cost per gallon 77.6c 61.0c 27.1 73.5c 60.7c 21.1 Average number of employees 7,877 7,243 8.8 7,562 6,944 8.9 Acft utilization (block hr) 11.9 11.4 4.3 11.4 10.9 4.9 Operating fleet at period-end 75 74 1.4 75 74 1.4 NM = Not Meaningful c= cents Horizon Air Financial and Statistical Data Quarter Ended Sep 30 Nine Months Ended Sep 30 % % 1996 1995 Change 1996 1995 Change Financial Data (in millions): Operating Revenues: Passenger $80.5 $73.9 8.9 $222.5 $200.1 11.2 Freight and mail 2.8 2.9 (3.4) 8.4 8.1 3.7 Other - net 0.6 1.0 (40.0) 2.1 2.7 (22.2) Total Operating Revenues 83.9 77.8 7.8 233.0 210.9 10.5 Operating Expenses: Wages and benefits 23.7 21.9 8.2 69.2 64.3 7.6 Employee profit sharing 0.7 0.0 NM 0.7 0.0 NM Aircraft fuel 8.9 7.2 23.6 24.4 20.0 22.0 Aircraft maintenance 10.7 8.9 20.2 30.9 25.9 19.3 Aircraft rent 9.1 8.8 3.4 26.3 25.8 1.9 Commissions 5.2 5.1 2.0 14.8 14.6 1.4 Depreciation and amort. 2.6 2.3 13.0 8.5 6.8 25.0 Loss (gain) on sale of assets 0.2 0.0 NM 0.8 0.0 NM Landing fees and other rent 3.4 3.4 0.0 9.7 9.7 0.0 Other 13.5 13.5 (0.0) 40.5 39.6 2.3 Total Operating Expenses 78.0 71.1 9.7 225.8 206.7 9.2 Operating Income 5.9 6.7 (11.9) 7.2 4.2 71.4 Interest income 0.0 0.0 0.1 0.0 Interest expense (0.2) (0.2) (0.6) (0.6) Interest capitalized 0.1 0.0 0.1 0.0 Other - net 0.3 (0.0) 0.2 (0.0) 0.2 (0.2) (0.2) (0.6) Income Before Income Tax $6.1 $6.5 $7.0 $3.6 Operating Statistics: Revenue passengers (000) 1,022 1,057 (3.4) 2,849 2,869 (0.7) RPM's (000,000) 239 238 0.3 656 631 3.9 ASM's (000,000) 387 386 0.3 1,097 1,070 2.5 Passenger load factor 61.7% 61.7% 0.0 pts 59.8% 59.0% 0.8 pts Breakeven load factor 56.5% 55.7% 0.8 pts 57.5% 57.8%(0.3)pts Yield per passenger mile 33.69c 31.04c 8.5 33.92c 31.68c 7.1 Operating revenue per ASM 21.68c 20.17c 7.5 21.25c 19.71c 7.8 Operating expenses per ASM 20.15c 18.44c 9.3 20.59c 19.31c 6.6 Fuel cost per gallon 79.6c 64.5c 23.5 77.0c 64.3c 19.8 Average number of employees 2,947 2,948 (0.0) 2,873 2,885 (0.4) Acft utilization (block hr) 8.0 8.1 (1.8) 7.8 8.1 (4.0) Operating fleet at period-end 62 68 (8.8) 62 68 (8.8) NM = Not Meaningful c= cents