x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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91-1292054
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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19300 International Boulevard, Seattle, Washington 98188
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Telephone: (206) 392-5040
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Common Stock, $0.01 Par Value
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New York Stock Exchange
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ITEM 1. OUR BUSINESS
|
|
2016
(a)
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|||||
Mainline passenger revenue
|
69
|
%
|
|
70
|
%
|
|
70
|
%
|
|
70
|
%
|
|
71
|
%
|
Regional passenger revenue
|
15
|
%
|
|
15
|
%
|
|
15
|
%
|
|
16
|
%
|
|
16
|
%
|
Other revenue
|
14
|
%
|
|
13
|
%
|
|
13
|
%
|
|
12
|
%
|
|
11
|
%
|
Freight and Mail revenue
|
2
|
%
|
|
2
|
%
|
|
2
|
%
|
|
2
|
%
|
|
2
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
(a)
|
Includes information for Virgin America for the period December 14, 2016 through December 31, 2016.
|
|
2016
(a)
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|||||
West Coast
|
34
|
%
|
|
36
|
%
|
|
36
|
%
|
|
34
|
%
|
|
35
|
%
|
Transcon/midcon
|
29
|
%
|
|
24
|
%
|
|
22
|
%
|
|
22
|
%
|
|
19
|
%
|
Hawaii and Costa Rica
|
17
|
%
|
|
18
|
%
|
|
18
|
%
|
|
19
|
%
|
|
20
|
%
|
Alaska
|
14
|
%
|
|
15
|
%
|
|
15
|
%
|
|
16
|
%
|
|
17
|
%
|
Mexico
|
5
|
%
|
|
6
|
%
|
|
6
|
%
|
|
7
|
%
|
|
7
|
%
|
Canada
|
1
|
%
|
|
1
|
%
|
|
3
|
%
|
|
2
|
%
|
|
2
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
(a)
|
Includes information for Virgin America for the period December 14, 2016 through December 31, 2016.
|
|
2016
(a)
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|||||
West Coast
|
30
|
%
|
|
31
|
%
|
|
31
|
%
|
|
28
|
%
|
|
29
|
%
|
Transcon/midcon
|
30
|
%
|
|
27
|
%
|
|
25
|
%
|
|
25
|
%
|
|
22
|
%
|
Hawaii
|
19
|
%
|
|
20
|
%
|
|
20
|
%
|
|
21
|
%
|
|
22
|
%
|
Alaska
|
15
|
%
|
|
16
|
%
|
|
16
|
%
|
|
18
|
%
|
|
18
|
%
|
Mexico
|
6
|
%
|
|
6
|
%
|
|
7
|
%
|
|
7
|
%
|
|
8
|
%
|
Canada
|
—
|
%
|
|
—
|
%
|
|
1
|
%
|
|
1
|
%
|
|
1
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|||||
Average Stage Length
|
1,225
|
|
|
1,195
|
|
|
1,182
|
|
|
1,177
|
|
|
1,161
|
|
(a)
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Includes information for Virgin America for the period December 14, 2016 through December 31, 2016.
|
•
|
offering our guests more travel destinations and better mileage credit/redemption opportunities, including elite qualifying miles on all of our major U.S. and international airline partners;
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•
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giving our frequent flyer program a competitive advantage because of our partnership with carriers from all three of the major global alliances;
|
•
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giving us access to more connecting traffic from other airlines; and
|
•
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providing members of our alliance partners’ frequent flyer programs an opportunity to travel on Alaska, Virgin America and our regional affiliates while earning mileage credit in our partners’ programs.
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|
|
|
Codeshare
|
||
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Frequent
Flyer
Agreement
|
|
Alaska Flight # on
Flights Operated by
Other Airline
|
|
Other Airline Flight #
on Flights Operated by
Alaska / Horizon / SkyWest
|
Major U.S. or International Airlines
|
|
|
|
|
|
Aeromexico
|
Yes
|
|
No
|
|
Yes
|
American Airlines
|
Yes
|
|
Yes
|
|
Yes
|
Air France
|
Yes
|
|
No
|
|
Yes
|
British Airways
|
Yes
|
|
No
|
|
Yes
|
Cathay Pacific Airways
|
Yes
|
|
No
|
|
Yes
|
Delta Air Lines
(b)
|
Yes
(b)
|
|
Yes
(b)
|
|
Yes
(b)
|
Emirates
|
Yes
|
|
No
|
|
Yes
|
Icelandair
|
Yes
|
|
No
|
|
Yes
|
Hainan Airlines
|
Yes
|
|
No
|
|
No
|
KLM
|
Yes
|
|
No
|
|
Yes
|
Korean Air
|
Yes
|
|
No
|
|
Yes
|
LAN S.A.
|
Yes
|
|
No
|
|
Yes
|
Fiji Airways
(a)
|
Yes
|
|
No
|
|
Yes
|
Qantas
|
Yes
|
|
No
|
|
Yes
|
Regional Airlines
|
|
|
|
|
|
Rav'n Alaska
|
Yes
|
|
Yes
|
|
No
|
PenAir
(a)
|
Yes
|
|
Yes
|
|
No
|
(a)
|
These airlines do not have their own frequent flyer program. However, Alaska's Mileage Plan
TM
members can earn and redeem miles on these airlines' route systems.
|
(b)
|
Codeshare and frequent flyer agreements with Delta terminate on April 30, 2017.
|
|
|
|
Codeshare
|
||
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Frequent
Flyer
Agreement
|
|
Virgin America Flight # on Flights Operated by
Other Airline
|
|
Other Airline Flight #
on Flights Operated by
Virgin America
|
Major U.S. or International Airlines
|
|
|
|
|
|
China Airlines
|
No
|
|
No
|
|
Yes
|
China Eastern
|
No
|
|
No
|
|
Yes
|
China Southern
|
No
|
|
No
|
|
Yes
|
Emirates
|
Yes
|
|
No
|
|
No
|
Hawaiian Airlines
|
Yes
(a)
|
|
No
|
|
Yes
|
Singapore Airlines
|
Yes
|
|
No
|
|
Yes
|
Virgin Australia
|
Yes
|
|
No
|
|
Yes
|
(a)
|
Ability to redeem award flights only (no mileage accrual on Hawaiian Airlines flight segments).
|
|
2016
(a)
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
Air Group Marketed Revenues
|
92%
|
|
90%
|
|
91%
|
|
90%
|
|
90%
|
|
|
|
|
|
|
|
|
|
|
Codeshare Agreements:
|
|
|
|
|
|
|
|
|
|
American Airlines
|
3%
|
|
4%
|
|
3%
|
|
2%
|
|
3%
|
Delta Air Lines
|
1%
|
|
2%
|
|
2%
|
|
4%
|
|
3%
|
Others
|
1%
|
|
1%
|
|
1%
|
|
1%
|
|
1%
|
|
|
|
|
|
|
|
|
|
|
Interline Agreements:
|
|
|
|
|
|
|
|
|
|
Domestic Interline
|
2%
|
|
2%
|
|
2%
|
|
2%
|
|
2%
|
International Interline
|
1%
|
|
1%
|
|
1%
|
|
1%
|
|
1%
|
Total Operating Revenue
|
100%
|
|
100%
|
|
100%
|
|
100%
|
|
100%
|
(a)
|
Includes information for Virgin America for the period December 14, 2016 through December 31, 2016.
|
|
2016
(a)
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|||||
Crude oil
|
69
|
%
|
|
62
|
%
|
|
72
|
%
|
|
71
|
%
|
|
65
|
%
|
Refining margins
|
20
|
%
|
|
26
|
%
|
|
18
|
%
|
|
19
|
%
|
|
25
|
%
|
Other
(b)
|
11
|
%
|
|
12
|
%
|
|
10
|
%
|
|
10
|
%
|
|
10
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|||||
Aircraft fuel expense
|
18
|
%
|
|
22
|
%
|
|
32
|
%
|
|
34
|
%
|
|
35
|
%
|
(a)
|
Includes information for Virgin America for the period December 14, 2016 through December 31, 2016.
|
(b)
|
Other includes gains and losses on settled fuel hedges, unrealized mark-to-market fuel hedge gains or losses, taxes and other into-plane costs.
|
•
|
Safety record
|
•
|
Customer service and reputation
|
•
|
Fares and ancillary services
|
•
|
Routes served, flight schedules, codesharing and interline relationships, and frequent flyer programs
|
•
|
Direct to customer:
It is less expensive for us to sell through our direct channels at alaskaair.com and virginamerica.com. As a result, we continue to take steps to drive more business to our websites. In addition, we believe this channel is preferable from a branding and customer-relationship standpoint in that we can establish ongoing communication with the customer and tailor offers accordingly.
|
•
|
Traditional and online travel agencies:
Both traditional and online travel agencies typically use Global Distribution Systems (GDS) to obtain their fare and inventory data from airlines. Bookings made through these agencies result in a fee that is charged to the airline. Many of our large corporate customers require us to use these agencies. Some of our competitors do not use this distribution channel and, as a result, have lower ticket distribution costs.
|
•
|
Reservation call centers:
The Alaska call centers are located in Phoenix, AZ, Kent, WA, and Boise, ID. Virgin America uses an outsourced call center. We generally charge a $15 fee for booking reservations through the Alaska call centers and $20 for booking reservations through the Virgin America call centers. We plan on combining the reservations call centers over the next several months as part of our integration efforts.
|
|
2016
(a)
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|||||
Direct to customer
|
61
|
%
|
|
60
|
%
|
|
57
|
%
|
|
55
|
%
|
|
54
|
%
|
Traditional agencies
|
23
|
%
|
|
23
|
%
|
|
25
|
%
|
|
27
|
%
|
|
27
|
%
|
Online travel agencies
|
11
|
%
|
|
11
|
%
|
|
12
|
%
|
|
13
|
%
|
|
13
|
%
|
Reservation call centers
|
5
|
%
|
|
6
|
%
|
|
6
|
%
|
|
5
|
%
|
|
6
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
(a)
|
Includes results for Virgin America for the period December 14, 2016 through December 31, 2016.
|
•
|
general economic conditions and resulting changes in passenger demand,
|
•
|
pricing initiatives by us or our competitors,
|
•
|
increases in competition at our primary airports, and
|
•
|
increases or decreases in passenger and volume-driven variable costs.
|
Union
|
|
Employee Group
|
|
Number of Employees
|
|
Contract Status
|
|
Air Line Pilots Association International (ALPA)
|
|
Pilots
|
|
1,834
|
|
|
Amendable 03/31/2018
|
Association of Flight Attendants (AFA)
|
|
Flight attendants
|
|
3,921
|
|
|
Amendable 12/17/2019
|
International Association of Machinists and Aerospace Workers (IAM)
|
|
Ramp service and stock clerks
|
|
634
|
|
|
Amendable 7/19/2018
|
IAM
|
|
Clerical, office and passenger service
|
|
3,032
|
|
|
Amendable 1/1/2019
|
Aircraft Mechanics Fraternal Association (AMFA)
(a)
|
|
Mechanics, inspectors and cleaners
|
|
684
|
|
|
Amendable 10/17/2016
|
Mexico Workers Association of Air Transport
|
|
Mexico airport personnel
|
|
86
|
|
|
Amendable 9/29/2016
|
Transport Workers Union of America (TWU)
|
|
Dispatchers
|
|
49
|
|
|
Amendable 3/24/2019
|
Union
|
|
Employee Group
|
|
Number of Employees
|
|
Contract Status
|
|
International Brotherhood of Teamsters (IBT)
|
|
Pilots
|
|
618
|
|
|
Amendable 12/14/2024
|
AFA
|
|
Flight attendants
|
|
623
|
|
|
Amendable 07/18/2019
|
IBT
|
|
Mechanics and related classifications
|
|
271
|
|
|
Amendable 12/16/2020
|
National Automobile, Aerospace, Transportation and General Workers
|
|
Station personnel in
Vancouver and Victoria, BC, Canada |
|
38
|
|
|
Amendable 2/14/2019
|
TWU
|
|
Dispatchers
|
|
18
|
|
|
Amendable 8/26/2018
|
Union
|
|
Employee Group
|
|
Number of Employees
|
|
Contract Status
|
|
ALPA
|
|
Pilots
|
|
714
|
|
|
Not completed
|
TWU
|
|
Inflight teammates
|
|
1,068
|
|
|
Not completed
|
Name
|
|
Position
|
|
Age
|
|
Air Group
or Subsidiary
Officer Since
|
Bradley D. Tilden
|
|
Chairman and Chief Executive Officer of Alaska Air Group, Inc., Chairman of Alaska Airlines, Inc., Horizon Air Industries, Inc. and Virgin America Inc.
|
|
56
|
|
1994
|
|
|
|
|
|
|
|
Benito Minicucci
|
|
President and Chief Operating Officer of Alaska Airlines, Inc. and Chief Executive Officer of Virgin America Inc.
|
|
50
|
|
2004
|
|
|
|
|
|
|
|
Brandon S. Pedersen
|
|
Executive Vice President/Finance and Chief Financial Officer of Alaska Air Group, Inc. and Alaska Airlines, Inc., and Chief Financial Officer of Virgin America Inc.
|
|
50
|
|
2003
|
|
|
|
|
|
|
|
Andrew R. Harrison
|
|
Executive Vice President and Chief Commercial Officer of Alaska Airlines, Inc.
|
|
46
|
|
2008
|
|
|
|
|
|
|
|
David L. Campbell
|
|
President and Chief Executive Officer of Horizon Air Industries, Inc.
|
|
55
|
|
2014
|
|
|
|
|
|
|
|
Kyle B. Levine
|
|
Vice President Legal and General Counsel of Alaska Air Group, Inc. and Alaska Airlines, Inc. and Chief Ethics and Compliance Officer of Alaska Air Group, Inc.
|
|
45
|
|
2016
|
•
|
DOT:
In order to provide passenger and cargo air transportation in the U.S., a domestic airline is required to hold a certificate of public convenience and necessity issued by the DOT. Subject to certain individual airport capacity, noise and other restrictions, this certificate permits an air carrier to operate between any two points in the U.S. Certificates do not expire, but may be revoked for failure to comply with federal aviation statutes, regulations, orders or the terms of the certificates. While airlines are permitted to establish their own fares without government regulation,
the DOT has jurisdiction over the approval of international codeshare agreements, marketing alliance agreements between major domestic carriers, international and some domestic route authorities, Essential Air Service market subsidies, carrier liability for personal or property damage, and certain airport rates and charges disputes. International treaties may also contain restrictions or requirements for flying outside of the U.S. and impose different carrier liability limits than those applicable to domestic flights. The DOT has been active in implementing a variety of “consumer protection” regulations, covering subjects such as advertising, passenger communications, denied boarding compensation and tarmac delay response.
Airlines are subject to enforcement actions that are brought by the DOT from time to time for alleged violations of consumer protection and other economic regulations. We are not aware of any enforcement proceedings that could either materially affect our financial position or impact our authority to operate.
|
•
|
FAA:
The FAA, through Federal Aviation Regulations (FARs), generally regulates all aspects of airline operations, including establishing personnel, maintenance and flight operation standards. Domestic airlines are required to hold a valid air carrier operating certificate issued by the FAA. Pursuant to these regulations, we have established, and the FAA has approved, our operations specifications and a maintenance program for each type of aircraft we operate. Each maintenance program provides for the ongoing maintenance of the relevant aircraft type, ranging from frequent routine inspections to major overhauls. From time to time the FAA issues airworthiness directives (ADs) that must be incorporated into our aircraft maintenance program and operations. All airlines are subject to enforcement actions that are brought by the FAA from time to time for alleged violations of FARs or ADs. At this time, we are not aware of any enforcement proceedings that could either materially affect our financial position or impact our authority to operate.
|
•
|
TSA:
Airlines serving the U.S. must operate a TSA-approved Aircraft Operator Standard Security Program (AOSSP), and comply with TSA Security Directives (SDs) and regulations. Under TSA authority, we are required to collect a September 11 Security Fee of $5.60 per one-way trip from passengers and remit that sum to the government to fund aviation security me
asures.
Airlines are subject to enforcement actions that are brought by the TSA from time to time for alleged violations of the AOSSP, SDs or security regulations. We are not aware of any enforcement proceedings that could either materially affect our financial position or impact our authority to operate.
|
ITEM 1A. RISK FACTORS
|
•
|
congestion and/or space constraints at airports or air traffic control problems;
|
•
|
lack of operational approval (e.g. new routes, aircraft deliveries, etc.);
|
•
|
adverse weather conditions;
|
•
|
increased security measures or breaches in security;
|
•
|
contagious illness and fear of contagion;
|
•
|
changes in international treaties concerning air rights;
|
•
|
international or domestic conflicts or terrorist activity; and
|
•
|
other changes in business conditions.
|
•
|
significantly reduce passenger traffic and yields as a result of a potentially dramatic drop in demand for air travel;
|
•
|
significantly increase security and insurance costs;
|
•
|
make war risk or other insurance unavailable or extremely expensive;
|
•
|
increase fuel costs and the volatility of fuel prices;
|
•
|
increase costs from airport shutdowns, flight cancellations and delays resulting from security breaches and perceived safety threats; and
|
•
|
result in a grounding of commercial air traffic by the FAA.
|
•
|
the inability to successfully combine the Virgin America business with that of Alaska's in a manner that permits us to achieve anticipated net synergies and other anticipated benefits of the acquisition;
|
•
|
the inability to successfully attract and retain Virgin America guests upon integration with Alaska;
|
•
|
the challenges associated with operating aircraft types new to our operations, specifically the Airbus A319 and A320;
|
•
|
the challenges associated with an expanded or new presence in more congested airports and markets;
|
•
|
the challenges associated with integrating complex systems, technology, aircraft fleets, networks, facilities and other assets in a seamless manner that minimizes any adverse impact on guests, suppliers, employees and other constituents;
|
•
|
the challenges associated with integrating Virgin America employees into Alaska's workforce while maintaining our focus on providing consistent, high quality customer service, including seniority list integration, negotiation of transition process agreements and, in the case of the pilot workgroups, negotiation of a joint collective bargaining agreement; and
|
•
|
potential unknown liabilities, liabilities that are significantly larger than we currently anticipate, and unforeseen increased expenses or delays, including costs to integrate Virgin America’s business that may exceed our current estimates.
|
•
|
require a substantial portion of cash flows from operations for debt service payments and operating lease payments, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes; and
|
•
|
limit our flexibility in planning for, or reacting to, changes in its business and the airline industry and, consequently, negatively affect our competitive position.
|
ITEM 1B. UNRESOLVED STAFF COMMENTS
|
ITEM 2. PROPERTIES
|
Aircraft Type
|
Seats
|
|
Owned
|
|
Leased
|
|
Total
|
|
Average
Age in
Years
|
||||
B737 Freighter & Combis
|
0/72
|
|
6
|
|
|
—
|
|
|
6
|
|
|
23.2
|
|
B737-400
|
144
|
|
3
|
|
|
7
|
|
|
10
|
|
|
20.9
|
|
B737 NextGen
|
124-181
|
|
129
|
|
|
10
|
|
|
139
|
|
|
7.3
|
|
A319
|
119
|
|
—
|
|
|
10
|
|
|
10
|
|
|
9.2
|
|
A320
|
146-149
|
|
10
|
|
|
43
|
|
|
53
|
|
|
6.3
|
|
Total Mainline Fleet
|
|
|
148
|
|
|
70
|
|
|
218
|
|
|
8.2
|
|
Q400
|
76
|
|
37
|
|
|
15
|
|
|
52
|
|
|
10.0
|
|
E175
|
76
|
|
—
|
|
|
15
|
|
|
15
|
|
|
0.8
|
|
Total Regional Fleet
|
|
|
37
|
|
|
30
|
|
|
67
|
|
|
7.9
|
|
Total
|
|
|
185
|
|
|
100
|
|
|
285
|
|
|
8.2
|
|
ITEM 3. LEGAL PROCEEDINGS
|
ITEM 4. MINE SAFETY DISCLOSURES
|
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
|
|
2016
|
|
2015
|
||||||||||||
|
High
|
|
Low
|
|
High
|
|
Low
|
||||||||
First Quarter
|
$
|
83.05
|
|
|
$
|
61.58
|
|
|
$
|
70.83
|
|
|
$
|
57.73
|
|
Second Quarter
|
83.09
|
|
|
54.53
|
|
|
68.68
|
|
|
58.15
|
|
||||
Third Quarter
|
71.57
|
|
|
56.47
|
|
|
82.75
|
|
|
62.59
|
|
||||
Fourth Quarter
|
91.88
|
|
|
65.60
|
|
|
87.16
|
|
|
73.00
|
|
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
|
Year Ended December 31 (in millions, except per-share amounts):
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
||||||||||
CONSOLIDATED OPERATING RESULTS
(audited)
|
|
|
|
|
|
|
|
|
|
||||||||||
Operating Revenues
|
$
|
5,931
|
|
|
$
|
5,598
|
|
|
$
|
5,368
|
|
|
$
|
5,156
|
|
|
$
|
4,657
|
|
Operating Expenses
|
4,582
|
|
|
4,300
|
|
|
4,406
|
|
|
4,318
|
|
|
4,125
|
|
|||||
Operating Income
|
1,349
|
|
|
1,298
|
|
|
962
|
|
|
838
|
|
|
532
|
|
|||||
Nonoperating income (expense), net of interest capitalized
(a)
|
(4
|
)
|
|
14
|
|
|
13
|
|
|
(22
|
)
|
|
(18
|
)
|
|||||
Income before income tax
|
1,345
|
|
|
1,312
|
|
|
975
|
|
|
816
|
|
|
514
|
|
|||||
Net Income
|
$
|
814
|
|
|
$
|
848
|
|
|
$
|
605
|
|
|
$
|
508
|
|
|
$
|
316
|
|
Average basic shares outstanding
|
123.557
|
|
|
128.373
|
|
|
135.445
|
|
|
139.910
|
|
|
141.416
|
|
|||||
Average diluted shares outstanding
|
124.389
|
|
|
129.372
|
|
|
136.801
|
|
|
141.878
|
|
|
143.568
|
|
|||||
Basic earnings per share
|
$
|
6.59
|
|
|
$
|
6.61
|
|
|
$
|
4.47
|
|
|
$
|
3.63
|
|
|
$
|
2.23
|
|
Diluted earnings per share
|
$
|
6.54
|
|
|
$
|
6.56
|
|
|
$
|
4.42
|
|
|
$
|
3.58
|
|
|
$
|
2.20
|
|
Cash dividends declared per share
|
$
|
1.10
|
|
|
$
|
0.80
|
|
|
$
|
0.50
|
|
|
$
|
0.20
|
|
|
—
|
|
|
CONSOLIDATED FINANCIAL POSITION
(audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
At End of Period (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total assets
(b)
|
$
|
9,962
|
|
|
$
|
6,530
|
|
|
$
|
6,059
|
|
|
$
|
5,719
|
|
|
$
|
5,350
|
|
Long-term debt, including current portion
(b)
|
$
|
2,964
|
|
|
$
|
683
|
|
|
$
|
798
|
|
|
$
|
865
|
|
|
$
|
1,025
|
|
Shareholders' equity
|
$
|
2,931
|
|
|
$
|
2,411
|
|
|
$
|
2,127
|
|
|
$
|
2,029
|
|
|
$
|
1,421
|
|
OPERATING STATISTICS
(unaudited)
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Consolidated:
(c)
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenue passengers (000)
|
34,289
|
|
31,883
|
|
29,278
|
|
27,414
|
|
25,896
|
||||||||||
RPMs (000,000) "traffic"
|
37,209
|
|
33,578
|
|
30,718
|
|
28,833
|
|
27,007
|
||||||||||
ASMs (000,000) "capacity"
|
44,135
|
|
39,914
|
|
36,078
|
|
33,672
|
|
31,428
|
||||||||||
Load factor
|
84.3%
|
|
84.1%
|
|
85.1%
|
|
85.6%
|
|
85.9%
|
||||||||||
Yield
|
13.45¢
|
|
14.27¢
|
|
14.91¢
|
|
14.80¢
|
|
14.92¢
|
||||||||||
PRASM
|
11.34¢
|
|
12.01¢
|
|
12.69¢
|
|
12.67¢
|
|
12.82¢
|
||||||||||
RASM
|
13.44¢
|
|
14.03¢
|
|
14.88¢
|
|
14.74¢
|
|
14.82¢
|
||||||||||
CASMex
(d)
|
8.23¢
|
|
8.30¢
|
|
8.36¢
|
|
8.47¢
|
|
8.48¢
|
||||||||||
Mainline:
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenue passengers (000)
|
24,838
|
|
22,869
|
|
20,972
|
|
19,737
|
|
18,526
|
||||||||||
RPMs (000,000) "traffic"
|
33,489
|
|
30,340
|
|
27,778
|
|
26,172
|
|
24,417
|
||||||||||
ASMs (000,000) "capacity"
|
39,473
|
|
35,912
|
|
32,430
|
|
30,411
|
|
28,180
|
||||||||||
Load factor
|
84.8%
|
|
84.5%
|
|
85.7%
|
|
86.1%
|
|
86.6%
|
||||||||||
Yield
|
12.24¢
|
|
12.98¢
|
|
13.58¢
|
|
13.33¢
|
|
13.45¢
|
||||||||||
PRASM
|
10.38¢
|
|
10.97¢
|
|
11.64¢
|
|
11.48¢
|
|
11.65¢
|
||||||||||
CASMex
(d)
|
7.30¢
|
|
7.39¢
|
|
7.45¢
|
|
7.54¢
|
|
7.56¢
|
||||||||||
Regional
(c)
:
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenue passengers (000)
|
9,452
|
|
9,015
|
|
8,306
|
|
7,677
|
|
7,371
|
||||||||||
RPMs (000,000) "traffic"
|
3,720
|
|
3,238
|
|
2,940
|
|
2,661
|
|
2,590
|
||||||||||
ASMs (000,000) "capacity"
|
4,662
|
|
4,002
|
|
3,648
|
|
3,261
|
|
3,247
|
||||||||||
Load factor
|
79.8%
|
|
80.9%
|
|
80.6%
|
|
81.6%
|
|
79.8%
|
||||||||||
Yield
|
24.42¢
|
|
26.37¢
|
|
27.40¢
|
|
29.20¢
|
|
28.81¢
|
||||||||||
PRASM
|
19.49¢
|
|
21.34¢
|
|
22.08¢
|
|
23.83¢
|
|
22.98¢
|
(a)
|
Capitalized interest was
$25 million
,
$34 million
,
$20 million
,
$21 million
and
$18 million
for
2016
,
2015
,
2014
,
2013
and
2012
.
|
(b)
|
In the first quarter of 2016, we retrospectively adopted Accounting Standards Update 2015-03 "Simplifying the Presentation of Debt Issuance Costs." Prior year amounts have been adjusted to reflect a reclassification of debt issuance costs.
|
(c)
|
Includes flights under Capacity Purchase Agreements operated by SkyWest and PenAir.
|
(d)
|
See reconciliation to the most directly related Generally Accepted Accounting Principles ("GAAP") measure in the "Results of Operations" section.
|
(e)
|
See "Glossary of Terms" for definitions of the abbreviated terms.
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
Year in Review
—highlights from
2016
outlining some of the major events that happened during the year and how they affected our financial performance.
|
•
|
Results of Operations
—an in-depth analysis of our revenues by segment and our expenses from a consolidated perspective for the three years presented in our consolidated financial statements. To the extent material to the understanding of segment profitability, we more fully describe the segment expenses per financial statement line item. Financial and statistical data is also included here. This section includes forward-looking statements regarding our view of
2017
. When providing forward-looking statements on future expectations, we will provide the impact of Virgin America as a separate component of expected changes from 2016. Virgin America was acquired on December 14, 2016 and plays a significant role in the year-over-year change. Further information about the acquisition of Virgin America can be found in
Note 2
to the consolidated financial statements.
|
•
|
Liquidity and Capital Resources
—an overview of our financial position, analysis of cash flows, sources and uses of cash, contractual obligations and commitments and off-balance sheet arrangements.
|
•
|
Critical Accounting Estimates
—a discussion of our accounting estimates that involve significant judgment and uncertainties.
|
•
|
Air Group completed its acquisition of Virgin America Inc. ("Virgin America") on December 14, 2016.
|
•
|
Results for 2016 include the results of operations and cash flows for Virgin America from December 14, 2016 through December 31, 2016, including the impact of purchase accounting. Periods presented prior to the acquisition date do not include Virgin America's results.
|
•
|
Announced a
9%
increase in the quarterly dividend, from
$0.275
per share to
$0.30
per share in February 2017. This is the
fourth
time we have raised the dividend since initiating the quarterly dividend in July 2013, with a cumulative increase of
200%
since that time.
|
•
|
Reported full-year net income under Generally Accepted Accounting Principles ("GAAP") of
$814 million
, or
$6.54
per diluted share. These results compared to full year
2015
net income of
$848 million
, or
$6.56
per diluted share.
|
•
|
Reported full-year
2016
net income, excluding special items, of
$911 million
, an
8%
increase
from
2015
, and adjusted diluted earnings per share of
$7.32
, a
12%
increase
from
2015
.
|
•
|
Paid
$0.275
per-share quarterly cash dividend in the fourth quarter, bringing total dividend payments in
2016
to
$136 million
.
|
•
|
Generated approximately
$1.4 billion
of operating cash flow and
$708 million
of free cash flow in
2016
.
|
•
|
Grew passenger revenues by
4%
compared to full-year
2015
.
|
•
|
Generated full-year adjusted pretax margin of
24%
in
2016
, in line with
2015
.
|
•
|
Lowered consolidated unit costs, excluding fuel and special items, for the seventh consecutive year, to the lowest level ever. Mainline unit costs excluding fuel and special items have declined 14 of the last 15 years.
|
•
|
Held
$1.6 billion
in unrestricted cash and marketable securities as of
December 31, 2016
.
|
•
|
Became the first major U.S. airline to receive approval from the Federal Aviation Administration for its Safety Management System.
|
•
|
Ranked best airline in the U.S. by the Wall Street Journal's "2016 Airline Scorecard" for the fourth year in a row.
|
•
|
Ranked highest in customer satisfaction among traditional carriers in North America in 2016 by J.D. Power and Associates for the
ninth
year in a row.
|
•
|
Ranked highest in customer satisfaction with airline loyalty rewards programs in 2016 by J.D. Power and Associates for the third consecutive year.
|
•
|
Ranked first in the U.S. News & World Report's list of Best Airline Rewards Programs for the second consecutive year.
|
•
|
Ranked among Forbes' 2016 "America's Best Employers."
|
•
|
Named No. 1 on-time carrier in North America for the seventh year in a row by FlightStats in January 2017.
|
•
|
Received the Department of Defense 2016 Freedom Award, the highest recognition given to employers by the U.S. government for their support of National Guard and Reserve members.
|
•
|
Received 15th Diamond Award of Excellence from the Federal Aviation Administration, recognizing both Alaska and Horizon's aircraft technicians for their commitment to training.
|
•
|
Ranked first in the commercial aviation division and first place overall at the 2016 Annual International Aerospace Maintenance Competition, surpassing over 50 teams from around the world.
|
•
|
Named the No. 1 cargo carrier by Logistics Management magazine as part of its annual Quest for Quality awards.
|
•
|
Joined Standard and Poor's 500 Index. Companies included in the S&P 500 are chosen by the S&P Index Committee based on their size, earnings history and liquidity, among other factors.
|
•
|
Ranked among the Fortune 500 for the third year in a row.
|
•
|
Ranked among the top "green companies" in the United States by Newsweek.
|
•
|
Ranked among the top 100 socially just companies in the United States by Forbes.
|
•
|
Received the Seattle-Tacoma International Airport Green Gateway Environmental Excellence Award for the second year in a row, as a result of efforts in reducing emissions, recycling and waste reduction and lowered energy consumption.
|
•
|
Rated Best U.S. Airline by Conde Nast Traveler in their "Annual Readers' Choice Awards" for nine years in a row.
|
•
|
Ranked Best Domestic Airline in Travel + Leisure "World's Best Awards" for nine years in a row.
|
•
|
Rated the number one carrier in the 2016 Airline Quality Report for the fourth consecutive year, an annual analysis of airline performance metrics conducted by Wichita State University and Embry-Riddle Aeronautical University.
|
•
|
Rated "Best Airline in North America" for the second year in a row and "Best Low-Cost Airline in the U.S." for the seventh year in a row by Skytrax World Airline Awards.
|
•
|
Awarded a record
$159 million
in incentive pay to employees for
2016
, including
$32 million
earned by Virgin America employees in 2016 prior to the acquisition.
|
•
|
Reached a tentative agreement with Alaska's aircraft technicians on a new collective bargaining agreement.
|
•
|
Alaska received a perfect score of 100% for workplace equality on the 2017 Corporate Equality Index ("CEI"). Virgin America received a score of 95%.
|
•
|
Announced enhanced benefits to the Alaska Airlines Visa Signature credit card and the Alaska Airlines Visa Business credit card including the elimination of foreign transaction fees and increased bonus miles.
|
•
|
Announced a new codeshare agreement and frequent flyer partnership with Japan Airlines, providing Alaska guests seamless travel and mileage earning opportunities.
|
•
|
Launched premium class service on Alaska, including more legroom, complimentary alcoholic beverages and premium snacks.
|
•
|
Flew the first three commercial flights using sustainable alcohol-to-jet biofuel made from U.S. grown corn and alternative jet fuel made from forest residuals, continuing Alaska's commitment to reduce its carbon emissions.
|
•
|
Placed order for 33 firm Embraer 175 ("E175") regional jets and
30
options, to be flown by subsidiary Horizon Air, with first delivery scheduled in 2017.
|
•
|
Added 19 Boeing 737-900ERs aircraft to the operating fleet in 2016, bringing the total fleet to
155
Boeing aircraft.
|
•
|
Added 5 Airbus A320 aircraft to Virgin America's fleet in 2016, bringing the total fleet to
63
Airbus aircraft.
|
•
|
Added
17
new markets in 2016 across the Alaska Air Group and Virgin America networks.
|
•
|
Increased fuel efficiency (as measured by seat-miles per gallon) by
1.4%
over
2015
.
|
•
|
Donated nearly
$13 million
to support nonprofits in our local communities, focusing on youth & education, medical (research/transportation) and community outreach.
|
•
|
By eliminating fuel expense and certain special items (including merger-related costs) from our unit metrics, we believe that we have better visibility into the results of operations and our non-fuel cost-reduction initiatives. Our industry is highly competitive and is characterized by high fixed costs, so even a small reduction in non-fuel operating costs can lead to a significant improvement in operating results. In addition, we believe that all domestic carriers are similarly impacted by changes in jet fuel costs over the long run, so it is important for management (and thus investors) to understand the impact of (and trends in) company-specific cost drivers, such as labor rates and productivity, airport costs, maintenance costs, etc., which are more controllable by management.
|
•
|
Cost per ASM ("CASM") excluding fuel and certain special items, such as merger-related costs, is one of the most important measures used by management and by the Air Group Board of Directors in assessing quarterly and annual cost performance.
|
•
|
Adjusted income before income tax and CASM excluding fuel (and other items as specified in our plan documents) are important metrics for the employee incentive plan, which covers the majority of Air Group employees.
|
•
|
CASM excluding fuel and certain special items is a measure commonly used by industry analysts and we believe it is the basis by which they compare our airlines to others in the industry. The measure is also the subject of frequent questions from investors.
|
•
|
Disclosure of the individual impact of certain noted items provides investors the ability to measure and monitor performance both with and without these special items. We believe that disclosing the impact of certain items, such as merger-related costs and mark-to-market hedging adjustments, is important because it provides information on significant items that are not necessarily indicative of future performance. Industry analysts and investors consistently measure our performance without these items for better comparability between periods and among other airlines.
|
•
|
Although we disclose our passenger unit revenues, we do not (nor are we able to) evaluate unit revenues excluding the impact that changes in fuel costs have had on ticket prices. Fuel expense represents a large percentage of our total operating expenses. Fluctuations in fuel prices often drive changes in unit revenues in the mid-to-long term. Although we believe it is useful to evaluate non-fuel unit costs for the reasons noted above, we would caution readers of these financial statements not to place undue reliance on unit costs excluding fuel as a measure or predictor of future profitability because of the significant impact of fuel costs on our business.
|
|
Twelve Months Ended December 31,
|
||||||||||||||
|
2016
|
|
2015
|
||||||||||||
(in millions, except per-share amounts)
|
Dollars
|
|
Diluted EPS
|
|
Dollars
|
|
Diluted EPS
|
||||||||
Reported GAAP net income and diluted EPS
|
$
|
814
|
|
|
$
|
6.54
|
|
|
$
|
848
|
|
|
$
|
6.56
|
|
Mark-to-market fuel hedge adjustments
|
(13
|
)
|
|
(0.11
|
)
|
|
—
|
|
|
—
|
|
||||
Special items—merger-related costs and other
(a)
|
117
|
|
|
0.94
|
|
|
32
|
|
|
0.25
|
|
||||
Income tax effect on special items
(b)
|
(24
|
)
|
|
(0.19
|
)
|
|
(12
|
)
|
|
(0.10
|
)
|
||||
Special tax (benefit)/expense
(c)
|
17
|
|
|
0.14
|
|
|
(26
|
)
|
|
(0.20
|
)
|
||||
Non-GAAP adjusted net income and diluted EPS
|
$
|
911
|
|
|
$
|
7.32
|
|
|
$
|
842
|
|
|
$
|
6.51
|
|
(a)
|
Refer to
Note 11
to the consolidated financial statement for the description of special items.
|
(b)
|
Certain merger-related costs are non-deductible for tax purposes, resulting in a smaller income tax effect for current year adjusting items.
|
(c)
|
Special tax (benefit)/expense represents the discrete impacts of adjustments to our position on income sourcing in various states.
|
|
Twelve Months Ended December 31,
|
|||||||||
|
2016
|
|
2015
|
|
% Change
|
|||||
Consolidated:
|
|
|
|
|
|
|||||
Total CASM
|
|
10.38
|
¢
|
|
|
10.77
|
¢
|
|
(3.6
|
)
|
Less the following components:
|
|
|
|
|
|
|
|
|||
Aircraft fuel, including hedging gains and losses
|
1.88
|
|
|
2.39
|
|
|
(21.3
|
)
|
||
Special items—merger-related costs and other
(a)
|
0.27
|
|
|
0.08
|
|
|
237.5
|
|
||
CASM, excluding fuel and special items
|
|
8.23
|
¢
|
|
|
8.30
|
¢
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
||||
Mainline:
|
|
|
|
|
|
|||||
Total CASM
|
|
9.39
|
¢
|
|
|
9.77
|
¢
|
|
(3.9
|
)
|
Less the following components:
|
|
|
|
|
|
|
|
|||
Aircraft fuel, including hedging gains and losses
|
1.79
|
|
|
2.29
|
|
|
(21.8
|
)
|
||
Special items—merger-related costs and other
(a)
|
0.30
|
|
|
0.09
|
|
|
233.3
|
|
||
CASM, excluding fuel and special items
|
|
7.30
|
¢
|
|
|
7.39
|
¢
|
|
(1.2
|
)
|
(a)
|
Refer to
Note 11
to the consolidated financial statement for the description of special items.
|
|
Twelve Months Ended December 31,
|
||||||||
|
2016
|
|
2015
|
|
Change
|
|
2014
|
|
Change
|
Consolidated Operating Statistics:
(a)
|
|
|
|
|
|
|
|
|
|
Revenue passengers (000)
|
34,289
|
|
31,883
|
|
7.5%
|
|
29,278
|
|
8.9%
|
RPMs (000,000) "traffic"
|
37,209
|
|
33,578
|
|
10.8%
|
|
30,718
|
|
9.3%
|
ASMs (000,000) "capacity"
|
44,135
|
|
39,914
|
|
10.6%
|
|
36,078
|
|
10.6%
|
Load factor
|
84.3%
|
|
84.1%
|
|
0.2 pts
|
|
85.1%
|
|
(1.0) pts
|
Yield
|
13.45¢
|
|
14.27¢
|
|
(5.7)%
|
|
14.91¢
|
|
(4.3)%
|
PRASM
|
11.34¢
|
|
12.01¢
|
|
(5.6)%
|
|
12.69¢
|
|
(5.4)%
|
RASM
|
13.44¢
|
|
14.03¢
|
|
(4.2)%
|
|
14.88¢
|
|
(5.7)%
|
CASM excluding fuel and special items
(b)
|
8.23¢
|
|
8.30¢
|
|
(0.8)%
|
|
8.36¢
|
|
(0.7)%
|
Economic fuel cost per gallon
(b)
|
$1.52
|
|
$1.88
|
|
(19.1)%
|
|
$3.08
|
|
(39.0)%
|
Fuel gallons (000,000)
|
554
|
|
508
|
|
9.1%
|
|
469
|
|
8.3%
|
ASM's per gallon
|
79.7
|
|
78.6
|
|
1.4%
|
|
76.9
|
|
2.2%
|
Average number of full-time equivalent employees (FTEs)
|
14,760
|
|
13,858
|
|
6.5%
|
|
12,739
|
|
8.8%
|
|
|
|
|
|
|
|
|
|
|
Mainline Operating Statistics:
|
|
|
|
|
|
|
|
|
|
Revenue passengers (000)
|
24,838
|
|
22,869
|
|
8.6%
|
|
20,972
|
|
9.0%
|
RPMs (000,000) "traffic"
|
33,489
|
|
30,340
|
|
10.4%
|
|
27,778
|
|
9.2%
|
ASMs (000,000) "capacity"
|
39,473
|
|
35,912
|
|
9.9%
|
|
32,430
|
|
10.7%
|
Load factor
|
84.8%
|
|
84.5%
|
|
0.3 pts
|
|
85.7%
|
|
(1.2) pts
|
Yield
|
12.24¢
|
|
12.98¢
|
|
(5.7)%
|
|
13.58¢
|
|
(4.4)%
|
PRASM
|
10.38¢
|
|
10.97¢
|
|
(5.4)%
|
|
11.64¢
|
|
(5.8)%
|
CASM excluding fuel and special items
(b)
|
7.30¢
|
|
7.39¢
|
|
(1.2)%
|
|
7.45¢
|
|
(0.8)%
|
Economic fuel cost per gallon
(b)
|
$1.52
|
|
$1.87
|
|
(18.7)%
|
|
$3.07
|
|
(39.1)%
|
Fuel gallons (000,000)
|
474
|
|
439
|
|
8.0%
|
|
407
|
|
7.9%
|
ASM's per gallon
|
83.3
|
|
81.8
|
|
1.8%
|
|
79.7
|
|
2.6%
|
Average number of FTEs
|
11,447
|
|
10,750
|
|
6.5%
|
|
9,910
|
|
8.5%
|
Aircraft utilization
|
10.5
|
|
10.8
|
|
(2.8)%
|
|
10.5
|
|
2.9%
|
Average aircraft stage length
|
1,225
|
|
1,195
|
|
2.5%
|
|
1,182
|
|
1.1%
|
Mainline operating fleet at period-end
|
218 a/c
|
|
147 a/c
|
|
71 a/c
|
|
137 a/c
|
|
10 a/c
|
|
|
|
|
|
|
|
|
|
|
Regional Operating Statistics:
(c)
|
|
|
|
|
|
|
|
|
|
Revenue passengers (000)
|
9,452
|
|
9,015
|
|
4.8%
|
|
8,306
|
|
8.5%
|
RPMs (000,000) "traffic"
|
3,720
|
|
3,238
|
|
14.9%
|
|
2,940
|
|
10.1%
|
ASMs (000,000) "capacity"
|
4,662
|
|
4,002
|
|
16.5%
|
|
3,648
|
|
9.7%
|
Load factor
|
79.8%
|
|
80.9%
|
|
(1.1) pts
|
|
80.6%
|
|
0.3 pts
|
Yield
|
24.42¢
|
|
26.37¢
|
|
(7.4)%
|
|
27.40¢
|
|
(3.8)%
|
PRASM
|
19.49¢
|
|
21.34¢
|
|
(8.7)%
|
|
22.08¢
|
|
(3.4)%
|
(a)
|
Except for FTEs, data includes information related to regional CPA flying with Horizon, SkyWest and PenAir.
|
(b)
|
See reconciliation of this measure to the most directly related GAAP measure in the "Results of Operations" section.
|
(c)
|
Data presented includes information related to regional CPAs.
|
|
Twelve Months Ended December 31,
|
||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
||||
Passenger
|
|
|
|
|
|
||||
Mainline
|
$
|
4,098
|
|
|
$
|
3,939
|
|
|
4
|
Regional
|
908
|
|
|
854
|
|
|
6
|
||
Total passenger revenue
|
$
|
5,006
|
|
|
$
|
4,793
|
|
|
4
|
Freight and mail
|
108
|
|
|
108
|
|
|
—
|
||
Other—net
|
817
|
|
|
697
|
|
|
17
|
||
Total operating revenues
|
$
|
5,931
|
|
|
$
|
5,598
|
|
|
6
|
|
Twelve Months Ended December 31,
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
|||||
Fuel expense
|
$
|
831
|
|
|
$
|
954
|
|
|
(13
|
)
|
Non-fuel expenses
|
3,634
|
|
|
3,314
|
|
|
10
|
|
||
Special items—merger-related costs and other
|
117
|
|
|
32
|
|
|
266
|
|
||
Total Operating Expenses
|
$
|
4,582
|
|
|
$
|
4,300
|
|
|
7
|
|
|
Twelve Months Ended December 31,
|
|||||||||
(in millions)
|
2016
|
|
2015
|
|
% Change
|
|||||
Wages
|
$
|
1,022
|
|
|
$
|
945
|
|
|
8
|
|
Medical and other benefits
|
192
|
|
|
153
|
|
|
25
|
|
||
Defined contribution plans
|
67
|
|
|
60
|
|
|
12
|
|
||
Pension—Defined benefit plans
|
25
|
|
|
28
|
|
|
(11
|
)
|
||
Payroll taxes
|
76
|
|
|
68
|
|
|
12
|
|
||
Total wages and benefits
|
$
|
1,382
|
|
|
$
|
1,254
|
|
|
10
|
|
|
Twelve Months Ended December 31,
|
||||||||||||||
|
2016
|
|
2015
|
||||||||||||
(in millions, except for per gallon amounts)
|
Dollars
|
|
Cost/Gal
|
|
Dollars
|
|
Cost/Gal
|
||||||||
Raw or "into-plane" fuel cost
|
$
|
828
|
|
|
$
|
1.49
|
|
|
$
|
935
|
|
|
$
|
1.84
|
|
Losses on settled hedges
|
16
|
|
|
0.03
|
|
|
19
|
|
|
0.04
|
|
||||
Consolidated economic fuel expense
|
$
|
844
|
|
|
$
|
1.52
|
|
|
$
|
954
|
|
|
$
|
1.88
|
|
Mark-to-market fuel hedge adjustments
|
(13
|
)
|
|
(0.02
|
)
|
|
—
|
|
|
—
|
|
||||
GAAP fuel expense
|
$
|
831
|
|
|
$
|
1.50
|
|
|
$
|
954
|
|
|
$
|
1.88
|
|
Fuel gallons
|
554
|
|
|
|
|
508
|
|
|
|
|
Twelve Months Ended December 31,
|
||||||||||||||
|
2015
|
|
2014
|
||||||||||||
(in millions, except per-share amounts)
|
Dollars
|
|
Diluted EPS
|
|
Dollars
|
|
Diluted EPS
|
||||||||
Reported GAAP net income and diluted EPS
|
$
|
848
|
|
|
$
|
6.56
|
|
|
$
|
605
|
|
|
$
|
4.42
|
|
Mark-to-market fuel hedge adjustments
|
—
|
|
|
—
|
|
|
(23
|
)
|
|
(0.16
|
)
|
||||
Special items
|
32
|
|
|
0.25
|
|
|
$
|
(30
|
)
|
|
$
|
(0.22
|
)
|
||
Income tax effect of special items
|
(12
|
)
|
|
(0.10
|
)
|
|
19
|
|
|
0.14
|
|
||||
Special income tax benefit
(a)
|
(26
|
)
|
|
(0.20
|
)
|
|
—
|
|
|
—
|
|
||||
Non-GAAP adjusted net income and diluted EPS
|
$
|
842
|
|
|
$
|
6.51
|
|
|
$
|
571
|
|
|
$
|
4.18
|
|
(a)
|
Special tax benefit represents the discrete impacts of adjustments to our position on income sourcing in various states.
|
|
Twelve Months Ended December 31,
|
|||||||||
|
2015
|
|
2014
|
|
% Change
|
|||||
Consolidated:
|
|
|
|
|
|
|||||
Total operating expenses per ASM (CASM)
|
|
10.77
|
¢
|
|
|
12.21
|
¢
|
|
(11.8
|
)
|
Less the following components:
|
|
|
|
|
|
|
||||
Aircraft fuel, including hedging gains and losses
|
2.39
|
|
|
3.93
|
|
|
(39.2
|
)
|
||
Special items
|
0.08
|
|
|
(0.08
|
)
|
|
NM
|
|
||
CASM, excluding fuel and special items
|
|
8.30
|
¢
|
|
|
8.36
|
¢
|
|
(0.7
|
)
|
|
|
|
|
|
|
|||||
Mainline:
|
|
|
|
|
|
|||||
Total operating expenses per ASM (CASM)
|
|
9.77
|
¢
|
|
|
11.15
|
¢
|
|
(12.4
|
)
|
Less the following components:
|
|
|
|
|
|
|
||||
Aircraft fuel, including hedging gains and losses
|
2.29
|
|
|
3.79
|
|
|
(39.6
|
)
|
||
Special items
|
0.09
|
|
|
(0.09
|
)
|
|
NM
|
|
||
CASM, excluding fuel and special items
|
|
7.39
|
¢
|
|
|
7.45
|
¢
|
|
(0.8
|
)
|
|
Twelve Months Ended December 31,
|
|||||||||
(in millions)
|
2015
|
|
2014
|
|
% Change
|
|||||
Passenger
|
|
|
|
|
|
|||||
Mainline
|
$
|
3,939
|
|
|
$
|
3,774
|
|
|
4
|
|
Regional
|
854
|
|
|
805
|
|
|
6
|
|
||
Total passenger revenue
|
$
|
4,793
|
|
|
$
|
4,579
|
|
|
5
|
|
Freight and mail
|
108
|
|
|
114
|
|
|
(5
|
)
|
||
Other—net
|
697
|
|
|
675
|
|
|
3
|
|
||
Total operating revenues
|
$
|
5,598
|
|
|
$
|
5,368
|
|
|
4
|
|
|
Twelve Months Ended December 31,
|
|||||||||
(in millions)
|
2015
|
|
2014
|
|
% Change
|
|||||
Fuel expense
|
$
|
954
|
|
|
$
|
1,418
|
|
|
(33
|
)
|
Non-fuel expenses
|
3,314
|
|
|
3,018
|
|
|
10
|
|
||
Special items
|
32
|
|
|
(30
|
)
|
|
NM
|
|
||
Total Operating Expenses
|
$
|
4,300
|
|
|
$
|
4,406
|
|
|
(2
|
)
|
|
Twelve Months Ended December 31,
|
||||||||
(in millions)
|
2015
|
|
2014
|
|
% Change
|
||||
Wages
|
$
|
945
|
|
|
$
|
862
|
|
|
10
|
Medical and other benefits
|
153
|
|
|
150
|
|
|
2
|
||
Defined contribution plans
|
60
|
|
|
53
|
|
|
13
|
||
Pension—defined benefit plans
|
28
|
|
|
9
|
|
|
211
|
||
Payroll taxes
|
68
|
|
|
62
|
|
|
10
|
||
Total wages and benefits
|
$
|
1,254
|
|
|
$
|
1,136
|
|
|
10
|
|
Twelve Months Ended December 31,
|
||||||||||||||
|
2015
|
|
2014
|
||||||||||||
(in millions, except for per gallon amounts)
|
Dollars
|
|
Cost/Gal
|
|
Dollars
|
|
Cost/Gal
|
||||||||
Raw or "into-plane" fuel cost
|
$
|
935
|
|
|
$
|
1.84
|
|
|
$
|
1,400
|
|
|
$
|
2.99
|
|
Losses on settled hedges
|
19
|
|
|
0.04
|
|
|
41
|
|
|
0.09
|
|
||||
Consolidated economic fuel expense
|
$
|
954
|
|
|
$
|
1.88
|
|
|
$
|
1,441
|
|
|
$
|
3.08
|
|
Mark-to-mark fuel hedge adjustments
|
—
|
|
|
—
|
|
|
(23
|
)
|
|
(0.05
|
)
|
||||
GAAP fuel expense
|
$
|
954
|
|
|
$
|
1.88
|
|
|
$
|
1,418
|
|
|
$
|
3.03
|
|
Fuel gallons
|
508
|
|
|
|
|
469
|
|
|
|
•
|
Our existing cash and marketable securities balance of
$1.6 billion
and our expected cash from operations;
|
•
|
Our
52
unencumbered aircraft in the operating fleet as of
December 31, 2016
, that could be financed, if necessary; and
|
•
|
Our combined $200 million bank line-of-credit facilities, with none currently outstanding.
|
(in millions, except per share and debt-to-capital amounts)
|
December 31, 2016
|
|
December 31, 2015
|
|
Change
|
Cash and marketable securities
|
$1,580
|
|
$1,328
|
|
$252
|
Cash, marketable securities and unused lines of credit as a percentage of trailing twelve months revenue
|
31%
|
|
28%
|
|
3 pts
|
Long-term debt, net of current portion
|
2,645
|
|
569
|
|
2,076
|
Shareholders’ equity
|
2,931
|
|
2,411
|
|
520
|
Long-term debt-to-capital ratio
(a)
|
59%
|
|
27%
|
|
32 pts
|
(a)
|
Calculated using the present value of remaining aircraft lease payments for aircraft that are in our operating fleet as of the balance sheet date.
|
(in millions)
|
2016 Actuals
|
|
2017
|
|
2018
|
|
2019
|
|
2020
|
||||||||||
Aircraft and aircraft purchase deposits - firm
(a)
|
$
|
528
|
|
|
$
|
805
|
|
|
$
|
685
|
|
|
$
|
595
|
|
|
$
|
290
|
|
Other flight equipment
|
53
|
|
|
145
|
|
|
135
|
|
|
95
|
|
|
55
|
|
|||||
Other property and equipment
|
97
|
|
|
215
|
|
|
205
|
|
|
90
|
|
|
75
|
|
|||||
Total property and equipment additions
|
$
|
678
|
|
|
$
|
1,165
|
|
|
$
|
1,025
|
|
|
$
|
780
|
|
|
$
|
420
|
|
Option aircraft and aircraft deposits, if exercised
|
$
|
—
|
|
|
$
|
60
|
|
|
$
|
235
|
|
|
$
|
705
|
|
|
$
|
1,415
|
|
(a)
|
Excludes orders with cancellation options.
|
|
Actual Fleet Count
|
|
Expected Fleet Activity
(a)
|
||||||||||||||
Aircraft
|
Dec 31, 2015
|
|
Dec 31, 2016
|
|
2017 Changes
|
|
Dec 31, 2017
|
|
2018 - 2019 Changes
|
|
Dec 31, 2019
|
||||||
B737 Freighters & Combis
(b)
|
6
|
|
|
6
|
|
|
(3
|
)
|
|
3
|
|
|
—
|
|
|
3
|
|
B737 Passenger Aircraft
(b)
|
141
|
|
|
149
|
|
|
2
|
|
|
151
|
|
|
15
|
|
|
166
|
|
Airbus Passenger Aircraft
|
—
|
|
|
63
|
|
|
5
|
|
|
68
|
|
|
4
|
|
|
72
|
|
Total Mainline Fleet
|
147
|
|
|
218
|
|
|
4
|
|
|
222
|
|
|
19
|
|
|
241
|
|
Q400
(c)
|
52
|
|
|
52
|
|
|
—
|
|
|
52
|
|
|
(15
|
)
|
|
37
|
|
E175
(c)
|
5
|
|
|
15
|
|
|
18
|
|
|
33
|
|
|
20
|
|
|
53
|
|
CRJ700
(c)
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Regional Fleet
|
65
|
|
|
67
|
|
|
18
|
|
|
85
|
|
|
5
|
|
|
90
|
|
Total
|
212
|
|
|
285
|
|
|
22
|
|
|
307
|
|
|
24
|
|
|
331
|
|
(a)
|
The expected fleet counts at
December 31, 2017
,
2018
and
2019
are subject to change.
|
(b)
|
2017
changes in passenger aircraft reflect delivery of
14
Boeing 737-900ER aircraft, retirement of 10 B737-400 aircraft and the conversion of two B737-700 aircraft into freighters. The freighter and combi changes reflect retirement of five combis and one freighter and the reintroduction of three B737-700 aircraft as freighters.
|
(c)
|
Aircraft are either owned or leased by Horizon or operated under capacity purchase agreement with a third party.
|
|
Approximate % of Expected Fuel Requirements
|
|
Weighted-Average Crude Oil Price per Barrel
|
|
Average Premium Cost per Barrel
|
First Quarter 2017
|
50%
|
|
$60
|
|
$2
|
Second Quarter 2017
|
50%
|
|
$62
|
|
$2
|
Third Quarter 2017
|
40%
|
|
$63
|
|
$2
|
Fourth Quarter 2017
|
30%
|
|
$65
|
|
$3
|
Full Year 2017
|
42%
|
|
$62
|
|
$2
|
First Quarter 2018
|
20%
|
|
$65
|
|
$3
|
Second Quarter 2018
|
10%
|
|
$67
|
|
$2
|
Full Year 2018
|
7%
|
|
$65
|
|
$2
|
(in millions)
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
Beyond 2021
|
|
Total
|
||||||||||||||
Current and long-term debt obligations
|
$
|
321
|
|
|
$
|
351
|
|
|
$
|
424
|
|
|
$
|
451
|
|
|
$
|
424
|
|
|
$
|
1,007
|
|
|
$
|
2,978
|
|
Operating lease commitments
(a)
|
425
|
|
|
389
|
|
|
368
|
|
|
336
|
|
|
292
|
|
|
1,124
|
|
|
2,934
|
|
|||||||
Aircraft maintenance deposits
(b)
|
59
|
|
|
61
|
|
|
65
|
|
|
68
|
|
|
63
|
|
|
90
|
|
|
406
|
|
|||||||
Aircraft purchase commitments
(c)
|
926
|
|
|
848
|
|
|
694
|
|
|
354
|
|
|
277
|
|
|
361
|
|
|
3,460
|
|
|||||||
Interest obligations
(d)
|
90
|
|
|
78
|
|
|
66
|
|
|
54
|
|
|
40
|
|
|
96
|
|
|
424
|
|
|||||||
Aircraft maintenance and parts management
(e)
|
30
|
|
|
32
|
|
|
35
|
|
|
37
|
|
|
40
|
|
|
—
|
|
|
174
|
|
|||||||
Other obligations
(f)
|
80
|
|
|
84
|
|
|
89
|
|
|
94
|
|
|
98
|
|
|
692
|
|
|
1,137
|
|
|||||||
Total
|
$
|
1,931
|
|
|
$
|
1,843
|
|
|
$
|
1,741
|
|
|
$
|
1,394
|
|
|
$
|
1,234
|
|
|
$
|
3,370
|
|
|
$
|
11,513
|
|
(a)
|
Operating lease commitments generally include aircraft operating leases, airport property and hangar leases, office space, and other equipment leases. Included here are Airbus aircraft operated by Virgin America and E175 aircraft that are operated by SkyWest under a capacity purchase agreement.
|
(b)
|
Aircraft maintenance deposits relate to leased Airbus aircraft.
|
(c)
|
Represents non-cancelable contractual payment commitments for aircraft and engines.
|
(d)
|
For variable-rate debt, future obligations are shown above using interest rates forecast as of
December 31, 2016
.
|
(e)
|
Includes minimum obligations under a parts management and maintenance agreement with a third-party vendor.
|
(f)
|
Includes minimum obligations associated with the SkyWest third-party CPA. Refer to
Note 9
in the consolidated financial statements for further information.
|
1.
|
The rate at which we defer sales proceeds related to services sold through non-airline partners:
|
2.
|
The number of miles that will not be redeemed for travel (breakage):
|
3.
|
The number of miles used per award:
|
4.
|
The number of awards redeemed for travel on our airlines versus other airlines:
|
5.
|
The costs that will be incurred to provide award travel for miles earned by guests who fly on us or our airline partners:
|
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
||||||||||||||||||||||||
(in millions, except per share)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
||||||||||||||||
Operating revenues
|
$
|
1,347
|
|
|
$
|
1,269
|
|
|
$
|
1,494
|
|
|
$
|
1,437
|
|
|
$
|
1,566
|
|
|
$
|
1,515
|
|
|
$
|
1,524
|
|
|
$
|
1,377
|
|
Operating income
|
290
|
|
|
238
|
|
|
418
|
|
|
372
|
|
|
400
|
|
|
433
|
|
|
241
|
|
|
255
|
|
||||||||
Net income
|
184
|
|
|
149
|
|
|
260
|
|
|
234
|
|
|
256
|
|
|
274
|
|
|
114
|
|
|
191
|
|
||||||||
Basic earnings per share
(a)
|
1.47
|
|
|
1.13
|
|
|
2.11
|
|
|
1.80
|
|
|
2.08
|
|
|
2.15
|
|
|
0.92
|
|
|
1.52
|
|
||||||||
Diluted earnings per share
(a)
|
1.46
|
|
|
1.12
|
|
|
2.10
|
|
|
1.79
|
|
|
2.07
|
|
|
2.14
|
|
|
0.92
|
|
|
1.51
|
|
(a)
|
For earnings per share, the sum of the quarters may not equal the total for the full year due to rounding.
|
As of December 31
(in millions)
|
|
2016
|
|
2015
|
||||
ASSETS
|
|
|
|
|
||||
Current Assets
|
|
|
|
|
||||
Cash and cash equivalents
|
|
$
|
328
|
|
|
$
|
73
|
|
Marketable securities
|
|
1,252
|
|
|
1,255
|
|
||
Total cash and marketable securities
|
|
1,580
|
|
|
1,328
|
|
||
Receivables—less allowance for doubtful accounts of $1 and $1
|
|
302
|
|
|
212
|
|
||
Inventories and supplies—net
|
|
47
|
|
|
51
|
|
||
Prepaid expenses and other current assets
|
|
121
|
|
|
72
|
|
||
Total Current Assets
|
|
2,050
|
|
|
1,663
|
|
||
|
|
|
|
|
||||
Property and Equipment
|
|
|
|
|
|
|
||
Aircraft and other flight equipment
|
|
6,947
|
|
|
5,690
|
|
||
Other property and equipment
|
|
1,103
|
|
|
955
|
|
||
Deposits for future flight equipment
|
|
545
|
|
|
771
|
|
||
|
|
8,595
|
|
|
7,416
|
|
||
Less accumulated depreciation and amortization
|
|
2,929
|
|
|
2,614
|
|
||
Total Property and Equipment—Net
|
|
5,666
|
|
|
4,802
|
|
||
|
|
|
|
|
||||
Other Assets
|
|
|
|
|
||||
Goodwill
|
|
1,934
|
|
|
—
|
|
||
Intangible assets
|
|
143
|
|
|
—
|
|
||
Other noncurrent assets
|
|
169
|
|
|
65
|
|
||
Total Other Assets
|
|
2,246
|
|
|
65
|
|
||
|
|
|
|
|
||||
Total Assets
|
|
$
|
9,962
|
|
|
$
|
6,530
|
|
As of December 31
(in millions except share amounts)
|
|
2016
|
|
2015
|
||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
||||
Current Liabilities
|
|
|
|
|
||||
Accounts payable
|
|
$
|
92
|
|
|
$
|
63
|
|
Accrued wages, vacation and payroll taxes
|
|
397
|
|
|
298
|
|
||
Air traffic liability
|
|
849
|
|
|
669
|
|
||
Other accrued liabilities
|
|
878
|
|
|
661
|
|
||
Current portion of long-term debt
|
|
319
|
|
|
114
|
|
||
Total Current Liabilities
|
|
2,535
|
|
|
1,805
|
|
||
|
|
|
|
|
||||
Long-Term Debt, Net of Current Portion
|
|
2,645
|
|
|
569
|
|
||
|
|
|
|
|
||||
Other Liabilities and Credits
|
|
|
|
|
|
|
||
Deferred income taxes
|
|
463
|
|
|
682
|
|
||
Deferred revenue
|
|
640
|
|
|
431
|
|
||
Obligation for pension and postretirement medical benefits
|
|
331
|
|
|
270
|
|
||
Other liabilities
|
|
417
|
|
|
362
|
|
||
Total Other Liabilities and Credits
|
|
1,851
|
|
|
1,745
|
|||
|
|
|
|
|
||||
Commitments and Contingencies (Note 9)
|
|
|
|
|
|
|
||
|
|
|
|
|
||||
Shareholders' Equity
|
|
|
|
|
|
|
||
Preferred stock, $0.01 par value, Authorized: 5,000,000 shares, none issued or outstanding
|
|
—
|
|
|
—
|
|
||
Common stock, $0.01 par value, Authorized: 200,000,000 shares, Issued: 2016 - 129,189,634 shares; 2015 - 128,442,099 shares, Outstanding: 2016 - 123,328,051 shares; 2015 - 125,175,325 shares
|
|
1
|
|
|
1
|
|
||
Capital in excess of par value
|
|
110
|
|
|
73
|
|
||
Treasury stock (common), at cost: 2016 - 5,861,583 shares; 2015 - 3,266,774 shares
|
|
(443)
|
|
|
(250)
|
|
||
Accumulated other comprehensive loss
|
|
(305)
|
|
|
(303)
|
|
||
Retained earnings
|
|
3,568
|
|
|
2,890
|
|
||
|
|
2,931
|
|
2,411
|
||||
Total Liabilities and Shareholders' Equity
|
|
$
|
9,962
|
|
|
$
|
6,530
|
|
Year Ended December 31
(in millions, except per-share amounts)
|
2016
|
|
2015
|
|
2014
|
||||||
Operating Revenues
|
|
|
|
|
|
||||||
Passenger
|
|
|
|
|
|
||||||
Mainline
|
$
|
4,098
|
|
|
$
|
3,939
|
|
|
$
|
3,774
|
|
Regional
|
908
|
|
|
854
|
|
|
805
|
|
|||
Total passenger revenue
|
5,006
|
|
|
4,793
|
|
|
4,579
|
|
|||
Freight and mail
|
108
|
|
|
108
|
|
|
114
|
|
|||
Other—net
|
817
|
|
|
697
|
|
|
675
|
|
|||
Total Operating Revenues
|
5,931
|
|
|
5,598
|
|
|
5,368
|
|
|||
|
|
|
|
|
|
||||||
Operating Expenses
|
|
|
|
|
|
|
|
|
|||
Wages and benefits
|
1,382
|
|
|
1,254
|
|
|
1,136
|
|
|||
Variable incentive pay
|
127
|
|
|
120
|
|
|
116
|
|
|||
Aircraft fuel, including hedging gains and losses
|
831
|
|
|
954
|
|
|
1,418
|
|
|||
Aircraft maintenance
|
270
|
|
|
253
|
|
|
229
|
|
|||
Aircraft rent
|
114
|
|
|
105
|
|
|
110
|
|
|||
Landing fees and other rentals
|
320
|
|
|
296
|
|
|
279
|
|
|||
Contracted services
|
247
|
|
|
214
|
|
|
196
|
|
|||
Selling expenses
|
225
|
|
|
211
|
|
|
199
|
|
|||
Depreciation and amortization
|
363
|
|
|
320
|
|
|
294
|
|
|||
Food and beverage service
|
126
|
|
|
113
|
|
|
93
|
|
|||
Third-party regional carrier expense
|
95
|
|
|
72
|
|
|
58
|
|
|||
Other
|
365
|
|
|
356
|
|
|
308
|
|
|||
Special items—merger-related costs and other
|
117
|
|
|
32
|
|
|
(30
|
)
|
|||
Total Operating Expenses
|
4,582
|
|
|
4,300
|
|
|
4,406
|
|
|||
Operating Income
|
1,349
|
|
|
1,298
|
|
|
962
|
|
|||
|
|
|
|
|
|
||||||
Nonoperating Income (Expense)
|
|
|
|
|
|
|
|
|
|||
Interest income
|
27
|
|
|
21
|
|
|
21
|
|
|||
Interest expense
|
(55
|
)
|
|
(42
|
)
|
|
(48
|
)
|
|||
Interest capitalized
|
25
|
|
|
34
|
|
|
20
|
|
|||
Other—net
|
(1
|
)
|
|
1
|
|
|
20
|
|
|||
|
(4
|
)
|
|
14
|
|
|
13
|
|
|||
Income before income tax
|
1,345
|
|
|
1,312
|
|
|
975
|
|
|||
Income tax expense
|
531
|
|
|
464
|
|
|
370
|
|
|||
Net Income
|
$
|
814
|
|
|
$
|
848
|
|
|
$
|
605
|
|
|
|
|
|
|
|
||||||
Basic Earnings Per Share
|
$
|
6.59
|
|
|
$
|
6.61
|
|
|
$
|
4.47
|
|
Diluted Earnings Per Share
|
$
|
6.54
|
|
|
$
|
6.56
|
|
|
$
|
4.42
|
|
Shares used for computation:
|
|
|
|
|
|
|
|
||||
Basic
|
123.557
|
|
|
128.373
|
|
|
135.445
|
|
|||
Diluted
|
124.389
|
|
|
129.372
|
|
|
136.801
|
|
|||
|
|
|
|
|
|
||||||
Cash dividend declared per share
|
$
|
1.10
|
|
|
$
|
0.80
|
|
|
$
|
0.50
|
|
Year Ended December 31
(in millions)
|
2016
|
|
2015
|
|
2014
|
||||||
|
|
|
|
|
|
||||||
Net Income
|
$
|
814
|
|
|
$
|
848
|
|
|
$
|
605
|
|
|
|
|
|
|
|
||||||
Other Comprehensive Income (Loss):
|
|
|
|
|
|
||||||
Related to marketable securities:
|
|
|
|
|
|
||||||
Unrealized holding gains (losses) arising during the period
|
1
|
|
|
(6
|
)
|
|
2
|
|
|||
Reclassification of (gains) losses into Other-net nonoperating income (expense)
|
(1
|
)
|
|
1
|
|
|
(2
|
)
|
|||
Income tax benefit (expense)
|
—
|
|
|
2
|
|
|
—
|
|
|||
Total
|
—
|
|
|
(3
|
)
|
|
—
|
|
|||
|
|
|
|
|
|
||||||
Related to employee benefit plans:
|
|
|
|
|
|
||||||
Actuarial gains (losses) related to pension and other postretirement benefit plans
|
(43
|
)
|
|
10
|
|
|
(210
|
)
|
|||
Reclassification of net pension expense into Wages and benefits
|
20
|
|
|
14
|
|
|
9
|
|
|||
Income tax benefit (expense)
|
12
|
|
|
(14
|
)
|
|
76
|
|
|||
Total
|
(11
|
)
|
|
10
|
|
|
(125
|
)
|
|||
|
|
|
|
|
|
||||||
Related to interest rate derivative instruments:
|
|
|
|
|
|
||||||
Unrealized holding gains (losses) arising during the period
|
8
|
|
|
(5
|
)
|
|
(8
|
)
|
|||
Reclassification of losses into Aircraft rent
|
6
|
|
|
6
|
|
|
6
|
|
|||
Income tax benefit (expense)
|
(5
|
)
|
|
(1
|
)
|
|
—
|
|
|||
Total
|
9
|
|
|
—
|
|
|
(2
|
)
|
|||
|
|
|
|
|
|
||||||
Other Comprehensive Income (Loss)
|
(2
|
)
|
|
7
|
|
|
(127
|
)
|
|||
Comprehensive Income
|
$
|
812
|
|
|
$
|
855
|
|
|
$
|
478
|
|
(in millions)
|
Common Stock Outstanding
|
|
Common Stock
|
|
Capital in Excess of Par Value
|
|
Treasury Stock
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Retained Earnings
|
|
Total
|
|||||||||||||
Balances at December 31, 2013
|
137.492
|
|
|
$
|
1
|
|
|
$
|
606
|
|
|
$
|
(2
|
)
|
|
$
|
(183
|
)
|
|
$
|
1,607
|
|
|
$
|
2,029
|
|
2014 net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
605
|
|
|
605
|
|
||||||
Other comprehensive income/(loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(127
|
)
|
|
—
|
|
|
(127
|
)
|
||||||
Common stock repurchase
|
(7.317
|
)
|
|
—
|
|
|
(346
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(348
|
)
|
||||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
16
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16
|
|
||||||
Cash dividend declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(68
|
)
|
|
(68
|
)
|
||||||
Stock issued for employee stock purchase plan
|
0.299
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
||||||
Stock issued under stock plans
|
1.007
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11
|
|
||||||
Balances at December 31, 2014
|
131.481
|
|
|
1
|
|
|
296
|
|
|
(4
|
)
|
|
(310
|
)
|
|
2,144
|
|
|
2,127
|
|
||||||
2015 net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
848
|
|
|
848
|
|
||||||
Other comprehensive income/(loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
||||||
Common stock repurchase
|
(7.208
|
)
|
|
—
|
|
|
(259
|
)
|
|
(246
|
)
|
|
—
|
|
|
—
|
|
|
(505
|
)
|
||||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
||||||
Cash dividend declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(102
|
)
|
|
(102
|
)
|
||||||
Stock issued for employee stock purchase plan
|
0.281
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13
|
|
||||||
Stock issued under stock plans
|
0.621
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6
|
|
||||||
Balances at December 31, 2015
|
125.175
|
|
|
1
|
|
|
73
|
|
|
(250
|
)
|
|
(303
|
)
|
|
2,890
|
|
|
2,411
|
|
||||||
2016 net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
814
|
|
|
814
|
|
||||||
Other comprehensive income/(loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
||||||
Common stock repurchase
|
(2.595
|
)
|
|
—
|
|
|
—
|
|
|
(193
|
)
|
|
—
|
|
|
—
|
|
|
(193
|
)
|
||||||
Stock-based compensation
|
—
|
|
|
—
|
|
|
19
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
||||||
Cash dividend declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(136
|
)
|
|
(136
|
)
|
||||||
Stock issued for employee stock purchase plan
|
0.309
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
||||||
Stock issued under stock plans
|
0.439
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
||||||
Balances at December 31, 2016
|
123.328
|
|
|
$
|
1
|
|
|
$
|
110
|
|
|
$
|
(443
|
)
|
|
$
|
(305
|
)
|
|
$
|
3,568
|
|
|
$
|
2,931
|
|
Year Ended December 31
(in millions)
|
|
2016
|
|
2015
|
|
2014
|
||||||
Cash flows from operating activities:
|
|
|
|
|
|
|
||||||
Net income
|
|
$
|
814
|
|
|
$
|
848
|
|
|
$
|
605
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|||
Depreciation and amortization
|
|
363
|
|
|
320
|
|
|
294
|
|
|||
Stock-based compensation and other
|
|
26
|
|
|
25
|
|
|
6
|
|
|||
Changes in certain assets and liabilities:
|
|
|
|
|
|
|
||||||
Changes in deferred tax provision
|
|
94
|
|
|
56
|
|
|
114
|
|
|||
(Increase) decrease in accounts receivable
|
|
(46
|
)
|
|
47
|
|
|
(110
|
)
|
|||
Increase (decrease) in air traffic liability
|
|
9
|
|
|
38
|
|
|
67
|
|
|||
Increase (decrease) in deferred revenue
|
|
83
|
|
|
57
|
|
|
40
|
|
|||
Changes in pension and other postretirement benefits
|
|
23
|
|
|
36
|
|
|
(18
|
)
|
|||
Other—net
|
|
20
|
|
|
157
|
|
|
32
|
|
|||
Net cash provided by operating activities
|
|
1,386
|
|
|
1,584
|
|
|
1,030
|
|
|||
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|||
Property and equipment additions:
|
|
|
|
|
|
|
|
|
|
|||
Aircraft and aircraft purchase deposits
|
|
(528
|
)
|
|
(681
|
)
|
|
(498
|
)
|
|||
Other flight equipment
|
|
(53
|
)
|
|
(79
|
)
|
|
(131
|
)
|
|||
Other property and equipment
|
|
(97
|
)
|
|
(71
|
)
|
|
(65
|
)
|
|||
Total property and equipment additions
|
|
(678
|
)
|
|
(831
|
)
|
|
(694
|
)
|
|||
Acquisition of Virgin America, net of cash acquired
|
|
(1,951
|
)
|
|
—
|
|
|
—
|
|
|||
Purchases of marketable securities
|
|
(960
|
)
|
|
(1,327
|
)
|
|
(949
|
)
|
|||
Sales and maturities of marketable securities
|
|
962
|
|
|
1,175
|
|
|
1,092
|
|
|||
Proceeds from disposition of assets and changes in restricted deposits
|
|
5
|
|
|
53
|
|
|
10
|
|
|||
Net cash used in investing activities
|
|
(2,622
|
)
|
|
(930
|
)
|
|
(541
|
)
|
|||
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|||
Proceeds from issuance of long-term debt, net of issuance costs
|
|
2,044
|
|
|
—
|
|
|
51
|
|
|||
Long-term debt payments
|
|
(249
|
)
|
|
(116
|
)
|
|
(119
|
)
|
|||
Common stock repurchases
|
|
(193
|
)
|
|
(505
|
)
|
|
(348
|
)
|
|||
Cash dividend paid
|
|
(136
|
)
|
|
(102
|
)
|
|
(68
|
)
|
|||
Other financing activities
|
|
25
|
|
|
35
|
|
|
22
|
|
|||
Net cash provided by (used in) financing activities
|
|
1,491
|
|
|
(688
|
)
|
|
(462
|
)
|
|||
Net increase (decrease) in cash and cash equivalents
|
|
255
|
|
|
(34
|
)
|
|
27
|
|
|||
Cash and cash equivalents at beginning of year
|
|
73
|
|
|
107
|
|
|
80
|
|
|||
Cash and cash equivalents at end of year
|
|
$
|
328
|
|
|
$
|
73
|
|
|
$
|
107
|
|
|
|
|
|
|
|
|
||||||
Supplemental disclosure:
|
|
|
|
|
|
|
|
|
|
|||
Cash paid during the year for:
|
|
|
|
|
|
|
||||||
Interest, net of amount capitalized
|
|
$
|
24
|
|
|
$
|
8
|
|
|
$
|
28
|
|
Income taxes, net of refunds received
|
|
459
|
|
|
349
|
|
|
326
|
|
Aircraft and related flight equipment:
|
|
Boeing 737 and Airbus 319/320 aircraft
|
20-25 years
|
Bombardier Q400 aircraft
|
15 years
|
Buildings
|
25 - 30 years
|
Minor building and land improvements
|
10 years
|
Capitalized leases and leasehold improvements
|
Generally shorter of lease term or
estimated useful life
|
Computer hardware and software
|
3-10 years
|
Other furniture and equipment
|
5-10 years
|
|
2016
|
|
2015
|
||||
Current Liabilities:
|
|
|
|
||||
Other accrued liabilities
|
$
|
484
|
|
|
$
|
368
|
|
Other Liabilities and Credits:
|
|
|
|
|
|
||
Deferred revenue
|
638
|
|
|
427
|
|
||
Other liabilities
|
21
|
|
|
19
|
|
||
Total
|
$
|
1,143
|
|
|
$
|
814
|
|
|
2016
|
|
2015
|
|
2014
|
||||||
Passenger revenues
|
$
|
293
|
|
|
$
|
267
|
|
|
$
|
246
|
|
Other
—
net revenues
|
429
|
|
|
329
|
|
|
295
|
|
|||
Total frequent flyer program revenues
|
$
|
722
|
|
|
$
|
596
|
|
|
$
|
541
|
|
|
December 14, 2016
|
|
|
Number of shares of Virgin America common stock issued and outstanding
|
44.645
|
|
|
Multiplied by cash consideration for each share of common stock per the merger agreement
|
$
|
57.00
|
|
Cash consideration paid for common stock issued and outstanding
|
2,545
|
|
|
Accelerated and vested equity awards attributable to pre-acquisition service
|
51
|
|
|
Total Purchase Price
|
$
|
2,596
|
|
|
December 14, 2016
|
||
Cash and cash equivalents
|
$
|
645
|
|
Receivables
|
44
|
|
|
Prepaid expenses and other current assets
|
16
|
|
|
Property and equipment
|
560
|
|
|
Intangible assets
|
143
|
|
|
Goodwill
|
1,934
|
|
|
Other assets
|
84
|
|
|
Total assets
|
3,426
|
|
|
|
|
||
Accounts payable
|
22
|
|
|
Accrued wages, vacation and payroll taxes
|
51
|
|
|
Air traffic liabilities
|
172
|
|
|
Other accrued liabilities
|
196
|
|
|
Current portion of long-term debt
|
125
|
|
|
Long-term debt, net of current portion
|
360
|
|
|
Deferred income taxes
|
(304
|
)
|
|
Deferred revenue
|
126
|
|
|
Other liabilities
|
82
|
|
|
Total liabilities
|
830
|
|
|
|
|
||
Total purchase price
|
$
|
2,596
|
|
(in millions, except per share amounts)
|
|
Years Ended December 31,
|
||||||
|
|
2016
|
|
2015
|
||||
Revenue
|
|
$
|
7,511
|
|
|
$
|
7,111
|
|
Net Income
|
|
1,008
|
|
|
914
|
|
December 31, 2016
|
Cost Basis
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
||||||||
Cash
|
$
|
283
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
283
|
|
Cash equivalents
|
45
|
|
|
—
|
|
|
—
|
|
|
45
|
|
||||
Cash and cash equivalents
|
328
|
|
|
—
|
|
|
—
|
|
|
328
|
|
||||
U.S. government and agency securities
|
290
|
|
|
—
|
|
|
(3
|
)
|
|
287
|
|
||||
Foreign government bonds
|
36
|
|
|
—
|
|
|
—
|
|
|
36
|
|
||||
Asset-backed securities
|
138
|
|
|
—
|
|
|
—
|
|
|
138
|
|
||||
Mortgage-backed securities
|
89
|
|
|
—
|
|
|
—
|
|
|
89
|
|
||||
Corporate notes and bonds
|
693
|
|
|
2
|
|
|
(4
|
)
|
|
691
|
|
||||
Municipal securities
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
||||
Marketable securities
|
1,257
|
|
|
2
|
|
|
(7
|
)
|
|
1,252
|
|
||||
Total
|
$
|
1,585
|
|
|
$
|
2
|
|
|
$
|
(7
|
)
|
|
$
|
1,580
|
|
December 31, 2015
|
Cost Basis
|
|
Unrealized Gains
|
|
Unrealized Losses
|
|
Fair Value
|
||||||||
Cash
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
Cash equivalents
|
69
|
|
|
—
|
|
|
—
|
|
|
69
|
|
||||
Cash and cash equivalents
|
73
|
|
|
—
|
|
|
—
|
|
|
73
|
|
||||
U.S. government and agency securities
|
254
|
|
|
—
|
|
|
(1
|
)
|
|
253
|
|
||||
Foreign government bonds
|
31
|
|
|
—
|
|
|
—
|
|
|
31
|
|
||||
Asset-backed securities
|
130
|
|
|
—
|
|
|
—
|
|
|
130
|
|
||||
Mortgage-backed securities
|
117
|
|
|
—
|
|
|
(1
|
)
|
|
116
|
|
||||
Corporate notes and bonds
|
711
|
|
|
1
|
|
|
(4
|
)
|
|
708
|
|
||||
Municipal securities
|
17
|
|
|
—
|
|
|
—
|
|
|
17
|
|
||||
Marketable securities
|
1,260
|
|
|
1
|
|
|
(6
|
)
|
|
1,255
|
|
||||
Total
|
$
|
1,333
|
|
|
$
|
1
|
|
|
$
|
(6
|
)
|
|
$
|
1,328
|
|
|
2016
|
|
2015
|
|
2014
|
||||||
Proceeds from sales and maturities
|
$
|
962
|
|
|
$
|
1,175
|
|
|
$
|
1,092
|
|
Gross realized gains
|
3
|
|
|
2
|
|
|
4
|
|
|||
Gross realized losses
|
(1
|
)
|
|
(3
|
)
|
|
(2
|
)
|
December 31, 2016
|
Cost Basis
|
|
Fair Value
|
||||
Due in one year or less
|
$
|
182
|
|
|
$
|
182
|
|
Due after one year through five years
|
1,070
|
|
|
1,065
|
|
||
Due after five years through 10 years
|
5
|
|
|
5
|
|
||
Due after 10 years
|
—
|
|
|
—
|
|
||
Total
|
$
|
1,257
|
|
|
$
|
1,252
|
|
|
2016
|
|
2015
|
||||
Derivative Instruments Not Designated as Hedges
|
|
|
|
||||
Fuel hedge contracts
|
|
|
|
||||
Prepaid expenses and other current assets
|
$
|
17
|
|
|
$
|
2
|
|
Other assets
|
3
|
|
|
2
|
|
||
|
|
|
|
||||
Derivative Instruments Designated as Hedges
|
|
|
|
||||
Interest rate swaps
|
|
|
|
||||
Other accrued liabilities
|
(5
|
)
|
|
(5
|
)
|
||
Other liabilities
|
—
|
|
|
(13
|
)
|
||
Losses in accumulated other comprehensive loss (AOCL)
|
(5
|
)
|
|
(18
|
)
|
|
2016
|
|
2015
|
|
2014
|
||||||
Derivative Instruments Not Designated as Hedges
|
|
|
|
|
|
||||||
Fuel hedge contracts
|
|
|
|
|
|
||||||
Gains (losses) recognized in Aircraft fuel
|
$
|
(3
|
)
|
|
$
|
(19
|
)
|
|
$
|
(18
|
)
|
|
|
|
|
|
|
||||||
Derivative Instruments Designated as Hedges
|
|
|
|
|
|
||||||
Interest rate swaps
|
|
|
|
|
|
||||||
Gains (losses) recognized in Aircraft rent
|
(6
|
)
|
|
(6
|
)
|
|
(6
|
)
|
|||
Gains (losses) recognized in other comprehensive income (OCI)
|
8
|
|
|
(5
|
)
|
|
(8
|
)
|
December 31, 2016
|
Level 1
|
|
Level 2
|
|
Total
|
||||||
Assets
|
|
|
|
|
|
||||||
Marketable securities
|
|
|
|
|
|
||||||
U.S. government and agency securities
|
$
|
287
|
|
|
$
|
—
|
|
|
$
|
287
|
|
Foreign government bonds
|
—
|
|
|
36
|
|
|
36
|
|
|||
Asset-backed securities
|
—
|
|
|
138
|
|
|
138
|
|
|||
Mortgage-backed securities
|
—
|
|
|
89
|
|
|
89
|
|
|||
Corporate notes and bonds
|
—
|
|
|
691
|
|
|
691
|
|
|||
Municipal securities
|
—
|
|
|
11
|
|
|
11
|
|
|||
Derivative instruments
|
|
|
|
|
|
||||||
Fuel hedge contracts—call options
|
—
|
|
|
20
|
|
|
20
|
|
|||
|
|
|
|
|
|
||||||
Liabilities
|
|
|
|
|
|
||||||
Derivative instruments
|
|
|
|
|
|
||||||
Interest rate swap agreements
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
December 31, 2015
|
Level 1
|
|
Level 2
|
|
Total
|
||||||
Assets
|
|
|
|
|
|
||||||
Marketable securities
|
|
|
|
|
|
||||||
U.S. government and agency securities
|
$
|
253
|
|
|
$
|
—
|
|
|
$
|
253
|
|
Foreign government bonds
|
—
|
|
|
31
|
|
|
31
|
|
|||
Asset-backed securities
|
—
|
|
|
130
|
|
|
130
|
|
|||
Mortgage-backed securities
|
—
|
|
|
116
|
|
|
116
|
|
|||
Corporate notes and bonds
|
—
|
|
|
708
|
|
|
708
|
|
|||
Municipal securities
|
—
|
|
|
17
|
|
|
17
|
|
|||
Derivative instruments
|
|
|
|
|
|
||||||
Fuel hedge contracts—call options
|
—
|
|
|
4
|
|
|
4
|
|
|||
|
|
|
|
|
|
||||||
Liabilities
|
|
|
|
|
|
||||||
Derivative instruments
|
|
|
|
|
|
||||||
Interest rate swap agreements
|
—
|
|
|
(18
|
)
|
|
(18
|
)
|
|
2016
|
|
2015
|
||||
Carrying amount
|
$
|
1,179
|
|
|
$
|
520
|
|
Fair value
|
1,199
|
|
|
557
|
|
|
2016
|
|
2015
|
||||
Fixed-rate notes payable due through 2028
|
$
|
1,179
|
|
|
$
|
520
|
|
Variable-rate notes payable due through 2028
|
1,803
|
|
|
166
|
|
||
Less debt issuance costs
|
(18
|
)
|
|
(3
|
)
|
||
Long-term debt
|
2,964
|
|
|
683
|
|
||
Less current portion
|
319
|
|
|
114
|
|
||
|
$
|
2,645
|
|
|
$
|
569
|
|
|
|
|
|
||||
Weighted-average fixed-interest rate
|
4.4
|
%
|
|
5.7
|
%
|
||
Weighted-average variable-interest rate
|
2.4
|
%
|
|
1.8
|
%
|
|
Total
|
||
2017
|
$
|
321
|
|
2018
|
351
|
|
|
2019
|
424
|
|
|
2020
|
451
|
|
|
2021
|
424
|
|
|
Thereafter
|
1,007
|
|
|
Total principal payments
|
$
|
2,978
|
|
|
2016
|
|
2015
|
||||
Excess of tax over book depreciation
|
$
|
1,282
|
|
|
$
|
1,110
|
|
Intangibles
|
39
|
|
|
—
|
|
||
Other—net
|
26
|
|
|
23
|
|
||
Gross deferred tax liabilities
|
1,347
|
|
|
1,133
|
|
||
|
|
|
|
||||
Mileage Plan™
|
(310
|
)
|
|
(208
|
)
|
||
Inventory obsolescence
|
(23
|
)
|
|
(22
|
)
|
||
Deferred gains
|
(8
|
)
|
|
(8
|
)
|
||
Employee benefits
|
(196
|
)
|
|
(167
|
)
|
||
Fuel hedge contracts
|
—
|
|
|
(5
|
)
|
||
Acquired net operating losses
|
(289
|
)
|
|
—
|
|
||
Other—net
|
(62
|
)
|
|
(41
|
)
|
||
Gross deferred tax assets
|
(888
|
)
|
|
(451
|
)
|
||
Valuation allowance
|
4
|
|
|
—
|
|
||
Net deferred tax (assets) liabilities
|
$
|
463
|
|
|
$
|
682
|
|
|
2016
|
|
2015
|
|
2014
|
||||||
Current income tax expense:
|
|
|
|
|
|
||||||
Federal
|
$
|
392
|
|
|
$
|
397
|
|
|
$
|
229
|
|
State
|
48
|
|
|
30
|
|
|
27
|
|
|||
Total current income tax expense
|
440
|
|
|
427
|
|
|
256
|
|
|||
|
|
|
|
|
|
||||||
Deferred income tax expense:
|
|
|
|
|
|
|
|
|
|||
Federal
|
77
|
|
|
60
|
|
|
103
|
|
|||
State
|
14
|
|
|
(23
|
)
|
|
11
|
|
|||
Total deferred income tax expense
|
91
|
|
|
37
|
|
|
114
|
|
|||
Income tax expense
|
$
|
531
|
|
|
$
|
464
|
|
|
$
|
370
|
|
|
2016
|
|
2015
|
|
2014
|
||||||
Income before income tax
|
$
|
1,345
|
|
|
$
|
1,312
|
|
|
$
|
975
|
|
|
|
|
|
|
|
||||||
Expected tax expense
|
471
|
|
|
459
|
|
|
341
|
|
|||
Nondeductible expenses
|
20
|
|
|
4
|
|
|
4
|
|
|||
State income taxes
|
28
|
|
|
19
|
|
|
25
|
|
|||
State income sourcing
|
13
|
|
|
(15
|
)
|
|
—
|
|
|||
Other—net
|
(1
|
)
|
|
(3
|
)
|
|
—
|
|
|||
Actual tax expense
|
$
|
531
|
|
|
$
|
464
|
|
|
$
|
370
|
|
|
|
|
|
|
|
||||||
Effective tax rate
|
39.5
|
%
|
|
35.4
|
%
|
|
37.9
|
%
|
Jurisdiction
|
Period
|
Federal
|
2006 to 2015
(a)(b)
|
Alaska
|
2012 to 2015
|
California
|
2006 to 2015
(a)
|
Oregon
|
2003 to 2015
(a)
|
(a)
|
The 2003, 2004, 2008-2010 and 2011 Oregon tax returns are subject to examination only to the extent of net operating loss carryforwards from those years that were utilized in 2010 and later years. The 2006-2012 Federal and California Virgin America tax returns are subject to examination only to the extent of net operating loss carryforwards from those years that were utilized in 2012 and later years.
|
(b)
|
Income tax years 2012 and 2013 are currently under exam by the Internal Revenue Service.
|
|
2016
|
|
2015
|
|
2014
|
||||||
Balance at January 1,
|
$
|
22
|
|
|
$
|
3
|
|
|
$
|
2
|
|
Additions based on tax positions and settlements related to the current year
|
3
|
|
|
19
|
|
|
1
|
|
|||
Additions from acquisitions
|
8
|
|
|
—
|
|
|
—
|
|
|||
Balance at December 31,
|
$
|
33
|
|
|
$
|
22
|
|
|
$
|
3
|
|
|
2016
|
|
2015
|
Discount rates
(a)
|
4.29% to 4.50%
|
|
4.55% to 4.69%
|
Rate of compensation increases
(a)
|
2.12% to 2.59%
|
|
2.06% to 2.65%
|
(a)
|
Varies by plan and related work group.
|
|
2016
|
|
2015
|
|
2014
|
Discount rates
(a)
|
4.55% to 4.69%
|
|
4.20%
|
|
4.85%
|
Expected return on plan assets
(a)
|
6.00% to 6.50%
|
|
6.50%
|
|
6.75%
|
Rate of compensation increases
(a)
|
2.06% to 2.65%
|
|
2.85% to 3.91%
|
|
2.90% to 3.93%
|
(a)
|
Varies by plan and related work group.
|
|
Target
|
|
2016
|
|
2015
|
||
Asset category:
|
|
|
|
|
|
||
Domestic equity securities
|
22% - 33%
|
|
30
|
%
|
|
28
|
%
|
Non-U.S. equity securities
|
9% - 16%
|
|
12
|
%
|
|
12
|
%
|
Fixed income securities
|
48% - 67%
|
|
53
|
%
|
|
55
|
%
|
Real estate
|
0% - 8%
|
|
5
|
%
|
|
5
|
%
|
Plan assets
|
|
|
100
|
%
|
|
100
|
%
|
|
2016
|
|
2015
|
|
Fair Value Hierarchy
|
||||
Fund type:
|
|
|
|
|
|
||||
U.S. equity market fund
|
$
|
545
|
|
|
$
|
491
|
|
|
1
|
Non-U.S. equity fund
|
218
|
|
|
208
|
|
|
1
|
||
Credit bond index fund
|
992
|
|
|
953
|
|
|
1
|
||
Plan assets in common commingled trusts
|
$
|
1,755
|
|
|
$
|
1,652
|
|
|
|
Real estate
|
91
|
|
|
85
|
|
|
(a)
|
||
Total plan assets
|
$
|
1,846
|
|
|
$
|
1,737
|
|
|
|
(a)
|
In accordance with Subtopic 820-10, certain investments that are measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy.
|
|
2016
|
|
2015
|
||||
Projected benefit obligation ("PBO")
|
|
|
|
||||
Beginning of year
|
$
|
1,898
|
|
|
$
|
2,050
|
|
Service cost
|
37
|
|
|
41
|
|
||
Interest cost
|
73
|
|
|
84
|
|
||
Plan settlement
|
—
|
|
|
(62
|
)
|
||
Actuarial (gain) loss
|
104
|
|
|
(140
|
)
|
||
Benefits paid
|
(69
|
)
|
|
(75
|
)
|
||
End of year
|
$
|
2,043
|
|
|
$
|
1,898
|
|
|
|
|
|
||||
Plan assets at fair value
|
|
|
|
|
|
||
Beginning of year
|
$
|
1,737
|
|
|
$
|
1,917
|
|
Actual return on plan assets
|
178
|
|
|
(43
|
)
|
||
Employer contributions
|
—
|
|
|
—
|
|
||
Plan settlement
|
—
|
|
|
(62
|
)
|
||
Benefits paid
|
(69
|
)
|
|
(75
|
)
|
||
End of year
|
$
|
1,846
|
|
|
$
|
1,737
|
|
Funded status (unfunded)
|
$
|
(197
|
)
|
|
$
|
(161
|
)
|
|
|
|
|
||||
Percent funded
|
90
|
%
|
|
92
|
%
|
|
2016
|
|
2015
|
||||
Accrued benefit liability-long term
|
$
|
225
|
|
|
$
|
173
|
|
Plan assets-long term (within Other noncurrent assets)
|
(28
|
)
|
|
(12
|
)
|
||
Total liability recognized
|
$
|
197
|
|
|
$
|
161
|
|
|
2016
|
|
2015
|
||||
Prior service credit
|
$
|
(10
|
)
|
|
$
|
(11
|
)
|
Net loss
|
509
|
|
|
499
|
|
||
Amount recognized in AOCL (pretax)
|
$
|
499
|
|
|
$
|
488
|
|
|
2016
|
|
2015
|
|
2014
|
||||||
Service cost
|
$
|
37
|
|
|
$
|
41
|
|
|
$
|
33
|
|
Interest cost
|
73
|
|
|
84
|
|
|
81
|
|
|||
Expected return on assets
|
(108
|
)
|
|
(122
|
)
|
|
(117
|
)
|
|||
Amortization of prior service credit
|
(1
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|||
Recognized actuarial loss
|
25
|
|
|
26
|
|
|
13
|
|
|||
Settlement expense
(special item)
|
—
|
|
|
14
|
|
|
—
|
|
|||
Net pension expense
|
$
|
26
|
|
|
$
|
42
|
|
|
$
|
9
|
|
|
Total
|
||
2017
|
$
|
85
|
|
2018
|
93
|
|
|
2019
|
96
|
|
|
2020
|
109
|
|
|
2021
|
109
|
|
|
2022– 2026
|
652
|
|
•
|
Performance-Based Pay
("PBP") is a program that rewards the majority of Air Group employees. The program is based on four separate metrics related to Air Group profitability, safety, achievement of unit-cost goals and employee engagement as measured by customer satisfaction.
|
•
|
The
Operational Performance Rewards Program
entitles the majority of Air Group employees to quarterly payouts of up to
$300
per person if certain operational and customer service objectives are met.
|
|
Aircraft Leases
|
|
Facility Leases
|
|
Aircraft Purchase Commitments
|
|
Capacity Purchase Agreements
|
|
Aircraft Maintenance Deposits
|
|
Aircraft Maintenance and Parts Management
|
||||||||||||
2017
|
$
|
302
|
|
|
$
|
123
|
|
|
$
|
926
|
|
|
$
|
76
|
|
|
$
|
59
|
|
|
$
|
30
|
|
2018
|
316
|
|
|
73
|
|
|
848
|
|
|
80
|
|
|
61
|
|
|
32
|
|
||||||
2019
|
305
|
|
|
63
|
|
|
694
|
|
|
85
|
|
|
65
|
|
|
35
|
|
||||||
2020
|
279
|
|
|
57
|
|
|
354
|
|
|
90
|
|
|
68
|
|
|
37
|
|
||||||
2021
|
242
|
|
|
50
|
|
|
277
|
|
|
94
|
|
|
63
|
|
|
40
|
|
||||||
Thereafter
|
953
|
|
|
171
|
|
|
361
|
|
|
676
|
|
|
90
|
|
|
—
|
|
||||||
Total
|
$
|
2,397
|
|
|
$
|
537
|
|
|
$
|
3,460
|
|
|
$
|
1,101
|
|
|
$
|
406
|
|
|
$
|
174
|
|
|
2016
|
|
2015
|
|
2014
|
|||||||||||||||
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|||||||||
2015 $1 billion Repurchase Program
|
2,594,809
|
|
|
$
|
193
|
|
|
1,517,277
|
|
|
$
|
120
|
|
|
—
|
|
|
$
|
—
|
|
2014 $650 million Repurchase Program
|
—
|
|
|
—
|
|
|
5,691,051
|
|
|
385
|
|
|
5,497,427
|
|
|
265
|
|
|||
2012 $250 million Repurchase Program
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,819,304
|
|
|
83
|
|
|||
Total
|
2,594,809
|
|
|
$
|
193
|
|
|
7,208,328
|
|
|
$
|
505
|
|
|
7,316,731
|
|
|
$
|
348
|
|
|
2016
|
|
2015
|
||||
Related to marketable securities
|
$
|
(3
|
)
|
|
$
|
(3
|
)
|
Related to employee benefit plans
|
(299
|
)
|
|
(288
|
)
|
||
Related to interest rate derivatives
|
(3
|
)
|
|
(12
|
)
|
||
|
$
|
(305
|
)
|
|
$
|
(303
|
)
|
|
2016
|
|
2015
|
|
2014
|
||||||
Stock options
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
3
|
|
Stock awards
|
11
|
|
|
11
|
|
|
10
|
|
|||
Deferred stock awards
|
1
|
|
|
1
|
|
|
1
|
|
|||
Employee stock purchase plan
|
5
|
|
|
3
|
|
|
2
|
|
|||
Stock-based compensation
|
$
|
19
|
|
|
$
|
17
|
|
|
$
|
16
|
|
|
|
|
|
|
|
||||||
Tax benefit related to stock-based compensation
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
6
|
|
|
Amount
|
|
Weighted-Average
Period
|
||
Stock options
|
$
|
2
|
|
|
1.1
|
Stock awards
|
21
|
|
|
0.9
|
|
Unrecognized stock-based compensation
|
$
|
23
|
|
|
0.9
|
|
2016
|
|
2015
|
|
2014
|
||||||
Expected volatility
|
51
|
%
|
|
53
|
%
|
|
65
|
%
|
|||
Expected term
|
6 years
|
|
|
6 years
|
|
|
6 years
|
|
|||
Risk-free interest rate
|
1.23
|
%
|
|
1.67
|
%
|
|
1.87
|
%
|
|||
Expected dividend yield
|
1.50
|
%
|
|
1.25
|
%
|
|
1.25
|
%
|
|||
Weighted-average grant date fair value per share
|
$
|
27.14
|
|
|
$
|
28.71
|
|
|
$
|
21.70
|
|
Estimated fair value of options granted (millions)
|
$
|
2
|
|
|
$
|
3
|
|
|
$
|
3
|
|
|
Shares
|
|
Weighted-
Average Exercise Price Per Share
|
|
Weighted-
Average
Contractual Life (Years)
|
|
Aggregate Intrinsic
Value (in
millions)
|
|||||
Outstanding, December 31, 2015
|
540,345
|
|
|
$
|
31.58
|
|
|
6.3
|
|
$
|
26
|
|
Granted
|
79,340
|
|
|
65.63
|
|
|
|
|
|
|||
Exercised
|
(158,758
|
)
|
|
23.62
|
|
|
|
|
|
|||
Canceled
|
—
|
|
|
—
|
|
|
|
|
|
|||
Forfeited or expired
|
(7,253
|
)
|
|
49.66
|
|
|
|
|
|
|||
Outstanding, December 31, 2016
|
453,674
|
|
|
$
|
40.02
|
|
|
6.2
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|||||
Exercisable, December 31, 2016
|
199,676
|
|
|
$
|
25.35
|
|
|
5.1
|
|
$
|
13
|
|
Vested or expected to vest, December 31, 2016
|
453,435
|
|
|
$
|
40.03
|
|
|
6.2
|
|
$
|
22
|
|
(in millions)
|
2016
|
|
2015
|
|
2014
|
||||||
Intrinsic value of option exercises
|
$
|
9
|
|
|
$
|
14
|
|
|
$
|
20
|
|
Cash received from stock option exercises
|
3
|
|
|
4
|
|
|
6
|
|
|||
Tax benefit related to stock option exercises
|
3
|
|
|
5
|
|
|
7
|
|
|||
Fair value of options vested
|
3
|
|
|
3
|
|
|
2
|
|
|
Number
of Units
|
|
Weighted-Average Grant Date Fair Value
|
|
Weighted-
Average
Contractual
Life (Years)
|
|
Aggregate
Intrinsic
Value (in
millions)
|
|||||
Non-vested, December 31, 2015
|
470,715
|
|
|
$
|
38.09
|
|
|
0.8
|
|
$
|
38
|
|
Granted
|
374,863
|
|
|
63.53
|
|
|
|
|
|
|
||
Vested
|
(366,319
|
)
|
|
32.87
|
|
|
|
|
|
|
||
Forfeited
|
(39,166
|
)
|
|
40.35
|
|
|
|
|
|
|
||
Non-vested, December 31, 2016
|
440,093
|
|
|
$
|
63.86
|
|
|
1.4
|
|
$
|
39
|
|
•
|
Mainline
- includes Alaska's and Virgin America’s scheduled air transportation for passengers and cargo throughout the U.S., and in parts of Canada, Mexico, Costa Rica and Cuba.
|
•
|
Regional
- includes Horizon's and other third-party carriers’ scheduled air transportation for passengers across a shorter distance network within the U.S. under CPAs. This segment includes the actual revenues and expenses associated with regional flying, as well as an allocation of corporate overhead incurred by Air Group on behalf of the regional operations.
|
•
|
Horizon
- includes the capacity sold to Alaska under CPA. Expenses include those typically borne by regional airlines such as crew costs, ownership costs and maintenance costs.
|
Year Ended December 31, 2016
|
Mainline
(a)
|
|
Regional
|
|
Horizon
|
|
Consolidating & Other
(b)
|
|
Air Group Adjusted
(c)
|
|
Special Items
(d)
|
|
Consolidated
|
||||||||||||||
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Mainline
|
$
|
4,098
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,098
|
|
|
$
|
—
|
|
|
$
|
4,098
|
|
Regional
|
—
|
|
|
908
|
|
|
—
|
|
|
—
|
|
|
908
|
|
|
—
|
|
|
908
|
|
|||||||
Total passenger revenues
|
4,098
|
|
|
908
|
|
|
—
|
|
|
—
|
|
|
5,006
|
|
|
—
|
|
|
5,006
|
|
|||||||
CPA revenues
|
—
|
|
|
—
|
|
|
424
|
|
|
(424
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Freight and mail
|
104
|
|
|
5
|
|
|
—
|
|
|
(1
|
)
|
|
108
|
|
|
—
|
|
|
108
|
|
|||||||
Other-net
|
738
|
|
|
74
|
|
|
4
|
|
|
1
|
|
|
817
|
|
|
—
|
|
|
817
|
|
|||||||
Total operating revenues
|
4,940
|
|
|
987
|
|
|
428
|
|
|
(424
|
)
|
|
5,931
|
|
|
—
|
|
|
5,931
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses, excluding fuel
|
2,883
|
|
|
769
|
|
|
407
|
|
|
(425
|
)
|
|
3,634
|
|
|
117
|
|
|
3,751
|
|
|||||||
Fuel expense
|
719
|
|
|
125
|
|
|
—
|
|
|
—
|
|
|
844
|
|
|
(13
|
)
|
|
831
|
|
|||||||
Total operating expenses
|
3,602
|
|
|
894
|
|
|
407
|
|
|
(425
|
)
|
|
4,478
|
|
|
104
|
|
|
4,582
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest income
|
26
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
27
|
|
|||||||
Interest expense
|
(42
|
)
|
|
—
|
|
|
(9
|
)
|
|
(4
|
)
|
|
(55
|
)
|
|
—
|
|
|
(55
|
)
|
|||||||
Other
|
19
|
|
|
—
|
|
|
1
|
|
|
4
|
|
|
24
|
|
|
—
|
|
|
24
|
|
|||||||
|
3
|
|
|
—
|
|
|
(7
|
)
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|||||||
Income (loss) before income tax
|
$
|
1,341
|
|
|
$
|
93
|
|
|
$
|
14
|
|
|
$
|
1
|
|
|
$
|
1,449
|
|
|
$
|
(104
|
)
|
|
$
|
1,345
|
|
Year Ended December 31, 2015
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Consolidating & Other
(b)
|
|
Air Group Adjusted
(c)
|
|
Special Items
(d)
|
|
Consolidated
|
||||||||||||||
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Mainline
|
$
|
3,939
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,939
|
|
|
$
|
—
|
|
|
$
|
3,939
|
|
Regional
|
—
|
|
|
854
|
|
|
—
|
|
|
—
|
|
|
854
|
|
|
—
|
|
|
854
|
|
|||||||
Total passenger revenues
|
3,939
|
|
|
854
|
|
|
—
|
|
|
—
|
|
|
4,793
|
|
|
—
|
|
|
4,793
|
|
|||||||
CPA revenues
|
—
|
|
|
—
|
|
|
408
|
|
|
(408
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Freight and mail
|
103
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
108
|
|
|
—
|
|
|
108
|
|
|||||||
Other-net
|
621
|
|
|
72
|
|
|
4
|
|
|
—
|
|
|
697
|
|
|
—
|
|
|
697
|
|
|||||||
Total operating revenues
|
4,663
|
|
|
931
|
|
|
412
|
|
|
(408
|
)
|
|
5,598
|
|
|
—
|
|
|
5,598
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses, excluding fuel
|
2,653
|
|
|
695
|
|
|
375
|
|
|
(409
|
)
|
|
3,314
|
|
|
32
|
|
|
3,346
|
|
|||||||
Fuel expense
|
823
|
|
|
131
|
|
|
—
|
|
|
—
|
|
|
954
|
|
|
—
|
|
|
954
|
|
|||||||
Total operating expenses
|
3,476
|
|
|
826
|
|
|
375
|
|
|
(409
|
)
|
|
4,268
|
|
|
32
|
|
|
4,300
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest income
|
19
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
21
|
|
|
—
|
|
|
21
|
|
|||||||
Interest expense
|
(28
|
)
|
|
—
|
|
|
(10
|
)
|
|
(4
|
)
|
|
(42
|
)
|
|
—
|
|
|
(42
|
)
|
|||||||
Other
|
28
|
|
|
—
|
|
|
1
|
|
|
6
|
|
|
35
|
|
|
—
|
|
|
35
|
|
|||||||
|
19
|
|
|
—
|
|
|
(9
|
)
|
|
4
|
|
|
14
|
|
|
—
|
|
|
14
|
|
|||||||
Income (loss) before income tax
|
$
|
1,206
|
|
|
$
|
105
|
|
|
$
|
28
|
|
|
$
|
5
|
|
|
$
|
1,344
|
|
|
$
|
(32
|
)
|
|
$
|
1,312
|
|
Year Ended December 31, 2014
|
Mainline
|
|
Regional
|
|
Horizon
|
|
Consolidating & Other
(b)
|
|
Air Group Adjusted
(c)
|
|
Special Items
(d)
|
|
Consolidated
|
||||||||||||||
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Passenger
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Mainline
|
$
|
3,774
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,774
|
|
|
$
|
—
|
|
|
$
|
3,774
|
|
Regional
|
—
|
|
|
805
|
|
|
—
|
|
|
—
|
|
|
805
|
|
|
—
|
|
|
805
|
|
|||||||
Total passenger revenues
|
3,774
|
|
|
805
|
|
|
—
|
|
|
—
|
|
|
4,579
|
|
|
—
|
|
|
4,579
|
|
|||||||
CPA revenues
|
—
|
|
|
—
|
|
|
371
|
|
|
(371
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Freight and mail
|
109
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
114
|
|
|
—
|
|
|
114
|
|
|||||||
Other-net
|
592
|
|
|
78
|
|
|
5
|
|
|
—
|
|
|
675
|
|
|
—
|
|
|
675
|
|
|||||||
Total operating revenues
|
4,475
|
|
|
888
|
|
|
376
|
|
|
(371
|
)
|
|
5,368
|
|
|
—
|
|
|
5,368
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Operating expenses, excluding fuel
|
2,417
|
|
|
623
|
|
|
349
|
|
|
(371
|
)
|
|
3,018
|
|
|
(30
|
)
|
|
2,988
|
|
|||||||
Fuel expense
|
1,251
|
|
|
190
|
|
|
—
|
|
|
—
|
|
|
1,441
|
|
|
(23
|
)
|
|
1,418
|
|
|||||||
Total operating expenses
|
3,668
|
|
|
813
|
|
|
349
|
|
|
(371
|
)
|
|
4,459
|
|
|
(53
|
)
|
|
4,406
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Interest income
|
20
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
21
|
|
|
—
|
|
|
21
|
|
|||||||
Interest expense
|
(32
|
)
|
|
—
|
|
|
(12
|
)
|
|
(4
|
)
|
|
(48
|
)
|
|
—
|
|
|
(48
|
)
|
|||||||
Other
|
39
|
|
|
(1
|
)
|
|
2
|
|
|
—
|
|
|
40
|
|
|
—
|
|
|
40
|
|
|||||||
|
27
|
|
|
(1
|
)
|
|
(10
|
)
|
|
(3
|
)
|
|
13
|
|
|
—
|
|
|
13
|
|
|||||||
Income (loss) before income tax
|
$
|
834
|
|
|
$
|
74
|
|
|
$
|
17
|
|
|
$
|
(3
|
)
|
|
$
|
922
|
|
|
$
|
53
|
|
|
$
|
975
|
|
(a)
|
Includes Alaska activity for the full period and Virgin America financial results for the period December 14, 2016 through December 31, 2016, and the impacts associated with purchase accounting as of December 14, 2016.
|
(b)
|
Includes consolidating entries, Parent Company and other immaterial business units.
|
(c)
|
The adjusted column excludes certain charges described in (d) and represents the financial information that is reviewed by management to assess performance of operations and determine capital allocations.
|
(d)
|
Includes accounting adjustments related to mark-to-market fuel hedge accounting charges (all years), merger-related costs (2016), pension settlement charge (2015), litigation-related matter (2015), non-cash curtailment gain (2014) and a gain related to a legal matter (2014).
|
|
2016
|
|
2015
|
|
2014
|
||||||
Depreciation and amortization:
|
|
|
|
|
|
||||||
Mainline
|
$
|
296
|
|
|
$
|
268
|
|
|
$
|
243
|
|
Horizon
|
67
|
|
|
52
|
|
|
51
|
|
|||
Consolidated
|
$
|
363
|
|
|
$
|
320
|
|
|
$
|
294
|
|
|
|
|
|
|
|
||||||
Capital expenditures:
|
|
|
|
|
|
||||||
Mainline
|
$
|
608
|
|
|
$
|
821
|
|
|
$
|
659
|
|
Horizon
|
70
|
|
|
10
|
|
|
35
|
|
|||
Consolidated
|
$
|
678
|
|
|
$
|
831
|
|
|
$
|
694
|
|
|
|
|
|
|
|
||||||
Total assets at end of period:
|
|
|
|
|
|
|
|
|
|||
Mainline
|
$
|
15,260
|
|
|
$
|
8,127
|
|
|
|
||
Horizon
|
690
|
|
|
717
|
|
|
|
||||
Consolidating & Other
|
(5,988
|
)
|
|
(2,314
|
)
|
|
|
||||
Consolidated
|
$
|
9,962
|
|
|
$
|
6,530
|
|
|
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
ITEM 9A. CONTROLS AND PROCEDURES
|
ITEM 9B. OTHER INFORMATION
|
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
ITEM 11. EXECUTIVE COMPENSATION
|
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS
|
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights
|
|
Weighted-average exercise price of outstanding options, warrants and rights
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|
||
Plan category
|
(a)
|
|
(b)
|
|
(c)
|
||
Equity compensation plans approved by security holders
|
1,228,448
(1)
|
|
|
$40.02
(2)
|
|
11,847,713
|
|
Equity compensation plans not approved by security holders
|
—
|
|
|
Not applicable
|
|
—
|
|
Total
|
1,228,448
|
|
|
$40.02
|
|
11,847,713
|
|
(1)
|
Of these shares, 453,674 were subject to options then outstanding under the 2008 Plan, 645,862 were subject to outstanding restricted, performance and deferred stock unit awards granted under the 2008 Plan and 128,912 were subject to outstanding restricted stock unit awards granted under the 2016 Plan. No options were outstanding under the 2016 plan. Outstanding performance awards are reflected in the table assuming that the target level of performance will be achieved.
|
(2)
|
This number does not reflect the 774,474 shares that were subject to outstanding stock unit awards granted under the 2008 and 2016 Plans.
|
(3)
|
Of the aggregate number of shares that remained available for future issuance, no shares were available under the 2008 Plan, 5,642,418 shares were available under the 2016 Plan and 6,205,295 shares were available under the ESPP. Subject to certain express limits of the 2016 Plan, shares available for award purposes under the 2016 Plan generally may be used for any type of award authorized under that plan including options, stock appreciation rights, and other forms of awards granted or denominated in shares of our common stock including, without limitation, stock bonuses, restricted stock, restricted stock units and performance shares. Full-value shares issued under the 2016 Plan are counted against the share limit as 1.7 shares for every one share issued. This table does not give effect to that rule.
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
ITEM 15. EXHIBITS
|
1.
|
Exhibits:
See Exhibit Index.
|
|
|
|
|
|
ALASKA AIR GROUP, INC.
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ BRADLEY D. TILDEN
|
|
Date:
|
February 28, 2017
|
|
Bradley D. Tilden
|
|
|
|
|
Chief Executive Officer
|
|
|
|
/s/ BRADLEY D. TILDEN
|
|
Chairman and Chief Executive Officer
(Principal Executive Officer)
|
Bradley D. Tilden
|
|
|
|
|
|
/s/ BRANDON S. PEDERSEN
|
|
Executive Vice President/Finance and Chief Financial Officer
(Principal Financial Officer)
|
Brandon S. Pedersen
|
|
|
|
|
|
/s/ CHRISTOPHER M. BERRY
|
|
Vice President Finance and Controller (Principal Accounting Officer)
|
Christopher M. Berry
|
|
|
|
|
|
/s/ PATRICIA M. BEDIENT
|
|
Director
|
Patricia M. Bedient
|
|
|
|
|
|
/s/ MARION C. BLAKEY
|
|
Director
|
Marion C. Blakey
|
|
|
|
|
|
/s/ PHYLLIS J. CAMPBELL
|
|
Director
|
Phyllis J. Campbell
|
|
|
|
|
|
/s/ DHIREN R. FONSECA
|
|
Director
|
Dhiren R. Fonseca
|
|
|
|
|
|
/s/ JESSIE J. KNIGHT, JR.
|
|
Director
|
Jessie J. Knight, Jr.
|
|
|
|
|
|
/s/ DENNIS F. MADSEN
|
|
Director
|
Dennis F. Madsen
|
|
|
|
|
|
/s/ HELVI K. SANDVIK
|
|
Director
|
Helvi K. Sandvik
|
|
|
|
|
|
/s/ KATHERINE J. SAVITT
|
|
Director
|
Katherine J. Savitt
|
|
|
|
|
|
/s/ J. KENNETH THOMPSON
|
|
Director
|
J. Kenneth Thompson
|
|
|
|
|
|
/s/ ERIC K. YEAMAN
|
|
Director
|
Eric K. Yeaman
|
|
|
Exhibit
Number
|
Exhibit
Description
|
Form
|
Date of
First Filing
|
Exhibit
Number
|
File
Number
|
3.1
|
Amended and Restated Certificate of Incorporation of Registrant
|
10-Q
|
August 6, 2014
|
3.1
|
|
3.2
|
Bylaws of Registrant, as amended December 9, 2015
|
8-K
|
December 15, 2015
|
3.2
|
|
10.1#
|
Aircraft General Terms Agreement, dated June 15, 2005, between the Boeing Company and Alaska Airlines, Inc.
|
10-Q
|
August 5, 2005
|
10.1
|
|
10.2#
|
Purchase Agreement No. 2497, dated June 15, 2005, between the Boeing Company and Alaska Airlines, Inc.
|
10-Q
|
August 5, 2005
|
10.2
|
|
10.3#
|
Supplemental Agreement No. 23 to Purchase Agreement No. 2497 between The Boeing Company and Alaska Airlines, Inc.
|
10-Q/A
|
August 2, 2011
|
10.1
|
|
10.4#
|
Supplemental Agreement No. 29 to Purchase Agreement No. 2497 between The Boeing Company and Alaska Airlines, Inc.
|
10-K
|
February 14, 2013
|
10.1
|
|
10.5#
|
Purchase Agreement No. 3866 between The Boeing Company and Alaska Airlines, Inc.
|
10-K
|
February 14, 2013
|
10.2
|
|
10.6#
|
Supplemental Agreement No. 39 to Purchase Agreement No. 2497 between The Boeing Company and Alaska Airlines, Inc.
|
10-Q
|
May 7, 2015
|
10.1
|
|
10.7#
|
Purchase Agreement, dated April 11, 2016, between Embraer S.A. and Horizon Air Industries, Inc.
|
10-Q
|
May 9, 2016
|
10.1
|
|
10.8^
|
A320 Aircraft Purchase Agreement, dated as of December 29, 2010, between Airbus S.A.S. and Virgin America Inc.
|
S-1/A^
|
October 7, 2014
|
10.15
|
|
10.9*
|
Alaska Air Group, Inc. 2008 Performance Incentive Plan, Form of Nonqualified Stock Option Agreement
|
10-Q
|
August 4, 2011
|
10.3
|
|
10.10*
|
Alaska Air Group, Inc. 2008 Performance Incentive Plan, Form of Performance Stock Unit Award Agreement
|
10-Q
|
August 4, 2011
|
10.4
|
|
10.11*
|
Alaska Air Group, Inc. 2008 Performance Incentive Plan, Form of Stock Unit Award Agreement
|
10-Q
|
August 4, 2011
|
10.5
|
|
10.12*
|
Alaska Air Group, Inc. 2008 Performance Incentive Plan, Amended for Stock-Split
|
10-K
|
February 11, 2016
|
10.10
|
|
10.13*
|
Alaska Air Group, Inc. 2016 Performance Incentive Plan
|
8-K
|
May 18, 2016
|
10.1
|
|
10.14*
|
Alaska Air Group, Inc. 2016 Performance Incentive Plan, Form of Nonqualified Stock Option Agreement
|
10-Q
|
August 2, 2016
|
10.1
|
|
10.15*
|
Alaska Air Group, Inc. 2016 Performance Incentive Plan, Form of Incentive Stock Option Agreement
|
10-Q
|
August 2, 2016
|
10.2
|
|
10.16*
|
Alaska Air Group, Inc. 2016 Performance Incentive Plan, Form of Performance Stock Unit Award Agreement
|
10-Q
|
August 2, 2016
|
10.3
|
|
10.17*
|
Alaska Air Group, Inc. 2016 Performance Incentive Plan, Form of Stock Unit Award Agreement
|
10-Q
|
August 2, 2016
|
10.4
|
|
10.18*†
|
Alaska Air Group, Inc. 2010 Employee Stock Purchase Plan, as Amended for the Offering Period Commencing March 1, 2017
|
10-K
|
February 28, 2017
|
|
|
10.19*
|
Alaska Air Group, Inc. Stock Deferral Plan for Non-Employee Directors
|
10-K
|
February 11, 2016
|
10.12
|
|
10.20*
|
Alaska Air Group, Inc. Nonqualified Deferred Compensation Plan, as amended
|
10-Q
|
August 4, 2011
|
10.1
|
|
10.21*
|
1995 Elected Officers Supplementary Retirement Plan, as amended
|
10-Q
|
August 4, 2011
|
10.2
|
|
10.22*
|
Form of Alaska Air Group, Inc. Change of Control Agreement for named executive officers, as amended and restated October 16, 2014
|
10-K
|
February 11, 2016
|
10.15
|
|
10.23*†
|
Alaska Air Group Performance Based Pay Plan, as amended and restated June 19, 2015
|
10-K
|
February 28, 2017
|
|
|
21†
|
Subsidiaries of Registrant
|
|
|
|
|
23.1†
|
Consent of Independent Registered Public Accounting Firm (KPMG LLP)
|
|
|
|
|
31.1†
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
31.2†
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
32.1†
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
1.
|
PURPOSE
|
2.
|
DEFINITIONS
|
(a)
|
“
Account
” means the bookkeeping account maintained by the Company, or by a record keeper on behalf of the Company, for a Participant pursuant to Section 7(a).
|
(b)
|
“
Board
” means the Board of Directors of the Company.
|
(c)
|
“
Code
” means the U.S. Internal Revenue Code of 1986, as amended from time to time.
|
(d)
|
“
Commission
” means the U.S. Securities and Exchange Commission.
|
(e)
|
“
Committee
” means the committee appointed by the Board to administer the Plan pursuant to Section 12.
|
(f)
|
“
Common Stock
” means the common stock, par value $1.00 per share, of the Company, and such other securities or property as may become the subject of Options pursuant to an adjustment made under Section 17.
|
(g)
|
“
Compensation
” means an Eligible Employee’s base pay, inclusive of overtime and any employer paid leave. Compensation also includes any amounts contributed as salary reduction contributions to a plan qualifying under Section 401(k), 125, or 129 of the Code. Any other form of remuneration is excluded from Compensation, including (but not limited to) the following: cash bonuses, severance pay, hiring bonuses, prizes, awards, relocation or housing allowances, stock option exercises, stock appreciation right payments, the vesting or grant of restricted stock, the payment of stock units, performance awards, auto allowances, tuition reimbursement, perquisites, non-cash compensation and other forms of imputed income. Notwithstanding the foregoing, Compensation shall not include any amounts deferred under or paid from any nonqualified deferred compensation plan maintained by the Company or any Subsidiary (including, without limitation, the Company’s Nonqualified Deferred Compensation Plan).
|
(h)
|
“
Contributions
” means the bookkeeping amounts credited to the Account of the Participant pursuant to this Plan, equal in amount to the amount of Compensation that the Participant has elected to contribute for the purchase of Common Stock under and in accordance with this Plan.
|
(i)
|
“
Company
” means Alaska Air Group, Inc., a Delaware corporation, and its successors.
|
(j)
|
“
Effective Date
” means March 11, 2010, the date on which this Plan was initially adopted by the Board.
|
(k)
|
“
Eligible Employee
” means, subject to Section 3, any employee of the Company, or of any Subsidiary which has been designated in writing by the Committee as a “Participating Subsidiary”; provided, however, that “Eligible Employee” shall not include any employee
whose customary employment is for less than five (5) months in a calendar year.
|
(l)
|
“
Exchange Act
” means the U.S. Securities Exchange Act of 1934, as amended from time to time.
|
(m)
|
“
Exercise Date
” means, with respect to an Offering Period, the last day of that Offering Period.
|
(n)
|
“
Fair Market Value
” on any date means:
|
(1)
|
if the Common Stock is listed or admitted to trade on a national securities exchange, the closing price of a share of Common Stock on such date on the principal national securities exchange on which the Common Stock is so listed or admitted to trade, or, if there is no trading of the Common Stock on such date, then the closing price of a share of Common Stock on such exchange on the next preceding date on which there was trading in the shares of Common Stock;
|
(2)
|
in the absence of exchange data required to determine Fair Market Value pursuant to the foregoing, the value as established by the Committee as of the relevant time for purposes of this Plan.
|
(o)
|
“
Grant Date
” means, with respect to an Offering Period, the first day of that Offering Period.
|
(p)
|
“
Individual Limit
” has the meaning given to such term in Section 4(b).
|
(q)
|
“
Offering Period
” means the six (6) month period commencing on each Grant Date; provided, however, that the Committee may declare, as it deems appropriate and in advance of the applicable Offering Period, a shorter (not to be less than three months) Offering Period or a longer (not to exceed 27 months) Offering Period. Unless otherwise expressly provided by the Committee in advance of a particular Offering Period, the Grant Date for that Offering Period may not occur on or before the Exercise Date for the immediately preceding Offering Period.
|
(r)
|
“
Option
” means the stock option to acquire shares of Common Stock granted to a Participant pursuant to Section 8.
|
(s)
|
“
Option Price
” means the per share exercise price of an Option as determined in accordance with Section 8(b).
|
(t)
|
“
Parent
” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company in which each corporation (other than the Company) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one or more of the other corporations in the chain.
|
(u)
|
“
Participant
” means an Eligible Employee who has elected to participate in this Plan and who has filed a valid and effective Subscription Agreement to make Contributions pursuant to Section 6.
|
(v)
|
“
Participating Subsidiary
” shall have the meaning given to such term in Section 19(c).
|
(w)
|
“
Plan
” means this Alaska Air Group, Inc. 2010 Employee Stock Purchase Plan, as it may be amended or restated from time to time.
|
(x)
|
“
Subscription Agreement
” means the written agreement or applicable electronic form of agreement filed by an Eligible Employee with the Company pursuant to Section 6 to participate in this Plan.
|
(y)
|
“
Subsidiary
” means any corporation (other than the Company) in an unbroken chain of corporations (beginning with the Company) in which each corporation (other than the last corporation) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one or more of the other corporations in the chain.
|
3.
|
ELIGIBILITY
|
4.
|
STOCK SUBJECT TO THIS PLAN; SHARE LIMITATIONS
|
(a)
|
Aggregate Share Limit
. Subject to the provisions of Section 17, the capital stock that may be delivered under this Plan will be shares of the Company’s authorized but unissued Common Stock. The maximum number of shares of Common Stock that may be delivered pursuant to Options granted under this Plan is 8,000,000 shares, subject to adjustments pursuant to Section 17.
|
(b)
|
Individual Share Limit
. The maximum number of shares of Common Stock that any one individual may acquire upon exercise of his or her Option with respect to any one Offering Period is 8,000, subject to adjustments pursuant to Section 17 (the “
Individual Limit
”). The Committee may amend the Individual Limit, effective no earlier than the first Offering Period commencing after the adoption of such amendment, without stockholder approval.
|
(c)
|
Shares Not Actually Delivered
. Shares that are subject to or underlie Options, which for any reason are cancelled or terminated, are forfeited, fail to vest, or for any other reason are not paid or delivered under this Plan shall again, except to the extent prohibited by law, be available for subsequent Options under this Plan.
|
5.
|
OFFERING PERIODS
|
6.
|
PARTICIPATION
|
(a)
|
Enrollment
. An Eligible Employee may become a participant in this Plan by completing a Subscription Agreement on a form approved by and in a manner prescribed by the Committee (or its delegate). To become effective, a Subscription Agreement must be signed by the Eligible Employee and be filed with the Company at the time specified by the Committee, but in all cases prior to the start of the Offering Period with respect to which it is to become effective, and must set forth a whole percentage (or, if the Committee so provides, a stated amount) of the Eligible Employee’s Compensation to be credited to the Participant’s Account as Contributions each pay period.
|
(b)
|
Contribution Limits
. Notwithstanding the foregoing, a Participant may not elect to contribute less than one percent (1%) nor more than ten percent (10%) (or such other limit as the Committee may establish prior to the start of the applicable Offering Period) of his or her Compensation during any one pay period as Plan Contributions. The Committee also may prescribe other limits, rules or procedures for Contributions.
|
(c)
|
Content and Duration of Subscription Agreements
. Subscription Agreements shall contain the Eligible Employee’s authorization and consent to the Company’s withholding from his or her Compensation the amount of his or her Contributions. An Eligible Employee’s Subscription Agreement, and his or her participation election and withholding consent thereon, shall remain valid for all Offering Periods until (1) the Eligible Employee’s participation terminates pursuant to the terms hereof, (2) the Eligible Employee files a new Subscription Agreement that becomes effective, or (3) the Committee requires that a new Subscription Agreement be executed and filed with the Company.
|
7.
|
METHOD OF PAYMENT OF CONTRIBUTIONS
|
(a)
|
Participation Accounts
. The Company shall maintain on its books, or cause to be maintained by a record keeper, an Account in the name of each Participant. The percentage of Compensation elected to be applied as Contributions by a Participant shall be deducted from such Participant’s Compensation on each payday during the period for payroll deductions set forth below and such payroll deductions shall be credited to that Participant’s Account as soon as administratively practicable after such date. A Participant may not make any additional payments to his or her Account. A Participant’s Account
|
(b)
|
Payroll Deductions
. Subject to such other rules as the Committee may adopt, payroll deductions with respect to an Offering Period shall commence as of the first day of the payroll period which coincides with or immediately follows the applicable Grant Date and shall end on the last date of the payroll period which coincides with or immediately proceeds the applicable Exercise Date, unless sooner terminated by the Participant as provided in Section 7(d) or until his or her participation terminates pursuant to Section 11.
|
(c)
|
Changes in Contribution Elections for Next Offering Period; One-Time Reduction Permitted During an Offering Period
. A Participant may discontinue, increase, or decrease the level of his or her Contributions (within the Plan limits) by completing and filing with the Company, on such terms as the Committee (or its delegate) may prescribe, a new Subscription Agreement which indicates such election. Subject to any other timing requirements that the Committee may impose, an election pursuant to this Section 7(c) shall be effective with the first Offering Period that commences after the Company’s receipt of such election, provided that a Participant may, on one occasion only during an Offering Period, elect to decrease (but not increase) the level of his or her Contributions (subject to Section 6(b)) by filing a new Subscription Agreement with the Company indicating such election, which election shall be effective as soon as administratively practicable following its receipt by the Company. Except as contemplated by the foregoing proviso and Section 7(d) and 7(e), changes in Contribution levels may not take effect during an Offering Period. Other modifications or suspensions of Subscription Agreements are not permitted.
|
(d)
|
Withdrawal During an Offering Period
. A Participant may terminate his or her Contributions during an Offering Period (and receive a distribution of the balance of his or her Account in accordance with Section 11) by completing and filing with the Company, in such form and on such terms as the Committee (or its delegate) may prescribe, a written withdrawal form or applicable electronic withdrawal form which shall be signed by the Participant. Such termination shall be effective as soon as administratively practicable after its receipt by the Company. A withdrawal election pursuant to this Section 7(d) with respect to an Offering Period shall only be effective, however, if it is received by the Company prior to the Exercise Date of the Offering Period (or such earlier deadline that the Committee may reasonably require to process the withdrawal prior to the applicable Exercise Date). Partial withdrawals of Accounts are not permitted.
|
(e)
|
Discontinuance of Contributions During an Offering Period
. A Participant may discontinue his or her Contributions at any time during an Offering Period by completing and filing with the Company, on such terms as the Committee (or its delegate) may prescribe, a new Subscription Agreement which indicates such election. If a Participant elects to discontinue his or her Contributions pursuant to this Section 7(e), the Contributions previously credited to the Participant’s Account for that Offering Period shall be used to exercise the Participant’s Option as of the applicable Exercise Date in accordance with Section 9 (unless the Participant makes a timely withdrawal election in accordance with Section 7(d), in which case such Participant’s Account shall be paid to him or her in cash in accordance with Section 11(a)).
|
(f)
|
Leaves of Absence
. During leaves of absence approved by the Company or a Participating Subsidiary and meeting the requirements of Regulation 1.421-1(h)(2) under the Code, a Participant may elect to continue participation in this Plan by delivering cash payments to the Company on his or her normal paydays equal to the reduction in his or her Plan Contributions caused by his or her leave.
|
8.
|
GRANT OF OPTION
|
(a)
|
Grant Date; Number of Shares
.
On each Grant Date, each Eligible Employee who is a Participant during that Offering Period shall be granted an Option to purchase a number of shares of Common Stock. The Option shall be exercised on the Exercise Date. The
|
(b)
|
Option Price.
The Option Price per share of the shares subject to an Option for an Offering Period shall be the
lesser
of: (i) 85% of the Fair Market Value of a Share on the Grant Date of that Offering Period; or (ii) 85% of the Fair Market Value of a Share on the Exercise Date of that Offering Period; provided, however, that the Committee may provide prior to the start of any Offering Period that the Option Price for that Offering Period shall be determined by applying a discount amount (not to exceed 15%) to either (1) the Fair Market Value of a share of Common Stock on that Grant Date of that Offering Period, or (2) the Fair Market Value of a share of Common Stock on the Exercise Date of that Offering Period, or (3) the lesser of the Fair Market Value of a share of Common Stock on the Grant Date of that Offering Period or the Fair Market Value of a share of Common Stock on the Exercise Date of that Offering Period. Notwithstanding anything to the contrary in the preceding provisions of this Section 8(b), in no event shall the Option Price per share be less than the par value of a share of Common Stock.
|
(c)
|
Limits on Share Purchases.
Notwithstanding anything else contained herein, the maximum number of shares subject to an Option for an Offering Period shall be subject to the Individual Limit in effect on the Grant Date of that Offering Period (subject to adjustment pursuant to Section 17) and any person who is otherwise an Eligible Employee shall not be granted any Option (or any Option granted shall be subject to compliance with the following limitations) or other right to purchase shares under this Plan to the extent:
|
(1)
|
it would, if exercised, cause the person to own stock (within the meaning of Section 423(b)(3) of the Code) possessing 5% or more of the total combined voting power or value of all classes of stock of the Company, or of any Parent, or of any Subsidiary; or
|
(2)
|
such Option causes such individual to have rights to purchase stock under this Plan and any other plan of the Company, any Parent, or any Subsidiary which is qualified under Section 423 of the Code which accrue at a rate which exceeds $25,000 of the fair market value of the stock of the Company, of any Parent, or of any Subsidiary (determined at the time the right to purchase such stock is granted, before giving effect to any discounted purchase price under any such plan) for each calendar year in which such right is outstanding at any time.
|
9.
|
EXERCISE OF OPTION
|
(a)
|
Purchase of Shares
. Unless a Participant withdraws pursuant to Section 7(d) or the Participant’s Plan participation is terminated as provided in Section 11, his or her Option for the purchase of shares shall be exercised automatically on the Exercise Date for that Offering Period, without any further action on the Participant’s part, and the maximum number of whole shares of Common Stock subject to such Option (subject to the limits of Section 8(c)) shall be purchased at the Option Price with the balance of such Participant’s Account.
|
(b)
|
Account Balance Remaining After Purchase
. If any amount which is not sufficient to purchase a whole share remains in a Participant’s Account after the exercise of his or her Option on the Exercise Date: (1) such amount shall be credited to such Participant’s Account for the next Offering Period, if he or she is then a Participant; or (2) if such Participant is not a Participant in the next Offering Period, or if the Committee so elects, such amount shall be refunded to such Participant as soon as administratively practicable
|
10.
|
DELIVERY OF SHARES
|
11.
|
TERMINATION OF EMPLOYMENT; CHANGE IN ELIGIBLE STATUS
|
(a)
|
General
. Except as provided in Section 11(b) below, if a Participant ceases to be an Eligible Employee for any reason (including, without limitation, due to the Participant’s death, disability, resignation or retirement, or due to a layoff or other termination of employment with or without cause), or if the Participant elects to withdraw from the Plan pursuant to Section 7(d), at any time prior to the last day of an Offering Period in which he or she participates, such Participant’s Account shall be paid to him or her (or, in the event of the Participant’s death, to the person or persons entitled thereto under Section 13) in cash, and such Participant’s Option and participation in the Plan shall automatically terminate as of the time that the Participant ceased to be an Eligible Employee.
|
(b)
|
Change in Eligible Status; Leave
. If a Participant (1) ceases to be an Eligible Employee during an Offering Period but remains an employee of the Company or a Subsidiary through the Exercise Date (for example, and without limitation, due to a change in the Participant’s employer from the Company or a Participating Subsidiary to a non-Participating Subsidiary, if the Participant’s employer ceases to maintain the Plan as a Participating Subsidiary but otherwise continues as a Subsidiary, or if the Participant’s customary level of employment no longer satisfies the requirements set forth in the definition of Eligible Employee), or (2) during an Offering Period commences a sick leave, military leave, or other leave of absence approved by the Company or a Participating Subsidiary, and the leave meets the requirements of Treasury Regulation Section 1.421-1(h)(2) and the Participant is an employee of the Company or a Subsidiary or on such leave as of the applicable Exercise Date, such Participant’s Contributions shall cease (subject to Section 7(d)), and the Contributions previously credited to the Participant’s Account for that Offering Period shall be used to exercise the Participant’s Option as of the applicable
|
(c)
|
Re-Enrollment
. A Participant’s termination from Plan participation precludes the Participant from again participating in this Plan during that Offering Period. However, such termination shall not have any effect upon his or her ability to participate in any succeeding Offering Period, provided that the applicable eligibility and participation requirements are again then met. A Participant’s termination from Plan participant shall be deemed to be a revocation of that Participant’s Subscription Agreement and such Participant must file a new Subscription Agreement to resume Plan participation in any succeeding Offering Period.
|
(d)
|
Change in Subsidiary Status
. For purposes of this Plan, if a Subsidiary ceases to be a Subsidiary, each person employed by that Subsidiary will be deemed to have terminated employment for purposes of this Plan, unless the person continues as an employee of the Company or another Subsidiary.
|
12.
|
ADMINISTRATION
|
(a)
|
The Committee
. The Board shall appoint the Committee, which shall be composed of not less than two members of the Board. The Board may, at any time, increase or decrease the number of members of the Committee, may remove from membership on the Committee all or any portion of its members, and may appoint such person or persons as it desires to fill any vacancy existing on the Committee, whether caused by removal, resignation, or otherwise. The Board may also, at any time, assume the administration of all or a part of this Plan, in which case references (or relevant references in the event the Board assumes the administration of only certain aspects of this Plan) to the “Committee” shall be deemed to be references to the Board. Action of the Committee with respect to this Plan shall be taken pursuant to a majority vote or by the unanimous written consent of its members. No member of the Committee shall be entitled to act on or decide any matters relating solely to himself or herself or solely to any of his or her rights or benefits under this Plan.
|
(b)
|
Powers and Duties of the Committee
. Subject to the express provisions of this Plan, the Committee shall supervise and administer this Plan and shall have the full authority and discretion: (1) to construe and interpret this Plan and any agreements defining the rights and obligations of the Company, any Subsidiary, and Participants under this Plan; (2) to further define the terms used in this Plan; (3) to prescribe, amend and rescind rules and regulations relating to the administration of this Plan (including, without limitation, deadlines for making elections or for providing any notices contemplated by this Plan, which deadlines may be more restrictive than any deadlines otherwise contemplated by this Plan); and (4) to make all other determinations and take such other action as contemplated by this Plan or as may be necessary or advisable for the administration of this Plan or the effectuation of its purposes. Notwithstanding anything else contained in this Plan to the contrary, the Committee may also adopt rules, procedures or sub-plans applicable to particular Subsidiaries or locations, which sub-plans may be designed to be outside the scope of Section 423 of the Code and need not comply with the otherwise applicable provisions of this Plan.
|
(c)
|
Decisions of the Committee are Binding
. Any action taken by, or inaction of, the Company, any Subsidiary, the Board or the Committee relating or pursuant to this Plan and within its authority hereunder or under applicable law shall be within the absolute discretion of that entity or body and shall be conclusive and binding upon all persons.
|
(d)
|
Indemnification
. Neither the Board nor any Committee, nor any member thereof or person acting at the direction thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with this Plan, and all such persons shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, attorneys’ fees)
|
(e)
|
Reliance on Experts
. In making any determination or in taking or not taking any action under this Plan, the Committee or the Board, as the case may be, may obtain and may rely upon the advice of experts, including professional advisors to the Company. No director, officer or agent of the Company or any Participating Subsidiary shall be liable for any such action or determination taken or made or omitted in good faith.
|
(f)
|
Delegation
. The Committee may delegate ministerial, non-discretionary functions to individuals who are officers or employees of the Company or a Subsidiary.
|
13.
|
DESIGNATION OF BENEFICIARY
|
14.
|
TRANSFERABILITY
|
15.
|
USE OF FUNDS; INTEREST
|
16.
|
REPORTS
|
17.
|
ADJUSTMENTS OF AND CHANGES IN THE STOCK
|
18.
|
POSSIBLE EARLY TERMINATION OF PLAN AND OPTIONS
|
19.
|
TERM OF PLAN; AMENDMENT OR TERMINATION
|
(a)
|
Effective Date; Termination
. Subject to Section 19(b), this Plan shall become effective as of the Effective Date. No new Offering Periods shall commence on or after March 1, 2020 and this Plan shall terminate as of the Exercise Date on or immediately following such date unless sooner terminated pursuant to Section 18 or this Section 19. In the event that all of the shares of Common Stock made available under this Plan are subscribed prior to the expiration of this Plan, this Plan shall terminate at the end of that Offering Period and the shares available shall be allocated for purchase by Participants in that Offering Period on a pro-rata basis determined with respect to Participants’ Account balances.
|
(b)
|
Board Amendment Authority
. The Board may, at any time, terminate or, from time to time, amend, modify or suspend this Plan, in whole or in part and without notice. Stockholder approval for any amendment or modification shall not be required, except to the extent required by law or applicable stock exchange rules, or required under Section 423 of the Code in order to preserve the intended tax consequences of this Plan. No Options may be granted during any suspension of this Plan or after the termination of this Plan, but the Committee will retain jurisdiction as to Options then outstanding in accordance with the terms of this Plan. No amendment, modification, or termination pursuant to this Section 19(b) shall, without written consent of the Participant, affect in any manner materially adverse to the Participant any rights or benefits of such Participant or obligations of the Company under any Option granted under this Plan prior to the effective date of such change. Changes contemplated by Section 17 or Section 18 shall not be deemed to constitute changes or amendments requiring Participant consent.
|
(c)
|
Certain Additional Committee Authority
. Notwithstanding the amendment provisions of Section 19(b) and without limiting the Board’s authority thereunder and without limiting the Committee’s authority pursuant to any other provision of this Plan, the Committee shall have the right (1) to designate from time to time the Subsidiaries whose employees may be eligible to participate in this Plan (including, without limitation, any Subsidiary that may first become such after the date stockholders first approve this Plan) (each a “
Participating Subsidiary
”), and (2) to change the service and other qualification requirements sets forth under the definition of Eligible Employee in Section 2 (subject to the requirements of Section 423(b) of the Code and applicable rules and regulations thereunder). Any such change shall not take effect earlier than the first Offering Period that starts on or after the effective date of such change. Any such change shall not require stockholder approval.
|
20.
|
NOTICES
|
21.
|
CONDITIONS UPON ISSUANCE OF SHARES
|
22.
|
PLAN CONSTRUCTION
|
(a)
|
Section 16
. It is the intent of the Company that transactions involving Options under this Plan (other than “
Discretionary Transactions
” as that term is defined in Rule 16b-3(b)(1) promulgated by the Commission under Section 16 of the Exchange Act, to the extent there are any Discretionary Transactions under the Plan), in the case of Participants who are or may be subject to the prohibitions of Section 16 of the Exchange Act, satisfy the requirements for exemption under Rule 16b-3(c) promulgated by the Commission under Section 16 of the Exchange Act to the maximum extent possible. Notwithstanding the foregoing, the Company shall have no liability to any Participant for Section 16 consequences of Options or other events with respect to this Plan.
|
(b)
|
Section 423
. Except as the Committee may expressly provide in the case of one or more sub-plans adopted pursuant to Section 12(b), this Plan and Options are intended to qualify under Section 423 of the Code. Accordingly, all Participants are to have the same rights and privileges (within the meaning of Section 423(b)(5) of the Code and except as not required thereunder to qualify this Plan under Section 423) under this Plan, subject to differences in Compensation among Participants and subject to the Contribution and share limits of this Plan.
|
(c)
|
Interpretation
. If any provision of this Plan or of any Option would otherwise frustrate or conflict with the intents expressed above, that provision to the extent possible shall be interpreted so as to avoid such conflict. If the conflict remains irreconcilable, the Committee may disregard the provision if it concludes that to do so furthers the interest of the Company and is consistent with the purposes of this Plan as to such persons in the circumstances.
|
23.
|
EMPLOYEES’ RIGHTS
|
(a)
|
No Employment Rights
. Nothing in this Plan (or in any Subscription Agreement or other document related to this Plan) will confer upon any Eligible Employee or Participant any right to continue in the employ or other service of the Company or any Subsidiary, constitute any contract or agreement of employment or other service or effect an employee’s status as an employee at will, nor shall interfere in any way with the right of the Company or any Subsidiary to change such person’s compensation or other benefits or to terminate his or her employment or other service, with or without cause. Nothing contained in this Section 23(a), however, is intended to adversely affect any express independent right of any such person under a separate employment or service contract other than a Subscription Agreement.
|
(b)
|
No Rights to Assets of the Company
. No Participant or other person will have any right, title or interest in any fund or in any specific asset (including shares of Common Stock) of the Company or any Subsidiary by reason of any Option hereunder. Neither the provisions of this Plan (or of any Subscription Agreement or other document related to this Plan), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan will create, or be construed to create, a trust of any kind or a fiduciary relationship between the Company or any Subsidiary and any Participant, Beneficiary or other person. To the extent that a Participant, Beneficiary or other person acquires a right to receive payment pursuant to this Plan, such right will be no greater than the right of any unsecured general creditor of the Company.
|
(c)
|
No Stockholder Rights
. A Participant will not be entitled to any privilege of stock ownership as to any shares of Common Stock not actually delivered to and held of record by the Participant. No adjustment will be made for dividends or other rights as a stockholder for which a record date is prior to such date of delivery.
|
24.
|
MISCELLANEOUS
|
(a)
|
Governing Law
. This Plan, the Options, Subscription Agreements and other documents related to this Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware.
|
(b)
|
Severability
. If any provision shall be held by a court of competent jurisdiction to be invalid and unenforceable, the remaining provisions of this Plan shall continue in effect.
|
(c)
|
Captions and Headings
. Captions and headings are given to the sections of this Plan solely as a convenience to facilitate reference. Such captions and headings shall not be deemed in any way material or relevant to the construction of interpretation of this Plan or any provision hereof.
|
(d)
|
No Effect on Other Plans or Corporate Authority
. The adoption of this Plan shall not affect any other Company or Subsidiary compensation or incentive plans in effect. Nothing in this Plan will limit or be deemed to limit the authority of the Board or Committee (1) to establish any other forms of incentives or compensation for employees of the Company or any Subsidiary (with or without reference to the Common Stock), or (2) to grant or assume options (outside the scope of and in addition to those contemplated by this Plan) in connection with any proper corporate purpose; to the extent consistent with any other plan or authority. Benefits received by a Participant under an Option granted pursuant to this Plan shall not be deemed a part of the Participant’s compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the Company or any Subsidiary, except where the Committee or the Board (or the Board of Directors of the Subsidiary that sponsors such plan or arrangement, as applicable) expressly otherwise provides or authorizes in writing.
|
25.
|
TAX WITHHOLDING
|
26.
|
NOTICE OF SALE
|
1.
|
ELIGIBILITY
|
2.
|
CALCULATION OF THE AWARD
|
3.
|
PERFORMANCE WEIGHTING
|
4.
|
PERFORMANCE GOALS AND APPLICABLE PERFORMANCE WEIGHTING FACTORS
|
5.
|
DISCRETIONARY FACTOR
|
6.
|
TIMING OF AWARDS
|
8.
|
AMENDMENT
|
a.
|
This Plan, including its attachments, constitutes the entire understanding relating to an Award to any employee of Alaska or Horizon, and supersedes all prior oral or written agreements, representations or commitments relating to such Awards.
|
b.
|
This Plan is not a commitment of the Company, Alaska or Horizon, to any officer or employee of such company, to continue that individual in its employ in order to qualify for an Award. Nothing contained in this Plan may be considered to be a promise of continued employment. Any employee who shall file suit against his or her employer for wrongful termination shall automatically cease to be a Plan Participant.
|
c.
|
This Plan and the rights and obligations provided for herein shall be construed and interpreted in accordance with the law of the state of Washington, excluding its conflicts of law rules.
|
d.
|
No unpaid Award will be subject to the debts, liabilities, contracts or engagements of any Plan Participant, and may not be alienated, pledged, garnished or sold, and any attempt to do so shall be void.
|
e.
|
All Awards are subject to applicable federal, state, and local deductions.
|
f.
|
This Plan is intended to be an exception to, or otherwise be in compliance with, Section 409A of the Internal Revenue Code of 1986, as amended. This Plan shall be interpreted to comply with Section 409A. Further, it is the intent of the Company that, in the case of Section 162(m) Awards, this Plan, each such Award, any amounts paid with respect to such Awards, shall qualify as performance-based compensation or will otherwise be exempt from deductibility limitations under Section 162(m). Any provision, application or interpretation of this Plan inconsistent with this intent to satisfy the standards in Section 162(m) as to the Section 162(m) Awards shall be disregarded.
|
a.
|
Operational Performance
. Operational Performance is equally divided into three categories:
|
1.
|
Safety (10%)
|
Threshold
|
4
or fewer “Level 3” safety events
|
Target
|
3
or fewer “Level 3” safety events
|
Maximum
|
1
or fewer “Level 3” safety events
|
Threshold
|
4
or fewer “Level 3” safety events
|
Target
|
3
or fewer “Level 3” safety events
|
Threshold
|
Total of
6 months
with OPR score of 85% or higher
|
Target
|
Total of
8 months
with OPR score of 85% or higher
|
Maximum
|
Total of
11 months
with OPR score of 85% or higher
|
Threshold
|
Total of
6 months
with OPR score of 85% or higher
|
Target
|
Total of
8 months
with OPR score of 85% or higher
|
Maximum
|
Total of
11 months
with OPR score of 85% or higher
|
3.
|
CASM (cost per available seat mile) ex. fuel (10%).
|
b.
|
Financial Performance
. (70% of the total)
|
Pay Group/Position
|
Participation
Rate
|
ALASKA CHIEF EXECUTIVE OFFICER
|
120%
|
ALASKA PRESIDENT
|
90%
|
ALASKA EXECUTIVE VICE PRESIDENTS
|
85%
|
ALASKA SENIOR VICE PRESIDENTS
|
75%
|
HORIZON AIR PRESIDENT
|
75%
|
ALASKA VICE PRESIDENTS SERVING ON MANAGEMENT’S EXECUTIVE COMMITTEE
|
65%
|
ALASKA AND HORIZON VICE PRESIDENTS
|
50%
|
ALASKA AND HORIZON MANAGING DIRECTORS
|
35%
|
ALASKA AND HORIZON DIRECTORS
|
15%
|
ALASKA AND HORIZON MANAGERS AND SUPERVISORS*
|
7.5%
|
OTHER ALASKA AND HORIZON PARTICIPANTS
|
5%
|
*Includes managers and supervisors with direct reports, employees in Grade Level I (Alaska) or Level 117 (Horizon) and above, and managers and supervisors whose core responsibility is leading vendor/contractor teams in their daily work.
|
Name
|
State of Incorporation
|
Alaska Airlines, Inc.
|
Alaska
|
Virgin America Inc.
|
Delaware
|
Horizon Air Industries, Inc.
|
Washington
|
McGee Air Services, Inc.
(a)
|
Delaware
|
ASA Assurance, Inc.
|
Hawaii
|
Air Group Leasing, Inc.
|
Delaware
|
(a)
|
McGee Air Services, Inc. is a subsidiary of Alaska Airlines, Inc.
|
1.
|
I have reviewed this annual report on Form 10-K of Alaska Air Group, Inc. for the period ended
December 31, 2016
;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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e)
|
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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By:
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/s/ BRADLEY D. TILDEN
|
|
Bradley D. Tilden
|
|
Chief Executive Officer
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1.
|
I have reviewed this annual report on Form 10-K of Alaska Air Group, Inc. for the period ended
December 31, 2016
;
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2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
|
a)
|
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
By:
|
/s/ BRANDON S. PEDERSEN
|
|
Brandon S. Pedersen
|
|
Executive Vice President/Finance and Chief Financial Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
By:
|
/s/ BRADLEY D. TILDEN
|
|
Bradley D. Tilden
|
|
Chief Executive Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
By:
|
/s/ BRANDON S. PEDERSEN
|
|
Brandon S. Pedersen
|
|
Executive Vice President/Finance and Chief Financial Officer
|