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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549


FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

May 4, 2018
(Date of earliest event reported)

ALASKA AIR GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation)

1-8957
 
91-1292054
(Commission File Number)
 
(IRS Employer Identification No.)

19300 International Boulevard, Seattle, Washington
 
98188
(Address of Principal Executive Offices)
 
(Zip Code)

(206) 392-5040
(Registrant's Telephone Number, Including Area Code)


(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o      Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR 240.12b-2).

o Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o





ITEM 7.01.  Regulation FD Disclosure

On May 4, 2018, Alaska Air Group, Inc. (Air Group) provided an investor update including the prior year impacts for the new revenue recognition accounting standard and retirement benefits accounting standard that became applicable for the Company beginning January 1, 2018. The investor update is furnished herein as Exhibit 99.1.

In accordance with General Instruction B.2 of Form 8-K, the information under this item Exhibit 99.1 shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing. This report will not be deemed an admission as to the materiality of any information required to be disclosed solely to satisfy the requirements of Regulation FD.

ITEM 9.01  Financial Statements and Other Exhibits
 
Investor Update dated May 4, 2018 - Impact of New Accounting Standards

Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ALASKA AIR GROUP, INC.                                                                           
Registrant

Date: May 4, 2018

/s/ Christopher M. Berry
Christopher M. Berry
Vice President Finance and Controller




Exhibit

Exhibit 99.1
https://cdn.kscope.io/e7e8648c44612c5025b134282abec5c0-alaskaairgrouplogoa49.jpg

Investor Update - Impact of New Accounting Standards

References in this update to “Air Group,” “Company,” “we,” “us,” and “our” refer to Alaska Air Group, Inc. and its subsidiaries, unless otherwise specified.

This update includes prior year impacts for the new revenue recognition accounting standard and retirement benefits accounting standard that became applicable for the Company beginning January 1, 2018. We have elected to apply the new standards using a full retrospective transition, which required us to adjust prior period financial information for the new standards. For a more complete discussion of the new accounting standards, and their impacts on our accounting policies, see our first quarter 2018 Form 10-Q filed on May 4, 2018.




CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
The historical condensed consolidated statements of operations presented below reflect the adoption of the new standards related to revenue recognition and retirement benefits (the standards). Line items not impacted by the standards have been condensed for presentation herein. Upon adoption of the standards, the presentation of certain line items was modified to address the new accounting requirements. Certain immaterial reclassifications have been made to "as reported" financial statements to conform to classifications used in the current year.
 
 
Twelve Months Ended December 31, 2016 (a)
 
Twelve Months Ended December 31, 2017
 
 
 
 
Adjustments
 
 
 
 
 
Adjustments
 
 
 
 
As Reported
 
Revenue Recognition
 
Retirement Benefits
 
As Adjusted
 
As Reported
 
Revenue Recognition
 
Retirement Benefits
 
As Adjusted
Operating Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger Revenue
 
$
5,006

 
$
386

 
$
—

 
$
5,392

 
$
6,818

 
$
483

 
$
—

 
$
7,301

Mileage plan other revenue
 
429

 
(59
)
 
—

 
370

 
482

 
(64
)
 
—

 
418

Cargo and other revenue
 
496

 
(333
)
 
—

 
163

 
633

 
(458
)
 
—

 
175

Total Operating Revenue
 
5,931

 
(6
)
 
—

 
5,925

 
7,933

 
(39
)
 
—

 
7,894

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wages and benefits
 
1,382

 
—

 
12

 
1,394

 
1,924

 
—

 
7

 
1,931

Selling expenses
 
225

 
23

 
—

 
248

 
357

 
11

 
—

 
368

Special items—merger-related costs
 
117

 
—

 
—

 
117

 
118

 
(2
)
 
—

 
116

All other operating expenses
 
2,860

 
—

 
—

 
2,860

 
4,271

 
—

 
—

 
4,271

Total Operating Expenses
 
4,584

 
23

 
12

 
4,619

 
6,670

 
9

 
7

 
6,686

Operating Income
 
1,347

 
(29
)
 
(12
)
 
1,306

 
1,263

 
(48
)
 
(7
)
 
1,208

Nonoperating Income (Expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other—net
 
1

 
—

 
12

 
13

 
(4
)
 
—

 
7

 
3

All other nonoperating income (expense)
 
(3
)
 
—

 
—

 
(3
)
 
(52
)
 
—

 
—

 
(52
)
 
 
(2
)
 
—

 
12

 
10

 
(56
)
 
—

 
7

 
(49
)
Income (loss) before income tax
 
1,345

 
(29
)
 
—

 
1,316

 
1,207

 
(48
)
 
—

 
1,159

Income tax expense (benefit)
 
531

 
(12
)
 
—

 
519

 
173

 
26

 
—

 
199

Net Income (Loss)
 
$
814

 
$
(17
)
 
$
—

 
$
797

 
$
1,034

 
$
(74
)
 
$
—

 
$
960

(a) 
As the acquisition of Virgin America closed on December 14, 2016, amounts include Virgin America results for the period December 14, 2016 through December 31, 2016.

2

 
 
Three Months Ended March 31, 2017
 
Three Months Ended June 30, 2017
 
 
 
 
Adjustments
 
 
 
 
 
Adjustments
 
 
 
 
As Reported
 
Revenue Recognition
 
Retirement Benefits
 
As Adjusted
 
As Reported
 
Revenue Recognition
 
Retirement Benefits
 
As Adjusted
Operating Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger Revenue
 
$
1,484

 
$
118

 
$
—

 
$
1,602

 
$
1,807

 
$
138

 
$
—

 
$
1,945

Mileage plan other revenue
 
119

 
(19
)
 
—

 
100

 
128

 
(19
)
 
—

 
109

Cargo and other revenue
 
146

 
(108
)
 
—

 
38

 
167

 
(119
)
 
—

 
48

Total Operating Revenue
 
1,749

 
(9
)
 
—

 
1,740

 
2,102

 
—

 
—

 
2,102

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wages and benefits
 
448

 
—

 
2

 
450

 
469

 
—

 
1

 
470

Selling expenses
 
81

 
2

 
—

 
83

 
97

 
5

 
—

 
102

Special items—merger-related costs
 
40

 
(1
)
 
—

 
39

 
24

 
—

 
—

 
24

All other operating expenses
 
1,011

 
—

 
—

 
1,011

 
1,019

 
—

 
—

 
1,019

Total Operating Expenses
 
1,580

 
1

 
2

 
1,583

 
1,609

 
5

 
1

 
1,615

Operating Income
 
169

 
(10
)
 
(2
)
 
157

 
493

 
(5
)
 
(1
)
 
487

Nonoperating Income (Expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other—net
 
(3
)
 
—

 
2

 
(1
)
 
(1
)
 
—

 
1

 
—

All other nonoperating income (expense)
 
(14
)
 
—

 
—

 
(14
)
 
(13
)
 
—

 
—

 
(13
)
 
 
(17
)
 
—

 
2

 
(15
)
 
(14
)
 
—

 
1

 
(13
)
Income (loss) before income tax
 
152

 
(10
)
 
—

 
142

 
479

 
(5
)
 
—

 
474

Income tax expense (benefit)
 
53

 
(4
)
 
—

 
49

 
183

 
(2
)
 
—

 
181

Net Income (Loss)
 
$
99

 
$
(6
)
 
$
—

 
$
93

 
$
296

 
$
(3
)
 
$
—

 
$
293


 
 
Three Months Ended September 30, 2017
 
Three Months Ended December 31, 2017
 
 
 
 
Adjustments
 
 
 
 
 
Adjustments
 
 
 
 
As Reported
 
Revenue Recognition
 
Retirement Benefits
 
As Adjusted
 
As Reported
 
Revenue Recognition
 
Retirement Benefits
 
As Adjusted
Operating Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Passenger Revenue
 
$
1,824

 
$
134

 
$
—

 
$
1,958

 
$
1,703

 
$
93

 
$
—

 
$
1,796

Mileage plan other revenue
 
122

 
(17
)
 
—

 
105

 
113

 
(9
)
 
—

 
104

Cargo and other revenue
 
174

 
(127
)
 
—

 
47

 
146

 
(104
)
 
—

 
42

Total Operating Revenue
 
2,120

 
(10
)
 
—

 
2,110

 
1,962

 
(20
)
 
—

 
1,942

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wages and benefits
 
475

 
—

 
2

 
477

 
532

 
—

 
2

 
534

Selling expenses
 
91

 
1

 
—

 
92

 
88

 
3

 
—

 
91

Special items—merger-related costs
 
24

 
(1
)
 
—

 
23

 
30

 
—

 
—

 
30

All other operating expenses
 
1,091

 
—

 
—

 
1,091

 
1,150

 
—

 
—

 
1,150

Total Operating Expenses
 
1,681

 
—

 
2

 
1,683

 
1,800

 
3

 
2

 
1,805

Operating Income
 
439

 
(10
)
 
(2
)
 
427

 
162

 
(23
)
 
(2
)
 
137

Nonoperating Income (Expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other—net
 
—

 
—

 
2

 
2

 
—

 
—

 
2

 
2

All other nonoperating income (expense)
 
(12
)
 
—

 
—

 
(12
)
 
(13
)
 
—

 
—

 
(13
)
 
 
(12
)
 
—

 
2

 
(10
)
 
(13
)
 
—

 
2

 
(11
)
Income (loss) before income tax
 
427

 
(10
)
 
—

 
417

 
149

 
(23
)
 
—

 
126

Income tax expense (benefit)
 
161

 
(3
)
 
—

 
158

 
(224
)
 
35

 
—

 
(189
)
Net Income (Loss)
 
$
266

 
$
(7
)
 
$
—

 
$
259

 
$
373

 
$
(58
)
 
$
—

 
$
315



3

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
The historical condensed consolidated balance sheets below reflect the adoption of the new standards related to revenue recognition (the standard) as well as other classification changes. Line items not impacted by the standard have been condensed for presentation herein. Upon adoption of the standard, the presentation of certain line items was modified to address the new accounting requirements. Certain immaterial reclassifications have been made to "as reported" financial statements to conform to classifications used in the current year.
 
December 31, 2016
 
December 31, 2017
 
As Reported
 
Adjustments - Revenue Recognition
 
As Adjusted
 
As Reported
 
Adjustments - Revenue Recognition
 
As Adjusted
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
 
 
Prepaid expenses, fuel hedge contracts and other current assets
$
121

 
$
6

 
$
127

 
$
127

 
$
6

 
$
133

All other current assets
1,929

 
—

 
1,929

 
2,019

 
—

 
2,019

Total Current Assets
2,050

 
6

 
2,056

 
2,146

 
—

 
2,152

 
 
 
 
 
 
 
 
 
 
 
 
Total Property and Equipment—Net
5,666

 
—

 
5,666

 
6,284

 
—

 
6,284

 
 
 
 
 
 
 
 
 
 
 
 
Total Other Assets
2,246

 
—

 
2,246

 
2,310

 
—

 
2,310

 
 
 

 
 
 
 
 
 
 
 
Total Assets
$
9,962

 
$
6

 
$
9,968

 
$
10,740

 
$
6

 
$
10,746

 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
 
 
Air traffic liability
$
849

 
$
(87
)
 
$
762

 
$
937

 
$
(131
)
 
$
806

Deferred Revenue
484

 
102

 
586

 
518

 
117

 
635

Other accrued liabilities
394

 
1

 
395

 
400

 
—

 
400

All other current liabilities
808

 
—

 
808

 
845

 
—

 
845

Total Current Liabilities
2,535

 
16

 
2,551

 
2,700

 
(14
)
 
2,686

 
 
 
 
 
 
 
 
 
 
 
 
Long-Term Debt, Net of Current Portion
2,645

 
—

 
2,645

 
2,262

 
—

 
2,262

 
 
 
 
 
 
 
 
 
 
 
 
Other Liabilities and Credits
 
 

 
 
 
 
 
 
 
 
Deferred income taxes
463

 
(110
)
 
352

 
454

 
(84
)
 
370

Deferred revenue
640

 
309

 
949

 
699

 
391

 
1,090

Other liabilities
417

 
(21
)
 
396

 
451

 
(26
)
 
425

All other liabilities and credits
331

 
—

 
331

 
453

 
—

 
453

Total Other Liabilities and Credits
1,851

 
178

 
2,028

 
2,057

 
281

 
2,338

 
 
 
 
 
 
 
 
 
 
 
 
Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
All other Shareholders' Equity
(637
)
 
—

 
(637
)
 
(733
)
 
—

 
(733
)
Retained earnings
3,568

 
(188
)
 
3,380

 
4,454

 
(261
)
 
4,193

 
2,931

 
(188
)
 
2,743

 
3,721

 
(261
)
 
3,460

Total Liabilities and Shareholders' Equity
$
9,962

 
$
6

 
$
9,968

 
$
10,740

 
$
6

 
$
10,746



4

OPERATING STATISTICS (unaudited)
The operating statistics included in the table below were impacted by the adjustment of prior year financial information as part of the adoption of new accounting standards. Due to the reclassification of the majority of Other revenue to Passenger revenue, Passenger revenue per available seat mile (PRASM) is not restated below as it closely correlates with revenue per available seat mile (RASM). Yield represents passenger revenue per revenue passenger mile (RPM), or the average revenue for flying one passenger one mile. Cost per available seat mile excluding fuel and special items (CASMex) is used to help track progress toward reduction of non-fuel operating costs. These operating statistics are commonly reviewed by management when evaluating performance.
 
RASM
 
Yield
 
CASMex
 
As Reported
 
As Adjusted
 
% Change
 
As Reported
 
As Adjusted
 
% Change
 
As Reported
 
As Adjusted
 
% Change
Full Year 2016 (a)

13.44
¢
 

13.43
¢
 
(0.1
)
 

13.45
¢
 

14.49
¢
 
7.7
 

8.23
¢
 

8.32
¢
 
1.1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q1 2017

12.15
¢
 

12.09
¢
 
(0.5
)
 

12.68
¢
 

13.69
¢
 
8.0
 

8.37
¢
 

8.38
¢
 
0.1
Q2 2017

13.46
¢
 

13.46
¢
 
—

 

13.33
¢
 

14.35
¢
 
7.7
 

7.94
¢
 

7.98
¢
 
0.5
Q3 2017

13.12
¢
 

13.06
¢
 
(0.5
)
 

13.21
¢
 

14.18
¢
 
7.3
 

7.98
¢
 

8.00
¢
 
0.3
Q4 2017

12.34
¢
 

12.21
¢
 
(1.1
)
 

12.84
¢
 

13.54
¢
 
5.5
 

8.64
¢
 

8.68
¢
 
0.5
Full Year 2017

12.78
¢
 

12.72
¢
 
(0.5
)
 

13.03
¢
 

13.95
¢
 
7.1
 

8.23
¢
 

8.25
¢
 
0.2
(a)
As the acquisition of Virgin America closed on December 14, 2016, amounts include Virgin America results for the period December 14, 2016 through December 31, 2016.


5

NON-GAAP ADJUSTED NET INCOME AND EPS RECONCILIATION (unaudited)

The following tables reconcile the company's GAAP net income and earnings per diluted share ("diluted EPS"), restated for the new accounting standards, to adjusted amounts:
 
Twelve Months Ended December 31, 2016
 
Twelve Months Ended December 31, 2017
(in millions, except per share amounts)
Dollars As Adjusted
 
Diluted EPS
As Adjusted
 
Dollars As Adjusted
 
Diluted EPS
As Adjusted
GAAP net income and diluted EPS
$
797

 
$
6.41

 
$
960

 
$
7.75

Mark-to-market fuel hedge adjustments
(13
)
 
(0.10
)
 
(7
)
 
(0.06
)
Special items—merger-related costs
117

 
0.93

 
116

 
0.94

Income tax effect
(24
)
 
(0.19
)
 
(41
)
 
(0.33
)
Special tax (benefit)/expense
17

 
0.14

 
(280
)
 
(2.26
)
Non-GAAP adjusted net income and diluted EPS
$
894

 
$
7.19

 
$
748

 
$
6.04

 
Three Months Ended March 31, 2017
 
Three Months Ended June 30, 2017
(in millions, except per share amounts)
Dollars As Adjusted
 
Diluted EPS
As Adjusted
 
Dollars As Adjusted
 
Diluted EPS
As Adjusted
GAAP net income and diluted EPS
$
93

 
$
0.75

 
$
293

 
$
2.36

Mark-to-market fuel hedge adjustments
10

 
0.08

 
2

 
0.02

Special items—merger-related costs
39

 
0.30

 
24

 
0.19

Income tax effect
(18
)
 
(0.14
)
 
(10
)
 
(0.09
)
Non-GAAP adjusted net income and diluted EPS
$
124

 
$
0.99

 
$
309

 
$
2.48

 
Three Months Ended September 30, 2017
 
Three Months Ended December 31, 2017
(in millions, except per share amounts)
Dollars As Adjusted
 
Diluted EPS
As Adjusted
 
Dollars As Adjusted
 
Diluted EPS
As Adjusted
GAAP net income and diluted EPS
$
259

 
$
2.09

 
$
315

 
$
2.55

Mark-to-market fuel hedge adjustments
(5
)
 
(0.04
)
 
(14
)
 
(0.11
)
Special items—merger-related costs
23

 
0.19

 
30

 
0.24

Income tax effect
(7
)
 
(0.06
)
 
(6
)
 
(0.06
)
Special tax (benefit)/expense
—

 
—

 
(280
)
 
(2.26
)
Non-GAAP adjusted net income and diluted EPS
$
270

 
$
2.18

 
$
45

 
$
0.36




6