Alaska Airlines and Horizon Air 2010 Annual Report Download - page 176

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alaska Air Group, Inc.
December 31, 2010
NOTE 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
The consolidated financial statements include
the accounts of Alaska Air Group, Inc. (Air Group
or the Company) and its subsidiaries, Alaska
Airlines, Inc. (Alaska) and Horizon Air Industries,
Inc. (Horizon), through which the Company
conducts substantially all of its operations. All
significant intercompany balances and
transactions have been eliminated. These
financial statements have been prepared in
conformity with accounting principles generally
accepted in the United States of America and
their preparation requires the use of
management’s estimates. Actual results may
differ from these estimates. Certain
reclassifications have been made to confirm the
prior year data to the current format.
Nature of Operations
Alaska and Horizon operate as airlines. However,
their business plans, competition, and economic
risks differ substantially. For more detailed
information about the Company’s operations,
see Item 1. “Our Business” in this Form 10-K.
The Company’s operations and financial results
are subject to various uncertainties, such as
general economic conditions, volatile fuel prices,
industry instability, intense competition, a largely
unionized work force, the need to finance large
capital expenditures and the related availability
of capital, government regulation, and potential
aircraft incidents.
Approximately 73% of Air Group’s employees are
covered by collective bargaining agreements,
including approximately 10% that are covered
under agreements that are currently in
negotiations or become amendable prior to
December 31, 2011.
The airline industry is characterized by high fixed
costs. Small fluctuations in load factors and
yield (a measure of ticket prices) can have a
significant impact on operating results. The
Company has been and continues working to
reduce unit costs to better compete with carriers
that have lower cost structures.
Substantially all sales occur in the United
States. See Note 12 for operating segment
information and geographic concentrations.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid
investments with original maturities of three
months or less. They are carried at cost, which
approximates market value. The Company
reduces cash balances when checks are
disbursed. Due to the time delay in checks
clearing the banks, the Company normally
maintains a negative balance in its cash
disbursement accounts, which is reported as a
current liability. The amount of the negative cash
balance was $23.3 million and $26.9 million at
December 31, 2010 and 2009, respectively, and
is included in accounts payable.
Receivables
Receivables consist primarily of airline traffic
(including credit card) receivables, amounts from
customers, Mileage Plan partners, government
tax authorities, and other miscellaneous
amounts due to the Company, and are net of an
allowance for doubtful accounts. Management
determines the allowance for doubtful accounts
based on known troubled accounts and historical
experience applied to an aging of accounts.
Inventories and Supplies—net
Expendable aircraft parts, materials and supplies
are stated at average cost and are included in
inventories and supplies—net. An obsolescence
allowance for expendable parts is accrued based
on estimated lives of the corresponding fleet
type and salvage values. Surplus inventories are
carried at their net realizable value. The
64