<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
------------------------------------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12649
AMERICA WEST HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 86-0847214
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
51 W. THIRD STREET (602) 693-0800
TEMPE, ARIZONA 85281 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED:
<S> <C>
CLASS B COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
COMMISSION FILE NUMBER 1-10140
AMERICA WEST AIRLINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 86-0418245
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
4000 E. SKY HARBOR BOULEVARD (602) 693-0800
PHOENIX, ARIZONA 85034-3899 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED:
<S> <C>
CLASS B COMMON STOCK WARRANT, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether each of the registrants (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes. X No.
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (Section 229.405 under the Securities Exchange Act
of 1934) is not contained herein, and will not be contained, to the best of each
of the registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
As of March 14, 1997, there were 44,597,298 shares of America West
Holdings Corporation Class B Common Stock, $.01 par value, and 8,177,844
warrants to purchase America West Holdings Corporation Class B Common Stock,
$.01 par value, from America West Airlines, Inc., respectively, issued and
outstanding. As of such date, 40,017,361 shares of Class B Common Stock, having
an aggregate market value of approximately $620,269,095.50, were held by
non-affiliates. For purposes of the above statement only, all directors and
executive officers of the registrants are assumed to be affiliates. As of March
14, 1997, all outstanding equity securities of America West Airlines, Inc. were
owned by America West Holdings Corporation.
Indicate by check mark whether the registrant has filed all
documentation and reports required to be filed by Section 12, 13 and 15(d) of
the Seucrities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes X No.
--- ---
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement related to America West Holdings
Corporation's 1997 annual meeting of stockholders, which proxy statement will be
filed under the Securities Exchange Act of 1934 within 120 days of the end of
America West Holdings Corporation's fiscal year ended December 31, 1996, are
incorporated by reference into Part III of this Form 10-K.
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I
<S> <C>
Item 1. Business........................................................................................................2
Item 2. Properties.....................................................................................................14
Item 3. Legal Proceedings..............................................................................................14
Item 4. Submission of Matters to a Vote of Security Holders............................................................16
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters..........................................18
Item 6. Selected Consolidated Financial Data...........................................................................19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..........................20
Item 8A. Consolidated Financial Statements and Supplementary Data--America West Holdings Corporation....................29
Item 8B. Financial Statements and Supplementary Data--America West Airlines, Inc........................................54
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure....................................................................................77
PART III
Item 10. Directors and Executive Officers of the Registrants................................................................77
Item 11. Executive Compensation.............................................................................................77
Item 12. Security Ownership of Certain Beneficial Owners and Management.....................................................77
Item 13. Certain Relationships and Related Transactions.....................................................................77
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................................77
</TABLE>
Note Concerning Forward-Looking Information
This Report contains various forward-looking statements and
information that are based on management's beliefs as well as assumptions made
by and information currently available to management. When used in this
document, the words "anticipate," "estimate," "project," "expect" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated, projected or expected. Among the key factors that may have a direct
bearing on the Company's results are competitive practices in the airline
industry generally and particularly in the Company's principal markets, the
ability of the Company to meet existing financial obligations in the event of
adverse industry or economic conditions or to obtain additional capital to fund
future commitments and expansion, the Company's relationship with employees and
the terms of future collective bargaining agreements and the impact of current
and future laws and governmental regulations affecting the airline industry and
the Company's operations. For additional discussion of such risks see
"Business--Risk Factors," included in Item 1 of this Report.
-1-
<PAGE> 3
PART I
This combined Form 10-K is separately filed by America West Holdings
Corporation ("Holdings") and America West Airlines, Inc. ("AWA"). Information
contained herein relating to AWA is filed by Holdings and separately by AWA on
its own behalf. Holdings is a Delaware corporation and became the holding
company for AWA effective midnight December 31, 1996. Holdings' only material
asset is the capital stock of AWA. Unless otherwise indicated, the terms "the
Company" and "America West" refer collectively to Holdings and AWA, its direct
wholly owned subsidiary.
ITEM 1. BUSINESS
OVERVIEW
The Company adopted a holding company structure effective midnight
December 31, 1996 when Holdings became the parent company of AWA. Management
believes the holding company structure improves the Company's ability to manage
separate business segments effectively and that the holding company provides a
platform for further expansion of the Company's businesses, including its
leisure travel businesses. The Company intends to continue to evaluate
investment and expansion opportunities which allow the Company to capitalize on
its key strengths and market position.
AWA is the ninth largest commercial airline carrier in the United
States, operating through its principal hubs located in Phoenix, Arizona and Las
Vegas, Nevada, and a mini-hub located in Columbus, Ohio. The Company believes
AWA is the lowest cost full service carrier in the United States. At December
31, 1996 AWA served 56 destinations, including six destinations in Mexico and
one in Canada, with a fleet of 101 aircraft. AWA offers service to an additional
18 destinations through an alliance agreement with Continental Airlines
("Continental") and 17 commuter service and regional destinations through an
alliance agreement with Mesa Airlines ("Mesa").
AWA is the leading airline serving Phoenix and Las Vegas, with
approximately 35% and 23% of total revenue passenger miles, respectively, based
on the twelve months ended September 30, 1996. The Phoenix and Las Vegas
airports are the seventh and thirteenth largest airports and the fifth and eight
largest domestic hubs in the United States as measured by passenger
enplanements. In addition, these cities are among the fastest growing in the
nation. The Company believes these hubs are well positioned for continued growth
due to their geographically favorable locations with strategic access to key
southwestern and west coast markets, relatively low operating costs, year-round
fair weather and modern, uncongested facilities. Substantially all of AWA's
passenger traffic is channeled into or through its hubs, which serve as gateways
for AWA's route network. Through its hub-and-spoke system, AWA serves more
markets with greater frequency than would be possible with the same number of
aircraft in a point-to-point route system.
AWA operates with a low cost structure. The Company's operating cost
per available seat mile ("ASM") for 1996 was 7.43 cents, excluding the $65.1
million nonrecurring special charge, which was approximately 17.8% less than the
average cost per ASM of the eight largest domestic full service airlines.
Management believes that AWA's low cost structure is a significant competitive
advantage relative to other full service carriers and also enables AWA to
compete effectively against low cost carriers in its short-haul local markets.
As a full service airline, the Company believes AWA distinguishes itself from
other low cost carriers by offering passenger services that include assigned
seating, meal service, participation in computerized reservation systems,
interline ticketing, first class cabins, baggage transfer and various other
services.
Through its America West Vacations division, AWA arranges and sells
vacation packages that include hotel accommodations, air fare, ground
transportation and a variety of entertainment options. This business unit
generated approximately $190 million in gross package sales in 1996. America
West Vacations occupies a substantial position in the Las Vegas destination
market and arranges packages for travel to the other traditional vacation
destinations served by AWA including Arizona, California, Florida, Canada and
Mexico. To further develop this business, America West
-2-
<PAGE> 4
Vacations will be combined with AWA's charter business and reorganized as a
separate subsidiary of Holdings during 1997.
STRATEGY
The Company's strategy seeks to achieve revenue growth and
profitability by capitalizing on AWA's key competitive strengths while
maximizing financial flexibility. The principal elements of the Company's
strategy are (i) strengthening AWA's position in its existing hubs through
strategic expansion, (ii) maintaining AWA's position as a leading low cost full
service carrier, (iii) focusing on airline reliability and customer service,
(iv) operating a modern and efficient fleet, (v) continuing to develop AWA's
passenger base through key alliances and (vi) pursuing opportunities to expand
in the leisure travel market.
STRENGTHEN POSITION IN EXISTING HUBS THROUGH STRATEGIC EXPANSION
AWA's strategy is designed to capitalize on its strong position in
its Phoenix and Las Vegas hubs. In February 1996, the Company began
implementation of a two-year plan to expand its principal hub operations and
increase connecting traffic and service to longer-haul nonstop markets. Pursuant
to this plan, during 1996 the Company increased available seat miles ("ASMs") by
11.3% and added six new cities to AWA's route network. In addition, AWA has
increased flight frequencies to enhance service to existing West Coast
destinations and to expand connecting opportunities through Phoenix to long-haul
flights to the East and Midwest. AWA has also sought to increase asset
utilization through the expansion of its night flight service to Las Vegas,
utilizing aircraft for this service that otherwise would be idle overnight.
Pursuant to the growth plan, the Company expects to increase ASMs by an
additional 11% and introduce service to at least two additional cities by
December 31, 1997.
MAINTAIN ITS POSITION AS A LOW COST AIRLINE
The Company is committed to maintaining AWA's low cost structure,
which it has achieved primarily through employee productivity, favorable labor
costs per ASM and industry-leading asset utilization. The Company maintained low
unit costs by focusing on productivity at all levels. The Company increased its
ASMs by 11.3% in 1996 while increasing its workforce by 10.8%. Management
anticipates that ASMs will increase by 11% during 1997 while employment is
expected to increase by only 9.1%. If those targets are achieved, the Company's
growth plan will have increased the size of the airline by nearly 23% while
increasing its workforce by less than 20%. Aircraft utilization has been
enhanced through a restructuring of the Company's route network and expansion of
the Las Vegas night flight program.
FOCUS ON RELIABILITY AND CUSTOMER SERVICE
AWA is committed to maintaining the airline's reliability and to
improving its overall customer service. As a result of customer service and
operational issues encountered in the third quarter of 1996, AWA initiated a
program entitled Pride in All We Do, aimed at maximizing the airline's
reliability and further improving customer service. Consistent with its strategy
of being a low cost airline, these initiatives are designed to be implemented
without adversely affecting the Company's cost structure.
OPERATE A MODERN AND EFFICIENT FLEET
AWA enjoys operational efficiencies due to its modern, fuel
efficient fleet. At December 31, 1996, AWA's fleet consisted of 61 Boeing 737s,
26 Airbus A320s and 14 Boeing 757s, with an average age of approximately 10.1
years. Most of AWA's existing aircraft are held under leases with considerable
fleet plan flexibility. As a result, in the event economic conditions change
adversely, AWA can reduce its fleet size and reduce its aircraft related
financial obligations by not renewing expiring aircraft leases.
-3-
<PAGE> 5
CONTINUE TO DEVELOP PASSENGER BASE THROUGH ALLIANCES
AWA plans to continue to employ alliance agreements to expand the
Company's passenger base and in some cases to achieve cost savings through the
reduction of redundant labor and facilities. AWA's alliance agreements generally
provide for codesharing arrangements and linking of frequent flyer programs, and
in some cases involve coordination of flight schedules, sharing of ticket
counter space, coordination of ground handling operations and joint purchasing
and marketing efforts. AWA currently has alliance agreements with Continental,
British Airways, Northwest Airlines and Mesa. Management believes that its
codesharing activities result in increased travel and profitability for AWA and
intends to pursue additional alliances as opportunities warrant.
EXPAND LEISURE TRAVEL BUSINESSES
The Company's strategic plan includes the expansion of its leisure
tour packaging and charter businesses which, management believes, present
opportunities for growth. Management further believes that the Company will be
competitive in these businesses because of its low cost structure and expertise
gained in developing and managing its America West Vacations division and its
successful professional and college sports chartering business. During 1997, the
Company expects to combine the America West Vacations and charter business under
a separate subsidiary of Holdings, establish a private label tour packaging
business, pursue the management of other airlines' vacation packaging
businesses, expand the scope of its vacation and charter products and introduce
new package tour destinations.
OPERATIONS
AIRLINE OPERATIONS
AWA is the ninth largest commercial airline carrier in the United
States, operating through its principal hubs located in Phoenix, Arizona and Las
Vegas, Nevada, and a mini-hub located in Columbus, Ohio. The Company believes
AWA is the lowest cost full service carrier in the United States. At December
31, 1996 AWA served 56 destinations, including six destinations in Mexico and
one in Canada, with a fleet of 101 aircraft. AWA also offers service to
additional destinations through alliance agreements with Continental and Mesa.
The Company seeks to maximize its market share by operating
primarily through hub airports in Phoenix and Las Vegas and, to a lesser extent,
through its mini-hub in Columbus. The success of AWA's hub system depends on its
ability to attract passengers traveling to and from its hubs, as well as
passengers traveling through the hubs to AWA's other destinations. The Company
believes the success of its operations in Phoenix and Las Vegas is in part due
to such airports being among the world's largest 25 in passenger traffic and
such cities being among the fastest growing in the nation. In addition, the
Company believes these hubs are well positioned for continued growth due to
their geographically favorable locations with strategic access to key
southwestern and west coast markets, relatively low operating costs, year-round
fair weather, and modern, uncongested facilities.
AWA is the leading airline serving Phoenix Sky Harbor International
Airport and McCarran International Airport in Las Vegas, based upon revenue
passenger miles, with approximately 35% and 23% of total revenue passenger
miles, respectively, for the twelve months ended September 30, 1996. In both
markets the Company's principal competitor is Southwest Airlines, with
approximately 22% and 17% of total revenue passenger miles in Phoenix and Las
Vegas, respectively, for the twelve months ended September 30, 1996. At December
31, 1996, the Company served 48 destinations from its Phoenix hub, 44
destinations from its Las Vegas hub and 13 destinations from Columbus. During
1996, the Company had approximately 47% of Columbus revenue passenger miles
compared to approximately 10% for US Airways, the Company's principal competitor
in Columbus. At December 31, 1996, the Company offered service to an additional
18 destinations through its alliance with Continental and 17 commuter service
and regional destinations through its alliance with Mesa.
-4-
<PAGE> 6
As a result of certain customer service and operational issues in
the third quarter of 1996, AWA initiated a program entitled Pride in All We Do,
aimed at maximizing the airline's on-time performance and further improving
customer service. If successfully implemented, management believes this program
will achieve significant advances in reliability through refinements to hub
connection schedules, the addition of an operational spare aircraft and
approximately 60 line mechanics, the establishment of two additional overnight
maintenance bases, and improved coordination with providers of the airline's
heavy aircraft maintenance. Management anticipates that those initiatives,
together with expanded training of front line staff, increased staffing in
critical areas (such as reservations), advanced technologies installed during
1996, enhanced aircraft appearance as the result of first class and new interior
installations completed in 1996 and improved catering and onboard entertainment,
will all operate together to improve customer satisfaction during 1997.
ALLIANCES
AWA has alliance agreements with Continental, British Airways,
Northwest Airlines and Mesa. AWA's alliance agreement with Continental provides
for codesharing arrangements, coordinating flight schedules, sharing ticket
counter space, linking frequent flyer programs and membership clubs, and
coordinating ground handling operations. Through codesharing, each airline is
able to offer additional destinations to its customers without materially
increasing operating and capital expenses. AWA has achieved cost savings from
the Continental alliance primarily through the consolidation of airport
facilities and resources and the elimination of duplicative costs for labor and
equipment at key locations. In addition, through joint purchasing, both carriers
may receive greater volume discounts on certain cost items.
AWA's alliance agreement with British Airways includes codesharing
arrangements, reciprocal frequent flyer privileges and ground handling
operations, and, using AWA's existing service, allows British Airways to offer
connecting service to and from British Airways' Phoenix gateway to eight
destinations served by AWA in the western United States. Through AWA's codeshare
agreement with Northwest Airlines, AWA provides connecting service from
Northwest Airlines' Pacific routes to Las Vegas and Phoenix. AWA's codesharing
agreement with Mesa, which adds 17 destinations to the Company's route network,
establishes Mesa as a feeder carrier for the Company at its Phoenix hub. The
codesharing agreement with Mesa provides for coordinated flight schedules,
passenger handling and computer reservations under the AWA flight designator
code, thereby allowing passengers to purchase one air fare for their entire
trip. On codesharing flights, Mesa operates under the name "America West
Express" and has incorporated AWA's color scheme and commercial logo on certain
aircraft utilized on these routes.
LEISURE TRAVEL BUSINESSES
Through its America West Vacations division, AWA arranges and sells
vacation packages that include hotel accommodations, air fare, ground
transportation and a variety of entertainment options. This business unit
generated approximately $190 million in gross package sales in 1996, sold
approximately 823,000 room nights and approximately 137,000 rental car days, and
handled approximately 557,000 passengers. America West Vacations occupies a
substantial position in the Las Vegas destination market and arranges packages
for travel to the other traditional vacation destinations served by AWA
including Arizona, California, Florida, Canada and Mexico. To further develop
this business, America West Vacations will be combined with AWA's charter
business and reorganized as a separate subsidiary of Holdings during 1997.
-5-
<PAGE> 7
AIRCRAFT
At December 31, 1996, AWA operated a fleet of 61 Boeing 737s, 26
Airbus A320s and 14 Boeing 757s as follows:
<TABLE>
<CAPTION>
AVERAGE
REMAINING
NUMBER AVERAGE LEASE
AIRCRAFT TYPE STATUS(1) AIRCRAFT AGE (YRS.) TERM (YRS.)
- ------------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C>
B737-100....................... Owned 1 27.2 --
B737-200....................... Leased 15 16.5 4.2
B737-200....................... Owned 5 17.8 --
B737-300....................... Leased 29 9.8 3.9
B737-300....................... Owned 11 8.2 --
B757-200....................... Leased 12 10.4 8.3
B757-200....................... Owned 2 7.3 --
A320-200....................... Leased 26 6.4 11.1
---
101 10.1 6.9
===
</TABLE>
- ------------------------
(1) Each of the aircraft that is designated as owned serves as
collateral for a loan pursuant to which the aircraft was acquired by
AWA or serves as collateral for a non-purchase money loan.
As of December 31, 1996 and through December 1998, leases for 21 of
AWA's aircraft are scheduled to terminate (such aircraft are 12 Boeing
B737-300s, three Boeing B737-200s, four Airbus A320-231s, and two Boeing
B757-200s). At the option of the lessor, the lease for one of the B737-300
aircraft may be extended for up to 48 months, and the leases for six of the
B737-300 aircraft may each be extended for up to 60 months, at set rates, which
are currently less than market rates. At the option of either the lessor or AWA,
the leases for two Airbus A320 aircraft may be extended for a period of two
years, and the lease for one Airbus A320 aircraft may be extended for a period
of one year. There are no contractual options to extend any other of such
leases. See "Item 7. --Management's Discussion and Analysis of Financial
Condition and Results of Operations."
EMPLOYEES
At December 31, 1996, the Company employed 8,500 full-time and 2,366
part-time employees, for an equivalent of 9,652 full-time employees.
LABOR RELATIONS
The airline business is labor intensive. Wages, salaries and
benefits represented approximately 23.1% of the Company's consolidated operating
expenses for the year ended December 31, 1996. To encourage increased
productivity by its workforce, the Company awards performance bonuses ("AWArd
Pay") from 5% to 25% of base pay to eligible non-executive non-union employees
provided certain annually established operating income targets are attained.
Eligibility is determined at the time of distribution. In February 1996, the
Company paid performance awards amounting to 10.25% of each eligible employee's
base pay for 1995 performance. The operating income targets established for 1996
were not achieved, largely as the result of AWA's performance during the third
quarter of that year. See "Item 7.--Management's Discussion and Analysis of
Financial Condition and Results of Operations." However, the Company's Board of
Directors concluded that the failure to achieve the 1996 operating income target
was due largely to circumstances beyond the control of the eligible employees
and that it was important to reward the eligible employees for their substantial
efforts in achieving the Company's first and second quarter record performance
and in AWA's return to record earnings in the fourth quarter. Accordingly, in an
exception to policy, in February 1997, the
-6-
<PAGE> 8
Board of Directors elected to pay AWArd Pay performance bonuses equal to the
minimum of 5% of eligible employees' base pay in respect of 1996 performance.
There have been numerous attempts by unions to organize AWA's
employees, and the Company expects such organization efforts to continue in the
future. Several groups of the Company's employees have selected their collective
bargaining representatives and negotiations are in progress. The Company cannot
predict at this time the outcome or the terms of any future collective
bargaining agreement and therefore the effect, if any, on AWA's operations or
financial performance.
AWA's pilots are represented by the Airline Pilots Association. In
May 1995, a five-year collective bargaining agreement with AWA's pilots became
effective. The terms of this contract are consistent with AWA's productivity
objectives. Under this contract, pilot wage scales will increase 9.41% from
December 31, 1996 until April 29, 2000, or approximately 2.8% per year during
that period. Terms of the agreement include a single pay scale for all aircraft
types, flexible work rules, management's right to staff the airline and to enter
into strategic alliances and the preclusion of sympathy work stoppages.
In September 1994, the National Mediation Board ("NMB") certified
the Association of Flight Attendants as the collective bargaining representative
of AWA's flight attendants and contract negotiations are ongoing.
In January 1996, the International Brotherhood of Teamsters ("IBT")
filed an application with the NMB seeking to be certified as the bargaining
representative for AWA's mechanics, including related personnel. Following a
representation election in April 1996, the NMB certified the IBT as the
collective bargaining representative for that work group. The Company is
currently litigating the certification of the IBT and the matter is presently
before the Ninth Circuit Court of Appeals. To comply with the ruling of the
lower court, the Company has commenced negotiations with the IBT on a
provisional basis.
In April 1996, the IBT filed an application with the NMB seeking to
become the collective bargaining representative of AWA's 40 stock clerks. The
IBT lost the representation election in July 1996. Following the announcement of
those election results, the IBT filed a claim of election interference against
AWA. Both AWA and the IBT filed submissions with the NMB in connection with the
election interference charge, and the matter will be decided by the NMB in due
course. If the NMB rules in favor of IBT, a rerun election will be ordered.
In September 1996, the Transportation Workers Union ("TWU") was
certified to represent AWA's approximately 40 dispatchers and contract
negotiations have commenced.
COMPETITION AND MARKETING
The airline industry is highly competitive and is susceptible to
price discounting, which involves the offering of discount or promotional fares
to passengers. Any such fares offered by one airline are normally matched by
competing airlines, and may result in lower industry yields with little or no
increase in traffic levels. AWA competes with other major full service airlines
based on price and, due to its low cost structure, is able to compete with other
low cost carriers in its short haul local markets. The entry of additional
carriers on many of AWA's routes (as well as increased competition from or the
introduction of new services by established carriers) could negatively impact
AWA's results of operations. AWA competes with a number of major airlines on
medium- and long-haul routes through its hubs, with Southwest Airlines for
short-haul flights at its Phoenix and Las Vegas hubs and with USAirways at its
Columbus mini-hub.
Most tickets for travel on AWA are sold by travel agents through
computer reservation systems that have been developed and are controlled by
other airlines. Travel agents generally receive commissions based on the price
of tickets sold. Accordingly, airlines compete not only with respect to the
price of tickets sold but also with respect to the amount of commissions paid.
Airlines often pay additional commissions in connection with special revenue
programs. Federal regulations have been promulgated that are intended to
diminish preferential schedule displays and other
-7-
<PAGE> 9
practices with respect to the reservation systems that place AWA and other
similarly situated users at a competitive disadvantage to the airlines
controlling the systems. Effective January 8, 1996, AWA implemented electronic
or paperless ticketing to respond to customer needs and to reduce distribution
costs for tickets booked directly through the Company, and by year end 1996,
approximately 21% of its tickets were processed electronically.
FREQUENT FLYER PROGRAM
All major U.S. airlines have established frequent flyer programs to
encourage travel on that particular carrier. AWA offers the FlightFund program
that allows members to earn mileage credits by flying AWA, by using the services
of other program participants such as hotels, car rental firms and other
specialty services and by flying certain partner carriers. Through AWA's
alliance agreement with both Continental and British Airways, AWA has formed
frequent flyer program partnerships. FlightFund and Continental One Pass program
members may earn and redeem mileage credit in connection with flights to all AWA
and Continental destinations. FlightFund and British Airways Executive Club
members may also earn and redeem mileage credit for flights to all AWA and
British Airways destinations. In addition, AWA periodically offers special
short-term promotions that allow members to earn additional free travel awards
or mileage credits. When a FlightFund member accumulates mileage credits of
20,000 miles, AWA issues mileage award certificates that can be redeemed for
various travel awards, including first class upgrades and tickets on AWA or
other airlines participating in AWA's frequent flyer program. Most travel awards
are subject to blackout dates and capacity controlled seating. Mileage award
certificates automatically expire after two years if issued prior to April 1,
1993 and after three years for certificates issued after that date. Travel is
valid up to one year from the date of ticketing. FlightFund awards may also be
redeemed for flights to certain international destinations and Hawaii. AWA is
required to purchase space on other airlines to accommodate such award
redemption.
The Company accounts for the FlightFund program under the
incremental cost method whereby travel awards are valued at the incremental cost
of carrying one additional passenger. Costs including passenger food, beverages,
supplies, fuel, liability insurance, purchased space on other airlines and
denied boarding compensation are accrued as frequent flyer program participants
accumulate mileage to their accounts. Such unit costs are based upon expenses
expected to be incurred on a per passenger basis. No profit or overhead margin
is included in the accrual for these incremental costs.
FlightFund's membership at December 31, 1996 was approximately 2.7
million participants. At December 31, 1996, 1995 and 1994, the Company estimated
that approximately 358,000, 342,000 and 369,000, respectively, travel awards
were expected to be redeemed. Correspondingly, the Company had an accrued
liability of $11.3 million, $10.7 million and $9.8 million for 1996, 1995 and
1994, respectively. The accrual is based upon the Company's estimates of mileage
earned that will eventually be redeemed for a travel award.
The number of FlightFund travel awards redeemed for round-trip
travel for the years ended December 31, 1996, 1995 and 1994, was approximately
130,000, 111,000 and 109,000, respectively, representing 2.3%, 2.3% and 2.6% of
total revenue passenger miles for each respective period. The Company does not
believe that the usage of free travel awards results in any significant
displacement of revenue passengers due to AWA's ability to manage frequent flyer
travel.
FACILITIES
The Company's principal facilities are associated with AWA's hub
operations in Phoenix, Las Vegas and Columbus. AWA operates from Terminal 4 of
Phoenix Sky Harbor International Airport pursuant to a lease agreement that
includes 28 gates and approximately 255,000 square feet of space at December 31,
1996. AWA also leases approximately 39,000 square feet of additional space at
the airport for administrative offices and pilot training and owns a 375,000
square foot maintenance and technical support facility that includes four hangar
bays, hangar shops, two flight simulator bays, and warehouse and commissary
facilities.
-8-
<PAGE> 10
In Las Vegas, AWA leases approximately 79,000 square feet of space
at McCarran International Airport, which includes seven gates and adjoining
holding room areas. At its Columbus mini-hub, AWA leases 30,000 square feet and
seven gates. Pursuant to AWA's alliance agreement with Continental, certain of
the station operations for both carriers have been consolidated in an effort to
reduce operating expenses.
Space for ticket counters, gates and back offices has also been
obtained at each of the other airports served by AWA, either by lease from the
airport operator or by sublease from another airline.
The Company owns the 68,000 square foot America West Corporate
Center at 222 S. Mill Avenue in Tempe, Arizona. The Company currently leases
approximately 389,000 square feet of general office and other space in Phoenix
and Tempe, Arizona.
GOVERNMENT REGULATIONS
NOISE ABATEMENT AND OTHER RESTRICTIONS
The Airport Noise and Capacity Act of 1990 provides, with certain
exceptions, that after December 31, 1999, no person may operate certain large
civilian turbo-jet aircraft in the United States that do not comply with Stage
III noise levels, which is the Federal Aviation Administration ("FAA")
designation for the quietest commercial jets. These regulations require carriers
to gradually phase out their noisier jets, either replacing them with quieter
Stage III jets or equipping them with hush kits to comply with noise abatement
regulations, over a five-year period commencing December 31, 1994. At December
31, 1996, AWA's fleet consisted of 101 aircraft, all of which meet Stage III
noise reduction requirements except for 21 aircraft that meet the FAA's Stage II
(but not Stage III) noise reduction requirements. The aircraft that do not meet
the Stage III standards must be retired or significantly modified prior to the
year 2000. Management is currently considering its options regarding these
aircraft and expects to decide whether to install hush kits on those aircraft or
replace them with Stage III aircraft during 1997.
Numerous airports served by AWA, including those at Boston, Denver,
Los Angeles, Minneapolis-St. Paul, New York City, San Diego, San Francisco, San
Jose, Orange County, Washington, D.C., Burbank and Long Beach have imposed
restrictions such as curfews, limits on aircraft noise levels, mandatory flight
paths, runway restrictions and limits on number of average daily departures,
which limit the ability of air carriers to provide service to or increase
service at such airports. AWA's Boeing 757-200s, Boeing 737-300s and Airbus
A320s all comply with the current noise abatement requirements of the airports
listed above.
FUEL TAX INCREASES
In August 1993, the federal government increased taxes on fuel,
including aircraft fuel, by 4.3 cents per gallon. Initially, commercial aviation
fuel was exempt from this tax; however, the exemption expired on September 30,
1995 and the Company began paying such tax on October 1, 1995. The expiration of
such exemption increased the Company's annual operating expenses by
approximately $15.1 million for 1996.
EXCISE TAXES
Effective March 7, 1997, the federal air transportation excise taxes
(the 10% ticket tax based on the price of the ticket, the 6.25% air cargo tax
based on freight charges and the $6.00 per passenger international departure
tax), which had been effective from August 27, 1996 but had expired on December
31, 1996, were reinstated for the period ending September 30, 1997. As a result
of competitive pressure, AWA and other airlines have been limited in their
abilities to pass on the cost of the excise taxes to passengers through fare
increases.
-9-
<PAGE> 11
PASSENGER FACILITY CHARGES
During 1990, Congress enacted legislation to permit airport
authorities, with prior approval from the Department of Transportation ("DOT"),
to impose passenger facility charges ("PFCs") as a means of funding local
airport projects. These charges, which are intended to be collected by the
airlines from their passengers, are limited to $3.00 per enplanement, and to no
more than $12.00 per round trip. As a result of competitive pressure, the
Company and other airlines have been limited in their abilities to pass on the
cost of the PFCs to passengers through fare increases.
AGING AIRCRAFT MAINTENANCE
The FAA issued several Airworthiness Directives ("ADs") in 1990
mandating changes to the older aircraft maintenance programs. These ADs were
issued to ensure that the oldest portion of the nation's aircraft fleet remains
airworthy. The FAA requires that these aircraft undergo extensive structural
modifications. These modifications are required upon the accumulation of 20
years time in service, prior to the accumulation of a designated number of
flight cycles or prior to 1994 deadlines established by the various ADs,
whichever occurs later. Four of AWA's aircraft are currently affected by these
aging aircraft ADs and are in compliance with such ADs. AWA constantly monitors
its fleet of aircraft to ensure safety levels which meet or exceed those
mandated by the FAA or the DOT.
FAA FUNDING
Congress recently enacted the FAA Reauthorization Act of 1996, which
established a 21 member National Aviation Civilian Review Commission (the
"Review Commission"). The Review Commission, with the assistance of the DOT,
will conduct an independent study of FAA funding requirements through the year
2002, and develop a cost allocation model for distribution of the cost of using
the United States aviation system to each segment of the system. The Review
Commission will also analyze funding and propose alternatives to the excise
taxes (primarily the 10% ticket tax) which currently fund the FAA. The excise
taxes had expired December 31, 1996 but were reinstated effective March 7, 1997
for the period through September 30, 1997. The report of the Review Commission
is scheduled to be released on September 30, 1997.
The Company cannot forecast the results of the Review Commission's
activities or what proposals the Review Commission will make but no change in
the funding mechanism is expected to be enacted prior to the completion of the
Review Commission's activities. Implementation of these proposals could
significantly increase the cost of airline operations and could have a material
adverse impact on the Company's operating results.
AIRCRAFT MAINTENANCE AND OPERATIONS
AWA is subject to the jurisdiction of the FAA with respect to
aircraft maintenance and operations, including equipment, dispatch,
communications, training, flight personnel and other matters affecting air
safety. The FAA has the authority to issue new or additional regulations. To
ensure compliance with its regulations, the FAA conducts regular safety audits
and requires AWA to obtain operating, airworthiness and other certificates which
are subject to suspension or revocation for cause. In addition, a combination of
FAA and Occupational Safety and Health Administration regulations on both
federal and state levels apply to all of AWA's ground-based operations. AWA is
also subject to the jurisdiction of the Department of Defense with respect to
its voluntary participation in their Commercial Passenger Airlift program
administered by the Air Force's Air Mobility Command. The carrier recently
successfully underwent its biannual capability survey and has been approved for
continued use by the military.
ADDITIONAL SECURITY AND SAFETY MEASURES
The President's Commission on Aviation Safety and Security (the
"Aviation Safety Commission") and the U.S. Congress have recently adopted
increased safety and security measures designed to increase airline passenger
security and protect against terrorist acts. Such measures have resulted in
additional operating costs to the airline industry. Examples of increased
security measures include increased passenger profiling, enhanced pre-board
screening
-10-
<PAGE> 12
of passengers and carry-on baggage, positive bag match for profile selections,
continuous physical bag search at checkpoints, additional airport security
personnel, expanded criminal background and FBI fingerprint checks for selected
airport employees, significantly expanded use of bomb-sniffing dogs,
certification of screening companies and aggressive testing of existing security
systems.
The Aviation Safety Commission issued a final report on February 12,
1997 which reaffirms its earlier recommendations, including feasibility analyses
of the deployment and use of positive bag match systems, enhanced passenger
profiling procedures and advanced cockpit voice and flight data recorders. The
final report makes additional recommendations for certain safety and security
measures to be implemented by December 31, 1997, including the installation of
new ground proximity warning systems on all commercial aircraft, expansion of
aging aircraft inspections to include non-structural components, development of
objective methods for carriers to monitor and improve their own level of safety,
and implementation of positive bag match based on passenger profiling.
Future decisions which place increased security and safety
requirements on the airline industry could be significant. The Company cannot
forecast, based upon the final report of the Aviation Safety Commission, what
additional security and safety requirements may be imposed in the future or the
costs or revenue impact that would be associated with complying with such
requirements, although such costs and revenue impact could be significant.
SLOT RESTRICTIONS
At New York City's John F. Kennedy Airport and LaGuardia Airport,
Chicago's O'Hare International Airport and Washington's National Airport, which
have been designated "High Density Airports" by the FAA, there are restrictions
on the number of aircraft that may land and take off during peak hours. In the
future, these take-off and landing time slot restrictions and other restrictions
on the use of various airports and their facilities may result in further
curtailment of services by, and increased operating costs for, individual
airlines, including AWA, particularly in light of the increase in the number of
airlines operating at such airports. In general, the FAA rules relating to
allocated slots at the High Density Airports contain provisions requiring the
relinquishment of slots for nonuse and permit carriers, under certain
circumstances, to sell, lease or trade their slots to other carriers. All slots
must be used on 80% of the dates during each two-month reporting period. Failure
to satisfy the 80% use rate will result in loss of the slot which would revert
to the FAA and be reassigned through a lottery arrangement.
AWA currently utilizes two slots at New York City's Kennedy Airport,
four slots at New York City's LaGuardia Airport, four slots at Chicago's O'Hare
International Airport and six slots at Washington's National Airport. Four of
the slots at Washington's National airport are subject to expiration in December
1997, and AWA intends to file a timely application for renewal. Approval of such
application is discretionary with the FAA. The utilization rates by AWA of all
the foregoing slots ranged from 94% to 99% in 1996.
ENVIRONMENTAL MATTERS
The Company is subject to regulation under major environmental laws
administered by federal, state and local agencies, including laws governing air,
water and waste discharge activities. While the Company strives to comply with
environmental laws and regulations, the Company has incurred and may incur costs
to comply with applicable environmental laws, including soil and groundwater
cleanup and other related response costs. The Company believes, however, that
under current environmental laws and regulations these costs would not have a
material adverse effect on the Company's financial condition.
The Comprehensive Environmental Response Compensation and Liability
Act of 1980, also known as Superfund, and comparable state laws impose liability
without regard to fault on certain classes of persons that may have contributed
to the release or threatened release of a "hazardous substance" into the
environment. These persons include the owner or operator of a facility and
persons that disposed or arranged for the disposal of hazardous substances. Many
airports in the United States, including Phoenix Sky Harbor International
Airport, are the subject of Superfund investigations or state implemented
groundwater investigations. Although AWA occupies facilities at some of these
-11-
<PAGE> 13
affected airports, the Company does not believe that its operations have been
included within the ambit of any of these investigations.
The trend in environmental regulation is to place more restrictions
and limitations on activities that may affect the environment, and the Company
expects that the costs of compliance will continue to increase.
RISK FACTORS
COMPETITIVE INDUSTRY CONDITIONS
The airline industry is highly competitive and industry earnings are
volatile. From 1990 to 1992, the airline industry experienced unprecedented
losses due to high fuel costs, general economic conditions, intense price
competition and other factors. Airlines compete on the basis of pricing,
scheduling (frequency and flight times), on-time performance, frequent flyer
programs and other services. The airline industry is susceptible to price
discounting, which involves the offering of discount or promotional fares to
passengers. Any such fares offered by one airline are normally matched by
competing airlines, which may result in lower industry yields without a
corresponding increase in traffic levels.
Most of AWA's markets are highly competitive and are served by
larger carriers with substantially greater financial resources than the Company.
A number of the Company's larger competitors have proprietary reservation
systems providing them with certain competitive advantages. Also, in recent
years several new carriers have entered the industry, typically with low cost
structures. In some cases, new entrants have initiated or triggered further
price discounting. The entry of additional new carriers on many of AWA's routes,
as well as increased competition from or the introduction of new services by
established carriers, could negatively impact the Company's results of
operations.
In addition, the introduction of broadly available, deeply
discounted fares by a U.S. airline would result in lower yields for the entire
industry and could have a material adverse effect on the Company's operating
results.
LEVERAGE; FUTURE CAPITAL REQUIREMENTS
At December 31, 1996, the Company had $376.4 million of long-term
indebtedness (including current maturities). The Company does not have available
lines of credit or significant unencumbered assets and thus may be less able
than certain of its competitors to withstand adverse industry conditions or a
prolonged economic recession. In addition, at December 31, 1996, AWA had firm
commitments for a total of 17 Airbus A320-200 aircraft for delivery beginning in
1999. The aggregate net cost of such aircraft is based on formulae that include
certain price indices (including indices for various aircraft components such as
metal products) for periods preceding the various delivery dates. Based on an
assumed 5% annual price escalation, the Company estimates such aggregate net
cost to be approximately $850 million. The Company has arranged for financing
for up to one-half of the commitment relating to such aircraft and will require
substantial capital from external sources to meet its remaining financial
commitment. There can be no assurance that the Company will be able to obtain
such capital in sufficient amounts or on acceptable terms. The Company is
presently negotiating to expand that arrangement from 17 to 22 firm orders for
new aircraft, obtain financing support for 16 of the 22 firm orders and improve
financing terms and conditions under which aircraft would be purchased. See Item
7.--"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LABOR RELATIONS
There have been numerous attempts by unions to organize the
employees of the Company, and the Company expects such organization efforts to
continue in the future. Several groups of the Company's employees have selected
their respective collective bargaining representatives and negotiations are in
progress. The Company cannot predict which, if any, other employee groups may
seek union representation or the outcome or the terms of any future collective
-12-
<PAGE> 14
bargaining agreement and therefore the effect, if any, on the Company's
operations or financial condition. See "Item 1. --Business--Labor Relations."
CONCENTRATION OF VOTING POWER, INFLUENCE OF CERTAIN PRINCIPAL
STOCKHOLDERS
TPG Partners, L.P. ("TPG") (together with its affiliates TPG
Parallel I, L.P. ("TPG Parallel") and Air Partners II, L.P. ("Air Partners")),
Continental and Mesa collectively control approximately 60.7% of the total
voting power of the Company and are subject to the terms of a Stockholders'
Agreement which provides for certain voting restrictions until the first annual
meeting of stockholders after August 25, 1997. As a result, these stockholders
are able to elect a majority of their designees to the Board of Directors and
otherwise control the Company. Mesa and Continental are engaged in the airline
industry and are parties to alliance agreements with AWA. Each of TPG, TPG
Parallel and Air Partners are controlled by TPG Advisors, Inc., a Delaware
corporation, whose executive officers and directors, through their positions in
Air Partners, L.P., a significant shareholder of Continental, may be deemed to
own beneficially a significant percentage of Continental's common stock. Also,
Larry L. Risley, a director of the Company, is the chairman and chief executive
officer of Mesa. There can be no assurance that the controlling stockholders
identified above will not seek to influence the Company in a manner that would
favor their own personal interests over the interests of the Company. See "Item
12.--Security Ownership of Certain Beneficial Owners and Management."
AIRCRAFT FUEL
Aircraft fuel costs constitute approximately 14% of the Company's
total operating expenses during 1996. At current consumption levels, a one cent
per gallon change in the price of jet fuel would affect the Company's annual
operating results by approximately $3.5 million. Accordingly, a substantial
increase in the price of jet fuel or the lack of adequate fuel supplies in the
future would have an adverse effect on the Company's operating results. The
Company's performance during 1996 was adversely affected by the price of jet
fuel. The average price of jet fuel purchased by AWA during 1996 was 66.49 cents
per gallon or 19.1% higher than the average price paid by AWA in 1995. Those
price increases were largely responsible for AWA's 1996 jet fuel expense
exceeding that incurred in 1995 by $59.3 million or 34.1%. See "Item
7.--Management's Discussion and Analysis of Operating Results and Financial
Condition."
AWA purchases its fuel from petroleum refiners and suppliers on
standard trade terms under master agreements. Although the Company is currently
able to obtain adequate supplies of jet fuel, future supplies and price trends
may change as a result of geopolitical developments, regional production
patterns, environmental concerns and other unpredictable events.
In 1996, the Company implemented a fuel hedging program to manage
the risk from fluctuating jet fuel prices. The program's objectives are to
provide some protection against extreme, upward movements in the price of jet
fuel and to protect the Company's ability to meet its annual fuel expense
budget. Under the program, the Company may enter into certain cap and swap
transactions with approved counterparties for a period not to exceed twelve
months. This program will primarily address the Company's exposure associated
with its East Coast fuel requirements which correlate well with risk management
vehicles having adequate market liquidity.
Due to the scope and nature of the America West route system, AWA
purchases a substantially greater share of jet fuel on the United States West
Coast than its larger competitors. West Coast jet fuel prices tend to be more
volatile than jet fuel prices in other domestic markets. Further, the propensity
of West Coast jet fuel prices to move independently from the other United States
jet fuel markets renders many conventional hedging techniques ineffective in
managing this portion of AWA's jet fuel price risk.
FAA FUNDING
The federal air transportation excise taxes, which expired December
31, 1996, have been reenacted effective March 7, 1997 through September 30,
1997. Such taxes (the 10% ticket tax, the 6.25% air cargo tax and the
-13-
<PAGE> 15
$6.00 international departure tax) generate a substantial portion of funding for
the FAA. A coalition of the seven largest U.S. airlines is proposing a user fee
as a replacement for the excise taxes. A fuel tax is also being considered. The
National Aviation Civilian Review Commission will conduct an independent review
of possible funding mechanisms to replace the excise taxes and will issue a
report in September 1997. Implementation by Congress of a user fee as proposed
by the seven airlines which would favor AWA's larger competitors, or other
proposals recommended by the Review Commission, could significantly increase the
cost of AWA's airline operations, and could have a material adverse impact on
the Company's operating results. See "Item 1.--Business--Government
Regulations--FAA Funding."
SECURITY AND SAFETY MEASURES
Congress recently adopted increased safety and security measures
designed to increase airline passenger security and protect against terrorist
acts. Such measures have resulted in additional operating costs to the airline
industry. The Aviation Safety Commission's report recommends the adoption of
further measures aimed at improving the safety and security of air travel. The
Company cannot forecast what additional security and safety requirements may be
imposed in the future or the costs or revenue impact that would be associated
with complying with such requirements. See "Item 1.--Business--Government
Regulations--Security and Safety Measures."
OTHER REGULATORY MATTERS
The FAA has issued a number of maintenance directives and other
regulations relating to, among other things, retirement of older aircraft,
collision avoidance systems, airborne windshear avoidance systems, noise
abatement and increased inspections and maintenance procedures to be conducted
on older aircraft. At December 31, 1996, 21 of AWA's 101 aircraft did not meet
the FAA's Stage III noise reduction requirements and must be retired or
significantly modified prior to the year 2000. These modifications may require
substantial capital expenditures. See "Item 1.--Business--Government
Regulations--Noise Abatement and Other Restrictions" and "Item 7.--Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The FAA is currently revising procedures for airline surveillance of
outsourced maintenance and training. Additional laws and regulations have been
proposed from time to time that could significantly increase the cost of airline
operations by imposing additional requirements or restrictions on operations.
The Company cannot predict what laws and regulations will be adopted or what
changes to international air transportation agreements will be effected, if any,
or how they will affect AWA. See "Item 1.--Business --Government Regulations."
ITEM 2. PROPERTIES
For a description of the Company's properties, see Item 1 of Part I
of this Annual Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
AWA emerged from bankruptcy on August 25, 1994 after operating as a
debtor-in-possession since June 27, 1991, when the Company filed a voluntary
petition to reorganize under Chapter 11 of the Bankruptcy Code. The Bankruptcy
Court confirmed the Company's plan of reorganization (the "Reorganization Plan")
on August 10, 1994. As contemplated by the Reorganization Plan, certain
administrative and priority tax claims remain pending against AWA, which, if
ultimately allowed by the Bankruptcy Court, would represent general obligations
of AWA. Such claims include claims of various state and local tax authorities,
most of which represent pre-bankruptcy tax obligations not paid during the
pendency of the bankruptcy proceedings and various other matters. In connection
with the state and local tax claims, the Company has reserved certain amounts
believed by management to be adequate. At December 31, 1996, approximately
399,000 shares of the Company's Class B Common Stock remained with an escrow
agent pending final resolution of claims in connection with the bankruptcy. All
other securities issued pursuant to the bankruptcy have been
-14-
<PAGE> 16
distributed. The Company believes that it will reach final settlement of all
remaining unresolved claims such that the remaining approximately 399,000 shares
will be distributed during 1997.
Following the commencement of the Company's bankruptcy proceedings
in June 1991, the Securities and Exchange Commission ("Commission") requested
information from AWA concerning disclosures made in the Company's annual and
quarterly reports filed with the Commission in 1991. This inquiry ultimately led
to a settlement with the Commission, pursuant to which the Commission issued an
"Order Instituting Proceedings Pursuant to Section 21C of the Exchange Act and
Opinion and Order of the Commission" (the "Order") finding AWA's Form 10-K for
the year ending December 31, 1990 violated Section 13 (a) of the Exchange Act
and Rule 13a-1 thereunder, and that the Company's Form 10-Q for the first
quarter of 1991 violated Section 13(a) of the Exchange Act and Rule 13a-13
thereunder, and ordered that AWA cease and desist from violating Section 13(a)
of the Exchange Act and Rules l3a-1 and 13a-13 promulgated under the Exchange
Act. The Order provided that AWA neither admits nor denies any violation of the
securities laws.
The Company leases six aircraft which may be subject to a claim in
an unspecified amount as a result of the Internal Revenue Service potentially
disallowing investment tax credits and accelerated depreciation claimed by the
lessor of such aircraft. Under the terms of indemnity agreements, if such tax
benefits were fully or partially disallowed, AWA's monthly payment obligation
under the agreements could be increased by up to approximately $15,000 per
aircraft (approximately $1,080,000 per year for all six aircraft) for the period
from 1991 to 2013. The payment increase applicable to periods prior to the
determination of an indemnity obligation would be payable monthly over a
24-month period, with interest calculated at a specified prime rate. AWA is
unable to predict whether the Internal Revenue Service will prevail in matters
asserted against the lessor and, consequently, whether AWA will incur any
liability in connection with such claims or the amount of any such liability, if
incurred. Based on information and relevant documents available to the Company,
however, management currently believes that it is unlikely that the disposition
of these matters will have a material adverse effect on the Company's financial
condition.
In November 1995, a group of individuals who are current or former
employees of Continental, commenced a lawsuit in the Federal District Court for
the Western District of Washington against Continental and AWA, alleging that
the plaintiffs were wrongfully discharged from their employment. The court has
certified a class of approximately 230 plaintiffs. AWA and attorneys for the
plaintiffs have agreed to settle all claims against AWA and the terms of that
settlement have been submitted for court approval. AWA's obligations under that
settlement would be fully covered by insurance.
Following AWA's outsourcing of its heavy maintenance, on December
27, 1995, the IBT and five individuals commenced a lawsuit against AWA in
federal court alleging that the individual plaintiffs had been terminated
because they were IBT committee members or open supporters of the union and that
AWA wrongfully terminated approximately 378 members of the mechanics and related
craft or class in connection with the outsourcing in violation of federal labor
laws. In September 1996, the court dismissed the claims of the four discharged
mechanics who had signed release agreements and found that the IBT did not have
standing in its own behalf to pursue a claim under the Railway Labor Act
("RLA"). Later that month, the IBT filed a second supplemental amended complaint
seeking to assert claims under the RLA on behalf of the current mechanics and
the discharged mechanics who did not sign releases. The main relief requested by
the IBT is an injunction requiring AWA to discontinue the subcontracting of
heavy maintenance, and an order of reinstatement for the discharged mechanics
who did not release their claims. The remaining plaintiff asserted an Arizona
wrongful discharge claim and sought punitive damages. The court's decision on
AWA's motion to dismiss the plaintiffs' second supplemental amended complaint is
pending.
AWA is a named defendant in a number of additional lawsuits and
proceedings arising in the ordinary course of business. While the outcome of the
contingencies, lawsuits or other proceedings against AWA cannot be predicted
with certainty, management currently expects that any liability arising from
such matters, to the extent not provided for through insurance or otherwise,
will not have a material adverse effect on the financial results and operations
of the Company.
-15-
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information respecting the names, ages, positions
and offices with the Company of the executive officers of the Company.
WILLIAM A. FRANKE -- AGE 59. Chairman of the Board and Chief Executive Officer
of Holdings; Chairman of the Board of AWA (Executive Committee). Mr. Franke
was named Chairman of the Board of Directors of AWA in September 1992. From
January 1, 1994 to February 4, 1997, Mr. Franke served as AWA's Chief Executive
Officer and from May 23, 1996 to February 4, 1997 he served as AWA's
President. In addition to his responsibilities at the Company, Mr. Franke serves
as president of Franke & Company, Inc., a financial services company he has
owned since May 1987. Mr. Franke serves as a director of Phelps Dodge Corp.,
Central Newspapers Inc., the Air Transport Association of America, Beringer Wine
Estates, Inc. and Mtel Latin America, Inc. Mr. Franke serves as a Director and
Chairman of the Board of Airplanes Limited and a controlling trustee and
chairman of Airplanes U.S. Trust, entities involved in aircraft financing and
leasing. Mr. Franke also serves as a managing partner of Newbridge Latin America
L.P., an investment fund controlled by TPG.
RICHARD R. GOODMANSON -- AGE 49. President and Director of Holdings; President,
Chief Executive Officer and Director of AWA. Mr. Goodmanson joined the Company
in June 1996 and became a member of AWA Board of Directors effective on October
15, 1996. On February 4, 1997, Mr. Goodmanson was elected President of Holdings
and President and Chief Executive Officer of AWA. From 1992 until 1996, Mr.
Goodmanson served as Senior Vice President of Operations at Frito-Lay, Inc. From
1980 until 1992, Mr. Goodmanson served as a principal at the consulting firm of
McKinsey and Company, Inc.
RONALD A. ARAMINI -- AGE 51. Senior Vice President -- Operations of AWA. Mr.
Aramini joined the Company in September 1996. From October 1993 until September
1996, Mr. Aramini served as President and Chief Executive Officer of Allegheny
Airlines, a Pennsylvania-based regional airline subsidiary of US Air Group, Inc.
Before that, he served for three years at Air Wisconsin, including in positions
as Vice President -- Operations, Senior Vice President -- Operations, and
President and Chief Operating Officer. Prior to his position at Air Wisconsin,
Mr. Aramini served in various positions at Continental.
JOHN R. GAREL -- AGE 38. Senior Vice President -- Marketing and Sales of AWA.
Mr. Garel joined the Company in April 1995. From 1993 until early 1995, Mr.
Garel was the Chief Executive Officer of Cadmus Journal Services, a division of
Cadmus Communications. From 1990 until 1992, Mr. Garel served as Vice President,
Financial Planning and Analysis of Northwest Airlines and, thereafter, as Vice
President, Market Development and Area Marketing. Prior to that, Mr. Garel
worked for American Airlines in several management capacities.
STEPHEN L. JOHNSON -- AGE 40. Senior Vice President -- Legal Affairs of AWA and
Holdings. Mr. Johnson joined the Company in February 1995. From 1993 to 1994,
Mr. Johnson served as Senior Vice President and General Counsel to GE Capital
Aviation Services Limited. From 1989 to 1993 Mr. Johnson was employed by GPA
from 1989 to 1991 as Vice President and Senior Counsel and from 1991 to 1993 as
Senior Vice President and General Counsel to GPA's Leasing Division. Prior to
joining GPA, Mr. Johnson was engaged in the private practice of law.
W. DOUGLAS PARKER -- AGE 35. Senior Vice President and Chief Financial Officer
of AWA and Holdings. Mr. Parker joined the Company in June 1995. From 1991
through June of 1995, Mr. Parker worked in various capacities at Northwest
Airlines, including positions as Vice President -- Assistant Treasurer and Vice
President -- Financial Planning and Analysis. From 1986 through 1991, Mr. Parker
served in various financial management positions at American Airlines.
-16-
<PAGE> 18
MICHAEL A. VESCUSO -- AGE 51. Senior Vice President -- Human Resources of AWA.
Mr. Vescuso joined the Company in September 1994. From 1992 to 1994, Mr. Vescuso
worked as an organizational and management development consultant. From 1990 to
1992 he was the Director, Organization and Development of Frito-Lay, Inc. From
1978 to 1990, he held several senior management positions at HBJ, Inc.,
including the position of human resources officer. Mr. Vescuso has announced his
intention to retire from the Company upon the naming of his successor.
MICHAEL R. CARREON -- AGE 43. Vice President and Controller of AWA. Mr. Carreon
joined the Company in December 1994 as Senior Director -- Corporate Audit. On
January 1, 1996, he was appointed Vice President and Controller. From 1986 to
1994, Mr. Carreon held accounting and audit-related management positions at
United Airlines. Prior to that, he served for five years in the Audit Services
Practice of Arthur Andersen & Co. in Chicago.
C. A. HOWLETT -- AGE 53. Vice President -- Public Affairs of AWA and Holdings.
Mr. Howlett joined the Company in January 1995. Prior to such time, Mr. Howlett
maintained a government relations practice as a principal at the law firm of
Lewis and Roca in Phoenix. Mr. Howlett's prior work experience included senior
positions with Salt River Project, the City of Phoenix and The White House where
he served as special assistant to President Ronald Reagan for intergovernmental
affairs.
-17-
<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Effective midnight December 31, 1996, AWA became a direct
wholly owned subsidiary of Holdings. Each share of Class A Common Stock of
AWA was exchanged for one share of Class A Common Stock of Holdings and each
share of Class B Common Stock of AWA was exchanged for one share of Class B
Common Stock of Holdings. As a result, Holdings became the successor issuer
to AWA of the Class A and Class B Common Stock. Also, each Warrant, which
previously entitled holders to purchase from AWA one share of Class B Common
Stock of AWA, now entitles the holders to purchase from AWA one share of
Class B Common Stock of Holdings. The Class A Common Stock of Holdings, par
value $.01 per share (the "Class A Common Stock"), is not publicly traded.
The Class B Common Stock, par value $.01 per share (the "Class B Common
Stock") and AWA's Warrants to purchase Class B Common Stock (the "Warrants")
have been traded on the New York Stock Exchange ("NYSE") under the symbol
"AWA" and "AWAws," respectively, since August 26, 1994.
The following table sets forth, for the periods indicated, the
high and low sales prices of the Class B Common Stock and the Warrants as
reported on the New York Stock Exchange.
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK WARRANTS
------------ --------
HIGH LOW HIGH LOW
---- --- ---- ---
Year Ended December 31, 1995
<S> <C> <C> <C> <C>
First Quarter............................ $ 9 1/8 $ 6 3/8 $ 3 5/8 $1 3/4
Second Quarter........................... 12 5/8 8 1/2 5 1/8 2 3/4
Third Quarter............................ 16 1/2 11 3/4 6 7/8 4 3/8
Fourth Quarter........................... 19 12 5/8 8 3/4 4 3/4
Year Ended December 31, 1996
First Quarter............................ 22 1/4 15 1/2 11 7/8 6 3/8
Second Quarter........................... 23 3/4 18 3/4 13 7/8 9 3/8
Third Quarter............................ 21 7/8 10 7/8 11 5/8 4 3/4
Fourth Quarter........................... 16 3/8 11 8 1/8 5
</TABLE>
As of December 31, 1996, there were five record holders of
Class A Common Stock, approximately 12,992 record holders of Class B Common
Stock and approximately 12,088 record holders of Warrants.
The Company has not paid cash dividends in any of the last two
fiscal years and does not anticipate paying cash dividends in the foreseeable
future. The Company expects that it will retain all available earnings
generated by the Company's operations for the development and growth of its
business. Any future determination as to the payment of dividends will be
made at the discretion of the Board of Directors of the Company and will
depend upon the Company's operating results, financial condition, capital
requirements, general business conditions and such other factors as the Board
of Directors deems relevant. Certain debt instruments of the Company restrict
the Company's ability to pay cash dividends on the Common Stock and make
certain other restricted payments (as defined therein). Under these
restrictions, as of December 31, 1996, the Company's ability to pay
dividends, together with any other restricted payments, would be limited to
an aggregate of $68.2 million. See "Item 7.--Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
-18-
<PAGE> 20
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated data presented below under the captions
"Consolidated Statements of Operations Data" and "Consolidated Balance Sheet
Data" as of and for the years ended December 31, 1996 and 1995, the period
August 26 through December 31, 1994, and the period January 1 through August 25,
1994 and each of the years in the two year period ended December 31, 1993 are
derived from the consolidated financial statements of the Company, which
consolidated financial statements have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The selected consolidated data should
be read in conjunction with the consolidated financial statements for the
respective periods, the related notes and the independent auditors' report. The
independent auditors' report as of and for the years ended December 31, 1996 and
1995, the period August 26, 1994 through December 31, 1994, and the period
January 1, 1994 through August 25, 1994 contains an explanatory paragraph that
states the consolidated financial statements of the Reorganized Company reflect
the impact of adjustments to reflect the fair value of assets and liabilities
under fresh start reporting. As a result, the consolidated financial statements
of the Reorganized Company are presented on a different basis than those of the
Predecessor Company and, therefore, are not comparable in all respects.
<TABLE>
<CAPTION>
REORGANIZED COMPANY | PREDECESSOR COMPANY (a)
------------------------------------------ | -------------------------------------------
AUGUST 26 TO | JANUARY 1 TO
YEAR ENDED DECEMBER 31, DECEMBER 31, | AUGUST 25, YEAR ENDED DECEMBER 31,
1996 1995 1994 | 1994 1993 1992
----------- ----------- ------------ | ------------ ----------- -----------
(IN THOUSANDS EXCEPT | PER SHARE AMOUNTS)
<S> <C> <C> <C> | <C> <C> <C>
CONSOLIDATED STATEMENTS OF |
OPERATIONS DATA: |
Operating revenues ................. $ 1,739,526 $ 1,550,642 $ 469,766 | $ 939,028 $ 1,325,364 $ 1,294,140
Operating expenses ................. 1,670,860 1,395,910 430,895 | 831,522 1,204,310 1,368,952
Operating income (loss) ............ 68,666 154,732 38,871 | 107,506 121,054 (74,812)
Income (loss) before income taxes |
and extraordinary items ......... 34,493 108,378 19,736 | (201,209) 37,924 (131,761)
Income taxes ....................... 24,883 53,608 11,890 | 2,059 759 --
Income (loss) before |
extraordinary items ............. 9,610 54,770 7,846 | (203,268) 37,165 (131,761)
Extraordinary gain (loss) (b) ...... (1,105) (984) -- | 257,660 -- --
Net income (loss) .................. 8,505 53,786 7,846 | 54,392 37,165 (131,761)
Earnings (loss) per share: (c) |
Primary: |
Before extraordinary items .. .21 1.18 .17 | (7.03) 1.50 (5.58)
Extraordinary gain (loss) (b) (.02) (.02) -- | 9.02 -- --
----------- ----------- ----------- | ----------- ----------- -----------
Net income (loss) ........... .19 1.16 .17 | 1.99 1.50 (5.58)
Fully diluted: |
Before extraordinary items .. .20 1.17 .17 | (4.96) 1.04 (5.58)
Extraordinary gain (loss) (b) (.02) (.02) -- | 6.37 -- --
----------- ----------- ----------- | ----------- ----------- -----------
Net income (loss) ........... .18 1.15 .17 | 1.41 1.04 (5.58)
Shares used for computation |
Primary ......................... 47,635 47,666 45,127 | 28,550 27,525 23,914
Fully diluted ................... 47,945 47,666 45,127 | 40,452 41,509 23,914
CONSOLIDATED BALANCE SHEET DATA |
(AT END OF PERIOD): |
Total assets ....................... $ 1,597,650 $ 1,588,709 $ 1,545,092 | $ -- $ 1,016,743 $ 1,036,441
Long-term debt, less current |
maturities (d) .................. 330,148 373,964 465,598 | -- 620,992 647,015
Total stockholders' equity |
(deficiency) .................... 622,753 649,472 595,446 | -- (254,262) (294,613)
</TABLE>
- ---------------
-19-
<PAGE> 21
(a) Includes net expense incurred by the Predecessor Company in connection
with its reorganization of $273.7 million for the period January 1
through August 25, 1994 and $25.0 million, and $16.2 million for the
years ended December 31, 1993 and 1992, respectively.
(b) Includes (i) an extraordinary loss of $1.1 million in 1996 resulting
from the partial prepayment of its 10 3/4% Unsecured Notes; (ii) an
extraordinary loss of $984,000 in 1995 resulting from the exchange of
debt by the Company; and (iii) an extraordinary gain of $257.7 million
in 1994 resulting from the discharge of indebtedness pursuant to the
consummation of the Plan of Reorganization.
(c) Historical per share data for the Predecessor Company are not
meaningful since the Company has been recapitalized and has adopted
fresh start reporting as of August 25, 1994.
(d) Includes certain balances reported as Estimated liabilities subject to
Chapter 11 proceedings for the Predecessor Company.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Holdings became the holding company for AWA effective midnight,
December 31, 1996. Holdings' primary business activity is ownership of all the
capital stock of AWA. Management's Discussion and Analysis of Financial
Condition and Results of Operations presented below relates to the consolidated
financial statements of Holdings presented in Item 8A. Financial statements for
AWA, Holdings' wholly owned subsidiary, are presented in Item 8B.
1996 IN REVIEW
In 1996, AWA had net income of $8.5 million, or $0.18 per share fully
diluted. The 1996 earnings included a $65.1 million pretax nonrecurring special
charge resulting from the Company's decisions to order certain new aircraft and
cancel a prior order, and to make certain other related adjustments (See Note
13, "Restructuring and Other Nonrecurring Special Charges" in Notes to
Consolidated Financial Statements). Excluding this charge, net income for the
year was $48.7 million, or $1.02 per share fully diluted. Excluding the special
charge, these results reflected one of the best years in the airline's history.
Another measure the Company uses to evaluate its financial performance is
EBITDAR (operating income before depreciation, amortization, rent and
nonrecurring charges). The Company's EBITDAR margin for 1996 was 28.3% which the
Company believes was the highest EBITDAR margin among the major U.S. airlines.
For the first six months of 1996, AWA posted record results. Net income
before extraordinary item for that period was $43.2 million, an increase of
65.8% over the first half of 1995. Revenues rose to $877.1 million, due in part
to the growth plan announced in September 1995, which increased capacity by
8.6%, a 13.8% increase in passenger traffic and solid passenger revenue yields.
Higher year-over-year operating costs, primarily from higher fuel and passenger
traffic related expenses, were more than offset by the favorable revenue
performance.
In the third quarter, the Company experienced a setback in the 1996
trend of record results with a net loss of $45.7 million, which included the
$65.1 million nonrecurring special charge discussed above. The decline in
earnings resulted from a number of factors, including the $65.1 million charge,
lower yields caused by untimely revenue decisions made in June and July 1996,
high jet fuel prices and operating dependability difficulties encountered during
the summer of 1996. The Company took action to address these problems as
follows:
Revenue Management
- Established a full time revenue recovery team led by senior
management, to review and address the problems that led to
poor revenue management decisions.
-20-
<PAGE> 22
- Increased staffing of and upgraded the revenue management
team.
- Conducted a market-by-market review and addressed
pricing/yield issues.
- Implemented policies and procedures to enhance controls over
the revenue management process.
- Committed to $7.3 million in new revenue management systems.
Fuel Cost
- Established a hedging program to manage the Company's exposure
to fluctuating fuel prices.
Operations
- Initiated Get The Product Right...Together, a comprehensive
program designed to improve operational and customer service
performance, including increasing the airline's maintenance
workforce, adding two additional overnight maintenance
stations and increasing reservations staffing and technology.
- Implemented a structured "work out process" whereby teams of
front-line employees develop solutions to operational
problems.
- Authorized the acquisition of an additional spare aircraft.
The fourth quarter of 1996 saw a return to record profitability with
pretax earnings of $16.8 million. Net income for the quarter was $12.1 million.
Bolstered by a record 69.1% load factor, revenues for the fourth quarter were a
record $439.9 million, an 11% improvement over 1995. Operating cost per
available seat mile ("CASM") (excluding special charges) decreased 2.6% from
7.38 cents per ASM in the fourth quarter of 1995 to 7.19 cents per ASM in the
1996 quarter, despite a 23.1% increase in the average price of fuel consumed.
Operational reliability also showed marked improvement as the percentage of
scheduled aircraft miles completed averaged more than 98% in the 1996 fourth
quarter as compared to a low of 96% in the third quarter of 1996.
SELECTED OPERATING DATA
The table below sets forth selected operating data for the Company. The
data for the year ended December 31, 1994 is shown on a combined basis.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
COMBINED PERCENT PERCENT
BASIS CHANGE CHANGE
1996 1995 1994 1996-1995 1995-1994
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Available seat miles (in millions)................. 21,625 19,421 18,060 11.3 7.5
Revenue passenger miles (in millions).............. 15,321 13,313 12,233 15.1 8.8
Load factor (percent).............................. 70.9 68.5 67.7 3.5 1.2
Yield per revenue passenger mile (cents)........... 10.69 10.91 10.79 (2.0) 1.1
Revenue per available seat mile:
Passenger (cents)............................. 7.57 7.48 7.31 1.2 2.3
Total (cents)................................. 8.04 7.98 7.80 .8 2.3
Passenger enplanements (in thousands).............. 18,178 16,848 15,669 7.9 7.5
Average stage length (miles)....................... 732 686 676 6.7 1.5
Average passenger journey (miles).................. 1,042 986 979 5.7 .7
Average daily aircraft utilization (hours)......... 11.8 11.4 11.2 3.5 1.8
Aircraft (end of period)........................... 101 93 87 8.6 6.9
Full-time equivalent employees
(end of period)............................... 9,652 8,712 10,715 10.8 (18.7)
Fuel price (cents per gallon)...................... 66.49 55.82 54.89 19.1 1.7
Fuel consumption (gallons in millions)............. 351 312 289 12.5 8.0
</TABLE>
-21-
<PAGE> 23
The table below sets forth the major components of operating expense
per ASM for the Company for the applicable periods. The data for the year ended
December 31, 1994 is shown on a combined basis for the Reorganized and
Predecessor Company. (See Note 1, "Summary of Significant Accounting
Policies--(a) Basis of Presentation" in Notes to Consolidated Financial
Statements).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
COMBINED PERCENT PERCENT
BASIS CHANGE CHANGE
1996 1995 1994 1996-1995 1995-1994
---- ---- ---- --------- ---------
(IN CENTS)
<S> <C> <C> <C> <C> <C>
Salaries and related costs......................... 1.78 1.97 1.83 (9.6) 7.7
Aircraft rents..................................... .94 .89 .89 5.6 -
Other rents and landing fees....................... .52 .56 .58 (7.1) (3.4)
Aircraft fuels..................................... 1.08 .90 .88 20.0 2.3
Agency commissions................................. .62 .64 .64 (3.1) -
Aircraft maintenance materials and repairs......... .58 .34 .25 70.6 36.0
Depreciation and amortization...................... .24 .25 .40 (4.0) (37.5)
Amortization of reorganization value in excess of
amounts applicable to identifiable assets....... .12 .17 .07 (29.4) nm
Restructuring and other nonrecurring
special charges................................. .30 .05 - nm nm
Other.............................................. 1.55 1.42 1.45 9.2 (2.1)
------- -------- --------
7.73 7.19 6.99 7.5 2.9
======= ======== ========
</TABLE>
nm - not meaningful
RESULTS OF OPERATIONS
The Company's operating results are significantly affected by general
economic conditions as well as competitive factors, jet fuel price levels,
government regulations, taxes on jet fuel and taxes specific to the air
transport industry and other conditions affecting the airline industry. In
recent periods, airlines have achieved generally improved operating results as a
result of more favorable economic conditions and as a result of focusing on
their areas of relative strength, eliminating service to under-performing
markets and rationalizing operations, route systems and pricing strategies.
Due to the greater demand for air travel during the summer months,
revenues in the airline industry in the second and third quarters of the year
tend to be greater than revenues in the first and fourth quarters of the year.
Other factors that are not necessarily seasonal also significantly affect
results, including the extent and nature of price and other competition from
other airlines, changing levels of operations, international events, fuel prices
and general economic conditions.
The following discussion provides an analysis of the Company's results
of operations and reasons for material changes therein for the years ended
December 31, 1996 and 1995, and the combined periods from January 1 through
August 25, 1994, when the Company completed its reorganization and emerged from
bankruptcy protection, and August 26 through December 31, 1994. The Company's
results of operations for the periods subsequent to August 25, 1994 have not
been prepared on a basis of accounting consistent with its results of operations
for periods prior to August 26, 1994 due to the implementation of fresh start
reporting upon AWA's emergence from bankruptcy.
IMPACT OF FRESH START REPORTING
In connection with its emergence from bankruptcy in August 1994, the
Company adopted fresh start reporting in accordance with Statement of Position
90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy
Code" ("SOP 90-7") of the American Institute of Certified Public Accountants.
Fresh start reporting significantly affects
-22-
<PAGE> 24
the Company's consolidated statements of income including the financial
statement accounting for income taxes. However, actual cash flows, including
cash taxes payable do not materially change as a result of fresh start
reporting.
Under fresh start reporting, the reorganization value of the Company
has been allocated to its assets and liabilities on a basis substantially
consistent with purchase accounting. The portion of reorganization value not
attributable to specific tangible assets has been recorded as "Reorganization
Value in Excess of Amounts Allocable to Identifiable Assets." Certain fresh
start reporting adjustments, primarily related to the adjustment of the
Company's assets and liabilities to fair market values, have had and will have a
significant effect on the Company's consolidated statements of income. The more
significant adjustments relate to (i) reduced rent expense due to the
revaluation of aircraft leases to market rates, (ii) reduced maintenance expense
due to the write-off of previously capitalized overhauls, (iii) reduced
depreciation expense on property and equipment due to the revaluation of such
assets to fair value, (iv) the addition of amortization expense relating to
reorganization value in excess of amounts allocable to identifiable assets, (v)
increased interest expense due to the re-valuation of aircraft leases to market
rates, and (vi) increased income tax expense principally because the
amortization of excess reorganization value is not deductible for income tax
purposes giving rise to an effective tax rate for financial reporting purposes
that is significantly greater than the current U.S. corporate statutory rate of
35%.
1996 COMPARED WITH 1995
In 1996, the Company realized net income of $8.5 million which included
a pretax, nonrecurring special charge of $65.1 million (See Note 13,
"Restructuring and Other Nonrecurring Special Charges" in Notes to Consolidated
Financial Statements). Excluding the nonrecurring special charge, the Company
recorded net income of $48.7 million. Comparative amounts for 1995 were net
income of $60.3 million (excluding a $10.5 million restructuring charge), and
income tax expense for financial reporting purposes of $53.6 million.
The decline in pretax income (excluding the nonrecurring special charge
and before extraordinary item) for the 1996 period resulted from untimely
revenue decisions made in June and July of 1996, high jet fuel prices and
operating dependability difficulties encountered during the summer of 1996.
Industry capacity increases into Las Vegas and aggressive fare sale activity
also adversely impacted 1996.
Total operating revenues were $1.7 billion in 1996 compared to $1.6
billion in 1995. Passenger revenues for 1996 were $1.6 billion, an increase of
12.8% over the prior year. Cargo and other revenues increased 3.4% to $101.8
million in 1996. Other revenues consist primarily of alcoholic beverage sales,
contract service sales and service charges.
Capacity, as measured by ASMs, increased 11.3% in 1996 compared to 1995
as the Company completed the first year of a two-year strategic growth plan.
Revenue passenger miles increased 15.1% in 1996. Load factor for the 1996 period
increased by 3.5% (2.4 points) to a Company record of 70.9%, despite the 11.3%
capacity increase. Revenue per passenger mile (yield) decreased 2.0%, and
revenue per available seat mile ("RASM") increased by 1.2%, in 1996 from 1995.
CASM increased to 7.73 cents in 1996 from 7.19 cents in 1995 primarily
due to a nonrecurring special charge of $65.1 million and increases in jet fuel
prices. Excluding the nonrecurring special charge, and jet fuel and related
taxes, CASM increased year-over-year only 1.0% to 6.24 cents in 1996. The
changes in the components of operating expense per available seat mile
(excluding the nonrecurring special charge) are explained as follows:
- The 9.6% decrease in salaries and related costs per ASM was
primarily related to the $12.1 million reduction in salaries
related to the Company's outsourcing of its heavy aircraft
maintenance in December 1995 and a reduction in AWArd Pay and
incentive pay due to the Company's decline in income. In
addition, the Company continued to improve productivity as
full-time equivalent head count increased 10.8% versus an
11.3% increase in ASMs.
-23-
<PAGE> 25
- Aircraft rents per ASM increased 5.6% primarily due to a net
addition of eight leased aircraft to the fleet during 1996.
- Rentals and landing fees per ASM decreased primarily due to
the 11.3% increase in ASMs.
- The average price per gallon of aircraft fuel increased 19.1%
to 66.49 cents in 1996 from 55.82 cents in 1995. This increase
in fuel price increased 1996 operating expense by
approximately $37.5 million.
- Aircraft maintenance materials and repairs expense per ASM
increased 70.6% due primarily to an increase in capitalized
maintenance which increased capitalized maintenance
amortization expense by $27.7 million in 1996 when compared
with 1995. The unamortized balance of capitalized maintenance
grew to $102.5 million at December 31, 1996, an increase of
$47.5 million from December 31, 1995. In addition, maintenance
expense per ASM increased further in the 1996 period due to
the classification for accounting purposes of fees paid to
outside vendors to complete aircraft maintenance following the
outsourcing of that work in late 1995. This increase in
maintenance expense was substantially offset by a reduction in
maintenance payroll expense as discussed above.
- Amortization of reorganization value in excess of identifiable
assets expense per ASM decreased 29.4% primarily due to the
reduction in the unamortized balance of excess reorganization
value as the result of (i) utilization of tax attributes of
the pre-reorganization Company, including net operating loss
carryforwards, such reduction amounting to $16.7 million in
1996 and $50 million in 1995, and (ii) recognition of a
deferred tax asset of $74.7 million in 1995.
- Other operating expenses per ASM increased 9.2% primarily due
to the 4.3 cents per gallon federal fuel tax for which the
Company became liable commencing October 1, 1995, an increase
in interrupted trip expense due to the operating dependability
difficulties discussed above, and an increase in passenger
traffic related costs.
- Contributing to the increase in operating cost per ASM was the
effect of the first class installation program that was
completed in late 1995 and reduced 1996 ASMs by 2.6% but had
no significant effect on operating costs.
Net nonoperating expenses decreased $12.2 million to $34.2 million in
1996 from $46.4 million in 1995 due primarily to a net decrease in interest
expense resulting from reduced levels of debt and lower interest rates.
Income tax expense for financial reporting purposes in 1996 decreased
to $24.9 million from $53.6 million in 1995 due principally to lower pretax
income.
The Company incurred extraordinary charges in 1996 and 1995 of $1.1
million and $984,000, respectively, for the partial prepayment of its 10 3/4%
Unsecured Notes. These amounts were net of income tax benefit of $918,000 and
$984,000, respectively.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE COMBINED PERIODS FROM AUGUST
26, 1994 THROUGH DECEMBER 31, 1994 AND JANUARY 1, 1994 THROUGH AUGUST 25,
1994
For the periods ended December 31, 1995 and 1994, the Company realized
net income of $53.8 million and a combined $62.2 million, respectively. Net
income for 1995 included income tax expense for financial reporting purposes of
$53.6 million compared to a combined $13.9 million in 1994. The increase in
income tax expense for financial reporting purposes resulted principally from
the adoption of fresh start reporting. Net income for the combined periods of
1994 included reorganization expense of $273.7 million and an extraordinary gain
of $257.7 million.
-24-
<PAGE> 26
Total operating revenues were $1.6 billion in 1995 compared to a
combined $1.4 billion for 1994. Passenger revenues increased 10% to $1.5 billion
during 1995. Cargo and other revenues increased 10.7% to $98.4 million for 1995.
The balance of other revenues includes revenues generated primarily from
alcoholic beverage sales, contract service sales and service charges.
Capacity, as measured by ASMs, increased 7.5% in 1995 compared to the
combined 1994 period, primarily due to an increase in the average stage length
of 1.5% and the addition of six aircraft to the fleet. Revenue passenger miles
increased 8.8% in 1995 compared to the combined 1994 period while load factor
increased by 0.8 points and yield increased 1.1%.
CASM increased to 7.19 cents in 1995 from 6.99 cents for the combined
1994 period. The changes in the components of operating expense per available
seat mile are explained as follows:
- The increase in salaries and related costs per ASM is
primarily the result of accruals totaling $17.7 million in
1995 to provide for performance awards related to the
Company's profitability. In addition, such costs were affected
in May 1995 by a significant initial increase in pilot
salaries under their collective bargaining agreement and the
adoption of the Company's Total Pay program in January 1995.
These pay increases were effected in order to make employees'
compensation levels more competitive with that of other low
cost carriers and local employers. These pay increases were
largely offset by improvements in productivity and through a
reduction in the size of the work force.
- Aircraft rents per ASM were flat primarily due to the decrease
related to the amortization of deferred credits recorded in
the Company's adjustment of operating leases to fair market
value under fresh start reporting. Such decrease was offset by
a net addition of six aircraft to the fleet.
- Rentals and landing fees per ASM decreased primarily due to
the 7.5% increase in ASMs.
- The average price per gallon of aircraft fuel increased
slightly to 55.8 cents in 1995 from 54.9 cents for the
combined 1994 period.
- Aircraft maintenance materials and repairs expense per ASM
increased largely as the result of the change in
classification of the amortization expense associated with
heavy engine and airframe overhauls from depreciation and
amortization expense to aircraft maintenance materials and
repairs expense in August 1994. For 1995 and the period August
26 through December 31, 1994, amortization of capitalized
maintenance totaling $11.9 million and $356,000, respectively,
is included in aircraft maintenance materials and repairs
expense. Amortization of capitalized maintenance totaling $24
million for the period January 1 through August 25, 1994 is
included in depreciation and amortization. In addition, costs
associated with a new auxiliary power unit repair agreement
which commenced in April 1994 increased in 1995 as compared to
1994.
- Depreciation and amortization expense per ASM decreased due to
the $24 million change in the classification of the
amortization expense associated with capitalized aircraft
maintenance materials and repairs expense discussed above. In
addition, the revaluation of property and equipment under
fresh start reporting reduced expense by $835,000 in 1995.
- Amortization of reorganization value in excess of identifiable
assets expense increased $20.8 million compared to 1994.
- A restructuring charge incurred in 1995 associated with the
Company's outsourcing of its heavy aircraft maintenance
consisted of a provision for employee severance and related
cost of $10.5 million.
-25-
<PAGE> 27
- Other operating expenses per ASM decreased primarily due to
the reduction in property taxes and the fixed nature of
certain other costs.
Net nonoperating expenses decreased $281.5 million to $46.4 million in
1995 from a combined $327.9 million for 1994. This net decrease resulted from: a
decrease in reorganization expense of $273.7 million since the Company emerged
from bankruptcy; an increase in interest income of $10.7 million due to higher
cash and cash equivalent balances in 1995; partially offset by a net increase in
interest expense of $2.0 million because the Company did not accrue and pay
interest on unsecured prepetition long-term debt during its bankruptcy
proceedings in conformity with SOP 90-7, and an increase in interest expense due
to the revaluation of aircraft leases to market rates as part of fresh start
reporting.
Income tax expense for financial reporting purposes in 1995 increased
to $53.6 million from a combined $13.9 million in 1994 due principally to the
increase in the amortization of the excess reorganization value which is not
deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Unrestricted cash and cash equivalents and short-term investments
decreased to $176.6 million at December 31, 1996 from $224.4 million as of
December 31, 1995 primarily due to the prepayment of $25 million of its 10 3/4%
Senior Notes and the repurchase of Class B Common Stock and warrants totaling
$42.1 million. Net cash provided from operating activities decreased to $230.3
million in 1996 from $260.4 million in 1995, a decrease of $30.1 million. This
decrease was principally due to the period over period change in air traffic
liability, which grew 11.6% in the 1996 period as compared to 50.6% in 1995. Net
cash used in investing activities increased to $199 million in 1996 from $107.4
million in 1995, an increase of $91.6 million. The increase was primarily the
result of increased expenditures for capitalized maintenance and automation
projects and reinvestment of certain cash-equivalents into certain income
producing short-term investments with maturities greater than 90 days. Net cash
used in financing activities increased to $118.2 million for the year ended
December 31, 1996 from $111.2 million in the 1995 period. The increase was
principally due to the repurchase of Class B Common Stock and warrants in 1996
which was partially offset by a lower prepayment on the Company's senior
unsecured notes in 1996 as compared to 1995.
The Company has a working capital deficiency which increased to $170.9
million at December 31, 1996 from $70.4 million at December 31, 1995. Operating
with a working capital deficiency is common in the airline industry as tickets
sold for transportation which has not yet been provided are classified as a
current liability while the related income producing assets, the aircraft, are
classified as non-current. Despite the working capital deficiency, the Company
expects to meet all of its obligations as they become due.
The Company's long-term debt maturities through 1999 consist primarily
of principal amortization of notes payable secured by certain of the Company's
aircraft. As of December 31, 1996, such maturities were $46.2 million, $43.2
million and $70.4 million, respectively, for 1997, 1998 and 1999. Management
expects to fund these requirements with cash from operations.
At December 31, 1996, the Company had net operating loss carryforwards
("NOL"), general business tax credit carryforwards and alternative minimum tax
credit carryforwards of approximately $498.7 million, $12.7 million and $1.2
million, respectively. Under Section 382 of the Internal Revenue Code of 1986,
as amended, if a loss corporation has an "ownership change" within a designated
testing period, its ability to use its NOL and credit carryforwards is subject
to certain limitations. The Company is a loss corporation within the meaning of
Section 382. The issuance of certain common stock by the Company pursuant to the
plan of reorganization resulted in an ownership change within the meaning of
Section 382. This ownership change has resulted in an annual limitation (the
"Section 382 Limitation") upon the Company's ability to offset any post-change
taxable income with pre-change NOL. Should the Company generate insufficient
taxable income in any post-change taxable year to fully utilize the Section 382
Limitation of that year, any excess limitation will be carried forward to use in
subsequent tax years, provided the pre-change NOL has not
-26-
<PAGE> 28
been exhausted nor has the carryforward period expired. The alternative minimum
tax credit may be carried forward indefinitely and is available to reduce future
income tax payable.
The Company's reorganization and the associated implementation of fresh
start reporting gave rise to significant items of expense for financial
reporting purposes that are not deductible for income tax purposes. In large
measure, it is these nondeductible expenses that result in an effective tax rate
(for financial reporting purposes) significantly greater than the current U.S.
corporate statutory rate of 35%. Nevertheless, the Company's actual cash income
tax liability (i.e., income taxes payable) is considerably lower than income tax
expense shown for financial reporting purposes. This difference in financial
expense compared to actual income tax liability is in part attributable to tax
attributes (including NOLs, subject to certain limitations) of the Predecessor
Company that serve to reduce the Company's actual income tax liability below the
amount of expense reflected in the consolidated financial statements. To the
extent tax expense for financial reporting purposes exceeds the Company's actual
income tax liability, that difference is applied to reduce the carrying balance
of the Company's Reorganization Value in Excess of Amounts Allocable to
Identifiable Assets.
In December 1994, the Company entered into a support contract with
International Aero Engines ("IAE") which provides for the purchase by the
Company of six new V2500-A5 spare engines scheduled for delivery beginning in
1998 through 2000 for use on the Company's A320 fleet. Such engines have an
estimated aggregate cost of $42 million.
At December 31, 1996, the Company had commitments to AVSA S.A.R.L., an
affiliate of Airbus Industrie ("AVSA"), for a total of 22 Airbus A320-200
aircraft with delivery dates that fall in the years 1999 through 2001 (see
restructuring of AVSA agreement discussed below). The aggregate net cost of such
aircraft is based on formulae that include certain price indices (including
indices for various aircraft components such as metal products) for periods
preceding the various delivery dates. Based on an assumed 5% annual price
escalation, the Company estimates such aggregate net cost to be approximately
$1.1 billion. The Company has the option to cancel without cause up to five of
these aircraft. If the Company exercised its existing rights to cancel five
aircraft under the AVSA agreement, the aggregate net cost (based upon the
assumptions described above) of commitments under such agreement would be
reduced to approximately $850 million. The Company has arranged for financing
from AVSA for up to one-half of the deliveries under the AVSA agreement,
although the Company intends to seek financing on more favorable terms from
other sources. Additionally, the Company will require capital from external
sources to meet the balance of its financial commitments for aircraft and other
equipment orders. The Company intends to seek such financing in the future when
and as appropriate. There can be no assurance that the Company will be able to
obtain such capital in sufficient amounts or on terms acceptable to the Company.
A default by the Company under the AVSA agreement or any such commitment could
have a material adverse effect on the Company.
In September 1996, the Company and AVSA signed a term sheet, which,
subject to the satisfaction of a number of conditions, provides for the
restructuring of the Company's arrangements with AVSA, and specifically that (i)
the number of aircraft ordered by the Company would be increased from 22 to 34
(including 24 A320 aircraft and 10 A319 aircraft), (ii) the orders subject to
cancellation would be increased from five to 12 (resulting in the Company being
committed to purchase 12 A320s and ten A319s), (iii) AVSA and the manufacturer
of the engines for the aircraft would agree to provide certain financing support
for 16 of the 22 firm orders, and (iv) the financing terms and conditions under
which aircraft would be purchased would be improved from the Company's
perspective. There can be no assurance that the conditions to the restructuring
of the Company's arrangements with AVSA will be satisfied or that a final
agreement will be reached or finalized in the form described above.
In November 1996, America West Airlines 1996-1 Pass Through Trusts
issued $218.6 million of Pass Through Trust Certificates in connection with the
refinancing of eight Airbus A320 aircraft and three IAE V2500 spare jet engines.
The combined effective interest rate on the financing is 7.05%. The proceeds of
the transaction were used to refinance the indebtedness incurred by the owners
of the aircraft and engines leased to the Company. Under the arrangements, the
financial benefits of the transactions are shared among the Company, the equity
investors in leverage leases covering the aircraft and U.S. subsidiaries of GPA
Group plc ("GPA"), the original lessees under the restructured
-27-
<PAGE> 29
leases. Benefits to the Company include the agreed termination of arrangements
with GPA pursuant to which GPA could cause the Company to lease up to four
aircraft over the balance of the decade and a reduction in rental expense
approximating $500,000 per year.
The Pass Through Certificates were issued by separate pass through
trusts. The equipment notes are secured by a security interest in the aircraft
and engines and an assignment of the Company's aircraft leases. Neither the
equipment notes nor the pass through certificates are direct obligations of, or
guaranteed by, the Company, and the corresponding debt and interest expense are
not included in the Company's consolidated financial statements.
As of December 31, 1996, the Company's fleet consisted of 101 aircraft
of which 21 aircraft meet the FAA's Stage II (but not Stage III) noise reduction
requirements and must be retired or significantly modified prior to the year
2000. Management is currently considering its options regarding such aircraft.
If the Company determines to modify such aircraft to comply with Stage III, the
required capital expenditures for such modifications are currently estimated to
be approximately $2 million per aircraft. There can be no assurance that the
Company will be able to lease or purchase substitute aircraft in sufficient
quantities or on favorable terms if the Company elected not to carry out such
modifications.
Capital expenditures for the years ended December 31, 1996, 1995 and
1994 were approximately $155.7 million, $107.4 million and $75.9 million,
respectively. Capital expenditures for capitalized maintenance were $87.2
million and $60.4 million for the years ended December 31, 1996 and 1995,
respectively. Capital expenditures for 1997 are expected to increase to $168
million principally due to an increase in capitalized maintenance and
expenditures for computer systems and equipment. The Company currently intends
to fund such expenditures with cash from operations.
Certain of the Company's long-term debt agreements contain minimum cash
balance requirements, leverage ratios, coverage ratios and other financial
covenants with which the Company was in compliance at December 31, 1996.
GOVERNMENT REGULATIONS
On August 20, 1996, the Small Business Job Protection Act of 1996
reinstated the federal air transportation excise taxes (the 10% ticket tax, the
6.25% air cargo tax and the $6.00 international departure tax) effective August
27, 1996. Management believes that the Company benefited from the expiration of
the federal air transportation excise taxes on December 31, 1995 and that the
reimposition of such excise taxes on August 27, 1996 had a negative impact on
the Company, although the amount of such benefit or negative impact directly
resulting from the excise taxes cannot be precisely determined. The reinstated
federal air transportation excise taxes expired on December 31, 1996 and on
March 7, 1997, the taxes were reimposed to September 30, 1997. It is unclear at
this time whether the taxes will expire on September 30, 1997, or will once
again be extended.
In addition, the Company's operating costs have been and will continue
to be affected by various safety, security and other regulations and
requirements applicable to its operations. The National Aviation Civilian Review
Commission, with the assistance of the Department of Transportation (the
"D.O.T."), will conduct an independent study of funding requirements for the FAA
and develop a cost allocation model for distribution of the cost of using the
United States aviation system to each segment of the system. The Review
Commission will also analyze and propose funding alternatives to the existing
air transportation excise taxes (primarily the 10% ticket tax) which currently
fund the FAA which expired on December 31, 1996 but were reinstated effective
March 7, 1997 through September 30, 1997. The report of the Review Commission is
scheduled to be released in September 1997. The Company cannot forecast the
results of the Review Commission's activities or what proposals the Review
Commission will make. Implementation of these proposals could increase the cost
of the airline operations and could have a material adverse effect on the
Company's operating results.
The President's Commission on Aviation Safety and Security and the U.S.
Congress recently adopted increased safety and security measures designed to
increase airline passenger security and protect against terrorist acts which
place
-28-
<PAGE> 30
additional security and safety requirements and result in additional operating
costs on the airline industry. The Company cannot forecast what additional costs
or revenue impact that would be associated with complying with such increased
safety and security requirements.
ITEM 8A. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - HOLDINGS
Consolidated balance sheets of Holdings as of December 31, 1996 and
1995, and the related consolidated statements of income, cash flows and
stockholders' equity for the years ended December 31, 1996 and 1995, the period
August 26, 1994 through December 31, 1994, and the period January 1, 1994
through August 25, 1994, together with the related notes and the report of KPMG
Peat Marwick LLP, independent certified public accountants, are set forth on the
following pages.
-29-
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
America West Holdings Corporation:
We have audited the accompanying consolidated balance sheets of America
West Holdings Corporation and subsidiary as of December 31, 1996 and 1995, and
the related consolidated statements of income, cash flows and stockholders'
equity for the years ended December 31, 1996 and 1995, the period August 26,
1994 through December 31, 1994, and the period January 1, 1994 through August
25, 1994. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of America West
Holdings Corporation and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years ended December
31, 1996 and 1995, the period August 26, 1994 through December 31, 1994, and the
period January 1, 1994 through August 25, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 14 to the consolidated financial statements, on
August 25, 1994, America West Airlines, Inc. emerged from bankruptcy. The
consolidated financial statements of the Reorganized Company reflect the impact
of adjustments to reflect the fair value of assets and liabilities under fresh
start reporting. As a result, the consolidated financial statements of the
Reorganized Company are presented on a different basis of accounting than those
of the Predecessor Company and, therefore, are not comparable in all respects.
KPMG Peat Marwick LLP
Phoenix, Arizona
February 28, 1997
-30-
<PAGE> 32
AMERICA WEST HOLDINGS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS 1996 1995
---- ----
Current assets:
Cash and cash equivalents.................................................... $ 137,499 $ 224,367
Short-term investments....................................................... 39,131 -
Accounts receivable, less allowance for doubtful accounts of
$3,091 in 1996 and $2,515 in 1995........................................ 106,215 69,094
Expendable spare parts and supplies, less allowance for obsolescence
of $1,713 in 1996 and $2,115 in 1995..................................... 21,423 28,643
Prepaid expenses............................................................. 47,545 43,315
------------- -------------
Total current assets.................................................... 351,813 365,419
------------- -------------
Property and equipment:
Flight equipment............................................................. 669,654 546,591
Other property and equipment................................................. 107,993 104,106
Equipment purchase deposits.................................................. 56,665 27,489
------------- -------------
834,312 678,186
Less accumulated depreciation and amortization............................... 163,718 76,123
------------- -------------
670,594 602,063
------------- -------------
Other assets:
Restricted cash.............................................................. 26,433 31,694
Reorganization value in excess of amounts allocable to identifiable assets, net 447,044 489,045
Deferred income taxes........................................................ 74,700 74,700
Other assets, net............................................................ 27,066 25,788
------------- -------------
575,243 621,227
------------- -------------
$ 1,597,650 $ 1,588,709
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt......................................... $ 46,238 $ 54,157
Accounts payable............................................................. 115,458 89,157
Air traffic liability........................................................ 214,056 191,744
Accrued compensation and vacation benefits................................... 30,085 41,616
Accrued taxes................................................................ 72,047 34,359
Other accrued liabilities.................................................... 44,836 24,802
------------- -------------
Total current liabilities............................................... 522,720 435,835
------------- -------------
Long-term debt, less current maturities......................................... 330,148 373,964
Deferred credits and other liabilities.......................................... 122,029 129,438
Commitments and contingencies...................................................
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 48,800,000 shares; no shares issued - -
Class A common stock, $.01 par value. Authorized 1,200,000 shares; issued and
outstanding 1,200,000 shares............................................. 12 12
Class B common stock, $.01 par value. Authorized 100,000,000 shares; issued and
outstanding 44,626,056 shares in 1996, and 44,141,330 shares in 1995..... 446 441
Additional paid-in capital................................................... 577,267 588,927
Retained earnings............................................................ 70,137 61,632
------------- -------------
647,862 651,012
Less: cost of Class B common stock in treasury, 1,353,911 shares in 1996
and 112,000 shares in 1995............................................... (25,109) (1,540)
------------- -------------
Total stockholders' equity.......................................... 622,753 649,472
------------- -------------
$ 1,597,650 $ 1,588,709
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
-31-
<PAGE> 33
AMERICA WEST HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR
REORGANIZED COMPANY COMPANY
--------------------------------------- | ------------
PERIOD FROM| PERIOD FROM
YEAR ENDED DECEMBER 31, AUGUST 26 TO| JANUARY 1 TO
------------------------- DECEMBER 31,| AUGUST 25,
1996 1995 1994 | 1994
----------- ----------- -------------| ------------
<S> <C> <C> <C> | <C>
Operating revenues: |
Passenger.............................................. $ 1,637,762 $ 1,452,261 $ 437,775 | $ 882,140
Cargo.................................................. 46,519 44,425 16,648 | 27,645
Other.................................................. 55,245 53,956 15,343 | 29,243
----------- ----------- ----------- | ----------
Total operating revenues............................ 1,739,526 1,550,642 469,766 | 939,028
----------- ----------- ----------- | ----------
Operating expenses: |
Salaries and related costs............................. 385,840 382,032 117,562 | 213,722
Aircraft rents......................................... 202,237 173,571 54,983 | 105,547
Other rents and landing fees........................... 111,947 108,264 35,839 | 68,163
Aircraft fuel.......................................... 233,522 174,195 58,165 | 100,646
Agency commissions..................................... 133,015 124,146 37,265 | 78,988
Aircraft maintenance materials and repairs............. 125,768 65,925 17,590 | 28,109
Depreciation and amortization.......................... 52,937 49,083 15,538 | 56,694
Amortization of reorganization value in excess of |
amounts applicable to identifiable assets.......... 25,263 31,958 11,145 | -
Restructuring and other nonrecurring |
special charges.................................... 65,098 10,500 - | -
Other.................................................. 335,233 276,236 82,808 | 179,653
----------- ----------- ----------- | ----------
Total operating expenses........................... 1,670,860 1,395,910 430,895 | 831,522
----------- ----------- ----------- | ----------
Operating income.......................................... 68,666 154,732 38,871 | 107,506
----------- ----------- ----------- | ----------
Nonoperating income (expenses): |
Interest income........................................ 12,861 15,045 3,834 | 470
Interest expense (contractual interest of $44,747 |
for the period ended August 25, 1994).............. (46,866) (58,598) (22,636) | (33,998)
Gain (loss) on disposition of property and |
equipment.......................................... 1,288 (2,734) (398) | (1,659)
Reorganization expense, net ........................... - - - | (273,659)
Other, net............................................. (1,456) (67) 65 | 131
----------- ----------- ----------- | ----------
Total nonoperating expenses, net................. (34,173) (46,354) (19,135) | (308,715)
----------- ----------- ----------- | ----------
Income (loss) before income taxes and |
extraordinary items......................... 34,493 108,378 19,736 | (201,209)
Income taxes.............................................. 24,883 53,608 11,890 | 2,059
----------- ----------- ----------- | ----------
Income (loss) before extraordinary items........ 9,610 54,770 7,846 | (203,268)
Extraordinary items, net of tax........................... (1,105) (984) - | 257,660
----------- ----------- ----------- | ----------
Net income...................................... $ 8,505 $ 53,786 $ 7,846 | $ 54,392
=========== =========== =========== | ==========
Earnings (loss) per share: |
Primary: |
Income (loss) before extraordinary items............ $ .21 $ 1.18 $ .17 | $ (7.03)
Extraordinary items................................. (.02) (.02) - | 9.02
----------- ----------- ----------- | ----------
Net income.......................................... $ .19 $ 1.16 $ .17 | $ 1.99
=========== =========== =========== | ==========
Fully Diluted: |
Income (loss) before extraordinary items............ $ .20 $ 1.17 $ .17 | $ (4.96)
Extraordinary items................................. (.02) (.02) - | 6.37
----------- ----------- ----------- | ----------
Net income.......................................... $ .18 $ 1.15 $ .17 | $ 1.41
=========== =========== =========== | ==========
Shares used for computation: |
Primary................................................ 47,635 47,666 45,127 | 28,550
=========== =========== =========== | ==========
Fully diluted.......................................... 47,945 47,666 45,127 | 40,452
=========== =========== =========== | ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-32-
<PAGE> 34
AMERICA WEST HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
| PREDECESSOR
REORGANIZED COMPANY | COMPANY
------------------------------------------ |------------
PERIOD FROM | PERIOD FROM
YEAR ENDED DECEMBER 31, AUGUST 26 TO |JANUARY 1 TO
------------------------- DECEMBER 31, | AUGUST 25,
1996 1995 1994 | 1994
---------- ---------- ------------- | ----------
<S> <C> <C> <C> | <C>
Cash flows from operating activities: |
Net income..................................................... $ 8,505 $ 53,786 $ 7,846 | $ 54,392
Adjustments to reconcile net income to net cash provided by |
(used in) operating activities: |
Depreciation and amortization................................ 52,937 49,083 15,538 | 56,694
Amortization of capitalized maintenance..................... 39,679 11,934 356 | -
Amortization of reorganization value......................... 25,263 31,958 11,145 | -
Income taxes attributable to reorganization items and other.. 23,091 52,913 11,854 | -
Amortization of deferred credits............................. (11,563) (10,952) (3,961) | (2,966)
Nonrecurring special charge.................................. 65,098 - - | -
Reorganization items......................................... - - - | 185,226
Extraordinary items.......................................... 1,105 984 - | (257,660)
Other ..................................................... 2,099 7,199 1,576 | 1,276
Changes in operating assets and liabilities: |
Decrease (increase) in accounts receivable, net................ (37,121) (11,172) 27,439 | (18,769)
Decrease (increase) in expendable spare parts and supplies, net (3,793) (4,819) 1,165 | 397
Decrease (increase) in prepaid expenses........................ (1,467) (14,031) 4,371 | 1,284
Decrease (increase) in other assets, net....................... (3,173) (7,312) (10,635) | 12,971
Increase (decrease) in accounts payable........................ 26,301 10,308 (17,289) | (15,557)
Increase (decrease) in air traffic liability................... 22,312 64,388 (26,452) | 30,510
Increase (decrease) in accrued compensation and vacation benefits (11,531) 25,840 (11,667) | 15,739
Increase (decrease) in accrued taxes........................... 37,688 7,298 (2,104) | 25,999
Increase (decrease) in other accrued liabilities............... 8,315 (663) (13,785) | 67,429
Increase (decrease) in other liabilities....................... (13,411) (6,314) 2,521 | (14,749)
---------- ---------- ----------- | ----------
Net cash provided by (used in) operating activities.......... 230,334 260,428 (2,082) | 142,216
---------- ---------- ----------- | ----------
Cash flows from investing activities: |
Purchases of property and equipment............................ (155,742) (107,387) (14,658) | (61,271)
Increase in short-term investments............................. (39,131) - - | -
Other.......................................................... (4,082) (9) 600 | 334
---------- ---------- ----------- | ----------
Net cash used in investing activities........................ (198,955) (107,396) (14,058) | (60,937)
---------- ---------- ----------- | ----------
Cash flows from financing activities: |
Proceeds from issuance of debt................................. - 29,300 - | 100,000
Repayment of debt.............................................. (79,216) (137,421) (23,355) | (173,699)
Issuance of common stock....................................... 3,074 1,545 3 | 114,862
Debt issuance cost............................................. - (3,130) - | -
Acquisition of treasury stock.................................. (23,964) (1,540) - | -
Acquisition of warrants........................................ (18,141) - - | -
---------- ---------- ----------- | ----------
Net cash provided by (used in) financing activities.......... (118,247) (111,246) (23,352) | 41,163
---------- ---------- ----------- | ----------
Net increase (decrease) in cash and cash equivalents............. (86,868) 41,786 (39,492) | 122,442
---------- ---------- ----------- | ----------
Cash and cash equivalents at beginning of period................. 224,367 182,581 222,073 | 99,631
---------- ---------- ----------- | ----------
Cash and cash equivalents at end of period....................... $ 137,499 $ 224,367 $ 182,581 | $ 222,073
========== ========== =========== | ==========
Cash, cash equivalents and short-term investments at end of |
period ........................................................ $ 176,630 $ 224,367 $ 182,581 | $ 222,073
========== ========== =========== | ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-33-
<PAGE> 35
AMERICA WEST HOLDINGS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995, THE PERIOD AUGUST 26
THROUGH DECEMBER 31, 1994, AND THE
PERIOD JANUARY 1 THROUGH AUGUST 25, 1994
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE CLASS A CLASS B ADDITIONAL
PREFERRED COMMON COMMON COMMON PAID-IN
STOCK STOCK STOCK STOCK CAPITAL
----------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 .................... $ 18 $ -- $ -- $ 6,323 $ 197,010
--------- --------- --------- --------- ---------
Issuance of 336,277 shares of common stock
pursuant to convertible preferred stock
dividends .................................. -- -- -- 84 2,932
Employee stock purchase plan:
Cancellation of 7,678 shares of common
stock at:
$1.19-$4.03 per share ................... -- -- -- (2) (49)
Deferred compensation ................... -- -- -- -- (1)
Issuance of 108,825 shares of common stock
pursuant to exercise of stock options ...... -- -- -- 27 166
Net income .................................... -- -- -- -- --
Eliminate predecessor equity accounts in
connection with fresh start ................ (18) -- -- (6,432) (200,058)
Eliminate employee stock receivable ........... -- -- -- -- --
Record excess of reorganization value over
identifiable assets ........................ -- -- -- -- --
Sale of 1,200,000 shares of Class A common
stock and 14,000,000 shares of Class B
common stock ............................... -- 12 140 -- 114,710
Issuance of 29,925,000 shares of new Class B
common stock ............................... -- -- 299 -- 472,339
--------- --------- --------- --------- ---------
BALANCE AT AUGUST 25, 1994 .................... -- 12 439 -- 587,049
--------- --------- --------- --------- ---------
Issuance of common stock ...................... -- -- -- -- 100
Net income .................................... -- -- -- -- --
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1994 .................. -- 12 439 -- 587,149
--------- --------- --------- --------- ---------
Issuance of 4,057 shares and 170,667 shares of
common stock pursuant to the exercise of
stock warrants and stock options ........... -- -- 2 -- 1,543
Issuance of 30,334 shares of restricted stock . -- -- -- -- 235
Acquisition of treasury stock at:
$13.63-$14.00 per share .................... -- -- -- -- --
Net income .................................... -- -- -- -- --
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1995 .................. -- 12 441 -- 588,927
--------- --------- --------- --------- ---------
Issuance of 12,725 shares and 314,001 shares of
common stock pursuant to the exercise of
stock warrants and stock options ........... -- -- 3 -- 3,071
Issuance of 158,000 shares of restricted stock -- -- 2 -- 2,761
Acquisition and issuance of treasury stock at:
$13.63-$21.88 per share .................... -- -- -- -- 649
Repurchase of 2,187,475 warrants at $8.29
per warrant ................................ -- -- -- -- (18,141)
Net income .................................... -- -- -- -- --
--------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1996 .................. $ -- $ 12 $ 446 $ -- $ 577,267
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DEFERRED
COMPENSATION
AND NOTES
RETAINED CLASS B RECEIVABLE-
EARNINGS/ TREASURY EMPLOYEE STOCK
(DEFICIT) STOCK PURCHASE PLANS TOTAL
--------- --------- -------------- ---------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 .................... $(438,626) $ -- $ (18,987) $(254,262)
--------- --------- --------- ---------
Issuance of 336,277 shares of common stock
pursuant to convertible preferred stock
dividends .................................. -- -- -- 3,016
Employee stock purchase plan:
Cancellation of 7,678 shares of common
stock at:
$1.19-$4.03 per share ................... -- -- 43 (8)
Deferred compensation ................... -- -- 606 605
Issuance of 108,825 shares of common stock
pursuant to exercise of stock options ...... -- -- -- 193
Net income .................................... 54,392 -- -- 54,392
Eliminate predecessor equity accounts in
connection with fresh start ................ 206,508 -- -- --
Eliminate employee stock receivable ........... (18,338) -- 18,338 --
Record excess of reorganization value over
identifiable assets ........................ 668,702 -- -- 668,702
Sale of 1,200,000 shares of Class A common
stock and 14,000,000 shares of Class B
common stock ............................... -- -- -- 114,862
Issuance of 29,925,000 shares of new Class B
common stock ............................... (472,638) -- -- --
--------- --------- --------- ---------
BALANCE AT AUGUST 25, 1994 .................... -- -- -- 587,500
--------- --------- --------- ---------
Issuance of common stock ...................... -- -- -- 100
Net income .................................... 7,846 -- -- 7,846
--------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1994 .................. 7,846 -- -- 595,446
--------- --------- --------- ---------
Issuance of 4,057 shares and 170,667 shares of
common stock pursuant to the exercise of
stock warrants and stock options ........... -- -- -- 1,545
Issuance of 30,334 shares of restricted stock . -- -- -- 235
Acquisition of treasury stock at:
$13.63-$14.00 per share .................... -- (1,540) -- (1,540)
Net income .................................... 53,786 -- -- 53,786
--------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1995 .................. 61,632 (1,540) -- 649,472
--------- --------- --------- ---------
Issuance of 12,725 shares and 314,001 shares of
common stock pursuant to the exercise of
stock warrants and stock options ........... -- -- -- 3,074
Issuance of 158,000 shares of restricted stock -- -- -- 2,763
Acquisition and issuance of treasury stock at:
$13.63-$21.88 per share .................... -- (23,569) -- (22,920)
Repurchase of 2,187,475 warrants at $8.29
per warrant ................................ -- -- -- (18,141)
Net income .................................... 8,505 -- -- 8,505
--------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1996 .................. $ 70,137 $ (25,109) $ -- $ 622,753
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-34-
<PAGE> 36
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
America West Holdings Corporation ("Holdings"), a Delaware corporation,
became the holding company for America West Airlines, Inc. ("AWA"), effective
midnight, December 31, 1996. Holdings' primary business activity is ownership of
all the capital stock of AWA, the ninth largest commercial airline carrier in
the United States serving more than 90 destinations in the U.S., Canada and
Mexico.
(a) Basis of Presentation
The consolidated financial statements include the accounts of
Holdings and its wholly owned subsidiary AWA (collectively, the "Company"). The
Company's consolidated financial statements give effect to the formation of the
holding company discussed above for all periods presented. All significant
inter-company balances and transactions have been eliminated.
America West Airlines, Inc., D.I.P. (the "Predecessor Company")
filed a voluntary petition on June 27, 1991, to reorganize under Chapter 11 of
the Federal Bankruptcy Code. On August 10, 1994, the Plan of Reorganization
("Plan"), filed by the Predecessor Company, was confirmed and became effective
on August 25, 1994 (the "Effective Date"). On August 25, 1994, AWA, (the
"Reorganized Company") adopted fresh start reporting in accordance with
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code" ("SOP 90-7") of the American Institute of Certified
Public Accountants. Accordingly, the Company's post-reorganization consolidated
balance sheets and consolidated statements of income have not been prepared on a
consistent basis with such pre-reorganization financial statements and are not
comparable in all respects to financial statements prior to reorganization. For
accounting purposes, the inception date of the Reorganized Company is deemed to
be August 26, 1994. A vertical black line is shown in the financial statements
to separate the Reorganized Company from the Predecessor Company since they have
not been prepared on a consistent basis of accounting.
(b) Cash and Cash Equivalents
Cash equivalents consist of all highly liquid debt instruments
purchased with original maturities of three months or less. The debt instruments
are classified as held-to-maturity and are carried at amortized cost which
approximates fair value. (See Note 9, "Investments in Debt Securities.")
(c) Short-term Investments
Short-term investments consist of cash invested in certain debt
securities with original maturities greater than 90 days. The debt securities
are classified as held to maturity and are carried at amortized cost which
approximates fair value. (See Note 9, "Investments in Debt Securities.")
(d) Expendable Spare Parts and Supplies
Flight equipment expendable spare parts and supplies are valued
at average cost. Allowances for obsolescence are provided, over the estimated
useful life of the related aircraft and engines, for spare parts expected to be
on hand at the date the aircraft are retired from service.
-35-
<PAGE> 37
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(e) Property and Equipment
Property and equipment are recorded at cost. Interest capitalized
on advance payments for aircraft acquisitions and on expenditures for aircraft
improvements are part of these costs. No interest was capitalized in the year
ended December 31, 1996 due to the pending restructuring of the aircraft
purchase agreement with AVSA S.A.R.L., an affiliate of Airbus Industrie ("AVSA")
(See Note 11, "Commitments and Contingencies"). Interest capitalized for the
year ended December 31, 1995 was $2.7 million. Property and equipment is
depreciated and amortized to residual values over the estimated useful lives or
the lease term, whichever is less, using the straight-line method.
The estimated useful lives for the Company's ground property and
equipment range from three to 12 years for owned property and equipment and to
30 years for the reservation and training center and technical support
facilities. The estimated useful lives of the Company's owned aircraft, jet
engines, flight equipment and rotable parts range from 11 to 22 years. Leasehold
improvements relating to flight equipment and other property on operating leases
are amortized over the life of the lease or the life of the asset, whichever is
shorter.
(f) Restricted Cash
Restricted cash includes cash deposits securing certain letters
of credit.
(g) Aircraft Maintenance and Repairs
Routine maintenance and repairs are charged to expense as
incurred. The cost of major scheduled airframe, engine and certain component
overhauls are capitalized and amortized over the periods benefited and are
included in aircraft maintenance materials and repairs expense for the
Reorganized Company as part of fresh start reporting and in depreciation and
amortization expense for the Predecessor Company. The balance of capitalized
maintenance relating to aircraft and engines was reduced as part of the
revaluation of property and equipment and operating leases under fresh start
reporting.
Additionally, a provision for the estimated cost of scheduled
airframe and engine overhauls required to be performed on leased aircraft prior
to their return to the lessors has been recorded.
(h) Reorganization Value in Excess of Amounts Allocable to Identifiable
Assets
Reorganization value in excess of amounts allocable to
identifiable assets is amortized on a straight line basis over 20 years.
Accumulated amortization at December 31, 1996 and 1995 was $68.4 million and
$43.1 million, respectively. During the years ended December 31, 1996 and 1995,
reductions in reorganization value of $16.7 million and $50 million were
recorded as a result of the utilization of the Predecessor Company tax
attributes including net operating loss carryforwards. Additionally, in 1995 the
Company established a deferred tax asset, which reduced reorganization value by
$74.7 million. The Company assesses the recoverability of this asset based upon
expected future undiscounted cash flows and other relevant information.
(i) Frequent Flyer Awards
The Company maintains a frequent travel award program known as
"FlightFund" that provides a variety of awards to program members based on
accumulated mileage. The estimated cost of providing the free travel, using the
incremental cost method as adjusted for estimated redemption rates, is
recognized as a liability and charged to operations as program members
accumulate mileage.
-36-
<PAGE> 38
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(j) Deferred Credit-Operating Leases
Operating leases were adjusted to fair market value at the
Effective Date. The net present value of the difference between the stated lease
rates and the fair market rates has been recorded as a deferred credit in the
accompanying consolidated balance sheets. The deferred credit will be increased
through charges to interest expense and decreased on a straight-line basis as a
reduction in rent expense over the applicable lease periods. At December 31,
1996 and 1995, the unamortized balance of the deferred credit was $95.6 million
and $107.2 million, respectively.
(k) Passenger Revenue
Passenger revenue is recognized when the transportation is
provided. Ticket sales for transportation which has not yet been provided are
recorded as air traffic liability. Passenger traffic commissions and related
fees are expensed when the related revenue is recognized. Passenger traffic
commissions and related fees not yet recognized are included as a prepaid
expense.
(l) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(m) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and proforma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provision of SFAS No. 123.
(See Note 4, "Stock Options and Awards.")
(n) Per Share Data
Primary earnings per share is based upon the weighted average number of
shares of common stock outstanding and dilutive common stock equivalents (stock
options and warrants). Primary earnings per share reflects net income adjusted
for interest on borrowings effectively reduced by the proceeds from the assumed
exercise of common stock equivalents but only if the effect of such adjustments
are dilutive.
Fully diluted earnings per share is based on the average number of
shares of common stock, dilutive common stock equivalents (stock options and
warrants) and the conversion of outstanding convertible preferred stock (none
-37-
<PAGE> 39
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
outstanding at December 31, 1996) as well as for the Predecessor Company the
conversion of convertible subordinated debentures. Fully diluted earnings per
share reflects net income adjusted for interest on borrowings effectively
reduced by the proceeds from the assumed exercise of common stock equivalents or
conversion of debentures but only if the effect of such adjustments are
dilutive.
(o) Use of Estimates
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(p) Advertising Costs
The Company expenses the costs of advertising as incurred.
Advertising expense for the years ended December 31, 1996 and 1995 and for the
combined period ending December 31, 1994 was $26.6 million, $25.2 million and
$23.8 million, respectively.
(q) Reclassification
Certain reclassifications have been made in the prior year's
consolidated financial statements to conform them to the current year's
presentation.
2. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
SECURED
Notes payable, primarily fixed interest rates of 9.53% to 10.79%, averaging 10.32%,
installments due 1999 through 2008.................................................... $234,494 $274,751
Borrowings under lines of credit, floating interest rates of Prime + 1% to three months
LIBOR +4%, averaging 9.42%, installments due through 1999. No available
borrowings remain ..................................................................... 8,277 14,794
Industrial development revenue bonds, variable interest rate of 2.9% to 5.6%, averaging
3.83%, due 2016(a) .................................................................... 29,300 29,300
-------- --------
272,071 318,845
-------- --------
UNSECURED
10 3/4% Senior Notes, face amount of $50 million, interest only payment until
due in 2005(b) ........................................................................ 48,197 71,984
Notes payable, interest rates of 8% to 90-day LIBOR +3%, averaging 8.39%,
installments due through 2000 ......................................................... 55,910 36,708
Other ..................................................................................... 208 584
-------- --------
104,315 109,276
-------- --------
Total long-term debt ...................................................................... 376,386 428,121
Less: current maturities ................................................................. 46,238 54,157
-------- --------
$330,148 $373,964
======== ========
</TABLE>
-38-
<PAGE> 40
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(a) The industrial development revenue bonds are backed by an irrevocable
direct pay letter of credit issued by the Industrial Bank of Japan,
Limited, Los Angeles Agency; the letter of credit is secured by the
Company's maintenance facility and related improvements, seventeen
spare engines and a flight simulator with a combined net book value of
$42.1 million and a pledge of $3.2 million in cash.
The interest rate varies weekly and from January 1, 1996 to December
31, 1996 ranged from 2.9% to 5.6%. The bondholders have the right to
put the bonds back to the Company on a weekly basis if the bonds bear
interest at a weekly rate or monthly if the bonds bear interest at a
monthly rate. If the bonds are put back to the Company, the remarketing
agent or the transfer agent will, at the direction of the Company,
remarket such bonds. Any bonds not remarketed will be retired utilizing
the $29.9 million letter of credit which represents the principal plus
60 days of interest at a maximum rate of 12%. The letter of credit was
extended in November 1996 for one year and is subject to mandatory
redemption under certain circumstances. The estimated annual cost for
the letter of credit is approximately $1.1 million.
(b) In June 1996, the Company prepaid $25 million in principal of the 10
3/4% Senior Notes. The 10 3/4% Senior Notes mature on September 1, 2005
and interest is payable in arrears semi-annually commencing on March 1,
1996. The 10 3/4% Senior Notes may be redeemed at the option of the
Company on or after September 1, 2001 at any time in whole or from time
to time in part, at a redemption price equal to the following
percentage of principal redeemed, plus accrued and unpaid interest to
the date of redemption, if redeemed during the 12-month period
beginning:
<TABLE>
<CAPTION>
SEPTEMBER 1, PERCENTAGE
------------ ----------
<S> <C>
2000 .............. 105.375%
2001 .............. 103.583%
2002 .............. 101.792%
2003 and thereafter 100.000%
</TABLE>
Secured financings totaling $272.1 million are collateralized by
assets, primarily aircraft and engines, with a net book value of $388.5 million
at December 31, 1996.
At December 31, 1996, the estimated maturities of long-term debt are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1997.................... $ 46,238
1998.................... 43,210
1999.................... 70,430
2000.................... 28,000
2001.................... 20,720
Thereafter.............. 167,788
----------
$ 376,386
==========
</TABLE>
Certain of the Company's long-term debt agreements contain minimum cash
balance requirements, leverage ratios, coverage ratios, limitations on
investments and restricted payments including cash dividends, and other
financial covenants with which the Company was in compliance at December 31,
1996.
3. CAPITAL STOCK
Effective midnight, December 31, 1996, AWA became a wholly owned
subsidiary of Holdings and each share of AWA Class A and Class B Common Stock
was exchanged for one share of Holdings Class A or Class B Common
-39-
<PAGE> 41
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Stock. Holdings' Class B Common Stock is listed on the New York Stock Exchange.
On August 25, 1994, AWA issued approximately 10.4 million warrants to
purchase Class B Common Stock with an exercise price of $12.74 per share. The
warrants are exercisable by the holders any time before August 25, 1999 and 10.4
million shares of Class B Common Stock have been reserved for the exercise of
these warrants. In May 1996, approximately 2.2 million warrants were repurchased
by AWA for approximately $18 million. As of December 31, 1996, 17,054 warrants
have been exercised at $12.74 per share. Pursuant to their terms, as part of the
holding company formation transaction, the AWA warrants became rights to acquire
shares of Holdings Class B Common Stock. AWA has made arrangements for the
issuance of Holdings Class B Common Stock upon the exercise of such warrants by
purchasing an option from Holdings to acquire such stock. AWA issued a $62.4
million note payable due December 31, 2005 with an interest rate of 11%.
Subsequently, Holdings made a capital contribution to AWA issuing a note payable
to AWA for $62.4 million due December 31, 2045 with an interest rate of 10 7/8%.
Preferred Stock
The Company's Board of Directors by resolution may authorize the
issuance of the Preferred Stock as a class, in one or more series, having the
number of shares, designations, relative voting rights, dividend rights,
liquidation and other preferences and limitations that the Board of Directors
fixes without any stockholder approval. No shares of Preferred Stock have been
issued.
Common Stock
The holders of Class A Common Stock are entitled to fifty votes
per share, and the holders of Class B Common Stock are entitled to one vote per
share, on all matters submitted to a vote of common stockholders except that
voting rights of non-U.S. citizens are limited. The Class A Common Stock is
convertible into an equal number of Class B shares at any time at the election
of the holders of the Class A Common Stock.
Holders of Common Stock of all classes participate equally as to
any dividends or distributions on the Common Stock, except that dividends
payable in shares of Common Stock, or securities to acquire Common Stock, will
be made in the same class of Common Stock as that held by the recipient of the
dividend. Holders of Common Stock have no right to cumulate their votes in the
election of directors. The Common Stock votes together as a single class,
subject to the right to a separate class vote in certain instances required by
law.
Pursuant to the Stockholder's Agreement, the Company, TPG
Partners, L.P. ("TPG"), TPG Parallel, Air Partners II, Continental Airlines,
Inc. ("Continental") and Mesa Air Group ("Mesa") will vote all shares of the
Common Stock owned by them in favor of the reelection of the initially
designated Independent Directors for as long as such Independent Directors
continue to serve or until the first annual meeting after August 25, 1997.
4. STOCK OPTIONS AND AWARDS
In 1994, the Company adopted the 1994 Incentive Equity Plan, (the
"Plan") pursuant to which the Company's Board of Directors may grant stock
options to officers and key employees. The Plan authorized grants of options to
purchase up to 3.5 million shares of authorized but unissued Class B Common
Stock. Stock options are granted with an exercise price equal to the stock's
fair market value at the date of grant, generally become exercisable over a
three-year period and expire if unexercised at the end of 10 years.
The Company's Board of Directors has approved an amendment to the
Plan that would increase the maximum number of shares available under the Plan
from 3.5 million to 7.5 million subject to stockholders' approval.
-40-
<PAGE> 42
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Stock option activity during the periods indicated is as follows:
<TABLE>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Balance at December 31, 1993: -- $ --
Granted ................. 1,147,000 $ 8.73
---------- ------
Balance at December 31, 1994: 1,147,000 $ 8.73
Granted ................. 1,396,000 $12.39
Exercised ............... (170,667) $ 8.75
Canceled ................ (204,000) $ 9.30
---------- ------
Balance at December 31, 1995: 2,168,333 $11.03
Granted ................. 2,058,000 $15.55
Exercised ............... (314,001) $ 9.28
Canceled ................ (374,332) $12.27
---------- ------
Balance at December 31, 1996: 3,538,000 $13.68
=========
</TABLE>
At December 31, 1996, the range of exercise prices was $8.75 - $23.00
and the weighted-average remaining contractual life of outstanding options was
9.15 years. The number of options exercisable at December 31, 1996 and 1995 was
972,669 and 846,308, respectively, and the weighted-average exercise price of
those options was $10.98 and $9.62, respectively.
The per share weighted-average fair value of stock options granted
during 1996 and 1995 was $6.48 and $4.73 on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions: 1996 - expected dividend yield 0.0%, risk-free interest rate of
6.3%, volatility of 43.13% and an expected life of 4 years; 1995 - expected
dividend yield 0.0%, risk-free interest rate of 6.5%, volatility of 37%, and an
expected life of 4 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net income: As reported $ 8,505 $ 53,786
======= =========
Pro forma $ 6,343 $ 52,704
======= =========
Earnings per share:
Primary As reported $ 0.19 $ 1.16
======= =========
Pro forma $ 0.14 $ 1.13
======= =========
Fully diluted As reported $ 0.18 $ 1.15
======= =========
Pro forma $ 0.13 $ 1.11
======= =========
</TABLE>
Pro forma net income reflects only options granted in 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period and compensation cost for options granted prior to January 1, 1995 is not
considered.
Under the 1994 Incentive Equity Plan, the Company granted 158,000
shares, 30,384 shares, and 11,000 shares in 1996, 1995 and 1994, respectively,
of Class B Common Stock as restricted stock. Compensation expense of $785,000,
$235,000 and $97,000 was recorded based upon the fair value at the date of grant
and applicable vesting provisions for 1996, 1995 and 1994, respectively. At
December 31, 1996, 87,056 shares of restricted stock were vested.
-41-
<PAGE> 43
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The 1994 Incentive Equity Plan also provides for the issuance of
restricted stock and grant of stock options to non-employee directors. The
Company has granted options to purchase 117,000 shares of Class B Common Stock
to members of the Board of Directors who are not employees of the Company. The
options have a ten-year term and are exercisable six months after the date of
grant. At December 31, 1996, 117,000 options to purchase Class B Common Stock
were exercisable at prices ranging from $8.00 to $19.75 per share.
5. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution plan, covering
essentially all employees of the Company. Participants may contribute from 1 to
15% of their pretax earnings to a maximum of $9,500 in 1996. The Company's
matching contribution is 50% of a participant's contributions up to 6% of the
participant's annual pretax earnings or 25% of a participant's contributions,
whichever is greater. The Company's contribution expense to the plan totaled
$5.9 million, $5.9 million and $3.8 million in 1996, 1995 and the combined 1994
period, respectively.
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(a) Fair Value of Financial Instruments
Cash Equivalents and Short-term Investments
The carrying amount approximates fair value because of the
short-term maturity of these instruments.
Long-term Debt
At December 31, 1996 and 1995, the fair value of long-term debt
was approximately $379 million and $431 million, respectively, based on quoted
market prices for the same or similar debt including debt of comparable
remaining maturities.
(b) Fuel Price Risk Management
The Company is exposed to risk from fluctuating jet fuel prices.
To manage this risk, the Company implemented a fuel hedging program in late
1996. Oversight of this program is the responsibility of the Fuel Hedge
Committee ("FHC"), a group of the Company's senior officers, which sets
acceptable levels of risk and reviews hedging activities. Under the program, the
Company may enter into certain cap and swap transactions with approved
counterparties for a period not to exceed twelve months. Gains and losses on
such transactions are recorded as adjustments to fuel expense when the
underlying fuel being hedged is used. As of December 31, 1996, there were no
transactions outstanding.
The Company is exposed to credit risks in the event any
counterparty fails to meet its obligations. The Company does not anticipate such
non-performance as counterparties are selected based on credit ratings, exposure
to any one counterparty is limited based on formal guidelines and the relative
market positions with such counterparties are monitored by the FHC.
(c) Concentration of Credit Risk
The Company does not believe it is subject to any significant
concentration of credit risk. Most of the Company's receivables result from
tickets sold to individual passengers through the use of major credit cards or
to tickets sold by other airlines and used by passengers on AWA. These
receivables are short-term, generally being settled shortly after the sale.
-42-
<PAGE> 44
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
7. INCOME TAXES
The Company recorded income tax expense for the periods shown below
(exclusive of extraordinary items) as follows:
<TABLE>
<CAPTION>
| PREDECESSOR
REORGANIZED COMPANY | COMPANY
--------------------------------------------- | -----------
PERIOD FROM | PERIOD FROM
YEAR ENDED DECEMBER 31, AUGUST 26 TO | JANUARY 1 TO
-------------------------- DECEMBER 31, | AUGUST 25,
1996 1995 1994 | 1994
--------- -------- ------------ | ---------
(IN THOUSANDS) |
<S> <C> <C> <C> | <C>
Current Taxes: |
Federal....................................... $ 943 $ 505 $ - | $ 1,869
State......................................... 849 190 36 | 190
--------- -------- -------- | ---------
Total current taxes..................... 1,792 695 36 | 2,059
--------- -------- -------- | ---------
Deferred taxes................................... - - - | -
--------- -------- -------- | ---------
Income taxes attributable to |
reorganization items and other................ 23,091 52,913 11,854 | -
--------- -------- -------- | ---------
Total income tax expense......................... $ 24,883 $ 53,608 $ 11,890 | $ 2,059
========= ======== ======== | =========
</TABLE>
With respect to the years ended December 31, 1996 and 1995 and the
period August 26, 1994 through December 31, 1994, income tax expense pertains
both to income before extraordinary items as well as certain adjustments
necessitated by the effectiveness of the Plan and the resultant fresh start
adjustments to the Company's financial statements. The Company's reorganization
and the associated implementation of fresh start reporting gave rise to
significant items of expense for financial reporting purposes that are not
deductible for income tax purposes. In large measure, it is these nondeductible
(for income tax purposes) expenses that result in an effective tax rate (for
financial reporting purposes) significantly greater than the current U.S.
corporate statutory rate of 35%. Nevertheless, the Company's actual cash income
tax liability (i.e., income taxes payable) is considerably lower than income tax
expense shown for financial reporting purposes. This difference in financial
expense compared to actual income tax liability is in part attributable to the
utilization of certain tax attributes of the Predecessor Company that serve to
reduce the Company's actual income tax liability. The excess of financial
expense over the Company's actual income tax liability ($16.7 million for 1996)
is applied to reduce the carrying balance of the Company's reorganization value
in excess of amounts allocable to identifiable assets.
For the years ended December 31, 1996 and 1995, the Company recognized
income tax benefits of $918,000 and $984,000, respectively, arising from
extraordinary charges. For the periods January 1, 1994 through August 25, 1994
and August 26 through December 31, 1994, income tax expense pertains solely to
income before extraordinary item. No income tax expense was recognized with
respect to the extraordinary gain resulting from the cancellation of
indebtedness that occurred in connection with the effectiveness of the Plan as
such gain is not subject to income taxation.
Income tax expense, exclusive of extraordinary items, recorded for the
periods shown below, differs from amounts computed at the federal statutory
income tax rate as follows:
-43-
<PAGE> 45
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
| PREDECESSOR
REORGANIZED COMPANY | COMPANY
--------------------------------------------- | -----------
PERIOD FROM | PERIOD FROM
AUGUST 26 TO | JANUARY 1 TO
YEAR ENDED DECEMBER 31, DECEMBER 31, | AUGUST 25,
--------------------------- ------------ | -----------
1996 1995 1994 | 1994
--------- -------- -------- | ---------
<S> <C> <C> <C> | <C>
Income tax expense at U.S. statutory rate........ $ 12,073 $ 37,932 $ 6,908 | $ 19,758
State income taxes, net of federal income |
tax benefit................................... 1,984 4,505 1,663 | 190
Nondeductible amortization of reorganization |
value in excess of amounts allocable |
to identifiable assets........................ 8,842 11,188 3,901 | -
Benefit of loss carryforwards.................... - - - | (17,889)
Other, net....................................... 1,984 (17) (582) | -
--------- -------- -------- | ---------
Total......................................... $ 24,883 $ 53,608 $ 11,890 | $ 2,059
========= ======== ======== | =========
</TABLE>
As of December 31, 1996, the Company has available net operating loss,
business tax credit and alternative minimum tax credit carryforwards for Federal
income tax purposes of approximately $498.7 million, $12.7 million and $1.2
million, respectively. The net operating loss carryforwards expire during the
years 1999 through 2009 while the business credit carryforwards expire during
the years 1997 through 2006. However, such carryforwards are not fully available
to offset federal (and in certain circumstances, state) alternative minimum
taxable income. Further, as a result of a statutory "ownership change" (as
defined for purposes of Section 382 of the Internal Revenue Code) that occurred
as a result of the effectiveness of the Company's Plan of Reorganization, the
Company's ability to utilize its net operating loss and business tax credit
carryforwards may be restricted. The alternative minimum tax credit may be
carried forward without expiration and is available to offset future income tax
payable.
Composition of Deferred Tax Items:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. As of December
31, the significant components of the Company's deferred tax assets and
liabilities are a result of the temporary differences related to the items
described as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities:
Property and equipment, principally depreciation and "fresh start"
differences............................................................... $(111,989) $ (89,766)
--------- ---------
Deferred tax assets:
Aircraft leases ............................................................. 32,789 39,812
Reorganization expenses ..................................................... 21,356 23,591
Net operating loss carryforwards ............................................ 190,548 203,879
Tax credit carryforwards .................................................... 13,861 13,777
Other ....................................................................... 16,568 14,240
--------- ---------
Total deferred tax assets ................................................ 275,122 295,299
--------- ---------
Valuation allowance ........................................................ (88,433) (130,833)
--------- ---------
Net deferred tax asset.................................................... $ 74,700 $ 74,700
========= =========
</TABLE>
-44-
<PAGE> 46
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SFAS 109 requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. In 1996 the Company
reduced the valuation allowance by $42.4 million from its 1995 balance
principally for the portion of its net operating loss carryforwards (a
Predecessor Company tax attribute) that it anticipates will, more likely than
not, be utilized. The remaining valuation allowance of $88.4 million is
necessary as at this time, the Company has not determined it is more likely than
not that the balance of the deferred tax assets will be realized. The Company
continues to monitor the valuation allowance and will make adjustments as
appropriate. If in future tax periods, the Company were to recognize additional
tax benefits related to items attributable to the Predecessor Company such as
net operating loss and other carryforwards, such benefits would be applied to
further reduce reorganization value in excess of amounts allocable to
identifiable assets.
8. SUPPLEMENTAL INFORMATION TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information and non-cash investing
and financing activities were as follows:
<TABLE>
<CAPTION>
| PREDECESSOR
REORGANIZED COMPANY | COMPANY
------------------------------------- | -------------
PERIOD FROM | PERIOD FROM
YEAR ENDED DECEMBER 31, AUGUST 26 TO | JANUARY 1 TO
----------------------- DECEMBER 31, | AUGUST 25,
1996 1995 1994 | 1994
------- --------- ------------ | -------------
(IN THOUSANDS) |
<S> <C> <C> <C> | <C>
Non-cash transactions: |
Notes payable issued to seller .......... $26,112 $ 5,723 $ -- | $ --
Accrued interest reclassified to |
long-term debt .................... -- 65 -- | 5,563
Issuance of stock as success bonus ...... -- -- -- | 1,224
Equipment acquired through capital leases -- -- -- | 138
|
Cash transactions: |
Interest paid, net of amounts capitalized 37,555 50,293 11,262 | 29,253
Income taxes paid ....................... 498 795 425 | 1,253
</TABLE>
Cash flows from reorganization items in connection with the Chapter 11
proceedings included interest received on cash accumulations of $3.7 million and
professional fees paid for services rendered of $23.6 million.
-45-
<PAGE> 47
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. INVESTMENTS IN DEBT SECURITIES
Cash equivalents consist of highly liquid debt instruments with
original maturities of three months or less while short-term investments
consists of highly liquid debt instruments with original maturities in excess of
three months. These highly liquid debt instruments as of December 31 are
classified as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Held to Maturity:
Debt securities issued by the U.S. Treasury and other U.S. government agencies $ 36,973 $129,288
Bankers acceptances .......................................................... 49,141 37,686
Corporate debt securities .................................................... 90,418 20,466
Other debt securities ........................................................ 98 1,341
-------- --------
176,630 188,781
Cash ......................................................................... -- 35,586
-------- --------
Total cash, cash equivalents and short-term investments ........... $176,630 $224,367
======== ========
</TABLE>
10. EXTRAORDINARY GAINS AND LOSSES
In June 1996, the Company had an extraordinary loss of $1.1 million net
of an income tax benefit of $918,000 for the write-off of debt issuance cost
relating to the prepayment of $25 million of its 10 3/4% Senior Notes. In August
1995, the Company had an extraordinary loss of $984,000, net of a tax benefit of
$984,000 for the write-off of debt issuance cost relating to the prepayment of
$48 million of its $123 million 11 1/4% Senior Notes and the exchange of the
remaining $75 million of such notes for $75 million of 10 3/4% Senior Notes.
The extraordinary gain recorded in the period January 1 through August
25, 1994 includes $257.7 million from the discharge of indebtedness pursuant to
the consummation of the Plan of Reorganization. No income tax expense was
recognized with respect to the extraordinary gain resulting from the
cancellation of indebtedness that occurred in connection with the effectiveness
of the Plan as such gain is not subject to income taxation.
11. COMMITMENTS AND CONTINGENCIES
(a) Leases
As of December 31, 1996, the Company had 82 aircraft under operating
leases with remaining terms ranging from five months to approximately 22 years.
The Company has options to purchase certain of the aircraft at fair market
values at the end of the lease terms. Certain of the Company's aircraft lessors
have the option to call their respective aircraft. Usually, if such call options
are exercised, the Company has the right of first refusal to retain the
aircraft. None of these options have been exercised and the last of these call
options expires in July 1997. The Company does not believe that the possible
exercise of any or all of these options will have a material effect on its
operations. Certain of the agreements require security deposits, minimum return
provisions and maintenance reserve payments and provide the aircraft lessor the
option to reset their respective rentals to the greater of the existing rentals
being paid under the leases or the then current fair market rates. The Company
also leases certain terminal space, ground facilities and computer and other
equipment under noncancelable operating leases.
-46-
<PAGE> 48
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
At December 31, 1996, the scheduled future minimum cash rental payments
under noncancelable operating leases with initial terms of more than one year
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
1997................... $ 237,545
1998................... 201,575
1999................... 188,575
2000................... 176,186
2001................... 154,127
Thereafter............. 920,002
------------
$ 1,878,010
============
</TABLE>
Rent expense (excluding landing fees) was approximately $281 million,
$251 million, $81 million and $154 million for the years ended December 31, 1996
and 1995, for the period August 26 through December 31, 1994, and the period
January 1 through August 25, 1994, respectively.
Collectively, the operating lease agreements require security deposits
with lessors of $9.7 million and bank letters of credit of $17.6 million. The
letters of credit are collateralized by $17.6 million of restricted cash as of
December 31, 1996 and 1995.
(b) Revenue Bonds
Special facility revenue bonds issued by a municipality have been used
to fund the acquisition of leasehold improvements at the Phoenix Sky Harbor
airport which have been leased by the Company. Under the operating lease
agreements, the Company is required to make rental payments sufficient to pay
principal and interest when due on the bonds.
Pursuant to the agreement, payment of principal and interest at 8.3% on
the Series 1994A Bonds ends on January 1, 2006 while payment of principal and
interest at 8.2% on the Series 1994B Bonds ends on January 1, 1999. At December
31, 1996, the outstanding balance of Series 1994 Bonds was $16.1 million.
(c) Aircraft Acquisitions
In September 1996, the Company and AVSA, signed a term sheet (the "AVSA
Term Sheet"), which, subject to the satisfaction of a number of conditions
provides for the restructuring of the Company's arrangements with AVSA, and
specifically that (i) the number of aircraft ordered by the Company would be
increased from 22 to 34 (including 24 A320 aircraft and 10 A319 aircraft), (ii)
the orders subject to cancellation would be increased from five to 12 (resulting
in the Company being committed to purchase 12 A320s and 10 A319s), (iii) AVSA
and the manufacturer of the engines for the aircraft would agree to provide
certain financing support for 16 of the 22 firm orders, and (iv) the financing
terms and conditions under which aircraft would be purchased would be improved
from the Company's perspective. There can be no assurance that the conditions to
the restructuring of the Company's arrangements with AVSA will be satisfied or
that a final agreement will be reached or finalized in the form described above.
At December 31, 1996, the Company had commitments to AVSA, for a total
of 22 Airbus A320-200 aircraft with delivery dates that fall in the years 1999
through 2001. The aggregate net cost of such aircraft is based on formulae that
include certain price indices (including indices for various aircraft components
such as metal products) for periods preceding the various delivery dates. Based
on an assumed 5% annual price escalation, the Company estimates such aggregate
net cost to be approximately $1.1 billion. The Company has the option to cancel
without cause up to five of these aircraft. If the Company exercised its
existing rights to cancel five aircraft under the AVSA agreement, the
-47-
<PAGE> 49
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
aggregate net cost (based upon the assumptions described above) of commitments
under such agreement would be reduced to approximately $850 million.
In December 1994, the Company entered into a support contract with
International Aero Engines ("IAE") which provides for the purchase by the
Company of six new V2500-A5 spare engines scheduled for delivery beginning in
1998 through 2000 for use on certain of the A320 fleet. Such engines have an
estimated aggregate cost of $42 million.
The following table reflects estimated cash payments under the aircraft
and engine purchase contracts. Actual payments may vary due to inflation factor
adjustments and changes in the delivery schedule of the equipment. The estimated
cash payments include the progress payments that will be made in cash, as
opposed to being financed under an existing progress payment financing facility.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
1997................... $ 63,134
1998................... 106,218
1999................... 264,707
2000................... 297,368
2001................... 328,207
------------
$ 1,059,634
============
</TABLE>
At December 31, 1996, the Company has significant capital commitments
for a number of aircraft, as discussed above. Although the Company has arranged
for financing for up to one-half of such commitment, the Company will require
substantial capital from external sources to meet the remaining financial
commitments. The Company intends to seek additional financing (which may include
public debt financing or private financing) in the future when and as
appropriate. There can be no assurance that sufficient financing will be
obtained for all aircraft and other capital requirements. A default by the
Company under any such commitment could have a material adverse effect on the
Company.
In November 1996, the America West Airlines 1996-1 Pass Through Trusts
issued $218.6 million of Pass Through Certificates, representing fractional
undivided interests in such trusts. The certificates were issued in connection
with the refinancing of eight Airbus A320 aircraft and three IAE V2500 spare jet
engines. The combined effective interest rate on the financing was 7.05%. The
proceeds of the transaction were used to refinance the indebtedness incurred by
the owners of the aircraft and engines leased to the Company. Under the
arrangements, the financial benefits of the transactions are shared among the
Company, the equity investors in leverage leases covering the aircraft and U.S.
subsidiaries of GPA Group plc ("GPA"), the original lessees under the
restructured leases. Benefits to the Company include the agreed termination of
arrangements with GPA pursuant to which GPA could cause the Company to lease up
to four aircraft under a put agreement and a reduction in rental expense
approximating $500,000 per year.
The Pass Through Certificates were issued by separate pass through
trusts. The equipment notes are secured by a security interest in the aircraft
and engines and an assignment of the Company's leases. Neither the equipment
notes nor the pass through certificates are direct obligations of, or guaranteed
by, the Company, and the corresponding debt and interest expense are not
included in the Company's consolidated financial statements.
(d) Contingent Legal Obligations
Certain administrative and priority tax claims are pending against the
Company which, if ultimately allowed by the Bankruptcy Court, would represent
general obligations of the Company. Such claims include claims of various
-48-
<PAGE> 50
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
state and local tax authorities and certain contractual indemnification
obligations. The Company is also a defendant in various lawsuits. Management
cannot reasonably predict the outcome of the pending lawsuits and administrative
and priority tax claims. However, management believes, after considering a
number of factors, including the advice of outside counsel, the nature of the
contingencies to which the Company is subject and its prior experience, that
although the outcome of these matters could adversely affect future operating
results, the resolution of these actions will not have a material adverse effect
on the Company's financial condition. As discussed in Note 13, "Restructuring
and Other Nonrecurring Special Charges," the Company has recorded a liability
for loss contingencies in accordance with generally accepted accounting
principles.
12. RELATED PARTY TRANSACTIONS
In exchange for certain concessions principally arising from
cancellation of the right of GPA to lease to America West 10 Airbus A320
aircraft at specified rates, GPA received on August 25, 1994, (i) 900,000 shares
of Class B Common Stock; (ii) 1,384,615 warrants to purchase shares of Class B
Common Stock at an exercise price of $12.74 per share; (iii) a cash payment of
approximately $30.5 million and (iv) the rights to require the Company to lease
up to eight aircraft of types operated by the Company, which was terminated in
September 1996. During 1996, GPA sold 900,000 shares of Class B Common Stock and
the Company repurchased all of the outstanding warrants (discussed in (ii)
above) from GPA as part of the buyback program authorized by the Board of
Directors.
In February 1996, certain stockholders of the Company who hold shares
of Class B Common Stock registered under the Company's shelf registration
statement sold 7.2 million of such shares pursuant to an underwritten public
offering. The selling stockholders were affiliates of TPG, Mesa, Continental and
Lehman Brothers Inc., ("Lehman"). The shares offered were purchased by the
selling stockholders in connection with AWA's emergence from bankruptcy in
August 1994.
The Company has entered into various aircraft acquisitions and leasing
arrangements with GPA at terms comparable to those obtained from third parties
for similar transactions. The Company currently leases eight aircraft from GPA
and the rental payments for such leases and the eight aircraft refinanced under
the America West Airlines 1996-1 Pass Through Trusts amount to $62.4 million,
$68 million, and $63.3 million for the twelve months ended December 31, 1996,
1995 and 1994, respectively. As of December 31, 1996, the Company was obligated
to pay approximately $500 million under the GPA leases which expire at various
times through the year 2013.
As part of the Reorganization, both Continental and Mesa made an
investment in the Company, and the Company entered into Alliance agreements with
Continental and Mesa. Pursuant to a code-sharing agreement entered into with
Mesa in December 1992, the Company collects a per-passenger charge for
facilities, reservations and other services from Mesa for enplanements in
Phoenix on the Mesa system. Such payments by Mesa to the Company totaled $3.5
million, $2.9 million and $2.5 million for the twelve months ended December 31,
1996, 1995 and 1994, respectively. In addition the Company is a party to
agreements with Continental related to code-sharing arrangements and ground
handling operations. The Company paid Continental approximately $21.7 million,
$14 million and $2 million and also received approximately $13 million, $11
million and $1 million in 1996, 1995, and 1994, respectively, from Continental
for such services.
13. RESTRUCTURING AND OTHER NONRECURRING SPECIAL CHARGES
During the third quarter of 1996, the Company recorded a nonrecurring
special charge of approximately $65.1 million. Approximately $49.7 million of
the charge was associated with the Company's renegotiation of an aircraft
purchase agreement with AVSA (See Note 11, "Commitments and Contingencies"), the
re-evaluation of its facilities, and completing its plan for the disposition of
certain aircraft inventories and equipment. The charge includes $18.8 million
for cancellation penalty payments, write-off of capitalized interest on advance
payments; a provision for
-49-
<PAGE> 51
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
maintenance costs on certain leased aircraft currently scheduled to be returned
due to accelerated deliveries under the new agreement; $7.5 million to reduce
the carrying value to estimated fair value of certain under-utilized facilities
and $23.4 million to write-down certain aircraft related inventories and
equipment to estimated fair value.
The remaining $15.4 million of the charge represents loss contingencies
based on estimated settlements of pending and threatened litigation. The $65.1
million represents the Company's best estimate of the expected charge. However,
the actual charge may be different from the amount estimated.
In December 1995, the Company recorded a $10.5 million restructuring
charge. The amount includes severance costs of approximately $9.5 million for
approximately 500 employees, and $1.0 million for other costs related to the
outsourcing of the heavy aircraft maintenance work.
14. CHAPTER 11 REORGANIZATION AND FRESH START REPORTING
Chapter 11 Reorganization
Upon the Company's emergence from bankruptcy on August 25, 1994, the
partners of AmWest Partners, L.P., a limited partnership which includes TPG;
Continental; and Mesa; together with Lehman and Fidelity Investments
("Fidelity"), as assignees of AmWest, invested $205.3 million in consideration
for the issuance of securities by the Reorganized Company, consisting of (i)
1,200,000 shares of Class A Common Stock at a price of $7.467 per share; (ii)
12,981,636 shares of Class B Common Stock, consisting of 12,259,821 shares at a
price of $7.467 per share and 721,815 shares at $8.889 per share (representing
shares acquired as a result of cash elections made by unsecured creditors);
(iii) 2,769,231 warrants to purchase shares of Class B Common Stock at an
exercise price of $12.74 per share and (iv) $100 million principal amount of 11
1/4% Senior Unsecured Notes, due September 1, 2001.
The Plan of Reorganization also provided for many other matters,
including the satisfaction of certain other prepetition claims in accordance
with negotiated settlement agreements, the disposition of the various types of
claims asserted against the Company, the adherence to the Company's aircraft
lease agreements, the amendment of the Company's aircraft purchase agreements
and the release of the Company's employees from all obligations arising under
the Company's stock purchase plan in consideration for the cancellation of the
shares of Predecessor Company stock securing such obligations.
As of December 31, 1996, distributions on $307.9 million of allowed
general unsecured claims have been made. Approximately 25.6 million shares of
the Company's Class B Common Stock and cash proceeds equivalent to an additional
783,936 shares have been distributed in settlement. The remaining shares will be
distributed as the remaining general unsecured claims are allowed. To the extent
that the total allowed amount of claims is less than the $312 million reserve
set by the Bankruptcy Court, the holders of such claims will receive a
supplemental distribution.
-50-
<PAGE> 52
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Reorganization expense recorded by the Predecessor Company consisted of
the following:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1 TO
AUGUST 25, 1994
---------------
(IN THOUSANDS)
<S> <C>
Professional fees and other expenses directly related to
the Chapter 11 proceedings .......................... $ 31,959
Adjustments of assets and liabilities to fair value .... 166,829
Provisions for settlement of claims .................... 66,626
Reorganization success bonuses ......................... 11,956
Interest income ........................................ (3,711)
---------
$ 273,659
=========
</TABLE>
Fresh Start Reporting
In connection with its emergence from bankruptcy, the Company adopted
fresh start reporting in accordance with SOP 90-7. The fresh start reporting
common equity value of $587.5 million was determined by the Company with the
assistance of its financial advisors. The significant factors used in the
determination of this value were analyses of industry, economic and overall
market conditions and the historical and estimated performance of the Company as
well as of the airline industry, discussions with various potential investors
and certain other financial analyses.
Under fresh start reporting, the reorganization value of the entity has
been allocated to the Company's assets and liabilities on a basis substantially
consistent with purchase accounting. The portion of reorganization value not
attributable to specific tangible assets has been recorded as "Reorganization
Value in Excess of Amounts Allocable to Identifiable Assets" in the accompanying
balance sheet. The fresh start reporting adjustments, primarily related to the
adjustment of the Company's assets and liabilities to fair market values, will
have a significant effect on the Company's future statements of income. The more
significant of these adjustments relate to reduced depreciation expense on
property and equipment, increased amortization expense relating to
reorganization value in excess of amounts allocable to identifiable assets and
increased interest expense.
-51-
<PAGE> 53
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The effects of the Plan and fresh start reporting on the balance sheet
at the Effective Date are as follows:
<TABLE>
<CAPTION>
PREDECESSOR REORGANIZED
COMPANY (a) (b) (c) COMPANY
----------- ------------
ISSUE OF
AUGUST 25, DEBT DEBT AND FRESH START AUGUST 25,
1994 DISCHARGE STOCK ADJUSTMENTS 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................. $ 156,401 $ (140,284) $ 205,956 $ -- $ 222,073
Accounts receivable, net ................... 77,682 -- 6,831 -- 84,513
Expendable spare parts and supplies ........ 27,715 -- -- (2,371) 25,344
Prepaid expenses ........................... 34,540 -- -- (885) 33,655
----------- ----------- ----------- ----------- -----------
Total current assets ......................... 296,338 (140,284) 212,787 (3,256) 365,585
Property and equipment, net .................. 702,442 -- -- (138,830) 563,612
Restricted cash .............................. 30,503 -- -- -- 30,503
Reorganization value in excess of amounts
allocable to identifiable assets ........... -- -- -- 668,702 668,702
Other assets, net ............................ 24,497 -- 1,575 (2,449) 23,623
----------- ----------- ----------- ----------- -----------
Total assets ................................. $ 1,053,780 $ (140,284) $ 214,362 $ 524,167 $ 1,652,025
=========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Current maturities of long-term debt ....... $ 119,185 $ (65,014) $ -- $ -- $ 54,171
Accounts payable ........................... 98,080 6,500 -- 969 105,549
Air traffic liability ...................... 153,808 -- -- -- 153,808
Accrued compensation and vacation benefits . 27,443 -- -- -- 27,443
Accrued interest ........................... 5,620 -- -- -- 5,620
Accrued taxes .............................. 26,613 14,405 -- -- 41,018
Other accrued liabilities .................. 29,161 -- -- -- 29,161
----------- ----------- ----------- ----------- -----------
Total current liabilities .................... 459,910 (44,109) -- 969 416,770
Estimated liabilities subject to Chapter 11
proceedings ................................ 382,769 (382,769) -- -- --
Long-term debt, less current maturities ...... 368,939 28,934 100,000 -- 497,873
Manufacturers' and deferred credits .......... 70,625 -- -- 51,530 122,155
Other liabilities ............................ 57,932 -- -- (30,205) 27,727
Stockholders' equity (deficiency)
Preferred stock ............................ 18 -- -- (18) --
Common stock, Predecessor Company .......... 6,432 -- -- (6,432) --
Common stock, Reorganized Company .......... -- -- 152 299 451
Additional paid in capital ................. 200,058 -- 114,710 272,281 587,049
Accumulated deficit ........................ (474,565) 257,660 (500) 217,405 --
----------- ----------- ----------- ----------- -----------
(268,057) 257,660 114,362 483,535 587,500
Deferred compensation and notes receivable -
employee stock purchase plans ............ 18,338 -- -- (18,338) --
----------- ----------- ----------- ----------- -----------
Total stockholders' equity (deficiency) ...... (286,395) 257,660 114,362 501,873 587,500
----------- ----------- ----------- ----------- -----------
Total liabilities and stockholders' equity
(deficiency) ............................... $ 1,053,780 $ (140,284) $ 214,362 $ 524,167 $ 1,652,025
=========== =========== =========== =========== ===========
</TABLE>
- ----------
(a) To record the discharge or reclassification of prepetition obligations
pursuant to the Plan of Reorganization, as well as the repayment in
cash of $77.6 million of D.I.P. financing and a $62.7 million priority
term loan.
(b) To record proceeds received from the issuance of new debt and equity
securities and to record the preferred stock settlement payment of
$500,000 and the receipt of approximately $1.1 million for the purchase
of Class B Common Stock.
-52-
<PAGE> 54
AMERICA WEST HOLDINGS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(c) To record adjustments to reflect assets and liabilities at fair market
values and to record reorganization value in excess of amounts
allocable to identifiable assets.
During the reorganization period, pursuant to SOP 90-7, prepetition
liabilities were reported on the basis of the expected amounts of such allowed
claims, as opposed to the amounts for which those allowed claims may be settled
and were classified as "Estimated liabilities subject to Chapter 11
proceedings." The accrual for interest on such unsecured or undersecured
liabilities was discontinued from the period June 27, 1991 to August 25, 1994,
the Effective Date of the Plan.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 are as follows
(in thousands of dollars except per share amounts):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996
- ----
Total operating revenues (a)....................................$ 413,150 $ 463,949 $ 422,518 $ 439,909
Operating income (loss) (b)..................................... 34,318 62,083 (53,143) 25,408
Nonoperating expense, net....................................... (8,898) (8,293) (8,377) (8,605)
Income tax (expense) benefit.................................... (11,693) (24,268) 15,813 (4,735)
Net income (loss)............................................... 13,727 28,417 (45,707) 12,068
Earnings (loss) per share:
Primary....................................................... .28 .58 (1.03) .27
Fully diluted................................................. .27 .58 (1.03) .26
</TABLE>
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
- ----
Total operating revenues........................................$ 345,790 $ 399,916 $ 408,627 $ 396,309
Operating income (c)............................................ 24,895 52,957 54,160 22,720
Nonoperating expense, net....................................... (13,927) (11,760) (11,047) (9,620)
Income tax expense.............................................. (5,758) (20,324) (20,414) (7,112)
Net income...................................................... 5,210 20,873 21,715 5,988
Earnings per share:
Primary....................................................... .12 .46 .46 .13
Fully diluted................................................. .12 .45 .45 .12
</TABLE>
- ---------------
(a) During the second quarter of 1996, operating revenues include an $8
million adjustment arising from the reconciliation of estimated
passenger revenues.
(b) During the third quarter of 1996, the Company recorded a nonrecurring
special charge of $65.1 million. (See Note 13, "Restructuring and Other
Nonrecurring Special Charges.")
(c) During the fourth quarter of 1995, the Company recorded restructuring
charge of $10.5 million to provide for employee severance and related
costs associated with the Company's outsourcing of its heavy aircraft
maintenance.
-53-
<PAGE> 55
ITEM 8B. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - AMERICA WEST
AIRLINES, INC.
Balance sheets of America West Airlines, Inc. as of December 31,
1996 and 1995, and the related statements of income, cash flows and
stockholder's equity for the years ended December 31, 1996 and 1995, the period
August 26, 1994 through December 31, 1994, and the period January 1, 1994
through August 25, 1994, together with the related notes and the report of KPMG
Peat Marwick LLP, independent certified public accountants, are set forth on the
following pages.
-54-
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
America West Airlines, Inc.:
We have audited the accompanying balance sheets of America West
Airlines, Inc. as of December 31, 1996 and 1995, and the related statements of
income, cash flows and stockholder's equity for the years ended December 31,
1996 and 1995, the period August 26, 1994 through December 31, 1994, and the
period January 1, 1994 through August 25, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of America West
Airlines, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years ended December 31, 1996 and 1995,
the period August 26, 1994 through December 31, 1994, and the period January 1,
1994 through August 25, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 13 to the financial statements, on August 25,
1994, America West Airlines, Inc. emerged from bankruptcy. The financial
statements of the Reorganized Company reflect the impact of adjustments to
reflect the fair value of assets and liabilities under fresh start reporting. As
a result, the financial statements of the Reorganized Company are presented on a
different basis of accounting than those of the Predecessor Company and,
therefore, are not comparable in all respects.
KPMG Peat Marwick LLP
Phoenix, Arizona
February 28, 1997
-55-
<PAGE> 57
AMERICA WEST AIRLINES, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................................... $ 137,499 $ 224,367
Short-term investments ........................................................ 39,131 --
Accounts receivable, less allowance for doubtful accounts of
$3,091 in 1996 and $2,515 in 1995 ........................................ 106,215 69,094
Expendable spare parts and supplies, less allowance for obsolescence
of $1,713 in 1996 and $2,115 in 1995 ..................................... 21,423 28,643
Prepaid expenses .............................................................. 47,545 43,315
---------- -----------
Total current assets ..................................................... 351,813 365,419
---------- -----------
Property and equipment:
Flight equipment .............................................................. 669,654 546,591
Other property and equipment .................................................. 107,993 104,106
Equipment purchase deposits ................................................... 56,665 27,489
---------- -----------
834,312 678,186
Less accumulated depreciation and amortization ................................ 163,718 76,123
---------- -----------
670,594 602,063
---------- -----------
Other assets:
Restricted cash ............................................................... 26,433 31,694
Reorganization value in excess of amounts allocable to identifiable assets, net 447,044 489,045
Deferred income taxes ......................................................... 74,700 74,700
Other assets, net ............................................................. 27,093 25,788
---------- -----------
575,270 621,227
---------- -----------
$1,597,677 $ 1,588,709
========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt .......................................... $ 46,238 $ 54,157
Accounts payable .............................................................. 115,458 89,157
Air traffic liability ......................................................... 214,056 191,744
Accrued compensation and vacation benefits .................................... 30,085 41,616
Accrued taxes ................................................................. 72,047 34,359
Other accrued liabilities ..................................................... 44,836 24,802
---------- -----------
Total current liabilities ................................................ 522,720 435,835
---------- -----------
Long-term debt, less current maturities ........................................... 330,148 373,964
Deferred credits and other liabilities ............................................ 122,029 129,438
Commitments and contingencies
Stockholder's equity:
Preferred stock, $.01 par value. Authorized 48,800,000 shares; no shares issued -- --
Class A common stock, $.01 par value. Authorized 1,200,000 shares; issued and
outstanding 1,200,000 shares in 1995 ..................................... -- 12
Class B common stock, $.01 par value. Authorized 1,000 shares; issued and
outstanding 1,000 shares in 1996; Authorized 100,000,000 shares;
issued and outstanding 44,141,330 shares in 1995 ......................... -- 441
Additional paid-in capital .................................................... 552,643 588,927
Retained earnings ............................................................. 70,137 61,632
---------- -----------
622,780 651,012
Less: cost of Class B common stock in treasury, 112,000 shares in 1995 ........ -- (1,540)
---------- -----------
Total stockholder's equity ........................................... 622,780 649,472
---------- -----------
$1,597,677 $ 1,588,709
========== ===========
</TABLE>
See accompanying notes to financial statements.
-56-
<PAGE> 58
AMERICA WEST AIRLINES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
| PREDECESSOR
REORGANIZED COMPANY | COMPANY
----------------------------------------------------------------
PERIOD FROM | PERIOD FROM
AUGUST 26 TO | JANUARY 1 TO
YEAR ENDED DECEMBER 31, DECEMBER 31, | AUGUST 25,
1996 1995 1994 | 1994
----------- ----------- --------- | ---------
<S> <C> <C> <C> | <C>
Operating revenues: |
Passenger ....................................... $ 1,637,762 $ 1,452,261 $ 437,775 | $ 882,140
Cargo ........................................... 46,519 44,425 16,648 | 27,645
Other ........................................... 55,245 53,956 15,343 | 29,243
----------- ----------- --------- | ---------
Total operating revenues .................... 1,739,526 1,550,642 469,766 | 939,028
----------- ----------- --------- | ---------
Operating expenses: |
Salaries and related costs ...................... 385,840 382,032 117,562 | 213,722
Aircraft rents .................................. 202,237 173,571 54,983 | 105,547
Other rents and landing fees .................... 111,947 108,264 35,839 | 68,163
Aircraft fuel ................................... 233,522 174,195 58,165 | 100,646
Agency commissions .............................. 133,015 124,146 37,265 | 78,988
Aircraft maintenance materials and repairs ...... 125,768 65,925 17,590 | 28,109
Depreciation and amortization ................... 52,937 49,083 15,538 | 56,694
Amortization of reorganization value in excess of |
amounts applicable to identifiable assets .... 25,263 31,958 11,145 | --
Restructuring and other nonrecurring |
special charges .............................. 65,098 10,500 -- | --
Other ........................................... 335,233 276,236 82,808 | 179,653
----------- ----------- --------- | ---------
Total operating expenses .................. 1,670,860 1,395,910 430,895 | 831,522
----------- ----------- --------- | ---------
|
Operating income .................................... 68,666 154,732 38,871 | 107,506
----------- ----------- --------- | ---------
|
Nonoperating income (expenses): |
Interest income ................................. 12,861 15,045 3,834 | 470
Interest expense (contractual interest of $44,747 |
for the period ended August 25, 1994) ........ (46,866) (58,598) (22,636) | (33,998)
Gain (loss) on disposition of property and |
equipment ................................... 1,288 (2,734) (398) | (1,659)
Reorganization expense, net ..................... -- -- -- | (273,659)
Other, net ...................................... (1,456) (67) 65 | 131
----------- ----------- --------- | ---------
Total nonoperating expenses, net .......... (34,173) (46,354) (19,135) | (308,715)
----------- ----------- --------- | ---------
|
Income (loss) before income taxes and |
extraordinary items ................... 34,493 108,378 19,736 | (201,209)
Income taxes ........................................ 24,883 53,608 11,890 | 2,059
----------- ----------- --------- | ---------
Income (loss) before extraordinary items .. 9,610 54,770 7,846 | (203,268)
Extraordinary items, net of tax ..................... (1,105) (984) -- | 257,660
----------- ----------- --------- | ---------
Net income ................................ $ 8,505 $ 53,786 $ 7,846 | $ 54,392
=========== =========== ========= | =========
</TABLE>
See accompanying notes to financial statements.
-57-
<PAGE> 59
AMERICA WEST AIRLINES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED COMPANY | PREDECESSOR
| COMPANY
-------------------------------------------------------------
PERIOD FROM | PERIOD FROM
AUGUST 26 TO | JANUARY 1 TO
YEAR ENDED DECEMBER 31, DECEMBER 31, | AUGUST 25,
1996 1995 1994 | 1994
--------- --------- --------- | ---------
<S> <C> <C> <C> | <C>
Cash flows from operating activities: |
Net income ...................................................... $ 8,505 $ 53,786 $ 7,846 | $ 54,392
Adjustments to reconcile net income to net cash provided by |
(used in) operating activities: |
Depreciation and amortization ................................ 52,937 49,083 15,538 | 56,694
Amortization of capitalized maintenance ..................... 39,679 11,934 356 | --
Amortization of reorganization value ......................... 25,263 31,958 11,145 | --
Income taxes attributable to reorganization items and other .. 23,091 52,913 11,854 | --
Amortization of deferred credits ............................. (11,563) (10,952) (3,961) | (2,966)
Nonrecurring special charge .................................. 65,098 -- -- | --
Reorganization items ......................................... -- -- -- | 185,226
Extraordinary items .......................................... 1,105 984 -- | (257,660)
Other ........................................................ 2,099 7,199 1,576 | 1,276
Changes in operating assets and liabilities: |
Decrease (increase) in accounts receivable, net ................. (37,121) (11,172) 27,439 | (18,769)
Decrease (increase) in expendable spare parts and supplies, net . (3,793) (4,819) 1,165 | 397
Decrease (increase) in prepaid expenses ......................... (1,467) (14,031) 4,371 | 1,284
Decrease (increase) in other assets, net ........................ (3,173) (7,312) (10,635) | 12,971
Increase (decrease) in accounts payable ......................... 26,301 10,308 (17,289) | (15,557)
Increase (decrease) in air traffic liability .................... 22,312 64,388 (26,452) | 30,510
Increase (decrease) in accrued compensation and vacation benefits (11,531) 25,840 (11,667) | 15,739
Increase (decrease) in accrued taxes ............................ 37,688 7,298 (2,104) | 25,999
Increase (decrease) in other accrued liabilities ................ 8,315 (663) (13,785) | 67,429
Increase (decrease) in other liabilities ........................ (13,411) (6,314) 2,521 | (14,749)
--------- --------- --------- | ---------
Net cash provided by (used in) operating activities .......... 230,334 260,428 (2,082) | 142,216
--------- --------- --------- | ---------
Cash flows from investing activities: |
Purchases of property and equipment ............................. (155,742) (107,387) (14,658) | (61,271)
Increase in short-term investments .............................. (39,131) -- -- | --
Other ........................................................... (4,082) (9) 600 | 334
--------- --------- --------- | ---------
Net cash used in investing activities ........................ (198,955) (107,396) (14,058) | (60,937)
--------- --------- --------- | ---------
Cash flows from financing activities: |
Proceeds from issuance of debt .................................. -- 29,300 -- | 100,000
Repayment of debt ............................................... (79,216) (137,421) (23,355) | (173,699)
Issuance of common stock ........................................ 3,074 1,545 3 | 114,862
Debt issuance cost .............................................. -- (3,130) -- | --
Acquisition of treasury stock ................................... (23,964) (1,540) -- | --
Acquisition of warrants ......................................... (18,141) -- -- | --
--------- --------- --------- | ---------
Net cash provided by (used in) financing activities .......... (118,247) (111,246) (23,352) | 41,163
--------- --------- --------- | ---------
Net increase (decrease) in cash and cash equivalents ......... (86,868) 41,786 (39,492) | 122,442
--------- --------- --------- | ---------
Cash and cash equivalents at beginning of period ................... 224,367 182,581 222,073 | 99,631
--------- --------- --------- | ---------
Cash and cash equivalents at end of period ......................... $ 137,499 $ 224,367 $ 182,581 | $ 222,073
========= ========= ========= | =========
Cash, cash equivalents and short-term investments at end of period . $ 176,630 $ 224,367 $ 182,581 | $ 222,073
========= ========= ========= | =========
</TABLE>
See accompanying notes to financial statements.
-58-
<PAGE> 60
AMERICA WEST AIRLINES, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995, THE PERIOD AUGUST 26 THROUGH
DECEMBER 31, 1994, AND THE PERIOD JANUARY 1 THROUGH AUGUST 25, 1994
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE CLASS A CLASS B ADDITIONAL
PREFERRED COMMON COMMON COMMON PAID-IN
STOCK STOCK STOCK STOCK CAPITAL
----------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 .......................... $ 18 $-- $-- $ 6,323 $ 197,010
--------- ---- ----- ------- ---------
Issuance of 336,277 shares of common stock
pursuant to convertible preferred stock
dividends ...................................... -- -- -- 84 2,932
Employee stock purchase plan:
Cancellation of 7,678 shares of common stock at:
$1.19-$4.03 per share ....................... -- -- -- (2) (49)
Deferred compensation ....................... -- -- -- -- (1)
Issuance of 108,825 shares of common stock
pursuant to exercise of stock options .......... -- -- -- 27 166
Net income .......................................... -- -- -- -- --
Eliminate predecessor equity accounts in
connection with fresh start .................... (18) -- -- (6,432) (200,058)
Eliminate employee stock receivable ................. -- -- -- -- --
Record excess of reorganization value over
identifiable assets ............................ -- -- -- -- --
Sale of 1,200,000 shares of Class A common
stock and 14,000,000 shares of Class B
common stock ................................... -- 12 140 -- 114,710
Issuance of 29,925,000 shares of new Class B
common stock ................................... -- -- 299 -- 472,339
--------- ---- ----- ------- ---------
BALANCE AT AUGUST 25, 1994 .......................... -- 12 439 -- 587,049
--------- ---- ----- ------- ---------
Issuance of common stock ............................ -- -- -- -- 100
Net income .......................................... -- -- -- -- --
--------- ---- ----- ------- ---------
BALANCE AT DECEMBER 31, 1994 ........................ -- 12 439 -- 587,149
--------- ---- ----- ------- ---------
Issuance of 4,057 shares and 170,667 shares of
common stock pursuant to the exercise of
stock warrants and stock options ............... -- -- 2 -- 1,543
Issuance of 30,334 shares of restricted stock ....... -- -- -- -- 235
Acquisition of 112,000 shares of treasury
stock at:
$13.63-$14.00 per share ........................ -- -- -- -- --
Net income .......................................... -- -- -- -- --
--------- ---- ----- ------- ---------
BALANCE AT DECEMBER 31, 1995 ........................ -- 12 441 -- 588,927
--------- ---- ----- ------- ---------
Issuance of 12,725 shares and 314,001 shares of
common stock pursuant to the exercise of
stock warrants and stock options ............... -- -- 3 -- 3,071
Issuance of 158,000 shares of restricted stock ...... -- -- 2 -- 2,761
Acquisition and issuance of treasury
stock at:
$13.63-$21.88 per share ........................ -- -- -- -- 649
Repurchase of 2,187,475 warrants at $8.29
per warrant .................................... -- -- -- -- (18,141)
Net income .......................................... -- -- -- -- --
Purchase of stock option from Holdings .............. -- -- -- -- (62,373)
Contribution of capital by Holdings ................. -- -- -- -- 62,400
Reorganization as wholly- owned subsidiary of
Holdings ....................................... -- (12) (446) -- (24,651)
--------- ---- ----- ------- ---------
BALANCE AT DECEMBER 31, 1996 ........................ $ -- $-- $-- $ -- $ 552,643
========= ==== ===== ======= =========
</TABLE>
<TABLE>
<CAPTION>
DEFERRED
COMPENSATION
AND NOTES
RETAINED CLASS B RECEIVABLE-
EARNINGS/ TREASURY EMPLOYEE STOCK
(DEFICIT) STOCK PURCHASE PLANS TOTAL
----------- ----------- -------------- ---------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994 .......................... $(438,626) $ -- $(18,987) $(254,262)
--------- -------- -------- ---------
Issuance of 336,277 shares of common stock
pursuant to convertible preferred stock
dividends ...................................... -- -- -- 3,016
Employee stock purchase plan:
Cancellation of 7,678 shares of common stock at:
$1.19-$4.03 per share ....................... -- -- 43 (8)
Deferred compensation ....................... -- -- 606 605
Issuance of 108,825 shares of common stock
pursuant to exercise of stock options .......... -- -- -- 193
Net income .......................................... 54,392 -- -- 54,392
Eliminate predecessor equity accounts in
connection with fresh start .................... 206,508 -- -- --
Eliminate employee stock receivable ................. (18,338) -- 18,338 --
Record excess of reorganization value over
identifiable assets ............................ 668,702 -- -- 668,702
Sale of 1,200,000 shares of Class A common
stock and 14,000,000 shares of Class B
common stock ................................... -- -- -- 114,862
Issuance of 29,925,000 shares of new Class B
common stock ................................... (472,638) -- -- --
--------- -------- -------- ---------
BALANCE AT AUGUST 25, 1994 .......................... -- -- -- 587,500
--------- -------- -------- ---------
Issuance of common stock ............................ -- -- -- 100
Net income .......................................... 7,846 -- -- 7,846
--------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1994 ........................ 7,846 -- -- 595,446
--------- -------- -------- ---------
Issuance of 4,057 shares and 170,667 shares of
common stock pursuant to the exercise of
stock warrants and stock options ............... -- -- -- 1,545
Issuance of 30,334 shares of restricted stock ....... -- -- -- 235
Acquisition of 112,000 shares of treasury
stock at:
$13.63-$14.00 per share ........................ -- (1,540) -- (1,540)
Net income .......................................... 53,786 -- -- 53,786
--------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1995 ........................ 61,632 (1,540) -- 649,472
--------- -------- -------- ---------
Issuance of 12,725 shares and 314,001 shares of
common stock pursuant to the exercise of
stock warrants and stock options ............... -- -- -- 3,074
Issuance of 158,000 shares of restricted stock ...... -- -- -- 2,763
Acquisition and issuance of treasury
stock at:
$13.63-$21.88 per share ........................ -- (23,569) -- (22,920)
Repurchase of 2,187,475 warrants at $8.29
per warrant .................................... -- -- -- (18,141)
Net income .......................................... 8,505 -- -- 8,505
Purchase of stock option from Holdings .............. -- -- -- (62,373)
Contribution of capital by Holdings ................. -- -- -- 62,400
Reorganization as wholly- owned subsidiary of
Holdings ....................................... -- 25,109 -- --
--------- -------- -------- ---------
BALANCE AT DECEMBER 31, 1996 ........................ $ 70,137 $ -- $ -- $ 622,780
========= ======== ======== =========
</TABLE>
See accompanying notes to financial statements.
-59-
<PAGE> 61
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
America West Holdings Corporation ("Holdings"), a Delaware
corporation, became the holding company for America West Airlines, Inc. ("AWA"
or the "Company"), effective midnight, December 31, 1996. Holdings' primary
business activity is ownership of all the capital stock of AWA, the ninth
largest commercial airline carrier in the United States serving more than 90
destinations in the U.S., Canada and Mexico.
(a) Basis of Presentation
The accompanying financial statements include the accounts of
America West Airlines, Inc., a wholly-owned subsidiary of Holdings. America West
Airlines, Inc., D.I.P. (the "Predecessor Company") filed a voluntary petition on
June 27, 1991, to reorganize under Chapter 11 of the Federal Bankruptcy Code. On
August 10, 1994, the Plan of Reorganization ("Plan"), filed by the Predecessor
Company, was confirmed and became effective on August 25, 1994 (the "Effective
Date"). On August 25, 1994, AWA, (the "Reorganized Company") adopted fresh start
reporting in accordance with Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code" ("SOP 90-7") of the
American Institute of Certified Public Accountants. Accordingly, the Company's
post-reorganization balance sheet and statements of income have not been
prepared on a consistent basis with such pre-reorganization financial statements
and are not comparable in all respects to financial statements prior to
reorganization. For accounting purposes, the inception date of the Reorganized
Company is deemed to be August 26, 1994. A vertical black line is shown in the
financial statements to separate the Reorganized Company from the Predecessor
Company since they have not been prepared on a consistent basis of accounting.
(b) Cash and Cash Equivalents
Cash equivalents consist of all highly liquid debt instruments
purchased with original maturities of three months or less. The debt instruments
are classified as held-to-maturity and are carried at amortized cost which
approximates fair value. (See Note 8, "Investments in Debt Securities.")
(c) Short-term Investments
Short-term investments consist of cash invested in certain debt
securities with original maturities greater than 90 days. The debt securities
are classified as held to maturity and are carried at amortized cost which
approximates fair value. (See Note 8, "Investments in Debt Securities.")
(d) Expendable Spare Parts and Supplies
Flight equipment expendable spare parts and supplies are valued at
average cost. Allowances for obsolescence are provided, over the estimated
useful life of the related aircraft and engines, for spare parts expected to be
on hand at the date the aircraft are retired from service.
(e) Property and Equipment
Property and equipment are recorded at cost. Interest capitalized on
advance payments for aircraft acquisitions and on expenditures for aircraft
improvements are part of these costs. No interest was capitalized in the year
ended December 31, 1996 due to the pending restructuring of the aircraft
purchase agreement with AVSA S.A.R.L., an affiliate of Airbus Industrie ("AVSA")
(See Note 10, "Commitments and Contingencies"). Interest capitalized for the
year ended December 31, 1995 was $2.7 million. Property and equipment is
depreciated and amortized to residual values over the estimated useful lives or
the lease term, whichever is less, using the straight-line method.
-60-
<PAGE> 62
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
The estimated useful lives for the Company's ground property and
equipment range from three to 12 years for owned property and equipment and to
30 years for the reservation and training center and technical support
facilities. The estimated useful lives of the Company's owned aircraft, jet
engines, flight equipment and rotable parts range from 11 to 22 years. Leasehold
improvements relating to flight equipment and other property on operating leases
are amortized over the life of the lease or the life of the asset, whichever is
shorter.
(f) Restricted Cash
Restricted cash includes cash deposits securing certain letters of
credit.
(g) Aircraft Maintenance and Repairs
Routine maintenance and repairs are charged to expense as incurred.
The cost of major scheduled airframe, engine and certain component overhauls are
capitalized and amortized over the periods benefited and are included in
aircraft maintenance materials and repairs expense for the Reorganized Company
as part of fresh start reporting and in depreciation and amortization expense
for the Predecessor Company. The balance of capitalized maintenance relating to
aircraft and engines was reduced as part of the revaluation of property and
equipment and operating leases under fresh start reporting.
Additionally, a provision for the estimated cost of scheduled
airframe and engine overhauls required to be performed on leased aircraft prior
to their return to the lessors has been recorded.
(h) Reorganization Value in Excess of Amounts Allocable to Identifiable
Assets
Reorganization value in excess of amounts allocable to identifiable
assets is amortized on a straight line basis over 20 years. Accumulated
amortization at December 31, 1996 and 1995 was $68.4 million and $43.1 million,
respectively. During the years ended December 31, 1996 and 1995, reductions in
reorganization value of $16.7 million and $50 million were recorded as a result
of the utilization of the Predecessor Company tax attributes including net
operating loss carryforwards. Additionally, in 1995 the Company established a
deferred tax asset, which reduced reorganization value by $74.7 million. The
Company assesses the recoverability of this asset based upon expected future
undiscounted cash flows and other relevant information.
(i) Frequent Flyer Awards
The Company maintains a frequent travel award program known as
"FlightFund" that provides a variety of awards to program members based on
accumulated mileage. The estimated cost of providing the free travel, using the
incremental cost method as adjusted for estimated redemption rates, is
recognized as a liability and charged to operations as program members
accumulate mileage.
(j) Deferred Credit-Operating Leases
Operating leases were adjusted to fair market value at the Effective
Date. The net present value of the difference between the stated lease rates and
the fair market rates has been recorded as a deferred credit in the accompanying
balance sheets. The deferred credit will be increased through charges to
interest expense and decreased on a straight-line basis as a reduction in rent
expense over the applicable lease periods. At December 31, 1996 and 1995, the
unamortized balance of the deferred credit was $95.6 million and $107.2 million,
respectively.
-61-
<PAGE> 63
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(k) Passenger Revenue
Passenger revenue is recognized when the transportation is provided.
Ticket sales for transportation which has not yet been provided are recorded as
air traffic liability. Passenger traffic commissions and related fees are
expensed when the related revenue is recognized. Passenger traffic commissions
and related fees not yet recognized are included as a prepaid expense.
(l) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(m) Use of Estimates
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(n) Advertising Costs
The Company expenses the costs of advertising as incurred.
Advertising expense for the years ended December 31, 1996, 1995 and for the
combined period ending December 31, 1994 was $26.6 million, $25.2 million and
$23.8 million, respectively.
(o) Reclassification
Certain reclassifications have been made in the prior year's
financial statements to conform them to the current presentation.
-62-
<PAGE> 64
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
2. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
SECURED
Notes payable, primarily fixed interest rates of 9.53% to 10.79%, averaging 10.32%,
installments due 1999 through 2008 ............................................... $234,494 $274,751
Borrowings under lines of credit, floating interest rates of Prime + 1% to three months
LIBOR +4%, averaging 9.42%, installments due through 1999. No available
borrowings remain ................................................................ 8,277 14,794
Industrial development revenue bonds, variable interest rate of 2.9% to 5.6%, averaging
3.83%, due 2016(a) ............................................................... 29,300 29,300
-------- --------
272,071 318,845
-------- --------
UNSECURED
10 3/4% Senior Notes, face amount of $50 million, interest only payment until
due in 2005(b) ................................................................... 48,197 71,984
Notes payable, interest rates of 8% to 90-day LIBOR +3%, averaging 8.39%,
installments due through 2000 .................................................... 55,910 36,708
Other ................................................................................. 208 584
-------- --------
104,315 109,276
-------- --------
Total long-term debt .................................................................. 376,386 428,121
Less: current maturities ............................................................. 46,238 54,157
-------- --------
$330,148 $373,964
======== ========
</TABLE>
(a) The industrial development revenue bonds are backed by an
irrevocable direct pay letter of credit issued by the Industrial
Bank of Japan, Limited, Los Angeles Agency; the letter of credit is
secured by the Company's maintenance facility and related
improvements, seventeen spare engines and a flight simulator with a
combined net book value of $42.1 million and a pledge of $3.2
million in cash.
The interest rate varies weekly and from January 1, 1996 to December
31, 1996 ranged from 2.9% to 5.6%. The bondholders have the right to
put the bonds back to the Company on a weekly basis if the bonds
bear interest at the weekly rate or monthly if the bonds bear
interest at a monthly rate. If the bonds are put back to the
Company, the remarketing agent or the transfer agent will, at the
direction of the Company, remarket such bonds. Any bonds not
remarketed will be retired utilizing the $29.9 million letter of
credit which represents the principal plus 60 days of interest at a
maximum rate of 12%. The letter of credit was extended in November
1996 for one year and is subject to mandatory redemption under
certain circumstances. The estimated annual cost for the letter of
credit is approximately $1.1 million.
(b) In June 1996, the Company prepaid $25 million in principal of the
10 3/4% Senior Notes. The 10 3/4% Senior Notes mature on September
1, 2005 and interest is payable in arrears semi-annually commencing
on March 1, 1996. The 10 3/4% Senior Notes may be redeemed at the
option of the Company on or after September 1, 2001 at any time in
whole or from time to time in part, at a redemption price equal to
the following percentage of principal redeemed, plus accrued and
unpaid interest to the date of redemption, if redeemed during the
12-month period beginning:
-63-
<PAGE> 65
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
SEPTEMBER 1, PERCENTAGE
- ------------ ----------
<C> <C>
2000.................................................... 105.375%
2001.................................................... 103.583%
2002.................................................... 101.792%
2003 and thereafter..................................... 100.000%
</TABLE>
Secured financings totaling $272.1 million are collateralized by
assets, primarily aircraft and engines, with a net book value of $388.5 million
at December 31, 1996.
At December 31, 1996, the estimated maturities of long-term debt are
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<C> <C>
1997....................................................... $ 46,238
1998....................................................... 43,210
1999....................................................... 70,430
2000....................................................... 28,000
2001....................................................... 20,720
Thereafter................................................. 167,788
-------------
$ 376,386
=============
</TABLE>
Certain of the Company's long-term debt agreements contain minimum
cash balance requirements, leverage ratios, coverage ratios, limitations on
investments and restricted payments including cash dividends, and other
financial covenants with which the Company was in compliance at December 31,
1996.
3. CAPITAL STOCK
Effective midnight, December 31, 1996, AWA became a wholly owned
subsidiary of Holdings and each share of AWA Class A and Class B Common Stock
and options to purchase Class B Common Stock were exchanged for one share of
Holdings Class A or Class B Common Stock and options to purchase Class B Common
Stock. Holdings' Class B Common Stock is listed on the New York Stock Exchange.
On August 25, 1994, AWA issued approximately 10.4 million warrants
to purchase Class B Common Stock with an exercise price of $12.74 per share. The
warrants are exercisable by the holders any time before August 25, 1999 and 10.4
million shares of Class B Common Stock have been reserved for the exercise of
these warrants. In May 1996, approximately 2.2 million warrants were repurchased
by AWA for approximately $18 million. As of December 31, 1996, 17,054 warrants
have been exercised at $12.74 per share. Pursuant to their terms, as part of the
holding company formation transaction the AWA warrants became rights to acquire
shares of Holdings Class B Common Stock. AWA has made arrangements for the
issuance of Holdings Class B Common Stock upon the exercise of such warrants by
purchasing an option from Holdings to acquire such stock. AWA issued a $62.4
million note payable due December 31, 2005 with an interest rate of 11%.
Subsequently, Holdings made a capital contribution to AWA issuing a
note payable to AWA for $62.4 million due December 31, 2045 with an interest
rate of 10 7/8%. AWA has the right on December 31, 2005 to repay all or a
portion of the then outstanding principal balance of its note payable by
offsetting by an equal amount the then outstanding principal balance of its note
receivable and thus, these notes have been offset in the accompanying financial
statements in accordance with applicable accounting standards.
-64-
<PAGE> 66
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
4. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution plan, covering
essentially all employees of the Company. Participants may contribute from 1 to
15% of their pretax earnings to a maximum of $9,500 in 1996. The Company's
matching contribution is 50% of a participant's contributions up to 6% of the
participant's annual pretax earnings or 25% of a participant's contributions,
whichever is greater. The Company's contribution expense to the plan totaled
$5.9 million, $5.9 million and $3.8 million in 1996, 1995 and the combined 1994
period, respectively.
5. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(a) Fair Value of Financial Instruments
Cash Equivalents and Short-term Investments
The carrying amount approximates fair value because of the
short-term maturity of these instruments.
Long-term Debt
At December 31, 1996 and 1995, the fair value of long-term debt was
approximately $379 million and $431 million, respectively, based on quoted
market prices for the same or similar debt including debt of comparable
remaining maturities.
(b) Fuel Price Risk Management
The Company is exposed to risk from fluctuating jet fuel prices. To
manage this risk, the Company implemented a fuel hedging program in late 1996.
Oversight of this program is the responsibility of the Fuel Hedge Committee
("FHC"), a group of the Company's senior officers, which sets acceptable levels
of risk and reviews hedging activities. Under the program, the Company may enter
into certain cap and swap transactions with approved counterparties for a period
not to exceed twelve months. Gains and losses on such transactions are recorded
as adjustments to fuel expense when the underlying fuel being hedged is used. As
of December 31, 1996, there were no transactions outstanding.
The Company is exposed to credit risks in the event any counterparty
fails to meet its obligations. The Company does not anticipate such
non-performance as counterparties are selected based on credit ratings, exposure
to any one counterparty is limited based on formal guidelines and the relative
market positions with such counterparty are monitored by the FHC.
(c) Concentration of Credit Risk
The Company does not believe it is subject to any significant
concentration of credit risk. Most of the Company's receivables result from
tickets sold to individual passengers through the use of major credit cards or
to tickets sold by other airlines and used by passengers on AWA. These
receivables are short-term, generally being settled shortly after the sale.
-65-
<PAGE> 67
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. INCOME TAXES
The Company recorded income tax expense for the periods shown below
(exclusive of extraordinary items) as follows:
<TABLE>
<CAPTION>
| PREDECESSOR
REORGANIZED COMPANY | COMPANY
---------------------------------------- | ------------
PERIOD FROM | PERIOD FROM
AUGUST 26 TO | JANUARY 1 TO
YEAR ENDED DECEMBER 31, DECEMBER 31, | AUGUST 25,
1996 1995 1994 | 1994
------- ------ ------------ | ------------
(IN THOUSANDS) |
<S> <C> <C> <C> | <C>
Current Taxes: |
Federal ...................... $ 943 $ 505 $ -- | $1,869
State ........................ 849 190 36 | 190
------- ------- ------- | ------
Total current taxes .. 1,792 695 36 | 2,059
------- ------- ------- | ------
Deferred taxes ................... -- -- -- | --
------- ------- ------- | ------
Income taxes attributable to |
reorganization items and other 23,091 52,913 11,854 | --
------- ------- ------- | ------
Total income tax expense ......... $24,883 $53,608 $11,890 | $2,059
======= ======= ======= | ======
</TABLE>
With respect to the years ended December 31, 1996 and 1995 and the
period August 26, 1994 through December 31, 1994, income tax expense pertains
both to income before extraordinary items as well as certain adjustments
necessitated by the effectiveness of the Plan and the resultant fresh start
adjustments to the Company's financial statements. The Company's reorganization
and the associated implementation of fresh start reporting gave rise to
significant items of expense for financial reporting purposes that are not
deductible for income tax purposes. In large measure, it is these nondeductible
(for income tax purposes) expenses that result in an effective tax rate (for
financial reporting purposes) significantly greater than the current U.S.
corporate statutory rate of 35%. Nevertheless, the Company's actual cash income
tax liability (i.e., income taxes payable) is considerably lower than income tax
expense shown for financial reporting purposes. This difference in financial
expense compared to actual income tax liability is in part attributable to the
utilization of certain tax attributes of the Predecessor Company that serve to
reduce the Company's actual income tax liability. The excess of financial
expense over the Company's actual income tax liability ($16.7 million for 1996)
is applied to reduce the carrying balance of the Company's reorganization value
in excess of amounts allocable to identifiable assets.
For the years ended December 31, 1996 and 1995, the Company
recognized income tax benefit of $918,000 and $984,000, respectively, arising
from extraordinary charges. For the periods January 1, 1994 through August 25,
1994 and August 26 through December 31, 1994, income tax expense pertains solely
to income before extraordinary item. No income tax expense was recognized with
respect to the extraordinary gain resulting from the cancellation of
indebtedness that occurred in connection with the effectiveness of the Plan as
such gain is not subject to income taxation.
Income tax expense, exclusive of extraordinary items, recorded for
the periods shown below, differs from amounts computed at the federal statutory
income tax rate as follows:
-66-
<PAGE> 68
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
| PREDECESSOR
REORGANIZED COMPANY | COMPANY
------------------------------------ | -----------
PERIOD FROM | PERIOD FROM
AUGUST 26 TO | JANUARY 1 TO
YEAR ENDED DECEMBER 31, DECEMBER 31, | AUGUST 25,
1996 1995 1994 | 1994
------- ------ ----------- | -----------
(IN THOUSANDS) |
<S> <C> <C> <C> | <C>
Income tax expense at U.S. statutory rate .. $12,073 $ 37,932 $ 6,908 | $ 19,758
State income taxes, net of federal income |
tax benefit ............................ 1,984 4,505 1,663 | 190
Nondeductible amortization of reorganization |
value in excess of amounts allocable |
to identifiable assets ................. 8,842 11,188 3,901 | --
Benefit of loss carryforwards .............. -- -- -- | (17,889)
Other, net ................................. 1,984 (17) (582) | --
------- -------- -------- | --------
Total .................................. $24,883 $ 53,608 $ 11,890 | $ 2,059
======= ======== ======== | ========
</TABLE>
As of December 31, 1996, the Company has available net operating
loss, business tax credit and alternative minimum tax credit carryforwards for
Federal income tax purposes of approximately $498.7 million, $12.7 million and
$1.2 million, respectively. The net operating loss carryforwards expire during
the years 1999 through 2009 while the business credit carryforwards expire
during the years 1997 through 2006. However, such carryforwards are not fully
available to offset federal (and in certain circumstances, state) alternative
minimum taxable income. Further, as a result of a statutory "ownership change"
(as defined for purposes of Section 382 of the Internal Revenue Code) that
occurred as a result of the effectiveness of the Company's Plan of
Reorganization, the Company's ability to utilize its net operating loss and
business tax credit carryforwards may be restricted. The alternative minimum tax
credit may be carried forward without expiration and is available to offset
future income tax payable.
Composition of Deferred Tax Items:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. As of December
31, the significant components of the Company's deferred tax assets and
liabilities are a result of the temporary differences related to the items
described as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities:
Property and equipment, principally depreciation and "fresh start"
differences .................................................... $(111,989) $ (89,766)
--------- ---------
Deferred tax assets:
Aircraft leases ................................................... 32,789 39,812
Reorganization expenses ........................................... 21,356 23,591
Net operating loss carryforwards .................................. 190,548 203,879
Tax credit carryforwards .......................................... 13,861 13,777
Other ............................................................. 16,568 14,240
--------- ---------
Total deferred tax assets ..................................... 275,122 295,299
--------- ---------
Valuation allowance .................................................... (88,433) (130,833)
--------- ---------
Net deferred tax asset ........................................... $ 74,700 $ 74,700
========= =========
</TABLE>
-67-
<PAGE> 69
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SFAS 109 requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. In 1996 the Company
reduced the valuation allowance by $42.4 million from its 1995 balance
principally for the portion of its net operating loss carryforwards (a
Predecessor Company tax attribute) that it anticipates will, more likely than
not, be utilized. The remaining valuation allowance of $88.4 million is
necessary as at this time, the Company has not determined it is more likely than
not that the balance of the deferred tax assets will be realized. The Company
continues to monitor the valuation allowance and will make adjustments as
appropriate. If in future tax periods, the Company were to recognize additional
tax benefits related to items attributable to the Predecessor Company such as
net operating loss and other carryforwards, such benefits would be applied to
further reduce reorganization value in excess of amounts allocable to
identifiable assets.
7. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information and non-cash
investing and financing activities were as follows:
<TABLE>
<CAPTION>
| PREDECESSOR
REORGANIZED COMPANY | COMPANY
------------------------------------- | -----------
PERIOD FROM | PERIOD FROM
AUGUST 26 TO | JANUARY 1 TO
YEAR ENDED DECEMBER 31, DECEMBER 31, | AUGUST 25,
1996 1995 1994 | 1994
------- ------ ----------- | -----------
(IN THOUSANDS) |
<S> <C> <C> <C> | <C>
Non-cash transactions: |
Notes payable issued to seller ................................... $26,112 $ 5,723 $ -- | $ --
Accrued interest reclassified to |
long-term debt ........................................... -- 65 -- | 5,563
Issuance of stock as success bonus ............................... -- -- -- | 1,224
Equipment acquired through capital leases ........................ -- -- -- | 138
|
Cash transactions: |
Interest paid, net of amounts capitalized ........................ 37,555 50,293 11,262 | 29,253
Income taxes paid ................................................ 498 795 425 | 1,253
</TABLE>
Cash flows from reorganization items in connection with the Chapter 11
proceedings included interest received on cash accumulations of $3.7 million and
professional fees paid for services rendered of $23.6 million.
8. INVESTMENTS IN DEBT SECURITIES
Cash equivalents and short-term investments consist of highly liquid
debt instruments with original maturities of three months or less while
short-term investments consists of highly liquid debt instruments with original
maturities in excess of three months. The highly liquid debt instruments as of
December 31 are classified as follows:
-68-
<PAGE> 70
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Held to Maturity:
Debt securities issued by the U.S. Treasury and other U.S. government agencies $ 36,973 $129,288
Bankers acceptances .......................................................... 49,141 37,686
Corporate debt securities .................................................... 90,418 20,466
Other debt securities ........................................................ 98 1,341
-------- --------
176,630 188,781
Cash ......................................................................... -- 35,586
-------- --------
Total cash, cash equivalents and short-term investments ........... $176,630 $224,367
======== ========
</TABLE>
9. EXTRAORDINARY GAINS AND LOSSES
In June 1996, the Company had an extraordinary loss of $1.1 million
net of an income tax benefit of $918,000 for the write-off of debt issuance cost
relating to the prepayment of $25 million of its 10 3/4% Senior Notes. In August
1995, the Company had an extraordinary loss of $984,000, net of a tax benefit of
$984,000 for the write-off of debt issuance cost relating to the prepayment of
$48 million of its $123 million 11 1/4% Senior Notes and the exchange of the
remaining $75 million of such notes for $75 million of 10 3/4% Senior Notes.
The extraordinary gain recorded in the period January 1 through
August 25, 1994 includes $257.7 million from the discharge of indebtedness
pursuant to the consummation of the Plan of Reorganization. No income tax
expense was recognized with respect to the extraordinary gain resulting from the
cancellation of indebtedness that occurred in connection with the effectiveness
of the Plan as such gain is not subject to income taxation.
10. COMMITMENTS AND CONTINGENCIES
(a) Leases
As of December 31, 1996, the Company had 82 aircraft under operating
leases with remaining terms ranging from five months to approximately 22 years.
The Company has options to purchase certain of the aircraft at fair market
values at the end of the lease terms. Certain of the Company's aircraft lessors
have the option to call their respective aircraft. Usually, if such call options
are exercised, the Company has the right of first refusal to retain the
aircraft. None of these options have been exercised and the last of these call
options expires in July 1997. The Company does not believe that the possible
exercise of any or all of these options will have a material effect on its
operations. Certain of the agreements require security deposits, minimum return
provisions and maintenance reserve payments and provide the aircraft lessor the
option to reset their respective rentals to the greater of the existing rentals
being paid under the leases or the then current fair market rates. The Company
also leases certain terminal space, ground facilities and computer and other
equipment under noncancelable operating leases.
At December 31, 1996, the scheduled future minimum cash rental
payments under noncancelable operating leases with initial terms of more than
one year are as follows:
<TABLE>
(IN THOUSANDS)
<C> <C>
1997........................................................ $ 237,545
1998........................................................ 201,575
1999........................................................ 188,575
2000........................................................ 176,186
2001........................................................ 154,127
Thereafter.................................................. 920,002
----------------
$ 1,878,010
================
</TABLE>
-69-
<PAGE> 71
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Rent expense (excluding landing fees) was approximately $281
million, $251 million, $81 million and $154 million for the years ended December
31, 1996 and 1995, for the period August 26 through December 31, 1994, and the
period January 1 through August 25, 1994, respectively.
Collectively, the operating lease agreements require security
deposits with lessors of $9.7 million and bank letters of credit of $17.6
million. The letters of credit are collateralized by $17.6 million of restricted
cash as of December 31, 1996 and 1995.
(b) Revenue Bonds
Special facility revenue bonds issued by a municipality have been
used to fund the acquisition of leasehold improvements at the Phoenix Sky Harbor
airport which have been leased by the Company. Under the operating lease
agreements, the Company is required to make rental payments sufficient to pay
principal and interest when due on the bonds.
Pursuant to the agreement, payment of principal and interest at 8.3%
on the Series 1994A Bonds ends on January 1, 2006 while payment of principal and
interest at 8.2% on the Series 1994B Bonds ends on January 1, 1999. At December
31, 1996, the outstanding balance of Series 1994 Bonds was $16.1 million.
(c) Aircraft Acquisitions
In September 1996, the Company and AVSA signed a term sheet (the
"AVSA Term Sheet"), which, subject to the satisfaction of a number of conditions
provides for the restructuring of the Company's arrangements with AVSA, and
specifically that (i) the number of aircraft ordered by the Company would be
increased from 22 to 34 (including 24 A320 aircraft and 10 A319 aircraft), (ii)
the orders subject to cancellation would be increased from five to 12 (resulting
in the Company being committed to purchase 12 A320s and 10 A319s), (iii) AVSA
and the manufacturer of the engines for the aircraft would agree to provide
certain financing support for 16 of the 22 firm orders, and (iv) the financing
terms and conditions under which aircraft would be purchased would be improved
from the Company's perspective. There can be no assurance that the conditions to
the restructuring of the Company's arrangements with AVSA will be satisfied or
that a final agreement will be reached or finalized in the form described above.
At December 31, 1996, the Company had commitments to AVSA, for a
total of 22 Airbus A320-200 aircraft with delivery dates that fall in the years
1999 through 2001. The aggregate net cost of such aircraft is based on formulae
that include certain price indices (including indices for various aircraft
components such as metal products) for periods preceding the various delivery
dates. Based on an assumed 5% annual price escalation, the Company estimates
such aggregate net cost to be approximately $1.1 billion. The Company has the
option to cancel without cause up to five of these aircraft. If the Company
exercised its existing rights to cancel five aircraft under the AVSA agreement,
the aggregate net cost (based upon the assumptions described above) of
commitments under such agreement would be reduced to approximately $850 million.
In December 1994, the Company entered into a support contract with
International Aero Engines ("IAE") which provides for the purchase by the
Company of six new V2500-A5 spare engines scheduled for delivery beginning in
1998 through 2000 for use on certain of the A320 fleet. Such engines have an
estimated aggregate cost of $42 million.
The following table reflects estimated cash payments under the
aircraft and engine purchase contracts. Actual payments may vary due to
inflation factor adjustments and changes in the delivery schedule of the
equipment. The estimated cash payments include the progress payments that will
be made in cash, as opposed to being financed under an existing progress payment
financing facility.
-70-
<PAGE> 72
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
<TABLE>
(IN THOUSANDS)
<C> <C>
1997........................................................ $ 63,134
1998........................................................ 106,218
1999........................................................ 264,707
2000........................................................ 297,368
2001........................................................ 328,207
---------------
$ 1,059,634
===============
</TABLE>
At December 31, 1996, the Company has significant capital
commitments for a number of aircraft, as discussed above. Although the Company
has arranged for financing for up to one-half of such commitment, the Company
will require substantial capital from external sources to meet the remaining
financial commitments. The Company intends to seek additional financing (which
may include public debt financing or private financing) in the future when and
as appropriate. There can be no assurance that sufficient financing will be
obtained for all aircraft and other capital requirements. A default by the
Company under any such commitment could have a material adverse effect on the
Company.
In November 1996, the America West Airlines 1996-1 Pass Through
Trusts issued $218.6 million of Pass Through Certificates, representing
fractional undivided interests in such trusts. The certificates were issued in
connection with the refinancing of eight Airbus A320 aircraft and three IAE
V2500 spare jet engines. The combined effective interest rate on the financing
was 7.05%. The proceeds of the transaction were used to refinance the
indebtedness incurred by the owners of the aircraft and engines leased to the
Company. Under the arrangements, the financial benefits of the transactions are
shared among the Company, the equity investors in leverage leases covering the
aircraft and U.S. subsidiaries of GPA Group plc ("GPA"), the original lessees
under the restructured leases. Benefit to the Company include the agreed
termination of arrangements with GPA pursuant to which GPA could cause the
Company to lease up to four aircraft under a put agreement over the balance of
the decade and a reduction in rental expense approximating $500,000 per year.
The Pass Through Certificates were issued by separate pass through
trusts. The equipment notes are secured by a security interest in the aircraft
and engines and an assignment of the Company's leases. Neither the equipment
notes nor the pass through certificates are direct obligations of, or guaranteed
by, the Company, and the corresponding debt and interest expense are not
included in the Company's consolidated financial statements.
(d) Contingent Legal Obligations
Certain administrative and priority tax claims are pending against
the Company which, if ultimately allowed by the Bankruptcy Court, would
represent general obligations of the Company. Such claims include claims of
various state and local tax authorities and certain contractual indemnification
obligations. The Company is also a defendant in various lawsuits. Management
cannot reasonably predict the outcome of the pending lawsuits and administrative
and priority tax claims. However, management believes, after considering a
number of factors, including the advice of outside counsel, the nature of the
contingencies to which the Company is subject and its prior experience, that
although the outcome of these matters could adversely affect future operating
results, the resolution of these actions will not have a material adverse effect
on the Company's financial condition. As discussed in Note 13, "Restructuring
and Other Nonrecurring Special Charges," the Company has recorded a liability
for loss contingencies in accordance with generally accepted accounting
principles.
-71-
<PAGE> 73
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
11. RELATED PARTY TRANSACTIONS
In exchange for certain concessions principally arising from
cancellation of the right of GPA to lease to America West 10 Airbus A320
aircraft at specified rates, GPA received on August 25, 1994, (i) 900,000 shares
of Class B Common Stock; (ii) 1,384,615 warrants to purchase shares of Class B
Common Stock at an exercise price of $12.74 per share; (iii) a cash payment of
approximately $30.5 million and (iv) the rights to require the Company to lease
up to eight aircraft of types operated by the Company, which was terminated in
September 1996. During 1996, GPA sold 900,000 shares of Class B Common Stock,
and the Company repurchased all of the outstanding warrants (discussed in (ii)
above) from GPA as part of the buy back program authorized by the Board of
Directors.
In February 1996, certain stockholders of the Company who hold
shares of Class B Common Stock registered under the Company's shelf registration
statement sold 7.2 million of such shares pursuant to an underwritten public
offering. The selling stockholders were affiliates of TPG Partners, L.P.
("TPG"), Mesa Air Group ("Mesa"), Continental Airlines, Inc. (" Continental")
and Lehman Brothers, Inc. ("Lehman"). The shares offered were purchased by the
selling stockholders in connection with AWA's emergence from bankruptcy in
August 1994.
The Company has entered into various aircraft acquisitions and
leasing arrangements with GPA at terms comparable to those obtained from third
parties for similar transactions. The Company currently leases eight aircraft
from GPA and the rental payments for such leases and the eight aircraft
refinanced under the America West Airlines 1996-1 Pass Through Trusts amount to
$62.4 million, $68 million, and $63.3 million for the twelve months ended
December 31, 1996, 1995 and 1994, respectively. As of December 31, 1996, the
Company was obligated to pay approximately $500 million under the GPA leases
which expire at various times through the year 2013.
As part of the Reorganization, both Continental and Mesa made an
investment in the Company, and the Company entered into Alliance agreements with
Continental and Mesa. Pursuant to a code-sharing agreement entered into with
Mesa in December 1992, the Company collects a per-passenger charge for
facilities, reservations and other services from Mesa for enplanements in
Phoenix on the Mesa system. Such payments by Mesa to the Company totaled $3.5
million, $2.9 million and $2.5 million for the twelve months ended December 31,
1996, 1995 and 1994, respectively. In addition, the Company maintains agreements
with Continental related to code-sharing arrangements and ground handling
operations. The Company paid Continental approximately $21.7 million, $14
million and $2 million and also received approximately $13 million, $11 million
and $1 million in 1996, 1995 and 1994, respectively, from Continental for such
services.
12. RESTRUCTURING AND OTHER NONRECURRING SPECIAL CHARGES
During the third quarter of 1996, the Company recorded a
nonrecurring special charge of approximately $65.1 million. Approximately $49.7
million of the charge was associated with the Company's renegotiation of an
aircraft purchase agreement with AVSA (See Note 10, "Commitments and
Contingencies"), the re-evaluation of its facilities, and completing its plan
for the disposition of certain aircraft inventories and equipment. The charge
includes $18.8 million for cancellation penalty payments, write-off of
capitalized interest on advance payments; a provision for maintenance costs on
certain leased aircraft currently scheduled to be returned due to accelerated
deliveries under the new agreement; $7.5 million to reduce the carrying value to
estimated fair value of certain under-utilized facilities and $23.4 million to
write-down certain aircraft related inventories and equipment to estimated fair
value.
The remaining $15.4 million of the charge represents loss
contingencies based on estimated settlements of pending and threatened
litigation. The $65.1 million represents the Company's best estimate of the
expected charge. However, the actual charge may be different from the amount
estimated.
-72-
<PAGE> 74
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
In December 1995, the Company recorded a $10.5 million restructuring
charge. The amount includes severance costs of approximately $9.5 million for
approximately 500 employees, and $1.0 million for other costs related to the
outsourcing of the heavy aircraft maintenance work.
13. CHAPTER 11 REORGANIZATION AND FRESH START REPORTING
Chapter 11 Reorganization
Upon the Company's emerging from bankruptcy on August 25, 1994, the
partners of AmWest Partners, L.P., a limited partnership which includes TPG;
Continental; and Mesa; together with Lehman and Fidelity Investments
("Fidelity"), as assignees of AmWest, invested $205.3 million in consideration
for the issuance of securities by the Reorganized Company, consisting of (i)
1,200,000 shares of Class A Common Stock at a price of $7.467 per share; (ii)
12,981,636 shares of Class B Common Stock, consisting of 12,259,821 shares at a
price of $7.467 per share and 721,815 shares at $8.889 per share (representing
shares acquired as a result of cash elections made by unsecured creditors);
(iii) 2,769,231 warrants to purchase shares of Class B Common Stock at an
exercise price of $12.74 per share and (iv) $100 million principal amount of
11 1/4% Senior Unsecured Notes, due September 1, 2001.
The Plan of Reorganization also provided for many other matters,
including the satisfaction of certain other prepetition claims in accordance
with negotiated settlement agreements, the disposition of the various types of
claims asserted against the Company, the adherence to the Company's aircraft
lease agreements, the amendment of the Company's aircraft purchase agreements
and the release of the Company's employees from all obligations arising under
the Company's stock purchase plan in consideration for the cancellation of the
shares of Predecessor Company stock securing such obligations.
As of December 31, 1996, distributions on $307.9 million of allowed
general unsecured claims have been made. Approximately 25.6 million shares of
the Company's Class B Common Stock and cash proceeds equivalent to an additional
783,936 shares have been distributed in settlement. The remaining shares will be
distributed as the remaining general unsecured claims are allowed. To the extent
that the total allowed amount of claims is less than the $312 million reserve
set by the Bankruptcy Court, the holders of such claims will receive a
supplemental distribution.
Reorganization expense recorded by the Predecessor Company consisted
of the following:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1 TO
AUGUST 25, 1994
---------------
(IN THOUSANDS)
<S> <C>
Professional fees and other expenses directly related to
the Chapter 11 proceedings......................................... $ 31,959
Adjustments of assets and liabilities to fair value................... 166,829
Provisions for settlement of claims................................... 66,626
Reorganization success bonuses........................................ 11,956
Interest income....................................................... (3,711)
----------
$ 273,659
==========
</TABLE>
-73-
<PAGE> 75
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Fresh Start Reporting
In connection with its emergence from bankruptcy, the Company
adopted fresh start reporting in accordance with SOP 90-7. The fresh start
reporting common equity value of $587.5 million was determined by the Company
with the assistance of its financial advisors. The significant factors used in
the determination of this value were analyses of industry, economic and overall
market conditions and the historical and estimated performance of the Company as
well as of the airline industry, discussions with various potential investors
and certain other financial analyses.
Under fresh start reporting, the reorganization value of the entity
has been allocated to the Company's assets and liabilities on a basis
substantially consistent with purchase accounting. The portion of reorganization
value not attributable to specific tangible assets has been recorded as
"Reorganization Value in Excess of Amounts Allocable to Identifiable Assets" in
the accompanying balance sheet. The fresh start reporting adjustments, primarily
related to the adjustment of the Company's assets and liabilities to fair market
values, will have a significant effect on the Company's future statements of
income. The more significant of these adjustments relate to reduced depreciation
expense on property and equipment, increased amortization expense relating to
reorganization value in excess of amounts allocable to identifiable assets and
increased interest expense.
-74-
<PAGE> 76
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
The effects of the Plan and fresh start reporting on the balance
sheet at the Effective Date are as follows:
<TABLE>
<CAPTION>
PREDECESSOR REORGANIZED
COMPANY (a) (b) (c) COMPANY
----------- ISSUE OF -----------
AUGUST 25, DEBT DEBT AND FRESH START AUGUST 25,
1994 DISCHARGE STOCK ADJUSTMENTS 1994
------------- ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 156,401 $(140,284) $ 205,956 $ -- $ 222,073
Accounts receivable, net ............................. 77,682 -- 6,831 -- 84,513
Expendable spare parts and supplies .................. 27,715 -- -- (2,371) 25,344
Prepaid expenses ..................................... 34,540 -- -- (885) 33,655
----------- --------- --------- --------- ----------
Total current assets .................................... 296,338 (140,284) 212,787 (3,256) 365,585
Property and equipment, net ............................. 702,442 -- -- (138,830) 563,612
Restricted cash ......................................... 30,503 -- -- -- 30,503
Reorganization value in excess of amounts allocable
to identifiable assets ............................... -- -- -- 668,702 668,702
Other assets, net ....................................... 24,497 -- 1,575 (2,449) 23,623
----------- --------- --------- --------- ----------
Total assets ............................................ $ 1,053,780 $(140,284) $ 214,362 $ 524,167 $1,652,025
=========== ========= ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current maturities of long-term debt ................. $ 119,185 $ (65,014) $ -- $ -- $ 54,171
Accounts payable ..................................... 98,080 6,500 -- 969 105,549
Air traffic liability ................................ 153,808 -- -- -- 153,808
Accrued compensation and vacation benefits ........... 27,443 -- -- -- 27,443
Accrued interest ..................................... 5,620 -- -- -- 5,620
Accrued taxes ........................................ 26,613 14,405 -- -- 41,018
Other accrued liabilities ............................ 29,161 -- -- -- 29,161
----------- --------- --------- --------- ----------
Total current liabilities ............................... 459,910 (44,109) -- 969 416,770
Estimated liabilities subject to Chapter 11
proceedings .......................................... 382,769 (382,769) -- -- --
Long-term debt, less current maturities ................. 368,939 28,934 100,000 -- 497,873
Manufacturers' and deferred credits ..................... 70,625 -- -- 51,530 122,155
Other liabilities ....................................... 57,932 -- -- (30,205) 27,727
Stockholders' equity (deficiency)
Preferred stock ...................................... 18 -- -- (18) --
Common stock, Predecessor Company .................... 6,432 -- -- (6,432) --
Common stock, Reorganized Company .................... -- -- 152 299 451
Additional paid in capital ........................... 200,058 -- 114,710 272,281 587,049
Accumulated deficit .................................. (474,565) 257,660 (500) 217,405 --
----------- --------- --------- --------- ----------
(268,057) 257,660 114,362 483,535 587,500
Deferred compensation and notes receivable -
employee stock purchase plans ..................... 18,338 -- -- (18,338) --
----------- --------- --------- --------- ----------
Total stockholders' equity (deficiency) ................. (286,395) 257,660 114,362 501,873 587,500
----------- --------- --------- --------- ----------
Total liabilities and stockholders' equity
(deficiency)......................................... $ 1,053,780 $(140,284) $ 214,362 $ 524,167 $1,652,025
=========== ========= ========= ========= ==========
</TABLE>
- -----------------
(a) To record the discharge or reclassification of prepetition obligations
pursuant to the Plan of Reorganization, as well as the repayment in
cash of $77.6 million of D.I.P. financing and a $62.7 million priority
term loan.
-75-
<PAGE> 77
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(b) To record proceeds received from the issuance of new debt and equity
securities and to record the preferred stock settlement payment of
$500,000 and the receipt of approximately $1.1 million for the
purchase of Class B Common Stock.
(c) To record adjustments to reflect assets and liabilities at fair
market values and to record reorganization value in excess of
amounts allocable to identifiable assets.
During the reorganization period, pursuant to SOP 90-7, prepetition
liabilities were reported in the basis of the expected amounts of such allowed
claims, as opposed to the amounts for which those allowed claims may be settled
and were classified as "Estimated liabilities subject to Chapter 11
proceedings." The accrual for interest on such unsecured or undersecured
liabilities was discontinue from the period June 27, 1991 to August 25, 1994,
the Effective Date of the Plan.
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 are as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996
- ----
Total operating revenues (a) .................................... $ 413,150 $ 463,949 $ 422,518 $ 439,909
Operating income (loss) (b) ..................................... 34,318 62,083 (53,143) 25,408
Nonoperating expense, net ....................................... (8,898) (8,293) (8,377) (8,605)
Income tax (expense) benefit .................................... (11,693) (24,268) 15,813 (4,735)
Net income (loss) ............................................... 13,727 28,417 (45,707) 12,068
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
- ----
Total operating revenues ........................................ $ 345,790 $ 399,916 $ 408,627 $ 396,309
Operating income (c) ............................................ 24,895 52,957 54,160 22,720
Nonoperating expense, net ....................................... (13,927) (11,760) (11,047) (9,620)
Income tax expense .............................................. (5,758) (20,324) (20,414) (7,112)
Net income ...................................................... 5,210 20,873 21,715 5,988
</TABLE>
- ---------
(a) During the second quarter of 1996, operating revenues include an $8
million adjustment arising from the reconciliation of estimated
passenger revenues.
(b) During the third quarter of 1996, the Company recorded a nonrecurring
special charge of $65.1 million.
(c) During the fourth quarter of 1995, the Company recorded restructuring
charges of $10.5 million. See note 13 for more information.
-76-
<PAGE> 78
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information respecting continuing directors and nominees of the
Company is set forth under the caption "Information Concerning Directors and
Nominees" in the Company's Proxy Statement relating to its 1997 Annual Meeting
of Stockholders incorporated by reference into this Form 10-K Report. The Proxy
Statement will be filed with the Securities and Exchange Commission in
accordance with Rule 14a-6(c) promulgated under the Securities Exchange Act of
1934. With the exception of the foregoing information and other information
specifically incorporated by reference into this Form 10-K Report, the Proxy
Statement is not being filed as a part hereof. Information respecting executive
officers of the Company is set forth at Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the information called for by Items 11, 12 and 13, reference is
made to the Company's 1997 Proxy Statement, which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1996, and
portions of which are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements.
The following financial statements and the Independent Auditors'
Reports are filed in Part II, Item 8A and 8B of this report on the pages
indicated:
America West Holdings Corporation
Independent Auditors' Report -- page 30.
Consolidated Balance Sheets -- December 31, 1996 and
1995 -- page 31.
Consolidated Statements of Income--Years ended December
31, 1996 and 1995, the period August 26, 1994 through
December 31, 1994, and the period January 1, 1994
through August 25, 1994--page 32.
Consolidated Statements of Cash Flows--Years ended
December 31, 1996 and 1995, the period August 26, 1994
through December 31, 1994, and the period January 1,
1994 through August 25, 1994--page 33.
Consolidated Statements of Stockholders' Equity--For the
years ended December 31, 1996 and 1995, the period
August 26, 1994 through December 31, 1994, and the
period January 1, 1994 through August 25, 1994--page 34.
-77-
<PAGE> 79
Notes to Consolidated Financial Statements--page 35.
America West Airlines, Inc.
Independent Auditors' Report -- page 55.
Balance Sheets -- December 31, 1996 and 1995 -- page 56.
Statements of Income--Years ended December 31, 1996 and
1995, the period August 26, 1994 through December 31,
1994, and the period January 1, 1994 through August 25,
1994--page 57.
Statements of Cash Flows--Years ended December 31, 1996
and 1995, the period August 26, 1994 through December
31, 1994, and the period January 1, 1994 through August
25, 1994--page 58.
Statements of Stockholder's Equity--For the years ended
December 31, 1996 and 1995, the period August 26, 1994
through December 31, 1994, and the period January 1,
1994 through August 25, 1994--page 59.
Notes to Financial Statements--page 60.
(b) Financial Statement Schedules.
America West Holdings Corporation
Independent Auditors' Report on Schedule and
Consent--page 87.
Schedule II: Valuation and Qualifying Accounts--page 88.
America West Airlines, Inc.
Independent Auditors' Report on Schedule--page 89.
Schedule II: Valuation and Qualifying Accounts--
page 90.
All other information and schedules have been omitted as not
applicable or because the required information is included in the
financial statements or notes thereto.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------ -----
<C> <C>
2.1 -- Plan of Reorganization of America West Airlines, Inc. ("AWA"),
as amended under Chapter 11 of the Bankruptcy Code, as
amended-- Incorporated by reference to Exhibit 1 of AWA's
Current Report on Form 8-K dated August 25, 1994.
2.2 -- Agreement and Plan of Merger, dated as of December 19, 1996,
by and among America West Holdings Corporation ("Holdings"),
AWA and AWA Merger, Inc., with an effective date and time as
of midnight on December 31, 1996-- Incorporated by reference
to Exhibit 2.1 to Holdings' Registration Statement on Form 8-B
dated January 13, 1997.
3.1 -- Restated Certificate of Incorporation of AWA (included in
Exhibit 2.2 above).
</TABLE>
-78-
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------ -----
<C> <C>
3.2 -- Restated Bylaws of AWA-- Incorporated by reference to AWA's Annual Report on Form 10-K dated
December 31, 1994.
3.3 -- Section 4.18 of the Restated Bylaws of AWA (included in Exhibit 2.2 above).
3.4 -- Certificate of Incorporation of Holdings (filed with the Secretary of State of the State of Delaware on
December 13, 1996)-- Incorporated by reference to Exhibit 3.1 of Holdings' Registration Statement
on Form 8-B dated January 13, 1997.
3.5 -- Bylaws of Holdings-- Incorporated by reference to Exhibit 3.2 to Holdings' Registration Statement
on Form 8-B dated January 13, 1997.
4.1 -- Indenture for 10 3/4% Senior Unsecured Notes due 2003 -- Incorporated by reference to AWA's Form
S-4 (No. 33-61099).
4.2 -- Form of Senior Note (included as Exhibit A to Exhibit 4.1 above).
4.3 -- Warrant Agreement dated August 25, 1994 between AWA and First Interstate, N.A., as Warrant Agent
-- Incorporated by reference to Exhibit 4.3 to AWA's Current Report on Form 8-K dated August 25,
1994.
4.4 -- Form of Warrant (included as Exhibit A to Exhibit 4.3 above).
4.5 -- Supplemental Warrant Agreement dated effective as of December 31, 1996 between AWA and Harris
Trust Company of California, as Warrant Agent-- Incorporated by reference to Exhibit 4.3 to
Holdings' Registration Statement on Form 8-B dated January 13, 1997.
*4.6 -- Stockholders' Agreement for Holdings effective as of December 31, 1996 by and among TPG Partners,
L.P., TPG Parallel I, L.P., Air Partners II, L.P., Continental Airlines, Inc., Mesa Air Group, Inc.,
Robert A. Ewert, David T. Obergfell, William A. Franke, Holdings and AWA.
4.7 -- Stock Option Agreement dated effective as of December 31, 1996, between Holdings and AWA--
Incorporated by reference to Exhibit 4.5 to Holdings' Registration Statement on Form 8-B dated
January 13, 1997.
4.8 -- Registration Rights Agreement dated August 25, 1994 among AWA, AmWest Partners, L.P. and other
holders-- Incorporated by reference to Exhibit 4.6 to the AWA's Current Report on Form 8-K dated
August 25, 1994.
4.9 -- Assumption of Certain Obligations Under Registration Rights Agreement executed by Holdings for the
benefit of TPG Partners, L.P., TPG Parallel I, L.P., Air Partners II, L.P., Continental Airlines, Inc.,
Mesa Airlines, Inc., Lehman Brothers, Inc., Belmont Capital Partners II, L.P. and Belmont Fund, L.P. --
Incorporated by reference to Exhibit 4.7 to Holdings' Registration Statement on Form 8-B dated
January 13, 1997.
4.10 -- Form of Pass Through Trust Agreement, dated as of November 26, 1996, between AWA and Fleet National
Bank, as Trustee -- Incorporated by reference to AWA's Report on Form 8-K dated November 26, 1996.
</TABLE>
-79-
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------- -----
<C> <C>
10.1 -- Alliance Agreements dated August 25, 1994 between AWA and Continental Airlines, Inc. including the Master
Ground Handling Agreement, the Reciprocal Frequent Flyer Participation Agreement, the Code Sharing Agreement,
the Cargo Special Pro-Rate Agreement, the Reciprocal Club Usage Agreement and the Memorandum of Understanding
Concerning Technology Transfers -- Incorporated by reference to Exhibit 10.12 to AWA's Current Report on Form
8-K dated August 25, 1994.
10.2 -- Service Agreement dated September 4, 1992, as amended on March 31, 1993, July 31, 1993 and August 25, 1994,
between AWA and Mesa Airlines Inc.-- Incorporated by reference to Exhibit 10.12 to AWA's Current Report on
Form 8-K dated August 25, 1994.
10.3 -- Third Revised Investment Agreement dated April 21, 1994 between AWA and AmWest Partners, L.P.
-- Incorporated by reference to Exhibit 10.A to AWA's Quarterly Report on Form 10-Q for the period
ended March 31, 1994.
10.4 -- Third Revised Interim Procedures Agreement dated April 21, 1994 between AWA's and AmWest
Partners, L.P.-- Incorporated by reference to AWA's Annual Report on Form 10-K for the year ended
December 31, 1993.
10.5 -- The GPA Term Sheet between AWA and GPA Group plc, dated June 13, 1994-- Incorporated by
Reference to the Predecessor's Registration Statement on Form S-1 (No. 33-54243), as amended.
10.6 -- America West Airlines Management Resignation Allowance Guidelines, as amended, dated November
18, 1993-- Incorporated by Reference to AWA's Registration Statement on Form S-1 (No. 33-54243),
as amended.
10.7 -- Airbus A320 Purchase Agreement (including exhibits thereto), dated as of September 28, 1990 between
AVSA, S.A.R.L. and AWA, together with Letter Agreement Nos. 1-10, inclusive-- Incorporated by
reference to Exhibit 10-(D) (1) to AWA's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990.
10.8 -- Loan Agreement, dated as of September 28, 1990, among AWA, AVSA, S.A.R.L. and AVSA,
S.A.R.L., as agent-- Incorporated by reference to Exhibit 10-(D) (2) to AWA's Quarterly Report on
Form 10-Q for the period ended September 30, 1990.
10.9 -- V2500-A1 Support Contract dated September 28, 1990, between AWA and IAE International Aero
Engines AG, together with Side Letters Nos. 1-7, inclusive-- Incorporated by reference to Exhibit 10-
(D) (3) to AWA's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.
10.10 -- Official Statement dated August 11, 1986 for the $54,000,000 Variable Rate Airport Facility Revenue
Bonds-- Incorporated by reference to Exhibit 10.e to AWA's Quarterly Report on Form 10-Q for the
period ended September 30, 1986.
10.11 -- Airport Use Agreement dated July 1, 1989 among the City of Phoenix, The Industrial Development
Authority of the City of Phoenix, Arizona and AWA-- Incorporated by reference to Exhibit 10-D(9)
to AWA's Annual Report on Form 10-K for the year ended December 31, 1989.
10.12 -- First Amendment dated August 1, 1990 to Airport Use Agreement-- Incorporated by reference to
Exhibit 10- (D) (9) to AWA's Quarterly Report on Form 10-Q for the period ended September 30,
1990.
</TABLE>
-80-
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------ -----
<C> <C>
10.13 -- Revolving Loan Agreement dated April 17, 1990, by and among AWA, the Bank signatories thereto,
and Bank of America National Trust and Savings Association, as Agent for the Banks (the "Revolving
Loan Agreement")-- Incorporated by reference to Exhibit 10-1 to AWA's Quarterly Report on Form
10-Q for the period ended March 31, 1990.
10.14 -- First Amendment dated April 17, 1990 to Revolving Loan Agreement - Incorporated by reference to
Exhibit 10-(D) (10) to AWA's Quarterly Report on Form 10-Q for the period ended September 30,
1990.
10.15 -- Second Amendment dated September 28, 1990 to the Revolving Loan Agreement-- Incorporated by
reference to Exhibit 10-(D) (11) to AWA's Quarterly Report on Form 10-Q for the period ended
September 30, 1990.
10.16 -- Third Amendment dated as of January 14, 1991 to the Revolving Loan Agreement-- Incorporated by
reference to Exhibit 10-(D)(13) to AWA's Annual Report on Form 10-K for the year ended December
31, 1990.
10.17 -- Master Credit Modification Agreement dated as of October 1, 1992, among AWA, IAE International
Aero Engines AG, Intlaero (Phoenix A320) Inc., Intlaero (Phoenix B737) Inc., CAE Electronics Ltd.,
and Hughes Rediffusion Simulation Limited-- Incorporated by reference to Exhibit 10-L to AWA's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.18 -- Key Employee Protection Agreement dated as of June 27, 1994 between AWA and William A. Franke
-- Incorporated by reference to AWA's Registration Statement on Form S-1 (No. 33-54243), as
amended.
10.19 -- Management Rights Agreement dated August 25, 1994 between TPG Partners L.P., TPG Genpar, L.P.
and AWA-- Incorporated by reference to AWA's Registration Statement on Form S-1 (No.
33-54243), as amended.
10.20 -- V2500-A5 Support Contract dated December 23, 1994 between AWA and IAE International Aero
Engines AG, as amended, together with Side Letters Nos. 1 and 2-- Incorporated by reference to
AWA's Annual Report on Form 10-K for the year ended December 31, 1994.
10.21 -- America West 1994 Incentive Equity Plan, as restated on December 19, 1996-- Incorporated by
reference to Exhibit 10.41 to Holdings' Registration Statement on Form 8-B dated January 13, 1997.
*10.22 -- First Amendment to America West 1994 Incentive Equity Plan, as restated, dated January 1, 1997.
*10.23 -- Employment Agreement dated as of February 15, 1997 among Holdings, AWA and William A. Franke.
*10.24 -- Employment Agreement dated as of February 15, 1997 among Holdings, AWA and Richard R.
Goodmanson.
*11.1 -- Statement regarding computation of net income (loss) per common share.
21.1 -- Subsidiaries of Holdings-- Incorporated by reference to Exhibit 10.41 to Holdings' Registration
Statement on Form 8-B dated January 13, 1997.
23.1 -- Consent of KPMG Peat Marwick LLP included on page 87 of the Annual Report on Form 10-K.
24.1 -- Power of Attorney, pursuant to which amendments to this Annual Report on Form 10-K may be filed,
is included on the signature pages of this Annual Report on Form 10-K.
</TABLE>
-81-
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------ -----
<S> <C>
*27.1 -- Financial Data Schedule for Holdings
(Financial Data schedule for AWA
filed with Form 10-K for AWA)
</TABLE>
- ------------
* Filed herewith.
(d) Reports on Form 8-K
- -- Form 8-K filed by America West Airlines, Inc. on December 31, 1996 for
the purpose of reporting the adoption of a holding company
organizational structure.
- -- Form 8-K filed by America West Airlines, Inc. on December 11, 1996 for
the purpose of filing forms of certain documents as contemplated in the
prospectus, dated November 22, 1996, filed with the Commission pursuant
to Rule 424(b) with respect to $230,000,000 aggregate principal amount
of America West Airlines 1996-1 Pass Through Trusts Pass Through
Certificates, Series 1996-1.
-82-
<PAGE> 84
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, America West Holdings Corporation
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMERICA WEST HOLDINGS CORPORATION
Date: March 28, 1997 By: /s/ William A. Franke
----------------------------------
William A. Franke,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned, directors and officers of America West
Holdings Corporation, do hereby severally constitute and appoint William A.
Franke, W. Douglas Parker and Stephen L. Johnson and each or any of them, our
true and lawful attorneys and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, and to file the
same with all exhibits thereto, and all other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys and
agents, and each or any of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys and agents, and each of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed by the following persons in the
capacities indicated on March 28, 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ William A. Franke
- ---------------------------------- Chairman of the Board and Chief Executive Officer
William A. Franke (Principal Executive Officer)
/s/ Richard R. Goodmanson
- ---------------------------------- President and Director
Richard R. Goodmanson
/s/ W. Douglas Parker
- ---------------------------------- Senior Vice President and Chief Financial Officer
W. Douglas Parker (Principal Financial and Accounting Officer)
/s/ Julia Chang Bloch
- ---------------------------------- Director
Julia Chang Bloch
/s/ Stephen F. Bollenbach
- ---------------------------------- Director
Stephen F. Bollenbach
/s/ Frederick W. Bradley, Jr.
- ---------------------------------- Director
Frederick W. Bradley, Jr.
</TABLE>
-83-
<PAGE> 85
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ James G. Coulter
- ------------------------------
James G. Coulter Director
/s/ John F. Fraser
- ------------------------------
John F. Fraser Director
/s/ John L. Goolsby
- ------------------------------
John L. Goolsby Director
/s/ Richard C. Kraemer
- ------------------------------
Richard C. Kraemer Director
/s/ John R. Power, Jr.
- ------------------------------
John R. Power, Jr. Director
/s/ Larry L. Risley
- ------------------------------
Larry L. Risley Director
/s/ Frank B. Ryan
- ------------------------------
Frank B. Ryan Director
/s/ Richard P. Schifter
- ------------------------------
Richard P. Schifter Director
/s/ John F. Tierney
- ------------------------------
John F. Tierney Director
/s/ Raymond S. Troubh
- ------------------------------
Raymond S. Troubh Director
</TABLE>
-84-
<PAGE> 86
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, America West Airlines, Inc. has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
AMERICA WEST AIRLINES, INC.
Date: March 28, 1997 By: /s/ William A. Franke
---------------------------------
William A. Franke,
Chairman of the Board
POWER OF ATTORNEY
We, the undersigned, directors and officers of America West
Airlines, Inc., do hereby severally constitute and appoint William A. Franke, W.
Douglas Parker and Stephen L. Johnson and each or any of them, our true and
lawful attorneys and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, and to file the same with
all exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys and agents, and
each or any of them, full power and authority to do and perform each and every
act and thing requisite and necessary to be done, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys and agents, and each of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed by the following persons in the
capacities indicated on March 28, 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ William A. Franke
- ---------------------------
William A. Franke Chairman of the Board
/s/ Richard R. Goodmanson
- ---------------------------
Richard R. Goodmanson President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ W. Douglas Parker
- ---------------------------
W. Douglas Parker Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Michael R. Carreon
- ---------------------------
Michael R. Carreon Vice President and Controller (Principal Accounting
Officer)
/s/ Julia Chang Bloch
- ---------------------------
Julia Chang Bloch Director
/s/ Stephen F. Bollenbach
- ---------------------------
Stephen F. Bollenbach Director
</TABLE>
-85-
<PAGE> 87
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Frederick W. Bradley, Jr.
- -------------------------------
Frederick W. Bradley, Jr. Director
/s/ James G. Coulter
- -------------------------------
James G. Coulter Director
/s/ John F. Fraser
- -------------------------------
John F. Fraser Director
/s/ John L. Goolsby
- -------------------------------
John L. Goolsby Director
/s/ Richard C. Kraemer
- -------------------------------
Richard C. Kraemer Director
/s/ John R. Power, Jr.
- -------------------------------
John R. Power, Jr. Director
/s/ Larry L. Risley
- -------------------------------
Larry L. Risley Director
/s/ Frank B. Ryan
- -------------------------------
Frank B. Ryan Director
/s/ Richard P. Schifter
- -------------------------------
Richard P. Schifter Director
/s/ John F. Tierney
- -------------------------------
John F. Tierney Director
/s/ Raymond S. Troubh
- -------------------------------
Raymond S. Troubh Director
</TABLE>
-86-
<PAGE> 88
INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT
The Board of Directors and Stockholders
America West Holdings Corporation:
The audits referred to in our report dated February 28, 1997,
included the related consolidated financial statement schedule as listed in Item
14(b) for the years ended December 31, 1996 and 1995, the period August 26, 1994
through December 31, 1994, and the period January 1, 1994 through August 25,
1994, included herein. The consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statement schedule based on our audits. In
our opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
We consent to incorporation by reference in the Registration
Statements (Form S-8 No. 33-60555) and (Form S-3 No. 333-02129) of America West
Holdings Corporation of our report dated February 28, 1997, relating to the
consolidated balance sheets of America West Holdings Corporation as of December
31, 1996 and 1995 and the related consolidated statements of income, cash flows
and stockholders' equity for the years ended December 31, 1996 and 1995, the
period August 26, 1994 through December 31, 1994, and the period January 1, 1994
through August 25, 1994, and the related schedule, which report appears in the
December 31, 1996 annual report on Form 10-K of America West Holdings
Corporation.
The audit report on the consolidated financial statements of
America West Holdings Corporation referred to above contains an explanatory
paragraph that states that as discussed in Note 14 to the consolidated financial
statements, on August 25, 1994, America West Airlines, Inc. emerged from
bankruptcy. The consolidated financial statements of the Reorganized Company
reflect the impact of adjustments to reflect the fair value of assets and
liabilities under fresh start reporting. As a result, the consolidated financial
statements of the Reorganized Company are presented on a different basis of
accounting than those of the Predecessor Company and, therefore, are not
comparable in all respects.
KPMG Peat Marwick LLP
Phoenix, Arizona
March 26, 1997
-87-
<PAGE> 89
AMERICA WEST HOLDINGS CORPORATION
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995,
THE PERIOD AUGUST 26, 1994 TO DECEMBER 31, 1994,
AND THE PERIOD JANUARY 1, 1994 TO AUGUST 25, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
----------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful receivables:
Year ended December 31, 1996 . $ 2,515 $2,950 $ 2,374 $3,091
======== ====== ======== ======
Year ended December 31, 1995 . $ 3,531 $2,600 $ 3,616 $2,515
======== ====== ======== ======
Period August 26, 1994 to
December 31, 1994 ....... $ 2,833 $1,074 $ 376 $3,531
======== ====== ======== ======
Period January 1, 1994 to
August 25, 1994 .............. $ 3,030 $4,742 $ 4,939 $2,833
======== ====== ======== ======
Reserve for obsolescence:
Year ended December 31, 1996 . $ 2,115 $1,523 $ 1,925 $1,713
======== ====== ======== ======
Year ended December 31, 1995 . $ 483 $1,664 $ 32 $2,115
======== ====== ======== ======
Period August 26, 1994 to
December 31, 1994 ....... $ -- $ 483 $ -- $ 483
======== ====== ======== ======
Period January 1, 1994 to
August 25, 1994 ......... $ 7,231 $ 794 $ 8,025(a) $ --
======== ====== ======== ======
</TABLE>
- -----------------
(a) Includes fresh start adjustment of approximately $7.9 million.
-88-
<PAGE> 90
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholder
America West Airlines, Inc.:
The audits referred to in our report dated February 28, 1997,
included the related financial statement schedule as listed in Item 14(b) for
the years ended December 31, 1996 and 1995, the period August 26, 1994 through
December 31, 1994, and the period January 1, 1994 through August 25, 1994,
included herein. The financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
The audit report on the financial statements of America West
Airlines, Inc. referred to above contains an explanatory paragraph that states
that as discussed in Note 13 to the financial statements, on August 25, 1994,
America West Airlines, Inc. emerged from bankruptcy. The financial statements of
the Reorganized Company reflect the impact of adjustments to reflect the fair
value of assets and liabilities under fresh start reporting. As a result, the
financial statements of the Reorganized Company are presented on a different
basis of accounting than those of the Predecessor Company and, therefore, are
not comparable in all respects.
KPMG Peat Marwick LLP
Phoenix, Arizona
March 26, 1997
-89-
<PAGE> 91
AMERICA WEST AIRLINES, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995,
THE PERIOD AUGUST 26, 1994 TO DECEMBER 31, 1994,
AND THE PERIOD JANUARY 1, 1994 TO AUGUST 25, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
----------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful receivables:
Year ended December 31, 1996 . $ 2,515 $2,950 $ 2,374 $3,099
=========== ====== =========== ======
Year ended December 31, 1995 . $ 3,531 $2,600 $ 3,616 $2,515
=========== ====== =========== ======
Period August 26, 1994 to
December 31, 1994 ....... $ 2,833 $1,074 $ 376 $3,531
=========== ====== =========== ======
Period January 1, 1994 to
August 25, 1994 ......... $ 3,030 $4,742 $ 4,939 $2,833
=========== ====== =========== ======
Reserve for obsolescence:
Year ended December 31, 1996 . $ 2,115 $1,523 $ 1,925 $1,713
=========== ====== =========== ======
Year ended December 31, 1995 . $ 483 $1,664 $ 32 $2,115
=========== ====== =========== ======
Period August 26, 1994 to
December 31, 1994 ....... $ -- $ 483 $ -- $ 483
=========== ====== =========== ======
Period January 1, 1994 to
August 25, 1994 ......... $ 7,231 $ 794 $ 8,025(a) $ --
=========== ====== =========== ======
</TABLE>
- ---------------
(a) Includes fresh start adjustment of approximately $7.9 million.
-90-
<PAGE> 92
Commission File Numbers 1-12649
1-10140
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
EXHIBITS
FILED WITH
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
-------------------
AMERICA WEST HOLDINGS CORPORATION
AMERICA WEST AIRLINES, INC.
- --------------------------------------------------------------------------------
<PAGE> 93
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------ -----
<C> <C>
2.1 -- Plan of Reorganization of America West Airlines, Inc. ("AWA"), as amended under Chapter 11 of the
Bankruptcy Code, as amended-- Incorporated by reference to Exhibit 1 of AWA's Current Report on Form 8-K
dated August 25, 1994.
2.2 -- Agreement and Plan of Merger, dated as of December 19, 1996, by and among America West Holdings Corporation
("Holdings"), AWA and AWA Merger, Inc., with an effective date and time as of midnight on December 31, 1996
-- Incorporated by reference to Exhibit 2.1 to Holdings' Registration Statement on Form 8-B dated
January 13, 1997.
3.1 -- Restated Certificate of Incorporation of AWA (included in Exhibit 2.2 above).
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------ -----
<C> <C>
3.2 -- Restated Bylaws of AWA-- Incorporated by reference to AWA's Annual Report on Form 10-K dated
December 31, 1994.
3.3 -- Section 4.18 of the Restated Bylaws of AWA (included in Exhibit 2.2 above).
3.4 -- Certificate of Incorporation of Holdings (filed with the Secretary of State of the State of Delaware on
December 13, 1996)-- Incorporated by reference to Exhibit 3.1 of Holdings' Registration Statement
on Form 8-B dated January 13, 1997.
3.5 -- Bylaws of Holdings-- Incorporated by reference to Exhibit 3.2 to Holdings' Registration Statement
on Form 8-B dated January 13, 1997.
4.1 -- Indenture for 10 3/4% Senior Unsecured Notes due 2003 -- Incorporated by reference to AWA's Form
S-4 (No. 33-61099).
4.2 -- Form of Senior Note (included as Exhibit A to Exhibit 4.1 above).
4.3 -- Warrant Agreement dated August 25, 1994 between AWA and First Interstate, N.A., as Warrant Agent
-- Incorporated by reference to Exhibit 4.3 to AWA's Current Report on Form 8-K dated August 25,
1994.
4.4 -- Form of Warrant (included as Exhibit A to Exhibit 4.3 above).
4.5 -- Supplemental Warrant Agreement dated effective as of December 31, 1996 between AWA and Harris
Trust Company of California, as Warrant Agent-- Incorporated by reference to Exhibit 4.3 to
Holdings' Registration Statement on Form 8-B dated January 13, 1997.
*4.6 -- Stockholders' Agreement for Holdings effective as of December 31, 1996 by and among TPG Partners,
L.P., TPG Parallel I, L.P., Air Partners II, L.P., Continental Airlines, Inc., Mesa Air Group, Inc.,
Robert A. Ewert, David T. Obergfell, William A. Franke, Holdings and AWA.
4.7 -- Stock Option Agreement dated effective as of December 31, 1996, between Holdings and AWA--
Incorporated by reference to Exhibit 4.5 to Holdings' Registration Statement on Form 8-B dated
January 13, 1997.
4.8 -- Registration Rights Agreement dated August 25, 1994 among AWA, AmWest Partners, L.P. and other
holders-- Incorporated by reference to Exhibit 4.6 to the AWA's Current Report on Form 8-K dated
August 25, 1994.
4.9 -- Assumption of Certain Obligations Under Registration Rights Agreement executed by Holdings for the
benefit of TPG Partners, L.P., TPG Parallel I, L.P., Air Partners II, L.P., Continental Airlines, Inc.,
Mesa Airlines, Inc., Lehman Brothers, Inc., Belmont Capital Partners II, L.P. and Belmont Fund, L.P. --
Incorporated by reference to Exhibit 4.7 to Holdings' Registration Statement on Form 8-B dated
January 13, 1997.
4.10 -- Form of Pass Through Trust Agreement, dated as of November 26, 1996, between AWA and Fleet National
Bank, as Trustee -- Incorporated by reference to AWA's Report on Form 8-K dated November 26, 1996.
</TABLE>
<PAGE> 95
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------- -----
<C> <C>
10.1 -- Alliance Agreements dated August 25, 1994 between AWA and Continental Airlines, Inc. including the Master
Ground Handling Agreement, the Reciprocal Frequent Flyer Participation Agreement, the Code Sharing Agreement,
the Cargo Special Pro-Rate Agreement, the Reciprocal Club Usage Agreement and the Memorandum of Understanding
Concerning Technology Transfers -- Incorporated by reference to Exhibit 10.12 to AWA's Current Report on Form
8-K dated August 25, 1994.
10.2 -- Service Agreement dated September 4, 1992, as amended on March 31, 1993, July 31, 1993 and August 25, 1994,
between AWA and Mesa Airlines Inc.-- Incorporated by reference to Exhibit 10.12 to AWA's Current Report on
Form 8-K dated August 25, 1994.
10.3 -- Third Revised Investment Agreement dated April 21, 1994 between AWA and AmWest Partners, L.P.
-- Incorporated by reference to Exhibit 10.A to AWA's Quarterly Report on Form 10-Q for the period
ended March 31, 1994.
10.4 -- Third Revised Interim Procedures Agreement dated April 21, 1994 between AWA's and AmWest
Partners, L.P.-- Incorporated by reference to AWA's Annual Report on Form 10-K for the year ended
December 31, 1993.
10.5 -- The GPA Term Sheet between AWA and GPA Group plc, dated June 13, 1994-- Incorporated by
Reference to the Predecessor's Registration Statement on Form S-1 (No. 33-54243), as amended.
10.6 -- America West Airlines Management Resignation Allowance Guidelines, as amended, dated November
18, 1993-- Incorporated by Reference to AWA's Registration Statement on Form S-1 (No. 33-54243),
as amended.
10.7 -- Airbus A320 Purchase Agreement (including exhibits thereto), dated as of September 28, 1990 between
AVSA, S.A.R.L. and AWA, together with Letter Agreement Nos. 1-10, inclusive-- Incorporated by
reference to Exhibit 10-(D) (1) to AWA's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1990.
10.8 -- Loan Agreement, dated as of September 28, 1990, among AWA, AVSA, S.A.R.L. and AVSA,
S.A.R.L., as agent-- Incorporated by reference to Exhibit 10-(D) (2) to AWA's Quarterly Report on
Form 10-Q for the period ended September 30, 1990.
10.9 -- V2500-A1 Support Contract dated September 28, 1990, between AWA and IAE International Aero
Engines AG, together with Side Letters Nos. 1-7, inclusive-- Incorporated by reference to Exhibit 10-
(D) (3) to AWA's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.
10.10 -- Official Statement dated August 11, 1986 for the $54,000,000 Variable Rate Airport Facility Revenue
Bonds-- Incorporated by reference to Exhibit 10.e to AWA's Quarterly Report on Form 10-Q for the
period ended September 30, 1986.
10.11 -- Airport Use Agreement dated July 1, 1989 among the City of Phoenix, The Industrial Development
Authority of the City of Phoenix, Arizona and AWA-- Incorporated by reference to Exhibit 10-D(9)
to AWA's Annual Report on Form 10-K for the year ended December 31, 1989.
10.12 -- First Amendment dated August 1, 1990 to Airport Use Agreement-- Incorporated by reference to
Exhibit 10- (D) (9) to AWA's Quarterly Report on Form 10-Q for the period ended September 30,
1990.
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------ -----
<C> <C>
10.13 -- Revolving Loan Agreement dated April 17, 1990, by and among AWA, the Bank signatories thereto,
and Bank of America National Trust and Savings Association, as Agent for the Banks (the "Revolving
Loan Agreement")-- Incorporated by reference to Exhibit 10-1 to AWA's Quarterly Report on Form
10-Q for the period ended March 31, 1990.
10.14 -- First Amendment dated April 17, 1990 to Revolving Loan Agreement - Incorporated by reference to
Exhibit 10-(D) (10) to AWA's Quarterly Report on Form 10-Q for the period ended September 30,
1990.
10.15 -- Second Amendment dated September 28, 1990 to the Revolving Loan Agreement-- Incorporated by
reference to Exhibit 10-(D) (11) to AWA's Quarterly Report on Form 10-Q for the period ended
September 30, 1990.
10.16 -- Third Amendment dated as of January 14, 1991 to the Revolving Loan Agreement-- Incorporated by
reference to Exhibit 10-(D)(13) to AWA's Annual Report on Form 10-K for the year ended December
31, 1990.
10.17 -- Master Credit Modification Agreement dated as of October 1, 1992, among AWA, IAE International
Aero Engines AG, Intlaero (Phoenix A320) Inc., Intlaero (Phoenix B737) Inc., CAE Electronics Ltd.,
and Hughes Rediffusion Simulation Limited-- Incorporated by reference to Exhibit 10-L to AWA's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.18 -- Key Employee Protection Agreement dated as of June 27, 1994 between AWA and William A. Franke
-- Incorporated by reference to AWA's Registration Statement on Form S-1 (No. 33-54243), as
amended.
10.19 -- Management Rights Agreement dated August 25, 1994 between TPG Partners L.P., TPG Genpar, L.P.
and AWA-- Incorporated by reference to AWA's Registration Statement on Form S-1 (No.
33-54243), as amended.
10.20 -- V2500-A5 Support Contract dated December 23, 1994 between AWA and IAE International Aero
Engines AG, as amended, together with Side Letters Nos. 1 and 2-- Incorporated by reference to
AWA's Annual Report on Form 10-K for the year ended December 31, 1994.
10.21 -- America West 1994 Incentive Equity Plan, as restated on December 19, 1996-- Incorporated by
reference to Exhibit 10.41 to Holdings' Registration Statement on Form 8-B dated January 13, 1997.
*10.22 -- First Amendment to America West 1994 Incentive Equity Plan, as restated, dated January 1, 1997.
*10.23 -- Employment Agreement dated as of February 15, 1997 among Holdings, AWA and William A. Franke.
*10.24 -- Employment Agreement dated as of February 15, 1997 among Holdings, AWA and Richard R.
Goodmanson.
*11.1 -- Statement regarding computation of net income (loss) per common share.
21.1 -- Subsidiaries of Holdings-- Incorporated by reference to Exhibit 10.41 to Holdings' Registration
Statement on Form 8-B dated January 13, 1997.
23.1 -- Consent of KPMG Peat Marwick LLP included on page 87 of the Annual Report on Form 10-K.
24.1 -- Power of Attorney, pursuant to which amendments to this Annual Report on Form 10-K may be filed,
is included on the signature pages of this Annual Report on Form 10-K.
</TABLE>
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
- ------ -----
<S> <C>
*27.1 -- Financial Data Schedule for Holdings
(Financial Data Schedule for AWA
filed with Form 10-K for AWA)
</TABLE>
- ------------
* Filed herewith.
<PAGE> 1
EXHIBIT 4.6
<PAGE> 2
STOCKHOLDERS' AGREEMENT FOR
AMERICA WEST HOLDINGS CORPORATION
THIS STOCKHOLDERS' AGREEMENT FOR AMERICA WEST HOLDINGS CORPORATION
(this "Agreement") is entered into as of this 19th day of December, 1996 by and
among TPG PARTNERS, L.P., a Texas limited partnership ("TPG Partners"), TPG
PARALLEL I, L.P., a Texas limited partnership ("TPG Parallel"), AIR PARTNERS
II, L.P., a Texas limited partnership ("Air Partners"), CONTINENTAL AIRLINES,
INC., a Delaware corporation ("Continental"), MESA AIRLINES, INC., a Delaware
corporation ("Mesa"), ROBERT A. EWERT, DAVID T. OBERGFELL, WILLIAM A. FRANKE
and AMERICA WEST HOLDINGS CORPORATION, a Delaware corporation (the "Company").
PRELIMINARY STATEMENTS
1. On June 27, 1991, America West Airlines, Inc., a Delaware
corporation ("AWA"), filed a case seeking relief under Chapter
11 of the Bankruptcy Code in the United States Bankruptcy Court
for the District of Arizona (the "Bankruptcy Court").
2. On December 8, 1993, the Bankruptcy Court entered an order on
Motion to Establish Procedures for submission of Investment
Proposals (the "Procedures Order").
3. Pursuant to the Procedures Order, AmWest Partners, L.P., a Texas
limited partnership ("AmWest") and AWA entered into that certain
Third Revised Investment Agreement dated April 21, 1994 (the
"Investment Agreement"), contemplating an investment by AmWest
in AWA (the "Investment") and providing for the consummation of
AWA's Plan on Reorganization (the "Plan").
4. On August 10, 1994, the Bankruptcy Court entered an order
confirming the Plan.
5. In consideration of the Investment, AWA issued common stock of
AWA ("AWA Common Stock") consisting of Class A Common Stock
("AWA Class A Common") and Class B Common Stock ("AWA Class B
Common") and warrants to purchase Class B Common to AmWest and
others.
6. Pursuant to Section 6(b) of the Investment Agreement, (i) the
official Committee of Equity Holders of America West Airlines,
Inc., appointed in AWA's Chapter 11 case (the "Equity
Committee") appointed Robert A. Ewert as a Stockholder
Representative, (ii) the Official Committee of Unsecured
Creditors of America West Airlines, Inc., appointed in AWA's
Chapter 11 case (the "Creditors' Committee") appointed David T.
Obergfell as a Stockholder Representative and (iii) the Board of
Directors of AWA, as
<PAGE> 3
constituted prior to consummation of the Plan, appointed William A.
Franke as a Stockholder Representative.
7. In connection with the closing of the transactions contemplated by the
Investment Agreement and the Plan, AWA, AmWest, GPA Group plc, a
corporation organized under the laws of Ireland ("GPA"), and the
Stockholder Representatives referred to above entered into that certain
Stockholders' Agreement for America West Airlines, Inc. (the "Existing
Stockholders' Agreement") pursuant to Section 218(c) of Title 8 of the
Delaware Code (the "General Corporation Law").
8. The rights of AmWest under the Existing Stockholders' Agreement have
heretofore been assigned to, and assumed by, TPG Partners, TPG
Parallel, Air Partners, Continental, and Mesa and the rights of GPA
under the Existing Stockholders' Agreement have terminated.
9. The Company and AWA are parties to that certain Agreement and Plan of
Merger (the "Merger Agreement") dated as of December 19, 1996,
providing, among other things, for the merger (the "Merger") of AWA
Merger, Inc., a Delaware corporation and a wholly-owned subsidiary of
the Company ("Merger Sub"), with and into AWA, with AWA being the
surviving corporation in the Merger (in such capacity, the "Surviving
Corporation").
10. Pursuant to the Merger Agreement, at the Effective Time (as defined in
the Merger Agreement), (i) each issued and outstanding share of AWA
Class A Common will be converted into the right to receive one share of
Class A Common Stock of the Company ("Class A Common"), (ii) each
issued and outstanding share of AWA Class B Common will be converted
into the right to receive one share of Class B Common Stock of the
Company ("Class B Common"), (iii) each issued and outstanding share of
common stock of Merger Sub will be converted into the right to receive
one share of the common stock of the Surviving Corporation and (iv)
each issued and outstanding share of common stock of the Company will
be canceled without any consideration being paid therefor.
11. AWA currently has issued and outstanding warrants to purchase 8,180,086
shares of AWA Class B Common (the "Warrants"), the terms of which are
governed by that certain Warrant Agreement dated as of August 25, 1994
between AWA and First Interstate Bank of California, as Agent (the
"Warrant Agreement").
12. Pursuant to the terms of the Warrant Agreement, as a result of the
Merger, each of the Warrants will from and after the Effective Time
represent the right to purchase a share of Class B Common from AWA.
13. The parties hereto have agreed to enter into this Agreement pursuant to
Section 218(c) of the General Corporation Law.
-2-
<PAGE> 4
NOW, THEREFORE, in consideration of the premises herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used in this Agreement and not otherwise defined
herein shall have the following respective meanings, except as otherwise
provided herein or as the context shall otherwise require:
"Affiliate" shall mean (i) when used with reference to any partnership,
any person or entity that, directly or indirectly, owns or controls ten
percent or more of either the capital or profit interests of such
partnership or is a partner of such partnership or is a person or entity in
which such partnership has a ten percent or greater direct or indirect
equity interest, and (ii) when used with reference to any corporation, any
person or entity that, directly or indirectly, owns or controls ten percent
or more of the outstanding voting securities of such corporation or is a
person or entity in which such corporation has a ten percent or greater
direct or indirect equity interest. In addition, the term "Affiliate," when
used with reference to any person or entity, shall also mean any other
person or entity that, directly or indirectly, controls or is controlled by
or is under common control with such person or entity. As used in the
preceding sentence, (A) the term "control" means the possession, directly
or indirectly, of the power to direct or cause the direction of the
management and policies of the entity referred to, whether through
ownership of voting securities, by contract or otherwise, and (B) the terms
"controlling" and "controls" shall have meanings correlative to the
foregoing. Notwithstanding the foregoing, neither the Company nor any
Fidelity Fund will be deemed to be an Affiliate of TPG Partners, TPG
Parallel or Air Partners.
"Agreement" shall have the meaning set forth in the introductory
paragraph hereof.
"Air Partners" shall have the meaning set forth in the introductory
paragraph hereof.
"Alliance Agreements" shall have the meaning set forth in the
Investment Agreement.
"AmWest" shall have the meaning set forth in the Preliminary Statements
hereof.
"AmWest Affiliates" shall mean AmWest GenPar, Inc., a Delaware
corporation, TPG Partners, TPG Parallel, Air Partners, Continental, and Mesa.
"AmWest Director" shall mean a director of the Company designated by an
AmWest Affiliate pursuant to Section 2.01(a).
-3-
<PAGE> 5
"Annual Meeting" shall mean an annual meeting of the shareholders of
the Company.
"AWA" shall have the meaning set forth in the Preliminary Statements
hereof.
"AWA Class A Common" shall have the meaning set forth in the
Preliminary Statements hereof.
"AWA Class B Common" shall have the meaning set forth in the
Preliminary Statements hereof.
"AWA Common Stock" shall have the meaning set forth in the Preliminary
Statements hereof.
"Bankruptcy Court" shall have the meaning set forth in the Preliminary
Statements hereof.
"Board" shall mean the Company's Board of Directors.
"Bylaws" shall mean the Bylaws of the Company.
"Certificate of Incorporation" shall mean the Certificate of
Incorporation of the Company.
"Citizens of the United States" shall have the meaning set forth in
Section 1301, Title 49, United States Code, as now in effect or as it may
hereafter from time to time be amended.
"Class A Common" shall have the meaning set forth in the Preliminary
Statements hereof.
"Class B Common" shall have the meaning set forth in the Preliminary
Statements hereof.
"Company" shall have the meaning set forth in the introductory
paragraph hereof.
"Continental" shall have the meaning set forth in the introductory
paragraph hereof.
"Creditors' Committee" shall have the meaning set forth in the
Preliminary Statements hereof.
"Creditors' Committee Director" shall mean a director of the company
designated by the Creditors' Committee or otherwise pursuant to Section 2.01(b).
-4-
<PAGE> 6
"Equity Committee" shall have the meaning set forth in the Preliminary
Statements hereof.
"Equity Committee Director" shall mean a director of the Company
designated by the Equity Committee or otherwise pursuant to Section 2.01(b).
"Exchange Act" shall have the meaning set forth in Section 4.04.
"Existing Stockholders' Agreement" shall have the meaning set forth in
the Preliminary Statements hereof.
"Fidelity Fund" shall mean a fund or account managed or advised by
Fidelity Management Trust Company or any of its Affiliates or successors.
"General Corporation Law" shall have the meaning set forth in the
Preliminary Statements hereof.
"GPA" shall have the meaning set forth in the Preliminary Statements
hereof.
"Independent Company Director" shall mean a director of the Company
designated pursuant to Section 2.01(b).
"Independent Directors" shall mean, collectively, the Creditors'
Committee Directors, the Equity Committee Director, and the Independent Company
Director.
"Investment" shall have the meaning set forth in the Preliminary
Statements hereof.
"Investment Agreement" shall have the meaning set forth in the
Preliminary Statements hereof.
"Lehman" shall mean Lehman Brothers Inc. or any successor.
"Merger" shall have the meaning set forth in the Preliminary Statements
hereof.
"Merger Agreement" shall have the meaning set forth in the Preliminary
Statements hereof.
"Merger Sub" shall have the meaning set forth in the Preliminary
Statements hereof.
"Mesa" shall have the meaning set forth in the introductory paragraph
hereof.
"Other Transaction" shall have the meaning set forth in Section 4.03.
-5-
<PAGE> 7
"Plan" shall have the meaning set forth in the Preliminary Statements
hereof.
"Primary Transaction" shall have the meaning set forth in Section 4.03.
"Procedures Order" shall have the meaning set forth in the Preliminary
Statements hereof.
"Public Offering" shall have the meaning set forth in Section 4.02.
"Regulation 13D-G" shall have the meaning set forth in Section 4.04.
"Rule 144" shall have the meaning set forth in Section 4.02.
"Securities Act" shall have the meaning set forth in Section 4.02.
"Stockholder Representatives" shall mean the persons identified as such
in the Preliminary Statements set forth above; provided, however, that in the
case of the death, resignation, removal or disability of a Stockholder
Representative, his or her successor shall be designated in the manner set forth
in Section 2.01(b), and upon providing a written acknowledgment to such effect
to all other parties hereto and agreeing to be bound and subject to the terms
hereof, shall become a Stockholder Representative.
"Successor Independent Director" shall the meaning set forth in Section
2.01(b).
"Surviving Corporation" shall have the meaning set forth in the
Preliminary Statements hereof.
"Terminating Annual Meeting" shall mean the Annual Meeting held on the
day immediately following the Termination Date.
"Termination Date" shall mean the day immediately preceding the date on
which the first Annual Meeting of the Company is held on or after August 25,
1997.
"TPG Parallel" shall have the meaning set forth in the introductory
paragraph hereof.
"TPG Partners" shall have the meaning set forth in the introductory
paragraph hereof.
ARTICLE II
DESIGNATION AND VOTING FOR COMPANY DIRECTORS
Section 2.01 Designation and Voting for Directors. Until the
Termination Date, subject to the exception set forth in Section 4.07(a), the
Board shall consist of up to 14 persons, of whom
-6-
<PAGE> 8
nine persons shall be AmWest Directors and five persons shall be Independent
Directors, all designated in accordance with the following procedure:
(a) The AmWest Directors designated on Exhibit A hereto shall serve
until the first Annual Meeting following the date hereof and until the
successor to each such director shall be duly elected and qualified, or
until their death, disability, removal or resignation. No less than 30 days
in advance of each Annual Meeting prior to (but not including) the
Terminating Annual Meeting, and no less than five days in advance of any
other meeting of the Board prior to (but not including) the Terminating
Annual Meeting at which a director will be elected to sit on the Board in a
seat vacated by an AmWest Director because of death, disability, removal,
resignation, or otherwise, the AmWest Affiliates shall give written notice
to the other parties hereto designating the individual or individuals to
serve as AmWest Directors. The Stockholder Representatives agree to
recommend to the Independent Directors to vote or provide written consents
in favor of such designees and to take any other action necessary to elect
such designees.
(b) Three Creditors' Committee Directors, one Equity Committee
Director, and one Independent Company Director, each as designated on
Exhibit A hereto, shall serve until the first Annual Meeting following the
date hereof and until the successor to each such director shall be duly
elected and qualified, or until their death, disability, removal or
resignation. Until (but not including) the Terminating Annual Meeting, the
Company shall nominate for reelection, and each of the AmWest Affiliates
shall vote the Common Stock held and controlled by it in favor of, each
Independent Director designated on Exhibit A for so long as he or she
continues to serve on the Board. No less than five days in advance of any
meeting of the Board prior to (but not including) the Terminating Annual
Meeting at which a director will be elected to sit on the Board in a seat
vacated by an Independent Director because of death, disability, removal,
resignation, or otherwise (a "Successor Independent Director"), and no less
than 30 days in advance of each Annual Meeting prior to (but not including)
the Terminating Annual Meeting at which the term of any Successor
Independent Director will expire, the Stockholder Representatives shall
give written notice to the other parties hereto designating the individuals
to serve as Independent Directors; provided, however, that (i) if the
Creditors' Committee or the Equity Committee remain in effect, they shall
have the right to designate the Creditors' Committee Directors and the
Equity Committee Director, respectively, or the individuals to fill
vacancies thereof, by giving written notice to the other parties hereto in
accordance with the terms set forth above, and (ii) the Stockholder
Representatives shall select any Successor Independent Director to replace
the Independent Company Director from among the executive officers of the
Company. Each of the AmWest Affiliates agrees to vote the Common Stock held
and controlled by it and to cause the AmWest Directors to vote or provide
written consents in favor of such designees and to take any other action
necessary to elect such designees; provided, however, that each Independent
Director shall be reasonably acceptable to the AmWest Affiliates at the
time of his or her initial designation.
-7-
<PAGE> 9
(c) Except as otherwise provided herein, each of the AmWest Affiliates
and each of the Stockholder Representatives agrees to nominate or cause the
nomination of the AmWest Directors and the Independent Directors,
respectively, in accordance with the Bylaws.
(d) Notwithstanding the foregoing, no party hereto shall be obligated
to vote any shares for which the voting rights have been suspended, whether
voluntarily or involuntarily.
(e) In the event that the AmWest Affiliates, the Creditors' Committee
or the Equity Committee (for so long as each is in existence and has the
ability to designate a director as herein provided), or the Stockholder
Representatives shall fail or refuse to designate a nominee to the Board
for a position allocated to and to be filled by such group or entity as
herein provided, such position shall not be filled and shall remain vacant
unless and until such designation shall be made as herein provided.
(f) The parties hereto agree (i) to vote the Common Stock held and
controlled by them (other than stock held individually by any Stockholder
Representative) in favor of the removal from the Board, upon notice by the
group or entity having the right to designate such director under this
Section 2.01 and requesting such removal, of any person or persons
designated to the Board by such group or entity, and (ii) to vote the
Common Stock held and controlled by them (other than stock held
individually by any Stockholder Representative) and to cause (or in the
case of the Stockholder Representatives, recommend to) the directors
designated by them to vote or take such action as may be required under the
General Corporation Law or otherwise to implement the provisions of this
Agreement. The group or entity who has nominated any director in accordance
with this Agreement shall have the exclusive right to remove or replace
such director by written notice as herein provided; provided, however, that
nothing in this agreement shall be construed to limit or prohibit the
removal of any director for cause.
Section 2.02 Citizenship of Directors. Until the Termination Date, at
least eight of the AmWest Directors, at least two of the Creditors' Committee
Directors, the Equity Committee Director, and the Independent Company Director
shall each be Citizens of the United States.
Section 2.03 Restriction on Designation of AmWest Directors. Each of
the AmWest Affiliates agrees that no AmWest Director shall be an officer or
employee of Continental.
ARTICLE III
VOTING ON CERTAIN MATTERS
Section 3.01 Recusal of Certain Directors. Any director who is selected
by, or who is a director of, Continental shall recuse himself or herself from
voting on, or otherwise receiving any confidential information regarding,
matters in connection with negotiations between Continental and the Company or
AWA (including, without limitation, negotiation between Continental and AWA
-8-
<PAGE> 10
of the Alliance Agreements) and matters in connection with any action involving
direct competition between Continental and the Company or AWA. Any director who
is selected by, or who is a director, officer or employee of, Mesa shall recuse
himself or herself from voting on, or otherwise receiving any confidential
information regarding, matters in connection with negotiations between Mesa and
the Company or AWA (including, without limitation, negotiation between Mesa and
AWA of the Alliance Agreements) and matters in connection with any action
involving direct competition between Mesa and the Company or AWA.
Section 3.02 Required Votes With Respect to Certain Matters. Until the
Termination Date, the affirmative vote of the holders of a majority of the
voting power of the outstanding shares of each class of common stock of the
Company entitled to vote (excluding any shares owned by any of the AmWest
Affiliates or any of their respective Affiliates, but not, however, excluding
shares owned, controlled or voted by Mesa or any of its transferees or
Affiliates that are not otherwise Affiliates of AmWest), voting as a single
class, shall be required to approve, adopt or authorize:
(a) any merger or consolidation of the Company or AWA with or into any
of the AmWest Affiliates or any Affiliate of any of the AmWest Affiliates;
(b) any sale, lease, exchange, transfer, or other disposition by the
Company or AWA of all or any substantial part of its assets to any of the
AmWest Affiliates or any Affiliate of any of the AmWest Affiliates;
(c) any transaction with or involving the Company as a result of which
the AmWest Affiliates or any of their respective Affiliates will, as a
result of issuances of voting securities by the Company (or any other
securities convertible into or exchangeable for such voting securities),
acquire an increased percentage ownership of such voting securities, except
for (i) the exercise of any of the Warrants, (ii) the conversion of Class A
Common held by it to Class B Common, or (iii) otherwise pursuant to a
transaction in which all holders of Class B Common may participate on a pro
rata basis at the same price per share and on the same economic terms,
including, without limitation, (A) a tender or exchange offer for all
shares of the Common Stock and (B) a Public Offering; or
(d) any related series or combination of transactions having or which
will have, directly or indirectly, the same effect as any of the foregoing.
At the request of any party proposing such a transaction, subject to the Board
approving such request, the Company agrees to put to a vote of the shareholders
the approval of any transaction referred to in subparagraphs (a) through (d)
above (excluding the excepted transactions referred to in clauses (i), (ii), and
(iii) of subparagraph (c)) at the next regular or any duly convened special
meeting of the shareholders of the Company; provided, however, that, except to
the extent otherwise required by applicable law, the shareholder voting
requirements specified above shall not be applicable to a proposed action which
has been approved or recommended by at least three Independent Directors.
-9-
<PAGE> 11
ARTICLE IV
FURTHER COVENANTS
Section 4.01 Proportional Ownership of Class A Common and Class B
Common. None of the AmWest Affiliates or any of their respective Affiliates
shall sell or otherwise transfer any Common Stock (other than to an Affiliate of
the transferor) if, after giving effect thereto and to any related transaction
by such party, the total number of shares of Class B Common beneficially owned
by the transferor is less than twice the total number of shares of Class A
Common beneficially owned by the transferor; provided, however, that nothing
contained in this Section 4.01 shall prohibit any owner of Common Stock from
selling or otherwise transferring, in a single transaction or related series of
transactions, all shares of Common Stock owned by it, subject to the remaining
provisions of this Agreement.
Section 4.02 Restrictions With Respect to Governing Documents and Sale
of Securities by AmWest Affiliates. Each of the AmWest Affiliates agrees that
its constituent documents shall at all times require that this Agreement be
binding upon all general and limited partners of such AmWest Affiliate, and any
of their respective Affiliates who hold or receive shares of the Company or
direct the voting of any shares held by such AmWest Affiliate, and upon any
assignees or transferees in a single transaction or a related series of
transactions of all or substantially all of the Common Stock owned by such
AmWest Affiliate or any of its Affiliates or partners; provided, however, that
this Agreement shall not be binding upon any assignee or transferee who acquires
such Common stock pursuant to (a) a tender or exchange offer open to all
shareholders of the Company on a pro rata basis at the same price per share and
on the same economic terms, (b) a public distribution registered under the
Securities Act of 1933, as amended (the "Securities Act"), or sale on the open
market through a "brokers' transaction," as that term is defined in subsection
(g) of Rule 144 (a "Public Offering"), or (c) a transfer made pursuant to Rule
144, as amended ("Rule 144"), under the Securities Act. None of AmWest
Affiliates shall sell or transfer any Common Stock held by it to any of its
general or limited partners, to any Fidelity Fund, to Lehman, or to any
Affiliate of any of the AmWest Affiliates or such partners and none of the
AmWest Affiliates shall sell or transfer all or substantially all of the Common
Stock held by it in a single transaction or a related series of transactions,
except in accordance with clauses (a), (b) or (c), above, unless and until it
causes any assignee or transferee to provide a written acknowledgment to the
other parties hereto that it accepts and is bound by and subject to the terms of
this Agreement.
Section 4.03 Restriction With Respect to Sale of Control. Each of the
AmWest Affiliates covenants and agrees that, without the prior written consent
of the Company given pursuant to a resolution duly adopted by the affirmative
vote of not less than 75% of all directors of the Company, it shall not sell or
transfer, alone or together with the other AmWest Affiliates, in a single
transaction or a related series of transactions, shares of Common Stock
representing 51% or more of the combined voting power of all shares of Common
Stock then outstanding, other than (a) pursuant to or in connection with a
tender or exchange offer for all shares of Common Stock and for the benefit of
all holders of Class B Common on a pro rata basis at the same price per share
and on
-10-
<PAGE> 12
the same economic terms, (b) to any Affiliate of any of the AmWest Affiliates,
(c) pursuant to a bankruptcy or insolvency proceeding, (d) pursuant to a
judicial order, legal process, execution, or attachment, (e) in a Public
Offering, or (f) in any other transaction where the purchase price per share of
the Common Stock being sold or transferred therein is equal to or less than the
then-current market price per share (i.e., the average of the daily mean between
the high and low sales prices regular way of the shares of Common Stock on the
exchange on which shares of Common Stock are listed for ten consecutive trading
days preceding the effective date of such transaction). For purposes of the
foregoing, a transaction (the "Primary Transaction") involving any person or
entity will not be deemed to be related to any other transaction (the "Other
Transaction") if (i) the Other Transaction does not involve, directly or
indirectly, such person or entity or any Affiliate of such person or entity, it
being understood that, for purposes of this clause (i), TPG Partners, TPG
Parallel, Air Partners, and Continental will be deemed not to be Affiliates of
one another, and (ii) the Primary Transaction and the Other Transaction do not
involve, directly or indirectly, persons or entities who are assignees, direct
or indirect, of any of the AmWest Affiliates and who are acting in concert with
respect thereto, it being understood that, for purposes of this clause (ii),
persons or entities will be deemed to be acting in concert when they act jointly
or on a coordinated basis pursuant to any express or tacit agreement,
arrangement or understanding.
Section 4.04 Certain Securities Law Filings. If required by applicable
law, within ten days of the date hereof, each of the AmWest Affiliates shall
file with the Securities and Exchange Commission, a Schedule 13D pursuant to
Regulation 13D-G ("Regulation 13D-G") under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and shall amend such filing as required by
Regulation 13D-G. Each other party hereto covered by such filing covenants and
agrees to promptly provide to each of the AmWest Affiliates all information
pertaining to such party and necessary to make such amendments and to notify
each of the AmWest Affiliates of any changes in facts or circumstances
pertaining to such party that would require any amendments under Regulation
13D-G.
Section 4.05 Amendments of Certificate of Incorporation and Bylaws.
Each of the AmWest Affiliates agrees that it shall not, alone or together with
the other AmWest Affiliates, cause any amendment to the provisions of the
Certificate of Incorporation or the Bylaws or otherwise take any action that
supersedes or materially adversely affects or impairs the rights and obligations
of the parties under this Agreement or is contrary to the provisions of this
Agreement.
Section 4.06 Legending of Securities. (a) Each certificate evidencing
shares of Common Stock issued to any of the AmWest Affiliates or any of its
partners and any of their respective Affiliates, and any assignee or transferee
bound by the terms hereof, including shares of Common Stock issued in connection
with the exercise of any warrant, so long as such Common Stock is held by them
and prior to the termination or expiration of this Agreement, shall be
conspicuously stamped or marked with a legend including substantially as
follows:
THE RIGHTS AND OBLIGATIONS OF THE HOLDER OF THIS CERTIFICATE SHALL BE
SUBJECT TO THE TERMS AND PROVISIONS OF THAT CERTAIN STOCKHOLDERS'
-11-
<PAGE> 13
AGREEMENT FOR AMERICA WEST HOLDINGS CORPORATION DATED DECEMBER
19, 1996, COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL OFFICE OF AMERICA
WEST HOLDINGS CORPORATION.
and each such certificate, for so long as such certificate is held by any of the
AmWest Affiliates or any of its partners, any of their respective Affiliates, or
any assignee or transferee bound by the terms hereof and prior to the
termination or expiration of this Agreement, shall include in such legend the
following:
THIS CERTIFICATE AND ANY INTEREST HEREIN MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE AFORESAID
STOCKHOLDERS' AGREEMENT.
(b) All certificates evidencing shares of Common Stock and warrants of
the Company that have not been registered pursuant to the Securities Act and
that are not exempt from registration under Section 1145 of the Bankruptcy Code,
shall at all times be conspicuously stamped or marked with a legend including
substantially as follows:
THE ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR
PURSUANT TO THE SECURITIES LAWS OF ANY STATE, AND SUCH SECURITIES MAY NOT
BE SOLD OR TRANSFERRED OTHER THAN IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT AND THE RULES AND REGULATIONS THEREUNDER OR AN
EXEMPTION THEREFROM AND FROM ANY APPLICABLE STATE SECURITIES LAWS.
(c) Upon the termination of this Agreement, the Company shall, without
charge and upon surrender of certificates by the holders thereof and written
request, cancel all certificates evidencing shares of Common Stock bearing any
legend described in subparagraph (a) above and issue to the holders thereof
replacement certificates that do not bear such a legend for an equal number of
shares held by such holders. Upon the transfer of any Common Stock bearing any
legend described in subparagraph (a) above to a party not bound by and subject
to this Agreement, the Company shall, without charge and upon the surrender of
certificates by the holders thereof and written request, cancel all certificates
evidencing such shares of Common Stock and issue to the transferee thereof
replacement certificates that do not bear any such legend.
Section 4.07 Issuance of Preferred Stock. During the term of this
Agreement, none of the AmWest Affiliates shall, alone or together with the other
AmWest Affiliates, cause the issuance of any preferred stock by the Company that
would (a) increase the number of directors in excess of the number provided in
Section 2.01 (except for increases caused by a provision allowing holders of
preferred stock to elect additional directors in the event of nonpayment of
dividends), or (b) eliminate or reduce the number of Creditors' Committee
Directors or eliminate the Equity Committee Director or the Independent Company
Director.
-12-
<PAGE> 14
ARTICLE V
RIGHTS UPON BREACH
Section 5.01 Remedies. Each party hereto recognizes and agrees that a
violation of any term, provision, or condition of this Agreement may cause
irreparable damage to the other parties which is difficult or impossible to
quantify or ascertain and that the award of any sum of damages may not be
adequate relief to such other parties. Each party hereto therefore agrees that
in the event of any breach of this Agreement, the other party or parties shall,
in addition to any remedies at law which may be available, have the right to
obtain appropriate equitable (including, but not limited to, injunctive) relief.
All remedies hereunder shall be cumulative and not exclusive.
Section 5.02 Additional Rights of the Company. In addition to any other
remedies available at law or in equity, each party hereto agrees that the
Company shall have the right (a) to withhold transfer, and to instruct any
transfer agent for securities of the Company to withhold transfer, of any
certificates evidencing shares of Common Stock held by any of the AmWest
Affiliates or any partner or Affiliate of any of the AmWest Affiliates or
transferee if the Company reasonably believes that such transfer would not be in
material compliance with the terms and provisions of this Agreement, unless the
transferee provides to the Company an opinion of legal counsel reasonably
acceptable to the Company that such transfer will be in material compliance with
the terms and provisions hereof, and (b) to require any person or entity
requesting transfer of securities subject to this Agreement to provide such
information as may reasonably be requested by the Company regarding ownership of
securities, affiliations, if any, between the party requesting transfer and the
transferee and such other matters pertaining to the transfer as may be
appropriate to enable the Company to determine the compliance of the proposed
transfer of securities with the terms and provisions of this Agreement.
ARTICLE VI
TERMINATION
This Agreement shall automatically terminate without any action by any
party on the Termination Date and shall not be extended except in accordance
with Section 7.03. Upon such termination, the rights and obligations of each
party hereunder shall terminate and the provisions of this Agreement shall be of
no force and effect; provided, however, that no such termination shall relieve
any person or entity from liability for breach or default of this Agreement
prior to such termination.
-13-
<PAGE> 15
ARTICLE VII
MISCELLANEOUS
Section 7.01 Notices. All notices, requests, and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) or by prepaid express courier at the following addresses or facsimile
numbers:
If to TPG Partners, TPG Parallel or Air Partners, to:
TPG GenPar, L.P.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
Attention: James G. Coulter
Fax Number: (817) 871-4010
with copies to:
Arnold & Porter
1200 New Hampshire Ave., N.W.
Washington, D.C. 20036
Attention: Richard P. Schifter
Fax Number: (202) 872-6720
and
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Lyle G. Ganske
Fax Number: (216) 586-7864
If to Continental, to:
2929 Allen Parkway, Suite 2010
Houston, Texas 77019
Attention: Jeffrey Smisek
Fax Number: (713) 834-2687
-14-
<PAGE> 16
with copies to:
Arnold & Porter
1200 New Hampshire Ave., N.W.
Washington, D.C. 20036
Attention: Richard P. Schifter
Fax Number: (202) 872-6720
and
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Lyle G. Ganske
Fax Number: (216) 586-7864
If to Mesa, to:
2325 East 30th Street
Farmington, New Mexico 87401
Attention: Larry L. Risley
Fax Number: (505) 326-4485
with copies to:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attention: Lyle G. Ganske
Fax Number: (216) 586-7864
and
Arnold & Porter
1200 New Hampshire Ave., N.W.
Washington, D.C. 20036
Attention: Richard P. Schifter
Fax Number: (202) 872-6720
-15-
<PAGE> 17
If to Robert A. Ewert, to:
Robert A. Ewert
3819 E. Nowata Drive
Phoenix, Arizona 85044
Fax Number: (602) 893-2239
If to David T. Obergfell, to:
David T. Obergfell
2606 Beechmont Drive
Dallas, Texas 75228
Fax Number: (214) 965-6140
with a copy to:
Stutzman & Bromberg
2323 Bryan Street, Suite 2300
Dallas, Texas 75201
Attention: Sandy Esserman
Fax Number: (214) 969-4999
If to William A. Franke, to:
William A. Franke
America West Airlines, Inc.
4000 East Sky Harbor Boulevard
Phoenix, Arizona 85034
Fax Number: (602) 693-5517
If to the Company, to:
America West Holdings Corporation
4000 East Sky Harbor Boulevard
Phoenix, Arizona 85034
Attention: General Counsel
Fax Number: (602) 693-5904
-16-
<PAGE> 18
with a copy to:
Andrews & Kurth, L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Attention: David G. Elkins
Fax Number: (713) 220-4285
All such notices, requests and other communications will (a) if delivered
personally to the address as provided in this Section 7.01, be deemed given upon
delivery, (b) if delivered by facsimile transmission to the facsimile number as
provided in this Section 7.01, be deemed given upon receipt, and (c) if
delivered by mail or by express courier in the manner described above to the
address as provided in this Section 7.01, be deemed given upon receipt (in each
case regardless of whether such notice is received by any other person or entity
to whom a copy of such notice, request or other communication is to be delivered
pursuant to this Section 7.01). Any party from time to time may change its
address, facsimile number or other information for the purpose of notices to
that party by giving notice as provided in this Section 7.01 specifying such
change to the other parties hereto. Nothing in this Section 7.01 shall be deemed
or construed to alter any notice provisions contained in the Bylaws.
Section 7.02 Governing Law. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Delaware
without reference to principles of conflicts or choice of law under which the
law of any other jurisdiction would apply.
Section 7.03 Amendments and Waiver. This Agreement may only be amended,
waived, supplemented, modified, or extended by a written instrument signed by
authorized representatives of each party hereto.
Section 7.04 Benefit and Burden. This Agreement shall inure to the
benefit of and be binding upon each of the parties hereto and their respective
successors and permitted assigns.
Section 7.05 Counterparts. This Agreement may be executed by the
parties hereto in counterparts and by telecopy, each of which shall be deemed to
constitute an original and all of which together shall constitute one and the
same instrument.
Section 7.06 Severability. If any term or provision of this Agreement
shall be found by a court of competent jurisdiction to be illegal, invalid, or
unenforceable to any extent, the remainder of this Agreement shall not be
affected thereby and shall be enforced to the greatest extent permitted by law.
Section 7.07 Inconsistent Provisions. The parties hereto intend that in
the case of any conflict or inconsistency between this Agreement and the
Certificate of Incorporation or the Bylaws, that this Agreement shall control,
and therefore, in the event that any term or provision of this
-17-
<PAGE> 19
Agreement is rendered invalid, illegal or unenforceable by the Certificate of
Incorporation or the Bylaws, the parties agree to amend the Certificate of
Incorporation or the Bylaws (as the case may be) so as to render such term or
provision valid, legal, and enforceable, if and to the extent legally permitted.
Section 7.08 Effectiveness and Termination of Existing Stockholders'
Agreement. This Agreement shall become effective upon the later to occur of (a)
the execution by each of the parties hereto of this Agreement and (b) the
effectiveness of the Merger. Upon this Agreement becoming effective, the
Existing Stockholders' Agreement shall terminate and be of no further force or
effect; provided, however, that such termination of the Existing Stockholders'
Agreement shall not relieve any of the parties thereto from liability for any
breach or default of the Existing Stockholders' Agreement prior to such
termination.
IN WITNESS WHEREOF, the parties hereto, by their respective officers
thereunto duly authorized, have executed this Agreement as of the date first
written above.
TPG PARTNERS, L.P.
By: TPG GenPar, L.P., its General Partner
By: TPG Advisors, Inc., its General Partner
By: /s/ Richard Eckleberry
------------------------------------
Richard Eckleberry, Vice President
TPG PARALLEL I, L.P.
By: TPG GenPar, L.P., its General Partner
By: TPG Advisors, Inc., its General Partner
By: /s/ Richard Eckleberry
------------------------------------
Richard Eckleberry, Vice President
-18-
<PAGE> 20
AIR PARTNERS II, L.P.
By: TPG GenPar, L.P., its General Partner
By: TPG Advisors, Inc., its General Partner
By: /s/ Richard Eckleberry
-----------------------------------
Richard Eckleberry,
Vice President
CONTINENTAL AIRLINES, INC.
By: /s/ Jeffrey A. Smisek
-------------------------------------------
Jeffrey A. Smisek,
Executive Vice President
MESA AIRLINES, INC.
By: /s/ Larry L. Risley
-------------------------------------------
Larry L. Risley,
Chief Executive Officer
STOCKHOLDER REPRESENTATIVES
By: /s/ Robert A. Ewert
-------------------------------------------
Robert A. Ewert,
Stockholder Representative
-19-
<PAGE> 21
By: /s/ David T. Obergfell
-----------------------------------
David T. Obergfell,
Stockholder Representative
By: /s/ William A. Franke
-------------------------------------------
William A. Franke,
Stockholder Representative
AMERICA WEST HOLDINGS CORPORATION
By: /s/ Stephen L. Johnson
-------------------------------------------
Stephen L. Johnson,
Senior Vice President -- Legal Affairs
America West Airlines, Inc., a Delaware corporation, hereby executes
this Agreement solely for the purposes of evidencing its consent to the
termination of the Existing Stockholders' Agreement provided in Section 7.08
hereof.
AMERICA WEST AIRLINES, INC.
By: /s/ Stephen L. Johnson
-------------------------------------------
Stephen L. Johnson,
Senior Vice President -- Legal Affairs
-20-
<PAGE> 22
EXHIBIT A
DIRECTOR DESIGNEES
AmWest Directors:
- -----------------
Julia Chang Bloch
Frederick W. Bradley, Jr.
James G. Coulter
John F. Fraser
John L. Goolsby
Richard C. Kraemer
Larry L. Risley
Richard P. Schifter
Richard R. Goodmanson
Creditors' Committee Directors:
- -------------------------------
Stephen F. Bollenbach
Raymond S. Troubh
Frank B. Ryan
Equity Committee Director:
- --------------------------
John R. Power, Jr.
Independent Company Director:
- -----------------------------
William A. Franke
A-i
<PAGE> 1
EXHIBIT 10.22
<PAGE> 2
FIRST AMENDMENT
TO
AMERICA WEST 1994 INCENTIVE EQUITY PLAN
WHEREAS, effective as of December 1, 1994, America West Airlines, Inc.
("AWA") established the America West Airlines, Inc. 1994 Incentive Equity Plan
(the "Original Plan");
WHEREAS, effective as of December 31, 1996, AWA became a wholly-owned
subsidiary of America West Holdings Corporation ("Holdings") and, in connection
therewith, the Original Plan was amended and restated in its entirety to
evidence AWA's assignment of the Original Plan to Holdings and Holdings'
assumption of the obligations of AWA under the Original Plan and to provide for
the substitution of Holdings for AWA as the "Company" under the Original Plan
(the Original Plan, as so amended and restated, being hereinafter referred to
as the "Plan");
WHEREAS, the Board of Directors of Holdings is authorized by Paragraph
18(a) of the Plan to amend the Plan from time to time; and
WHEREAS, the Board of Directors of Holdings deems it advisable to amend
the Plan in certain respects and, to that end, such Board has duly adopted this
First Amendment;
NOW, THEREFORE, the Plan is hereby amended as set forth below,
effective as of January 1, 1997.
SECTION 1. Amendment of paragraph 2(j). Paragraph 2(j) of the Plan is
amended to read in its entirety as follows:
(j) "Date of Grant" means (i) with respect to an Award other
than a Director Option or an automatic grant of Common Stock pursuant to
Paragraph 11(d), the date specified by the Committee on which such Award
will become effective (which date will not be earlier than the date on
which the Committee takes action with respect thereto), (ii) with
respect to a Director Option, the automatic grant date as provided in
Paragraph 11(a) or 11(b) and (iii) with respect to a grant of Common
Stock to a Nonemployee Director pursuant to Paragraph 11(d), the
automatic grant date as provided in Paragraph 11 (d).
SECTION 2. Amendment of Paragraph 2(s). Paragraph 2(s) of the Plan is
amended to read in its entirety as follows:
(s) "Participant" means an employee of the Company or any
of its Subsidiaries who is selected by the Committee to receive an
Award under any of
<PAGE> 3
Paragraphs 4 through 10 and shall also include a Nonemployee
Director who has received an automatic grant of Director Options
pursuant to Paragraph 11(a) or 11(b) or an automatic grant of
Common Stock pursuant to Paragraph 11(d).
SECTION 3. Amendment of Paragraph 11. Paragraph 11 of the Plan
is amended to read in its entirety as follows:
11. Director Options, etc. (a) Each Nonemployee Director who
serves in such capacity on December 31, 1994 shall automatically
receive, on such date, a Director Option for 3,000 shares of Common
Stock. Each Nonemployee Director who is elected or appointed to the
Board for the first time after the effective date of this Plan shall
automatically receive, on the date of his or her election or
appointment, a Director Option for 3,000 shares of Common Stock.
(b) On the date following the regular meeting of the
stockholders of the Company in each year that this Plan is in effect
(commencing with the 1995 annual meeting of stockholders), each
Nonemployee Director who is in office on that day and who was not
elected for the first time at such annual meeting shall automatically
receive a Director Option of 3,000 shares of Common Stock.
(c) Each Director Option will be subject to all of the
limitations contained in the following provisions:
(i) Each Director Option shall become exercisable
(vested) on the first day that is more than six months following
its Date of Grant; provided that in no event shall any Director
Option be exercisable prior to the approval of this Plan by the
Company's stockholders.
(ii) The Option Price of each Director Option shall
be the Market Value per Share on its Date of Grant.
(iii) Each Director Option that is vested may be
exercised in full at one time or in part from time to time by
giving written notice to the Company, stating the number of
shares of Common Stock with respect to which the Director Option
is being exercised, accompanied by payment in full of the Option
Price for such shares, which payment may be (i) in cash by check
acceptable to the Company, (ii) by the transfer to the Company
of shares of Common Stock already-owned by the optionee having
an aggregate Market Value per Share at the date of exercise
equal to the aggregate Option Price, (iii) from the proceeds of
a sale through a broker of some or all of the shares to which
such exercise relates or (iv) by a combination of such methods
of payment.
-2-
<PAGE> 4
(iv) Each Director Option shall expire ten years from
the Date of Grant thereof, but shall be subject to earlier
termination as follows: Director Options, to the extent
exercisable as of the date a Nonemployee Director ceases to be a
director of the Company, must be exercised within three months
of such date unless such termination from the Board results from
the Nonemployee Director's death, disability or retirement, in
which case the Director Options may be exercised within three
years from the date of termination; provided, however, that no
such event shall extend the normal expiration date of such
Director Options.
(v) In the event that the number of shares of Common
Stock available for grants under this Plan is insufficient at
any time to make all automatic grants of Director Options
provided for at such time in Paragraphs 11(a) and 11(b) and all
automatic grants of Common Stock provided for at such time in
Paragraph 11(d), then Paragraph 11(d) shall take precedence over
paragraphs 11(a) and 11(b) so that all automatic grants of
Common Stock then required to be made under Paragraph 11(d)
shall be made in full before any automatic grants of Director
Options are made at such time under Paragraphs 11(a) and 11(b).
In the event that the number of shares of Common Stock available
for grants under this Plan is insufficient at any time to make
all automatic grants of Director Options provided for in
Paragraphs 11(a) and 11(b) at such time, then all Nonemployee
Directors who are entitled to an automatic grant of Director
Options at such time shall share ratably in the number of shares
then available for grant under this Plan and shall have no right
to receive a grant with respect to the deficiencies in the
number of available shares.
(d) On December 31 in each year that this Plan is in effect
(commencing on December 31, 1997), each Nonemployee Director who is in
office on that day shall automatically receive, without additional
consideration, a grant for that number of shares of Common Stock
(rounded to the nearest whole number) determined by dividing 13,000 by
the Market Value per Share on the December 31 immediately preceding the
Date of Grant; provided, however, that the annual grant to any
Nonemployee Director who has not been in office at all times during the
12-month period immediately prior to the Date of Grant shall be prorated
based on the number of whole months that such Nonemployee Director has
been in office during such 12-month period. Each such grant of Common
Stock shall be subject to the following terms and conditions:
(i) Each grant will constitute an immediate and
nonforfeitable transfer of the ownership of shares covered
thereby to the Nonemployee Director in consideration for
services rendered by such Nonemployee Director, entitling such
Nonemployee Director to voting and other ownership rights.
(ii) In the event that the number of shares of Common
Stock available for grants under this Plan is insufficient at
any time to make all automatic grants of Common Stock provided
for at such time in this Paragraph 11(d) and all automatic
-3-
<PAGE> 5
grants of Director Options provided for at such time in
Paragraphs 11(a) and 11(b), then this Paragraph 11(d) shall take
precedence over Paragraphs 11(a) and 11(b) so that all automatic
grants of Common Stock then required to be made under this
Paragraph 11(d) shall be made in full before any automatic
grants of Director Options are made at such time under
Paragraphs 11(a) and 11(b). In the event that the number of
shares of Common Stock available for grants under this Plan is
insufficient at any time to make all automatic grants of Common
Stock provided for in this Paragraph 11(d) at such time, then
all Nonemployee Directors who are entitled to an automatic grant
of Common Stock under this Paragraph 11(d) at such time shall
share ratably in the number of shares then available for grant
under this Plan and shall have no right to receive a grant with
respect to the deficiencies in the number of available shares.
SECTION 4. Amendment of Paragraph 12. Paragraph 12 of the Plan
is amended to read in its entirety as follows:
12. Transferability. (a) Except as provided in subparagraph
(b) below, no Award that has not become payable or earned will be
transferable by a Participant other than by will or the laws of descent
and distribution and Director Options, Option Rights or Appreciation
Rights will be exercisable during the Participant's lifetime only by the
Participant or by the Participant's guardian or legal representative.
(b) The Committee may, in its discretion, adopt rules or
guidelines under which any Award previously granted or to be granted to
a Participant (other than an incentive stock option) may be transferred
(in whole or in part) by the Participant to (i) the spouse, children or
grandchildren of the Participant ("Immediate Family Members"), (ii) a
trust or trusts for the exclusive benefit of the Immediate Family
Members and, if applicable, the Participant, (iii) a partnership in
which such Immediate Family Members and, if applicable, the Participant
are the only partners or (iv) section 501(c)(3) organizations. Following
transfer, any such Awards shall continue to be subject to the same terms
and conditions as were applicable to the Award immediately prior to
transfer; provided, however, that no transferred Award shall be
exercisable or payable, as the case may be, unless arrangements
satisfactory to the Company have been made to satisfy any tax
withholding obligations the Company may have with respect to the Award.
SECTION 5. Amendment of Paragraph 17(a). Paragraph 17(a) of the
Plan is amended by replacing the phrase "disinterested person", appearing in
the first sentence thereof, with the phrase "non-employee director".
-4-
<PAGE> 1
EXHIBIT 10.23
<PAGE> 2
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), dated as of February
15, 1997, by and among AMERICA WEST HOLDINGS CORPORATION, a Delaware corporation
("Holdings"), AMERICA WEST AIRLINES, INC., a Delaware corporation and a
wholly-owned subsidiary of Holdings ("AWA" and, together with Holdings,
"Employers"), and WILLIAM A. FRANKE ("Franke").
WHEREAS, Employers desire to employ Franke in an executive
capacity and Franke desires to serve in such capacity, all on the terms and
conditions, and for the consideration, set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
Definitions and Interpretations
1.1. Definitions
For purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the following terms shall
have the following respective meanings:
"AmWest Registration Agreement" shall have the meaning specified
in Section 6.1.
"Base Salary" shall have the meaning specified in Section
3.1(a).
"Board" shall mean the Board of Directors of Holdings.
"CEO" shall mean, when used with reference to any Constituent
Company, the chief executive officer of such Constituent Company.
"Chairman" shall mean, when used with reference to any
Constituent Company, the Chairman of the Board of such Constituent
Company.
"Change in Control" shall occur if, after the date hereof:
(i) the individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board"), cease for any
reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to
the date
<PAGE> 3
hereof whose election, or nomination for election by Holdings'
stockholders, was approved by a vote of at least two-thirds of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board; or
(ii) any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
acquires (directly or indirectly) the beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of more than 50% of the combined voting power of the then
outstanding voting securities of Holdings entitled to vote
generally in the election of directors ("Voting Power"); or
(iii) any shares of Class B Common Stock or other
voting securities of Holdings shall be purchased pursuant to a
tender or exchange offer (other than a tender or exchange offer
made by Holdings); or
(iv) Holdings' stockholders shall approve a merger or
consolidation involving Holdings other than (A) a merger or
consolidation in which the voting securities of Holdings
outstanding immediately prior thereto will become (by operation
of law), or are to be converted into, voting securities of the
surviving corporation or its parent corporation immediately
after such merger or consolidation that are owned by the same
person or entity or persons or entities as immediately prior
thereto and possess at least 75% of the Voting Power held by the
voting securities of the surviving corporation or its parent
corporation, (B) a merger or consolidation effected to implement
a recapitalization of Holdings (or similar transaction) in which
no person acquires more than 50% of the Voting Power or (C) a
merger or consolidation in which Holdings is the surviving
corporation and such transaction was determined not to be a
Change in Control, which transaction and determination was
approved by a majority of the Board in actions taken prior to,
and with respect to, such transaction; or
(v) Holdings' stockholders shall approve a merger,
consolidation, reorganization, disposition of assets,
liquidation or other transaction (or series of related
transactions) in which Holdings will not survive as a
publicly-owned corporation.
"Code" shall mean the Internal Revenue Code of 1986, as in
effect from time to time.
"Confidential Information" shall have the meaning specified in
Section 5.1(a).
"Constituent Companies" shall mean, collectively, Holdings, AWA
and all other direct or indirect subsidiaries of Holdings.
"Disability" shall mean a physical or mental condition of Franke
that, in the good faith judgment of not less than a majority of the
entire membership of the Board, based upon
-2-
<PAGE> 4
certification by a licensed physician reasonably acceptable to Franke and
the Board, (i) prevents Franke from being able to perform the services
required under this Agreement, (ii) has continued for a period of at
least six months during any period of twelve consecutive months and (iii)
is expected to continue.
"Dispute" shall have the meaning specified in Article VII.
"Employment Period" shall mean that the period commencing on the
date hereof and ending on the Expiration Date; provided, however, that if
either Holdings or Franke gives a Notice of Termination pursuant to
Section 4.1 or 4.2, then the Employment Period shall not extend beyond
the relevant Termination Date.
"Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended.
"Expiration Date" shall mean December 31, 1998.
"Good Reason" shall mean any of the following actions or
failures to act, but in each case only if it occurs during the Employment
Period and then only if it is not consented to by Franke:
(1) a material alteration by either Employer in the
nature or status of Franke's applicable positions, functions,
duties or responsibilities described in Section 2.2, including
any change which would (i) alter Franke's reporting
responsibilities described in Section 2.2 or (ii) cause Franke's
positions with Employers to become of less dignity or importance
than the applicable positions described in paragraphs (a) and
(b) of Section 2.2; provided, however, that each such alteration
shall cease to be a Good Reason on the date which is 90 days
after the occurrence of such alteration unless, prior to such
date, Franke gives a Notice of Termination pursuant to Section
4.1 on account of such alteration;
(2) the failure of either Employer to perform any of
its obligations under this Agreement in any material regard, but
only if such failure shall continue unremedied for more than 15
days after written notice thereof is given by Franke to
Holdings;
(3) the relocation of the principal executive offices
of either Employer outside the greater Phoenix, Arizona
metropolitan area or either Employer's requiring Franke to be
based other than at such principal executive offices; provided,
however, that such relocation shall cease to be a Good Reason on
the date which is 90 days after the occurrence of such
relocation unless, prior to such date, Franke gives a Notice of
Termination pursuant to Section 4.1 on account of such
relocation;
-3-
<PAGE> 5
(4) the failure either Employer to elect or re-elect,
or to appoint or re-appoint, Franke to the applicable offices
described in paragraphs (a) and (b) of Section 2.2;
(5) any purported termination by either Employer of
Franke's employment not in accordance with the provisions of
this Agreement;
(6) the failure of either Employer to obtain any
assumption agreement required by Section 9.5(a); or
(7) the failure of Franke to be elected or appointed,
or to be re-elected or re-appointed, as a director of either
Employer as contemplated by Section 2.2(f).
"Holders" shall have the meaning specified in Section 6.1.
"Incentive Plan" shall mean the America West 1994 Incentive
Equity Plan, as amended from time to time.
"Market Value per Share" means, at any date, the closing price
per share of Class B Common Stock of Holdings on that date (or, if there
are no sales on that date, the last preceding date on which there was
sale) in the principal market in which such shares are traded.
"Misconduct" shall mean one or more of the following:
(i) the willful and continued failure by Franke to
perform his duties described in Section 2.2 (other than any such
failure resulting from Franke's incapacity due to physical or
mental illness) after written notice of such failure has been
given to Franke by Holdings and Franke has had a reasonable
period after receipt of such notice to correct such failure;
(ii) the willful commission by Franke of acts that are
both dishonest and demonstrably injurious to any Constituent
Company (monetarily or otherwise) in any material respect,
provided that no act taken by Franke shall be deemed to
constitute Misconduct if such act was taken by Franke in good
faith and in the reasonable belief that such act was in the best
interests of the Constituent Companies or in furtherance of
Franke's duties and responsibilities described in Section 2.2;
(iii) the conviction of Franke for a felony offense
involving moral turpitude; or
-4-
<PAGE> 6
(iv) a material breach by Franke of any of the
covenants set forth in this Agreement (other than Section 2.2),
but only if such breach shall continue unremedied for more than
15 days after written notice thereof is given to Franke by
Holdings.
"Notice of Termination" shall mean a notice purporting to
terminate Franke's employment in accordance with Section 4.1 or 4.2,
which notice shall set forth in reasonable detail the reason for such
termination and the facts and circumstances claimed to provide a basis
for such termination.
"Person" shall mean and include an individual, a partnership, a
joint venture, a corporation, a trust and an unincorporated organization.
"Piggyback Registration Notice" shall have the meaning specified
in Section 6.2(a).
"Registrable Securities" shall have the meaning specified in
Section 6.1.
"Restricted Period" shall have the meaning specified in Section
5.2(a).
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Stockholder Approval" shall have the meaning specified in
Section 3.2(a).
"Termination Date" shall mean the termination date specified in
a Notice of Termination delivered in accordance with Article IV, provided
that in no event shall such termination date be less than 30 nor more
than 60 days after the date such Notice of Termination is given.
"1995 Agreement" shall mean the Employment Agreement between
Franke and AWA dated as of November 9, 1995.
"1996 Stock Option" shall have the meaning specified in Section
3.2.
1.2. Interpretations
(a) In this Agreement, unless a clear contrary intention
appears, (i) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, (ii) reference to any Article or Section,
means such Article or Section hereof, (iii) the words "including" (and with
correlative meaning "include") means including, without limiting the generality
of any description preceding such term, and (iv) where any provision of this
Agreement refers to action to be taken by any party,
-5-
<PAGE> 7
or which such party is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such party.
(b) The Article and Section headings herein are for convenience
only and shall not affect the construction hereof.
(c) No provision of this Agreement shall be interpreted or
construed against any party solely because that party or its legal
representative drafted such provision.
ARTICLE II
Employment; Term; Positions and Duties
2.1. Employment; Term
Each Employer hereby employs Franke in an executive capacity and
Franke hereby accepts employment by each Employer, in each case on the terms and
conditions, and for the consideration, set forth in this Agreement. Franke's
employment hereunder shall commence on the date hereof and shall terminate on
the Expiration Date, unless earlier terminated as provided in Article IV.
2.2. Positions and Duties
(a) While employed hereunder, Franke shall serve as Chairman and
CEO of Holdings and shall have and may exercise all of the powers, functions,
duties and responsibilities normally attributable to such positions, including
(without limitation) such duties and responsibilities as are set forth with
respect to such positions in the certificate of incorporation and bylaws (as
from time to time in effect) of Holdings.
(b) While employed hereunder, Franke shall serve as Chairman of
AWA and shall have and may exercise all of the powers, functions, duties and
responsibilities normally attributable to such position, including (without
limitation) such duties and responsibilities as are set forth with respect to
such position in the certificate of incorporation and bylaws (as from time to
time in effect) of AWA.
(c) Franke shall have such additional duties and
responsibilities commensurate with the positions referred to above as from time
to time may be reasonably assigned to him by the Board.
(d) While employed hereunder, Franke shall report directly and
exclusively to the Board and shall observe and comply with all lawful policies,
directions and instructions of the Board which are consistent with paragraphs
(a), (b) and (c) above.
-6-
<PAGE> 8
(e) During the Employment Period, (i) the President of Holdings
and the President and CEO of AWA shall report directly to Franke, (ii) the chief
operating officer, the chief financial officer, the chief legal officer and the
chief public affairs officer of Holdings shall, unless otherwise directed by the
Board, report directly to Franke and (iii) the chief operating officer, the
chief financial officer, the chief legal officer and the chief public affairs
officer of AWA shall, unless other directed by Franke or the Board, report
jointly to Franke and the CEO of AWA.
(f) Employers agree to use their reasonable best efforts to
cause Franke to be elected or appointed, or re-elected or re-appointed, as
director of each Employer at all times during the Employment Period.
(g) While employed hereunder, Franke agrees to devote a
reasonable portion (which need not constitute a substantial portion) of his
business time, attention, skill and efforts to the faithful and efficient
performance of his duties hereunder as Chairman and CEO of Holdings and as
Chairman of AWA; provided, however, that Franke may engage in the following
activities so long as they do not interfere in any material respect with the
performance of Franke's duties and responsibilities hereunder: (i) serve on
corporate, civic or charitable boards or committees, (ii) deliver lectures,
fulfill speaking engagements or teach on a part-time basis at educational
institutions, (iii) manage his personal investments, (iv) serve as a managing
partner of Newbridge Latin American Fund and (v) render consultation and
financial advisory services to third parties. Employers acknowledge that Franke
is the principal owner of Franke & Company, Inc. through which Franke owns and
oversees equity interests in several enterprises and provides consultation and
financial advisory services to third parties.
2.3. Place of Employment
Franke's place of employment hereunder shall be at Holdings'
principal executive offices in the greater Phoenix, Arizona metropolitan area.
ARTICLE III
Compensation and Benefits
3.1. Base Salary
(a) For services rendered by Franke under this Agreement,
Employers shall pay to Franke an annual cash base salary ("Base Salary") in the
amount (subject to adjustment as provided in paragraph (b) below) of (i)
$500,000 for the period ending June 30, 1997 and (ii) $250,000 for the remainder
of his employment hereunder. The Base Salary shall be payable semi-monthly as
earned during the Employment Period.
-7-
<PAGE> 9
(b) The Base Salary may be increased by the Board at any time or
from time to time as the Board may deem appropriate. The Board may decrease the
Base Salary at any time or from time to time after September 30, 1997 as the
Board may deem appropriate; provided that in no event may the Base Salary be
decreased below $100,000 without the prior written consent of Franke.
3.2. 1996 Stock Option
Franke has heretofore been granted several options to purchase
shares of Class B Common Stock of Holdings, the latest being an option purchase
71,000 shares of Class B Common Stock of Holdings for $12 per share (the "1996
Stock Option"). The following provisions of this Section 3.2 constitute the
agreement required with respect to the 1996 Stock Option under Paragraph 4(i) of
the Incentive Plan:
(a) Subject to the approval by Holdings' stockholders of an
appropriate increase in the number of shares covered by the Incentive
Plan ("Stockholder Approval"), the 1996 Option shall become exercisable
as to 10% of the shares covered thereby on October 28, 1997, as to 30% of
the shares covered thereby on October 28, 1998 and as to 60% of the
shares covered thereby on December 31, 1998, so that the 1996 Stock
Option will be exercisable in full on December 31, 1998.
(b) Upon the exercise of the 1996 Stock Option, the Person
exercising the 1996 Stock Option shall pay to Holdings an amount equal to
the exercise price, such amount to be paid (i) in cash, (ii) by
delivering to Holdings issued and outstanding shares of Holdings' Class B
Common Stock which have an aggregate Market Value per Share at the date
of exercise equal to the exercise price, (iii) by directing Holdings to
sell a sufficient number of shares to be acquired on exercise of the 1996
Stock Option through a broker approved by Holdings, in which event the
proceeds of such sale shall be applied by Holdings to the payment of the
exercise price, with any surplus then remaining to be paid to the Person
exercising the 1996 Stock Option or its designee or (iv) by any
combination of the foregoing.
(c) Upon the occurrence of a Change in Control, the 1996 Stock
Option shall become automatically vested in full and may be exercised at
any time thereafter; provided, however, in no event shall the 1996 Stock
Option be exercisable before Stockholder Approval or after October 28,
2006.
(d) In the event Franke's employment is terminated by Franke
pursuant to Section 4.1 other than for Good Reason or on account of
Disability or by Holdings pursuant to Section 4.2 for Misconduct, the
1996 Stock Option, to the extent then vested, may be exercised at any
time within six months following the Termination Date, but not
thereafter; provided, however, in no event shall the 1996 Stock Option be
exercisable before Stockholder Approval or after October 28, 2006. To the
extent the 1996 Stock Option is not vested on such Termination Date, the
1996 Stock Option (or the portion thereof that is not vested on such
Termination Date) shall automatically lapse and be canceled unexercised
as of such Termination Date.
-8-
<PAGE> 10
(e) The 1996 Stock Option shall become automatically vested in
full on the date of Franke's death and may be exercised at any time
within the one-year period beginning on the date of Franke's death, but
not thereafter; provided, however, in no event shall the 1996 Stock
Option be exercisable before Stockholder Approval or after October 28,
2006.
(f) In the event Franke's employment is terminated by reason of
Disability, the 1996 Stock Option shall become automatically vested in
full on the date of such Disability and may be exercised at any time
within the 36-month period beginning on the date of such Disability, but
not thereafter; provided, however, in no event shall the 1996 Stock
Option be exercisable before Stockholder Approval or after October 28,
2006.
(g) Except as otherwise provided herein, the 1996 Stock Option
may be exercised in whole or in part or in two or more successive parts.
(h) The 1996 Stock Option shall not be transferrable by Franke
except for transfers permitted by the Incentive Plan and except for
transfers by will or by laws of descent and distribution. During the
lifetime of Franke, the 1996 Stock Option may not be exercised by anyone
other than Franke or the Person to whom the 1996 Stock Option has been
transferred in accordance with the Incentive Plan.
(i) The 1996 Stock Option may be exercised from time to time by
a notice in writing which identifies the 1996 Stock Option and specifies
the number of shares in respect of which it is being exercised. Such
notice shall be delivered to the Secretary of Holdings or addressed to
the Secretary of Holdings at its principal corporate offices. The date of
exercise of the 1996 Stock Option shall be the date the exercise notice
is hand delivered or mailed to the Secretary of Holdings, whichever is
applicable. An election to exercise the 1996 Stock Option shall be
irrevocable.
(j) The 1996 Stock Option is not intended to qualify as an
incentive stock option under Section 422 of the Code.
(k) The provisions of this Section 3.2 shall survive the
termination of Franke's employment hereunder.
3.3. Life Insurance
During the Employment Period, Employers agree to maintain, at
all times and without cost to Franke, a term life insurance policy on the life
of Franke in the amount of $2 million, the proceeds of which, in the event of
Franke's death, shall be payable to one or more beneficiaries designated by
Franke or, in the absence of any such designation, to his estate. Such policy
shall be issued by a solvent insurance company reasonably acceptable to Franke.
-9-
<PAGE> 11
3.4. Annual Administrative Expense Allowance
(a) During the Employment Period, Employers shall to pay to
Franke or his designee, in accordance with past practices, an annual allowance
of $51,125 (subject to adjustment as provided in paragraph (b) below) for
administrative expenses incurred by Franke in connection with the performance of
his duties and responsibilities and the exercise of his powers and authority
under this Agreement. Each such annual allowance shall be paid to Franke in
twelve equal monthly installments. So long as Employers are not in default under
this Section 3.4, Franke shall be responsible for providing, in accordance with
past practices, at least one administrative assistant/secretary.
(b) The amount of the annual allowance referred to in paragraph
(a) above shall be adjusted upwards or downwards, as the case may be, for each
calendar year commencing on or after January 1, 1997 by the amount of the
change, if any, in the Cost of Living during the prior calendar year based on
the Consumer Price Index - All Urban Consumers - All Items Less Shelter - West A
Region (1982-84=100) as published by the Bureau of Labor Statistics for the
United States Department of Labor; provided, however, than in no event shall the
amount of any such annual adjustment exceed 6%. If such Index is discontinued or
revised in any material respect, the parties shall mutually agree upon a
substitute index which shall thereafter be used in order to obtain substantially
the same result as would have been obtained had such Index had not been so
discontinued or revised.
3.5. Business Expenses
Each Employer shall, in accordance with the rules and policies
that it may establish from time to time for senior executives, reimburse Franke
(without duplication) for business expenses reasonably incurred in the
performance of Franke's duties hereunder. It is understood that Franke is
authorized to incur reasonable business expenses for promoting the businesses
and reputations of the Constituent Companies, including reasonable expenditures
for travel, lodging, meals and client and/or business associate entertainment.
Requests for reimbursement for such expenses must be accompanied by appropriate
documentation.
3.6. Other Benefits
Franke shall be entitled to receive all fringe benefits and
other perquisites that may be offered by the Employers to their senior
executives as a group or to any of its senior executives individually or to the
members of the Board, including, without limitation, (i) participation in the
various employee benefit plans or programs provided to senior executives of
Employers in general (including split-dollar life insurance and disability
insurance programs), subject to meeting the eligibility requirements with
respect to each of such benefit plans or programs, (ii) tax/financial planning
assistance, (iii) automobile allowances, (iv) club memberships, (v) on-line and
interline, positive space travel privileges, (vi) participation in Employers'
severance payment policies on plans for executives in general and (vii)
participation in Employers' retiree medical insurance programs, subject to
meeting the eligibility requirements of such programs other than the
-10-
<PAGE> 12
requirement relating to five years service with Employers, which requirement is
hereby waived. However, nothing in this Section 3.6 shall be deemed to prohibit
Employers from making any changes in any of the plans, programs or benefits
described herein, provided the change similarly affects all senior executives of
Employers or all members of the Board, as the case may be, similarly situated.
Notwithstanding the foregoing, Franke shall not be entitled to participate in
any incentive plans offered to key employees of either Employer other than the
Incentive Plan.
3.7. No Director Fees
In no event shall Franke be entitled to receive any additional
compensation for serving as a director of any Constituent Company during the
Employment Period.
ARTICLE IV
Termination of Employment
4.1. Termination by Franke
Franke may, at any time prior to the Expiration Date, terminate
his employment hereunder for any reason by delivering a Notice of Termination to
the Board.
4.2. Termination by Holdings
Holdings may, at any time prior to the Expiration Date,
terminate Franke's employment hereunder for any reason by delivering a Notice of
Termination to Franke; provided, however, that in no event shall Holdings be
entitled to terminate Franke's employment hereunder prior to the Expiration Date
unless the Board shall duly adopt, by the affirmative vote of at least a
majority of the entire membership of the Board, a resolution authorizing such
termination and stating that, in the opinion of the Board, sufficient reason
exists therefor.
4.3. Payment of Accrued Base Salary, Vacation Pay, etc.
(a) Promptly upon the termination of Franke's employment
hereunder for any reason, Employers shall pay to Franke a lump sum amount for
(i) any unpaid Base Salary earned hereunder prior to the termination date, (ii)
all unused vacation time accrued by Franke as of the termination date in
accordance with Employers' vacation policies for senior executives, (iii) all
unpaid benefits earned by Franke as of the termination date under any and all
incentive compensation plans or programs of Employers, (iv) all amounts owing to
Franke under Sections 3.4
-11-
<PAGE> 13
and 3.5 and (v) any additional amounts or benefits which may be required to be
paid in a lump sum by applicable law.
(b) A termination of Franke's employment in accordance with this
Agreement shall not alter or impair (i) any of Franke's rights or benefits under
or with respect to the 1996 Stock Option except as expressly provided in Section
3.2, (ii) any of Franke's rights or benefits under any prior employment
agreement relating to stock options or stock grants previously awarded to
Franke, (iii) any of Franke's rights or benefits under any other agreement with
either Employer or (iv) any of Franke's rights or benefits, if any, under
employee benefit plans or programs maintained by either Employer.
4.4. Other Termination Benefits and Privileges
The following provisions shall apply if Franke terminates his
employment hereunder for Good Reason or if Holdings terminates Franke's
employment hereunder for any reason other than Misconduct or Disability:
(a) Severance Payment. Employers shall promptly pay to Franke a
severance payment (in cash or other immediately available funds) in the
amount of (i) $1.5 million if the Termination Date is on or before June
30, 1997 and (ii) $1.0 million if the Termination Date is after June 30,
1997; provided, however, that such severance payment shall be reduced to
the extent necessary so that no portion of such payment (or of any other
payment or benefit which constitutes a "parachute payment" within the
meaning of Section 280G of the Code and which Franke has received or is
entitled to receive shall be subject to the excise tax imposed by Section
4999 of the Code, but only if, by reason of such reduction, Franke's net
after tax benefit shall exceed the net after tax benefit if such
reduction were not made. In the event Franke shall become entitled to
receive a severance payment pursuant to this paragraph (a) under
circumstances which entitle him to receive a severance payment under any
severance policy or plan of either Employer, then the severance payment
due to Franke pursuant to such policy or plan shall be automatically
reduced by the amount of the severance payment due to him pursuant to
this paragraph (a).
(b) Medical Insurance. During the 24-month period following the
Termination Date, each Employer, at its cost, shall maintain in full
force and effect for the continued benefit of Franke and Franke's
dependents all benefits available to Franke and Franke's dependents under
all medical plans and programs of such Employer, provided that (i)
Franke's continued participation is possible under the terms and
provisions of such plans and programs and (ii) Franke pays the regular
employee premium, if any, required by such plans and programs. In the
event that participation by Franke (or his dependents) in any such plan
-12-
<PAGE> 14
or program after the Termination Date is barred pursuant to the terms
thereof, or in the event either Employer shall terminate any such plan or
program, such Employer shall obtain for Franke (and/or his dependents)
comparable coverage under individual policies.
(c) Life Insurance. During the 12-month period following the
Termination Date, each Employer, at its cost, shall continue to provide
Franke all life insurance coverages (and in the same amounts) provided to
him by either Employer immediately prior to the date on which the
relevant Notice of Termination is given in accordance with this Article
IV.
(d) Travel Privileges. Each Employer shall provide Franke (and
his wife and dependents) lifetime on-line and interline, positive space
travel privileges in accordance with the terms of its non-revenue travel
policy as in effect on the date hereof; provided, however, that the
travel privileges to be provided to Franke (and his wife and dependents)
by each Employer under this clause (d) shall be at least as favorable to
Franke (and his wife and dependents) as the travel privileges generally
provided to the senior executives of such Employer from time to time.
4.5. Payment of Benefits During Pendency of Dispute
Holdings may, within 10 days after its receipt of a Notice of
Termination given by Franke, provide notice to Franke that a dispute exists
concerning the termination, in which event such dispute shall be resolved in
accordance with Article VII. Franke may, within 10 days after his receipt of a
Notice of Termination given by Holdings, provide notice to Holdings that a
dispute exists concerning the termination, in which event such dispute shall be
resolved in accordance with Article VII. Notwithstanding the pendency of any
such dispute and notwithstanding any provision herein to the contrary, Employers
will (i) continue to pay Franke the Base Salary in effect when the notice giving
rise to the dispute was given and (ii) continue Franke as a participant in all
compensation and benefit plans in which Franke was participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved or,
with respect to a Notice of Termination given by Franke, the date of termination
specified in such notice, if earlier, but, in each case, not past the Expiration
Date. If (i) Holdings gives a Notice of Termination to Franke, (ii) Franke
disputes the termination as contemplated by this Section 4.5 and (iii) such
dispute is finally resolved in favor of Employers in accordance with Article
VII, then Franke shall be required to refund to Employers any amounts paid to
Franke under this Section 4.5 but only if, and then only to the extent, Franke
is not otherwise entitled to receive such amounts under this Agreement.
-13-
<PAGE> 15
4.6. Resignation as a Director
In the event Franke's employment under this Agreement is
terminated for any reason, Franke agrees, if requested by the Board, to resign
as a director of all Constituent Companies of which he is a director, such
resignation to be effective immediately or at such later time as the Board shall
request.
ARTICLE V
Confidential Information and Non-Competition
5.1. Confidential Information
(a) Franke recognizes that the services to be performed by him
hereunder are special, unique and extraordinary and that, by reason of his
employment with Employers and the positions described in paragraphs (a) and (b)
of Section 2.2, he may acquire Confidential Information (defined below)
concerning one or more of the Constituent Companies, the use or disclosure of
which would cause the Constituent Companies substantial loss and damages which
could not be readily calculated and for which no remedy at law would be
adequate. Accordingly, Franke agrees that he will not (directly or indirectly)
at any time, whether during or after his employment hereunder, disclose any such
Confidential Information to any Person except (i) in the performance of his
obligations to the Constituent Companies hereunder, (ii) as required by
applicable law, (iii) in connection with the enforcement of his rights under
this Agreement, the 1995 Agreement or any other agreement, (iv) in connection
with any disagreement, dispute or litigation (pending or threatened) between
Franke and one or more of the Constituent Companies or (v) with the prior
written consent of the Board. As used herein, "Confidential Information"
includes information with respect to the services, strategies, facilities and
methods, research and development, trade secrets and other intellectual
property, pricing and revenue management systems, patents and patent
applications, procedures, manuals, confidential reports, financial information,
business plans, prospects or opportunities of any Constituent Company; provided,
however, that such term shall not include any information that (x) is or becomes
generally known or available other than as a result of a disclosure by Franke or
(y) is or becomes known or available to Franke on a nonconfidential basis from a
source (other than Employers) which, to Franke's knowledge, is not prohibited
from disclosing such information to Franke by a legal, contractual, fiduciary or
other obligation to any Constituent Company.
(b) Franke confirms that all Confidential Information is the
exclusive property of the relevant Constituent Company. All business records,
papers and documents kept or made by
-14-
<PAGE> 16
Franke (whether electronically or otherwise) while employed by any Constituent
Company relating to the business of any Constituent Company shall be and remain
the property of such Constituent Company at all times. Upon the request of
Holdings at any time, Franke shall promptly deliver to Holdings, and shall
retain no copies of, any electronic media or written materials, records and
documents made by Franke or coming into his possession while employed by any
Constituent Company concerning the business or affairs of any Constituent
Company other than personal materials, records and documents (including notes
and correspondence) of Franke not containing proprietary information relating to
such business or affairs. Notwithstanding the foregoing, Franke shall be
permitted to retain copies of, or have access to, all such materials, records
and documents relating to any disagreement, dispute or litigation (pending or
threatened) between Franke and any Constituent Company.
5.2. Non-Competition
(a) While employed hereunder and for a period of 18 months
thereafter (the "Restricted Period"), Franke shall not, unless he receives the
prior written consent of the Board, own an interest in, manage, operate, join,
control, lend money or render financial or other assistance to or participate in
or be connected with, as an officer, employee, partner, stockholder, consultant
or otherwise, any Person which competes with either Employer in the United
States other than Alaska Airlines, American Airlines, Continental Airlines,
Delta Airlines, Northwest Airlines, TWA, United Airlines, USAir and ValueJet;
provided, however, that the foregoing restriction shall not apply at any time if
Franke's employment is terminated by Franke for Good Reason or by Holdings for
any reason other than Misconduct.
(b) Franke has carefully read and considered the provisions of
this Section 5.2 and, having done so, agrees that the restrictions set forth in
this Section 5.2 (including the Restricted Period, scope of activity to be
restrained and the geographical scope) are fair and reasonable and are
reasonably required for the protection of the interests of each Employer, its
officers, directors, employees, creditors and shareholders. Franke understands
that the restrictions contained in this Section 5.2 may limit his ability to
engage in a business similar to that of any Constituent Company, but
acknowledges that he will receive sufficiently high remuneration and other
benefits hereunder to justify such restrictions.
(c) During the Restricted Period, Franke shall not, whether for
his own account or for the account of any other Person (excluding Holdings),
intentionally (i) solicit, endeavor to entice or induce any employee of any
Constituent Company to terminate his employment with such Constituent Company or
accept employment with anyone else or (ii) interfere in a similar manner with
the business of any Constituent Company.
-15-
<PAGE> 17
(d) In the event that any provision of this Section 5.2 relating
to the Restricted Period and/or the areas of restriction shall be declared by a
court of competent jurisdiction to exceed the maximum time period or areas such
court deems reasonable and enforceable, the Restricted Period and/or areas of
restriction deemed reasonable and enforceable by the court shall become and
thereafter be the maximum time period and/or areas.
5.3. Stock Ownership
Nothing in this Agreement shall prohibit Franke from acquiring
or holding any issue of stock or securities of any Person that has any
securities registered under Section 12 of the Exchange Act, listed on a national
securities exchange or quoted on The Nasdaq Stock Market so long as (i) Franke
is not deemed to be an "affiliate" of such Person as such term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act and (ii) Franke and
members of his immediate family do not own or hold more than 5% of any voting
securities of any such Person.
5.4. Injunctive Relief
Franke acknowledges that a breach of any of the covenants
contained in this Article V may result in material irreparable injury to the
Constituent Companies for which there is no adequate remedy at law, that it will
not be possible to measure damages for such injuries precisely and that, in the
event of such a breach, any payments remaining under the terms of this Agreement
shall cease and the Constituent Companies (or any of them) shall be entitled to
obtain a temporary restraining order and/or a preliminary or permanent
injunction restraining Franke from engaging in activities prohibited by this
Article V or such other relief as may required to specifically enforce any of
the covenants contained in this Article V. Franke agrees to and hereby does
submit to in personam jurisdiction before each and every such court for that
purpose.
ARTICLE VI
Piggyback Registration Rights
6.1. Definitions
Capitalized terms used herein and in Exhibit A hereto that are
not otherwise defined herein shall have the meanings ascribed to them in that
certain Registration Rights Agreement dated August 25, 1994 among AWA, AmWest
Partners, L.P., Lehman Brothers Inc., Belmont Capital Partners II, L.P., Belmont
Fund, L.P. and Fidelity Copernicus Fund, L.P. and in that certain Assumption of
Certain Rights Under Registration Rights Agreement executed by Holdings
-16-
<PAGE> 18
(collectively, "AmWest Registration Rights Agreement"), to which agreements
reference is made for such definitions and for all purposes. In addition, the
following terms, as used in this Article VI, have the following meanings:
"Holders" shall mean (i) Franke, his heirs and personal
representatives (ii) any other Person to whom Holdings has granted the
right to have Registrable Securities held by such Person included in a
registration statement filed by Holdings covering the offer and sale of
its securities and (iii) any direct or indirect transferee of Registrable
Securities.
"Registrable Securities" means:
(1) all equity securities of Holdings acquired by Franke as
compensation for serving as an officer of either
Employer, including, without limitation, (a) stock
options, (b) any shares issued on exercise of stock
options and (c) any securities issued or issuable with
respect to any such securities by way of stock dividend
or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or
other reorganization or otherwise,
(2) Registrable Securities as such term is defined in the
AmWest Registration Rights Agreement, and
(3) equity securities of Holdings held by any other Person
to whom Holdings has granted the right to have such
equity securities included in a registration statement
filed by Holdings covering the offer and sale of its
securities.
As to any particular Registrable Securities, once issued such securities
shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been
disposed of in accordance with the plan of distribution set forth in such
registration statement, (ii) such securities shall have been distributed
in accordance with Rule 144, (iii) Holdings has caused to be delivered an
opinion of counsel in accordance with Section 6.2(c) that such securities
are distributable in accordance with Rule 144 or (iv) such securities
shall have been otherwise transferred, new certificates therefor not
bearing a legend restricting further transfer shall have been delivered
in exchange therefor by Holdings and subsequent disposition of such
securities shall not require registration or qualification under the
Securities Act or any similar state law then in force.
-17-
<PAGE> 19
"Requisite Holders" means any Holder or Holders of a majority in
interest of the Registrable Securities included or to be included in a
registration or other relevant action, as the case may be.
6.2. Piggyback Registration
(a) Right to Include Registrable Securities. If Holdings at any
time proposes to register any of its equity securities under the Securities Act
(other than by a registration (i) on Form S-4 or Form S-8, or any successor or
similar form then in effect or (ii) pursuant to Section 2.1 of the AmWest
Registration Rights Agreement) in a form and in a manner that would permit
registration of the Registrable Securities, whether or not for sale for its own
account, it will give prompt (but in no event less than 30 days prior to the
proposed date of filing the registration statement relating to such
registration) notice to all Holders of Registrable Securities of Holdings'
intention to do so and of such Holders' rights under this Section 6.2. Upon the
request of any such Holder made within 20 days after the receipt by such Holder
of any such notice (which request shall specify the Registrable Securities
intended to be disposed of by such Holder and the intended method or methods of
disposition thereof) (the "Piggyback Registration Notice"), Holdings will use
Commercially Reasonable Efforts to effect the registration under the Securities
Act of all Registrable Securities which Holdings has been so requested to
register by the Holders thereof, to the extent required to permit the
disposition (in accordance with the intended method or methods thereof as
aforesaid) of the Registrable Securities so to be registered, provided that if,
at any time after giving notice of its intention to register any equity
securities and prior to the effective date of the registration statement filed
in connection with such registration, Holdings shall determine for any reason
not to register or to delay registration of such equity securities, Holdings
may, at its election, give notice of such determination to each such Holder and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay all Registration Expenses in
connection therewith) and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities
for the same period as the delay in registering such other equity securities.
(b) Priority in Piggyback Registration. If (i) a registration
pursuant to this Section 6.2 involves an underwritten offering of the securities
being registered, whether or not for sale for the account of Holdings, to be
distributed (on a firm commitment basis) by or through one or more underwriters
of recognized standing under underwriting terms appropriate for such a
transaction and (ii) the managing underwriter of such underwritten offering
shall inform Holdings and the Holders requesting such registration by letter of
its belief that the amount of securities requested to be included in such
registration exceeds the amount which can be sold in (or during the time of)
such offering within a price range acceptable to Holdings, then Holdings will
include in such registration
-18-
<PAGE> 20
such amount of securities which Holdings is so advised can be sold in (or during
the time of) such offering as follows: first, all securities proposed by
Holdings to be sold for its own account; second, such securities of Holdings
requested to be included in such registration pursuant to the terms of the
AmWest Registration Rights Agreement; third, such Registrable Securities
requested to be included in such registration by all other Holders pro rata on
the basis of the amount of such securities so proposed to be sold and so
requested to be included by such Holders; and fourth, all other securities of
Holdings requested to be included in such registration pro rata on the basis of
the amount of such securities so proposed to be sold and so requested to be
included.
(c) The Holders shall be entitled to exercise their registration
rights pursuant to this Section 6.2 at any time or times until all of the
Registrable Securities have been sold pursuant to an effective registration
statement under the Securities Act, or until Holdings shall have obtained an
opinion of counsel reasonably acceptable to Holdings and Holders that such
Registrable Securities may be sold without registration pursuant to available
exemptions under Rule 144 without limitation on amount.
6.3. Registration Procedures
Each registration pursuant to Section 6.2 shall be effected in
accordance with the procedures, and subject to the indemnification and other
provisions, set forth in Exhibit A hereto.
ARTICLE VII
Dispute Resolution
(a) In the event a dispute shall arise between Franke, on the
one hand, and Holdings or AWA, on the other hand, as to whether the provisions
of this Agreement have been complied with (a "Dispute"), the parties agree to
resolve such Dispute in accordance with the following procedure:
(1) A meeting shall be held promptly between Franke and
Holdings, attended (in the case of Holdings) by one or more individuals
with decision-making authority regarding the Dispute, to attempt in good
faith to negotiate a resolution of the Dispute.
(2) If, within 10 days after such meeting, Franke and Holdings
have not succeeded in negotiating a resolution of the Dispute, the
Dispute shall be submitted to mediation in accordance with the Commercial
Mediation Rules of the American Arbitration Association.
-19-
<PAGE> 21
(3) Franke and Holdings will jointly appoint a mutually
acceptable mediator, seeking assistance in such regard from the American
Arbitration Association if they have been unable to agree upon such
appointment within 10 days following the 10-day period referred to in
clause (2) above.
(4) Upon appointment of the mediator, Franke and Holdings agree
to participate in good faith in the mediation and negotiations relating
thereto for 15 days.
(5) If Franke and Holdings are not successful in resolving the
Dispute through mediation within such 15-day period, the Dispute shall be
settled by arbitration in accordance with the Expedited Procedures of the
Commercial Arbitration Rules of the American Arbitration Association.
(6) The fees and expenses of the mediator/arbitrators shall be
borne solely by the non-prevailing party or, in the event there is no
clear prevailing party, as the mediator/arbitrators deem appropriate.
(7) If any dispute shall arise under this Agreement involving
termination of Franke's employment with Employers or involving the
failure or refusal of Employers to fully perform in accordance with the
terms hereof, Employers shall reimburse Franke (without duplication), on
a current basis, for all legal fees and expenses, if any, incurred by
Franke in connection with such dispute, together with interest thereon at
the rate of 8% per annum, such interest to accrue from the date Holdings
receives Franke's statement for such fees and expenses through the date
of payment thereof; provided, however, that in the event the resolution
of such dispute in accordance with this Article VII includes a finding
denying, in all material respects, Franke's claims in such dispute,
Franke shall be required to reimburse Employers, over a period not to
exceed 12 months from the date of such resolution, for all sums advanced
to Franke with respect to such dispute pursuant to this paragraph (7).
(8) Except as provided above, each of Franke and Holdings shall
pay its own costs and expenses (including, without limitation, attorneys'
fees) relating to any mediation/arbitration proceeding conducted under
this Article VII.
(9) All mediation/arbitration conferences and hearings will be
held in Maricopa County, Arizona.
(b) In the event there is any disputed question of law involved
in any arbitration proceeding, such as the proper legal interpretation of any
provision of this Agreement, the arbitrators shall make separate and distinct
findings of all facts material to the disputed question of
-20-
<PAGE> 22
law to be decided and, on the basis of the facts so found, express their
conclusion of the question of law. The facts so found shall be conclusive and
binding on the parties, but any legal conclusion reached by the arbitrators from
such facts may be submitted by either Franke or Holdings to a court of law for
final determination by initiation of a civil action in the manner provided by
law. Such action, to be valid, must be commenced within 20 days after receipt of
the arbitrators' decision. If no such civil action is commenced within such
20-day period, the legal conclusion reached by the arbitrators shall be
conclusive and binding on the parties. Any such civil action shall be submitted,
heard and determined solely on the basis of the facts found by the arbitrators.
Neither Franke or Holdings shall, or shall be entitled to, submit any additional
or different facts for consideration by the court. In the event any civil action
is commenced under this paragraph (b) and if Franke is the party who prevails or
substantially prevails (as determined by the court) in such civil action, Franke
shall be entitled to recover from Employers all costs, expenses and reasonable
attorneys' fees incurred by Franke in connection with such action and on appeal.
In the event any civil action is commenced under this paragraph (b) and if
Holdings is the party who prevails or substantially prevails (as determined by
the court) in such civil action, Holdings shall be entitled to recover from
Franke all costs, expenses and reasonable attorneys' fees incurred by Employers
in connection with such action and on appeal.
(c) Except as limited by paragraph (b) above, the parties agree
that judgment upon the award rendered by the arbitrators may be entered in any
court of competent jurisdiction. In the event legal proceedings are commenced to
enforce the rights awarded in an arbitration proceeding and if Franke is the
party who prevails or substantially prevails in such legal proceeding, Franke
shall be entitled to recover from Employers all costs, expenses and reasonable
attorneys' fees incurred by Franke in connection with such legal proceeding and
on appeal. In the event any civil action is commenced to enforce the rights
awarded in an arbitration proceeding and if Holdings is the party who prevails
or substantially prevails (as determined by the court) in such civil action,
Holdings shall be entitled to recover from Franke all costs, expenses and
reasonable attorneys' fees incurred by Employers in connection with such action
and on appeal.
(d) Except as provided above, (i) no legal action may be brought
by any party with respect to any Dispute and (ii) all Disputes shall be
determined only in accordance with the procedures set forth above.
-21-
<PAGE> 23
ARTICLE VIII
Antidilution Provisions and Reservation of Shares
8.1. Antidilution
(a) In the event of any change after the date hereof in the
number of issued shares of common stock (or any class thereof) of Holdings by
reason of any stock dividend, split-up, recapitalization, merger, combination,
conversion, exchange of shares or other change in the corporate or capital
structure of Holdings, then there shall be appropriate and equitable adjustments
made (with adjustments being cumulative if more than one of such events shall
have occurred) in the number and kind of shares of stock or other securities of
Holdings thereafter issued to Franke upon exercise of the 1996 Stock Option and
any other stock options heretofore or hereafter granted to Franke under the
Incentive Plan. Whenever an adjustment is made as required or permitted by the
provisions of this paragraph (a), Holdings shall promptly deliver to Franke
written notice thereof setting forth a brief statement of the facts requiring
such adjustment and the computation thereof.
(b) In case of any liquidation, dissolution or winding up of the
affairs of Holdings, Holdings shall make prompt, proportionate, equitable,
lawful and adequate provision as part of the terms of such dissolution,
liquidation or winding up such that Franke may thereafter receive, in lieu of
each share which Franke would have been entitled to receive upon exercise of the
1996 Stock Option or any other option to purchase shares of Class B Common Stock
of Holdings, the same kind and amount of any stock, securities or assets as may
be issuable, distributable or payable on any such dissolution, liquidation or
winding up with respect to each outstanding share of Class B Common Stock of
Holdings.
8.2. Covenant to Reserve Shares for Issuance
Holdings covenants that it will at all times reserve and keep
available (free of preemptive rights) out of its authorized and unissued shares
of Class B Common Stock, solely for the purpose of issuance upon exercise of
options granted to Franke to purchase shares of Class B Common Stock of
Holdings, the full number of shares of Class B Common Stock of Holdings, if any,
then issuable upon exercise of such options. Holdings further covenants that all
shares of Class B Common Stock which shall be so issuable shall be duly and
validly issued and fully paid and non-assessable.
-22-
<PAGE> 24
ARTICLE IX
Miscellaneous
9.1. No Mitigation or Set Off
The provisions of this Agreement are not intended to, nor shall
they be construed to, require that Franke mitigate the amount of any payment
provided for in this Agreement by seeking or accepting other employment, nor
shall the amount of any payment provided for in this Agreement be reduced by any
compensation earned by Franke as the result of employment by another employer or
otherwise. Without limitation of the foregoing, Employers' obligations to make
the payments to Franke required under this Agreement and otherwise to perform
their obligations hereunder shall not be affected by any set off, counterclaim,
recoupment, defense or other claim, right or action that either Employer may
have against Franke.
9.2. Assignability
The obligations of Franke hereunder are personal and may not be
assigned or delegated by Franke or transferred in any manner whatsoever, nor are
such obligations subject to involuntary alienation, assignment or transfer. Each
Employer shall have the right to assign this Agreement and to delegate all its
rights, duties and obligations hereunder as provided in Section 9.5.
9.3. Notices
All notices and all other communications provided for in the
Agreement shall be in writing and shall be sent, delivered or mailed, addressed
as follows: (i) if to Employers (or either of them), at Holdings principal
office address or such other address as Holdings may have designated by written
notice to Franke for purposes hereof, directed to the attention of the Board
with a copy to the Secretary of Holdings and (ii) if to Franke, at his residence
address on the records of Holdings or to such other address as he may have
designated to Holdings in writing for purposes hereof. Each such notice or other
communication shall be deemed to have been duly given when delivered or mailed
by United States registered mail, return receipt requested, postage prepaid,
except that any notice of change of address shall be effective only upon
receipt.
9.4. Severability
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
-23-
<PAGE> 25
9.5. Successors; Binding Agreement
(a) Each Employer will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of such Employer, by agreement
in form and substance reasonably acceptable to Franke, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
such Employer would be required to perform it if no such succession had taken
place. Failure of such Employer to obtain such agreement prior to the
effectiveness of any such succession shall be a material breach of this
Agreement. As used herein, (i) the term "Holdings" shall include any successor
to its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9.5 or which otherwise becomes bound by
all terms and provisions of this Agreement by operation of law and (ii) the term
"AWA" shall include any successor to its business and/or assets as aforesaid
which executes and delivers the Agreement provided for in this Section 9.5 or
which otherwise becomes bound by all terms and provisions of this Agreement by
operation of law.
(b) This Agreement and all rights of Franke hereunder shall
inure to the benefit of and be enforceable by Franke's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Franke should die while any amounts would be payable
to him hereunder if he had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
Franke's devisee, legatee, or other designee or, if there be no such designee,
to Franke's estate.
(c) This Agreement and all rights of the Constituent Companies
hereunder shall inure to the benefit of an be enforceable by the Constituent
Companies and their respective successors and assigns.
9.6. Tax Withholdings
Each Employer shall withhold from all payments hereunder all
applicable taxes (federal, state or other) which it is required to withhold
therefrom unless Franke has otherwise paid to such Employer the amount of such
taxes.
9.7. Amendments and Waivers
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by Franke and such member of the Board as may be specifically
authorized by the Board. No waiver by any party hereto at any time of any breach
by any other party hereto of, or in compliance with, any condition or provision
-24-
<PAGE> 26
of this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
9.8. Entire Agreement; Termination of Employment under 1995 Agreement
(a) The parties acknowledge, confirm and agree that Franke's
employment under the 1995 Agreement shall automatically terminate on the date
hereof, the same as if the Expiration Date (as defined in the 1995 Agreement)
occurred on the date hereof.
(b) This Agreement is an integration of the parties agreement
and no agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by any party which are not
set forth expressly in this Agreement.
9.9. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ARIZONA WITHOUT
REGARD TO ITS CONFLICT OF LAWS PROVISION.
9.10. Counterparts
This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
9.11. Indemnification
Without Franke's prior written consent, neither Employer not
amend, modify or repeal any provision of its certificate of incorporation or
bylaws if such amendment, modification or repeal would materially adversely
affect Franke's rights to indemnification by such Employer.
9.12. Remedies Cumulative
No right, power or remedy granted under this Agreement is
intended to be exclusive, but each shall be cumulative and in addition to any
other rights, powers or remedies referred to in this Agreement or otherwise
available at law or in equity.
9.13. Joint and Several Liability
The obligations of Employers hereunder shall be joint and
several.
-25-
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
AMERICA WEST HOLDINGS CORPORATION
By: /s/ Richard C. Kraemer
----------------------------------------
Richard C. Kraemer
Chairman, Compensation/Human
Resources Committee
AMERICA WEST AIRLINES, INC.
By: /s/ Stephen L. Johnson
----------------------------------------
Stephen L. Johnson
Senior Vice President - Legal Affairs
/s/ William A. Franke
-------------------------------------------
William A. Franke
-26-
<PAGE> 1
EXHIBIT 10.24
<PAGE> 2
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), dated as of February
15, 1997, by and among AMERICA WEST HOLDINGS CORPORATION, a Delaware corporation
("Holdings"), AMERICA WEST AIRLINES, INC., a Delaware corporation and a
wholly-owned subsidiary of Holdings ("AWA" and, together with Holdings,
"Employers"), and RICHARD GOODMANSON ("Employee").
WHEREAS, Employers desire to employ Employee in an executive
capacity and Employee desires to serve in such capacity, in each case on the
terms and conditions, and for the consideration, set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
Definitions and Interpretations
1.1. Definitions
For purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the following terms shall
have the following respective meanings:
"Base Salary" shall have the meaning specified in Section
3.1(a).
"Board" shall mean the Board of Directors of Holdings.
"Chairman" shall mean the Chairman of the Board of Holdings.
"Change in Control" shall have the meaning specified in the
Incentive Plan.
"Code" shall mean the Internal Revenue Code of 1986, as in
effect from time to time.
"Confidential Information" shall have the meaning specified in
Section 5.1(a).
"Constituent Companies" shall mean, collectively, Holdings, AWA
and all other direct or indirect subsidiaries of Holdings.
<PAGE> 3
"Default" shall mean the continued failure by Employee to
perform his duties described in Section 2.2 (other than any such failure
resulting from Employee's incapacity due to physical or mental illness)
after written notice of such failure has been given to Employee by
Holdings and Employee has had a reasonable period (not to exceed 30 days)
after receipt of such notice to correct such failure.
"Disability" shall mean a physical or mental condition of
Employee that, in the good faith judgment of the Board based upon
certification by a licensed physician, (i) prevents Employee from being
able to perform the services required under this Agreement, (ii) has
continued for a period of at least six months during any period of twelve
consecutive months and (iii) is expected to continue.
"Dispute" shall have the meaning specified in Article VI.
"Employment Period" shall mean that the period beginning on the
date hereof and ending on the Expiration Date; provided, however, that if
Holdings or Employee gives a Notice of Termination pursuant to Section
4.1 or 4.2, then the Employment Period shall not extend beyond the
relevant Termination Date.
"Expiration Date" shall mean June 17, 1999.
"First Stock Option" shall have the meaning specified in Section
3.4(a).
"Forfeiture Restriction" shall have the meaning specified in
Section 3.3(b).
"Good Reason" shall mean any of the following actions or
failures to act, but in each case only if it occurs during the Employment
Period and then only if it is not consented to by Employee:
(1) a material alteration by either Employer in the
nature or status of Employee's applicable positions, functions,
duties or responsibilities described in Section 2.2, including
any change which would (i) alter Employee's reporting
responsibilities described in Section 2.2(d) or (ii) cause
Employee's position with Employers to become of less dignity or
importance than the applicable positions described in paragraphs
(a) and (b) of Section 2.2; provided, however, that each such
alteration shall cease to be a Good Reason on the date which is
90 days after Employee becomes aware of the occurrence of such
alteration unless, prior to such date, Employee gives a Notice
of Termination pursuant to Section 4.1 on account of such
alteration;
(2) the failure of either Employer to perform any of
its obligations under this Agreement in any material regard, but
only if such failure shall continue
-2-
<PAGE> 4
unremedied for more than 30 days after written notice thereof is
given by Employee to Holdings;
(3) the relocation of the principal executive offices
of either Employer outside the greater Phoenix, Arizona
metropolitan area or either Employer's requiring Employee to be
based other than at such principal executive offices; provided,
however, that such relocation shall cease to be a Good Reason on
the date which is 90 days after the occurrence of such
relocation unless, prior to such date, Employee gives a Notice
of Termination pursuant to Section 4.1 on account of such
relocation;
(4) the failure of either Employer to elect or
re-elect, or to appoint or re-appoint, Employee to the
applicable offices described in paragraphs (a) and (b) of
Section 2.2; or
(5) the failure of Employee to be elected or appointed,
or to be re-elected or re-appointed, as a director of either
Employer as contemplated by Section 2.2(e).
"Holdings" shall have the meaning specified in the recitals of
this Agreement.
"Incentive Plan" shall mean the America West 1994 Incentive
Equity Plan, as amended from time to time.
"Market Value per Share" means, at any date, the closing price
per share of Class B Common Stock of Holdings on that date (or, if there
are no sales on that date, the last preceding date on which there was
sale) in the principal market in which such shares are traded.
"Misconduct" shall mean one or more of the following:
(i) the willful commission by Employee of acts that are
both dishonest and demonstrably injurious to any Constituent
Company (monetarily or otherwise) in any material respect;
(ii) the conviction of Employee for a felony offense;
or
(iii) a material breach (other than a Default) by
Employee of any of the covenants set forth in this Agreement,
but only if such breach shall continue unremedied for more than
15 days after written notice thereof is given to Employee by by
either Employer.
"Notice of Termination" shall mean a notice purporting to
terminate Employee's employment in accordance with Section 4.1 or 4.2,
which notice shall specify the Termination
-3-
<PAGE> 5
Date and set forth in reasonable detail the reason for such termination
and the facts and circumstances claimed to provide a basis for such
termination.
"Person" shall mean and include an individual, a partnership, a
joint venture, a corporation, a limited liability company, a trust and an
unincorporated organization.
"Pledge Agreement" shall have the meaning specified in Section
3.3(g).
"Prime Rate" shall have the meaning specified in Section 3.3(g).
"Promissory Note" shall have the meaning specified in Section
3.3(g).
"Restricted Period" shall have the meaning specified in Section
5.2(a).
"Restricted Shares" shall have the meaning specified in Section
3.3(b).
"Restricted Stock Grant" shall have the meaning specified in
Section 3.3(a).
"Second Stock Option" shall have the meaning specified in
Section 3.4(a).
"Stock Options" shall have the meaning specified in Section
3.4(a).
"Stockholder Approval" shall have the meaning specified in
Section 3.4(a).
"Termination Date" shall mean the termination date specified in
a Notice of Termination delivered in accordance with Article IV, provided
that in no event shall such termination date be less than 30 nor more
than 60 days after the date such Notice of Termination is given.
"Transfer Restriction" shall have the meaning specified in
Section 3.3(c).
1.2. Interpretation
(a) In this Agreement, unless a clear contrary intention
appears, (i) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, (ii) reference to any Article or Section,
means such Article or Section hereof, (iii) the words "including" (and with
correlative meaning "include") means including, without limiting the generality
of any description preceding such term, and (iv) where any provision of this
Agreement refers to action to be taken by either party, or which such party is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such party.
-4-
<PAGE> 6
(b) The Article and Section headings herein are for convenience
only and shall not affect the construction hereof.
(c) No provision of this Agreement shall be interpreted or
construed against either party solely because that party or its legal
representative drafted such provision.
ARTICLE II
Employment; Term; Positions and Duties
2.1. Employment; Term
(a) Each Employer hereby employs Employee in an executive
capacity and Employee hereby accepts employment by each Employer, in each case
on the terms and conditions, and for the consideration, set forth in this
Agreement.
(b) Employee's employment hereunder shall begin on the date
hereof and shall terminate on the Expiration Date, unless earlier terminated as
provided in Article IV.
2.2. Positions and Duties
(a) While employed hereunder, Employee shall serve as President
and Chief Executive Officer of AWA and while so serving shall have and may
exercise all of the powers, functions, duties and responsibilities normally
attributable to such positions, including (without limitation) any such duties
and responsibilities as are set forth with respect to such positions in AWA's
certificate of incorporation and bylaws (as from time to time in effect).
(b) While employed hereunder, Employee shall serve as President
(but not Chief Executive Officer) of Holdings and while so serving shall have
and may exercise all of the powers, functions, duties and responsibilities
normally attributable to such position, including (without limitation) any such
duties and responsibilities as are set forth with respect to such position in
Holdings' certificate of incorporation and bylaws (as from time to time in
effect).
(c) Employee shall have such additional duties and
responsibilities commensurate with the positions referred to above as from time
to time may be reasonably assigned to him by the Chairman and/or the Board.
(d) While employed hereunder, Employee shall report directly to
the Chairman and shall observe and comply with all lawful policies, directions
and instructions of the Chairman and/or the Board which are consistent with
paragraphs (a), (b) and (c) above. During the Employment Period, (i) all
executive officers of Holdings (other than the Chairman and other than Holdings'
chief executive officer, chief financial officer, chief legal officer and chief
public affairs officer) shall
-5-
<PAGE> 7
report directly to Employee and (ii) all executive officers of AWA (other than
its chairman of the board) shall report directly to Employee except that the
chief financial officer, chief legal officer and chief public affairs officer of
AWA will, unless otherwise directed by the Board or the Chairman, report jointly
to Employee and the Chairman.
(e) Employers agree to use their reasonable best efforts to
cause Employee to be elected or appointed, or re-elected or re-appointed, as a
director of each Employer at all times during the Employment Period.
(f) While employed hereunder, Employee agrees to devote
substantially all of his business time, attention, skill and efforts to the
faithful and efficient performance of his duties hereunder and shall not accept
employment with or for any Person other than Employers. Notwithstanding the
foregoing, Employee may engage in the following activities so long as they do
not interfere in any material respect with the performance of Employee's duties
and responsibilities hereunder: (i) serve on corporate, civic or charitable
boards or committees, (ii) deliver lectures, fulfill speaking engagements or
teach on a part-time basis at educational institutions and (iii) manage his
personal investments.
(g) While employed hereunder, Employee shall at all times
conduct himself in such a manner as not to knowingly prejudice, in any material
respect, the reputation of any Constituent Company in the fields of business in
which it engaged or with the investment community or the public at large.
2.3. Place of Employment
Employee's place of employment hereunder shall be at AWA's
principal executive offices in the greater Phoenix, Arizona metropolitan area.
ARTICLE III
Compensation and Benefits
3.1. Base Salary
(a) For services rendered by Employee under this Agreement,
Employers shall pay to Employee an annual cash base salary ("Base Salary") in
the amount $500,000. The Base Salary shall be payable monthly as earned during
the Employment Period.
(b) The Board shall review the Base Salary at least annually and
may increase the amount of the Base Salary at any time as the Board may deem
appropriate in its sole discretion. If the Base Salary is increased as
aforesaid, it may not thereafter be decreased unless a proportionally similar
decrease is made to the base compensation of all other senior executives of
Employers;
-6-
<PAGE> 8
provided that in no event may the Base Salary be decreased below $500,000
without the prior written consent of Employee.
3.2. Annual Incentive Compensation
During the Employment Period, Employee shall be entitled to
participate in Holdings' incentive compensation program (as from time to time
amended) for executive officers of Employers in general. Subject to the terms of
that program (including the achievement of applicable financial and individual
goals and objectives), Employee's annual target bonus for each year during the
Employment Period shall be 50% (or such other percentage as the Board may
approve from time to time in its sole discretion) of the Base Salary.
3.3. Restricted Stock Grant
(a) Employer holds 50,000 shares of Class B Common Stock of
Holdings previously granted to him under the Incentive Plan as additional
compensation for services rendered and to be rendered under this Agreement (the
"Restricted Stock Grant"). The following provisions of this Section 3.3
constitute the agreement required with respect to the Restricted Stock Grant
under Paragraph 6(f) of the Incentive Plan.
(b) The shares of stock included in the Restricted Stock Grant
(the "Restricted Shares") shall be subject to automatic forfeiture in the event
Employee's employment is terminated by Employee pursuant to Section 4.1 other
than for Good Reason or by Holdings pursuant to Section 4.2 for Misconduct or
Default; provided, however, that such forfeiture restriction (the "Forfeiture
Restriction") shall automatically lapse (i) as to one-third of the Restricted
Shares on June 17, 1997 if Employee's employment is not so terminated by such
date, (ii) as to an additional one-third of the Restricted Shares on June 17,
1998 if Employee's employment is not so terminated by such date and (iii) as to
an additional one-third of the Restricted Shares on June 17, 1999 if Employee's
employment is not so terminated by such date and, provided further, that the
Forfeiture Restriction shall automatically lapse as all Restricted Shares which
have not been previously forfeited as aforesaid (x) upon the occurrence of a
Change in Control during the Employment Period, (y) in the event of Employee's
death or (z) in the event Employee's employment is terminated by Employee for
Good Reason or on account of Disability or by Holdings for any reason other than
Default or Misconduct on account of the conviction of Employee for a felony. If
any of the Restricted Shares are forfeited pursuant to this paragraph (b),
Employee shall be obligated, for no consideration, to promptly surrender such
Restricted Shares to Holdings. Holdings may require Employee to execute and
deliver stock powers in the event of forfeiture.
(c) Employee will not sell, transfer or otherwise dispose of any
of the Restricted Shares which remain subject to the Forfeiture Restriction
except for transfers expressly permitted by the Incentive Plan and except for
transfers by will or by laws of descent and distribution. The foregoing transfer
restriction is hereinafter referred to as the "Transfer Restriction".
-7-
<PAGE> 9
(d) Except as expressly set forth above in this Section 3.3, (i)
the Restricted Stock Grant shall be irrevocable and unconditional and (ii) none
of the Restricted Shares shall be subject to forfeiture or surrender for any
reason. The Restricted Stock Grant shall become vested when the Forfeiture
Restriction has lapsed with respect thereto.
(e) Certificates evidencing the Restricted Shares will be issued
in Employee's name. Holdings may cause such certificates to bear a legend
setting forth or incorporating the Forfeiture Restriction and the Transfer
Restriction, and Holdings may cause such certificates to be delivered upon
issuance to the Secretary of Holdings (or such other depositary as may be
designated by the committee which administers the Incentive Plan) as a
depositary for safe-keeping until the Forfeiture Restriction and the Transfer
Restriction lapse with respect thereto or until forfeiture occurs with respect
thereto pursuant to paragraph (b) above. If the Forfeiture Restriction lapses as
to any Restricted Shares evidenced by a certificate bearing a legend setting
forth or incorporating the Forfeiture Restriction and the Transfer Restriction,
then, if requested by Employee, Holdings will cause a new certificate to be
issued in the name of Employee without such legend.
(f) Subject to the terms of the Pledge Agreement, Employee shall
be entitled to receive all dividends and distributions in respect of the
Restricted Shares (subject to applicable tax withholding), to vote the
Restricted Shares and to give consents, waivers and ratifications with respect
to the Restricted Shares; provided, however, that dividends and distributions
applicable to any Restricted Shares may be applied, at the option of Holdings,
to the repayment of the indebtedness evidenced by the Promissory Note or, if and
to the extent not so applied, held by Holdings until (i) the Forfeiture
Restriction lapses with respect to such Restricted Shares, at which time such
distributions shall be paid to Employee or his designee without interest or (ii)
forfeiture occurs with respect to such Restricted Shares pursuant to paragraph
(b) above, at which time such distributions shall be forfeited.
(g) If requested by Employee, Holdings or AWA will loan Employee
up to $600,000 solely for the purpose of enabling Employee to pay all or portion
of the income taxes (Federal and state) attributable to the Restricted Stock
Grant. Such loan shall be funded in one or more advances (not to exceed three)
as requested by Employee upon not less than fifteen business days notice. Such
loan shall be evidenced by, and subject to the terms and conditions of, a
promissory note duly executed by Employee and payable to the order of Holdings
or AWA, as the case may be (the "Promissory Note"). The Promissory Note shall be
in form and substance reasonably satisfactory to Holdings and shall be secured
by a pledge agreement (the "Pledge Agreement") covering all of the Restricted
Shares. The Pledge Agreement shall be in form and substance reasonably
satisfactory to Holdings and shall be accompanied by appropriate stock powers.
Each advance under the Promissory Note shall be payable in two equal
installments on the fifth and sixth anniversary dates of such advance and and
shall bear interest, compounded monthly, at a floating rate per annum equal to
the prime rate most recently announced by The Chase Manhattan Bank, such rate to
automatically fluctuate upward and downward with and at the time specified in
each such announcement (the "Prime Rate"). Employee shall not be personally
liable for payments due under the Promissory Note, it being expressly understood
and agreed that the sole
-8-
<PAGE> 10
recourse of Employers for satisfaction of the Promissory Note shall be against
the Restricted Shares pledged as collateral for the Promissory Note under the
Pledge Agreement.
(h) The parties recognize that, from time to time after the date
hereof, Holdings may register shares or units of its equity securities under the
Securities Act of 1933, as amended, for sale to the public and that Employee may
desire to include in such registration all or a portion of the Restricted Shares
which are no longer subject to forfeiture in accordance with paragraph (b) above
("Vested Restricted Shares"). Accordingly, it is anticipated that, if (i)
Holdings decides to effect a registration of any of its equity securities (other
than a registration on Form S-4 or Form S-8 or any successor or similar form)
for sale to the public after the date hereof, (ii) such registration is to be
effected before the Expiration Date at a time, in a form and in a manner that,
in the sole discretion of Holdings, would permit the inclusion of the Vested
Restricted Shares in such registration without having an adverse effect on such
registration or on any other aspect of Holdings' business and affairs and
without interfering with or infringing upon the demand or "piggyback"
registration rights of other holders of securities of Holdings, then Holdings
will endeavor to consult with Employee regarding Employee's desire to include
any of the Vested Restricted Shares in such registration and the terms,
conditions and restrictions which would be applicable to such inclusion. It is
specifically understood and agreed, however, that (i) nothing in this Agreement
is intended to or shall obligate Holdings to register any of the Restricted
Shares at any time or for any purpose and (ii) in no event shall any Constituent
Company have or be subject to any liability to Employee under or based on this
paragraph (h).
(i) The provisions of this Section 3.3 shall survive the
termination of Employee's employment hereunder.
3.4. Stock Options
(a) Employee has heretofore been granted pursuant to the
Incentive Plan:
(i) an option to purchase 250,000 shares of Class B Common Stock
of Holdings, with an exercise price per share equal to $19.625 (the
"First Stock Option"); and
(ii) subject to the approval by Holdings' stockholders of an
appropriate increase in the number of shares covered by the Incentive
Plan ("Stockholder Approval"), an option to purchase 100,000 shares of
Class B Common Stock of Holdings, with an exercise price per share equal
to $12.00 (the "Second Stock Option" and, together with the First Stock
Option, the "Stock Options").
The following provisions of this Section 3.4 constitute the agreement required
with respect to the Stock Options under Paragraph 4(i) of the Incentive Plan.
(b) The First Stock Option shall become exercisable as to
one-third of the shares covered thereby on June 17 in each of the years 1997,
1998 and 1999, so that the First Stock Option
-9-
<PAGE> 11
will be exercisable in full on June 17, 1999. In no event shall the First Stock
Option be exercisable after May 23, 2006.
(c) The Second Stock Option shall become exercisable as to 10%
of the shares covered thereby on October 28, 1997 and as to 30% of the shares
covered thereby on October 28 in each of the years 1998, 1999 and 2000, so that
the Second Stock Option will be exercisable in full on October 28, 2000. In no
event shall the Second Stock Option be exercisable before Stockholder Approval
or after October 28, 2006.
(d) Upon the exercise of either Stock Option, the Person
exercising such Stock Option shall pay to Holdings an amount equal to the
relevant exercise price, such amount to be paid (i) in cash, (ii) by delivering
to Holdings issued and outstanding shares of Holdings' Class B Common Stock
which have an aggregate Market Value per share at the date of exercise equal to
the relevant exercise price, (iii) by directing Holdings to sell a sufficient
number of shares to be acquired on exercise of such Stock Option through a
broker approved by Holdings, in which event the proceeds of such sale shall be
applied by Holdings to the payment of the relevant exercise price, with any
surplus then remaining to be paid to the Person exercising such Stock Option or
its designee or (iv) by any combination of the foregoing.
(e) Upon the occurrence of a Change in Control, each Stock
Option shall become automatically vested in full and may be exercised at any
time thereafter; provided, however, in no event shall the First Stock Option be
exercisable after May 23, 2006 or shall the Second Stock Option be exercisable
before Stockholder Approval or after October 28, 2006.
(f) In the event Employee's employment is terminated by Employee
pursuant to Section 4.1 other than for Good Reason or on account of Disability
or by Holdings pursuant to Section 4.2 for Misconduct or Default, each Stock
Option, to the extent then vested, may be exercised at any time within six
months following the relevant Termination Date, but not thereafter; provided,
however, in no event shall the First Stock Option be exercisable after May 23,
2006 or shall the Second Stock Option be exercisable before Stockholder Approval
or after October 28, 2006. To the extent either Stock Option is not vested on
such Termination Date, such Stock Option (or the portion thereof that is not
vested on such Termination Date) shall automatically lapse and be canceled
unexercised as of such Termination Date.
(g) Each Stock Option shall become automatically vested in full
on the date of Employee's death and may be exercised at any time within the
one-year period beginning on the date of Employee's death, but not thereafter;
provided, however, in no event shall the First Stock Option be exercisable after
May 23, 2006 or shall the Second Stock Option be exercisable before Stockholder
Approval or after October 28, 2006.
(h) In the event Employee's employment is terminated by reason
of Disability, each Stock Option shall become automatically vested in full on
the date of such Disability and may be exercised at any time within the 36-month
period beginning on the date of such Disability, but not
-10-
<PAGE> 12
thereafter; provided, however, in no event shall the First Stock Option be
exercisable after May 23, 2006 or shall the Second Stock Option be exercisable
before Stockholder Approval or after October 28, 2006.
(i) Except as otherwise provided herein, each Stock Option may
be exercised in whole or in part or in two or more successive parts.
(j) Neither Stock Option shall be transferrable by Employee
except for transfers expressly permitted by the Incentive Plan and except for
transfers by will or by laws of descent and distribution. During the lifetime of
Employee, neither Stock Option may be exercised by anyone other than Employee or
the Person to whom such Stock Option has been transferred in accordance with the
Incentive Plan.
(k) Each Stock Option may be exercised from time to time by a
notice in writing which identifies such Stock Option and specifies the number of
shares in respect of which it is being exercised. Such notice shall be delivered
to the Secretary of Holdings or addressed to such Secretary at the principal
corporate offices of Holdings. The date of exercise of each Stock Option shall
be the date the exercise notice is hand delivered or mailed (as the case may be)
to the Secretary of Holdings. An election to exercise either Stock Option shall
be irrevocable.
(l) Neither Stock Option is intended to qualify as an incentive
stock option under Section 422 of the Code.
(m) The provisions of this Section 3.4 shall survive the
termination of Employee's employment hereunder.
3.5. Life Insurance
During the Employment Period, Employers will endeavor to
maintain, at all times and without cost to Employee, a term life insurance
policy on the life of Employee in the amount of $400,000 and a split dollar life
insurance policy on the life of Employee in the amount of $1,000,000, the
proceeds of which, in the event of Employee's death, shall be payable to one or
more beneficiaries designated by Employee or, in the absence of any such
designation, to his estate. In the event Employee does not qualify for either
such insurance policy during any period within the Employment Period, Holdings
shall pay to Employee an amount equal to the premiums Employers would have
otherwise paid in order to maintain such policy for such period. In addition,
Employers will endeavor to make available to Employee, at his option and
expense, an additional $200,000 of group term life insurance.
-11-
<PAGE> 13
3.6. 401(k) Plan
During the Employment Period, Employee shall be entitled to
participate in Holdings' 401(k) plan commencing September 1, 1997. If Employee
remains employed by Holdings on August 31, 1997, Holdings shall pay to Employee,
as soon as practicable after such date, a lump sum payment in an amount
determined by Holdings to be the economic equivalent of the benefits which would
have accrued to Employee had he participated in Holdings' 401(k) plan during the
period from June 17, 1996 to and including August 31, 1997. The amount so
determined by Holdings shall be binding on Employee in the absence of manifest
error.
3.7. Vacation
During the Employment Period, Employee shall be entitled to
fifteen days of vacation per year or such greater number of vacation days as the
Board may approve from time to time in its sole discretion. Employee shall not
be entitled to accumulate or carryover unused vacation time or pay from year to
year except to the extent permitted in accordance with Holdings' vacation policy
(as from time to time amended) for senior executives in general.
3.8. Automobile Allowance
During the Employment Period, Holdings or AWA shall pay to
Employee an automobile allowance of $800 per month or such greater amount as the
Board may approve from time to time in its sole discretion.
3.9. Professional Fees
Holdings or AWA shall reimburse Employee for up to $5,000 (or
such greater amount as the Board may approve from time to time in its sole
discretion) per year for financial advisory and tax planning fees and expenses
paid by Employee during the Employment Period.
3.10. Business Expenses
Each Employer shall, in accordance with the rules and policies
that it may establish from time to time for senior executives, reimburse
Employee for business expenses reasonably incurred in the performance of
Employee's duties hereunder. It is understood that Employee is authorized,
during the Employment Period, to incur reasonable business expenses for
promoting the businesses and reputations of the Constituent Companies, including
reasonable expenditures for travel, lodging, meals and client and/or business
associate entertainment. Requests for reimbursement for such expenses must be
accompanied by appropriate documentation.
-12-
<PAGE> 14
3.11. Other Benefits
Employee shall be entitled to receive all fringe benefits and
other perquisites that may be offered by Employers to their senior executives as
a group, including, without limitation, (i) participation in the various
employee benefit plans or programs provided to senior executives of Employers in
general (including split-dollar life insurance, medical and disability insurance
programs), (ii) club memberships, (iii) on-line and interline travel privileges,
(iv) change in control/severance pay programs, (v) participation in Employers'
severance payment policies or plans for executives in general and (vi)
participation in Employers' retiree medical insurance programs, subject, in each
case, to meeting the applicable eligibility requirements. However, nothing in
this Section 3.11 shall be deemed to prohibit Employers from making any changes
in any of the plans, programs or benefits described herein, provided the change
similarly affects all senior executives of Employers similarly situated. If and
to the extent a particular benefit or other perquisite is provided to Employee
by two or more provisions of this Article III, the provision which is most
favorable to Employee shall govern and control to the exclusion of the other
provisions.
3.12. No Director Fees, etc.
In no event shall Employee be entitled to receive any additional
compensation for serving as a director of any Constituent Company.
ARTICLE IV
Termination of Employment
4.1. Employee's Right of Termination
Employee may, at any time prior to the Expiration Date,
terminate his employment hereunder for any reason by delivering a Notice of
Termination to the Chairman or the Board.
4.2. Holdings' Right of Termination
Holdings may, at any time prior to the Expiration Date,
terminate Employee's employment hereunder for any reason by delivering a Notice
of Termination to Employee.
4.3. Payment of Accrued Base Salary, Vacation Pay, etc.
(a) Promptly upon the termination of Employee's employment
hereunder for any reason, Employers shall pay to Employee a lump sum amount for
(i) any unpaid Base Salary earned hereunder prior to the termination date, (ii)
all unused vacation time accrued by Employee as of the termination date in
accordance with this Agreement and Employers' vacation policies for senior
executives, (iii) all unpaid benefits earned by Employee as of the termination
date under any and all
-13-
<PAGE> 15
incentive compensation plans or programs of Employers, (iv) all amounts owing to
Employee under Sections 3.8, 3.9 and 3.10 and (v) any additional amounts or
benefits which may be required to be paid in a lump sum by applicable law.
(b) A termination of Employee's employment in accordance with
this Agreement shall not alter or impair (i) any of Employee's rights or
benefits under the Stock Options except as provided in Section 3.4 or in the
Incentive Plan or (ii) any of Employee's rights or benefits, if any, under
employee benefit plans or programs maintained by either Employer.
4.4. Termination by Holdings for Misconduct or by Employee for other than a
Good Reason
The following provisions shall apply if, prior to the Expiration
Date, Employee terminates his employment hereunder for any reason other than a
Good Reason or if Holdings terminates Employee's employment hereunder for
Misconduct:
(i) Severance Payment. Employers shall promptly pay to Employee
a severance payment (in cash or other immediately available funds) in the
amount equal to 25% of the Base Salary as in effect on the relevant
Termination Date. Such severance payment shall be in lieu, and not in
addition to, any severance payment due or which may become due to
Employee under any other provision of this Article IV. In the event
Employee shall become entitled to receive a severance payment pursuant to
this Section 4.4 under circumstances which entitle him to receive a
severance payment under any severance policy or plan of either Employer,
then the severance payment due to Employee pursuant to such policy or
plan shall be automatically reduced by the amount of the severance
payment due to him pursuant to this Section 4.4.
(ii) Travel Privileges. Neither Employer shall have any
obligation to provide to Employee (or his wife or dependents) any
post-employment travel privileges.
4.5. Termination by Holdings for Breach of Duties
The following provisions shall apply if, prior to the Expiration
Date, Holdings terminates Employee's employment hereunder for Default:
(i) Severance Payment. Employers shall promptly pay to Employee
a severance payment (in cash or other immediately available funds) in the
amount equal to 100% of the Base Salary as in effect on the relevant
Termination Date. Such severance payment shall be in lieu, and not in
addition to, any severance payment due or which may become due to
Employee under any other provision of this Article IV. In the event
Employee shall become entitled to receive a severance payment pursuant to
this Section 4.5 under circumstances which entitle him to receive a
severance payment under any severance policy or plan of either Employer,
then the severance payment due to Employee pursuant to such policy or
plan shall
-14-
<PAGE> 16
be automatically reduced by the amount of the severance payment due to
him pursuant to this Section 4.5.
(ii) Travel Privileges. Each Employer shall provide Employee
(and his wife and dependents) on-line, positive space travel privileges
for two years after the relevant Termination Date, all in accordance with
the terms of its post-employment, non-revenue travel policy as from time
to time in effect; provided, however, each Employer shall be relived of
its obligation under this clause (ii) if Employee violates any of his
covenants and agreements set forth in Article V.
4.6. Termination by Employee for Good Reason or by Holdings for any Reason
other than Misconduct, Default or Disability
The following provisions shall apply if, prior to the Expiration
Date, Employee terminates his employment hereunder for Good Reason or if
Holdings terminates Employee's employment hereunder for any reason other than
Misconduct, Default or Disability:
(i) Severance Payment. Employers shall promptly pay to Employee
a severance payment (in cash or other immediately available funds) in the
amount of 150% of the Base Salary as in effect on the relevant
Termination Date. Such severance payment shall be in lieu, and not in
addition to, any severance payment due or which may become due to
Employee under any other provision of this Article IV. In the event
Employee shall become entitled to receive a severance payment pursuant to
this Section 4.6 under circumstances which entitle him to receive a
severance payment under any severance policy or plan of either Employer,
then the severance payment due to Employee pursuant to such policy or
plan shall be automatically reduced by the amount of the severance
payment due to him pursuant to this Section 4.6.
(ii) Travel Privileges. Each Employer shall provide Employee
(and his wife and dependents) on-line, positive space travel privileges
for five years after the relevant Termination Date, all in accordance
with the terms of its post-employment, non-revenue travel policy as from
time to time in effect; provided, however, each Employer shall be relived
of its obligation under this clause (ii) if Employee violates any of his
covenants and agreements set forth in Article V.
4.7. Payment of Benefits During Pendency of Dispute
Holdings may, within 10 days after its receipt of a Notice of
Termination given by Employee, provide notice to Employee that a dispute exists
concerning the termination, in which event such dispute shall be resolved in
accordance with Article VI. Employee may, within 10 days after his receipt of a
Notice of Termination given by Holdings, provide notice to Holdings that a
dispute exists concerning the termination, in which event such dispute shall be
resolved in accordance with Article VI. Notwithstanding the pendency of any such
dispute and notwithstanding
-15-
<PAGE> 17
any provision herein to the contrary, Employers will (i) continue to pay
Employee the Base Salary in effect when the notice giving rise to the dispute
was given, (ii) make the Restricted Stock Grant (if not already made) in
accordance with Section 3.3 and (iii) continue Employee as a participant in all
compensation and benefit plans in which Employee was participating when the
notice giving rise to the dispute was given, until the dispute is finally
resolved or, with respect to a Notice of Termination given by Employee, the date
of termination specified in such Notice, if earlier, but, in each case, not past
the Expiration Date. If (i) Holdings gives a Notice of Termination to Employee,
(ii) Employee disputes the termination as contemplated by this Section 4.7 and
(iii) such dispute is finally resolved in favor of Employers in accordance with
Article VI, then Employee shall be required to refund to Employers any amounts
paid to Employee under this Section 4.7 but only if, and then only to the
extent, Employee is not otherwise entitled to receive such amounts under this
Agreement. Employee agrees to pay interest to Employers on any amount required
to be refunded to Employers pursuant to the preceding sentence, such interest to
accrue for the period from the due date until paid at the Prime Rate.
4.8. Resignation as Director
If Employee's employment under this Agreement is terminated for
any reason, Employee agrees to resign as a director of all Constituent Companies
of which he is a director, such resignation to be effective (i) in the case of a
termination by Employee pursuant to Section 4.6, on the date Employee delivers
the relevant Notice of Termination in accordance with Section 4.1, (ii) in the
case of a termination by Holdings pursuant to Section 4.4 or 4.5, on the date
Employee receives the relevant Notice of Termination in accordance with Section
4.1 and (iii) in the case of a termination for any other reason, no later than
the relevant Termination Date.
ARTICLE V
Confidential Information and Non-Competition
5.1. Confidential Information
(a) Employee recognizes that the services to be performed by him
hereunder are special, unique and extraordinary and that, by reason of his
employment with Employers and the positions described in paragraphs (a) and (b)
of Section 2.2, he may acquire Confidential Information (defined below)
concerning one or more Constituent Companies, the use or disclosure of which
would cause the Constituent Companies substantial loss and damages which could
not be readily calculated and for which no remedy at law would be adequate.
Accordingly, Employee agrees that he will not (directly or indirectly) at any
time, whether during or after his employment hereunder, disclose any such
Confidential Information to any Person except (i) as required by applicable law,
(ii) in connection with, but only to the extent necessary for, the enforcement
of his rights under this Agreement or (iii) with the prior written consent of
the Board. As used herein, "Confidential Information" includes information with
respect to the services, strategies, facilities and methods,
-16-
<PAGE> 18
research and development, trade secrets and other intellectual property, pricing
and revenue management systems, patents and patent applications, procedures,
manuals, confidential reports, financial information, business plans, prospects
or opportunities of any Constituent Company; provided, however, that such term
shall not include any information that (x) is or becomes generally known or
available other than as a result of a disclosure by Employee or (y) is or
becomes known or available to Employee on a nonconfidential basis from a source
(other than Employers) which, to Employee's knowledge, is not prohibited from
disclosing such information to Employee by a legal, contractual, fiduciary or
other obligation to any Constituent Company.
(b) Employee confirms that all Confidential Information is the
exclusive property of the relevant Constituent Company. All business records,
papers and documents kept or made by Employee (whether electronically or
otherwise) while employed hereunder relating to the business of any Constituent
Company shall be and remain the property of such Constituent Company at all
times. Upon the request of Holdings at any time, Employee shall promptly deliver
to Holdings, and shall retain no copies of, any electronic media or written
materials, records and documents made by Employee or coming into his possession
while employed hereunder concerning the business or affairs of any Constituent
Company other than personal materials, records and documents (including notes
and correspondence) of Employee not containing proprietary information relating
to such business or affairs. Notwithstanding the foregoing, Employee shall be
permitted to retain copies of, or have access to, all such materials, records
and documents relating to any disagreement, dispute or litigation between
Employee and Employers.
5.2. Non-Competition
(a) While employed hereunder and for a period of two years
thereafter (the "Restricted Period"), Employee shall not, unless he receives the
prior written consent of the Board, own an interest in, manage, operate, join,
control, lend money or render financial or other assistance to or participate in
or be connected with, as an officer, employee, partner, stockholder, consultant
or otherwise, any Person which competes with any Constituent Company in the
United States.
(b) Employee has carefully read and considered the provisions of
this Section 5.2 and, having done so, agrees that the restrictions set forth in
this Section 5.2 (including the Restricted Period, scope of activity to be
restrained and the geographical scope) are fair and reasonable and are
reasonably required for the protection of the interests of each Employer, its
officers, directors, employees, creditors and stockholders. Employee understands
that the restrictions contained in this Section 5.2 may limit his ability to
engage in a business similar to that of any Constituent Company, but
acknowledges that he will receive sufficiently high remuneration and other
benefits hereunder to justify such restrictions.
(c) During the Restricted Period, Employee shall not, whether
for his own account or for the account of any other Person (excluding the
Constituent Companies), intentionally (i) solicit, endeavor to entice or induce
any employee of any Constituent Company to terminate his
-17-
<PAGE> 19
employment with such Constituent Company or accept employment with anyone else
or (ii) interfere in a similar manner with the business of any Constituent
Company.
(d) In the event that any provision of this Section 5.2 relating
to the Restricted Period and/or the areas of restriction shall be declared by a
court of competent jurisdiction to exceed the maximum time period or areas such
court deems reasonable and enforceable, the Restricted Period and/or areas of
restriction deemed reasonable and enforceable by the court shall become and
thereafter be the maximum time period and/or areas.
5.3. Stock Ownership
Nothing in this Agreement shall prohibit Employee from acquiring
or holding any issue of stock or securities of any Person that has any
securities registered under Section 12 of the Securities and Exchange Act of
1934, as amended, listed on a national securities exchange or quoted on The
Nasdaq Stock Market so long as (i) Employee is not deemed to be an "affiliate"
of such Person as such term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act of 1933, as amended, and (ii) Employee and members of his
immediate family do not own or hold more than 5% of any voting securities of any
such Person.
5.4. Injunctive Relief, etc.
Employee acknowledges that the covenants contained in this
Article V are intended for the benefit of, and may be enforced by, the
Constituent Companies and their respective successors and assigns. Employee
further acknowledges that a breach of any of the covenants contained in this
Article V may result in material irreparable injury to the Constituent Companies
for which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of such a
breach, any payments remaining under the terms of this Agreement shall cease and
the Constituent Companies (or any of them) shall be entitled to obtain a
temporary restraining order and/or a preliminary or permanent injunction
restraining Employee from engaging in activities prohibited by this Article V or
such other relief as may required to specifically enforce any of the covenants
contained in this Article V. Employee agrees to and hereby does submit to in
personam jurisdiction before each and every such court for that purpose.
ARTICLE VI
Dispute Resolution
(a) In the event a dispute shall arise between Employee, on the
one hand, and Holdings or AWA, on the other hand, as to whether the provisions
of this Agreement have been complied with (a "Dispute"), the parties agree to
resolve such Dispute in accordance with the following procedure:
-18-
<PAGE> 20
(1) A meeting shall be held promptly between Employee and
Holdings, attended by (in the case of Holdings) by one or more
individuals with decision-making authority regarding the Dispute, to
attempt in good faith to negotiate a resolution of the Dispute.
(2) If, within 10 days after such meeting, Employee and Holdings
have not succeeded in negotiating a resolution of the Dispute, the
Dispute shall be submitted to mediation in accordance with the Commercial
Mediation Rules of the American Arbitration Association.
(3) Employee and Holdings will jointly appoint a mutually
acceptable mediator, seeking assistance in such regard from the American
Arbitration Association if they have been unable to agree upon such
appointment within 10 days following the 10-day period referred to in
clause (2) above.
(4) Upon appointment of the mediator, Employee and Holdings
agree to participate in good faith in the mediation and negotiations
relating thereto for 15 days.
(5) If Employee and Holdings are not successful in resolving the
Dispute through mediation within such 15-day period, the Dispute shall be
settled by arbitration in accordance with the Expedited Procedures of the
Commercial Arbitration Rules of the American Arbitration Association.
(6) The fees and expenses of the mediator/arbitrators shall be
borne solely by the non-prevailing party or, in the event there is no
clear prevailing party, as the mediator/arbitrators deem appropriate.
(7) If any dispute shall arise under this Agreement involving
termination of Employee's employment with Employers or involving the
failure or refusal of Employers to fully perform in accordance with the
terms hereof, Employers shall reimburse Employee (without duplication),
on a current basis, for all legal fees and expenses, if any, incurred by
Employee in connection with such dispute, together with interest thereon
at the Prime Rate, such interest to accrue from the date Holdings
receives Employee's statement for such fees and expenses through the date
of payment thereof; provided, however, that in the event the resolution
of such dispute in accordance with this Article VI includes a finding
denying, in all material respects, Employee's claims in such dispute,
Employee shall be required to reimburse Employers, within 30 days after
the date of such resolution, for all sums advanced to Employee with
respect to such dispute pursuant to this paragraph (7).
(8) Except as provided above, each of Employee and Holdings
shall pay its own costs and expenses (including, without limitation,
attorneys' fees) relating to any mediation/arbitration proceeding
conducted under this Article VI.
-19-
<PAGE> 21
(9) All mediation/arbitration conferences and hearings will be
held in Maricopa County, Arizona.
(b) In the event there is any disputed question of law involved
in any arbitration proceeding, such as the proper legal interpretation of any
provision of this Agreement, the arbitrators shall make separate and distinct
findings of all facts material to the disputed question of law to be decided
and, on the basis of the facts so found, express their conclusion of the
question of law. The facts so found shall be conclusive and binding on the
parties, but any legal conclusion reached by the arbitrators from such facts may
be submitted by either Employee or Holdings to a court of law for final
determination by initiation of a civil action in the manner provided by law.
Such action, to be valid, must be commenced within 20 days after receipt of the
arbitrators' decision. If no such civil action is commenced within such 20-day
period, the legal conclusion reached by the arbitrators shall be conclusive and
binding on the parties. Any such civil action shall be submitted, heard and
determined solely on the basis of the facts found by the arbitrators. Neither of
Employee or Holdings shall, or shall be entitled to, submit any additional or
different facts for consideration by the court. In the event any civil action is
commenced under this paragraph (b) and if Employee is the party who prevails or
substantially prevails (as determined by the court) in such civil action,
Employee shall be entitled to recover from Employers all costs, expenses and
reasonable attorneys' fees incurred by Employee in connection with such action
and on appeal. In the event any civil action is commenced under this paragraph
(b) and if Holdings is the party who prevails or substantially prevails (as
determined by the court) in such civil action, Holdings shall be entitled to
recover from Employee all costs, expenses and reasonable attorneys' fees
incurred by Employers in connection with such action and on appeal.
(c) Except as limited by paragraph (b) above, the parties agree
that judgment upon the award rendered by the arbitrators may be entered in any
court of competent jurisdiction. In the event legal proceedings are commenced to
enforce the rights awarded in an arbitration proceeding and if Employee is the
party who prevails or substantially prevails in such legal proceeding, Employee
shall be entitled to recover from Employers all costs, expenses and reasonable
attorneys' fees incurred by Employee in connection with such legal proceeding
and on appeal. In the event legal proceedings are commenced to enforce the
rights awarded in an arbitration proceeding and if Holdings is the party who
prevails or substantially prevails in such legal proceeding, Holdings shall be
entitled to recover from Employee all costs, expenses and reasonable attorneys'
fees incurred by Employers in connection with such legal proceeding and on
appeal.
(d) Except as provided above, (i) no legal action may be brought
by any party with respect to any Dispute and (ii) all Disputes shall be
determined only in accordance with the procedures set forth above.
-20-
<PAGE> 22
ARTICLE VII
Miscellaneous
7.1. No Mitigation
The provisions of this Agreement are not intended to, nor shall
they be construed to, require that Employee mitigate the amount of any payment
provided for in this Agreement by seeking or accepting other employment, nor
shall the amount of any payment provided for in this Agreement be reduced by any
compensation earned by Employee as the result of employment by another employer
or otherwise.
7.2. Assignability
The obligations of Employee hereunder are personal and may not
be assigned or delegated by Employee or transferred in any manner whatsoever,
nor are such obligations subject to involuntary alienation, assignment or
transfer. Each Employer shall have the right to assign this Agreement and to
delegate all rights, duties and obligations hereunder as provided in Section
7.5.
7.3. Notices
All notices and all other communications provided for in the
Agreement shall be in writing and shall be sent, delivered or mailed, addressed
as follows: (i) if to Employers (or either of them), at Holdings' principal
office address or such other address as Holdings may have designated by written
notice to Employee for purposes hereof, directed to the attention of the Board
with a copy to the Secretary of Holdings and (ii) if to Employee, at his
residence address on the records of Holdings or to such other address as he may
have designated to Holdings in writing for purposes hereof. Each such notice or
other communication shall be deemed to have been duly given when delivered or
mailed by United States registered mail, return receipt requested, postage
prepaid, except that any notice of change of address shall be effective only
upon receipt.
7.4. Severability
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
7.5. Successors; Binding Agreement
(a) Each Employer will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of such Employer, by agreement
in form and substance reasonably acceptable to Employee, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
-21-
<PAGE> 23
that such Employer would be required to perform it if no such succession had
taken place. As used herein, (i) the term "Holdings" shall include any successor
to its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 7.5 or which otherwise becomes bound by
all terms and provisions of this Agreement by operation of law and (ii) the term
"AWA" shall include any successor to its business and/or assets as aforesaid
which executes and delivers the Agreement provided for in this Section 7.5 or
which otherwise becomes bound by all terms and provisions of this Agreement by
operation of law.
(b) This Agreement and all rights of Employee hereunder shall
inure to the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die while any amounts would be payable
to him hereunder if he had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
Employee's devisee, legatee, or other designee or, if there be no such designee,
to Employee's estate.
(c) This Agreement and all rights of the Constituent Companies
hereunder shall inure to the benefit of and be enforceable by the Constituent
Companies and their respective successors and assigns.
7.6. Tax Withholdings
Each Employer shall withhold from all payments hereunder all
applicable taxes (federal, state or other) which it is required to withhold
therefrom unless Employee has otherwise paid to such Employer the amount of such
taxes.
7.7. Amendments and Waivers
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by the parties. No such instrument shall be binding on the Company
unless signed by the Chairman or such other Person as may be specifically
authorized by the Board. No waiver by any party hereto at any time of any breach
by any other party hereto of, or in compliance with, any condition or provision
of this Agreement to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
7.8. Entire Agreement
This Agreement is an integration of the parties agreement and no
agreement or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement.
-22-
<PAGE> 24
7.9. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF ARIZONA WITHOUT
REGARD TO ITS CONFLICT OF LAWS PROVISION.
7.10. Counterparts
This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
7.11. Remedies Cumulative
No right, power or remedy granted under this Agreement is
intended to be exclusive, but each shall be cumulative and in addition to any
other rights, powers or remedies referred to in this Agreement or otherwise
available at law or in equity.
7.12. Joint and Several Liability
The obligations of Employers hereunder shall be joint and
several.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
AMERICA WEST HOLDINGS CORPORATION
By: /s/ William A. Franke
----------------------------------------
William A. Franke
Chairman of the Board and Chief
Executive Officer
AMERICA WEST AIRLINES, INC.
By: /s/ William A. Franke
----------------------------------------
William A. Franke
Chairman of the Board
/s/ Richard R. Goodmanson
-------------------------------------------
Richard R. Goodmanson
-23-
<PAGE> 1
EXHIBIT 11.1
<PAGE> 2
AMERICA WEST HOLDINGS CORPORATION
COMPUTATION OF NET INCOME PER COMMON SHARE
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
| PREDECESSOR
REORGANIZED COMPANY | COMPANY
----------------------------------------- | ------------
PERIOD FROM | PERIOD FROM
YEAR ENDED DECEMBER 31, AUGUST 26 TO | JANUARY 1 TO
DECEMBER 31, | AUGUST 25,
1996 1995 1994 | 1994
------------ ------------ ------------- | ------------
<S> <C> <C> <C> | <C>
PRIMARY EARNINGS PER SHARE |
Computation for Statements of Income: |
Income (loss) before extraordinary items ............................. $ 9,610 $ 54,770 $ 7,846 | $ (203,268)
Adjustments for interest on debt reduction .............................. 474 1,487 -- | 2,584
Preferred stock dividend requirement .................................... -- -- -- | --
----------- ----------- ----------- | -----------
Income (loss) applicable to common stock before extraordinary items ..... 10,084 56,257 7,846 | (200,684)
Extraordinary items, net ................................................ (1,105) (984) -- | 257,660
----------- ----------- ----------- | -----------
Income applicable to common stock ....................................... $ 8,979 $ 55,273 $ 7,846 | $ 56,976
=========== =========== =========== | ===========
Weighted average number of common shares outstanding .................... 44,895,406 45,177,291 45,126,899 | 25,470,671
Assumed exercise of stock options and warrants (a) ...................... 2,739,868 2,488,216 -- | 3,079,258
----------- ----------- ----------- | -----------
Weighted average number of common shares outstanding as adjusted ........ 47,635,274 47,665,507 45,126,899 | 28,549,929
=========== =========== =========== | ===========
Primary earnings per common share: |
Income (loss) before extraordinary items ............................. $ 0.21 $ 1.18 $ .17 | $ (7.03)
Extraordinary items .................................................. (.02) (.02) -- | 9.02
----------- ----------- ----------- | -----------
Net income ........................................................... $ 0.19 $ 1.16 $ .17 | $ 1.99
=========== =========== =========== | ===========
Computation of primary earnings per share--antidilutive calculation |
under modified treasury stock method submitted in accordance with |
Regulation S-K Item 601(b)(11) |
Income before extraordinary items ....................................... $ 7,846 |
Preferred stock dividend requirement .................................... -- |
Interest adjustment net of taxes ........................................ 870 |
----------- |
Income applicable to common stock before extraordinary items ............ 8,716 |
Extraordinary items, tax benefit ........................................ -- |
----------- |
Income applicable to common stock ....................................... $ 8,716 |
=========== |
Weighted average number of common shares outstanding .................... 45,126,899 |
Assumes exercise of stock options and warrants .......................... 2,011,352 |
----------- |
Weighted average number of common shares as adjusted .................... 47,138,251 |
=========== |
Primary earnings per common share: |
Income before ........................................................ $ .18 |
Extraordinary items .................................................. -- |
----------- |
Net income (b) ....................................................... $ .18 |
=========== |
FULLY DILUTED EARNINGS PER SHARE |
Computation for Statements of Income: |
Income (loss) before extraordinary items ............................. $ 9,610 $ 54,770 $ 7,846 | $ (203,268)
Adjustment for interest on debt reduction ............................ 171 851 870 | 2,520
Preferred stock dividend requirement ................................. -- -- -- | --
----------- ----------- ----------- | -----------
Income (loss) applicable to common stock before extraordinary items .. 9,781 55,621 8,716 | (200,748)
Extraordinary items .................................................. (1,105) (984) -- | 257,660
----------- ----------- ----------- | -----------
Net income ........................................................... $ 8,676 $ 54,637 $ 8,716 | $ 56,912
=========== =========== =========== | ===========
Weighted average number of common shares outstanding ................. 44,895,406 45,177,291 45,126,899 | 25,470,671
Assumed exercise of stock options and warrants (a) ................... 3,049,100 2,488,216 2,011,352 | 3,079,258
----------- ----------- ----------- | -----------
Weighted average number of common shares outstanding as adjusted ..... 47,944,506 47,665,507 47,138,251 | 28,549,929
=========== =========== =========== | ===========
Fully diluted earnings per common share: |
Income (loss) before extraordinary items ............................. $ 0.20 $ 1.17 $ .18 | $ (7.03)
Extraordinary items .................................................. (.02) (.02) -- | 9.02
----------- ----------- ----------- | -----------
Net income ........................................................... $ 0.18 $ 1.15 $ .18(b)| $ 1.99
=========== =========== =========== | ===========
Additional Fully Diluted Computation: |
Additional adjustment to net income as adjusted per fully |
diluted computation above ........................................ |
Income (loss) before extraordinary items as adjusted per fully |
diluted computation above ........................................ $ 9,610 $ 54,770 $ 7,846 | $ (203,268)
Add--Interest on 7.75% subordinated debentures, net of taxes ......... -- | --
Add--Interest on 7.5% subordinated debentures, net of taxes .......... -- | --
Add--Interest on 11.5% subordinated debentures, net of taxes ......... -- | --
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
| PREDECESSOR
REORGANIZED COMPANY | COMPANY
------------------------------------------|------------
PERIOD FROM | PERIOD FROM
YEAR ENDED DECEMBER 31, AUGUST 26 TO | JANUARY 1 TO
DECEMBER 31, | AUGUST 25,
1996 1995 1994 | 1994
------------ ------------ --------------| ------------
<S> <C> <C> <C> | <C>
FULLY DILUTED EARNINGS PER SHARE |
Add interest on debt reduction, net of taxes .......................... 837 851 870 | 2,520
----------- ----------- ----------- | -----------
Income (loss) before extraordinary items as adjusted .................. 10,447 55,621 8,716 | (200,748)
Extraordinary items, net .............................................. (1,105) (984) -- | 257,660
----------- ----------- ----------- | -----------
Net income ............................................................ $ 9,342 $ 54,637 $ 8,716 | $ 56,912
=========== =========== =========== | ===========
Additional adjustment to weighted average number of shares |
outstanding ....................................................... -- -- -- | --
Weighted average number of shares outstanding as adjusted per fully |
diluted computation above ......................................... 47,944,506 47,665,507 47,138,251 | 28,549,929
Additional dilutive effect of outstanding options and warrants ........ 434,376 -- -- | --
Additional dilutive effect of assumed conversion of preferred stock: |
Series A 9.75% ........................................................ -- -- -- | --
Series B 10.5% ........................................................ -- -- -- | --
Series C 9.75% ........................................................ -- -- -- | 73,099
Additional dilutive effect of assumed conversion of 7.75% subordinated |
debenture ............................................................. -- -- -- | 2,257,558
Additional dilutive effect of assumed conversion of 7.5% subordinated |
debenture ............................................................. -- -- -- | 2,264,932
Additional dilutive effect of assumed conversion of 11.5% subordinated |
debenture ............................................................. -- -- -- | 7,306,865
----------- ----------- ----------- | -----------
Weighted average number of common shares outstanding as adjusted ......... 48,378,882 47,665,507 47,138,251 | 40,452,383
=========== =========== =========== |===========
Fully diluted earnings per common share: |
Income (loss) before extraordinary items .............................. $ .21 $ 1.17 $ .18 | $ (4.96)
Extraordinary items, net .............................................. (.02) (.02) -- | 6.37
----------- ----------- ----------- | -----------
Net income ............................................................ $ .19 $ 1.15 $ .18(b)| $ 1.41
=========== =========== =========== | ===========
</TABLE>
- ---------------
(a) The stock options and warrants are included only in the periods in
which they are dilutive.
(b) The calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No.
15 because it produces an antidilutive result.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001029863
<NAME> AMERICA WEST HOLDINGS CORPORATION
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 137,499
<SECURITIES> 39,131
<RECEIVABLES> 109,306
<ALLOWANCES> 3,091
<INVENTORY> 21,423
<CURRENT-ASSETS> 351,813
<PP&E> 777,647
<DEPRECIATION> 163,718
<TOTAL-ASSETS> 1,597,650
<CURRENT-LIABILITIES> 522,720
<BONDS> 330,148
0
0
<COMMON> 458
<OTHER-SE> 622,295
<TOTAL-LIABILITY-AND-EQUITY> 1,597,650
<SALES> 0
<TOTAL-REVENUES> 1,739,526
<CGS> 0
<TOTAL-COSTS> 1,670,860
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,950
<INTEREST-EXPENSE> 46,866
<INCOME-PRETAX> 34,493
<INCOME-TAX> 24,883
<INCOME-CONTINUING> 9,610
<DISCONTINUED> 0
<EXTRAORDINARY> 1,105
<CHANGES> 0
<NET-INCOME> 8,505
<EPS-PRIMARY> .19
<EPS-DILUTED> .18
</TABLE>
