<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the quarterly period ended September 30, 1995 or
Transition report pursuant to Section 13 or 15(d) of the
--- Securities Exchange Act of 1934
For the transition period from to
--------------- ---------------
Commission file number 1-10140
AMERICA WEST AIRLINES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 86-0418245
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4000 EAST SKY HARBOR BLVD, PHOENIX, ARIZONA 85034
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 693-0800
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes XX No
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes XX No (Not Applicable)
--- ---
The Company has 1,200,000 shares of Class A Common Stock and 43,967,439 shares
of Class B Common Stock outstanding as of October 31, 1995.
<PAGE> 2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICA WEST AIRLINES, INC.
Condensed Balance Sheets
(in thousands except share data)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
------ 1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................. $ 249,854 $ 182,581
Accounts receivable, less allowance for doubtful
accounts of $3,814 in 1995 and $3,531 in 1994 ....... 92,197 57,474
Expendable spare parts and supplies, less allowance
for obsolescence of $1,671 in 1995 and $483 in 1994 28,219 24,179
Prepaid expenses ....................................... 41,819 29,284
---------- ----------
Total current assets .............................. 412,089 293,518
---------- ----------
Property and equipment:
Flight equipment ....................................... 526,354 452,177
Other property and equipment ........................... 98,626 92,169
---------- ----------
624,980 544,346
Less accumulated depreciation and amortization ....... 58,331 15,882
---------- ----------
566,649 528,464
Equipment purchase deposits ........................... 27,489 26,074
---------- ----------
594,138 554,538
---------- ----------
Restricted cash ........................................... 29,210 28,578
Reorganization value in excess of amounts allocable to
identifiable assets, net ................................ 581,428 645,703
Other assets, net ......................................... 25,966 22,755
---------- ----------
$1,642,831 $1,545,092
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE> 3
AMERICA WEST AIRLINES, INC.
Condensed Balance Sheets
(in thousands except share data)
<TABLE>
<CAPTION>
September 30, December 31,
Liabilities and Stockholders' Equity 1995 1994
- ------------------------------------ ------------ ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt ......................... $ 65,651 $ 65,198
Accounts payable ............................................. 91,922 77,569
Air traffic liability ........................................ 227,426 127,356
Accrued compensation and vacation benefits ................... 27,827 15,776
Accrued interest ............................................. 7,393 13,109
Accrued taxes ................................................ 54,207 27,061
Other accrued liabilities .................................... 14,969 15,376
---------- ----------
Total current liabilities ................................ 489,395 341,445
---------- ----------
Long-term debt, less current maturities ......................... 376,655 465,598
Deferred credits ................................................ 110,041 116,882
Other liabilities ............................................... 23,252 25,721
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 48,800,000
shares; no shares issued at September 30, 1995 or December
31, 1994 .................................................... -- --
Class A common stock, $.01 par value. Authorized 1,200,000
shares; issued and outstanding 1,200,000 shares at
September 30, 1995 and December 31, 1994 .................... 12 12
Class B common stock, $.01 par value. Authorized 100,000,000
shares; issued and outstanding 43,967,378 shares at
September 30, 1995 and 43,936,272 at December 31, 1994 ...... 440 439
Additional paid-in capital .................................... 587,392 587,149
Retained earnings ............................................. 55,644 7,846
---------- ----------
Total stockholders' equity ............................ 643,488 595,446
---------- ----------
$1,642,831 $1,545,092
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
AMERICA WEST AIRLINES, INC.
Condensed Statements of Operations
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
--------------------------- | ------------
Three Months Period From | Period From
Ended August 26 to | July 1 to
September 30 September 30 | August 25
1995 1994 | 1994
------------ ------------ | ------------
<S> <C> <C> | <C>
Operating revenues: .......................... |
Passenger .................................. $ 384,420 $ 118,592 | $ 217,096
Cargo ...................................... 10,302 4,258 | 6,156
Other ...................................... 13,905 4,465 | 7,161
--------- --------- | ---------
Total operating revenues ................. 408,627 127,315 | 230,413
--------- --------- | ---------
Operating expenses: .......................... |
Salaries and related costs ................. 98,818 33,047 | 51,238
Rentals and landing fees ................... 72,260 25,823 | 40,875
Aircraft fuel .............................. 44,183 15,694 | 24,852
Agency commissions ......................... 32,822 10,508 | 19,057
Aircraft maintenance materials and repairs.. 17,856 4,768 | 9,207
Depreciation and amortization .............. 20,318 6,699 | 13,496
Other ...................................... 68,210 22,440 | 46,078
--------- --------- | ---------
Total operating expenses ................. 354,467 118,979 | 204,803
--------- --------- | ---------
Operating income ......................... 54,160 8,336 | 25,610
--------- --------- | ---------
Nonoperating income (expenses): .............. |
Interest income ............................ 4,155 1,083 | 126
Interest expense (contractual interest of |
$10,784 for the period July 1 to August |
25, 1994) ................................ (14,003) (6,358) | (7,930)
Loss on disposition of property ............ |
and equipment ............................ (1,290) (53) | (389)
Reorganization expense, net ................ -- -- | (255,401)
Other, net ................................. 91 35 | (7)
--------- --------- | ---------
Total nonoperating expenses, net ......... (11,047) (5,293) | (263,601)
--------- --------- | ---------
Income (loss) before income taxes and |
extraordinary items ....................... 43,113 3,043 | (237,991)
--------- --------- | ---------
Income taxes ................................. 20,414 1,825 | 588
--------- --------- | ---------
Income (loss) before extraordinary items ..... 22,699 1,218 | (238,579)
--------- --------- | ---------
Extraordinary items, net of taxes ............ (984) -- | 257,660
--------- --------- | ---------
Net income ................................... 21,715 1,218 | 19,081
|
Retained earnings (deficit) at beginning |
of period .................................. 33,929 -- | (403,315)
Fresh start adjustments .................... -- -- | 384,234
--------- --------- | ---------
Retained earnings at end of period ........... $ 55,644 $ 1,218 | $ --
========= ========= | =========
</TABLE>
4
<PAGE> 5
AMERICA WEST AIRLINES, INC.
Condensed Statements of Operations
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
---------------------------- | -----------
Three Months Period From | Period From
Ended August 26 to | July 1 to
September 30 September 30 | August 25
1995 1994 | 1994
------------ ------------ | -----------
<S> <C> <C> | <C>
Earnings (loss) per share: (a) |
Primary: |
Income (loss) before extraordinary items.. $ .48 $ .03 | $ (8.43)
Extraordinary items, net of taxes ........ (.02) -- | 9.12
------- ------- | -------
Net income ............................... $ .46 $ .03 | $ .69
======= ======= | =======
|
Fully Diluted: |
Income (loss) before extraordinary items.. $ .47 $ .03 | $ (5.93)
Extraordinary items, net of taxes ........ (.02) -- | 6.42
------- ------- | -------
Net income ............................... $ .45 $ .03 | $ .49
======= ======= | =======
|
|
Shares used for computation: |
Primary .................................. 48,728 45,125 | 28,242
======= ======= | =======
Fully diluted ............................ 48,728 45,125 | 40,144
======= ======= | =======
</TABLE>
(a) Historical per share data for the Predecessor Company is not
meaningful since the Company has been recapitalized and has adopted
fresh start reporting as of August 25, 1994.
See accompanying notes to condensed financial statements.
5
<PAGE> 6
AMERICA WEST AIRLINES, INC.
Condensed Statements of Operations
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
--------------------------- | ------------
Nine Months Period From | Period From
Ended August 26 to | January 1 to
September 30 September 30 | August 25
1995 1994 | 1994
------------ ----------- | ------------
<S> <C> <C> | <C>
Operating revenues: |
Passenger .................................. $ 1,082,858 $ 118,592 | $ 882,140
Cargo ...................................... 32,613 4,258 | 27,645
Other ...................................... 38,862 4,465 | 29,243
----------- --------- | ---------
Total operating revenues ................. 1,154,333 127,315 | 939,028
----------- --------- | ---------
Operating expenses: |
Salaries and related costs ................. 283,869 33,047 | 213,722
Rentals and landing fees ................... 210,203 25,823 | 173,710
Aircraft fuel .............................. 126,664 15,694 | 100,646
Agency commissions ......................... 93,147 10,508 | 78,988
Aircraft maintenance materials and repairs.. 44,735 4,768 | 28,109
Depreciation and amortization .............. 60,648 6,699 | 56,694
Other ...................................... 203,055 22,440 | 179,653
----------- --------- | ---------
Total operating expenses ................. 1,022,321 118,979 | 831,522
----------- --------- | ---------
Operating income ......................... 132,012 8,336 | 107,506
----------- --------- | ---------
Nonoperating income (expenses): |
Interest income ............................ 11,114 1,083 | 470
Interest expense (contractual interest of |
$44,747 for the period January 1, 1994 to |
August 25, 1994) ........................ (45,461) (6,358) | (33,998)
Loss on disposition of property |
and equipment ............................ (2,515) (53) | (1,659)
Reorganization expense, net ................ -- -- | (273,659)
Other, net ................................. 128 35 | 131
----------- --------- | ---------
Total nonoperating expenses, net ......... (36,734) (5,293) | (308,715)
----------- --------- | ---------
Income (loss) before income taxes and |
extraordinary items ....................... 95,278 3,043 | (201,209)
----------- --------- | ---------
Income taxes ................................. 46,496 1,825 | 2,059
----------- --------- | ---------
Income (loss) before extraordinary items ..... 48,782 1,218 | (203,268)
----------- --------- | ---------
Extraordinary items, net of taxes ............ (984) -- | 257,660
----------- --------- | ---------
Net income ................................... 47,798 1,218 | 54,392
|
Retained earnings (deficit) at beginning |
of period .................................. 7,846 -- | (438,626)
Fresh start adjustments .................... -- -- | 384,234
----------- --------- | ---------
Retained earnings at end of period ........... $ 55,644 $ 1,218 | $ --
=========== ========= | =========
</TABLE>
6
<PAGE> 7
AMERICA WEST AIRLINES, INC.
Condensed Statements of Operations
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
---------------------------- | ------------
Nine Months Period From | Period From
Ended August 26 to | January 1 to
September 30 September 30 | August 25
1995 1994 | 1994
------------ ------------ | ------------
<S> <C> <C> | <C>
Earnings (loss) per share: (a) |
Primary: |
Income (loss) before extraordinary items $ 1.06 $ .03 | $ (7.03)
Extraordinary items, net of taxes ........ (.02) -- | 9.02
------- ------- | -------
Net income ............................... $ 1.04 $ .03 | $ 1.99
======= ======= | =======
|
Fully Diluted: |
Income (loss) before extraordinary items $ 1.05 $ .03 | $ (4.96)
Extraordinary items, net of taxes ........ (.02) -- | 6.37
------- ------- | -------
Net income ............................... $ 1.03 $ .03 | $ 1.41
======= ======= | =======
|
Shares used for computation: |
Primary .................................. 46,354 45,125 | 28,550
======= ======= | =======
Fully diluted ............................ 48,256 45,125 | 40,452
======= ======= | =======
</TABLE>
(a) Historical per share data for the Predecessor Company
is not meaningful since the Company has been recapitalized
and has adopted fresh start reporting as of August 25, 1994.
See accompanying notes to condensed financial statements.
7
<PAGE> 8
AMERICA WEST AIRLINES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
-------------------------- | -------------
Nine Months Period From | Period From
Ended August 26 to | January 1 to
September 30 September 30 | August 25
1995 1994 | 1994
------------ ------------ | ------------
<S> <C> <C> | <C>
Cash flows from operating activities: |
Net income ....................................... $ 47,798 $ 1,218 | $ 54,392
Adjustments to reconcile net income to cash |
provided by (used in) operating activities: |
Depreciation and amortization .................. 36,374 3,913 | 56,694
Amortization of reorganization value in |
excess of amounts allocable to |
identifiable assets .......................... 24,274 2,786 | --
Amortization of deferred overhauls ............. 6,647 -- | --
Amortization of deferred credits ............... (8,121) (1,408) | (2,966)
Loss on disposition of property and equipment .. 2,515 53 | 1,659
Reorganization items ........................... -- -- | 185,226
Extraordinary (gain) loss on extinguishment |
of debt ...................................... 984 -- | (257,660)
Other .......................................... 3,433 298 | (383)
|
Changes in operating assets and liabilities: |
Decrease (increase) in accounts receivable, net. (34,275) 12,196 | (18,769)
Decrease (increase) in spare parts and |
supplies, net ................................ (4,395) (585) | 397
Decrease (increase) in prepaid expenses ........ (12,535) (2,687) | 1,284
Decrease in other assets and restricted cash ... 37,907 35 | 12,971
Increase (decrease) in accounts payable ........ 13,073 (10,185) | (15,557)
Increase in air traffic liability .............. 100,070 2,205 | 30,510
Increase (decrease) in accrued compensation |
and vacation benefits ........................ 12,051 (14,126) | 15,739
Increase (decrease) in accrued interest ........ (5,651) 2,978 | 4,694
Increase (decrease) in accrued taxes ........... 27,146 (4,407) | 25,999
Increase (decrease) in other accrued liabilities (172) (3,871) | 67,429
Increase (decrease) in other liabilities ....... (1,950) 346 | (19,443)
--------- --------- | ---------
Net cash provided by (used in) operating |
activities ................................. 245,173 (11,241) | 142,216
|
Cash flows from investing activities: |
Purchases of property and equipment .............. (81,102) (948) | (61,271)
Proceeds from disposition of property ............ 1,597 84 | 334
Long-term investment ............................. (1,750) -- | --
--------- --------- | ---------
Net cash used in investing activities ........ (81,255) (864) | (60,937)
|
Cash flows from financing activities: |
Repayment of debt ................................ (93,524) (5,899) | (173,699)
Debt issue costs ................................. (3,130) -- | --
Issuance of long-term debt ....................... -- -- | 100,000
Issuance of common stock ......................... -- -- | 114,862
Exercise of warrants ............................. 9 -- | --
--------- --------- | ---------
Net cash provided by (used in) financing |
activities ................................. (96,645) (5,899) | 41,163
--------- --------- | ---------
Net increase (decrease) in cash and cash |
equivalents ................................ 67,273 (18,004) | 122,442
--------- --------- | ---------
Cash and cash equivalents at beginning of period ... 182,581 222,073 | 99,631
--------- --------- | ---------
Cash and cash equivalents at end of period ......... $ 249,854 $ 204,069 | $ 222,073
========= ========= | =========
</TABLE>
See accompanying notes to condensed financial statements.
8
<PAGE> 9
AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
America West Airlines, Inc. (the "Predecessor Company") filed a voluntary
petition on June 27, 1991 to reorganize (the "Reorganization") under Chapter 11
of the U.S. 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"). For a detailed discussion of the
Company's Plan, refer to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994. On August 25, 1994, America West Airlines, Inc. (the
"Reorganized Company" or 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. Accordingly, the Company's post-reorganization
balance sheet and statement of operations have not been prepared on a basis
consistent 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 are
not comparable.
1. BASIS OF PRESENTATION
The unaudited condensed financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission but do not include all information and
footnotes required by generally accepted accounting principles pursuant to
such rules and regulations. In the opinion of management, the condensed
financial statements reflect all adjustments, which are of a normal recurring
nature, necessary for a fair presentation. Certain prior year amounts have
been reclassified to conform with current year presentation. The
accompanying condensed financial statements should be read in conjunction
with the financial statements and related notes thereto included in the
Company's Annual Report on Form 10- K for the year ended December 31, 1994.
2. 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 reflect net income
adjusted for interest on borrowings effectively reduced by the proceeds from
the assumed exercise of common stock equivalents, but only if the effects of
such adjustments are dilutive.
Fully diluted earnings per share is based on the weighted average number of
shares of common stock outstanding, dilutive common stock equivalents (stock
options and warrants), and for the Predecessor Company the conversion of
outstanding convertible preferred stock and the conversion of convertible
subordinated debentures. Fully diluted earnings per share reflect net income
adjusted for interest on borrowings effectively reduced by the proceeds from
the assumed exercise of common stock equivalents, but only if the effects of
such adjustments are dilutive.
3. RESTRICTED STOCK AND STOCK OPTIONS
In December 1994, the Company's Board of Directors approved the America West
Airlines, Inc. 1994 Incentive Equity Plan (the "Incentive Plan"). The
stockholders of the Company approved the Incentive Plan at the Annual Meeting
held in May 1995. Under the Incentive Plan, up to 3,500,000 shares of Class
B Common Stock may be issued to cover awards under the Incentive Plan, of
which no more than 1,500,000 will be issued as restricted stock or bonus
stock. As of September 30, 1995, the Company's Board of Directors granted
under the Incentive Plan 41,334 shares of restricted stock and options to
purchase 2,136,000 shares of Class B Common Stock at the fair market value on
the date of grant which range from $7.25 to $15.00. Also, options to
purchase 75,000 shares of Class B Common Stock have been granted at the fair
market value on the date of grant, which range from $8.00 to $9.75, to
members of the Board of Directors who are not employees of the Company. As
of September 30, 1995, 33,750 shares of restricted stock were vested and
291,000 options to purchase shares of Class B Common Stock were exercisable.
9
<PAGE> 10
4. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109) upon its emergence from bankruptcy.
The Predecessor Company had adopted SFAS 109 as of January 1, 1993.
Income tax expense:
For the periods shown below, the Company recorded income tax expense
(exclusive of extraordinary items) as follows:
<TABLE>
<CAPTION>
Reorganized | Predecessor Reorganized | Predecessor
Company | Company Company | Company
----------------------------| ------------ -----------------------------| ------------
Three Months Period From | Period From Nine Months Period From | Period From
Ended August 26 to | July 1 to Ended August 26 to | January 1 to
September 30, September 30,| August 25, September 30, September 30,| August 25,
1995 1994 | 1994 1995 1994 | 1994
------------- -------------| ------------ ------------- -------------| ------------
(in thousands) | |
<S> <C> <C> | <C> <C> <C> | <C>
Current taxes: | |
Federal $ 660 $ 742 | $ 534 $ 1,274 $ 742 | $1,869
State 1,252 108 | 54 2,420 108 | 190
------- ------ | ------ ------- ------ | ------
1,912 850 | 588 3,694 850 | 2,059
Deferred taxes -- -- | -- -- -- | --
| |
Income tax expense | |
attributable to | |
reorganization | |
items 18,502 975 | -- 42,802 975 | --
------- ------ | ------ ------- ------ | ------
Income tax expense $20,414 $1,825 | $ 588 $46,496 $1,825 | $2,059
======= ====== | ====== ======= ====== | ======
</TABLE>
As reflected in the above table, for the three and nine months ended September
30, 1995 and the period August 26 to September 30, 1994, income tax expense
pertains to income from continuing operations 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 income tax
expense (for financial reporting purposes) significantly greater than taxes
computed at the current U.S. corporate statutory rate of 35 percent.
Nevertheless, the Company's actual income tax liability (i.e., income taxes
payable) is considerably lower than income tax expense shown for financial
reporting purposes.
For the period July 1 to August 25, 1994 and January 1 to August 25, 1994,
income tax expense pertains solely to income from continuing operations.
10
<PAGE> 11
5. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Cash paid for interest and income taxes during the period January 1, 1994
through August 25, 1994, August 26 through September 30, 1994 and the nine
months ended September 30, 1995 was as follows:
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
---------------------------- | ------------
Nine Months Period From | Period From
Ended August 26 to | January 1 to
September 30, September 30, | August 25,
1995 1994 | 1994
------------- ------------- | ------------
(in thousands) |
<S> <C> <C> | <C>
|
Interest (net of amounts |
capitalized of $2,044 in 1995) $42,734 $2,405 | $29,253
Income taxes ................... $ 60 $ 416 | $ 1,237
</TABLE>
In addition, during the period January 1, 1994 through August 25, 1994,
August 26 through September 30, 1994 and the nine months ended September
30, 1995, the Company had the following non-cash financing and investing
activities:
<TABLE>
<CAPTION>
Reorganized | Predecessor
Company | Company
----------------------------- | ------------
Nine Months Period From | Period From
Ended August 26 to | January 1 to
September 30, September 30, | August 25,
(in thousands) 1995 1994 | 1994
------------- ------------- | ------------
<S> <C> <C> | <C>
Equipment acquired through |
capital leases ................. $ -- $ -- | $ 138
Accrued interest reclassified to |
long-term debt ................. $ 65 $ -- | $5,563
Notes payable issued to seller ... $ 5,723 $ -- | $ --
Exchange of debt ................. $75,000 $ -- | $ --
</TABLE>
6. EXTRAORDINARY ITEM
During the third quarter of 1995, the Company had an extraordinary loss of
$984,000, net of a tax benefit of $984,000, or $0.02 per common share,
relating to the prepayment of $48 million of its $123 million 11 1/4% Senior
Unsecured Notes due 2001 and the exchange of the remaining $75 million of
such notes for $75 million of 10 3/4% Senior Unsecured Notes due 2005.
The extraordinary gain recorded in the third quarter of 1994 includes $257.7
million from the discharge of indebtedness pursuant to the consummation of
the Plan of Reorganization.
7. COMMITMENTS AND CONTINGENCIES
(a) Leases
At September 30, 1995, the Company was obligated to lease five aircraft under
a put agreement with deliveries to start no earlier than January 1, 1996 and
end by June 30, 1999. Under the agreement, new or used B737-300, B757-200,
or new or "like new" A320-200 aircraft may be put to the Company at a rate of
no more than two aircraft in 1996 and three aircraft per year, thereafter.
In addition, no more than four used aircraft may be put to the Company, and
for every new A320 aircraft put to the Company, the Company has the right to
reduce deliveries under the AVSA A320 purchase contract on a one-for-one
basis. During each January of the put period, the Company will negotiate the
type and delivery dates for deliveries during the year beginning in the
following January. The negotiation deadline for 1996 deliveries has been
postponed until November 30, 1995 by mutual agreement.
11
<PAGE> 12
(b) 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. Management cannot predict whether or not and to what extent, if
any, the pending administrative and priority tax claims will result in
liabilities to the Company. Should such liabilities be incurred, future
operating results could be adversely affected. However, based on information
currently available, management believes that the disposition will not have a
material adverse effect on the Company's financial condition.
(c) Aircraft Acquisitions
At September 30, 1995, the Company had commitments to AVSA S.A.R.L., an
affiliate of Airbus Industrie ("AVSA"), for a total of 24 Airbus A320-200
aircraft, with an aggregate net cost estimated at $1.1 billion. Delivery
dates of the aircraft fall in the years 1998 through 2001 with an option
exercisable by the Company to defer the 1998 delivery to 2001. The Company
has the option to cancel without cause up to four of these aircraft. In
addition, if new A320 aircraft are delivered as a result of the GPA Put
Agreement, the Company has the right to cancel on a one-for-one basis, up to
a maximum of seven non-consecutive aircraft deliveries under the AVSA
agreement, subject to certain conditions. In April 1995, the Company took
delivery of two new A320 aircraft under the GPA Put Agreement. If the
Company was to exercise its existing rights to cancel six aircraft under the
AVSA agreement, the aggregate net cost of commitments under such agreement
would be reduced to approximately $825 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 any such commitment could have a material adverse effect on the
Company. In addition, pursuant to the Company's growth plan, the Company
expects to expand its fleet, increase frequencies to existing cities and add
destinations to its route system. This expansion will require the lease or
purchase of additional aircraft. There can be no assurance that the Company
will be able to negotiate such leasing or purchase arrangements in sufficient
amounts or on terms acceptable to the Company.
8. REORGANIZATION EXPENSE
Reorganization expense is comprised of items of income, expense, gain or loss
that were realized or incurred by the Company as a result of the
Reorganization. Such items consisted of the following at August 25, 1994.
<TABLE>
<CAPTION>
Period from
January 1, 1994
to August 25, 1994
------------------
(in thousands)
<S> <C>
Professional fees and other expenses $ 31,959
Adjustment to fair value 166,829
Provision for settlement of claims 66,626
Reorganization success bonuses 11,956
Interest income (3,711)
---------
$ 273,659
=========
</TABLE>
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General Factors Affecting Company Results
The Company's operating results are significantly affected by general economic
conditions as well as competitive factors and other conditions affecting the
airline industry. From 1990 to 1992, the airline industry experienced
significant operating losses. These losses were attributable in large part to
high fuel prices, depressed traffic levels and intense fare competition among
airlines brought about the Persian Gulf conflict, a fear of terrorism in the
United States and the deepening national recession. America West was acutely
affected by these conditions, as it had incurred high levels of indebtedness to
finance fleet expansions beyond its core base of operations. In recent
periods, airlines have achieved generally improved operating results as a
result of more favorable economic conditions and as carriers have focused on
their areas of relative strength, eliminating service to under-performing
markets and rationalizing operations, route systems and pricing strategies.
America West began to achieve positive results beginning in 1993 due to an
operational restructuring, combined with a gradually improving economic climate
and a more rational pricing environment. As a result, the Company has achieved
11 consecutive quarters of profitability beginning with the first quarter of
1993.
The Company continually evaluates performance in its existing and potential
markets and has undertaken a study of the strategic deployment of its aircraft
to optimize operating performance. To this end, the Company announced in
September 1995 a new growth plan and has identified additional routes through
its Phoenix and Las Vegas hubs which it believes it can service profitably.
The Company operates with one of the lowest cost structures among the major
airlines in the United States. To the extent that other carriers are
successful in reducing their operating costs, the advantage which the Company
enjoys as a result of its low cost structure would be reduced. For this
reason, maintaining a low cost structure is one of the Company's strategic
imperatives. In May 1995, a five-year collective bargaining agreement with the
Company's pilots became effective. The terms of this contract are consistent
with the Company's goal of maintaining its low unit cost structure.
Specifically, the agreement provides for a salary level increase at a compound
annual rate of approximately 5.7% and includes provisions relating to pilot
productivity which management estimates will result in productivity increases
of approximately 2% per year. A significant portion of such salary level
increase was effected in May 1995 in order to provide the pilots with a pay and
benefits package competitive with other low cost carriers. Salary level
increases after the May 1995 increase will occur through April 2000 and will
increase at a compound annual rate of approximately 2.5%.
The Company's operating costs will also be affected by a 4.3 cents per gallon
increase in federal fuel taxes for which the Company became liable on October
1, 1995. This new tax will increase the Company's annual operating expenses by
approximately $13 million based upon its 1994 fuel consumption levels. A bill
to extend the airline exemption for two years has recently been passed by the
Ways and Means Committee of the House of Representatives. A similar bill
containing a 17-month extension has been proposed by the Senate Finance
Committee. There can be no assurance that any such bill will be enacted by
Congress.
The Company's actual income tax liability (i.e., income taxes payable) is
considerably lower than income tax expense for financial reporting purposes due
principally to the utilization of net operating loss and certain tax credit
carryforwards and the effects of fresh start reporting. The amortization of
the 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
percent.
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 the Company's statements of operations
including the financial statement accounting for income taxes. However, actual
cash
13
<PAGE> 14
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, will have a significant effect on
the Company's statements of operations. The more significant adjustments
relate to (i) reduced rent expense due to the re-valuation 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 re-valuation 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 percent.
Seasonality
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. Seasonality is illustrated by the differences
between the Company's results during the first, second and third quarters of
1995. America West realized significantly higher load factors of 72.0% and 71.4%
in the second and third quarters of 1995, respectively, compared to 63.9% in the
first quarter of the year. As a result, passenger revenues per ASM ("RASM")
increased in the second and third quarters of 1995, respectively, to 7.72 cents
and 7.67 cents compared to 6.98 cents for the first quarter. Operating cost per
ASM were 7.14 cents and 7.08 cents in the second and third quarters of 1995,
respectively, compared to 6.92 cents in the first quarter, largely due to
increases in passenger variable expenses generated by the high traffic levels.
In total, net income increased to $20.9 million and $21.7 million in the second
and third quarters of 1995, respectively, compared to $5.2 million for the first
quarter.
Selected Operating Data
The table below sets forth selected operating data for America West. The data
for the three months and nine months ended September 30, 1994 is shown on a
combined basis for the Reorganized and Predecessor Company.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
Percent Percent
Combined Change Combined Change
1995 1994 1995-1994 1995 1994 1995-1994
------- -------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Available seat miles
(in millions) .................. 5,010 4,635 8.1 14,503 13,439 7.9
Revenue passenger miles
(in millions) .................. 3,578 3,222 11.0 10,035 9,361 7.2
Load factor (percent) ............ 71.4 69.5 2.7 69.2 69.7 (.7)
Yield per revenue passenger mile
(cents) ........................ 10.75 10.42 3.2 10.79 10.69 0.9
Revenue per available seat mile
Passenger (cents) .............. 7.67 7.24 5.9 7.47 7.45 0.3
Total (cents) .................. 8.16 7.72 5.7 7.96 7.93 0.4
Passenger enplanements
(in thousands) ................. 4,468 4,112 8.7 12,563 11,927 5.3
Average stage length ............. 684 682 0.3 687 670 2.5
Average passenger journey miles 1,016 994 2.2 996 990 0.6
Aircraft (end of period) ......... 91 85 7.1 91 85 7.1
</TABLE>
14
<PAGE> 15
The table below sets forth the major components of operating expense per ASM for
America West for the applicable periods. The data for the three months and nine
months ended September 30, 1995 is shown on a combined basis for the Reorganized
and Predecessor Company.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- ------------------------------
Percent Percent
Combined Change Combined Change
1995 1994 1995-1994 1995 1994 1995-1994
------ -------- --------- ------ -------- ---------
(in cents) (in cents)
<S> <C> <C> <C> <C> <C> <C>
Salaries and related costs ..... 1.97 1.82 8.2 1.96 1.84 6.5
Rentals and landing fees ....... 1.44 1.44 -- 1.45 1.48 (2.0)
Aircraft fuel .................. .88 .87 1.1 .87 .87 --
Agency commissions ............. .66 .64 3.1 .64 .67 (4.5)
Aircraft maintenance materials
and repairs .................. .36 .30 20.0 .31 .24 29.2
Depreciation and amortization... .41 .44 (6.8) .42 .47 (10.6)
Other .......................... 1.36 1.48 (8.1) 1.40 1.50 (6.7)
---- ---- ---- ---- ---- ----
7.08 6.99 1.3 7.05 7.07 (.3)
==== ==== ==== ==== ==== ====
</TABLE>
Three month period ended September 30, 1995 and the combined periods July 1 to
August 25, 1994 and August 26 to September 30, 1994
For the three months ended September 30, 1995 and 1994, the Company realized net
income of $21.7 million and a combined $20.3 million, respectively. Net income
for the three month period of 1995 included income tax expense for financial
reporting purposes of $20.4 million compared to $2.4 million for the combined
period 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 three month period of 1994 included reorganization
expense of $255.4 million and an extraordinary gain of $257.7 million. Total
operating revenues were $408.6 million for the three months ended September 30,
1995 compared to $357.7 million for the combined comparable period of 1994.
Passenger revenues increased 14.5% to $384.2 million during the three months
ended September 30, 1995. Cargo and other revenues increased 9.8% to $24.2
million for the third quarter of 1995. The balance of other revenues includes
revenues generated primarily from alcoholic beverage sales, headset rentals and
service charges.
Capacity, as measured by available seat miles, increased 8.1 percent for the
three months ended September 30, 1995 compared to the 1994 period, primarily due
to an increase in the fleet size to 91 aircraft from 85 aircraft. Revenue
passenger miles increased 11 percent for the three months ended September 30,
1995 compared to the 1994 period. Load factor increased by 1.9 points and yield
increased 3.2 percent for the three months ended September 30, 1995 compared to
the 1994 period.
Operating expense per available seat mile increased to 7.08 cents for the three
months ended September 30, 1995 from 6.99 cents for the 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 is primarily the result of
accruals totaling $5.0 million for the three months ended September 30,
1995 to provide for performance awards related to the Company's
profitability. In addition, such costs were affected by a significant
initial increase in pilot salaries under their collective bargaining
agreement in May 1995 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 partially offset by
improvements in productivity through a reduction in size of the work force.
- - Rentals and landing fees decreased due to the amortization of deferred
credits recorded in the Company's adjustment of operating leases to fair
market value under fresh start reporting which decreased rent expense. Such
decrease in aircraft rent was offset by the additional rent for the six
aircraft new to the fleet.
15
<PAGE> 16
- - The average price per gallon of aircraft fuel increased slightly to 54.7
cents for the 1995 period from 54.6 cents for 1994. Also, fuel consumption
was higher in the 1995 period than in 1994 due to the increase in capacity
discussed above.
- - Agency commissions increased due to the increase in passenger revenues
discussed above.
- - Aircraft maintenance materials and repairs increased largely as the result
of a flight hour agreement involving certain auxiliary power units, an
increase in hours flown and a change in the classification of the
amortization expense associated with capitalized heavy engine and airframe
overhauls. For the three months ended September 30, 1995 amortization of
capitalized maintenance totaling $3.9 million is included in aircraft
maintenance materials and repairs. Amortization of capitalized maintenance
totaling $6.1 million for the combined 1994 three month period is included
in depreciation and amortization expense. The level of aircraft
maintenance materials and repairs amortization decreased $2.2 million. The
amount of overhauls capitalized relating to aircraft and engines was
reduced as part of the re-valuation of property and equipment and operating
leases under fresh start reporting. Similar overhauls that have been
performed since August 25, 1994 have been capitalized, which will cause
amortization expense of aircraft maintenance costs to increase in the near
term. Overhauls capitalized from August 26 through September 30, 1994 and
during the three months ended September 30, 1995 were $1.3 million and
$18.1 million, respectively.
- - Depreciation and amortization expense decreased $6.1 million due to the
classification change discussed above and $1.6 million from the
re-valuation of property and equipment under fresh start reporting. These
decreases were partially offset by an increase of $7.9 million arising from
the amortization of the reorganization value in excess of amounts allocable
to identifiable assets under fresh start reporting.
- - Other operating expenses decreased primarily due to the reduction in
property taxes and the fixed nature of certain other costs.
Net nonoperating expenses decreased $257.8 million to $11.1 million for the
three months ended September 30, 1995 from a combined $268.9 million for 1994.
This net decrease resulted from: a decrease in reorganization expense of $255.4
million since the Company emerged from bankruptcy; an increase in interest
income of $2.9 million due to higher cash and cash equivalent balances in 1995;
and a net decrease in interest expense of $0.3 million due to reduced levels of
debt and lower interest.
Income tax expense for financial reporting purposes for the three months ended
September 30, 1995 increased to $20.4 million from a combined $2.4 million in
1994 resulting from the adoption of fresh start accounting. The amortization of
the excess reorganization value is not deductible for income tax purposes thus
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
percent. Nevertheless, the Company's actual income tax liability (i.e., income
taxes payable) is considerably lower than income tax expense for financial
reporting purposes due principally to the utilization of net operating loss and
certain tax credit carryforwards.
Nine month period ended September 30, 1995 and the combined period from January
1 to August 25, 1994 and August 26 to September 30, 1994
For the nine months ended September 30, 1995 and 1994, the Company realized net
income of $47.8 million and a combined $55.6 million, respectively. Net income
for the nine month period of 1995 included income tax expense for financial
reporting purposes of $46.5 million compared to a combined $3.9 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 nine month period of 1994 included reorganization expense of $273.7
million and an extraordinary gain of $257.7 million.
Total operating revenues were $1,154 million for the nine months ended September
30, 1995 compared to a combined $1,066 million for the comparable period of
1994. Passenger revenues increased 8.2 percent to $1,083 million during the
nine months ended September 30, 1995. Cargo and other revenues increased 8.9
percent to $71.5 million for the nine months of 1995. The balance of other
revenues includes revenues generated primarily from alcoholic beverage sales,
headset rentals and service charges.
16
<PAGE> 17
Capacity, as measured by available seat miles, increased 7.9 percent for the
nine months ended September 30, 1995 compared to the 1994 period, primarily due
to increase in the average stage length of 2.5 percent and the addition of six
aircraft to the fleet. Revenue passenger miles increased 7.2 percent for the
nine months ended September 30, 1995 compared to the 1994 period. Load factor
decreased by 0.5 points and yield increased 0.9 percent for the nine months
ended September 30, 1995 compared to the 1994 period.
Operating expense per available seat mile decreased to 7.05 cents for the nine
months ended September 30, 1995 from 7.07 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 is primarily the result of
accruals totaling $9.5 million for the nine months ended September 30, 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 partially offset by improvements in productivity
through a reduction in the size of the work force.
- - The decrease in rentals and landing fees is due 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 in
aircraft rent was partially offset by the addition of six aircraft to the
fleet.
- - The average price per gallon of aircraft fuel increased slightly to 54.6
cents for the 1995 period from 54.0 cents for the combined 1994 period.
Also, fuel consumption was higher in the 1995 period than in the 1994
period due to an increase in capacity as discussed above.
- - Agency commissions decreased due to a change in the mix of tickets sold
through travel agencies vis-a-vis direct sales to passengers through the
Company's reservation system.
- - Aircraft maintenance materials and repairs increased largely as the result
of a flight hour agreement involving certain auxiliary power units, an
increase in hours flown and a change in the classification of the
amortization expense associated with capitalized heavy engine and airframe
overhauls. For the nine months ended September 30, 1995 amortization of
capitalized maintenance totaling $6.6 million is included in aircraft
maintenance materials and repairs. Amortization of capitalized maintenance
totaling $24 million for the 1994 combined nine month period is included in
depreciation and amortization expense. The level of aircraft maintenance
materials and repairs amortization decreased $17.4 million. The balance of
capitalized overhauls relating to aircraft and engines was reduced as part
of the re-valuation of property and equipment and operating leases under
fresh start reporting. Overhauls that have been performed since August 25,
1994 have been capitalized, which will cause amortization expense of
aircraft maintenance costs to increase in the near term. Overhauls
capitalized from August 26 through December 31, 1994 and during the first
nine months of 1995 were $6.9 million and $41.9 million, respectively.
- - Depreciation and amortization expense decreased $24 million due to the
classification change discussed above and $3.0 million from the
re-valuation of property and equipment under fresh start reporting. These
decreases were partially offset by an increase of $24.3 million arising
from the amortization of the reorganization value in excess of amounts
allocable to identifiable assets under fresh start reporting.
- - Other operating expenses decreased primarily due to the reduction in
property taxes and the fixed nature of certain other costs.
Net nonoperating expenses decreased $277.3 million to $36.7 million for the nine
months ended September 30, 1995 from a combined $314 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
$9.6 million due to higher cash and cash equivalent balances in 1995; partially
offset by a net increase in interest expense of $5.1 million because the Company
did not
17
<PAGE> 18
accrue and pay interest on unsecured prepetition long-term debt during its
bankruptcy proceedings in conformity with SOP 90-7, and increase in interest
expense due to the re-valuation of aircraft leases to market rates as part of
fresh start reporting.
Income tax expense for financial reporting purposes for the nine months ended
September 30, 1995 increased to $46.5 million from a combined $3.9 million in
1994 resulting principally from the adoption of fresh start reporting. The
amortization of the excess reorganization value is not deductible for income tax
purposes thus 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 percent. Nevertheless, the Company's actual income tax liability
(i.e., income taxes payable) is considerably lower than income tax expense for
financial reporting purposes due principally to the utilization of net operating
loss and certain tax credit carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Unrestricted cash and cash equivalents increased to $249.9 million at September
30, 1995 from $182.6 million at December 31, 1994. Net cash provided from
operating activities increased to $245.2 million for the nine months ended
September 30, 1995 from a combined $131 million for the nine months ended
September 30, 1994, an increase of $114.2 million. The increase was primarily
due to the increase in advance ticket sales in the third quarter of 1995 as
compared to the third quarter of 1994. Net cash used in investing activities
increased to $81.3 million for the nine months ended September 30, 1995 from a
combined $61.8 million for the nine months ended September 30, 1994, an increase
of $19.5 million primarily related to increased expenditures for capitalized
overhauls. Net cash used in financing activities was $96.6 million for the nine
months ended September 30, 1995 compared to a combined $35.3 million net cash
provided for the nine months ended September 30, 1994 due to an increase in net
debt repayments of $13.9 million offset by the issuance of common stock of
$114.9 million.
The Company has a working capital deficiency which has increased to $77.3
million at September 30, 1995 from $47.9 million at December 31, 1994. Operating
with a working capital deficiency is typical 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 1997 consist primarily of
principal amortization of notes payable secured by certain of the Company's
aircraft. Such maturities are $20.5 million, $58.8 million and $48.6 million,
respectively, for the remainder of 1995, 1996, and 1997. Management expects to
fund these requirements with cash from operations.
At September 30, 1995, the Company had net operating loss carryforwards ("NOL")
and general business tax credit carryforwards of approximately $489.8 million
and $12.7 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 for use in subsequent tax years, provided the prechange NOL has not been
exhausted nor has the carryforward period expired.
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 percent. Nevertheless, the Company's actual
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. To the extent the tax
18
<PAGE> 19
attributes of the Predecessor Company reduce the Company's actual income tax
liability below the amount of expense reflected in the financial statements,
that difference is applied to reduce the carrying balance of the Company's
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets.
At September 30, 1995, the Company was obligated to lease five aircraft under a
put agreement with GPA (the "GPA Put Agreement") with deliveries to start no
earlier than January 1, 1996 and end by June 30, 1999. Under the agreement, new
or used B737-300, B757- 200, or new or "like new" A320-200 aircraft may be put
to the Company at a rate of no more than two aircraft in 1996 and three aircraft
per year, thereafter. In addition, no more than four used aircraft may be put
to the Company, and for every new A320 aircraft put to the Company, the Company
has the right to reduce deliveries under the AVSA A320 purchase contract
(discussed below) on a one-for-one basis. During each January of the put
period, the Company will negotiate the type and delivery dates for deliveries
during the year beginning in the following January. The negotiation deadline
for 1996 deliveries has been postponed until November 30, 1995 by mutual
agreement.
At September 30, 1995, the Company had commitments to AVSA S.A.R.L., an
affiliate of Airbus Industrie ("AVSA"), for a total of 24 Airbus A320-200
aircraft, with an aggregate net cost estimated at $1.1 billion. Delivery dates
of the aircraft fall in the years 1998 through 2001 with an option exercisable
by the Company to defer the 1998 deliveries to 2001. The Company has the option
to cancel without cause up to four of these aircraft. In addition, if new A320
aircraft are delivered as a result of the GPA Put Agreement, the Company has the
right to cancel on a one-for-one basis, up to a maximum of seven non-consecutive
aircraft deliveries under the AVSA agreement, subject to certain conditions. In
April 1995, the Company took delivery of two new A320 aircraft under the GPA Put
Agreement. If the Company was to exercise its existing rights to cancel six
aircraft under the AVSA agreement, the aggregate net cost of commitments under
such agreement would be reduced to approximately $825 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 $42.3 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
any such commitment could have a material adverse effect on the Company. In
addition, pursuant to the Company's growth plan, the Company expects to expand
its fleet, increase frequencies to existing cities and add destinations to its
route system. This expansion will require the lease or purchase of additional
aircraft. There can be no assurance that the Company will be able to negotiate
such leasing or purchase arrangements in sufficient quantities or on terms
acceptable to the Company.
As of September 30, 1995, the Company's fleet consisted of 91 aircraft of which
22 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 obtain such capital in sufficient amounts or on
favorable terms.
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 September 30, 1995.
The Company emerged from bankruptcy in August 1994 with increased liquidity and
a substantially improved capitalization. The Company has recently taken steps
to strengthen its balance sheet including in August 1995 the prepayment of $48
million of its $123 million 11 1/4% Senior Unsecured Notes due 2001 and the
exchange of the remaining $75 million of such notes for $75 million of 10 3/4%
Senior Unsecured Notes due 2005.
19
<PAGE> 20
In September 1995, the Company announced that its Board of Directors authorized
the purchase of up to 2.5 million shares of its Class B Common Stock in the open
market over the next two years. The Company expects to purchase shares pursuant
to such program from time to time as opportunities for the purchase of shares at
attractive prices arise. As of November 8, 1995, the Company has purchased
112,000 shares of Class B Common Stock at prices ranging from $13.63 to $14.00.
The Company expects to remarket the $29.3 million of tax exempt variable rate
airport facilities revenue bonds in November 1995. In connection with such
remarketing, certain lenders deferred a $5.0 million payment of existing debt to
November that had been scheduled in October. As required under the existing debt
agreement, the Company will use all proceeds from the remarketing to prepay in
full the existing debt which has a balance of $29.8 million at September 30,
1995.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
------- --------------------------------
<S> <C>
*11.1 Computation of Earnings Per Share
*27 Financial Data Schedule
</TABLE>
------
*Filed herewith
b. Reports on Form 8-K
None
20
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICA WEST AIRLINES, INC.
By /s/ W. Douglas Parker
----------------------------
W. Douglas Parker
Senior Vice President and
Chief Financial Officer
DATED: November 13, 1995
21
<PAGE> 1
AMERICA WEST AIRLINES, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands except per share amount) Exhibit 11.1
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
---------------------------- ------------
Three Months Period From Period From
Ended August 26 to July 1 to
September 30 September 30 August 25
1995 1994 1994
------------ ------------ ------------
<S> <C> <C> <C>
Primary Earnings Per Share
Computation for Statements of Operation:
Income (loss) before extraordinary items .... $ 22,699 $ 1,218 $ (238,579)
Preferred dividends ......................... -- -- --
Adjustment for interest on debt reduction,
net of taxes .............................. 473 -- 534
------------ ----------- ------------
Income (loss) before extraordinary items .... 23,172 1,218 (238,045)
Extraordinary items, net of taxes ........... (984) -- 257,660
------------ ----------- ------------
Net income applicable to common stock ....... $ 22,188 $ 1,218 $ 19,615
============ =========== ============
Weighted average number of common shares
outstanding ................................. 45,166,810 45,125,000 25,715,499
Assumed exercise of stock options and
warrants (a) ............................... 3,561,583 -- 2,526,278
------------ ----------- ------------
Weighted average number of common shares
outstanding ................................. 48,728,393 45,125,000 28,241,777
============ =========== ============
Primary earnings per common share:
Income (loss) before extraordinary items .... $ .48 $ 0.03 $ (8.43)
Extraordinary items, net of taxes ........... (.02) -- 9.12
------------ ----------- ------------
Net income .................................. $ .46 $ 0.03 $ 0.69
============ =========== ============
Fully Diluted Earnings Per Share
Computation for Statements of Operations:
Income (loss) before extraordinary items .... $ 22,699 $ 1,218 $ (238,579)
Add - Interest on 7.75% subordinated
debenture, net of taxes ................... -- -- --
Add - Interest on 7.5% subordinated
debenture, net of taxes ................... -- -- --
Add - Interest on 11.5% subordinated
debenture, net of taxes ................... -- -- --
Add - Interest on debt reduction,
net of taxes .............................. 220 21 532
------------ ----------- ------------
Income (loss) before extraordinary
items ................................... 22,919 1,239 (238,047)
Extraordinary items, net of taxes ........... (984) -- 257,660
------------ ----------- ------------
Net income applicable to common stock ....... $ 21,935 $ 1,239 $ 19,613
============ =========== ============
</TABLE>
22
<PAGE> 2
AMERICA WEST AIRLINES, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands except per share amount) Exhibit 11.1
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
---------------------------- ------------
Three Months Period From Period From
Ended August 26 to July 1 to
September 30 September 30 August 25
1995 1994 1994
------------ ------------ ------------
<S> <C> <C> <C>
Fully Diluted Earnings Per Share
Additional adjustment to weighted
average number of shares outstanding
Weighted average number of shares
outstanding as adjusted per
primary computation above ................ 48,728,393 45,125,000 28,241,777
Additional dilutive effect of outstanding
options and warrants ..................... -- 1,359,615 --
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 .................. 48,728,393 46,484,615 40,144,231
=========== ========== ===========
Fully diluted earnings per common share:
Income (loss) before extraordinary items ... $ .47 $ 0.03 $ (5.93)
Extraordinary items, net of taxes .......... (.02) -- 6.42
----------- ---------- -----------
Net income ................................. $ .45 $ 0.03 $ 0.49
=========== ========== ===========
</TABLE>
(a) The stock options and warrants are included only in the periods in which
they are dilutive.
Historical per share data for the Predecessor Company is not meaningful since
the Company has been recapitalized and has adopted fresh start reporting as of
August 25, 1994.
23
<PAGE> 3
AMERICA WEST AIRLINES, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands except per share amount) Exhibit 11.1
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
---------------------------- ------------
Nine Months Period From Period From
Ended August 26 to January 1 to
September 30 September 30 August 25
1995 1994 1994
------------ ------------ ------------
<S> <C> <C> <C>
Primary Earnings Per Share
Computation for Statements of Operation:
Income (loss) before extraordinary items ...... $ 48,782 $ 1,218 $ (203,268)
Preferred dividends ......................... -- -- --
Adjustment for interest on debt reduction,
net of taxes .............................. 473 -- 2,584
------------ ----------- ------------
Income (loss) before extraordinary items .... 49,255 1,218 (200,684)
Extraordinary items, net of taxes ........... (984) -- 257,660
------------ ----------- ------------
Net income applicable to common stock ....... $ 48,271 $ 1,218 $ 59,976
============ =========== ============
Weighted average number of common shares
outstanding ................................. 45,166,481 45,125,000 25,470,671
Assumed exercise of stock options and
warrants (a) ............................. 1,187,194 -- 3,079,258
------------ ----------- ------------
Weighted average number of common
shares outstanding as adjusted ............ 46,353,675 45,125,000 28,549,929
============ =========== ============
Primary earnings per common share:
Income (loss) before extraordinary items .... $ 1.06 $ 0.03 $ (7.03)
Extraordinary items, net of taxes ........... (.02) 9.02
------------ ----------- ------------
Net income .................................. $ 1.04 $ 0.03 $ 1.99
============ =========== ============
Fully Diluted Earnings Per Share
Computation for Statements of Operations:
Income (loss) before extraordinary items ...... $ 48,782 $ 1,218 $ (203,268)
Add - Interest on 7.75% subordinated
debenture, net of taxes ..................... -- -- --
Add - Interest on 7.5% subordinated
debenture, net of taxes ..................... -- -- --
Add - Interest on 11.5% subordinated
debenture, net of taxes ..................... -- -- --
Add interest on debt reduction,
net of taxes ................................ 1,896 21 2,520
------------ ----------- ------------
Income (loss) before extraordinary
items ....................................... 50,678 1,239 (200,748)
Extraordinary items, net of taxes ............. (984) -- 257,660
------------ ----------- ------------
Net income applicable to common stock ......... $ 49,694 $ 1,239 $ 56,912
============ =========== ============
</TABLE>
24
<PAGE> 4
AMERICA WEST AIRLINES, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands of dollars except per share amount) Exhibit 11.1
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
---------------------------- ------------
Nine Months Period From Period From
Ended August 26 to January 1 to
September 30 September 30 August 25
1995 1994 1994
------------ ------------ ------------
<S> <C> <C> <C>
Fully Diluted Earnings Per Share
Additional adjustment to weighted
average number of shares
outstanding
Weighted average number of shares
outstanding as adjusted per
primary computation above .................. 46,353,675 45,125,000 28,549,929
Additional dilutive effect of outstanding
options and warrants ....................... 1,901,967 1,359,615 --
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 .................... 48,255,642 46,484,615 40,452,383
=========== =========== ===========
Fully diluted earnings per common share:
Income (loss) before extraordinary items $ 1.05 $ 0.03 $ (4.96)
Extraordinary items, net of taxes ............ (.02) -- 6.37
----------- ----------- -----------
Net income ................................... $ 1.03 $ 0.03 $ 1.41
=========== =========== ===========
</TABLE>
(a) The stock options and warrants are included only in the periods in which
they are dilutive.
Historical per share data for the Predecessor Company is not meaningful since
the Company has been recapitalized and has adopted fresh start reporting as of
August 25, 1994.
25
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000706270
<NAME> AMERICA WEST ARLINES, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 249,854
<SECURITIES> 0
<RECEIVABLES> 96,011
<ALLOWANCES> 3,814
<INVENTORY> 28,219
<CURRENT-ASSETS> 412,089
<PP&E> 624,980
<DEPRECIATION> 58,331
<TOTAL-ASSETS> 1,642,831
<CURRENT-LIABILITIES> 489,395
<BONDS> 376,655
<COMMON> 452
0
0
<OTHER-SE> 643,488
<TOTAL-LIABILITY-AND-EQUITY> 1,642,831
<SALES> 0
<TOTAL-REVENUES> 1,154,333
<CGS> 0
<TOTAL-COSTS> 1,022,321
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,050
<INTEREST-EXPENSE> 45,461
<INCOME-PRETAX> 95,278
<INCOME-TAX> 46,496
<INCOME-CONTINUING> 48,782
<DISCONTINUED> 0
<EXTRAORDINARY> (984)
<CHANGES> 0
<NET-INCOME> 47,798
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.03
<FN> America West Airlines, Inc. emerged from chapter 11 on August 25, 1994 and
adopted fresh start reporting in accordance with statement of Position 90-7.
Accordingly, the Company's post-reorganization balance financial statements
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.
</FN>
</TABLE>
