<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 March 31, 1996 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 44,556,379 shares
of Class B Common Stock outstanding as of April 30, 1996.
<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 March 31, December 31,
1996 1995
------------ -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . $ 236,542 $ 224,367
Accounts receivable, less allowance
for doubtful accounts of $2,846
in 1996 and $2,515 in 1995 . . . . . . . .. . . 98,716 69,094
Expendable spare parts and supplies,
less allowance for obsolescence of
$2,605 in 1996 and $2,115 in 1995 . . . . . . . 28,399 28,643
Prepaid expenses . . . . . . . . . . . . . . . . . 48,167 43,315
------------ ------------
Total current assets. . . . . . . . . . . . . 411,824 365,419
------------ ------------
Property and equipment:
Flight equipment . . . . . . . . . . . . . . . . . 573,825 546,591
Other property and equipment . . . . . . . . . . . 109,803 104,106
Equipment purchase deposits. . . . . . . . . . . . 35,367 27,489
------------ ------------
718,995 678,186
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . 95,909 76,123
------------ ------------
Total property and equipment. . . . . . . . . 623,086 602,063
------------ -----------
Other assets:
Restricted cash . . . . . . . . . . . . . . . . . 32,264 31,694
Reorganization value in excess of
amounts allocable to identifiable assets, net. . 482,495 489,045
Deferred income taxes. . . . . . . . . . . . . . . 74,700 74,700
Other assets, net . . . . . . . . . . . . . . . . 27,559 25,788
------------ ------------
Total other assets. . . . . . . . . . . . . . 617,018 621,227
------------ ------------
$ 1,651,928 $ 1,588,709
============ ============
</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>
March 31, December 31,
Liabilities and Stockholders' Equity 1996 1995
- - ------------------------------------ ----------- -----------
(Unaudited)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt. . . . . . . . . . . $ 48,652 $ 54,157
Accounts payable. . . . . . . . . . . . . . . . . . . . . 100,161 89,157
Air traffic liability . . . . . . . . . . . . . . . . . . 259,680 191,744
Accrued compensation and vacation benefits. . . . . . . . 22,046 41,616
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . 33,929 34,359
Other accrued liabilities . . . . . . . . . . . . . . . . 23,141 24,802
----------- -----------
Total current liabilities . . . . . . . . . . . . . . 487,609 435,835
----------- -----------
Long-term debt, less current maturities. . . . . . . . . . . 371,588 373,964
Deferred credits and other liabilities . . . . . . . . . . . 125,576 129,438
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 44,494,973
shares at March 31, 1996 and 44,141,330 shares at
December 31, 1995. . . . . . . . . . . . . . . . . . . . 445 441
Additional paid-in capital . . . . . . . . . . . . . . . . 592,879 588,927
Retained earnings. . . . . . . . . . . . . . . . . . . . . 75,359 61,632
----------- -----------
668,695 651,012
Less treasury stock, 112,000 shares of Class B common
stock at cost. . . . . . . . . . . . . . . . . . . . . . (1,540) (1,540)
----------- -----------
Total stockholders' equity . . . . . . . . . . . . 667,155 649,472
----------- -----------
$ 1,651,928 $ 1,588,709
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
AMERICA WEST AIRLINES, INC.
Condensed Statements of Income
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1996 1995
----------- ------------
<S> <C> <C>
Operating revenues:
Passenger. . . . . . . . . . . . . . . . . . . . . $ 387,802 $ 323,459
Cargo. . . . . . . . . . . . . . . . . . . . . . . 10,757 11,376
Other. . . . . . . . . . . . . . . . . . . . . . . 14,591 10,955
----------- -----------
Total operating revenues . . . . . . . . . . . . 413,150 345,790
----------- -----------
Operating expenses:
Salaries and related costs . . . . . . . . . . . . 94,702 89,180
Aircraft rents . . . . . . . . . . . . . . . . . . 47,272 41,446
Other rents and landing fees . . . . . . . . . . . 26,567 26,808
Aircraft fuel. . . . . . . . . . . . . . . . . . . 49,176 39,694
Agency commissions . . . . . . . . . . . . . . . . 32,599 28,965
Aircraft maintenance materials and repairs . . . . 27,025 12,764
Depreciation and amortization. . . . . . . . . . . 13,232 11,920
Amortization of reorganization value in excess
of amounts allocable to identifiable assets. . . 6,549 8,208
Other. . . . . . . . . . . . . . . . . . . . . . . 81,710 61,910
----------- -----------
Total operating expenses . . . . . . . . . . . . 378,832 320,895
----------- -----------
Operating income . . . . . . . . . . . . . . . . 34,318 24,895
----------- -----------
Nonoperating income (expenses):
Interest income. . . . . . . . . . . . . . . . . . 3,170 2,874
Interest expense . . . . . . . . . . . . . . . . . (12,268) (15,879)
Gain (loss) on disposition of property
and equipment. . . . . . . . . . . . . . . . . . 178 (923)
Other, net . . . . . . . . . . . . . . . . . . . . 22 1
----------- -----------
Total nonoperating expenses, net . . . . . . . . (8,898) (13,927)
----------- -----------
Income before income taxes . . . . . . . . . . . . . 25,420 10,968
----------- -----------
Income taxes . . . . . . . . . . . . . . . . . . . . 11,693 5,758
----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . $ 13,727 $ 5,210
=========== ===========
Earnings per share:
Primary. . . . . . . . . . . . . . . . . . . . . . $ 0.28 $ 0.12
=========== ===========
Fully diluted. . . . . . . . . . . . . . . . . . . $ 0.27 $ 0.12
=========== ===========
Shares used for computation:
Primary. . . . . . . . . . . . . . . . . . . . . . 49,710 45,166
=========== ===========
Fully diluted. . . . . . . . . . . . . . . . . . . 50,658 45,166
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
AMERICA WEST AIRLINES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . $ 13,727 $ 5,210
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . 13,232 11,920
Amortization of reorganization value in excess
of amounts allocable to identifiable assets. . 6,549 8,208
Amortization of deferred overhauls . . . . . . . 6,602 859
Amortization of deferred credits . . . . . . . . (2,901) (2,642)
Loss (gain) on disposition of property and
equipment. . . . . . . . . . . . . . . . . . . (178) 923
Other. . . . . . . . . . . . . . . . . . . . . . 698 851
Changes in operating assets and liabilities:
Increase in accounts receivable, net . . . . . . (29,622) (29,031)
Decrease (increase) in spare parts and
supplies, net. . . . . . . . . . . . . . . . . 244 (2,081)
Increase in prepaid expenses, net. . . . . . . . (4,852) (6,332)
Increase in other assets . . . . . . . . . . . . (2,341) (2,528)
Increase in accounts payable . . . . . . . . . . 11,004 13,462
Increase in air traffic liability. . . . . . . . 67,936 59,954
Increase (decrease) in accrued compensation
and vacation benefits. . . . . . . . . . . . . (19,570) 757
Increase (decrease) in accrued taxes . . . . . . (430) 18,288
Increase (decrease) in other accrued
liabilities. . . . . . . . . . . . . . . . . . 121 (4,839)
Increase (decrease) in other liabilities . . . . (1,542) 441
---------- ----------
Net cash provided by operating activities. . . 58,677 73,420
Cash flows from investing activities:
Purchases of property and equipment. . . . . . . . (32,795) (28,950)
Equipment purchase deposits. . . . . . . . . . . . (102) -
Proceeds from disposition of property. . . . . . . 33 312
---------- ----------
Net cash used in investing activities. . . . . (32,864) (28,638)
Cash flows from financing activities:
Repayment of debt. . . . . . . . . . . . . . . . . (15,812) (13,958)
Issuance of common stock . . . . . . . . . . . . . 2,174 1
---------- ----------
Net cash used in financing activities. . . . . (13,638) (13,957)
---------- ----------
Net increase in cash and cash equivalents. . . 12,175 30,825
---------- ----------
Cash and cash equivalents at beginning of period . . 224,367 182,581
---------- ----------
Cash and cash equivalents at end of period . . . . . $ 236,542 $ 213,406
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE> 6
AMERICA WEST AIRLINES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996
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. 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, 1995.
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 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 effects of
such adjustments are dilutive.
Fully diluted earnings per share is based on the weighted average number of
shares of common stock outstanding and dilutive common stock equivalents
(stock options and warrants). 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, but only if
the effects of such adjustments are dilutive.
3. RESTRICTED STOCK AND STOCK OPTIONS
Under the Incentive Equity Plan ("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 March 31, 1996, 149,334 shares of restricted stock and options
to purchase 2,140,666 shares of Class B Common Stock at the fair market value
on the date of grant (which range from $7.75 to $20.875) had been granted
pursuant to the Incentive Plan. Also, options to purchase 78,000 shares of
Class B Common Stock at the fair market value on the date of grant (which
range from $8.00 to $9.38) were issued to members of the Board of Directors
who are not employees of the Company. As of March 31, 1996, 50,334 shares of
restricted stock were vested and 615,000 options to purchase shares of Class
B Common Stock were exercisable.
4. INCOME TAXES
The Company recorded income tax expense as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Current taxes:
Federal $ 364 $ 10
State 326 18
-------- --------
690 28
Deferred taxes - -
Income tax expense attributable
to reorganization items 11,003 5,730
-------- --------
Income tax expense $ 11,693 $ 5,758
======== ========
</TABLE>
6
<PAGE> 7
As reflected in the above table, for the three months ended March 31, 1996
and 1995, income tax expense pertains both to income from operations as
well as to certain adjustments necessitated by the Company's emergence from
bankruptcy and the resultant fresh start adjustments to the Company's
financial statements. The Company's reorganization 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 cash income tax liability (i.e., income taxes payable) is
considerably lower than income tax expense shown for financial reporting
purposes.
5. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Interest (net of amounts capitalized
of $606 in 1996 and $520 in 1995) $ 13,312 $ 18,317
Income taxes 16 14
</TABLE>
In addition, the Company had the following non-cash investing and financing
activities:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Notes payable $ 7,814 $ 1,415
Accrued interest reclassified to
long-term debt - 32
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
(a) Leases
In January 1996, the Company entered into agreements to lease two A320
aircraft. The two A320 aircraft each have a lease term of 62 months with
rents payable monthly; such rents are subject to reset every six months based
on the six-month LIBOR rate.
In March 1996, the Company entered into an agreement to lease one A320
aircraft for two years with rents payable monthly.
(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
7
<PAGE> 8
include claims of various state and local tax authorities and certain
potential 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 those 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.
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. 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
13 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 commenced in
February 1996 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%.
Also consistent with its goal of maintaining a low cost structure, in December
1995, the Company outsourced its heavy aircraft maintenance to Tramco, a
division of the B.F. Goodrich Company. Based on costs associated with the
Company's maintenance operations in 1995, the Company estimates the outsourcing
arrangements will save the Company approximately $35 million over the five-year
term of the agreement. This outsourcing reduced the Company's workforce by
approximately 500.
Commencing October 1, 1995, operating costs of the Company were affected by the
expiration of a 4.3 cents per gallon federal tax exemption for commercial
aviation fuel. The expiration of such exemption will increase the Company's
annual operating expenses by approximately $13.4 million based upon its 1995
fuel consumption levels. Recently, Congressional leaders have voiced support for
the immediate repeal of the 4.3 cents per gallon federal fuels tax. Legislation
has been introduced in the Senate that, if enacted, would repeal, through
December 31,1996, the 4.3 cents per gallon federal fuel tax currently
applicable to jet fuel used in commercial aviation. However, there can be no
assurance that the jet fuel tax will be repealed, either temporarily or
permanently.
The Company's actual income tax liability (i.e., income taxes payable) is
considerably lower than income tax expense for financial reporting purposes due
in part to the utilization of net operating loss and certain tax credit
carryforwards. The amortization of the excess reorganization value is not
deductible for income tax purposes, in part 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.
8
<PAGE> 9
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.
Selected Operating Data
The table below sets forth selected operating data for the Company.
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
Percent
Change
1996 1995 1996-1995
------- -------- ---------
<S> <C> <C> <C>
Available seat miles
(in millions) 4,955 4,635 6.9
Revenue passenger miles
(in millions) 3,504 2,960 18.4
Load factor (percent) 70.7 63.9 10.6
Yield per revenue passenger mile
(cents) 11.07 10.93 1.3
Revenue per available seat mile:
Passenger (cents) 7.83 6.98 12.2
Total (cents) 8.34 7.46 11.8
Passenger enplanements
(in thousands) 4,305 3,820 12.7
Average stage length (miles) 700 687 1.9
Average passenger journey (miles) 968 957 1.1
Aircraft (end of period) 95 88 8.0
Average daily aircraft
utilization (hours) 11.5 11.2 2.7
Full-time equivalent employees
(end of period) 8,932.8 10,280.4 (13.1)
Fuel price (cents per gallon) 60.2 54.0 11.5
Fuel consumption (gallons in
millions) 81.8 73.6 11.1
</TABLE>
9
<PAGE> 10
The table below sets forth the major components of operating expense per
available seat mile ("ASM") for the Company.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
Percent
Change
1996 1995 1996-1995
---- ---- ---------
(in cents)
<S> <C> <C> <C>
Salaries and related costs 1.91 1.92 (.5)
Aircraft rents .95 .89 6.7
Other rents and landing fees .54 .58 (6.9)
Aircraft fuel .99 .86 15.1
Agency commissions .66 .62 6.5
Aircraft maintenance materials
and repairs .55 .28 96.4
Depreciation and amortization .27 .25 8.0
Amortization of reorganization
value in excess of amounts
allocable to identifiable
assets .13 .18 (27.8)
Other 1.65 1.34 23.1
---- ----
7.65 6.92 10.5
==== ====
</TABLE>
Results of operations
For the three months ended March 31, 1996 and 1995, the Company realized net
income of $13.7 million and $5.2 million, respectively. Net income for the three
month period in 1996 included income tax expense for financial reporting
purposes of $11.7 million compared to $5.8 million for the three month period in
1995.
Total operating revenues were $413.2 million for the three months ended March
31, 1996 compared to $345.8 million in the 1995 period. Passenger revenues
increased 19.9% to $387.8 million during the three months ended March 31, 1996.
Cargo and other revenues increased 13.5% to $25.3 million for the first quarter
of 1996. 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 6.9 percent for the three months ended
March 31, 1996 compared to the 1995 period, primarily due to an increase in the
fleet size to 95 aircraft from 88 aircraft. Revenue passenger miles increased
18.4 percent for the three months ended March 31, 1996 compared to the 1995
period. Load factor increased by 6.8 points, on higher available capacity, and
yield increased 1.3 percent for the three months ended March 31, 1996 compared
to the 1995 period.
Operating expense per ASM increased to 7.65 cents for the three months ended
March 31, 1996 from 6.92 cents for the 1995 period. The changes in the
components of operating expense per ASM for the comparable three month period
are explained as follows:
- - - Salaries and related costs per ASM have remained relatively constant. The
new pilot pay contract which became effective May 1, 1995 increased pilot
salaries by approximately $6.9 million for the 1996 first quarter, while
the Company's outsourcing of its heavy aircraft maintenance in December
1995 reduced salaries by approximately $4.4 million during the same
period.
- - - Aircraft rents per ASM increased 6.7 percent due principally to the
addition of seven aircraft to the fleet since the first quarter of 1995
at higher average rates.
- - - Other rents and landing fees per ASM decreased primarily due to the 6.9
percent increase in ASMs.
- - - The average price per gallon of aircraft fuel increased 11.5 percent to
60.2 cents for the 1996 quarter from 54.0 cents for 1995. Also, fuel
consumption was higher for the quarter due to the increase in fleet size.
10
<PAGE> 11
- - - Agency commission expense per ASM increased primarily due to the 12
percent increase in passenger revenues per ASM in 1996.
- - - Aircraft maintenance materials and repairs expense per ASM increased 96.4
percent or $14.3 million due primarily to the $67.2 million increase in
capitalized maintenance since the 1995 first quarter which increased
capitalized maintenance amortization expense for the first quarter of
1996 by $6.6 million. In addition, outsourcing of the Company's aircraft
maintenance work has increased maintenance expense in the 1996 first
quarter however, such increase in cost is offset by a reduction in
maintenance payroll expense as noted under "Salaries and related
costs" above.
- - - Amortization of reorganization value in excess of amounts allocable to
identifiable assets per ASM decreased due to a reduction in the
unamortized balance of excess reorganization value due to, i) utilization
of tax attributes of the pre-reorganization Company, including net
operating loss carryforwards, such reduction amounting to $50 million in
1995 and $11.9 million in 1994 and ii) recognition of a deferred income
tax asset of $74.7 million in 1995.
- - - Depreciation and amortization per ASM increased 8 percent primarily due to
the 8.2 percent increase in property and equipment in the first quarter of
1996 as compared to the first quarter of 1995.
- - - Other operating cost per ASM increased 23.1 percent to 1.65 cents from
1.34 cents. The increase in cost is primarily attributed to a 4.3 cents
per gallon federal fuel tax for which the Company became liable commencing
October 1, 1995, and the increase in passenger traffic-related cost such
as CRS fees, catering costs, credit card discount fees, interrupted trip
expense related to the bad weather experienced on the East Coast and
advertising costs.
- - - The first class installation program that was completed in December 1995,
reduced ASM's by 2.6 percent which had the effect of increasing
operating cost per ASM for the 1996 first quarter.
Net nonoperating expenses decreased $5 million to $8.9 million for the three
months ended March 31, 1996 from $13.9 million for 1995. This resulted from a
net decrease in interest expense of $3.6 million due to reduced levels of debt
and lower interest rates and an increase in interest income of $0.3 million due
to higher cash and cash equivalent balances in 1996.
Income tax expense for financial reporting purposes for the three months ended
March 31, 1996 increased to $11.7 million from $5.8 million in 1995 primarily
due to higher pretax earnings.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Unrestricted cash and cash equivalents increased to $236.5 million at March 31,
1996 from $224.4 million at December 31, 1995. Net cash provided from operating
activities decreased to $58.7 million for the three months ended March 31, 1996
from $73.4 million for the three months ended March 31, 1995, a decrease of
$14.7 million. The decrease was primarily due to the distribution in the 1996
first quarter of performance bonuses (AWArd Pay) to employees for achieving 1995
operating income targets. Net cash used in investing activities increased to
$32.9 million for the three months ended March 31, 1996 from $28.6 million for
the 1995 period, an increase of $4.3 million primarily related to increased
expenditures for capitalized overhauls. Net cash used in financing activities
was $13.6 million for the three months ended March 31, 1996 compared to $14.0
million net cash provided for the 1995 period.
The Company has a working capital deficiency which has increased to $75.8
million at March 31, 1996 from $70.4 million at December 31, 1995. 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 1998 consist primarily of
principal amortization of notes payable secured by certain of the Company's
aircraft. Such maturities are $38.4 million, $46.2 million and $43.2 million,
respectively, for the remainder of 1996, 1997, and 1998. Management expects to
fund these requirements with cash from operations.
At March 31, 1996, the Company had net operating loss carryforwards ("NOL") and
general business tax credit carryforwards of approximately $515.4 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 tax credit
carryforwards is subject to certain limitations. The Company is a loss
corporation within the meaning of Section 382. The
11
<PAGE> 12
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 pre-change 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 pre-reorganization Company that serve to reduce the Company's actual
income tax liability. To the extent the tax attributes of the pre-reorganization
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 March 31, 1996, 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. The Company is currently negotiating with GPA for
the lease of one new Airbus A320-200 aircraft for delivery in May 1996. If the
negotiations are successfully completed, the Company will receive credit for one
aircraft under the GPA Put Agreement (and the number of aircraft that GPA will
be entitled to put to the Company will be reduced to four) and the Company will
be entitled to reduce the deliveries (see below) under the AVSA A320 purchase
agreement by one additional aircraft.
At March 31, 1996, 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
delivery dates that fall in the years 1999 through 2001. The aggregate net cost
of such aircraft is based on formulae that include certain prices indices
(including indices for various aircraft components such as metal products) for
periods preceding the various delivery dates. Based on an assumed 5% escalation,
the Company estimates such aggregate net cost to be approximately $1.2 billion.
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 were to exercise
its existing rights to cancel six 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 $900 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 March 31, 1996, the Company's fleet consisted of 95 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
12
<PAGE> 13
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.
Capital expenditures for the quarter ended March 31, 1996 and 1995 were
approximately $32.8 million and $29.0 million, respectively. Included in these
amounts are capital expenditures for deferred overhauls of approximately $11.6
million for the first quarter of 1996 and $13.9 million for the first quarter of
1995.
In April 1996, the Company under the authorization granted by the Board of
Directors in September 1995, repurchased 425,000 shares of Class B Common Stock
on the open market at per share prices ranging from $19.75 to $21.88.
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 March 31, 1996.
Part II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a. Exhibits
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
------- --------------------------------
*11.1 Computation of Earnings Per Share
*27 Financial Data Schedule
*Filed herewith
b. Reports on Form 8-K
None
13
<PAGE> 14
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: May 15, 1996
14
<PAGE> 1
AMERICA WEST AIRLINES, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands except per share amount) Exhibit 11.1
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1996 1995
----------- ------------
<S> <C> <C>
Primary Earnings Per Share:
Computation for Statements of Income:
Net income. . . . . . . . . . . . . . . . . . . $ 13,727 $ 5,210
Adjustment for interest on debt reduction,
net of taxes. . . . . . . . . . . . . . . . . - -
----------- -----------
Net income applicable to common stock . . . . . $ 13,727 $ 5,210
=========== ===========
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . 45,580,812 45,165,959
Assumed exercise of stock options and
warrants (a). . . . . . . . . . . . . . . . . . 4,128,841 -
----------- -----------
Weighted average number of common shares
outstanding as adjusted . . . . . . . . . . . . 49,709,653 45,165,959
=========== ===========
Primary earnings per common share:
Net income. . . . . . . . . . . . . . . . . . . $ 0.28 $ 0.12
=========== ===========
Net income. . . . . . . . . . . . . . . . . . . $ 5,210
Adjustment for interest on debt reduction,
net of taxes. . . . . . . . . . . . . . . . . 1,168
-----------
Net income applicable to common stock . . . . . $ 6,378
===========
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . 45,165,959
Assumed exercise of stock options and
warrants (a). . . . . . . . . . . . . . . . . 2,787,975
-----------
Weighted average number of common shares
outstanding as adjusted . . . . . . . . . . . 47,953,934
===========
Primary earnings per common share:
Net income. . . . . . . . . . . . . . . . . . . $ 0.13 (b)
===========
</TABLE>
<PAGE> 2
AMERICA WEST AIRLINES, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(in thousands except per share amount) Exhibit 11.1
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Fully Diluted Earnings Per Share:
Computation for Statements of Operations:
Net income. . . . . . . . . . . . . . . . . . . $ 13,727 $ 5,210
Adjustment for interest on debt reduction,
net of taxes. . . . . . . . . . . . . . . . . - 1,097
----------- -----------
Net income applicable to common stock . . . . . $ 13,727 $ 6,307
=========== ===========
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . 45,580,812 45,165,959
Assumed exercise of stock options and
warrants (a). . . . . . . . . . . . . . . . . 5,076,824 2,787,975
----------- -----------
Weighted average number of common shares
outstanding as adjusted . . . . . . . . . . . 50,657,636 47,953,934
=========== ===========
Fully diluted earnings per common share:
Net income. . . . . . . . . . . . . . . . . . . $ 0.27 $ 0.13
=========== ===========
</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> 0000706270
<NAME> AMERICA WEST AIRLINES, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 236,542
<SECURITIES> 0
<RECEIVABLES> 101,562
<ALLOWANCES> 2,846
<INVENTORY> 28,399
<CURRENT-ASSETS> 411,824
<PP&E> 683,628
<DEPRECIATION> 95,909
<TOTAL-ASSETS> 1,651,928
<CURRENT-LIABILITIES> 487,609
<BONDS> 371,588
0
0
<COMMON> 457
<OTHER-SE> 666,698
<TOTAL-LIABILITY-AND-EQUITY> 1,651,928
<SALES> 0
<TOTAL-REVENUES> 413,150
<CGS> 0
<TOTAL-COSTS> 378,832
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 750
<INTEREST-EXPENSE> 12,268
<INCOME-PRETAX> 25,420
<INCOME-TAX> 11,693
<INCOME-CONTINUING> 13,727
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,727
<EPS-PRIMARY> .28
<EPS-DILUTED> .27
</TABLE>
