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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-10140
AMERICA WEST AIRLINES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 86-0418245
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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4000 EAST SKY HARBOR BOULEVARD
PHOENIX, ARIZONA 85034
(Address of principal executive offices)
(Zip code)
(602) 693-0800
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Class B Common Stock, $.01 par value New York Stock Exchange
Class B Common Stock Warrant, $.01 par value New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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 /X/ No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
As of March 25, 1996, there were 44,494,973 shares of Class B Common Stock
and 1,200,000 shares of Class A Common Stock issued and outstanding. On such
date, 27,099,392 shares of Class B Common Stock, having an aggregate market
value of $575,862,080 were held by non-affiliates of the Registrant. For
purposes of the above statement only, all directors and executive officers of
the Registrant are assumed to be affiliates.
Indicate by check mark whether the Registrant has filed all documentation
and reports required to be filed by Sections 12, 13 and 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes /X/ No / /.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement relating to the Registrant's 1996 Annual
Shareholders Meeting are incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................................... 1
Item 2. Properties.................................................................. 9
Item 3. Legal Proceedings........................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......................... 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....... 12
Item 6. Selected Financial Data..................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 14
Item 8. Financial Statements and Supplementary Data................................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 47
PART III
Item 10. Directors and Executive Officers of the Registrant.......................... 47
Item 11. Executive Compensation...................................................... 47
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 47
Item 13. Certain Relationships and Related Transactions.............................. 47
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............. 48
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Note Concerning Forward-Looking Information
This Report contains various forward-looking statements and information
that are based on management's beliefs as well as assumptions made by and
information currently available to management. When used in this document, the
words "anticipate," "estimate," "project" and similar expressions are intended
to identify forward-looking statements. Such statements are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. Among the key factors that may have a direct bearing on America
West's results are competitive practices in the airline industry generally and
particularly in the Company's principal markets, the ability of the Company to
meet existing financial obligations in the event of adverse industry or economic
conditions or to obtain additional capital to fund future commitments and
expansion, the Company's relationship with employees and the terms of future
collective bargaining agreements and the impact of current and future laws and
governmental regulation affecting the airline industry and the Company's
operations. For additional discussion of such risks see "Business -- Risk
Factors," included in Item 1 of this Report.
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PART I
ITEM 1. BUSINESS
OVERVIEW
America West Airlines, Inc. ("America West" or the "Company") is the ninth
largest commercial airline carrier in the United States, operating through its
principal hubs located in Phoenix, Arizona and Las Vegas, Nevada and a mini-hub
located in Columbus, Ohio. The Company believes it is the lowest cost full
service carrier in the United States and, during the year ended December 31,
1995, generated the highest operating margin among the major full service
domestic airlines. At December 31, 1995, the Company served 51 destinations,
including five destinations in Mexico and one in Canada, with a fleet of 93
aircraft. The Company offers service to an additional 23 destinations through an
alliance agreement with Continental Airlines, Inc. ("Continental") and 17
commuter service and regional destinations through an alliance agreement with
Mesa Air Group, Inc. ("Mesa").
America West is the leading airline serving Phoenix and Las Vegas, with
approximately 35% and 26% of total revenue passenger miles, respectively, based
on the twelve months ended September 30, 1995. The Phoenix and Las Vegas
airports are the seventh and thirteenth largest airports in the United States as
measured by passenger enplanements. In addition, these cities are among the
fastest growing in the nation. The Company believes these hubs are well
positioned for continued growth due to their geographically favorable locations
with strategic access to key Southwestern and West Coast markets, relatively low
operating costs, year-round fair weather and modern, uncongested facilities.
Substantially all of the Company's passenger traffic is channeled into or
through its hubs, which serve as gateways for the Company's route network.
Through its hub and spoke system, the Company serves more markets with greater
frequency than would be possible with the same number of aircraft in a
point-to-point route system.
America West operates with one of the lowest cost structures among the
major U.S. airlines. The Company's operating cost per available seat mile
("ASM") for 1995 was 7.19 cents, which was approximately 16% less than the
average operating cost per ASM of the eight largest other domestic full service
airlines. Management believes that the Company's low cost structure is a
significant competitive advantage relative to other full service carriers and
also enables the Company to compete effectively against low cost carriers in its
short-haul local markets. As a full service airline, the Company believes it
distinguishes itself from other low cost carriers by offering passenger services
that include assigned seating, meal service, participation in computerized
reservation systems, interline ticketing, first class cabins, baggage transfer
and various other services.
The Company completed its reorganization under Chapter 11 of the U.S.
Bankruptcy Code in August 1994, after having filed for protection in June 1991.
Following a restructuring implemented during its bankruptcy proceedings, the
Company has achieved 12 consecutive quarters of profitability, beginning with
the first quarter of 1993. The Company's bankruptcy filing was the result of a
combination of adverse industry factors and the Company's rapid expansion beyond
its core base of operations. From 1990 to 1992, the airline industry experienced
significant operating losses attributable in large part to high fuel prices,
depressed traffic levels and intense fare competition brought about by 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, which occurred at a time when the Company's indebtedness had
increased significantly to finance expansion. While in bankruptcy, the Company,
under new leadership, developed and implemented a restructuring plan focusing on
the Company's competitive strengths, which included its hub positions in Phoenix
and Las Vegas and its low cost structure. The Company reduced its fleet from
five aircraft types to three, eliminated routes that did not adequately support
strategic objectives and implemented cost reduction programs. Due in part to
these measures and improved economic and industry conditions, total operating
revenues grew by 19.8% during the period from 1992 through 1995, while total
operating expenses increased by 2.0%.
STRATEGY
America West's strategy seeks to achieve additional revenue growth and
profitability by capitalizing on the Company's key competitive strengths while
maximizing financial flexibility. This strategy focuses on
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(i) strengthening the Company's position in its existing hubs through strategic
expansion, (ii) maintaining its position as a leading low cost full service
carrier, (iii) operating a modern and efficient fleet, and (iv) continuing to
develop its passenger base through key alliances. Principal elements of the
Company's strategy are as follows:
Strengthen Position in Existing Hubs through Strategic Expansion. America
West's growth plan is designed to capitalize on its strong positions in its
Phoenix and Las Vegas hubs. In connection with the Company's restructuring, the
Company's operations in Phoenix contracted somewhat during a period when
airlines generally were expanding their strategic hub operations. In February
1996, the Company began implementation of its two-year plan to expand its
principal hub operations and increase connecting traffic and service to
longer-haul nonstop markets. The expansion plan provides for an increase in
available seat miles of 29% and total departures of 17% and the addition of at
least eight new cities to the Company's route network.
As the Company adds aircraft required to support the expansion of the
Phoenix hub, the Company intends to continue to optimize asset utilization
through the expansion of its Nite Flite service to Las Vegas. By utilizing
aircraft for this service that would otherwise be idle overnight, the Company is
able to compete in a low cost market segment without diminishing asset
availability for use in its Phoenix operations. The Company believes that its
existing service at its Columbus mini-hub is adequate based on current demand.
Maintain its Position as a Leading Low Cost Full Service Airline. America
West is committed to maintaining its low cost structure, which the Company has
achieved primarily through its favorable labor costs per ASM and asset
utilization enhancements. The Company has focused on increasing productivity at
all levels. In 1995, the Company's workforce decreased by 18.7% despite an
increase in ASMs of 7.5%. 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 a low cost structure. In
December 1995, the Company outsourced its heavy aircraft maintenance, which
management estimates 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. Aircraft utilization has been enhanced through a
restructuring of the Company's route network including expansion of its Las
Vegas Nite Flite program. The Company's fleet configuration, consisting of three
aircraft types, permits the Company to minimize spare parts inventories and
simplify maintenance and training operations.
Operate a Modern and Efficient Fleet. The Company enjoys operational
efficiencies due to its modern, fuel efficient fleet. At December 31, 1995, the
Company's fleet consisted of 61 Boeing 737s, 18 Airbus A320s and 14 Boeing 757s,
with an average age of approximately 9.9 years. Most of the Company's existing
aircraft are held under leases, including leases on 23 aircraft expiring through
December 1998. As a result, in the event general economic conditions change
adversely, the Company may reduce its fleet size by not renewing expiring
aircraft leases. Management currently intends to lease the additional aircraft
necessary to support the Company's expansion plan.
Continue to Develop Passenger Base through Alliances. The Company plans to
continue to capitalize on its alliance agreement with Continental to further
expand the Company's passenger base while achieving cost savings through the
reduction of redundant labor and facilities. This agreement provides for
codesharing arrangements, coordination of flight schedules, linking of frequent
flyer programs, sharing of ticket counter space, coordination of ground handling
operations and joint purchasing and marketing efforts. Through codesharing, each
airline is able to offer additional destinations to its customers without
materially increasing operating and capital expenses. Management believes that
its codesharing activities result in increased demand for travel on America West
and intends to pursue additional alliances as opportunities warrant.
As a part of America West's ongoing strategy, the Company from time to time
evaluates opportunities for additional alliances and code sharing arrangements
as well as investment opportunities pursuant to which the Company may capitalize
on its key strengths and market position.
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OPERATIONS
Hub Operations. The Company operates primarily through hub airports in
Phoenix and Las Vegas and, to a lesser extent, through its mini-hub in Columbus.
The Company schedules banks of flights timed to arrive at the hub from one
direction at approximately the same time and to depart toward the opposite
direction a short time later. The hub system allows the Company to transport
passengers between a large number of destinations with substantially more
frequent service than if each market were served directly.
The Company is the leading airline serving Phoenix Sky Harbor International
Airport and McCarran International Airport in Las Vegas, based upon revenue
passenger miles for the twelve months ended September 30, 1995, with
approximately 35% and 26% of total revenue passenger miles, respectively. In
both markets the Company's principal competitor is Southwest Airlines, with
approximately 23% and 15% of total revenue passenger miles in Phoenix and Las
Vegas, respectively, for the twelve months ended September 30, 1995. At December
31, 1995 the Company served 44 destinations from its Phoenix hub and 39
destinations from its Las Vegas hub. During 1995, the Company had approximately
48% of Columbus revenue passenger miles compared to approximately 15% for USAir,
the Company's principal competitor at Columbus for the twelve months ended
September 30, 1995. At December 31, 1995, the Company provided non-stop jet
service to 12 destinations from Columbus. The Company offers service to an
additional 23 destinations through its alliance with Continental and 17 commuter
service and regional destinations through its alliance with Mesa.
The success of the Company's hub system depends on its ability to attract
passengers traveling to and from its hubs, as well as passengers traveling
through the hubs to the Company's other destinations. The Company believes the
success of its operations in Phoenix and Las Vegas is in part due to such
airports being among the world's largest 25 in passenger traffic and such cities
being among the fastest growing in the nation. In addition, the Company believes
these hubs are well positioned for continued growth due to their geographically
favorable locations with strategic access to key Southwestern and West Coast
markets, relatively low operating costs, year-round fair weather, and modern,
uncongested facilities.
Growth Plan. The Company began a two-year growth plan in February 1996,
which provides for an increase in ASMs of 29% and total departures of 17% in
order to capture additional long-haul traffic at its hubs. The growth plan
contemplates increased total departures at Phoenix from 174 in September 1995 to
204 by September 1997. Cities served non-stop from Phoenix would increase from
43 to 51. The expansion would include new service to major business destinations
such as Detroit, Cleveland, San Antonio and Miami as well as new or additional
nonstop service from Phoenix to existing America West markets on the East Coast,
including Boston, Philadelphia, Newark, Atlanta and Orlando. In addition, flight
frequencies would be increased to better serve existing West Coast destinations
and to expand connecting opportunities through Phoenix to long-haul flights to
the East and Midwest.
The Company believes its growth at Phoenix will support concurrent
expansion of the Company's Las Vegas Nite Flite service. The growth plan
provides for daily Las Vegas Nite Flite departures to increase from 40 in
December 1995 to 48 by September 1997. The Company believes that service at its
Columbus mini-hub reflects current demand.
Continental Alliance. The Company's alliance agreement with Continental
provides for code-sharing arrangements, coordinating flight schedules, sharing
ticket counter space, linking frequent flyer programs and membership clubs, and
coordinating ground handling operations. Through the alliance, the Company's
Phoenix hub is able to attract a share of the connecting traffic previously
served at Continental's Denver hub which has been downsized during the past few
years. Through codesharing, each airline is able to offer additional
destinations to its customers without materially increasing operating and
capital expenses. By placing its designation code on certain of Continental's
flights, America West is able to offer single carrier connecting service to
cities that it does not independently serve. These single carrier code shared
flights generally are afforded superior ranking over multi-carrier connecting
flights in the displays of computer reservation systems used by U.S. travel
agents when booking reservations. Management believes that its codesharing
activities result in increased demand for travel on America West. The Company
has also realized significant cost savings through this alliance primarily
through the consolidation of airport facilities and
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resources and the elimination of duplicative costs for labor and equipment at
key locations. In addition, through joint purchasing, both carriers may receive
greater volume discounts on certain cost items.
Mesa Alliance. America West has entered into a codesharing agreement with
Mesa designed to establish Mesa as a feeder carrier for the Company at its
Phoenix hub. The codesharing agreement provides for coordinated flight
schedules, passenger handling and computer reservations under the America West
flight designator code, thereby allowing passengers to purchase one air fare for
their entire trip. Through this alliance, the Company has added 17 destinations
to its route network. Mesa operates under the name "America West Express" and
has incorporated the color scheme and commercial logo of America West on certain
aircraft utilized on these routes. The term of the codesharing agreement is
until 2004. Recently, Mesa began to offer jet service under its codesharing
agreement with the Company.
Other Codesharing Agreements. The Company also has codesharing agreements
with Northwest Airlines and Aeromexico.
America West Vacations. The Company operates America West Vacations, a
tour packaging division that arranges vacation packages that include hotel
accommodations, air fare and ground transportation in certain markets. During
1995, this division sold approximately 795,000 room nights and approximately
90,000 rental car days, handled approximately 516,000 passengers and generated
approximately $180 million in gross package sales.
AIRCRAFT
At December 31, 1995, the Company operated a fleet of 61 Boeing 737s, 18
Airbus A320s and 14 Boeing 757s as follows:
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AVERAGE
REMAINING
NUMBER OF AVERAGE LEASE
AIRCRAFT TYPE STATUS (1) AIRCRAFT AGE (YRS.) TERM (YRS.)
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B737-100............................... Owned 1 26.2 --
B737-200............................... Owned 5 16.8 --
B737-200............................... Leased 16 16.3 4.6
B737-300............................... Leased 28 8.8 4.1
B737-300............................... Owned 11 7.2 --
B757-200............................... Leased 12 9.4 9.3
B757-200............................... Owned 2 6.3 --
A320-200............................... Leased 18 5.5 15.6
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93 9.9 7.8
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(1) Each of the aircraft that is designated as owned serves as collateral for a
loan pursuant to which the aircraft was acquired by the Company or serves as
collateral for a non-purchase money loan.
Beginning in January 1996 through December 1998, leases for 23 of the
Company's aircraft are scheduled to terminate (such aircraft are 16 Boeing
B737-300s, five Boeing B737-200s, and two Boeing B757-200s). At the option of
the lessor, the lease for one of the B737-300 aircraft may be extended for up to
48 months, and the leases for 10 of the B737-300 aircraft may each be extended
for up to 60 months, at set rates, which are currently less than market rates.
There are no contractual options to extend any other of such leases. Certain of
the Company's aircraft lessors have the option to call their respective
aircraft. Usually, if such call options are exercised, the Company has the right
of first refusal to retain the aircraft. None of these options have been
exercised and the last of these call options expires in July 1997. The Company
does not believe that the possible exercise of any or all of these options will
have a material effect on its operations. In addition, certain other of the
Company's aircraft lessors have an option to reset their respective rentals to
the greater of the existing rentals being paid under the leases or the then
current fair market rates. See "Item 7. -- Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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LABOR RELATIONS
During the Reorganization, the Company reduced its employee compensation.
Subsequently, the Company began certain initiatives to increase compensation,
including adoption of its Total Pay Program, to provide employees with a pay and
benefits package which is competitive with other low-cost airlines and local
employers. To offset such increases in compensation and to maintain its
competitive advantage as a low cost operator, the Company re-emphasized its
focus on increasing productivity.
In January 1995, the Company announced a new compensation program, the
Total Pay Program. This program increased non-executive pay by approximately $25
million in fiscal 1995. In addition, performance awards of up to 25% of base pay
will be made to employees provided certain annually established operating income
targets are attained. This increase in compensation was more than offset by a
strategic overhaul of the Company's work processes which reduced its workforce
by approximately 1,100 employees. In addition, in December 1995, the Company
further reduced its workforce by approximately 500 employees in connection with
the outsourcing of its heavy aircraft maintenance. In February 1996, under the
Total Pay Program, the Company paid performance awards under a program called
AWArd Pay amounting to 10.25% of each employees base pay to the employees
covered under this program.
The Company's pilots are represented by the Air Line Pilots Association
("ALPA"). 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 and local employers. 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%. Other terms of
the agreement include a single pay scale for all aircraft types, flexible work
rules, management's right to staff the airline and to enter into strategic
alliances and the preclusion of sympathy work stoppages.
In September 1994, the Company's flight attendants voted in favor of the
Association of Flight Attendants' ("AFA") representation and contract
negotiations are ongoing. In January 1996, the Company's fleet service personnel
petitioned the NMB for a union representation election requesting that the
Transportation Workers Union represent them. In January 1996, the International
Brotherhood of Teamsters ("IBT") filed an application with the National
Mediation Board ("NMB") seeking to be certified as the bargaining representative
for the Company's mechanics, including related personnel. See "Item 3 -- Legal
Proceedings." There have been numerous attempts by unions to organize the
employees of the Company, and the Company expects such organization efforts to
continue in the future. The Company cannot predict the terms of any future
collective bargaining agreement and therefore the effect, if any, on the
Company's operations or financial performance.
EMPLOYEES
At December 31, 1995, the Company employed 7,678 full-time and 2,370
part-time employees, the equivalent of 8,712 full-time employees.
COMPETITION AND MARKETING
The airline industry is highly competitive and is susceptible to price
discounting, which involves the offering of discount or promotional fares to
passengers. Any such fares offered by one airline are normally matched by
competing airlines, resulting in lower industry yields with little or no
increase in traffic levels. America West competes with other major full service
airlines based on price and, due to its low cost structure, is able to compete
with other low cost carriers in its short haul local markets. The entry of
additional carriers on many of the Company's routes (as well as increased
competition from or the introduction of new services by established carriers)
could negatively impact America West's results of operations. America West
competes with a number of major airlines on medium- and long-haul routes through
its hubs and with Southwest Airlines for short-haul flights at its Phoenix and
Las Vegas hubs and with USAir at its Columbus mini-hub.
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Most tickets for travel on America West are sold by travel agents through
computer reservation systems that have been developed and are controlled by
other airlines. Travel agents generally receive commissions based on the price
of tickets sold. Accordingly, airlines compete not only with respect to the
price of tickets sold but also with respect to the amount of commissions paid.
Airlines often pay additional commissions in connection with special revenue
programs. In 1995, certain of the major domestic airlines initiated a program to
cap the amount of commission paid to travel agents at $50 for domestic
round-trip tickets with fares of $500 or more. The Company has not adopted such
a program and continues to evaluate this commission structure. Federal
regulations have been promulgated that are intended to diminish preferential
schedule displays and other practices with respect to the reservation systems
that place the Company and other similarly situated users at a competitive
disadvantage to the airlines controlling the systems. Effective January 8, 1996,
the Company implemented electronic or paperless ticketing which the Company
believes will reduce distribution costs in the future.
FREQUENT FLYER PROGRAM
All major U.S. airlines have established frequent flyer programs to
encourage travel on that particular carrier. America West offers the FlightFund
program that allows members to earn mileage credits by flying America West, by
using the services of other program participants such as hotels, car rental
firms and other specialty services and by flying certain partner carriers.
Through the Company's alliance agreement with Continental, the Company has
formed a frequent flyer program partnership. FlightFund and Continental's One
Pass program members may now earn and redeem mileage credit in connection with
flights to all America West and Continental destinations. In addition, the
Company periodically offers special short-term promotions that allow members to
earn additional free travel awards or mileage credits. When a FlightFund member
accumulates mileage credits of 20,000 miles, the Company issues mileage award
certificates that can be redeemed for various travel awards, including first
class upgrades and tickets on America West or other airlines participating in
America West's frequent flyer program. Most travel awards are subject to
blackout dates and capacity controlled seating. Mileage award certificates
automatically expire after two years if issued prior to April 1, 1993 and after
three years for certificates issued after that date. Travel is valid up to one
year from the date of ticketing. FlightFund awards may also be redeemed for
flights to certain international destinations and Hawaii. America West is
required to purchase space on other airlines to accommodate such award
redemption.
The Company accounts for the FlightFund program under the incremental cost
method whereby travel awards are valued at the incremental cost of carrying one
additional passenger. Costs including passenger food, beverages, supplies, fuel,
liability insurance, purchased space on other airlines and denied boarding
compensation are accrued as frequent flyer program participants accumulate
mileage to their accounts. Such unit costs are based upon expenses expected to
be incurred on a per passenger basis. No profit or overhead margin is included
in the accrual for these incremental costs.
FlightFund's membership at December 31, 1995 was approximately 2.4 million
participants. At December 31, 1995, 1994 and 1993, the Company estimated that
approximately 342,000, 369,000 and 238,000 travel awards were expected to be
redeemed. Correspondingly, the Company had an accrued liability of $10.7
million, $9.8 million and $7.4 million for 1995, 1994 and 1993, respectively.
The accrual is based upon the Company's estimates of mileage earned that will
eventually be redeemed for a travel award.
The number of FlightFund travel awards redeemed for round-trip travel for
the years ended December 31, 1995, 1994 and 1993, was approximately 111,000,
109,000 and 99,000, respectively, representing 2.3%, 2.6% and 2.8% of total
revenue passenger miles for each respective period. The Company does not believe
that the usage of free travel awards results in any significant displacement of
revenue passengers due to the Company's ability to manage frequent flyer travel
by use of blackout dates and limited seat availability.
FACILITIES
America West's principal facilities are associated with its hub operations
in Phoenix, Las Vegas and Columbus. The Company operates from Terminal 4 of
Phoenix Sky Harbor International Airport pursuant to a lease agreement that
includes 28 gates and approximately 258,200 square feet of space at December 31,
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1995. The Company also leases approximately 25,000 square feet of additional
space at the airport for administrative offices and pilot training. The Company
owns a 660,000 square foot maintenance and technical support facility that
includes four hangar bays, hangar shops, two flight simulator bays, and
warehouse and commissary facilities.
In Las Vegas, the Company leases approximately 80,000 square feet of space
at McCarran International Airport, which includes seven gates and adjoining
holding room areas. At the Company's Columbus mini-hub, the Company leases
30,000 square feet and two gates. Pursuant to the Company's alliance agreement
with Continental, certain of the station operations for both carriers have been
consolidated in an effort to reduce operating expenses.
Space for ticket counters, gates and back offices has also been obtained at
each of the other airports served by the Company, either by lease from the
airport operator or by sublease from another airline. Some of the Company's
airport sublease agreements include requirements that the Company purchase
various ground services at the airport from the lessor airline at rates in
excess of what it would cost the Company to provide those services itself.
The Company owns the 68,000 square foot America West Corporate Center at
222 South Mill Avenue in Tempe, Arizona. The Company currently leases
approximately 500,000 square feet of general office and other space in Phoenix
and Tempe, Arizona.
GOVERNMENT REGULATIONS
Noise Abatement and Other Restrictions. The Airport Noise and Capacity Act
of 1990 provides, with certain exceptions, that after December 31, 1999, no
person may operate certain large civilian turbo-jet aircraft in the United
States that do not comply with Stage III noise levels, which is the FAA
designation for the quietest commercial jets. These regulations require carriers
to gradually phase out their noisier jets, either replacing them with quieter
Stage III jets or equipping them with hush kits to comply with noise abatement
regulations, over a five-year period commencing December 31, 1994. At December
31, 1995, the Company's fleet consisted of 93 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.
Numerous airports, including those serving Boston, Denver, Los Angeles,
Minneapolis-St. Paul, New York City, San Diego, San Francisco, San Jose, Orange
County, Washington, D.C., Burbank and Long Beach have imposed restrictions such
as curfews, limits on aircraft noise levels, mandatory flight paths, runway
restrictions and limits on number of average daily departures, which limit the
ability of air carriers to provide service to or increase service at such
airports. In February 1995, the Company obtained approval to increase service at
Orange County's John Wayne Airport, which is a capacity controlled airport, by
five daily flights. The Port Authority of New York and New Jersey is considering
a phaseout of Stage II aircraft on a more accelerated basis than that of the FAA
requirement. The Company's Boeing 757-200s, 737-300s and Airbus A320s all comply
with the current noise abatement requirements of the airports listed above.
Fuel Tax Increases. In August 1993, the federal government increased taxes
on fuel, including aircraft fuel, by 4.3 cents per gallon. Initially, commercial
aviation fuel was exempt from this tax; however, the exemption expired on
September 30, 1995 and the Company began paying such tax on October 1, 1995. The
expiration of such exemption will increase the Company's annual operating
expenses by approximately $13.4 million based upon its 1995 fuel consumption
levels. Various bills have been introduced in Congress that include an extension
of the fuel tax exemption; however, none have been enacted to date and there can
be no assurance that such an extension will be enacted.
Passenger Facility Charges. During 1990, Congress enacted legislation to
permit airport authorities, with prior approval from the DOT, to impose
passenger facility charges ("PFCs") as a means of funding local airport
projects. These charges, which are intended to be collected by the airlines from
their passengers, are limited to $3.00 per enplanement, and to no more than
$12.00 per round trip. As a result of competitive pressure, the Company and
other airlines have been limited in their abilities to pass on the cost of the
PFCs to passengers through fare increases.
7
<PAGE> 10
Environmental Matters. The Company is subject to regulation under major
environmental laws administered by federal, state and local agencies, including
laws governing air, water and waste discharge activities. While the Company
strives to comply with environmental laws and regulations, the Company has
incurred and may incur costs to comply with applicable environmental laws
including soil and groundwater cleanup and other related response costs. The
Company believes, however, that under current environmental laws and regulations
these costs would not have a material adverse effect on the Company's financial
condition.
The Comprehensive Environmental Response Compensation and Liability Act of
1980, also known as Superfund, and comparable state laws impose liability
without regard to fault on certain classes of persons that may have contributed
to the release or threatened release of a "hazardous substance" into the
environment. These persons include the owner or operator of a facility and
persons that disposed or arranged for the disposal of hazardous substances. Many
airports in the United States, including the Phoenix Sky Harbor International
Airport, are the subject of Superfund investigations or state-implemented
groundwater investigations. Although the Company occupies facilities at some of
these affected airports, the Company does not believe that its operations have
been included within the ambit of any of these investigations.
The trend in environmental regulation is to place more restrictions and
limitations on activities that may affect the environment, and the Company
expects that the costs of compliance will continue to increase.
Aging Aircraft Maintenance. The FAA issued several Airworthiness
Directives ("AD") in 1990 mandating changes to the older aircraft maintenance
programs. These ADs were issued to ensure that the oldest portion of the
nation's aircraft fleet remains airworthy. The FAA is requiring that these
aircraft undergo extensive structural modifications. These modifications are
required upon the accumulation of 20 years time in service, prior to the
accumulation of a designated number of flight cycles or prior to 1994 deadlines
established by the various ADs, whichever occurs later. Six of the Company's 93
aircraft are currently affected by these aging aircraft ADs and are in
compliance with such ADs at December 31, 1995. The Company constantly monitors
its fleet of aircraft to ensure safety levels which meet or exceed those
mandated by the FAA or the DOT.
Safety. America West is subject to the jurisdiction of the FAA with
respect to aircraft maintenance and operations, including equipment, dispatch,
communications, training, flight personnel and other matters affecting air
safety. The FAA has the authority to issue new or additional regulations. To
ensure compliance with its regulations, the FAA requires the Company to obtain
operating, airworthiness and other certificates which are subject to suspension
or revocation for cause. In addition, a combination of FAA and Occupational
Safety and Health Administration regulations on both federal and state levels
apply to all of America West's ground-based operations.
Slot Restrictions. At New York City's John F. Kennedy Airport and
LaGuardia Airport, Chicago's O'Hare International Airport and Washington's
National Airport, which have been designated "High Density Airports" by the FAA,
there are restrictions on the number of aircraft that may land and take-off
during peak hours. In the future, these take-off and landing time slot
restrictions and other restrictions on the use of various airports and their
facilities may result in further curtailment of services by, and increased
operating costs for, individual airlines, including America West, particularly
in light of the increase in the number of airlines operating at such airports.
In general, the FAA rules relating to allocated slots at the High Density
Airports contain provisions requiring the relinquishment of slots for nonuse and
permits carriers, under certain circumstances, to sell, lease or trade their
slots to other carriers. All slots must be used on 80% of the dates during each
two-month reporting period. Failure to satisfy the 80% use rate will result in
loss of the slot. The slot would revert to the FAA and be reassigned through a
lottery arrangement.
The Company currently utilizes two slots at New York City's Kennedy
Airport, four slots at New York City's LaGuardia Airport, four slots at
Chicago's O'Hare International Airport and six slots at Washington's National
Airport. Four of the slots at Washington's National airport are subject to
expiration annually in December. The average utilization rates by the Company of
all the foregoing slots range from 86% to 100% in 1995.
8
<PAGE> 11
Civil Reserve Air Fleet Program. In time of war or during a national
emergency, United States air carriers may be required to provide airlift
services to the Military Airlift Command under the Civil Reserve Air Fleet
Program.
RISK FACTORS
America West's business operations and financial results are subject to
various uncertainties and future developments that cannot be predicted. Certain
of the principal risks and uncertainties that may affect America West's
operations and financial results are identified below.
Competitive Industry Conditions
The airline industry is highly competitive and industry earnings are
volatile. From 1990 to 1992, the airline industry experienced unprecedented
losses due to high fuel costs, general economic conditions, intense price
competition and other factors. Airlines compete on the basis of pricing,
scheduling (frequency and flight times), on-time performance, frequent flyer
programs and other services. The airline industry is susceptible to price
discounting, which involves the offering of discount or promotional fares to
passengers. Any such fares offered by one airline are normally matched by
competing airlines, which may result in lower industry yields without a
corresponding increase in traffic levels.
Most of the Company's markets are highly competitive and are served by
larger carriers with substantially greater financial resources than the Company.
Also, in recent years several new carriers have entered the industry, typically
with low cost structures. In some cases, new entrants have initiated or
triggered further price discounting. The entry of additional new carriers on
many of the Company's routes, as well as increased competition from or the
introduction of new services by established carriers, could negatively impact
America West's results of operations.
Leverage; Future Capital Requirements
At December 31, 1995, the Company had $428.1 million of long-term
indebtedness (including current maturities). America West does not have
available lines of credit or significant unencumbered assets. The Company may be
less able than certain of its competitors to withstand adverse industry
conditions or a prolonged economic recession. In addition, as described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" included in Item 4 of this
Report, at December 31, 1995, the Company had commitments for a total of 24
Airbus A320-200 aircraft for delivery beginning in 1999. The aggregate net cost
of such aircraft is based on formulae that include certain price indices
(including indices for various aircraft components such as metal products) for
periods preceding the various delivery dates. Based on an assumed 5% annual
price escalation, the Company estimates such aggregate net cost to be
approximately $1.2 billion. The Company has arranged for financing for up to
one-half of the commitment relating to such aircraft and will require
substantial capital from external sources to meet its remaining financial
commitment. There can be no assurance that the Company will be able to obtain
such capital in sufficient amounts or on acceptable terms. In addition, pursuant
to the Company's growth plan, the Company is expanding its fleet, increasing
frequencies to existing cities and adding destinations to its route system. See
"Business -- Operations" included in Item 1 of this Report. This expansion will
require the lease of additional aircraft. There can be no assurance that the
Company will be able to negotiate such leasing arrangements in sufficient
amounts or on acceptable terms.
Increases in Fuel Prices
Fuel costs constituted approximately 12.5% of America West's total
operating expenses during 1995. A one cent per gallon change in fuel price would
affect the Company's annual operating results by approximately $3 million at
1995 consumption levels. Accordingly, either a substantial increase in fuel
prices or the lack of adequate fuel supplies in the future would likely have a
material adverse effect on the operating results of the Company. Fuel price
increases or supply shortages can occur at any time as a result of, among other
things,
9
<PAGE> 12
geopolitical developments. The Company purchases fuel on standard trade terms
under master agreements. The Company does not currently hedge its fuel costs but
may elect to do so in the future.
Labor Negotiations
The Company historically operated without collective bargaining agreements
covering any of its employees. In October 1993, however, the Air Line Pilots
Association ("ALPA") was certified by the National Mediation Board as the
bargaining representatives of the Company's pilots. See "Business -- Labor
Relations" included in Item 1 of this Report. In June 1994, the National
Mediation Board (the "NMB") accepted the Association of Flight Attendants'
("AFA") petition to represent the Company's flight attendants. In September
1994, the Company's flight attendants voted in favor of AFA representation and
contract negotiations are ongoing. In January 1996, the Company's ground
operations workers petitioned the NMB for a union representation election
requesting that the Transportation Workers Union represent them. In January
1996, the International Brotherhood of Teamsters filed an application with the
NMB seeking to be certified as the bargaining representative for the Company's
mechanics, including related personnel. See "Legal Proceedings" included in Item
3 of this Report. There have been numerous attempts by unions to organize the
employees of the Company, and the Company expects such organization efforts to
continue in the future. The Company cannot predict the terms of any future
collective bargaining agreement and therefore the effect, if any, on the
Company's operations or financial condition. See "Business -- Labor Relations"
included in Item 1 of this Report.
Government Regulation
The Company is subject to the Federal Aviation Act of 1958, as amended,
under which the Department of Transportation (the "DOT") and the Federal
Aviation Administration (the "FAA") exercise regulatory authority. This
regulatory authority includes (i) the determination and periodic review of the
fitness (including financial fitness) of air carriers; (ii) the certification
and regulation of flight equipment; (iii) the approval of personnel who may
engage in flight, maintenance and operations activities; and (iv) the approval
of flight training activities and the enforcement of minimum air safety
standards set forth in FAA regulations. In accordance with the Airline
Deregulation Act of 1978, domestic airline fares and routes are no longer
subject to significant regulation. The DOT maintains authority over
international aviation, subject to review by the President of the United States,
and has jurisdiction over consumer protection policies, computer reservation
system issues and unfair trade practices.
In the last several years, the FAA has issued a number of maintenance
directives and other regulations relating to, among other things, retirement of
older aircraft, collision avoidance systems, airborne windshear avoidance
systems, noise abatement and increased inspections and maintenance procedures to
be conducted on older aircraft. Additional laws and regulations have been
proposed from time to time that could significantly increase the cost of airline
operations by imposing additional requirements and restrictions on operations.
Laws and regulations have been considered from time to time that would prohibit
or restrict the ownership and transfer of airlines routes or slots. For a
discussion of various regulatory and legislative matters that affect or may in
the future affect the Company and its results of operations, see
"Business -- Government Regulations" included in Item 1 of this Report.
ITEM 2. PROPERTIES
For a description of the Company's properties, see Item 1 of Part I of this
Annual Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
The Company emerged from bankruptcy on August 25, 1994 after operating as a
debtor-in-possession since June 27, 1991, when the Company filed a voluntary
petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code. The
bankruptcy court confirmed the Company's plan of reorganization (the "Plan") on
August 10, 1994. Pursuant to the Plan, the previously outstanding equity
interests in the Company were canceled as of August 25, 1994 and new stock was
issued. In addition, the Company's obligations to certain
10
<PAGE> 13
prepetition creditors were restructured and general unsecured nonpriority
prepetition creditors received, in full satisfaction of their claims, shares of
the Company's Class B Common Stock $.01 par value ("Class B Common Stock") and
cash. The Plan also provided for the disposition of numerous other matters,
including the satisfaction of certain other prepetition claims in accordance
with negotiated settlement agreements, the disposition of various types of
claims asserted against the Company, the adherence to the Company's aircraft
lease agreements, the amendment of the Company's aircraft purchase agreements
and the release of the Company's employees from all obligations arising under
the Company's stock purchase plan in consideration for the cancellation of the
shares of the stock securing such obligations. As contemplated by the Plan,
certain administrative and priority tax claims remain 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, most of which represent ordinary course
pre-bankruptcy tax obligations not paid during the pendency of the bankruptcy
proceedings and various other matters. In connection with the state and local
tax claims, the Company has reserved certain amounts believed by management to
be adequate.
GPA Group plc ("GPA"), which subleases certain aircraft to the Company, has
informed the Company that it may assert a claim in an unspecified amount as a
result of the Internal Revenue Service potentially disallowing investment tax
credits and accelerated depreciation claimed by the head lessor of six of such
aircraft. Such a claim, if asserted, would be based on indemnification
agreements between the Company and GPA covering certain losses that GPA may
incur pursuant to its indemnification agreements with the head lessor. Under the
terms of the indemnity agreements between GPA and the Company, if such tax
benefits were fully or partially disallowed, the Company's monthly rental
obligation under the subleases from GPA could be increased by up to
approximately $15,000 per aircraft (approximately $1,080,000 per year for all
six aircraft) for the term of such subleases, each of which commenced during
1991 and expires in 2013. The rental increase applicable to periods prior to the
determination of an indemnity obligation would be payable monthly over a
24-month period, with interest calculated at a specified prime rate. The Company
is unable to predict whether the Internal Revenue Service will prevail in
matters asserted against the head lessor or, consequently, whether the Company
will incur any liability in connection with such claims or the amount of any
such liability, if incurred. Management currently believes that it is unlikely
that the disposition of these matters will have a material adverse effect on the
Company's financial condition.
A group of 71 individuals, who are current or former employees of
Continental have commenced a lawsuit against Continental, Air Partners L.P.,
AmWest Partners, AmWest Genpar, Inc. and the Company. The complaint, which was
filed in the Federal District Court for the Western District of Washington,
alleges that the plaintiffs were discharged from their employment as part of an
alleged plan to replace Continental's employees at certain stations with
relatively younger employees of the Company. The plaintiffs allegedly were
discharged from their employment after Continental and America West executed
agreements under which America West provides ground handling service for
Continental at certain locations. The plaintiffs pleaded claims against the
Company for conspiracy in violation of federal equal protection laws, and
state-law claims for wrongful discharge in violation of public policy,
intentional interference with business expectancy, and intentional and negligent
infliction of emotional distress. These claims, as well as claims for violation
of the federal Age Discrimination in Employment Act and for violation of various
state anti-discrimination statutes, also were asserted against the other
defendants. The plaintiffs requested that this litigation be certified as a
class action consisting of approximately 500 individuals, and seek
reinstatement, or, in the alternative, front pay, as well as economic and
emotional distress compensatory damages, and liquidated and punitive damages.
Management believes that the plaintiffs' claims are without merit, and the
Company intends to defend vigorously this litigation. Management believes that
the disposition of this lawsuit will not have a material adverse effect on the
Company's financial condition.
Following the Company's outsourcing of its heavy aircraft maintenance in
December, 1995, the IBT and five individuals commenced a lawsuit against the
Company. The complaint, which was filed in the Federal District Court for the
Northern District of Arizona, alleges that the individual plaintiffs were
terminated because they were IBT committee members or open supporters of the
union and that the Company wrongfully terminated approximately 500 employees in
connection with the outsourcing in violation of federal labor laws.
11
<PAGE> 14
The plaintiffs request that the litigation be certified as a class action, ask
for a judgment that the Company violated the Railway Labor Act, and seek
reinstatement for the individual plaintiffs, compensatory damages for all
plaintiffs and punitive damages for the IBT. The Company filed a motion to
dismiss the claims of the IBT and four of the individual plaintiffs and an
answer in respect of the claims of the fifth individual plaintiff. In the motion
to dismiss, the Company argued (i) that the IBT did not have standing to assert
claims on its own behalf or on behalf of the individual plaintiffs under
applicable law because it was not the collective bargaining representative of
the affected employees and (ii) that the claims of the four individual
plaintiffs should be dismissed because each signed an agreement releasing the
Company from any liability in connection with his termination (491 of
approximately 500 terminated employees signed release agreements, the remaining
terminated employees, including the fifth individual plaintiff, did not sign
release agreements). The motion has been fully briefed and a hearing on the
matter is scheduled for April 8, 1996. Management believes that these claims are
without merit and the Company intends to defend vigorously the litigation.
Management believes that the disposition of this lawsuit will not have a
material adverse effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is information respecting the names, ages, positions and
offices with the Company of the executive officers of the Company.
WILLIAM A. FRANKE. Age 58. Chairman of the Board and Chief Executive
Officer -- (Executive Committee). Mr. Franke was named Chairman of the Board of
Directors in September 1992. On January 1, 1994, Mr. Franke was also elected to
serve as the Company's Chief Executive Officer. In addition to his
responsibilities at America West, Mr. Franke serves as president of Franke &
Company, Inc., a financial services company he has owned since May 1987. From
November 1989 until June 1990, Mr. Franke served as the Chairman of Circle K
Corporation's executive committee with the responsibility for Circle K
Corporation's restructuring. In May 1990, the Circle K Corporation filed a
voluntary petition to reorganize under Chapter 11 of the United States
Bankruptcy Code. From June 1990 until August 1993, Mr. Franke served as the
chairman of a special committee of directors overseeing the reorganization of
the Circle K Corporation. From 1990 until 1993, Mr. Franke also served in
various other capacities at Circle K Corporation. Mr. Franke was also involved
in the restructuring of the Valley National Bank of Arizona (now Bank One of
Arizona). Mr. Franke serves as a director of Phelps Dodge Corp., Central
Newspapers Inc. and the Air Transport Association of America. Mr. Franke also
serves as a Director and Chairman of the Board of Airplanes Limited and a
Controlling Trustee and Chairman of Airplanes U.S. Trust, entities formed to
acquire indirectly certain aircraft from GPA.
THOMAS F. DERIEG. Age 55. Senior Vice President -- Operations. Mr. Derieg
joined the Company in July 1994. For the preceding seven years, Mr. Derieg
served as Senior Vice President -- Operations at Aloha Airgroup, Inc. in
Honolulu. Mr. Derieg served in the U.S. Air Force from 1963 to 1969, and from
1970 to 1987 held a variety of positions in areas of operations and maintenance
in the air transportation industry.
JOHN R. GAREL. Age 37. Senior Vice President -- Marketing and Sales. Mr.
Garel joined the Company in April 1995. From 1993 until early 1995, Mr. Garel
was the Chief Executive Officer of Cadmus Journal Services, a division of Cadmus
Communications located in Baltimore. Prior to that, Mr. Garel was with Northwest
Airlines, serving from 1990 to 1992 as Vice President, Financial Planning and
Analysis and, thereafter, as Vice President, Market Development and Area
Marketing. From 1982 to 1990, Mr. Garel worked for American Airlines in several
management and senior capacities.
STEPHEN L. JOHNSON. Age 39. Senior Vice President -- Legal Affairs. Mr.
Johnson joined the Company in February 1995. From 1993 to 1994, Mr. Johnson
served as Senior Vice President and General Counsel to GE Capital Aviation
Services Limited in Shannon, Ireland. From 1989 to 1993 Mr. Johnson was employed
by GPA Group plc, also in Shannon, from 1989 to 1991 as Vice President and
Senior Counsel and
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<PAGE> 15
from 1991 to 1993 as Senior Vice President and General Counsel to GPA's Leasing
Division. From 1982 until 1989, Mr. Johnson was engaged in the private practice
of law.
W. DOUGLAS PARKER. Age 34. Senior Vice President and Chief Financial
Officer. Mr. Parker joined the Company in June 1995. Previously, he served for
four years at Northwest Airlines, most recently as Vice President and Assistant
Treasurer and previously as Vice President of Financial Planning and Analysis.
Prior to his position at Northwest, Mr. Parker served in various positions at
American Airlines.
MICHAEL A. VESCUSO. Age 50. Senior Vice President -- Human Resources. Mr.
Vescuso joined the Company in September 1994. Prior to such time, Mr. Vescuso
worked as an organizational and management consultant. From 1990 to 1992 he was
the Director, Organization and Management Development of Frito-Lay, Inc. From
1978 to 1990, he held several senior management positions at HBJ, Inc.,
including the position of human resources officer.
MICHAEL R. CARREON. Age 42, Vice President and Controller. Mr. Carreon
joined the Company in December 1994 as Senior Director -- Corporate Audit. On
January 1, 1996, he was appointed Vice President and Controller. From 1986 to
1994, Mr. Carreon held accounting and audit-related management positions at
United Airlines. Prior to that, he served for five years in the Audit Services
Practice of Arthur Andersen & Co. in Chicago.
C. A. HOWLETT. Age 52. Vice President -- Public Affairs. Mr. Howlett
joined the Company in January 1995. Prior to such time, Mr. Howlett maintained a
government relations practice as a principal at the law firm of Lewis and Roca
in Phoenix. Mr. Howlett's prior work experience has included senior positions
with Salt River Project, the City of Phoenix and The White House where he served
as special assistant to President Ronald Reagan for intergovernmental affairs.
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<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock, par value $.01 per share (the "Class A
Common Stock"), is not publicly traded. The Company's Class B Common Stock, par
value $.01 per share (the "Class B Common Stock") and Warrants to purchase Class
B Common Stock (the "Warrants") have been traded on the New York Stock Exchange
("NYSE") under the symbol "AWA" and "AWAws", respectively, since August 26,
1994, the day following America West's emergence from bankruptcy.
The following table sets forth, for the periods indicated, the high and low
sale prices of the Class B Common Stock and the Warrants as reported on the New
York Stock Exchange.
<TABLE>
<CAPTION>
CLASS B
COMMON
STOCK WARRANTS
----------- ----------
HIGH LOW HIGH LOW
---- ---- ---- ---
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Third Quarter (commencing August 25, 1994)....................... $16 3/8 $12 1/4 $7 3/8 $5 1/4
Fourth Quarter................................................... 13 1/8 6 3/8 5 1/2 1 1/2
Year ended December 31, 1995
First Quarter.................................................... 9 1/8 6 3/8 3 5/8 1 3/4
Second Quarter................................................... 12 5/8 8 1/2 5 1/8 2 3/4
Third Quarter.................................................... 16 1/2 11 3/4 6 7/8 4 3/8
Fourth Quarter................................................... 19 12 5/8 8 3/4 4 3/4
</TABLE>
The Company does not anticipate paying cash dividends in the foreseeable
future. The Company expects that it will retain all available earnings generated
by the Company's operations for the development and growth of its business. Any
future determination as to the payment of dividends will be made at the
discretion of the Board of Directors of the Company and will depend upon the
Company's operating results, financial condition, capital requirements, general
business conditions and such other factors as the Board of Directors deems
relevant. Certain loan agreements and debt instruments of the Company restrict
the Company's ability to pay cash dividends on the Common Stock and make certain
other restricted payments (as defined therein). Under these restrictions, as of
December 31, 1995, the Company's ability to pay dividends, together with any
other restricted payments, would be limited to an aggregate of $165.4 million.
In addition, the Company is a party to certain agreements with a vendor
containing covenants which would currently preclude the payment of dividends.
The Company is in the process of negotiating a transaction with such vendor and
intends to negotiate amendments to the existing agreements such that the
dividend restrictions contained therein will be consistent with those included
in the Company's debt instruments. See "Item 7. -- Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The selected data presented below under the captions "Statements of
Operations Data" and "Balance Sheet Data" as of and for the year ended December
31, 1995, the period August 26 to December 31, 1994, the period January 1 to
August 25, 1994 and each of the years in the three year period ended December
31, 1993 are derived from the financial statements of the Company, which
financial statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The selected data should be read in conjunction
with the financial statements for the respective periods, the related notes and
the independent auditors' report. The independent auditors' report as of and for
the year ended December 31, 1995, the period August 26, 1994 to December 31,
1994, the period January 1, 1994 to August 25, 1994, and the year ended December
31, 1993 contains an explanatory paragraph that states the financial statements
of the Reorganized
14
<PAGE> 17
Company reflect the impact of adjustments to reflect the fair value of assets
and liabilities under fresh start reporting. As a result, the financial
statements of the Reorganized Company are presented on a different basis than
those of the Predecessor Company and, therefore, are not comparable in all
respects.
As a result of the filing by the Company of a voluntary petition to
reorganize under Chapter 11 of the U.S. Bankruptcy Code on June 27, 1991 and
operating as a debtor-in-possession until August 25, 1994, the selected
financial data for periods prior to June 27, 1991 are not comparable to periods
subsequent to such date.
<TABLE>
<CAPTION>
| PREDECESSOR COMPANY(A)
REORGANIZED COMPANY | --------------------------------------------------
---------------------------| JANUARY 1
YEAR ENDED AUGUST 26 TO| TO YEARS ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31,| AUGUST 25, ------------------------------------
1995 1994 | 1994 1993 1992 1991
------------ ------------| ----------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> | <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA: |
Operating revenues.............. $1,550,642 $ 469,766 | $ 939,028 $1,325,364 $1,294,140 $1,413,925
Operating expenses.............. 1,395,910 430,895 | 831,522 1,204,310 1,368,952 1,518,582
Operating income (loss)......... 154,732 38,871 | 107,506 121,054 (74,812) (104,657)
Income (loss) before income |
taxes and extraordinary |
items......................... 108,378 19,736 | (201,209) 37,924 (131,761) (222,016)
Income taxes.................... 53,608 11,890 | 2,059 759 -- --
Income (loss) before |
extraordinary items........... 54,770 7,846 | (203,268) 37,165 (131,761) (222,016)
Extraordinary gain (loss)(b).... (984) -- | 257,660 -- -- --
Net income (loss)............... 53,786 7,846 | 54,392 37,165 (131,761) (222,016)
Earnings (loss) per share:(c) |
Primary: |
Before extraordinary |
items..................... 1.18 .17 | (7.03) 1.50 (5.58) (10.39)
Extraordinary gain |
(loss)(b)................. (.02) -- | 9.02 -- -- --
---------- -------- | -------- ---------- ---------- ----------
Net income (loss)........... 1.16 .17 | 1.99 1.50 (5.58) (10.39)
Fully diluted: |
Before extraordinary |
items..................... 1.17 .17 | (4.96) 1.04 (5.58) (10.39)
Extraordinary gain |
(loss)(b)................. (.02) -- | 6.37 -- -- --
---------- -------- | -------- ---------- ---------- ----------
Net income (loss)........... 1.15 .17 | 1.41 1.04 (5.58) (10.39)
Shares used for computation |
Primary....................... 47,666 45,127 | 28,550 27,525 23,914 21,534
Fully diluted................. 47,666 45,127 | 40,452 41,509 23,914 21,534
BALANCE SHEET DATA: |
Total assets.................... $1,588,709 $1,545,092 | -- $1,016,743 $1,036,441 $1,111,144
Long-term debt and capital lease |
obligations, less current |
maturities(d)................. 373,964 465,598 | -- 620,992 647,015 726,514
Total stockholders' equity |
(deficiency).................. 649,472 595,446 | -- (254,262) (294,613) (166,510)
</TABLE>
- ---------------
(a) Includes net expense incurred by the Predecessor Company in connection with
its reorganization of $273.7 million for the period January 1 to August 25,
1994 and $25.0 million, $16.2 million and $58.4 million for the years ended
December 31, 1993, 1992 and 1991, respectively.
(b) Includes (i) an extraordinary loss of $984,000 in 1995 resulting from the
exchange of debt by the Company and (ii) an extraordinary gain of $257.7
million in 1994 resulting from the discharge of indebtedness pursuant to
the consummation of the Plan of Reorganization.
(c) Historical per share data for the Predecessor Company are not meaningful
since the Company has been recapitalized and has adopted fresh start
reporting as of August 25, 1994.
(d) Includes certain balances reported as "Estimated Liabilities Subject to
Chapter 11 Proceedings" for the Predecessor Company.
15
<PAGE> 18
ITEM 7. 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 by the Persian Gulf conflict, a fear of
terrorism in the United States and a 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 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
12 consecutive quarters of profitability beginning with the first quarter of
1993.
The Company continually evaluates 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 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. Costs associated with the outsourcing resulted in a charge
against fourth quarter 1995 operating income of $10.5 million.
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. Various bills have been introduced in Congress that
include an extension of the fuel tax exemption, however none have been enacted
to date and there can be no assurance that such an extension will be enacted.
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 income
including the financial statement
16
<PAGE> 19
accounting for income taxes. However, actual cash flows, including cash taxes
payable do not materially change as a result of fresh start reporting.
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, 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.
Under fresh start reporting, the reorganization value of the Company has
been allocated to its assets and liabilities on a basis substantially consistent
with purchase accounting. The portion of reorganization value not attributable
to specific tangible assets has been recorded as "Reorganization Value in Excess
of Amounts Allocable to Identifiable Assets." Certain fresh start reporting
adjustments, primarily related to the adjustment of the Company's assets and
liabilities to fair market values, have had and will have a significant effect
on the Company's statements of income. The more significant adjustments relate
to (i) reduced rent expense due to the revaluation of aircraft leases to market
rates, (ii) reduced maintenance expense due to the write-off of previously
capitalized overhauls, (iii) reduced depreciation expense on property and
equipment due to the revaluation of such assets to fair value, (iv) the addition
of amortization expense relating to reorganization value in excess of amounts
allocable to identifiable assets, (v) increased interest expense due to the re-
valuation of aircraft leases to market rates, and (vi) increased income tax
expense principally because the amortization of excess reorganization value is
not deductible for income tax purposes. For additional information regarding
fresh start reporting, See Notes 1, 7, 14 and 15 of Notes to Financial
Statements.
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 America West. The
data for the year ended December 31, 1994 is shown on a combined basis for the
Reorganized and Predecessor Company.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
COMBINED PERCENT PERCENT
BASIS CHANGE CHANGE
1995 1994 1993 1995-1994 1994-1993
------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Available seat miles (in millions)........ 19,421 18,060 17,190 7.5 5.1
Revenue passenger miles (in millions)..... 13,313 12,233 11,221 8.8 9.0
Load factor (percent)..................... 68.5 67.7 65.3 1.2 3.7
Yield per revenue passenger mile
(cents)................................. 10.91 10.79 11.11 1.1 (2.9)
Revenue per available seat mile:
Passenger (cents)....................... 7.48 7.31 7.25 2.3 0.8
Total (cents)........................... 7.98 7.80 7.71 2.3 1.2
Passenger enplanements (in thousands)..... 16,848 15,669 14,740 7.5 6.3
Average stage length (miles).............. 686 676 645 1.5 4.8
Average passenger journey (miles)......... 986 979 970 .7 0.9
Average daily aircraft utilization
(hours)................................. 11.4 11.2 10.7 1.8 4.7
Aircraft (end of period).................. 93 87 85 6.9 2.4
Full-time equivalent employees (end of
period)................................. 8,712 10,715 10,544 (18.7) 0.2
Fuel price (cents per gallon)............. 55.82 54.89 61.05 1.7 (10.1)
Fuel consumption (gallons in millions).... 312 289 272 8.0 6.3
</TABLE>
17
<PAGE> 20
The table below sets forth the major components of operating expense per
ASM for America West for the applicable periods. The data for the year ended
December 31, 1994 is shown on a combined basis for the Reorganized and
Predecessor Company.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
PERCENT PERCENT
COMBINED CHANGE CHANGE
1995 BASIS 1993 1995-1994 1994-1993
---- 1994 ---- --------- ---------
----------
(IN CENTS)
<S> <C> <C> <C> <C> <C>
Salaries and related costs.................... 1.97 1.83 1.78 7.7 2.8
Aircraft rents................................ .89 .89 .96 -- (7.3)
Other rents and landing fees.................. .56 .58 .64 (3.4) (9.4)
Aircraft fuel................................. .90 .88 .97 2.3 (9.3)
Agency commissions............................ .64 .64 .62 -- 3.2
Aircraft maintenance materials and repairs.... .34 .25 .18 36.0 38.9
Depreciation and amortization................. .42 .47 .48 (10.6) (2.1)
Restructuring charges......................... .05 -- -- -- --
Other......................................... 1.42 1.45 1.38 (2.1) 5.1
---- ---- ---- ----- ----
7.19 6.99 7.01 2.9 (.3)
==== ==== ==== ===== ====
</TABLE>
RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's results of
operations and reasons for material changes therein for the year ended December
31, 1995, the combined period from January 1 to August 25, 1994 and August 26 to
December 31, 1994 and the year ended December 31, 1993. The Company's results of
operations for the periods subsequent to August 25, 1994 have not been prepared
on a basis of accounting consistent with its results of operations for periods
prior to August 26, 1994 due to the implementation of fresh start reporting upon
the Company's emergence from bankruptcy.
YEAR ENDED DECEMBER 31, 1995 AND THE COMBINED PERIOD FROM
JANUARY 1 TO AUGUST 25, 1994 AND AUGUST 26 TO DECEMBER 31, 1994
For the periods ended December 31, 1995 and 1994, the Company realized net
income of $53.8 million and a combined $62.2 million, respectively. Net income
for 1995 included income tax expense for financial reporting purposes of $53.6
million compared to a combined $13.9 million in 1994. The increase in income tax
expense for financial reporting purposes resulted principally from the adoption
of fresh start reporting. Net income for the combined periods of 1994 included
reorganization expense of $273.7 million and an extraordinary gain of $257.7
million.
Total operating revenues were $1.6 billion for the year ended December 31,
1995 compared to a combined $1.4 billion for 1994. Passenger revenues increased
10% to $1.5 billion during the year ended December 31, 1995. Cargo and other
revenues increased 10.7% to $98.4 million for 1995. The balance of other
revenues includes revenues generated primarily from alcoholic beverage sales,
headset rentals and service charges.
Capacity, as measured by ASM's, increased 7.5% for the year ended December
31, 1995 compared to the combined 1994 period, primarily due to an increase in
the average stage length of 1.5% and the addition of six aircraft to the fleet.
Revenue passenger miles increased 8.8% for the year ended December 31, 1995
compared to the combined 1994 period. Load factor increased by 0.8 points and
yield increased 1.1% for the year ended December 31, 1995 compared to the
combined 1994 period.
18
<PAGE> 21
Operating expense per ASM increased to 7.19 cents for the year ended
December 31, 1995 from 6.99 cents for the combined 1994 period. The changes in
the components of operating expense per available seat mile are explained as
follows:
- The increase in salaries and related costs per ASM is primarily the
result of accruals totaling $17.7 million for the year ended December 31,
1995 to provide for performance awards related to the Company's
profitability. In addition, such costs were affected in May 1995 by a
significant initial increase in pilot salaries under their collective
bargaining agreement and the adoption of the Company's Total Pay program
in January 1995. These pay increases were effected in order to make
employees' compensation levels more competitive with that of other low
cost carriers and local employers. These pay increases were largely
offset by improvements in productivity and through a reduction in the
size of the work force.
- Aircraft rent per ASM were flat primarily due to the decrease related to
the amortization of deferred credits recorded in the Company's adjustment
of operating leases to fair market value under fresh start reporting;
offset by the addition of six aircraft to the fleet.
- Rentals and landing fees per ASM decreased primarily due to the 7.5%
increase in ASM's.
- The average price per gallon of aircraft fuel increased slightly to 55.8
cents for the 1995 period from 54.9 cents for the combined 1994 period.
- Aircraft maintenance materials and repairs expense per ASM increased
largely as the result of the change in classification of the amortization
expense associated with heavy engine and airframe overhauls from
depreciation and amortization expense to aircraft maintenance materials
and repairs expense in August 1994. For the year ended December 31, 1995
and the period August 26 to December 31, 1994, amortization of
capitalized maintenance totaling $11.9 million and $356,000,
respectively, is included in aircraft maintenance materials and repairs
expense. Amortization of capitalized maintenance totaling $24 million for
the period January 1 to August 25, 1994 is included in depreciation and
amortization. In addition, costs associated with a new auxiliary power
unit repair agreement which commenced in April 1994 increased in 1995 as
compared to 1994.
- Depreciation and amortization expense per ASM decreased due to the $24
million change in the classification of the amortization expense
associated with capitalized aircraft maintenance materials and repairs
expense. In addition, the revaluation of property and equipment under
fresh start reporting reduced expense by $835,000. These decreases were
partially offset by an increase of $20.8 million arising from the
amortization of the reorganization value in excess of amounts allocable
to identifiable assets under fresh start reporting.
- A restructuring charge incurred in 1995 associated with the Company's
outsourcing of its heavy aircraft maintenance consisted of a provision
for employee severance and related cost of $10.5 million.
- Other operating expenses per ASM decreased primarily due to the reduction
in property taxes and the fixed nature of certain other costs.
- Operating cost per ASM also increased overall due to the first class
installation program that was completed in 1995 which caused ASM's to be
reduced by approximately 69 million.
Net nonoperating expenses decreased $281.5 million to $46.4 million for the
year ended December 31, 1995 from a combined $327.9 million for 1994. This net
decrease resulted from: a decrease in reorganization expense of $273.7 million
since the Company emerged from bankruptcy; an increase in interest income of
$10.7 million due to higher cash and cash equivalent balances in 1995; partially
offset by a net increase in interest expense of $2.0 million because the Company
did not accrue and pay interest on unsecured prepetition long-term debt during
its bankruptcy proceedings in conformity with SOP 90-7, and an increase in
interest expense due to the re-valuation of aircraft leases to market rates as
part of fresh start reporting.
Income tax expense for financial reporting purposes for the year ended
December 31, 1995 increased to $53.6 million from a combined $13.9 million in
1994 due principally to the increase in the amortization of the excess
reorganization value which is not deductible for income tax purposes.
19
<PAGE> 22
COMBINED PERIODS FROM AUGUST 26, 1994 TO DECEMBER 31, 1994 AND JANUARY 1, 1994
TO AUGUST 25, 1994 AND THE YEAR ENDED DECEMBER 31, 1993
The Company realized net income of $62.2 million on a combined basis for
1994 compared to net income of $37.2 million for 1993. The 1994 results include
an extraordinary gain of $257.7 million from the discharge of certain
prepetition indebtedness and $273.7 million of reorganization expenses. The
results for 1993 include reorganization expenses of $25 million and losses
aggregating $4.6 million primarily resulting from the disposition of surplus
spare aircraft parts and equipment.
Total operating revenues were $1.4 billion on a combined basis for 1994, an
increase of 6.3 percent compared to the prior year. Passenger revenues for 1994
and 1993 were $1.3 billion on a combined basis and $1.2 billion, respectively.
Passenger revenue per ASM increased slightly on a combined basis in 1994
compared to 1993 as the increase in load factor period over period was partially
offset by a decline in average passenger yields. The passenger revenue increases
realized in 1994 reflect a continuation of trends which commenced in 1993. These
trends reflected a gradually improving economic climate and a more stable
environment within the airline industry.
With the exception of the two aircraft deliveries late in 1994, the Company
operated an 85 aircraft fleet. During 1994, increases in capacity over 1993 as
measured by ASM's were realized by increasing the average stage length flown by
4.8 percent and by increasing the average daily utilization of the aircraft by
4.7 percent.
In the fourth quarter of 1994, certain competitive pricing initiatives were
commenced by other carriers which exerted pressure on both the Company's yield
and the load factor. The result of these initiatives, which carried over to the
first quarter of 1995, was softer traffic and generally lower yield levels. To
address these conditions, the Company announced certain fare initiatives of its
own, and selectively matched fare decreases initiated by other carriers.
Revenues from sources other than passenger fares increased to $88.9 million
on a combined basis for 1994 compared to $78.8 million for 1993. Cargo revenues
comprised 49.8 percent, or $44.3 million of other revenues on a combined basis
for 1994. The Company carried 129.6 million and 110.7 million pounds of freight
and mail for the combined 1994 and 1993 years, respectively.
Operating expense per ASM declined to 6.99 cents on a combined basis for
1994 from 7.01 cents for 1993. The changes in the components of operating
expense per ASM are explained as follows:
- The increase in 1994 salaries and related costs per ASM on a combined
basis compared to 1993 is a result of the implementation of a pay plan in
the second quarter of 1994. Effective April 1, 1994, the Company
implemented a pay plan that increased wages by between two percent and
eight percent, depending on the employee's length of service with the
Company, and the Company increased its matching contribution under the
Company's 401(k) plan. The pay program replaced a transition program that
the Company had in place from mid-1993 through the first quarter of 1994.
Under the transition program, pay increases totaling $6.5 million,
including applicable payroll taxes, were made in 1993. Such pay plans
were put in place to improve compensation to employees following a period
of reduced compensation during the bankruptcy. In addition, commencing in
the third quarter of 1993, employee award distributions based on the
greater of 0.5% of an employee's annual base wage or $125 were made on a
quarterly basis. Such payments for 1993 totaled $2.6 million, including
applicable payroll taxes. In 1994, approximately $4.5 million in
distributions were made prior to the termination of the transition and
award pay program.
- Aircraft rent per ASM decreased on a combined basis in 1994 compared to
1993 primarily due to the 4.8% increase in stage length (which increases
ASM's without increasing aircraft rent) and the revaluation of aircraft
leases to fair market value in August 1994 under fresh start reporting.
- Rents and landing fees per ASM decreased on a combined basis in 1994
compared to 1993 due to the increase in ASM's of 5.1%, rent reductions at
New York's Kennedy Airport and Phoenix Sky Harbor
20
<PAGE> 23
International Airport and the vacating of administrative office space in
Phoenix as part of the Company's facilities consolidation program.
- Aircraft fuel expense per ASM decreased year over year due to the decline
in the average price per gallon to 54.9 cents from 61.1 cents for 1993.
- Agency commission expense per ASM increased on a combined basis in 1994
in comparison to 1993 as a result of the increase in passenger revenue
per ASM. In addition, the 1994 commission expense increased because a
higher percentage of passenger revenues was generated by America West
Vacations which pays a higher average commission rate on its sales.
- Aircraft maintenance materials and repairs expense per ASM increased on a
combined basis in 1994 as the result of an increase in average daily
utilization of the fleet to 11.2 hours per day in 1994 from 10.7 hours
for 1993. This higher level of utilization resulted in increases in line
maintenance materials usage, engine repairs and component repairs expense
which were not completely offset by the 5.1% increase in ASM's.
- Depreciation and amortization expense per ASM decreased slightly on a
combined basis in 1994 compared to 1993 as the result of a decrease in
depreciation expense arising from the revaluation of property and
equipment under fresh start reporting which was partially offset by an
increase in amortization expense arising from the amortization of the
reorganization value in excess of amounts allocable to identifiable
assets under fresh start reporting.
- The increase in other operating expense per ASM on a combined basis for
1994 compared to 1993 is related to increased passenger traffic such as
credit card discount fees, booking fees, catering expenses and supplies.
Net nonoperating expenses were $327.9 million on a combined basis for 1994
and $83.1 million for 1993. The Company incurred expenses of $273.7 million on a
combined basis in 1994 and $25 million in 1993 in connection with its efforts to
reorganize under Chapter 11. Interest expense increased to $56.6 million on a
combined basis in 1994 compared to $54.2 million in 1993. The increase in
interest expense is primarily the result of the issuance of $123 million of
senior unsecured notes in connection with the Company's emergence from
bankruptcy. In conformity with SOP 90-7, the Company ceased accruing and paying
interest on certain prepetition long-term debt so long as the Company remained a
debtor-in-possession. Had the Company continued to accrue interest on such debt,
interest expense on a combined basis for 1994 and 1993 would have been $101.4
million and $127.2 million, respectively.
Income tax expense increased significantly after August 26, 1994 due to the
amortization of the excess reorganization value which is not deductible for
income tax purposes. Income tax expense for 1993 and January 1 through August
25, 1994 reflects the benefit of the Company's net operating losses.
LIQUIDITY AND CAPITAL RESOURCES
Unrestricted cash and cash equivalents increased to $224.4 million at
December 31, 1995 from $182.6 million at December 31, 1994. Net cash provided
from operating activities increased to $260.4 million for the year ended
December 31, 1995 from a combined $140.1 million for the year ended December 31,
1994, an increase of $120.3 million. The increase was primarily due to the
increase in advance ticket sales as compared to 1994. Net cash used in investing
activities increased to $107.4 million for the year ended December 31, 1995 from
a combined $75.0 million for the year ended December 31, 1994, an increase of
$32.4 million primarily related to increased expenditures for capitalized
overhauls. Net cash used in financing activities was $111.2 million for the year
ended December 31, 1995 compared to a combined $17.8 million net cash provided
for the year ended December 31, 1994 due to an increase in debt net repayments
of $14.2 million offset by the issuance of common stock of $114.9 million in the
1994 period.
The Company has a working capital deficiency which has increased to $70.4
million at December 31, 1995 from $47.9 million at December 31, 1994. Operating
with a working capital deficiency is common in the airline industry as tickets
sold for transportation which has not yet been provided are classified as a
current
21
<PAGE> 24
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. As of December 31, 1995, such maturities were $54.2 million, $46.2
million and $43.2 million, respectively, for 1996, 1997 and 1998. Management
expects to fund these requirements with cash from operations.
At December 31, 1995, the Company had net operating loss carryforwards
("NOL") and general business tax credit carryforwards of approximately $533.6
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 to 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 cash
income tax liability (i.e., income taxes payable) is considerably lower than
income tax expense shown for financial reporting purposes. This difference in
financial expense compared to actual income tax liability is in part
attributable to tax attributes (including NOLs, subject to certain limitation)
of the Predecessor Company that serve to 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 December 31, 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. The Company is
currently negotiating with GPA for the lease of one new Airbus A320-200 for
delivery in May 1996. If those 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.
The Company has 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 price indices (including
indices for various aircraft components such as metal products) for periods
preceding the various delivery dates. Based on an assumed 5% annual price
escalation, the Company estimates such aggregate net cost to be approximately
$1.2 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
22
<PAGE> 25
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.
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 $42.2 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. The addition of these aircraft will likely result in
a substantially greater degree of leverage than currently exists.
As of December 31, 1995, the Company's fleet consisted of 93 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.
Capital expenditures for the years ended December 31, 1995, 1994 and 1993
were approximately $107.4 million, $75.9 million and $54.3 million,
respectively. Capital expenditures for deferred overhauls performed since August
25, 1994 were $60.4 million and $6.9 million for the year ended December 31,
1995 and the period August 26, 1994 to December 31, 1994, respectively. Capital
expenditures for 1996 are expected to increase principally due to an increase in
capitalized engine overhauls and expenditures for computer systems and
equipment, resulting in total capital expenditures currently estimated to be
approximately $150.0 million. The Company currently intends to fund such
expenditures with cash from operations.
Certain of the Company's long-term debt agreements contain minimum cash
balance requirements, leverage ratios, coverage ratios and other financial
covenants with which the Company was in compliance at December 31, 1995.
The Company emerged from bankruptcy in August 1994 with increased liquidity
and 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 10 3/4%
Senior Unsecured Notes due 2005.
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. In December 1995, the Company
amended its repurchase program to include authorization to purchase all of the
outstanding Warrants. The Company expects to purchase shares and Warrants
pursuant to such program from time to time as opportunities for such purchases
at attractive prices arise. As of December 31, 1995, the Company had purchased
112,000 shares of Class B Common Stock at prices ranging from $13.63 to $14.00
and had not purchased any Warrants.
In December 1995, the Company remarketed The Industrial Development
Authority of the City of Phoenix, Arizona Variable Rate Airport Facility Revenue
Bonds (America West Airlines, Inc. Project) Series 1986. These bonds were
originally issued to finance the construction of the Company's maintenance
facility at Phoenix Sky Harbor International Airport. As required under the then
existing reimbursement agreement, the
23
<PAGE> 26
Company used the net proceeds from the remarketing to prepay the then existing
debt in the amount of $28.9 million. The new bonds are backed by an irrevocable
direct pay letter of credit issued by the Industrial Bank of Japan, Limited, Los
Angeles Agency, which letter of credit is secured by the Company's maintenance
facility and related improvements and a pledge of cash or cash equivalents.
In February 1996, certain stockholders of the Company, who held shares of
Class B Common Stock covered by the Company's shelf registration statement, sold
7.2 million of such shares pursuant to an underwritten public offering. The
selling stockholders were affiliates of Texas Pacific Group, Mesa Air Group,
Continental Airlines, Inc. and Lehman Brothers Holdings Inc. The shares offered
were purchased by the selling stockholders in connection with America West's
emergence from Chapter 11 protection in August 1994.
NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 123 -- "Accounting for
Stock-Based Compensation" ("SFAS 123") requires that companies can elect to
account for stock-based compensation plans using a method based upon fair value
or continue measuring compensation expense for those plans using the intrinsic
value method prescribed by Accounting Principles Board Opinion No.
25 -- "Accounting for Stock Issued to Employees" ("APB 25"). Companies electing
to continue using the intrinsic value method must make proforma disclosures in
1996 of net income and earnings per share as if the fair value based method had
been applied. The Company will continue using APB 25; therefore, SFAS 123 is not
expected to have an impact on the Company's results of operations or financial
position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Balance sheets of the Company as of December 31, 1995 and 1994, and the
related statements of income, cash flows and stockholders' equity (deficiency)
for the year ended December 31, 1995, the period August 26, 1994 through
December 31, 1994, the period January 1, 1994 through August 25, 1994, and the
year ended December 31, 1993, together with the related notes and the report of
KPMG Peat Marwick LLP, independent certified public accountants, are set forth
on the following pages.
24
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
America West Airlines, Inc.
We have audited the accompanying balance sheets of America West Airlines,
Inc. as of December 31, 1995 and 1994, and the related statements of income,
cash flows and stockholders' equity (deficiency) for the year ended December 31,
1995, the period August 26, 1994 through December 31, 1994, the period January
1, 1994 through August 25, 1994, and for the year ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of America West Airlines, Inc.
as of December 31, 1995 and 1994, the results of its operations and its cash
flows for the year ended December 31, 1995, the period August 26, 1994 through
December 31, 1994, the period January 1, 1994 through August 25, 1994 and for
the year ended December 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in Notes 14 and 15 to the financial statements, on August 25,
1994, America West Airlines, Inc. emerged from bankruptcy. The financial
statements of the Reorganized Company reflect the impact of adjustments to
reflect the fair value of assets and liabilities under fresh start reporting. As
a result, the financial statements of the Reorganized Company are presented on a
different basis of accounting than those of the Predecessor Company and,
therefore, are not comparable in all respects.
KPMG Peat Marwick LLP
Phoenix, Arizona
March 20, 1996
25
<PAGE> 28
AMERICA WEST AIRLINES, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 224,367 $ 182,581
Accounts receivable, less allowance for doubtful accounts of $2,515 in 1995
and $3,531 in 1994......................................................... 69,094 57,474
Expendable spare parts and supplies, less allowance for obsolescence of
$2,115 in 1995 and $483 in 1994............................................ 28,643 24,179
Prepaid expenses............................................................. 43,315 29,284
---------- ----------
Total current assets.................................................. 365,419 293,518
---------- ----------
Property and equipment:
Flight equipment............................................................. 546,591 452,177
Other property and equipment................................................. 104,106 92,169
Equipment purchase deposits.................................................. 27,489 26,074
---------- ----------
678,186 570,420
Less accumulated depreciation and amortization............................... 76,123 15,882
---------- ----------
Total property and equipment.......................................... 602,063 554,538
---------- ----------
Other assets:
Restricted cash.............................................................. 31,694 28,578
Reorganization value in excess of amounts allocable to identifiable assets,
net........................................................................ 489,045 645,703
Deferred income taxes........................................................ 74,700 --
Other assets, net............................................................ 25,788 22,755
---------- ----------
Total other assets.................................................... 621,227 697,036
---------- ----------
$1,588,709 $1,545,092
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt......................................... $ 54,157 $ 65,198
Accounts payable............................................................. 89,157 77,569
Air traffic liability........................................................ 191,744 127,356
Accrued compensation and vacation benefits................................... 41,616 15,776
Accrued taxes................................................................ 34,359 27,061
Other accrued liabilities.................................................... 24,802 28,485
---------- ----------
Total current liabilities............................................. 435,835 341,445
---------- ----------
Long-term debt, less current maturities........................................ 373,964 465,598
Deferred credits and other liabilities......................................... 129,438 142,603
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 44,141,330 shares in 1995, and 43,936,272 shares in 1994... 441 439
Additional paid-in capital................................................... 588,927 587,149
Retained earnings............................................................ 61,632 7,846
---------- ----------
651,012 595,446
Less treasury stock, 112,000 shares of Class B common stock at cost.......... (1,540) --
---------- ----------
Total stockholders' equity............................................ 649,472 595,446
---------- ----------
$1,588,709 $1,545,092
========== ==========
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 29
AMERICA WEST AIRLINES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
| PREDECESSOR COMPANY
REORGANIZED COMPANY | ----------------------------
----------------------------- | PERIOD FROM
PERIOD FROM | JANUARY 1
YEAR ENDED AUGUST 26 TO | TO YEAR ENDED
DECEMBER 31, DECEMBER 31, | AUGUST 25, DECEMBER 31,
1995 1994 | 1994 1993
------------ ------------ | ----------- ------------
<S> <C> <C> | <C> <C>
Operating revenues: |
Passenger.............................. $1,452,261 $ 437,775 | $ 882,140 $1,246,564
Cargo.................................. 44,425 16,648 | 27,645 40,161
Other.................................. 53,956 15,343 | 29,243 38,639
---------- -------- | --------- ----------
Total operating revenues............ 1,550,642 469,766 | 939,028 1,325,364
---------- -------- | --------- ----------
Operating expenses: |
Salaries and related costs............. 382,032 117,562 | 213,722 305,429
Aircraft rents......................... 173,571 54,983 | 105,547 164,978
Other rents and landing fees........... 108,264 35,839 | 68,163 109,730
Aircraft fuel.......................... 174,195 58,165 | 100,646 166,313
Agency commissions..................... 124,146 37,265 | 78,988 106,368
Aircraft maintenance materials and |
repairs............................. 65,925 17,590 | 28,109 31,000
Depreciation and amortization.......... 81,041 26,684 | 56,694 81,894
Restructuring charge................... 10,500 -- | -- --
Other.................................. 276,236 82,807 | 179,653 238,598
---------- -------- | --------- ----------
Total operating expenses............ 1,395,910 430,895 | 831,522 1,204,310
---------- -------- | --------- ----------
Operating income.................... 154,732 38,871 | 107,506 121,054
---------- -------- | --------- ----------
Nonoperating income (expenses): |
Interest income........................ 15,045 3,834 | 470 728
Interest expense (contractual interest |
of $44,747 and $72,961 for the |
periods ended August 25, 1994 and |
December 31, 1993, respectively).... (58,598) (22,636) | (33,998) (54,192)
Loss on disposition of property and |
equipment........................... (2,734) (398) | (1,659) (4,562)
Reorganization expense, net............ -- -- | (273,659) (25,015)
Other, net............................. (67) 65 | 131 (89)
---------- -------- | --------- ----------
Total nonoperating expenses, net.... (46,354) (19,135) | (308,715) (83,130)
---------- -------- | --------- ----------
Income (loss) before income taxes |
and extraordinary items........... 108,378 19,736 | (201,209) 37,924
---------- -------- | --------- ----------
Income taxes............................. 53,608 11,890 | 2,059 759
---------- -------- | --------- ----------
Income (loss) before extraordinary |
items............................. 54,770 7,846 | (203,268) 37,165
---------- -------- | --------- ----------
Extraordinary items, net of tax.......... (984) -- | 257,660 --
---------- -------- | --------- ----------
Net income.......................... $ 53,786 $ 7,846 | $ 54,392 $ 37,165
========== ======== | ========= ==========
</TABLE>
See accompanying notes to financial statements.
27
<PAGE> 30
AMERICA WEST AIRLINES, INC.
STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
| PREDECESSOR COMPANY
REORGANIZED COMPANY | ----------------------------
----------------------------- | PERIOD FROM
PERIOD FROM | JANUARY 1
YEAR ENDED AUGUST 26 TO | TO YEAR ENDED
DECEMBER 31, DECEMBER 31, | AUGUST 25, DECEMBER 31,
1995 1994 | 1994 1993
------------ ------------ | ----------- ------------
<S> <C> <C> | <C> <C>
Earnings (loss) per share: |
Primary: |
Income (loss) before extraordinary |
items............................. $ 1.18 $ .17 | $ (7.03) $ 1.50
Extraordinary items................. (.02) -- | 9.02 --
---------- ------- - | ------- -- ------- ---
Net income.......................... $ 1.16 $ .17 | $ 1.99 $ 1.50
========== ======== | ========= ==========
Fully Diluted: |
Income (loss) before extraordinary |
items............................. $ 1.17 $ .17 | $ (4.96) $ 1.04
Extraordinary items................. (.02) -- | 6.37 --
---------- ------- - | ------- -- ------- ---
Net income.......................... $ 1.15 $ .17 | $ 1.41 $ 1.04
========== ======== | ========= ==========
Shares used for computation: |
Primary............................. 47,666 45,127 | 28,550 27,525
========== ======== | ========= ==========
Fully diluted....................... 47,666 45,127 | 40,452 41,509
========== ======== | ========= ==========
</TABLE>
See accompanying notes to financial statements.
28
<PAGE> 31
AMERICA WEST AIRLINES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
| PREDECESSOR COMPANY
REORGANIZED COMPANY | ----------------------------
----------------------------- | PERIOD FROM
PERIOD FROM | JANUARY 1
YEAR ENDED AUGUST 26 TO | TO YEAR ENDED
DECEMBER 31, DECEMBER 31, | AUGUST 25, DECEMBER 31,
1995 1994 | 1994 1993
------------ ------------ | ----------- ------------
<S> <C> <C> | <C> <C>
Cash flows from operating activities: |
Net income....................................... $ 53,786 $ 7,846 | $ 54,392 $ 37,165
Adjustments to reconcile net income to net cash |
provided by (used in) operating activities: |
Depreciation and amortization................. 49,083 15,538 | 56,694 81,894
Amortization of deferred overhauls............ 11,934 356 | -- --
Amortization of reorganization value in excess |
of amounts allocable to identifiable |
assets...................................... 31,958 11,145 | -- --
Amortization of deferred credits.............. (10,952) (3,961) | (2,966) (5,186)
Loss on disposition of property and |
equipment................................... 2,734 398 | 1,659 4,562
Reorganization items.......................... -- -- | 185,226 18,167
Extraordinary items........................... 984 -- | (257,660) --
Other......................................... 4,465 1,178 | (383) (554)
Changes in operating assets and liabilities: |
Decrease (increase) in accounts receivable, |
net......................................... (11,172) 27,439 | (18,769) (927)
Decrease (increase) in expendable spare parts |
and supplies, net........................... (4,819) 1,165 | 397 6,320
Decrease (increase) in prepaid expenses....... (14,031) 4,371 | 1,284 2,627
Decrease (increase) in other assets, net...... 45,601 1,219 | 12,971 (5,295)
Increase (decrease) in accounts payable....... 10,308 (17,289) | (15,557) 9,014
Increase (decrease) in air traffic |
liability................................... 64,388 (26,452) | 30,510 8,749
Increase (decrease) in accrued compensation |
and vacation benefits....................... 25,840 (11,667) | 15,739 (1,300)
Increase (decrease) in accrued taxes.......... 7,298 (2,104) | 25,999 (1,764)
Increase (decrease) in other accrued |
liabilities................................. (663) (13,785) | 67,429 644
Increase (decrease) in other liabilities...... (6,314) 2,521 | (14,749) (758)
--------- -------- | --------- --------
Net cash provided by (used in) operating |
activities............................... 260,428 (2,082) | 142,216 153,358
Cash flows from investing activities: |
Purchases of property and equipment.............. (107,387) (14,658) | (61,271) (54,324)
Long-term investments............................ (1,750) -- | -- --
Proceeds from disposition of property............ 1,741 600 | 334 3,715
--------- -------- | --------- --------
Net cash used in investing activities....... (107,396) (14,058) | (60,937) (50,609)
Cash flows from financing activities: |
Proceeds from issuance of debt................... 29,300 -- | 100,000 --
Repayment of debt................................ (137,421) (23,355) | (173,699) (77,501)
Issuance of common stock......................... 1,545 3 | 114,862 --
Debt issuance cost............................... (3,130) -- | -- --
Acquisition of treasury stock.................... (1,540) -- | -- --
--------- -------- | --------- --------
Net cash provided by (used in) financing |
activities............................... (111,246) (23,352) | 41,163 (77,501)
--------- -------- | --------- --------
Net increase (decrease) in cash and cash |
equivalents.............................. 41,786 (39,492) | 122,442 25,248
--------- -------- | --------- --------
Cash and cash equivalents at beginning of period... 182,581 222,073 | 99,631 74,383
--------- -------- | --------- --------
Cash and cash equivalents at end of period......... $ 224,367 $182,581 | $ 222,073 $ 99,631
========= ======== | ========= ========
</TABLE>
See accompanying notes to financial statements.
29
<PAGE> 32
AMERICA WEST AIRLINES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEAR ENDED DECEMBER 31, 1995, THE PERIOD AUGUST 26 TO DECEMBER 31, 1994,
THE PERIOD JANUARY 1 TO AUGUST 25, 1994 AND THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DEFERRED
COMPENSATION
CLASS CLASS AND NOTES
CONVERTIBLE A B ADDITIONAL RETAINED CLASS B RECEIVABLE --
PREFERRED COMMON COMMON COMMON PAID-IN EARNINGS/ TREASURY EMPLOYEE STOCK
STOCK STOCK STOCK STOCK CAPITAL (DEFICIT) STOCK PURCHASE PLANS TOTAL
----------- ------ ------ ------- ---------- --------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1993................. $ 91 $ -- $ -- $5,992 $195,407 $(475,791) $ -- $(20,312) $(294,613)
---- --- ---- ------- -------- --------- ------- -------- ---------
Issuance of 170,173
shares of common
stock pursuant to
Series B convertible
subordinated
debentures........... -- -- -- 43 1,896 -- -- -- 1,939
Issuance of 1,164,596
shares of common
stock pursuant to
convertible preferred
stock................ (73) -- -- 291 (218) -- -- -- --
Employee restricted
stock deferred
compensation......... -- -- -- -- -- -- -- 21 21
Employee stock purchase
plan:
Cancellation of
11,330 shares of
common stock at:
$.22 - $1.59 per
share............ -- -- -- (3 ) (38) -- -- 49 8
Deferred
compensation..... -- -- -- -- (37) -- -- 1,255 1,218
Net income............. -- -- -- -- -- 37,165 -- -- 37,165
---- --- ---- ------- -------- --------- ------- -------- ---------
BALANCE AT DECEMBER 31,
1993................. 18 -- -- 6,323 197,010 (438,626 ) -- (18,987) (254,262)
---- --- ---- ------- -------- --------- ------- -------- ---------
Issuance of 336,277
shares of common
stock pursuant to
convertible preferred
stock dividends...... -- -- -- 84 2,932 -- -- -- 3,016
Employee stock purchase
plan:
Cancellation of 7,678
shares of common
stock at:
$1.19 - $4.03 per
share............ -- -- -- (2 ) (49) -- -- 43 (8)
Deferred
compensation..... -- -- -- -- (1) -- -- 606 605
Issuance of 108,825
shares of common
stock pursuant to
exercise of stock
options.............. -- -- -- 27 166 -- -- -- 193
Net income............. -- -- -- -- -- 54,392 -- -- 54,392
Eliminate predecessor
equity accounts in
connection with fresh
start................ (18) -- -- (6,432 ) (200,058) 206,508 -- -- --
Eliminate employee
stock receivable..... -- -- -- -- -- (18,338 ) -- 18,338 --
Record excess of
reorganization value
over identifiable
assets............... -- -- -- -- -- 668,702 -- -- 668,702
Sale of 1,200,000
shares of Class A
common stock and
14,000,000 shares of
Class B common
stock................ -- 12 140 -- 114,710 -- -- -- 114,862
Issuance of 29,925,000
shares of new Class B
common stock......... -- -- 299 -- 472,339 (472,638 ) -- -- --
---- --- ---- ------- -------- --------- ------- -------- ---------
BALANCE AT AUGUST 25,
1994................. -- 12 439 -- 587,049 -- -- -- 587,500
---- --- ---- ------- -------- --------- ------- -------- ---------
Issuance of 272 shares
of common stock
pursuant to exercise
of stock warrants.... -- -- -- -- 3 -- -- -- 3
Issuance of 11,000
shares of restricted
stock................ -- -- -- -- 97 -- -- -- 97
Net income............. -- -- -- -- -- 7,846 -- -- 7,846
---- --- ---- ------- -------- --------- ------- -------- ---------
BALANCE AT DECEMBER 31,
1994................. -- 12 439 -- 587,149 7,846 -- -- 595,446
---- --- ---- ------- -------- --------- ------- -------- ---------
Issuance of 4,057
shares and 170,667
shares of common
stock pursuant to the
exercise of stock
warrants and stock
options including tax
benefit from the
exercise of stock
options of $44,000... -- -- 2 -- 1,543 -- -- -- 1,545
Issuance of 30,334
shares of restricted
stock................ -- -- -- -- 235 -- -- -- 235
Acquisition of 112,000
shares of treasury
stock at:
$13.63 - $14.00 per
share............ -- -- -- -- -- -- (1,540 ) -- (1,540)
Net income............. -- -- -- -- -- 53,786 -- -- 53,786
---- --- ---- ------- -------- --------- ------- -------- ---------
BALANCE AT DECEMBER 31,
1995................. $ -- $ 12 $441 $ -- $588,927 $ 61,632 $(1,540 ) $ -- $ 649,472
==== === ==== ======= ======== ========= ======= ======== =========
</TABLE>
See accompanying notes to financial statements.
30
<PAGE> 33
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
America West Airlines, Inc., D.I.P. (the "Predecessor Company") filed a
voluntary petition on June 27, 1991, to reorganize under Chapter 11 of the
Federal Bankruptcy Code. On August 10, 1994, the Plan of Reorganization
("Plan"), filed by the Predecessor Company, was confirmed and became effective
on August 25, 1994 (the "Effective Date"). On August 25, 1994, 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 statements of income have not been
prepared on a consistent basis with such pre-reorganization financial statements
and are not comparable in all respects to financial statements prior to
reorganization. For accounting purposes, the inception date of the Reorganized
Company is deemed to be August 26, 1994. A vertical black line is shown in the
financial statements to separate the Reorganized Company from the Predecessor
Company since they have not been prepared on a consistent basis of accounting.
During the reorganization period, pursuant to SOP 90-7, prepetition
liabilities were reported on the basis of the expected amounts of such allowed
claims, as opposed to the amounts for which those allowed claims may be settled
and were classified as "Liabilities Subject to Chapter 11 Proceedings". The
accrual for interest on such unsecured or undersecured liabilities was
discontinued from the period June 27, 1991 to August 25, 1994, the Effective
Date of the Plan.
(b) Cash and Cash Equivalents
Cash equivalents consist of all highly liquid debt instruments purchased
with original maturities of three months or less. The debt instruments are
classified as held-to-maturity and are carried at amortized cost which
approximates fair value.
(c) Expendable Spare Parts and Supplies
Flight equipment expendable spare parts and supplies are valued at average
cost. Allowances for obsolescence are provided, over the estimated useful life
of the related aircraft and engines, for spare parts expected to be on hand at
the date the aircraft are retired from service.
(d) Property and Equipment
Property and equipment are recorded at cost. Interest capitalized on
advance payments for aircraft acquisitions and on expenditures for aircraft
improvements are part of these costs. Interest capitalized was $2.7 million and
$621,000 for the year ended December 31, 1995 and the period August 26, 1994
through December 31, 1994, respectively. Property and equipment is depreciated
and amortized to residual values over the estimated useful lives or the lease
term, whichever is less, using the straight-line method.
The estimated useful lives for the Company's ground property and equipment
range from three to twelve years for owned property and equipment and to thirty
years for the reservation and training center and technical support facilities.
The estimated useful lives of the Company's owned aircraft, jet engines, flight
equipment and rotable parts range from eleven to twenty-two years. Leasehold
improvements relating to flight equipment and other property on operating leases
are amortized over the life of the lease or the life of the asset, whichever is
shorter.
31
<PAGE> 34
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(e) Restricted Cash
Restricted cash includes cash deposits securing certain letters of credit
and cash held in Company accounts, but pledged to an institution which processes
credit card sales transactions.
(f) Aircraft Maintenance and Repairs
Routine maintenance and repairs are charged to expense as incurred. The
cost of major scheduled airframe, engine and certain component overhauls are
capitalized and amortized over the periods benefited and are included in
aircraft maintenance materials and repairs expense for the Reorganized Company
as part of fresh start reporting and in depreciation and amortization expense
for the Predecessor Company. The balance of capitalized overhauls relating to
aircraft and engines was reduced as part of the revaluation of property and
equipment and operating leases under fresh start reporting.
Additionally, a provision for the estimated cost of scheduled airframe and
engine overhauls required to be performed on leased aircraft prior to their
return to the lessors has been provided.
(g) Reorganization Value in Excess of Amounts Allocable to Identifiable Assets
Reorganization value in excess of amounts allocable to identifiable assets
is amortized on a straight line basis over 20 years. Accumulated amortization at
December 31, 1995 and 1994 is approximately $43.1 million and $11.1 million,
respectively. During the year ended December 31, 1995 and the period August 26
to December 31, 1994, reductions in reorganization value of $50 million and
$11.9 million were recorded as a result of the utilization of the Predecessor
Company tax attributes including net operating loss carryforwards. Additionally,
in 1995 the Company established a deferred tax asset, which reduced
reorganization value by $74.7 million. The Company assesses the recoverability
of this asset based upon expected future undiscounted cash flows and other
relevant information.
(h) Frequent Flyer Awards
The Company maintains a frequent travel award program known as "FlightFund"
that provides a variety of awards to program members based on accumulated
mileage. The estimated cost of providing the free travel, using the incremental
cost method as adjusted for estimated redemption rates, is recognized as a
liability and charged to operations as program members accumulate mileage.
(i) Deferred Credit -- Operating Leases
Operating leases were adjusted to fair market value at the Effective Date.
The net present value of the difference between the stated lease rates and the
fair market rates has been recorded as a deferred credit in the accompanying
balance sheets. The deferred credit will be increased through charges to
interest expense and decreased on a straight-line basis as a reduction in rent
expense over the applicable lease periods. At December 31, 1995 and 1994, the
unamortized balance of the deferred credit was $107.2 million and $116.9
million, respectively.
(j) Passenger Revenue
Passenger revenue is recognized when the transportation is provided. Ticket
sales for transportation which has not yet been provided are recorded as air
traffic liability. Passenger traffic commissions and related fees are expensed
when the related revenue is recognized. Passenger traffic commissions and
related fees not yet recognized are included as a prepaid expense.
32
<PAGE> 35
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(k) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(l) Per Share Data
Primary earnings per share is based upon the weighted average number of
shares of common stock outstanding and dilutive common stock equivalents (stock
options and warrants). Primary earnings per share reflects net income adjusted
for interest on borrowings effectively reduced by the proceeds from the assumed
exercise of common stock equivalents but only if the effect of such adjustments
are dilutive.
Fully diluted earnings per share is based on the average number of shares
of common stock, dilutive common stock equivalents (stock options and warrants)
and the conversion of outstanding convertible preferred stock (none outstanding
at December 31, 1995) as well as for the Predecessor Company the conversion of
convertible subordinated debentures. Fully diluted earnings per share reflects
net income adjusted for interest on borrowings effectively reduced by the
proceeds from the assumed exercise of common stock equivalents or conversion of
debentures but only if the effect of such adjustments are dilutive.
(m) Use of Estimates
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(n) Reclassification
Certain reclassifications have been made in the prior year's financial
statements to conform them to the current presentation.
33
<PAGE> 36
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
SECURED
Notes payable, primarily fixed interest rates of 9.53% to 10.79%,
averaging 10.1%, installments due 1999 through 2008.................. $274,751 $307,077
Borrowings under lines of credit, floating interest rates of Prime + 1%
to three month LIBOR + 4%, averaging 9.61%,installments due through
1999. No available borrowings remain................................. 14,794 24,225
Industrial development revenue bonds, variable interest rate of 4.25%
to 5.6%, averaging 4.94%, due 2016(a)................................ 29,300 --
Notes payable, floating interest rate of Prime + 1%, averaging 8.50%,
installments due through 1999(a)..................................... -- 34,097
-------- --------
318,845 365,399
UNSECURED
10 3/4% Senior Notes, face amount of $75 million, interest only payment
until due in 2005(b)................................................. 71,984 --
Notes payable, interest rates of 90-day LIBOR + 3% to 8%, averaging
8.25%, installments due through 2000................................. 36,708 41,752
11 1/4% Senior notes, face amount of $123 million, interest only
payments until due in 2001(b)........................................ -- 120,843
Other.................................................................. 584 2,802
-------- --------
109,276 165,397
-------- --------
Total long-term debt......................................... 428,121 530,796
Less: current maturities..................................... 54,157 65,198
-------- --------
$373,964 $465,598
======== ========
</TABLE>
- ---------------
(a) In December 1995, the Company completed the remarketing of The Industrial
Development Authority of the City of Phoenix, Arizona Variable Rate Airport
Facility Revenue Bonds (America West Airlines, Inc. Project) Series 1986
due August 1, 2016. These bonds were originally issued to finance the
construction of the Company's maintenance facility at Sky Harbor
International Airport. As required under the existing reimbursement
agreement, the Company used the net proceeds to prepay the then existing
debt in the amount of $28.9 million. The new bonds are backed by an
irrevocable direct pay letter of credit issued by the Industrial Bank of
Japan, Limited, Los Angeles Agency; the letter of credit is secured by the
Company's maintenance facility and related improvements, seventeen spare
engines and a flight simulator with a combined net book value of $51.2
million and a pledge of $1.9 million in cash.
The interest rate varies weekly and from the date of issue to December 31,
1995 ranged from 4.25% to 5.6%. The bondholders have the right to put the
bonds back to the Company on a weekly basis if the bonds bear interest at
the weekly rate or monthly if the bonds bear interest at a monthly rate. If
the bonds are put back to the Company, the remarketing agent or the
transfer agent will, at the direction of the Company, remarket such bonds.
Any bonds not remarketed will be retired utilizing the $29.9 million letter
of credit which represents the principal plus 60 days of interest at a
maximum rate of 12%. The
34
<PAGE> 37
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
letter of credit expires on November 27, 1996 and is subject to mandatory
redemption under certain circumstances. The estimated annual cost for the
letter of credit is approximately $1.1 million.
(b) On the Effective Date, the Company issued $100 million of 11 1/4% Senior
Unsecured Notes (the "11 1/4% Senior Notes") at a discount of 1.575% as
part of the investment by the partners of AmWest Partners LP ("AmWest") and
on October 14, 1994, the Company issued an additional $23 million of the
11 1/4% Senior Notes. In August 1995, the Company prepaid $48 million of
the $123 million 11 1/4% Senior Notes and exchanged the remaining $75
million of such notes for $75 million 10 3/4% Senior Unsecured Notes due
2005 ("10 3/4% Senior Notes"). The 10 3/4% Senior Notes mature on September
1, 2005 and interest is payable in arrears semi-annually commencing on
March 1, 1996. The 10 3/4% Senior Notes may be redeemed at the option of
the Company on or after September 1, 2001 at any time in whole or from time
to time in part, at a redemption price equal to the following percentage of
principal redeemed, plus accrued and unpaid interest to the date of
redemption, if redeemed during the 12-month period beginning:
<TABLE>
<CAPTION>
SEPTEMBER 1, PERCENTAGE
-------------------------------------------------- ----------
<S> <C>
2000.............................................. 105.375%
2001.............................................. 103.583%
2002.............................................. 101.792%
2003 and thereafter............................... 100.000%
</TABLE>
Secured financings totaling $318.8 million are collateralized by assets,
primarily aircraft and engines, with a net book value of $424.9 million at
December 31, 1995.
At December 31, 1995, the estimated maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996........................................... $ 54,157
1997........................................... 46,176
1998........................................... 43,212
1999........................................... 45,401
2000........................................... 28,000
Thereafter..................................... 211,175
--------
$428,121
========
</TABLE>
Certain of the Company's long-term debt agreements contain minimum cash balance
requirements, leverage ratios, coverage ratios, limitation on investments, a
$165.4 million limitation on restricted payments including cash dividends, and
other financial covenants with which the Company was in compliance at December
31, 1995.
3. CAPITAL STOCK
Preferred Stock
The Company's Board of Directors by resolution may authorize the issuance
of the Preferred Stock as a class, in one or more series, having the number of
shares, designations, relative voting rights, dividend rights, liquidation and
other preferences and limitations that the Board of Directors fixes without any
stockholder approval. No shares of Preferred Stock have been issued.
35
<PAGE> 38
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Common Stock
The holders of Class A Common Stock are entitled to fifty votes per share,
and the holders of Class B Common Stock are entitled to one vote per share, on
all matters submitted to a vote of common stockholders except that voting rights
of non-U.S. citizens are limited. The Class A Common Stock is convertible into
an equal number of Class B shares at any time at the election of the holders of
the Class A Common Stock.
Holders of Common Stock of all classes participate equally as to any
dividends or distributions on the Common Stock, except that dividends payable in
shares of Common Stock, or securities to acquire Common Stock, will be made in
the same class of Common Stock as that held by the recipient of the dividend.
Holders of Common Stock have no right to cumulate their votes in the election of
directors. The Common Stock votes together as a single class, subject to the
right to a separate class vote in certain instances required by law.
Pursuant to the Stockholder's Agreement, AmWest and GPA Group plc ("GPA")
will vote all shares of the Common Stock owned by them in favor of the
reelection of the initially designated Independent Directors for as long as such
Independent Directors continue to serve or until the first annual meeting after
August 25, 1997.
In addition to the voting and other provisions of the Stockholders'
Agreement, AmWest and GPA have agreed that (i) the partners and assignees of
AmWest will vote in favor of GPA's nominee to the Company's Board of Directors,
and (ii) GPA will vote in favor of the partners and assignees of AmWest's nine
nominees to the Company's Board of Directors for so long as (a) the partners and
assignees of AmWest own at least 5% of the voting equity securities of the
Company, and (b) GPA owns at least 2% of the voting equity securities of the
Company.
Warrants
The Company issued approximately 10.4 million Warrants to purchase Class B
Common Stock with an exercise price of $12.74 per share as part of the
reorganization. The Warrants are exercisable by the holders anytime before
August 25, 1999 and 10.4 million shares of Class B Common Stock have been
reserved for the exercise of these warrants. As of December 31, 1995, 4,329
warrants were exercised at $12.74 per share.
4. STOCK OPTIONS AND AWARDS
The Company has reserved 3.5 million shares of Class B Common Stock for
issuance as awards under its 1994 Incentive Equity Plan, of which no more than
1.5 million shares will be issued as Restricted Stock or Bonus Stock. Options to
purchase Class B Common Stock are granted at fair market value and generally
become exercisable over a three-year period, and ultimately lapse if unexercised
at the end of ten years.
On January 1, 1995 and on December 1, 1994, the Company granted 30,334
shares and 11,000 shares of Restricted Stock, respectively. Compensation expense
of $235,000 in 1995 and $97,000 in 1994 was recorded based upon the fair value
at the date of grant and applicable vesting provisions. At December 31, 1995,
41,334 shares of Restricted Stock were vested.
36
<PAGE> 39
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Option activity under the 1994 Incentive Equity Plan is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE
SHARES PER SHARE
--------- ---------------
<S> <C> <C>
1994:
Granted.................................................. 1,111,000 $8.75
---------
Outstanding at December 31, 1994......................... 1,111,000 $8.75
=========
1995:
Granted.................................................. 1,354,000 $7.75 - 18.00
Exercised................................................ (170,667) $8.75
Cancelled................................................ (214,000) $8.75 - 12.875
---------
Outstanding at December 31, 1995......................... 2,080,333 $7.75 - 18.00
=========
Exercisable at December 31, 1995......................... 556,001
=========
</TABLE>
The 1994 Incentive Equity Plan also provides for the issuance of Restricted
Stock and grant of stock options to non-employee directors. The Company has
granted options to purchase 78,000 shares of Class B Common Stock to members of
the Board of Directors who are not employees of the Company. The options have a
ten-year term and are exercisable six months after the date of grant. At
December 31, 1995, 78,000 options to purchase Class B Common Stock were
exercisable at prices ranging from $8.00 to $9.75 per share.
5. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution plan, covering essentially
all employees of the Company. Participants may contribute from 1 to 15% of their
pre-tax earnings to a maximum of $9,240 in 1995. Currently, the Company matches
50% of a participant's contributions up to 6% of the participant's annual
pre-tax earnings. The Company's contribution expense to the plan totaled $5.9
million, $3.8 million and $2.1 million in 1995, 1994 and 1993, respectively.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of these instruments.
Long-term Debt
At December 31, 1995 and 1994, the fair value of long-term debt was
approximately $431 million and $515 million, respectively, based on quoted
market prices for the same or similar debt including debt of comparable
remaining maturities.
37
<PAGE> 40
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The Company recorded income tax expense for the periods shown below
(exclusive of extraordinary items) as follows:
<TABLE>
<CAPTION>
REORGANIZED COMPANY | PREDECESSOR COMPANY
-------------------------------- | -----------------------------------
YEAR ENDED PERIOD FROM | PERIOD FROM
DECEMBER 31, AUGUST 26 TO | JANUARY 1 TO YEAR ENDED
1995 DECEMBER 31, 1994 | AUGUST 25, 1994 DECEMBER 31, 1993
------------ ----------------- | --------------- -----------------
<S> <C> <C> | <C> <C>
(IN THOUSANDS)
Current Taxes: |
Federal................. $ 505 $ -- | $ 1,869 $ 675
State................... 190 36 | 190 84
------- ------- | -------- ------- -
Total current |
taxes.............. 695 36 | 2,059 759
------- ------- | -------- ------- -
Deferred taxes............ -- -- | -- --
------- ------- | -------- ------- -
Income tax expense |
attributable to |
reorganization items and |
other................... 52,913 11,854 | -- --
------- ------- | -------- ------- -
Total income tax |
expense................. $ 53,608 $11,890 | $ 2,059 $ 759
======= ======= | ======== ========
</TABLE>
With respect to the year ended December 31, 1995 and the period August 26,
1994 to December 31, 1994, income tax expense pertains both to income before
extraordinary items as well as certain adjustments necessitated by the
effectiveness of the Plan and the resultant fresh start adjustments to the
Company's financial statements. The Company's reorganization and the associated
implementation of fresh start reporting gave rise to significant items of
expense for financial reporting purposes that are not deductible for income tax
purposes. In large measure, it is these nondeductible (for income tax purposes)
expenses that result in an effective tax rate (for financial reporting purposes)
significantly greater than the current U.S. corporate statutory rate of 35
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. This difference in financial expense compared to
actual income tax liability is in part attributable to the utilization of
certain tax attributes of the Predecessor Company that serve to reduce the
Company's actual income tax liability. The excess of financial expense over the
Company's actual income tax liability ($50 million) is applied to reduce the
carrying balance of the Company's reorganization value in excess of amounts
allocable to identifiable assets.
For the year ended December 31, 1995, the Company recognized an income tax
benefit of $984,000 arising from an extraordinary loss. For the periods January
1, 1994 to August 25, 1994, and the year ended December 31, 1993, income tax
expense pertains solely to income before extraordinary item. No income tax
expense was recognized with respect to the extraordinary gain resulting from the
cancellation of indebtedness that occurred in connection with the effectiveness
of the Plan as such gain is not subject to income taxation.
38
<PAGE> 41
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense, exclusive of extraordinary items, recorded for the
periods shown below, differs from amounts computed at the federal statutory
income tax rate as follows:
<TABLE>
<CAPTION>
REORGANIZED COMPANY | PREDECESSOR COMPANY
-------------------------------- | ------------------------------
YEAR ENDED PERIOD FROM | PERIOD FROM YEAR ENDED
DECEMBER 31, AUGUST 26 TO | JANUARY 1 TO DECEMBER 31,
1995 DECEMBER 31, 1994 | AUGUST 25, 1994 1993
------------ ----------------- | --------------- ------------
<S> <C> <C> | <C> <C>
(IN THOUSANDS)
Income tax expense at U.S. |
statutory rate.............. $ 37,932 $ 6,908 | $ 19,758 $ 13,273
State income taxes, net of |
federal |
income tax benefit.......... 4,505 1,663 | 190 84
Nondeductible amortization of |
reorganization value in |
excess of amounts allocable |
to identifiable assets...... 11,188 3,901 | -- --
Benefit of loss |
carryforwards............... -- -- | (17,889) (12,598)
Other, net.................... (17) (582) | -- --
------- ------- | -------- --------
Total............... $ 53,608 $11,890 | $ 2,059 $ 759
======= ======= | ======== ========
</TABLE>
As of December 31, 1995, the Company has available net operating loss,
business tax credit and alternative minimum tax credit carryforwards for Federal
income tax purposes of approximately $533.6 million, $12.7 million and $1.1
million, respectively. The net operating loss carryforwards expire during the
years 1999 through 2009 while the business credit carryforwards expire during
the years 1997 through 2006. However, such carryforwards are not fully available
to offset federal (and in certain circumstances, state) alternative minimum
taxable income. Further, as a result of a statutory "ownership change" (as
defined for purposes of sec. 382 of the Internal Revenue Code) that occurred as
a result of the effectiveness of the Company's Plan of Reorganization, the
Company's ability to utilize its net operating loss and business tax credit
carryforwards may be restricted. The alternative minimum tax credit may be
carried forward without expiration and is available to offset future income tax
payable.
39
<PAGE> 42
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Composition of Deferred Tax Items:
For the year ended December 31, 1995 the Company recognized a deferred tax
asset of $74.7 million. The Company did not recognize any net deferred tax items
for the year ended December 31, 1994. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's deferred tax assets and
liabilities are a result of the temporary differences related to the items
described as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities:
Property and equipment, principally
depreciation and "fresh start" differences.................... $ (89,766) $ (71,425)
--------- ---------
Deferred tax assets:
Aircraft leases.................................................. 39,812 63,354
Reorganization expenses.......................................... 23,591 32,654
Net operating loss carryforwards................................. 203,879 215,119
Tax credit carryforwards......................................... 13,777 13,272
Other............................................................ 14,240 10,892
--------- ---------
Total deferred tax assets..................................... 295,299 335,291
--------- ---------
Valuation allowance.............................................. (130,833) (263,866)
--------- ---------
Net deferred asset............................................... $ 74,700 $ --
========= =========
</TABLE>
SFAS 109 requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. The Company's financial
performance has improved significantly and steadily over the past three years.
Taking into account certain adjustments necessitated by the Plan of
Reorganization, the Company's earnings for income tax purposes have shown a
commensurate improvement. After due consideration of, (i) this recent history of
earnings for income tax purposes; (ii) positive earnings trends for both
financial reporting and income tax purposes; (iii) prudent and feasible tax
planning strategies and (iv) the overall financial improvement of the airline
industry, the Company has reduced the valuation allowance by $133.0 million in
1995, principally for the portion of its net operating loss carryforwards (a
Predecessor Company tax attribute) that it anticipates will, more likely than
not, be utilized. This reduction in the valuation allowance and the resultant
recognition of a net deferred tax asset of a like amount serves to reduce the
carrying balance of reorganization value in excess of amounts allocable to
identifiable assets. The remaining valuation allowance of $130.8 million is
necessary as at this time, the Company has not determined it is more likely than
not that the balance of the deferred tax assets will be realized. The Company
continues to monitor the valuation allowance and will make adjustments as
appropriate. If in future tax periods, the Company were to recognize additional
tax benefits related to items attributable to the Predecessor Company such as
net operating loss and other carryforwards, such benefits would be applied to
further reduce reorganization value in excess of amounts allocable to
identifiable assets.
40
<PAGE> 43
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Supplemental disclosure of cash flow information and non-cash investing and
financing activities were as follows.
<TABLE>
<CAPTION>
REORGANIZED COMPANY | PREDECESSOR COMPANY
-------------------------------|-------------------------------
| PERIOD FROM
PERIOD FROM | JANUARY 1
YEAR ENDED AUGUST 26 TO | TO YEAR ENDED
DECEMBER 31, DECEMBER 31, | AUGUST 25, DECEMBER 31,
1995 1994 | 1994 1993
------------ ------------ | ----------- ------------
<S> <C> <C> | <C> <C>
(IN THOUSANDS)
Non-cash transactions |
Notes payable.................. $ 5,723 $ -- | $ -- $ 818
Accrued interest reclassified |
to long-term debt........... 65 -- | 5,563 15,137
Issuance of stock as success |
bonus....................... -- -- | 1,224 --
Equipment acquired through |
capital leases.............. -- -- | 138 709
Notes payable issued for |
administrative claims....... -- -- | -- 11,597
Conversion of long-term debt to |
stock....................... -- -- | -- 1,938
Cash transactions |
Interest paid, net of amounts |
capitalized................. 50,293 11,262 | 29,253 43,731
Income taxes paid.............. 795 425 | 1,253 537
</TABLE>
Cash flows from reorganization items in connection with the Chapter 11
proceedings were as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1 TO YEAR ENDED
AUGUST 25, 1994 DECEMBER 31, 1993
--------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Interest received on cash accumulations.............. $ 3,711 $ 2,635
Professional fees paid for services rendered......... (23,563) (7,372)
D.I.P. financing issuance costs paid................. -- (1,378)
</TABLE>
9. INVESTMENT IN SECURITIES
Cash equivalents consist of highly liquid debt instruments with original
maturities of three months or less. The highly liquid debt instruments are
classified as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Held to Maturity:
Debt securities issued by the U.S. Treasury and other U.S.
government agencies....................................... $129,288 $151,448
Bankers acceptances.......................................... 37,686 --
Corporate debt securities.................................... 20,466 11,975
Other debt securities........................................ 1,341 --
-------- --------
188,781 163,423
Cash........................................................... 35,586 19,158
-------- --------
Total.......................................................... $224,367 $182,581
======== ========
</TABLE>
41
<PAGE> 44
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. EXTRAORDINARY GAINS AND LOSSES
In August 1995, the Company had an extraordinary loss of $984,000, net of a
tax benefit of $984,000, or $.02 per common share for the write-off of debt
issuance cost, relating to the prepayment of $48 million of its $123 million
11 1/4% Senior Notes and the exchange of the remaining $75 million of such notes
for $75 million of 10 3/4% Senior Notes.
The extraordinary gain recorded in the period January 1 through August 25,
1994 includes $257.7 million from the discharge of indebtedness pursuant to the
consummation of the Plan of Reorganization. No income tax expense was recognized
with respect to the extraordinary gain resulting from the cancellation of
indebtedness that occurred in connection with the effectiveness of the Plan as
such gain is not subject to income taxation.
11. COMMITMENTS AND CONTINGENCIES
(a) Leases
As of December 31, 1995, the Company had 74 aircraft under operating leases
with remaining terms ranging from one month to approximately 22 years. The
Company has options to purchase certain of the aircraft at fair market values at
the end of the lease terms. Certain of the Company's aircraft lessors have the
option to call their respective aircraft. Usually, if such call options are
exercised, the Company has the right of first refusal to retain the aircraft.
None of these options have been exercised and the last of these call options
expires in July 1997. The Company does not believe that the possible exercise of
any or all of these options will have a material effect on its operations.
Certain of the agreements require security deposits, minimum return provisions,
maintenance reserve payments and provides the aircraft lessor the option to
reset their respective rentals to the greater of the existing rentals being paid
under the leases or the then current fair market rates. The Company also leases
certain terminal space, ground facilities and computer and other equipment under
noncancelable operating leases.
At December 31, 1995, the scheduled future minimum cash rental payments
under noncancelable operating leases with initial terms of more than one year
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996....................................................... $ 226,694
1997....................................................... 199,183
1998....................................................... 165,447
1999....................................................... 159,344
2000....................................................... 149,473
Thereafter................................................. 1,031,029
----------
$1,931,170
==========
</TABLE>
Rent expense (excluding landing fees) was approximately $251 million, $81
million, $154 million, and $245 million for the year ended December 31, 1995,
for the period August 26 through December 31, 1994, the period January 1 through
August 25, 1994 and the year ended December 31, 1993, respectively.
Collectively, the operating lease agreements require security deposits with
lessors of $14.2 million and bank letters of credit of $17.6 million. The
letters of credit are collateralized by $17.6 million of restricted cash as of
December 31, 1995 and 1994.
42
<PAGE> 45
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(b) Revenue Bonds
Special facility revenue bonds (the Series 1989 and 1990 Bonds) issued by a
municipality have been used to fund the acquisition of leasehold improvements at
the Phoenix Sky Harbor airport which have been leased by the Company. Under the
operating lease agreements, which commenced in 1990, the Company is required to
make rental payments sufficient to pay principal and interest when due on the
bonds.
On August 25, 1994, the Company entered into a Restated and Amended Trust
Indenture in which the Series 1989 and Series 1990 Bonds were retired
contemporaneously with the issuance of the Series 1994A and Series 1994B Bonds.
Pursuant to the agreement, payment of principal and interest at 8.3% on the
Series 1994A Bonds commenced on October 1, 1994 and ends on January 1, 2006
while payment of principal and interest at 8.2% on the Series 1994B Bonds
commenced on October 1, 1994 and ends on January 1, 1999. At December 31, 1995,
the outstanding balance of Series 1994 Bonds was $18.7 million.
(c) Aircraft Acquisitions
At December 31, 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. The Company is
currently negotiating with GPA for the lease of one new Airbus A320-200 for
delivery in May 1996. If those 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.
The Company has 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 price indices (including
indices for various aircraft components such as metal products) for periods
preceding the various delivery dates. Based on an assumed 5% annual price
escalation, the Company estimates such aggregate net cost to be approximately
$1.2 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.
As part of the agreement, certain cash payments and securities were issued
to the put holder pursuant to the Plan (See Note 12).
In December 1994, the Company entered into a support contract with
International Aero Engines ("IAE") which provides for the purchase by the
Company of six new V2500-A5 spare engines scheduled for delivery beginning in
1998 through 2000 for use on the A320 fleet. Such engines have an estimated
aggregate cost of $42.2 million.
43
<PAGE> 46
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table reflects estimated cash payments under the aircraft and
engine purchase contracts. Actual payments may vary due to inflation factor
adjustments and changes in the delivery schedule of the equipment. The estimated
cash payments include the progress payments that will be made in cash, as
opposed to being financed under an existing progress payment financing facility.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996........................................................ $ 4,600
1997........................................................ 36,800
1998........................................................ 71,900
1999........................................................ 379,900
2000........................................................ 367,300
2001........................................................ 349,500
----------
$1,210,000
==========
</TABLE>
At December 31, 1995, the Company has significant capital commitments for a
number of aircraft, as discussed above. Although the Company has arranged for
financing for up to one-half of such commitment, the Company will require
substantial capital from external sources to meet the remaining financial
commitments. The Company intends to seek additional financing (which may include
public debt financing or private financing) in the future when and as
appropriate. There can be no assurance that sufficient financing will be
obtained for all aircraft and other capital requirements. A default by the
Company under any such commitment could have a material adverse effect on the
Company.
(d) Concentration Of Credit Risk
The Company does not believe it is subject to any significant concentration
of credit risk. Most of the Company's receivables result from tickets sold to
individual passengers through the use of major credit cards or to tickets sold
by other airlines and used by passengers on America West. These receivables are
short-term, generally being settled shortly after the sale.
(e) Contingent Legal Obligations
Certain administrative and priority tax claims are pending against the
Company which, if ultimately allowed by the Bankruptcy Court, would represent
general obligations of the Company. Such claims include claims of various state
and local tax authorities and certain contractual indemnification obligations.
The Company is also a defendant in various lawsuits. Management cannot
reasonably predict the outcome of the pending lawsuits and administrative and
priority tax claims. However, management believes, after considering a number of
factors, including the advice of outside counsel, the nature of the
contingencies to which the Company is subject and its prior experience, that
although the outcome of these matters could adversely affect future operating
results, the resolution of these actions will not have a material adverse effect
on the Company's financial condition.
12. RELATED PARTY TRANSACTIONS
In exchange for certain concessions principally arising from cancellation
of the right of GPA to lease to America West 10 Airbus A320 aircraft at
specified rates, GPA received (i) 900,000 shares of Class B Common Stock; (ii)
1,384,615 Warrants to purchase shares of Class B Common Stock at an exercise
price of $12.74 per share; (iii) a cash payment of approximately $30.5 million
and (iv) the rights to require the Company to lease up to eight aircraft of
types operated by the Company, which rights must be exercised by June 30, 1999.
44
<PAGE> 47
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company has entered into various aircraft acquisitions and leasing
arrangements with GPA at terms comparable to those obtained from third parties
for similar transactions. The Company currently leases 17 aircraft from GPA and
the rental payments for such leases amount to $65.7 million, $63.1 million, and
$63.1 million for the twelve months ended December 31, 1995, 1994 and 1993,
respectively. As of December 31, 1995, the Company was obligated to pay
approximately $1.0 billion under these leases which expire at various times
through the year 2013.
As part of the Reorganization, both Continental Airlines, Inc.
("Continental") and Mesa Air Group ("Mesa") made an investment in the Company,
and the Company entered into Alliance agreements with Continental and Mesa.
Pursuant to a code-sharing agreement with Mesa entered into in December 1992,
the Company collects a per-passenger charge for facilities, reservations and
other services from Mesa for enplanements in Phoenix on the Mesa system. Such
payments by Mesa to the Company totaled $2.9 million, $2.5 million and $1.9
million for the twelve months ended December 31, 1995, 1994 and 1993,
respectively. In addition the Company entered into several agreements in 1995
and 1994 with Continental related to code-sharing arrangements and ground
handling operations. The Company paid Continental approximately $14 million and
$2 million and also received approximately $11 million and $1 million in 1995
and 1994, respectively, from Continental for such services.
In October 1994, the Company issued an additional $23.0 million of 11 1/4%
Senior Notes to Fidelity Investments ("Fidelity") and Lehman Brothers Holding
Inc. ("Lehman") in exchange for full settlement of certain prepetition unsecured
claims. Additionally, cash payments of $2.1 million and $1.3 million were paid
to Fidelity and Lehman, respectively. In August 1995, the Company prepaid $48.0
million of its $123 million 11 1/4% Senior Unsecured Notes and exchanged the
remaining $75 million of the 11 1/4% Senior Unsecured Notes due 2001 for $75
million of 10 3/4% Senior Unsecured Notes due 2005.
13. RESTRUCTURING CHARGE
In December 1995, the Company recorded a $10.5 million restructuring charge
($.14 fully diluted earnings per share after taxes). The amount includes
severance costs of approximately $9.5 million for approximately 500 employees,
and $1.0 million for other costs related to the outsourcing of the heavy
aircraft maintenance work. At December 31, 1995, the outstanding balance was
$8.0 million. It is currently anticipated that the remaining balance will be
disbursed by the end of 1996.
14. CHAPTER 11 REORGANIZATION
The following occurred upon the Effective Date:
- The partners of AmWest Partners, L.P., a limited partnership which
includes TPG Partners, L.P. ("TPG"); Continental; and Mesa; together with
Lehman and Fidelity, as assignees of AmWest, invested $205.3 million in
consideration for the issuance of securities by the Reorganized Company,
consisting of (i) 1,200,000 shares of Class A Common Stock at a price of
$7.467 per share; (ii) 12,981,636 shares of Class B Common Stock,
consisting of 12,259,821 shares at a price of $7.467 per share and
721,815 shares at $8.889 per share (representing shares acquired as a
result of cash elections made by unsecured creditors); (iii) 2,769,231
Warrants to purchase shares of Class B Common Stock at an exercise price
of $12.74 per share and (iv) $100 million principal amount of 11 1/4%
Senior Unsecured Notes, due September 1, 2001.
- TPG and Fidelity, the holders of preferred equity interests of the
Predecessor Company received their pro rata share of (i) $500,000 in cash
and (ii) purchased 125,000 shares of Class B Common Stock (acquired
pursuant to certain subscription rights at a price of $8.889 per share).
- In exchange for certain concessions principally arising from cancellation
of the right of GPA and/or its affiliates to lease to America West 10
Airbus A320 aircraft, GPA received Class B Common Stock, a cash payment
and certain rights (See Note 12).
45
<PAGE> 48
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- Continental, Mesa and the Company entered into certain Alliance
Agreements relating to code-sharing, schedule coordination and certain
other relationships and agreements. With respect to Mesa, a pre-existing
code share agreement was extended to August 2004.
- The Company executed letter agreements with Fidelity and Lehman relating
to the settlement of certain prepetition claims. In October 1994,
Fidelity and Lehman received 11 1/4% Senior Notes and certain cash
payments. (See Note 12).
- The Plan also provided for many other matters, including the satisfaction
of certain other prepetition claims in accordance with negotiated
settlement agreements, the disposition of the various types of claims
asserted against the Company, the adherence to the Company's aircraft
lease agreements, the amendment of the Company's aircraft purchase
agreements and the release of the Company's employees from all
obligations arising under the Company's stock purchase plan in
consideration for the cancellation of the shares of Predecessor Company
stock securing such obligations.
In October 1995, the Company made an interim distribution based upon a
revised reserve estimate of $312 million which was authorized by the Bankruptcy
Court.
As of December 31, 1995, distributions on $305.6 million of allowed general
unsecured claims have been made. Approximately 25.5 million shares of the
Company's Class B Common Stock and cash proceeds equivalent to an additional
711,000 shares have been distributed in settlement. The remaining shares will be
distributed as the remaining general unsecured claims are allowed. To the extent
that the total allowed amount of claims is less than the $312 million reserve
set by the Bankruptcy Court, the holders of such claims will receive a
supplemental distribution.
Reorganization expense recorded by the Predecessor Company consisted of the
following:
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
JANUARY 1 TO DECEMBER 31,
AUGUST 25, 1994 1993
--------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Professional fees and other expenses directly related to
the Chapter 11 proceedings............................. $ 31,959 $ 9,419
Adjustments of assets and liabilities to fair value...... 166,829 --
Provisions for settlement of claims...................... 66,626 18,231
Reorganization success bonuses........................... 11,956 --
Interest income.......................................... (3,711) (2,635)
-------- -------
$ 273,659 $ 25,015
======== =======
</TABLE>
15. FRESH START REPORTING
In connection with its emergence from bankruptcy, the Company adopted fresh
start reporting in accordance with SOP 90-7. The fresh start reporting common
equity value of $587.5 million was determined by the Company with the assistance
of its financial advisors. The significant factors used in the determination of
this value were analyses of industry, economic and overall market conditions and
the historical and estimated performance of the Company as well as of the
airline industry, discussions with various potential investors and certain other
financial analyses.
Under fresh start reporting, the reorganization value of the entity has
been allocated to the Company's assets and liabilities on a basis substantially
consistent with purchase accounting. The portion of reorganization value not
attributable to specific tangible assets has been recorded as "Reorganization
Value in Excess of Amounts Allocable to Identifiable Assets" in the accompanying
balance sheet. The fresh start reporting adjustments, primarily related to the
adjustment of the Company's assets and liabilities to fair market values, will
have a significant effect on the Company's future statements of income. The more
significant of these adjustments relate to reduced depreciation
46
<PAGE> 49
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
expense on property and equipment, increased amortization expense relating to
reorganization value in excess of amounts allocable to identifiable assets and
increased interest expense.
The effects of the Plan and fresh start reporting on the balance sheet at
the Effective Date are as follows:
<TABLE>
<CAPTION>
PREDECESSOR (B) REORGANIZED
COMPANY (A) ISSUE OF (C) COMPANY
------------- DEBT DEBT & FRESH START -------------
AUG. 25, 1994 DISCHARGE STOCK ADJUSTMENTS AUG. 25, 1994
------------- --------- -------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 156,401 $(140,284) $205,956 $ -- $ 222,073
Accounts receivable, net................ 77,682 -- 6,831 -- 84,513
Expendable spare parts and supplies..... 27,715 -- -- (2,371) 25,344
Prepaid expenses........................ 34,540 -- -- (885) 33,655
---------- --------- -------- --------- ----------
Total current assets...................... 296,338 (140,284) 212,787 (3,256) 365,585
Property and equipment, net............... 702,442 -- -- (138,830) 563,612
Restricted cash........................... 30,503 -- -- -- 30,503
Reorganization value in excess of amounts
allocable to identifiable assets........ -- -- -- 668,702 668,702
Other assets, net......................... 24,497 -- 1,575 (2,449) 23,623
---------- --------- -------- --------- ----------
Total assets.............................. $ 1,053,780 $(140,284) $214,362 $ 524,167 $ 1,652,025
========== ========= ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current liabilities:
Current maturities of long-term debt.... $ 119,185 $ (65,014) $ -- $ -- $ 54,171
Accounts payable........................ 98,080 6,500 -- 969 105,549
Air traffic liability................... 153,808 -- -- -- 153,808
Accrued compensation and vacation
benefits.............................. 27,443 -- -- -- 27,443
Accrued interest........................ 5,620 -- -- -- 5,620
Accrued taxes........................... 26,613 14,405 -- -- 41,018
Other accrued liabilities............... 29,161 -- -- -- 29,161
---------- --------- -------- --------- ----------
Total current liabilities................. 459,910 (44,109) -- 969 416,770
Estimated liabilities subject to Chapter
11 proceedings.......................... 382,769 (382,769) -- -- --
Long-term debt, less current maturities... 368,939 28,934 100,000 -- 497,873
Manufacturers' and deferred credits....... 70,625 -- -- 51,530 122,155
Other liabilities......................... 57,932 -- -- (30,205) 27,727
Stockholders' equity (deficiency)
Preferred stock......................... 18 -- -- (18) --
Common stock, Predecessor Company....... 6,432 -- -- (6,432) --
Common stock, Reorganized Company....... -- -- 152 299 451
Additional paid in capital.............. 200,058 -- 114,710 272,281 587,049
Accumulated deficit..................... (474,565) 257,660 (500) 217,405 --
---------- --------- -------- --------- ----------
(268,057) 257,660 114,362 483,535 587,500
Deferred compensation and notes
receivable -- employee stock purchase
plans................................. 18,338 -- -- (18,338) --
---------- --------- -------- --------- ----------
Total stockholders' equity (deficiency)... (286,395) 257,660 114,362 501,873 587,500
---------- --------- -------- --------- ----------
Total liabilities & stockholders' equity
(deficiency)............................ $ 1,053,780 $(140,284) $214,362 $ 524,167 $ 1,652,025
========== ========= ======== ========= ==========
</TABLE>
- ---------------
(a) To record the discharge or reclassification of prepetition obligations
pursuant to the Plan of Reorganization, as well as the repayment in cash of
$77.6 million of D.I.P. financing and a $62.7 million priority term loan.
(b) To record proceeds received from the issuance of new debt and equity
securities and to record the preferred stock settlement payment of $500,000
and the receipt of approximately $1.1 million for the purchase of Class B
Common Stock.
47
<PAGE> 50
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(c) To record adjustments to reflect assets and liabilities at fair market
values and to record reorganization value in excess of amounts allocable to
identifiable assets.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1995 and 1994 are as follows (in
thousands of dollars except per share amounts):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
1995 -- REORGANIZED COMPANY QUARTER QUARTER QUARTER QUARTER
---------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Total operating revenues................ $345,790 $399,916 $408,627 $396,309
Operating income(a)..................... 24,895 52,957 54,160 22,720
Nonoperating expense, net............... (13,927) (11,760) (11,047) (9,620)
Income tax expense...................... (5,758) (20,324) (20,414) (7,112)
Net income(a)........................... 5,210 20,873 21,715 5,988
Earnings per share:
Primary............................... .12 .46 .46 .13
Fully diluted......................... .12 .45 .45 .12
</TABLE>
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
1994 -- REORGANIZED COMPANY QUARTER QUARTER QUARTER QUARTER
---------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Total operating revenues................ $ $ $127,315 $342,451
Operating income........................ 8,336 30,535
Nonoperating expense, net............... (5,293) (13,842)
Income tax expense...................... (1,825) (10,065)
Net income.............................. 1,218 6,628
Earnings per share:
Primary............................... .03 .15
Fully diluted......................... .03 .15
</TABLE>
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
1994 -- PREDECESSOR COMPANY QUARTER QUARTER QUARTER QUARTER
---------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Total operating revenues................ $345,264 $363,351 $230,413 $
Operating income........................ 37,750 44,146 25,610
Nonoperating expense, net(b)............ (21,943) (23,171) (263,601)
Income tax expense...................... (632) (839) (588)
Net income(b)........................... 15,175 20,136 19,081
Earnings per share:
Primary............................... .56 .74 .69
Fully diluted......................... .40 .52 .49
</TABLE>
- ---------------
(a) During the fourth quarter of 1995, the Company recorded restructuring
charges of $10.5 million. See note 13 for more information.
(b) During the third quarter of 1994, the Company recorded reorganization
expenses of $255.4 million as well as an extraordinary gain of $257.7
million from the discharge of debt pursuant to the Plan of Reorganization.
17. SUBSEQUENT EVENT
In February 1996, certain stockholders of the Company who hold shares of
Class B Common Stock registered under the Company's shelf registration statement
sold 7.2 million of such shares pursuant to an underwritten public offering. The
selling stockholders were affiliates of Texas Pacific Group, Mesa, Continental
and Lehman. The shares offered were purchased by the selling stockholders in
connection with America West's emergence from bankruptcy in August 1994.
48
<PAGE> 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information respecting continuing directors and nominees of the Company is
set forth under the caption "Information Concerning Directors and Nominees" in
the Company's Proxy Statement relating to its 1996 Annual Meeting of
Stockholders incorporated by reference into this Form 10-K Report, which will be
filed with the Securities and Exchange Commission in accordance with Rule
14a-6(c) promulgated under the Securities Exchange Act of 1934 (the "1996 Proxy
Statement"). With the exception of the foregoing information and other
information specifically incorporated by reference into this Form 10-K Report,
the 1996 Proxy Statement is not being filed as a part hereof. Information
respecting executive officers of the Company is set forth at Part I of this
Report.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the information called for by Items 11, 12 and 13, reference is made to
the Company's 1996 Proxy Statement, which will be filed with the Securities and
Exchange Commission within 120 days after December 31, 1995, and portions of
which are incorporated herein by reference.
50
<PAGE> 52
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements.
The following financial statements and the Independent Auditors' Report are
filed as part of this report on the pages indicated:
Independent Auditors' Report page 25.
Balance Sheets -- December 31, 1995 and 1994 -- page 26.
Statements of Income -- For the year ended December 31, 1995, the
periods August 26, 1994 to December 31, 1994, January 1, 1994 to August 25,
1994, and the year ended December 31, 1993 -- page 27
Statements of Cash Flows -- For the year ended December 31, 1995, the
periods August 26, 1994 to December 31, 1994, January 1, 1994 to August 25,
1994, and the year ended December 31, 1993 -- page 29.
Statements of Stockholders' Equity (Deficiency) -- For the year ended
December 31, 1995, the periods August 26, 1994 to December 31, 1994,
January 1, 1994 to August 25, 1994, and the year ended December 31,
1993 -- page 30.
Notes to Financial Statements -- page 31.
(b) Financial Statement Schedules.
Independent Auditors' Report on Schedule -- page 56.
Schedule II: Valuation and Qualifying Accounts -- page 57.
All other information and schedules have been omitted as not
applicable or because the required information is included in the financial
statements or notes thereto.
51
<PAGE> 53
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
---------- --------------------------------------------------------------------------
<S> <C>
2.1 -- The Company's Plan of Reorganization, as amended under Chapter 11 of the
Bankruptcy Code -- Incorporated by reference to the Company's Report on
Form 8-K dated September 9, 1994.
3.1 -- Restated Certificate of Incorporation of America West Airlines,
Inc. -- Incorporated by reference to the Company's Report on Form 8-K
dated September 8, 1994.
3.2 -- Restated By-laws of America West Airlines, Inc., as
amended -- Incorporated by reference to the Company's Report on Form 10-K
dated December 31, 1994.
4.1 -- Indenture for 10 3/4% Senior Unsecured Notes due 2003 -- Incorporated by
reference to the Company's Form S-4 (No. 33-61099).
4.2 -- Form of Senior Note (included as Exhibit A to Exhibit 4.1 above).
4.3 -- Warrant Agreement dated August 25, 1994 between America West Airlines,
Inc. and First Interstate, N.A., as Warrant Agent -- Incorporated by
reference to the Company's Report on Form 8-K dated September 9, 1994.
4.4 -- Form of Warrant (included as Exhibit A to Exhibit 4.3 above).
4.5 -- Stockholders' Agreement for America West Airlines, Inc. dated August 25,
1994 among America West Airlines, Inc., AmWest Partners, L.P., GPA Group
plc and certain other Stockholder Representatives -- Incorporated by
reference to the Company's Report on Form 8-K dated September 9, 1994.
4.6 -- First Amendment to Stockholders' Agreement for America West Airlines, Inc.
dated September 6, 1994 among Air Partners II, L.P., TPG Partners, L.P.,
TPG Parallel I, L.P., Continental Airlines, Inc., Mesa Airlines, Inc., GPA
Group plc and certain other stockholder representatives -- Incorporated by
reference to the Company's Report on Form 8-K dated September 9, 1994.
4.6 -- Registration Rights Agreement dated August 25, 1994 among America West
Airlines, Inc., AmWest Partners, L.P. and other holders -- Incorporated by
reference to the Company's Report on Form 8-K dated September 9, 1994.
4.7 -- Article 4.0 of the Company's Restated Certificate of Incorporation
(included in Exhibit 3.1 above).
10.1 -- Third Revised Investment Agreement dated April 21, 1994 between America
West Airlines, Inc. and AmWest Partners, L.P. -- Incorporated by reference
to Exhibit 10.A to the Company's Quarterly Report on Form 10-Q for the
period ended March 31, 1994.
10.11 -- Third Revised Interim Procedures Agreement dated April 21, 1994 between
America West Airlines and AmWest Partners, L.P. -- Incorporated by
reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
10.14 -- The GPA Term Sheet between America West Airlines, Inc. and GPA Group plc,
dated June 13, 1994 -- Incorporated by Reference to the Company's
Registration Statement on Form S-1 (No. 54243), as amended.
10.15 -- America West Airlines Management Resignation Allowance Guidelines, as
amended, dated November 18, 1993 -- Incorporated by Reference to the
Company's Registration Statement on Form S-1 (No. 54243), as amended.
10.16 -- Airbus A320 Purchase Agreement (including exhibits thereto), dated as of
September 28, 1990 between AVSA, S.A.R.L. and the Company, together with
Letter Agreement Nos. 1-10, inclusive -- Incorporated by reference to
Exhibit 10-(D)(1) to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1990.
10.17 -- Loan Agreement, dated as of September 28, 1990, among the Company, AVSA
and AVSA, as agent -- Incorporated by reference to Exhibit 10-(D)(2) to
the Company's Quarterly Report on Form 10-Q for the period ended September
30, 1990.
10.19 -- V2500 Support Contract Between the Company and International Aero Engines
AG, dated September 28, 1990, together with Side Letters Nos. 1-4,
inclusive -- Incorporated by reference to Exhibit 10-(D)(3) to the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1990.
</TABLE>
51
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
---------- --------------------------------------------------------------------------
<S> <C>
10.20 -- Cash Management Agreement, dated September 28, 1991, among the Company, BT
and First Interstate of Arizona, N.A. -- Incorporated by reference to
Exhibit 10-D(21) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991.
10.21 -- First Amendment to Cash Management Agreement, dated December 1, 1991,
among the Company, BT and First Interstate of Arizona,
N.A. -- Incorporated by reference to Exhibit 10-D(22) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
10.22 -- Second Amendment to Cash Management Agreement, dated September 1, 1992,
among the Company, BT and First Interstate of Arizona,
N.A. -- Incorporated by reference to Exhibit 10-O(3) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.23 -- Restructuring Agreement, dated December 1, 1991 between the Company and
Kawasaki -- Incorporated by reference to Exhibit 10-D(24) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
10.24 -- A320 Put Agreement, dated December 1, 1991 between the Company and
Kawasaki -- Incorporated by reference to Exhibit 10-D(25) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
10.25 -- First Amendment to A320 Put Agreement, dated September 1,
1992 -- Incorporated by reference to Exhibit 10-R(2) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.26 -- A320 Put Agreement, dated as of June 25, 1991 between the Company and GPA
Group plc -- Incorporated by reference to Exhibit 10-D(26) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1991.
10.27 -- First Amendment to A320 Put Agreement, dated as of September 1, 1992 --
Incorporated by reference to Exhibit 10-S(2) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992.
10.28 -- Restructuring Agreement, dated as of June 25, 1991 among GPA Group plc,
GPA Leasing USA I, Inc. GPA Leasing USA Sub I, and the
Company -- Incorporated by reference to Exhibit 10-D(27) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1991.
10.29 -- Official Statement dated August 11, 1986 for the $54,000,000 Variable Rate
Airport Facility Revenue Bonds -- Incorporated by reference to Exhibit
10.e to the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1986.
10.30 -- Airport Use Agreement dated July 1, 1989 (the "Airport Use Agreement")
among the City of Phoenix, The Industrial Development Authority of the
City of Phoenix, Arizona and the Company -- Incorporated by reference to
Exhibit 10-D(9) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1989.
10.31 -- First Amendment dated August 1, 1990 to Airport Use
Agreement -- Incorporated by reference to Exhibit 10-(D)(9) to the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1990.
10.32 -- Revolving Loan Agreement dated April 17, 1990, by and among the Company,
the Bank signatories thereto, and Bank of America National Trust and
Savings Association, as Agent for the Banks (the "Revolving Loan
Agreement") -- Incorporated by reference to Exhibit 10-1 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1990.
10.33 -- First Amendment dated April 17, 1990 to Revolving Loan
Agreement -- Incorporated by reference to Exhibit 10-(D)(10) to the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1990.
10.34 -- Second Amendment dated September 28, 1990 to the Revolving Loan
Agreement -- Incorporated by reference to Exhibit 10-(D)(11) to the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1990.
10.35 -- Third Amendment dated as of January 14, 1991 to the Revolving Loan
Agreement -- Incorporated by reference to Exhibit 10-(D)(13) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1990.
10.36 -- Spares Credit Agreement, dated as of September 28, 1990, between the
Company and IAE -- Incorporated by reference to Exhibit 10-(D)(4) to the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1990.
</TABLE>
53
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
---------- --------------------------------------------------------------------------
<S> <C>
10.37 -- Master Credit Modification Agreement dated as of October 1, 1992, among
the Company, IAE International Aero Engines AG, Intlaero (Phoenix A320)
Inc., Intlaero (Phoenix B737) Inc., CAE Electronics Ltd., and Hughes
Rediffusion Simulation Limited -- Incorporated by reference to Exhibit
10-L to the Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
10.38 -- Credit Agreement, dated as of September 28, 1990 between the Company and
IAE -- Incorporated by reference to Exhibit 10-(D)(5) to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1990.
10.39 -- Amendment No. 1 to the Credit Agreement, dated March 1,
1991 -- Incorporated by reference to Exhibit 10-(M)(2) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.40 -- Amendment No. 2 to the Credit Agreement, dated May 15,
1991 -- Incorporated by reference to Exhibit 10-(M)(3) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.41 -- Amendment No. 3 to the Credit Agreement, dated October 1,
1992 -- Incorporated by reference to Exhibit 10-(M)(4) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.42 -- Form of Third Amended and Restated Credit Agreement dated September 30,
1993, among the Company, various lenders, and BT Commercial Corp. as
Administrative Agent (without exhibits) -- Incorporated by reference to
Exhibit 10-(N)(1) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
10.43 -- Form of Amended and Restated Management Letter Agreement, dated as of
September 30, 1993 from the Company to the Lenders -- Incorporated by
reference to Exhibit 10-N(2) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
10.44 -- Form of Amendment to Amended and Restated Management Letter Agreement;
Consent to Amendment of By-laws dated February 8, 1994 from the Company to
the Lenders -- Incorporated by reference to Exhibit 10-N(3) to the
Company's Annual Report on Form 10-K for the year ended December 31, 1993.
10.45 -- Fourth Amended and Restated Credit Agreement dated June 30,
1994 -- Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1994.
10.46 -- Key Employee Protection Agreement dated as of June 27, 1994 between
America West Airlines, Inc. and William A. Franke -- Incorporated by
reference to the Company's Registration Statement on Form S-1 (No. 54243),
as amended.
10.47 -- Management Rights Agreement dated August 25, 1994 between TPG Partners
L.P., TPG Genpar, L.P. and America West Airlines, Inc. -- Incorporated by
reference to the Company's Registration Statement on Form S-1 (No. 54243),
as amended.
10.48 -- V2500 Support Contract dated December 23, 1994 between America West
Airlines, Inc. and International Aero Engineers, as
amended -- Incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.49 -- Form of America West Airlines, Inc. 1994 Incentive Equity Plan
Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
10.50 -- Employment Agreement dated as of November 9, 1995 between America West
Airlines, Inc. and William A. Franke. Incorporated by reference to the
Company's S-1 (No. 33-54243)
*11.1 -- Statement re: computation of net income (loss) per common share.
*23.1 -- Consent of KPMG Peat Marwick LLP (independent auditors') -- Included at
page 56.
24.1 -- Power of Attorney (included on the signature pages of this Annual Report.)
*27 -- Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
54
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
AMERICA WEST AIRLINES, INC.
Date: March 29, 1996 By: /s/WILLIAM A. FRANKE
------------------------------------
William A. Franke,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned, directors and officers of America West Airlines, Inc.
(the "Company"), do hereby severally constitute and appoint William A. Franke,
W. Douglas Parker and Stephen L. Johnson and each or any of them, our true and
lawful attorneys and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995, and to file the same with
all exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys and agents, and
each or any of them, full power and authority to do and perform each and every
act and thing requisite and necessary to be done, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys and agents, and each of them, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the capacities
indicated on March 29, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ------------------------------------------
<S> <C>
/s/ WILLIAM A. FRANKE Chairman of the Board and Chief Executive
- --------------------------------------------- Officer (Principal Executive Officer)
William A. Franke
/s/ W. DOUGLAS PARKER Senior Vice President and Chief Financial
- --------------------------------------------- Officer (Principal Financial Officer)
W. Douglas Parker
/s/ MICHAEL R. CARREON Vice President and Controller (Principal
- --------------------------------------------- Accounting Officer)
Michael R. Carreon
/s/ JULIA CHANG BLOCH Director
- ---------------------------------------------
Julia Chang Bloch
/s/ STEPHEN F. BOLLENBACH Director
- ---------------------------------------------
Stephen F. Bollenbach
/s/ FREDERICK W. BRADLEY, JR. Director
- ---------------------------------------------
Frederick W. Bradley, Jr.
</TABLE>
54
<PAGE> 57
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ------------------------------------------
<S> <C>
/s/ JAMES G. COULTER Director
- ---------------------------------------------
James G. Coulter
/s/ JOHN F. FRASER Director
- ---------------------------------------------
John F. Fraser
/s/ JOHN L. GOOLSBY Director
- ---------------------------------------------
John L. Goolsby
/s/ RICHARD C. KRAEMER Director
- ---------------------------------------------
Richard C. Kraemer
/s/ JOHN R. POWER, JR. Director
- ---------------------------------------------
John R. Power, Jr.
/s/ LARRY L. RISLEY Director
- ---------------------------------------------
Larry L. Risley
/s/ FRANK B. RYAN Director
- ---------------------------------------------
Frank B. Ryan
/s/ RICHARD P. SCHIFTER Director
- ---------------------------------------------
Richard P. Schifter
/s/ JOHN F. TIERNEY Director
- ---------------------------------------------
John F. Tierney
/s/ RAYMOND S. TROUBH Director
- ---------------------------------------------
Raymond S. Troubh
</TABLE>
55
<PAGE> 58
INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT
The Board of Directors and Stockholders
America West Airlines, Inc.
The audits referred to in our report dated March 20, 1996, included the
related financial statement schedule as listed in Item 14(b) for the year ended
December 31, 1995, the period August 26, 1994 through December 31, 1994, the
period January 1, 1994 through August 25, 1994 and for the year ended December
31, 1993, included herein. The financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statement schedule based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We consent to incorporation by reference in the registration statement No.
33-60555 on Form S-8 of America West Airlines, Inc. of our report dated March
20, 1996, relating to the balance sheets of America West Airlines, Inc. as of
December 31, 1995 and 1994 and the related statements of income, cash flows and
stockholders' equity (deficiency) for the year ended December 31, 1995, the
period August 26, 1994 through December 31, 1994, the period January 1, 1994
through August 25, 1994 and the year ended December 31, 1993, and the related
schedule, which report appears in the December 31, 1995 annual report on Form
10-K of America West Airlines, Inc.
The audit report on the financial statements of America West Airlines, Inc.
referred to above contains an explanatory paragraph that states that as
discussed in Notes 14 and 15 to the financial statements, on August 25, 1994,
America West Airlines, Inc. emerged from bankruptcy. The financial statements of
the Reorganized Company reflect the impact of adjustments to reflect the fair
value of assets and liabilities under fresh start reporting. As a result, the
financial statements of the Reorganized Company are presented on a different
basis of accounting than those of the Predecessor Company and, therefore, are
not comparable in all respects.
KPMG Peat Marwick LLP
Phoenix, Arizona
March 29, 1996
56
<PAGE> 59
AMERICA WEST AIRLINES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1995,
THE PERIODS AUGUST 26, 1994 THROUGH DECEMBER 31, 1994,
JANUARY 1, 1994 THROUGH AUGUST 25, 1994
AND THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
DESCRIPTION OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
- -------------------------------------------------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for doubtful receivables:
Year ended December 31, 1995.................... $3,531 $ 2,600 $3,616 $ 2,515
====== ====== ====== ======
Period August 26, 1994 to December 31, 1994..... $2,833 $ 1,074 $ 376 $ 3,531
====== ====== ====== ======
Period January 1, 1994 to August 25, 1994....... $3,030 $ 4,742 $4,939 $ 2,833
====== ====== ====== ======
Year ended December 31, 1993.................... $2,542 $ 5,474 $4,986 $ 3,030
====== ====== ====== ======
Reserve for obsolescence:
Year ended December 31, 1995.................... $ 483 $ 1,664 $ 32 $ 2,115
====== ====== ====== ======
Period August 26, 1994 to December 31, 1994..... $ -- $ 483 $ -- $ 483
====== ====== ====== ======
Period January 1, 1994 to August 25, 1994....... $7,231 $ 794 $8,025(a) $ --
====== ====== ====== ======
Year ended December 31, 1993.................... $6,921 $ 902 $ 592 $ 7,231
====== ====== ====== ======
</TABLE>
- ---------------
(a) Includes fresh start adjustment of approximately $7.9 million.
57
<PAGE> 1
EXHIBIT 11.1
AMERICA WEST AIRLINES, INC.
COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
REORGANIZED COMPANY | PREDECESSOR COMPANY
----------------------------- | ----------------------------
PERIOD FROM | PERIOD FROM
AUGUST 26, | JANUARY 1
YEAR ENDED TO | TO YEAR ENDED
DECEMBER 31, DECEMBER 31, | AUGUST 25, DECEMBER 31,
------------ ------------ | ----------- ------------
1995 1994 | 1994 1993
------------ ------------ | ----------- ------------
<S> <C> <C> | <C> <C>
Primary Earnings Per Share |
Computation for Statements of Income: |
Income (loss) before extraordinary items... $54,770..... $ 7,846 | $ (203,268) $ 37,165
Adjustment for interest on debt |
reduction................................ 1,487 -- | 2,584 4,210
Preferred stock dividend requirement....... -- -- | -- --
----------- ----------- | ----------- -----------
Income (loss) applicable to common stock |
before extraordinary items............... 56,257 7,846 | (200,684) 41,375
Extraordinary items, net................... (984 ) -- | 257,660 --
----------- ----------- | ----------- -----------
Income (loss) applicable to common stock... $ 55,273 $ 7,846 | $ 56,976 $ 41,375
=========== =========== | =========== ===========
Weighted average number of common shares |
outstanding................................ 45,177,291 45,126,899 | 25,470,671 24,480,487
Assumed exercise of stock options and |
warrants(a)................................ 2,488,216 -- | 3,079,258 3,044,504
----------- ----------- | ----------- -----------
Weighted average number of common shares |
outstanding as adjusted.................... 47,665,507 45,126,899 | 28,549,929 27,524,991
=========== =========== | =========== ===========
Primary earnings per common share: |
Income (loss) before extraordinary items..... $ 1.18 $ 0.17 | $ (7.03) $ 1.50
Extraordinary items.......................... (.02 ) -- | 9.02 --
----------- ----------- | ----------- -----------
Net income (loss)............................ $ 1.16 $ 0.17 | $ 1.99 $ 1.50
=========== =========== | =========== ===========
Computation of primary earnings per share -- |
antidilutive calculation under modified |
treasury stock method submitted in accordance |
with Regulation S-K Item 601(b)(11) |
Income (loss) before extraordinary items..... $ 7,846 |
Preferred stock dividend requirement......... -- |
Interest adjustment net of taxes............. 870 |
----------- |
Income (loss) applicable to common stock |
before extraordinary items................. 8,716 |
Extraordinary items, tax benefit............. -- |
----------- |
Income (loss) applicable to common stock..... $ 8,716 |
=========== |
Weighted average number of common shares |
outstanding.................................. 45,126,899 |
Assumes exercise of stock options and |
warrants................................... 2,011,352 |
----------- |
Weighted average number of common shares as |
adjusted................................... 47,138,251 |
=========== |
Primary earnings per common share: |
Income (loss) before extraordinary items... $ 0.18 |
Extraordinary items........................ -- |
----------- |
Net income (loss)(b)....................... $ 0.18 |
=========== |
</TABLE>
<PAGE> 2
EXHIBIT 11.1
AMERICA WEST AIRLINES, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
REORGANIZED COMPANY | PREDECESSOR COMPANY
---------------------------- | ---------------------------
PERIOD FROM | PERIOD FROM
YEAR ENDED AUGUST 26 TO | JANUARY 1 TO YEAR ENDED
DECEMBER 31, DECEMBER 31, | AUGUST 25, DECEMBER 31,
------------ ------------ | ----------- ------------
1995 1994 | 1994 1993
------------ ------------ | ----------- ------------
<S> <C> <C> | <C> <C>
FULLY DILUTED EARNINGS PER SHARE |
Computation for Statements of Income: |
Income (loss) before extraordinary items............. $ 54,770 $ 7,846 | $ (203,268 ) $ 37,165
Adjustment for interest on debt reduction............ 851 870 | 2,520 5,812
Preferred stock dividend requirement................. -- -- | -- --
---------- ---------- | ---------- ----------
Income (loss) applicable to common stock before |
extraordinary items................................ 55,621 8,716 | (200,748 ) 42,977
Extraordinary items.................................. (984) -- | 257,660 --
---------- ---------- | ---------- ----------
Net income (loss).................................... $ 54,637 $ 8,716 | $ 56,912 $ 42,977
========== ========== | ========== ==========
Weighted average number of common shares |
outstanding........................................ 45,177,291 45,126,899 | 25,470,671 24,480,487
Assumed exercise of stock options and warrants(a).... 2,488,216 2,011,352 | 3,079,258 4,240,761
---------- ---------- | ---------- ----------
Weighted average number of common shares outstanding |
as adjusted........................................ 47,665,507 47,138,251 | 28,549,929 28,721,248
========== ========== | ========== ==========
Fully diluted income (loss) per common share: |
Income (loss) before extraordinary items............. $ 1.17 $ 0.18 | $ (7.03 ) $ 1.50
Extraordinary items.................................. (.02) -- | 9.02 --
---------- ---------- | ---------- ----------
Net income (loss).................................... $ 1.15 $ 0.18(b)| $ 1.99 $ 1.50
========== ========== | ========== ==========
Additional Fully Diluted Computation: |
Additional adjustment to net income (loss) as adjusted |
per fully diluted computation above.................... |
Income (loss) before extraordinary items as adjusted |
per fully diluted computation above.................. $ 54,770 $ 7,846 | $ (203,268 ) $ 37,165
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 debentures, net |
of taxes............................................. -- | -- --
Add interest on debt reduction, net of taxes........... 851 870 | 2,520 5,812
---------- ---------- | ---------- ----------
Income (loss) before extraordinary items as adjusted... 55,621 8,716 | (200,748 ) 42,977
Extraordinary items, net............................... (984) -- | 257,660 --
---------- ---------- | ---------- ----------
Net income (loss)...................................... 54,637 $ 8,716 | $ 56,912 $ 42,977
========== ========== | ========== ==========
Additional adjustment to weighted average number of |
shares outstanding |
Weighted average number of shares outstanding as |
adjusted per fully diluted computation above......... 47,665,507 47,138,251 | 28,549,929 28,721,248
Additional dilutive effect of outstanding options and |
warrants............................................. -- -- | -- --
Additional dilutive effect of assumed conversion of |
preferred stock: |
Series A 9.75%....................................... -- -- | -- --
Series B 10.5%....................................... -- -- | -- 851,294
Series C 9.75%....................................... -- -- | 73,099 73,099
Additional dilutive effect of assumed conversion of |
7.75% subordinated debenture......................... -- -- | 2,257,558 2,263,007
Additional dilutive effect of assumed conversion of |
7.5% subordinated debenture.......................... -- -- | 2,264,932 2,272,548
Additional dilutive effect of assumed conversion of |
11.5% subordinated debenture......................... -- -- | 7,306,865 7,328,201
---------- ---------- | ---------- ----------
Weighted average number of common shares outstanding as |
adjusted............................................. 47,665,507 47,138,251 | 40,452,383 41,509,397
========== ========== | ========== ==========
Fully diluted income (loss) per common share: |
Income (loss) before extraordinary items............. $ 1.17 $ 0.18 | $ (4.96 ) $ 1.04
Extraordinary items, net............................. (.02) -- | 6.37 --
---------- ---------- | ---------- ----------
Net income (loss).................................... $ 1.15 $ 0.18(b)| 1.41 $ 1.04
========== ========== | ========== ==========
</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> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995<F1>
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 224,367
<SECURITIES> 0
<RECEIVABLES> 71,609
<ALLOWANCES> 2,515
<INVENTORY> 28,643
<CURRENT-ASSETS> 365,419
<PP&E> 650,697
<DEPRECIATION> 76,123
<TOTAL-ASSETS> 1,588,709
<CURRENT-LIABILITIES> 435,835
<BONDS> 373,964
0
0
<COMMON> 453
<OTHER-SE> 649,019
<TOTAL-LIABILITY-AND-EQUITY> 1,588,709
<SALES> 0
<TOTAL-REVENUES> 1,550,642
<CGS> 0
<TOTAL-COSTS> 1,395,910
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,600
<INTEREST-EXPENSE> 58,958
<INCOME-PRETAX> 108,378
<INCOME-TAX> 53,608
<INCOME-CONTINUING> 54,770
<DISCONTINUED> 0
<EXTRAORDINARY> 984
<CHANGES> 0
<NET-INCOME> 53,786
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.15
<FN>
<F1>America West Airlines, Inc. emerged from bankruptcy on August 25, 1994
and adopted fresh starting reporting in accordance with Statement of Position
90-7. Accordingly, the Company's post-reorganization 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>
