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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, 1994
/ / 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)
DELAWARE 86-0418245
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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:
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock, $.01 par value
11 1/4% Senior Unsecured Notes due 2001
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 17, 1995, there were 43,966,645 shares of Class B Common Stock
and 1,200,000 shares of Class A Common Stock issued and outstanding. On such
date, 26,936,537 shares of Class B Common Stock, having an aggregate market
value of $225,593,497 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 1995 Annual
Shareholders Meeting are incorporated by reference into Part III of this report.
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TABLE OF CONTENTS
PAGE
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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..... 10
Item 6. Selected Financial Data................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 13
Item 8. Financial Statements and Supplementary Data............................... 20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................ 43
PART III
Item 10. Directors and Executive Officers of the Registrant........................ 43
Item 11. Executive Compensation.................................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 43
Item 13. Certain Relationships and Related Transactions............................ 43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 43
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PART I
ITEM 1. BUSINESS
America West Airlines, Inc. ("America West" or the "Company") is a major
United States air carrier providing passenger, cargo and mail service, with its
primary markets in the western and southwestern regions of the United States.
The Company operates its route system through two principal hubs, Phoenix,
Arizona and Las Vegas, Nevada, and a mini-hub in Columbus, Ohio, and serves 47
destinations with a fleet of 87 jet aircraft. The Company currently has
connecting service to an additional 20 destinations through alliances with Mesa
Airlines, Inc. ("Mesa") and to an additional 23 destinations through an alliance
with Continental Airlines, Inc. ("Continental").
The Company emerged from bankruptcy under Chapter 11 of the United States
Bankruptcy Code ("Bankruptcy Code") on August 25, 1994. In connection with its
reorganization in bankruptcy and related operational restructuring, the Company
took significant steps to improve its operations, including (i) reducing its
fleet size from 123 aircraft in July 1991 to 87 as of December 31, 1994,
facilitating a better matching of capacity to demand through elimination of
nonproductive routes; (ii) reducing the aircraft types operated from five to
three to reduce operating costs; (iii) implementing certain enhancements to its
revenue management system to optimize the level of passenger revenues generated
on each flight; (iv) eliminating Company operated commuter service and
introducing code-sharing agreements to expand the scope of service and attract a
broader passenger base; and (v) implementing numerous cost reduction programs,
including a Company-wide pay reduction in August 1991 and the reduction of
aircraft lease rentals to fair market rates in the fall of 1992. America West
was one of only two major United States airlines to report a profit in each
quarter of 1993 and 1994.
BUSINESS STRATEGY
The Company's business strategy is to offer competitive fares while
providing an incrementally higher level of service relative to low cost
carriers. The principal features of the Company's business strategy are as
follows.
Maintain Competitive Pricing While Providing Differentiated
Service. America West currently operates with one of the lowest cost structures
among the major U.S. airlines, based on reported 1994 results. The Company's
operating cost per available seat mile ("ASM") for 1994 was 6.99 cents, which
was approximately 22% less than the average operating cost per ASM of the nine
largest other domestic airlines and was comparable to the cost structure of
Southwest Airlines, Inc. ("Southwest Airlines") on a non-stage length adjusted
basis, which operates in the Company's principal market areas. Management
believes that the Company can continue to offer fares that are competitive with
those offered by low cost carriers in the Company's markets, while providing a
differentiated level of service. Passenger services provided by America West
include assigned seating, participation in computerized reservation systems,
interline ticketing, first class cabins on certain flights, baggage transfer and
various other services. The Company believes that these features distinguish
America West from certain low cost carriers in the Company's markets, including
Southwest Airlines, and enable the Company to attract passengers without
competing solely on the basis of fares.
Achieve Growth in Revenue Passenger Miles. Management believes the
Company's pricing and service strategies, together with a gradual improvement of
general economic activity, will enable the Company to achieve growth in revenue
passenger miles in its existing markets and to expand into certain other North
American markets. Management believes that growth in existing markets will be
achieved in part due to the location of the Company's principal hubs. Both
Phoenix and Las Vegas are experiencing population growth in excess of national
averages, and these hubs are well situated to benefit from an expanding market
for leisure travel.
Expand Service through Alliances. The Company entered into certain
agreements (the "Alliance Agreements") with Continental and Mesa. Such
agreements provide for code-sharing arrangements and
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coordination of flight schedules and include sharing ticket counter space,
linking in part their frequent flyer programs, and coordinating ground handling
operations. Management believes the Alliance Agreements will contribute
significantly to the Company's growth in revenue passenger miles and operating
results.
Maintain a Cost Effective Fleet. In connection with its Reorganization,
the Company substantially reduced its aircraft fleet, reduced the aircraft types
from five to three and renegotiated lease rates for certain aircraft to fair
market rates. As of December 31, 1994, the Company's fleet consisted of 57
Boeing 737s, 17 Airbus 320s and 13 Boeing 757s, with an average age of
approximately 9.1 years. The fleet enables the Company to achieve low fuel costs
compared to industry averages and to enjoy operational efficiencies due to the
limited number of aircraft types. Current plans provide for increasing the
Company's fleet through the acquisition of additional aircraft of the types
currently operated by the Company.
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,
Ohio. 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 route were served directly.
The Company is the leading airline serving Phoenix Sky Harbor International
Airport with approximately 38% of all enplanements during 1994. In Las Vegas,
the Company is the second largest carrier with approximately 26% of all
enplanements during 1994. In both markets the Company's principal competitor is
Southwest Airlines, which handled approximately 31% and 30% of enplanements in
Phoenix and Las Vegas, respectively, in 1994. America West offers fares
comparable to or below those of its competitors on most routes. America West is
able to use pricing as a part of its strategy because of its ability to provide
service generally comparable to the full service airlines while maintaining a
lower cost structure than these competitors. In selected markets, America West
has chosen not to match Southwest Airlines' fares, but differentiates itself
from Southwest Airlines in these and other markets by providing assigned
seating, interline ticketing, baggage transfer and various other services not
offered by Southwest Airlines.
The Company established a mini-hub at Columbus, Ohio in December 1991. As
of December 31, 1994, the Company provided non-stop jet service to 11
destinations from Columbus. During 1994, the Company enplaned approximately 24%
of the Columbus traffic compared to approximately 23% for USAir, the Company's
principal competitor at Columbus.
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 that
several factors have contributed to the success of its operations in Phoenix and
Las Vegas. First, the rate of population growth in these two cities has exceeded
the national average in recent periods. Second, Phoenix and Las Vegas are
popular vacation destinations and, therefore, benefit from the fact that a
growing percentage of airline travelers are leisure or non-business travelers.
Third, the Company believes that certain costs of operating in Phoenix and Las
Vegas are less than in certain other geographic regions. Finally, these hub
operations allow the Company to serve a number of relatively high density routes
that involve short- and medium-haul service without competing directly in the
more intensely competitive long-haul markets against larger carriers.
Hub operations involve certain inefficiencies that are primarily associated
with the need to maintain terminal resources adequate to deal with periods of
peak demand when numerous aircraft converge at the hub, even though this demand
occurs only a few times per day. As a result, certain carriers have emphasized
or announced intentions to initiate "point-to-point" flights not integrated with
hub operations that can potentially serve specific routes at lower cost than
comparable hub operations. Although the Company continually evaluates its
operating strategy in light of changing market conditions, the Company's current
strategy is to increase utilization of its existing hub facilities by increasing
frequency of service on existing routes served by its hub operations and
identifying selected markets into which the Company can expand utilizing its
existing hub operations. An important part of the Company's strategy involves
code-sharing arrangements with
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regional carriers that serve its hub airports and alliances with major or
foreign carriers that complement the Company's operations.
Regional/Commuter Service. A number of passengers served by the Company
arrive at its hub airports via regional or commuter service airlines that serve
the surrounding areas. These airlines typically utilize turboprop rather than
jet aircraft and focus on flights less than 200 miles in length and 90 minutes
in duration. In order to maximize the number of enplanements of passengers from
these commuter airlines, America West has entered into two code-sharing
agreements with Mesa designed to establish Mesa as a feeder carrier for the
Company at its hubs in Phoenix and Columbus.
Alliance Agreements. The Company entered into certain Alliance Agreements
with Continental and Mesa. The Company and Continental agreed to implement
certain code-sharing arrangements, coordinate certain flight schedules, share
ticket counter space, link in part their frequent flyer programs, and coordinate
ground handling operations for mutual benefit. These arrangements are being
implemented in phases, which commenced in the fourth quarter of 1994. The
Company believes that it will realize substantial benefits from such agreements,
which are intended to increase the number of America West enplanements of
Continental passengers and vice versa. In addition, the Company will be able to
offer its existing customers connections to a greater number of destinations
served by Continental, which may permit the Company to further increase its
market share in its hub markets. With Mesa, America West has entered into two
code-sharing agreements that establish Mesa as a feeder carrier for the Company
at its hubs in Phoenix and Columbus. The code-sharing agreements provide 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. Mesa connects 12 cities to the Company's
Phoenix hub, operates under the name "America West Express" and has begun to
incorporate the color scheme and commercial logo of America West on certain
aircraft utilized on these routes. Mesa serves eight destinations from the
Company's Columbus mini-hub operation. In August 1994, the Company and Mesa
agreed to extend the terms of these code-sharing agreements until 2004.
Commencing in 1995, Mesa will also offer jet service, on a limited basis, under
its code share agreement with the Company, employing Fokker F70 aircraft.
Mexico and Canada. The Company began service from its Phoenix hub to
Mazatlan and Los Cabos, Mexico in December 1994. In addition, in February 1995,
the Company announced that it has received temporary authority from the
Department of Transportation to commence service in May or June 1995 to
Vancouver, British Columbia with two daily non-stop flights from Phoenix.
COMPETITION AND MARKETING
The airline industry is highly competitive and susceptible to price
discounting, and America West must compete on certain routes with carriers that
may be larger and may have substantially greater resources. 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. Generally, the
passenger carrier industry is segmented into markets based on the length of trip
and level of service, including long-haul domestic and international routes,
medium-haul (two to three hours) and short-haul (less than two hours) routes
serviced by jet aircraft, and commuter routes served by turboprop aircraft.
America West services primarily short-haul and medium-haul routes connected to
its hub operations, engages only to a limited extent in long-haul flights, which
are dominated by larger carriers, and does not engage in regional commuter
flights, which are primarily served by smaller non-jet carriers. America West
competes primarily with Southwest Airlines at its Phoenix and Las Vegas hub
operations and with USAir and Delta Airlines at its Columbus mini-hub.
As is the case with other carriers, 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. In early 1995, certain of the major domestic
airlines initiated a program to cap the amount of commissions paid to travel
agents at $50 for domestic round-trip tickets with fares of $500 or more. The
Company is in the process of
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evaluating this commission structure but has not yet adopted such a program.
Airlines often pay additional commissions in connection with special revenue
programs. Federal regulations have been promulgated that are intended to
diminish preferential schedule displays and other 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.
The Company is also preparing to test electronic or paperless ticketing,
which the Company believes would reduce distribution costs. The Company
anticipates implementing a ticketless test program sometime during the second
quarter of 1995.
The Company has implemented certain measures to increase leisure travel
utilizing America West flights. In 1987, the Company developed America West
Vacations, which is a tour packaging division that arranges vacation packages
that include hotel accommodations, air fare and ground transportation in certain
markets. During 1994, this division sold approximately 749,000 room nights, had
approximately 53,250 rental car days, handled approximately 501,400 passengers
and generated approximately $161 million in gross package sales. In 1993, the
Company became the preferred commercial air carrier of the MGM Grand Hotel
Casino and Theme Park ("MGM") in Las Vegas. Pursuant to an agreement with MGM,
America West will develop joint marketing programs that target travel agents and
consumers, which management believes will enhance America West's presence in the
Las Vegas market. America West also is an official airline of Knott's Berry Farm
in Buena Park, California, one of the country's best-known and best-attended
family entertainment parks. The Company sponsors the theme park's America West
Airlines Mystery Lodge, a popular attraction with guests who visit the park.
The Company also has an exclusive arrangement with the Phoenix Suns
professional basketball team pursuant to which the arena in which the team plays
is named "America West Arena," and the Company's name and logo appear throughout
the facility, including on the basketball court. As a result of this
association, the Company receives media exposure during national and local
telecasts of Phoenix Suns basketball games, as well as during other events at
the arena. America West is also the exclusive carrier of the Arizona Cardinals,
the Kansas City Chiefs and the football teams of the University of Southern
California, Arizona State University and The Ohio State University.
FLIGHTFUND
All major 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 and by using
the services of other program participants such as hotels, car rental firms and
other specialty services. FlightFund members are also allowed to earn mileage
credit by flying partner carriers. For example, in 1994, the Company entered
into an Alliance Agreement with Continental that allows FlightFund members to
earn mileage credit on code-share flights. 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.
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FlightFund's current membership is approximately 2.0 million participants.
At December 31, 1994, 1993 and 1992, the Company estimated that approximately
369,000, 238,000 and 238,000 travel awards were expected to be redeemed.
Correspondingly, the Company had an accrued liability of $9.8 million, $7.4
million and $7.3 million for 1994, 1993 and 1992, 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, 1994, 1993 and 1992, was approximately 109,000,
99,000 and 106,000, respectively, representing 2.6%, 2.8% and 3.0% 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.
AIRCRAFT
At December 31, 1994, the Company operated a fleet of 57 Boeing 737s, 17
Airbus A320s and 13 Boeing 757s as follows:
AVERAGE
REMAINING
NUMBER AVERAGE LEASE
AIRCRAFT TYPE STATUS(1) AIRCRAFT AGE (YRS.) TERM (YRS.)
------------------------------------------ ------ -------- ---------- -----------
B737-100.................................. Owned 1 25.3 --
B737-200.................................. Owned 5 15.8 --
B737-200.................................. Leased 17 15.0 5.7
B737-300.................................. Leased 23 7.6 5.5
B737-300.................................. Owned 11 6.2 --
B757-200.................................. Leased 11 8.7 11.0
B757-200.................................. Owned 2 5.3 --
A320...................................... Leased 17 5.0 16.6
--
87 9.1 9.2
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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 April 1995 through September 1998, leases for 20 of the
Company's aircraft are scheduled to terminate (such aircraft are 12 Boeing
B737-300s, six Boeing B737-200s, one Boeing B757-200 and one Airbus A320-200).
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. There are no contractual options to extend
any other of such leases.
In February 1995, the Company leased a B737-300 aircraft for a term of five
years. Additionally, the Company and the lessor have agreed, subject to final
documentation, to enter into lease agreements for two A320-200 aircraft
beginning in the spring of 1995. All of these aircraft will be leased to the
Company under the 1994 Put Agreement discussed below.
Certain of the Company's aircraft lessors have the option to call their
respective aircraft upon adequate notice to the Company (such notice periods
range from 60 to 180 days). Usually, if such call options are exercised, the
Company has the right of first refusal to retain the aircraft by matching the
terms of bona fide third party offers received by the lessors to lease or
purchase such aircraft. None of these options have been exercised. The last of
these call options expires in July 1997. 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. The first round of these resets, involving 11
aircraft, occurred in August 1994. The rentals for seven of these aircraft may
be reset two more times over the remaining lease terms, with the next possible
reset not occurring before August 1996. The call and reset options were granted
to these lessors in exchange for rental reductions and payment deferrals in 1992
and
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1991, respectively. The Company does not believe that the possible exercise of
any or all of these options will have a material effect on its operations.
As a part of the Reorganization, the Company amended a purchase agreement
with AVSA S.A.R.L. ("AVSA") for the acquisition of 24 Airbus A320-200 aircraft
with an aggregate net cost estimated at $1.1 billion. These amendments provide
to the Company reduced prices for and certain options regarding the number and
delivery dates of the aircraft to be acquired under the agreement. The aircraft
are scheduled to be delivered to the Company at the rate of eight per year in
1998, 1999 and 2000. Upon adequate notice to AVSA, the Company may: defer all or
some of the 1998 deliveries to either 2001 or 2002; for every new A320 aircraft
leased to the Company under the 1994 Put Agreement (described below), cancel up
to the number of such leased aircraft (subject to certain conditions); cancel
without cause up to an additional four aircraft; and, with mutual consent,
assign all or some of its delivery positions to Continental. Additionally, AVSA
and the manufacturer of the engines that will power the subject aircraft have
agreed to, if requested by the Company and on its behalf, finance jointly up to
one-half of the aircraft delivered under this agreement, subject to certain
conditions.
In June 1994, the Company entered into a put agreement with a certain
lessor providing the lessor with a right to lease up to eight aircraft to the
Company (the "1994 Put Agreement"). This agreement replaced a similar agreement
with this lessor involving 10 aircraft (none of which were ever leased to the
Company). These aircraft may be new or used B737-300 and B757-200 aircraft (of
which no more than five may be used aircraft) and new or "like new" A320
aircraft. Unless otherwise consented to by the Company, beginning in June 1995
and ending by June 1999, the lessor may, with adequate notice to the Company,
put to the Company up to two aircraft in 1995 and no more than three aircraft
per year thereafter. The rentals for such aircraft will be at the then current
market rates with lease terms ranging from three to 18 years depending on the
type and condition of the aircraft, which will be predetermined by the Company
and the lessor. In connection with the 1994 Put Agreement and for other
consideration, this lessor was paid approximately $30.5 million and issued
certain equity securities by the Company on the Effective Date.
In June 1994, the Company and another lessor cancelled a similar agreement
involving four aircraft. In consideration for such cancellation, the Company
paid the lessor $2.5 million in June 1994 and $2.0 million in August 1994.
In connection with the Plan of Reorganization (the "Plan"), the Company
rejected certain aircraft purchase agreements with The Boeing Company
("Boeing"). As part of this settlement, Boeing retained certain of the Company's
cash purchase deposits that it held under these agreements.
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 $42.3 million for which the Company has provided a $1.5
million security deposit in the form of a letter of credit. Pursuant to a side
letter to an earlier contract with IAE, the Company agreed to purchase from IAE
prior to December 31, 1995, a new or used V2500-A1 engine. However, the Company
expects to, with IAE's consent, acquire an additional "A5" engine in lieu of
this "A1" engine.
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 at December 31, 1994.
The Company also leases approximately 25,000 square feet of additional space at
the airport for administrative offices and pilot training. Since 1988, the
Company has owned 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, Ohio
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mini-hub, the Company leases 30,000 square feet and two gates and has the
ability to sublease additional gates from other airlines as the need arises.
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.
EMPLOYEES
Management believes that the Company's labor force has contributed
significantly to its successful Reorganization. At December 31, 1994, the
Company employed 8,421 full-time and 3,174 part-time employees, the equivalent
of 10,715 full-time employees. During 1994, the Company had 1,685,500 available
seat miles per full-time equivalent employee and 1,141,700 revenue passenger
miles per full-time equivalent employee, based on the number of full-time
equivalent employees at year end.
In January 1995, the Company announced its new compensation program, the
Total Pay Program. This program is designed to provide employees with a pay and
benefits package which is competitive with other low-cost airlines and local
employers. 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. The Total Pay Program is expected to increase non-executive pay by
approximately $25 million annually. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." Concurrent with this new compensation program, the Company announced
that it is in the process of strategically overhauling its work processes which
is anticipated to reduce its workforce by approximately 1,300 employees. The
Company anticipates that the cost savings, including the reduction in workforce,
will be about $40 million in 1995 and $48 million annually thereafter. In
addition, in December 1994, the Board of Directors approved the America West
1994 Incentive Equity Plan which authorizes the grant of various stock,
stock-related and cash awards to employees and non-employee directors of the
Company. Such plan is being submitted for approval by the Company stockholders
at the 1995 Annual Meeting of Stockholders.
In October 1993, the Air Line Pilots Association ("ALPA") was certified by
the National Mediation Board as the bargaining representative of the Company's
flight deck crew members. Formal negotiations commenced in April 1994 and are
continuing. In June 1994, the National Mediation Board accepted the Association
of Flight Attendants' ("AFA") petition to represent the Company's CSRs and in
September 1994, the Company's inflight CSRs voted in favor of AFA representation
and contract negotiations have commenced. In April 1994, the Transportation
Workers Union ("TWU") filed a petition to represent the Company's fleet service
personnel which petition was rejected in December 1994. The International
Brotherhood of Teamsters ("IBT") filed applications to represent the Company's
mechanics including related personnel and the Company's flight simulator
technicians in August and September 1994, respectively. Both of these
applications were rejected in December 1994, and the IBT thereafter withdrew the
pending application with respect to stock clerks. The Company cannot predict the
effect, if any, that a future collective bargaining agreement with ALPA and the
AFA would have on the Company's operations or financial performance.
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
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aircraft in the United States that do not comply with Stage 3 noise levels,
which is the FAA designation for the quietest commercial jets. These regulations
will require carriers to gradually phase out their noisier jets, either
replacing them with quieter Stage 3 jets or equipping them with hush kits to
comply with noise abatement regulations, over a five-year period commencing
December 31, 1994. As of December 31, 1994, approximately 74 percent of America
West's fleet was in compliance with the FAA noise abatement regulations, and the
Company expects that it will meet the thresholds imposed by such regulations
through scheduled retirement of its older 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 2 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 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. Airlines are exempt
from this tax until October 1, 1995. When implemented, this tax will increase
the Company's annual operating expenses by approximately $13 million based upon
its 1994 fuel consumption levels.
PFC Charges. During 1990, Congress enacted legislation to permit airport
authorities, with prior approval from the Department of Transportation (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.
Environmental Matters. The Company is subject to regulation under major
environmental laws administered by state and federal agencies, including the
Clean Air Act, Clean Water Act and Comprehensive Environmental Response
Compensation and Liability Act of 1980. In some locations there are also county
and sanitary sewer district agencies which regulate the Company. The Company
believes that it is in substantial compliance with applicable environmental
regulations.
Aging Aircraft Maintenance. The Federal Aviation Administration (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 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 87 aircraft are currently affected by these aging aircraft ADs and
are in compliance with such ADs. 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 JFK and LaGuardia Airports,
Chicago's O'Hare International Airport and Washington's National Airport, which
have been designated "High Density Airports" by the
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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 JFK airport,
four slots at New York City's LaGuardia airport, four slots at Chicago's O'Hare
airport and six slots at Washington's National airport. Four of the slots at
Washington's National airport are temporary and the Company's right to utilize
such slots expires in December 1995. The average utilization rates by the
Company of all the foregoing slots range from 86% to 100%.
CRAF 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 (the "CRAF Program").
INSURANCE
The Company has arranged a program of insurance of the types and in the
amounts it believes customary in the airline industry, including coverage for
public liability, passenger liability, property damage, aircraft loss or damage,
cargo liability and workers' compensation. The Company believes such insurance
is adequate as to both risks covered and coverage amounts.
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 (the "Effective
Date") after operating as a debtor-in-possession since June 27, 1991, when the
Company filed a voluntary petition to reorganize under Chapter 11 of the
Bankruptcy Code. The U.S. Bankruptcy Court for the District of Arizona (the
"Bankruptcy Court") confirmed the Company's Plan on August 10, 1994. Pursuant to
the Plan, the previously outstanding equity interests in the Company were
canceled as of the Effective Date and new stock was issued. In addition, the
Company's obligations to certain prepetition creditors were restructured and
general unsecured nonpriority prepetition creditors received, in full
satisfaction of their claims, shares of 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, certain indemnification
obligations under contractual obligations assumed by the Company pursuant to the
Plan, 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. With respect to ongoing
indemnity obligations, the Company has been informed
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by one of its aircraft sublessors that it may assert an administrative claim, in
an unspecified amount, as a result of the Internal Revenue Service potentially
disallowing certain tax benefits claimed by the head lessor of certain aircraft
which are subleased to the Company. The Company is unable to predict whether the
Internal Revenue Service will prevail in matters asserted against the head
lessor and whether the Company will incur any liability in connection with such
claims, or the amount of any such liability, if incurred. The Company also
assumed, pursuant to the Plan, indemnification agreements with its former
directors, certain of whom are named as defendants in an Arizona state court
action brought by Stephen D. Clark, on behalf of himself and others similarly
situated (the "Clark Action"). The Plan provided that the Clark Action be
permanently enjoined and dismissed in consideration of the forgiveness by the
Company of debt owed by employees arising under the Company's stock purchase
plan, and on March 8, 1995, the Bankruptcy Court denied a motion filed by Clark
to dissolve a preliminary injunction entered by the Bankruptcy Court in May
1992. The Company is unable to predict whether the Bankruptcy Court's ruling
will be appealed, whether such ruling will be upheld if appealed, or whether the
Company may incur any liability under its indemnification obligations as a
result of the Clark Action. Management cannot predict whether or to what extent
any of the pending administrative and priority tax claims will result in
liabilities to the Company. Should such liabilities be incurred, future
operating results could be adversely affected. Based on information currently
available, however, management believes that the disposition of these matters
will not have a material adverse effect on the Company's financial condition.
In August 1991, the Securities and Exchange Commission (the "Commission")
informally requested that the Company provide the Commission with certain
information and documentation underlying disclosures made by the Company in
annual and quarterly reports filed with the Commission by the Company in 1991.
The Company has cooperated with the Commission's informal inquiry. On March 29,
1994, the Company's Board of Directors approved the submission of an offer of
settlement for the purpose of resolving the inquiry through the entry of a
consent decree pursuant to which the Company would, while neither admitting nor
denying any violation of the securities laws, agree to comply with its future
reporting obligations under Section 13 of the Exchange Act. The Company was
advised on May 6, 1994 that the Commission agreed to accept the Company's offer
of settlement. In order to implement the settlement, on May 12, 1994 the
Commission issued an "Order Instituting Proceedings Pursuant to Section 21C of
the Exchange Act and Opinion and Order of the Commission" (the "Order") finding
the Company's Form 10-K for the year ending December 31, 1990, violated Section
13(a) of the Exchange Act and Rule 13a-1 thereunder, and that the Company's Form
10-Q for the first quarter of 1991 violated Section 13(a) of the Exchange Act
and Rule 13a-13 thereunder, and ordered that the Company cease and desist from
violating Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13
promulgated under the Exchange Act. The Order provides that the Company neither
admits nor denies any violation of the securities laws.
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 who are not
continuing directors or nominees. Information with respect to the executive
officers of the Company who are continuing directors or nominees is set forth in
Item 10 of this Report.
THOMAS F. DERIEG -- Age 54. 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.
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JOHN R. GAREL -- Age 35. Senior Vice President -- Marketing and Sales. Mr.
Garel agreed to join the Company in March 1995 and begins work 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.
ROBERT S. NICHOLS, JR. -- Age 50. Senior Vice President -- Customer
Service. Mr. Nichols agreed to join the Company in February 1995 and begins work
in April 1995. Before joining the Company, Mr. Nichols spent 27 years with
Marriott Hotels, Resorts & Suites. From 1991 until 1994 Mr. Nichols held the
position of Senior Vice President, Total Quality Management. From 1984 to 1991
Mr. Nichols served as Regional Vice President from 1982 to 1984 as Vice
President, Human Resources Development and before that in a number of other
positions with Marriott.
MICHAEL A. VESCUSO -- Age 49. 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 development consultant. From 1990 to
1992 he was the Director, Organization and Development of Frito-Lay, Inc. From
1978 to 1990, he held several senior management positions at HBJ, Inc.,
including the position of human resources officer.
MARTIN J. WHALEN -- Age 54. Senior Vice President -- Corporate Affairs. Mr.
Whalen joined the Company in July 1986 and served as Senior Vice
President -- Administration and General Counsel until February 1995. From 1980
until July 1986, Mr. Whalen was employed by McDonnell Douglas Helicopter Company
and its predecessors, most recently as Vice President of Administration. He also
held positions in labor relations, personnel and legal affairs at Hughes Airwest
and Eastern Airlines.
C.A. HOWLETT -- Age 51. 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 & 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.
STEPHEN L. JOHNSON -- Age 38. 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 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.
RAYMOND T. NAKANO -- Age 49. Vice President and Controller. Mr. Nakano
joined the Company in June 1983 and has served as Vice President and Controller
since April 1985. Prior to such time, Mr. Nakano was employed by Continental
Airlines for eight years in various accounting positions, most recently as
Senior Director, General Accounting.
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 Class B Common Stock, par value $.01
per share (the "Class B Common Stock") has been traded on the New York Stock
Exchange ("NYSE") under the symbol "AWA" since August 26, 1994, the day
following America West's emergence from bankruptcy. The following table sets
forth the high and low
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closing sales prices of the Class B Common Stock for the third and fourth
quarters of 1994 as reported on the NYSE Composite Tape:
HIGH LOW
---- ---
Third Quarter 1994......................................... 15 1/8 12 3/8
Fourth Quarter 1994........................................ 13 6 3/4
As of March 17, 1995, there were 5 record holders of Class A Common Stock
and 32,843 record holders of Class B Common Stock. Cash dividends have not been
paid on the Class A or the Class B Common Stock. Various agreements between the
Company and certain of its lenders restrict the ability of the Company to pay
cash dividends. The Company does not expect to pay dividends in the foreseeable
future.
Pursuant to the Reorganization, pre-existing equity interests of the
Company were cancelled, the Company's obligations to certain prepetition
creditors were restructured and general unsecured nonpriority prepetition
creditors have received or will receive, in full satisfaction of their claims,
their pro rata share of approximately 26,053,185 shares of Class B Common Stock
and $6,416,214 in cash. As of March 17, 1995, approximately 22.5 million of
these shares have been distributed to creditors and approximately 3.5 million
remain held in reserve for distribution in the settlement of remaining claims.
Holders of the Company's pre-existing common equity interests received, on a pro
rata basis, 2,250,000 shares of Class B Common Stock and warrants to purchase
6,230,769 shares of Class B Common Stock. In addition, pursuant to the exercise
of subscription rights, holders of pre-existing equity interests received
1,615,179 shares of Class B Common Stock for an aggregate purchase price of
$14,357,326 ($8.889 per share), including holders of pre-existing preferred
equity interests who received 125,000 shares of Class B Common Stock for an
aggregate purchase price of $1,111,125.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The selected data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" for, and as of the period August 26,
1994 to December 31, 1994, the period January 1, 1994 to August 25, 1994, and
each of the years in the four-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,
the related notes and the independent auditors' report. The independent
auditors' report for the period August 26, 1994 to December 31, 1994, the period
January 1, 1994 to August 25, 1994, and as of December 31, 1994 contains an
explanatory paragraph that states 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 than
those of the Predecessor Company and, therefore, are not comparable in all
respects. As a result of the Company filing 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.
PREDECESSOR COMPANY
REORGANIZED --------------------------------------------------------------
COMPANY PERIOD
------------ FROM
PERIOD FROM JANUARY 1
AUGUST 26 TO TO YEARS ENDED DECEMBER 31,
DECEMBER 31, AUGUST 25, -------------------------------------------------
1994 1994 1993 1992 1991 1990
------------ ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
STATEMENTS OF OPERATIONS DATA:
Operating revenues.......................... $ 469,766 $ 939,028 $1,325,364 $1,294,140 $1,413,925 $1,315,804
Operating expenses.......................... 430,895 831,522 1,204,310 1,368,952 1,518,582 1,347,435
Operating income (loss)..................... 38,871 107,506 121,054 (74,812) (104,657) (31,631)
Income (loss) before income taxes and
extraordinary items....................... 19,736 (201,209 ) 37,924 (131,761) (222,016) (76,695)
Income taxes................................ 11,890 2,059 759 -- -- --
Income (loss) before extraordinary items.... 7,846 (203,268 ) 37,165 (131,761) (222,016) (76,695)
Extraordinary items (a)..................... -- 257,660 -- -- -- 2,024
Net Income (loss)........................... 7,846 54,392 37,165 (131,761) (222,016) (74,671)
Earnings (loss) per share: (b)
Primary:
Before extraordinary items.............. .17 (7.03 ) 1.50 (5.58) (10.39) (4.26)
Extraordinary items (a)................. -- 9.02 -- -- -- 0.11
Net income (loss)....................... .17 1.99 1.50 (5.58) (10.39) (4.15)
Fully diluted:
Before extraordinary items.............. .17 (4.96 ) 1.04 (5.58) (10.39) (4.26)
Extraordinary items (a)................. -- 6.37 -- -- -- 0.11
Net income (loss)....................... .17 1.41 1.04 (5.58) (10.39) (4.15)
Shares used for computation
Primary................................... 45,127 28,550 27,525 23,914 21,534 18,396
Fully diluted............................. 45,127 40,452 41,509 23,914 21,534 18,396
BALANCE SHEET DATA:
Working capital deficiency.................. $ (47,927) $ (124,375) $ (201,567) $ (51,158) $ (94,671)
Total assets................................ 1,545,092 1,016,743 1,036,441 1,111,144 1,165,256
Long-term debt, less current maturities
(c)....................................... 465,598 620,992 647,015 726,514 620,701
Total stockholders' equity (deficiency)..... 595,446 (254,262) (294,613) (166,510) 21,141
---------------
(a) Includes extraordinary items of $257.7 million in 1994 resulting from the
discharge of indebtedness pursuant to the consummation of the Plan of
Reorganization and, $2.0 million in 1990, resulting from the purchase and
retirement of convertible subordinated debentures.
(b) Historical per share data for the Predecessor Company is not meaningful
since the Company has been recapitalized and has adopted fresh start
reporting as of August 25, 1994.
(c) Includes certain balances reported as "Estimated Liabilities Subject to
Chapter 11 Proceedings" for the Predecessor Company.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
America West Airlines, Inc. (the "Predecessor Company") filed a voluntary
petition to reorganize under Chapter 11 of the Federal Bankruptcy Code on June
27, 1991. On August 10, 1994, the Plan of Reorganization filed by the
Predecessor Company was confirmed by the Bankruptcy Court and became effective
August 25, 1994 (the "Effective Date"). On August 26, 1994, America West
Airlines, Inc. (the "Reorganized Company" or the "Company") emerged from
bankruptcy and adopted fresh start reporting. For further information regarding
the Plan of Reorganization, see Item 8. Financial Statements and Supplementary
Data -- Note 1 of Notes to Financial Statements.
IMPACT OF FRESH START REPORTING ON RESULTS OF OPERATIONS
In connection with its emergence from bankruptcy, the Company adopted fresh
start reporting in accordance with Statement of Position 90-7 of the American
Institute of Certified Public Accountants ("Statement 90-7"). Under fresh start
reporting, the reorganization value of the Company has been allocated to its
assets and liabilities on a basis substantially consistent with purchase
accounting. The portion of reorganization value not attributable to specific
tangible assets has been recorded as "Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets". Certain fresh start reporting adjustments,
primarily related to the adjustment of the Company's assets and liabilities to
fair market values, will have a significant effect on the Company's future
statements of operations. The more significant adjustments relate to reduced
depreciation expense on property and equipment, increased amortization expense
relating to reorganization value in excess of amounts allocable to identifiable
assets, increased interest expense and reduced aircraft rent expense.
INDUSTRY CONDITIONS AND COMPETITION
The airline industry is highly competitive and susceptible to price
discounting, and the Company must compete with carriers that are much larger and
have substantially greater resources. The entry of additional carriers on the
Company's routes (as well as increased competition from or the introduction of
new services by established carriers) could negatively impact the Company's
results of operations. In 1994, United Airlines introduced its "Shuttle by
United" service in certain markets served by the Company in the Western U.S.
Currently, approximately 4% of the available seat miles flown by the Company are
subject to this new competition from United, which although not significant in
the context of the Company's entire route system, has exerted some pressure on
the load factor and yield realized by the Company. With respect to 1995, certain
competitors have announced changes to their route schedules which have sharply
limited or entirely eliminated service which had competed with that provided by
the Company. Most significantly affected were certain Midwestern cities
connecting to Phoenix and Las Vegas and the Los Angeles area airports connecting
to Phoenix.
As is the case with other carriers, 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. In early 1995, certain of the major domestic
airlines initiated a program to cap the amount of commissions paid to travel
agents at $50 for domestic round-trip tickets with fares of $500 or more. The
Company is in the process of evaluating this commission structure but has not
yet adopted such a program. Airlines often pay additional commissions in
connection with special revenue programs. Federal regulations have been
promulgated that are intended to diminish preferential schedule displays and
other 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.
The Company is also preparing to test electronic or paperless ticketing,
which the Company believes would reduce distribution costs. The Company
anticipates implementing a ticketless test program sometime during the second
quarter of 1995.
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RESULTS OF OPERATIONS
The following discussion provides an analysis of the Company's results of
operations and reasons for material changes therein for the periods August 26,
1994 to December 31, 1994, January 1, 1994 to August 25, 1994 and the two-years
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.
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 and a net loss of $131.8
million for 1992. 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. During 1992,
the Company recorded restructuring charges of $31.3 million, reorganization
expenses of $16.2 million and a gain of $15 million from the sale of its
Honolulu to Nagoya, Japan route.
Total operating revenues were $1.409 billion on a combined basis for 1994,
an increase of 6.3 percent compared to the prior year and 8.9 percent greater
than 1992. Passenger revenues for 1994, 1993 and 1992 were $1.320 billion on a
combined basis, $1.247 billion and $1.215 billion, respectively. Summarized
below are certain capacity and traffic statistics for the years ended December
31, 1994, 1993 and 1992.
1994
PERCENT
CHANGE TO
-----------
1994 1993 1992 1993 1992
------ ------ ------ ---- ----
Aircraft (end of period).................................. 87 85 87 2.4 --
Available seat miles (in millions)........................ 18,060 17,190 19,271 5.1 (6.3)
Revenue passenger miles (in millions)..................... 12,233 11,221 11,781 9.0 3.8
Load factor (percent)..................................... 67.7 65.3 61.1 3.7 10.8
Passenger enplanements (in thousands)..................... 15,669 14,740 15,173 6.3 3.3
Average passenger journey miles........................... 979 970 990 .9 (1.1)
Average stage length...................................... 676 645 631 4.8 7.1
Yield per revenue passenger mile (cents).................. 10.79 11.11 10.31 (2.9) 4.7
Revenue per available seat mile:
Passenger (cents)....................................... 7.31 7.25 6.30 .8 16.0
Total (cents)........................................... 7.80 7.71 6.72 1.2 16.1
Average daily aircraft utilization (hours)................ 11.19 10.69 10.47 4.7 6.9
Passenger revenue per available seat mile increased slightly in 1994
compared to 1993 as the increase in load factor period over period was largely
offset by a decline in average passenger yields. The increase in passenger
revenue per available seat mile in 1994 compared to 1992, was due to
improvements in both load factor and yield. The passenger revenue increases
realized in 1994 reflect a continuation of trends which commenced in 1993
relative to:
- An improved economic climate;
- Elimination of "fare simplification" and a non-recurrence of
industry-wide 50 percent-off sales which occurred in the second and
third quarters of 1992; and
- A stable fleet size for virtually all of 1994. The Company added two
aircraft in mid-December 1994 which increased the fleet size to 87
aircraft.
With the exception of the two aircraft deliveries late in 1994, the Company
operated an 85 aircraft fleet and realized increases in capacity over 1993 as
measured by available seat miles 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.
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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 have carried over to
the first quarter of 1995, has been softer traffic than was experienced in the
prior year and generally lower yield levels. To address these conditions, the
Company has announced certain fare initiatives of its own, and has selectively
matched fare increases initiated by other carriers, where appropriate.
Revenues from sources other than passenger fares increased to $88.9 million
on a combined basis for 1994 compared to $78.8 million and $79.3 million for
1993 and 1992, respectively. Cargo revenues comprised 49.8 percent, or $44.3
million of other revenues on a combined basis for 1994. For the years 1994, 1993
and 1992, the Company carried 129.6 million, 110.7 million and 116.4 million
pounds of freight and mail, respectively. The balance of other revenues includes
revenues generated from: pilot training; contract services provided to other
airlines for maintenance and ground handling; reduced rate fares; alcoholic
beverage sales and headset rentals and service charges assessed for refunds,
reissues and prepaid ticket advices.
In spite of significant reductions in capacity which have occurred since
1991, operating expense per available seat mile declined to 6.99 cents for 1994
from 7.01 cents for 1993 and 7.10 cents for 1992. The table below sets forth the
major categories of operating expense per available seat mile for 1994, 1993 and
1992.
1994 PERCENT
(IN CENTS) CHANGE TO
----------------------- --------------
1994 1993 1992 1993 1992
----- ----- ----- ---- -----
Salaries and related costs........................... 1.83 1.78 1.68 2.8 8.9
Rentals and landing fees............................. 1.47 1.60 1.76 (8.1) (16.5)
Aircraft fuel........................................ .88 .97 .97 (9.3) (9.3)
Agency commissions................................... .64 .62 .55 3.2 16.4
Aircraft maintenance materials and repairs........... .25 .18 .20 38.9 25.0
Depreciation and amortization........................ .47 .48 .45 (2.1) 4.4
Restructuring charges................................ -- -- .16 -- --
Other................................................ 1.45 1.38 1.33 5.1 9.0
----- ----- ----- ---- -----
6.99 7.01 7.10 (.3) (1.5)
==== ==== ==== ==== =====
The changes in the components of operating expense per available seat mile
are explained as follows:
- The increase in 1994 salaries and related costs compared to 1993 is a
result of an increase in capacity as well as the implementation of the
Moving Forward Pay Program in the second quarter of 1994. Effective April
1, 1994, employee base wages were increased between two percent to eight
percent, depending on the employee's length of service with the Company.
Each employee whose anniversary date occurred between April and December
also received an additional increase of four percent on such anniversary
date, with certain exceptions. Also effective April 1, 1994, the Company
increased its matching contribution to 50 percent of the first six
percent contributed by employees under the Company's 401(k) plan. The
effect of these changes was to increase Salaries and Related Costs in
1994 by approximately $18 million. The Moving Forward Pay Program
replaced the Transition Pay Program which commenced in the second quarter
of 1993 and terminated at the end of the first quarter of 1994. Under the
Transition Pay Program, performance award distributions totaling $6.5
million, including applicable payroll taxes, were made in 1993 upon the
Company meeting or exceeding certain operating income targets. In
addition, commencing in the third quarter of 1993, employee award
distributions based on the greater of .5 percent of an employee's annual
base wage or $125 were made on a quarterly basis. Such payments totaled
$2.6 million, including applicable payroll taxes. In the first quarter of
1994, approximately $3.3 million in distributions were made prior to the
termination of the Transition Pay Program.
- Rentals and landing fees decreased in 1994 compared to 1993 and 1992 for
the following reasons:
- The Company generated more ASMs in 1994 with essentially the same
sized aircraft fleet as in 1993 which, in turn, caused the rate per
ASM to decrease;
16
19
- Rent reductions were obtained at New York's JFK and Phoenix's Sky
Harbor International Airports;
- Rent expense for aircraft leases were reduced to reflect fair market
rates in August 1994 under fresh start reporting; and
- Certain administrative office space was vacated as part of the
Company's facilities consolidation program.
- Aircraft fuel expense decreased year over year due to the decline in the
average price per gallon to 54.89 cents from 61.05 cents for 1993 and
62.70 cents for 1992.
- Agency commission expense increased in 1994 in comparison to 1993 and
1992 as a result of the increase in passenger revenue per available seat
mile. 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 repair expense increased in 1994 as
the result of an increase in average daily utilization of the fleet to
11.19 hours per day in 1994 from 10.69 hours and 10.47 hours for 1993 and
1992, respectively. This higher level of utilization resulted in
increases in line maintenance materials usage, engine repairs and
component repairs.
- Depreciation and amortization expense decreased slightly in 1994 compared
to 1993 as the result of a decrease in depreciation expense arising from
the re-valuation 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.
Depreciation and amortization expense was higher in 1993 than in 1992
largely as the result of increased heavy engine overhauls.
- Restructuring charges incurred in 1992 consisted of the following:
(IN MILLIONS)
-------------
Write-off for certain assets related to station closures or
route restructuring........................................ $ 9.5
Provision for spare parts for aircraft types no longer in
service.................................................... 12.7
Provision for employee severance............................. 2.3
Loss on return of aircraft................................... 6.8
------
$31.3
=========
The restructuring charges were necessitated by aircraft fleet reductions
and other operational changes. The Company reduced its fleet to 87
aircraft at the end of 1992 as well as eliminated two of five aircraft
types it operated. Additionally, the number of employees was reduced by
approximately 1,500 employees and service was terminated to ten cities
through the end of 1992.
- The increase in other operating expense for 1994 compared to 1993 and
1992 is due to increased advertising costs and other expenses related to
increased passenger traffic such as credit card discount fees, booking
fees, catering expenses and supplies.
Nonoperating expenses (net of nonoperating income) for 1994, 1993 and 1992
were $327.9 million on a combined basis, $83.1 million and $56.9 million,
respectively. Interest expense increased to $56.6 million in 1994 compared to
$54.2 million in 1993 and $55.8 million in 1992. The increase in interest
expense is primarily the result of the issuance of $123 million of 11 1/4%
Senior Unsecured Notes in connection with the Company's emergence from
bankruptcy protection. In conformity with Statement 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 for 1994, 1993 and 1992 would have been
$67.3 million, $73.0 million and $73.9 million, respectively. The Company
incurred expenses of $273.7 million in 1994, $25 million in 1993 and $16.2
million in connection with its
17
20
efforts to reorganize under Chapter 11. See Item 8. Financial Statements and
Supplementary Data -- Note 1 of Notes to Financial Statements for further
discussion with respect to reorganization.
In connection with its emergence from bankruptcy, the Company entered into
an Alliance Agreement with Continental Airlines which became effective October
1, 1994. On that date, the two airlines began joint marketing of certain
flights, known as code-sharing, which increased the number of destinations that
each carrier serves. Supporting the code-share agreement are programs to
coordinate scheduling and to facilitate customer service through expedited
interline baggage transfers. The agreement offers members of the airlines'
frequent flyer plans new opportunities for mileage accrual as well as shared use
of select membership airport lounges. In addition, the airlines are exploring
opportunities to provide ground support to one another on a select basis in
different cities in which operating efficiencies may be realized.
In September 1994, the Company announced that its flight attendants voted
in favor of collective bargaining representation by the Association of Flight
Attendants (AFA). Negotiations are underway with both the AFA and the Airline
Pilots Association (ALPA), the collective bargaining agent elected to represent
the Company's pilots. The Company is unable to estimate at this time the impact,
if any, that such initial collective bargaining agreements may have on its
operating expenses. During 1994, efforts to unionize the Company's technicians
and fleet services and commissary employees were rejected by those employee
groups. At December 31, 1994, no other employee work group had scheduled or
requested elections seeking to unionize.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1994, the Company had a working capital deficiency of $47.9
million. The 1994 working capital deficiency decreased from the 1993 deficiency
of $124.4 million as the result of improved profitability, year over year, as
well as the investments made and the financial reorganization which accompanied
the Company's emergence from Chapter 11 protection. On the Effective Date, the
Company received $205.3 million in consideration for the issuance of securities
by the Company consisting of common stock and $100 million principal amount of
11 1/4% Senior Unsecured Notes, due September 1, 2001. In addition, the Company
fully repaid in cash $77.6 million of D.I.P. financing and a $62.7 million
priority term loan. As of December 31, 1994, unrestricted cash and cash
equivalents have increased to $182.6 million from $99.6 million at December 31,
1993 and current maturities of long-term debt have been reduced to $65.2 million
as of December 31, 1994 compared to $125.3 million at December 31, 1993.
Long-term debt, less current maturities has increased to $465.6 million as of
December 31, 1994 compared to $396.4 million at December 31, 1993 as a result of
the issuance of $123 million of 11 1/4% Senior Unsecured Notes of which $23
million were issued to settle certain prepetition claims pursuant to letter
agreements in conjunction with the Company's emergence from bankruptcy.
Stockholders' equity has increased to $595.4 million as of December 31, 1994
compared to a deficit of $254.3 million at December 31, 1993. Net cash provided
by operating activities decreased to $140.1 million on a combined basis for 1994
compared to $153.4 million for 1993 and $76.7 million for 1992. During 1994, the
Company incurred capital expenditures of $75.9 million, which largely consisted
of aircraft modifications and heavy airframe and engine overhauls, compared to
capital expenditures of $54.3 million for 1993.
Effective April 1, 1994, employee base wages were increased between two
percent to eight percent depending on the employee's length of service with the
Company. Generally, each employee whose anniversary date occurs between April
and December 1994 also received an additional increase in base salary on such
date approximating four percent with certain exceptions. The Chairman of the
Board and the President did not participate in the salary increase program. Due
to the current collective bargaining process with the representatives of the
pilots, increase in pilots' salaries were not fully paid but were accrued. The
final distribution, if any, of such potential increase in pilots' salaries will
be determined through the collective bargaining discussions.
Effective April 1, 1994 matching contributions by the Company under the
America West 401(k) Plan were increased from 25 percent to 50 percent of the
first six percent contributed by the employees, subject to
18
21
certain limitations. This increase restores the Company's matching contribution
to the level that existed prior to the Chapter 11 filing.
On January 1, 1995, the Total Pay Program became effective. The program is
designed to provide employees with a pay and benefits package which is
competitive with other low-cost airlines and local employers. In addition,
performance awards of up to 25% of base pay will be made to employees if
annually established operating income targets are attained. The Total Pay
Program is anticipated to increase non-executive pay by approximately $25
million annually. Concurrent with the announcement of the Total Pay Program, the
Company announced a strategic restructuring program. In an overhaul of its work
processes, the Company anticipates a reduction in 1995 operating expenses of
approximately $40 million by focusing on core operations while streamlining,
outsourcing or eliminating less essential support work. This process is expected
to reduce the Company's workforce by approximately 1,300 employees. In
connection with this process, the Company announced plans in January 1995 to
close its reservations center in Colorado Springs, Colorado and to consolidate
those activities into the Company's three remaining reservations centers. At
December 31, 1994, the Company has provided for $2 million of severance and
other costs in connection with these strategic restructuring efforts.
At December 31, 1994, the Company had net operating loss ("NOL") and
general business tax credit carryforwards of approximately $557.9 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 entails 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
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 NOL carryforwards, subject to certain
limitations) of the Predecessor Company that serve to reduce the Company's
actual income tax liability. To the extent the tax attributes of the Predecessor
Company reduce the Company's actual income tax liability below the amount of
expense reflected in the financial statements, that difference is applied to
reduce the carrying balance of the Company's Reorganization Value in Excess of
Amounts Allocable to Identifiable Assets.
At December 31, 1994, the Company had on order a total of 24 Airbus
A320-200 aircraft, with an aggregate net cost estimated at $1.1 billion.
Delivery dates of the aircraft will fall in the years 1998 through 2000 with an
option to defer the 1998 deliveries. If new A320 aircraft are delivered as a
result of a renegotiated put agreement (described below), the Company will have
the right to cancel on a one-for-one basis, up to a maximum of eight
non-consecutive aircraft deliveries hereunder, subject to certain conditions.
Additionally, the Company has the option to cancel, without cause, up to an
additional four aircraft, and the Company has the right to assign all or some of
these delivery positions to Continental.
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 $42.3 million for which the Company has provided a $1.5
million security deposit in the form of a letter of credit. Pursuant to a side
letter to an earlier contract with IAE, the Company agreed to purchase from IAE
19
22
prior to December 31, 1995, a new or used V2500-A1 engine. However, the Company
expects to, with IAE's consent, acquire an additional "A5" engine in lieu of
this "A1" engine.
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.
(IN THOUSANDS)
1995........................................................... $ 3,223
1996........................................................... 32,608
1997........................................................... 58,230
1998........................................................... 379,309
1999........................................................... 355,540
2000........................................................... 350,863
--------------
$1,179,773
===========
At December 31, 1994, the Company has significant capital commitments for a
number of new aircraft, as discussed above. Although the Company has arranged
for financing for up to one-half of the commitment to AVSA, the Company will
require substantial capital from external sources to meet its 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.
At December 31, 1994, the Company had a put agreement for eight aircraft
with deliveries to start no earlier than June 30, 1995 and end on 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 1995, and with respect to each ensuing year during the put period,
of no more than three aircraft. In addition, no more than five used aircraft may
be put to the Company, and for every new A320 aircraft put to the Company, the
Company has the right to reduce deliveries under the AVSA A320 purchase contract
on a one-for-one basis. During each January of the put period, the Company will
negotiate the type and delivery dates of the put aircraft for that year. The
puts will require a 150-day notice and will be leased at fair market rates for
terms ranging from three to eighteen years, depending on the type and condition
of the aircraft. In 1995, three aircraft (one used B737-300 in February and two
new A320-200s in April) will be delivered to the Company under this agreement.
As part of the agreement, certain cash payments and securities were issued to
the put holder pursuant to the Plan. See Item 8. Financial Statements and
Supplementary Data -- Note 13 of Notes to Financial Statements.
Within the period of January 1, 1995 to December 31, 2000, the Company has
23 aircraft whose lease arrangements are due to expire, 11 of which may be
extended at the option of the lessor. Given this situation and the other
aircraft commitments discussed above, the Company has the flexibility to expand
or contract its fleet as business conditions warrant.
In June 1994, the Company reached a settlement for the cancellation of the
right of a former D.I.P. lender to put four aircraft to the Company. The
settlement called for cash payments of $4.5 million, of which $2.5 million was
paid in June 1994 and $2.0 million was paid on the Effective Date.
The Company had certain aircraft purchase contracts with Boeing. In
connection with the Plan, the Company reached a settlement in which the purchase
contracts were rejected and equipment purchase deposits were kept by Boeing in
full settlement of the rejection damages.
During 1995, leases relating to two Boeing 737-200 aircraft, one Airbus
A320 aircraft and two Boeing 737-300 aircraft are scheduled to expire. The
Company anticipates extending the leases for all of these aircraft with the
exception of the Airbus A320.
20
23
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, 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Balance sheets of the Company as of December 31, 1994 and 1993, and the
related statements of operations, cash flows and stockholder's equity
(deficiency) for the period August 26, 1994 to December 31, 1994, the period
January 1, 1994 to August 25, 1994 and for each of the years in the two-year
period 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. Other required financial information and schedules
are set forth herein, as more fully described in Item 14 hereof.
21
24
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, 1994 and 1993, and the related statements of operations,
cash flows and stockholders' equity (deficiency) for the period August 26, 1994
to December 31, 1994, the period January 1, 1994 to August 25, 1994, and for
each of the years in the two-year period 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 assurances 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, 1994 and 1993, and the results of its operations and its cash
flows for the period August 26, 1994 to December 31, 1994, the period January 1,
1994 to August 25, 1994, and for each of the years in the two-year period ended
December 31, 1993 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 2 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 than those of the Predecessor Company and, therefore, are not
comparable in all respects.
KPMG Peat Marwick LLP
Phoenix, Arizona
February 24, 1995
22
25
AMERICA WEST AIRLINES, INC.
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS EXCEPT SHARE DATA)
REORGANIZED PREDECESSOR
COMPANY COMPANY
----------- -----------
1994 1993
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents............................................................. $ 182,581 $ 99,631
Accounts receivable, less allowance for doubtful accounts of $3,531 in 1994 and $3,030
in 1993............................................................................. 57,474 65,744
Expendable spare parts and supplies, less allowance for obsolescence of $483 in 1994
and $7,231
in 1993............................................................................. 24,179 28,111
Prepaid expenses...................................................................... 29,284 34,939
----------- -----------
Total current assets............................................................ 293,518 228,425
----------- -----------
Property and equipment:
Flight equipment...................................................................... 452,177 872,104
Other property and equipment.......................................................... 92,169 180,607
----------- -----------
544,346 1,052,711
Less accumulated depreciation and amortization........................................ 15,882 385,776
----------- -----------
528,464 666,935
Equipment purchase deposits........................................................... 26,074 51,836
----------- -----------
554,538 718,771
----------- -----------
Restricted cash......................................................................... 28,578 46,296
Reorganization value in excess of amounts allocable to identifiable assets, net......... 645,703 --
Other assets, net....................................................................... 22,755 23,251
----------- -----------
$1,545,092 $1,016,743
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current maturities of long-term debt.................................................. $ 65,198 $ 125,271
Accounts payable...................................................................... 77,569 62,957
Air traffic liability................................................................. 127,356 118,479
Accrued compensation and vacation benefits............................................ 15,776 11,704
Accrued interest...................................................................... 13,109 8,295
Accrued taxes......................................................................... 27,061 14,114
Other accrued liabilities............................................................. 15,376 11,980
----------- -----------
Total current liabilities....................................................... 341,445 352,800
----------- -----------
Estimated liabilities subject to Chapter 11 proceedings................................. -- 381,114
Long-term debt, less current maturities................................................. 465,598 396,350
Manufacturers' and deferred credits..................................................... 116,882 73,592
Other liabilities....................................................................... 25,721 67,149
Commitments and contingencies
Stockholders' equity (deficiency):
Preferred stock, $.01 par value. Authorized 48,800,000 shares; no shares issued at
December 31, 1994................................................................... -- --
Class A common stock, $.01 par value. Authorized 1,200,000 shares; issued and
outstanding 1,200,000 shares at December 31, 1994................................... 12 --
Class B common stock, $.01 par value. Authorized 100,000,000 shares; issued and
outstanding
43,936,272 shares at December 31, 1994.............................................. 439 --
Preferred stock, $.25 par value. Authorized 50,000,000 shares; Series C 9.75%
convertible preferred stock, issued and outstanding 73,099 shares at December 31,
1993; $1.33 per share cumulative dividend........................................... -- 18
Common stock, $.25 par value. Authorized 90,000,000 shares; issued and outstanding
25,291,102 at December 31, 1993..................................................... -- 6,323
Additional paid-in capital............................................................ 587,149 197,010
Retained earnings (deficit)........................................................... 7,846 (438,626 )
----------- -----------
595,446 (235,275 )
Less deferred compensation and notes receivable -- employee stock purchase plans...... -- 18,987
----------- -----------
Total stockholders' equity (deficiency)......................................... 595,446 (254,262 )
----------- -----------
$1,545,092 $1,016,743
=========== ==========
See accompanying notes to financial statements.
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26
AMERICA WEST AIRLINES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
REORGANIZED PREDECESSOR COMPANY
COMPANY -----------------------------------------
------------- PERIOD FROM
PERIOD FROM JANUARY 1 YEARS ENDED DECEMBER 31,
AUGUST 26 TO TO
DECEMBER 31, AUGUST 25, -------------------------
1994 1994 1993 1992
------------- ----------- ---------- ----------
Operating revenues:
Passenger................................................ $ 437,775 $ 882,140 $1,246,564 $1,214,816
Cargo.................................................... 16,648 27,645 40,161 42,077
Other.................................................... 15,343 29,243 38,639 37,247
------------- ----------- ---------- ----------
Total operating revenues............................. 469,766 939,028 1,325,364 1,294,140
------------- ----------- ---------- ----------
Operating expenses:
Salaries and related costs............................... 117,562 213,722 305,429 324,255
Rentals and landing fees................................. 90,822 173,710 274,708 338,391
Aircraft fuel............................................ 58,165 100,646 166,313 186,042
Agency commissions....................................... 37,265 78,988 106,368 106,661
Aircraft maintenance materials and repairs............... 17,590 28,109 31,000 38,366
Depreciation and amortization............................ 26,684 56,694 81,894 86,981
Restructuring charges.................................... -- -- -- 31,316
Other.................................................... 82,807 179,653 238,598 256,940
------------- ----------- ---------- ----------
Total operating expenses............................. 430,895 831,522 1,204,310 1,368,952
------------- ----------- ---------- ----------
Operating income (loss).............................. 38,871 107,506 121,054 (74,812)
------------- ----------- ---------- ----------
Nonoperating income (expenses):
Interest income.......................................... 3,834 470 728 1,418
Interest expense (contractual interest of $44,747,
$72,961 and $73,931 for the periods ended August 25,
1994, and December 31, 1993 and 1992, respectively).... (22,636) (33,998) (54,192) (55,826)
Loss on disposition of property and equipment............ (398) (1,659) (4,562) (1,283)
Reorganization expense, net.............................. -- (273,659) (25,015) (16,216)
Other, net............................................... 65 131 (89) 14,958
------------- ----------- ---------- ----------
Total nonoperating expenses, net..................... (19,135) (308,715) (83,130) (56,949)
------------- ----------- ---------- ----------
Income (loss) before income taxes and extraordinary
item............................................... 19,736 (201,209) 37,924 (131,761)
------------- ----------- ---------- ----------
Income taxes............................................... 11,890 2,059 759 --
------------- ----------- ---------- ----------
Income (loss) before extraordinary item.............. 7,846 (203,268) 37,165 (131,761)
------------- ----------- ---------- ----------
Extraordinary gain on elimination of debt.................. -- 257,660 -- --
------------- ----------- ---------- ----------
Net income (loss).................................... $ 7,846 $ 54,392 $ 37,165 $ (131,761)
============= =========== ========= =========
Earnings (loss) per share:
Primary:
Income (loss) before extraordinary item................ $ .17 $ (7.03) $ 1.50 $ (5.58)
Extraordinary item..................................... -- 9.02 -- --
------------- ----------- ---------- ----------
Net income (loss).................................... $ .17 $ 1.99 $ 1.50 $ (5.58)
============= =========== ========= =========
Fully Diluted:
Income (loss) before extraordinary item................ $ .17 $ (4.96) $ 1.04 $ (5.58)
Extraordinary item..................................... -- 6.37 -- --
------------- ----------- ---------- ----------
Net income (loss).................................... $ .17 $ 1.41 $ 1.04 $ (5.58)
============= =========== ========= =========
Shares used for computation:
Primary.................................................. 45,127 28,550 27,525 23,914
============= =========== ========= =========
Fully diluted............................................ 45,127 40,452 41,509 23,914
============= =========== ========= =========
See accompanying notes to financial statements.
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27
AMERICA WEST AIRLINES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
REORGANIZED PREDECESSOR COMPANY
COMPANY --------------------------------------
------------- PERIOD FROM
PERIOD FROM JANUARY 1 YEARS ENDED DECEMBER
AUGUST 26 TO TO 31,
DECEMBER 31, AUGUST 25, ----------------------
1994 1994 1993 1992
------------- ----------- -------- ---------
Cash flows from operating activities:
Net income (loss)........................................... $ 7,846 $ 54,392 $ 37,165 $(131,761)
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation and amortization............................. 15,538 56,694 81,894 86,981
Amortization of deferred overhauls........................ 356 -- -- --
Amortization of reorganization value in excess of amounts
allocable to identifiable assets........................ 11,145 -- -- --
Amortization of manufacturers' and deferred credits....... (3,961) (2,966) (5,186) (5,869)
Loss on disposition of property and equipment............. 398 1,659 4,562 1,283
Restructuring charges..................................... -- -- -- 31,316
Reorganization items...................................... -- 185,226 18,167 3,188
Extraordinary gain on extinguishment of debt.............. -- (257,660) -- --
Other..................................................... 1,178 (383) (554) 866
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable, net........... 27,439 (18,769) (927) 19,418
Decrease (increase) in spare parts and supplies, net...... 1,165 397 6,320 (2,384)
Decrease in prepaid expenses.............................. 4,371 1,284 2,627 812
Decrease (increase) in other assets and restricted cash... 1,219 12,971 (5,295) (1,141)
Increase (decrease) in accounts payable................... (17,289) (15,557) 9,014 (8,473)
Increase (decrease) in air traffic liability.............. (26,452) 30,510 8,749 30,723
Increase (decrease) in accrued compensation
and vacation benefits................................... (11,667) 15,739 (1,300) (1,491)
Increase in accrued interest.............................. 7,517 4,694 10,368 25,640
Increase (decrease) in accrued taxes...................... (2,104) 25,999 (1,764) 2,968
Increase (decrease) in other accrued liabilities.......... (13,785) 67,429 644 18,204
Increase (decrease) in other liabilities.................. (4,996) (19,443) (11,126) 6,465
------------- ----------- -------- ---------
Net cash provided by (used in) operating activities..... (2,082) 142,216 153,358 76,745
Cash flows from investing activities:
Purchases of property and equipment......................... (14,658) (61,271) (54,324) (69,208)
Decrease in equipment purchase deposits..................... -- -- -- 14,425
Proceeds from disposition of property....................... 600 334 3,715 383
------------- ----------- -------- ---------
Net cash used in investing activities................... (14,058) (60,937) (50,609) (54,400)
Cash flows from financing activities:
Proceeds from issuance of DIP financing..................... -- -- -- 53,000
Proceeds from issuance of debt.............................. -- 100,000 -- 22,804
Repayment of debt including DIP financing................... (23,355) (173,699) (77,501) (75,871)
Issuance of common stock.................................... 3 114,862 -- --
------------- ----------- -------- ---------
Net cash provided by (used in) financing activities..... (23,352) 41,163 (77,501) (67)
------------- ----------- -------- ---------
Net increase (decrease) in cash and cash equivalents.... (39,492) 122,442 25,248 22,278
------------- ----------- -------- ---------
Cash and cash equivalents at beginning of period.............. 222,073 99,631 74,383 52,105
------------- ----------- -------- ---------
Cash and cash equivalents at end of period.................... $ 182,581 $ 222,073 $ 99,631 $ 74,383
============ =========== ======== =========
See accompanying notes to financial statements.
25
28
AMERICA WEST AIRLINES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIODS AUGUST 26 TO DECEMBER 31, 1994, JANUARY 1 TO AUGUST 25, 1994
AND THE YEARS ENDED DECEMBER 31, 1993, AND 1992
(IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
DEFERRED
COMPENSATION
AND NOTES
CONVERTIBLE CLASS A CLASS B ADDITIONAL RETAINED RECEIVABLE --
PREFERRED COMMON COMMON COMMON PAID-IN EARNINGS/ EMPLOYEE STOCK
STOCK STOCK STOCK STOCK CAPITAL (DEFICIT) PURCHASE PLANS TOTAL
----------- ------- ------- ------- ---------- ----------- ----------------- ---------
Balance at January 1,
1992...................... $ 91 $-- $ -- $5,904 $ 191,825 $(342,358) $ (21,972) $(166,510)
----- ------- ------- ------- ---------- ----------- ----------------- ---------
Issuance of 346,661 shares
of common stock pursuant
to convertible
subordinated
debentures............... -- -- -- 86 3,599 -- -- 3,685
Employee restricted stock
deferred compensation.... -- -- -- -- -- -- 101 101
Employee stock purchase
plan:
Issuance of 7,305 shares
of common stock at:
$.19-$2.63 per share..... -- -- -- 2 (13) -- 81 70
Deferred compensation.... -- -- -- -- (4) -- 1,478 1,474
Preferred stock dividends
Series B: $5.41 per
share.................. -- -- -- -- -- (1,575) -- (1,575)
Series C: $1.33 per
share.................. -- -- -- -- -- (97) -- (97)
Net loss................... -- -- -- -- -- (131,761) -- (131,761)
----- ------- ------- ------- ---------- ----------- ----------------- ---------
Balance at December 31,
1992..................... 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
========= ====== ====== ======= ========= ========== =============== =========
See accompanying notes to financial statements.
26
29
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
America West Airlines, Inc., (the "Predecessor Company") filed a voluntary
petition on June 27, 1991, to reorganize under Chapter 11 of the U.S. Bankruptcy
Code. On August 10, 1994, the Plan of Reorganization ("Plan"), filed by the
Predecessor Company, was confirmed and became effective on August 25, 1994 (the
"Effective Date"). On August 25, 1994, America West Airlines, Inc., (the
"Reorganized Company" or the "Company") adopted fresh start reporting in
accordance with Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" ("SOP 90-7") of the American Institute
of Certified Public Accountants. Accordingly, the Company's post-reorganization
balance sheet and statement of operations have not been prepared on a 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.
1. CHAPTER 11 REORGANIZATION
The following occurred upon the Effective Date:
- The partners of AmWest Partners, L.P. ("AmWest"), a limited partnership
which includes TPG Partners, L.P. ("TPG"); Continental Airlines, Inc.
("Continental"); and Mesa Airlines, Inc. ("Mesa"); together with Lehman
Brothers, Inc. ("Lehman") and Fidelity Investments ("Fidelity"), as
assignees of AmWest, invested $205.3 million in consideration for the
issuance of securities by the Reorganized Company, consisting of (i)
1,200,000 shares of Class A Common Stock at a price of $7.467 per share;
(ii) 12,981,636 shares of Class B Common Stock, consisting of 12,259,821
shares at a price of $7.467 per share and 721,815 shares at $8.889 per
share (representing shares acquired as a result of cash elections made by
unsecured creditors); (iii) 2,769,231 Warrants to purchase shares of
Class B Common Stock at an exercise price of $12.74 per share and (iv)
$100 million principal amount of 11 1/4% Senior Unsecured Notes, due
September 1, 2001. AmWest was dissolved immediately after the Effective
Date with all rights being delegated to the partners and assignees of
AmWest.
- Pre-existing equity interests of the Company were cancelled, the
Company's obligations to certain prepetition creditors were restructured
and general unsecured nonpriority prepetition creditors received, in full
satisfaction of their claims, their pro rata share of approximately
26,053,185 shares of Class B Common Stock and $6,416,214 in cash. Holders
of the Company's pre-existing common equity interests received, on a pro
rata basis, 2,250,000 shares of Class B Common Stock and Warrants to
purchase 6,230,769 shares of Class B Common Stock. In addition, pursuant
to the exercise of subscription rights, holders of pre-existing equity
interests received 1,615,179 shares of Class B Common Stock for an
aggregate purchase price of $14,357,326 ($8.889 per share), including
holders of pre-existing preferred equity interests. 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) 125,000 shares of
Class B Common Stock for an aggregate purchase price of $1,111,125.
- In exchange for certain concessions principally arising from cancellation
of the right of GPA Group plc and/or its affiliates ("GPA") to lease to
America West 10 Airbus A320 aircraft, GPA received Class B Common Stock,
a cash payment and certain rights (note 13).
- The Company entered into certain Alliance Agreements with Continental and
Mesa 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.
27
30
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
- The Company executed letter agreements with Fidelity and Lehman relating
to the settlement of certain prepetition claims. On October 14, 1994, the
Company issued an additional $23 million of 11 1/4% Senior Unsecured
Notes, due September 2001, and made a prepayment of a $1.3 million lease
obligation. Additionally, cash payments of $2.1 million and $1.2 million
were made to Fidelity and Lehman, respectively.
- 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.
As of December 31, 1994, distributions on $295 million of allowed general
unsecured claims had been made. Approximately 21.6 million shares of the
Company's Class B Common Stock and cash proceeds equivalent to an additional
524,000 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 $345 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:
YEARS ENDED
PERIOD FROM DECEMBER 31,
JANUARY 1 TO -------------------
AUGUST 25, 1994 1993 1992
--------------- ------- -------
(IN THOUSANDS)
Professional fees and other expenses related to
the Chapter 11 proceedings...................... $ 31,959 $ 9,419 $16,498
Adjustments of assets and liabilities to fair
value........................................... 166,829 -- --
Provisions for settlement of claims............... 66,626 18,231 1,748
Reorganization success bonuses.................... 11,956 -- --
Interest income................................... (3,711) (2,635) (2,030)
--------------- ------- -------
$ 273,659 $25,015 $16,216
=========== ======= =======
2. 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 as of December 31, 1994. 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 operations. The more significant of these adjustments relate to
reduced depreciation expense on property and equipment, increased amortization
expense relating to reorganization value in excess of amounts allocable to
identifiable assets, and increased interest expense and reduced aircraft rent
expense for leases adjusted to fair market rental rates.
28
31
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The effects of the Plan and fresh start reporting on the balance sheet at
the Effective Date are as follows (in thousands):
(A) (B) (C)
PREDECESSOR ISSUE OF REORGANIZED
COMPANY DEBT DEBT & FRESH START COMPANY
AUG. 25, 1994 DISCHARGE STOCK ADJUSTMENTS AUG. 25, 1994
------------- --------- -------- ----------- -------------
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
============ ========= ======== ========== ============
---------------
(a) To record the discharge or reclassification of prepetition obligations 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.
(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.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Financial Reporting for Bankruptcy Proceedings
The Company implemented the guidance as to financial reporting by entities
that have filed petitions with the Bankruptcy Court, provided by SOP 90-7 in the
accompanying financial statements.
29
32
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to SOP 90-7, prepetition liabilities are 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 are 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 Equivalents
Cash equivalents consist of all highly liquid debt instruments purchased
with original maturities of three months or less and are carried at cost which
approximates market.
(c) 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.
(d) Expendable Spare Parts and Supplies
Flight equipment expendable spare parts and supplies are valued at average
cost. Allowances for obsolescence are provided, over the estimated useful life
of the related aircraft and engines, for spare parts expected to be on hand at
the date the aircraft are retired from service.
(e) Property and Equipment
Property and equipment were recorded at cost as of December 31, 1993 and at
fair market value as of August 25, 1994; subsequent acquisitions 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 $621,000 for the period August 26, 1994 through December 31,
1994. No interest was capitalized while the Company was in bankruptcy. 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 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.
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 included in aircraft
maintenance materials and repairs for the Reorganized Company, as part of fresh
start reporting, and in depreciation and amortization expense for the
Predecessor Company. 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.
(f) 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, 1994 is approximately $11.1 million. As more fully discussed at
Note 9, with respect to the period ended December 31, 1994, a reduction in
reorganization value in excess of amounts allocable to identifiable assets of
$11.9 million was recorded as a result of the utilization of Predecessor Company
tax attributes. The Company assesses the recoverability of this asset based upon
expected future undiscounted cash flows and other relevant information.
30
33
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(g) 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.
(h) Manufacturers' and Deferred Credits
In connection with the acquisition of certain aircraft and engines, the
Company receives various credits. Such manufacturers' credits are deferred until
the aircraft and engines are delivered, at which time they are either applied as
a reduction of the cost of acquiring owned aircraft and engines, resulting in a
reduction of future depreciation expense, or amortized as a reduction of rent
expense for leased aircraft and engines. Unamortized amounts were written off at
the Effective Date.
(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 contractual 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, 1994, the unamortized
balance of the deferred credit was $116.9 million.
(j) Revenue Recognition
Passenger revenue is recognized when the transportation is provided. Ticket
sales for transportation which has not yet been provided are reflected in the
financial statements as air traffic liability.
(k) Passenger Traffic Commissions and Related Fees
Passenger traffic commissions and related fees are expensed when the
transportation is provided and the related revenue is recognized. Passenger
traffic commissions and related fees not yet recognized are included as a
prepaid expense.
(l) Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. As more fully
discussed at Note 9, adoption of the new standard changed the Company's method
of accounting for income taxes from the deferred approach to an asset and
liability approach.
As with the prior standard, the Company continues to account for its
general business credits by use of the flow-through method.
(m) Per Share Data
Primary earnings per share is based upon the weighted average number of
shares of common stock outstanding and dilutive common stock equivalents (stock
options and warrants). Primary earnings per share reflect net income adjusted
for interest on borrowings effectively reduced by the proceeds from the assumed
exercise of common stock equivalents but only if the effect of such adjustments
are dilutive.
Fully diluted earnings per share is based on the weighted average number of
shares of common stock outstanding, dilutive common stock equivalents (stock
options and warrants), and the conversion of outstanding convertible preferred
stock as well as for the Predecessor Company the conversion of convertible
31
34
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
subordinate debentures. Fully diluted earnings per share reflect net income
adjusted for interest on borrowings effectively reduced by the proceeds from the
assumed exercise of common stock equivalents but only if the effect of such
adjustments are dilutive.
(n) Reclassification
Certain prior period reclassifications have been made in the Predecessor
Company's financial statements to conform to the Reorganized Company's
presentation.
4. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
REORGANIZED PREDECESSOR
COMPANY COMPANY
-------------- --------------
1994 1993
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
SECURED
Notes payable, fixed interest rates of 6.00% to 10.79% and
floating
interest rates of various LIBOR + 1.5% to 3.5%,
installments due
through 2008.............................................. $307,077 $402,448
Borrowings under lines of credit, floating interest rates of
Prime + 1% to three month LIBOR + 4%, installments due
through 1999. No available borrowings remain. ............ 24,225 18,589
Notes payable, floating interest rate of Prime + 1%,
installments
due through 1999. (a)..................................... 34,097 --
DIP financing............................................... -- 83,577
-------------- --------------
365,399 504,614
UNSECURED
11 1/4% senior notes, face amount of $123 million, interest
only payments until due in 2001. (b)...................... 120,843 --
Notes payable, fixed interest rates of 6% to 8% and floating
interest rates of three month LIBOR + 3%, installments due
through 2000. ............................................ 41,752 10,734
Other....................................................... 2,802 6,273
-------------- --------------
165,397 17,007
Total long-term debt.............................. 530,796 521,621
Less: current maturities.......................... (65,198) (125,271)
-------------- --------------
$465,598 $396,350
============= =============
---------------
(a) Approximately $29.5 million was drawn on a letter of credit facility that
secured certain industrial development bonds (the "Bonds") used by the
Company to build its aircraft maintenance facility in Phoenix, Arizona (the
"Hangar"). The issuer of the letter of credit facility was in turn
reimbursed for such draws under a reimbursement agreement among the Company,
that issuer and a certain bank group (the "Banks"). The reimbursement
agreement was secured by the Hangar. At the Effective Date, the Company and
the Banks agreed to facilitate repayment of the obligation created under the
reimbursement agreement with two loans, the principal loan for $29.5 million
and the interest loan for $6.5 million. These two loans are secured by the
Hangar. The interest loan is repaid with monthly level principal payments
and interest at the prime rate plus 1% and matures in August 1996.
Amortization of the principal loan is calculated over 12 years with a five
year maturity in August 1999; and payments are made monthly of level
principal and interest at the prime rate plus 1%, with the balance of the
loan, or $12.5 million, being due at its maturity. Additionally, if the
Company does not re-market the Bonds prior to August 25, 1995 (the proceeds
from which will be used to retire the then outstanding balance of the
32
35
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
principal loan), the Company is required to make an additional $5.0 million
principal repayment under the principal loan in October 1995.
(b) On the Effective Date, the Company issued $100 million of 11 1/4% Senior
Unsecured Notes (the "Senior Notes") at a discount of 1.575% as part of the
investment by AmWest, and on October 14, 1994, the Company issued an
additional $23 million of the Senior Notes. The notes mature in September,
2001 and interest is payable in arrears semi-annually commencing on March 1,
1995. The Senior Notes may be redeemed at the option of the Company; (i)
prior to September 1, 1997; (a) at any time, in whole but not in part, at a
redemption price of 105% of the principal amount of the Senior Notes plus
accrued and unpaid interest, if any, to the redemption date or; (b) from
time to time in part from the net proceeds of a public offering of its
capital stock at a redemption price equal to 105% of the principal amount,
plus accrued and unpaid interest, if any, to the redemption date except for
amounts mandatorily redeemed; (ii) on or after September 1, 1997 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:
SEPTEMBER 1, PERCENTAGE
------------ ----------
1997 105.0%
1998 103.3%
1999 101.7%
2000 100.0%
The Senior Notes are also subject to mandatory redemption if the Company
consummates a Public Offering Sale, as defined in the Indenture, prior to
September 1, 1997, and immediately prior to such consummation, the Company
has cash and cash equivalents, not subject to any restriction on
disposition of at least $100 million. Then the Company shall redeem the
Senior Notes at a redemption price equal to 104% of the aggregate principal
amount of the Senior Notes so redeemed plus accrued and unpaid interest to
the redemption date. The aggregate redemption price and accrued unpaid
interest of the Senior Notes to be redeemed shall equal the lesser of: (a)
50% of the net proceeds of such Public Offering Sale and; (b) the excess if
any of; (i) $20 million and; (ii) the amount of any net offering proceeds
of any Public Offering Sale received prior to September 1, 1997. The
Indenture contains a limitation on investment covenant with which the
Company was in compliance at December 31, 1994.
At December 31, 1994, the estimated maturities of long-term debt are as follows:
(IN THOUSANDS)
1995............................................... $ 65,198
1996............................................... 55,566
1997............................................... 48,316
1998............................................... 44,653
1999............................................... 57,203
Thereafter......................................... 259,860
--------------
$530,796
===========
Secured financings totaling $361 million are collateralized by assets,
primarily aircraft and engines, with a net book value of $422.6 million at
December 31, 1994.
Prepetition long-term debt totaling approximately $224 million was included
in Estimated Liabilities Subject to Chapter 11 Proceedings at December 31, 1993.
As part of the reorganization, approximately $85.6 million of long-term debt was
restructured and included as long-term debt secured at December 31, 1994.
33
36
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Certain of the Company's long-term debt agreements contain minimum cash balance
requirements, leverage ratios, coverage ratios and other financial covenants for
which the Company was in compliance at December 31, 1994.
5. 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 limitation that the Board of Directors fixes without any
stockholder approval. No shares of Preferred Stock have been issued.
Common Stock
The holders of Class A Common Stock are entitled to fifty votes per share,
and the holders of Class B Common Stock are entitled to one vote per share, on
all matters submitted to a vote of common stockholders except that voting rights
of non-U.S. citizens are limited. The Class A Common Stock is convertible into
an equal number of Class B shares at any time at the election of the holders of
the Class A Common Stock.
Holders of Common Stock of all classes participate equally as to any
dividends or distributions on the Common Stock, except that dividends payable in
shares of Common Stock, or securities to acquire Common Stock, will be made in
the same class of common stock as that held by the recipient of the dividend.
Holders of Common Stock have no right to cumulate their votes in the election of
directors. The Common Stock votes together as a single class, subject to the
right to a separate class vote in certain instances required by law.
Pursuant to the Stockholders' Agreement, the partners and assignees of
AmWest and GPA will vote all shares of 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 until the third annual meeting.
In addition to the voting and other provisions of the Stockholders'
Agreement, AmWest and GPA 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.
6. RESTRICTED STOCK AND STOCK OPTIONS
In December 1994, the Company's Board of Directors approved the America
West Airlines, Inc. 1994 Incentive Equity Plan (the "Incentive Plan") subject to
approval of the stockholders. Under the Incentive Plan, up to 3.5 million shares
of Class B Common Stock may be issued to cover all outstanding awards under this
plan, of which, no more than 1.5 million will be issued as Restricted Stock or
Bonus Stock. The Company's Board of Directors granted 11,000 shares of
restricted stock and 1,267,000 options to purchase common stock at $8.75 per
share, the fair value at date of grant, under the Incentive Plan. Also, 39,000
options to purchase common stock were granted at $8.75 per share, the fair value
at date of grant, to members of the
34
37
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Board of Directors who are not employees of the Company. As of December 31,
1994, 11,000 shares of restricted stock were vested and 255,000 options to
purchase common stock were exercisable, both contingent upon stockholder
approval of the Incentive Plan.
7. 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. In April 1994, the Company
increased the Company matched portion from 25% to 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 $3.8 million, $2.1 million
and $2 million in 1994, 1993 and 1992, respectively.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
Accounts Receivable and Accounts Payable
The carrying amount of accounts receivable and accounts payable
approximates fair value as they are expected to be collected or paid within 90
days of year-end.
Long-term Debt, Including Current Maturities
At December 31, 1994, the fair value of long-term debt, including current
maturities, was approximately $515 million based on quoted market prices for the
same or similar debt including debt of comparable remaining maturities.
9. INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109). The Predecessor Company had adopted SFAS
109 as of January 1, 1993. Under SFAS 109, deferred tax assets (subject to a
possible valuation allowance) and liabilities are recognized for the expected
future tax consequences of events that are reflected in the Company's financial
statements or tax returns.
Income tax expense:
For the periods shown below, the Company recorded income tax expense as follows:
REORGANIZED PREDECESSOR COMPANY
COMPANY --------------------------------------
------------------ YEARS ENDED
PERIOD FROM PERIOD FROM DECEMBER 31,
AUGUST 26 TO JANUARY 1 TO -------------
DECEMBER 31, 1994 AUGUST 25, 1994 1993 1992
------------------ ------------------ ---- ------
(IN THOUSANDS) (IN THOUSANDS)
Current taxes:
Federal............................... $ -- $1,869 $675 $ --
State................................. 36 190 84 --
---------- ------- ---- ------
36 2,059 759 --
Deferred taxes:......................... -- -- -- --
Income tax expense attributable to
reorganization items.................. 11,854 -- -- --
---------- ------- ---- ------
Income tax expense...................... $ 11,890 $2,059 $759 $
============== ============= ==== ======
35
38
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
With respect to the period August 26, 1994 to December 31, 1994, income tax
expense pertains both to income before extraordinary item 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
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
(approximately $11.8 million) is applied to reduce the carrying balance of the
Company's reorganization value in excess of amounts allocable to identifiable
assets.
For the periods January 1, 1994 to August 25, 1994, and years ended
December 31, 1993 and 1992, 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.
A reconciliation of taxes at the federal statutory rate ("expected taxes")
of 35% to those reflected in the financial statements (the "effective rate") is
as follows:
REORGANIZED
COMPANY PREDECESSOR COMPANY
------------------ ---------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED
AUGUST 26 TO JANUARY 1 TO DECEMBER 31,
DECEMBER 31, 1994 AUGUST 25, 1994 1993
------------------ ------------------ ------------
(IN THOUSANDS) (IN THOUSANDS)
Taxes at U.S. statutory rate...................... $ 6,908 $ 19,758 $ 13,273
Benefit of loss carryforwards..................... -- (17,889) (12,598)
State taxes....................................... 1,663 190 84
Amortization of reorganization value in excess
of amounts allocable to identifiable assets..... 3,901 -- --
Other............................................. (582) -- --
---------- ------------------ ------------
Total................................... $ 11,890 $ 2,059 $ 759
============== ============= ==========
As of December 31, 1994, the Company has available net operating loss,
business tax credit and alternative minimum tax credit carryforwards for Federal
income tax purposes of approximately $557.9 million, $12.7 million and $.57
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.
36
39
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Composition of Deferred Tax Items:
The Company has not recognized any net deferred tax items as of 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:
REORGANIZED
COMPANY PREDECESSOR COMPANY
----------------- ----------------------------------------
DECEMBER 31, 1994 AUGUST 25, 1994 DECEMBER 31, 1993
----------------- ------------------ -----------------
(IN THOUSANDS) (IN THOUSANDS)
Deferred income tax liabilities:
Property and equipment, principally
depreciation and fresh start
differences.......................... $ (71,425) $ (70,367) $(105,242)
----------------- ------------------ -----------------
Deferred tax assets:
Aircraft leases........................... 63,354 65,787 20,594
Reorganization expenses................... 32,654 32,654 16,527
Net operating loss carryforwards.......... 215,119 210,939 212,124
Tax credit carryforwards.................. 13,272 13,272 12,706
Other..................................... 10,892 13,809 9,707
----------------- ------------------ -----------------
Total deferred tax assets....... 335,291 336,461 271,658
----------------- ------------------ -----------------
Valuation allowance....................... (263,866) (266,094) (166,416)
----------------- ------------------ -----------------
Net deferred items.............. $ -- $ -- $ --
============= ============== =============
SFAS 109 requires a "more likely than not" criterion be applied when
evaluating the realizability of a deferred tax asset. Given the Company's
history of losses for income tax purposes, the volatility of the industry within
which the Company operates and certain other factors, the Company has
established a valuation allowance principally for the portion of its deductible
temporary differences, including net operating loss and other carryforwards that
may not be available due to expirations or other limitations after consideration
of net reversals of future taxable and deductible amounts. In this context, the
Company has taken into account prudent and feasible tax planning strategies.
After application of the valuation allowance, the Company's net deferred tax
assets and liabilities are zero. If the Company, in future tax periods, were to
recognize tax benefits attributable to tax attributes of the Predecessor Company
(such as net operating loss and other carryforwards), any such benefit would be
applied to reduce the balance of reorganization value in excess of amounts
allocable to identifiable assets.
10. SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS
Cash paid for interest, net of amounts capitalized, during the period
August 26, 1994 through December 31, 1994, January 1, 1994 through August 25,
1994 and the years ended December 31, 1993 and 1992 was approximately $11
million, $29 million, $44 million and $46 million, respectively.
Cash paid for income taxes during the period August 26, 1994 through
December 31, 1994, January 1, 1994 through August 25, 1994 and the year ended
December 31, 1993 was $425,000, $1,253,000 and $537,000, respectively.
37
40
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cash flows from reorganization items in connection with the Chapter 11
proceedings were as follows:
YEARS ENDED DECEMBER 31,
JANUARY 1 TO
AUGUST 25, ----------------------------
1994 1993 1992
------------ ----------- ------------
(IN THOUSANDS)
Interest received on cash accumulations................ $ 3,711 $ 2,635 $ 2,030
Professional fees paid for services rendered........... 23,563 (7,372) (11,346)
D.I.P. financing issuance costs paid................... -- (1,378) (1,760)
In addition, during the period August 26 through December 31, 1994, January
1, 1994 through August 25, 1994 and the years ended December 31, 1993 and 1992,
the Company had the following non-cash financing and investing activities:
REORGANIZED
COMPANY PREDECESSOR COMPANY
-------------- -----------------------------------------
PERIOD FROM PERIOD FROM
AUGUST 26 TO JANUARY 1 TO YEARS ENDED DECEMBER 31,
DECEMBER 31, AUGUST 25, -------------------------
1994 1994 1993 1992
-------------- ------------- ------- -------
(IN THOUSANDS) (IN THOUSANDS)
Equipment acquired through capital
leases.................................. $ -- $ 138 $ 709 $ 437
Conversion of long-term debt to common
stock................................... -- -- 1,938 3,685
Notes payable issued to seller............ -- -- 818 22,804
Notes payable issued for administrative
claims.................................. -- -- 11,597 --
Accrued interest reclassified to long-term
debt.................................... -- 5,563 15,137 16,443
Draws taken by third parties letter of
credit.................................. -- -- -- 11,201
Preferred dividend declared but unpaid.... -- -- -- 1,672
11. EXTRAORDINARY ITEM
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.
12. COMMITMENTS AND CONTINGENCIES
(a) Leases
As of December 31, 1994, the Company had 68 aircraft under operating leases
with remaining terms ranging from five months to approximately 23 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 agreements require security deposits
and maintenance reserve payments. The Company also leases certain terminal
space, ground facilities and computer and other equipment under noncancelable
operating leases.
38
41
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1994, the scheduled future minimum cash rental payments
under noncancelable operating leases with initial terms of more than one year
including those leases entered into through February 1995 are as follows:
(IN THOUSANDS)
1995................................................... $ 212,340
1996................................................... 205,236
1997................................................... 185,753
1998................................................... 163,520
1999................................................... 159,989
Thereafter............................................. 1,172,241
--------------
$2,099,079
===========
Rent expense (excluding landing fees) was approximately $245 million, $245
million and $307 million for the combined twelve months ended December 31, 1994
and the years ended December 31, 1993 and 1992, respectively.
Collectively, the operating lease agreements require security deposits with
lessors of $11.5 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, 1994.
(b) Revenue Bonds
Special facility revenue bonds issued by a municipality have been used to
fund the acquisition of leasehold improvements at the Phoenix Sky Harbor
International 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 the Effective Date and ends on January 1, 2006
while payment of principal and interest at 8.2% on the Series 1994B Bonds
commenced on the Effective Date and ends on January 1, 1999. At December 31,
1994, the outstanding balance was $21.2 million.
(c) Aircraft and Related Equipment Acquisitions
At December 31, 1994, the Company had on order a total of 24 Airbus
A320-200 aircraft with an aggregate net cost estimated at $1.1 billion. Delivery
dates of the aircraft will fall in the years 1998 through 2000 with an option to
defer the 1998 deliveries. If new A320 aircraft are delivered as a result of the
renegotiated put agreement (described below), the Company will have the right to
cancel on a one-for-one basis, up to a maximum of eight non-consecutive aircraft
deliveries hereunder, subject to certain conditions. The Company also has the
option to cancel without cause up to an additional four aircraft, and the
Company has the right to assign all or some of these delivery positions to
Continental.
At December 31, 1994, the Company had a put agreement for eight aircraft
with deliveries to start not earlier than June 30, 1995 and end on June 30,
1999. Under the agreement, new or "like new" A320-200, or new or used B737-300
or B757-200 aircraft may be put to the Company at a rate of no more than two
aircraft in 1995, and, with respect to each ensuing year during the put period,
of no more than three aircraft. In addition, no more than five 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 the deliveries under the AVSA A320 purchase
contract on a one-for-one basis. During each January of the put period, the
Company will negotiate the type and delivery
39
42
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
dates of the put aircraft for that year. The puts will require 150-day notice
and will be leased at fair market rates for terms ranging from three to eighteen
years, depending on the type and condition of the aircraft. In 1995, three
aircraft (one used B737-300 in February and two new A320-200s in April) will be
delivered to the Company under this agreement. As part of the agreement, certain
cash payments and securities were issued to the put holder pursuant to the Plan
(see Note 13).
The Company had certain aircraft purchase contracts with Boeing. In
connection with the Plan, the Company reached a settlement in which the purchase
contracts were rejected and equipment purchase deposits were kept by Boeing in
full settlement of the rejection damages.
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 $42.3 million for which the Company has provided a $1.5
million security deposit in the form of a letter of credit. Pursuant to a side
letter to an earlier contract with IAE, the Company agreed to purchase from IAE
prior to December 31, 1995, a new or used V2500-A1 engine. However, the Company
expects to, with IAE's consent, acquire an additional "A5" engine in lieu of
this "A1" engine.
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.
(IN THOUSANDS)
1995........................................................... $ 3,223
1996........................................................... 32,608
1997........................................................... 58,230
1998........................................................... 379,309
1999........................................................... 355,540
2000........................................................... 350,863
--------------
$1,179,773
===========
At December 31, 1994, the Company has significant capital commitments for a
number of new 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. At December 31, 1994, approximately 82 percent of the Company's
receivables related to 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 or in the month following usage. Bad debt losses, which
have been minimal in the past, have been considered in establishing allowances
for doubtful accounts.
(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
40
43
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
claims of various state and local tax authorities and certain contractual
indemnification obligations. Management cannot predict whether or to what extent
any of the pending administrative and priority tax claims will result in
liabilities to the Company. Should such liabilities be incurred, future
operating results could be adversely affected. However, based on information
currently available, management believes that the disposition will not have a
material adverse effect on the Company's financial condition.
13. 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;
(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.
The Company has entered into various aircraft and leasing arrangements with
GPA at terms comparable to those obtained from third parties for similar
transactions. The Company leases 16 aircraft from GPA and the rental payments
for such leases amount to $63.1 million, $63.1 million, and $63.8 million for
the combined twelve months ended December 31, 1994, 1993 and 1992, respectively.
As of December 31, 1994, the Company was obligated to pay approximately $1.1
billion under these leases which expire at various times through the year 2013.
The Company has entered into Alliance Agreements with Continental and Mesa,
both of whom invested in the Company. 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 on
the Mesa system. Such payments by Mesa to the Company totaled $2.5 million and
$1.9 million for the twelve months ended December 31, 1994 and 1993,
respectively.
In October 1994, the Company issued an additional $23.0 million of 11 1/4%
Senior Unsecured Notes to Fidelity and Lehman in exchange for full settlement of
certain prepetition unsecured claims. Additionally, cash payments of $2.1
million and $1.3 million were made to Fidelity and Lehman, respectively.
14. ESTIMATED LIABILITIES SUBJECT TO CHAPTER 11 PROCEEDINGS AND REORGANIZATION
EXPENSE
Under Chapter 11, certain claims against the Company in existence prior to
the filing of the petitions for relief under the Code are stayed while the
Company continued business operations as debtor-in-possession. These prepetition
liabilities were settled as part of the Plan and were classified as "Estimated
liabilities subject to Chapter 11 proceedings" prior to the Effective Date.
Estimated liabilities subject to Chapter 11 proceedings as of December 31,
1993 consisted of the following:
Long-term debt (including convertible subordinated debentures of
$138.9 million)................................................. $224,642
Accounts payable and accrued liabilities.......................... 113,945
Accrued interest.................................................. 16,808
Accrued taxes..................................................... 25,719
--------
$381,114
========
41
44
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
15. RESTRUCTURING CHARGES
Restructuring charges consist of the following:
1992
--------------
(IN THOUSANDS)
Write-off for certain assets related to station closures or
route restructuring.......................................... $ 9,529
Provision for spare parts for aircraft types no longer in
service...................................................... 12,651
Provision for employee severance............................... 2,284
Loss on return of aircraft..................................... 6,852
--------------
$ 31,316
===========
The restructuring charges were necessitated primarily by aircraft fleet
reductions and other operational changes. The Company has reduced its fleet to
87 aircraft and has reduced the number of aircraft types in the fleet from five
to three.
42
45
AMERICA WEST AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1994 and 1993 are as follows:
1ST 2ND 3RD 4TH
1994 -- REORGANIZED COMPANY QUARTER QUARTER QUARTER QUARTER
----------------------------------------------- -------- -------- --------- --------
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE
AMOUNTS)
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
1994 -- PREDECESSOR COMPANY
-----------------------------------------------
Total operating revenues....................... $345,264 $363,351 230,413
Operating income............................... 37,750 44,146 25,610
Nonoperating expense, net (a).................. (21,943) (23,171) (263,601)
Income tax expense............................. (632) (839) (588)
Net income (a)................................. 15,175 20,136 19,081
Earnings per share:
Primary...................................... .56 .74 .69
Fully diluted................................ .40 .52 .49
1993 -- PREDECESSOR COMPANY
-----------------------------------------------
Total operating revenues....................... 316,605 324,910 335,113 348,736
Operating income............................... 17,168 25,179 32,981 45,726
Nonoperating expense, net...................... (14,990) (14,710) (18,285) (35,145)
Income tax expense............................. (44) (209) (293) (213)
Net income..................................... 2,134 10,260 14,403 10,368
Earnings per share:
Primary...................................... .09 .41 .56 .40
Fully diluted................................ .09 .28 .38 .28
---------------
(a) 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.
43
46
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 1995 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 "1995 Proxy
Statement"). With the exception of the foregoing information and other
information specifically incorporated by reference into this Form 10-K Report,
the 1995 Proxy Statement is not being filed as a part hereof. Information
respecting executive officers of the Company who are not continuing directors or
nominees 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 10, 11, 12 and 13, reference is
made to the Company's 1995 Proxy Statement, which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1994, and
portions of which are incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements.
The following financial statements and the Independent Auditors' Report are
filed as part of this report on the pages indicated:
Independent Auditors' Report page 22.
Balance Sheets -- December 31, 1994 and 1993 -- page 23.
Statement of Operations -- For the periods August 26, 1994 to December
31, 1994, January 1, 1994 to August 25, 1994, and the years ended December
31, 1993 and 1992 -- page 24.
Statement of Cash Flows -- For the periods August 26, 1994 to December
31, 1994, January 1, 1994 to August 25, 1994, and the years ended December
31, 1993 and 1992 -- page 25.
Statement of Stockholders' Equity (Deficiency) -- For the periods
August 26, 1994 to December 31, 1994, January 1, 1994 to August 25, 1994,
and the years ended December 31, 1993 and 1992 -- page 26.
Notes to Financial Statements -- page 27.
44
47
(b) Financial Statement Schedule.
The following financial statement schedule is included in this report on
the page indicated:
Independent Auditors' Report on Schedule -- page S-1
Schedule VIII: Valuation and Qualifying Accounts -- page S-2
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------------
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 9, 1994.
*3.2 Restated By-laws of America West Airlines, Inc. -- Incorporated by reference to the
Company's Report on Form 8-K dated September 9, 1994, as amended.
4.1 Indenture for $130,000,000 11 1/4% Senior Notes due 2001 dated August 25, 1994, of
America West Airlines, Inc. and American Bank National Association, as
trustee -- Incorporated by reference to the Company's Report on Form 8-K dated
September 9, 1994.
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. ("AVSA") 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.
45
48
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------------
10.19 V2500 Support Contract Between the Company and IAE International Aero Engines AG
("IAE"), 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.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
10.27 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.
10.28 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.
10.29 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.
10.30 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.
10.31 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.
10.32 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.
10.33 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.
10.34 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.
10.35 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.
46
49
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------------
10.36 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.
10.37 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.
10.38 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.
*10.39 V2500 Support Contract dated December 23, 1994 between America West Airlines, Inc.
and International Aero Engineers, as amended.
10.40 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.
10.41 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.
*10.42 Form of America West Airlines, Inc. 1994 Incentive Equity Plan.
*10.43 Employment Agreement dated as of December 1, 1994 between America West Airlines,
Inc. and William A. Franke.
*10.44 Employment Agreement dated as of December 1, 1994 between America West Airlines,
Inc. and A. Maurice Myers, as amended.
*11.1 Computation of Net Income (Loss) per Share.
*24.1 Power of Attorney (included on the signature page of this Report.)
*27 Financial Data Schedules.
---------------
* Filed herewith
47
50
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, 1995 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,
A. Maurice Myers and Martin J. Whalen 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, 1994, 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, 1995.
SIGNATURE TITLE
------------------------------------------ -----------------------------------------------
/s/ William A. Franke Chairman of the Board and Chief Executive
------------------------------------------ Officer (Principal Executive Officer)
William A. Franke
/s/ A. Maurice Myers President, Chief Operating Officer and Director
------------------------------------------
A. Maurice Myers
/s/ Raymond T. Nakano Vice President and Controller (Principal
------------------------------------------ Financial and Accounting Officer)
Raymond T. Nakano
/s/ Julia Chang Bloch Director
------------------------------------------
Julia Chang Bloch
/s/ Stephen Bollenbach Director
------------------------------------------
Stephen Bollenbach
48
51
SIGNATURE TITLE
------------------------------------------ -----------------------------------------------
/s/ Frederick W. Bradley Director
------------------------------------------
Frederick W. Bradley
/s/ James G. Coulter Director
------------------------------------------
James G. Coulter
/s/ John F. Fraser Director
------------------------------------------
John F. Fraser
/s/ Frank B. Ryan Director
------------------------------------------
Frank B. Ryan
/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/ Richard P. Schifter Director
------------------------------------------
Richard P. Schifter
/s/ John F. Tierney Director
------------------------------------------
John F. Tierney
/s/ Raymond S. Troubh Director
------------------------------------------
Raymond S. Troubh
49
52
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders
America West Airlines, Inc.
Under date of February 24, 1995, we reported on the balance sheets of
America West Airlines, Inc. as of December 31, 1994 and 1993, and the related
statements of operations, cash flows and stockholders' equity (deficiency) for
the period August 26, 1994 to December 31, 1994, the period January 1, 1994 to
August 25, 1994 and for each of the years in the two-year period ended December
31, 1993, which are included herein. In connection with our audits of the
aforementioned financial statements, we also audited the related financial
statement schedule as listed in Item 14(b). 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, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
The audit report on the financial statements of America West Airlines, Inc.
referred to above contains an explanatory paragraph that states that as
discussed in Notes 1 and 2 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 than those of the Predecessor Company and, therefore, are not comparable
in all respects.
KPMG Peat Marwick LLP
Phoenix, Arizona
February 24, 1995
50
53
AMERICA WEST AIRLINES, INC.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIODS AUGUST 26 TO DECEMBER 31, 1994, JANUARY 1 TO AUGUST 25, 1994
AND THE YEARS ENDED DECEMBER 31, 1993 AND 1992
(IN THOUSANDS)
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------------------------------------------- ---------- ---------- ---------- ---------- ---------
Allowance for doubtful receivables:
Period ended:
August 26, 1994 to December 31, 1994........ $2,833 $1,074 $ -- $ 376 $ 3,531
======== ======== ======== ======== =======
Allowance for doubtful receivables:
Period ended:
January 1, 1994 through August 25, 1994..... $3,030 $4,742 $ -- $4,939 $ 2,833
======== ======== ======== ======== =======
Years ended:
December 31, 1993........................... $2,542 $5,474 $ -- $4,986 $ 3,030
======== ======== ======== ======== =======
December 31, 1992........................... $3,603 $3,800 $ -- $4,861 $ 2,542
======== ======== ======== ======== =======
Reserve for obsolescence:
Period ended:
August 26, 1994 to December 31, 1994........ $ -- $ 483 $ -- $ -- $ 483
======== ======== ======== ======== =======
Reserve for obsolescence:
Period ended:
January 1, 1994 through August 25, 1994..... $7,231 $ 794 $ -- $8,025(a) $ --
======== ======== ======== ======== =======
Years ended:
December 31, 1993........................... $6,921 $ 902 $ -- $ 592 $ 7,231
======== ======== ======== ======== =======
December 31, 1992........................... $3,638 $3,283 $ -- $ -- $ 6,921
======== ======== ======== ======== =======
---------------
(a) Includes fresh start adjustment of approximately $7,885.
51