UNITED STATES SECURITIES AND EXCHANGE COMMISSION
(Mark One)
þ
|
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the quarterly period ended September 30, 2004 |
o
|
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the transition period from to |
Commission file number 1-12649
AMERICA WEST HOLDINGS CORPORATION
| DELAWARE | 86-0847214 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 111 WEST RIO SALADO PARKWAY, TEMPE, ARIZONA | 85281 | |
| (Address of principal executive offices) | (Zip Code) | |
(480) 693-0800
N/A
Commission file number 0-12337
AMERICA WEST AIRLINES, INC.
| DELAWARE | 86-0418245 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 4000 EAST SKY HARBOR BLVD, PHOENIX, ARIZONA | 85034 | |
| (Address of principal executive offices) | (Zip Code) | |
(480) 693-0800
N/A
Indicate by check mark whether each 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 þ No o
Indicate by check mark whether the Registrants are accelerated filers (as defined in Exchange Act Rule 12b-2).
| America West Holdings Corporation | Yes þ | No o | ||
| America West Airlines, Inc. | Yes o | No þ |
As of October 27, 2004, America West Holdings Corporation has 859,117 shares of Class A common stock and 35,120,622 shares of Class B common stock outstanding. As of October 27, 2004, America West Airlines, Inc. has 1,000 shares of Class B common stock outstanding, all of which are held by America West Holdings Corporation.
PART I - FINANCIAL INFORMATION
America West Holdings Corporation (“Holdings” or the “Company”) is the holding company that owns all of the stock of America West Airlines, Inc. (“AWA” or the “Airline”). AWA, the eighth largest passenger airline and the second largest low cost carrier in the United States, accounted for most of Holdings’ revenues and expenses in 2003. The Leisure Company (“TLC”), previously a wholly owned subsidiary of Holdings, was merged into AWA on January 1, 2004 and continues to operate as the America West Vacations division of AWA. Through its America West Vacations division, AWA also sells individual and group travel packages. This combined Form 10-Q is filed by both Holdings and AWA and includes the financial statements of each company in Item 1A and Item 1B, respectively.
| ITEM 1A. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - AMERICA WEST HOLDINGS CORPORATION. |
AMERICA WEST HOLDINGS CORPORATION
| September 30, | December 31, | |||||||
| 2004 |
2003 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 303,694 | $ | 403,082 | ||||
Short-term investments |
68,141 | 72,890 | ||||||
Restricted cash |
— | 42,900 | ||||||
Accounts receivable, net |
92,407 | 77,235 | ||||||
Expendable spare parts and supplies, net |
63,030 | 58,575 | ||||||
Prepaid expenses |
170,863 | 129,368 | ||||||
Total current assets |
698,135 | 784,050 | ||||||
Property and equipment: |
||||||||
Flight equipment |
898,747 | 858,395 | ||||||
Other property and equipment |
285,293 | 273,284 | ||||||
Equipment purchase deposits |
53,050 | 46,050 | ||||||
| 1,237,090 | 1,177,729 | |||||||
Less accumulated depreciation and amortization |
601,539 | 570,017 | ||||||
Net property and equipment |
635,551 | 607,712 | ||||||
Other assets: |
||||||||
Investments in debt securities |
45,000 | 40,740 | ||||||
Restricted cash |
71,312 | 69,876 | ||||||
Other assets, net |
127,599 | 124,534 | ||||||
Total other assets |
243,911 | 235,150 | ||||||
| $ | 1,577,597 | $ | 1,626,912 | |||||
See accompanying notes to condensed consolidated financial statements.
2
AMERICA WEST HOLDINGS CORPORATION
| September 30, | December 31, | |||||||
| 2004 |
2003 |
|||||||
Liabilities and Stockholders’ Equity |
||||||||
Current liabilities: |
||||||||
Current maturities of long-term debt |
$ | 146,653 | $ | 103,899 | ||||
Current obligations under capital leases |
3,552 | 3,442 | ||||||
Accounts payable |
177,996 | 210,288 | ||||||
Air traffic liability |
229,534 | 174,486 | ||||||
Accrued compensation and vacation benefits |
41,666 | 61,045 | ||||||
Accrued taxes |
41,020 | 36,846 | ||||||
Other accrued liabilities |
74,252 | 59,277 | ||||||
Total current liabilities |
714,673 | 649,283 | ||||||
Long-term debt, less current maturities |
601,470 | 688,965 | ||||||
Capital leases, less current obligations |
5,061 | 8,467 | ||||||
Deferred credits and other liabilities |
143,642 | 141,681 | ||||||
Stockholders’ equity: |
||||||||
Preferred
stock, $.01 par value, Authorized 48,800,000
shares; no shares issued |
— | — | ||||||
Class A
common stock, $.01 par value, Authorized
1,200,000 shares; issued and outstanding 859,117 shares at
September 30, 2004 and December 31, 2003 |
8 | 8 | ||||||
Class B
common stock, $.01 par value, Authorized 100,000,000
shares; issued and outstanding 51,558,197 shares at September 30, 2004
and 51,239,200 shares at December 31, 2003 |
516 | 512 | ||||||
Additional paid-in capital |
632,423 | 631,269 | ||||||
Accumulated deficit |
(239,791 | ) | (199,594 | ) | ||||
Accumulated other comprehensive income |
27,501 | 12,527 | ||||||
| 420,657 | 444,722 | |||||||
Less: Cost of Class B common stock in treasury, 16,437,575 shares at
September 30, 2004 and 16,283,895 shares at December 31, 2003 |
(307,906 | ) | (306,206 | ) | ||||
Total stockholders’ equity |
112,751 | 138,516 | ||||||
| $ | 1,577,597 | $ | 1,626,912 | |||||
See accompanying notes to condensed consolidated financial statements.
3
AMERICA WEST HOLDINGS CORPORATION
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
Operating revenues: |
||||||||||||||||
Passenger |
$ | 542,167 | $ | 552,564 | $ | 1,648,666 | $ | 1,591,496 | ||||||||
Cargo |
6,290 | 6,201 | 20,010 | 21,101 | ||||||||||||
Other |
30,166 | 33,537 | 91,565 | 78,709 | ||||||||||||
Total operating revenues |
578,623 | 592,302 | 1,760,241 | 1,691,306 | ||||||||||||
Operating expenses: |
||||||||||||||||
Salaries and related costs |
165,164 | 158,167 | 493,416 | 477,884 | ||||||||||||
Aircraft rents |
76,400 | 74,417 | 226,931 | 221,862 | ||||||||||||
Other rents and landing fees |
43,322 | 38,210 | 126,574 | 115,475 | ||||||||||||
Aircraft fuel |
136,297 | 91,595 | 375,825 | 271,481 | ||||||||||||
Agency commissions |
6,302 | 8,408 | 19,305 | 26,564 | ||||||||||||
Aircraft maintenance materials and repairs |
54,437 | 50,854 | 156,841 | 173,572 | ||||||||||||
Depreciation and amortization |
13,296 | 16,572 | 39,674 | 51,563 | ||||||||||||
Special charges |
1,629 | — | 1,029 | 14,370 | ||||||||||||
Other |
110,013 | 103,944 | 310,207 | 318,235 | ||||||||||||
Total operating expenses |
606,860 | 542,167 | 1,749,802 | 1,671,006 | ||||||||||||
Operating income (loss) |
(28,237 | ) | 50,135 | 10,439 | 20,300 | |||||||||||
Nonoperating income (expenses): |
||||||||||||||||
Interest income |
2,053 | 1,666 | 5,350 | 4,231 | ||||||||||||
Interest expense, net |
(19,931 | ) | (19,484 | ) | (58,920 | ) | (57,504 | ) | ||||||||
Federal government assistance |
— | — | — | 81,255 | ||||||||||||
Other, net |
(952 | ) | 625 | 2,934 | 2,326 | |||||||||||
Total nonoperating income (expenses), net |
(18,830 | ) | (17,193 | ) | (50,636 | ) | 30,308 | |||||||||
Income (loss) before income taxes |
(47,067 | ) | 32,942 | (40,197 | ) | 50,608 | ||||||||||
Income taxes |
— | — | — | — | ||||||||||||
Net income (loss) |
$ | (47,067 | ) | $ | 32,942 | $ | (40,197 | ) | $ | 50,608 | ||||||
Earnings (loss) per share: |
||||||||||||||||
Basic |
$ | (1.30 | ) | $ | 0.94 | $ | (1.12 | ) | $ | 1.48 | ||||||
Diluted |
$ | (1.30 | ) | $ | 0.60 | $ | (1.12 | ) | $ | 1.18 | ||||||
Shares used for computation: |
||||||||||||||||
Basic |
36,111 | 35,037 | 35,989 | 34,161 | ||||||||||||
Diluted |
36,111 | 59,285 | 35,989 | 49,507 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
AMERICA WEST HOLDINGS CORPORATION
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2004 |
2003 |
|||||||
Net cash provided by operating activities |
$ | 89,912 | $ | 159,350 | ||||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(125,938 | ) | (119,196 | ) | ||||
Purchases of short-term investments |
(58,165 | ) | (51,186 | ) | ||||
Sales of short-term investments |
77,409 | 35,739 | ||||||
Purchases of investments in debt securities |
(35,000 | ) | (46,189 | ) | ||||
Sales of investments in debt securities |
15,000 | 1,501 | ||||||
Increase in restricted cash |
(1,436 | ) | (23,465 | ) | ||||
Proceeds from disposition of assets |
2,544 | 24,283 | ||||||
Net cash used in investing activities |
(125,586 | ) | (178,513 | ) | ||||
Cash flows from financing activities: |
||||||||
Repayment of debt |
(174,280 | ) | (14,719 | ) | ||||
Proceeds from issuance of debt |
110,564 | 86,828 | ||||||
Payments of debt issue costs |
(1,156 | ) | (3,105 | ) | ||||
Other |
1,158 | 725 | ||||||
Net cash provided by (used in) financing activities |
(63,714 | ) | 69,729 | |||||
Net increase (decrease) in cash and cash equivalents |
(99,388 | ) | 50,566 | |||||
Cash and cash equivalents at beginning of period |
403,082 | 335,750 | ||||||
Cash and cash equivalents at end of period |
$ | 303,694 | $ | 386,316 | ||||
Cash, cash equivalents, short-term investments and investments in debt
securities at end of period |
$ | 416,835 | $ | 471,189 | ||||
Cash paid for: |
||||||||
Interest, net of amounts capitalized |
$ | 18,001 | $ | 14,304 | ||||
Income taxes paid (refunded) |
$ | 1,441 | $ | (438 | ) | |||
Non-cash investing and financing activities: |
||||||||
Payment in kind notes issued |
$ | 4,974 | $ | 4,813 | ||||
Exercise of warrants |
$ | (2 | ) | $ | (17 | ) | ||
Acquisition of shares due to loan default |
$ | 1,700 | $ | — | ||||
Reclassification of investments in debt securities to
short-term investments |
$ | 15,730 | $ | — | ||||
Notes payable issued (cancelled) under the aircraft purchase
agreement |
$ | 7,000 | $ | (7,000 | ) | |||
Cancellation of convertible notes |
$ | — | $ | (660 | ) | |||
See accompanying notes to condensed consolidated financial statements.
5
AMERICA WEST HOLDINGS CORPORATION
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the accounts of Holdings and its wholly owned subsidiary, AWA. TLC, previously a wholly owned subsidiary of Holdings, was merged into AWA on January 1, 2004 and continues to operate as the America West Vacations division of AWA. Accordingly, Holdings operates as one operating segment. These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and, in accordance with those rules and regulations, certain information and footnotes required by generally accepted accounting principles have been omitted. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation. Certain prior year amounts have been reclassified to conform with current year presentation. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the year ended December 31, 2003.
2. STOCK OPTIONS
The Company accounts for its stock option plans in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. The Company issues its stock options at a price equal to fair market value on the date of grant. Accordingly, no compensation cost has been recognized for stock options in the accompanying condensed consolidated financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” the Company’s net income (loss) and income (loss) per share would have been reduced (increased) to the pro forma amounts indicated below:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| (in thousands except per share data) | ||||||||||||||||
Net income (loss), as reported |
$ | (47,067 | ) | $ | 32,942 | $ | (40,197 | ) | $ | 50,608 | ||||||
Stock-based compensation expense |
(1,824 | ) | (1,063 | ) | (4,740 | ) | (3,274 | ) | ||||||||
Pro forma net income (loss) |
$ | (48,891 | ) | $ | 31,879 | $ | (44,937 | ) | $ | 47,334 | ||||||
Income (loss) per share: |
||||||||||||||||
Basic - as reported |
$ | (1.30 | ) | $ | 0.94 | $ | (1.12 | ) | $ | 1.48 | ||||||
Basic - pro forma |
$ | (1.35 | ) | $ | 0.91 | $ | (1.25 | ) | $ | 1.39 | ||||||
Diluted - as reported |
$ | (1.30 | ) | $ | 0.60 | $ | (1.12 | ) | $ | 1.18 | ||||||
Diluted - pro forma |
$ | (1.35 | ) | $ | 0.54 | $ | (1.25 | ) | $ | 0.96 | ||||||
3. FLIGHT EQUIPMENT
During the quarter, the Company entered into agreements with two aircraft lessors for the return of six Boeing 737-200 aircraft. Three aircraft were returned during the quarter and three are expected to be returned in the fourth quarter. Negotiations continue for the return of the remaining two Boeing 737-200 aircraft. See Note 6 “Special Charges.”
In August 2004, the Company amended its 1999 Airbus purchase contract. As amended, the new agreement calls for the Company to acquire 22 Airbus A320 family aircraft (a mix of A320s and A319s), all powered by V2500 engines from International Aero Engines. Of the 22 aircraft, it is anticipated that 18 will be purchased directly from the manufacturer and four will be leased from various lessors. The Company has negotiated lease agreements for the four leased aircraft. In addition, the Company is exploring the possibility of leasing one additional aircraft in lieu of purchasing such aircraft from the manufacturer. In the context of this incremental order, the Company also secured extensive flexibility from Airbus with respect to its existing A318 order, allowing the Company to better react to market conditions by enabling it to amend its 15 A318 delivery positions to A319s and A320s, if it so desires, or to no additional aircraft under certain conditions.
6
AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
September 30, 2004
In the first quarter of 2004, the Company revised the estimated useful life for certain aircraft and related spare parts inventory as a result of changes in AWA’s fleet plan and for capitalized maintenance on certain of its engines as a result of changes in aircraft utilization. The net impact of this change in estimate was an increase in net income for the three and nine months ended September 30, 2004 of $4.6 million and $13.8 million, respectively. As a result, basic and diluted loss per share decreased by $0.13 and $0.13, respectively, for the three months ended September 30, 2004, and increased by $0.38 and $0.38, respectively, for the nine months ended September 30, 2004.
4. TERM LOAN REFINANCING
On September 10, 2004, AWA entered into a term loan financing with GECC providing for loans in an aggregate amount of $110.6 million. AWA used approximately $77.0 million of the proceeds from this financing to repay in full its term loan with Mizuho Corporate Bank, Ltd. and certain other lenders and to pay certain costs associated with this transaction. AWA intends to use the remaining proceeds for general corporate purposes. The new term loan financing consists of two secured term loan facilities: a $75.6 million term loan facility secured primarily by spare parts, rotables and appliances (the “Spare Parts Facility”); and a $35.0 million term loan facility secured primarily by aircraft engines and parts installed in such engines (the “Engine Facility”).
The loans under the Spare Parts Facility are payable in full at maturity on September 10, 2010. The loans under the Engine Facility are payable in equal quarterly installments of $1.3 million beginning on March 10, 2006 through June 10, 2010 with the remaining loan amount of $11.8 million payable at maturity on September 10, 2010. The loans under each facility may be prepaid in an amount not less than $5 million at any time after the 30th monthly anniversary of the funding date under such facility. If AWA fails to maintain a certain ratio of rotables to loans under the Spare Parts Facility, it may be required to pledge additional rotables or cash as collateral, provide a letter of credit or prepay some or all of the loans under the Spare Parts Facility. In addition, the loans under the Engine Facility are subject to mandatory prepayment upon the occurrence of certain events of loss applicable to, or certain dispositions of, aircraft engines securing the facility.
Principal amounts outstanding under the loans bear interest at a rate per annum based on three-month LIBOR plus margin. Both facilities contain customary events of default, including payment defaults, cross-defaults, breach of covenants, bankruptcy and insolvency defaults and judgment defaults.
5. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes changes in the fair value of derivative financial instruments that qualify as cash flow hedges in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” For the three and nine months ended September 30, 2004, the Company recorded total comprehensive loss of $34.6 million and $25.2 million, respectively. For the three and nine months ended September 30, 2003, the Company recorded total comprehensive income of $32.2 million and $58.6 million, respectively. The difference between net income (loss) and comprehensive income (loss) for the three and nine months ended September 30, 2004 and 2003 is detailed in the following table:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| (in thousands) | ||||||||||||||||
Net income (loss) |
$ | (47,067 | ) | $ | 32,942 | $ | (40,197 | ) | $ | 50,608 | ||||||
Unrealized gains (losses) on derivative instruments |
18,402 | (793 | ) | 26,102 | 17,097 | |||||||||||
Reclassification adjustment to net income (loss) of
previously reported unrealized gains (losses) on
derivative instruments |
(5,931 | ) | 84 | (11,128 | ) | (9,126 | ) | |||||||||
Total other comprehensive income (loss) |
12,471 | (709 | ) | 14,974 | 7,971 | |||||||||||
Comprehensive income (loss) |
$ | (34,596 | ) | $ | 32,233 | $ | (25,223 | ) | $ | 58,579 | ||||||
7
AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
September 30, 2004
6. SPECIAL CHARGES
In the first quarter of 2004, the Company recorded a $0.6 million reduction in special charges related to the revision of estimated costs associated with the sale and leaseback of certain aircraft.
In August 2004, the Company entered into definitive agreements with two lessors to return six Boeing 737-200 aircraft. Three of these aircraft were returned to the lessors in the third quarter, with the other aircraft expected to be returned in the fourth quarter. In addition, the Company is also negotiating with one lessor on the return of its remaining two Boeing 737-200 aircraft, one of which was parked in March 2002. The other aircraft is expected to be removed from service in January 2005. In connection with the return of the three aircraft in the third quarter, the Company recorded $1.6 million of special charges which include lease termination payments of $2.1 million, the write-down of leasehold improvements and aircraft rent balances of $1.7 million, offset by the reversal of maintenance reserves of $2.2 million. The Company also expects to record special charges of approximately $2.2 million for the remaining aircraft.
The following table presents the payments and other settlements made during the nine months ended September 30, 2004 related to the special charge accruals:
| Fleet | Contract | |||||||||||||||||||
| Sale- | Restructuring | Reductions- | Termination/ | |||||||||||||||||
| Leaseback |
/Retirement |
in-force |
Other Costs |
Total |
||||||||||||||||
| (in thousands) | ||||||||||||||||||||
Balance at December 31, 2003 |
$ | 605 | $ | 1,389 | $ | 357 | $ | 2,649 | $ | 5,000 | ||||||||||
Revision of estimate |
(600 | ) | — | — | — | (600 | ) | |||||||||||||
Payments |
(5 | ) | (180 | ) | (275 | ) | (515 | ) | (975 | ) | ||||||||||
Balance at March 31, 2004 |
$ | — | $ | 1,209 | $ | 82 | $ | 2,134 | $ | 3,425 | ||||||||||
Revision of estimate |
— | — | (65 | ) | — | (65 | ) | |||||||||||||
Payments |
— | (195 | ) | (17 | ) | (506 | ) | (718 | ) | |||||||||||
Balance at June 30, 2004 |
$ | — | $ | 1,014 | $ | — | $ | 1,628 | $ | 2,642 | ||||||||||
Special charges |
— | 1,629 | — | — | 1,629 | |||||||||||||||
Payments |
— | (2,247 | ) | — | (506 | ) | (2,753 | ) | ||||||||||||
Reversal of maintenance reserves |
— | 2,175 | — | — | 2,175 | |||||||||||||||
Write-down of leasehold improvements
and aircraft rent balances |
— | (1,739 | ) | — | — | (1,739 | ||||||||||||||