AMERICA WEST HOLDINGS CORP - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2003 or

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

(Exact name of registrant as specified in its charter)


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)


Registrant’s telephone number, including area code		(480) 693-0800

N/A

(Former name, former address and former fiscal year, if changed since last report)

AMERICA WEST AIRLINES, INC.

(Exact name of registrant as specified in its charter)


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)


Registrant’s telephone number, including area code		(480) 693-0800

N/A

(Former name, former address and former fiscal year, if changed since last report)

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. Yesþ Noo

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yesþ No o

As of April 23, 2003, America West Holdings Corporation has 941,431 shares of class A common stock and 32,771,285 shares of class B common stock outstanding. As of April 23, 2003, America West Airlines, Inc. has 1,000 shares of class B common stock outstanding, all of which are held by America West Holdings Corporation.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM 1A. CONSOLIDATED FINANCIAL STATEMENTS — AMERICA WEST HOLDINGS CORPORATION
	ITEM 1B. FINANCIAL STATEMENTS — AMERICA WEST AIRLINES, INC.
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
CERTIFICATIONS
EXHIBIT INDEX
EX-99.1
EX-99.2

PART I – FINANCIAL INFORMATION

ITEM 1A. CONSOLIDATED FINANCIAL STATEMENTS – AMERICA WEST HOLDINGS CORPORATION

AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets
(in thousands except share data)


			March 31,		December 31,
			2003		2002

			(unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	309,669	$	335,750
	Short-term investments			—		24,738
	Accounts receivable, net			121,706		82,197
	Expendable spare parts and supplies, net			60,159		55,894
	Prepaid expenses			163,783		110,337

		Total current assets		655,317		608,916

Property and equipment:
	Flight equipment			880,700		880,446
	Other property and equipment			274,104		274,329
	Equipment purchase deposits			46,050		46,050

				1,200,854		1,200,825
	Less accumulated depreciation and amortization			566,258		551,065

		Net property and equipment		634,596		649,760

Other assets:
	Restricted cash			46,311		45,968
	Other assets, net			141,490		134,309

		Total other assets		187,801		180,277

			$	1,477,714	$	1,438,953

See accompanying notes to condensed consolidated financial statements.

AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets
(in thousands except share data)


			March 31,			December 31,
			2003			2002

			(unaudited)
Liabilities and Stockholders' Equity
Current liabilities:
	Current maturities of long-term debt		$	60,795		$	19,116
	Current obligations under capital leases			3,211			3,122
	Accounts payable			189,612			183,304
	Air traffic liability			262,374			192,450
	Accrued compensation and vacation benefits			43,514			39,076
	Accrued taxes			43,842			35,159
	Other accrued liabilities			41,860			38,607

		Total current liabilities		645,208			510,834

Long-term debt, less current maturities				654,954			700,983
Capital leases, less current obligations				11,644			11,999
Deferred credits and other liabilities				147,070			146,959
Commitments and contingencies
Stockholders’ equity:
	Preferred stock, $.01 par value. Authorized 48,800,000 shares; no shares issued			—			—
	Class A common stock, $.01 par value. Authorized 1,200,000 shares; issued and outstanding 941,431 shares at March 31, 2003 and December 31, 2002			9			9
	Class B common stock, $.01 par value. Authorized 100,000,000 shares; issued 49,055,180 shares at March 31, 2003 and December 31, 2002			491			491
	Additional paid-in capital			628,868			628,868
	Retained deficit			(319,032	)		(257,014	)
	Accumulated other comprehensive income			14,708			2,030

				325,044			374,384
	Less: Cost of class B common stock in treasury, 16,283,895 shares at March 31, 2003 and December 31, 2002			(306,206	)		(306,206	)

		Total stockholders’ equity		18,838			68,178

			$	1,477,714		$	1,438,953

See accompanying notes to condensed consolidated financial statements.

AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Statements of Operations
(in thousands except per share data)
(unaudited)


			Three Months Ended
			March 31,
			2003			2002

						(as restated)
Operating revenues:
	Passenger		$	500,574		$	436,975
	Cargo			7,056			7,320
	Other			15,603			15,996

		Total operating revenues		523,233			460,291

Operating expenses:
	Salaries and related costs			161,133			142,531
	Aircraft rents			75,154			72,891
	Other rents and landing fees			39,760			41,430
	Aircraft fuel			93,356			58,088
	Agency commissions			6,192			14,249
	Aircraft maintenance materials and repairs			64,208			65,258
	Depreciation and amortization			17,474			16,658
	Special charges, net			(102	)		21,030
	Other			112,198			111,622

		Total operating expenses		569,373			543,757

Operating loss				(46,140	)		(83,466	)

Nonoperating income (expenses):
	Interest income			1,407			2,789
	Interest expense, net			(18,505	)		(17,173	)
	Other, net			1,220			(2,458	)

		Total nonoperating expenses, net		(15,878	)		(16,842	)

Loss before income tax benefit and cumulative effect of change in accounting principle				(62,018	)		(100,308	)

Income tax benefit				—			(35,071	)

Loss before cumulative effect of change in accounting principle				(62,018	)		(65,237	)

Cumulative effect of change in accounting principle				—			(208,223	)

Net loss			$	(62,018	)	$	(273,460	)

Basic loss per share:
	Loss before cumulative effect of change in accounting principle		$	(1.84	)	$	(1.93	)
	Cumulative effect of change in accounting principle			—			(6.17	)

	Basic loss per share		$	(1.84	)	$	(8.10	)

Diluted loss per share:
	Loss before cumulative effect of change in accounting principle		$	(1.84	)	$	(1.93	)
	Cumulative effect of change in accounting principle			—			(6.17	)

	Diluted loss per share		$	(1.84	)	$	(8.10	)

Shares used for computation:
	Basic			33,713			33,728

	Diluted			33,713			33,728

See accompanying notes to condensed consolidated financial statements.

AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)


			Three Months Ended
			March 31,
			2003			2002

						(as restated)
Net cash used in operating activities			$	(21,578	)	$	(106,669	)

Cash flows from investing activities:
	Purchases of property and equipment			(46,907	)		(43,717	)
	Purchases of short-term investments			—			(5,277	)
	Sales of short-term investments			24,738			—
	Proceeds from disposition of assets			23,457			21

		Net cash provided by (used in) investing activities		1,288			(48,973	)

Cash flows from financing activities:
	Repayment of debt			(5,791	)		(4,303	)
	Proceeds from issuance of debt			—			430,500
	Payment of debt issue costs			—			(12,020	)

		Net cash provided by (used in) financing activities		(5,791	)		414,177

Net increase (decrease) in cash and cash equivalents				(26,081	)		258,535
Cash and cash equivalents at beginning of period				335,750			156,865

Cash and cash equivalents at end of period			$	309,669		$	415,400

Cash, cash equivalents and short-term investments at end of period			$	309,669		$	420,677

Cash paid (refunded) for:
	Interest, net of amounts capitalized		$	5,766		$	6,652

	Income taxes paid (refunded)		$	59		$	(33,803	)

Non-cash investing and financing activities:
	Issuance of convertible notes, net of cancellations		$	—		$	104,465

	Issuance of warrants		$	—		$	35,383

	Equipment acquired through capital lease		$	—		$	16,878

	Notes payable canceled under the aircraft purchase agreement		$	—		$	3,500

	Payment in kind notes issued, net of returns		$	374		$	—

See accompanying notes to condensed consolidated financial statements.

AMERICA WEST HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2003

1. BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements include the accounts of America West Holdings Corporation (“Holdings” or the “Company”) and its wholly owned subsidiaries, America West Airlines, Inc. (“AWA”) and The Leisure Company (“TLC”). 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 for the year ended December 31, 2002.

2. RESTATEMENT OF PREVIOUSLY REPORTED AMOUNTS

The Company has restated its financial statements for the fiscal year ended December 31, 2001 and its unaudited financial statements for the first, second and third quarters of fiscal year ended December 31, 2002. The changes include:


—		a change in the timing from the first quarter of 2002 back to the fourth quarter of 2001 of the non-cash impairment charge of approximately $39.2 million recorded to adjust the carrying value of owned aircraft to market value and the related non-cash impairment charge of approximately $64.1 million recorded to write off reorganization value in excess of amounts allocable to identifiable assets (“ERV”) that arose in connection with the Company’s plan of reorganization from bankruptcy in 1994, both of which charges were previously recorded in the first quarter of 2002; and

—		the recognition of a full valuation allowance relating to the Company’s net deferred tax assets.

Impairment Charges

Statement of Financial Accounting Standards (“SFAS”) No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” requires that an impairment analysis be performed whenever circumstances indicate that the carrying amount of an asset that an entity expects to hold and use may not be recoverable.

As a result of the adverse impacts on Holdings and AWA and the airline industry as a whole resulting from the terrorist events of September 11, 2001 and their aftermath, AWA performed an assessment of impairment of its owned aircraft during 2001 and again in connection with the preparation of the interim financial statements for the first quarter of 2002.

As a result of AWA’s assessments, no impairment adjustment was recorded in the financial statements initially issued for 2001. The Company recorded an impairment charge of approximately $39.2 million in the first quarter of 2002 to adjust the carrying value of AWA’s owned aircraft to reflect market values at that time. Such accounting treatment was considered appropriate at the time of the issuance of the applicable financial statements. In connection with the preparation of the financial statements and the related audit for the fiscal year ended December 31, 2002, the Company determined that the more appropriate recognition of the impairment charge of approximately $39.2 million was in the fourth quarter of 2001 rather than in the first quarter of 2002.

In addition, SFAS No. 121 requires that goodwill that arose in a purchase business combination be allocated, and included as part of the asset base, in determining recoverability and measuring impairment. The Company did not have goodwill at December 31, 2001, but did have a significant amount of unamortized ERV. The Company has determined that a portion of the unamortized ERV balance should have been allocated to AWA’s owned aircraft in the impairment analysis performed for the year ended December 31, 2001. The remaining unamortized balance of ERV was written-off in the first quarter of 2002 as a cumulative effect of a change in accounting principle, upon adoption of SFAS No. 142, “Goodwill and Other Intangible Assets.”

AMERICA WEST HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2003

The impact of the above described matters is to change the period of recognition for these non-cash costs between late 2001 and early 2002.

Deferred Income Taxes

SFAS No. 109 “Accounting for Income Taxes” requires that a valuation allowance be established when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. A review of all available positive and negative evidence needs to be considered, including the company’s performance, the market environment in which the company operates, forecasts of future profitability, the utilization of past tax credits, length of carryforward periods and similar factors. SFAS No. 109 further states that it is difficult to conclude that a valuation allowance is not needed when there is negative evidence such as cumulative losses in recent years. Therefore, cumulative losses weigh heavily in the overall assessment.

The Company had originally reported a net deferred tax liability at December 31, 2001. After consideration of the restatement discussed above, the Company had a net deferred tax asset and was in a cumulative loss position for the three years ended December 31, 2001. A full valuation allowance has been established relating to the Company’s net deferred tax assets at December 31, 2001, and relating to net deferred tax assets generated by losses in 2002. We expect to continue to record a full valuation allowance on future tax benefits until we return to profitability.

As a result of the adjustments discussed above, the Company’s financial statements for the first quarter of 2002 have been restated from amounts previously reported. The principal effects of these adjustments on the accompanying financial statements are set forth below:


	For the Three Months Ended March 31, 2002

	(in thousands except per share data)
	As Previously			Restatement		As
	Reported			Adjustments		Restated

Operating loss	$	(122,691	)		39,225	$	(83,466	)

Loss before income tax benefit and cumulative effect of change in accounting principle		(139,533	)		39,225		(100,308	)
Income tax benefit		(53,512	)		18,441		(35,071	)
Loss before cumulative effect of change in accounting principle		(86,021	)		20,784		(65,237	)
Cumulative effect of change in accounting principle		(272,284	)		64,061		(208,223	)
Net loss	$	(358,305	)		84,845	$	(273,460	)

Basic and diluted loss per share:
Loss before cumulative effect of change in accounting principle	$	(2.55	)		0.62	$	(1.93	)
Cumulative effect of change in accounting principle		(8.07	)		1.90		(6.17	)

Net loss per share	$	(10.62	)		2.52	$	(8.10	)

3. STOCK OPTIONS

The Company accounts for its stock option plans in accordance with the provisions of 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. 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 SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company’s net loss and loss per share would have been reduced to the pro forma amounts indicated below:

AMERICA WEST HOLDINGS CORPORATION
Notes to Condensed Consolidated Financial Statements
March 31, 2003

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þ		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended March 31, 2003 or

o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from to