UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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, 2004 |
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
| 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 x 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 | x | No | o | ||||
America West Airlines, Inc.
|
Yes | o | No | x |
As of April 20, 2004, America West Holdings Corporation has 859,117 shares of Class A common stock and 35,121,045 shares of Class B common stock outstanding. As of April 20, 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 Holding 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
Condensed Consolidated Balance Sheets
(in thousands except share data)
(unaudited)
| March 31, | December 31, | |||||||
| 2004 |
2003 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 321,222 | $ | 403,076 | ||||
Short-term investments |
76,656 | 72,890 | ||||||
Restricted cash |
42,900 | 42,900 | ||||||
Accounts receivable, net |
94,777 | 77,235 | ||||||
Expendable spare parts and supplies, net |
57,495 | 58,575 | ||||||
Prepaid expenses |
189,552 | 129,368 | ||||||
Total current assets |
782,602 | 784,044 | ||||||
Property and equipment: |
||||||||
Flight equipment |
856,718 | 858,395 | ||||||
Other property and equipment |
275,927 | 273,284 | ||||||
Equipment purchase deposits |
49,550 | 46,050 | ||||||
| 1,182,195 | 1,177,729 | |||||||
Less accumulated depreciation and amortization |
569,516 | 570,017 | ||||||
Net property and equipment |
612,679 | 607,712 | ||||||
Other assets: |
||||||||
Investments in debt securities |
35,386 | 40,740 | ||||||
Restricted cash |
68,795 | 69,876 | ||||||
Other assets, net |
113,535 | 124,534 | ||||||
Total other assets |
217,716 | 235,150 | ||||||
| $ | 1,612,997 | $ | 1,626,906 | |||||
See accompanying notes to condensed consolidated financial statements.
2
AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Balance Sheets
(in thousands except share data)
(unaudited)
| March 31, | December 31, | |||||||
| 2004 |
2003 |
|||||||
Liabilities and Stockholders’ Equity |
||||||||
Current liabilities: |
||||||||
Current maturities of long-term debt |
$ | 107,094 | $ | 103,899 | ||||
Current obligations under capital leases |
6,602 | 3,442 | ||||||
Accounts payable |
178,452 | 210,288 | ||||||
Air traffic liability |
218,792 | 174,486 | ||||||
Accrued compensation and vacation benefits |
45,897 | 61,045 | ||||||
Accrued taxes |
43,719 | 36,845 | ||||||
Other accrued liabilities |
81,150 | 59,278 | ||||||
Total current liabilities |
681,706 | 649,283 | ||||||
Long-term debt, less current maturities |
643,351 | 688,965 | ||||||
Capital leases, less current obligations |
5,141 | 8,467 | ||||||
Deferred credits and other liabilities |
143,967 | 141,675 | ||||||
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
March 31, 2004 and December 31, 2003 |
8 | 8 | ||||||
Class B common stock, $.01 par value. Authorized 100,000,000
shares; issued and outstanding 51,393,606 shares at March 31, 2004
and 51,239,200 shares at December 31, 2003 |
514 | 512 | ||||||
Additional paid-in capital |
631,648 | 631,269 | ||||||
Accumulated deficit |
(198,418 | ) | (199,594 | ) | ||||
Accumulated other comprehensive income |
12,086 | 12,527 | ||||||
| 445,838 | 444,722 | |||||||
Less: Cost of Class B common stock in treasury, 16,364,550
shares at March 31, 2004 and 16,283,895 shares at December 31, 2003 |
(307,006 | ) | (306,206 | ) | ||||
Total stockholders’ equity |
138,832 | 138,516 | ||||||
| $ | 1,612,997 | $ | 1,626,906 | |||||
See accompanying notes to condensed consolidated financial statements.
3
AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Statements of Operations
(in thousands except per share data)
(unaudited)
| Three Months Ended | ||||||||
| March 31, |
||||||||
| 2004 |
2003 |
|||||||
Operating revenues: |
||||||||
Passenger |
$ | 537,333 | $ | 500,574 | ||||
Cargo |
6,903 | 7,056 | ||||||
Other |
32,308 | 15,603 | ||||||
Total operating revenues |
576,544 | 523,233 | ||||||
Operating expenses: |
||||||||
Salaries and related costs |
166,275 | 163,094 | ||||||
Aircraft rents |
75,185 | 75,154 | ||||||
Other rents and landing fees |
41,241 | 39,760 | ||||||
Aircraft fuel |
111,069 | 93,356 | ||||||
Agency commissions |
6,750 | 8,824 | ||||||
Aircraft maintenance materials and repairs |
50,054 | 64,208 | ||||||
Depreciation and amortization |
13,791 | 17,663 | ||||||
Other |
94,351 | 107,314 | ||||||
Total operating expenses |
558,716 | 569,373 | ||||||
Operating income (loss) |
17,828 | (46,140 | ) | |||||
Nonoperating income (expenses): |
||||||||
Interest income |
1,518 | 1,407 | ||||||
Interest expense, net |
(19,752 | ) | (18,505 | ) | ||||
Other, net |
1,582 | 1,220 | ||||||
Total nonoperating expenses, net |
(16,652 | ) | (15,878 | ) | ||||
Income (loss) before income taxes |
1,176 | (62,018 | ) | |||||
Income taxes |
— | — | ||||||
Net income (loss) |
$ | 1,176 | $ | (62,018 | ) | |||
Earnings (loss) per share: |
||||||||
Basic |
$ | 0.03 | $ | (1.84 | ) | |||
Diluted |
$ | 0.02 | $ | (1.84 | ) | |||
Shares used for computation: |
||||||||
Basic |
35,851 | 33,713 | ||||||
Diluted |
52,819 | 33,713 | ||||||
See accompanying notes to condensed consolidated financial statements.
4
AMERICA WEST HOLDINGS CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Three Months Ended | ||||||||
| March 31, |
||||||||
| 2004 |
2003 |
|||||||
Net cash used in operating activities |
$ | (1,425 | ) | $ | (21,767 | ) | ||
Cash flows from investing activities: |
||||||||
Purchases of property and equipment |
(36,979 | ) | (46,904 | ) | ||||
Purchases of short-term investments |
(26,166 | ) | — | |||||
Sales of short-term investments |
27,235 | 24,738 | ||||||
Purchases of investments in debt securities |
(15,000 | ) | — | |||||
Sales of investments in debt securities |
15,000 | — | ||||||
Decrease in restricted cash |
1,081 | — | ||||||
Proceeds from disposition of assets |
1,397 | 23,643 | ||||||
Net cash provided by (used in) investing activities |
(33,432 | ) | 1,477 | |||||
Cash flows from financing activities: |
||||||||
Repayment of debt |
(47,370 | ) | (5,791 | ) | ||||
Other |
373 | — | ||||||
Net cash used in financing activities |
(46,997 | ) | (5,791 | ) | ||||
Net decrease in cash and cash equivalents |
(81,854 | ) | (26,081 | ) | ||||
Cash and cash equivalents at beginning of period |
403,076 | 335,745 | ||||||
Cash and cash equivalents at end of period |
$ | 321,222 | $ | 309,664 | ||||
Cash, cash equivalents, short-term investments and investments in debt
securities at end of period |
$ | 433,264 | $ | 309,664 | ||||
Cash paid for: |
||||||||
Interest, net of amounts capitalized |
$ | 7,700 | $ | 5,766 | ||||
Income taxes paid |
$ | 1,374 | $ | 59 | ||||
Non-cash investing and financing activities: |
||||||||
Payment in kind notes issued, net of returns |
$ | 379 | $ | 374 | ||||
Exercise of warrants |
$ | 2 | $ | — | ||||
Acquisition of shares due to loan default |
$ | 800 | $ | — | ||||
Reclassification of investments in debt securities to
short-term investments |
$ | 5,344 | $ | — | ||||
Notes payable issued under the aircraft purchase agreement |
$ | 3,500 | $ | — | ||||
See accompanying notes to condensed consolidated financial statements.
5
AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
March 31, 2004
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. 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 to the pro forma amounts indicated below:
| Three Months Ended | ||||||||
| March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (in thousands except per share data) | ||||||||
Net income (loss), as reported |
$ | 1,176 | $ | (62,018 | ) | |||
Stock-based compensation expense |
(1,270 | ) | (1,204 | ) | ||||
Pro forma net loss |
$ | (94 | ) | $ | (63,222 | ) | ||
Income (loss) per share: |
||||||||
Basic — as reported |
$ | 0.03 | $ | (1.84 | ) | |||
Basic — pro forma |
$ | 0.00 | $ | (1.88 | ) | |||
Diluted — as reported |
$ | 0.02 | $ | (1.84 | ) | |||
Diluted — pro forma |
$ | 0.00 | $ | (1.88 | ) | |||
3. FLIGHT EQUIPMENT
In January 2004, the Company entered into three separate operating leases for Airbus A320 aircraft, two with a lease term of five years and one with a lease term of seven years. These aircraft are expected to be in service in June 2004.
In February 2004, the Company sold one Boeing 737-200 aircraft recognizing a gain of approximately $0.3 million. The Company recorded this amount in “Nonoperating Income (Expenses) – Other, Net” in the accompanying condensed consolidated statements of operations.
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 months ended March 31, 2004 of $4.0 million. As a result, basic and diluted income per share increased by $0.11 and $0.08, respectively, for the three months ended March 31, 2004.
6
AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
March 31, 2004
4. 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 months ended March 31, 2004, the Company recorded total comprehensive income of $0.7 million. For the three months ended March 31, 2003, the Company recorded a total comprehensive loss of $49.3 million. The difference between net income (loss) and comprehensive income (loss) for the three months ended March 31, 2004 and 2003 is detailed in the following table:
| Three Months Ended | ||||||||
| March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (in thousands) | ||||||||
Net income (loss) |
$ | 1,176 | $ | (62,018 | ) | |||
Unrealized gains on derivative instruments |
2,459 | 21,888 | ||||||
Reclassification adjustment to net income (loss) of
previously reported unrealized gains (losses) on
derivative instruments |
(2,900 | ) | (9,210 | ) | ||||
Total other comprehensive income (loss) |
(441 | ) | 12,678 | |||||
Comprehensive income (loss) |
$ | 735 | $ | (49,340 | ) | |||
5. 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. This amount is included in “Other Expenses” in the accompanying condensed consolidated statements of operations.
In February 2003, AWA announced the elimination of its hub operations in Columbus, Ohio. As a result, 12 regional jets, all of which were operated by Chautauqua Airlines under the America West Express banner, have been phased out of the fleet. In addition, the hub has been downsized from 49 daily departures to 15 destinations to four flights per day to Phoenix and Las Vegas. Service to New York City La Guardia Airport was also eliminated because perimeter rules at the airport prohibit flights beyond 1,500 miles, precluding service from AWA’s hubs in Phoenix and Las Vegas. In the first quarter of 2003, the Company recorded special charges of $1.0 million related to the costs associated with the termination of certain aircraft and facility contracts, employee transfer and severance expenses and the write-off of leasehold improvements in Columbus, Ohio.
In the first quarter of 2003, the Company also recorded a $1.1 million reduction in special charges related to the earlier-than-planned return of certain leased aircraft in 2001 and 2002, as all payments related to these aircraft returns have been made.
The following table presents the payments and other settlements made during the three months ended March 31, 2004 related to the special charge accruals:
| Contract | ||||||||||||||||||||
| Reductions- | Termination/Other | |||||||||||||||||||
| Sale-Leaseback |
Fleet Restructuring |
in-force |
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 | ||||||||||
The Company expects to make payments related to these special charges through the fourth quarter of 2005.
7
AMERICA WEST HOLDINGS CORPORATION
Notes To Condensed Consolidated Financial Statements
March 31, 2004
6. EARNINGS (LOSS) PER SHARE (“EPS”)
The following table presents the computation of basic and diluted EPS.
| Three Months Ended | ||||||||
| March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (in thousands except per share data) | ||||||||
BASIC EARNINGS (LOSS) PER SHARE |
||||||||
Income (loss) applicable to common stock |
$ | 1,176 | $ | (62,018 | ) | |||
Weighted average common shares outstanding |
35,851 | 33,713 | ||||||
Basic earnings (loss) per share |
$ | 0.03 | $ | (1.84 | ) | |||
DILUTED EARNINGS (LOSS) PER SHARE |
||||||||
Income (loss) applicable to common stock |
$ | 1,176 | $ | (62,018 | ) | |||
Share computation: |
||||||||
Weighted average common shares outstanding |
35,851 | 33,713 | ||||||
Assumed exercise of stock options and warrants |
16,968 | — | ||||||
Weighted average common shares outstanding for purposes of computing
diluted net income (loss) per share |
52,819 | 33,713 | ||||||
Diluted income (loss) per share |
$ | 0.02 | $ | (1.84 | ) | |||
For the three months ended March 31, 2004, 2,711,887 stock options are not included in the computation of diluted EPS because the option exercise prices were greater than the average market price of common stock for the period. In addition, 8,694,000 incremental shares from assumed conversion of the 7.5% convertible senior notes are not included in the computation of diluted EPS because of the antidilutive effect on EPS. The shares issuable upon conversion of the 7.25% Senior Exchangeable Notes due 2023 were not included in the computation of diluted earnings per share since the conditions for conversion have not been met.
For the three months ended March 31, 2003, 22,537,000 warrants issued in conjunction with the government guaranteed loan and related transactions and 7,768,466 stock options are not included in the computation of diluted EPS because the option and warrant exercise prices were greater than the average market price of common stock for the period. In addition, 159 incremental shares from assumed exercise of stock options are not included in the computation of diluted EPS because of the antidilutive effect on EPS.
7. SEGMENT DISCLOSURES
Holdings is one reportable operating segment. Accordingly, the segment reporting financial data required by SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information” is included in the accompanying condensed consolidated balance sheets and statements of operations.
8
ITEM 1B. CONDENSED FINANCIAL STATEMENTS — AMERICA WEST AIRLINES, INC.
The unaudited condensed balance sheets of AWA, a wholly-owned subsidiary of Holdings, as of March 31, 2004 and December 31, 2003, the condensed statements of operations for the three months ended March 31, 2004 and 2003 and the condensed statements of cash flows for the three months ended March 31, 2004 and 2003, together with the related notes, are set forth on the following pages. 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. See Note 1, “Basis of Presentation” and Note 7, “Merger of TLC into AWA” in Notes to Condensed Financial Statements.
AMERICA WEST AIRLINES, INC.
Condensed Balance Sheets
(in thousands except share data)
(unaudited)
| March 31, | December 31, | |||||||
| 2004 |
2003 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 301,988 | $ | 383,869 | ||||
Short-term investments |
76,656 | 72,890 | ||||||
Restricted cash |
42,900 | 42,900 | ||||||
Accounts receivable, net |
94,777 | 77,235 | ||||||
Advances to parent company and affiliate, net. |
385 | — | ||||||
Expendable spare parts and supplies, net |
57,495 | 58,575 | ||||||
Prepaid expenses |
189,468 | 129,294 | ||||||
Total current assets |
763,669 | 764,763 | ||||||
Property and equipment: |
||||||||
Flight equipment |
856,718 | 858,395 | ||||||
Other property and equipment |
274,235 | 271,592 | ||||||
Equipment purchase deposits |
49,550 | 46,050 | ||||||
| 1,180,503 | 1,176,037 | |||||||
Less accumulated depreciation and amortization |
568,967 | 569,468 | ||||||
Net property and equipment |
611,536 | 606,569 | ||||||
Other assets: |
||||||||
Investments in debt securities |
35,386 | 40,740 | ||||||
Restricted cash |
68,795 | 69,876 | ||||||
Advances to parent company, net |
254,792 | 254,792 | ||||||
Other assets, net |
111,832 | 122,725 | ||||||
Total other assets |
470,805 | 488,133 | ||||||
| $ | 1,846,010 | $ | 1,859,465 | |||||
See accompanying notes to condensed financial statements.
9
AMERICA WEST AIRLINES, INC.
Condensed Balance Sheets
(in thousands except share data)
(unaudited)
| March 31, | December 31, | |||||||
| 2004 |
2003 |
|||||||
Liabilities and Stockholder’s Equity |
||||||||
Current liabilities: |
||||||||
Current maturities of long-term debt |
$ | 107,094 | $ | 103,899 | ||||
Current obligations under capital leases |
6,602 | 3,442 | ||||||
Accounts payable |
177,723 | 209,372 | ||||||
Payable to affiliate, net |
— | 1,927 | ||||||
Air traffic liability |
218,792 | 174,486 | ||||||
Accrued compensation and vacation benefits |
45,897 | 61,045 | ||||||
Accrued taxes |
31,998 | 24,117 | ||||||
Other accrued liabilities |
81,150 | 59,278 | ||||||
Total current liabilities |
669,256 | 637,566 | ||||||
Long-term debt, less current maturities |
643,351 | 688,965 | ||||||
Capital leases, less current maturities |
5,141 | 8,467 | ||||||
Deferred credits and other liabilities |
142,159 | 139,867 | ||||||
Stockholder’s equity: |
||||||||
Common Stock $.01 par value. Authorized, issued and
outstanding; 1,000 shares |
— | — | ||||||
Additional paid-in capital |
555,114 | 555,115 | ||||||
Accumulated deficit |
(181,097 | ) | (183,042 | ) | ||||
Accumulated other comprehensive income |
12,086 | 12,527 | ||||||
Total stockholder’s equity |
386,103 | 384,600 | ||||||