EX-99.3 4 g90933exv99w3.htm EX-99.3 CONSOLIDATED FINANCIAL STATEMENTS EX-99.3 CONSOLIDATED FINANCIAL STATEMENTS
 

Exhibit 99.3

Consolidated Balance Sheets
December 31, 2003 and 2002

                 
ASSETS        
(in millions)
   2003
   2002
CURRENT ASSETS:
                
Cash and cash equivalents
   $ 2,710     $ 1,969  
Restricted cash
     207       134  
Accounts receivable, net of an allowance for uncollectible accounts of $38 at December 31, 2003, and $33 at December 31, 2002
     662       292  
Income tax receivable
     —       319  
Expendable parts and supplies inventories, net of an allowance for obsolescence of $183 at December 31, 2003 and 2002
     202       164  
Deferred income taxes
     293       251  
Prepaid expenses and other
     476       356  
 
    
 		      
 		  
Total current assets
     4,550       3,485  
 
    
 		      
 		  
PROPERTY AND EQUIPMENT:
                
Flight equipment
     21,008       20,295  
Accumulated depreciation
     (6,497 )     (6,109 )
 
    
 		      
 		  
Flight equipment, net
     14,511       14,186  
 
    
 		      
 		  
Flight and ground equipment under capital leases
     463       439  
Accumulated amortization
     (353 )     (297 )
 
    
 		      
 		  
Flight and ground equipment under capital leases, net
     110       142  
 
    
 		      
 		  
Ground property and equipment
     4,477       4,270  
Accumulated depreciation
     (2,408 )     (2,206 )
 
    
 		      
 		  
Ground property and equipment, net
     2,069       2,064  
 
    
 		      
 		  
Advance payments for equipment
     62       132  
 
    
 		      
 		  
Total property and equipment, net
     16,752       16,524  
 
    
 		      
 		  
OTHER ASSETS:
                
Investments in associated companies
     21       174  
Goodwill
     2,092       2,092  
Operating rights and other intangibles, net of accumulated amortization of $179 at December 31, 2003, and $172 at December 31, 2002
     95       102  
Restricted investments for Boston airport terminal project
     286       417  
Other noncurrent assets
     2,143       1,509  
 
    
 		      
 		  
Total other assets
     4,637       4,294  
 
    
 		      
 		  
Total assets
   $ 25,939     $ 24,303  
 
    
 		      
 		  

The accompanying notes are an integral part of these Consolidated Financial Statements.

1

 

Consolidated Balance Sheets
December 31, 2003 and 2002

                 
LIABILITIES AND SHAREOWNERS’ (DEFICIT) EQUITY        
(in millions, except share data)
   2003
   2002
CURRENT LIABILITIES:
                
Current maturities of long-term debt
   $ 1,002     $ 666  
Current obligations under capital leases
     19       27  
Accounts payable, deferred credits and other accrued liabilities
     1,709       1,846  
Air traffic liability
     1,308       1,270  
Taxes payable
     498       445  
Accrued salaries and related benefits
     1,285       1,365  
Accrued rent
     336       344  
 
    
 		      
 		  
Total current liabilities
     6,157       5,963  
 
    
 		      
 		  
NONCURRENT LIABILITIES:
                
Long-term debt
     10,962       9,576  
Long-term debt issued by Massachusetts Port Authority (Note 6)
     498       498  
Capital leases
     78       100  
Postretirement benefits
     2,253       2,282  
Accrued rent
     701       739  
Pension and related benefits
     4,886       3,242  
Other
     204       93  
 
    
 		      
 		  
Total noncurrent liabilities
     19,582       16,530  
 
    
 		      
 		  
DEFERRED CREDITS:
                
Deferred gains on sale and leaseback transactions
     426       478  
Deferred revenue and other credits
     158       175  
 
    
 		      
 		  
Total deferred credits
     584       653  
 
    
 		      
 		  
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, 6, 7, 8 and 9)
                
EMPLOYEE STOCK OWNERSHIP PLAN PREFERRED STOCK:
                
Series B ESOP Convertible Preferred Stock, $1.00 par value, $72.00 stated and liquidation value; 5,839,708 shares issued and outstanding at December 31, 2003, and 6,065,489 shares issued and outstanding at December 31, 2002
     420       437  
Unearned compensation under employee stock ownership plan
     (145 )     (173 )
 
    
 		      
 		  
Total Employee Stock Ownership Plan Preferred Stock
     275       264  
 
    
 		      
 		  
SHAREOWNERS’ (DEFICIT) EQUITY:
                
Common stock, $1.50 par value; $450,000,000 authorized; 180,915,087 shares issued at December 31, 2003, and 180,903,373 shares issued at December 31, 2002
     271       271  
Additional paid-in capital
     3,272       3,263  
Retained earnings
     844       1,639  
Accumulated other comprehensive loss
     (2,338 )     (1,562 )
Treasury stock at cost, 57,370,142 shares at December 31, 2003, and 57,544,168 shares at December 31, 2002
     (2,708 )     (2,718 )
 
    
 		      
 		  
Total shareowners’ (deficit) equity
     (659 )     893  
 
    
 		      
 		  
Total liabilities and shareowners’ (deficit) equity
   $ 25,939     $ 24,303  
 
    
 		      
 		  

The accompanying notes are an integral part of these Consolidated Financial Statements.

2

 

Consolidated Statements of Operations
For the years ended December 31, 2003, 2002 and 2001

                         
(in millions, except per share data)
   2003
   2002
   2001
OPERATING REVENUES:
                        
Passenger:
                        
Mainline
   $ 10,393     $ 10,749     $ 11,848  
Regional affiliates
     2,629       2,049       1,116  
Cargo
     467       458       506  
Other, net
     598       610       409  
 
    
 		      
 		      
 		  
Total operating revenues
     14,087       13,866       13,879  
OPERATING EXPENSES:
                        
Salaries and related costs
     6,342       6,165       6,124  
Aircraft fuel
     1,938       1,683       1,817  
Depreciation and amortization
     1,230       1,164       1,283  
Contracted services
     886       1,003       1,016  
Contract carrier arrangements
     784       561       —  
Landing fees and other rents
     858       834       780  
Aircraft maintenance materials and outside repairs
     630       711       801  
Aircraft rent
     727       709       737  
Other selling expenses
     479       539       616  
Passenger commissions
     211       322       540  
Passenger service
     325       372       466  
Restructuring, asset writedowns, pension settlements and related items, net
     268       439       1,119  
Appropriations Act reimbursements
     (398 )     —       —  
Stabilization Act compensation
     —       (34 )     (634 )
Other
     592       707       816  
 
    
 		      
 		      
 		  
Total operating expenses
     14,872       15,175       15,481  
 
    
 		      
 		      
 		  
OPERATING LOSS
     (785 )     (1,309 )     (1,602 )
 
    
 		      
 		      
 		  
OTHER INCOME (EXPENSE):
                        
Interest expense
     (757 )     (665 )     (499 )
Interest income
     36       36       89  
Gain (loss) from sale of investments, net
     321       (3 )     127  
Gain (loss) on extinguishment of debt, net
     —       (42 )     —  
Fair value adjustments of SFAS 133 derivatives
     (9 )     (39 )     68  
Miscellaneous income (expense), net
     5       20       (47 )
 
    
 		      
 		      
 		  
Total other income (expense)
     (404 )     (693 )     (262 )
 
    
 		      
 		      
 		  
LOSS BEFORE INCOME TAXES
     (1,189 )     (2,002 )     (1,864 )
INCOME TAX BENEFIT
     416       730       648  
 
    
 		      
 		      
 		  
NET LOSS
     (773 )     (1,272 )     (1,216 )
PREFERRED STOCK DIVIDENDS
     (17 )     (15 )     (14 )
 
    
 		      
 		      
 		  
NET LOSS AVAILABLE TO COMMON SHAREOWNERS
   $ (790 )   $ (1,287 )   $ (1,230 )
 
    
 		      
 		      
 		  
BASIC AND DILUTED LOSS PER SHARE
   $ (6.40 )   $ (10.44 )   $ (9.99 )
 
    
 		      
 		      
 		  

The accompanying notes are an integral part of these Consolidated Financial Statements.

3

 

Consolidated Statements of Cash Flows
For the years ended December 31, 2003, 2002 and 2001

                                 
(in millions)
   2003
           2002
   2001
Cash Flows From Operating Activities:
                                
Net loss
   $ (773 )           $ (1,272 )   $ (1,216 )
Adjustments to reconcile net loss to cash provided by operating activities:
                                
Asset and other writedowns
     47               287       339  
Depreciation and amortization
     1,230               1,181       1,283  
Deferred income taxes
     (416 )             (411 )     (648 )
Fair value adjustments of SFAS 133 derivatives
     9               39       (68 )
Pension, postretirement and postemployment expense in excess of payments
     532               177       419  
(Gain) loss on extinguishment of debt, net
     —               42       —  
Dividends (less than) in excess of equity income
     30               (3 )     51  
(Gain) loss from sale of investments, net
     (321 )             3       (127 )
Changes in certain current assets and liabilities:
                                
Decrease (increase) in receivables
     317               (243 )     47  
Increase in current restricted cash
     (73 )             (134 )     —  
(Increase) decrease in prepaid expenses and other current assets
     (90 )             (35 )     60  
Increase (decrease) in air traffic liability
     38               46       (215 )
(Decrease) increase in other payables, deferred credits and accrued liabilities
     (276 )             600       274  
Other, net
     199               8       37  
 
    
 		              
 		      
 		  
Net cash provided by operating activities
     453               285       236  
Cash Flows From Investing Activities:
                                
Property and equipment additions:
                                
Flight equipment, including advance payments
     (382 )             (922 )     (2,321 )
Ground property and equipment, including technology
     (362 )             (364 )     (472 )
Decrease (increase) in restricted investments related to the Boston airport terminal project
     131               58       (485 )
Decrease in short-term investments, net
     —               5       238  
Proceeds from sales of flight equipment
     15               100       66  
Proceeds from sales of investments
     325               24       286  
Other, net
     13               (10 )     (8 )
 
    
 		              
 		      
 		  
Net cash used in investing activities
     (260 )             (1,109 )     (2,696 )
Cash Flows From Financing Activities:
                                
Payments on long-term debt and capital lease obligations
     (802 )             (1,113 )     (173 )
Cash dividends
     (19 )             (39 )     (40 )
Issuance of long-term obligations
     1,774               2,554       2,335  
Issuance of long-term debt by Massachusetts Port Authority
     —               —       498  
(Payments on) proceeds from short term obligations and notes payable, net
     —             (765 )     701  
Make-whole payments on extinguishment of ESOP Notes
     (15 )             (42 )     —  
Payment on termination of accounts receivable securitization
     (250 )             —       —  
Other, net
     (140 )             (12 )     (15 )
 
    
 		              
 		      
 		  
Net cash provided by financing activities
     548               583       3,306  
Net (Decrease) Increase In Cash and Cash Equivalents
     741               (241 )     846  
Cash and cash equivalents at beginning of year
     1,969               2,210       1,364  
 
    
 		              
 		      
 		  
Cash and cash equivalents at end of year
   $ 2,710             $ 1,969     $ 2,210  
 
    
 		              
 		      
 		  
Supplemental disclosure of cash paid (refunded) for:
                                
Interest, net of amounts capitalized
   $ 715             $ 569     $ 490  
Income taxes
   $ (402 )           $ (649 )   $ (103 )
Non-cash transactions:
                                
Aircraft delivered under seller-financing
   $ 718             $ 705     $ 77  
Aircraft capital leases from sale and leaseback transactions
   $ —             $ 52     $ —  

The accompanying notes are an integral part of these Consolidated Financial Statements.

4

 

Consolidated Statements of Shareowners’ (Deficit) Equity
For the years ended December 31, 2003, 2002 and 2001

                                                 
                            Accumulated        
            Additional           Other        
    Common   Paid-In   Retained   Comprehensive   Treasury    
(in millions, except share data)
   Stock
   Capital
   Earnings
   Income (Loss)
   Stock
   Total
Balance at December 31, 2000
   $ 271     $ 3,264     $ 4,176     $ 360     $ (2,728 )   $ 5,343  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Comprehensive loss:
                                                
Net loss
     —       —       (1,216 )     —       —       (1,216 )
Other comprehensive loss
     —       —       —       (335 )     —       (335 )
 
                                            
 		  
Total comprehensive loss (See Note 13)
                                             (1,551 )
Dividends on common stock ($0.10 per share)
     —       —       (12 )     —       —       (12 )
Dividends on Series B ESOP Convertible Preferred Stock allocated shares
     —       —       (14 )     —       —       (14 )
Issuance of 126,299 shares of common stock under dividend reinvestment and stock purchase plan and stock options ($38.10 per share(1))
     —       5       —       —       —       5  
Transfers and forfeitures of 105,995 shares of common from Treasury under stock incentive plan ($37.10 per share(1))
     —       (4 )     —       —       4       —  
Other
     —       2       (4 )     —       —       (2 )
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Balance at December 31, 2001
     271       3,267       2,930       25       (2,724 )     3,769  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Comprehensive loss:
                                                
Net loss
     —       —       (1,272 )     —       —       (1,272 )
Other comprehensive loss
     —       —       —       (1,587 )     —       (1,587 )
 
                                            
 		  
Total comprehensive loss (See Note 13)
                                             (2,859 )
Dividends on common stock ($0.10 per share)
     —       —       (12 )     —       —       (12 )
Dividends on Series B ESOP Convertible Preferred Stock allocated shares
     —       —       (15 )     —       —       (15 )
Issuance of 13,017 shares of common stock under stock purchase plan and stock options ($15.70 per share(1))
     —       —       —       —       —       —  
Forfeitures of 82,878 shares of common to Treasury under stock incentive plan ($27.31 per share(1))
     —       —       —       —       (2 )     (2 )
Transfer of 183,400 shares of common from Treasury under stock incentive plan ($47.11 per share(1))
     —       (5 )     —       —       8       3  
Other
     —       1       8       —       —       9  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Balance at December 31, 2002
     271       3,263       1,639       (1,562 )     (2,718 )     893  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Comprehensive loss:
                                                
Net loss
     —       —       (773 )     —       —       (773 )
Other comprehensive loss
     —       —       —       (776 )     —       (776 )
 
                                            
 		  
Total comprehensive loss (See Note 13)
                                             (1,549 )
SAB 51 gain related to Orbitz, net of tax (See Note 17)
     —       18       —       —       —       18  
Dividends on common stock ($0.05 per share)
     —       —       (5 )     —       —       (5 )
Dividends on Series B ESOP Convertible Preferred Stock allocated shares
     —       —       (17 )     —       —       (17 )
Issuance of 11,715 shares of common stock under stock purchase plan ($30.64 per share(1))
     —       —       —       —       —       —  
Forfeitures of 44,100 shares of common to Treasury under stock incentive plan ($11.97 per share(1))
     —       —       —       —       —       —  
Transfer of 144,874 shares of common from Treasury under stock incentive plan and stock purchase plan ($47.22 per share(1))
     —       (6 )     —       —       7       1  
Transfer of 73,252 shares of common from Treasury under ESOP ($47.20 per share(1))
             (3 )     —       —       3       —  
 
    
 		      
 		      
 		      
 		      
 		      
 		  
Balance at December 31, 2003
   $ 271     $ 3,272     $ 844     $ (2,338 )   $ (2,708 )   $ (659 )
 
    
 		      
 		      
 		      
 		      
 		      
 		  

(1)   Average price per share

The accompanying notes are an integral part of these Consolidated Financial Statements.

5