-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, tyj85/LXKgxkyQziSwrSHJMXwdZFD6SatzQOOipq1bsQZoCNA2/H2KX3P8YxMySC Wy9CKVDmy5W8pq/9t7retQ== 0000950153-95-000106.txt : 19950420 0000950153-95-000106.hdr.sgml : 19950420 ACCESSION NUMBER: 0000950153-95-000106 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19950419 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICA WEST AIRLINES INC CENTRAL INDEX KEY: 0000706270 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 860418245 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-54243 FILM NUMBER: 95529470 BUSINESS ADDRESS: STREET 1: 100 WEST WASHINGTON STREET STREET 2: SUITE 2100 CITY: PHOENIX STATE: AZ ZIP: 85003 BUSINESS PHONE: 6026930800 MAIL ADDRESS: STREET 1: 400 EAST SKY HARBOR BOULEVARD CITY: PHOENIX STATE: AZ ZIP: 85034 POS AM 1 POST-EFFECTIVE AMENDMENT #2 TO FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 1995 REGISTRATION NO. 33-54243 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ POST-EFFECTIVE AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AMERICA WEST AIRLINES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 4512 86-0418245 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) MARTIN J. WHALEN SENIOR VICE PRESIDENT AMERICA WEST AIRLINES, INC. 4000 EAST SKY HARBOR BOULEVARD 4000 EAST SKY HARBOR BOULEVARD PHOENIX, ARIZONA 85034 PHOENIX, ARIZONA 85034 (602) 693-0800 (602) 693-0800 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND NUMBER, TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL INCLUDING AREA CODE, OF AGENT FOR SERVICE) EXECUTIVE OFFICES)
------------------------ With Copies to: DAVID J. GRAHAM ANDREWS & KURTH L.L.P. 4200 TEXAS COMMERCE TOWER HOUSTON, TEXAS 77002 (713) 220-4200 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after this Registration Statement becomes effective, which time is to be determined by the Selling Securityholders. All of the Securities offered hereby are offered for the account of the Selling Securityholders. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /X/ ------------------------ The Prospectus included in this Registration Statement is a combined prospectus pursuant to Rule 429 that also relates to the Company's Registration Statement on Form S-1 (No. 33-55689) filed previously with the Commission. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 AMERICA WEST AIRLINES, INC. CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION OR CAPTION IN PROSPECTUS - ------------------------------------------- ----------------------------------------- 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus......................... Forepart of Registration Statement and Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus................ Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges............................ Prospectus Summary; Investment Considerations 4. Use of Proceeds...................... Prospectus Summary; Use of Proceeds 5. Determination of Offering Price...... Plan of Distribution 6. Selling Securityholders.............. Principal Stockholders; Selling Securityholders 7. Plan of Distribution................. Outside Front Cover Page of Prospectus; Plan of Distribution 8. Description of Securities to be Registered......................... Outside Front Cover Page of Prospectus; Description of Capital Stock; Description of the Senior Notes; Description of Warrants; Shares Eligible for Future Sale 9. Interests of Named Experts and Counsel............................ Legal Matters; Experts 10. Information with Respect to the Registrant......................... Outside Front Cover Page of Prospectus; Prospectus Summary; Investment Considerations; The Company; Use of Proceeds; Dividend Policy; Capitalization; Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Description of Capital Stock; Description of the Senior Notes; Description of Warrants; Shares Eligible for Future Sale; Financial Statements 11. Disclosure of Commission Position on Indemnification for Securities Act Liabilities........................ Not Applicable
3 AMERICA WEST AIRLINES, INC. 1,200,000 SHARES CLASS A COMMON STOCK 18,698,704 SHARES CLASS B COMMON STOCK $123,000,000 11 1/4% SENIOR UNSECURED NOTES DUE 2001 5,850,016 CLASS B COMMON STOCK WARRANTS ------------------------ This Prospectus relates to (i) 1,200,000 shares of Class A Common Stock, par value $.01 per share ("Class A Common Stock") of America West Airlines, Inc. ("America West" or the "Company"), (ii) 18,698,704 shares of Class B Common Stock, par value $.01 per share of the Company, ("Class B Common Stock", and together with the Class A Common Stock, the "Common Stock"), (iii) $123 million principal amount of 11 1/4% Senior Unsecured Notes due 2001 of the Company (the "Senior Notes"), and (iv) 5,850,016 warrants, each entitling the holder thereof to purchase one share of Class B Common Stock for $12.74 at any time prior to August 25, 1999 (the "Warrants," and together with the Common Stock and the Senior Notes, the "Securities"). The Securities may be offered by the Selling Securityholders (as defined herein) from time to time in transactions in the over-the-counter market, on a national securities exchange or otherwise at fixed prices which may be changed, at market prices prevailing at the time of sale, at prices related to such market prices or at negotiated prices. The Selling Securityholders may effect such transactions by selling the Securities to or through underwriters, brokers, dealers or agents who may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders or the purchasers of the Securities for whom such underwriters, brokers, dealers or agents may act. The Company will not receive any of the proceeds from the sale of any of the Securities by the Selling Securityholders. Holders of Class B Common Stock are entitled to one vote per share, and holders of Class A Common Stock are entitled to 50 votes per share on all matters submitted to a vote of common stockholders, except that voting rights of holders who are not United States citizens are limited as described herein. The Senior Notes bear interest payable semiannually in arrears. The Senior Notes may be redeemed at the option of the Company (i) prior to September 1, 1997, at any time, at a redemption price equal to 105% of the principal amount or from time to time in part from the net proceeds from a public offering of its capital stock at a redemption price equal to 105% of the principal amount, in each case plus accrued and unpaid interest, if any, to the redemption date; and (ii) on or after September 1, 1997 at any time in whole or from time to time in part, at redemption prices described herein. In addition, Senior Notes may be subject to mandatory redemption, at a redemption price of 104% of the aggregate principal amount of Senior Notes so redeemed, plus accrued and unpaid interest thereon, under certain circumstances following the consummation of a public offering of the Company's capital stock. At February 28, 1995, the Senior Notes were effectively subordinated to $359.1 million of secured indebtedness incurred by the Company to acquire aircraft and other assets (the "Secured Debt"). Holders of the Secured Debt will be senior to the holders of the Senior Notes with respect to the collateral securing such indebtedness. See "Description of the Senior Notes." The Class B Common Stock and the Warrants are listed on The New York Stock Exchange. The Company does not intend to file an application to have either the Class A Common Stock or the Senior Notes listed on a national exchange and does not expect an active trading market to develop for either the Class A Common Stock or the Senior Notes. The Selling Securityholders and any underwriters, brokers, dealers or agents participating in the distribution of the Securities may be deemed to be "underwriters" within the meaning of the Securities Act of 1933 as amended (the "Securities Act"), and any profit on the sale of the Securities by the Selling Securityholders and any commissions received by any such underwriters, brokers, dealers or agents may be deemed to be underwriting commissions or discounts under the Securities Act. Pursuant to the terms of the Registration Rights Agreement (as hereinafter defined) the Company has agreed to indemnify the Selling Securityholders against certain liabilities, including liabilities under the Securities Act. Underwriters, brokers, dealers or agents effecting transactions in the Securities should confirm the registration thereof under the securities laws of the state in which such transactions will occur, or the existence of any exemption from registration. SEE "INVESTMENT CONSIDERATIONS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ The date of this Prospectus is , 1995 4 AVAILABLE INFORMATION America West Airlines, Inc. ("America West" or the "Company") is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Reports and other information concerning America West can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such material can be obtained from the Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. America West has filed with the Commission Registration Statements No. 33-54243 and No. 33-55689 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Securities offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statements and the exhibits and schedules thereto. For further information with respect to America West and the Securities offered hereby, reference is made to the Registration Statements, including the exhibits and schedules thereto. The Registration Statements can be inspected at the Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Company is a Delaware corporation. Its executive offices are located at 4000 East Sky Harbor Boulevard, Phoenix, Arizona 85034, and its telephone number is (602) 693-0800. 2 5 PROSPECTUS SUMMARY The following summary information is qualified in its entirety by the detailed information and financial statements (including the notes thereto) appearing elsewhere in this Prospectus, which should be read in its entirety. Prospective investors should carefully consider matters discussed under the caption "Investment Considerations." THE COMPANY 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 88 jet aircraft. The Company currently has connecting service to an additional 20 destinations through alliances with Mesa Air Group, 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 (the "Effective Date"). In connection with its reorganization in bankruptcy and related operational restructuring (the "Reorganization"), the Company took significant steps to improve its operations, including (i) reducing its fleet size from 123 aircraft in July 1991 to 88 as of February 28, 1995, to better match 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. 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. Pursuant to the Reorganization, pre-existing equity interests of the Company were cancelled, the Company's obligations to other prepetition creditors were restructured and general unsecured nonpriority prepetition creditors (the "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. 3 6 As part of the Reorganization and pursuant to an investment agreement (the "Investment Agreement"), the Company received approximately $205.3 million in cash upon the issuance to the partners of AmWest Partners, L.P. ("AmWest"), and to certain assignees of AmWest (as described below), of rights to acquire (i) 1,200,000 shares of Class A Common Stock, (ii) 12,981,636 shares of Class B Common Stock, (iii) Warrants to purchase 2,769,231 shares of Class B Common Stock and (iv) $100 million principal amount of 11 1/4% Senior Unsecured Notes (the "Senior Notes"). Certain funds managed or advised by Fidelity Management Trust Company and its affiliates (collectively, "Fidelity") and Lehman Brothers Inc. ("Lehman") purchased a portion of the securities that otherwise would have been issued to AmWest pursuant to assignments by AmWest to those parties. Pursuant to these assignments, Lehman acquired 1,333,587 shares of Class B Common Stock and Fidelity acquired 3,270,311 shares of Class B Common Stock, Warrants to purchase 133,488 additional shares of Class B Common Stock and $100 million of Senior Notes. On October 14, 1994 in exchange for certain pre-existing claims, Fidelity received an additional $13 million of Senior Notes and Lehman received $10 million of Senior Notes. AmWest, which dissolved upon the Effective Date, was a Texas limited partnership including as investors Mesa, Continental and TPG Partners, L.P. and certain of its affiliates (collectively, with its affiliates TPG Parallel I, L.P. and Air Partners II, L.P., "TPG"). TPG Partners, L.P. is a Delaware limited partnership which acquired aggregate beneficial ownership of securities representing 43.1% of the combined voting power of America West securities (including shares acquired for pre-existing equity interests held by TPG). See "Investment Considerations -- Concentration of Voting Power; Influence of Principal Stockholders" and "Principal Stockholders." AmWest assigned its rights to acquire securities pursuant to the Investment Agreement to its partners and certain of their respective affiliates. Pursuant to the Reorganization, Lehman, Fidelity and TPG received additional shares of Class B Common Stock for their existing claims and interests. These shares have also been registered pursuant to the Securities Act of 1933. 4 7 THE OFFERING The principal terms of the Common Stock, Senior Notes and Warrants are summarized below. For a more complete description, see "Description of Capital Stock," "Description of the Senior Notes" and "Description of Warrants," respectively. The Selling Securityholders will receive all of the proceeds from the sale of the Securities offered hereby, and the Company will not receive any proceeds from the Offering. Common Stock: Securities Offered............... 1,200,000 shares of Class A Common Stock 18,698,704 shares of Class B Common Stock Common Stock outstanding(1)...... 1,200,000 shares of Class A Common Stock 43,966,645 shares of Class B Common Stock Total.................. 45,166,645 shares of Common Stock Voting Rights.................... Class A and Class B Common Stock have identical economic rights and privileges and rank equally, share ratably, and are identical in all respects as to all matters other than voting rights. The Class A Common Stock votes together with the Class B Common Stock on all matters except as otherwise required by law. Each share of Class B Common Stock has one vote; each share of Class A Common Stock has 50 votes. Listing.......................... The Class B Common Stock is listed on The New York Stock Exchange. The Company does not intend to apply for listing of the Class A Common Stock on any securities exchange or authorization quotation on the NASDAQ System. The Company does not expect that an active trading market for the Class A Common Stock will develop. Trading Symbol................... "AWA" - --------------- (1) Excluding 10,384,304 shares of Class B Common Stock reserved for issuance upon exercise of outstanding Warrants as of February 28, 1995. Senior Notes: Securities Offered............... $123,000,000 aggregate principal amount of Senior Notes Maturity......................... September 1, 2001 Interest Rate.................... The Senior Notes bear interest at a rate of 11 1/4% per annum. Interest accrues from the date of issuance thereof and is payable semi-annually in arrears on each March 1 and September 1, commencing March 1, 1995. Ranking.......................... The Senior Notes rank senior in right of payment to all existing and future subordinated Indebtedness (as defined in the Indenture) of the Company and rank pari passu in right of payment with all other Indebtedness of the Company. Certain Indebtedness, however, including secured debt, is effectively senior in right of payment to the Senior Notes with respect to assets that constitute collateral securing such other Indebtedness. Optional Redemption.............. The Senior Notes offered hereby 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 5 8 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; and (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 the principal amount 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%
Mandatory Redemption............. In the event that prior to September 1, 1997 the Company consummates a Public Offering Sale, (as defined in the Indenture), and immediately prior to such consummation the Company has cash and cash equivalents, not subject to any restriction on disposition of at least $100,000,000, then the Company shall redeem 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 and unpaid interest of the Senior Notes to be so redeemed shall equal the lesser of (a) 50% of the net offering proceeds of such Public Offering Sale and (b) the excess, if any, of (i) $20,000,000 over (ii) the amount of any net offering proceeds of any prior Public Offering Sale received prior to September 1, 1997 and applied to so redeem Senior Notes. Principal Covenants.............. The Indenture contains numerous covenants including covenants governing the disposition of the proceeds of certain underwritten public offerings of Common Stock of the Company, limiting certain Restricted Payments, limiting certain transactions with Affiliates, limiting certain sales of assets, limiting certain investments and allowing a holder repurchase rights upon a change of control. Listing.......................... The Company does not intend to apply for listing of the Senior Notes on any securities exchange or authorization for quotation on the NASDAQ system. The Company does not expect that an active trading market will develop for the Senior Notes. Warrants: Securities Offered............... 5,850,016 Warrants, each entitling the holder to purchase one share of Class B Common Stock at a price (the "Exercise Price") of $12.74 per share. Warrants to be Outstanding after the Offering..................... 10,384,304 Warrants 6 9 Expiration....................... The Warrants are exercisable by the holders at any time prior to August 25, 1999. Redemption....................... The Warrants are not redeemable. Anti-Dilution.................... The number of shares of Class B Common Stock purchasable upon exercise of each Warrant will be adjusted upon, among other things, (i) issuance of a dividend in or other distribution of Common Stock to holders of Common Stock; (ii) a combination, subdivision or reclassification of the Class B Common Stock; and (iii) rights issuances. Voting Rights.................... Warrant holders have no voting rights. Listing.......................... The Warrants are listed on the New York Stock Exchange. Trading Symbol................... "AWAws" 7 10 SUMMARY FINANCIAL DATA The summary financial 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 summary data should be read in conjunction with the financial statements, the related notes and the independent auditors' report included elsewhere herein. 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 Bankruptcy Code on June 27, 1991 and operating as a debtor-in-possession until August 25, 1994, the summary 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 Ratio of earnings to fixed charges (c)...... 1.38x -- 1.28x -- -- -- 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..... 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) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of income (loss) before taxes plus fixed charges less capitalized interest. "Fixed charges" consist of interest expense including amortization of debt issuance costs, capitalized interest and a portion of rent expense which is deemed to be representative of an interest factor. For the years ended December 31, 1992 and 1991 and 1990, earnings were insufficient to cover fixed charges by $131.8 million, $228.7 million and $83.1 million, respectively. For the period ended August 25, 1994, earnings were insufficient to cover fixed charges by $201.2 million. 8 11 INVESTMENT CONSIDERATIONS HISTORY OF LOSSES The Company experienced significant operating losses in each year of the three year period ended December 31, 1992, and the Company operated as a debtor-in-possession under the Bankruptcy Code from June 27, 1991 to the Effective Date. Although the Company's results of operations improved in 1993 and 1994, the airline industry is extremely competitive and has been generally unprofitable in recent years. In the long term, the Company's viability is dependent upon its ability to sustain profitable results of operations, and there can be no assurance that such results can be sustained. ADVERSE INDUSTRY CONDITIONS AND COMPETITION The airline industry is highly competitive. Overall industry profit margins have traditionally been low and were substantially negative in each year of the three-year period ended December 31, 1992. Airlines compete in the areas of pricing, scheduling (frequency and flight times), on-time performance, frequent flyer programs and other services. Many of America West's competitors are carriers with substantially greater financial resources. The airline industry is susceptible to price discounting, which involves the offering of discount or promotional fares to passengers. Any such fares offered by one airline are normally matched by competing airlines, which results in lower industry yields. In 1992, American Airlines introduced a new fare structure followed by a deeply discounted summer sale. These steps were generally matched by other U.S. airlines, including America West, and resulted in substantially depressed industry yields and significant 1992 losses for most of the major U.S. airlines. American Airlines and the rest of the domestic airline industry subsequently abandoned that pricing structure, and fare levels increased in 1993 from 1992 levels. Nonetheless, significant industry-wide discounts could be re-implemented at any time, and the introduction of broadly available, deeply discounted fares by a major U.S. airline would likely result in lower yields for the entire industry and could have a material adverse effect on the Company's operating results. In this regard, certain competing carriers have recently announced seasonal fare reductions that have been selectively matched by the Company. The Company expects this action to result in a reduction of yields with little or no increase in traffic levels. Several of the Company's markets, including those in New York City, Texas, Southern California, Washington, D.C., Chicago and Las Vegas, are served by larger carriers and are highly competitive. On many routes, and in particular those routes between Phoenix and California, fare competition has made it difficult for the Company to raise fares except on a selective basis. Intense fare competition with respect to certain markets has adversely affected passenger yield and, as a result, profitability. In recent years several new carriers have entered the industry, typically with low cost structures. Aircraft, skilled labor and gates at most airports continue to be available to start-up carriers. In some cases, new entrants have initiated or triggered further price discounting. The entry of additional new 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. INCREASES IN FUEL PRICES Fuel costs constituted approximately 13% of America West's total operating expenses during 1994. A one cent per gallon change in fuel price would affect the Company's annual operating results by approximately $3 million at present consumption levels. Accordingly, either a substantial increase in fuel prices or the lack of adequate fuel supplies in the future would likely have a material adverse effect on the operations of the Company. Moreover, fuel price increases or supply shortages, such as those that occurred during the Persian Gulf war, can occur at any time as a result of, among other things, geopolitical developments. The Company purchases fuel on standard trade terms under master agreements and has been able to obtain fuel sufficient to meet its requirements at competitive prices. The Company does not currently hedge its 9 12 fuel costs. In August 1993, the United States government increased taxes on fuel, including aircraft fuel, by 4.3 cents per gallon. Airlines are exempt from this tax increase until October 1, 1995. When implemented, this new tax will increase the Company's annual operating expenses by approximately $13 million based upon its 1994 fuel consumption levels. There can be no assurance that the U.S. government will not impose additional taxes on fuel in the future or that such taxes will not materially affect the Company's results of operations. LEVERAGE Although the Reorganization improved the Company's financial position, the Company remains highly leveraged. This high degree of leverage will pose substantial risks to holders of the Securities and could have a material adverse effect on the marketability, price and future value of such Securities. This high degree of leverage will increase the reorganized Company's vulnerability to adverse general economic and airline industry conditions and to increased competitive pressures. CONCENTRATION OF VOTING POWER; INFLUENCE OF CERTAIN PRINCIPAL STOCKHOLDERS At March 17, 1995, TPG, Continental and Mesa, the former partners of AmWest, owned approximately 19.8% of the shares of Class B Common Stock and 100% of the Class A Common Stock, and thereby control approximately 66.1% of the voting power of America West (68.4% assuming the exercise of Warrants held by such holders). As a result, TPG, Continental and Mesa, whose shares are subject to the terms of a Stockholders' Agreement (as described below), are able to elect a majority of their designees to the Board of Directors and otherwise to control the Company by, among other things, taking or approving actions to (i) amend the America West charter or effect a merger, sale of assets or other major corporate transaction; (ii) defeat any takeover attempt; (iii) determine the amount of dividends, if any, paid to itself and the other holders of Common Stock; and (iv) otherwise control the outcome of virtually all matters submitted for a vote of the stockholders of the Company. Mesa and Continental, are engaged in the airline industry and are parties to certain agreements with the Company. In addition, the control persons of TPG also control Air Partners L.P., a special purpose partnership formed in 1992 to participate in the funding of the reorganization of Continental and a significant shareholder in Continental. See "Principal Stockholders." As a result, there can be no assurance that the interests of Continental, Mesa or TPG will not differ from the interests of the Company or that either party will not seek to influence the Company in a manner that serves its interests. Pursuant to the terms of the Stockholders' Agreement, AmWest agreed to certain limitations on its ability to control the Company, including, that for a three-year period beginning with the Effective Date, the Company shall have a 15-member Board of Directors, six members of which may be designated by parties other than AmWest or its partners (including three Creditors' Committee Directors, one Equity Committee Director, one Independent Company Director and one GPA Director, as such terms are defined in the Stockholders' Agreement). The Stockholders' Agreement also contains other restrictions on AmWest's ability to effect certain transactions involving the Company. Upon the dissolution of AmWest on the Effective Date, the provisions of the Stockholders' Agreement with respect to AmWest became binding upon TPG, Continental and Mesa. See "Principal Stockholders -- Stockholders' Agreements." SHARES ELIGIBLE FOR FUTURE SALE Substantially all of the 43,966,645 outstanding shares of Class B Common Stock (assuming no further exercise of the outstanding Warrants) are freely tradeable, subject to certain restrictions with respect to shares held by the former partners and assignees of AmWest and certain other individuals. These shares include 13,881,636 shares of Class B Common Stock issued to the Selling Securityholders pursuant to the Investment Agreement and arrangements with GPA, (all of which have been registered under the Securities Act), 26,053,185 shares of Class B Common Stock distributed to the Prepetition Creditors and 2,250,000 shares of Class B Common Stock issued to pre-existing common equity holders. In addition, there are currently outstanding Warrants to purchase 10,384,304 shares of Class B Common Stock. The Warrants are immediately exercisable, and the Company believes that substantially all of the shares of Class B Common Stock issuable upon such exercise will be freely tradeable. 10 13 LIMITATION ON VOTING BY FOREIGN OWNERS The Company's Restated Certificate of Incorporation provides that no more than 25% of the voting interest of the Company may be owned or controlled by persons who are not U.S. citizens and that the voting rights of such persons are subject to automatic suspension to the extent required to ensure that the Company is in compliance with applicable laws relating to ownership or control of a U.S. carrier. United States law currently requires that no more than 25% of the voting stock of the Company (or any other domestic airline) may be owned directly or indirectly by persons who are not citizens of the United States. See "Description of Capital Stock -- Limitation on Voting by Foreign Owners." LABOR NEGOTIATIONS The Company historically has operated without collective bargaining agreements covering any of its employees. In October 1993, however, the Air Lines 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 April 1995, the Company and its pilots, represented by ALPA, reached a tentative five year agreement. Such agreement must still be ratified by the pilots. 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. See "Business -- Employees." GOVERNMENT REGULATION The Company is subject to the Federal Aviation Act of 1958, as amended (the "Aviation Act"), under which the Department of Transportation (the "DOT") and the Federal Aviation Administration (the "FAA") exercise regulatory authority. This regulatory authority includes (i) the determination and periodic review of the fitness (including financial fitness) of air carriers; (ii) the certification and regulation of the flight equipment; (iii) the approval of personnel who may engage in flight, maintenance and operations activities; and (iv) the approval of flight training activities and the enforcement of minimum air safety standards set forth in FAA regulations. In accordance with the Airline Deregulation Act of 1978, domestic airline fares and routes are no longer subject to significant regulation. The DOT maintains authority over international aviation, subject to review by the President of the United States, and has jurisdiction over consumer protection policies, computer reservation system issues and unfair trade practices. In the last several years, the FAA has issued a number of maintenance directives and other regulations relating to, among other things, retirement of older aircraft, collision avoidance system, airborne windshear avoidance systems, noise abatement and increased inspections and maintenance procedures to be conducted on older aircraft. Additional laws and regulations have been proposed from time to time which could significantly increase the cost of airline operations by imposing additional requirements or restrictions on operations. Laws and regulations have been considered from time to time that would prohibit or restrict the ownership and transfer of airline routes or slots. There is no assurance that laws and regulations currently enacted or enacted in the future will not adversely affect the Company's ability to maintain its current level of operating results. See "Business -- Government Regulations." 11 14 FUTURE CAPITAL REQUIREMENTS At December 31, 1994, America West had $530.8 million of long-term indebtedness (including current maturities) and $595.4 million of stockholders' equity. At such date, the Company had $182.6 million of cash and cash equivalents. America West does not have available lines of credit or significant unencumbered assets. America West is more leveraged and has significantly less liquidity than certain of its competitors, several of whom have available lines of credit or significant unencumbered assets. Accordingly, the Company may be less able than certain of its competitors to withstand a prolonged economic recession. As of December 31, 1994, the Company had significant capital commitments, including commitments for a substantial number of new aircraft with a net cost aggregating approximately $1.1 billion. The Company will require substantial capital from external sources to meet these financial commitments. The Company has no current financing arrangements for most of its aircraft purchase commitments and 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. See "Business -- Aircraft." 12 15 THE COMPANY GENERAL America West 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 88 jet aircraft. The Company currently has connecting service to an additional 20 destinations through an alliance with Mesa and to an additional 23 destinations through an alliance with Continental. 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 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, 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. The Company's principal offices are located at 4000 East Sky Harbor Boulevard, Phoenix, Arizona 85034. The Company's telephone number is (602) 693-0800. BACKGROUND America West commenced operations in 1983 with three aircraft serving four destinations from Phoenix, Arizona. America West's original route structure consisted primarily of shorter-haul routes in the southwestern market, which brought it into direct competition with certain low fare airlines, particularly Southwest Airlines. Throughout the 1980s, America West financed rapid expansion of its fleet with correspondingly significant increases in debt and lease obligations. In addition, in the late 1980s, the Company entered the long-haul and, on a very limited basis, international markets. The Company introduced several aircraft types into its fleet in order to pursue this strategy. By July 1991, the Company operated a fleet of 123 aircraft serving 54 destinations in the continental United States, Hawaii, Canada and Japan. The Company experienced a significant net loss for the last six months of 1990, as revenues were lower than anticipated and fuel costs were higher than anticipated. The Persian Gulf conflict, which began in August of 1990, the fear of terrorism and the deepening national recession produced depressed traffic levels, higher fuel prices and fierce price competition in the airline industry. Beginning in February 1991, the Company undertook a series of actions designed to improve its cash position and reduce costs, including significant fare promotions and pay reductions. In June 1991, however, the Company faced a severe liquidity crisis and filed for protection under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Arizona (the "Bankruptcy Court"). During the bankruptcy case, the Company operated as a debtor-in-possession and implemented an operational restructuring pursuant to which it: - Reduced its fleet size from 123 aircraft in July 1991 to 85 in April 1993, facilitating a better matching of capacity to demand through elimination of nonproductive routes. - Reduced the aircraft types operated from five to three, resulting in reduced operating costs, including those related to maintenance, training and parts inventories. - Implemented certain enhancements to its revenue management system to optimize the level of passenger revenues generated on each flight. 13 16 - Eliminated Company operated commuter service and introduced code-sharing agreements to expand the Company's scope of service and attract a broader passenger base. - Implemented numerous cost reduction programs, including a Company-wide pay reduction in August 1991 and reduction of aircraft lease rentals to fair market rates in the summer of 1992. These programs, combined with a gradually improving economic climate and a more stable environment relative to fare competition within the airline industry, enabled the Company to realize operating income of $146.4 million in 1994, compared to operating income of $121.1 million in 1993 and operating losses of $74.8 million and $104.7 million for 1992 and 1991, respectively. THE PLAN OF REORGANIZATION On August 10, 1994, the order of the Bankruptcy Court confirming the Plan of Reorganization (the "Plan") became final. The Plan was consummated on the Effective Date. Pursuant to the Plan, and after giving effect to various elections made by general unsecured creditors and the exercise of certain subscription rights by certain holders of pre-existing equity interests, the following occurred upon the Effective Date: - The partners of AmWest Partners, L.P. ("AmWest"), a limited partnership which included TPG, Continental and Mesa, together with Lehman and Fidelity, as assignees of AmWest, invested $205.3 million in consideration for the issuance of securities by the 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, including 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 as described below); (iii) 2,769,231 Warrants to purchase shares of Class B Common Stock at $12.74 per share; and (iv) $100 million principal amount of Senior Notes. - The general unsecured creditors of the Company received an aggregate of 26,053,185 shares of Class B Common Stock and cash aggregating $6,416,214 (such cash representing $8.889 per share paid to unsecured creditors electing to receive cash in lieu of shares of Class B Common Stock). 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. - TPG and Fidelity, as the holders of preferred equity interests of the Company each received $250,000 and TPG purchased 125,000 shares of Class B Common Stock (representing shares acquired pursuant to certain subscription rights at a price of $8.889 per share). - Holders of common equity interests of the Company prior to the Reorganization received 3,740,179 shares of Class B Common Stock (1,490,179 of which shares were issued in exchange for cash, aggregating $13,246,201, provided by such equity holders upon the exercise of rights to subscribe for such shares at a price of $8.889 per share), and 6,230,769 Warrants to purchase shares of Class B Common Stock at $12.74 per share. The shares of Class B Common Stock and Warrants were distributed to the equity holders by the distribution agent in September 1994. - 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 at specified rates, GPA, received (i) 900,000 shares of Class B Common Stock; (ii) 1,384,615 Warrants to purchase Class B Common Stock at $12.74 per share; (iii) a cash payment of approximately $30.5 million; (iv) the right to require the Company to lease up to eight aircraft of types operated by the Company on terms that the Company believes to be more favorable than those previously applicable to the 10 aircraft, which right must be exercised prior to June 30, 1999; and (v) the right to designate one director of the Company for so long as they owned 2% of the Company. - Approximately $77.6 million of debtor-in-possession ("D.I.P") financing and a $62.7 million priority term loan were repaid in full in cash. 14 17 - Continental, Mesa and America West entered into certain Alliance Agreements relating to code-sharing, schedule coordination and certain other relationships and arrangements. - The Company's Board of Directors was reconstituted to include 15 members, of which nine were designated by the partners of AmWest, three were designated by the Official Committee of Unsecured Creditors and one was designated by each of the Official Committee of Equity Security Holders, GPA and the pre-Reorganization Board of Directors. - 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 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 Company stock securing such obligations. - The Company executed letter agreements with Fidelity and Lehman reflecting the principal terms relating to the settlement of certain prepetition claims held by Fidelity and by Lehman. Pursuant to these letters, on October 14, 1994, the Company issued an additional $23 million of Senior Notes to Fidelity and Lehman in exchange for full satisfaction of approximately $25.0 million of prepetition secured claims and pre-payment of a $1.3 million lease obligation. Additionally, cash aggregating $2.1 million and $1.2 million was paid to Fidelity and Lehman, respectively. Such Senior Notes were issued under the Senior Note Indenture with interest accruing from the Effective Date. In connection with the Company's emergence from Chapter 11, reorganization success bonuses approximating $12.0 million were paid to management and other employees including the issuance of 125,000 shares of Class B Common Stock to the Company's Chief Executive Officer and Chairman of the Board of Directors. The foregoing is a summary of the material aspects of the Plan. A complete copy of the Plan has been filed as an exhibit to the Registration Statements. USE OF PROCEEDS The Company will not receive any proceeds from the sale of the Securities by the Selling Securityholders. DIVIDEND POLICY The Company does not anticipate paying cash dividends in the foreseeable future. The Company expects that it will retain all available earnings generated by the Company's operations for the development and growth of its business. Any future determination as to the payment of dividends will be made in the discretion of the Board of Directors of the Company and will depend upon the Company's operating results, financial condition, capital requirements, general business conditions and such other factors as the Board of Directors deems relevant. The Company expects that certain loan agreements including the Indenture covering the Senior Notes will restrict the payment of cash dividends on the Common Stock under certain circumstances. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 15 18 CAPITALIZATION The following table sets forth the capitalization of the Company at December 31, 1994. The table should be read in conjunction with the Company's financial statements and the related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
REORGANIZED COMPANY ------------------ DECEMBER 31, 1994 ------------------ (IN THOUSANDS) Long-term debt, including current maturities........................ $ 530,796 Stockholders' equity(1): Class A Common Stock.............................................. 12 Class B Common Stock.............................................. 439 Additional paid in capital........................................ 587,149 Retained earnings................................................. 7,846 -------------- Total stockholders' equity................................ 595,446 -------------- Total capitalization................................................ $1,126,242 ==============
- --------------- (1) Does not include 10,384,343 shares of Class B Common Stock reserved for issuance upon exercise of the Warrants at December 31, 1994. 16 19 SELECTED FINANCIAL DATA The selected data presented below under the captions "Statement of Operations Data" and "Balance Sheet Data" for, and as of the end of, each of the years in the five-year period ended December 31, 1994, 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 as of December 31, 1994 and 1993, and for each of the years in the three-year period ended December 31, 1994, and the report thereon, included elsewhere in this Prospectus. 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 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. Additionally, as a result of the adoption of fresh start reporting as of the Effective Date in accordance with Statement of Position 90-7 of the American Association of Certified Public Accountants ("Statement 90-7"), results for the period January 1 to August 25, 1994, has been derived from the audited condensed financial statements of the Company included elsewhere in this Prospectus.
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 Ratio of earnings to fixed charges (c).......... 1.38x -- 1.28x -- -- -- 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(d)...... 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) For purposes of computing the ratio of earnings to fixed charges, "earnings" consist of income (loss) before taxes plus fixed charges less capitalized interest. "Fixed charges" consist of interest expense including amortization of debt issuance costs, capitalized interest and a portion of rent expense which is deemed to be representative of an interest factor. For the years ended December 31, 1992, 1991 and 1990, earnings were insufficient to cover fixed charges by $131.8 million, $228.7 million and $83.1 million, respectively. For the period ended August 25, 1994, earnings were insufficient to cover fixed charges by $201.2 million. (d) Includes certain balances reported as "Estimated Liabilities Subject to Chapter 11 Proceedings" for the Predecessor Company. 17 20 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 Bankruptcy Code on June 27, 1991. On August 10, 1994, the Plan filed by the Predecessor Company was confirmed by the Bankruptcy Court and became effective August 25, 1994. 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, see 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 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. 18 21 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. 19 22 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; 20 23 - 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 efforts to reorganize under Chapter 11. See Note 1 of Notes to Financial Statements for further discussion with respect to reorganization. 21 24 In connection with its emergence from bankruptcy, the Company entered into an Alliance Agreement with Continental 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 AFA. Negotiations are underway with both the AFA and 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 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 22 25 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 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 23 26 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 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. 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. 24 27 BUSINESS America West 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 88 jet aircraft. The Company currently has connecting service to an additional 20 destinations through alliances with Mesa and to an additional 23 destinations through an alliance with Continental. The Company emerged from bankruptcy under Chapter 11 of the Bankruptcy Code on August 25, 1994. In connection with the Reorganization, the Company took significant steps to improve its operations, including (i) reducing its fleet size from 123 aircraft in July 1991 to 88 as of February 28, 1995, 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 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 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 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 February 28, 1995, the Company's fleet consisted of 58 Boeing 737s, 25 28 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 February 28, 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 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 or depart from 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. 26 29 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 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 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. 27 30 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. 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 28 31 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 ======
- --------------- (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 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 29 32 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, 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 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 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 30 33 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, 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 April 1995, the Company and its pilots, represented by ALPA, reached a tentative five year agreement. Such agreement must still be ratified by the pilots. In June 1994, the National Mediation Board accepted the 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 TWU filed a petition to represent the Company's fleet service personnel which petition was rejected in December 1994. The 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 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. 31 34 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 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 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 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. 32 35 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. LEGAL PROCEEDINGS The Company emerged from bankruptcy on 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 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 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 33 36 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. 34 37 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Information with respect to the executive officers and directors of the Company as of December 31, 1994, is set forth below. DIRECTORS OF THE COMPANY WILLIAM A. FRANKE -- AGE 57. Chairman of the Board and Chief Executive Officer -- (Executive Committee). Mr. Franke was named Chairman of the Board of Directors in September 1992. On January 1, 1994, Mr. Franke was also elected to serve as the Company's Chief Executive Officer. In addition to his responsibilities at America West, Mr. Franke serves as president of Franke & Company, Inc., a financial services company he has owned since May 1987. From November 1989 until June 1990, Mr. Franke served as the Chairman of Circle K Corporation's executive committee with the responsibility for Circle K Corporation's restructuring. In May 1990, the Circle K Corporation filed a voluntary petition to reorganize under Chapter 11 of the United States Bankruptcy Code. From June 1990 until August 1993, Mr. Franke served as the chairman of a special committee of directors overseeing the reorganization of the Circle K Corporation. From 1990 until 1993, Mr. Franke also served in various other capacities at Circle K Corporation. Mr. Franke was also involved in the restructuring of the Valley National Bank of Arizona (now Bank One of Arizona). Mr. Franke serves as a director of Phelps Dodge Corp., Central Newspapers Inc. and the Air Transport Association of America. A. MAURICE MYERS -- AGE 54. President and Chief Operating Officer. Mr. Myers was named President and Chief Operating Officer on January 1, 1994 and was named to the Board of Directors in 1994. Prior to joining America West, Mr. Myers was the president and chief executive officer of Aloha Airgroup, an aviation services corporation which owns and operates Aloha Airlines and Aloha Island Air. Mr. Myers joined Aloha in 1983 as vice president of marketing and became its president and chief executive officer in June 1985. Mr. Myers is a member of the board of directors of Hawaiian Electric Industries. JULIA CHANG BLOCH -- AGE 52. Ms. Bloch has been a member of America West's Board of Directors since August 26, 1994. She is the group executive vice president, corporate relations of Bank of America Corporation and has held that position since June 1993. Ms. Bloch served as the U.S. Ambassador to Nepal from September 1989 through May 1993. Ms. Bloch is a board member of the American Refugee Committee and the Himalaya Foundation and serves as a trustee of the Asian Art Museum and the Asia Society. STEPHEN F. BOLLENBACH -- AGE 53. (Compensation Committee). Mr. Bollenbach has been a member of America West's Board of Directors since August 26, 1994. He is president and chief executive officer of Host Marriott Corp. Mr. Bollenbach served as chief financial officer of the Promus Companies from 1986 to 1990 and served as chief financial officer for the Trump Organization from 1990 to 1992. He served as executive vice president and chief financial officer of The Marriott Corporation from 1992 until 1993. He serves as a director of Host Marriott Corporation, Carr Realty Corporation and Mid-America Apartment Communities, Inc. FREDERICK W. BRADLEY, JR. -- AGE 68. (Compensation Committee, Executive Committee). Mr. Bradley has been a member of America West's Board of Directors since September 1992. Immediately prior to joining the Board of Directors, Mr. Bradley was a senior advisor with Simat, Helliesen & Eichner, Inc. Mr. Bradley formerly was a senior vice president of Citibank/Citicorp's Global Airline and Aerospace business. Mr. Bradley joined Citibank/Citicorp in 1958. In addition, Mr. Bradley is a member of the board of directors of Shuttle, Inc. (USAir Shuttle) and the Institute of Air Transport, Paris, France. Mr. Bradley also is chairman of the board of directors of Aircraft Lease Portfolio Securitization 94-1 Ltd. JAMES G. COULTER -- AGE 35. (Executive Committee). Mr. Coulter has been a member of America West's Board of Directors since August 26, 1994. Since 1992, Mr. Coulter has been a managing director of Texas Pacific Group, an investment firm. From 1986 to August 1992, Mr. Coulter was vice president of Keystone, Inc. (formerly Robert M. Bass Group, Inc.), a private investment firm based in Fort Worth, Texas. From April 1993 until he became a member of the Company's Board, Mr. Coulter was a 35 38 member of the board of directors of Continental. Mr. Coulter also serves as a director of American Savings Bank and Allied Waste Industries, Inc. JOHN F. FRASER -- AGE 64. Mr. Fraser has been a member of America West's Board of Directors since August 26, 1994. He is the chairman of the board of Federal Industries Ltd., an iron and steel foundry. Mr. Fraser was chairman and chief executive officer of Federal Industries Ltd. from March 1991 to May 1992, and president and chief executive officer from May 1978 to March 1991. Mr. Fraser was a member of the Board of Directors of Continental from August 1993 through August 3, 1994. Mr. Fraser is a director of Air Canada, Bank of Montreal, Coca-Cola Beverages Limited, Ford Motor Company of Canada, Limited, Inter-City Products Corporation, Investors Group Inc., Shell Canada Limited and The Thomson Corporation. JOHN L. GOOLSBY -- AGE 53. (Audit Committee). Mr. Goolsby has been a member of America West's Board of Directors since August 26, 1994. He has been the president of The Hughes Corporation and The Howard Hughes Corporation (formerly named the Summa Corporation), the principal operating companies of the Howard Hughes Estate, since 1988, and has been the chief executive officer of those companies since 1990. In addition, Mr. Goolsby serves as a director of Nevada Power Company and Bank of America Nevada. He also serves as a trustee of The Donald W. Reynolds Foundation and the UNLV Foundation. RICHARD C. KRAEMER -- AGE 51. (Compensation Committee). Mr. Kraemer has been a member of America West's Board of Directors since September 1992. He is a director and serves as president, chief executive officer and chief operating officer of UDC Homes, Inc., a Phoenix-based homebuilding company which he joined in 1975. JOHN R. POWER, JR. -- AGE 39. (Executive Committee). Mr. Power has been a member of America West's Board of Directors since August 26, 1994. He is president of The Patrician Corporation, an investment company. Prior to joining The Patrician Corporation, Mr. Power served as vice president at Continental Bank. LARRY R. RISLEY -- AGE 50. (Audit Committee). Mr. Risley has been a member of America West's Board of Directors since August 26, 1994. He has been the chief executive officer and chairman of the board of directors of Mesa since the founding of the company in 1983. From 1979 to 1982, Mr. Risley was president of Mesa Aviation Services, Inc. FRANK B. RYAN -- AGE 58. Dr. Ryan has been a member of America West's Board of Directors since March 17, 1995. Since August 1990, Dr. Ryan has been a professor of mathematics and of computational and applied mathematics and formerly the vice president of external affairs of Rice University. From 1988 to 1990, Dr. Ryan served as president and chief executive officer of Contex Electronics, Inc., an electronic component manufacturing company. Dr. Ryan serves on the board of directors of Danielson Holding Company, Inc. and as a governor advisor to Rice University. RICHARD P. SCHIFTER -- AGE 42. (Compensation Committee). Mr. Schifter has been a member of America West's Board of Directors since August 26, 1994. He has been a managing director of Texas Pacific Group, an investment firm, since July 1994. Mr. Schifter serves of counsel to the Washington D.C. based law firm of Arnold & Porter, where he was an associate from 1979 to 1986 and a partner from 1986 to July 1994. JOHN F. TIERNEY -- AGE 49. Mr. Tierney has served as a member of the Board of Directors since December 1993. Mr.Tierney is the assistant chief executive and finance director of GPA Group plc, an Irish aircraft leasing concern, and has served GPA in such capacity since 1993. From 1981 to 1993, he served as chief financial officer of GPA. RAYMOND S. TROUBH -- AGE 68. (Audit Committee). Mr. Troubh has been a member of America West's Board of Directors since August 26, 1994. He is a financial consultant and currently serves on the board of directors of ADT Limited, American Maize Products Co., Applied Power Inc., ARIAD Pharmaceuticals, Inc., Becton, Dickinson and Company, Benson Eyecare Corporation, Foundation Health Corporation, General American Investors Company, Manville Corporation, Olsten Corporation, Riverwood 36 39 International Corporation, Time Warner Inc., Petrie Stores Corporation, Triarc Companies, Inc. and WHX Corporation. 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 other than Messrs. Franke and Myers who are described above. 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. JOHN R. GAREL -- AGE 35. Senior Vice President -- Marketing and Sales. Mr. Garel agreed to join the Company in March 1995 and began 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 began 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 and 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, 37 40 Mr. Nakano was employed by Continental for eight years in various accounting positions, most recently as Senior Director, General Accounting. COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth information for the years ended December 31, 1994, 1993 and 1992 with respect to compensation for services to America West paid to (i) the chief executive officer, (ii) the four most highly compensated executive officers of the Company during 1994, other than the chief executive officer, and (iii) one former executive officer. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ----------------------------------------- OTHER ANNUAL ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY($) COMPENSATION($)(1) COMPENSATION($)(2) - ------------------------------------- ---- --------- ------------------ ------------------ William A. Franke(3)................. 1994 450,000 5,625 1,224,375 Chairman of the Board and 1993 450,000 -- -- Chief Executive Officer 1992 131,250 -- -- A. Maurice Myers..................... 1994 376,442 104,688(4) 421,415 President and Chief Operating Officer Martin J. Whalen..................... 1994 142,464 2,406 190,883 Senior Vice President -- Corporate 1993 134,400 4,368 3,873 Affairs and Secretary 1992 134,400 -- 3,808 Raymond T. Nakano.................... 1994 132,447 2,237 190,103 Vice President and Controller 1993 124,950 4,061 1,973 1992 124,950 -- 975 Thomas P. Burns...................... 1994 130,592 2,205 105,058 Vice President -- Sales 1993 123,200 4,004 3,385 1992 123,200 -- 3,659 Alphonse E. Frei(5).................. 1994 129,249 2,807 98,479 Senior Vice President -- Finance 1993 156,800 5,096 4,798 and Chief Financial Officer 1992 156,800 -- 4,731
- --------------- (1) For officers other than Mr. Myers, reflects amounts paid under the Company's Transition Pay Program. (2) Includes a Reorganization success bonus paid to Mr. Franke in the form of 125,000 shares of Class B Common Stock, valued at $9.795 per share. Includes Reorganization success bonuses paid in cash to Messrs. Myers, Whalen, Nakano and Burns of $400,000, $185,000, $185,000 and $100,000, respectively. Includes matching contributions made by the Company under the Company's 401(k) plan for Messrs. Whalen, Nakano, Burns and Frei (i) in 1994 of $4,091, $4,128, $4,135 and $1,913, respectively, (ii) in 1993 of $2,081, $998, $1,908 and $2,249, respectively, and (iii) in 1992 of $2,016, $0, $2,182 and $2,182, respectively. Also includes premiums paid by the Company for life insurance for Messrs. Whalen, Nakano, Burns and Frei (i) in 1994 of $1,792, $975, $923 and $2,443, respectively, (ii) in 1993 of $1,792, $975, $1,477 and $2,549, respectively, and (iii) in 1992 of $1,792, $975, $1,477 and $2,549, respectively. Includes a severance payment to Mr. Frei of $94,123 in 1994. For Mr. Myers, includes $21,415 in life insurance premiums paid by the Company in 1994. (3) Mr. Franke's employment with the Company commenced on September 17, 1992. (4) Reflects payment of a $100,000 transition allowance in connection with commencement of employment with the Company and $4,688 paid to Mr. Myers under the Company's Transition Pay Program. (5) Mr. Frei's employment with the Company ended on July 1, 1994. 38 41 EMPLOYMENT AGREEMENTS Effective as of December 1, 1994, the Company entered into an employment agreement with William A. Franke for service as the Chairman of the Board and Chief Executive Officer of the Company for a term of one year with a possible one-year extension at Mr. Franke's election with the approval of the Company's Board of Directors. Under the agreement, Mr. Franke is to receive an annual cash base salary of at least $300,000, which amount may be increased at the Board's discretion. The agreement provides for restricted stock grants of 11,000, 30,334 and 25,000 shares of Class B Common Stock as soon as practicable after December 1, 1994, January 1, 1995 and January 1, 1996, respectively, subject to partial or complete forfeiture upon termination of employment under certain circumstances. In addition, upon execution of the agreement, Mr. Franke received (i) a fully vested option to purchase 255,000 shares of Class B Common Stock at an exercise price of $8.75 per share, the fair market value on the date of grant, and (ii) options to purchase an additional 100,000 shares of Class B Common Stock at an exercise price of $8.75 per share, vesting over a two-year period beginning January 1, 1996. The agreement further provides for the granting to Mr. Franke (a) on August 25, 1995 of options to purchase an additional 150,000 shares of Class B Common Stock, vesting over a three-year period and (b) on August 25, 1996 of options to purchase an additional 150,000 shares of Class B Common Stock, vesting over a three-year period. All of such options become fully vested and exercisable upon a "change in control" (as defined in the agreement) or in the event Mr. Franke's employment is terminated by reason of death or disability. All of such restricted stock grants and stock options are subject to stockholder approval of the Incentive Plan. The agreement also provides that the Company will maintain a term life insurance policy on the life of Mr. Franke in the amount of $2 million, proceeds of which are to be paid to beneficiaries designated by Mr. Franke. Mr. Franke is to receive an allowance for administrative expenses of $50,000 per year. A majority of the Board of Directors may authorize termination of Mr. Franke's employment for any reason which the Board deems sufficient. If Mr. Franke terminates his employment for good reason or is terminated by the Board of Directors for any reason other than misconduct or disability, he will receive, among other things, a severance payment in the amount of $1.5 million if the termination is prior to August 25, 1996 and $1 million if the termination is after such date. Pursuant to the agreement, Mr. Franke has certain registration rights with respect to shares of Class B Common Stock granted to him or received pursuant to the exercise of stock options. On June 27, 1994, the Company entered into a key employee protection agreement with Mr. Franke providing for the payment to him of a severance payment of approximately 200% of his base salary in the event of a termination of his employment following a "change in control." That key employee protection agreement was superseded in its entirety by Mr. Franke's employment agreement described above. In September 1994, the Company issued to Mr. Franke 125,000 fully-vested shares of Class B Common Stock as a Reorganization success bonus. The Company also loaned $470,282 to Mr. Franke for the purpose of enabling him to pay the income taxes attributable to such bonus. The loan (i) is payable in two equal installments on September 26, 2000 and September 26, 2001, (ii) bears interest (payable semi-annually) at the rate of 8% per annum (11% per annum after maturity) and (iii) is secured by a pledge of 62,500 of the bonus shares, but is otherwise non-recourse to Mr. Franke. Effective as of January 1, 1994, the Company entered into an employment agreement with A. Maurice Myers for service as President and Chief Operating Officer of the Company for a two-year term with automatic one-year extensions unless prior written notice is given by either party. Pursuant to the agreement (as amended), Mr. Myers is to receive an annual base salary of $375,000 for the period ended December 31, 1994 and $400,000 for the period beginning January 1, 1995, which amount may be increased in the Board's discretion. Pursuant to the agreement, the Company paid to Mr. Myers in 1994 a lump sum transition allowance of $100,000 and a Reorganization success bonus of $400,000. In addition, the Company made a non-recourse loan to Mr. Myers in 1994 in the amount of $200,000 to be used in connection with the purchase of a home, which loan is secured by a lien on such property and has a stated maturity of December 31, 2003. In 1994, the Company also loaned approximately $320,000 to Mr. Myers in connection with the exercise of options to purchase Aloha Airgroup, Inc. ("Aloha") common stock and related taxes. Such loan is secured by a pledge of the Aloha stock acquired with the proceeds thereof, is non-recourse to Mr. Myers and is due 90 days after the term of the agreement or earlier upon certain events. Both the house loan and the stock loan bear interest at the applicable federal rate in accordance with the Internal Revenue Code of 1986, as amended. The Company is entitled to apply any incentive bonuses payable to Mr. Myers to the repayment of the house 39 42 loan and the stock loan. The agreement also provides for certain pension benefits. The Company is required by the agreement to pay Mr. Myers a severance payment in the amount of (i) 100% of his base salary if Mr. Myers terminates the agreement due to the election of any person other than Mr. Myers or Mr. Franke as Chief Executive Officer of the Company or (ii) 150% of his base salary if the Company elects to discontinue automatic extensions of the agreement, if Mr. Myers terminates the agreement for good reason or due to a change in control or if the Company terminates the agreement for any reason other than misconduct or disability. In 1995, the Company granted to Mr. Myers an option to purchase 200,000 shares of Class B Common Stock at an exercise price of $8.75 per share, the fair market value on the date of grant. Such option is subject to stockholder approval of the Incentive Plan. DIRECTOR COMPENSATION Each director who is not an officer or employee of the Company currently receives an annual retainer of $15,000 and $1,000 for each Board or committee meeting attended. Pre-Reorganization directors each received an annual retainer of $25,000 and $1,000 for each Board or committee meeting attended. Directors are also entitled to certain air travel benefits. Pursuant to the America West Airlines, Inc. 1994 Incentive Equity Plan and subject to stockholder approval thereof, (i) each non-employee director who served on the Board of Directors on December 31, 1994 was awarded an option to purchase 3,000 shares of Class B Common Stock and (ii) each new non-employee director elected after December 1, 1994 will automatically receive on the date of election an option to purchase 3,000 shares of Class B Common Stock. In addition, each non-employee director will be automatically granted an option to purchase 3,000 shares of Class B Common Stock on the day after each annual stockholders' meeting (commencing with the 1995 Annual Meeting). OTHER ARRANGEMENTS Mr. Franke, Chairman of the Board of Directors, is also the president of the financial services firm, Franke & Company Inc. In order to assist Mr. Franke with certain costs associated with his service as Chairman and Chief Executive Officer, the Company pays Franke & Company Inc. an office overhead allowance of $4,167 per month in exchange for which Franke & Co. provides Mr. Franke's secretarial and administrative support. During 1993, the Company paid approximately $39,000 for consulting services to Juan O'Callaghan, a former director of the Company. MANAGEMENT RIGHTS AGREEMENT On the Effective Date, the Company and TPG entered into a Management Rights Agreement ("Management Rights Agreement") pursuant to which TPG is entitled, subject to certain restrictions, (i) to make proposals, recommendations and suggestions to the Company relating to the business and affairs of the Company, (ii) discuss the affairs of the Company with officers, directors and accountants, and (iii) examine the Company's books and records. Proposals and recommendations made pursuant the Management Rights Agreement will not be binding on the Company and information provided to TPG will be subject to confidentiality and various other restrictions. COMPENSATION COMMITTEE INTERLOCKS Two members of the pre-Reorganization Board and the pre-Reorganization Compensation Committee, John F. Tierney and Declan Treacy, were elected to the Board of Directors pursuant to a certain management letter agreement, as amended and restated, between the Company and its debtor-in-possession lenders, including GPA. Both Mr. Tierney and Mr. Treacy are executives of GPA. The management letter agreement terminated in connection with the Reorganization and Mr. Treacy's term expired on August 25, 1994. GPA's representation on the Company's Board is now determined pursuant to the Stockholders' Agreement and a voting agreement entered into between GPA and AmWest. Mr. Tierney continues to be a member of the Board, but is no longer a member of the Compensation Committee. 40 43 GPA is a major supplier of leased aircraft and engines to the Company and provided financing to the Company prior to and during the bankruptcy proceedings. In June 1994, in connection with the Reorganization, the Company entered into the 1994 Put Agreement with GPA providing GPA with a right to lease up to eight aircraft to the Company. This agreement replaced a similar agreement with GPA 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, GPA 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 GPA. In connection with the 1994 Put Agreement and for other consideration, GPA was paid approximately $30.5 million and issued certain equity securities by the Company as part of the Reorganization. In February 1995, the Company leased a B737-300 aircraft from GPA for a term of five years. Additionally, the Company and GPA 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. Lease payments from America West to GPA under an agreement initially entered into in September 1990 (the "Aircraft Finance Agreement") and under the 1991 Put Agreement totaled approximately $63 million in 1994. As of December 31, 1994, the Company was obligated to pay approximately $1.1 billion over the life of the 16 aircraft leases under the Aircraft Finance Agreement. Payments by the Company to GPA under a debtor-in-possession financing facility established in September 1991 were approximately $61 million in 1994. Richard P. Schifter, a member of the Company's Board of Directors, and of the Compensation Committee is a vice president of TPG Advisors, which is the general partner of TPG GenPar, the general partner of TPG. TPG received Class A Common Stock and Class B Common Stock and warrants to purchase Class B Common Stock in exchange for its investment in America West pursuant to the Reorganization. Mr. Schifter serves of counsel to the law firm of Arnold & Porter, where he was a partner until July 1994. America West from time to time engages Arnold & Porter for certain legal services, not any of which are performed by Mr. Schifter. Each of the Company transactions described above was the result of arms'-length negotiation among the parties thereto and was concluded on what the Company believes to be terms no less favorable than would have been obtained had the transactions been entered into with non-affiliated third parties. CERTAIN TRANSACTIONS The Company has certain alliance agreements with Continental and Mesa. With Continental, the Company agreed to implement certain code sharing arrangements, coordinate certain flight schedules to maximize connections between the two airlines, share ticket counter space, link in part their frequent flyer programs and coordinate ground handling operations. 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 Alliance Agreements are designed to enhance significantly the Company's growth in revenue passenger miles and operating results. Continental and Mesa are principal stockholders of the Company. See "Principal Stockholders." Pursuant to a code sharing agreement with Mesa entered into in December 1992 (which was prior to Mesa becoming a significant stockholder), the Company assesses 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 totalled approximately $2.5 million for 1994. On October 14, 1994, the Company issued $13 million of its 11 1/4% Senior Unsecured Notes due 2001 to Fidelity and $10 million of such notes to Lehman in satisfaction of certain claims and other prepetition 41 44 obligations totalling approximately $25 million held by Fidelity and Lehman. In connection with the issuance of such notes, Fidelity and Lehman also received cash payments of $2.1 million and $1.2 million, respectively, representing the portion of claims and other prepetition obligations not satisfied by the issuance of the notes and other payments made in connection with the settlement of such claims. Fidelity and Lehman are principal stockholders of the Company. See "Principal Stockholders." In 1994, the Company made certain loans to William A. Franke and A. Maurice Myers, both executive officers of the Company. For a description of such loans, see "Management -- Employment Agreements." 42 45 PRINCIPAL STOCKHOLDERS The following table sets forth the beneficial ownership of the outstanding Common Stock of the Company by (i) each person who is known to the Company to own beneficially more than 5% of the outstanding Common Stock of America West, (ii) each director of America West, (iii) each of the executive officers of America West named in the Summary Compensation Table and (iv) all executive officers and directors of America West as a group, in each case as of March 17, 1995. The beneficial ownership information set forth below does not include any shares that may be issued to the holders shown below upon the final adjudication of certain claims pending in connection with proceedings relating to the Company's Reorganization; however, the sale by such holders of any such shares is registered pursuant to the Registration Statement of which this Prospectus is a part.
CLASS A SHARES CLASS B SHARES CLASS A AND B BENEFICIALLY OWNED BENEFICIALLY OWNED COMBINED ---------------------- ------------------------------ VOTING POWER BENEFICIAL OWNER(1) NUMBER PERCENTAGE NUMBER PERCENTAGE PERCENTAGE - --------------------------------- -------- ---------- ----------- ---------- ------------- TPG Partners, L.P.(2)............ 774,495 64.5% 6,924,818(3) 15.1% 43.1% 201 Main Street Suite 2420 Fort Worth, Texas 76102 Continental Airlines, Inc.(4).... 325,505 27.1% 2,311,094(5) 5.2% 17.7% 2929 Allen Parkway Houston, Texas 77019 Mesa Air Group, Inc.(6).......... 100,000 8.3% 2,985,239(7) 6.7% 7.6% 2525 30th Street Farmington, New Mexico 87401 Lehman Brothers Inc.............. -- -- 4,575,601(8) 10.3% 4.4% 200 Vesey Street American Express Tower World Financial Center New York, NY 10285-1800 FMR Corp......................... -- -- 4,808,922(9) 10.8% 4.6% 82 Devonshire Street Boston, MA 02109 William A. Franke................ -- -- 421,334(10) 1.0% * A. Maurice Myers................. -- -- -- -- -- Martin J. Whalen................. -- -- 36(11) * * Raymond T. Nakano................ -- -- 4(12) -- -- Thomas P. Burns.................. -- -- 101(13) * * Alphonse E. Frei................. -- -- 187(14) * * Julia Chang Bloch................ -- -- -- -- -- Stephen F. Bollenbach............ -- -- -- -- -- Frederick W. Bradley, Jr......... -- -- -- -- -- James G. Coulter(15)............. 774,495 64.5% 6,924,818(3) 15.1% 43.1% John F. Fraser................... -- -- -- -- -- John L. Goolsby.................. -- -- 1,500 * * Richard C. Kraemer............... -- -- -- -- -- John R. Power, Jr................ -- -- -- -- -- Larry L. Risley(16).............. 100,000 8.3% 2,985,239(7) 6.7% 7.6% Frank B. Ryan(17)................ -- -- -- -- -- Richard P. Schifter(18).......... 774,495 64.5% 6,924,818(3) 15.1% 43.1% John F. Tierney.................. -- -- -- -- -- Raymond S. Troubh................ -- -- 2,500 * * All executive officers and directors as a group (21 persons)....................... 874,495 72.8% 10,335,719(19)(14) 22.1% 50.7%
- --------------- * Less than 1%. (1) Information with respect to each beneficial owner of 5% of the Company's Common Stock is based solely on Schedules 13G filed by such beneficial owners with the Securities and Exchange Commission. (2) TPG is a Delaware limited partnership whose general partner is TPG GenPar, L.P., a Delaware limited partnership ("TPG GenPar"). The general partner of TPG GenPar is TPG Advisors, Inc., a Delaware corporation ("TPG Advisors"). The executive officers and directors of TPG Advisors are: David 43 46 Bonderman (director and president), James G. Coulter (director and vice president), William Price (director and vice president), James O'Brien (vice president, treasurer and secretary), Richard P. Schifter (vice president) and Richard A. Ekleberry (vice president). Includes shares owned by TPG Parallel I, L.P., a Delaware limited partnership ("TPG Parallel"), and Air Partners II, L.P., a Texas limited partnership ("Air Partners II"). The general partner of each of TPG Parallel and Air Partners II is TPG GenPar. No other persons control TPG, TPG GenPar, TPG Advisors, TPG Parallel or Air Partners II. (3) Includes 1,911,523 shares of Class B Common Stock that may be acquired upon the exercise of warrants. (4) Mr. Bonderman is also director and chairman of the board of Continental and Mr. Price is a director of Continental. Mr. Bonderman, Mr. Coulter and Mr. Price, through their control positions in Air Partners, L.P., a special purpose partnership formed in 1992 to participate in the funding of the reorganization of Continental and a significant shareholder in Continental, may be deemed to own beneficially a significant percentage of Continental's common stock. (5) Includes 802,860 shares of Class B Common Stock that may be acquired upon the exercise of warrants. (6) Larry L. Risley, a director of the Company, is the chairman and chief executive officer of Mesa. (7) Includes 799,767 shares of Class B Common Stock that may be acquired upon the exercise of warrants. (8) Includes 293,242 shares of Class B Common Stock that may be acquired upon the exercise of warrants. Does not include any shares which Lehman or its affiliates may own in its or their capacity as a market maker on a when-issued basis for the warrants and the Class B Common Stock. (9) Includes 658,009 shares of Class B Common Stock that may be acquired upon the exercise of warrants. All shares are owned directly by Fidelity Copernicus Fund, L.P. ("Copernicus"), Belmont Capital Partners II, L.P. ("Belmont II") or Belmont Fund, L.P. ("Belmont I"), each of which is a private investment limited partnership. Fidelity Management Trust Company ("FMTC") serves as investment adviser to Belmont I and Belmont II, and Fidelity Management & Research Company ("FMRC") serves as investment adviser to Copernicus. Each of FMTC and FMRC is a wholly owned subsidiary of FMR Corp. ("FMR"). Through shared voting and dispositive power over the shares held by Belmont I and Belmont II, FMTC may be deemed to own beneficially the shares held by such entities. Through shared voting and dispositive power over the shares held by Copernicus, FMRC may be deemed to own beneficially the shares held by such entity. In addition, FMR, as controlling person of FMTC, FMRC and certain general partners of Belmont I, Belmont II and Copernicus, may be deemed to own beneficially the shares held by each of Belmont I, Belmont II and Copernicus. FMR disclaims beneficial ownership of such shares. Edward C. Johnson III, through his interest in FMR, may be deemed to own beneficially the shares held by each of Belmont I, Belmont II and Copernicus. Mr. Johnson disclaims beneficial ownership of such shares. (10) Includes 255,000 shares of Class B Common Stock that may be acquired upon exercise of stock options. (11) Includes 16 shares of Class B Common Stock that may be acquired upon exercise of warrants. (12) Includes 3 shares of Class B Common Stock that may be acquired upon exercise of warrants. (13) Includes 74 shares of Class B Common Stock that may be acquired upon exercise of warrants. (14) Includes 137 shares of Class B Common Stock that may be acquired upon exercise of warrants. (15) Represents shares of Class A Common Stock and Class B Common Stock held by TPG. In connection with Mr. Coulter's positions described in footnote (2) above, Mr. Coulter may be deemed to own beneficially such shares. Mr. Coulter disclaims beneficial ownership of such shares. (16) Represents shares held by Mesa. Through his position as chairman and chief executive officer of Mesa, Mr. Risley may be deemed to own beneficially such shares. Mr. Risley disclaims beneficial ownership of such shares. (17) Dr. Frank B. Ryan became a member of the Board of Directors on March 17, 1995. (18) Represents shares of Class A Common Stock and Class B Common Stock held by TPG. In connection with Mr. Schifter's position described in footnote (2) above, Mr. Schifter may be deemed to own beneficially such shares. Mr. Schifter disclaims beneficial ownership of such shares. (19) Includes 2,711,520 shares of Class B Common Stock that may be acquired upon exercise of warrants. 44 47 STOCKHOLDERS' AGREEMENTS On the Effective Date, the Company, AmWest, GPA, and certain designated stockholder representatives entered into an agreement (the "Stockholders' Agreement") with respect to certain matters involving the Company. Upon the dissolution of AmWest, which occurred immediately following the Effective Date, the provisions of the Stockholders' Agreement with respect to AmWest became binding upon TPG, Continental and Mesa. As used below, "AmWest" means TPG, Continental and Mesa in their capacities as successors-in-interest to AmWest under the Stockholders' Agreement. The Stockholders' Agreement provides that, for a period lasting until the first annual meeting after the third anniversary of the Effective Date (the "Voting Period"), America West's Board of Directors will consist of 15 members including (i) nine members designated by AmWest; (ii) one member designated by GPA for as long as GPA retains at least 2% of the voting equity securities of the Company; and (iii) five independent directors (the "Independent Directors") initially including (a) three directors designated by the official committee of the unsecured creditors, (b) one member designated by the official committee of the equity security holders and (c) one director designated by the pre-Reorganization Board of Directors from among the executive officers of the Company. The Stockholders' Agreement provides that during the Voting Period, 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. In addition, AmWest and GPA agreed that (i) AmWest will vote in favor of GPA's nominee to the Company's Board of Directors, and (ii) GPA will vote in favor of AmWest's nine nominees to the Company's Board of Directors for so long as (a) AmWest owns 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. The Stockholders' Agreement also provides that no director nominated by AmWest will be an employee or officer of Continental. All directors who are selected by or who are directors of Continental or Mesa and all directors who are employees or officers of Mesa are required by the Stockholders' Agreement to recuse themselves from voting on or receiving information on any matters involving negotiations or direct competition between their respective companies and America West. During the Voting Period, the Stockholders' Agreement requires approval by at least three of the Independent Directors, or the affirmative vote of the holders of a majority of the voting power of each class of Common Stock (excluding those shares owned by AmWest or any of its affiliates, but not, however, excluding any shares owned, controlled or voted by Mesa or any of its transferees that are not otherwise affiliates of AmWest), to approve (i) any merger or consolidation of the Company with or into AmWest or any of its affiliates; (ii) certain transactions involving issuances of voting securities by AmWest or any of its affiliates; (iii) certain transactions involving issuances of voting securities by the Company that result in AmWest or any of its affiliates acquiring an increased percentage ownership of such voting securities; and (iv) any transaction or series of transactions having the same effect as (i) or (ii) above. Under the terms of the Stockholders' Agreement, neither AmWest nor any affiliate of AmWest may sell or otherwise transfer any Common Stock (other than to an affiliate of the transferor) if, after giving effect thereto or to any related transaction, the total number of shares of Class B Common Stock beneficially owned by the transferor is less than twice the number of shares of Class A Common Stock beneficially owned by the transferor, except in certain circumstances. In addition, the Stockholders' Agreement provides that, for a period of three years after the Effective Date, AmWest shall not sell, in a single transaction or related series of transactions, shares of Common Stock representing 51% or more of the combined voting power of shares of Common Stock then outstanding other than (i) pursuant to or in connection with a tender or exchange offer for all shares of Common Stock and for the benefit of all others of Class B Common Stock on a pro rata basis at the same price per share and on the same economic terms, (ii) to any affiliate of AmWest, (iii) to any affiliate of AmWest's partners, (iv) pursuant to a bankruptcy or insolvency proceeding, (v) pursuant to judicial order, legal process, execution or attachment or (vi) in a public offering. 45 48 SELLING SECURITYHOLDERS The Selling Securityholders are TPG, Continental, Mesa, GPA, Fidelity and Lehman. In addition, 125,000 shares of Class B Common Stock issued to Mr. Franke in connection with a Reorganization success bonus are covered by the Registration Statement of which this Prospectus is a part. Pursuant to partial assignments of the Investment Agreement by AmWest, Fidelity and Lehman also purchased Securities from the Company through subscription agreements between AmWest and those parties. Pursuant to the Plan of Reorganization, the partners of AmWest and such parties invested $205.3 million into the Company in exchange for the rights to acquire Securities offered hereby. The following table sets forth the name of each Selling Securityholder, and the amount of the Securities (other than the Senior Notes) owned by each such Selling Securityholder which are subject to being offered hereby. This prospectus relates to the offers and sales of the Securities by the Selling Securityholders. The shares and Warrants reflected in the following table do not include shares or Warrants that may be issued to Selling Securityholders upon the final adjudication of certain claims pending in connection with proceedings relating to the Company's Reorganization. Any such shares or Warrants issued to Selling Securityholders will also be subject to being offered hereby.
SHARES OF SHARES OF CLASS A CLASS B NUMBER OF COMMON STOCK COMMON STOCK(1) WARRANTS ------------ --------------- --------- TPG Partners, L.P................................. 642,078 5,741,150 1,584,915 TPG Parallel I, L.P. ............................. 64,699 578,338 159,580 Air Partners II, L.P. ............................ 67,718 605,330 167,028 Continental Airlines, Inc......................... 325,505 2,311,094 802,860 Mesa Air Group, Inc............................... 100,000 2,985,239 799,767 GPA Group plc..................................... -- 2,284,615 1,384,615 Fidelity Copernicus Fund, L.P..................... -- 2,601,040 100,116 Belmont Capital Partners II, L.P.................. -- 1,356,932 524,521 Belmont Fund, L.P................................. -- 850,950 33,372 Lehman Brothers Inc............................... -- 4,575,601 293,242 William A. Franke................................. -- 125,000 -- ------------ --------------- --------- TOTAL................................... 1,200,000 24,015,289 5,850,016 =========== ============= ========
- --------------- (1) Includes in each case a number of shares that may be acquired upon exercise of Warrants equal to the number of Warrants held by such person and offered pursuant to this Prospectus. In addition, Fidelity Copernicus Fund, L.P. ("Copernicus") holds $75 million principal amount of Senior Notes, Belmont Fund, L.P. ("Belmont") holds $27 million principal amount of Senior Notes, Belmont Capital Partners II, L.P. ("Belmont II") holds $11 million of Senior Notes and Lehman holds $10 million of Senior Notes all of which may be offered and sold pursuant to this Prospectus. The Senior Notes held by Copernicus are subject to a repurchase agreement and pursuant to such agreement were resold shortly after their issuance to Copernicus and Belmont. This Prospectus relates to offers and sales of the Senior Notes by Copernicus, Belmont, Belmont II and Lehman as well as offers and sales that may be subsequently made in accordance with the repurchase agreement or other pledge arrangements. See "Plan of Distribution." SHARES ELIGIBLE FOR FUTURE SALE As of March 17, 1995, assuming no exercise of outstanding warrants to purchase Common Stock, America West had 45,166,645 shares of Common Stock outstanding, including 1,200,000 shares of Class A Common Stock and 43,966,645 shares of Class B Common Stock. The offer and sale of 19,898,704 of such shares of Common Stock is registered under the Securities Act pursuant to the Registration Statements of which this Combined Prospectus forms a part. In addition, at the Effective Date, America West had 10,384,615 shares of Class B Common Stock reserved for issuance upon the exercise of Warrants; the offer 46 49 and sale of 5,872,108 of such shares is registered pursuant to the Company's Registration Statement No. 33-54243. As of December 31, 1994, substantially all of the outstanding shares of Common Stock and shares of Common Stock issuable upon exercise of the Warrants (except to the extent such shares may have been acquired by an underwriter) were freely tradeable without restriction or further registration under the Securities Act, either because such shares were issued or are issuable pursuant to the exemption provided by Section 1145 of the Bankruptcy Code and such shares are not "restricted securities" as defined in Rule 144 under the Securities Act or because the offer and resale of such shares is registered pursuant to the Company's Registration Statement No. 33-54243. To the extent shares of Common Stock are owned or purchased by "affiliates" of the Company as such term is defined in Rule 144 and are not registered pursuant to the Securities Act, such restricted shares may generally be sold in compliance with Rule 144. In general under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including persons deemed to be affiliates, whose restricted securities have been fully paid for and held for at least two years from the later of the date of acquisition from America West or an affiliate thereof, may sell such securities in brokers' transactions or directly to market makers, provided the number of shares sold in any three-month period does not exceed the greater of 1% of the then outstanding shares of the Common Stock or the average weekly trading volume in the public market during the four calendar weeks immediately preceding the filing of the seller's Form 144. Sales under Rule 144 are also subject to certain notice requirements and availability of current public information concerning America West. Pursuant to Rule 144(k), after three years have elapsed from the later of the acquisition of the restricted securities from America West or an affiliate thereof, such shares may be sold without limitation by persons who have not been affiliates of America West for at least three months. TPG, Continental, Mesa, Fidelity, Lehman, GPA and their respective affiliates, have certain rights pursuant to agreements with the Company to have the offering and sale of Securities held by them registered with the Commission under the Securities Act. Under such agreements, the Company may be required to effect such registration for a period of eight years from the Effective Date. Prior to this offering, there has been no market for the Common Stock of America West. Future sales of substantial amounts of Common Stock in the public market could adversely affect prevailing market prices. DESCRIPTION OF THE SENIOR NOTES The Senior Notes were issued under an Indenture dated August 25, 1994 (the "Indenture") between the Company and American Bank National Association, as trustee (the "Trustee"). The material provisions of the Senior Notes and the Indenture are summarized below. The statements under this caption relating to the Senior Notes and the Indenture are summaries only, however, and do not purport to be complete. Such summaries make use of terms defined in the Indenture and are qualified in their entirety by express reference to the Indenture, which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. All section references under this heading are references to sections of the Indenture. GENERAL Each Senior Note will mature on September 1, 2001, and will bear interest at the rate per annum stated on the cover page hereof from the date of issuance, payable semiannually in arrears on March 1 and September 1 of each year, commencing March 1, 1995, to the person in whose name the Senior Note is registered at the close of business on the record date next preceding such interest payment date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company will pay the principal on the Senior Notes to each Holder who surrenders such Senior Notes to a Paying Agent on or after September 1, 2001 or, in the event of a redemption of the Senior Notes, on or after the Redemption Date, as described below. The Company will pay principal and interest in U.S. legal tender by Federal funds bank wire transfer or (in the case of payment of interest) by check to the persons who are registered Holders at the close of business on the Record Date next preceding the applicable interest payment date. The aggregate principal amount of the Senior Notes that may be issued will be limited to $130,000,000. 47 50 The Senior Notes will be transferable and exchangeable at the office of the Registrar and any co-registrar and will be issued in fully registered form, without coupons, in denominations of $1,000 and any whole multiple thereof; provided, however, that any Global Security representing all or a portion of the Senior Notes may not be transferred except as a whole by the Depository in certain circumstances unless and until it is exchanged in whole or in part for Senior Notes in a non-global form. The Company may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection with certain transfers and exchanges. RANKING The Senior Notes will be senior unsecured obligations of the Company and will rank pari passu in right of payment with the Company's existing and future senior unsecured obligations. OPTIONAL REDEMPTION The Company, at its option on notice to the Holders, may redeem the Senior Notes (i) prior to September 1, 1997 (A) at any time in whole but not in part, at a Redemption Price equal to 105% of the aggregate principal amount of the Senior Notes, plus accrued and unpaid interest thereon to the Redemption Date, or (B) from time to time in part from the Net Offering Proceeds received by the Company prior to September 1, 1997 from a Public Offering Sale at a Redemption Price equal to 105% of the aggregate principal amount of the Senior Notes so redeemed, plus accrued and unpaid interest thereon to the Redemption Date; and (ii) on and after September 1, 1997 at any time in whole or from time to time in part, at a Redemption Price equal to the applicable percentage of the aggregate principal amount of the Senior Notes so to be redeemed, set forth below, plus accrued and unpaid interest thereon to the Redemption Date if redeemed during the 12 calendar months beginning on September 1 of the years indicated below: 1997: 105.0% 1998: 103.3% 1999: 101.7% 2000: 100.0% MANDATORY REDEMPTION If the Company shall consummate a Public Offering Sale at any time or from time to time prior to September 1, 1997, it shall, promptly after each Public Offering Sale so consummated at a time when, immediately prior to such consummation, the Company shall have on hand cash and Cash Equivalents, not subject to any restriction on disposition, of at least $100,000,000, then the Company shall redeem 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 and unpaid interest of the Senior Notes to be redeemed shall equal the lesser of (x) 50% of such Net Offering Proceeds or (y) the excess, if any, of $20,000,000 over (ii) the amount of any Net Offering Proceeds of any prior Public Offering Sale received prior to September 1, 1997, and applied to redeem Senior Notes as described therein. The Senior Notes will not be entitled to the benefit of any sinking fund or other mandatory redemption provisions. CERTAIN COVENANTS Limitations on Restricted Payments. Under the terms of the Indenture, neither the Company nor any subsidiary shall: (i) declare or pay any dividends on or make any distributions in respect of Capital Stock of the Company (other than dividends or distributions payable solely in shares of Capital Stock (other than redeemable stock) or in options, warrants or other rights to purchase Capital Stock (other than Redeemable Stock)) to holders of Capital Stock of the Company, (ii) purchase, redeem or otherwise acquire or retire for value (other than through the issuance solely of Capital Stock (other than Redeemable Stock)) or warrants, rights or options to acquire Capital Stock other than Redeemable Stock; (iii) redeem, repurchase, defease (including, but not limited to, in substance or legal defeasance), or otherwise acquire or retire for value (other than through the issuance solely of Capital Stock (other than Redeemable Stock) or warrants, rights or 48 51 options to acquire Capital Stock (other than Redeemable Stock)) (collectively, a "prepayment"), directly or indirectly (including by way of amendment of the terms of any Indebtedness in connection with any retirement or acquisition of such Indebtedness) other than at scheduled maturity thereof or by any scheduled repayment or scheduled sinking fund payment, any indebtedness of the Company which is subordinated in right of payment to the Senior Notes or which matures after the maturity date of the Senior Notes except out of the proceeds of Refinancing Indebtedness); if, at the time of such transaction described in clause (i), (ii) or (iii) (such transactions being hereinafter collectively referred to as "Restricted Payments") and after giving effect thereto, either the aggregate amount expended by the Company and its Subsidiaries for all Restricted Payments (the amount of any Restricted Payment if other than cash to be the fair market value of the property included in such payment as determined in good faith by the Board of Directors as evidenced by a Board Resolution) from and after the Closing Date shall exceed the sum of (A) 50% (or if the Senior Notes at the time of the proposed Restricted Payment are rated Investment Grade by at least one rating agency of recognized standing selected by the Company, 75%) of the aggregate Adjusted Consolidated Net Income (or if such Adjusted Consolidated Net Income is a loss, minus 100% of such loss) of the Company and its Subsidiaries for the period from the Closing Date and through the day immediately prior to the day on which the Restricted Payment occurs, calculated on a cumulative basis as if such period were a single accounting period; (B) the aggregate net proceeds received by the Company after the Closing Date (including the fair market value of non-cash proceeds as determined in good faith by the Board of Directors as evidenced by a Board Resolution) from any Person other than a Subsidiary, as a result of the issuance of (or contribution to capital on) Capital Stock (other than any Redeemable Stock) or warrants, rights or options to acquire Capital Stock (other than any Redeemable Stock); (C) the aggregate net proceeds received by the Company after the Closing Date from any Person other than a Subsidiary as a result of the issuance of Capital Stock (other than Redeemable Stock) upon conversion or exchange of Indebtedness or upon exercise of options, warrants or other rights to acquire such Capital Stock and (D) $25,000,000. For purposes of any calculation that is required to be made in respect of, or after the declaration of a dividend by the Company, such dividend shall be deemed to be paid at the date of declaration and shall be included in determining the aggregate amount of Restricted Payments, and the subsequent payment of such dividend shall not be treated as an additional payment. For the purposes of the preceding covenant, the net proceeds from the issuance of shares of Capital Stock of the Company upon conversion of debt securities shall be deemed to be an amount equal to the net book value of such debt securities (plus the additional amount required to be paid upon such conversion, if any), less any cash payment on account of fractional shares; the "net book value" of a security shall be the net amount received by the Company on the issuance of such security, as adjusted on the books of the Company to the date of conversion. Notwithstanding the foregoing, if no Default or Event of Default shall have occurred or be continuing at the time, the Indenture shall not prohibit (i) the purchase, redemption or other acquisition or retirement for value of any shares of the Company's Capital Stock or the prepayment of any indebtedness of the Company which is subordinated in right of payment to the Senior Notes or which matures after the maturity date of the Senior Notes by any exchange for, or out of and to the extent the Company has received cash proceeds from the substantially concurrent sale or issuance (other than to a Subsidiary) of, shares of Capital Stock (other than any Redeemable Stock of the Company) or warrants, rights or options to acquire Capital Stock (other than any Redeemable Stock); or (ii) the purchase or redemption of shares of Capital Stock of the Company (including options on any such shares or related stock appreciation rights or similar securities) held by officers or employees of the Company or its Subsidiaries (or their estates or beneficiaries under their estates) upon death, disability, retirement, termination of employment or pursuant to the terms of any Plan or any other agreement under which such shares of stock or related rights were issued, provided that the aggregate amount of such purchases or redemptions of such Capital Stock shall not exceed $3,000,000 in any one fiscal year of the Company. Limitation on Transactions with Affiliates. Neither the Company nor any Subsidiary of the Company shall, directly or indirectly (i) sell, lease, transfer or otherwise dispose of any of its properties or assets, or issue securities to, (ii) purchase any property, assets or securities from, (iii) make any Investment in, or (iv) enter into or suffer to exist any contract or agreement with or for the benefit of, an Affiliate or Holder of 5% or more 49 52 of any class of Capital Stock (and any Affiliate of such Holder) of the Company (an "Affiliate Transaction"), other than (x) certain permitted Affiliate Transactions and (y) Affiliate Transactions (including lease transactions) which are on fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, as those as might reasonably have been obtainable at such time from an unaffiliated party; provided that if an Affiliate Transaction or series of related Affiliate Transactions involves or has a value in excess of $10 million, the Company or such Subsidiary, as the case may be, shall not enter into such Affiliate Transaction or series of related Affiliate Transactions unless a majority of the disinterested members of the Board of Directors of the Company or such Subsidiary shall reasonably and in good faith determine that such Affiliate Transaction is fair to the Company or such Subsidiary, as the case may be, or is on terms no less favorable to the Company or such Subsidiary, as the case may be, than those as might reasonably have been obtainable at such time from an unaffiliated party. (b) The preceding paragraph shall not apply to (i) any agreement as in effect as of the Closing Date, or any amendment thereto (including pursuant to any amendment thereto) so long as any such amendment is not disadvantageous to the Holders in any material respect or any transaction contemplated thereby (including pursuant to any amendment thereto); (ii) any transaction between the Company and any Wholly Owned Subsidiary or between Wholly Owned Subsidiaries, provided such transactions are not otherwise prohibited by this Indenture; (iii) reasonable and customary fees and compensation paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of the Company or any Subsidiary, as determined by the Board of Directors of the Company or any Subsidiary or the senior management thereof in good faith; (iv) any Restricted Payments not prohibited in Section 4.13; (v) any payments or other transactions pursuant to any tax sharing agreement between the Company and any other Person with which the Company is required or permitted to file a consolidated tax return or with which the Company is or could be part of a consolidated group for tax purposes; and (vi) transactions with Continental, Mesa and their respective Affiliates as contemplated by Alliance Agreements. Limitation on Asset Sales. Subject to certain provisions of the Indenture, in the event and to the extent that on any date the Company or any of its Subsidiaries shall receive Net Cash Proceeds from one or more Asset Sales (other than Asset Sales by the Company or any Subsidiary to the Company or another Subsidiary) then the Company shall, or shall cause such Subsidiary to, within 12 months after such date apply an amount equal to such Net Cash Proceeds (A) and to repay Indebtedness of the Company or Indebtedness of any Subsidiary, in each case owing to a Person other than the Company or any of its Subsidiaries, and/or (B) as an investment (or enter into a definitive agreement committing to so invest within 12 months after the date of such agreement), in property or assets of a nature or type or that are used in a business (or in a Person having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Subsidiaries existing on the date thereof (as determined in good faith by the Board of Directors of the Company or such Subsidiary, as the case may be, whose determination shall be conclusive and evidenced by a Board Resolution). The amount of such Net Cash Proceeds required to be applied (or to be committed to be applied) during such 12-month period as set forth in clause (A) or (B) of the preceding sentence shall constitute "Excess Proceeds." If on the first Business Day following any 12-month period referred to in the preceding paragraph, the aggregate amount of Excess Proceeds from all Asset Sales subject to application but not previously applied during such 12-month period as provided in clause (A) or (B) of the preceding paragraph, exceeds $15,000,000, the Company, within 10 Business Days thereafter, shall make an offer to purchase on a pro rata basis from all Holders (an "Excess Proceeds Offer"), and shall purchase from Holders accepting such Excess Proceeds Offer, the maximum principal amount (expressed as an integral multiple of $1,000) of Senior Notes that may be purchased from funds in an amount equal to all such outstanding Excess Proceeds at a purchase price equal to 100% of the principal amount of the Senior Notes so purchased plus accrued and unpaid interest thereon to the date of purchase ("Excess Proceeds Payment"). Upon completion of an Excess Proceeds Offer (or upon termination of such offer if no repurchases are required), the amount of such Excess Proceeds relating thereto shall be equal to zero. Change of Control. Upon a Change of Control, each Holder shall have the right to require the Company to repurchase all or any part of such Holder's Senior Notes at a repurchase price equal to 101% of 50 53 the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. Within 30 days following any Change of Control, the Company shall mail a notice to each Holder stating: (i) that a Change of Control has occurred and that such Holder has the right to require the Company to purchase all or any part of such Holder's Senior Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase; (ii) the circumstances and relevant facts regarding such Change of Control; (iii) the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed; and (iv) the instructions that the Company determines that a Holder must follow to have its Senior Notes repurchased. Holders electing to have a Senior Note purchased will be required to surrender the Senior Note, with an appropriate form duly completed, to the Company at the address specified in the notice at least 10 business days prior to the purchase date. Holders will be entitled to withdraw their election as specified in the notice. Limitation on Investments. The Company shall not, and shall not permit any Subsidiary to make any Investment other than (i) Investments consisting of non-cash proceeds from Asset Sales as contemplated by the Indenture; (ii) Investments consisting of Cash Equivalents; (iii) accounts receivable if credited or acquired in the ordinary course of business; (iv) payroll advances and advances for business and travel expenses in the ordinary course of business; (v) Investments by the Company in its Subsidiaries in the ordinary course of its business; (vi) Investments by any Subsidiary of the Company in the Company or in any Subsidiary; (vii) Investments by the Company for the purpose of acquiring businesses reasonably related to the business of the Company, in an aggregate amount not exceeding $5 million in any fiscal year; (viii) Investments made by way of endorsement of negotiable instruments received by the Company or any Subsidiary in the ordinary course of business; (ix) stock, obligations or securities received in settlement of debts created in the ordinary course of business owing to the Company or any Subsidiary; (x) Investments by the Company for the purpose of receivables financing; and (xi) in addition to any other permitted investments, any other Investments by the Company in an aggregate amount not exceeding $1 million at any time. LIMITATIONS ON MERGERS AND CONSOLIDATION The Indenture provides that the Company will not consolidate with or merge into any other corporation, or transfer, lease or convey its properties and assets substantially as an entirety (the "Properties") to any Person, unless: (i) the corporation formed by such consolidation or merger or the Person that acquires by transfer, lease or conveyance the Properties (collectively, the "Successor"), is a corporation organized and existing under the laws of the United States of America or any State thereof or the District of Columbia and the Successor assumes by supplemental indenture in a form satisfactory to the Trustee the Company's obligation for the due and punctual payment of the principal of and interest on all the Senior Notes according to their tenor and the performance of every covenant of the Indenture on the part of the Company to be performed or observed; and (ii) immediately before and after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, lease or transfer and such Supplemental Indenture comply with Article Six of the Indenture and that all conditions precedent set forth in the Indenture relating to such transaction have been complied with. CERTAIN DEFINITIONS The following is a summary of certain defined terms to be used in the Indenture. Reference is made to the Indenture for the full definition of all such terms and for the definitions of other capitalized terms used herein and not defined below. "Adjusted Consolidated Net Income" means, for any Person for any period, the aggregate net income (or loss) of such Person and its consolidated Subsidiaries for such period determined in occurrence with GAAP; provided that the following items shall be excluded in computing Adjusted Consolidated Net Income (without duplication): (i) the net income (or loss) of any Person (other than a Subsidiary of such first Person) in which any other Person (other than such first Person or any of its Subsidiaries) has a joint or shared interest, except to the extent of the amount of dividends or other distributions actually paid to and received by such first Person or any of its Subsidiaries during such period out of funds legally available therefor, (ii) the net income 51 54 (or loss) of any Person accrued prior to the date it becomes a Subsidiary of such first Person or any of its Subsidiaries or all or substantially all of the property and assets of such Person are acquired by such first Person or any of its Subsidiaries, (iii) the net income (or loss) of any Subsidiary of such Person that is subject to a Payment Restriction, except to the extent of the amount of cash dividends or other distributions actually paid to, and received by, such person or any of its Subsidiaries during such period from such Subsidiary out of funds legally available therefor, (iv) any gains or losses (on an after-tax basis) attributable to Asset Sales, and (v) all extraordinary gains and extraordinary losses. "Affiliates" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, is defined to mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Asset Sale" means any sale, transfer or other disposition (including by way of merger, consolidation or sale-leaseback transactions) in one transaction or a series of related transactions by the Company or any of its Subsidiaries to any Person other than the Company or any of its Subsidiaries of (i) all or any of the Capital Stock of any Subsidiary of the Company, (ii) all or substantially all of the property and assets of an operating unit or business of the Company or any of its Subsidiaries or (iii) any other property and assets of the Company or any of its Subsidiaries outside the ordinary course of business of the Company or such Subsidiary and, in each case, that is not governed by the provisions of Article Six of the Indenture applicable to mergers, consolidations and transfers of all or substantially all of the property and assets of the Company; provided that none of (A) sales or other dispositions of inventory, receivables and other current assets, (B) sale or other dispositions of surplus equipment, spare parts, expandable inventories, furniture or fixtures in an aggregate amount not to exceed $10,000,000 in any fiscal year of the Company, (C) sale leasebacks of aircraft and engines passenger loading bridges or other flight or ground equipment, flight simulators, or the Company's reservation facility located at 222 South Mill Avenue, Tempe, Arizona; or (D) $20,000,000 of other sales in any fiscal year of the Company shall be included within the meaning of "Asset Sale". "Change of Control" means (i) the acquisition at any time by any Person (other than one or more Permitted Holders), of "beneficial ownership" (within the meaning of Section 13(d) under the Exchange Act and the rules and regulations promulgated thereunder) in excess of 50% of the total voting power of the voting stock of the Company; (ii) the sale, lease, transfer or other disposition, of all or substantially all of the assets of the Company to any Person (other than one or more Permitted Holders) as an entirety or substantially as an entirety in one transaction or a series of related transactions; (iii) the merger or consolidation of the Company, with or into another corporation, or the merger of another corporation into the Company, or any other transaction, with the effect that a Person (other than one or more Permitted Holders), has "beneficial ownership" (within the meaning of Section 13(d) under the Exchange Act and the rules and regulations promulgated thereunder) in excess of 50% of the voting stock of the Company, or such other corporation, as the case may be (including indirect ownership through another Person other than one or more Permitted Holders); or (iv) the liquidation or dissolution of the Company. For purposes of this definition, the term Person includes a "person" within the meaning of Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. "Commodity Agreement" means any agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in the prices of commodities used by the Company or any of its Subsidiaries in the ordinary course of its business. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in currency values to or under which the Company or any of its Subsidiaries is a party or a beneficiary on the date of the Indenture or becomes a party or a beneficiary thereafter. "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by 52 55 bonds, debentures, Senior Notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, except trade payables, (v) all obligations of such Person to the extent capitalized on the balance sheet of such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the stated principal amount of such Indebtedness, (vii) all Indebtedness of other Persons guaranteed by such Person to the extent such Indebtedness is guaranteed by such Person, (viii) to the extent not otherwise included in this definition, obligations under Currency Agreements, Interest Risk Agreement and Commodity Agreements. The amount of Indebtedness of any Person of any date shall be the outstanding balance on such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date; provided that the amount outstanding at any time of any Indebtedness issued with original issue discount is the full amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness of such time as determined in conformity with GAAP. "Investment" means, with respect to any Person, any direct or indirect advance, loan (other than advances to customers in the ordinary course of business consistent with past practices that are recorded as accounts receivable on the balance sheet of such Person or its Subsidiaries) or other extension of credit or capital contribution by such Person to any other Person (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others; provided, that any transfer of aircraft to a limited partnership or other entity in connection with the transaction in which the aircraft are leased to the Company shall not be an Investment), or any purchase or acquisition by such person of Capital Stock, bonds, notes, debentures or other similar instruments issued by any other Person. "Interest Rate Agreement" means any interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates to or under which the Company or any of its Subsidiaries is a party or a beneficiary on the date of the Indenture or becomes a party or a beneficiary thereafter. "Investment Grade" means a rating of BBB- or higher by S&P or BaaB or higher by Moody's or the equivalent of such ratings by S&P or Moody's. In the event that the Company shall select any other rating agency, the equivalent of such ratings by such rating agency shall be used. "Lien" means any mortgage, lien, pledge, charge, security interest or encumbrance of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security interest); provided that in no event shall a true operating lease be deemed to constitute a Lien hereunder. "Material Subsidiary" means each Subsidiary that is either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act and the Exchange Act (as such regulation is in effect on the date hereof) or (b) material to the financial condition or results of operations of the Company and its Subsidiaries taken as a whole. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or Cash Equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or Cash Equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or Cash Equivalents, net of (i) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any other obligation outstanding 53 56 at the time of such Asset Sale that either (A) is secured by a Lien on the property or assets sold or (B) is required to be paid as a result of such Asset Sale other than pursuant to this Agreement, and (iv) appropriate amounts to be provided by the Company or any Subsidiary of the Company as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP. "Payment Restriction" means, with respect to a Subsidiary of any Person, any encumbrance, restriction or limitation, whether by operation of the terms of its charter or by reason of any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation, on the ability of (i) such Subsidiary to (a) pay dividends or make other distributions on its Capital Stock or make payments on any obligation, liability or Indebtedness owed to such Person or any other Subsidiary of such Person, (b) make loans or Advances to such Person or any other Subsidiary of such Person, or (c) transfer any of its property or assets to such Person or any other Subsidiary of such Person, or (ii) such Person or other Subsidiary of such Person to receive or retain any such (a) dividends, distributions or payments, (b) loans or advances, or (c) property or assets. "Permitted Holders" means AmWest, TPG, Continental, Mesa, Fidelity and their respective successors and affiliates. "Public Offering Sale" means an underwritten public offering of Capital Stock of the Company pursuant to which the Company agreed to issue and sell and the Purchasers named in such agreement agreed to purchase, an aggregate of $100,000,000 in principal amount of Securities. "Redeemable Stock" means any class or series of Capital Stock of any Person that by its terms or otherwise (i) is required to be redeemed prior to the Stated Maturity of the Securities, (ii) may be required to be redeemed at the option of the holder of such class or series of Capital Stock at any time prior to the Stated Maturity of the Securities or (iii) is convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) above or indebtedness having a scheduled maturity prior to the Stated Maturity of the Securities; provided that any Capital Stock that would not constitute Redeemable Stock but for provisions thereof offering holders thereof the right to require the Company to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" occurring prior to the Stated Maturity of the Securities shall not constitute Redeemable Stock if the asset sale provisions contained in such Capital Stock specifically provide that in respect of any particular asset sale proceeds, the Company will not repurchase or redeem any such Capital Stock pursuant to such provisions prior to the Company's repurchase of such Securities as are required to be repurchased from Holders accepting an Excess Proceeds Offer pursuant to the provisions of Section 4.15. "Refinancing Indebtedness" means any Indebtedness of the Company or any Subsidiary issued in exchange for, or the net proceeds of which are applied entirely to substantially concurrently repay, refinance, refund or replace, outstanding Indebtedness of the Company or any of its Subsidiaries (the "Refinanced Indebtedness"), to the extent such Indebtedness (a) is issued in a principal amount (or if such Indebtedness is issued at an original issue discount, is issued at an original issue price) not exceeding the outstanding principal amount (or, if such Refinanced Indebtedness was issued at an original issue discount, not exceeding the outstanding accreted principal amount) of such Refinanced Indebtedness, and (b) if the Refinanced Indebtedness is Indebtedness of the Company and ranks by its terms junior in right of payment to the Securities, (i) does not have a final scheduled maturity and is not subject to any principal payments, including but not limited to payments upon mandatory or optional redemption, prior to the dates of analogous payments under the Refinanced Indebtedness, and (ii) has subordination provisions effective to subordinate such Indebtedness to the Securities at least to the extent that such Refinanced Indebtedness is subordinated to the Securities, and (c) if the Refinanced Indebtedness is Indebtedness of the Company and ranks by its terms pari passu in right of payment with the Securities, (i) is pari passu or subordinated in right of payment to the Securities, (ii) does not have a final scheduled maturity and is not subject to any principal payments, 54 57 including but not limited to payments upon mandatory or optional redemption, prior to the dates of analogous payments under the Refinanced Indebtedness, and (iii) is not secured by any Lien on any property of the Company or any Subsidiary in addition to Liens securing the Refinanced Indebtedness. EVENTS OF DEFAULT An Event of Default, with respect to the Senior Notes, means any one of the following events shall have occurred and be continuing: (i) default by the Company for 30 days in payment of any interest on the Senior Notes; (ii) default by the Company in any payment of principal of or premium, if any, on the Senior Notes when such payment becomes due and payable; (iii) default by the Company in performance of any other covenant or agreement in the Indenture or under the Senior Notes, which shall not have been remedied within 30 days after receipt of written notice from the Trustee or from the holders of at least 25% in principal amount of the Senior Notes then outstanding; (iv) upon an event of default resulting in the acceleration of the maturity of any issue or issues of Indebtedness of the Company and/or one or more Subsidiaries of any principal amount of $10 million or more in the aggregate, and such default shall be continuing for a period of 30 days without the Company or such Subsidiary, as the case may be, discharging the Indebtedness or effecting a cure of such default; (v) a judgment or order not covered by insurance for the payment of money in excess of $10 million having been rendered against the Company or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 60 days; or (vi) certain events involving bankruptcy, insolvency or reorganization of the Company or any Material Subsidiary; (vii) failure by the Company to make at the final (but not any interim) fixed maturity of one or more issues of Indebtedness a principal payment or principal payments aggregating $10 million or more, which failure shall not have been remedied within 30 days of the payment default that causes the aggregate amount of such indebtedness to exceed $10 million, or (viii) the cessation of the full force and effect of the Indenture, except as permitted therein. The Trustee may withhold notice to the holders of the Senior Notes of any default or Event of Default (except in payment of principal of, or premium, if any, or interest on the Notes) if the Trustee considers it in the interest of the holders of the Senior Notes to do so. If an Event of Default occurs and is continuing with respect to the Indenture, the Trustee or the Holders of not less than 25% in principal amount of the Senior Notes outstanding may, and at the request of the Holders, the Trustee shall declare the principal of and premium, if any, and accrued but unpaid interest on all the Senior Notes to be due and payable. Upon such a declaration, such principal, premium, if any, and interest will be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company or any Material Subsidiary occurs and is continuing, the principal of and premium, if any, and interest on all the Senior Notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders of the Senior Notes. If an Event of Default relating to item (iv) in the preceding paragraph occurs, such acceleration will be automatically rescinded if the Event of Default is cured by the Company or waived by the holders of the relevant Indebtedness within 30 days after the occurrence of the Event of Default. Under certain circumstances, the holders of a majority in principal amount of the outstanding Senior Notes may rescind any such acceleration with respect to the Senior Notes and its consequences. The Indenture provides that no Holder may pursue any remedy under the Indenture unless (i) the Trustee shall have received written notice from the Holder of a continuing Event of Default, (ii) the Trustee shall have received a request from holders of at least 25% in principal amount of the Senior Notes to pursue such remedy, (iii) the Trustee shall have been offered indemnity reasonably satisfactory to it, (iv) the Trustee shall have failed to act for a period of 60 days after receipt of such notice and offer of indemnity, and (v) during such 60-day period, a majority of the Holders do not give the Trustee directions inconsistent with the initial request; however, such provision does not affect the right of a holder of a Note to sue for enforcement of any overdue payment thereon. The holders of a majority in principal amount of the Senior Notes then outstanding have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee under the Indenture, subject to certain limitations specified in the Indenture. The Indenture will 55 58 require the annual filing by the Company with the Trustee of a written statement as to compliance with the covenants contained in the Indenture. MODIFICATION AND WAIVER The Indenture provides that supplements and amendments to the Indenture or the Senior Notes may be made by the Company, and the Trustee with the written consent of the Holders of at least a majority in aggregate principal amount of the Senior Notes then outstanding; provided that no such amendment or waiver may, without the consent of each Holder affected, (i) reduce the principal amount of Senior Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Senior Note, or alter the provisions with respect to the redemption of the Senior Notes in a manner adverse to the Holders, (iii) reduce the rate of or change the time for payment of interest on any Senior Note, (iv) make any Senior Note payable in money other than U.S. Legal Tender, (v) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders to receive payments of principal of, or premium, if any, or interest on, the Senior Notes, (vi) waive a redemption payment with respect to any Senior Notes, or (vii) make any change in certain sections of the Indenture. The Indenture provides that supplements and amendments to the Indenture may be made by the Company and the Trustee without the consent of any Holder to: (i) cure any ambiguity, correct or supplement any provision therein which may be inconsistent with any other provision therein, or to make any other provisions with respect to matters or questions arising under the Indenture which shall not be inconsistent with the provisions of the Indenture, provided that such amendment does not adversely affect the rights of the Holders, (ii) evidence the succession of another corporation to the Company, and provide for the assumption by such successor of the Company's obligations to the Holders under the Indenture and the Senior Notes, (iii) to provide for uncertificated Senior Notes in addition to or in place of certificated Senior Notes, (iv) make any change that would provide additional rights or benefits to holders, or not adversely affect the legal rights of the Holder under the Indenture or (v) comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act of 1939. The Indenture provides that the holders of a majority in aggregate principal amount of the Senior Notes then outstanding may waive any existing Default or Event of Default under the Indenture or the Senior Notes, except a default or Event of Default in the payment of principal, or premium, if any, or interest. DISCHARGE AND TERMINATION The Indenture provides that the Indenture shall cease to be of further effect (subject to certain exceptions) when (i) all outstanding Senior Notes theretofore authenticated and delivered (other than destroyed, lost or stolen Senior Notes that have been replaced or paid) have been delivered to the Trustee for cancellation or (ii) (A) the Senior Notes mature within one year or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee, (B) the Company irrevocably deposits in trust with the Trustee during such one-year period, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds solely for the benefit of the Holders, money or U.S. Government Obligations sufficient to pay principal and interest on the Senior Notes to maturity or redemption, as the case may be, and to pay all other sums payable by it under the Indenture or the Senior Notes, (C) no Event of Default with respect to the Senior Notes shall have occurred and be continuing on the date of such deposit, (D) such deposit will not result in a breach or violation of, or constitute a default under, the Indenture or any other agreement or instrument to which the Company is a party or by which either is bound and (E) the Company has delivered to the Trustee any required Officers' Certificate and Opinion of Counsel. GOVERNING LAW The Indenture and each Senior Note are governed by, and construed in accordance with, the laws of the State of New York, except as may otherwise be required by mandatory provisions at law, but without giving effect to principles of conflicts of law. 56 59 THE TRUSTEE American Bank National Association will be the Trustee under the Indenture. Its address is 101 East 5th Street, St. Paul, MN 55101. The Indenture contains certain limitations on the right of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest (as defined in the Trust Indenture Act of 1939), it must eliminate such conflict or resign. The Indenture provides that in case an Event of Default shall occur (and be continuing), the Trustee will be required to use the degree of care and skill of a prudent man in the conduct of his own affairs. The Trustee will be under no obligation to exercise any of its powers under the Indenture at the request of any of the holders of the Senior Notes, unless such holders shall have offered the Trustee indemnity reasonably satisfactory to it. AUTHENTICATION Two officers of the Company will sign each Senior Note on behalf of the Company, in each case by manual or facsimile signature. The Company's seal will be reproduced on each Senior Note and may be in facsimile form. A Senior Note will not be valid until the Trustee or an Authenticating Agent manually signs the certificate of authentication on the Senior Note. Each Senior Note will be dated the date of its authentication. DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 1,200,000 shares of Class A Common Stock, $.01 par value, 100,000,000 shares of Class B Common Stock, $.01 par value and 48,800,000 shares of preferred stock, $.01 par value (the "Preferred Stock"). As of March 17, 1995, there were 1,200,000 outstanding shares of Class A Common Stock and 43,966,645 outstanding shares of Class B Common Stock. The material terms of the Company's capital stock are summarized below. The following description is a summary only, however, and is not intended to be complete and is qualified by reference to the provisions of the Company's Restated Certificate of Incorporation (the "Certificate of Incorporation") and bylaws and the agreements referred to in this summary description, copies of each of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. As used in this section, except as otherwise stated or required by context, each reference to AmWest includes any successor by merger, liquidation, consolidation or similar transaction and any wholly owned subsidiary of such entity or such successor. COMMON STOCK -- ALL CLASSES 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, are paid in Common Stock, or securities to acquire Common Stock, of the same class as that held by the recipient of the dividend. Upon any liquidation, dissolution or winding up of the Company, holders of Common Stock of all outstanding classes are entitled, subject to the rights of preferred Stockholders, if any, to receive pro rata all of the assets of the Company available for distribution to the stockholders. Holders of Common Stock have no preemptive, subscription, conversion or redemption rights (other than conversion rights of AmWest and GPA described below), and are not subject to further calls or assessments. 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. 57 60 CLASS B COMMON STOCK AND CLASS A COMMON STOCK The holders of Class B Common Stock are entitled to one vote per share, and the holders of Class A Common Stock are entitled to fifty votes per share, on all matters submitted to a vote of common stockholders, except that voting rights of non-U.S. citizens are limited as set forth below under "-- Limitation on Voting by Foreign Owners." As set forth under the heading "Principal Stockholders," the former partners of AmWest currently own in the aggregate 100% of the outstanding Class A Common Stock and 19.8% of the outstanding Class B Common Stock, which collectively represent approximately 66.1% of the total voting power of the outstanding Common Stock. In addition, those partners hold Warrants to acquire an additional 3,514,150 shares of Class B Common Stock that, if exercised, would increase their voting control to 68.4%. See "Principal Stockholders -- Stockholders' Agreement" below for a discussion of arrangements regarding the composition of the Board of Directors of the Company. Holders of Class A Common Stock may at any time elect to convert such shares into an equal number of shares of Class B Common Stock. Class B Common Stock is not convertible into Class A Common Stock. PREFERRED STOCK Pursuant to the Company's Certificate of Incorporation, the Company is authorized to issue 48,800,000 shares of 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 rights preferences, and limitations that the Board of Directors fixes without any stockholder approval. No shares of Preferred Stock have been issued. LIMITATION ON VOTING BY FOREIGN OWNERS The Certificate of Incorporation defines "Foreign Ownership Restrictions" as "applicable statutory, regulatory and interpretive restrictions regarding foreign ownership or control of U.S. air carriers (as amended or modified from time to time)." Such restrictions currently require that no more than 25% of the voting stock of the Company be owned or controlled, directly or indirectly, by persons who are not U.S. citizens ("Foreigners") for purposes of the Foreign Ownership Restrictions, and that the Company's president and at least two-thirds of its directors be U.S. citizens. The Certificate of Incorporation provides that no shares of capital stock may be voted by or at the direction of Foreigners, unless such shares are registered on a separate stock record (the "Foreign Stock Record"). The Company's bylaws further provide that no shares will be registered on the Foreign Stock Record if the amount so registered would exceed the Foreign Ownership Restrictions. Registration on the Foreign Stock Record is made in chronological order based on the date the Company receives a written request for registration. LIMITATION OF DIRECTOR LIABILITY AND INDEMNIFICATION The Company's Certificate of Incorporation and Restated Bylaws (collectively, the "Charter Documents") provide, to the fullest extent permitted by Delaware law as it may from time to time be amended, that no director shall be liable to the Company or any stockholder for monetary damages for breach of fiduciary duty as a director. Delaware law currently provides that such waiver may not apply to liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law (governing distributions to stockholders), or (iv) for any transaction from which the director derived any improper personal benefit. The Charter Documents further provide that the Company will indemnify each of its directors and officers to the full extent permitted by Delaware law and may indemnify certain other persons as authorized by law. Additionally, America West has entered into written agreements with each person who served as a director or executive officer of America West as of the date of the Investment Agreement providing for similar indemnification of such person and that no recourse or liability whatsoever with respect to the Investment 58 61 Agreement, the Plan or consummation of the transactions contemplated thereby shall be had by or in the right of America West against such person. DELAWARE BUSINESS COMBINATION STATUTE Pursuant to the Plan, the Company has elected not to be governed by Section 203 of the Delaware General Corporation Law ("DGCL"). In general, Section 203 of the DGCL prohibits a Delaware corporation from entering into a "business combination" with an "interested stockholder" for a period of three years unless certain exceptions are applicable. Pursuant to the statute, the Company's election not to be governed by Section 203 will not become effective until the first anniversary date of the Effective Date. By opting out of Section 203, America West may be foregoing certain "anti-takeover" protections that may otherwise be available to it under Section 203 in the event of an unsolicited takeover offer from a party other than AmWest. However, given the limited protections provided by Section 203, the significant holdings of Common Stock by AmWest after the Effective Date and certain other factors, the Company does not believe that the protections afforded by Section 203 are very significant or that an unsolicited takeover offer is likely to occur. With respect to a possible "business combination" or takeover attempt by AmWest or its affiliates involving the Company, the protective provisions of Section 203 would not apply to such a transaction because the Board of Directors of the Company has previously approved of the transactions contemplated by the Investment Agreement and otherwise described herein prior to the date such agreement was entered into and prior to the date that AmWest acquired any shares of Common Stock. However, pursuant to the Stockholders' Agreement, AmWest will be precluded from consummating any "Business Combination" (as defined in the Stockholders Agreement) with the Company for a three-year period commencing on the Effective Date, unless such transaction is recommended or approved in advance by at least three Independent Directors or a majority of the Common Stock of the Company not held by AmWest and its affiliates. DESCRIPTION OF WARRANTS GENERAL The Warrants were issued under a Warrant Agreement dated August 25, 1994 (the "Warrant Agreement") between the Company and First Interstate of California, N.A. as warrant agent (the "Warrant Agent"). The material terms of the Warrants and the Warrant Agreement are summarized below. The statements under this caption relating to the Warrants and the Warrant Agreement are summaries only, however, and do not purport to be complete. Such summaries make use of terms defined in the Warrant Agreement and are qualified in their entirety by express reference to the Warrant Agreement, which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. All section references under this heading are references to sections of the Warrant Agreement. Each of the 5,850,016 Warrants offered hereby entitles the registered holder to purchase from the Company one share of Class B Common Stock at a price of $12.74 ("the Exercise Price") subject to adjustment as provided in the Warrant Agreement. The Warrants are exercisable by the holders at any time before August 25, 1999 (the "Expiration Date"). (Section 3.01) CERTAIN TERMS OF THE WARRANTS Exercise of Warrants. Warrants may be exercised by surrendering the Warrant Certificate evidencing such Warrants at the Warrant Agent's Office with the Election to Exercise form duly completed and executed. Surrendered Warrant Certificates must be accompanied by payment in full to the Warrant Agent for the account of the Company (i) in cash, (ii) by certified or official bank check or (iii) by any combination of (i) or (ii) the Warrant Price for each share of Class B Common Stock as to which Warrants are exercised and any applicable taxes that the Company is not required to pay as set forth in Sections 4.08 or 6.01. (Section 3.02(a)). The Company will not be required to issue fractional shares of Class B Common Stock upon the exercise of the Warrants. In lieu thereof, the Company, at its option, may purchase the fraction for an amount in cash 59 62 equal to the then-current market value of the fraction (as defined in Section 4.01(d)) or issue scrip of the Company that is non-dividend bearing and non-voting and exchangeable in combination with other similar scrip for the number of full shares of Class B Common Stock represented thereby. (Section 3.03) The Company has the right, except as limited by law or other agreement, to purchase or otherwise acquire Warrants at such times, in such manner and for such consideration as it may deem appropriate. (Section 3.04) The Company will, at all times, reserve and keep available free of preemptive rights out of its authorized and unissued Class B Common Stock, the full number of shares of Class B Common Stock, if any, issuable if all outstanding Warrants then exercisable were to be exercised. Any shares of Class B Common Stock issued upon a Warrant holder's exercise of any Warrant shall be validly authorized and issued, fully paid, non-assessable, free of preemptive rights and free from all taxes (other than those required to be paid by the holder or its transferees) liens, charges, security interests and claims created or incurred by the Company in respect of the issuance thereof. (Sections 3.02(b); 4.06) Adjustment of Warrant Price. The Warrant Price and the number of shares of Class B Common Stock purchasable upon exercise of each Warrant are subject to adjustment in certain events, including (a) the payment of a dividend in Common Stock or certain combinations, subdivisions, or reclassifications of the Common Stock, (b) the issuance to holders of Common Stock (without any charge to such holders) of rights, options or warrants entitling the holders thereof to purchase Common Stock (or securities convertible into Common Stock) at a price per share less than the then-current market price per share, and (c) certain distributions by the Company to holders of Common Stock of evidences of its indebtedness or assets (excluding any cash dividend or distribution out of retained earnings), all as described in the Warrant Agreement. The Company is not required to make any adjustment to the Warrant Price unless such adjustment could require an increase or decrease of at least $.05 in the Warrant Price then subject to adjustment; provided, however, that any adjustments that are not made for this reason must be carried forward and taken into account in any subsequent adjustment. (Section 4.01) The Company may, at its option, reduce the Warrant Price at any time. Rights Upon Consolidation, Merger, Sale, Transfer or Reclassification. In the event of certain consolidations with or mergers of the Company into another corporation or in the event of certain leases, sales or conveyances of the property of the Company to another corporation, the holder of each outstanding Warrant shall have the right to receive, upon exercise of the Warrant, the kind and amount of shares, securities, property or cash receivable upon such consolidation, merger, lease, sale or conveyance by a holder of one share of Class B Common Stock. (Section 4.05(a)) In the event of any liquidation, dissolution or winding up of the affairs of the Company, each holder of a Warrant may receive, upon exercise of such Warrant in accordance with the Warrant Agreement, the same kind and amount of any stock, securities or assets as may be issuable, distributable or payable on any such dissolution, liquidation, or winding up with respect to each share of Class B Common Stock of the Company. (Section 4.05(b)) In the event of certain reclassifications or changes of the shares of Class B Common Stock issuable upon exercise of the Warrants or in the event of the consolidation or merger of another corporation into the Company in which the Company is the continuing corporation in which the holders of the shares of Common Stock thereafter receive shares, other securities, property or cash for such shares of Common Stock, each holder of a Warrant shall have the right to receive, upon exercise of the Warrant, the kind and amount of shares, other securities, property or cash receivable upon such reclassification or change. (Section 4.05(c)) Rights as Warrantholders. A holder of Warrants does not have any rights whatsoever as a stockholder of the Company, either at law or equity, including but not limited to the right to vote at, or to receive notice of, any meeting of stockholders of the Company. The consent of any holder is not required with respect to any action or proceeding of the Company nor do holders, by reason of the ownership or possession of a Warrant, have any right to receive any cash dividends, stock dividends, allotments or rights, or other distributions paid, allotted or distributed or distributable to the stockholders of the Company. A holder of a Warrant shall not 60 63 have any rights unless the right is expressly conferred by the Warrant Agreement or by a Warrant Certificate held by the holder. (Section 5.01) PLAN OF DISTRIBUTION Selling Securityholders may sell or distribute their Securities in transactions through such underwriters (as may be approved by the Company), brokers, dealers or agents from time to time or through privately negotiated transactions, including in distributions to shareholders or partners or other persons affiliated with one or more Selling Securityholder; provided, however, that pursuant to the Stockholders' Agreement, certain of the Selling Securityholders have agreed that (i) they will not dispose of any Common Stock (other than to an affiliate of the transferor) if, after giving effect thereto and to any concurrent transaction, the total number of shares of Class B Common Stock owned by the transferor is less than 200% of the total number of shares of Class A Common Stock beneficially owned by the transferor; provided, however, that the preceding will not prohibit any person from transferring or otherwise disposing of all shares of Common Stock owned by such person; (ii) all of the Securities issued to the Selling Securityholders shall bear the legend that the Securities may not be sold, transferred or otherwise disposed of except in accordance with applicable securities laws; and (iii) the former partners of AmWest have agreed that subject to certain exceptions they will not, prior to on or about August 25, 1997, sell in a single transaction or related transaction 51% or more of the combined voting power of all shares of Common Stock then outstanding unless other holders of Common Stock shall have been given a reasonable opportunity to participate therein on a pro rata basis and at the same price per share and on the same economic terms and conditions applicable to AmWest. See "Principal Stockholders -- Stockholders' Agreement." The distribution of the Securities may be effected from time to time in one or more transactions (which may involve crosses or block transactions) (i) in the over-the-counter market, (ii) in transactions otherwise than in the over-the-counter market or (iii) through the writing of options on the Securities (whether such options are listed on an options exchange or otherwise). Any of such transactions may be effected at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at negotiated prices or at fixed prices. If the Selling Securityholders effect such transactions by selling Securities to or through underwriters, brokers, dealers or agents, such underwriters, brokers, dealers or agents may receive compensation in the form of discounts, concessions or commissions from the Selling Securityholders or commissions from purchasers of Securities for whom they may act as agent (which discounts, concessions or commissions as to particular underwriters, brokers, dealers or agents might be in excess of those customary in the types of transactions involved). The Selling Securityholders and any brokers, dealers or agents that participate in the distribution of the Securities might be deemed to be underwriters, and any profit on the sale of Securities by them and any discounts, concessions or commissions received by any such underwriters, brokers, dealers or agents might be deemed to be underwriting discounts and commissions under the Securities Act. Selling Securityholders may pledge their Securities from time to time in connection with such Securityholders' financing arrangements. Copernicus may pledge some of its Class B Common Stock to Bear, Stearns Securities Corp. To the extent any such pledgees exercise their rights to foreclose on any such pledge, and sell the underlying Securities, such pledgees may be deemed underwriters with respect to such Securities and sales by them may be effected under this Prospectus. The Company will not receive any of the proceeds from the sale of any of the Securities by the Selling Securityholders. The Investment Agreement Senior Notes purchased by Fidelity Copernicus Fund, L.P. ("Copernicus") pursuant to the Investment Agreement (the "Repurchase Notes") are subject to a repurchase agreement between Copernicus and Lehman Government Securities Inc. ("LGSI") pursuant to which the notes were sold to LGSI shortly after their issuance to Copernicus. The agreement is terminable upon demand by either party. During the term of the agreement, Copernicus will be entitled to all interest or other payments of any nature with respect to the Repurchase Notes. Upon termination, Copernicus will be required to repurchase, and LGSI will be obligated to sell, the Repurchase Notes at a price equal to the price paid by LGSI to purchase the Repurchase Notes from Copernicus, plus an amount that provides to LGSI a rate of return on the purchase price based on a spread over LIBOR. LGSI will receive a fee for entering into the repurchase agreement. To ensure its ability to fulfill its obligation to repurchase the Repurchase Notes, Copernicus is 61 64 obligated to maintain certain margin requirements with LGSI. In the event that Copernicus fails to repurchase the Repurchase Notes or maintain the required margin, or Copernicus becomes insolvent, LGSI is permitted to sell the Repurchase Notes. LGSI may enter into one or more similar repurchase agreements with respect to the Repurchase Notes with other counterparties from time to time, pursuant to which LGSI may sell the Repurchase Notes to a counterparty and agree to repurchase the Repurchase Notes upon termination of the agreement. This Prospectus relates to all offers and sales of the Repurchase Notes by Copernicus upon termination of the repurchase agreement as well as all offers and sales of the Repurchase Notes in connection with any of the foregoing transactions, including, without limitation, the repurchase agreement between LGSI and Copernicus (including any remedies thereunder) and any repurchase agreement between LGSI and any counterparty other than Copernicus. LGSI may be deemed to be an underwriter with respect to the Repurchase Notes by virtue of any of such sales. At the time a particular offer of Securities is made, a Prospectus Supplement, to the extent required, will be distributed which will set forth the aggregate amount and type of Securities being offered, the names of the Selling Securityholders, the purchase price, the amount of expenses of the offering and the terms of the offering, including the name or names of any underwriters, brokers, dealers or agents, any discounts, commissions and other items constituting compensation from the Selling Securityholders and any discounts, commissions or concessions allowed or reallowed or paid to dealers. Under the Exchange Act and applicable rules and regulations promulgated thereunder, any person engaged in a distribution of any of the Securities may not simultaneously engage in market making activities with respect to the Securities for a period, depending upon certain circumstances, of either two days or nine days prior to the commencement of such distribution. In addition and without limiting the foregoing, the Selling Securityholders will be subject to applicable provisions of the Exchange Act and the rules and regulations promulgated thereunder, including without limitation Rules 10b-6 and 10b-7, which provisions may limit the timing of purchases and sales of any of the Securities by the Selling Securityholders. Under the securities laws of certain states, the Securities may be sold in such states only through registered or licensed brokers or dealers. In addition, in certain states the Securities may not be sold unless the Securities have been registered or qualify for sale in such state or an exemption from registration or qualification is available and is complied with. LEGAL MATTERS The validity of the shares of Common Stock and certain legal matters relating to the Senior Notes and Warrants offered hereby will be passed upon for the Company by Andrews & Kurth L.L.P., Houston, Texas. EXPERTS The financial statements and financial statement schedule of America West Airlines, Inc., as of December 31, 1994 and 1993, and 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, have been included herein and in the registration statements in reliance upon the reports of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The reports of KPMG Peat Marwick LLP 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 contain 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. 62 65 AMERICA WEST AIRLINES, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- FINANCIAL STATEMENTS AS OF DECEMBER 31, 1994 Independent Auditors' Report........................................................ F-2 Balance Sheets as of December 31, 1994 and 1993..................................... F-3 Statements 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............................................................................. F-4 Statements 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............................................................................. F-5 Statements 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....................................................... F-6 Notes to Financial Statements....................................................... F-7
F-1 66 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 F-2 67 AMERICA WEST AIRLINES, INC. BALANCE SHEETS DECEMBER 31, 1994 AND 1993 (IN THOUSANDS EXCEPT SHARE DATA)
REORGANIZED COMPANY ----------- 1994 ----------- PREDECESSOR COMPANY ----------- 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. F-3 68 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. F-4 69 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. F-5 70 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. F-6 71 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. F-7 72 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 F-8 73 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. 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. F-9 74 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. 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 F-10 75 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. (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 F-11 76 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 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. F-12 77 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 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 ===========
F-13 78 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Secured financings totaling $365 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. 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. F-14 79 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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 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: F-15 80 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PREDECESSOR COMPANY -------------------------------------- REORGANIZED YEARS ENDED COMPANY PERIOD FROM DECEMBER 31, ------------------ JANUARY 1 TO ------------- PERIOD FROM AUGUST 25, 1994 1993 1992 AUGUST 26 TO ------------------ ---- ------ DECEMBER 31, 1994 ------------------ (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 $ ============== ============= ==== ======
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:
PREDECESSOR COMPANY REORGANIZED --------------------------------- COMPANY PERIOD FROM YEAR ENDED ------------------ JANUARY 1 TO DECEMBER 31, PERIOD FROM AUGUST 25, 1994 1993 AUGUST 26 TO ------------------ ------------ DECEMBER 31, 1994 ------------------ (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 ============== ============= ==========
F-16 81 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. 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 PREDECESSOR COMPANY COMPANY ---------------------------------------- ----------------- AUGUST 25, 1994 DECEMBER 31, 1993 DECEMBER 31, 1994 ------------------ ----------------- ----------------- (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. F-17 82 AMERICA WEST AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 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. 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:
PREDECESSOR COMPANY REORGANIZED ----------------------------------------- COMPANY PERIOD FROM -------------- JANUARY 1 TO YEARS ENDED DECEMBER 31, PERIOD FROM AUGUST 25, ------------------------- AUGUST 26 TO 1994 1993 1992 DECEMBER 31, ------------- ------- ------- 1994 -------------- (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. F-18 83 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 F-19 84 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 F-20 85 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 ========
F-21 86 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. F-22 87 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. F-23 88 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SECURITYHOLDERS OR ANY UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------ TABLE OF CONTENTS
PAGE ---- Available Information................. 2 Prospectus Summary.................... 3 Investment Considerations............. 9 The Company........................... 13 Use of Proceeds....................... 15 Dividend Policy....................... 15 Capitalization........................ 16 Selected Financial Data............... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 18 Business.............................. 25 Management............................ 35 Certain Transactions.................. 41 Principal Stockholders................ 43 Selling Securityholders............... 46 Shares Eligible for Future Sale....... 46 Description of the Senior Notes....... 47 Description of Capital Stock.......... 57 Description of Warrants............... 59 Plan of Distribution.................. 61 Legal Matters......................... 62 Experts............................... 62 Index to Financial Statements......... F-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ AMERICA WEST AIRLINES, INC. 1,200,000 SHARES CLASS A COMMON STOCK 18,698,704 SHARES CLASS B COMMON STOCK $123,000,000 11 1/4% SENIOR UNSECURED NOTES DUE 2001 5,850,016 CLASS B COMMON STOCK WARRANTS ------------------------ PROSPECTUS ------------------------ , 1995 ------------------------------------------------------ ------------------------------------------------------ 89 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the estimated expenses, other than underwriting discounts and commissions, payable by the Registrant in connection with the issuance and distribution of the securities being registered hereby: Securities and Exchange Commission Filing Fee............................. $ 87,357 NYSE Listing Fee.......................................................... 287,046 Blue Sky Filing Fees and Expenses......................................... 20,000 Printing and Engraving Costs.............................................. 202,500 Legal Fees and Expenses................................................... 207,500 Accounting Fees and Expenses.............................................. 85,000 Trustee's Fees and Expenses............................................... 7,500 Transfer Agent Fees....................................................... 40,000 Miscellaneous............................................................. 8,097 -------- Total(1)........................................................ $945,000 ========
- --------------- (1) Total includes an estimated $900,000 of expenses related to the issuance and distribution of the securities registered hereby that were incurred prior to the filing of this post-effective amendment. Expenses related solely to this post-effective amendment total $45,000 and include: (i) Printing Costs -- $27,500; (ii) Legal Fees and Expenses $7,500 and (iii) Accounting Fees and Expenses -- $10,000. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law ("DGCL") authorizes, inter alia, a corporation generally to indemnify any person ("indemnitee") who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation, in a similar position with another corporation or entity, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. With respect to actions or suits by or in the right of the corporation; however, an indemnitee who acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation is generally limited to attorneys' fees and other expenses, and no indemnification shall be made if such person is adjudged liable to the corporation unless and only to the extent that a court of competent jurisdiction determines that indemnification is appropriate. Section 145 further provides that any indemnification shall be made by the corporation only as authorized in each specific case upon a determination by the (i) stockholders, (ii) board of directors by a majority vote of a quorum of disinterested directors so directs, that indemnification of the indemnitee is proper because he has met the applicable standard of conduct. Section 145 provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any by-law agreement, vote of stockholders or disinterested directors or otherwise. Section 8.02 of the Company's By-laws, a copy of which is filed as Exhibit 3.2 to this Registration Statement provides, in substance, that directors, officers, employees and agents shall be indemnified to the fullest extent permitted by Section 145 of the DGCL. Article 12.0 of the Company's Restated Certificate of Incorporation, a copy of which is filed as Exhibit 3.1 to this Registration Statement, limits the liability of directors of the Company to the Company or its stockholders (in their capacity as directors but not in their capacity as officers) to the fullest extent permitted II-1 90 by the DGCL. Specifically, directors of the Company will not be personally liable for monetary damages for breach of a director's fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchase or redemptions as provided in section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. The Restated Certificate of Incorporation also provides that if the DGCL is amended after the approval of the Restated Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Company will be eliminated or limited to the full extent permitted by the DGCL, as so amended. The form of the Third Revised Investment Agreement filed as Exhibit 10.1 to this Registration Statement contains certain provisions for indemnification of directors and officers of the Company and the Selling Securityholder against civil liabilities under the Securities Act. Certain of these provisions are set forth in the form of the Registration Rights Agreement filed as Exhibit 4.6 to this Registration Rights Agreement. The Company intends to enter into indemnification agreements with certain of its directors providing for indemnification to the fullest extent permitted by the laws of the State of Delaware. These agreements provide for specific procedures to better assure the directors' rights to indemnification, including procedures for directors to submit claims, for determination of directors entitled to indemnification (including the allocation of the burden of proof and selection of a reviewing party) and for enforcement of directors' indemnification rights. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The following summarizes transactions occurring within the last three years in which the Company has sold securities without registration under the Securities Act. On February 15, 1991, the Company sold 253,422 shares of its common stock to Transpacific Enterprises, Inc. for $1,393,821, or $5.50 per share, in reliance upon the exemption set forth in Section 4(2) of the Securities Act. On the Effective Date, the Company issued the following securities in connection with its Reorganization: 1. The Company issued 26,053,185 shares of Class B Common Stock to holders of approximately $310 million of allowed, general unsecured prepetition claims against the Company in satisfaction of such claims in reliance upon the exemption set forth in Section 1145 of the Bankruptcy Code. 2. The Company issued 3,865,179 shares of Class B Common Stock (1,615,179 of which shares are to be issued in exchange for cash, aggregating $14,357,326, provided by such equity holders upon the exercise of rights to subscribe for such shares at a price of $8.889 per share) and 6,230,769 Warrants to the holders of pre-existing equity interests in the Company in consideration of cancellation of such pre-existing equity interests in reliance upon the exemption set forth in Section 1145 of the Bankruptcy Code. 3. The Company issued 900,000 shares of Class B Common Stock and 1,384,615 Warrants to Guiness Peat Aviation and its affiliates ("GPA") in satisfaction of claims of GPA against the Company in reliance upon the exemption set forth in Section 1145 of the Bankruptcy Code. 4. The Company issued the following securities to partners of AmWest (or to Lehman Brothers Inc. or certain funds and accounts managed or advised by Fidelity Management Trust Company, in each case as assignees of AmWest's rights to acquire such securities) for new consideration paid to the Company in accordance with the Company's Plan: (i) 1,200,000 shares of Class A Common Stock for $7.467 per share; (ii) 12,981,636 shares of Class B Common Stock for $7.467 per share and 721,815 shares of Class B Common Stock for $8.889 per share; (iii) $100 million principal amount of Senior Notes for $100 million in cash; and (iv) 2,769,231 Warrants, separate consideration for which was not specified. The Company relied upon the exemption set forth in Section 4(2) of the Securities Act. II-2 91 In September, 1994 the Company issued 125,000 shares of Class B Common Stock to William A. Franke, the Chief Executive Officer of America West, as a reorganization success bonus. In October 1994, the Company issued Additional Senior Notes and cash to Fidelity and Lehman in exchange for full satisfaction of pre-existing secured claims and other interests. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following exhibits are filed as part of this Registration Statement:
EXHIBIT NUMBER TITLE ---------- -------------------------------------------------------------------------- 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 8, 1994. 3.2 -- Restated By-laws of America West Airlines, Inc., as amended -- Incorporated by reference to the Company's Report on Form 10-K dated December 31, 1994. 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). 5.1 -- Opinion of Andrews & Kurth L.L.P. 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.
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EXHIBIT NUMBER TITLE ---------- -------------------------------------------------------------------------- 10.16 -- Airbus A320 Purchase Agreement (including exhibits thereto), dated as of September 28, 1990 between AVSA, S.A.R.L. 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. 10.19 -- V2500 Support Contract Between the Company and International Aero Engines AG, 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 -- Cash Management Agreement, dated September 28, 1991, among the Company, BT and First Interstate of Arizona, N.A. -- Incorporated by reference to Exhibit 10-D(21) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.21 -- First Amendment to Cash Management Agreement, dated December 1, 1991, among the Company, BT and First Interstate of Arizona, N.A. -- Incorporated by reference to Exhibit 10-D(22) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.22 -- Second Amendment to Cash Management Agreement, dated September 1, 1992, among the Company, BT and First Interstate of Arizona, N.A. -- Incorporated by reference to Exhibit 10-O(3) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.23 -- 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. 10.24 -- 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. 10.25 -- 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. 10.26 -- 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. 10.27 -- 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. 10.28 -- 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. 10.29 -- 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. 10.30 -- 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. 10.31 -- 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.
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EXHIBIT NUMBER TITLE ---------- -------------------------------------------------------------------------- 10.32 -- 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. 10.33 -- 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. 10.34 -- 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. 10.35 -- 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. 10.36 -- 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. 10.37 -- 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. 10.38 -- 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. 10.39 -- 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. 10.40 -- 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. 10.41 -- 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. 10.42 -- Form of Third Amended and Restated Credit Agreement dated September 30, 1993, among the Company, various lenders, and BT Commercial Corp. as Administrative Agent (without exhibits) -- Incorporated by reference to Exhibit 10-(N)(1) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.43 -- Form of Amended and Restated Management Letter Agreement, dated as of September 30, 1993 from the Company to the Lenders -- Incorporated by reference to Exhibit 10-N(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.44 -- Form of Amendment to Amended and Restated Management Letter Agreement; Consent to Amendment of By-laws dated February 8, 1994 from the Company to the Lenders -- Incorporated by reference to Exhibit 10-N(3) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.45 -- Fourth Amended and Restated Credit Agreement dated June 30, 1994 -- Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1994. 10.46 -- 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. 10.47 -- 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.
II-5 94
EXHIBIT NUMBER TITLE ---------- --------------------------------------------------------------------------
10.48 -- V2500 Support Contract dated December 23, 1994 between America West Airlines, Inc. and International Aero Engineers, as amended -- Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10.49 -- Form of America West Airlines, Inc. 1994 Incentive Equity Plan Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10.50 -- Employment Agreement dated as of December 1, 1994 between America West Airlines, Inc. and William A. Franke -- Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10.51 -- Employment Agreement dated as of December 1, 1994 between America West Airlines, Inc. and A. Maurice Myers, as amended -- Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. *11.1 -- Statement re: computation of net income (loss) per common share. *12.1 -- Statement re: computation of ratio of earnings to fixed charges. 23.1 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1 above). 23.2 -- Consent of KPMG Peat Marwick LLP (independent auditors) -- Included at page S-1. 24.1 -- Power of Attorney (included on the signature pages of this Registration Statement.) 25.1 -- Statement of Eligibility on Form T-1 of American Bank National Association, as trustee under the Senior Note Indenture -- Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 54243), as amended.
- --------------- * Filed herewith. (b) Financial Statement Schedule: The following financial statement schedule is filed as part of this Registration Statement, but not included in the Prospectus.
SCHEDULE PAGE ---------------------------------------------------------------------- ----- Independent Auditors' Report on Schedule and Consent.................. S-1 Schedule VIII -- Valuation and Qualifying Accounts.................... S-2
All other schedules for which provision is made in Regulation S-X of the Commission are not required under the related instructions or are inapplicable or the required information is included in the financial statements or notes thereto and, therefore, have been omitted. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid II-6 95 by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-7 96 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Post-Effective Amendment to the Registration Statement, as amended to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Phoenix, State of Arizona on the 18th day of April, 1995. AMERICA WEST AIRLINES, INC. By: * ------------------------------------ William A. Franke, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement, as amended has been signed by the following persons in the capacities on April 18, 1995.
SIGNATURE TITLE - ------------------------------------------ -------------------------- * Chairman of the Board and - ------------------------------------------ Chief Executive Officer William A. Franke (Principal Executive Officer) * President, Chief Operating - ------------------------------------------ Officer and Director A. Maurice Myers * Vice President and - ------------------------------------------ Controller (Principal Raymond T. Nakano Financial and Accounting Officer) * Director - ------------------------------------------ Julia Chang Bloch * Director - ------------------------------------------ Stephen Bollenbach * Director - ------------------------------------------ Frederick W. Bradley * Director - ------------------------------------------ James G. Coulter * Director - ------------------------------------------ John F. Fraser Director - ------------------------------------------ Harrison J. Goldin * Director - ------------------------------------------ John L. Goolsby
II-8 97
SIGNATURE TITLE - ------------------------------------------ -------------------------- * Director - ------------------------------------------ Richard C. Kraemer * Director - ------------------------------------------ John R. Power, Jr. * Director - ------------------------------------------ Larry L. Risley * Director - ------------------------------------------ Richard P. Schifter * Director - ------------------------------------------ John F. Tierney * Director - ------------------------------------------ Raymond S. Troubh *by: /s/ MARTIN J. WHALEN - ------------------------------------------ Martin J. Whalen Attorney-in-Fact
II-9 98 INDEPENDENT AUDITORS' REPORT ON SCHEDULE AND CONSENT 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 included in the registration statements. 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. We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. 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 April 18, 1995 S-1 99 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. S-2 100 EXHIBIT INDEX
SEQUENTIAL EXHIBIT NUMBERED NUMBER TITLE PAGE ---------- ----------------------------------------------------------------- ---------- 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 8, 1994. 3.2 -- Restated By-laws of America West Airlines, Inc., as amended -- Incorporated by reference to the Company's Report on Form 10-K dated December 31, 1994. 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). 5.1 -- Opinion of Andrews & Kurth L.L.P. 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.
101
SEQUENTIAL EXHIBIT NUMBERED NUMBER TITLE PAGE ---------- ----------------------------------------------------------------- ---------- 10.16 -- Airbus A320 Purchase Agreement (including exhibits thereto), dated as of September 28, 1990 between AVSA, S.A.R.L. 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. 10.19 -- V2500 Support Contract Between the Company and International Aero Engines AG, 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 -- Cash Management Agreement, dated September 28, 1991, among the Company, BT and First Interstate of Arizona, N.A. -- Incorporated by reference to Exhibit 10-D(21) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.21 -- First Amendment to Cash Management Agreement, dated December 1, 1991, among the Company, BT and First Interstate of Arizona, N.A. -- Incorporated by reference to Exhibit 10-D(22) to the Company's Annual Report on Form 10-K for the year ended December 31, 1991. 10.22 -- Second Amendment to Cash Management Agreement, dated September 1, 1992, among the Company, BT and First Interstate of Arizona, N.A. -- Incorporated by reference to Exhibit 10-O(3) to the Company's Annual Report on Form 10-K for the year ended December 31, 1992. 10.23 -- 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. 10.24 -- 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. 10.25 -- 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. 10.26 -- 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. 10.27 -- 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. 10.28 -- 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.
102
SEQUENTIAL EXHIBIT NUMBERED NUMBER TITLE PAGE ---------- ----------------------------------------------------------------- ---------- 10.29 -- 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. 10.30 -- 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. 10.31 -- 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. 10.32 -- 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. 10.33 -- 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. 10.34 -- 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. 10.35 -- 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. 10.36 -- 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. 10.37 -- 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. 10.38 -- 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. 10.39 -- 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. 10.40 -- 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. 10.41 -- 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.
103
SEQUENTIAL EXHIBIT NUMBERED NUMBER TITLE PAGE ---------- ----------------------------------------------------------------- ---------- 10.42 -- Form of Third Amended and Restated Credit Agreement dated September 30, 1993, among the Company, various lenders, and BT Commercial Corp. as Administrative Agent (without exhibits) -- Incorporated by reference to Exhibit 10-(N)(1) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.43 -- Form of Amended and Restated Management Letter Agreement, dated as of September 30, 1993 from the Company to the Lenders -- Incorporated by reference to Exhibit 10-N(2) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.44 -- Form of Amendment to Amended and Restated Management Letter Agreement; Consent to Amendment of By-laws dated February 8, 1994 from the Company to the Lenders -- Incorporated by reference to Exhibit 10-N(3) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10.45 -- Fourth Amended and Restated Credit Agreement dated June 30, 1994 -- Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1994. 10.46 -- 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. 10.47 -- 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. 10.48 -- V2500 Support Contract dated December 23, 1994 between America West Airlines, Inc. and International Aero Engineers, as amended -- Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10.49 -- Form of America West Airlines, Inc. 1994 Incentive Equity Plan -- Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10.50 -- Employment Agreement dated as of December 1, 1994 between America West Airlines, Inc. and William A. Franke -- Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. 10.51 -- Employment Agreement dated as of December 1, 1994 between America West Airlines, Inc. and A. Maurice Myers, as amended -- Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. *11.1 -- Statement re: computation of net income (loss) per common share. *12.1 -- Statement re: computation of ratio of earnings to fixed charges. 23.1 -- Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1 above). 23.2 -- Consent of KPMG Peat Marwick LLP (independent auditors) -- Included at page S-1. 24.1 -- Power of Attorney (included on the signature pages of this Registration Statement.) 25.1 -- Statement of Eligibility on Form T-1 of American Bank National Association, as trustee under the Senior Note Indenture -- Incorporated by reference to the Company's Registration Statement on Form S-1 (No. 54243), as amended.
- --------------- * Filed herewith. EX-11.1 2 EXHIBIT 11.1 1 EXHIBIT 11.1 AMERICA WEST AIRLINES, INC. COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE (IN THOUSANDS EXCEPT PER SHARE AMOUNT)
REORGANIZED PREDECESSOR COMPANY 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 ------------ ----------- ----------- ----------- ----------- ----------- Primary Earnings Per Share Computation for Statements of Operations: Income (loss) before extraordinary item............................... $ 7,846 $ (203,268 ) $ 37,165 $ (131,761) $ (222,016) $ (76,695) Adjustment for interest on debt reduction.......................... -- 2,584 4,210 -- -- -- Preferred stock dividend requirement........................ -- -- -- (1,672) (1,673) (1,673) ------------ ----------- ----------- ----------- ----------- ----------- Income (loss) applicable to common stock before extraordinary item.... 7,846 (200,684 ) 41,375 (133,433) (223,689) (78,368) Extraordinary item, tax benefit...... -- -- -- -- -- -- Extraordinary item, net.............. -- 257,660 -- -- -- 2,024 ------------ ----------- ----------- ----------- ----------- ----------- Income (loss) applicable to common stock.............................. $ 7,846 $ 56,976 $ 41,375 $ (133,433) $ (223,689) $ (76,344) =========== =========== ========== ========== ========== ========== Weighted average number of common shares outstanding................... 45,126,899 25,470,671 24,480,487 23,914,298 21,533,992 18,395,970 Assumed exercise of stock options and warrants(a).......................... -- 3,079,258 3,044,504 -- -- -- ------------ ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted....... 45,126,899 28,549,929 27,524,991 23,914,298 21,533,992 18,395,970 =========== =========== ========== ========== ========== ========== Primary earnings per common share: Income (loss) before extraordinary item................................. $ 0.17 $ (7.03 ) $ 1.50 $ (5.58) $ (10.39) $ (4.26) Extraordinary item..................... -- 9.02 -- -- -- 0.11 ------------ ----------- ----------- ----------- ----------- ----------- Net income (loss)...................... $ 0.17 $ 1.99 $ 1.50 $ (5.58) $ (10.39) $ (4.15) =========== =========== ========== ========== ========== ========== Income (loss) before extraordinary item................................. $ 7,846 $ (131,761) $ (222,016) $ (76,695) Preferred stock dividend requirement... -- (1,672) (1,673) (1,673) Interest adjustment net of taxes....... 870 4,964 4,408 2,818 ------------ ----------- ----------- ----------- Income (loss) applicable to common stock before extraordinary item...... 8,716 (128,469) (219,281) (75,550) Extraordinary item, tax benefit........ -- 2,756 2,448 1,490 Extraordinary item, net................ -- -- -- 2,024 ------------ ----------- ----------- ----------- Income (loss) applicable to common stock................................ $ 8,716 $ (125,713) $ (216,833) $ (72,036) =========== ========== ========== ========== Weighted average number of common shares outstanding............................ 45,126,899 23,914,298 21,533,992 18,395,970 Assumes exercise of stock options and warrants............................. 2,011,352 7,383,922 6,704,746 4,922,120 ------------ ----------- ----------- ----------- Weighted average number of common shares as adjusted................... 47,138,251 31,298,220 28,238,738 23,318,090 =========== ========== ========== ========== Primary earnings per common share: Income (loss) before extraordinary item................................. $ 0.18 $ (4.10) $ (7.77) $ (3.24) Extraordinary item..................... -- 0.09 0.09 0.15 ------------ ----------- ----------- ----------- Net income (loss)(c)................... $ 0.18 $ (4.01) $ (7.68) $ (3.09) =========== ========== ========== ==========
1 2 EXHIBIT 11.1 AMERICA WEST AIRLINES, INC. COMPUTATION OF NET INCOME (LOSS) PER SHARE (IN THOUSANDS EXCEPT PER SHARE AMOUNT)
REORGANIZED PREDECESSOR COMPANY 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 ------------ ----------- ----------- ----------- ----------- ----------- Fully Diluted Earnings Per Share Computation for Statements of Operations: Income (loss) before extraordinary items............................... $ 7,846 $ (203,268 ) $ 37,165 $ (131,761) $ (222,016) $ (76,695) Adjustment for interest on debt reduction........................... 870 2,520 5,812 -- -- -- Preferred stock dividend requirement......................... -- -- -- (1,672) (1,673) (1,673) ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) applicable to common stock before extraordinary items.... 8,716 (200,748 ) 42,977 (133,433) (223,689) (78,368) Extraordinary items, tax benefit...... -- -- -- -- -- 2,024 Extraordinary items................... -- 257,660 -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss)..................... $ 8,716 $ 56,912 $ 42,977 $ (133,433) $ (223,689) $ (76,344) ========== =========== ========== ========== ========== ========== Weighted average number of common shares outstanding.................. 45,126,899 25,470,671 24,480,487 23,914,298 21,533,992 18,395,970 Assumed exercise of stock options and warrants(a)......................... 2,011,352 3,079,258 4,240,761 -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted...... 47,138,251 28,549,929 28,721,248 23,914,298 21,533,992 18,395,970 ========== =========== ========== ========== ========== ========== Fully diluted income (loss) per common share: Income (loss) before extraordinary items............................... $ 0.18 $ (7.03 ) $ 1.50 $ (5.58) $ (10.39) $ (4.26) Extraordinary items................... -- 9.02 -- -- -- 0.11 ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss)(b).................. $ 0.18 $ 1.99 $ 1.50 $ (5.58) $ (10.39) $ (4.15) ========== =========== ========== ========== ========== ========== Additional Fully Diluted Computation: Additional adjustment to net income (loss) as adjusted per fully diluted computation above Income (loss) before extraordinary items as adjusted per fully diluted computation above................... $ 7,846 $ (203,268 ) $ 37,165 $ (131,761) $ (222,016) $ (76,695) Add -- Interest on 7.75% subordinated debenture, net of taxes............. -- -- -- -- 869 1,829 Add -- Interest on 7.5% subordinated debenture, net of taxes............. -- -- -- -- 806 1,712 Add -- Interest on 11.5% subordinated debentures, net of taxes............ -- -- -- -- 3,506 7,629 Add interest on debt reduction, net of taxes............................... 870 2,520 5,812 4,964 4,352 2,777 ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) before extraordinary items as adjusted................... 8,716 (200,748 ) 42,977 (126,797) (212,483) (62,748) Extraordinary items................... -- 257,660 -- 2,756 5,293 9,399 ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss)..................... $ 8,716 $ 56,912 $ 42,977 $ (124,041) $ (207,190) $ (53,349) ========== =========== ========== ========== ========== ========== Additional adjustment to weighted average number of shares outstanding Weighted average number of shares outstanding as adjusted per fully diluted computation above............... 47,138,251 28,549,929 28,721,248 23,914,298 21,533,992 18,395,970
2 3 EXHIBIT 11.1 AMERICA WEST AIRLINES, INC. COMPUTATION OF NET INCOME (LOSS) PER SHARE -- (CONTINUED) (IN THOUSANDS EXCEPT PER SHARE AMOUNT)
REORGANIZED PREDECESSOR COMPANY 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 ------------ ----------- ----------- ----------- ----------- ----------- Additional dilutive effect of outstanding options and warrants...... -- -- -- 7,383,922 6,704,746 5,266,266 Additional dilutive effect of assumed conversion of preferred stock: Series A 9.75%........................ -- -- -- -- -- -- Series B 10.5%........................ -- -- 851,294 1,164,596 1,164,596 1,164,596 Series C 9.75%........................ -- 73,099 73,099 73,099 73,099 73,099 Additional dilutive effect of assumed conversion of 7.75% subordinated debenture............................. -- 2,257,558 2,263,007 2,278,151 2,483,528 2,735,200 Additional dilutive effect of assumed conversion of 7.5% subordinated debenture............................. -- 2,264,932.. 2,272,548 2,291,607 2,347,604 2,551,060 Additional dilutive effect of assumed conversion of 11.5% subordinated debenture............................. -- 7,306,865 7,328,201 7,486,391 9,081,162 9,866,509 ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of common shares outstanding as adjusted............... 47,138,251 40,452,383 41,509,397 44,592,064 43,388,727 40,052,700 ========== =========== ========== ========== ========== ========== Fully diluted income (loss) per common share: Income (loss) before extraordinary items................................. $ 0.18 $ (4.96) $ 1.04 $ (2.84) $ (4.90) $ (1.57) Extraordinary items..................... -- 6.37 -- 0.06 0.12 0.23 ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss)(c).................... $ 0.18 $ 1.41 $ 1.04 $ (2.78) $ (4.78) $ (1.34) ========== =========== ========== ========== ========== ==========
- --------------- (a) The stock options and warrants are included only in the periods in which they are dilutive. (b) The calculation is submitted in accordance with Regulation S-K Item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3%. (c) The calculation is submitted in accordance with Regulation S-K Item 601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15 because it produces an antidilutive result. 3 EX-12.1 3 EXHIBIT 12.1 1 EXHIBIT 12.1 AMERICA WEST AIRLINES, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
REORGANIZED COMPANY PREDECESSOR COMPANY ------------- ---------------------------------------------------------- PERIOD FROM PERIOD FROM JANUARY 1 TO AUGUST 26 TO YEARS ENDED DECEMBER 31, AUGUST 25 DECEMBER 31 ------------------------------------------- ------------ ------------- 1990 1991 1992 1993 1994 1994 -------- --------- --------- -------- ------------ ------------- (IN THOUSANDS EXCEPT RATIO OF EARNINGS TO FIXED CHARGES) Computation of Earnings: Income (loss) before income taxes and extraordinary item............................................. $(76,695) $(222,016) $(131,761) $ 37,924 $ (201,209) $19,736 Add: Interest expense including amortization of debt issuance costs................................... 61,239 63,991 55,886 54,252 34,038 22,827 Interest portion of rent expense................... 77,537 106,414 102,314 81,795 51,538 26,879 -------- --------- --------- -------- ------------ ------------- Income (loss), as adjusted........................... $ 62,081 $ (51,611) $ 26,439 $173,971 $ (115,633) $69,442 ======== ========= ========= ======== =========== ============ Computation of Fixed Charges: Interest expense including amortization of debt issuance costs................................... $ 61,239 $ 63,991 $ 55,886 $ 54,252 $ 34,038 $22,827 Interest portion of rent expense................... 77,537 106,414 102,314 81,795 51,538 26,879 Capitalized interest............................... 6,375 6,664 -- -- -- 621 -------- --------- --------- -------- ------------ ------------- Fixed charges........................................ $145,151 $ 177,069 $ 158,200 $136,047 85,576 50,327 ======== ========= ========= ======== =========== ============ Ratio of earnings to fixed charges................... (*) (*) (*) 1.28 (*) 1.38
- --------------- (*) For the purpose of computing the ratio of earnings to fixed charges, "earnings" consist of income (loss) before income taxes and extraordinary item plus fixed charges less capitalized interest. "Fixed charges" consist of interest expense including amortization of debt issuance costs, a portion of rent expense which is deemed to be representative of an interest factor, and capitalized interest. For the years ended December 31, 1990, 1991 and 1992 earnings were insufficient to cover fixed charges by $83,070,000, $228,680,000 and $131,761,000 respectively. For the period ended August 25,1994, earnings were insufficient to cover fixed charges by $201,209,000. -----END PRIVACY-ENHANCED MESSAGE-----