<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1994
USAir Group, Inc.
(Commission file number: 1-8444)
and
USAir, Inc.
(Commission file number: 1-8442)
(Exact names of registrants as specified in their charters)
Delaware USAir Group, Inc. 54-1194634
(State of incorporation USAir, Inc. 53-0218143
of both registrants) (I.R.S. Employer Identification Nos.)
USAir Group, Inc.
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 418-5306
(Registrant's telephone number, including area code)
USAir, Inc.
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 418-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrants were required to file
such reports), and (2) have been subject to such filing require-
ments for the past 90 days.
Yes x No
----- -----
At October 31, 1994, there were outstanding approximately
60,558,000 shares (exclusive of approximately 518,000 shares held
in treasury) of common stock of USAir Group, Inc. and 1,000 shares
of common stock of USAir, Inc.
The registrant USAir, Inc. meets the conditions set forth in
General Instructions H(1)(a) and (b) of Form 10-Q and is therefore
participating in the filing of this form with the reduced disclo-
sure format.
<PAGE>
USAir Group, Inc.
and
USAir, Inc.
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1A. Financial Statements - USAir Group, Inc.
Condensed Consolidated Statements of Operations
- Three Months and Nine Months Ended September 30,
1994 and 1993 1
Condensed Consolidated Balance Sheets
- September 30, 1994 and December 31, 1993 2
Condensed Consolidated Statements of Cash Flows
- Nine Months Ended September 30, 1994 and 1993 3
Notes to Condensed Consolidated Financial
Statements 4
Item 1B. Financial Statements - USAir, Inc.
Condensed Consolidated Statements of Operations
- Three Months and Nine Months Ended September 30,
1994 and 1993 7
Condensed Consolidated Balance Sheets
- September 30, 1994 and December 31, 1993 8
Condensed Consolidated Statements of Cash Flows
- Nine Months Ended September 30, 1994 and 1993 9
Notes to Condensed Consolidated Financial
Statements 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 3. Defaults Upon Senior Securities 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
<PAGE>
<TABLE>
PART I. FINANCIAL STATEMENTS
Item 1A. Financial Statements
USAir Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS and NINE MONTHS ENDED SEPTEMBER 30, 1994 and 1993 (Unaudited)
===========================================================================================================
(in thousands except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues
Passenger transportation $1,596,018 $1,609,438 $4,842,460 $4,898,006
Cargo and freight 37,867 43,067 121,967 127,689
Other 116,888 96,103 351,798 255,022
--------- --------- --------- ---------
Total operating revenues 1,750,773 1,748,608 5,316,225 5,280,717
Operating Expenses
Personnel costs 737,993 770,797 2,188,567 2,104,989
Aviation fuel 174,747 175,783 499,429 531,768
Commissions 141,461 145,554 445,462 441,956
Other rent and landing fees 113,718 110,356 328,146 327,106
Aircraft rent 124,816 118,383 350,506 356,244
Aircraft maintenance 106,878 101,540 303,784 275,683
Depreciation and amortization 109,147 81,832 274,378 241,110
Other, net 393,350 354,875 1,135,283 1,044,171
--------- --------- --------- ---------
Total operating expenses 1,902,110 1,859,120 5,525,555 5,323,027
--------- --------- --------- ---------
Operating income (loss) (151,337) (110,512) (209,330) (42,310)
Other Income (Expense)
Interest income 7,471 3,947 18,082 7,818
Interest expense (71,040) (63,141) (210,020) (186,093)
Interest capitalized 4,473 2,754 8,547 14,217
Other, net 30,370 (10,677) 29,816 (26,459)
--------- --------- --------- ---------
Other income (expense), net (28,726) (67,117) (153,575) (190,517)
--------- --------- --------- ---------
Income (loss) before taxes and cumulative
effect of accounting change (180,063) (177,629) (362,905) (232,827)
Income tax provision (credit) - - - -
--------- --------- --------- ---------
Income (loss) before cumulative effect of
accounting change (180,063) (177,629) (362,905) (232,827)
Cumulative effect of change in method of
accounting for postemployment benefits - - - (43,749)
--------- --------- --------- ---------
Net income (loss) (180,063) (177,629) (362,905) (276,576)
--------- --------- --------- ---------
Preferred dividend requirement (19,513) (19,179) (58,068) (54,495)
--------- --------- --------- ---------
Net income (loss) applicable to common
stockholders $ (199,576) $ (196,808) $ (420,973) $ (331,071)
========= ========= ========= =========
Income (loss) per common share
Before accounting change $ (3.32) $ (3.33) $ (7.06) $ (5.35)
Effect of accounting change - - - (0.82)
--------- --------- --------- ---------
Income (loss) per common share $ (3.32) $ (3.33) $ (7.06) $ (6.17)
========= ========= ========= =========
Shares used for computation (000) 60,062 59,068 59,654 53,682
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
1
<PAGE>
<TABLE>
USAir Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 (Unaudited) and DECEMBER 31, 1993 (in thousands except per share amounts)
============================================================================================================
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 485,572 $ 368,347
Receivables, net 492,234 364,020
Materials and supplies, net 329,343 362,019
Prepaid expenses and other 108,854 83,334
--------- ---------
Total current assets 1,416,003 1,177,720
Property and Equipment
Flight equipment 5,075,705 5,031,351
Ground property and equipment 1,072,411 1,074,526
Less accumulated depreciation and amortization (2,026,103) (1,883,858)
--------- ---------
4,122,013 4,222,019
Purchase deposits 204,778 156,621
--------- ---------
Property and equipment, net 4,326,791 4,378,640
Other Assets
Goodwill, net 530,627 542,666
Other intangibles, net 321,605 311,332
Other assets, net 491,195 467,555
--------- ---------
Total other assets 1,343,427 1,321,553
--------- ---------
$7,086,221 $6,877,913
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 80,557 $ 87,833
Accounts payable 389,744 335,918
Traffic balances payable and unused tickets 788,124 630,147
Accrued expenses 1,187,411 1,182,886
--------- ---------
Total current liabilities 2,445,836 2,236,784
Long-Term Debt, Net of Current Maturities 2,772,945 2,444,017
Deferred Credits and Other Liabilities
Deferred gains, net 420,765 440,327
Postretirement benefits other than pensions, non-current 964,453 907,343
Non-current pension liability and other 338,486 303,299
--------- ---------
Total deferred credits and other liabilities 1,723,704 1,650,969
Commitments and Contingencies
Redeemable Cumulative Convertible Preferred Stock
Series A, 358,000 shares issued, no par value 358,000 358,000
(redemption value of $366,279 at September 30, 1994)
Series F, 30,000 shares issued, no par value 300,000 300,000
Series T, 10,000 shares issued, no par value 100,719 100,719
Stockholders' Equity (Deficit)
Series B cumulative convertible preferred stock, no par
value 4,263,000 depositary shares issued 213,153 213,153
Common stock, par value $1 per share, authorized
150,000,000 shares, issued 61,076,000 and 61,080,000
shares, respectively 61,076 61,080
Paid-in capital 1,377,656 1,417,346
Retained earnings (deficit) (2,095,480) (1,682,912)
Common stock held in treasury, at cost, 824,000 and
1,864,000 shares, respectively (37,089) (83,891)
Deferred compensation (91,904) (94,957)
Adjustment for minimum pension liability (42,395) (42,395)
--------- ---------
Total stockholders' equity (deficit) (614,983) (212,576)
--------- ---------
$7,086,221 $6,877,913
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
2
<PAGE>
<TABLE>
USAir Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1994 and 1993 (Unaudited) (in thousands)
============================================================================================================
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash and cash equivalents beginning of period $ 368,347 $ 296,038
Cash flows from operating activities
Net income (loss) (362,905) (276,576)
Adjustments to reconcile net loss to cash provided by
(used for) operating activities
Depreciation and amortization 274,378 241,110
Loss (gain) on disposition of property (24,762) 7,932
Other (19,332) (5,373)
Changes in certain assets and liabilities
Decrease (increase) in receivables (93,414) (281,387)
Decrease (increase) in materials, supplies, prepaid
expenses and intangible pension assets (9,755) 825
Increase (decrease) in traffic balances payable and
unused tickets 157,977 115,837
Increase (decrease) in accounts payable and accrued
expenses 92,961 46,203
Increase (decrease) in postretirement benefits other
than pensions, non-current 57,110 53,907
--------- ---------
Net cash provided by (used for) operating activities 72,258 (97,522)
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (21,571) (167,587)
Additions to other property (92,021) (108,038)
Proceeds from disposition of property 34,805 176,315
Change in restricted cash and investments 2,068 4,403
Other 6,998 (63)
--------- ---------
Net cash provided by (used for) investing activities (69,721) (94,970)
Cash flows from financing activities
Issuance of debt 222,156 520,359
Reduction of debt (65,312) (834,177)
Issuance of common stock - 230,891
Issuance of preferred stock - 400,719
Sale of treasury stock 7,507 7,502
Dividends (49,663) (52,431)
--------- ---------
Net cash provided by (used for) financing activities 114,688 272,863
--------- ---------
Net increase (decrease) in cash and cash equivalents 117,225 80,371
--------- ---------
Cash and cash equivalents end of period $ 485,572 $ 376,409
========= =========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions $ 162,139 $ 265,437
========= =========
Issuance of debt for additions to other property $ - $ 669
========= =========
Reduction of debt - aircraft related $ - $ 47,685
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
USAir Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements
include the accounts of USAir Group, Inc. ("USAir Group" or the
"Company") and its wholly-owned subsidiaries: USAir, Inc.
("USAir"), Piedmont Airlines, Inc., Jetstream International
Airlines, Inc., Pennsylvania Commuter Airlines, Inc., USAir Leasing
and Services, Inc., USAir Fuel Corporation and Material Services
Company, Inc.
Management believes that all adjustments necessary for a fair
statement of results have been included in the condensed consoli-
dated financial statements for the interim periods presented, which
are unaudited. All significant intercompany accounts and transac-
tions have been eliminated. Certain 1993 amounts have been
reclassified to conform with 1994 classifications.
These interim period condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
(2) LONG-TERM DEBT
On April 26, 1994, the Company terminated its credit agreement
dated March 30, 1987, as amended, with a group of banks ("Credit
Agreement"). At that date, there were no borrowings under the
Credit Agreement. As a result, 66 jet and commuter aircraft and
certain spare engines with a net book value of approximately $260
million at that time were released from a mortgage related to the
Credit Agreement. The Company had been in violation of certain
covenants at March 31, 1994. The Credit Agreement was scheduled by
its terms to expire on September 30, 1994.
(3) COMMITMENTS
On May 12, 1994, USAir and The Boeing Company ("Boeing") reached
an agreement to reschedule the delivery of 40 firm order 737-series
aircraft from the 1997-2000 time period to the years 2003-2005. In
addition, USAir has foregone options to purchase 63 737-series, 11
757-series and two 767-series aircraft during the 1996-2000 time
period.
The following schedule of USAir's new aircraft deliveries and
scheduled payments at September 30, 1994 (including progress
payments, payments at delivery, buyer furnished equipment, spares
and capitalized interest) reflects USAir's agreement with Boeing:
4
<PAGE>
<TABLE>
<CAPTION>
Delivery Period - Firm Orders
-----------------------------------------------------
Remainder There-
1994 1995 1996 1997 1998 after Total
------ ---- ---- ---- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Boeing
757-200 2 7 8 - - - 17
737 Series - - - - - 40 40
--- --- --- --- --- ----- -----
2 7 8 - - 40 57
=== === === === === ===== =====
Payments
(millions) $ 83 $280 $253 $ - $ - $1,855 $2,471
=== === === === === ===== =====
</TABLE>
(4) PREFERRED STOCK
On September 29, 1994, the Company announced that its Board of
Directors (the "Board") had voted to defer the quarterly dividend
payment of $8.3 million due September 30, 1994, on the 358,000
shares of the Company's 9 1/4% Series A Cumulative Convertible
Redeemable Preferred Stock ("Series A Preferred Stock"). The
Series A Preferred Stock is owned by affiliates of Berkshire
Hathaway Inc ("Berkshire").
One effect of the decision to defer dividend payments on the
Series A Preferred Stock is that the Board will defer future
dividend payments on the $300.0 million (face amount) of Series F
Cumulative Convertible Senior Preferred Stock ("Series F Preferred
Stock") and $100.7 million (face amount) of the Series T Cumulative
Convertible Exchangeable Senior Preferred Stock ("Series T
Preferred Stock"), both of which are owned by British Airways, as
well as the approximately $213.2 million (face amount) of publicly
held depositary shares representing Series B Cumulative Convertible
Preferred Stock ("Series B Preferred Stock"). The annual dividends
on the Series A Preferred Stock amount to approximately $33.1
million. The annual dividends on the preferred stock held by
British Airways amount to approximately $26.5 million and the
annual dividends on the publicly-held Series B Preferred stock
currently amount to approximately $18.7 million.
So long as preferred dividends are deferred, the Series A
Preferred Stock will continue to cumulate dividends at its stated
dividend rate plus additional dividends on the balance of the
deferred dividends at the higher of the stated dividend rate or the
prime rate plus five percentage points. Accordingly, the redemp-
tion value of the Series A Preferred Stock at September 30, 1994 is
$366.3 million (the face amount of the issuance of $358.0 million
plus the $8.3 million dividends that were payable on September 30,
1994). The Series F and T Preferred Stock will continue to
cumulate dividends at their stated dividend rates of 7.0% and the
5
<PAGE>
three month LIBOR rate plus fifty basis points (5.5% at Septem-
ber 30, 1994), respectively, plus additional dividends on the
balance of the deferred dividends at the stated dividend rate. The
Series B Preferred Stock will continue to cumulate dividends at its
stated dividend rate of 8.75% but is not subject to additional
dividends on the balance of any deferred dividends.
Under the terms of the Series A Preferred Stock, Berkshire has
the right to elect two additional directors to the Board of
Directors of the Company after a scheduled dividend payment has not
been paid for thirty days. Berkshire has informed the Company that
it does not intend to exercise this right at this time. Under the
terms of the Series B Preferred Stock, the holders of that security
would have the right to elect two additional directors to the Board
of Directors if six quarterly dividends are not paid. If Berkshire
were to exercise its right or the holders of the Series B Preferred
Stock were to exercise their right to elect additional directors,
British Airways would have the right to nominate additional
directors to the Board of Directors pursuant to its investment
agreement with the Company.
Berkshire's Chairman Warren E. Buffett and Vice Chairman
Charles T. Munger currently serve as directors on the Company's and
USAir's Boards of Directors. In connection with their re-election
to the Company's Board in July 1994, Messrs. Buffett and Munger
advised the Company that their continued service as directors was
contingent on USAir successfully reaching a timely agreement with
its organized labor groups which, when combined with other savings,
would afford USAir a reasonable opportunity to achieve profitabili-
ty in a low fare competitive environment. Berkshire has stated on
its quarterly report on Form 10-Q for the three month period ended
September 30, 1994 that Messrs. Buffett and Munger expect to
determine whether to continue as directors prior to Berkshire's
public release of its 1994 annual earnings.
Depending on future circumstances, the Board may consider the
resumption of preferred dividend payments from legally available
funds. Even if the Company is successful in restructuring its
costs, there can be no assurance when or if preferred dividend
payments will resume.
6
<PAGE>
<TABLE>
PART I. FINANCIAL STATEMENTS
Item 1B. Financial Statements
USAir, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS and NINE MONTHS ENDED SEPTEMBER 30, 1994 and 1993 (Unaudited) (in thousands)
============================================================================================================
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues
Passenger transportation $1,482,214 $1,491,069 $4,506,659 $4,541,867
Cargo and freight 37,111 42,209 119,583 125,205
Other 122,357 100,627 368,170 265,705
--------- --------- --------- ---------
Total operating revenues 1,641,682 1,633,905 4,994,412 4,932,777
Operating Expenses
Personnel costs 702,726 733,928 2,084,341 1,998,999
Aviation fuel 166,811 167,977 476,950 507,597
Commissions 132,677 136,422 419,119 413,991
Other rent and landing fees 109,996 106,690 317,418 316,683
Aircraft rent 114,227 107,205 317,059 326,272
Aircraft maintenance 92,684 86,052 258,199 229,288
Depreciation and amortization 104,004 75,996 257,037 220,301
Other, net 378,798 340,742 1,091,886 1,010,083
--------- --------- --------- ---------
Total operating expenses 1,801,923 1,755,012 5,222,009 5,023,214
--------- --------- --------- ---------
Operating income (loss) (160,241) (121,107) (227,597) (90,437)
Other Income (Expense)
Interest income 7,666 5,710 18,775 19,571
Interest expense (71,177) (60,365) (209,763) (175,138)
Interest capitalized 4,473 2,754 8,547 14,208
Other, net 23,314 (10,036) 25,392 (23,385)
--------- --------- --------- ---------
Other income (expense), net (35,724) (61,937) (157,049) (164,744)
--------- --------- --------- ---------
Income (loss) before taxes and cumulative
effect of accounting change (195,965) (183,044) (384,646) (255,181)
Income tax provision (credit) - - - -
--------- --------- --------- ---------
Income (loss) before cumulative effect
of accounting change (195,965) (183,044) (384,646) (255,181)
Cumulative effect of change in method of
accounting for postemployment benefits - - - (43,749)
--------- --------- --------- ---------
Net income (loss) $ (195,965) $ (183,044) $ (384,646) $ (298,930)
========= ========= ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
7
<PAGE>
<TABLE>
USAir, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 (Unaudited) and DECEMBER 31, 1993 (in thousands except per share amounts)
============================================================================================================
<CAPTION>
September 30, December 31,
1994 1993
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 484,517 $ 367,835
Receivable from parent company 39,985 16,092
Receivables, net 496,195 367,403
Materials and supplies, net 312,148 338,808
Prepaid expenses and other 103,044 78,131
--------- ---------
Total current assets 1,435,889 1,168,269
Property and Equipment
Flight equipment 4,828,788 4,824,031
Ground property and equipment 1,054,845 1,045,306
Less accumulated depreciation and amortization (1,950,071) (1,786,817)
--------- ---------
3,933,562 4,082,520
Purchase deposits 204,778 156,621
Property and equipment, net --------- ---------
($162,000 pledged for parent company debt at
December 31, 1993) 4,138,340 4,239,141
Other Assets
Goodwill, net 530,627 542,666
Other intangibles, net 320,893 310,545
Other assets, net 572,630 548,847
--------- ---------
Total other assets 1,424,150 1,402,058
--------- ---------
$6,998,379 $6,809,468
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt $ 76,035 $ 85,715
Accounts payable 375,138 316,843
Traffic balances payable and unused tickets 819,489 659,606
Accrued expenses 1,158,615 1,150,062
--------- ---------
Total current liabilities 2,429,277 2,212,226
Long-Term Debt, Net of Current Maturities
Long-term debt 2,725,822 2,441,935
Notes payable - parent company 104,410 105,080
--------- ---------
Total long-term debt, net of current maturities 2,830,232 2,547,015
Deferred Credits and Other Liabilities
Deferred gains, net 415,678 434,586
Postretirement benefits other than pensions, non-current 964,203 907,093
Non-current pension liability and other 335,584 300,497
--------- ---------
Total deferred credits and other liabilities 1,715,465 1,642,176
Commitments and Contingencies
Stockholder's Equity
Common stock, par value $1 per share, authorized
1,000 shares, issued and outstanding 1,000 shares 1 1
Paid-in capital 2,416,131 2,416,131
Retained earnings (deficit) (2,350,763) (1,966,117)
Adjustment for minimum pension liability (41,964) (41,964)
--------- ---------
Total stockholder's equity 23,405 408,051
--------- ---------
$6,998,379 $6,809,468
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
8
<PAGE>
<TABLE>
USAir, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1994 and 1993 (Unaudited) (in thousands)
============================================================================================================
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash and cash equivalents beginning of period $ 367,835 $ 295,432
Cash flows from operating activities
Net income (loss) (384,646) (298,930)
Adjustments to reconcile net loss to cash provided by
(used for) operating activities
Depreciation and amortization 257,037 220,301
Loss (gain) on disposition of property (17,350) 8,391
Other (16,597) (10,288)
Changes in certain assets and liabilities
Decrease (increase) in receivables (47,466) (199,808)
Decrease (increase) in materials, supplies, prepaid
expenses and intangible pension assets (15,164) 5,914
Increase (decrease) in traffic balances payable and
unused tickets 159,883 120,672
Increase (decrease) in accounts payable and accrued
expenses 101,358 51,036
Increase (decrease) in postretirement benefits other
than pensions, non-current 57,110 53,859
--------- ---------
Net cash provided by (used for) operating activities 94,165 (48,853)
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (21,571) (91,483)
Additions to other property (89,035) (102,282)
Proceeds from disposition of property 15,328 174,171
Change in restricted cash and investments 2,068 4,403
Other 6,998 (63)
--------- ---------
Net cash provided by (used for) investing activities (86,212) (15,254)
Cash flows from financing activities
Issuance of debt 172,156 300,000
Reduction of debt (63,427) (155,258)
--------- ---------
Net cash provided by (used for) financing activities 108,729 144,742
--------- ---------
Net increase (decrease) in cash and cash equivalents 116,682 80,635
--------- ---------
Cash and cash equivalents end of period $ 484,517 $ 376,067
========= =========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions $ 162,139 $ 265,437
========= =========
Issuance of parent company debt for aircraft acquisitions $ - $ 76,094
========= =========
Issuance of debt for additions to other property $ - $ 669
========= =========
Other property acquisitions - transfer from affiliated company $ 7,925 $ -
========= =========
Reduction of debt - aircraft related $ - $ 47,685
========= =========
Reduction of parent company debt - aircraft related $ - $ 79,539
========= =========
Aircraft dispositions - transfer to affiliated company $ 81,913 $ -
========= =========
Aircraft acquisitions - transfer from affiliated company $ 3,569 $ 70,700
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
9
<PAGE>
USAir, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements
include the accounts of USAir, Inc. ("USAir") and its wholly-owned
subsidiary USAM Corp. USAir is a wholly-owned subsidiary of USAir
Group, Inc. ("USAir Group" or the "Company").
Management believes that all adjustments necessary for a fair
statement of results have been included in the condensed consoli-
dated financial statements for the interim periods presented, which
are unaudited. All significant intercompany accounts and transac-
tions have been eliminated. Certain 1993 amounts have been
reclassified to conform with 1994 classifications.
These interim period condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements contained in USAir's Annual Report on Form 10-K for the
year ended December 31, 1993.
(2) OTHER
Please refer to Note 3 in USAir Group's "Notes to Condensed
Consolidated Financial Statements" on Page 4 of this report.
10<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condi-
tion and Results of Operations
The following discussion relates to the financial results and
condition of USAir Group, Inc. (the "Company"). USAir, Inc.
("USAir") is the Company's principal subsidiary and accounts for
approximately 93% of its operating revenue. The following
discussion is based primarily upon USAir's results of operations
and prospects.
Adverse weather during the first quarter, the two aircraft
accidents which occurred during the third quarter, the intense
competitive environment characterized by the growth of low fare,
low cost airlines in USAir's markets, widespread industry fare
discounting, and USAir's cost structure are factors that had a
negative effect on the Company's results of operations for the
first nine months of 1994. The growth of the operations of low
fare, low cost carriers in USAir's markets in the eastern U.S.
represents a competitive challenge for USAir, which has higher
operating costs than its competitors. USAir believes that it must
reduce its operating costs substantially if it is to survive in
this low fare competitive environment. Based on projections, the
Company believes that shortfalls in passenger revenue resulting
from the two accidents, as well as other factors noted above, will
have a material adverse effect on results for the fourth quarter of
1994. See the discussion below regarding USAir's negotiations with
its unions to reduce operating costs.
In order to reduce aircraft ownership costs, USAir plans to
reduce its fleet by 37 jet aircraft in 1995 from September 30, 1994
levels. USAir will take delivery of seven new Boeing 757-200
aircraft during 1995 and plans to retire or dispose of, at various
times, 13 Boeing 737-300, 12 Boeing 767-200, 11 Boeing 737-200 and
eight Boeing 727-200 aircraft. Two leased Boeing 737-300 aircraft
will be returned to the lessor in 1995. In addition, USAir expects
to sell 11 of its Boeing 737-300 aircraft in late 1994 or early
1995 and experience a slight gain. These 11 aircraft may be leased
back for a short period until they are phased out of the fleet in
1995. The 12 Boeing 767-200 aircraft will be phased out of the
fleet in the following order: U.S. domestic service first; the
British Airways wet lease service second; and USAir's transatlantic
service third. The timing of the disposal of the Boeing 767-200
aircraft is dependent on economically advantageous sale or lease
opportunities. The Boeing 737-200 and 727-200 aircraft that are
leased will be returned to their respective lessors and certain
737-200 aircraft which are owned by USAir will be sold or leased to
other air carriers. Excluding the Boeing 767 disposition, USAir's
capacity, as measured by available seat miles ("ASMs"), is expected
to be relatively unchanged in 1995 compared with 1994 due to the
new 757 aircraft and increased utilization of a portion of USAir's
fleet which results from the quick turn service discussed below.
11
<PAGE>
Because of its poor financial results, the Company's Board of
Directors (the "Board") deferred the September 30, 1994 quarterly
dividend payment on the Company's 9 1/4% Series A Cumulative
Convertible Redeemable Preferred Stock ("Series A Preferred
Stock"). One effect of this action is that the Board will also
defer dividend payments on all other outstanding series of the
Company's preferred stock. Depending on future circumstances, the
Board may consider the resumption of preferred dividend payments
from legally available funds. Even if the Company is successful in
restructuring its costs, there can be no assurance when or if
preferred dividend payments will resume. See Note 4 to the
Company's condensed consolidated financial statements.
In February 1994, to avoid a loss of market share in the eastern
U.S., USAir began to substantially lower its fares in primary and
secondary markets affected by the expansion of Continental
Airlines' ("Continental") low fare, low cost service branded
"Continental Lite." By July 1994, markets from which USAir had
historically generated approximately 40% of its passenger revenue
had the reduced fares in place, reflecting fare reductions in
certain markets of up to 70% from previous levels. Continental
further reduced service in September 1994 at its Denver, Colorado
hub and expanded service in the eastern U.S. Currently, USAir
competes with Continental in primary and secondary markets from
which USAir generates approximately 45% of its passenger revenue.
Continental could continue to redeploy its assets and offer other
low fare service in additional markets served by USAir.
Severe winter weather in the first quarter of 1994 had a
material adverse effect on the Company's operations and financial
results. Passenger transportation revenue increased during the
second quarter compared with 1993 because increases in passenger
traffic more than offset the dilutive effect of the lower fares.
However, this trend did not continue in the third quarter due to
the two aircraft accidents and it appears unlikely, under current
conditions, that future passenger traffic levels will offset the
effect of lower fares.
In addition, as discussed below, other major carriers that
compete with USAir have implemented, or are in the process of
implementing, measures to reduce their operating costs. United Air
Lines ("United") has substantially reduced its personnel costs as
part of a recapitalization transaction completed in July 1994. The
resulting lower operating costs will give United a competitive
advantage over carriers with higher costs. United initiated its
low fare, low cost operation in the western U.S. in October 1994.
USAir plans to reduce substantially the frequency of its service
between San Francisco and Los Angeles in November 1994 and to close
its crew base in San Francisco in early 1995. See the discussion
in "Results of Operations" below for information regarding a $25.9
million charge recorded as a result of this action. United could
initiate additional low fare, low cost service in other markets
served by USAir.
12
<PAGE>
In April 1994, Delta Air Lines ("Delta") announced that it plans
to eliminate up to 15,000 positions, or approximately 20% of its
work force, as part of a restructuring initiative that is intended
to reduce substantially its operating costs. American Airlines
("American") has announced a restructuring of its non-union
workforce and that it is seeking $750 million in concessions and
productivity gains from its unionized workers. Trans World
Airlines ("TWA") has negotiated productivity improvements with its
unionized employees and has proposed a restructuring transaction in
which, among other things, certain creditors would swap debt for
equity. The announcements by Delta, American, and TWA further
illustrate the trend among the major U.S. airlines to restructure
in order to reduce operating and other costs and enable them to
compete in a low fare environment. In addition, a number of small
low fare, low cost start-up carriers have initiated or are seeking
to initiate service in the eastern U.S.
The Company is actively pursuing several initiatives in an
effort to reduce USAir's unit costs, which are among the highest of
the major U.S. airlines. The Company's short term goal is to
reduce USAir's unit cost to approximately 10 to 10.5 cents per ASM
during the next two to three years, with the goal of implementing
certain substantial cost reductions beginning in 1994. The longer
range goal is to reduce USAir's unit costs to approximately 9.5 to
10 cents per ASM. The Company believes that it must reduce USAir's
annual operating expenses by approximately $1 billion in order to
achieve the unit cost goal of 9.5 to 10 cents.
The Company is seeking to realize half, or approximately $500
million, of the $1 billion of annual savings through reductions in
personnel costs, which are the largest single component of USAir's
operating costs. USAir is engaged in discussions with the
leadership of its unionized employees regarding the $500 million
annual savings in personnel costs it desires to achieve through
wage and benefit reductions, improved productivity, and other cost
savings. On August 3, 1994, USAir received a proposal regarding
cost savings from the Air Line Pilots Association ("ALPA"), which
represents USAir's pilot employees. On August 5, 1994, the Company
announced that the terms of ALPA's proposal were largely unaccept-
able. Although discussions between the Company and ALPA continued,
ALPA ceased negotiations in early October following USAir's
announcement of its plan, described above, to dispose of its Boeing
767 fleet and certain other aircraft. On October 25, 1994,
Gerald L. Baliles, former Governor of Virginia, was appointed by
Secretary of Transportation Federico Pena as facilitator in the
negotiations. Former Governor Baliles also served in 1993 as
chairman of the National Commission to Ensure a Strong Competitive
Airline Industry. Discussions with the facilitator began on
October 28, 1994. The timing and outcome of USAir's discussions
with its labor unions is uncertain, and even if the savings
disclosed above are achieved, it remains uncertain whether they
will be adequate in light of the Company's financial condition and
competitive position.
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<PAGE>
The Company plans to achieve the remaining $500 million in
annual cost savings through a combination of initiatives including:
* a restructuring of its maintenance organization and processes.
* expansion of its quick turn service (discussed below).
* an employee suggestion cost-cutting program that began in August
1994 with an ultimate goal of approximately $30 million in
annual savings (previously estimated to be worth $60 million)
that would be reduced by one-time program costs of approximately
$7 million which is being recognized in 1994.
* rationalization of its jet fleet which will include eliminating
certain fleet types. The Company has announced its intention
to dispose of its Boeing 767 fleet and certain Boeing 737-300
aircraft, and to cease operation of its Boeing 727 fleet during
1995.
* centralization of its purchasing function and measures to
enhance cargo revenue and reduce cargo handling expenses.
In addition, USAir hopes to attract additional higher yield
business passenger revenue by implementing a convertible passenger
cabin which will allow USAir to offer a premium service, branded
"Business Select," to these passengers. USAir will initiate the
Business Select service in certain markets on January 4, 1995 and
hopes to expand the service to most other domestic flights of less
than two hours in duration by late 1995. This modification will
require substantial one-time implementation costs.
In February 1994, USAir inaugurated quick turn, point-to-point
service in 18 city-pair markets using 22 aircraft in a move
intended to increase the utilization of its existing aircraft,
facilities and personnel and thereby reduce unit costs. The trial
program consisting of 22 aircraft was shown to produce the desired
results and in July 1994, USAir expanded the quick turn service to
approximately 165 markets using approximately 100 aircraft.
Although the expanded quick turn program is producing the intended
results with regard to aircraft utilization, there can be no
assurance that the quick turn service will generate sufficient
additional revenue to offset the increased variable costs associat-
ed with this service. Moreover, there can be no assurance that any
of the initiatives discussed above will be successful in improving
USAir's financial condition and results of operations. Because it
is uncertain whether USAir can achieve sufficient cost reductions,
even if it is successful in some or all of the above initiatives,
the Company has evaluated other strategic options, including major
restructurings, which may be available to address the difficult
financial and competitive factors facing USAir.
14
<PAGE>
In its negotiations with its unions, USAir has offered an
ownership stake in the Company. There are recent examples of
companies in the airline industry which have obtained employee
concessions in agreements also resulting in the recapitalization of
the companies, including employee ownership stakes and employee
participation in corporate governance as well as the restructuring
of debt and lease obligations. Most recently, in July 1994, UAL
Corporation, parent of United, consummated a recapitalization which
resulted in majority ownership and board membership for certain
employee groups in exchange for concessions. Delta's restructuring
initiative, as described above, reportedly will not involve an
equity ownership interest by its employees. In other cases,
airlines have filed for bankruptcy protection under Chapter 11 of
the bankruptcy code, and some airlines have ceased operation
altogether when their operating costs remained excessive in
relation to their revenues, and their liquidity became insufficient
to sustain their operations. In addition, other factors beyond the
Company's control, such as a downturn in the economy, a dramatic
increase in fuel prices or intensified industry fare wars, could
have a material adverse effect on the Company's and USAir's
prospects and financial condition. Because the Company and USAir
are highly leveraged and currently do not have access to bank
credit and receivables facilities which had supplied a substantial
portion of their liquidity, or to public debt and equity markets
because of their financial condition and current financial outlook,
they are more vulnerable to these factors than their financially
stronger competitors.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1994
Compared With
Nine Months Ended September 30, 1993
The Company recorded a net loss of $362.9 million on revenue of
$5.3 billion in the first nine months of 1994, compared with a net
loss of $276.6 million on revenue of $5.3 billion for the same
period in 1993. The Company estimates that severe winter weather
in the first quarter of 1994 negatively affected its results of
operations by approximately $50 million and that the immediate
effects of the two aircraft accidents during the third quarter of
1994 produced a revenue shortfall of approximately $40 million from
forecast amounts, of which approximately $30 million occurred in
the month of September. The Company expects that passenger revenue
for the fourth quarter of 1994 will also be materially negatively
affected as a result of the accidents.
The financial results for the first nine months of 1994 include:
(i) a $40.1 million charge primarily related to USAir's decision to
cease operations of its remaining Boeing 727 aircraft in 1995; (ii)
a $25.9 million charge related to USAir's decision to reduce
substantially service between Los Angeles and San Francisco in
November 1994; (iii) a $28.3 million gain resulting from the sale
15
<PAGE>
of certain commuter aircraft and assets to Mesa Airlines ("Mesa")
and the accounting treatment of the hull insurance recovery on the
aircraft destroyed in the September accident; and (iv) a $1.7
million restructuring charge related to the sale of commuter assets
to Mesa. The following table indicates where these items appear in
the Company's condensed consolidated statement of operations found
in Part 1A of this report ($ millions, brackets denote expense):
<TABLE>
<CAPTION>
Fleet LAX-SFO Asset
Line Item (B727s) Changes Dispositions Total
- --------- ------- ------- ------------ -----
<S> <C> <C> <C> <C>
Personnel Costs $ - $ (0.3) $ - $ (0.3)
Aircraft Rent (12.8) - - (12.8)
Aircraft Maintenance (9.1) - - (9.1)
Depr. and Amort. (8.1) (18.2) - (26.3)
Other Operating Exp. (10.1) (7.4) (1.7) (19.2)
----- ----- ----- -----
Total Operating $(40.1) $(25.9) $ (1.7) $(67.7)
===== ===== ===== =====
Other Non-Operating $ - $ - $ 28.3 $ 28.3
===== ===== ===== =====
</TABLE>
The financial results for the first nine months of 1993
included: (i) a $43.7 million charge for the cumulative effect of
an accounting change, as required by Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Post-
employment Benefits;" (ii) a $70.7 million charge for severance,
early retirement, and other personnel-related expenses for a
workforce reduction of approximately 2,500 full-time positions
($67.5 million of the $70.7 million is reflected in Personnel Costs
and $3.2 million in Other Operating Expense); and (iii) an $18.4
million credit related to non-operating aircraft (reflected in
Aircraft Maintenance).
The Company has announced that it is pursuing alternatives to
dispose of its Boeing 767-200 fleet. The financial statement
impact of potential transactions related to the disposition cannot
be estimated at this time. In addition, the Company continues to
explore and pursue alternatives available for the disposal of its
fleet of 18 BAe-146 aircraft which has been grounded since
May 1991. The Company could recognize a financial statement charge
in the fourth quarter of 1994 for the BAe-146 and Boeing 767-200
fleets, the extent of which cannot be estimated at this time and
will be affected by any sale or lease agreements which USAir may
negotiate.
Operating Revenue - The Company's Passenger Transportation
Revenue decreased $55.5 million (1.1%) versus the first nine months
of 1993, $35.2 million of which is attributable to USAir and the
remainder to the Company's wholly-owned commuter airlines.
Although the two accidents during the third quarter of 1994 caused
a shortfall in traffic and revenue from forecast amounts, USAir's
scheduled traffic as measured by revenue passenger miles ("RPMs")
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<PAGE>
increased by 9.4% during the first nine months of 1994 on 2.4% of
additional capacity, as measured by ASMs, resulting in a 4.1
percentage point increase in passenger load factor, a measure of
capacity utilization. However, USAir's yield decreased by 9.3% in
the first nine months of 1994 compared with the same period of 1993
due to several factors including lower fares resulting from
increased competition from low fare, low cost carriers in USAir's
markets and industry fare discounting promotions. USAir expects
that its yield for the year 1994 will be lower than yield for 1993
by 8% - 9%. The Company expects that the low fares offered in
response to low fare, low cost competition will remain in place
and, even if traffic is stimulated, will continue to materially and
adversely affect its results of operations unless the Company is
successful in reducing operating costs. As discussed above, the
Company expects that the two aircraft accidents which occurred
during the third quarter will have a material adverse effect on its
passenger transportation revenue during the fourth quarter of 1994.
The Company's Other Revenue increased $96.8 million (38.0%) as a
result of increased charter revenue, aircraft lease revenue,
cancellation and rebooking fees, frequent traveler participation
fees, and various other sources.
Expense - The Company's Personnel Costs increased $83.6 million
(4.0%) primarily due to USAir's $85.3 million (4.3%) increase in
personnel costs. USAir's personnel costs for the first nine months
of 1993 included a $67.5 million (part of the $70.7 million charge
discussed above) charge for a workforce reduction. Excluding this
charge, USAir's personnel costs increased $152.8 million (7.9%) due
to the expiration during 1993 of employee wage reductions,
subsequent contractual and general salary increases, and a lower
discount rate used during 1994 in the calculation of pension and
postretirement benefit expense. Aviation Fuel expense decreased
$32.3 million (6.1%), primarily because of USAir's $30.6 million
(6.0%) decrease, which is the result of a 9.7% reduction in the
cost of fuel partially offset by a 4.0% increase in consumption
compared with 1993. Continuation of the trend in fuel price will
depend on market and political conditions. Aircraft Maintenance
increased $28.1 million (10.2%) primarily because of USAir's $28.9
million (12.6%) increase which resulted from the $18.4 million
credit in 1993 (discussed above) and a $9.1 million charge (part of
the $40.1 million charge in 1994 discussed above) for non-operating
aircraft. Depreciation and Amortization increased $33.3 million
(13.8%) due to USAir's $36.7 million (16.7%) increase which is
caused by a $26.3 million charge in 1994 related to USAir's
reduction of service in California and changes in its fleet plan
(included in the $40.1 million and $25.9 million charges discussed
above) and the delivery of aircraft during 1993 and 1994. The
$91.1 million (8.7%) increase in Other Expenses, Net, $81.8 million
of which is attributable to USAir, includes $19.2 million of the
unusual charges discussed above, and reflects increases in several
volume-related expense categories and expenses related to the wet
lease arrangement with BA.
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<PAGE>
Interest Income improved by $10.3 million as a result of higher
cash levels and more favorable interest rates in 1994. USAir's
results include intercompany transactions which are eliminated from
the Company's results. Interest Expense increased $23.9 million
(12.9%) primarily as a result of interest incurred on certain
aircraft-secured and unsecured financings completed during 1993 and
1994. Interest Capitalized decreased $5.7 million (39.9%) because
average deposits for future aircraft deliveries were lower during
1994 compared with 1993. Other, Net reflects a $56.3 million
improvement primarily due to the $28.3 million gain discussed above
and improved equity results from USAir's 11% ownership investment
in the Galileo International Partnership, which owns and operates
the Galileo Computerized Reservation System ("CRS"), and USAir's
21% ownership investment in the Apollo Travel Services Partnership,
which markets the Galileo CRS in the U.S. and Mexico.
Three Months Ended September 30, 1994
Compared With
Three Months Ended September 30, 1993
The Company recorded a net loss of $180.1 million on revenue of
$1.8 billion in the third quarter of 1994, compared with a net loss
of $177.6 million on revenue of $1.7 billion for the same period in
1993. The Company estimates that the two aircraft accidents during
the third quarter of 1994 resulted in reduced passenger traffic
that produced a revenue shortfall of approximately $40 million from
forecast amounts, of which approximately $30 million occurred in
the month of September. The Company expects that passenger revenue
in the fourth quarter of 1994 will also be materially adversely
affected by the accidents.
The results for the third quarter of 1994 include the same
unusual charges illustrated in the table included with the above
discussion of results for the nine months ended September 30, 1994.
The financial results for the third quarter of 1993 included a
$67.2 million charge for severance, early retirement, and other
personnel-related expenses for a workforce reduction of approxi-
mately 2,500 full-time positions ($64.0 million reflected in
Personnel Costs and $3.2 million reflected in Other Operating
Expense).
Operating Revenue - The Company's Passenger Transportation
Revenue decreased $13.4 million (0.8%) versus the third quarter of
1993, $8.9 million of which is attributable to USAir and the
remainder to the Company's wholly-owned commuter airlines.
Although the two aircraft accidents during the third quarter of
1994 caused a shortfall in traffic and revenue from forecast
amounts, USAir's scheduled RPMs increased by 10.1% over the
comparable period of 1993 on 4.0% of additional ASMs, resulting in
a 3.6 percentage point increase in passenger load factor. However,
USAir's yield decreased by 9.8% in the third quarter of 1994
compared with the same period of 1993 due to several factors
including lower fares resulting from increased competition from low
18
<PAGE>
fare, low cost carriers in USAir's markets and industry fare
discounting promotions. The Company's Other Revenue increased
$20.8 million (21.6%) as a result of increased charter revenue,
aircraft lease revenue, cancellation and rebooking fees, frequent
traveler participation fees, and various other sources.
Expense - The Company's Personnel Costs decreased $32.8 million
(4.3%) primarily due to USAir's $31.2 million (4.2%) decrease in
personnel costs which resulted from a $64.0 million third quarter
1993 charge (part of the $67.2 million charge discussed above) for
a workforce reduction. Excluding this charge, USAir's personnel
costs increased $32.8 million (4.9%) because of contractual and
general salary increases, and a lower discount rate used during
1994 in the calculation of pension and postretirement benefit
expense. Aircraft Rent increased $6.4 million (5.4%) primarily due
to USAir's $7.0 million (6.6%) increase which was caused by a $12.8
million charge (part of $40.1 million charge discussed above) for
changes in USAir's fleet plan, partially offset by fewer leased
aircraft in 1994. Aircraft Maintenance increased $5.3 million
(5.3%) primarily because of USAir's $6.6 million (7.7%) increase
which resulted from the $9.1 million charge (part of the $40.1
million charge discussed above) for non-operating aircraft.
Depreciation and Amortization increased $27.3 million (33.4%) due
to USAir's $28.0 million (36.8%) increase which is caused by a
$26.3 million charge in 1994 related to USAir's reduction of
service in California and changes in its fleet plan (part of the
$40.1 million charge discussed above) and the delivery of aircraft
during 1993 and 1994. The $38.5 million (10.8%) increase in Other
Expenses, Net, $38.1 million of which is attributable to USAir,
includes $19.2 million of the unusual charges discussed above,
increases in several volume-related expense categories and expenses
related to the wet lease arrangement with BA.
Interest Income improved by $3.5 million (89.3%) as a result of
higher cash levels and more favorable interest rates in 1994.
USAir's results include intercompany transactions which are
eliminated from the Company's results. Interest Expense increased
$7.9 million (12.5%) primarily as a result of interest incurred on
certain aircraft-secured and unsecured financings completed during
1993 and 1994. Interest Capitalized increased $1.7 million (62.4%)
as a result of higher deposit levels and interest rates during the
third quarter of 1994. Other, Net reflects a $41.0 million
improvement primarily due to the $28.3 million gain discussed above
and improved equity results from USAir's investments in the Galileo
International Partnership and the Apollo Travel Services Partner-
ship.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was approximately $72.3 million in
the first nine months of 1994. At September 30, 1994, cash and
cash equivalents totaled approximately $485.6 million, excluding
approximately $172.4 million which was deposited in trust accounts
19
<PAGE>
to collateralize letters of credit or workers compensation policies
and classified as "Other Assets." Based on current projections,
the Company expects to satisfy its liquidity requirements for the
remainder of 1994 through a combination of cash from operations,
cash on hand, and committed aircraft financing. Based on these
projections which include the availability of financing, the
Company expects that it will have approximately $400 million cash
at year-end. However, due to the coincidence of certain semiannu-
al, quarterly and monthly debt and lease payments, substantial
scheduled payments of approximately $170 million are due in the
month of January. Depending on market, economic and other factors
and the availability of financing, the Company's expectations of
liquidity are subject to change.
The Board has voted to defer the quarterly dividend payment on
the Company's Series A Preferred Stock which was due on Septem-
ber 30, 1994. One effect of the decision to defer dividend
payments on the Series A Preferred Stock is that the Board will
also defer future dividend payments on all other outstanding series
of the Company's preferred stock. The aggregate annual dividend
requirements related to all series of the Company's preferred stock
total approximately $78 million. See Note 4 to the Company's
condensed consolidated financial statements for additional details.
The Company currently is not party to a revolving credit
facility. The Company has historically utilized such a facility to
supplement its liquidity from time to time. On April 26, 1994, the
Company terminated its revolving credit facility with a group of
banks ("Credit Agreement"). As result, 66 jet and commuter
aircraft and certain spare engines with a net book value of
approximately $260 million at that time were released from a
mortgage related to the Credit Agreement. Certain of the jet
aircraft which USAir is currently attempting to sell are among the
66 unencumbered aircraft discussed above. The Company currently
expects that proceeds from contemplated aircraft sales would be
used to repay certain debt.
Moreover, USAir is currently unable to sell receivables under
its revolving accounts receivable sale program ("Receivables Agree-
ment") because of failure to comply with financial covenants
required to be maintained in connection with that agreement. USAir
is currently engaged in discussions with the financial institution
that is party to the Receivables Agreement regarding a revised
agreement. There can be no assurance that USAir will be successful
in reaching a revised or new agreement to sell its receivables.
The existing Receivables Agreement is scheduled, by its terms, to
expire in December 1994. There were no outstanding sales under the
Receivables Agreement on September 30, 1994.
On May 12, 1994, USAir reached an agreement with The Boeing
Company to reschedule the delivery of 40 737-series aircraft from
the 1997-2000 time period to the years 2003-2005. In addition, as
part of the same agreement, USAir has foregone its options to
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<PAGE>
purchase aircraft during the 1996-2000 time period. As a result,
the Company's capital commitments have been substantially reduced
for the 1995-2000 time period. See Note 3 to the Company's
condensed consolidated financial statements for the future aircraft
commitments schedule reflecting this agreement with Boeing.
Net cash used for investing activities during the first nine
months of 1994 was $69.7 million which includes $92.0 million for
non-aircraft purchases (e.g., ground support equipment, computer
equipment, software, aircraft rotables and hush kits, take-off and
landing slots) largely offset by $34.8 million in proceeds from
disposition of assets which includes the sale of certain commuter
aircraft and assets to Mesa. Net cash provided by financing
activities was $114.7 million, which includes (i) the $172.2
million net proceeds received by USAir upon the sale of $175
million principal amount of 9 5/8% Senior Notes due 2001 through an
underwritten public offering and (ii) $50 million of debt secured
by ten Dash 8 commuter aircraft, offset by $65.3 million of
scheduled debt payments and $49.7 million of preferred dividend
payments. In addition, the Company incurred debt of $162.1 million
associated with the delivery of three new Boeing 757 aircraft and
scheduled aircraft progress payments during the first nine months
of 1994. The $162.1 million is reflected as non-cash activity in
USAir Group's Condensed Consolidated Statement of Cash Flows found
in Item 1A. of this report because USAir incurred the related debt
upon delivery of the aircraft or payment of the progress payments.
USAir has committed financing for the remainder of its 1994
aircraft deliveries and for its 1995 scheduled aircraft deliveries.
On September 29, 1994, following the Company's announcement that
the Board had deferred payment of preferred dividends, Moody's
Investor's Services, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P") further downgraded their ratings of the
Company's and USAir's securities. The recent downgrades will make
it more difficult for the Company and USAir to effect additional
financing.
At September 30, 1994, USAir Group's ratio of current assets to
current liabilities was 0.58 to 1 and the debt component of USAir
Group's capitalization structure was approximately 95% (100% if the
three series of redeemable preferred stock are considered to be
debt).
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Eight airlines, including USAir, have settled price fixing
charges brought by a number of states on behalf of certain state
and local governmental entities which purchase domestic air
transportation services from the airlines. In summary, the
agreement calls for the extension of 10% discounts on all domestic
published fares associated with eligible governmental business
travelers, for a period of up to 18 months or until up to $40
million in discounts have been extended cumulatively by all the
settling defendants. The Company cannot predict the precise effect
of the settlement on USAir since an eligible government employee
may elect to travel on any one of the settling defendant airlines
and it is possible these discounts may have a stimulative effect on
travel on USAir. However, the Company does not expect the
settlement to have a material adverse effect on USAir's results of
operations. USAir's affiliated commuters have agreed to partici-
pate fully in this settlement, although the USAir Shuttle will not
be extending these discounts to government travellers in its
markets. In order to qualify for the discount, travel must be
completely on USAir and/or one of its affiliated commuters.
For information on certain other pending legal proceedings see
Part I. Item 3. - "Legal Proceedings" in the Annual Reports of
USAir Group and USAir on Form 10-K for the year ended December 31,
1993 and Part II. Item 1. - "Legal Proceedings" in the Quarterly
Reports of USAir Group and USAir on Form 10-Q for the quarters
ended June 30, 1994 and March 31, 1994.
Item 3. Defaults Upon Senior Securities
The Board of Directors of the Company (the "Board") has deferred
the September 30, 1994 quarterly dividend payment on the Company's
9 1/4% Series A Cumulative Convertible Redeemable Preferred Stock.
One effect of this action is that the Board will also defer
dividend payments on all other outstanding series of the Company's
preferred stock. Note 4 to the Company's condensed consolidated
financial statements and the discussion concerning the dividend
deferral in Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations in Part I are
incorporated by reference.
Item 5. Other Information
On June 3, 1994, the National Mediation Board ("NMB") ordered
an election among USAir's passenger service employees, a class or
craft of approximately 10,000 workers consisting of USAir's
customer service and reservations employees, to determine whether
the United Steelworkers Union ("USWA") or other union would
22
<PAGE>
represent these employees. The NMB mailed ballots to eligible
passenger service employees on July 19, 1994 and tabulated the
ballots on August 18, 1994. Less than a majority of the eligible
passenger service employees voted in favor of representation and,
as a result, the USWA or other union will not represent the
passenger service employees at this time.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Designation
11 Computation of Primary and Fully Diluted Earnings Per
Share for the three months and nine months ended Septem-
ber 30, 1994 and 1993 for USAir Group, Inc.
99 Airline Operating Statistics for the three months and
nine months ended September 30, 1994 and 1993 for USAir,
Inc.
B. Reports on Form 8-K
None
23
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
USAir Group, Inc.
(Registrant)
Date: November 14, 1994 By: /s/ Ann Greer-Rector
---------------------------
Ann Greer-Rector
Vice President & Controller
(Principal Accounting Officer)
24
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
USAir, Inc.
(Registrant)
Date: November 14, 1994 By: /s/ Ann Greer-Rector
---------------------------
Ann Greer-Rector
Vice President & Controller
(Principal Accounting Officer)
25
<PAGE>
<TABLE>
USAir Group, Inc.
EXHIBIT 11
COMPUTATION OF PRIMARY
AND FULLY DILUTED EARNINGS PER SHARE
(unaudited)
(in thousands except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Adjustments to Net Income (Loss)
================================
Income (loss) before accounting change $(180,063) $(177,629) $(362,905) $(232,827)
Preferred dividend requirement (19,513) (19,179) (58,068) (54,495)
-------- -------- -------- --------
Net income (loss) applicable to common stock
before accounting change (199,576) (196,808) (420,973) (287,322)
Accounting change - - - (43,749)
-------- -------- -------- --------
Net income (loss) applicable to common stock
and common stock equivalents used for
primary computation (199,576) (196,808) (420,973) (331,071)
Fully Diluted Adjustments
Assume conversion of preferred stock 19,513 19,179 58,068 54,495
-------- -------- -------- --------
Adjusted net income (loss) applicable to
common stock assuming full dilution $(180,063) $(177,629) $(362,905) $(276,576)
======== ======== ======== ========
Adjustments to Shares Outstanding
=================================
Average number of shares of common stock 60,062 59,068 59,654 53,682
Primary Adjustments
Assume exercise of options and common
stock equivalents 1) - - - -
Total average number of common and -------- -------- -------- --------
common equivalent shares used for
primary computation 60,062 59,068 59,654 53,682
======== ======== ======== ========
Average number of shares of common stock 60,062 59,068 59,654 53,682
Fully Diluted Adjustments 2)
Assume exercise of options - 151 11 610
Assume conversion of preferred stock 39,156 39,156 39,156 35,102
Total average number of shares assumed to -------- -------- -------- --------
be outstanding after full conversion 99,218 98,375 98,821 89,394
======== ======== ======== ========
Income (Loss) Per Share
=======================
Primary 1)
Before accounting change $ (3.32) $ (3.33) $ (7.06) $ (5.35)
Effect of accounting change - - - (0.82)
-------- -------- -------- --------
Primary income (loss) per share $ (3.32) $ (3.33) $ (7.06) $ (6.17)
======== ======== ======== ========
Fully diluted 2)
Before accounting change $ (1.81) $ (1.81) $ (3.67) $ (2.60)
Effect of accounting change - - - (0.49)
-------- -------- -------- --------
Fully diluted income (loss) per share $ (1.81) $ (1.81) $ (3.67) $ (3.09)
======== ======== ======== ========
1) The assumed exercise of options and common stock equivalents which are anti-dilutive are not included in the computation
and presentation of primary earnings per share.
2) The assumed exercise of options and conversion of preferred stock are anti-dilutive but are included in accordance with
Regulation S-K Item 601(b)(11).
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 485,572
<SECURITIES> 0
<RECEIVABLES> 492,234<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 329,343
<CURRENT-ASSETS> 1,416,003
<PP&E> 6,352,894
<DEPRECIATION> 2,026,103
<TOTAL-ASSETS> 7,086,221
<CURRENT-LIABILITIES> 2,445,836
<BONDS> 2,772,945
<COMMON> 61,076
758,719
213,153
<OTHER-SE> (889,212)
<TOTAL-LIABILITY-AND-EQUITY> 7,086,221
<SALES> 0
<TOTAL-REVENUES> 5,316,225
<CGS> 0
<TOTAL-COSTS> 5,525,555
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 210,020
<INCOME-PRETAX> (362,905)
<INCOME-TAX> 0
<INCOME-CONTINUING> (362,905)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (362,905)
<EPS-PRIMARY> (7.06)
<EPS-DILUTED> 0<F2>
<FN>
<F1>Receivables are presented net on a quarterly basis.
<F2>Fully diluted EPS are anti-dilutive and therefore not presented.
</FN>
</TABLE>
<PAGE>
<TABLE>
USAir, Inc.
EXHIBIT 99
AIRLINE OPERATING STATISTICS
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
Better Better
1994 1993 (Worse) 1994 1993 (Worse)
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Revenue passengers (thousands) * 15,803 13,964 13.2 % 44,824 39,468 13.6 %
Total revenue passenger miles
("RPMs") (millions) 10,308 9,337 10.4 % 28,978 26,402 9.8 %
Revenue passenger miles
(millions) * 10,199 9,263 10.1 % 28,626 26,166 9.4 %
Total available seat miles
("ASMs") (millions) 16,020 15,376 4.2 % 45,862 44,665 2.7 %
Available seat miles
(millions) * 15,897 15,292 4.0 % 45,466 44,398 2.4 %
Passenger load factor 1) * 64.2 % 60.6 % 3.6 pts. 63.0 % 58.9 % 4.1 pts.
Breakeven load factor 2) 70.5 % 65.0 % (5.5)pts. 67.8 % 61.5 % (6.3)pts.
Passenger revenue per ASM * 9.32 c 9.75 c (4.4)% 9.91 c 10.23 c (3.1)%
Total revenue per ASM 10.15 c 10.59 c (4.2)% 10.79 c 11.03 c (2.2)%
Cost per ASM 10.74 c 10.94 c 1.8 % 11.14 c 11.11 c (0.3)%
Yield (revenue per RPM) * 14.53 c 16.10 c (9.8)% 15.74 c 17.36 c (9.3)%
Cost of fuel per gallon 53.33 c 56.66 c 5.9 % 52.96 c 58.63 c 9.7 %
Gallons of fuel consumed
(millions) 313 296 (5.7)% 901 866 (4.0)%
* Scheduled service only.
c cents.
1) Passenger load factor is the percentage of aircraft seating capacity that is actually
utilized (RPMs/ASMs).
2) Breakeven load factor represents the percentage of aircraft seating capacity that must be
utilized, based on fares in effect during the period, for USAir to break even at the pretax
income level.
</TABLE>
