<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, 1995
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
----- -----
As of October 31, 1995, there were approximately 62,472,000
shares of common stock of USAir Group, Inc. and 1,000 shares of
common stock of USAir, Inc. outstanding.
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, 1995 and 1994 1
Condensed Consolidated Balance Sheets
- September 30, 1995 and December 31, 1994 2
Condensed Consolidated Statements of Cash Flows
- Nine Months Ended September 30, 1995 and 1994 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, 1995 and 1994 7
Condensed Consolidated Balance Sheets
- September 30, 1995 and December 31, 1994 8
Condensed Consolidated Statements of Cash Flows
- Nine Months Ended September 30, 1995 and 1994 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 26
Item 3. Defaults Upon Senior Securities 27
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 33
<PAGE>
<TABLE>
Part I. Financial Information
Item 1A. Financial Statements
USAir Group, Inc.
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1995 and 1994 (Unaudited)
============================================================================================================
(in thousands except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues
Passenger transportation $1,687,824 $1,596,018 $5,078,439 $4,842,460
Cargo and freight 37,889 37,867 118,306 121,967
Other 147,704 116,888 423,063 351,798
--------- --------- --------- ---------
Total operating revenues 1,873,417 1,750,773 5,619,808 5,316,225
Operating Expenses
Personnel costs 730,145 737,993 2,179,066 2,188,567
Aviation fuel 154,223 174,747 477,666 499,429
Commissions 135,400 141,461 431,222 445,462
Aircraft rent 108,718 124,816 329,738 350,506
Other rent and landing fees 105,308 113,719 310,506 328,146
Aircraft maintenance 83,287 106,878 264,928 303,784
Depreciation and amortization 87,912 113,357 263,978 286,611
Other, net 375,775 393,081 1,148,937 1,134,876
--------- --------- --------- ---------
Total operating expenses 1,780,768 1,906,052 5,406,041 5,537,381
--------- --------- --------- ---------
Operating income (loss) 92,649 (155,279) 213,767 (221,156)
Other Income (Expense)
Interest income 13,562 7,471 32,553 18,082
Interest expense (75,065) (71,040) (228,521) (210,020)
Interest capitalized 758 4,473 7,730 8,547
Other, net 17,566 34,312 39,918 41,642
--------- --------- --------- ---------
Other income (expense), net (43,179) (24,784) (148,320) (141,749)
--------- --------- --------- ---------
Income (loss) before taxes 49,470 (180,063) 65,447 (362,905)
Income tax provision (credit) 6,414 - 6,414 -
--------- --------- --------- ---------
Net income (loss) 43,056 (180,063) 59,033 (362,905)
--------- --------- --------- ---------
Preferred dividend requirement (21,415) (19,513) (63,044) (58,068)
--------- --------- --------- ---------
Income (loss) applicable to
common stockholders $ 21,641 $ (199,576) $ (4,011) $ (420,973)
========= ========= ========= =========
Income (loss) per common share $ 0.35 $ (3.32) $ (0.06) $ (7.06)
Shares used for computation (000) 62,571 60,062 62,143 59,654
See accompanying Notes to condensed consolidated financial statements.
</TABLE>
1
<PAGE>
<TABLE>
USAir Group, Inc.
Condensed Consolidated Balance Sheets
September 30, 1995 (unaudited) and December 31, 1994 (dollars in thousands except per share amounts)
============================================================================================================
<CAPTION>
September 30, December 31,
1995 1994
ASSETS ------------- -------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 865,453 $ 429,538
Short-term investments - 22,133
Receivables, net 455,134 324,539
Materials and supplies, net 250,582 258,664
Prepaid expenses and other 120,384 81,642
--------- ---------
Total current assets 1,691,553 1,116,516
Property and Equipment
Flight equipment 5,304,252 5,162,599
Ground property and equipment 1,065,030 1,059,027
Less accumulated depreciation and amortization (2,244,967) (2,085,499)
--------- ---------
4,124,315 4,136,127
Purchase deposits 20,131 195,701
--------- ---------
Property and equipment, net 4,144,446 4,331,828
Other Assets
Goodwill, net 514,576 526,615
Other intangibles, net 303,057 319,711
Other assets, net 523,074 513,372
--------- ---------
Total other assets 1,340,707 1,359,698
--------- ---------
$7,176,706 $6,808,042
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 80,746 $ 85,538
Accounts payable 431,897 318,323
Traffic balances payable and unused tickets 772,563 568,215
Accrued expenses 1,274,597 1,287,977
--------- ---------
Total current liabilities 2,559,803 2,260,053
Long-Term Debt, Net of Current Maturities 2,874,446 2,895,378
Deferred Credits and Other Liabilities
Deferred gains, net 393,489 413,961
Postretirement benefits other than pensions, non-current 1,014,411 958,956
Non-current benefit liabilities and other 402,469 417,878
--------- ---------
Total deferred credits and other liabilities 1,810,369 1,790,795
Commitments and Contingencies
Redeemable Cumulative Convertible Preferred Stock
Series A, 358,000 shares issued, no par value
(redemption value of $402,322 at September 30, 1995) 358,000 358,000
Series F, 30,000 shares issued, no par value
(redemption value of $323,433 at September 30, 1995) 300,000 300,000
Series T, 10,000 shares issued, no par value
(redemption value of $107,815 at September 30, 1995) 100,719 100,719
Stockholders' Equity (Deficit)
Series B cumulative convertible preferred stock, no par value,
4,263,000 depositary shares issued (liquidation preference
of $234,135 at September 30, 1995) 213,153 213,153
Common stock, par value $1 per share, authorized 150,000,000
shares, issued 62,472,000 shares and 61,088,000, respectively 62,472 61,088
Paid-in capital 1,351,387 1,344,336
Retained earnings (deficit) (2,358,465) (2,417,498)
Deferred compensation (88,161) (90,965)
Adjustment for minimum pension liability (7,017) (7,017)
--------- ---------
Total stockholders' equity (deficit) (826,631) (896,903)
--------- ---------
$7,176,706 $6,808,042
========= =========
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, 1995 and 1994 (unaudited) (in thousands)
==========================================================================================================
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash and cash equivalents beginning of period $ 429,538 $ 368,347
Cash flows from operating activities
Net income (loss) 59,033 (362,905)
Adjustments to reconcile net income (loss) to cash provided
by (used for) operating activities
Depreciation and amortization 263,978 286,611
Loss (gain) on disposition of property (13,762) (24,762)
Other (23,506) (25,428)
Changes in certain assets and liabilities
Decrease (increase) in receivables (130,595) (93,414)
Decrease (increase) in materials, supplies,
prepaid expenses and intangible pension assets (12,221) (9,755)
Increase (decrease) in traffic balances payable
and unused tickets 204,348 157,977
Increase (decrease) in accounts payable and
accrued expenses 72,041 92,961
Increase (decrease) in postretirement benefits other
than pensions, non-current 55,455 57,110
-------- --------
Net cash provided by (used for) operating activities 474,771 78,395
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (49,675) (21,571)
Additions to other property (55,561) (92,021)
Proceeds from disposition of property 154,174 34,805
Change in short-term investments 21,994 -
Change in restricted cash and investments 330 2,068
Other (1,421) 861
-------- --------
Net cash provided by (used for) investing activities 69,841 (75,858)
Cash flows from financing activities
Issuance of debt 1,162 222,156
Reduction of debt (118,174) (65,312)
Issuance of common stock 8,315 -
Sale of treasury stock - 7,507
Dividends paid - (49,663)
-------- --------
Net cash provided by (used for) financing activities (108,697) 114,688
-------- --------
Net increase (decrease) in cash and cash equivalents 435,915 117,225
-------- --------
Cash and cash equivalents end of period $ 865,453 $ 485,572
======== ========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions, net $ 162,125 $ 162,139
======== ========
Reduction of debt - aircraft purchase deposits $ 70,837 $ -
======== ========
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., PSA Airlines, Inc. (formerly
Jetstream International Airlines, Inc.), Allegheny Airlines, Inc.
(formerly 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 1994 amounts have been
reclassified to conform with 1995 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, 1994.
(2) Cash and Cash Equivalents and Short-Term Investments
As of September 30, 1995, Cash and Cash Equivalents included
approximately $118 million net proceeds from asset sales, approxi-
mately $76 million of which the Company is required to use to
reduce outstanding debt pursuant to a resolution of its Board of
Directors.
(3) Aircraft Commitments
In June 1995, the Company finalized its agreement with The
Boeing Company ("Boeing") regarding the deferral of eight 757-200
aircraft from 1996 to 1998. As part of the agreement with Boeing,
the due dates for progress payments associated with the 1996
deliveries were likewise rescheduled. Accordingly, approximately
$71 million of progress payments that had been paid by USAir were
refunded to USAir in the third quarter of 1995. The decrease in
equipment deposits and the related long-term debt which financed
the deposits is reflected in the Company's September 30, 1995
financial statements.
4
<PAGE>
The following table of USAir's new aircraft deliveries and
scheduled payments as of September 30, 1995 (including progress
payments, payments at delivery, buyer-furnished equipment, spares
and capitalized interest) reflects USAir's definitive agreement
with Boeing discussed above.
Delivery Period - Firm Orders
-----------------------------------------------------
Remainder There-
1995 1996 1997 1998 1999 after Total
------ ---- ---- ---- ---- ------ -----
Boeing
757-200 - - - 8 - - 8
737 Series - - - - - 40 40
--- --- --- --- --- ----- -----
- - - 8 - 40 48
=== === === === === ===== =====
Payments
(millions) $ - $ 63 $ 74 $256 $ - $1,855 $2,248
=== === === === === ===== =====
In June 1995, USAir revised its commitment to purchase hush
kits for a substantial portion of its 737-200 aircraft. The
installation of the hush kits will bring these aircraft into
compliance with Federal Aviation Administration ("FAA") Stage 3
noise level requirements. The projected payments associated with
the purchase of the hush kits under the revised agreement are: $2
million - remainder of 1995; $29 million - 1996; $30 million -
1997; $30 million - 1998; $17 million - 1999.
(4) Contingencies
In May 1995, the Company, USAir and the Retirement Income
Plan for Pilots of USAir, Inc. (the "Pilots' Pension Plan") were
sued in federal district court for the District of Columbia by 469
active and retired USAir pilots. The lawsuit alleges that USAir
has breached its fiduciary duty under the Employee Retirement
Income Security Act ("ERISA") and otherwise violated ERISA by
erroneously calculating benefits under the Pilots' Pension Plan.
The plaintiffs seek, among other things, an injunction restraining
USAir and the Pilots' Pension Plan from allegedly improperly
calculating benefits under the Pilots' Pension Plan and payments to
plaintiffs of benefits allegedly improperly withheld in an amount
alleged to be equal to approximately $70 million, plus interest.
USAir believes that it has properly calculated benefits under the
Pilots' Pension Plan and intends to vigorously defend itself
against the allegations made in the lawsuit. Because this lawsuit
is in the early stages of litigation, USAir is unable to predict at
this time its ultimate resolution or potential impact on the
Company's pension liability or future funding requirements.
5
<PAGE>
(5) Income Taxes
The Company expects an alternative minimum tax liability for
1995. The provision for income taxes is based on the actual
effective tax rate for the nine-month period ending September 30,
1995. The effective rate differs from the federal statutory rate
of 35% principally due to utilizing net operating loss carry-
forwards that were not previously recorded as a deferred tax asset
and due to state taxes.
(6) Profit Sharing Program
In exchange for temporary wage and salary reductions and
other concessions during a twelve-month period in 1992 and 1993,
including certain ongoing work rule and medical benefits conces-
sions and the freeze of the defined benefit plan for non-contract
employees, affected employees participate in a profit sharing
program and have been granted options to purchase USAir Group
common stock. The profit sharing program is designed to recompense
those employees whose pay had been reduced in an amount equal to
(i) two times salary foregone plus; and (ii) one times salary
foregone (subject to a minimum of $1,000) for the freeze of the
pension plans for non-contract employees. For each year the profit
sharing program is in effect, pre-tax profits, as defined in the
program, of USAir Group, are to be distributed to participating
employees as follows: 25% of the first $100 million in pre-tax
profits; 35% of the next $100 million in pre-tax profits; and 40%
of the pre-tax profits exceeding $200 million. Calculation of pre-
tax profit under the profit sharing plan excludes Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS 106") charges
and certain unusual items. This program will be in effect until
USAir employees are recompensed for salary and pension benefits
foregone. Because the Company is expected to record a pre-tax
profit for full year 1995, it has begun to record charges related
to an anticipated payout under the plan provisions for 1995. Under
the terms of the plan, the cash payout for 1995 would be made in
the first quarter of 1996.
6
<PAGE>
<TABLE>
Part I. Financial Information
Item 1B. Financial Statements
USAir, Inc.
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended September 30, 1995 and 1994 (Unaudited) (in thousands)
============================================================================================================
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues
Passenger transportation $1,561,583 $1,482,214 $4,724,470 $4,506,659
Cargo and freight 36,923 37,111 115,658 119,583
Other 144,300 122,357 419,627 368,170
--------- --------- --------- ---------
Total operating revenues 1,742,806 1,641,682 5,259,755 4,994,412
Operating Expenses
Personnel costs 691,925 702,726 2,077,828 2,084,341
Aviation fuel 146,811 166,811 456,319 476,950
Commissions 126,110 132,677 404,269 419,119
Aircraft rent 98,295 114,227 300,500 317,059
Other rent and landing fees 101,428 109,997 299,146 317,418
Aircraft maintenance 70,306 92,684 226,497 258,199
Depreciation and amortization 84,007 109,599 252,157 269,270
Other, net 357,626 377,144 1,092,326 1,091,479
--------- --------- --------- ---------
Total operating expenses 1,676,508 1,805,865 5,109,042 5,233,835
--------- --------- --------- ---------
Operating income (loss) 66,298 (164,183) 150,713 (239,423)
Other Income (Expense)
Interest income 13,385 7,666 32,158 18,775
Interest expense (75,931) (71,177) (225,526) (209,763)
Interest capitalized 758 4,473 7,730 8,547
Other, net 15,454 27,256 37,711 37,218
--------- --------- --------- ---------
Other income (expense), net (46,334) (31,782) (147,927) (145,223)
--------- --------- --------- ---------
Income (loss) before taxes 19,964 (195,965) 2,786 (384,646)
Income tax provision (credit) 3,365 - 3,365 -
--------- --------- --------- ---------
Net income (loss) $ 16,599 $ (195,965) $ (579) $ (384,646)
========= ========= ========= =========
See accompanying Notes to condensed consolidated financial statements.
</TABLE>
7
<PAGE>
<TABLE>
USAir, Inc.
Condensed Consolidated Balance Sheets
September 30, 1995 (unaudited) and December 31, 1994 (dollars in thousands except per share amount)
===========================================================================================================
<CAPTION>
September 30, December 31,
1995 1994
ASSETS ------------- ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 864,316 $ 428,925
Short-term investments - 22,133
Receivables, net 458,135 326,012
Materials and supplies, net 226,120 238,481
Prepaid expenses and other 101,343 77,111
--------- ---------
Total current assets 1,649,914 1,092,662
Property and Equipment
Flight equipment 5,066,528 4,914,776
Ground property and equipment 1,044,391 1,040,329
Less accumulated depreciation and amortization (2,166,818) (2,006,041)
--------- ---------
3,944,101 3,949,064
Purchase deposits 20,131 195,701
--------- ---------
Property and equipment, net 3,964,232 4,144,765
Other Assets
Goodwill, net 514,576 526,615
Other intangibles, net 302,917 319,229
Other assets, net 593,893 592,689
--------- ---------
Total other assets 1,411,386 1,438,533
--------- ---------
$7,025,532 $6,675,960
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt $ 76,476 $ 80,714
Accounts payable 431,533 305,719
Payable to parent company 124,079 85,175
Traffic balances payable and unused tickets 808,878 591,154
Accrued expenses 1,230,788 1,255,098
--------- ---------
Total current liabilities 2,671,754 2,317,860
Long-Term Debt, Net of Current Maturities 2,830,662 2,849,488
Deferred Credits and Other Liabilities
Deferred gains, net 389,328 409,091
Postretirement benefits other than pensions, non-current 1,014,161 958,706
Non-current benefit liabilities and other 393,391 414,000
--------- ---------
Total deferred credits and other liabilities 1,796,880 1,781,797
Commitments and Contingencies
Stockholder's Equity (Deficit)
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) (2,682,879) (2,682,300)
Adjustment for minimum pension liability (7,017) (7,017)
--------- ---------
Total stockholder's equity (deficit) (273,764) (273,185)
--------- ---------
$7,025,532 $6,675,960
========= =========
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, 1995 and 1994 (Unaudited) (in thousands)
============================================================================================================
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash and cash equivalents beginning of period $ 428,925 $ 367,835
Cash flows from operating activities
Net income (loss) (579) (384,646)
Adjustments to reconcile net loss to cash provided by
(used for) operating activities
Depreciation and amortization 252,157 269,270
Loss (gain) on disposition of property (13,595) (17,350)
Other (21,778) (22,693)
Changes in certain assets and liabilities
Decrease (increase) in receivables (132,123) (47,466)
Decrease (increase) in materials, supplies, prepaid
expenses and intangible pension assets (71) (15,164)
Increase (decrease) in traffic balances payable and
unused tickets 217,724 159,883
Increase (decrease) in accounts payable and accrued
expenses 118,972 101,358
Increase (decrease) in postretirement benefits other
than pensions, non-current 55,455 57,110
--------- ---------
Net cash provided by (used for) operating activities 476,162 100,302
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (49,675) (21,571)
Additions to other property (49,556) (89,035)
Proceeds from disposition of property 151,909 15,328
Change in short-term investments 21,994 -
Change in restricted cash and investments 330 2,068
Other (1,421) 861
--------- ---------
Net cash provided by (used for) investing activities 73,581 (92,349)
Cash flows from financing activities
Issuance of debt - 172,156
Reduction of debt (114,352) (63,427)
--------- ---------
Net cash provided by (used for) financing activities (114,352) 108,729
--------- ---------
Net increase (decrease) in cash and cash equivalents 435,391 116,682
--------- ---------
Cash and cash equivalents end of period $ 864,316 $ 484,517
========= =========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions, net $ 162,125 $ 162,139
========= =========
Reduction of debt - aircraft purchase deposits $ 70,837 $ -
========= =========
Other property acquisitions - transfer from affiliated company $ - $ 7,925
========= =========
Aircraft dispositions - transfer to affiliated company $ - $ 81,913
========= =========
Aircraft acquisitions - transfer from affiliated company $ - $ 3,569
========= =========
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 1994 amounts have been
reclassified to conform with 1995 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, 1994.
(2) Other
Please refer to Notes 2, 3, 4, 5 and 6 in USAir Group's
"Notes to Condensed Consolidated Financial Statements" on Pages 4,
5 and 6 of this report.
(this space intentionally left blank)
10
<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. ("USAir Group" or the "Company").
USAir, Inc. ("USAir") is the Company's principal subsidiary and
currently accounts for approximately 93% of its operating revenues.
Except where noted, the following discussion is based primarily
upon USAir's results of operations and prospects.
USAir Group recorded net income of $43.1 million for the
third quarter of 1995 and net income of $59.0 million for the first
nine months of 1995. USAir, whose results include USAir's wholly-
owned subsidiary USAM Corp., recorded net income of $16.6 million
for the third quarter of 1995 and a net loss of $0.6 million for
the first nine months of 1995. As discussed further in "Results of
Operations" below, the results for the third quarter of 1995, and
for the year through September 30, 1995, represent a significant
improvement over prior year results for both USAir Group and USAir.
The Company expects that, barring unforeseen events, it will
realize net income for the fourth quarter of 1995 and record both
net income and positive earnings available to common shareholders
for the full-year 1995.
USAir Group attributes its improved financial results to
several factors. The Company's airline subsidiaries have experi-
enced stronger than anticipated traffic levels and yields due in
part to a drop in industry capacity in the eastern United States
and less intense low fare competition and fare discounting in 1995
than in 1994. In 1995, several major carriers, including USAir,
have implemented cutbacks in service in the eastern U.S. (see
further discussion of USAir's capacity reductions below). The
"intra-east coast" region currently represents 64% of USAir's
departures and approximately 44% of its capacity, as measured by
available seat miles ("ASMs"). Most notably, Continental Airlines,
Inc. eliminated its low fare, "no-frills" pricing and marketing
strategy, dubbed "Continental Lite," in early 1995. During 1994,
in order to avoid a loss of market share in the eastern U.S., USAir
had responded to Continental Lite's aggressive pricing strategy by
matching most of the fares in markets where the carriers competed
directly. Overall, in 1995, the mature, established carriers have
decreased service in the intra-east coast region by approximately
14% year-over-year. However, other carriers with low costs of
operations and low fare structures have increased the number of
departures in this region during the same time period or have
announced plans to introduce or increase service in this region
(see further discussion of "low cost, low fare" competition below).
The net result is expected to be a decrease in jet capacity in the
intra-east coast region of approximately 4% for the full year 1995
from 1994 levels.
11
<PAGE>
In addition to industry capacity-related factors, USAir's
cost-cutting efforts, as discussed further below, have contributed
positively to the Company's improved results. However, unless
USAir is successful in achieving additional significant cost
reductions, the Company's and USAir's financial results and future
prospects will continue to be adversely affected by USAir's high
cost structure amid the low cost, low fare environment which
characterizes the domestic airline industry.
USAir Group announced in early October 1995 that it has had
preliminary conversations with both AMR Corporation, parent company
of American Airlines, Inc., and UAL Corporation, parent company of
United Air Lines Inc., concerning possible strategic relationships,
up to and including acquisition of USAir Group or USAir. These
discussions are continuing but it is not possible at this time to
predict whether or when these discussions might lead to any
relationship with either company.
Seth E. Schofield, the Chairman of the Board and Chief
Executive Officer of the Company and USAir, announced in September
1995 that he would retire from those positions once a successor was
elected and assumed the duties of those positions. The Boards of
Directors of the Company and USAir had formed a special committee
of non-management directors to conduct a search for Mr. Schofield's
successor. Mr. Schofield subsequently agreed to remain in his
current positions pending the outcome of the discussions with AMR
Corporation and UAL Corporation discussed above, or, depending upon
the results of these discussions, until a successor is elected and
assumes the duties of Chairman of the Board and Chief Executive
Officer of the Company and USAir. Accordingly, the above-described
special committee has suspended its search for a successor.
The Company stated in 1994 and early 1995 that it sought to
reduce its annual operating costs by $1 billion through a combina-
tion of labor and other cost reductions. The Company continued its
efforts to achieve the desired savings during the third quarter of
1995. The original goal was to achieve half of the savings in non-
labor areas and the other half in personnel costs through conces-
sion agreements with both unionized and non-union employees, as
discussed below. USAir has undertaken various organizational and
structural changes, reengineering, and other initiatives, including
the capacity reductions discussed below, which are expected to
result in at least $500 million of savings during 1995 from
otherwise expected levels. The savings are currently expected to
increase to approximately $600 million in 1996 from otherwise
expected levels. USAir has implemented a plan to cut capacity
throughout its system and to emphasize the strengths of its hubs in
Pittsburgh, Charlotte, Philadelphia and Baltimore, as well as other
major east coast urban centers. The further emphasis on hub
operations is aimed at reducing the number of point-to-point
flights (flights between cities that are not USAir hubs). In
addition, USAir has shifted its focus for transatlantic operations
from Charlotte and Pittsburgh to Boston and Philadelphia to take
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<PAGE>
advantage of the larger population bases in those cities. USAir's
capacity (ASMs) for full year 1995 is expected to decrease by
approximately 4 1/2% from 1994 levels. The capacity reductions are
focused on either eliminating redundant or unprofitable routes or
replacing jet service with service provided by USAir's regional
affiliates using turboprop aircraft. By the end of 1995, USAir
expects to have reduced its operating fleet by a net thirty jet
aircraft from December 31, 1994 levels through sales, leases, lease
returns and groundings. USAir expects that its "right-sizing
initiatives" will produce substantial financial benefits which
USAir has begun to realize during the second half of 1995.
USAir has announced that it will phase out the "wet lease"
arrangements with British Airways Plc ("BA") during the first half
of 1996. Under the wet lease arrangements, USAir has leased three
Boeing 767-200ER aircraft, along with cockpit and cabin crews, to
BA in order to serve three routes between the U.S. and London. In
conjunction with the termination of the wet lease arrangements and
related to USAir's relinquishment or divestiture of certain routes
to the U.K at the time of implementation of a code sharing
arrangement with BA, BA has agreed to pay USAir a total of $47
million in the form of periodic payments commencing with the
termination of the three wet leases and continuing annually for
nine years. Upon termination of the wet lease arrangements, USAir
plans to utilize the returned aircraft in either its long-haul
domestic service or for additional international opportunities
which it is currently pursuing. USAir has applied to the U.S.
Department of Transportation (the "DOT") for authority to begin
service between Rome, Italy and Philadelphia with through service
to Los Angeles and between Boston and Paris, France. The DOT is
expected to select one U.S. airline to serve Italy beginning in the
spring of 1996. USAir is one of three U.S. airlines seeking that
authority. New U.S. airline service to France is currently
constrained by the absence of a bilateral aviation agreement
between the U.S. and France. In October 1995, the DOT granted
USAir a two-year exemption route authority to operate between
Madrid, Spain and both Philadelphia and Boston. USAir plans to
commence service from Philadelphia to Madrid in June 1996,
depending on Spanish government approval.
In June 1995, the DOT renewed its approval of the Company's
and BA's authority to operate code share service on flights serving
66 U.S. cities. In addition, the DOT approved an expansion of the
USAir and BA code share authority to 65 new U.S. cities, Bermuda,
Nassau and five Canadian cities. The approval is valid for two
years. As of September 30, 1995, USAir had implemented code
sharing to 68 of the 136 airports currently authorized by the DOT.
BA has publicly announced that its relationship with USAir has
contributed over $100 million in additional revenues and cost
savings. The Company believes that the benefits to USAir have also
been significant. The code share arrangement with BA is an
important part of the Company's strategic and long-term objectives.
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<PAGE>
The other component of the billion dollar reduction in
USAir's costs referred to above is a significant reduction in
personnel costs. Accordingly, the Company began negotiating with
USAir's organized labor groups in March 1994 with the goal of
reducing annual personnel costs by approximately $500 million
through voluntary concession agreements involving wage and benefit
reductions, improved productivity and other cost savings. During
the spring of 1995, the Company reached agreements in principle
with each of USAir's major unions, but those tentative agreements
were conditioned on, among other things, ratification by the
members of each labor group and the approval of USAir Group's
stockholders and USAir Group's and USAir's Boards of Directors.
These agreements in principle provided for wage and other conces-
sions in exchange for equity participation in USAir Group and
representation on USAir Group's Board of Directors for USAir's
employees. The membership of the Association of Flight Attendants
(the "AFA"), which represents USAir's flight attendants, voted not
to ratify its agreement in principle, and the other labor groups
did not submit the tentative agreements to their membership for
ratification. After the agreements in principle were reached, the
Company continued negotiations with the Air Line Pilots Association
("ALPA"), which represents USAir's pilots, to try to resolve open
issues related to its tentative agreement. However, in late
July 1995, the Company announced that it was ending discussions
with the unions on the wage concession and restructuring package
due to an impasse on additional key economic and efficiency issues.
The Company continues to believe that USAir's long-term
future depends on reduced costs of operation, including lower
personnel costs. The Company remains committed to obtaining the
necessary labor cost reductions and intends to pursue its cost-
cutting efforts through the collective bargaining process. The
contract with the International Association of Machinists (the
"IAM") became open for negotiations on October 1, 1995. USAir and
the IAM have begun the bargaining process. ALPA's contract will be
open for negotiation in May 1996. The contract of the AFA becomes
amendable on January 1, 1997. At this early stage it is not
possible to predict whether USAir will be successful in achieving
its desired personnel cost savings. It is also not possible at
this time to predict how long it will take to conclude collective
bargaining negotiations, which are subject to procedures mandated
by the Railway Labor Act, although these negotiations traditionally
take one or more years from the time a contract becomes amendable,
as described in the following paragraph.
Under the Railway Labor Act, a labor contract does not
"expire," but rather becomes amendable on a certain date. Thirty
days prior to that date, either party to the contract may give
notice to the other of its intention to amend the contract, at
which point the collective bargaining process begins. If, after a
period of negotiations, the parties cannot reach an agreement, a
federal mediator from the National Mediation Board is brought in to
assist. The process of mediation continues until the National
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Mediation Board determines, at its sole discretion, that the
parties have reached an impasse. At that point, the parties enter
a thirty-day "cooling off" period before either party may employ
so-called self-help (e.g., the imposition of contract changes by
the company or a strike by the union). While in negotiations and
mediation, both parties are bound by the contractual terms that
were in effect prior to the commencement of the collective
bargaining process.
As noted above, unless USAir is successful in achieving
additional significant cost reductions, USAir Group's and USAir's
financial results and future prospects will continue to be
adversely affected by USAir's high cost structure amid the low
cost, low fare environment which characterizes the domestic airline
industry. Southwest Airlines, Inc. ("Southwest"), a low cost, low
fare, "no frills" air carrier, has announced that it will begin
service to and within Florida in January 1996. Southwest will
serve Florida from, among other cities, Baltimore and Indianapolis.
USAir offers service to Florida from both of these locations. In
addition, Baltimore/Washington International Airport is one of
USAir's hub airports. Further, Southwest's planned intra-Florida
service will compete directly with USAir's regional affiliates.
Southwest is reportedly scheduled to take delivery of an average of
22 new aircraft per year between now and the year 2000. As of
June 30, 1995, Southwest had 210 aircraft in its fleet. Southwest
could continue to expand into markets served by USAir or its
regional affiliates. In early 1995, Southwest announced that it
had reached a ten year agreement with its pilots that provides for
no wage increases for the first five years, providing for grants of
stock options to the pilots instead. Southwest has a significant
cost advantage over USAir, particularly with regard to personnel
costs.
ValuJet Airlines, Inc. ("ValuJet"), another low cost, low
fare carrier, has recently announced that it has reached an
agreement with the McDonnell Douglas Corporation ("McDonnell
Douglas") to purchase 50 MD-95 aircraft with deliveries beginning
in mid-1999, with options for an additional 50 MD-95 aircraft.
Further, ValuJet will reportedly purchase eight other aircraft from
McDonnell Douglas before it begins receiving the MD-95 aircraft.
These aircraft, if acquired by ValuJet, will likely be employed in
the eastern United States and may be used in markets served by
USAir or its regional affiliates. As of June 30, 1995, ValuJet had
28 aircraft in its operating fleet. ValuJet also holds a signifi-
cant cost advantage over USAir.
In addition to Southwest and ValuJet, new low cost, low fare
airlines, including but not limited to Carnival Air Lines, Inc.,
Kiwi International Air Lines, Inc., Air South, Inc., AirTran
Airways and Eastwind Airlines have initiated or announced plans to
initiate service in some markets served by USAir and its regional
airline affiliates. Other carriers, including some of the larger
carriers, have also developed or indicated their intention to
15
<PAGE>
develop similar low fare short-haul service, such as United's low
cost, low fare operation in the western United States. Delta
Airlines, Inc. is reportedly considering starting a low cost, "no
frills" short-haul service to compete with airlines such as
Southwest and ValuJet. Incursions by Southwest, ValuJet, and other
low cost, low fare carriers, have had and are expected to continue
to have an adverse affect on USAir's financial condition and
results of operations and further emphasize the need for USAir to
achieve a significant reduction in personnel costs.
USAir Group announced in September 1994 that it had elected
to defer quarterly dividends on all outstanding series of preferred
stock. USAir Group, organized under the laws of the State of
Delaware, is subject to statutory restrictions on the payment of
dividends according to capital surplus requirements of Delaware
law. As of September 30, 1995, the Company's capital surplus was
exhausted. Presently, under Delaware law, the Company is legally
restricted from paying dividends on all outstanding common and
preferred stock issuances. As of September 30, 1995, the Company's
capital deficit position, as calculated in accordance with Delaware
law, was approximately $130.4 million. In order for the Company to
return to a capital surplus position, it must realize substantial
profits or increase its equity through other measures, such as the
sale of additional common or preferred stock. Even if the Company
is successful in restructuring its costs, there can be no assurance
when or if preferred dividend payments will resume. As of Septem-
ber 30, 1995, the aggregate balance of deferred dividends (includ-
ing interest) on the Company's four outstanding series of preferred
stock, each of which is cumulative with respect to scheduled
dividend payments, was approximately $95.8 million.
Pursuant to the Company's Investment Agreement with BA, BA
has to date invested approximately $400 million in certain
preferred stock of USAir Group. The deadline for BA's election to
purchase 50,000 shares of Series C Cumulative Convertible Senior
Preferred Stock (the "Series C Preferred Stock") and therefore, to
elect to make any further investment in USAir Group pursuant to the
Investment Agreement, is January 21, 1996. BA has the option to
purchase the Series C Preferred Stock for a purchase price of
$10,000 per share, to be paid by the payment of $200 million and
BA's surrender of the 30,000 shares of Series F Cumulative
Convertible Senior Preferred Stock, without par value (the "Series
F Preferred Stock"), currently held by a BA affiliate. If BA has
not elected to purchase the Series C Preferred Stock by January 21,
1996, then USAir Group may at its option redeem, in whole or in
part, the Series F Preferred Stock, and a like percentage of the
Series T Cumulative Convertible Exchangeable Senior Preferred
Stock, without par value (the "Series T Preferred Stock"), also
held by an affiliate of BA, at the higher of market value or the
price of $10,000 per share, plus accrued dividends. USAir Group's
capital surplus is currently exhausted, as discussed above, and
therefore, under Delaware law, USAir Group is subject to certain
legal prohibitions on its ability to repurchase or redeem its own
16
<PAGE>
shares of capital stock for cash or other property. In addition,
there exist certain DOT restrictions on additional BA investments
in USAir Group.
Under the terms of the 9 1/4 % Series A Cumulative Convert-
ible Redeemable Preferred Stock, without par value, its holder, an
affiliate of Berkshire Hathaway Inc. ("Berkshire"), has the right
to elect two additional directors to USAir Group's Board of
Directors after a scheduled dividend payment has not been made for
thirty days. Berkshire has informed the Company that it does not
intend to exercise its right at this time. Under the terms of the
publicly-held Series B Cumulative Convertible Preferred Stock
("Series B Preferred Stock"), its holders have the right to elect
two additional directors to USAir Group's Board of Directors if six
quarterly dividends are not paid. That right will become effective
on February 15, 1996 if dividends are not resumed prior to that
time. If Berkshire were to exercise its right and the holders of
the Series B Preferred Stock were to exercise their right to
nominate additional directors to the Company's Board of Directors,
BA would have the right to designate additional nominees for
election as directors to the Company's Board of Directors pursuant
to its Investment Agreement with the Company.
The DOT has completed its study of the Federal Aviation
Administration's High Density Traffic Airport Rule, which limits
the number of permitted take-offs and landings at four U.S.
airports, including New York's LaGuardia Airport ("LaGuardia") and
Washington National Airport ("National"). The DOT has indicated
that it intends to maintain these limitations. USAir holds a
substantial number of take-off and landing slots at LaGuardia and
National. These slots are valuable assets and important in USAir's
overall strategy.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1995
Compared With
Nine Months Ended September 30, 1994
USAir Group recorded net income of $59.0 million for the
first nine months of 1995 compared with a net loss of $362.9
million for the same period of 1994. USAir's net loss of $0.6
million for the first nine months of 1995 represents a $384.1
million improvement versus the results for the same period of 1994.
The Company's year-over-year improvement in net income
reflects a $303.6 million (5.7%) revenue increase coupled with a
decrease in operating expenses of approximately $131.3 million
(2.4%). Not considering the unusual items recognized in the third
quarter of 1994, as discussed further below, the Company's
operating costs decreased approximately 1.2% year-over-year.
USAir's yield, or revenue per revenue passenger mile, was 4.8%
higher for the first nine months of 1995 as compared to 1994.
17
<PAGE>
USAir's improved yields have been sufficient to offset the
effect on revenues of a 4.1% decrease in passengers year-over-year.
Based on current projections, USAir expects that for the fourth
quarter of 1995 its yield will be approximately 13% higher than
during the fourth quarter of 1994. In addition, the Company
expects that USAir's capacity, as measured by available seat miles
(ASMs), will be down approximately 11 1/2% and USAir's unit cost
(or operating cost per ASM) will be approximately 12% to 13% higher
during the fourth quarter 1995 versus the same time period in 1994,
excluding the profit share expense (see "Liquidity and Capital
Resources" below). The expected increase in unit costs for the
fourth quarter of 1995 is due primarily to the reduction in
capacity as well as contractual and longevity wage increases for
certain employee groups which became effective in 1995.
As noted above, USAir's yield has increased throughout 1995
in relation to 1994 and is expected to be significantly higher in
the fourth quarter of 1995 versus the fourth quarter of 1994.
Nonetheless, the Company believes that for the foreseeable future,
while the demand for higher yield "business fares" will remain
essentially flat and relatively inelastic, the lower yield
"leisure" market, which is affected by the general economy, will
remain highly price sensitive. This trend will make it more
difficult for the domestic airlines, including USAir, to sustain
meaningful yield increases in the long run. Therefore, USAir
believes that it must reduce its cost structure in order to ensure
long-term financial stability.
The Company and USAir recognize taxes paid on jet fuel and
jet fuel purchases as an other operating expense. In August 1993,
federal legislation was enacted that imposed a 4.3 cents per gallon
tax on most transportation fuels, including jet fuel, beginning
October 1, 1993. However, the airline industry was exempt from
this tax until October 1, 1995. Imposition of the jet fuel tax
would result in an additional operating expense to USAir of
approximately $50 million annually, based on 1995 activity levels.
The industry is actively seeking to have the exemption extended or
made permanent. In mid-October 1995, the House of Representatives
Committee on Ways and Means approved a two year extension of the
exemption. The Senate Finance Committee approved a 17 month
exemption. The issue is expected to go to conference committee for
reconciliation shortly. There can be no assurance that any
legislation extending the exemption will be enacted. The Treasury
intends to collect the tax unless and until Congress acts to extend
or make permanent any extension of the exemption that was in effect
until October 1, 1995.
The Company's financial results for the first nine months of
1994 included several unusual items: (i) a $40.1 million charge
primarily related to USAir's decision to cease operations of its
remaining Boeing 727-200 aircraft in 1995 (the last operational
727-200 aircraft was retired from service in September 1995); (ii)
a $25.9 million charge related to USAir's decision to reduce
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<PAGE>
substantially service between Los Angeles and San Francisco in
November 1994; (iii) a $28.3 million gain resulting from the sale
of certain regional aircraft and assets to Mesa Airlines ("Mesa")
and the accounting treatment of the hull insurance recovery on the
aircraft lost in the September 1994 accident; and (iv) a $1.7
million restructuring charge related to the sale of certain
regional assets to Mesa. The following table indicates where these
items appear in the Company's condensed consolidated statements of
operations found in Part 1, Item 1A of this report ($ millions,
brackets denote expense):
Fleet Asset
(B727- LAX-SFO Disposi-
Line Item 200) Changes tions Total
- -------------------- ------ ------- ------- -------
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, net (10.1) (7.4) (1.7) (19.2)
----- ----- ----- -----
Total operating $(40.1) $(25.9) $ (1.7) $(67.7)
===== ===== ===== =====
Other Income $ - $ - $ 28.3 $ 28.3
===== ===== ===== =====
There are no material unusual items included in the Company's
financial results for 1995.
Operating Revenues - The Company's $236.0 million (4.9%)
increase in Passenger Transportation Revenue is primarily the
result of USAir's $217.8 million (4.8%) improvement. USAir's
passenger traffic, measured by revenue passenger miles ("RPMs"),
improved 0.2% over 1994 levels despite a capacity (ASMs) reduction
of approximately 2.0% year-over-year. USAir's passenger load
factor increased 1.3 percentage points to 64.3%. USAir's yield
increased 4.8% as a result of generally higher fare levels in the
second and third quarters of 1995 which is partially due to a drop
in industry capacity in the eastern United States and less intense
low fare competition and fare discounting year-over-year. The
Company estimates that its revenues were adversely affected by
approximately $50 million in the first quarter of 1994 as a result
of severe winter weather in the northeast United States and by
approximately $40 million in the third quarter of 1994 due to the
two aircraft accidents that occurred during that period. See
Exhibit 99 for USAir operating and financial statistics. The
Company's Other Revenue increased $71.3 million (20.3%) largely due
to USAir's $51.5 million (14.0%) improvement which includes an
increase in frequent traveler program participant fees and
increased revenues from aircraft lease arrangements.
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<PAGE>
Operating Expenses - The Company's and USAir's Personnel
Costs were relatively flat for the first nine months of 1995 as
compared with 1994. USAir's pilots, flight attendants, and
mechanics have received contractual salary increases within the
past year which were offset overall by efficiencies and lower
levels of personnel. Aviation Fuel expense was down $21.8 million
(4.4%) mainly due to decreased capacity year-over-year. Jet fuel
prices are subject to market changes in response to the pricing of
crude oil and the demand for other refined petroleum products (see
discussion above related to jet fuel tax legislation). The
Company's Commissions expense decreased $14.2 million (3.2%)
despite the increase in passenger revenue, due to a change in the
rate structure for travel agency commissions that went into effect
in early 1995. Aircraft Rent and Other Rent and Landing Fees
decreased $20.8 million (5.9%) and $17.6 million (5.4%), respec-
tively, due mainly to capacity reductions at USAir. Aircraft Rent
expense in 1994 included an unusual charge of $12.8 million related
to the phase-out of the 727-200 aircraft (part of the $40.1 million
charge discussed above). USAir's operating fleet included 14 fewer
leased aircraft at September 30, 1995 than at September 30, 1994.
Aircraft Maintenance expense decreased $38.9 million (12.8%) due to
USAir's $31.7 million (12.3%) improvement related mainly to fewer
aircraft in USAir's operating fleet year-over-year, timing factors
and a $7.2 million improvement at the Company's regional airline
subsidiaries resulting from the replacement of certain regional
aircraft with new models. 1994 activity includes an unusual charge
of $9.1 million related to the phase-out of the 727-200 aircraft
(part of the $40.1 million charge discussed above). Depreciation
and Amortization decreased $22.6 million (7.9%). Excluding unusual
items of $26.3 million recorded in 1994, as discussed above,
Depreciation and Amortization expense increased approximately $3.7
million (1.4%) year-over-year due to the addition of seven Boeing
757-200 aircraft to USAir's operating fleet during 1995. The
Company's Other Expense, net increased $14.1 million (1.2%) and
$33.3 million (3.0%) if the unusual items discussed above are
excluded from 1994 results. The increase is primarily attributable
to increases in expenses associated with increased sales activities
and the other revenue category offset by decreases in certain
capacity-related expenses. See also the discussion above related
to jet fuel tax legislation.
Other Income (Expense) - The Company's and USAir's Interest
Income improved $14.5 million (80.0%) and $13.4 million (71.3%),
respectively, as a result of significantly higher cash levels in
1995. The Company's Interest Expense increased $18.5 million
(8.8%) mainly as a result of increased levels of debt at USAir and
one of the Company's regional airline subsidiaries. Interest
Capitalized decreased $0.8 million (9.6%) due mainly to USAir's
June 1995 agreement with The Boeing Company ("Boeing") to defer
delivery of certain 757-200 aircraft from 1996 to 1998 (see
footnote 3 to USAir Group's condensed consolidated financial
statements contained in Part 1, Item 1A of this report). The
Company's Other, net decreased $1.7 million (4.1%), primarily due
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<PAGE>
to gains realized by USAir on aircraft sales during 1995 and the
increased income realized by USAir on its computer reservation
system investments offset by the $28.3 million gain recognized in
the third quarter of 1994, as discussed further above. USAir
recognized a gain of $6.0 million during the third quarter of 1995
related to the sale of seven Boeing 737-300 aircraft to the General
Electric Capital Corporation ("GECC").
Three Months Ended September 30, 1995
Compared With
Three Months Ended September 30, 1994
The Company recorded net income of $43.1 million for the
third quarter of 1995 compared with a net loss of $180.1 million
for the same period of 1994. The year-over-year improvement in net
income reflects a $122.6 million (7.0%) revenue increase coupled
with a $125.3 million (6.6%) decrease in operating expenses.
The results for the third quarter of 1994 include the same
unusual items illustrated in the table included with the above
discussion of results for the nine months ended September 30, 1995.
There are no material unusual items included in the Company's
results for the third quarter of 1995.
Operating Revenues - The Company's Passenger Transportation
Revenue increased $91.8 million (5.8%) as a result of USAir's $79.4
million (5.4%) increase. USAir's yield increased 12.0% in the
third quarter of 1995 versus the same period in 1994 due to
generally higher fare levels quarter-over-quarter which is
partially due to a drop in industry capacity in the eastern United
States and less intense low fare competition and fare discounting
period-over-period. The increase in yield was sufficient to offset
the revenue impact of a 5.8% decrease in passenger traffic, as
measured by RPMs. In addition, USAir's cost-cutting efforts,
including the capacity reductions discussed above, have contributed
positively to the improved results. In the third quarter of 1995,
USAir's capacity (ASMs), decreased by 9.1% and its capacity
utilization (load factor) increased by 2.3 percentage points over
the third quarter of 1994. The Company estimates that revenues
were adversely affected by approximately $40 million in the third
quarter of 1994 due to the two aircraft accidents that occurred
during that period. See Exhibit 99 for USAir operating and
financial statistics. The Company's Other Revenue improved by
$30.8 million (26.4%) largely due to USAir's $21.9 million (17.9%)
improvement which includes an increase in frequent traveler program
participant fees and increased revenues from aircraft lease
arrangements.
Operating Expenses - The Company's Aviation Fuel expense
decreased $20.5 million (11.7%) mainly as the result of USAir's
9.1% decrease in capacity quarter-over-quarter (see discussion
above related to jet fuel tax legislation). The Company's
Commissions expense decreased $6.1 million (4.3%) despite the
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<PAGE>
increase in passenger revenues, due to a change in the rate
structure for travel agency commissions which went into effect
during February 1995. Aircraft Rent and Other Rent and Landing
Fees decreased $16.1 million (12.9%) and $8.4 million (7.4%),
respectively, due mainly to capacity reductions at USAir period-
over-period. In addition, Aircraft Rent expense in 1994 included
an unusual charge of $12.8 million related to the phase-out of the
727-200 aircraft (part of the $40.1 million charge explained above
in the discussion of results for the nine months ended Septem-
ber 30, 1995). Aircraft Maintenance expense decreased $23.6
million (22.1%) as a result of USAir's $22.4 million (24.1%)
decrease which is due mainly to fewer aircraft in USAir's fleet
period-over-period, timing factors and the effects of the unusual
charge of $9.1 million recorded in the third quarter of 1994
related to the phase-out of 727-200 aircraft from USAir's operating
fleet (part of the $40.1 million charge explained above in the
discussion of results for the nine months ended September 30,
1995). Depreciation and Amortization expense decreased $25.4
million (22.4%). Excluding unusual items totaling $26.3 million
recorded in 1994 (part of the $40.1 million and the $25.9 million
charges explained above in the discussion of results for the nine
months ended September 30, 1995), Depreciation and Amortization
expense increased $0.9 million (1.0%) quarter-over-quarter due
mainly to the addition of seven Boeing 757-200 aircraft to USAir's
operating fleet during 1995. The Company's Other Expense, net is
$17.3 million (4.4%) lower than 1994 but relatively unchanged if
the unusual items recorded in the third quarter of 1994 totaling
$19.2 million are excluded (see the explanation of the 1994 unusual
items explained above in the discussion of results for the nine
months ended September 30, 1995). Increases in sales-related
expenses and expenses related to the other revenue category have
been largely offset by decreases in capacity-related expenses. See
also the discussion above related to jet fuel tax legislation.
Other Income (Expense) - The Company's and USAir's Interest
Income improved $6.1 million (81.5%) and $5.7 million (74.6%),
respectively, as a result of significantly higher cash levels in
1995. The Company's Interest Expense increased $4.0 million (5.7%)
as a result of increased levels of debt at USAir and one of the
Company's regional airline subsidiaries. Interest Capitalized
decreased $3.7 million (83.1%) due to USAir's June 1995 agreement
with Boeing to defer delivery of certain aircraft from 1996 to 1998
(see footnote 3 to USAir Group's condensed consolidated financial
statements contained in Part 1, Item 1A of this report). Other,
net is $16.7 million unfavorable versus prior year results
primarily due to gains realized by USAir on the aircraft sales to
GECC and the increased income realized by USAir on its computer
reservation system investments offset by the $28.3 million gain
discussed above recorded in the third quarter of 1994.
22
<PAGE>
Liquidity and Capital Resources
Cash provided by operations was $474.8 million for the first
nine months of 1995. As of September 30, 1995, Cash and Cash
Equivalents totaled approximately $865.5 million, including
approximately $118 million net proceeds from asset sales. Pursuant
to a resolution of its Board of Directors, the Company is required
to repurchase, defease, or redeem with net proceeds from asset
sales USAir's $76 million of 12 7/8% senior debentures due April 1,
2000 outstanding at September 30, 1995; although the resolution
does not specify a date for this action to occur, the Company
currently intends to redeem these debentures as soon as practica-
ble. In addition to the Company's Cash and Cash Equivalents of
$865.5 million, USAir had $159.2 million which was deposited in
trust accounts to collateralize letters of credit or workers
compensation policies and classified as "Other Assets" as of
September 30, 1995.
The Company and USAir are highly leveraged. In order to meet
debt service, lease rental payments and other obligations and to
finance daily operations, the Company and USAir require substantial
liquidity and working capital. Developments beyond the control of
the Company and USAir might occur which could have a material
adverse affect on the Company's prospects, liquidity and financial
condition, including a downturn in the economy, adverse regulatory
changes, intensified or prolonged industry fare discounting,
substantial increases in jet fuel prices or jet fuel taxes, adverse
weather conditions, negative public perception regarding safety, or
further incursions by low cost, low fare carriers in USAir's
markets.
However, based on current projections, the Company expects
that its cash balance will be more than sufficient to meet its
liquidity requirements for the remainder of 1995 and for 1996.
Depending on market, economic and other factors, the Company's
expectations of liquidity are subject to change. In addition, the
Company has entered into agreements to sell four Boeing 737-300
aircraft during the fourth quarter of 1995. Net proceeds from
these sales are expected to be approximately $61.7 million.
In exchange for temporary wage and salary reductions and
other concessions during a twelve month period in 1992 and 1993,
including certain ongoing work rule and medical benefits conces-
sions and the freeze of the defined benefit plan for non-contract
employees, affected employees participate in a profit sharing
program and have been granted options to purchase USAir Group
common stock. The profit sharing program is designed to recompense
those employees whose pay had been reduced in an amount equal to
(i) two times salary foregone plus; (ii) one times salary foregone
(subject to a minimum of $1,000) for the freeze of the pension
plans for non-contract employees. For each year the profit sharing
program is in effect, pre-tax profits, as defined in the program,
of USAir Group, are to be distributed to participating employees as
23
<PAGE>
follows: 25% of the first $100 million in pre-tax profits; 35% of
the next $100 million in pre-tax profits; and 40% of the pre-tax
profits exceeding $200 million. Calculation of pre-tax profit
under the profit sharing plan excludes Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-
retirement Benefits Other Than Pensions" ("FAS 106") charges and
certain unusual items. This program will be in effect until USAir
employees are recompensed for salary and pension benefits foregone.
Because the Company is expected to record a pre-tax profit for full
year 1995, it has begun to record charges related to an anticipated
payout under the plan provisions for 1995. Under the terms of the
plan, the cash payout for 1995 will be made in the first quarter of
1996.
In February 1995, the National Transportation Safety Board
(the "NTSB") proposed new requirements for U.S. commercial aircraft
flight data recorders. The Federal Aviation Administration (the
"FAA") has indicated that it would be physically impossible and
excessively costly for airlines to comply with an NTSB-proposed
December 31, 1995 deadline related to Boeing 737-300 aircraft and
has declined to require U.S. airlines to comply with the proposed
deadline. The FAA is expected to make a final proposal on the new
requirements by the end of 1995. The ultimate requirements could
involve a significant capital outlay by USAir. However, the timing
of expenditures and ultimate cost of the program cannot be
determined until the FAA completes its rulemaking.
Investing activities during the first nine months of 1995
included cash inflows of $154.2 million from disposition of assets
(primarily from nine Boeing 737-300 aircraft which were sold),
offset by a $105.3 million cash outflow for the acquisition of
assets ($49.7 million cash payments related to new 757-200 aircraft
and $55.6 million cash payments related to the purchase of
rotables, hush kits, and various ground support equipment). Net
cash provided by investing activities during the first nine months
of 1995 was $69.8 million.
Financing activities during the first nine months of 1995
included $118.2 million of debt payments, partially offset by $8.3
million in cash proceeds from the sale of the Company's common
stock to an employee benefit plan stock fund and new debt of $1.2
million incurred at one of the Company's regional airline subsid-
iaries. In addition, the Company incurred debt of $162.1 million
associated with the delivery of seven new Boeing 757-200 aircraft
and scheduled aircraft progress payments for future deliveries
during the first nine months of 1995. USAir also rescheduled the
due date of $70.8 million of previously satisfied aircraft purchase
deposits into the future resulting in a reduction of both debt and
equipment deposits (see Note 3 to the Company's condensed consoli-
dated financial statements included in Part 1, Item 1A of this
report for additional information). The $162.1 million and $70.8
million amounts are reflected as non-cash activity in USAir Group's
Condensed Consolidated Statements of Cash Flows found in Part 1,
24
<PAGE>
Item 1A of this report because USAir experienced an increase or
decrease in fixed assets or equipment deposits concurrently with
the increase or decrease in debt. In early July, USAir accepted
the last 757-200 scheduled for delivery in 1995.
At September 30, 1995, USAir Group's ratio of current assets
to current liabilities was 0.66 to 1 and the debt component of
USAir Group's capitalization structure was greater than 100% (also
greater than 100% if the three series of mandatorily redeemable
preferred stock are considered to be debt) due to a net capital
deficiency.
(this space intentionally left blank)
25
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
In October 1995, USAir terminated for cause an agreement with
In-Flight Phone Corporation ("IFPC"). IFPC was USAir's provider of
on-board telephone and interactive data systems (the "IFPC
System"). The agreement contemplated the eventual installation of
the IFPC System on approximately 380 USAir aircraft. The IFPC
System had been installed on approximately 80 aircraft prior to the
date of termination of the agreement. IFPC has threatened suit
against USAir claiming, among other things, that USAir wrongfully
terminated the IFPC agreement and that IFPC will suffer irreparable
harm. IFPC has stated that it will seek equitable relief and
damages. IFPC's claim is for in excess of $180 million. USAir
believes that its termination was appropriate and that it is owed
in excess of $1.6 million by IFPC. MCI Communications Corporation
("MCI"), a major investor in IFPC, has made proposals to the
Company as an inducement for USAir to rescind its termination of
the agreement. The Company is evaluating these proposals.
However, USAir is unable to predict at this time the result of its
discussions with MCI and IFPC or the ultimate resolution or
potential financial impact on USAir's financial condition and
results of operations of this potential lawsuit.
In July 1995, USAir received a Civil Investigative Demand (a
"CID") from the U.S. Department of Justice (the "DOJ") requiring
USAir to produce certain information pertaining to what the DOJ
called "possible predatory behavior" toward ValuJet Airlines and
Nations Air Express in certain city pairs. USAir has complied with
the requirements of the CID. USAir believes that its scheduling
and pricing are legitimate competitive responses to these new
entrants and that there is no basis in law or fact for a finding of
predation. On November 2, 1995, the Company's counsel was advised
by the DOJ that the investigation had been closed.
In February and March 1995, several class action lawsuits
were filed in various federal district courts by travel agencies
and a travel agency trade association alleging that most of the
major U.S. airlines, including USAir, violated the antitrust laws
when they individually capped travel agent base commissions at $50
for round-trip domestic tickets with base fares above $500 and at
$25 for one-way domestic tickets with base fares above $250. The
lawsuits have been consolidated in the federal district of
Minnesota. The plaintiffs are seeking unspecified treble damages
for restraint of trade. The case is expected to go to a jury trial
next year. While USAir believes that its actions in establishing
a commissions cap were in full compliance with the antitrust laws,
USAir is unable to predict at this time the ultimate resolution of
the litigation or the potential impact on USAir's financial
condition and results of operations.
26
<PAGE>
For information on certain additional pending legal proceed-
ings see Part I. Item 3. - "Legal Proceedings" in the combined
Annual Report of USAir Group and USAir on Form 10-K for the year
ended December 31, 1994 and Part II. Item 1. - "Legal Proceedings"
in the combined Quarterly Reports of USAir Group and USAir on Form
10-Q for the quarters ended March 31, 1995 and June 30, 1995.
Item 3. Defaults Upon Senior Securities
The Company is currently in a capital deficit position.
Presently, under Delaware law, the Company is legally restricted
from paying dividends. The Company deferred quarterly dividend
payments on all outstanding series of its preferred stock beginning
with payments due September 30, 1994. The outstanding issues of
preferred stock are: 9 1/4% Series A Cumulative Convertible
Redeemable Preferred Stock ("Series A Preferred Stock") owned by
affiliates of Berkshire Hathaway, Inc.; Series F Cumulative
Convertible Senior Preferred Stock ("Series F Preferred Stock") and
Series T Cumulative Convertible Exchangeable Senior Preferred Stock
("Series T Preferred Stock") owned by an affiliate of British
Airways Plc; and Series B Cumulative Convertible Preferred Stock
("Series B Preferred Stock") which is publicly held.
The redemption value of the Series A Preferred Stock at
September 30, 1995 was $402.3 million (face amount of $358.0
million plus deferred dividends and interest thereon of $44.3
million). The redemption values of the Series F and T Preferred
Stock at September 30, 1995 were $323.4 million (face amount of
$300.0 million plus deferred dividends and interest thereon of
$23.4 million) and $107.8 million (face amount of $100.7 million
plus deferred dividends and interest thereon of $7.1 million),
respectively. The liquidation preference of the Series B Preferred
Stock was $234.1 million (face amount of $213.2 million plus
deferred dividends of $20.9 million) at September 30, 1995. There
can be no assurance when or if preferred dividend payments will
resume.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Designation Description
3.1 Restated Certificate of Incorporation of USAir Group
(incorporated by reference to Exhibit 3.1 to USAir
Group's Registration Statement on Form 8-B dated Janu-
ary 27, 1983), including the Certificate of Amendment
dated May 13, 1987 (incorporated by reference to
Exhibit 3.1 to USAir Group's and USAir's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1987), the Certificate of Increase dated June 30, 1987
(incorporated by reference to Exhibit 3 to USAir
Group's and USAir's Quarterly Report on Form 10-Q for
27
<PAGE>
the quarter ended June 30, 1987), the Certificate of
Increase dated October 16, 1987 (incorporated by
reference to Exhibit 3.1 to USAir Group's and USAir's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1987), the Certificate of Increase dated
August 7, 1989 (incorporated by reference to Exhibit
3.1 to USAir Group's Annual Report on Form 10-K for
the year ended December 31, 1989), the Certificate of
Increase dated April 9, 1992 (incorporated by refer-
ence to Exhibit 3.1 to USAir Group's and USAir's
Annual Report on Form 10-K for the year ended Decem-
ber 31, 1992), the Certificate of Increase dated
January 21, 1993 (incorporated by reference to USAir
Group's and USAir's Annual Report on Form 10-K for the
year ended December 31, 1992), and the Certificate of
Amendment dated May 26, 1993 (incorporated by refer-
ence to Appendix II to USAir Group's Proxy Statement
dated April 26, 1993).
3.2 By-Laws of USAir Group (incorporated by reference to
Exhibit 3.2 of USAir Group's and USAir's Annual Report
on Form 10-K for the year ended December 31, 1994).
3.3 Rights Agreement, dated as of July 29, 1989, as
amended and restated as of January 21, 1993, between
USAir Group and Chemical Bank, as Rights Agent
(incorporated by reference to Exhibit 28.4 to USAir
Group's Current Report on Form 8-K dated January 21,
1993).
3.4 Restated Certificate of Incorporation of USAir (in-
corporated by reference to Exhibit 3.1 to USAir's
Registration Statement on Form 8-B dated January 27,
1983).
3.5 By-Laws of USAir (incorporated by reference to Exhibit
3.5 of USAir Group's and USAir's Annual Report on Form
10-K for the year ended December 31, 1994).
4.1 Amended Certificate of Designation, Preferences, and
Rights of the Series D of Junior Preferred Stock of
USAir Group (incorporated by reference to Exhibit 4(c)
to USAir Group's Current Report on Form 8-K dated
August 11, 1989).
4.2 Certificate of Designation of Series A Cumulative
Convertible Preferred Stock of USAir Group (incorpo-
rated by reference to Exhibit 4(b) to USAir Group's
Current Report on Form 8-K dated August 11, 1989).
4.3 Certificate of Designation of Series B Cumulative
Convertible Preferred Stock of USAir Group (incorpo-
rated by reference to Exhibit 3.3 to Amendment No. 4
28
<PAGE>
to USAir Group's Registration Statement on Form S-3
(Registration No. 33-39540) dated May 17, 1991).
4.4 Agreement between USAir Group and Berkshire Hathaway
Inc. dated August 7, 1989 (incorporated by reference
to Exhibit 4(a) to USAir Group's Current Report on
Form 8-K dated August 11, 1989).
4.5 Certificate of Designation of Series F Cumulative
Convertible Senior Preferred Stock of USAir Group
(incorporated by reference to Exhibit 28.2 to USAir
Group's Current Report on Form 8-K dated January 21,
1993).
4.6 Form of Certificate of Designation of Series T-_
Cumulative Exchangeable Convertible Senior Preferred
Stock of USAir Group (incorporated by reference to
Appendix VII to USAir Group's Proxy Statement dated
April 26, 1993). Neither USAir Group nor USAir is
filing any instrument (with the exception of holders
of exhibits 10.1(a-c)) defining the rights of holders
of long-term debt because the total amount of securi-
ties authorized under each such instrument does not
exceed ten percent of the total assets of USAir.
Copies of such instruments will be furnished to the
Securities and Exchange Commission upon request.
10.1(a) Supplemental Agreement No. 16, dated July 19, 1990, to
Purchase Agreement No. 1102 between USAir and The
Boeing Company (incorporated by reference to Exhibit
10.2(a) to USAir Group's Annual Report on Form 10-K
for the year ended December 31, 1990).
10.1(b) Supplemental Agreement No. 17, dated November 28,
1990, to Purchase Agreement No. 1102 between USAir and
The Boeing Company (incorporated by reference to
Exhibit 10.2(b) to USAir Group's Annual Report on Form
10-K for the year ended December 31, 1990).
10.1(c) Supplemental Agreement No. 18, dated December 23,
1991, to Purchase Agreement No. 1102 between USAir and
The Boeing Company (incorporated by reference to
Exhibit 10.2(c) to USAir Group's Annual Report on Form
10-K for the year ended December 31, 1991).
10.2 Purchase Agreement No. 1725 dated December 23, 1991
between USAir and The Boeing Company (incorporated by
reference to Exhibit 10.3 to USAir Group's and USAir's
Annual Report on Form 10-K for the year ended Decem-
ber 31, 1991).
29
<PAGE>
10.3 USAir, Inc. Executive Incentive Compensation Plan
(incorporated by reference to Exhibit 10.3 to USAir
Group's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.4 USAir, Inc. Officers' Supplemental Benefit Plan
(incorporated by reference to Exhibit 10.5 to USAir's
Annual Report on Form 10-K for the year ended Decem-
ber 31, 1980).
10.5 USAir, Inc. Supplementary Retirement Benefit Plan
(incorporated by reference to Exhibit 10.5 to USAir
Group's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.6 USAir, Inc. Supplemental Executive Defined Contribu-
tion Plan (incorporated by reference to Exhibit 10.6
to USAir Group's and USAir's Annual Report on Form 10-
K for the year ended December 31, 1994).
10.7 USAir Group's 1984 Stock Option and Stock Appreciation
Rights Plan (incorporated by reference to Exhibit A to
USAir Group's Proxy Statement dated March 30, 1984).
10.8 USAir Group's 1988 Stock Incentive Plan (incorporated
by reference to Exhibit 10.15 to USAir Group's Annual
Report on Form 10-K for the year ended December 31,
1987).
10.9 USAir Group's 1992 Stock Option Plan (incorporated by
reference to Exhibit A to USAir Group's Proxy State-
ment dated March 30, 1992).
10.10 Employment Agreement between USAir and its Chief
Executive Officer (incorporated by reference to
Exhibit 10.10 to USAir Group's and USAir's Annual
Report on Form 10-K for the year ended December 31,
1994).
10.11 Employment Agreement between USAir and its President
and Chief Operating Officer (incorporated by reference
to Exhibit 10.11 to USAir Group's and USAir's Annual
Report on Form 10-K for the year ended December 31,
1994).
10.12 Employment Agreement between USAir and its Executive
Vice President-Marketing (incorporated by reference to
Exhibit 10.12 to USAir Group's and USAir's Annual
Report on Form 10-K for the year ended December 31,
1994).
10.13 Employment Agreement between USAir and its Executive
Vice President and General Counsel (incorporated by
30
<PAGE>
reference to Exhibit 10.13 to USAir Group's and
USAir's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.14 Employment Agreement between USAir and its Senior Vice
President-Human Resources (incorporated by reference
to Exhibit 10.14 to USAir Group's and USAir's Annual
Report on Form 10-K for the year ended December 31,
1994).
10.15(a) Agreement between USAir and its President and Chief
Operating Officer providing supplemental retirement
benefits (incorporated by reference to Exhibit
10.15(a) to USAir Group's and USAir's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.15(b) Agreement between USAir and its Executive Vice Presi-
dent-Marketing providing supplemental retirement
benefits (incorporated by reference to Exhibit
10.15(b) to USAir Group's and USAir's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.15(c) Agreement between USAir and its Executive Vice Presi-
dent and General Counsel providing supplemental
retirement benefits (incorporated by reference to
Exhibit 10.15(c) to USAir Group's and USAir's Annual
Report on Form 10-K for the year ended December 31,
1994).
10.15(d) Agreement between USAir and its Senior Vice President-
Human Resources providing supplemental retirement
benefits (incorporated by reference to Exhibit
10.15(d) to USAir Group's and USAir's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.16(a) Trust Agreement dated as of August 1, 1989 between
USAir Group and Wachovia Bank and Trust Company, N.A.,
as Trustee (incorporated by reference to Exhibit
10.10(a) to USAir Group's Annual Report on Form 10-K
for the year ended December 31, 1989).
10.16(b) Trust Agreement dated as of August 1, 1989 between
USAir and Wachovia Bank and Trust Company, N.A., as
Trustee (incorporated by reference to Exhibit 10.10(b)
to USAir Group's Annual Report on Form 10-K for the
year ended December 31, 1989).
10.17 Investment Agreement dated as of January 21, 1993
between USAir Group and British Airways Plc (incor-
porated by reference to Exhibit 28.1 to USAir Group's
and USAir's Current Report on Form 8-K filed on Janu-
ary 28, 1993, as amended by Amendment No. 1 on Form 8
filed on April 13, 1993).
31
<PAGE>
10.17(a) Amendment dated as of February 21, 1994 to the Invest-
ment Agreement dated as of January 21, 1993 between
USAir Group and British Airways Plc (incorporated by
reference to Exhibit 10.13(a) to USAir Group's Annual
Report on Form 10-K for the year ended December 31,
1993).
11 Computation of Primary and Fully Diluted Earnings Per
Share for the three months and nine months ended
September 30, 1995 and 1994 for USAir Group, Inc.
27(a) Financial Data Schedule for USAir Group, Inc.
27(b) Financial Data Schedule for USAir, Inc.
99 Airline Operating Statistics for the three months and
nine months ended September 30, 1995 and 1994 for
USAir, Inc.
B. Reports on Form 8-K
Date of Report Subject of Report
September 5, 1995 News Release dated September 5, 1995 of
USAir Group, Inc., announcing that it
expects to report a pretax profit for the
third quarter of 1995 and, barring any
unforseen events, for the full year as
well.
October 3, 1995 News Release dated October 2, 1995 of
USAir Group, Inc., announcing that it has
had preliminary conversations with both
American Airlines and United Airlines
concerning possible strategic relation-
ships, up to and including acquisition of
USAir.
October 18, 1995 News release dated October 18, 1995 of
USAir Group, Inc. and USAir, Inc., with
consolidated statements of operations for
each company for the three months and
nine months ended September 30, 1995 and
1994 and a supplemental schedule for each
company.
32
<PAGE>
Signatures
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 9, 1995 By: /s/John W. Harper
-----------------------------
John W. Harper
Senior Vice President-Finance
and Chief Financial Officer
USAir, Inc.
(Registrant)
Date: November 9, 1995 By: /s/John W. Harper
-----------------------------
John W. Harper
Senior Vice President-Finance
and Chief Financial Officer
33
<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,
---------------------- -----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Adjustments to Net Income (Loss)
================================
Net income (loss) $ 43,056 $(180,063) $ 59,033 $(362,905)
Preferred dividend requirement (21,415) (19,513) (63,044) (58,068)
-------- -------- -------- --------
Net income (loss) applicable to common stock
and common stock equivalents used for primary
computation 21,641 (199,576) (4,011) (420,973)
Fully diluted adjustments
Assume conversion of preferred stock
Preferred dividend requirement 21,415 19,513 63,044 58,068
-------- -------- -------- --------
Adjusted net income (loss) applicable to
common stock assuming full dilution $ 43,056 $(180,063) $ 59,033 $(362,905)
======== ======== ======== ========
Adjustments to Common Shares Outstanding
========================================
Average number of shares of common stock 62,472 60,062 62,143 59,654
Primary Adjustments 1)
Assume exercise of options and common stock
equivalents 99 - - -
-------- -------- -------- --------
Total average number of common and common
equivalent shares used for primary computation 62,571 60,062 62,143 59,654
======== ======== ======== ========
Average number of shares of common stock 62,472 60,062 62,143 59,654
Fully Diluted Adjustments 2)
Assume exercise of options 136 - 136 11
Assume conversion of preferred stock 39,156 39,156 39,156 39,156
-------- -------- -------- --------
Total average number of common shares assumed
to be outstanding after full conversion 101,764 99,218 101,435 98,821
======== ======== ======== ========
Income (Loss) Per Common Share
==============================
Primary income (loss) per common share 1) $ 0.35 $ (3.32) $ (0.06) $ (7.06)
======== ======== ======== ========
Fully diluted income (loss) per common share 2) $ 0.42 $ (1.81) $ 0.58 $ (3.67)
======== ======== ======== ========
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 which are anti-dilutive are included in accordance with
Regulation S-K Item 601(b)(11).
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000701345
<NAME> USAIR GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 865,453
<SECURITIES> 0
<RECEIVABLES> 455,134<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 250,582
<CURRENT-ASSETS> 1,691,553
<PP&E> 6,389,413
<DEPRECIATION> 2,244,967
<TOTAL-ASSETS> 7,176,706
<CURRENT-LIABILITIES> 2,559,803
<BONDS> 2,874,446
<COMMON> 62,472
758,719
213,153
<OTHER-SE> (1,102,256)
<TOTAL-LIABILITY-AND-EQUITY> 7,176,706
<SALES> 0
<TOTAL-REVENUES> 5,619,808
<CGS> 0
<TOTAL-COSTS> 5,406,041
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228,521
<INCOME-PRETAX> 65,447
<INCOME-TAX> 6,414
<INCOME-CONTINUING> 59,033
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,033
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0<F2>
<FN>
<F1>Receivables are presented net of allowances.
<F2>Fully diluted EPS is anti-dilutive and therefore not presented.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000714560
<NAME> USAIR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 864,316
<SECURITIES> 0
<RECEIVABLES> 458,135<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 226,120
<CURRENT-ASSETS> 1,649,914
<PP&E> 6,131,050
<DEPRECIATION> 2,166,818
<TOTAL-ASSETS> 7,025,532
<CURRENT-LIABILITIES> 2,671,754
<BONDS> 2,830,662
<COMMON> 1
0
0
<OTHER-SE> (273,765)
<TOTAL-LIABILITY-AND-EQUITY> 7,025,532
<SALES> 0
<TOTAL-REVENUES> 5,259,755
<CGS> 0
<TOTAL-COSTS> 5,109,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 225,526
<INCOME-PRETAX> 2,786
<INCOME-TAX> 3,365
<INCOME-CONTINUING> (579)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (579)
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Receivables are presented net of allowances.
<F2>EPS calculations are not relevant because USAir, Inc. is a wholly owned
subsidiary of USAir Group, Inc.
</FN>
</TABLE>
<PAGE>
<TABLE>
USAir, Inc.
Exhibit 99
Airline Operating Statistics 1)
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- --------------------------------
Increase Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue passengers (thousands) * 14,020 15,803 (11.3) % 42,986 44,824 (4.1) %
Total revenue passenger miles
("RPMs") (millions) 9,711 10,308 (5.8) % 29,024 28,978 0.2 %
Revenue passenger miles
(millions) * 9,592 10,199 (6.0) % 28,658 28,626 0.1 %
Total available seat miles
("ASMs") (millions) 14,560 16,020 (9.1) % 44,955 45,862 (2.0) %
Available seat miles
(millions) * 14,428 15,897 (9.2) % 44,549 45,466 (2.0) %
Passenger load factor 2) * 66.5 % 64.2 % 2.3 pts. 64.3 % 63.0 % 1.3 pts.
Breakeven load factor 3) 4) 66.2 % 70.5 % (4.3) pts. 64.8 % 67.8 % (3.0) pts.
Passenger revenue per ASM * 10.82 c 9.32 c 16.1 % 10.60 c 9.91 c 7.0 %
Total revenue per ASM 4) 11.86 c 10.15 c 16.8 % 11.59 c 10.79 c 7.4 %
Cost per ASM 4) 11.40 c 10.76 c 5.9 % 11.26 c 11.17 c 0.8 %
Yield (revenue per RPM) * 16.28 c 14.53 c 12.0 % 16.49 c 15.74 c 4.8 %
Cost of fuel per gallon 5) 52.84 c 53.33 c (0.9) % 52.53 c 52.96 c (0.8) %
Gallons of fuel consumed
(millions) 278 313 (11.2) % 869 901 (3.6) %
* = denotes scheduled service only.
c = cents
1) Statistics include free frequent travelers and the related miles flown.
2) Passenger load factor is the percentage of aircraft seating capacity that is actually utilized (RPMs/ASMs).
3) 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.
4) Financial statistics exclude non-recurring charges as well as revenue and expense generated under the British Airways
wet lease arrangement.
5) Cost includes the base cost of fuel and transportation charges.
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