<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 quarterly period ended June 30, 1996
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 Numbers)
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
requirements for the past 90 days.
Yes X No
----- -----
At July 31, 1996, there were outstanding approximately
64,209,000 shares 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
disclosure 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 Six Months Ended June 30,
1996 and 1995 1
Condensed Consolidated Balance Sheets
- June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Cash Flows
- Six Months Ended June 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 7
Item 1B Financial Statements - USAir, Inc.
Condensed Consolidated Statements of Operations
- Three Months and Six Months Ended June 30,
1996 and 1995 11
Condensed Consolidated Balance Sheets
- June 30, 1996 and December 31, 1995 12
Condensed Consolidated Statements of Cash Flows
- Six Months Ended June 30, 1996 and 1995 14
Notes to Condensed Consolidated Financial Statements 16
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 17
Part II. Other Information
Item 1. Legal Proceedings 33
Item 3. Defaults Upon Senior Securities 33
Item 4. Submission of Matters to a Vote of
Security Holders 34
Item 6. Exhibits and Reports on Form 8-K 35
Signatures 37
<PAGE>
Part 1. Financial Information
Item 1A Financial Statements
USAir Group, Inc.
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1996 and 1995 (unaudited)
- -------------------------------------------------------------------
(in thousands, except per share amounts)
- ---------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
Operating Revenues
Passenger transportation $1,957,169 $1,804,231 $3,634,710 $3,390,616
Cargo and freight 40,066 39,546 78,243 80,417
Other 152,252 139,276 304,956 275,357
--------- --------- --------- ---------
Total Operating Revenues 2,149,487 1,983,053 4,017,909 3,746,390
Operating Expenses
Personnel costs 791,338 724,923 1,541,544 1,448,921
Aviation fuel 180,015 161,226 344,073 323,443
Commissions 160,832 153,150 293,137 295,822
Aircraft rent 92,072 111,319 205,263 221,020
Other rent and landing fees 105,350 99,521 205,700 205,198
Aircraft maintenance 90,484 93,980 190,457 181,641
Depreciation and amortization 79,135 88,352 160,661 176,065
Other, net 404,322 387,468 820,343 773,163
--------- --------- --------- ---------
Total Operating Expenses 1,903,548 1,819,939 3,761,178 3,625,273
--------- --------- --------- ---------
Operating Income (Loss) 245,939 163,114 256,731 121,117
Other Income (Expense)
Interest income 16,158 11,732 29,677 18,991
Interest expense (67,160) (76,717) (134,953) (153,455)
Interest capitalized 1,973 2,807 3,422 6,972
Equity in earnings (loss)
of affiliates 10,049 8,897 21,311 18,547
Other, net (129) 3,027 (605) 3,804
--------- --------- --------- ---------
Other Income (Exp.), Net (39,109) (50,254) (81,148) (105,141)
--------- --------- --------- ---------
Income (Loss) Before Taxes 206,830 112,860 175,583 15,976
(continued on next page)
1
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USAir Group, Inc.
Condensed Consolidated Statements of Operations (Continued)
Three Months and Six Months Ended June 30, 1996 and 1995 (unaudited)
- -------------------------------------------------------------------
(in thousands, except per share amounts)
- ---------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
1996 1995 1996 1995
---- ---- ---- ----
Provision (Credit) for Income
Taxes 6,055 - 7,101 -
--------- --------- --------- ---------
Net Income (Loss) 200,775 112,860 168,482 15,976
Preferred Dividend Requirement (22,522) (21,046) (44,796) (41,629)
--------- --------- --------- ---------
Net Income (Loss) Applicable
to Common Stockholders $ 178,253 $ 91,814 $ 123,686 $ (25,653)
========= ========= ========= =========
Income (Loss) per Common Share
Primary $ 2.71 $ 1.47 $ 1.90 $ (0.41)
Fully-diluted $ 1.91 $ 1.11 $ 1.55 N/A
Shares Used for Computation (000)
Primary 65,863 62,387 65,266 61,976
Fully-diluted 105,019 101,615 95,448 N/A
See accompanying Notes to Condensed Consolidated Financial Statements.
2
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USAir Group, Inc.
Condensed Consolidated Balance Sheets
June 30, 1996 (unaudited) and December 31, 1995
- -----------------------------------------------
(dollars in thousands, except per share amounts)
- -----------------------------------------------
June 30, December 31,
1996 1995
---------- -----------
ASSETS
Current Assets
Cash and cash equivalents $ 775,389 $ 881,854
Short-term investments 464,071 19,831
Receivables, net 423,161 322,122
Materials and supplies, net 237,181 248,144
Prepaid expenses and other 141,006 111,131
--------- ---------
Total current assets 2,040,808 1,583,082
Property and Equipment
Flight equipment 5,246,023 5,251,742
Ground property and equipment 1,085,255 1,073,720
Less accumulated depreciation and
amortization (2,399,951) (2,301,059)
--------- ---------
3,931,327 4,024,403
Purchase deposits 40,914 17,026
--------- ---------
Property and equipment, net 3,972,241 4,041,429
Other Assets
Goodwill, net 502,537 510,562
Other intangibles, net 314,359 312,786
Other assets, net 513,964 507,149
--------- ---------
Total other assets 1,330,860 1,330,497
--------- ---------
$7,343,909 $6,955,008
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt $ 95,732 $ 80,721
Accounts payable 300,594 325,330
Traffic balances payable and unused tickets 827,544 607,170
Accrued expenses 1,554,011 1,471,475
--------- ---------
Total current liabilities 2,777,881 2,484,696
(continued on next page)
3
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USAir Group, Inc.
Condensed Consolidated Balance Sheets (Continued)
June 30, 1996 (unaudited) and December 31, 1995
- -------------------------------------------------
(dollars in thousands, except per share amounts)
- ------------------------------------------------
June 30, December 31,
1996 1995
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) (continued)
Long-term Debt, Net of Current Maturities 2,679,765 2,717,085
Deferred Credits and Other Liabilities
Deferred gains, net 373,360 386,947
Postretirement benefits other than pensions,
non-current 1,055,576 1,015,623
Non-current employee benefit liabilities
and other 350,106 427,726
--------- ---------
Total deferred credits and other
liabilities 1,779,042 1,830,296
Commitments and Contingencies
Redeemable Cumulative Convertible Preferred Stock
Series A, 358,000 shares issued, no par value 358,000 358,000
(redemption value of $432,660 at June 30,1996)
Series F, 30,000 shares issued, no par value 300,000 300,000
(redemption value of $340,713 at June 30,1996)
Series T, 10,000 shares issued, no par value 100,719 100,719
(redemption value of $112,866 at June 30,1996)
Stockholders' Equity (Deficit)
Series B cumulative convertible preferred stock,
no par value, 4,263,000 depositary shares 213,153 213,153
issued (liquidation preference of $248,123 at
June 30,1996)
Common stock, par value $1 per share, authorized
150,000,000 shares, issued and outstanding 64,216 63,449
64,216,000 and 63,449,000 shares, respectively
Paid-in capital 1,385,098 1,362,756
Retained earnings (deficit) (2,129,729) (2,298,211)
Deferred compensation (106,241) (98,847)
Adjustment for minimum pension liability (77,995) (78,088)
--------- ---------
Total stockholders' equity (deficit) (651,498) (835,788)
--------- ---------
$7,343,909 $6,955,008
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
4
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USAir Group, Inc.
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995 (unaudited)
- --------------------------------------------------
(in thousands)
- -------------
1996 1995
---- ----
Cash and cash equivalents beginning of period $ 881,854 $ 429,538
--------- --------
Cash flows from operating activities
Net income (loss) 168,482 15,976
Adjustments to reconcile net income (loss) to
cash provided by (used for) operating activities
Depreciation and amortization 160,661 176,065
Loss (gain) on disposition of property 1,452 (3,187)
Amortization of deferred gains and credits (13,832) (13,820)
Other 43,846 (2,211)
Changes in certain assets and liabilities
Decrease (increase) in receivables (101,039) (107,932)
Decrease (increase) in materials, supplies,
prepaid expenses and intangible pension
assets (30,933) (4,244)
Increase (decrease) in traffic balances
payable and unused tickets 220,374 133,738
Increase (decrease) in accounts payable
and accrued expenses (19,268) 118,301
Increase (decrease) in postretirement
benefits other than pensions, non-current 39,953 34,334
--------- ---------
Net cash provided by (used for) operating
activities 469,696 347,020
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (10,987) (40,914)
Additions to other property (77,163) (32,742)
Proceeds from disposition of property 7,067 120,294
Change in short-term investments (442,697) 21,994
Change in restricted cash and investments (1,466) 3,028
Other (11,444) 367
--------- ---------
Net cash provided by (used for) investing
activities (536,690) 72,027
(continued on next page)
5
<PAGE>
USAir Group, Inc.
Condensed Consolidated Statements of Cash Flows (Continued)
Six Months Ended June 30, 1996 and 1995 (unaudited)
- -----------------------------------------------------------
(in thousands)
- -------------
1996 1995
---- ----
Cash flows from financing activities
Issuance of debt 103,002 -
Reduction of debt (144,671) (98,539)
Issuance of common stock 2,198 8,315
--------- ---------
Net cash provided by (used for) financing
activities (39,471) (90,224)
--------- ---------
Net increase (decrease) in cash and cash
equivalents (106,465) 328,823
--------- ---------
Cash and cash equivalents end of period $ 775,389 $ 758,361
========= =========
Noncash investing and financing activities
Issuance of debt - refinancing of debt
secured by aircraft $ 159,998 $ -
========= =========
Reduction of debt - refinancing of debt
secured by aircraft $ 154,422 $ -
========= =========
Issuance of debt - aircraft acquisitions $ 13,784 $ 143,236
========= =========
Reduction of debt - aircraft purchase
deposits $ - $ 70,837
========= =========
Underwriter's fees - refinancing of debt
secured by aircraft $ 2,488 $ -
========= =========
Supplemental Information
Cash paid during the year for interest,
net of amounts capitalized $ 129,918 $ 147,744
========= =========
Net cash (received) paid during the year
for income taxes $ 1,226 $ (84)
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
6
<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, Material Services Company,
Inc. and The OR Group, Inc. (the "OR Group"). USAir's accounts
include its wholly-owned subsidiary USAM Corp. ("USAM").
The OR Group was incorporated in February 1996 and is a
wholly-owned subsidiary of USAir Group. The OR Group provides
resource allocation consulting services and decision-making
support systems to USAir, which is currently OR Group's only
customer.
Management believes that all adjustments necessary for a fair
statement of results have been included in the Condensed
Consolidated Financial Statements for the interim periods
presented, which are unaudited. All significant intercompany
accounts and transactions have been eliminated. The preparation of
financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Certain 1995 amounts have been reclassified to conform with
1996 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, 1995.
7
<PAGE>
(2) Income (Loss) Per Common Share
The Company includes the effects of assuming conversion of
all dilutive stock options and convertible equity instruments into
common stock when calculating fully-diluted income (loss) per
common share. For the three month period ended June 30, 1996,
approximately 1,855,000 incremental shares were included in the
calculation as the result of applying the treasury stock method to
the Company's outstanding stock options. For the same period, the
effects of assuming conversion of the Company's 9 1/4 % Series A
Cumulative Convertible Redeemable Preferred Stock ("Series A
Preferred Stock"), Series F Cumulative Convertible Senior
Preferred Stock ("Series F Preferred Stock"), Series T-1
Cumulative Convertible Exchangeable Senior Preferred Stock
("Series T-1 Preferred Stock"), Series T-2 Cumulative Convertible
Exchangeable Senior Preferred Stock ("Series T-2 Preferred Stock")
(the Series T-1 and Series T-2 Preferred Stock are collectively
referred to as the "Series T Preferred Stock;" the Series A,
Series F and Series T Preferred Stock are collectively the
Company's "Senior Preferred Stock") and the Series B Cumulative
Convertible Preferred Stock ("Series B Preferred Stock" or the
Company's "Junior Preferred Stock") were dilutive and therefore
included in the calculation. The income and share effects of
assuming conversion of the Company's preferred stock issuances
were approximately $22,522,000 and 39,156,000 shares.
For the six month period ended June 30, 1996, approximately
1,719,000 incremental shares were included in the calculation as
the result of applying the treasury stock method to the Company's
outstanding stock options. For the same period, the effects of
assuming conversion of the Series F, Series T and Series B
Preferred Stock were dilutive and therefore included in the
calculation. The total income and share effects of the dilutive
preferred stock issuances were approximately $24,260,000 and
29,916,000 shares. The effects of assuming conversion of the
Series A Preferred Stock were antidilutive and therefore excluded
from the calculation.
(3) Redeemable Preferred Stock
On July 24, 1996, USAir Group's Board of Directors declared a
dividend of $43.0 million on the Company's outstanding Senior
Preferred Stock. The Company had previously deferred the payment
of dividends on all of its outstanding preferred stock issuances
effective with dividend payments due September 30, 1994. As of
June 30, 1996, accumulated deferred dividends on the Company's
outstanding preferred stock issuances, including penalty dividends
thereon, totaled approximately $162.5 million.
8
<PAGE>
The dividend declared is equal to the Company's capital
surplus at June 30, 1996, as calculated in accordance with
Delaware General Corporation Law based on the Company's Condensed
Consolidated Balance Sheets, and was paid pro rata to the holders
of the Senior Preferred Stock on August 2, 1996. The Company's
outstanding Series B Preferred Stock is junior to the Company's
Senior Preferred Stock and is not eligible to receive dividends
until the deferred dividends on the Senior Preferred Stock are
paid in full and all Senior Preferred Stock dividend payments are
current. There can be no assurance of when or if the Company's
Board of Directors will declare additional dividends on its
outstanding capital stock.
(4) Stockholders' Equity
On May 22, 1996, the Company's stockholders approved the 1996
Stock Incentive Plan ("1996 Plan") and the Nonemployee Director
Stock Incentive Plan ("Director Plan"). With the approval of the
1996 Plan, 3.1 million additional shares of USAir Group Common
Stock ("Common Stock") were authorized for the granting of stock
options and/or restricted stock. In conjunction with the 1996
Plan, 2,745,000 additional shares of Common Stock were reserved
for the granting of stock options and/or restricted stock as of
June 30, 1996.
With the approval of the Director Plan, 70,000 shares of
Common Stock were authorized for the granting of stock options to
nonemployee directors of USAir Group. As of June 30, 1996, 15,000
shares of Common Stock were reserved for the granting of stock
options under the Director Plan.
(5) Nonemployee Director Retirement Plan
The Retirement Plan for Outside Directors of USAir Group,
Inc. was terminated as of December 31, 1995. Pursuant to such
termination, (i) no individual who first becomes a director on or
after December 31, 1995 will participate in the retirement plan
and (ii) directors as of December 31, 1995 will be credited with
units of phantom stock of the Company ("deferred stock units" or
"DSUs") equal in value to the present value of their accrued
benefits as of December 31, 1995 based on the average price of the
stock in the month of December 1995. Such DSUs will be paid in
cash following the director's termination of service. On May 22,
1996 the Company's stockholders approved the Nonemployee Director
Stock Incentive Plan (see Note 4 for additional information)
providing for an annual grant of 1,500 stock options. As of
January 1, 1996, the Company established the Nonemployee Director
Deferred Stock Unit Plan, pursuant to which each nonemployee
director will receive an annual grant of 500 DSUs. These stock
options and DSUs will vest after the director serves a full one-
year term.
9
<PAGE>
USAir Group reversed approximately $93 thousand from its
Adjustment for minimum pension liability (an element of
Stockholders' Equity (Deficit)) in conjunction with the
termination of the Retirement Plan for Outside Directors of USAir
Group, Inc.
(6) Select Financial Information - USAM Investments
USAM owns 11% of the Galileo International Partnership
("GIP"), approximately 11% of the Galileo Japan Partnership
("GJP") and approximately 21% of the Apollo Travel Services
Partnership ("ATS"). USAM accounts for these investments using the
equity method. The following is summarized financial information
for GIP and ATS (combined, in millions):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
(Unaudited) (Unaudited)
Service revenues $ 371 $ 338 $ 744 $ 677
Cost and expenses 301 279 594 552
----- ----- ----- -----
Net earnings $ 70 $ 59 $ 150 $ 125
===== ===== ===== =====
USAM received distributions from GIP and ATS of approximately
$1.5 million and $39.8 million (including a special distribution
from ATS of $33.7 million during the second quarter of 1996 which
represented a distribution of cash to partners), respectively,
during the first six months of 1996. USAM received distributions
from GIP and ATS of approximately $1.0 million and $6.6 million,
respectively, during the first six months of 1995.
(7) Non-Recurring Items
USAir recorded two non-recurring items during the second
quarter of 1996 related to its non-operating British Aerospace
BAe-146-200 ("BAe-146") aircraft. USAir reached agreements to
sublease eleven BAe-146s during the quarter. Both non-recurring
items resulted in credits to Operating Expense categories. USAir
reversed $22.5 million of previously accrued rent obligations
related to these aircraft against Aircraft Rent expense and
reversed $7.0 million against Aircraft Maintenance expense related
to previously accrued lease return provisions.
10
<PAGE>
Part 1. Financial Information
Item 1B. Financial Statements
USAir, Inc.
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1996 and 1995 (unaudited)
- -------------------------------------------------------------------
(in thousands)
- --------------
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1996 1995 1996 1995
Operating Revenues ---- ---- ---- ----
Passenger transportation $1,802,522 $1,676,297 $3,354,101 $3,162,887
Cargo and freight 39,087 38,664 76,395 78,735
Other 151,988 137,498 302,716 275,327
--------- --------- --------- ---------
Total Operating Revenues 1,993,597 1,852,459 3,733,212 3,516,949
Operating Expenses
Personnel costs 752,284 692,339 1,466,035 1,385,903
Aviation fuel 170,673 153,871 326,468 309,508
Commissions 150,229 143,235 273,764 278,159
Aircraft rent 80,507 101,374 182,922 202,205
Other rent and landing fees 100,797 95,714 197,154 197,718
Aircraft maintenance 74,072 81,264 160,611 156,191
Depreciation and amortization 75,259 84,491 152,997 168,150
Other, net 383,209 365,452 775,604 734,700
--------- --------- --------- ---------
Total Operating Expenses 1,787,030 1,717,740 3,535,555 3,432,534
--------- --------- --------- ---------
Operating Income (Loss) 206,567 134,719 197,657 84,415
Other Income (Expense)
Interest income 16,071 11,619 29,481 18,774
Interest expense (70,621) (76,490) (142,068) (149,595)
Interest capitalized 1,973 2,807 3,422 6,972
Equity in earnings (loss)
of affiliates 10,049 8,897 21,311 18,547
Other, net 31 3,094 (371) 3,709
--------- --------- --------- ---------
Other Income (Exp.), Net (42,497) (50,073) (88,225) (101,593)
--------- --------- --------- ---------
Income (Loss) Before Taxes 164,070 84,646 109,432 (17,178)
Provision (Credit) for
Income Taxes 3,502 - 3,794 -
--------- --------- --------- ---------
Net Income (Loss) $ 160,568 $ 84,646 $ 105,638 $ (17,178)
========= ========= ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
11
<PAGE>
USAir, Inc.
Condensed Consolidated Balance Sheets
June 30, 1996 (unaudited) and December 31, 1995
- -----------------------------------------------
(dollars in thousands, except per share amount)
- ----------------------------------------------
June 30, December 31,
1996 1995
---------- ------------
ASSETS
Current Assets
Cash and cash equivalents $ 774,358 $ 879,613
Short-term investments 464,071 19,831
Receivables, net 425,208 321,755
Materials and supplies, net 206,632 222,245
Prepaid expenses and other 126,837 97,922
--------- ---------
Total current assets 1,997,106 1,541,366
Property and Equipment
Flight equipment 5,014,047 5,021,520
Ground property and equipment 1,063,092 1,052,706
Less accumulated depreciation and
amortization (2,315,086) (2,222,814)
--------- ---------
3,762,053 3,851,412
Purchase deposits 40,914 17,026
--------- ---------
Property and equipment, net 3,802,967 3,868,438
Other Assets
Goodwill, net 502,537 510,562
Other intangibles, net 314,321 312,539
Other assets, net 605,509 590,622
--------- ---------
Total other assets 1,422,367 1,413,723
--------- ---------
$7,222,440 $6,823,527
========= =========
LIABILITIES & STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt $ 91,413 $ 77,496
Accounts payable 302,853 325,079
Payable to parent company 245,410 100,344
Traffic balances payable and unused tickets 870,045 638,019
Accrued expenses 1,511,482 1,435,194
--------- ---------
Total current liabilities 3,021,203 2,576,132
(continued on next page)
12
<PAGE>
USAir, Inc.
Condensed Consolidated Balance Sheets (Continued)
June 30, 1996 (unaudited) and December 31, 1995
- -----------------------------------------------
(dollars in thousands, except per share amounts)
- -----------------------------------------------
June 30, December 31,
1996 1995
---------- ------------
LIABILITIES & STOCKHOLDER'S EQUITY (DEFICIT) (Continued)
Long-term Debt, Net of Current Maturities
Long-term debt 2,639,219 2,674,376
Note payable - parent company - 67,556
--------- ---------
Total long-term debt, net of current
maturities 2,639,219 2,741,932
Deferred Credits and Other Liabilities
Deferred gains, net 369,789 382,995
Postretirement benefits other than pensions,
non-current 1,055,326 1,015,373
Non-current employee benefit liabilities
and other 342,438 418,268
--------- ---------
Total deferred credits and other
liabilities 1,767,553 1,816,636
Stockholders' 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) (2,543,672) (2,649,310)
Adjustment for minimum pension liability (77,995) (77,995)
--------- ---------
Total stockholders' equity (deficit) (205,535) (311,173)
--------- ---------
$7,222,440 $6,823,527
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
13
<PAGE>
USAir, Inc.
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995 (unaudited)
- --------------------------------------------------
(in thousands)
- -------------
1996 1995
---- ----
Cash and cash equivalents beginning of period $ 879,613 $ 428,925
--------- ---------
Cash flows from operating activities
Net income (loss) 105,638 (17,178)
Adjustments to reconcile net income (loss) to
cash provided by (used for) operating activities
Depreciation and amortization 152,997 168,150
Loss (gain) on disposition of property 1,421 (3,010)
Amortization of deferred gains and credits (13,206) (13,206)
Other 22,789 (1,035)
Changes in certain assets and liabilities
Decrease (increase) in receivables (103,453) (106,850)
Decrease (increase) in materials, supplies,
prepaid expenses and intangible pension
assets (25,530) (3,172)
Increase (decrease) in traffic balances
payable and unused tickets 232,026 149,021
Increase (decrease) in accounts payable
and accrued expenses 54,897 143,327
Increase (decrease) in postretirement
benefits other than pensions, non-current 39,953 34,334
--------- ---------
Net cash provided by (used for)
operating activities 467,532 350,381
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (10,987) (40,914)
Additions to other property (73,628) (31,050)
Proceeds from disposition of property 6,950 119,787
Change in short-term investments (442,697) 21,994
Change in restricted cash and investments (1,466) 3,028
Other (11,444) 367
--------- ---------
Net cash provided by (used for)
investing activities (533,272) 73,212
(continued on next page)
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USAir, Inc.
Condensed Consolidated Statements of Cash Flows (Continued)
Six Months Ended June 30, 1996 and 1995 (unaudited)
- ------------------------------------------------------------
(in thousands)
- -------------
1996 1995
---- ----
Cash flows from financing activities
Issuance of debt 103,002 -
Reduction of debt (142,517) (95,883)
--------- ---------
Net cash provided by (used for) financing
activities (39,515) (95,883)
--------- ---------
Net increase (decrease) in cash and cash
equivalents (105,255) 327,710
--------- ---------
Cash and cash equivalents end of period $ 774,358 $ 756,635
========= =========
Noncash investing and financing activities
Issuance of debt - refinancing of debt
secured by aircraft $ 159,998 $ -
========= =========
Reduction of debt - refinancing of debt
secured by aircraft $ 154,422 $ -
========= =========
Reduction of parent company debt - aircraft
acquisitions $ 68,641 $ -
========= =========
Issuance of debt - aircraft acquisitions $ 13,784 $ 143,236
========= =========
Reduction of debt - aircraft purchase
deposits $ - $ 70,837
========= =========
Underwriter's fees - refinancing of debt
secured by aircraft $ 2,488 $ -
========= =========
Supplemental Information
Cash paid during the year for interest,
net of amounts capitalized $ 127,571 $ 142,332
========= =========
Cash paid during the year for income taxes $ 753 $ 111
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
15
<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. ("USAM"). USAir is a wholly-owned subsidiary of USAir Group, Inc.
("USAir Group").
Management believes that all adjustments necessary for a fair
statement of results have been included in the Condensed Consolidated
Financial Statements for the interim periods presented, which are
unaudited. All significant intercompany accounts and transactions have
been eliminated. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Certain 1995 amounts have been reclassified to conform with 1996
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, 1995.
(2) Select Financial Information - USAM Investments
Please refer to Note 6 in USAir Group's "Notes to Condensed
Consolidated Financial Statements" on Page 10 of this report.
(3) Non-Recurring Items
Please refer to Note 7 in USAir Group's "Notes to Condensed
Consolidated Financial Statements" on Page 10 of this report.
16
<PAGE>
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion relates to the financial condition and
results of operations of USAir Group, Inc. ("USAir Group" or the
"Company"). USAir, Inc. ("USAir") is the Company's principal subsidiary
and accounted for approximately 92% of the Company's operating revenues
for the second quarter of 1996. Except where noted, the following
discussion is based primarily upon USAir's financial condition, results of
operations and future prospects.
The Company recognized record quarterly net income of $200.8 million
for the second quarter of 1996 on operating revenues of $2.15 billion.
USAir, whose results include its wholly-owned subsidiary USAM Corp.
("USAM"), recorded net income of $160.6 million for the same period. For
the first half of 1996, the Company's net income was $123.7 million and
USAir's net income was $105.6 million. Barring unforeseen or unusual
events, the Company believes that both USAir Group and USAir will realize
net income for full-year 1996.
The continuation of the relatively stable domestic economic climate
and favorable capacity and pricing trends in markets served by the
Company's airline subsidiaries are the major factors which contributed to
the record results for the quarter. However, USAir's cost structure
continues to be the highest of all major air carriers in the United
States, which results in the Company being particularly susceptible to
adverse changes in general economic and market conditions.
The exposure to "low cost, low fare" air carriers in markets served
by the Company's airline subsidiaries decreased during the second quarter
of 1996. This decrease was primarily attributable to ValuJet Airlines,
Inc.'s ("ValuJet") reduction of service in May 1996 and suspension of
service beginning in June 1996. ValuJet had a majority of its service
within the Eastern United States, an area where USAir's departures and
capacity (as measured by available seat miles or "ASMs") represent
significant percentages of system totals. The Company estimates that
approximately 8% of USAir's capacity (ASMs) overlapped with ValuJet's
former route structure. ValuJet has announced that it plans to resume
operations during the third quarter of 1996, but those plans are subject
to Department of Transportation ("DOT") approval and reportedly include
ValuJet operating significantly fewer aircraft and routes than before it
suspended operations. The Company believes that the ValuJet grounding has
had a favorable effect on the Company's Passenger Transportation revenues,
but has not precisely quantified such effect.
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<PAGE>
Southwest Airlines, Inc. ("Southwest") recently announced plans to
further expand its operations in the Eastern U.S. by initiating service
between Providence and: Orlando; Tampa; Nashville; Chicago; and,
Baltimore. Southwest's introduction of low cost, low fare service at
Providence, which is approximately 60 miles from Boston, Massachusetts,
will result in some passenger traffic being drawn from Boston's Logan
International Airport. USAir and its regional airline affiliates have
substantial operations at Boston's Logan International Airport.
Southwest, which has a significant cost advantage over USAir, entered the
Eastern U.S. market during 1993 and has continued to expand into markets
served by the Company's airline subsidiaries since that time. In addition
to the competitive threat posed by Southwest, Delta Airlines, Inc.
("Delta") recently announced its "Delta Express" low cost, low fare
operation. Delta's new service, expected to begin in October 1996, will
operate from ten Midwest and Northeast cities to Orlando and four other
Florida cities. The Company believes that Delta's low cost, low fare
operation will also have a significant cost advantage over USAir.
Although ValuJet's situation has resulted in a decrease in the
exposure to low cost, low fare competitors in markets served by the
Company's airline subsidiaries, the competitive threat posed by other low
cost, low fare air carriers, particularly Southwest, and the ability of an
established, mature air carrier, Delta, to establish a low cost, low fare
operation, emphasize the need for USAir to lower its cost structure in
order to be competitive and ensure long-term financial viability. The
Company believes that the recent drop in low cost, low fare competition is
a short-term condition and not an indication of a long-term trend.
Proposed British Airways-American Airlines Alliance
On June 11, 1996, American Airlines, Inc. ("American") and British
Airways Plc ("British Airways") announced a proposed alliance to jointly
market, price and manage their North Atlantic airline services, effective
April 1, 1997, subject to United States and international approvals. The
joint services would carry the designator codes of both airlines and each
would code-share beyond the other's gateways. The two airlines also
intend to act cooperatively in other areas, such as marketing, sales,
facilities use and cargo. British Airways and American are seeking
antitrust immunity in connection with approval of their alliance. The
British Airways-American alliance, as proposed, does not prevent British
Airways or American from entering into or continuing commercial
arrangements with other airlines, including USAir. Certain competition
authorities in the United States and Europe have made inquiries into the
proposed alliance and several airlines serving the North Atlantic have
raised very strong objections to the proposed alliance.
18
<PAGE>
On July 30, 1996, the Company and USAir initiated a lawsuit in United
States District Court for the Southern District of New York against
British Airways, BritAir Acquisition Corp., Inc., American and American's
parent company, AMR Corp. The Company and USAir have claimed that British
Airways, in pursuit of an alliance with American, has breached its
fiduciary duty to the Company and USAir and has violated certain
provisions of the January 21, 1993 Investment Agreement between the
Company and British Airways. In addition, the lawsuit claims that American
has aided and abetted British Airways' breach of its fiduciary duties and
has tortuously interfered with British Airways' performance of its
obligations under the Investment Agreement. The lawsuit also claims that
the defendants are in violation of U.S. antitrust laws that prohibit
conduct that harms competition.
The Company is unable to predict at this time the ultimate outcome of
this lawsuit.
Payment of Dividends on Senior Preferred Stock
On July 24, 1996, USAir Group's Board of Directors declared a
dividend of $43.0 million on the Company's outstanding Senior Preferred
Stock. The Company had previously deferred the payment of dividends on
all of its outstanding preferred stock issuances effective with dividend
payments due September 30, 1994. As of June 30, 1996, accumulated
deferred dividends on the Company's outstanding preferred stock issuances,
including penalty dividends thereon, totaled approximately $162.5
million. See Note 2 to the Company's Condensed Consolidated Financial
Statements contained in Part I, Item 1A of this report for a description
of each of the Company's outstanding preferred stock issuances and Part
II, Item 3 of this report, "Defaults Upon Senior Securities," for
information with respect to accumulated deferred dividends.
The dividend declared is equal to the Company's capital surplus at
June 30, 1996, as calculated in accordance with Delaware General
Corporation Law based on the Company's Condensed Consolidated Balance
Sheets, and was paid pro rata to the holders of the Senior Preferred Stock
on August 2, 1996. The Company's outstanding Series B Preferred Stock is
junior to the Company's Senior Preferred Stock and is not eligible to
receive dividends until the deferred dividends on the Senior Preferred
Stock are paid in full and all Senior Preferred Stock dividend payments
are current. There can be no assurance of when or if the Company's Board
of Directors will declare additional dividends on the Company's
outstanding capital stock.
19
<PAGE>
Government Regulation
The Federal Aviation Administration ("FAA") has proposed new
regulations that would require flight data recorders that measure more
flight parameters than most original equipment flight data recorders. The
proposed regulations, subject to DOT approval, would require the upgraded
flight data recorders to be installed within four years. The proposal, as
drafted, would affect USAir's entire operating fleet. The Company
estimates that the proposed regulations, if adopted, would cost USAir
approximately $15-$20 million over the four year period. In addition, the
Company believes that the extent of the work necessary to retrofit the
aircraft with the upgraded flight data recorders may result in aircraft
being removed from revenue-producing service for a longer period of time
than if the aircraft were undergoing normal maintenance. The Company
cannot predict whether or when the proposed regulations will be adopted or
if the proposed regulations will result in expenditures consistent with
the Company's current estimate.
Following the recent accident involving a Trans World Airlines, Inc.
aircraft and the speculation that the cause of the accident may have been
sabotage, President Clinton ordered new security measures related to
passenger, baggage and cargo screening, particularly with respect to
international operations. The increased security measures have resulted in
an increase in the Company's operating expenses, although the dollar
effect of the new security measures is not material. The President has
also formed a special committee which will review aviation safety and
airport security, as well as the air traffic control system. This
committee is expected to report its initial findings and recommendations
to the President in September 1996. Further increases in government-
mandated security measures may have an adverse affect on the Company's
results of operations and financial condition depending on the ability of
USAir and its regional affiliates to pass-through any new Federal taxes,
surcharges or additional operating expenses to customers. Any effective
increase in the cost of air transportation may dampen passenger and cargo
traffic levels and have a dilutive effect on yield.
The 10% Federal excise tax on domestic air transportation expired on
January 1, 1996. This tax, 10% of the cost of a ticket, has historically
been used to fund air transportation infrastructure, such as air traffic
control systems and safety research. The Company believes that its
Passenger Transportation revenues may have been stimulated by the
expiration of this tax. USAir and its regional affiliates stopped
collecting this tax from customers when it lapsed. The absence of the tax
has effectively reduced the cost of air travel. However, the Company has
not estimated the dollar impact of the lapse of this tax on its Passenger
Transportation revenues due to the complexity and number
20
<PAGE>
of factors that contribute to the Company's performance in this area.
Congress recently passed, and President Clinton is expected to sign,
legislation that generally reimposes the tax on tickets sold on or after
the effective date, for transportation before January 1, 1997. The
Company is unable to predict the impact on its results of operations and
financial condition of this tax being reinstated. As mentioned above, any
effective increase in the cost of air transportation could depress air
transportation demand.
The Company's airline subsidiaries became obligated to pay the $.043
per gallon Federal Excise Tax on Transportation Fuels on October 1, 1995.
Airlines had a three year exemption from this tax, which became law during
1992. Since the airline exemption expired, various attempts have been
made to either rescind this tax or reinstate the airline exemption. These
efforts have not been successful. USAir cannot predict the ultimate
outcome of future attempts to either rescind the tax or reinstate the
airline exemption. USAir estimates that this tax will result in
additional operating expenses of approximately $47 million for 1996 based
on its current projected 1996 domestic aviation fuel consumption. USAir
recognized expense of approximately $11 million and $21 million as a
result of this tax during the second quarter and first half of 1996,
respectively.
Other Information
Stephen M. Wolf, Chairman of the Board of Directors and Chief
Executive Officer of both the Company and USAir, and Rakesh Gangwal,
President of both companies, held a series of employee meetings during the
first half of 1996 where they presented their assessment of USAir's
competitive position. The focal point of these meetings was to
communicate senior management's belief that USAir must lower its personnel
costs, increase employee productivity, increase the quality of USAir's
service and customer satisfaction and grow in size to ensure long-term
viability. The Company remains committed to reducing USAir's personnel
costs and improving employee productivity. With regard to the size of
USAir, the Company believes that internal growth is preferable, but has
not excluded other alternatives. Mr. Wolf made a similar presentation at
the Company's annual stockholders' meeting in May 1996.
The Company has embarked on a program to upgrade and standardize the
interiors of USAir's operating aircraft over the next three years as part
of its efforts to make USAir "the airline of choice." The first phase of
the program, which will be completed by the end of October 1996, involves
making minor changes and improvements to the interiors of each of USAir's
operating aircraft. This phase of the program is expected to result in
minimal incremental expenditures, but provide a substantial short-term
improvement in the interior appearance of each aircraft. The second
21
<PAGE>
phase of the program, which is scheduled to begin later this year and be
completed in 1998, includes, depending on the type of aircraft, the
replacement of carpets, seat cushions and overhead storage bins,
repainting other aircraft interior components, reconfiguring and/or
replacing seats, expanding first class seating and adding or replacing
lavatories. The Company currently estimates that the second phase of this
program will result in one-time incremental expenditures of approximately
$85 million, approximately $30 million of which is expected to be
capitalized.
On July 26, 1996, the Company and USAir filed a Current Report on
Form 8-K with the Securities and Exchange Commission ("SEC") which
included certain forward-looking information. The Company disclosed that
it estimates USAir's capacity (ASMs) will increase by 2% and 7%-8% for the
third and fourth quarters of 1996, respectively, versus the comparable
periods in 1995 and that USAir's unit cost for the third and fourth
quarters of 1996 is expected to be approximately 8%-9% and 4% higher,
respectively, versus the comparable periods in 1995. See "Results of
Operations" below for information related to estimated future increases in
certain components of the Company's operating expenses.
USAir's contract with the International Association of Machinists and
Aerospace Workers ("IAM") became amendable in October of 1995. Talks
between USAir and the IAM continued during the second quarter of 1996.
USAir's contract with the Air Line Pilots Association ("ALPA") became
amendable on April 30, 1996 and collective bargaining talks have
commenced. USAir cannot predict the outcome of these negotiations at this
time or if it will be able to secure meaningful wage and benefit
concessions and productivity improvements from its unionized employee
groups.
In April 1996, USAir introduced electronic ticketing or "ticketless
travel" as an option for customers traveling within the United States on
USAir or USAir Express. Electronic ticketing enables a customer to book a
flight through USAir's reservations system and receive a confirmation
number instead of a paper ticket. The Company believes that electronic
ticketing enhances customer convenience and will help reduce USAir's
distribution costs. Distribution costs currently account for approximately
$1 billion of the Company's annual operating expenses. Initial customer
response to electronic ticketing has been favorable and customer use of
electronic ticketing has increased since its introduction. USAir is
working to expand electronic ticketing to international service and USAir
Shuttle flights. USAir is also working with the major computer
reservation systems to make electronic ticketing available to travel
agencies.
22
<PAGE>
Pursuant to the Investment Agreement between British Airways and
USAir Group, British Airways has the right to maintain its proportionate
ownership of USAir Group's securities under certain circumstances by
purchasing additional shares of a certain series of preferred stock.
During April 1996, British Airways advised USAir Group that it would not
exercise this right (triggered by issuances of the Company's Common Stock
during the nine month period ended March 31, 1996).
Results of Operations
The following section provides an overview of changes in certain
components of the Company's results of operations (the Company's Condensed
Consolidated Statements of Operations are contained in Part I, Item 1A of
this report). See Exhibit 99 to this report for select USAir operating
and financial statistics. Exhibit 99 also includes the definition of each
of the terms used below. All terms used in this section refer to USAir's
scheduled service operations except for Cost per ASM, which includes
charter service.
Three Month Period Ended June 30, 1996
Compared With the
Three Month Period Ended June 30, 1995
USAir Group recorded net income of $200.8 million for the second
quarter of 1996, an improvement of $87.9 million (or 77.9%) versus second
quarter 1995. After provision for preferred stock dividends (see
discussion above under "Payment of Dividends on Senior Preferred Stock"),
the Company earned $178.3 million during the second quarter of 1996, or
$2.71 per common share.
USAir's passengers and capacity (ASMs) decreased, but RPMs, load
factor and yield increased. Passenger and capacity decreases reflect
schedule reductions which were implemented during mid-1995. The increase
in RPMs, load factor and yield is primarily due to the continuation of
relatively stable general economic conditions and favorable capacity and
pricing trends in markets served by the Company's airline subsidiaries;
these favorable capacity and pricing trends have been evident since the
demise of Continental Airlines, Inc.'s low fare, "no frills" product,
"Continental Lite," early in the second quarter of 1995. The Company
believes both the expiration of the Federal Transportation Tax (see also
"Government Regulation" above) and a drop in low cost, low fare
competition during the quarter may have had a stimulative effect on the
Company's airline subsidiaries' Passenger Transportation revenues during
the quarter. USAir selectively increased certain fares in certain markets
during the quarter. As mentioned previously, the Company believes that
the recent drop in low cost, low fare competition is a short-term
condition and not an indication of a long-term trend.
23
<PAGE>
USAir continues to be the highest-cost major air carrier in the
United States. USAir's unit cost was 12.75 cents for the second quarter of
1996, a 12.8% increase versus the second quarter of 1995. This increase is
primarily the result of slightly higher operating expenses applied over
less capacity (ASMs) (see discussion below related to changes in certain
components of the Company's operating expenses).
USAir recorded two non-recurring items during the second quarter of
1996 related to its non-operating British Aerospace BAe-146-200 ("BAe-
146") aircraft. USAir reached agreements to sublease eleven BAe-146s
during the quarter (in addition to the three sublease agreements reached
during the fourth quarter of 1995). Both non-recurring items resulted in
credits to Operating Expense categories. USAir reversed $22.5 million of
previously accrued rent obligations related to these aircraft against
Aircraft Rent expense and reversed $7.0 million against Aircraft
Maintenance expense related to previously accrued lease return provisions.
USAir is currently negotiating for the sublease of its three remaining
leased BAe-146s and is also in discussions related to the disposition of
its single owned BAe-146. No non-recurring items are included in the
Company's second quarter 1995 results.
Operating Revenues
- ------------------
Passenger Transportation - USAir's Passenger Transportation revenues
increased $126.2 million, or 7.5%, with the remainder of the $152.9
million increase attributable to the Company's regional airline
subsidiaries. USAir's increase is the result of a 6.9% increase in yield
and a 0.6% increase in RPMs. The main factors that contributed to the
Company's improved performance are mentioned above. Collectively, the
Company's regional airline subsidiaries yield increased marginally and
RPMs showed strong improvement. The Company's regional airline
subsidiaries are operating certain routes formerly flown by USAir. The
second quarter has historically been the Company's best quarter due to
USAir's combination of business traffic and North-South leisure traffic.
Other Operating Revenues - Fees received by USAir for passenger handling
and reservation services from USAir Express carriers (other than the fees
USAir receives from the Company's three wholly-owned regional air
carriers, which are eliminated during the consolidation of the Company's
results of operations) increased due to higher passenger volumes and a
higher fee structure. In addition, USAir experienced increased revenues
from frequent traveler program participation fees, reservation
cancellation fees and aircraft lease arrangements. Revenues received from
the wet lease arrangement with British Airways decreased approximately
$12.0 million due to the expiration of the arrangement during May 1996.
Increases or
24
<PAGE>
decreases in components of Other Operating Revenues are largely offset by
related changes in Other Operating Expenses or other operating expense
categories.
Operating Expenses
- ------------------
Personnel Costs - Interest rate-driven increases in pension and post-
retirement benefits expenses, profit sharing expenses, contractual wage
increases that USAir's pilot and flight attendant employee groups received
in January 1996 and wage increases received by certain non-contract
employees effective January 1, 1996, combined to more than offset
personnel complement decreases. USAir's flight attendants and pilots also
received contractual wage increases in January 1995 and July 1995,
respectively, and USAir's mechanics received contractual wage increases in
March 1995. USAir had approximately 39,949 full-time equivalent employees
on June 30, 1996 versus 41,009 full-time equivalent employees on June 30,
1995. Pension, long-term disability and post-retirement benefit expenses
increased by approximately $23.4 million due to the effects of higher
interest rates and employee demographics. The Company recognized expenses
of approximately $7.3 million during the second quarter of 1996 related to
stock option grants, severance payments and other compensation related to
recent management changes.
The Company recorded profit sharing expense of $41.2 million during
the second quarter of 1996. The Company did not recognize any profit
sharing expense during 1995 until the third quarter. Based on its current
projection of results for the remainder of 1996, the Company expects to
record additional profit sharing expenses of approximately $82.3 million
during the second half of 1996. If the Company's results for the second
half of 1996 meet current expectations, the Company will pay the remaining
obligation under the 1992 Salary Reduction Plan, approximately $134
million, during the first quarter of 1997. This would end the Company's
obligations for profit sharing under this plan.
Aviation Fuel - USAir's consumption decreased approximately 16 million
gallons, but was offset by the effects of a 9.16 cent increase in the
average cost of aviation fuel per gallon. USAir experienced lower aviation
fuel prices during the second quarter of 1996 than during the first
quarter of 1996. Aviation fuel prices are subject to market conditions
that are generally outside of the Company's control. Fluctuations in the
price of aviation fuel can have a dramatic effect on the Company's results
of operations. Based on current consumption, each one cent per gallon
increase in USAir's cost of aviation fuel translates into an increase of
approximately $11 million in USAir's annual aviation fuel expense. See
Other Operating Expenses below related to Federal taxes on aviation fuel.
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<PAGE>
Commissions- Increased due to increases in Passenger Transportation
revenues.
Aircraft Rent - Excluding the effects of the non-recurring item discussed
above, this expense category increased approximately $3.3 million due
primarily to two leased Boeing 767-200ER aircraft re-entering USAir's
operating fleet during the first half of 1996. USAir recognized expenses
related to these aircraft in the Other Operating Expenses category while
they were operated by British Airways (see also Other Operating Revenues
above).
Other Rent and Landing Fees - Increase attributed to credits received by
USAir in 1995 (certain airport facilities experienced lower operating
costs for 1994 than expected) and higher landing fee rates at certain
airports during 1996, partially offset by more facilities subleased to
third parties and fewer landings (due to mid-1995 schedule reductions)
quarter-over-quarter.
Aircraft Maintenance - Excluding the effects of the non-recurring item
discussed above, Aircraft Maintenance expenses increased approximately
$3.5 million. Efficiencies gained from re-engineering efforts in USAir
maintenance areas and the effects of fewer operating aircraft in USAir's
fleet were more than offset by timing factors and an increase in the costs
USAir incurs to overhaul certain jet engines.
Depreciation and Amortization - Decreased due mainly to fewer owned
aircraft in USAir's operating fleet.
Other Operating Expenses - Increased due primarily to additional Federal
taxes on aviation fuel and increased insurance and communications-related
costs. The Federal Excise Tax on Transportation Fuels totaled
approximately $11 million for the second quarter of 1996 (see also
"Government Regulation" above). Expenses related to the wet lease
arrangement with British Airways decreased approximately $12.0 million due
to the expiration of the arrangement in May 1996 (see also Other Operating
Revenues and Aircraft Rent above).
Other Income (Expense)
- ----------------------
Interest Income - Increased due mainly to higher Cash and Cash Equivalents
and Short-Term Investments balances period-over-period.
Interest Expense - Decreased primarily as the result of less long-term
debt outstanding period-over-period.
Equity in Earnings (Loss) of Affiliates - Amounts pertain to USAM's equity
interest in the earnings of Galileo International Partnership, Apollo
Travel Services Partnership ("ATS") and Galileo
26
<PAGE>
Japan Partnership. Results for all three partnerships improved primarily
driven by increases in airline industry passenger volumes period-over-
period.
Six Month Period Ended June 30, 1996
Compared With the
Six Month Period Ended June 30, 1995
On a year-to-date basis, the Company had net income of $168.5
million, earnings available to common stockholders of $123.7 million and
income (loss) per share of $1.90. The Company had net income of $16.0
million for the first six months of 1995. USAir's net income of $105.6
million for the first half of 1996 is a dramatic improvement over the
$17.2 million loss USAir recorded for the first half of 1995.
USAir's passengers, capacity (ASMs) and RPMs decreased. Load factor
and yield, however, showed strong improvement. Passenger and capacity
decreases mainly reflect mid-1995 schedule reductions with the harsh
winter weather during the first quarter of 1996 contributing marginally to
the decrease. The decrease in RPMs is due mainly to first quarter 1996
activity (harsh winter weather and the partial Federal government shutdown
during the first quarter of 1996 both had a dampening effect on passenger
traffic); RPMs increased during the second quarter of 1996 versus second
quarter 1995. The increases in load factor and yield are primarily due to
the continuation of relatively stable general economic conditions and
favorable capacity and pricing trends in markets served by the Company's
airline subsidiaries; these favorable capacity and pricing trends have
been evident since the demise of Continental Lite early in the second
quarter of 1995. Competition with Continental Lite included USAir lowering
fares in certain markets to maintain market share. The Company believes
both the expiration of the Federal Transportation Tax (see "Government
Regulation" above) and the drop in low cost, low fare competition may have
had a stimulative effect on the Company's airline subsidiaries' Passenger
Transportation revenues for the first half of 1996. USAir selectively
increased certain fares in certain markets during the first half of 1996.
Again, the Company believes that the recent drop in low cost, low fare
competition is a short-term condition and not an indication of a long-term
trend.
USAir's unit cost was 12.78 cents for the first half of 1996, a 14.2%
increase versus the first half of 1995. This increase is primarily the
result of slightly higher operating expenses and less capacity (ASMs) (see
discussion below related to changes in certain components of the Company's
operating expenses).
27
<PAGE>
As discussed in the quarter-over-quarter analysis above, USAir
recorded two non-recurring items during the second quarter of 1996 related
to its non-operating BAe-146 aircraft. There are no non-recurring items
reflected in the Company's 1995 results.
Operating Revenues
- ------------------
Passenger Transportation - USAir's Passenger Transportation revenues
increased $191.2 million, or 6.0%, with the remainder of the $244.1
million increase attributable to the Company's regional airline
subsidiaries. USAir's increase is primarily the result of an 7.8% increase
in yield partially offset by a 1.6% decrease in RPMs. The main factors
that contributed to the Company's improved performance are mentioned
above. In addition, the Company estimates that severe winter weather
within the Eastern U.S. and the partial Federal Government shutdown
adversely affected first quarter 1996 revenues by approximately $55
million. Collectively, both revenue passengers and yield increased for
the Company's regional airline subsidiaries. The Company's regional
airline subsidiaries are operating certain routes formerly flown by USAir.
Other Operating Revenues - Fees received by USAir for passenger handling
and reservation services from USAir Express carriers (other than the fees
USAir receives from the Company's three wholly-owned regional air
carriers, which are eliminated during the consolidation of the Company's
results of operations) increased due to higher passenger volumes and a
higher per-passenger fee structure. In addition, USAir had increased
revenues from frequent traveler program participation fees, USAir Club
membership renewals, reservation cancellation fees and aircraft lease
arrangements. Revenues received from the wet lease arrangement with
British Airways decreased approximately $18.8 million due to the
expiration of the arrangement during May 1996. Increases or decreases in
components of Other Operating Revenues are largely offset by related
changes in Other Operating Expenses or other operating expense categories.
Operating Expenses
- ------------------
Personnel Costs - Increased due mainly to the same factors discussed above
in the quarter-over-quarter analysis above. The Company recognized
expenses of approximately $17.4 million during the first half of 1996
related to restricted stock grants, stock option grants, sign-on bonuses,
severance payments and other compensation related to recent management
changes.
Aviation Fuel - USAir's consumption decreased approximately 49 million
gallons, but was more than offset by the effects of a 7.89 cent increase
in the average cost of aviation fuel per gallon. See discussion of
quarter-over-quarter changes in Aviation Fuel expense
28
<PAGE>
above. See also Other Operating Expenses below related to Federal taxes
on aviation fuel.
Commissions - Decreased due primarily to the effects of the revised rate
structure for commissions paid to travel agencies, which went into effect
during February 1995, mostly offset by increases in Commissions expense
associated with higher Passenger Transportation revenues.
Aircraft Rent - Excluding the effects of the non-recurring item discussed
above, this expense category increased approximately $6.7 million due
primarily to two leased Boeing 767-200ER aircraft re-entering USAir's
operating fleet during the first half of 1996. USAir recognized expenses
related to these aircraft in the Other Operating Expenses category while
they were operated by British Airways (see also Other Operating Revenues
above).
Aircraft Maintenance - Excluding the effects of the non-recurring item
discussed above, Aircraft Maintenance expenses increased approximately
$15.8 million. Efficiencies gained from re-engineering efforts in USAir
maintenance areas and the effects of fewer operating aircraft in USAir's
fleet were more than offset by timing factors and an increase in the costs
USAir incurs to overhaul certain jet engines.
Depreciation and Amortization - Decreased mainly due to fewer owned
aircraft in USAir's operating fleet. During 1995, USAir sold 13 owned
Boeing 737-300 aircraft and took delivery of 7 new Boeing 757-200
aircraft.
Other Operating Expenses - Increased primarily due to additional Federal
taxes on aviation fuel and increases in insurance, de-icing fluid (mainly
during the first quarter of 1996) and communications-related costs. The
Federal Excise Tax on Transportation Fuels totaled approximately $21
million for the first half of 1996 (see also "Government Regulation"
above). Expenses related to the wet lease arrangement with British Airways
decreased approximately $18.8 million due to the expiration of this
arrangement during May 1996 (see also Other Operating Revenues and
Aircraft Rent above).
Other Income (Expense)
- ---------------------
Interest Income - Increased due mainly to higher Cash and Cash Equivalents
and Short-Term Investments balances period-over-period.
Interest Expense - Decreased primarily as the result of less long-term
debt outstanding period-over-period. USAir made early debt repayments
totaling approximately $202.1 million during 1995.
29
<PAGE>
Equity in Earnings (Loss) of Affiliates - Results for USAM's equity
investments improved due primarily to increases in airline industry
passenger volumes year-over-year.
Liquidity and Capital Resources
Net cash provided by operations was $469.7 million for the first half
of 1996. As of June 30, 1996, Cash and Cash Equivalents totaled $775.4
million and Short-Term Investments totaled $464.1 million. USAir also had
$101.4 million deposited in trust accounts to collateralize letters of
credit and worker's compensation policies at quarter-end. These deposits
are included in the Other Asset category on the Company's Condensed
Consolidated Balance Sheets (this financial statement is contained in Part
I, Item 1A of this report). USAM received a special cash distribution of
approximately $33.7 million from ATS during the second quarter of 1996,
reflected in the Other operating adjustments category on the Company's
Condensed Consolidated Statements of Cash Flows (this financial statement
is contained in Part I, Item 1A of this report). The special distribution
was part of an ATS distribution of cash to its partners. USAM has received
distributions totaling approximately $41.4 million from its computer
reservation system investments, including the special ATS distribution,
during the first half of 1996.
Although the Company's current assets have increased by approximately
$457.7 million since the end of 1995, the Company remains highly
leveraged. The Company and USAir require substantial working capital in
order to meet scheduled debt and lease payments and to finance day-to-day
operations. In addition, the Company currently does not have access to
short-term credit or receivable sale facilities.
The Company expects to make contributions of approximately $115
million to certain defined benefit pension plans during the third quarter
of 1996 in order to meet statutory minimum pension funding requirements.
As discussed above in the quarter-over-quarter analysis under "Results of
Operations," the Company expects to pay its remaining liability under the
1992 Salary Reduction Plan, approximately $134 million, during the first
quarter of 1997. The Company has also initiated a program to upgrade and
standardize the interiors of USAir's operating aircraft. This program,
under "Other Information" above, will result in currently estimated
incremental expenditures of approximately $85 million over a three year
period, primarily during 1997 and 1998. USAir is not scheduled to take
delivery of any new aircraft until 1998 and has committed financing for a
significant portion of the purchase price for each of its scheduled 1998
aircraft deliveries. The Company expects to satisfy all of its short-term
liquidity requirements, including the cost of USAir's aircraft interior
upgrade and standardization program,
30
<PAGE?
through a combination of cash on hand and cash flows from operations. The
Company's estimates are subject to change. Changes in certain factors that
are generally outside the Company's control, such as an economic downturn,
additional government regulation, intensified competition from low cost,
low fare air carriers or operations and increases in the price of aviation
fuel, could have a materially adverse effect on the Company's liquidity,
financial condition and results of operations. As mentioned earlier,
USAir's high cost structure relative to its major competitors results in
the Company being particularly susceptible to adverse changes in general
economic and market conditions.
Investing activities during the first half of 1996 included cash
outflows of $88.2 million for the acquisition of assets ($11.0 million
related to progress payments for Boeing 757-200 aircraft scheduled for
delivery in 1998 and $77.2 million related to the purchase of rotables,
hush kits, computer equipment and various ground support equipment). The
Company's Short-Term Investments increased by $442.7 million during the
period. The Other investing uses of cash category includes $12.2 million
related to the purchase of debt issued by Shuttle, Inc. during the first
quarter of 1996. The net cash used by investing activities during the
first half of 1996 was $536.7 million.
Net cash used by financing activities during the first half of 1996
was $39.5 million. USAir sold $263.0 million principal amount of Enhanced
Equipment Notes ("Enhanced Notes") during the first quarter of 1996
through a private placement offering under SEC Regulation 144A. USAir
used the proceeds from the offering as part of the funds necessary to
repay in full the indebtedness incurred in connection with certain Boeing
757-200 aircraft delivered to USAir in 1994 and 1995. The transaction is
reflected on the Company's Condensed Consolidated Statements of Cash Flows
as proceeds from the issuance of debt of $103.0 million and a "non-cash"
issuance of debt of $160.0 million. The non-cash component reflects
proceeds that USAir directed to reduce debt and pay underwriter's fees at
the time of the offering. USAir used the cash proceeds it received from
the offering and additional funds to make debt repayments of approximately
$105.5 million immediately following the offering. The Enhanced Notes are
secured by nine Boeing 757-200 aircraft. USAir filed a Form S-4
Registration Statement with the SEC during July 1996 in connection with
its offer to exchange registered Enhanced Notes for the privately-placed
Enhanced Notes. The exchange offer will not result in cash inflows or
outflows with the exception of filing fees and certain administrative
costs. In addition to the refinancing transaction, the Company's
subsidiaries made scheduled debt repayments of approximately $39.2 million
during the first half of 1996. USAir also incurred new debt of $13.8
million associated with progress payments for Boeing 757-200 aircraft
scheduled for delivery in 1998. The $13.8 million is
31
<PAGE>
reflected as non-cash activity in the Company's Condensed Consolidated
Statements of Cash Flows because USAir incurred the related debt in
conjunction with the payment of the progress payments. As mentioned above,
USAir has committed financing for a significant portion of the purchase
price for each of its scheduled 1998 aircraft deliveries.
As of June 30, 1996, USAir Group's ratio of current assets to current
liabilities was approximately 0.73 to 1 and the debt component of USAir
Group's capitalization structure was greater than 100% (and also greater
than 100% if the three series of mandatorily redeemable preferred stock
are considered to be debt) due to a deficit in stockholders' equity.
Certain information contained in this report should be con-sidered
"forward-looking information". Forward-looking information requires the
Company to make estimates of future revenues, expenses, activity levels
and economic and markets conditions, among other factors. Some of these
factors, such as aviation fuel costs and general economic conditions, are
outside of the Company's control. The Company's estimates are subject to
change. Actual results experienced by the Company may differ from the
Company's estimates. The Company assumes no obligation to update such
estimates to reflect actual results, changes in assumptions or changes in
other factors affecting such estimates.
(this space intentionally left blank)
32
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
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 by 481 active and retired pilots alleging violations of the
Employee Retirement Income Security Act ("ERISA") by erroneously
calculating pension benefits under the Pilots Pension Plan. The
plaintiffs sought damages in excess of $70 million. On May 31, 1996 the
court issued a decision in the lawsuit granting USAir's Motion to Dismiss
the majority of the complaint for lack of subject matter jurisdiction,
deciding that the dispute must be resolved through the arbitration
process. The court retained jurisdiction over one count of the complaint
alleging a violation of a disclosure requirement of ERISA. There are no
significant penalties or damages which can result from this remaining
claim. The plaintiffs have appealed the court's decision, however, in the
opinion of USAir's counsel, the appeal is unlikely to be successful.
On July 30, 1996, the Company and USAir initiated a lawsuit in United
States District Court for the Southern District of New York against
British Airways, BritAir Acquisition Corp., Inc., American and American's
parent company, AMR Corp. The Company and USAir have claimed that British
Airways, in pursuit of an alliance with American, has breached its
fiduciary duty to the Company and USAir and has violated certain
provisions of the January 21, 1993 Investment Agreement between the
Company and British Airways. In addition, the lawsuit claims that American
has aided and abetted British Airways' breach of its fiduciary duties and
has tortuously interfered with British Airways' performance of its
obligations under the Investment Agreement. The lawsuit also claims that
the defendants are in violation of U.S. antitrust laws that prohibit
conduct that harms competition.
The Company is unable to predict at this time the ultimate outcome of
this lawsuit.
Item 3. Defaults Upon Senior Securities
On July 24, 1996, USAir Group's Board of Directors declared a
dividend of $43.0 million on the Company's outstanding Senior Preferred
Stock. The Company had previously deferred the payment of dividends on all
of its outstanding preferred stock issuances effective with dividend
payments due September 30, 1994.
The dividend declared is equal to the Company's capital surplus at
June 30, 1996, as calculated in accordance with Delaware General
Corporation Law based on the Company's Condensed Consolidated
33
<PAGE>
Balance Sheets, and was paid pro rata to the holders of the Senior
Preferred Stock on August 2, 1996. The Company's outstanding Series B
Preferred Stock is junior to the Company's Senior Preferred Stock and is
not eligible to receive dividends until the deferred dividends on the
Senior Preferred Stock are paid in full and all Senior Preferred Stock
dividend payments are current. There can be no assurance of when or if the
Company's Board of Directors will declare additional dividends on its
outstanding capital stock.
The redemption value of the Series A Preferred Stock at June 30, 1996
was $432.7 million (face amount of $358.0 million plus deferred dividends
and interest thereon of $74.7 million). The redemption values of the
Series F and Series T Preferred Stock at June 30, 1996 were $340.7 million
(face amount of $300.0 million plus deferred dividends and interest
thereon of $40.7 million) and $112.9 million (face amount of $100.7
million plus deferred dividends and interest thereon of $12.2 million),
respectively. The liquidation preference of the Series B Preferred Stock
was $248.1 million (face amount of $213.2 million plus deferred dividends
of $34.9 million) at June 30, 1996.
The outstanding issues of preferred stock are the: Series A Preferred
Stock owned by affiliates of Berkshire Hathaway, Inc.; Series F Preferred
Stock and Series T Preferred Stock both owned by an affiliate of British
Airways Plc; and the Series B Preferred Stock which is publicly held.
Item 4. Submission of Matters to a Vote of Security Holders
USAir Group's annual meeting of stockholders was held on May 22,
1996. Proxies for the meeting were solicited by USAir Group pursuant to
Regulation 14A under the Securities Exchange Act of 1934.
All of management's nominees for the election to the Board of
Directors as listed in USAir Group's Proxy Statement for the meeting were
elected without solicitation in opposition. In addition, the holders of
voting securities also voted on the following proposals with the following
results:
1. Management's proposal regarding approval of the Company's 1996 Stock
Incentive Plan.
For 67,341,046 Against 11,961,901 Abstain 253,183
Broker Non-Votes None
(continued on following page)
34
<PAGE>
2. Management's proposal regarding approval of the Company's
Nonemployee Director Stock Incentive Plan.
For 74,326,819 Against 4,928,771 Abstain 300,540
Broker Non-Votes None
3. Management's proposal regarding ratification of the selection of
auditors of the Company for fiscal year 1996.
For 78,906,311 Against 467,213 Abstain 182,606
Broker Non-Votes None
4. Stockholder proposal concerning confidential voting.
For 24,838,013 Against 43,373,875 Abstain 457,569
Broker Non-Votes 10,886,673
5. Stockholder proposal relating to political contributions.
For 5,156,187 Against 59,976,394 Abstain 3,506,625
Broker Non-Votes 10,916,924
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Designation Description
4 Consolidated Financial Statements of Galileo International
Partnership for the years ended December 31, 1995 and 1994 and the
Consolidated Financial Statements of Apollo Travel Services
Partnership for the years ended December 31, 1995 and 1994.
10 USAir Group's 1996 Stock Incentive Plan (incorporated by reference
to Exhibit A to USAir Group's Proxy Statement dated April 15, 1996).
11 Computation of Primary and Fully-Diluted Earnings Per Share for the
three months and six months ended June 30, 1996 and 1995 for USAir
Group, Inc.
27.1 Financial Data Schedule - USAir Group, Inc.
27.2 Financial Data Schedule - USAir, Inc.
99 Select Airline Operating and Financial Statistics for the
three months and six months ended June 30, 1996 and 1995 for USAir,
Inc.
35
<PAGE>
B. Reports on Form 8-K
Date of Report Subject of Report
May 1, 1996 News Release dated April 24, 1996 of USAir Group,
Inc. and USAir, Inc. with consolidated statements
of operations for each company for the three months
ended March 31, 1996.
July 26, 1996 News Release dated July 24, 1996 of USAir Group,
Inc. and USAir, Inc. with consolidated statements
of operations for each company for the three months
and six months ended June 30, 1996 and select
operating and financial statistics for USAir,
Inc.for the same periods.
July 30, 1996 News Release dated July 30, 1996 of USAir Group,
Inc. and USAir, Inc., relating to the initiation
of litigation by USAir Group, Inc. and USAir,
Inc. against British Airways Plc, BritAir
Acquisition Corp. Inc., AMR Corporation and
American Airlines, Inc.
(this space intentionally left blank)
36
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrants have duly caused this report to be signed on their behalf
by the undersigned thereunto duly authorized.
USAir Group, Inc.
(Registrant)
Date: August 13, 1996 By: /s/James A. Hultquist
----------------------------
James A. Hultquist
Controller
(Principal Accounting Officer)
USAir, Inc.
(Registrant)
Date: August 13, 1996 By: /s/James A. Hultquist
----------------------------
James A. Hultquist
Controller
(Principal Accounting Officer)
37
<PAGE>
Exhibit 4
GALILEO INTERNATIONAL PARTNERSHIP
Consolidated Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
[LOGO OF KPMG PEAT MARWICK LLP APPEARS HERE]
Peat Marwick Plaza
303 East Wacker Drive
Chicago, IL 60601-9973
Independent Auditors' Report
The Supervisory Board
Galileo International Partnership:
We have audited the accompanying consolidated balance sheets of
Galileo International Partnership and subsidiaries (the
"Partnership") as of December 31, 1995 and 1994, and the related
consolidated statements of income, cash flows, and partners'
capital for the years then ended. These consolidated financial
statements are the responsibility of the Partnership's
Management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
Significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Galileo International Partnership and subsidiaries at
December 31, 1995 and 1994, and the results of their operations
and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
February 16, 1996
1
<PAGE>
GALILEO INTERNATIONAL PARTNERSHIP
Consolidated Balance Sheets
December 31, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
-------- --------
Assets 1995 1994
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,367 30,652
Accounts receivable 130,071 103,728
Less allowances 11,713 14,946
-------- --------
Net accounts receivable 118,358 88,782
Other current assets 60,586 14,361
-------- --------
Total current assets 187,311 133,795
Property and equipment, at cost:
Land 5,070 5,070
Buildings and improvements 53,777 55,010
Equipment 242,314 213,759
-------- --------
301,161 273,839
Less accumulated depreciation
and amortization 197,813 187,313
-------- --------
Net property and equipment 103,348 86,526
Computer software, net of accumulated
amortization of $124,490 and
$84,005 at December 31, 1995
and 1994, respectively 273,514 290,606
Other noncurrent assets 4,835 44,571
-------- --------
$569,008 555,498
======== ========
Liabilities and Partners' Capital
Current liabilities:
Accounts payable 35,194 23,396
Accrued commissions 41,191 35,694
Other accrued liabilities 74,848 82,910
Income taxes payable 5,514 4,210
Capital lease obligations,
current portion 7,372 18,419
Long-term debt, current portion 67,204 30,188
-------- --------
Total current liabilities 231,323 194,817
Postretirement benefits 13,936 11,715
Obligations under capital leases,
less current portion 36,263 38,723
Data center consolidation reserve,
less current portion 23,637 29,495
Long-term debt, less current portion 134,171 239,812
Other long-term liabilities, net 125 1,454
Partners' capital, including cumulative
translation losses of $7,763 and
$3,377 in 1995 and 1994,
respectively 129,553 39,482
-------- --------
$569,008 555,498
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
GALILEO INTERNATIONAL PARTNERSHIP
Consolidated Statements of Income
Years ended December 31,1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Services revenues $ 928,205 $ 801,373
Costs and expenses:
Costs of operations 248,445 239,219
Selling and administrative 539,462 492,856
-------- --------
787,907 732,075
-------- --------
Operating income 140,298 69,298
Other income (expense):
Interest income 4,476 4,275
Interest expense (18,882) (25,945)
Foreign exchange gain (loss) (380) 343
Other (1,797) 5,243
-------- --------
(16,583) (16,084)
-------- --------
Net income before taxes 123,715 53,214
Income taxes 2,664 4,404
-------- --------
Net income $ 121,051 $ 48,810
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
GALILEO INTERNATIONAL PARTNERSHIP
Consolidated Statements of Cash Flows
Years ended December 31, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 121,051 48,810
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization 80,151 91,488
Loss on disposal of property
and equipment 2,472 472
Provision for losses
on accounts receivable 1,558 5,432
Decrease in noncurrent assets 38,672 9,566
Decrease in noncurrent liabilities (8,490) (4,165)
Changes in operating assets and
liabilities:
Increase in accounts receivable (30,970) (8,007)
Increase in other current assets (46,304) (1,100)
Increase (decrease) in accounts
payable and commissions 18,581 (14,609)
Increase (decrease) in
other accrued liabilities (5,475) 3,705
Increase in income taxes payable 1,304 4,210
-------- --------
Net cash provided by operating
activities 172,550 135,802
-------- --------
Investing activities:
Purchase of property and equipment (56,726) (29,176)
Purchase and capitalization of
computer software (32,287) (29,709)
Proceeds of disposal of
property and equipment 2,883 246
-------- --------
Net cash used in investing activities (86,130) (58,639)
-------- --------
Financing activities:
Distributions to partners (26,594) (5,428)
Payment of capital lease obligations (13,318) (12,798)
Repayments under credit agreement (68,625) (70,000)
-------- --------
Net cash used in financing activities (108,537) (88,226)
-------- --------
Effect of exchange rate changes on cash (168) 70
-------- --------
Decrease in cash and cash equivalents (22,285) (10,993)
-------- --------
Cash and cash equivalents at
beginning of year 30,652 41,645
-------- --------
Cash and cash equivalents at
end of year $ 8,367 30,652
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
GALILEO INTERNATIONAL PARTNERSHIP
Consolidated Statements of Partners' Capital Years ended December 31, 1995 and 1994
(In thousands)
<CAPTION>
Travel Roscom
Covia Distribution Roscor Industry USAM Teledata
Corporation Systems, Inc. A.G. Systems B.V. Corporation S.p.A.
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
12/31/93 $ (1,823) (703) (634) (580) (527) (418)
Net income 18,548 7,150 6,453 5,901 5,369 4,251
Distributions - - (260) (238) - (171)
Allocation of
increase in
translation
adjustment (1,467) (565) (510) (466) (425) (336)
- ------------------------------------------------------------------------------------------
Balance at
12/31/94 15,258 5,882 5,049 4,617 4,417 3,326
Net income 45,999 17,734 16,003 14,635 13,316 10,543
Distributions (8,977) (3,461) (4,274) (3,908) (2,599) (2,816)
Allocation of
increase in
translation
adjustment (1,667) (643) (580) (530) (483) (382)
- ------------------------------------------------------------------------------------------
Balance at
12/31/95 $ 50,613 19,512 16,198 14,814 14,651 10,671
==========================================================================================
(table continued on following page)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Resnet
Olynet, Holdings, Travidata, Retford Coporga,
Inc. Inc. Inc. Limited Inc. Total
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
12/31/93 (49) (48) (5) (5) (5) (4,797)
Net income 503 488 49 49 49 48,810
Distributions - - - (2) - (671)
Allocation of
increase in
translation
adjustment (40) (39) (4) (4) (4) (3,860)
- ------------------------------------------------------------------------------------------
Balance at
12/31/94 414 401 40 38 40 39,482
Net income 1,247 1,211 121 121 121 121,051
Distributions (243) (236) (24) (32) (24) (26,594)
Allocation of
increase in
translation
adjustment (45) (44) (4) (4) (4) (4,386)
- ------------------------------------------------------------------------------------------
Balance at
12/31/95 1,373 1,332 133 123 133 129,553
- ------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
GALILEO INTERNATIONAL PARTNERSHIP
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
(1) Organization and Basis of Presentation
The principal services provided by Galileo International
Partnership (Partnership) are in connection with its proprietary
travel reservation systems. The Partnership's receivables are
primarily due from airlines and other entities operating in the
travel industry.
On September 16, 1993 Covia Partnership (Covia) and Galileo
Company Limited (Galileo) combined, resulting in the realignment
of the partners' interests. The partners of Covia and the
shareholders of Galileo were substantially the same. The
operations of Galileo and certain operations of Covia were
combined and the name of Covia was changed to Galileo
International Partnership. In addition, certain sales support and
telecommunications operations were distributed by Covia to Apollo
Travel Services, a newly formed entity owned by certain former
Covia partners, and certain telecommunications and data
processing operations performed by Covia for United Airlines,
Inc. (United) were distributed to United. On the date of this
combination, Galileo sold Covia certain of its intellectual
property and Galileo used the proceeds to retire debt. Subsequent
to the retirement of debt, Galileo was converted from a limited
to an unlimited liability company and its shareholders
contributed 99% of their ownership interest in Galileo to the
Galileo International Partnership.
The Partnership, a Delaware general partnership, is owned
by, and net income or loss is allocated based on the following:
<TABLE>
<CAPTION>
Ownership
Partner Partner's affiliate percentage
- -----------------------------------------------------------------
<S> <C> <C>
Covia Corporation United Airlines, Inc. 38.00%
Distribution Systems, Inc. British Airways plc 14.65
Roscor A.G. Swissair Swiss Air
Transport Company Ltd. 13.22
Travel Industry KLM Royal Dutch Airlines 12.09
Systems B.V.
USAM Corporation USAir Inc. 11.00
Racom Teledata S.p.A. Alitalia Linee Aeree
Italiane S.p.A. 8.71
Olynet, Inc. Olympic Airways S.A. 1.03
Resnet Holdings, Inc. Air Canada 1.00
Retford Limited Aer Lingus plc 0.10
Coporga, Inc. Transportes Aereos
Portuguese S.A. 0.10
Travidata, Inc. Austrian Airlines
Oesterreichische
Luftverkehrs
Aktiengesellschaft 0.10
</TABLE>
(Continued)
6
<PAGE>
GALILEO INTERNATIONAL PARTNERSHIP
Notes to Consolidated Financial Statements
The consolidated financial statements include the accounts
of the Partnership and all majority-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated
in consolidation.
(2) Significant Accounting Policies
Cash and Cash Equivalents
Cash in excess of operating requirements is invested daily
in liquid, income-producing investments, generally having
maturities of three months or less. The carrying amounts reported
on the consolidated balance sheet for cash equivalents include
cost and accrued interest, which approximate those assets' fair
value.
Foreign Currency Translation
The Partnership uses the U.S. dollar for financial reporting
purposes. The balance sheets of the Partnership's foreign
subsidiaries are translated into U.S. dollars using the current
exchange rate and revenues and expenses are translated using the
average exchange rate. The resulting translation gains or losses
are recorded as a separate component of partners' capital.
Allowance for Doubtful Accounts Receivable
The allowance for doubtful accounts receivable was
$11,713,000 and $14,946,000 at December 31, 1995 and 1994,
respectively. Provisions for bad debts were $1,558,000 and
$5,432,000 for the years ended December 31, 1995 and 1994,
respectively. Write-offs of uncollectible accounts, net of
recoverables and adjustments, were $4,791,000 and $2,877,000 for
the years ended December 31, 1995 and 1994, respectively.
Property and Equipment
Depreciation of property and equipment is provided on the
straight-line method over the following estimated useful lives of
the assets:
Buildings and improvements 5 - 35 years
Equipment 3 - 10 years
Depreciation expense for the years ended December 31, 1995
and 1994 was $33,280,000 and $34,269,000, respectively. Accounts
payable at December 31, 1995 and 1994 includes property and
equipment additions of $959,000 and $1,951,000, respectively.
Income Taxes
No provision for U.S. Federal income taxes is recorded as
such liability is the responsibility of the partners rather than
of the Partnership. Galileo Company Unlimited, a wholly-owned
subsidiary in the United Kingdom, is subject to United Kingdom
income taxes.
(continued)
7
<PAGE>
GALILEO INTERNATIONAL PARTNERSHIP
Notes to Consolidated Financial Statements
Computer Software
Computer software consists principally of purchased computer
software and capitalized computer software development costs,
which are being amortized on the straight-line method over three
to ten years. Amortization expense for the years ended December
31, 1995 and 1994 was $46,225,000 and $48,380,000,
respectively.
Maintenance and Installation
Maintenance and installation expense for the years ended
December 31, 1995 and 1994 was $12,362,000 and $12,089,000,
respectively.
Taxes Other Than Income
Taxes, excluding income and payroll taxes, included in
selling and administrative expense were $7,693,000 and $6,167,000
for the years ended December 31, 1995 and 1994, respectively.
Research and Development
Research and development costs, excluding amortization of
computer software, are expensed as incurred and approximated
$10,094,000 and $10,319,000 for the years ended December 31, 1995
and 1994, respectively.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Partnership's financial instruments are valued at their
carrying amounts which are reasonable estimates of fair value due
to the relatively short period to maturity of the instruments.
Reclassifications
Certain reclassifications have been made to the 1994
consolidated financial statements in order to conform to the 1995
presentation.
(Continued)
8
<PAGE>
GALILEO INTERNATIONAL PARTNERSHIP
Notes to Consolidated Financial Statements
(3) Transactions With Affiliates
The Partnership receives participant revenues from the
partners and their affiliates based on standard charges for
flights booked by travel agents. In addition, the Partnership, in
the ordinary course of business, purchases services from its
partners and their affiliates and provides data processing and
communications-related services to United. Total revenues from
partners and their affiliates, classified within service revenues
in the consolidated statements of income, were $371,269,000 and
$311,841,000 for the years ended December 31, 1995 and 1994,
respectively. Services purchased from partners and their
affiliates during 1995 and classified within costs of operations
and selling and administrative expense totaled $14,638,000 and
$365,423,000,respectively. Services purchased from partners and
their affiliates during 1994 and classified within costs of
operations and selling and administrative expense totaled
$15,755,000 and $343,185,000, respectively.
(4) Capital Lease and Other Lease Commitments
The Partnership leases various office facilities and
equipment under operating leases with remaining terms of up to 11
years. Rental expense under operating leases was $16,510,000 and
$20,134,000 for the years ended December 31, 1995 and 1994,
respectively.
The Partnership also leases data processing equipment under
capital leases. Equipment, at cost, includes $36,139,000 and
$33,187,000, relating to capital leases at December 31, 1995 and
1994, respectively. Accumulated depreciation and amortization
includes $18,620,000 and $19,349,000 relating to capital leases
at December 31, 1995 and 1994, respectively. The Partnership
entered into capital leases of $8,070,000 and $6,033,000 during
the years ended December 31, 1995 and 1994, respectively.
Future minimum lease payments under capital leases and
noncancelable operating leases at December 31, 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
-------- --------
<S> <C> <C>
1996 $ 10,374 20,124
1997 8,152 14,832
1998 7,114 10,234
1999 6,473 8,005
Thereafter 25,056 74,198
-------- --------
Total minimum lease payment 57,169 $ 127,393
========
Less amount representing interest (13,534)
--------
Present value of future minimum
lease payments $ 43,635
========
</TABLE>
(Continued)
9
<PAGE>
GALILEO INTERNATIONAL PARTNERSHIP
Notes to Consolidated Financial Statements
(5) Long-term Debt
At December 31, 1995, the Partnership has outstanding long-
term debt consisting of a $161,375,000 term loan and a
$40,000,000 cash collateral term loan. The Partnership also has
an unused committed revolving loan of $80,000,000, with
commitment fees of 0.25% charged quarterly on the unused credit
facilities. Prior to renegotiation of the debt during 1995, the
Partnership paid an annual fee equal to 0.50% of the aggregate
amount of the outstanding loan and the unused facilities to
various partners who had guaranteed the partnership debt.
Interest on outstanding debt is based on a moving three-month
London Inter-bank Offer Rate (LIBOR) plus an additional
percentage, as negotiated. Such additional percentages were
0.625% and 0.95%, at December 31, 1995 and 1994, respectively.
The credit agreement limits, among other things, the sale of
fixed assets, dividends, and issuance of debt, and it requires
that the Partnership maintain specified minimum levels of
tangible partnership capital. At December 31, 1994 the
Partnership had outstanding long-term debt consisting of a
$230,000,000 term loan and a $40,000,000 cash collateral term
loan.
At December 31, 1995, the Partnership had interest rate
protection agreements for the outstanding loans in the form of
interest rate swaps and interest rate caps. The interest rate
swap agreements cover $124,900,000 of the debt facility with
fixed interest rates averaging 5.075%. The interest rate cap
agreements cover $75,200,000 of the debt facility, and are in
effect when LIBOR reaches a rate of 7.00%. For the years ended
December 31, 1995 and 1994, the effective interest rate on
outstanding debt was 6.55% and 5.77%, respectively.
At December 31, 1995, the long-term debt maturity schedule,
prior to adjustment for the matter discussed in note 9, is as
follows:
1996 $ 26,743,000
1997 66,113,000
1998 108,519,000
--------------
$ 201,375,000
==============
Total interest, including interest under capital leases, of
$18,882,000 was incurred and $19,299,000 was paid for the year
ended December 31, 1995. Total interest, including interest under
capital leases, of $25,945,000 was incurred and $24,930,000 was
paid for the year ended December 31, 1994.
(6) Employee Benefit Plans
The Partnership has a defined benefit pension plan that
covers substantially all U.S. employees. Plan benefits are based
on the participant's years of service and average compensation
for a
(Continued)
10
<PAGE>
GALILEO INTERNATIONAL PARTNERSHIP
Notes to Consolidated Financial Statements
specified period before retirement. The Partnership's funding
policy is to contribute annually an amount which satisfies ERISA
funding standards. The assets of the plan at December 31, 1995
and 1994 are principally comprised of marketable equity
securities, U.S. Government and government agency bonds, and
short-term securities.
The following sets forth the plan's obligations, funded
status, and pension costs at December 31, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Actuarial present value of
accumulated benefit obligation:
Vested $ (23,184) (16,633)
Nonvested (5,626) (3,876)
---------- ----------
$ (28,810) (20,509)
---------- ----------
Projected benefit obligation
for service rendered to date (38,833) (30,742)
Plan net assets at fair value 25,421 16,447
---------- ----------
Plan net assets less than
projected benefit obligation (13,412) (14,295)
Unrecognized net loss 4,125 4,235
Unrecognized prior service cost 4,164 4,688
Unrecognized net transition
obligation 2,985 3,234
Adjustment to recognize minimum
pension liability (1,251) (1,924)
---------- ----------
Net pension liability $ (3,389) (4,062)
========== ==========
Net pension costs for the years ended December 31, 1995 and
1994 included the following components (in thousands):
1995 1994
---------- ----------
Interest cost on
projected benefit obligation $ 2,744 2,218
Service cost 3,038 2,977
Actual investment return
on plan assets (4,789) (200)
Net amortization and deferral 3,884 (326)
--------- ----------
$ 4,877 4,669
--------- ----------
</TABLE>
(Continued)
11
<PAGE>
GALILEO INTERNATIONAL PARTNERSHIP
Notes to Consolidated Financial Statements
The discount rate and rate of increase in future
compensation levels used in determining the actuarial present
value of the projected benefit obligation were 7.25% and 4.25%,
respectively, in 1995 and 8.5% and 5.5%, respectively, in 1994.
The expected long-term rate of return on assets as of December
31, 1995 and 1994 was 9.5%.
The Partnership has a defined contribution pension plan
covering a majority of the United Kingdom employees which
requires the Partnership to annually contribute 10% of eligible
employee compensation on behalf of each participant.
The Partnership offers U.S. based employees a 401(k) savings
plan. Employees can elect to contribute pre-tax earnings, as
limited by the Internal Revenue Code, to their account and can
determine how the money is invested. During 1995, the Partnership
made a special, one-time contribution to the Plan of $4,242,000
based upon 1994 results versus plan.
(7) Postretirement Benefits
The Partnership provides certain health care benefits to its
retired employees. The majority of its domestic employees may
become eligible for these benefits if they reach normal
retirement age while working for the Partnership. In addition,
the Partnership provides retiree flight benefits to certain
former United employees. The discount rate used to develop the
accumulated postretirement benefit obligation for the retiree
health care plan was 7.25% and 8.5% in 1995 and 1994,
respectively. The Partnership's plan is unfunded.
Components of the expense recognized for the year ended
December 31, 1995 and 1994 for the retiree health care plan were
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Service costs $ 909 894
Interest cost on
projected obligation 1,362 1,193
Amortization of losses 127 272
--------- ---------
Net retiree health
care expense $ 2,398 2,359
--------- ---------
</TABLE>
The health care trend rate used to determine the accumulated
postretirement benefit obligation is 14% for 1993 through 1996,
decreasing by 1% each year until reaching 4% for the year 2006
and beyond. Increasing the health care trend rate by one
percentage point would increase the accumulated postretirement
benefit obligation by $127,000 and $100,000 in 1995 and 1994,
respectively, and would increase the 1995 and 1994 net retiree
health care expense by $10,000 and $9,000, respectively. There
are no significant postretirement health care benefit plans
outside of the United States.
(Continued)
12
<PAGE>
GALILEO INTERNATIONAL PARTNERSHIP
Notes to Consolidated Financial Statements
(8) Discontinued Operations
During 1995, the Partnership decided to discontinue the
operations of Covia Technologies. A reserve of $12,388,000 has
been provided for the costs of the disposal of the discontinued
operations and the write-off of intangible assets as of December
31, 1995.
(9) Early Repayment of Debt
The Partnership has classified $40,461,000 of non-required
debt payments as current debt in the accompanying consolidated
balance sheet at December 31, 1995. This classification reflects
the Partnership's intent to utilize cash generated from the
return of a lease deposit, which will be replaced by an
irrevocable letter of credit in the first quarter of 1996, to
retire such debt. The lease deposit has also been classified as a
current asset in the accompanying consolidated balance sheet at
December 31, 1995.
(10) Commitments and Contingencies
United has communicated their intent to recover $23,100,000
in previously paid booking fees ($7,000,000, net of commission
recoveries). United claims such fees should be categorized as
bookings by "non-neutral" travel providers under the Computer
Services Agreement between United and Galileo and billed at cost.
The Partnership disagrees with such claims and therefore has
not provided for this claim in the accompanying consolidated
balance sheet at December 31, 1995. The Partnership will submit
the matter for partner arbitration under provisions of the
Combination Agreement.
(11) Litigation
The Partnership is involved in various matters of litigation
as both plaintiff and defendant. In the opinion of management,
none of these matters would have a material adverse effect on the
consolidated financial statements.
<PAGE>
APOLLO TRAVEL SERVICES PARTNERSHIP
Consolidated Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners and Supervisory Board of
Apollo Travel Services Partnership
We have audited the accompanying consolidated balance sheets of
Apollo Travel Services Partnership (Partnership) as of December
31, 1995 and 1994, and the related consolidated statements of
operations, partners' capital and cash flows for the years then
ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of the Partnership as of December 31, 1995 and
1994, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted
accounting principles.
Chicago, Illinois ARTHUR ANDERSEN LLP
February 14, 1996
<PAGE>
Apollo Travel Services Partnership Consolidated Balance Sheets
December 31, 1995 and 1994 (in thousands)
<TABLE>
<CAPTION>
Assets
1995 1994
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 158,934 $ 118,038
Accounts receivable-
United Air Lines, Inc. 15,553 11,855
Other related parties 25,204 24,341
Subscribers and other 11,507 9,010
------ ------
52,264 45,206
Less allowances 4,096 6,160
------ ------
Net accounts receivable 48,168 39,046
Other current assets 2,704 2,442
------- -------
Total current assets 209,806 159,526
Property and equipment, at cost:
Land 2,430 2,430
Buildings and improvements 2,044 1,821
Equipment 81,423 71,972
Equipment held for lease 341,268 323,140
------- -------
427,165 399,363
Less accumulated depreciation 323,135 294,421
------- -------
Net property and equipment 104,030 104,942
Deferred lease incentives,
less accumulated amortization
of $13,099 and $13,163 16,637 12,505
Other noncurrent assets 5,646 1,823
---------- ----------
$ 336,119 $ 278,796
========== ==========
Liabilities and Partners' Capital
Current liabilities:
Accounts payable-
United Air Lines, Inc. $ 5,358 $ 7,956
Other related parties 2,504 3,114
Other 25,044 17,658
Accrued liabilities 27,432 22,128
Capital lease obligations,
current portion 697 637
------ ------
Total current liabilities 61,035 51,493
Noncurrent liabilities:
Pension liability 6,283 4,210
Obligations under
capital leases 467 1,164
Postretirement benefit obligation 12,250 10,606
------ ------
Total noncurrent liabilities 19,000 15,980
Partners' capital:
Partners' capital before
cumulative translation
adjustment 256,685 211,568
Cumulative translation
adjustment (601) (245)
----------- -----------
Total partners' capital 256,084 211,323
----------- -----------
$ 336,119 $ 278,796
=========== ==========
See accompanying notes consolidated financial statements.
</TABLE>
2
<PAGE>
Apollo Travel Services Partnership
Consolidated Statement of Operations
Years Ended December 31, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Net revenues:
Computer reservation system $ 236,096 $ 239,108
Services to affiliates 142,426 137,280
---------- ----------
378,522 376,388
---------- ----------
Operating expenses:
Wages and benefits 69,306 70,283
Communications 89,000 82,836
Depreciation and amortization 49,924 50,388
Maintenance and installation 26,672 24,687
Marketing and sales support 23,987 24,964
Other 30,043 30,830
---------- ----------
288,932 283,988
---------- ----------
Operating income 89,590 92,400
Interest and other income 8,646 2,897
---------- ----------
Net Income $ 98,236 $ 95,297
========== ==========
See accompanying notes consolidated financial statements.
</TABLE>
3
<PAGE>
Apollo Travel Services Partnership
Consolidated Statement of Partners' Capital
Years Ended December 31, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Resnet
Covia USAM Holdings
Corporation Corporation Inc. Total
----------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Balance at
December 31, 1993 $117,324 $32,119 $2,926 $152,369
Net income 73,379 20,088 1,830 95,297
Distributions (27,805) (7,601) (692) (36,098)
Change in cumulative
translation
adjustment (189) (52) (4) (245)
-------- -------- ------ --------
Balance at
December 31, 1994 $162,709 $44,554 $4,060 $211,323
Net income 75,641 20,709 1,886 98,236
Distribution (40,901) (11,198) (1,020) (53,119)
Change in cumulative
translation
adjustment (274) (74) (8) (356)
-------- ------- ------ --------
Balance at
December 31, 1995 $197,175 $53,991 $4,918 $256,084
======== ======= ====== ========
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
Apollo Travel Services Partnership Consolidated Statement of
Cash Flows Years Ended December 31, 1995 and 1994 (in thousands)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Operating activities:
Net Income $ 98,236 $ 95,297
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation and amortization 45,518 44,857
Amortization of deferred lease
incentives 11,075 12,779
Gain on disposal of property
and equipment (974) (360)
Foreign exchange loss - 66
Increase in deferred
lease incentives (15,207) (9,038)
Provision for losses on
accounts receivable 3,732 4,910
Increase in noncurrent assets (2,954) (992)
Increase in postretirement
benefit obligation 1,644 1,752
Changes in operating assets and
liabilities-
Increase in accounts
receivable (12,885) (3,830)
(Increase) decrease in
other current assets (285) 1,741
Increase (decrease) in
accounts payable 4,194 (3,278)
Increase (decrease) in
accrued liabilities 6,307 (3,444)
-------- --------
Net cash provided by operating
activities 138,401 140,460
Investing activities:
Purchase of property and equipment (45,006) (31,998)
Proceeds on disposal of property and
equipment 1,335 701
-------- --------
Net cash used in investing activities (43,671) (31,297)
Financing activities:
Distributions to partners (53,119) (36,098)
Payment of capital lease obligations (697) (582)
-------- --------
Net cash used in financing activities (53,816) (36,680)
Effect of exchange rate changes on cash (18) (48)
Net increase in cash and cash equivalents
during period 40,896 72,435
Cash and cash equivalents at beginning of
period 118,038 45,603
--------- --------
Cash and cash equivalent
at end of period $ 158,934 $ 118,038
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
Apollo Travel Services Partnership
Notes to Consolidated Financial Statements
1. Organization and basis of presentation
--------------------------------------
Apollo Travel Services Partnership (Partnership) acts as the
national distributor in the United States and Mexico of the
proprietary Apollo computer reservation system, owned and
operated by Galileo International Partnership (Galileo
International). The Partnership performs certain sales support
and telecommunications operations pursuant to a distribution
agreement with Galileo International.
The Partnership, a Delaware general partnership, is owned by, and
net income or loss is allocated based on the following:
<TABLE>
<CAPTION>
Ownership
Partner Partner's Affiliate Percentage
- ------- ------------------- ----------
<S> <C> <C>
Covia Corporation United Air Lines, Inc. 77.00%
USAM Corporation USAir Group, Inc. 21.08%
Resnet Holdings Inc. Air Canada 1.92%
</TABLE>
The preparation of the Partnership's financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from
those estimates. Certain reclassifications have been made to
prior year balances to conform to the current year presentation.
2. Significant accounting policies
-------------------------------
Basis of consolidation -
The consolidated financial statements include the accounts of the
Partnership and its wholly-owned subsidiaries; Apollo Travel
Services Mexico S.A. de C.V. and Apollo Communications Services.
6
<PAGE>
Cash and cash equivalents -
Cash in excess of operating requirements is invested in the
United Air Lines, Inc. (United) liquidity investment pool which
consists of short-term, highly liquid, income-producing
investments. Cash equivalents are reported on the balance sheet
at amortized cost with accrued interest, which approximates those
assets' fair value due to the short maturity of the underlying
investments in the liquidity pool.
Property and equipment -
Depreciation of property and equipment is provided on the
straight-line method over the following estimated useful lives of
the assets:
Buildings and improvements 31 years
Equipment 5 - 10 years
Equipment held for lease 3 - 7 years
Depreciation expense for the years ended December 31, 1995 and
1994 respectively, was $45,518,000 and $44,857,000.
Income taxes -
No provision for U.S. federal income taxes is recorded as such
liability is the responsibility of the partners rather than of
the Partnership.
Deferred lease incentives -
Deferred lease incentives include various considerations provided
to travel agencies in the form of cash payments or special
services in connection with long-term contracts to use the Apollo
system. Such incentives are being amortized on the straight-line
method over the average term of the contracts of thirty months.
During 1995 and 1994 respectively, gross revenues were reduced by
$6,669,000 and $7,248,000 related to the amortization of cash
deferred lease incentives, and depreciation and amortization
expense included amortization of special services deferred lease
incentives of $4,406,000 and $5,531,000.
Partner distributions -
Distributions reported in the accompanying statement of partners'
capital are net of the required fifty-percent contribution to the
Partnership by partners in accordance with the Apollo Travel
Services Partnership agreement.
7
<PAGE>
Foreign currency translation -
Gains and losses resulting from the translation of the accounts
of Apollo Travel Services Mexico S.A. de C.V. into the United
States dollar are recorded as an adjustment to partners' capital
in accordance with the provisions of Statement of Financial
Accounting Standards No. 52 "Foreign Currency Translation."
3. Transactions with related parties
---------------------------------
Pursuant to a distribution and sales agreement between the
Partnership and Galileo International, the Partnership, in the
ordinary course of business, receives a share of revenues related
to its subscribers' use of the Apollo computer reservations
system which is passed through Galileo International from travel
vendors including United, USAir, and Air Canada, related parties
through joint ownership in the Partnership. For 1995 and 1994,
computer reservations system revenues reported in the statement
of operations included the following related to bookings with
United, USAir and Air Canada (In thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
United $ 55,080 $ 54,030
USAir 19,350 21,205
Air Canada 618 482
-------- --------
$ 75,048 $ 75,717
======== ========
</TABLE>
In addition, the Partnership receives revenues directly from
United for data processing and communications-related services it
provides to United. Rates charged for such services are
predetermined semi-annually. Included in services to affiliates
revenue in the accompanying statement of operations is
$86,190,000 and $78,756,000 related to these services provided to
United in 1995 and 1994, respectively.
The Partnership, in the ordinary course of business, purchases
services and rents facilities from United. For 1995 and 1994,
respectively, total operating expenses in the accompanying
statement of operations include $11,191,000 and $14,290,000
related to these services. In addition, operating expenses
included $3,272,000 and $3,469,000 related to marketing services
provided the Partnership by USAir during 1995 and 1994,
respectively.
8
<PAGE>
In the ordinary course of business, the Partnership provides
network communications-related services to Galileo International,
a related party through certain common ownership. During 1995
and 1994 respectively, the Partnership recognized revenues of
$55,878,000 and $57,882,000 related to these services.
The Partnership utilizes data processing and facilities-related
services provided by Galileo International. Total operating
expenses included $5,478,000 and $5,618,000 related to such
charges by Galileo International during 1995 and 1994,
respectively.
The Partnership provides financial, network and management
services to Galileo Japan Partnership, a related party through
certain common ownership. Revenues from such services included in
services to affiliates revenue in the accompanying statement of
operations were $358,000 and $642,000 respectively, during 1995
and 1994.
4. Equipment held for lease
------------------------
The Partnership leases computer equipment related to the Apollo
system to travel agencies under operating leases, generally for
terms up to five years. Such leases are generally noncancelable
and contain damage clauses in the event of unilateral termination
of the lease by the leasee. The following represents the cost
and accumulated depreciation related to equipment held for lease
at December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cost $341,268 $323,140
Less: Accumulated depreciation 258,421 236,193
-------- --------
$ 82,847 $ 86,947
======== ========
</TABLE>
Aggregate future minimum leasing fees expected under these leases
are as follows (in thousands):
<TABLE>
<S> <C>
1996 $ 29,457
1997 26,822
1998 22,699
1999 17,125
2000 7,043
--------
$103,146
========
</TABLE>
9
<PAGE>
5. Capital lease and other lease commitments
-----------------------------------------
The Partnership leases various office facilities and equipment
under operating leases with terms of up to 10 years. Rental
expense under operating leases was $3,752,000 and $3,789,000
during 1995 and 1994, respectively. Included in rental expense
was $981,000 and $924,000 respectively, related to the rental of
United facilities during 1995 and 1994.
The Partnership also leases data processing equipment under
capital leases. Equipment, at cost and the related accumulated
depreciation included the following amounts related to such
leased equipment at December 31, 1995 and 1994, with lease
amortization included in depreciation expense (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Cost $ 3,105 $ 3,105
Less: Accumulated depreciation 2,070 1,449
------- -------
$ 1,035 $ 1,656
======= =======
</TABLE>
Future minimum lease payments under capital leases and
noncancelable operating leases, are as follows (in thousands):
<TABLE>
<CAPTION> Capital Operating
------- ---------
<S> <C> <C>
1996 $ 773 $ 2,356
1997 483 1,264
1998 - 1,034
1999 - 1,055
2000 - 865
Thereafter - 2,536
------- ---------
Total future minimum
lease payments 1,256 $ 9,110
=========
Less amounts representing interest 93
-------
Present value of future minimum
lease payments $ 1,163
=======
</TABLE>
10
<PAGE>
6. Pension plans
-------------
The Partnership sponsors the defined benefit Apollo Travel
Service Pension Plan (Pension Plan), covering substantially all
employees. Plan benefits are based on the participant's years of
service and annual compensation upon termination or retirement.
Plan assets at December 31, 1995 are principally comprised of
marketable equity securities, U.S. government and government
agency bonds and short-term securities. The Partnership's policy
is to fund amounts which satisfy the minimum funding requirements
under the Employees Retirement Income Security Act.
In addition to the above, the Partnership sponsors a nonqualified
supplemental defined benefit pension plan, the Apollo Travel
Services Supplemental Retirement Plan, covering certain highly
compensated employees. Plan benefits are based on years of
service and annual compensation upon termination or retirement.
The Partnership's policy is to fund benefits as they become
payable to participants.
The following sets forth the Partnership's obligations, funded
status and pension costs related to the defined benefit plans at
December 31, 1995 and 1994, as determined by an independent
actuary (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of accumulated
benefit obligation:
Vested $ 18,693 $ 12,063
Nonvested 5,566 4,744
-------- --------
$ 24,259 $ 16,807
======== ========
Actuarial present value of
projected benefit obligation $ 33,476 $ 24,630
Plan assets at fair value (16,524) (9,900)
-------- --------
Projected benefit obligation
in excess of plan assets 16,952 14,730
Unrecognized net loss (4,123) (1,222)
Unrecognized prior service cost (4,648) (5,206)
Remaining unrecognized net
transition obligation (2,423) (2,625)
Adjustment required to recognize
minimum liability 2,018 866
-------- --------
Pension liability recognized
in balance sheet $ 7,776 $ 6,543
======== ========
</TABLE>
11
<PAGE>
Net pension cost:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Service cost $ 2,424 $ 2,947
Interest cost 2,011 1,828
Actual (return)/loss on plan assets (2,700) 149
Net amortization and deferral 2,430 143
-------- --------
Net periodic pension cost $ 4,165 $ 5,067
======== ========
</TABLE>
The following sets forth the discount rate, expected long-term
rate of return on assets and rate of increase in future
compensation levels used in determining the actuarial present
value of projected benefit obligation:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Discount rate 7.25% 8.75%
Long-term rate of return 8.50% 9.00%
Salary scale 4.00% 4.50%
</TABLE>
The effect of the change in the above assumptions from 1994 was
to increase the projected benefit obligation by approximately
$6,108,000 at December 31, 1995.
7. Postretirement benefits
-----------------------
In addition to the above pension plans, the Partnership sponsors
a defined benefit health care plan providing postretirement
health care benefits in full-time employees who have worked at
least ten years and have attained age 55 while in service with
the Partnership. The plan is contributory, with retiree
contributions adjusted annually, and contains other cost-sharing
features such as deductibles and coinsurance. In addition, the
plan provides certain former employees of United retiree flight
benefits. The Partnership's policy is to pay benefits under this
plan as incurred. During the years ended December 31, 1995 and
1994 respectively, benefits of approximately $53,000 and $20,000
were paid to retirees under this plan.
12
<PAGE>
The following table presents the plan's financial status
reconciled to amounts recognized in the Partnership's balance
sheet at December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Vested $ 4,233 $ 3,295
Nonvested 10,403 8,158
-------- --------
Accumulated postretirement
benefit obligation 14,636 11,453
Unrecognized net loss (3,379) (847)
Unrecognized prior service cost 993 -
-------- --------
Accrued postretirement
benefit obligation $ 12,250 $ 10,606
-------- --------
Net periodic postretirement
benefit cost:
Service cost $ 695 $ 745
Interest cost 1,005 898
Net amortization and deferral (3) 129
------- -------
Net periodic postretirement
benefit cost $ 1,697 $ 1,772
------- -------
</TABLE>
The weighted-average annual assumed rate of increase in the per
capita cost of coverage benefits (health care cost trend factor)
was 12% for 1995 and is assumed to decrease gradually to 6% for
2003 and remain at that level thereafter. The health care cost
trend rate assumption has a significant affect on the amounts
reported. For example, increasing the assumed health care cost
trend rates by one percentage point in each year would increase
the accumulated postretirement benefit obligation as of December
31, 1995 by $406,000, and the aggregate of the service and
interest cost components of net periodic pension cost for the
year ended December 31, 1995 by $32,000. The weighted-average
discount rate used in determining the accumulated postretirement
benefit obligation was 7.25% and 8.75% at December 31, 1995 and
1994, respectively. The decrease in the weighted-average discount
rate from 1994 had the impact of increasing the accumulated
postretirement benefit obligation at December 31, 1995 by
approximately $2,636,000.
13
<PAGE>
8. Contingencies
-------------
On February 7, 1996, the Partnership became aware that Galileo
International was notified by United that, in United's opinion,
the method used to determine certain computer reservation system
revenues was not in accordance with contractual agreements. The
eventual outcome of this matter is uncertain and it is expected
Galileo International will contest United's interpretation of
their contractual agreements. Pursuant to a distribution
agreement with Galileo International, the Partnership shares in
the subject revenue and the Partnership could be obligated to
refund any amounts collected in excess of contractual revenues.
While no reserve has been provided at December 31, 1995, the
Partnership has currently estimated the potential refund exposure
to Galileo International for the subject revenues since the
inception of the Partnership through December 31, 1995 could
approximate between $6,700,000 and $8,300,000.
This Partnership also has certain other contingencies resulting
from litigation and claims incident to the ordinary course of
business. Management believes, after considering a number of
factors, including (but not limited to) the views of legal
counsel, the nature of contingencies to which the Partnership is
subject and its prior experience, that the ultimate disposition
of these contingencies is not expected to materially affect the
Partnership's financial position and results of operations.
14
<PAGE>
USAir Group, Inc.
Exhibit 11
Computation of Primary and Fully Diluted Earnings Per Share ("EPS")
(unaudited)
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Adjustments to Net Income (Loss)
- --------------------------------
Net income $200,775 $112,860 $168,482 $ 15,976
Preferred dividend requirement (22,522) (21,046) (44,796) (41,629)
------- ------- ------- -------
Net income (loss) applicable
to common stock and common
stock equivalents used for
primary computation 178,253 91,814 123,686 (25,653)
Fully diluted adjustments:
Assume conversion of preferred
stock:
Preferred dividend requirement 22,522 21,046 44,796 b) 41,629 c)
------- ------- ------- -------
Adjusted net income (loss)
applicable to common stock
assuming full dilution $200,775 $112,860 $168,482 $ 15,976
======= ======= ======= =======
Adjustments to Common Shares
- ----------------------------
Outstanding
-----------
Average number of shares of common
stock 64,008 62,321 63,813 61,976
Primary adjustments
Incremental shares from the 1984,
1992, and 1996 Plans' outstanding
stock options using the treasury
stock method 1,855 66 1,453 - a)
------- ------- ------- -------
Total average number of common and
common equivalent shares used for
primary computation 65,863 62,387 65,266 61,976
======= ======= ======= =======
(continued on next page)
<PAGE>
USAir Group, Inc.
Exhibit 11
Computation of Primary and Fully Diluted Earnings Per Share ("EPS")
(unaudited)
(in thousands, except per share amounts)
(Continued)
Three Months Ended Six Months Ended
June 30, June 30
------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
Average number of shares of
common stock 64,008 62,321 63,813 61,976
Fully diluted adjustments
Incremental shares from the
1984, 1992, and 1996 Plans'
outstanding stock options
using the treasury stock
method 1,855 138 1,719 138
Assume conversion of preferred
stock 39,156 39,156 39,156 b) 39,156 c)
------- ------- ------- -------
Total average number of
common shares to be
outstanding after
full conversion 105,019 101,615 104,688 101,270
======= ======= ======= =======
Income (Loss) Per Common Share
- ------------------------------
Primary income (loss) per common
share $ 2.71 $ 1.47 $ 1.90 $ (0.41)
======= ======= ======= =======
Fully diluted income (loss) per
common share $ 1.91 $ 1.11 $ 1.61 $ 0.16
======= ======= ======= =======
a) The incremental shares that are a result of assuming exercise of stock
options using the treasury stock method are antidilutive and excluded
from the calculation of primary earnings per share.
b) Inclusion of the effects of assuming conversion of USAir Group, Inc.
("USAir Group") Series A Preferred Stock is antidilutive but included in
accordance with Regulation S-K Item 601(b)(11).
c) Inclusion of the effects of assuming conversion of USAir Group's
outstanding convertible equity instruments is antidilutive but included
in accordance with Regulation S-K item 601(b)(11).
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000701345
<NAME> USAIR GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 775,389
<SECURITIES> 464,071
<RECEIVABLES> 423,161<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 237,181
<CURRENT-ASSETS> 2,040,808
<PP&E> 6,372,192
<DEPRECIATION> 2,399,951
<TOTAL-ASSETS> 7,343,909
<CURRENT-LIABILITIES> 2,777,881
<BONDS> 2,679,765
758,719
213,153
<COMMON> 64,216
<OTHER-SE> (928,867)
<TOTAL-LIABILITY-AND-EQUITY> 7,343,909
<SALES> 0
<TOTAL-REVENUES> 4,017,909
<CGS> 0
<TOTAL-COSTS> 3,761,178
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,953
<INCOME-PRETAX> 175,583
<INCOME-TAX> 7,101
<INCOME-CONTINUING> 168,482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168,482
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.55
<FN>
<F1>Receivables are presented net of allowances.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000714560
<NAME> USAIR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 774,358
<SECURITIES> 464,071
<RECEIVABLES> 425,208<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 206,632
<CURRENT-ASSETS> 1,997,106
<PP&E> 6,118,053
<DEPRECIATION> 2,315,086
<TOTAL-ASSETS> 7,222,440
<CURRENT-LIABILITIES> 3,021,203
<BONDS> 2,639,219
0
0
<COMMON> 1
<OTHER-SE> (205,536)
<TOTAL-LIABILITY-AND-EQUITY> 7,222,440
<SALES> 0
<TOTAL-REVENUES> 3,733,212
<CGS> 0
<TOTAL-COSTS> 3,535,555
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142,068
<INCOME-PRETAX> 109,432
<INCOME-TAX> 3,794
<INCOME-CONTINUING> 105,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,638
<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>
USAir , Inc.
Exhibit 99
Select Airline Operating and Financial Statistics (Note 1.)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
Increase Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
---- ---- -------- ---- ---- --------
Revenue passengers
(thousands) * 14,961 15,199 (1.6)% 27,899 28,966 (3.7)%
Total revenue passenger
miles ("RPMs")(millions)
(Note 2.) 10,131 10,122 0.1 % 18,920 19,314 (2.0)%
Revenue passenger miles
(millions) (Note 2.)* 10,044 9,986 0.6 % 18,753 19,065 (1.6)%
Total available seat
miles ("ASMs")
(millions) (Note 3.) 14,223 15,062 (5.6)% 27,806 30,396 (8.5)%
Available seat miles
(millions) (Note 3.)* 14,123 14,915 (5.3)% 27,616 30,121 (8.3)%
Passenger load factor
(Note 4.) * 71.1% 67.0% 4.1 pts. 67.9% 63.3% 4.6 pts.
Break even load factor
(Note 5.) 66.7% 64.4% 2.3 pts. 66.9% 64.1% 2.8 pts.
Passenger revenue per
ASM (Note 6.)* 12.76c 11.24c 13.5% 12.15c 10.50c 15.7%
Total revenue per ASM
(Note 7.) 13.99c 12.19c 14.8% 13.38c 11.47c 16.7%
Cost per ASM (Note 8.) 12.75c 11.30c 12.8% 12.78c 11.19c 14.2%
Yield (Note 9.)* 17.95c 16.79c 6.9% 17.89c 16.59c 7.8%
Cost of aviation fuel
per gallon (Note 10.) 61.87c 52.71c 17.4% 60.27c 52.38c 15.1%
Gallons of aviation fuel
consumed (millions) 276 292 (5.5)% 542 591 (8.3)%
* = Denotes scheduled service only (excludes charter service).
c = cents
(Continued on next page)
<PAGE>
USAir , Inc.
Exhibit 99
Select Airline Operating and Financial Statistics
(unaudited)
(Continued)
Note 1. Operating statistics exclude flights operated by USAir, Inc.
("USAir") under a wet lease arrangement with British Airways Plc
("wet lease"). The wet lease arrangement expired May 31, 1996.
Operating statistics include free frequent travelers and the
related miles flown. Financial statistics exclude the revenue
and expense (which amounts net to zero) generated under the wet
lease arrangement and non-recurring items. Wet lease amounts of
$3.7 million and $12.6 million have been excluded from the
second quarter and year-to-date results for 1996, respectively,
and $15.7 million and $31.4 million have been excluded from the
second quarter and year-to-date results for 1995, respectively,
from both Other Operating Revenues and Other Operating Expenses
for purposes of financial statistic calculation. Non-recurring
expense credits totaling approximately $29.5 million related to
USAir's non-operating BAe-146 aircraft have been excluded from
both the second quarter and year-to-date results for 1996 for
the purpose of financial statistic calculation. No non-
recurring items were included in USAir's second quarter or year-
to-date results for 1995.
Note 2. Revenue passengers multiplied by the number of miles they flew.
Note 3. Seats available multiplied by the number of miles flown (a
measure of capacity).
Note 4. Percentage of aircraft seating capacity that is actually
utilized (RPMs/ASMs).
Note 5. 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.
Note 6. Passenger Transportation revenue divided by ASMs (a measure of
unit revenue).
Note 7. Total Operating Revenues divided by ASMs (a measure of unit
revenue).
Note 8. Total Operating Expenses divided by ASMs (a measure of unit
cost).
Note 9. Passenger Transportation revenue divided by RPMs (a measure of
unit revenue).
Note 10. Includes the base cost of aviation fuel and transportation
charges.
