FORM 10-Q - QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- --------
US AIRWAYS GROUP, INC.
(Exact name of registrant as specified in its charter)
State of Incorporation: Delaware
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 872-5306
(Registrant's telephone number, including area code)
(Commission file number: 1-8444)
(I.R.S. Employer Identification No: 54-1194634)
US AIRWAYS, INC.
(Exact name of registrant as specified in its charter)
State of Incorporation: Delaware
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 872-7000
(Registrant's telephone number, including area code)
(Commission file number: 1-8442)
(I.R.S. Employer Identification No: 53-0218143)
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
--- ---
As of July 31, 1998 there were outstanding approximately 93,859,000 shares
of common stock of US Airways Group, Inc. and 1,000 shares of common stock of
US Airways, Inc.
The registrant US Airways, 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 in the reduced disclosure format permitted by such
Instructions.
US AIRWAYS GROUP, INC.
AND
US AIRWAYS, INC.
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
----
Item 1A. Financial Statements - US Airways Group, Inc.
Condensed Consolidated Statements of Operations
- Three Months and Six Months Ended June 30, 1998 and 1997 1
Condensed Consolidated Balance Sheets
- June 30, 1998 and December 31, 1997 2
Condensed Consolidated Statements of Cash Flows
- Six Months Ended June 30, 1998 and 1997 3
Condensed Consolidated Statement of Changes in Stockholders' Equity
- Six Months Ended June 30, 1998 4
Notes to Condensed Consolidated Financial Statements 5
Item 1B. Financial Statements - US Airways, Inc.
Condensed Consolidated Statements of Operations
- Three Months and Six Months Ended June 30, 1998 and 1997 8
Condensed Consolidated Balance Sheets
- June 30, 1998 and December 31, 1997 9
Condensed Consolidated Statements of Cash Flows
- Six Months Ended June 30, 1998 and 1997 10
Condensed Consolidated Statement of Changes in Stockholder's Equity
- Six Months Ended June 30, 1998 11
Notes to Condensed Consolidated Financial Statements 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 4. Submission of matters to a vote of security holders 23
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 24
US Airways Group, Inc.
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1998 and 1997(unaudited)
(in millions, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
---------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Operating Revenues
Passenger transportation $2,078 $2,012 $3,936 $3,909
Cargo and freight 42 45 86 89
Other 177 156 337 316
----- ----- ----- -----
Total Operating Revenues 2,297 2,213 4,359 4,314
Operating Expenses
Personnel costs 774 786 1,523 1,543
Aviation fuel 158 198 325 423
Commissions 138 165 261 310
Aircraft rent 111 114 222 235
Other rent and landing fees 93 99 201 200
Aircraft maintenance 114 105 229 202
Depreciation and amortization 81 95 153 172
Other 454 395 879 798
----- ----- ----- -----
Total Operating Expenses 1,923 1,957 3,793 3,883
----- ----- ----- -----
Operating Income 374 256 566 431
Other Income (Expense)
Interest income 31 23 61 47
Interest expense (60) (64) (123) (129)
Interest capitalized (18) 3 (13) 6
Equity in earnings of affiliates - 13 - 27
Other, net (2) 1 (1) 15
----- ----- ----- -----
Other Income (Expense), Net (49) (24) (76) (34)
----- ----- ----- -----
Income Before Taxes 325 232 490 397
Provision (Credit) for Income Taxes 131 26 197 39
----- ----- ----- -----
Net Income 194 206 293 358
----- ----- ----- -----
Preferred Dividend Requirement - (24) (7) (44)
----- ----- ----- -----
Earnings Applicable to
Common Stockholders $ 194 $ 182 $ 286 $ 314
===== ===== ===== =====
Earnings per Common Share
Basic $ 1.99 $ 2.53 $ 2.99 $ 4.60
Diluted $ 1.95 $ 1.92 $ 2.89 $ 3.39
Shares Used for Computation
Basic 98 72 96 68
Diluted 100 104 101 104
See accompanying Notes to Condensed Consolidated Financial Statements.
1
US Airways Group, Inc.
Condensed Consolidated Balance Sheets
June 30, 1998 (unaudited) and December 31, 1997
(dollars in millions, except per share amount)
June December
30, 31,
1998 1997
---- ----
ASSETS
Current Assets
Cash $ 21 $ 18
Cash equivalents 1,104 1,076
Short-term investments 1,003 870
Receivables, net 396 300
Materials and supplies, net 225 226
Deferred income taxes 78 147
Prepaid expenses and other 119 140
----- -----
Total Current Assets 2,946 2,777
Property and Equipment
Flight equipment 5,185 5,221
Ground property and equipment 891 876
Less accumulated depreciation and
amortization (2,567) (2,527)
----- -----
3,509 3,570
Purchase deposits 115 155
----- -----
Total Property and Equipment, Net 3,624 3,725
Other Assets
Goodwill, net 606 616
Other intangibles, net 399 371
Investment in marketable equity securities 312 190
Deferred income taxes 232 270
Other assets, net 471 423
----- -----
Total Other Assets 2,020 1,870
----- -----
$ 8,590 $ 8,372
===== =====
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 471 $ 186
Accounts payable 414 323
Traffic balances payable and unused tickets 888 707
Accrued aircraft rent 471 509
Accrued salaries, wages and vacation 303 311
Other accrued expenses 523 492
----- -----
Total Current Liabilities 3,070 2,528
Long-Term Debt, Net of Current Maturities 1,992 2,426
Deferred Credits and Other Liabilities
Deferred gains, net 319 333
Postretirement benefits other than pensions,
noncurrent 1,209 1,173
Noncurrent employee benefit liabilities and other 930 829
----- -----
Total Deferred Credits and Other Liabilities 2,458 2,335
Commitments and Contingencies
Redeemable Cumulative Convertible Preferred Stock
Series H, no par value, 358,000 shares issued and
outstanding as of December 31, 1997 - 358
Stockholders' Equity
Common Stock 101 91
Paid-in capital 2,292 1,906
Retained earnings (deficit) (994) (1,280)
Common stock held in treasury, at cost (404) (3)
Deferred compensation (99) (80)
Accumulated other comprehensive income, net of
income tax effect 174 91
----- -----
Total Stockholders' Equity 1,070 725
----- -----
$ 8,590 $ 8,372
===== =====
See accompanying Notes to Condensed Consolidated Financial Statements.
2
US Airways Group, Inc.
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997 (unaudited)
(in millions)
1998 1997
---- ----
Cash and Cash equivalents at beginning of period $1,094 $ 951
----- -----
Cash flows from operating activities
Net income 293 358
Adjustments to reconcile net income to net cash
provided by (used for) operating activities
Depreciation and amortization 153 172
Losses (gains) on dispositions of property (4) (17)
Amortization of deferred gains and credits (14) (14)
Other 58 4
Changes in certain assets and liabilities
Decrease (increase) in receivables (96) (71)
Decrease (increase) in materials and supplies,
prepaid expenses and pension assets (13) 2
Decrease (increase) in deferred income tax assets 65 -
Increase (decrease) in traffic balances payable
and unused tickets 181 120
Increase (decrease) in accounts payable and
accrued expenses 183 (215)
Increase (decrease) in postretirement benefits
other than pensions, noncurrent 36 37
----- -----
Net cash provided by (used for) operating
activities 842 376
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (72) (12)
Additions to other property (106) (76)
Proceeds from dispositions of property 62 46
Decrease (increase) in short-term investments (127) 148
Decrease (increase) in restricted cash and investments (49) 9
Other 3 4
----- -----
Net cash provided by (used for) investing
activities (289) 119
Cash flows from financing activities
Principal payments on long-term debt (119) (51)
Issuances of Common Stock 8 25
Purchases of Common Stock (407) -
Sales of treasury stock 3 1
Redemptions of preferred stock, including redemption
premiums - (126)
Dividends paid on preferred stock (7) (159)
----- -----
Net cash provided by (used for) financing
activities (522) (310)
----- -----
Net increase (decrease) in Cash and Cash equivalents 31 185
----- -----
Cash and Cash equivalents at end of period $1,125 $1,136
===== =====
Noncash investing and financing activities
Conversion of preferred stock into Common Stock $ 358 $ 284
Net unrealized gain on available-for-sale securities,
net of income tax effect $ 80 $ -
Supplemental Information
Cash paid during the period for interest, net of
amount capitalized $ 123 $ 125
Net cash paid during the period for income taxes $ 93 $ 33
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<TABLE>
US Airways Group, Inc.
Condensed Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 1998 (unaudited)
(dollars in millions, except per share amounts)
<CAPTION>
Accumulated other comprehensive
income, net of income tax effect
-----------------------------------
Retained Common Deferred Unrealized gain Adjustment
Common Paid-in earnings Stock held compen- on available-for- for minimum Comprehensive
Stock capital (deficit) in treasury sation sale securities pension liability Total income
------ ------- --------- ----------- -------- ---------------- ----------------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
December 31, 1997 $91 $1,906 $(1,280) $ (3) $(80) $104 $(13) $ 725 $ -
Purchase of
5,965,100 shares of
Common Stock - - - (407) - - - (407) -
Conversion of
358,000 shares of
Series H Preferred
Stock 9 349 - - - - - 358 -
Grant of 113,340
shares of nonvested
stock and 2,300,000
stock options - 30 - 1 (31) - - - -
Reversion of 49,120
shares of previously-
granted nonvested
stock - (1) - - 1 - - - -
Acquisition of 10,747
shares of Common
Stock from certain
employees - - - - - - - - -
Exercise of 563,538
stock options 1 7 - 5 - - - 13 -
Dividends paid
(preferred stock)
Series H - $18.50
per share - - (7) - - - - (7) -
Amortization of
deferred
compensation - - - - 11 - - 11 -
Unrealized gain on
available-for-sale
securities, net of
income tax effect - - - - - 80 - 80 80
Adjustment for
minimum pension
liability, net of
income tax effect - - - - - - 3 3 3
Tax benefit related
to employee stock
option exercises - 1 - - - - - 1 -
Net income - - 293 - - - - 293 293
--- ----- ----- ---- --- --- --- ----- ---
Balance as of
June 30, 1998 $101 $2,292 $ (994) $(404) $(99) $184 $(10) $1,070
=== ===== ===== ==== === === === =====
Total comprehensive income for the six months ended June 30, 1998 $376
===
See accompanying Notes to Condensed Consolidated Financial Statements.
4
</TABLE>
US Airways Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying Condensed Consolidated Financial Statements include
the accounts of US Airways Group, Inc. (US Airways Group or the Company) and
its wholly-owned subsidiaries US Airways, Inc. (US Airways), Shuttle, Inc.,
Allegheny Airlines, Inc., Piedmont Airlines, Inc., PSA Airlines, Inc., US
Airways Leasing and Sales, Inc., US Airways Fuel Corporation and Material
Services Company, Inc.
Management believes that all adjustments necessary for a fair statement
of results have been included in the Condensed 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 1997 amounts have been reclassified to conform with 1998
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,
1997.
2. Earnings per Common Share
Earnings per Common Share (EPS) is presented on both a basic and
diluted basis in accordance with the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings per Share." Basic EPS is computed
by dividing net income, after deducting preferred stock dividend
requirements, by the weighted average number of shares of common stock
outstanding. Diluted EPS reflects the maximum dilution that would result
after giving effect to dilutive stock options and to the assumed conversion
of any dilutive convertible preferred stock issuance. The following table
presents the computation of basic and diluted EPS (in millions, except per
share amounts):
Three Six
Months Months
Ended Ended
June 30, June 30,
1998 1998
--------------------
Earnings applicable to common stockholders:
Earnings applicable to common
stockholders (basic) $ 194 $ 286
Preferred dividend requirement - 7
---- ----
Earnings applicable to common
stockholders (diluted) $ 194 $ 293
==== ====
Common shares:
Weighted average common shares outstanding (basic) 98 96
Incremental shares related to outstanding stock
options 2 2
Incremental shares related to convertible preferred
stock issuance - 3
---- ----
Weighted average common shares outstanding (diluted) 100 101
==== ====
Earnings per Common Share:
Basic $1.99 $2.99
Diluted $1.95 $2.89
5
Note: The numbers in the table on the preceding page may not recalculate
due to rounding.
During the first quarter of 1998 holders of the Series H Preferred
Stock converted their shares into 9.2 million shares of the Company's Common
Stock. The Company subsequently retired its Series H Preferred Stock.
3. Comprehensive Income
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), effective January 1,
1998. SFAS 130 establishes standards for the reporting and presentation of
comprehensive income and its components in financial statements.
Comprehensive income encompasses net income and "other comprehensive
income," which includes all other non-owner transactions and events which
change stockholders' equity.
As presented in the accompanying Condensed Consolidated Statement of
Changes in Stockholders' Equity, the Company recognized comprehensive income
of $376 million for the six months ended June 30, 1998, including net income
of $293 million and other comprehensive income of $83 million. The Company
recognized comprehensive income of $223 million for the three months ended
June 30, 1998, including net income of $194 million and other comprehensive
income of $29 million.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1998 June 30, 1998
------------- -------------
Before Tax Net Before Tax Net
tax effect of tax tax effect of tax
effect (expense) effect effect (expense) effect
------ --------- ------ ------ --------- ------
(millions)
<S> <C> <C> <C> <C> <C> <C>
Unrealized gain on
available-for-sale securities:
Unrealized gains arising
during the period $45 $(16) $29 $123 $(43) $80
Reclassification adjustment
for gains/losses included
in net income during the
period - - - - - -
-- --- -- --- --- --
Net unrealized gains 45 (16) 29 123 (43) 80
Adjustment for minimum pension liability - - - - 3 3
-- --- -- --- --- --
Other comprehensive income $45 $(16) $29 $123 $(40) $83
== === == === === ==
The Company's other comprehensive income for the three months and six months ended June 30, 1997
was immaterial.
</TABLE>
4. Treasury Stock
The Company held 5.9 million and approximately 40,000 shares of Common
Stock in treasury as of June 30, 1998 and December 31, 1997, respectively.
The Company purchased 6.0 million shares of Common Stock in open market
transactions during the quarter ended June 30, 1998 in conjunction with two
stock purchase programs the Company announced in early 1998.
5. Subsequent Events
On July 1, 1998, US Airways retired its 10% Senior Notes, which had a
principal amount of $300 million. The transaction resulted in a cash outflow
of $315.0 million and resulted in a loss on early extinguishment of debt of
$15.0 million. US Airways also retired other notes with an outstanding
principal amount of $24.4 million on July 1, 1998. The latter transactions
resulted in an immaterial net loss.
6
On July 2, 1998, the Company announced that it had reached an agreement
with Airbus Industrie (Airbus) for the purchase of up to 30 widebody A330-
300 aircraft. The agreement includes seven firm aircraft orders, seven
aircraft subject to reconfirmation prior to scheduled delivery and options
for 16 additional aircraft. Of the seven firm-order A330-300 aircraft, the
first will be delivered in the fourth quarter of 1999, the next five in 2000
and the last in early 2001. Orders subject to reconfirmation are for
aircraft that are tentatively scheduled for delivery in 2001. The Company
can substitute other Airbus widebody aircraft for the A330-300s, including
the A330-200 or members of the A340-Series, for orders other than the first
seven aircraft. US Airways expects to use the A330-300, which will be
configured with three classes seating 278 passengers, primarily in
transatlantic markets. The new widebody aircraft are expected to eventually
supplant US Airways' Boeing B767-200ER fleet in transatlantic markets.
During the fourth quarter of 1998, the Company will take delivery of
the first of up to 400 single-aisle Airbus aircraft. These aircraft, members
of Airbus' A320 family, are expected to ultimately replace, at a minimum, US
Airways' Boeing B737-200 and Douglas DC-9-30 and MD-80 aircraft. With
respect to single-aisle Airbus aircraft, the Company has 124 aircraft on
firm order, 116 aircraft subject to reconfirmation prior to scheduled
delivery and options for 160 additional aircraft. Of the first 124 aircraft,
six are scheduled for delivery in 1998, 29 in 1999 and 89 in the years 2000
through 2002.
As of June 30, 1998, the minimum determinable payments associated with
the Company's aircraft acquisition agreements for Airbus aircraft (including
progress payments, payments at delivery, buyer-furnished equipment, spares,
capitalized interest, penalty payments, cancellation fees and/or
nonrefundable deposits) are currently estimated at $353 million for the
remainder of 1998, $1.18 billion in 1999, $1.82 billion in 2000 and $90
million in 2001.
(this space intentionally left blank)
7
<TABLE>
US Airways, Inc.
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 1998 and 1997(unaudited)
(in millions)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Revenues
Passenger transportation $1,870 $1,856 $3,547 $3,610
US Airways Express transportation revenues 182 157 332 301
Cargo and freight 41 44 83 87
Other 168 151 330 301
----- ----- ----- -----
Total Operating Revenues 2,261 2,208 4,292 4,299
Operating Expenses
Personnel costs 724 745 1,421 1,461
Aviation fuel 146 188 300 400
Commissions 126 153 239 289
Aircraft rent 96 99 193 205
Other rent and landing fees 85 95 184 190
Aircraft maintenance 93 89 185 170
Depreciation and amortization 74 91 139 164
US Airways Express capacity purchases 134 122 259 242
Other 417 367 817 745
----- ----- ----- -----
Total Operating Expenses 1,895 1,949 3,737 3,866
----- ----- ----- -----
Operating Income 366 259 555 433
Other Income (Expense)
Interest income 43 24 82 47
Interest expense (60) (65) (123) (132)
Interest capitalized (20) 3 (18) 6
Equity in earnings of affiliates - 13 - 27
Other, net (1) 1 - 15
----- ----- ----- -----
Other Income (Expense), Net (38) (24) (59) (37)
----- ----- ----- -----
Income Before Taxes 328 235 496 396
Provision (Credit) for Income Taxes 132 33 200 51
----- ----- ----- -----
Net Income $ 196 $ 202 $ 296 $ 345
===== ===== ===== =====
See accompanying Notes to Condensed Consolidated Financial Statements.
8
</TABLE>
<TABLE>
US Airways, Inc.
Condensed Consolidated Balance Sheets
June 30, 1998 (unaudited) and December 31, 1997
(dollars in millions)
<CAPTION>
June December
30, 31,
1998 1997
ASSETS ---- ----
<S> <C> <C>
Current Assets
Cash $ 19 $ 17
Cash equivalents 1,103 1,075
Short-term investments 1,003 870
Receivables, net 380 296
Receivables from related parties, net 610 195
Materials and supplies, net 201 200
Deferred income taxes 78 150
Prepaid expenses and other 111 132
----- -----
Total Current Assets 3,505 2,935
Property and Equipment
Flight equipment 4,926 4,968
Ground property and equipment 864 851
Less accumulated depreciation and amortization (2,460) (2,429)
----- -----
3,330 3,390
Purchase deposits - 70
----- -----
Total Property and Equipment, Net 3,330 3,460
Other Assets
Goodwill, net 465 473
Other intangibles, net 313 283
Investment in marketable equity securities 312 190
Receivable from parent company 218 210
Deferred income taxes 185 221
Other assets, net 558 493
----- -----
Total Other Assets 2,051 1,870
----- -----
$8,886 $8,265
===== =====
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt $ 471 $ 186
Accounts payable 397 297
Traffic balances payable and unused tickets 883 702
Accrued aircraft rent 462 496
Accrued salaries, wages and vacation 298 306
Other accrued expenses 492 463
----- -----
Total Current Liabilities 3,003 2,450
Long-Term Debt, Net of Current Maturities 1,991 2,425
Deferred Credits and Other Liabilities
Deferred gains, net 317 330
Postretirement benefits other than pensions, noncurrent 1,187 1,152
Noncurrent employee benefit liabilities and other 906 806
----- -----
Total Deferred Credits and Other Liabilities 2,410 2,288
Commitments and Contingencies
Stockholder's Equity
Common stock - -
Paid-in capital 2,426 2,425
Retained earnings (deficit) (1,118) (1,414)
Accumulated other comprehensive income, net
of income tax effect 174 91
----- -----
Total Stockholder's Equity 1,482 1,102
----- -----
$8,886 $8,265
===== =====
See accompanying Notes to Condensed Consolidated Financial Statements.
9
</TABLE>
US Airways, Inc.
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1998 and 1997 (unaudited)
(in millions)
1998 1997
------ ------
Cash and Cash equivalents at beginning of period $1,092 $ 950
----- -----
Cash flows from operating activities
Net income 296 345
Adjustments to reconcile net income to net
cash provided by (used for) operating activities
Depreciation and amortization 139 164
Losses (gains) on dispositions of property (4) (17)
Amortization of deferred gains and credits (13) (13)
Other 28 (1)
Changes in certain assets and liabilities
Decrease (increase) in receivables (475) (124)
Decrease (increase) in materials and supplies,
prepaid expenses and pension assets (15) (4)
Decrease (increase) in deferred income tax assets 67 -
Increase (decrease) in traffic balances payable
and unused tickets 181 120
Increase (decrease) in accounts payable and
accrued expenses 193 (396)
Increase (decrease) in postretirement benefits
other than pensions, noncurrent 35 37
----- -----
Net cash provided by (used for)
operating activities 432 111
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (34) (5)
Additions to other property (105) (71)
Proceeds from dispositions of property 62 45
Decrease (increase) in short-term investments (127) 148
Decrease (increase) in restricted cash and investments (49) 9
Funding of parent company's aircraft purchase deposits (32) (7)
Other 2 6
----- -----
Net cash provided by (used for)
investing activities (283) 125
Cash flows from financing activities
Principal payments on long-term debt (119) (51)
----- -----
Net cash provided by (used for)
financing activities (119) (51)
----- -----
Net increase (decrease) in Cash and Cash equivalents 30 185
----- -----
Cash and Cash equivalents at end of period $1,122 $1,135
===== =====
Noncash investing and financing activities
Net unrealized gain on available-for-sale securities,
net of income tax effect $ 80 $ -
Reduction of aircraft-related purchase deposits $ 61 $ -
Supplemental Information
Cash paid during the period for interest,
net of amount capitalized $ 123 $ 125
Net cash paid during the period for income taxes $ 92 $ 33
See accompanying Notes to Condensed Consolidated Financial Statements.
10
<TABLE>
US Airways, Inc.
Condensed Consolidated Statement of Changes in Stockholder's Equity
Six Months Ended June 30, 1998 (unaudited)
(in millions)
<CAPTION>
Accumulated other comprehensive
income, net of income tax effect
------------------------------------
Retained Unrealized gain Adjustment Compre-
Common Paid-in earnings on available-for- for minimum hensive
Stock capital (deficit) sale securities pension liability Total income
----- ------- --------- ---------------- ----------------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of
December 31, 1997 $ - $2,425 $(1,414) $104 $(13) $1,102 $ -
Unrealized gain on
available-for-sale
securities, net of
income tax effect - - - 80 - 80 80
Adjustment for minimum
pension liability,
net of income tax
effect - - - - 3 3 3
Tax benefit from
employee stock
option exercises - 1 - - - 1 -
Net income - - 296 - - 296 296
-- ----- ----- --- --- ----- ---
Balance as of
June 30, 1998 $ - $2,426 $(1,118) $184 $(10) $1,482
== ===== ====== === === =====
Total comprehensive income for the six months ended June 30, 1998 $379
===
See accompanying Notes to Condensed Consolidated Financial Statements.
(this space intentionally left blank)
11
</TABLE>
US Airways, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying Condensed Consolidated Financial Statements include
the accounts of US Airways, Inc. (US Airways) and its wholly-owned
subsidiary USAM Corp. (USAM). US Airways is a wholly-owned subsidiary of US
Airways Group, Inc. (US Airways 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 1997 amounts have been reclassified to conform with 1998
classifications.
These interim period Condensed Consolidated Financial Statements should
be read in conjunction with the Consolidated Financial Statements contained
in US Airways' Annual Report on Form 10-K for the year ended December 31,
1997.
2. Comprehensive Income
US Airways adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), effective January 1, 1998.
SFAS 130 establishes standards for the reporting and presentation of
comprehensive income and its components in financial statements.
Comprehensive income encompasses net income and "other comprehensive
income," which includes all other non-owner transactions and events which
change stockholder's equity.
As presented in the accompanying Condensed Consolidated Statement of
Changes in Stockholder's Equity, US Airways recognized comprehensive income
of $379 million for the six months ended June 30, 1998, including net income
of $296 million and other comprehensive income of $83 million. US Airways
recognized comprehensive income of $225 million for the three months ended
June 30, 1998, including net income of $196 million and other comprehensive
income of $29 million.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1998 June 30, 1998
------------- -------------
Before Tax Net Before Tax Net
tax effect of tax tax effect of tax
effect (expense) effect effect (expense) effect
------ --------- ------ ------ --------- ------
(millions)
<S> <C> <C> <C> <C> <C> <C>
Unrealized gain on
available-for-sale securities:
Unrealized gains arising
during the period $45 $(16) $29 $123 $(43) $80
Reclassification adjustment
for gains/losses included
in net income during the
period - - - - - -
-- --- -- --- --- --
Net unrealized gains 45 (16) 29 123 (43) 80
Adjustment for minimum pension liability - - - - 3 3
-- --- -- --- --- --
Other comprehensive income $45 $(16) $29 $123 $(40) $83
== === == === === ==
12
US Airways' other comprehensive income for the three months and six months ended June 30, 1997
was immaterial.
</TABLE>
3. Subsequent Events
Please refer to Note 5. in US Airways Group's Notes to Condensed
Consolidated Financial Statements on page 6 of this report.
4. Related Party Transactions
US Airways' net current receivable from US Airways Group was $522.5
million and $123.3 million as of June 30, 1998 and December 31, 1997,
respectively. The increase is due primarily to US Airways funding US Airways
Group's common stock purchase programs and US Airways Group's obligations
for purchase deposits for new flight equipment. See Notes 4 and 5 in
US Airways Group's Notes to Condensed Consolidated Financial Statements on
page 6 of this report for additional information.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General Information
Part I, Item 2 of this report should be read in conjunction with Part
II, Item 7 of US Airways Group, Inc.'s (US Airways Group or the Company) and
US Airways, Inc.'s (US Airways) Annual Report to the United States
Securities and Exchange Commission (SEC) on Form 10-K for the year ended
December 31, 1997. The information contained herein is not a comprehensive
management overview and analysis of the financial condition and results of
operations of the Company and US Airways, but rather updates disclosures
made in the aforementioned filing.
Certain information contained herein should be considered "forward-
looking information," which is subject to a number of risks and
uncertainties. The preparation of forward-looking information requires the
use of estimates of future revenues, expenses, activity levels and economic
and market conditions, many of which are outside the Company's control.
Specific factors that could cause actual results to differ materially from
those set forth in the forward-looking information include: economic
conditions, labor costs, aviation fuel costs, competitive pressures on
product pricing-particularly from lower-cost competitors, weather
conditions, government legislation, consumer perceptions of the Company's
products, demand for air transportation in the markets in which the Company
operates and other risks and uncertainties listed from time to time in the
Company's reports to the SEC. Other factors and assumptions not identified
above are also involved in the preparation of forward-looking information,
and the failure of such other factors and assumptions to be realized may
also cause actual results to differ materially from those discussed. The
Company assumes no obligation to update such estimates to reflect actual
results, changes in assumptions or changes in other factors affecting such
estimates.
Except where noted, the following discussion relates primarily to the
financial condition, results of operations and future prospects of US
Airways. US Airways is the Company's principal operating subsidiary,
accounting for approximately 90% of the Company's consolidated operating
revenues for the first six months of 1998. US Airways' financial results
include the financial results of its wholly-owned subsidiary USAM Corp.
(USAM).
Financial Overview
For the second quarter of 1998, the Company's operating revenues were
$2.30 billion, operating income was $373.6 million, net income was $194.3
million and earnings per common share (EPS)
13
was $1.99 for basic and $1.95 for diluted. For the comparative period in
1997, the Company's operating revenues were $2.21 billion, operating income
was $255.5 million, net income was $205.6 million and EPS was $2.53 for
basic and $1.92 for diluted. The Company's financial results for 1998
include the financial results of Shuttle, Inc. (Shuttle), which the Company
acquired on December 30, 1997, and reflect a significant change in the
Company's income tax position, as discussed under "Results of Operations"
below.
For the first six months of 1998, the Company's operating revenues were
$4.36 billion, operating income was $565.6 million, net income was $292.5
million and EPS was $2.99 for basic and $2.89 for diluted. For the first six
months of 1997, the Company's operating revenues were $4.31 billion,
operating income was $431.2 million, net income was $358.2 million and EPS
was $4.60 for basic and $3.39 for diluted. As mentioned above, the Company's
financial results for 1998 include the financial results of Shuttle and
reflect a significant change in the Company's income tax position.
The same factors which contributed to the Company's record financial
performance for 1997 continued into the second quarter of 1998, including
relatively favorable domestic economic and industry conditions, overall
favorable capacity and pricing trends in markets served by the Company's
airline subsidiaries, US Airways' improved operating performance, recent
marketing efforts undertaken by the Company and the positive influence of
certain revenue-enhancement and cost-reduction initiatives.
Update on US Airways' Competitive Position
On July 2, 1998, the Company announced that it had reached an agreement
with Airbus Industrie (Airbus) for the purchase of up to 30 widebody A330-
300 aircraft. The agreement includes seven firm aircraft orders, seven
aircraft subject to reconfirmation prior to scheduled delivery and options
for 16 additional aircraft. Of the seven firm-order A330-300 aircraft, the
first will be delivered in the fourth quarter of 1999, the next five in 2000
and the last in early 2001. Orders subject to reconfirmation are for
aircraft that are tentatively scheduled for delivery in 2001. The Company
can substitute other Airbus widebody aircraft for the A330-300s, including
the A330-200 or members of the A340-Series, for orders other than the first
seven aircraft. US Airways expects to use the A330-300 aircraft, which will
be configured with three classes seating 278 passengers, primarily in
transatlantic markets. The new widebody aircraft are expected to eventually
supplant US Airways' Boeing B767-200ER fleet in transatlantic markets. See
"Liquidity and Capital Resources" below for additional information.
During the fourth quarter of 1998, US Airways will take delivery of the
first of up to 400 single-aisle Airbus aircraft. These aircraft, members of
Airbus' A320 family, are expected to ultimately replace, at a minimum, US
Airways' Boeing B737-200 and Douglas DC-9-30 and MD-80 aircraft. See
"Liquidity and Capital Resources" below for additional information. In
addition, the Company has recently announced an agreement with a subsidiary
of Bombardier, Inc. to lease 11 deHavilland Dash-8 turboprop aircraft. All
11 aircraft, which will be operated by two of the Company's wholly-owned
regional airline subsidiaries, are expected to be in operational service
before the end of 1998.
On June 1, 1998, US Airways' launched "MetroJet," its competitive
response to low cost, low fare competition, with five Boeing B737-200
aircraft and service between Baltimore/Washington International Airport and
four eastern cities. Expanding almost monthly since its launch, MetroJet is
expected to operate 22 aircraft with service to 16 cities by the end of 1998
and operate 54 aircraft by the end of 1999.
The level of low cost, low fare competition confronting the Company's
airline subsidiaries is relatively unchanged versus the level reported in
the Company's Form 10-K for the year ended
14
December 31, 1997. Low cost, low fare competitors have expanded operations
in markets in which US Airways operates during 1998, but, primarily as the
result of schedule changes implemented in early 1998, US Airways exited
certain markets in which it competed with such competition. The introduction
and growth of MetroJet has resulted in an incremental increase in low cost,
low fare competition for US Airways because most of the markets served by
MetroJet are also served by low cost, low fare air carriers (primarily
Southwest Airlines Co., and Delta Express, the low cost, low fare product
offered by Delta Airlines, Inc.).
US Airways added additional transatlantic service during April 1998:
Philadelphia-London (Gatwick Airport) and Philadelphia-Amsterdam. US Airways
has announced that it will begin Pittsburgh-Paris service on October 1,
1998. US Airways is seeking approval from U.S. and Italian authorities to
operate Philadelphia-Milan service and has filed with the U.S. Department of
Transportation (DOT) for authority to serve London's Heathrow Airport
(Heathrow) from Boston, Charlotte, Philadelphia and Pittsburgh. US Airways
anticipates moving its operations at Gatwick Airport to Heathrow when
possible (the availability of operating rights at Heathrow is currently
constrained by the bilateral aviation treaty between the U.S. and the United
Kingdom). The DOT recently announced plans to resume negotiation of a new
bilateral aviation treaty with the U.K., which is a prerequisite for US
Airways' obtaining the right to serve Heathrow. In addition, the European
Commission (EC) recently proposed that American Airlines, Inc. (American)
and British Airways plc. (British Airways) divest up to 267 slots
(takeoff/landing times) at London airports as a prerequisite for EC approval
of their proposed alliance. If the proposal is adopted, and American and
British Airways precede with their alliance, US Airways could compete for
some of these slots, which, along with new treaty rights, would enable US
Airways to offer additional service to London from one or more of its U.S.
hub locations. US Airways continues to explore opportunities to further its
growth in European markets, especially in light of the Company's recent
order for new widebody aircraft.
On April 22, 1998, US Airways announced that it had postponed its
service to London's Gatwick Airport from Charlotte, citing "unlawful"
behavior by the U.K. in refusing to grant commercially viable landing rights
for the flight, which was scheduled to begin May 7, 1998. US Airways has a
formal complaint pending before the DOT over the landing rights issue,
noting that the bilateral aviation agreement between the U.S. and the U.K.
guarantees U.S. air carriers a "fair and equal opportunity to compete"
with U.K. air carriers. The Company does not believe that US Airways'
postponement of its Charlotte-London service has had a material adverse
impact on the Company's results of operations or financial condition. US
Airways is unable to predict the outcome of this matter, including the
timing of its resolution.
On April 23, 1998, US Airways and American announced an innovative
marketing relationship that will give customers of both companies important
new benefits, including combined access to both frequent traveler programs:
US Airways' Dividend Miles and American's AAdvantage. The marketing
relationship permits air travelers to take advantage of US Airways' strong
East Coast presence and American's strength in other domestic markets and in
international markets. Under the alliance, effective August 1, 1998, members
who belong to Dividend Miles and AAdvantage are able to claim awards for
travel on both airlines. In addition, US Airways Club and American's Admiral
Club members now enjoy reciprocal access to each airlines' airport clubs.
Enabling Dividend Miles and AAdvantage members who belong to both programs
to combine miles when claiming a travel award on either airline and allowing
AAdvantage members to earn AAdvantage miles as well as Dividend Miles on
certain US Airways Shuttle flights, the next phase of the marketing
relationship, is expected to be introduced in the near future.
The two airlines also believe that "code-sharing" on certain flights
would be beneficial to their customers, employees and shareholders. However,
because certain types of code-sharing are subject to provisions in the labor
contracts of both companies, US Airways and American will not seek domestic
code-sharing between the "mainline" operations of both airlines unless
forced to do so for
15
competitive reasons. Code-sharing on the regional air carriers of both
airlines, US Airways Express and American Eagle is expected to be
implemented by the end of 1998 on certain flight segments.
Legislation has recently been introduced in Congress that would provide
for increased scrutiny of airline alliances by the DOT. However it is
unclear whether the legislation will be passed by Congress or the impact on
the Company, if any, should the legislation be passed into law.
In April 1998, the DOT issued proposed rules designed to regulate anti-
competitive behavior in the airline industry. US Airways is monitoring this
issue closely and has filed documents on the proposed rules with the DOT.
The Company cannot predict whether or when the proposed rules will be
adopted.
Other Information
US Airways has issued recalls for 50 of its furloughed pilots. The
recalls are part of US Airways' continuing planning process due to normal
attrition, retirements and training requirements for the new single-aisle
Airbus aircraft that begin entering US Airways' operating fleet this Fall.
US Airways expects to offer recall notices to all of its furloughed pilots
by December 31, 2001. Prior to the initial recall, approximately 280 US
Airways pilots were on furlough.
In September 1997, The Boeing Company (Boeing) filed suit against US
Airways in state court in King County, Washington seeking unspecified
damages, estimated at approximately $220 million, for alleged breach of two
aircraft purchase agreements concerning, respectively, eight B757-200
aircraft and 40 B737-Series aircraft. On October 31, 1997, US Airways filed
an answer and counterclaims to Boeing's complaint denying liability and
seeking recovery from Boeing of approximately $35 million in equipment
purchase deposits. On April 23, 1998 the parties reached a settlement
terminating all obligations with respect to both purchase agreements.
Pursuant to the settlement, the litigation has been dismissed with prejudice
as to both Boeing's claims and US Airways' counterclaims.
Results of Operations
The following section pertains to activity included in the Company's
Condensed Consolidated Statements of Operations (which are contained in Part
I, Item 1A. of this report) and in selected US Airways operating and
financial statistics. Except where noted, operating statistics referred to
in this section are for scheduled service only.
Three Months Ended June 30, 1998
Compared with the
Three Months Ended June 30, 1997
As mentioned above, the Company purchased Shuttle on December 30, 1997.
Because the Company's acquisition of Shuttle was accounted for using the
"purchase method," only Shuttle's financial results post-acquisition are
included in the Company's results of operations. Shuttle operates under the
trade name "US Airways Shuttle."
Operating Revenues-Passenger transportation increased $66.3 million or 3.3%,
of which $45.6 million is attributable to US Airways Shuttle operations.
Other operating revenues increased $20.5 million or 13.2% due primarily to
revenues generated from sales of capacity (ASMs) on a non-owned US Airways
Express air carrier (the agreement was effective in January 1998) and higher
revenues from partners in US Airways' Dividend Miles program. The increase
in revenues from sales of capacity on the US Airways Express air carrier is
partially offset by increases in expenses recognized in the other operating
expenses category related to purchases of the capacity.
16
Operating Expenses-During the second quarter of 1997, US Airways recognized
operating expenses totaling $28.3 million categorized as nonrecurring items
related to certain efficiency measures. These efficiency measures included
US Airways elimination service on certain unprofitable routes and the
consolidation of certain maintenance and reservations activities into fewer
facilities. The table below shows where these nonrecurring items were
recorded in the Company's Condensed Consolidated Statements of Operations
(dollars in millions).
Severance
Payments Aircraft Facilities Totals
--------- -------- ---------- ------
Operating Expenses
Personnel costs $6.9 - - $ 6.9
Other rent and
landing fees - - $2.9 2.9
Depreciation and
Amortization - $18.1 0.4 18.5
--- ---- --- ----
$6.9 $18.1 $3.3 $28.3
=== ==== === ====
The Aircraft charge related to the write-down of certain DC-9-30
aircraft to be grounded earlier then previously anticipated to estimated
fair market value. The Facilities charges related primarily to the write-off
of leasehold improvements and the accrual of lease obligations at certain
facilities to be abandoned (net of any anticipated sublease revenues). US
Airways also recorded a nonrecurring item of $1.5 million (a credit to
Aircraft rent expense) during the second quarter of 1997 upon subleasing an
additional British Aerospace BAe-146-200 aircraft.
Excluding the nonrecurring item recorded in the second quarter of 1997,
US Airways' Personnel costs decreased $13.7 million or 1.9% due primarily to
a $16.3 million decrease in stock-based compensation expenses (most of which
is related to stock appreciation rights, or "SARs,") and a decrease in
full-time equivalent employees. As previously disclosed, approximately 670
US Airways employees transferred to The Sabre Group (TSG) in late December
1997 as a result of US Airways' information services management agreement
with TSG (see also Other operating expenses and Depreciation and
amortization below). The inclusion of Shuttle's personnel costs in the
Company's results partially offset the personnel costs decrease at US
Airways. Aviation fuel decreased significantly due primarily to lower
average fuel prices. Commissions also decreased significantly reflecting the
revised commission rate structure the Company established in September 1997.
Aircraft maintenance increased $9.5 million or 9.1%. US Airways entered into
a ten-year maintenance agreement with Rolls Royce Canada Limitee in December
1997 covering US Airways' jet engines originally manufactured by Rolls Royce
Plc. Because the new contract is based on a per-flight-hour cost (as opposed
to the cost of time and materials when the jet engines are actually
serviced), the timing of certain expenses related to the maintenance of
these jet engines also changed. Depreciation and amortization was relatively
unchanged if the nonrecurring charges recognized in 1997 are excluded.
During the second quarter of 1998, decreases in depreciation and
amortization expense related to US Airways' sale of information systems and
related assets to TSG in early January 1998 (which occurred as part of its
information services management agreement with TSG) were offset by expenses
related to Shuttle, including amortization of goodwill, and an adjustment
recorded in conjunction with US Airways' revising downward the residual
values for certain DC-9-30 aircraft. Other increased $58.8 million or 14.9%
due primarily to expenses associated with US Airways' information services
management contract with TSG, amounts recorded in this expense category
related to settlement of litigation with Boeing (as discussed above under
"Other Information") and expenses associated with purchases of capacity
from a non-owned US Airways Express air carrier. As a result of US Airways'
information services agreement with TSG, certain expenses categorized as
Personnel costs and Depreciation and amortization in 1997 have been replaced
by expenses categorized as Other operating expenses (e.g., outside
services).
Other Income (Expense)-The decrease in Equity in earnings of affiliates
results from USAM discontinuing the equity method of accounting for certain
investments in July 1997. The decrease in Interest capitalized reflects US
Airways' write-off of capitalized interest on equipment purchase
17
deposits with Boeing (see related discussion above under "Other
Information") partially offset by capitalized interest on equipment
purchase deposits related to the Company's aircraft acquisition agreements
for Airbus aircraft.
Provision (Credit) for Income Taxes-The Company's effective income tax rate
for financial reporting purposes increased substantially as the result of
the Company recognizing certain income tax benefits during the fourth
quarter of 1997.
Preferred Dividend Requirement-With the retirement of the Company's Series H
Preferred Stock (formerly the Series A Preferred Stock) during March 1998,
the Company no longer has preferred stock outstanding. In addition to
dividends on the Series H Preferred Stock, the preferred dividend
requirement of $23.5 million for the second quarter of 1997 reflects
dividend requirements for the Company's Series F and Series T Preferred
Stock, both of which were retired in May 1997, and its Series B Preferred
Stock, which was retired in September 1997.
Earnings per Common Share-The number of shares used to calculate EPS has
been affected by: The partial conversion of the Company's Series F Preferred
stock during May 1997 (the Company purchased a small percentage of this
series prior to its conversion); the Company's purchase of its Series T
Preferred Stock during May 1997; the conversion of the Series B Preferred
Stock during August and September 1997; the conversion of the Series H
Preferred Stock in March 1998, and; purchases of Common Stock during the
first six months of 1998. As of June 30, 1998, the Company held 5.9 million
shares of Common Stock in treasury. The Company purchased most of these
shares during the second quarter of 1998. See also Note 4 to the Company's
Condensed Consolidated Financial Statements contained in Part I, Item 1A. of
this report for additional information. The Company's EPS figures for the
second quarter of 1997 have been restated to conform with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" (SFAS
128), which the Company adopted during the fourth quarter of 1997.
In February 1998, the Financial Accounting Standards Board adopted SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits" (SFAS 132) and SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 132 revises standards
for the reporting and presentation of information about pension and other
postretirement benefit plans. Implementation of SFAS 132 will not impact the
Company's results of operations or financial position because this standard
only addresses disclosure matters. SFAS 133 establishes accounting and
reporting standards for derivative financial instruments and for hedging
activities. Although only a preliminary assessment has been completed, the
Company does not believe that implementing SFAS 133 will materially impact
its results of operations or financial condition. This conclusion is based
on US Airways' current limited participation in contracts involving
derivative financial instruments and hedging transactions. The Company is
required to implement SFAS 132 as part of its year-end reporting for 1998
and SFAS 133 as part of its financial reporting for the first quarter of
2000.
Six Months Ended June 30, 1998
Compared with the
Six Months Ended June 30, 1997
As mentioned above, the Company purchased Shuttle on December 30, 1997.
Because the Company's acquisition of Shuttle was accounted for using the
"purchase method," only Shuttle's financial results post-acquisition are
included in the Company's results of operations.
Operating Revenues-Passenger transportation increased $27.0 million or 0.7%,
including an increase of $84.6 million attributable to US Airways Shuttle
operations partially offset by a $63.3 million decrease in passenger
transportation revenues at US Airways. The decrease at US Airways is linked
primarily to a decrease in capacity (ASMs) (see related discussion under
"Selected
18
US Airways Operating and Financial Statistics" below). Other operating
revenues increased $22.2 million or 7.0% primarily related to revenues
generated from sales of capacity (ASMs) on a non-owned US Airways Express
air carrier (the agreement was effective in January 1998) and higher
revenues from partners in US Airways' Dividend Miles program. The increase
in revenues from sales of capacity on the US Airways Express air carrier is
partially offset by increases in expenses recognized in the other operating
expenses category related to purchases of the capacity.
Excluding the nonrecurring item recorded in the second quarter of 1997,
Personnel costs decreased $12.7 million or 0.8% due primarily to a $19.2
million decrease in stock-based compensation expense (most of which is
related to SARs) and a decrease in full-time equivalent employees at US
Airways. As mentioned above, approximately 670 US Airways employees
transferred to TSG in late December 1997 (see also Other operating expenses
below). The inclusion of Shuttle's personnel costs for the first six months
of 1998 partially offset the personnel costs decrease at US Airways.
Aviation fuel decreased significantly due primarily to lower average fuel
prices. Commissions also decreased significantly reflecting the revised
commission rate structure the Company established in September 1997.
Aircraft maintenance increased $26.8 million or 13.3%. A majority of the
increase is related to US Airways' maintenance agreement with Rolls Royce
Canada Limitee which began in December 1997 (see discussion above under
Aircraft maintenance in the comparison of quarterly results section).
Depreciation and amortization was relatively unchanged if the nonrecurring
charges recognized in 1997 are excluded. Besides offsetting activity during
the second quarter of 1998 (see discussion above under Depreciation and
amortization in the comparison of quarterly results), the Company's
depreciation and amortization expenses have been favorably affected by
US Airways' sale of information systems and related assets to TSG in early
January 1998, partially offset by expenses related to Shuttle, including
amortization of goodwill. Other increased $81.1 million or 10.2% due
primarily to expenses associated with US Airways' information services
management contract with TSG, amounts recorded during the second quarter of
1998 related to US Airways' settlement of litigation with Boeing (as
discussed above under "Other Information") and expenses associated with
purchases of capacity from a non-owned US Airways Express air carrier. As a
result of US Airways' information services agreement with TSG, certain
expenses categorized as Personnel costs and Depreciation and amortization in
1997 have been replaced by expenses categorized as Other operating expenses
(e.g., outside services).
Other Income (Expense)-The decrease in Equity in earnings of affiliates
results from USAM discontinuing the equity method of accounting for certain
investments in July 1997. The decrease in Interest capitalized reflects US
Airways' write-off of capitalized interest on equipment purchase deposits
with Boeing in conjunction with the settlement of litigation between US
Airways and Boeing (as discussed above under "Other Information")
partially offset by capitalized interest on equipment purchase deposits
related to the Company's aircraft acquisition agreements for Airbus
aircraft. During the first six months of 1997, US Airways recognized gains
in the Other, net category totaling $18.0 million related to US Airways'
sale of 11 Boeing B737-200 and one Fokker F28-4000 aircraft.
Provision (Credit) for Income Taxes-The Company's effective income tax rate
for financial reporting purposes increased substantially as the result of
the Company recognizing certain income tax benefits during the fourth
quarter of 1997.
Preferred Dividend Requirement-With the retirement of the Company's Series H
Preferred Stock in March 1998, the Company no longer has preferred stock
outstanding. In addition to dividends on the Series H Preferred Stock, the
preferred dividend requirement of $44.4 million for the first six months of
1997 reflects dividend requirements for the Company's Series F and Series T
Preferred Stock, both of which were retired in May 1997 and its Series B
Preferred Stock, which was retired in September 1997.
19
Earnings per Common Share-As discussed above in the comparison of quarterly
results, the number of shares of Common Stock used to calculate EPS has been
affected by several transactions, most notably conversions of preferred
stock into Common Stock and purchases of Common Stock. The Company's EPS
amounts for the first six months of 1997 have been restated to conform with
SFAS No. 128, "Earnings Per Share," which the Company adopted during
fourth quarter 1997.
<TABLE>
Selected US Airways Operating and Financial Statistics (see Note 1 below)
(unaudited)
<CAPTION>
Three Months Six Months
Ended June 30, Increase Ended June 30, Increase
1998 1997 (Decrease) 1998 1997 (Decrease)
------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Revenue passengers (thousands)* 15,302 15,533 (1.5) % 28,610 29,400 (2.7) %
Total RPMs (millions) (Note 2) 10,916 11,003 (0.8) % 20,397 20,951 (2.6) %
RPMs (millions)* 10,881 10,953 (0.7) % 20,326 20,853 (2.5) %
Total ASMs (millions) (Note 3) 14,179 14,922 (5.0) % 27,913 29,460 (5.3) %
ASMs (millions)* 14,138 14,865 (4.9) % 27,831 29,346 (5.2) %
Passenger load factor* (Note 4) 77.0 % 73.7 % 3.3 pts. 73.0 % 71.1 % 1.9 pts.
Break-even load factor (Note 5) 66.8 % 66.0 % 0.8 pts. 65.4 % 65.1 % 0.3 pts.
Yield* (Note 6) 17.18 c 16.95 c 1.4 % 17.45 c 17.31 c 0.8 %
Passenger revenue
per ASM* (Note 7) 13.22 c 12.49 c 5.8 % 12.74 c 12.30 c 3.6 %
Revenue per ASM (Note 8) 14.66 c 13.75 c 6.6 % 14.19 c 13.57 c 4.6 %
Cost per ASM (Note 9) 12.42 c 12.07 c 2.9 % 12.46 c 12.21 c 2.0 %
Average passenger journey (miles)* 711 705 0.9 % 710 709 0.1 %
Average stage length (miles)* 596 592 0.7 % 594 589 0.8 %
Revenue aircraft miles (millions)* 105 111 (5.4) % 208 219 (5.0) %
Cost of aviation fuel
per gallon (Note 10) 52.35 c 65.18 c (19.7) % 54.96 c 70.26 c (21.8) %
Cost of aviation fuel
per gallon, excluding fuel
taxes (Note 11) 46.35 c 58.71 c (21.1) % 48.94 c 63.83 c (23.3) %
Gallons of aviation fuel
consumed (millions) 278 288 (3.5) % 545 570 (4.4) %
Number of aircraft in operating
fleet at period-end 370 390 (5.1) % 370 390 (5.1) %
Full-time equivalent employees
at period-end 38,276 40,246 (4.9) % 38,276 40,246 (4.9) %
c cents
* Scheduled service only (excludes charter service).
Note 1. Operating statistics include US Airways' "mainline"
operations as well as the operations of its low-fare
product, MetroJet. Operatic statistics include free
frequent travelers and the related miles they flew.
Certain nonrecurring items and revenues and expenses
associated with US Airways' capacity purchase
arrangements with certain affiliated airlines have been
excluded from US Airways' financial results for purposes
of financial statistical calculations and better
comparability between periods.
Note 2. Revenue passenger miles (RPMs)-Revenue passengers
multiplied by the number of miles they flew.
Note 3. Available seat miles (ASMs)-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 utilized that
equates to US Airways breaking-even at the pre-tax income
level.
Note 6. Passenger transportation revenue divided by RPMs.
Note 7. Passenger transportation revenue divided by ASMs (a
measure of unit revenue).
Note 8. Total Operating Revenues divided by ASMs (a measure of
unit revenue).
Note 9. Total Operating Expenses divided by ASMs (a measure of
unit cost).
Note 10. Includes the base cost of aviation fuel, fuel taxes and
transportation charges.
Note 11. Includes the base cost of aviation fuel and
transportation charges (excludes fuel taxes).
20
</TABLE>
The number of passengers carried by US Airways decreased for both
comparative periods due primarily to capacity decreases. As of June 30,
1998, US Airways operated 20 fewer aircraft then as of June 30, 1997;
capacity (ASMs), decreased 4.9% and 5.2% for the second quarter of 1998 and
year-to-date 1998 versus the comparable periods in 1997. The effects of
decreased capacity on US Airways' operating revenues have been mitigated by
increases in passenger load factors, yield and average stage length.
US Airways' capacity is expected to decrease 2.5% for third quarter
1998 compared to third quarter 1997, increase 3.5 % for fourth quarter 1998
compared to fourth quarter 1997 and decrease 2.5% for full-year 1998
compared to full-year 1997. Unit costs (operating costs per ASM) increased
reflecting marginally lower operating costs applied over fewer ASMs (see
also Note 1. above). US Airways' unit costs are expected to increase
approximately 1% - 1.5% for full-year 1998 compared to full-year 1997. The
unit cost estimates include aviation fuel expenses (including fuel taxes) of
57.20 cents per gallon.
Liquidity and Capital Resources
As of June 30, 1998, the Company's Cash, Cash equivalents and Short-
term investments totaled $2.13 billion and the ratio of the Company's
current assets to its current liabilities ("current ratio") was 0.96. As
of December 31, 1997, the Company's Cash, Cash equivalents and Short-term
investments totaled $1.96 billion and the Company's current ratio was 1.10.
The Company's debt to equity ratio was 2.30 and 3.60 as of June 30, 1998 and
December 31, 1997, respectively (calculations exclude amounts related to
outstanding preferred stock). The improvement in the Company's debt to
equity ratio reflects a $358 million increase in Stockholders' Equity which
resulted from the conversion of the Series H Preferred Stock into Common
Stock during the first quarter of 1998 as well as the Company's net income
for the first six months of 1998. As discussed below, US Airways retired
early certain debt with a principal amount of $324.4 million on July 1,
1998.
For the first six months of 1998, the Company's operating activities
provided net cash of $842.3 million (as presented in the Company's Condensed
Consolidated Statements of Cash Flows, which are contained in Part I, Item
1A of this report). For the first six months of 1997, the Company's
operating activities provided net cash of $375.5 million. Operating cash
flows during the first six months of 1997 were adversely affected by profit
sharing payments totaling $129.1 million and the effects of remitting ticket
taxes collected from passengers of approximately $180 million to the federal
government. The profit sharing payments the Company made to employees during
first quarter 1997 ended the Company's obligation for profit sharing under
its 1992 Salary Reduction Plan (the liability had been accrued for prior to
first quarter 1997). The ticket tax remittances resulted from ticket taxes
collected during 1996. The ticket tax was not in effect during the majority
of the first quarter of 1997. The Company resumed regular ticket tax
remittances after the ticket tax was reinstated in March 1997. In addition,
exercises of stock appreciation rights (SARs) resulted in cash outflows of
$45.5 million during the first six months of 1997, but only $7.6 million
during the first six months of 1998. As of July 31, 1998, fewer than 2,000
SARs granted under the Company's 1992 Stock Option Plan remained outstanding
(approximately 180,700 SARs were outstanding as of December 31, 1997).
Investing activities during the first six months of 1998 included cash
outflows of $178.1 million for the acquisition of assets and cash inflows of
$61.8 million related to asset dispositions. US Airways' cash outflows
related to asset acquisitions included $72.1 million for aircraft and
aircraft-related assets, including the purchase of two B767-200ER aircraft
upon lease expiry. In addition, the Company made purchase deposit payments
for Airbus aircraft of $31.6 million during the first six months of 1998.
The remaining cash outflows for the acquisition of assets included the
purchase of computer equipment and software (including certain costs
associated with US Airways' information services management agreement with
TSG), other ground equipment and
21
miscellaneous assets. Asset dispositions included proceeds of $46.5 million
from US Airways' sale of substantially all of its information systems and
related assets to TSG and proceeds from US Airways' sale of four
nonoperating aircraft. Restricted cash and investments increased $48.6
million due primarily to US Airways' return to using cash to collateralize
letters of credit for workers' compensation policies (US Airways previously
collateralized such policies with certain owned flight equipment). The net
cash used for investing activities during the first six months of 1998 was
$288.9 million.
Net cash used for financing activities during the first six months of
1998 was $521.9 million. Besides normal, recurring debt repayments,
US Airways retired early certain debt with a face amount of $80.1 million
during the first six months of 1998. During the second quarter of 1998, the
Company purchased 6.0 million shares of Common Stock in open market
transactions resulting in total cash outflows of $407.0 million. On
March 12, 1998, the holders of the Company's Series H Preferred Stock
exercised their right to convert those shares into shares of the Company's
Common Stock. As a result of the conversion transactions, the Company issued
9.2 million shares of Common Stock and retired its Series H Preferred Stock.
The Company paid dividends totaling $6.6 million to holders of its Series H
Preferred Stock in 1998 prior to that series conversion into Common Stock.
Annual dividend requirements for the Series H Preferred Stock were $33.1
million. The Company had previously retired its Series F and T Preferred
Stock in May 1997 and its Series B Preferred Stock in September 1997.
On July 1, 1998, US Airways retired its 10% Senior Notes, which had a
principal amount of $300 million. The transaction resulted in a cash outflow
of $315.0 million and resulted in a loss on early extinguishment of debt of
$15.0 million. US Airways also retired other notes with an outstanding
principal amount of $24.4 million on July 1, 1998. The latter transactions
resulted in an immaterial net loss.
The Company expects to satisfy all of its short-term liquidity
requirements through a combination of cash on hand and cash generated from
operations. The Company continues to be highly leveraged, as evidenced by
the Company's high debt burden. The Company and US Airways require
substantial working capital in order to meet scheduled debt and lease
payments and to finance day-to-day operations. The Company's agreements to
acquire up to 430 new Airbus aircraft, accompanying jet engines and
ancillary assets will increase the Company's financing needs and result in a
significant increase in its financial obligations and debt burden. Adverse
changes in certain factors that are generally outside the Company's control,
such as an economic downturn, additional government regulation, intensified
competition from lower-cost competitors or increases in the cost of aviation
fuel, could have a material adverse effect on the Company's results of
operations, financial condition and future prospects. The Company's results
of operations and financial condition are particularly susceptible to
adverse changes in general economic and market conditions due to US Airways'
high cost structure relative to its major competitors.
As of June 30, 1998, the minimum determinable payments associated with
the Company's aircraft acquisition agreements for Airbus aircraft (including
progress payments, payments at delivery, buyer-furnished equipment, spares,
capitalized interest, penalty payments, cancellation fees and/or
nonrefundable deposits) are currently estimated at $353 million for the
remainder of 1998, $1.18 billion in 1999, $1.82 billion in 2000 and $90
million in 2001. The Company anticipates using cash on hand for purchase
deposits due within the next six months and has commitments or letters of
intent which it believes will provide financing for at least 25% of the
anticipated purchase price of firm-order Airbus aircraft. However, further
financing or internally-generated funds will be needed to satisfy the
Company's capital commitments for the balance of the aircraft purchase price
and for other aircraft-related expenditures. Other capital expenditures,
such as for training simulators, rotables and other aircraft components, are
also expected to increase in conjunction with the acquisition of the new
aircraft and jet engines. There can be no assurance that
22
sufficient financing will be available for all aircraft and other capital
expenditures not covered by committed financing.
On April 15, 1998, Standard & Poor's (S&P) raised its credit ratings of
US Airways Group and US Airways and removed all ratings from CreditWatch,
where they were placed on October 1, 1997. S&P cited "sharply improved
operating performance" among other factors for its decision to raise the
credit ratings. On April 23, 1998, Moody's Investors Service (Moody's) also
raised its credit ratings of the Company and US Airways. Credit ratings
issued by agencies such as S&P and Moody's affect a company's ability to
issue debt or equity securities and the effective rate at which such
financings are undertaken.
Part II. Other Information
Item 1. Legal Proceedings
In September 1997, The Boeing Company (Boeing) filed suit against US
Airways in state court in King County, Washington seeking unspecified
damages, estimated at approximately $220 million, for alleged breach of two
aircraft purchase agreements concerning, respectively, eight B757-200
aircraft and 40 B737-Series aircraft. On October 31, 1997, US Airways filed
an answer and counterclaims to Boeing's complaint denying liability and
seeking recovery from Boeing of approximately $35 million in equipment
purchase deposits. On April 23, 1998 the parties reached a settlement
terminating all obligations with respect to both purchase agreements.
Pursuant to the settlement, the litigation has been dismissed with prejudice
as to both Boeing's claims and US Airways' counterclaims.
Item 4. Submission of Matters to a Vote of Security Holders
US Airways Group's annual meeting of stockholders was held on May 20,
1998. Proxies for the meeting were solicited by US Airways 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 US Airways Group's Proxy Statement for the meeting were
elected. In addition, the stockholders also voted on the following proposals
with the following results:
1. Management's proposal regarding ratification of the selection of
auditors of the Company for fiscal year 1998.
For: 87,643,239 Against: 173,471 Abstain: 159,040
Broker Non-Votes: None
2. Management's proposal regarding approval of an amendment to the
Company's 1996 Stock Incentive Plan.
For: 70,421,769 Against: 17,263,793 Abstain: 290,188
Broker Non-Votes: None
3. Stockholder proposal relating to the date on which the Annual Meeting
is held.
For: 1,581,465 Against: 70,625,921 Abstain: 1,072,697
Broker Non-Votes: 14,695,667
4. Stockholder proposal concerning confidential voting.
For: 25,324,915 Against: 47,350,107 Abstain: 605,061
Broker Non-Votes: 14,695,667
23
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Designation Description
10 1996 Stock Incentive Plan of US Airways Group, Inc. as amended and
restated as of May 20, 1998.
11 Computation of basic and diluted earnings per common share for the
three month and six month periods ended June 30, 1998 and 1997 for US
Airways Group, Inc.
27.1 Financial Data Schedule - US Airways Group, Inc.
27.2 Financial Data Schedule - US Airways, Inc.
B. Reports on Form 8-K
Date of Report Subject of Report
July 22, 1998 Consolidated statements of operations for both US Airways
Group, Inc. and US Airways, Inc. for the three months and
six months ended June 30, 1998, and select operating and
financial statistics for US Airways, Inc. for the same
periods.
July 2, 1998 News release announcing US Airways, Inc.'s order of up to 30
Airbus Industrie A330-300 widebody aircraft to substantially
expand its fleet for international service.
June 4, 1998 News release discussing US Airways, Inc.'s growth prospects
for the remainder of 1998, 1999, and 2000.
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.
US Airways Group, Inc. (Registrant)
Date: August 6, 1998 By: /s/ James A. Hultquist
--------------------------
James A. Hultquist
Controller
(Chief Accounting Officer)
US Airways, Inc. (Registrant)
Date: August 6, 1998 By: /s/ James A. Hultquist
--------------------------
James A. Hultquist
Controller
(Chief Accounting Officer)
(this space intentionally left blank)
24
EXHIBIT 10
1996 STOCK INCENTIVE PLAN
OF
US AIRWAYS GROUP, INC.
(as amended and restated as of May 20, 1998)
1. PURPOSE. The purpose of this Stock Incentive Plan is to
advance the interests of the Corporation by encouraging the
acquisition of a larger personal proprietary interest in the
Corporation by key employees of the Corporation and of its
Subsidiaries upon whose judgment and dedication the Corporation
is largely dependent for the successful conduct of its business.
It is anticipated that the acquisition of such proprietary
interest in the Corporation will stimulate the efforts of such
key employees on behalf of the Corporation and strengthen their
desire to remain with the Corporation or its Subsidiaries and
that the opportunity to acquire such a proprietary interest will
enable the Corporation and its Subsidiaries to attract and retain
desirable personnel.
2. DEFINITIONS. When used in this Plan, unless the context
otherwise requires:
(a) "Affiliate" shall mean a person or entity that
directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or
is under common control with, the Corporation.
(b) "Board" shall mean the Board of Directors of the
Corporation.
(c) "Cause" shall mean an act or acts of personal
dishonesty taken by optionee and intended to result in
substantial personal enrichment at the expense of the
Corporation or any of its Subsidiaries or the
conviction of optionee of a felony.
(d) "Change of Control" shall mean:
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then
outstanding shares of common stock of the Corporation
(the "Outstanding Group Common Stock") or (B) the
combined voting power of the then outstanding voting
securities of the Corporation entitled to vote
generally in the election of directors (the
"Outstanding Group Voting Securities"); provided,
however, that the following acquisitions shall not
constitute a Change of Control: (w) any acquisition
directly from the Corporation, (x) any acquisition by
the Corporation or any of its Subsidiaries, (y) any
acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or
any of its Subsidiaries, or (z) any acquisition by any
corporation with respect to which, following such
acquisition, more than 85% of, respectively, the then
outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote
generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
Outstanding Group Common Stock and Outstanding Group
Voting Securities immediately prior to such
acquisition, in substantially the same proportions as
their ownership, immediately prior to such acquisition,
of the Outstanding Group Common Stock and Outstanding
Group Voting Securities, as the case may be; or
(ii) Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming
a director subsequent to the date hereof whose
election, or nomination for election by the
Corporation's shareholders, was approved by a vote of
at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of
either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents; or
(iii) Approval by the shareholders of the
Corporation of a reorganization, merger or
consolidation, in each case, with respect to which all
or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the
Outstanding Group Common Stock and Outstanding Group
Voting Securities immediately prior to such
reorganization, merger or consolidation do not
following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 85%
of, respectively, the then outstanding shares of common
stock and the combined voting power of the then
outstanding voting securities entitled to vote
generally in the election of directors, as the case
may be, of the corporation resulting from such
reorganization, merger or consolidation in
substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or
consolidation of the Outstanding Group Common Stock and
Outstanding Group Voting Securities, as the case may
be; or
(iv) Approval by the shareholders of the
Corporation of (x) a complete liquidation or
dissolution of the Corporation or (y) the sale or other
disposition of all or substantially all of the assets
of the Corporation, other than to a corporation, with
respect to which following such sale or other
disposition, more than 85% of, respectively, the then
outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote
generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who
were the beneficial owners, respectively, of the
Outstanding Group Common Stock and Outstanding Group
Voting Securities immediately prior to such sale or
other disposition in substantially the same proportion
as their ownership, immediately prior to such sale or
other disposition, of the Outstanding Group Common
Stock and Outstanding Group Voting Securities, as the
case may be; or
(v) The acquisition by an individual, entity or
group of beneficial ownership of 20% or more of the
then outstanding securities of the Corporation,
including both voting and non-voting securities,
provided, however, that such acquisition shall only
constitute a change of control in the event that such
individual, entity or group also obtains the power to
elect by class vote, cumulative voting or otherwise to
appoint 20% or more of the total number of directors to
the Board.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Committee" shall mean the Human Resources Committee of
the Board or such other committee as may be designated
by the Board.
(g) "Corporation" shall mean US Airways Group, Inc.
(h) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations
promulgated thereunder.
(i) "Fair Market Value" shall mean the average of the high
and low sales prices of the Shares as reported on the
New York Stock Exchange Composite Tape on the date as
of which such value is being determined or, if there
shall be no sale on that date, then on the last
previous day on which a sale was reported, provided,
however, that during the 60-day period from and after a
Change of Control, "Fair Market Value" shall mean the
higher of (X) the highest reported sales price, regular
way, of Shares on the New York Stock Exchange
Composite Tape during the 60-day period prior to the
Change of Control and (Y) if the Change of Control is
the result of a transaction or series of transactions
described in paragraphs (i), (iii) or (iv) of the
definition of "Change of Control" herein, the highest
price for Shares paid in such transaction or series of
transactions which in the case of such paragraph (i)
shall be the highest price for Shares as reflected in a
Schedule 13D filed under the Exchange Act by the person
having made the acquisition.
(j) "Options" shall mean the stock options issued pursuant
to Section 5 hereof.
(k) "Plan" shall mean the 1996 Stock Incentive Plan of US
Airways Group, Inc., as such Plan may be amended from
time to time.
(l) "Restricted Period" means the period selected by the
Committee pursuant to Section 6 hereof.
(m) "Restricted Stock" means Shares which have been awarded
to a grantee subject to the restrictions referred to
in Section 6 hereof so long as such restrictions are
in effect.
(n) "Share" shall mean a share of common stock of the
Corporation.
(o) "Subsidiary" shall mean any corporation more than 50%
of whose stock having general voting power is owned
by the Corporation or by a Subsidiary of the
Corporation.
3. ADMINISTRATION. The Plan shall be administered by the
Committee which, unless otherwise determined by the Board, shall
consist of not less than two directors of the Corporation, each
of whom shall qualify as a "disinterested director" (within the
meaning of Rule 16b-3 promulgated under Section 16(b) of the
Exchange Act) and as an "outside director" (within the meaning of
Section 162(m)(4)(c) of the Code). No more than 5,100,000
Shares, which may be either treasury Shares or authorized but
unissued Shares, of the Corporation's common stock in the
aggregate, except to the extent of adjustments authorized by
Section 11 hereof, may be issued pursuant to Options and
Restricted Stock awards granted under this Plan. Any Shares
subject to Options or Restricted Stock awards may thereafter be
subject to new grants under this Plan if there is a lapse,
expiration or termination of any such Options or Restricted Stock
awards prior to issuance of the Shares or if Shares are issued
hereunder and thereafter reacquired by the Corporation pursuant
to rights reserved by the Corporation in connection with the
issuance thereof.
The Committee may authorize and establish such rules,
regulations and revisions thereof not inconsistent with the
provisions of the Plan, as it may determine advisable to make the
Plan, Options, and Restricted Stock effective or provide for
their administration, and may take such other action with regard
to the Plan, Options, and Restricted Stock as it shall deem
desirable to effectuate their purpose. The Committee may require
that any Options granted be exercisable in installments. A
determination of the Committee as to any questions which may
arise with respect to the interpretation of the provisions of the
Plan, Options and Restricted Stock shall be final.
This Plan shall constitute an amendment and restatement of
the Corporation's 1988 Stock Incentive Plan with respect to the
Shares reserved thereunder for which awards had not yet been
granted thereunder as of the date of adoption of this Plan by the
Board (or which again become available upon the lapse, expiration
or termination of any award previously made thereunder). Options
and other awards with respect to such Shares may be granted
hereunder by the Committee in accordance with the terms of this
Plan.
4. PARTICIPANTS. Options and Restricted Stock may be
granted under the Plan to any key employee of the Corporation or
any Subsidiary or to any individual in contemplation of becoming
a key employee of the Corporation or any Subsidiary. The
individuals to whom Options and Restricted Stock are to be
offered under the Plan and the number of Shares to be optioned
and Restricted Stock to be issued to each such individual shall
be determined by the Committee in its sole discretion, subject,
however, to the terms and conditions of the Plan.
5. OPTIONS. The number of Shares to be optioned to any
eligible person shall be determined by the Committee in its sole
discretion. The Committee shall be entitled to issue Options at
different times to the same person. Options shall be subject to
such terms and conditions and evidenced by agreements in such
form as shall be determined from time to time by the Chief
Executive Officer, provided that the terms and conditions of each
such agreement are not inconsistent with this Plan.
The purchase price per Share for the Shares to be purchased
pursuant to the exercise of any Option shall be fixed by the
Committee, but shall not be less than 100% of the Fair Market
Value of the Shares on the date such Option is granted; provided,
however, for purposes of any grant of Options by the Committee
the meaning of Fair Market Value shall be as defined in Section
2(i) hereof without regard to the proviso in such definition. No
Option granted under the Plan shall be exercisable after ten
years and one month from the date it was granted or such earlier
date as shall be established by the Committee in granting the
Option.
Except as otherwise provided herein, an Option shall be
exercisable by the holder at such rate and times as may be fixed
by the Committee, but not sooner than approval of the Plan by the
stockholders of the Corporation; provided, however, upon a Change
of Control, all Options shall become immediately exercisable.
The Committee may provide that the Option shall not be exercis-
able, in whole or in part, except upon the fulfillment of
specific defined conditions. No Option may at any time be exer-
cised in part with respect to fewer than 100 Shares unless fewer
than 100 Shares remain in the Option grant being exercised.
Options shall be exercised by written notice to the
Secretary of the Corporation (or the Secretary's designated
agent) in such form as is from time to time prescribed by the
Committee and by the payment in full of the aggregate exercise
price of the Options being exercised. Payment of the purchase
price upon exercise of any Option shall be made (A) in cash or
(B) in whole or in part, (i) in Shares valued at Fair Market
Value on the date of exercise or (ii) with respect to the
exercise of Options which are not incentive stock options, as
defined in Section 422 of the Code, by electing to have the
Corporation withhold a number of shares of common stock otherwise
receivable upon exercise, the value of such withheld shares
determined by the Fair Market Value on the date of exercise;
provided, however, that during the 60-day period from and after a
Change of Control all optionees with respect to any or all of
their respective Options shall, unless the Committee shall
determine otherwise at the time of grant, have the right, in lieu
of the payment of the full option price of the Shares being
purchased under the Options and by giving written notice to the
Corporation in form satisfactory to the Committee, to elect
(within such 60-day period) to surrender all or part of the
Options to the Corporation and to receive in cash an amount equal
to the amount by which the Fair Market Value of Shares on the
date of exercise exceeds the option price per Share under the
Options multiplied by the number of Shares granted under the
Options as to which the right granted by this proviso shall have
been exercised. Such written notice shall specify the optionee's
election to purchase Shares granted under the Options or to
receive the cash payment referred to in the proviso to the
immediately preceding sentence.
6. RESTRICTED STOCK. Subject to the terms of the Plan, the
Committee shall determine and designate the recipients of Re-
stricted Stock awards, the dates on which such awards are to be
granted, the number of Shares subject to such awards, and the
restrictions applicable to such awards. Restricted Stock awards
shall be subject to such terms and conditions and evidenced by
agreements in such form as shall be determined from time to time
by the Chief Executive Officer, provided that the terms and
conditions of each such agreement are not inconsistent with this
Plan.
7. NONTRANSFERABILITY OF OPTIONS AND RESTRICTED STOCK.
Options and Restricted Stock shall not be transferable by the
holder thereof otherwise than by will or the laws of descent and
distribution to the extent provided herein, and Options may be
exercised during the holder's lifetime only by the holder
thereof.
8. TAX WITHHOLDING. If as a result of: (a) the exercise
of any Options or the disposition of any Shares acquired pursuant
to such exercise, or (b) the lapse of any restrictions on the
disposition of Restricted Stock, the Corporation or Subsidiary
shall be required to withhold any amounts by reason of any
Federal, state or local tax rules or regulations, the Corporation
or Subsidiary shall be entitled to deduct and withhold such
amounts from any cash payments to be made to the holder. In any
event, the holder shall make available to the Corporation or
Subsidiary, promptly when required, sufficient funds to meet the
requirement for such withholding; and the Committee shall be
entitled to take and authorize such steps as it may deem
advisable in order to have such funds available to the
Corporation or Subsidiary when required. Notwithstanding the
foregoing, the holder shall have the right to satisfy such
withholding, in whole or in part, in Shares (including by having
the Corporation withhold Shares otherwise issuable in respect of
such Options or Restricted Stock) valued at Fair Market Value on
the date of exercise or lapse of restrictions, as applicable.
9. TAX LIABILITY. Subject to the Committee's discretion,
agreements between the Corporation and grantees in connection
with awards of Options or Restricted Stock may provide for the
payment by the Corporation of a supplemental cash payment to
grantees promptly after the exercise of an Option, or promptly
after the date on which the shares of Restricted Stock awarded
are included in the gross income of the grantee under the Code.
Such supplemental cash payments, to the extent determined by the
Committee, shall provide for the payment of such amounts as may
be necessary to result in the grantee not having any incremental
tax liability as a result of such exercise or inclusion in
grantee's gross income. The determination of the amount of any
supplemental cash payments by the Committee shall be conclusive.
10. TERMINATION OF EMPLOYMENT. Notwithstanding any provi-
sion of the Plan to the contrary, (i) upon the termination of em-
ployment of an Optionee with the Corporation and all Subsidiaries
other than for Cause, the optionee (or the optionee's estate in
the event of the optionee's death) shall have the privilege of
exercising any unexercised Options which the optionee could have
exercised at the time of such termination of employment at any
time until the end of six months following such termination of
employment and (ii) upon the termination of employment of an
optionee with the Corporation and all Subsidiaries for Cause, all
unexercised Options of such optionee shall terminate ten days
after such termination of employment.
The Committee may permit individual exceptions to the
requirements of this section by extending the period in which
Options may be exercised, provided, however, that no Options may
be extended past the earlier to occur of (i) their expiration
date or (ii) three years following termination of employment.
11. ADJUSTMENT OF OPTIONED SHARES. If prior to the
complete exercise of any Option there shall be declared and paid
a stock dividend upon the Shares of the Corporation or if the
Shares shall be split-up, converted, reclassified, or changed
into, or exchanged for, a different number or kind of securities
of the Corporation, the Option, to the extent that it has not
been exercised, shall entitle the holder upon the future exercise
of such Option to such number and kind of securities or other
property subject to the terms of the Option to which he would be
entitled had he actually owned the Shares subject to the
unexercised portion of the Option at the time of the occurrence
of such stock dividend, split-up, conversion, reclassification,
change or exchange; and the aggregate purchase price upon the
future exercise of the Option shall be the same as if originally
optioned Shares were being purchased thereunder. If any such
event should occur, the number of Shares with respect to which
Options remain to be issued, or with respect to which Options may
be reissued, shall be similarly adjusted.
In the event the outstanding Shares shall be changed into or
exchanged for any other class or series of capital stock or cash,
securities or other property pursuant to a recapitalization,
reclassification, merger, consolidation, combination or similar
transaction, then each Option shall thereafter become exercisable
for the number and/or kind of capital stock, and/or the amount of
cash, securities or other property so distributed, into which the
Shares subject to the Option would have been changed or exchanged
had the Option been exercised in full prior to such transaction,
provided that, if the kind or amount of capital stock or cash,
securities or other property received in such transaction is not
the same for each outstanding Share, then the kind or amount of
capital stock or cash, securities or other property for which the
Option shall thereafter become exercisable shall be the kind and
amount so receivable per Share by a plurality of the Shares, and
provided further that, if necessary, the provisions of the Option
shall be appropriately adjusted so as to be applicable, as nearly
as may reasonably be, to any shares of capital stock, cash,
securities or other property thereafter issuable or deliverable
upon exercise of the Option.
12. ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES ACT.
The Corporation may postpone the issuance and delivery of Shares
upon any exercise of an Option, or upon any lapsing of
restriction on any shares of Restricted Stock until (a) the
admission of such Shares to listing on any stock exchange on
which Shares are then listed and (b) the completion of such
registration or other qualification of such Shares under any
state or Federal law, rule or regulation as the Corporation shall
determine to be necessary or advisable. Any person exercising an
Option and any grantee of Restricted Stock shall make such
representations and furnish such information as may, in the
opinion of counsel for the Corporation, be appropriate to permit
the Corporation, in light of the then existence or nonexistence
with respect to such Shares of an effective registration
statement under the Securities Act of 1933, as from time to time
amended, to issue the Shares in compliance with the provisions of
that or any comparable act.
13. AMENDMENT OF THE PLAN. The Committee may at any time
discontinue the Plan or the grant of any additional Options or
Restricted Stock under the Plan. Except as hereinafter provided,
the Committee may from time to time amend the Plan and the terms
and conditions of any Options or Restricted Stock not theretofore
issued, and the Committee, with the consent of the affected
holder of an Option or Restricted Stock, may at any time withdraw
or from time to time amend the Plan and the terms and conditions
of such Option or Restricted Stock as have been theretofore
granted.
14. EFFECTIVENESS AND TERM OF THE PLAN. The Plan shall
become effective and in full force and effect upon its approval
by the holders of a majority of the Shares present or represented
and entitled to vote at the 1996 annual meeting of the
stockholders of the Corporation and, unless sooner terminated by
the Committee pursuant to Section 13 hereof, the Plan shall
terminate on the date ten years after such approval. No Option
or Restricted Stock may be granted or awarded after termination
of the Plan. Termination of the Plan shall not affect the
validity of any Option or Restricted Stock outstanding on the
date of such termination.
<TABLE>
US Airways Group, Inc.
Exhibit 11
Computation of Basic and Diluted Earnings Per Common Share
(unaudited)
(in millions, except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Adjustments to Net Income
- -------------------------
<S> <C> <C> <C> <C>
Net income $ 194 $ 206 $ 293 $ 358
Preferred dividend requirement - (24) a) (7) (44) a)
---- ---- ---- ----
Earnings applicable to common
stock used for basic computation 194 182 286 314
Diluted adjustments
Assume conversion of all preferred stock:
Preferred dividend requirement - 24 a) 7 44 a)
---- ---- ---- ----
Adjusted net earnings applicable to
common stock used for diluted computation $ 194 $ 206 $ 293 $ 358
==== ==== ==== ====
Adjustments to common stock shares outstanding
- ----------------------------------------------
Weighted average number of shares of common stock
outstanding for basic computation 98 72 96 68
Diluted adjustments
Incremental shares from outstanding stock
options (treasury stock method) 2 2 2 2
Assume conversion of all preferred stock - 31 b) 3 35 b)
---- ---- ---- ----
Total weighted average number of common
shares for diluted computation 100 105 101 105
==== ==== ==== ====
Earnings Per Common Share
- -------------------------
Basic $1.99 $2.53 $2.99 $4.60
==== ==== ==== ====
Diluted $1.95 $1.96 $2.89 $3.42
==== ==== ==== ====
Note: Numbers may not calculate due to rounding.
a) Includes redemption premiums of $5.2 million and $0.8 million on 1,940.636 shares of Series F
Preferred Stock and the Series T Preferred Stock, respectively (May 22, 1997 redemption date).
See also b) below.
b) For the time they were outstanding during the period, the effects of assuming conversion of the
shares of Series F Preferred Stock prior to their redemption are antidilutive, but included for
purposes of this calculation in accordance with Regulation S-K, Item 601(b)(11). See also
a) above.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000701345
<NAME> US AIRWAYS GROUP, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,125
<SECURITIES> 1,003
<RECEIVABLES> 396<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 225
<CURRENT-ASSETS> 2,946
<PP&E> 6,191
<DEPRECIATION> 2,567
<TOTAL-ASSETS> 8,590
<CURRENT-LIABILITIES> 3,070
<BONDS> 1,992
0
0
<COMMON> 101
<OTHER-SE> 969
<TOTAL-LIABILITY-AND-EQUITY> 8,590
<SALES> 0
<TOTAL-REVENUES> 4,359
<CGS> 0
<TOTAL-COSTS> 3,793
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123
<INCOME-PRETAX> 490
<INCOME-TAX> 197
<INCOME-CONTINUING> 293
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 293
<EPS-PRIMARY> 2.99
<EPS-DILUTED> 2.89
<FN>
<F1>Receivables are presented net of allowances.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000714560
<NAME> US AIRWAYS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,122
<SECURITIES> 1,003
<RECEIVABLES> 990<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 201
<CURRENT-ASSETS> 3,505
<PP&E> 5,790
<DEPRECIATION> 2,460
<TOTAL-ASSETS> 8,886
<CURRENT-LIABILITIES> 3,003
<BONDS> 1,991
0
0
<COMMON> 0
<OTHER-SE> 1,482
<TOTAL-LIABILITY-AND-EQUITY> 8,886
<SALES> 0
<TOTAL-REVENUES> 4,292
<CGS> 0
<TOTAL-COSTS> 3,737
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123
<INCOME-PRETAX> 496
<INCOME-TAX> 200
<INCOME-CONTINUING> 296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 296
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Receivables are presented net of allowances.
<F2>EPS calculations are not relevant because US Airways, Inc. is a wholly-owned
subsidiary of US Airways Group, Inc.
</FN>
</TABLE>
