<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
USAir Group, Inc.
(Commission file number: 1-8444)
and
USAir, Inc.
(Commission file number: 1-8442)
(Exact names of registrants as specified in their charters)
Delaware USAir Group, Inc. 54-1194634
(State of incorporation USAir, Inc. 53-0218143
of both registrants) (I.R.S. Employer Identification Nos.)
USAir Group, Inc.
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 418-5306
(Registrant's telephone number, including area code)
USAir, Inc.
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 418-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrants (1) have filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrants were required to file
such reports), and (2) have been subject to such filing require-
ments for the past 90 days.
Yes x No
--- ---
At April 30, 1994, there were outstanding approximately
59,540,000 shares (exclusive of approximately 1,535,000 shares held
in treasury) of common stock of USAir Group, Inc. and 1,000 shares
of common stock of USAir, Inc.
The registrant USAir, Inc. meets the conditions set forth in
General Instructions H(1)(a) and (b) of Form 10-Q and is therefore
participating in the filing of this form with the reduced disclo-
sure format.
<PAGE>
USAir Group, Inc.
and
USAir, Inc.
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1A. Financial Statements - USAir Group, Inc.
Condensed Consolidated Statements of Operations
- Three Months Ended March 31, 1994 and 1993 1
Condensed Consolidated Balance Sheets
- March 31, 1994 and December 31, 1993 2
Condensed Consolidated Statements of Cash Flows
- Three Months Ended March 31, 1994 and 1993 3
Notes to Condensed Consolidated Financial
Statements 4
Item 1B. Financial Statements - USAir, Inc.
Condensed Consolidated Statements of Operations
- Three Months Ended March 31, 1994 and 1993 6
Condensed Consolidated Balance Sheets
- March 31, 1994 and December 31, 1993 7
Condensed Consolidated Statements of Cash Flows
- Three Months Ended March 31, 1994 and 1993 8
Notes to Condensed Consolidated Financial
Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 19 & 20
i
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1A. Financial Statements
USAir Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994 and 1993 (Unaudited) (in thousands except per share amounts)
==================================================================================================
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Operating Revenues
Passenger transportation $1,528,063 $1,600,438
Cargo and freight 41,992 42,048
Other 115,846 73,855
--------- ---------
Total operating revenues 1,685,901 1,716,341
Operating Expenses
Personnel costs 722,962 659,191
Aviation fuel 162,472 176,015
Commissions 141,099 142,857
Other rent and landing fees 115,853 109,679
Aircraft rent 114,036 118,939
Aircraft maintenance 105,518 94,750
Depreciation and amortization 78,240 74,209
Other, net 381,767 338,679
--------- ---------
Total operating expenses 1,821,947 1,714,319
--------- ---------
Operating income (loss) (136,046) 2,022
Other Income (Expense)
Interest income 4,249 1,739
Interest expense (68,669) (62,339)
Interest capitalized 3,767 6,958
Other, net 44 (9,412)
--------- ---------
Other income (expense), net (60,609) (63,054)
--------- ---------
Loss before taxes and cumulative effect of accounting
change (196,655) (61,032)
Income tax provision - -
--------- ---------
Loss before cumulative effect of accounting change (196,655) (61,032)
Cumulative effect of change in method of accounting
for postemployment benefits - (43,749)
--------- ----------
Net loss (196,655) (104,781)
--------- ----------
Preferred dividend requirement (19,220) (16,908)
--------- ----------
Net loss applicable to common stockholders $ (215,875) $ (121,689)
========= ==========
Loss per common share
Before accounting change $ (3.64) $ (1.65)
Effect of accounting change - (0.92)
--------- ---------
Loss per common share $ (3.64) $ (2.57)
========= =========
Shares used for computation (000) 59,274 47,253
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
<TABLE>
USAir Group, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1994 (Unaudited) and December 31, 1993 (in thousands except per share amounts)
====================================================================================================
<CAPTION>
March 31, December 31,
1994 1993
ASSETS ----------- ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 386,000 $ 368,347
Receivables, net 509,220 364,020
Materials and supplies, net 351,352 362,019
Prepaid expenses and other 110,861 83,334
---------- ----------
Total current assets 1,357,433 1,177,720
Property and Equipment
Flight equipment 5,134,400 5,031,351
Ground property and equipment 1,086,259 1,074,526
Less accumulated depreciation and amortization (1,957,155) (1,883,858)
---------- ----------
4,263,504 4,222,019
Purchase deposits 150,274 156,621
---------- ----------
Property and equipment, net 4,413,778 4,378,640
Other Assets
Goodwill, net 538,654 542,666
Other intangibles, net 301,367 296,775
Other assets, net 496,654 482,112
---------- ----------
Total other assets 1,336,675 1,321,553
--------- ----------
$7,107,886 $6,877,913
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 83,534 $ 87,833
Accounts payable 394,994 335,918
Traffic balances payable and unused tickets 818,193 630,147
Accrued expenses 1,122,200 1,182,886
---------- ---------
Total current liabilities 2,418,921 2,236,784
Long-Term Debt, Net of Current Maturities 2,670,253 2,444,017
Deferred Credits and Other Liabilities
Deferred gains, net 433,538 440,327
Postretirement benefits other than pensions, non-current 926,635 907,343
Non-current pension liability and other 330,163 303,299
---------- ---------
Total deferred credits and other liabilities 1,690,336 1,650,969
Commitments and Contingencies
Redeemable Cumulative Convertible Preferred Stock
Series A, 358,000 shares issued, no par value 358,000 358,000
Series F, 30,000 shares issued, no par value 300,000 300,000
Series T, 10,000 shares issued, no par value 100,719 100,719
Stockholders' Equity (Deficit)
Series B cumulative convertible preferred stock, no par
value, 4,263,000 depositary shares issued 213,153 213,153
Common stock, par value $1 per share, authorized
150,000,000 shares, issued 61,080,000 shares 61,080 61,080
Paid-in capital 1,410,123 1,417,346
Retained deficit (1,903,428) (1,682,912)
Common stock held in treasury, at cost, 1,667,000
and 1,864,000 shares, respectively (75,026) (83,891)
Deferred compensation (93,850) (94,957)
Adjustment for minimum pension liability (42,395) (42,395)
--------- ---------
Total stockholders' deficit (430,343) (212,576)
--------- ---------
$7,107,886 $6,877,913
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
<TABLE>
USAir Group, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1994 AND 1993 (Unaudited) (in thousands)
==================================================================================================
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash and cash equivalents beginning of period $ 368,347 $ 296,038
Cash flows from operating activities
Net loss (196,655) (104,781)
Adjustments to reconcile net loss to cash provided by
(used for) operating activities
Depreciation and amortization 78,240 74,209
Loss (gain) on disposition of assets 1,125 2,227
Other (10,036) (226)
Changes in certain assets and liabilities
Decrease (increase) in receivables (145,200) (46,428)
Decrease (increase) in materials, supplies, prepaid
expenses and intangible pension assets (21,726) (26,532)
Increase (decrease) in traffic balances payable and
unused tickets 188,046 51,787
Increase (decrease) in accounts payable and accrued
expenses 20,677 (40,522)
Increase (decrease) in postretirement benefits other
than pensions, non-current 19,292 14,100
--------- ---------
Net cash provided by (used for) operating activities (66,237) (76,166)
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (19,069) (24,384)
Additions to other property (42,182) (29,885)
Proceeds from disposition of assets 713 65,479
Change in restricted cash and investments 3,422 (800)
Other 1,819 (2,008)
--------- ---------
Net cash provided by (used for) investing activities (55,297) 8,402
Cash flows from financing activities
Issuance of debt 172,156 220,000
Reduction of debt (15,674) (436,064)
Issuance of preferred stock - 300,000
Sale of treasury stock 1,903 1,527
Dividends (19,198) (16,908)
--------- ---------
Net cash provided by (used for) financing activities 139,187 68,555
--------- ---------
Net increase (decrease) in cash and cash equivalents 17,653 791
--------- ---------
Cash and cash equivalents end of period $ 386,000 $ 296,829
========= =========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions $ 62,786 $ 79,762
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
USAir Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements
include the accounts of USAir Group, Inc. ("USAir Group" or the
"Company") and its wholly-owned subsidiaries: USAir, Inc.
("USAir"), Piedmont Airlines, Inc. ("Piedmont"), Jetstream
International Airlines, Inc., Pennsylvania Commuter Airlines, Inc.,
USAir Leasing and Services, Inc., USAir Fuel Corporation and
Material Services Company, Inc.
The comparative 1993 figures in the accompanying Condensed
Consolidated Statements of Operations and Condensed Consolidated
Statements of Cash Flows have been restated from the March 31, 1993
Quarterly Report on Form 10-Q to reflect the adoption during the
third quarter of 1993, retroactive to January 1, 1993, of Statement
of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits." Certain other 1993 amounts have been
reclassified to conform with 1994 classifications.
Management believes that all adjustments (none of which were
other than normal recurring accruals) necessary for a fair
statement of results have been included in the condensed consoli-
dated financial statements for the interim periods presented, which
are unaudited. All significant intercompany accounts and transac-
tions have been eliminated.
These interim period condensed consolidated financial state-
ments should be read in conjunction with the consolidated financial
statements contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1993.
(2) COMMITMENTS
On May 12, 1994, USAir and The Boeing Company ("Boeing")
reached an agreement to reschedule the delivery of 40 firm order
737-series aircraft from the 1997-2000 time period to the years
2003-2005. In addition, USAir will forego options to purchase 63
737-series, 11 757-series and two 767-series aircraft during the
1996-2000 time period.
The following schedule, as of March 31, 1994, of USAir's new
aircraft on firm order, options for new aircraft and scheduled
payments for new aircraft orders (including progress payments,
buyer furnished equipment, spares and capitalized interest)
reflects USAir's May 1994 agreement with Boeing as though the
agreement had been in existence at March 31, 1994.
4
<PAGE>
<TABLE>
(2) COMMITMENTS (Continued)
<CAPTION>
Delivery Period - Firm Orders
----------------------------------------------
There-
1994 1995 1996 1997 1998 after Total
---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Boeing
757-200 3 7 8 - - - 18
737 Series - - - - - 40 40
--- --- --- --- --- --- ---
3 7 8 - - 40 58
=== === === === === === ===
Payments
(millions) $199 $287 $252 $ - $ - $1,877 $2,615
=== === === === === ===== =====
(3) LONG-TERM DEBT
On April 19, 1994, the Company notified the banks which were
parties to a credit agreement dated March 30, 1987, as amended
("Credit Agreement"), of the Company's decision to terminate the
Credit Agreement and on April 26, 1994, the Credit Agreement was
terminated. As a result, 66 jet and commuter aircraft and certain
spare engines with a net book value of approximately $260 million
were released from a mortgage related to the Credit Agreement. The
Company had been in violation of certain covenants at March 31,
1994. The Credit Agreement was scheduled by its terms to expire on
September 30, 1994.
5
<PAGE>
</TABLE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1B. Financial Statements
USAir, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1994 and 1993 (Unaudited) (in thousands)
=================================================================================================
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Operating Revenues
Passenger transportation $1,427,676 $1,486,189
Cargo and freight 41,230 41,253
Other 120,331 78,006
--------- ---------
Total operating revenues 1,589,237 1,605,448
Operating Expenses
Personnel costs 688,202 625,908
Aviation fuel 155,474 167,905
Commissions 133,239 133,809
Other rent and landing fees 112,539 106,380
Aircraft rent 102,898 109,534
Aircraft maintenance 89,029 79,153
Depreciation and amortization 72,151 66,875
Other, net 366,985 329,178
--------- ---------
Total operating expenses 1,720,517 1,618,742
--------- ---------
Operating loss (131,280) (13,294)
Other Income (Expense)
Interest income 4,402 7,160
Interest expense (68,131) (57,181)
Interest capitalized 3,767 6,953
Other, net 1,190 (8,274)
--------- ---------
Other income (expense), net (58,772) (51,342)
--------- ---------
Loss before taxes and cumulative effect of accounting
change (190,052) (64,636)
Income tax provision - -
--------- ---------
Loss before cumulative effect of accounting change (190,052) (64,636)
Cumulative effect of change in method of accounting
for postemployment benefits - (43,749)
--------- ---------
Net loss $ (190,052) $ (108,385)
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
<TABLE>
USAir, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1994 (Unaudited) and DECEMBER 31, 1993 (in thousands except per share amounts)
====================================================================================================
<CAPTION>
March 31, December 31,
1994 1993
ASSETS ----------- ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 385,357 $ 367,835
Receivable from parent company 43,884 16,092
Receivables, net 512,961 367,403
Materials and supplies, net 329,545 338,808
Prepaid expenses and other 105,908 78,131
--------- ----------
Total current assets 1,377,655 1,168,269
Property and Equipment
Flight equipment 4,925,935 4,824,031
Ground property and equipment 1,064,625 1,045,306
Less accumulated depreciation and amortization (1,856,235) (1,786,817)
--------- ---------
4,134,325 4,082,520
Purchase deposits 150,274 156,621
Property and equipment, net --------- ---------
($160,000 and $162,000 pledged for parent company debt
at March 31, 1994 and December 31, 1993, respectively) 4,284,599 4,239,141
Other Assets
Goodwill, net 538,654 542,666
Other intangibles, net 300,615 295,988
Other assets, net 578,452 563,404
--------- ---------
Total other assets 1,417,721 1,402,058
--------- ---------
$7,079,975 $6,809,468
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt $ 81,939 $ 85,715
Accounts payable 377,579 316,843
Traffic balances payable and unused tickets 851,497 659,606
Accrued expenses 1,095,807 1,150,062
--------- ---------
Total current liabilities 2,406,822 2,212,226
Long-Term Debt, Net of Current Maturities
Long-term debt 2,668,652 2,441,935
Notes payable - parent company 104,754 105,080
--------- ---------
Total long-term debt, net of current maturities 2,773,406 2,547,015
Deferred Credits and Other Liabilities
Deferred gains, net 428,016 434,586
Postretirement benefits other than pensions, non-current 926,385 907,093
Non-current pension liability and other 327,347 300,497
--------- ---------
Total deferred credits and other liabilities 1,681,748 1,642,176
Commitments and Contingencies
Stockholder's Equity
Common stock, par value $1 per share, authorized
1,000 shares, issued and outstanding 1,000 shares 1 1
Paid-in capital 2,416,131 2,416,131
Retained earnings (deficit) (2,156,169) (1,966,117)
Adjustment for minimum pension liability (41,964) (41,964)
--------- ---------
Total stockholder's equity 217,999 408,051
--------- ---------
$7,079,975 $6,809,468
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
7
<PAGE>
<TABLE>
USAir, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1994 and 1993 (Unaudited) (in thousands)
==================================================================================================
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash and cash equivalents beginning of period $ 367,835 $ 295,432
Cash flows from operating activities
Net loss (190,052) (108,385)
Adjustments to reconcile net loss to cash provided by
(used for) operating activities
Depreciation and amortization 72,151 66,875
Loss on disposition of property 1,156 2,228
Other (9,399) (556)
Changes in certain assets and liabilities
Decrease (increase) in receivables (181,275) 57,084
Decrease (increase) in materials, supplies, prepaid
expenses and intangible pension assets (23,380) (25,659)
Increase (decrease) in traffic balances payable and
unused tickets 191,891 59,398
Increase (decrease) in accounts payable and accrued
expenses 33,418 (38,430)
Increase (decrease) in postretirement benefits other
than pensions, non-current 19,292 14,100
--------- ---------
Net cash provided by (used for) operating activities (86,198) 26,655
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (19,069) (24,379)
Additions to other property (40,271) (28,585)
Proceeds from disposition of property 659 65,404
Change in restricted cash and investments 3,422 (800)
Other 1,819 (2,008)
--------- ---------
Net cash provided by (used for) investing activities (53,440) 9,632
Cash flows from financing activities
Issuance of debt 172,156 -
Reduction of debt (14,996) (35,208)
--------- ---------
Net cash provided by (used for) financing activities 157,160 (35,208)
--------- ---------
Net increase (decrease) in cash and cash equivalents 17,522 1,079
--------- ---------
Cash and cash equivalents end of period $ 385,357 $ 296,511
========= =========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions $ 62,786 $ 79,762
========= =========
Other property acquisitions - transfer from affiliated company $ 7,925 $ -
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
8
<PAGE>
USAir, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements
include the accounts of USAir, Inc. ("USAir") and its wholly-owned
subsidiary USAM Corp. USAir is a wholly-owned subsidiary of USAir
Group, Inc. ("USAir Group" or the "Company").
The comparative 1993 figures in the accompanying Condensed
Consolidated Statements of Operations and Condensed Consolidated
Statements of Cash Flows have been restated from the March 31, 1993
Quarterly Report on Form 10-Q to reflect the adoption during the
third quarter of 1993, retroactive to January 1, 1993, of Statement
of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits." Certain other 1993 amounts have been
reclassified to conform with 1994 classifications.
Management believes that all adjustments (none of which were
other than normal recurring accruals) necessary for a fair
statement of results have been included in the condensed consoli-
dated financial statements for the interim periods presented, which
are unaudited. All significant intercompany accounts and transac-
tions have been eliminated.
These interim period condensed consolidated financial state-
ments should be read in conjunction with the consolidated financial
statements contained in USAir's Annual Report on Form 10-K for the
year ended December 31, 1993.
(2) OTHER
Please refer to Note 2 in USAir Group's "Notes to Condensed
Consolidated Financial Statements" on page 4 of this report.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion relates to the financial results and
condition of USAir Group, Inc. (the "Company"). USAir, Inc.
("USAir") is the Company's principal subsidiary and accounts for
approximately 93% of its operating revenue. The following
discussion is based primarily upon USAir's results of operations
and prospects.
Adverse weather in the northeast U.S., the intense competitive
environment characterized by the growth of low fare, low cost
competitors in USAir's markets, the resulting changes in USAir's
fares discussed below, and industry fare discounting promotions are
factors which had a negative impact on the Company's results of
operations for the first quarter of 1994. The growth of the
operations of low fare, low cost carriers in USAir's short haul
markets in the eastern U.S. continues to be the most significant
negative factor and represents a competitive challenge for USAir,
which has a higher cost structure than its competitors. In March
1994, the Company announced that it expected a pre-tax loss for the
full year of 1994 in excess of the $350 million loss reported for
1993. USAir believes that it must reduce its operating costs
substantially if it is to survive in this low fare competitive
environment.
On February 1, 1994, to avoid a loss of market share in the
eastern U.S., USAir substantially lowered its fares in primary and
secondary markets affected by the expansion of Continental
Airlines' ("Continental") low fare, low cost service. This measure
reduced fares in certain markets by up to 70%. The Company
believes that the additional passenger traffic stimulated by the
lower fares will not be sufficient to offset the effect of the
accompanying yield dilution. Through advance schedule filings,
USAir has received indications that Continental and its commuter
affiliates plan to initiate service in July 1994 in certain
additional markets competitive with USAir and its commuter
affiliates in the northeastern and southeastern U.S. at fares
substantially below those currently offered by USAir in those
markets and in markets within a reasonable driving distance.
Continental also announced that it will augment capacity, by
eliminating first class seating, in certain short-haul markets in
the eastern U.S. where it is currently competing against USAir with
low fares. USAir is in the process of evaluating Continental's
announced measures and formulating its response; however, the
Company expects that Continental's latest actions will have a
material adverse effect on the Company's financial condition,
results of operations and prospects. If Continental's actions have
this effect, the urgency of reducing USAir's unit costs and the
10
<PAGE>
exigencies related to USAir's financial condition, discussed below,
will increase. Continental could continue to redeploy its assets
and offer other low fair service in markets served by USAir in
addition to the anticipated July 1994 service levels.
The Company is actively pursuing several initiatives in an
effort to lower USAir's unit costs, which are among the highest of
the major U.S. airlines. USAir estimates that its unit cost, or
cost per available seat mile ("ASM"), will be approximately 11.3
cents in 1994 if no actions are taken to reduce costs. The
Company's short term goal is to reduce USAir's unit cost to
approximately 10 - 10.5 cents during the next two to three years,
with the goal of implementing the most substantial cost reductions
during 1994. The longer range goal is to reduce USAir's unit costs
to approximately 9.5 - 10 cents. The largest single component of
USAir's operating costs, approximately 40%, relates to personnel
costs. In order to improve its financial condition and results of
operations, USAir has, among other things, initiated discussions
with the leadership of its unionized employees regarding substan-
tial wage reductions, improved productivity, and other cost
savings. The outcome of those discussions is uncertain, and even
if substantial savings are achieved, it remains uncertain whether
they will be adequate in light of the Company's financial condition
and competitive position. There are recent examples of companies
in the airline industry which have obtained employee concessions in
agreements also resulting in the recapitalization of the companies,
including employee ownership stakes and employee participation in
corporate governance as well as the restructuring of debt and lease
obligations. In other cases, airlines have filed for bankruptcy
protection under Chapter 11 of the bankruptcy code, and some
airlines have ceased operation altogether when their operating
costs remained excessive in relation to their revenues, and their
liquidity became insufficient to sustain their operations. In
addition, other factors beyond the Company's control, such as a
downturn in the economy, a dramatic increase in fuel prices or
intensified industry fare wars, could have a material adverse
effect on the Company's and USAir's prospects and financial
condition. Because the Company and USAir are highly leveraged and
currently do not have access to bank credit and receivables
facilities which had supplied a substantial portion of their
liquidity, they could be more vulnerable to these factors than
their financially stronger competitors.
In February 1994, USAir inaugurated quick turn, point-to-point
service in 18 city-pair markets using 22 aircraft, in a move
intended to increase the utilization of its existing aircraft,
facilities and personnel and thereby reduce unit costs. By July
1994, USAir plans to expand the quick turn service to approximately
165 markets using approximately 100 aircraft. There can be no
assurance that the quick turn service will generate sufficient
additional revenue to offset the increased variable costs associat-
ed with this service.
11
<PAGE>
Other initiatives which USAir is pursuing include:
* an employee suggestion cost-cutting program beginning July
1994 with a goal of $50 million in annual savings and one-time
program costs of $10 million.
* rationalization of its jet fleet.
* centralization of its purchasing function and measures to
enhance cargo revenue.
* modification of its product which is intended to reduce costs
and enable USAir to compete more effectively with low cost
carriers while integrating the short-haul product with the
remaining network. This modification may require substantial
implementation costs.
There can be no assurance that any of these initiatives will be
successful in improving USAir's financial condition and results of
operations.
Because it is uncertain whether USAir can achieve sufficient
cost reductions, even if successful in some or all of the above
initiatives, the Company has commenced study of other strategic
options, including major restructurings, which may be available to
address the difficult financial and competitive factors facing
USAir.
United Airlines ("United") has stated in press reports that it
may accelerate the development of a low cost, short-haul operation
if its shareholders approve the proposed buyout by its employees.
This move could enable United to initiate additional low fare, low
cost service in markets served by USAir. In addition, a number of
small low cost, low fare start-up carriers have initiated or are
seeking to initiate service in the eastern U.S.
On April 12, 1994, Delta Air Lines ("Delta") and Virgin
Atlantic Airways ("Virgin Atlantic") announced that they had
reached a codeshare marketing agreement that would enable Delta to
feed traffic to Virgin Atlantic for travel between the U.S. and
Heathrow Airport in London. This arrangement is subject to the
approval of the U.S. Department of Transportation (the "DOT"). The
Company believes that the Delta/Virgin Atlantic arrangement, if
approved by the DOT, will compete with the codeshare service
offered by USAir and British Airways between certain U.S. cities
and London. United and Lufthansa German Airlines ("Lufthansa")
have received the necessary approvals to implement a code share
arrangement which will include transatlantic service from certain
U.S. cities to Europe and beyond. United and Lufthansa are
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<PAGE>
expected to commence the first phase of such service on June 1,
1994. The resulting impact of these code share arrangements on the
Company's results of operations and financial condition cannot be
predicted at this time, but is not expected to be material.
In April 1994, Delta announced that it plans to eliminate up
to 15,000 positions, or approximately 20% of its work force, as
part of a restructuring initiative that is intended to reduce its
cost per ASM from approximately 9.3 cents currently to 7.5 cents by
the summer of 1997. Delta's restructuring initiative reportedly
will not involve an equity ownership interest by its employees.
Delta's announcement is the latest illustration of the trend among
the major U.S. airlines to restructure in order to reduce operating
costs and enable them to compete in a low fare environment.
RESULTS OF OPERATIONS
The Company recorded a net loss of $196.7 million on revenue
of $1.7 billion in the first quarter of 1994, compared with a net
loss of $104.8 million on revenue of $1.7 billion in 1993. The
results reflect a 1.8% revenue decrease and 6.3% increase in
operating expense, discussed below. The Company estimates that
severe winter weather in the first quarter of 1994 negatively
affected its results of operations by approximately $50 million.
The financial results for the first quarter of 1993 included a
$43.7 million charge for the cumulative effect of an accounting
change, as required by Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Postemployment Benefits" ("FAS
112").
Operating Revenue - The Company's Passenger Transportation
Revenue decreased $72.4 million (4.5%) versus the first quarter of
1993, $58.5 million of which is attributable to USAir, due to
several factors including lower fares resulting from increased
competition from low cost, low fare carriers in USAir's markets;
adverse weather in January and February 1994; and industry fare
discounting promotions. USAir's ASMs were relatively unchanged
while the number of passengers increased 10.2% over the first
quarter of 1993, resulting in a load factor increase of 3.4
percentage points. Despite the increase in traffic, lower yields,
or passenger revenue per revenue passenger mile ("RPM"), resulted
in a 3.7% decline in passenger revenue per ASM. The Company
expects that the low fares offered in response to low fare, low
cost competition will continue to materially and adversely affect
passenger revenue and results of operations for the foreseeable
future. The Company's Other Revenue increased $42.0 million
(56.9%) as a result of increased cancellation and rebooking fees,
frequent traveler participation fees, and various other sources.
Expense - The Company's Personnel Costs increased $63.8
million (9.7%) primarily due to USAir's $62.3 million (10.0%)
increase in personnel costs which resulted from the expiration
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<PAGE>
during 1993 of employee wage reductions, contractual and general
salary increases during 1993, and a lower discount rate used during
1994 in the calculation of pension and postretirement benefit
expense. Aviation Fuel expense decreased $13.5 million (7.7%),
primarily because of USAir's $12.4 million (7.4%) decrease,
resulting from more favorable prices in 1994. Aircraft Maintenance
increased $10.8 million (11.4%) primarily because of USAir's $9.9
million (12.5%) increase which is due to the timing of maintenance
cycles. Depreciation and Amortization increased $4.0 million
(5.4%) following the delivery of Boeing 757 aircraft during 1993
which caused a $5.3 million (7.9%) increase at USAir. The $43.1
million (12.7%) increase in Other Expenses, Net, $37.8 million of
which is attributable to USAir, results from increases in several
expense categories, including those related to the increase in
USAir's other revenue.
Interest Income improved by $2.5 million as a result of higher
cash levels in 1994. USAir's results include intercompany
transactions which are eliminated from the Company's results.
Interest Expense increased $6.3 million (10.2%) as a result of
additional interest incurred on various USAir aircraft and
unsecured financings, which were completed during 1993 and early
1994, offset by a year-over-year decrease in interest on short-term
borrowings. Interest Capitalized decreased $3.2 million (45.9%) as
a result of aircraft deliveries during 1993. Other, Net reflects
a $9.5 million improvement primarily due to improved equity results
from USAir's 11% ownership investment in the Galileo International
Partnership, which owns and operates the Galileo Computerized
Reservation System ("CRS"), and USAir's 21% ownership investment in
the Apollo Travel Services Partnership, which markets the Galileo
CRS in the U.S. and Mexico.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operations was approximately $66 million in the
first quarter of 1994. At March 31, 1994, cash and cash equiva-
lents totaled approximately $386 million, excluding approximately
$171 million which was deposited in trust accounts to collateralize
letters of credit or workers compensation policies and classified
as "Other Assets." At March 31, 1994, the Company had no outstand-
ing loans under its revolving credit facility with a group of banks
("Credit Agreement") and was unable to access funds thereunder
because it was not in compliance with certain financial covenants.
On April 19, 1994, the Company notified the banks which were
parties to the Credit Agreement of its decision to terminate the
agreement and on April 26, 1994, the Credit Agreement was terminat-
ed. As a result, 66 jet and commuter aircraft and certain spare
engines with a net book value of approximately $260 million were
released from a mortgage related to the Credit Agreement. USAir is
currently unable to sell receivables under its revolving accounts
receivable sale program ("Receivables Agreement") because of
failure to comply with two of the financial covenants required to
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<PAGE>
be maintained in connection with that agreement. USAir is
currently engaged in discussions with the financial institution
that is party to the Receivables Agreement regarding either waivers
from compliance with the covenants or a revised agreement. There
can be no assurance that USAir will be successful in obtaining a
waiver or reaching a revised or new agreement to sell its receiv-
ables. The existing Receivables Agreement is scheduled by its
terms to expire in December 1994. There were no outstanding sales
under the Receivables Agreement on March 31, 1994.
On May 12, 1994, USAir reached an agreement with the Boeing
Company to reschedule the delivery of 40 737-series aircraft from
the 1997-2000 time period to the years 2003-2005. In addition, as
part of the same agreement, USAir will forego its options to
purchase an additional 63 737-series, 11 757-series, and two 767-
series aircraft during the 1996-2000 time period. As a result, the
Company's capital commitments have been substantially reduced for
the 1995-2001 time period. See Note 2 to the Company's Condensed
Consolidated Financial Statements for the future aircraft commit-
ments schedule reflecting this agreement with Boeing.
Net cash used for investing activities during the first
quarter of 1994 was $55.3 million. Net cash provided by financing
activities was $139.2 million, primarily from the $172.2 net
proceeds received by USAir upon the sale of $175 million principal
amount of 9 5/8% Senior Notes due 2001 through an underwritten
public offering. In addition, USAir incurred additional debt of
$62.8 million associated with the delivery of two new Boeing 757
aircraft during the first quarter and the payment of scheduled
aircraft progress payments. The $62.8 million is reflected as non-
cash activity in USAir Group's Condensed Consolidated Statement of
Cash Flows found in Item 1A of this report because USAir incurred
the related debt upon delivery of the aircraft or payment of the
progress payments. The Company has committed financing for the
remainder of its 1994 and 1995 scheduled aircraft deliveries.
On April 6, 1994, Moody's Investors Services, Inc. further
lowered its ratings on the Company's and USAir's securities. This
action followed a similar downgrade by Standard & Poor's Corpora-
tion ("S&P") in March 1994. S&P is continuing to monitor the
Company's results of operations with the possibility of a further
downgrade. The recent downgrades will make it more difficult for
the Company and USAir to effect additional financing.
At March 31, 1994, USAir Group's ratio of current assets to
current liabilities was 0.56 to 1 and the debt component of USAir
Group's capitalization structure was approximately 89% (100% if the
three series of redeemable preferred stock are considered to be
debt).
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On May 11, 1994, USAir received a Civil Investigative Demand
(the "CID") from the U.S. Department of Justice related to an
antitrust investigation to determine whether there are, have been,
or may be violations of Sections 1 and 2 of the Sherman Act related
to, among other things, agreements to pay, and payments of, travel
agency "override commissions" in the Pittsburgh, Charlotte,
Philadelphia and other markets. USAir has its largest hub
operations at airports in Pittsburgh, Charlotte and Philadelphia.
"Override commissions" are common sales incentives in the U.S.
airline industry and customarily involve the payment of commissions
by an airline in excess of the base commission (typically 10% of
the relevant fare) when travel agency sales for the airline exceed
certain goals agreed to by the agency and the airline. A CID is a
request for information in the course of an antitrust investigation
and does not constitute the institution of a civil or criminal
cause of action. USAir intends to comply with the CID. At this
time, USAir cannot predict the manner in which this investigation
will be resolved and if the resolution will have an adverse impact
of USAir's results of operations, financial position or ability to
compete. USAir understands that certain other U.S. air carriers
have received similar CIDs.
For information on certain other pending legal proceedings see
Part I, Item 3. - "Legal Proceedings" in the combined Annual Report
of USAir Group and USAir on Form 10-K for the year ended Decem-
ber 31, 1993.
Item 5. Other Information
Certain unions are engaged in efforts to unionize USAir's
customer service and reservations employees. The Railway Labor Act
(the "RLA") governs, and the National Mediation Board (the "NMB")
has jurisdiction over, such campaigns. Under the RLA, the NMB
could order an election among a class or craft of eligible
employees if a union submitted an application to the NMB supported
by the authorization cards from at least 35% of the applicable
class or craft of employees. If the NMB ordered an election and a
majority of the eligible employees voted for representation, USAir
would be required to negotiate a collective bargaining agreement
with the union that wins the election. On January 28, 1994, the
International Association of Machinists (the "IAM"), United Steel-
workers of America (the "USWA") and International Brotherhood of
Teamsters (the "IBT") filed applications with the NMB requesting
that an election be held among USAir's fleet service employees, a
class or craft of approximately 8,000 workers included among
16
<PAGE>
USAir's customer service employees. On March 1, 1994, after
determining that each of the three applicant unions had submitted
the required number of authorization cards, the NMB declared an
election among the fleet service agents. Ballots were mailed to
applicable employees on April 14, 1994 and will be tabulated by the
NMB on May 17, 1994. USAir cannot predict the outcome of the
election, nor can it predict, if a union is certified, when a
collective bargaining agreement would be negotiated or what its
terms would be. On March 21, 1994, the USWA filed an additional
application with the NMB requesting an election among USAir's
passenger service employees, a class or craft of approximately
10,000 workers included among USAir's customer service and
reservations employees. The NMB is in the process of determining
whether this application is supported by sufficient authorization
cards to warrant an election. USAir cannot predict whether an
election will be held among the passenger service class or craft
and if an election were held, the outcome. Nor can it predict if
a union is certified when a collective bargaining agreement would
be negotiated or what its terms would be. If unions are certified
to represent the fleet service employees and the passenger service
employees, substantially all of USAir's non-management employees
would be unionized. USAir also cannot predict whether any union
might submit authorization cards to the NMB sufficient to obtain an
election among any other class or craft of employees.
Piedmont's collective bargaining agreement with the Air Line
Pilots Association ("ALPA"), which represents its pilot employees,
became amendable on December 1, 1992. On February 22, 1994, the
NMB, which had assigned a mediator to the negotiations between
Piedmont and ALPA on a new agreement, declared these negotiations
at an impasse and commenced a thirty-day "cooling-off" period. On
March 27, 1994, two days following the expiration of this period at
midnight on March 25, 1994, Piedmont reached agreement on a new
collective bargaining agreement that becomes amendable on March 31,
1998. The new agreement was ratified by Piedmont's pilot employees
on May 2, 1994 and provides for increases in salary and benefits
for the term of the agreement.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Designation
11 Computation of Primary and Fully Diluted Earnings Per
Share for the three months ended March 31, 1994 and 1993
for USAir Group, Inc.
99 Airline Operating Statistics for the three months ended
March 31, 1994 and 1993 for USAir, Inc.
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<PAGE>
B. Reports on Form 8-K
Date of Report Subject of Report
January 18, 1994 Third Waiver dated as of December 21,
1994 to certain covenants contained in
the Credit Agreement.
January 25, 1994 Press Release dated January 25, 1994 of
USAir Group, Inc. and USAir, Inc. with
consolidated statements of operations for
each company.
March 9, 1994 Projected losses for the first quarter
and year 1994 and the initiation of
negotiations with the leadership of
USAir's unions regarding pay reductions
and productivity improvements.
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
USAir Group, Inc.
(Registrant)
Date: May 13, 1994 By: /s/ Ann Greer-Rector
-----------------------------
Ann Greer-Rector
Vice President & Controller
(Principal Accounting Officer)
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
USAir, Inc.
(Registrant)
Date: May 13, 1994 By: /s/ Ann Greer-Rector
-----------------------------
Ann Greer-Rector
Vice President & Controller
(Principal Accounting Officer)
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<TABLE>
USAir Group, Inc.
EXHIBIT 11
COMPUTATION OF PRIMARY
AND FULLY DILUTED EARNINGS PER SHARE
(unaudited)
(in thousands except per share amounts)
<CAPTION>
Three Months Ended March 31,
------------------------------------
1994 1993
---- ----
<S> <C> <C>
Adjustments to Net Loss
=======================
Loss before accounting change $(196,655) $ (61,032)
Preferred dividend requirement (19,220) (16,908)
-------- --------
Net loss applicable to common stock before accounting
change (215,875) (77,940)
Accounting change - (43,749)
-------- --------
Net loss applicable to common stock and common stock
equivalents used for primary computation (215,875) (121,689)
Fully Diluted Adjustments
Assume conversion of preferred stock 19,220 16,908
-------- --------
Adjusted net loss applicable to common stock
assuming full dilution $(196,655) $(104,781)
======== ========
Adjustments to Shares Outstanding
=================================
Average number of shares of common stock 59,274 47,253
Primary Adjustments
Assume exercise of options and common stock
equivalents 1) - -
Total average number of common and common -------- --------
equivalent shares used for primary computation 59,274 47,253
======== ========
Average number of shares of common stock 59,274 47,253
Fully Diluted Adjustments 2)
Assume exercise of options 15 164
Assume conversion of preferred stock 39,156 30,399
Total average number of shares assumed to be -------- --------
outstanding after full conversion 98,445 77,816
======== ========
Loss Per Share
==============
Primary 1)
Before accounting change $ (3.64) $ (1.65)
Effect of accounting change - (0.92)
-------- --------
Primary loss per share $ (3.64) $ (2.57)
======== ========
Fully diluted 2)
Before accounting change $ (2.00) $ (0.78)
Effect of accounting change - (0.57)
-------- --------
Fully diluted loss per share $ (2.00) $ (1.35)
======== ========
1) The assumed exercise of options and common stock equivalents which are anti-dilutive are not
included in the computation and presentation of primary earnings per share.
2) The assumed exercise of options and conversion of preferred stock are anti-dilutive but are
included in accordance with Regulation S-K Item 601(b)(11).
</TABLE>
<PAGE>
<TABLE>
USAir, Inc.
EXHIBIT 99
AIRLINE OPERATING STATISTICS
<CAPTION>
Three Months Ended March 31,
----------------------------
Better
1994 1993 (Worse)
---- ---- -------
<S> <C> <C> <C>
Revenue passengers (thousands) * 13,028 11,825 10.2 %
Revenue passenger miles ("RPMs")
(millions) * 8,390 7,927 5.8 %
Available seat miles ("ASMs")
(millions) * 14,214 14,249 (0.2)%
Passenger load factor 1) * 59.0 % 55.6 % 3.4 pts
Breakeven load factor 2) 66.7 % 58.0 % (8.7)pts
Passenger revenue per ASM * 10.04 c 10.43 c (3.7)%
Total revenue per ASM 10.98 c 11.20 c (2.0)%
Cost per ASM 11.89 c 11.29 c (5.3)%
Yield (revenue per RPM) * 17.02 c 18.75 c (9.2)%
Cost of fuel per gallon 54.51 c 59.80 c 8.8 %
Gallons of fuel consumed (millions) 285 281 (1.4)%
* Scheduled service only.
c cents.
1) Passenger load factor is the percentage of aircraft seating capacity that is actually utilized
(RPMs/ASMs).
2) Breakeven load factor represents the percentage of aircraft seating capacity that must be
utilized, based on fares in effect during the period, for USAir to break even at the pretax
income level.
</TABLE>
