UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2004
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, 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 registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes x No ¨
As of April 30, 2004 there were outstanding 1,000 shares of common stock of US Airways, Inc.
US Airways, Inc.
Form 10-Q
Quarterly Period Ended March 31, 2004
| Page | ||||
| Part I. |
Financial Information | |||
| Item 1. |
Financial Statements–US Airways, Inc. | |||
|
Condensed Statements of Operations – Three Months Ended March 31, 2004 and 2003 |
1 | |||
|
Condensed Balance Sheets – March 31, 2004 and December 31, 2003 |
2 | |||
|
Condensed Statements of Cash Flows – Three Months Ended March 31, 2004 and 2003 |
3 | |||
| Notes to Condensed Financial Statements | 4 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 | ||
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 20 | ||
| Item 4. |
Controls and Procedures | 20 | ||
| Part II. |
Other Information |
|||
| Item 1. |
Legal Proceedings | 21 | ||
| Item 5. |
Other Information | 21 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 21 | ||
| 22 | ||||
US Airways, Inc.
Condensed Statements of Operations
Three Months Ended March 31, 2004 and 2003 (unaudited)
(in millions)
| Successor Company |
Predecessor Company |
|||||||
| 2004 |
2003 |
|||||||
| Operating Revenues |
||||||||
| Passenger transportation |
$ | 1,513 | $ | 1,358 | ||||
| Cargo and freight |
34 | 35 | ||||||
| Other |
137 | 119 | ||||||
| Total Operating Revenues |
1,684 | 1,512 | ||||||
| Operating Expenses |
||||||||
| Personnel costs |
577 | 562 | ||||||
| Aviation fuel |
215 | 197 | ||||||
| US Airways Express capacity purchases |
313 | 251 | ||||||
| Aircraft rent |
100 | 101 | ||||||
| Other rent and landing fees |
99 | 99 | ||||||
| Selling expenses |
96 | 83 | ||||||
| Aircraft maintenance |
72 | 70 | ||||||
| Depreciation and amortization |
48 | 63 | ||||||
| Other |
310 | 288 | ||||||
| Total Operating Expenses |
1,830 | 1,714 | ||||||
| Operating Loss |
(146 | ) | (202 | ) | ||||
| Other Income (Expense) |
||||||||
| Interest income |
3 | 2 | ||||||
| Interest expense, net |
(57 | ) | (73 | ) | ||||
| Reorganization items, net |
— | 1,888 | ||||||
| Other, net |
19 | (2 | ) | |||||
| Other Income (Expense), Net |
(35 | ) | 1,815 | |||||
| Income (Loss) Before Income Taxes |
(181 | ) | 1,613 | |||||
| Provision for Income Taxes |
— | — | ||||||
| Net Income (Loss) |
$ | (181 | ) | $ | 1,613 | |||
See accompanying Notes to Condensed Financial Statements.
1
US Airways, Inc.
March 31, 2004 (unaudited) and December 31, 2003
(in millions)
| Successor Company |
||||||||
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current Assets |
||||||||
| Cash and cash equivalents |
$ | 969 | $ | 923 | ||||
| Short-term investments |
— | 358 | ||||||
| Restricted cash |
170 | 151 | ||||||
| Receivables, net |
332 | 240 | ||||||
| Materials and supplies, net |
165 | 167 | ||||||
| Prepaid expenses and other |
181 | 138 | ||||||
| Total Current Assets |
1,817 | 1,977 | ||||||
| Property and Equipment |
||||||||
| Flight equipment |
2,597 | 2,497 | ||||||
| Ground property and equipment |
351 | 349 | ||||||
| Less accumulated depreciation and amortization |
(157 | ) | (118 | ) | ||||
| 2,791 | 2,728 | |||||||
| Purchase deposits for flight equipment |
189 | 213 | ||||||
| Total Property and Equipment |
2,980 | 2,941 | ||||||
| Other Assets |
||||||||
| Goodwill |
2,490 | 2,475 | ||||||
| Other intangibles, net |
521 | 532 | ||||||
| Restricted cash |
497 | 402 | ||||||
| Other assets, net |
39 | 22 | ||||||
| Total Other Assets |
3,547 | 3,431 | ||||||
| $ | 8,344 | $ | 8,349 | |||||
| LIABILITIES & STOCKHOLDER’S EQUITY (DEFICIT) |
||||||||
| Current Liabilities |
||||||||
| Current maturities of long-term debt and capital lease obligations |
$ | 111 | $ | 360 | ||||
| Accounts payable |
407 | 355 | ||||||
| Payables to related parties, net |
48 | 35 | ||||||
| Traffic balances payable and unused tickets |
1,112 | 835 | ||||||
| Accrued aircraft rent |
15 | 76 | ||||||
| Accrued salaries, wages and vacation |
200 | 190 | ||||||
| Other accrued expenses |
694 | 657 | ||||||
| Total Current Liabilities |
2,587 | 2,508 | ||||||
| Noncurrent Liabilities and Deferred Credits |
||||||||
| Long-term debt and capital lease obligations, net of current maturities |
2,641 | 2,581 | ||||||
| Deferred gains and credits, net |
412 | 434 | ||||||
| Postretirement benefits other than pensions |
1,654 | 1,650 | ||||||
| Employee benefit liabilities and other |
1,114 | 1,087 | ||||||
| Total Noncurrent Liabilities and Deferred Credits |
5,821 | 5,752 | ||||||
| Commitments and Contingencies |
||||||||
| Stockholder’s Equity (Deficit) |
||||||||
| Common Stock |
— | — | ||||||
| Paid-in capital |
349 | 349 | ||||||
| Accumulated deficit |
(341 | ) | (160 | ) | ||||
| Deferred compensation |
(38 | ) | (45 | ) | ||||
| Accumulated other comprehensive loss |
(34 | ) | (55 | ) | ||||
| Total Stockholder’s Equity (Deficit) |
(64 | ) | 89 | |||||
| $ | 8,344 | $ | 8,349 | |||||
See accompanying Notes to Condensed Financial Statements.
2
US Airways, Inc.
Condensed Statements of Cash Flows
Three Months Ended March 31, 2004 and 2003 (unaudited)
(in millions)
| Successor Company |
Predecessor Company |
|||||||
| 2004 |
2003 |
|||||||
| Net cash provided by (used for) operating activities before reorganization items |
$ | 73 | $ | (189 | ) | |||
| Reorganization items, net |
— | (90 | ) | |||||
| Net cash provided by (used for) operating activities |
73 | (279 | ) | |||||
| Cash flows from investing activities |
||||||||
| Capital expenditures and purchase deposits for flight equipment, net |
(2 | ) | (7 | ) | ||||
| Proceeds from dispositions of property |
1 | 2 | ||||||
| Decrease (increase) in short-term investments |
358 | (19 | ) | |||||
| Increase in restricted cash and investments |
(113 | ) | (57 | ) | ||||
| Proceeds from repayment of parent company loans |
— | 237 | ||||||
| Other |
1 | (8 | ) | |||||
| Net cash provided by investing activities |
245 | 148 | ||||||
| Cash flows from financing activities |
||||||||
| Proceeds from issuance of long-term debt |
23 | 1,081 | ||||||
| Proceeds from Debtor-in-Possession financings |
— | 131 | ||||||
| Principal payments on long-term debt and capital lease obligations |
(295 | ) | (35 | ) | ||||
| Principal payments on Debtor-in-Possession financings |
— | (431 | ) | |||||
| Net cash provided by (used for) financing activities |
(272 | ) | 746 | |||||
| Net increase in Cash and cash equivalents |
46 | 615 | ||||||
| Cash and cash equivalents at beginning of period |
923 | 580 | ||||||
| Cash and cash equivalents at end of period |
$ | 969 | $ | 1,195 | ||||
| Non-cash financing activity |
||||||||
| Flight equipment acquired through issuance of debt |
$ | 79 | $ | — | ||||
| Supplemental Information |
||||||||
| Interest paid during the period |
$ | 78 | $ | 72 | ||||
| Income taxes received during the period |
$ | — | $ | 2 | ||||
See accompanying Notes to Condensed Financial Statements.
3
US Airways, Inc.
Notes to Condensed Financial Statements
(Unaudited)
| 1. | Chapter 11 Reorganization |
Background
On August 11, 2002 (Petition Date), US Airways, Inc. (US Airways or the Company) filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (Bankruptcy Code) in the United States Bankruptcy Court for the Eastern District of Virginia, Alexandria Division (Bankruptcy Court) (Case No. 02-83985-SSM). On the same date, US Airways Group, Inc.
(US Airways Group), US Airways’ parent company, and six of its other subsidiaries (collectively with US Airways, the Filing Entities) also filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The reorganization cases were jointly administered under the caption “In re US Airways Group, Inc., et al., Case No. 02-83984-SSM.” During the pendency of the Chapter 11 cases, US Airways continued to operate its business as a debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.
The Filing Entities emerged from bankruptcy protection under the First Amended Joint Plan of Reorganization of US Airways Group, Inc. and Affiliated Debtors and Debtors-in-Possession, As Modified (Plan of Reorganization), which (i) was confirmed pursuant to an order of the Bankruptcy Court on March 18, 2003 and (ii) after each of the conditions precedent to consummation was satisfied or waived, became effective on March 31, 2003 (Effective Date). In accordance with AICPA Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (SOP 90-7), the Company adopted fresh-start reporting on the Effective Date.
The Plan of Reorganization constituted a separate plan of reorganization for each of the Filing Entities. In accordance with the Bankruptcy Code, the Plan of Reorganization divided claims against, and interests in, each of the Filing Entities into classes according to their relative seniority and other criteria and provided the same treatment for each claim or interest of a particular class unless the holder of a particular claim or interest agreed to a less favorable treatment of its claim or interest. Among other things, the Plan of Reorganization generally provided for full payment of all allowed administrative and priority claims, and the distribution of shares (or warrants to purchase shares) of new equity in the reorganized US Airways Group, Inc. (Reorganized US Airways Group) to the Air Transportation Stabilization Board (Stabilization Board), the Retirement Systems of Alabama Holdings LLC (RSA), the Company’s management and labor unions, General Electric Capital Corporation and Bank of America, N.A., and to unsecured creditors of the Filing Entities, including the Pension Benefit Guarantee Corporation (PBGC), in satisfaction of their allowed claims. The distribution to unsecured creditors is currently estimated to have a value of between 0.65 percent and 0.90 percent of total allowed unsecured claims; however, the ultimate distribution percentage may fall outside of this range. See “Claims Resolution” below. Persons holding equity in US Airways Group prior to the Effective Date were not entitled to any distribution under the Plan of Reorganization and their shares of common stock were cancelled. For a complete discussion of the distributions provided for under the Plan of Reorganization, investors should refer to the Plan of Reorganization confirmed by the Bankruptcy Court on March 18, 2003 and filed with US Airways Group’s Current Report on Form 8-K, dated March 18, 2003 and filed with the Securities and Exchange Commission (SEC) on April 2, 2003.
4
ATSB Loan
As part of its restructuring efforts, US Airways received a $900 million loan guarantee (ATSB Guarantee) under the Air Transportation Safety and System Stabilization Act from the Stabilization Board in connection with a $1 billion term loan financing (the ATSB Loan). The Company required this loan and related guarantee in order to provide the additional liquidity necessary to carry out the restructuring plan. The ATSB Loan was funded on the Effective Date. The ATSB Loan is secured by substantially all unencumbered assets of US Airways Group and its subsidiaries and is guaranteed by US Airways Group and each of US Airways Group’s domestic subsidiaries other than US Airways.
Effective March 12, 2004, US Airways entered into an amendment to the ATSB Loan which provided for a partial prepayment of the loan and modifications of financial covenants (covenant relief) for the measurement periods beginning June 30, 2004 through December 31, 2005. Existing ratios used in financial covenants were adjusted and reset to accommodate the Company’s forecast for 2004 and 2005. In exchange for this covenant relief and other changes described below, US Airways made a voluntary prepayment of $250 million on March 12, 2004, which reduced, pro rata, all future scheduled principal payments of the ATSB Loan (rather than shortening the remaining life of the loan). The amendment is filed as Exhibit 10.2 to US Airways, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004.
The amendment also provides for US Airways to retain, at its election, up to 25% of the net cash proceeds from any asset sale up to a total of $125 million to the extent that, among other things, definitive documentation for such asset sale is completed by February 28, 2005. In addition, US Airways may now accept a third-party secured note as permitted consideration for certain asset sales (including the US Airways Shuttle and wholly owned regional airline assets) as long as certain conditions are met. Such conditions include that such note’s amortization schedule shall be no more favorable than the ATSB Loan, proceeds from such note are used to prepay the ATSB Loan, the credit strength of the ATSB Loan would not be affected adversely as measured by certain ratings tests, and such note be pledged as collateral for the ATSB Loan. Finally, in consideration for the ATSB lenders amending the provision related to the going concern paragraph in the independent auditor’s report for the Company’s audited financial statements for the year ended December 31, 2003, US Airways agreed to a revised covenant that provides that month end minimum unrestricted cash will exceed the lesser of the outstanding ATSB Loan balance or $700 million and that no intra-month end of day unrestricted cash balance will fall below the lesser of the outstanding ATSB Loan balance or $575 million.
RSA Investment
Pursuant to a definitive agreement, on the Effective Date, RSA invested $240 million in cash in Reorganized US Airways Group (the RSA Investment Agreement) in exchange for approximately 36.2%, on a fully-diluted basis, of the equity in Reorganized US Airways Group. As of the Effective Date, in connection with its investment, RSA was granted a voting interest of approximately 71.6% in Reorganized US Airways Group and is entitled to designate and vote to elect eight of 15 directors to Reorganized US Airways Group’s Board of Directors.
5
Claims Resolution
Pursuant to the bankruptcy process, the Filing Entities’ claims agent received proofs of claims totaling approximately $65.5 billion in the aggregate, exclusive of approximately $16 billion in claims from Allegheny County, Pennsylvania (Allegheny County) and Allegheny County Airport Authority (ACAA) which have been resolved and approximately 350 proofs of claims filed by governmental entities totaling approximately $225 million in the aggregate. As of March 31, 2004, there are $3.8 billion of unresolved claims. The Plan of Reorganization provides for a disputed claims resolution process. The Plan of Reorganization provides for 4,968,720 shares of Class A Common Stock and 3,048,030 each of Class A-1 Warrants and shares of Class A Preferred Stock of reorganized US Airways Group to be issued to unsecured creditors. Distributions of these shares and warrants through March 2004 totaled approximately 3.6 million shares of Class A Common Stock and 2.2 million each of Class A-1 Warrants and shares of Class A Preferred Stock to unsecured creditors. The effects of these distributions were reflected in the Company’s financial statements upon emergence and will not have any further impact on the results of operations. A number of significant claims, including certain aircraft related claims, remain to be resolved. Accordingly, ultimate allocations and distributions of new equity to claimants in Reorganized US Airways Group on account thereof, are not presently known.
Pittsburgh Leases
On January 5, 2004, US Airways signed a long-term lease agreement for ten gates and related terminal and support facilities at Pittsburgh International Airport (Pittsburgh), to replace the lease that was rejected as part of the Company’s Chapter 11 reorganization. Under the agreement, US Airways leases ten gates and associat