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 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) 872-7000
(Registrant’s telephone number, including area code)
(Commission file number: 1-8444)
(I.R.S. Employer Identification No: 54-1194634)
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 x No ¨
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 approximately 52,197,000 shares of US Airways Group, Inc. Class A common stock and 5,000,000 shares of US Airways Group, Inc. Class B common stock.
US Airways Group, Inc.
Form 10-Q
Quarterly Period Ended March 31, 2004
| Page | ||||
| Part I. |
Financial Information |
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| Item 1. |
Financial Statements–US Airways Group, Inc. |
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Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2004 and 2003 |
1 | |||
|
Condensed Consolidated Balance Sheets – March 31, 2004 and December 31, 2003 |
2 | |||
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Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2004 and 2003 |
3 | |||
| 4 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | ||
| Item 3. |
20 | |||
| Item 4. |
21 | |||
| Part II. |
Other Information |
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| Item 1. |
21 | |||
| Item 5. |
21 | |||
| Item 6. |
22 | |||
| 23 | ||||
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2004 and 2003 (unaudited)
(in millions, except share and per share amounts)
| Successor Company |
Predecessor Company |
|||||||
| 2004 |
2003 |
|||||||
| Operating Revenues |
||||||||
| Passenger transportation |
$ | 1,513 | $ | 1,358 | ||||
| Cargo and freight |
34 | 35 | ||||||
| Other |
154 | 141 | ||||||
| Total Operating Revenues |
1,701 | 1,534 | ||||||
| Operating Expenses |
||||||||
| Personnel costs |
641 | 622 | ||||||
| Aviation fuel |
233 | 213 | ||||||
| US Airways Express capacity purchases |
188 | 130 | ||||||
| Aircraft rent |
109 | 109 | ||||||
| Other rent and landing fees |
104 | 106 | ||||||
| Selling expenses |
104 | 91 | ||||||
| Aircraft maintenance |
90 | 88 | ||||||
| Depreciation and amortization |
51 | 67 | ||||||
| Other |
324 | 315 | ||||||
| Total Operating Expenses |
1,844 | 1,741 | ||||||
| Operating Loss |
(143 | ) | (207 | ) | ||||
| Other Income (Expense) |
||||||||
| Interest income |
3 | 1 | ||||||
| Interest expense, net |
(58 | ) | (73 | ) | ||||
| Reorganization items, net |
— | 1,917 | ||||||
| Other, net |
21 | (3 | ) | |||||
| Other Income (Expense), Net |
(34 | ) | 1,842 | |||||
| Income (Loss) Before Income Taxes |
(177 | ) | 1,635 | |||||
| Provision for Income Taxes |
— | — | ||||||
| Net Income (Loss) |
$ | (177 | ) | $ | 1,635 | |||
| Earnings (Loss) per Common Share |
||||||||
| Basic |
$ | (3.28 | ) | $ | 24.02 | |||
| Diluted |
$ | (3.28 | ) | $ | 24.02 | |||
| Weighted Average Shares Used for Computation (000) |
||||||||
| Basic |
53,972 | 68,076 | ||||||
| Diluted |
53,972 | 68,076 | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1
Condensed Consolidated Balance Sheets
March 31, 2004 (unaudited) and December 31, 2003
(in millions)
| Successor Company |
||||||||
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
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| Current Assets |
||||||||
| Cash and cash equivalents |
$ | 978 | $ | 929 | ||||
| Short-term investments |
— | 358 | ||||||
| Restricted cash |
170 | 151 | ||||||
| Receivables, net |
346 | 251 | ||||||
| Materials and supplies, net |
190 | 196 | ||||||
| Prepaid expenses and other |
212 | 170 | ||||||
| Total Current Assets |
1,896 | 2,055 | ||||||
| Property and Equipment |
||||||||
| Flight equipment |
2,675 | 2,573 | ||||||
| Ground property and equipment |
369 | 369 | ||||||
| Less accumulated depreciation and amortization |
(167 | ) | (127 | ) | ||||
| 2,877 | 2,815 | |||||||
| Purchase deposits for flight equipment |
189 | 213 | ||||||
| Total Property and Equipment |
3,066 | 3,028 | ||||||
| Other Assets |
||||||||
| Goodwill |
2,490 | 2,475 | ||||||
| Other intangibles, net |
560 | 572 | ||||||
| Restricted cash |
497 | 402 | ||||||
| Other assets, net |
41 | 23 | ||||||
| Total Other Assets |
3,588 | 3,472 | ||||||
| $ | 8,550 | $ | 8,555 | |||||
| LIABILITIES & STOCKHOLDERS’ EQUITY |
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| Current Liabilities |
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| Current maturities of long-term debt and capital lease obligations |
$ | 111 | $ | 360 | ||||
| Accounts payable |
425 | 376 | ||||||
| Traffic balances payable and unused tickets |
1,112 | 835 | ||||||
| Accrued aircraft rent |
15 | 78 | ||||||
| Accrued salaries, wages and vacation |
207 | 197 | ||||||
| Other accrued expenses |
744 | 707 | ||||||
| Total Current Liabilities |
2,614 | 2,553 | ||||||
| Noncurrent Liabilities and Deferred Credits |
||||||||
| Long-term debt and capital lease obligations, net of current maturities |
2,691 | 2,630 | ||||||
| Deferred gains and credits, net |
424 | 439 | ||||||
| Postretirement benefits other than pensions |
1,656 | 1,651 | ||||||
| Employee benefit liabilities and other |
1,135 | 1,110 | ||||||
| Total Noncurrent Liabilities and Deferred Credits |
5,906 | 5,830 | ||||||
| Commitments and Contingencies |
||||||||
| Stockholders’ Equity |
||||||||
| Class A Common Stock |
49 | 49 | ||||||
| Class B Common Stock |
5 | 5 | ||||||
| Paid-in capital |
399 | 392 | ||||||
| Accumulated deficit |
(351 | ) | (174 | ) | ||||
| Common stock held in treasury, at cost |
(1 | ) | (1 | ) | ||||
| Deferred compensation |
(37 | ) | (44 | ) | ||||
| Accumulated other comprehensive loss |
(34 | ) | (55 | ) | ||||
| Total Stockholders’ Equity |
30 | 172 | ||||||
| $ | 8,550 | $ | 8,555 | |||||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
US Airways Group, Inc.
Condensed Consolidated 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 |
$ | 75 | $ | (192 | ) | |||
| Reorganization items, net |
— | (90 | ) | |||||
| Net cash provided by (used for) operating activities |
75 | (282 | ) | |||||
| Cash flows from investing activities |
||||||||
| Capital expenditures and purchase deposits for flight equipment, net |
(2 | ) | (8 | ) | ||||
| Proceeds from dispositions of property |
1 | 2 | ||||||
| Decrease (increase) in short-term investments |
358 | (19 | ) | |||||
| Increase in restricted cash and investments |
(113 | ) | (57 | ) | ||||
| Other |
2 | (7 | ) | |||||
| Net cash provided by (used for) investing activities |
246 | (89 | ) | |||||
| Cash flows from financing activities |
||||||||
| Proceeds from issuance of long-term debt |
23 | 1,081 | ||||||
| Proceeds from Debtor-in-Possession financings |
— | 131 | ||||||
| Proceeds from issuance of preferred stock, common stock and warrants |
— | 240 | ||||||
| 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 | ) | 986 | |||||
| Net increase in Cash and cash equivalents |
49 | 615 | ||||||
| Cash and cash equivalents at beginning of period |
929 | 585 | ||||||
| Cash and cash equivalents at end of period |
$ | 978 | $ | 1,200 | ||||
| Non-cash financing activity |
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| Flight equipment acquired through issuance of debt |
$ | 79 | $ | — | ||||
| Supplemental Information |
||||||||
| Interest paid during the period |
$ | 79 | $ | 72 | ||||
| Income taxes received during the period |
$ | — | $ | 2 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
US Airways Group, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| 1. | Chapter 11 Reorganization |
Background
On August 11, 2002 (Petition Date), US Airways Group, Inc. (US Airways Group or the Company) and its seven domestic subsidiaries (collectively, the Filing Entities), which account for substantially all of the operations of the Company, including its principal operating subsidiary, US Airways, Inc. (US Airways), filed voluntary petitions 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 Nos. 02-83984-SSM through 02-83991-SSM). 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, the Filing Entities continued to operate their businesses as debtors-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 the Company 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 the Company and each of the Company’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