<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-7815
TRANS WORLD AIRLINES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-1145889
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE CITY CENTRE
515 N. SIXTH STREET
ST. LOUIS, MISSOURI 63101
(Address of principal executive offices, including zip code)
(314) 589-3000
(Registrant's telephone number, including area code)
-----------------------------------------
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 / /
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 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 / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AS OF
CLASS NOVEMBER 1, 1996
----------------------- -----------------
<S> <C>
Common Stock, par value
$0.01 per share 41,277,734
</TABLE>
In addition, as of November 1, 1996 there were 6,287,290 shares of Employee
Preferred Stock outstanding.
===============================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE TWO MONTHS ENDED AUGUST 31, 1995,
THE ONE MONTH ENDED SEPTEMBER 30, 1995,
AND THE THREE MONTHS ENDED SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY REORGANIZED COMPANY
----------- -------------------------------
TWO MONTHS ONE MONTH THREE MONTHS
ENDED ENDED ENDED
AUGUST 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996
----------- ------------- -------------
<S> <C> <C> <C>
Operating revenues:
Passenger.............................................. $588,038 $250,669 $ 874,275
Freight and mail....................................... 23,849 11,957 38,548
All other.............................................. 53,642 31,264 90,044
-------- -------- ----------
Total.......................................... 665,529 293,890 1,002,867
-------- -------- ----------
Operating expenses:
Salaries, wages and benefits........................... 193,142 95,926 317,527
Earned stock compensation.............................. 55,767 418 (735)
Aircraft fuel and oil.................................. 83,517 38,561 162,382
Passenger sales commissions............................ 53,499 23,634 75,960
Aircraft maintenance materials and repairs............. 19,945 10,298 53,529
Depreciation and amortization.......................... 25,607 13,964 39,518
Operating lease rentals................................ 44,842 23,818 77,270
Passenger food and beverages........................... 17,599 9,052 31,218
Special charges........................................ 1,730 -- --
All other.............................................. 133,360 68,911 220,179
-------- -------- ----------
Total.......................................... 629,008 284,582 976,848
-------- -------- ----------
Operating income........................................... 36,521 9,308 26,019
-------- -------- ----------
Other charges (credits):
Interest expense....................................... 16,361 11,283 30,864
Interest and investment income......................... (3,148) (1,574) (5,421)
Disposition of assets, gains and losses--net........... (132) 50 87
Reorganization items................................... 242,243 -- --
Other charges and credits--net......................... 1,804 1,864 (9,481)
-------- -------- ----------
Total.......................................... 257,128 11,623 16,049
-------- -------- ----------
Income (loss) before income taxes and extraordinary
items.................................................... (220,607) (2,315) 9,970
Provision (credit) for income taxes........................ (21) 32 16,875
-------- -------- ----------
Loss before extraordinary items............................ (220,586) (2,347) (6,905)
Extraordinary items, net of income taxes................... 140,898 -- (7,420)
-------- -------- ----------
Net loss................................................... (79,688) (2,347) (14,325)
Preferred stock dividend requirements...................... 3,818 1,163 3,869
-------- -------- ----------
Loss applicable to common shares........................... $(83,506) $ (3,510) $ (18,194)
======== ======== ==========
Per share amounts:
Loss before extraordinary item......................... NM<F*> $ (.16) $ (.24)
Extraordinary item..................................... NM<F*> -- (.16)
-------- ----------
Net loss............................................... NM<F*> $ (.16) $ (.40)
======== ==========
<FN>
- --------
<F*> NM--``not meaningful''
See notes to condensed consolidated financial statements
</TABLE>
2
<PAGE> 3
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995,
THE ONE MONTH ENDED SEPTEMBER 30, 1995,
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY REORGANIZED COMPANY
------------ -------------------------------
EIGHT MONTHS ONE MONTH NINE MONTHS
ENDED ENDED ENDED
AUGUST 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Operating revenues:
Passenger.............................................. $1,929,166 $250,669 $2,391,207
Freight and mail....................................... 94,784 11,957 111,495
All other.............................................. 194,405 31,264 248,406
---------- -------- ----------
Total.......................................... 2,218,355 293,890 2,751,108
---------- -------- ----------
Operating expenses:
Salaries, wages and benefits........................... 755,708 95,926 923,288
Earned stock compensation.............................. 55,767 418 4,306
Aircraft fuel and oil.................................. 296,833 38,561 432,849
Passenger sales commissions............................ 185,981 23,634 213,548
Aircraft maintenance materials and repairs............. 95,657 10,298 158,485
Depreciation and amortization.......................... 106,474 13,964 118,347
Operating lease rentals................................ 182,548 23,818 222,083
Passenger food and beverages........................... 68,137 9,052 84,052
Special charges........................................ 1,730 -- --
All other.............................................. 454,878 68,911 560,294
---------- -------- ----------
Total.......................................... 2,203,713 284,582 2,717,252
---------- -------- ----------
Operating income........................................... 14,642 9,308 33,856
---------- -------- ----------
Other charges (credits):
Interest expense....................................... 123,247 11,283 95,483
Interest and investment income......................... (10,366) (1,574) (17,247)
Disposition of assets, gains and losses--net........... 206 50 62
Reorganization items................................... 242,243 -- --
Other charges and credits--net......................... (2,379) 1,864 (26,185)
---------- -------- ----------
Total.......................................... 352,951 11,623 52,113
---------- -------- ----------
Loss before income taxes and extraordinary items........... (338,309) (2,315) (18,257)
Provision (credit) for income taxes........................ (96) 32 493
---------- -------- ----------
Loss before extraordinary items............................ (338,213) (2,347) (18,750)
Extraordinary items, net of income taxes................... 140,898 -- (7,420)
---------- -------- ----------
Net loss................................................... (197,315) (2,347) (26,170)
Preferred stock dividend requirements...................... 11,554 1,163 32,681
---------- -------- ----------
Loss applicable to common shares........................... $ (208,869) $ (3,510) $ (58,851)
========== ======== ==========
Per share amounts:
Loss before extraordinary item and special preferred
dividend requirements................................ NM<F*> $ (.16) $ (.73)
Extraordinary item and special preferred dividend
requirements......................................... NM<F*> -- (.63)
-------- ----------
Net loss............................................... NM<F*> $ (.16) $ (1.36)
======== ==========
<FN>
- --------
<F*> NM--``not meaningful''
See notes to condensed consolidated financial statements
</TABLE>
3
<PAGE> 4
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED COMPANY
--------------------------------
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 304,340 $ 248,522
Receivables, less allowance for doubtful accounts, $13,517 in 1995 and $15,098 in
1996.................................................................................. 226,451 307,036
Spare parts, materials and supplies, less allowance for obsolescence, $2,201 in 1995 and
$8,941 in 1996........................................................................ 143,374 142,288
Prepaid expenses and other.............................................................. 54,358 78,662
---------- ----------
Total........................................................................... 728,523 776,508
---------- ----------
Property:
Property owned:
Flight equipment.................................................................... 303,248 381,680
Prepayments on flight equipment..................................................... -- 31,411
Land, buildings and improvements.................................................... 54,722 59,163
Other property and equipment........................................................ 39,032 52,564
---------- ----------
Total owned property............................................................ 397,002 524,818
Less accumulated depreciation....................................................... 18,769 54,612
---------- ----------
Property owned--net............................................................. 378,233 470,206
---------- ----------
Property held under capital leases:
Flight equipment.................................................................... 172,812 172,812
Land, buildings and improvements.................................................... 54,761 54,761
Other property and equipment........................................................ 6,862 4,636
---------- ----------
Total property held under capital leases........................................ 234,435 232,209
Less accumulated amortization....................................................... 12,602 37,858
---------- ----------
Property held under capital leases--net......................................... 221,833 194,351
---------- ----------
Total property--net......................................................... 600,066 664,557
---------- ----------
Investments and other assets:
Investments in affiliated companies..................................................... 98,156 107,888
Investments, receivables and other...................................................... 165,471 191,465
Routes, gates and slots--net............................................................ 450,916 433,968
Reorganization value in excess of amounts allocable to identifiable assets--net......... 825,079 793,615
---------- ----------
Total........................................................................... 1,539,622 1,526,936
---------- ----------
$2,868,211 $2,968,001
========== ==========
See notes to condensed consolidated financial statements
</TABLE>
4
<PAGE> 5
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
REORGANIZED COMPANY
---------------------------------
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.................................................... $ 67,566 $ 88,802
Current obligations under capital leases................................................ 42,835 44,298
Advance ticket sales.................................................................... 209,936 303,175
Accounts payable, trade and other....................................................... 145,318 200,850
Accrued expenses:
Employee compensation and benefits.................................................. 119,353 119,796
Interest on debt and capital leases................................................. 44,710 29,155
Taxes............................................................................... 16,995 19,674
Other accrued expenses.............................................................. 193,380 229,895
---------- ----------
Total accrued expenses.......................................................... 374,438 398,520
---------- ----------
Total........................................................................... 840,093 1,035,645
---------- ----------
Long-term liabilities and deferred credits:
Long-term debt, less current maturities................................................. 764,031 631,508
Obligations under capital leases, less current obligations.............................. 259,630 229,373
Postretirement benefits other than pensions............................................. 461,346 437,172
Noncurrent pension liabilities.......................................................... 21,253 20,974
Other noncurrent liabilities and deferred credits....................................... 157,573 119,825
---------- ----------
Total........................................................................... 1,663,833 1,438,852
---------- ----------
Mandatorily redeemable 12% preferred stock (aggregate liquidation preference of $111,179 in
1995)..................................................................................... 61,430 --
---------- ----------
Shareholders' equity:
8% cumulative convertible exchangeable preferred stock, $50 liquidation preference;
3,869 shares issued and outstanding................................................... -- 39
Employee preferred stock, $0.01 liquidation preference, special voting rights; shares
issued and outstanding: 1995--5,301; 1996--5,715...................................... 53 57
Common stock, $0.01 par value, shares issued and outstanding:
1995--35,129; 1996--40,988............................................................ 351 410
Additional paid-in capital.............................................................. 332,589 549,306
Accumulated deficit..................................................................... (30,138) (56,308)
---------- ----------
Total........................................................................... 302,855 493,504
---------- ----------
$2,868,211 $2,968,001
========== ==========
See notes to condensed consolidated financial statements
</TABLE>
5
<PAGE> 6
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995,
THE ONE MONTH ENDED SEPTEMBER 30, 1995,
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY REORGANIZED COMPANY
------------ -------------------------------
EIGHT MONTHS ONE MONTH NINE MONTHS
ENDED ENDED ENDED
AUGUST 31, SEPTEMBER 30, SEPTEMBER 30,
1995 1995 1996
------------ ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................................... $(197,315) $ (2,347) $ (26,170)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Employee earned stock compensation............................. 55,767 418 4,306
Depreciation and amortization.................................. 106,474 13,964 118,347
Amortization of discount and expenses on debt.................. 12,472 728 8,096
Extraordinary loss on exchange of debt for equity.............. -- -- 7,420
Interest paid in common stock.................................. -- -- 11,332
Equity in undistributed earnings of affiliates not
consolidated................................................. (2,339) 780 (9,733)
Net (gains) losses on disposition of property and noncurrent
investment assets............................................ 206 50 62
Reorganization items........................................... 242,243 -- --
Extraordinary gain on cancellation of debt..................... (140,898) -- --
Change in operating assets and liabilities:
Decrease (increase) in:
Receivables.................................................... (62,094) (12,772) (80,585)
Inventories.................................................... 5,866 (2,378) (3,326)
Prepaid expenses and other current assets...................... (2,505) 506 (24,304)
Other assets................................................... 3,163 (154) 5,831
Increase (decrease) in:
Accounts payable and accrued expenses.......................... 105,084 8,580 72,163
Advance ticket sales........................................... 81,598 12,974 93,239
Benefits, other noncurrent liabilities and deferred credits.... (27,667) 2,754 (60,033)
--------- --------- ---------
Net cash provided.......................................... 180,055 23,103 116,645
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sales of property........................................ 2,221 209 5,916
Capital expenditures................................................... (16,554) (1,788) (109,885)
Net decrease (increase) in investments, receivables and other.......... 14,926 4,780 (35,164)
--------- --------- ---------
Net cash provided (used)................................... 593 3,201 (139,133)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt issued.................................... -- -- 2,750
Repayment on long-term debt and capital lease obligations.............. (62,158) (11,346) (140,063)
Fees paid in connection with Equity Rights offering.................... -- (3,442) --
Net proceeds from sale of preferred stock.............................. -- -- 186,163
Redemption of 12% Preferred Stock including accrued dividends.......... -- -- (84,874)
Cash dividends paid on preferred stock................................. -- -- (7,495)
Increase (decrease) in bank overdrafts and other....................... 3,092 (2,647) 10,189
--------- --------- ---------
Net cash used.............................................. (59,066) (17,435) (33,330)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents....................... 121,582 8,869 (55,818)
Cash and cash equivalents at beginning of period........................... 138,531 260,113 304,340
--------- --------- ---------
Cash and cash equivalents at end of period................................. $ 260,113 $ 268,982 $ 248,522
========= ========= =========
See notes to condensed consolidated financial statements
</TABLE>
6
<PAGE> 7
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995,
THE ONE MONTH ENDED SEPTEMBER 30, 1995,
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
PREDECESSOR REORGANIZED COMPANY
COMPANY ----------------------------
------------ ONE MONTH NINE MONTHS
EIGHT MONTHS ENDED ENDED
ENDED SEPTEMBER SEPTEMBER
AUGUST 31, 30, 30,
1995 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash paid during the period for:
Interest.................................................................. $55,878 $11,646 $86,465
======= ======= =======
Income taxes.............................................................. $ 39 $ 27 $ 127
======= ======= =======
Noncash operating, investing and financing activities:
Promissory notes issued to finance aircraft acquisition................... $ -- $ -- $10,565
======= ======= =======
Promissory notes issued to finance aircraft predelivery payments.......... $ -- $ -- $12,202
======= ======= =======
Property acquired and obligations recorded under new capital lease
transactions............................................................ $12,690 $ -- $ 2,333
======= ======= =======
Partial interest on debt paid in kind, issued and valued at principal
amount.................................................................. $18,496 $ -- $ --
======= ======= =======
Common Stock issued in lieu of cash dividends............................. $ -- $ -- $ 3,255
======= ======= =======
Exchange of long-term debt for common stock:
Debt cancelled including accrued interest, net of unamortized
discount.............................................................. $ -- $ -- $38,229
Common stock issued, at fair value...................................... -- -- 45,649
======= ======= =======
Extraordinary loss...................................................... $ -- $ -- $ 7,420
======= ======= =======
</TABLE>
ACCOUNTING POLICY
For purposes of the Statements of Condensed Consolidated Cash Flows, TWA
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
See notes to condensed consolidated financial statements
7
<PAGE> 8
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
During the period from 1992 through 1995, Trans World Airlines, Inc.
(``TWA'' or the ``Company'') underwent two separate Chapter 11 reorganizations,
the first in 1992-93 (the `` '93 Reorganization'') and the second in 1995 (the
`` '95 Reorganization''). In connection with the '95 Reorganization TWA has
applied fresh start reporting in accordance with generally accepted accounting
principles resulting in the Company's assets and liabilities being adjusted to
reflect fair values. Because of the application of fresh start reporting, the
consolidated financial statements for periods after the '95 Reorganization are
not comparable in all respects to the consolidated financial statements of the
Predecessor Company for periods prior to the reorganization. For accounting
purposes the inception date of the Reorganized Company is deemed to be
September 1, 1995. A vertical black line is shown in the consolidated financial
statements to separate the Reorganized Company from the Predecessor Company
since they are not comparable.
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of TWA and its
subsidiaries. The results of Worldspan, L.P. (``Worldspan''), a 25% owned
affiliate, are recorded under the equity method and are included in the
Condensed Statements of Consolidated Operations in Other Charges (Credits).
The unaudited condensed consolidated financial statements included herein
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission but do not include all information and
footnotes required by generally accepted accounting principles pursuant to such
rules and regulations. The condensed consolidated financial statements include
all adjustments, which are of a normal recurring nature and are necessary, in
the opinion of management, for a fair presentation of the results for these
interim periods. These condensed consolidated financial statements and related
notes should be read in conjunction with the consolidated financial statements
and related notes contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995. The consolidated balance sheet at December 31,
1995 has been derived from the audited consolidated financial statements at
that date. Certain amounts previously reported have been reclassified to
conform with the current presentation.
2. SEASONALITY
The airline industry generally, and TWA specifically, has historically
experienced seasonal changes between quarterly periods, with the second and
third quarters usually out-performing the first and fourth. Accordingly, the
results for the three and nine months ended September 30, 1996, should not be
read as an indicator of future results for the full year.
3. ACCOUNTING FOR LONG-TERM GOVERNMENT CONTRACTS
As required by the percentage of completion method of accounting, the
Company recorded its estimate of future losses under a Department of Defense
contract to maintain aircraft, when it became apparent during the third
quarter that certain changes in policies and procedures and contract
modifications would not result in the contract being profitable. In October
1996, the Company announced it had begun discussions with the Department of
Defense to phase out the program. The contract will not be renewed in 1997.
Although the amount of estimated future losses recorded in the third
quarter was not material, the actual losses could vary based upon the actual
work performed before the contract ends. Additionally, in November 1996,
discussions relating to the phase-out of the contract had progressed to the
extent that the Company currently estimates various costs of at least
$5.4 million to exit the contract. Such estimated costs will be recorded
in the fourth quarter.
8
<PAGE> 9
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
Income tax expense is recorded each quarter based on the estimated annual
effective rate. The tax provision recorded in the third quarter reflects the
reversal of previously recorded tax benefits, as management currently
expects a taxable loss at year-end and the realization of the benefits of any
such tax loss in future periods is presently subject to substantial
uncertainty.
5. EXTRAORDINARY ITEM
In the three months ended September 30, 1996 the Company consummated a
series of privately negotiated exchanges with a significant holder of 12%
Senior Secured Reset Notes which resulted in the return to the Company of $42.0
million in 12% Senior Secured Reset Notes and approximately $1.4 in accrued
interest thereon in exchange for the issuance of approximately 4.0 million
shares of Company Common Stock. All 12% Senior Secured Reset Notes returned
will be canceled leaving an outstanding principal balance of such notes of
approximately $128 million. As a result of the exchange of the 12% Senior
Secured Reset Notes, the Company incurred an extraordinary non-cash charge of
$7.4 million in the third quarter of 1996 representing the difference between
the fair value of the common stock issued (based upon the trading price of the
Company's common stock on the dates of the exchanges net of purchaser's
discount) and the carrying value of the 12% Senior Secured Reset Notes retired.
There is no associated tax effect since a taxable loss is expected for the
year.
6. LOSS PER SHARE
In computing the loss applicable to common shares for the three months and
nine months ended September 30, 1996, the net loss has been increased by
dividend requirements on the Mandatorily Redeemable 12% Preferred Stock (the
``12% Preferred Stock'') (including amortization of the difference between the
fair value of the 12% Preferred Stock on the date of issuance and the
redemption value plus, with respect to the March 22, 1996 call for the
redemption, a special dividend requirement of approximately $20.0 million in
the nine months ended September 30, 1996 to reflect the excess of the early
redemption price over the carrying value of the 12% Preferred Stock), and on
the 8% Cumulative Convertible Exchangeable Preferred Stock (the ``8% Preferred
Stock'') issued in March 1996. In computing the related net loss per share, the
loss applicable to common shares has been divided by the average aggregate
number of outstanding shares of Common Stock (39.3 million and 37.5 million for
the three months and nine months ended September 30, 1996, respectively) and
Employee Preferred Stock (5.7 million and 5.6 million for the three months and
nine months ended September 30, 1996, respectively) which, with the exception
of certain special voting rights, is the functional equivalent of Common Stock.
No effect has been given to stock options, warrants or potential issuances of
additional Common Stock or Employee Preferred Stock in the three month and nine
month periods ended September 30, 1996 as their impact would have been
anti-dilutive. Fully diluted earnings per share has not been presented for the
three month and nine month periods ended September 30, 1996 as the assumed
conversion of the 8% Preferred Stock into Common Stock would have been
anti-dilutive. Earnings per share of the Predecessor Company are not presented
as the amounts are not meaningful.
7. PREFERRED STOCK
In March 1996, the Company completed an offering, pursuant to Rule 144A of
the Securities Act of 1933 (the ``Act''), of 3,869,000 shares of its 8%
Preferred Stock, with a liquidation preference of $50 per share. Each share of
the 8% Preferred Stock may be converted at any time, at the option of the
holder, unless previously redeemed or exchanged, into shares of Common Stock at
a conversion price of $20.269 per share (equivalent to a conversion rate of
approximately 2.467 shares of Common Stock for each share of 8% Preferred
Stock), subject to adjustment. Pursuant to the registration rights agreement
between the Company and the initial purchasers of the 8% Preferred Stock, the
Company was obligated to register resales of the 8% Preferred Stock, the
Debentures (as defined below), and the underlying shares of Common Stock
issuable upon conversion thereof by August 19, 1996. In addition, the Company
must use its best efforts to keep the shelf registration effective until March
22, 1999.
9
<PAGE> 10
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 8% Preferred Stock may not be redeemed prior to March 15, 1999. On or
after March 15, 1999, the 8% Preferred Stock may be redeemed, in whole or in
part, at the option of the Company, at specified redemption prices.
The 8% Preferred Stock may be exchanged, in whole but not in part, at the
option of the Company, for the Company's 8% Convertible Subordinated Debentures
Due 2006 (the ``Debentures'') on any dividend payment date beginning March 15,
1998 at the rate of $50 principal amount of Debentures for each share of 8%
Preferred Stock outstanding at the time of exchange; provided that all accrued
and unpaid dividends, whether or not earned or declared, on the 8% Preferred
Stock to the date of exchange have been paid or set aside for payment and
certain other conditions are met.
On March 22, 1996, the Company announced a call for redemption on April 26,
1996 (the ``Redemption Date'') of all of its issued and outstanding 12%
Preferred Stock. Such shares were redeemed at a redemption price per share
equal to $75.00, plus accrued dividends to and including the Redemption Date,
of $2.8667 per share. On April 26, 1996, the Company paid an aggregate of $84.9
million in redemption of the 12% Preferred Stock.
8. ACCOUNTING FOR STOCK-BASED COMPENSATION
On January 1, 1996, TWA adopted Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation (``SFAS 123''). TWA elected to
continue to apply the intrinsic value based method for recognizing compensation
expense for stock-based employee compensation plans. Therefore the adoption of
SFAS 123 had no impact on the Company's results of operations or financial
position.
9. COMMITMENTS AND CONTINGENCIES
(A) OPERATING ENVIRONMENT
The airline industry operates in an intensely competitive environment. The
industry is also cyclical due to, among other things, a close relationship of
yields and traffic to general U.S. and worldwide economic conditions. The
Company has experienced significant losses (excluding extraordinary items) on
an annual basis since the early 1990s including significant year end operating
losses up to and including 1994. As a result of these losses, TWA underwent
two separate Chapter 11 reorganizations as described previously. In 1995 the
Company experienced a combined operating profit of $25.1 million and has,
until this quarter, experienced six consecutive quarters of year-over-year
improvement in operating results. Although an operating profit is reported for
the nine months ended September 30, 1996 and load factors and overall revenues
exceeded those for the comparable period in 1995, factors such as decreased
revenue per available seat mile, increased fuel cost and increased maintenance
expense beyond seasonal fluctuations, among other things, identified as
adversely affecting third quarter financial performance are anticipated to
continue. TWA is evaluating its business strategy to endeavor to improve
operating performance and results. There can be no assurance that initiatives
implemented in response to the current situation will be successful, or if
successful that such initiatives will yield sufficient results to prevent a
significant impact on fourth quarter and year end financial results. It is
expected that as a result of this process the recorded values of assets and
liabilities of the Company including the recoverability of intangibles will
require adjustment for impairment and/or other reasons and such adjustment
will be reflected in fourth quarter results of operations and could be
material. See ``Management's Discussion and Analysis of Financial Condition
and Results of Operations.''
(B) COMMITMENTS
In February 1996, TWA executed definitive agreements providing for the
operating lease of 10 new Boeing 757 aircraft to be delivered in 1996 and 1997,
with deliveries commencing in July 1996. Although individual aircraft rentals
escalate over the term of the leases, aggregate rental obligations are
estimated to average approximately $51 million per annum over the lease terms
after all 10 aircraft have been delivered. These aircraft have an initial lease
term of 10 years. The Company took delivery of the first Boeing 757 aircraft on
July 22, 1996. The Company also entered into an agreement in February 1996 with
Boeing for the purchase of 10 new Boeing 757 aircraft with deliveries in
February 1997 through May 1999. Under this agreement, the Company also acquired
the right, subject to certain conditions, to
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TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purchase up to 20 additional Boeing 757 aircraft. The estimated purchase price
for the firm order aircraft and related spare parts and equipment is $550
million including an estimate for the price escalation factor. The Company has
secured financing commitments from the engine and airframe manufacturers for
approximately $420 million of the purchase price of the aircraft and related
spare parts and equipment.
The Company entered into an agreement to acquire fifteen new McDonnell
Douglas MD-83s. The long-term leasing arrangement provides for delivery of the
aircraft between the second half of 1997 and April 1999.
During the nine months ended September 30, 1996, the Company entered into
operating lease agreements for 7 additional aircraft; certain of these replaced
3 aircraft returned off lease. Rents are payable monthly over lease terms of 6
months to 10 years. Obligations under operating leases relating to the 7
additional aircraft will amount to approximately $14.4 million per year
beginning in 1997 as a result.
(C) CONTINGENCIES
On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK
en route to Paris, France. There were no survivors among the 230 passengers and
crew members aboard the Boeing 747 aircraft. The Company is cooperating fully
with all federal, state and local regulatory and investigatory agencies to
ascertain the cause of the crash. TWA is unable to predict the amount of claims
relating to the crash which may ultimately be made against the Company and how
those claims might be resolved. TWA maintains substantial insurance coverage
and, at this time, management has no reason to believe that such insurance
coverage will not be sufficient to cover any claims arising from the crash.
Therefore, TWA believes that the resolution of any claims will not have a
material adverse effect on its financial condition or results of operations.
The Company is unable to identify or predict the extent of any adverse effect
on its revenues, yields or results of operations which has resulted or may
result from the public perception of the crash.
The Company is also defending a number of other actions which have
arisen in the ordinary course of business, and are insured or the likely
outcome of which the management of the Company does not believe may reasonably
be expected to be materially adverse to the Company's financial condition.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements made in this Form 10-Q relating to plans, conditions,
objectives and economic performance go beyond historical information and may
provide an indication of future results. To that extent, they are forward-
looking statements within the meaning of Section 21E of the Exchange Act, and
each of them is therefore subject to risks, uncertainties, and assumptions that
could cause actual results to differ from those in the forward-looking
statement. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or projected. Some of the
uncertainties that might adversely impact TWA's future results of operations
include, but are not limited to, those described below.
The airline industry operates in an intensely competitive environment. The
industry is also cyclical due to, among other things, a close relationship of
yields and traffic to general U.S. and worldwide economic conditions. Small
fluctuations in revenue per available seat mile (``RASM'') and cost per
available seat mile can have a significant impact on the Company's financial
results. The Company has experienced significant losses (excluding
extraordinary items) on an annual basis since the early 1990s, including
significant year-end operating losses up to and including 1994. Factors
contributing to these losses included, among other things, excess financial
leverage, adverse publicity associated with the Company's financial
difficulties; excessive labor costs; the periods of a relatively weak economy,
which resulted in weak air travel demand; poor operating performance; and
domestic pricing policies of other airlines, which decreased industry revenue
yields and generated intense competition.
As a result of these losses, TWA underwent two separate Chapter 11
reorganizations, the first in 1992-93 and the second in 1995. In connection
with the '95 Reorganization, TWA has applied fresh start reporting in
accordance with SOP 90-7, which resulted in the creation of a new reporting
entity for accounting purposes and the Company's assets and liabilities being
adjusted to reflect fair values on the effective date of the '95
Reorganization. A description of the adjustments to the financial statements
arising from the consummation of the '95 Reorganization and the application of
fresh start reporting is contained in Note 17 to the 1995 Consolidated
Financial Statements. For accounting purposes, the effective date of the '95
Reorganization is deemed to be September 1, 1995. Because of the application of
fresh start reporting, the financial statements for periods after the '95
Reorganization are not comparable in all respects to the financial statements
for periods prior to the reorganization.
As discussed below under ``--Liquidity and Capital Resources,'' pursuant to
the '95 Reorganization, the Company initially improved its financial condition
and operating performance by, among other things, reducing labor and other
operating and financing costs, rescheduling debt payments, recapitalizing the
Company's equity securities and certain of its debt, revising the Company's
route structure to capitalize further on its strength in St. Louis and
developing enhanced marketing systems. Pursuant to the '95 Reorganization, the
Company eliminated approximately $500 million in face amount (approximately
$300 million book value) of debt from its balance sheet. In addition, the
maturity of the Icahn Loans was extended from January 8, 1995 to January 8,
2001, and the Company negotiated an aggregate of $91 million of aircraft lease
and conditional sale agreement deferrals for various periods of time, with a
weighted average life of approximately two years.
In 1995 the Company experienced a combined operating profit of $25.1
million and had, until this quarter, experienced six consecutive quarters of
year-over-year improvement in operating results. Although an operating profit
is shown for the nine months ended September 30, 1996 and load factors and
overall revenues exceeded those for the comparable period in 1995, the
following factors, among others, adversely affected third quarter financial
performance:
* a decline in RASM attributable in part to the loss of Flight 800, pricing
issues, a capacity growth concentration in low-yield markets, and an
unusually high level of domestic flight cancellations;
* increased fuel prices; and
* increased maintenance costs including both materials and labor.
The Company anticipates these factors identified above will likely result
in 1996 fourth quarter and annual financial performance worse than the same
periods of 1995 (excluding restructuring and extraordinary items).
The Company is reassessing its business strategy, including its fleet
plan, route structure and facility requirements in an effort to accelerate the
cost reductions and efficiencies envisioned by, but not yet obtained, under
the business plan as a result of the replacement of a number of older, less
efficient aircraft with more modern,
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<PAGE> 13
technologically advanced, twin engine, two-pilot aircraft and ``right-sizing''
its fleet to conform better to the requirements of its route structure and to
improve operating results. The Company has adjusted flight schedules in an
attempt to produce a more manageable level of flying and improve operational
performance. The Company also significantly adjusted its maintenance program by
committing to make significant expenditures designed to improve schedule
reliability, is negotiating the termination of a contract with the U.S.
government to provide maintenance services under the C-9 governmental program
to allow for the redeployment of resources to TWA's maintenance effort.
Senior management and the leaders of the three major unions (IAM, ALPA and
IFFA) have commenced a series of meetings to identify measures that may be
implemented in an attempt to respond and reverse the impact on financial
results of the decline in yield and advance bookings and the increase in
maintenance costs experienced in the third quarter. Senior management and the
labor groups are also examining ways in which the Company's business strategy
may be adjusted to address operational difficulties encountered in connection
with growing the airline. There can be no assurance that initiatives
implemented and to be implemented in response to the current situation will be
successful, or if successful that such initiatives will yield sufficient
results to prevent a significant impact on future financial results. See
``Results of Operations for the Three Months Ended September 30, 1996 Compared
to the Two Months ended August 31, 1995 and the One Month Ended September 30,
1995.''
It is expected that as a result of this process the recorded values of
assets and liabilities of the Company including the recoverability of
intangibles, will require adjustment for impairment and/or other reasons and
such adjustment will be reflected in fourth quarter results of operations and
could be material.
GENERAL
Significant variations in annual operating revenues and operating expenses
have been experienced historically by TWA and are expected to continue in the
future. Numerous uncertainties concerning the level of revenues and expenses
always exist and it is not possible to predict the potential impact of such
uncertainties upon TWA's results of operations. Among the uncertainties that
might adversely impact TWA's future results of operations are: (i) competitive
pricing and scheduling initiatives; (ii) the availability and cost of capital;
(iii) increases in fuel and other operating costs; (iv) insufficient levels of
air passenger traffic resulting from, among other things, war, threat of war,
terrorism or changes in the economy; (v) governmental limitations on the
ability of TWA to service certain airports and/or foreign markets; (vi)
regulatory requirements requiring additional capital expenditures; (vii) the
possible reduction in yield due to a discount ticket program entered into by
the Company with Karabu Corporation (``Karabu''), a Delaware corporation
controlled by Mr. Carl C. Icahn, in connection with the '95 Reorganization; and
(viii) the impact of the public's perception of the crash of Flight 800. See
``--Liquidity and Capital Resources--Contingencies.''
On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK
en route to Paris, France. There were no survivors among the 230 passengers and
crew members aboard the Boeing 747 aircraft. The Company is cooperating fully
with all federal, state and local regulatory and investigatory agencies to
ascertain the cause of the crash. TWA is unable to predict the amount of claims
relating to the crash which may ultimately be made against the Company and how
those claims might be resolved. TWA maintains substantial insurance coverage
and, at this time, management has no reason to believe that such insurance
coverage will not be sufficient to cover the claims arising from the crash.
Therefore, TWA believes that the resolution of such claims will not have a
material adverse effect on its financial condition or results of operations.
The Company is unable to identify or predict the extent of any adverse effect
on its revenues, yields or results of operations which has resulted or may
result from the public perception of the crash.
Due to, among other things, management's need to devote its attention to
providing assistance to the families of passengers and crew members of Flight
800, as well as cooperating in the investigation of the crash, the Company
postponed its proposed offering of 8,000,000 shares of Common Stock pursuant
to a Registration Statement on Form S-3 (Reg. No. 333-05691) previously filed
with the Commission on June 11, 1996. Subsequent market conditions and results
of operations have continued the delay of the offering.
The Company's operating results for any interim period are not necessarily
indicative of those for the entire year due to seasonal fluctuations. First and
fourth quarter operating results typically reflect operating and net losses,
while
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<PAGE> 14
second and third quarter results have historically been more favorable
for the Company and others in the airline industry due to increased leisure
travel during the spring and summer months.
TWA has no unused credit lines and must satisfy substantially all of its
working capital and capital expenditure requirements from cash provided by
operating activities or from external capital sources or from the sale of
assets. TWA has relatively few assets which it could monetize, substantially
all of such assets being subject to various liens and security interests which
would restrict and/or limit the ability of TWA to realize any significant
proceeds from the sale thereof. The postponement in consummating the proposed
offering of common stock and constraints on access to capital has impaired the
Company's ability to make certain discretionary capital expenditures or
implement certain other aspects of its strategic plan.
During 1994, the Company entered into labor agreements with the three
unions which together represent a majority of the Company's employees (the
``'94 Labor Agreements'') and which substantially reduced the Company's labor
costs. The '94 Labor Agreements will become amendable in the latter half of
1997. While the Company cannot predict the precise wage rates that will be in
effect at such time (since such rates will be determined by subsequent events),
the wage rates then in effect will likely increase. However, management
believes that it is essential that the Company's labor costs remain favorable
in comparison to its largest competitors. The Company will seek to continue to
improve employee productivity and will continue to explore other ways to
control and/or reduce operating expenses although no assurances can be given
that such improvements will occur.
The Company's ability to improve its financial position and meet its
financial obligations will depend upon a variety of factors, including:
improved operating performance, favorable domestic and international airfare
pricing environments, absence of adverse general economic conditions, continued
more effective operating cost control measures, and the Company's ability to
attract new capital. No assurance can be given that the Company will be
successful in generating the operating results or attracting new capital
required for future viability.
RESULTS OF OPERATIONS
TWA's passenger traffic data, for scheduled passengers only and excluding
Trans World Express, Inc. a wholly-owned subsidiary of the Company that
provided a commuter feed service to the Company's New York hub prior to
November, 1995, are shown in the table below for the indicated periods<F1>:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- -------------------- --------------------
1993 1994 1995 1995 1996 1995 1996
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL SYSTEM
Revenue passenger miles
(millions)<F2>................. 22,664 24,906 24,902 18,952 20,906 7,342 8,028
Available seat miles
(millions)<F3>................. 35,678 39,191 37,905 28,509 30,708 10,502 11,450
Passenger load factor <F4>....... 63.5% 63.5% 65.7% 66.5% 68.1% 69.9% 70.1%
Passenger yield (cents)<F5>...... 11.35(cents) 11.31(cents) 11.39(cents) 11.33(cents) 11.44(cents) 11.25(cents) 10.89(cents)
Passenger revenue per available
seat mile (cents)<F6>.......... 7.21(cents) 7.19(cents) 7.48(cents) 7.53(cents) 7.79(cents) 7.86(cents) 7.64(cents)
Total revenue per available seat
mile (cents)................... 8.19(cents) 8.23(cents) 8.39(cents) 8.43(cents) 8.71(cents) 8.69(cents) 8.49(cents)
Operating cost per available seat
mile (cents)<F7>............... 8.89(cents) 8.27(cents) 8.12(cents) 8.09(cents) 8.58(cents) 7.66(cents) 8.27(cents)
Average daily utilization per
aircraft (hours)<F8>........... 9.23 9.30 9.45 9.43 9.82 9.71 9.90
Aircraft in fleet being operated
at end of period............... 186 185 188 185 191 185 191
<FN>
- --------
<F1> Excludes subsidiary companies.
<F2> The number of scheduled miles flown by revenue passengers.
<F3> The number of seats available for passengers multiplied by the number of
scheduled miles those seats are flown.
<F4> Revenue passenger miles divided by available seat miles.
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<PAGE> 15
<F5> Passenger revenue per revenue passenger mile.
<F6> Passenger revenue divided by available seat miles.
<F7> Operating expenses, excluding special charges, earned stock compensation
and other nonrecurring charges, divided by available seat miles.
<F8> The average block hours flown per day in revenue service per aircraft.
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
THE TWO MONTHS ENDED AUGUST 31, 1995 AND THE ONE MONTH ENDED SEPTEMBER 30, 1995
Total operating revenues of $1,002.9 million for the third quarter of 1996
were $43.4 million or 4.5% more than the comparable 1995 period, primarily
because of a $35.6 million or 4.2% increase in passenger revenue and a $5.7
million increase in contract revenue.
Capacity and traffic increased in the third quarter of 1996 from the
comparable period of 1995. System capacity as measured by scheduled Available
Seat Miles (``ASMs'') increased by 9.0% during the third quarter of 1996 as
compared to the same period of 1995 reflecting increases in both international
and domestic capacity. Passenger traffic volume, as measured by total Revenue
Passenger Miles (``RPMs'') in scheduled service, increased 9.3% as compared to
the same period of 1995. Passenger load factor for the quarter ended September
30, 1996 was 70.1% compared to 69.9% in the same period of 1995. TWA's yield
per passenger mile for the third quarter of 1996 decreased by 3.2% from the
comparable 1995 period to 10.89 cents from 11.25 cents.
Operating expenses of $976.8 million in the third quarter of 1996 were
$63.3 million or 6.9% more than the combined operating expenses of $913.6
million in the third quarter of 1995, due primarily to the following changes:
* Salaries, wages and benefits of $317.5 million for the third quarter of
1996 were $28.5 million or 9.9% more than the third quarter of 1995,
primarily due to an increase in the average number of employees, overtime
costs required due to poor operating performance in 1996 and lower
productivity levels. The Company had an average of 25,017 employees in
the third quarter 1996 as compared to 23,125 in 1995.
* Earned stock compensation was a credit of $0.7 million in the three
months ended September 30, 1996, as compared to a charge of $56.2 million
in the combined three month period ended September 30, 1995. The
substantial charge in 1995 was primarily attributable to the distribution
of shares to employees in connection with the '95 Reorganization.
Additionally, pursuant to the '95 Restructuring certain shares are to be
allocated to ALPA represented employees in the future. On an interim
basis, the charge to earnings is estimated based upon the number of the
shares earned to date and the current fair value of the shares. Upon
allocation to employees, the charge is adjusted to reflect the then
current value of the shares. A decline in the fair market value trading
price of the Company's common stock in the third quarter of 1996 resulted
in the reversal of previously recorded costs.
* Aircraft fuel and oil of $162.4 million was $40.3 million higher than in
the third quarter of 1995, primarily due to an increase in the price of
fuel.
* Aircraft maintenance materials and repairs of $53.5 million in the third
quarter of 1996 represented an increase of $23.3 million or 77.0%
compared to the third quarter of 1995, primarily as a result of higher
levels of scheduled maintenance, including heavy maintenance, than in
1995; a 5.2% increase in flying hours and increased repair work performed
by the Company for other air carriers and third parties.
* Operating lease rentals of $77.3 million in the third quarter of 1996
were $8.6 million or 12.5% more than the third quarter of 1995, primarily
as a result of an increase in the average number of leased aircraft from
120 in 1995 to 126 in 1996.
* All other operating expenses of $220.2 million in the third quarter of
1996 increased by $17.9 million or 8.9% over the third quarter of 1995
primarily because of the increase in capacity and passenger traffic.
As a result of the above, operating income of $26.0 million for the third
quarter of 1996 was $19.8 million less than the combined operating income of
$45.8 million for the third quarter of 1995.
Other charges (credits) were a net charge of $16.0 million in the third
quarter of 1996 as compared to $268.8 million in the third quarter of 1995. The
two months ended August 31, 1995 included a charge of $242.3 million for
reorganization items in connection with the application of fresh start
reporting pursuant to the '95 Reorganization. Interest expense increased $3.2
million in the third quarter of 1996 over the comparable period in 1995,
principally as
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a result of certain adjustments made to reflect the consummation of the '95
Reorganization which reduced interest expense in the two months ended August
31, 1995. Interest income increased by $.7 million in the third quarter of
1996, primarily as the result of higher levels of invested funds. Other charges
and credits-net totaled a credit of $9.5 million in the third quarter of 1996,
as compared with a combined charge of $3.7 million in the third quarter of
1995. This improvement was primarily attributable to a $4.3 million increase in
the Company's share of the earnings of Worldspan and $6.0 million in
restructuring expenses incurred in the third quarter of 1995.
A tax provision of $16.9 million was recorded in the third quarter of 1996.
A tax benefit of $16.4 million was recorded in the first six months of 1996,
based upon the operating results to date and management's expectations at that
time relative to the operating results likely to be achieved for second half of
1996. Actual third quarter results were substantially below those expectations
and management now expects that it will experience a taxable loss for the full
year. Accordingly, the tax provision recorded in the third quarter reflects the
reversal of previously recorded tax benefits, as the realization of the
benefits of any such tax loss in future periods is presently subject to
substantial uncertainty.
Pursuant to a series of privately negotiated transactions with a holder of
the Company's 12% Senior Secured Reset Notes due 1998 (the 12% Senior Notes),
in the third quarter of 1996 the Company issued approximately 4.0 million
shares of common stock in exchange for $42.0 million principal amount of 12%
Notes and related accrued interest. All 12% Senior Secured Reset Notes returned
will be canceled leaving an outstanding principal balance of such notes of
approximately $128 million dollars. As a result, the extraordinary charge in
the third quarter of 1996 represents the difference between the fair value of
the common stock issued (based upon the trading price of the Company's common
stock on the dates of the exchanges) and the carrying value of the 12% Senior
Notes retired. The extraordinary gain of $140.9 million in the two months
ended August 31, 1995 resulted from the consumation of the '95 Reorganization.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
THE EIGHT MONTHS ENDED AUGUST 31, 1995 AND THE ONE MONTH ENDED SEPTEMBER 30,
1995
Total operating revenues of $2,751.1 million for the nine months ended
September 30, 1996 were $238.9 million or 9.5% more than the comparable 1995
period, primarily because of a $211.4 million or 9.7% increase in passenger
revenue and a $16.2 million increase in contract revenue.
Capacity and traffic increased in the nine months ended September 30, 1996
from the comparable period of 1995. Capacity as measured by scheduled ASMs
increased by 7.7% during the nine months ended September 30, 1996 as compared
to the same period of 1995 reflecting increases in both international and
domestic capacity. Passenger traffic volume, as measured by total RPMs in
scheduled service, increased 10.3% as compared to the same period of 1995.
Passenger load factor for the nine months ended September 30, 1996 was 68.1%
compared to 66.5% in the same period of 1995. TWA's yield per passenger mile
for the nine months ended September 30, 1996 increased by 1.0% over the
comparable 1995 period to 11.44 cents from 11.33 cents.
Operating expenses of $2,717.3 million for the nine months ended September
30, 1996 were $229.0 million or 9.2% more than the operating expenses of
$2,488.3 million in the same period of 1995, due primarily to the following
changes:
* Salaries, wages and benefits of $923.3 million for the nine months ended
September 30, 1996 were $71.7 million or 8.4% more than the same period
in 1995, primarily due to an increase in the average number of employees,
overtime costs required due to poor operating performance in 1996 and
lower productivity levels. The Company had on average 24,212 employees in
1996 as compared to 22,798 in 1995.
* Earned stock compensation of $4.3 million for the nine months ended
September 30, 1996 and $56.2 million in the same period of the prior year
represents primarily the non-cash compensation charge recorded to reflect
the expense associated with the distribution of shares of stock on behalf
of employees as part of the '95 Reorganization.
* Aircraft fuel and oil of $432.8 million was $97.5 million higher than in
the corresponding period of 1995, primarily due to an increase in the
price of fuel.
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* Aircraft maintenance materials and repairs of $158.5 million for the nine
months ended September 30, 1996 represented an increase of $52.5 million
or 49.6% compared to the comparable period in 1995, primarily as a result
of higher levels of scheduled maintenance, including heavy maintenance,
than in 1995; a 5.6% increase in flying hours, increased repair work
performed by the Company for other air carriers and third parties.
* Operating lease rentals of $222.1 million for the nine months ended
September 30, 1996 were $15.7 million or 7.6% more than the corresponding
period in 1995, primarily as a result of an increase in the average
number of leased aircraft from 118 in 1995 to 122 in 1996.
* All other operating expenses of $560.3 million for the nine months ended
September 30, 1996 increased by $36.5 million or 7.0% over the
corresponding period in 1995 primarily because of the increase in
capacity and passenger traffic.
As a result of the above, operating income of $33.9 million for the nine
months ended September 30, 1996 improved $9.9 million from the combined
operating income of $24.0 million for the nine months ended September 30, 1995.
Other charges (credits) were a net charge of $52.1 million for the nine
months ended September 30, 1996 as compared to $364.6 million in the
corresponding period in 1995. The eight months ended August 31, 1996 included a
charge of $242.3 million for reorganization items in connection with the
application of fresh start reporting pursuant to the '95 Reorganization.
Interest expense decreased $39.0 million in the first nine months of 1996 over
the comparable period in 1995 as a result of the reduction of debt arising from
the '95 Restructuring. Interest income increased by $5.3 million in the first
nine months of 1996, primarily as the result of higher levels of invested
funds. Other charges and credits-net totaled a credit of $26.2 million in the
first nine months of 1996, as compared with $.5 million in the same period of
1995. This improvement was primarily attributable to a $8.2 million increase in
the Company's share of the earnings of Worldspan, $13.0 million in
restructuring expenses incurred in the first nine months of 1995 and a $2.5
million credit to reflect the settlement of litigation in the first quarter of
1996.
A tax provision of $.5 million was recorded in the nine months ended
September 30, 1996. Such amount represents estimated current taxes payable;
primarily state and foreign taxes. No tax benefits have been recognized for
taxable losses, as the realization of any such benefits is presently subject to
substantial uncertainty. The amortization of excess reorganization value and
certain other items which are not deductible for income tax purposes could
result in effective rates for financial reporting purposes in future periods in
which taxable income occurs, if any, that are significantly higher than the
current U.S. corporate statutory rate of 35%.
The extraordinary charge in the nine months ended September 30, 1996
represents the loss on the extinguishment of debt previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
The following is a discussion of the impact of significant factors
affecting TWA's liquidity position and capital resources.
Liquidity
The Company's consolidated cash and cash equivalents at September 30, 1996
of $248.5 million was $55.8 million less than the December 31, 1995 balance of
$304.3 million. Net cash provided from operating activities was $116.6 million
for the nine months ended September 30, 1996 while $203.2 million was provided
in the comparable 1995 period. Net investing activities used $142.9 million
more cash for the nine months ended September 30, 1996 than the comparable 1995
period due primarily to increased capital expenditures and noncurrent
investments and receivables. Net financing activities used $33.3 million of
cash in 1996 versus $76.5 million in the comparable period of 1995, a decrease
of $43.2 million.
The net decrease in cash used by financing activities was favorably
affected by the sale of 3,869,000 shares of 8% Preferred Stock for net proceeds
to the Company of $186.2 million. On April 26, 1996, $84.9 million of such net
proceeds were used to redeem the Company's 12% Preferred Stock. Without these
transactions, financing activities would have used $134.6 million resulting in
a net decrease in cash from December 31, 1995 of $157.1 million.
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TWA typically operates with a working capital deficiency, which was $259.1
million at September 30, 1996, an increase of $147.5 million from the
deficiency at December 31, 1995 of $111.6 million.
Pursuant to the '95 Reorganization, the Company issued 600,000 ticket
vouchers, each with a face value of $50.00, which may be used for a discount of
up to 50% off the cost of a TWA airline ticket for transportation on TWA
(``Ticket Vouchers''). Pursuant to certain agreements, the Company repurchased
236,000 Ticket Vouchers at an aggregate cost of $8.4 million in late 1995 and
the first half of 1996.
The Company elected to pay interest, due February 1, 1996, on its 12%
Senior Secured Reset Notes, in shares of Common Stock. The amount of such
interest, including the premium required for non-cash settlement, aggregated
approximately $11.3 million, and resulted in the issuance of approximately 1.1
million shares of Common Stock. The Company paid interest due in August 1996 in
cash and may elect to pay interest due in February 1997 in cash or through the
issuance of additional shares of Common Stock. Interest due after February 1997
must be paid in cash. The Company elected to pay dividends due February 1, 1996
on its 12% Preferred Stock for the period from November 1, 1995 to and
including January 31, 1996, in the amount of approximately $3.3 million, or
317,145 shares of Common Stock. As discussed above, the 12% Preferred Stock was
redeemed in full on April 26, 1996.
As noted elsewhere herein, in the third quarter the Company experienced (i)
a decline in revenue per available seat mile as a result of, among other
things, lower yield, a reduction in advanced bookings, a high level of domestic
flight cancellations, (ii) substantially increased levels of fuel and
maintenance expenses and (iii) an increased level of capital expenditures and
payments on indebtedness, in each case over the comparable period of 1995. A
number of these factors, particularly the increased levels of fuel and
maintenance expense, are expected to continue to adversely influence the
Company's liquidity into the fourth quarter and beyond. In addition, the
historical seasonality of the Company's business typically results in reduced
revenues during the fourth quarter. As a result of these factors, among others,
it is anticipated that the Company's cash balances at December 31, 1996 will be
reduced to a level significantly below that reported as of December 31, 1995.
TWA has no unused credit lines and must satisfy all of its working capital
and capital expenditure requirements from cash provided by operating
activities, from external borrowings or from the sale of assets. Substantially
all of TWA's assets, including its owned aircraft, accounts receivable, ground
equipment, slots and overhaul facilities, have been pledged to secure various
issues of outstanding indebtedness of the Company. Sales of such assets which
are not replaced would, under the terms of applicable financing agreements,
generally require payment of the indebtedness secured thereby, which
indebtedness in many cases would likely exceed the immediately realizable
value of such assets. TWA has relatively few assets which it could monetize,
substantially all of such assets being subject to various liens and security
interests which would restrict and/or limit ability of TWA to realize any
significant proceeds from the sale thereof.
The Company's future viability will be primarily dependent upon its ability
to develop an operating plan which will improve its results of operations. In
addition to the initiatives already implemented by the Company as described
above, TWA is currently evaluating additional strategic decisions that could
be implemented which would be designed to improve its operating performance
and financial results. Senior management and the leadership of the three major
unions (IAM, ALPA and IFFA) are examining ways in which the Company's business
strategy may be adjusted to address operational difficulties encountered in
connection with growing the airline, including adjustments in its fleet plan,
route structure and facility requirements. Senior management and the labor
groups have also commenced a series of meetings to identify measures that may
be implemented in an attempt to respond and reverse the impact on financial
results caused in part by the decline in RASM, increased fuel expenses and
increased maintenance costs experienced during the third quarter as described
above. No assurance can be given that any of the initiatives already
implemented or any new initiatives, if implemented, will be successful or, if
successful, that such initiatives will produce results sufficient to offset
the continuing negative impact of the above-referenced factors on fourth
quarter and year-end financial results or result in an improvement in the
anticipated cash position of the Company or that the Company will be
successful in generating the operating revenues and cash required for
profitable operations or future viability.
Contingencies
On June 14, 1995, the Company signed an agreement (the ``Extension and
Consent Agreement'') with Karabu pursuant to which the term of the financing of
up to $200 million provided to TWA by Karabu in connection with the
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<PAGE> 19
'93 Reorganization (``the Icahn Loans'') was extended from January 8, 1995 to
January 8, 2001. Karabu and certain other affiliates of Mr. Icahn (the ``Icahn
Entities'') consented to certain modifications to certain promissory notes
issued to a settlement trust on behalf of the Pension Benefit and Guaranty
Corporation (the ``PBGC'') in connection with the '93 Reorganization (the
``PBGC Notes'') and the Icahn Entities agreed to refrain from exercising the
right during 1995 to terminate certain pension plans covering employees of the
Company as to which Mr. Icahn and the Icahn Entities assumed certain
obligations in the '93 Reorganization. Any such termination would not increase
the obligations of TWA on the PBGC Notes or other obligations of TWA to Mr.
Icahn, the Icahn Entities or the PBGC. Collateral for the Icahn Loans includes
a number of aircraft, engines and related equipment, along with substantially
all of the Company's receivables. At September 30, 1996, the outstanding
balance of the Icahn Loans was approximately $139.6 million (excluding
approximately $3.6 million in accrued and unpaid interest). The notes
evidencing the Icahn Loans have been pledged by Mr. Icahn and certain
affiliated entities as security for certain obligations of the Icahn Entities
to the PBGC and/or in respect of funding obligations on the Company's pre-'93
Reorganization pension plans.
On June 14, 1995, in consideration of, among other things, the extension of
the Icahn Loans, TWA and Karabu entered into the eight-year Ticket Agreement.
There are two categories of tickets under the Ticket Agreement: (1) ``Domestic
Consolidator Tickets'', which are subject to a cap of $610 million, based on
the full retail price of the tickets ($120 million in the first 15 months and
$70 million per year for seven consecutive years through the term of the Ticket
Agreement) and (2) ``System Tickets,'' which are not subject to any cap
throughout the term of the Ticket Agreement. Domestic Consolidator Tickets sold
under the Ticket Agreement are limited to certain origin/destination city
markets in which TWA has less than a 5% market share, except for the New York
market, which has a 10% market share limit. These restricted markets will be
reviewed from time to time to determine any change in TWA's market share, and
other markets may be designated as necessary. The Ticket Agreement provides
that no ticket may be included with an origin or destination of St. Louis, nor
may any ticket include flights on other carriers. Tickets sold by Karabu
pursuant to the Ticket Agreement are required to be at fares specified in the
Ticket Agreement, net to TWA, and exclusive of tax.
Tickets sold by the Company to Karabu pursuant to the Ticket Agreement are
priced at levels intended to approximate current competitive discount fares
available in the airline industry. The purchase price for the tickets purchased
by Karabu are required to either, at Karabu's option, be retained by Karabu and
the amount so retained credited as prepayments against the outstanding balance
of the Icahn Loans, or be paid over by Karabu to a settlement trust established
in connection with the '93 Reorganization for TWA's account as prepayments on
certain promissory notes issued to the PBGC in satisfaction of the PBGC Notes.
As of September 30, 1996, $119.4 million of System Tickets (representing
proceeds of $62.9 million to TWA) had been sold by the Icahn Entities while no
Domestic Consolidator Tickets had been sold. Approximately $50.4 million of
such proceeds had been applied to the principal balance of the Icahn Loans,
while no proceeds had been applied to the PBGC Notes.
No commissions will be paid by TWA for tickets sold under the Ticket
Agreement, and TWA believes that under the applicable provisions of the Ticket
Agreement, Karabu may not market or sell such tickets through travel agents.
Karabu, however, has been marketing tickets through travel agents to the
general public. TWA has demanded that Karabu cease doing so, and Karabu has
stated that it disagrees with the Company's interpretation concerning sales
through travel agents. The Company informed Karabu that if it did not cease
sales through travel agents, the Company would enforce its rights under the
Ticket Agreement by legal action. In December 1995, the Company filed a lawsuit
against Karabu, Mr. Icahn and affiliated companies seeking damages and to
enjoin further violations. Mr. Icahn countered, threatening to attempt to
declare a default on the Icahn Loans on a variety of claims related to his
various interpretations of a security agreement under which the receivables and
certain flight equipment securing the Icahn Loans are pledged (the ``Karabu
Security Agreement'') as well as with respect to alleged violations of the
Ticket Agreement by the Company. A violation of the Ticket Agreement by the
Company would result in a cross-default under the Icahn Loans. Mr. Icahn also
alleged independent violations of the Icahn Loans, including, among other
things, that the Company has not been maintaining, in accordance with the terms
of the Karabu Security Agreement, certain aircraft which TWA has retired from
service and stored and which are pledged as security for the Icahn Loans. To
endeavor to eliminate this issue from the various disputes with Mr. Icahn, the
Company has deposited an amount equal to the appraised fair market value with
the State Street Bank and Trust Company of Connecticut, N.A., as security
trustee under the Karabu Security Agreement (the ``Security Trustee''), and
requested the release of the liens on such aircraft. To date, the Security
Trustee has not released such liens. In addition, Mr.
19
<PAGE> 20
Icahn has asserted that the approval of the Security Trustee is required for
any modification to the FAA-approved maintenance program affecting aircraft
pledged as security under the Karabu Security Agreement. The parties negotiated
a series of standstill agreements pursuant to which TWA's original lawsuit was
withdrawn, while the Company and Mr. Icahn endeavored to negotiate a settlement
of their differences and respective claims. The final extension of such a
standstill expired on March 20, 1996.
On March 20, 1996, TWA was named as a defendant in a complaint (the ``Icahn
Complaint'') filed by the Icahn Entities; in addition, the Company filed a
petition (the ``TWA Petition'') commencing a lawsuit against Mr. Icahn, Karabu
and certain other entities affiliated with Mr. Icahn (the ``Icahn
Defendants''). The Company intends to press its claims under the TWA Petition
vigorously and believes it has meritorious defenses to the claims asserted in
the Icahn Complaint. If Karabu's interpretation of the Ticket Agreement
regarding sales of discount tickets by the Icahn Defendants to the general
public through travel agents was determined by a court or otherwise to be
correct and the Company did not otherwise take appropriate action to mitigate
the effect of such sales, the Company could suffer significant loss of revenue
so as to reduce overall passenger yields on a continuing basis during the term
of the Ticket Agreement. In addition, any default by the Company under the
Ticket Agreement or directly on the Icahn Loans which would result in an
acceleration of the Icahn Loans would result in a cross-default to
substantially all of the Company's other indebtedness and leases and otherwise
have a material adverse effect on the Company.
On June 6, 1996, Karabu forwarded a letter to TWA advising the Company of
Karabu's possible intention to instruct the PBGC to require the Security
Trustee to give a 30 day default notice to TWA in respect of certain alleged
instances of non-compliance by TWA with the provisions of the Karabu Security
Agreement relating to, among other things, four Boeing 727-100 aircraft which
are no longer being flown by TWA in active service and changes by TWA to the
FAA-approved scheduled maintenance of such aircraft and other aircraft pledged
under the Karabu Security Agreement without obtaining approval of the Security
Trustee. Karabu also forwarded with such letter a draft of a proposed complaint
which it threatened to file for a declaratory judgment that Karabu would be
entitled to instruct the PBGC to require the Security Trustee to give TWA such
notice of default. The complaint was filed in a New York state court and was
served on TWA on June 28, 1996, and was voluntarily dismissed with prejudice on
July 18, 1996.
On June 26, 1996, Karabu formally requested the PBGC to instruct the
Security Trustee to give TWA a notice of default under the Karabu Security
Agreement. On June 27, 1996, the PBGC declined to so instruct the Security
Trustee, advising Karabu that the PBGC did not believe TWA was in default and,
even if a default were determined to exist, any such default would be technical
only and Karabu would not be harmed by such a default.
On June 28, 1996, Karabu brought an action against the PBGC in the United
States District Court for the Southern District of New York, seeking a
declaratory judgment for the purpose of determining Karabu's rights with
respect to the Karabu Security Agreement.
The impact of future ticket sales by Icahn Affiliates on the Company's
results of operations, being dependent upon, among other things, the timing
thereof, cannot be predicted at this time.
Commitments
In February 1996, TWA executed definitive agreements providing for the
operating lease of 10 new Boeing 757 aircraft to be delivered in 1996 and 1997,
with deliveries commencing in July 1996. Although individual aircraft rentals
escalate over the term of the leases, aggregate rental obligations are
estimated to average approximately $51 million per annum over the lease terms
after all 10 aircraft have been delivered. These aircraft have an initial lease
term of 10 years. The Company took delivery of the first Boeing 757 aircraft on
July 22, 1996. The Company also entered into an agreement in February 1996 with
Boeing for the purchase of 10 new Boeing 757 aircraft with deliveries in
February 1997 through May 1999. Under this agreement, the Company also acquired
the right, subject to certain conditions, to purchase up to 20 additional
Boeing 757 aircraft. The estimated purchase price for the firm order aircraft
and related spare parts and equipment is $550 million including an estimate for
the price escalation factor. The Company has secured financing commitments from
the engine and airframe manufacturers for approximately $420 million of the
purchase price of the aircraft and related spare parts and equipment.
The Company entered into an agreement to acquire fifteen new McDonnell
Douglas MD-83s. The long-term leasing arrangement provides for delivery of the
aircraft between the second half of 1997 and April 1999.
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<PAGE> 21
To comply with the December 31, 1996 interim requirement under the Noise
Act, the Company plans to retrofit, by means of engine hush-kits, 28 of its
DC-9 aircraft. The aggregate cost of these hush-kits is estimated to be $49
million. The Company is exploring various financing options to fund the
majority of such expenditure, including an extension of the current leases at
increased rental rates. As of September 30, 1996, the Company had purchased
hush-kits for $32.3 million with internal funds. There is another agreement
providing for the financing of the hushkitting of an additional 14 DC-9-30 and
DC-9-50 aircraft currently leased by TWA. The aggregate cost of such hushkits
would approximate $27 million.
TWA has purchase agreements (collectively, the ``AVSA Agreement'') for the
purchase of 10 A330 aircraft with AVSA, S.A.R.L. (``AVSA''), a subsidiary of
Airbus Industries G.I.E., and has options to acquire an additional 10 aircraft.
The current delivery schedule calls for the 10 firm aircraft to be delivered
during the period from April 1999 to September 2000. Additionally, delivery
dates for the option aircraft have been rescheduled to commence in December
1999 and extend through April 2001, subject to TWA's exercise thereof. Based on
an assumed 5% annual price escalation, the Company estimates the aggregate
costs of the firm orders to be approximately $1 billion. In connection with the
AVSA Agreement, TWA is required to issue promissory notes to AVSA, to finance
purchase deposits, in the aggregate principal amount of $21.4 million over the
months of April, May, June, July and September of 1996; however, AVSA and TWA
have agreed to a deferral of this obligation until December 1996, which
obligation has previously been deferred three times. If not further deferred,
the Company would also be required to make certain cash predelivery payments,
beginning on December 31, 1996 aggregating approximately $38.6 million. TWA has
not yet made arrangements for the permanent financing of the A330 aircraft
ordered pursuant to the AVSA Agreement.
TWA has also entered into agreements (collectively, the ``Equipment
Agreement'') with Rolls-Royce plc (``Rolls Royce'') relating to the purchase of
Rolls Royce engines, modules, and spare parts at the time of the purchase of,
and to support, the A330 aircraft described above. TWA's promissory note to
Rolls Royce, in the principal amount of $27.4 million, could be subject to
prepayment in the event of cancellation of the Equipment Agreement.
Availability of NOLs
Based on recent analyses, the Company presently estimates that it has, for
federal income tax purposes, net operating loss carryforwards (``NOLs'')
amounting to approximately $500 million, which expire in 2008 through 2010 if
not utilized before then to offset taxable income. The determination of the
amount of such NOLs involves numerous complex issues which may be subject to
differing interpretations. Such NOLs are subject to examination by the Internal
Revenue Service (the ``IRS''), and, thus, are subject to adjustment or
dissallowance resulting from any such IRS examination. Section 382 of the
Internal Revenue Code of 1986, as amended, and regulations issued thereunder,
impose limitations on the ability of corporations to use NOLs, if the
corporation experiences a more than 50% change in ownership during certain
periods. As a result of such a change in ownership caused by the '95
Reorganization, utilization of the Company's NOLs will be reduced (by
approximately $45 million) in future periods. If another ownership change
occurs during the two-year period following the '95 Reorganization, the annual
limitation on the Company's utilization of its existing NOLs would be reduced
to zero. There can be no assurance that an ownership change will not occur in
the future. For financial reporting purposes, the tax benefits from
substantially all of the tax net operating loss carryforwards will, to the
extent realized in future periods, have no impact on the Company's operating
results, but instead be applied to reduce reorganization value in excess of
amounts allocable to identifiable assets.
Impact of Recently Issued Accounting Standards
On January 1, 1996, TWA adopted Statement of Financial Accounting Standards
No. 123, ``Accounting for Stock-Based Compensation (``SFAS No. 123''). TWA
elected to continue to apply the intrinsic value based method for recognizing
compensation expense for stock-based employee compensation plans. Therefore,
the adoption of SFAS 123 had no impact on the Company's results of operations
or financial position.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 31, 1988, the U.S. Environmental Protection Agency (``EPA'') filed
an administrative complaint seeking civil penalties as well as other relief
requiring TWA to take remedial procedures at TWA's maintenance base in Kansas
City, Missouri, alleging violations resulting from TWA's past hazardous waste
disposal and related environmental practices. Simultaneously, TWA became a
party to a consent agreement and a consent order with the EPA pursuant to which
TWA paid a civil penalty of $100,000 and agreed to implement a schedule of
remedial and corrective actions and to perform environmental audits at TWA's
major maintenance facilities. In September 1989, TWA and the EPA signed an
administrative order of consent, which required TWA to conduct extensive
investigations at or near the overhaul base and to recommend remedial action
alternatives. TWA completed its investigations and on February 17, 1996,
submitted a Corrective Measures Study (``CMS'') to the Missouri Department of
Natural Resources (``MDNR'') and the EPA. It is anticipated that review and
approval of the CMS by the MDNR and EPA will take several months. Upon approval
of the CMS, an additional order will be issued and the required corrective
actions implemented. TWA presently estimates the cost of the corrective action
activities under the existing and anticipated orders to be approximately $7
million, a majority of which represents costs associated with long-term
groundwater monitoring and maintenance of the remedial systems. Although the
Company believes adequate reserves have been provided for all known
environmental contingencies, it is possible that additional reserves might be
required in the future which could have a material adverse effect on the
results of operations or financial condition of the Company. However, the
Company believes that the ultimate resolution of known environmental
contingencies should not have a material adverse effect on the financial
position or results of operations based on the Company's knowledge of similar
environmental sites.
On November 9, 1995, ValuJet Air Lines, Inc. (``ValuJet'') instituted a
lawsuit against TWA and Delta Air Lines (``Delta'') in the United States Court
for the Northern District of Georgia, alleging breach of contract and
violations of certain antitrust laws with respect to the Company's lease of
certain takeoff and landing slots at LaGuardia International Airport in New
York. On November 17, 1995, the court denied ValuJet's motion to temporarily
enjoin the lease transaction and the Company and Delta consummated the lease of
the slots. A hearing was held on June 3, 1996 with respect to motions for
summary judgment filed in this matter by Delta and the Company, and on July 12,
1996, the Court issued an order granting the Company's motion for summary
judgment on all counts.
In addition, based on certain written grievances or complaints filed by
ValuJet, the Company has been informed that the United States Department of
Justice, Antitrust Division is investigating the circumstances of the slot
lease transaction to determine whether an antitrust violation has occurred. The
Company is cooperating in this investigation and believes that the slot lease
transaction did not violate any antitrust laws.
On January 10, 1996, a complaint was filed by an individual resident of New
York, Joel Gerber, relating to the slot lease transaction (the ``Gerber
Action''). Mr. Gerber purports to bring the action on his own behalf as well as
on behalf of an unspecified number of purported class members who have traveled
or will travel between LaGuardia and Atlanta as of November 1, 1995 claiming
damages as the result of alleged antitrust violations and conspiracy to commit
same against the Company and Delta. The United States District Court for the
Eastern District of New York transferred the Gerber Action to the United States
District Court for the Northern District of Georgia, which has not certified
the Gerber Action as a class action. The Company will vigorously contest all of
the class action allegations as well as all allegations of liability and
damages in the Gerber Action. On August 6, 1996, the Court issued an order
denying the plantiff's motion for class certification.
On March 20, 1996, the Company filed the TWA Petition commencing a lawsuit
against Icahn, Karabu and the Icahn Defendants. The TWA Petition, which is
pending in the Circuit Court for St. Louis County, Missouri, alleges that the
Icahn Defendants are violating the Ticket Agreement and otherwise tortiously
interfering with the Company's business expectancy and contractual
relationships by, among other things, marketing and selling tickets purchased
under the Ticket Agreement to the general public through travel agents. The TWA
Petition seeks a declaratory judgment finding that the Icahn Defendants have
violated the Ticket Agreement, and also seeks liquidated, compensatory and
punitive damages, in addition to the Company's costs and attorneys fees. The
Company believes the allegations contained in the TWA Petition are meritorious.
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<PAGE> 23
Also on March 20, 1996, TWA was named as a defendant in the Icahn Complaint
filed by the Icahn Entities. The Icahn Complaint alleges, among other things,
that the Company has violated certain federal antitrust laws, breached the
Ticket Agreement and interfered with certain existing and prospective
commercial relations of the Icahn Entities. The Icahn Complaint is based upon
an interpretation by Mr. Icahn and the Icahn Entities that the Ticket Agreement
permits sales of tickets to the general public through travel agents and upon
certain actions the Company has taken to mitigate the adverse effects of the
Icahn Entities' ongoing marketing and sales of tickets to the general public
through travel agents. The Icahn Complaint seeks injunctive relief and actual
and punitive monetary damages, as well as the Icahn Entities'' costs of
litigation. On June 13, 1996, following TWA's filing of a motion to dismiss the
Icahn Complaint, the Icahn Entities amended the Icahn Complaint to delete the
federal antitrust claims and to add new allegations and theories with respect
to claimed violations of the federal antitrust laws and the Lanham Act (the
``Amended Icahn Complaint''). The Company believes it has meritorious defenses
to the allegations contained in the Amended Icahn Complaint and intends to
defend itself vigorously against such allegations.
On June 6, 1996, Karabu forwarded a letter to TWA advising the Company of
Karabu's possible intention to instruct the PBGC to require the Security
Trustee under the Karabu Security Agreement, to give a 30 day default notice to
TWA in respect of certain alleged instances of non-compliance by TWA with the
provisions of the Karabu Security Agreement relating to, among other things,
four Boeing 727-100 aircraft which are no longer being flown by TWA in active
service and changes by TWA to the FAA-approved scheduled maintenance of such
aircraft and other aircraft pledged under the Karabu Security Agreement without
obtaining approval of the Security Trustee. Karabu also forwarded with such
letter a draft of a proposed complaint which it threatened to file for a
declaratory judgment that Karabu would be entitled to instruct the PBGC to
require the Security Trustee to give TWA such notice of default. The complaint
was filed in a New York state court and was served on TWA on June 28, 1996 and
was voluntarily dismissed with prejudice on July 18, 1996.
On June 26, 1996, Karabu formally requested the PBGC to instruct the
Security Trustee to give TWA a notice of default under the Karabu Security
Agreement. On June 27, 1996, the PBGC declined to so instruct the Security
Trustee, advising Karabu that the PBGC did not believe TWA was in default and,
even if a default were determined to exist, any such default would be technical
only and Karabu would not be harmed by such a default.
On June 28, 1996, Karabu brought an action against the PBGC in the United
States District Court for the Southern District of New York, seeking a
declaratory judgment for the purpose of determining Karabu's rights with
respect to the Karabu Security Agreement. Although the Company believes that no
material default exists under the Karabu Security Agreement, any default by the
Company under the Ticket Agreement or directly on the Icahn Loans which
resulted in an acceleration of the Icahn Loans would result in a cross-default
of substantially all of the Company's other indebtedness and leases and
otherwise have a material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES
The Company previously reported in its Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996, that it had issued 3,869,000 shares of 8%
Cumulative Convertible Exchangeable Preferred Stock which was exempt from the
registration requirements of the Securities Act of 1933 (the ``Securities
Act''). On May 31, 1996, the Company filed a Form S-3 registration statement
pursuant to Rule 415 under the Securities Act, No. 333-04977 (the
``Registration Statement''), to afford the holders of the securities offered in
the Registration Statement the opportunity to sell such securities in a public
transaction. On August 16, 1996, the Registration Statement, as amended, was
declared effective.
ITEM 5. OTHER INFORMATION
Several changes in the Company's senior management occurred during the
third quarter and subsequently. On August 21, 1996 Edward Soule was elected to
the position of Executive Vice President and Chief Financial Officer. Mr.
Roden Brandt was elected to the position of Senior Vice President, Planning on
September 3, 1996. The Company's President and Chief Executive Officer, Jeffrey
Erickson, resigned on October 23, 1996. Mr. Erickson has agreed to remain with
the Company until the earlier of January 15, 1997 or the date on which his
successor is identified and available to assume this office.
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<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<C> <S>
<F*>2.1.1-- Second Amended Plan of Reorganization, dated May 28, 1993 (Exhibit 28.1 to 6/93 8-K)
<F*>2.1.2-- Modifications to the Second Amended Plan of Reorganization, dated August 10, 1993;
Supplemental Modifications to the Second Amended Plan of Reorganization, dated August
11, 1993; and Second Supplemental Modifications to the Second Amended Plan of
Reorganization, dated August 12, 1993 (Exhibit 2.1 to 6/93 10-Q)
<F*>2.2 -- Confirmation Order, dated August 12, 1993, with Exhibits A-L attached
(Exhibit 2.2 to 6/93 10-Q)
<F*>2.3 -- Final Decree, dated June 21, 1995, related to the '93 Reorganization
(Exhibit 2.3 to 6/95 10-Q)
<F*>2.4 -- Joint Plan of Reorganization, dated May 12, 1995 (Appendix B to Registrant's
Registration Statement on Form S-4, Registration Number 33-84944, as amended)
<F*>2.5 -- Modifications to Joint Plan of Reorganization, dated July 14, 1995 and Supplemental
Modifications to Joint Plan of Reorganization dated August 2, 1995 (Exhibit 2.5 to 6/95
10-Q)
<F*>2.6 -- Findings of Fact, Conclusions of Law and Order Confirming Modified Joint Plan of
Reorganization, dated August 4, 1995, with Exhibits A-B attached (Exhibit 2.6 to 6/95
10-Q)
<F*>2.7 -- Final Decree, dated December 28, 1995, related to the '95 Reorganization (Exhibit 2.7 to
12/31/95 Form 10-K)
<F*>3(i) -- Third Amended and Restated Certificate of Incorporation of Trans World Airlines, Inc.
(Exhibit 3(iv) to Registrant's Registration Statement on Form S-3,
Registration No. 333-04977)
<F*>3(ii)-- Amended and Restated By-Laws of Trans World Airlines, Inc., effective May 24, 1996
(Exhibit 3(ii) to 6/96 10-Q)
<F*>4.1 -- Voting Trust Agreement, dated November 3, 1993, between TWA and LaSalle National Trust,
N.A. as trustee (Exhibit 4.3 to 9/93 10-Q)
<F*>4.2 -- IAM Trans World Employees' Stock Ownership Plan and related Trust Agreement, dated
August 31, 1993, between TWA, the IAM Plan Trustee Committee and the IAM Trustee
(Exhibit to 9/93 10-Q)
<F*>4.3 -- IFFA Trans World Employees' Stock Ownership Plan and related Trust Agreement, dated
August 31, 1993, between TWA, the IFFA Plan Trustee Committee and the IFFA Trustee
(Exhibit 4.5 to 9/93 10-Q)
<F*>4.4 -- Trans World Airlines, Inc. Employee Stock Ownership Plan, dated August 31, 1993, First
Amendment thereto, dated October 31, 1993, and related Trust Agreement, dated August 31,
1993, between TWA and the ESOP Trustee (Exhibit 4.6 to 9/93 10-Q)
<F*>4.5 -- ALPA Stock Trust, dated August 31, 1993, between TWA and the ALPA Trustee
(Exhibit 4.7 to 9/93 10-Q)
<F*>4.6 -- Stockholders Agreement, dated November 3, 1993, among TWA, LaSalle National Trust, N.A.,
as Voting Trustee and the ALPA Trustee, IAM Trustee, IFFA Trustee and Other Employee
Trustee (each as defined therein), as amended by the Addendum to Stockholders dated
November 3, 1993 (Exhibit 4.8 to 9/93 10-Q)
<F*>4.7 -- Registration Rights Agreement, dated November 3, 1993, between TWA and the Initial
Significant Holders (Exhibit 4.9 to 9/93 10-Q)
<F*>4.8 -- Indenture between TWA and Shawmut Bank, National Association, dated November 3, 1993
relating to TWA's 10% Senior Secured Notes Due 1998 (Exhibit 4.10 to 9/93 10-Q)
<F*>4.9 -- Indenture between TWA and Harris Trust and Savings Bank, dated November 3, 1993 relating
to TWA's 8% Senior Secured Notes Due 2000 (Exhibit 4.11 to 9/93 10-Q)
24
<PAGE> 25
<F*>4.10 -- Indenture between TWA and American National Bank and Trust Company of Chicago, N.A.,
dated November 3, 1993 relating to TWA's 8% Secured Notes Due 2001
(Exhibit 4.12 to 9/93 10-Q)
<F*>4.11 -- Indenture between TWA and Shawmut Bank Connecticut, National Association, dated November
3, 1993 relating to TWA's 11% Senior Secured Notes Due 1997
(Exhibit 4.13 to 9/93 10-Q)
<F*>4.12 -- The TWA Air Line Pilots 1995 Employee Stock Ownership Plan, effective as of January 1,
1995 (Exhibit 4.12 to 9/95 10-Q)
<F*>4.13 -- TWA Air Line Pilots Supplemental Stock Plan, effective September 1, 1994
(Exhibit 4.13 to 9/95 10-Q)
<F*>4.14 -- TWA Air Line Pilots Supplemental Stock Plan Trust, effective August 23, 1995
(Exhibit 4.14 to 9/95 10-Q)
<F*>4.15 -- TWA Air Line Pilots Supplemental Stock Plan Custodial Agreement, effective August 23,
1995 (Exhibit 4.15 to 9/95 10-Q)
<F*>4.16 -- Form of Indenture relating to TWA's 8% Convertible Subordinated Debentures Due 2006
(Exhibit 4.16 to Registrant's Registration Statement on Form S-3, Registration No.
333-04977)
<F*>10.1 -- Letter Agreement dated July 30, 1996 between Trans World Airlines, Inc. and Robert A.
Peiser (Exhibit 10.52 to Pre-effective Amendment No. 2 to Registrant's Registration
Statement on Form S-3, Registration No. 333-04977)
<F*>10.2 -- Letter Agreement dated July 26, 1996 between Trans World Airlines, Inc. and Mark J.
Coleman (Exhibit 10.53 to Pre-effective Amendment No. 2 to Registrant's Registration
Statement on Form S-3, Registration No. 333-04977)
<F*>10.3 -- Exchange Agreement dated as of June 10, 1996 between Trans World Airlines, Inc. and
Elliott Associates, L.P., as amended (Exhibit 10.1 to 9/20/96 8-K)
<F*>10.4 -- Exchange Agreement dated as of June 10, 1996 between Trans World Airlines, Inc. and
Westgate International, L.P., as amended (Exhibit 10.2 to 9/20/96 8-K)
10.5 -- Agreement, dated as of August 19, 1996 between Trans World Airlines, Inc. and Edward
Soule relating to employment by TWA
10.6 -- Agreement, dated as of September 3, 1996 between Trans World Airlines, Inc. and Roden A.
Brandt relating to employment by TWA
11 -- Statement re computation of per share earnings
27 -- Financial Data Schedule (submitted only in electronic format)
</TABLE>
(B) REPORTS ON FORM 8-K
A Form 8-K was filed on September 20, 1996. The filing reported on
the Company's anticipated third quarter earnings and on the
Company's agreement to exchange its common stock for certain of its
registered debt securities.
[FN]
- --------
<F*> Incorporated by reference
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANS WORLD AIRLINES, INC.
Dated: November 14, 1996 By: /s/ JODY A. RUTH
-----------------------------
Jody A. Ruth
Vice President and Controller
26
<PAGE> 1
AGREEMENT, dated as of August 19, 1996, between Trans World Airlines,
Inc. ("Company"), and Edward Soule ("Executive");
WHEREAS, the Company desires to employ and the Executive has accepted
a position as Executive Vice President and Chief Financial Officer; and
WHEREAS, the parties desire to set forth the entirety of their
agreements and understandings;
NOW, THEREFORE, in consideration of the mutual promises contained
herein the parties agree as follows:
1. Employment. The Company hereby employs Executive to render the
----------
services hereinafter described, and Executive hereby accepts such employment
and agrees to render such services, upon and subject to the terms and
conditions described in this Agreement.
2. Term. Executive's employment commences as of the date of this
----
Agreement, and shall continue thereafter for an indefinite period until
terminated at any time by Company or Executive with or without cause.
Nothing in this Agreement or otherwise shall be construed as entitling
Executive to employment for any definite term.
3. Duties.
------
(a) Executive shall serve at the pleasure of the Company in
such executive positions as Executive shall be assigned from time to time
by the President, and shall perform such executive, advisory and/or
administrative and managerial assignments and duties as may be assigned to
Executive from time to time by the President or the President's designee,
all according to the direction and control of the President. Executive will
carry out and perform all such duties and assignments and all directions of
any officer to whom Executive directly or indirectly reports. Executive also
will comply with and carry out all rules and policies of the Company, and
will serve, without additional compensation, as an officer and/or director
or any subsidiary, affiliated or related corporation or business, or of any
company in which Company may hold any interest.
(b) The Executive will, on an exclusive basis, devote his full
time during normal business hours to the business and affairs of the Company
and use his best efforts to promote the interests of the Company and to
perform faithfully and efficiently the responsibilities assigned to
Executive in accordance with the terms of this Agreement.
4. Compensation and Other Terms of Employment. During the period
------------------------------------------
in which Executive is employed by Company, the Executive shall receive the
following:
<PAGE> 2
(a) Salary. The Executive will be paid at an annual rate of
------
$230,000.00 on a regular basis, not less frequently than one time per month,
on a regular Company pay day. This rate of pay ("Base Salary") is subject
to adjustment from time to time, and will be reviewed on a regular basis.
All such payments will be subject to withholding for taxes and amounts owed
Company, if any.
(b) Stock Incentive Plan. The Executive shall be eligible to
--------------------
participate in the Company's Key Employee Stock Incentive Plan ("KESIP").
The Executive's grant shall be for 230,000 shares, subject in its entirety
to the terms and conditions set forth in the KESIP Agreement between the
Executive and the Company. The Exercise Price shall be the Fair Market
Value, as that term is defined in the KESIP, of the Company's Common Stock
as of the date of this Agreement. To the extent that there is any
inconsistency between the terms and conditions of this Agreement and those
of the KESIP, the terms and conditions of this Agreement shall control.
(c) Change of Control Agreement. In the event that the
---------------------------
Company's Board of Directors authorizes the Company to enter into "change of
control" severance agreements with one or more of its officers, the
Executive will be offered the opportunity to enter into such an agreement on
terms and conditions no less favorable in any material respect than those
offered to any other of the Company's officers.
(d) Passes. The Executive and his eligible family members
------
will be entitled to card-type Class A "term" passes on the Company's routes
worldwide.
(e) Medical, Dental, Insurance and Accident Insurance. (i)
-------------------------------------------------
The Executive and his eligible dependents will be eligible to participate in
the Company-paid comprehensive Medical and Dental Plan and the Travel
Accident Insurance Program offered by the Company, on the same terms and
conditions applicable to other officers. (ii) The Executive will be
eligible for coverage under the Company's Group Term Life Insurance Plan
under which the Company currently provides Basic Life Insurance of $50,000
coverage at no cost to the Executive. Assuming that the Executive is
insurable at standard rates, the Executive will also have the option to
purchase Additional Group Life Insurance in an amount up to three times the
Executive's Base Salary, less the Basic $50,000 coverage. The monthly cost
of this Additional Life Insurance is currently $4.50 per $10,000 and such
monthly cost may increase from time-to-time. (iii) The Executive will be
eligible to participate in the Company's Voluntary Personal Accident
Insurance Plan. The maximum coverage for this plan is currently $150,000 at
a monthly cost of $6.60 and such monthly cost may increase from
time-to-time. (iv) The Executive will be covered for Long-Term Disability
protection pursuant to plan provisions at standard rates and subject to
standard conditions. Nothing herein shall be construed to prevent the
Company from amending or altering any such plans or programs set forth
herein so long as the Executive continues to have the opportunity to receive
in the aggregate benefits at a level no less favorable than those set forth
herein.
5. Vacation. The Executive will be eligible for three weeks
--------
vacation, per year.
- 2 -
<PAGE> 3
6. Termination of Employment.
-------------------------
(a) Death. This Agreement shall terminate automatically
-----
upon the Executive's death. All benefits and compensation then accrued
hereunder, and under any related plans, shall be paid when due to the
Executive's beneficiaries or legal representatives, as appropriate.
(b) Termination Without Cause. The Company shall have the
-------------------------
right to terminate the Executive's employment without cause at any time and
without advance notice. In such event the Company shall pay to the
Executive an amount equal to the Executive's then rate of annual Base Salary
and any accrued, earned unpaid salary and unused vacation as of the
effective date of such termination. Such payment (other than accrued,
earned salary and unused vacation) may be made at the Company's option in a
single lump sum or in equal installments payable over up to a twelve month
period. Upon the making of such payments, the Company shall have no further
obligation to the Executive under this Agreement and Executive accepts such
payments in full satisfaction of all claims against the Company.
(c) Termination For Cause. The Company shall have the right
---------------------
to terminate the Executive's employment at any time and without advance
notice for Cause. For the purposes of this Agreement, "Cause" shall mean
that (i) the Executive is convicted of or engages in conduct which
constitutes a felony, or a misdemeanor involving moral turpitude; or (ii)
the Executive is found by the Company's Board of Directors to have willfully
engaged in conduct which is demonstrably and materially injurious to the
Company; or (iii) the Executive is found by the Company's Board of Directors
to have failed or refused to in any material respect to competently perform
his duties and responsibilities (after notice and opportunity to cure if
such material failure or refusal can be cured); or (iv) the Executive has
breached his duty of loyalty to, or committed any act of fraud, theft or
dishonesty against or involving, the Company or any of its affiliated
companies; or (v) the Executive has breached any provision of this
Agreement. If the Executive's employment is terminated for Cause, the
Company shall pay the Executive his unpaid, accrued salary through the date
of such termination at the rate in effect at the time of such termination
and any accrued, earned or unused vacation through the effective date of
such termination. Upon the making of such payment, the Company shall have
no further obligation to the Executive under this Agreement.
(d) Termination by the Executive. If the Executive
----------------------------
voluntarily terminates his employment, the Executive must give the Company
thirty (30) calendar days advance notice in writing. If the Executive fails
to do so, the Executive shall not be entitled to any accrued rights and
benefits to which the Executive might be entitled under this or any related
agreement and the Company will have no further obligation to the Executive
except for unpaid salary earned by the Executive up to and including the
effective date of such termination.
Upon termination of employment and otherwise upon demand, Executive
will turn over to Company all Company property and documents and all
computer passwords, and will (after copying the same to 3.5 disks and
returning the disks to the Company) delete all Company
- 3 -
<PAGE> 4
information from any computer which is not Company property. Upon termination,
all benefits and compensation ceases except as described above.
7. Termination Obligations. The Executive agrees that during his
-----------------------
employment and following his termination under any of the circumstances set
forth herein:
(a) he shall not during his employment or for a period of two
years following the effective date of his termination, directly or
indirectly solicit (or assist or encourage the solicitation of) any employee
of the Company or any of its subsidiaries or affiliated companies to be
employed by the Executive or by any entity in which the Executive owns or
expects to own any equity interest in excess of five (5) percent of any
class of the outstanding securities thereof, or by any entity by which the
Executive is employed or for which the Executive serves or expects to serve
in any capacity; nor (after his employment ends and during such 2 year
period) encourage or induce any Company employee to terminate his or her
Company employment. For the purposes of this paragraph, the term "solicit"
shall mean any contact by the Executive with or providing information to
others who may be expected to contact any employees of the Company or of any
of its subsidiaries or affiliated companies regarding their employment
status, job satisfaction, interest in seeking employment with the Executive,
with any person affiliated with the Executive or by whom the Executive is
employed but shall not include print advertising for personnel or responding
to any unsolicited request for a personal recommendation for or evaluation
of a Company employee or an employee of any of the Company's subsidiaries or
affiliated companies.
(b) he shall hold forever hereafter in a fiduciary capacity
for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its subsidiaries or
affiliated companies, including but not limited to commercial, operational,
marketing, pricing, or financial information including costs, strategies,
forecasts or trade secrets, acquisition strategies or candidates or
personnel acquisition plans ("confidential information") which shall have
been obtained by the Executive during or by reason of his employment by the
Company or by any of its subsidiaries or affiliated companies and which
shall not be public knowledge. During and after the end of the term of
employment, the Executive shall not, without the prior written consent of
the Company or unless required to do so by reason of a court order or
subpoena (in which case Executive shall give Company prompt notice of any
such other subpoena or order, or request therefore, so as to provide Company
the maximum opportunity to contest the same), communicate or divulge any
such confidential information to anyone other than the Company or those
designated by it, except that while employed by the Company in the business
of and for the benefit of the Company the Executive may provide confidential
information as appropriate to those persons who in the Executive's judgment
have a need to know such confidential information.
(c) he shall not for a period of two years following the
effective date of his termination discuss or disclose to the media or
Company personnel the circumstances or terms of his termination of
employment.
- 4 -
<PAGE> 5
(d) he shall not publicly disparage or denigrate the Company
or any of its officers, directors or practices.
To the extent that any covenant or agreement contained in this Section
7 shall be determined by a Court to be invalid or unenforceable in any
respect or to any extent, the covenant or agreement shall not be rendered
void, but instead shall be automatically amended to such lesser scope or to
such lesser extent as will grant Company the maximum restriction on
Executive's conduct and activities permitted by applicable law in such
circumstances.
8. No Assignment. This Agreement is personal to the Executive and
-------------
without the Company's prior written consent it shall not be assignable by
the Executive other than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the legal
representatives of Executive's estate, and otherwise is freely assignable by
Company.
9. Assistance. For a period of three (3) years following
----------
termination of employment, Executive will, upon reasonable notice, make
himself available for consultation with Company counsel, to meet with
Company counsel and prepare to testify as a witness or deponent, and to
testify as a witness at a trial, deposition or proceeding, concerning any
legal matter involving or affecting the Company. The Company will pay for
all reasonable and necessary out of pocket travel and telephone costs and
expense incurred by Executive in connection with any such activity.
10. Miscellaneous.
-------------
(a) This Agreement shall be governed by and be construed in
accordance with the internal laws of the State of Missouri, without
reference to principles of conflicts of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. Neither this Agreement nor any of its terms may be amended, waived,
added to or modified other than by written agreement executed by the parties
hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by regular
or registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Edward Soule
7370 Kingsbury Boulevard
University City, Missouri 63130
- 5 -
<PAGE> 6
If to the Company:
Trans World Airlines, Inc.
One City Centre
515 North 6th Street
St. Louis, Missouri 63101
Attn: General Counsel
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) This Agreement contains the entire understanding between
the parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, among the parties with respect thereto. The terms
of any employee manual, handbook, or any policy of the Company, shall not
modify, alter, or invalidate any term of this Agreement nor alter Employee's
at will status, and in case of any conflict between a term of this Agreement
and any such policy, handbook or manual, the terms of this Agreement
control, except for benefit plans and Stock Option awards described herein
(to the extent not otherwise provided in this Agreement).
(e) Executive represents that he is not a party to any
agreement, or under any legal obligation, which could preclude or in any way
impair Executive's performance of Executive's duties for Company. Executive
has not provided, and will not provide, to Company any trade secret of
another person whose secrecy he is obligated to maintain.
(f) Notwithstanding any provision hereof to the contrary,
nothing in this Agreement shall be deemed to entitle the Executive to
employment beyond the Term hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed in
its corporate name, and the Executive has hereunto set his hand, all as of
the day and year first above written.
/s/ EDWARD SOULE /s/ RICHARD P. MAGURNO
- ------------------------------ -----------------------------
EDWARD SOULE TRANS WORLD AIRLINES, INC.
BY: Richard P. Magurno
Senior Vice President &
General Counsel
- 6 -
<PAGE> 1
AGREEMENT, dated as of September 3, 1996, between Trans World
Airlines, Inc. ("Company"), and Roden A. Brandt ("Executive");
WHEREAS, the Company desires to employ and the Executive has accepted
a position as Senior Vice President - Planning; and
WHEREAS, the parties desire to set forth the entirety of their
agreements and understandings;
NOW, THEREFORE, in consideration of the mutual promises contained
herein the parties agree as follows:
1. Employment. The Company hereby employs Executive to render the
----------
services hereinafter described, and Executive hereby accepts such employment
and agrees to render such services, upon and subject to the terms and
conditions described in this Agreement.
2. Term. Executive's employment commences as of the date of this
----
Agreement, and shall continue thereafter for an indefinite period until
terminated at any time by Company or Executive with or without cause.
Nothing in this Agreement or otherwise shall be construed as entitling
Executive to employment for any definite term.
3. Duties.
------
(a) Executive shall serve at the pleasure of the Company in
such executive positions as Executive shall be assigned from time to time by
the President, and shall perform such executive, advisory and/or
administrative and managerial assignments and duties as may be assigned to
Executive from time to time by the President or the President's designee,
all according to the direction and control of the President. Executive will
carry out and perform all such duties and assignments and all directions of
any officer to whom Executive directly or indirectly reports. Executive also
will comply with and carry out all rules and policies of the Company, and
will serve, without additional compensation, as an officer and/or director
or any subsidiary, affiliated or related corporation or business, or of any
company in which Company may hold any interest.
(b) The Executive will, on an exclusive basis, devote his full
time during normal business hours to the business and affairs of the Company
and use his best efforts to promote the interests of the Company and to
perform faithfully and efficiently the responsibilities assigned to
Executive in accordance with the terms of this Agreement.
4. Compensation and Other Terms of Employment. During the period in
------------------------------------------
which Executive is employed by Company, the Executive shall receive the
following:
(a) Salary. The Executive will be paid at an annual rate of
------
$180,000.00 on a regular basis, not less frequently than one time per month,
on a regular Company pay day. This rate of pay ("Base Salary") is subject
to adjustment from time to time, and will be reviewed on a regular basis.
All such payments will be subject to withholding for taxes and amounts owed
by the Company, if any.
<PAGE> 2
(b) Stock Incentive Plan. The Executive shall be eligible to
--------------------
participate in the Company's Key Employee Stock Incentive Plan ("KESIP").
The Executive's grant shall be for 180,000 shares, subject in its entirety
to the terms and conditions set forth in the KESIP Agreement dated as of
this date between the Executive and the Company. The Exercise Price shall
be the Fair Market Value, as that term is defined in the KESIP, of the
Company's Common Stock as of the date of this Agreement. To the extent that
there is any inconsistency between the terms and conditions of this
Agreement and those of the KESIP, the terms and conditions of this Agreement
shall control.
(c) Change of Control Agreement. In the event that the
---------------------------
Company's Board of Directors authorizes the Company to enter into "change of
control" severance agreements with one or more of its officers, the
Executive will be offered the opportunity to enter into such an agreement on
terms and conditions no less favorable in any material respect than those
offered to any other of the Company's officers.
(d) Passes. The Executive and his eligible family members
------
will be entitled to card-type Class A "term" passes on the Company's routes
worldwide.
(e) Medical, Dental, Insurance and Accident Insurance. (i)
-------------------------------------------------
The Executive and his eligible dependents will be eligible to participate in
the Company-paid comprehensive Medical and Dental Plan and the Travel
Accident Insurance Program offered by the Company, on the same terms and
conditions applicable to other officers. (ii) The Executive will be
eligible for coverage under the Company's Group Term Life Insurance Plan
under which the Company currently provides Basic Life Insurance of $50,000
at no cost to the Executive. Assuming that the Executive is insurable at
standard rates, the Executive will also have the option to purchase
Additional Group Life Insurance in an amount up to three times the
Executive's Base Salary, less the Basic $50,000 coverage. The monthly cost
of this Additional Life Insurance is currently $4.50 per $10,000 and such
monthly cost may increase from time-to-time. (iii) The Executive will be
eligible to participate in the Company's Voluntary Personal Accident
Insurance Plan. The maximum coverage for this plan is currently $150,000 at
a monthly cost of $6.60 and such monthly cost may increase from
time-to-time. (iv) The Executive will be covered for Long-Term Disability
protection pursuant to plan provisions at standard rates and subject to
standard conditions. Nothing herein shall be construed to prevent the
Company from amending or altering any such plans or programs set forth
herein so long as the Executive continues to have the opportunity to receive
in the aggregate benefits at a level no less favorable than those set forth
herein.
5. Vacation. The Executive will be eligible for three weeks
--------
vacation.
6. Relocation and Temporary Living Expenses. To the extent not
----------------------------------------
inconsistent with the terms of this Agreement, the Company will provide the
Executive with relocation assistance as described in detail in the attached
copy of the Company's Class "A" Relocation Policy for Management Employees.
The Company will, for the nine month period beginning as of
- 2 -
<PAGE> 3
September 1, 1996 reimburse the Executive (a) for reasonable, necessary, and
actual temporary lodging and transportation expenses in the St. Louis area, and
(b) for warehouse storage expenses of up to $700.00 per month for the storage
of Executive's furniture and other family and personal items. The Company will
also reimburse the Executive for the reasonable cost of movement to St. Louis
of the Executive's furniture and other family and personal items from certain
storage facilities and from residences located at 320 South Street, Apt. 12C
in Morristown, New Jersey; 55 Ravona Street in Clifton New Jersey; and 48
Independence Way, Convent Station, New Jersey.
7. Termination of Employment.
-------------------------
(a) Death. This Agreement shall terminate automatically
-----
upon the Executive's death. All benefits and compensation then accrued
hereunder, and under any related plans, shall be paid when due to the
Executive's beneficiaries or legal representatives, as appropriate.
(b) Termination Without Cause. The Company shall have the
-------------------------
right to terminate the Executive's employment without cause at any time and
without advance notice. In such event the Company shall pay to the
Executive an amount equal to the Executive's then rate of annual Base Salary
and any accrued, earned unpaid salary and unused vacation as of the
effective date of such termination. Such payment (other than accrued,
earned salary and unused vacation) may be made at the Company's option in a
single lump sum or in equal installments payable over up to a twelve month
period. Upon the making of such payments, the Company shall have no further
obligation to the Executive under this Agreement and Executive accepts such
payments in full satisfaction of all claims against the Company.
(c) Termination For Cause. The Company shall have the right
---------------------
to terminate the Executive's employment at any time and without advance
notice for Cause. For the purposes of this Agreement, "Cause" shall mean
that (i) the Executive is convicted of or engages in conduct which
constitutes a felony, or a misdemeanor involving moral turpitude; or (ii)
the Executive is found by the Company's Board of Directors to have willfully
engaged in conduct which is demonstrably and materially injurious to the
Company; or (iii) the Executive is found by the Company's Board of Directors
to have failed or refused to in any material respect to competently perform
his duties and responsibilities (after notice and opportunity to cure if
such material failure or refusal can be cured); or (iv) the Executive has
breached his duty of loyalty to, or committed any act of fraud, theft or
dishonesty against or involving, the Company or any of its affiliated
companies; or (v) the Executive has breached any provision of this
Agreement. If the Executive's employment is terminated for Cause, the
Company shall pay the Executive his unpaid, accrued salary through the date
of such termination at the rate in effect at the time of such termination
and any accrued, earned or unused vacation through the effective date of
such termination. Upon the making of such payment, the Company shall have
no further obligation to the Executive under this Agreement.
(d) Termination by the Executive. If the Executive
----------------------------
voluntarily terminates his employment, the Executive must give the Company
thirty (30) calendar days advance notice in writing. If the Executive fails
to do so, the Executive shall not be entitled to any accrued rights
- 3 -
<PAGE> 4
and benefits to which the Executive might be entitled under this or any related
agreement and the Company will have no further obligation to the Executive
except for unpaid salary earned by the Executive up to and including the
effective date of such termination.
Upon termination of employment and otherwise upon demand, Executive
will turn over to Company all Company property and documents and all
computer passwords, and will (after copying the same to 3.5 disks and
returning the disks to the Company) delete all Company information from any
computer which is not Company property. Upon termination, all benefits and
compensation ceases except as described above.
8. Termination Obligations. The Executive agrees that during his
-----------------------
employment and following his termination under any of the circumstances set
forth herein:
(a) he shall not during his employment or for a period of two
years following the effective date of his termination, directly or
indirectly solicit (or assist or encourage the solicitation of) any employee
of the Company or any of its subsidiaries or affiliated companies to be
employed by the Executive or by any entity in which the Executive owns or
expects to own any equity interest in excess of five (5) percent of any
class of the outstanding securities thereof, or by any entity by which the
Executive is employed or for which the Executive serves or expects to serve
in any capacity; nor (after his employment ends and during such 2 year
period) encourage or induce any Company employee to terminate his or her
Company employment. For the purposes of this paragraph, the term "solicit"
shall mean any contact by the Executive with or providing information to
others who may be expected to contact any employees of the Company or of any
of its subsidiaries or affiliated companies regarding their employment
status, job satisfaction, interest in seeking employment with the Executive,
with any person affiliated with the Executive or by whom the Executive is
employed but shall not include print advertising for personnel or responding
to any unsolicited request for a personal recommendation for or evaluation
of a Company employee or an employee of any of the Company's subsidiaries or
affiliated companies.
(b) he shall hold forever hereafter in a fiduciary capacity
for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its subsidiaries or
affiliated companies, including but not limited to commercial, operational,
marketing, pricing, or financial information including costs, strategies,
forecasts or trade secrets, acquisition strategies or candidates or
personnel acquisition plans ("confidential information") which shall have
been obtained by the Executive during or by reason of his employment by the
Company or by any of its subsidiaries or affiliated companies and which
shall not be public knowledge. During and after the end of the term of
employment, the Executive shall not, without the prior written consent of
the Company or unless required to do so by reason of a court order or
subpoena (in which case Executive shall give Company prompt notice of any
such other subpoena or order, or request therefore, so as to provide Company
the maximum opportunity to contest the same), communicate or divulge any
such confidential information to anyone other than the Company or those
designated by it, except that while employed by the Company in the business
of and for the benefit of the Company the Executive may provide confidential
- 4 -
<PAGE> 5
information as appropriate to those persons who in the Executive's judgment
have a need to know such confidential information.
(c) he shall not for a period of two years following the
effective date of his termination discuss or disclose to the media or
Company personnel the circumstances or terms of his termination of
employment.
(d) he shall not publicly disparage or denigrate the Company
or any of its officers, directors or practices.
To the extent that any covenant or agreement contained in this Section
8 shall be determined by a Court to be invalid or unenforceable in any
respect or to any extent, the covenant or agreement shall not be rendered
void, but instead shall be automatically amended to such lesser scope or to
such lesser extent as will grant Company the maximum restriction on
Executive's conduct and activities permitted by applicable law in such
circumstances.
9. No Assignment. This Agreement is personal to the Executive and
-------------
without the Company's prior written consent it shall not be assignable by
the Executive other than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the legal
representatives of Executive's estate, and otherwise is freely assignable by
Company.
10. Assistance. For a period of three (3) years following
----------
termination of employment, Executive will, upon reasonable notice, make
himself available for consultation with Company counsel, to meet with
Company counsel and prepare to testify as a witness or deponent, and to
testify as a witness at a trial, deposition or proceeding, concerning any
legal matter involving or affecting the Company. The Company will pay for
all reasonable and necessary out of pocket travel and telephone costs and
expense incurred by Executive in connection with any such activity.
10. Miscellaneous.
-------------
(a) This Agreement shall be governed by and be construed in
accordance with the internal laws of the State of Missouri, without
reference to principles of conflicts of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no force or
effect. Neither this Agreement nor any of its terms may be amended, waived,
added to or modified other than by written agreement executed by the parties
hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by regular
or registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
- 5 -
<PAGE> 6
If to the Executive:
Roden A. Brandt
320 South Street
Apt. 12C
Morristown, New Jersey 07960
If to the Company:
Trans World Airlines, Inc.
One City Centre
515 North 6th Street
St. Louis, Missouri 63101
Attn: General Counsel
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) This Agreement contains the entire understanding between
the parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings,
whether written or oral, among the parties with respect thereto. The terms
of any employee manual, handbook, or any policy of the Company, shall not
modify, alter, or invalidate any term of this Agreement nor alter Employee's
at will status, and in case of any conflict between a term of this Agreement
and any such policy, handbook or manual, the terms of this Agreement
control, except for benefit plans and Stock option awards described herein
(to the extent not otherwise provided in this Agreement).
(e) Executive represents that or he is not a party to any
agreement, or under any legal obligation, which could preclude or in any way
impair Executive's performance of Executive's duties for Company. Executive
has not provided, and will not provide, to Company any trade secret of
another person whose secrecy he is obligated to maintain.
(f) Notwithstanding any provision hereof to the contrary,
nothing in this Agreement shall be deemed to entitle the Executive to
employment beyond the Term hereof.
- 6 -
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed in
its corporate name, and the Executive has hereunto set his hand, all as of
the day and year first above written.
/s/ RODEN A. BRANDT
- --------------------------------------------------------
RODEN A. BRANDT
/s/ RICHARD P. MAGURNO
- --------------------------------------------------------
TRANS WORLD AIRLINES, INC.
By: Richard P. Magurno
Senior Vice President & General Counsel
- 7 -
<PAGE> 1
EXHIBIT 11
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
REORGANIZED COMPANY
---------------------------------
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1996
------------- -------------
<S> <C> <C>
Adjustments to Net Income (loss)
Loss before extraordinary items............................................................. $ (6,905) $(18,750)
Preferred stock dividend requirements....................................................... (3,869) (12,680)
Special dividend requirement relating to redemption of 12% Preferred Stock.................. -- (20,001)
-------- --------
Loss before extraordinary items applicable to common stock for primary calculation.......... (10,774) (51,431)
Extraordinary item.......................................................................... (7,420) (7,420)
-------- --------
Net loss applicable to common stock for primary calculation................................. (18,194) (58,851)
Fully diluted adjustment--dividend requirements on 8% Preferred Stock assumed to be
converted................................................................................. 3,869 8,137
-------- --------
Net loss applicable to common stock for fully diluted calculation........................... $(14,325) $(50,714)
======== ========
Adjustments to Outstanding Shares:
Average number of shares of common stock<F1>............................................ 45,082 43,169
Primary Adjustments
Incremental shares associated with the assumed exercise of options and
warrants<F2>...................................................................... 1,143 1,438
-------- --------
Total average number of common and common equivalent shares used for primary
calculation........................................................................... 46,225 44,607
======== ========
Average number of shares of common stock<F1>............................................ 45,082 43,169
Fully Diluted Adjustments
Incremental shares associated with the assumed exercise of options and warrants<F2>..... 1,143 1,438
Common shares assumed to be issued upon conversion of 8% Preferred Stock.............. 9,544 6,696
-------- --------
Total average number of common and common equivalent shares for fully diluted
calculation........................................................................... 55,769 51,303
======== ========
Per share amounts:
Loss before extraordinary item and special preferred dividend
Average............................................................................. (.24) (.73)
Primary<F3>......................................................................... (.23) (.70)
Fully diluted<F3>................................................................... (.12) (.45)
Net loss
Average............................................................................. (.40) (1.36)
Primary<F3>......................................................................... (.39) (1.32)
Fully diluted<F3>................................................................... (.26) (.99)
<FN>
- --------
<F1> Includes 5,744 shares for the three months and 5,640 shares for the nine
months of Employee Preferred Stock which, except for a liquidation
preference of $.01 per share and the right to elect a certain number of
directors to the Board of Directors, is the functional equivalent of
Common Stock.
<F2> Pursuant to an employee stock incentive plan (ESIP or the Plan), the
Company is required to distribute additional shares of common stock and
Employee Preferred Stock as a result of the distribution of additional
shares following the effective date of the '95 Reorganization. No shares
have as yet been distributed to employees under this provision and
discussions are being held with union representatives to determine the
appropriate number of shares to be distributed. The Company believes that,
based on these discussions, no more than 950,000 additional shares will be
distributed. Additionally, the ESIP provides that, beginning in 1997,
employees may significantly increase their ownership, through grants or
purchases, as set forth in the Plan. The earnings (loss) per share
computations do not give any effect to the potential issuances of these
shares.
<F3> As the effects of including the incremental shares associated with options
and warrants and the assumed conversion of the 8% Preferred Stock are
antidilutive, these amounts are not presented in the accompanying
condensed statements of consolidated operations.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 248,522
<SECURITIES> 0
<RECEIVABLES> 322,134
<ALLOWANCES> 15,098
<INVENTORY> 142,288
<CURRENT-ASSETS> 776,508
<PP&E> 757,027
<DEPRECIATION> 92,470
<TOTAL-ASSETS> 2,968,001
<CURRENT-LIABILITIES> 1,035,645
<BONDS> 860,881
<COMMON> 410
0
96
<OTHER-SE> 492,998
<TOTAL-LIABILITY-AND-EQUITY> 2,968,001
<SALES> 0
<TOTAL-REVENUES> 2,751,108
<CGS> 0
<TOTAL-COSTS> 2,717,252
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,918
<INTEREST-EXPENSE> 95,483
<INCOME-PRETAX> (18,257)
<INCOME-TAX> 493
<INCOME-CONTINUING> (18,750)
<DISCONTINUED> 0
<EXTRAORDINARY> (7,420)
<CHANGES> 0
<NET-INCOME> (26,170)
<EPS-PRIMARY> (1.36)
<EPS-DILUTED> (.99)
<FN>
Operating results for the Reorganized Company for the nine months
ended September 30, 1996.
</TABLE>
