<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 JUNE 30, 1997
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.
OUTSTANDING AS OF
CLASS AUGUST 1, 1997
- ------------------------ ------------------
Common Stock, par value 49,280,401
$0.01 per share
In addition, as of August 1, 1997 there were 6,975,724 shares of Employee
Preferred Stock outstanding.
===============================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ---------------------------
1997 1996 1997 1996
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues:
Passenger.............................................. $740,205 $839,000 $1,412,050 $1,516,932
Freight and mail....................................... 31,318 37,043 62,807 72,947
All other.............................................. 72,919 89,765 131,891 158,362
-------- -------- ---------- ----------
Total.......................................... 844,442 965,808 1,606,748 1,748,241
-------- -------- ---------- ----------
Operating expenses:
Salaries, wages and benefits........................... 302,508 309,437 617,816 605,761
Earned stock compensation.............................. 1,793 58 3,073 5,041
Aircraft fuel and oil.................................. 117,329 141,071 247,275 270,467
Passenger sales commissions............................ 65,423 73,648 122,994 137,588
Aircraft maintenance materials and repairs............. 38,386 57,198 82,129 104,956
Depreciation and amortization.......................... 36,761 39,216 75,531 78,829
Operating lease rentals................................ 88,587 74,508 174,410 144,813
Passenger food and beverages........................... 19,407 27,293 39,859 52,834
All other.............................................. 168,316 181,351 337,215 340,115
-------- -------- ---------- ----------
Total.......................................... 838,510 903,780 1,700,302 1,740,404
-------- -------- ---------- ----------
Operating income (loss).................................... 5,932 62,028 (93,554) 7,837
-------- -------- ---------- ----------
Other charges (credits):
Interest expense....................................... 29,717 31,072 58,114 64,619
Interest and investment income......................... (3,067) (5,740) (6,018) (11,826)
Disposition of assets, gains and losses--net........... (3,030) (239) (12,380) (25)
Other charges and credits--net......................... (7,427) (9,116) (17,816) (16,704)
-------- -------- ---------- ----------
Total 16,193 15,977 21,900 36,064
-------- -------- ---------- ----------
Income (loss) before income taxes and extraordinary
items.................................................... (10,261) 46,051 (115,454) (28,227)
Provision (credit) for income taxes........................ 1,734 20,789 (33,427) (16,382)
-------- -------- ---------- ----------
Income (loss) before extraordinary items................... (11,995) 25,262 (82,027) (11,845)
Extraordinary items, net of income taxes................... (2,405) -- (3,937) --
-------- -------- ---------- ----------
Net income (loss).......................................... (14,400) 25,262 (85,964) (11,845)
Preferred stock dividend requirements...................... 3,869 4,814 7,738 28,812
-------- -------- ---------- ----------
Income (loss) applicable to common shares.................. $(18,269) $ 20,448 $ (93,702) $ (40,567)
======== ======== ========== ==========
Per share amounts:
Earnings (loss) before extraordinary item and special
dividend requirement................................. $ (.31) $ .46 $ (1.80) $ (.49)
Extraordinary item and special dividend requirement.... (.05) -- (.08) (.47)
-------- -------- ---------- ----------
Net income (loss).......................................... $ (.36) $ .46 $ (1.88) $ (.96)
======== ======== ========== ==========
See notes to consolidated financial statements
</TABLE>
2
<PAGE> 3
<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 102,649 $ 181,586
Receivables, less allowance for doubtful accounts,
$10,752 in 1997 and $12,939 in 1996.................. 266,871 239,496
Spare parts, materials and supplies, less allowance for
obsolescence, $13,187 in 1997 and $11,563 in 1996.... 101,717 111,239
Prepaid expenses and other............................. 164,992 93,424
---------- ----------
Total.......................................... 636,229 625,745
---------- ----------
Property:
Property owned:
Flight equipment................................... 427,769 339,150
Prepayments on flight equipment.................... 20,536 39,072
Land, buildings and improvements................... 60,317 59,879
Other property and equipment....................... 63,706 60,750
---------- ----------
Total owned property........................... 572,328 498,851
Less accumulated depreciation...................... 91,158 71,810
---------- ----------
Property owned--net............................ 481,170 427,041
---------- ----------
Property held under capital leases:
Flight equipment................................... 168,403 172,812
Land, buildings and improvements................... 49,443 54,761
Other property and equipment....................... 7,189 6,570
---------- ----------
Total property held under capital leases....... 225,035 234,143
Less accumulated amortization...................... 63,128 46,977
---------- ----------
Property held under capital leases--net........ 161,907 187,166
---------- ----------
Total property--net........................ 643,077 614,207
---------- ----------
Investments and other assets:
Investments in affiliated companies.................... 116,725 108,173
Investments, receivables and other..................... 154,101 149,028
Routes, gates and slots--net........................... 388,375 401,659
Reorganization value in excess of amounts allocable to
identifiable assets--net............................. 762,150 783,127
---------- ----------
Total.......................................... 1,421,351 1,441,987
---------- ----------
Total...................................................... $2,700,657 $2,681,939
========== ==========
See notes to consolidated financial statements
</TABLE>
3
<PAGE> 4
<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
--------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current maturities of long-term debt................... $ 73,509 $ 92,447
Current obligations under capital leases............... 40,578 42,501
Advance ticket sales................................... 324,907 241,516
Accounts payable, principally trade.................... 236,819 216,675
Accounts payable to affiliated companies............... 6,201 4,894
Accrued expenses:
Employee compensation and vacations earned......... 111,904 116,846
Contributions to retirement and pension trusts..... 15,388 14,091
Interest on debt and capital leases................ 40,399 39,420
Taxes.............................................. 19,211 19,018
Other accrued expenses............................. 188,743 174,753
---------- ----------
Total accrued expenses..................... 375,645 364,128
---------- ----------
Total...................................... 1,057,659 962,161
---------- ----------
Long-term liabilities and deferred credits:
Long-term debt, less current maturities................ 621,527 608,485
Obligations under capital leases, less current
obligations.......................................... 198,009 220,790
Postretirement benefits other than pensions............ 473,878 471,171
Noncurrent pension liabilities......................... 31,109 30,716
Other noncurrent liabilities and deferred credits...... 130,091 150,511
---------- ----------
Total...................................... 1,454,614 1,481,673
---------- ----------
Shareholders' equity:
8% cumulative convertible exchangeable preferred stock,
$50 liquidation preference; 3,869 shares issued and
outstanding.......................................... 39 39
Employee preferred stock, $0.01 liquidation preference;
special voting rights; shares issued and outstanding;
1997--5,623; 1996--5,681............................. 56 57
Common stock, $0.01 par value, shares issued and
outstanding: 1997--46,234; 1996--41,763.............. 462 418
Additional paid-in capital............................. 588,744 552,544
Accumulated deficit.................................... (400,917) (314,953)
---------- ----------
Total...................................... 188,384 238,105
---------- ----------
Total...................................................... $2,700,657 $2,681,939
========== ==========
See notes to consolidated financial statements
</TABLE>
4
<PAGE> 5
<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1997 1996
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(85,964) $ (11,845)
Adjustments to reconcile net loss to net cash used
by operating activities:
Employee earned stock compensation............. 3,073 5,041
Depreciation and amortization.................. 75,531 78,829
Amortization of discount and expense on debt... 7,398 4,849
Extraordinary loss on extinguishment of debt... 3,937 --
Interest paid in common stock.................. 4,125 11,332
Equity in undistributed earnings of affiliates
not consolidated............................. (8,846) (5,328)
Revenue from Icahn ticket program.............. (56,048) (32,275)
Net (gains)-losses on disposition of assets.... (12,380) (25)
Change in operating assets and liabilities:
Decrease (increase) in:
Receivables.................................... (22,096) (116,955)
Inventories.................................... 7,685 6,331
Prepaid expenses and other current assets...... (62,076) (81,621)
Other assets................................... (11,133) 3,696
Increase (decrease) in:
Accounts payable and accrued expenses.......... 33,964 30,751
Advance ticket sales........................... 69,032 166,839
Other noncurrent liabilities and deferred
credits...................................... (17,759) (43,052)
-------- ---------
Net cash provided (used)................... (71,557) 16,567
-------- ---------
Cash flows from investing activities:
Proceeds from sales of property........................ 17,175 1,010
Capital expenditures, including aircraft pre-delivery
deposits............................................. (33,340) (74,942)
Return of pre-delivery deposits related to leased
aircraft............................................. 10,740 --
Net decrease in investments, receivables and other..... 7,198 14,670
-------- ---------
Net cash provided (used)................... 1,773 (59,262)
-------- ---------
Cash flows from financing activities:
Net proceeds from long-term debt and warrants issued... 47,175 2,750
Proceeds from sale and leaseback of certain aircraft... 12,000 --
Repayments on long-term debt and capital lease
obligations.......................................... (66,352) (57,748)
Refund due to retirement of 1967 bonds................. 5,318 --
Net proceeds from sale of preferred stock.............. -- 186,163
Redemption of 12% Preferred Stock...................... -- (81,749)
Cash dividends paid on preferred stock................. (7,738) (6,751)
Net proceeds from exercise of equity rights, warrants
and options.......................................... 444 69
-------- ---------
Net cash provided (used)................... (9,153) 42,734
-------- ---------
Net increase (decrease) in cash and cash equivalents....... (78,937) 39
Cash and cash equivalents at beginning of period........... 181,586 304,340
-------- ---------
Cash and cash equivalents at end of period................. $102,649 $ 304,379
======== =========
See notes to consolidated financial statements
</TABLE>
5
<PAGE> 6
<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
SUPPLEMENTAL CASH FLOW INFORMATION
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
------- -------
<S> <C> <C>
Cash paid during the period for:
Interest............................................................... $42,866 $48,205
======= =======
Income taxes........................................................... $ 76 $ 121
======= =======
Information about noncash operating, investing and financing activities:
Promissory notes issued to finance aircraft acquisition................ $74,668 $10,565
======= =======
Promissory note issued to finance aircraft predelivery payments........ $ 3,071 $ 6,097
======= =======
Common Stock issued in lieu of cash dividends.......................... $ -- $ 3,255
======= =======
Property acquired and obligations recorded under new capital
transactions......................................................... $ 619 $ 596
======= =======
Exchange of long-term debt for common stock:
Debt cancelled including accrued interest, net of unamortized
discount......................................................... $25,528 $ --
======= =======
Common Stock issued, at fair value................................. $29,465 $ --
======= =======
Extraordinary loss................................................. $ 3,937 $ --
======= =======
</TABLE>
ACCOUNTING POLICY
For purposes of the Statements of 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 consolidated financial statements
6
<PAGE> 7
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Trans World
Airlines, Inc. ("TWA" or the "Company") 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 Statements of Consolidated Operations
in Other Charges (Credits).
The unaudited 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 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 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, 1996. The consolidated balance sheet at December 31, 1996 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.
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 months and six months ended June 30, 1997, should not be
read as indicators of future results for the full year.
2. INCOME TAXES
The Company presently expects that its full year 1997 results will require
a provision for income taxes. Accordingly, the tax provision recorded in the
second quarter, reflects management's current estimate of the annual effective
tax rate. Considering the high level of non-deductible expenses in relation to
expected 1997 annual income (which results in both a high effective tax rate
and the potential for significant changes in the effective rate from relatively
small changes in pre-tax income levels), the income tax provision recorded for
the second quarter of 1997 was based upon the quarterly allocable portion of
certain non-deductible expenses, primarily amortization of reorganization value
in excess of amounts allocable to identifiable assets, and statutory tax rates.
3. EXTRAORDINARY ITEM
During the six months ended June 30, 1997 the Company continued 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 $27.3 million in 12%
Senior Secured Reset Notes and approximately $742,900 in accrued interest
thereon in exchange for the issuance of approximately 3.9 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 $97.0 million. As a result of the exchange of the 12% Senior
Secured Reset Notes, the Company incurred an extraordinary non-cash charge of
$3.9 million in the first six months of 1997 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) and the carrying
value of the 12% Senior Secured Reset Notes retired.
4. LOSS PER SHARE
In computing the loss applicable to common shares for the three months and
six months ended June 30, 1997, the net loss has been increased by dividend
requirements on the 8% Cumulative Convertible Exchangeable Preferred Stock (the
"8% Preferred Stock"). 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 (44.8 million and 44.0 million for the three
months and six months ended June 30, 1997, respectively) and Employee Preferred
Stock (6.1
7
<PAGE> 8
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million and 5.9 million for the three months and six months ended June 30,
1997, 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 six month periods ended June 30, 1997 as
their impact would have been anti-dilutive.
The loss applicable to common shares for the three months and six months
ended June 30, 1996 was similarly computed with the net income (loss) being
reduced (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 to reflect the excess of the early redemption price over the carrying
value of the 12% Preferred Stock) and on the 8% Preferred Stock issued in March
1996. In computing the related net income (loss) per share, the income (loss)
applicable to common shares was divided by the average aggregate number of
outstanding shares of Common Stock (36.9 million and 36.6 million for the three
months and six months ended June 30, 1996, respectively) and Employee Preferred
Stock (5.7 million and 5.6 million for the three months and six months ended
June 30, 1996, respectively). When dilutive, effect has been given to stock
options, warrants or potential issuances of additional Common Stock or Employee
Preferred Stock. Fully diluted earnings per share for the three months ended
June 30, 1996 reflects the assumed conversion of the 8% Preferred Stock into
Common Stock.
5. SENIOR SECURED NOTES AND REDEEMABLE WARRANTS
In March 1997, the Company offered 50,000 Units ("Units"), with each Unit
consisting of (i) one 12% Senior Secured Note due 2002 (a "Note"), in the
principal amount of $1,000, and (ii) one Redeemable Warrant (a "Warrant") to
purchase 126.26 shares of Common Stock at an exercise price of approximately
$7.92 per share (the "Offering"). The Notes are secured by a lien on certain
assets of the Company, including 1) the Company's beneficial interest in its
FAA designated take-off and landing slots at three high-density,
capacity-controlled airports, 2) currently owned and hereafter acquired defined
ground equipment of the Company used at certain domestic airports and 3) all of
the issued and outstanding stock of (a) a wholly-owned subsidiary of TWA
holding the leasehold interest in a hangar at Los Angeles International Airport
and (b) three wholly-owned subsidiaries of TWA holding leasehold interests in
gates and related support space at certain domestic airports served by the
Company. The Company realized approximately $47.2 million (net of discounts and
commissions and estimated expenses) in proceeds from the Offering. The Company
used approximately $0.5 million of the proceeds from the Offering to release
certain of the collateral to be used to secure the Notes from a prior existing
lien and the remainder of the proceeds for general corporate purposes.
The Offering was made pursuant to Rule 144A of the Securities Act of 1933,
as amended (the "Securities Act"), and, accordingly, the Units, Notes and
Warrants and underlying shares of Common Stock issuable upon exercise of the
Warrants were not registered under the Federal and state securities laws. The
Company filed registration statements with respect to (i) an offer to exchange
registered Notes for any and all outstanding Notes, and (ii) the Warrants and
underlying shares of Common Stock, and to thereby register the Notes and the
Warrants under the Securities Act. These registration statements became
effective on July 29, 1997.
6. PREFERRED STOCK
In March 1996, the Company completed an offering 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.
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.
8
<PAGE> 9
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 8% Preferred Stock may be exchanged at the option of the Company, in
whole but not in part, 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 on the 8% Preferred Stock to the date of exchange, whether
or not earned or declared, 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.
7. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" which revises the calculation and presentation
provisions of Accounting Principles Board Opinion 15 and related
interpretations. While statement No. 128 is effective for the Company's fiscal
year ending December 31, 1997, retroactive application will be required. The
Company believes that the adoption of Statement No. 128 will not have a
significant effect on its reported earnings per share.
8. CONTINGENCIES
There has not been any significant change in the status of the
contingencies reflected in the Notes to consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, which, among other matters, described various contingencies
and other legal actions against TWA, except as discussed in Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements made below relating to plans, conditions, objectives,
and economic performance go beyond historical information and may provide an
indication of future financial condition or results of operations. To that
extent, they are forward-looking statements within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
each is subject to risk, uncertainties, and assumptions that could cause actual
results to differ from those in the forward-looking statements. 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, although not all, the
uncertainties that might impact TWA's future financial condition and results of
operations are described below.
Following its emergence from bankruptcy in August 1995 (the "'95
Reorganization"), the Company experienced improved operating performance
through the end of the second quarter of 1996. However, beginning in the third
quarter of 1996, the Company's operating performance substantially
deteriorated, which management now believes was largely due to an overly
aggressive increase in capacity, resulting in excessive levels of flight
cancellations and deterioration in on-time performance. The Company believes
that this has adversely affected its unit revenues (principally yields) and
costs. In response to this deterioration in operating performance, management
has taken action to improve on-time performance and, also, schedule completion
rates by, among other things, accelerating the maintenance for its narrow-body
aircraft. Additionally, the Company has elected to phase out its wide-body
B-747 and L-1011 fleets, upgrade the Company's fleet by the addition of new and
newer vintage B-757, B-767 and MD-80 series aircraft, reduce low yield domestic
JFK feed service, consolidate for the near term most of its JFK operations into
a single terminal and eliminate historically unprofitable international routes.
In addition, the Company has commenced programs such as improvements to the
Company's frequent flier program and expansion of the first class cabin to
afford more opportunities for service class upgrades which are designed to
regain business travelers and improve yield. These actions are designed to
improve the Company's financial performance and make its product more
competitive to the business segment which provides higher yields. The Company
also took action to curtail maintenance services provided to third parties and
to refocus those resources to its own maintenance operation. The above actions,
initiated and performed during the latter part of 1996 and throughout 1997,
have resulted in improved operational performance and schedule reliability;
however, the Company's unit revenues, yields and cash position have been
adversely affected by the negative impact on consumer demand created by the
previous deterioration in operating performance, particularly in the
higher-yield business traveler segment of the market.
GENERAL
The airline industry is both cyclical and seasonal in nature. The Company's
operating results are also significantly affected by competitive factors in the
airline industry. 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 outcome of labor negotiations; (viii) the
possible reduction in yield due to a discount ticket program entered into by
the Company with Karabu Corporation, an entity affiliated with Carl C. Icahn
("Karabu"), in connection with the '95 Reorganization and (ix) the impact of
the public's perception of the crash of TWA Flight 800.
The Company's operating results for any interim period are not necessarily
indicative of those for the entire year due to seasonal fluctuations. The
second and third quarter results have historically been more favorable for the
Company due to increased leisure travel on both domestic and international
routes during the spring and summer months.
10
<PAGE> 11
The Company's ability to continue to improve its financial position and
meet its financial obligations will depend upon a variety of factors,
including: improved operating results, favorable domestic and international
airfare pricing environments, absence of adverse general economic conditions,
continued operating cost controls, and the Company's ability to attract new
capital. The Company has already implemented the actions described above which
are designed to improve the Company's financial performance and make its
product more attractive to the business segment which provides higher yields,
however, no assurance can be given that the Company will be successful in
generating the operating results required for future viability.
TWA's passenger traffic data, for scheduled passengers only, are shown in
the table below for the indicated periods<F1>:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- --------------------------------
1997 1996 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
TOTAL SYSTEM
Passenger revenues ($ millions)................................ $1,412 $1,517 $3,078 $2,836 $2,818
Revenue passenger miles (millions)<F2>......................... 12,057 12,879 27,111 24,902 24,906
Available seat miles (millions)<F3>............................ 17,696 19,258 40,594 37,905 39,191
Passenger load factor<F4>...................................... 68.1% 66.9% 66.8% 65.7% 63.5%
Passenger yield (cents)<F5>.................................... 11.71 11.78 11.35 11.39 11.31
Passenger revenue per available seat mile (cents)<F6>.......... 7.98 7.88 7.58 7.48 7.19
Operating cost per available seat mile (cents)<F7>............. 9.38 8.76 8.76 8.12 8.45
Average daily utilization per aircraft (hours)<F8>............. 9.18 9.78 9.63 9.45 9.30
Aircraft in service at end of period........................... 190 187 192 188 185
<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.
<F5> Passenger revenue per revenue passenger mile.
<F6> Passenger revenue divided by scheduled available seat miles.
<F7> Operating expenses, excluding special charges, earned stock compensation,
other nonrecurring charges and subsidiaries, divided by total available
seat miles.
<F8> The average block hours flown per day in revenue service per aircraft.
</TABLE>
11
<PAGE> 12
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1996
The Company's operating income of $5.9 million for the three months ended
June 30, 1997 decreased $56.1 million from operating income of $62.0 million
for the second quarter of 1996. The Company had a net loss of $14.4 million for
the second quarter of 1997 compared to net income of $25.3 million for the
second quarter of 1996. The second quarter 1997 net loss included a $2.4
million non-cash extraordinary loss related to the early extinguishment of
debt.
Operating revenues of $844.4 million during the second quarter of 1997 were
$121.4 million (12.6%) less than the comparable 1996 period primarily because
of decreases in scheduled passenger revenues ($98.8 million) and cargo revenue
($5.7 million). Revenues from contract work declined $14.4 million primarily
due to the elimination of a government maintenance contract.
Capacity and traffic decreased in the second quarter of 1997 from the
comparable period of 1996. System capacity, as measured by scheduled available
seat miles (ASMs), decreased by 9.1% during the second quarter of 1997
(representing decreases in domestic and international ASMs of 1.8% and 30.1%,
respectively). The decrease in capacity was primarily attributed to the ongoing
replacement of B-747 and L-1011 aircraft with smaller B-767 and B-757 aircraft
and the elimination of unprofitable international routes. Passenger traffic
volume, as measured in revenue passenger miles (RPMs) in scheduled service,
during the second quarter of 1997 decreased 9.2% compared to the same period of
1996. Passenger load factor for the quarter ended June 30, 1997 was 69.76%
compared to 69.83% in the same period of 1996. TWA's yield per passenger mile
decreased from 11.93 cents in 1996 to 11.60 cents in 1997.
Operating expenses of $838.5 million in the second quarter of 1997
reflected a decrease of $65.3 million (7.2%) from the operating expenses of
$903.8 million for the three months ended June 30, 1996, representing a net
change in the following expense groups:
* Employment costs of $302.5 million for the second quarter of 1997 were
$6.9 million (2.2%) less than the same period in 1996, primarily due to a
decrease in the average number of employees. The Company had an average
of 23,850 full-time equivalent employees in the second quarter of 1997 as
compared to 24,169 in the second quarter of 1996. Flight attendants and
passenger service agents were the primary groups impacting the decrease.
* Earned stock compensation charges of $1.8 million for the second quarter
of 1997 and $58 thousand for the second quarter of 1996 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. A substantial portion of the
increase is attributable to the increasing trading price of the Common
Stock during the second quarter of 1997 compared to a decline in the
trading price during the second quarter of 1996.
* Aircraft fuel and oil expense of $117.3 million for the second quarter of
1997 was $23.8 million (16.9%) less than the expenses of $141.1 million
for the three months ended June 30, 1996. The decrease was due to a
reduction in the average cost of fuel (from 67.15 cents per gallon in
1996 to 63.77 cents per gallon in 1997) and a reduction in gallons
consumed (184.0 million gallons in 1997 versus 210.1 gallons in 1996) due
to the replacement of B-747 and L-1011 aircraft with B-757 and B-767
aircraft and a reduction in international flying.
* Passenger sales commission expense of $65.4 million for the second
quarter of 1997 was $8.2 million (11.2%) less than the comparable period
in 1996 primarily due to the 11.8% decrease in scheduled passenger
revenues.
* Aircraft maintenance materials and repairs expense of $38.4 million for
the second quarter of 1997 represented a decrease of $18.8 million
(32.9%) from the $57.2 million for the same period of 1996. The decrease
was primarily the result of the introduction of new B-757 and MD-80/83
aircraft into the fleet as replacements for B-747, L-1011 and B-727
aircraft and a reduction in contract maintenance work performed.
* Depreciation and amortization expense decreased $2.5 million in the
second quarter of 1997 compared to the same period of 1996. Special
charges recorded in the fourth quarter of 1996, related to international
route authorities and aircraft to be disposed of, reduced depreciation
and amortization in the second quarter of 1997 by approximately $3.2
million. The remaining increase is primarily attributed to the addition
of B-757 and MD-80/83 aircraft to TWA's fleet.
12
<PAGE> 13
* Operating lease rentals of $88.6 million for the second quarter of 1997
were $14.1 million (18.9%) more than the rentals of $74.5 million for the
second quarter of 1996. The increase was primarily due to an increase in
the average number of leased aircraft from 121 in the second quarter of
1996 to 136 in the comparable period of 1997, and higher lease rates
attributable primarily to the addition of new B-757 and MD-80/83 aircraft
to the fleet.
* Passenger food and beverage expense of $19.4 million during the second
quarter of 1997 represented a decrease of $7.9 million (28.9%) from $27.3
million during the second quarter of 1996. The decrease was primarily due
to the 32.4% reduction in the number of passengers boarded for
international flights resulting from the 30.1% reduction in international
scheduled ASMs and savings derived from changes and improved efficiencies
in food and beverage service.
* All other operating expenses of $168.3 million during the second quarter
of 1997 decreased by $13.0 million (7.2%) from $181.4 million for the
three months ended June 30, 1996. The decrease was primarily due to a
decrease in outside services purchased ($7.2 million). Additionally,
international navigational facility user charges ($2.6 million) and
advertising expenses ($2.2 million) decreased year over year for the
second quarter.
Other charges (credits) were a net charge of $16.2 million for the second
quarter of 1997 as compared to $16.0 million for the same period in 1996.
Interest expense decreased $1.4 million in 1997 over 1996 as a result of the
reduction of debt during 1996 and 1997. Interest income decreased by $2.7
million in 1997 primarily as a result of lower levels of invested funds. Net
gains from the disposition of assets were $3.0 million in the second quarter of
1997 as compared to a net gain of $239 thousand in the same period of 1996. The
net gain in the second quarter of 1997 included a gain of $1.1 million related
to the sale of a B-747 JT9D aircraft engine. Other charges and credits-net
decreased from a net credit of $9.1 million for the second quarter of 1996 to a
net credit of $7.4 million for the second quarter of 1997.
A tax provision of $1.7 million was recorded in the second quarter of 1997
compared to a tax provision of $20.8 million recorded in the second quarter of
1996. The Company presently expects that its full year 1997 results will
require a provision for income taxes. Accordingly, the tax provision recorded
in the second quarter, reflects management's current estimate of the annual
effective tax rate.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE
SIX MONTHS ENDED JUNE 30, 1996
Total operating revenues of $1,606.7 million for the six months ended June
30, 1997 were $141.5 million (8.1%) less than the comparable 1996 period,
primarily because of $104.9 million (6.9%) decrease in scheduled passenger
revenue, a $23.6 million (56.9%) decrease in contract revenue and a $10.1
million (13.9%) decrease in cargo revenues.
Capacity and traffic decreased in the six months ended June 30, 1997 from
the comparable period of 1996. System capacity, as measured by scheduled
available seat miles (ASMs), decreased 8.1 % during the first six months of
1997 (representing decreases in domestic and international ASMs of 2.5% and
26.5%, respectively). The decrease in capacity was primarily attributed to the
ongoing replacement of B-747 and L-1011 aircraft with smaller B-767 and B-757
aircraft and the elimination of unprofitable international routes. Passenger
traffic volume, as measured by revenue passenger miles (RPMs) in scheduled
service, during the first six months of 1997 decreased 6.4% compared to the
same period of 1996. Passenger load factor for the six months ended June 30,
1997 was 68.13% compared to 66.88% in the same period of 1996. TWA's yield per
passenger mile decreased from 11.78 cents in 1996 to 11.71 cents in 1997.
Operating expenses of $1,700.3 million in the first six months of 1997
reflected a decrease of $40.1 million (2.3%) from the operating expenses of
$1,740.4 million for the six months ended June 30, 1996, representing a net
change in the following expense groups:
* Employment costs of $617.8 million for the first six months of 1997 were
$12.0 million (2.0%) more than the same period of 1996, primarily due to
overtime costs during the first quarter of 1997 related to the
accelerated maintenance schedules for the Company's narrow-body fleet and
crew retraining in connection with changes in fleet composition.
Additionally, the average number of full-time equivalent employees
increased from 23,810 during the first six months of 1996 to 24,159
during the comparable 1997 period. The six month averages were more
heavily weighted by the increase in employees during the first three
months of 1997 (1,018 compared to
13
<PAGE> 14
the first three months of 1996) than by the decrease in employees during
the second three months of 1997 (319 compared to the second three months
of 1996).
* Earned stock compensation charges of $3.1 million for the first six
months of 1997 and $5.0 million for the first six months of 1996
represent primarily the non-cash compensation charges recorded to reflect
the expense associated with the distribution of shares of stock on behalf
of employees as part of the '95 Reorganization. A substantial portion of
the decrease is attributable to the decline in trading price of the
Common Stock during the first six months of 1997 as compared to the first
six months of 1996. Additional non-cash charges of approximately $6.4
million will be recorded in July 1997 due to the distribution of
additional shares of common stock and Employee Preferred Stock pursuant
to an employee stock incentive plan (ESIP or Plan).
* Aircraft fuel and oil expense of $247.3 million for the first six months
of 1997 decreased $23.2 million (8.6%) from expenses of $270.5 million
for the six months ended June 30, 1996. Expenses decreased due to a 11.1%
reduction in consumption (359,542 million gallons in 1997 versus 404,416
million gallons in 1996), which was partially offset by a 2.8% increase
in the average cost of fuel per gallon (from 66.88 cents in the first six
months of 1996 compared to 68.77 cents in 1997).
* Passenger sales commission expense of $123.0 million for the first six
months of 1997 was $14.6 million (10.6%) less than the comparable period
in 1996 primarily due to a 6.9% decrease in passenger revenues and
reduced sales development commissions.
* Aircraft maintenance materials and repairs expense of $82.1 million for
the first six months of 1997 represented a decrease of $22.8 million
(21.7%) from $104.9 million for the same period of 1996. The decrease was
primarily the result of the introduction of new B-757 and MD-80/83
aircraft into the fleet as replacements for B-747, L-1011 and B-727
aircraft, a reduction in contract maintenance work and a 5.8% decrease in
flying hours.
* Depreciation and amortization expense decreased $3.3 million in the first
six months of 1997 compared to the same period of 1996. Special charges
recorded in the fourth quarter of 1996, related to international route
authorities and aircraft to be disposed of, reduced depreciation and
amortization in the first six months by approximately $6.4 million but
was offset, in part, by the depreciation expense on the new aircraft that
the Company has acquired.
* Operating lease rentals of $174.4 million for the first six months of
1997 were $29.6 million (20.4%) more than the rentals of $144.8 million
for the first six months of 1996. The increase was primarily due to an
increase in the average number of leased aircraft from 120 in 1996 to 134
in 1997 and higher lease rates attributable primarily to the addition of
new B-757 and MD-80/83 aircraft to the fleet.
* Passenger food and beverage expense of $39.9 million during the first six
months of 1997 represented a decrease of $12.9 million (24.6%) from $52.8
million for the first six months of 1996. The decrease was primarily due
to a 27.2% reduction in the number of passengers boarded for
international flights resulting from a 26.5% reduction in international
scheduled ASMs and savings derived from changes and improved efficiencies
in food and beverage service.
* All other operating expenses of $337.2 million during the first six
months of 1997 decreased by $2.9 million (0.9%) from $340.1 million for
the six months ended June 30, 1996. Due to a 3.8% reduction in departures
in the first six months of 1997 compared to the same period of 1996,
landing fees decreased $2.6 million.
Other charges (credits) were a net charge of $21.9 million for the first
six months of 1997 as compared to $36.1 million for the same period in 1996.
Interest expense decreased $6.5 million in 1997 from 1996 as a result of the
reduction of debt in 1996 and 1997. Interest income decreased $5.8 million in
1997 primarily as a result of lower levels of invested funds. Net gains from
the disposition of assets were $12.4 million in the first six months of 1997 as
compared to net gains of $25 thousand in the same period of 1996. The net gains
in 1997 included gains of $7.3 million related to the sale of three gates at
Newark International Airport, $2.1 million related to the sale of spare flight
equipment, and $1.1 million related to the sale of a B-747 JT9D engine. Other
charges and credits-net for the first half of 1997 were a net credit of $17.8
million compared to a net credit of $16.7 million in the first half of 1996,
primarily due to a $3.5 million improvement in the Company's share in earnings
of Worldspan.
14
<PAGE> 15
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 balance at June 30,
1997 was $102.6 million (including amounts held in its international operations
and by its subsidiaries which, based upon various foreign monetary regulations
and other factors, might not be immediately available to the Company), a $79.0
million decrease from the December 31, 1996 balance of $181.6 million. This
reduction in the Company's cash balances resulted from, among other factors,
continued adverse effects during the first half of 1997 of the negative impact
on consumer demand of the loss of Flight 800 in July 1996 and difficulties
experienced in the last two quarters of 1996 in operating performance. Although
the Company's operational performance has substantially improved during 1997,
the residual effects of these 1996 events continued throughout the first two
quarters of 1997 and may continue in subsequent quarters. However, the Company
has taken various initiatives, discussed above, designed to improve the
Company's financial performance.
In February 1997, in order to improve its liquidity, the Company entered
into an agreement with and received approximately $26 million from certain St.
Louis business enterprises, representing the advance payment for tickets for
future travel by such enterprises. In March 1997, the Company raised
approximately $47.2 million in net proceeds from the issuance of the Notes and
Warrants (see Note 5 to the consolidated financial statements). The Company is
also pursuing other projects intended to increase cost efficiencies and enhance
revenues, thereby increasing its cash balances. In addition, the Company
continues to pursue projects intended to increase its liquidity including
the refinancing of both the Icahn Loans and the 12% Senior Secured Reset Notes
to realize the asset value of existing security over the current outstanding
debt balances.
The net decrease in cash and cash equivalents during the first six months
of 1997 was due, in part, to the fact that cash used in operating activities in
1997 was $71.6 million as compared to 1996 when $16.6 million was provided by
operating activities. Pursuant to the eight-year Karabu Ticket Program
Agreement between the Company and Karabu (the "Ticket Agreement"), net
discounted sales from tickets sold under the agreement are excluded from cash
provided by operating activities as the related amounts were applied as a $53.7
million reduction to the outstanding balance of financing provided to TWA by
Karabu (the "Icahn Loans"). Cash provided by investing activities was $1.8
million in 1997 versus cash used of $59.3 million in 1996. A large part of this
change was related to a reduction in new aircraft predelivery deposits ($7.2
million in 1997 versus $32.2 million in 1996) and an increase of $16.2 million
in proceeds from asset sales. Gross proceeds from assets sold during the first
six months of 1997 included $10.0 million for three gates at Newark
International Airport and $7.2 million for spare flight equipment, aircraft and
engines. Financing activities used $9.2 million of cash in 1997, while such
activities provided cash of $42.7 million in 1996, primarily related to net
proceeds of $186.2 million from the sale of 3,869,000 shares of 8% Preferred
Stock in March 1996. Proceeds from the issuance of the Notes and Warrants, as
described in Note 5 to the consolidated financial statements, was $47.2 million
in 1997. Repayments of long-term debt and capital leases required $8.6 million
more cash in 1997 than in 1996.
As previously described, management has indicated that it is focusing on
the improvement of TWA's schedule reliability and on-time performance and that
it plans to accelerate the replacement of it's L-1011 and B-747 fleets with
B-757, B-767 and MD-80/83 aircraft. Such operational changes have resulted in
improvements of the Company's operating performance. During the second quarter
of 1997, TWA significantly improved its on time performance ranking as measured
by the Department of Transportation statistics. However, the Company's unit
revenues, yields and cash position have been adversely affected by the negative
impact on consumer demand created by the previous deterioration in operating
performance, particularly in the higher-yield business traveler segment of the
market. The Company believes that a substantial improvement in its operating
results is necessary for TWA to maintain adequate liquidity to meet its
obligations throughout the remainder of 1997. In addition, the Company has
commenced programs such as improvements to the Company's frequent flier program
and expansion of the first class cabin to afford more opportunities for service
class upgrades which are designed to regain business travelers and improve
yield. The achievement of these improved operating results are subject to
significant uncertainties, including the Company's ability to achieve higher
revenue yields and load factors, the cost of aircraft fuel, the Company's
ability to
15
<PAGE> 16
finance or lease suitable replacement aircraft at reasonable rates and the
containment of operating costs. 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 sufficient
results for the Company to be successful in generating the operating revenues
and cash required for profitable operations or future viability.
As part of the Company's effort to continue to improve operating results,
on July 22, 1997, the Company announced the planned reduction of approximately
1,000 jobs during the remainder of 1997 in the areas of maintenance, airport
operations and reservations. The decreased headcount in maintenance reflects
reduced maintenance needs for the newer aircraft added to the Company's fleet
during 1996 and 1997. The reductions are being made through a combination of
layoffs and attrition.
In March 1997, the Company offered 50,000 Units, with each Unit consisting
of (i) one 12% Senior Secured Note due 2002, in the principal amount of $1,000,
and (ii) one Redeemable Warrant to purchase 126.26 shares of Common Stock at an
exercise price of approximately $7.92 per share. The Notes are secured by a
lien on certain assets of the Company, including 1) the Company's beneficial
interest in its FAA designated take-off and landing slots at three
high-density, capacity-controlled airports, 2) currently owned and hereafter
acquired defined ground equipment of the Company used at certain domestic
airports and 3) all of the issued and outstanding stock of (a) a wholly-owned
subsidiary of TWA holding the leasehold interest in a hangar at Los Angeles
International Airport and (b) three wholly-owned subsidiaries of TWA holding
leasehold interest in gates and related support space at certain domestic
airports served by the Company. The Company realized approximately $47.2
million (net of discounts and commissions and estimated expenses) in proceeds
from the Offering. The Company used approximately $0.5 million of the proceeds
from the Offering to release certain of the collateral to be used to secure the
Notes from a prior existing lien and the remainder of the proceeds for general
corporate purposes.
In March 1996 the Company completed the sale of 3,869,000 shares of its 8%
Preferred Stock for gross proceeds of approximately $193.5 million and net
proceeds to the Company of approximately $186.2 million, after commissions and
expenses. A portion of the net proceeds from the sale of the 8% Preferred Stock
were used to redeem the Company's outstanding 12% Preferred Stock, pursuant to
the terms thereof, at an aggregate redemption price of approximately $81.7
million, plus accrued dividends from February 1, 1996 to the redemption date of
April 26, 1996. The Company utilized the balance of the net proceeds for
general corporate purposes, including but not limited to, capital expenditures
and increasing working capital.
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 up to 50%
discount off the cost of a TWA airline ticket for transportation on TWA
("Ticket Vouchers"). Pursuant to certain agreements, the Company repurchased
approximately 236,000 of the Ticket Vouchers at an aggregate cost of $8.8
million. Payments in respect of these Ticket Vouchers were approximately
$700,000 in 1995 and approximately $8.1 million in 1996. Concurrently, the
Company undertook aircraft lease payment deferrals to increase liquidity and
improve the Company's financial condition. Gross deferrals of lease and
conditional sale indebtedness payments aggregated approximately $91.0 million
with a weighted average repayment period of approximately two years. The
aircraft lease payment deferrals contemplated by the '95 Reorganization
generally anticipated six month deferrals with various payback periods,
extending in some instances over the remaining life of the lease, and in other
cases over a specified period. Cash repayments of lease deferrals, including
interest, were approximately $9.5 million in the fourth quarter of 1995, $23.8
million in 1996 and are expected to approximate $8.7 million in 1997.
On June 14, 1995, the Company signed an agreement with Karabu pursuant to
which the term of 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 promissory notes (the "PBGC
Notes") issued to a settlement trust on behalf of the Pension Benefit and
Guaranty Corporation (the "PBGC") in connection with the Company's 1993
Chapter 11 Reorganization (the "'93 Reorganization") 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 June 30, 1997, the outstanding balance of the Icahn Loans was approximately
$71.4 million (excluding approximately $3.6 million in accrued and unpaid
interest). The notes
16
<PAGE> 17
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 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.
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 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. 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. 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. 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 the security documents related to such loans as well as with
respect to alleged violations of the Ticket Agreement by the Company. A
violation of the Ticket Agreement by the Company could 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, as required by the terms of the Icahn Loans, certain
aircraft which TWA has retired from service and stored 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 of the aircraft in question with a security trustee and requested the
release of the liens on such aircraft. To date, the Trustee has not released
such liens. 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. Those negotiations reached an impasse and the Company re-filed its suit
on March 20, 1996 in the St. Louis County Circuit Court. If Karabu's
interpretation as to sales of discount tickets 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 resulted in an acceleration of
the Icahn Loans could result in a cross-default to the Company's other
indebtedness and leases and otherwise have a material adverse effect on the
Company.
Also on March 20, 1996, Karabu and certain other companies controlled by
Mr. Icahn filed suit against the Company alleging violations by the Company of
the Ticket Agreement and federal anti-trust laws. On March 24, 1997, the
Federal District Court for the Southern District of New York, on the Company's
motion, dismissed the suit in its entirety. On August 11, 1997, the Company was
advised that Karabu and another entity controlled by Mr. Icahn have filed
another suit alleging violation of the Ticket Agreement, this time against six
senior officers of the Company in New York state court. This suit is
substantially similar to the previous action.
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 limit except for New York where there is a 10% 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 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
17
<PAGE> 18
as prepayments on the PBGC Notes. At June 30, 1997, approximately $118.6
million of such proceeds had been applied to the principal balance of the Icahn
Loans and $6.4 million had been applied to the PBGC Notes.
The Company elected to pay all the interest due August 1, 1995 and February
1, 1996, and half the interest due February 1, 1997, on its 12% Senior Secured
Reset Notes, in shares of Common Stock. The amount of such interest aggregated
approximately $10.4 million, $10.2 million and $3.7 million, respectively, and
resulted in the issuance of approximately 1.9 million, 1.1 million and 0.6
million shares of Common Stock on the respective dates. 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, in shares of Common Stock.
Capital Resources
During the six months ended June 30, 1997 the Company continued 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 $27.3 million
in 12% Senior Secured Reset Notes and approximately $742,900 in accrued interest
thereon in exchange for the issuance of approximately 3.9 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 $97 million.
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 strategic and non-strategic assets, including its owned aircraft,
ground equipment, gates, 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. The Company has, however, significantly reduced the
principal balance outstanding on the Icahn Loans and the 12% Senior Secured
Reset Notes to the extent and in the manner described herein. The Company is
currently looking to improve liquidity by refinancing both the Icahn Loans and
the 12% Senior Secured Reset Notes to realize the asset value of the existing
security over the current outstanding debt balances. To the extent that the
Company's access to capital is constrained, the Company may not be able to make
certain capital expenditures or implement certain other aspects of its
strategic plan, and the Company may therefore be unable to achieve the full
benefits expected therefrom.
Commitments
In February 1996, TWA executed definitive agreements providing for the
operating lease of 10 new B-757 aircraft to be delivered in 1996 and 1997.
These aircraft have an initial lease term of 10 years. The Company also entered
into an agreement in February 1996 with Boeing for the purchase of ten B-757
aircraft and related engines, spare parts and equipment for an aggregate
purchase price of approximately $500 million. The agreement requires the
delivery of the aircraft in 1997, 1998 and 1999, and provides options for the
purchase of up to ten additional aircraft. During June of 1997, TWA entered
into a leasing arrangement for the third aircraft to be delivered under the
purchase agreement. As of August 1, 1997 TWA has taken delivery of two
manufacturer financed aircraft and eleven leased aircraft. Although individual
aircraft rentals escalate over the term of the leases, aggregate rental
obligations are estimated to average approximately $59 million per annum over
the lease terms. Furthermore, to the extent TWA exercises its options for
additional aircraft, the Company will have the right to an equal number of
additional option aircraft. TWA has obtained commitments for debt financing for
approximately 80% of the total costs associated with the acquisition of eight
of the original ten aircraft and obtained commitments for 100% lease financing
of the total costs of the remaining two original aircraft. Such commitments are
subject to, among other things, so-called material adverse change clauses
which, given the Company's recent financial results, could make the
availability of such debt and lease financing dependent upon the lender's and
lessor's ongoing evaluation of and satisfaction with the financial condition of
TWA.
In July 1997, TWA reached agreement for the acquisition, by lease, of a new
Boeing 767-300 aircraft to be delivered in the first quarter of 1998. The
longer-range 300 series aircraft will be utilized on TWA's international
routes.
TWA has entered into agreements with AVSA, S.A.R.L. and Rolls-Royce plc
relating to the purchase of ten A330-300 twin-engine wide body aircraft and
related engines, spare parts and equipment for an aggregate purchase
18
<PAGE> 19
price of approximately $1.1 billion. The agreements, as amended, require the
delivery of the aircraft in 2001 and 2002 and provide options for the purchase
of up to ten additional aircraft. TWA has not yet made arrangements for the
permanent financing of the purchases subject to the agreements. In the event of
cancellation, predelivery payments of approximately $18 million would be
subject to forfeiture.
The Company has entered into an agreement to acquire fifteen new MD-83s
from the manufacturer. The long-term leasing arrangement provides for delivery
of the aircraft between the second quarter of 1997 and the first quarter of
1999. As of August 1, 1997 two aircraft have been delivered.
TWA has elected to comply with the transition requirements of the Airport
Noise and Capacity Act of 1990 by adopting the Stage 2 aircraft
phase-out/retrofit option, which requires that 50% of its base level (December
1990) Stage 2 fleet be phased-out/retrofitted by December 31, 1996, 75% by
December 31, 1998 and 100% by December 31, 1999. To comply with the 1996
requirement, the Company retrofitted, by means of engine hush-kits, 32 of its
DC-9 aircraft. As of June 30, 1997, hush kits have been installed on 67 DC-9
engines at an aggregate cost of approximately $55 million, most of which was
financed by lessors with repayments being facilitated through increased rental
rates.
Certain Other Capital Requirements
Expenditures for facilities and equipment, other than aircraft, generally
are not committed prior to purchase and, therefore, no such significant
commitments exist at the present time. TWA's ability to finance such
expenditures will depend in part on TWA's financial condition at the time of
the commitment.
Availability of NOLs
The Company estimates that it had, for federal income tax purposes, net
operating loss carryforwards ("NOLs") amounting to approximately $625 million
at December 31, 1996, which includes increases in the NOLs as originally filed.
Such NOLs expire in 2008 through 2011 if not utilized before then to offset
taxable income. Section 382 of the Internal Revenue Code of 1986, as amended
(the "Code"), 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. In connection with the change
of ownership caused by the '95 Reorganization, the Company elected to reduce
its NOLs in accordance with Section 382 of the Code and regulations issued
thereunder. If another ownership change were to occur prior to September 1997,
the annual limitation on the Company's utilization of its then existing NOLs
would be reduced to zero. Changes in ownership in periods thereafter could
substantially restrict the Company's ability to utilize its tax net operating
loss carryforwards. There can be no assurance that an ownership change will not
occur in the future. In addition, the NOLs are subject to examination by the
IRS, and thus, are subject to adjustment or disallowance resulting from any
such IRS examination. For financial reporting purposes, the tax benefits from
tax net operating loss carryforwards arising prior to the Company's emergence
from its '95 Reorganization on August 23, 1995 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.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On August 11, 1997 the Company was advised that Karabu and Global Discount
Travel Services, LLC ("Global") another entity controlled by Mr. Icahn had
filed suit on August 8, 1997 in New York state court, county of New York,
against six senior officers of the Company. The suit alleges interference with
Global's rights under the Ticket Agreement by terminating or threatening to
terminate travel agencies' appointments to sell TWA tickets if such travel
agencies do business with Global. This suit is substantially similar to one
filed in March 1996 by Karabu and dismissed by the federal court in New York in
March 1997. The defendants have not yet filed an answer.
ITEM 2. CHANGES IN SECURITIES.
SALES OF UNREGISTERED SECURITIES
Pursuant to certain Exchange Agreements with Elliott Associates L. P. and
Westgate International L. P. reported on a Form 8-K filed on September 20,
1996, the Company exchanged 2,291,015 shares of Common Stock for $17.50 million
principal amount of its 12% Senior Secured Reset Notes (the "Reset Notes")
plus approximately $0.7 million in accrued interest thereon in a series of
transactions in the second quarter of 1997. An additional 3,588,361 shares of
Common Stock have been exchanged for an additional $23.05 million principal
amount of Reset Notes in the third quarter of 1997. The Common Stock was issued
pursuant to the exemption granted by Section 3(a)(9) of the Securities Act of
1933. The Reset Notes were registered and issued pursuant to the Company's
registration statement on Form S-4 filed with the Commission on May 12, 1995.
ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of TWA was held on May 29, 1997. The
following matters were considered and acted upon at the Annual Meeting:
1. The election of five Class I Directors of the Company for terms ending
with the 1998 Annual Meeting of Stockholders and until their successors are
elected and qualified.
The following individuals were elected Directors, with the number of votes
cast for and against each individual shown opposite their names:
<TABLE>
<CAPTION>
NAME FOR WITHHELD
---- --- --------
<S> <C> <C>
John W. Bachmann.................. 35,764,001 516,279
William F. Compton................ 35,729,017 541,263
Eugene P. Conese.................. 35,736,795 533,485
Merrill A. McPeak................. 35,425,435 844,845
Blanche M. Touhill................ 35,417,654 852,626
</TABLE>
The following individuals' terms of office as a Director of the Company
continued after the Annual Meeting: Gerald L. Gitner, William M. Hoffman,
Thomas H. Jacobsen, Myron Kaplan, David M. Kennedy, Thomas F. Meagher, William
O'Driscoll, G. Joseph Reddington, Stephen M. Tumblin and William W.
Winpisinger.
2. The ratification of the appointment of KPMG Peat Marwick LLP as
independent accountants for the fiscal year ending December 31, 1997. The votes
cast with regard to this proposal were as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
41,999,130 296,009 208,474
</TABLE>
ITEM 5. OTHER INFORMATION
In July 1997, the Company announced that Charles J. Thibaudeau, Senior Vice
President, Employee Relations, would retire on October 1, 1997 after more than
32 years with the Company.
20
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
(A) EXHIBITS
<F*>2.1 --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*>2.2 --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*>2.3 --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*>2.4 --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 Airlines Inc. 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 Airlines Inc. 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 --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*>4.6 --Registration Rights Agreement, dated November 3, 1993, between TWA and the Initial
Significant Holders (Exhibit 4.9 to 9/93 10-Q)
<F*>4.7 --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*>4.8 --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)
<F*>4.9 --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*>4.10 --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*>4.11 --TWA Air Line Pilots Supplemental Stock Plan, effective September 1, 1994
(Exhibit 4.13 to 9/95 10-Q)
<F*>4.12 --TWA Air Line Pilots Supplemental Stock Plan Trust, effective August 23, 1995
(Exhibit 4.14 to 9/95 10-Q)
<F*>4.13 --TWA Air Line Pilots Supplemental Stock Plan Custodial Agreement, effective August 23,
1995 (Exhibit 4.15 to 9/95 10-Q)
21
<PAGE> 22
<S> <C>
<F*>4.14 --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*>4.15 --Indenture dated as of March 31, 1997 between TWA and First Security Bank, National
Association relating the 12% Senior Secured Notes Due 2002, including form of Note
(Exhibit 4.15 to TWa's Registration Statement on Form S-4, Registration No. 333-26645)
<F*>4.16 --Registration Rights Agreement dated as of March 31, 1997 between the Company and the
Initial Purchaser relating to the 12% Senior Secured Notes Due 2002 and the Warrants to
purchase 126.26 shares of TWA Common Stock (Exhibit 4.17 to TWA's Registration Statement
on Form S-4, Registration No. 333-26645)
<F*>4.17 --Warrant Agreement dated as of March 31, 1997 between the Company and American Stock
Transfer and Trust Company relating to the warrants to purchase 126.26 shares of TWA
Common Stock (Exhibit 4.18 to TWA's Registration Statement on Form S-4, Registration No.
333-26645)
10.1 --Consulting Agreement between TWA and David M. Kennedy dated as of June 6, 1997
10.2 --Separation Agreement between TWA and Charles J. Thibaudeau dated July 25, 1997
11 --Statement re computation of per share earnings
27 --Financial Data Schedule (submitted only in electronic format)
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the second quarter of 1997.
<FN>
- --------
<F*> Incorporated by reference
</TABLE>
22
<PAGE> 23
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: August 14, 1997 By: /s/ MICHAEL J. PALUMBO
--------------------------
Michael J. Palumbo
Senior Vice President and
Chief Financial Officer
23
<PAGE> 1
Exhibit 10.1
CONSULTING AGREEMENT
This Consulting Agreement (hereinafter "Agreement") is made and entered into
as of the 6th day of June, 1997, between David Kennedy. (hereinafter
"Consultant"), and Trans World Airlines, Inc., a Delaware corporation
(hereinafter "Company").
In consideration of the mutual covenants herein contained and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Consultant shall be retained by the Company as an independent
contractor and consultant to the Company. Consultant is presently a
member of the Company's Board of Directors. Consultant shall devote
his best efforts to performing consulting services for and on behalf
of the Company pursuant to this Agreement and will devote such time
as may be reasonably requested by the Company to performing
consulting services hereunder. This Agreement is on an ongoing as
needed basis, and will terminate one (1) month after notice in
writing of the termination of this Agreement by the Company to the
Consultant or from the Consultant to the Company.
2. For the purposes of this Agreement, Consultant is and will act at all
times as an independent contractor. Nothing contained in this
Agreement establishes or constitutes or will be construed as
establishing or constituting an employment agreement between the
Company and Consultant or the relationship of employer and employee.
Further, the parties acknowledge that this Agreement does not
establish or constitute a partnership or joint venture between the
Company and Consultant. Notwithstanding any other provision of this
Agreement, neither party to this Agreement has or may interfere with
or assume the right to direct or control the time, manner, and
method of executing the work of the other party; provided, however,
that this contract provision in no way waives the right of either
party to require definite results from the other party in conformity
with the terms of this Agreement. The acceptance by either party of
the work of the other party under this Agreement shall in no way be
considered as a ratification by the accepting party of any act of
wrongdoing by the other party.
3. Consultant expressly represents and warrants to the Company that he is
not and shall not be construed to be an employee of the Company and
that his status shall be that of an independent contractor.
Consultant is not authorized to enter into contracts or agreements on
behalf of the Company which create obligations of the Company to
third parties except with prior approval or authorization of (i) the
Board of Directors, or (ii) such Company officers and/or employees
who have authority to enter into such contracts or agreements.
4. Consultant shall perform duties and provide services, rendering such
advice and/or consultation as the Company may reasonably request.
5. Consultant shall be paid at the rate of $25,000.00 per quarter, such
fee to be paid quarterly in arrears, as a fee for consulting services
to the Company. Nothing herein contained shall invalidate or change
any compensation arrangement, options or other contractual
commitments between the Company and the Consultant in Consultant's
status as a member of the Board of Directors provided, however that
Consultant shall not receive such compensation as a member of the
Board of Directors that would otherwise be payable to him for work
which he is performing in his capacity as a consultant for services
or participation in meetings where
<PAGE> 2
Consultant is being compensated for services pursuant to this Agreement.
Consultant will be indemnified by the Company for work which he performs
pursuant to the terms of this Agreement.
6. Consultant will be provided office space and administrative support
while working in the Company's St. Louis, Missouri executive offices.
Reasonable rental for said office space and administrative support is
included in Consultant's per diem rate. Reasonable out-of-pocket
expenses for any business travel and business expenses incurred by
Consultant in the performance of above stated duties shall be
reimbursed by the Company upon submission of appropriate expense
statements.
7. During the term of this Agreement, and for a period of twenty-four
months thereafter and except as may otherwise be required under
applicable provisions of, or rules or regulations under applicable
federal, state or local laws or in connection with interrogatories,
requests for information or documents, subpoena, civil investigative
demand for any formal or informal investigation by any government or
governmental agency or authority, Consultant shall not disclose any
confidential or proprietary information relating to the business
presently being conducted, or presently proposed to be conducted, by
the Company or its subsidiaries or affiliates, to any person, firm,
corporation, association or other entity, nor shall Consultant make
use of any such confidential or proprietary information for his own
purpose or for the benefit of any other entity except the Company or
its subsidiaries or affiliates. For the purpose of this paragraph,
the term "confidential or proprietary information" shall mean all
confidential or proprietary information which is known regardless of
form, to Consultant and relates to matters of the business conducted
or proposed to be conducted by the Company or its subsidiaries or
affiliates, and relates, without limitation, to matters such as work
product, trade secrets, customers, pricing and credit techniques,
books and records, suppliers, private processes, inventions,
techniques, marketing plans, strategies, forecasts, product
cost/information, and financial data as may exist from time to time
but shall not include any information which at the time of its
disclosure is in the public domain or which is required by law to be
disclosed.
8. Federal, state and local income tax and payroll taxes of any kind shall
not be withheld or paid by the Company on behalf of Consultant.
9. The Company acknowledges that subject to the requirements of his
engagement hereunder, Consultant may continue to engage in such
activities in which he is presently engaged or in which he may choose
to engage during the term of this Consulting provided however that
Consultant shall engage in no such activity which is materially
adverse to the Company's interests and/or which interferes with
Consultant's ability to render services to the Company as provided
hereunder.
10. For a period of twenty-four months from and after the termination of
this Agreement, Consultant shall not make any derogatory or negative
statements (oral and written), or cause detriment or damage
concerning the Company or its subsidiaries or affiliates or its
management, business or prospects; provided, however, that
Consultant's truthful compelled testimony in a judicial proceeding
shall not be deemed to be a breach of this Agreement.
11. This Agreement sets forth the entire agreement between the parties.
All prior agreements or understandings between the parties hereof
pertaining to the subject matter hereof are superseded. This
Agreement shall not be transferred or assigned, in whole or in part,
by Consultant.
2
<PAGE> 3
12. Should any provision of this Agreement be determined by any Court to be
illegal or invalid, the validity of the remaining provisions shall
not be affected thereby and said invalid part or provision shall be
deemed not part of this Agreement.
13. In the event of any controversy, dispute or claim of whatever nature
between the parties hereto arising out of, in connection with, or in
relation to the interpretation, performance or breach of this
Agreement, including without limitation, any claim based on contract,
tort or statute, such controversy, dispute or claim of whatever
nature shall be submitted to and resolved by binding arbitration
before a single arbitrator in New York, New York appointed and acting
in accordance with the Rules of the American Arbitration Association
then in force and effect, except to the extent such Rules are
modified by the express terms hereof. The decision of the arbitrator
submitted to arbitration pursuant to this provision shall be final
and binding upon the parties and judgment upon any such award
rendered by the arbitrator may be entered by any state or federal
court in New York. No suit at law or in equity based upon any
controversy, dispute or claim arbitrable hereunder shall be
instituted by any party except to enforce the award of the
arbitrator. The arbitrator shall be entitled to determine which is
the prevailing party and shall include in the award reasonable
attorneys fees and costs to such prevailing party.
The parties hereto agree to endeavor in good faith to obtain a decision
from any such arbitration as promptly as practicable and shall so
endeavor to conduct any hearing required and obtain any decision of
the arbitrator without delay and, in any event, within three months
of any demand for arbitration if possible, and if not possible, as
promptly as reasonably practicable. The arbitration hearing shall be
conducted within thirty (30) days unless otherwise ordered by the
arbitrator and the award on the hearing shall be made within fifteen
(15) days after the hearing. The parties each irrevocably waive (and
irrevocably agree not to raise) any objection which it may have now
or hereafter to the venue of any such arbitration proceeding or court
referred to in this Section and any claim that such arbitration
proceedings have been brought in any inconvenient forum.
14. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to the principles
of conflict of laws thereof.
In witness hereof and intending to be legally bound hereby, Consultant has
executed the foregoing Agreement.
Executed this 6th day of June, 1997.
TRANS WORLD AIRLINES, INC.
By:
---------------------------------
DAVID KENNEDY
Title: Senior Vice President - Legal
3
<PAGE> 1
Exhibit 10.2
July 25, 1997
Mr. Charles J. Thibaudeau
1205 Turnberry Ridge Ct.
Chesterfield, MO 63005
Dear Mr. Thibaudeau:
This will confirm the Company's agreement concerning your separation
from Trans World Airlines, Inc. ("TWA" or the "Company"). In this
connection, TWA and you have agreed as follows:
1. Your employment will be terminated effective on October 1, 1997, after
which time you will be deemed to have officially retired. During
the period beginning August 1, 1997 to September 30, 1997 you will
be deemed to be on vacation, with pay.
2. On or about the 15th day of October, 1997 and on or about the 15th day
of each month thereafter until September 15, 1998 the Company shall
pay to you, from the active payroll, an amount equal to one twelfth
of your annual base salary as of September 30, 1997 (less any
applicable federal and state income and employment tax withholdings).
3. 28,839 of the non-qualified stock options issued to you under TWA's Key
Employee Stock Incentive Program ("KESIP") will vest on August 21,
1997 and an equal amount of 28,839 such options will be treated as
vested options on October 1, 1997. Notwithstanding anything to the
contrary in the KESIP award agreement between you and the Company,
the entire aggregate amount of 57,677 such vested options will be
exercisable by you until the close of business on the 60th day
following the October 1, 1997 effective date of your termination of
employment; provided that, if at any time during such 60 day period
-------- ----
either the Company requests that you not trade in securities of the
Company during a Restricted Period or you notify the Company that
counsel reasonably acceptable to the Company has advised you that
applicable securities laws prohibit trading in securities of the
Company during a Restricted Period, then the Compensation Committee
shall extend the exercise period of your options until the close of
business on the day, which follows the end of the Restricted Period,
by the number of days remaining in such 60 day period as of the
beginning of the Restricted Period. Any options that are not
exercised by you on or before such time shall immediately thereafter
lapse and terminate.
<PAGE> 2
Mr. Charles J. THibaudeau
July 25, 1997
Page 2
4. You will be entitled to normal Executive Officer retirement
entitlements in accordance with the Company's Management Policy and
Procedure Manual as in effect as of the date of this Agreement. You
will promptly return to the undersigned on behalf of TWA all Company
issued cards, including, but not limited to the Alamo Rental card,
the AT&T card, parking card and any other such card issued to you.
You will, on or before October 1, 1997, return to the undersigned on
behalf of TWA all term passes issued to you by other air carriers.
5. You will be entitled to reimbursement pursuant to the Company's Class A
relocation policy up to and including eligible expenses incurred on
or before July 8, 1997. Such reimbursement will be made on or before
August 15, 1997.
6. You will continue to be entitled, with respect to claims by third
parties against you in your capacity as an officer of TWA or an
officer or director of any of its subsidiaries relating to periods
which you were employed by TWA, to be indemnified under the
provisions of TWA's bylaws and under the terms of that certain
Indemnification Agreement dated as of the 1st day of October, 1996 (a
copy of which is attached) and you are entitled to be covered by such
officers' and directors' liability insurance coverage as shall be
maintained by TWA from time to time.
7. You will on the effective date of execution of this letter agreement
return to the undersigned on behalf of TWA any computers and all
accessories, software and appurtenances thereto, or pagers, which are
the property of or leased by TWA and in your possession, and all
other TWA property, documents or material that may be in your
possession.
8. You agree that for a period of two (2) years after the termination of
your employment with TWA you will not for any reason solicit (or
assist or encourage the solicitation of any employee of TWA or any of
its subsidiaries or affiliated companies to be employed by you or any
entity in which you own or expect to own an equity interest in excess
of five (5) percent of any class of the outstanding securities
thereof, or by which you are employed or for which you serve or
expect to serve in any capacity. For purposes of this paragraph, the
term "solicit" shall mean your contacting or providing information to
others who may be expected to contact, any employee of TWA or of any
of its subsidiaries or affiliated companies regarding their
employment status, job satisfaction, interest in seeking employment
with you, any person affiliated
<PAGE> 3
Mr. Charles J. THibaudeau
July 25, 1997
Page 3
with you or by whom you are employed or any other person or concerning any
related matter, but shall not include general print advertising for
personnel or responding to an unsolicited request for a personal
recommendation for or evaluation of an employee of TWA or any of its
subsidiaries or affiliated companies.
9. You agree to make yourself reasonably available (taking into
consideration your then current employment circumstances) and to
cooperate with TWA as may be reasonably necessary in connection with
any litigation or other proceedings which have arisen or may arise,
directly or indirectly, out of or in connection with the performance
of your duties while you were employed by TWA. TWA will compensate
you for said services pursuant to its standard compensation of an
hourly rate based upon your last salary while still employed by TWA
or, if greater your then current salary. You agree not to serve as
an expert witness or otherwise testify against TWA in any litigation
against TWA brought by any third parties unless you are under a court
order or subpoena to do so. You will promptly notify TWA if you are
so subpoenaed or ordered by any court to so testify in any litigation
against TWA.
10. You agree to abide by the Termination Obligations set forth in
Paragraph 7 of the Agreement between you and the Company dated as of
October 1, 1996 ("Employment Agreement"), including, but not limited
to an agreement:
a) That you will not disclose or make public to anyone, or release
to the media any nonpublic TWA commercial, operational or
financial information, including costs, strategies, forecasts
or trade secrets for a period of twelve (12) months after your
signing this Agreement, unless you are under a court order or
subpoena to do so.
b) That you will not discuss or disclose to the media the
circumstances or terms of your termination of employment from
TWA for a period of two (2) years after your signing this
Agreement and you will not publicly disparage or denigrate the
Company or any of its officers, directors or practices.
Notwithstanding the provisions of Paragraph 7(c) of the
Employment Agreement, you have been allowed to discuss with
certain Company personnel the circumstances of the termination
of your employment.
c) With the exception of claims arising out of any breach of this
Agreement, you irrevocably and unconditionally release, remise,
acquit and forever discharge TWA, its
<PAGE> 4
Mr. Charles J. THibaudeau
July 25, 1997
Page 4
past and present shareholders, subsidiaries, divisions, controlling
parties, officers, directors, agents, employees, successors and
assigns (separately and collectively "TWA Releases") jointly and
individually, of and from any and all claims, demands, causes
of action, obligations, damages or liabilities in law or in
equity, arising from all bases, however denominated, known or
unknown, directly or indirectly arising out of or relating to
your employment by TWA and the termination thereof, including
but not limited to any and claims of employment discrimination
under any federal, state or local law, rule or regulation.
This release extends to any relief, no matter how denominated,
including but not limited to back pay, front pay,
reinstatement, compensatory damages, punitive damages or
damages from pain and suffering. You further agree that you
will not file nor permit to be filed on your behalf any such
claim, will not permit yourself to be a member of any class
seeking relief against TWA Releases, and will not counsel or
assist in the prosecution of any claims against the TWA
Releasees, whether those claims are on behalf of yourself or
others, unless you are under a subpoena court order compelling
you to do so.
d) This Agreement is intended to be a total accord, settlement and
satisfaction of any and all claims which you have or may have
had against the TWA Releasees, including but not limited to any
and all contract, tort, and statutory claims, including but not
limited to claims arising under Title VII of the Civil Rights
Act of 1964, the Age Discrimination in Employment Act, 29
U.S.C. Sec. 621 et. seq., the Civil Rights Act of 1991, or
-- ---
under any other state or federal statute or law.
e) You further acknowledge that the only consideration for signing
this Agreement and all that you are ever to receive from the
TWA Releasees are the terms stated in this Agreement and that,
except as set forth herein, no other promises or agreements of
any kind have been made to you or with you by any person or
entity whatsoever to cause you to sign this Agreement, and that
you have signed this Agreement as your free and voluntary act.
You further acknowledge that pursuant to the terms of this
Agreement you are and will be receiving benefits from TWA which
are above and beyond those benefits normally provided under
TWA's corporate policies and procedures governing termination
of employment; that you have had a full, fair and adequate
opportunity to reflect
<PAGE> 5
Mr. Charles J. Thibaudeau
July 25, 1997
Page 5
upon and consider the terms of this Agreement, to negotiate with TWA
and its representatives concerning the same, and to discuss the same
if desired with legal counsel of your choice; that no duress or
pressure of any kind has been applied to you with respect to your
entering into this Agreement; and that you are satisfied with the
terms and provisions of this Agreement.
f) The execution of this Agreement, including the general release
set forth above, is knowing and voluntary and that you
understand this Agreement and the general release set forth in
(d) above. You acknowledge that you have been advised by TWA
in writing to consult with an attorney prior to executing this
Agreement, you have in fact consulted with an attorney prior to
executing this Agreement, and you have twenty-one (21) days
from tender of this Agreement within which to consider this
Agreement.
g) For a period of seven (7) days following execution of this
Agreement, you may revoke this Agreement and this Agreement
will not become effective or enforceable until after the
revocation period has expired. Said revocation must be
delivered in writing on or before 5:00 PM on the 7th day after
execution of this Agreement to the undersigned.
11. You will retain your Ambassador Club membership for life.
12. You may retain the usage of your office at One City Centre, St. Louis,
Missouri until July 31, 1997.
13. Your mother shall be issued up to two round trip Class A passes during
the period September 1, 1997 through August 31, 1998.
14. This Agreement shall be binding upon and inure to the benefit of TWA
and you, to the successors and assigns of TWA and to your heirs and
personal representatives.
15. This Agreement contains the entire agreement between the parties
regarding its subject matter and supersedes all prior agreements
between the parties. This Agreement may only be modified in writing
signed by the parties.
If this Agreement accurately reflects our understanding, please sign
the enclosed copy of this letter in the space provided and return same to me.
<PAGE> 6
Mr. Charles J. Thibaudeau
July 25, 1997
Page 6
Sincerely,
TRANS WORLD AIRLINES, INC.
By:---------------------------
Richard P. Magurno
Senior Vice President &
General Counsel
Read, Acknowledged and Agreed to
this ---- day of July, 1997.
- --------------------------------
Charles J. Thibaudeau
<PAGE> 1
EXHIBIT 11
<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1997 1996
-------- --------
<S> <C> <C>
ADJUSTMENTS TO NET INCOME (LOSS):
Loss before extraordinary items........................................ $(82,027) $(11,845)
Preferred stock dividend requirements.................................. (7,738) (8,820)
Special dividend requirement relating to redemption of
12% Preferred Stock.................................................. -- (19,991)
-------- --------
Loss before extraordinary items applicable to common stock
for primary calculation.............................................. (89,765) (40,656)
Extraordinary item..................................................... (3,937) --
-------- --------
Net loss applicable to common stock for primary calculation............ (93,702) (40,656)
Fully diluted adjustment--dividend requirements on 8% Preferred Stock
assumed to be converted.............................................. 7,738 4,268
-------- --------
Net loss applicable to common stock for fully diluted calculation...... $(85,964) $(36,388)
======== ========
ADJUSTMENTS TO OUTSTANDING SHARES:
Average number of shares of common stock <F1>.......................... 49,945 42,202
Primary Adjustments
Incremental shares associated with the assumed exercise
of options and warrants <F2>..................................... 736 1,831
-------- --------
Total average number of common and common equivalent shares
used for primary calculation......................................... 50,681 44,033
======== ========
Average number of shares of common stock <F1>.......................... 49,945 42,202
Fully Diluted Adjustments
Incremental shares associated with the assumed exercise
of options and warrants <F2>..................................... 1,626 1,831
Common shares assumed to be issued upon conversion of
8% Preferred Stock............................................... 9,544 5,272
-------- --------
Total average number of common and common equivalent shares
for fully diluted calculation........................................ 61,115 49,305
======== ========
PER SHARE AMOUNTS:
Loss before extraordinary item and special preferred dividend
Average number of shares of Common Stock........................... $ (1.80) $ (.49)
Primary <F3>....................................................... $ (1.77) $ (.47)
Fully diluted <F3>................................................. $ (1.34) $ (.33)
Net loss
Average number of shares of Common Stock........................... $ (1.88) $ (.96)
Primary <F3>....................................................... $ (1.85) $ (.92)
Fully diluted <F3>................................................. $ (1.41) $ (.74)
<FN>
- --------
<F1> Includes 5,971 shares for the six months ended June 30, 1997, and 5,588
for the six months ended June 30, 1996 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. The Company
distributed 931,604 additional shares in July 1997 under this provision.
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
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF TRANS WORLD AIRLINES,
INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 102,649
<SECURITIES> 0
<RECEIVABLES> 277,623
<ALLOWANCES> 10,752
<INVENTORY> 101,717
<CURRENT-ASSETS> 636,229
<PP&E> 797,363
<DEPRECIATION> 154,286
<TOTAL-ASSETS> 2,700,657
<CURRENT-LIABILITIES> 1,057,659
<BONDS> 819,536
0
95
<COMMON> 462
<OTHER-SE> 187,827
<TOTAL-LIABILITY-AND-EQUITY> 2,700,657
<SALES> 0
<TOTAL-REVENUES> 1,606,748
<CGS> 0
<TOTAL-COSTS> 1,700,302
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (382)
<INTEREST-EXPENSE> 58,114
<INCOME-PRETAX> (115,454)
<INCOME-TAX> (33,427)
<INCOME-CONTINUING> (82,027)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,937)
<CHANGES> 0
<NET-INCOME> (85,964)
<EPS-PRIMARY> (1.88)
<EPS-DILUTED> (1.88)
</TABLE>