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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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 OCTOBER 30, 1998
----------------------- -----------------
Common Stock, par value
$0.01 per share 57,702,962
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
For the Three Months and Nine Months Ended September 30, 1998 and 1997
(Amounts in Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues:
Passenger $771,286 $799,203 $2,237,072 $2,211,253
Freight and mail 22,210 32,106 75,278 94,913
All other 69,662 77,072 199,733 208,963
-------- -------- ---------- ----------
Total 863,158 908,381 2,512,083 2,515,129
-------- -------- ---------- ----------
Operating expenses:
Salaries, wages and benefits 308,559 304,344 911,097 922,160
Earned stock compensation 1,022 1,106 27,544 4,179
Aircraft fuel and oil 85,109 122,234 266,096 369,509
Passenger sales commissions 48,592 65,960 158,865 188,954
Aircraft maintenance materials and repairs 35,750 27,507 105,792 109,636
Depreciation and amortization 37,107 36,623 115,787 112,154
Operating lease rentals 124,010 94,439 338,902 268,849
Passenger food and beverages 22,093 21,552 68,638 61,411
All other 177,222 170,859 518,827 508,074
-------- -------- ---------- ----------
Total 839,464 844,624 2,511,548 2,544,926
-------- -------- ---------- ----------
Operating income (loss) 23,694 63,757 535 (29,797)
-------- -------- ---------- ----------
Other charges (credits):
Interest expense 28,700 27,404 91,162 85,518
Interest and investment income (7,569) (3,465) (19,699) (10,512)
Disposition of assets, gains and losses-net (2,100) (2,828) (20,907) (15,208)
Other charges and credits-net (3,154) (4,536) (28,319) (21,323)
-------- -------- ---------- ----------
Total 15,877 16,575 22,237 38,475
-------- -------- ---------- ----------
Income (loss) before income taxes
and extraordinary items 7,817 47,182 (21,702) (68,272)
Provision for income taxes 8,740 33,906 8,611 479
-------- -------- ---------- ----------
Income (loss) before extraordinary items (923) 13,276 (30,313) (68,751)
Extraordinary items, net of income taxes (4,390) (6,985) (11,026) (10,922)
-------- -------- ---------- ----------
Net income (loss) (5,313) 6,291 (41,339) (79,673)
Preferred stock dividend requirements 5,864 3,869 17,590 11,607
-------- -------- ---------- ----------
Income (loss) applicable to common shares $(11,177) $ 2,422 $ (58,929) $ (91,280)
======== ======== ========== ==========
Basic earnings per share amounts:
Earnings (loss) before extraordinary items $ (.11) $ .17 $ (.80) $ (1.54)
Extraordinary items (.07) (.13) (.18) (.21)
-------- -------- ---------- ----------
Net income (loss) $ (.18) $ .04 $ (.98) $ (1.75)
======== ======== ========== ==========
Diluted earnings per share amounts:
Earnings (loss) before extraordinary items $ (.11) $ .17 $ (.80) $ (1.54)
Extraordinary items (.07) (.13) (.18) (.21)
-------- -------- ---------- ----------
Net income (loss) $ (.18) $ .04 $ (.98) $ (1.75)
======== ======== ========== ==========
See notes to consolidated financial statements
</TABLE>
1
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<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and December 31, 1997
(Amounts in Thousands)
<CAPTION>
ASSETS
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 314,556 $ 237,765
Receivables, less allowance for doubtful accounts,
$10,116 in 1998 and $9,334 in 1997 218,162 176,333
Spare parts, materials and supplies, less allowance for
obsolescence, $20,260 in 1998 and $19,176 in 1997 98,391 96,108
Prepaid expenses and other 102,524 122,751
---------- ----------
Total 733,633 632,957
---------- ----------
Property:
Property owned:
Flight equipment 421,044 569,063
Prepayments on flight equipment 58,233 15,431
Land, buildings and improvements 66,877 62,854
Other property and equipment 68,989 64,131
---------- ----------
Total property owned 615,143 711,479
Less accumulated depreciation 123,185 114,921
---------- ----------
Property owned-net 491,958 596,558
---------- ----------
Property held under capital leases:
Flight equipment 176,094 166,358
Land, buildings and improvements 49,431 49,443
Other property and equipment 9,262 7,704
---------- ----------
Total property held under capital leases 234,787 223,505
Less accumulated amortization 96,537 78,298
---------- ----------
Property held under capital leases-net 138,250 145,207
---------- ----------
Total property-net 630,208 741,765
---------- ----------
Investments and other assets:
Investments in affiliated companies 124,565 117,293
Investments, receivables and other 169,631 162,969
Routes, gates and slots-net 361,666 377,691
Reorganization value in excess of amounts
allocable to identifiable assets-net 709,708 741,173
---------- ----------
Total 1,365,570 1,399,126
---------- ----------
$2,729,411 $2,773,848
========== ==========
<CAPTION>
See notes to consolidated financial statements
2<PAGE>
<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and December 31, 1997
(Amounts in Thousands Except Per Share Amounts)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 74,180 $ 51,392
Current obligations under capital leases 37,123 37,068
Advance ticket sales 245,324 223,197
Accounts payable, principally trade 270,853 250,551
Accounts payable to affiliated companies 7,982 6,261
Accrued expenses:
Employee compensation and vacations earned 140,227 119,572
Contributions to retirement and pension trusts 11,888 13,469
Interest on debt and capital leases 29,703 32,018
Taxes 13,913 14,146
Other accrued expenses 164,002 189,271
---------- ----------
Total accrued expenses 359,733 368,476
---------- ----------
Total 995,195 936,945
---------- ----------
Long-term liabilities and deferred credits:
Long-term debt, less current maturities 634,349 736,540
Obligations under capital leases, less current obligations 170,158 182,922
Postretirement benefits other than pensions 494,801 485,787
Noncurrent pension liabilities 29,324 30,011
Other noncurrent liabilities and deferred credits 136,299 133,359
---------- ----------
Total 1,464,931 1,568,619
---------- ----------
Shareholder's equity:
8% cumulative convertible exchangeable preferred stock,
$50 liquidation preference; 3,869 shares issued and outstanding 39 39
9 1/4% cumulative convertible exchangeable preferred stock,
$50 liquidation preference; 1,725 shares issued and outstanding 17 17
Employee preferred stock, $0.01 liquidation preference;
special voting rights; shares issued and outstanding:
1998-6,408; 1997-6,472 64 65
Common stock, $0.01 par value; shares issued and outstanding:
1998-57,499; 1997-51,393 575 514
Additional paid-in capital 735,717 693,437
Accumulated deficit (467,127) (425,788)
---------- ----------
Total 269,285 268,284
---------- ----------
$2,729,411 $2,773,848
========== ==========
See notes to consolidated financial statements
</TABLE>
3
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<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Nine Months Ended September 30, 1998 and 1997
(Amounts in Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1997
--------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (41,339) $(79,673)
Adjustments to reconcile net loss to net cash used by operating activities:
Employee earned stock compensation 27,544 4,179
Depreciation and amortization 115,787 112,154
Amortization of discount and expense on debt 9,908 10,905
Extraordinary loss on extinguishment of debt 11,026 10,922
Interest paid in common stock - 4,125
Equity in undistributed earnings of affiliates not consolidated (7,348) (10,424)
Revenue from Icahn ticket program (112,722) (90,878)
Net (gains) losses on disposition of assets (20,907) (15,208)
Change in operating assets and liabilities:
Decrease (increase) in:
Receivables (40,488) (12,618)
Inventories (3,738) 8,479
Prepaid expenses and other current assets 15,913 (34,569)
Other assets (6,560) (9,723)
Increase (decrease) in:
Accounts payable and accrued expenses 7,540 58,897
Advance ticket sales 25,838 20,247
Other noncurrent liabilities and deferred credits (18,703) 2,228
--------- --------
Net cash used (38,249) (20,957)
--------- --------
Cash flows from investing activities:
Proceeds from sales of property 31,961 22,186
Capital expenditures, including aircraft pre-delivery deposits (83,458) (58,161)
Return of pre-delivery deposits related to leased aircraft - 10,740
Net decrease in investments, receivables and other 19,040 7,632
--------- --------
Net cash used (32,457) (17,603)
--------- --------
Cash flows from financing activities:
Net proceeds from long-term debt and warrants issued 144,938 47,175
Proceeds from sale and leaseback of certain aircraft and engines 255,176 12,000
Repayments on long-term debt and capital lease obligations (236,515) (92,867)
Refund due to retirement of 1967 bonds - 5,318
Cash dividends paid on preferred stock (17,878) (11,607)
Net proceeds from exercise of warrants and options 1,776 1,520
--------- --------
Net cash provided (used) 147,497 (38,461)
--------- --------
Net increase (decrease) in cash and cash equivalents 76,791 (77,021)
Cash and cash equivalents at beginning of period 237,765 181,586
--------- --------
Cash and cash equivalents at end of period $ 314,556 $104,565
========= ========
See notes to consolidated financial statements
</TABLE>
4
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<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Nine Months Ended September 30, 1998 and 1997
(Amounts in Thousands)
(Unaudited)
<CAPTION>
SUPPLEMENTAL CASH FLOW INFORMATION
Nine Months Ended
September 30,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash paid during the period for:
Interest $ 81,526 $ 74,247
======== ========
Income taxes $ 16 $ 80
======== ========
Information about noncash operating, investing and financing activities:
Promissory notes issued to finance aircraft acquisition $100,822 $112,121
======== ========
Promissory notes issued to finance aircraft predelivery payments $ 15,933 $ 4,654
======== ========
Aircraft held for sale reclassified from property to investments,
receivables and other $ 15,682 $ -
======== ========
Property acquired and obligations recorded under new capital lease
transactions $ 16,616 $ 619
======== ========
Exchange of long-term debt for common stock:
Debt canceled including accrued interest, net of unamortized discount $ 44,900 $ 48,835
======== ========
Common Stock issued, at fair value $ 44,900 $ 56,028
======== ========
Extraordinary loss $ - $ 7,193
======== ========
</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
5
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<PAGE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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 26.315%
owned affiliate, are recorded under the equity method and are included
in the Statements of Consolidated Operations in Other Charges (Credits).
Effective October 2, 1998, TWA's equity interest in Worldspan increased
from 24.999% to 26.315%. The increase was a result of a distribution by
Worldspan to the existing owners of additional interest at no cost to
the Company.
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 (the "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, 1997. The consolidated balance sheet at
December 31, 1997 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 consolidated financial results on an interim basis are not
necessarily indicative of future financial results on either an interim
or annual basis. TWA's air transportation business has historically
experienced seasonal changes with the second and third quarters of the
calendar year producing substantially better operating results than the
first and fourth quarters, although operational adjustments with
the intent of reducing the level of seasonality have been, and
continue to be, implemented. While the Company anticipates that the
deseasonalization of operations affected thereby will reduce quarter to
quarter fluctuations in the future, there can be no assurance that the
reduction of seasonal fluctuations in financial operating results will
be realized. Accordingly, the results for the three months and nine
months ended September 30, 1998 should not be read as indicators of
results for the full year.
2. INCOME TAXES
The income tax provisions/benefits recorded for the three and nine
month periods ended September 30, 1998 reflect quarterly effective tax
rates and management's current expectation of full year 1998 pre-tax
profit (loss). Considering the high level of non-deductible expenses in
relation to expected 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 pretax income levels),
the income tax provisions/benefits recorded for the first three quarters
of 1998 were based upon the allocable portion of certain non-deductible
expenses, primarily amortization of reorganization value in excess of
amounts allocable to identifiable assets, and statutory tax rates.
6
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The tax provision recorded in the third quarter of 1997 reflected
the reversal of previously recorded tax benefits due to management's
expectation at that time of a taxable loss at year-end 1997 and the
uncertainty of realization of the benefits of any such tax loss in
future periods.
3. EXTRAORDINARY ITEMS
In the nine months ended September 30, 1998 and 1997, the Company
recorded extraordinary non-cash charges of $11.0 million and $3.7
million, respectively, related to the early extinguishment of a portion
of the promissory notes issued to the Pension Benefit Guaranty
Corporation (the "PBGC Notes") as a result of Karabu Corp. ("Karabu"), a
company controlled by Carl Icahn, applying approximately $112.1 million
and $38.8 million, respectively, in ticket proceeds as prepayments on
the PBGC Notes. (Additionally, during the nine months ended September 30,
1997, Karabu applied approximately $53.7 million in ticket proceeds as
prepayments on certain financing provided by Karabu (the "Icahn Loans").)
Further prepayments could arise from the election of Karabu to apply future
ticket proceeds to a reduction of the PBGC Notes which the Company anticipates
will be paid off in the fourth quarter of 1998. Such prepayments would result
in extraordinary non-cash charges of $2.9 million related to the early
extinguishment of the remaining PBGC Notes.
In the nine months ended September 30, 1997, the Company continued
a series of privately negotiated exchanges with a significant holder of
its 12% Senior Secured Reset Notes which resulted in the return to the
Company of $51.8 million in 12% Senior Secured Reset Notes and
approximately $1.4 million in accrued interest thereon in exchange for
the issuance of approximately 7.7 million shares of Common Stock. As a
result of the exchange of the 12% Senior Secured Reset Notes, the
Company recorded an extraordinary non-cash charge of $7.2 million in the
first nine 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. During December
1997, the Company prepaid the remaining 12% Senior Secured Reset Notes.
4. INCOME (LOSS) PER SHARE
The losses applicable to common shares for the three months and
the nine months ended September 30, 1998 have been increased by dividend
requirements on the 8% Cumulative Convertible Exchangeable Preferred
Stock (the "8% Preferred Stock") and the 9 1/4% Cumulative Convertible
Exchangeable Preferred Stock (the "9 1/4% Preferred Stock"). In
computing the related basic loss per share, the amounts applicable to
common shares have been divided by the aggregate average number of
outstanding shares of Common Stock (56.6 million and 53.4 million for
the three months and nine months ended September 30, 1998, respectively)
and Employee Preferred Stock (7.4 million and 6.5 million for the three
months and nine months ended September 30, 1998, respectively) which,
with the exception of certain special voting rights, is the functional
equivalent of Common Stock. Diluted earnings per share amounts give
effect to potential issuances of Common Stock under stock options,
warrants and employee compensation programs and the conversion of
preferred stock and convertible debt, when the effect is dilutive. No
effect has been given to stock options, warrants or potential issuances
of additional Common Stock or Employee Preferred Stock in diluted
earnings per share amounts in the three month and nine month periods
ended September 30, 1998 as their impact would have been anti-dilutive.
In computing the income (loss) applicable to common shares for the
three months and nine months ended September 30, 1997, the net income
(loss) was decreased (increased) by dividend requirements on the 8%
Preferred Stock. In computing the related basic 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 (49.3
million and 45.8 million for the three months and nine months ended
September 30, 1997, respectively) and Employee Preferred Stock (6.8
million and 6.2 million for the three months and nine months ended
September 30, 1997, respectively) which, with the exception of certain
special voting rights, is the functional equivalent of
7
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Common Stock. The effects of including the incremental shares
associated with stock options, warrants or potential issuances of
additional Common Stock or Employee Preferred Stock have been excluded
from the computation of diluted earnings per share in the three month
and nine month periods ended September 30, 1997, to the extent their
effect would be anti-dilutive.
5. PROPERTY AND DISPOSITION OF ASSETS
As of September 30, 1998, the Company had reclassified the net
book value of its remaining owned L-1011 and B-747 aircraft fleet to
Investments, Receivables and Other as such assets have been retired from
service and are currently held for sale. The net book value of such
reclassified assets was approximately $15.7 million.
During the nine months ended September 30, 1998 and 1997,
disposition of assets resulted in net gains of $20.9 million and $15.2
million, respectively. The gains recorded in the first nine months of
1998 primarily related to the sale of L-1011 and B-747 aircraft and
engines and other surplus engines which had been retired from the
Company's active service. During the first nine months of 1997, the
gains recorded were in connection with the sale of three gates at Newark
International Airport and the sale of spare flight equipment, aircraft,
engines and other miscellaneous property.
6. RECENT FINANCINGS
On June 16, 1998, the Company consummated a private placement of
$14.5 million aggregate principal amount of 10 1/4% Senior Secured Notes
due 2003 (the "10 1/4% Secured Notes") and $13.0 million principal
amount of 10 1/4% Mandatory Conversion Equity Notes due 1999 (the
"10 1/4% Equity Notes"). The Company did not receive any cash proceeds
from these transactions, but rather delivered the 10 1/4% Secured Notes
and the 10 1/4% Equity Notes in payment for one B-767-231 ETOPS airframe
and two associated engines, which had an aggregate purchase price of
$27.5 million and was previously leased to the Company. On July 13,
1998, the 10 1/4% Equity Notes were converted into 1,225,719 shares of
Common Stock. Upon termination of the operating lease, the Company
received $1.5 million relating to a security deposit previously held by
the lessor.
On April 21, 1998, the Company consummated a private placement of
$43.2 million aggregate principal amount of 11 3/8% Senior Secured Notes
due 2003 (the "11 3/8% Secured Notes") and $31.8 million principal
amount of Mandatory Conversion Equity Notes due 1999 (the "April Equity
Notes"). The Company did not receive any cash proceeds from these
transactions, but rather delivered the 11 3/8% Secured Notes and the
April Equity Notes in payment for three B-767-231 ETOPS airframes and
six associated engines, which had an aggregate purchase price of $75.0
million and were previously leased to the Company. On July 7, 1998, the
April Equity Notes were converted into 3,290,901 shares of Common Stock.
Upon termination of the operating leases for the aircraft, the Company
received approximately $6.0 million relating to security and maintenance
deposits previously held by the lessor.
7. 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, 1997, which, among other matters, described
various contingencies and other legal actions against
8
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TWA, except as discussed in Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations, Part II. Item 1. Legal
Proceedings and the following paragraph.
In May 1998, the U.S. Supreme Court refused to hear an appeal of a
decision reversing a 1991 judgment against TWA in an action brought by
Travellers International A.G. and its parent company, Windsor Inc.
(collectively, "Travellers"). Accordingly, a cash undertaking
previously posted by TWA of $13.7 million was returned to TWA in June
1998 and recorded as a credit included in "Other charges and credits-
net" in the Statements of Consolidated Operations for the nine months
ended September 30, 1998. After deduction of $3.3 million for
reimbursement of certain administrative costs previously incurred by
TWA, $10.4 million received pursuant to this proceeding was applied in
July 1998 to reduce the PBGC Notes pursuant to a pre-existing agreement.
9
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<PAGE>
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 risks,
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. In any event, these forward-
looking statements speak only as of their dates, and the Company
undertakes no obligation to update or revise any of them whether as a
result of new information, future events or otherwise.
The Company continues to focus on implementation of new strategic
initiatives to improve operational reliability and schedule integrity
and overall product quality in order to attract higher-yield passengers
and enhance overall productivity. Implementation of key initiatives in
progress include: (i) acceleration of the Company's fleet renewal plan;
(ii) a restructuring of TWA's operations at JFK; (iii) a focus on
improving productivity; (iv) implementation of a series of revenue-
enhancing marketing initiatives to attract higher yield business
travelers; and (v) implementation of a number of employee-related
initiatives to reinforce the Company's focus on operational performance.
TWA has significantly enhanced its operational reliability and
schedule integrity since the beginning of 1997. That trend continued in
the third quarter of 1998 in several key areas such as load factor
growth, yield and on-time performance. For the first nine months of
1998, TWA's system load factor increased by 3.2 percentage points to
72.7% from 69.5% in the same period of 1997. In the third quarter of
1998, TWA's load factor of 73.7%, while 1.7 percentage points higher
than in the same prior year period, was 2.6 percentage points lower than
the second quarter 1998. TWA's system yield for the first nine months
of 1998 was 11.77 cents versus 11.54 cents for the same period in 1997.
The third quarter 1998 system yield was 11.79 cents or .55 cents higher
than the 11.24 cents for the third quarter 1997. On-time performance as
reported to the Department of Transportation improved after disappointing
results in July when TWA's system performance for the month was 77.5%.
However, during August and September, on-time performance improved
considerably to 83.5% and 87.6%, respectively, restoring TWA to the number
one position in on-time performance for both months. This resulted in a
third quarter 1998 performance of 82.8%, 3.3 percentage points below the
third quarter 1997 performance of 86.1% when TWA achieved the number one
position in on-time performance for the entire quarter.
System capacity was down significantly year over year, due in part
to the retirement of TWA's L-1011 and B-747 aircraft in the third
quarter 1997 and first quarter 1998, respectively. For the nine months
through September 1998, scheduled system capacity was down 5.2% with the
third quarter 1998 capacity down 10.2% from a year ago. This capacity
change reflects the continued planned "leveling" of TWA's seasonal schedules.
Overall, revenues generated as a result of moderate year over year increases
in load factor and yield for the third quarter 1998, while reflecting the
Company's emphasis to improve system yield, were not sufficient to offset the
decline in capacity. The Company recognizes the need to establish a better
balance between yield enhancement and total revenue generation and continues
to implement measures to achieve this goal.
10
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GENERAL
The airline industry operates in an intensely competitive
environment. The industry is also cyclical due to, among other things,
a close relationship of yields and traffic to general U.S. and worldwide
economic conditions. Small fluctuations in Revenue per Available Seat
Mile ("RASM") and Cost per Available Seat Mile ("CASM") can have a
significant impact on the Company's financial results. The Company has
experienced significant operating losses on an annual basis since the early
1990s, except in 1995 when the Company's combined operating profit was $25.1
million. The airline industry has consolidated in recent years as a result of
mergers, alliances and liquidations, and further consolidation may occur in the
future. This consolidation has, among other things, enabled certain of the
Company's major competitors to expand their international operations and
increase their domestic market presence. The emergence and growth of low cost,
low fare carriers in domestic markets represents an intense competitive
challenge for the Company, which has higher operating costs than many of
such low fare carriers and fewer financial resources than many of its
major competitors. In many cases, such low cost carriers have initiated
or triggered price discounting. Additionally, many of the major U.S.
carriers have announced plans for alliances with other major U.S.
carriers. Such alliances could further intensify the competitive
environment.
In connection with the restructuring effected in 1995 by TWA (the
"'95 Reorganization"), the Company entered into new three-year labor
agreements (the "'94 Labor Agreements"), which became amendable after
August 31, 1997. Negotiations on a new collective bargaining agreement
with the International Association of Machinists and Aerospace Workers
("IAM") with regard to the flight attendants commenced in July 1997 and
are currently ongoing. At the request of the IAM, a mediator was
appointed on March 27, 1998 in connection with the negotiations on the
collective bargaining agreements covering flight attendants.
Negotiations regarding the Company's ground employees represented by the
IAM commenced in February 1997 and are currently ongoing. At the
request of the IAM, a mediator was appointed on August 6, 1997 in
connection with the negotiations on the collective bargaining agreement
covering the ground employees. Negotiations on a new collective
bargaining agreement with the Air Line Pilots Association, International
("ALPA") commenced in June 1997 resulting in an agreement which became
effective on September 1, 1998. The new contract provides for pay
increases over the next four years that will result in wages for the
Company's pilots improving to 90 percent of the industry average in
effect prior to August 1998. The contract also provides for significant
work rule improvements for pilots in certain areas while also granting
the Company flexibility and improvements necessary to enhance its
competitive position. In addition, the contract provides for
distribution of either one million shares of the Company's Common Stock
or $11.0 million in cash to ALPA members for distribution in four equal
quarterly payments in arrears commencing in 1999. At the Company's
option, each quarterly payment may be made in the form of shares or in
cash.
While wage rates currently in effect have recently increased as
described herein and will likely increase for other employee groups as
labor agreements are finalized, management believes that it is essential
that the Company's labor costs remain favorable in comparison to its
largest competitors. The Company will seek to continue to improve
employee productivity as an offset to any wage increases and will
continue to explore other ways to control and/or reduce operating
expenses. There can be no assurance that the Company will be successful
in obtaining such productivity improvements or unit costs reductions.
In the opinion of management, the Company's financial resources are not
as great as those of most of its competitors, and therefore, a
substantial increase in its labor costs as a result of any new labor
agreements or any cessation or disruption of operations due to any
strike or work action could be particularly damaging to the Company.
There are certain indeterminable issues relating to agreements
with employees of the Company, the resolution of which could result in
significant non-cash charges to the Company's future operating results.
Shares granted or purchased at a discount under the Employee Stock
Incentive Program (the "ESIP") will generally result in a charge equal
to the fair market value of shares granted plus the discount for shares
purchased at the time when
11
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<PAGE>
such shares are earned. As a result of the first two target prices
being realized on February 17, 1998, and March 4, 1998, respectively,
the Company issued an additional 2,377,084 shares on July 15, 1998, to
satisfy the 1997 and 1998 ESIP grant amounts. In connection with such
issuance, TWA recorded an aggregate non-cash charge in the first quarter
of 1998 in the amount of $26.5 million. An aggregate non-cash charge of
$1.0 million was recorded in the third quarter of 1998 to reflect the
actual number of shares issued on July 15, 1998. If the remaining
ESIP's target prices for the Common Stock are realized, the minimum
aggregate non-cash charge for the years 1999 to 2002 would be
approximately $102.6 million based upon such target prices and the
number of shares of Common Stock and Employee Preferred Stock
outstanding at July 15, 1998. The non-cash charge for any year,
however, could be substantially higher if the then market price of the
Common Stock exceeds certain target prices.
Pursuant to the '92 Labor Agreements, the Company agreed to pay to
employees represented by the IAM a cash bonus for the amount by which
overtime incurred by the IAM from September 1992 through August 1995 was
reduced below specified thresholds. This amount is to be offset by the
amount by which medical savings during the period for the same employees
did not meet certain specified levels of savings. The Company and the
IAM have agreed that the net overtime bonus owed to the IAM is $25.5
million, which amount has previously been provided for and reflected as
a liability in the Consolidated Financial Statements. The obligation is
payable in three equal annual installments, the first payment of which
was made on October 15, 1998. TWA also had previously entered into
agreements which provide for an adjustment to existing salary rates of
certain labor-represented employees based on the amount of the cash
bonus for overtime to the employees represented by the IAM as described
in this paragraph. These adjustments equated to a 4.814% increase which
management made effective for all employee groups on September 1, 1998
except for pilots whose contract provided for separate increases also
effective September 1, 1998 and a small group of executives who did not
receive the increase. Management intends that the 4.814% salary
adjustments will be part of any percentage increase that would be
incorporated in contract amendments currently being negotiated.
In addition, in connection with certain wage scale adjustments
afforded to non-contract employees, employees previously represented by
the Independent Federation of Flight Attendants ("IFFA") have asserted
and won an arbitration ruling with respect to the comparability of wage
concessions made in 1994 that, if sustained, would require that the
Company provide additional compensation to such employees. The Company
estimates that at December 31, 1997 the additional compensation that
would be payable pursuant to the arbitration ruling would be
approximately $12.0 million. The Company denies any such obligation, and
is pursuing an appeal of the arbitration ruling and of a court award
affirming the ruling. Effective September 1, 1997, the Company also
reduced the overall compensation and benefits package for non-contract
employees to offset, in the Company's view, any claims by such employees
previously represented by IFFA for any retroactive or prospective wage
increases. As such, no liability has been recorded by the Company.
In connection with the '95 Reorganization, the Company entered
into a letter agreement with employees represented by ALPA whereby if
the Company's flight schedule, as measured by block hours, did not
exceed certain thresholds in 1996 and 1997, a defined cash payment would
be made to ALPA. The defined thresholds were exceeded during the
measurement periods through December 31, 1996 and no amount was
therefore owed to ALPA as of that date. The Company's aggregate
obligation for 1997 under the agreement was approximately $9.5 million.
The Company made payments of $2.6 million in January 1998 and $6.9
million in April 1998.
Due to the greater demand for air travel during the summer months,
airline industry revenues for the third quarter of the year are
generally significantly greater than revenues in the first and fourth
quarters of the year and moderately greater than revenues in the second
quarter of the year. In the past, given the Company's historical
dependence on summer leisure travel, TWA's results of operations have
been particularly sensitive to such seasonality. While the Company,
through an acceleration of its fleet renewal program and, among other
things, the restructuring of its JFK operations, anticipates that the
deseasonalization of operations affected thereby will reduce
12
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<PAGE>
quarter to quarter fluctuations in the future, there can be no assurance
that the reduction of seasonal fluctuations in financial operating
results will be realized.
The Company's results of operations have also been impacted by
numerous other factors that are not necessarily seasonal. 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 necessitating additional capital expenditures; (vii) the
outcome of certain ongoing labor negotiations; and (viii) the reduction
in yield due to the continued implementation of a discount ticket
program entered into by the Company with Karabu in connection with the
'95 Reorganization on the terms currently applied by Karabu (which terms
are, in the opinion of the Company, inconsistent with and in violation
of the agreement governing such program). (See "Part II, Item 1. Legal
Proceedings.") The Company is unable to predict the potential impact of
any of such uncertainties upon its future results of operations.
Commencing in September 1998, the Company has entered into future
jet fuel fixed price swaps to provide a hedging mechanism against
significant increases in jet fuel prices. The Company's jet fuel
hedging contracts currently provide protection against higher fuel
prices with respect to a minor portion of the Company's fuel
requirements over the next fifteen months.
Management believes that the Company benefited from the expiration
on December 31, 1995 of the Ticket Tax, which imposed certain taxes
including a 10% air passenger tax on tickets for domestic flights, a
6.25% air cargo tax and a $6 per person international departure tax.
The Ticket Tax was reinstated on August 27, 1996 and expired again on
December 31, 1996. At the end of February 1997, the Ticket Tax was
reinstated effective March 7, 1997 through September 30, 1997. Congress
passed tax legislation reimposing and significantly modifying the Ticket
Tax, effective October 1, 1997. The legislation includes the imposition
of new excise tax and significant fee tax formulas over a multiple year
period, an increase in the international departure tax, the imposition
of a new arrivals tax, and the extension of the Ticket Tax to cover
items such as the sale of frequent flier miles. Management believes
that the imposition and modification of the Ticket Tax have a negative
impact on the Company, although neither the amount of such negative
impact nor the benefit previously realized by its expiration can be
precisely determined. However, management believes that the recent tax
legislation and any other increases of the Ticket Tax will result in
higher costs to the Company and/or, if passed on to consumers in the
form of increased ticket prices, might have an adverse effect on
passenger traffic, revenue and/or margins.
The Company's ability to continue to improve its financial
position and meet its financial obligations will depend upon a variety
of factors, including but not limited to: significantly improved
operating results, favorable domestic and international airfare pricing
environments, the cost of aircraft fuel, absence of adverse general
economic conditions, more effective operating cost controls and
efficiencies, the Company's ability to achieve higher revenue yields,
the Company's ability to finance or lease suitable replacement aircraft
at reasonable rates and the Company's ability to attract new capital and
maintain adequate liquidity. No assurance can be given that the Company
will be successful in generating the operating results or attracting new
capital required for future viability.
13
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<PAGE>
TWA's passenger traffic data, for scheduled passengers only and
excluding Trans World Express, Inc. ("TWE"), a wholly-owned subsidiary
of the Company that provided a commuter feed service to the Company's
New York hub prior to November, 1995, are shown in the table below for
the indicated periods<F1>:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1998 1997 1998 1997
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
TOTAL SYSTEM
Passenger revenues (millions) $ 771 $ 799 $ 2,237 $ 2,211
Revenue passenger miles (millions)<F2> 6,544 7,113 19,012 19,169
Available seat miles (millions)<F3> 8,882 9,885 26,137 27,567
Passenger load factor<F4> 73.7% 72.0% 72.7% 69.5%
Passenger yield (cents)<F5> 11.79 cents 11.24 cents 11.77 cents 11.54 cents
Passenger revenue per available seat miles
(cents)<F6> 8.68 cents 8.08 cents 8.56 cents 8.02 cents
Operating cost per available seat mile (cents)<F7> 9.20 cents 8.30 cents 9.29 cents 8.99 cents
Average daily utilization per aircraft (hours)<F8> 9.80 9.64 9.90 9.34
Aircraft in service at end of period 183 186 183 186
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> C>
TOTAL SYSTEM
Passenger revenues (millions) $ 2,924 $ 3,078 $ 2,836
Revenue passenger miles (millions)<F2> 25,100 27,111 24,902
Available seat miles (millions)<F3> 36,434 40,594 37,905
Passenger load factor<F4> 68.9% 66.8% 65.7%
Passenger yield (cents)<F5> 11.65 cents 11.35 cents 11.39 cents
Passenger revenue per available seat miles
(cents)<F6> 8.03 cents 7.58 cents 7.48 cents
Operating cost per available seat mile (cents)<F7> 8.98 cents 8.76 cents 8.12 cents
Average daily utilization per aircraft (hours)<F8> 9.38 9.63 9.45
Aircraft in service at end of period 185 192 188
<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 divided by revenue passenger miles.
<F6> Passenger revenue divided by available seat miles.
<F7> Operating expenses, excluding special charges, earned stock compensation and other nonrecurring charges,
divided by available seat miles.
<F8> The average block hours flown per day in revenue service per aircraft.
</TABLE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1997
For the third quarter of 1998, TWA reported an operating profit of
$23.7 million, a $40.1 million decrease from the third quarter 1997
operating profit of $63.8 million. TWA also reported a third quarter
1998 pre-tax profit of $7.8 million, which was a decrease of $39.4
million from the 1997 pre-tax profit of $47.2 million. The Company's
yield (passenger revenue per revenue passenger mile ("RPM")) for the
third quarter of 1998 increased 4.9% to 11.79 cents versus 11.24 cents
for the comparable prior year period. In part due to improved load
factors, the Company's RASM improved 7.4% to 8.68 cents versus 8.08
cents for the comparable prior year period. The Company's CASM
increased 10.8% to 9.20 cents for the quarter from 8.30 cents in the
same period of 1997. This increase was impacted by a decline of 10.2%
in capacity, slightly offset by an improvement in operating expenses of
0.6%.
In the third quarter 1998, total operating revenues of $863.2
million were $45.2 million (5.0%) less than $908.4 million for the
comparable 1997 period. This decrease occurred primarily in scheduled
passenger revenues ($27.9 million). Decreases were also experienced in
cargo revenues ($9.9 million) primarily due to reduced wide-body
capacity and decreased mail volume. Additional decreases were recorded
in contract maintenance and tour operations. The Company did benefit
from additional passengers as a result of strikes at Northwest Airlines
Corp. and Air Canada in the third quarter 1998, but the benefit was
diminished by TWA Pilot actions during the first ten days of July 1998.
System-wide capacity, measured by scheduled available seat miles
("ASMs"), decreased by 10.2% during the third quarter of 1998
(representing decreases in domestic and international ASMs of 4.9% and
28.6%, respectively) from the comparable period of 1997. The decrease
in capacity primarily resulted from the ongoing replacement of B-747 and
L-1011 aircraft with smaller B-767 and B-757 aircraft and the
elimination of certain unprofitable international routes. The
retirement of the last B-747 aircraft from TWA's fleet occurred in
February
14<PAGE>
<PAGE>
1998, completing the retirement of the older wide-body jets. Passenger
traffic volume, as measured by total RPMs in scheduled service, for the
three months ended September 30, 1998 decreased 8.0%. Passenger load
factors were 73.7% in the third quarter of 1998 compared to 72.0% in the
same period of 1997, an improvement of 1.7 percentage points year over
year.
Operating expenses of $839.5 million in the third quarter of 1998
decreased $5.1 million (0.6%) from operating expenses of $844.6 million
in the third quarter of 1997, representing a net change in the following
expense groups:
* Salary, wages and benefits of $308.6 million for the third
quarter of 1998 were $4.2 million (1.4%) greater than the
same period in 1997, primarily due to increased overtime
costs to support operational requirements, an increase in
certain employee benefits, primarily post-retirement medical
benefits, and company-wide salary increases effective
September 1, 1998. The Company had an average of 22,036
full-time equivalent employees in the third quarter of 1998
as compared to 23,038 in the third quarter of 1997.
* Earned stock compensation charges were $1.0 million for the
third quarter of 1998 compared to $1.1 million for the third
quarter of 1997. The 1998 charge was related to the
issuance on July 15, 1998 of additional employee shares in
accordance with the ESIP, while the 1997 charge is related
to the three month allocation of shares to the pilots' ESOP,
which became fully allocated in 1997.
* Aircraft fuel and oil expense of $85.1 million for the third
quarter of 1998 was $37.1 million (30.4%) less than the
expense of $122.2 million for the third quarter of 1997.
Approximately $23.2 million of the decrease was due to a
reduction in the average cost of fuel from 62.3 cents per
gallon in the third quarter of 1997 to 49.0 cents per gallon
in the third quarter of 1998. The remaining $13.9 million
decrease was due to the reduction in gallons consumed (173.8
million gallons in the third quarter of 1998 compared to
196.2 million gallons in the third quarter of 1997)
resulting from the replacement of B-747, L-1011 and B-727
aircraft with more fuel efficient B-757, B-767 and MD-80
aircraft and the elimination of certain unprofitable
international routes.
* Passenger sales commission expense of $48.6 million for the
third quarter of 1998 was $17.4 million (26.3%) less than
the comparable period in 1997 primarily due to a decrease in
the percentage of domestic commissionable sales of
approximately 1.3%, resulting in part from an increase in
electronic ticketing. The reduction in average domestic
commission rates of approximately 27.6% due to domestic base
commission rate decreases in October 1997 and the imposition
of a commission cap in May 1998 also contributed to the year
over year decrease in commission expense.
* Aircraft maintenance material and repairs expense of $35.8
million for the third quarter of 1998 represented an
increase of $8.3 million (30.0%) from $27.5 million for the
same period of 1997. The increase was primarily the result
of repairs on B-767-300 engines and short term leases of MD-
80 spare engines being significantly higher in the third
quarter of 1998 than in the same period of 1997.
* Depreciation and amortization expense increased $0.5 million
(1.3%) to $37.1 million in the third quarter of 1998
compared to $36.6 million in the same period of 1997.
Depreciation of owned aircraft increased $0.8 million
primarily due to the purchase of five B-767 aircraft
previously leased by TWA under operating leases from the end
of 1997 through June 1998. This increase was partially
offset by a reduction in depreciation resulting from the
sale and leaseback of four B-757 aircraft in addition to
hushkitted DC-9 engines becoming fully depreciated during
the first quarter of 1998.
15
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<PAGE>
* Operating lease rentals of $124.0 million for the third
quarter of 1998 were $29.6 million (31.3%) more than the
rentals of $94.4 million for the third quarter of 1997.
Aircraft lease rentals increased $16.5 million versus 1997
reflecting additional new B-757 and MD-80 aircraft leases in
1998 which replaced older L-1011 and B-747 wide-body
aircraft and B-727 aircraft retired from the fleet. The
remainder of the increase ($13.1 million) was the result of
increased space rentals at certain airports in addition to a
non-recurring charge of $9.0 million in the third quarter of
1998 for retroactive facilities rentals.
* Passenger food and beverage expense of $22.1 million during
the third quarter of 1998 represented an increase of $0.5
million (2.5%) from $21.6 million during the third quarter
of 1997. Overall, passenger boardings were down 0.7%, however,
the increase in expense was related to a significant increase
in first class enplaned passengers (31.7%), associated
improved menu offerings primarily in TWA's domestic First
Class ("Trans World First") and international business
("Trans World One") services partially offset by a decline
in coach enplaned passengers of 5.4% and selective menu
changes to mitigate the cost impact.
All other operating expenses of $177.2 million during the third
quarter of 1998 increased by $6.4 million (3.7%) from $170.8 million
during the third quarter of 1997. Expenses increased in several
categories including Worldspan transaction fees ($3.7 million),
international navigational facility user charges ($2.6 million) and
legal fees and expenses ($2.3 million), partially offset by a refund of
state sales/use taxes ($3.7 million).
Other charges (credits) were a net charge of $15.9 million for the
third quarter of 1998 as compared to $16.6 million for the same period
in 1997, an improvement of $0.7 million. Interest and investment income
increased $4.1 million, a result of increased levels of invested funds
and interest earned on a sales/use tax refund. Interest expense also
increased $1.3 million as a result of the issuance of new debt in the
fourth quarter of 1997 and the first six months of 1998, which was
partially offset by a decrease in certain debt retired in the third and
fourth quarters of 1997.
A tax provision of $8.7 million was recorded in the third quarter
of 1998 compared to a provision of $33.9 million recorded in the third
quarter of 1997 (see Note 2 to Consolidated Financial Statements).
As a result of the above, the Company's operating profit of $23.7
million for the three months ended September 30, 1998 declined $40.1
million from the operating profit of $63.8 million for the third quarter
of 1997. The Company had a net loss of $5.3 million for the third
quarter of 1998 compared to net income of $6.3 million for the third
quarter of 1997. The third quarter results for 1998 and 1997 included
non-cash extraordinary losses related to the early extinguishment of
debt of $4.4 million and $7.0 million, respectively.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997
For the first nine months of 1998, TWA reported an operating
profit of $0.5 million and a pre-tax loss of $21.7 million including a
non-cash operating expense of $27.5 million relating to a distribution
made in July 1998 of TWA Common Stock to employee stock plans pursuant
to the ESIP. These results compare to an operating loss of $29.8
million and a pre-tax loss of $68.3 million in the first nine months of
1997. Excluding the effects of the non-cash ESIP charge in 1998 and the
non-cash pilots' ESOP charge in 1997, the nine months 1998 operating
profit was $28.1 million, a $53.7 million improvement over the
comparable prior year operating loss of $25.6 million. After the effect
of the same exclusion, the pre-tax income of $5.8 million in the first
nine months of 1998 improved $69.9 million over the 1997 pre-tax loss of
$64.1 million. The Company's yield (passenger revenue per RPM) for the
first nine months of 1998 increased 2.0% to 11.77 cents versus 11.54
cents for the comparable prior
16
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<PAGE>
year period. In part due to improved load factors, RASM improved 6.7%
to 8.56 cents versus 8.02 cents for the comparable prior year period.
The Company's CASM increased 3.3% to 9.29 cents for the nine months from
8.99 cents in the same period of 1997. This increase was impacted by a
decline of 5.2% in capacity, slightly offset by an improvement in
operating expenses of 1.3%.
In the first nine months of 1998, total operating revenues of
$2,512.1 million were $3.0 million (0.1%) less than the $2,515.1 million
for the comparable 1997 period. Decreases occurred in cargo revenue
($19.6 million) primarily due to reduced wide-body aircraft capacity and
decreased mail volume, contract maintenance revenue ($7.5 million) due
to the termination of an unprofitable governmental contract with the
U.S. government and tour operations revenue ($4.4 million). Offsetting
increases occurred in scheduled passenger revenues ($25.8 million) and
charter revenues ($4.4 million).
System-wide capacity, measured by scheduled ASMs, decreased by
5.2% during the first nine months of 1998 (representing decreases in
domestic and international ASMs of 1.9% and 18.2%, respectively) from
the comparable period of 1997. The decrease in capacity was primarily
the result of ongoing replacement of B-747 and L-1011 aircraft with
smaller B-767 and B-757 aircraft and the elimination of certain
unprofitable international routes. The retirement of the last B-747
aircraft from TWA's fleet occurred in February 1998, completing the
retirement of the older wide-body jets. Passenger traffic volume, as
measured by total RPMs in scheduled service, for the nine months ended
September 30, 1998 decreased 0.8%. Passenger load factors were 72.7% in
the first nine months of 1998 compared to 69.5% in the same period of
1997.
Operating expenses of $2,511.5 million in the first nine months of
1998 decreased $33.4 million (1.3%) from operating expenses of $2,544.9
million in the first nine months of 1997, representing a net change in
the following expense groups:
* Salary, wages and benefits of $911.1 million for the first
nine months of 1998 were $11.1 million (1.2%) less than the
same period in 1997, primarily due to lower staffing levels
in the 1998 period which was offset in part by increased
overtime and company-wide salary increases effective
September 1, 1998. The Company had an average of 22,159
full-time equivalent employees in the first nine months of
1998 as compared to 23,785 in the first nine months of 1997.
* Earned stock compensation charges of $27.5 million for the
first nine months of 1998 versus $4.2 million for the first
nine months of 1997 represent 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. The 1998 charge is related
to incentive shares issued in July 1998 under the ESIP
relative to the achievement of certain common stock target
prices in February and March 1998. The 1997 charge is
related to the nine month allocation of shares to the
pilots' ESOP, which became fully allocated in 1997.
* Aircraft fuel and oil expense of $266.1 million for the
first nine months of 1998 was $103.4 million (28.0%) less
than the expense of $369.5 million for the first nine months
of 1997. Approximately $75.6 million of the decrease was
due to a reduction in the average cost of fuel from 66.5
cents per gallon in the first nine months of 1997 to 51.8
cents per gallon in the first nine months of 1998. The
remaining $27.8 million decrease was due to the reduction in
gallons consumed (514.0 million gallons in the first nine
months of 1998 compared to 555.7 million gallons in the
first nine months of 1997) resulting from the replacement of
B-747, L-1011 and B-727 aircraft with more fuel efficient
B-757, B-767 and MD-80 aircraft and the elimination of
certain unprofitable international routes.
17
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<PAGE>
* Passenger sales commission expense of $158.9 million for the
first nine months of 1998 was $30.1 million (15.9%) less
than the $189.0 million for the comparable period in 1997
primarily due to a decrease in the percentage of domestic
commissionable sales of approximately 3.4%, resulting in
part from an increase in electronic ticketing. The
reduction in average domestic commission rates of
approximately 22.5% due to a reduction in domestic base
commission rates in October 1997 and a commission cap
implemented in May 1998 also contributed to the year over
year decrease in commission expense.
* Aircraft maintenance material and repairs expense of $105.8
million for the first nine months of 1998 represented a
decrease of $3.8 million (3.5%) from $109.6 million for the
same period of 1997. The decrease was primarily the result
of higher levels of maintenance on narrow-body aircraft
during the first nine months of 1997, reduced material usage
on wide-body aircraft and engines in 1998 due to the
retirement of the B-747 and L-1011 fleets, a reduction in
unprofitable contract maintenance work performed on both
government and commercial aircraft and engines, and the
effect of adding new lower maintenance B-757, B-767 and
MD-80 aircraft to the fleet.
* Depreciation and amortization expense increased $3.6 million
(3.2%) in the first nine months of 1998 to $115.8 million
compared to $112.2 million in the same period of 1997.
Depreciation of aircraft increased $7.5 million primarily as
a result of the purchase of five B-767 aircraft previously
leased by TWA under operating leases from the end of 1997
through the first six months of 1998 which was partially
offset by reduced depreciation, amortization and
obsolescence provided for the B-747 and L-1011 fleets,
which were retired.
* Operating lease rentals of $338.9 million for the first nine
months of 1998 were $70.1 million (26.1%) more than the
rentals of $268.8 million for the first nine months of 1997.
Aircraft lease rentals increased $53.7 million versus 1997
reflecting additional new B-757 and MD-80 aircraft leases in
1998 which replaced older L-1011 and B-747 wide-body
aircraft and B-727 aircraft retired from the fleet. The
remainder of the increase ($16.4 million) related to a non-
recurring charge of $9.0 million for retroactive facilities
rentals in addition to increased space rentals at other
airports.
* Passenger food and beverage expense of $68.6 million during
the first nine months of 1998 represented an increase of
$7.2 million (11.8%) from $61.4 million during the first
nine months of 1997. The increase was related to a
significant increase of 43.6% in first class enplaned
passengers and associated improved menu offerings primarily
in TWA's domestic First Class ("Trans World First") and
international business ("Trans World One") services
partially offset by a slight decline in coach enplaned
passengers of 1.8% and selective menu changes to mitigate
the overall cost impact. Overall, 1998 boardings year-to-
date are up 3.9% over 1997.
All other operating expenses of $518.8 million during the first
nine months of 1998 increased by $10.7 million (2.1%) from $508.1
million during the first nine months of 1997. Expenses increased in
several categories including Computerized Reservation System (CRS) fees
($8.7 million), Worldspan transaction fees ($4.0 million), legal fees
and expenses ($6.2 million) and advertising primarily associated with
the launch of new TWA services including "Trans World First", "TWQ" and
the "Aviators" frequent flier program ($4.7 million). Offsetting
decreases occurred as a result of lower insurance premiums and uninsured
losses ($7.0 million) and expenses related to TWA's subsidiary Getaway
Vacations ($5.0 million).
Other charges (credits) were a net charge of $22.2 million for the
first nine months of 1998 as compared to $38.5 million for the same
period in 1997. Interest expense increased $5.6 million in the first
nine months of 1998 over the first nine months of 1997 as a result of
the issuance of new debt in the fourth quarter of 1997 and the first
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six months of 1998, which was partially offset by a decrease in certain
debt retired in 1997. Interest income increased by $9.2 million in the
first nine months of 1998 primarily as a result of increased levels of
invested funds. Net gains from the disposition of assets were $20.9
million in the first nine months of 1998 as compared to $15.2 million in
the same period of 1997. The 1998 net gains primarily included the sale
of certain retired, wide-body aircraft, engines and other surplus
equipment while the net gain in 1997 related to the sale of three gates
at Newark International Airport and spare flight equipment. Other
charges and credits-net improved by $7.0 million to a net credit of
$28.3 million for the first nine months of 1998 from a net credit of
$21.3 million for the first nine months of 1997. In May 1998, the U.S.
Supreme Court refused to hear an appeal of a decision reversing a 1991
judgment against TWA in an action brought by Travellers. Accordingly, a
cash undertaking previously posted by TWA of $13.7 million was returned
to TWA in June 1998 and recorded as a credit in the second quarter.
After deduction of $3.3 million for reimbursement of certain
administrative costs previously incurred by TWA, $10.4 million received
pursuant to this proceeding was applied in July 1998 to reduce the PBGC
Notes pursuant to a pre-existing agreement.
A tax provision of $8.6 million was recorded in the first nine
months of 1998 compared to a provision of $0.5 million recorded in the
first nine months of 1997 (see Note 2 to Consolidated Financial
Statements).
As a result of the above and excluding the effect of the non-cash
ESIP charges, the Company's operating profit of $28.1 million for the
nine months ended September 30, 1998 improved $53.7 million from the
operating loss of $25.6 million for the first nine months of 1997.
Giving effect to the same exclusion, the Company had a net loss of $24.5
million for the first nine months of 1998 compared to a net loss of
$75.5 million for the first nine months of 1997. The net loss recorded
in the first nine months of 1998 included a $11.0 million non-cash
extraordinary loss versus a $10.9 million non-cash extraordinary loss in
the first nine months of 1997 related to the early extinguishment of
debt.
LIQUIDITY AND CAPITAL RESOURCES
The following is a discussion of the impact of significant factors
affecting TWA's liquidity position and capital resources. These
comments should be read in conjunction with, and are qualified in their
entirety by, the Consolidated Financial Statements and Notes thereto.
Liquidity
The Company's consolidated cash and cash equivalents balance at
September 30, 1998 was $314.6 million, a $76.8 million increase from the
December 31, 1997 balance of $237.8 million. The net increase in cash
and cash equivalents during the first nine months of 1998 was due, in
large part, to cash provided by financing activities of $147.5 million
in 1998 versus cash used of $38.5 million in 1997. Sources of cash
generated by financing activities included proceeds from the sale of
notes of $144.9 million and $255.2 million from the sale and leaseback
of certain aircraft and engines in the first nine months of 1998 versus
proceeds of $47.2 million from notes and warrants issued and $12.0
million from the sale and leaseback of certain aircraft in 1997. These
proceeds were partially offset by the repayment of long-term debt and
capital lease obligations of $236.5 million in 1998 versus $92.9 million
in 1997. Cash used by operating activities was $38.2 million in the
first nine months of 1998 versus $21.0 million in 1997. While the
net loss improved by $38.3 million in the nine months ended September 30,
1998 versus the same period in 1997, changes in operating assets and
liabilities reflected a $20.2 million use of cash in the nine months ended
September 30, 1998, as compared to a $32.9 million source of cash in the
nine months ended September 30, 1997. During the respective periods, cash
was used by an increase in receivables partially offset by a related increase
in advance ticket sales and cash was generated from an increase in accounts
payable and accrued expenses primarily due to the timing of payables and
certain obligations.
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Net discounted sales from tickets sold under the 99-month Karabu
Ticket Program Agreement between the Company and Karabu (the "Karabu
Ticket Agreement") are excluded from cash flows from operating
activities as the related amounts were applied to reduce certain loans
to the Company provided by Karabu (the "Icahn Loans") and the PBGC
Notes. During the first nine months of 1998, $112.1 million has been
applied to reduce the PBGC Notes. In the same period of 1997, the
proceeds applied to reduce the Icahn Loans were $53.7 million in
addition to $38.8 million applied to reduce the PBGC Notes. On December
30, 1997, the Company repaid the outstanding balance of the Icahn Loans
out of the proceeds of a receivables securitization offering by the
Company. As a result, the purchase price of future tickets purchased by
Karabu will be paid, at Karabu's election, either to the settlement
trust for prepayment of the PBGC Notes or to TWA directly. TWA
anticipates that based upon ticket purchases by Karabu in recent months,
the PBGC Notes will be paid off in the fourth quarter of 1998. After
the PBGC Notes are paid in full, the proceeds from sale of tickets under
the Karabu Ticket Agreement will be paid directly to TWA.
Cash used by investing activities was $32.5 million in the first
nine months of 1998 compared to $17.6 million in 1997. Components of
this net change include an increase in capital expenditures (including
aircraft pre-delivery payments) to $83.5 million in the first nine
months of 1998 versus $58.2 million in 1997. Additionally, gross
proceeds from assets sold during the first nine months of 1998 were
$32.0 million primarily from the sale of retired, wide-body aircraft,
engines and other surplus equipment while 1997 proceeds of $22.2 million
represented $10.0 million for three gates at Newark International
Airport and $12.2 million primarily from the sale of spare flight
equipment, aircraft and engines. Cash provided by financing activities
and cash used in investing activities exclude a total of $102.5 million
principal amount of notes issued by TWA in the first nine months of 1998
as consideration for the purchase of aircraft.
Capital Resources
TWA generally must satisfy all of its working capital expenditure
requirements from cash provided by operating activities, from external
capital sources or from the sale of assets. A substantial portion of
TWA's assets have been pledged to secure various issues of outstanding
indebtedness of the Company. To the extent that the pledged assets are
sold, the applicable financing agreements generally require the sale
proceeds to be applied to repay the corresponding indebtedness. To the
extent that the Company's access to capital is constrained, the Company
may not be able to make certain capital expenditures or to continue to
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 ten new B-757 aircraft, all of which have been
delivered. These aircraft have an initial lease term of 10 years.
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. The Company
also entered into an agreement in February 1996 with Boeing for the
purchase of ten B-757-231 aircraft and related engines, spare parts and
equipment for an aggregate purchase price of approximately $500 million.
As of September 30, 1998, TWA had taken delivery of five purchased
aircraft and had five on firm order. Four of the five aircraft already
delivered were originally manufacturer-financed and one was leased. Two
of the manufacturer-financed aircraft were sold to, and leased back
from, an aircraft lessor in June 1998; the third and fourth aircraft
were sold to and leased back from the same aircraft lessor in a similar
transaction in July 1998. In October 1998, the sixth aircraft was
delivered from Boeing to the Company; the aircraft was subsequently sold
and leased back. TWA has obtained commitments for debt financing for
approximately 80% of the total costs associated with the acquisition of
three of the remaining
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four aircraft which have not been delivered and obtained commitments for
100% lease financing of the total costs of one of the remaining four aircraft.
In September 1998, the Company entered into an agreement to acquire four
additional B-757-231 aircraft to be delivered during 1999 from Boeing Commercial
Airplane Group for which TWA has obtained commitments for debt financing for
approximately 80% of the total costs associated with the acquisition of these
aircraft. Such commitments are subject to, among other things, material adverse
change clauses which make the availability of such debt and lease
financing dependent upon the financial condition of the Company.
The Company has also entered into an agreement pursuant to an
operating lease for one additional B-767-300ER and three additional
B-757-200 aircraft. These aircraft are scheduled to be delivered in 1999,
excluding one B-757-200 which is scheduled for delivery in January 2000.
The Company has granted to a major financial institution the option
to purchase and leaseback to TWA, under substantially the same terms and
conditions as another B-757 aircraft previously leased to TWA in 1998, up
to four of the eight B-757-231 aircraft to be delivered by Boeing during 1999.
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 price of approximately $1.0 billion. The agreements, as
amended, require the delivery of the aircraft in 2001 and 2002 and
provide 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 may be subject to forfeiture.
The Company has entered into an agreement to acquire from the
manufacturer 15 new MD-83s to be financed by long-term leases. The
agreement provides for delivery of the aircraft between the second
quarter of 1997 and the first quarter of 1999. As of September 30,
1998, the Company had taken delivery of 10 of the MD-83 aircraft and
expects to take delivery of three additional planes during 1998 and two
additional planes in 1999.
In April 1998, the Company entered into an agreement to acquire 24
new MD-83 aircraft from the manufacturer with deliveries in 1999. The
Company has obtained commitments for long-term debt and lease financing
for such aircraft.
TWA elected to comply with the transition requirements of the
Airport Noise and Capacity Act of 1990 (the "Noise Act") 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. To comply with the 1996 requirement, the Company
has retrofitted, by means of engine hush-kits, 30 of its DC-9 aircraft
at an aggregate cost of approximately $55.5 million, most of which was
financed by lessors with repayments being facilitated through increased
rental rates or lease term extensions. TWA intends to comply with the
transition requirements for December 31, 1998 by having 75% of its fleet
meet Stage 3 requirements through the grounding of older Stage 2
aircraft in combination with the acquisition of Stage 3 aircraft. By
December 31, 1999, 100% of the fleet must meet Stage 3 requirements.
In April 1998, the Company acquired three B-767-231 ETOPS
airframes and six accompanying engines which the Company previously
leased in exchange for the issuance of (i) $43.2 million aggregate
principal amount of the 11 3/8% Secured Notes, and (ii) $31.8 million
aggregate principal amount of the April Equity Notes, which had a second
priority security interest in the aircraft. On July 7, 1998 the April
Equity Notes were converted into 3,290,901 shares of Common Stock.
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In June 1998, the Company acquired an additional B-767-231 ETOPS
airframe and two accompanying engines which the Company previously
leased in exchange for the issuance of (i) $14.5 million aggregate
principal amount of the 10 1/4% Secured Notes, and (ii) $13.0 million
aggregate principal amount of the 10 1/4% Equity Notes, which had a
second priority security interest in the aircraft. On July 13, 1998 the
10 1/4% Equity Notes were converted into 1,225,719 shares of Common
Stock.
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 commitment.
Year 2000
The Company utilizes software and related computer technologies
essential to its operations that use two digits rather than four to
specify the year, which will result in a date recognition problem in the
year 2000 and thereafter unless modified.
The Company has completed an assessment to determine the changes
needed to make its computer systems, internal operating systems and
equipment year 2000 compliant and has developed a plan to implement
such changes. The Company currently expects that it will complete the
necessary changes and testing in mid-1999. The Company estimates that
the total cost to complete the remediation of its information technology
systems is approximately $18.0 million, which is approximately 25% of
the Company's total information technology budget. As of September 30,
1998, the Company estimates that approximately 30% of the cost to
complete the remediation of its computer systems has been incurred to
date. As of September 30, 1998, approximately 65% of the programs have
been remediated and it is estimated that by year-end 80% will be
completed. The assessments for the non-information technology related
systems have been done, but the cost estimates have yet to be completed.
The Company does not expect these costs to be material. The costs of
the Company's year 2000 project and the date on which it will be
completed are based on management's best estimates and include
assumptions regarding third party modification plans. However, there
can be no assurance that these estimates will be achieved and actual
results could differ materially from those anticipated.
The Company is also reviewing software which was purchased from
outside vendors and is evaluating its reliance on other third parties
(e.g. the Federal Aviation Administration, the Department of
Transportation, airport authorities, data providers and suppliers) to
determine and minimize the extent to which its operations may be
dependent on such third parties to remediate the year 2000 issues in
their systems. TWA has been informed that all mission critical systems
developed by internal sources, outside vendors or other third parties have
been identified, the necessary changes have been assessed and are in
process of being remediated. To insure further completeness, TWA will
establish an independent testing process to insure reliability. In
addition, contingency backup plans will be reviewed for each mission
critical system, with the emphasis on passenger safety, and then business
continuity. Further, the Company has been actively participating in the
industry reviews led by the Air Transport Association (ATA) and the
International Air Transport Association (IATA). The Company's business,
operating results and financial condition could be materially adversely
affected by the failure of its systems or those of other parties to
operate properly beyond 1999.
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Availability of NOLs
The Company estimates that it had, for federal income tax
purposes, net operating loss carryforwards ("NOLs") amounting to
approximately $855 million at December 31, 1997. Such NOLs expire in
2008 through 2012 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. Changes in
ownership in future periods could substantially restrict the Company's
ability to utilize its tax net operating loss carryforwards. The
Company believes that no such ownership change has occurred subsequent
to the '95 Reorganization. There can be no assurance, however, that
such 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 substantially all of
the tax net operating loss carryforwards will, to the extent realized in
future periods, have no impact on the Company's operating results, but
instead be applied to reduce reorganization value in excess of amounts
allocable to identifiable assets.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement establishes accounting and reporting
standards for derivative instruments and all hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities at their fair values. Accounting for changes in the fair
value of a derivative depends on its designation and effectiveness. For
derivatives that qualify as effective hedges, the change in fair value
will have no impact on earnings until the hedged item affects earnings.
For derivatives that are not designated as hedging instruments, or for
the ineffective portion of a hedging instrument, the change in fair
value will affect current period earnings. The Company will adopt
Statement No. 133 during its first quarter of fiscal 2000 and does not
presently believe that it will have significant effect on its results of
operations or cash flows.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Icahn Litigation
On March 20, 1996, the Company filed a Petition (the "TWA
Petition") in the Circuit Court for St. Louis County, Missouri,
commencing a lawsuit against Carl Icahn, Karabu and certain other
entities affiliated with Icahn (collectively, the "Icahn Defendants").
The TWA Petition alleged that the Icahn Defendants are violating the
Karabu Ticket Agreement and otherwise tortiously interfering with the
Company's business expectancy and contractual relationships, by among
other things, marketing and selling tickets purchased under the Karabu
Ticket Agreement to the general public. The TWA Petition sought a
declaratory judgment finding that the Icahn Defendants have violated the
Karabu Ticket Agreement, and also sought liquidated, compensatory and
punitive damages, in addition to the Company's costs and attorney's
fees. The trial of this case was completed in January 1998. On May 7,
1998 the court denied the TWA Petition and dismissed the Icahn
Defendants' counterclaims. No damages were assessed in respect of
either plaintiff's or defendants' petitions.
The court's ruling could have an adverse effect on TWA's revenue,
which could be significant, but the impact of which will depend on a
number of factors including yield, load factors and whether any
resulting incremental sales by the Icahn Defendants will be to
passengers that would not otherwise have flown on TWA. The Icahn
Defendants moved to amend or modify the court's ruling to include a
declaratory judgment that the Icahn Defendants are permitted to sell
tickets to any person for any purpose, which could include use by the
purchaser's family members or friends. TWA opposed this motion and
requested that the court clarify the ruling to limit its scope
consistent with the reasoning set forth in the decision, specifically
that the person purchasing the ticket must use the ticket (with certain
enumerated exceptions) and may not purchase a ticket for any other
person. The court denied both motions on June 25, 1998. TWA has
appealed the denial of its motion for clarification and the court's
original ruling.
On August 11, 1997, Karabu and another entity controlled by Mr.
Icahn filed suit against six senior officers of the Company in New York
state court seeking damages and other relief and alleging tortious
interference with prospective economic advantage based on alleged
violations of the Karabu Ticket Agreement. The defendants removed this
case to the United States District Court for the Southern District of
New York and moved to dismiss the case on the grounds of lack of
personal jurisdiction, res judicata and failure to state a claim. On
August 3, 1998, the court dismissed plaintiffs' claims for lack of
personal jurisdiction over the defendants.
On October 15, 1997, Karabu filed suit in New York Supreme Court,
New York County, seeking a declaratory judgment that even if TWA were to
pay in full the outstanding balance due on the Icahn Loans, Karabu would
have no obligation to release any portion of its lien on TWA's accounts
receivable and/or aircraft and engine collateral so long as the TWA
Petition in the Missouri lawsuit is pending or in the event that TWA is
awarded damages as a result of the TWA Petition. By stipulation of the
parties in December 1997, this claim was dismissed with prejudice. On
November 12, 1997, however, Karabu had amended its complaint to add a
claim alleging that TWA had failed to make the appropriate payment to
the PBGC in June 1997. On April 16, 1998, Karabu withdrew its
complaint.
Other Actions
On May 31, 1988, the U.S. Environmental Protection Agency ("EPA")
filed an administrative complaint seeking civil penalties as well as
other relief requiring TWA to take remedial procedures at
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TWA's overhaul base in Kansas City, Missouri, alleging violations
resulting from TWA's past hazardous waste disposal and related
environmental practices. Simultaneously, TWA became a party to a consent
agreement and a consent order with the EPA pursuant to which TWA paid a
civil penalty of $100,000 and agreed to implement a schedule of remedial
and corrective actions and to perform environmental audits at TWA's
major maintenance facilities. This consent agreement and consent order
were terminated on July 24, 1998. In September 1989, TWA and the EPA
signed an administrative order of consent, which required TWA to conduct
extensive investigations at or near the maintenance base and to
recommend remedial action alternatives. TWA completed its investigations
and on February 17, 1996, submitted a Corrective Measures Study ("CMS")
to the Missouri Department of Natural Resources ("MDNR") and the EPA. On
August 19, 1997 the MDNR and the EPA approved the CMS. On February 27,
1998 MDNR notified TWA of the EPA's preliminary decision to issue a
hazardous waste post-closure permit ("Permit") for TWA's maintenance
facility, subject to public comment. On August 7, 1998, MDNR and the
EPA issued the final Permit which mandates future post-closure care and
corrective action activities at the maintenance base. TWA presently
estimates the cost of the corrective action activities under the
existing orders to be approximately $7 million, a majority of which
represents costs associated with long-term groundwater monitoring and
maintenance of the remedial systems. Although the Company believes
adequate reserves have been provided for all known environmental
contingencies, it is possible that additional reserves might be required
in the future which could have a material adverse effect on the results
of operations or financial condition of the Company. However, the
Company believes that the ultimate resolution of known environmental
contingencies should not have a material adverse effect on its financial
position or results of operations based on the Company's knowledge of
similar environmental sites.
On October 22, 1991, judgment in the amount of $12,336,127 was
entered against TWA in an action in the United States District Court for
the Southern District of New York by Travellers International A.G. and
its parent company, Windsor, Inc. (collectively, "Travellers"). The
action commenced in 1987, as subsequently amended, sought damages from
TWA in excess of $60 million as a result of TWA's alleged breach of its
contract with Travellers for the planning and operation of Getaway
Vacations. In order to obtain a stay of judgment pending appeal, TWA
posted a cash undertaking of $13,693,101. In connection with the '93
Reorganization, TWA sought to have the matter ultimately determined by
the Bankruptcy Court and claimed that the cash undertaking constituted a
preference payment. Following prolonged litigation with respect to
jurisdiction, the United States Supreme Court determined that the entire
matter should be addressed by the bankruptcy court, and in February
1994, the bankruptcy court determined the matter in a manner favorable
to TWA. Upon appeal, the District Court affirmed in part and reversed
in part the bankruptcy court's decision. On January 20, 1998, the Court
of Appeals for the Third Circuit reversed the District Court and
affirmed the findings of the bankruptcy court. Travellers sought
reconsideration by the Third Circuit which reconsideration was denied.
In May 1998, the United States Supreme Court denied a writ of certiorari
in the case. The cash undertaking previously posted by TWA was returned
to TWA in June 1998.
In February 1995, a number of actions were commenced in various
federal district courts against TWA and six other major airlines,
alleging that such companies conspired and agreed to fix, lower and
maintain travel agent commissions on the sale of tickets for domestic
air travel in violation of the United States and, in certain instances,
state, antitrust laws. On May 9, 1995, TWA announced settlement,
subject to court approval, of the referenced actions and reinstated the
traditional 10% commission on domestic air fares. A judgment approving
the settlement and dismissing the claims against TWA with prejudice has
been entered.
On November 9, 1995, ValuJet Air Lines, Inc., now known as AirTran
Airlines, Inc. ("ValuJet") instituted a lawsuit against TWA and Delta
Air Lines ("Delta") in the United States District Court for the Northern
District of Georgia, alleging breach of contract and violations of
certain antitrust laws with respect to the Company's lease of certain
takeoff and landing slots at
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LaGuardia International Airport in New York. On November 17, 1995, the
court denied Valujet's motion to temporarily enjoin the lease
transaction and the Company and Delta consummated the lease of the
slots. On July 12, 1996, the Federal Court in Atlanta granted summary
judgment in TWA's favor in the ValuJet litigation on all claims and
counts raised in the ValuJet amended complaint. The order granting
summary judgment to TWA was not a final order and was not directly
appealable due to an outstanding claim against Delta. Valujet settled
its claim with Delta and appealed the grant of summary judgment to 11th
Circuit Court of Appeals. By stipulation of the parties, on June 16,
1998 the Court of Appeals entered an order dismissing Valujet's appeal
with prejudice.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
SALES OF UNREGISTERED SECURITIES
In April 1998, the Company issued in a private placement $31.8
million principal amount of the April Equity Notes to the owners of
three used B-767-231 ETOPS aircraft and six associated engines (the
"April Aircraft") and to Lazard Freres & Co. ("Lazard") as partial
consideration for the purchase of the April Aircraft. Lazard acted as
placement agent for the transaction, which was exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Act") pursuant to Section 4(2) of the Act. The April Equity Notes were
convertible into shares of Common Stock of the Company. On July 6,
1998, a registration statement on Form S-3 (Reg. No. 333-56991) with
respect to offers and sales of shares of the restricted Common Stock to
be issued upon conversion of the April Equity Notes became effective.
On July 7, 1998, the April Equity Notes were converted into 3,290,901
shares of restricted Common Stock at a price of 95% of the average of
the closing price of the Common Stock on the American Stock Exchange for
the 20 consecutive trading days prior to conversion, which price equaled
$9.663.
In June 1998, the Company issued in a private placement $13.0
million principal amount of the 10 1/4% Equity Notes to the owners of
one used B-767-231 ETOPS aircraft and two associated engines
(collectively, the "June Aircraft") as partial consideration for the
purchase of the June Aircraft. The transaction was exempt from the
registration requirements of the Act pursuant to Section 4(2) of the
Act. The 10 1/4% Equity Notes were convertible into shares of Common
Stock of the Company. On July 10, 1998, a registration statement on
Form S-3 (Reg. No. 333-58481) with respect to offers and sales of shares
of the restricted Common Stock to be issued upon conversion of the
10 1/4% Equity Notes became effective. On July 13, 1998 the 10 1/4%
Equity Notes were converted into 1,225,719 shares of restricted Common
Stock at the closing price of the Common Stock on the American Stock
Exchange on the day prior to conversion, which price equaled $10.6875,
plus interest of $7.6875 per $1,000 face amount of the 10 1/4% Equity
Notes.
ITEM 5. OTHER INFORMATION
As noted in the Company's 1998 second quarter Form 10-Q, the
Commission promulgated new Rules 14a-4c and 14a-5e with respect to when
a Company may exercise discretionary voting authority at an annual
meeting over a shareholder proposal when a shareholder has not requested
that the proposal be included in the Company's proxy statement.
Pursuant to the Commission's new rules, it is anticipated that the
Company will amend its By-Laws to require that a stockholder's notice of
business to be brought before an annual meeting must be delivered to or
mailed and received at the Company's principal executive offices not
less than 45 days before the date on which the Company first mailed its
proxy materials for the prior year's annual meeting of stockholders.
For the 1999 annual meeting, such stockholder's notice of proposed
business must be received by March 1, 1999. (In the event that the Company
does not amend its By-Laws, then the notice requirements set forth in the
1998 second quarter Form 10-Q would apply, requiring the notice to be
received 75 days prior to the annual meeting or approximately March 11, 1999.)
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<F*>2.1 - Joint Plan of Reorganization, dated May 12,
1995 (Appendix B to the Registrant's
Registration Statement on Form S-4,
Registration Number 33-84944, as amended)
<F*>2.2 - Modification 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 the Registrant (Exhibit
3(i) to the Registrant's Registration
Statement on Form S-4, Registration Number
333-26645)
<F*>3(ii) - Amended and Restated By-Laws of Trans World
Airlines, Inc., effective May 24, 1996
(Exhibit 3(ii) to 6/96 10-Q)
<F*>4.1 - Voting Trust Agreement, dated November 3,
1993, between TWA and LaSalle National
Trust, N.A. as trustee (Exhibit 4.3 to 9/93
10-Q)
<F*>4.2 - IAM Trans World Employees' Stock Ownership
Plan and related Trust Agreement, dated
August 31, 1993, between TWA, the IAM Plan
Trustee Committee and the IAM Trustee
(Exhibit to 9/93 10-Q)
<F*>4.3 - IFFA Trans World Employees' Stock Ownership
Plan and related Trust Agreement, dated
August 31, 1993, between TWA, the IFFA Plan
Trustee Committee and the IFFA Trustee
(Exhibit 4.5 to 9/93 10-Q)
<F*>4.4 - Trans World Airlines, Inc. Employee Stock
Ownership Plan, dated August 31, 1993, First
Amendment thereto, dated October 31, 1993,
and related Trust Agreement, dated August
31, 1993, between TWA and the ESOP Trustee
(Exhibit 4.6 to 9/93 10-Q)
<F*>4.5 - ALPA Stock Trust, dated August 31, 1993,
between TWA and the ALPA Trustee (Exhibit
4.7 to 9/93 10-Q)
<F*>4.6 - Stockholders Agreement, dated November 3,
1993, among TWA, LaSalle National Trust,
N.A., as Voting Trustee and the ALPA
Trustee, IAM Trustee, IFFA Trustee and Other
Employee Trustee (each as defined
<PAGE>
<PAGE>
therein), as amended by the Addendum to
Stockholders dated November 3, 1993 (Exhibit
4.8 to 9/93 10-Q)
<F*>4.7 - Registration Rights Agreement, dated
November 3, 1993, between TWA and the
Initial Significant Holders (Exhibit 4.9 to
9/93 10-Q)
<F*>4.8 - Indenture between TWA and 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)
<F*>4.14 - Form of Indenture relating to TWA's 8%
Convertible Subordinated Debentures Due 2006
(Exhibit 4.16 to Registrants Registration
Statement on Form S-3, No. 333-04977)
<F*>4.15 - Indenture dated as of March 31, 1997 between
TWA and First Security Bank, National
Association relating to TWA's 12% Senior
Secured Notes due 2002 (Exhibit 4.15 to
Registrant's Registration Statement on Form
S-4, No. 333-26645)
<F*>4.16 - Form of 12% Senior Secured Note due 2002
(contained in Indenture filed as Exhibit
4.15)
<F*>4.17 - 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 Registrant's Registration
Statement on Form S-4, No. 333-26645)
<F*>4.18 - Warrant Agreement dated as of March 31, 1997
between the Company and American Stock
Transfer & Trust Company, as Warrant Agent,
relating to warrants to purchase 126.26
shares of TWA Common Stock (Exhibit 4.18 to
Registrant's Registration Statement on Form
S-4, No. 333-26645)
<PAGE>
<PAGE>
<F*>4.19 - Form of Indenture relating to TWA's 9 1/4%
Convertible Subordinated Debentures due 2007
(Exhibit 4.19 to Registrant's Registration
Statement on Form S-3, No. 333-44689)
<F*>4.20 - Registration Rights Agreement dated as of
December 2, 1997 between the Company and the
Initial Purchasers (Exhibit 4.20 to
Registrant's Registration Statement on Form
S-3, No. 333-44689)
<F*>4.21 - Indenture dated as of December 9, 1997 by
and between TWA and First Security Bank,
National Association, as Trustee, relating
to TWA's 11 1/2% Senior Secured Notes due
2004 (Exhibit 4.21 to Registrant's
Registration Statement on Form S-4, No.
333-44661)
<F*>4.22 - Form 11 1/2% Senior Secured Note due 2004
(contained in Indenture filed as Exhibit
4.21)
<F*>4.23 - Registration Rights Agreement dated as of
December 9, 1997 among the Company and
Lazard Freres & Co. LLC and PaineWebber
Incorporated, as initial purchasers,
relating to TWA's 11 1/2% Senior Secured
Notes due 2004 (Exhibit 4.23 to Registrant's
Registration Statement on Form S-4, No.
333-44661)
<F*>4.24 - Sale and Service Agreement dated as of
December 30, 1997 between TWA and
Constellation Finance LLC, as purchaser,
relating to TWA's receivables (Exhibit 4.24
to Registrant's Registration Statement on
Form S-4, No. 333-44661)
<F*>4.25 - Registration Rights Agreement dated as of
March 3, 1998 between the Company and the
Initial Purchaser (Exhibit 4.25 to
Registrant's Registration Statement on Form
S-4, No. 333-59405)
<F*>4.26 - Indenture dated as of March 3, 1998 by and
between TWA and First Security Bank,
National Association, as Trustee, relating
to TWA's 11 3/8% Senior Notes due 2006
(Exhibit 4.26 to Registrant's Registration
Statement on Form S-4, No. 333-59405)
<F*>4.27 - Aircraft Sale and Note Purchase Agreement
dated as of April 9, 1998 among TWA, First
Security Bank, National Association, as
Owner Trustee and Seven Sixty Seven Leasing,
Inc. (Exhibit No. 4.27 to Registrant's
Registration Statement on Form S-4, No.
333-59405)
<F*>4.28 - Indenture dated as of April 21, 1998 by and
between TWA and First Security Bank,
National Association, as Trustee, relating
to TWA's 11 3/8% Senior Secured Notes due
2003 (Exhibit No. 4.28 to Registrant's
Registration Statement on Form S-4, No.
333-59405)
<F*>4.29 - Form of 11 3/8% Senior Secured Notes due
2003 (contained as Exhibit 1 to Rule
144A/Regulation S Appendix to Indenture in
Exhibit 4.28)
<PAGE>
<PAGE>
<F*>4.30 - Registration Rights Agreement dated as of
April 21, 1998 between the Company, Lazard
Freres & Co. LLC and First Security Bank,
National Association relating to the 11 3/8%
Senior Secured Notes Due 2003 (Exhibit 4.31
to Registrant's Registration Statement on
Form S-3, No. 333-56991)
<F*>4.31 - Registration Rights Agreement dated as of
April 21, 1998 between the Company, Lazard
Freres & Co. LLC and First Security Bank,
National Association relating to the
Mandatory Conversion Equity Notes Due 1999
(Exhibit 4.32 to Registrant's Registration
Statement on Form S-3, No. 333-56991)
<F*>4.32 - Indenture dated as of June 16, 1998 by and
between TWA and First Security Bank,
National Association, as Trustee, relating
to TWA's 10 1/4% Senior Secured Notes due
2003
<F*>4.33 - Form of 10 1/4% Senior Secured Notes due
2003 (contained as Exhibit 1 to Rule
144A/Regulation S Appendix to Indenture in
Exhibit 4.34)
<F*>4.34 - Registration Rights Agreement dated as of
June 16, 1998 between the Company, Lazard
Freres & Co. LLC and First Security Bank,
National Association relating to the 10 1/4%
Senior Secured Notes Due 2003
<F*>4.35 - Registration Rights Agreement dated as of
June 16, 1998 between the Company, Lazard
Freres & Co. LLC and First Security Bank,
National Association relating to the 10 1/4%
Mandatory Conversion Equity Notes Due 1999
11 - Statement of computation of per share
earnings
27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the third quarter
1998 by the Company.
[FN]
- -----------
<F*>Incorporated by reference
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANS WORLD AIRLINES, INC.
Dated: November 16, 1998 By: /s/ Michael J. Palumbo
----------------------------
Michael J. Palumbo
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 11
<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<CAPTION>
Nine Months Ended
September 30,
---------------------
1998 1997
-------- --------
<S> <C> <C>
ADJUSTMENTS TO NET INCOME (LOSS):
Loss before extraordinary items $(30,313) $(68,751)
Preferred stock dividend requirements (17,590) (11,607)
-------- --------
Loss before extraordinary items applicable to
common stock for basic earnings per share calculation (47,903) (80,358)
Extraordinary items (11,026) (10,922)
-------- --------
Net loss applicable to common stock for basic
earnings per share calculation $(58,929) $(91,280)
======== ========
Net loss applicable to common stock for
diluted earnings per share calculation $(58,929) $(91,280)
======== ========
ADJUSTMENTS TO OUTSTANDING SHARES:
Basic earnings per share:
Average number of shares of common stock<F1><F2> 59,968 52,018
======== ========
Total average number of common and common equivalent
shares used for diluted earnings per share calculation 59,968 52,018
======== ========
PER SHARE AMOUNTS:
Loss before extraordinary items and preferred dividends
Basic $ (0.80) $ (1.54)
Diluted<F3> $ (0.80) $ (1.54)
Net loss
Basic $ (0.98) $ (1.75)
Diluted<F3> $ (0.98) $ (1.75)
<FN>
- ---------
<F1> Includes 6,524 shares for the nine months ended September 30, 1998 and 6,249 shares for
the nine months ended September 30, 1997, 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 and
2,377,084 additional shares in July 1998 under this provision. Additionally, the ESIP
provides that, continuing through 2002, 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 future 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% and the 9 1/4% Preferred Stock are antidilutive, such
have not been included in the computation of diluted earnings per share.
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 11
<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<CAPTION>
Three Months Ended
September 30,
---------------------
1998 1997
-------- -------
<S> <C> <C>
ADJUSTMENTS TO NET INCOME (LOSS):
Income (loss) before extraordinary items $ (923) $13,276
Preferred stock dividend requirements (5,864) (3,869)
-------- -------
Income (loss) before extraordinary items applicable to
common stock for basic earnings per share calculation (6,787) 9,407
Extraordinary items (4,390) (6,985)
-------- -------
Net income (loss) applicable to common stock for basic
earnings per share calculation $(11,177) $ 2,422
======== =======
Net income (loss) applicable to common stock for
diluted earnings per share calculation $(11,177) $ 2,422
======== =======
ADJUSTMENTS TO OUTSTANDING SHARES:
Basic earnings per share:
Average number of shares of common stock <F1><F2> 63,945 56,098
Diluted earnings per share adjustments:
Incremental shares associated with the assumed
exercise of options and warrants - 804
-------- -------
Total average number of common and common equivalent
shares used for diluted earnings per share calculation 63,945 56,902
======== =======
PER SHARE AMOUNTS:
Income (loss) before extraordinary items and preferred
dividends
Basic $ (0.11) $ 0.17
Diluted<F3> $ (0.11) $ 0.17
Net Income (loss)
Basic $ (0.18) $ 0.04
Diluted<F3> $ (0.18) $ 0.04
<FN>
- -----------
<F1> Includes 7,381 shares for the three months ended September 30, 1998 and 6,798 shares for
the three months ended September 30, 1997, 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 and
2,377,084 additional shares in July 1998 under this provision. Additionally, the ESIP
provides that, continuing through 2002, 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 future potential issuances of these shares.
<F3> The effects of including the incremental shares associated with options and warrants and
the assumed conversion of the 8% and the 9 1/4% Preferred Stock have been excluded from
the computation of diluted earnings per share to the extent their effect would be
antidilutive.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This 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
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 314,556
<SECURITIES> 0
<RECEIVABLES> 228,278
<ALLOWANCES> 10,116
<INVENTORY> 98,391
<CURRENT-ASSETS> 733,633
<PP&E> 849,930
<DEPRECIATION> 219,722
<TOTAL-ASSETS> 2,729,411
<CURRENT-LIABILITIES> 995,195
<BONDS> 804,507
<COMMON> 575
0
120
<OTHER-SE> 268,590
<TOTAL-LIABILITY-AND-EQUITY> 2,729,411
<SALES> 0
<TOTAL-REVENUES> 2,512,083
<CGS> 0
<TOTAL-COSTS> 2,511,548
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,430
<INTEREST-EXPENSE> 91,162
<INCOME-PRETAX> (21,702)
<INCOME-TAX> 8,611
<INCOME-CONTINUING> (30,313)
<DISCONTINUED> 0
<EXTRAORDINARY> 11,026
<CHANGES> 0
<NET-INCOME> (41,339)
<EPS-PRIMARY> (0.98)
<EPS-DILUTED> (0.98)
</TABLE>
