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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 JUNE 30, 2000
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 JULY 31, 2000
----------------------- -----------------
Common Stock, par value
$0.01 per share 69,706,393
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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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues:
Passenger $ 865,004 $ 786,183 $1,597,623 $1,472,625
Freight and mail 25,196 24,060 49,600 49,324
All other 64,723 55,750 116,696 108,632
---------- ---------- ---------- ----------
Total 954,923 865,993 1,763,919 1,630,581
---------- ---------- ---------- ----------
Operating expenses:
Salaries, wages and benefits 329,862 312,321 662,012 621,162
Aircraft fuel and oil 144,861 91,977 285,325 164,594
Passenger sales commissions 36,820 50,828 68,048 95,433
Aircraft maintenance materials and repairs 29,493 34,615 55,014 72,907
Depreciation and amortization 32,208 34,969 65,335 72,284
Aircraft rent 137,695 98,318 270,222 188,665
Other rent and landing fees 48,587 49,762 97,464 96,757
All other 180,096 174,833 349,119 337,995
---------- ---------- ---------- ----------
Total 939,622 847,623 1,852,539 1,649,797
---------- ---------- ---------- ----------
Operating income (loss) 15,301 18,370 (88,620) (19,216)
---------- ---------- ---------- ----------
Other charges (credits):
Interest expense 22,154 24,450 46,711 49,411
Interest and investment income (3,005) (4,739) (5,140) (7,912)
Disposition of assets, gains and losses-net (569) 3,757 (2,844) 1,747
Other charges and credits-net (6,061) (5,365) (35,691) (36,667)
---------- ---------- ---------- ----------
Total 12,519 18,103 3,036 6,579
---------- ---------- ---------- ----------
Income (loss) before income taxes, extraordinary items
and cumulative effect of accounting change 2,782 267 (91,656) (25,795)
Provision (credit) for income taxes 7,007 5,610 (24,152) 1,106
---------- ---------- ---------- ----------
Loss before extraordinary items and cumulative effect of
accounting change (4,225) (5,343) (67,504) (26,901)
Extraordinary items - (866) - (866)
Cumulative effect of accounting change - - (12,844) -
---------- ---------- ---------- ----------
Net loss (4,225) (6,209) (80,348) (27,767)
Preferred stock dividend requirements 1,632 5,863 7,048 11,726
---------- ---------- ---------- ----------
Loss applicable to common shares $ (5,857) $ (12,072) $ (87,396) $ (39,493)
========== ========== ========== ==========
Basic earnings per share amounts:
Loss before extraordinary items and cumulative effect
of accounting change $ (0.08) $ (0.17) $ (1.01) $ (0.59)
Extraordinary items - (0.01) - (0.01)
Cumulative effect of accounting change - - (0.18) -
---------- ---------- ---------- ----------
Net loss $ (0.08) $ (0.18) $ (1.19) $ (0.60)
========== ========== ========== ==========
See notes to consolidated financial statements
</TABLE>
1
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<TABLE>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 194,312 $ 180,443
Receivables, less allowance for doubtful accounts,
$13,541 in 2000 and $13,534 in 1999 257,246 155,070
Spare parts, materials and supplies, less allowance for
obsolescence, $17,696 in 2000 and $17,512 in 1999 102,418 101,179
Prepaid expenses and other 97,404 53,197
---------- ----------
Total 651,380 489,889
---------- ----------
Property:
Property owned:
Flight equipment 336,704 433,710
Prepayments on flight equipment 65,863 45,810
Land, buildings and improvements 77,589 77,021
Other property and equipment 90,534 90,115
---------- ----------
Total property owned 570,690 646,656
Less accumulated depreciation 174,071 161,153
---------- ----------
Property owned-net 396,619 485,503
---------- ----------
Property held under capital leases:
Flight equipment 176,094 176,094
Land, buildings and improvements 52,418 50,321
Other property held under capital leases 7,339 7,096
---------- ----------
Total property held under capital leases 235,851 233,511
Less accumulated amortization 141,148 127,845
---------- ----------
Property held under capital leases-net 94,703 105,666
---------- ----------
Total property-net 491,322 591,169
---------- ----------
Investments and other assets:
Investments in affiliated companies 97,030 82,901
Investments, receivables and other 142,677 133,973
Routes, gates and slots-net 174,279 181,983
Reorganization value in excess of amounts allocable to identifiable
assets-net 636,290 657,267
---------- ----------
Total 1,050,276 1,056,124
---------- ----------
$2,192,978 $2,137,182
========== ==========
See notes to consolidated financial statements
2
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<CAPTION>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 171,417 $ 67,080
Current obligations under capital leases 37,825 38,664
Advance ticket sales 343,099 198,722
Accounts payable, principally trade 336,274 263,624
Accounts payable to affiliated companies 5,309 6,250
Accrued expenses:
Employee compensation and vacations earned 136,674 149,701
Contributions to retirement and pension trusts 22,927 15,165
Interest on debt and capital leases 12,343 14,235
Taxes 13,634 12,111
Other accrued expenses 211,384 195,340
---------- ----------
Total accrued expenses 396,962 386,552
---------- ----------
Total 1,290,886 960,892
---------- ----------
Long-term liabilities and deferred credits:
Long-term debt, less current maturities 424,027 600,909
Obligations under capital leases, less current obligations 109,332 127,143
Postretirement benefits other than pensions 506,210 502,097
Noncurrent pension liabilities 17,044 17,572
Other noncurrent liabilities and deferred credits 96,034 99,479
---------- ----------
Total 1,152,647 1,347,200
---------- ----------
Shareholders' equity (deficiency):
8% cumulative convertible exchangeable preferred stock,
$50 liquidation preference; shares issued and outstanding:
2000-2,578; 1999-3,869 26 39
9 1/4% cumulative convertible exchangeable preferred stock,
$50 liquidation preference; shares issued and outstanding:
2000-818; 1999-1,725 8 17
Employee preferred stock, $0.01 liquidation preference;
special voting rights; shares issued and outstanding:
2000-6,505; 1999-6,712 65 67
Common stock, $0.01 par value; shares issued and outstanding:
2000-69,678; 1999-59,966 697 600
Additional paid-in capital 728,668 728,038
Accumulated deficit (980,019) (899,671)
---------- ----------
Total (250,555) (170,910)
---------- ----------
$2,192,978 $2,137,182
========== ==========
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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (80,348) $ (27,767)
Adjustments to reconcile net loss to net cash provided (used) by operating
activities:
Employee earned stock compensation - 2,594
Depreciation and amortization 65,335 72,284
Amortization of discount and expense on debt 3,179 3,810
Amortization of deferred (gains) losses on sale and leaseback of certain
aircraft and engines (1,133) (5,055)
Extraordinary loss on extinguishment of debt - 866
Equity in undistributed earnings of affiliates not consolidated (16,067) (13,206)
Net (gains) losses on disposition of assets (2,844) 1,747
Change in operating assets and liabilities:
Decrease (increase) in:
Receivables (102,176) (52,840)
Inventories (1,781) (1,490)
Prepaid expenses and other current assets (44,182) (28,484)
Other assets (5,203) (5,770)
Increase (decrease) in:
Accounts payable and accrued expenses 75,318 60,260
Advance ticket sales 144,377 111,865
Other noncurrent liabilities and deferred credits 7,696 (21,014)
--------- ---------
Net cash provided 42,171 97,800
--------- ---------
Cash flows from investing activities:
Proceeds from sales of property 7,407 12,363
Capital expenditures, including aircraft predelivery deposits (28,234) (73,946)
Return of predelivery deposits related to leased aircraft - 9,620
Net increase in investments, receivables and other (1,050) (2,329)
--------- ---------
Net cash used (21,877) (54,292)
--------- ---------
Cash flows from financing activities:
Proceeds from sale and leaseback of certain aircraft and engines 94,409 80,633
Repayments on long-term debt and capital lease obligations (100,834) (76,600)
Cash dividends paid on preferred stock - (11,727)
Net proceeds from exercise of warrants and options - 441
--------- ---------
Net cash used (6,425) (7,253)
--------- ---------
Net increase in cash and cash equivalents 13,869 36,255
Cash and cash equivalents at beginning of period 180,443 252,408
--------- ---------
Cash and cash equivalents at end of period $ 194,312 $ 288,663
========= =========
See notes to consolidated financial statements
4
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<CAPTION>
TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
SUPPLEMENTAL CASH FLOW INFORMATION
SIX MONTHS ENDED
JUNE 30,
-------------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash paid during the period for:
Interest $ 38,514 $ 36,492
========== ==========
Income taxes $ 15 $ 10
========== ==========
Information about noncash operating, investing and financing activities:
Promissory notes issued to finance aircraft acquisition $ 14 $ -
========== ==========
Promissory notes issued to finance aircraft predelivery payments $ 16,522 $ 38,687
========== ==========
Property acquired and obligations recorded under new capital lease
transactions $ 530 $ -
========== ==========
</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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TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(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).
The unaudited consolidated financial statements included herein
have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission but do not include all
information and footnotes required by generally accepted accounting
principles pursuant to such rules and regulations. The consolidated
financial statements include all adjustments, which are of a normal
recurring nature and are necessary, in the opinion of management, for a
fair presentation of the results for these interim periods. These
consolidated financial statements and related notes should be read in
conjunction with the consolidated financial statements and related notes
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999. The consolidated balance sheet at December 31, 1999
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 generally producing 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. Accordingly, the results for the three months and six
months ended June 30, 2000 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 six
month periods ended June 30, 2000 and 1999 reflect quarterly effective
tax rates and an expectation of full year pretax profits. 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 two quarters of 2000 and 1999 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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3. LOSS PER SHARE
In computing the loss applicable to common shares for the three
months and six months ended June 30, 2000 and 1999, the net loss has
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 net loss per share, the
loss applicable to common shares has been divided by the aggregate
average number of outstanding shares of common stock (70.3 million and
67.0 million for the three months and six months ended June 30, 2000,
respectively) including 3.0 million shares to be issued to IAM-
represented employees as discussed in Note 8, and employee preferred
stock (6.6 million for the three months and six months ended June 30,
2000) which, with the exception of certain special voting rights, is the
functional equivalent of common stock. Diluted earnings per share are
the same as basic earnings per share for the periods presented as the
impact of stock options, warrants or potential issuances of additional
common stock or employee preferred stock in the three month and six
month periods ended June 30, 2000 would have been anti-dilutive.
Preferred stock dividend requirements for the three months and six
months ended June 30, 2000 reflect the reversal of first quarter 2000
dividend requirements of $1.9 million as a result of the conversion of
preferred stock into common stock during the second quarter of 2000.
The loss applicable to common shares for the three months and six
months ended June 30, 1999 have likewise been adjusted by dividend
requirements on the 8% Preferred Stock and the 9 1/4% Preferred Stock.
In computing the related net loss per share, the loss applicable to
common shares has been divided by the aggregate average number of
outstanding shares of common stock (58.5 million and 58.2 million for
the three months and six months ended June 30, 1999, respectively) and
employee preferred stock (7.6 million and 7.7 million for the three
months and six months ended June 30, 1999) which, with the exception of
certain special voting rights, is the functional equivalent of common
stock. Diluted earnings per share are the same as basic earnings per
share for the periods presented as the impact of stock options, warrants
or potential issuances of additional common stock or employee preferred
stock in the three month and six month periods ended June 30, 1999 would
have been anti-dilutive.
4. PROPERTY AND DISPOSITION OF ASSETS
The Company has included in Investments, Receivables and Other the
net book value of its grounded L-1011 and B-747 aircraft as such
aircraft have been retired from service and are currently held for sale.
The carrying value of these aircraft at June 30, 2000 and 1999 was $11.4
million and $25.8 million, respectively.
During the six months ended June 30, 2000 and 1999, disposition of
assets resulted in net gains of $2.9 million and net losses of $1.7
million, respectively. The net gains in the first six months of 2000
related to the sale of 19 spare L-1011, B-767 and B-727 engines. In
1999, the recorded losses included a loss from the sale and leaseback of
four B-767 aircraft in April 1999 partially offset by gains from the
sale of L-1011 and B-727 aircraft and engines, spare L-1011 and DC9-10
engines and the sale of TWA's investment in SATO Travel, a company which
provides ticketing services.
7
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5. SEGMENT REPORTING
TWA operates one segment, that of air transportation. However,
that segment is analyzed and reported in two primary geographic areas,
Domestic (including Canada and the Caribbean) and International (the
Atlantic division as reported to the Department of Transportation).
Information related to revenues generated from operations within those
geographic areas is presented below.
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenues: (in millions):
Domestic $ 870.2 $ 767.1 $1,615.6 $1,457.2
International 84.7 98.9 148.3 173.4
-------- -------- -------- --------
Total $ 954.9 $ 866.0 $1,763.9 $1,630.6
======== ======== ======== ========
</TABLE>
TWA identifies revenues to each division based on a proration
methodology of revenues generated to specific flight segments and the
division in which the flight segment operates. A major portion of the
Company's long-lived assets consists of its flight equipment (aircraft),
which are not assigned to a specific geographic area but rather are
flown across geographic boundaries.
6. SALE OF EQUANT SHARES
TWA is a long-term member of the Societe Internationale de
Telecommunications Aeronautiques ("SITA"), a worldwide provider of
communication services to the aviation industry. In February 1999,
members of SITA divested a portion of their shares in Equant N.V.
("Equant"), a telecommunication network company, through a secondary
offering. As a member of SITA, TWA indirectly participated in the
partial sale of its holdings in Equant in February 1999 and December
1999; in March 2000 TWA sold its remaining interest in Equant to a third
party, resulting in reported gains and receipts of cash of approximately
$21.3 million, $10.7 million and $16.7 million in the first quarter of
1999, fourth quarter of 1999 and first quarter of 2000, respectively.
Such gains are included in Other charges credits-net.
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, 1999 which, among other matters, described
various contingencies and other legal actions against TWA, except as
discussed in Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
8
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8. LABOR AGREEMENTS
As a result of contracts which became effective August 1, 1999
between TWA and the International Association of Machinists and
Aerospace Workers ("IAM"), TWA agreed to pay increases over an 18 month
period that will result in wages for TWA's ground employees and flight
attendants improving by the end of the term of the contract to averages
ranging from 86.5% to 91.0% of industry average as determined by wage
rates in contracts in effect as of June 1999. Additionally, TWA agreed
to distribute 3,500,000 shares of TWA common stock to these employees,
of which 500,000 shares were distributed to IAM-represented flight
attendants in a manner determined by the IAM on October 7, 1999. The
remaining 3,000,000 shares will be distributed in a manner determined by
the IAM to IAM-represented employees on the following dates: as soon as
practicable after July 31, 2000 - 1,000,000 shares, January 31, 2001 -
1,000,000 shares, January 31, 2002 - 1,000,000 shares.
In conjunction with these contracts, TWA and the IAM-represented
employees agreed to withdraw all pending litigation including contempt
proceedings. Additionally, all outstanding grievances regarding scope,
work jurisdiction, outsourcing and compensation were withdrawn. IAM-
represented flight attendant employees agreed to a payment of $25.0
million in settlement of these disputed matters, to be distributed in a
manner directed by the IAM. On August 31, 1999, $11.0 million was
distributed and $11.0 million will be distributed in August 2000. The
remaining payment of $3.0 million will occur in August 2001. Similarly,
in settlement of these disputed matters, IAM-represented ground
employees will receive $10.0 million to be distributed in a manner
directed by the IAM by no later than the following dates: November 2,
2001 - $5.0 million, and August 1, 2002 - $5.0 million.
All unpaid amounts are reflected as a liability in the
consolidated financial statements.
9. ACCOUNTING FOR SALES OF AVIATOR MILES
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements", which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements.
Although SAB 101 does not change existing accounting rules on revenue
recognition, certain changes in accounting to apply the guidance in SAB
101 may be accounted for as a change in accounting principle. Effective
January 1, 2000, the Company changed its method of accounting for the
sale of Aviator miles to business partners. Previously, TWA and most
other major airlines accounted for the proceeds received from the sale
of affinity miles as revenue during the month of sale, net of the
estimated incremental cost of providing future air travel. Under the
new accounting method, that portion of the revenue from the sale of
miles which is estimated to reflect the fair value of future
transportation to be provided will be deferred and recognized in income
when the transportation is provided. The remaining portion of the sale
proceeds will continue to be recognized at the time of sale as other
revenue. The Company believes the new method results in better matching
of revenue with the period in which travel services are provided. The
cumulative effect of this change resulted in a charge to earnings of
$12.8 million in the first quarter of 2000. Prior period financial
statements have not been restated. If the newly adopted policy had been
applied in the prior year, the impact on net income would have been
immaterial.
9
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10. SLOT LEGISLATION
The Federal Aviation Administration ("FAA") has designated John F.
Kennedy International Airport ("JFK") and LaGuardia Airport
("LaGuardia") in New York, Chicago O'Hare International Airport
("O'Hare") and Ronald Reagan Washington National Airport ("Reagan
National") as "high density traffic airports" and has limited the number
of departure and arrival slots at those airports. Currently, such slots
may be voluntarily sold or transferred between carriers.
In May 2000, The Aviation Investment and Reform Act for the 21st
Century was enacted changing the restrictions on slots at these
airports. At O'Hare, this legislation alters the usage of slots
immediately and entirely eliminates slot restrictions at the airport
effective July 2, 2002. The legislation eliminates slot restrictions at
JFK and LaGuardia effective January 2, 2007. The legislation increases
slightly the slots available at Reagan National. On July 5, 2000, TWA
was granted additional slots to fly one round trip daily between Reagan
National and Los Angeles International Airport.
Considering these developments, the Company evaluated the carrying
value of the slots at these affected airports in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." Based upon the results of this evaluation, the Company does not
presently expect the changes in slot restrictions will significantly
impact its operations at these airports. The Company expects the
carrying values of the slots will be recovered through future operating
cash flows associated with these assets. Accordingly, no change in
carrying value or useful life was deemed necessary. At June 30, 2000,
the net book value of slots at JFK and LaGuardia, O'Hare, and Reagan
National was $42.6 million, $5.0 million and $25.0 million,
respectively.
10
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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.
GENERAL
TWA operates in a highly competitive, capital-intensive industry.
The Company competes with one or more major airlines on most of its
routes (including all routes between major cities). The airline
industry has consolidated as a result of mergers and liquidations and
more recently through alliances, 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, thereby
strengthening their overall operations, by transporting passengers
connecting with or otherwise traveling on the alliance carriers. Such
alliances will further intensify the competitive environment in which
TWA operates.
The rapid growth of regional jet airline affiliates represents a
significant competitive challenge for TWA due to its reliance on
through-hub passenger traffic. A small regional jet can now offer
direct service in markets that previously were served only by through-
hub service. Although TWA has signed agreements with two companies
which operate regional jets, TWA's current labor agreements limit the
number of regional jets that TWA may utilize. TWA began offering
regional jet service in the first quarter of 2000 through one of its
code share partners.
These issues represent a competitive challenge for the Company,
which has higher operating costs than many other carriers and fewer
financial resources than many of its major competitors. Small
fluctuations in revenue per available seat mile ("RASM") and cost per
available seat mile ("CASM") can significantly affect TWA'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. TWA expects the airline
industry will remain extremely competitive for the foreseeable future.
The Company continues to focus on implementing several strategic
initiatives to improve operational reliability, schedule integrity and
overall product quality in order to attract higher-yield passengers and
enhance overall productivity. Key initiatives currently in progress
include:
* modernizing its fleet;
* reducing costs and improving productivity;
* implementing revenue-enhancing marketing initiatives and
schedule realignments to attract higher-yield travelers;
* implementing employee-related initiatives to reinforce TWA's
focus on operational performance;
11
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<PAGE>
* optimizing TWA's route structure through the opening of
"focus cities" and the use of regional jet feed into TWA's
system; and
* better coordinating of commuter feed, turbo prop products
and schedules.
TWA faces a number of uncertainties that may adversely affect its future
results of operations, including:
* insufficient levels of air passenger traffic resulting from,
among other things, war, threat of war, terrorism or changes
in the economy;
* governmental limitations on the ability of TWA to service
certain airports and/or foreign markets;
* regulatory requirements necessitating additional capital or
operating expenditures;
* pricing and scheduling initiatives by competitors;
* the availability and cost of capital;
* increases in fuel and other operating costs; and
* the adverse effects on yield of the continued implementation
of a discount ticket program between TWA and Karabu Corp.
TWA is unable to predict the potential effect of any of these
uncertainties upon its future results of operations.
Labor Costs
Wage rates for most of TWA's employees have increased recently as
a result of several events. A new collective bargaining agreement
between TWA and its pilots became effective September 1, 1998 and is
amendable October 1, 2002. As part of the new contract, TWA agreed to
pay increases over four years that will result in wages for TWA's pilots
improving in 2002 to 90% of the industry average as determined by wage
rates in contracts in effect as of August 1998. The contract also
provides for significant work rule improvements for pilots in certain
areas while also granting TWA flexibility and improvements necessary to
enhance its competitive position. Under the contract, TWA agreed to
distribute either one million shares of TWA's common stock or $11
million in cash to its pilots, in four equal quarterly payments
commencing in 1999. The Company made a quarterly distribution of
250,000 shares each of common stock in April, August and November 1999
and February 2000.
TWA and the IAM reached agreement on new contracts for TWA flight
attendant and ground employees, which became effective August 1, 1999
and become amendable on January 31, 2001.
TWA agreed to salary increases over the term of the agreement that
will result in wage improvements of 11.5% to 18.25% for TWA's ground
employees and flight attendants such that by the amendable date of the
contract their wages will average from 86.5% to 91.0% of industry
average as determined by wage rates in contracts in effect as of June
1999. Additionally, TWA has agreed to distribute 3,500,000 shares of
TWA common stock to these employees. On October 7, 1999, 500,000 shares
were distributed to IAM-represented flight attendants in a manner
determined by the IAM. The remaining 3,000,000 shares will be
distributed in a manner determined by the IAM to IAM-represented
employees as follows: as soon as practicable after July 31, 2000 -
1,000,000 shares, January 31, 2001 - 1,000,000 shares, January 31, 2002
- 1,000,000 shares.
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<PAGE>
In conjunction with these contracts, TWA and the IAM-represented
employees agreed to withdraw all litigation pending as of August 1999
including contempt proceedings. Additionally, all outstanding
grievances regarding scope, work jurisdiction, outsourcing and
compensation were withdrawn as of that date. IAM-represented flight
attendant employees agreed to a payment of $25.0 million to be
distributed in a manner directed by the IAM. On August 31, 1999, $11.0
million was distributed. The remaining payments will occur in August
2000 - $11.0 million and August 2001 - $3.0 million. Similarly, in
settlement of these disputed matters, IAM-represented ground employees
will receive $10.0 million to be distributed in a manner directed by the
IAM by no later than the following dates: November 2, 2001 - $5.0
million, and August 1, 2002 - $5.0 million.
Pursuant to the labor agreements TWA entered into in 1992, TWA
agreed to pay to employees represented by the IAM a cash bonus for the
amount by which overtime incurred from September 1992 through August
1995 was reduced below specified thresholds. This amount was to be
offset by the failure of medical savings to meet certain specified
levels during the period for the same employees. TWA and the IAM came
to agreement on this obligation which was payable in three equal annual
installments. Two installments have been made and the remaining
obligation of $9.1 million representing the third and final installment
is payable on September 1, 2000. The final payment is reflected as a
liability in the consolidated financial statements.
TWA also entered into agreements subsequent to the 1992 labor
agreements that 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 the previous 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. Non-contract
employees of TWA additionally received a 3% increase in salary effective
September 1, 1999. On October 1, 1999, a merit pay plan was put into
effect which increased non-contract employee wages an average of
approximately 5%. The officers of TWA did not receive either the 1998
or 1999 increases.
TWA's agreements with employees could result in significant non-
cash charges to future operating results. Shares granted or purchased
at a discount under the Employee Stock Incentive Plan ("ESIP") will
generally result in a charge equal to the fair market value of shares
granted and the discount for shares purchased at the time these shares
are earned or purchased. The ESIP requires TWA, from 1997 through 2002,
to make grants on July 15 of each year if the average market closing
price of the common stock for 30 consecutive trading days has exceeded a
target price for such year. Each annual grant is cumulative. The first
two target prices were realized in 1998. If the ESIP's remaining target
prices (ranging from $13.10 to $17.72) for TWA common stock are
realized, the minimum aggregate non-cash charge for the years 1999 to
2002 will be approximately $104.8 million based upon these target prices
and the number of shares of common stock and employee preferred stock
outstanding at December 31, 1999. The non-cash charge for any year,
however, could be substantially higher if the then market price of TWA
common stock exceeds the target prices.
TWA believes it is essential to improve employee productivity as
an offset to any wage increases and will continue to explore other ways
to control and/or reduce operating expenses. While TWA experienced wage
rate increases in 1999, it also generated 3.3% more ASMs with 4.2% fewer
employees in 1999. This trend continued in the first six months of 2000
when the Company generated 8.2% more ASMs with 2.4% fewer employees than
the comparable period in 1999. On a unit cost basis (salaries, wages
and benefits per ASM excluding costs associated with contract
ratification), there was no increase year over year reflecting an
overall productivity improvement in this category. However, there can
be no assurance that the Company will be successful in sustaining such
productivity improvements or achieving unit cost reductions. It is
essential that the Company's labor costs remain favorable in comparison
to its largest competitors.
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TWA's passenger traffic data, for scheduled passengers only, is
shown in the table below for the indicated periods<F1>:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- --------------------- -----------------------------------
2000 1999 2000 1999 1999 1998 1997
------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTH AMERICA
Passenger revenues ($ millions) $ 795 $ 705 $ 1,476 $ 1,332 $ 2,690 $ 2,579 $ 2,526
Revenue passenger miles
(millions)<F2> 6,328 5,841 11,660 10,741 22,129 20,132 19,737
Available seat miles
(millions)<F3> 8,453 7,572 16,472 14,735 30,517 28,796 29,341
Passenger load factor<F4> 74.9% 77.1% 70.8% 72.9% 72.5% 69.9% 67.3%
Passenger yield (cents)<F5> 12.56 cents 12.06 cents 12.66 cents 12.31 cents 12.15 cents 12.81 cents 12.80 cents
Passenger revenue per
available seat mile
(cents)<F6> 9.41 cents 9.31 cents 8.96 cents 9.04 cents 8.81 cents 8.96 cents 8.61 cents
INTERNATIONAL
Passenger revenues ($ millions) $ 70 $ 81 $ 122 $ 141 $ 294 $ 333 $ 412
Revenue passenger miles
(millions)<F2> 866 1,076 1,555 1,896 3,881 4,290 5,363
Available seat miles
(millions)<F3> 1,110 1,298 2,105 2,432 5,071 5,657 7,093
Passenger load factor<F4> 78.0% 82.9% 73.9% 78.0% 76.5% 75.8% 75.6%
Passenger yield (cents)<F5> 8.09 cents 7.58 cents 7.85 cents 7.44 cents 7.58 cents 7.78 cents 7.68 cents
Passenger revenue per
available seat mile
(cents)<F6> 6.30 cents 6.28 cents 5.80 cents 5.80 cents 5.80 cents 5.90 cents 5.81 cents
TOTAL SYSTEM
Passenger revenues ($ millions) $ 865 $ 786 $ 1,598 $ 1,473 $ 2,984 $ 2,912 $ 2,938
Revenue passenger miles
(millions)<F2> 7,194 6,917 13,215 12,637 26,010 24,422 25,100
Available seat miles
(millions)<F3> 9,563 8,870 18,577 17,167 35,588 34,453 36,434
Passenger load factor<F4> 75.2% 78.0% 71.1% 73.6% 73.1% 70.9% 68.9%
Passenger yield (cents)<F5> 12.02 cents 11.37 cents 12.09 cents 11.65 cents 11.47 cents 11.93 cents 11.70 cents
Passenger revenue per
available seat mile
(cents)<F6> 9.05 cents 8.86 cents 8.60 cents 8.58 cents 8.38 cents 8.45 cents 8.06 cents
Operating cost per
available seat mile
(cents)<F7> 9.68 cents 9.35 cents 9.83 cents 9.43 cents 9.50 cents 9.31 cents 8.99 cents
Average daily utilization
per aircraft
(hours)<F8> 9.75 9.68 9.80 9.74 9.67 9.77 9.38
Aircraft in fleet being
operated at end of
period 188 188 188 188 183 185 185
<FN>
-------------
<F1> Excludes subsidiary companies. Certain revenue and unit revenue
information previously reported has been reclassified to conform
with the current presentation.
<F2> The number of scheduled miles flown by revenue passengers.
<F3> The number of seats available for passengers multiplied by the
number of scheduled miles those seats are flown.
<F4> Revenue passenger miles divided by available seat miles.
<F5> Passenger revenue per revenue passenger mile.
<F6> Passenger revenue divided by scheduled available seat miles.
<F7> Operating expenses, excluding special charges, other nonrecurring
charges and subsidiaries, divided by total available seat miles.
<F8> The average block hours flown per day in revenue service per
aircraft.
</TABLE>
14
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<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 COMPARED
TO THE THREE MONTHS ENDED JUNE 30, 1999
During the second quarter of 2000, TWA reported an operating
profit of $15.3 million compared to a second quarter 1999 operating
profit of $18.4 million, an unfavorable change of $3.1 million. The
Company reported a second quarter 2000 pre-tax profit of $2.8 million,
which was an increase of $2.5 million from the 1999 pre-tax profit of
$0.3 million. The net loss of $4.2 million in the second quarter of
2000 represented a $2.0 million decrease from the net loss of $6.2
million in the second quarter of 1999.
Total operating revenues were $954.9 million in the second quarter
of 2000, an $88.9 million increase from operating revenues of $866.0
million for the comparable period of 1999. Passenger revenue for the
second quarter of $865.0 million improved $78.8 million over passenger
revenue of $786.2 million in the second quarter of 1999 largely due to
more efficient utilization of its revitalized fleet and changes in its
route structure. In the first quarter of 2000, the Company introduced
the first regional jets into its route structure through code-sharing
agreements that contributed to both the increase in passenger revenue
and the $9.0 million increase in all other revenues in the second
quarter 2000.
System-wide capacity, as measured by scheduled ASMs, increased
7.8% in the second quarter of 2000 over the comparable period of 1999.
Domestic ASMs increased 11.6% while international ASMs decreased 14.4%.
Revenue passenger miles (RPMs) in scheduled service for the quarter were
7,193.7 million compared with 6,916.6 million RPMs in the second quarter
of 1999 representing a 4.0% increase. The system passenger load factor
decreased 2.8 percentage points in the second quarter of 2000 versus the
same period in 1999 to 75.2% from 78.0% resulting from a greater
increase in ASMs than RPMs. System yield increased 5.7% to 12.02 cents
in the second quarter of 2000 compared to 11.37 cents in 1999 reflecting
higher overall industry fare levels and improvements in TWA's domestic
front cabin yield partly in response to increased marketing efforts in
support of TWA's special FirstUp fare. RASM increased year over year to
9.05 cents in the second quarter of 2000 from 8.86 cents in the second
quarter of 1999. Since June 1999, TWA has taken delivery of 37 new
aircraft of which 28 aircraft were delivered in 1999 and nine aircraft
were delivered in the first six months of 2000. Operating expenses per
available seat mile (CASM) increased 3.5% to 9.68 cents from 9.35 cents
for the second quarter of 1999. The CASM increase was heavily impacted
by increased fuel costs, the increase in aircraft rental expense
resulting from the replacement of older aircraft with new modern
equipment and increased labor costs associated with new collective
bargaining agreements.
Operating expenses increased $92.0 million during the second
quarter of 2000 to $939.6 million from $847.6 million during the second
quarter of 1999, representing a net change in the following expense
groups:
* Salaries, wages and benefits were $329.8 million during the
second quarter of 2000 compared to $312.3 million during the
second quarter of 1999, an increase of $17.5 million. The
average number of full-time equivalent employees decreased
2.4% to 20,551 in the second quarter of 2000 versus 21,053
in the second quarter of 1999. This headcount reduction was
more than offset by the August 1, 1999 salary increase to
IAM-represented employees, a September 1, 1999 increase in
pilot salary as provided in their current contract, and a 3%
salary increase granted to non-contract employees effective
September 1, 1999. On October 1, 1999, a merit pay plan was
put into effect which increased non-contract employee wages
an average of approximately 5%. Additionally, TWA's second
quarter 2000 costs for its trust plans contributed $7.2
million to the overall increase due to the new IAM Pension
Fund effective January 2000.
15
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<PAGE>
* Aircraft fuel and oil expense of $144.9 million for the
second quarter of 2000 was $52.9 million greater than $92.0
million recorded in the second quarter of 1999 due to an
increase in the average cost per gallon to 84.8 cents in
2000 from 52.9 cents in 1999.
* Passenger sales commission expense of $36.8 million in the
second quarter of 2000 was $14.0 million less than the
expense recorded in the second quarter of 1999 primarily due
to an 11% decrease in the percentage of the commissionable
tickets sold and a 3% reduction in the commission rate cap
in October 1999.
* Aircraft maintenance material and repairs expense of $29.5
million for the second quarter of 2000 represents a decrease
of $5.1 million from $34.6 million during the same period of
1999. The primary factor contributing to this decrease was
a reduction in engine material requirements and the effect
of adding new lower maintenance B-757, B-767, B-717 and
MD-80 aircraft to the fleet.
* Depreciation and amortization expense decreased $2.8 million
to $32.2 million in the second quarter of 2000 from $35.0
million in the second quarter of 1999. The decrease
resulted primarily from the write-off of the carrying value
of abandoned international routes in the fourth quarter of
1999 and a reduction in expense for ground equipment.
* Aircraft lease rentals increased $39.4 million to $137.7
million in the second quarter of 2000 from $98.3 million in
the second quarter of 1999. This increase includes rentals
on 43 new aircraft delivered during and since the second
quarter 1999, in addition to the sale and leaseback of B-767
and B-757 aircraft as part of TWA's aggressive fleet renewal
plan.
* Other rent and landing fees were $48.6 million in the second
quarter of 2000 versus $49.8 million in the second quarter
of 1999, a decrease of $1.2 million. Increases were
experienced in landing fees of $0.6 million which were
offset by decreases of $1.8 million for space rentals at
certain airports and ground equipment rentals in the second
quarter of 2000 as compared to the same period in 1999.
* All other operating expenses of $180.1 million in the second
quarter of 2000 were $5.3 million more than the $174.8
million recorded in the second quarter of 1999, primarily
represented by increases in computerized reservation system
fees ($2.1 million) and expenses related to the Trans World
Express regional jet code-sharing agreement ($9.7 million),
partially offset by a reduction in consulting fees ($5.7
million).
Other charges (credits) were a net charge of $12.5 million during
the second quarter of 2000 compared to a net charge of $18.1 million for
the second quarter of 1999. Interest expense decreased $2.3 million in
the second quarter of 2000 from the same period in 1999 as a result of
the retirement of certain debt in 1999 and 2000. Interest and
investment income decreased $1.7 million in the second quarter of 2000
primarily due to a decrease in the level of invested funds. Net gains
(losses) from the disposition of assets were net gains of $0.5 million
and net losses of $3.8 million during the second quarters of 2000 and
1999, respectively. The net gains in the second quarter of 2000
included the sale of five jetways and a power system at Los Angeles
International Airport. The net losses in 1999 included a loss from the
sale and leaseback of four B-767 aircraft in April 1999, partially
offset by gains from the sale of fourteen RB-211 engines. Other charges
and credits - net increased $0.7 million in the second quarter of 2000
compared to the second quarter of 1999 primarily due to TWA's share of
estimated earnings in Worldspan for the second quarter 2000 exceeding
the earnings for 1999.
A tax provision of $7.0 million was recorded in the second quarter
of 2000 compared to $5.6 million in the second quarter of 1999 (see Note
2 to Consolidated Financial Statements).
16
<PAGE>
<PAGE>
In December 1999, the Securities and Exchange Commission issued
SAB No. 101, "Revenue Recognition in Financial Statements", which
provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. Although SAB 101 does not change
existing accounting rules on revenue recognition, certain changes in
accounting to apply the guidance in SAB 101 may be accounted for as a
change in accounting principle. Effective January 1, 2000, the Company
changed its method of accounting for the sale of Aviator miles to
business partners. Previously, TWA and most other major airlines
accounted for the proceeds received from the sale of affinity miles as
revenue during the month of sale, net of the estimated incremental cost
of providing future air travel. Under the new accounting method, that
portion of the revenue from the sale of miles which is estimated to
reflect the fair value of future transportation to be provided will be
deferred and recognized in income when the transportation is provided.
The remaining portion of the sale proceeds will continue to be
recognized at the time of sale as other revenue. The Company believes
the new method results in better matching of revenue with the period in
which travel services are provided. The cumulative effect of this
change resulted in a charge to earnings of $12.8 million in the first
quarter of 2000. Prior period financial statements have not been
restated. If the newly adopted policy had been applied in the prior
year, the impact on net income would have been immaterial.
The Company had a net loss of $4.2 million in the second quarter
of 2000 compared to a net loss of $6.2 million in the same period of
1999. The second quarter of 1999 results include an extraordinary
charge of $0.9 million related to the premium on the early retirement of
11 3/8% Senior Secured Notes due 2003 ("11 3/8% Notes") and 10 1/4%
Senior Secured Notes ("10 1/4% Notes") which were redeemed to comply
with the requirements of the indentures for such notes in order to
permit TWA to sell a portion of the collateral securing the 11 3/8%
Notes and all of the collateral securing the 10 1/4% Notes.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO
THE SIX MONTHS ENDED JUNE 30, 1999
For the first six months of 2000, TWA reported an operating loss
of $88.6 million compared to a prior year operating loss of $19.2
million, an unfavorable change of $69.4 million. The Company reported a
pre-tax loss of $91.7 million, which was an increase of $65.9 million
from the 1999 pre-tax loss of $25.8 million. The net loss of $80.3
million in the first six months of 2000 represented a $52.5 million
increase over the net loss of $27.8 million for the comparable period of
1999. The net loss for the first six months of 2000 included a charge
of $12.8 million for the cumulative effect of accounting change related
to a change in method of accounting for the sale of Aviator miles to
business partners in the Company's frequent flyer program.
Total operating revenues were $1,763.9 million in the first six
months of 2000, a $133.3 million increase from operating revenues of
$1,630.6 million for the comparable period of 1999. Passenger revenue
for the first six months of $1,597.6 million improved $125.0 million
over passenger revenue of $1,472.6 million from the prior year period
largely due to more efficient utilization of its revitalized fleet and
changes in its route structure. In the first six months of 2000, the
Company introduced the first regional jets into its route structure
through code-sharing agreements that contributed to both the increase in
passenger revenue and the $8.1 million increase in all other revenues.
System-wide capacity, as measured by scheduled ASMs, increased
8.2% in the first six months of 2000 over the comparable period of 1999.
Domestic ASMs increased 11.8% while international ASMs decreased 13.5%.
Revenue passenger miles (RPMs) in scheduled service for the quarter were
13,215 million compared with 12,637 million RPMs in the first six months
of 1999 representing a 4.6% increase. The system passenger load factor
decreased 2.5 percentage points in the first six months of 2000 versus
the same period in 1999 to 71.1% from 73.6% resulting from a greater
increase in ASMs than RPMs. System yield increased 3.8% to 12.09
17
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<PAGE>
cents in the first six months of 2000 compared to 11.65 cents in 1999
reflecting higher overall industry fare levels and improvements in TWA's
domestic front cabin yield partly in response to increased marketing
efforts in support of TWA's special FirstUp fare. RASM increased year
over year to 8.60 cents in the first six months of 2000 from 8.58 cents
in the first six months of 1999. Since June 1999, TWA has taken
delivery of 37 new aircraft of which 28 aircraft were delivered in 1999
and nine aircraft were delivered in the first six months of 2000.
Operating expenses per available seat mile (CASM) increased 4.0% to 9.83
cents from 9.43 cents for the first six months of 1999. The CASM
increase was heavily impacted by increased fuel costs, the increase in
aircraft rental expense resulting from the replacement of older aircraft
with new modern equipment and increased labor costs associated with new
collective bargaining agreements.
Operating expenses increased $202.7 million during the first six
months of 2000 to $1,852.5 million from $1,649.8 million during the
first six months of 1999, representing a net change in the following
expense groups:
* Salaries, wages and benefits were $662.0 million during the
first six months of 2000 compared to $621.2 million during
the first six months of 1999, an increase of $40.8 million.
The average number of full-time equivalent employees
decreased 2.4% to 20,606 in the first six months of 2000
versus 21,110 in the first six months of 1999. This
headcount reduction was more than offset by the August 1,
1999 salary increase to IAM-represented employees, a
September 1, 1999 increase in pilot salary as provided in
their current contract, and a 3% salary increase granted to
non-contract employees effective September 1, 1999. On
October 1, 1999, a merit pay plan was put into effect which
increased non-contract employee wages an average of
approximately 5%. Additionally, TWA's first six months of
2000 costs for its trust plans contributed $14.9 million to
the overall increase when compared to the first six months
of 1999 primarily due to the new IAM Pension Fund effective
January 2000.
* Aircraft fuel and oil expense of $285.3 million for the
first six months of 2000 was $120.7 million greater than
$164.6 million recorded in the first six months of 1999 due
to an increase in the average cost per gallon to 86.3 cents
in 2000 from 49.1 cents in 1999.
* Passenger sales commission expense of $68.1 million in the
first six months of 2000 was $27.3 million less than the
expense recorded in the first six months of 1999 primarily
due to a 12% decrease in the percentage of the
commissionable tickets sold and a 3% reduction in the
commission rate cap in October 1999.
* Aircraft maintenance material and repairs expense of $55.0
million for the first six months of 2000 represents a
decrease of $17.9 million from $72.9 million during the same
period of 1999. The primary factor contributing to this
decrease was a reduction in engine material requirements and
the effect of adding new lower maintenance B-757, B-767,
B-717 and MD-80 aircraft to the fleet.
* Depreciation and amortization expense decreased $7.0 million
to $65.3 million in the first six months of 2000 from $72.3
million in the first six months of 1999. The decrease
resulted primarily from the sale and leaseback of four B-767
aircraft and the write-off of the carrying value of
abandoned international routes in the fourth quarter of
1999.
* Aircraft lease rentals increased $81.5 million to $270.2
million in the first six months of 2000 from $188.6 million
in the first six months of 1999. This increase includes
rentals on 46 new aircraft delivered during and since the
first six months of 1999, in addition to the sale and
leaseback of B-767 and B-757 aircraft as part of TWA's
aggressive fleet renewal plan.
18
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<PAGE>
* Other rent and landing fees were $97.5 million in the first
six months of 2000 versus $96.8 million in the first six
months of 1999, an increase of $0.7 million. Increases were
experienced in landing fees of $1.8 million, offset by a
decrease of $1.1 million in space rentals at certain
airports during 2000 compared to the first six months of
1999.
* All other operating expenses of $349.1 million in the first
six months of 2000 were $11.1 million more than the $338.0
million recorded in the first six months of 1999, primarily
represented by increases in computerized reservation system
fees and expenses related to the Trans World Express
regional jet code-sharing agreement, partially offset by a
reduction in consulting fees.
Other charges (credits) were a net charge of $3.1 million during
the first six months of 2000 compared to a net charge of $6.6 million
for the first six months of 1999. Interest expense decreased $2.7
million in the first six months of 2000 from the same period in 1999 as
a result of the retirement of certain debt in 1999 and 2000. Interest
and investment income decreased $2.8 million in the first six months of
2000 primarily due to a decrease in the level of invested funds. Net
gains from the disposition of assets were $2.9 million during the first
six months of 2000 compared to a loss of $1.7 million in 1999. The net
gains in the first six months of 2000 included the sale of 19 spare
L-1011, B-767 and B-727 engines and the sale of five jetways and a power
system at Los Angeles International Airport. The net losses in 1999
included a net loss on the sale/leaseback of four B-767 aircraft,
partially offset by a gain on the sale of sixteen RB-211 engines, four
JT8D engines and one B-747 aircraft. Other charges and credits - net
showed an unfavorable decline of $1.0 million in the first six months of
2000 compared to the first six months of 1999 due to the 2000 gain from
the sale of TWA's remaining holdings in Equant ($16.7 million) which was
less than a similar gain recorded in the comparable period of 1999
($21.3 million). This decrease was partially offset by a $4.3 million
increase in TWA's share of estimated earnings in Worldspan as compared
to the earnings recorded in the comparable period of 1999.
A tax benefit of $24.2 million was recorded in the first six
months of 2000 compared to a provision of $1.1 million in the first six
months of 1999 (see Note 2 to Consolidated Financial Statements).
In December 1999, the Securities and Exchange Commission issued
SAB No. 101, "Revenue Recognition in Financial Statements", which
provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. Although SAB 101 does not change
existing accounting rules on revenue recognition, certain changes in
accounting to apply the guidance in SAB 101 may be accounted for as a
change in accounting principle. Effective January 1, 2000, the Company
changed its method of accounting for the sale of Aviator miles to
business partners. Previously, TWA and most other major airlines
accounted for the proceeds received from the sale of affinity miles as
revenue during the month of sale, net of the estimated incremental cost
of providing future air travel. Under the new accounting method, that
portion of the revenue from the sale of miles which is estimated to
reflect the fair value of future transportation to be provided will be
deferred and recognized in income when the transportation is provided.
The remaining portion of the sale proceeds will continue to be
recognized at the time of sale as other revenue. The Company believes
the new method results in better matching of revenue with the period in
which travel services are provided. The cumulative effect of this
change resulted in a charge to earnings of $12.8 million in the first
quarter of 2000. Prior period financial statements have not been
restated. If the newly adopted policy had been applied in the prior
year, the impact on net income would have been immaterial.
The Company had a net loss of $80.3 million in the first six
months of 2000 compared to a net loss of $27.8 million in the same
period of 1999. The 1999 results include an extraordinary charge of
$0.9 million related to the premium on the early retirement of 11 3/8%
Notes and 10 1/4% Notes which were redeemed to comply with the
requirements of the indentures for such notes in order to permit TWA to
sell a portion of the collateral securing the 11 3/8% Notes and all of
the collateral securing the 10 1/4% Notes.
19
<PAGE>
<PAGE>
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
June 30, 2000 was $194.3 million, a $13.9 million increase from the
December 31, 1999 balance of $180.4 million. Operating activities
provided $42.2 million in cash in the first six months of 2000 versus
cash provided of $97.8 million in 1999. The decrease in cash provided
from operations resulted from an increased net loss of $52.6 million in
the first six months of 2000 as compared to the same period in 1999.
Both 1999 and 2000, however, include gains from the sale of shares in
Equant, $21.3 million and $16.7 million, respectively. The impact of
the larger net loss was offset by an improvement of $32.5 million in the
cash provided by advance ticket sales and by an improvement of $15.1
million in the cash provided by trade accounts payable and accrued
expenses primarily due to the timing of payments of certain obligations
in the comparative periods.
Cash used by investing activities decreased to $21.9 million in
the first six months of 2000 versus $54.3 million in the first six
months of 1999. Capital expenditures (including aircraft predelivery
deposits) during the first six months of 2000 amounted to $28.2 million.
This compared to $46.8 million during the first six months of 1999 after
excluding cash used to purchase one B-767-200 aircraft and related
engines for $27.1 million. Asset sales during both periods were
primarily limited to retired, widebody aircraft, engines and other
surplus equipment. Additionally, approximately $9.6 million was
provided in 1999 primarily due to the return of predelivery deposits
relating to two new B-757-200 aircraft delivered in March and May 1999,
which were immediately sold to and leased back under operating leases
from an aircraft lessor.
Cash used by financing activities was $6.4 million in the first six
months of 2000 versus $7.3 million in the same period of 1999. Proceeds
from the sale and leaseback of certain aircraft were $94.4 million in
the first six months of 2000 relating to the sale and leaseback of two
B-757 aircraft versus $80.6 million in the comparable period in 1999
relating to the sale and leaseback of four B-767-200 aircraft.
Repayments of long-term debt and capital lease obligations were $100.8
million in the first six months of 2000, including $72.6 million of debt
associated with the sale and leaseback of two B-757 aircraft, compared
to $76.6 million in the first six months of 1999, including $43.3
million of debt associated with the sale and leaseback of four B-767-200
aircraft. Cash dividends of $11.7 million on preferred stock were paid
in the first six months of 1999, however, the Board of Directors
determined not to declare the payment of the dividend on either issue of
preferred stock in the first and second quarters of 2000.
The Company's ability to improve its operating results and
financial position will depend on a variety of factors, several of which
are described below, and some of which are outside of management's
control. The Company will face higher full year labor costs in 2000 as
a result of new labor contracts entered into in 1999 and scheduled
increases in 2000 offset, in part, by an anticipated reduction in head
count achieved primarily through attrition. In addition, jet fuel costs
have increased substantially in 2000. The Company has not hedged the
costs of any of its future fuel requirements and accordingly, until such
prices abate or unless the fuel surcharge previously imposed by the
Company is sufficient to cover such higher costs, such additional costs
will continue to adversely affect its operating results. The Company's
ability to maintain adequate liquidity to assure viability will depend
on its ability to improve its operating results by generating increased
revenues and controlling costs
20
<PAGE>
<PAGE>
or, if insufficient, on its ability to attract new capital and, if
necessary, sell or finance assets such as its interest in Worldspan.
Capital Resources
TWA has no unused credit lines and must satisfy all of its working
capital and capital expenditure requirements from cash provided by
operating activities, from external borrowings or from sales of assets.
Substantially all of TWA's strategic assets, including its owned
aircraft, ground equipment, gates and slots have been pledged to secure
various issues of outstanding indebtedness of the Company. Sales of
such assets which are not replaced would, under the terms of the
applicable financing agreements, generally require payment of the
proceeds from such dispositions or payment of the indebtedness secured
thereby. TWA has relatively few non-strategic assets which it could
monetize, many of such assets being subject to various liens and
security interests which would restrict and/or limit the ability of TWA
to realize any significant proceeds from the sale thereof.
The Company believes that its 26.315% interest in Worldspan has
substantial value, net of certain encumbrances. The Company is
currently considering various alternatives to monetize this asset.
Should the Company require additional liquidity and be unable
to monetize its holdings in Worldspan in a timely manner and should its
access to capital from outside sources be constrained, the Company may
not be able to make certain capital expenditures or implement certain
other aspects of its strategic plan, and the Company may therefore be
unable to achieve the full benefits expected therefrom. This could
adversely affect TWA's operations and future viability.
The outstanding balance of the Company's 9.8% Airline Receivable
Asset Backed Notes, aggregating $100 million, mature beginning in
January 2001 and would require repayment within 60 days unless their
maturity date is extended or is refinanced. The Company intends to
extend or refinance this obligation, although no assurance can be given
that it will be successful in this regard. However, these Asset Backed
Notes are secured by collateral with an average value in 1999 of over
$175 million which the Company believes should be sufficient to allow
such financing.
Commitments
TWA finalized the terms of the purchase orders for 50 B-717-200
aircraft in June of 1999 and the terms of options for an additional 50
B-717-200 aircraft. Financing agreements on these B-717-200 aircraft
were also finalized in June of 1999. The first B-717-200 aircraft was
delivered in February 2000 and five additional aircraft were delivered
by June 2000. During the remainder of 2000, TWA expects to take
delivery of nine additional aircraft.
In December 1999, TWA finalized the terms of the purchase orders
for 38 A318 aircraft and the terms of options for an additional 75 "A320
Family" aircraft. Predelivery payments were made by TWA in December
1999 and January 2000 for A318 aircraft, totaling approximately $8.9
million; no further predelivery payments will be required until 2002.
Deliveries of the 38 aircraft are scheduled to commence in 2004.
Financing agreements on 25 of these A318 aircraft were also finalized in
December of 1999. Should Airbus fail to provide or arrange for
financing for any of the remaining 13 A318 aircraft, TWA would have the
right to terminate the purchase order for those aircraft. In June,
2000, TWA finalized the terms of purchase orders for 25 A319 aircraft in
addition to the A318 aircraft and "A320 aircraft" options described
above. Predelivery payments totaling $4.0 million have been made by TWA
and approximately $3.0 million will be due in October, 2000. Financing
agreements on 16 of these A319 aircraft were also finalized in June
2000. Five of the A319 aircraft are subject to
21
<PAGE>
<PAGE>
cancellation by TWA. Should Airbus fail to provide or arrange for
financing for any of the remaining four aircraft, TWA would have the
right to terminate the purchase order for those aircraft. These
aircraft would primarily replace B-727, DC-9 and MD-80 aircraft
currently in TWA's fleet.
Both the B-717 and the Airbus 318 and A319 financing commitments
are subject to a "material adverse change" clause. Those provisions are
comparable to those contained in prior agreements for the acquisition of
B-757 and MD-80 aircraft. Such provisions generally allow the
manufacturer to withdraw the financing commitment on one or more
undelivered aircraft in the event there is a material adverse change in
the financial condition of TWA which would adversely affect TWA's
ability to perform under the purchase order, financing documentation or
any related transaction. In the event Boeing or Airbus withdraws its
financing commitment with respect to one or more of the aircraft, TWA
has a comparable right to terminate the purchase order for those
aircraft.
In April 1999, TWA sold and leased back four B-767-200 aircraft
and completed a sale/leaseback in July 1999 of a fifth such aircraft.
In connection with this transaction, the Company purchased $28.8 million
total principal amount of its outstanding 11 3/8% Notes and all of its
outstanding 10 1/4% Senior Secured Notes due June 15, 2003 which totaled
$14.5 million. These five B-767-200 aircraft will be replaced with
three B-767-300 aircraft from the same aircraft lessor. As of March 31,
2000, three B-767-200 aircraft had been returned and three B-767-300
aircraft have been leased. A fourth B-767-200 aircraft was returned on
May 1, 2000. The fifth B-767-200 aircraft will be returned later in
2000.
Certain Other Capital Requirements
TWA generally does not commit to expenditures for facilities and
equipment, other than aircraft, before purchase and, therefore, no such
significant commitments exist at the present time. TWA's ability to
finance these expenditures will depend in part on TWA's financial
condition at the time of the proposed expenditure.
Restructuring Liabilities
At December 31, 1998, TWA established a provision related to the
restructuring of its international operations and the closure of the Los
Angeles Reservation Office. The Company recorded a special charge of
approximately $17.6 million primarily related to employee severance
liabilities. During 1999, the Company incurred approximately $4.2
million of expenditures related to these provisions. Management's
initial estimates of the 1998 restructuring costs were reduced by $6.8
million due to international regulatory involvement which precluded the
Company from carrying out its original restructuring plan. The Company
continues to expect severance costs of $4.8 million to be paid to the
affected respective employees during the remainder of 2000 due to these
changes in operations.
During 1999, the plans related to restructuring international
operations were overtaken by the serious deterioration in performance on
the JFK to Madrid, Barcelona, and Rome routes. In the fourth quarter of
1999, the decision was made by the Board of Directors to close these
three routes. TWA established a provision related to these closures of
approximately $91.6 million which included $79.3 million write-off of
the value of the routes, and $12.3 million primarily related to
government-mandated employee severance for approximately 200
operational, management and administrative employees. The Company is
in negotiations concerning expected severance costs for the Italian
restructuring of operations and has concluded settlement of expected
22
<PAGE>
<PAGE>
severance costs for the restructuring in Spain. The Company continues
to expect the $10.4 million remaining route closure costs will be paid
during the remainder of 2000 and into the first quarter 2001.
The 1998 special charges include:
<TABLE>
<CAPTION>
ACCRUAL AT PAID THROUGH ACCRUAL AT
DECEMBER 31, 1999 JUNE 30, 2000 JUNE 30, 2000
----------------- ------------- -------------
<S> <C> <C> <C>
Severance $ 6.6 $ 1.8 $ 4.8
Other costs - - -
----------------- ------------- -------------
$ 6.6 $ 1.8 $ 4.8
================= ============= =============
<CAPTION>
The 1999 special charges include:
AMOUNT
ACCRUAL AT PAID THROUGH ACCRUAL AT
DECEMBER 31, 1999 JUNE 30, 2000 JUNE 30, 2000
----------------- ------------- -------------
<S> <C> <C> <C>
Severance $ 11.4 $ 1.9 $ 9.5
Other costs 0.9 - 0.9
----------------- ------------- -------------
$ 12.3 $ 1.9 $10.4
================= ============= =============
</TABLE>
Availability of NOLs
TWA estimates that it had, for federal income tax purposes, net
operating loss carryforwards ("NOLs") amounting to approximately $1,128
million at December 31, 1999. Such NOLs expire in 2008 through 2019 if
not utilized before then to offset taxable income. Section 382 of the
Internal Revenue Code of 1986, as amended, and regulations issued
thereunder impose limitations on the ability of corporations to use NOLs
if the corporation experiences a more than 50% change in ownership
during certain periods. 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 1995 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 Internal Revenue Service ("IRS") and, thus, are
subject to adjustment or disallowance resulting from any such IRS
examination. For financial reporting purposes, the tax benefits related
to the utilization of the tax net operating loss carryforwards generated
prior to the 1995 reorganization of approximately $491 million 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.
Slot Restrictions
The FAA has designated JFK and LaGuardia, O'Hare and Reagan
National as "high density traffic airports" and has limited the number
of departure and arrival slots at those airports. Currently, such slots
may be voluntarily sold or transferred between carriers.
In May 2000, the Aviation Investment and Reform Act for the 21st
Century was enacted changing the restrictions on slots at these
airports. At O'Hare, this legislation alters the usage of slots
immediately and entirely eliminates slot restrictions at the airport
effective July 2, 2002. The legislation eliminates slot restrictions at
JFK and LaGuardia effective January 2, 2007. The legislation increases
slightly the slots available at Reagan National. On July 5, 2000, TWA
was granted additional slots to fly one round trip daily between Reagan
23
<PAGE>
<PAGE>
National and Los Angeles International Airport.
Considering these developments, the Company evaluated the carrying
value of the slots at these affected airports in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." Based upon the results of this evaluation, the Company does not
presently expect the changes in slot restrictions will significantly
impact its operations at these airports. The Company expects the
carrying values of the slots will be recovered through future operating
cash flows associated with these assets. Accordingly, no change in
carrying value or useful life was deemed necessary. At June 30, 2000,
the net book value of slots at JFK and LaGuardia, O'Hare, and Reagan
National was $42.6 million, $5.0 million and $25.0 million,
respectively.
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. With the deferral of the
effective date of Statement No. 133, the Company will adopt this
standard during its first quarter of fiscal 2001 and does not presently
believe that it will have a significant effect on its results of
operations or cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The risk inherent in the Company's market risk sensitive
instruments and positions is the potential loss arising from adverse
changes in those factors. TWA is susceptible to certain risks related
to changes in the cost of jet fuel, changes in interest rates and
foreign currency exchange rate fluctuations. The Company does not
purchase or hold any derivative financial instruments for trading
purposes.
24
<PAGE>
<PAGE>
Aircraft Fuel
Airline operators are inherently dependent upon energy to operate
and, therefore, are impacted by changes in jet fuel prices. Jet fuel
and oil consumed in the first six months of 2000 represented
approximately 15.3% of TWA's operating expenses. TWA endeavors to
acquire jet fuel at the lowest prevailing prices possible.
TWA's earnings are affected by changes in the price and
availability of aircraft fuel. The Company hedges its exposure to jet
fuel price market risk only on a limited basis. The fair value of
outstanding derivative commodity instruments (primarily commodity swap
agreements) related to the Company's jet fuel price market risk during
the first six months of 2000 and at June 30, 1999 was immaterial. A one
cent change in the average cost of jet fuel would impact TWA's aircraft
fuel expense by approximately $6.6 million per year, based upon
consumption in the first six months of 2000.
Interest Rates
Airline operators are also inherently capital intensive, as the
vast majority of assets are aircraft, which are long lived. TWA's
exposure to market risk associated with changes in interest rates
relates primarily to its debt obligations. The Company does not have
significant exposure to changes in cash flows resulting from changes in
interest rates as substantially all its long-term debt carries fixed
rates of interest. The nature of fixed rate obligations does expose the
Company to the risk of changes in the fair value of these instruments.
The Company has outstanding debt of $595 million, net of unamortized
discounts and including current maturities at June 30, 2000. The
contractual maturities of long-term debt and the associated average
interest rates are as follows:
<TABLE>
<CAPTION>
CONTRACTUAL
AMOUNTS WEIGHTED AVERAGE
MATURITY DATE IN THOUSANDS INTEREST RATE
------------- ------------ ----------------
<S> <C> <C>
2000 $ 47,820 9.08%
2001 163,437 9.47%
2002 64,975 11.63%
2003 31,618 10.72%
2004 141,975 11.55%
Thereafter 154,120 11.07%
</TABLE>
Foreign Currency Exchange Rates
Airline operators who fly internationally are exposed to the
effect of foreign exchange rate fluctuations on the U.S. dollar value of
foreign currency-denominated operating revenues and expenses. While
international operations generated 8.4% of TWA's operating revenues in
the first six months of 2000, a substantial portion of these related
ticket sales are denominated in U.S. dollars. Additionally, no single
foreign currency is a material portion of that amount. The Company does
not have significant exposure to fluctuations in these currency rates
because of the short-term nature of maturities of receivables and
payables related to these operations. The Company has not undertaken
additional actions to cover this currency risk and does not engage in
any other currency risk management activity.
25
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of TWA was held on May 23,
2000. The following matters were considered and acted upon at the
Annual Meeting:
1. The election of fifteen Directors of the Company for terms
ending with the 2001 Annual Meeting of Stockholders and until their
successors are elected and qualified.
The following individuals were elected Directors by the holders of
the Company's Common Stock, with the number of votes cast for and
against each individual shown opposite their names:
NAME FOR WITHHELD
---- --- --------
John W. Bachmann 55,937,465 1,600,276
William F. Compton 55,615,774 1,921,967
Eugene P. Conese 55,926,809 1,610,932
Gerald L. Gitner 55,610,762 1,926,979
Thomas H. Jacobsen 55,939,752 1,597,989
Myron Kaplan 55,936,615 1,601,126
David M. Kennedy 55,907,446 1,630,295
Merrill A. McPeak 55,907,155 1,630,586
Thomas F. Meagher 55,933,319 1,604,422
G. Joseph Reddington 55,938,216 1,599,525
Blanche M. Touhill 55,909,086 1,628,655
The following individuals were elected Directors by the holders of
the Company's Employee Preferred Stock with the number of votes cast for
and against each individual shown opposite their names:
IAM Preferred Stock:
--------------------
Edgar M. House 3,545,908 0
William O'Driscoll 3,545,908 0
ALPA Preferred Stock:
---------------------
Robert A. Pastore 1,605,676 0
Flight Attendant Preferred Stock:
---------------------------------
Sherry L. Cooper 1,187,100 0
2. The ratification of the appointment of KPMG LLP as independent
accountants for the fiscal year ending December 31, 2000. The votes
cast with regard to this proposal were as follows:
FOR AGAINST ABSTAIN
--- ------- -------
62,574,814 917,043 984,568
26
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<PAGE>
ITEM 5. OTHER INFORMATION
The Company's Board of Directors did not declare the dividend
payments on either the 8% Preferred Stock or the 9 1/4% Preferred Stock
which were due on March 15 and June 15, 2000, in the total amounts of
$5.2 million and $1.9 million, respectively. If the dividends on the 8%
and 9 1/4% Preferred Stock were to continue in arrears and if the
arrears were to aggregate in an amount equal to at least six quarterly
dividends on either issue, the holders of the 8% Preferred Stock and the
9 1/4% Preferred Stock voting separately as a class without regard to
the series, will be entitled to elect at the next annual or special
meeting of the shareholders of the Company, two directors to serve until
all dividends accumulated and unpaid have been paid or declared and
funds set aside to provide for payment in full.
27
<PAGE>
<PAGE>
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 1995 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 September 28, 1999
(Exhibit 3(ii) to 9/99 10-Q)
<F*>4.1 - Voting Trust Agreement, dated November 3,
1993, between TWA and LaSalle National Trust,
N.A. as trustee (Exhibit 4.3 to 9/93 10-Q)
<F*>4.2 - IAM Trans World Employees' Stock Ownership
Plan and related Trust Agreement, dated August
31, 1993, between TWA, the IAM Plan Trustee
Committee and the IAM Trustee (Exhibit to 9/93
10-Q)
<F*>4.3 - IFFA Trans World Employees' Stock Ownership
Plan and related Trust Agreement, dated August
31, 1993, between TWA, the IFFA Plan Trustee
Committee and the IFFA Trustee (Exhibit 4.5 to
9/93 10-Q)
<F*>4.4 - Trans World Airlines, Inc. Employee Stock
Ownership Plan, dated August 31, 1993, First
Amendment thereto, dated October 31, 1993, and
related Trust Agreement, dated August 31,
1993, between TWA and the ESOP Trustee
(Exhibit 4.6 to 9/93 10-Q)
<F*>4.5 - ALPA Stock Trust, dated August 31, 1993,
between TWA and the ALPA Trustee (Exhibit 4.7
to 9/93 10-Q)
<F*>4.6 - Stockholders Agreement, dated November 3,
1993, among TWA, LaSalle National Trust, N.A.,
as Voting Trustee and the ALPA Trustee, IAM
Trustee, IFFA Trustee and Other Employee
Trustee (each as defined therein), as amended
by the Addendum to Stockholders dated November
3, 1993 (Exhibit 4.8 to 9/93 10-Q)
<PAGE>
<PAGE>
<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)
<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)
<PAGE>
<PAGE>
<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)
<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)
<PAGE>
<PAGE>
10.1 - Collective Bargaining Agreement with
International Association of Machinists and
Aerospace Workers effective August 1, 1999 for
flight attendants
10.2 - Collective Bargaining Agreement with
International Association of Machinists and
Aerospace Workers effective August 1, 1999 for
mechanics and related employees
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 second quarter
of 2000.
[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: August 14, 2000 By: /s/ Michael J. Palumbo
--------------------------------------
Michael J. Palumbo
Executive Vice President and
Chief Financial Officer
