-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HId19F0w3tGccOwblPhCqfr+tTaiLQkLRc0gS5+Vn59dcQa0HZzl4e5WxiQaAXLP Etbdl/iLD5CsN3lDOXqwUw== 0000950114-96-000311.txt : 19961118 0000950114-96-000311.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950114-96-000311 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANS WORLD AIRLINES INC /NEW/ CENTRAL INDEX KEY: 0000278327 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 431145889 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07815 FILM NUMBER: 96665479 BUSINESS ADDRESS: STREET 1: ONE CITY CENTRE STREET 2: 515 N SIXTH ST CITY: ST LOUIS STATE: MO ZIP: 63101 BUSINESS PHONE: 3145893261 MAIL ADDRESS: STREET 1: ONE CITY CENTRE STREET 2: 515 N 6TH ST CITY: ST LOUIS STATE: MO ZIP: 63101 10-Q 1 TRANS WORLD AIRLINES, INC. FORM 10-Q 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-7815 TRANS WORLD AIRLINES, INC. (Exact name of registrant as specified in its charter) DELAWARE 43-1145889 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) ONE CITY CENTRE 515 N. SIXTH STREET ST. LOUIS, MISSOURI 63101 (Address of principal executive offices, including zip code) (314) 589-3000 (Registrant's telephone number, including area code) ----------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
OUTSTANDING AS OF CLASS NOVEMBER 1, 1996 ----------------------- ----------------- Common Stock, par value $0.01 per share 41,277,734
In addition, as of November 1, 1996 there were 6,287,290 shares of Employee Preferred Stock outstanding. =============================================================================== 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS FOR THE TWO MONTHS ENDED AUGUST 31, 1995, THE ONE MONTH ENDED SEPTEMBER 30, 1995, AND THE THREE MONTHS ENDED SEPTEMBER 30, 1996 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
PREDECESSOR COMPANY REORGANIZED COMPANY ----------- ------------------------------- TWO MONTHS ONE MONTH THREE MONTHS ENDED ENDED ENDED AUGUST 31, SEPTEMBER 30, SEPTEMBER 30, 1995 1995 1996 ----------- ------------- ------------- Operating revenues: Passenger.............................................. $588,038 $250,669 $ 874,275 Freight and mail....................................... 23,849 11,957 38,548 All other.............................................. 53,642 31,264 90,044 -------- -------- ---------- Total.......................................... 665,529 293,890 1,002,867 -------- -------- ---------- Operating expenses: Salaries, wages and benefits........................... 193,142 95,926 317,527 Earned stock compensation.............................. 55,767 418 (735) Aircraft fuel and oil.................................. 83,517 38,561 162,382 Passenger sales commissions............................ 53,499 23,634 75,960 Aircraft maintenance materials and repairs............. 19,945 10,298 53,529 Depreciation and amortization.......................... 25,607 13,964 39,518 Operating lease rentals................................ 44,842 23,818 77,270 Passenger food and beverages........................... 17,599 9,052 31,218 Special charges........................................ 1,730 -- -- All other.............................................. 133,360 68,911 220,179 -------- -------- ---------- Total.......................................... 629,008 284,582 976,848 -------- -------- ---------- Operating income........................................... 36,521 9,308 26,019 -------- -------- ---------- Other charges (credits): Interest expense....................................... 16,361 11,283 30,864 Interest and investment income......................... (3,148) (1,574) (5,421) Disposition of assets, gains and losses--net........... (132) 50 87 Reorganization items................................... 242,243 -- -- Other charges and credits--net......................... 1,804 1,864 (9,481) -------- -------- ---------- Total.......................................... 257,128 11,623 16,049 -------- -------- ---------- Income (loss) before income taxes and extraordinary items.................................................... (220,607) (2,315) 9,970 Provision (credit) for income taxes........................ (21) 32 16,875 -------- -------- ---------- Loss before extraordinary items............................ (220,586) (2,347) (6,905) Extraordinary items, net of income taxes................... 140,898 -- (7,420) -------- -------- ---------- Net loss................................................... (79,688) (2,347) (14,325) Preferred stock dividend requirements...................... 3,818 1,163 3,869 -------- -------- ---------- Loss applicable to common shares........................... $(83,506) $ (3,510) $ (18,194) ======== ======== ========== Per share amounts: Loss before extraordinary item......................... NM $ (.16) $ (.24) Extraordinary item..................................... NM -- (.16) -------- ---------- Net loss............................................... NM $ (.16) $ (.40) ======== ========== - -------- NM--``not meaningful'' See notes to condensed consolidated financial statements
2 3 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995, THE ONE MONTH ENDED SEPTEMBER 30, 1995, AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
PREDECESSOR COMPANY REORGANIZED COMPANY ------------ ------------------------------- EIGHT MONTHS ONE MONTH NINE MONTHS ENDED ENDED ENDED AUGUST 31, SEPTEMBER 30, SEPTEMBER 30, 1995 1995 1996 ------------ ------------- ------------- Operating revenues: Passenger.............................................. $1,929,166 $250,669 $2,391,207 Freight and mail....................................... 94,784 11,957 111,495 All other.............................................. 194,405 31,264 248,406 ---------- -------- ---------- Total.......................................... 2,218,355 293,890 2,751,108 ---------- -------- ---------- Operating expenses: Salaries, wages and benefits........................... 755,708 95,926 923,288 Earned stock compensation.............................. 55,767 418 4,306 Aircraft fuel and oil.................................. 296,833 38,561 432,849 Passenger sales commissions............................ 185,981 23,634 213,548 Aircraft maintenance materials and repairs............. 95,657 10,298 158,485 Depreciation and amortization.......................... 106,474 13,964 118,347 Operating lease rentals................................ 182,548 23,818 222,083 Passenger food and beverages........................... 68,137 9,052 84,052 Special charges........................................ 1,730 -- -- All other.............................................. 454,878 68,911 560,294 ---------- -------- ---------- Total.......................................... 2,203,713 284,582 2,717,252 ---------- -------- ---------- Operating income........................................... 14,642 9,308 33,856 ---------- -------- ---------- Other charges (credits): Interest expense....................................... 123,247 11,283 95,483 Interest and investment income......................... (10,366) (1,574) (17,247) Disposition of assets, gains and losses--net........... 206 50 62 Reorganization items................................... 242,243 -- -- Other charges and credits--net......................... (2,379) 1,864 (26,185) ---------- -------- ---------- Total.......................................... 352,951 11,623 52,113 ---------- -------- ---------- Loss before income taxes and extraordinary items........... (338,309) (2,315) (18,257) Provision (credit) for income taxes........................ (96) 32 493 ---------- -------- ---------- Loss before extraordinary items............................ (338,213) (2,347) (18,750) Extraordinary items, net of income taxes................... 140,898 -- (7,420) ---------- -------- ---------- Net loss................................................... (197,315) (2,347) (26,170) Preferred stock dividend requirements...................... 11,554 1,163 32,681 ---------- -------- ---------- Loss applicable to common shares........................... $ (208,869) $ (3,510) $ (58,851) ========== ======== ========== Per share amounts: Loss before extraordinary item and special preferred dividend requirements................................ NM $ (.16) $ (.73) Extraordinary item and special preferred dividend requirements......................................... NM -- (.63) -------- ---------- Net loss............................................... NM $ (.16) $ (1.36) ======== ========== - -------- NM--``not meaningful'' See notes to condensed consolidated financial statements
3 4 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND SEPTEMBER 30, 1996 (AMOUNTS IN THOUSANDS)
REORGANIZED COMPANY -------------------------------- DECEMBER 31, SEPTEMBER 30, 1995 1996 ------------ ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents............................................................... $ 304,340 $ 248,522 Receivables, less allowance for doubtful accounts, $13,517 in 1995 and $15,098 in 1996.................................................................................. 226,451 307,036 Spare parts, materials and supplies, less allowance for obsolescence, $2,201 in 1995 and $8,941 in 1996........................................................................ 143,374 142,288 Prepaid expenses and other.............................................................. 54,358 78,662 ---------- ---------- Total........................................................................... 728,523 776,508 ---------- ---------- Property: Property owned: Flight equipment.................................................................... 303,248 381,680 Prepayments on flight equipment..................................................... -- 31,411 Land, buildings and improvements.................................................... 54,722 59,163 Other property and equipment........................................................ 39,032 52,564 ---------- ---------- Total owned property............................................................ 397,002 524,818 Less accumulated depreciation....................................................... 18,769 54,612 ---------- ---------- Property owned--net............................................................. 378,233 470,206 ---------- ---------- Property held under capital leases: Flight equipment.................................................................... 172,812 172,812 Land, buildings and improvements.................................................... 54,761 54,761 Other property and equipment........................................................ 6,862 4,636 ---------- ---------- Total property held under capital leases........................................ 234,435 232,209 Less accumulated amortization....................................................... 12,602 37,858 ---------- ---------- Property held under capital leases--net......................................... 221,833 194,351 ---------- ---------- Total property--net......................................................... 600,066 664,557 ---------- ---------- Investments and other assets: Investments in affiliated companies..................................................... 98,156 107,888 Investments, receivables and other...................................................... 165,471 191,465 Routes, gates and slots--net............................................................ 450,916 433,968 Reorganization value in excess of amounts allocable to identifiable assets--net......... 825,079 793,615 ---------- ---------- Total........................................................................... 1,539,622 1,526,936 ---------- ---------- $2,868,211 $2,968,001 ========== ========== See notes to condensed consolidated financial statements
4 5 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND SEPTEMBER 30, 1996 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
REORGANIZED COMPANY --------------------------------- DECEMBER 31, SEPTEMBER 30, 1995 1996 ------------ ------------- (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt.................................................... $ 67,566 $ 88,802 Current obligations under capital leases................................................ 42,835 44,298 Advance ticket sales.................................................................... 209,936 303,175 Accounts payable, trade and other....................................................... 145,318 200,850 Accrued expenses: Employee compensation and benefits.................................................. 119,353 119,796 Interest on debt and capital leases................................................. 44,710 29,155 Taxes............................................................................... 16,995 19,674 Other accrued expenses.............................................................. 193,380 229,895 ---------- ---------- Total accrued expenses.......................................................... 374,438 398,520 ---------- ---------- Total........................................................................... 840,093 1,035,645 ---------- ---------- Long-term liabilities and deferred credits: Long-term debt, less current maturities................................................. 764,031 631,508 Obligations under capital leases, less current obligations.............................. 259,630 229,373 Postretirement benefits other than pensions............................................. 461,346 437,172 Noncurrent pension liabilities.......................................................... 21,253 20,974 Other noncurrent liabilities and deferred credits....................................... 157,573 119,825 ---------- ---------- Total........................................................................... 1,663,833 1,438,852 ---------- ---------- Mandatorily redeemable 12% preferred stock (aggregate liquidation preference of $111,179 in 1995)..................................................................................... 61,430 -- ---------- ---------- Shareholders' equity: 8% cumulative convertible exchangeable preferred stock, $50 liquidation preference; 3,869 shares issued and outstanding................................................... -- 39 Employee preferred stock, $0.01 liquidation preference, special voting rights; shares issued and outstanding: 1995--5,301; 1996--5,715...................................... 53 57 Common stock, $0.01 par value, shares issued and outstanding: 1995--35,129; 1996--40,988............................................................ 351 410 Additional paid-in capital.............................................................. 332,589 549,306 Accumulated deficit..................................................................... (30,138) (56,308) ---------- ---------- Total........................................................................... 302,855 493,504 ---------- ---------- $2,868,211 $2,968,001 ========== ========== See notes to condensed consolidated financial statements
5 6 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995, THE ONE MONTH ENDED SEPTEMBER 30, 1995, AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (AMOUNTS IN THOUSANDS) (UNAUDITED)
PREDECESSOR COMPANY REORGANIZED COMPANY ------------ ------------------------------- EIGHT MONTHS ONE MONTH NINE MONTHS ENDED ENDED ENDED AUGUST 31, SEPTEMBER 30, SEPTEMBER 30, 1995 1995 1996 ------------ ------------- ------------- Cash flows from operating activities: Net loss............................................................... $(197,315) $ (2,347) $ (26,170) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Employee earned stock compensation............................. 55,767 418 4,306 Depreciation and amortization.................................. 106,474 13,964 118,347 Amortization of discount and expenses on debt.................. 12,472 728 8,096 Extraordinary loss on exchange of debt for equity.............. -- -- 7,420 Interest paid in common stock.................................. -- -- 11,332 Equity in undistributed earnings of affiliates not consolidated................................................. (2,339) 780 (9,733) Net (gains) losses on disposition of property and noncurrent investment assets............................................ 206 50 62 Reorganization items........................................... 242,243 -- -- Extraordinary gain on cancellation of debt..................... (140,898) -- -- Change in operating assets and liabilities: Decrease (increase) in: Receivables.................................................... (62,094) (12,772) (80,585) Inventories.................................................... 5,866 (2,378) (3,326) Prepaid expenses and other current assets...................... (2,505) 506 (24,304) Other assets................................................... 3,163 (154) 5,831 Increase (decrease) in: Accounts payable and accrued expenses.......................... 105,084 8,580 72,163 Advance ticket sales........................................... 81,598 12,974 93,239 Benefits, other noncurrent liabilities and deferred credits.... (27,667) 2,754 (60,033) --------- --------- --------- Net cash provided.......................................... 180,055 23,103 116,645 --------- --------- --------- Cash flows from investing activities: Proceeds from sales of property........................................ 2,221 209 5,916 Capital expenditures................................................... (16,554) (1,788) (109,885) Net decrease (increase) in investments, receivables and other.......... 14,926 4,780 (35,164) --------- --------- --------- Net cash provided (used)................................... 593 3,201 (139,133) --------- --------- --------- Cash flows from financing activities: Proceeds from long-term debt issued.................................... -- -- 2,750 Repayment on long-term debt and capital lease obligations.............. (62,158) (11,346) (140,063) Fees paid in connection with Equity Rights offering.................... -- (3,442) -- Net proceeds from sale of preferred stock.............................. -- -- 186,163 Redemption of 12% Preferred Stock including accrued dividends.......... -- -- (84,874) Cash dividends paid on preferred stock................................. -- -- (7,495) Increase (decrease) in bank overdrafts and other....................... 3,092 (2,647) 10,189 --------- --------- --------- Net cash used.............................................. (59,066) (17,435) (33,330) --------- --------- --------- Net increase (decrease) in cash and cash equivalents....................... 121,582 8,869 (55,818) Cash and cash equivalents at beginning of period........................... 138,531 260,113 304,340 --------- --------- --------- Cash and cash equivalents at end of period................................. $ 260,113 $ 268,982 $ 248,522 ========= ========= ========= See notes to condensed consolidated financial statements
6 7 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE EIGHT MONTHS ENDED AUGUST 31, 1995, THE ONE MONTH ENDED SEPTEMBER 30, 1995, AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (AMOUNTS IN THOUSANDS) (UNAUDITED) SUPPLEMENTAL CASH FLOW INFORMATION
PREDECESSOR REORGANIZED COMPANY COMPANY ---------------------------- ------------ ONE MONTH NINE MONTHS EIGHT MONTHS ENDED ENDED ENDED SEPTEMBER SEPTEMBER AUGUST 31, 30, 30, 1995 1995 1996 ------------ ------------ ------------ Cash paid during the period for: Interest.................................................................. $55,878 $11,646 $86,465 ======= ======= ======= Income taxes.............................................................. $ 39 $ 27 $ 127 ======= ======= ======= Noncash operating, investing and financing activities: Promissory notes issued to finance aircraft acquisition................... $ -- $ -- $10,565 ======= ======= ======= Promissory notes issued to finance aircraft predelivery payments.......... $ -- $ -- $12,202 ======= ======= ======= Property acquired and obligations recorded under new capital lease transactions............................................................ $12,690 $ -- $ 2,333 ======= ======= ======= Partial interest on debt paid in kind, issued and valued at principal amount.................................................................. $18,496 $ -- $ -- ======= ======= ======= Common Stock issued in lieu of cash dividends............................. $ -- $ -- $ 3,255 ======= ======= ======= Exchange of long-term debt for common stock: Debt cancelled including accrued interest, net of unamortized discount.............................................................. $ -- $ -- $38,229 Common stock issued, at fair value...................................... -- -- 45,649 ======= ======= ======= Extraordinary loss...................................................... $ -- $ -- $ 7,420 ======= ======= =======
ACCOUNTING POLICY For purposes of the Statements of Condensed Consolidated Cash Flows, TWA considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. See notes to condensed consolidated financial statements 7 8 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 (UNAUDITED) During the period from 1992 through 1995, Trans World Airlines, Inc. (``TWA'' or the ``Company'') underwent two separate Chapter 11 reorganizations, the first in 1992-93 (the `` '93 Reorganization'') and the second in 1995 (the `` '95 Reorganization''). In connection with the '95 Reorganization TWA has applied fresh start reporting in accordance with generally accepted accounting principles resulting in the Company's assets and liabilities being adjusted to reflect fair values. Because of the application of fresh start reporting, the consolidated financial statements for periods after the '95 Reorganization are not comparable in all respects to the consolidated financial statements of the Predecessor Company for periods prior to the reorganization. For accounting purposes the inception date of the Reorganized Company is deemed to be September 1, 1995. A vertical black line is shown in the consolidated financial statements to separate the Reorganized Company from the Predecessor Company since they are not comparable. 1. BASIS OF PRESENTATION The consolidated financial statements include the accounts of TWA and its subsidiaries. The results of Worldspan, L.P. (``Worldspan''), a 25% owned affiliate, are recorded under the equity method and are included in the Condensed Statements of Consolidated Operations in Other Charges (Credits). The unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission but do not include all information and footnotes required by generally accepted accounting principles pursuant to such rules and regulations. The condensed consolidated financial statements include all adjustments, which are of a normal recurring nature and are necessary, in the opinion of management, for a fair presentation of the results for these interim periods. These condensed consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. The consolidated balance sheet at December 31, 1995 has been derived from the audited consolidated financial statements at that date. Certain amounts previously reported have been reclassified to conform with the current presentation. 2. SEASONALITY The airline industry generally, and TWA specifically, has historically experienced seasonal changes between quarterly periods, with the second and third quarters usually out-performing the first and fourth. Accordingly, the results for the three and nine months ended September 30, 1996, should not be read as an indicator of future results for the full year. 3. ACCOUNTING FOR LONG-TERM GOVERNMENT CONTRACTS As required by the percentage of completion method of accounting, the Company recorded its estimate of future losses under a Department of Defense contract to maintain aircraft, when it became apparent during the third quarter that certain changes in policies and procedures and contract modifications would not result in the contract being profitable. In October 1996, the Company announced it had begun discussions with the Department of Defense to phase out the program. The contract will not be renewed in 1997. Although the amount of estimated future losses recorded in the third quarter was not material, the actual losses could vary based upon the actual work performed before the contract ends. Additionally, in November 1996, discussions relating to the phase-out of the contract had progressed to the extent that the Company currently estimates various costs of at least $5.4 million to exit the contract. Such estimated costs will be recorded in the fourth quarter. 8 9 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. INCOME TAXES Income tax expense is recorded each quarter based on the estimated annual effective rate. The tax provision recorded in the third quarter reflects the reversal of previously recorded tax benefits, as management currently expects a taxable loss at year-end and the realization of the benefits of any such tax loss in future periods is presently subject to substantial uncertainty. 5. EXTRAORDINARY ITEM In the three months ended September 30, 1996 the Company consummated a series of privately negotiated exchanges with a significant holder of 12% Senior Secured Reset Notes which resulted in the return to the Company of $42.0 million in 12% Senior Secured Reset Notes and approximately $1.4 in accrued interest thereon in exchange for the issuance of approximately 4.0 million shares of Company Common Stock. All 12% Senior Secured Reset Notes returned will be canceled leaving an outstanding principal balance of such notes of approximately $128 million. As a result of the exchange of the 12% Senior Secured Reset Notes, the Company incurred an extraordinary non-cash charge of $7.4 million in the third quarter of 1996 representing the difference between the fair value of the common stock issued (based upon the trading price of the Company's common stock on the dates of the exchanges net of purchaser's discount) and the carrying value of the 12% Senior Secured Reset Notes retired. There is no associated tax effect since a taxable loss is expected for the year. 6. LOSS PER SHARE In computing the loss applicable to common shares for the three months and nine months ended September 30, 1996, the net loss has been increased by dividend requirements on the Mandatorily Redeemable 12% Preferred Stock (the ``12% Preferred Stock'') (including amortization of the difference between the fair value of the 12% Preferred Stock on the date of issuance and the redemption value plus, with respect to the March 22, 1996 call for the redemption, a special dividend requirement of approximately $20.0 million in the nine months ended September 30, 1996 to reflect the excess of the early redemption price over the carrying value of the 12% Preferred Stock), and on the 8% Cumulative Convertible Exchangeable Preferred Stock (the ``8% Preferred Stock'') issued in March 1996. In computing the related net loss per share, the loss applicable to common shares has been divided by the average aggregate number of outstanding shares of Common Stock (39.3 million and 37.5 million for the three months and nine months ended September 30, 1996, respectively) and Employee Preferred Stock (5.7 million and 5.6 million for the three months and nine months ended September 30, 1996, respectively) which, with the exception of certain special voting rights, is the functional equivalent of Common Stock. No effect has been given to stock options, warrants or potential issuances of additional Common Stock or Employee Preferred Stock in the three month and nine month periods ended September 30, 1996 as their impact would have been anti-dilutive. Fully diluted earnings per share has not been presented for the three month and nine month periods ended September 30, 1996 as the assumed conversion of the 8% Preferred Stock into Common Stock would have been anti-dilutive. Earnings per share of the Predecessor Company are not presented as the amounts are not meaningful. 7. PREFERRED STOCK In March 1996, the Company completed an offering, pursuant to Rule 144A of the Securities Act of 1933 (the ``Act''), of 3,869,000 shares of its 8% Preferred Stock, with a liquidation preference of $50 per share. Each share of the 8% Preferred Stock may be converted at any time, at the option of the holder, unless previously redeemed or exchanged, into shares of Common Stock at a conversion price of $20.269 per share (equivalent to a conversion rate of approximately 2.467 shares of Common Stock for each share of 8% Preferred Stock), subject to adjustment. Pursuant to the registration rights agreement between the Company and the initial purchasers of the 8% Preferred Stock, the Company was obligated to register resales of the 8% Preferred Stock, the Debentures (as defined below), and the underlying shares of Common Stock issuable upon conversion thereof by August 19, 1996. In addition, the Company must use its best efforts to keep the shelf registration effective until March 22, 1999. 9 10 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The 8% Preferred Stock may not be redeemed prior to March 15, 1999. On or after March 15, 1999, the 8% Preferred Stock may be redeemed, in whole or in part, at the option of the Company, at specified redemption prices. The 8% Preferred Stock may be exchanged, in whole but not in part, at the option of the Company, for the Company's 8% Convertible Subordinated Debentures Due 2006 (the ``Debentures'') on any dividend payment date beginning March 15, 1998 at the rate of $50 principal amount of Debentures for each share of 8% Preferred Stock outstanding at the time of exchange; provided that all accrued and unpaid dividends, whether or not earned or declared, on the 8% Preferred Stock to the date of exchange have been paid or set aside for payment and certain other conditions are met. On March 22, 1996, the Company announced a call for redemption on April 26, 1996 (the ``Redemption Date'') of all of its issued and outstanding 12% Preferred Stock. Such shares were redeemed at a redemption price per share equal to $75.00, plus accrued dividends to and including the Redemption Date, of $2.8667 per share. On April 26, 1996, the Company paid an aggregate of $84.9 million in redemption of the 12% Preferred Stock. 8. ACCOUNTING FOR STOCK-BASED COMPENSATION On January 1, 1996, TWA adopted Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (``SFAS 123''). TWA elected to continue to apply the intrinsic value based method for recognizing compensation expense for stock-based employee compensation plans. Therefore the adoption of SFAS 123 had no impact on the Company's results of operations or financial position. 9. COMMITMENTS AND CONTINGENCIES (A) OPERATING ENVIRONMENT The airline industry operates in an intensely competitive environment. The industry is also cyclical due to, among other things, a close relationship of yields and traffic to general U.S. and worldwide economic conditions. The Company has experienced significant losses (excluding extraordinary items) on an annual basis since the early 1990s including significant year end operating losses up to and including 1994. As a result of these losses, TWA underwent two separate Chapter 11 reorganizations as described previously. In 1995 the Company experienced a combined operating profit of $25.1 million and has, until this quarter, experienced six consecutive quarters of year-over-year improvement in operating results. Although an operating profit is reported for the nine months ended September 30, 1996 and load factors and overall revenues exceeded those for the comparable period in 1995, factors such as decreased revenue per available seat mile, increased fuel cost and increased maintenance expense beyond seasonal fluctuations, among other things, identified as adversely affecting third quarter financial performance are anticipated to continue. TWA is evaluating its business strategy to endeavor to improve operating performance and results. There can be no assurance that initiatives implemented in response to the current situation will be successful, or if successful that such initiatives will yield sufficient results to prevent a significant impact on fourth quarter and year end financial results. It is expected that as a result of this process the recorded values of assets and liabilities of the Company including the recoverability of intangibles will require adjustment for impairment and/or other reasons and such adjustment will be reflected in fourth quarter results of operations and could be material. See ``Management's Discussion and Analysis of Financial Condition and Results of Operations.'' (B) COMMITMENTS In February 1996, TWA executed definitive agreements providing for the operating lease of 10 new Boeing 757 aircraft to be delivered in 1996 and 1997, with deliveries commencing in July 1996. Although individual aircraft rentals escalate over the term of the leases, aggregate rental obligations are estimated to average approximately $51 million per annum over the lease terms after all 10 aircraft have been delivered. These aircraft have an initial lease term of 10 years. The Company took delivery of the first Boeing 757 aircraft on July 22, 1996. The Company also entered into an agreement in February 1996 with Boeing for the purchase of 10 new Boeing 757 aircraft with deliveries in February 1997 through May 1999. Under this agreement, the Company also acquired the right, subject to certain conditions, to 10 11 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) purchase up to 20 additional Boeing 757 aircraft. The estimated purchase price for the firm order aircraft and related spare parts and equipment is $550 million including an estimate for the price escalation factor. The Company has secured financing commitments from the engine and airframe manufacturers for approximately $420 million of the purchase price of the aircraft and related spare parts and equipment. The Company entered into an agreement to acquire fifteen new McDonnell Douglas MD-83s. The long-term leasing arrangement provides for delivery of the aircraft between the second half of 1997 and April 1999. During the nine months ended September 30, 1996, the Company entered into operating lease agreements for 7 additional aircraft; certain of these replaced 3 aircraft returned off lease. Rents are payable monthly over lease terms of 6 months to 10 years. Obligations under operating leases relating to the 7 additional aircraft will amount to approximately $14.4 million per year beginning in 1997 as a result. (C) CONTINGENCIES On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK en route to Paris, France. There were no survivors among the 230 passengers and crew members aboard the Boeing 747 aircraft. The Company is cooperating fully with all federal, state and local regulatory and investigatory agencies to ascertain the cause of the crash. TWA is unable to predict the amount of claims relating to the crash which may ultimately be made against the Company and how those claims might be resolved. TWA maintains substantial insurance coverage and, at this time, management has no reason to believe that such insurance coverage will not be sufficient to cover any claims arising from the crash. Therefore, TWA believes that the resolution of any claims will not have a material adverse effect on its financial condition or results of operations. The Company is unable to identify or predict the extent of any adverse effect on its revenues, yields or results of operations which has resulted or may result from the public perception of the crash. The Company is also defending a number of other actions which have arisen in the ordinary course of business, and are insured or the likely outcome of which the management of the Company does not believe may reasonably be expected to be materially adverse to the Company's financial condition. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements made in this Form 10-Q relating to plans, conditions, objectives and economic performance go beyond historical information and may provide an indication of future results. To that extent, they are forward- looking statements within the meaning of Section 21E of the Exchange Act, and each of them is therefore subject to risks, uncertainties, and assumptions that could cause actual results to differ from those in the forward-looking statement. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Some of the uncertainties that might adversely impact TWA's future results of operations include, but are not limited to, those described below. The airline industry operates in an intensely competitive environment. The industry is also cyclical due to, among other things, a close relationship of yields and traffic to general U.S. and worldwide economic conditions. Small fluctuations in revenue per available seat mile (``RASM'') and cost per available seat mile can have a significant impact on the Company's financial results. The Company has experienced significant losses (excluding extraordinary items) on an annual basis since the early 1990s, including significant year-end operating losses up to and including 1994. Factors contributing to these losses included, among other things, excess financial leverage, adverse publicity associated with the Company's financial difficulties; excessive labor costs; the periods of a relatively weak economy, which resulted in weak air travel demand; poor operating performance; and domestic pricing policies of other airlines, which decreased industry revenue yields and generated intense competition. As a result of these losses, TWA underwent two separate Chapter 11 reorganizations, the first in 1992-93 and the second in 1995. In connection with the '95 Reorganization, TWA has applied fresh start reporting in accordance with SOP 90-7, which resulted in the creation of a new reporting entity for accounting purposes and the Company's assets and liabilities being adjusted to reflect fair values on the effective date of the '95 Reorganization. A description of the adjustments to the financial statements arising from the consummation of the '95 Reorganization and the application of fresh start reporting is contained in Note 17 to the 1995 Consolidated Financial Statements. For accounting purposes, the effective date of the '95 Reorganization is deemed to be September 1, 1995. Because of the application of fresh start reporting, the financial statements for periods after the '95 Reorganization are not comparable in all respects to the financial statements for periods prior to the reorganization. As discussed below under ``--Liquidity and Capital Resources,'' pursuant to the '95 Reorganization, the Company initially improved its financial condition and operating performance by, among other things, reducing labor and other operating and financing costs, rescheduling debt payments, recapitalizing the Company's equity securities and certain of its debt, revising the Company's route structure to capitalize further on its strength in St. Louis and developing enhanced marketing systems. Pursuant to the '95 Reorganization, the Company eliminated approximately $500 million in face amount (approximately $300 million book value) of debt from its balance sheet. In addition, the maturity of the Icahn Loans was extended from January 8, 1995 to January 8, 2001, and the Company negotiated an aggregate of $91 million of aircraft lease and conditional sale agreement deferrals for various periods of time, with a weighted average life of approximately two years. In 1995 the Company experienced a combined operating profit of $25.1 million and had, until this quarter, experienced six consecutive quarters of year-over-year improvement in operating results. Although an operating profit is shown for the nine months ended September 30, 1996 and load factors and overall revenues exceeded those for the comparable period in 1995, the following factors, among others, adversely affected third quarter financial performance: * a decline in RASM attributable in part to the loss of Flight 800, pricing issues, a capacity growth concentration in low-yield markets, and an unusually high level of domestic flight cancellations; * increased fuel prices; and * increased maintenance costs including both materials and labor. The Company anticipates these factors identified above will likely result in 1996 fourth quarter and annual financial performance worse than the same periods of 1995 (excluding restructuring and extraordinary items). The Company is reassessing its business strategy, including its fleet plan, route structure and facility requirements in an effort to accelerate the cost reductions and efficiencies envisioned by, but not yet obtained, under the business plan as a result of the replacement of a number of older, less efficient aircraft with more modern, 12 13 technologically advanced, twin engine, two-pilot aircraft and ``right-sizing'' its fleet to conform better to the requirements of its route structure and to improve operating results. The Company has adjusted flight schedules in an attempt to produce a more manageable level of flying and improve operational performance. The Company also significantly adjusted its maintenance program by committing to make significant expenditures designed to improve schedule reliability, is negotiating the termination of a contract with the U.S. government to provide maintenance services under the C-9 governmental program to allow for the redeployment of resources to TWA's maintenance effort. Senior management and the leaders of the three major unions (IAM, ALPA and IFFA) have commenced a series of meetings to identify measures that may be implemented in an attempt to respond and reverse the impact on financial results of the decline in yield and advance bookings and the increase in maintenance costs experienced in the third quarter. Senior management and the labor groups are also examining ways in which the Company's business strategy may be adjusted to address operational difficulties encountered in connection with growing the airline. There can be no assurance that initiatives implemented and to be implemented in response to the current situation will be successful, or if successful that such initiatives will yield sufficient results to prevent a significant impact on future financial results. See ``Results of Operations for the Three Months Ended September 30, 1996 Compared to the Two Months ended August 31, 1995 and the One Month Ended September 30, 1995.'' It is expected that as a result of this process the recorded values of assets and liabilities of the Company including the recoverability of intangibles, will require adjustment for impairment and/or other reasons and such adjustment will be reflected in fourth quarter results of operations and could be material. GENERAL Significant variations in annual operating revenues and operating expenses have been experienced historically by TWA and are expected to continue in the future. Numerous uncertainties concerning the level of revenues and expenses always exist and it is not possible to predict the potential impact of such uncertainties upon TWA's results of operations. Among the uncertainties that might adversely impact TWA's future results of operations are: (i) competitive pricing and scheduling initiatives; (ii) the availability and cost of capital; (iii) increases in fuel and other operating costs; (iv) insufficient levels of air passenger traffic resulting from, among other things, war, threat of war, terrorism or changes in the economy; (v) governmental limitations on the ability of TWA to service certain airports and/or foreign markets; (vi) regulatory requirements requiring additional capital expenditures; (vii) the possible reduction in yield due to a discount ticket program entered into by the Company with Karabu Corporation (``Karabu''), a Delaware corporation controlled by Mr. Carl C. Icahn, in connection with the '95 Reorganization; and (viii) the impact of the public's perception of the crash of Flight 800. See ``--Liquidity and Capital Resources--Contingencies.'' On July 17, 1996, TWA Flight 800 crashed shortly after departure from JFK en route to Paris, France. There were no survivors among the 230 passengers and crew members aboard the Boeing 747 aircraft. The Company is cooperating fully with all federal, state and local regulatory and investigatory agencies to ascertain the cause of the crash. TWA is unable to predict the amount of claims relating to the crash which may ultimately be made against the Company and how those claims might be resolved. TWA maintains substantial insurance coverage and, at this time, management has no reason to believe that such insurance coverage will not be sufficient to cover the claims arising from the crash. Therefore, TWA believes that the resolution of such claims will not have a material adverse effect on its financial condition or results of operations. The Company is unable to identify or predict the extent of any adverse effect on its revenues, yields or results of operations which has resulted or may result from the public perception of the crash. Due to, among other things, management's need to devote its attention to providing assistance to the families of passengers and crew members of Flight 800, as well as cooperating in the investigation of the crash, the Company postponed its proposed offering of 8,000,000 shares of Common Stock pursuant to a Registration Statement on Form S-3 (Reg. No. 333-05691) previously filed with the Commission on June 11, 1996. Subsequent market conditions and results of operations have continued the delay of the offering. The Company's operating results for any interim period are not necessarily indicative of those for the entire year due to seasonal fluctuations. First and fourth quarter operating results typically reflect operating and net losses, while 13 14 second and third quarter results have historically been more favorable for the Company and others in the airline industry due to increased leisure travel during the spring and summer months. TWA has no unused credit lines and must satisfy substantially all of its working capital and capital expenditure requirements from cash provided by operating activities or from external capital sources or from the sale of assets. TWA has relatively few assets which it could monetize, substantially all of such assets being subject to various liens and security interests which would restrict and/or limit the ability of TWA to realize any significant proceeds from the sale thereof. The postponement in consummating the proposed offering of common stock and constraints on access to capital has impaired the Company's ability to make certain discretionary capital expenditures or implement certain other aspects of its strategic plan. During 1994, the Company entered into labor agreements with the three unions which together represent a majority of the Company's employees (the ``'94 Labor Agreements'') and which substantially reduced the Company's labor costs. The '94 Labor Agreements will become amendable in the latter half of 1997. While the Company cannot predict the precise wage rates that will be in effect at such time (since such rates will be determined by subsequent events), the wage rates then in effect will likely increase. However, management believes that it is essential that the Company's labor costs remain favorable in comparison to its largest competitors. The Company will seek to continue to improve employee productivity and will continue to explore other ways to control and/or reduce operating expenses although no assurances can be given that such improvements will occur. The Company's ability to improve its financial position and meet its financial obligations will depend upon a variety of factors, including: improved operating performance, favorable domestic and international airfare pricing environments, absence of adverse general economic conditions, continued more effective operating cost control measures, and the Company's ability to attract new capital. No assurance can be given that the Company will be successful in generating the operating results or attracting new capital required for future viability. RESULTS OF OPERATIONS TWA's passenger traffic data, for scheduled passengers only and excluding Trans World Express, Inc. a wholly-owned subsidiary of the Company that provided a commuter feed service to the Company's New York hub prior to November, 1995, are shown in the table below for the indicated periods:
NINE MONTHS ENDED THREE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, ---------------------------------- -------------------- -------------------- 1993 1994 1995 1995 1996 1995 1996 ------ ------ ------ ------ ------ ------ ------ TOTAL SYSTEM Revenue passenger miles (millions)................. 22,664 24,906 24,902 18,952 20,906 7,342 8,028 Available seat miles (millions)................. 35,678 39,191 37,905 28,509 30,708 10,502 11,450 Passenger load factor ....... 63.5% 63.5% 65.7% 66.5% 68.1% 69.9% 70.1% Passenger yield (cents)...... 11.35(cents) 11.31(cents) 11.39(cents) 11.33(cents) 11.44(cents) 11.25(cents) 10.89(cents) Passenger revenue per available seat mile (cents).......... 7.21(cents) 7.19(cents) 7.48(cents) 7.53(cents) 7.79(cents) 7.86(cents) 7.64(cents) Total revenue per available seat mile (cents)................... 8.19(cents) 8.23(cents) 8.39(cents) 8.43(cents) 8.71(cents) 8.69(cents) 8.49(cents) Operating cost per available seat mile (cents)............... 8.89(cents) 8.27(cents) 8.12(cents) 8.09(cents) 8.58(cents) 7.66(cents) 8.27(cents) Average daily utilization per aircraft (hours)........... 9.23 9.30 9.45 9.43 9.82 9.71 9.90 Aircraft in fleet being operated at end of period............... 186 185 188 185 191 185 191 - -------- Excludes subsidiary companies. The number of scheduled miles flown by revenue passengers. The number of seats available for passengers multiplied by the number of scheduled miles those seats are flown. Revenue passenger miles divided by available seat miles. 14 15 Passenger revenue per revenue passenger mile. Passenger revenue divided by available seat miles. Operating expenses, excluding special charges, earned stock compensation and other nonrecurring charges, divided by available seat miles. The average block hours flown per day in revenue service per aircraft.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE TWO MONTHS ENDED AUGUST 31, 1995 AND THE ONE MONTH ENDED SEPTEMBER 30, 1995 Total operating revenues of $1,002.9 million for the third quarter of 1996 were $43.4 million or 4.5% more than the comparable 1995 period, primarily because of a $35.6 million or 4.2% increase in passenger revenue and a $5.7 million increase in contract revenue. Capacity and traffic increased in the third quarter of 1996 from the comparable period of 1995. System capacity as measured by scheduled Available Seat Miles (``ASMs'') increased by 9.0% during the third quarter of 1996 as compared to the same period of 1995 reflecting increases in both international and domestic capacity. Passenger traffic volume, as measured by total Revenue Passenger Miles (``RPMs'') in scheduled service, increased 9.3% as compared to the same period of 1995. Passenger load factor for the quarter ended September 30, 1996 was 70.1% compared to 69.9% in the same period of 1995. TWA's yield per passenger mile for the third quarter of 1996 decreased by 3.2% from the comparable 1995 period to 10.89 cents from 11.25 cents. Operating expenses of $976.8 million in the third quarter of 1996 were $63.3 million or 6.9% more than the combined operating expenses of $913.6 million in the third quarter of 1995, due primarily to the following changes: * Salaries, wages and benefits of $317.5 million for the third quarter of 1996 were $28.5 million or 9.9% more than the third quarter of 1995, primarily due to an increase in the average number of employees, overtime costs required due to poor operating performance in 1996 and lower productivity levels. The Company had an average of 25,017 employees in the third quarter 1996 as compared to 23,125 in 1995. * Earned stock compensation was a credit of $0.7 million in the three months ended September 30, 1996, as compared to a charge of $56.2 million in the combined three month period ended September 30, 1995. The substantial charge in 1995 was primarily attributable to the distribution of shares to employees in connection with the '95 Reorganization. Additionally, pursuant to the '95 Restructuring certain shares are to be allocated to ALPA represented employees in the future. On an interim basis, the charge to earnings is estimated based upon the number of the shares earned to date and the current fair value of the shares. Upon allocation to employees, the charge is adjusted to reflect the then current value of the shares. A decline in the fair market value trading price of the Company's common stock in the third quarter of 1996 resulted in the reversal of previously recorded costs. * Aircraft fuel and oil of $162.4 million was $40.3 million higher than in the third quarter of 1995, primarily due to an increase in the price of fuel. * Aircraft maintenance materials and repairs of $53.5 million in the third quarter of 1996 represented an increase of $23.3 million or 77.0% compared to the third quarter of 1995, primarily as a result of higher levels of scheduled maintenance, including heavy maintenance, than in 1995; a 5.2% increase in flying hours and increased repair work performed by the Company for other air carriers and third parties. * Operating lease rentals of $77.3 million in the third quarter of 1996 were $8.6 million or 12.5% more than the third quarter of 1995, primarily as a result of an increase in the average number of leased aircraft from 120 in 1995 to 126 in 1996. * All other operating expenses of $220.2 million in the third quarter of 1996 increased by $17.9 million or 8.9% over the third quarter of 1995 primarily because of the increase in capacity and passenger traffic. As a result of the above, operating income of $26.0 million for the third quarter of 1996 was $19.8 million less than the combined operating income of $45.8 million for the third quarter of 1995. Other charges (credits) were a net charge of $16.0 million in the third quarter of 1996 as compared to $268.8 million in the third quarter of 1995. The two months ended August 31, 1995 included a charge of $242.3 million for reorganization items in connection with the application of fresh start reporting pursuant to the '95 Reorganization. Interest expense increased $3.2 million in the third quarter of 1996 over the comparable period in 1995, principally as 15 16 a result of certain adjustments made to reflect the consummation of the '95 Reorganization which reduced interest expense in the two months ended August 31, 1995. Interest income increased by $.7 million in the third quarter of 1996, primarily as the result of higher levels of invested funds. Other charges and credits-net totaled a credit of $9.5 million in the third quarter of 1996, as compared with a combined charge of $3.7 million in the third quarter of 1995. This improvement was primarily attributable to a $4.3 million increase in the Company's share of the earnings of Worldspan and $6.0 million in restructuring expenses incurred in the third quarter of 1995. A tax provision of $16.9 million was recorded in the third quarter of 1996. A tax benefit of $16.4 million was recorded in the first six months of 1996, based upon the operating results to date and management's expectations at that time relative to the operating results likely to be achieved for second half of 1996. Actual third quarter results were substantially below those expectations and management now expects that it will experience a taxable loss for the full year. Accordingly, the tax provision recorded in the third quarter reflects the reversal of previously recorded tax benefits, as the realization of the benefits of any such tax loss in future periods is presently subject to substantial uncertainty. Pursuant to a series of privately negotiated transactions with a holder of the Company's 12% Senior Secured Reset Notes due 1998 (the 12% Senior Notes), in the third quarter of 1996 the Company issued approximately 4.0 million shares of common stock in exchange for $42.0 million principal amount of 12% Notes and related accrued interest. All 12% Senior Secured Reset Notes returned will be canceled leaving an outstanding principal balance of such notes of approximately $128 million dollars. As a result, the extraordinary charge in the third quarter of 1996 represents the difference between the fair value of the common stock issued (based upon the trading price of the Company's common stock on the dates of the exchanges) and the carrying value of the 12% Senior Notes retired. The extraordinary gain of $140.9 million in the two months ended August 31, 1995 resulted from the consumation of the '95 Reorganization. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE EIGHT MONTHS ENDED AUGUST 31, 1995 AND THE ONE MONTH ENDED SEPTEMBER 30, 1995 Total operating revenues of $2,751.1 million for the nine months ended September 30, 1996 were $238.9 million or 9.5% more than the comparable 1995 period, primarily because of a $211.4 million or 9.7% increase in passenger revenue and a $16.2 million increase in contract revenue. Capacity and traffic increased in the nine months ended September 30, 1996 from the comparable period of 1995. Capacity as measured by scheduled ASMs increased by 7.7% during the nine months ended September 30, 1996 as compared to the same period of 1995 reflecting increases in both international and domestic capacity. Passenger traffic volume, as measured by total RPMs in scheduled service, increased 10.3% as compared to the same period of 1995. Passenger load factor for the nine months ended September 30, 1996 was 68.1% compared to 66.5% in the same period of 1995. TWA's yield per passenger mile for the nine months ended September 30, 1996 increased by 1.0% over the comparable 1995 period to 11.44 cents from 11.33 cents. Operating expenses of $2,717.3 million for the nine months ended September 30, 1996 were $229.0 million or 9.2% more than the operating expenses of $2,488.3 million in the same period of 1995, due primarily to the following changes: * Salaries, wages and benefits of $923.3 million for the nine months ended September 30, 1996 were $71.7 million or 8.4% more than the same period in 1995, primarily due to an increase in the average number of employees, overtime costs required due to poor operating performance in 1996 and lower productivity levels. The Company had on average 24,212 employees in 1996 as compared to 22,798 in 1995. * Earned stock compensation of $4.3 million for the nine months ended September 30, 1996 and $56.2 million in the same period of the prior year represents primarily the non-cash compensation charge recorded to reflect the expense associated with the distribution of shares of stock on behalf of employees as part of the '95 Reorganization. * Aircraft fuel and oil of $432.8 million was $97.5 million higher than in the corresponding period of 1995, primarily due to an increase in the price of fuel. 16 17 * Aircraft maintenance materials and repairs of $158.5 million for the nine months ended September 30, 1996 represented an increase of $52.5 million or 49.6% compared to the comparable period in 1995, primarily as a result of higher levels of scheduled maintenance, including heavy maintenance, than in 1995; a 5.6% increase in flying hours, increased repair work performed by the Company for other air carriers and third parties. * Operating lease rentals of $222.1 million for the nine months ended September 30, 1996 were $15.7 million or 7.6% more than the corresponding period in 1995, primarily as a result of an increase in the average number of leased aircraft from 118 in 1995 to 122 in 1996. * All other operating expenses of $560.3 million for the nine months ended September 30, 1996 increased by $36.5 million or 7.0% over the corresponding period in 1995 primarily because of the increase in capacity and passenger traffic. As a result of the above, operating income of $33.9 million for the nine months ended September 30, 1996 improved $9.9 million from the combined operating income of $24.0 million for the nine months ended September 30, 1995. Other charges (credits) were a net charge of $52.1 million for the nine months ended September 30, 1996 as compared to $364.6 million in the corresponding period in 1995. The eight months ended August 31, 1996 included a charge of $242.3 million for reorganization items in connection with the application of fresh start reporting pursuant to the '95 Reorganization. Interest expense decreased $39.0 million in the first nine months of 1996 over the comparable period in 1995 as a result of the reduction of debt arising from the '95 Restructuring. Interest income increased by $5.3 million in the first nine months of 1996, primarily as the result of higher levels of invested funds. Other charges and credits-net totaled a credit of $26.2 million in the first nine months of 1996, as compared with $.5 million in the same period of 1995. This improvement was primarily attributable to a $8.2 million increase in the Company's share of the earnings of Worldspan, $13.0 million in restructuring expenses incurred in the first nine months of 1995 and a $2.5 million credit to reflect the settlement of litigation in the first quarter of 1996. A tax provision of $.5 million was recorded in the nine months ended September 30, 1996. Such amount represents estimated current taxes payable; primarily state and foreign taxes. No tax benefits have been recognized for taxable losses, as the realization of any such benefits is presently subject to substantial uncertainty. The amortization of excess reorganization value and certain other items which are not deductible for income tax purposes could result in effective rates for financial reporting purposes in future periods in which taxable income occurs, if any, that are significantly higher than the current U.S. corporate statutory rate of 35%. The extraordinary charge in the nine months ended September 30, 1996 represents the loss on the extinguishment of debt previously discussed. LIQUIDITY AND CAPITAL RESOURCES The following is a discussion of the impact of significant factors affecting TWA's liquidity position and capital resources. Liquidity The Company's consolidated cash and cash equivalents at September 30, 1996 of $248.5 million was $55.8 million less than the December 31, 1995 balance of $304.3 million. Net cash provided from operating activities was $116.6 million for the nine months ended September 30, 1996 while $203.2 million was provided in the comparable 1995 period. Net investing activities used $142.9 million more cash for the nine months ended September 30, 1996 than the comparable 1995 period due primarily to increased capital expenditures and noncurrent investments and receivables. Net financing activities used $33.3 million of cash in 1996 versus $76.5 million in the comparable period of 1995, a decrease of $43.2 million. The net decrease in cash used by financing activities was favorably affected by the sale of 3,869,000 shares of 8% Preferred Stock for net proceeds to the Company of $186.2 million. On April 26, 1996, $84.9 million of such net proceeds were used to redeem the Company's 12% Preferred Stock. Without these transactions, financing activities would have used $134.6 million resulting in a net decrease in cash from December 31, 1995 of $157.1 million. 17 18 TWA typically operates with a working capital deficiency, which was $259.1 million at September 30, 1996, an increase of $147.5 million from the deficiency at December 31, 1995 of $111.6 million. Pursuant to the '95 Reorganization, the Company issued 600,000 ticket vouchers, each with a face value of $50.00, which may be used for a discount of up to 50% off the cost of a TWA airline ticket for transportation on TWA (``Ticket Vouchers''). Pursuant to certain agreements, the Company repurchased 236,000 Ticket Vouchers at an aggregate cost of $8.4 million in late 1995 and the first half of 1996. The Company elected to pay interest, due February 1, 1996, on its 12% Senior Secured Reset Notes, in shares of Common Stock. The amount of such interest, including the premium required for non-cash settlement, aggregated approximately $11.3 million, and resulted in the issuance of approximately 1.1 million shares of Common Stock. The Company paid interest due in August 1996 in cash and may elect to pay interest due in February 1997 in cash or through the issuance of additional shares of Common Stock. Interest due after February 1997 must be paid in cash. The Company elected to pay dividends due February 1, 1996 on its 12% Preferred Stock for the period from November 1, 1995 to and including January 31, 1996, in the amount of approximately $3.3 million, or 317,145 shares of Common Stock. As discussed above, the 12% Preferred Stock was redeemed in full on April 26, 1996. As noted elsewhere herein, in the third quarter the Company experienced (i) a decline in revenue per available seat mile as a result of, among other things, lower yield, a reduction in advanced bookings, a high level of domestic flight cancellations, (ii) substantially increased levels of fuel and maintenance expenses and (iii) an increased level of capital expenditures and payments on indebtedness, in each case over the comparable period of 1995. A number of these factors, particularly the increased levels of fuel and maintenance expense, are expected to continue to adversely influence the Company's liquidity into the fourth quarter and beyond. In addition, the historical seasonality of the Company's business typically results in reduced revenues during the fourth quarter. As a result of these factors, among others, it is anticipated that the Company's cash balances at December 31, 1996 will be reduced to a level significantly below that reported as of December 31, 1995. TWA has no unused credit lines and must satisfy all of its working capital and capital expenditure requirements from cash provided by operating activities, from external borrowings or from the sale of assets. Substantially all of TWA's assets, including its owned aircraft, accounts receivable, ground equipment, slots and overhaul facilities, have been pledged to secure various issues of outstanding indebtedness of the Company. Sales of such assets which are not replaced would, under the terms of applicable financing agreements, generally require payment of the indebtedness secured thereby, which indebtedness in many cases would likely exceed the immediately realizable value of such assets. TWA has relatively few assets which it could monetize, substantially all of such assets being subject to various liens and security interests which would restrict and/or limit ability of TWA to realize any significant proceeds from the sale thereof. The Company's future viability will be primarily dependent upon its ability to develop an operating plan which will improve its results of operations. In addition to the initiatives already implemented by the Company as described above, TWA is currently evaluating additional strategic decisions that could be implemented which would be designed to improve its operating performance and financial results. Senior management and the leadership of the three major unions (IAM, ALPA and IFFA) are examining ways in which the Company's business strategy may be adjusted to address operational difficulties encountered in connection with growing the airline, including adjustments in its fleet plan, route structure and facility requirements. Senior management and the labor groups have also commenced a series of meetings to identify measures that may be implemented in an attempt to respond and reverse the impact on financial results caused in part by the decline in RASM, increased fuel expenses and increased maintenance costs experienced during the third quarter as described above. No assurance can be given that any of the initiatives already implemented or any new initiatives, if implemented, will be successful or, if successful, that such initiatives will produce results sufficient to offset the continuing negative impact of the above-referenced factors on fourth quarter and year-end financial results or result in an improvement in the anticipated cash position of the Company or that the Company will be successful in generating the operating revenues and cash required for profitable operations or future viability. Contingencies On June 14, 1995, the Company signed an agreement (the ``Extension and Consent Agreement'') with Karabu pursuant to which the term of the financing of up to $200 million provided to TWA by Karabu in connection with the 18 19 '93 Reorganization (``the Icahn Loans'') was extended from January 8, 1995 to January 8, 2001. Karabu and certain other affiliates of Mr. Icahn (the ``Icahn Entities'') consented to certain modifications to certain promissory notes issued to a settlement trust on behalf of the Pension Benefit and Guaranty Corporation (the ``PBGC'') in connection with the '93 Reorganization (the ``PBGC Notes'') and the Icahn Entities agreed to refrain from exercising the right during 1995 to terminate certain pension plans covering employees of the Company as to which Mr. Icahn and the Icahn Entities assumed certain obligations in the '93 Reorganization. Any such termination would not increase the obligations of TWA on the PBGC Notes or other obligations of TWA to Mr. Icahn, the Icahn Entities or the PBGC. Collateral for the Icahn Loans includes a number of aircraft, engines and related equipment, along with substantially all of the Company's receivables. At September 30, 1996, the outstanding balance of the Icahn Loans was approximately $139.6 million (excluding approximately $3.6 million in accrued and unpaid interest). The notes evidencing the Icahn Loans have been pledged by Mr. Icahn and certain affiliated entities as security for certain obligations of the Icahn Entities to the PBGC and/or in respect of funding obligations on the Company's pre-'93 Reorganization pension plans. On June 14, 1995, in consideration of, among other things, the extension of the Icahn Loans, TWA and Karabu entered into the eight-year Ticket Agreement. There are two categories of tickets under the Ticket Agreement: (1) ``Domestic Consolidator Tickets'', which are subject to a cap of $610 million, based on the full retail price of the tickets ($120 million in the first 15 months and $70 million per year for seven consecutive years through the term of the Ticket Agreement) and (2) ``System Tickets,'' which are not subject to any cap throughout the term of the Ticket Agreement. Domestic Consolidator Tickets sold under the Ticket Agreement are limited to certain origin/destination city markets in which TWA has less than a 5% market share, except for the New York market, which has a 10% market share limit. These restricted markets will be reviewed from time to time to determine any change in TWA's market share, and other markets may be designated as necessary. The Ticket Agreement provides that no ticket may be included with an origin or destination of St. Louis, nor may any ticket include flights on other carriers. Tickets sold by Karabu pursuant to the Ticket Agreement are required to be at fares specified in the Ticket Agreement, net to TWA, and exclusive of tax. Tickets sold by the Company to Karabu pursuant to the Ticket Agreement are priced at levels intended to approximate current competitive discount fares available in the airline industry. The purchase price for the tickets purchased by Karabu are required to either, at Karabu's option, be retained by Karabu and the amount so retained credited as prepayments against the outstanding balance of the Icahn Loans, or be paid over by Karabu to a settlement trust established in connection with the '93 Reorganization for TWA's account as prepayments on certain promissory notes issued to the PBGC in satisfaction of the PBGC Notes. As of September 30, 1996, $119.4 million of System Tickets (representing proceeds of $62.9 million to TWA) had been sold by the Icahn Entities while no Domestic Consolidator Tickets had been sold. Approximately $50.4 million of such proceeds had been applied to the principal balance of the Icahn Loans, while no proceeds had been applied to the PBGC Notes. No commissions will be paid by TWA for tickets sold under the Ticket Agreement, and TWA believes that under the applicable provisions of the Ticket Agreement, Karabu may not market or sell such tickets through travel agents. Karabu, however, has been marketing tickets through travel agents to the general public. TWA has demanded that Karabu cease doing so, and Karabu has stated that it disagrees with the Company's interpretation concerning sales through travel agents. The Company informed Karabu that if it did not cease sales through travel agents, the Company would enforce its rights under the Ticket Agreement by legal action. In December 1995, the Company filed a lawsuit against Karabu, Mr. Icahn and affiliated companies seeking damages and to enjoin further violations. Mr. Icahn countered, threatening to attempt to declare a default on the Icahn Loans on a variety of claims related to his various interpretations of a security agreement under which the receivables and certain flight equipment securing the Icahn Loans are pledged (the ``Karabu Security Agreement'') as well as with respect to alleged violations of the Ticket Agreement by the Company. A violation of the Ticket Agreement by the Company would result in a cross-default under the Icahn Loans. Mr. Icahn also alleged independent violations of the Icahn Loans, including, among other things, that the Company has not been maintaining, in accordance with the terms of the Karabu Security Agreement, certain aircraft which TWA has retired from service and stored and which are pledged as security for the Icahn Loans. To endeavor to eliminate this issue from the various disputes with Mr. Icahn, the Company has deposited an amount equal to the appraised fair market value with the State Street Bank and Trust Company of Connecticut, N.A., as security trustee under the Karabu Security Agreement (the ``Security Trustee''), and requested the release of the liens on such aircraft. To date, the Security Trustee has not released such liens. In addition, Mr. 19 20 Icahn has asserted that the approval of the Security Trustee is required for any modification to the FAA-approved maintenance program affecting aircraft pledged as security under the Karabu Security Agreement. The parties negotiated a series of standstill agreements pursuant to which TWA's original lawsuit was withdrawn, while the Company and Mr. Icahn endeavored to negotiate a settlement of their differences and respective claims. The final extension of such a standstill expired on March 20, 1996. On March 20, 1996, TWA was named as a defendant in a complaint (the ``Icahn Complaint'') filed by the Icahn Entities; in addition, the Company filed a petition (the ``TWA Petition'') commencing a lawsuit against Mr. Icahn, Karabu and certain other entities affiliated with Mr. Icahn (the ``Icahn Defendants''). The Company intends to press its claims under the TWA Petition vigorously and believes it has meritorious defenses to the claims asserted in the Icahn Complaint. If Karabu's interpretation of the Ticket Agreement regarding sales of discount tickets by the Icahn Defendants to the general public through travel agents was determined by a court or otherwise to be correct and the Company did not otherwise take appropriate action to mitigate the effect of such sales, the Company could suffer significant loss of revenue so as to reduce overall passenger yields on a continuing basis during the term of the Ticket Agreement. In addition, any default by the Company under the Ticket Agreement or directly on the Icahn Loans which would result in an acceleration of the Icahn Loans would result in a cross-default to substantially all of the Company's other indebtedness and leases and otherwise have a material adverse effect on the Company. On June 6, 1996, Karabu forwarded a letter to TWA advising the Company of Karabu's possible intention to instruct the PBGC to require the Security Trustee to give a 30 day default notice to TWA in respect of certain alleged instances of non-compliance by TWA with the provisions of the Karabu Security Agreement relating to, among other things, four Boeing 727-100 aircraft which are no longer being flown by TWA in active service and changes by TWA to the FAA-approved scheduled maintenance of such aircraft and other aircraft pledged under the Karabu Security Agreement without obtaining approval of the Security Trustee. Karabu also forwarded with such letter a draft of a proposed complaint which it threatened to file for a declaratory judgment that Karabu would be entitled to instruct the PBGC to require the Security Trustee to give TWA such notice of default. The complaint was filed in a New York state court and was served on TWA on June 28, 1996, and was voluntarily dismissed with prejudice on July 18, 1996. On June 26, 1996, Karabu formally requested the PBGC to instruct the Security Trustee to give TWA a notice of default under the Karabu Security Agreement. On June 27, 1996, the PBGC declined to so instruct the Security Trustee, advising Karabu that the PBGC did not believe TWA was in default and, even if a default were determined to exist, any such default would be technical only and Karabu would not be harmed by such a default. On June 28, 1996, Karabu brought an action against the PBGC in the United States District Court for the Southern District of New York, seeking a declaratory judgment for the purpose of determining Karabu's rights with respect to the Karabu Security Agreement. The impact of future ticket sales by Icahn Affiliates on the Company's results of operations, being dependent upon, among other things, the timing thereof, cannot be predicted at this time. Commitments In February 1996, TWA executed definitive agreements providing for the operating lease of 10 new Boeing 757 aircraft to be delivered in 1996 and 1997, with deliveries commencing in July 1996. Although individual aircraft rentals escalate over the term of the leases, aggregate rental obligations are estimated to average approximately $51 million per annum over the lease terms after all 10 aircraft have been delivered. These aircraft have an initial lease term of 10 years. The Company took delivery of the first Boeing 757 aircraft on July 22, 1996. The Company also entered into an agreement in February 1996 with Boeing for the purchase of 10 new Boeing 757 aircraft with deliveries in February 1997 through May 1999. Under this agreement, the Company also acquired the right, subject to certain conditions, to purchase up to 20 additional Boeing 757 aircraft. The estimated purchase price for the firm order aircraft and related spare parts and equipment is $550 million including an estimate for the price escalation factor. The Company has secured financing commitments from the engine and airframe manufacturers for approximately $420 million of the purchase price of the aircraft and related spare parts and equipment. The Company entered into an agreement to acquire fifteen new McDonnell Douglas MD-83s. The long-term leasing arrangement provides for delivery of the aircraft between the second half of 1997 and April 1999. 20 21 To comply with the December 31, 1996 interim requirement under the Noise Act, the Company plans to retrofit, by means of engine hush-kits, 28 of its DC-9 aircraft. The aggregate cost of these hush-kits is estimated to be $49 million. The Company is exploring various financing options to fund the majority of such expenditure, including an extension of the current leases at increased rental rates. As of September 30, 1996, the Company had purchased hush-kits for $32.3 million with internal funds. There is another agreement providing for the financing of the hushkitting of an additional 14 DC-9-30 and DC-9-50 aircraft currently leased by TWA. The aggregate cost of such hushkits would approximate $27 million. TWA has purchase agreements (collectively, the ``AVSA Agreement'') for the purchase of 10 A330 aircraft with AVSA, S.A.R.L. (``AVSA''), a subsidiary of Airbus Industries G.I.E., and has options to acquire an additional 10 aircraft. The current delivery schedule calls for the 10 firm aircraft to be delivered during the period from April 1999 to September 2000. Additionally, delivery dates for the option aircraft have been rescheduled to commence in December 1999 and extend through April 2001, subject to TWA's exercise thereof. Based on an assumed 5% annual price escalation, the Company estimates the aggregate costs of the firm orders to be approximately $1 billion. In connection with the AVSA Agreement, TWA is required to issue promissory notes to AVSA, to finance purchase deposits, in the aggregate principal amount of $21.4 million over the months of April, May, June, July and September of 1996; however, AVSA and TWA have agreed to a deferral of this obligation until December 1996, which obligation has previously been deferred three times. If not further deferred, the Company would also be required to make certain cash predelivery payments, beginning on December 31, 1996 aggregating approximately $38.6 million. TWA has not yet made arrangements for the permanent financing of the A330 aircraft ordered pursuant to the AVSA Agreement. TWA has also entered into agreements (collectively, the ``Equipment Agreement'') with Rolls-Royce plc (``Rolls Royce'') relating to the purchase of Rolls Royce engines, modules, and spare parts at the time of the purchase of, and to support, the A330 aircraft described above. TWA's promissory note to Rolls Royce, in the principal amount of $27.4 million, could be subject to prepayment in the event of cancellation of the Equipment Agreement. Availability of NOLs Based on recent analyses, the Company presently estimates that it has, for federal income tax purposes, net operating loss carryforwards (``NOLs'') amounting to approximately $500 million, which expire in 2008 through 2010 if not utilized before then to offset taxable income. The determination of the amount of such NOLs involves numerous complex issues which may be subject to differing interpretations. Such NOLs are subject to examination by the Internal Revenue Service (the ``IRS''), and, thus, are subject to adjustment or dissallowance resulting from any such IRS examination. Section 382 of the Internal Revenue Code of 1986, as amended, and regulations issued thereunder, impose limitations on the ability of corporations to use NOLs, if the corporation experiences a more than 50% change in ownership during certain periods. As a result of such a change in ownership caused by the '95 Reorganization, utilization of the Company's NOLs will be reduced (by approximately $45 million) in future periods. If another ownership change occurs during the two-year period following the '95 Reorganization, the annual limitation on the Company's utilization of its existing NOLs would be reduced to zero. There can be no assurance that an ownership change will not occur in the future. For financial reporting purposes, the tax benefits from substantially all of the tax net operating loss carryforwards will, to the extent realized in future periods, have no impact on the Company's operating results, but instead be applied to reduce reorganization value in excess of amounts allocable to identifiable assets. Impact of Recently Issued Accounting Standards On January 1, 1996, TWA adopted Statement of Financial Accounting Standards No. 123, ``Accounting for Stock-Based Compensation (``SFAS No. 123''). TWA elected to continue to apply the intrinsic value based method for recognizing compensation expense for stock-based employee compensation plans. Therefore, the adoption of SFAS 123 had no impact on the Company's results of operations or financial position. 21 22 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On May 31, 1988, the U.S. Environmental Protection Agency (``EPA'') filed an administrative complaint seeking civil penalties as well as other relief requiring TWA to take remedial procedures at TWA's maintenance base in Kansas City, Missouri, alleging violations resulting from TWA's past hazardous waste disposal and related environmental practices. Simultaneously, TWA became a party to a consent agreement and a consent order with the EPA pursuant to which TWA paid a civil penalty of $100,000 and agreed to implement a schedule of remedial and corrective actions and to perform environmental audits at TWA's major maintenance facilities. In September 1989, TWA and the EPA signed an administrative order of consent, which required TWA to conduct extensive investigations at or near the overhaul base and to recommend remedial action alternatives. TWA completed its investigations and on February 17, 1996, submitted a Corrective Measures Study (``CMS'') to the Missouri Department of Natural Resources (``MDNR'') and the EPA. It is anticipated that review and approval of the CMS by the MDNR and EPA will take several months. Upon approval of the CMS, an additional order will be issued and the required corrective actions implemented. TWA presently estimates the cost of the corrective action activities under the existing and anticipated orders to be approximately $7 million, a majority of which represents costs associated with long-term groundwater monitoring and maintenance of the remedial systems. Although the Company believes adequate reserves have been provided for all known environmental contingencies, it is possible that additional reserves might be required in the future which could have a material adverse effect on the results of operations or financial condition of the Company. However, the Company believes that the ultimate resolution of known environmental contingencies should not have a material adverse effect on the financial position or results of operations based on the Company's knowledge of similar environmental sites. On November 9, 1995, ValuJet Air Lines, Inc. (``ValuJet'') instituted a lawsuit against TWA and Delta Air Lines (``Delta'') in the United States Court for the Northern District of Georgia, alleging breach of contract and violations of certain antitrust laws with respect to the Company's lease of certain takeoff and landing slots at LaGuardia International Airport in New York. On November 17, 1995, the court denied ValuJet's motion to temporarily enjoin the lease transaction and the Company and Delta consummated the lease of the slots. A hearing was held on June 3, 1996 with respect to motions for summary judgment filed in this matter by Delta and the Company, and on July 12, 1996, the Court issued an order granting the Company's motion for summary judgment on all counts. In addition, based on certain written grievances or complaints filed by ValuJet, the Company has been informed that the United States Department of Justice, Antitrust Division is investigating the circumstances of the slot lease transaction to determine whether an antitrust violation has occurred. The Company is cooperating in this investigation and believes that the slot lease transaction did not violate any antitrust laws. On January 10, 1996, a complaint was filed by an individual resident of New York, Joel Gerber, relating to the slot lease transaction (the ``Gerber Action''). Mr. Gerber purports to bring the action on his own behalf as well as on behalf of an unspecified number of purported class members who have traveled or will travel between LaGuardia and Atlanta as of November 1, 1995 claiming damages as the result of alleged antitrust violations and conspiracy to commit same against the Company and Delta. The United States District Court for the Eastern District of New York transferred the Gerber Action to the United States District Court for the Northern District of Georgia, which has not certified the Gerber Action as a class action. The Company will vigorously contest all of the class action allegations as well as all allegations of liability and damages in the Gerber Action. On August 6, 1996, the Court issued an order denying the plantiff's motion for class certification. On March 20, 1996, the Company filed the TWA Petition commencing a lawsuit against Icahn, Karabu and the Icahn Defendants. The TWA Petition, which is pending in the Circuit Court for St. Louis County, Missouri, alleges that the Icahn Defendants are violating the Ticket Agreement and otherwise tortiously interfering with the Company's business expectancy and contractual relationships by, among other things, marketing and selling tickets purchased under the Ticket Agreement to the general public through travel agents. The TWA Petition seeks a declaratory judgment finding that the Icahn Defendants have violated the Ticket Agreement, and also seeks liquidated, compensatory and punitive damages, in addition to the Company's costs and attorneys fees. The Company believes the allegations contained in the TWA Petition are meritorious. 22 23 Also on March 20, 1996, TWA was named as a defendant in the Icahn Complaint filed by the Icahn Entities. The Icahn Complaint alleges, among other things, that the Company has violated certain federal antitrust laws, breached the Ticket Agreement and interfered with certain existing and prospective commercial relations of the Icahn Entities. The Icahn Complaint is based upon an interpretation by Mr. Icahn and the Icahn Entities that the Ticket Agreement permits sales of tickets to the general public through travel agents and upon certain actions the Company has taken to mitigate the adverse effects of the Icahn Entities' ongoing marketing and sales of tickets to the general public through travel agents. The Icahn Complaint seeks injunctive relief and actual and punitive monetary damages, as well as the Icahn Entities'' costs of litigation. On June 13, 1996, following TWA's filing of a motion to dismiss the Icahn Complaint, the Icahn Entities amended the Icahn Complaint to delete the federal antitrust claims and to add new allegations and theories with respect to claimed violations of the federal antitrust laws and the Lanham Act (the ``Amended Icahn Complaint''). The Company believes it has meritorious defenses to the allegations contained in the Amended Icahn Complaint and intends to defend itself vigorously against such allegations. On June 6, 1996, Karabu forwarded a letter to TWA advising the Company of Karabu's possible intention to instruct the PBGC to require the Security Trustee under the Karabu Security Agreement, to give a 30 day default notice to TWA in respect of certain alleged instances of non-compliance by TWA with the provisions of the Karabu Security Agreement relating to, among other things, four Boeing 727-100 aircraft which are no longer being flown by TWA in active service and changes by TWA to the FAA-approved scheduled maintenance of such aircraft and other aircraft pledged under the Karabu Security Agreement without obtaining approval of the Security Trustee. Karabu also forwarded with such letter a draft of a proposed complaint which it threatened to file for a declaratory judgment that Karabu would be entitled to instruct the PBGC to require the Security Trustee to give TWA such notice of default. The complaint was filed in a New York state court and was served on TWA on June 28, 1996 and was voluntarily dismissed with prejudice on July 18, 1996. On June 26, 1996, Karabu formally requested the PBGC to instruct the Security Trustee to give TWA a notice of default under the Karabu Security Agreement. On June 27, 1996, the PBGC declined to so instruct the Security Trustee, advising Karabu that the PBGC did not believe TWA was in default and, even if a default were determined to exist, any such default would be technical only and Karabu would not be harmed by such a default. On June 28, 1996, Karabu brought an action against the PBGC in the United States District Court for the Southern District of New York, seeking a declaratory judgment for the purpose of determining Karabu's rights with respect to the Karabu Security Agreement. Although the Company believes that no material default exists under the Karabu Security Agreement, any default by the Company under the Ticket Agreement or directly on the Icahn Loans which resulted in an acceleration of the Icahn Loans would result in a cross-default of substantially all of the Company's other indebtedness and leases and otherwise have a material adverse effect on the Company. ITEM 2. CHANGES IN SECURITIES The Company previously reported in its Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996, that it had issued 3,869,000 shares of 8% Cumulative Convertible Exchangeable Preferred Stock which was exempt from the registration requirements of the Securities Act of 1933 (the ``Securities Act''). On May 31, 1996, the Company filed a Form S-3 registration statement pursuant to Rule 415 under the Securities Act, No. 333-04977 (the ``Registration Statement''), to afford the holders of the securities offered in the Registration Statement the opportunity to sell such securities in a public transaction. On August 16, 1996, the Registration Statement, as amended, was declared effective. ITEM 5. OTHER INFORMATION Several changes in the Company's senior management occurred during the third quarter and subsequently. On August 21, 1996 Edward Soule was elected to the position of Executive Vice President and Chief Financial Officer. Mr. Roden Brandt was elected to the position of Senior Vice President, Planning on September 3, 1996. The Company's President and Chief Executive Officer, Jeffrey Erickson, resigned on October 23, 1996. Mr. Erickson has agreed to remain with the Company until the earlier of January 15, 1997 or the date on which his successor is identified and available to assume this office. 23 24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS 2.1.1-- Second Amended Plan of Reorganization, dated May 28, 1993 (Exhibit 28.1 to 6/93 8-K) 2.1.2-- Modifications to the Second Amended Plan of Reorganization, dated August 10, 1993; Supplemental Modifications to the Second Amended Plan of Reorganization, dated August 11, 1993; and Second Supplemental Modifications to the Second Amended Plan of Reorganization, dated August 12, 1993 (Exhibit 2.1 to 6/93 10-Q) 2.2 -- Confirmation Order, dated August 12, 1993, with Exhibits A-L attached (Exhibit 2.2 to 6/93 10-Q) 2.3 -- Final Decree, dated June 21, 1995, related to the '93 Reorganization (Exhibit 2.3 to 6/95 10-Q) 2.4 -- Joint Plan of Reorganization, dated May 12, 1995 (Appendix B to Registrant's Registration Statement on Form S-4, Registration Number 33-84944, as amended) 2.5 -- Modifications to Joint Plan of Reorganization, dated July 14, 1995 and Supplemental Modifications to Joint Plan of Reorganization dated August 2, 1995 (Exhibit 2.5 to 6/95 10-Q) 2.6 -- Findings of Fact, Conclusions of Law and Order Confirming Modified Joint Plan of Reorganization, dated August 4, 1995, with Exhibits A-B attached (Exhibit 2.6 to 6/95 10-Q) 2.7 -- Final Decree, dated December 28, 1995, related to the '95 Reorganization (Exhibit 2.7 to 12/31/95 Form 10-K) 3(i) -- Third Amended and Restated Certificate of Incorporation of Trans World Airlines, Inc. (Exhibit 3(iv) to Registrant's Registration Statement on Form S-3, Registration No. 333-04977) 3(ii)-- Amended and Restated By-Laws of Trans World Airlines, Inc., effective May 24, 1996 (Exhibit 3(ii) to 6/96 10-Q) 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) 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) 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) 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) 4.5 -- ALPA Stock Trust, dated August 31, 1993, between TWA and the ALPA Trustee (Exhibit 4.7 to 9/93 10-Q) 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) 4.7 -- Registration Rights Agreement, dated November 3, 1993, between TWA and the Initial Significant Holders (Exhibit 4.9 to 9/93 10-Q) 4.8 -- Indenture between TWA and Shawmut Bank, National Association, dated November 3, 1993 relating to TWA's 10% Senior Secured Notes Due 1998 (Exhibit 4.10 to 9/93 10-Q) 4.9 -- Indenture between TWA and Harris Trust and Savings Bank, dated November 3, 1993 relating to TWA's 8% Senior Secured Notes Due 2000 (Exhibit 4.11 to 9/93 10-Q) 24 25 4.10 -- Indenture between TWA and American National Bank and Trust Company of Chicago, N.A., dated November 3, 1993 relating to TWA's 8% Secured Notes Due 2001 (Exhibit 4.12 to 9/93 10-Q) 4.11 -- Indenture between TWA and Shawmut Bank Connecticut, National Association, dated November 3, 1993 relating to TWA's 11% Senior Secured Notes Due 1997 (Exhibit 4.13 to 9/93 10-Q) 4.12 -- The TWA Air Line Pilots 1995 Employee Stock Ownership Plan, effective as of January 1, 1995 (Exhibit 4.12 to 9/95 10-Q) 4.13 -- TWA Air Line Pilots Supplemental Stock Plan, effective September 1, 1994 (Exhibit 4.13 to 9/95 10-Q) 4.14 -- TWA Air Line Pilots Supplemental Stock Plan Trust, effective August 23, 1995 (Exhibit 4.14 to 9/95 10-Q) 4.15 -- TWA Air Line Pilots Supplemental Stock Plan Custodial Agreement, effective August 23, 1995 (Exhibit 4.15 to 9/95 10-Q) 4.16 -- Form of Indenture relating to TWA's 8% Convertible Subordinated Debentures Due 2006 (Exhibit 4.16 to Registrant's Registration Statement on Form S-3, Registration No. 333-04977) 10.1 -- Letter Agreement dated July 30, 1996 between Trans World Airlines, Inc. and Robert A. Peiser (Exhibit 10.52 to Pre-effective Amendment No. 2 to Registrant's Registration Statement on Form S-3, Registration No. 333-04977) 10.2 -- Letter Agreement dated July 26, 1996 between Trans World Airlines, Inc. and Mark J. Coleman (Exhibit 10.53 to Pre-effective Amendment No. 2 to Registrant's Registration Statement on Form S-3, Registration No. 333-04977) 10.3 -- Exchange Agreement dated as of June 10, 1996 between Trans World Airlines, Inc. and Elliott Associates, L.P., as amended (Exhibit 10.1 to 9/20/96 8-K) 10.4 -- Exchange Agreement dated as of June 10, 1996 between Trans World Airlines, Inc. and Westgate International, L.P., as amended (Exhibit 10.2 to 9/20/96 8-K) 10.5 -- Agreement, dated as of August 19, 1996 between Trans World Airlines, Inc. and Edward Soule relating to employment by TWA 10.6 -- Agreement, dated as of September 3, 1996 between Trans World Airlines, Inc. and Roden A. Brandt relating to employment by TWA 11 -- Statement re computation of per share earnings 27 -- Financial Data Schedule (submitted only in electronic format)
(B) REPORTS ON FORM 8-K A Form 8-K was filed on September 20, 1996. The filing reported on the Company's anticipated third quarter earnings and on the Company's agreement to exchange its common stock for certain of its registered debt securities. [FN] - -------- Incorporated by reference 25 26 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRANS WORLD AIRLINES, INC. Dated: November 14, 1996 By: /s/ JODY A. RUTH ----------------------------- Jody A. Ruth Vice President and Controller 26 EX-10.5 2 MATERIAL CONTRACT 1 AGREEMENT, dated as of August 19, 1996, between Trans World Airlines, Inc. ("Company"), and Edward Soule ("Executive"); WHEREAS, the Company desires to employ and the Executive has accepted a position as Executive Vice President and Chief Financial Officer; and WHEREAS, the parties desire to set forth the entirety of their agreements and understandings; NOW, THEREFORE, in consideration of the mutual promises contained herein the parties agree as follows: 1. Employment. The Company hereby employs Executive to render the ---------- services hereinafter described, and Executive hereby accepts such employment and agrees to render such services, upon and subject to the terms and conditions described in this Agreement. 2. Term. Executive's employment commences as of the date of this ---- Agreement, and shall continue thereafter for an indefinite period until terminated at any time by Company or Executive with or without cause. Nothing in this Agreement or otherwise shall be construed as entitling Executive to employment for any definite term. 3. Duties. ------ (a) Executive shall serve at the pleasure of the Company in such executive positions as Executive shall be assigned from time to time by the President, and shall perform such executive, advisory and/or administrative and managerial assignments and duties as may be assigned to Executive from time to time by the President or the President's designee, all according to the direction and control of the President. Executive will carry out and perform all such duties and assignments and all directions of any officer to whom Executive directly or indirectly reports. Executive also will comply with and carry out all rules and policies of the Company, and will serve, without additional compensation, as an officer and/or director or any subsidiary, affiliated or related corporation or business, or of any company in which Company may hold any interest. (b) The Executive will, on an exclusive basis, devote his full time during normal business hours to the business and affairs of the Company and use his best efforts to promote the interests of the Company and to perform faithfully and efficiently the responsibilities assigned to Executive in accordance with the terms of this Agreement. 4. Compensation and Other Terms of Employment. During the period ------------------------------------------ in which Executive is employed by Company, the Executive shall receive the following: 2 (a) Salary. The Executive will be paid at an annual rate of ------ $230,000.00 on a regular basis, not less frequently than one time per month, on a regular Company pay day. This rate of pay ("Base Salary") is subject to adjustment from time to time, and will be reviewed on a regular basis. All such payments will be subject to withholding for taxes and amounts owed Company, if any. (b) Stock Incentive Plan. The Executive shall be eligible to -------------------- participate in the Company's Key Employee Stock Incentive Plan ("KESIP"). The Executive's grant shall be for 230,000 shares, subject in its entirety to the terms and conditions set forth in the KESIP Agreement between the Executive and the Company. The Exercise Price shall be the Fair Market Value, as that term is defined in the KESIP, of the Company's Common Stock as of the date of this Agreement. To the extent that there is any inconsistency between the terms and conditions of this Agreement and those of the KESIP, the terms and conditions of this Agreement shall control. (c) Change of Control Agreement. In the event that the --------------------------- Company's Board of Directors authorizes the Company to enter into "change of control" severance agreements with one or more of its officers, the Executive will be offered the opportunity to enter into such an agreement on terms and conditions no less favorable in any material respect than those offered to any other of the Company's officers. (d) Passes. The Executive and his eligible family members ------ will be entitled to card-type Class A "term" passes on the Company's routes worldwide. (e) Medical, Dental, Insurance and Accident Insurance. (i) ------------------------------------------------- The Executive and his eligible dependents will be eligible to participate in the Company-paid comprehensive Medical and Dental Plan and the Travel Accident Insurance Program offered by the Company, on the same terms and conditions applicable to other officers. (ii) The Executive will be eligible for coverage under the Company's Group Term Life Insurance Plan under which the Company currently provides Basic Life Insurance of $50,000 coverage at no cost to the Executive. Assuming that the Executive is insurable at standard rates, the Executive will also have the option to purchase Additional Group Life Insurance in an amount up to three times the Executive's Base Salary, less the Basic $50,000 coverage. The monthly cost of this Additional Life Insurance is currently $4.50 per $10,000 and such monthly cost may increase from time-to-time. (iii) The Executive will be eligible to participate in the Company's Voluntary Personal Accident Insurance Plan. The maximum coverage for this plan is currently $150,000 at a monthly cost of $6.60 and such monthly cost may increase from time-to-time. (iv) The Executive will be covered for Long-Term Disability protection pursuant to plan provisions at standard rates and subject to standard conditions. Nothing herein shall be construed to prevent the Company from amending or altering any such plans or programs set forth herein so long as the Executive continues to have the opportunity to receive in the aggregate benefits at a level no less favorable than those set forth herein. 5. Vacation. The Executive will be eligible for three weeks -------- vacation, per year. - 2 - 3 6. Termination of Employment. ------------------------- (a) Death. This Agreement shall terminate automatically ----- upon the Executive's death. All benefits and compensation then accrued hereunder, and under any related plans, shall be paid when due to the Executive's beneficiaries or legal representatives, as appropriate. (b) Termination Without Cause. The Company shall have the ------------------------- right to terminate the Executive's employment without cause at any time and without advance notice. In such event the Company shall pay to the Executive an amount equal to the Executive's then rate of annual Base Salary and any accrued, earned unpaid salary and unused vacation as of the effective date of such termination. Such payment (other than accrued, earned salary and unused vacation) may be made at the Company's option in a single lump sum or in equal installments payable over up to a twelve month period. Upon the making of such payments, the Company shall have no further obligation to the Executive under this Agreement and Executive accepts such payments in full satisfaction of all claims against the Company. (c) Termination For Cause. The Company shall have the right --------------------- to terminate the Executive's employment at any time and without advance notice for Cause. For the purposes of this Agreement, "Cause" shall mean that (i) the Executive is convicted of or engages in conduct which constitutes a felony, or a misdemeanor involving moral turpitude; or (ii) the Executive is found by the Company's Board of Directors to have willfully engaged in conduct which is demonstrably and materially injurious to the Company; or (iii) the Executive is found by the Company's Board of Directors to have failed or refused to in any material respect to competently perform his duties and responsibilities (after notice and opportunity to cure if such material failure or refusal can be cured); or (iv) the Executive has breached his duty of loyalty to, or committed any act of fraud, theft or dishonesty against or involving, the Company or any of its affiliated companies; or (v) the Executive has breached any provision of this Agreement. If the Executive's employment is terminated for Cause, the Company shall pay the Executive his unpaid, accrued salary through the date of such termination at the rate in effect at the time of such termination and any accrued, earned or unused vacation through the effective date of such termination. Upon the making of such payment, the Company shall have no further obligation to the Executive under this Agreement. (d) Termination by the Executive. If the Executive ---------------------------- voluntarily terminates his employment, the Executive must give the Company thirty (30) calendar days advance notice in writing. If the Executive fails to do so, the Executive shall not be entitled to any accrued rights and benefits to which the Executive might be entitled under this or any related agreement and the Company will have no further obligation to the Executive except for unpaid salary earned by the Executive up to and including the effective date of such termination. Upon termination of employment and otherwise upon demand, Executive will turn over to Company all Company property and documents and all computer passwords, and will (after copying the same to 3.5 disks and returning the disks to the Company) delete all Company - 3 - 4 information from any computer which is not Company property. Upon termination, all benefits and compensation ceases except as described above. 7. Termination Obligations. The Executive agrees that during his ----------------------- employment and following his termination under any of the circumstances set forth herein: (a) he shall not during his employment or for a period of two years following the effective date of his termination, directly or indirectly solicit (or assist or encourage the solicitation of) any employee of the Company or any of its subsidiaries or affiliated companies to be employed by the Executive or by any entity in which the Executive owns or expects to own any equity interest in excess of five (5) percent of any class of the outstanding securities thereof, or by any entity by which the Executive is employed or for which the Executive serves or expects to serve in any capacity; nor (after his employment ends and during such 2 year period) encourage or induce any Company employee to terminate his or her Company employment. For the purposes of this paragraph, the term "solicit" shall mean any contact by the Executive with or providing information to others who may be expected to contact any employees of the Company or of any of its subsidiaries or affiliated companies regarding their employment status, job satisfaction, interest in seeking employment with the Executive, with any person affiliated with the Executive or by whom the Executive is employed but shall not include print advertising for personnel or responding to any unsolicited request for a personal recommendation for or evaluation of a Company employee or an employee of any of the Company's subsidiaries or affiliated companies. (b) he shall hold forever hereafter in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its subsidiaries or affiliated companies, including but not limited to commercial, operational, marketing, pricing, or financial information including costs, strategies, forecasts or trade secrets, acquisition strategies or candidates or personnel acquisition plans ("confidential information") which shall have been obtained by the Executive during or by reason of his employment by the Company or by any of its subsidiaries or affiliated companies and which shall not be public knowledge. During and after the end of the term of employment, the Executive shall not, without the prior written consent of the Company or unless required to do so by reason of a court order or subpoena (in which case Executive shall give Company prompt notice of any such other subpoena or order, or request therefore, so as to provide Company the maximum opportunity to contest the same), communicate or divulge any such confidential information to anyone other than the Company or those designated by it, except that while employed by the Company in the business of and for the benefit of the Company the Executive may provide confidential information as appropriate to those persons who in the Executive's judgment have a need to know such confidential information. (c) he shall not for a period of two years following the effective date of his termination discuss or disclose to the media or Company personnel the circumstances or terms of his termination of employment. - 4 - 5 (d) he shall not publicly disparage or denigrate the Company or any of its officers, directors or practices. To the extent that any covenant or agreement contained in this Section 7 shall be determined by a Court to be invalid or unenforceable in any respect or to any extent, the covenant or agreement shall not be rendered void, but instead shall be automatically amended to such lesser scope or to such lesser extent as will grant Company the maximum restriction on Executive's conduct and activities permitted by applicable law in such circumstances. 8. No Assignment. This Agreement is personal to the Executive and ------------- without the Company's prior written consent it shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the legal representatives of Executive's estate, and otherwise is freely assignable by Company. 9. Assistance. For a period of three (3) years following ---------- termination of employment, Executive will, upon reasonable notice, make himself available for consultation with Company counsel, to meet with Company counsel and prepare to testify as a witness or deponent, and to testify as a witness at a trial, deposition or proceeding, concerning any legal matter involving or affecting the Company. The Company will pay for all reasonable and necessary out of pocket travel and telephone costs and expense incurred by Executive in connection with any such activity. 10. Miscellaneous. ------------- (a) This Agreement shall be governed by and be construed in accordance with the internal laws of the State of Missouri, without reference to principles of conflicts of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. Neither this Agreement nor any of its terms may be amended, waived, added to or modified other than by written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by regular or registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: Edward Soule 7370 Kingsbury Boulevard University City, Missouri 63130 - 5 - 6 If to the Company: Trans World Airlines, Inc. One City Centre 515 North 6th Street St. Louis, Missouri 63101 Attn: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) This Agreement contains the entire understanding between the parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, among the parties with respect thereto. The terms of any employee manual, handbook, or any policy of the Company, shall not modify, alter, or invalidate any term of this Agreement nor alter Employee's at will status, and in case of any conflict between a term of this Agreement and any such policy, handbook or manual, the terms of this Agreement control, except for benefit plans and Stock Option awards described herein (to the extent not otherwise provided in this Agreement). (e) Executive represents that he is not a party to any agreement, or under any legal obligation, which could preclude or in any way impair Executive's performance of Executive's duties for Company. Executive has not provided, and will not provide, to Company any trade secret of another person whose secrecy he is obligated to maintain. (f) Notwithstanding any provision hereof to the contrary, nothing in this Agreement shall be deemed to entitle the Executive to employment beyond the Term hereof. IN WITNESS WHEREOF, the Company has caused this Agreement to be signed in its corporate name, and the Executive has hereunto set his hand, all as of the day and year first above written. /s/ EDWARD SOULE /s/ RICHARD P. MAGURNO - ------------------------------ ----------------------------- EDWARD SOULE TRANS WORLD AIRLINES, INC. BY: Richard P. Magurno Senior Vice President & General Counsel - 6 - EX-10.6 3 MATERIAL CONTRACT 1 AGREEMENT, dated as of September 3, 1996, between Trans World Airlines, Inc. ("Company"), and Roden A. Brandt ("Executive"); WHEREAS, the Company desires to employ and the Executive has accepted a position as Senior Vice President - Planning; and WHEREAS, the parties desire to set forth the entirety of their agreements and understandings; NOW, THEREFORE, in consideration of the mutual promises contained herein the parties agree as follows: 1. Employment. The Company hereby employs Executive to render the ---------- services hereinafter described, and Executive hereby accepts such employment and agrees to render such services, upon and subject to the terms and conditions described in this Agreement. 2. Term. Executive's employment commences as of the date of this ---- Agreement, and shall continue thereafter for an indefinite period until terminated at any time by Company or Executive with or without cause. Nothing in this Agreement or otherwise shall be construed as entitling Executive to employment for any definite term. 3. Duties. ------ (a) Executive shall serve at the pleasure of the Company in such executive positions as Executive shall be assigned from time to time by the President, and shall perform such executive, advisory and/or administrative and managerial assignments and duties as may be assigned to Executive from time to time by the President or the President's designee, all according to the direction and control of the President. Executive will carry out and perform all such duties and assignments and all directions of any officer to whom Executive directly or indirectly reports. Executive also will comply with and carry out all rules and policies of the Company, and will serve, without additional compensation, as an officer and/or director or any subsidiary, affiliated or related corporation or business, or of any company in which Company may hold any interest. (b) The Executive will, on an exclusive basis, devote his full time during normal business hours to the business and affairs of the Company and use his best efforts to promote the interests of the Company and to perform faithfully and efficiently the responsibilities assigned to Executive in accordance with the terms of this Agreement. 4. Compensation and Other Terms of Employment. During the period in ------------------------------------------ which Executive is employed by Company, the Executive shall receive the following: (a) Salary. The Executive will be paid at an annual rate of ------ $180,000.00 on a regular basis, not less frequently than one time per month, on a regular Company pay day. This rate of pay ("Base Salary") is subject to adjustment from time to time, and will be reviewed on a regular basis. All such payments will be subject to withholding for taxes and amounts owed by the Company, if any. 2 (b) Stock Incentive Plan. The Executive shall be eligible to -------------------- participate in the Company's Key Employee Stock Incentive Plan ("KESIP"). The Executive's grant shall be for 180,000 shares, subject in its entirety to the terms and conditions set forth in the KESIP Agreement dated as of this date between the Executive and the Company. The Exercise Price shall be the Fair Market Value, as that term is defined in the KESIP, of the Company's Common Stock as of the date of this Agreement. To the extent that there is any inconsistency between the terms and conditions of this Agreement and those of the KESIP, the terms and conditions of this Agreement shall control. (c) Change of Control Agreement. In the event that the --------------------------- Company's Board of Directors authorizes the Company to enter into "change of control" severance agreements with one or more of its officers, the Executive will be offered the opportunity to enter into such an agreement on terms and conditions no less favorable in any material respect than those offered to any other of the Company's officers. (d) Passes. The Executive and his eligible family members ------ will be entitled to card-type Class A "term" passes on the Company's routes worldwide. (e) Medical, Dental, Insurance and Accident Insurance. (i) ------------------------------------------------- The Executive and his eligible dependents will be eligible to participate in the Company-paid comprehensive Medical and Dental Plan and the Travel Accident Insurance Program offered by the Company, on the same terms and conditions applicable to other officers. (ii) The Executive will be eligible for coverage under the Company's Group Term Life Insurance Plan under which the Company currently provides Basic Life Insurance of $50,000 at no cost to the Executive. Assuming that the Executive is insurable at standard rates, the Executive will also have the option to purchase Additional Group Life Insurance in an amount up to three times the Executive's Base Salary, less the Basic $50,000 coverage. The monthly cost of this Additional Life Insurance is currently $4.50 per $10,000 and such monthly cost may increase from time-to-time. (iii) The Executive will be eligible to participate in the Company's Voluntary Personal Accident Insurance Plan. The maximum coverage for this plan is currently $150,000 at a monthly cost of $6.60 and such monthly cost may increase from time-to-time. (iv) The Executive will be covered for Long-Term Disability protection pursuant to plan provisions at standard rates and subject to standard conditions. Nothing herein shall be construed to prevent the Company from amending or altering any such plans or programs set forth herein so long as the Executive continues to have the opportunity to receive in the aggregate benefits at a level no less favorable than those set forth herein. 5. Vacation. The Executive will be eligible for three weeks -------- vacation. 6. Relocation and Temporary Living Expenses. To the extent not ---------------------------------------- inconsistent with the terms of this Agreement, the Company will provide the Executive with relocation assistance as described in detail in the attached copy of the Company's Class "A" Relocation Policy for Management Employees. The Company will, for the nine month period beginning as of - 2 - 3 September 1, 1996 reimburse the Executive (a) for reasonable, necessary, and actual temporary lodging and transportation expenses in the St. Louis area, and (b) for warehouse storage expenses of up to $700.00 per month for the storage of Executive's furniture and other family and personal items. The Company will also reimburse the Executive for the reasonable cost of movement to St. Louis of the Executive's furniture and other family and personal items from certain storage facilities and from residences located at 320 South Street, Apt. 12C in Morristown, New Jersey; 55 Ravona Street in Clifton New Jersey; and 48 Independence Way, Convent Station, New Jersey. 7. Termination of Employment. ------------------------- (a) Death. This Agreement shall terminate automatically ----- upon the Executive's death. All benefits and compensation then accrued hereunder, and under any related plans, shall be paid when due to the Executive's beneficiaries or legal representatives, as appropriate. (b) Termination Without Cause. The Company shall have the ------------------------- right to terminate the Executive's employment without cause at any time and without advance notice. In such event the Company shall pay to the Executive an amount equal to the Executive's then rate of annual Base Salary and any accrued, earned unpaid salary and unused vacation as of the effective date of such termination. Such payment (other than accrued, earned salary and unused vacation) may be made at the Company's option in a single lump sum or in equal installments payable over up to a twelve month period. Upon the making of such payments, the Company shall have no further obligation to the Executive under this Agreement and Executive accepts such payments in full satisfaction of all claims against the Company. (c) Termination For Cause. The Company shall have the right --------------------- to terminate the Executive's employment at any time and without advance notice for Cause. For the purposes of this Agreement, "Cause" shall mean that (i) the Executive is convicted of or engages in conduct which constitutes a felony, or a misdemeanor involving moral turpitude; or (ii) the Executive is found by the Company's Board of Directors to have willfully engaged in conduct which is demonstrably and materially injurious to the Company; or (iii) the Executive is found by the Company's Board of Directors to have failed or refused to in any material respect to competently perform his duties and responsibilities (after notice and opportunity to cure if such material failure or refusal can be cured); or (iv) the Executive has breached his duty of loyalty to, or committed any act of fraud, theft or dishonesty against or involving, the Company or any of its affiliated companies; or (v) the Executive has breached any provision of this Agreement. If the Executive's employment is terminated for Cause, the Company shall pay the Executive his unpaid, accrued salary through the date of such termination at the rate in effect at the time of such termination and any accrued, earned or unused vacation through the effective date of such termination. Upon the making of such payment, the Company shall have no further obligation to the Executive under this Agreement. (d) Termination by the Executive. If the Executive ---------------------------- voluntarily terminates his employment, the Executive must give the Company thirty (30) calendar days advance notice in writing. If the Executive fails to do so, the Executive shall not be entitled to any accrued rights - 3 - 4 and benefits to which the Executive might be entitled under this or any related agreement and the Company will have no further obligation to the Executive except for unpaid salary earned by the Executive up to and including the effective date of such termination. Upon termination of employment and otherwise upon demand, Executive will turn over to Company all Company property and documents and all computer passwords, and will (after copying the same to 3.5 disks and returning the disks to the Company) delete all Company information from any computer which is not Company property. Upon termination, all benefits and compensation ceases except as described above. 8. Termination Obligations. The Executive agrees that during his ----------------------- employment and following his termination under any of the circumstances set forth herein: (a) he shall not during his employment or for a period of two years following the effective date of his termination, directly or indirectly solicit (or assist or encourage the solicitation of) any employee of the Company or any of its subsidiaries or affiliated companies to be employed by the Executive or by any entity in which the Executive owns or expects to own any equity interest in excess of five (5) percent of any class of the outstanding securities thereof, or by any entity by which the Executive is employed or for which the Executive serves or expects to serve in any capacity; nor (after his employment ends and during such 2 year period) encourage or induce any Company employee to terminate his or her Company employment. For the purposes of this paragraph, the term "solicit" shall mean any contact by the Executive with or providing information to others who may be expected to contact any employees of the Company or of any of its subsidiaries or affiliated companies regarding their employment status, job satisfaction, interest in seeking employment with the Executive, with any person affiliated with the Executive or by whom the Executive is employed but shall not include print advertising for personnel or responding to any unsolicited request for a personal recommendation for or evaluation of a Company employee or an employee of any of the Company's subsidiaries or affiliated companies. (b) he shall hold forever hereafter in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its subsidiaries or affiliated companies, including but not limited to commercial, operational, marketing, pricing, or financial information including costs, strategies, forecasts or trade secrets, acquisition strategies or candidates or personnel acquisition plans ("confidential information") which shall have been obtained by the Executive during or by reason of his employment by the Company or by any of its subsidiaries or affiliated companies and which shall not be public knowledge. During and after the end of the term of employment, the Executive shall not, without the prior written consent of the Company or unless required to do so by reason of a court order or subpoena (in which case Executive shall give Company prompt notice of any such other subpoena or order, or request therefore, so as to provide Company the maximum opportunity to contest the same), communicate or divulge any such confidential information to anyone other than the Company or those designated by it, except that while employed by the Company in the business of and for the benefit of the Company the Executive may provide confidential - 4 - 5 information as appropriate to those persons who in the Executive's judgment have a need to know such confidential information. (c) he shall not for a period of two years following the effective date of his termination discuss or disclose to the media or Company personnel the circumstances or terms of his termination of employment. (d) he shall not publicly disparage or denigrate the Company or any of its officers, directors or practices. To the extent that any covenant or agreement contained in this Section 8 shall be determined by a Court to be invalid or unenforceable in any respect or to any extent, the covenant or agreement shall not be rendered void, but instead shall be automatically amended to such lesser scope or to such lesser extent as will grant Company the maximum restriction on Executive's conduct and activities permitted by applicable law in such circumstances. 9. No Assignment. This Agreement is personal to the Executive and ------------- without the Company's prior written consent it shall not be assignable by the Executive other than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the legal representatives of Executive's estate, and otherwise is freely assignable by Company. 10. Assistance. For a period of three (3) years following ---------- termination of employment, Executive will, upon reasonable notice, make himself available for consultation with Company counsel, to meet with Company counsel and prepare to testify as a witness or deponent, and to testify as a witness at a trial, deposition or proceeding, concerning any legal matter involving or affecting the Company. The Company will pay for all reasonable and necessary out of pocket travel and telephone costs and expense incurred by Executive in connection with any such activity. 10. Miscellaneous. ------------- (a) This Agreement shall be governed by and be construed in accordance with the internal laws of the State of Missouri, without reference to principles of conflicts of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. Neither this Agreement nor any of its terms may be amended, waived, added to or modified other than by written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by regular or registered or certified mail, return receipt requested, postage prepaid, addressed as follows: - 5 - 6 If to the Executive: Roden A. Brandt 320 South Street Apt. 12C Morristown, New Jersey 07960 If to the Company: Trans World Airlines, Inc. One City Centre 515 North 6th Street St. Louis, Missouri 63101 Attn: General Counsel or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) This Agreement contains the entire understanding between the parties concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, among the parties with respect thereto. The terms of any employee manual, handbook, or any policy of the Company, shall not modify, alter, or invalidate any term of this Agreement nor alter Employee's at will status, and in case of any conflict between a term of this Agreement and any such policy, handbook or manual, the terms of this Agreement control, except for benefit plans and Stock option awards described herein (to the extent not otherwise provided in this Agreement). (e) Executive represents that or he is not a party to any agreement, or under any legal obligation, which could preclude or in any way impair Executive's performance of Executive's duties for Company. Executive has not provided, and will not provide, to Company any trade secret of another person whose secrecy he is obligated to maintain. (f) Notwithstanding any provision hereof to the contrary, nothing in this Agreement shall be deemed to entitle the Executive to employment beyond the Term hereof. - 6 - 7 IN WITNESS WHEREOF, the Company has caused this Agreement to be signed in its corporate name, and the Executive has hereunto set his hand, all as of the day and year first above written. /s/ RODEN A. BRANDT - -------------------------------------------------------- RODEN A. BRANDT /s/ RICHARD P. MAGURNO - -------------------------------------------------------- TRANS WORLD AIRLINES, INC. By: Richard P. Magurno Senior Vice President & General Counsel - 7 - EX-11 4 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
REORGANIZED COMPANY --------------------------------- THREE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 1996 ------------- ------------- Adjustments to Net Income (loss) Loss before extraordinary items............................................................. $ (6,905) $(18,750) Preferred stock dividend requirements....................................................... (3,869) (12,680) Special dividend requirement relating to redemption of 12% Preferred Stock.................. -- (20,001) -------- -------- Loss before extraordinary items applicable to common stock for primary calculation.......... (10,774) (51,431) Extraordinary item.......................................................................... (7,420) (7,420) -------- -------- Net loss applicable to common stock for primary calculation................................. (18,194) (58,851) Fully diluted adjustment--dividend requirements on 8% Preferred Stock assumed to be converted................................................................................. 3,869 8,137 -------- -------- Net loss applicable to common stock for fully diluted calculation........................... $(14,325) $(50,714) ======== ======== Adjustments to Outstanding Shares: Average number of shares of common stock............................................ 45,082 43,169 Primary Adjustments Incremental shares associated with the assumed exercise of options and warrants...................................................................... 1,143 1,438 -------- -------- Total average number of common and common equivalent shares used for primary calculation........................................................................... 46,225 44,607 ======== ======== Average number of shares of common stock............................................ 45,082 43,169 Fully Diluted Adjustments Incremental shares associated with the assumed exercise of options and warrants..... 1,143 1,438 Common shares assumed to be issued upon conversion of 8% Preferred Stock.............. 9,544 6,696 -------- -------- Total average number of common and common equivalent shares for fully diluted calculation........................................................................... 55,769 51,303 ======== ======== Per share amounts: Loss before extraordinary item and special preferred dividend Average............................................................................. (.24) (.73) Primary......................................................................... (.23) (.70) Fully diluted................................................................... (.12) (.45) Net loss Average............................................................................. (.40) (1.36) Primary......................................................................... (.39) (1.32) Fully diluted................................................................... (.26) (.99) - -------- Includes 5,744 shares for the three months and 5,640 shares for the nine months of Employee Preferred Stock which, except for a liquidation preference of $.01 per share and the right to elect a certain number of directors to the Board of Directors, is the functional equivalent of Common Stock. Pursuant to an employee stock incentive plan (ESIP or the Plan), the Company is required to distribute additional shares of common stock and Employee Preferred Stock as a result of the distribution of additional shares following the effective date of the '95 Reorganization. No shares have as yet been distributed to employees under this provision and discussions are being held with union representatives to determine the appropriate number of shares to be distributed. The Company believes that, based on these discussions, no more than 950,000 additional shares will be distributed. Additionally, the ESIP provides that, beginning in 1997, employees may significantly increase their ownership, through grants or purchases, as set forth in the Plan. The earnings (loss) per share computations do not give any effect to the potential issuances of these shares. As the effects of including the incremental shares associated with options and warrants and the assumed conversion of the 8% Preferred Stock are antidilutive, these amounts are not presented in the accompanying condensed statements of consolidated operations.
EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 248,522 0 322,134 15,098 142,288 776,508 757,027 92,470 2,968,001 1,035,645 860,881 410 0 96 492,998 2,968,001 0 2,751,108 0 2,717,252 0 5,918 95,483 (18,257) 493 (18,750) 0 (7,420) 0 (26,170) (1.36) (.99) Operating results for the Reorganized Company for the nine months ended September 30, 1996.
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