-----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, I+Y3BviLJEekL4AxFk7kPyUqV+XlbIZLQXbKl7BiK5Is2xVYWGnj/5jaq5bCFHZd mzbYaKWK/Wv6RUxoq0ISWg== 0000950114-97-000375.txt : 19970815 0000950114-97-000375.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950114-97-000375 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97663048 BUSINESS ADDRESS: STREET 1: ONE CITY CENTRE STREET 2: 515 N SIXTH ST CITY: ST LOUIS STATE: MO ZIP: 63101 BUSINESS PHONE: 3145893000 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 JUNE 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-7815 TRANS WORLD AIRLINES, INC. (Exact name of registrant as specified in its charter) DELAWARE 43-1145889 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) ONE CITY CENTRE 515 N. SIXTH STREET ST. LOUIS, MISSOURI 63101 (Address of principal executive offices, including zip code) (314) 589-3000 (Registrant's telephone number, including area code) ----------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. OUTSTANDING AS OF CLASS AUGUST 1, 1997 - ------------------------ ------------------ Common Stock, par value 49,280,401 $0.01 per share In addition, as of August 1, 1997 there were 6,975,724 shares of Employee Preferred Stock outstanding. =============================================================================== 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- --------------------------- 1997 1996 1997 1996 -------- -------- ---------- ---------- Operating revenues: Passenger.............................................. $740,205 $839,000 $1,412,050 $1,516,932 Freight and mail....................................... 31,318 37,043 62,807 72,947 All other.............................................. 72,919 89,765 131,891 158,362 -------- -------- ---------- ---------- Total.......................................... 844,442 965,808 1,606,748 1,748,241 -------- -------- ---------- ---------- Operating expenses: Salaries, wages and benefits........................... 302,508 309,437 617,816 605,761 Earned stock compensation.............................. 1,793 58 3,073 5,041 Aircraft fuel and oil.................................. 117,329 141,071 247,275 270,467 Passenger sales commissions............................ 65,423 73,648 122,994 137,588 Aircraft maintenance materials and repairs............. 38,386 57,198 82,129 104,956 Depreciation and amortization.......................... 36,761 39,216 75,531 78,829 Operating lease rentals................................ 88,587 74,508 174,410 144,813 Passenger food and beverages........................... 19,407 27,293 39,859 52,834 All other.............................................. 168,316 181,351 337,215 340,115 -------- -------- ---------- ---------- Total.......................................... 838,510 903,780 1,700,302 1,740,404 -------- -------- ---------- ---------- Operating income (loss).................................... 5,932 62,028 (93,554) 7,837 -------- -------- ---------- ---------- Other charges (credits): Interest expense....................................... 29,717 31,072 58,114 64,619 Interest and investment income......................... (3,067) (5,740) (6,018) (11,826) Disposition of assets, gains and losses--net........... (3,030) (239) (12,380) (25) Other charges and credits--net......................... (7,427) (9,116) (17,816) (16,704) -------- -------- ---------- ---------- Total 16,193 15,977 21,900 36,064 -------- -------- ---------- ---------- Income (loss) before income taxes and extraordinary items.................................................... (10,261) 46,051 (115,454) (28,227) Provision (credit) for income taxes........................ 1,734 20,789 (33,427) (16,382) -------- -------- ---------- ---------- Income (loss) before extraordinary items................... (11,995) 25,262 (82,027) (11,845) Extraordinary items, net of income taxes................... (2,405) -- (3,937) -- -------- -------- ---------- ---------- Net income (loss).......................................... (14,400) 25,262 (85,964) (11,845) Preferred stock dividend requirements...................... 3,869 4,814 7,738 28,812 -------- -------- ---------- ---------- Income (loss) applicable to common shares.................. $(18,269) $ 20,448 $ (93,702) $ (40,567) ======== ======== ========== ========== Per share amounts: Earnings (loss) before extraordinary item and special dividend requirement................................. $ (.31) $ .46 $ (1.80) $ (.49) Extraordinary item and special dividend requirement.... (.05) -- (.08) (.47) -------- -------- ---------- ---------- Net income (loss).......................................... $ (.36) $ .46 $ (1.88) $ (.96) ======== ======== ========== ========== See notes to consolidated financial statements
2 3 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 (AMOUNTS IN THOUSANDS)
JUNE 30, DECEMBER 31, 1997 1996 ---------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.............................. $ 102,649 $ 181,586 Receivables, less allowance for doubtful accounts, $10,752 in 1997 and $12,939 in 1996.................. 266,871 239,496 Spare parts, materials and supplies, less allowance for obsolescence, $13,187 in 1997 and $11,563 in 1996.... 101,717 111,239 Prepaid expenses and other............................. 164,992 93,424 ---------- ---------- Total.......................................... 636,229 625,745 ---------- ---------- Property: Property owned: Flight equipment................................... 427,769 339,150 Prepayments on flight equipment.................... 20,536 39,072 Land, buildings and improvements................... 60,317 59,879 Other property and equipment....................... 63,706 60,750 ---------- ---------- Total owned property........................... 572,328 498,851 Less accumulated depreciation...................... 91,158 71,810 ---------- ---------- Property owned--net............................ 481,170 427,041 ---------- ---------- Property held under capital leases: Flight equipment................................... 168,403 172,812 Land, buildings and improvements................... 49,443 54,761 Other property and equipment....................... 7,189 6,570 ---------- ---------- Total property held under capital leases....... 225,035 234,143 Less accumulated amortization...................... 63,128 46,977 ---------- ---------- Property held under capital leases--net........ 161,907 187,166 ---------- ---------- Total property--net........................ 643,077 614,207 ---------- ---------- Investments and other assets: Investments in affiliated companies.................... 116,725 108,173 Investments, receivables and other..................... 154,101 149,028 Routes, gates and slots--net........................... 388,375 401,659 Reorganization value in excess of amounts allocable to identifiable assets--net............................. 762,150 783,127 ---------- ---------- Total.......................................... 1,421,351 1,441,987 ---------- ---------- Total...................................................... $2,700,657 $2,681,939 ========== ========== See notes to consolidated financial statements
3 4 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1997 AND DECEMBER 31, 1996 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 1997 1996 --------- ------------ (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Current maturities of long-term debt................... $ 73,509 $ 92,447 Current obligations under capital leases............... 40,578 42,501 Advance ticket sales................................... 324,907 241,516 Accounts payable, principally trade.................... 236,819 216,675 Accounts payable to affiliated companies............... 6,201 4,894 Accrued expenses: Employee compensation and vacations earned......... 111,904 116,846 Contributions to retirement and pension trusts..... 15,388 14,091 Interest on debt and capital leases................ 40,399 39,420 Taxes.............................................. 19,211 19,018 Other accrued expenses............................. 188,743 174,753 ---------- ---------- Total accrued expenses..................... 375,645 364,128 ---------- ---------- Total...................................... 1,057,659 962,161 ---------- ---------- Long-term liabilities and deferred credits: Long-term debt, less current maturities................ 621,527 608,485 Obligations under capital leases, less current obligations.......................................... 198,009 220,790 Postretirement benefits other than pensions............ 473,878 471,171 Noncurrent pension liabilities......................... 31,109 30,716 Other noncurrent liabilities and deferred credits...... 130,091 150,511 ---------- ---------- Total...................................... 1,454,614 1,481,673 ---------- ---------- Shareholders' equity: 8% cumulative convertible exchangeable preferred stock, $50 liquidation preference; 3,869 shares issued and outstanding.......................................... 39 39 Employee preferred stock, $0.01 liquidation preference; special voting rights; shares issued and outstanding; 1997--5,623; 1996--5,681............................. 56 57 Common stock, $0.01 par value, shares issued and outstanding: 1997--46,234; 1996--41,763.............. 462 418 Additional paid-in capital............................. 588,744 552,544 Accumulated deficit.................................... (400,917) (314,953) ---------- ---------- Total...................................... 188,384 238,105 ---------- ---------- Total...................................................... $2,700,657 $2,681,939 ========== ========== See notes to consolidated financial statements
4 5 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (AMOUNTS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ----------------------------- 1997 1996 -------- --------- Cash flows from operating activities: Net loss............................................... $(85,964) $ (11,845) Adjustments to reconcile net loss to net cash used by operating activities: Employee earned stock compensation............. 3,073 5,041 Depreciation and amortization.................. 75,531 78,829 Amortization of discount and expense on debt... 7,398 4,849 Extraordinary loss on extinguishment of debt... 3,937 -- Interest paid in common stock.................. 4,125 11,332 Equity in undistributed earnings of affiliates not consolidated............................. (8,846) (5,328) Revenue from Icahn ticket program.............. (56,048) (32,275) Net (gains)-losses on disposition of assets.... (12,380) (25) Change in operating assets and liabilities: Decrease (increase) in: Receivables.................................... (22,096) (116,955) Inventories.................................... 7,685 6,331 Prepaid expenses and other current assets...... (62,076) (81,621) Other assets................................... (11,133) 3,696 Increase (decrease) in: Accounts payable and accrued expenses.......... 33,964 30,751 Advance ticket sales........................... 69,032 166,839 Other noncurrent liabilities and deferred credits...................................... (17,759) (43,052) -------- --------- Net cash provided (used)................... (71,557) 16,567 -------- --------- Cash flows from investing activities: Proceeds from sales of property........................ 17,175 1,010 Capital expenditures, including aircraft pre-delivery deposits............................................. (33,340) (74,942) Return of pre-delivery deposits related to leased aircraft............................................. 10,740 -- Net decrease in investments, receivables and other..... 7,198 14,670 -------- --------- Net cash provided (used)................... 1,773 (59,262) -------- --------- Cash flows from financing activities: Net proceeds from long-term debt and warrants issued... 47,175 2,750 Proceeds from sale and leaseback of certain aircraft... 12,000 -- Repayments on long-term debt and capital lease obligations.......................................... (66,352) (57,748) Refund due to retirement of 1967 bonds................. 5,318 -- Net proceeds from sale of preferred stock.............. -- 186,163 Redemption of 12% Preferred Stock...................... -- (81,749) Cash dividends paid on preferred stock................. (7,738) (6,751) Net proceeds from exercise of equity rights, warrants and options.......................................... 444 69 -------- --------- Net cash provided (used)................... (9,153) 42,734 -------- --------- Net increase (decrease) in cash and cash equivalents....... (78,937) 39 Cash and cash equivalents at beginning of period........... 181,586 304,340 -------- --------- Cash and cash equivalents at end of period................. $102,649 $ 304,379 ======== ========= See notes to consolidated financial statements
5 6 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (AMOUNTS IN THOUSANDS) (UNAUDITED) SUPPLEMENTAL CASH FLOW INFORMATION
SIX MONTHS ENDED JUNE 30, -------------------------- 1997 1996 ------- ------- Cash paid during the period for: Interest............................................................... $42,866 $48,205 ======= ======= Income taxes........................................................... $ 76 $ 121 ======= ======= Information about noncash operating, investing and financing activities: Promissory notes issued to finance aircraft acquisition................ $74,668 $10,565 ======= ======= Promissory note issued to finance aircraft predelivery payments........ $ 3,071 $ 6,097 ======= ======= Common Stock issued in lieu of cash dividends.......................... $ -- $ 3,255 ======= ======= Property acquired and obligations recorded under new capital transactions......................................................... $ 619 $ 596 ======= ======= Exchange of long-term debt for common stock: Debt cancelled including accrued interest, net of unamortized discount......................................................... $25,528 $ -- ======= ======= Common Stock issued, at fair value................................. $29,465 $ -- ======= ======= Extraordinary loss................................................. $ 3,937 $ -- ======= =======
ACCOUNTING POLICY For purposes of the Statements of Consolidated Cash Flows, TWA considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. See notes to consolidated financial statements 6 7 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 (UNAUDITED) 1. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Trans World Airlines, Inc. ("TWA" or the "Company") and its subsidiaries. The results of Worldspan, L.P. ("Worldspan"), a 25% owned affiliate, are recorded under the equity method and are included in the Statements of Consolidated Operations in Other Charges (Credits). The unaudited consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission but do not include all information and footnotes required by generally accepted accounting principles pursuant to such rules and regulations. The consolidated financial statements include all adjustments, which are of a normal recurring nature and are necessary, in the opinion of management, for a fair presentation of the results for these interim periods. These consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. The consolidated balance sheet at December 31, 1996 has been derived from the audited consolidated financial statements at that date. Certain amounts previously reported have been reclassified to conform with the current presentation. The airline industry generally, and TWA specifically, has historically experienced seasonal changes between quarterly periods, with the second and third quarters usually out-performing the first and fourth. Accordingly, the results for the three months and six months ended June 30, 1997, should not be read as indicators of future results for the full year. 2. INCOME TAXES The Company presently expects that its full year 1997 results will require a provision for income taxes. Accordingly, the tax provision recorded in the second quarter, reflects management's current estimate of the annual effective tax rate. Considering the high level of non-deductible expenses in relation to expected 1997 annual income (which results in both a high effective tax rate and the potential for significant changes in the effective rate from relatively small changes in pre-tax income levels), the income tax provision recorded for the second quarter of 1997 was based upon the quarterly allocable portion of certain non-deductible expenses, primarily amortization of reorganization value in excess of amounts allocable to identifiable assets, and statutory tax rates. 3. EXTRAORDINARY ITEM During the six months ended June 30, 1997 the Company continued a series of privately negotiated exchanges with a significant holder of 12% Senior Secured Reset Notes which resulted in the return to the Company of $27.3 million in 12% Senior Secured Reset Notes and approximately $742,900 in accrued interest thereon in exchange for the issuance of approximately 3.9 million shares of Company Common Stock. All 12% Senior Secured Reset Notes returned will be canceled leaving an outstanding principal balance of such notes of approximately $97.0 million. As a result of the exchange of the 12% Senior Secured Reset Notes, the Company incurred an extraordinary non-cash charge of $3.9 million in the first six months of 1997 representing the difference between the fair value of the Common Stock issued (based upon the trading price of the Company's Common Stock on the dates of the exchanges) and the carrying value of the 12% Senior Secured Reset Notes retired. 4. LOSS PER SHARE In computing the loss applicable to common shares for the three months and six months ended June 30, 1997, the net loss has been increased by dividend requirements on the 8% Cumulative Convertible Exchangeable Preferred Stock (the "8% Preferred Stock"). In computing the related net loss per share, the loss applicable to common shares has been divided by the average aggregate number of outstanding shares of Common Stock (44.8 million and 44.0 million for the three months and six months ended June 30, 1997, respectively) and Employee Preferred Stock (6.1 7 8 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) million and 5.9 million for the three months and six months ended June 30, 1997, respectively) which, with the exception of certain special voting rights, is the functional equivalent of Common Stock. No effect has been given to stock options, warrants or potential issuances of additional Common Stock or Employee Preferred Stock in the three month and six month periods ended June 30, 1997 as their impact would have been anti-dilutive. The loss applicable to common shares for the three months and six months ended June 30, 1996 was similarly computed with the net income (loss) being reduced (increased) by dividend requirements on the Mandatorily Redeemable 12% Preferred Stock (the "12% Preferred Stock") (including amortization of the difference between the fair value of the 12% Preferred Stock on the date of issuance and the redemption value plus, with respect to the March 22, 1996 call for the redemption, a special dividend requirement of approximately $20.0 million to reflect the excess of the early redemption price over the carrying value of the 12% Preferred Stock) and on the 8% Preferred Stock issued in March 1996. In computing the related net income (loss) per share, the income (loss) applicable to common shares was divided by the average aggregate number of outstanding shares of Common Stock (36.9 million and 36.6 million for the three months and six months ended June 30, 1996, respectively) and Employee Preferred Stock (5.7 million and 5.6 million for the three months and six months ended June 30, 1996, respectively). When dilutive, effect has been given to stock options, warrants or potential issuances of additional Common Stock or Employee Preferred Stock. Fully diluted earnings per share for the three months ended June 30, 1996 reflects the assumed conversion of the 8% Preferred Stock into Common Stock. 5. SENIOR SECURED NOTES AND REDEEMABLE WARRANTS In March 1997, the Company offered 50,000 Units ("Units"), with each Unit consisting of (i) one 12% Senior Secured Note due 2002 (a "Note"), in the principal amount of $1,000, and (ii) one Redeemable Warrant (a "Warrant") to purchase 126.26 shares of Common Stock at an exercise price of approximately $7.92 per share (the "Offering"). The Notes are secured by a lien on certain assets of the Company, including 1) the Company's beneficial interest in its FAA designated take-off and landing slots at three high-density, capacity-controlled airports, 2) currently owned and hereafter acquired defined ground equipment of the Company used at certain domestic airports and 3) all of the issued and outstanding stock of (a) a wholly-owned subsidiary of TWA holding the leasehold interest in a hangar at Los Angeles International Airport and (b) three wholly-owned subsidiaries of TWA holding leasehold interests in gates and related support space at certain domestic airports served by the Company. The Company realized approximately $47.2 million (net of discounts and commissions and estimated expenses) in proceeds from the Offering. The Company used approximately $0.5 million of the proceeds from the Offering to release certain of the collateral to be used to secure the Notes from a prior existing lien and the remainder of the proceeds for general corporate purposes. The Offering was made pursuant to Rule 144A of the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Units, Notes and Warrants and underlying shares of Common Stock issuable upon exercise of the Warrants were not registered under the Federal and state securities laws. The Company filed registration statements with respect to (i) an offer to exchange registered Notes for any and all outstanding Notes, and (ii) the Warrants and underlying shares of Common Stock, and to thereby register the Notes and the Warrants under the Securities Act. These registration statements became effective on July 29, 1997. 6. PREFERRED STOCK In March 1996, the Company completed an offering of 3,869,000 shares of its 8% Preferred Stock, with a liquidation preference of $50 per share. Each share of the 8% Preferred Stock may be converted at any time, at the option of the holder, unless previously redeemed or exchanged, into shares of Common Stock at a conversion price of $20.269 per share (equivalent to a conversion rate of approximately 2.467 shares of Common Stock for each share of 8% Preferred Stock), subject to adjustment. The 8% Preferred Stock may not be redeemed prior to March 15, 1999. On or after March 15, 1999, the 8% Preferred Stock may be redeemed, in whole or in part, at the option of the Company, at specified redemption prices. 8 9 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The 8% Preferred Stock may be exchanged at the option of the Company, in whole but not in part, for the Company's 8% Convertible Subordinated Debentures Due 2006 (the "Debentures") on any dividend payment date beginning March 15, 1998 at the rate of $50 principal amount of Debentures for each share of 8% Preferred Stock outstanding at the time of exchange; provided that all accrued and unpaid dividends on the 8% Preferred Stock to the date of exchange, whether or not earned or declared, have been paid or set aside for payment and certain other conditions are met. On March 22, 1996, the Company announced a call for redemption on April 26, 1996 (the "Redemption Date") of all of its issued and outstanding 12% Preferred Stock. Such shares were redeemed at a redemption price per share equal to $75.00, plus accrued dividends to and including the Redemption Date, of $2.8667 per share. On April 26, 1996, the Company paid an aggregate of $84.9 million in redemption of the 12% Preferred Stock. 7. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128 In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" which revises the calculation and presentation provisions of Accounting Principles Board Opinion 15 and related interpretations. While statement No. 128 is effective for the Company's fiscal year ending December 31, 1997, retroactive application will be required. The Company believes that the adoption of Statement No. 128 will not have a significant effect on its reported earnings per share. 8. CONTINGENCIES There has not been any significant change in the status of the contingencies reflected in the Notes to consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, which, among other matters, described various contingencies and other legal actions against TWA, except as discussed in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements made below relating to plans, conditions, objectives, and economic performance go beyond historical information and may provide an indication of future financial condition or results of operations. To that extent, they are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and each is subject to risk, uncertainties, and assumptions that could cause actual results to differ from those in the forward-looking statements. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Some of, although not all, the uncertainties that might impact TWA's future financial condition and results of operations are described below. Following its emergence from bankruptcy in August 1995 (the "'95 Reorganization"), the Company experienced improved operating performance through the end of the second quarter of 1996. However, beginning in the third quarter of 1996, the Company's operating performance substantially deteriorated, which management now believes was largely due to an overly aggressive increase in capacity, resulting in excessive levels of flight cancellations and deterioration in on-time performance. The Company believes that this has adversely affected its unit revenues (principally yields) and costs. In response to this deterioration in operating performance, management has taken action to improve on-time performance and, also, schedule completion rates by, among other things, accelerating the maintenance for its narrow-body aircraft. Additionally, the Company has elected to phase out its wide-body B-747 and L-1011 fleets, upgrade the Company's fleet by the addition of new and newer vintage B-757, B-767 and MD-80 series aircraft, reduce low yield domestic JFK feed service, consolidate for the near term most of its JFK operations into a single terminal and eliminate historically unprofitable international routes. In addition, the Company has commenced programs such as improvements to the Company's frequent flier program and expansion of the first class cabin to afford more opportunities for service class upgrades which are designed to regain business travelers and improve yield. These actions are designed to improve the Company's financial performance and make its product more competitive to the business segment which provides higher yields. The Company also took action to curtail maintenance services provided to third parties and to refocus those resources to its own maintenance operation. The above actions, initiated and performed during the latter part of 1996 and throughout 1997, have resulted in improved operational performance and schedule reliability; however, the Company's unit revenues, yields and cash position have been adversely affected by the negative impact on consumer demand created by the previous deterioration in operating performance, particularly in the higher-yield business traveler segment of the market. GENERAL The airline industry is both cyclical and seasonal in nature. The Company's operating results are also significantly affected by competitive factors in the airline industry. Significant variations in annual operating revenues and operating expenses have been experienced historically by TWA and are expected to continue in the future. Numerous uncertainties concerning the level of revenues and expenses always exist and it is not possible to predict the potential impact of such uncertainties upon TWA's results of operations. Among the uncertainties that might adversely impact TWA's future results of operations are: (i) competitive pricing and scheduling initiatives; (ii) the availability and cost of capital; (iii) increases in fuel and other operating costs; (iv) insufficient levels of air passenger traffic resulting from, among other things, war, threat of war, terrorism or changes in the economy; (v) governmental limitations on the ability of TWA to service certain airports and/or foreign markets; (vi) regulatory requirements requiring additional capital expenditures; (vii) the outcome of labor negotiations; (viii) the possible reduction in yield due to a discount ticket program entered into by the Company with Karabu Corporation, an entity affiliated with Carl C. Icahn ("Karabu"), in connection with the '95 Reorganization and (ix) the impact of the public's perception of the crash of TWA Flight 800. The Company's operating results for any interim period are not necessarily indicative of those for the entire year due to seasonal fluctuations. The second and third quarter results have historically been more favorable for the Company due to increased leisure travel on both domestic and international routes during the spring and summer months. 10 11 The Company's ability to continue to improve its financial position and meet its financial obligations will depend upon a variety of factors, including: improved operating results, favorable domestic and international airfare pricing environments, absence of adverse general economic conditions, continued operating cost controls, and the Company's ability to attract new capital. The Company has already implemented the actions described above which are designed to improve the Company's financial performance and make its product more attractive to the business segment which provides higher yields, however, no assurance can be given that the Company will be successful in generating the operating results required for future viability. TWA's passenger traffic data, for scheduled passengers only, are shown in the table below for the indicated periods:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ------------------- -------------------------------- 1997 1996 1996 1995 1994 ------ ------ ------ ------ ------ TOTAL SYSTEM Passenger revenues ($ millions)................................ $1,412 $1,517 $3,078 $2,836 $2,818 Revenue passenger miles (millions)......................... 12,057 12,879 27,111 24,902 24,906 Available seat miles (millions)............................ 17,696 19,258 40,594 37,905 39,191 Passenger load factor...................................... 68.1% 66.9% 66.8% 65.7% 63.5% Passenger yield (cents).................................... 11.71 11.78 11.35 11.39 11.31 Passenger revenue per available seat mile (cents).......... 7.98 7.88 7.58 7.48 7.19 Operating cost per available seat mile (cents)............. 9.38 8.76 8.76 8.12 8.45 Average daily utilization per aircraft (hours)............. 9.18 9.78 9.63 9.45 9.30 Aircraft in service at end of period........................... 190 187 192 188 185 - -------- 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. Passenger revenue per revenue passenger mile. Passenger revenue divided by scheduled available seat miles. Operating expenses, excluding special charges, earned stock compensation, other nonrecurring charges and subsidiaries, divided by total available seat miles. The average block hours flown per day in revenue service per aircraft.
11 12 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1996 The Company's operating income of $5.9 million for the three months ended June 30, 1997 decreased $56.1 million from operating income of $62.0 million for the second quarter of 1996. The Company had a net loss of $14.4 million for the second quarter of 1997 compared to net income of $25.3 million for the second quarter of 1996. The second quarter 1997 net loss included a $2.4 million non-cash extraordinary loss related to the early extinguishment of debt. Operating revenues of $844.4 million during the second quarter of 1997 were $121.4 million (12.6%) less than the comparable 1996 period primarily because of decreases in scheduled passenger revenues ($98.8 million) and cargo revenue ($5.7 million). Revenues from contract work declined $14.4 million primarily due to the elimination of a government maintenance contract. Capacity and traffic decreased in the second quarter of 1997 from the comparable period of 1996. System capacity, as measured by scheduled available seat miles (ASMs), decreased by 9.1% during the second quarter of 1997 (representing decreases in domestic and international ASMs of 1.8% and 30.1%, respectively). The decrease in capacity was primarily attributed to the ongoing replacement of B-747 and L-1011 aircraft with smaller B-767 and B-757 aircraft and the elimination of unprofitable international routes. Passenger traffic volume, as measured in revenue passenger miles (RPMs) in scheduled service, during the second quarter of 1997 decreased 9.2% compared to the same period of 1996. Passenger load factor for the quarter ended June 30, 1997 was 69.76% compared to 69.83% in the same period of 1996. TWA's yield per passenger mile decreased from 11.93 cents in 1996 to 11.60 cents in 1997. Operating expenses of $838.5 million in the second quarter of 1997 reflected a decrease of $65.3 million (7.2%) from the operating expenses of $903.8 million for the three months ended June 30, 1996, representing a net change in the following expense groups: * Employment costs of $302.5 million for the second quarter of 1997 were $6.9 million (2.2%) less than the same period in 1996, primarily due to a decrease in the average number of employees. The Company had an average of 23,850 full-time equivalent employees in the second quarter of 1997 as compared to 24,169 in the second quarter of 1996. Flight attendants and passenger service agents were the primary groups impacting the decrease. * Earned stock compensation charges of $1.8 million for the second quarter of 1997 and $58 thousand for the second quarter of 1996 represents primarily the non-cash compensation charge recorded to reflect the expense associated with the distribution of shares of stock on behalf of employees as part of the '95 Reorganization. A substantial portion of the increase is attributable to the increasing trading price of the Common Stock during the second quarter of 1997 compared to a decline in the trading price during the second quarter of 1996. * Aircraft fuel and oil expense of $117.3 million for the second quarter of 1997 was $23.8 million (16.9%) less than the expenses of $141.1 million for the three months ended June 30, 1996. The decrease was due to a reduction in the average cost of fuel (from 67.15 cents per gallon in 1996 to 63.77 cents per gallon in 1997) and a reduction in gallons consumed (184.0 million gallons in 1997 versus 210.1 gallons in 1996) due to the replacement of B-747 and L-1011 aircraft with B-757 and B-767 aircraft and a reduction in international flying. * Passenger sales commission expense of $65.4 million for the second quarter of 1997 was $8.2 million (11.2%) less than the comparable period in 1996 primarily due to the 11.8% decrease in scheduled passenger revenues. * Aircraft maintenance materials and repairs expense of $38.4 million for the second quarter of 1997 represented a decrease of $18.8 million (32.9%) from the $57.2 million for the same period of 1996. The decrease was primarily the result of the introduction of new B-757 and MD-80/83 aircraft into the fleet as replacements for B-747, L-1011 and B-727 aircraft and a reduction in contract maintenance work performed. * Depreciation and amortization expense decreased $2.5 million in the second quarter of 1997 compared to the same period of 1996. Special charges recorded in the fourth quarter of 1996, related to international route authorities and aircraft to be disposed of, reduced depreciation and amortization in the second quarter of 1997 by approximately $3.2 million. The remaining increase is primarily attributed to the addition of B-757 and MD-80/83 aircraft to TWA's fleet. 12 13 * Operating lease rentals of $88.6 million for the second quarter of 1997 were $14.1 million (18.9%) more than the rentals of $74.5 million for the second quarter of 1996. The increase was primarily due to an increase in the average number of leased aircraft from 121 in the second quarter of 1996 to 136 in the comparable period of 1997, and higher lease rates attributable primarily to the addition of new B-757 and MD-80/83 aircraft to the fleet. * Passenger food and beverage expense of $19.4 million during the second quarter of 1997 represented a decrease of $7.9 million (28.9%) from $27.3 million during the second quarter of 1996. The decrease was primarily due to the 32.4% reduction in the number of passengers boarded for international flights resulting from the 30.1% reduction in international scheduled ASMs and savings derived from changes and improved efficiencies in food and beverage service. * All other operating expenses of $168.3 million during the second quarter of 1997 decreased by $13.0 million (7.2%) from $181.4 million for the three months ended June 30, 1996. The decrease was primarily due to a decrease in outside services purchased ($7.2 million). Additionally, international navigational facility user charges ($2.6 million) and advertising expenses ($2.2 million) decreased year over year for the second quarter. Other charges (credits) were a net charge of $16.2 million for the second quarter of 1997 as compared to $16.0 million for the same period in 1996. Interest expense decreased $1.4 million in 1997 over 1996 as a result of the reduction of debt during 1996 and 1997. Interest income decreased by $2.7 million in 1997 primarily as a result of lower levels of invested funds. Net gains from the disposition of assets were $3.0 million in the second quarter of 1997 as compared to a net gain of $239 thousand in the same period of 1996. The net gain in the second quarter of 1997 included a gain of $1.1 million related to the sale of a B-747 JT9D aircraft engine. Other charges and credits-net decreased from a net credit of $9.1 million for the second quarter of 1996 to a net credit of $7.4 million for the second quarter of 1997. A tax provision of $1.7 million was recorded in the second quarter of 1997 compared to a tax provision of $20.8 million recorded in the second quarter of 1996. The Company presently expects that its full year 1997 results will require a provision for income taxes. Accordingly, the tax provision recorded in the second quarter, reflects management's current estimate of the annual effective tax rate. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996 Total operating revenues of $1,606.7 million for the six months ended June 30, 1997 were $141.5 million (8.1%) less than the comparable 1996 period, primarily because of $104.9 million (6.9%) decrease in scheduled passenger revenue, a $23.6 million (56.9%) decrease in contract revenue and a $10.1 million (13.9%) decrease in cargo revenues. Capacity and traffic decreased in the six months ended June 30, 1997 from the comparable period of 1996. System capacity, as measured by scheduled available seat miles (ASMs), decreased 8.1 % during the first six months of 1997 (representing decreases in domestic and international ASMs of 2.5% and 26.5%, respectively). The decrease in capacity was primarily attributed to the ongoing replacement of B-747 and L-1011 aircraft with smaller B-767 and B-757 aircraft and the elimination of unprofitable international routes. Passenger traffic volume, as measured by revenue passenger miles (RPMs) in scheduled service, during the first six months of 1997 decreased 6.4% compared to the same period of 1996. Passenger load factor for the six months ended June 30, 1997 was 68.13% compared to 66.88% in the same period of 1996. TWA's yield per passenger mile decreased from 11.78 cents in 1996 to 11.71 cents in 1997. Operating expenses of $1,700.3 million in the first six months of 1997 reflected a decrease of $40.1 million (2.3%) from the operating expenses of $1,740.4 million for the six months ended June 30, 1996, representing a net change in the following expense groups: * Employment costs of $617.8 million for the first six months of 1997 were $12.0 million (2.0%) more than the same period of 1996, primarily due to overtime costs during the first quarter of 1997 related to the accelerated maintenance schedules for the Company's narrow-body fleet and crew retraining in connection with changes in fleet composition. Additionally, the average number of full-time equivalent employees increased from 23,810 during the first six months of 1996 to 24,159 during the comparable 1997 period. The six month averages were more heavily weighted by the increase in employees during the first three months of 1997 (1,018 compared to 13 14 the first three months of 1996) than by the decrease in employees during the second three months of 1997 (319 compared to the second three months of 1996). * Earned stock compensation charges of $3.1 million for the first six months of 1997 and $5.0 million for the first six months of 1996 represent primarily the non-cash compensation charges recorded to reflect the expense associated with the distribution of shares of stock on behalf of employees as part of the '95 Reorganization. A substantial portion of the decrease is attributable to the decline in trading price of the Common Stock during the first six months of 1997 as compared to the first six months of 1996. Additional non-cash charges of approximately $6.4 million will be recorded in July 1997 due to the distribution of additional shares of common stock and Employee Preferred Stock pursuant to an employee stock incentive plan (ESIP or Plan). * Aircraft fuel and oil expense of $247.3 million for the first six months of 1997 decreased $23.2 million (8.6%) from expenses of $270.5 million for the six months ended June 30, 1996. Expenses decreased due to a 11.1% reduction in consumption (359,542 million gallons in 1997 versus 404,416 million gallons in 1996), which was partially offset by a 2.8% increase in the average cost of fuel per gallon (from 66.88 cents in the first six months of 1996 compared to 68.77 cents in 1997). * Passenger sales commission expense of $123.0 million for the first six months of 1997 was $14.6 million (10.6%) less than the comparable period in 1996 primarily due to a 6.9% decrease in passenger revenues and reduced sales development commissions. * Aircraft maintenance materials and repairs expense of $82.1 million for the first six months of 1997 represented a decrease of $22.8 million (21.7%) from $104.9 million for the same period of 1996. The decrease was primarily the result of the introduction of new B-757 and MD-80/83 aircraft into the fleet as replacements for B-747, L-1011 and B-727 aircraft, a reduction in contract maintenance work and a 5.8% decrease in flying hours. * Depreciation and amortization expense decreased $3.3 million in the first six months of 1997 compared to the same period of 1996. Special charges recorded in the fourth quarter of 1996, related to international route authorities and aircraft to be disposed of, reduced depreciation and amortization in the first six months by approximately $6.4 million but was offset, in part, by the depreciation expense on the new aircraft that the Company has acquired. * Operating lease rentals of $174.4 million for the first six months of 1997 were $29.6 million (20.4%) more than the rentals of $144.8 million for the first six months of 1996. The increase was primarily due to an increase in the average number of leased aircraft from 120 in 1996 to 134 in 1997 and higher lease rates attributable primarily to the addition of new B-757 and MD-80/83 aircraft to the fleet. * Passenger food and beverage expense of $39.9 million during the first six months of 1997 represented a decrease of $12.9 million (24.6%) from $52.8 million for the first six months of 1996. The decrease was primarily due to a 27.2% reduction in the number of passengers boarded for international flights resulting from a 26.5% reduction in international scheduled ASMs and savings derived from changes and improved efficiencies in food and beverage service. * All other operating expenses of $337.2 million during the first six months of 1997 decreased by $2.9 million (0.9%) from $340.1 million for the six months ended June 30, 1996. Due to a 3.8% reduction in departures in the first six months of 1997 compared to the same period of 1996, landing fees decreased $2.6 million. Other charges (credits) were a net charge of $21.9 million for the first six months of 1997 as compared to $36.1 million for the same period in 1996. Interest expense decreased $6.5 million in 1997 from 1996 as a result of the reduction of debt in 1996 and 1997. Interest income decreased $5.8 million in 1997 primarily as a result of lower levels of invested funds. Net gains from the disposition of assets were $12.4 million in the first six months of 1997 as compared to net gains of $25 thousand in the same period of 1996. The net gains in 1997 included gains of $7.3 million related to the sale of three gates at Newark International Airport, $2.1 million related to the sale of spare flight equipment, and $1.1 million related to the sale of a B-747 JT9D engine. Other charges and credits-net for the first half of 1997 were a net credit of $17.8 million compared to a net credit of $16.7 million in the first half of 1996, primarily due to a $3.5 million improvement in the Company's share in earnings of Worldspan. 14 15 LIQUIDITY AND CAPITAL RESOURCES The following is a discussion of the impact of significant factors affecting TWA's liquidity position and capital resources. Liquidity The Company's consolidated cash and cash equivalents balance at June 30, 1997 was $102.6 million (including amounts held in its international operations and by its subsidiaries which, based upon various foreign monetary regulations and other factors, might not be immediately available to the Company), a $79.0 million decrease from the December 31, 1996 balance of $181.6 million. This reduction in the Company's cash balances resulted from, among other factors, continued adverse effects during the first half of 1997 of the negative impact on consumer demand of the loss of Flight 800 in July 1996 and difficulties experienced in the last two quarters of 1996 in operating performance. Although the Company's operational performance has substantially improved during 1997, the residual effects of these 1996 events continued throughout the first two quarters of 1997 and may continue in subsequent quarters. However, the Company has taken various initiatives, discussed above, designed to improve the Company's financial performance. In February 1997, in order to improve its liquidity, the Company entered into an agreement with and received approximately $26 million from certain St. Louis business enterprises, representing the advance payment for tickets for future travel by such enterprises. In March 1997, the Company raised approximately $47.2 million in net proceeds from the issuance of the Notes and Warrants (see Note 5 to the consolidated financial statements). The Company is also pursuing other projects intended to increase cost efficiencies and enhance revenues, thereby increasing its cash balances. In addition, the Company continues to pursue projects intended to increase its liquidity including the refinancing of both the Icahn Loans and the 12% Senior Secured Reset Notes to realize the asset value of existing security over the current outstanding debt balances. The net decrease in cash and cash equivalents during the first six months of 1997 was due, in part, to the fact that cash used in operating activities in 1997 was $71.6 million as compared to 1996 when $16.6 million was provided by operating activities. Pursuant to the eight-year Karabu Ticket Program Agreement between the Company and Karabu (the "Ticket Agreement"), net discounted sales from tickets sold under the agreement are excluded from cash provided by operating activities as the related amounts were applied as a $53.7 million reduction to the outstanding balance of financing provided to TWA by Karabu (the "Icahn Loans"). Cash provided by investing activities was $1.8 million in 1997 versus cash used of $59.3 million in 1996. A large part of this change was related to a reduction in new aircraft predelivery deposits ($7.2 million in 1997 versus $32.2 million in 1996) and an increase of $16.2 million in proceeds from asset sales. Gross proceeds from assets sold during the first six months of 1997 included $10.0 million for three gates at Newark International Airport and $7.2 million for spare flight equipment, aircraft and engines. Financing activities used $9.2 million of cash in 1997, while such activities provided cash of $42.7 million in 1996, primarily related to net proceeds of $186.2 million from the sale of 3,869,000 shares of 8% Preferred Stock in March 1996. Proceeds from the issuance of the Notes and Warrants, as described in Note 5 to the consolidated financial statements, was $47.2 million in 1997. Repayments of long-term debt and capital leases required $8.6 million more cash in 1997 than in 1996. As previously described, management has indicated that it is focusing on the improvement of TWA's schedule reliability and on-time performance and that it plans to accelerate the replacement of it's L-1011 and B-747 fleets with B-757, B-767 and MD-80/83 aircraft. Such operational changes have resulted in improvements of the Company's operating performance. During the second quarter of 1997, TWA significantly improved its on time performance ranking as measured by the Department of Transportation statistics. However, the Company's unit revenues, yields and cash position have been adversely affected by the negative impact on consumer demand created by the previous deterioration in operating performance, particularly in the higher-yield business traveler segment of the market. The Company believes that a substantial improvement in its operating results is necessary for TWA to maintain adequate liquidity to meet its obligations throughout the remainder of 1997. In addition, the Company has commenced programs such as improvements to the Company's frequent flier program and expansion of the first class cabin to afford more opportunities for service class upgrades which are designed to regain business travelers and improve yield. The achievement of these improved operating results are subject to significant uncertainties, including the Company's ability to achieve higher revenue yields and load factors, the cost of aircraft fuel, the Company's ability to 15 16 finance or lease suitable replacement aircraft at reasonable rates and the containment of operating costs. No assurance can be given that any of the initiatives already implemented or any new initiatives, if implemented, will be successful, or if successful, that such initiatives will produce sufficient results for the Company to be successful in generating the operating revenues and cash required for profitable operations or future viability. As part of the Company's effort to continue to improve operating results, on July 22, 1997, the Company announced the planned reduction of approximately 1,000 jobs during the remainder of 1997 in the areas of maintenance, airport operations and reservations. The decreased headcount in maintenance reflects reduced maintenance needs for the newer aircraft added to the Company's fleet during 1996 and 1997. The reductions are being made through a combination of layoffs and attrition. In March 1997, the Company offered 50,000 Units, with each Unit consisting of (i) one 12% Senior Secured Note due 2002, in the principal amount of $1,000, and (ii) one Redeemable Warrant to purchase 126.26 shares of Common Stock at an exercise price of approximately $7.92 per share. The Notes are secured by a lien on certain assets of the Company, including 1) the Company's beneficial interest in its FAA designated take-off and landing slots at three high-density, capacity-controlled airports, 2) currently owned and hereafter acquired defined ground equipment of the Company used at certain domestic airports and 3) all of the issued and outstanding stock of (a) a wholly-owned subsidiary of TWA holding the leasehold interest in a hangar at Los Angeles International Airport and (b) three wholly-owned subsidiaries of TWA holding leasehold interest in gates and related support space at certain domestic airports served by the Company. The Company realized approximately $47.2 million (net of discounts and commissions and estimated expenses) in proceeds from the Offering. The Company used approximately $0.5 million of the proceeds from the Offering to release certain of the collateral to be used to secure the Notes from a prior existing lien and the remainder of the proceeds for general corporate purposes. In March 1996 the Company completed the sale of 3,869,000 shares of its 8% Preferred Stock for gross proceeds of approximately $193.5 million and net proceeds to the Company of approximately $186.2 million, after commissions and expenses. A portion of the net proceeds from the sale of the 8% Preferred Stock were used to redeem the Company's outstanding 12% Preferred Stock, pursuant to the terms thereof, at an aggregate redemption price of approximately $81.7 million, plus accrued dividends from February 1, 1996 to the redemption date of April 26, 1996. The Company utilized the balance of the net proceeds for general corporate purposes, including but not limited to, capital expenditures and increasing working capital. Pursuant to the '95 Reorganization, the Company issued 600,000 ticket vouchers, each with a face value of $50.00, which may be used for up to 50% discount off the cost of a TWA airline ticket for transportation on TWA ("Ticket Vouchers"). Pursuant to certain agreements, the Company repurchased approximately 236,000 of the Ticket Vouchers at an aggregate cost of $8.8 million. Payments in respect of these Ticket Vouchers were approximately $700,000 in 1995 and approximately $8.1 million in 1996. Concurrently, the Company undertook aircraft lease payment deferrals to increase liquidity and improve the Company's financial condition. Gross deferrals of lease and conditional sale indebtedness payments aggregated approximately $91.0 million with a weighted average repayment period of approximately two years. The aircraft lease payment deferrals contemplated by the '95 Reorganization generally anticipated six month deferrals with various payback periods, extending in some instances over the remaining life of the lease, and in other cases over a specified period. Cash repayments of lease deferrals, including interest, were approximately $9.5 million in the fourth quarter of 1995, $23.8 million in 1996 and are expected to approximate $8.7 million in 1997. On June 14, 1995, the Company signed an agreement with Karabu pursuant to which the term of the Icahn Loans was extended from January 8, 1995 to January 8, 2001. Karabu and certain other affiliates of Mr. Icahn (the "Icahn Entities") consented to certain modifications to promissory notes (the "PBGC Notes") issued to a settlement trust on behalf of the Pension Benefit and Guaranty Corporation (the "PBGC") in connection with the Company's 1993 Chapter 11 Reorganization (the "'93 Reorganization") and the Icahn Entities agreed to refrain from exercising the right during 1995 to terminate certain pension plans covering employees of the Company as to which Mr. Icahn and the Icahn Entities assumed certain obligations in the '93 Reorganization. Any such termination would not increase the obligations of TWA on the PBGC Notes or other obligations of TWA to Mr. Icahn, the Icahn Entities or the PBGC. Collateral for the Icahn Loans includes a number of aircraft, engines and related equipment, along with substantially all of the Company's receivables. At June 30, 1997, the outstanding balance of the Icahn Loans was approximately $71.4 million (excluding approximately $3.6 million in accrued and unpaid interest). The notes 16 17 evidencing the Icahn Loans have been pledged by Mr. Icahn and certain affiliated entities as security for certain obligations of the Icahn Entities to the PBGC and/or in respect of funding obligations on the Company's pre-'93 Reorganization pension plans. On June 14, 1995, in consideration of, among other things, the extension of the Icahn Loans, TWA and Karabu entered into the Ticket Agreement. There are two categories of tickets under the Ticket Agreement: (1) "Domestic Consolidator Tickets," which are subject to a cap of $610 million, based on the full retail price of the tickets ($120 million in the first 15 months and $70 million per year for seven consecutive years through the term of the Ticket Agreement) and (2) "System Tickets," which are not subject to any cap throughout the term of the Ticket Agreement. Tickets sold by the Company to Karabu pursuant to the Ticket Agreement are priced at levels intended to approximate current competitive discount fares available in the airline industry. The Ticket Agreement provides that no ticket may be included with an origin or destination of St. Louis, nor may any ticket include flights on other carriers. Tickets sold by Karabu pursuant to the Ticket Agreement are required to be at fares specified in the Ticket Agreement, net to TWA, and exclusive of tax. No commissions will be paid by TWA for tickets sold under the Ticket Agreement, and TWA believes that under the applicable provisions of the Ticket Agreement, Karabu may not market or sell such tickets through travel agents. Karabu, however, has been marketing tickets through travel agents. TWA has demanded that Karabu cease doing so and Karabu has stated that it disagrees with the Company's interpretation concerning sales through travel agents. In December 1995, the Company filed a lawsuit against Karabu, Mr. Icahn and affiliated companies seeking damages and to enjoin further violations. Mr. Icahn countered threatening to attempt to declare a default on the Icahn Loans on a variety of claims related to his various interpretations of the security documents related to such loans as well as with respect to alleged violations of the Ticket Agreement by the Company. A violation of the Ticket Agreement by the Company could result in a cross-default under the Icahn Loans. Mr. Icahn also alleged independent violations of the Icahn Loans, including, among other things, that the Company has not been maintaining, as required by the terms of the Icahn Loans, certain aircraft which TWA has retired from service and stored which are pledged as security for the Icahn Loans. To endeavor to eliminate this issue from the various disputes with Mr. Icahn, the Company has deposited an amount equal to the appraised fair market value of the aircraft in question with a security trustee and requested the release of the liens on such aircraft. To date, the Trustee has not released such liens. The parties negotiated a series of standstill agreements pursuant to which TWA's original lawsuit was withdrawn, while the Company and Mr. Icahn endeavored to negotiate a settlement of their differences and respective claims. Those negotiations reached an impasse and the Company re-filed its suit on March 20, 1996 in the St. Louis County Circuit Court. If Karabu's interpretation as to sales of discount tickets to the general public through travel agents was determined by a court or otherwise to be correct and the Company did not otherwise take appropriate action to mitigate the effect of such sales, the Company could suffer significant loss of revenue so as to reduce overall passenger yields on a continuing basis during the term of the Ticket Agreement. In addition, any default by the Company under the Ticket Agreement or directly on the Icahn Loans which resulted in an acceleration of the Icahn Loans could result in a cross-default to the Company's other indebtedness and leases and otherwise have a material adverse effect on the Company. Also on March 20, 1996, Karabu and certain other companies controlled by Mr. Icahn filed suit against the Company alleging violations by the Company of the Ticket Agreement and federal anti-trust laws. On March 24, 1997, the Federal District Court for the Southern District of New York, on the Company's motion, dismissed the suit in its entirety. On August 11, 1997, the Company was advised that Karabu and another entity controlled by Mr. Icahn have filed another suit alleging violation of the Ticket Agreement, this time against six senior officers of the Company in New York state court. This suit is substantially similar to the previous action. Domestic Consolidator Tickets sold under the Ticket Agreement are limited to certain origin/destination city markets in which TWA has less than a 5% market share limit except for New York where there is a 10% limit. These restricted markets will be reviewed from time to time to determine any change in TWA's market share, and other markets may be designated as necessary. The purchase price for the tickets purchased by Karabu are required to either, at Karabu's option, be retained by Karabu and the amount so retained credited as prepayments against the outstanding balance of the Icahn Loans, or be paid over by Karabu to a settlement trust established in connection with the '93 Reorganization for TWA's account 17 18 as prepayments on the PBGC Notes. At June 30, 1997, approximately $118.6 million of such proceeds had been applied to the principal balance of the Icahn Loans and $6.4 million had been applied to the PBGC Notes. The Company elected to pay all the interest due August 1, 1995 and February 1, 1996, and half the interest due February 1, 1997, on its 12% Senior Secured Reset Notes, in shares of Common Stock. The amount of such interest aggregated approximately $10.4 million, $10.2 million and $3.7 million, respectively, and resulted in the issuance of approximately 1.9 million, 1.1 million and 0.6 million shares of Common Stock on the respective dates. The Company elected to pay dividends due February 1, 1996 on its 12% Preferred Stock for the period from November 1, 1995 to and including January 31, 1996, in the amount of approximately $3.3 million, in shares of Common Stock. Capital Resources During the six months ended June 30, 1997 the Company continued a series of privately negotiated exchanges with a significant holder of 12% Senior Secured Reset Notes which resulted in the return to the Company of $27.3 million in 12% Senior Secured Reset Notes and approximately $742,900 in accrued interest thereon in exchange for the issuance of approximately 3.9 million shares of Company Common Stock. All 12% Senior Secured Reset Notes returned will be canceled leaving an outstanding principal balance of such notes of approximately $97 million. TWA has no unused credit lines and must satisfy all of its working capital and capital expenditure requirements from cash provided by operating activities, from external borrowings or from the sale of assets. Substantially all of TWA's strategic and non-strategic assets, including its owned aircraft, ground equipment, gates, slots and overhaul facilities, have been pledged to secure various issues of outstanding indebtedness of the Company. Sales of such assets which are not replaced would, under the terms of applicable financing agreements, generally require payment of the indebtedness secured thereby, which indebtedness in many cases would likely exceed the immediately realizable value of such assets. The Company has, however, significantly reduced the principal balance outstanding on the Icahn Loans and the 12% Senior Secured Reset Notes to the extent and in the manner described herein. The Company is currently looking to improve liquidity by refinancing both the Icahn Loans and the 12% Senior Secured Reset Notes to realize the asset value of the existing security over the current outstanding debt balances. To the extent that the Company's access to capital is constrained, the Company may not be able to make certain capital expenditures or implement certain other aspects of its strategic plan, and the Company may therefore be unable to achieve the full benefits expected therefrom. Commitments In February 1996, TWA executed definitive agreements providing for the operating lease of 10 new B-757 aircraft to be delivered in 1996 and 1997. These aircraft have an initial lease term of 10 years. The Company also entered into an agreement in February 1996 with Boeing for the purchase of ten B-757 aircraft and related engines, spare parts and equipment for an aggregate purchase price of approximately $500 million. The agreement requires the delivery of the aircraft in 1997, 1998 and 1999, and provides options for the purchase of up to ten additional aircraft. During June of 1997, TWA entered into a leasing arrangement for the third aircraft to be delivered under the purchase agreement. As of August 1, 1997 TWA has taken delivery of two manufacturer financed aircraft and eleven leased aircraft. Although individual aircraft rentals escalate over the term of the leases, aggregate rental obligations are estimated to average approximately $59 million per annum over the lease terms. Furthermore, to the extent TWA exercises its options for additional aircraft, the Company will have the right to an equal number of additional option aircraft. TWA has obtained commitments for debt financing for approximately 80% of the total costs associated with the acquisition of eight of the original ten aircraft and obtained commitments for 100% lease financing of the total costs of the remaining two original aircraft. Such commitments are subject to, among other things, so-called material adverse change clauses which, given the Company's recent financial results, could make the availability of such debt and lease financing dependent upon the lender's and lessor's ongoing evaluation of and satisfaction with the financial condition of TWA. In July 1997, TWA reached agreement for the acquisition, by lease, of a new Boeing 767-300 aircraft to be delivered in the first quarter of 1998. The longer-range 300 series aircraft will be utilized on TWA's international routes. TWA has entered into agreements with AVSA, S.A.R.L. and Rolls-Royce plc relating to the purchase of ten A330-300 twin-engine wide body aircraft and related engines, spare parts and equipment for an aggregate purchase 18 19 price of approximately $1.1 billion. The agreements, as amended, require the delivery of the aircraft in 2001 and 2002 and provide options for the purchase of up to ten additional aircraft. TWA has not yet made arrangements for the permanent financing of the purchases subject to the agreements. In the event of cancellation, predelivery payments of approximately $18 million would be subject to forfeiture. The Company has entered into an agreement to acquire fifteen new MD-83s from the manufacturer. The long-term leasing arrangement provides for delivery of the aircraft between the second quarter of 1997 and the first quarter of 1999. As of August 1, 1997 two aircraft have been delivered. TWA has elected to comply with the transition requirements of the Airport Noise and Capacity Act of 1990 by adopting the Stage 2 aircraft phase-out/retrofit option, which requires that 50% of its base level (December 1990) Stage 2 fleet be phased-out/retrofitted by December 31, 1996, 75% by December 31, 1998 and 100% by December 31, 1999. To comply with the 1996 requirement, the Company retrofitted, by means of engine hush-kits, 32 of its DC-9 aircraft. As of June 30, 1997, hush kits have been installed on 67 DC-9 engines at an aggregate cost of approximately $55 million, most of which was financed by lessors with repayments being facilitated through increased rental rates. Certain Other Capital Requirements Expenditures for facilities and equipment, other than aircraft, generally are not committed prior to purchase and, therefore, no such significant commitments exist at the present time. TWA's ability to finance such expenditures will depend in part on TWA's financial condition at the time of the commitment. Availability of NOLs The Company estimates that it had, for federal income tax purposes, net operating loss carryforwards ("NOLs") amounting to approximately $625 million at December 31, 1996, which includes increases in the NOLs as originally filed. Such NOLs expire in 2008 through 2011 if not utilized before then to offset taxable income. Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), and regulations issued thereunder, impose limitations on the ability of corporations to use NOLs, if the corporation experiences a more than 50% change in ownership during certain periods. In connection with the change of ownership caused by the '95 Reorganization, the Company elected to reduce its NOLs in accordance with Section 382 of the Code and regulations issued thereunder. If another ownership change were to occur prior to September 1997, the annual limitation on the Company's utilization of its then existing NOLs would be reduced to zero. Changes in ownership in periods thereafter could substantially restrict the Company's ability to utilize its tax net operating loss carryforwards. There can be no assurance that an ownership change will not occur in the future. In addition, the NOLs are subject to examination by the IRS, and thus, are subject to adjustment or disallowance resulting from any such IRS examination. For financial reporting purposes, the tax benefits from tax net operating loss carryforwards arising prior to the Company's emergence from its '95 Reorganization on August 23, 1995 will, to the extent realized in future periods, have no impact on the Company's operating results, but instead be applied to reduce reorganization value in excess of amounts allocable to identifiable assets. 19 20 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. On August 11, 1997 the Company was advised that Karabu and Global Discount Travel Services, LLC ("Global") another entity controlled by Mr. Icahn had filed suit on August 8, 1997 in New York state court, county of New York, against six senior officers of the Company. The suit alleges interference with Global's rights under the Ticket Agreement by terminating or threatening to terminate travel agencies' appointments to sell TWA tickets if such travel agencies do business with Global. This suit is substantially similar to one filed in March 1996 by Karabu and dismissed by the federal court in New York in March 1997. The defendants have not yet filed an answer. ITEM 2. CHANGES IN SECURITIES. SALES OF UNREGISTERED SECURITIES Pursuant to certain Exchange Agreements with Elliott Associates L. P. and Westgate International L. P. reported on a Form 8-K filed on September 20, 1996, the Company exchanged 2,291,015 shares of Common Stock for $17.50 million principal amount of its 12% Senior Secured Reset Notes (the "Reset Notes") plus approximately $0.7 million in accrued interest thereon in a series of transactions in the second quarter of 1997. An additional 3,588,361 shares of Common Stock have been exchanged for an additional $23.05 million principal amount of Reset Notes in the third quarter of 1997. The Common Stock was issued pursuant to the exemption granted by Section 3(a)(9) of the Securities Act of 1933. The Reset Notes were registered and issued pursuant to the Company's registration statement on Form S-4 filed with the Commission on May 12, 1995. ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders of TWA was held on May 29, 1997. The following matters were considered and acted upon at the Annual Meeting: 1. The election of five Class I Directors of the Company for terms ending with the 1998 Annual Meeting of Stockholders and until their successors are elected and qualified. The following individuals were elected Directors, with the number of votes cast for and against each individual shown opposite their names:
NAME FOR WITHHELD ---- --- -------- John W. Bachmann.................. 35,764,001 516,279 William F. Compton................ 35,729,017 541,263 Eugene P. Conese.................. 35,736,795 533,485 Merrill A. McPeak................. 35,425,435 844,845 Blanche M. Touhill................ 35,417,654 852,626
The following individuals' terms of office as a Director of the Company continued after the Annual Meeting: Gerald L. Gitner, William M. Hoffman, Thomas H. Jacobsen, Myron Kaplan, David M. Kennedy, Thomas F. Meagher, William O'Driscoll, G. Joseph Reddington, Stephen M. Tumblin and William W. Winpisinger. 2. The ratification of the appointment of KPMG Peat Marwick LLP as independent accountants for the fiscal year ending December 31, 1997. The votes cast with regard to this proposal were as follows:
FOR AGAINST ABSTAIN --- ------- ------- 41,999,130 296,009 208,474
ITEM 5. OTHER INFORMATION In July 1997, the Company announced that Charles J. Thibaudeau, Senior Vice President, Employee Relations, would retire on October 1, 1997 after more than 32 years with the Company. 20 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS 2.1 --Joint Plan of Reorganization, dated May 12, 1995 (Appendix B to Registrant's Registration Statement on Form S-4, Registration Number 33-84944, as amended) 2.2 --Modifications to Joint Plan of Reorganization, dated July 14, 1995 and Supplemental Modifications to Joint Plan of Reorganization dated August 2, 1995 (Exhibit 2.5 to 6/95 10-Q) 2.3 --Findings of Fact, Conclusions of Law and Order Confirming Modified Joint Plan of Reorganization, dated August 4, 1995, with Exhibits A-B attached (Exhibit 2.6 to 6/95 10-Q) 2.4 --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 Airlines Inc. Employees' Stock Ownership Plan and related Trust Agreement, dated August 31, 1993, between TWA, the IAM Plan Trustee Committee and the IAM Trustee (Exhibit to 9/93 10-Q) 4.3 --IFFA Trans World Airlines Inc. Employees' Stock Ownership Plan and related Trust Agreement, dated August 31, 1993, between TWA, the IFFA Plan Trustee Committee and the IFFA Trustee (Exhibit 4.5 to 9/93 10-Q) 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 --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) 4.6 --Registration Rights Agreement, dated November 3, 1993, between TWA and the Initial Significant Holders (Exhibit 4.9 to 9/93 10-Q) 4.7 --Indenture between TWA and Shawmut Bank, National Association, dated November 3, 1993 relating to TWA's 10% Senior Secured Notes Due 1998 (Exhibit 4.10 to 9/93 10-Q) 4.8 --Indenture between TWA and Harris Trust and Savings Bank, dated November 3, 1993 relating to TWA's 8% Senior Secured Notes Due 2000 (Exhibit 4.11 to 9/93 10-Q) 4.9 --Indenture between TWA and American National Bank and Trust Company of Chicago, N.A., dated November 3, 1993 relating to TWA's 8% Secured Notes Due 2001 (Exhibit 4.12 to 9/93 10-Q) 4.10 --The TWA Air Line Pilots 1995 Employee Stock Ownership Plan, effective as of January 1, 1995 (Exhibit 4.12 to 9/95 10-Q) 4.11 --TWA Air Line Pilots Supplemental Stock Plan, effective September 1, 1994 (Exhibit 4.13 to 9/95 10-Q) 4.12 --TWA Air Line Pilots Supplemental Stock Plan Trust, effective August 23, 1995 (Exhibit 4.14 to 9/95 10-Q) 4.13 --TWA Air Line Pilots Supplemental Stock Plan Custodial Agreement, effective August 23, 1995 (Exhibit 4.15 to 9/95 10-Q) 21 22 4.14 --Form of Indenture relating to TWA's 8% Convertible Subordinated Debentures Due 2006 (Exhibit 4.16 to Registrant's Registration Statement on Form S-3, Registration No. 333-04977) 4.15 --Indenture dated as of March 31, 1997 between TWA and First Security Bank, National Association relating the 12% Senior Secured Notes Due 2002, including form of Note (Exhibit 4.15 to TWa's Registration Statement on Form S-4, Registration No. 333-26645) 4.16 --Registration Rights Agreement dated as of March 31, 1997 between the Company and the Initial Purchaser relating to the 12% Senior Secured Notes Due 2002 and the Warrants to purchase 126.26 shares of TWA Common Stock (Exhibit 4.17 to TWA's Registration Statement on Form S-4, Registration No. 333-26645) 4.17 --Warrant Agreement dated as of March 31, 1997 between the Company and American Stock Transfer and Trust Company relating to the warrants to purchase 126.26 shares of TWA Common Stock (Exhibit 4.18 to TWA's Registration Statement on Form S-4, Registration No. 333-26645) 10.1 --Consulting Agreement between TWA and David M. Kennedy dated as of June 6, 1997 10.2 --Separation Agreement between TWA and Charles J. Thibaudeau dated July 25, 1997 11 --Statement re computation of per share earnings 27 --Financial Data Schedule (submitted only in electronic format) (B) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Company during the second quarter of 1997. - -------- Incorporated by reference
22 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRANS WORLD AIRLINES, INC. Dated: August 14, 1997 By: /s/ MICHAEL J. PALUMBO -------------------------- Michael J. Palumbo Senior Vice President and Chief Financial Officer 23 EX-10.1 2 CONSULTING AGREEMENT 1 Exhibit 10.1 CONSULTING AGREEMENT This Consulting Agreement (hereinafter "Agreement") is made and entered into as of the 6th day of June, 1997, between David Kennedy. (hereinafter "Consultant"), and Trans World Airlines, Inc., a Delaware corporation (hereinafter "Company"). In consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Consultant shall be retained by the Company as an independent contractor and consultant to the Company. Consultant is presently a member of the Company's Board of Directors. Consultant shall devote his best efforts to performing consulting services for and on behalf of the Company pursuant to this Agreement and will devote such time as may be reasonably requested by the Company to performing consulting services hereunder. This Agreement is on an ongoing as needed basis, and will terminate one (1) month after notice in writing of the termination of this Agreement by the Company to the Consultant or from the Consultant to the Company. 2. For the purposes of this Agreement, Consultant is and will act at all times as an independent contractor. Nothing contained in this Agreement establishes or constitutes or will be construed as establishing or constituting an employment agreement between the Company and Consultant or the relationship of employer and employee. Further, the parties acknowledge that this Agreement does not establish or constitute a partnership or joint venture between the Company and Consultant. Notwithstanding any other provision of this Agreement, neither party to this Agreement has or may interfere with or assume the right to direct or control the time, manner, and method of executing the work of the other party; provided, however, that this contract provision in no way waives the right of either party to require definite results from the other party in conformity with the terms of this Agreement. The acceptance by either party of the work of the other party under this Agreement shall in no way be considered as a ratification by the accepting party of any act of wrongdoing by the other party. 3. Consultant expressly represents and warrants to the Company that he is not and shall not be construed to be an employee of the Company and that his status shall be that of an independent contractor. Consultant is not authorized to enter into contracts or agreements on behalf of the Company which create obligations of the Company to third parties except with prior approval or authorization of (i) the Board of Directors, or (ii) such Company officers and/or employees who have authority to enter into such contracts or agreements. 4. Consultant shall perform duties and provide services, rendering such advice and/or consultation as the Company may reasonably request. 5. Consultant shall be paid at the rate of $25,000.00 per quarter, such fee to be paid quarterly in arrears, as a fee for consulting services to the Company. Nothing herein contained shall invalidate or change any compensation arrangement, options or other contractual commitments between the Company and the Consultant in Consultant's status as a member of the Board of Directors provided, however that Consultant shall not receive such compensation as a member of the Board of Directors that would otherwise be payable to him for work which he is performing in his capacity as a consultant for services or participation in meetings where 2 Consultant is being compensated for services pursuant to this Agreement. Consultant will be indemnified by the Company for work which he performs pursuant to the terms of this Agreement. 6. Consultant will be provided office space and administrative support while working in the Company's St. Louis, Missouri executive offices. Reasonable rental for said office space and administrative support is included in Consultant's per diem rate. Reasonable out-of-pocket expenses for any business travel and business expenses incurred by Consultant in the performance of above stated duties shall be reimbursed by the Company upon submission of appropriate expense statements. 7. During the term of this Agreement, and for a period of twenty-four months thereafter and except as may otherwise be required under applicable provisions of, or rules or regulations under applicable federal, state or local laws or in connection with interrogatories, requests for information or documents, subpoena, civil investigative demand for any formal or informal investigation by any government or governmental agency or authority, Consultant shall not disclose any confidential or proprietary information relating to the business presently being conducted, or presently proposed to be conducted, by the Company or its subsidiaries or affiliates, to any person, firm, corporation, association or other entity, nor shall Consultant make use of any such confidential or proprietary information for his own purpose or for the benefit of any other entity except the Company or its subsidiaries or affiliates. For the purpose of this paragraph, the term "confidential or proprietary information" shall mean all confidential or proprietary information which is known regardless of form, to Consultant and relates to matters of the business conducted or proposed to be conducted by the Company or its subsidiaries or affiliates, and relates, without limitation, to matters such as work product, trade secrets, customers, pricing and credit techniques, books and records, suppliers, private processes, inventions, techniques, marketing plans, strategies, forecasts, product cost/information, and financial data as may exist from time to time but shall not include any information which at the time of its disclosure is in the public domain or which is required by law to be disclosed. 8. Federal, state and local income tax and payroll taxes of any kind shall not be withheld or paid by the Company on behalf of Consultant. 9. The Company acknowledges that subject to the requirements of his engagement hereunder, Consultant may continue to engage in such activities in which he is presently engaged or in which he may choose to engage during the term of this Consulting provided however that Consultant shall engage in no such activity which is materially adverse to the Company's interests and/or which interferes with Consultant's ability to render services to the Company as provided hereunder. 10. For a period of twenty-four months from and after the termination of this Agreement, Consultant shall not make any derogatory or negative statements (oral and written), or cause detriment or damage concerning the Company or its subsidiaries or affiliates or its management, business or prospects; provided, however, that Consultant's truthful compelled testimony in a judicial proceeding shall not be deemed to be a breach of this Agreement. 11. This Agreement sets forth the entire agreement between the parties. All prior agreements or understandings between the parties hereof pertaining to the subject matter hereof are superseded. This Agreement shall not be transferred or assigned, in whole or in part, by Consultant. 2 3 12. Should any provision of this Agreement be determined by any Court to be illegal or invalid, the validity of the remaining provisions shall not be affected thereby and said invalid part or provision shall be deemed not part of this Agreement. 13. In the event of any controversy, dispute or claim of whatever nature between the parties hereto arising out of, in connection with, or in relation to the interpretation, performance or breach of this Agreement, including without limitation, any claim based on contract, tort or statute, such controversy, dispute or claim of whatever nature shall be submitted to and resolved by binding arbitration before a single arbitrator in New York, New York appointed and acting in accordance with the Rules of the American Arbitration Association then in force and effect, except to the extent such Rules are modified by the express terms hereof. The decision of the arbitrator submitted to arbitration pursuant to this provision shall be final and binding upon the parties and judgment upon any such award rendered by the arbitrator may be entered by any state or federal court in New York. No suit at law or in equity based upon any controversy, dispute or claim arbitrable hereunder shall be instituted by any party except to enforce the award of the arbitrator. The arbitrator shall be entitled to determine which is the prevailing party and shall include in the award reasonable attorneys fees and costs to such prevailing party. The parties hereto agree to endeavor in good faith to obtain a decision from any such arbitration as promptly as practicable and shall so endeavor to conduct any hearing required and obtain any decision of the arbitrator without delay and, in any event, within three months of any demand for arbitration if possible, and if not possible, as promptly as reasonably practicable. The arbitration hearing shall be conducted within thirty (30) days unless otherwise ordered by the arbitrator and the award on the hearing shall be made within fifteen (15) days after the hearing. The parties each irrevocably waive (and irrevocably agree not to raise) any objection which it may have now or hereafter to the venue of any such arbitration proceeding or court referred to in this Section and any claim that such arbitration proceedings have been brought in any inconvenient forum. 14. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the principles of conflict of laws thereof. In witness hereof and intending to be legally bound hereby, Consultant has executed the foregoing Agreement. Executed this 6th day of June, 1997. TRANS WORLD AIRLINES, INC. By: --------------------------------- DAVID KENNEDY Title: Senior Vice President - Legal 3 EX-10.2 3 LETTER OF CONFIRMATION 1 Exhibit 10.2 July 25, 1997 Mr. Charles J. Thibaudeau 1205 Turnberry Ridge Ct. Chesterfield, MO 63005 Dear Mr. Thibaudeau: This will confirm the Company's agreement concerning your separation from Trans World Airlines, Inc. ("TWA" or the "Company"). In this connection, TWA and you have agreed as follows: 1. Your employment will be terminated effective on October 1, 1997, after which time you will be deemed to have officially retired. During the period beginning August 1, 1997 to September 30, 1997 you will be deemed to be on vacation, with pay. 2. On or about the 15th day of October, 1997 and on or about the 15th day of each month thereafter until September 15, 1998 the Company shall pay to you, from the active payroll, an amount equal to one twelfth of your annual base salary as of September 30, 1997 (less any applicable federal and state income and employment tax withholdings). 3. 28,839 of the non-qualified stock options issued to you under TWA's Key Employee Stock Incentive Program ("KESIP") will vest on August 21, 1997 and an equal amount of 28,839 such options will be treated as vested options on October 1, 1997. Notwithstanding anything to the contrary in the KESIP award agreement between you and the Company, the entire aggregate amount of 57,677 such vested options will be exercisable by you until the close of business on the 60th day following the October 1, 1997 effective date of your termination of employment; provided that, if at any time during such 60 day period -------- ---- either the Company requests that you not trade in securities of the Company during a Restricted Period or you notify the Company that counsel reasonably acceptable to the Company has advised you that applicable securities laws prohibit trading in securities of the Company during a Restricted Period, then the Compensation Committee shall extend the exercise period of your options until the close of business on the day, which follows the end of the Restricted Period, by the number of days remaining in such 60 day period as of the beginning of the Restricted Period. Any options that are not exercised by you on or before such time shall immediately thereafter lapse and terminate. 2 Mr. Charles J. THibaudeau July 25, 1997 Page 2 4. You will be entitled to normal Executive Officer retirement entitlements in accordance with the Company's Management Policy and Procedure Manual as in effect as of the date of this Agreement. You will promptly return to the undersigned on behalf of TWA all Company issued cards, including, but not limited to the Alamo Rental card, the AT&T card, parking card and any other such card issued to you. You will, on or before October 1, 1997, return to the undersigned on behalf of TWA all term passes issued to you by other air carriers. 5. You will be entitled to reimbursement pursuant to the Company's Class A relocation policy up to and including eligible expenses incurred on or before July 8, 1997. Such reimbursement will be made on or before August 15, 1997. 6. You will continue to be entitled, with respect to claims by third parties against you in your capacity as an officer of TWA or an officer or director of any of its subsidiaries relating to periods which you were employed by TWA, to be indemnified under the provisions of TWA's bylaws and under the terms of that certain Indemnification Agreement dated as of the 1st day of October, 1996 (a copy of which is attached) and you are entitled to be covered by such officers' and directors' liability insurance coverage as shall be maintained by TWA from time to time. 7. You will on the effective date of execution of this letter agreement return to the undersigned on behalf of TWA any computers and all accessories, software and appurtenances thereto, or pagers, which are the property of or leased by TWA and in your possession, and all other TWA property, documents or material that may be in your possession. 8. You agree that for a period of two (2) years after the termination of your employment with TWA you will not for any reason solicit (or assist or encourage the solicitation of any employee of TWA or any of its subsidiaries or affiliated companies to be employed by you or any entity in which you own or expect to own an equity interest in excess of five (5) percent of any class of the outstanding securities thereof, or by which you are employed or for which you serve or expect to serve in any capacity. For purposes of this paragraph, the term "solicit" shall mean your contacting or providing information to others who may be expected to contact, any employee of TWA or of any of its subsidiaries or affiliated companies regarding their employment status, job satisfaction, interest in seeking employment with you, any person affiliated 3 Mr. Charles J. THibaudeau July 25, 1997 Page 3 with you or by whom you are employed or any other person or concerning any related matter, but shall not include general print advertising for personnel or responding to an unsolicited request for a personal recommendation for or evaluation of an employee of TWA or any of its subsidiaries or affiliated companies. 9. You agree to make yourself reasonably available (taking into consideration your then current employment circumstances) and to cooperate with TWA as may be reasonably necessary in connection with any litigation or other proceedings which have arisen or may arise, directly or indirectly, out of or in connection with the performance of your duties while you were employed by TWA. TWA will compensate you for said services pursuant to its standard compensation of an hourly rate based upon your last salary while still employed by TWA or, if greater your then current salary. You agree not to serve as an expert witness or otherwise testify against TWA in any litigation against TWA brought by any third parties unless you are under a court order or subpoena to do so. You will promptly notify TWA if you are so subpoenaed or ordered by any court to so testify in any litigation against TWA. 10. You agree to abide by the Termination Obligations set forth in Paragraph 7 of the Agreement between you and the Company dated as of October 1, 1996 ("Employment Agreement"), including, but not limited to an agreement: a) That you will not disclose or make public to anyone, or release to the media any nonpublic TWA commercial, operational or financial information, including costs, strategies, forecasts or trade secrets for a period of twelve (12) months after your signing this Agreement, unless you are under a court order or subpoena to do so. b) That you will not discuss or disclose to the media the circumstances or terms of your termination of employment from TWA for a period of two (2) years after your signing this Agreement and you will not publicly disparage or denigrate the Company or any of its officers, directors or practices. Notwithstanding the provisions of Paragraph 7(c) of the Employment Agreement, you have been allowed to discuss with certain Company personnel the circumstances of the termination of your employment. c) With the exception of claims arising out of any breach of this Agreement, you irrevocably and unconditionally release, remise, acquit and forever discharge TWA, its 4 Mr. Charles J. THibaudeau July 25, 1997 Page 4 past and present shareholders, subsidiaries, divisions, controlling parties, officers, directors, agents, employees, successors and assigns (separately and collectively "TWA Releases") jointly and individually, of and from any and all claims, demands, causes of action, obligations, damages or liabilities in law or in equity, arising from all bases, however denominated, known or unknown, directly or indirectly arising out of or relating to your employment by TWA and the termination thereof, including but not limited to any and claims of employment discrimination under any federal, state or local law, rule or regulation. This release extends to any relief, no matter how denominated, including but not limited to back pay, front pay, reinstatement, compensatory damages, punitive damages or damages from pain and suffering. You further agree that you will not file nor permit to be filed on your behalf any such claim, will not permit yourself to be a member of any class seeking relief against TWA Releases, and will not counsel or assist in the prosecution of any claims against the TWA Releasees, whether those claims are on behalf of yourself or others, unless you are under a subpoena court order compelling you to do so. d) This Agreement is intended to be a total accord, settlement and satisfaction of any and all claims which you have or may have had against the TWA Releasees, including but not limited to any and all contract, tort, and statutory claims, including but not limited to claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, 29 U.S.C. Sec. 621 et. seq., the Civil Rights Act of 1991, or -- --- under any other state or federal statute or law. e) You further acknowledge that the only consideration for signing this Agreement and all that you are ever to receive from the TWA Releasees are the terms stated in this Agreement and that, except as set forth herein, no other promises or agreements of any kind have been made to you or with you by any person or entity whatsoever to cause you to sign this Agreement, and that you have signed this Agreement as your free and voluntary act. You further acknowledge that pursuant to the terms of this Agreement you are and will be receiving benefits from TWA which are above and beyond those benefits normally provided under TWA's corporate policies and procedures governing termination of employment; that you have had a full, fair and adequate opportunity to reflect 5 Mr. Charles J. Thibaudeau July 25, 1997 Page 5 upon and consider the terms of this Agreement, to negotiate with TWA and its representatives concerning the same, and to discuss the same if desired with legal counsel of your choice; that no duress or pressure of any kind has been applied to you with respect to your entering into this Agreement; and that you are satisfied with the terms and provisions of this Agreement. f) The execution of this Agreement, including the general release set forth above, is knowing and voluntary and that you understand this Agreement and the general release set forth in (d) above. You acknowledge that you have been advised by TWA in writing to consult with an attorney prior to executing this Agreement, you have in fact consulted with an attorney prior to executing this Agreement, and you have twenty-one (21) days from tender of this Agreement within which to consider this Agreement. g) For a period of seven (7) days following execution of this Agreement, you may revoke this Agreement and this Agreement will not become effective or enforceable until after the revocation period has expired. Said revocation must be delivered in writing on or before 5:00 PM on the 7th day after execution of this Agreement to the undersigned. 11. You will retain your Ambassador Club membership for life. 12. You may retain the usage of your office at One City Centre, St. Louis, Missouri until July 31, 1997. 13. Your mother shall be issued up to two round trip Class A passes during the period September 1, 1997 through August 31, 1998. 14. This Agreement shall be binding upon and inure to the benefit of TWA and you, to the successors and assigns of TWA and to your heirs and personal representatives. 15. This Agreement contains the entire agreement between the parties regarding its subject matter and supersedes all prior agreements between the parties. This Agreement may only be modified in writing signed by the parties. If this Agreement accurately reflects our understanding, please sign the enclosed copy of this letter in the space provided and return same to me. 6 Mr. Charles J. Thibaudeau July 25, 1997 Page 6 Sincerely, TRANS WORLD AIRLINES, INC. By:--------------------------- Richard P. Magurno Senior Vice President & General Counsel Read, Acknowledged and Agreed to this ---- day of July, 1997. - -------------------------------- Charles J. Thibaudeau EX-11 4 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
SIX MONTHS ENDED JUNE 30, ------------------------------ 1997 1996 -------- -------- ADJUSTMENTS TO NET INCOME (LOSS): Loss before extraordinary items........................................ $(82,027) $(11,845) Preferred stock dividend requirements.................................. (7,738) (8,820) Special dividend requirement relating to redemption of 12% Preferred Stock.................................................. -- (19,991) -------- -------- Loss before extraordinary items applicable to common stock for primary calculation.............................................. (89,765) (40,656) Extraordinary item..................................................... (3,937) -- -------- -------- Net loss applicable to common stock for primary calculation............ (93,702) (40,656) Fully diluted adjustment--dividend requirements on 8% Preferred Stock assumed to be converted.............................................. 7,738 4,268 -------- -------- Net loss applicable to common stock for fully diluted calculation...... $(85,964) $(36,388) ======== ======== ADJUSTMENTS TO OUTSTANDING SHARES: Average number of shares of common stock .......................... 49,945 42,202 Primary Adjustments Incremental shares associated with the assumed exercise of options and warrants ..................................... 736 1,831 -------- -------- Total average number of common and common equivalent shares used for primary calculation......................................... 50,681 44,033 ======== ======== Average number of shares of common stock .......................... 49,945 42,202 Fully Diluted Adjustments Incremental shares associated with the assumed exercise of options and warrants ..................................... 1,626 1,831 Common shares assumed to be issued upon conversion of 8% Preferred Stock............................................... 9,544 5,272 -------- -------- Total average number of common and common equivalent shares for fully diluted calculation........................................ 61,115 49,305 ======== ======== PER SHARE AMOUNTS: Loss before extraordinary item and special preferred dividend Average number of shares of Common Stock........................... $ (1.80) $ (.49) Primary ....................................................... $ (1.77) $ (.47) Fully diluted ................................................. $ (1.34) $ (.33) Net loss Average number of shares of Common Stock........................... $ (1.88) $ (.96) Primary ....................................................... $ (1.85) $ (.92) Fully diluted ................................................. $ (1.41) $ (.74) - -------- Includes 5,971 shares for the six months ended June 30, 1997, and 5,588 for the six months ended June 30, 1996 of Employee Preferred Stock which, except for a liquidation preference of $.01 per share and the right to elect a certain number of directors to the Board of Directors, is the functional equivalent of Common Stock. Pursuant to an employee stock incentive plan (ESIP or the Plan), the Company is required to distribute additional shares of common stock and Employee Preferred Stock as a result of the distribution of additional shares following the effective date of the '95 Reorganization. The Company distributed 931,604 additional shares in July 1997 under this provision. Additionally, the ESIP provides that, beginning in 1997, employees may significantly increase their ownership, through grants or purchases, as set forth in the Plan. The earnings (loss) per share computations do not give any effect to the potential issuances of these shares. 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 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF TRANS WORLD AIRLINES, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 102,649 0 277,623 10,752 101,717 636,229 797,363 154,286 2,700,657 1,057,659 819,536 0 95 462 187,827 2,700,657 0 1,606,748 0 1,700,302 0 (382) 58,114 (115,454) (33,427) (82,027) 0 (3,937) 0 (85,964) (1.88) (1.88)
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