<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
- --------------------------------------------------------------------------------
For the Quarter ended: September 30, 1996 Commission File Number 1-5351
WORLDCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3040585
(State of incorporation) (I.R.S. Employer Identification Number)
13873 Park Center Road, Suite 490, Herndon, VA 20171
(Address of Principal Executive Offices)
(703) 834-9200
(Registrant's telephone number)
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 __________
----------
The number of shares of the registrant's Common Stock outstanding on November 8,
1996 was 15,616,920.
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<PAGE>
WORLDCORP, INC.
SEPTEMBER 1996, QUARTERLY REPORT ON FORM 10Q
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, September 30,
1996 and December 31, 1995.................................... 3
Condensed Consolidated Statements of Operations,
Three Months Ended September 30, 1996 and 1995................ 5
Condensed Consolidated Statements of Operations,
Nine Months Ended September 30, 1996 and 1995................. 7
Condensed Consolidated Statement of Changes in Common
Stockholders' Deficit, Nine months ended September 30, 1996... 9
Condensed Consolidated Statements of Cash Flows,
Nine months ended September 30, 1996 and 1995................. 10
Notes to Condensed Consolidated Financial Statements.......... 11
Exhibit 11, Calculations of Earnings (Loss) Per Common Share.. 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................... 35
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
1996 1995
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents, including restricted
cash of $15,759 at September 30, 1996 and $625
at December 31, 1995 $ 53,783 $ 74,443
Restricted short-term investments 4,886 4,218
Trade accounts receivable, less allowance for doubtful
accounts of $449 at September 30, 1996 and $322
at December 31, 1995 23,654 15,457
Other receivables 4,616 4,438
Prepaid expenses and other current assets 6,381 11,668
Assets held for sale 700 700
-------- --------
Total current assets 94,020 110,924
-------- --------
ASSETS HELD FOR SALE 2,048 2,383
EQUIPMENT AND PROPERTY
Flight and other equipment 81,206 60,794
Equipment under capital leases 11,686 11,734
-------- --------
92,892 72,528
Less accumulated depreciation and amortization 22,431 17,878
-------- --------
Net equipment and property 70,461 54,650
-------- --------
LONG-TERM OPERATING DEPOSITS 16,161 16,157
OTHER ASSETS AND DEFERRED CHARGES, NET 13,459 15,384
INTANGIBLE ASSETS, NET 2,487 2,591
-------- --------
TOTAL ASSETS $198,636 $202,089
======== ========
</TABLE>
(continued)
3
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
(in thousands except share data)
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
1996 1995
-------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 30,141 $ 6,764
Current maturities of long-term obligations 11,096 10,822
Deferred aircraft rent 223 533
Accounts payable 25,513 17,363
Net liabilities of discontinued operations 9,419 --
Unearned revenue 188 10,421
Air traffic liability -- 2,332
Accrued maintenance in excess of reserves paid 18,451 8,919
Accrued salaries and wages 10,952 10,804
Accrued interest 1,853 2,061
Accrued taxes 1,527 1,283
--------- --------
Total current liabilities 109,363 71,302
--------- --------
LONG-TERM OBLIGATIONS, NET
Subordinated convertible debt 65,000 65,000
Subordinated notes, net 9,653 24,961
Deferred aircraft rent, net of current portion 974 1,143
Equipment financing and other long-term obligations 28,848 20,241
--------- --------
Total long-term obligations, net 104,475 111,345
--------- --------
OTHER LIABILITIES
Deferred gain from sale leaseback transactions, net of
accumulated amortization of $18,835 as of September 30,
1996 and $18,041 as of December 31, 1995 6,516 7,310
Accrued postretirement benefits 2,612 2,596
Accrued maintenance in excess of reserves paid 3,415 3,579
Other 3,138 2,035
--------- --------
Total other liabilities 15,681 15,520
--------- --------
TOTAL LIABILITIES 229,519 198,167
--------- --------
MINORITY INTEREST 16,315 27,219
COMMON STOCKHOLDERS' DEFICIT
Common stock, $1 par value, (60,000,000 shares authorized,
16,608,005 shares issued and 16,545,420 shares outstanding
at September 30, 1996 and 16,416,134 shares issued and
16,353,549 shares outstanding at December 31, 1995) 16,608 16,354
Additional paid-in capital 43,900 42,210
Deferred compensation (421) (553)
Unrealized loss on investments (808) --
Accumulated deficit (105,240) (79,598)
ESOP guaranteed bank loan (897) (1,370)
Treasury stock, at cost (340) (340)
--------- --------
TOTAL COMMON STOCKHOLDERS' DEFICIT (47,198) (23,297)
--------- --------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND COMMON STOCKHOLDERS'
DEFICIT $ 198,636 $202,089
========= ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended September 30,
(in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
OPERATING REVENUES
World Airways $75,824 $69,394
US Order 1,064 1,208
------- -------
Total operating revenues 76,888 70,602
------- -------
OPERATING EXPENSES
World Airways:
Flight 16,911 20,835
Maintenance 13,855 10,678
Aircraft costs 18,982 17,766
Fuel 6,628 6,496
Flight operations subcontracted to other carriers 4,809 1,323
Promotions, sales and commissions 2,176 777
Depreciation and amortization 2,055 1,525
General and administrative 6,692 4,710
------- -------
Total operating expenses - World Airways 72,108 64,110
------- -------
US Order:
Cost of revenue 703 845
Research and development 786 272
In-process research and development from acquired company 4,914 --
General and administrative 2,932 1,376
Advertising and promotion 185 --
------- -------
Total operating expenses - US Order 9,520 2,493
------- -------
WorldCorp:
General and administrative 998 1,010
------- -------
Total operating expenses 82,626 67,613
------- -------
OPERATING INCOME (LOSS) (5,738) 2,989
------- -------
OTHER INCOME (EXPENSE)
Interest expense (3,068) (3,034)
Interest income 840 1,004
Gain on issuances of equity by subsidiaries, net 1,903 --
Gain on sale of subsidiary's stock -- (206)
Other, net (520) 87
------- -------
Total other income (expense) (845) (2,149)
------- -------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST (6,583) 840
INCOME TAX EXPENSE (180) (197)
------- -------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST (6,763) 643
MINORITY INTEREST 2,616 (550)
------- -------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (4,147) 93
DISCONTINUED OPERATIONS
Loss from discontinued operations (less applicable
income tax benefit of $83 in 1996 and $80 in 1995) -- (1,139)
Income tax benefit from loss on disposal of
discontinued operations 180 --
------- -------
BENEFIT (LOSS) FROM DISCONTINUED OPERATIONS
BEFORE MINORITY INTEREST 180 (1,139)
MINORITY INTEREST (73) 227
------- -------
BENEFIT (LOSS) FROM DISCONTINUED OPERATIONS 107 (912)
------- -------
NET LOSS $(4,040) $ (819)
======= =======
</TABLE>
(Continued)
5
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended September 30,
(continued)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
PRIMARY EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ (0.24) $ 0.01
Discontinued operations 0.01 (0.06)
----------- -----------
Net loss $ (0.23) $ (0.05)
=========== ===========
PRIMARY WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 17,214,199 17,404,924
=========== ===========
FULLY DILUTED EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ * $ *
Discontinued operations * *
----------- -----------
Net earnings (loss) $ * $ *
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING * *
=========== ===========
</TABLE>
* Fully diluted earnings per share are anti-diltutive.
See accompanying Notes to Condensed Consolidated Financial Statements
6
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Nine Months Ended September 30,
(in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
OPERATING REVENUES
World Airways $227,833 $185,709
US Order 2,938 2,900
-------- --------
Total operating revenues 230,771 188,609
-------- --------
OPERATING EXPENSES
World Airways:
Flight 52,186 49,728
Maintenance 44,348 31,265
Aircraft costs 60,434 50,623
Fuel 14,698 12,429
Flight operations subcontracted to other carriers 12,822 8,676
Promotions, sales and commissions 3,864 846
Depreciation and amortization 5,949 4,162
General and administrative 17,870 13,173
-------- --------
Total operating expenses - World Airways 212,171 170,902
-------- --------
US Order:
Cost of revenue 1,975 2,241
Research and development 1,962 779
In-process research and development from acquired company 4,914 --
General and administrative 7,426 3,579
Advertising and promotion 267 7
-------- --------
Total operating expenses - US Order 16,544 6,606
-------- --------
WorldCorp:
General and administrative 3,016 3,704
-------- --------
Total operating expenses 231,731 181,212
-------- --------
OPERATING INCOME (LOSS) (960) 7,397
-------- --------
OTHER INCOME (EXPENSE)
Interest expense (8,878) (9,430)
Interest income 2,807 1,559
Gain on issuances of equity by subsidiaries, net 1,729 29,004
Gain on sale of subsidiary's stock -- 19,660
Other, net (1,090) 885
-------- --------
Total other income (expense) (5,432) 41,678
-------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST (6,392) 49,075
INCOME TAX EXPENSE (495) (708)
-------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST (6,887) 48,367
MINORITY INTEREST 529 (874)
-------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (6,358) 47,493
DISCONTINUED OPERATIONS
Loss from discontinued operations (less applicable
income tax benefit of $83 in 1996 and $80 in 1995) (11,720) (2,254)
Loss on disposal (less applicable income tax benefit
of $412 in 1996) (20,805) --
-------- --------
LOSS FROM DISCONTINUED OPERATIONS BEFORE
MINORITY INTEREST (32,525) (2,254)
MINORITY INTEREST 13,254 237
-------- --------
LOSS FROM DISCONTINUED OPERATIONS (19,271) (2,017)
-------- --------
NET EARNINGS (LOSS) $(25,629) $ 45,476
======== ========
</TABLE>
(Continued)
7
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Nine Months Ended September 30,
(continued)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
PRIMARY EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ (0.39) $ 2.79
Discontinued operations (1.17) (0.12)
----------- -----------
Net earnings (loss) $ (1.56) $ 2.67
=========== ===========
PRIMARY WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 16,447,127 17,046,247
=========== ===========
FULLY DILUTED EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ * $ 2.20
Discontinued operations * (0.09)
----------- -----------
Net earnings (loss) $ * $ 2.11
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING * 23,153,973
=========== ===========
</TABLE>
* Fully diluted earnings per share are anti-dilutive.
See accompanying Notes to Condensed Consolidated Financial Statements
8
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN COMMON STOCKHOLDERS' DEFICIT
For The Nine Months Ended September 30, 1996
(in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
Employee
Stock Owner- Total
Additional Deferred Unrealized ship Plan Treasury Common
Common Paid-in Compen- Loss on Accumulated Guaranteed Stock, Stockholders'
Stock Capital sation Investments Deficit Bank Loan at cost Deficit
------- ---------- --------- ------------ ------------ ------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1995 $16,354 $42,210 $(553) $ -- $ (79,598) $(1,370) $(340) $(23,297)
Exercise of 254,456 options
and warrants 254 1,245 -- -- -- -- -- 1,499
Issuance of options and
warrants -- 347 -- -- -- -- -- 347
Employee Stock Ownership Plan
guaranteed bank loan -- -- -- -- -- 473 -- 473
Amortization of deferred
compensation -- 98 132 -- -- -- -- 230
Unrealized loss on investment -- -- -- (808) -- -- -- (808)
Other -- -- -- -- (13) -- -- (13)
Net loss -- -- -- -- (25,629) -- -- (25,629)
------- ---------- -------- ----------- ----------- ------------ -------- --------
BALANCE AT
September 30, 1996 $16,608 $43,900 $(421) $(808) $(105,240) $ (897) $(340) $(47,198)
======= ========== ======== =========== =========== ============ ======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
9
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Nine Months Ended September 30,
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD $ 74,443 $ 8,160
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) (25,629) 45,476
Adjustments to reconcile net earnings (loss) to cash
provided (used) by operating activities:
Depreciation and amortization 6,907 5,633
Deferred gain recognition (794) (797)
Gain on issuances of equity by subsidiaries, net (1,729) (29,004)
Gain on sale of subsidiaries' stock -- (19,660)
Minority interest in earnings (loss) of subsidiaries (13,768) 637
Gain on sale of equipment and property (504) (303)
Deferred compensation expense 230 --
Equity income in investee of subsidiary 1,431 --
Issuance of warrants to a non-affiliate 347 --
Loss on disposal of discontinued operations 7,641 --
In-process research and development from acquired company 4,914 --
Other (13) 1,439
Changes in certain assets and liabilities net of
effects of non-cash transactions:
Increase in accounts receivable (7,402) (7,559)
(Increase) decrease in restricted short-term investments (668) 45
Decrease in deposits, prepaid expenses and other assets 2,999 1,298
Increase in accounts payable, accrued expenses
and other liabilities 17,872 10,056
(Decrease) increase in unearned revenue (10,233) 1,004
(Decrease) increase in air traffic liability (192) 2,419
-------- --------
Net cash (used) provided by operating activities (18,591) 10,684
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property (11,257) (18,563)
Proceeds from disposal of equipment and property 1,353 1,346
Purchase of investments -- (382)
Purchase of business acquired, net (78) --
Proceeds from sales of short-term investments -- 100
-------- --------
Net cash used by investing activities (9,982) (17,499)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in line of credit borrowing arrangement, net 2,497 312
Issuance of debt 40,884 19,685
Repayment of debt (37,518) (20,609)
Debt issuance costs (225) --
Proceeds from stock transactions 1,499 2,431
Proceeds from sales of equity by subsidiaries 776 41,781
Proceeds from sale of subsidiaries' stock -- 18,520
Payment of dividends by subsidiary -- (885)
-------- --------
Net cash provided by financing activities 7,913 61,235
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (20,660) 54,420
-------- --------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 53,783 $ 62,580
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
10
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The condensed consolidated balance sheet of WorldCorp, Inc. ("WorldCorp" or
the "Company") as of September 30, 1996, the related condensed consolidated
statements of operations for the three and nine month periods ended September
30, 1996 and 1995, the condensed consolidated statement of changes in common
stockholders' deficit for the nine months ended September 30, 1996 and the
condensed consolidated statements of cash flows for the nine months ended
September 30, 1996 and 1995 are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such financial statements
have been included. Such adjustments consisted only of normal recurring
items. All significant intercompany balances have been eliminated. Interim
results are not necessarily indicative of results for a full year. In
addition, these financial statements contain the historical results of US
Order, Inc. ("US Order"). On November 7, 1996, US Order and Colonial Data
Technologies Corp. ("Colonial Data") merged with and into InteliData
Technologies Corporation ("InteliData"). Effective with this merger
InteliData became the successor corporation to US Order.
The condensed financial statements and notes are presented as required by
Form 10-Q, and do not contain certain information included in the Company's
annual financial statements and notes. These financial statements should be
read in conjunction with the financial statements and the notes included in
the Company's Form 10-K for the year ended December 31, 1995.
2. In July 1996, World Airways announced its decision to exit its scheduled
service operations by October 1996 and focus its operations on its core
business: operating aircraft under contracts with international carriers,
the U.S. Government, and international tour operators. Consistent with this
decision, World Airways ceased all scheduled operations as of October 27,
1996. As a result, its scheduled service operations were reflected as
discontinued operations as of June 30, 1996, and prior period results have
been restated to reflect scheduled service operations as discontinued
operations. Loss from discontinued operations (net of income tax effect)
approximated $11.7 million for the nine months ended September 30, 1996. In
addition, an estimated loss on disposal of $21.0 million (net of income tax
effect) which was recorded as of June 30, 1996, included the following:
$13.6 million for estimated operating losses during the phase-out period; a
$2.6 million estimated loss to be incurred in connection with sub-leasing DC-
10 aircraft which will not be utilized in its operations subsequent to the
phase-out of scheduled service operations; a $2.3 million writeoff of related
leasehold improvements; and $2.0 million for passenger reprotection expenses.
World Airways incurred approximately $13.2 million of these costs during the
quarter ended September 30, 1996 and it believes that its remaining accrual
for estimated losses on disposal will be adequate to meet the remaining costs
to be incurred during the phase-out period. As of November 8, 1996, World
Airways believes that it has met substantially all of its cash obligations of
the phase-out period. Other than the leased aircraft utilized in scheduled
service operations, World Airways does not have any significant assets
related to its discontinued operations. As a result of its decision to
discontinue scheduled service operations, World Airways has recently signed a
letter of intent to lease two of its DC-10 aircraft to another carrier.
In connection with the discontinuance of its scheduled service operations,
World Airways may be subject to claims by third parties. Although no claims
have been filed against World Airways, there can be no assurance that such
claims will not be filed in the future.
3. In November 1995, World Airways signed a letter of intent with the
manufacturer to lease two MD-11ER aircraft to be delivered in the first
quarter of 1996. The agreement was completed in March 1996. Under the
agreement, World Airways leased each aircraft for a term of 24 years with an
option to return the aircraft after a seven year period with certain fixed
termination fees. As part of the agreement, $1.2 million in deposits
previously paid to the manufacturer in 1992 was applied towards these two
aircraft. In addition, World Airways received spare parts financing from the
lessor of $9.0 million of which $3.0 million was made available with the
delivery of each aircraft, and the remaining $3.0 million will be made
available in December 1996. As of September 30, 1996, approximately $4.9
million had been received. Finally, World Airways agreed to assume an
existing lease of two additional MD-11 freighter aircraft for 20 years,
beginning in 1999, in the event that the other lessee terminates its lease
with the manufacturer at that time.
11
<PAGE>
4. World Airways purchased a spare engine which was delivered in March 1996
for approximately $8.0 million. World Airways entered into an agreement
with the engine's manufacturer to finance 80% of the purchase price over a
seven-year term. World Airways made payments of $1.2 million and $0.4
million towards this purchase in September 1995 and January 1996,
respectively.
5. Effective June 30, 1996, World Airways amended its Credit Agreement with
BNY Financial Corporation ("BNY") to include the following: a $10.0 million
spare parts loan and an $8.0 million revolving line of credit. This amended
Credit Agreement, which expires in 1999, is collateralized by certain
receivables, inventory, and equipment. As of September 30, 1996, the
outstanding balance of the spare parts loan and the revolving line of credit
was $9.4 million and $4.2 million, respectively, with $1.2 million capacity
available on the revolving line of credit.
6. World Airways recently announced its intention to purchase up to one
million shares of its publicly-traded Common Stock pursuant to open market
transactions. As of November 8, 1996, World Airways had purchased shares of
its Common Stock for an aggregate cost of $7.2 million. There can be no
assurances, however, that it will purchase any additional shares.
7. The Board of Directors of World Airways adopted an Employee Savings and
Stock Ownership Plan (the "Plan") effective October 1, 1996. The Plan is
intended to allow participating employees to share in the growth and
prosperity of World Airways, to encourage participants to save on a tax-
favored basis, and to provide participants an opportunity to accumulate
capital for their future economic security.
The Plan is an amendment and continuation of the WorldCorp Employee Savings
and Stock Ownership Plan (the "WorldCorp KSOP"). As a result of various
business developments, the vast majority of the participants in the WorldCorp
KSOP were World Airways employees. For that reason, World Airways and
WorldCorp agreed that World Airways should assume WorldCorp's obligation
under the WorldCorp KSOP. In connection with that action, the Trustees
exchanged the unallocated shares of WorldCorp common stock held by the
WorldCorp KSOP for a like-value of shares World Airways' common stock. World
Airways also made a special contribution of $50,000 to the Plan.
The Plan will continue to hold the shares of WorldCorp common stock that
were allocated the participants' accounts before October 1, 1996. No
additional shares of WorldCorp common stock will be allocated under the Plan
on or after that date. Instead, participants will have the opportunity to
receive future allocations of World Airways common stock.
8. On September 30, 1996, US Order acquired all of the outstanding capital
stock of Braun, Simmons & Co. ("Braun, Simmons"), an information engineering
firm specializing in the development of home banking and commerce solutions
for financial institutions. The acquisition was accounted for under the
purchase method of accounting. The majority shareholder of Braun, Simmons
became an employee of InteliData effective with the merger. The purchase
price of the acquisition of Braun Simmons was $7.1 million and the resulting
$1.9 million of goodwill will be amortized over a seven year period on a
straight-line basis. In addition, $4.9 million of the purchase price was
allocated to in-process research and development with no alternative future
use and was expensed. As a result, the Company recorded a gain on issuances
of equity by subsidiary of $1.9 million as of September 30, 1996.
9. The terms of US Order's long-term investment in the common stock of
Colonial Data restrict US Order from selling such stock until June 1997. As
of June 1996, Financial Accounting Standards Board Statement of Financial
Accounting Standard No. 115, Accounting for Certain Investments in Debt and
Equity Securities ("Statement 115"), became applicable to this investment. US
Order has classified this investment as "available for sale" under the
guidance of Statement 115 and is carrying the investment at fair value, based
on the quoted market value. As of September 30, 1996, an unrealized loss of
$1.5 million on this investment was recognized due to a decline in the market
value of Colonial Data's stock, and the Company's pro rata share of $0.8
million of this unrealized loss is carried as a separate component of
stockholders' equity.
In 1995, US Order entered into a stock exchange agreement with Colonial
Data, a strategic alliance partner. As part of the agreement, US Order agreed
to exchange $3.0 million of its restricted common stock in April
12
<PAGE>
1996 for $3.0 million of Colonial Data's unregistered common stock, subject
to certain limitations. The agreement was modified in 1996 to change the date
of the exchange to October 1996. All other provisions of the stock exchange
agreement continue in full force and effect. In August 1996, US Order and
Colonial Data entered into an Agreement and Plan of Merger. As a result of
that agreement, the original stock exchange agreement with Colonial Data, as
amended, was postponed pending the consummation of the merger. The merger was
consummated on November 7, 1996 with US Order and Colonial Data merging with
and into InteliData. As a result, WorldCorp has a beneficial ownership of
approximately 28.2% of InteliData. Concurrent with the consummation of this
merger, the shares of common stock exchanged by US Order and Colonial Data in
1995 were cancelled.
The US Order and Colonial Data merger was accounted for under the purchase
method of accounting, with US Order being deemed the acquirer. Pursuant to
this transaction, InteliData became the successor corporation to US Order.
Under the terms of the merger, each outstanding share of the common stock of
US Order and Colonial Data, $.001 par value and $.01 par value, respectively,
was converted into one share of InteliData common stock, $.001 par value.
Immediately following the merger, former holders of US Order common stock
held approximately 52% of the outstanding shares of InteliData, with former
holders of Colonial Data common stock collectively holding the remaining 48%
of InteliData's outstanding shares of common stock. The purchase price of
Colonial Data approximated $189.0 million and was allocated as follows: (1)
approximately $87.0 million to tangible and intangible assets net of
liabilities assumed, (2) approximately $30.0 million to the cost in excess of
net assets acquired ("goodwill") and (3) approximately $72.0 million to in-
process research and development with no alternative future use, which will
be expensed by InteliData in the fourth quarter of 1996. The goodwill will be
amortized over a fifteen year period on a straight-line basis.
The effect of the combination of Braun, Simmons and US Order is shown below
as "Pro Forma US Order". The unaudited consolidated results of operations on
a pro forma basis, excluding the impact of the charges for acquired in-
process research and development, relating to Braun, Simmons and Colonial Data
and as though both companies had been acquired and merged into InteliData as
of the beginning of InteliData's fiscal years 1996 and 1995 are reported below
(in thousands) as "Pro Forma InteliData". This method of combining historical
financial statements for the preparation of the pro forma condensed
consolidated financial information is for presentation only. The unaudited pro
forma condensed consolidated financial information is provided for
illustrative purposes only and is not necessarily indicative of the
consolidated financial position or consolidated results of operations that
would have been reported had the mergers occurred at the beginning of the
year, nor do they represent a forecast of the consolidated financial position
or results of operations for any future period.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
Pro Forma Historical Pro Forma Pro Forma Historical Pro Forma
US Order Colonial Data InteliData US Order Colonial Data InteliData
-------------- ------------- ----------- -------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 2,085 $12,544 $14,629 $ 1,643 $19,626 $21,269
Gross profit 674 4,339 4,514 651 8,181 8,333
Operating income (loss) (3,715) 84 (4,300) (1,340) 5,135 3,126
Net income (loss) (3,789) 238 (4,071) (915) 3,454 2,395
Net income (loss) per share $ (0.23) $ 0.02 $ (0.13) $ (0.06) $ 0.23 $ 0.07
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
Pro Forma Historical Pro Forma Pro Forma Historical Pro Forma
US Order Colonial Data InteliData US Order Colonial Data InteliData
-------------- ------------- ----------- -------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 5,677 $50,152 $55,589 $ 4,370 $53,140 $57,510
Gross profit 1,999 17,578 18,081 1,490 21,790 21,784
Operating income (loss) (8,795) 6,597 (6,746) (3,983) 13,493 4,962
Net income (loss) (8,941) 4,944 (5,437) (3,708) 8,693 2,387
Net income (loss) per share $ (0.55) $ 0.32 $ (0.17) $ (0.38) $ 0.61 $ 0.07
</TABLE>
As a result of this merger, the Company will report its proportionate share
of InteliData's financial results subsequent to November 7, 1996, using the
equity method. Assuming these transactions had occurred as of January 1, 1995
the Company would have recorded net earnings (loss) of $(19.5) million and
$49.9 million for the nine months ended September 30, 1996 and 1995,
respectively, excluding the effect of this transaction on any gains on sales
of equities by InteliData recorded by the Company during these periods.
13
<PAGE>
10. On August 29, 1996, the Company entered into a bridge loan (the "Bridge
Loan") with a financial institution pursuant to which the Company borrowed
$25.0 million and subsequently retired its existing 13 7/8% Subordinated
Notes of the same amount. The Bridge Loan is due September 29, 1997 and earns
interest of LIBOR plus 2.5%, payable monthly. Under the terms of the Bridge
Loan, WorldCorp has pledged all of its shares of World Airways and InteliData
as collateral for the loan, and as of September 30, 1996, $15.0 million of
its cash was restricted. In October 1996, the cash restriction was reduced to
$7.0 million as a result of a $10.0 million repayment of the Bridge Loan. The
Company also entered into a purchase agreement (the "Purchase Agreement") on
September 30, 1996 which contained a series of promissory notes totaling
$10.0 million which was used to retire the portion of the Bridge Loan in
October 1996. The notes are payable in three installments through September
2000 and earn interest of 10%, payable semi-annually. In connection with the
Purchase Agreement, the Company granted 120,000 warrants to the lenders which
were valued at approximately $0.4 million. The Company may also be required
to issue up to an additional 80,000 warrants contingent upon certain market
conditions. In addition, the Purchase Agreement restricts the Company's
ability to pay dividends.
11. The Company recently announced its intention to purchase up to 2.5 million
shares of its publicly-traded Common Stock pursuant to open market
transactions. As of November 8, 1996, the Company had purchased shares of its
Common Stock for an aggregate cost of $5.6 million. There can be no
assurances, however, that it will purchase any additional shares.
12. For a discussion of commitments and contingencies see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Other Matters".
13. On January 1, 1996, the Company adopted Financial Accounting Standards
Board Statements of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
of ("Statement 121") and No. 123, Accounting for Stock-based Compensation
("Statement 123"). Statement 121 requires that the Company review its long-
lived assets for impairment whenever events or circumstances indicate that
the carrying amount of an asset may not be recoverable. To the extent that
the future undiscounted net cash flows expected to be generated from an asset
are less than the carrying amount of the asset, an impairment loss will be
recognized based on the difference between the asset's carrying amount and
its fair market value. The adoption of Statement 121 had no impact on the
accompanying financial statements.
Statement 123 recommends, but does not require, the adoption of a fair
value based method of accounting for stock-based compensation to employees,
including common stock options. The Company has elected to continue recording
stock-based compensation to employees under the intrinsic value method of
accounting for stock-based compensation to employees as permitted by
Statement 123. Certain pro forma disclosures will be included in the
Company's Form 10-K for the year ending December 31, 1996 as if the fair
value based method had been adopted.
14
<PAGE>
EXHIBIT 11
1 of 2
WORLDCORP, INC. AND SUBSIDIARIES
CALCULATIONS OF EARNINGS (LOSS) PER COMMON SHARE
For the Three Months Ended September 30,
(in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<C> <C>
PRIMARY EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ (0.24) $ 0.01
Discontinued operations 0.01 (0.06)
----------- -----------
Net earnings (loss) $ (0.23) $ (0.05)
=========== ===========
PRIMARY WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Weighted average common shares outstanding 16,545,420 16,107,267
Weighted average options and warrants treated
as common stock equivalents 668,779 1,297,657
Weighted average other dilutive securities -- --
----------- -----------
Primary number of shares 17,214,199 17,404,924
=========== ===========
FULLY DILUTED EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ * $ *
Discontinued operations * *
----------- -----------
Net earnings $ * $ *
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Weighted average common stares outstanding * *
Weighted average options and warrants treated
as common stock equivalents * *
Weighted average other dilutive securities * *
----------- -----------
Fully diluted number of shares * *
=========== ===========
</TABLE>
* Fully diluted earnings per share are anti-dilutive.
15
<PAGE>
EXHIBIT 11
2 of 2
WORLDCORP, INC. AND SUBSIDIARIES
CALCULATIONS OF EARNINGS (LOSS) PER COMMON SHARE
For the Nine Months Ended September 30,
(in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<C> <C>
PRIMARY EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ (0.39) $ 2.79
Discontinued operations (1.17) (0.12)
----------- -----------
Net earnings (loss) $ (1.56) $ 2.67
=========== ===========
PRIMARY WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Weighted average common stares outstanding 16,447,127 15,864,340
Weighted average options and warrants treated
as common stock equivalents -- 1,181,907
Weighted average other dilutive securities -- --
----------- -----------
Primary number of shares 16,447,127 17,046,247
=========== ===========
FULLY DILUTED EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ * $ 2.20
Discontinued operations * (0.09)
----------- -----------
Net earnings (loss) $ * $ 2.11
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Weighted average common stares outstanding * 15,864,340
Weighted average options and warrants treated
as common stock equivalents * 1,412,599
Weighted average other dilutive securities * 5,877,034
----------- -----------
Fully diluted number of shares * 23,153,973
=========== ===========
</TABLE>
* Fully diluted earnings per share are anti-dilutive.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below relates to the operations of WorldCorp, Inc.
("WorldCorp" or "the Company") as reflected in its condensed consolidated
financial statements. These statements primarily include the accounts of the
flight operations of World Airways, Inc. ("World Airways"). On February 28,
1994, pursuant to an October 1993 agreement, the Company sold 24.9% of its
ownership in World Airways to MHS Berhad ("MHS"), a Malaysian aviation company.
Effective December 31, 1994, WorldCorp repurchased 5% of World Airways' common
stock from MHS. In October 1995, World Airways completed an initial public
offering in which 2,000,000 shares were issued and sold by World Airways and
900,000 shares were sold by WorldCorp. As of November 8, 1996, WorldCorp and
MHS owned approximately 61.2% and 17.6%, respectively, of World Airways'
outstanding common stock. The remaining balance was publicly traded.
The managements of WorldCorp and World Airways are currently exploring ways
to maximize value for the shareholders of each company. In addition to employee
initiatives, WorldCorp is evaluating the feasibility of a disposition of its
interest in World Airways to a third party. There can be no assurances, however,
that any such transactions will ultimately be consummated.
World Airways recently announced its intention to purchase up to one million
shares of its publicly-traded Common Stock pursuant to open market transactions.
As of November 8, 1996, World Airways had purchased shares of its Common Stock
for an aggregate cost of $7.2 million. There can be no assurances, however,
that it will purchase any additional shares.
As of September 30, 1996, WorldCorp also had an ownership interest in US
Order, Inc. ("US Order"), a company which provided products and services for two
markets: home banking and smart telephones. In December 1993, US Order
completed a $12.0 million private equity placement. In August 1994, US Order
sold its electronic banking and bill payment operations to VISA International
Services Association, Inc. ("Visa"). In February 1995, WorldCorp exercised an
option to purchase additional shares of the voting stock of US Order for
consideration equal to $3.9 million. In June 1995, US Order completed an
initial public offering whereby 3,062,500 shares were issued and sold by US
Order, and 1,365,000 shares were sold by WorldCorp. As of September 30, 1996,
WorldCorp owned approximately 55.2% of the outstanding common stock of US Order.
In August 1996, US Order and Colonial Data Technologies Corp. ("Colonial
Data") entered into an Agreement and Plan of Merger pursuant to which US Order
and Colonial Data would be merged with and into a new public company, InteliData
Technologies Corporation ("InteliData"). Pursuant to this Merger on November 7,
1996, InteliData became the successor corporation to US Order. InteliData
concentrates on three markets: (1) electronic commerce; (2) consumer
telecommunications devices; and (3) on-line services. As of November 7, 1996,
WorldCorp's beneficial ownership interest in InteliData was approximately 28.2%.
As a result of this merger, the Company will report its proportionate share of
InteliData's financial results using the equity method on a prospective basis.
The Company recently announced its intention to purchase up to 2.5 million
shares of its publicly-traded Common Stock pursuant to open market transactions.
As of November 8, 1996, the Company had purchased shares of its Common Stock for
an aggregate cost of $5.6 million. There can be no assurances, however, that it
will purchase any additional shares.
The Private Securities Litigation Reform Act of 1995 (the "Act") was recently
passed by Congress. The Company desires to take advantage of the new "safe
harbor" provisions in the Act. Therefore, this report contains forward looking
statements that are subject to risks and uncertainties, including, but not
limited to, the impact of competitive products, product demand and market
acceptance risks, reliance on key strategic alliances, fluctuations in operating
results and other risks detailed from time to time in the Company's filings with
the Securities and Exchange Commission, including risk factors disclosed in the
Company's Form 10-K for the fiscal year ended December 31, 1995. These risks
could cause the Company's actual results for 1996 and beyond to differ
materially from those expressed in any forward looking statements made by, or on
behalf of, the Company.
17
<PAGE>
OVERVIEW
WorldCorp owns significant positions in companies that operate in two
distinct business areas. World Airways (Nasdaq:WLDA) provides worldwide
passenger and cargo air transportation to major international airlines, the U.S.
Air Force, and international tour operators, with a fleet of MD-11 and DC10-30
aircraft. InteliData (Nasdaq:INTD) concentrates on three markets: (1)
electronic commerce; (2) consumer telecommunications devices; and (3) on-line
services.
World Airways
- -------------
World Airways earns revenue primarily in three distinct markets within the
air transportation industry: passenger and cargo services to major international
air carriers; passenger and cargo services, on a fixed and ad hoc basis, to the
U.S. Government; and international tour operators in leisure passenger markets.
In July 1996, World Airways announced its decision to exit its scheduled service
operations by October 1996 (see Recent Trends and Developments - Discontinuation
of Scheduled Service Operations).
World Airways generally charges customers on a block hour basis rather than a
per seat or per pound basis. "Block hours" are defined as the elapsed time
computed from the moment the aircraft first moves under its own power at the
point of origin to the time it comes to rest at its final destination. World
Airways provides most services under two types of contracts: basic contracts
and full service contracts. Under basic contracts, World Airways provides the
aircraft, cockpit crew, maintenance and insurance and the customer provides all
other operating services and bears all other operating expenses, including fuel
and fuel servicing, marketing costs associated with obtaining passengers and/or
cargo, airport passenger and cargo handling fees, landing fees, cabin crews,
catering, ground handling and aircraft push-back and de-icing services. Under
full service contracts, World Airways provides fuel, catering, ground handling,
cabin crew and all related support services as well. Accordingly, World Airways
generally charges a lower rate per block hour for basic contracts than full
service contracts, although it does not necessarily earn a lower profit.
Because of shifts in the mix between full service contracts and basic contracts,
fluctuations in revenues are not necessarily indicative of volume trends or
profitability. It is important, therefore, to measure World Airways' business
volume by block hours flown and to measure profitability by operating income per
block hour.
As is common in the air transportation industry, World Airways has relatively
high fixed aircraft costs. While World Airways believes that the lease rates on
its MD-11 aircraft are favorable relative to lease rates of other MD-11
operators, World Airways' MD-11 aircraft have higher lease costs (although lower
operating costs) than its DC10-30 aircraft. Therefore, achieving high average
daily utilization of its aircraft (particularly its MD-11 aircraft) at
attractive yields are two of the most critical factors to its financial results.
In addition to fixed aircraft costs, a portion of World Airways' labor costs are
fixed due to monthly minimum guarantees to cockpit crewmembers and flight
attendants.
Customers
World Airways' business relies heavily on its contracts with Malaysian
Airline System Berhad ("Malaysian Airlines"), P.T. Garuda Indonesia ("Garuda")
and the U.S. Air Force's Air Mobility Command ("AMC"). These customers provided
approximately 39%, 10%, and 20%, respectively, of World Airways' revenues and
46%, 10%, and 13%, respectively, of the total block hours during 1995. For the
first nine months of 1996, these customers provided approximately 30%, 14%, and
21%, respectively, of its revenues and 38%, 16%, and 14%, respectively, of total
block hours. In addition to these customers, World Airways recently entered
into an agreement with Philippine Airlines, Inc. ("Philippine Airlines") to
provide four MD-11 aircraft under year-round wet lease contracts. As a result,
World Airways expects that the agreement with Philippine Airlines will have a
substantial impact on its revenues and block hours.
World Airways has provided service to Malaysian Airlines since 1981,
providing wet lease services for Malaysian Airlines' scheduled passenger and
cargo operations as well as transporting passengers for the annual Hadj
pilgrimage. In 1996, World Airways provided three aircraft for Hadj operations.
World Airways recently entered into a new 32-month agreement for year-round
operations (including the Hadj) with Malaysian Airlines whereby World Airways
will provide two aircraft with cockpit crews, maintenance and insurance to
Malaysian Airlines' newly-formed charter division through May 1999.
18
<PAGE>
As a means of improving aircraft utilization, World Airways entered into a
series of multi-year contracts, with expiration dates running from 1997 through
2000, to provide basic services to Malaysian Airlines. The contracts provide
for World Airways' operation of five MD-11 aircraft in passenger and cargo
configurations. Beginning in July 1996, and as mutually agreed between the
parties, World Airways redeployed two aircraft operating under this contract
into other operations. The parties are currently in discussions regarding the
future redeployment of these aircraft into Malaysian Airlines' operations to
meet the contracts' original obligations. For 1995 and the first nine months of
1996, 29% and 24%, respectively, of World Airways' revenues and 37% and
32%, respectively, of its block hours flown resulted from these multi-year
contracts with Malaysian Airlines.
World Airways has provided international air transportation to the U.S. Air
Force since 1956. As compensation for pledges of aircraft to the Civil Reserve
Air Fleet ("CRAF") for use in times of national emergency, the U.S. Air Force
awards contracts to CRAF participants for peacetime transportation of personnel
and cargo. The U.S. Air Force awards contracts to air carriers acting alone or
through teaming arrangements in proportion to the number and type of aircraft
that the carriers make available to CRAF. As a result of World Airways'
increasingly effective use of teaming arrangements, World Airways' fixed awards
have grown in recent years and it has one of the largest U.S. Air Force fixed
award under the CRAF program for the U.S. Government's 1996-97 fiscal year. The
current annual contract commenced on October 1, 1996 and expires on September
30, 1997. These contracts provide for a fixed level of scheduled business from
the U.S. Air Force with opportunities for additional short-term expansion
business on an ad hoc basis as needs arise. World Airways' fixed award for the
current contract is $52.8 million compared to the $55.4 million fixed award for
the prior contract. Due to the utilization of a significant number of its
aircraft under multi-year contracts and other contractual commitments, it is
unlikely that World Airways will be able to accept all of the available
expansion business. Although overall Defense Department spending is being
reduced, the level of U.S. Air Force contract awards has remained relatively
constant in recent years. World Airways, however, cannot determine how future
cuts in military spending may affect future operations with the U.S. Air Force.
World Airways has provided wet lease services to Garuda since 1973 (operating
under an annual Hadj contract since 1988). World Airways operated seven
aircraft in the 1996 Garuda Hadj.
As mentioned above, World Airways recently entered into an agreement with
Philippine Airlines to provide four MD-11 aircraft under year-round wet lease
contracts. The first two aircraft began flying for Philippine Airlines in June
and July 1996, with the remaining two aircraft commencing operations in October
1996. Under the agreement, each aircraft will operate for an 18-month term. In
addition, Philippine Airlines has an option for World Airways to operate a DC10-
30 cargo aircraft beginning late in 1996.
As a result of these and other contracts, World Airways had an overall
contract backlog at September 30, 1996 of $462.0 million. World Airways'
backlog for each contract is determined by multiplying the minimum number of
block hours guaranteed under the applicable contract by the specified hourly
rate under such contract. Approximately 56% of the backlog (including a
majority of the backlog beginning in 1997) relates to the multi-year contracts
with Malaysian Airlines. The loss of any of these contracts or a substantial
reduction in business from any of these key customers, if not replaced, would
have a material adverse effect on World Airways' financial condition and results
of operations.
Seasonality
Historically, World Airways' business has been significantly affected by
seasonal factors. During the first quarter, World Airways typically experiences
lower levels of utilization and yields as demand for passenger and cargo
services is lower relative to other times of the year. World Airways experiences
higher levels of utilization in the second quarter, principally due to peak
demand for commercial passenger services associated with the annual Hadj
pilgrimage. During 1996, World Airways' flight operations associated with the
Hadj pilgrimage occurred from March 22 to June 1. Because the Hadj occurs
approximately 10 to 12 days earlier each year, revenues resulting from future
Hadj contracts will begin to shift from the second quarter to the first quarter
over the next several years. Historically, fourth quarter utilization depended
primarily on the demand for air cargo services in connection with the shipment
of merchandise in advance of the U.S. holiday season.
As discussed above, World Airways announced in July 1996 its decision to exit
scheduled service operations by October 1996 to focus on its core business:
operating aircraft under contracts with international carriers, the U.S.
19
<PAGE>
Government, and international tour operators. World Airways believes that its
year-round contracts with Malaysian Airlines, Philippine Airlines, and the U.S.
Air Force should lessen the effect of these seasonal factors.
Aviation Fuel
World Airways' source of aviation fuel is primarily from major oil companies,
under annual delivery contracts, at often frequented commercial locations, and
from United States military organizations at military bases. World Airways'
current fuel purchasing policy consists of the purchase of fuel within seven
days in advance of all flights based on current prices set by individual
suppliers. More than one supplier is under contract at several locations.
World Airways purchases no fuel under long-term contracts nor does it enter into
futures or fuel swap contracts.
The air transportation industry in general is affected by the price and
availability of aviation fuel. Both the cost and availability of aviation fuel
are subject to many economic and political factors and events occurring
throughout the world and remain subject to the various unpredictable economic
and market factors that affect the supply of all petroleum products.
Fluctuations in the price of fuel has not had a significant impact on World
Airways' operations in recent years. World Airways' exposure to fuel risk is
limited because (i) under the terms of its basic contracts, the customer is
responsible for providing fuel, (ii) under the terms of its full service
contracts with the U.S. Government, World Airways is reimbursed for the cost of
fuel it provides, and (iii) under its charter contracts, World Airways is
reimbursed for fuel price increases in excess of 5% of the price agreed upon in
the contract, subject to a 10% cap. However, a substantial increase in the
price or the unavailability of aviation fuel could have a material adverse
effect on the air transportation industry in general and the financial condition
and results of operations of World Airways, in particular.
InteliData/US Order
- -------------------
US Order develops and markets products and services for the financial
services and telecommunications industries. US Order's financial service
products include bank-branded customer services, voice response systems and data
translation systems. Its telecommunications products include the Telesmart
4000/TM/ smart telephone and a complete package of interactive applications. On
November 7, 1996, US Order and Colonial Data merged with and into InteliData.
Pursuant to this merger InteliData became the successor corporation to US Order.
In August 1994, US Order sold its electronic banking and bill pay operations
to Visa for approximately $15.0 million, the assumption of certain liabilities
and the right to receive certain royalties during a 72 month period commencing
January 1, 1995. In addition, Visa designated US Order as a "preferred
provider" through the 72-month royalty period and, as such, will make its member
banks aware that US Order can provide certain of its interactive applications,
customer support services and smart telephones to Visa member banks. In January
1995, US Order entered into a strategic alliance with a leading manufacturer of
Caller ID units, Colonial Data, to jointly develop and distribute US Order's
next generation of smart telephones to the telecommunications industry.
On October 19, 1995, US Order completed a transaction to acquire a 40% equity
interest in Home Financial Network, Inc. ("HomeNet"), a newly formed,
development stage personal computer company that plans to develop and deliver
electronic financial products and services for consumers. At closing, US Order
exchanged 296,746 shares of its common stock, valued at approximately $5.0
million, for 40% of HomeNet. In April 1996, Fleet Venture Resources, Inc.
acquired a 3.8% equity interest in HomeNet for $1.0 million, and as a result, US
Order's equity interest in HomeNet was reduced to approximately 39%. InteliData
believes that its investment in HomeNet will complement its home banking
strategy by adding a personal computer based application to the current smart
telephone and touch-tone applications that it offers. InteliData expects
HomeNet to incur operating losses at least through 1996 of which InteliData will
record its proportionate share.
On September 30, 1996, US Order acquired all of the outstanding stock of
Braun, Simmons & Co. ("Braun, Simmons"), an information engineering firm
specializing in the development of home banking and commerce solutions for
financial institutions. The acquisition was accounted for under the purchase
method of accounting. The purchase price approximated $7.1 million, including
a cash payment of $2.0 million and the issuance of 375,000 shares of common
stock, valued at $4.2 million. As a result of this acquisition, US Order
recognized a $4.9 million in-process research and development charge and
recorded $1.9 million of goodwill as of September 30, 1996. The goodwill will
be amortized over a seven year period on a straight-line basis. InteliData
believes that this acquisition is a strong strategic and technological fit and
enhances its ability to offer a spectrum of end-to-end solutions for
20
<PAGE>
remote banking as well as expanding its home banking connectivity product line.
On November 7, 1996, US Order and Colonial Data merged with and into
InteliData. The merger was accounted for under the purchase method of
accounting, with US Order being deemed the acquirer. Pursuant to this
transaction, InteliData became the successor corporation to US Order. Under the
terms of the merger, each outstanding share of the common stock of US Order and
Colonial Data, $.001 par value and $.01 par value, respectively, was converted
into one share of InteliData common stock, $.001 par value. Immediately
following the merger, former holders of US Order common stock held approximately
52% of the outstanding shares of InteliData, with former holders of Colonial
Data common stock collectively holding the remaining 48% of InteliData's
outstanding shares of common stock. The purchase price of Colonial Data
approximated $189.0 million and was allocated as follows: (1) approximately
$87.0 million to tangible and intangible assets net of liabilities assumed, (2)
approximately $30.0 million to the cost in excess of net assets acquired
("goodwill") and (3) approximately $72.0 million to in-process research and
development with no alternative future use, which will be expensed by InteliData
in the fourth quarter of 1996. The goodwill will be amortized over a fifteen
year period on a straight-line basis.
To date, InteliData has generated limited revenues based on the historical
operations of US Order. Colonial Data had revenues of approximately $74 million
in the fiscal year ended December 31, 1996 and $50.2 million in the nine months
ended September 30, 1996. InteliData will generate future revenues through the
sale of its newly acquired Colonial Data telecommunication product lines, smart
telephones and home banking products, as well as by generating monthly fees for
providing ongoing services, including interactive applications and customer
support services. Colonial Data's telecommunications product line includes
Caller ID adjunct units and telephones with integrated Caller ID, small business
telecommunication systems and high-end consumer telecommunications equipment.
Further, US Order began shipping its next generation smart telephone to retail
stores during the quarter ended September 30, 1996. This next generation smart
telephone is sold under the brand name "Intelifone" in the retail markets and as
the Telesmart 4000/TM/ in the telecommunications channel. Revenue from
telecommunications and smart telephone product sales and related interactive
services will be dependent on InteliData's success in marketing and selling
these products and related services in the retail, paging and telecommunication
markets, as well as in keeping current with new technology and product releases
in this competitive market place. InteliData's success in generating revenues
from home banking products and related services is primarily dependent on the
success of its strategic partner, Visa InterActive, in marketing and selling
these products and services to Visa member banks, as well as by its success in
taking advantage of Braun, Simmons' current strategic relationships and existing
market channels.
In addition, InteliData has the right to receive on a quarterly basis from
Visa $0.666 per month per active bill pay customer that uses the Visa Bill-Pay
System through December 31, 2000. This payment from Visa is subject to certain
limitations, including a reduction in the royalty payment for each quarter
beginning January 1, 1995 through December 31, 1997 by an offset amount (the
"Visa Offset"). The Visa Offset, initially set at $0.07 million per quarter,
accumulates quarterly up to an aggregate of $0.9 million. InteliData has not
received any revenue from these Visa royalty payments through September 30, 1996
and does not expect to receive any revenue from these payments, after
application of the Visa Offset, through at least the first half of 1997.
RESULTS OF OPERATIONS
World Airways
- -------------
In July 1996, World Airways announced its decision to exit its scheduled
service operations by October 1996 resulting in a loss of approximately $28.5
million (net of income tax effect) which was recognized in the second quarter of
1996 (see Recent Trends and Developments - Discontinuation of Scheduled Service
Operations). Prior period results of operations have been restated to reflect
the scheduled service operations as discontinued operations.
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995
Total block hours increased 2,530 hours, or 23%, to 13,327 hours in the third
quarter of 1996 from 10,797 hours in the comparable 1995 period, with an average
of 15.0 available aircraft per day in 1996 compared to 11.4 in 1995. Average
daily utilization (block hours flown per day per aircraft) was 9.7 hours in the
third quarter of 1996 compared to 10.3 in 1995. In the third quarter of 1996,
basic contracts accounted for 47% of total block hours, down from 57% in 1995 as
a result of increased scheduled service operations.
21
<PAGE>
Continuing Operations
- ---------------------
Block hours from continuing operations decreased 586 hours, or 6%, to 9,337
hours in the third quarter of 1996 from 9,923 hours in the comparable 1995
period. This decrease related primarily to a shift in the mix of World Airways'
business from full service charter flying in 1995 to scheduled charter flying in
1996. Results from scheduled charter flying are included within discontinued
operations.
Operating Revenues. Revenues from flight operations increased $6.4 million,
------------------
or 9%, to $75.8 million in the third quarter of 1996 from $69.4 million in 1995.
This increase was primarily attributable to an increase in military flying and
services to certain international carriers. These increases were partially
offset by a decrease in cargo revenue primarily due to downtime associated with
the scheduled maintenance of one aircraft in the third quarter of 1996.
Operating Expenses. Total operating expenses increased $8.0 million, or 12%,
------------------
in the third quarter of 1996 to $72.1 million from $64.1 million in 1995.
Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft cost, fuel and maintenance. Also
included are expenses related to flight dispatch and flight operations
administration. Despite increased crew costs associated with the payment of
retroactive wages per the new flight attendant union agreement and the hiring of
additional crew personnel, flight operations expenses decreased $3.9 million, or
19%, in 1996 to $16.9 million from $20.8 million in 1995. This decrease
resulted primarily from a shift in the mix of business from charter to military
flying. In addition, World Airways accrued profit sharing expenses in 1995 as a
result of earnings experienced during that period. No such accrual is necessary
in 1996 as a result of anticipated losses from the discontinuation of scheduled
service operations.
Maintenance expenses increased $3.2 million, or 30%, in 1996 to $13.9 million
from $10.7 million in 1995. This increase resulted primarily from the
integration of additional aircraft into the fleet, partially offset by a
decrease in block hours flown. In addition, World Airways experienced an
increase in costs associated with the MD-11 aircraft and related engines as a
result of certain manufacturer guarantees and warranties which began to expire
in 1995 and will fully expire by 1998.
Aircraft costs increased $1.2 million, or 7%, in 1996 to $19.0 million from
$17.8 million in 1995. This increase was primarily due to the lease of two MD-
11ER aircraft in the first quarter of 1996 and the lease of incremental DC10-30
aircraft which began in the fourth quarter of 1995 and the first quarter of
1996, partially offset by the return of two DC10-30 aircraft to the lessor in
the third quarter of 1995.
Fuel expenses increased $0.1 million, or 2%, in 1996 to $6.6 million from
$6.5 million in 1995. This increase is due primarily from a slight increase in
price per gallon, partially offset by a decrease in full service block hours.
Promotions, sales and commissions increased $1.4 million to $2.2 million in
the third quarter of 1996 compared to $0.8 million in 1995. This increase
resulted primarily from commissions paid in connection with the new Philippine
Airline contract and an increase in teaming arrangement commissions associated
with the larger fixed-award contract received from the U.S. Air Force beginning
October 1995.
Depreciation and amortization increased $0.6 million, or 40%, in 1996 to $2.1
million from $1.5 million in 1995. This increase resulted primarily from an
increase in spare parts required to support the additional MD-11 aircraft and
incremental DC10-30 aircraft described above as well as the amortization of
certain aircraft integration costs and other deferred costs.
General and administrative expenses increased $2.0 million, or 43%, in 1996
to $6.7 million from $4.7 million in 1995. This increase was primarily due to
the hiring of additional administrative personnel and an increase in certain
legal and professional fees.
Discontinued Operations
- -----------------------
In July 1996, World Airways announced its decision to exit its scheduled
service operations by October 1996
22
<PAGE>
and focus its operations on its core business: operating aircraft under
contracts with international carriers, the U.S. Government, and international
tour operators. Consistent with this decision, World Airways ceased all
scheduled operations as of October 27, 1996. As a result, World Airways'
scheduled service operations were reflected as discontinued operations as of
June 30, 1996, and prior period results have been restated to reflect scheduled
service operations as discontinued operations. Loss from discontinued
operations (net of income tax effect) approximated $11.7 million for the nine
months ended September 30, 1996. In addition, an estimated loss on disposal of
$21.0 million (net of income tax effect) which was recorded as of June 30, 1996,
included the following: $13.6 million for estimated operating losses during the
phase-out period; a $2.6 million estimated loss to be incurred in connection
with sub-leasing DC-10 aircraft which will not be utilized in World Airways'
operations subsequent to the phase-out of scheduled service operations; a $2.3
million writeoff of related leasehold improvements; and $2.0 million for
passenger reprotection expenses. World Airways incurred approximately $13.2
million of these costs during the quarter ended September 30, 1996 and World
Airways believes that its remaining accrual for estimated losses on disposal
will be adequate to meet the remaining costs to be incurred during the phase-out
period. As of November 8, 1996, World Airways believes that it has met
substantially all of its cash obligations of the phase-out period. Other than
the leased aircraft utilized in scheduled service operations, World Airways does
not have any significant assets related to its discontinued operations.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995
Total block hours increased 9,845 hours, or 35%, to 37,868 hours in the first
nine months of 1996 from 28,023 hours in the comparable 1995 period, with an
average of 13.8 available aircraft per day in 1996 compared to 10.3 in 1995.
Average daily utilization (block hours flown per day per aircraft) was 10.0 in
each period. In the first nine months of 1996, basic contracts accounted for
65% of total block hours, down from 73% in 1995 as a result of increased
scheduled service operations.
Continuing Operations
- ---------------------
Block hours from continuing operations increased 4,196 hours, or 15%, to
31,344 hours in the first nine months of 1996 from 27,148 hours in the
comparable 1995 period.
Operating Revenues. Revenues from flight operations increased $42.1 million,
------------------
or 23%, to $227.8 million in the first nine months of 1996 from $185.7 million
in 1995. This increase was primarily attributable to an increase in military
flying and an increase in revenues generated from its 1996 Hadj operations and
services to certain international carriers.
Operating Expenses. Total operating expenses increased $41.3 million, or
------------------
24%, in the first nine months of 1996 to $212.2 million from $170.9 million in
1995.
Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft cost, fuel and maintenance. Also
included are expenses related to flight dispatch and flight operations
administration. Flight operations expenses increased $2.5 million, or 5%, in
1996 to $52.2 million from $49.7 million in 1995. This increase resulted
primarily from an increase in block hours flown and higher crew costs and up-
front training expenses in connection with the integration of additional
aircraft into the fleet after September 30, 1995. These increases were partially
offset by a decrease in accrued profit sharing expenses. In 1995, World Airways
accrued profit sharing expenses as a result of earnings experienced during that
period. No such accrual is necessary in 1996 as a result of anticipated losses
from the discontinuation of scheduled service operations.
Maintenance expenses increased $13.0 million, or 42%, in 1996 to $44.3
million from $31.3 million in 1995. This increase resulted primarily from the
integration of additional aircraft into the fleet and a corresponding increase
in block hours flown. In addition, World Airways experienced an increase in
costs associated with the MD-11 aircraft and related engines as a result of
certain manufacturer guarantees and warranties which began to expire in 1995 and
will fully expire by 1998.
Aircraft costs increased $9.8 million, or 19%, in 1996 to $60.4 million from
$50.6 million in 1995. This increase was primarily due to the lease of two MD-
11ER aircraft in the first quarter of 1996 and the lease of incremental DC10-30
aircraft which began in the second and fourth quarters of 1995 and the first
quarter of 1996, partially offset by the return of two DC10-30 aircraft to the
lessor in the third quarter of 1995.
23
<PAGE>
Fuel expenses increased $2.3 million, or 19%, in 1996 to $14.7 million from
$12.4 million in 1995. This increase is due primarily to an increase in fuel
utilized in connection with its military operations.
Promotions, sales and commissions increased $3.1 million in the first nine
months of 1996 to $3.9 million from $0.8 million in 1995. This increase resulted
primarily from commissions paid in connection with the new Philippine Airlines
contract and an increase in teaming arrangement commissions associated with the
larger fixed-award contract received from the U.S. Air Force beginning October
1995.
Depreciation and amortization increased $1.7 million, or 40%, in 1996 to $5.9
million from $4.2 million in 1995. This increase resulted primarily from an
increase in spare parts required to support the additional MD-11 aircraft and
incremental DC10-30 aircraft described above as well as the amortization of
certain aircraft integration costs and other deferred costs.
General and administrative expenses increased $4.7 million, or 36%, in 1996
to $17.9 million from $13.2 million in 1995. This increase was primarily due to
the hiring of additional administrative personnel necessary to support the
growth in World Airways' core business and an increase in certain legal and
professional fees.
Discontinued Operations
- -----------------------
For a discussion of discontinued operations, see "Three Months Ended
September 30, 1996 Compared to Three Months Ended September 30, 1995."
InteliData/US Order
- -------------------
The following represent the results of operations for InteliData for the
three months and nine months ended September 30, 1996 and 1995. These results
were based on the stand alone operation of US Order, the predecessor corporation
to InteliData.
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Operating Revenue. US Order's third quarter revenues decreased by $0.1
-----------------
million from $1.2 million in 1995 to $1.0 million for the same period in 1996.
Product revenues decreased by $0.1 million between periods, from $0.6 million in
the third quarter of 1995 to $0.5 million for the same period in 1996. US Order
began shipping its next generation smart telephone, the InteliFone, to retail
markets during the third quarter of 1996 and revenues from these product sales
comprised approximately 64% of the product revenues for the third quarter of
1996. The product revenues generated in the third quarter of 1995 were from the
sale of US Order's previous generation PhonePlus/TM/ smart telephones. Service
fees revenue for the third quarter of 1996 totaled $0.6 million, consistent with
the same period in 1995. Service fees revenue was generated primarily from two
sources: customer support services and monthly service fees. US Order's
customer support services revenue totaled $0.4 million for the third quarter of
1996, an increase of $0.2 million over the same period in 1995. These customer
support services were remarketed by Visa Interactive to Visa member banks under
US Order's reseller agreement with Visa Interactive. Monthly service fees
totaled $0.1 million for the third quarter of 1996 as compared to $0.2 million
for the same period in 1995. These service fee revenues are from customers who
use US Order's smart telephones and interactive applications, and the decrease
of $0.1 million was primarily due to US Order's continuing efforts to convert
these customers to Visa member banks. InteliData expects its revenues to
increase significantly in the fourth quarter of 1996 and thereafter based on its
acquisition of Colonial Data on November 7, 1996. Colonial Data revenues for
the fiscal year ended December 31, 1995 and the nine months ended September 30,
1996 were approximately $74.0 million and $50.2 million, respectively.
Cost of Revenue. US Order's cost of revenue for the third quarter decreased
---------------
by $0.1 million from $0.8 million in 1995 to $0.7 million for the same period in
1996. Product cost of revenue decreased by $0.1 million between periods, from
$0.7 million in the third quarter of 1995 to $0.6 million for the same period in
1996. This decrease is primarily due to a decrease in sales of US Order's smart
telephones resulting from the transition from primarily selling US Order's
PhonePlus/TM/ smart telephone to selling its next generation smart telephone,
the InteliFone, which US Order began shipping during the third quarter of 1996.
Included in product cost of revenue in the third quarter of 1996 is a $0.1
million reserve for inventory obsolescence related to writing down US Order's
previous generation smart telephone, the PhonePlus/TM/, to fair market value.
US Order's third quarter service cost of revenue decreased
24
<PAGE>
$0.1 million from $0.2 million in 1995 to $0.1 million for the same period in
1996. Service cost of revenue related to generating monthly fee revenues
decreased $0.1 million, offsetting a $0.1 million increase in costs related to
providing customer support services to Visa, Visa member banks and third
parties. The service cost of revenues related to monthly service fees decreased
between periods due to the full depreciation in the fourth quarter of 1995 of
the smart telephones utilized to generate monthly fee revenues and due to the
continuing conversion of customers utilizing smart telephones to Visa member
banks. The increase in cost of revenue related to customer service was a direct
result of increased customer volume and revenue from this source. Furthermore,
InteliData expects its gross margin percentages to vary in future periods based
upon the revenue mix between product sales and service revenues and based upon
the composition of both service fee and product revenues earned during the
period.
Operating Expenses. Research and development costs were $5.7 million in the
------------------
third quarter of 1996 as compared to $0.3 million for the same period in 1995.
US Order incurred a $4.9 million expense in the third quarter of 1996 for in-
process research and development related to the acquisition of Braun, Simmons on
September 30, 1996. The accounting principles of a purchase business combination
require that the purchase price be allocated to incomplete research and
development projects and, if these projects have no alternative future use, be
expensed at the date of consummation of the business combination. The remaining
increase of $0.5 million was largely attributable to developing, designing and
testing both US Order's home banking connectivity products and support services
and US Order's next generation smart telephone and its associated interactive
services. InteliData incurred approximately $72.0 million in related in-process
research and development expenses in the fourth quarter of 1996 based on its
acquisition of Colonial Data on November 7, 1996. US Order has been actively
engaged in research and development since its inception and expects that these
activities will be essential to the operations of InteliData in the future.
InteliData also expects research and development costs to increase during the
remainder of 1996 and thereafter based on the acquisitions of Braun, Simmons and
Colonial Data, as both are actively engaged in research and development
activities.
General and administrative expenses were $2.9 million for the third quarter
of 1996 as compared to $1.4 million in the third quarter of 1995. The increase
of $1.5 million was a result of US Order's hiring of additional staff and an
increase in costs associated with upgrading systems and operations in
anticipation of the potential of increased business later in 1996 resulting from
its alliances with Visa InterActive, as well as from other markets for US
Order's smart telephone and home banking products and services. InteliData
expects that general and administrative expenses will continue to increase
during the remainder of 1996 and thereafter based on its acquisitions and
integration of operations of both Braun, Simmons and Colonial Data, as well as
the continued development of infrastructure to handle the anticipated increase
in business in both home banking and telecommunications product and service
sales.
Advertising and promotion expenses increased $0.2 million for the third
quarter of 1996 over the comparable period in 1995. During the third quarter of
1996, US Order began selling its Intelifone smart telephone directly to retail
stores and outlets. US Order expects its advertising and promotion expenses to
increase substantially from the expenditures incurred during the third quarter
(and first nine months) of 1996 and during the fiscal year ended December 31,
1995 with the entrance of its next generation smart telephone into these retail
channels and with the acquisition of Braun, Simmons and Colonial Data. The
acquisition of Colonial Data, in particular, will increase advertising and
promotion expenses as InteliData promotes Colonial Data's telecommunications
product lines to retail markets and to the regional Bell operating companies and
other telephone operating companies with whom Colonial Data generated its
product, lease and service revenues.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995
Operating Revenue. US Order's revenues for the first nine months of 1996
-----------------
were $2.9 million, unchanged from the comparable 1995 period. Product revenues
decrease by $0.1 million between periods, from $1.4 million in the first nine
months of 1995 to $1.3 million for the same period in 1996. The decrease in
smart telephone product revenues between periods resulted primarily from the
transition from primarily selling US Order's PhonePlus smart telephone to
selling its next generation smart telephone, which US Order began shipping
during the third quarter of 1996. Revenues from these product sales comprised
approximately 42% of the product revenues for the first nine months of 1996.
Service fees revenue for the first nine months of 1996 totaled $1.6 million
compared to $1.4 million in the same period in 1995, an increase of $0.2
million. Service fees revenue was generated primarily from two sources: (1)
customer support services and (2) monthly service fees. US Order's customer
support services revenue totaled $1.1 million for the first nine months of 1996,
an increase of $0.6 million over the same period in 1995.
25
<PAGE>
These customer support services were remarketed by Visa Interactive to Visa
member banks under US Order's reseller agreement with Visa Interactive. Monthly
service fees revenues are from customers who use US Order's smart telephones and
interactive applications, and a decrease of $0.5 million was primarily due to US
Order's continuing efforts to convert these customers to Visa member banks.
InteliData expects its revenues to increase significantly in the fourth quarter
of 1996 and thereafter based on its acquisition of Colonial Data. Colonial Data
revenues for the fiscal year ended December 31, 1995 and the nine months ended
September 30, 1996 were approximately $74.0 million and $50.2 million,
respectively.
Cost of Revenue. US Order's cost of revenue for the first nine months
---------------
decreased by $0.2 million, from $2.2 million in 1995 to $2.0 million for the
same period in 1996. Product cost of revenue decreased by $0.2 million between
periods, from $1.5 million in the first nine months of 1995 to $1.3 million for
the same period in 1996. This decrease is primarily due to a decrease in the
sale of US Order's smart telephones resulting from the transition from primarily
selling US Order's PhonePlus/TM/ smart telephone to selling its next generation
smart telephone, the InteliFone, which US Order began shipping during the third
quarter of 1996. Included in product cost of revenue for 1996 is a $0.1 million
reserve for inventory obsolescence related to the write down of US Order's
previous generation smart telephone, the PhonePlus/TM/, to fair market value.
Service cost of revenues related to generating monthly fee revenues decreased
$0.5 million between periods, offsetting a $0.4 million increase in costs
related to providing customer support services to Visa, Visa member banks and
third parties. The service cost of revenues related to monthly service fees
decreased between periods due to the full depreciation in the fourth quarter of
1995 of the smart telephones utilized to generate monthly fee revenues and due
to the continuing conversion of customers utilizing smart telephones to Visa
member banks. The increase in cost of revenue related to customer service was a
direct result of increased customer volume and revenue from this source.
Furthermore, InteliData expects its gross margin percentages to vary in future
periods based upon the revenue mix between product sales and service revenues
and based upon the composition of both service fee and product revenues earned
during the period.
Operating Expenses. Research and development costs were $6.9 million in the
------------------
first nine months of 1996 as compared to $0.8 million for the same period in
1995. US Order incurred a $4.9 million expense in the third quarter of 1996 for
in-process research and development related to the acquisition of Braun, Simmons
on September 30, 1996. The accounting principles of a purchase business
combination require that the purchase price be allocated to incomplete research
and development projects and, if these projects have no alternative future use,
be expensed at the date of consummation of the business combination. The
remaining increase of $1.2 million was largely attributable to developing,
designing and testing both US Order's home banking connectivity products and US
Order's fourth generation smart telephone and its associated interactive
services. InteliData incurred approximately $72.0 million in related in-process
research and development expenses in the fourth quarter of 1996 based on its
acquisition of Colonial Data on November 7, 1996. US Order has been actively
engaged in research and development since its inception and expects that these
activities will be essential to the operations of InteliData in the future.
InteliData also expects research and development costs to increase during the
remainder of 1996 and thereafter based on the acquisitions of Braun, Simmons and
Colonial Data, as both are actively engaged in research and development
activities.
General and administrative expenses were $7.4 million for the first nine
months of 1996 as compared to $3.6 million in the same period in 1995. The
increase of $3.8 million was a result of US Order's hiring of additional staff
and an increase in costs associated with upgrading systems and operations in
anticipation of the potential of increased business later in 1996 resulting from
its alliances with its strategic partners, as well as from other markets for US
Order's smart telephone and home banking products and services. InteliData
expects that general and administrative expenses will continue to increase
during the remainder of 1996 and thereafter based on its acquisitions and
integration of operations of both Braun, Simmons and Colonial Data, as well as
the continued development of infrastructure to handle the anticipated increase
in business in both home banking and telecommunications product and service
sales.
Advertising and promotion expenses increased $0.3 million for the third
quarter of 1996 over the comparable period in 1995. During the third quarter of
1996, US Order began selling its Intelifone smart telephone directly to retail
stores and outlets. US Order expects its advertising and promotion expenses to
increase substantially from the expenditures incurred during the third quarter
(and first nine months) of 1996 and during the fiscal year ended December 31,
1995 with the entrance of its next generation smart telephone into these retail
channels and with the acquisition of Braun, Simmons and Colonial Data. The
acquisition of Colonial Data, in particular, will increase advertising and
promotion expenses as InteliData promotes Colonial Data's telecommunications
product lines to retail
26
<PAGE>
markets and to the regional Bell operating companies and other telephone
operating companies with whom Colonial Data generated its product, lease and
service revenues.
Other Income (Expense)
- ----------------------
In the third quarter of 1996, the Company recorded a $1.9 million gain
resulting from US Order's purchase of Braun, Simmons on September 30, 1996.
In addition, US Order recorded equity in loss of affiliate of $0.5 million
and $1.4 million in the third quarter and first nine months of 1996,
respectively, due to the recording its proportionate share of losses of HomeNet
and the amortization of the excess of the purchase price over US Order's share
of the equity in net assets of HomeNet, following US Order's investment in
HomeNet in October 1995. InteliData expects HomeNet's operating losses to
continue through the remainder of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company is highly leveraged, primarily due to debt restructurings in
1987. In order to meet its annual interest obligations, WorldCorp must use
its cash and either sell shares of World Airways or InteliData, or issue
additional debt or equity. Under the terms of the Bridge Loan, however,
WorldCorp has pledged all of its shares of World Airways and InteliData as
collateral for the loan, and as of September 30, 1996, $15.0 million of its cash
was restricted. In October 1996, the cash restriction was reduced to $7.0
million as a result of a $10.0 million repayment of the Bridge Loan. WorldCorp
is currently negotiating with the lender under the Bridge Loan to significantly
reduce the collateral requirements and negotiating with other financial
institutions to refinance the debt. While management believes it will be
successful in reducing the amount of collateral securing the loan, either by
negotiating the terms of the Bridge Loan or by entering into a new loan with
another financial institution, no assurances can be given that WorldCorp will be
able to renegotiate the current loan or conclude a new loan on terms more
favorable to the Company.
World Airways is highly leveraged, primarily due to substantial debt and
operating lease commitments during 1993 in connection with acquiring MD-11
aircraft and related spare parts. While World Airways was profitable each year
from 1987 through 1992 and in 1995, it sustained operating losses in 1993 and
1994 of $7.3 million and $5.2 million, respectively, and net losses of $9.0
million in each of these two years. During the first nine months of 1996, World
Airways reported a net loss of $18.8 million, which resulted from operating
losses incurred in its scheduled service operations and the related estimated
loss on disposal. Earnings from continuing operations were $13.7 million for
the nine months ended September 30, 1996. While World Airways expects its
continuing operations to remain profitable, there can be no assurance that it
will be able to maintain this profitability for the remainder of 1996 and future
years.
US Order has generated operating losses since its inception. With US Order's
merger with Colonial Data on November 7, 1996, InteliData has acquired
operations that generated net income of approximately $12.5 million and $4.9
million, respectively, for the fiscal year ended December 31, 1995 and the nine
months ended September 30, 1996. InteliData's smart telephone and home banking
products and services are subject to the risks inherent in the marketing and
development of new products. The market for these products and services is
relatively new and is characterized by rapid technological change, evolving
standards, changes in end-user requirements and frequent new product
introductions and enhancements. However, the acquisition of Colonial Data has
provided InteliData with established product lines and sales channels in large
telecommunications markets. The industry for InteliData's products and services
is intensely competitive. InteliData experiences direct competition from
manufacturers of smart telephones, caller ID units, and cordless phones and from
companies that develop transaction processing software for interactive
applications and customer support services. To date, US Order has generated
limited revenues from its product and service sales; however, the acquisition of
Colonial Data has provided InteliData with a revenue stream that totaled
approximately $74.0 million and $50.2 million, respectively, for the twelve
months ended December 31, 1995 and the nine months ended September 30, 1996.
There can be no assurance as to what level of future sales or royalties, if any,
that InteliData will receive from Visa, Visa member banks and retail markets for
its smart telephone and home banking products and services.
27
<PAGE>
Cash Flows from Operating Activities
Operating activities used $18.6 million in cash for the nine months ended
September 30, 1996 compared to providing $10.7 million of cash in the comparable
period in 1995. This decrease in cash in 1996 resulted primarily from an
increase in losses from discontinued operations and a decrease in unearned
revenue, partially offset by an increase in accounts payable during 1996. In
addition, the Company recorded a gain of $48.9 million associated with US
Order's public offering in June 1995.
Cash Flows from Investing Activities
Investing activities used $10.0 million in cash for the nine months ended
September 30, 1996 compared to using $17.5 million in the comparable period in
1995. This decrease in cash used resulted primarily from the purchase of
rotable spare parts required for the integration of two MD-11 aircraft and
incremental DC-10 aircraft in 1995, as compared to the acquisition of engines
and spare parts which were financed in 1996.
Cash Flows from Financing Activities
Financing activities provided $7.9 million in cash for the nine months ended
September 30, 1996 compared to $61.2 million in the comparable period in 1995.
In 1995, the Company received $60.5 million from the sale of US Order's common
stock and made net repayments of $0.6 million on its borrowings. In 1996, the
Company increased its net borrowings by $5.9 million.
Capital Commitments
World Airways
- -------------
In October 1992 and January 1993, World Airways signed a series of agreements
to lease seven new MD-11 aircraft for initial lease terms of two to five years,
renewable for up to 10 years (and in the case of one aircraft, for 13 years) by
World Airways with increasing rent costs. As of March 1995, World Airways had
taken delivery of all seven aircraft, consisting of four passenger MD-11
aircraft, one freighter MD-11, and two passenger/cargo convertible MD-11s. As
part of the lease agreements, World Airways was assigned purchase options for
four additional MD-11 aircraft. In 1992, World Airways made non-refundable
deposits of $1.2 million toward the option aircraft.
In March 1996, World Airways signed an agreement with the manufacturer to
lease two MD-11ER aircraft. Under the agreement, World Airways leased each
aircraft for a term of 24 years with an option to return the aircraft after a
seven year period with certain fixed termination fees. As part of the
agreement, the above-mentioned deposits were applied towards the deposits
required on these two aircraft. In addition, World Airways agreed to assume an
existing lease of two additional MD-11 freighter aircraft for 20 years at
substantially below-market rates, beginning in 1999, in the event that the
existing lessee terminates its lease with the manufacturer at that time.
World Airways maintains six long-term DC10-30 aircraft leases with terms
expiring in 1998, 2003, and two each in 1997 and 1999. As a result of World
Airways' decision to discontinue scheduled service operations, World Airways has
recently signed a letter of intent to lease two of these DC-10 aircraft to
another carrier.
As of September 30, 1996, annual minimum payments required under World
Airways' aircraft and lease obligations totaled $22.0 million and $87.2 million
for the remainder of 1996 and 1997, respectively.
In August 1995, World Airways amended its aircraft spare parts facility under
the Credit Agreement to provide for a variable rate borrowing of $10.5 million.
Approximately $2.5 million of this facility was used to pay off the previously
outstanding balance of the spare parts loan facility and $0.8 million was used
to purchase additional spare parts for MD-11s required during the remainder of
1995. The balance of this loan facility was used to increase cash balances which
were drawn down during the first half of 1995 to purchase MD-11 spare parts.
In September 1995, World Airways agreed to purchase a spare engine which was
delivered in March 1996. The engine cost approximately $8.0 million. World
Airways entered into an agreement with the engine's
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manufacturer to finance 80% of the purchase price over a seven-year term. World
Airways made payments of $1.2 million and $0.4 million towards this purchase in
September 1995 and January 1996, respectively.
As discussed above, World Airways signed an agreement for the lease of two
MD-11ER aircraft beginning in the first quarter of 1996 to provide additional
capacity for growth opportunities. As part of the agreement for the MD-11
aircraft, World Airways received spare parts financing from the lessor of $9.0
million of which $3.0 million was made available with the delivery of each
aircraft, and the remaining $3.0 million will be made available in December
1996. As of September 30, 1996, approximately $4.9 million had been received.
In January 1996, World Airways agreed to purchase an additional engine and
received a commitment from the engine manufacturer to finance 85% of its
purchase price over a seven-year term with an interest rate to be fixed at the
time of delivery.
World Airways' fixed assets increased approximately $18.8 million during
1996. The majority of this amount relates to assets which were financed. World
Airways anticipates that its total capital expenditures in 1996, which include
the two spare engines, will approximate $28.0 million. As discussed above,
World Airways will receive approximately $22.6 million in financing, of which
$11.7 million was received during the first nine months of 1996. The remaining
balance will be funded from its operating cash flow and available cash balances.
In March 1996, the Credit Agreement was amended to increase the limit on capital
expenditures by World Airways to no more than $35.0 million and $25.0 million in
1996 and 1997, respectively.
As of September 30, 1996, World Airways held approximately $2.7 million (at
book value) of aircraft spare parts currently available for sale.
US Order
- --------
In November 1995, US Order committed to purchase from Standard
Telecommunication Ltd. 30,000 Telesmart 4000/TM/ smart telephones for a total of
approximately $3.3 million, for delivery during 1996. US Order began selling
these next generation smart telephones to retail stores in the third quarter of
1996. InteliData expects to incur significant capital expenditures in 1997 to
enhance current infrastructure and internal systems to handle increased business
and to integrate the operations of Colonial Data and Braun, Simmons.
InteliData's primary needs for cash in the future are for investments in
product development, working capital, the financing of operating losses,
strategic ventures, potential acquisitions, capital expenditures and the upgrade
of its systems and operations in order to support the Visa InterActive and
integrate the Colonial Data and Braun Simmons operations. In order to meet its
needs for cash over the next twelve months, InteliData will utilize proceeds
from US Order's 1995 initial public offering, cash and short-term investment
balances acquired from the merger with Colonial Data (approximately $23.1
million), credit lines, and, to the extent available, gross margins generated
from the sale of its products and services. Additionally, InteliData will
utilize proceeds from its approximately $2.5 million advertising credit, which
US Order received as partial consideration for certain shares of Series C
convertible preferred stock in 1993, subject to certain restrictions regarding
its usage.
WorldCorp
- ---------
WorldCorp is highly leveraged, and therefore requires substantial funds to
cover debt service. In order to meet its annual interest obligations, WorldCorp
must use its cash and either sell shares of World Airways or InteliData, or
issue additional debt or equity. Under the terms of the Bridge Loan, however,
WorldCorp has pledged all of its shares of World Airways and InteliData as
collateral for the loan, and as of September 30, 1996, $15.0 million of its cash
was restricted under the Bridge Loan. In October 1996, the cash restriction was
reduced to $7.0 million as a result of a $10.0 million repayment of the Bridge
Loan. WorldCorp is currently negotiating with the lender under the Bridge Loan
to significantly reduce the collateral requirements and is negotiating with
other financial institutions to refinance the debt. While management believes
it will be successful in reducing the amount of collateral securing the loan,
either by negotiating the terms of the Bridge Loan or by entering into a new
loan with another financial institution, no assurances can be given that
WorldCorp will be able to renegotiate the current loan or conclude a new loan on
terms more favorable to the Company.
As a holding company, all of WorldCorp's funds are generated through its
subsidiaries, neither of which has paid dividends since 1992. Additionally,
WorldCorp, which owns a majority position in World Airways' and InteliData's
common stock, is subject to the provisions of two indentures expiring in 2000
and 2004 under which
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it is obligated to cause the companies not to pay dividends under certain
circumstances. Of the $53.8 million in cash and cash equivalents at September
30, 1996, approximately $28.6 million is held by World Airways and InteliData
and, therefore, is not available to satisfy WorldCorp's obligations. In
addition, the Company's cash and cash equivalents contained $15.0 million of
restricted cash as of September 30, 1996 resulting from the Bridge Loan. In
October 1996, the cash restriction was reduced to $7.0 million as a result of
the $10.0 million repayment of the Bridge Loan. Subsequent to this payment,
WorldCorp had parent company repayment obligations, including principal and
interest, of approximately $2.5 million and $22.4 million for the remainder of
1996 and 1997, respectively.
Financing Developments
In June 1995, US Order completed an initial public offering pursuant to which
US Order and WorldCorp received $41.6 million and $18.7 million in net proceeds,
respectively. US Order used part of its proceeds to satisfy debt obligations
(including those to WorldCorp). The remaining balance was added to US Order's
cash reserves. WorldCorp used its proceeds to fund its debt service
requirements and increase its cash position.
In October 1995, World Airways completed an initial public offering pursuant
to which World Airways and WorldCorp received approximately $22.8 million and
$10.2 million in net proceeds, respectively. Each company used its proceeds to
increase cash reserves.
Effective June 30, 1996, World Airways amended its Credit Agreement with BNY
Financial Corporation ("BNY") to include the following: a $10.0 million spare
parts loan and an $8.0 million revolving line of credit. This amended Credit
Agreement, which expires in 1999, is collateralized by certain receivables,
inventory, and equipment. As of September 30, 1996, the outstanding balance of
the spare parts loan and revolving line of credit was $9.4 million and $4.2
million, respectively, with $1.2 million capacity available on the revolving
line of credit.
Under the terms of the amended Credit Agreement, World Airways is not
permitted to (i) incur indebtedness in excess of $25.0 million (excluding
capital leases), (ii) declare, pay, or make any dividend or distribution in any
six month period which aggregate in excess of the lesser of $4.5 million or 50%
of net income for the previous six months, (iii) declare or pay dividends if
after giving effect to such dividends World Airways' cash or cash equivalents
would be less than $7.5 million or (iv) make capital expenditures in 1996 and
1997 of more than $35.0 million and $25.0 million, respectively, or in any
subsequent year of more than $15.0 million. World Airways must also maintain a
certain quarterly net worth and net income (loss) requirements. As of September
30, 1996, World Airways was in compliance with these amended covenants. No
assurances can be given, however, that World Airways will continue to meet these
covenants or, if necessary, obtain the required waivers. In addition, World
Airways granted 50,000 warrants to BNY in October 1996.
In September 1995 World Airways entered into an agreement with a lessor to
purchase a spare engine, previously under lease, for $5.5 million. World Airways
paid $0.5 million upon closing and signed a note for the $5.0 million balance.
The note bears interest at a rate of 7.25% and is payable over a 40-month period
at $69,000 a month, with the balance of $3.3 million due on January 29, 1999. In
addition, World Airways purchased an additional spare engine which was delivered
in March 1996. The engine cost approximately $8.0 million. World Airways entered
into an agreement with the engine's manufacturer to finance 80% of the purchase
price over a seven-year term. World Airways made payments of $1.2 million and
$0.4 million towards this purchase in September 1995 and January 1996,
respectively. In January 1996, World Airways agreed to purchase an additional
engine and received a commitment from the engine manufacturer to finance 85% if
its purchase price over a seven-year term with an interest rate to be fixed at
the time of delivery.
In May 1996, US Order entered into two credit agreements with the same bank
that provide for borrowings up to $5.0 million. As of September 30, 1996, US
Order had no borrowings against either of these two credit lines, but had
committed $3.3 million of these credit lines through the issuance of a letter of
credit to STL for the purchase of its next generation smart telephone.
On August 29, 1996, the Company entered into a bridge loan (the "Bridge
Loan") with a financial institution pursuant to which the Company borrowed $25.0
million and subsequently retired its existing 13 7/8% Subordinated Notes of the
same amount. The Bridge Loan is due September 29, 1997 and earns interest of
LIBOR plus 2.5%, payable monthly. Under the terms of the Bridge Loan, WorldCorp
has pledged all of its shares of World Airways and InteliData as collateral for
the loan, and as of September 30, 1996, $15.0 million of its cash was
restricted. The
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Company also entered into a purchase agreement (the "Purchase Agreement") on
September 30, 1996 which contained a series of promissory notes totaling $10.0
million which was used to retire a portion of the Bridge Loan in October 1996.
The notes are payable in three installments through September 2000 and earn
interest of 10%, payable semi-annually. In connection with the Purchase
Agreement, the Company granted 120,000 warrants to the lenders which were valued
at approximately $0.4 million. The Company may also be required to issue up to
an additional 80,000 warrants contingent upon certain market conditions. As a
result of the $10.0 million retirement of the Bridge Loan, the cash restriction
was reduced to $7.0 million.
RECENT TRENDS AND DEVELOPMENTS
Discontinuation of Scheduled Service Operations. In May 1996, World Airways
-----------------------------------------------
commenced scheduled charter operations between the United States and Germany,
Switzerland, Ireland, and the United Kingdom. For its scheduled service
operations, World Airways commenced service between Tel Aviv and New York in
July 1995 and commenced service between the U.S. and South Africa in June 1996.
However, World Airways was unable to operate these markets profitably.
Based on disappointing results from these operations and a decision to
refocus its strategic direction on its core business, World Airways announced in
July 1996 its decision to exit its scheduled service operations by October 1996.
Consistent with this decision, World Airways ceased all scheduled operations as
of October 27, 1996. This decision resulted in a loss of approximately $28.5
million (net of income tax effect) which was recognized in the second quarter of
1996. This amount included an operating loss of approximately $7.5 million
relating to second quarter operations and a $21.0 million charge (net of income
tax effect) which includes the following: estimated operating losses during the
phase-out period; lease costs on unutilized aircraft; passenger reprotection
expenses; and the writeoff of certain leasehold improvements. World Airways
incurred approximately $13.2 million of the costs during the quarter ended
September 30, 1996 believes that its remaining accrual for estimated losses on
disposal will be adequate to meet the remaining costs to be incurred during the
phase-out period. As of November 8, 1996, World Airways believes that it has
met substantially all of its cash obligations of the phase-out period. As a
result of this decision, World Airways will reduce its fixed overhead costs,
primarily through the elimination of costs related to discontinued operations.
In connection with the discontinuance of its scheduled service operations,
World Airways may be subject to claims by third parties. Although no claims
have been filed against World Airways, there can be no assurance that such
claims will not be filed in the future.
As indicated above, World Airways has shifted its strategic direction and
will focus its energies on its core business: operating aircraft under
contracts with international carriers, the U.S. government, and international
tour operators. From these continuing operations, the Company reported $13.7
million in earnings for the nine months ended September 30, 1996. While World
Airways maintains a contract backlog of $462.0 million as of that date and
expects that its core business will remain profitable, no assurances can be
given that it will be able to maintain profitability within its continuing
operations.
Maintenance. World Airways outsources major airframe maintenance and power
-----------
plant work to several suppliers. World Airways has a 10-year contract ending in
August 2003 with United Technologies Corporation's Pratt & Whitney Group ("Pratt
and Whitney") for all off-wing maintenance on the PW 4462 engines that power its
MD-11 aircraft. Under this contract, the manufacturer agreed to provide such
maintenance services at a cost not to exceed a specified rate per hour during
the term of the contract. The specified rate per hour is subject to annual
escalation, and increases substantially in 1998. Accordingly, while World
Airways believes the terms of this agreement will result in lower engine
maintenance costs than it otherwise would incur during the first five years of
the agreement, these costs will increase substantially during the last seven
years of the agreement.
World Airways' maintenance costs associated with the MD-11 aircraft and PW
4462 engines have been significantly reduced due in part to manufacturer
guarantees and warranties, which guarantees and warranties began to expire in
1995 and will fully expire by 1998. Therefore, World Airways expects that
maintenance expense will increase as these guarantees and warranties expire.
US Order. On November 7, 1996, US Order and Colonial Data merged with and
--------
into InteliData. The merger was accounted for under the purchase method of
accounting, with US Order being deemed the acquirer. Pursuant
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to this transaction, InteliData became the successor corporation to US Order.
Under the terms of the merger, each outstanding share of the common stock of US
Order and Colonial Data, $.001 par value and $.01 par value, respectively, was
converted into one share of InteliData common stock, $.001 par value.
Immediately following the merger, former holders of US Order common stock held
approximately 52% of the outstanding shares of InteliData, with former holders
of Colonial Data common stock collectively holding the remaining 48% of
InteliData's outstanding shares of common stock. The purchase price of Colonial
Data approximated $189.0 million, was allocated as follows: (1) approximately
$87.0 million to tangible and intangible assets net of liabilities assumed, (2)
approximately $30.0 million to the cost in excess of net assets acquired
("goodwill") and (3) approximately $72.0 million to in-process research and
development with no alternative future use, which will be expensed by InteliData
in the fourth quarter of 1996. The goodwill will be amortized over a fifteen
year period on a straight-line basis.
Stock Repurchase Plans. The managements of WorldCorp and World Airways are
----------------------
currently exploring ways to maximize value for the shareholders of each company.
In addition to employee initiatives, WorldCorp is evaluating the feasibility of
a disposition of its interest in World Airways to a third party. There can be
no assurances, however, that any such transactions will ultimately be
consummated.
In addition, WorldCorp and World Airways recently announced their intention
to purchase up to 2.5 million and one million shares, respectively, of their
publicly-traded Common Stock pursuant to open market transactions. As of
November 8, 1996, WorldCorp and World Airway had purchased shares of their
Common Stock for an aggregate cost of $5.6 million and $7.2 million,
respectively. There can be no assurances, however, that either company will
purchase any additional shares.
OTHER MATTERS
Legal and Administrative Proceedings
The Company and World Airways (the "World Defendants") are defendants in
litigation brought by the Committee of Unsecured Creditors of Washington
Bancorporation (the "Committee") in August 1992, captioned Washington
Bancorporation v. Boster, et. al., Adv. Proc. 92-0133 (Bankr. D.D.C.) (the
"Boster Litigation"). The complaint asserts that the World Defendants received
preferential transfers or fraudulent conveyances from Washington Bancorporation
when the World Defendants received payment at maturity on May 4, 1990 of
Washington Bancorporation commercial paper purchased on May 3, 1990. Washington
Bancorporation filed for relief under the Federal Bankruptcy Code on August 1,
1990. The Committee seeks recovery of approximately $4.8 million from World
Airways and approximately $2.0 million from WorldCorp, which are alleged to be
the amounts paid to each of World Airways and WorldCorp by Washington
Bancorporation. On the motion of the World Defendants, among others, the Boster
Litigation was removed from the Bankruptcy Court to the District Court for the
District of Columbia on May 10, 1993. The World Defendants filed a motion to
dismiss the Boster Litigation as it pertains to them on June 9, 1993, and intend
to vigorously contest liability. On September 20, 1995, the District Court for
the District of Columbia granted the motion to dismiss filed by the World
Defendants with respect to three of the four counts alleged in the litigation,
but declined to grant a motion to dismiss the remaining claim regarding
fraudulent transfers. The District Court's ruling is subject to appeal in
certain cases. The World Defendants filed a summary motion with respect to the
remaining claim on October 19, 1995, which remains pending. In any event, the
Company believes it has substantial defenses to this action, although no
assurance can be given of the eventual outcome of this litigation. Depending
upon the timing of the resolution of this claim, if the Committee were
successful in recovering the full amount claimed, the resolution could have a
material adverse effect on the Company's financial condition and results of
operations.
On November 6, 1996, the plaintiff in the Boster Litigation filed a "Motion
for Stay of Litigation Pending Settlement Becoming Effective" (the "Stay
Motion"). The Stay Motion recites that a settlement agreement has been reached
involving the plaintiff, the Federal Deposit Insurance Corporation, and an
individual resolving other litigation involving Washington Bancorp (the "FDIC
Settlement"). If the FDIC Settlement becomes final, the plaintiff has agreed to
dismiss with prejudice the Boster Litigation against all defendants, including
the World Defendants, with each party to bear its own costs. In that event, the
World Defendants would not have any further liability in the Boster Litigation.
The final resolution of the FDIC Settlement depends upon certain contingencies,
including a request for certain treatment from the Internal Revenue Service.
The FDIC Settlement provides that if all of the conditions to that settlement
are not satisfied by June 30, 1997, either party may elect to terminate that
settlement. The Stay Motion requests an indefinite stay of the Boster Litigation
pending the resolution of the FDIC
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Settlement.
In addition, the Company is party to routine litigation and administrative
proceedings incidental to its business, none of which is believed by the Company
to be likely to have a material adverse effect on the financial condition of the
Company. In connection with the discontinuance of its scheduled service
operations, World Airways may be subject to claims by third parties. Although
no claims have been filed against World Airways, there can be no assurance that
such claims will not be filed in the future.
Employees
World Airways cockpit crew members, who are represented by the International
Brotherhood of Teamsters (the "Teamsters"), are subject to a four-year
collective bargaining agreement that will become amendable in July 1998.
World Airways' flight attendants are also represented by the Teamsters under
a collective bargaining agreement that became amendable in 1992. The parties
exchanged their opening contract proposals in 1992. In June 1996, World Airways
signed a new four year labor agreement with the Teamsters which provides for
retroactive pay increases for the flight attendants and work rule flexibility
and lengthened duty time rules for World Airways. The agreement is was ratified
by the flight attendants in August 1996. World Airways' flight attendants
continue to challenge the use of foreign flight attendant crews on World
Airways' flights for Malaysian Airlines and Garuda Indonesia which has
historically been World Airways' operating procedure. World Airways is
contractually obligated to permit its Southeast Asian customers to deploy their
own flight attendants. While World Airways intends to contest this matter
vigorously in an upcoming arbitration, an unfavorable ruling for World Airways
could have a material adverse effect on World Airways.
World Airways' aircraft dispatchers are represented by the Transport Workers
Union (the "TWU"). This contract became amendable on June 30, 1993. In May 1995,
the parties reached agreement with respect to a new four-year contract. This
contract was ratified on February 7, 1996. Fewer than 12 Company employees are
covered by this collective bargaining agreement.
World Airways' is unable to predict whether any of its employees not
currently represented by a labor union, such as its maintenance personnel, will
elect to be represented by a labor union or collective bargaining unit. The
election by such employees of representation in such an organization could
result in employee compensation and working condition demands that could have a
material adverse effect on the financial results of the Company.
Dividend Policy
WorldCorp has never paid any cash dividends and does not plan to do so in the
foreseeable future. WorldCorp, which owns a majority position in World Airways'
and InteliData's common stock, is subject to the provisions of two indentures
expiring in 2000 and 2004 under which it is obligated to cause the companies not
to pay dividends under certain circumstances. Under the indenture terminating
in 2004, WorldCorp has agreed to cause the companies not to pay dividends if at
the time WorldCorp is in default under such indenture.
Additionally, the $20 million credit facility contains restrictions on World
Airways' ability to pay dividends. Under this agreement, World Airways cannot
declare, pay, or make any dividend or distribution in any six-month period which
aggregate in excess of the lesser of $4.5 million or 50% of net income for the
previous six months. In addition, World Airways must have a cash balance of at
least $7.5 million immediately after giving effect to such dividend or
distribution.
All of the funds from operations are generated by the Company's subsidiaries.
The ability of the Company and its subsidiaries to pay principal and interest on
their respective short and long-term obligations is substantially dependent upon
funds generated by the operations of the subsidiaries, the payment to the
Company of dividends, and its ability to sell additional shares of its
subsidiaries' stock.
ESSOP
The Board of Directors of World Airways adopted an Employee Savings and Stock
Ownership Plan (the
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"Plan") effective October 1, 1996. The Plan is intended to allow participating
employees to share in the growth and prosperity of World Airways, to encourage
participants to save on a tax-favored basis, and to provide participants an
opportunity to accumulate capital for their future economic security.
The Plan is an amendment and continuation of the WorldCorp Employee Savings
and Stock Ownership Plan (the "WorldCorp KSOP"). As a result of various
business developments, the vast majority of the participants in the WorldCorp
KSOP were World Airways employees. For that reason, WorldCorp and World Airways
agreed that World Airways should assume WorldCorp's obligation under the
WorldCorp KSOP. In connection with that action, the Trustees exchanged the
unallocated shares of WorldCorp common stock held by the WorldCorp KSOP for a
like-value of shares in World Airways common stock. World Airways also made a
special contribution of $50,000 to the Plan.
The Plan will continue to hold the shares of WorldCorp common stock that were
allocated the participants' accounts before October 1, 1996. No additional
shares of WorldCorp common stock will be allocated under the Plan on or after
that date. Instead, participants will have the opportunity to receive future
allocations of World Airways common stock.
Income Taxes
At December 31 1995, WorldCorp had approximately $43.4 million in net
operating loss carryforwards ("NOLs") that are available to offset future
federal taxable income.
There can be no assurance that the Company will generate taxable income in
future years so as to allow the Company to realize a tax benefit from its NOLs.
The NOLs are subject to examination by the IRS and, thus, are subject to
adjustment or disallowance resulting from any such IRS examination. In
addition, ownership changes of the Company, pursuant to the Internal Revenue
Code, may occur in the future and may result in the imposition of an annual
limitation on the Company's NOLs existing at the time of any such ownership
change.
In addition, World Airways, which does not file a consolidated income tax
return with the Company, had a valuation allowance for deferred tax assets as of
December 31, 1995 of $39.5 million. World Airways' estimate of the required
valuation allowance is based on a number of factors, including historical
operating results. While World Airways expects to generate net earnings from
continuing operations in 1996, it will continue to assess the appropriateness of
the valuation allowance based on future operations. A portion of World
Airways' NOLs are subject to an annual limitation as a result of a previous
ownership change, for tax purposes, which occurred in 1991.
Inflation
The Company believes that inflation has not had a material effect on the
Company's revenues during the past three years.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
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<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<S> <C> <C>
3.1 Certificate of Incorporation of WorldCorp, Inc. dated March 16, 1987. Incorporated
[Filed as Exhibit 3.1 to WorldCorp, Inc.'s Registration Statement on by reference
Form S-4 (Commission File No. 33012735) filed on March 19, 1987 and
incorporated herein by reference.]
3.2 Amended and Restated Bylaws of WorldCorp, Inc. dated November 13, Incorporated
1987. (Filed as Exhibit 3.1 to WorldCorp, Inc.'s Annual Report on by reference
Form 10-K for the fiscal year ended December 31, 1987 and
incorporated herein by reference.)
4.1 Indenture dated as of August 1, 1987 between WorldCorp, Inc. and Incorporated
Norwest Bank of Minneapolis, N.A. (Filed as Exhibit 4.1 to Amendment by reference
No. 2 to WorldCorp, Inc.'s Form S-2 Registration Statement (Commission
File No. 33-1358276) filed August 13, 1987 and incorporated herein
by reference.]
4.2 First Supplemental Indenture dated as of March 1, 1988 between Incorporated
WorldCorp, Inc. and Norwest Bank of Minneapolis, N.A. (Filed as by reference
Exhibit 4.2 to WorldCorp, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1988 and incorporated herein by
reference.)
4.3 Second Supplemental Indenture dated as of February 22, 1994 between Incorporated
WorldCorp, Inc. and Norwest Bank Minnesota, National Association. by reference
(Filed as Exhibit 4.3 to WorldCorp, Inc's Form S-3 Registration Statement
(Commission file No. 33-60247) filed on June 15, 1995 and incorporated
herein by reference.)
4.4 Third Supplemental Indenture dated as of March 15, 1995 between Incorporated
WorldCorp, Inc. and Norwest Bank Minnesota, National Association. by reference
(Filed as Exhibit 4.4 to WorldCorp, Inc's Form S-3 Registration Statement
(Commission file No. 33-60247) filed on June 15, 1995 and incorporated
herein by reference.)
4.6 First Supplemental Indenture dated as of February 22, 1994 between Incorporated
WorldCorp, Inc. and The First National Bank of Boston, as Trustee. by reference
(Filed as Exhibit 4.6 to WorldCorp, Inc's Form S-3 Registration Statement
(Commission file No. 33-60247) filed on June 15, 1995 and incorporated
herein by reference.)
4.8 Stock Option Agreement dated as of April 1, 1995 between WorldCorp, Incorporated
Inc. and Patrick F. Graham. (Filed as Exhibit 4.8 to WorldCorp Inc's by reference
Form S-3 Registration Statement (Commission file No. 33-60247)
filed on June 15, 1995 and incorporated herein by reference.)
10.1 Warrant Agreement between WorldCorp, Inc. and Drexel Burnham Incorporated
Lambert, Incorporated ("Drexel") dated as of June 30, 1988. (Filed by reference
as Exhibit 10.1 to WorldCorp, Inc.'s Form 10-Q for the quarter ended
March 31, 1989 and incorporated herein by reference.)
</TABLE>
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<TABLE>
<S> <C> <C>
10.4 Aircraft Lease Agreement dated as of March 30, 1987 between World Incorporated
Airways, Inc. and The Connecticut National Bank, not in its by reference
individual capacity, but solely as Owner Trustee. (Filed as Exhibit 10.34
to World Airways, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1986 and incorporated herein by reference.)
10.5 Merger Agreement and Plan of Reorganization dated as of April 28, Incorporated
1987 by and among World Airways, Inc., World Merger Corporation by reference
and WorldCorp, Inc. [Filed as Exhibit 10.50 to WorldCorp, Inc.'s
Form S-2 Registration Statement (Commission File No. 33-1358276)
filed on July 31, 1987 and incorporated herein by reference.]
10.6 Assumption Agreement dated as of June 23, 1987 among WorldCorp, Incorporated
Inc., World Airways, Inc. and T. Coleman Andrews, III. [Filed as by reference
Exhibit 10.51 to WorldCorp, Inc.'s Form S-2 Registration Statement
(Commission File No. 33-1358276) filed on July 31, 1987 and
incorporated herein by reference.]
10.7 Assumption Agreement dated as of June 23, 1987 among WorldCorp, Incorporated
Inc., World Airways, Inc. and D. Fraser Bullock. [Filed as Exhibit by reference
10.52 to WorldCorp, Inc.'s Form S-2 Registration Statement
(Commission File No. 33-1358276) filed on July 31, 1987 and
incorporated herein by reference.]
10.8 Guaranty and Amendment Agreement dated as of June 23, 1987 Incorporated
between WorldCorp, Inc. and The Connecticut National Bank, a by reference
national banking association, as Owner Trustee, with Burnham
Leasing Corporation, as Owner Participant. [Filed as Exhibit
10.55 to WorldCorp, Inc.'s Form S-2 Registration Statement
(Commission File No. 33-1358276) filed July 31, 1987 and
incorporated herein by reference.]
10.9 Form of Assumption Agreement dated as of June 23, 1987 among Incorporated
WorldCorp, Inc., World Airways, Inc. and each Indemnified Party. by reference
[Filed as Exhibit 10.60 to WorldCorp, Inc.'s Form S-2 Registration
Statement (Commission File No. 33-1358276) filed on July 31, 1987
and incorporated herein by reference.]
10.11 Agreement between World Airways, Inc. and Flight Attendants Incorporated
represented by International Brotherhood of Teamsters. [Filed by reference
reference as Exhibit 10.67 to WorldCorp, Inc.'s Form S-3 Registration
Statement (Commission File No. 2-91998) filed on December 10, 1987
and incorporated herein by reference.]
10.12 Agreement between World Airways, Inc. and Mechanics represented by Incorporated
the International Brotherhood of Teamsters. (Filed as Exhibit 10.41 by reference
to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1988 and incorporated herein by reference.)
10.13 Agreement between World Airways, Inc. and Stock Clerks and Store Incorporated
Room Employees represented by the International Brotherhood of by reference
Teamsters. (Filed as Exhibit 10.42 to WorldCorp, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 1988
and incorporated herein by reference.)
</TABLE>
36
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<TABLE>
<S> <C> <C>
10.14 Office Lease - The Hallmark Building dated as of May 16, 1987 Incorporated
between WorldCorp, Inc. and GT Renaissance Centre Limited by reference
Partnership. (Filed as Exhibit 10.36 to WorldCorp, Inc.'s
Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 and incorporated herein by reference.)
10.15 Lease Amendment dated as of June 27, 1989 between WorldCorp, Inc. Incorporated
and GT Renaissance Centre Limited Partnership. (Filed as Exhibit by reference
10.37 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1989 and incorporated herein by reference.)
10.16 Office Lease - The Hallmark Building dated as of September 20, 1989 Incorporated
between World Airways, Inc. and GT Renaissance Centre Limited by reference
Partnership. (Filed as Exhibit 10.38 to WorldCorp, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 1989
and incorporated herein by reference.)
10.17 Warrant Agreement dated as of July 22, 1989 between WorldCorp, Incorporated
Inc. and Charles W. Pollard. (Filed as Exhibit 10.45 to WorldCorp, by reference
Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 and incorporated herein by reference.)
10.20 WorldCorp, Inc. Employee Savings and Stock Ownership Plan. (Filed as Incorporated
Exhibit 10.49 to WorldCorp, Inc.'s Annual Report on Form 10-K by reference
for the fiscal year ended December 31, 1989 and incorporated
herein by reference.)
10.21 Amendment No. 1 to WorldCorp Inc. Employee Savings and Stock Incorporated
Ownership Plan. (Filed as Exhibit 10.50 to WorldCorp, Inc.'s by reference
Annual Report on Form 10-K for the fiscal year ended December 31,
1989 and incorporated herein by reference.)
10.27 Aircraft Warranty Bill of Sale dated as of January 15, 1991 between Incorporated
World Airways, Inc. and First Security Bank of Utah, N.A., not in its by reference
individual capacity, but solely as Owner Trustee. (Filed as Exhibit
10.46 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 and incorporated herein by reference.)
10.28 Aircraft Lease Agreement dated as of January 15, 1991 between World Incorporated
Airways, Inc. and First Security Bank of Utah, N.A., not in its by reference
individual capacity, but solely as Owner Trustee. (Filed as Exhibit
10.47 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 and incorporated herein by reference.)
10.29 Loan and Security Agreement dated as of February 26, 1992 between Incorporated
WorldCorp, Inc. and US Order Incorporated. (Filed as Exhibit 10.38 by reference
to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 and incorporated herein by reference.)
10.30 Aircraft Lease Agreement I dated as of February 12, 1992 between Incorporated
McDonnell Douglas Finance Corporation and World Airways, Inc. by reference
(Filed as Exhibit 10.39 to WorldCorp, Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference.)
</TABLE>
37
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10.31 Aircraft Lease Agreement II dated as of February 12, 1992 between Incorporated
McDonnell Douglas Finance Corporation and World Airways, Inc. by reference
(Filed as Exhibit 10.40 to WorldCorp, Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference.)
10.32 Aircraft Engine Purchase Agreement dated as of April 26, 1991 Incorporated
between Terandon Leasing Corporation and World Airways, Inc. (Filed as by reference
Exhibit 10.41 to WorldCorp, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 and incorporated herein by
reference.)
10.33 Aircraft Engine Lease Agreement dated as of April 26, 1991 between Incorporated
Terandon Leasing Corporation and World Airways, Inc. (Filed as by reference
Exhibit 10.42 to WorldCorp, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 and incorporated herein by
reference.)
10.34 Guaranty Agreement I dated as of February 12, 1992 between McDonnell Incorporated
Douglas Finance Corporation and World Airways, Inc. (Filed as Exhibit by reference
10.43 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1991 and incorporated herein by reference.)
10.35 Guaranty Agreement II dated as of February 12, 1992 between McDonnell Incorporated
Douglas Finance Corporation and World Airways, Inc. (Filed as Exhibit by reference
10.44 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1991 and incorporated herein by reference.)
10.36 Series A Preferred Stock Purchase Agreement dated as of September 14, Incorporated
1990 between US Order, Inc. and WorldCorp, Inc. (Filed as Exhibit 10.45 by reference
to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 and incorporated herein by reference.)
10.37 Stock Restriction Agreement dated as of September 14, 1990 between Incorporated
WorldCorp, Inc., William F. Gorog, Jonathan M. Gorog, Peter M. Gorog, by reference
Henry R. Nichols, William N. Melton and John Porter. (Filed as Exhibit
10.46 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1991 and incorporated herein by reference.)
10.38 Aircraft Lease Agreement for Aircraft Serial Number 48518 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.39 Aircraft Lease Agreement for Aircraft Serial Number 48519 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.40 Aircraft Lease Agreement for Aircraft Serial Number 48520 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.41 Aircraft Lease Agreement for Aircraft Serial Number 48633 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
</TABLE>
38
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10.42 Aircraft Lease Agreement for Aircraft Serial Number 48631 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.43 Aircraft Lease Agreement for Aircraft Serial Number 48632 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.45 MD-11 Aircraft Charter Agreement dated as of March 18, 1993 Incorporated
between World Airways, Inc. and PT. Garuda Indonesia. by reference
10.45 DC10-30 Aircraft Charter Agreement dated as of March 18, 1993 Incorporated
between World Airways, Inc. and PT. Garuda Indonesia. by reference
10.46 Accounts Receivable Management and Security Agreement dated as Incorporated
of December 7, 1993 between World Airways, Inc. and BNY by reference
Financial Corporation.
10.47 Aircraft Parts Security Agreement dated as of December 7, 1993 Incorporated
between World Airways, Inc. and BNY Financial Corporation. by reference
10.48 Warrant Certificate dated as of December 7, 1993 between WorldCorp, Incorporated
Inc. and BNY Financial Corporation. by reference
10.50 Subscription and Preferred Stock Purchase Agreement dated as of Incorporated
December 20, 1993 between US Order, Inc. and Knight-Ridder, Inc. by reference
10.51 Subscription and Preferred Stock Purchase Agreement dated as of Incorporated
December 21, 1993 between US Order, Inc. and WorldCorp, Inc. by reference
10.52 Subscription and Preferred Stock Purchase Agreement dated as of Incorporated
December 20, 1993 between US Order, Inc. and Jerome Kohlberg, Jr. by reference
10.53 Subscription and Preferred Stock Purchase Agreement dated as of Incorporated
December 21, 1993 between US Order, Inc. and Hoechst Celanese by reference
Corporation Employee Benefit Master Trust
10.54 Series C Preferred Stock Purchase Agreement dated as of December Incorporated
21, 1993 between US Order, Inc. and VeriFone, Inc. by reference
10.55 Registration Rights Agreement dated as of December 21, 1993 Incorporated
between US Order, Inc. and VeriFone, Inc. by reference
10.57 Investment Agreement dated as of December 21, 1993 by and among Incorporated
US Order, Inc., WorldCorp, Inc., and VeriFone, Inc. by reference
10.58 Settlement Agreement dated as of February 8, 1994 between World Incorporated
Airways, Inc, WorldCorp, Inc., Concord Asset Management, Inc., by reference
Concord Leasing, Inc., and The CIT Group.
10.59 Lease Agreement dated as of June 1, 1993 between World Airways, Incorporated
Inc. and Mattei Corporation. by reference
10.60 Lease Agreement dated as of March 30, 1993 between World Airways, Incorporated
Inc. and Tinicum Properties Associates Limited Partnership, as by reference
amended by First Amendment to Lease dated July 9, 1993.
</TABLE>
39
<PAGE>
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10.61 Lease Agreement dated as of January 25, 1993 between World Flight Incorporated
Crew Services, Inc. and Sakioka Farms. by reference
10.62 Consignment Agreement dated as of September 30, 1993 between World Incorporated
Airways Inc. and The Memphis Group. by reference
10.63 Assignment and Assumption and Consent and Release for Aircraft Incorporated
Serial Number 47818 dated as of July 20, 1993 among World by reference
Airways, Inc., WorldCorp, Inc., McDonnell Douglas Corporation, and
McDonnell Douglas Finance Corporation.
10.64 Assignment and Assumption and Consent and Release for Aircraft Incorporated
Serial Number 46999 dated as of July 9, 1993 among World by reference
Airways, Inc., WorldCorp, Inc., McDonnell Douglas Corporation, and
McDonnell Douglas Finance Corporation.
10.65 Aircraft Lease Agreement for Aircraft Serial Number 48458 dated as Incorporated
of January 15, 1993 between World Airways, Inc. and Wilmington by reference
Trust Company/GATX Capital Corporation.
10.66 Aircraft Lease Supplement for Aircraft Serial Number 48458 dated as Incorporated
of April 23, 1993 between World Airways, Inc. and Wilmington Trust by reference
Company/GATX Capital Corporation.
10.67 Aircraft Spare Parts Lease Agreement dated as of April 15, 1993 Incorporated
between World Airways, Inc. and GATX Capital Corporation. by reference
10.68 Amendment No. 1 To Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48518 dated as of November 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
10.69 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48518 dated as of March 8, 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
10.70 Assignment of Rights for Aircraft Serial Number 48518 dated as of Incorporated
March 8, 1993 between World Airways, Inc. and International Lease by reference
Finance Corporation.
10.71 Assignment of Rights for Aircraft Engines Serial Numbers P723942, Incorporated
P723945, and P723943 dated as of March 1, 1993 between World by reference
Airways, Inc. and International Lease Finance Corporation.
10.72 Agency Agreement for Aircraft Serial Number 48518 dated as of Incorporated
January 15, 1993 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.73 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48437 dated as of March 31, 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
10.74 Amendment No. 3 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48437 dated as of April 15, 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
</TABLE>
40
<PAGE>
<TABLE>
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10.75 Agency Agreement for Aircraft Serial Number 48437 dated as of Incorporated
January 15, 1993 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.76 Assignment of Rights for Aircraft Serial Number 48437 dated as of Incorporated
April 15, 1993 between World Airways, Inc. and International Lease by reference
Finance Corporation.
10.77 Assignment of Rights for Aircraft Engines Serial Numbers P723913, Incorporated
P723912, and P723914 dated as of April 15, 1993 between World by reference
Airways, Inc. and International Lease Finance Corporation.
10.78 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48520 dated as of April 22, 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
10.79 Agency Agreement for Aircraft Serial Number 48520 dated as of Incorporated
January 15, 1993 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.80 Assignment of Rights for Aircraft Serial Number 48520 dated as of Incorporated
April 22, 1993 between World Airways, Inc. and International Lease by reference
Finance Corporation.
10.81 Assignment of Rights for Aircraft Engines Serial Numbers P723957, Incorporated
P723958, and P723956 dated as of March 1, 1993 between World by reference
Airways, Inc. and International Lease Finance Corporation.
10.82 Aircraft Charter Agreement dated as of July 24, 1993 between World Incorporated
Airways, Inc. and Malaysian Airline System Berhad. by reference
10.83 Amendment No. 1 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Numbers 46835, 46837, and 46820 dated as of May 14, 1993 between by reference
World Airways, Inc. and The Connecticut National Bank (assigned to
Federal Express Corporation).
10.84 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Numbers 46835, 46837, and 47820 dated as of May 14, 1993 between by reference
World Airways, Inc. and The Connecticut National Bank (assigned to
Federal Express Corporation).
10.85 Return Agreement for Aircraft Serial Numbers 47818 and 46999 dated Incorporated
as of July 9, 1993 among World Airways, Inc., WorldCorp, Inc., by reference
International Lease Finance Corporation, McDonnell Douglas
Corporation, and McDonnell Douglas Finance Corporation.
10.86/1/ Acquisition Agreement Among VISA International Service Association, Incorporated
US Order, Inc, and WorldCorp, Inc, dated as of July 15, 1994. by reference
10.87 Stock Purchase Agreement by and among World Airways, Inc., Incorporated
WorldCorp, Inc., and Malaysian Helicopter Services Berhad dated as by reference
of October 30, 1993.
10.88 Stock Registration Rights Agreement between World Airways, Inc. Incorporated
and Malaysian Helicopter Services Berhad dated as of October 30, by reference
1993.
</TABLE>
41
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<TABLE>
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10.89 Shareholders Agreement between Malaysian Helicopter Services Incorporated
Berhad and WorldCorp, Inc., and World Airways, Inc. dated as of by reference
February 3, 1994.
10.90 Amendment No. 1 to Shareholders Agreement dated as of February 28, Incorporated
1994, among WorldCorp, World Airways, and MHS. by reference
10.91 Right of First Refusal Agreement dated as of February 28, 1994, Incorporated
between US Order, Inc. ("US Order") and Technology Resources, Inc. by reference
Berhad ("TRI")
10.92 Amendment No. 1 dated as of August 29, 1991 to the US Order, Inc. Incorporated
Stock Restriction Agreement dated as of September 14, 1990 among by reference
WorldCorp, Inc., a Delaware corporation ("WorldCorp"), William F.
Gorog, Jonathan M. Gorog, Peter M. Gorog, Henry R. Nichols,
William N. Melton and John Porter (collectively, the "Founders" and
each a "Founder"), and the Employees.
10.93 Amendment No. 2 dated as of March 31, 1993 to the US Order, Inc. Incorporated
Stock Restriction Agreement dated as of September 14, 1990 among by reference
WorldCorp, Inc., a Delaware corporation ("WorldCorp"), William F.
Gorog, Jonathan M. Gorog, Peter M. Gorog, Henry R. Nichols,
William N. Melton and John Porter (collectively, the "Founders" and
each a "Founder"), and the Employees.
10.94 Stock Option Agreement dated as of August 1, 1994 ("Grant Date") Incorporated
between WorldCorp, Inc. and William F. Gorog. by reference
10.95 Employment Agreement dated as of August 1, 1994 between US Incorporated
Order, Inc. and John C. Backus, Jr. by reference
10.96 Employment Agreement dated as of August 19, 1994 between Incorporated
WorldCorp, Inc. and T. Coleman Andrews, III. by reference
10.97 Stock Option Agreement dated as of August 19, 1994 ("Grant Date") Incorporated
by and between WorldCorp, Inc. and T. Coleman Andrews, III. by reference
10.98 Agreement between World Airways, Inc. and the International Incorporated
Brotherhood of Teamsters representing the Cockpit Crewmembers by reference
employed by World Airways, Inc. dated August 15, 1994-June 30, 1998.
10.99 Letter Employment Agreement of William F. Gorog dated August Incorporated
25, 1994. by reference
10.100 Amendment No. 3 dated as of September 1, 1994 to the US Order, Inc. Incorporated
Stock Restriction Agreement dated as of September 14, 1990 among by reference
WorldCorp, Inc., a Delaware corporation ("WorldCorp"), William F.
Gorog, Jonathan M. Gorog, Peter M. Gorog, Henry R. Nichols, William
N. Melton and John Porter (collectively, the "Founders" and each a
"Founder"), and the Employees.
10.101 Aircraft Services Agreement dated September 26, 1994 by and between Incorporated
World Airways, Inc. ("World") and Malaysian Airlines. by reference
10.102 Freighter Services Agreement dated October 1, 1994 by and between Incorporated
World Airways, Inc. and Malaysian Airline System Berhad. by reference
</TABLE>
42
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<TABLE>
<S> <C> <C>
10.103 World Airways, Inc. 1995 AMC Contract F11626-94-D0027 dated Incorporated
October 1, 1994 between World Airways, Inc. and Air Mobility Command. by reference
10.104 Amendment No. 4 dated as of December 1, 1994 to the US Order, Inc. Incorporated
Stock Restriction Agreement dated as of September 14, 1990 among by reference
WorldCorp, Inc., a Delaware corporation ("WorldCorp"), William F.
Gorog, Jonathan M. Gorog, Peter M. Gorog, Henry R. Nichols, William
N. Melton and John Porter (collectively, the "Founders" and each a
"Founder"), and the Employees.
10.105 Stock Purchase Agreement (the "Agreement") dated as of December Incorporated
31, 1994 by and between MHS Berhad, a Malaysian corporation (the by reference
"Shareholder") and WorldCorp, Inc., a Delaware corporation (the
"Purchaser").
10.106 Promissory Note dated December 31, 1994 for $8,500,000 between Incorporated
WorldCorp, Inc., a Delaware corporation ("Borrower") and Malaysian by reference
Helicopter Services Berhad, a Malaysian corporation ("Lender").
10.107 Amendment No. 1 to Passenger Aircraft Services and Freighter Incorporated
Services Agreement dated December 31, 1994 by and between World by reference
Airways, Inc. and Malaysian Airline System Berhad.
10.108 Amendment No. 5 dated January 2, 1995 to the US Order, Inc. Stock Incorporated
Restriction Agreement dated as of September 14, 1990 among by reference
WorldCorp, Inc., a Delaware corporation ("WorldCorp"), William F.
Gorog, Jonathan M. Gorog, Peter M. Gorog, Henry R. Nichols,
William N. Melton and John Porter (collectively, the "Founders" and
each a "Founder"), and the Employees.
10.109 Customer Agreement between WorldCorp ESSOP and Scott & Incorporated
Stringfellow, Inc. dated January 11, 1995 for a margin loan. by reference
10.110 Side Letter dated January 11, 1995 from Scott & Stringfellow, Inc. to Incorporated
William F. Gorog, Trustee of WorldCorp Employee Savings and Stock by reference
Ownership Plan for a margin loan to the WorldCorp ESSOP.
10.111 Guarantee Agreement dated January 11, 1995 by WorldCorp, Inc. Incorporated
("Guarantor") for the benefit of Scott & Stringfellow, Inc. (the by reference
"Lender").
10.112 Registration Rights Agreement dated as of January 11, 1995 by and Incorporated
between WorldCorp, Inc. and Scott & Stringfellow, Inc. by reference
10.113 Side Letter dated January 11, 1995 from WorldCorp, Inc. to Scott & Incorporated
Stringfellow, Inc. regarding commitment to make contributions to by reference
the WorldCorp Employee Savings and Stock Ownership Plan (the "ESSOP"),
for the duration of the Scott & Stringfellow loan to the ESSOP.
10.114 Strategic Alliance Agreement dated January 16, 1995 by and between Incorporated
Colonial Data Technologies Corp. and US Order. by reference
10.115 Amendment No. 2 to Passenger Aircraft Services and Freighter Incorporated
Aircraft Service Agreement dated February 9, 1995 by and between by reference
World Airways, Inc. and Malaysian Airline System Berhad.
</TABLE>
43
<PAGE>
11 Statement on Calculation of Earnings (Loss) Per Common Share. Filed Herewith
27 Financial Data Schedule for quarter ended September 30, 1996 Filed Herewith
/1/ Confidential treatment of portions of the Agreement has been granted
by the Commission. The copy filed as an exhibit omits the information
subject to confidentiality request. Confidential portions so omitted have
been filed separately with the Commission.
(b) Reports on Form 8-K
None.
* * * * * * * * * * * * * *
44
<PAGE>
SIGNATURE
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.
WORLDCORP, INC.
By: /s/ T. Coleman Andrews, III
---------------------------
(T. Coleman Andrews, III)
Chief Executive Officer, President,
and Principal Accounting Officer
Date: November 14, 1996
45
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (IDENTIFY
SPECIFIC FINANCIAL STATEMENTS) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 53,783
<SECURITIES> 0
<RECEIVABLES> 24,103
<ALLOWANCES> 449
<INVENTORY> 0
<CURRENT-ASSETS> 94,020
<PP&E> 92,892
<DEPRECIATION> 22,431
<TOTAL-ASSETS> 198,636
<CURRENT-LIABILITIES> 109,363
<BONDS> 0
0
0
<COMMON> 16,608
<OTHER-SE> (63,806)
<TOTAL-LIABILITY-AND-EQUITY> 198,636
<SALES> 0
<TOTAL-REVENUES> 76,888
<CGS> 0
<TOTAL-COSTS> 82,626
<OTHER-EXPENSES> 845
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,068
<INCOME-PRETAX> (6,583)
<INCOME-TAX> 180
<INCOME-CONTINUING> (4,147)
<DISCONTINUED> 107
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,040)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.13)
</TABLE>
