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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: MARCH 31, 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 22071
(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 May 1, 1996
was 16,442,388.
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1
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WORLDCORP, INC.
MARCH 1996, QUARTERLY REPORT ON FORM 10Q
TABLE OF CONTENTS
<TABLE>
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, March 31,
1996 and December 31, 1995................................ 3
Condensed Consolidated Statements of Operations,
Three Months Ended March 31, 1996 and 1995................ 5
Condensed Consolidated Statement of Changes in Common
Stockholders' Deficit, Three months ended March 31, 1996.. 7
Condensed Consolidated Statements of Cash Flows,
Three months ended March 31, 1996 and 1995................ 8
Notes to Condensed Consolidated Financial Statements...... 9
Exhibit 11, Calculations of Earnings Per Common Share..... 10
Item 2. Management's Discussion and Analysis of Financial Conditio
and Results of Operations ................................ 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ......................... 24
</TABLE>
2
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ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1996 1995
--------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents, including restricted
cash of $925 at March 31, 1996 and $625
at December 31, 1995 $ 58,414 $ 74,443
Restricted short-term investments 4,218 4,218
Trade accounts receivable, less allowance for doubtful
accounts of $441 at March 31, 1996 and $322
at December 31, 1995 13,365 15,457
Other receivables 4,854 4,438
Prepaid expenses and other current assets 9,569 11,668
Assets held for sale 700 700
-------- --------
Total current assets 91,120 110,924
-------- --------
ASSETS HELD FOR SALE 2,226 2,383
EQUIPMENT AND PROPERTY
Flight and other equipment 75,192 60,794
Equipment under capital leases 11,686 11,734
-------- --------
86,878 72,528
Less accumulated depreciation and amortization 19,297 17,878
-------- --------
Net equipment and property 67,581 54,650
-------- --------
LONG-TERM OPERATING DEPOSITS 16,188 16,157
OTHER ASSETS AND DEFERRED CHARGES, NET 14,071 15,384
INTANGIBLE ASSETS, NET 2,461 2,591
-------- --------
TOTAL ASSETS $193,647 $202,089
======== ========
</TABLE>
(Continued)
3
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WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1996 1995
----------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 5,134 $ 6,764
Current maturities of long-term obligations 10,038 10,822
Deferred aircraft rent 350 533
Accounts payable 20,415 17,363
Unearned revenue 3,965 10,421
Air traffic liability 2,517 2,332
Accrued maintenance in excess of reserves paid 11,569 8,919
Accrued salaries and wages 11,610 10,804
Accrued interest 2,298 2,061
Accrued taxes 2,151 1,283
-------- --------
Total current liabilities 70,047 71,302
-------- --------
LONG-TERM OBLIGATIONS, NET
Subordinated convertible debt 65,000 65,000
Subordinated notes, net 24,967 24,961
Deferred aircraft rent, net of current portion 1,087 1,143
Equipment financing and other long-term obligations 24,433 20,241
-------- --------
Total long-term obligations, net 115,487 111,345
-------- --------
OTHER LIABILITIES
Deferred gain from sale leaseback transactions, net of
accumulated amortization of $18,307 as of March 31,
1996 and $18,041 as of December 31, 1995 7,045 7,310
Accrued postretirement benefits 2,612 2,596
Accrued maintenance in excess of reserves paid 3,628 3,579
Other 2,459 380
-------- --------
Total other liabilities 15,744 15,520
-------- --------
TOTAL LIABILITIES 201,278 198,167
-------- --------
MINORITY INTEREST 23,854 27,219
COMMON STOCKHOLDERS' DEFICIT
Common stock, $1 par value, (60,000,000 shares authorized,
16,461,005 shares issued and 16,398,420 shares outstanding
at March 31, 1996 and 16,416,134 shares issued and
16,353,549 shares outstanding at December 31, 1995) 16,461 16,354
Additional paid-in capital 42,778 42,210
Deferred compensation (509) (553)
Accumulated deficit (88,685) (79,598)
ESOP guaranteed bank loan (1,190) (1,370)
Treasury stock, at cost (340) (340)
-------- --------
TOTAL COMMON STOCKHOLDERS' DEFICIT (31,485) (23,297)
-------- --------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND COMMON STOCKHOLDERS'
DEFICIT $193,647 $202,089
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
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WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
OPERATING REVENUES
World Airways $ 71,538 $40,537
US Order 1,326 745
-------- -------
Total operating revenues 72,864 41,282
-------- -------
OPERATING EXPENSES
World Airways:
Flight 24,294 12,896
Maintenance 15,624 8,013
Aircraft costs 19,928 13,522
Fuel 6,915 3,070
Flight operations subcontracted to other carriers 1,061 667
Promotions, sales and commissions 2,444 19
Depreciation and amortization 1,983 986
General and administrative 6,801 4,438
-------- -------
Total operating expenses - World Airways 79,050 43,611
-------- -------
US Order:
Cost of revenue 930 603
Research and development 559 309
General and administrative 1,868 1,184
Advertising and promotion 28 5
-------- -------
Total operating expenses - US Order 3,385 2,101
-------- -------
WorldCorp:
General and administrative 1,289 1,218
-------- -------
Total operating expenses 83,724 46,930
-------- -------
OPERATING LOSS (10,860) (5,648)
-------- -------
OTHER INCOME (EXPENSE)
Interest expense (2,841) (3,171)
Interest income 1,006 163
Loss on sales of equity by subsidiaries, net (225) --
Other, net (241) 202
-------- -------
Total other income (expense) (2,301) (2,806)
-------- -------
LOSS BEFORE INCOME TAXES AND
MINORITY INTEREST (13,161) (8,454)
INCOME TAX EXPENSE -- --
MINORITY INTEREST 4,088 --
-------- -------
NET LOSS $ (9,073) $(8,454)
======== =======
(Continued)
</TABLE>
5
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WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
NET LOSS PER COMMON AND
COMMON EQUIVALENT SHARE
Primary $ (0.56) $ (0.55)
========== ==========
Fully diluted $ * $ *
========== ==========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Primary 16,328,186 15,477,596
========== ==========
Fully diluted * *
========== ==========
</TABLE>
* Fully diluted earnings per share are anti-dilutive.
See accompanying Notes to Condensed Consolidated Financial Statements
6
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WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN COMMON STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND 1995
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Employee
Stock Owner- Total
Additional ship Plan Treasury Common
Common Paid-in Deferred Accumulated Guaranteed Stock, Stockholders'
Stock Capital Compensation Deficit Bank Loan at cost Deficit
------- ---------- ------------- ------------ ----------- --------- --------------
<S> <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 107,456 options
and warrants 107 529 -- -- -- -- 636
Employee Stock Ownership Plan
guaranteed bank loan -- -- -- -- 180 -- (180)
Amortization of deferred
compensation -- 39 44 -- -- -- 83
Other -- -- -- (14) -- -- (14)
Net loss -- -- -- (9,073) -- -- (9,073)
------- ---------- ------------ ----------- ---------- -------- --------
BALANCE AT
MARCH 31, 1996 $16,461 $42,778 $(509) $(88,685) $(1,190) $(340) $(31,485)
======= ========== ============ =========== ========== ======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
7
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WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR $ 74,443 $ 8,160
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (9,073) (8,454)
Adjustments to reconcile net earnings (loss) to cash
provided (used) by operating activities:
Depreciation and amortization 2,078 1,530
Deferred gain recognition (266) (266)
Deferred aircraft rent payments, net -- 153
Loss on sales of equity by subsidiaries, net 225 --
Minority interest in earnings (loss) of subsidiaries (4,088) --
Gain on sale of equipment and property (167) (20)
Deferred compensation expense 44 283
Equity income in subsidiary 426 --
Other 31 166
Changes in certain assets and liabilities net of
effects of non-cash transactions:
Decrease in accounts receivable 2,008 2,581
Decrease in restricted short-term investments -- 6
Decrease (increase) in deposits, prepaid expenses and other assets 1,002 (532)
Increase (decrease) in accounts payable, accrued expenses
and other liabilities 6,002 (1,289)
(Decrease) increase in unearned revenue (6,456) 11,034
Increase in air traffic liability 185 --
-------- -------
Net cash (used) provided by operating activities (8,049) 5,192
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property (4,588) (3,743)
Proceeds from disposal of equipment and property 313 415
Purchase of investments -- (282)
-------- -------
Net cash used by investing activities (4,275) (3,610)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in line of credit borrowing arrangement, net (473) (2,260)
Issuance of debt 197 4,800
Repayment of debt (4,569) (4,795)
Proceeds from stock transactions 636 435
Proceeds from sales of equity by subsidiaries 504 --
-------- -------
Net cash used by financing activities (3,705) (1,820)
-------- -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (16,029) (238)
-------- -------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 58,414 $ 7,922
======== =======
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
8
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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 March 31, 1996, the related condensed consolidated
statements of operations for the three month periods ended March 31, 1996 and
1995, the condensed consolidated statement of changes in common stockholders'
deficit for the three months ended March 31, 1996 and the condensed
consolidated statements of cash flows for the three months ended March 31,
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.
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 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 May 10, 1996, none of these amounts 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.
3. 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.
4. For a discussion of commitments and contingencies see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Other Matters".
5. 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.
9
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EXHIBIT 11
WORLDCORP, INC. AND SUBSIDIARIES
CALCULATIONS OF EARNINGS PER COMMON SHARE
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net loss applicable to common stock $ (9,073) $ (8,454)
=========== ===========
Weighted average common shares
outstanding 16,328,186 15,477,596
Weighted average options and warrants
treated as common stock equivalents -- --
----------- -----------
Primary and fully diluted number of shares 16,328,186 15,477,596
=========== ===========
Net loss per share of common stock $ (0.56) $ (0.55)
=========== ===========
</TABLE>
10
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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 March 31, 1996, WorldCorp and MHS
owned approximately 59.3% and 16.6%, 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, including actively exploring the feasibility
of employee initiatives to purchase a substantial portion of WorldCorp's
ownership position in World Airways. In addition to employee initiatives,
WorldCorp is evaluating the feasibility of a spinoff of its interest in World
Airways or a disposition to a third party. There can be no assurances, however,
that any such transactions will ultimately be consummated.
WorldCorp also has an ownership interest in US Order, Inc. ("US Order"), a
company which provides 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 March 31, 1996, WorldCorp owned approximately 55.7% of the outstanding
common stock of US Order.
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.
OVERVIEW
WorldCorp owns majority 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 as well as limited scheduled services, with a
fleet of MD-11 and DC10-30 aircraft. US Order (Nasdaq:USOR) 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. Over 50 banks currently use US
Order's products and services.
WORLD AIRWAYS
- -------------
World Airways earns revenue primarily from four distinct markets within the
air transportation industry: passenger and cargo services to major international
air carriers; passenger and cargo services, on a scheduled and ad hoc basis, to
the U.S. Government; international tour operators in leisure passenger markets;
and scheduled passenger/cargo service (which, beginning in May 1996, will
include scheduled charters to leisure passenger markets on a seasonal basis).
11
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With the exception of scheduled passenger/cargo service, 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, its 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 its 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. The
Malaysian Airlines and AMC contracts provided approximately 39% and 24%,
respectively, of World Airways' revenues and 47% and 15%, respectively, of total
block hours in the first quarter of 1996. Operations under the Garuda Hadj
contract coincided with the commencement of Hadj operations late in the first
quarter.
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 1995, World Airways provided three aircraft for Hadj operations
and will provide three aircraft in 1996. The current five-year Hadj contract
with Malaysian Airlines expires after the 1996 Hadj. World Airways is currently
in negotiations with Malaysian Airlines regarding future Hadj operations.
As a means of improving aircraft utilization, World Airways has entered into
a series of multi-year contracts, with expiration dates running from 1997
through 2000, to provide basic services to Malaysian Airlines. One contract
provides for World Airways' operation of three MD-11 freighter aircraft for a
five-year period for a combined guaranteed minimum of 1,200 hours per month
(except when an aircraft is in scheduled maintenance). The lease for one of the
aircraft commenced in June 1994, and the leases for the other two aircraft
commenced in June and July 1995. A second contract provides for each of two of
its MD-11 passenger aircraft to operate a guaranteed minimum of 320 hours per
month from October 1994 through March 1997. For 1995 and the first quarter of
1996, 29% and 34%, respectively, of World Airways' revenues and 37% and 42%,
respectively, of World Airways' block hours flown resulted from these multi-year
contracts with Malaysian Airlines. As a result of these contracts, World
Airways expects that the percentage of its total revenue generated from
Malaysian Airlines in 1996 will continue to increase over historical levels.
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 points 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 its increasingly
effective use of teaming arrangements, World Airways' fixed awards have grown in
recent years and it has the largest U.S. Air Force fixed award under the CRAF
program for the U.S. Government's 1995-96 fiscal year. The current annual
12
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contract commenced on October 1, 1995 and expires on September 30, 1996. 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 $55.4 million compared to the $33.9 million fixed award for the prior
contract. Due to the utilization of a significant number of its aircraft under
multi-year contracts with Malaysian Airlines 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 five aircraft
in the 1995 Garuda Hadj and will operate seven aircraft in the 1996 Hadj.
As a result of these and other contracts, World Airways had an overall
contract backlog at March 31, 1996 of $430.4 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 76% of the backlog (including substantially all 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 1995, World Airways' flight operations associated with the
Hadj pilgrimage occurred from April 1 to June 8. 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. In recent years, soft demand and weakening yields
in worldwide passenger markets adversely affected World Airways' results in the
third quarter. Fourth quarter utilization depends primarily on the demand for
air cargo services in connection with the shipment of merchandise in advance of
the U.S. holiday season. World Airways believes that its multi-year contracts
with Malaysian Airlines and an increase in peak European summer tourist travel
occurring in the third quarter 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 World Airways
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, primarily within its scheduled
passenger/cargo service operations.
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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.
Over 50 banks currently use US Order's products and services.
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. US
Order's next generation smart telephone, the Telesmart 4000/TM/ smart phone, is
currently available for sale.
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
million, for 40% of HomeNet. US Order 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. US Order expects HomeNet to incur operating losses at least through
1996 of which US Order will record its proportionate share.
To date, US Order has generated limited revenue. As a result of its new
strategic relationships in the home banking and smart telephone markets, US
Order will generate revenue by selling its home banking products and smart
telephones, as well as by generating monthly fees for providing ongoing
services, including interactive applications and customer support services.
Revenue from product sales will be dependent on the success of US Order's two
largest strategic partners, Visa InterActive and Colonial Data, in marketing and
selling the products in the banking and smart telephone channels. In addition,
US Order 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. US Order has not received any revenue from
these Visa royalty payments through March 31, 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 1996.
RESULTS OF OPERATIONS
WORLD AIRWAYS
- -------------
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Total block hours increased 3,721 hours, or 54%, to 10,634 hours in the first
quarter of 1996 from 6,913 hours in the comparable 1995 period, with an average
of 11.6 available aircraft per day in 1996 compared to 8.4 in 1995. Average
daily utilization (block hours flown per day per aircraft) increased to 10.1
hours in 1996 from 9.2 hours in 1995. In the first quarter of 1996, basic
contracts accounted for 66% of total block hours, down from 74% in 1995.
Total operating revenues increased $31.0 million, or 77%, to $71.5 million in
the first quarter of 1996 from $40.5 million in 1995. World Airways recognized
a net loss of $7.9 million in the first quarter of 1996 compared to a net loss
of $3.8 million in the comparable 1995 period. Factors impacting 1996 results
included operating losses of approximately $4.4 million on its New York - Tel
Aviv scheduled service route as well as planned up-front non-recurring crew
training expenses of approximately $2.5 million primarily related to the
introduction of four aircraft in March. In response to the substantial
operating losses generated from its Tel Aviv route since commencing service in
July 1995, World Airways has taken steps to improve its yield and load factor
performance including the reduction of its weekly frequencies to Tel Aviv from
three to two until this summer's peak tourist season and, more
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importantly, the formation of a strategic alliance with Continental Airlines
(see "Recent Trends and Development -Growth Opportunities").
Operating Revenues. Revenues from flight operations increased $31.3 million,
------------------
or 79%, to $70.7 million in the first quarter of 1996 from $39.4 million in
1995. This increase was primarily attributable to an increase in military
flying and an increase in revenues generated from the multi-year contracts with
Malaysian Airlines. In addition, World Airways realized an increase in revenues
associated with services to certain international carriers and from scheduled
service operations to Tel Aviv which commenced in July 1995.
Operating Expenses. Total operating expenses increased $35.5 million, or
------------------
81%, in the first quarter of 1996 to $79.1 million from $43.6 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 $11.4 million, or 88%, in
1996 to $24.3 million from $12.9 million in 1995. This increase resulted
primarily from an increase in block hours flown, higher costs associated with
scheduled service operations to Tel Aviv, and higher crew costs and up-front
training expenses in connection with the integration of additional aircraft into
the fleet in 1995 and 1996.
Maintenance expenses increased $7.6 million, or 95%, in 1996 to $15.6 million
from $8.0 million in 1995. This increase resulted primarily from the
integration of additional aircraft into the fleet and a corresponding increase
in block hours flown.
Aircraft costs increased $6.4 million, or 47%, in 1996 to $19.9 million from
$13.5 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, partially offset
by the return of two DC10-30 aircraft to the lessor in the third quarter of
1995.
Fuel expenses increased $3.8 million, or 123%, in 1996 to $6.9 million from
$3.1 million in 1995. This increase is due primarily from an increase in fuel
uplifted for military and scheduled service operations. Although World Airways'
exposure to fuel risk is limited (see "Overview - Aviation Fuel"), recent
increases in aircraft fuel costs could have an affect on the future financial
condition and results of operations of World Airways, primarily within its
scheduled passenger/cargo service operations.
Promotions, sales and commissions were $2.4 million in 1996 compared to a
relatively insignificant amount in the first quarter of 1995. This increase
resulted primarily from commissions paid in connection with scheduled service
operations to Tel Aviv which commenced in 1995 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 $1.0 million, or 100%, in 1996 to
$2.0 million from $1.0 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 $2.4 million, or 55%, in 1996
to $6.8 million from $4.4 million in 1995. This increase was primarily due to
personnel necessary for scheduled service operations, additional marketing
personnel, and an increase in certain legal and professional fees.
US ORDER
- --------
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Operating Revenue. US Order's first quarter revenues increased by $0.6
-----------------
million from $0.7 million in 1995 to $1.3 million in 1996. This increase is
primarily related to the sale of its smart telephones and home banking products,
which increased $0.5 million between periods. Service fees revenue for the
first quarter of 1996, totaling $0.5 million, 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 first quarter of
1996, an increase of $0.2
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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 $0.2 million for
the first three months of 1996 as compared to $0.3 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 and over time expects to be offering these services strictly
on a wholesale basis.
Cost of Revenue. US Order's first quarter cost of revenue increased by $0.3
---------------
million as compared to the same period in 1995. The increase is primarily due
to increased cost of product revenues resulting from the increase in product
sales between periods. Service cost of revenues remained relatively unchanged
between periods. Costs related to generating monthly service fee revenues
decreased by $0.2 million, offsetting a $0.2 million increase in costs related
to providing customer support services to Visa, Visa member banks and other
third parties. The service cost of revenues related to monthly service fees
decreased between periods due to the smart telephones, utilized to generate
monthly fee revenues, being fully depreciated in the fourth quarter of 1995 and,
due to the continued 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. US
Order expects that cost of services related to customer support will continue to
increase throughout 1996 and in the future to develop the infrastructure to
handle anticipated growth in business related to providing customer service to
Visa, Visa member banks and other third parties. Furthermore, US Order 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
service fee revenues earned during the period.
Operating Expenses. Research and development costs were $0.6 million in the
------------------
first quarter of 1996 as compared to $0.3 million for the same period in 1995.
The $0.3 million increase was largely attributable to developing, designing and
testing both US Order's fourth generation smart telephone, the Telesmart
4000/TM/, and its home banking connectivity products. 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 US Order in the
future.
General and administrative expenses were $1.9 million for the first quarter
of 1996 as compared to $1.2 million in the first quarter of 1995. The increase
of $0.7 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, particularly the March 1996 Microsoft
and Visa InterActive bill pay agreement, as well as from other markets for its
smart telephone and home banking products and services. US Order expects that
general and administrative expenses will continue to increase throughout 1996
and in the future to develop the infrastructure to handle increased business.
Furthermore, US Order expects that aggregate general and administrative expenses
will increase in future periods as the company grows.
Advertising and promotion expenses had a nominal increase between 1996 and
1995. During the second half of 1996, US Order expects to begin selling its
Telesmart 4000/TM/ smart telephone directly to retail stores and outlets and to
paging companies. US Order expects its advertising and promotion expenses to
increase substantially from the minimal expenditures incurred during the first
quarter of 1996 and the fiscal year ending December 31, 1995 with the entrance
of the Telesmart 4000/TM/ smart phone into these channels. US Order, however,
does not expect its advertising and promotion expenses to increase, on a per
customer basis, to the levels experienced during 1993 or 1994.
OTHER INCOME (EXPENSE)
- ----------------------
Interest income increased $0.8 million for the quarter ended March 31, 1996
from the comparable period in 1995. This increase resulted primarily from an
increase in cash and investments balances.
LIQUIDITY AND CAPITAL RESOURCES
The Company is highly leveraged, primarily due to debt restructurings in 1987
and 1992, substantial debt and operating lease commitments during 1993 in
connection with acquiring MD-11 aircraft and related spare parts, and losses the
Company incurred in the past several years. The Company has historically
financed its working capital and capital expenditure requirements out of public
and private sales of stock of its subsidiaries, secured borrowings, and other
financings from banks and other lenders.
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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 three months of 1996, World Airways sustained an
operating loss of $7.5 million and a net loss of $7.9 million during its
traditionally weakest quarter. While World Airways expects to be profitable for
the full year, there can be no assurance that World Airways will be able to
maintain profitability for 1996 and future years.
US Order has generated operating losses since its inception. US Order's
products and services are subject to the risks inherent in the marketing and
development of new products. To date, US Order has generated limited revenue
through the sale if its products and services and there can be no assurance as
to what level of future sales or royalties, if any, US Order will receive from
Visa or its member banks.
CASH FLOWS FROM OPERATING ACTIVITIES
Operating activities used $8.0 million in cash for the quarter ended March
31, 1996 compared to providing $5.2 million of cash in the comparable period in
1995. This decrease in cash in 1996 resulted primarily from an increase in
operating loss over 1995 and a decrease in unearned revenue, partially offset by
an increase in accounts payable during 1996 over 1995.
CASH FLOWS FROM INVESTING ACTIVITIES
Investing activities used $4.3 million in cash for the quarter ended March
31, 1996 compared to using $3.6 million in the comparable period in 1995. This
increase 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.
CASH FLOWS FROM FINANCING ACTIVITIES
Financing activities used $3.7 million in cash for the quarter ended March
31, 1996 compared to using $1.8 million in the comparable period in 1995. This
decrease in cash resulted primarily from a decrease in the Company's net
borrowings in 1996 over 1995.
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,
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 of March 31, 1996, annual minimum payments required under World Airways'
aircraft and lease obligations totaled $70.2 million for the remainder of 1996,
including the two MD-11ER aircraft and the two DC10-30 aircraft leased in March
1996.
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<PAGE>
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 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 May 10, 1996, none of these amounts 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 $14.1 million during the
first quarter of 1996. The majority of this amount relates to assets which were
financed in the first quarter or will be financed subsequent to March 31, 1996.
In addition, World Airways incurred approximately $2.1 million in leasehold
improvements on certain aircraft for which the cash will be expended in the
second quarter of 1996. 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 $6.5 million was received during the first
quarter 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.
In March 1996, World Airways received regulatory authority to provide
scheduled passenger and cargo service between Newark and South Africa beginning
in the second quarter of 1996. In addition, World Airways is currently seeking
authority to provide scheduled passenger and cargo service between the U.S. and
West Africa (as a traffic stop on its South Africa route). World Airways
anticipates that it will incur approximately $1.0 million in start-up costs in
connection with this operation and will fund such start-up costs from its
operating cash flow.
As of March 31, 1996, World Airways held approximately $2.9 million (at book
value) of aircraft spare parts currently available for sale.
US Order
- --------
In October 1995, US Order entered into a facilities operating lease for
30,000 additional square feet of office space which will be used in addition to
its current office space. The lease covers a fifty-three month period commencing
July 1, 1996 with aggregate minimum lease payments equal to approximately $2.7
million.
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 took delivery of
the first Telesmart 4000/TM/ smart telephones in the first quarter of 1996, and
the remaining commitment was approximately $3.1 million as of March 31, 1996.
The entire obligation is secured by a cash collateralized letter of credit. US
Order had no other material commitments for capital expenditures nor does it
anticipate a significant change in the current level of its capital
expenditures.
In March 1996, US Order and Colonial Data entered into an agreement, whereby
Colonial Data has the option to purchase any or all of the above mentioned
30,000 Telesmart 4000/TM/ smart telephones at US Order's fully landed cost.
Colonial Data then may sell or lease these smart telephones to customers at a
sale or lease price determined by Colonial Data. For all of these smart
telephones sold or leased by Colonial Data, Colonial Data will pay US Order a
product royalty equal to 50% of the margin on the sale or lease of the smart
telephone. If US Order sells or leases any of these 30,000 Telesmart 4000/TM/
smart telephones to a party other than Colonial Data, it has agreed
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to pay Colonial Data a product royalty equal to 50% of the margin on the sale or
lease of the smart telephone. US Order did not receive any royalties from, or
pay any royalties to, Colonial Data for Telesmart 4000/TM/ smart telephone sales
to other parties during the three months ended March 31, 1996.
US Order'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
Microsoft bill payment alliance. In order to meet its needs for cash over the
next twelve months, US Order will utilize proceeds from its 1995 initial public
offering and, to the extent available, gross margins generated from the sale of
its products and services. Additionally, US Order may utilize funds it expects
to generate from asset sales, including approximately $0.4 million of earlier
generation smart telephones (which it sells to third parties for use as point of
sale terminals) and from its approximately $2.5 million advertising credit,
which was 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. 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 US Order's common stock, is subject to the provisions of two indentures
expiring in 1997 and 2004, respectively, under which it is obligated to cause
the companies not to pay dividends under certain circumstances. Of the $58.4
million in cash and cash equivalents at March 31, 1996, approximately $36.3
million is held by World Airways and US Order and, therefore, is not available
to satisfy WorldCorp's obligations. As of March 31, 1996, WorldCorp had parent
company repayment obligations, including principal and interest, of
approximately $7.7 million and $32.7 million for the remainder of 1996 and 1997,
respectively.
The Company believes that the combination of the financings consummated to
date and the operating and additional financing plans previously discussed will
be sufficient to allow the Company to meet its operating and capital
requirements for the next twelve months.
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.
In 1993, World Airways entered into the Credit Agreement, which included a
$12.0 million spare parts loan and an $8.0 million revolving line of credit
collateralized by certain receivables, inventory, equipment, and general
intangibles. World Airways is prohibited from granting a security interest in
such collateral to anyone other than BNY Financial Corporation. Approximately
$10.8 million of the proceeds from this borrowing was used to retire existing
obligations. This agreement contains certain covenants related to World Airways'
financial condition and operating results. During 1995, World Airways extended
the credit facility's term to 1998. In March 1996, World Airways amended this
agreement to adjust certain covenants beginning in the first quarter of 1996.
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 its 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. No assurances can be given that World Airways will
continue to meet these revised covenants or, if necessary, obtain the required
waivers. In addition, World Airways amended the aircraft spare parts facility
under the Credit Agreement to provide for a variable rate spare parts loan
19
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of $10.5 million. As of March 31, 1996, $1.3 million of the $8.0 million portion
of the credit facility collateralized by receivables was utilized, with $2.9
million capacity currently available, and $7.0 million of the $10.5 million
spare parts loan was outstanding.
As discussed above, on September 29, 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.
RECENT TRENDS AND DEVELOPMENTS
WORLD AIRWAYS
- -------------
Growth Opportunities. In the scheduled charter market, World Airways has
--------------------
identified what it believes is a significant opportunity to increase revenues
and profits by serving potentially profitable leisure passenger markets between
the U.S. and Europe. In the scheduled charter business, World Airways sells
less-than-planeload blocks of seats to international tour operators and markets
the remaining seats through computer reservations systems. Based on the
successful experience of European carriers, World Airways will assume some load
factor risk with the objective of capturing improved yields. In addition,
because World Airways will set the schedule instead of a tour operator, World
Airways will be able to schedule its aircraft more efficiently and increase the
hourly utilization of its fleet. This strategy gives World Airways more control
within the charter distribution channel and a stronger commercial position in
this market than it would have in the full plane-load charter business. For the
1996 leisure market season, World Airways has developed schedules and is
marketing capacity to tour operators with particular emphasis on the markets
between the U.S. and Germany, Switzerland, Ireland, and the United Kingdom.
Although World Airways believes that scheduled charters may improve utilization
and yields in the leisure passenger market for the reasons described above,
scheduled charters do increase World Airways' load factor and yield risks and it
has no prior experience operating scheduled charters. World Airways, therefore,
can provide no assurances that it will be able to operate scheduled charters
profitably.
In the scheduled passenger business, World Airways will consider entering
only those markets that it believes (i) are well suited to the competitive
advantages of its long-range, wide-body aircraft, (ii) have prospects for rapid
growth, and (iii) have barriers to entry. After determining that the market
between New York and Tel Aviv met these criteria, World Airways commenced
scheduled passenger service in this market in July 1995 with three weekly round
trips. In March 1996, World Airways reduced its weekly frequencies from three to
two until the summer peak tourist season. In addition, World Airways recently
received regulatory authority to provide scheduled passenger and cargo service
between the United States and South Africa beginning in the second quarter of
1996. World Airways is currently seeking to provide scheduled passenger and
cargo service between the United States and West Africa (as a traffic stop on
its South Africa route). No assurances can be given that the Company will
receive this authority.
While World Airways has achieved a 71% cumulative load factor on the Tel Aviv
route as of April 1996, yields have been significantly lower than expected due
to price sensitive, high commission traffic originating in the New York area and
the lack of a marketing relationship with a major U.S. carrier to feed its New
York departures. As a result of these factors, World Airways has sustained
substantial operating losses on this route since commencing scheduled service to
Tel Aviv in July 1995. In response to these issues, World Airways has taken
steps to improve its yield and load factor performance. First, as discussed
above, World Airways has reduced its weekly frequencies to Tel Aviv from three
to two until this summer's peak tourist season. Second, and more importantly,
World Airways has formed a strategic alliance with Continental Airlines
("Continental"). This agreement with Continental includes codesharing, joint
marketing, and participation in Continental's computer reservation system and
OnePass frequent flyer program. World Airways' international passengers will
connect through Continental's Newark International Airport ("Newark") hub to
major U.S. cities as well as Canada and Mexico. Continental's passengers will
connect directly on World Airways' international destinations including Israel,
Ireland, and South Africa. In conjunction with this alliance, World Airways
will begin flying from Newark in June 1996. Although World Airways hopes that
its strategic alliance with Continental will improve financial results on its
scheduled passenger routes,
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including but not limited to its Tel Aviv route, no assurances can be given that
World Airways will be able to operate its scheduled passenger routes profitably
even with the Continental alliance.
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 expenses will increase as these guarantees and warranties expire.
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.
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.
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 June 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 and have had numerous
contract negotiation sessions. In December 1994, World Airways and the
Teamsters jointly requested the assistance of a federal mediator to facilitate
negotiations. After several mediated sessions, the National Mediation Board
(the "NMB") mediator recommended that the NMB release the parties to pursue
"direct" (i.e.,
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non-mediated) negotiations with the flight attendants. World Airways and the
Teamsters agreed and direct negotiations continue. The outcome of the
negotiations with the flight attendants cannot be determined at this time. The
inability to reach an agreement upon terms favorable to World Airways could have
a material adverse effect on World Airways. World Airways' flight attendants
continue to challenge the use of foreign flight attendant crews on its 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 it 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 US Order's common stock, is subject to the provisions of two indentures
expiring in 1997 and 2004, respectively, 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.
Further, under the indenture terminating in 1997, WorldCorp has agreed to cause
the companies not to pay dividends unless WorldCorp has a positive adjusted net
worth (as defined therein). As of March 31, 1996, WorldCorp's adjusted net
worth was negative and under the indenture terminating in 1997 WorldCorp is
therefore obligated to cause the companies not to pay dividends.
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.
INCOME TAXES
At December 31 1995, WorldCorp had approximately $30.7 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. World Airways generated net earnings for the year ended 1995
as compared to losses in both 1994 and 1993. If World
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Airways generates net earnings in 1996, it is possible that a change in the
estimate of the required valuation allowance will occur in the near term, and
could differ materially from the amount recorded at December 31, 1995. 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
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(a) Exhibits
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<TABLE>
<CAPTION>
Exhibit
No. Exhibit
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<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 No. 2 by reference
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. (Filed by reference
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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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>
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10.14 Office Lease - The Hallmark Building dated Incorporated as of May 16, Incorporated
1987 between WorldCorp, Inc. and GT Renaissance by reference 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 Incorporated between Incorporated
WorldCorp, Inc. and GT Renaissance Centre Limited by reference by reference
Partnership. (Filed as Exhibit 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 between Incorporated
World Airways, Inc. and GT Renaissance Centre Limited Partnership. by reference
(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, Inc. and Incorporated
Charles W. Pollard. (Filed as Exhibit 10.45 to WorldCorp, Inc.'s Annual by reference
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 Exhibit Incorporated
10.49 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year by reference
ended December 31, 1989 and incorporated herein by reference.)
10.21 Amendment No. 1 to WorldCorp Inc. Employee Savings and Stock Ownership Plan. Incorporated
(Filed as Exhibit 10.50 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.)
10.27 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 Incorporated February 12, 1992 Incorporated
between McDonnell Douglas Finance Corporation and World Airways, by reference
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>
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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 between Incorporated
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
Incorporated Terandon Leasing Corporation and World Airways, Inc. by reference
(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
Incorporated Douglas Finance Corporation and World Airways, Inc. (Filed by reference
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
Incorporated Douglas Finance Corporation and World Airways, Inc. (Filed by reference
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
Incorporated 1990 between US Order, Inc. and WorldCorp, Inc. (Filed as by reference
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
Incorporated WorldCorp, Inc., William F. Gorog, Jonathan M. Gorog, by reference
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
Incorporated of September 30, 1992 between World Airways, Inc. and by reference
International by reference Lease Finance Corporation.
10.39 Aircraft Lease Agreement for Aircraft Serial Number 48519 dated as Incorporated
Incorporated of September 30, 1992 between World Airways, Inc. and by reference
International by reference Lease Finance Corporation.
10.40 Aircraft Lease Agreement for Aircraft Serial Number 48520 dated as Incorporated
Incorporated of September 30, 1992 between World Airways, Inc. and by reference
International by reference Lease Finance Corporation.
10.41 Aircraft Lease Agreement for Aircraft Serial Number 48633 dated as Incorporated
Incorporated of September 30, 1992 between World Airways, Inc. and by reference
International by reference Lease Finance Corporation.
</TABLE>
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<TABLE>
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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 by reference
International 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 by reference
International 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>
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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.
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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>
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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>
31
<PAGE>
<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 by reference
Mobility Command.
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 by reference
Malaysian 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 by reference
World 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. Incorporated
to William F. Gorog, Trustee of WorldCorp Employee Savings and by reference
Stock 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 the by reference
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>
32
<PAGE>
<TABLE>
<S> <C> <C>
11 Statement on Calculation of Earnings (Loss) Per Common Share. Filed Herewith
27 Financial Data Schedule for quarter ended March 31, 1996 Filed Herewith
</TABLE>
/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.
* * * * * * * * * *
33
<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: May 14, 1996
34
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from WorldCorp
and is qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 58,414
<SECURITIES> 0
<RECEIVABLES> 13,806
<ALLOWANCES> 441
<INVENTORY> 0
<CURRENT-ASSETS> 91,120
<PP&E> 86,878
<DEPRECIATION> 19,297
<TOTAL-ASSETS> 193,647
<CURRENT-LIABILITIES> 70,047
<BONDS> 0
0
0
<COMMON> 16,461
<OTHER-SE> (47,946)
<TOTAL-LIABILITY-AND-EQUITY> 193,647
<SALES> 0
<TOTAL-REVENUES> 72,864
<CGS> 0
<TOTAL-COSTS> 83,724
<OTHER-EXPENSES> 2,301
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,841
<INCOME-PRETAX> (13,161)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,161)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,073)
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> 0
</TABLE>
