<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
- - --------------------------------------------------------------------------------
For the Quarter ended: June 30, 1996 Commission File Number 1-5351
WORLDCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3040585
(State of incorporation) (I.R.S. Employer Identification Number)
13873 Park Center Road, Suite 490, Herndon, VA 20171
(Address of Principal Executive Offices)
(703) 834-9200
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---------- ----------
The number of shares of the registrant's Common Stock outstanding on August 9,
1996 was 16,546,438.
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1
<PAGE>
WORLDCORP, INC.
JUNE 1996, QUARTERLY REPORT ON FORM 10Q
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, June 30,
1996 and December 31, 1995..................................... 3
Condensed Consolidated Statements of Operations,
Three Months Ended June 30, 1996 and 1995...................... 5
Condensed Consolidated Statements of Operations,
Six Months Ended June 30, 1996 and 1995........................ 7
Condensed Consolidated Statement of Changes in Common
Stockholders' Deficit, Six months ended June 30, 1996.......... 9
Condensed Consolidated Statements of Cash Flows,
Six months ended June 30, 1996 and 1995........................ 10
Notes to Condensed Consolidated Financial Statements........... 11
Exhibit 11, Calculations of Earnings Per Common Share.......... 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 31
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
- - -----------------------------
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
1996 1995
----------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents, including restricted
cash of $160 at June 30, 1996 and $625
at December 31, 1995 $ 59,859 $ 74,443
Restricted short-term investments 4,338 4,218
Trade accounts receivable, less allowance for doubtful
accounts of $457 at June 30, 1996 and $322
at December 31, 1995 31,535 15,457
Other receivables 3,792 4,438
Prepaid expenses and other current assets 8,159 11,668
Assets held for sale 700 700
-------- --------
Total current assets 108,383 110,924
-------- --------
ASSETS HELD FOR SALE 2,059 2,383
EQUIPMENT AND PROPERTY
Flight and other equipment 76,650 60,794
Equipment under capital leases 11,686 11,734
-------- --------
88,336 72,528
Less accumulated depreciation and amortization 20,734 17,878
-------- --------
Net equipment and property 67,602 54,650
-------- --------
LONG-TERM OPERATING DEPOSITS 16,188 16,157
OTHER ASSETS AND DEFERRED CHARGES, NET 12,236 15,384
INTANGIBLE ASSETS, NET 2,332 2,591
-------- --------
TOTAL ASSETS $208,800 $202,089
======== ========
</TABLE>
(continued)
3
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
(in thousands except share data)
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
1996 1995
----------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 12,209 $ 6,764
Current maturities of long-term obligations 9,908 10,822
Deferred aircraft rent 219 533
Accounts payable 20,099 17,363
Net liabilities of discontinued operations 25,142 --
Unearned revenue 7,137 10,421
Air traffic liability -- 2,332
Accrued maintenance in excess of reserves paid 14,459 8,919
Accrued salaries and wages 10,749 10,804
Accrued interest 1,993 2,061
Accrued taxes 2,191 1,283
--------- --------
Total current liabilities 104,106 71,302
--------- --------
LONG-TERM OBLIGATIONS, NET
Subordinated convertible debt 65,000 65,000
Subordinated notes, net 24,972 24,961
Deferred aircraft rent, net of current portion 1,031 1,143
Equipment financing and other long-term obligations 24,739 20,241
--------- --------
Total long-term obligations, net 115,742 111,345
--------- --------
OTHER LIABILITIES
Deferred gain from sale leaseback transactions, net of
accumulated amortization of $18,572 as of June 30,
1996 and $18,041 as of December 31, 1995 6,780 7,310
Accrued postretirement benefits 2,612 2,596
Accrued maintenance in excess of reserves paid 3,832 3,579
Other 2,776 2,035
--------- --------
Total other liabilities 16,000 15,520
--------- --------
TOTAL LIABILITIES 235,848 198,167
--------- --------
MINORITY INTEREST 16,441 27,219
COMMON STOCKHOLDERS' DEFICIT
Common stock, $1 par value, (60,000,000 shares authorized,
16,583,005 shares issued and 16,520,420 shares outstanding
at June 30, 1996 and 16,416,134 shares issued and
16,353,549 shares outstanding at December 31, 1995) 16,583 16,354
Additional paid-in capital 43,395 42,210
Deferred compensation (465) (553)
Unrealized loss on investments (474) --
Accumulated deficit (101,202) (79,598)
ESOP guaranteed bank loan (986) (1,370)
Treasury stock, at cost (340) (340)
--------- --------
TOTAL COMMON STOCKHOLDERS' DEFICIT (43,489) (23,297)
--------- --------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND COMMON STOCKHOLDERS'
DEFICIT $ 208,800 $202,089
========= ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended June 30,
(in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
OPERATING REVENUES
World Airways $ 86,617 $75,778
US Order 548 947
-------- -------
Total operating revenues 87,165 76,725
-------- -------
OPERATING EXPENSES
World Airways:
Flight 14,999 15,997
Maintenance 15,964 12,574
Aircraft costs 22,837 19,335
Fuel 2,577 2,863
Flight operations subcontracted to other carriers 6,952 6,686
Promotions, sales and commissions 704 50
Depreciation and amortization 1,911 1,651
General and administrative 5,402 4,141
-------- -------
Total operating expenses - World Airways 71,346 63,297
-------- -------
US Order:
Cost of revenue 342 798
Research and development 616 198
General and administrative 2,627 1,014
Advertising and promotion 54 2
-------- -------
Total operating expenses - US Order 3,639 2,012
-------- -------
WorldCorp:
General and administrative 731 1,476
-------- -------
Total operating expenses 75,716 66,785
-------- -------
OPERATING INCOME 11,449 9,940
-------- -------
OTHER INCOME (EXPENSE)
Interest expense (2,969) (3,225)
Interest income 961 392
Gain on sales of equity by subsidiaries, net 50 20,734
Gain on sale of subsidiary's stock -- 28,136
Other, net (328) 596
-------- -------
Total other income (expense) (2,286) 46,633
-------- -------
EARNINGS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST 9,163 56,573
INCOME TAX EXPENSE (315) (511)
-------- -------
EARNINGS FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST 8,848 56,062
MINORITY INTEREST (4,469) (354)
-------- -------
EARNINGS FROM CONTINUING OPERATIONS 4,379 55,708
DISCONTINUED OPERATIONS
Loss from discontinued operations (less applicable
income tax benefit of $83 in 1996 and $80 in 1995) (7,533) (999)
Loss on disposal (less applicable income tax benefit
of $232 in 1996) (20,985) --
-------- -------
LOSS FROM DISCONTINUED OPERATIONS BEFORE
MINORITY INTEREST (28,518) (999)
MINORITY INTEREST 11,621 40
-------- -------
LOSS FROM DISCONTINUED OPERATIONS (16,897) (959)
-------- -------
NET EARNINGS (LOSS) $(12,518) $54,749
======== =======
</TABLE>
(continued)
5
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended June 30,
(continued)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
PRIMARY EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ 0.25 $ 3.27
Discontinued operations (0.98) (0.05)
----------- -----------
Net earnings (loss) $ (0.73) $ 3.22
=========== ===========
PRIMARY WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 17,215,901 17,026,488
=========== ===========
FULLY DILUTED EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ 0.24 $ 2.48
Discontinued operations (0.73) (0.04)
----------- -----------
Net earnings (loss) $ (0.49) $ 2.44
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 23,109,978 22,905,507
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
6
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Six Months Ended June 30,
(in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
OPERATING REVENUES
World Airways $152,009 $116,315
US Order 1,874 1,692
-------- --------
Total operating revenues 153,883 118,007
-------- --------
OPERATING EXPENSES
World Airways:
Flight 35,315 28,893
Maintenance 30,493 20,587
Aircraft costs 41,452 32,857
Fuel 8,070 5,933
Flight operations subcontracted to other carriers 8,013 7,353
Promotions, sales and commissions 1,678 69
Depreciation and amortization 3,894 2,637
General and administrative 11,148 8,463
-------- --------
Total operating expenses - World Airways 140,063 106,792
-------- --------
US Order:
Cost of revenue 1,272 1,397
Research and development 1,176 507
General and administrative 4,494 2,202
Advertising and promotion 82 7
-------- --------
Total operating expenses - US Order 7,024 4,113
-------- --------
WorldCorp:
General and administrative 2,020 2,694
-------- --------
Total operating expenses 149,107 113,599
-------- --------
OPERATING INCOME 4,776 4,408
-------- --------
OTHER INCOME (EXPENSE)
Interest expense (5,810) (6,396)
Interest income 1,967 555
Gain on sales of equity by subsidiaries, net (175) 20,734
Gain on sale of subsidiary's stock -- 28,136
Other, net (569) 798
-------- --------
Total other income (expense) (4,587) 43,827
-------- --------
EARNINGS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES AND MINORITY INTEREST 189 48,235
INCOME TAX EXPENSE (315) (511)
-------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE
MINORITY INTEREST (126) 47,724
MINORITY INTEREST (2,088) (382)
-------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE (2,214) 47,342
DISCONTINUED OPERATIONS
Loss from discontinued operations (less applicable
income tax benefit of $83 in 1996 and $80 in 1995) (11,720) (1,115)
Loss on disposal (less applicable income tax benefit
of $232 in 1996) (20,985) --
-------- --------
LOSS FROM DISCONTINUED OPERATIONS BEFORE
MINORITY INTEREST (32,705) (1,115)
MINORITY INTEREST 13,328 68
-------- --------
LOSS FROM DISCONTINUED OPERATIONS (19,377) (1,047)
-------- --------
NET EARNINGS (LOSS) $(21,591) $ 46,295
======== ========
(Continued)
</TABLE>
7
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Six Months Ended June 30,
(continued)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
PRIMARY EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ (0.14) $ 2.81
Discontinued operations (1.18) (0.06)
----------- -----------
Net earnings (loss) $ (1.32) $ 2.75
=========== ===========
PRIMARY WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 16,397,440 16,825,009
=========== ===========
FULLY DILUTED EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ * $ 2.18
Discontinued operations * (0.05)
----------- -----------
Net earnings (loss) $ * $ 2.13
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING * 22,799,778
=========== ===========
</TABLE>
* Fully diluted earnings per share are anti-dilutive.
See accompanying Notes to Condensed Consolidated Financial Statements
8
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN COMMON STOCKHOLDERS' DEFICIT
For The Six Months Ended June 30, 1996
(in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
Employee
Stock Owner- Total
Additional Deferred Unrealized ship Plan Treasury Common
Common Paid-in Compen- Loss on Accumulated Guaranteed Stock, Stockholders'
Stock Capital sation Investments Deficit Bank Loan at cost Deficit
------- ---------- --------- ------------ ------------ ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1995 $16,354 $42,210 $(553) $ -- $ (79,598) $(1,370) $(340) $(23,297)
Exercise of 229,456 options
and warrants 229 1,116 -- -- -- -- -- 1,345
Employee Stock Ownership Plan
guaranteed bank loan -- -- -- -- -- 384 -- 384
Amortization of deferred
compensation -- 69 88 -- -- -- -- 157
Temporary writedown of
investment -- -- -- (474) -- -- -- (474)
Other -- -- -- -- (13) -- -- (13)
Net loss -- -- -- -- (21,591) -- -- (21,591)
------- ---------- -------- ----------- ----------- ------------ -------- --------
BALANCE AT
JUNE 30, 1996 $16,583 $43,395 $(465) $(474) $(101,202) $ (986) $(340) $(43,489)
======= ========== ======== =========== =========== ============ ======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
9
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Six Months Ended June 30,
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR $ 74,443 $ 8,160
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) (21,591) 46,295
Adjustments to reconcile net earnings (loss) to cash
provided (used) by operating activities:
Depreciation and amortization 4,471 4,405
Deferred gain recognition (531) (531)
Gain (loss) on sales of equity by subsidiaries, net 175 (20,734)
Gain on sale of subsidiaries' stock -- (28,136)
Minority interest in earnings (loss) of subsidiaries (11,240) 314
Gain on sale of equipment and property (302) (290)
Deferred compensation expense 157
Equity income in subsidiary 894 --
Loss on disposal of discontinued operations 20,985 --
Other -- 175
Changes in certain assets and liabilities net of
effects of non-cash transactions:
Increase in accounts receivable (15,077) (5,237)
Increase in restricted short-term investments (120) (100)
Decrease in deposits, prepaid expenses and other assets 1,411 1,037
Increase in accounts payable, accrued expenses
and other liabilities 8,204 6,461
Decrease in unearned revenue (3,284) (893)
Increase in air traffic liability 4,878 1,370
-------- --------
Net cash (used) provided by operating activities (10,970) 4,136
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property (5,829) (11,057)
Proceeds from disposal of equipment and property 1,094 1,140
Purchase of investments -- (282)
-------- --------
Net cash used by investing activities (4,735) (10,199)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in line of credit borrowing arrangement, net 7,668 4,111
Issuance of debt 361 6,239
Repayment of debt (8,906) (15,401)
Proceeds from stock transactions 2,011 1,077
Proceeds from sales of equity by subsidiaries (13) 41,801
Proceeds from sale of subsidiaries' stock -- 18,724
Payment of dividends by subsidiary -- (885)
-------- --------
Net cash provided by financing activities 1,121 55,666
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (14,584) 49,603
-------- --------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 59,859 $ 57,763
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
10
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The condensed consolidated balance sheet of WorldCorp, Inc. ("WorldCorp"
or the "Company") as of June 30, 1996, the related condensed consolidated
statements of operations for the three and six month periods ended June 30,
1996 and 1995, the condensed consolidated statement of changes in common
stockholders' deficit for the six months ended June 30, 1996 and the
condensed consolidated statements of cash flows for the six months ended June
30, 1996 and 1995 are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such financial statements
have been included. Such adjustments consisted only of normal recurring
items. All significant intercompany balances have been eliminated. Interim
results are not necessarily indicative of results for a full year.
The condensed financial statements and notes are presented as required by
Form 10-Q, and do not contain certain information included in the Company's
annual financial statements and notes. These financial statements should be
read in conjunction with the financial statements and the notes included in
the Company's Form 10-K for the year ended December 31, 1995.
2. In July 1996, World Airways announced its decision to exit its scheduled
service operations by October 1996 and focus its operations on its core
business: operating aircraft under contracts with international carriers,
the U.S. Government, and international tour operators. As a result, World
Airways' scheduled service operations have been reflected as discontinued
operations in the accompanying June 30, 1996, condensed financial statements.
Loss from discontinued operations (net of income tax effect) approximated
$7.5 million and $11.7 million for the quarter and six months ended June 30,
1996, respectively. In addition, an estimated loss on disposal of $21.0
million (net of income tax effect) was recorded as of June 30, 1996, which
includes the following: $13.6 million for estimated operating losses during
the phase-out period; a $2.6 million estimated loss to be incurred in
connection with sub-leasing three DC-10 aircraft which will not be utilized
in World Airways' operations subsequent to the phase-out of scheduled service
operations; a $2.3 million writeoff of related leasehold improvements; and
$2.0 million for passenger reprotection expenses. Other than the leased
aircraft utilized in scheduled service operations, World Airways does not
have any significant assets related to its discontinued operations. World
Airways expects to meet all cash requirements of this phase-out period during
the third and fourth quarters of 1996 and expects to satisfy these
obligations with income generated from its continuing operations and
financings consummated to date. Prior period results of operations have been
restated to reflect scheduled service operations as discontinued operations.
3. In November 1995, World Airways signed a letter of intent with the
manufacturer to lease two MD-11ER aircraft to be delivered in the first
quarter of 1996. The agreement was completed in March 1996. Under the
agreement, World Airways leased each aircraft for a term of 24 years with an
option to return the aircraft after a seven year period with certain fixed
termination fees. As part of the agreement, $1.2 million in deposits
previously paid to the manufacturer in 1992 was applied towards these two
aircraft. In addition, World Airways received spare parts financing from the
lessor of $9.0 million of which $3.0 million was made available with the
delivery of each aircraft, and the remaining $3.0 million will be made
available in December 1996. As of June 30, 1996, approximately $3.3 million
had been received. Finally, World Airways agreed to assume an existing lease
of two additional MD-11 freighter aircraft for 20 years, beginning in 1999,
in the event that the other lessee terminates its lease with the manufacturer
at that time.
4. World Airways purchased a spare engine which was delivered in March 1996
for approximately $8.0 million. World Airways entered into an agreement with
the engine's manufacturer to finance 80% of the purchase price over a seven-
year term. World Airways made payments of $1.2 million and $0.4 million
towards this purchase in September 1995 and January 1996, respectively.
5. Effective June 30, 1996, World Airways amended its Credit Agreement with
BNY Financial Corporation ("BNY") to include the following: a $10.5 million
spare parts loan (of which $5.6 million was outstanding at June 30, 1996), an
$8.0 million revolving line of credit, and a new $5.0 million term loan. The
$5.0 million term loan was received in August 1996. This amended Credit
Agreement, which expires in 1999, is collateralized by certain receivables,
inventory, and equipment. As of June 30, 1996, the revolving line of credit
was fully utilized.
11
<PAGE>
6. For a discussion of commitments and contingencies see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Other Matters".
7. In August 1996, US Order and Colonial Data entered into an Agreement and
plan of Merger pursuant to which US Order and Colonial Data will be merged
with and into a new public company expected to be named TriTech Corporation
("TriTech"). Under the terms of the Agreement, upon consummation of the
Merger, each outstanding share of common stock of US Order, $.001 par value,
will be converted into one share of common stock of TriTech, and each
outstanding share of common stock of Colonial Data, $.01 par value, will be
converted into one share of TriTech Common Stock.
The Boards of Directors of US Order and Colonial Data have agreed to
recommend approval of the Merger to their respective stockholders. The
obligations of US Order and Colonial Data to consummate the Merger are subject
to the satisfaction of certain conditions set forth in the Merger Agreement,
including the approval of the Merger by the stockholders of US Order and
Colonial Data. Upon completion of this agreement, WorldCorp will have a
beneficial ownership of approximately 29.0% of TriTech.
8. In 1995, US Order entered into a stock exchange agreement with Colonial
Data Technologies Corp. ("Colonial Data"), a strategic alliance partner. As
part of the agreement, US Order agreed to exchange $3.0 million of its
restricted common stock in April 1996 for $3.0 million of Colonial Data's
unregistered common stock, subject to certain limitations. The agreement was
modified in 1996 to change the date of the exchange to October 1996. All
other provisions of the stock exchange agreement continue in full force and
effect. Each company's stock will be valued at the average closing price of
their respective common stock as reported on the Nasdaq National Market, for
each of the twenty trading days prior to October 10, 1996. Both companies
will have certain "piggyback" registration rights and rights of first refusal
with respect to each others' stock. In August 1996, US Order and Colonial
Data entered into an Agreement and Plan of Merger (see note 6). As a result
of that agreement, the original stock exchange agreement with Colonial Data,
as amended, has been postponed pending the consummation of the merger.
The terms of US Order's long-term investment in the common stock of Colonial
Data restricts US Order from selling such stock until June 1997. As of June
1996, Financial Accounting Standards Board Statement of Financial Accounting
Standard No. 115, Accounting for Certain Investments in Debt and Equity
Securities ("Statement 115"), became applicable to this investment. US Order
has classified this investment as "available for sale" under the guidance of
Statement 115 and is carrying the investment at fair value, based on the
quoted market value. As of June 30, 1996, an unrealized loss of $0.9 million
on this investment has been recognized due to a decline in the market value
of Colonial Data's stock, and this unrealized loss is carried as a separate
component of stockholders' equity. As of July 31, 1996, the unrealized loss
on this investment was $1.6 million as the market value of Colonial Data's
stock continued to decline. US Order believes that the market decline in
Colonial Data's stock is temporary and is continuing to carry the unrealized
loss on this investment as a separate component of stockholders' equity.
9. 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.
12
<PAGE>
EXHIBIT 11
1 of 2
WORLDCORP, INC. AND SUBSIDIARIES
CALCULATIONS OF EARNINGS PER COMMON SHARE
For the Three Months Ended June 30,
(in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
PRIMARY EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ 0.25 $ 3.27
Discontinued operations (0.98) (0.05)
----------- -----------
Net earnings (loss) $ (0.73) $ 3.22
=========== ===========
PRIMARY WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Weighted average common shares
outstanding 16,466,695 15,854,750
Weighted average options and warrants
treated as common stock equivalents 749,206 1,171,738
Weighted average other dilutive
securities -- --
----------- -----------
Primary number of shares 17,215,901 17,026,488
=========== ===========
FULLY DILUTED EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ 0.24 $ 2.48
Discontinued operations (0.73) (0.04)
----------- -----------
Net earnings (loss) $ (0.49) $ 2.44
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Weighted average common shares
outstanding 16,466,695 15,854,750
Weighted average options and warrants
treated as common stock equivalents 766,249 1,173,723
Weighted average other dilutive
securities 5,877,034 5,877,034
----------- -----------
Fully diluted number of shares 23,109,978 22,905,507
=========== ===========
</TABLE>
13
<PAGE>
EXHIBIT 11
2 of 2
WORLDCORP, INC. AND SUBSIDIARIES
CALCULATIONS OF EARNINGS PER COMMON SHARE
For the Six Months Ended June 30,
(in thousands except share data)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
PRIMARY EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ (0.14) $ 2.81
Discontinued operations (1.18) (0.06)
----------- -----------
Net earnings (loss) $ (1.32) $ 2.75
=========== ===========
PRIMARY WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Weighted average common shares
outstanding 16,397,440 15,740,863
Weighted average options and warrants
treated as common stock equivalents -- 1,084,146
Weighted average other dilutive
securities -- --
----------- -----------
Primary number of shares 16,397,440 16,825,009
=========== ===========
FULLY DILUTED EARNINGS (LOSS) PER COMMON
EQUIVALENT SHARE
Continuing operations $ * $ 2.18
Discontinued operations * (0.05)
----------- -----------
Net earnings (loss) $ * $ 2.13
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING
Weighted average common shares
outstanding * 15,740,864
Weighted average options and warrants
treated as common stock equivalents * 1,181,880
Weighted average other dilutive
securities * 5,877,034
----------- -----------
Fully diluted number of shares * 22,799,778
=========== ===========
</TABLE>
* Fully diluted earnings per share are anti-dilutive.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- - --------------------------------------------------------------------------------
OF OPERATIONS
- - -------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below relates to the operations of WorldCorp, Inc.
("WorldCorp" or "the Company") as reflected in its condensed consolidated
financial statements. These statements primarily include the accounts of the
flight operations of World Airways, Inc. ("World Airways"). On February 28,
1994, pursuant to an October 1993 agreement, the Company sold 24.9% of its
ownership in World Airways to MHS Berhad ("MHS"), a Malaysian aviation company.
Effective December 31, 1994, WorldCorp repurchased 5% of World Airways' common
stock from MHS. In October 1995, World Airways completed an initial public
offering in which 2,000,000 shares were issued and sold by World Airways and
900,000 shares were sold by WorldCorp. As of June 30, 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. 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 June 30, 1996, WorldCorp owned approximately 55.6% of the outstanding
common stock of US Order. In August 1996, US Order and Colonial Data entered
into an Agreement and plan of Merger pursuant to which US Order and Colonial
Data will be merged with and into a new public company expected to be named
TriTech Corporation ("TriTech"). Under the terms of the Agreement, upon
consummation of the Merger, each outstanding share of common stock of US Order,
$.001 par value, will be converted into one share of common stock of TriTech,
and each outstanding share of common stock of Colonial Data, $.01 par value,
will be converted into one share of TriTech Common Stock. Upon completion of
this Agreement, WorldCorp will have a beneficial ownership of approximately
29.0% of TriTech.
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 continued performance of World Airways' Tel Aviv and
Johannesburg routes through the withdrawal dates, the continued performance of
World Airways' scheduled charter programs through the 1996 summer season, 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, 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 in three distinct markets within the
air transportation industry: passenger and cargo services to major international
air carriers; passenger and cargo services, on a fixed and ad hoc
15
<PAGE>
basis, to the U.S. Government; and international tour operators in leisure
passenger markets. In July 1996, World Airways announced its decision to exit
its scheduled service operations by October 1996 (see Recent Trends and
Developments - Discontinuation of Scheduled Service Operations).
World Airways generally charges customers on a block hour basis rather than a
per seat or per pound basis. "Block hours" are defined as the elapsed time
computed from the moment the aircraft first moves under its own power at the
point of origin to the time it comes to rest at its final destination. World
Airways provides most services under two types of contracts: basic contracts
and full service contracts. Under basic contracts, World Airways provides the
aircraft, cockpit crew, maintenance and insurance and the customer provides all
other operating services and bears all other operating expenses, including fuel
and fuel servicing, marketing costs associated with obtaining passengers and/or
cargo, airport passenger and cargo handling fees, landing fees, cabin crews,
catering, ground handling and aircraft push-back and de-icing services. Under
full service contracts, World Airways provides fuel, catering, ground handling,
cabin crew and all related support services as well. Accordingly, World Airways
generally charges a lower rate per block hour for basic contracts than full
service contracts, although it does not necessarily earn a lower profit.
Because of shifts in the mix between full service contracts and basic contracts,
fluctuations in revenues are not necessarily indicative of volume trends or
profitability. It is important, therefore, to measure World Airways' business
volume by block hours flown and to measure profitability by operating income per
block hour.
As is common in the air transportation industry, World Airways has relatively
high fixed aircraft costs. While World Airways believes that the lease rates on
its MD-11 aircraft are favorable relative to lease rates of other MD-11
operators, World Airways' MD-11 aircraft have higher lease costs (although lower
operating costs) than its DC10-30 aircraft. Therefore, achieving high average
daily utilization of its aircraft (particularly its MD-11 aircraft) at
attractive yields are two of the most critical factors to its financial results.
In addition to fixed aircraft costs, a portion of World Airways' labor costs are
fixed due to monthly minimum guarantees to cockpit crewmembers and flight
attendants.
Customers
World Airways' business relies heavily on its contracts with Malaysian
Airline System Berhad ("Malaysian Airlines"), P.T. Garuda Indonesia ("Garuda")
and the U.S. Air Force's Air Mobility Command ("AMC"). These customers provided
approximately 39%, 10%, and 20%, respectively, of World Airways' revenues and
46%, 10%, and 13%, respectively, of the total block hours during 1995. For the
first six months of 1996, these customers provided approximately 35%, 23%, and
17%, respectively, of its revenues and 43%, 25%, and 11%, respectively, of total
block hours.
World Airways has provided service to Malaysian Airlines since 1981,
providing wet lease services for Malaysian Airlines' scheduled passenger and
cargo operations as well as transporting passengers for the annual Hadj
pilgrimage. In 1996, World Airways provided three aircraft for Hadj operations.
The current five-year Hadj contract with Malaysian Airlines expired 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 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 World
Airways' 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 six
months of 1996, 29% and 25%, respectively, of World Airways' revenues and
37% and 36%, respectively, of its block hours flown resulted from
these multi-year contracts with Malaysian Airlines.
World Airways has provided international air transportation to the U.S. Air
Force since 1956. As compensation for pledges of aircraft to the Civil Reserve
Air Fleet ("CRAF") for use in times of national emergency, the U.S. Air Force
awards contracts to CRAF participants for peacetime transportation of personnel
and cargo. The U.S. Air Force awards contracts to air carriers acting alone or
through teaming arrangements in proportion to the number and type of aircraft
that the carriers make available to CRAF. As a result of World Airways'
increasingly
16
<PAGE>
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
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. For the contract year commencing October 1, 1996, World Airways
recently received its fixed award totaling $54.6 million. Due to the
utilization of a significant number of World Airways' aircraft under multi-year
contracts and other contractual commitments, it is unlikely that World Airways
will be able to accept all of the available expansion business. Although
overall Defense Department spending is being reduced, the level of U.S. Air
Force contract awards has remained relatively constant in recent years. World
Airways, however, cannot determine how future cuts in military spending may
affect future operations with the U.S. Air Force.
World Airways has provided wet lease services to Garuda since 1973 (operating
under an annual Hadj contract since 1988). World Airways operated seven
aircraft in the 1996 Garuda Hadj.
In addition to these customers, World Airways recently entered into an
agreement with Philippine Airlines, Inc. ("Philippine Airlines") to provide
four MD-11 aircraft under year-round wet lease contracts. The first two
aircraft began flying for Philippine Airlines in June and July 1996, with the
remaining two aircraft scheduled to commence operations in October 1996. Under
the agreement, each aircraft will operate for an 18-month term. In addition,
Philippine Airlines has an option for World Airways to operate a DC10-30 cargo
aircraft beginning late in 1996.
As a result of these and other contracts, World Airways had an overall
contract backlog at June 30, 1996 of $532.6 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 52% of the backlog (including a majority of the backlog
beginning in 1997) relates to the multi-year contracts with Malaysian Airlines.
The loss of any of these contracts or a substantial reduction in business from
any of these key customers, if not replaced, would have a material adverse
effect on World Airways' financial condition and results of operations.
Seasonality
Historically, World Airways' business has been significantly affected by
seasonal factors. During the first quarter, World Airways typically experiences
lower levels of utilization and yields as demand for passenger and cargo
services is lower relative to other times of the year. World Airways experiences
higher levels of utilization in the second quarter, principally due to peak
demand for commercial passenger services associated with the annual Hadj
pilgrimage. During 1996, World Airways' flight operations associated with the
Hadj pilgrimage occurred from March 22 to June 1. Because the Hadj occurs
approximately 10 to 12 days earlier each year, revenues resulting from future
Hadj contracts will begin to shift from the second quarter to the first quarter
over the next several years. 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.
As discussed above, World Airways announced its decision to exit scheduled
service operations by October 1996 to focus on its core business: operating
aircraft under contracts with international carriers, the U.S. Government, and
international tour operators. World Airways believes that its year-round
contracts with Malaysian Airlines, Philippine Airlines, and the U.S. Air Force
should lessen the effect of these seasonal factors.
Aviation Fuel
World Airways' source of aviation fuel is primarily from major oil companies,
under annual delivery contracts, at often frequented commercial locations, and
from United States military organizations at military bases. World Airways'
current fuel purchasing policy consists of the purchase of fuel within seven
days in advance of all flights based on current prices set by individual
suppliers. More than one supplier is under contract at several locations.
World Airways purchases no fuel under long-term contracts nor does it enter into
futures or fuel swap contracts.
17
<PAGE>
The air transportation industry in general is affected by the price and
availability of aviation fuel. Both the cost and availability of aviation fuel
are subject to many economic and political factors and events occurring
throughout the world and remain subject to the various unpredictable economic
and market factors that affect the supply of all petroleum products.
Fluctuations in the price of fuel has not had a significant impact on World
Airways' operations in recent years. World Airways' exposure to fuel risk is
limited because (i) under the terms of its basic contracts, the customer is
responsible for providing fuel, (ii) under the terms of its full service
contracts with the U.S. Government, World Airways is reimbursed for the cost of
fuel it provides, and (iii) under its charter contracts, World Airways is
reimbursed for fuel price increases in excess of 5% of the price agreed upon in
the contract, subject to a 10% cap. However, a substantial increase in the
price or the unavailability of aviation fuel could have a material adverse
effect on the air transportation industry in general and the financial condition
and results of operations of World Airways, in particular.
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 expects to begin shipping its next generation smart telephones during the
third quarter of 1996. This next generation smart telephone is sold under the
brand name "Intelifone" in the retail and paging channels and as the Telesmart
4000/TM/ in the telecommunications channel.
On October 19, 1995, US Order completed a transaction to acquire a 40% equity
interest in Home Financial Network, Inc. ("HomeNet"), a newly formed,
development stage personal computer company that plans to develop and deliver
electronic financial products and services for consumers. At closing, US Order
exchanged 296,746 shares of its common stock, valued at approximately $5.0
million, for 40% of HomeNet. 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 June 30, 1996 and does not expect to receive
any revenue from these payments, after application of the Visa Offset, through
at least the remainder of 1996.
On August 5, 1996, US Order and Colonial Data entered into an Agreement and
Plan of Merger pursuant to which US Order and Colonial Data will be merged with
and into a new public company expected to be named TriTech Corporation
("TriTech"). Under the terms of the Agreement, upon consummation of the Merger,
each outstanding share of common stock of US Order, $.001 par value, will be
converted into one share of common stock of TriTech, and each outstanding share
of common stock of Colonial Data, $.01 par value, will be converted into one
share of TriTech Common Stock.
18
<PAGE>
The Boards of Directors of US Order and Colonial Data have agreed to
recommend approval of the Merger to their respective stockholders. The
obligations of US Order and Colonial Data to consummate the Merger are subject
to the satisfaction of certain conditions set forth in the Merger Agreement,
including the approval of the Merger by the stockholders of US Order and
Colonial Data.
RESULTS OF OPERATIONS
World Airways
- - -------------
In July 1996, World Airways announced its decision to exit its scheduled
service operations by October 1996 resulting in a loss of approximately $28.5
million (net of income tax effect) which was recognized in the second quarter of
1996 (see Recent Trends and Developments - Discontinuation of Scheduled Service
Operations). Prior period results of operations have been restated to reflect
the scheduled service operations as discontinued operations.
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Total block hours increased 3,594 hours, or 35%, to 13,907 hours in the
second quarter of 1996 from 10,313 hours in the comparable 1995 period, with an
average of 14.9 available aircraft per day in 1996 compared to 11.1 in 1995.
Average daily utilization (block hours flown per day per aircraft) was 10.2
hours in each period. In the second quarter of 1996, basic contracts accounted
for 80% of total block hours, down from 86% in 1995 as a result of
scheduled service operations.
Continuing Operations
- - ---------------------
Block hours from continuing operations increased 1,859 hours, or 18%, to
12,172 hours in the second quarter of 1996 from 10,313 hours in the comparable
1995 period.
Operating Revenues. Revenues from flight operations increased $11.5 million,
------------------
or 17%, to $80.4 million in the second quarter of 1996 from $68.9 million in
1995. This increase was primarily attributable to an increase in revenues
generated from the multi-year contracts with Malaysian Airlines. In addition,
World Airways realized an increase in revenues generated from its 1996 Hadj
operations and services to certain international carriers. These increases were
partially offset by a decrease in cargo revenue primarily due to downtime
associated with the scheduled maintenance of one aircraft in the second quarter
of 1996.
Operating Expenses. Total operating expenses increased $8.0 million, or 13%,
------------------
in the second quarter of 1996 to $71.3 million from $63.3 million in 1995.
Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft cost, fuel and maintenance. Also
included are expenses related to flight dispatch and flight operations
administration. Despite increased crew costs associated with the increase in
block hours flown, flight operations expenses decreased $1.0 million, or 6%, in
1996 to $15.0 million from $16.0 million in 1995. In 1995, World Airways
accrued profit sharing expenses as a result of earnings experienced during that
period. No such accrual is necessary in 1996 as a result of anticipated losses
from the discontinuation of scheduled service operations. In addition, World
Airways reversed its estimated profit sharing expense which had been recorded in
the first quarter of 1996.
Maintenance expenses increased $3.4 million, or 27%, in 1996 to $16.0 million
from $12.6 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 $3.5 million, or 18%, in 1996 to $22.8 million from
$19.3 million in 1995. This increase was primarily due to the lease of two MD-
11ER aircraft in the first quarter of 1996 and the lease of incremental DC10-30
aircraft which began in the fourth quarter of 1995 and the first quarter of
1996, partially offset by the return of two DC10-30 aircraft to the lessor in
the third quarter of 1995.
Fuel expenses decreased $0.3 million, or 10%, in 1996 to $2.6 million from
$2.9 million in 1995. This decrease is due primarily from a decrease in full
service block hours partially offset by a slight increase in price per
19
<PAGE>
gallon.
Promotions, sales and commissions were $0.7 million in the second quarter of
1996 compared to a relatively insignificant amount in 1995. This increase
resulted primarily from an increase in teaming arrangement commissions
associated with the larger fixed-award contract received from the U.S. Air Force
beginning October 1995.
Depreciation and amortization increased $0.2 million, or 12%, in 1996 to $1.9
million from $1.7 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 $1.3 million, or 32% in 1996 to
$5.4 million from $4.1 million in 1995. This increase was primarily due to the
hiring of additional administrative personnel and an increase in certain legal
and professional fees.
Discontinued Operations
- - -----------------------
In July 1996, World Airways announced its decision to exit its scheduled
service operations by October 1996 and focus its operations on its core
business: operating aircraft under contracts with international carriers, the
U.S. Government, and international tour operators. As a result, World Airways'
scheduled service operations have been reflected as discontinued operations in
the accompanying June 30, 1996, condensed financial statements. Loss from
discontinued operations (net of income tax effect) approximated $7.5 million for
the quarter ended June 30, 1996. In addition, an estimated loss on disposal of
$21.0 million (net of income tax effect) was recorded as of June 30, 1996, which
includes the following: $13.6 million for estimated operating losses during the
phase-out period; a $2.6 million estimated loss to be incurred in connection
with sub-leasing three DC-10 aircraft which will not be utilized in World
Airways' operations subsequent to the phase-out of scheduled service operations;
a $2.3 million writeoff of related leasehold improvements; and $2.0 million for
passenger reprotection expenses. Other than the leased aircraft utilized in
scheduled service operations, World Airways does not have any significant assets
related to its discontinued operations. World Airways expects to meet all cash
requirements of this phase-out period during the third and fourth quarters of
1996 and expects to satisfy these obligations with income generated from its
continuing operations and financings consummated to date. Prior period results
of operations have been restated to reflect scheduled service operations as
discontinued operations.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Total block hours increased 7,316 hours, or 42%, to 24,541 hours in the first
six months of 1996 from 17,225 hours in the comparable 1995 period, with an
average of 13.3 available aircraft per day in 1996 compared to 9.7 in 1995.
Average daily utilization (block hours flown per day per aircraft) increased to
10.2 hours in 1996 from 9.8 hours in 1995. In the first six months of 1996,
basic contracts accounted for 74% of total block hours, down from 82% in
1995 as a result of increased scheduled service operations.
Continuing Operations
- - ---------------------
Block hours from continuing operations increased 4,782 hours, or 28%, to
22,007 hours in the first six months of 1996 from 17,225 hours in the comparable
1995 period.
Operating Revenues. Revenues from flight operations increased $36.5 million,
------------------
or 34%, to $144.8 million in the first six months of 1996 from $108.3 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
generated from its 1996 Hadj operations and services to certain international
carriers.
Operating Expenses. Total operating expenses increased $33.3 million, or
------------------
31%, in the first six months of 1996 to $140.1 million from $106.8 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
20
<PAGE>
administration. Flight operations expenses increased $6.4 million, or 22%, in
1996 to $35.3 million from $28.9 million in 1995. This increase resulted
primarily from an increase in block hours flown and higher crew costs and up-
front training expenses in connection with the integration of additional
aircraft into the fleet after June 30, 1995. These increases were partially
offset by a decrease in accrued profit sharing expenses. In 1995, World Airways
accrued profit sharing expenses as a result of earnings experienced during that
period. No such accrual is necessary in 1996 as a result of anticipated losses
from the discontinuation of scheduled service operations.
Maintenance expenses increased $9.9 million, or 48%, in 1996 to $30.5 million
from $20.6 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 $8.6 million, or 26%, in 1996 to $41.5 million from
$32.9 million in 1995. This increase was primarily due to the lease of two MD-
11ER aircraft in the first quarter of 1996 and the lease of incremental DC10-30
aircraft which began in the second and fourth quarters of 1995 and the first
quarter of 1996, partially offset by the return of two DC10-30 aircraft to the
lessor in the third quarter of 1995.
Fuel expenses increased $2.2 million, or 37%, in 1996 to $8.1 million from
$5.9 million in 1995. This increase is due primarily to an increase in fuel
utilized in connection with its military operations.
Promotions, sales and commissions were $1.7 million in the first six months
of 1996 compared to a relatively insignificant amount in 1995. This increase
resulted primarily from 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 $1.3 million, or 50%, in 1996 to $3.9
million from $2.6 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 $2.6 million, or 31%, in 1996
to $11.1 million from $8.5 million in 1995. This increase was primarily due to
the hiring of additional administrative personnel necessary to support the
growth in World Airways' core business and an increase in certain legal and
professional fees.
Discontinued Operations
- - -----------------------
In July 1996, World Airways announced its decision to exit its scheduled
service operations by October 1996 and focus its operations on its core
business: operating aircraft under contracts with international carriers, the
U.S. Government, and international tour operators. As a result, World Airways'
scheduled service operations have been reflected as discontinued operations in
the accompanying June 30, 1996, condensed financial statements. Loss from
discontinued operations (net of income tax effect) approximated $11.7 million
for the six months ended June 30, 1996. In addition, an estimated loss on
disposal of $21.0 million (net of income tax effect) was recorded as of June 30,
1996, which includes the following: $13.6 million for estimated operating
losses during the phase-out period; a $2.6 million estimated loss to be incurred
in connection with sub-leasing three DC-10 aircraft which will not be utilized
in World Airways' operations subsequent to the phase-out of scheduled service
operations; a $2.3 million writeoff of related leasehold improvements; and $2.0
million for passenger reprotection expenses. Other than the leased aircraft
utilized in scheduled service operations, World Airways does not have any
significant assets related to its discontinued operations. World Airways expects
to meet all cash requirements of this phase-out period during the third and
fourth quarters of 1996 and expects to satisfy these obligations with income
generated from its continuing operations and financings consummated to date.
Prior period results of operations have been restated to reflect scheduled
service operations as discontinued operations.
US Order
- - --------
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Operating Revenue. US Order's second quarter revenues decreased by $0.4
-----------------
million from $0.9 million in 1995 to $0.5 million for the same period in 1996.
Product revenues decreased by $0.4 million between periods, from $0.5 million in
the second quarter of 1995 to $0.1 million for the same period in 1996. The
decrease in product revenues
21
<PAGE>
was primarily due to US Order not shipping any of its next generation smart
telephones, the Intelifone or the Telesmart 4000/TM/, during the second quarter
of 1996. US Order expects to begin shipping its next generation smart
telephones during the third quarter of 1996. The product revenues generated in
the second quarter of 1995 were from the sale of US Order's previous generation
PhonePlus/TM/ smart telephones. Service fees revenue for the second quarter of
1996 totaled $0.5 million compared to $0.4 million in the same period in 1995,
an increase of $0.1 million. Service fees revenue were generated primarily from
two sources: customer support services and monthly service fees. US Order's
customer support services revenue totaled $0.3 million for the second quarter of
1996, an increase of $0.2 million over the same period in 1995. These customer
support services were remarketed by Visa Interactive to Visa member banks under
US Order's reseller agreement with Visa Interactive. Monthly service fees
totaled $0.1 million for the second quarter of 1996 as compared to $0.2 million
for the same period in 1995. These service fee revenues are from customers who
use US Order's smart telephones and interactive applications, and the decrease
of $0.1 million was primarily due to US Order's continuing efforts to convert
these customers to Visa member banks.
Cost of Revenue. US Order's second quarter cost of revenue decreased by $0.5
---------------
million from $0.8 million in 1995 to $0.3 million for the same period in 1996.
Product cost of revenue decreased by $0.4 million between periods, from $0.5
million in the second quarter of 1995 to $0.1 million for the same period in
1996. This decrease is primarily due to a decrease in sales of US Order's smart
telephones resulting from the transition from primarily selling US Order's
PhonePlus/TM/ smart telephone to selling its next generation smart telephone,
which US Order expects to begin shipping during the third quarter of 1996. US
Order's second quarter service cost of revenue remained relatively unchanged
between periods. Service cost of revenue related to generating monthly fee
revenues decreased $0.1 million, offsetting a $0.1 million increase in costs
related to providing customer support services to Visa, Visa member banks and
third parties. The service cost of revenues related to monthly service fees
decreased between periods due to the full depreciation in the fourth quarter of
1995 of the smart telephones utilized to generate monthly fee revenues and due
to the continuing conversion of customers utilizing smart telephones to Visa
member banks. The increase in cost of revenue related to customer service was a
direct result of increased customer volume and revenue from this source.
Furthermore, 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 both service fee and product revenues earned
during the period.
Operating Expenses. Research and development costs were $0.6 million in the
------------------
second quarter of 1996 as compared to $0.2 million for the same period in 1995.
The increase of $0.4 million was largely attributable to developing, designing
and testing both US Order's home banking connectivity products and support
services and US Order's next generation smart telephone and its associated
interactive services. 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 $2.7 million for the second quarter
of 1996 as compared to $1.2 million in the second quarter of 1995. The increase
of $1.5 million was a result of US Order's hiring of additional staff and an
increase in costs associated with upgrading systems and operations in
anticipation of the potential of increased business later in 1996 resulting from
its alliances with its strategic partners, particularly related to the March
1996 Microsoft and Visa InterActive bill pay agreement, as well as from other
markets for US Order's smart telephone and home banking products and services.
US Order expects that general and administrative expenses will continue to
increase throughout 1996 as US Order develops the infrastructure to handle
increased business.
Advertising and promotion expenses had a nominal increase between 1995 and
1996. During the second half of 1996, US Order expects to begin selling its
Intelifone 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 second quarter
(and first six months) of 1996 and during the fiscal year ended December 31,
1995 with the entrance of its next generation smart telephone into these retail
channels. 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.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Operating Revenue. US Order's revenues for the first six months of 1996
-----------------
increased by $0.2 million from $1.7 million in 1995 to $1.9 million for the same
period in 1996. Product revenues remained relatively consistent between 1995
and 1996. Product revenues from home banking connectivity products also
remained relatively unchanged
22
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between periods. The decrease in smart telephone product revenues between
periods resulted primarily from the transition from primarily selling US Order's
PhonePlus smart telephone to selling its next generation smart telephone, which
US Order expects to begin shipping during the third quarter of 1996. Service
fees revenue for the first six months of 1996 totaled $1.0 million compared to
$0.9 million in the same period in 1995, an increase of $0.1 million. Service
fees revenue were generated primarily from two sources: (1) customer support
services and (2) monthly service fees. US Order's customer support services
revenue totaled $0.7 million for the first six months of 1996, an increase of
$0.4 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 $0.3 million for
the first six months of 1996 as compared to $0.5 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 $0.2 million was
primarily due to US Order's continuing efforts to convert these customers to
Visa member banks.
Cost of Revenue. US Order's first six months cost of revenue decreased by
---------------
$0.1 million, from $1.4 million in 1995 to $1.3 million for the same period in
1996. Product cost of revenue decreased by $0.1 million between periods, from
$0.8 million in the first six months of 1995 to $0.7 million for the same period
in 1996. This decrease is primarily due to the composition of home banking
product sales between hardware and software licensing and a decrease in the sale
of US Order's smart telephones between periods. The decrease in smart telephone
product sales resulted from the transition from primarily selling US Order's
PhonePlus/TM/ smart telephone product sales to selling its next generation smart
telephone. Service cost of revenues remained relatively unchanged between 1995
and 1996. Service cost of revenues related to generating monthly fee revenues
decreased $0.3 million between periods, offsetting a $0.3 million increase in
costs related to providing customer support services to Visa, Visa member banks
and third parties. The service cost of revenues related to monthly service fees
decreased between periods due to the full depreciation in the fourth quarter of
1995 of the smart telephones utilized to generate monthly fee revenues and due
to the continuing conversion of customers utilizing smart telephones to Visa
member banks. The increase in cost of revenue related to customer service was a
direct result of increased customer volume and revenue from this source.
Furthermore, 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 both service fee and product revenues earned
during the period.
Operating Expenses. Research and development costs were $1.2 million in the
------------------
first six months of 1996 as compared to $0.5 million for the same period in
1995. The increase of $0.7 million was largely attributable to developing,
designing and testing both US Order's home banking connectivity products and US
Order's fourth generation smart telephone and its associated interactive
services. 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 $4.5 million for the first six
months of 1996 as compared to $2.2 million in the same period in 1995. The
increase of $2.3 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 US
Order's 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.
Advertising and promotion expenses were nominal in 1995 and 1996. During the
second half of 1996, US Order expects to begin selling its Intelifone 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 six months of 1996 and
during the fiscal year ended December 31, 1995 with the entrance of the its next
generation smart telephone into these retail 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 $0.6 million and $1.5 million for the quarter and
six months ended June 30, 1996, respectively, from the comparable periods in
1995. These increases resulted primarily from an increase in cash and
23
<PAGE>
investments balances.
In addition, US Order recorded equity in loss of affiliate of $0.5 million
and $0.9 million in the second quarter and first six months of 1996,
respectively, due to the recording its proportionate share of losses of HomeNet
and the amortization of the excess of the purchase price over US Order's share
of the equity in net assets of HomeNet, following US Order's investment in
HomeNet in October 1995. US Order expects HomeNet's operating losses to
continue through the remainder of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company is highly leveraged, primarily due to debt restructurings in 1987
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.
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 six months of 1996, World Airways reported a net loss
of $21.9 million, which resulted from operating losses incurred in its scheduled
service operations and the related estimated loss on disposal. Earnings from
continuing operations were $10.8 million for the first six months ended June 30,
1996. While World Airways expects its continuing operations to remain
profitable, there can be no assurance that it will be able to maintain this
profitability for the remainder of 1996 and future years.
US Order has generated operating losses since its inception. 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 $11.0 million in cash for the six months ended June
30, 1996 compared to providing $4.1 million of cash in the comparable period in
1995. This decrease in cash in 1996 resulted primarily from an increase in
losses from discontinued operations and an increase in accounts receivable,
partially offset by an increase in accounts payable during 1996. In addition,
the Company recorded gain of $48.9 million associated with US Order's public
offering in June 1995.
Cash Flows from Investing Activities
Investing activities used $4.7 million in cash for the six months ended June
30, 1996 compared to using $10.2 million in the comparable period in 1995. This
decrease in cash used resulted primarily from the purchase of rotable spare
parts required for the integration of two MD-11 aircraft and incremental DC-10
aircraft in 1995, as compared to the acquisition of engines and spare parts
which were financed in 1996.
Cash Flows from Financing Activities
Financing activities provided $1.1 million in cash for the six months ended
June 30, 1996 compared to $55.7 million in the comparable period in 1995. In
1995, the Company received $60.5 million from the sale of US Order's common
stock and made net repayments of $5.1 million on its borrowings. In 1996, the
Company increased its net borrowings by $0.9 million.
Capital Commitments
World Airways
- - -------------
In October 1992 and January 1993, World Airways signed a series of agreements
to lease seven new MD-11 aircraft for initial lease terms of two to five years,
renewable for up to 10 years (and in the case of one aircraft, for
24
<PAGE>
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 a result of World
Airways' decision to discontinue scheduled service operations, World Airways is
actively seeking to sublease three of its DC-10 aircraft to other carriers.
As of June 30, 1996, annual minimum payments required under World Airways'
aircraft and lease obligations totaled $46.8 million for the remainder of 1996,
including the two MD-11ER aircraft and the two DC10-30 aircraft leased in March
1996.
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 June 30, 1996, approximately $3.3 million had been received. In
January 1996, World Airways agreed to purchase an additional engine and received
a commitment from the engine manufacturer to finance 85% of its purchase price
over a seven-year term with an interest rate to be fixed at the time of
delivery.
World Airways' fixed assets increased approximately $15.2 million during
1996. The majority of this amount relates to assets which were financed. World
Airways anticipates that its total capital expenditures in 1996, which include
the two spare engines, will approximate $28.0 million. As discussed above,
World Airways will receive approximately $22.6 million in financing, of which
$6.5 million was received during the first six months of 1996. The remaining
balance will be funded from its operating cash flow and available cash balances.
In March 1996, the Credit Agreement was amended to increase the limit on capital
expenditures by World Airways to no more than $35.0 million and $25.0 million in
1996 and 1997, respectively.
As of June 30, 1996, World Airways held approximately $2.7 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 53-month period commencing July
1996 with aggregate minimum lease payments equal to approximately $2.7 million.
In May 1996, US Order entered into a facilities operating lease for additional
office space. The lease covers a 54-month period commencing
25
<PAGE>
August 1996 with aggregate minimum lease payments equal to approximately $0.5
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 six months of 1996,
and the remaining commitment was approximately $3.1 million as of June 30, 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 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 six months ended June 30, 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 such as the pending merger with
Colonial Data, 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 may 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 will utilize funds it expects to generate from
asset sales, including approximately $0.3 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 $59.9
million in cash and cash equivalents at June 30, 1996, approximately $39.5
million is held by World Airways and US Order and, therefore, is not available
to satisfy WorldCorp's obligations. As of June 30, 1996, WorldCorp had parent
company repayment obligations, including principal and interest, of
approximately $4.2 million and $33.4 million for the remainder of 1996 and 1997,
respectively.
The Company believes that the combination of the financings consummated to
date, the availability of additional financings, and sales of securities of
World Airways and/or US Order 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.
26
<PAGE>
Effective June 30, 1996, World Airways amended its Credit Agreement with BNY
Financial Corporation ("BNY") to include the following: a $10.5 million spare
parts loan (of which $5.6 million was outstanding at June 30, 1996), an $8.0
million revolving line of credit, and a new $5.0 million term loan. The $5.0
million term loan was received in August 1996. This amended Credit Agreement,
which expires in 1999, is collateralized by certain receivables, inventory, and
equipment. As of June 30, 1996, the revolving line of credit was fully
utilized.
Under the terms of the amended Credit Agreement, World Airways is not
permitted to (i) incur indebtedness in excess of $25.0 million (excluding
capital leases), (ii) declare, pay, or make any dividend or distribution in any
six month period which aggregate in excess of the lesser of $4.5 million or 50%
of net income for the previous six months, (iii) declare or pay dividends if
after giving effect to such dividends World Airways' cash or cash equivalents
would be less than $7.5 million or (iv) make capital expenditures in 1996 and
1997 of more than $35.0 million and $25.0 million, respectively, or in any
subsequent year of more than $15.0 million. World Airways must also maintain a
certain quarterly net worth and net income (loss) requirements. As of June 30,
1996, World Airways was in compliance with these amended covenants. No
assurances can be given, however, that World Airways will continue to meet these
covenants or, if necessary, obtain the required waivers.
In September 1995 World Airways entered into an agreement with a lessor to
purchase a spare engine, previously under lease, for $5.5 million. World Airways
paid $0.5 million upon closing and signed a note for the $5.0 million balance.
The note bears interest at a rate of 7.25% and is payable over a 40-month period
at $69,000 a month, with the balance of $3.3 million due on January 29, 1999. In
addition, World Airways purchased an additional spare engine which was delivered
in March 1996. The engine cost approximately $8.0 million. World Airways entered
into an agreement with the engine's manufacturer to finance 80% of the purchase
price over a seven-year term. World Airways made payments of $1.2 million and
$0.4 million towards this purchase in September 1995 and January 1996,
respectively. In January 1996, World Airways agreed to purchase an additional
engine and received a commitment from the engine manufacturer to finance 85% if
its purchase price over a seven-year term with an interest rate to be fixed at
the time of delivery.
In May 1996, US Order entered into two credit agreements with the same bank
that provide for borrowings up to $5.0 million. As of June 30, 1996, US Order
had no borrowings against either of these two credit lines, but had committed
$3.3 million of these credit lines through the issuance of a letter of credit to
STL for the purchase of its next generation smart telephone.
RECENT TRENDS AND DEVELOPMENTS
World Airways
- - -------------
Discontinuation of Scheduled Service Operations. In May 1996, World Airways
-----------------------------------------------
commenced scheduled charter operations between the United States and Germany,
Switzerland, Ireland, and the United Kingdom. For its scheduled service
operations, World Airways commenced service between Tel Aviv and New York in
July 1995 and commenced service between the U.S. and South Africa in June 1996.
However, World Airways was unable to operate these markets profitably.
Based on disappointing results from these operations and a decision to
refocus its strategic direction on its core business, World Airways announced in
July 1996 its decision to exit its scheduled service operations by October 1996.
This decision resulted in a loss of approximately $28.5 million (net of income
tax effect) which was recognized in the second quarter of 1996. This amount
includes an operating loss of approximately $7.5 million relating to second
quarter operations and a $21.0 million charge (net of income tax effect) which
includes the following: estimated operating losses during the phase-out period;
lease costs on unutilized aircraft; passenger reprotection expenses; and the
writeoff of certain leasehold improvements. As a result of this decision, World
Airways will reduce its fixed overhead costs, primarily through the elimination
of costs related to discontinued operations. World Airways expects to meet all
cash requirements of this phase-out period during the third and fourth quarters
of 1996 and expects to satisfy these obligations with income generated from its
continuing operations and financings consummated to date.
As indicated above, World Airways has shifted its strategic direction and
will focus its energies on its core business: operating aircraft under
contracts with international carriers, the U.S. government, and international
tour operators. From these continuing operations, World Airways reported $10.8
million in earnings for the six months
27
<PAGE>
ended June 30, 1996. While World Airways maintains a contract backlog of $532.6
million as of that date and expects that its core business will remain
profitable, no assurances can be given that it will be able to maintain
profitability within its continuing operations.
Maintenance. World Airways outsources major airframe maintenance and power
-----------
plant work to several suppliers. World Airways has a 10-year contract ending in
August 2003 with United Technologies Corporation's Pratt & Whitney Group ("Pratt
and Whitney") for all off-wing maintenance on the PW 4462 engines that power its
MD-11 aircraft. Under this contract, the manufacturer agreed to provide such
maintenance services at a cost not to exceed a specified rate per hour during
the term of the contract. The specified rate per hour is subject to annual
escalation, and increases substantially in 1998. Accordingly, while World
Airways believes the terms of this agreement will result in lower engine
maintenance costs than it otherwise would incur during the first five years of
the agreement, these costs will increase substantially during the last seven
years of the agreement.
World Airways' maintenance costs associated with the MD-11 aircraft and PW
4462 engines have been significantly reduced due in part to manufacturer
guarantees and warranties, which guarantees and warranties began to expire in
1995 and will fully expire by 1998. Therefore, World Airways expects that
maintenance expense will increase as these guarantees and warranties expire.
US Order. In August 1996, US Order and Colonial Data entered into an
--------
Agreement and plan of Merger pursuant to which US Order and Colonial Data will
be merged with and into a new public company expected to be named TriTech
Corporation ("TriTech"). Under the terms of the Agreement, upon consummation of
the Merger, each outstanding share of common stock of US Order, $.001 par value,
will be converted into one share of common stock of TriTech, and each
outstanding share of common stock of Colonial Data, $.01 par value, will be
converted into one share of TriTech Common Stock.
The Boards of Directors of US Order and Colonial Data have agreed to
recommend approval of the Merger to their respective stockholders. The
obligations of US Order and Colonial Data to consummate the Merger are subject
to the satisfaction of certain conditions set forth in the Merger Agreement,
including the approval of the Merger by the stockholders of US Order and
Colonial Data. Upon completion of this agreement, WorldCorp will have a
beneficial ownership of approximately 29.0% of TriTech.
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.
28
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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 July 1998.
World Airways' flight attendants are also represented by the Teamsters under
a collective bargaining agreement that became amendable in 1992. The parties
exchanged their opening contract proposals in 1992. In June 1996, World Airways
signed a new four year labor agreement with the Teamsters which provides for pay
increases for the flight attendants and work rule flexibility and lengthened
duty time rules for World Airways. The agreement is currently awaiting
ratification by the flight attendants. No assurance can be given, however, that
the flight attendants will ratify the agreement. In the event that the
agreement is not ratified, 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 World Airways' flights for Malaysian Airlines
and Garuda Indonesia which has historically been World Airways' operating
procedure. World Airways is contractually obligated to permit its Southeast
Asian customers to deploy their own flight attendants. While World Airways
intends to contest this matter vigorously in an upcoming arbitration, an
unfavorable ruling for World Airways could have a material adverse effect on
World Airways.
World Airways' aircraft dispatchers are represented by the Transport Workers
Union (the "TWU"). This contract became amendable on June 30, 1993. In May 1995,
the parties reached agreement with respect to a new four-year contract. This
contract was ratified on February 7, 1996. Fewer than 12 Company employees are
covered by this collective bargaining agreement.
World Airways' is unable to predict whether any of its employees not
currently represented by a labor union, such as its maintenance personnel, will
elect to be represented by a labor union or collective bargaining unit. The
election by such employees of representation in such an organization could
result in employee compensation and working condition demands that could have a
material adverse effect on the financial results of the Company.
Dividend Policy
WorldCorp has never paid any cash dividends and does not plan to do so in the
foreseeable future. WorldCorp, which owns a majority position in World Airways'
and 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 June 30, 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.
29
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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. World Airways will continue to
assess the appropriateness of the valuation allowance based on future
operations. A portion of World Airways' NOLs are subject to an annual
limitation as a result of a previous ownership change, for tax purposes, which
occurred in 1991.
Inflation
The Company believes that inflation has not had a material effect on the
Company's revenues during the past three years.
30
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits
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Exhibit
No. Exhibit
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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 by reference
Amendment No. 2 to WorldCorp, Inc.'s Form S-2 Registration Statement
(Commission File No. 33-1358276) filed August 13, 1987 and incorporated
herein by reference.]
4.2 First Supplemental Indenture dated as of March 1, 1988 between Incorporated
WorldCorp, Inc. and Norwest Bank of Minneapolis, N.A. (Filed as by reference
Exhibit 4.2 to WorldCorp, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1988 and incorporated herein by
reference.)
4.3 Second Supplemental Indenture dated as of February 22, 1994 between Incorporated
WorldCorp, Inc. and Norwest Bank Minnesota, National Association. by reference
(Filed as Exhibit 4.3 to WorldCorp, Inc's Form S-3 Registration Statement
(Commission file No. 33-60247) filed on June 15, 1995 and incorporated
herein by reference.)
4.4 Third Supplemental Indenture dated as of March 15, 1995 between Incorporated
WorldCorp, Inc. and Norwest Bank Minnesota, National Association. by reference
(Filed as Exhibit 4.4 to WorldCorp, Inc's Form S-3 Registration Statement
(Commission file No. 33-60247) filed on June 15, 1995 and incorporated
herein by reference.)
4.6 First Supplemental Indenture dated as of February 22, 1994 between Incorporated
WorldCorp, Inc. and The First National Bank of Boston, as Trustee. by reference
(Filed as Exhibit 4.6 to WorldCorp, Inc's Form S-3 Registration Statement
(Commission file No. 33-60247) filed on June 15, 1995 and incorporated
herein by reference.)
4.8 Stock Option Agreement dated as of April 1, 1995 between WorldCorp, Incorporated
Inc. and Patrick F. Graham. (Filed as Exhibit 4.8 to WorldCorp Inc's by reference
Form S-3 Registration Statement (Commission file No. 33-60247)
filed on June 15, 1995 and incorporated herein by reference.)
10.1 Warrant Agreement between WorldCorp, Inc. and Drexel Burnham Incorporated
Lambert, Incorporated ("Drexel") dated as of June 30, 1988. (Filed by reference
as Exhibit 10.1 to WorldCorp, Inc.'s Form 10-Q for the quarter ended
March 31, 1989 and incorporated herein by reference.)
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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 individual by reference
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.)
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10.14 Office Lease - The Hallmark Building dated Incorporated
as of May 16, 1987 between WorldCorp, Inc. and GT Renaissance by reference
Centre Limited Partnership. (Filed as Exhibit 10.36 to WorldCorp, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31, 1989
and incorporated herein by reference.)
10.15 Lease Amendment dated as of June 27, 1989 between WorldCorp, Inc. Incorporated
and GT Renaissance Centre Limited Partnership. (Filed as Exhibit by reference
10.37 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1989 and incorporated herein by reference.)
10.16 Office Lease - The Hallmark Building dated as of September 20, 1989 Incorporated
between World Airways, Inc. and GT Renaissance Centre Limited by reference
Partnership. (Filed as Exhibit 10.38 to WorldCorp, Inc's Annual
Report on form 10-K for the fiscal year ended December 31, 1989
and incorporated herein by reference.)
10.17 Warrant Agreement dated as of July 22, 1989 between WorldCorp, 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 Incorporated
Exhibit 10.49 to WorldCorp, Inc.'s Annual Report on Form 10-K for the by reference
fiscal year 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 for by reference
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 World Incorporated
Airways, Inc. and First Security Bank of Utah, N.A., not in its individual by reference
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 Airways, Incorporated
Inc. and First Security Bank of Utah, N.A., not in its individual capacity, by reference
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 WorldCorp, Incorporated
Inc. and US Order Incorporated. (Filed as Exhibit 10.38 to WorldCorp, Inc.'s by reference
Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.)
10.30 Aircraft Lease Agreement I dated as of February 12, 1992 between McDonnell Incorporated
Douglas Finance Corporation and World Airways, Inc. (Filed as Exhibit 10.39 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.)
</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 Incorporated
between Terandon Leasing Corporation and World Airways, Inc. (Filed as by reference
Exhibit 10.41 to WorldCorp, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 and incorporated herein by
reference.)
10.33 Aircraft Engine Lease Agreement dated as of April 26, 1991 between Incorporated
Terandon Leasing Corporation and World Airways, Inc. (Filed as by reference
Exhibit 10.42 to WorldCorp, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 and incorporated herein by
reference.)
10.34 Guaranty Agreement I dated as of February 12, 1992 between Incorporated
McDonnell Douglas Finance Corporation and World Airways, Inc. by reference
(Filed as Exhibit 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 Incorporated
McDonnell Douglas Finance Corporation and World Airways, Inc. by reference
(Filed as Exhibit 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 Incorporated
14, 1990 between US Order, Inc. and WorldCorp, Inc. (Filed as Exhibit by reference
10.45 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 and incorporated herein by reference.)
10.37 Stock Restriction Agreement dated as of September 14, 1990 between Incorporated
WorldCorp, Inc., William F. Gorog, Jonathan M. Gorog, Peter M. Gorog, by reference
Henry R. Nichols, William N. Melton and John Porter. (Filed as Exhibit
10.46 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1991 and incorporated herein by reference.)
10.38 Aircraft Lease Agreement for Aircraft Serial Number 48518 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.39 Aircraft Lease Agreement for Aircraft Serial Number 48519 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.40 Aircraft Lease Agreement for Aircraft Serial Number 48520 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.41 Aircraft Lease Agreement for Aircraft Serial Number 48633 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
</TABLE>
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10.42 Aircraft Lease Agreement for Aircraft Serial Number 48631 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.43 Aircraft Lease Agreement for Aircraft Serial Number 48632 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.45 MD-11 Aircraft Charter Agreement dated as of March 18, 1993 Incorporated
between World Airways, Inc. and PT. Garuda Indonesia. by reference
10.45 DC10-30 Aircraft Charter Agreement dated as of March 18, 1993 Incorporated
between World Airways, Inc. and PT. Garuda Indonesia. by reference
10.46 Accounts Receivable Management and Security Agreement dated as Incorporated
of December 7, 1993 between World Airways, Inc. and BNY by reference
Financial Corporation.
10.47 Aircraft Parts Security Agreement dated as of December 7, 1993 Incorporated
between World Airways, Inc. and BNY Financial Corporation. by reference
10.48 Warrant Certificate dated as of December 7, 1993 between WorldCorp, Incorporated
Inc. and BNY Financial Corporation. by reference
10.50 Subscription and Preferred Stock Purchase Agreement dated as of Incorporated
December 20, 1993 between US Order, Inc. and Knight-Ridder, Inc. by reference
10.51 Subscription and Preferred Stock Purchase Agreement dated as of Incorporated
December 21, 1993 between US Order, Inc. and WorldCorp, Inc. by reference
10.52 Subscription and Preferred Stock Purchase Agreement dated as of Incorporated
December 20, 1993 between US Order, Inc. and Jerome Kohlberg, Jr. by reference
10.53 Subscription and Preferred Stock Purchase Agreement dated as of Incorporated
December 21, 1993 between US Order, Inc. and Hoechst Celanese by reference
Corporation Employee Benefit Master Trust
10.54 Series C Preferred Stock Purchase Agreement dated as of December Incorporated
21, 1993 between US Order, Inc. and VeriFone, Inc. by reference
10.55 Registration Rights Agreement dated as of December 21, 1993 Incorporated
between US Order, Inc. and VeriFone, Inc. by reference
10.57 Investment Agreement dated as of December 21, 1993 by and among Incorporated
US Order, Inc., WorldCorp, Inc., and VeriFone, Inc. by reference
10.58 Settlement Agreement dated as of February 8, 1994 between World Incorporated
Airways, Inc, WorldCorp, Inc., Concord Asset Management, Inc., by reference
Concord Leasing, Inc., and The CIT Group.
10.59 Lease Agreement dated as of June 1, 1993 between World Airways, Incorporated
Inc. and Mattei Corporation. by reference
10.60 Lease Agreement dated as of March 30, 1993 between World Airways, Incorporated
Inc. and Tinicum Properties Associates Limited Partnership, as by reference
amended by First Amendment to Lease dated July 9, 1993.
</TABLE>
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10.61 Lease Agreement dated as of January 25, 1993 between World Flight Incorporated
Crew Services, Inc. and Sakioka Farms. by reference
10.62 Consignment Agreement dated as of September 30, 1993 between World Incorporated
Airways Inc. and The Memphis Group. by reference
10.63 Assignment and Assumption and Consent and Release for Aircraft Incorporated
Serial Number 47818 dated as of July 20, 1993 among World by reference
Airways, Inc., WorldCorp, Inc., McDonnell Douglas Corporation, and
McDonnell Douglas Finance Corporation.
10.64 Assignment and Assumption and Consent and Release for Aircraft Incorporated
Serial Number 46999 dated as of July 9, 1993 among World by reference
Airways, Inc., WorldCorp, Inc., McDonnell Douglas Corporation, and
McDonnell Douglas Finance Corporation.
10.65 Aircraft Lease Agreement for Aircraft Serial Number 48458 dated as Incorporated
of January 15, 1993 between World Airways, Inc. and Wilmington by reference
Trust Company/GATX Capital Corporation.
10.66 Aircraft Lease Supplement for Aircraft Serial Number 48458 dated as Incorporated
of April 23, 1993 between World Airways, Inc. and Wilmington Trust by reference
Company/GATX Capital Corporation.
10.67 Aircraft Spare Parts Lease Agreement dated as of April 15, 1993 Incorporated
between World Airways, Inc. and GATX Capital Corporation. by reference
10.68 Amendment No. 1 To Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48518 dated as of November 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
10.69 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48518 dated as of March 8, 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
10.70 Assignment of Rights for Aircraft Serial Number 48518 dated as of Incorporated
March 8, 1993 between World Airways, Inc. and International Lease by reference
Finance Corporation.
10.71 Assignment of Rights for Aircraft Engines Serial Numbers P723942, Incorporated
P723945, and P723943 dated as of March 1, 1993 between World by reference
Airways, Inc. and International Lease Finance Corporation.
10.72 Agency Agreement for Aircraft Serial Number 48518 dated as of Incorporated
January 15, 1993 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.73 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48437 dated as of March 31, 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
10.74 Amendment No. 3 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48437 dated as of April 15, 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
</TABLE>
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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.
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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>
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10.103 World Airways, Inc. 1995 AMC Contract F11626-94-D0027 dated Incorporated
October 1, 1994 between World Airways, Inc. and Air Mobility Command. by reference
10.104 Amendment No. 4 dated as of December 1, 1994 to the US Order, Inc. Incorporated
Stock Restriction Agreement dated as of September 14, 1990 among by reference
WorldCorp, Inc., a Delaware corporation ("WorldCorp"), William F.
Gorog, Jonathan M. Gorog, Peter M. Gorog, Henry R. Nichols, William
N. Melton and John Porter (collectively, the "Founders" and each a
"Founder"), and the Employees.
10.105 Stock Purchase Agreement (the "Agreement") dated as of December Incorporated
31, 1994 by and between MHS Berhad, a Malaysian corporation (the by reference
"Shareholder") and WorldCorp, Inc., a Delaware corporation (the
"Purchaser").
10.106 Promissory Note dated December 31, 1994 for $8,500,000 between Incorporated
WorldCorp, Inc., a Delaware corporation ("Borrower") and Malaysian by reference
Helicopter Services Berhad, a Malaysian corporation ("Lender").
10.107 Amendment No. 1 to Passenger Aircraft Services and Freighter Incorporated
Services Agreement dated December 31, 1994 by and between World by reference
Airways, Inc. and Malaysian Airline System Berhad.
10.108 Amendment No. 5 dated January 2, 1995 to the US Order, Inc. Stock Incorporated
Restriction Agreement dated as of September 14, 1990 among by reference
WorldCorp, Inc., a Delaware corporation ("WorldCorp"), William F.
Gorog, Jonathan M. Gorog, Peter M. Gorog, Henry R. Nichols,
William N. Melton and John Porter (collectively, the "Founders" and
each a "Founder"), and the Employees.
10.109 Customer Agreement between WorldCorp ESSOP and Scott & Incorporated
Stringfellow, Inc. dated January 11, 1995 for a margin loan. by reference
10.110 Side Letter dated January 11, 1995 from Scott & Stringfellow, Inc. to Incorporated
William F. Gorog, Trustee of WorldCorp Employee Savings and Stock by reference
Ownership Plan for a margin loan to the WorldCorp ESSOP.
10.111 Guarantee Agreement dated January 11, 1995 by WorldCorp, Inc. Incorporated
("Guarantor") for the benefit of Scott & Stringfellow, Inc. (the by reference
"Lender").
10.112 Registration Rights Agreement dated as of January 11, 1995 by and Incorporated
between WorldCorp, Inc. and Scott & Stringfellow, Inc. by reference
10.113 Side Letter dated January 11, 1995 from WorldCorp, Inc. to Scott & Incorporated
Stringfellow, Inc. regarding commitment to make contributions to 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>
39
<PAGE>
<TABLE>
<S> <C> <C>
11 Statement on Calculation of Earnings (Loss) Per Common Share. Filed Herewith
27 Financial Data Schedule for quarter ended June 30, 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.
* * * * * * * * * * * * * * *
40
<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: August 14, 1996
41
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALL
FINANCIAL STATEMENTS 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> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 59,859
<SECURITIES> 0
<RECEIVABLES> 31,992
<ALLOWANCES> 457
<INVENTORY> 0
<CURRENT-ASSETS> 103,383
<PP&E> 88,336
<DEPRECIATION> 20,734
<TOTAL-ASSETS> 208,800
<CURRENT-LIABILITIES> 104,106
<BONDS> 0
0
0
<COMMON> 16,583
<OTHER-SE> (60,072)
<TOTAL-LIABILITY-AND-EQUITY> 208,800
<SALES> 0
<TOTAL-REVENUES> 87,165
<CGS> 0
<TOTAL-COSTS> 75,716
<OTHER-EXPENSES> 2,286
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,969
<INCOME-PRETAX> 9,163
<INCOME-TAX> 315
<INCOME-CONTINUING> 4,379
<DISCONTINUED> 16,897
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,518)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.49)
</TABLE>
