<PAGE>
================================================================================
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, 1997 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 8,
1997 was 15,014,641.
================================================================================
<PAGE>
WORLDCORP, INC.
JUNE 1997, QUARTERLY REPORT ON FORM 10Q
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, June 30,
1997 and December 31, 1996.......................................... 3
Condensed Consolidated Statements of Operations,
Three months ended June 30, 1997 and 1996........................... 5
Condensed Consolidated Statements of Operations,
Six months ended June 30, 1997 and 1996............................. 7
Condensed Consolidated Statement of Changes in Common
Stockholders' Deficit, Six months ended June 30, 1997............... 9
Condensed Consolidated Statements of Cash Flows,
Six months ended June 30, 1997 and 1996............................. 10
Notes to Condensed Consolidated Financial Statements................ 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................... 30
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents, including restricted
cash of $925 at June 30, 1997 and $447
at December 31, 1996 $ 8,390 $ 12,462
Restricted cash and short-term investments 2,201 2,047
Trade accounts receivable, less allowance for
doubtful accounts of $409 at June 30, 1997
and $413 at December 31, 1996 8,013 15,460
Other receivables 5,645 4,667
Due from affiliate, net 4,171 4,181
Prepaid expenses and other current assets 6,666 8,314
Assets held for sale 500 500
-------- --------
Total current assets 35,586 47,631
-------- --------
ASSETS HELD FOR SALE 3,067 3,425
EQUIPMENT AND PROPERTY
Flight and other equipment 87,032 75,191
Equipment under capital leases 11,639 11,639
-------- --------
98,671 86,830
Less accumulated depreciation and amortization 25,198 21,357
-------- --------
Net equipment and property 73,473 65,473
-------- --------
LONG-TERM OPERATING DEPOSITS 15,965 15,951
INVESTMENT IN AFFILIATE 35,399 36,299
OTHER ASSETS AND DEFERRED CHARGES, NET 3,814 5,145
INTANGIBLE ASSETS, NET 984 1,072
-------- --------
TOTAL ASSETS $168,288 $174,996
======== ========
</TABLE>
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,
1997 1996
-------- --------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 15,806 $ 26,386
Current maturities of long-term obligations 10,933 9,990
Accounts payable 21,733 24,339
Net liabilities of discontinued operations 220 1,834
Unearned revenue 3,163 3,046
Accrued maintenance in excess of reserves paid 16,095 9,770
Accrued salaries and wages 11,856 10,344
Accrued interest 955 981
Accrued taxes 1,410 1,249
-------- --------
Total current liabilities 82,171 87,939
-------- --------
LONG-TERM OBLIGATIONS, NET 103,789 104,804
OTHER LIABILITIES
Deferred gain from sale leaseback transactions, net of
accumulated amortization of $19,627 as of June 30,
1997 and $19,099 as of December 31, 1996 5,724 6,252
Accrued postretirement benefits 2,648 2,545
Accrued maintenance in excess of reserves paid 2,123 6,867
Other 3,899 3,378
-------- --------
Total other liabilities 14,394 19,042
-------- --------
TOTAL LIABILITIES 200,354 211,785
-------- --------
MINORITY INTEREST 7,434 3,548
COMMON STOCKHOLDERS' DEFICIT
Common stock, $1 par value, (60,000,000 shares authorized,
16,629,843 shares issued and 15,008,077 shares outstanding
at June 30, 1997 and 16,617,031 shares issued and
15,020,265 shares outstanding at December 31, 1996) 16,630 16,617
Additional paid-in capital 43,861 43,824
Deferred compensation (549) (591)
Accumulated deficit (90,870) (91,366)
ESOP guaranteed bank loan (461) (805)
Treasury stock, at cost (1,621,766 shares at June 30,
1997 and 1,596,766 shares at December 31, 1996) (8,111) (8,016)
-------- --------
TOTAL COMMON STOCKHOLDERS' DEFICIT (39,500) (40,337)
-------- --------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND COMMON STOCKHOLDERS'
DEFICIT $168,288 $174,996
======== ========
</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>
1997 1996
-------- --------
<S> <C> <C>
OPERATING REVENUES
World Airways $ 81,928 $ 86,508
US Order -- 548
-------- --------
Total operating revenues 81,928 87,056
-------- --------
OPERATING EXPENSES
World Airways:
Flight 16,682 13,318
Maintenance 17,917 15,964
Aircraft costs 24,693 22,837
Fuel 2,663 2,577
Flight operations subcontracted to other carriers 1,892 6,952
Promotions, sales and commissions 2,382 2,321
Depreciation and amortization 2,196 1,911
General and administrative 7,005 5,357
-------- --------
Total operating expenses - World Airways 75,430 71,237
-------- --------
US Order:
Total operating expenses - US Order -- 3,639
-------- --------
WorldCorp:
General and administrative 1,010 731
-------- --------
Total operating expenses 76,440 75,607
-------- --------
OPERATING INCOME 5,488 11,449
-------- --------
OTHER INCOME (EXPENSE)
Interest expense (2,673) (2,969)
Interest income 227 961
Equity in loss of affiliate (818) --
Loss on issuances (purchases) of equity by subsidiaries, net (109) 50
Other, net (60) (328)
-------- --------
Total other expense (3,433) (2,286)
-------- --------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST 2,055 9,163
INCOME TAX EXPENSE (100) (315)
MINORITY INTEREST (2,168) (4,469)
-------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (213) 4,379
-------- --------
LOSS FROM DISCONTINUED OPERATIONS BEFORE
MINORITY INTEREST -- (28,518)
MINORITY INTEREST -- 11,621
-------- --------
LOSS FROM DISCONTINUED OPERATIONS -- (16,897)
-------- --------
NET LOSS $ (213) $(12,518)
======== ========
(Continued)
</TABLE>
5
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,
(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
PRIMARY NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARE
Continuing operations $ (0.01) $ 0.25
Discontinued operations -- (0.98)
----------- -----------
Net loss $ (0.01) $ (0.73)
=========== ===========
FULLY DILUTED NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARE
Continuing operations $ * $ 0.24
Discontinued operations * (0.73)
----------- -----------
Net loss $ * $ (0.49)
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Primary 15,008,077 17,215,901
=========== ===========
Fully diluted * 23,109,978
=========== ===========
</TABLE>
* Fully diluted earnings per share are anti-dilutive.
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>
1997 1996
-------- --------
<S> <C> <C>
OPERATING REVENUES
World Airways $160,676 $151,873
US Order -- 1,874
-------- --------
Total operating revenues 160,676 153,747
-------- --------
OPERATING EXPENSES
World Airways:
Flight 33,114 33,283
Maintenance 34,595 30,493
Aircraft costs 49,379 41,452
Fuel 5,703 8,070
Flight operations subcontracted to other carriers 2,249 8,013
Promotions, sales and commissions 4,663 3,633
Depreciation and amortization 4,331 3,894
General and administrative 13,808 11,089
-------- --------
Total operating expenses - World Airways 147,842 139,927
-------- --------
US Order:
Total operating expenses - US Order -- 7,024
-------- --------
WorldCorp:
General and administrative 1,324 2,020
-------- --------
Total operating expenses 149,166 148,971
-------- --------
OPERATING INCOME 11,510 4,776
-------- --------
OTHER INCOME (EXPENSE)
Interest expense (5,625) (5,810)
Interest income 429 1,967
Equity in loss of affiliate (770) --
Loss on purchases of equity by subsidiaries, net (397) (175)
Other, net (204) (569)
-------- --------
Total other expense (6,567) (4,587)
-------- --------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST 4,943 189
INCOME TAX EXPENSE (350) (315)
MINORITY INTEREST (4,097) (2,088)
-------- --------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 496 (2,214)
-------- --------
LOSS FROM DISCONTINUED OPERATIONS BEFORE
MINORITY INTEREST -- (32,705)
MINORITY INTEREST -- 13,328
-------- --------
LOSS FROM DISCONTINUED OPERATIONS -- (19,377)
-------- --------
NET EARNINGS (LOSS) $ 496 $(21,591)
======== ========
(Continued)
</TABLE>
7
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
PRIMARY NET EARNINGS (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE
Continuing operations $ 0.03 $ (0.14)
Discontinued operations -- (1.18)
---------- ----------
Net income (loss) $ 0.03 $ (1.32)
========== ==========
FULLY DILUTED NET EARNINGS (LOSS) PER
COMMON AND COMMON EQUIVALENT SHARE
Continuing operations $ * $ *
Discontinued operations * *
---------- ----------
Net income (loss) $ * $ *
========== ==========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Primary 15,012,368 16,397,440
========== ==========
Fully diluted * *
========== ==========
</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, 1997
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Employee
Stock Owner- Total
Additional ship Plan Treasury Common
Common Paid-in Deferred Accumulated Guaranteed Stock, Stockholders'
Stock Capital Compensation Deficit Bank Loan at cost Deficit
------- ---------- ------------- ------------ ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1996 $16,617 $43,824 $(591) $(91,366) $(805) $(8,016) $(40,337)
Issuance of stock 13 37 -- -- -- -- 50
Employee Stock Ownership Plan
guaranteed bank loan -- -- -- -- 344 -- 344
Amortization of deferred
compensation -- -- 42 -- -- -- 42
Purchase of common stock, at cost -- -- -- -- -- (95) (95)
Net earnings -- -- -- 496 -- -- 496
------- ---------- ------------ ----------- ---------- -------- --------
BALANCE AT
June 30, 1997 $16,630 $43,861 $(549) $(90,870) $(461) $(8,111) $(39,500)
======= ========== ============ =========== ========== ======== ========
</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>
1997 1996
-------- --------
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD $ 12,462 $ 74,443
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) 496 (21,591)
Adjustments to reconcile net earnings (loss) to cash
provided (used) by operating activities:
Depreciation and amortization 4,571 4,471
Deferred gain recognition (528) (531)
Losses on issuances (purchases) of equity by subsidiaries, net 397 175
Minority interest in earnings (loss) of subsidiaries 4,097 (11,240)
Equity loss in affiliate 770 --
Equity loss in investee of subsidiary -- 894
Gain on sale of equipment and property (26) (302)
Deferred compensation expense 42 157
Loss on disposal of discontinued operations -- 20,985
Other 416 --
Changes in certain assets and liabilities, net of
effects of non-cash transactions:
Decrease (increase) in accounts receivable 6,479 (15,077)
Increase in restricted short-term investments (154) (120)
Decrease in deposits, prepaid expenses and other assets 2,188 1,411
(Decrease) increase in accounts payable, accrued
expenses and other liabilities (508) 8,204
Increase (decrease) in unearned revenue 117 (3,284)
Increase in air traffic liability -- 4,878
-------- --------
Net cash provided (used) by operating activities 18,357 (10,970)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property (4,565) (5,829)
Proceeds from disposal of equipment and property 439 1,094
-------- --------
Net cash used by investing activities (4,126) (4,735)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in line of credit borrowing arrangement, net (7,520) 7,668
Issuance of debt -- 361
Repayment of debt (10,212) (8,906)
Proceeds from stock transactions -- 2,011
Proceeds from purchases of equity by subsidiaries, net -- (13)
Purchase of common stock (95) --
Purchase of common stock of subsidiary (476) --
-------- --------
Net cash (used) provided by financing activities (18,303) 1,121
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,072) (14,584)
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,390 $ 59,859
======== ========
</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, 1997, the related condensed consolidated
statements of operations for the three and six month periods ended June 30,
1997 and 1996, the condensed consolidated statements of changes in common
stockholders' deficit for the six months ended June 30, 1997 and the
condensed consolidated statements of cash flows for the six months ended June
30, 1997 and 1996 are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such financial statements
have been included. Such adjustments consisted only of normal recurring
items. All significant intercompany balances have been eliminated. Interim
results are not necessarily indicative of results for a full year.
In addition, prior to November 7, 1996, these financial statements contain
the historical results of US Order, Inc. ("US Order"). On November 7, 1996,
US Order and Colonial Data Technologies Corp. ("Colonial Data") merged with
and into InteliData Technologies Corporation ("InteliData"). Effective with
this Merger, InteliData became the successor corporation to US Order. As a
result of the Merger, WorldCorp's ownership percentage in InteliData was
reduced to 28.9% and, as such, beginning November 7, 1996, WorldCorp reports
its share of InteliData's net assets and results of operations under the
equity method of accounting.
The condensed consolidated 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, 1996.
2. In July 1996, World Airways announced its decision to exit its scheduled
service operations by October 1996 and focus its operations on its core
business: operating aircraft under contracts with international carriers,
the U.S. Government, and international tour operators. Consistent with this
decision, World Airways ceased all scheduled operations as of October 27,
1996. As a result, World Airways' scheduled service operations were
reflected as discontinued operations as of June 30, 1996, and prior period
results were restated to reflect scheduled service operations as discontinued
operations. Loss from discontinued operations (net of income tax effect)
approximated $11.7 million for the year ended December 31, 1996. In
addition, an estimated loss on disposal of $21.0 million (net of income tax
effect) which was recorded as of June 30, 1996, included the following:
$13.6 million for estimated operating losses during the phase-out period; a
$2.6 million estimated loss to be incurred in connection with sub-leasing DC-
10 aircraft which would not be utilized in its operations subsequent to the
phase-out of scheduled service operations; a $2.3 million writeoff of related
leasehold improvements; and $2.0 million for passenger reprotection expenses.
World Airways has incurred approximately $21.0 million of these costs through
June 30, 1997 and believes that its remaining accrual for estimated losses on
disposal will be adequate to meet the remaining costs to be incurred during
the phase-out period. In connection with the discontinuance of its scheduled
service operations, World Airways was subject to claims by various third
parties and may be subject to further claims in the future (see Note 7).
3. As mentioned above, WorldCorp's ownership interest in InteliData is
approximately 28.9%. The Company's consolidated results for the three and
six months ended June 30, 1996 include the results of US Order for the period
prior to the Merger. Following the Merger, the Company reports its
proportionate share of InteliData's financial results using the equity method
of accounting.
Summarized financial information of InteliData is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ---------------------------
1997 1996 1997 1996
-------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Results of operations:
Revenues $16,863 $ 548 $38,427 $ 1,874
Cost of revenues 12,319 342 26,147 1,272
Gross profit 4,544 206 12,280 602
Operating loss (5,130) (3,145) (5,381) (5,178)
Net loss applicable to
common shareholders (2,837) (3,206) (2,672) (5,194)
<CAPTION>
June 30, December 31,
1997 1996
------- -------
Financial position:
Current assets $75,323 $82,989
Non-current assets 58,922 60,757
Current liabilities 12,470 19,457
Non-current liabilites -- --
</TABLE>
11
<PAGE>
On August 12, 1997, InteliData announced its intention to purchase up to 2.0
million shares of its common stock pursuant to open market transactions.
There can be no assurances as to the number of shares ultimately repurchased.
4. As of August 14, 1997, World Airways was in the process of issuing $75.0
million of convertible senior subordinated debentures (the "Debentures"), in
a private offering, due in 2004 (the "Offering"). The Debentures would be
unsecured obligations, convertible into shares of World Airways' common
stock, and subordinated to all present and future senior indebtedness of
World Airways. The Debentures will be offered in reliance on the exemption
from the registration requirements provided by Rule 144A of the Securities
Act of 1933 (the "Securities Act"). Accordingly, the Debentures and the
underlying common stock have not been registered under the Securities Act and
will be offered only to certain accredited investors. World Airways intends
to use net proceeds of the Offering to purchase between 4.0 and 5.8 million
shares of is common stock, repay certain indebtedness and increase working
capital. Failure by World Airways to repurchase at least 4.0 million shares
of common stock within 150 days after the sale of the Debentures constitutes
a repurchase event whereby each holder of the Debentures would have the
right, at the holder's option, to require World Airways to repurchase such
holders Debentures at 100% of their principal amount, plus accrued interest.
No assurances, however, can be given with respect to the eventual outcome of
the Offering or the subsequent repurchase of World Airways' common stock. In
connection with the Offering, World Airways and WorldCorp are currently in
discussions and expect to enter into an agreement for the repurchase of up to
4.7 million shares of common stock owned by WorldCorp. There can be no
assurance that such agreement will be completed or related repurchase will be
consummated.
5. In 1996, the Company announced its intention to purchase up to 2.5 million
shares of its publicly-traded common stock pursuant to open market
transactions. As of June 30, 1997, the Company had purchased 1,362,500 shares
of its common stock for an aggregate cost of $7.8 million. WorldCorp does
not intend to purchase any additional shares at this time.
6. The Company is a highly leveraged holding company. As a holding company, all
of WorldCorp's funds are generated through its positions in World Airways and
InteliData, which have not paid dividends on common stock since 1992. At
June 30, 1997, World Airways has a working capital deficit of $31.9 million
and has substantial debt and lease commitments. At June 30, 1997, InteliData
has working capital of $62.9 million, with no long-term debt. World Airways'
ability to pay dividends is currently restricted under a borrowing
arrangement. Additionally, the provisions of the Indenture governing
WorldCorp's Debentures causes World Airways not to pay dividends upon the
occurrence of any events of default by WorldCorp under such Indenture. World
Airways and InteliData currently intend to retain their future earnings, if
any, to fund the growth and development of their business and, therefore, do
not anticipate paying any cash dividends in the foreseeable future.
Of the $8.4 million in cash and cash equivalents at June 30, 1997,
approximately $8.3 million is held by World Airways and, therefore, is not
available to satisfy WorldCorp's obligations. As of June 30, 1997, WorldCorp
had parent company repayment obligations, including principal and interest,
of approximately $18.1 million for the remainder of 1997.
In order to meet these obligations and its general and administrative costs,
the Company must use its existing cash and either sell shares of World
Airways or InteliData, or issue additional debt or equity. In connection with
a $15.0 million loan from a commercial bank (the "Bank Loan"), WorldCorp has
pledged all of the shares of common stock of World Airways and InteliData
beneficially owned by WorldCorp. The Bank Loan matures on September 29, 1997.
As discussed above, WorldCorp and World Airways are currently in discussions
and expect to enter into an agreement for the repurchase of up to 4.7 million
shares of common stock owned by
12
<PAGE>
WorldCorp. If a closing occurs under this agreement, WorldCorp expects to use
a portion of the proceeds to repay the Bank Loan. If a closing does not occur
under this agreement and WorldCorp does not refinance the Bank Loan, it would
be necessary for WorldCorp to sell assets in order to repay the Bank Loan.
There can be no assurance that WorldCorp will be successful in consummating
these transactions.
Management believes that its existing cash and the anticipated proceeds from
a combination of sales of stock of World Airways or InteliData,
renegotiations of its existing borrowing arrangements, new financing
arrangements, or the issuance of debt or equity, will be sufficient to allow
the Company to meet its operating requirements and repayment obligations for
1997. At August 14, 1997, based on quoted market prices, the market value of
the Company's 6,929,586 shares of World Airways and 9,179,273 shares of
InteliData, approximated $58.9 million and $27.0 million, respectively.
7. For a discussion of commitments and contingencies see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Other Matters".
8. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128 ("FAS #128") Earnings per
Share, and SFAS No. 129 ("FAS #129") Disclosure of Information About Capital
Structure. FAS #128 was issued to simplify the computation of earnings per
share and to make the U.S. standard more compatible with the standards of
other countries and that of the International Accounting Standards Committee.
FAS #128 replaces primary and full diluted earnings per share with basic
earnings and diluted earnings per share. FAS #129 will change some of the
required disclosures about capital structure. It is not expected that these
statements will have a material effect on the Company's financial statements
in the future. The statements are effective for the year ended December 31,
1997.
13
<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 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. At June 30, 1997, WorldCorp and MHS owned 6,929,586 shares, or
61.7%, and 1,990,000 shares, or 17.7%, respectively, of World Airways'
outstanding common stock. The remaining balance was publicly traded.
As of August 14, 1997, World Airways was in the process of issuing $75.0 million
of convertible senior subordinated debentures (the "Debentures"), in a private
offering, due in 2004 (the "Offering"). The Debentures would be unsecured
obligations, convertible into shares of World Airways' common stock, and
subordinated to all present and future senior indebtedness of World Airways.
The Debentures will be offered in reliance on the exemption from the
registration requirements provided by Rule 144A of the Securities Act of 1933
(the "Securities Act"). Accordingly, the Debentures and the underlying common
stock have not been registered under the Securities Act and will be offered only
to certain accredited investors. World Airways intends to use net proceeds of
the Offering to purchase between 4.0 and 5.8 million shares of is common stock,
repay certain indebtedness and increase working capital. Failure by World
Airways to repurchase at least 4.0 million shares of common stock within 150
days after the sale of the Debentures constitutes a repurchase event whereby
each holder of the Debentures would have the right, at the holder's option, to
require World Airways to repurchase such holders Debentures at 100% of their
principal amount, plus accrued interest. No assurances, however, can be given
with respect to the eventual outcome of the Offering or the subsequent
repurchase of World Airways' common stock. In connection with the Offering,
World Airways and WorldCorp are currently in discussions and expect to enter
into an agreement for the repurchase of up to 4.7 million shares of common stock
owned by WorldCorp. There can be no assurance that such agreement will be
completed or related repurchase will be consummated.
WorldCorp also had an ownership interest in US Order, Inc. ("US Order"), a
company which provided products and services for two markets: home banking and
smart telephones. In August 1996, US Order and Colonial Data Technologies Corp.
("Colonial Data") entered into an Agreement and Plan of Merger pursuant to which
US Order and Colonial Data would be merged with and into a new public company,
InteliData Technologies Corporation ("InteliData"). Pursuant to this Merger,
which was consummated on November 7, 1996, InteliData became the successor
corporation to US Order. The Merger was treated as a purchase of Colonial Data
by US Order. InteliData concentrates on three markets: (1) consumer
telecommunications; (2) electronic commerce; and (3) interactive services. At
June 30, 1997, WorldCorp owned 9,179,273 shares of InteliData, or a ownership
interest of approximately 28.9%. Following this Merger, the Company reports its
proportionate share of InteliData's financial results using the equity method of
accounting.
In 1996, the Company announced its intention to purchase up to 2.5 million
shares of its publicly-traded common stock pursuant to open market transactions.
As of June 30, 1997, the Company had purchased 1,362,500 shares of its common
stock for an aggregate cost of $7.8 million. WorldCorp does not intend to
purchase any additional shares at this time.
The Private Securities Litigation Reform Act of 1995 (the "Act") was recently
passed by Congress. The Company desires to take advantage of the new "safe
harbor" provisions in the Act. Therefore, this report contains forward looking
statements that are subject to risks and uncertainties, including, but not
limited to, the impact of competitive products, product demand and market
acceptance risks, reliance on key strategic alliances, fluctuations in operating
results and other risks detailed from time to time in the Company's filings with
the Securities and Exchange Commission. These risks could cause the Company's
actual results for 1997 and beyond to differ materially from those expressed in
any forward looking statements made by, or on behalf of, the Company. For a
complete discussion of these and other risks and uncertainties, please refer to
the Company's Annual Report filed on Form 10-K for the year ended December 31,
1996.
OVERVIEW
WorldCorp owns 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
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international tour operators, with a fleet of MD-11 and DC10-30 aircraft.
InteliData (Nasdaq:INTD) concentrates on three markets: (1) consumer
telecommunications; (2) electronic commerce; and (3) interactive services.
The Company is a highly leveraged holding company. As a holding company, all of
WorldCorp's funds are generated through its positions in World Airways and
InteliData, neither of whom intend to pay dividends in the foreseeable future.
In addition, World Airways' ability to pay dividends is currently restricted
under a borrowing arrangement. As of June 30, 1997, WorldCorp has substantial
parent company debt service obligations. In order to meet these obligations and
its general and administrative costs in 1997, the Company must use its existing
cash and either sell shares of World Airways or InteliData, or issue additional
debt or equity. Under the terms of certain borrowing arrangements, WorldCorp has
pledged all of its shares of World Airways and InteliData as collateral for the
borrowings.
WORLD AIRWAYS
- -------------
World Airways is a global provider of long-range passenger and cargo air
transportation outsourcing services to major international airlines under fixed
rate, multi-year contracts. World Airways' passenger and freight operations
employ 13 wide-body aircraft which are operated under contracts, primarily with
Pacific Rim airlines. These contracts generally require World Airways to supply
aircraft, crew, maintenance and insurance ("ACMI" or "wet lease"), while it's
customers are responsible for a large portion of the other operating expenses,
including fuel. World Airways' airline customers have determined that
outsourcing a portion of their wide-body passenger and cargo requirements can be
less expensive, and offer greater operational and financial flexibility, than
purchasing new aircraft and additional spare parts required for such aircraft.
World Airways also leads a contractor teaming arrangement that is the one of the
largest single supplier of commercial airlift services to the United States Air
Force's Air Mobility Command ("U.S. Air Force" or "USAF").
In July 1996, World Airways restructured its business to focus on ACMI contract
services. As such, World Airways ceased all scheduled passenger and scheduled
charter services as of October 27, 1996, taking a one-time charge of $21.0
million as of June 30, 1996 (see "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: wet lease
contracts and full service contracts. Under wet lease 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 wet
lease 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 wet lease 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.
World Airways' operating philosophy is to build on its existing ACMI
relationships to achieve a strong platform for future growth. World Airways
concentrates on ACMI contracts which shift yield, load factor and certain cost
risks to the customer. The customer bears the risk of filling the aircraft with
passengers or cargo and assumes a large portion of the operating expenses,
including fuel. World Airways has elected to emphasize its ACMI business because
it perceives a number of opportunities created by a growing global economy,
particularly growth in second and third world economies where the demand for
airlift exceeds capacity. World Airways attempts to maximize profitability by
combining its multi-year ACMI contracts with short term, higher-yielding ACMI
agreements which meet the peak seasonal requirements of its customers. World
Airways responds opportunistically to rapidly changing market conditions by
maintaining a flexible fleet of aircraft that can be deployed in a variety of
configurations.
As is common in the air transportation industry, World Airways has relatively
high fixed aircraft costs. World Airways operates a fleet of nine MD-11 and four
DC10-30 wide-body aircraft and, while it believes that the lease rates on its
MD-11 aircraft are favorable relative to lease rates of other MD-11 operators,
its MD-11 aircraft have
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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 important factors to
World Airways' 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.
SIGNIFICANT CUSTOMER RELATIONSHIPS
World Airways' business relies heavily on its contracts with Malaysian Airline
System Berhad ("Malaysian Airlines"), Philippine Airlines, Inc. ("Philippine
Airlines"), P.T. Garuda Indonesia ("Garuda") and the U.S. Air Force. For the
first six months of 1997, these customers provided approximately 27%, 36%, 19%
and 15%, respectively, of World Airways' revenues and 30%, 38%, 20% and 8%,
respectively, of total block hours. In 1996, these customers provided
approximately 34%, 15%, 13%, and 25%, respectively, of World Airways' revenues
and 42%, 17%, 14%, and 17%, respectively, of total block hours flown from
continuing operations.
Malaysian Airlines. World Airways has provided wet lease services 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. MHS, which owned 17.7% of World Airways as of June
30, 1997, also owns 29.1% of Malaysian Airlines. World Airways recently entered
into a new 32-month agreement for year-round operations (including the Hadj)
with Malaysian Airlines whereby World Airways will provide two passenger
aircraft with cockpit crews, maintenance and insurance to Malaysian Airlines'
newly-formed charter division through May 1999. World Airways provided three
aircraft for 1997 Hadj operations.
World Airways has a long-term contract to operate three MD-11 cargo aircraft for
Malaysian Airlines. However, beginning in July 1996, and as mutually agreed by
the parties, World Airways redeployed two cargo aircraft, which had been
operating under these contracts, into the Philippine Airlines contract. World
Airways and Malaysian Airlines are currently discussing the future redeployment
of these aircraft back into Malaysian Airlines' operations in order to meet the
contracts' original obligations. World Airways can provide no assurances,
however, that it will, in fact, be able to do so. Revenues associated with these
contractual obligations are included in World Airways' backlog amount included
herein.
Garuda. World Airways has flown for Garuda periodically since 1973 and yearly
- -------
since 1988. Since 1988, World Airways has been one of the largest providers of
passenger services to Indonesia for the Hadj pilgrimage. The Indonesian Hadj
pilgrimage is the world's largest due to the size of Indonesia's Islamic
population. In 1997, approximately 40,000 of the 200,000 Indonesians who
traveled to Jeddah for the Hadj pilgrimage flew on World Airways' aircraft.
World Airways is currently negotiating an agreement with Garuda to operate six
aircraft during the 1998 pilgrimage.
Philippine Airlines. World Airways presently operates four MD-11 passenger
- --------------------
aircraft for Philippine Airlines under an agreement with high minimum monthly
utilization levels. Philippine Airlines, however, is experiencing financial
difficulties, and since March 1997 had been making monthly lease payments to
World Airways on an installment basis according to a payment plan agreed to by
World Airways and Philippine Airlines at the beginning of each month. On July
11, 1997, World Airways agreed to shift two MD-11s currently operating for
Philippine Airlines to Viacao Aereo Sao Paulo ("VASP") later in the third
quarter. As of the date hereof, Philippine Airlines is in compliance with its
agreements with World Airways and has reconfirmed its commitment to operate the
remaining two MD-11s currently in its fleet until February 1998. Failure by
Philippine Airlines to meet its aircraft lease obligations, if not offset by
other business, would have a material adverse effect on the financial condition,
cash flows and results of operations of World Airways.
VASP. On July 3, 1997, World Airways entered a binding Memorandum of Agreement
- -----
with VASP for the lease of two MD-11 passenger aircraft to commence in the third
quarter for a six-month term with a six-month renewal option. World Airways is
also leasing a cargo plane to VASP under an ACMI contract which began in June
1997. The loss of this agreement, a renegotiation of its terms or a substantial
reduction of business for VASP, if not replaced, could have a material adverse
effect on the financial condition or results of operations of World Airways.
U.S. Air Force. World Airways has provided international air transportation to
- ---------------
the U.S. Air Force since 1956. The overall downsizing of the U.S. military
places a premium on the mobility of the U.S. armed forces. This is reflected in
the stable size over the past several years of the USAF's procurement of
commercial airlift services. Although
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its agreements with the USAF provide for full service contracts with certain
minimum performance requirements, World Airways has risks similar to an ACMI
agreement because the USAF agreements are cost-plus contracts at attractive
rates.
The USAF awards points to air carriers acting alone or through teaming
arrangements in proportion to the number and type of aircraft such carriers make
available to Civil Reserve Air Fleet. World Airways utilizes such teaming
arrangements to maximize the value of potential awards. World Airways leads a
contractor teaming arrangement that enjoys a 44% market share of the USAF's
overall commercial airlift requirement. During a period in which the U.S.
military downsized substantially, World Airways's portion of the fixed USAF
award increased from $15.6 million for the government's 1992-93 fiscal year, to
$52.8 million for the government's 1996-97 fiscal year. While the current annual
contract expires on September 30, 1997, World Airways recently received a $73.9
million fixed award for the government's 1997-1998 fiscal year. World Airways,
however, cannot determine how future cuts in military spending may affect future
operations with the U.S. Air Force.
As a result of these and other contracts, World Airways had an overall contract
backlog at June 30, 1997 of $338.7 million, compared to $532.6 million at June
30, 1996. Approximately $116.3 million of the backlog relates to operations
during the remainder of 1997. World Airways' backlog for each contract is
determined by multiplying the minimum number of block hours (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 destination)
guaranteed under the applicable contract by the specified hourly rate under such
contract. Approximately 70% and 13% of the backlog relates to its contracts
with Malaysian Airlines and Philippine Airlines, respectively. In addition, a
significant portion of World Airways' current contracts expire near the end of
1997. Although there can be no assurance that it will be able to secure
additional business to reduce this excess capacity, World Airways is actively
seeking customers for 1998 and beyond. World Airways' financial results and
financial condition would be affected adversely if it is unable to secure
additional business to reduce this excess capacity.
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 due to lower demand for passenger and
cargo services relative to other times of the year. World Airways experiences
higher levels of utilization and yields in the second quarter, principally due
to peak demand for commercial passenger services associated with the annual Hadj
pilgrimage. In 1997, World Airways' flight operations associated with the Hadj
pilgrimage occurred from March 15 to May 20. Because the Islamic calendar is a
lunar-based calendar, the Hadj pilgrimage occurs approximately 10 to 12 days
earlier each year relative to the Western (Gregorian) calendar. As a result,
revenues resulting from future Hadj pilgrimage contracts will continue to shift
from the second quarter to the first quarter over the next several years. World
Airways believes that its contracts with Malaysian Airlines and the USAF should
lessen the effect of these seasonal factors.
GEOGRAPHIC CONCENTRATION
World Airways derives a significant percentage of its revenues and block hours
from its operations in the Pacific Rim region. While it believes the Pacific
Rim region is a growth market for air transportation, any economic decline or
any military or political disturbance in this area may interfere with World
Airways' ability to provide service in this area and could have a material
adverse effect on the financial condition or results of operations of World
Airways.
UTILIZATION OF AIRCRAFT
Due to the large capital costs of leasing and maintaining World Airways'
aircraft, each of World Airways' aircraft must have high utilization at
attractive rates in order for World Airways to operate profitably. Although
World Airways' strategy is to enter into long-term contracts with its customers,
the terms of World Airways' existing customer contracts are substantially
shorter than the terms of World Airways' lease obligations with respect to the
aircraft. As mentioned above, a significant portion of World Airways' contract
backlog at June 30, 1997, relates to its multi-year contracts with Malaysian
Airlines and Philippine Airlines. In addition, a significant portion of World
Airways' current contracts expire near the end of 1997. There can be no
assurance that World Airways will be able to enter into additional contracts
with new or existing customers or that it will be able to obtain enough
additional
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business to fully utilize each aircraft. World Airways' financial results could
be materially adversely affected even by relatively brief periods of low
aircraft utilization and yields. In order to maximize aircraft utilization,
World Airways does not intend to acquire new aircraft unless such aircraft would
be necessary to service existing needs or World Airways has obtained additional
ACMI contracts for the aircraft to service. World Airways is seeking to obtain
additional ACMI contracts with new and existing customers, to which such new
aircraft would be dedicated when placed in service, but World Airways can
provide no assurance that it will obtain new ACMI contracts or that existing
ACMI contracts will be renewed or extended.
MAINTENANCE
Engine maintenance accounts for most of World Airways' annual maintenance
expenses. Typically, the hourly cost of engine maintenance increases as the
aircraft ages. World Airways outsources major airframe maintenance and power
plant work to several suppliers. World Airways has a 10-year contract expiring
in August 2003 with United Technologies Corporation's Pratt & Whitney Group 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 specified rates per hour during the term of the
contract. 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 began to expire in 1995 and which will fully
expire by 1998. In addition, the specified rates per hour are subject to annual
escalation, increasing substantially in 1998. Accordingly, while World Airways
believes the terms of this agreement have resulted in lower engine maintenance
costs than it otherwise would incur, engine maintenance costs will increase
substantially during the last five years of the agreement. World Airways has
begun to accrue these increased expenses in 1997 and such expenses will continue
to increase during the remainder of the term of the contract as its aircraft
fleet ages.
OPERATING LOSSES
While World Airways generated operating income 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. For the year ended December 31, 1996, World Airways incurred a net loss
of $14.0 million, which resulted from operating losses incurred in its scheduled
service operations, which were discontinued in 1996, and the related estimated
loss on disposal. Earnings from continuing operations were $18.4 million for
1996. While it generated operating income for the six months ended June 30,
1997 of $12.8 million, there can be no assurance that World Airways will be able
to continue generating operating income for the remainder of 1997 or future
years.
DISCONTINUATION OF SCHEDULED SERVICE OPERATIONS
World Airways commenced service between Tel Aviv and New York in July 1995. In
the first quarter of 1996, World Airways generated $4.2 million in losses
related to these operations. In the second quarter of 1996, World Airways
expanded its scheduled service operations with service between the United States
and South Africa and introduced scheduled charter operations between the United
States and various destinations within Europe. As it was unable to operate
these scheduled service operations profitably, in July 1996, World Airways
announced its decision to exit its scheduled service operations by October 1996
and focus its operations on its core wet lease operations. Consistent with this
decision, World Airways ceased all scheduled operations as of October 27, 1996.
As a result, World Airways' scheduled service operations were reflected as
discontinued operations as of June 30, 1996, and prior period results were
restated to reflect scheduled service operations as discontinued operations.
Loss from discontinued operations (net of income tax effect) approximated $11.7
million for the year ended December 31, 1996. In addition, an estimated loss on
disposal of $21.0 million (net of income tax effect) was recorded as of June 30,
1996 and World Airways believes that its remaining accrual for estimated losses
on disposal will be adequate to meet the remaining costs to be incurred during
the phase-out period.
INTELIDATA
- ----------
InteliData was incorporated in order to effect the merger of US Order and
Colonial Data. The Merger was announced on August 5, 1996, when US Order and
Colonial Data entered into an Agreement and Plan of Merger ("Merger Agreement").
On November 7, 1996, the Merger was consummated with each share of outstanding
US Order and Colonial Data common stock being exchanged for one share of
InteliData common stock. The Merger was treated as a purchase of Colonial Data
by US Order. At June 30, 1997, WorldCorp's ownership in InteliData
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<PAGE>
was approximately 28.9%. Following this Merger, WorldCorp reports its
proportionate share of InteliData's financial results using the equity method of
accounting.
Effective September 30, 1996, US Order acquired the business of Braun, Simmons &
Co., ("Braun Simmons"), for approximately $7.0 million consisting of cash and US
Order common stock and including US Order transaction costs. Braun Simmons was
an information engineering firm specializing in the development of home banking
and electronic commerce solutions for financial institutions. The acquisition
expands InteliData's product line for both large and small financial
institutions.
The business of InteliData consists of the businesses previously conducted by US
Order, Colonial Data and Colonial Data's subsidiaries. InteliData develops and
markets products and services for the telecommunications and financial services
industries through its three business divisions: consumer telecommunications,
electronic commerce and interactive services.
The consumer telecommunications division designs, develops and markets
telecommunications products that support intelligent network services being
developed and implemented by the regional Bell operating companies ("RBOCs") and
other telephone companies ("telcos"). InteliData has concentrated its product
development and marketing efforts on products that support Caller ID and other
emerging intelligent network services, including a smart telephone, the
Telesmart 4000/IntelifoneTM, which provide consumers call management features
and the ability to access numerous network services and interactive applications
via telephone. InteliData currently offers a line of Caller ID adjunct units and
telephones with integrated Caller ID, small business telecommunications systems
and high-end consumer telecommunications equipment. InteliData also repairs and
refurbishes telecommunications products for commercial customers and provides
other services that support the development and implementation of intelligent
network services.
The electronic commerce division develops and markets products and services to
assist financial institutions in their home banking and electronic bill payment
initiatives. The products are designed to assist consumers in accessing and
transacting business with their banks and credit unions electronically, and to
assist financial institutions in connecting to and transacting business with
third parties, including data processors and billers. The services focus on a
financial institution's back office, offering outsourcing for data entry,
telemarketing, customer service and technical support. InteliData currently
receives its electronic commerce revenues largely from the sale of products and
services to Visa International Service Association, Inc. ("Visa") member banks.
The interactive services division was established to provide interactive
applications for use on smart telephones and other small screen devices, such as
alpha-numeric pagers, Personal Communication Systems ("PCS") telephones and
personal digital assistants ("PDAs"). InteliData intends to sell interactive
applications directly to end users and through other companies, including telcos
and wireless communications companies. InteliData's current interactive
applications include electronic national directory assistance lookup, one-way
alpha-numeric paging, one-way internet e-mail, a personal directory data save
and restore function and information services such as news, weather, sports
scores, stock quotes, lottery results and horoscopes.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
WORLD AIRWAYS
- -------------
Total block hours, including discontinued operations, decreased 1,571 hours, or
11%, to 12,336 hours in the second quarter of 1997 from 13,907 hours in 1996,
with an average of 14.0 available aircraft per day in 1997 compared to 14.9 in
1996. Average daily utilization (block hours flown per day per aircraft)
decreased to 9.7 hours in 1997 from 10.2 hours in 1996. In 1997, wet lease
contracts accounted for 91% of total block hours, an increase from 80% in 1996.
Total operating revenues decreased $4.6 million, or 5%, to $81.9 million in 1997
from $86.5 million in 1996.
Continuing Operations
- ---------------------
Block hours from continuing operations increased to 12,336 hours in the second
quarter of 1997 from 12,173 hours in 1996.
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Operating Revenues. Revenues from flight operations decreased $0.2 million to
- -------------------
$80.1 million in 1997 from $80.3 million in 1996. This decrease corresponds to
a shift in its mix of business during 1997 with an increase in wet lease
operations from full service operations, partially offset by a modest increase
in block hours flown in 1997 compared to 1996.
Operating Expenses. Total operating expenses increased $4.2 million, or 6%, in
- -------------------
1997 to $75.4 million from $71.2 million in 1996.
Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft cost, fuel and maintenance. Also
included are expenses related to flight dispatch and flight operations
administration. Flight operations expenses increased $3.4 million, or 26%, in
1997 to $16.7 million from $13.3 million in 1996. This increase resulted
primarily from higher crew costs, partially offset by the shift in the mix of
business from full service to wet lease operations. World Airways expects that
it will experience increased training costs during the remainder 1997 as a
result of crewmember attrition.
Maintenance expenses increased $1.9 million, or 12%, in 1997 to $17.9 million
from $16.0 million in 1996. This increase resulted primarily from the increase
in the number of aircraft dedicated to its continuing operations and an increase
in costs associated with the MD-11 aircraft and related engines as a result of
certain manufacturer guarantees and warranties which began to expire in 1995 and
will fully expire by 1998. This increase was partially offset by a reversal in
1997 of $1.0 million of accrued maintenance expense in excess of the cost of an
overhaul of a DC-10 aircraft. The Company expects its maintenance expense to
further increase in 1997 and 1998 due to escalations in the specified rates per
hour under its maintenance agreement.
Aircraft costs increased $1.9 million, or 8%, in 1997 to $24.7 million from
$22.8 million in 1996. This increase resulted primarily from the increase in
the number of aircraft dedicated to its continuing operations, partially offset
by the return of one DC-10 aircraft in the fourth quarter of 1996 and a decrease
in aircraft insurance as a result of a reduction in insurance policy rates.
Depreciation and amortization increased $0.3 million, or 16%, in 1997 to $2.2
million from $1.9 million in 1996. This increase resulted primarily from an
increase in spare parts required to support the additional MD-11 aircraft
described above, offset by a decrease in the amortization of certain intangible
assets.
General and administrative expenses increased $1.6 million, or 30%, in 1997 to
$7.0 million from $5.4 million in 1996. This increase was primarily due to the
hiring of additional administrative personnel, beginning in the second quarter
of 1996, necessary to support the growth in its core business and an increase in
property tax accruals. As part of its strategy to increase its marketing
efforts, World Airways is currently increasing its sales and marketing staff.
As a result, World Airways expects a modest increase in general and
administrative expenses during the second half of 1997.
Discontinued Operations
- -----------------------
World Airways commenced service between Tel Aviv and New York in July 1995. In
the first quarter of 1996, World Airways generated $4.2 million in losses
related to these operations. In the second quarter of 1996, World Airways
expanded its scheduled service operations with service between the United States
and South Africa and introduced scheduled charter operations between the United
States and various destinations within Europe. As it was unable to operate
these scheduled service operations profitably, in July 1996, World Airways
announced its decision to exit its scheduled service operations by October 1996
and focus its operations on its core wet lease operations. Consistent with this
decision, World Airways ceased all scheduled operations as of October 27, 1996.
As a result, its scheduled service operations were reflected as discontinued
operations as of June 30, 1996, and prior period results were restated to
reflect scheduled service operations as discontinued operations.
INTELIDATA
- ----------
As previously discussed, in August 1996, US Order and Colonial Data entered into
an Agreement and Plan of Merger pursuant to which US Order and Colonial Data
were merged with and into a new public company, InteliData. Pursuant to this
Merger on November 7, 1996, InteliData became the successor corporation to US
Order. As of June 30, 1997, WorldCorp's ownership interest in InteliData was
approximately 28.9%.
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The Company's consolidated results for the quarter ended June 30, 1996 include
the results of US Order for the period prior to the Merger. Following the
Merger, the Company reports its proportionate share of InteliData's financial
results using the equity method of accounting (see "Other Income (Expense) -
Equity in Loss of Affiliate").
WORLDCORP
- ---------
General and administrative expenses increased $0.3 million for the quarter ended
June 30, 1997 to $1.0 million from $0.7 million in the comparable 1996 period.
This increase related primarily from an increase in legal fees, including an
allocation of certain legal fees from World Airways to the Company.
OTHER INCOME (EXPENSE)
- ----------------------
Equity in Loss of Affiliate. For the quarter ended June 30, 1997, InteliData's
- ----------------------------
revenues were $16.9 million, including $15.8 million generated by the consumer
telecommunications division primarily resulting from marketing and promotional
campaigns for Caller ID units and services conducted by telcos and InteliData.
In addition, InteliData realized an increase in revenues generated from its
electronic commerce division, attributed primarily to the expansion of the
division's product sales during the quarter. InteliData's cost of revenues for
the second quarter of 1997 increased to $12.3 million, including $11.6 million
from its consumer telecommunications division. Overall gross profit margins
decreased to 27% for the second quarter of 1997 from 38% in the comparable 1996
period. Gross profit margins for the consumer telecommunications, electronic
commerce and interactive services divisions were 27%, 33% and 13%, respectively,
for the second quarter of 1997. The gross profit margin derived from the sale of
Caller ID and small business units was 23% for the second quarter of 1997.
During the quarter, InteliData experienced pricing pressures from competition in
Caller ID adjuncts. InteliData anticipates that gross profit margins may
fluctuate in the future due to changes in product mix and distribution,
continued competitive pricing pressure, the introduction of new products, and
changes in the volume and terms of leasing activity.
InteliData's total operating expenses were $9.7 million during the quarter ended
June 30, 1997. Included in the 1997 general and administrative expenses was a
reversal of $1.2 million for certain restructuring charges recognized in the
fourth quarter of 1996. InteliData has determined that certain liabilities
associated with facilities consolidations were no longer necessary and
accordingly, such accruals were reversed in the second quarter or 1997.
Exclusive of this restructuring charge, general and administrative expenses
increased primarily as a result of the Merger and the upgrade of systems and
operations. As a result of InteliData's increased marketing efforts to promote
its residential and small business telecommunications product lines to retail
markets and to RBOCs and other telephone operating companies, selling and
marketing expenses also increased during the second quarter of 1997 compared to
1996. Finally, research and development costs increased during the second
quarter of 1997 primarily from the developing, designing, and testing of new
products and services. InteliData has been actively engaged in research and
development since its inception and expects that these activities will remain
consistent during the remainder of 1997 and be essential to the operations of
InteliData in the future.
During the second quarter of 1997, InteliData recorded a gain of $1.9 million
resulting from a revaluation of its investment in Home Financial Network, Inc.
("HFN"). The revaluation relates to a reduction in InteliData's ownership in
HFN as a result of the sale of additional shares of stock by HFN.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
World Airways
- -------------
Total block hours, including discontinued operations, decreased 391 hours, or
2%, to 24,150 hours in the first six months of 1997 from 24,541 hours in 1996,
with an average of 13.7 available aircraft per day in 1997 compared to 13.3 in
1996. Average daily utilization (block hours flown per day per aircraft)
decreased to 9.8 hours in 1997 from 10.2 hours in 1996. In 1997, wet lease
contracts accounted for 90% of total block hours, an increase from 74% for the
six months ended June 30, 1996. Total operating revenues increased $8.8 million,
or 6%, to $160.7 million in 1997 from $151.9 million in 1996.
Continuing Operations
- ----------------------
Block hours from continuing operations increased 2,143 hours, or 10%, to 24,150
hours in the first six months of 1997 from 22,007 hours in 1996.
Operating Revenues. Revenues from flight operations increased $13.7 million, or
- -------------------
9%, to $158.5 million in 1997 from $144.8 million in 1996. This increase was
primarily attributable to the increase in block hours flown, partially
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offset by a shift in its mix of business during 1997 with an increase in wet
lease operations and a decrease in full service operations.
Operating Expenses. Total operating expenses increased $7.9 million, or 6%, in
- -------------------
1997 to $147.8 million from $139.9 million in 1996.
Flight operations expenses decreased $0.2 million in 1997 to $33.1 million from
$33.3 million in 1996. This decrease resulted primarily from the shift in the
mix of business from full service to wet lease operations, partially offset by
higher crew costs. World Airways expects that it will experience increased
training costs during the remainder of 1997 as a result of crewmember attrition.
Maintenance expenses increased $4.1 million, or 13%, in 1997 to $34.6 million
from $30.5 million in 1996. This increase resulted primarily from the increase
in the number of aircraft dedicated to its continuing operations, the
integration of additional aircraft into the fleet, and a corresponding increase
in block hours flown. In addition, World Airways experienced an increase in
costs of approximately $1.2 million associated with the MD-11 aircraft and
related engines as a result of certain manufacturer guarantees and warranties
which began to expire in 1995 and will fully expire by 1998. World Airways
expects its maintenance expense to increase further in 1997 and 1998 due to
escalations in the specified rates per hour under its maintenance agreement. The
increase was partially offset by a reversal in 1997 of $1.0 million of accrued
maintenance expense in excess of the cost of an overhaul of a DC-10 aircraft.
Aircraft costs increased $7.9 million, or 19%, in 1997 to $49.4 million from
$41.5 million in 1996. This increase resulted from the increase in the number of
aircraft dedicated to its continuing operations, primarily due to the lease of
two MD-11ER aircraft in March 1996, and the lease of additional spare engines
necessary to maintain the expanded fleet.
Fuel expenses decreased $2.4 million, or 30%, in 1997 to $5.7 million from $8.1
million in 1996. This decrease is due primarily to the shift from full service
to wet lease operations where it is not responsible for fuel costs. This
decrease was partially offset by an increase in price per gallon.
Promotions, sales and commissions increased $1.1 million in 1997 to $4.7 million
from $3.6 million in 1996. This increase resulted primarily from expenses
incurred in connection with a customer contract.
Depreciation and amortization increased $0.4 million in 1997 to $4.3 million
from $3.9 million in 1996. This increase resulted primarily from an increase in
spare parts required to support the additional MD-11 aircraft described above,
offset by a decrease in the amortization of certain intangible assets.
General and administrative expenses increased $2.7 million, or 24%, in 1997 to
$13.8 million from $11.1 million in 1996. This increase was primarily due to the
hiring of additional administrative personnel, beginning in the second quarter
of 1996, necessary to support the growth in its core business and an increase in
property tax accruals. As part of its strategy to increase its marketing
efforts, the Company is currently increasing its sales and marketing staff. As a
result, World Airways expects a modest increase in general and administrative
expenses during the second half of 1997.
INTELIDATA
- ----------
As previously discussed, in August 1996, US Order and Colonial Data entered into
an Agreement and Plan of Merger pursuant to which US Order and Colonial Data
were merged with and into a new public company, InteliData. Pursuant to this
Merger on November 7, 1996, InteliData became the successor corporation to US
Order. As of June 30, 1997, WorldCorp's ownership interest in InteliData was
approximately 28.9%.
The Company's consolidated results for the quarter ended June 30, 1996 include
the results of US Order for the period prior to the Merger. Following the
Merger, the Company reports its proportionate share of InteliData's financial
results using the equity method of accounting (see "Other Income (Expense) -
Equity in Loss of Affiliate").
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WORLDCORP
- ---------
General and administrative expenses decreased $0.7 million for the six months
ended June 30, 1997 to $1.3 million from $2.0 million in the comparable 1996
period. The Company paid approximately $0.5 million in incentive bonus awards in
the first quarter of 1996. No such payments were made in 1997.
OTHER INCOME (EXPENSE)
- ----------------------
Equity in Loss of Affiliate. For the six months ended June 30, 1997,
- ----------------------------
InteliData's revenues were $38.4 million, including $36.2 million generated by
the consumer telecommunications division primarily resulting from marketing and
promotional campaigns for Caller ID units and services conducted by telcos and
InteliData. In addition, InteliData realized an increase in revenues generated
from its electronic commerce division, attributed primarily to the expansion of
the division's product sales. InteliData's cost of revenues for the first six
months of 1997 increased to $26.1 million, including $24.6 million from its
consumer telecommunications division. Overall gross profit margins were 32% for
the first six months of 1997, consistent with the comparable 1996 period. Gross
profit margins for the consumer telecommunications, electronic commerce, and
interactive services divisions were 32%, 32% and 17%, respectively, for the
first six months of 1997. The gross profit margin derived from the sale of
Caller ID and small business units was 29% for the first six months of 1997.
During the quarter ended June 30, 1997, InteliData experienced pricing pressures
from competition in Caller ID adjuncts. InteliData anticipates that gross profit
margins may fluctuate in the future due to changes in product mix and
distribution, continued competitive pricing pressure, the introduction of new
products, and changes in the volume and terms of leasing activity.
InteliData's total operating expenses were $17.7 million during the six months
ended June 30, 1997. Included in the 1997 general and administrative expenses
was a reversal of $1.2 million for certain restructuring charges recognized in
the fourth quarter of 1996. InteliData has determined that certain liabilities
associated with facilities consolidations were no longer necessary and
accordingly, such accruals were reversed in the second quarter or 1997.
Exclusive of this restructuring charge, general and administrative expenses
increased primarily as a result of the Merger and the upgrade of systems and
operations. As a result of InteliData's increased marketing efforts to promote
its residential and small business telecommunications product lines to retail
markets and to RBOCs and other telephone operating companies, selling and
marketing expenses also increased during the first six months of 1997 compared
to 1996. Finally, research and development costs increased during the first six
months of 1997 primarily from the developing, designing, and testing of new
products and services. InteliData has been actively engaged in research and
development since its inception and expects that these activities will remain
consistent during the remainder of 1997 and be essential to the operations of
InteliData in the future.
During the second quarter of 1997, InteliData recorded a gain of $1.9 million
resulting from a revaluation of its investment in Home Financial Network, Inc.
("HFN"). The revaluation relates to a reduction in InteliData's ownership in
HFN as a result of the sale of additional shares of stock by HFN.
LIQUIDITY AND CAPITAL RESOURCES
The Company is a highly leveraged holding company. As a holding company, all of
WorldCorp's funds are generated through its positions in World Airways and
InteliData, which have not paid dividends on common stock since 1992. At June
30, 1997, World Airways has a working capital deficit of $31.9 million and has
substantial debt and lease commitments. At June 30, 1997, InteliData has
working capital of $62.9 million, with no long-term debt. World Airways' ability
to pay dividends is currently restricted under a borrowing arrangement.
Additionally, the provisions of the Indenture governing WorldCorp's Debentures
causes World Airways not to pay dividends upon the occurrence of any events of
default by WorldCorp under such Indenture. World Airways and InteliData
currently intend to retain their future earnings, if any, to fund the growth and
development of their business and, therefore, do not anticipate paying any cash
dividends in the foreseeable future.
Of the $8.4 million in cash and cash equivalents at June 30, 1997, approximately
$8.3 million is held by World Airways and, therefore, is not available to
satisfy WorldCorp's obligations. As of June 30, 1997, WorldCorp had parent
company repayment obligations, including principal and interest, of
approximately $18.1 million for the remainder of 1997.
In order to meet these obligations and its general and administrative costs, the
Company must use its existing cash and either sell shares of World Airways or
InteliData, or issue additional debt or equity. In connection with a $15.0
million loan from a commercial bank (the "Bank Loan"), WorldCorp has pledged all
of the shares of common stock beneficially owned by WorldCorp. The Bank Loan
matures on September 29, 1997. As discussed above, WorldCorp and World Airways
are currently in discussions and expect to enter into an agreement for the
repurchase of up to
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4.7 million shares of common stock owned by WorldCorp. If a closing occurs under
this agreement, WorldCorp expects to use a portion of the proceeds to repay the
Bank Loan. If a closing does not occur under this agreement and WorldCorp does
not refinance the Bank Loan, it would be necessary for WorldCorp to sell assets
in order to repay the Bank Loan. There can be no assurance that WorldCorp will
be successful in consummating these transactions.
Management believes that its existing cash and the anticipated proceeds from a
combination of sales of stock of World Airways or InteliData, renegotiations of
its existing borrowing arrangements, new financing arrangements, or the issuance
of debt or equity, will be sufficient to allow the Company to meet its operating
requirements and repayment obligations for 1997. At August 12, 1997, based on
quoted market prices, the market value of the Company's 6,929,586 shares of
World Airways and 9,179,273 shares of InteliData, approximated $58.9 million and
$27.0 million, respectively.
World Airways is also highly leveraged and will be substantially more leveraged
upon completion of the Offering. World Airways incurred substantial debt and
lease commitments during the past three years in connection with its acquisition
of MD-11 aircraft and related spare parts. As of June 30, 1997, World Airways
had outstanding $29.1 million in long-term debt and capital leases, with
expected debt service and capital lease expense of $5.9 million for the six
months ending December 31, 1997 and $13.3 million for the year ending December
31, 1998. In addition, World Airways has significant future long-term
obligations under aircraft lease obligations relating to its aircraft.
World Airways has historically financed its working capital and capital
expenditure requirements out of cash flow from operating activities, public and
private sales of its common stock, secured borrowings, and other financings from
banks and other lenders. The degree to which World Airways is leveraged could
have important consequences to holders of common stock, including the following:
(i) World Airways' ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions or other purposes may be
limited; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of principal and interest on its indebtedness;
(iii) World Airways' degree of leverage and related debt service obligations, as
well as its obligations under operating leases for aircraft, may make it more
vulnerable than some of its competitors in a prolonged economic downturn; (iv)
World Airways' ability to meet its payment obligations under existing and future
indebtedness, capital leases and operating leases may be limited; and (v) World
Airways' financial position may restrict its ability to pursue new business
opportunities and limit its flexibility in responding to changing business
conditions.
World Airways' cash and cash equivalents at June 30, 1997 and December 31, 1996
were $8.3 million and $7.0 million, respectively. As is common in the airline
industry, World Airways operates with a working capital deficit. At June 30,
1997, World Airways' current assets were $33.5 million and current liabilities
were $65.3 million. World Airways has substantial long-term aircraft lease
obligations with respect to its current aircraft fleet. Although there can be no
assurances, World Airways believes that its existing contracts and additional
business which it expects to obtain in the near term, along with its existing
cash and financing arrangements and net proceeds from the proposed Offering will
be sufficient to allow World Airways to meet its cash requirements related to
debt service and the operating and capital requirements for its continuing
operations for the next 12 months.
In 1996, World Airways instituted a program to purchase up to one million shares
of its publicly-traded common stock pursuant to open market transactions. As of
June 30, 1997, World Airways had purchased 770,000 shares of common stock at an
aggregate cost of approximately $7.8 million pursuant to such program. WorldCorp
and World Airways are currently in discussions and expect to enter into an
agreement for the repurchase of up to 4.7 million common stock owned by
WorldCorp. There can be no assurance that such agreement will be completed or
related repurchase will be consummated.
In the event that World Airways enters into leases for additional aircraft,
World Airways will need to make capital expenditures for additional spare
engines and parts. No assurances can be given, however, that World Airways will
obtain all of the financing required for such capital expenditures.
At June 30, 1997 InteliData had $24.3 million in cash, cash equivalents and
short-term investments. InteliData has generated operating losses since its
inception. InteliData's smart telephone and home banking products and services
are subject to the risks inherent in the marketing and development of new
products. The market for these products and services is relatively new and is
characterized by rapid technological change, evolving standards, changes in end-
24
<PAGE>
user requirements and frequent new product introductions and enhancements.
However, the acquisition of Colonial Data has provided InteliData with
established product lines and sales channels in large telecommunications
markets. The industry for InteliData's products and services is intensely
competitive. InteliData experiences direct competition from manufacturers of
smart telephones, caller ID units, and cordless phones and from companies that
develop transaction processing software for interactive applications and
customer support services. There can be no assurance as to what level of future
sales or royalties, if any, that InteliData will receive from Visa, Visa member
banks and retail markets for its smart telephone and home banking products and
services.
On August 12, 1997, InteliData announced its intention to purchase up to 2.0
million shares of its common stock pursuant to open market transactions. There
can be no assurances as to the number of shares ultimately repurchased.
CASH FLOWS FROM OPERATING ACTIVITIES
Operating activities provided $18.4 million in cash for the six months ended
June 30, 1997 compared to using $11.0 million of cash in the comparable 1996
period. The increase in cash in 1997 resulted primarily from an increase in net
earnings and a decrease in accounts receivable, partially offset by a decrease
in accounts payable in 1997.
CASH FLOWS FROM INVESTING ACTIVITIES
Investing activities used $4.1 million in cash for the six months ended June 30,
1997 compared to using $4.7 million in the comparable 1996 period. In 1997,
cash was used primarily for the purchase of rotable spare parts, a spare engine,
and engine upgrades required for the integration of two MD-11 aircraft.
CASH FLOWS FROM FINANCING ACTIVITIES
Financing activities used $18.3 million in cash for the six months ended June
30, 1997 compared to providing $1.1 million in the comparable 1996 period. This
decrease in cash resulted primarily from an increase in repayments of the
Company's net borrowings and the purchase of shares of WorldCorp's and World
Airways' common stock for an aggregate cost of $0.1 million and $0.5 million,
respectively, in 1997.
CAPITAL COMMITMENTS/FINANCING DEVELOPMENTS
WORLD AIRWAYS
- -------------
In October 1992 and January 1993, World Airways signed a series of agreements to
lease seven new MD-11 aircraft for initial lease terms of two to five years,
renewable for up to 10 years (and in the case of one aircraft, for 13 years) by
the Company 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, it 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.
As of June 30, 1997, World Airways has long-term leases for four DC10-30
aircraft. Three of the leases expire in 1998 and one expires in 2003.
In August 1995, World Airways amended its aircraft spare parts facility under
the Credit Agreement to provide for a variable rate borrowing. 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.
25
<PAGE>
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.
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. In June 1997, World Airways took delivery of the engine and
signed a note for $6.3 million. The note bears interest at a rate of 8.18% and
is payable over an 84-month period at approximately $48,000 per month with the
balance of $2.2 million due on June 18, 2004.
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 was made available in December 1996. As
of June 30, 1997, approximately $7.4 million had been received.
As of June 30, 1997, annual minimum payments required under World Airways's
aircraft and lease obligations totaled $43.6 million for the remainder of 1997
and $84.9 million for 1998. World Airways anticipates that its total capital
expenditures in 1997, which includes the spare engine, will approximate $13.0
million of which it will receive approximately $6.3 million in financing. World
Airways expects that the remaining balance will be funded from its operating
cash flow and proceeds from the Offering. As of June 30, 1997, World Airways
held approximately $3.6 million (at book value) of aircraft spare parts
currently available for sale.
Effective June 30, 1996, World Airways amended its Credit Agreement with BNY
Financial Corporation ("BNY") to include the following: a $10.0 million spare
parts loan and an $8.0 million revolving line of credit. This amended Credit
Agreement is collateralized by certain receivables, inventory, and equipment.
As of June 30, 1997, the outstanding balance of the spare parts loan was $4.0
million with no outstanding balance or available capacity on the revolving line
of credit.
Under the terms of the amended Credit Agreement, World Airways is not permitted
to (i) incur indebtedness in excess of $25.0 million (excluding capital leases),
(ii) declare, pay, or make any dividend or distribution in any six month period
which aggregate in excess of the lesser of $4.5 million or 50% of net income for
the previous six months, (iii) declare or pay dividends if after giving effect
to such dividends its cash or cash equivalents would be less than $7.5 million
or (iv) make capital expenditures in 1997 of more than $25.0 million or in any
subsequent year of more than $15.0 million. Recently, the date that World
Airways is required to pay any outstanding amounts under the line of credit was
extended to December 31, 2000. The aircraft security agreement remains payable
in 1999. World Airways must also maintain a certain quarterly net worth and net
income (loss) requirements. While it was in compliance with these covenants at
June 30, 1997, no assurances can be given that World Airways will continue to
meet these covenants or, if necessary, obtain the required waivers. In
addition, World Airways granted warrants to BNY in October 1996 to purchase up
to 50,000 shares of common stock.
INTELIDATA
- ----------
InteliData's principal needs for cash in 1996 were for investments in property
and equipment and to fund working capital, primarily related to inventories and
accounts receivable. InteliData's primary needs for cash in the future are for
investments in product development, working capital, the financing of
operations, strategic ventures, capital expenditures and the upgrade of its
systems and operations. In order to meet its needs for cash over the next twelve
months, InteliData will utilize cash, short-term investments and may utilize, to
the extent available, funds generated from operations in the second half of 1997
through the collections of accounts receivable and sale of inventories.
InteliData maintains three credit facilities aggregating $20.0 million. The
first credit agreement covers the period through May 1997 and is a revolving
line of credit of $1.0 million. The second credit agreement is a $4.0 million
line of credit utilized for the purpose of issuing letters of credit. The third
credit agreement is a credit facility totaling $15.0 million for cash advances
and letters of credit. As of June 30, 1997, there were no outstanding balances
under any of these facilities.
26
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WORLDCORP
- ---------
On August 29, 1996, the Company entered into a bridge loan (the "Bridge Loan")
with a financial institution pursuant to which the Company borrowed $25.0
million and subsequently retired its existing 13 7/8% Subordinated Notes of the
same amount. The Bridge Loan is due September 29, 1997 and earns interest of
LIBOR plus 2.5%, payable monthly. Under the terms of the Bridge Loan, the
borrowings are collateralized by all of the shares of World Airways and
InteliData owned by WorldCorp, a first priority security interest in WorldCorp's
assets, and certain cash collateral. On September 30, 1996, the Company entered
into a purchase agreement (the "Purchase Agreement") which contained a series of
Senior Subordinated Notes ("the Notes") totaling $10.0 million which was used to
retire $10.0 million of the Bridge Loan in October 1996. The Notes are payable
in three installments through September 2000, earn interest of 10%, payable
semi-annually, and are included in long-term obligations at December 31, 1996.
Additionally, if the Company sells any shares of InteliData common stock, 20% of
the net proceeds received by the Company upon such sale will be used to prepay
the then outstanding Notes. On December 31, 1996, the Company refinanced the
Bridge Loan, which resulted in a decrease in the interest rate to LIBOR plus
1.75%, and reduced the cash collateral under the loan to $1.0 million. The
interest rate was 7.99% at March 31, 1997. The Purchase Agreement and the Bridge
Loan generally restrict the amount of stock repurchases by WorldCorp based on
certain specified conditions. These borrowings also contain a number of
covenants that, among other things, restrict the ability of WorldCorp to dispose
of assets, make certain acquisitions of the stock of other entities, incur
additional indebtedness, and make capital expenditures. The Bridge Loan also
contains certain covenants which, among other things, require WorldCorp to
maintain at least a 50.1% ownership of World Airways.
In the first quarter of 1997, WorldCorp entered into a $1.0 million margin loan
with Scott & Stringfellow, Inc., whereby WorldCorp pledged approximately 400,000
shares of InteliData common stock which WorldCorp owns as collateral for such
loan (the "Margin Loan"). As of June 30, 1997, the Company had no outstanding
balance on the Margin Loan. The Bridge Loan was amended to permit this loan. In
addition, the amendment stipulates that the fair market value of each share of
World Airways and InteliData common stock which collateralizes the Bridge Loan
must equal or exceed five dollars per share at all times. On July 31, 1997, the
Company received a notice of default on the Bridge Loan, whereby the financial
institution may proceed with the exercise of its rights and remedies under the
loan documents and applicable law if the default is not cured within 15 days
followig the date of the notice. Based on discussions with the financial
institution, the Company believes that the financial institution will not
exercise its rights at this time. No assurances can be given, however, that the
financial institution will not exercise its rights in the future.
OTHER MATTERS
LEGAL AND ADMINISTRATIVE PROCEEDINGS
World Airways and WorldCorp (the "World Defendants") were defendants in
litigation brought by the Committee of Unsecured Creditors of Washington
Bancorporation in August 1992, captioned Washington Bancorporation v. Boster et.
al., Adv. Proc. 92-0133 (Bankr. D.D.C.) (the "Boster Litigation"). Under a
settlement agreement, the plaintiff agreed to dismiss with prejudice the Boster
Litigation against all defendants, including the World Defendants, with each
party to bear its own costs. Under the settlement agreement, the World
Defendants do not have any further liability in the Boster Litigation.
World Airways has periodically received correspondence from the FAA with respect
to minor noncompliance matters. In November 1996, as the FAA has increased its
scrutiny of U.S. airlines, World Airways was assessed a preliminary fine of
$810,000 in connection with certain security violations by ground handling crews
contracted by World Airways for services at foreign airport locations. Under 49
U.S.C., Section 46301, any violation of pertinent provisions of 49 U.S.C.
Subsection 40101 or related rules is subject to a civil penalty for each
violation. Upon review of the evidence or facts and circumstances relating to
the violation, the statute allows for the compromise of proposed civil
penalties. The proposed penalties were imposed by the FAA in connection with
recent inspections at foreign airport facilities and relate primarily to ground
handling services provided by World Airways' customers in connection with their
operations; specifically, the inspection procedures of its aircraft, passengers
and associated cargo. In each of these instances, World Airways was in
compliance with international regulations, but not the more stringent U.S.
requirements, despite the fact that the flights in question did not originate or
terminate in the United States. World Airways has taken steps to comply with the
U.S. requirements and is currently working with the FAA to settle these claims
and believes that any fines ultimately imposed by the FAA will not have a
material adverse effect on the financial condition or results of operations of
World Airways. While World Airways believes it is currently in compliance in all
material respects with all appropriate standards and has all required licenses
and authorities, any material non-compliance by World Airways therewith or the
revocation or suspension of licenses or authorities could have a material
adverse effect on the financial condition or results of operations of World
Airways.
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In connection with the discontinuance of World Airways' scheduled service
operations, World Airways is subject to claims by various third parties and may
be subject to further claims in the future. One claim which had been filed in
connection with World Airways' discontinuance of scheduled service to South
Africa, and which sought approximately $37.8 million in compensatory and
punitive damages, has been settled by the parties for approximately $0.7
million.
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
The Company employs four individuals. The majority of its administrative
requirements are performed by employees of World Airways. The Company is
charged an appropriate monthly fee for these services.
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, who are also represented by the Teamsters, are
subject to a four-year collective bargaining agreement that will expire in
August 2000. World Airways' flight attendants challenged the use of foreign
flight attendant crews on World Airways' flights for Malaysian Airlines and
Garuda Indonesia which has historically been its operating procedure. World
Airways is contractually obligated to permit its Southeast Asian customers to
deploy their own flight attendants. While the arbitrator in this matter
recently denied the Union's request for back pay to affected flight attendants
for flying relating to the 1994 Hadj, the arbitrator concluded that World
Airways' contract with its flight attendants requires World Airways to first
actively seek profitable business opportunities that require using its flight
attendants, before it may accept wet lease business opportunities that use the
flight attendants of its customers. World Airways can provide no assurances as
to how the imposition of this requirement will affect its financial condition
and results of operations.
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 in February 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 dividends and does not plan to do so for the
foreseeable future. The Purchase Agreement governing the Notes, and the
Indenture governing the Company's Debentures, in certain circumstances, restrict
the Company form paying dividends or making distributions on its common stock.
As a holding company, all of WorldCorp's funds are generated through its
positions in World Airways and InteliData, neither of whom intend to pay
dividends in the foreseeable future. In addition, World Airways' ability to pay
dividends is currently restricted under a borrowing arrangement.
INCOME TAXES
At December 31 1996, WorldCorp had approximately $53.1 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
28
<PAGE>
of an annual limitation on the Company's NOLs existing at the time of any such
ownership change. In addition, 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. World Airways does not file a consolidated
income tax return with the Company.
INFLATION
The Company believes that inflation has not had a material effect on the
Company's revenues during the past three years.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 ("FAS #128") Earnings per
Share, and SFAS No. 129 ("FAS #129") Disclosure of Information About Capital
Structure. FAS #128 was issued to simplify the computation of earnings per
share and to make the U.S. standard more compatible with the standards of other
countries and that of the International Accounting Standards Committee. FAS
#128 replaces primary and full diluted earnings per share with basic earnings
and diluted earnings per share. FAS #129 will change some of the required
disclosures about capital structure. It is not expected that these statements
will have a material effect on the Company's financial statements in the future.
The statements are effective for the year ended December 31, 1997.
29
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
--------
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<S> <C> <C>
3.1 Certificate of Incorporation of Incorporated
WorldCorp, Inc. dated March 16, 1987. by reference
[Filed as Exhibit 3.1 to WorldCorp,
Inc.'s Registration Statement on
Form S-4 (Commission File No.
33012735) filed on March 19, 1987 and
incorporated herein by reference.]
3.2 Amended and Restated Bylaws of Incorporated
WorldCorp, Inc. dated November 13, by reference
1987. (Filed as Exhibit 3.1 to
WorldCorp, Inc.'s Annual Report on
Form 10-K for the fiscal year ended
December 31, 1987 and
incorporated herein by reference.)
4.6 First Supplemental Indenture dated as Incorporated
of February 22, 1994 between by reference
WorldCorp, Inc. and The First
National Bank of Boston, as Trustee.
(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 Incorporated
April 1, 1995 between WorldCorp, by reference
Inc. and Patrick F. Graham. (Filed as
Exhibit 4.8 to WorldCorp Inc's
Form S-3 Registration Statement
(Commission file No. 33-60247)
filed on June 15, 1995 and
incorporated herein by reference.)
10.5 Merger Agreement and Plan of Incorporated
Reorganization dated as of April 28, by reference
1987 by and among World Airways,
Inc., World Merger Corporation
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.]
10.9 Form of Assumption Agreement dated as Incorporated
of June 23, 1987 among by reference
WorldCorp, Inc., World Airways, Inc.
and each Indemnified Party.
[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.]
10.14 Office Lease - The Hallmark Building Incorporated
dated as of May 16, 1987 by reference
between WorldCorp, Inc. and GT
Renaissance 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, Incorporated
1989 between WorldCorp, Inc. by reference
and GT Renaissance Centre Limited
Partnership. (Filed as Exhibit
10.37 to WorldCorp, Inc.'s Annual
Report on Form 10-K for the fiscal
year ended December 31, 1989 and
incorporated herein by reference.)
10.16 Office Lease - The Hallmark Building Incorporated
dated as of September 20, 1989 by reference
between World Airways, Inc. and GT
Renaissance Centre Limited
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.)
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.17 Warrant Agreement dated as of July Incorporated
22, 1989 between WorldCorp, by reference
Inc. and Charles W. Pollard. (Filed
as Exhibit 10.45 to WorldCorp,
Inc.'s Annual Report on Form 10-K for
the fiscal year ended
December 31, 1989 and incorporated
herein by reference.)
10.20 WorldCorp, Inc. Employee Savings and Incorporated
Stock Ownership Plan. (Filed by reference
as Exhibit 10.49 to WorldCorp,
Inc.'s Annual Report on Form
10-K for the fiscal year ended December
31, 1989 and incorporated
herein by reference.)
10.21 Amendment No. 1 to WorldCorp Inc. Incorporated
Employee Savings and Stock by reference
Ownership Plan. (Filed as Exhibit
10.50 to WorldCorp, Inc.'s
Annual Report on Form 10-K for the
fiscal year ended December 31,
1989 and incorporated herein by
reference.)
10.27 Aircraft Warranty Bill of Sale dated Incorporated
as of January 15, 1991 between by reference
World Airways, Inc. and First
Security Bank of Utah, N.A., not in
its individual capacity, but solely as
Owner Trustee. (Filed as Exhibit
10.46 to WorldCorp, Inc.'s Annual
Report on Form 10-K for the fiscal
year ended December 31, 1990 and
incorporated herein by reference.)
10.28 Aircraft Lease Agreement dated as of Incorporated
January 15, 1991 between World by reference
Airways, Inc. and First Security Bank
of Utah, N.A., not in its
individual capacity, but solely as
Owner Trustee. (Filed as Exhibit
10.47 to WorldCorp, Inc.'s Annual
Report on Form 10-K for the fiscal
year ended December 31, 1990 and
incorporated herein by reference.)
10.32 Aircraft Engine Purchase Agreement Incorporated
dated as of April 26, 1991 between by reference
Terandon Leasing Corporation and
World Airways, Inc. (Filed as
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 Incorporated
as of April 26, 1991 between by reference
Terandon Leasing Corporation and
World Airways, Inc. (Filed as
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 Incorporated
February 12, 1992 between McDonnell by reference
Douglas Finance Corporation and World
Airways, Inc. (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 Incorporated
February 12, 1992 between McDonnell by reference
Douglas Finance Corporation and World
Airways, Inc. (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.)
10.38 Aircraft Lease Agreement for Aircraft Incorporated
Serial Number 48518 dated as by reference
of September 30, 1992 between World
Airways, Inc. and International
Lease Finance Corporation.
10.39 Aircraft Lease Agreement for Aircraft Incorporated
Serial Number 48519 dated as by reference
of September 30, 1992 between World
Airways, Inc. and International
Lease Finance Corporation.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.40 Aircraft Lease Agreement for Aircraft Incorporated
Serial Number 48520 dated as by reference
of September 30, 1992 between World
Airways, Inc. and International
Lease Finance Corporation.
10.41 Aircraft Lease Agreement for Aircraft Incorporated
Serial Number 48633 dated as by reference
of September 30, 1992 between World
Airways, Inc. and International
Lease Finance Corporation.
10.42 Aircraft Lease Agreement for Aircraft Incorporated
Serial Number 48631 dated as by reference
of September 30, 1992 between World
Airways, Inc. and International
Lease Finance Corporation.
10.43 Aircraft Lease Agreement for Aircraft Incorporated
Serial Number 48632 dated as by reference
of September 30, 1992 between World
Airways, Inc. and International
Lease Finance Corporation.
10.46 Accounts Receivable Management and Incorporated
Security Agreement dated as by reference
of December 7, 1993 between World
Airways, Inc. and BNY
Financial Corporation.
10.47 Aircraft Parts Security Agreement Incorporated
dated as of December 7, 1993 by reference
between World Airways, Inc. and BNY
Financial Corporation.
10.48 Warrant Certificate dated as of Incorporated
December 7, 1993 between WorldCorp, by reference
Inc. and BNY Financial Corporation.
10.62 Consignment Agreement dated as of Incorporated
September 30, 1993 between World by reference
Airways Inc. and The Memphis Group.
10.63 Assignment and Assumption and Consent Incorporated
and Release for Aircraft by reference
Serial Number 47818 dated as of July
20, 1993 among World
Airways, Inc., WorldCorp, Inc.,
McDonnell Douglas Corporation, and
McDonnell Douglas Finance Corporation.
10.64 Assignment and Assumption and Consent Incorporated
and Release for Aircraft by reference
Serial Number 46999 dated as of July
9, 1993 among World
Airways, Inc., WorldCorp, Inc.,
McDonnell Douglas Corporation, and
McDonnell Douglas Finance Corporation.
10.65 Aircraft Lease Agreement for Aircraft Incorporated
Serial Number 48458 dated as by reference
of January 15, 1993 between World
Airways, Inc. and Wilmington
Trust Company/GATX Capital
Corporation.
10.66 Aircraft Lease Supplement for Incorporated
Aircraft Serial Number 48458 dated as by reference
of April 23, 1993 between World
Airways, Inc. and Wilmington Trust
Company/GATX Capital Corporation.
10.67 Aircraft Spare Parts Lease Agreement Incorporated
dated as of April 15, 1993 by reference
between World Airways, Inc. and GATX
Capital Corporation.
10.68 Amendment No. 1 To Aircraft Lease Incorporated
Agreement for Aircraft Serial by reference
Number 48518 dated as of November
1993 between World Airways,
Inc. and International Lease Finance
Corporation.
10.69 Amendment No. 2 to Aircraft Lease Incorporated
Agreement for Aircraft Serial by reference
Number 48518 dated as of March 8,
1993 between World Airways,
Inc. and International Lease Finance
Corporation.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.70 Assignment of Rights for Aircraft Incorporated
Serial Number 48518 dated as of by reference
March 8, 1993 between World Airways,
Inc. and International Lease
Finance Corporation.
10.71 Assignment of Rights for Aircraft Incorporated
Engines Serial Numbers P723942, by reference
P723945, and P723943 dated as of
March 1, 1993 between World
Airways, Inc. and International Lease
Finance Corporation.
10.72 Agency Agreement for Aircraft Serial Incorporated
Number 48518 dated as of by reference
January 15, 1993 between World
Airways, Inc. and International
Lease Finance Corporation.
10.73 Amendment No. 2 to Aircraft Lease Incorporated
Agreement for Aircraft Serial by reference
Number 48437 dated as of March 31,
1993 between World Airways,
Inc. and International Lease Finance
Corporation.
10.74 Amendment No. 3 to Aircraft Lease Incorporated
Agreement for Aircraft Serial by reference
Number 48437 dated as of April 15,
1993 between World Airways,
Inc. and International Lease Finance
Corporation.
10.75 Agency Agreement for Aircraft Serial Incorporated
Number 48437 dated as of by reference
January 15, 1993 between World
Airways, Inc. and International
Lease Finance Corporation.
10.76 Assignment of Rights for Aircraft Incorporated
Serial Number 48437 dated as of by reference
April 15, 1993 between World Airways,
Inc. and International Lease
Finance Corporation.
10.77 Assignment of Rights for Aircraft Incorporated
Engines Serial Numbers P723913, by reference
P723912, and P723914 dated as of
April 15, 1993 between World
Airways, Inc. and International Lease
Finance Corporation.
10.78 Amendment No. 2 to Aircraft Lease Incorporated
Agreement for Aircraft Serial by reference
Number 48520 dated as of April 22,
1993 between World Airways,
Inc. and International Lease Finance
Corporation.
10.79 Agency Agreement for Aircraft Serial Incorporated
Number 48520 dated as of by reference
January 15, 1993 between World
Airways, Inc. and International
Lease Finance Corporation.
10.80 Assignment of Rights for Aircraft Incorporated
Serial Number 48520 dated as of by reference
April 22, 1993 between World Airways,
Inc. and International Lease
Finance Corporation.
10.81 Assignment of Rights for Aircraft Incorporated
Engines Serial Numbers P723957, by reference
P723958, and P723956 dated as of
March 1, 1993 between World
Airways, Inc. and International Lease
Finance Corporation.
10.82 Aircraft Charter Agreement dated as Incorporated
of July 24, 1993 between World by reference
Airways, Inc. and Malaysian Airline
System Berhad.
10.85 Return Agreement for Aircraft Serial Incorporated
Numbers 47818 and 46999 dated by reference
as of July 9, 1993 among World
Airways, Inc., WorldCorp, Inc.,
International Lease Finance
Corporation, McDonnell Douglas
Corporation, and McDonnell Douglas
Finance Corporation.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.861 Acquisition Agreement Among VISA Incorporated
International Service Association, by reference
US Order, Inc, and WorldCorp, Inc,
dated as of July 15, 1994.
10.87 Stock Purchase Agreement by and among Incorporated
World Airways, Inc., by reference
WorldCorp, Inc., and Malaysian
Helicopter Services Berhad dated as
of October 30, 1993.
10.88 Stock Registration Rights Agreement Incorporated
between World Airways, Inc. by reference
and Malaysian Helicopter Services
Berhad dated as of October 30, 1993.
10.89 Shareholders Agreement between Incorporated
Malaysian Helicopter Services by reference
Berhad and WorldCorp, Inc., and World
Airways, Inc. dated as of
February 3, 1994.
10.90 Amendment No. 1 to Shareholders Incorporated
Agreement dated as of February 28, by reference
1994, among WorldCorp, World Airways,
and MHS.
10.94 Stock Option Agreement dated as of Incorporated
August 1, 1994 ("Grant Date") by reference
between WorldCorp, Inc. and William
F. Gorog.
10.95 Employment Agreement dated as of Incorporated
August 1, 1994 between US by reference
Order, Inc. and John C. Backus, Jr.
10.96 Employment Agreement dated as of Incorporated
August 19, 1994 between by reference
WorldCorp, Inc. and T. Coleman
Andrews, III.
10.97 Stock Option Agreement dated as of Incorporated
August 19, 1994 ("Grant Date") by reference
by and between WorldCorp, Inc. and T.
Coleman Andrews, III.
10.98 Agreement between World Airways, Inc. Incorporated
and the International by reference
Brotherhood of Teamsters representing
the Cockpit Crewmembers
employed by World Airways, Inc. dated
August 15, 1994-June 30, 1998.
10.101 Aircraft Services Agreement dated Incorporated
September 26, 1994 by and between by reference
World Airways, Inc. ("World") and
Malaysian Airlines.
10.102 Freighter Services Agreement dated Incorporated
October 1, 1994 by and between by reference
World Airways, Inc. and Malaysian
Airline System Berhad.
10.103 World Airways, Inc. 1995 AMC Contract Incorporated
F11626-94-D0027 dated by reference
October 1, 1994 between World
Airways, Inc. and Air Mobility
Command.
10.105 Stock Purchase Agreement (the Incorporated
"Agreement") dated as of December by reference
31, 1994 by and between MHS Berhad, a
Malaysian corporation (the
"Shareholder") and WorldCorp, Inc., a
Delaware corporation (the
"Purchaser").
10.107 Amendment No. 1 to Passenger Aircraft Incorporated
Services and Freighter by reference
Services Agreement dated December 31,
1994 by and between World
Airways, Inc. and Malaysian Airline
System Berhad.
10.109 Customer Agreement between WorldCorp Incorporated
ESSOP and Scott & by reference
Stringfellow, Inc. dated January 11,
1995 for a margin loan.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.110 Side Letter dated January 11, 1995 Incorporated
from Scott & Stringfellow, Inc. to by reference
William F. Gorog, Trustee of
WorldCorp Employee Savings and Stock
Ownership Plan for a margin loan to
the WorldCorp ESSOP.
10.111 Guarantee Agreement dated January 11, Incorporated
1995 by WorldCorp, Inc. by reference
("Guarantor") for the benefit of
Scott & Stringfellow, Inc. (the
"Lender").
10.112 Registration Rights Agreement dated Incorporated
as of January 11, 1995 by and by reference
between WorldCorp, Inc. and Scott &
Stringfellow, Inc.
10.113 Side Letter dated January 11, 1995 Incorporated
from WorldCorp, Inc. to Scott & by reference
Stringfellow, Inc. regarding
commitment to make contributions to
the WorldCorp Employee Savings and Stock
Ownership Plan (the "ESSOP"),
for the duration of the Scott &
Stringfellow loan to the ESSOP.
10.115 Amendment No. 2 to Passenger Aircraft Incorporated
Services and Freighter by reference
Aircraft Service Agreement dated
February 9, 1995 by and between
World Airways, Inc. and Malaysian
Airline System Berhad.
11 Statement on Calculation of Earnings Filed Herewith
(Loss) Per Common Share.
27 Financial Data Schedule for the Filed Herewith
quarter ended June 30, 1997.
</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
Form 8-K dated July 14, 1997, was filed with the Securities and Exchange
Commission on July 14, 1997.
* * * * * * * *
35
<PAGE>
EXHIBIT 11
Page 1 of 2
WORLDCORP, INC. AND SUBSIDIARIES
CALCULATIONS OF EARNINGS (LOSS) PER COMMON SHARE
FOR THE THREE MONTHS ENDED JUNE 30,
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Earnings (loss) from continuing operations $ (213) $ 4,379
Loss from discontinued operations -- (16,897)
----------- -----------
Net loss $ (213) $ (12,518)
=========== ===========
PRIMARY NET EARNINGS (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE
Continuing operations $ (0.01) $ 0.25
Discontinued operations -- (0.98)
----------- -----------
Net loss $ (0.01) $ (0.73)
=========== ===========
PRIMARY WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Weighted average common shares
outstanding 15,008,077 16,466,695
Weighted average options and warrants
treated as common stock equivalents -- 749,206
----------- -----------
Primary number of shares 15,008,077 17,215,901
=========== ===========
FULLY DILUTED NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARE
Continuing operations $ * $ 0.24
Discontinued operations * (0.73)
----------- -----------
Net loss $ * $ (0.49)
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Weighted average common shares outstanding * 16,466,695
Weighted average options and warrants treated
as common stock equivalents * 766,249
Weighted average other dilutive securities * 5,877,034
----------- -----------
Fully diluted number of shares * 23,109,978
=========== ===========
</TABLE>
* Fully diluted earnings per share are anti-dilutive.
36
<PAGE>
EXHIBIT 11
Page 2 of 2
WORLDCORP, INC. AND SUBSIDIARIES
CALCULATIONS OF EARNINGS (LOSS) PER COMMON SHARE
FOR THE SIX MONTHS ENDED JUNE 30,
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Earnings (loss) from continuing operations $ 496 $ (2,214)
Loss from discontinued operations -- (19,377)
----------- -----------
Net earnings (loss) $ 496 $ (21,591)
=========== ===========
PRIMARY NET EARNINGS (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE
Continuing operations $ 0.03 $ (0.14)
Discontinued operations -- (1.18)
----------- -----------
Net earnings (loss) $ 0.03 $ (1.32)
=========== ===========
PRIMARY WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Weighted average common shares
outstanding 15,012,368 16,397,440
Weighted average options and warrants
treated as common stock equivalents -- --
----------- -----------
Primary number of shares 15,012,368 16,397,440
=========== ===========
FULLY DILUTED NET EARNINGS (LOSS) PER
COMMON AND COMMON EQUIVALENT SHARE
Continuing operations $ * $ *
Discontinued operations * *
----------- -----------
Net earnings (loss) $ * $ *
=========== ===========
FULLY DILUTED WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Weighted average common shares outstanding * *
Weighted average options and warrants treated
as common stock equivalents * *
Weighted average other dilutive securities * *
----------- -----------
Fully diluted number of shares * *
=========== ===========
</TABLE>
* Fully diluted earnings per share are anti-dilutive.
37
<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/ Mark S. Lynch
-------------------
(Mark S. Lynch)
Chief Financial Officer
Date: August 14, 1997
38
<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-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1996
<CASH> 9,390
<SECURITIES> 0
<RECEIVABLES> 8,442
<ALLOWANCES> 409
<INVENTORY> 0
<CURRENT-ASSETS> 35,586
<PP&E> 98,671
<DEPRECIATION> 25,198
<TOTAL-ASSETS> 168,288
<CURRENT-LIABILITIES> 82,171
<BONDS> 0
0
0
<COMMON> 16,630
<OTHER-SE> (56,130)
<TOTAL-LIABILITY-AND-EQUITY> 168,288
<SALES> 0
<TOTAL-REVENUES> 81,928
<CGS> 0
<TOTAL-COSTS> 76,440
<OTHER-EXPENSES> 3,433
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,673
<INCOME-PRETAX> 2,055
<INCOME-TAX> 100
<INCOME-CONTINUING> (213)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (213)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0<F1>
<FN>
<F1>Fully diluted earnings per share are anit-diluted.
</FN>
</TABLE>
