<PAGE>
CONFORMED COPY
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
______________________________________
For the Quarter ended: SEPTEMBER 30, 1997 Commission File Number 1-5351
WORLDCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE94-3040585
(State of incorporation)(I.R.S. Employer Identification Number)
13873 Park Center Road, Suite 490, Herndon, VA 20171
(Address of Principal Executive Offices)
(703) 834-9200
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
------
The number of shares of the registrant's Common Stock outstanding on November 7,
1997 was 14,267,245.
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<PAGE>
WORLDCORP, INC.
SEPTEMBER 1997, QUARTERLY REPORT ON FORM 10Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, September 30,
1997 and December 31, 1996................................... 3
Condensed Consolidated Statements of Operations,
Three months ended September 30, 1997 and 1996............... 5
Condensed Consolidated Statements of Operations,
Nine months ended September 30, 1997 and 1996................ 7
Condensed Consolidated Statement of Changes in Common
Stockholders' Deficit, Nine months ended September 30, 1997.. 9
Condensed Consolidated Statements of Cash Flows,
Nine months ended September 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.................................... 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 34
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
1997 1996
--------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents, including restricted
cash of $447 at December 31, 1996 $ 8,665 $ 12,462
Restricted cash and short-term investments -- 2,047
Trade accounts receivable, less allowance for
doubtful accounts of $413 at December 31, 1996 -- 15,460
Other receivables 201 4,667
Due from affiliate, net -- 4,181
Prepaid expenses and other current assets 869 8,314
Assets held for sale -- 500
------- --------
Total current assets 9,735 47,631
------- --------
ASSETS HELD FOR SALE -- 3,425
EQUIPMENT AND PROPERTY
Flight and other equipment 3,103 75,191
Equipment under capital leases 173 11,639
------- --------
3,276 86,830
Less accumulated depreciation and amortization 2,988 21,357
------- --------
Net equipment and property 288 65,473
------- --------
LONG-TERM OPERATING DEPOSITS -- 15,951
INVESTMENT IN AFFILIATES 11,490 36,299
OTHER ASSETS AND DEFERRED CHARGES, NET 1,710 5,145
INTANGIBLE ASSETS, NET 913 1,072
------- --------
TOTAL ASSETS $24,136 $ 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)
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ -- $ 26,386
Current maturities of long-term obligations 10,034 9,990
Accounts payable 218 24,339
Net liabilities of discontinued operations -- 1,834
Unearned revenue -- 3,046
Accrued maintenance in excess of reserves paid -- 9,770
Due to affiliates 384 --
Accrued salaries and wages 588 10,344
Accrued interest 1,706 981
Accrued taxes 81 1,249
--------- --------
Total current liabilities 13,011 87,939
--------- --------
LONG-TERM OBLIGATIONS, NET 64,740 104,804
OTHER LIABILITIES
Deferred gain from sale leaseback transactions, net of
accumulated amortization of $19,099 as of December 31, 1996 -- 6,252
Accrued postretirement benefits -- 2,545
Accrued maintenance in excess of reserves paid -- 6,867
Other -- 3,378
--------- --------
Total other liabilities -- 19,042
--------- --------
TOTAL LIABILITIES 77,751 211,785
--------- --------
MINORITY INTEREST -- 3,548
COMMON STOCKHOLDERS' DEFICIT
Common stock, $1 par value, (60,000,000 shares authorized,
16,636,407 shares issued and 14,763,641 shares outstanding
at September 30, 1997 and 16,617,031 shares issued and
15,020,265 shares outstanding at December 31, 1996) 16,636 16,617
Additional paid-in capital 43,673 43,824
Deferred compensation (351) (591)
Accumulated deficit (104,989) (91,366)
ESOP guaranteed bank loan -- (805)
Treasury stock, at cost (1,872,766 shares at September 30,
1997 and 1,596,766 shares at December 31, 1996) (8,584) (8,016)
--------- --------
TOTAL COMMON STOCKHOLDERS' DEFICIT (53,615) (40,337)
--------- --------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND COMMON STOCKHOLDERS'
DEFICIT $ 24,136 $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 SEPTEMBER 30,
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
OPERATING REVENUES
World Airways $ 55,416 $75,397
US Order -- 1,064
-------- -------
Total operating revenues 55,416 76,461
-------- -------
OPERATING EXPENSES
World Airways:
Flight 14,778 16,911
Maintenance 10,103 13,855
Aircraft costs 15,667 18,982
Fuel 4,957 6,628
Flight operations subcontracted to other carriers 118 4,809
Promotions, sales and commissions 2,256 2,000
Depreciation and amortization 1,464 2,055
General and administrative 4,010 6,441
-------- -------
Total operating expenses - World Airways 53,353 71,681
-------- -------
US Order:
Total operating expenses - US Order -- 9,520
-------- -------
WorldCorp:
General and administrative 520 998
-------- -------
Total operating expenses 53,873 82,199
-------- -------
OPERATING INCOME (LOSS) 1,543 (5,738)
-------- -------
OTHER INCOME (EXPENSE)
Interest expense (2,420) (3,068)
Interest income 402 840
Equity in earnings (loss) of affiliates, net (22,393) --
Gain on sale of subsidiary's stock 17,615 --
Gain (loss) on issuances (purchases) of equity by affiliates, net (8,457) 1,903
Other, net 272 (520)
-------- -------
Total other expense (14,981) (845)
-------- -------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST (13,438) (6,583)
INCOME TAX EXPENSE -- (180)
MINORITY INTEREST (681) 2,616
-------- -------
LOSS FROM CONTINUING OPERATIONS (14,119) (4,147)
-------- -------
LOSS FROM DISCONTINUED OPERATIONS BEFORE
MINORITY INTEREST -- 180
MINORITY INTEREST -- (73)
-------- -------
DISCONTINUED OPERATIONS -- 107
-------- -------
NET LOSS $(14,119) $(4,040)
======== =======
(Continued)
</TABLE>
5
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
PRIMARY NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARE
Continuing operations $ (0.94) $ (0.24)
Discontinued operations -- 0.01
----- -----
Net loss $ (0.94) $ (0.23)
====== ======
FULLY DILUTED NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARE
Continuing operations $ * $ *
Discontinued operations * *
----- -----
Net loss $ * $ *
===== =====
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Primary 14,988,934 17,214,199
========== ==========
Fully diluted * *
===== =====
</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 NINE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
OPERATING REVENUES
World Airways $216,092 $227,270
US Order -- 2,938
-------- --------
Total operating revenues 216,092 230,208
-------- --------
OPERATING EXPENSES
World Airways:
Flight 47,892 50,193
Maintenance 44,698 44,348
Aircraft costs 65,046 60,434
Fuel 10,660 14,698
Flight operations subcontracted to other carriers 2,367 12,822
Promotions, sales and commissions 6,919 5,634
Depreciation and amortization 5,795 5,949
General and administrative 17,818 17,530
-------- --------
Total operating expenses - World Airways 201,195 211,608
-------- --------
US Order:
Total operating expenses - US Order -- 16,544
-------- --------
WorldCorp:
General and administrative 1,844 3,018
-------- --------
Total operating expenses 203,039 231,170
-------- --------
OPERATING INCOME (LOSS) 13,053 (962)
-------- --------
OTHER INCOME (EXPENSE)
Interest expense (8,045) (8,878)
Interest income 831 2,807
Equity in earnings (loss) of affiliates, net (23,163) --
Gain on sale of subsidiary's stock, net 17,615 --
Gain (loss) on issuances (purchases) of equity by affiliates, net (8,854) 1,729
Other, net 68 (1,090)
-------- --------
Total other expense (21,548) (5,432)
-------- --------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST (8,495) (6,394)
INCOME TAX EXPENSE (350) (495)
MINORITY INTEREST (4,778) 529
-------- --------
LOSS FROM CONTINUING OPERATIONS (13,623) (6,360)
-------- --------
LOSS FROM DISCONTINUED OPERATIONS BEFORE
MINORITY INTEREST -- (32,525)
MINORITY INTEREST -- 13,254
-------- --------
LOSS FROM DISCONTINUED OPERATIONS -- (19,271)
-------- --------
NET LOSS $(13,623) $(25,631)
======== ========
(Continued)
</TABLE>
7
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
PRIMARY NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARE
Continuing operations $ (0.91) $ (0.39)
Discontinued operations -- (1.17)
---------- ----------
Net loss $ (0.91) $ (1.56)
========== ==========
FULLY DILUTED NET LOSS PER
COMMON AND COMMON EQUIVALENT SHARE
Continuing operations $ * $ *
Discontinued operations * *
---------- ----------
Net loss $ * $ *
========== ==========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Primary 15,004,837 16,447,127
========== ==========
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 NINE MONTHS ENDED SEPTEMBER 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 19 49 -- -- -- -- 68
Employee Stock Ownership Plan
guaranteed bank loan -- -- -- -- 805 -- 805
Amortization of deferred
compensation -- -- 40 -- -- -- 40
Cancellation of options
previously granted -- (200) 200 -- -- -- --
Purchase of common stock, at cost -- -- -- -- -- (568) (568)
Net loss -- -- -- (13,623) -- -- (13,623)
------- ---------- ------------ ----------- ------------ -------- --------
BALANCE AT
SEPTEMBER 30, 1997 $16,636 $43,673 $(351) $(104,989) $ -- $(8,584) $(53,615)
======= ========== ============ =========== ============ ======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
9
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD $ 12,462 $ 74,443
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (13,623) (25,631)
Adjustments to reconcile net loss to cash
provided (used) by operating activities:
Depreciation and amortization 6,143 6,907
Deferred gain recognition (704) (794)
Gain on sale of subsidiary's stock (17,615) --
(Gains) losses on (issuances) purchases of equity by affiliates, net 8,854 (1,729)
Minority interest in earnings (loss) of subsidiaries 4,778 (13,768)
Equity in loss of affiliates, net 23,163 --
Equity in loss in investee of subsidiary -- 1,431
Issuance of warrants to a non-affiliate -- 347
In-process research and development from acquired company -- 4,914
Gain on sale of equipment and property (299) (504)
Deferred compensation expense 40 230
Loss on disposal of discontinued operations -- 7,641
Other 479 (11)
Changes in certain assets and liabilities, net of
effects of non-cash transactions:
Decrease (increase) in accounts receivable 8,091 (7,402)
Decrease (increase) in restricted short-term investments 941 (668)
Decrease in deposits, prepaid expenses and other assets 3,630 2,999
Increase in accounts payable, accrued
expenses and other liabilities 614 17,872
Increase (decrease) in unearned revenue 1,693 (10,233)
Increase in air traffic liability -- (192)
-------- --------
Net cash provided (used) by operating activities 26,185 (18,591)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property (4,155) (11,257)
Proceeds from disposal of equipment and property 946 1,353
Cash of World Airways at date of common stock repurchase (Note 6) (58,050) --
Debt issuance costs (2,016) (225)
-------- --------
Net cash used by investing activities (63,275) (9,982)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in line of credit borrowing arrangement, net (12,226) 2,497
Issuance of debt 50,000 40,884
Repayment of debt (27,124) (37,518)
Proceeds from stock transactions -- 1,499
Proceeds from sale of subsidiary's stock, net 23,687 --
Proceeds from purchases of equity by affiliates, net -- 776
Purchase of common stock (568) --
Purchase of common stock of subsidiary (476) --
-------- --------
Net cash provided by financing activities 33,293 7,913
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,797) (20,660)
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,665 $ 53,783
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
10
<PAGE>
WORLDCORP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The condensed consolidated balance sheet of WorldCorp, Inc. ("WorldCorp" or
the "Company") as of September 30, 1997, the related condensed consolidated
statements of operations for the three and nine month periods ended September
30, 1997 and 1996, the condensed consolidated statements of changes in common
stockholders' deficit for the nine months ended September 30, 1997 and the
condensed consolidated statements of cash flows for the nine months ended
September 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.
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.
Prior to September 18, 1997, these financial statements contain the
historical results of World Airways, Inc. ("World Airways"). On September 18,
1997, World Airways purchased 3,227,000 shares of its common stock from the
Company for approximately $24.7 million in cash (the "Purchase")(see Note 6).
As a result of the Purchase, the Company's ownership percentage in World
Airways was reduced to 46.3% and, as such, beginning September 18, 1997,
WorldCorp reports its share of World Airways' 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. As mentioned above, WorldCorp's ownership in World Airways is approximately
46.3%. The Company's consolidated results for the three and nine months ended
September 30, 1997 and 1996 include the results of World Airways for the
period prior to the Purchase. Following the Purchase, the Company reports its
proportionate share of World Airways' financial results using the equity
method of accounting.
Summarized financial information of World Airways is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Results of operations:
Revenues $79,924 $75,397 $240,600 $227,270
Operating expenses 75,401 71,681 223,243 211,608
Operating income 4,523 3,716 17,357 15,662
Earnings from continuing
operations 3,726 2,909 14,392 13,681
Net earnings (loss) 3,726 3,089 14,392 (18,844)
</TABLE>
11
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<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Financial position:
Current assets $49,342 $39,091
Non-current assets 94,247 87,066
Current liabilities 54,864 68,647
Non-current liabilities 90,699 49,148
</TABLE>
3. As mentioned above, WorldCorp's ownership interest in InteliData is
approximately 29.4%. The Company's consolidated results for the three and
nine months ended September 30, 1997 and 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 September 30, Nine Months Ended September 30,
---------------------------------- --------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Results of operations:
Revenues $ 11,708 $ 1,063 $ 50,135 $ 2,937
Cost of revenues 9,558 703 35,705 1,975
Gross profit 2,150 360 14,430 962
Operating loss (78,859) (8,451) (84,240) (13,629)
Net loss (79,178) (8,524) (81,850) (13,718)
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Financial position:
Current assets $48,302 $ 82,989
Non-current assets 8,406 60,757
Current liabilities 13,690 19,457
Non-current liabilities -- --
</TABLE>
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. As
of September 30, 1997, InteliData had purchased 681,500 shares of its common
stock for an aggregate cost of $2.1 million.
4. 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 $21.2 million of these costs through
September 30, 1997. World Airways does not expect to incur any additional
costs relating to scheduled service operations. 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 12).
5. On August 26, 1997, World Airways completed a private offering, issuing $50.0
million of 8% convertible senior subordinated debentures (the "Debentures")
due in 2004 (the "Offering"). The Debentures are unsecured obligations,
convertible into shares of World Airways common stock at $8.90 per share, and
subordinated to all present and future senior indebtedness of World Airways.
World Airways' intended use of the net proceeds of the Offering is to
repurchase approximately 4.0 million shares of its common stock, repay
certain indebtedness,
12
<PAGE>
increase working capital and for general corporate purposes. After
completion of the Offering, World Airways repaid approximately $3.8 million
as full settlement of an outstanding spare parts loan. 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 holder's Debentures at 100% of
their principal amount, plus accrued interest (the "Repurchase Event"). The
ability of World Airways to repurchase the Debentures upon a Repurchase
Event will be dependent on its ability to raise sufficient funds through
additional borrowings or equity sales and compliance with applicable
securities laws. Accordingly, there can be no assurance that World Airways
will be able to repurchase the Debentures upon a Repurchase Event.
6. 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 September 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.
In connection with the above-mentioned Offering, World Airways and the
Company entered into an agreement (the "Agreement") for the purchase by
World Airways of up to 4.0 million shares of common stock owned by WorldCorp
at a purchase price of $7.65 per share. On September 18, 1997, World Airways
purchased 3,227,000 shares of its common stock from WorldCorp for
approximately $24.7 million. Discussions with MHS Berhad ("MHS") following
the Offering could have an impact on the number of shares of common stock
ultimately repurchased from WorldCorp. MHS has certain rights under a
shareholders agreement, dated as of February 3, 1994, as amended, among
WorldCorp, MHS and World Airways. This agreement includes a provision that
provides that if WorldCorp were to dispose of its holdings in World Airways
with the result that WorldCorp's ownership interest in World Airways falls
below 51% of the outstanding shares of common stock, then MHS may either
sell its shares to a third party or require WorldCorp to sell a pro rata
number of shares held by MHS to the party purchasing WorldCorp's shares. As
a result of the repurchase of 3,227,000 shares of common stock by World
Airways from WorldCorp, MHS has the right to sell 773,000 shares of common
stock. Accordingly, WorldCorp, MHS and World Airways have engaged in
preliminary discussions as to the potential repurchase of common stock owned
by MHS. The Company anticipates that these discussions will continue,
although there can be no assurance that these discussions will result in any
stock repurchases from MHS. Should MHS not exercise its right to sell the
773,000 shares of common stock, World Airways currently intends to
repurchase the shares from WorldCorp.
The Company used a portion of the proceeds from the sale of the World
Airways shares to pay the balance of a $15.0 million loan from a financial
institution which matured on September 29, 1997.
7. World Airways reached a settlement in September 1997 with its engine
manufacturer for reimbursements related to disputed spare engine lease
charges. As a result of this settlement, World Airways reversed aircraft
costs of approximately $2.4 million, consisting of lease expenses of
approximately $0.9 million and $1.5 million originally recorded in 1996 and
the first six months of 1997, respectively.
8. World Airways was recently informed that Malaysian Airline System Berhad
("Malaysian Airlines" or "MAS") received notice from the Malaysian Hadj
Board that MAS will not participate in the 1998 Hadj pilgrimage.
Notwithstanding, MAS has assured World Airways that it will honor its
contractual obligations. For the nine months ended September 30, 1997, World
Airways received approximately $17.0 million in revenues as a result of
aircraft provided to MAS for 1997 Hadj operations.
9. In October 1997, one of World Airways' MD-11 aircraft was damaged upon its
landing in Montevideo, Uruguay. The aircraft is expected to be out of
service for approximately two months while certain repairs are made. World
Airways expects insurance to cover repair and certain related costs, but
expects that its loss of revenues that would have been generated by the
aircraft's use will have an adverse effect on its financial condition and
results of operations for the fourth quarter of 1997.
10. InteliData recently announced a strategic repositioning of its
telecommunications division and, accordingly, recorded an unusual charge of
$69.1 million during the quarter ended September 30, 1997. Formerly called
"Consumer Telecommunications," the division is now named "Telecommunications
Solutions." InteliData reorganized its telecommunications division to focus
its efforts in two areas: acquiring, upgrading and retaining customers for
telephone companies and marketing products and services to the growing Small
Office Home Office ("SOHO") market.
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InteliData recorded a non-cash $11.3 million write-down on its product
inventory, of which the majority was related to Caller ID products
manufactured in 1995 and 1996. The company intends to seek multiple-factory
direct overseas manufacturing contracts that it hopes will allow for the
cost-effective use of Caller ID adjuncts in telco programs. InteliData
intends to focus its research and development resources on higher-margin
products and services, including integrated and multiline telephone
products.
InteliData recorded a non-cash, $49.2 million write-down in its intangible
assets, primarily goodwill associated with the Colonial Data merger
completed in November 1996. InteliData believes that the Caller ID adjunct
market changed significantly, with "give-away" promotional programs from the
telcos virtually eliminating retail sales, leading telcos to focus their
purchasing criteria on price alone.
InteliData recorded a one-time cash charge of $2.4 million to cover costs
associated with a 15% workforce reduction. In addition, InteliData recorded
a $3.7 million reserve against collection of an $11.7 million past due
account receivable from a joint venture between a subsidiary of InteliData
and a marketing services company. InteliData has filed suit seeking
collection of the full amount owed. No assurances can be given concerning
the outcome of this litigation. InteliData also wrote-off an advertising
credit of approximately $2.5 million carried on its balance sheet from a
1993 transaction with a former investor. InteliData can provide no
assurances that its recent strategic and financial re-structuring will make
the company profitable in the future.
11. 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 September 30, 1997, World Airways has a working capital deficit of
$5.5 million and has substantial debt and lease commitments. At September
30, 1997, InteliData has working capital of $34.6 million, with no long-term
debt. World Airways and InteliData currently intend to retain their future
earnings, if any, to fund the growth and development of their respective
businesses and, therefore, do not anticipate paying any cash dividends in
the foreseeable future.
As of September 30, 1997, WorldCorp holds $8.7 million in cash and cash
equivalents. As of such date, WorldCorp had parent company repayment
obligations, including principal and interest, of approximately $2.3 million
for the remainder of 1997 and $7.6 million in 1998.
In order to meet these obligations and its general and administrative costs,
the Company must use its existing cash and either enter into new financing
arrangements with commercial banks or other institutions, sell shares of
World Airways or InteliData, or issue additional debt or equity. Because
neither World Airways nor InteliData is a dividend paying company, and
WorldCorp is a holding company with no operating activities, WorldCorp may
be unable to obtain either commercial bank or other institutional debt
financing, and the capital markets may not be receptive to further issuances
by the Company of additional debt or equity. Accordingly, WorldCorp may be
entirely dependent upon sales of its interest in World Airways and
InteliData in order to meet its financial obligations.
The Company's ability to meet its financial obligations, therefore, is
highly dependent upon the market price of World Airways and InteliData
common stock, factors which are beyond the Company's control. World Airways,
an aviation company, is in a cyclical industry. InteliData, a technology
company, is in a highly competitive industry where wide fluctuations in the
market price for a company's stock are common. If the market price of World
Airways' or InteliData's common stock does not increase, it would impair the
Company's ability to repay the principal on its long-term debt at such time
as the maturities on these obligations become due.
In addition, the Company is a party to an Indenture covering $10 million of
10% Senior Subordinated Notes due September 30, 2000 (the "Notes"). Sinking
fund payments equal to 20% of the then outstanding principal balance are
required to be made on each of September 30, 1998 and September 30, 1999.
The Indenture contains a mandatory prepayment provision that requires the
Company to prepay 50% of the outstanding Notes within 60 days after the end
of any fiscal quarter in which the Company's Asset Value (defined to include
the market value of the common stock of World Airways and InteliData
beneficially owned by the Company plus the value of all of the Company's
other tangible assets) is less than $70.0 million. The Company is required
to prepay all of the outstanding Notes within 60 days after the end of any
fiscal quarter in which the Company's Asset Value is less than $50.0
million. The Company calculated its Asset Value for Indenture purposes to be
approximately $72.0 million at September 30, 1997. Further declines in the
share price of World Airways' and InteliData's common stock could trigger
either one of these mandatory prepayment
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requirements, which would materially adversely affect the Company's cash
position and which could materially, adversely impair the Company's ability
to meet both its current and long-term obligations. The stock prices for
World Airways and InteliData have declined since September 30 and there can
be no assurances that the Company's Asset Value will be sufficient to avoid
a partial or full mandatory prepayment 60 days after year-end or other
subsequent periods. Based on the repayment terms of the Notes described
above, and the resulting uncertainty regarding the maturity date, the
Company has classified the outstanding balance of the Notes as a current
liability as of September 30, 1997.
The Company cannot provide any assurances that it will be able to obtain in
any sales transaction the fair market value price for the World Airways and
InteliData common stock it owns. The Company's financial condition may cause
it to have to sell World Airways and/or InteliData common stock at times,
prices and amounts which depress the stock price of World Airways and/or
InteliData.
Finally, to the extent that the Company sells its assets to meet current
debt service obligations, the Company has fewer resources available to
permit it to repay its long-term obligations at maturity. Therefore,
although management believes that the Company has sufficient capital
resources to meet its obligations over the next 12 months, the Company can
provide no assurances at this time that it has, or will have, sufficient
capital resources to meet its obligations beyond such time. At September 30,
1997, based on quoted market prices, the market value of the Company's
3,702,586 shares of World Airways and 9,179,273 shares of InteliData
approximated $29.6 million and $27.5 million, respectively. The quoted
market prices of these shares have declined since September 30, 1997.
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 November 7, 1997, the Company had purchased 2,116,000
shares of its common stock for an aggregate cost of $9.2 million. The
Company intends to make repurchases from time to time as circumstances and
its financial condition permit.
12. For a discussion of commitments and contingencies see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Other Matters".
13. 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below relates to the operations of WorldCorp, Inc.
("WorldCorp" or "the Company") as reflected in its condensed consolidated
financial statements. These statements primarily include the accounts of 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. On September 18, 1997, World Airways purchased 3,227,000 shares of
its common stock from WorldCorp (the "Purchase"). At September 30, 1997,
WorldCorp and MHS owned 3,702,586 shares, or 46.3%, and 1,990,000 shares, or
24.9%, respectively, of World Airways' outstanding common stock. The remaining
balance was publicly traded. Following the Purchase, on September 18, 1997, the
Company reports its proportionate share of World Airways' results of operations
using the equity method of accounting.
On August 26, 1997, World Airways completed a private offering, issuing $50.0
million of 8% convertible senior subordinated debentures (the "Debentures") due
in 2004 (the "Offering"). The Debentures are unsecured obligations, convertible
into shares of World Airways common stock at $8.90 per share, and subordinated
to all present and future senior indebtedness of World Airways. World Airways'
intended use of the net proceeds of the Offering is to repurchase approximately
4.0 million shares of its common stock, repay certain indebtedness, increase
working capital and for general corporate purposes. After completion of the
Offering, World Airways repaid approximately $3.8 million as full settlement of
an outstanding spare parts loan. 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 holder's Debentures at 100% of their principal amount, plus
accrued interest (the "Repurchase Event"). The ability of World Airways to
repurchase the Debentures upon a Repurchase Event will be dependent on its
ability to raise sufficient funds through additional borrowings or equity sales
and compliance with applicable securities laws. Accordingly, there can be no
assurance that World Airways will be able to repurchase the Debentures upon a
Repurchase Event.
In connection with the above-mentioned Offering, World Airways and the Company
entered into an agreement (the "Agreement") for the purchase by World Airways of
up to 4.0 million shares of common stock owned by WorldCorp at a purchase price
of $7.65 per share. On September 18, 1997, World Airways purchased 3,227,000
shares of its common stock from WorldCorp for approximately $24.7 million.
Discussions with MHS Berhad ("MHS") following the Offering could have an impact
on the number of shares of common stock ultimately repurchased from WorldCorp.
MHS has certain rights under a shareholders agreement, dated as of February 3,
1994, as amended, among WorldCorp, MHS and World Airways. This agreement
includes a provision that provides that if WorldCorp were to dispose of its
holdings in World Airways with the result that WorldCorp's ownership interest in
World Airways falls below 51% of the outstanding shares of common stock, then
MHS may either sell its shares to a third party or require WorldCorp to sell a
pro rata number of shares held by MHS to the party purchasing WorldCorp's
shares. As a result of the repurchase of 3,227,000 shares of common stock by
World Airways from WorldCorp, MHS has the right to sell 773,000 shares of common
stock. Accordingly, WorldCorp, MHS and World Airways have engaged in
preliminary discussions as to the potential repurchase of common stock owned by
MHS. The Company anticipates that these discussions will continue, although
there can be no assurance that these discussions will result in any stock
repurchases from MHS. Should MHS not exercise its right to sell the 773,000
shares of common stock, World Airways currently intends to repurchase the shares
from WorldCorp.
The Company used a portion of the proceeds from the sale of the World Airways
shares to pay the balance of a $15.0 million loan from a financial institution
which matured on September 29, 1997.
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
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concentrates on three markets: (1) telecommunications solutions; (2) electronic
commerce; and (3) interactive services. Following this Merger, the Company
reports its proportionate share of InteliData's results of operations using the
equity method of accounting. At September 30, 1997, WorldCorp owned 9,179,273
shares of InteliData, or a ownership interest of approximately 29.4%.
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 November 7, 1997, the Company had purchased 2,116,000 shares of its common
stock for an aggregate cost of $9.2 million. The Company intends to make
repurchases from time to time as circumstances and its financial condition
permit.
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 Company's status as a holding company, 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
international tour operators, with a fleet of MD-11 and DC10-30 aircraft.
InteliData (Nasdaq:INTD) concentrates on three markets: (1) telecommunications
solutions; (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.
As of September 30, 1997, WorldCorp has substantial parent company debt service
obligations. In order to meet these obligations and its general and
administrative costs in 1998, the Company must use its existing cash and either
sell shares of World Airways or InteliData, or issue additional debt or equity.
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 12 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 its
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-
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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 eight 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 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 nine months of 1997, these customers provided approximately 23%, 34%, 13%
and 22%, respectively, of World Airways' revenues and 25%, 36%, 13% and 14%,
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 ("MAS") since 1981, providing wet lease services for MAS's scheduled
passenger and cargo operations as well as transporting passengers for the annual
Hadj pilgrimage. MHS, which owned 24.9% of World Airways as of September 30,
1997, also owns 29.1% of MAS. In 1997, World Airways entered into a new 32-
month agreement for year-round operations (including the Hadj) with MAS whereby
World Airways will provide two passenger aircraft with cockpit crews,
maintenance and insurance to MAS's newly-formed charter division through May
1999. World Airways provided three aircraft for 1997 Hadj operations.
World Airways was recently informed that MAS received notice from the Malaysian
Hadj Board that MAS will not participate in the 1998 Hadj pilgrimage.
Notwithstanding, MAS has assured World Airways that MAS will honor its
contractual obligations to World Airways, described above. For the nine months
ended September 30, 1997, World Airways received approximately $17.0 million in
revenues as a result of aircraft provided to MAS for 1997 Hadj operations.
World Airways has a long-term contract to operate three MD-11 cargo aircraft for
MAS. 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 another contract. World Airways and MAS are currently
discussing the future redeployment of these aircraft back into MAS's 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
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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 two 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 of the four MD-11s originally
operating for Philippine Airlines to other customers during the third quarter.
As of September 30, 1997, 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 Viacao Aereo Sao Paulo ("VASP") for the lease of two MD-11 passenger
aircraft for a six-month term with a six-month renewal option. World Airways is
currently negotiating the terms of this lease with VASP, with commencement
anticipated no earlier than late 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. World Airways is also leasing a cargo
plane to VASP under an ACMI contract which began in June 1997.
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 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 51% 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
$73.9 million for the government's 1997-98 fiscal year. The current annual
contract commenced on October 1, 1997 and expires on September 30, 1998. 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 September 30, 1997 of $353.1 million, compared to $462.0 million at
September 30, 1996. Approximately $65.1 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
guaranteed under the applicable contract by the specified hourly rate under such
contract. Approximately 63% of the backlog relates to its contracts with MAS.
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
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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 September 30, 1997, relates to its multi-year contracts with MAS. 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 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. 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 nine months ended September
30, 1997 of $17.4 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
20
<PAGE>
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. World Airways does not expect to incur any additional costs relating to
scheduled service operations.
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 September 30, 1997, WorldCorp's ownership in InteliData was
approximately 29.4%. 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: telecommunications solutions,
electronic commerce and interactive services.
As announced by InteliData in September 1997, InteliData formed two separate
telecommunications groups within its telecommunications solutions division. One
group targets the growing telecommunications needs of the small office home
office ("SOHO") market, while the other group provides turnkey telco subscriber
management programs for InteliData's telco customers. Historically, InteliData
had focused on selling low-end Caller ID adjunct devices to telephone companies
in support of their Caller ID programs. InteliData's new strategy focuses on
the services side of the business, outsourcing the lower-end adjuncts and
helping telcos acquire, upgrade and retain customers for Caller ID, voice mail
and the network services programs.
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.
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.
On August 1, 1994, US Order entered into an Acquisition Agreement with Visa
International Services Association ("Visa"), pursuant to which US Order sold its
electronic banking and bill payment operations to Visa for approximately $15.0
million, the assumption of certain liabilities and the right to receive certain
royalties during a 72-month period
21
<PAGE>
commencing January 1, 1995 (the "Acquisition Agreement"). Visa subsequently
licensed certain of its rights under the Acquisition Agreement to Visa
Interactive. In connection with Integrion Financial Network, LLC's ("Integrion")
acquisition of substantially all of the assets of Visa Interactive, including
Visa Interactive's license to Integrion to use the Bill-Pay System, effective
September 30, 1997, InteliData entered into a Settlement Agreement with Visa and
Visa Interactive whereby InteliData received $5.0 million as a non-refundable
prepayment for any royalty payments otherwise owed to InteliData from Visa's
domestic licensees, including Integrion, until August 22, 1999. Thereafter, and
until the expiration of the Acquisition Agreement on December 31, 2000,
InteliData shall receive all royalty payments otherwise due to InteliData from
Visa's domestic licensees, including Integrion, as otherwise provided in the
Acquisition Agreement. InteliData intends to recognize the revenues from prepaid
royalties ratably through August 22, 1999.
RECENT OPERATING LOSSES; STRATEGIC RESTRUCTURING
As discussed above, InteliData recently announced a strategic repositioning of
its telecommunications division and, accordingly, recorded an unusual charge of
$69.1 million during the quarter ended September 30, 1997. Formerly called
"Consumer Telecommunications," the division is now named "Telecommunications
Solutions." InteliData reorganized its telecommunications division to focus its
efforts in two areas: acquiring, upgrading and retaining customers for telephone
companies and marketing products and services to the growing SOHO market.
InteliData recorded a non-cash $11.3 million write-down on its product
inventory, of which the majority was related to Caller ID products manufactured
in 1995 and 1996. The company intends to seek multiple-factory direct overseas
manufacturing contracts that it hopes will allow for the cost-effective use of
Caller ID adjuncts in telco programs. InteliData intends to focus its research
and development resources on higher-margin products and services, including
integrated and multiline telephone products.
InteliData recorded a non-cash, $49.2 million write-down in its intangible
assets, primarily goodwill associated with the Colonial Data merger completed in
November 1996. InteliData believes that the Caller ID adjunct market changed
significantly, with "give-away" promotional programs from the telcos virtually
eliminating retail sales, leading telcos to focus their purchasing criteria on
price alone.
InteliData recorded a one-time cash charge of $2.4 million to cover costs
associated with a 15% workforce reduction. In addition, InteliData created a
$3.7 million reserve against collection of an $11.7 million past due account
receivable from a joint venture between a subsidiary of InteliData and a
marketing services company. InteliData has filed suit seeking collection of the
full amount owed. No assurances can be given concerning the outcome of this
litigation. InteliData also wrote-off an advertising credit of approximately
$2.5 million carried on its balance sheet from a 1993 transaction with a former
investor. InteliData can provide no assurances that its recent strategic and
financial re-structuring will make the company profitable in the future.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
WORLD AIRWAYS
- -------------
Total block hours, including discontinued operations, decreased 2,410 hours, or
18%, to 10,917 hours in the third quarter of 1997 from 13,327 hours in 1996,
with an average of 12.3 available aircraft per day in 1997 compared to 15.0 in
1996. Average daily utilization (block hours flown per day per aircraft) was 9.7
hours in 1997 and 1996. In 1997, wet lease contracts accounted for 68% of total
block hours, an increase from 45% in 1996. Block hours from continuing
operations increased to 10,917 hours in the third quarter of 1997 from 9,337
hours in 1996.
As previously discussed, in September 1997, World Airways purchased 3,227,000
shares of its common stock from the Company for approximately $24.7 million in
cash. As a result of this purchase, the Company's ownership percentage in World
Airways was reduced to 46.3%.
The Company's consolidated results for the quarter ended September 30, 1997
include the results of World Airways for the period prior to the Purchase.
Following the Purchase, the Company reports its proportionate share of World
Airways' financial results using the equity method of accounting. For the
quarter ended September 30, 1997 the
22
<PAGE>
Company's portion of World Airways' earnings for the period after the Purchase
approximated $0.9 million and is recorded in "Equity in Earnings (Loss) of
Affiliates, net".
The following represents selected financial information (in thousands) for World
Airways:
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1997 1996
--------- ----------
<S> <C> <C>
Operating Revenues:
Flight operations $ 76,645 $ 70,118
Flight operations subcontracted to other carriers 115 5,016
Other 164 263
-------- -----------
Total operating revenue 79,924 75,397
======== ===========
Operating Expenses
Flight 21,835 16,911
Maintenance 14,918 13,855
Aircraft costs 20,351 18,982
Fuel 6,831 6,628
Flight operations subcontracted to other carriers 330 4,809
Promotions, sales and commissions 3,002 2,000
Depreciation and amortization 2,331 2,055
General and administrative 5,803 6,441
-------- ----------
Total operating expenses 75,401 71,681
-------- ----------
Operating income $ 4,523 $ 3,716
======== ==========
</TABLE>
Operating Revenues. Revenues from flight operations increased $9.5 million to
- ------------------
$79.6 million in 1997 from $70.1 million in 1996. This increase corresponds
primarily to an increase in block hours flown in 1997 compared to 1996.
Operating Expenses. Total operating expenses increased $3.7 million, or 5%, in
- ------------------
1997 to $75.4 million from $71.7 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 $4.9 million, or 29%, in
1997 to $21.8 million from $16.9 million in 1996. This increase resulted
primarily from an increase in block hours flown and higher crew costs relating
to an accrual for the profit sharing bonus plan and an increase in wage rates,
partially offset by the shift in the mix of business from full service to wet
lease operations.
Maintenance expenses increased $1.0 million, or 7%, in 1997 to $14.9 million
from $13.9 million in 1996. This increase resulted primarily from the increase
in the number of aircraft dedicated to World Airways' 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. World Airways expects its maintenance
expense to further increase in 1997 and 1998 due to escalations in the specified
rates per hour under the its maintenance agreement.
Aircraft costs increased $1.4 million, or 7%, in 1997 to $20.4 million from
$19.0 million in 1996. This increase resulted primarily from the increase in the
number of aircraft dedicated to the its continuing operations, partially offset
by the return of one DC-10 aircraft in the fourth quarter of 1996 and two
aircraft in the third quarter of 1997 and a decrease in aircraft insurance as a
result of a reduction in insurance policy rates. World Airways reached a
settlement in September 1997 with its engine manufacturer for reimbursements
related to disputed spare engine lease charges. As a result of this settlement,
World Airways reversed lease expenses of approximately $2.4 million, consisting
of lease expenses of approximately $0.9 million and $1.5 million originally
recorded in 1996 and the first six months of 1997, respectively.
Promotions, sales and commissions increased $1.0 million in 1997, or 50%, to
$3.0 million from $2.0 million in 1996. This increase resulted primarily from
expenses incurred in connection with two customer contracts.
23
<PAGE>
Depreciation and amortization increased $0.2 million, or 10%, in 1997 to $2.3
million from $2.1 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 decreased $0.6 million, or 9%, in 1997 to
$5.8 million from $6.4 million in 1996. This decrease was primarily due to a
reduction in administrative personnel and communication expenses. 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 remainder 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 September 30, 1997, WorldCorp's ownership interest in InteliData
was approximately 29.4%.
The Company's consolidated results for the quarter ended September 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 Affiliates, net").
WORLDCORP
- ---------
General and administrative expenses decreased $0.5 million for the quarter ended
September 30, 1997 to $0.5 million from $1.0 million in the comparable 1996
period. This decrease related primarily to a decrease in legal and professional
fees.
OTHER INCOME (EXPENSE)
- ----------------------
Equity in Loss of Affiliates, Net. For the quarter ended September 30, 1997,
- ---------------------------------
InteliData's revenues were $11.7 million, including $10.8 million generated by
the 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 software sales during the quarter. InteliData's cost of revenues
for the third quarter of 1997 increased to $9.6 million, including $9.0 million
from its telecommunications division. Overall gross profit margins decreased to
18% for the third quarter of 1997 from 34% in the comparable 1996 period. Gross
profit margins for the telecommunications, electronic commerce and interactive
services divisions were 17%, 39% and 7%, respectively, for the third quarter of
1997. The gross profit margin derived from the sale of Caller ID and multi-line
products was 12% for the third quarter of 1997. During the quarter, InteliData
experienced severe pricing pressures from competition in Caller ID adjuncts
which contributed to a charge to write down certain inventories. The market for
InteliData's telecommunications products is highly competitive and is also
subject to increased pressures resulting from rapid technological change and the
emergence of new market entrants. InteliData expects such pricing pressures for
its telecommunications products to continue in the future and, accordingly, is
reviewing various outsourcing arrangements for products.
InteliData's total operating expenses were $81.0 million during the quarter
ended September 30, 1997. Included in the 1997 general and administrative
expenses were unusual charges of $69.1 million associated primarily with a
strategic repositioning of InteliData's telecommunications division based on
recent events in the marketplace announced in the third quarter of 1997. In
connection with this repositioning and corporate restructuring, InteliData
evaluated its financial position and determined that it would be appropriate to
charge to operations the remaining intangible assets related to its impairment,
adjust inventory carrying amounts to the lower of cost or market, reflect
certain restructuring charges, including charges for separation agreements with
employees and charges associated with the termination of a joint venture
agreement. Additionally, InteliData adjusted the carrying value of a receivable
from the sale of stock for an advertising credit based on its expected use of
the credit. Such charges aggregated $49.2 million for the impairment of
intangible assets; $11.3 million for inventories and commitments; $2.4 million
for restructuring charges and separation agreements; $3.7 million for assets
relating to the joint venture; and $2.5 million for impairment of the
advertising credits. The impairment was based on the excess of the carrying
value of the assets over the assets' fair
24
<PAGE>
values. The fair value of the assets were generally determined as the estimates
of future cash flows generated by the assets.
Exclusive of these restructuring charges, general and administrative expenses
increased primarily as a result of the Merger, the upgrade of network systems
and operations, legal fees primarily for the defense of a patent infringement
lawsuit, and an increase in InteliData's provision for bad debts. 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 third quarter of 1997 compared to 1996. Excluding a
one-time charge of $4.9 million for research and development costs related to an
acquisition in 1996, research and development costs increased during the third
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 third quarter of 1997, InteliData recorded a loss of $0.6 million
based upon the expected operations of Home Financial Network, Inc. ("HFN").
As discussed above, the Company's portion of World Airways' earnings for the
period after the Purchase approximated $0.9 million.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
WORLD AIRWAYS
- -------------
Total block hours, including discontinued operations, decreased 2,801 hours, or
7%, to 35,067 hours in the first nine months of 1997 from 37,868 hours in 1996,
with an average of 13.2 available aircraft per day in 1997 compared to 13.8 in
1996. Average daily utilization (block hours flown per day per aircraft)
decreased to 9.7 hours in 1997 from 10.0 hours in 1996. In 1997, wet lease
contracts accounted for 83% of total block hours, an increase from 64% for the
nine months ended September 30, 1996. Block hours from continuing operations
increased 3,723 hours, or 12%, to 35,067 hours in the first nine months of 1997
from 31,344 hours in 1996.
The Company's consolidated results for the nine months ended September 30, 1997
include the results of World Airways for the period prior to the Purchase.
Following the Purchase, the Company reports its proportionate share of World
Airways' financial results using the equity method of accounting for the nine
months ended September 30, 1997, the Company's portion of World Airways'
earnings for the period after the Purchase approximated $0.9 million and is
recorded in "Equity in Earnings (Loss) of Affiliates, net".
The following represents selected financial information (in thousands) for World
Airways:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
Operating Revenues:
Flight operations $238,129 $214,960
Flight operations subcontracted to other carriers 2,058 11,728
Other 413 582
-------- --------
Total operating revenue 240,600 227,270
======== ========
Operating Expenses
Flight 54,949 50,193
Maintenance 49,513 44,348
Aircraft costs 69,730 60,434
Fuel 12,534 14,698
Flight operations subcontracted to other carriers 2,579 12,822
Promotions, sales and commissions 7,665 5,634
Depreciation and amortization 6,662 5,949
General and administrative 19,611 17,530
-------- --------
Total operating expenses 223,243 211,608
-------- --------
Operating income $ 17,357 $ 15,622
======== ========
</TABLE>
25
<PAGE>
Operating Revenues. Revenues from flight operations increased $23.1 million, or
- ------------------
11%, to $238.1 million in 1997 from $215.0 million in 1996. This increase was
primarily attributable to the increase in block hours flown, partially 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 $11.6 million, or 5%, in
- ------------------
1997 to $223.2 million from $211.6 million in 1996.
Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft costs, fuel and maintenance. Also
included are expenses related to flight dispatch and flight operations
administration. Flight operations expenses increased $4.7 million, or 9%, in
1997 to $54.9 million from $50.2 million in 1996. This increase resulted
primarily from an increase in block hours flown and higher crew costs relating
to an accrual for the profit sharing bonus plan and an increase in wage rates,
partially offset by the shift in the mix of business from full service to wet
lease operations.
Maintenance expenses increased $5.2 million, or 12%, in 1997 to $49.5 million
from $44.3 million in 1996. This increase resulted primarily from the increase
in the number of aircraft dedicated to World Airways' 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 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 $9.3 million, or 15%, in 1997 to $69.7 million from
$60.4 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. This increase was partially offset by
the reversal of approximately $0.9 million in lease costs, which had been
recorded in 1996, as a result of a settlement with the engine manufacturer for
reimbursements related to disputed spare engine lease charges.
Fuel expenses decreased $2.2 million, or 15%, in 1997 to $12.5 million from
$14.7 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 $2.1 million, or 38%, in 1997 to
$7.7 million from $5.6 million in 1996. This increase resulted primarily from
expenses incurred in connection with two customer contracts.
Depreciation and amortization increased $0.8 million in 1997 to $6.7 million
from $5.9 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 $2.1 million, or 12%, in 1997 to
$19.6 million from $17.5 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 World Airways' 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, it expects a modest increase in general and administrative
expenses during the remainder 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, World Airways' scheduled
service operations were reflected as discontinued operations as of June 30,
1996,
26
<PAGE>
and prior period results were restated to reflect scheduled service operations
as discontinued operations.
INTELIDATA
- ----------
The Company's consolidated results for the nine months ended September 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 Affiliates, net").
WORLDCORP
- ---------
General and administrative expenses decreased $1.2 million for the nine months
ended September 30, 1997 to $1.8 million from $3.0 million in the comparable
1996 period. This decrease related primarily to a decrease in legal and
professional fees. In addition, 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 Affiliates, net. For the nine months ended September 30,
- ---------------------------------
1997, InteliData's revenues were $50.1 million, including $47.0 million
generated by the 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 software sales. InteliData's cost of revenues for
the first nine months of 1997 increased to $35.7 million, including $33.6
million from its telecommunications division. Overall gross profit margins were
27% for the first nine months of 1997, compared to 33% for the comparable 1996
period. Gross profit margins for the telecommunications, electronic commerce,
and interactive services divisions were 28%, 34% and 10%, respectively, for the
first nine months of 1997. The gross profit margin derived from the sale of
Caller ID and multi-line products was 29% for the first nine months of 1997.
During the quarter ended September 30, 1997, InteliData experienced severe
pricing pressures from competition in Caller ID adjuncts which contributed to a
charge to write down certain inventories. The market for InteliData's
telecommunications products is highly competitive and is also subject to
increased pressures resulting from rapid technological change and the emergence
of new market entrants. InteliData expects such pricing pressures for its
telecommunications products to continue in the future and, accordingly, is
reviewing various outsourcing arrangements for products.
InteliData's total operating expenses were $98.7 million during the nine months
ended September 30, 1997. Included in the 1997 general and administrative
expenses were unusual charges of $69.1 million associated primarily with a
strategic repositioning of InteliData's telecommunications division based on
recent events in the marketplace announced in the third quarter of 1997. In
connection with this repositioning and corporate restructuring, InteliData
evaluated its financial position and determined that it would be appropriate to
charge to operations the remaining intangible assets related to its impairment,
adjust inventory carrying amounts to the lower of cost or market, reflect
certain restructuring charges, including charges for separation agreements with
employees and charges associated with the termination of a joint venture
agreement. Additionally, InteliData adjusted the carrying value of a receivable
from the sale of stock for an advertising credit based on its expected use of
the credit. Such charges aggregated $49.2 million for the impairment of
intangible assets; $11.3 million for inventories and commitments; $2.4 million
for restructuring charges and separation agreements; $3.7 million for assets
relating to the joint venture; and $2.5 million for impairment of the
advertising credits. The impairment was based on the excess of the carrying
value of the assets over the assets' fair values. The fair value of the assets
were generally determined as the estimates of future cash flows generated by the
assets.
Exclusive of these restructuring charges, general and administrative expenses
increased primarily as a result of the Merger, the upgrade of network systems
and operations, legal fees primarily for the defense of a patent infringement
lawsuit, and an increase in InteliData's provision for bad debts. 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 nine months of 1997 compared to 1996. Finally,
research and development costs increased during the first nine 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
27
<PAGE>
of 1997 and be essential to the operations of InteliData in the future.
During the nine months ended September 30, 1997, InteliData recorded a gain of
$1.3 million based upon the expected operations of Home Financial Network, Inc.
("HFN").
As discussed above, the Company's portion of World Airways' earnings for the
period after the Purchase approximated $0.9 million.
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
September 30, 1997, World Airways has a working capital deficit of $5.5 million
and has substantial debt and lease commitments. At September 30, 1997,
InteliData has working capital of $34.6 million, with no long-term debt. 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.
As of September 30, 1997, WorldCorp holds $8.7 million in cash and cash
equivalents. As of such date, WorldCorp had parent company repayment
obligations, including principal and interest, of approximately $2.3 million for
the remainder of 1997 and $7.6 million in 1998.
In order to meet these obligations and its general and administrative costs, the
Company must use its existing cash and either enter into new financing
arrangements with commercial banks or other institutions, sell shares of World
Airways or InteliData, or issue additional debt or equity. Because neither World
Airways nor InteliData is a dividend paying company, and WorldCorp is a holding
company with no operating activities, WorldCorp may be unable to obtain either
commercial bank or other institutional debt financing, and the capital markets
may not be receptive to further issuances by the Company of additional debt or
equity. Accordingly, WorldCorp may be entirely dependent upon sales of its
interest in World Airways and InteliData in order to meet its financial
obligations.
The Company's ability to meet its financial obligations, therefore, is highly
dependent upon the market price of World Airways and InteliData common stock,
factors which are beyond the Company's control. World Airways, an aviation
company, is in a cyclical industry. InteliData, a technology company, is in a
highly competitive industry where wide fluctuations in the market price for a
company's stock are common. If the market price of World Airways' or
InteliData's common stock does not increase, it would impair the Company's
ability to repay the principal on its long-term debt at such time as the
maturities on these obligations become due.
In addition, the Company is a party to an Indenture covering $10 million of 10%
Senior Subordinated Notes due September 30, 2000 (the "Notes"). Sinking fund
payments equal to 20% of the then outstanding principal balance are required to
be made on each of September 30, 1998 and September 30, 1999. The Indenture
contains a mandatory prepayment provision that requires the Company to prepay
50% of the outstanding Notes within 60 days after the end of any fiscal quarter
in which the Company's Asset Value (defined to include the market value of the
common stock of World Airways and InteliData beneficially owned by the Company
plus the value of all of the Company's other tangible assets) is less than $70.0
million. The Company is required to prepay all of the outstanding Notes within
60 days after the end of any fiscal quarter in which the Company's Asset Value
is less than $50.0 million. The Company calculated its Asset Value for Indenture
purposes to be approximately $72.0 million at September 30, 1997. Further
declines in the share price of World Airways' and InteliData's common stock
could trigger either one of these mandatory prepayment requirements, which would
materially adversely affect the Company's cash position and which could
materially, adversely impair the Company's ability to meet both its current and
long-term obligations. The stock prices for World Airways and InteliData have
declined since September 30 and there can be no assurances that the Company's
Asset Value will be sufficient to avoid a partial or full mandatory prepayment
60 days after year-end or other subsequent periods. Based on the repayment terms
of the Notes described above, and the resulting uncertainty regarding the
maturity date, the Company has classified the outstanding balance of the Notes
as a current liability as of September 30, 1997.
The Company cannot provide any assurances that it will be able to obtain in any
sales transaction the fair market value price for the World Airways and
InteliData common stock it owns. The Company's financial condition may cause it
to have to sell World Airways and/or InteliData common stock at times, prices
and amounts which depress the stock price of World Airways and/or InteliData.
28
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Finally, to the extent that the Company sells its assets to meet current debt
service obligations, the Company has fewer resources available to permit it to
repay its long-term obligations at maturity. Therefore, although management
believes that the Company has sufficient capital resources to meet its
obligations over the next 12 months, the Company can provide no assurances at
this time that it has, or will have, sufficient capital resources to meet its
obligations beyond such time. At September 30, 1997, based on quoted market
prices, the market value of the Company's 3,702,586 shares of World Airways and
9,179,273 shares of InteliData approximated $29.6 million and $27.5 million,
respectively. The quoted market prices of these shares have declined since
September 30, 1997.
On August 26, 1997, World Airways completed a private offering issuing $50.0
million of 8% convertible senior subordinated debentures (the "Debentures") due
in 2004 (the "Offering"). The Debentures are unsecured obligations, convertible
into shares of the Company's common stock, and subordinated to all present and
future senior indebtedness of the Company. World Airways intends to use net
proceeds of the Offering to repurchase approximately 4.0 million shares of its
common stock, repay certain indebtedness, increase working capital and for
general corporate purposes. After completion of the Offering, World Airways
repaid approximately $3.8 million as full settlement of an outstanding spare
parts loan. 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 holder's
Debentures at 100% of their principal amount, plus accrued interest (the
"Repurchase Event"). The ability of World Airways to repurchase the Debentures
upon a Repurchase Event will be dependent on World Airways' ability to raise
sufficient funds through additional borrowings or equity sales and compliance
with applicable securities laws. Accordingly, there can be no assurance that
World Airways will be able to repurchase the Debentures upon a Repurchase Event.
In connection with the above-mentioned Offering, World Airways and the Company
have entered into an agreement (the "Agreement") for the purchase by World
Airways of up to 4.0 million shares of common stock owned by the Company at a
purchase price of $7.65 per share. On September 18, 1997 World Airways purchased
3,227,000 shares of its common stock from the Company for approximately $24.7
million. Discussions with MHS Berhad ("MHS") following the Offering could have
an impact on the number of shares of common stock ultimately repurchased by
World Airways from the Company. MHS has certain rights under a shareholders
agreement, dated as of February 3, 1994, as amended, among WorldCorp, MHS and
World Airways. This agreement includes a provision that provides that if the
Company were to dispose of its holdings in World Airways with the result that
the Company's ownership interest in World Airways falls below 51% of the
outstanding shares of common stock, then MHS may either sell its shares to a
third party or require the Company to sell a pro rata number of shares held by
MHS to the party purchasing the Company's shares. As a result of repurchase of
3,227,000 shares of common stock by World Airways from WorldCorp, MHS has the
right to sell 773,000 shares of common stock. Accordingly, WorldCorp, MHS and
World Airways have engaged in preliminary discussions as to the potential
repurchase of common stock owned by MHS. The Company anticipates that these
discussions will continue, although there can be no assurance that these
discussions will result in any stock repurchases by World Airways from MHS.
Should MHS not exercise its right to sell the 773,000 shares of common stock,
World Airways currently intends to repurchase the shares form WorldCorp. This
would reduce WorldCorp's ownership of World Airways to 41%.
The Company used a portion of the proceeds from the sale of the World Airways
shares to pay the balance of a $15.0 million loan from a financial institution
which matured on September 29, 1997.
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 November 7, 1997, the Company had purchased 2,116,000 shares of its common
stock for an aggregate cost of $9.2 million. The Company intends to make
repurchases from time to time as circumstances and its financial condition
permit.
World Airways is also highly leveraged. 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. In addition, World
Airways issued $50.0 million of convertible debentures in August 1997, as
discussed below. As of September 30, 1997, World Airways had outstanding $76.3
million in long-term debt and capital leases, with expected debt service and
capital lease expense of $1.9 million for the remainder of 1997 and $16.3
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
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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 September 30, 1997 and December 31,
1996 were $28.2 million and $7.0 million, respectively. As is common in the
airline industry, World Airways operates with a working capital deficit. At
September 30, 1997, World Airways' current assets were $49.3 million and current
liabilities were $54.9 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 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
September 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.
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 September 30, 1997 InteliData had $11.1 million in cash, cash equivalents and
short-term investments. Additionally, at September 30, 1997, InteliData had
working capital of $34.6 million, with no long-term debt. InteliData has
generated operating losses since its inception. 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. As of September 30, 1997, InteliData had
purchased 681,500 shares of its common stock for an aggregate cost of $2.1
million.
CASH FLOWS FROM OPERATING ACTIVITIES
Operating activities provided $26.2 million in cash for the nine months ended
September 30, 1997 compared to using $18.6 million of cash in the comparable
1996 period. The increase in cash in 1997 resulted primarily from a decrease in
net loss and a decrease in accounts receivable.
CASH FLOWS FROM INVESTING ACTIVITIES
Investing activities used $63.3 million in cash for the nine months ended
September 30, 1997 compared to using $10.0 million in the comparable 1996
period. In 1997,the decrease in cash resulted primarily from reporting World
Airways on the equity method of accounting as of September 18, 1997, and 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 provided $33.3 million in cash for the nine months ended
September 30, 1997 compared to providing $7.9 million in the comparable 1996
period. This increase in cash resulted primarily from the issuance of the
convertible debentures by World Airways and proceeds received from the sale of
World Airways common stock, partially offset by 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 $0.6 million and $0.5 million,
respectively, in 1997.
CAPITAL COMMITMENTS/FINANCING DEVELOPMENTS
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WORLD AIRWAYS
- -------------
As of September 30, 1997, annual minimum payments required under World Airways's
aircraft and lease obligations totaled $20.1 million for the remainder of 1997
and $79.5 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 September 30, 1997, World
Airways held approximately $3.6 million (at book value) of aircraft spare parts
currently available for sale.
As of September 30, 1997, there was no outstanding balance or borrowing capacity
on World Airways' credit agreement with BNY Financial Corporation. In October
1997, World Airways reached an agreement in principle with a financial
institution for a credit facility of up to $25.0 million to be collateralized by
certain receivables and spare parts. If World Airways closes this transaction,
the proceeds would be used to increase working capital and for general corporate
purposes. No assurances can be given, however, that the agreement will be
ultimately completed.
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 throughout the year,
InteliData will utilize cash, short-term investments and may utilize, to the
extent available, funds generated from operations through the collections of
accounts receivable and sale of inventories.
WORLDCORP
- ---------
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 September 30, 1997, the Company had no
outstanding balance on the Margin Loan.
RECENT DEVELOPMENTS
In October 1997, one of World Airways' MD-11 aircraft was damaged upon its
landing in Montevideo, Uruguay. The aircraft is expected to be out of service
for approximately two months while certain repairs are made. World Airways
expects insurance to cover repair and certain related costs, but expects that
its loss of revenues that would have been generated by the aircraft's use will
have an adverse effect on its financial condition and results of operations for
the fourth quarter of 1997.
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 penalties were proposed by the FAA in connection with recent
inspections at foreign airport facilities and relate
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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. In September 1997, World Airways entered
into a consent order and settlement agreement with the FAA in connection with
the above-mentioned alleged violations. Pursuant to this agreement, World
Airways is liable for the sum of $610,000, of which $405,000 was paid in
September. The remaining $205,000 was suspended and will be forgiven if it
complies with the provisions of the settlement agreement, including not
incurring any security violations during the one year period following the
execution of the settlement agreement. 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.
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.
InteliData's subsidiary filed suit in September 1997 against Worldwide Telecom
Partners, Inc. ("WTP"), Blau Marketing Technologies, Inc. ("BMT") and Barry Blau
in Connecticut Superior Court seeking payment by WTP of past due accounts
receivable in the amount of approximately $11.0 million and making certain other
claims including breach of contract. WTP is a terminated joint venture which
provided telecommunications products combined with marketing services to telcos.
BMT filed a separate suite against InteliData and its subsidiary, WTP and John
C. Backus on October 31, 1997 alleging breach of contract and making certain
other claims and seeking damages in excess of $15,000. InteliData believes that
its claims and defenses in the above-described actions are meritorious and
intends to vigorously pursue its remedies.
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.
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 from 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.
INCOME TAXES
At December 31 1996, WorldCorp had approximately $53.6 million in net operating
loss carryforwards ("NOLs") that are available to offset future federal taxable
income.
There can be no assurance that the Company will generate taxable income in
future years so as to allow the Company to realize a tax benefit from its NOLs.
The NOLs are subject to examination by the IRS and, thus, are subject to
adjustment or disallowance resulting from any such IRS examination. In
addition, ownership changes of the Company, pursuant to the Internal Revenue
Code, may occur in the future and may result in the imposition of an annual
limitation on the Company's NOLs existing at the time of any such ownership
change. In addition, 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.
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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.
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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 WorldCorp, Inc. dated March 16, 1987. Incorporated
[Filed as Exhibit 3.1 to WorldCorp, Inc.'s Registration by reference
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 WorldCorp, Inc. dated November 13, Incorporated
1987. (Filed as Exhibit 3.1 to WorldCorp, Inc.'s Annual Report on by reference
Form 10-K for the fiscal year ended December 31, 1987 and
incorporated herein by reference.)
4.6 First Supplemental Indenture dated as of February 22, 1994 between Incorporated
WorldCorp, Inc. and The First National Bank of Boston, as Trustee. by reference
(Filed as Exhibit 4.6 to WorldCorp, Inc's Form S-3 Registration Statement
(Commission file No. 33-60247) filed on June 15, 1995 and incorporated
herein by reference.)
4.8 Stock Option Agreement dated as of April 1, 1995 between WorldCorp, Incorporated
Inc. and Patrick F. Graham. (Filed as Exhibit 4.8 to by reference
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 Reorganization dated as of April 28, Incorporated
1987 by and among World Airways, Inc., World Merger Corporation by reference
and WorldCorp, Inc. [Filed as Exhibit 10.50 to WorldCorp, Inc.'s
Form S-2 Registration Statement (Commission File No. 33-1358276)
filed on July 31, 1987 and incorporated herein by reference.]
10.9 Form of Assumption Agreement dated as of June 23, 1987 among Incorporated
WorldCorp, Inc., World Airways, Inc. and each Indemnified Party. by reference
[Filed as Exhibit 10.60 to WorldCorp, Inc.'s Form S-2 Registration
Statement (Commission File No. 33-1358276) filed on July 31, 1987
and incorporated herein by reference.]
10.14 Office Lease - The Hallmark Building dated as of May 16, 1987 Incorporated
between WorldCorp, Inc. and GT Renaissance Centre Limited by reference
Partnership. (Filed as Exhibit 10.36 to WorldCorp, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1989 and
incorporated herein by reference.)
10.15 Lease Amendment dated as of June 27, 1989 between WorldCorp, Inc. Incorporated
and GT Renaissance Centre Limited Partnership. (Filed as Exhibit by reference
10.37 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1989 and incorporated herein by reference.)
10.16 Office Lease - The Hallmark Building dated as of September 20, 1989 Incorporated
between World Airways, Inc. and GT Renaissance Centre Limited by reference
Partnership. (Filed as Exhibit 10.38 to WorldCorp, Inc's Annual
Report on form 10-K for the fiscal year ended December 31, 1989
and incorporated herein by reference.)
</TABLE>
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<TABLE>
<S> <C> <C>
10.17 Warrant Agreement dated as of July 22, 1989 between WorldCorp, Incorporated
Inc. and Charles W. Pollard. (Filed as Exhibit 10.45 to by reference
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. Employee Savings and Stock Incorporated
Ownership Plan. (Filed as Exhibit 10.50 to WorldCorp, Inc.'s by reference
Annual Report on Form 10-K for the fiscal year ended December 31,
1989 and incorporated herein by reference.)
10.27 Aircraft Warranty Bill of Sale dated as of January 15, 1991 between Incorporated
World Airways, Inc. and First Security Bank of Utah, N.A., not by reference
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 January 15, 1991 between World Incorporated
Airways, Inc. and First Security Bank of Utah, N.A., not in its by reference
individual capacity, but solely as Owner Trustee. (Filed as Exhibit
10.47 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1990 and incorporated herein by reference.)
10.32 Aircraft Engine Purchase Agreement dated as of April 26, 1991 between Incorporated
Terandon Leasing Corporation and World Airways, Inc. (Filed as by reference
Exhibit 10.41 to WorldCorp, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 and incorporated herein by
reference.)
10.33 Aircraft Engine Lease Agreement dated as of April 26, 1991 between Incorporated
Terandon Leasing Corporation and World Airways, Inc. (Filed as by reference
Exhibit 10.42 to WorldCorp, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 and incorporated herein by
reference.)
10.34 Guaranty Agreement I dated as of February 12, 1992 between McDonnell Incorporated
Douglas Finance Corporation and World Airways, Inc. (Filed as by reference
Exhibit 10.43 to WorldCorp, Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 1991 and incorporated herein by reference.)
10.35 Guaranty Agreement II dated as of February 12, 1992 between McDonnell Incorporated
World Airways, Inc. (Filed as Douglas Finance Corporation and by reference
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 Serial Number 48518 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and by reference
International Lease Finance Corporation.
10.39 Aircraft Lease Agreement for Aircraft Serial Number 48519 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and by reference
International Lease Finance Corporation.
10.40 Aircraft Lease Agreement for Aircraft Serial Number 48520 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and by reference
International Lease Finance Corporation.
10.41 Aircraft Lease Agreement for Aircraft Serial Number 48633 dated as Incorporated
</TABLE>
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<TABLE>
<S> <C> <C>
of September 30, 1992 between World Airways, Inc. and by reference
International Lease Finance Corporation.
10.42 Aircraft Lease Agreement for Aircraft Serial Number 48631 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and by reference
International Lease Finance Corporation.
10.43 Aircraft Lease Agreement for Aircraft Serial Number 48632 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and by reference
International Lease Finance Corporation.
10.46 Accounts Receivable Management and Security Agreement dated as Incorporated
of December 7, 1993 between World Airways, Inc. and BNY by reference
Financial Corporation.
10.47 Aircraft Parts Security Agreement dated as of December 7, 1993 Incorporated
between World Airways, Inc. and BNY Financial Corporation. by reference
10.48 Warrant Certificate dated as of December 7, 1993 between WorldCorp, Incorporated
Inc. and BNY Financial Corporation. by reference
10.62 Consignment Agreement dated as of September 30, 1993 between World Incorporated
Airways Inc. and The Memphis Group. by reference
10.63 Assignment and Assumption and Consent and Release for Aircraft Incorporated
Serial Number 47818 dated as of July 20, 1993 among World by reference
Airways, Inc., WorldCorp, Inc., McDonnell Douglas Corporation, and
McDonnell Douglas Finance Corporation.
10.64 Assignment and Assumption and Consent and Release for Aircraft Incorporated
Serial Number 46999 dated as of July 9, 1993 among World by reference
Airways, Inc., WorldCorp, Inc., McDonnell Douglas Corporation, and
McDonnell Douglas Finance Corporation.
10.65 Aircraft Lease Agreement for Aircraft Serial Number 48458 dated as Incorporated
of January 15, 1993 between World Airways, Inc. and Wilmington by reference
Trust Company/GATX Capital Corporation.
10.66 Aircraft Lease Supplement for Aircraft Serial Number 48458 dated as Incorporated
of April 23, 1993 between World Airways, Inc. and Wilmington Trust by reference
Company/GATX Capital Corporation.
10.67 Aircraft Spare Parts Lease Agreement dated as of April 15, 1993 Incorporated
between World Airways, Inc. and GATX Capital Corporation. by reference
10.68 Amendment No. 1 To Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48518 dated as of November 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
10.69 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48518 dated as of March 8, 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
10.70 Assignment of Rights for Aircraft Serial Number 48518 dated as of Incorporated
March 8, 1993 between World Airways, Inc. and International Lease by reference
Finance Corporation.
</TABLE>
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<TABLE>
<S> <C> <C>
10.71 Assignment of Rights for Aircraft Engines Serial Numbers P723942, Incorporated
P723945, and P723943 dated as of March 1, 1993 between World by reference
Airways, Inc. and International Lease Finance Corporation.
10.72 Agency Agreement for Aircraft Serial Number 48518 dated as of Incorporated
January 15, 1993 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.73 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48437 dated as of March 31, 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
10.74 Amendment No. 3 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48437 dated as of April 15, 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
10.75 Agency Agreement for Aircraft Serial Number 48437 dated as of Incorporated
January 15, 1993 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.76 Assignment of Rights for Aircraft Serial Number 48437 dated as of Incorporated
April 15, 1993 between World Airways, Inc. and International Lease by reference
Finance Corporation.
10.77 Assignment of Rights for Aircraft Engines Serial Numbers P723913, Incorporated
P723912, and P723914 dated as of April 15, 1993 between World by reference
Airways, Inc. and International Lease Finance Corporation.
10.78 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48520 dated as of April 22, 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
10.79 Agency Agreement for Aircraft Serial Number 48520 dated as of Incorporated
January 15, 1993 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.80 Assignment of Rights for Aircraft Serial Number 48520 dated as of Incorporated
April 22, 1993 between World Airways, Inc. and International Lease by reference
Finance Corporation.
10.81 Assignment of Rights for Aircraft Engines Serial Numbers P723957, Incorporated
P723958, and P723956 dated as of March 1, 1993 between World by reference
Airways, Inc. and International Lease Finance Corporation.
10.82 Aircraft Charter Agreement dated as of July 24, 1993 between World Incorporated
Airways, Inc. and Malaysian Airline System Berhad. by reference
10.85 Return Agreement for Aircraft Serial Numbers 47818 and 46999 dated Incorporated
as of July 9, 1993 among World Airways, Inc., WorldCorp, Inc., by reference
International Lease Finance Corporation, McDonnell Douglas
Corporation, and McDonnell Douglas Finance Corporation.
10.86/1/ Acquisition Agreement Among VISA International Service Association, Incorporated
US Order, Inc, and WorldCorp, Inc, dated as of July 15, 1994. by reference
10.87 Stock Purchase Agreement by and among World Airways, Inc., Incorporated
WorldCorp, Inc., and Malaysian Helicopter Services Berhad dated as by reference
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C>
of October 30, 1993.
10.88 Stock Registration Rights Agreement between World Airways, Inc. Incorporated
and Malaysian Helicopter Services Berhad dated as of October 30, by reference
1993.
10.89 Shareholders Agreement between Malaysian Helicopter Services Incorporated
Berhad and WorldCorp, Inc., and World Airways, Inc. dated as of by reference
February 3, 1994.
10.90 Amendment No. 1 to Shareholders Agreement dated as of February 28, Incorporated
1994, among WorldCorp, World Airways, and MHS. by reference
10.94 Stock Option Agreement dated as of August 1, 1994 ("Grant Date") Incorporated
between WorldCorp, Inc. and William F. Gorog. by reference
10.95 Employment Agreement dated as of August 1, 1994 between US Incorporated
Order, Inc. and John C. Backus, Jr. by reference
10.96 Employment Agreement dated as of August 19, 1994 between Incorporated
WorldCorp, Inc. and T. Coleman Andrews, III. by reference
10.97 Stock Option Agreement dated as of August 19, 1994 ("Grant Date") Incorporated
by and between WorldCorp, Inc. and T. Coleman Andrews, III. by reference
10.98 Agreement between World Airways, Inc. and the International Incorporated
Brotherhood of Teamsters representing the Cockpit Crewmembers by reference
employed by World Airways, Inc. dated August 15, 1994-June 30, 1998.
10.101 Aircraft Services Agreement dated September 26, 1994 by and between Incorporated
World Airways, Inc. ("World") and Malaysian Airlines. by reference
10.102 Freighter Services Agreement dated October 1, 1994 by and between Incorporated
World Airways, Inc. and Malaysian Airline System Berhad. by reference
10.103 World Airways, Inc. 1995 AMC Contract F11626-94-D0027 dated Incorporated
October 1, 1994 between World Airways, Inc. and Air Mobility by reference
Command.
10.105 Stock Purchase Agreement (the "Agreement") dated as of December Incorporated
31, 1994 by and between MHS Berhad, a Malaysian corporation (the by reference
"Shareholder") and WorldCorp, Inc., a Delaware corporation (the
"Purchaser").
10.107 Amendment No. 1 to Passenger Aircraft Services and Freighter Incorporated
Services Agreement dated December 31, 1994 by and between World by reference
Airways, Inc. and Malaysian Airline System Berhad.
10.109 Customer Agreement between WorldCorp ESSOP and Scott & Incorporated
Stringfellow, Inc. dated January 11, 1995 for a margin loan. by reference
10.110 Side Letter dated January 11, 1995 from Scott & Stringfellow, Inc. to Incorporated
William F. Gorog, Trustee of WorldCorp Employee Savings and Stock by reference
Ownership Plan for a margin loan to the WorldCorp ESSOP.
10.111 Guarantee Agreement dated January 11, 1995 by WorldCorp, Inc. Incorporated
("Guarantor") for the benefit of Scott & Stringfellow, Inc. (the by reference
"Lender").
</TABLE>
38
<PAGE>
<TABLE>
<S> <C> <C>
10.112 Registration Rights Agreement dated as of January 11, 1995 by and Incorporated
between WorldCorp, Inc. and Scott & Stringfellow, Inc. by reference
10.113 Side Letter dated January 11, 1995 from WorldCorp, Inc. to Scott & Incorporated
Stringfellow, Inc. regarding commitment to make contributions by reference
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 Services and Freighter Incorporated
Aircraft Service Agreement dated February 9, 1995 by and between by reference
World Airways, Inc. and Malaysian Airline System Berhad.
10.116 Riverside 10% Notes. Indenture between WorldCorp, Inc. and Incorporated
Norwest Bank, National Association, Trustee, dated as of by reference
September 30, 1996, for $10,000,000 10% Senior Subordinated
Notes due September 30, 2000. [Filed as Exhibit 4.2 and 4.3 to
WorldCorp, Inc's S-4 (Commission file No. 333-19481) Filed on
January 9, 1997 and incorporated herein by reference]
11 Statement on Calculation of Earnings (Loss) Per Common Share. Filed Herewith
27 Financial Data Schedule for the quarter ended September 30, 1997. Filed Herewith
</TABLE>
/1/ Confidential treatment of portions of the Agreement has been granted
by the Commission. The copy filed as an exhibit omits the information
subject to confidentiality request. Confidential portions so omitted
have been filed separately with the Commission.
(b) Reports on Form 8-K
Form 8-K dated July 1, 1997, was filed with the Securities and Exchange
Commission on July 1, 1997.
Form 8-K dated July 14, 1997, was filed with the Securities and Exchange
Commission on July 14, 1997.
Form 8-K dated September 18, 1997, was filed with the Securities and
Exchange Commission on October 3,
1997.
* * * * * * * * * * *
39
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WORLDCORP, INC.
By: /s/ T. Coleman Andrews, III
---------------------------
(T. Coleman Andrews, III)
Chief Executive Officer, President and
Principal Accounting Officer
Date: November 14, 1997
40
<PAGE>
EXHIBIT 11
PAGE 1 OF 2
WORLDCORP, INC. AND SUBSIDIARIES
CALCULATIONS OF EARNINGS (LOSS) PER COMMON SHARE
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Loss from continuing operations $ (14,119) $ (4,147)
Discontinued operations -- 107
----------- -----------
Net loss $ (14,119) $ (4,040)
=========== ===========
PRIMARY NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARE
Continuing operations $ (0.94) $ (0.24)
Discontinued operations -- 0.01
----------- -----------
Net loss $ (0.94) $ (0.23)
=========== ===========
PRIMARY WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Weighted average common shares
outstanding 14,988,934 16,545,420
Weighted average options and warrants
treated as common stock equivalents -- 668,779
----------- -----------
Primary number of shares 14,988,934 17,214,199
=========== ===========
FULLY DILUTED NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARE
Continuing operations $ * $ *
Discontinued operations * *
----------- -----------
Net 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.
<PAGE>
EXHIBIT 11
PAGE 2 OF 2
WORLDCORP, INC. AND SUBSIDIARIES
CALCULATIONS OF EARNINGS (LOSS) PER COMMON SHARE
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Loss from continuing operations $ (13,623) $ (6,360)
Loss from discontinued operations -- (19,271)
----------- -----------
Net loss $ (13,623) $ (25,631)
=========== ===========
PRIMARY NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARE
Continuing operations $ (0.91) $ (0.39)
Discontinued operations -- (1.17)
----------- -----------
Net loss $ (0.91) $ (1.56)
=========== ===========
PRIMARY WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Weighted average common shares
outstanding 15,004,837 16,447,127
Weighted average options and warrants
treated as common stock equivalents -- --
----------- -----------
Primary number of shares 15,004,837 16,447,127
=========== ===========
FULLY DILUTED NET LOSS PER
COMMON AND COMMON EQUIVALENT SHARE
Continuing operations $ * $ *
Discontinued operations * *
----------- -----------
Net 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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WORLD CORP
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> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,665
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,735
<PP&E> 3,276
<DEPRECIATION> 2,988
<TOTAL-ASSETS> 24,136
<CURRENT-LIABILITIES> 13,011
<BONDS> 0
0
0
<COMMON> 16,636
<OTHER-SE> (70,251)
<TOTAL-LIABILITY-AND-EQUITY> 24,136
<SALES> 0
<TOTAL-REVENUES> 55,416
<CGS> 0
<TOTAL-COSTS> 53,873
<OTHER-EXPENSES> (14,981)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,420
<INCOME-PRETAX> (13,438)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,119)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,119)
<EPS-PRIMARY> (0.94)
<EPS-DILUTED> 0<F1>
<FN>
<F1> Fully diluted earnings per share are anti-dilutive.
</FN>
</TABLE>
