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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------------------
For the Quarter ended: MARCH 31, 1997 Commission File Number 1-5351
WORLDCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-3040585
------------------------ ---------------------------------------
(State of incorporation) (I.R.S. Employer Identification Number)
13873 Park Center Road, Suite 490, Herndon, VA 20171
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(Address of Principal Executive Offices)
(703) 834-9200
--------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the registrant's Common Stock outstanding on May 1, 1997
was 15,000,873.
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WORLDCORP, INC.
MARCH 1997, QUARTERLY REPORT ON FORM 10Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, March 31,
1997 and December 31, 1996................................ 3
Condensed Consolidated Statements of Operations,
Three Months Ended March 31, 1997 and 1996................ 5
Condensed Consolidated Statement of Changes in Common
Stockholders' Deficit, Three months ended March 31, 1997.. 7
Condensed Consolidated Statements of Cash Flows,
Three months ended March 31, 1997 and 1996................ 8
Notes to Condensed Consolidated Financial Statements...... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................... 24
</TABLE>
2
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ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents, including restricted
cash of $232 at March 31, 1997 and $447
at December 31, 1996 $ 5,899 $ 12,462
Restricted cash and short-term investments 2,037 2,047
Trade accounts receivable, less allowance for
doubtful accounts of $413 at March 31, 1997
and December 31, 1996 12,348 19,427
Other receivables 6,952 4,667
Due from affiliate, net 5,307 4,181
Prepaid expenses and other current assets 7,981 8,314
Assets held for sale 500 500
-------- --------
Total current assets 41,024 51,598
-------- --------
ASSETS HELD FOR SALE 3,300 3,425
EQUIPMENT AND PROPERTY
Flight and other equipment 78,523 75,191
Equipment under capital leases 11,639 11,639
-------- --------
90,162 86,830
Less accumulated depreciation and amortization 23,245 21,357
-------- --------
Net equipment and property 66,917 65,473
-------- --------
LONG-TERM OPERATING DEPOSITS 15,965 15,951
INVESTMENT IN AFFILIATE 36,326 36,299
OTHER ASSETS AND DEFERRED CHARGES, NET 4,210 5,145
INTANGIBLE ASSETS, NET 1,054 1,072
-------- --------
TOTAL ASSETS $168,796 $178,963
======== ========
</TABLE>
3
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WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1997 1996
----------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 20,778 $ 26,386
Current maturities of long-term obligations 9,262 9,990
Accounts payable 19,568 24,339
Net liabilities of discontinued operations 1,017 1,834
Unearned revenue 2,595 3,046
Accrued maintenance in excess of reserves paid 18,293 13,737
Accrued salaries and wages 10,609 10,344
Accrued interest 2,351 981
Accrued taxes 1,205 1,249
-------- --------
Total current liabilities 85,680 91,906
-------- --------
LONG-TERM OBLIGATIONS, NET 101,686 104,804
OTHER LIABILITIES
Deferred gain from sale leaseback transactions, net of
accumulated amortization of $19,363 as of March 31,
1997 and $19,099 as of December 31, 1996 5,988 6,252
Accrued postretirement benefits 2,596 2,545
Accrued maintenance in excess of reserves paid 3,463 6,867
Other 3,651 3,378
-------- --------
Total other liabilities 15,698 19,042
-------- --------
TOTAL LIABILITIES 203,064 215,752
-------- --------
MINORITY INTEREST 5,268 3,548
COMMON STOCKHOLDERS' DEFICIT
Common stock, $1 par value, (60,000,000 shares authorized,
16,622,639 shares issued and 15,000,873 shares outstanding
at March 31, 1997 and 16,617,031 shares issued and
15,020,265 shares outstanding at December 31, 1996) 16,623 16,617
Additional paid-in capital 43,843 43,824
Deferred compensation (568) (591)
Accumulated deficit (90,657) (91,366)
ESOP guaranteed bank loan (666) (805)
Treasury stock, at cost (1,621,766 shares at March 31,
1997 and 1,596,766 shares at December 31, 1996) (8,111) (8,016)
-------- --------
TOTAL COMMON STOCKHOLDERS' DEFICIT (39,536) (40,337)
-------- --------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND COMMON STOCKHOLDERS'
DEFICIT $168,796 $178,963
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
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WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
OPERATING REVENUES
World Airways $78,748 $65,365
US Order -- 1,326
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Total operating revenues 78,748 66,691
------- -------
OPERATING EXPENSES
World Airways:
Flight 16,432 20,293
Maintenance 16,678 14,529
Aircraft costs 24,686 18,615
Fuel 3,040 5,493
Flight operations subcontracted to other carriers 357 1,061
Promotions, sales and commissions 2,281 984
Depreciation and amortization 2,135 1,983
General and administrative 6,803 5,732
------- -------
Total operating expenses - World Airways 72,412 68,690
------- -------
US Order:
Total operating expenses - US Order -- 3,385
------- -------
WorldCorp:
General and administrative 314 1,289
------- -------
Total operating expenses 72,726 73,364
------- -------
OPERATING INCOME (LOSS) 6,022 (6,673)
------- -------
OTHER INCOME (EXPENSE)
Interest expense (2,952) (2,841)
Interest income 202 1,006
Equity in income of affiliate 48 --
Loss on issuances (purchases) of equity by subsidiaries, net (288) (225)
Other, net (144) (241)
------- -------
Total other income (expense) (3,134) (2,301)
------- -------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST 2,888 (8,974)
INCOME TAX EXPENSE (250) --
MINORITY INTEREST (1,929) 2,382
------- -------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS 709 (6,592)
------- -------
LOSS FROM DISCONTINUED OPERATIONS BEFORE
MINORITY INTEREST -- (4,187)
MINORITY INTEREST -- 1,706
------- -------
LOSS FROM DISCONTINUED OPERATIONS -- (2,481)
------- -------
NET EARNINGS (LOSS) $ 709 $(9,073)
======= =======
(Continued)
</TABLE>
5
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WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
PRIMARY NET EARNINGS (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE
Continuing operations $ 0.05 $ (0.41)
Discontinued operations -- (0.15)
----------- -----------
Net loss $ 0.05 $ (0.56)
=========== ===========
FULLY DILUTED NET EARNINGS (LOSS) PER
COMMON AND COMMON EQUIVALENT SHARE
Continuing operations $ * $ *
Discontinued operations * *
----------- -----------
Net loss * *
=========== ===========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Primary 15,004,432 16,328,186
=========== ===========
Fully diluted * *
=========== ===========
</TABLE>
* Fully diluted earnings per share are anti-dilutive.
See accompanying Notes to Condensed Consolidated Financial Statements
6
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WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN COMMON STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 1997, AND 1996
(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 6 19 -- -- -- -- 25
Employee Stock Ownership Plan
guaranteed bank loan -- -- -- -- 139 -- 139
Amortization of deferred
compensation -- -- 23 -- -- -- 23
Purchase of common stock, at cost -- -- -- -- -- (95) (95)
Net earnings -- -- -- 709 -- -- 709
------- ---------- ------------ ----------- ---------- -------- --------
BALANCE AT
March 31, 1997 $16,623 $43,843 $(568) $(90,657) $(666) $(8,111) $(39,536)
======= ========== ============ =========== ========== ======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
7
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WORLDCORP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD $ 12,462 $ 74,443
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) 709 (9,073)
Adjustments to reconcile net earnings (loss) to cash
provided (used) by operating activities:
Depreciation and amortization 2,227 2,078
Deferred gain recognition (264) (266)
Losses on issuances (purchases) of equity by subsidiaries, net 288 225
Minority interest in earnings (loss) of subsidiaries 1,929 (4,088)
Equity income in affiliate (48) --
Equity loss in investee of subsidiary -- 426
Gain on sale of equipment and property (54) (167)
Deferred compensation expense 23 44
Other 140 31
Changes in certain assets and liabilities, net of
effects of non-cash transactions:
Decrease in accounts receivable 3,668 2,008
Decrease in restricted short-term investments 10 --
Decrease in deposits, prepaid expenses and other assets 868 1,002
(Decrease) increase in accounts payable, accrued
expenses and other liabilities (2,628) 6,002
Decrease in unearned revenue (451) (6,456)
Increase in air traffic liability 89 185
-------- --------
Net cash provided (used) by operating activities 6,506 (8,049)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property (2,659) (4,588)
Proceeds from disposal of equipment and property 234 313
-------- --------
Net cash used by investing activities (2,425) (4,275)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in line of credit borrowing arrangement, net (4,086) (473)
Issuance of debt 163 197
Repayment of debt (6,175) (4,569)
Proceeds from stock transactions -- 636
Proceeds from sales of equity by subsidiaries 25 504
Purchase of common stock (95) --
Purchase of common stock of subsidiary (476) --
-------- --------
Net cash used by financing activities (10,644) (3,705)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,563) (16,029)
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,899 $ 58,414
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
8
<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 March 31, 1997, the related condensed consolidated
statements of operations for the three month periods ended March 31, 1997 and
1996, the condensed consolidated statements of changes in common
stockholders' deficit for the three months ended March 31, 1997 and the
condensed consolidated statements of cash flows for the three months ended
March 31, 1997 and 1996 are unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such financial statements
have been included. With the exception of an adjustment for discontinued
operations, adjustments consisted only of normal recurring items. All
significant intercompany balances have been eliminated. Interim results are
not necessarily indicative of results for a full year.
In addition, prior to November 7, 1996, these financial statements contain
the historical results of US Order, Inc. ("US Order"). On November 7, 1996,
US Order and Colonial Data Technologies Corp. ("Colonial Data") merged with
and into InteliData Technologies Corporation ("InteliData"). Effective with
this Merger, InteliData became the successor corporation to US Order. As a
result of the Merger, WorldCorp's ownership percentage in InteliData was
reduced to 28.9% and, as such, beginning November 7, 1996, WorldCorp reports
its share of InteliData's net assets and results of operations under the
equity method of accounting.
The condensed consolidated financial statements and notes are presented as
required by Form 10-Q, and do not contain certain information included in the
Company's annual financial statements and notes. These financial statements
should be read in conjunction with the financial statements and the notes
included in the Company's Form 10-K for the year ended December 31, 1996.
2. In July 1996, World Airways announced its decision to exit its scheduled
service operations by October 1996 and focus its operations on its core
business: operating aircraft under contracts with international carriers,
the U.S. Government, and international tour operators. Consistent with this
decision, World Airways ceased all scheduled operations as of October 27,
1996. As a result, World Airways' scheduled service operations were
reflected as discontinued operations as of June 30, 1996, and prior period
results were restated to reflect scheduled service operations as discontinued
operations. Loss from discontinued operations (net of income tax effect)
approximated $11.7 million for the year ended December 31, 1996. In
addition, an estimated loss on disposal of $21.0 million (net of income tax
effect) which was recorded as of June 30, 1996, included the following:
$13.6 million for estimated operating losses during the phase-out period; a
$2.6 million estimated loss to be incurred in connection with sub-leasing DC-
10 aircraft which would not be utilized in its operations subsequent to the
phase-out of scheduled service operations; a $2.3 million writeoff of related
leasehold improvements; and $2.0 million for passenger reprotection expenses.
World Airways has incurred approximately $19.8 million of these costs through
March 31, 1997 and believes that its remaining accrual for estimated losses
on disposal will be adequate to meet the remaining costs to be incurred
during the phase-out period. In connection with the discontinuance of its
scheduled service operations, World Airways is subject to claims by various
third parties and may be subject to further claims in the future.
3. As mentioned above, WorldCorp's ownership interest in InteliData is
approximately 28.9%. The Company's consolidated results for the first
quarter of 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>
Quarter Ended March 31,
-------------------------
1997 1996
---------- -------------
<S> <C> <C>
Results of operations
Revenues $21,564 $ 1,326
Cost of revenues 13,828 930
Gross profit 7,736 396
Operating loss (251) (2,033)
Net income (loss) applicable to common shareholders 165 (1,988)
</TABLE>
9
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<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- -----------
<S> <C> <C>
Financial position:
Current assets $79,180 $82,989
Non-current assets 58,115 60,757
Current liabilities 12,812 19,457
Non-current liabilites -- --
</TABLE>
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 March 31, 1997, the Company had purchased 1,362,500
shares of its common stock for an aggregate cost of $7.8 million. WorldCorp
does not intend to purchase any additional shares at this time.
5. 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
March 31, 1997, World Airways has a working capital deficit of $32.4 million
and has substantial debt and lease commitments. At March 31, 1997,
InteliData has working capital of $66.4 million, with no long-term debt.
World Airways' ability to pay dividends is currently restricted under a
borrowing arrangement. Additionally, the provisions of the Indenture
governing WorldCorp's Debentures causes World Airways not to pay dividends
upon the occurrence of any events of default by WorldCorp under such
Indenture. World Airways and InteliData currently intend to retain their
future earnings, if any, to fund the growth and development of their business
and, therefore, do not anticipate paying any cash dividends in the
foreseeable future.
Of the $5.9 million in cash and cash equivalents at March 31, 1997,
approximately $2.6 million is held by World Airways and, therefore, is not
available to satisfy WorldCorp's obligations. As of March 31, 1997, WorldCorp
had parent company repayment obligations, including principal and interest,
of approximately $20.7 million for the remainder of 1997. In order to meet
these obligations and its general and administrative costs, the Company must
use its existing cash and either sell shares of World Airways or InteliData,
or issue additional debt or equity. Under the terms of certain borrowing
arrangements however, WorldCorp has pledged all of its shares of World
Airways and InteliData as collateral for the borrowings.
The Company is currently evaluating the feasibility of a disposition of its
interest in World Airways through a secondary offering or a sale to a third
party. Any such transaction would require the approval of certain other
parties. Additionally, management believes it will be successful in reducing
the amount of collateral securing its borrowings, either by renegotiating the
terms of the loan or by entering into a new loan with another financial
institution. Although there can be no assurance that WorldCorp will be
successful in consummating these transactions, management believes that its
existing cash and the anticipated proceeds from a combination of sales of
stock of World Airways or InteliData, renegotiations of its existing
borrowing arrangements, or new financing arrangements, will be sufficient to
allow the Company to meet its operating requirements and repayment
obligations for 1997. At March 31, 1997, based on quoted market prices, the
market value of the Company's 6,915,915 shares of World Airways and 9,179,273
shares of InteliData, approximated $51.9 million and $45.9 million,
respectively.
6. For a discussion of commitments and contingencies see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Other Matters".
7. In 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.
The statements are effective for the year ended December 31, 1997.
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below relates to the operations of WorldCorp, Inc.
("WorldCorp" or "the Company") as reflected in its condensed consolidated
financial statements. These statements primarily include the accounts of World
Airways, Inc. ("World Airways"). On February 28, 1994, pursuant to an October
1993 agreement, the Company sold 24.9% of its ownership in World Airways to MHS
Berhad ("MHS"), a Malaysian aviation company. Effective December 31, 1994,
WorldCorp repurchased 5% of World Airways' common stock from MHS. In October
1995, World Airways completed an initial public offering in which 2,000,000
shares were issued and sold by World Airways and 900,000 shares were sold by
WorldCorp. At March 31, 1997, WorldCorp and MHS owned 6,915,915 shares, or
61.6%, and 1,990,000 shares, or 17.7%, respectively, of World Airways'
outstanding common stock. The remaining balance was publicly traded. The
managements of WorldCorp and World Airways are currently exploring ways to
maximize value for the shareholders of each company. WorldCorp is currently
evaluating the feasibility of a disposition of its interest in World Airways
through a secondary offering or a sale to a third party. There can be no
assurances, however, that any such transactions will ultimately be consummated.
On March 14, 1997, World Airways announced that Charles W. Pollard departed as
President and Chief Executive Officer. Russell L. Ray, Jr., Director, will act
as President on an interim basis pending the hiring of a new CEO.
WorldCorp also had an ownership interest in US Order, Inc. ("US Order"), a
company which provided products and services for two markets: home banking and
smart telephones. In August 1996, US Order and Colonial Data Technologies Corp.
("Colonial Data") entered into an Agreement and Plan of Merger pursuant to which
US Order and Colonial Data would be merged with and into a new public company,
InteliData Technologies Corporation ("InteliData"). Pursuant to this Merger,
which was consummated on November 7, 1996, InteliData became the successor
corporation to US Order. The Merger was treated as a purchase of Colonial Data
by US Order. InteliData concentrates on three markets: (1) consumer
telecommunications; (2) electronic commerce; and (3) interactive services. At
March 31, 1997, WorldCorp owned 9,179,273 shares of InteliData, or a ownership
interest of approximately 28.9%. Following this Merger, the Company reports its
proportionate share of InteliData's financial results using the equity method of
accounting.
In 1996, the Company announced its intention to purchase up to 2.5 million
shares of its publicly-traded common stock pursuant to open market transactions.
As of March 31, 1997, the Company had purchased 1,362,500 shares of its common
stock for an aggregate cost of $7.8 million. WorldCorp does not intend to
purchase any additional shares at this time.
The Private Securities Litigation Reform Act of 1995 (the "Act") was recently
passed by Congress. The Company desires to take advantage of the new "safe
harbor" provisions in the Act. Therefore, this report contains forward looking
statements that are subject to risks and uncertainties, including, but not
limited to, the impact of competitive products, product demand and market
acceptance risks, reliance on key strategic alliances, fluctuations in operating
results and other risks detailed from time to time in the Company's filings with
the Securities and Exchange Commission. These risks could cause the Company's
actual results for 1997 and beyond to differ materially from those expressed in
any forward looking statements made by, or on behalf of, the Company. For a
complete discussion of these and other risks and uncertainties, please refer to
the Company's Annual Report filed on Form 10-K for the year ended December 31,
1996.
OVERVIEW
WorldCorp owns positions in companies that operate in two distinct business
areas. World Airways (Nasdaq:WLDA) provides worldwide passenger and cargo air
transportation to major international airlines, the U.S. Air Force, and
international tour operators, with a fleet of MD-11 and DC10-30 aircraft.
InteliData (Nasdaq:INTD) concentrates on three markets: (1) consumer
telecommunications; (2) electronic commerce; and (3) interactive services.
The Company is a highly leveraged holding company. As a holding company, all of
WorldCorp's funds are generated through its positions in World Airways and
InteliData, neither of whom intend to pay dividends in the foreseeable future.
In addition, World Airways' ability to pay dividends is currently restricted
under a borrowing arrangement. As of March 31, 1997, WorldCorp has substantial
parent company debt service obligations. In order
11
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to meet these obligations and its general and administrative costs in 1997, the
Company must use its existing cash and either sell shares of World Airways or
InteliData, or issue additional debt or equity. Under the terms of certain
borrowing arrangements, WorldCorp has pledged all of its shares of World Airways
and InteliData as collateral for the borrowings.
WORLD AIRWAYS
- -------------
World Airways is a leading global provider of long-range passenger and cargo air
transportation outsourcing services to major international airlines under fixed
rate, multi-year contracts. World Airways' passenger and freight operations
employ 13 wide-body aircraft which are currently operated under contracts,
primarily with Pacific Rim airlines. These contracts generally require World
Airways to supply aircraft, crew, maintenance and insurance ("ACMI" or "wet
lease"), while it's customers are responsible for a large portion of the other
operating expenses, including fuel. World Airways' airline customers have
determined that outsourcing a portion of their wide-body passenger and cargo
requirements can be less expensive, and offer greater operational and financial
flexibility, than purchasing new aircraft and additional spare parts required
for such aircraft. World Airways also leads a contractor teaming arrangement
that is the 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 the growing
and profitable 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 (see "Discontinuation of Scheduled
Service Operations").
World Airways generally charges customers on a block hour basis rather than a
per seat or per pound basis. "Block hours" are defined as the elapsed time
computed from the moment the aircraft first moves under its own power at the
point of origin to the time it comes to rest at its final destination. World
Airways provides most services under two types of contracts: wet lease
contracts and full service contracts. Under wet lease contracts, World Airways
provides the aircraft, cockpit crew, maintenance and insurance and the customer
provides all other operating services and bears all other operating expenses,
including fuel and fuel servicing, marketing costs associated with obtaining
passengers and/or cargo, airport passenger and cargo handling fees, landing
fees, cabin crews, catering, ground handling and aircraft push-back and de-icing
services. Under full service contracts, World Airways provides fuel, catering,
ground handling, cabin crew and all related support services as well.
Accordingly, World Airways generally charges a lower rate per block hour for wet
lease contracts than full service contracts, although it does not necessarily
earn a lower profit. Because of shifts in the mix between full service
contracts and wet lease contracts, fluctuations in revenues are not necessarily
indicative of volume trends or profitability. It is important, therefore, to
measure World Airways' business volume by block hours flown and to measure
profitability by operating income per block hour.
As is common in the air transportation industry, World Airways has relatively
high fixed aircraft costs. While it believes that the lease rates on its MD-11
aircraft are favorable relative to lease rates of other MD-11 operators, World
Airways' MD-11 aircraft have higher lease costs (although lower operating costs)
than its DC10-30 aircraft. Therefore, achieving high average daily utilization
of its aircraft (particularly its MD-11 aircraft) at attractive yields are
important factors to its financial results. In addition to fixed aircraft
costs, a portion of its labor costs are fixed due to monthly minimum guarantees
to cockpit crewmembers and flight attendants.
CUSTOMERS
Historically, World Airways' business has relied heavily on its contracts with
Malaysian Airline System Berhad ("Malaysian Airlines"), P.T. Garuda Indonesia
("Garuda") and the U.S. Air Force. For the first quarter of 1997, these
customers provided approximately 33%, 13%, and 17%, respectively, of World
Airways' revenues and 37%, 14%, and 10%, respectively, of total block hours.
These customers provided approximately 34%, 13%, and 25%, respectively, of World
Airways' revenues and 42%, 14%, and 17%, respectively, of total block hours from
continuing operations during 1996. In 1996, World Airways commenced operations
for Philippine Airlines, Inc. ("Philippine Airlines"), providing four MD-11
aircraft under year-round wet lease contracts. For the first quarter of 1997
and the twelve months ended December 31, 1996, respectively, these operations
provided approximately 36% and 15% of World Airways' revenues and 37% and 17% of
its block hours from continuing operations. World Airways expects that the
agreement with Philippine Airlines will continue to have a substantial impact on
its revenues and block hours in 1997.
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Malaysian Airlines. World Airways has provided wet lease services to Malaysian
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Airlines since 1981, providing wet lease services for Malaysian Airlines'
scheduled passenger and cargo operations as well as transporting passengers for
the annual Hadj pilgrimage. MHS, which owns 17.7% of World Airways as of March
31, 1997, also owns 29.1% of Malaysian Airlines. In late 1994, World Airways
entered into a series of multi-year contracts, with expiration dates ranging
from 1997 to 2000, to provide aircraft to Malaysian Airlines. In 1996, World
Airways provided three aircraft for Hadj operations. World Airways recently
entered into a new 32-month agreement for year-round operations (including the
Hadj) with Malaysian Airlines whereby it will provide two aircraft with cockpit
crews, maintenance and insurance to Malaysian Airlines' newly-formed charter
division through May 1999. World Airways is providing provide three aircraft for
1997 Hadj operations. World Airways is currently in preliminary discussions with
Malaysian Airlines regarding a potential eleven-month reduction in the
utilization of one of these aircraft during the 32-month term of the contract.
Until recently, World Airways operated four passenger aircraft for Malaysian
Airlines under the multi-year agreements described above. The contract for two
of the four passenger aircraft for Malaysian Airlines expired in March 1997.
While World Airways is deploying these two aircraft in the 1997 Hadj, and will
actively re-market the aircraft thereafter, World Airways can provide no
assurance that it will be able to redeploy the two aircraft, beginning June
1997, at price and utilization levels at least as favorable as under the terms
of the Malaysian Airlines contracts.
World Airways originally operated three MD-11 cargo aircraft for Malaysian
Airlines. However, beginning in July 1996, and as mutually agreed by the
parties, World Airways redeployed two cargo aircraft, which had been operating
under these contracts, into the Philippine Airlines contract. World Airways and
Malaysian Airlines are currently discussing the future redeployment of these
aircraft back into Malaysian Airlines' operations in order to meet the
contracts' original obligations. World Airways can provide no assurances,
however, that it will, in fact, be able to redeploy these two aircraft back into
Malaysian Airlines' operations to meet the contracts' original obligations.
Revenues associated with these contractual obligations are included in World
Airways' backlog amount included herein.
Garuda. World Airways has flown for Garuda periodically since 1973 and yearly
- ------
since 1988. Since 1988, World Airways has been one of the largest providers of
passenger services to Indonesia for the Hadj pilgrimage. The Indonesian Hadj
pilgrimage is the world's largest due to the size of Indonesia's Islamic
population. In 1996, approximately 200,000 Indonesians traveled to Jeddah for
the Hadj pilgrimage. During the 1996 Hadj pilgrimage, World Airways provided
passenger service to Garuda with seven aircraft, flying approximately 40,000
Indonesians on company aircraft. Due to World Airways' capacity constraints
during the period of Hadj flying, World Airways reached an agreement with Garuda
to operate six aircraft during the 1997 pilgrimage.
Philippine Airlines. In May 1996, World Airways entered into a new ACMI contract
- -------------------
with Philippine Airlines, thereby further expanding its presence in the Pacific
Rim. World Airways presently operates four MD-11 passenger aircraft for
Philippine Airlines under an agreement, with high minimum monthly utilization
levels. World Airways, however, has recently received a written communication
from Philippine Airlines in which the airline contends that its leases for all
four aircraft expire on November 15, 1997. World Airways believes that this
position is contrary to the understanding of the parties that each of the MD-11s
are to be leased by Philippine Airlines for a period of 18 months from delivery
of each aircraft. The parties are currently discussing the length of the lease
term for these aircraft. World Airways can provide no assurances, however, that
Philippine Airlines will agree to lease any of the four MD-11 passenger aircraft
beyond November 15, 1997, or that World Airways will be able to secure other
business at as favorable price and utilization levels.
Also, subsequent to year-end, at Philippine Airlines' request, World Airways
agreed to a payment plan with respect to Philippine Airlines' wet lease
obligations beginning in March 1997. Although Philippine Airlines is current on
this payment plan to date, if Philippine Airlines defaults on this payment plan,
or fails to meet its monthly aircraft lease obligations, this development, if
not offset by other business, would have a material adverse effect on the cash
flows, financial condition and results of operations of World Airways.
U.S. Air Force. World Airways has provided international air transportation to
- --------------
the U.S. Air Force since 1956. The overall downsizing of the U.S. military,
combined with a need to respond quickly to the growing number of global regional
conflicts places a premium on the mobility of the U.S. armed forces. This is
reflected in the stable size over
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the past several years of the USAF's procurement of commercial airlift services.
Although World Airways' 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 the Civil Reserve Air Fleet. World Airways utilizes such teaming
arrangements to maximize the value of potential awards. World Airways leads a
contractor teaming arrangement that enjoys a 44% market share of the USAF's
overall commercial airlift requirement. During a period in which the U.S.
military downsized substantially, World Airways' portion of the fixed USAF award
increased from $15.6 million for the government's 1992-93 fiscal year, to $52.8
million for the government's 1996-97 fiscal year.
The current annual contract commenced on October 1, 1996 and expires on
September 30, 1997. These contracts provide for a fixed level of scheduled
business from the U.S. Air Force with opportunities for additional short-term
expansion business on an ad hoc basis as needs arise. Due to the utilization of
a significant number of World Airways' aircraft under multi-year contracts and
other contractual commitments, it is unlikely that it will be able to accept all
of the available expansion business. Although overall Defense Department
spending is being reduced, the level of the U.S. Air Force's contract awards has
remained relatively constant in recent years. World Airways, however, cannot
determine how future cuts in military spending may affect future operations with
the U.S. Air Force.
Although World Airways's customers bear the financial risk of filling World
Airways' aircraft with passengers or cargo, World Airways can be affected
adversely if its customers are unable to operate its aircraft profitably, or if
one or more of World Airways' customers experience a material adverse change in
their market demand, financial condition or results of operations. Under these
circumstances, World Airways can be adversely affected by receiving delayed or
partial payments or by receiving customer demands for rate and utilization
reductions, flight cancellations, and/or early termination of their agreements.
As a result of these and other contracts, World Airways had an overall contract
backlog at March 31, 1997 of $414.0 million, compared to $430.4 million at March
31, 1996. Approximately $199.3 million of the backlog relates to 1997
operations. World Airways' backlog for each contract is determined by
multiplying the minimum number of block hours (defined as the elapsed time
computed from the moment the aircraft first moves under its own power at the
point of origin to the time it comes to rest at its destination) guaranteed
under the applicable contract by the specified hourly rate under such contract.
Approximately 64% and 17% of the backlog relates to its contracts with Malaysian
Airlines and Philippine Airlines, respectively. While the percentage of its
1997 block hour capacity that is currently under contract exceeds the comparable
percentage in the past several years, World Airways still has uncontracted
capacity in the third and fourth quarters of 1997. 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 1997 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 will occur from March 15 to May 20. Because the Islamic calendar is a
lunar-based calendar, the Hadj pilgrimage occurs approximately 10 to 12 days
earlier each year relative to the Western (Gregorian) calendar. As a result,
revenues resulting from future Hadj pilgrimage contracts will continue to shift
from the second quarter to the first quarter over the next several years. World
Airways believes that its contracts with Malaysian Airlines and the USAF should
lessen the effect of these seasonal factors.
GEOGRAPHIC CONCENTRATION
World Airways derives a significant percentage of its revenues and block hours
from its operations in the Pacific
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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 the company.
UTILIZATION OF AIRCRAFT
Due to the large capital costs of leasing and maintaining its aircraft, each of
World Airways' aircraft must have high utilization at attractive rates in order
for it to operate profitably. Although World Airways' strategy is to enter into
long-term contracts with its customers, the terms of its existing customer
contracts are substantially shorter than the terms of World Airways' lease
obligations with respect to the aircraft. 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 it 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 it 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. Its maintenance costs associated with the MD-11 aircraft and PW 4462
engines have been significantly reduced due in part to manufacturer guarantees
and warranties which began to expire in 1995 and which will fully expire by
1998. In addition, the specified rates per hour are subject to annual
escalation, increasing substantially in 1998. Accordingly, while World Airways
believes the terms of this agreement have resulted in lower engine maintenance
costs than it otherwise would incur, engine maintenance costs will increase
substantially during the last five years of the agreement. World Airways has
begun to accrue these increased expenses in 1997. Therefore, World Airways
expects that maintenance 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 World Airways generated operating income for the quarter ended
March 31, 1997, there can be no assurance that it will be able to continue
generating operating income for the remainder of 1997 or future years.
DISCONTINUATION OF SCHEDULED SERVICE OPERATIONS
For its scheduled service operations, World Airways commenced service between
Tel Aviv and New York in July 1995 and commenced service between the United
States and South Africa in June 1996. In addition, World Airways commenced
scheduled charter operations between the United States and various destinations
within Europe in May 1996. World Airways, however, 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 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
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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 incurred approximately $19.8 million of these costs
through March 31, 1997 and it believes that its remaining accrual for estimated
losses on disposal will be adequate to meet the remaining costs to be incurred
during the phase-out period. In connection with the discontinuance of its
scheduled service operations, World Airways is subject to claims by various
third parties and may be subject to further claims in the future (see "Other
Matters - Legal and Administrative Procedures").
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 March 31, 1997, WorldCorp's ownership in InteliData was
approximately 28.9%. Following this Merger, WorldCorp reports its proportionate
share of InteliData's financial results using the equity method of accounting.
On October 4, 1996, US Order acquired the business of Braun, Simmons & Co.,
("Braun Simmons"), for approximately $7.0 million consisting of cash and US
Order common stock and including US Order transaction costs. Braun Simmons was
an information engineering firm specializing in the development of home banking
and electronic commerce solutions for financial institutions. The acquisition
expands InteliData's product line for both large and small financial
institutions.
The business of InteliData consists of the businesses previously conducted by US
Order, Colonial Data and Colonial Data's subsidiaries. InteliData develops and
markets products and services for the telecommunications and financial services
industries through its three business divisions: consumer telecommunications,
electronic commerce and interactive services.
The consumer telecommunications division designs, develops and markets
telecommunications products that support intelligent network services being
developed and implemented by the regional Bell operating companies ("RBOCs") and
other telephone companies ("telcos"). InteliData has concentrated its product
development and marketing efforts on products that support Caller ID and other
emerging intelligent network services, including a smart telephone, the
Telesmart 4000/Intelifone(TM), which provide consumers call management features
and the ability to access numerous network services and interactive applications
via telephone. InteliData currently offers a line of Caller ID adjunct units and
telephones with integrated Caller ID, small business telecommunications systems
and high-end consumer telecommunications equipment. InteliData also repairs and
refurbishes telecommunications products for commercial customers and provides
other services that support the development and implementation of intelligent
network services.
The electronic commerce division develops and markets products and services to
assist financial institutions in their home banking and electronic bill payment
initiatives. The products are designed to assist consumers in accessing and
transacting business with their banks and credit unions electronically, and to
assist financial institutions in connecting to and transacting business with
third parties, including data processors and billers. The services focus on a
financial institution's back office, offering outsourcing for data entry,
telemarketing, customer service and technical support. InteliData currently
receives its electronic commerce revenues largely from the sale of products and
services to Visa International Service Association, Inc. ("Visa") member banks.
The interactive services division was established to provide interactive
applications for use on smart telephones and other small screen devices, such as
alpha-numeric pagers, Personal Communication Systems ("PCS") telephones and
personal digital assistants ("PDAs"). InteliData intends to sell interactive
applications directly to end users and through other companies, including telcos
and wireless communications companies. InteliData's current interactive
applications include electronic national directory assistance lookup, one-way
alpha-numeric paging, one-way internet
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e-mail, a personal directory data save and restore function and information
services such as news, weather, sports scores, stock quotes, lottery results and
horoscopes.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
WORLD AIRWAYS
- -------------
Total block hours increased 1,180 hours, or 11%, to 11,814 hours in the first
quarter of 1997 from 10,634 hours in 1996, with an average of 13.4 available
aircraft per day in 1997 compared to 11.6 in 1996. Average daily utilization
(block hours flown per day per aircraft) decreased to 9.8 hours in 1997 from
10.1 hours in 1996. In 1997, wet lease contracts accounted for 89% of total
block hours, an increase from 66% in 1996. Total operating revenues increased
$13.3 million, or 20%, to $78.7 million in 1997 from $65.4 million in 1996.
Continuing Operations
- ---------------------
Block hours from continuing operations increased 1,980 hours, or 20%, to 11,814
hours in the first quarter of 1997 from 9,834 hours in 1996.
Operating Revenues. Revenues from flight operations increased $13.9 million, or
- ------------------
22%, to $78.4 million in 1997 from $64.5 million in 1996. This increase was
primarily attributable to the increase in block hours flown in 1997 over 1996.
In addition, World Airways experienced a shift in its mix of business during
1997 with an increase in wet lease operations from full service operations.
Operating Expenses. Total operating expenses increased $3.7 million, or 5%, in
- ------------------
1997 to $72.4 million from $68.7 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 decreased $3.9 million, or 19%, in
1997 to $16.4 million from $20.3 million in 1996. This decrease resulted
primarily from the shift in the mix of business from full service to wet lease
operations, partially offset by higher crew costs. World Airways expects that
it will experience increased training costs during 1997 as a result of
crewmember attrition.
Maintenance expenses increased $2.2 million, or 15%, in 1997 to $16.7 million
from $14.5 million in 1996. This increase resulted primarily from the
integration of additional aircraft into the fleet and a corresponding increase
in block hours flown. In addition, World Airways experienced an increase in
costs associated with the MD-11 aircraft and related engines as a result of
certain manufacturer guarantees and warranties which began to expire in 1995 and
will fully expire by 1998. As discussed previously, World Airways expects its
maintenance expense to increase in 1997 due to escalations in the specified
rates per hour under its maintenance agreement.
Aircraft costs increased $6.1 million, or 33%, in 1997 to $24.7 million from
$18.6 million in 1996. This increase resulted from the increase in the number
of aircraft dedicated to World Airways' continuing operations, primarily due to
the lease of two MD-11ER aircraft in March 1996 and the lease of additional
spare engines necessary to maintain the expanded fleet.
Fuel expenses decreased $2.5 million, or 45%, in 1997 to $3.0 million from $5.5
million in 1996. This decrease is due primarily to the shift from full service
to wet lease operations where World Airways is not responsible for fuel costs.
This decrease was partially offset by a slight increase in price per gallon.
Promotions, sales and commissions increased $1.3 million in 1997 to $2.3 million
from $1.0 million in 1996. This increase resulted primarily from commissions
paid in connection with the Philippine Airlines contract.
Depreciation and amortization increased $0.1 million in 1997 to $2.1 million
from $2.0 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.
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General and administrative expenses increased $1.1 million, or 19%, in 1997 to
$6.8 million from $5.7 million in 1996. This increase was primarily due to the
hiring of additional administrative personnel, subsequent to the first quarter
of 1996, necessary to support the growth in World Airways' core business, an
increase in property tax accruals, and an increase in certain legal fees.
Discontinued Operations
- -----------------------
As mentioned above, 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 World
Airways was unable to operate these scheduled service operations profitably, in
July 1996, the Company 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.
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 March 31, 1997, WorldCorp's ownership interest in InteliData was
approximately 28.9%.
The Company's consolidated results for the first quarter of 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
Income of Affiliate").
WORLDCORP
- ---------
General and administrative expenses decreased $1.0 million for the quarter ended
March 31, 1997 to $0.3 million from $1.3 million in the comparable 1996 period.
A portion of this decrease resulted from an allocation of certain legal fees to
World Airways from the Company. 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 Income of Affiliate. For the quarter ended March 31, 1997,
- -----------------------------
InteliData's revenues were $21.6 million, including $20.4 million generated by
the consumer telecommunications division primarily resulting from marketing and
promotional campaigns for Caller ID units and services conducted by telcos and
InteliData. In addition, InteliData realized an increase in revenues generated
from its electronic commerce division, attributed primarily to the expansion of
the division's product sales during the quarter. InteliData's cost of revenues
for the first quarter of 1997 increased to $13.8 million, including $13.0
million from its consumer telecommunications division. Overall gross profit
margins increased to 36% for the first quarter of 1997 from 30% in the
comparable 1996 period. Gross profit margins for the consumer
telecommunications, electronic commerce and interactive servcies divisions were
36%, 31% and 25%, respectively, for the first quarter of 1997. The gross profit
margin derived from the sale of Caller ID and small business units was 34% for
the first quarter of 1997. InteliData anticipates that gross profit margins may
fluctuate in the future due to changes in product mix and distribution,
competitive pricing pressure, the introduction of new products, and changes in
the volume and terms of leasing activity.
InteliData's total operating expenses were $8.0 million during the quarter ended
March 31, 1997. General and administrative expenses increased primarily as a
result of the Merger and the upgrade of systems and operations in anticipation
of potential increased business during 1997. 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 quarter of 1997 compared to 1996. Finally, research and
development costs increased during the first quarter of 1997 primarily from
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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 increase during the remainder of 1997 and be
essential to the operations of InteliData in the future.
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 March
31, 1997, World Airways has a working capital deficit of $32.4 million and has
substantial debt and lease commitments. At March 31, 1997, InteliData has
working capital of $66.4 million, with no long-term debt. World Airways'
ability to pay dividends is currently restricted under a borrowing arrangement.
Additionally, the provisions of the Indenture governing WorldCorp's Debentures
causes World Airways not to pay dividends upon the occurrence of any events of
default by WorldCorp under such Indenture. World Airways and InteliData
currently intend to retain their future earnings, if any, to fund the growth and
development of their businesses and, therefore, do not anticipate paying any
cash dividends in the foreseeable future.
Of the $5.9 million in cash and cash equivalents at March 31, 1996,
approximately $2.6 million is held by World Airways and, therefore, is not
available to satisfy WorldCorp's obligations. As of March 31, 1997, WorldCorp
had parent company repayment obligations, including principal and interest, of
approximately $20.7 million for the remainder of 1997. In order to meet these
obligations and its general and administrative costs, the Company must use its
existing cash and either sell shares of World Airways or InteliData, or issue
additional debt or equity. Under the terms of certain borrowing arrangement,
however, WorldCorp has pledged all of its shares of World Airways and InteliData
as collateral for the borrowings.
The Company is currently evaluating the feasibility of a disposition of its
interest in World Airways through a secondary offering or a sale to a third
party. Any such transaction would require the approval of certain other parties.
Additionally, management believes it will be successful in reducing the amount
of collateral securing its borrowings, either by renegotiating the terms of the
loan or by entering into a new loan with another financial institution.
Although there can be no assurance that WorldCorp will be successful in
consummating these transactions, management believes that its existing cash and
the anticipated proceeds from a combination of sales of stock of World Airways
or InteliData, renegotiations of its existing borrowing arrangements, or new
financing arrangements, will be sufficient to allow the Company to meet its
operating requirements and repayment obligations for 1997. At March 31, 1997,
based on quoted market prices, the market value of the Company's 6,915,915
shares of World Airways and 9,179,273 shares of InteliData, approximated $51.9
million and $45.9 million, respectively.
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. At March 31, 1997, World
Airways had total long-term indebtedness of approximately $27.0 million and
notes payable and current maturities of long-term obligations of $15.0 million.
In addition, World Airways has significant future long-term obligations under
aircraft lease obligations relating to its aircraft. World Airways has
historically financed its working capital and capital expenditure requirements
out of cash flow from operating activities, public and private sales of its
common stock, secured borrowings, and other financings from banks and other
lenders. The degree to which World Airways is leveraged could have important
consequences to holders of Common Stock, including the following: (i) its
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or other purposes may be limited; (ii) its
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; and (iii) its
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 March 31, 1997 and December 31, 1996
were $2.6 million and $7.0 million, respectively. As is common in the airline
industry, World Airways operates with a working capital deficit. At March 31,
1997 World Airways' current assets were $35.7 million and current liabilities
were $68.1 million. World Airways believes that the combination of the
financings consummated to date, income from continuing operations and certain
additional financings will be sufficient to allow it to meet its cash
requirements related to the remaining phase-out of its discontinued operations
and the operating and capital requirements for its continuing operations for
the next twelve months.
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At March 31, 1997 InteliData had $28.5 million in cash, cash equivalents and
short-term investments. InteliData has generated operating losses since its
inception. InteliData's smart telephone and home banking products and services
are subject to the risks inherent in the marketing and development of new
products. The market for these products and services is relatively new and is
characterized by rapid technological change, evolving standards, changes in end-
user requirements and frequent new product introductions and enhancements.
However, the acquisition of Colonial Data has provided InteliData with
established product lines and sales channels in large telecommunications
markets. The industry for InteliData's products and services is intensely
competitive. InteliData experiences direct competition from manufacturers of
smart telephones, caller ID units, and cordless phones and from companies that
develop transaction processing software for interactive applications and
customer support services. There can be no assurance as to what level of future
sales or royalties, if any, that InteliData will receive from Visa, Visa member
banks and retail markets for its smart telephone and home banking products and
services.
CASH FLOWS FROM OPERATING ACTIVITIES
Operating activities provided $6.5 million in cash for the quarter ended March
31, 1997 compared to using $8.0 million of cash in the comparable 1996 period.
The increase in cash in 1997 resulted primarily from an increase in earnings and
a decrease in accounts receivable, partially offset by a decrease in accounts
payable in 1997.
CASH FLOWS FROM INVESTING ACTIVITIES
Investing activities used $2.4 million in cash for the quarter ended March 31,
1997 compared to using $4.3 million in the comparable 1996 period. In 1997,
cash was used primarily for the purchase of rotable spare parts and engine
upgrades required for the integration of two MD-11 aircraft.
CASH FLOWS FROM FINANCING ACTIVITIES
Financing activities used $10.6 million in cash for the quarter ended March 31,
1997 compared to using $3.7 million in the comparable 1996 period. This decrease
in cash resulted primarily from an increase in repayments of the Company's net
borrowings and the purchase of shares of WorldCorp's and World Airways' common
stock for an aggregate cost of $0.1 million and $0.5 million, respectively, in
1997.
CAPITAL COMMITMENTS
World Airways
- -------------
In October 1992 and January 1993, World Airways signed a series of agreements to
lease seven new MD-11 aircraft for initial lease terms of two to five years,
renewable for up to 10 years (and in the case of one aircraft, for 13 years) by
the Company with increasing rent costs. As of March 1995, World Airways had
taken delivery of all seven aircraft, consisting of four passenger MD-11
aircraft, one freighter MD-11, and two passenger/cargo convertible MD-11s. As
part of the lease agreements, World Airways was assigned purchase options for
four additional MD-11 aircraft. In 1992, World Airways made non-refundable
deposits of $1.2 million toward the option aircraft. In March 1996, World
Airways signed an agreement with the manufacturer to lease two MD-11ER aircraft.
Under the agreement, it leased each aircraft for a term of 24 years with an
option to return the aircraft after a seven year period with certain fixed
termination fees. As part of the agreement, the above-mentioned deposits were
applied towards the deposits required on these two aircraft. In addition, World
Airways agreed to assume an existing lease of two additional MD-11 freighter
aircraft for 20 years, beginning in 1999, in the event that the existing lessee
terminates its lease with the manufacturer at that time. As of March 31, 1997,
annual minimum payments required under its aircraft and lease obligations
totaled $66.0 million for the remainder 1997.
As of March 31, 1997, World Airways leases one short-term DC10-30 aircraft and
four long-term DC10-30 aircraft with terms expiring in 1999, 2003, and two in
1997.
In August 1995, World Airways amended its aircraft spare parts facility under
the Credit Agreement to provide for a variable rate borrowing of $10.5 million.
Approximately $2.5 million of this facility was used to pay off the previously
outstanding balance of the spare parts loan facility and $0.8 million was used
to purchase additional spare parts for MD-11s required during the remainder of
1995. The balance of this loan facility was used to increase cash balances which
were drawn down during the first half of 1995 to purchase MD-11 spare parts.
20
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In September 1995, World Airways agreed to purchase a spare engine which was
delivered in March 1996. The engine cost approximately $8.0 million. World
Airways entered into an agreement with the engine's manufacturer to finance 80%
of the purchase price over a seven-year term. World Airways made payments of
$1.2 million and $0.4 million towards this purchase in September 1995 and
January 1996, respectively.
As discussed above, World Airways signed an agreement for the lease of two MD-
11ER aircraft beginning in the first quarter of 1996 to provide additional
capacity for growth opportunities. As part of the agreement for the MD-11
aircraft, World Airways received spare parts financing from the lessor of $9.0
million of which $3.0 million was made available with the delivery of each
aircraft, and the remaining $3.0 million was made available in December 1996.
As of March 31, 1997, approximately $7.1 million had been received. In January
1996, World Airways agreed to purchase an additional engine and received a
commitment from the engine manufacturer to finance 85% of its purchase price
over a seven-year term with an interest rate to be fixed at the time of
delivery, which is expected to be during 1997.
World Airways anticipates that its total capital expenditures in 1997, which
includes the spare engine, will approximate $10.2 million of which it will
receive approximately $6.1 million in financing. World Airways expects that the
remaining balance will be funded from its operating cash flow and available cash
balances. In March 1996, the Credit Agreement was amended to increase the limit
on capital expenditures by World Airways to no more than $25.0 million in 1997.
As of March 31, 1997, World Airways held approximately $3.8 million (at book
value) of aircraft spare parts currently available for sale.
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, potential acquisitions, capital expenditures and
the upgrade of its systems and operations. In order to meet its needs for cash
over the next twelve months, InteliData will utilize proceeds from its 1995
initial public offering and cash received in the Merger. Additionally,
InteliData may utilize funds it expects to generate from operations in the
second half of 1997.
FINANCING DEVELOPMENTS
WorldCorp. On August 29, 1996, the Company entered into a bridge loan (the
- ---------
"Bridge Loan") with a financial institution pursuant to which the Company
borrowed $25.0 million and subsequently retired its existing 13 7/8%
Subordinated Notes of the same amount. The Bridge Loan is due September 29,
1997 and earns interest of LIBOR plus 2.5%, payable monthly. Under the terms of
the Bridge Loan, the borrowings are collateralized by all of the shares of World
Airways and InteliData owned by WorldCorp, a first priority security interest in
WorldCorp's assets, and certain cash collateral. On September 30, 1996, the
Company entered into a purchase agreement (the "Purchase Agreement") which
contained a series of Senior Subordinated Notes ("the Notes") totaling $10.0
million which was used to retire $10.0 million of the Bridge Loan in October
1996. The Notes are payable in three installments through September 2000, earn
interest of 10%, payable semi-annually, and are included in long-term
obligations at December 31, 1996. On December 31, 1996, the Company refinanced
the Bridge Loan, which resulted in a decrease in the interest rate to LIBOR plus
1.75%, and reduced the cash collateral under the loan to $1.0 million. The
interest rate was 7.99% at March 31, 1997. The Purchase Agreement and the Bridge
Loan generally restrict the amount of stock repurchases by WorldCorp based on
certain specified conditions. These borrowings also contain a number of
covenants that, among other things, restrict the ability of WorldCorp to dispose
of assets, make certain acquisitions of the stock of other entities, incur
additional indebtedness, and make capital expenditures. The Bridge Loan also
contains certain covenants which, among other things, require WorldCorp to
maintain at least a 50.1% ownership of World Airways.
In the first quarter of 1997, WorldCorp entered into a $1.0 million margin loan
with Scott & Stringfellow, Inc., whereby WorldCorp pledged approximately 400,000
shares of InteliData common stock which WorldCorp owns as collateral for such
loan (the "Margin Loan"). The Bridge Loan was amended to permit this loan. In
addition, the
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amendment stipulates that the fair market value of each share of World Airways
and InteliData common stock which collateralizes the Bridge Loan must equal or
exceed five dollars per share at all times. As of March 31, 1997, the Company
had no outstanding balance on the Margin Loan.
World Airways. Effective June 30, 1996, World Airways amended its Credit
- -------------
Agreement with BNY Financial Corporation ("BNY") to include the following: a
$10.0 million spare parts loan and an $8.0 million revolving line of credit.
This amended Credit Agreement is collateralized by certain receivables,
inventory, and equipment. As of March 31, 1997, the outstanding balance of the
spare parts loan and revolving line of credit was $5.8 million and $2.7 million,
respectively, with $0.4 million available on the revolving line of credit.
Under the terms of the amended Credit Agreement, World Airways is not permitted
to (i) incur indebtedness in excess of $25.0 million (excluding capital leases),
(ii) declare, pay, or make any dividend or distribution in any six month period
which aggregate in excess of the lesser of $4.5 million or 50% of net income for
the previous six months, (iii) declare or pay dividends if after giving effect
to such dividends World Airways' cash or cash equivalents would be less than
$7.5 million or (iv) make capital expenditures in 1997 of more than $25.0
million or in any subsequent year of more than $15.0 million. Recently, the date
that World Airways is required to pay any outstanding amounts under the line of
credit was extended to December 31, 2000. The aircraft security agreement
remains payable in 1999. World Airways must also maintain a certain quarterly
net worth and net income (loss) requirements. While World Airways was in
compliance with these covenants at March 31, 1997, no assurances can be given
that World Airways will continue to meet these covenants prospectively or, if
necessary, obtain the required waivers. In addition, World Airways granted
warrants to BNY in October 1996 to purchase up to 50,000 shares of common stock.
In September 1995, World Airways entered into an agreement with a lessor to
purchase a spare engine, previously under lease, for $5.5 million. World Airways
paid $0.5 million upon closing and signed a note for the $5.0 million balance.
The note bears interest at a rate of 7.25% and is payable over a 40-month period
at $69,000 a month, with the balance of $3.3 million due on January 29, 1999. In
addition, World Airways purchased an additional spare engine which was delivered
in March 1996 at a cost of approximately $8.0 million. World Airways entered
into an agreement with the engine's manufacturer to finance 80% of the purchase
price over a seven-year term. World Airways made payments of $1.2 million and
$0.4 million towards this purchase in September 1995 and January 1996,
respectively. In January 1996, World Airways agreed to purchase an additional
engine and received a commitment from the engine manufacturer to finance 85% of
its purchase price over a seven-year term with an interest rate to be fixed at
the time of delivery.
InteliData. InteliData maintains three credit facilities aggregating $20.0
- ----------
million. The first credit agreement covers the period through May 1997 and is a
revolving line of credit of $1.0 million. The second credit agreement is a $4.0
million line of credit utilized for the purpose of issuing letters of credit.
The third credit agreement is a credit facility totaling $15.0 million for cash
advances and letters of credit.
OTHER MATTERS
LEGAL AND ADMINISTRATIVE PROCEEDINGS
The Company and World Airways (the "World Defendants") are defendants in
litigation brought by the Committee of Unsecured Creditors of Washington
Bancorporation (the "Committee") in August 1992, captioned Washington
Bancorporation v. Boster, et. al., Adv. Proc. 92-0133 (Bankr. D.D.C.) (the
"Boster Litigation"). The complaint asserts that the World Defendants received
preferential transfers or fraudulent conveyances from Washington Bancorporation
when the World Defendants received payment at maturity on May 4, 1990 of
Washington Bancorporation commercial paper purchased on May 3, 1990. Washington
Bancorporation filed for relief under the Federal Bankruptcy Code on August 1,
1990. The Committee seeks recovery of approximately $4.8 million from World
Airways and approximately $2.0 million from WorldCorp. Under a settlement
agreement which remains subject to certain contingencies, the plaintiff has
agreed to dismiss with prejudice the Boster Litigation against all defendants,
including the World Defendants, with each party to bear its own costs. In that
event, the World Defendants would not have any further liability in the Boster
Litigation. On January 28, 1997, the U.S. District Court conditionally
dismissed the Boster Litigation subject to reinstatement if the settlement is
not finalized by May 15, 1997. In any event, the Company believes it has
substantial defenses to this action, although no assurance can be given of the
eventual outcome of this litigation. Depending upon the timing of the
resolution of this claim, if
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the Committee were successful in recovering the full amount claimed, the
resolution could have a material adverse effect on the financial condition or
results of operations of the Company.
World Airways has periodically received correspondence from the FAA with respect
to minor noncompliance matters. Most recently, as the FAA has increased its
scrutiny of U.S. airlines, it was assessed a preliminary fine of $810,000 in
connection with certain minor security violations by ground handling crews
contracted by World Airways for services at foreign airport locations. In each
of these instances, World Airways was in compliance with international
regulations, but not the more stringent U.S. requirements. World Airways has
taken steps to comply with the U.S. requirements and believes that any fines
ultimately imposed by the FAA will not have a material adverse effect on the
financial condition or results of operations of World Airways. World Airways
believes the amount of fines it will ultimately be assessed will be below the
preliminary assessment. This estimated amount is included in liabilities in the
accompanying balance sheet at December 31, 1996.
In connection with the discontinuance of World Airways' scheduled service
operations, it is subject to claims by various third parties and may be subject
to further claims in the future. One claim has been filed in connection with
its discontinuance of scheduled service to South Africa, seeking approximately
$37.8 million in compensatory and punitive damages. World Airways believes it
has substantial defenses to this action, although no assurance can be given of
the eventual outcome of this litigation. Depending upon the timing of the
resolution of this claim, if the plaintiff were successful in recovering the
full amount claimed, the resolution could have a material adverse effect on its
financial condition or results of operations.
In addition, the Company is party to routine litigation and administrative
proceedings incidental to its business, none of which is believed by the Company
to be likely to have a material adverse effect on the financial condition of the
Company.
EMPLOYEES
The Company employs four individuals. The majority of its administrative
requirements are performed by employees of World Airways. The Company is
charged an appropriate monthly fee for these services.
World Airways cockpit crew members, who are represented by the International
Brotherhood of Teamsters (the "Teamsters"), are subject to a four-year
collective bargaining agreement that will become amendable in July 1998.
World Airways' flight attendants, who are also represented by the Teamsters, are
subject to a four-year collective bargaining agreement that will expire in
August 2000. World Airways' flight attendants challenged the use of foreign
flight attendant crews on World Airways' flights for Malaysian Airlines and
Garuda Indonesia which has historically been its operating procedure. World
Airways is contractually obligated to permit its Southeast Asian customers to
deploy their own flight attendants. While the arbitrator in this matter
recently denied the Union's request for back pay to affected flight attendants
for flying relating to the 1994 Hadj, the arbitrator concluded that World
Airways' contract with its flight attendants requires World Airways to first
actively seek profitable business opportunities that require using its flight
attendants, before it may accept wet lease business opportunities that use the
flight attendants of its customers. World Airways can provide no assurances as
to how the imposition of this requirement will affect its financial condition
and results of operations.
World Airways' aircraft dispatchers are represented by the Transport Workers
Union (the "TWU"). This contract became amendable on June 30, 1993. In May 1995,
the parties reached agreement with respect to a new four-year contract. This
contract was ratified on February 7, 1996. Fewer than 12 Company employees are
covered by this collective bargaining agreement.
World Airways is unable to predict whether any of its employees not currently
represented by a labor union, such as its maintenance personnel, will elect to
be represented by a labor union or collective bargaining unit. The election by
such employees of representation in such an organization could result in
employee compensation and working condition demands that could have a material
adverse effect on the financial results of the Company.
DIVIDEND POLICY
WorldCorp has never paid any dividends and does not plan to do so for the
foreseeable future. The Purchase
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Agreement governing the Notes, and the Indenture governing the Company's
Debentures, in certain circumstances, restrict the Company form paying dividends
or making distributions on its common stock. As a holding company, all of
WorldCorp's funds are generated through its positions in World Airways and
InteliData, neither of whom intend to pay dividends in the foreseeable future.
In addition, World Airways' ability to pay dividends is currently restricted
under a borrowing arrangement.
INCOME TAXES
At December 31 1996, WorldCorp had approximately $53.1 million in net operating
loss carryforwards ("NOLs") that are available to offset future federal taxable
income.
There can be no assurance that the Company will generate taxable income in
future years so as to allow the Company to realize a tax benefit from its NOLs.
The NOLs are subject to examination by the IRS and, thus, are subject to
adjustment or disallowance resulting from any such IRS examination. In
addition, ownership changes of the Company, pursuant to the Internal Revenue
Code, may occur in the future and may result in the imposition of an annual
limitation on the Company's NOLs existing at the time of any such ownership
change. In addition, a portion of World Airways' NOLs are subject to an annual
limitation as a result of a previous ownership change, for tax purposes, which
occurred in 1991. World Airways does not file a consolidated income tax return
with the Company.
INFLATION
The Company believes that inflation has not had a material effect on the
Company's revenues during the past three years.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WORLDCORP, INC.
By: /s/ Mark S. Lynch
-----------------
(Mark S. Lynch)
Chief Financial Officer
Date: May 15, 1997
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
<TABLE>
<CAPTION>
(a) Exhibits
--------
Exhibit
No. Exhibit
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<S> <C> <C>
3.1 Certificate of Incorporation of WorldCorp, Inc. dated March 16, 1987. Incorporated
[Filed as Exhibit 3.1 to WorldCorp, Inc.'s Registration Statement on by reference
Form S-4 (Commission File No. 33012735) filed on March 19, 1987 and
incorporated herein by reference.]
3.2 Amended and Restated Bylaws of WorldCorp, Inc. dated November 13, Incorporated
1987. (Filed as Exhibit 3.1 to WorldCorp, Inc.'s Annual Report on by reference
Form 10-K for the fiscal year ended December 31, 1987 and
incorporated herein by reference.)
4.6 First Supplemental Indenture dated as of February 22, 1994 between Incorporated
WorldCorp, Inc. and The First National Bank of Boston, as Trustee. by reference
(Filed as Exhibit 4.6 to WorldCorp, Inc's Form S-3 Registration Statement
(Commission file No. 33-60247) filed on June 15, 1995 and
incorporated herein by reference.)
4.8 Stock Option Agreement dated as of April 1, 1995 between WorldCorp, Incorporated
Inc. and Patrick F. Graham. (Filed as Exhibit 4.8 to WorldCorp Inc's by reference
Form S-3 Registration Statement (Commission file No. 33-60247)
filed on June 15, 1995 and incorporated herein by reference.)
10.5 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 by reference
Party. [Filed as Exhibit 10.60 to WorldCorp, Inc.'s Form S-2
Registration Statement (Commission File No. 33-1358276) filed on
July 31, 1987 and incorporated herein by reference.]
10.14 Office Lease - The Hallmark Building dated as of May 16, Incorporated
1987 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, Inc. Incorporated
and Charles W. Pollard. (Filed as Exhibit 10.45 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.)
10.20 WorldCorp, Inc. Employee Savings and Stock Ownership Plan. (Filed as Incorporated
Exhibit 10.49 to WorldCorp, Inc.'s Annual Report on Form 10-K for the by reference
fiscal year ended December 31, 1989 and incorporated herein
by reference.)
10.21 Amendment No. 1 to WorldCorp Inc. Employee Savings and Stock Incorporated
Ownership Plan. (Filed as Exhibit 10.50 to WorldCorp, by reference
Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 and incorporated herein by reference.)
10.27 Aircraft Warranty Bill of Sale dated as of January 15, 1991 Incorporated
between World Airways, Inc. and First Security Bank of Utah, N.A., by reference
not in its individual capacity, but solely as Owner Trustee. (Filed
as Exhibit 10.46 to WorldCorp, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 and incorporated herein by
reference.)
10.28 Aircraft Lease Agreement dated as of January 15, 1991 between Incorporated
World Airways, Inc. and First Security Bank of Utah, N.A., not in by reference
its individual capacity, but solely as Owner Trustee. (Filed as
Exhibit 10.47 to WorldCorp, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 and incorporated
herein by reference.)
10.32 Aircraft Engine Purchase Agreement dated as of April 26, 1991 Incorporated
between Terandon Leasing Corporation and World Airways, Inc. by reference
(Filed as Exhibit 10.41 to WorldCorp, Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference.)
10.33 Aircraft Engine Lease Agreement dated as of April 26, 1991 Incorporated
between Terandon Leasing Corporation and World Airways, Inc. by reference
(Filed as Exhibit 10.42 to WorldCorp, Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference.)
10.34 Guaranty Agreement I dated as of February 12, 1992 between Incorporated
McDonnell Douglas Finance Corporation and World Airways, Inc. (Filed by reference
as Exhibit 10.43 to WorldCorp, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 and incorporated herein by
reference.)
10.35 Guaranty Agreement II dated as of February 12, 1992 between Incorporated
McDonnell Douglas Finance Corporation and World Airways, Inc. (Filed by reference
as Exhibit 10.44 to WorldCorp, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 and incorporated herein by
reference.)
10.38 Aircraft Lease Agreement for Aircraft Serial Number 48518 Incorporated
dated as 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 Incorporated
dated as of September 30, 1992 between World Airways, Inc. and by reference
International Lease Finance Corporation.
</TABLE>
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<TABLE>
<S> <C> <C>
10.40 Aircraft Lease Agreement for Aircraft Serial Number 48520 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.41 Aircraft Lease Agreement for Aircraft Serial Number 48633 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.42 Aircraft Lease Agreement for Aircraft Serial Number 48631 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.43 Aircraft Lease Agreement for Aircraft Serial Number 48632 dated as Incorporated
of September 30, 1992 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.46 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 Incorporated
WorldCorp, Inc. and BNY Financial Corporation. by reference
10.62 Consignment Agreement dated as of September 30, 1993 Incorporated
between World Airways Inc. and The Memphis Group. by reference
10.63 Assignment and Assumption and Consent and Release for Incorporated
Aircraft Serial Number 47818 dated as of July 20, 1993 among by reference
World Airways, Inc., WorldCorp, Inc., McDonnell Douglas
Corporation, and McDonnell Douglas Finance Corporation.
10.64 Assignment and Assumption and Consent and Release for Incorporated
Aircraft Serial Number 46999 dated as of July 9, 1993 among by reference
World Airways, Inc., WorldCorp, Inc., McDonnell Douglas
Corporation, and McDonnell Douglas Finance Corporation.
10.65 Aircraft Lease Agreement for Aircraft Serial Number 48458 Incorporated
dated as of January 15, 1993 between World Airways, Inc. and by reference
Wilmington Trust Company/GATX Capital Corporation.
10.66 Aircraft Lease Supplement for Aircraft Serial Number 48458 Incorporated
dated as of April 23, 1993 between World Airways, Inc. and by reference
Wilmington Trust 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.
</TABLE>
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<TABLE>
<S> <C> <C>
10.70 Assignment of Rights for Aircraft Serial Number 48518 dated as of Incorporated
March 8, 1993 between World Airways, Inc. and International Lease by reference
Finance Corporation.
10.71 Assignment of Rights for Aircraft Engines Serial Numbers P723942, Incorporated
P723945, and P723943 dated as of March 1, 1993 between World by reference
Airways, Inc. and International Lease Finance Corporation.
10.72 Agency Agreement for Aircraft Serial Number 48518 dated as of Incorporated
January 15, 1993 between World Airways, Inc. and International by reference
Lease Finance Corporation.
10.73 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48437 dated as of March 31, 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
10.74 Amendment No. 3 to Aircraft Lease Agreement for Aircraft Serial Incorporated
Number 48437 dated as of April 15, 1993 between World Airways, by reference
Inc. and International Lease Finance Corporation.
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 Incorporated
as of April 15, 1993 between World Airways, Inc. and by reference
International Lease Finance Corporation.
10.77 Assignment of Rights for Aircraft Engines Serial Numbers P723913, Incorporated
P723912, and P723914 dated as of April 15, 1993 between by reference
World 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 Incorporated
as of April 22, 1993 between World Airways, Inc. and by reference
International Lease 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.
</TABLE>
29
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<TABLE>
<S> <C> <C>
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 by reference
dated as 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, 1993. by reference
10.89 Shareholders Agreement between Malaysian Helicopter Services Incorporated
Berhad and WorldCorp, Inc., and World Airways, Inc. dated by reference
as of 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 Incorporated
Date") by and between WorldCorp, Inc. and T. Coleman Andrews, III. by reference
10.98 Agreement between World Airways, Inc. and the International Brotherhood Incorporated
of Teamsters representing the Cockpit Crewmembers employed by World by reference
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 by reference
Mobility Command.
10.105 Stock Purchase Agreement (the "Agreement") dated as of December 31, 1994 Incorporated
by and between MHS Berhad, a Malaysian corporation (the "Shareholder") by reference
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 by reference
World 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 by reference
margin loan.
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C>
10.110 Side Letter dated January 11, 1995 from Scott & Stringfellow, Inc. to Incorporated
William F. Gorog, Trustee of WorldCorp Employee Savings and Stock by reference
Ownership Plan for a margin loan to the WorldCorp ESSOP.
10.111 Guarantee Agreement dated January 11, 1995 by WorldCorp, Inc. Incorporated
("Guarantor") for the benefit of Scott & Stringfellow, Inc. (the by reference
"Lender").
10.112 Registration Rights Agreement dated as of January 11, 1995 by and Incorporated
between WorldCorp, Inc. and Scott & Stringfellow, Inc. by reference
10.113 Side Letter dated January 11, 1995 from WorldCorp, Inc. to Scott & Incorporated
Stringfellow, Inc. regarding commitment to make contributions to the by reference
WorldCorp Employee Savings and Stock Ownership Plan (the "ESSOP"),
for the duration of the Scott & Stringfellow loan to the ESSOP.
10.115 Amendment No. 2 to Passenger Aircraft Services and Freighter Incorporated
Aircraft Service Agreement dated February 9, 1995 by and by reference
between World Airways, Inc. and Malaysian Airline System
Berhad.
11 Statement on Calculation of Earnings (Loss) Per Common Share. Filed Herewith
27 Financial Data Schedule for the quarter ended March 31, 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
None.
* * * * * * * * * * * * * *
31
<PAGE>
EXHIBIT 11
WORLDCORP, INC. AND SUBSIDIARIES
CALCULATIONS OF EARNINGS (LOSS) PER COMMON SHARE
FOR THE THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Earnings (loss) from continuing operations $ 709 $ (6,592)
Loss from discontinued operations -- (2,481)
----------- -----------
Net earnings (loss) $ 709 $ (9,073)
=========== ===========
Weighted average common shares
outstanding 15,004,432 16,328,186
Weighted average options and warrants
treated as common stock equivalents -- --
----------- -----------
Primary and fully diluted number of shares 15,004,432 16,328,186
=========== ===========
PRIMARY NET EARNINGS (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE
Continuing operations $ 0.05 $ (0.41)
Discontinued operations -- (0.15)
----------- -----------
Net Earnings (loss) $ 0.05 $ (0.56)
=========== ===========
FULLY DILUTED NET EARNINGS (LOSS) PER
COMMON AND COMMON EQUIVALENT SHARE
Continuing operations $ * $ *
Discontinued operations * *
----------- -----------
Net loss $ * $ *
=========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WORLDCORP,
INC. 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> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,899
<SECURITIES> 0
<RECEIVABLES> 12,761
<ALLOWANCES> 413
<INVENTORY> 0
<CURRENT-ASSETS> 41,024
<PP&E> 90,162
<DEPRECIATION> 23,245
<TOTAL-ASSETS> 168,796
<CURRENT-LIABILITIES> 85,680
<BONDS> 0
0
0
<COMMON> 16,623
<OTHER-SE> (56,159)
<TOTAL-LIABILITY-AND-EQUITY> 168,796
<SALES> 0
<TOTAL-REVENUES> 78,748
<CGS> 0
<TOTAL-COSTS> 72,726
<OTHER-EXPENSES> 3,134
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,952
<INCOME-PRETAX> 2,888
<INCOME-TAX> 250
<INCOME-CONTINUING> 709
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 709
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0<F1>
<FN>
<F1>FULLY DILUTED EARNINGS PER SHARE ARE ANTI-DILUTIVE.
</FN>
</TABLE>
