<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
- - --------------------------------------------------------------------------------
For the Quarter ended: June 30, 1996 Commission File Number 0-26582
WORLD AIRWAYS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-1358276
(State of incorporation) (I.R.S. Employer Identification Number)
13873 Park Center Road, Suite 490, Herndon, VA 20171
(Address of Principal Executive Offices)
(703) 834-9209
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---------- ----------
The number of shares of the registrant's Common Stock outstanding on August 8,
1996 was 12,000,064.
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1
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WORLD AIRWAYS, INC.
JUNE 1996, QUARTERLY REPORT ON FORM 10Q
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets, June 30, 1996 and December 31, 1995.....3
Condensed Statements of Operations,
Three Months Ended June 30, 1996 and 1995.........................5
Condensed Statements of Operations,
Six Months Ended June 30, 1996 and 1995...........................6
Condensed Statement of Changes in Common Stockholders' Equity,
Six months ended June 30, 1996....................................7
Condensed Statements of Cash Flows,
Six months ended June 30, 1996 and 1995...........................8
Notes to Condensed Financial Statements...........................9
Exhibit 11, Calculations of Loss Per Common Share................11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................24
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
WORLD AIRWAYS, INC.
CONDENSED BALANCE SHEETS
ASSETS
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
1996 1995
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents, including
restricted cash of $160 at June 30,
1996 and $619 at December 31, 1995 $ 18,912 $ 25,271
Restricted short-term investments 1,029 909
Trade accounts receivable, less allowance for
doubtful accounts of $358 at June 30, 1996
and $258 at December 31, 1995 31,266 15,472
Other receivables 3,647 3,314
Prepaid expenses and other current assets 6,255 9,882
Assets held for sale 700 700
-------- --------
Total current assets 61,809 55,548
-------- --------
ASSETS HELD FOR SALE 2,036 2,308
EQUIPMENT AND PROPERTY
Flight and other equipment 69,658 54,460
Equipment under capital leases 11,466 11,466
-------- --------
81,124 65,926
Less accumulated depreciation and amortization 16,194 13,497
-------- --------
Net equipment and property 64,930 52,429
-------- --------
LONG-TERM OPERATING DEPOSITS 16,188 16,157
OTHER ASSETS AND DEFERRED CHARGES 3,365 4,253
-------- --------
TOTAL ASSETS $148,328 $130,695
======== ========
</TABLE>
(Continued)
3
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED BALANCE SHEETS
(continued)
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
June 30, December 31,
1996 1995
----------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 11,308 $ 6,764
Current maturities of long-term obligations 8,873 9,398
Deferred aircraft rent 219 533
Accounts payable 18,762 15,278
Net liabilities of discontinued operations 25,142 --
Unearned revenue 7,137 10,417
Air traffic liability -- 2,332
Accrued maintenance in excess of reserves paid 14,459 8,919
Accrued salaries and wages 9,233 8,716
Accrued taxes 2,237 1,485
Due to affiliate 734 405
Other accrued liabilities 115 184
-------- --------
Total current liabilities 98,219 64,431
-------- --------
LONG-TERM OBLIGATIONS 25,725 20,417
OTHER LIABILITIES
Deferred gain from sale-leaseback transactions,
net of accumulated amortization of $18,572 at
June 30, 1996 and $18,041 at December 31, 1995 6,780 7,310
Accrued maintenance in excess of reserves paid 3,832 3,579
Accrued postretirement benefits 2,612 2,596
Other liabilities 2,766 2,022
-------- --------
Total other liabilities 15,990 15,507
-------- --------
TOTAL LIABILITIES 139,934 100,355
-------- --------
COMMON STOCKHOLDERS' EQUITY
Common stock, $.001 par value (20,000,000 shares
authorized, 12,000,064 shares issued and outstanding
at June 30, 1996 and December 31, 1995) 12 12
Additional paid-in capital 42,299 42,312
Contributed capital 3,000 3,000
Accumulated deficit (36,917) (14,984)
-------- --------
Total common stockholders' equity 8,394 30,340
-------- --------
TOTAL LIABILITIES AND COMMON
STOCKHOLDERS' EQUITY $148,328 $130,695
======== ========
</TABLE>
See accompanying Notes to Condensed Financial Statements
4
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended June 30,
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
OPERATING REVENUES
Flight operations $ 80,446 $68,939
Flight operations subcontracted to other carriers 6,048 6,651
Other 123 188
-------- -------
Total operating revenues 86,617 75,778
-------- -------
OPERATING EXPENSES
Flight 14,999 15,997
Maintenance 15,964 12,574
Aircraft costs 22,837 19,335
Fuel 2,577 2,863
Flight operations subcontracted to other carriers 6,952 6,686
Promotions, sales and commissions 704 50
Depreciation and amortization 1,911 1,651
General and administrative 5,402 4,141
-------- -------
Total operating expenses 71,346 63,297
-------- -------
OPERATING INCOME 15,271 12,481
-------- -------
OTHER INCOME (EXPENSE)
Interest expense (855) (916)
Interest income 331 212
Other, net 27 507
-------- -------
Total other expense (497) (197)
-------- -------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 14,774 12,284
INCOME TAX EXPENSE (315) (351)
-------- -------
EARNINGS FROM CONTINUING OPERATIONS 14,459 11,933
DISCONTINUED OPERATIONS
Loss from discontinued operations (less applicable income
tax benefit of $83 in 1996 and $80 in 1995) (7,533) (999)
Loss on disposal (less applicable income tax benefit
of $232 in 1996) (20,985) --
-------- -------
NET EARNINGS (LOSS) $(14,059) $10,934
======== =======
EARNINGS (LOSS) PER COMMON EQUIVALENT SHARE:
Continuing operations $1.20 $1.18
Discontinued operations (2.37) (0.10)
-------- -------
Net earnings (loss) $(1.17) $1.08
======== =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 12,000 10,126
======== =======
</TABLE>
See accompanying Notes to Condensed Financial Statements
5
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30,
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
OPERATING REVENUES
Flight operations $144,829 $108,297
Flight operations subcontracted to other carriers 6,861 7,344
Other 319 674
-------- --------
Total operating revenues 152,009 116,315
-------- --------
OPERATING EXPENSES
Flight 35,315 28,893
Maintenance 30,493 20,587
Aircraft costs 41,452 32,857
Fuel 8,070 5,933
Flight operations subcontracted to other carriers 8,013 7,353
Promotions, sales and commissions 1,678 69
Depreciation and amortization 3,894 2,637
General and administrative 11,148 8,463
-------- --------
Total operating expenses 140,063 106,792
-------- --------
OPERATING INCOME 11,946 9,523
-------- --------
OTHER INCOME (EXPENSE)
Interest expense (1,576) (1,793)
Interest income 652 326
Other, net 65 544
-------- --------
Total other expense (859) (923)
-------- --------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 11,087 8,600
INCOME TAX EXPENSE (315) (351)
-------- --------
EARNINGS FROM CONTINUING OPERATIONS 10,772 8,249
DISCONTINUED OPERATIONS
Loss from discontinued operations (less applicable income
tax benefit of $83 in 1996 and $80 in 1995) (11,720) (1,115)
Loss on disposal (less applicable income tax
benefit of $232 in 1996) (20,985) --
-------- --------
NET EARNINGS (LOSS) $(21,933) $ 7,134
======== ========
EARNINGS (LOSS) PER COMMON EQUIVALENT SHARE:
Continuing operations $0.90 $0.81
Discontinued operations (2.73) (0.11)
-------- --------
Net earnings (loss) $(1.83) $0.70
======== ========
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 12,000 10,126
======== ========
</TABLE>
See accompanying Notes to Condensed Financial Statements
6
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENT OF CHANGES
IN COMMON STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1996
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Total
Additional Common
Common Paid-in Contributed Accumulated Stockholders'
Stock Capital Capital Deficit Equity
------ ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1995 $12 $42,312 $3,000 $(14,984) $ 30,340
Costs relating to the sale
of common stock in
public offering -- (13) -- -- (13)
Net loss -- -- -- (21,933) (21,933)
------ ---------- ----------- ----------- --------
BALANCE AT
JUNE 30, 1996 $12 $42,299 $3,000 $(36,917) $ 8,394
====== ========== =========== =========== ========
</TABLE>
See accompanying Notes to Condensed Financial Statements
7
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $ 25,271 $ 4,054
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) (21,933) 7,134
Adjustments to reconcile net loss to cash
provided (used) by operating activities:
Depreciation and amortization 3,894 2,637
Deferred gain recognition (531) (531)
Deferred aircraft rent payments, net -- 153
Gain on sale of property and equipment (14) (33)
Loss on disposal of discontinued operations 20,985 --
Other -- 139
Changes in certain assets and liabilities net of
effects of non-cash transactions:
Increase in accounts receivable (16,127) (5,044)
Increase in restricted short-term investments (120) (100)
Decrease in deposits, prepaid expenses
and other assets 1,529 6
Increase in accounts payable, accrued
expenses and other liabilities 9,699 7,649
Decrease in unearned revenue (3,280) (728)
Increase in air traffic liability 4,878 1,370
-------- --------
Net cash provided (used) by operating activities (1,020) 12,652
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property (4,788) (10,712)
Proceeds from disposals of equipment and property 322 527
-------- --------
Net cash used by investing activities (4,466) (10,185)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in line of credit borrowing arrangement, net 7,668 4,111
Issuance of debt 361 6,202
Repayment of debt (8,889) (14,187)
Borrowing from affiliate -- 1,800
Costs relating to sale of stock (13) --
-------- --------
Net cash used by financing activities (873) (2,074)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,359) 393
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,912 $ 4,447
======== ========
</TABLE>
See accompanying Notes to Condensed Financial Statements
8
<PAGE>
WORLD AIRWAYS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. The condensed balance sheet of World Airways, Inc. ("World Airways" or
the "Company") as of June 30, 1996, the related condensed statements of
operations for the three and six month periods ended June 30, 1996 and 1995,
the condensed statement of changes in common stockholders' equity for the six
months ended June 30, 1996, and the condensed statements of cash flows for
the six months ended June 30, 1996 and 1995 are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such
financial statements have been included. With the exception of an adjustment
for discontinued operations, adjustments consisted only of normal recurring
items. Interim results are not necessarily indicative of results for a full
year.
The condensed financial statements and notes are presented as required by
Form 10-Q and do not contain certain information included in the Company's
annual financial statements and notes. These financial statements should be
read in conjunction with the financial statements and the notes included in
the Company's Form 10-K for the year ended December 31, 1995.
2. In July 1996, the Company announced its decision to exit its scheduled
service operations by October 1996 and focus its operations on its core
business: operating aircraft under contracts with international carriers,
the U.S. Government, and international tour operators. As a result, the
Company's scheduled service operations have been reflected as discontinued
operations in the accompanying June 30, 1996, condensed financial statements.
Loss from discontinued operations (net of income tax effect) approximated
$7.5 million and $11.7 million for the quarter and six months ended June 30,
1996, respectively. In addition, an estimated loss on disposal of $21.0
million (net of income tax effect) was recorded as of June 30, 1996, which
includes the following: $13.6 million for estimated operating losses during
the phase-out period; a $2.6 million estimated loss to be incurred in
connection with sub-leasing three DC-10 aircraft which will not be utilized
in the Company's operations subsequent to the phase-out of scheduled service
operations; a $2.3 million writeoff of related leasehold improvements; and
$2.0 million for passenger reprotection expenses. Other than the leased
aircraft utilized in scheduled service operations, the Company does not have
any significant assets related to its discontinued operations. The Company
expects to meet all cash requirements of this phase-out period during the
third and fourth quarters of 1996 and expects to satisfy these obligations
with income generated from its continuing operations and financings
consummated to date. Prior period results of operations have been restated
to reflect scheduled service operations as discontinued operations.
3. In November 1995, the Company signed a letter of intent with the
manufacturer to lease two MD-11ER aircraft to be delivered in the first
quarter of 1996. The agreement was completed in March 1996. Under the
agreement, the Company leased each aircraft for a term of 24 years with an
option to return the aircraft after a seven year period with certain fixed
termination fees. As part of the agreement, $1.2 million in deposits
previously paid to the manufacturer in 1992 was applied towards these two
aircraft. In addition, the Company received spare parts financing from the
lessor of $9.0 million of which $3.0 million was made available with the
delivery of each aircraft, and the remaining $3.0 million will be made
available in December 1996. As of June 30, 1996, approximately $3.3 million
had been received. Finally, the Company agreed to assume an existing lease of
two additional MD-11 freighter aircraft for 20 years, beginning in 1999, in
the event that the other lessee terminates its lease with the manufacturer at
that time.
4. The Company purchased a spare engine which was delivered in March 1996 for
approximately $8.0 million. The Company entered into an agreement with the
engine's manufacturer to finance 80% of the purchase price over a seven-year
term. The Company made payments of $1.2 million and $0.4 million towards
this purchase in September 1995 and January 1996, respectively.
5. Effective June 30, 1996, the Company amended its Credit Agreement with BNY
Financial Corporation ("BNY") to include the following: a $10.5 million
spare parts loan (of which $5.6 million was outstanding at June 30, 1996), an
$8.0 million revolving line of credit, and a new $5.0 million term loan. The
$5.0 million was received in August 1996. This amended Credit Agreement,
which expires in 1999, is collateralized by certain receivables, inventory,
and equipment. As of June 30, 1996, the revolving line of credit was fully
utilized.
9
<PAGE>
6. For a discussion of commitments and contingencies see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Other Matters".
7. On January 1, 1996, the Company adopted Financial Accounting Standards
Board Statements of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
of ("Statement 121") and No. 123, Accounting for Stock-based Compensation
("Statement 123"). Statement 121 requires that the Company review its long-
lived assets for impairment whenever events or circumstances indicate that
the carrying amount of an asset may not be recoverable. To the extent that
the future undiscounted net cash flows expected to be generated from an asset
are less than the carrying amount of the asset, an impairment loss will be
recognized based on the difference between the asset's carrying amount and
its fair market value. The adoption of Statement 121 had no impact on the
accompanying financial statements.
Statement 123 recommends, but does not require, the adoption of a fair
value based method of accounting for stock-based compensation to employees,
including common stock options. The Company has elected to continue recording
stock-based compensation to employees under the intrinsic value method of
accounting for stock-based compensation to employees as permitted by
Statement 123. Certain pro forma disclosures will be included in the
Company's Form 10-K for the year ending December 31, 1996 as if the fair
value based method had been adopted.
10
<PAGE>
EXHIBIT 11
1 of 2
WORLD AIRWAYS, INC.
CALCULATIONS OF EARNINGS (LOSS) PER COMMON SHARE
For the Three Months Ended June 30,
(in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Earnings from continuing operations
applicable to common stock $ 14,459 $ 11,933
Discontinued operations (28,518) (999)
----------- -----------
Net earnings (loss) applicable to common stock $ (14,059) $ 10,934
=========== ===========
Weighted average common shares outstanding 12,000,064 10,000,064
Weighted average options and warrants treated
as common stock equivalents -- 126,390
----------- -----------
Primary and fully diluted number of shares 12,000,064 10,126,454
=========== ===========
EARNINGS (LOSS) PER COMMON EQUIVALENT SHARE:
Continuing operations $ 1.20 $ 1.18
Discontinued operations (2.37) (0.10)
----------- -----------
Net earnings (loss) $ (1.17) $ 1.08
=========== ===========
</TABLE>
11
<PAGE>
EXHIBIT 11
2 of 2
WORLD AIRWAYS, INC.
CALCULATIONS OF EARNINGS (LOSS) PER COMMON SHARE
For the Six Months Ended June 30,
(in thousands except share data)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Earnings from continuing operations
applicable to common stock $ 10,772 $ 8,249
Discontinued operations (32,705) (1,115)
----------- -----------
Net earnings (loss) applicable to common stock $ (21,933) $ 7,134
=========== ===========
Weighted average common shares outstanding 12,000,064 10,000,064
Weighted average options and warrants treated
as common stock equivalents -- 126,390
----------- -----------
Primary and fully diluted number of shares 12,000,064 10,126,454
=========== ===========
EARNINGS (LOSS) PER COMMON EQUIVALENT SHARE:
Continuing operations $ 0.90 $ 0.81
Discontinued operations (2.73) (0.11)
----------- -----------
Net earnings (loss) $ (1.83) $ 0.70
=========== ===========
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- - --------------------------------------------------------------------------------
OF OPERATIONS
-------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations presented below relates to the operations of World Airways, Inc.
("World Airways" or "the Company") as reflected in its financial statements.
World Airways was organized in March 1948 and became a wholly owned subsidiary
of WorldCorp, Inc. ("WorldCorp") in a holding company reorganization in 1987.
In February 1994, pursuant to an October 1993 agreement, WorldCorp sold 24.9% of
its ownership to MHS Berhad ("MHS"), a Malaysian aviation company. Effective
December 31, 1994, WorldCorp increased its ownership in the Company to 80.1%
through the purchase of 5% of World Airways common stock held by MHS. In
October 1995, the Company completed an initial public offering in which
2,000,000 shares were issued and sold by the Company and 900,000 shares were
sold by WorldCorp. WorldCorp and MHS Berhad ("MHS") currently own 59.3% and
16.6%, respectively, of the outstanding common stock of World Airways. The
balance is publicly traded.
The managements of WorldCorp and World Airways are currently exploring ways
to maximize value for the shareholders of each company. In addition to employee
initiatives, WorldCorp is evaluating the feasibility of a spinoff of its
interest in World Airways or a disposition to a third party. There can be no
assurances, however, that any such transactions will ultimately be consummated.
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 of the Act. Therefore, this report contains forward
looking statements that are subject to risks and uncertainties, including, but
not limited to, the continued performance of the Company's Tel Aviv and
Johannesburg routes through the withdrawal dates, the continued performance of
the Company's scheduled charter programs through the 1996 summer season, the
reliance on key strategic alliances, fluctuations in operating results and other
risks detailed from time to time in the Company's filings with the Securities
and Exchange Commission, including risk factors disclosed in the Company's Form
10-K for the fiscal year ended December 31, 1995. These risks could cause the
Company's actual results for 1996 and beyond to differ materially from those
expressed in any forward looking statements made by, or on behalf of, the
Company.
OVERVIEW
General
The Company earns revenue primarily in three distinct markets within the air
transportation industry: passenger and cargo services to major international air
carriers; passenger and cargo services, on a fixed and ad hoc basis, to the U.S.
Government; and international tour operators in leisure passenger markets. In
July 1996, the Company announced its decision to exit its scheduled service
operations by October 1996 (see Recent Trends and Developments - Discontinuation
of Scheduled Service Operations). The remainder of this overview relates to the
Company's continuing operations.
The Company 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. The
Company provides most services under two types of contracts: basic contracts and
full service contracts. Under basic contracts, the Company 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, the Company provides fuel, catering, ground handling,
cabin crew and all related support services as well. Accordingly, the Company
generally charges a lower rate per block hour for basic contracts than full
service contracts, although it does not necessarily earn a lower profit. Because
of shifts in the mix between full service contracts and basic contracts,
fluctuations in revenues are not necessarily indicative of volume trends or
profitability. It is important, therefore, to measure the Company's business
volume by block hours flown and to measure profitability by operating income per
block hour.
As is common in the air transportation industry, the Company has relatively
high fixed aircraft costs. While the Company believes that the lease rates on
its MD-11 aircraft are favorable relative to lease rates of other MD-11
13
<PAGE>
operators, the Company's MD-11 aircraft have higher lease costs (although lower
operating costs) than its DC10-30 aircraft. Therefore, achieving high average
daily utilization of its aircraft (particularly its MD-11 aircraft) at
attractive yields are two of the most critical factors to the Company's
financial results. In addition to fixed aircraft costs, a portion of the
Company's labor costs are fixed due to monthly minimum guarantees to cockpit
crewmembers and flight attendants.
Customers
The Company's business relies heavily on its contracts with Malaysian
Airline System Berhad ("Malaysian Airlines"), P.T. Garuda Indonesia ("Garuda")
and the U.S. Air Force's Air Mobility Command ("AMC"). These customers provided
approximately 39%, 10%, and 20%, respectively, of the Company's revenues and
46%, 10%, and 13%, respectively, of the total block hours during 1995. For the
first six months of 1996, these customers provided approximately 35%, 23%, and
17%, respectively, of the Company's revenues and 43%, 25%, and 11%,
respectively, of total block hours.
World Airways has provided service to Malaysian Airlines since 1981,
providing wet lease services for Malaysian Airlines' scheduled passenger and
cargo operations as well as transporting passengers for the annual Hadj
pilgrimage. In 1996, World Airways provided three aircraft for Hadj operations.
The current five-year Hadj contract with Malaysian Airlines expired after the
1996 Hadj. The Company is currently in negotiations with Malaysian Airlines
regarding future Hadj operations.
As a means of improving aircraft utilization, the Company entered into a
series of multi-year contracts, with expiration dates running from 1997 through
2000, to provide basic services to Malaysian Airlines. One contract provides for
the Company's operation of three MD-11 freighter aircraft for a five-year period
for a combined guaranteed minimum of 1,200 hours per month (except when an
aircraft is in scheduled maintenance). The lease for one of the aircraft
commenced in June 1994, and the leases for the other two aircraft commenced in
June and July 1995. A second contract provides for each of two of the Company's
MD-11 passenger aircraft to operate a guaranteed minimum of 320 hours per month
from October 1994 through March 1997. For 1995 and the first six months of 1996,
29% and 25%, respectively, of the Company's revenues and 37% and 36%,
respectively, of the Company's block hours flown resulted from these multi-year
contracts with Malaysian Airlines.
The Company has provided international air transportation to the U.S. Air
Force since 1956. As compensation for pledges of aircraft to the Civil Reserve
Air Fleet ("CRAF") for use in times of national emergency, the U.S. Air Force
awards contracts to CRAF participants for peacetime transportation of personnel
and cargo. The U.S. Air Force awards contracts to air carriers acting alone or
through teaming arrangements in proportion to the number and type of aircraft
that the carriers make available to CRAF. As a result of the Company's
increasingly effective use of teaming arrangements, the Company's fixed awards
have grown in recent years and the Company has the largest U.S. Air Force fixed
award under the CRAF program for the U.S. Government's 1995-96 fiscal year. The
current annual contract commenced on October 1, 1995 and expires on September
30, 1996. These contracts provide for a fixed level of scheduled business from
the U.S. Air Force with opportunities for additional short-term expansion
business on an ad hoc basis as needs arise. The Company's fixed award for the
current contract is $55.4 million compared to the $33.9 million fixed award for
the prior contract. For the contract year commencing October 1, 1996, the
Company recently received its fixed award totaling $54.6 million. Due to the
utilization of a significant number of the Company's aircraft under multi-year
contracts and other contractual commitments, it is unlikely that the Company
will be able to accept all of the available expansion business. Although overall
Defense Department spending is being reduced, the level of U.S. Air Force
contract awards has remained relatively constant in recent years. World Airways,
however, cannot determine how future cuts in military spending may affect future
operations with the U.S. Air Force.
World Airways has provided wet lease services to Garuda since 1973
(operating under an annual Hadj contract since 1988). The Company operated seven
aircraft in the 1996 Garuda Hadj.
In addition to these customers, the Company recently entered into an
agreement with Philippine Airlines, Inc. ("Philippine Airlines") to provide four
MD-11 aircraft under year-round wet lease contracts. The first two aircraft
began flying for Philippine Airlines in June and July 1996, with the remaining
two aircraft scheduled to commence operations in October 1996. Under the
agreement, each aircraft will operate for an 18-month term. In addition,
Philippine Airlines has an option for the Company to operate a DC10-30 cargo
aircraft beginning late in 1996.
14
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As a result of these and other contracts, the Company had an overall
contract backlog at June 30, 1996 of $532.6 million. The Company's backlog for
each contract is determined by multiplying the minimum number of block hours
guaranteed under the applicable contract by the specified hourly rate under such
contract. Approximately 52% of the backlog (including a majority of the backlog
beginning in 1997) relates to the multi-year contracts with Malaysian Airlines.
The loss of any of these contracts or a substantial reduction in business from
any of these key customers, if not replaced, would have a material adverse
effect on the Company's financial condition and results of operations.
Seasonality
Historically, the Company's business has been significantly affected by
seasonal factors. During the first quarter, the Company typically experiences
lower levels of utilization and yields as demand for passenger and cargo
services is lower relative to other times of the year. The Company experiences
higher levels of utilization in the second quarter, principally due to peak
demand for commercial passenger services associated with the annual Hadj
pilgrimage. During 1996, the Company's flight operations associated with the
Hadj pilgrimage occurred from March 22 to June 1. Because the Hadj occurs
approximately 10 to 12 days earlier each year, revenues resulting from future
Hadj contracts will begin to shift from the second quarter to the first quarter
over the next several years. Fourth quarter utilization depends primarily on the
demand for air cargo services in connection with the shipment of merchandise in
advance of the U.S. holiday season.
As discussed above, the Company announced its decision to exit scheduled
service operations by October 1996 to focus on its core business: operating
aircraft under contracts with international carriers, the U.S. Government, and
international tour operators. The Company believes that its year-round contracts
with Malaysian Airlines, Philippine Airlines, and the U.S. Air Force should
lessen the effect of these seasonal factors.
Aviation Fuel
The Company's source of aviation fuel is primarily from major oil companies,
under annual delivery contracts, at often frequented commercial locations, and
from United States military organizations at military bases. The Company's
current fuel purchasing policy consists of the purchase of fuel within seven
days in advance of all flights based on current prices set by individual
suppliers. More than one supplier is under contract at several locations. The
Company purchases no fuel under long-term contracts nor does the Company enter
into futures or fuel swap contracts.
The air transportation industry in general is affected by the price and
availability of aviation fuel. Both the cost and availability of aviation fuel
are subject to many economic and political factors and events occurring
throughout the world and remain subject to the various unpredictable economic
and market factors that affect the supply of all petroleum products.
Fluctuations in the price of fuel has not had a significant impact on the
Company's operations in recent years. The Company's exposure to fuel risk is
limited because (i) under the terms of the Company's basic contracts, the
customer is responsible for providing fuel, (ii) under the terms of its full
service contracts with the U.S. Government, the Company is reimbursed for the
cost of fuel it provides, and (iii) under the Company's charter contracts, the
Company is reimbursed for fuel price increases in excess of 5% of the price
agreed upon in the contract, subject to a 10% cap. However, a substantial
increase in the price or the unavailability of aviation fuel could have a
material adverse effect on the air transportation industry in general and the
financial condition and results of operations of the Company, in particular.
RESULTS OF OPERATIONS
In July 1996, the Company announced its decision to exit its scheduled
service operations by October 1996 resulting in a loss of approximately $28.5
million (net of income tax effect) which was recognized in the second quarter of
1996 (see Recent Trends and Developments - Discontinuation of Scheduled Service
Operations). Prior period results of operations have been restated to reflect
the scheduled service operations as discontinued operations.
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Total block hours increased 3,594 hours, or 35%, to 13,907 hours in the
second quarter of 1996 from 10,313 hours in the comparable 1995 period, with an
average of 14.9 available aircraft per day in 1996 compared to 11.1
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<PAGE>
in 1995. Average daily utilization (block hours flown per day per aircraft) was
10.2 hours in each period. In the second quarter of 1996, basic contracts
accounted for 80% of total block hours, down from 86% in 1995 as a result
of scheduled service operations.
Continuing Operations
- - ---------------------
Block hours from continuing operations increased 1,859 hours, or 18%, to
12,172 hours in the second quarter of 1996 from 10,313 hours in the comparable
1995 period.
Operating Revenues. Revenues from flight operations increased $11.5 million,
------------------
or 17%, to $80.4 million in the second quarter of 1996 from $68.9 million in
1995. This increase was primarily attributable to an increase in revenues
generated from the multi-year contracts with Malaysian Airlines. In addition,
the Company realized an increase in revenues generated from its 1996 Hadj
operations and services to certain international carriers. These increases were
partially offset by a decrease in cargo revenue primarily due to downtime
associated with the scheduled maintenance of one aircraft in the second quarter
of 1996.
Operating Expenses. Total operating expenses increased $8.0 million, or
------------------
13%, in the second quarter of 1996 to $71.3 million from $63.3 million in 1995.
Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft cost, fuel and maintenance. Also
included are expenses related to flight dispatch and flight operations
administration. Despite increased crew costs associated with the increase in
block hours flown, flight operations expenses decreased $1.0 million, or 6%, in
1996 to $15.0 million from $16.0 million in 1995. In 1995, the Company accrued
profit sharing expenses as a result of earnings experienced during that period.
No such accrual is necessary in 1996 as a result of anticipated losses from the
discontinuation of scheduled service operations. In addition, the Company
reversed its estimated profit sharing expense which had been recorded in the
first quarter of 1996.
Maintenance expenses increased $3.4 million, or 27%, in 1996 to $16.0
million from $12.6 million in 1995. This increase resulted primarily from the
integration of additional aircraft into the fleet and a corresponding increase
in block hours flown.
Aircraft costs increased $3.5 million, or 18%, in 1996 to $22.8 million from
$19.3 million in 1995. This increase was primarily due to the lease of two MD-
11ER aircraft in the first quarter of 1996 and the lease of incremental DC10-30
aircraft which began in the fourth quarter of 1995 and the first quarter of
1996, partially offset by the return of two DC10-30 aircraft to the lessor in
the third quarter of 1995.
Fuel expenses decreased $0.3 million, or 10%, in 1996 to $2.6 million from
$2.9 million in 1995. This decrease is due primarily from a decrease in full
service block hours partially offset by a slight increase in price per gallon.
Promotions, sales and commissions were $0.7 million in the second quarter of
1996 compared to a relatively insignificant amount in 1995. This increase
resulted primarily from an increase in teaming arrangement commissions
associated with the larger fixed-award contract received from the U.S. Air Force
beginning October 1995.
Depreciation and amortization increased $0.2 million, or 12%, in 1996 to
$1.9 million from $1.7 million in 1995. This increase resulted primarily from an
increase in spare parts required to support the additional MD-11 aircraft and
incremental DC10-30 aircraft described above as well as the amortization of
certain aircraft integration costs and other deferred costs.
General and administrative expenses increased $1.3 million, or 32%, in 1996
to $5.4 million from $4.1 million in 1995. This increase was primarily due to
the hiring of additional administrative personnel and an increase in certain
legal and professional fees.
Discontinued Operations
- - -----------------------
In July 1996, the Company announced its decision to exit its scheduled
service operations by October 1996 and focus its operations on its core
business: operating aircraft under contracts with international carriers, the
U.S. Government, and international tour operators. As a result, the Company's
scheduled service operations have been
16
<PAGE>
reflected as discontinued operations in the accompanying June 30, 1996,
condensed financial statements. Loss from discontinued operations (net of income
tax effect) approximated $7.5 million for the quarter ended June 30, 1996. In
addition, an estimated loss on disposal of $21.0 million (net of income tax
effect) was recorded as of June 30, 1996, which includes the following: $13.6
million for estimated operating losses during the phase-out period; a $2.6
million estimated loss to be incurred in connection with sub-leasing three DC-10
aircraft which will not be utilized in the Company's operations subsequent to
the phase-out of scheduled service operations; a $2.3 million writeoff of
related leasehold improvements; and $2.0 million for passenger reprotection
expenses. Other than the leased aircraft utilized in scheduled service
operations, the Company does not have any significant assets related to its
discontinued operations. The Company expects to meet all cash requirements of
this phase-out period during the third and fourth quarters of 1996 and expects
to satisfy these obligations with income generated from its continuing
operations and financings consummated to date. Prior period results of
operations have been restated to reflect scheduled service operations as
discontinued operations.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Total block hours increased 7,316 hours, or 42%, to 24,541 hours in the
first six months of 1996 from 17,225 hours in the comparable 1995 period, with
an average of 13.3 available aircraft per day in 1996 compared to 9.7 in 1995.
Average daily utilization (block hours flown per day per aircraft) increased to
10.2 hours in 1996 from 9.8 hours in 1995. In the first six months of 1996,
basic contracts accounted for 74% of total block hours, down from 82% in
1995 as a result of increased scheduled service operations.
Continuing Operations
- - ---------------------
Block hours from continuing operations increased 4,782 hours, or 28%, to
22,007 hours in the first six months of 1996 from 17,225 hours in the comparable
1995 period.
Operating Revenues. Revenues from flight operations increased $36.5 million,
------------------
or 34%, to $144.8 million in the first six months of 1996 from $108.3 million in
1995. This increase was primarily attributable to an increase in military flying
and an increase in revenues generated from the multi-year contracts with
Malaysian Airlines. In addition, the Company realized an increase in revenues
generated from its 1996 Hadj operations and services to certain international
carriers.
Operating Expenses. Total operating expenses increased $33.3 million,
------------------
or 31%, in the first six months of 1996 to $140.1 million from $106.8 million
in 1995.
Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft cost, fuel and maintenance. Also
included are expenses related to flight dispatch and flight operations
administration. Flight operations expenses increased $6.4 million, or 22%, in
1996 to $35.3 million from $28.9 million in 1995. This increase resulted
primarily from an increase in block hours flown and higher crew costs and up-
front training expenses in connection with the integration of additional
aircraft into the fleet after June 30, 1995. These increases were partially
offset by a decrease in accrued profit sharing expenses. In 1995, the Company
accrued profit sharing expenses as a result of earnings experienced during that
period. No such accrual is necessary in 1996 as a result of anticipated losses
from the discontinuation of scheduled service operations.
Maintenance expenses increased $9.9 million, or 48%, in 1996 to $30.5
million from $20.6 million in 1995. This increase resulted primarily from the
integration of additional aircraft into the fleet and a corresponding increase
in block hours flown.
Aircraft costs increased $8.6 million, or 26%, in 1996 to $41.5 million from
$32.9 million in 1995. This increase was primarily due to the lease of two MD-
11ER aircraft in the first quarter of 1996 and the lease of incremental DC10-30
aircraft which began in the second and fourth quarters of 1995 and the first
quarter of 1996, partially offset by the return of two DC10-30 aircraft to the
lessor in the third quarter of 1995.
Fuel expenses increased $2.2 million, or 37%, in 1996 to $8.1 million from
$5.9 million in 1995. This increase is due primarily to an increase in fuel
utilized in connection with its military operations.
Promotions, sales and commissions were $1.7 million in the first six months
of 1996 compared to a relatively
17
<PAGE>
insignificant amount in 1995. This increase resulted primarily from an increase
in teaming arrangement commissions associated with the larger fixed-award
contract received from the U.S. Air Force beginning October 1995.
Depreciation and amortization increased $1.3 million, or 50%, in 1996 to
$3.9 million from $2.6 million in 1995. This increase resulted primarily from an
increase in spare parts required to support the additional MD-11 aircraft and
incremental DC10-30 aircraft described above as well as the amortization of
certain aircraft integration costs and other deferred costs.
General and administrative expenses increased $2.6 million, or 31%, in 1996
to $11.1 million from $8.5 million in 1995. This increase was primarily due to
the hiring of additional administrative personnel necessary to support the
growth in the Company's core business and an increase in certain legal and
professional fees.
Discontinued Operations
- - -----------------------
In July 1996, the Company announced its decision to exit its scheduled
service operations by October 1996 and focus its operations on its core
business: operating aircraft under contracts with international carriers, the
U.S. Government, and international tour operators. As a result, the Company's
scheduled service operations have been reflected as discontinued operations in
the accompanying June 30, 1996, condensed financial statements. Loss from
discontinued operations (net of income tax effect) approximated $11.7 million
for the six months ended June 30, 1996. In addition, an estimated loss on
disposal of $21.0 million (net of income tax effect) was recorded as of June 30,
1996, which includes the following: $13.6 million for estimated operating losses
during the phase-out period; a $2.6 million estimated loss to be incurred in
connection with sub-leasing three DC-10 aircraft which will not be utilized in
the Company's operations subsequent to the phase-out of scheduled service
operations; a $2.3 million writeoff of related leasehold improvements; and $2.0
million for passenger reprotection expenses. Other than the leased aircraft
utilized in scheduled service operations, the Company does not have any
significant assets related to its discontinued operations. The Company expects
to meet all cash requirements of this phase-out period during the third and
fourth quarters of 1996 and expects to satisfy these obligations with income
generated from its continuing operations and financings consummated to date.
Prior period results of operations have been restated to reflect scheduled
service operations as discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company is highly leveraged. The Company incurred substantial debt and
lease commitments during the past three years in connection with its acquisition
of MD-11 aircraft and related spare parts. The Company 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.
In October 1995, the Company completed an initial public offering (the
"Offering") of 2,900,000 shares of the Company's common stock. Of the 2,900,000
shares sold, 2,000,000 shares were issued and sold by the Company and 900,000
shares were sold by WorldCorp, the Company's majority shareholder. As a result
of this offering, World Airways and WorldCorp received approximately $22.8
million and $10.2 million in net proceeds, respectively.
The Company's cash and cash equivalents at June 30, 1996 and December 31,
1995 were $18.9 million and $25.3 million, respectively. At June 30, 1996 the
Company's current assets were $61.8 million and current liabilities were $98.2
million. The Company believes that the combination of the financings consummated
to date, income from continuing operations and the additional financings
described below will be sufficient to allow the Company to meet its cash
requirements related to the phase-out of its discontinued operations and the
operating and capital requirements for its continuing operations for at least
the next twelve months.
Cash Flows from Operating Activities
Operating activities used $1.0 million in cash for the six months ended June
30, 1996 compared to providing $12.7 million of cash in the comparable period in
1995. This decrease in cash in 1996 resulted primarily from an increase in
losses from discontinued operations and an increase in accounts receivable,
partially offset by an increase in accounts payable, accrued expenses, and other
liabilities.
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<PAGE>
Cash Flows from Investing Activities
Investing activities used $4.5 million in cash for the quarter ended June
30, 1996, compared to $10.2 million in the comparable period in 1995. In the
second quarter of 1996, cash was used primarily for the purchase of rotable
spare parts required for the integration of two MD-11 aircraft and incremental
DC-10 aircraft and leasehold improvements required on one of the DC-10 aircraft
obtained in late 1995.
Cash Flows from Financing Activities
Financing activities used $0.9 million in cash for the quarter ended June
30, 1996 compared to using $2.1 million in the comparable period in 1995. This
decrease in cash resulted primarily from a decrease in repayments of the
Company's net borrowings in 1996.
Capital Commitments
In October 1992 and January 1993, the Company 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, the Company 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, the Company was assigned purchase options for four additional
MD-11 aircraft. In 1992, the Company made non-refundable deposits of $1.2
million toward the option aircraft.
In March 1996, the Company signed an agreement with the manufacturer to
lease two MD-11ER aircraft. Under the agreement, the Company 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, the Company agreed to assume an existing lease of two
additional MD-11 freighter aircraft for 20 years, beginning in 1999, in the
event that the existing lessee terminates its lease with the manufacturer at
that time.
World Airways maintains six long-term DC10-30 aircraft leases with terms
expiring in 1998, 2003, and two each in 1997 and 1999. As a result of the
Company's decision to discontinue scheduled service operations, the Company is
actively seeking to sublease three of its DC-10 aircraft to other carriers.
As of June 30, 1996, annual minimum payments required under the Company's
aircraft and lease obligations totaled $46.8 million for the remainder of 1996,
including the two MD-11ER aircraft and the two DC10-30 aircraft leased in March
1996.
In August 1995, the Company amended its aircraft spare parts facility under
the Credit Agreement to provide for a variable rate borrowing of $10.5 million.
Approximately $2.5 million of this facility was used to pay off the previously
outstanding balance of the spare parts loan facility and $0.8 million was used
to purchase additional spare parts for MD-11s required during the remainder of
1995. The balance of this loan facility was used to increase cash balances which
were drawn down during the first half of 1995 to purchase MD-11 spare parts.
In September 1995, the Company agreed to purchase a spare engine which was
delivered in March 1996. The engine cost approximately $8.0 million. The Company
entered into an agreement with the engine's manufacturer to finance 80% of the
purchase price over a seven-year term. The Company made payments of $1.2 million
and $0.4 million towards this purchase in September 1995 and January 1996,
respectively.
As discussed above, the Company 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, the Company received spare parts financing from the lessor of $9.0
million of which $3.0 million was made available with the delivery of each
aircraft, and the remaining $3.0 million will be made available in December
1996. As of June 30, 1996, approximately $3.3 million had been received. In
January 1996, the Company 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.
19
<PAGE>
The Company's fixed assets increased approximately $15.2 million during
1996. The majority of this amount relates to assets which were financed. The
Company anticipates that its total capital expenditures in 1996, which include
the two spare engines, will approximate $28.0 million. As discussed above, the
Company will receive approximately $22.6 million in financing, of which $6.5
million was received during the first six months of 1996. The remaining balance
will be funded from its operating cash flow and available cash balances. In
March 1996, the Credit Agreement was amended to increase the limit on capital
expenditures by the Company to no more than $35.0 million and $25.0 million in
1996 and 1997, respectively.
As of June 30, 1996, the Company held approximately $2.7 million (at book
value) of aircraft spare parts currently available for sale.
Financing Developments
In October 1995, the Company completed an initial public offering pursuant
to which World Airways and WorldCorp received approximately $22.8 million and
$10.2 million in net proceeds, respectively. World Airways used its proceeds to
increase cash reserves.
Effective June 30, 1996, the Company amended its Credit Agreement with BNY
Financial Corporation ("BNY") to include the following: a $10.5 million spare
parts loan (of which $5.6 million was outstanding at June 30, 1996), a $8.0
million revolving line of credit, and a new $5.0 million term loan. The $5.0
million was received in August 1996. This amended Credit Agreement, which
expires in 1999, is collateralized by certain receivables, inventory, and
equipment. As of June 30, 1996, the revolving line of credit was fully utilized.
Under the terms of the amended Credit Agreement, the Company 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 the Company's cash or cash equivalents
would be less than $7.5 million or (iv) make capital expenditures in 1996 and
1997 of more than $35.0 million and $25.0 million, respectively, or in any
subsequent year of more than $15.0 million. The Company must also maintain a
certain quarterly net worth and net income (loss) requirements. As of June 30,
1996, the Company was in compliance with these amended covenants. No assurances
can be given, however, that the Company will continue to meet these covenants
or, if necessary, obtain the required waivers.
In September 1995 the Company entered into an agreement with a lessor to
purchase a spare engine, previously under lease, for $5.5 million. The Company
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, the Company purchased an additional spare engine which was delivered
in March 1996. The engine cost approximately $8.0 million. The Company entered
into an agreement with the engine's manufacturer to finance 80% of the purchase
price over a seven-year term. The Company made payments of $1.2 million and $0.4
million towards this purchase in September 1995 and January 1996, respectively.
In January 1996, the Company agreed to purchase an additional engine and
received a commitment from the engine manufacturer to finance 85% if its
purchase price over a seven-year term with an interest rate to be fixed at the
time of delivery.
RECENT TRENDS AND DEVELOPMENTS
Operating Losses. While the Company was profitable each year from 1987
----------------
through 1992 and in 1995, the Company sustained operating losses in 1993 and
1994 of $7.3 million and $5.2 million, respectively, and net losses of $9.0
million in each of these two years. During the first six months of 1996, the
Company reported a net loss of $21.9 million, which resulted from operating
losses incurred in the Company's scheduled service operations and the related
estimated loss on disposal. Earnings from continuing operations were $10.8
million for the first six months ended June 30, 1996. While the Company expects
its continuing operations to remain profitable, there can be no assurance that
the Company will be able to maintain this profitability for the remainder of
1996 and future years.
20
<PAGE>
Discontinuation of Scheduled Service Operations. In May 1996, the Company
-----------------------------------------------
commenced scheduled charter operations between the United States and Germany,
Switzerland, Ireland, and the United Kingdom. For its scheduled service
operations, the Company commenced service between Tel Aviv and New York in July
1995 and commenced service between the U.S. and South Africa in June 1996.
However, the Company was unable to operate these markets profitably.
Based on disappointing results from these operations and a decision to
refocus the Company's strategic direction on its core business, the Company
announced in July 1996 its decision to exit its scheduled service operations by
October 1996. This decision resulted in a loss of approximately $28.5 million
(net of income tax effect) which was recognized in the second quarter of 1996.
This amount includes an operating loss of approximately $7.5 million relating to
second quarter operations and a $21.0 million charge (net of income tax effect)
which includes the following: estimated operating losses during the phase-out
period; lease costs on unutilized aircraft; passenger reprotection expenses; and
the writeoff of certain leasehold improvements. As a result of this decision,
the Company will reduce its fixed overhead costs, primarily through the
elimination of costs related to discontinued operations. The Company expects to
meet all cash requirements of this phase-out period during the third and fourth
quarters of 1996 and expects to satisfy these obligations with income generated
from its continuing operations and financings consummated to date.
As indicated above, the Company has shifted its strategic direction and will
focus its energies on its core business: operating aircraft under contracts with
international carriers, the U.S. government, and international tour operators.
From these continuing operations, the Company reported $10.8 million in earnings
for the six months ended June 30, 1996. While the Company maintains a contract
backlog of $532.6 million as of that date and expects that its core business
will remain profitable, no assurances can be given that the Company will be able
to maintain profitability within its continuing operations.
Maintenance. The Company outsources major airframe maintenance and power
-----------
plant work to several suppliers. The Company has a 10-year contract ending in
August 2003 with United Technologies Corporation's Pratt & Whitney Group ("Pratt
and Whitney") for all off-wing maintenance on the PW 4462 engines that power its
MD-11 aircraft. Under this contract, the manufacturer agreed to provide such
maintenance services at a cost not to exceed a specified rate per hour during
the term of the contract. The specified rate per hour is subject to annual
escalation, and increases substantially in 1998. Accordingly, while the Company
believes the terms of this agreement will result in lower engine maintenance
costs than it otherwise would incur during the first five years of the
agreement, these costs will increase substantially during the last seven years
of the agreement.
The Company's maintenance costs associated with the MD-11 aircraft and
PW 4462 engines have been significantly reduced due in part to manufacturer
guarantees and warranties, which guarantees and warranties began to expire in
1995 and will fully expire by 1998. Therefore, the Company expects that
maintenance expense will increase as these guarantees and warranties expire.
OTHER MATTERS
Legal and Administrative Proceedings
The Company and WorldCorp (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 the
Company and approximately $2.0 million from WorldCorp, which are alleged to be
the amounts paid to each of the Company and WorldCorp by Washington
Bancorporation. On the motion of the World Defendants, among others, the Boster
Litigation was removed from the Bankruptcy Court to the District Court for the
District of Columbia on May 10, 1993. The World Defendants filed a motion to
dismiss the Boster Litigation as it pertains to them on June 9, 1993, and intend
to vigorously contest liability. On September 20, 1995, the District Court for
the District of Columbia granted the motion to dismiss filed by the World
Defendants with respect to three of the four counts alleged in the litigation,
but declined to grant a motion to dismiss the remaining claim regarding
fraudulent
21
<PAGE>
transfers. The District Court's ruling is subject to appeal in certain cases.
The World Defendants filed a summary motion with respect to the remaining claim
on October 19, 1995, which remains pending. In any event, the Company believes
it has substantial defenses to this action, although no assurance can be given
of the eventual outcome of this litigation. Depending upon the timing of the
resolution of this claim, if the Committee were successful in recovering the
full amount claimed, the resolution could have a material adverse effect on the
Company's financial condition and results of operations.
In addition, the Company is party to routine litigation and administrative
proceedings incidental to its business, none of which is believed by the Company
to be likely to have a material adverse effect on the financial condition of the
Company.
Employees
The Company's 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.
The Company's flight attendants are also represented by the Teamsters under
a collective bargaining agreement that became amendable in 1992. The parties
exchanged their opening contract proposals in 1992. In June 1996, the Company
signed a new four year labor agreement with the Teamsters which provides for pay
increases for the flight attendants and work rule flexibility and lengthened
duty time rules for the Company. The agreement is currently awaiting
ratification by the flight attendants. No assurance can be given, however, that
the flight attendants will ratify the agreement. In the event that the agreement
is not ratified, the inability to reach an agreement upon terms favorable to the
Company could have a material adverse effect on the Company. The Company's
flight attendants continue to challenge the use of foreign flight attendant
crews on the Company's flights for Malaysian Airlines and Garuda Indonesia which
has historically been the Company's operating procedure. The Company is
contractually obligated to permit its Southeast Asian customers to deploy their
own flight attendants. While the Company intends to contest this matter
vigorously in an upcoming arbitration, an unfavorable ruling for the Company
could have a material adverse effect on the Company.
The Company's 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.
The Company is unable to predict whether any of its employees not currently
represented by a labor union, such as the Company's 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
The Company has not declared or paid any cash dividends or distributions on
its common stock since the payment of a distribution to WorldCorp in 1992. Any
future decision concerning the payment of dividends on the common stock will
depend upon the results of operations, financial condition and capital
expenditure plans of the Company, as well as such other factors as the Board of
Directors, in its sole discretion, may consider relevant.
Under the terms of a shareholders agreement among the Company, WorldCorp,
and MHS, the Company has agreed to declare and distribute all dividends properly
payable, subject to the requirements of law and general overall financial
prudence. The Credit Agreement with BNY Financial Corporation (as amended
through September 1995, the "Credit Agreement") contains restrictions on the
Company's ability to pay dividends on the common stock. The Credit Agreement
provides that the Company shall not declare, pay or make any dividends or
distributions in any six-month period which aggregate in excess of the lesser of
$4.5 million or 50% of the Company's net income for the previous six months and
requires that the Company have a cash balance of not less than $7.5 million
after giving effect to such dividend or distribution. Additionally, WorldCorp,
which owns approximately 59.3% of the Company's common stock, is subject to the
provisions of an indenture expiring in 2004 under which it is obligated to cause
the Company not to pay dividends upon the occurrence of any events of default by
WorldCorp under such indenture. Further, under the indenture terminating in
1997, WorldCorp has agreed to cause World Airways not to pay
22
<PAGE>
dividends unless WorldCorp has a positive adjusted net worth (as defined
therein). As of August 1, 1996, WorldCorp's adjusted net worth was negative and
under the indenture terminating in 1997 WorldCorp is, therefore, obligated to
cause World Airways not to pay dividends.
Income and Other Taxes
In August 1991, 5.7 million shares of WorldCorp common stock were sold by a
group of existing shareholders. This transaction constituted an ownership change
of WorldCorp (and thus of the Company) as defined under Section 382 of the Code
(the "1991 Ownership Change"). The 1991 Ownership Change subjected WorldCorp to
an annual limitation in 1991 and future years in the use of net operating losses
("NOLs") that were available to WorldCorp (and thus allocable to the Company) on
the date on which the 1991 Ownership Change occurred. As of December 31, 1995,
the Company had NOLs for federal income tax purposes of $100.4 million which, if
not utilized to offset taxable income in future periods, will expire from 1997
to 2009. Of this amount, $62.0 million is subject to a $6.9 million annual
limitation resulting from the 1991 Ownership Change. The remaining $38.4 million
was generated after the 1991 Ownership Change and, therefore, is not currently
subject to annual limitation.
Use of the Company's net operating loss carryforwards in future years could
be further limited if an Ownership Change were to occur in the future. While the
Company believes that the sale of common stock in its initial public offering
(the "Offering") did not cause an Ownership Change, the application of the Code
in this area is subject to interpretation by the Internal Revenue Service. Also,
any future transactions in the Company's or WorldCorp's stock could cause an
Ownership Change. In the event that more than approximately $5.0 million of the
outstanding convertible debentures of WorldCorp are converted into WorldCorp
common stock, the Company believes an Ownership Change will occur.
There can be no assurance that the operations of 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 to the change in ownership that might occur upon the
conversion of the WorldCorp debentures, additional ownership changes of the
Company may occur in the future and may result in the imposition of a lower
annual limitation on the Company's NOLs existing at the time of any such
ownership change.
The valuation allowance for deferred tax assets as of December 31, 1995 was
$39.5 million. The Company's estimate of the required valuation allowance is
based on a number of factors, including historical operating results. The
Company generated net earnings for the year ended 1995 as compared to losses in
both 1994 and 1993. The Company will continue to assess the appropriateness of
the valuation allowance based on future operations.
Inflation
The Company believes that inflation has not had a material effect on the
Company's revenues during the past three years.
23
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - ----------------------------------------
<TABLE>
<CAPTION>
(a) Exhibits
No. Description
- - --- -----------
<S> <C> <C>
1.1 Form of Underwriting Agreement to be entered into among the Company, Incorporated
WorldCorp, Inc. and the Underwriters. By Reference
3.1 Amended and Restated Certificate of Incorporation. Incorporated
By Reference
3.2 Amended and Restated Bylaws.
4.1 Article IV of the Company's Amended and Restated Certificate of Incorporated
Incorporation, incorporated by reference to Exhibit 3.1 filed herewith, and By Reference
Section 6 of the Company's Bylaws, incorporated by reference to Exhibit
3.2 filed herewith.
5.1 Opinion of Hunton & Williams. Incorporated
By Reference
10.1 The Company's 1995 Stock Option Plan. Incorporated
By Reference
10.2 Form of Directors' Indemnification Agreement. Incorporated
By Reference
10.3 Employment Agreement between the Company and Charles W. Pollard, Incorporated
dated as of January 1, 1995. By Reference
10.4 Amendment No. 1 to the Employment Agreement between the Company Incorporated
and Charles W. Pollard, dated as of May 31, 1995. By Reference
10.5 Stock Option Agreement between the Company and Charles W. Pollard, Incorporated
dated as of January 1, 1995. By Reference
10.6 Amendment No. 1 to the Stock Option Agreement between the Company Incorporated
and Charles W. Pollard, dated as of May 31, 1995. By Reference
10.7 Agreement between the Company and Flight Attendants represented by Incorporated
International Brotherhood of Teamsters. (Filed as Exhibit 10.67 to By Reference
WorldCorp, Inc.'s Form S-3 Registration Statement (Commission File No.
91998) filed on December 10, 1987 and incorporated herein by reference.)
10.8 Office Lease--The Hallmark Building dated as of September 20, 1989 Incorporated
between the Company and GT Renaissance Centre Limited Partnership. By Reference
(Filed as Exhibit 10.38 to WorldCorp, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1989 and incorporated herein by
reference.)
10.9 Aircraft Lease Agreement for Aircraft Serial Number 48518 dated as of Incorporated
September 30, 1992 between the Company and International Lease Finance By Reference
Corporation. (Filed as Exhibit 10.38 to WorldCorp, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference.)
10.10 Amendment No. 1 to Aircraft Lease Agreement for Aircraft Serial Number Incorporated
48518 dated as of November 1992 between the Company and International By Reference
Lease Finance Corporation. (Filed as Exhibit 10.68 to WorldCorp, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31, 1993
and incorporated herein by reference.)
</TABLE>
24
<PAGE>
<TABLE>
<S> <C> <C>
10.11 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Number Incorporated
48518 dated as of March 8, 1993 between the Company and International By Reference
Lease Financial Corporation. (Filed as Exhibit 10.69 to WorldCorp, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31, 1993
and incorporated herein by reference.)
10.12 Aircraft Lease Agreement for Aircraft Serial Number 48519 dated as of Incorporated
September 30, 1992 between the Company and International Lease Finance By Reference
Corporation. (Filed as Exhibit 10.39 to WorldCorp, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference.)
10.13 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Number Incorporated
48519 dated as of April 23, 1993 between the Company and International By Reference
Lease Finance Corporation.
10.14 Amendment No. 3 to Aircraft Lease Agreement for Aircraft Serial Number Incorporated
48519 dated as of April 1993 between the Company and International By Reference
Lease Finance.
10.15 Aircraft Lease Agreement for Aircraft Serial Number 48437 dated as of Incorporated
September 30, 1992 between the Company and International Lease Finance By Reference
Corporation. (Filed as Exhibit 10.40 to WorldCorp, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference.)
10.16 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Number Incorporated
48437 dated as of March 31, 1993 between the Company and International By Reference
Lease Finance Corporation. (Filed as Exhibit 10.73 to WorldCorp, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31, 1993
and incorporated herein by reference.)
10.17 Amendment No. 3 to Aircraft Lease Agreement for Aircraft Serial Number Incorporated
48437 dated as of April 15, 1993 between the Company and International By Reference
Lease Finance Corporation. (Filed as Exhibit 10.74 to WorldCorp, Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31, 1993
and incorporated herein by reference.)
10.18 Aircraft Lease Agreement for Aircraft Serial Number 48633 dated as of Incorporated
September 30, 1992 between the Company and International Lease Finance By Reference
Corporation. (Filed as Exhibit 10.41 to WorldCorp, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference.)
10.19 Aircraft Lease Agreement for Aircraft Serial Number 48631 dated as of Incorporated
September 30, 1992 between the Company and International Lease Finance By Reference
Corporation. (Filed as Exhibit 10.42 to WorldCorp, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference.)
10.20 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Number Incorporated
48631 dated as of April 28, 1995 between the Company and International By Reference
Lease Finance Corporation.
10.21 Aircraft Lease Agreement for Aircraft Serial Number 48632 dated as of Incorporated
September 30, 1992 between the Company and International Lease Finance By Reference
Corporation. (Filed as Exhibit 10.43 to WorldCorp, Inc.'s Annual Report
on Form 10-K for the fiscal year ended December 31, 1992 and
incorporated herein by reference.)
</TABLE>
25
<PAGE>
<TABLE>
<S> <C> <C>
10.22 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Number Incorporated
48632 dated as of April 28, 1995 between the Company and International By Reference
Lease Finance Corporation.
10.23 Accounts Receivable Management and Security Agreement dated as of Incorporated
December 7, 1993 between the Company and BNY Financial Corporation. By Reference
(Filed as Exhibit 10.46 to WorldCorp, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 and incorporated herein by
reference.)
10.24 Amendment (No. 1) to the Accounts Receivable Management and Security Incorporated
Agreement between the Company and BNY Financial Corporation dated By Reference
March 15, 1995 and effective as of January 1, 1995.
10.25 Amendment No. 2 to the Accounts Receivable Management and Security Incorporated
Agreement between the Company and BNY Financial Corporation dated By Reference
August 1995.
10.26 Long Term Aircraft Charter Agreement dated August 20, 1986 between the Incorporated
Company and Malaysian Airline System Berhad (Filed as Exhibit 10.79 to By Reference
WorldCorp's Annual Report on Form 10-K for the year ended December
31, 1986).
10.27 Amendment dated April 10, 1991 to the Long Term Aircraft Charter Incorporated
Agreement dated August 20, 1986 between the Company and Malaysian By Reference
Airline System Berhad.
10.28 Stock Purchase Agreement by and among the Company, WorldCorp, Inc., Incorporated
and Malaysian Helicopter Services Berhad dated as of October 30, 1993. By Reference
(Filed as Exhibit 10.87 to WorldCorp, Inc.'s Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated herein by
reference.)
10.29 Stock Registration Rights Agreement between the Company and Malaysian Incorporated
Helicopter Services Berhad dated as of October 30, 1993. (Filed as Exhibit By Reference
10.88 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by reference.)
10.30 Shareholders Agreement between Malaysian Helicopter Services Berhad, Incorporated
WorldCorp, Inc. and the Company, dated as of February 3, 1994. (Filed By Reference
as Exhibit 10.89 to WorldCorp, Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 and incorporated herein by
reference.)
10.31 Amendment No. 1 to Shareholders Agreement dated as of February 28, Incorporated
1994, among WorldCorp, the Company and Malaysian Helicopter Services By Reference
Berhad. (Filed as Exhibit 10.90 to WorldCorp Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 and incorporated
herein by reference.)
10.32 Agreement between the Company and the International Brotherhood of Incorporated
Teamsters representing the Cockpit Crewmembers employed by the By Reference
Company dated August 15, 1994-June 30, 1998. (Filed as Exhibit 10.98 to
WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference.)
10.33 Aircraft Services Agreement dated September 26, 1994 by and between the Incorporated
Company and Malaysian Airline System Berhad. (Filed as Exhibit 10.101 By Reference
to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference.)
</TABLE>
26
<PAGE>
<TABLE>
<S> <C> <C>
10.34 Freighter Services Agreement dated October 6, 1994 by and between the Incorporated
Company and Malaysian Airline System Berhad. (Filed as Exhibit 10.102 By Reference
to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 and incorporated herein by reference.)
10.35 Amendment No. 1 to Passenger Aircraft Services and Freighter Services Incorporated
Agreement dated December 31, 1994 by and between the Company and By Reference
Malaysian Airline System Berhad. (Filed as Exhibit 10.107 to WorldCorp,
Inc.'s Annual Report on Form 10-K for the fiscal year ended December
31, 1994 and incorporated herein by reference.)
10.36 Amendment No. 2 to the Aircraft Services and Freighter Services Incorporated
Agreements by and between the Company and Malaysian Airline System By Reference
Berhad, dated February 9, 1995.
10.37 Amendment No. 3 to the Freighter Services Agreement by and between the Incorporated
Company and Malaysian Airline System Berhad dated May, 1995. By Reference
10.38 1995 U.S. Air Force Contract F11626-94-D0027 dated October 1, 1994 Incorporated
between the Company and Air Mobility Command. (Filed as Exhibit By Reference
10.103 to WorldCorp, Inc.'s Annual Report on Form 10-K/A for the fiscal
year ended December 31, 1994 and incorporated herein by reference.)
10.39 FY1996 Contractor Team Agreement among the Company, Continental Incorporated
Airlines, Inc., Emery Worldwide Airlines, Inc., Evergreen International By Reference
Airlines, Inc., Miami Air International, Inc., Northwest Airlines, Inc. and
Rich International Airways, Inc. dated April 3, 1995.
10.40 Lease agreement for Aircraft Serial Number 48485 dated as of January 15, Incorporated
1991 between the Company and First Security National Bank of Utah, By Reference
N.A. (Filed as Exhibit 10.65 to WorldCorp, Inc.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1991 and incorporated herein
by reference).
10.41 Maintenance Agreement between Malaysian Airline System Berhad and the Incorporated
Company dated March 1, 1995. By Reference
10.42 Form of Master Services Agreement between the Company and Incorporated
WorldCorp, Inc. By Reference
10.43 1996 U.S. Air Force Contract dated October 1, 1995 between the Incorporated
Company and Air Mobility Command. By Reference
10.44 Amendment No. 3 to the Accounts Receivable Management and Security Incorporated
Agreement between the Company and BNY Financial Corporation dated as By Reference
of September 28, 1995.
10.45 Amendment No. 4 to the Accounts Receivable Management and Security Incorporated
Agreement between the Company and BNY Financial Corporation dated as By Reference
of September 28, 1995.
10.46 Form of Non-Employee Directors' Stock Option Plan. Incorporated
By Reference
11 Computation of earnings (loss) per share. Filed
Herewith
27 Financial Data Schedule for the quarter ended June 30, 1996 Filed
Herewith
(b) Reports on Form 8-K
None.
</TABLE>
27
<PAGE>
SIGNATURES
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.
WORLD AIRWAYS, INC.
By: /s/ Michael E. Savage
---------------------
(Michael E. Savage)
Chief Financial Officer
Date: August 14, 1996
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THIS
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 18,912
<SECURITIES> 0
<RECEIVABLES> 31,624
<ALLOWANCES> 358
<INVENTORY> 0
<CURRENT-ASSETS> 61,809
<PP&E> 81,124
<DEPRECIATION> 16,194
<TOTAL-ASSETS> 148,328
<CURRENT-LIABILITIES> 98,219
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 8,382
<TOTAL-LIABILITY-AND-EQUITY> 148,328
<SALES> 0
<TOTAL-REVENUES> 86,617
<CGS> 0
<TOTAL-COSTS> 71,346
<OTHER-EXPENSES> (497)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 855
<INCOME-PRETAX> 14,774
<INCOME-TAX> 315
<INCOME-CONTINUING> 14,459
<DISCONTINUED> (28,518)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,059)
<EPS-PRIMARY> (1.17)
<EPS-DILUTED> 0
</TABLE>
