SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal years ended DECEMBER 31, 1997 AND 1996
- OR -
( ) TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________ Commission file
number _________________.
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
WORLD AIRWAYS, INC. EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
(Formerly WORLDCORP, INC. EMPLOYEE SAVINGS AND STOCK OWNERSHIP
PLAN)
B. Name of issuer of the securities held pursuant to the plan and the
address of its principle executive office:
WORLD AIRWAYS, INC.
13873 PARK CENTER ROAD
SUITE 490
HERNDON, VA 20171
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Deferred Stock Purchase Plan Administrative Committee has duly caused this
annual report to be signed by the undersigned thereunto duly authorized.
WORLD AIRWAYS, INC. EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
Date: July 15, 1998
By: /S/ JAMES D. DOUGLAS
James D. Douglas
Chief Financial Officer
<PAGE>
WORLD AIRWAYS, INC.
EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
WORLD AIRWAYS, INC.
EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
Independent Auditors' Report..................................................
Financial Statements:
Statements of Net Assets Available for Plan Benefits -
December 31, 1997 and 1996..................................
Statements of Changes in Net Assets Available for Plan Benefits -
For the Years Ended December 31, 1997 and 1996..............
Notes to Financial Statements........................................
Schedule of Assets Held for Investment Purposes -
As of December 31, 1997.....................................
Schedule of Reportable Transactions -
For the year ended December 31, 1997........................
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Administrative Committee and Participants
World Airways, Inc. Employee Savings and Stock Ownership Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the World Airways, Inc. Employee Savings and Stock Ownership Plan
(the Plan), (formerly the WorldCorp, Inc. Employee Savings and Stock Ownership
Plan), as of December 31, 1997 and 1996, and the related statements of changes
in net assets available for plan benefits for the years then ended. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the Plan as
of December 31, 1997 and 1996, and the changes in net assets available for plan
benefits for the years then ended in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules of assets held for
investment purposes as of December 31, 1997 (Schedule I) and reportable
transactions for the year ended December 31, 1997 (Schedule II), are presented
for the purpose of additional analysis and are not a required part of the basic
financial statements, but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental schedules,
as of and for the year ended December 31, 1997, are the responsibility of the
Plan's management. The supplemental schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, are fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
July 10, 1998
<PAGE>
WORLD AIRWAYS, INC.
EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------------------
WORLD AIRWAYS STOCK FUND WORLDCORP STOCK FUND OTHER
ALLOCATED UNALLOCATED ALLOCATED UNALLOCATED INVESTMENTS TOTAL
--------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 58,592 $ -- $ -- $ 45,873 $ -- $ 104,465
Investments (aggregate cost
$5,352,003 in 1997) 809,629 392,363 374,431 -- 3,156,934 4,733,357
Loans receivable -- -- -- -- 288,923 288,923
Due from World Airways Stock
Fund - Allocated -- 6,138 -- -- -- 6,138
Due from World Airways, Inc. -- 26 -- -- -- 26
Contributions receivable:
Employer 39,606 -- -- -- -- 39,606
Participants -- -- -- -- 741 741
Interfund receivable -- -- -- 92,252 10,129 102,381
Other receivables -- -- -- -- 3,075 3,075
-------- ------- ------- ------- --------- ---------
Total assets 907,827 398,527 374,431 138,125 3,459,802 5,278,712
-------- ------- ------- ------- --------- ---------
LIABILITIES
Margin loan -- 231,324 -- -- -- 231,324
Interest payable -- 2,966 -- -- -- 2,966
Due to World Airways Stock
Fund - Unallocated 6,138 -- -- -- -- 6,138
Due to participants -- 3,098 -- -- -- 3,098
Due to Trustee -- 3,075 -- -- -- 3,075
Due to WorldCorp, Inc. -- -- -- 137,421 -- 137,421
Interfund payable 92,252 -- -- -- 10,129 102,381
Other payables -- -- -- 704 1,065 1,769
-------- ------- ------- ------- --------- ---------
Total liabilities 98,390 240,463 -- 138,125 11,194 488,172
-------- ------- ------- ------- --------- ---------
Net assets available for
plan benefits $ 809,437 $ 158,064 $ 374,431 $ -- $ 3,448,608 $ 4,790,540
======== ======= ======= ======== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
WORLD AIRWAYS, INC.
EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1997 AND 1996
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------------------------
WORLD AIRWAYS STOCK FUND WORLDCORP STOCK FUND OTHER
ALLOCATED UNALLOCATED ALLOCATED UNALLOCATED INVESTMENTS TOTAL
--------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash $ 49,957 $ -- $ 64,056 $ 136,486 $ -- $ 250,499
Investments (aggregate cost
$5,335,147 in 1996) 180,552 1,285,832 2,005,247 64,056 2,509,809 6,045,496
Loans receivable -- -- -- -- 304,373 304,373
Interest receivable -- -- -- -- 1,537 1,537
Due from World Airways Stock
Fund - Unallocated 39,215 -- -- -- -- 39,215
Contributions receivable:
Employer 27,707 -- -- 1,520 -- 29,227
Participants -- -- -- -- 40,333 40,333
Interfund receivable -- -- -- 16,616 44,437 61,053
Other receivable -- -- -- -- 80 80
--------- --------- --------- ---------- --------- ---------
297,431 1,285,832 2,069,303 218,678 2,900,569 6,771,813
--------- --------- --------- ---------- --------- ---------
LIABILITIES
Margin loan -- 641,324 -- 55,400 -- 696,724
Interest payable -- 9,897 -- 2,185 -- 12,082
Due to World Airways Stock
Fund - Allocated -- 39,215 -- -- -- 39,215
Due to WorldCorp, Inc. -- -- -- 138,500 -- 138,500
Interfund payable 16,616 -- -- 21,418 23,019 61,053
Other payable -- -- -- 1,175 561 1,736
--------- ---------- ---------- --------- ---------- ----------
16,616 690,436 -- 218,678 23,580 949,310
--------- ---------- ---------- --------- ---------- ---------
Net assets available for
plan benefits $ 280,815 $ 595,396 $2,069,303 $ -- $2,876,989 $5,822,503
========= ========= ========= ========= ========= =========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
WORLD AIRWAYS, INC.
EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------------------------
WORLD AIRWAYS STOCK FUND WORLDCORP STOCK FUND OTHER
ALLOCATED UNALLOCATED ALLOCATED UNALLOCATED INVESTMENTS TOTAL
--------- ----------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Additions:
Investment income:
Net realized/unrealized
appreciation (depreciation)
in fair value of
investments $ (136,123) $ (84,935) $(1,498,385) $ -- $ 356,144 $(1,363,299)
Interest income -- -- -- -- 102,134 102,134
Company contributions -- 270,919 -- -- -- 270,919
Participants' contributions -- 132,511 -- -- 379,684 512,195
Rollovers from other plans -- -- -- -- 137,306 137,306
Allocation of common shares
at market value (note 3) 708,272 -- -- -- -- 708,272
--------- -------- ------------ --------- -------- --------
Total additions 572,149 318,495 (1,498,385) -- 975,268 367,527
--------- -------- ----------- --------- -------- --------
Deductions:
Interest expense -- 47,555 -- -- -- 47,555
Contract discontinuance fee -- -- -- -- 34,075 34,075
Allocation of common shares
at market value -- 708,272 -- -- -- 708,272
Distributions to participants 43,527 -- 196,487 -- 369,574 609,588
--------- -------- ---------- -------- -------- ---------
Total deductions 43,527 755,827 196,487 -- 403,649 1,399,490
--------- -------- ---------- -------- -------- ---------
Net increase (decrease) in
net assets available for
plan benefits 528,622 (437,332) (1,694,872) -- 571,619 (1,031,963)
--------- --------- ----------- -------- -------- -----------
Net assets available for
plan benefits:
Beginning of year 280,815 595,396 2,069,303 -- 2,876,989 5,822,503
--------- -------- --------- -------- --------- ---------
End of year $ 809,437 $ 158,064 $ 374,431 $ -- $ 3,448,608 $ 4,790,540
======== ======== ========= ======== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
WORLD AIRWAYS, INC.
EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEARS ENDED DECEMBER 31, 1997 AND 1996
(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------------------------------
WORLD AIRWAYS STOCK FUND WORLDCORP STOCK FUND OTHER
ALLOCATED UNALLOCATED ALLOCATED UNALLOCATED INVESTMENTS TOTAL
----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Additions:
Investment income:
Net realized/unrealized
appreciation (depreciation)
in fair value of
investments $ (827) $ 735,887 $(2,296,113) $(1,305,381) $ 143,479 $(2,722,955)
Interest income -- -- -- -- 93,296 93,296
Company contributions -- 130,832 -- 224,646 -- 355,478
Participants' contributions -- 25,996 -- 150,325 353,048 529,369
Rollovers from other plans -- -- -- -- 235,978 235,978
Allocation of common shares
at market value 281,642 -- 605,110 -- -- 886,752
--------- --------- ----------- ---------- --------- ---------
Total additions 280,815 892,715 (1,691,003) (930,410) 825,801 (622,082)
--------- --------- ----------- ---------- --------- ---------
Deductions:
Interest expense -- 15,634 -- 67,144 -- 82,778
Other expenses -- 43 -- 61 -- 104
Allocation of common shares
at market value -- 281,642 -- 605,110 -- 886,752
Distributions to participants -- -- 122,282 87 126,325 248,694
--------- --------- ----------- ----------- --------- ---------
Total deductions -- 297,319 122,282 672,402 126,325 1,218,328
--------- --------- ----------- ----------- --------- ---------
Net increase (decrease) in
net assets available for
plan benefits 280,815 595,396 (1,813,285) (1,602,812) 699,476 (1,840,410)
-------- --------- ----------- ----------- --------- -----------
Net assets available for plan benefits:
Beginning of year -- -- 3,882,588 1,602,812 2,177,513 7,662,913
-------- --------- --------- --------- ---------- ---------
End of year $ 280,815 $ 595,396 $ 2,069,303 $ -- $ 2,876,989 $ 5,822,503
======== ======== ========== ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
<PAGE>
WORLD AIRWAYS, INC.
EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. DESCRIPTION
The following brief description of the World Airways, Inc. Employee
Savings and Stock Ownership Plan (the "Plan" or "ESSOP"), formerly the
WorldCorp, Inc. Employee Savings and Stock Ownership Plan (the "WorldCorp
Plan"), as amended, is provided for general information purposes only.
Participants should refer to the Plan Agreement for a more complete
description. Interested parties should refer to the 10-K filings
registered with the SEC for a description of World Airways' and
WorldCorp's operations.
(a) GENERAL
Effective February 2, 1989, WorldCorp, Inc. ("WorldCorp") adopted the
WorldCorp Plan for the benefit of eligible employees. Effective
October 1, 1996, the Board of Directors of World Airways, Inc.
("World Airways" or the "Company") adopted an Employee Savings and
Stock Ownership Plan. The ESSOP is an amendment and continuation of
the WorldCorp Plan. As a result of various business developments, the
vast majority of the participants in the WorldCorp Plan were World
Airways employees. For that reason, WorldCorp and World Airways
agreed that World Airways should assume WorldCorp's obligation under
the WorldCorp Plan. In connection with that action, the Trustees
exchanged 182,832 unallocated shares of WorldCorp common stock held
by the WorldCorp Plan for 180,478 shares of World Airways common
stock.
The WorldCorp Plan is designed as a stock bonus plan which qualifies
for favorable tax treatment under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code") and as an employee
stock ownership plan under Section 4975 (e)(7) of the Code and is
subject to the applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended (ERISA). In addition, the
Plan includes a "cash or deferred arrangement" under Section 401(k)
of the Code. The purpose of the Plan is to provide participating
employees with an interest in the ownership of common stock, to
encourage them to save funds on a tax-favored basis and to provide
them with the opportunity to accumulate capital for their future
economic security.
The WorldCorp Plan originally purchased WorldCorp common shares using
the proceeds from a borrowing (see Note 3) guaranteed by WorldCorp.
The borrowing is repaid through Company and participant contributions
to the Plan. As the Plan makes each payment of principal, an
appropriate number of shares of stock are allocated to eligible
employees' accounts in accordance with applicable regulations under
the Code.
Beginning October 1, 1996, the borrowing became collateralized by the
exchanged shares of World Airways stock. The shares of WorldCorp
common stock collateralizing the borrowing were released and World
Airways became the guarantor of the borrowing. The lender has no
rights against shares once they are allocated under the ESSOP.
Accordingly, the financial statements of the ESSOP for the years 1997
and 1996 present separately the assets and liabilities and changes
therein pertaining to the accounts of employees with vested rights in
allocated stock (allocated) and stock not yet allocated to employees
(unallocated).
Effective October 31, 1997, the Trustee of the Plan was changed from
CIGNA to Prudential. Accordingly, the balance in the Other
Investments (as hereinafter defined) was transferred from CIGNA to
Prudential, and all subsequent contributions made to the Other
Investment funds were invested in the eight Prudential funds, which
consist of the Prudential Government Securities Trust Money Market
Fund, the Prudential Small Company Value Class A Fund, the Prudential
Equity Income Class A Fund, the Putnam International Growth Class A
Fund, the George Putnam Fund of Boston A, the Prudential Stock Index
A Fund, the Kemper Horizon 20+ Class A Fund and the PIMCo Total
Return Class A Fund.
The ESSOP is an individual account plan under which a participant's
benefits are based on the amounts deferred by the participant into
the ESSOP as well as the matching and discretionary contributions
made by World Airways. Any expenses, gains and losses which are
allocable to such accounts increase or reduce the individual account
balances.
(b) ELIGIBILITY
All employees of World Airways, Inc. not covered by collective
bargaining agreements, as well as certain employees of WorldCorp,
Inc. and WorldCorp Investments, Inc., are eligible to participate
beginning on the January 1st, April 1st, July 1st, or October 1st
coinciding with or next following the date they attain age 21 and
complete at least six months of service (in which they are credited
with at least 500 hours of service). Employees whose terms of service
are covered by collective bargaining agreements or whose terms of
service are to be negotiated by a collective bargaining agent are not
eligible to participate unless the terms of such collective
bargaining agreements specifically provide for participation in the
ESSOP.
(c) CONTRIBUTIONS
Each year, participants may contribute from 1% to 10% of pre-tax
annual compensation, as defined in the ESSOP (Salary Deferral
Contributions).
World Airways contributes to the World Airways Stock Fund (and
through October 1, 1996 WorldCorp contributed to the WorldCorp Stock
Fund) at least 50% of a participant's contributions to that fund and
33% of a participant's contributions to other investment funds
(Matching Contributions). Additional discretionary contributions may
be made at the option of the World Airways' Board of Directors
(Discretionary Contributions).
Participant contributions may be used to acquire shares of World
Airways' common stock or may be invested among other investments
established by the Board of Trustees (see note 4). Matching and
discretionary Contributions are invested exclusively in the World
Airways Stock Fund as of October 1, 1996 and in the WorldCorp Stock
Fund prior to that date.
(d) VESTING
A participant's interest in his Salary Deferral Contributions and
actual earnings thereon is 100% vested at all times.
A participant's interest in his Matching Contributions and
Discretionary Contributions is 100% vested in the case of his
disability, death or retirement (attainment of age 65). In the event
of termination of employment for any other reason, vested interest in
such amounts is determined under a graduated four-year vesting
schedule based on years of service: 25% vested after one year; 50%
vested after two years; 75% vested after three years; and 100% vested
after four years. Any nonvested amounts will be forfeited and
reallocated to remaining participants' accounts in proportion to
their relative compensation. For the years ended December 31, 1997
and 1996, participants forfeited $12,673 and $23,522, respectively,
of WorldCorp common stock. For the years ended December 31, 1997 and
1996, participants forfeited $15,189 and $2,223, respectively, of
World Airways common stock.
(e) ALLOCATION OF DISCRETIONARY CONTRIBUTIONS AND FORFEITURES
Discretionary contributions and forfeitures are allocated to active
participants based upon the ratio of the individual participant's
compensation, as defined in the ESSOP, to the sum of all
participants' total compensation, as defined in the ESSOP.
(f) ALLOCATION OF INCOME AND REALIZED AND UNREALIZED GAINS AND LOSSES
ON INVESTMENTS
Investment income and realized and unrealized gains and losses on
investments are allocated to each participant based upon the
participant's account balance in proportion to all participants'
account balances.
(g) DISTRIBUTIONS
After termination of employment, the value of a participant's vested
interest in his accounts will be distributed at the time requested by
the participant, and in the manner determined by the Benefits
Committee.
(h) PARTICIPANT LOANS
A participant who is an employee may request a loan from the portion
of his accounts invested in the Other Investments (see Note 4), in an
amount not to exceed the lesser of (1) $50,000, (2) 50% of the vested
balance of his accounts, or (3) the vested portion of his accounts
invested in the Other Investments. The minimum amount of a
participant loan is $1,000. Only one loan may be outstanding at any
time.
(i) ADMINISTRATIVE EXPENSES
Certain administrative costs of the ESSOP are paid by World Airways.
(j) PLAN TERMINATION
Although it has not expressed any intent to do so, World Airways has
the right under the ESSOP to discontinue its contributions at any
time and to terminate the ESSOP subject to the provisions of ERISA.
In the event of ESSOP termination, participants will become 100
percent vested in their accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The financial statements of the ESSOP are prepared under the accrual
method of accounting.
(b) INVESTMENTS
Investments in WorldCorp, Inc. stock and World Airways, Inc. stock
are stated at fair value as determined by quoted market value as of
the last business day of the plan year. Investments in all funds
other than the CIGNA Guaranteed Long-Term Fund are stated at fair
value as determined by quoted market rates. The CIGNA Guaranteed
Long-Term Fund, a group annuity contract, is carried at contract
value (which approximates fair value), as determined by the Trustee
(see Note 4).
Investment transactions are reported on a trade date basis. Realized
gains and losses are reported on the average cost method.
(c) DISCRETIONARY CONTRIBUTIONS
Discretionary contributions from World Airways are made in an amount
necessary to pay principal and interest due on the ESSOP loan (see
note 3) to the extent that employee and employer contributions are
insufficient to make such payments.
(d) PAYMENT OF BENEFITS
Benefits are recorded when paid.
(e) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the plan administrator to
make estimates and assumptions that affect certain reported amounts
and disclosures. Accordingly, actual results may differ from those
estimates.
3. MARGIN LOAN
The Plan entered into a margin loan by agreement dated January 10, 1995
from Scott & Stringfellow Investment Corporation (the "S&S Loan"). The S&S
Loan was collateralized by the unallocated shares of WorldCorp common
stock. Effective October 1, 1996, the unallocated shares of WorldCorp
common stock collateralizing the loan were exchanged for shares of World
Airways common stock. The S&S Loan is a non-recourse loan and as such the
only assets of the ESSOP subject to the loan are the unallocated shares.
Under the terms of the S&S Loan, S&S will release the pledged shares as
they become allocated. To the extent such release of pledged shares
violates the margin requirements of the S&S Loan, World Airways is
required to provide collateral or make a contribution adequate to meet
such margin requirements or cure any resulting default. World Airways has
agreed to act as guarantor of the S&S Loan, has agreed to make loans or
contributions to the ESSOP as necessary, and has agreed for the benefit of
S&S to maintain the effectiveness of any registration statement with
respect to the pledged shares. The S&S Loan was paid in full on May 28,
1998.
4. INVESTMENTS
The ESSOP includes the investment funds described below as of December 31,
1997. The CIGNA Guaranteed Long-Term Fund, the CIGNA Stock Market Index
Fund, the Fidelity Advisor Growth Opportunities Fund and the Fidelity
Advisor Income and Growth Fund were terminated as of October 31, 1997.
(a) WORLDCORP STOCK FUND
The WorldCorp Stock Fund, which invested exclusively in WorldCorp,
Inc. common stock, was closed as an investment option as of September
30, 1996. The ESSOP continues to hold the shares of WorldCorp common
stock that were allocated to the participants' accounts. No
additional shares of WorldCorp common stock will be allocated under
the ESSOP on or after that date. The purchase price for the nine
months ending September 30, 1996 was adjusted monthly and ranged from
$4.74 to $5.22. For the nine months ending September 30, 1996,
WorldCorp provided a 100% matching stock contribution for every $1.00
invested in WorldCorp common stock and a 331/3% matching stock
contribution for funds invested in Other Investments. The ESSOP held
374,431 and 447,417 shares of WorldCorp common stock with a $1.00 and
$4.625 quoted fair market value per share at December 31, 1997 and
1996, respectively. As of June 30, 1998, the quoted price of the
stock was $0.313 per share, resulting in an unrealized loss since
December 31, 1997 of $257,421 in the market value of the shares held
as of December 31, 1997.
(b) WORLD AIRWAYS STOCK FUND
The World Airways' Stock Fund was established October 1, 1996 and the
remaining unallocated shares in the WorldCorp Stock Fund were
exchanged for 180,478 shares of World Airways common stock. Employees
may purchase World Airways stock through salary deferral
contributions. The purchase price for the year ended December 31,
1997 was adjusted monthly and ranged from $4.31 to $4.80. The
purchase price for the three months ended December 31, 1996 was
adjusted monthly and ranged from $4.72 to $4.89. World Airways
provided a 100% matching stock contribution for every $1.00 invested
in World Airways stock and a 331/3% matching stock contribution for
funds invested in Other Investments. World Airways also made a
special contribution of $50,000 to the ESSOP in 1996. The ESSOP held
174,835 and 180,478 shares of World Airways common stock with a
$6.875 and $8.125 quoted price per share at December 31, 1997 and
1996, respectively. As of June 30, 1998, the quoted price of the
stock was $3.875 per share, resulting in an unrealized loss since
December 31, 1997 of $524,505 in the market value of shares held as
of December 31, 1997. There were 48 and 60 participants
contributing to this fund at December 31, 1997 and 1996,
respectively.
(c) CIGNA GUARANTEED LONG-TERM FUND
The Guaranteed Long-Term Fund, a group annuity contract, invested
(through CIGNA) in long-term, fixed income securities, such as
corporate bonds and commercial mortgages. There were 61 participants
contributing to this fund at December 31, 1996.
Crediting interest rates are determined at least annually and are
based on returns on new investments, as well as the returns on past
investments still held by the fund. The average yield was 6.35% and
5.5% for the years ending December 31, 1997 and 1996, respectively.
The crediting interest rate was 5.65% and 5.5% at December 31, 1997
and 1996, respectively.
(d) CIGNA STOCK MARKET INDEX FUND
The Stock Market Index Fund, a pooled separate account (SA-B),
invested (through CIGNA) in a broadly diversified fund of 500 stocks
and futures designed to achieve results closely aligned to stock
market performance. There were 39 participants contributing to this
fund at December 31, 1996.
(e) FIDELITY ADVISOR GROWTH OPPORTUNITIES FUND
The Growth Opportunities Fund, a pooled separate account (SA-55A),
invests (through CIGNA) in shares of the Fidelity Advisor Growth
Opportunities Fund. This fund invests in common stock and convertible
securities of companies which are believed to have long-term growth
potential. There were 62 participants contributing to this fund at
December 31, 1996.
(f) FIDELITY BALANCED FUND
The Fidelity Balanced Fund, a pooled separate account (SA-55B),
invested (through CIGNA) in shares of the Fidelity Balanced Fund.
This fund invested in fixed-income securities and in equity
securities which pay a combination of dividends and capital gains.
Prior to 1997, the fund was named the Income and Growth Fund
(SA-35B). There were 43 participants contributing to this fund at
December 31, 1996.
(g) PRUDENTIAL GOVERNMENT SECURITIES TRUST MONEY MARKET FUND
The Government Securities Trust Money Market invests (through
Prudential) in United States Government securities and purchases only
securities with remaining maturities of 13 months or less and limits
the dollar-weighted average maturity of its portfolio to 90 days or
less. There were 44 participants contributing to this fund at
December 31, 1997.
(h) PRUDENTIAL SMALL COMPANY VALUE CLASS A FUND
The Small Company Fund - Class A seeks capital growth and invests
(through Prudential) primarily in common stocks selected for their
potential for high return on equity, increasing earnings, increasing
or expected dividends, and low P/E ratio. The fund typically invests
in firms that have market values under $1 billion. There were 72
participants contributing to this fund at December 31, 1997
(i) PRUDENTIAL EQUITY INCOME CLASS A FUND
The Equity-Income Fund - Class A seeks both current income and
capital appreciation and invests (through Prudential) at least 65% of
assets in common stocks and convertible securities that provide
income returns higher than those of the S&P 500 or the NYSE Composite
index. There were 48 participants contributing to this fund at
December 31, 1997.
(j) PUTNAM INTERNATIONAL GROWTH CLASS A FUND
The International Growth Fund - Class A seeks capital appreciation
and invests (through Prudential) 65% of their assets in equity
securities of companies located outside North America. The fund may
invest in both developed and emerging markets. There were 59
participants contributing to this fund at December 31, 1997.
(k) GEORGE PUTNAM FUND OF BOSTON A
The fund of Boston - Class A seeks capital appreciation and current
income and invests (through Prudential) in any type of security. The
fund ordinarily invests no more than 75% of assets in common stocks
and convertibles. There were 49 participants contributing to this
fund at December 31, 1997.
(l) PRUDENTIAL STOCK INDEX A FUND
The Stock Index Fund - Class A seeks to replicate the performances of
the S&P 500 index and normally invests (through Prudential) at least
80% of assets in securities listed on the S&P 500 index. There were
84 participants contributing to this fund at December 31, 1997.
(m) KEMPER HORIZON 20+ CLASS A FUND
The Horizon 20+ Portfolio - Class A seeks growth of capital and
invests (through Prudential) at least 80% of assets in equities; it
may invest the balance in investment-grade debt. There were 25
participants contributing to this fund at December 31, 1997.
(n) THE PIMCO TOTAL RETURN CLASS A FUND
The Total Return Fund - Class A seeks total return consistent with
preservation of capital and invests (through Prudential) 65% of
assets in debt securities and mortgage related securities. There
were 18 participants contributing to this fund at December 31, 1997.
The Other Investments may engage in limited derivative transactions, such
as futures contracts and options. All derivatives are subject to market
risk, the risk that future changes in market conditions may make an
instrument less valuable.
Investments that represent 5 percent or more of the Plan's net assets are
as follows:
DECEMBER 31,
---------------------------
1997 1996
----------- ---------
WorldCorp Stock Fund 374,431 2,069,303
World Airways Stock Fund 1,201,992 1,466,384
CIGNA Guaranteed Long-Term Fund -- 1,369,830
Fidelity Advisor Growth Opportunities Fund -- 595,619
Fidelity Advisor Income and Growth Fund -- 343,821
Prudential Government Securities Trust
Money Market 3,095,139 --
The following tables present the assets, liabilities and changes in net
assets of each of the Other Investments as of and for the years ended
December 31, 1997 and 1996.
<PAGE>
<TABLE>
<CAPTION>
Prudential
Government Prudential Prudential Prudential
Securities Small Equity Int'l George Kemper The PIMCo
Trust Company Income Growth Putnam Prudential Horizon 20+ Total Return
Money Market Value Class Class A Class A Fund of Stock Index Class A Class A
Fund A Fund Fund Fund Boston A A Fund Fund Fund Total
------------ ---------- --------- -------- -------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Assets
- ------------
Investments $ 3,095,138 $ 9,590 $ 6,008 $ 5,332 $12,947 $22,341 $ 2,847 $ 2,731 $3,156,934
Loans recievable 288,923 -- -- -- -- -- -- -- 288,923
Participants
contributions
receivable 741 -- -- -- -- -- -- -- 741
Interfund receivable 10,129 -- -- -- -- -- -- -- 10,129
Other receivables 3,075 -- -- -- -- -- -- -- 3,075
---------- ------ ------ ------ ------ ------ ------ ------ ----------
3,398,006 9,590 6,008 5,332 12,947 22,341 2,847 2,731 3,459,802
---------- ------ ------ ------ ------ ------ ------ ------ ----------
Liabilities
- -----------
Interfund payable 227 1,437 1,129 393 1,256 4,778 231 678 10,129
Other payables 1,065 -- -- -- -- -- -- -- 1,065
--------- ------ ------ ------ ------ ------ ------ ------ ---------
1,292 1,437 1,129 393 1,256 4,778 231 678 11,194
--------- ------ ------ ------ ------ ------ ------ ------ ---------
Other Investments $3,396,714 $ 8,153 $4,879 $ 4,939 $ 11,691 $ 17,563 $ 2,616 $ 2,053 $3,448,608
========== ====== ====== ====== ======= ====== ====== ====== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Fidelity Prudential
CIGNA Advisor Government Prudential
Guaranteed CIGNA Stock Growth Securities Small Company
Long-Term Market Index Opportunities Fidelity Trust Money Value Class A
Fund Fund Fund Balanced Fund Market Fund
--------- ----------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Investment income:
Net realized/unrealized
appreciation (depreciation)
in fair value of investment -- 87,352 179,003 82,732 5,871 182
Interest income 102,134 -- -- -- -- --
Participant's contributions 94,994 68,918 89,203 62,893 12,968 7,971
Rollover from other plans 15,903 69,141 39,779 12,483 -- --
---------- --------- --------- -------- --------- ---------
Total additions 213,031 225,411 307,985 158,108 18,839 8,153
---------- --------- --------- -------- --------- ---------
Distributions to participants (256,315) (52,833) (31,763) (28,663) -- --
Contract discontinuance fee (34,075) -- -- -- -- --
Transfers (1,639,002) (378,532) (889,901) (470,440) 3,377,875 --
---------- --------- --------- ------- --------- ---------
Total deductions (1,929,392) (431,365) (921,664) (499,103) 3,377,875 --
Net increase (decrease)
in Other Investments (1,716,361) (205,954) (613,679) (340,995) 3,396,714 8,153
---------- --------- --------- --------- --------- ---------
Other Investments:
Beginning of year 1,716,361 205,954 613,679 340,995 -- --
--------- --------- --------- ------- -------- --------
End of year -- -- -- -- 3,396,714 8,153
========= ========= ========= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Putnam
Prudential International George Prudential Kemper PIMCo Total
Equity Income Growth Class Putnam Fund Stock Index Horizon 20+ Return Class
Fund Fund of Boston A A Fund Class A Fund A Fund Total
--------- ----------- ----------- ------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Investment income:
Net realized/unrealized
appreciation (depreciation)
in fair value of investment 165 72 180 580 56 (49) 356,144
Interest income -- -- -- -- -- -- 102,134
Participant's contributions 4,714 4,867 11,511 16,983 2,560 2,102 379,684
Rollover from other plans -- -- -- -- -- -- 137,306
------- --------- --------- -------- --------- --------- ----------
Total additions 4,879 4,939 11,691 17,563 2,616 2,053 975,268
------- --------- --------- -------- --------- --------- ----------
Distributions to participants -- -- -- -- -- -- (369,574)
Contract discontinuance fee -- -- -- -- -- -- (34,075)
Transfers -- -- -- -- -- -- --
------- --------- --------- ------- --------- --------- ----------
Total deductions -- -- -- -- -- -- (403,649)
Net increase (decrease)
in Other Investments 4,879 4,939 11,691 17,563 2,616 2,053 571,619
------- --------- --------- --------- --------- --------- ---------
Other Investments:
Beginning of year -- -- -- -- -- -- 2,876,989
------- --------- --------- ------- -------- -------- ---------
End of year 4,879 4,939 11,691 17,563 2,616 2,053 3,448,608
======= ========= ========= ======= ======== ======== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY
CIGNA CIGNA ADVISOR ADVISOR
GUARANTEED STOCK GROWTH INCOME
LONG-TERM MARKET OPPORTUNITIES AND GROWTH
FUND INDEX FUND FUND FUND TOTAL
------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1996
ASSETS
Investments $ 1,369,830 $ 200,539 $ 595,619 $ 343,821 $ 2,509,809
Loans receivable 304,373 -- -- -- 304,373
Interest receivable 1,537 -- -- -- 1,537
Participants contributions receivable 16,082 6,203 10,979 7,069 40,333
Interfund receivable 25,020 15 19,402 -- 44,437
Other receivables 80 -- -- -- 80
--------- ---------- ---------- --------- ---------
1,716,922 206,757 626,000 350,890 2,900,569
--------- ---------- ---------- --------- ---------
LIABILITIES
Interfund payable -- 803 12,321 9,895 23,019
Other payables 561 -- -- -- 561
--------- ----------- ---------- ----------- ----------
561 803 12,321 9,895 23,580
--------- ----------- ---------- ----------- ----------
Other Investments $ 1,716,361 $ 205,954 $ 613,679 $ 340,995 $ 2,876,989
========= =========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY
CIGNA CIGNA ADVISOR ADVISOR
GUARANTEED STOCK GROWTH INCOME
LONG-TERM MARKET OPPORTUNITIES AND GROWTH
FUND INDEX FUND FUND FUND TOTAL
--------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Investment income:
Net realized/unrealized
appreciation in fair value
of investments $ -- $ 31,826 $ 86,193 $ 25,460 $ 143,479
Interest income 93,296 -- -- -- 93,296
Participants' contributions 144,439 49,433 98,009 61,167 353,048
Rollovers from other plans 31,958 7,487 137,831 58,702 235,978
--------- --------- --------- --------- ---------
Total additions 269,693 88,746 322,033 145,329 825,801
--------- --------- --------- --------- ---------
Distributions to participants (72,826) (9,735) (32,916) (10,848) (126,325)
--------- ---------- --------- --------- ---------
Transfers 38,755 (12,179) 19,820 (46,396) --
--------- --------- --------- --------- ---------
Net increase in Other Investments 235,622 66,832 308,937 88,085 699,476
--------- --------- --------- --------- ---------
Other Investments:
Beginning of year 1,480,739 139,122 304,742 252,910 2,177,513
--------- --------- --------- --------- ---------
End of year $ 1,716,361 $ 205,954 $ 613,679 $ 340,995 $ 2,876,989
========= ========= ========= ========= =========
</TABLE>
<PAGE>
5. TAX STATUS
The Internal Revenue Service has determined and informed the Company by
letter dated June 10, 1996, that the Plan and related trust are designed in
accordance with applicable sections of the Internal Revenue Code (IRC). The
Plan has been amended since receiving the determination letter. However,
the Plan administrator and the Plan's tax counsel believe that the Plan is
designed and is currently being operated in compliance with the applicable
provisions of the Internal Revenue Code, and that the Plan was qualified
and the related trust was tax-exempt as of the financial statement date.
6. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for plan benefits
per the financial statements to the Form 5500:
DECEMBER 31,
----------------------------
1997 1996
----------- -------------
Net assets available for plan
benefits - financial statements $ 4,790,540 $ 5,822,503
Amounts allocated to withdrawing
participants (3,865) (31,874)
--------- ----------
Net assets available for
benefits - Form 5500 $ 4,786,675 $ 5,790,629
========= ==========
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500:
Year ended
December 31,
1997
-------------
Distributions to participants -
financial statements $ 609,588
Add: Amounts allocated to withdrawing
participants at December 31, 1997 3,865
Less: Amounts allocated to withdrawing
participants at December 31, 1996 (31,874)
--------
Distributions to participants - Form 5500 $ 581,579
========
Amounts allocated to withdrawing participants are recorded on the Form
5500 for benefit claims that have been processed and approved for payment
prior to December 31, but not yet paid as of that date.
7. SUBSEQUENT EVENT
On May 28, 1998, the S&S Loan was paid in full (see Note 3). Therefore,
all remaining unallocated shares of World Airways common stock in the Plan
became allocated. Effective July 1, 1998, the Plan was amended and became
the World Airways Employee 401(k) Savings Plan. All participants became
100% vested in the World Airways and WorldCorp Stock Funds at June 30,
1998.
<PAGE>
SCHEDULE I
WORLD AIRWAYS, INC.
EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
LINE 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
(e) Current
(A) (B) IDENTITY OF ISSUE (C) DESCRIPTION (D) COST VALUE
- ----- ---------------------- ---------------- ------------ ------------
<S> <C> <C> <C>
* Prudential Government Securities Trust
Money Market Money Market $ 3,095,139 $ 3,095,139
* Prudential Small Company Value Class A Fund Mutual Fund 7,971 9,590
* Prudential Equity Income Class A Fund Mutual Fund 4,714 6,007
* Putnam International Growth Class A Fund Mutual Fund 4,867 5,332
* George Putnam Fund of Boston A Mutual Fund 11,511 12,947
* Prudential Stock Index A Fund Mutual Fund 16,983 22,341
* Kemper Horizon 20+ Class A Fund Mutual Fund 2,560 2,847
* PIMCo Total Return Class A Fund Mutual Fund 2,102 2,731
* WorldCorp Stock Fund Stock Fund 1,497,724 374,431
* World Airways Stock Fund Stock Fund 708,432 1,201,992
Participant Loans Receivable Interest Rate: 8% - 12% 288,923 288,923
Term: Up to 10 Years
NationsBank Cash Account Cash 104,465 104,465
-------- --------
$ 5,745,391 $ 5,126,745
========= =========
* Parties-in-interest
</TABLE>
<PAGE>
Schedule II
World Airways, Inc.
Employee Savings and Stock Ownership Plan
Line 27(d) - Schedule of Reportable Transactions
For the year ended December 31, 1997
<TABLE>
<CAPTION>
(h) Current
(f) Expense Value of
(a) Identity Incurred Asset on
of Party (c) Purchase (d) Selling (e) Lease With (g) Cost Transaction (i) Net Gain
Involved (b) Description of Asset Price Price Rental Transaction of Asset Date Or Loss
- ---------- - --------------------------- ----------- ----------- --------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CIGNA Guaranteed Long-Term Fund 110,897 N/A N/A N/A 110,897 N/A N/A
CIGNA Guaranteed Long-Term Fund 1,895,317 1,895,317 N/A N/A 1,895,317 1,895,317 --
CIGNA Stock Market Index Fund 138,059 N/A N/A N/A 138,059 N/A N/A
CIGNA Stock Market Index Fund 431,366 431,366 N/A N/A 431,366 431,366 --
CIGNA Fidelity Advisor Growth
Opportunities Fund 128,983 N/A N/A N/A 128,983 N/A N/A
CIGNA Fidelity Advisor Growth
Opportunities Fund 921,664 921,664 N/A N/A 921,664 921,664 --
CIGNA Fidelity Balanced Fund 75,375 N/A N/A N/A 75,375 N/A N/A
CIGNA Fidelity Balanced Fund 499,103 499,103 N/A N/A 499,103 499,103 --
Prudential Government Securities Trust
Money Market Fund 3,390,844 N/A N/A N/A 3,390,844 N/A N/A
N/A Not Applicable
</TABLE>
<PAGE>
EXHIBIT 1
CONSENT OF INDEPENDENT AUDITORS
The Board of Trustees
World Airways, Inc. Employee Savings and Stock Ownership Plan:
We consent to incorporation by reference in the registration statement (No.
33-13575) on Form S-8 of World Airways, Inc. of our report dated July 10, 1998,
relating to the statements of net assets available for plan benefits of the
World Airways Employee Savings and Stock Ownership Plan as of December 31, 1997
and 1996, and the related statements of changes in net assets available for plan
benefits for the years then ended, which report appears in the December 31, 1997
annual report on Form 11-K of the World Airways, Inc. Employee Savings and Stock
Ownership Plan.
KPMG PEAT MARWICK LLP
Washington, D.C.
July 15, 1998
