<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------------------------------------------------------------
For the Quarter Ended: September 30, 2000 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) 834-9200
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __________
----------
The number of shares of the registrant's Common Stock outstanding on October 31,
2000 was 10,256,000
<PAGE>
WORLD AIRWAYS, INC.
SEPTEMBER 30, 2000, QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets, September 30, 2000
and December 31, 1999................................... 3
Condensed Statements of Operations, Three Months
Ended September 30, 2000 and 1999....................... 5
Condensed Statements of Operations, Nine Months Ended
September 30, 2000 and 1999............................. 6
Condensed Statement of Changes in Stockholders'
Deficiency, Nine months ended September 30, 2000........ 7
Condensed Statements of Cash Flows, Nine months ended
September 30, 2000 and 1999............................. 8
Notes to Condensed Financial Statements................. 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 10
Item 3. Quantitative and Qualitative Disclosures about Market
Risk.................................................. 13
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders... 14
Item 6. Exhibits and Reports on Form 8-K...................... 14
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
WORLD AIRWAYS, INC.
CONDENSED BALANCE SHEETS
ASSETS
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
2000 1999
------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents, including restricted
cash of $2,761 at September 30, 2000
and $2,387 at December 31, 1999 $ 7,776 $ 11,725
Short-term marketable investments 1,296 681
Accounts receivable, less allowance for doubtful
accounts of $331 at September 30, 2000 and $1,848
at December 31, 1999 11,156 11,225
Prepaid expenses and other current assets 4,447 6,647
------- --------
Total current assets 24,675 30,278
------- --------
EQUIPMENT AND PROPERTY
Flight and other equipment 85,606 90,150
Equipment under capital leases 9,463 10,262
------- --------
95,069 100,412
Less: accumulated depreciation and amortization 40,368 38,306
------- --------
Net equipment and property 54,701 62,106
------- --------
ASSETS HELD FOR SALE 1,225 1,315
LONG-TERM OPERATING DEPOSITS 14,700 13,414
MARKETABLE INVESTMENTS 389 1,688
OTHER ASSETS AND DEFERRED CHARGES, NET 790 935
------- --------
TOTAL ASSETS $96,480 $109,736
======= ========
</TABLE>
(Continued)
3
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED BALANCE SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
(in thousands except share amounts)
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
2000 1999
----------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 5,437 $ 5,079
Current maturities of long-term obligations 3,965 6,096
Accounts payable 11,951 19,453
Unearned revenue 3,857 4,152
Accrued maintenance 649 22,807
Accrued salaries and wages 7,814 8,510
Accrued taxes 1,342 2,835
Other accrued liabilities 313 1,127
-------- --------
Total current liabilities 35,328 70,059
-------- --------
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 49,681 52,112
OTHER LIABILITIES
Deferred gain from sale-leaseback transactions, net of
accumulated amortization of $23,200 at September 30,
2000 and $22,269 at December 31, 1999 3,667 3,083
Deferred income taxes 520 --
Accrued post-retirement benefits 2,992 2,907
Deferent rent 12,310 11,413
-------- --------
Total other liabilities 19,489 17,403
-------- --------
TOTAL LIABILITIES 104,498 139,574
-------- --------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.001 par value (5,000,000 shares authorized;
no shares issued or outstanding) - -
Common stock, $.001 par value (40,000,000 shares authorized;
12,147,000 shares issued; 10,256,000 shares outstanding at September 30,
2000 and 6,446,000 shares outstanding at December 31, 1999) 12 12
Additional paid-in capital 23,933 46,857
Deferred compensation, employee salary exchange program (2,481) -
Accumulated deficit (16,270) (35,972)
Treasury stock, at cost (1,891,000 shares at September 30,
2000 and 5,701,000 shares at December 31, 1999) (13,212) (40,735)
-------- --------
Total stockholders' deficiency (8,018) (29,838)
-------- --------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 96,480 $109,736
======== ========
</TABLE>
See accompanying Notes to Condensed Financial Statements
4
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended September 30
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
OPERATING REVENUES
Flight operations $ 67,268 $ 67,267
Other 261 250
--------- ---------
Total operating revenues 67,529 67,517
--------- ---------
OPERATING EXPENSES
Flight Operations 24,997 20,181
Maintenance 6,720 11,961
Aircraft rent and insurance 17,726 18,161
Fuel 8,282 7,298
Flight operations subcontracted to other carriers 383 589
Commissions 570 1,995
Depreciation and amortization 1,605 1,947
Sales, general and administrative 6,173 7,289
-------- --------
Total operating expenses 66,456 69,421
-------- --------
OPERATING INCOME (LOSS) 1,073 (1,904)
OTHER INCOME (EXPENSE)
Interest expense (1,368) (1,552)
Interest income 333 266
Other, net 5 65
-------- --------
Total other expense (1,030) (1,221)
-------- --------
NET EARNINGS (LOSS) $ 43 $ (3,125)
======== ========
NET EARNINGS (LOSS) PER SHARE
Basic $ 0.00 $ (0.47)
======== ========
Diluted $ 0.00 $ (0.47)
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 10,216 6,584
======== ========
Diluted 10,216 6,584
======== ========
PRO FORMA AMOUNTS ASSUMING NEW METHOD
OF ACCOUNTING IS APPLIED RETROACTIVELY:
Net earnings (loss) $ 43 $ (2,744)
Net earnings (loss) per share
Basic $ 0.00 $ (0.42)
Diluted $ 0.00 $ (0.42)
</TABLE>
See accompanying Notes to Condensed Financial Statements
5
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Nine Months Ended September 30,
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
OPERATING REVENUES
Flight operations $ 191,646 $ 199,742
Other 707 593
--------- ---------
Total operating revenues 192,353 200,335
--------- ---------
OPERATING EXPENSES
Flight operations 63,871 58,480
Maintenance 26,819 34,868
Aircraft rent and Insurance 52,644 67,805
Fuel 21,054 18,042
Flight operations subcontracted to other carriers 5,912 2,650
Commissions 3,104 5,746
Depreciation and amortization 4,970 5,941
Sales, general and administrative 20,422 22,561
Settlement of contract dispute (6,975) --
--------- ---------
Total operating expenses 191,821 206,153
--------- ---------
OPERATING INCOME (LOSS) 532 (5,818)
OTHER INCOME (EXPENSE)
Interest expense (4,068) (4,866)
Interest income 803 739
Other, net 211 1,020
--------- ---------
Total other expense (3,054) (3,107)
--------- ---------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (2,522) (8,925)
EXTRAORDINARY ITEM - GAIN ON RETIREMENT OF DEBT -- 4,176
CUMULATIVE EFFECT OF CHANGE IN METHOD OF
ACCOUNTING FOR CERTAIN MAINTENANCE COSTS 22,224 --
--------- ---------
NET EARNINGS (LOSS) $ 19,702 $ (4,749)
========= =========
BASIC EARNINGS (LOSS) PER SHARE:
Earnings (loss) before extraordinary item and cumulative effect
of accounting change $ (0.27) $ ($1.29)
Extraordinary item -- 0.61
Cumulative effect of accounting change 2.36 --
--------- ---------
NET EARNINGS (LOSS) $ 2.09 $ (0.68)
========= =========
Weighted average shares 9,431 6,894
========= =========
DILUTED EARNINGS (LOSS) PER SHARE:
Earnings (loss) before extraordinary item and cumulative effect
of accounting change $ (0.27) $ (1.29)
Extraordinary item -- 0.61
Cumulative effect of accounting change 2.36 --
--------- ---------
NET EARNINGS (LOSS) $ 2.09 $ (0.68)
========= =========
Weighted average shares 9,431 6,894
========= =========
PRO FORMA AMOUNTS ASSUMING NEW METHOD OF
ACCOUNTING IS APPLIED RETROACTIVELY
Earnings (loss) before extraordinary item $ (2,522) $ (4,673)
Net earnings (loss) $ (2,522) $ (497)
Basic earnings (loss) per share:
Before extraordinary item $ (0.27) $ (0.68)
Net earnings (loss) $ (0.27) $ (0.07)
Diluted earnings (loss) per share:
Before extraordinary item $ (0.27) $ (0.68)
Net earnings (loss) $ (0.27) $ (0.07)
</TABLE>
See accompanying Notes to Condensed Financial Statements
6
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF CHANGES
IN STOCKHOLDERS' DEFICIENCY
Nine Months Ended September 30, 2000
(in thousands except share amounts)
(unaudited)
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Accumulated Deferred Treasury Stockholders'
Stock Capital Deficit Compensation Stock, at Cost Deficiency
----- ------- ------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 12 $ 46,857 $ (35,972) $ - $ (40,735) $ (29,838)
Issuance of 3,733,000 shares of
restricted common stock under
Employee Salary Exchange Program - (23,072) - (4,456) 27,528 -
Amortization of deferred
compensation and accrual of
changes in Employee Salary
Exchange Program - - - 1,975 (5) 1,970
Amortization of warrants - 148 - - - 148
Net earnings - - 19,702 - - 19,702
---- --------- --------- ------------- --------- ---------
Balance at September 30, 2000 $ 12 $ 23,933 $ (16,270) $ (2,481) $ (13,212) $ (8,018)
==== ========= ========= ============= ========= =========
</TABLE>
See accompanying Notes to Condensed Financial Statements.
7
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD $ 11,725 $ 16,893
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) 19,702 (4,749)
Adjustments to reconcile net earnings (loss) to cash
provided (used) by operating activities:
Extraordinary gain on retirement of debt - (4,176)
Cumulative effect of accounting change (22,224) -
Depreciation and amortization 4,970 5,942
Deferred gain recognition (931) (793)
Other 2,250 (30)
Increase (decrease) in cash resulting from changes
in operating assets and liabilities net of
effects of non-cash transactions:
Accounts receivable 69 (9,369)
Deposits, prepaid expenses and other assets 914 468
Accounts payable, accrued expenses and other liabilities (8,937) 10,677
Unearned revenue (295) 2,672
--------- --------
Net cash provided (used) by operating activities (4,482) 642
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property (2,259) (1,227)
Proceeds from disposal of equipment and property 215 1,561
Maturities of marketable investments 681 -
--------- --------
Net cash provided (used) by investing activities (1,363) 334
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in line of credit borrowing arrangement, net 358 3,384
Repayment of debt (5,237) (8,035)
Issuance of debt 675 -
Proceeds of sale/leaseback transaction 6,100 -
Other - 10
--------- --------
Net cash provided (used) by financing activities 1,896 (4,641)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,949) (3,665)
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,776 $ 13,228
========= ========
</TABLE>
See accompanying Notes to Condensed Financial Statements
8
<PAGE>
WORLD AIRWAYS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. Management believes that all adjustments necessary for a fair statement of
results have been included in the Condensed Financial Statements for the
interim periods presented, which are unaudited. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates and the results of
operations for the nine months ended September 30, 2000 are not necessarily
indicative of the results to be expected for the year ending December 31,
2000.
These interim period Condensed Financial Statements and accompanying
footnotes should be read in conjunction with the Financial Statements
contained in World Airways' Annual Report on Form 10-K/A for the year ended
December 31, 1999.
2. Accounting Change
During the third quarter ended September 30, 2000, the Company changed its
method of accounting for certain aircraft maintenance costs from the
accrual method of accounting to the direct expense method. Under the new
accounting method, maintenance costs are recognized as expense as
maintenance services are performed and as flight hours are flown for
nonrefundable maintenance payments required by lease agreements. The
Company believes that the new accounting principle is preferable because
the direct expense method is the predominant method used in the airline
industry and there has not been an obligating event prior to the
maintenance checks actually being performed or flight hours being flown.
Effective January 1, 2000, the Company recorded the cumulative effect of the
accounting change of $22.2 million (net of income taxes of $520,000), which
is included in the results of operations for the nine months ended September
30, 2000. The effect of the change for the three months ended September 30,
2000 was to increase net income by $2.8 million ($0.34 per share) and the
effect of the change for the nine months ended September 30, 2000 was to
reduce the loss before the cumulative effect of the accounting change and
increase net earnings by $4.4 million ($0.47 per share).
The Company has restated quarterly information on the first and second
quarters of 2000 as follows (000's except per share amounts):
<TABLE>
<CAPTION>
Three months ended
March 31, 2000 June 30, 2000
-------------- -------------
<S> <C> <C>
Net earnings (loss) as originally reported $ (4,771) $ 632
Effect of change in accounting 939 635
-------- -------
Earnings (loss) before cumulative effect of accounting change (3,832) 1,267
Cumulative effect on prior years of change in method of
accounting 22,224 --
-------- -------
Net earnings as restated $ 18,392 $ 1,267
======== =======
Per share amounts:
Net earnings (loss) as originally reported $ (0.60) $ 0.06
Effect of change in accounting 0.11 0.06
-------- -------
Earnings (loss) before cumulative effect of accounting
change (0.49) 0.12
Cumulative effect on prior years of change in method of
accounting 2.82 --
-------- -------
Net earnings as restated $ 2.33 $ 0.12
======== =======
</TABLE>
9
<PAGE>
3. WorldCorp Ownership
At June 30, 2000 WorldCorp, Inc. ("WorldCorp") owned 1.9 million shares, or
18.6%, of the Company's outstanding Common Stock. WorldCorp had filed for
bankruptcy protection in February 1999 and in May 2000 the bankruptcy court
overseeing the bankruptcy proceedings approved a Liquidation Plan for
WorldCorp. Consequently, all World Airways Common Stock owned by WorldCorp
was distributed to creditors of WorldCorp in July 2000. Following the
distribution, approximately 12% of World Airways stock is owned by Naluri
Berhad, a Malaysian aviation company, and the balance is publicly held.
Directors, officers and employees own approximately 45% of the outstanding
stock.
4. Capital Stock
At June 30, 2000, World Airways had 10.2 million shares of Common Stock
outstanding, including 3.7 million restricted shares given to employees
pursuant to the Employee Salary Exchange Program, which began in February
2000.
World Airways has been informed that its Common Stock failed to meet net
tangible assets/market capitalization income and bid price requirements to
continue to be listed on the NASDAQ SmallCap Market. While World Airways has
failed to meet these requirements as of August 14, 2000, the Company was
granted a temporary exception from the standards subject to World Airways
meeting certain conditions. In order to meet the requirements of the
exception the Company must provide information to NASDAQ on its financial
results for the nine months ended September 30, 2000 and year ending December
31, 2000 by November 15, 2000 and January 31, 2001, respectively. In
addition, the Company must comply with NASDAQ's minimum bid price
requirements by January 31, 2001. In the event the Company is deemed to have
met the terms of the exception, it shall continue to be listed on the NASDAQ
SmallCap Market. The Company believes it can meet these conditions, but
there can be no assurance that it will do so. If at some future date the
Company's securities should cease to be listed on the NASDAQ SmallCap Market,
they may continue to be listed in the OTC-Bulletin Board. For the duration
of the exception, beginning October 20, 2000, the Company's NASDAQ symbol
will be WLDAC.
5. Transactions with Malaysia Airlines
World Airways provided service to Malaysian Airline System Berhad ("Malaysia
Airlines" or "MAS") from 1981 to 1999 and also leased aircraft from MAS
during that time frame. In the second quarter of 1999, the Company returned
the last aircraft that it had leased from MAS and effective October 1999
ceased operating other aircraft for MAS. In May 2000 the Company received $7
million as a result of a comprehensive settlement with Malaysian Airlines.
The settlement related to a number of aircraft lease and operating
agreements, the last of which was terminated in 1999.
6. Aircraft Leases
The Company has finalized leases for five DC-10-30F freighter aircraft and
one DC-10-30 passenger aircraft. The passenger aircraft, which is being
leased from October 2000 to April 2003, is replacing another similar
passenger aircraft that was returned to the lessor in October. Three of the
five freighter aircraft are being leased for 36 months with two one-year
extensions and the other two are being leased for seven-year terms. Two of
the freighter aircraft are scheduled to be delivered in 2000 and the other
three are scheduled for delivery in 2001.
7. Income Taxes
At December 31, 1999, the Company had net operating loss carry forwards for
federal income tax purposes of $73.4 million. The distribution of the shares
of Common Stock owned by WorldCorp (see Note 3) resulted in an Ownership
Change. Accordingly, the availability of the NOL's to reduce future federal
income tax liabilities will be severely limited under section 382 of the
Code. Based on preliminary reviews, it is now expected the future
availability of NOL's will be less than $500,000 annually.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
------- -----------------------------------------------------------------------
OF OPERATIONS
-------------
Part I, Item 2 of this report should be read in conjunction with Part II, Item 7
of World Airways, Inc. ("World Airways" or "the Company") Annual Report on Form
10-K/A for the year ended December 31, 1999. The information contained herein
is not a comprehensive management overview and analysis of the financial
condition and results of operations of the Company, but rather updates
disclosures made in the aforementioned filing.
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 (the "Act"). Therefore, this
report contains forward looking statements that are subject to risks and
uncertainties, including, but not limited to, 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.
These risks could cause the Company's actual results for 2000 and beyond to
differ materially from those expressed in any forward looking statements made
by, or on behalf of, the Company.
OVERVIEW
General
During the third quarter ended September 30, 2000, the Company changed its
method of accounting for certain aircraft maintenance costs from the accrual
method of accounting to the direct expense method. Under the new accounting
method, maintenance costs are recognized as expense as maintenance services
are performed and as flight hours are flown for nonrefundable maintenance
payments required by lease agreements. The Company believes that the new
accounting principle is preferable because the direct expense method is the
predominant method used in the airline industry and there has not been an
obligating event prior to the maintenance checks actually being performed or
flight hours being flown.
Effective January 1, 2000, the Company recorded the cumulative effect of the
accounting change of $22.2 million (net of income taxes of $520,000), which is
included in the results of operations for the nine months ended September 30,
2000. The effect of the change for the three months ended September 30, 2000
was to increase net income by $2.8 million ($0.34 per share) and the effect of
the change for the nine months ended September 30, 2000 was to reduce the loss
before the cumulative effect of the accounting change and increase net earnings
by $4.4 million ($0.47 per share).
For the third quarter ended September 30, 2000, the Company's operating revenues
were $67.5 million, operating earnings were $1.1 million and the net earnings
were $43,000. The income per share was $0.00 for both basic and diluted
earnings per share ("EPS") computed on an average of 10.2 million shares. For
the third quarter ended September 30, 1999, the Company's operating revenues
were $67.5 million, the operating loss was $1.9 million and the net loss was
$3.1 million. The loss per share was $0.47 for both basic and diluted earnings
per share computed on an average 6.6 million shares.
For the first nine months of 2000, the Company's operating revenues were $192.4
million, the operating earnings were $0.5 million, and the net loss before the
cumulative effect of a change in the method of accounting was $2.5 million. The
net loss per share before the cumulative effect of the accounting change was
$0.27 based on 9.4 million shares for both basic and diluted earning per share.
Net earnings per share, both basic and diluted, after the cumulative effect of
the accounting change was $2.09. For the first nine months of 1999, the
Company's operating revenues were $200.3 million, the operating loss was $5.8
million, the net loss before extraordinary gain was $8.9 million and the loss
per share was $1.29 for both basic and diluted EPS based on 6.9 million average
shares. An extraordinary gain of $4.2 million on the retirement of debt in 1999
reduced the basic and diluted loss per share for the nine months to $0.68.
Significant Customer Relationships
During the first nine months of 2000, the Company's business relied heavily on
its contracts with the U. S. Air Force's ("USAF") Air Mobility Command ("AMC"),
Renaissance Tours and Garuda. In 2000 these customers provided approximately
39%, 17% and 12%, respectively, of the Company's revenues and 27%, 14% and 15%,
respectively, of block hours flown. In 1999 AMC and Malaysian Airlines provided
approximately 51% and 12%, respectively, of the Company's revenues and 35% and
13%, respectively, of block hours flown.
11
<PAGE>
RESULTS OF OPERATIONS
On a pro forma basis the change in accounting method for maintenance costs
reduced maintenance expense for the three and nine months ended September 30,
1999 by approximately $381,000 and $4,252,000, respectively. The following
discussion of results of operations for the three and nine months ended
September 30, 2000 compared to the comparable periods of 1999 reflect the pro
forma effect of the accounting changes on 1999.
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Total block hours decreased 518 hours, or 5.8%, to 8,411 hours in the third
quarter of 2000 from 8,929 hours in 1999, with an average of 10 available
aircraft during both periods. Average daily utilization (block hours flown per
day per aircraft) was 9.2 hours in 2000 and 9.6 hours in 1999.
Operating Revenues. Revenues from flight operations were $67.3 million in both
------------------
periods. Increases in the average yield, or revenue per block hour, offset the
decrease in block hours flown in 2000.
Operating Expenses. Total operating expenses decreased $2.6 million, or 3.7% in
------------------
2000 to $66.4 million from $69.8 million in 1999 on a pro forma basis after the
accounting change.
Flight operations expenses include all expenses related directly to the
operation of the aircraft other than aircraft cost, fuel and maintenance. Also
included are expenses related to flight dispatch and flight operations
administration. Flight operations expenses increased $4.8 million, or 23.9%, in
2000. This increase resulted primarily from an increase in full service flying
which increased landing and handling costs by approximately $1.5 million, flight
attendant costs by $1.3 million and catering costs by approximately $0.4
million. Pilot costs increased by $1.7 million as additional crews hired for
new aircraft scheduled for delivery in 2000 and 2001 more than offset cost
reductions associated with the reduction in block hours flown.
Maintenance expenses decreased $4.9 million, or 42%, in 2000 on a pro forma
basis. This decrease reflects the 5.8% decrease in block hours flown and fewer
overhauls performed in 2000.
Aircraft rent and insurance costs decreased $0.4 million, or 2.4%, in 2000.
This decrease resulted primarily from renting fewer spare engines in 2000.
Fuel expenses increased $1.0 million, or 13.5%, in 2000 primarily reflecting a
13.5% increase in the average cost of fuel per gallon and a 0.2% increase in the
number of gallons of fuel consumed.
Subcontract flying decreased $0.2 million to $0.4 million in 2000 from $0.6
million in 1999 as the result of having to outsource less block hour flying due
to aircraft in maintenance.
Commissions decreased $1.4 million in 2000, or 71.4%, principally as a result
of lower AMC business in 2000.
Depreciation and amortization decreased $0.3 million, or 17.6%, in 2000. This
decrease resulted primarily from a reduction in fixed assets subject to
depreciation.
Sales, general and administrative expenses decreased $1.1 million, or 15.3%, in
2000, primarily as a result of general cost control measures that have been
taken.
Non-operating income and expense, net improved by $0.2 million in 2000 primarily
because of a $0.2 million reduction in interest on lower average debt.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September
30, 1999
Total block hours decreased 2,549 hours, or 9.8%, to 23,408 hours in the first
nine months of 2000 from 25,957 hours in 1999, with an average of 10.0 available
aircraft in 2000 and 11.2 available aircraft in 1999. Average daily
utilization (block hours flown per day per aircraft) was 8.6 hours in 2000 and
8.5 hours in 1999. In 2000 wet lease, or ACMI, contracts accounted for 53% of
the block hours, a decrease from 60% in 1999. The decrease in ACMI hours
principally reflects a decrease in cargo flying due to not flying for Malaysian
Airlines in 2000. In 2000 full service flying accounted for 47% of the block
hours, an increase from 38% in 1999, primarily because of flying for Renaissance
Cruises.
12
<PAGE>
Operating Revenues. Revenues from flight operations decreased $8.1 million, or
------------------
4.1%, to $191.6 million in 2000 from $199.7 million in 1999. This decrease is
primarily due to the 9.8% decrease in block hours flown in 2000.
Operating Expenses. Total operating expenses decreased $10.1 million, or 5.0%,
------------------
in 2000 to $191.8 million from $201.9 million in 1999 on a pro forma basis after
the accounting change. This primarily reflected a $7 million contract
settlement received from MAS in the second quarter.
Flight operations expenses increased $5.4 million, or 9.2%, in 2000. This
resulted primarily from an increase in full service flying which increased
landing and handling costs by approximately $4.0 million, flight attendant costs
by $1.7 million, and catering costs by $0.8 million. A reduction in pilots
salaries, principally from flying fewer block hours generated cost reductions of
approximately $0.4 million.
Maintenance expenses decreased $3.8 million, or 12.4%, in 2000 on a pro forma
basis. This decrease principally reflects the 9.8% decrease in block hours
flown.
Aircraft rent and insurance costs decreased $5.2 million, or 9.0%, in 2000.
This decrease resulted primarily from decreases in rent expense for the
Company's MD-11 aircraft negotiated with the aircraft lessors in 1999 and the
return of two aircraft to the lessor in the second quarter of 1999.
Fuel expenses increased $3.0 million, or 16.7%, in 2000 due to a 13.0% increase
in the average cost of fuel per gallon and a 3.5% increase in the number of
gallons of fuel consumed as a result of an increase in full service flying in
2000.
Subcontract flying costs increased $3.3 million to $5.9 million in 2000 from
$2.6 million in 1999 primarily as a result of unanticipated maintenance delays
and one aircraft that was removed from service in order to repair hail damage.
Commissions decreased $2.6 million in 2000, or 46.0%, principally as a result
of lower Hadj and AMC commissions in 2000.
Depreciation and amortization decreased $0.9 million, or 16.3%, in 2000. This
decrease resulted from a reduction in fixed assets subject to depreciation.
Sales, general and administrative expenses decreased $2.1 million, or 9.5%, in
2000, primarily as a result of general cost control measures taken.
Non-operating income and expense, net improved by $0.1 million in 2000
primarily because of a $1.0 million gain on the sale of a portion of the
Company's interest in an unaffiliated communications company that was recorded
in 1999. This was partially offset by a $0.8 million reduction in interest
expense because of lower average debt outstanding in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company is highly leveraged. At September 30, 2000 the Company's cash and
cash equivalents totaled $9.1 million and the ratio of the Company's current
assets to its current liabilities ("current ratio") was 0.7:1. Also, as of
September 30, 2000, the Company had outstanding long-term debt and capital
leases of $49.7 million and notes payable and current maturities of long term
obligations of $9.4 million. In addition, the Company has significant long-term
obligations relating to operating leases for aircraft and spare engines.
Cash Flows from Operating Activities
Operating activities used $4.5 million in cash in the nine months ended
September 30, 2000 compared to generating $0.6 million in the comparable period
in 1999.
13
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The cash used in 2000 principally reflects $3.8 million net non-cash income
statement charges that were offset by a $0.9 million decrease in deposits,
prepaids and other assets, a $0.3 million decrease in unearned revenue and a
$8.9 million decrease in accounts payable, accrued expenses and other
liabilities. The increase in 1999 is mainly due to increases of $10.7 million in
accounts payable, accrued expenses and other current liabilities and $2.7
million in unearned revenue that more than offset an increase of $9.4 million in
accounts receivable.
Cash Flows from Investing Activities
Investing activities used $1.4 million in cash in the nine months ended
September 30, 2000, compared to generating $0.3 million in the comparable period
in 1999. In 2000 cash was used primarily for the purchase of rotable spare
parts. In 1999 proceeds from the disposal of property and equipment of $1.6
million more than offset purchases.
Cash Flows from Financing Activities
Financing activities generated $1.9 million in cash in the nine months ended
September 30, 2000 compared to using $4.6 million in the comparable period in
1999. In 2000 $6.1 million of cash generated by a sale/leaseback transaction
was offset by a net decrease of $4.2 million in debt outstanding. In 1999 cash
was principally used for the repayment of debt.
Capital Commitments
In 2000 the FAA issued an Airworthiness Directive ("AD") that requires the
Company to replace the insulation blankets on its eight MD-11 aircraft by June
30, 2005. The Company presently estimates that the cost of the replacement,
including labor, material and out-of-services costs will total approximately
$4.9 million per aircraft. The Company has not yet determined how the cost of
replacing the blankets will be financed.
In July 2000 the Company announced that it would move its Corporate Headquarters
from Virginia to Peachtree City near Atlanta, Georgia. Although the Company
expects to reduce its ongoing operating costs as a result of the move, it has
not yet quantified the costs of the move. It is expected the move will be
completed in the first half of 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------- ----------------------------------------------------------
Part I, Item 3 of this report should be read in conjunction with Part II, Item
7a of World Airways, Inc. ("World Airways" or "the Company") Annual Report on
Form 10-K/A for the year ended December 31, 1999. The information contained
herein is not a quantitative and qualitative discussion about market risk the
Company faces, but rather updates disclosures made in the aforementioned filing.
World Airways continues to not have any material exposure to market risks.
14
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PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------- ---------------------------------------------------
None.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
------- -----------------------------------------------------------------
<TABLE>
<CAPTION>
(a) Exhibits
No. Description
------ -------------------------------------------------------------------
<S> <C> <C>
10.1 Second Amended and Restated Employment Agreement dated June 1, 2000
between Hollis Harris and the Company Filed Herewith
18 Letter from KPMG LLP regarding change in accounting principle. Filed Herewith
27 Financial data schedule for the quarter ended September 30, 2000. Filed Herewith
(b) Reports on Form 8-K
None
</TABLE>
* * * * * * * *
15
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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/ Gilberto M. Duarte, Jr.
--------------------------------------
Principal Accounting and Financial Officer
Date: November 13, 2000
