<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: June 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 July 31,
2000 was 10,178,000.
================================================================================
<PAGE>
WORLD AIRWAYS, INC.
JUNE 30, 2000, QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets, June 30, 2000 and December 31, 1999............ 3
Condensed Statements of Operations,
Three Months Ended June 30, 2000 and 1999................................ 5
Condensed Statements of Operations,
Six Months Ended June 30, 2000 and 1999.................................. 6
Condensed Statement of Changes in Stockholders' Deficiency,
Six months ended June 30, 2000........................................... 7
Condensed Statements of Cash Flows,
Six months ended June 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)
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents, including restricted
cash of $7,275 at June 30, 2000
and $2,387 at December 31, 1999 $ 20,195 $ 11,725
Short-term marketable investments 1,825 681
Accounts receivable, less allowance for doubtful
accounts of $350 at June 30, 2000 and $1,848
at December 31, 1999 9,615 11,225
Prepaid expenses and other current assets 5,013 6,647
-------- --------
Total current assets 36,648 30,278
-------- --------
EQUIPMENT AND PROPERTY
Flight and other equipment 86,725 90,150
Equipment under capital leases 9,463 10,262
-------- --------
96,188 100,412
Less: accumulated depreciation and amortization 40,077 38,306
-------- --------
Net equipment and property 56,111 62,106
-------- --------
ASSETS HELD FOR SALE 1,267 1,315
LONG-TERM OPERATING DEPOSITS 13,958 13,414
MARKETABLE INVESTMENTS 492 1,688
OTHER ASSETS AND DEFERRED CHARGES, NET 838 935
-------- --------
TOTAL ASSETS $109,314 $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)
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable $ 8,431 $ 5,079
Current maturities of long-term obligations 4,389 6,096
Accounts payable 14,444 19,453
Unearned revenue 10,320 4,152
Accrued maintenance in excess of reserves paid 8,421 7,923
Accrued salaries and wages 8,898 8,510
Accrued taxes 2,051 2,835
Other accrued liabilities 1,099 1,127
-------- --------
Total current liabilities 58,053 55,175
-------- --------
LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES 50,428 52,112
OTHER LIABILITIES
Deferred gain from sale-leaseback transactions, net of
accumulated amortization of $23,043 at June 30, 2000 and
$22,269 at December 31, 1999 3,983 3,083
Accrued maintenance in excess of reserves paid 14,595 14,884
Accrued post-retirement benefits 2,992 2,907
Deferent rent 12,049 11,413
-------- --------
Total other liabilities 33,619 32,287
-------- --------
TOTAL LIABILITIES 142,100 139,574
-------- --------
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; 10,178,000 shares outstanding at
June 30, 2000 and 6,446,000 shares outstanding at
December 31, 1999) 12 12
Additional paid-in capital 23,887 46,857
Deferred compensation, employee salary exchange program (3,324) -
Accumulated deficit (40,111) (35,972)
Treasury stock, at cost (1,970,000 shares at June 30,
2000 and 5,701,000 shares at December 31, 1999) (13,250) (40,735)
-------- --------
Total stockholders' deficiency (32,786) (29,838)
-------- --------
COMMITMENTS AND CONTINGENCIES
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $109,314 $109,736
======== ========
</TABLE>
See accompanying Notes to Condensed Financial Statements
4
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended June 30
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
OPERATING REVENUES 2000 1999
------- -------
Flight operations $62,529 $67,320
Other 289 172
------- -------
Total operating revenues 62,818 67,492
------- -------
OPERATING EXPENSES
Flight operations 21,000 19,013
Maintenance 10,645 11,634
Aircraft rent and insurance 17,557 19,584
Fuel 6,825 5,527
Flight operations subcontracted to other carriers 2,182 1,442
Commissions 983 1,896
Depreciation and amortization 1,658 1,982
Sales, general and administrative 7,197 8,138
Settlement of contract dispute (6,975) -
------- -------
Total operating expenses 61,072 69,216
======= =======
OPERATING INCOME (LOSS) 1,746 (1,724)
OTHER INCOME (EXPENSE)
Interest expense (1,355) (1,617)
Interest income 259 256
Other, net (18) (8)
------- -------
Total other expense (1,114) (1,369)
======= =======
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM 632 (3,093)
EXTRAORDINARY ITEM - GAIN ON RETIREMENT OF DEBT - 4,176
------- -------
NET EARNINGS $ 632 $ 1,083
======= =======
BASIC EARNINGS (LOSS) PER SHARE:
Earnings (loss) before extraordinary item $ 0.06 $ (0.44)
Extraordinary item - 0.59
------- -------
Net earnings $ 0.06 $ 0.15
======= =======
DILUTED EARNINGS (LOSS) PER SHARE:
Earnings (loss) before extraordinary item $ 0.06 $ (0.44)
Extraordinary item - 0.59
------- -------
Net earnings $ 0.06 $0.15
======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 10,179 7,103
======= =======
Diluted 10,179 7,103
======= =======
</TABLE>
See accompanying Notes to Condensed Financial Statements
5
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Six Months Ended June 30,
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
OPERATING REVENUES
Flight operations $124,378 $132,475
Other 446 343
-------- --------
Total operating revenues 124,824 132,818
-------- --------
OPERATING EXPENSES
Flight operations 38,874 38,299
Maintenance 21,673 22,907
Aircraft rent and insurance 34,918 39,704
Fuel 12,772 10,744
Flight operations subcontracted to other carriers 5,529 2,061
Commissions 2,534 3,751
Depreciation and amortization 3,365 3,994
Sales, general and administrative 14,249 15,271
Settlement of contract dispute (6,975) -
-------- --------
Total operating expenses 126,939 136,731
-------- --------
OPERATING LOSS (2,115) (3,913)
OTHER INCOME (EXPENSE)
Interest expense (2,700) (3,314)
Interest income 470 473
Other, net 206 955
-------- --------
Total other expense (2,024) (1,886)
-------- --------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM (4,139) (5,799)
EXTRAORDINARY ITEM - GAIN ON RETIREMENT OF DEBT - 4,176
-------- --------
NET EARNINGS (LOSS) $ (4,139) $ 1,623
======== ========
BASIC EARNINGS (LOSS) PER SHARE:
Earnings (loss) before extraordinary item $ (0.46) $ (0.82)
Extraordinary item - 0.59
-------- --------
Net earnings (loss) $ (0.46) $ (0.23)
======== ========
DILUTED EARNINGS (LOSS) PER SHARE:
Earnings (loss) before extraordinary item $ (0.46) $ (0.82)
Extraordinary item - 0.59
-------- --------
Net earnings (loss) $ (0.46) $ (0.23)
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 9,035 7,052
======== ========
Diluted 9,035 7,052
======== ========
</TABLE>
See accompanying Notes to Condensed Financial Statements
6
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF CHANGES
IN STOCKHOLDERS' DEFICIENCY
Six Months Ended June 30, 2000
(in thousands except share amounts)
(unaudited)
<TABLE>
<CAPTION>
Additional Treasury Total
Common Paid-in Accumulated Deferred Stock, Stockholders'
Stock Capital Deficit Compensation 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 - - - 1,132 (43) 1,089
Amortization of warrants - 102 - - - 102
Net Loss - - (4,139) - - (4,139)
----- -------- -------- -------- -------- --------
Balance at June 30, 2000 $ 12 $ 23,887 $(40,111) $ (3,324) $(13,250) $(32,786)
===== ======== ======== ======== ======== ========
</TABLE>
See accompanying Notes to Condensed Financial Statements.
7
<PAGE>
WORLD AIRWAYS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2000
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD $ 11,725 $ 16,893
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (4,139) (1,623)
Adjustments to reconcile net earning (loss) to cash
provided (used) by operating activities:
Extraordinary gain on retirement of debt - (4,176)
Depreciation and amortization 3,365 3,994
Deferred gain recognition (615) (529)
Other 1,281 153
Increase (decrease) in cash resulting from changes
in operating assets and liabilities net of
effects of non-cash transactions:
Accounts receivable 1,610 (3,080)
Deposits, prepaid expenses and other assets 1,090 334
Accounts payable, accrued expenses and other liabilities (4,503) 7,721
Unearned revenue 6,168 2,741
-------- --------
Net cash provided (used) by operating activities 4,257 5,535
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to equipment and property (2,070) (636)
Proceeds from disposal of equipment and property 173 202
Maturities of marketable investments 49 -
-------- --------
Net cash used by investing activities (1,848) (434)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase(decrease) in line of credit borrowing arrangement, net 3,352 2,476
Repayment of debt (4,066) (6,931)
Issuance of debt 675 -
Proceeds of sale/leaseback transaction 6,100 -
-------- --------
Net cash provided (used) by financing activities 6,061 (4,455)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,470 646
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,195 $ 17,539
======== ========
</TABLE>
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 six months ended June 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 conjuction with the Financial Statements
contained in World Airways' Annual Report on Form 10-K/A for the year
ended December 31, 1999.
2. 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.
3. 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.
In April 2000 World Airways was informed by NASDAQ that it no longer met
one of the requirements for continued listing on the NASDAQ SmallCap
Market. Subsequently the Company provided NASDAQ with information on the
Company's plan to achieve compliance with the listing requirements, and it
believes it has presented a good case to remain listed. If, after
reviewing the information provided, NASDAQ determines that the Company's
continued listing is not warranted, it is expected a delisting process
will follow. In May 2000 the Company was also informed by NASDAQ that its
Common Stock had not maintained a minimum bid price of $1.00 for thirty
consecutive trading days as required by a NASDAQ SmallCap Market rule. If
the minimum bid price for the stock is $1.00 or more for ten consecutive
trading days anytime before August 14, 2000, NASDAQ will determine if
compliance with continued listing requirements has been achieved. If the
Common Stock is delisted from the SmallCap Market, the Company will seek
to be listed on the over-the-counter Bulletin Board or an alternative
national stock exchange.
4. 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.
5. 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 2) may result in an
Ownership Change. Accordingly, the availability of the NOL's to reduce
future federal income tax liabilities may be severely limited under
section 382 of the Code.
9
<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
For the second quarter ended June 30, 2000, the Company's operating revenues
were $62.8 million, operating income was $1.7 million and the net income was
$0.6 million. The income per share was $0.06 for both basic and diluted earnings
per share ("EPS") computed on an average of 10.2 million shares. For the second
quarter ended June 30, 1999, the Company's operating revenues were $67.5
million, the operating loss was $1.7 million and the net loss before an
extraordinary gain on the retirement of debt was $3.1 million. The loss per
share before the extraordinary gain was $0.44 for both basic and diluted
earnings per share computed on an average 7.1 million shares. The extraordinary
gain resulted from the purchase and retirement of $5.7 million of the Company's
outstanding 8% Convertible Subordinated Debentures for $1.5 million. Earnings
per share for the quarter after the extraordinary gain were $0.15.
For the first half of 2000, the Company's operating revenues were $124.8
million, the operating loss was $2.1 million, the net loss was $4.1 million, and
the loss per share was $0.46 for both basic and diluted EPS based on 9.0 million
average shares. For the first six months of 1999, the Company's operating
revenues were $132.8 million, the operating loss was $3.9 million, the net loss
before extraordinary gain was $5.8 million and the loss per share was $0.82 for
both basic and diluted EPS based on 7.1 million average shares. The
extraordinary gain in 1999 reduced the basic and diluted loss per share for the
six months to $0.23.
Significant Customer Relationships
During the first six months of 2000, the Company's business relied heavily on
its contracts with the U. S. Air Force's ("USAF") Air Mobility Command ("AMC")
and Garuda. In 2000 these customers provided approximately 39.6% and 17.8%,
respectively, of the Company's revenues and 27.3% and 22.0%, respectively, of
block hours flown. In 1999 AMC and Malaysian Airlines provided approximately
49.3% and 13.7%, respectively, of the Company's revenues and 34.6% and 12.8%,
respectively, of block hours flown.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Total block hours decreased 1,010 hours, or 11.6%, to 7,676 hours in the second
quarter of 1999 from 8,686 hours in 1999, with an average of 10 available
aircraft during in 2000 compared to an average of 11.0 in 1999. Average daily
utilization (block hours flown per day per aircraft) was 8.1 hours in 2000 and
8.7 hours in 1999. In 2000 wet lease, or ACMI, contracts accounted for 51.0% of
the block hours, a decrease from 61.7% in 1999. The decrease in ACMI hours
reflects a decrease in passenger flying partially offset by an increase in cargo
flying. Passenger ACMI flying decreased principally due to a reduction in Hadj
flying in 2000. Cargo ACMI flying increased as a result of efforts to increase
cargo business. In 2000 full
10
<PAGE>
service flying accounted for 47.0% of the block hours, an increase from 36.4% in
1999, because of flying for Renaissance Cruises.
Operating Revenues. Revenues from flight operations decreased $4.8 million, or
------------------
7.1%, to $62.5 million in 2000 from $67.3 million in 1999. This decrease is
primarily due to a combination of a decrease in the average yield, or revenue
per block hour, and the decrease in block hours flown in 2000.
Operating Expenses. Total operating expenses decreased $8.1 million, or 11.8% in
------------------
2000 to $61.0 million from $69.2 million in 1999. The principal reason for the
decline in operating expenses was a $7.0 million payment recorded as an expense
credit in the 2000 second quarter. It was received in settlement a contract
dispute with another party. There was no comparable credit in 1999.
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 $2.0 million, or 10.5%, in
2000. This increase resulted primarily from an increase in full service flying
which increased landing and handling costs by approximately $2.1 million and
communications costs by approximately $0.5 million. A reduction in pilots
salaries from flying fewer block hours generated cost reductions of
approximately $0.8 million.
Maintenance expenses decreased $1.0 million, or 8.5%, in 2000. This decrease
principally reflects the 11.6% decrease in block hours flown.
Aircraft rent and insurance costs decreased $2.0 million, or 10.4%, 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 in 1999, one in April and one in June.
Fuel expenses increased $1.3 million, or 23.5%, in 2000 reflecting an 8.6%
increase in the average cost of fuel per gallon and a 6.8% increase in the
number of gallons of fuel consumed as a result of an increase in full service
flying in 2000.
Subcontract flying increased $0.8 million to $2.2 million in 2000 from $1.4
million in 1999 as the result of having to outsource more block hour flying due
to aircraft in maintenance.
Commissions decreased $0.9 million in 2000, or 48.2%, principally as a result of
lower Hadj commissions in 2000.
Depreciation and amortization decreased $0.3 million, or 16.3%, in 2000. This
decrease resulted primarily from a reduction in fixed assets subject to
depreciation.
Sales, general and administrative expenses decreased $0.9 million, or 11.6%, in
2000, primarily as a result of general cost control measures that have been
taken.
Non-operating income and expense, net improved by $0.3 million in 1999 primarily
because of a $0.3 million reduction in interest on lower average debt.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Total block hours decreased 2,031 hours, or 11.9%, to 14,997 hours in the first
half of 2000 from 17,028 hours in 1999, with an average of 10.0 available
aircraft in 2000 and 11.0 available aircraft in 1999. Average daily utilization
(block hours flown per day per aircraft) was 8.1 hours in 2000 and 8.7 hours in
1999. In 2000 wet lease, or ACMI, contracts accounted for 54.0% of the block
hours, a decrease from 73.2% 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 44.1% of the block hours, an
increase from 24.2% in 1999, primarily because of flying for Renaissance
Cruises.
Operating Revenues. Revenues from flight operations decreased $8.1 million, or
------------------
6.1%, to $124.4 million in 2000 from $132.5 million in 1998. This decrease is
primarily due to the 11.9% decrease in block hours flown in 2000.
Operating Expenses. Total operating expenses decreased $9.8 million, or 7.2%, in
------------------
2000 to $126.9 million from $136.7 million in 1999. This reflected the contract
settlement with MAS discussed above.
Flight operations expenses increased $0.5 million, or 1.5%, in 2000. This
resulted primarily from an increase in full service
11
<PAGE>
flying which increased landing and handling costs by approximately $2.5 million.
A reduction in pilots salaries from flying fewer block hours generated cost
reductions of approximately $2.1 million.
Maintenance expenses decreased $1.2 million, or 5.4%, in 2000. This decrease
principally reflects the 11.9% decrease in block hours flown.
Aircraft rent and insurance costs decreased $4.8 million, or 12.1%, 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 leaser in the second quarter of 1999.
Fuel expenses increased $2.0 million, or 18.9%, in 2000 due to a 9.9% increase
in the average cost of fuel per gallon and a 4.5% 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 $3.4 million to $5.5 million in 2000 from
$2.1 million in 1999 primarily as a result of unanticipated maintenance delays
and one aircraft that was removed from serviced in order to repair hail damage.
Commissions decreased $1.2 million in 2000, or 32.4%, principally as a result of
lower Hadj commissions in 2000.
Depreciation and amortization decreased $0.6 million, or 15.7%, in 2000. This
decrease resulted from a reduction in fixed assets subject to depreciation.
Sales, general and administrative expenses decreased $1.0 million, or 6.7%, in
2000, primarily as a result of general cost control measures taken.
Non-operating income and expense, net worsened 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 $0.6 million reduction in interest expense
because of lower average debt outstanding in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company is highly leveraged. At June 30, 2000 the Company's cash and cash
equivalents totaled $20.2 million and the ratio of the Company's current assets
to its current liabilities ("current ratio") was 0.6:1. Also, as of June 30,
2000, the Company had outstanding long-term debt and capital leases of $50.4
million and notes payable and current maturities of long term obligations of
$12.8 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 generated $4.3 million in cash in the six months ended June
30, 2000 compared to generating $5.5 million in the comparable period in 1999.
The cash generated in 2000 principally reflects a $1.6 million decrease in
accounts receivables, a $1.1 million decrease in deposits, prepaids and other
assets, and a $6.2 million increase in unearned revenue that more than offset a
$4.5 million decrease in accounts payble, accrued expenses and other
liabilities. The increase in 1999 is mainly due to increases of $7.7 million in
accounts payable, accrued expenses and other current liabilities and $2.7
million in unearned revenue that more than offset an increase of $3.1 million in
accounts receivable.
Cash Flows from Investing Activities
Investing activities used $1.8 million in cash in the six months ended June 30,
2000, compared to using $0.4 million in the comparable period in 1999. In both
periods cash was used primarily for the purchase of rotable spare parts and
computer hardware and software.
Cash Flows from Financing Activities
Financing activities generated $6.1 million in cash in the six months ended June
30, 2000 compared to using $4.5 million in the comparable period in 1999. In
2000 the principal transaction was $6.1 million of cash generated by a
sale/leaseback transaction. In 1999 cash was principally used for the repayment
of debt.
12
<PAGE>
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 within
five years. 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 June 2000 the Company signed a letter of intent to lease three DC-10
freighter aircraft for 36 months, with two one-year extensions. The Company is
currently negotiating definitive leases for the aircraft that are scheduled to
be added to the fleet in October and December 2000 and May 2001.
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 quarter 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.
13
<PAGE>
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2000 Annual Meeting of Shareholders of World Airways, Inc. was held on
August 1, 2000. A total of 7,707,680 shares were present or represented by proxy
at the meeting. This represented approximately 79.2% of the Company's shares
outstanding.
The individuals named below were elected or reelected to a three-year term as
Class II Directors:
Name Votes Received Votes Withheld
Ronald R. Fogleman 7,591,050 116,630
Lim Kheng Yew 7,280,686 426,994
Russell L. Ray, Jr. 6,634,302 1,073,378
Daniel J. Altobello, A. Scott Andrews, Joel H. Cowan, Hollis L. Harris, Wan
Malek Ibrahim and Peter M. Sontag all continue as Directors of the Company.
The selection of KPMG LLP as the independent certified public accountants and
auditor for the Company for the year ending December 31, 2000 was ratified, with
7,425,668 shares voting for, 60,459 shares voting against and 221,553 shares
abstaining.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C> <C>
No. Description
--- -----------
27 Financial data schedule for the quarter ended June 30, 2000. Filed Herewith
</TABLE>
(b) Reports on Form 8-K
None
* * * * * * *
14
<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/ Gilberto M. Duarte, Jr.
---------------------------
Principal Accounting and Financial Officer
Date: August 2, 2000
15
