-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UAw8qZzne4ggMw4kzC4Y54iZtqstHiIqOknd4a3roE6zXFt8NBfbzXC8R/KKfw7f Qo+2bqfq3VI7H9rraeiB6g== 0000928385-97-001918.txt : 19971117 0000928385-97-001918.hdr.sgml : 19971117 ACCESSION NUMBER: 0000928385-97-001918 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLDCORP INC CENTRAL INDEX KEY: 0000811664 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, NONSCHEDULED [4522] IRS NUMBER: 943040585 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09591 FILM NUMBER: 97720726 BUSINESS ADDRESS: STREET 1: 13873 PARK CTR RD STE 490 CITY: HERNDON STATE: VA ZIP: 22071 BUSINESS PHONE: 7038349200 MAIL ADDRESS: STREET 1: 13873 PARK CENTER ROAD CITY: HERNDON STATE: VA ZIP: 22071 10-Q 1 FORM 10-Q FOR 9/30/97 CONFORMED COPY ================================================================================ 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, 1997 Commission File Number 1-5351 WORLDCORP, INC. (Exact name of registrant as specified in its charter) DELAWARE94-3040585 (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 November 7, 1997 was 14,267,245. ================================================================================ WORLDCORP, INC. SEPTEMBER 1997, QUARTERLY REPORT ON FORM 10Q TABLE OF CONTENTS
Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets, September 30, 1997 and December 31, 1996................................... 3 Condensed Consolidated Statements of Operations, Three months ended September 30, 1997 and 1996............... 5 Condensed Consolidated Statements of Operations, Nine months ended September 30, 1997 and 1996................ 7 Condensed Consolidated Statement of Changes in Common Stockholders' Deficit, Nine months ended September 30, 1997.. 9 Condensed Consolidated Statements of Cash Flows, Nine months ended September 30, 1997 and 1996................ 10 Notes to Condensed Consolidated Financial Statements......... 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 16 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................. 34
2 ITEM 1. FINANCIAL STATEMENTS - ------- -------------------- WORLDCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (IN THOUSANDS)
(unaudited) September 30, December 31, 1997 1996 --------------- ------------ CURRENT ASSETS Cash and cash equivalents, including restricted cash of $447 at December 31, 1996 $ 8,665 $ 12,462 Restricted cash and short-term investments -- 2,047 Trade accounts receivable, less allowance for doubtful accounts of $413 at December 31, 1996 -- 15,460 Other receivables 201 4,667 Due from affiliate, net -- 4,181 Prepaid expenses and other current assets 869 8,314 Assets held for sale -- 500 ------- -------- Total current assets 9,735 47,631 ------- -------- ASSETS HELD FOR SALE -- 3,425 EQUIPMENT AND PROPERTY Flight and other equipment 3,103 75,191 Equipment under capital leases 173 11,639 ------- -------- 3,276 86,830 Less accumulated depreciation and amortization 2,988 21,357 ------- -------- Net equipment and property 288 65,473 ------- -------- LONG-TERM OPERATING DEPOSITS -- 15,951 INVESTMENT IN AFFILIATES 11,490 36,299 OTHER ASSETS AND DEFERRED CHARGES, NET 1,710 5,145 INTANGIBLE ASSETS, NET 913 1,072 ------- -------- TOTAL ASSETS $24,136 $ 174,996 ======= ========
3 WORLDCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT (IN THOUSANDS EXCEPT SHARE DATA)
(unaudited) September 30, December 31, 1997 1996 ------------- ------------ CURRENT LIABILITIES Notes payable $ -- $ 26,386 Current maturities of long-term obligations 10,034 9,990 Accounts payable 218 24,339 Net liabilities of discontinued operations -- 1,834 Unearned revenue -- 3,046 Accrued maintenance in excess of reserves paid -- 9,770 Due to affiliates 384 -- Accrued salaries and wages 588 10,344 Accrued interest 1,706 981 Accrued taxes 81 1,249 --------- -------- Total current liabilities 13,011 87,939 --------- -------- LONG-TERM OBLIGATIONS, NET 64,740 104,804 OTHER LIABILITIES Deferred gain from sale leaseback transactions, net of accumulated amortization of $19,099 as of December 31, 1996 -- 6,252 Accrued postretirement benefits -- 2,545 Accrued maintenance in excess of reserves paid -- 6,867 Other -- 3,378 --------- -------- Total other liabilities -- 19,042 --------- -------- TOTAL LIABILITIES 77,751 211,785 --------- -------- MINORITY INTEREST -- 3,548 COMMON STOCKHOLDERS' DEFICIT Common stock, $1 par value, (60,000,000 shares authorized, 16,636,407 shares issued and 14,763,641 shares outstanding at September 30, 1997 and 16,617,031 shares issued and 15,020,265 shares outstanding at December 31, 1996) 16,636 16,617 Additional paid-in capital 43,673 43,824 Deferred compensation (351) (591) Accumulated deficit (104,989) (91,366) ESOP guaranteed bank loan -- (805) Treasury stock, at cost (1,872,766 shares at September 30, 1997 and 1,596,766 shares at December 31, 1996) (8,584) (8,016) --------- -------- TOTAL COMMON STOCKHOLDERS' DEFICIT (53,615) (40,337) --------- -------- COMMITMENTS AND CONTINGENCIES TOTAL LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT $ 24,136 $174,996 ========= ========
See accompanying Notes to Condensed Consolidated Financial Statements 4 WORLDCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
1997 1996 --------- -------- OPERATING REVENUES World Airways $ 55,416 $75,397 US Order -- 1,064 -------- ------- Total operating revenues 55,416 76,461 -------- ------- OPERATING EXPENSES World Airways: Flight 14,778 16,911 Maintenance 10,103 13,855 Aircraft costs 15,667 18,982 Fuel 4,957 6,628 Flight operations subcontracted to other carriers 118 4,809 Promotions, sales and commissions 2,256 2,000 Depreciation and amortization 1,464 2,055 General and administrative 4,010 6,441 -------- ------- Total operating expenses - World Airways 53,353 71,681 -------- ------- US Order: Total operating expenses - US Order -- 9,520 -------- ------- WorldCorp: General and administrative 520 998 -------- ------- Total operating expenses 53,873 82,199 -------- ------- OPERATING INCOME (LOSS) 1,543 (5,738) -------- ------- OTHER INCOME (EXPENSE) Interest expense (2,420) (3,068) Interest income 402 840 Equity in earnings (loss) of affiliates, net (22,393) -- Gain on sale of subsidiary's stock 17,615 -- Gain (loss) on issuances (purchases) of equity by affiliates, net (8,457) 1,903 Other, net 272 (520) -------- ------- Total other expense (14,981) (845) -------- ------- LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST (13,438) (6,583) INCOME TAX EXPENSE -- (180) MINORITY INTEREST (681) 2,616 -------- ------- LOSS FROM CONTINUING OPERATIONS (14,119) (4,147) -------- ------- LOSS FROM DISCONTINUED OPERATIONS BEFORE MINORITY INTEREST -- 180 MINORITY INTEREST -- (73) -------- ------- DISCONTINUED OPERATIONS -- 107 -------- ------- NET LOSS $(14,119) $(4,040) ======== ======= (Continued)
5 WORLDCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, (CONTINUED) (UNAUDITED)
1997 1996 -------- -------- PRIMARY NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE Continuing operations $ (0.94) $ (0.24) Discontinued operations -- 0.01 ----- ----- Net loss $ (0.94) $ (0.23) ====== ====== FULLY DILUTED NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE Continuing operations $ * $ * Discontinued operations * * ----- ----- Net loss $ * $ * ===== ===== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Primary 14,988,934 17,214,199 ========== ========== Fully diluted * * ===== =====
* Fully diluted earnings per share are anti-dilutive. See accompanying Notes to Condensed Consolidated Financial Statements 6 WORLDCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
1997 1996 --------- -------- OPERATING REVENUES World Airways $216,092 $227,270 US Order -- 2,938 -------- -------- Total operating revenues 216,092 230,208 -------- -------- OPERATING EXPENSES World Airways: Flight 47,892 50,193 Maintenance 44,698 44,348 Aircraft costs 65,046 60,434 Fuel 10,660 14,698 Flight operations subcontracted to other carriers 2,367 12,822 Promotions, sales and commissions 6,919 5,634 Depreciation and amortization 5,795 5,949 General and administrative 17,818 17,530 -------- -------- Total operating expenses - World Airways 201,195 211,608 -------- -------- US Order: Total operating expenses - US Order -- 16,544 -------- -------- WorldCorp: General and administrative 1,844 3,018 -------- -------- Total operating expenses 203,039 231,170 -------- -------- OPERATING INCOME (LOSS) 13,053 (962) -------- -------- OTHER INCOME (EXPENSE) Interest expense (8,045) (8,878) Interest income 831 2,807 Equity in earnings (loss) of affiliates, net (23,163) -- Gain on sale of subsidiary's stock, net 17,615 -- Gain (loss) on issuances (purchases) of equity by affiliates, net (8,854) 1,729 Other, net 68 (1,090) -------- -------- Total other expense (21,548) (5,432) -------- -------- LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST (8,495) (6,394) INCOME TAX EXPENSE (350) (495) MINORITY INTEREST (4,778) 529 -------- -------- LOSS FROM CONTINUING OPERATIONS (13,623) (6,360) -------- -------- LOSS FROM DISCONTINUED OPERATIONS BEFORE MINORITY INTEREST -- (32,525) MINORITY INTEREST -- 13,254 -------- -------- LOSS FROM DISCONTINUED OPERATIONS -- (19,271) -------- -------- NET LOSS $(13,623) $(25,631) ======== ======== (Continued)
7 WORLDCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (CONTINUED) (UNAUDITED)
1997 1996 ----------- ------------ PRIMARY NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE Continuing operations $ (0.91) $ (0.39) Discontinued operations -- (1.17) ---------- ---------- Net loss $ (0.91) $ (1.56) ========== ========== FULLY DILUTED NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE Continuing operations $ * $ * Discontinued operations * * ---------- ---------- Net loss $ * $ * ========== ========== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Primary 15,004,837 16,447,127 ========== ========== Fully diluted * * ======= =======
* Fully diluted earnings per share are anti-dilutive. See accompanying Notes to Condensed Consolidated Financial Statements 8 WORLDCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' DEFICIT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
Employee Stock Owner- Total Additional ship Plan Treasury Common Common Paid-in Deferred Accumulated Guaranteed Stock, Stockholders' Stock Capital Compensation Deficit Bank Loan at cost Deficit ------- ----------- ------------- ------------ ------------- --------- -------------- BALANCE AT DECEMBER 31, 1996 $16,617 $43,824 $(591) $ (91,366) $(805) $(8,016) $(40,337) Issuance of stock 19 49 -- -- -- -- 68 Employee Stock Ownership Plan guaranteed bank loan -- -- -- -- 805 -- 805 Amortization of deferred compensation -- -- 40 -- -- -- 40 Cancellation of options previously granted -- (200) 200 -- -- -- -- Purchase of common stock, at cost -- -- -- -- -- (568) (568) Net loss -- -- -- (13,623) -- -- (13,623) ------- ---------- ------------ ----------- ------------ -------- -------- BALANCE AT SEPTEMBER 30, 1997 $16,636 $43,673 $(351) $(104,989) $ -- $(8,584) $(53,615) ======= ========== ============ =========== ============ ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements 9 WORLDCORP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, (IN THOUSANDS) (UNAUDITED)
1997 1996 --------- --------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $ 12,462 $ 74,443 CASH FLOWS FROM OPERATING ACTIVITIES Net loss (13,623) (25,631) Adjustments to reconcile net loss to cash provided (used) by operating activities: Depreciation and amortization 6,143 6,907 Deferred gain recognition (704) (794) Gain on sale of subsidiary's stock (17,615) -- (Gains) losses on (issuances) purchases of equity by affiliates, net 8,854 (1,729) Minority interest in earnings (loss) of subsidiaries 4,778 (13,768) Equity in loss of affiliates, net 23,163 -- Equity in loss in investee of subsidiary -- 1,431 Issuance of warrants to a non-affiliate -- 347 In-process research and development from acquired company -- 4,914 Gain on sale of equipment and property (299) (504) Deferred compensation expense 40 230 Loss on disposal of discontinued operations -- 7,641 Other 479 (11) Changes in certain assets and liabilities, net of effects of non-cash transactions: Decrease (increase) in accounts receivable 8,091 (7,402) Decrease (increase) in restricted short-term investments 941 (668) Decrease in deposits, prepaid expenses and other assets 3,630 2,999 Increase in accounts payable, accrued expenses and other liabilities 614 17,872 Increase (decrease) in unearned revenue 1,693 (10,233) Increase in air traffic liability -- (192) -------- -------- Net cash provided (used) by operating activities 26,185 (18,591) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to equipment and property (4,155) (11,257) Proceeds from disposal of equipment and property 946 1,353 Cash of World Airways at date of common stock repurchase (Note 6) (58,050) -- Debt issuance costs (2,016) (225) -------- -------- Net cash used by investing activities (63,275) (9,982) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in line of credit borrowing arrangement, net (12,226) 2,497 Issuance of debt 50,000 40,884 Repayment of debt (27,124) (37,518) Proceeds from stock transactions -- 1,499 Proceeds from sale of subsidiary's stock, net 23,687 -- Proceeds from purchases of equity by affiliates, net -- 776 Purchase of common stock (568) -- Purchase of common stock of subsidiary (476) -- -------- -------- Net cash provided by financing activities 33,293 7,913 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS (3,797) (20,660) -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,665 $ 53,783 ======== ========
See accompanying Notes to Condensed Consolidated Financial Statements 10 WORLDCORP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The condensed consolidated balance sheet of WorldCorp, Inc. ("WorldCorp" or the "Company") as of September 30, 1997, the related condensed consolidated statements of operations for the three and nine month periods ended September 30, 1997 and 1996, the condensed consolidated statements of changes in common stockholders' deficit for the nine months ended September 30, 1997 and the condensed consolidated statements of cash flows for the nine months ended September 30, 1997 and 1996 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. All significant intercompany balances have been eliminated. Interim results are not necessarily indicative of results for a full year. Prior to November 7, 1996, these financial statements contain the historical results of US Order, Inc. ("US Order"). On November 7, 1996, US Order and Colonial Data Technologies Corp. ("Colonial Data") merged with and into InteliData Technologies Corporation ("InteliData"). Effective with this Merger, InteliData became the successor corporation to US Order. As a result of the Merger, WorldCorp's ownership percentage in InteliData was reduced to 28.9% and, as such, beginning November 7, 1996, WorldCorp reports its share of InteliData's net assets and results of operations under the equity method of accounting. Prior to September 18, 1997, these financial statements contain the historical results of World Airways, Inc. ("World Airways"). On September 18, 1997, World Airways purchased 3,227,000 shares of its common stock from the Company for approximately $24.7 million in cash (the "Purchase")(see Note 6). As a result of the Purchase, the Company's ownership percentage in World Airways was reduced to 46.3% and, as such, beginning September 18, 1997, WorldCorp reports its share of World Airways' net assets and results of operations under the equity method of accounting. The condensed consolidated financial statements and notes are presented as required by Form 10-Q, and do not contain certain information included in the Company's annual financial statements and notes. These financial statements should be read in conjunction with the financial statements and the notes included in the Company's Form 10-K for the year ended December 31, 1996. 2. As mentioned above, WorldCorp's ownership in World Airways is approximately 46.3%. The Company's consolidated results for the three and nine months ended September 30, 1997 and 1996 include the results of World Airways for the period prior to the Purchase. Following the Purchase, the Company reports its proportionate share of World Airways' financial results using the equity method of accounting. Summarized financial information of World Airways is as follows (in thousands):
Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- -------------------------------- 1997 1996 1997 1996 --------- --------- ---------- ---------- Results of operations: Revenues $79,924 $75,397 $240,600 $227,270 Operating expenses 75,401 71,681 223,243 211,608 Operating income 4,523 3,716 17,357 15,662 Earnings from continuing operations 3,726 2,909 14,392 13,681 Net earnings (loss) 3,726 3,089 14,392 (18,844)
11
September 30, December 31, 1997 1996 ------------- ------------ Financial position: Current assets $49,342 $39,091 Non-current assets 94,247 87,066 Current liabilities 54,864 68,647 Non-current liabilities 90,699 49,148
3. As mentioned above, WorldCorp's ownership interest in InteliData is approximately 29.4%. The Company's consolidated results for the three and nine months ended September 30, 1997 and 1996 include the results of US Order for the period prior to the Merger. Following the Merger, the Company reports its proportionate share of InteliData's financial results using the equity method of accounting. Summarized financial information of InteliData is as follows (in thousands):
Three Months Ended September 30, Nine Months Ended September 30, ---------------------------------- -------------------------------- 1997 1996 1997 1996 ----------- ----------- ----------- ----------- Results of operations: Revenues $ 11,708 $ 1,063 $ 50,135 $ 2,937 Cost of revenues 9,558 703 35,705 1,975 Gross profit 2,150 360 14,430 962 Operating loss (78,859) (8,451) (84,240) (13,629) Net loss (79,178) (8,524) (81,850) (13,718)
September 30, December 31, 1997 1996 ----------- ------------ Financial position: Current assets $48,302 $ 82,989 Non-current assets 8,406 60,757 Current liabilities 13,690 19,457 Non-current liabilities -- --
On August 12, 1997, InteliData announced its intention to purchase up to 2.0 million shares of its common stock pursuant to open market transactions. As of September 30, 1997, InteliData had purchased 681,500 shares of its common stock for an aggregate cost of $2.1 million. 4. In July 1996, World Airways announced its decision to exit its scheduled service operations by October 1996 and focus its operations on its core business: operating aircraft under contracts with international carriers, the U.S. Government, and international tour operators. Consistent with this decision, World Airways ceased all scheduled operations as of October 27, 1996. As a result, World Airways' scheduled service operations were reflected as discontinued operations as of June 30, 1996, and prior period results were restated to reflect scheduled service operations as discontinued operations. Loss from discontinued operations (net of income tax effect) approximated $11.7 million for the year ended December 31, 1996. In addition, an estimated loss on disposal of $21.0 million (net of income tax effect) which was recorded as of June 30, 1996, included the following: $13.6 million for estimated operating losses during the phase-out period; a $2.6 million estimated loss to be incurred in connection with sub-leasing DC- 10 aircraft which would not be utilized in its operations subsequent to the phase-out of scheduled service operations; a $2.3 million writeoff of related leasehold improvements; and $2.0 million for passenger reprotection expenses. World Airways has incurred approximately $21.2 million of these costs through September 30, 1997. World Airways does not expect to incur any additional costs relating to scheduled service operations. In connection with the discontinuance of its scheduled service operations, World Airways was subject to claims by various third parties and may be subject to further claims in the future (see Note 12). 5. On August 26, 1997, World Airways completed a private offering, issuing $50.0 million of 8% convertible senior subordinated debentures (the "Debentures") due in 2004 (the "Offering"). The Debentures are unsecured obligations, convertible into shares of World Airways common stock at $8.90 per share, and subordinated to all present and future senior indebtedness of World Airways. World Airways' intended use of the net proceeds of the Offering is to repurchase approximately 4.0 million shares of its common stock, repay certain indebtedness, 12 increase working capital and for general corporate purposes. After completion of the Offering, World Airways repaid approximately $3.8 million as full settlement of an outstanding spare parts loan. Failure by World Airways to repurchase at least 4.0 million shares of common stock within 150 days after the sale of the Debentures constitutes a repurchase event whereby each holder of the Debentures would have the right, at the holder's option, to require World Airways to repurchase such holder's Debentures at 100% of their principal amount, plus accrued interest (the "Repurchase Event"). The ability of World Airways to repurchase the Debentures upon a Repurchase Event will be dependent on its ability to raise sufficient funds through additional borrowings or equity sales and compliance with applicable securities laws. Accordingly, there can be no assurance that World Airways will be able to repurchase the Debentures upon a Repurchase Event. 6. In 1996, World Airways instituted a program to purchase up to one million shares of its publicly-traded Common Stock pursuant to open market transactions. As of September 30 , 1997, world Airways had purchased 770,000 shares of Common Stock at an aggregate cost of approximately $7.8 million pursuant to such program. In connection with the above-mentioned Offering, World Airways and the Company entered into an agreement (the "Agreement") for the purchase by World Airways of up to 4.0 million shares of common stock owned by WorldCorp at a purchase price of $7.65 per share. On September 18, 1997, World Airways purchased 3,227,000 shares of its common stock from WorldCorp for approximately $24.7 million. Discussions with MHS Berhad ("MHS") following the Offering could have an impact on the number of shares of common stock ultimately repurchased from WorldCorp. MHS has certain rights under a shareholders agreement, dated as of February 3, 1994, as amended, among WorldCorp, MHS and World Airways. This agreement includes a provision that provides that if WorldCorp were to dispose of its holdings in World Airways with the result that WorldCorp's ownership interest in World Airways falls below 51% of the outstanding shares of common stock, then MHS may either sell its shares to a third party or require WorldCorp to sell a pro rata number of shares held by MHS to the party purchasing WorldCorp's shares. As a result of the repurchase of 3,227,000 shares of common stock by World Airways from WorldCorp, MHS has the right to sell 773,000 shares of common stock. Accordingly, WorldCorp, MHS and World Airways have engaged in preliminary discussions as to the potential repurchase of common stock owned by MHS. The Company anticipates that these discussions will continue, although there can be no assurance that these discussions will result in any stock repurchases from MHS. Should MHS not exercise its right to sell the 773,000 shares of common stock, World Airways currently intends to repurchase the shares from WorldCorp. The Company used a portion of the proceeds from the sale of the World Airways shares to pay the balance of a $15.0 million loan from a financial institution which matured on September 29, 1997. 7. World Airways reached a settlement in September 1997 with its engine manufacturer for reimbursements related to disputed spare engine lease charges. As a result of this settlement, World Airways reversed aircraft costs of approximately $2.4 million, consisting of lease expenses of approximately $0.9 million and $1.5 million originally recorded in 1996 and the first six months of 1997, respectively. 8. World Airways was recently informed that Malaysian Airline System Berhad ("Malaysian Airlines" or "MAS") received notice from the Malaysian Hadj Board that MAS will not participate in the 1998 Hadj pilgrimage. Notwithstanding, MAS has assured World Airways that it will honor its contractual obligations. For the nine months ended September 30, 1997, World Airways received approximately $17.0 million in revenues as a result of aircraft provided to MAS for 1997 Hadj operations. 9. In October 1997, one of World Airways' MD-11 aircraft was damaged upon its landing in Montevideo, Uruguay. The aircraft is expected to be out of service for approximately two months while certain repairs are made. World Airways expects insurance to cover repair and certain related costs, but expects that its loss of revenues that would have been generated by the aircraft's use will have an adverse effect on its financial condition and results of operations for the fourth quarter of 1997. 10. InteliData recently announced a strategic repositioning of its telecommunications division and, accordingly, recorded an unusual charge of $69.1 million during the quarter ended September 30, 1997. Formerly called "Consumer Telecommunications," the division is now named "Telecommunications Solutions." InteliData reorganized its telecommunications division to focus its efforts in two areas: acquiring, upgrading and retaining customers for telephone companies and marketing products and services to the growing Small Office Home Office ("SOHO") market. 13 InteliData recorded a non-cash $11.3 million write-down on its product inventory, of which the majority was related to Caller ID products manufactured in 1995 and 1996. The company intends to seek multiple-factory direct overseas manufacturing contracts that it hopes will allow for the cost-effective use of Caller ID adjuncts in telco programs. InteliData intends to focus its research and development resources on higher-margin products and services, including integrated and multiline telephone products. InteliData recorded a non-cash, $49.2 million write-down in its intangible assets, primarily goodwill associated with the Colonial Data merger completed in November 1996. InteliData believes that the Caller ID adjunct market changed significantly, with "give-away" promotional programs from the telcos virtually eliminating retail sales, leading telcos to focus their purchasing criteria on price alone. InteliData recorded a one-time cash charge of $2.4 million to cover costs associated with a 15% workforce reduction. In addition, InteliData recorded a $3.7 million reserve against collection of an $11.7 million past due account receivable from a joint venture between a subsidiary of InteliData and a marketing services company. InteliData has filed suit seeking collection of the full amount owed. No assurances can be given concerning the outcome of this litigation. InteliData also wrote-off an advertising credit of approximately $2.5 million carried on its balance sheet from a 1993 transaction with a former investor. InteliData can provide no assurances that its recent strategic and financial re-structuring will make the company profitable in the future. 11. The Company is a highly leveraged holding company. As a holding company, all of WorldCorp's funds are generated through its positions in World Airways and InteliData, which have not paid dividends on common stock since 1992. At September 30, 1997, World Airways has a working capital deficit of $5.5 million and has substantial debt and lease commitments. At September 30, 1997, InteliData has working capital of $34.6 million, with no long-term debt. World Airways and InteliData currently intend to retain their future earnings, if any, to fund the growth and development of their respective businesses and, therefore, do not anticipate paying any cash dividends in the foreseeable future. As of September 30, 1997, WorldCorp holds $8.7 million in cash and cash equivalents. As of such date, WorldCorp had parent company repayment obligations, including principal and interest, of approximately $2.3 million for the remainder of 1997 and $7.6 million in 1998. In order to meet these obligations and its general and administrative costs, the Company must use its existing cash and either enter into new financing arrangements with commercial banks or other institutions, sell shares of World Airways or InteliData, or issue additional debt or equity. Because neither World Airways nor InteliData is a dividend paying company, and WorldCorp is a holding company with no operating activities, WorldCorp may be unable to obtain either commercial bank or other institutional debt financing, and the capital markets may not be receptive to further issuances by the Company of additional debt or equity. Accordingly, WorldCorp may be entirely dependent upon sales of its interest in World Airways and InteliData in order to meet its financial obligations. The Company's ability to meet its financial obligations, therefore, is highly dependent upon the market price of World Airways and InteliData common stock, factors which are beyond the Company's control. World Airways, an aviation company, is in a cyclical industry. InteliData, a technology company, is in a highly competitive industry where wide fluctuations in the market price for a company's stock are common. If the market price of World Airways' or InteliData's common stock does not increase, it would impair the Company's ability to repay the principal on its long-term debt at such time as the maturities on these obligations become due. In addition, the Company is a party to an Indenture covering $10 million of 10% Senior Subordinated Notes due September 30, 2000 (the "Notes"). Sinking fund payments equal to 20% of the then outstanding principal balance are required to be made on each of September 30, 1998 and September 30, 1999. The Indenture contains a mandatory prepayment provision that requires the Company to prepay 50% of the outstanding Notes within 60 days after the end of any fiscal quarter in which the Company's Asset Value (defined to include the market value of the common stock of World Airways and InteliData beneficially owned by the Company plus the value of all of the Company's other tangible assets) is less than $70.0 million. The Company is required to prepay all of the outstanding Notes within 60 days after the end of any fiscal quarter in which the Company's Asset Value is less than $50.0 million. The Company calculated its Asset Value for Indenture purposes to be approximately $72.0 million at September 30, 1997. Further declines in the share price of World Airways' and InteliData's common stock could trigger either one of these mandatory prepayment 14 requirements, which would materially adversely affect the Company's cash position and which could materially, adversely impair the Company's ability to meet both its current and long-term obligations. The stock prices for World Airways and InteliData have declined since September 30 and there can be no assurances that the Company's Asset Value will be sufficient to avoid a partial or full mandatory prepayment 60 days after year-end or other subsequent periods. Based on the repayment terms of the Notes described above, and the resulting uncertainty regarding the maturity date, the Company has classified the outstanding balance of the Notes as a current liability as of September 30, 1997. The Company cannot provide any assurances that it will be able to obtain in any sales transaction the fair market value price for the World Airways and InteliData common stock it owns. The Company's financial condition may cause it to have to sell World Airways and/or InteliData common stock at times, prices and amounts which depress the stock price of World Airways and/or InteliData. Finally, to the extent that the Company sells its assets to meet current debt service obligations, the Company has fewer resources available to permit it to repay its long-term obligations at maturity. Therefore, although management believes that the Company has sufficient capital resources to meet its obligations over the next 12 months, the Company can provide no assurances at this time that it has, or will have, sufficient capital resources to meet its obligations beyond such time. At September 30, 1997, based on quoted market prices, the market value of the Company's 3,702,586 shares of World Airways and 9,179,273 shares of InteliData approximated $29.6 million and $27.5 million, respectively. The quoted market prices of these shares have declined since September 30, 1997. In 1996, the Company announced its intention to purchase up to 2.5 million shares of its publicly-traded common stock pursuant to open market transactions. As of November 7, 1997, the Company had purchased 2,116,000 shares of its common stock for an aggregate cost of $9.2 million. The Company intends to make repurchases from time to time as circumstances and its financial condition permit. 12. For a discussion of commitments and contingencies see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Other Matters". 13. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128 ("FAS #128") Earnings per Share, and SFAS No. 129 ("FAS #129") Disclosure of Information About Capital Structure. FAS #128 was issued to simplify the computation of earnings per share and to make the U.S. standard more compatible with the standards of other countries and that of the International Accounting Standards Committee. FAS #128 replaces primary and full diluted earnings per share with basic earnings and diluted earnings per share. FAS #129 will change some of the required disclosures about capital structure. It is not expected that these statements will have a material effect on the Company's financial statements in the future. The statements are effective for the year ended December 31, 1997. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------- ----------------------------------------------------------------------- OF OPERATIONS ------------- Management's Discussion and Analysis of Financial Condition and Results of Operations presented below relates to the operations of WorldCorp, Inc. ("WorldCorp" or "the Company") as reflected in its condensed consolidated financial statements. These statements primarily include the accounts of World Airways, Inc. ("World Airways"). On February 28, 1994, pursuant to an October 1993 agreement, the Company sold 24.9% of its ownership in World Airways to MHS Berhad ("MHS"), a Malaysian aviation company. Effective December 31, 1994, WorldCorp repurchased 5% of World Airways' common stock from MHS. In October 1995, World Airways completed an initial public offering in which 2,000,000 shares were issued and sold by World Airways and 900,000 shares were sold by WorldCorp. On September 18, 1997, World Airways purchased 3,227,000 shares of its common stock from WorldCorp (the "Purchase"). At September 30, 1997, WorldCorp and MHS owned 3,702,586 shares, or 46.3%, and 1,990,000 shares, or 24.9%, respectively, of World Airways' outstanding common stock. The remaining balance was publicly traded. Following the Purchase, on September 18, 1997, the Company reports its proportionate share of World Airways' results of operations using the equity method of accounting. On August 26, 1997, World Airways completed a private offering, issuing $50.0 million of 8% convertible senior subordinated debentures (the "Debentures") due in 2004 (the "Offering"). The Debentures are unsecured obligations, convertible into shares of World Airways common stock at $8.90 per share, and subordinated to all present and future senior indebtedness of World Airways. World Airways' intended use of the net proceeds of the Offering is to repurchase approximately 4.0 million shares of its common stock, repay certain indebtedness, increase working capital and for general corporate purposes. After completion of the Offering, World Airways repaid approximately $3.8 million as full settlement of an outstanding spare parts loan. Failure by World Airways to repurchase at least 4.0 million shares of common stock within 150 days after the sale of the Debentures constitutes a repurchase event whereby each holder of the Debentures would have the right, at the holder's option, to require World Airways to repurchase such holder's Debentures at 100% of their principal amount, plus accrued interest (the "Repurchase Event"). The ability of World Airways to repurchase the Debentures upon a Repurchase Event will be dependent on its ability to raise sufficient funds through additional borrowings or equity sales and compliance with applicable securities laws. Accordingly, there can be no assurance that World Airways will be able to repurchase the Debentures upon a Repurchase Event. In connection with the above-mentioned Offering, World Airways and the Company entered into an agreement (the "Agreement") for the purchase by World Airways of up to 4.0 million shares of common stock owned by WorldCorp at a purchase price of $7.65 per share. On September 18, 1997, World Airways purchased 3,227,000 shares of its common stock from WorldCorp for approximately $24.7 million. Discussions with MHS Berhad ("MHS") following the Offering could have an impact on the number of shares of common stock ultimately repurchased from WorldCorp. MHS has certain rights under a shareholders agreement, dated as of February 3, 1994, as amended, among WorldCorp, MHS and World Airways. This agreement includes a provision that provides that if WorldCorp were to dispose of its holdings in World Airways with the result that WorldCorp's ownership interest in World Airways falls below 51% of the outstanding shares of common stock, then MHS may either sell its shares to a third party or require WorldCorp to sell a pro rata number of shares held by MHS to the party purchasing WorldCorp's shares. As a result of the repurchase of 3,227,000 shares of common stock by World Airways from WorldCorp, MHS has the right to sell 773,000 shares of common stock. Accordingly, WorldCorp, MHS and World Airways have engaged in preliminary discussions as to the potential repurchase of common stock owned by MHS. The Company anticipates that these discussions will continue, although there can be no assurance that these discussions will result in any stock repurchases from MHS. Should MHS not exercise its right to sell the 773,000 shares of common stock, World Airways currently intends to repurchase the shares from WorldCorp. The Company used a portion of the proceeds from the sale of the World Airways shares to pay the balance of a $15.0 million loan from a financial institution which matured on September 29, 1997. WorldCorp also had an ownership interest in US Order, Inc. ("US Order"), a company which provided products and services for two markets: home banking and smart telephones. In August 1996, US Order and Colonial Data Technologies Corp. ("Colonial Data") entered into an Agreement and Plan of Merger pursuant to which US Order and Colonial Data would be merged with and into a new public company, InteliData Technologies Corporation ("InteliData"). Pursuant to this Merger, which was consummated on November 7, 1996, InteliData became the successor corporation to US Order. The Merger was treated as a purchase of Colonial Data by US Order. InteliData 16 concentrates on three markets: (1) telecommunications solutions; (2) electronic commerce; and (3) interactive services. Following this Merger, the Company reports its proportionate share of InteliData's results of operations using the equity method of accounting. At September 30, 1997, WorldCorp owned 9,179,273 shares of InteliData, or a ownership interest of approximately 29.4%. In 1996, the Company announced its intention to purchase up to 2.5 million shares of its publicly-traded common stock pursuant to open market transactions. As of November 7, 1997, the Company had purchased 2,116,000 shares of its common stock for an aggregate cost of $9.2 million. The Company intends to make repurchases from time to time as circumstances and its financial condition permit. The Private Securities Litigation Reform Act of 1995 (the "Act") was recently passed by Congress. The Company desires to take advantage of the new "safe harbor" provisions in the Act. Therefore, this report contains forward looking statements that are subject to risks and uncertainties, including, but not limited to, the Company's status as a holding company, the impact of competitive products, product demand and market acceptance risks, reliance on key strategic alliances, fluctuations in operating results and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. These risks could cause the Company's actual results for 1997 and beyond to differ materially from those expressed in any forward looking statements made by, or on behalf of, the Company. For a complete discussion of these and other risks and uncertainties, please refer to the Company's Annual Report filed on Form 10-K for the year ended December 31, 1996. OVERVIEW WorldCorp owns positions in companies that operate in two distinct business areas. World Airways (Nasdaq:WLDA) provides worldwide passenger and cargo air transportation to major international airlines, the U.S. Air Force, and international tour operators, with a fleet of MD-11 and DC10-30 aircraft. InteliData (Nasdaq:INTD) concentrates on three markets: (1) telecommunications solutions; (2) electronic commerce; and (3) interactive services. The Company is a highly leveraged holding company. As a holding company, all of WorldCorp's funds are generated through its positions in World Airways and InteliData, neither of whom intend to pay dividends in the foreseeable future. As of September 30, 1997, WorldCorp has substantial parent company debt service obligations. In order to meet these obligations and its general and administrative costs in 1998, the Company must use its existing cash and either sell shares of World Airways or InteliData, or issue additional debt or equity. WORLD AIRWAYS - ------------- World Airways is a global provider of long-range passenger and cargo air transportation outsourcing services to major international airlines under fixed rate, multi-year contracts. World Airways' passenger and freight operations employ 12 wide-body aircraft which are operated under contracts, primarily with Pacific Rim airlines. These contracts generally require World Airways to supply aircraft, crew, maintenance and insurance ("ACMI" or "wet lease"), while its customers are responsible for a large portion of the other operating expenses, including fuel. World Airways' airline customers have determined that outsourcing a portion of their wide-body passenger and cargo requirements can be less expensive, and offer greater operational and financial flexibility, than purchasing new aircraft and additional spare parts required for such aircraft. World Airways also leads a contractor teaming arrangement that is the one of the largest single supplier of commercial airlift services to the United States Air Force's Air Mobility Command ("U.S. Air Force" or "USAF"). In July 1996, World Airways restructured its business to focus on ACMI contract services. As such, World Airways ceased all scheduled passenger and scheduled charter services as of October 27, 1996, taking a one-time charge of $21.0 million as of June 30, 1996 (see "Discontinuation of Scheduled Service Operations"). World Airways generally charges customers on a block hour basis rather than a per seat or per pound basis. "Block hours" are defined as the elapsed time computed from the moment the aircraft first moves under its own power at the point of origin to the time it comes to rest at its final destination. World Airways provides most services under two types of contracts: wet lease contracts and full service contracts. Under wet lease contracts, World Airways provides the aircraft, cockpit crew, maintenance and insurance and the customer provides all other operating services and bears all other operating expenses, including fuel and fuel servicing, marketing costs associated with obtaining passengers and/or cargo, airport passenger and cargo handling fees, landing fees, cabin crews, catering, ground handling and aircraft push- 17 back and de-icing services. Under full service contracts, World Airways provides fuel, catering, ground handling, cabin crew and all related support services as well. Accordingly, World Airways generally charges a lower rate per block hour for wet lease contracts than full service contracts, although it does not necessarily earn a lower profit. Because of shifts in the mix between full service contracts and wet lease contracts, fluctuations in revenues are not necessarily indicative of volume trends or profitability. It is important, therefore, to measure World Airways' business volume by block hours flown and to measure profitability by operating income per block hour. World Airways' operating philosophy is to build on its existing ACMI relationships to achieve a strong platform for future growth. World Airways concentrates on ACMI contracts which shift yield, load factor and certain cost risks to the customer. The customer bears the risk of filling the aircraft with passengers or cargo and assumes a large portion of the operating expenses, including fuel. World Airways has elected to emphasize its ACMI business because it perceives a number of opportunities created by a growing global economy, particularly growth in second and third world economies where the demand for airlift exceeds capacity. World Airways attempts to maximize profitability by combining its multi-year ACMI contracts with short term, higher-yielding ACMI agreements which meet the peak seasonal requirements of its customers. World Airways responds opportunistically to rapidly changing market conditions by maintaining a flexible fleet of aircraft that can be deployed in a variety of configurations. As is common in the air transportation industry, World Airways has relatively high fixed aircraft costs. World Airways operates a fleet of eight MD-11 and four DC10-30 wide-body aircraft and, while it believes that the lease rates on its MD-11 aircraft are favorable relative to lease rates of other MD-11 operators, its MD-11 aircraft have higher lease costs (although lower operating costs) than its DC10-30 aircraft. Therefore, achieving high average daily utilization of its aircraft (particularly its MD-11 aircraft) at attractive yields are important factors to World Airways' financial results. In addition to fixed aircraft costs, a portion of World Airways' labor costs are fixed due to monthly minimum guarantees to cockpit crewmembers and flight attendants. SIGNIFICANT CUSTOMER RELATIONSHIPS World Airways' business relies heavily on its contracts with Malaysian Airline System Berhad ("Malaysian Airlines"), Philippine Airlines, Inc. ("Philippine Airlines"), P.T. Garuda Indonesia ("Garuda") and the U.S. Air Force. For the first nine months of 1997, these customers provided approximately 23%, 34%, 13% and 22%, respectively, of World Airways' revenues and 25%, 36%, 13% and 14%, respectively, of total block hours. In 1996, these customers provided approximately 34%, 15%, 13%, and 25%, respectively, of World Airways' revenues and 42%, 17%, 14%, and 17%, respectively, of total block hours flown from continuing operations. Malaysian Airlines. World Airways has provided wet lease services to Malaysian - ------------------ Airlines ("MAS") since 1981, providing wet lease services for MAS's scheduled passenger and cargo operations as well as transporting passengers for the annual Hadj pilgrimage. MHS, which owned 24.9% of World Airways as of September 30, 1997, also owns 29.1% of MAS. In 1997, World Airways entered into a new 32- month agreement for year-round operations (including the Hadj) with MAS whereby World Airways will provide two passenger aircraft with cockpit crews, maintenance and insurance to MAS's newly-formed charter division through May 1999. World Airways provided three aircraft for 1997 Hadj operations. World Airways was recently informed that MAS received notice from the Malaysian Hadj Board that MAS will not participate in the 1998 Hadj pilgrimage. Notwithstanding, MAS has assured World Airways that MAS will honor its contractual obligations to World Airways, described above. For the nine months ended September 30, 1997, World Airways received approximately $17.0 million in revenues as a result of aircraft provided to MAS for 1997 Hadj operations. World Airways has a long-term contract to operate three MD-11 cargo aircraft for MAS. However, beginning in July 1996, and as mutually agreed by the parties, World Airways redeployed two cargo aircraft, which had been operating under these contracts, into another contract. World Airways and MAS are currently discussing the future redeployment of these aircraft back into MAS's operations in order to meet the contracts' original obligations. World Airways can provide no assurances, however, that it will, in fact, be able to do so. Revenues associated with these contractual obligations are included in World Airways' backlog amount included herein. Garuda. World Airways has flown for Garuda periodically since 1973 and yearly - ------ since 1988. Since 1988, World Airways has been one of the largest providers of passenger services to Indonesia for the Hadj pilgrimage. The 18 Indonesian Hadj pilgrimage is the world's largest due to the size of Indonesia's Islamic population. In 1997, approximately 40,000 of the 200,000 Indonesians who traveled to Jeddah for the Hadj pilgrimage flew on World Airways' aircraft. World Airways is currently negotiating an agreement with Garuda to operate six aircraft during the 1998 pilgrimage. Philippine Airlines. World Airways presently operates two MD-11 passenger - ------------------- aircraft for Philippine Airlines under an agreement with high minimum monthly utilization levels. Philippine Airlines, however, is experiencing financial difficulties, and since March 1997 had been making monthly lease payments to World Airways on an installment basis according to a payment plan agreed to by World Airways and Philippine Airlines at the beginning of each month. On July 11, 1997, World Airways agreed to shift two of the four MD-11s originally operating for Philippine Airlines to other customers during the third quarter. As of September 30, 1997, Philippine Airlines is in compliance with its agreements with World Airways and has reconfirmed its commitment to operate the remaining two MD-11s currently in its fleet until February 1998. Failure by Philippine Airlines to meet its aircraft lease obligations, if not offset by other business, would have a material adverse effect on the financial condition, cash flows and results of operations of World Airways. VASP. On July 3, 1997, World Airways entered a binding Memorandum of Agreement - ---- with Viacao Aereo Sao Paulo ("VASP") for the lease of two MD-11 passenger aircraft for a six-month term with a six-month renewal option. World Airways is currently negotiating the terms of this lease with VASP, with commencement anticipated no earlier than late 1997. The loss of this agreement, a renegotiation of its terms or a substantial reduction of business for VASP, if not replaced, could have a material adverse effect on the financial condition or results of operations of World Airways. World Airways is also leasing a cargo plane to VASP under an ACMI contract which began in June 1997. U.S. Air Force. World Airways has provided international air transportation to - -------------- the U.S. Air Force since 1956. The overall downsizing of the U.S. military places a premium on the mobility of the U.S. armed forces. This is reflected in the stable size over the past several years of the USAF's procurement of commercial airlift services. Although its agreements with the USAF provide for full service contracts with certain minimum performance requirements, World Airways has risks similar to an ACMI agreement because the USAF agreements are cost-plus contracts at attractive rates. The USAF awards points to air carriers acting alone or through teaming arrangements in proportion to the number and type of aircraft such carriers make available to Civil Reserve Air Fleet. World Airways utilizes such teaming arrangements to maximize the value of potential awards. World Airways leads a contractor teaming arrangement that enjoys a 51% market share of the USAF's overall commercial airlift requirement. During a period in which the U.S. military downsized substantially, World Airways's portion of the fixed USAF award increased from $15.6 million for the government's 1992-93 fiscal year, to $73.9 million for the government's 1997-98 fiscal year. The current annual contract commenced on October 1, 1997 and expires on September 30, 1998. World Airways, however, cannot determine how future cuts in military spending may affect future operations with the U.S. Air Force. As a result of these and other contracts, World Airways had an overall contract backlog at September 30, 1997 of $353.1 million, compared to $462.0 million at September 30, 1996. Approximately $65.1 million of the backlog relates to operations during the remainder of 1997. World Airways' backlog for each contract is determined by multiplying the minimum number of block hours guaranteed under the applicable contract by the specified hourly rate under such contract. Approximately 63% of the backlog relates to its contracts with MAS. In addition, a significant portion of World Airways' current contracts expire near the end of 1997. Although there can be no assurance that it will be able to secure additional business to reduce this excess capacity, World Airways is actively seeking customers for 1998 and beyond. World Airways' financial results and financial condition would be affected adversely if it is unable to secure additional business to reduce this excess capacity. SEASONALITY Historically, World Airways' business has been significantly affected by seasonal factors. During the first quarter, World Airways typically experiences lower levels of utilization and yields due to lower demand for passenger and cargo services relative to other times of the year. World Airways experiences higher levels of utilization and yields in the second quarter, principally due to peak demand for commercial passenger services associated with the annual Hadj pilgrimage. In 1997, World Airways' flight operations associated with the Hadj pilgrimage occurred from March 15 to May 20. Because the Islamic calendar is a lunar-based calendar, the Hadj pilgrimage occurs approximately 10 to 12 19 days earlier each year relative to the Western (Gregorian) calendar. As a result, revenues resulting from future Hadj pilgrimage contracts will continue to shift from the second quarter to the first quarter over the next several years. World Airways believes that its contracts with Malaysian Airlines and the USAF should lessen the effect of these seasonal factors. GEOGRAPHIC CONCENTRATION World Airways derives a significant percentage of its revenues and block hours from its operations in the Pacific Rim region. While it believes the Pacific Rim region is a growth market for air transportation, any economic decline or any military or political disturbance in this area may interfere with World Airways' ability to provide service in this area and could have a material adverse effect on the financial condition or results of operations of World Airways. UTILIZATION OF AIRCRAFT Due to the large capital costs of leasing and maintaining World Airways' aircraft, each of World Airways' aircraft must have high utilization at attractive rates in order for World Airways to operate profitably. Although World Airways' strategy is to enter into long-term contracts with its customers, the terms of World Airways' existing customer contracts are substantially shorter than the terms of World Airways' lease obligations with respect to the aircraft. As mentioned above, a significant portion of World Airways' contract backlog at September 30, 1997, relates to its multi-year contracts with MAS. In addition, a significant portion of World Airways' current contracts expire near the end of 1997. There can be no assurance that World Airways will be able to enter into additional contracts with new or existing customers or that it will be able to obtain enough additional business to fully utilize each aircraft. World Airways' financial results could be materially adversely affected even by relatively brief periods of low aircraft utilization and yields. In order to maximize aircraft utilization, World Airways does not intend to acquire new aircraft unless such aircraft would be necessary to service existing needs or World Airways has obtained additional ACMI contracts for the aircraft to service. World Airways is seeking to obtain additional ACMI contracts with new and existing customers, to which such new aircraft would be dedicated when placed in service, but World Airways can provide no assurance that it will obtain new ACMI contracts or that existing ACMI contracts will be renewed or extended. MAINTENANCE Engine maintenance accounts for most of World Airways' annual maintenance expenses. Typically, the hourly cost of engine maintenance increases as the aircraft ages. World Airways outsources major airframe maintenance and power plant work to several suppliers. World Airways has a 10-year contract expiring in August 2003 with United Technologies Corporation's Pratt & Whitney Group for all off-wing maintenance on the PW 4462 engines that power its MD-11 aircraft. Under this contract, the manufacturer agreed to provide such maintenance services at a cost not to exceed specified rates per hour during the term of the contract. The specified rates per hour are subject to annual escalation, increasing substantially in 1998. Accordingly, while World Airways believes the terms of this agreement have resulted in lower engine maintenance costs than it otherwise would incur, engine maintenance costs will increase substantially during the last five years of the agreement. World Airways has begun to accrue these increased expenses in 1997 and such expenses will continue to increase during the remainder of the term of the contract as its aircraft fleet ages. OPERATING LOSSES While World Airways generated operating income each year from 1987 through 1992 and in 1995, it sustained operating losses in 1993 and 1994 of $7.3 million and $5.2 million, respectively, and net losses of $9.0 million in each of these two years. For the year ended December 31, 1996, World Airways incurred a net loss of $14.0 million, which resulted from operating losses incurred in its scheduled service operations, which were discontinued in 1996, and the related estimated loss on disposal. Earnings from continuing operations were $18.4 million for 1996. While it generated operating income for the nine months ended September 30, 1997 of $17.4 million, there can be no assurance that World Airways will be able to continue generating operating income for the remainder of 1997 or future years. DISCONTINUATION OF SCHEDULED SERVICE OPERATIONS World Airways commenced service between Tel Aviv and New York in July 1995. In the first quarter of 1996, World Airways generated $4.2 million in losses related to these operations. In the second quarter of 1996, World Airways 20 expanded its scheduled service operations with service between the United States and South Africa and introduced scheduled charter operations between the United States and various destinations within Europe. As it was unable to operate these scheduled service operations profitably, in July 1996, World Airways announced its decision to exit its scheduled service operations by October 1996 and focus its operations on its core wet lease operations. Consistent with this decision, World Airways ceased all scheduled operations as of October 27, 1996. As a result, World Airways' scheduled service operations were reflected as discontinued operations as of June 30, 1996, and prior period results were restated to reflect scheduled service operations as discontinued operations. Loss from discontinued operations (net of income tax effect) approximated $11.7 million for the year ended December 31, 1996. In addition, an estimated loss on disposal of $21.0 million (net of income tax effect) was recorded as of June 30, 1996. World Airways does not expect to incur any additional costs relating to scheduled service operations. INTELIDATA - ---------- InteliData was incorporated in order to effect the merger of US Order and Colonial Data. The Merger was announced on August 5, 1996, when US Order and Colonial Data entered into an Agreement and Plan of Merger ("Merger Agreement"). On November 7, 1996, the Merger was consummated with each share of outstanding US Order and Colonial Data common stock being exchanged for one share of InteliData common stock. The Merger was treated as a purchase of Colonial Data by US Order. At September 30, 1997, WorldCorp's ownership in InteliData was approximately 29.4%. Following this Merger, WorldCorp reports its proportionate share of InteliData's financial results using the equity method of accounting. Effective September 30, 1996, US Order acquired the business of Braun, Simmons & Co., ("Braun Simmons"), for approximately $7.0 million consisting of cash and US Order common stock and including US Order transaction costs. Braun Simmons was an information engineering firm specializing in the development of home banking and electronic commerce solutions for financial institutions. The acquisition expands InteliData's product line for both large and small financial institutions. The business of InteliData consists of the businesses previously conducted by US Order, Colonial Data and Colonial Data's subsidiaries. InteliData develops and markets products and services for the telecommunications and financial services industries through its three business divisions: telecommunications solutions, electronic commerce and interactive services. As announced by InteliData in September 1997, InteliData formed two separate telecommunications groups within its telecommunications solutions division. One group targets the growing telecommunications needs of the small office home office ("SOHO") market, while the other group provides turnkey telco subscriber management programs for InteliData's telco customers. Historically, InteliData had focused on selling low-end Caller ID adjunct devices to telephone companies in support of their Caller ID programs. InteliData's new strategy focuses on the services side of the business, outsourcing the lower-end adjuncts and helping telcos acquire, upgrade and retain customers for Caller ID, voice mail and the network services programs. The electronic commerce division develops and markets products and services to assist financial institutions in their home banking and electronic bill payment initiatives. The products are designed to assist consumers in accessing and transacting business with their banks and credit unions electronically, and to assist financial institutions in connecting to and transacting business with third parties, including data processors and billers. The services focus on a financial institution's back office, offering outsourcing for data entry, telemarketing, customer service and technical support. The interactive services division was established to provide interactive applications for use on smart telephones and other small screen devices, such as alpha-numeric pagers, Personal Communication Systems ("PCS") telephones and personal digital assistants ("PDAs"). InteliData intends to sell interactive applications directly to end users and through other companies, including telcos and wireless communications companies. InteliData's current interactive applications include electronic national directory assistance lookup, one-way alpha-numeric paging, one-way internet e-mail, a personal directory data save and restore function and information services such as news, weather, sports scores, stock quotes, lottery results and horoscopes. On August 1, 1994, US Order entered into an Acquisition Agreement with Visa International Services Association ("Visa"), pursuant to which US Order sold its electronic banking and bill payment operations to Visa for approximately $15.0 million, the assumption of certain liabilities and the right to receive certain royalties during a 72-month period 21 commencing January 1, 1995 (the "Acquisition Agreement"). Visa subsequently licensed certain of its rights under the Acquisition Agreement to Visa Interactive. In connection with Integrion Financial Network, LLC's ("Integrion") acquisition of substantially all of the assets of Visa Interactive, including Visa Interactive's license to Integrion to use the Bill-Pay System, effective September 30, 1997, InteliData entered into a Settlement Agreement with Visa and Visa Interactive whereby InteliData received $5.0 million as a non-refundable prepayment for any royalty payments otherwise owed to InteliData from Visa's domestic licensees, including Integrion, until August 22, 1999. Thereafter, and until the expiration of the Acquisition Agreement on December 31, 2000, InteliData shall receive all royalty payments otherwise due to InteliData from Visa's domestic licensees, including Integrion, as otherwise provided in the Acquisition Agreement. InteliData intends to recognize the revenues from prepaid royalties ratably through August 22, 1999. RECENT OPERATING LOSSES; STRATEGIC RESTRUCTURING As discussed above, InteliData recently announced a strategic repositioning of its telecommunications division and, accordingly, recorded an unusual charge of $69.1 million during the quarter ended September 30, 1997. Formerly called "Consumer Telecommunications," the division is now named "Telecommunications Solutions." InteliData reorganized its telecommunications division to focus its efforts in two areas: acquiring, upgrading and retaining customers for telephone companies and marketing products and services to the growing SOHO market. InteliData recorded a non-cash $11.3 million write-down on its product inventory, of which the majority was related to Caller ID products manufactured in 1995 and 1996. The company intends to seek multiple-factory direct overseas manufacturing contracts that it hopes will allow for the cost-effective use of Caller ID adjuncts in telco programs. InteliData intends to focus its research and development resources on higher-margin products and services, including integrated and multiline telephone products. InteliData recorded a non-cash, $49.2 million write-down in its intangible assets, primarily goodwill associated with the Colonial Data merger completed in November 1996. InteliData believes that the Caller ID adjunct market changed significantly, with "give-away" promotional programs from the telcos virtually eliminating retail sales, leading telcos to focus their purchasing criteria on price alone. InteliData recorded a one-time cash charge of $2.4 million to cover costs associated with a 15% workforce reduction. In addition, InteliData created a $3.7 million reserve against collection of an $11.7 million past due account receivable from a joint venture between a subsidiary of InteliData and a marketing services company. InteliData has filed suit seeking collection of the full amount owed. No assurances can be given concerning the outcome of this litigation. InteliData also wrote-off an advertising credit of approximately $2.5 million carried on its balance sheet from a 1993 transaction with a former investor. InteliData can provide no assurances that its recent strategic and financial re-structuring will make the company profitable in the future. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1996 WORLD AIRWAYS - ------------- Total block hours, including discontinued operations, decreased 2,410 hours, or 18%, to 10,917 hours in the third quarter of 1997 from 13,327 hours in 1996, with an average of 12.3 available aircraft per day in 1997 compared to 15.0 in 1996. Average daily utilization (block hours flown per day per aircraft) was 9.7 hours in 1997 and 1996. In 1997, wet lease contracts accounted for 68% of total block hours, an increase from 45% in 1996. Block hours from continuing operations increased to 10,917 hours in the third quarter of 1997 from 9,337 hours in 1996. As previously discussed, in September 1997, World Airways purchased 3,227,000 shares of its common stock from the Company for approximately $24.7 million in cash. As a result of this purchase, the Company's ownership percentage in World Airways was reduced to 46.3%. The Company's consolidated results for the quarter ended September 30, 1997 include the results of World Airways for the period prior to the Purchase. Following the Purchase, the Company reports its proportionate share of World Airways' financial results using the equity method of accounting. For the quarter ended September 30, 1997 the 22 Company's portion of World Airways' earnings for the period after the Purchase approximated $0.9 million and is recorded in "Equity in Earnings (Loss) of Affiliates, net". The following represents selected financial information (in thousands) for World Airways:
Three Months Ended September 30, -------------------------------- 1997 1996 --------- ---------- Operating Revenues: Flight operations $ 76,645 $ 70,118 Flight operations subcontracted to other carriers 115 5,016 Other 164 263 -------- ----------- Total operating revenue 79,924 75,397 ======== =========== Operating Expenses Flight 21,835 16,911 Maintenance 14,918 13,855 Aircraft costs 20,351 18,982 Fuel 6,831 6,628 Flight operations subcontracted to other carriers 330 4,809 Promotions, sales and commissions 3,002 2,000 Depreciation and amortization 2,331 2,055 General and administrative 5,803 6,441 -------- ---------- Total operating expenses 75,401 71,681 -------- ---------- Operating income $ 4,523 $ 3,716 ======== ==========
Operating Revenues. Revenues from flight operations increased $9.5 million to - ------------------ $79.6 million in 1997 from $70.1 million in 1996. This increase corresponds primarily to an increase in block hours flown in 1997 compared to 1996. Operating Expenses. Total operating expenses increased $3.7 million, or 5%, in - ------------------ 1997 to $75.4 million from $71.7 million in 1996. Flight operations expenses include all expenses related directly to the operation of the aircraft other than aircraft cost, fuel and maintenance. Also included are expenses related to flight dispatch and flight operations administration. Flight operations expenses increased $4.9 million, or 29%, in 1997 to $21.8 million from $16.9 million in 1996. This increase resulted primarily from an increase in block hours flown and higher crew costs relating to an accrual for the profit sharing bonus plan and an increase in wage rates, partially offset by the shift in the mix of business from full service to wet lease operations. Maintenance expenses increased $1.0 million, or 7%, in 1997 to $14.9 million from $13.9 million in 1996. This increase resulted primarily from the increase in the number of aircraft dedicated to World Airways' continuing operations and an increase in costs associated with the MD-11 aircraft and related engines as a result of certain manufacturer guarantees and warranties which began to expire in 1995 and will fully expire by 1998. World Airways expects its maintenance expense to further increase in 1997 and 1998 due to escalations in the specified rates per hour under the its maintenance agreement. Aircraft costs increased $1.4 million, or 7%, in 1997 to $20.4 million from $19.0 million in 1996. This increase resulted primarily from the increase in the number of aircraft dedicated to the its continuing operations, partially offset by the return of one DC-10 aircraft in the fourth quarter of 1996 and two aircraft in the third quarter of 1997 and a decrease in aircraft insurance as a result of a reduction in insurance policy rates. World Airways reached a settlement in September 1997 with its engine manufacturer for reimbursements related to disputed spare engine lease charges. As a result of this settlement, World Airways reversed lease expenses of approximately $2.4 million, consisting of lease expenses of approximately $0.9 million and $1.5 million originally recorded in 1996 and the first six months of 1997, respectively. Promotions, sales and commissions increased $1.0 million in 1997, or 50%, to $3.0 million from $2.0 million in 1996. This increase resulted primarily from expenses incurred in connection with two customer contracts. 23 Depreciation and amortization increased $0.2 million, or 10%, in 1997 to $2.3 million from $2.1 million in 1996. This increase resulted primarily from an increase in spare parts required to support the additional MD-11 aircraft described above, offset by a decrease in the amortization of certain intangible assets. General and administrative expenses decreased $0.6 million, or 9%, in 1997 to $5.8 million from $6.4 million in 1996. This decrease was primarily due to a reduction in administrative personnel and communication expenses. As part of its strategy to increase its marketing efforts, World Airways is currently increasing its sales and marketing staff. As a result, World Airways expects a modest increase in general and administrative expenses during the remainder of 1997. INTELIDATA - ---------- As previously discussed, in August 1996, US Order and Colonial Data entered into an Agreement and Plan of Merger pursuant to which US Order and Colonial Data were merged with and into a new public company, InteliData. Pursuant to this Merger on November 7, 1996, InteliData became the successor corporation to US Order. As of September 30, 1997, WorldCorp's ownership interest in InteliData was approximately 29.4%. The Company's consolidated results for the quarter ended September 30, 1996 include the results of US Order for the period prior to the Merger. Following the Merger, the Company reports its proportionate share of InteliData's financial results using the equity method of accounting (see "Other Income (Expense) - Equity in Loss of Affiliates, net"). WORLDCORP - --------- General and administrative expenses decreased $0.5 million for the quarter ended September 30, 1997 to $0.5 million from $1.0 million in the comparable 1996 period. This decrease related primarily to a decrease in legal and professional fees. OTHER INCOME (EXPENSE) - ---------------------- Equity in Loss of Affiliates, Net. For the quarter ended September 30, 1997, - --------------------------------- InteliData's revenues were $11.7 million, including $10.8 million generated by the telecommunications division primarily resulting from marketing and promotional campaigns for Caller ID units and services conducted by telcos and InteliData. In addition, InteliData realized an increase in revenues generated from its electronic commerce division, attributed primarily to the expansion of the division's software sales during the quarter. InteliData's cost of revenues for the third quarter of 1997 increased to $9.6 million, including $9.0 million from its telecommunications division. Overall gross profit margins decreased to 18% for the third quarter of 1997 from 34% in the comparable 1996 period. Gross profit margins for the telecommunications, electronic commerce and interactive services divisions were 17%, 39% and 7%, respectively, for the third quarter of 1997. The gross profit margin derived from the sale of Caller ID and multi-line products was 12% for the third quarter of 1997. During the quarter, InteliData experienced severe pricing pressures from competition in Caller ID adjuncts which contributed to a charge to write down certain inventories. The market for InteliData's telecommunications products is highly competitive and is also subject to increased pressures resulting from rapid technological change and the emergence of new market entrants. InteliData expects such pricing pressures for its telecommunications products to continue in the future and, accordingly, is reviewing various outsourcing arrangements for products. InteliData's total operating expenses were $81.0 million during the quarter ended September 30, 1997. Included in the 1997 general and administrative expenses were unusual charges of $69.1 million associated primarily with a strategic repositioning of InteliData's telecommunications division based on recent events in the marketplace announced in the third quarter of 1997. In connection with this repositioning and corporate restructuring, InteliData evaluated its financial position and determined that it would be appropriate to charge to operations the remaining intangible assets related to its impairment, adjust inventory carrying amounts to the lower of cost or market, reflect certain restructuring charges, including charges for separation agreements with employees and charges associated with the termination of a joint venture agreement. Additionally, InteliData adjusted the carrying value of a receivable from the sale of stock for an advertising credit based on its expected use of the credit. Such charges aggregated $49.2 million for the impairment of intangible assets; $11.3 million for inventories and commitments; $2.4 million for restructuring charges and separation agreements; $3.7 million for assets relating to the joint venture; and $2.5 million for impairment of the advertising credits. The impairment was based on the excess of the carrying value of the assets over the assets' fair 24 values. The fair value of the assets were generally determined as the estimates of future cash flows generated by the assets. Exclusive of these restructuring charges, general and administrative expenses increased primarily as a result of the Merger, the upgrade of network systems and operations, legal fees primarily for the defense of a patent infringement lawsuit, and an increase in InteliData's provision for bad debts. As a result of InteliData's increased marketing efforts to promote its residential and small business telecommunications product lines to retail markets and to RBOCs and other telephone operating companies, selling and marketing expenses also increased during the third quarter of 1997 compared to 1996. Excluding a one-time charge of $4.9 million for research and development costs related to an acquisition in 1996, research and development costs increased during the third quarter of 1997 primarily from the developing, designing, and testing of new products and services. InteliData has been actively engaged in research and development since its inception and expects that these activities will remain consistent during the remainder of 1997 and be essential to the operations of InteliData in the future. During the third quarter of 1997, InteliData recorded a loss of $0.6 million based upon the expected operations of Home Financial Network, Inc. ("HFN"). As discussed above, the Company's portion of World Airways' earnings for the period after the Purchase approximated $0.9 million. NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996 WORLD AIRWAYS - ------------- Total block hours, including discontinued operations, decreased 2,801 hours, or 7%, to 35,067 hours in the first nine months of 1997 from 37,868 hours in 1996, with an average of 13.2 available aircraft per day in 1997 compared to 13.8 in 1996. Average daily utilization (block hours flown per day per aircraft) decreased to 9.7 hours in 1997 from 10.0 hours in 1996. In 1997, wet lease contracts accounted for 83% of total block hours, an increase from 64% for the nine months ended September 30, 1996. Block hours from continuing operations increased 3,723 hours, or 12%, to 35,067 hours in the first nine months of 1997 from 31,344 hours in 1996. The Company's consolidated results for the nine months ended September 30, 1997 include the results of World Airways for the period prior to the Purchase. Following the Purchase, the Company reports its proportionate share of World Airways' financial results using the equity method of accounting for the nine months ended September 30, 1997, the Company's portion of World Airways' earnings for the period after the Purchase approximated $0.9 million and is recorded in "Equity in Earnings (Loss) of Affiliates, net". The following represents selected financial information (in thousands) for World Airways:
Nine Months Ended September 30, ------------------------------- 1997 1996 --------------- -------------- Operating Revenues: Flight operations $238,129 $214,960 Flight operations subcontracted to other carriers 2,058 11,728 Other 413 582 -------- -------- Total operating revenue 240,600 227,270 ======== ======== Operating Expenses Flight 54,949 50,193 Maintenance 49,513 44,348 Aircraft costs 69,730 60,434 Fuel 12,534 14,698 Flight operations subcontracted to other carriers 2,579 12,822 Promotions, sales and commissions 7,665 5,634 Depreciation and amortization 6,662 5,949 General and administrative 19,611 17,530 -------- -------- Total operating expenses 223,243 211,608 -------- -------- Operating income $ 17,357 $ 15,622 ======== ========
25 Operating Revenues. Revenues from flight operations increased $23.1 million, or - ------------------ 11%, to $238.1 million in 1997 from $215.0 million in 1996. This increase was primarily attributable to the increase in block hours flown, partially offset by a shift in its mix of business during 1997 with an increase in wet lease operations and a decrease in full service operations. Operating Expenses. Total operating expenses increased $11.6 million, or 5%, in - ------------------ 1997 to $223.2 million from $211.6 million in 1996. Flight operations expenses include all expenses related directly to the operation of the aircraft other than aircraft costs, fuel and maintenance. Also included are expenses related to flight dispatch and flight operations administration. Flight operations expenses increased $4.7 million, or 9%, in 1997 to $54.9 million from $50.2 million in 1996. This increase resulted primarily from an increase in block hours flown and higher crew costs relating to an accrual for the profit sharing bonus plan and an increase in wage rates, partially offset by the shift in the mix of business from full service to wet lease operations. Maintenance expenses increased $5.2 million, or 12%, in 1997 to $49.5 million from $44.3 million in 1996. This increase resulted primarily from the increase in the number of aircraft dedicated to World Airways' continuing operations, the integration of additional aircraft into the fleet, and a corresponding increase in block hours flown. In addition, World Airways experienced an increase in costs associated with the MD-11 aircraft and related engines as a result of certain manufacturer guarantees and warranties which began to expire in 1995 and will fully expire by 1998. World Airways expects its maintenance expense to increase further in 1997 and 1998 due to escalations in the specified rates per hour under its maintenance agreement. The increase was partially offset by a reversal in 1997 of $1.0 million of accrued maintenance expense in excess of the cost of an overhaul of a DC-10 aircraft. Aircraft costs increased $9.3 million, or 15%, in 1997 to $69.7 million from $60.4 million in 1996. This increase resulted from the increase in the number of aircraft dedicated to its continuing operations, primarily due to the lease of two MD-11ER aircraft in March 1996, and the lease of additional spare engines necessary to maintain the expanded fleet. This increase was partially offset by the reversal of approximately $0.9 million in lease costs, which had been recorded in 1996, as a result of a settlement with the engine manufacturer for reimbursements related to disputed spare engine lease charges. Fuel expenses decreased $2.2 million, or 15%, in 1997 to $12.5 million from $14.7 million in 1996. This decrease is due primarily to the shift from full service to wet lease operations where it is not responsible for fuel costs. This decrease was partially offset by an increase in price per gallon. Promotions, sales and commissions increased $2.1 million, or 38%, in 1997 to $7.7 million from $5.6 million in 1996. This increase resulted primarily from expenses incurred in connection with two customer contracts. Depreciation and amortization increased $0.8 million in 1997 to $6.7 million from $5.9 million in 1996. This increase resulted primarily from an increase in spare parts required to support the additional MD-11 aircraft described above, offset by a decrease in the amortization of certain intangible assets. General and administrative expenses increased $2.1 million, or 12%, in 1997 to $19.6 million from $17.5 million in 1996. This increase was primarily due to the hiring of additional administrative personnel, beginning in the second quarter of 1996, necessary to support the growth in World Airways' core business and an increase in property tax accruals. As part of its strategy to increase its marketing efforts, World Airways is currently increasing its sales and marketing staff. As a result, it expects a modest increase in general and administrative expenses during the remainder of 1997. Discontinued Operations. World Airways commenced service between Tel Aviv and - ------------------------ New York in July 1995. In the first quarter of 1996, World Airways generated $4.2 million in losses related to these operations. In the second quarter of 1996, World Airways expanded its scheduled service operations with service between the United States and South Africa and introduced scheduled charter operations between the United States and various destinations within Europe. As it was unable to operate these scheduled service operations profitably, in July 1996, World Airways announced its decision to exit its scheduled service operations by October 1996 and focus its operations on its core wet lease operations. Consistent with this decision, World Airways ceased all scheduled operations as of October 27, 1996. As a result, World Airways' scheduled service operations were reflected as discontinued operations as of June 30, 1996, 26 and prior period results were restated to reflect scheduled service operations as discontinued operations. INTELIDATA - ---------- The Company's consolidated results for the nine months ended September 30, 1996 include the results of US Order for the period prior to the Merger. Following the Merger, the Company reports its proportionate share of InteliData's financial results using the equity method of accounting (see "Other Income (Expense) - Equity in Loss of Affiliates, net"). WORLDCORP - --------- General and administrative expenses decreased $1.2 million for the nine months ended September 30, 1997 to $1.8 million from $3.0 million in the comparable 1996 period. This decrease related primarily to a decrease in legal and professional fees. In addition, the Company paid approximately $0.5 million in incentive bonus awards in the first quarter of 1996. No such payments were made in 1997. OTHER INCOME (EXPENSE) - ---------------------- Equity in Loss of Affiliates, net. For the nine months ended September 30, - --------------------------------- 1997, InteliData's revenues were $50.1 million, including $47.0 million generated by the telecommunications division primarily resulting from marketing and promotional campaigns for Caller ID units and services conducted by telcos and InteliData. In addition, InteliData realized an increase in revenues generated from its electronic commerce division, attributed primarily to the expansion of the division's software sales. InteliData's cost of revenues for the first nine months of 1997 increased to $35.7 million, including $33.6 million from its telecommunications division. Overall gross profit margins were 27% for the first nine months of 1997, compared to 33% for the comparable 1996 period. Gross profit margins for the telecommunications, electronic commerce, and interactive services divisions were 28%, 34% and 10%, respectively, for the first nine months of 1997. The gross profit margin derived from the sale of Caller ID and multi-line products was 29% for the first nine months of 1997. During the quarter ended September 30, 1997, InteliData experienced severe pricing pressures from competition in Caller ID adjuncts which contributed to a charge to write down certain inventories. The market for InteliData's telecommunications products is highly competitive and is also subject to increased pressures resulting from rapid technological change and the emergence of new market entrants. InteliData expects such pricing pressures for its telecommunications products to continue in the future and, accordingly, is reviewing various outsourcing arrangements for products. InteliData's total operating expenses were $98.7 million during the nine months ended September 30, 1997. Included in the 1997 general and administrative expenses were unusual charges of $69.1 million associated primarily with a strategic repositioning of InteliData's telecommunications division based on recent events in the marketplace announced in the third quarter of 1997. In connection with this repositioning and corporate restructuring, InteliData evaluated its financial position and determined that it would be appropriate to charge to operations the remaining intangible assets related to its impairment, adjust inventory carrying amounts to the lower of cost or market, reflect certain restructuring charges, including charges for separation agreements with employees and charges associated with the termination of a joint venture agreement. Additionally, InteliData adjusted the carrying value of a receivable from the sale of stock for an advertising credit based on its expected use of the credit. Such charges aggregated $49.2 million for the impairment of intangible assets; $11.3 million for inventories and commitments; $2.4 million for restructuring charges and separation agreements; $3.7 million for assets relating to the joint venture; and $2.5 million for impairment of the advertising credits. The impairment was based on the excess of the carrying value of the assets over the assets' fair values. The fair value of the assets were generally determined as the estimates of future cash flows generated by the assets. Exclusive of these restructuring charges, general and administrative expenses increased primarily as a result of the Merger, the upgrade of network systems and operations, legal fees primarily for the defense of a patent infringement lawsuit, and an increase in InteliData's provision for bad debts. As a result of InteliData's increased marketing efforts to promote its residential and small business telecommunications product lines to retail markets and to RBOCs and other telephone operating companies, selling and marketing expenses also increased during the first nine months of 1997 compared to 1996. Finally, research and development costs increased during the first nine months of 1997 primarily from the developing, designing, and testing of new products and services. InteliData has been actively engaged in research and development since its inception and expects that these activities will remain consistent during the remainder 27 of 1997 and be essential to the operations of InteliData in the future. During the nine months ended September 30, 1997, InteliData recorded a gain of $1.3 million based upon the expected operations of Home Financial Network, Inc. ("HFN"). As discussed above, the Company's portion of World Airways' earnings for the period after the Purchase approximated $0.9 million. LIQUIDITY AND CAPITAL RESOURCES The Company is a highly leveraged holding company. As a holding company, all of WorldCorp's funds are generated through its positions in World Airways and InteliData, which have not paid dividends on common stock since 1992. At September 30, 1997, World Airways has a working capital deficit of $5.5 million and has substantial debt and lease commitments. At September 30, 1997, InteliData has working capital of $34.6 million, with no long-term debt. World Airways and InteliData currently intend to retain their future earnings, if any, to fund the growth and development of their business and, therefore, do not anticipate paying any cash dividends in the foreseeable future. As of September 30, 1997, WorldCorp holds $8.7 million in cash and cash equivalents. As of such date, WorldCorp had parent company repayment obligations, including principal and interest, of approximately $2.3 million for the remainder of 1997 and $7.6 million in 1998. In order to meet these obligations and its general and administrative costs, the Company must use its existing cash and either enter into new financing arrangements with commercial banks or other institutions, sell shares of World Airways or InteliData, or issue additional debt or equity. Because neither World Airways nor InteliData is a dividend paying company, and WorldCorp is a holding company with no operating activities, WorldCorp may be unable to obtain either commercial bank or other institutional debt financing, and the capital markets may not be receptive to further issuances by the Company of additional debt or equity. Accordingly, WorldCorp may be entirely dependent upon sales of its interest in World Airways and InteliData in order to meet its financial obligations. The Company's ability to meet its financial obligations, therefore, is highly dependent upon the market price of World Airways and InteliData common stock, factors which are beyond the Company's control. World Airways, an aviation company, is in a cyclical industry. InteliData, a technology company, is in a highly competitive industry where wide fluctuations in the market price for a company's stock are common. If the market price of World Airways' or InteliData's common stock does not increase, it would impair the Company's ability to repay the principal on its long-term debt at such time as the maturities on these obligations become due. In addition, the Company is a party to an Indenture covering $10 million of 10% Senior Subordinated Notes due September 30, 2000 (the "Notes"). Sinking fund payments equal to 20% of the then outstanding principal balance are required to be made on each of September 30, 1998 and September 30, 1999. The Indenture contains a mandatory prepayment provision that requires the Company to prepay 50% of the outstanding Notes within 60 days after the end of any fiscal quarter in which the Company's Asset Value (defined to include the market value of the common stock of World Airways and InteliData beneficially owned by the Company plus the value of all of the Company's other tangible assets) is less than $70.0 million. The Company is required to prepay all of the outstanding Notes within 60 days after the end of any fiscal quarter in which the Company's Asset Value is less than $50.0 million. The Company calculated its Asset Value for Indenture purposes to be approximately $72.0 million at September 30, 1997. Further declines in the share price of World Airways' and InteliData's common stock could trigger either one of these mandatory prepayment requirements, which would materially adversely affect the Company's cash position and which could materially, adversely impair the Company's ability to meet both its current and long-term obligations. The stock prices for World Airways and InteliData have declined since September 30 and there can be no assurances that the Company's Asset Value will be sufficient to avoid a partial or full mandatory prepayment 60 days after year-end or other subsequent periods. Based on the repayment terms of the Notes described above, and the resulting uncertainty regarding the maturity date, the Company has classified the outstanding balance of the Notes as a current liability as of September 30, 1997. The Company cannot provide any assurances that it will be able to obtain in any sales transaction the fair market value price for the World Airways and InteliData common stock it owns. The Company's financial condition may cause it to have to sell World Airways and/or InteliData common stock at times, prices and amounts which depress the stock price of World Airways and/or InteliData. 28 Finally, to the extent that the Company sells its assets to meet current debt service obligations, the Company has fewer resources available to permit it to repay its long-term obligations at maturity. Therefore, although management believes that the Company has sufficient capital resources to meet its obligations over the next 12 months, the Company can provide no assurances at this time that it has, or will have, sufficient capital resources to meet its obligations beyond such time. At September 30, 1997, based on quoted market prices, the market value of the Company's 3,702,586 shares of World Airways and 9,179,273 shares of InteliData approximated $29.6 million and $27.5 million, respectively. The quoted market prices of these shares have declined since September 30, 1997. On August 26, 1997, World Airways completed a private offering issuing $50.0 million of 8% convertible senior subordinated debentures (the "Debentures") due in 2004 (the "Offering"). The Debentures are unsecured obligations, convertible into shares of the Company's common stock, and subordinated to all present and future senior indebtedness of the Company. World Airways intends to use net proceeds of the Offering to repurchase approximately 4.0 million shares of its common stock, repay certain indebtedness, increase working capital and for general corporate purposes. After completion of the Offering, World Airways repaid approximately $3.8 million as full settlement of an outstanding spare parts loan. Failure by World Airways to repurchase at least 4.0 million shares of common stock within 150 days after the sale of the Debentures constitutes a repurchase event whereby each holder of the Debentures would have the right, at the holder's option, to require World Airways to repurchase such holder's Debentures at 100% of their principal amount, plus accrued interest (the "Repurchase Event"). The ability of World Airways to repurchase the Debentures upon a Repurchase Event will be dependent on World Airways' ability to raise sufficient funds through additional borrowings or equity sales and compliance with applicable securities laws. Accordingly, there can be no assurance that World Airways will be able to repurchase the Debentures upon a Repurchase Event. In connection with the above-mentioned Offering, World Airways and the Company have entered into an agreement (the "Agreement") for the purchase by World Airways of up to 4.0 million shares of common stock owned by the Company at a purchase price of $7.65 per share. On September 18, 1997 World Airways purchased 3,227,000 shares of its common stock from the Company for approximately $24.7 million. Discussions with MHS Berhad ("MHS") following the Offering could have an impact on the number of shares of common stock ultimately repurchased by World Airways from the Company. MHS has certain rights under a shareholders agreement, dated as of February 3, 1994, as amended, among WorldCorp, MHS and World Airways. This agreement includes a provision that provides that if the Company were to dispose of its holdings in World Airways with the result that the Company's ownership interest in World Airways falls below 51% of the outstanding shares of common stock, then MHS may either sell its shares to a third party or require the Company to sell a pro rata number of shares held by MHS to the party purchasing the Company's shares. As a result of repurchase of 3,227,000 shares of common stock by World Airways from WorldCorp, MHS has the right to sell 773,000 shares of common stock. Accordingly, WorldCorp, MHS and World Airways have engaged in preliminary discussions as to the potential repurchase of common stock owned by MHS. The Company anticipates that these discussions will continue, although there can be no assurance that these discussions will result in any stock repurchases by World Airways from MHS. Should MHS not exercise its right to sell the 773,000 shares of common stock, World Airways currently intends to repurchase the shares form WorldCorp. This would reduce WorldCorp's ownership of World Airways to 41%. The Company used a portion of the proceeds from the sale of the World Airways shares to pay the balance of a $15.0 million loan from a financial institution which matured on September 29, 1997. In 1996, the Company announced its intention to purchase up to 2.5 million shares of its publicly-traded common stock pursuant to open market transactions. As of November 7, 1997, the Company had purchased 2,116,000 shares of its common stock for an aggregate cost of $9.2 million. The Company intends to make repurchases from time to time as circumstances and its financial condition permit. World Airways is also highly leveraged. World Airways incurred substantial debt and lease commitments during the past three years in connection with its acquisition of MD-11 aircraft and related spare parts. In addition, World Airways issued $50.0 million of convertible debentures in August 1997, as discussed below. As of September 30, 1997, World Airways had outstanding $76.3 million in long-term debt and capital leases, with expected debt service and capital lease expense of $1.9 million for the remainder of 1997 and $16.3 million for the year ending December 31, 1998. In addition, World Airways has significant future long-term obligations under aircraft lease obligations relating to its aircraft. World Airways has historically financed its working capital and capital expenditure requirements out of cash flow from 29 operating activities, public and private sales of its common stock, secured borrowings, and other financings from banks and other lenders. The degree to which World Airways is leveraged could have important consequences to holders of common stock, including the following: (i) World Airways' ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or other purposes may be limited; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of principal and interest on its indebtedness; (iii) World Airways' degree of leverage and related debt service obligations, as well as its obligations under operating leases for aircraft, may make it more vulnerable than some of its competitors in a prolonged economic downturn; (iv) World Airways' ability to meet its payment obligations under existing and future indebtedness, capital leases and operating leases may be limited; and (v) World Airways' financial position may restrict its ability to pursue new business opportunities and limit its flexibility in responding to changing business conditions. World Airways' cash and cash equivalents at September 30, 1997 and December 31, 1996 were $28.2 million and $7.0 million, respectively. As is common in the airline industry, World Airways operates with a working capital deficit. At September 30, 1997, World Airways' current assets were $49.3 million and current liabilities were $54.9 million. World Airways has substantial long-term aircraft lease obligations with respect to its current aircraft fleet. Although there can be no assurances, World Airways believes that its existing contracts and additional business which it expects to obtain in the near term, along with its existing cash and financing arrangements and net proceeds from the Offering will be sufficient to allow World Airways to meet its cash requirements related to debt service and the operating and capital requirements for its continuing operations for the next 12 months. In 1996, World Airways instituted a program to purchase up to one million shares of its publicly-traded common stock pursuant to open market transactions. As of September 30, 1997, World Airways had purchased 770,000 shares of common stock at an aggregate cost of approximately $7.8 million pursuant to such program. In the event that World Airways enters into leases for additional aircraft, World Airways will need to make capital expenditures for additional spare engines and parts. No assurances can be given, however, that World Airways will obtain all of the financing required for such capital expenditures. At September 30, 1997 InteliData had $11.1 million in cash, cash equivalents and short-term investments. Additionally, at September 30, 1997, InteliData had working capital of $34.6 million, with no long-term debt. InteliData has generated operating losses since its inception. On August 12, 1997, InteliData announced its intention to purchase up to 2.0 million shares of its common stock pursuant to open market transactions. As of September 30, 1997, InteliData had purchased 681,500 shares of its common stock for an aggregate cost of $2.1 million. CASH FLOWS FROM OPERATING ACTIVITIES Operating activities provided $26.2 million in cash for the nine months ended September 30, 1997 compared to using $18.6 million of cash in the comparable 1996 period. The increase in cash in 1997 resulted primarily from a decrease in net loss and a decrease in accounts receivable. CASH FLOWS FROM INVESTING ACTIVITIES Investing activities used $63.3 million in cash for the nine months ended September 30, 1997 compared to using $10.0 million in the comparable 1996 period. In 1997,the decrease in cash resulted primarily from reporting World Airways on the equity method of accounting as of September 18, 1997, and the purchase of rotable spare parts, a spare engine, and engine upgrades required for the integration of two MD-11 aircraft. CASH FLOWS FROM FINANCING ACTIVITIES Financing activities provided $33.3 million in cash for the nine months ended September 30, 1997 compared to providing $7.9 million in the comparable 1996 period. This increase in cash resulted primarily from the issuance of the convertible debentures by World Airways and proceeds received from the sale of World Airways common stock, partially offset by an increase in repayments of the Company's net borrowings and the purchase of shares of WorldCorp's and World Airways' common stock for an aggregate cost of $0.6 million and $0.5 million, respectively, in 1997. CAPITAL COMMITMENTS/FINANCING DEVELOPMENTS 30 WORLD AIRWAYS - ------------- As of September 30, 1997, annual minimum payments required under World Airways's aircraft and lease obligations totaled $20.1 million for the remainder of 1997 and $79.5 million for 1998. World Airways anticipates that its total capital expenditures in 1997, which includes the spare engine, will approximate $13.0 million of which it will receive approximately $6.3 million in financing. World Airways expects that the remaining balance will be funded from its operating cash flow and proceeds from the Offering. As of September 30, 1997, World Airways held approximately $3.6 million (at book value) of aircraft spare parts currently available for sale. As of September 30, 1997, there was no outstanding balance or borrowing capacity on World Airways' credit agreement with BNY Financial Corporation. In October 1997, World Airways reached an agreement in principle with a financial institution for a credit facility of up to $25.0 million to be collateralized by certain receivables and spare parts. If World Airways closes this transaction, the proceeds would be used to increase working capital and for general corporate purposes. No assurances can be given, however, that the agreement will be ultimately completed. INTELIDATA - ---------- InteliData's principal needs for cash in 1996 were for investments in property and equipment and to fund working capital, primarily related to inventories and accounts receivable. InteliData's primary needs for cash in the future are for investments in product development, working capital, the financing of operations, strategic ventures, capital expenditures and the upgrade of its systems and operations. In order to meet its needs for cash throughout the year, InteliData will utilize cash, short-term investments and may utilize, to the extent available, funds generated from operations through the collections of accounts receivable and sale of inventories. WORLDCORP - --------- In the first quarter of 1997, WorldCorp entered into a $1.0 million margin loan with Scott & Stringfellow, Inc., whereby WorldCorp pledged approximately 400,000 shares of InteliData common stock which WorldCorp owns as collateral for such loan (the "Margin Loan"). As of September 30, 1997, the Company had no outstanding balance on the Margin Loan. RECENT DEVELOPMENTS In October 1997, one of World Airways' MD-11 aircraft was damaged upon its landing in Montevideo, Uruguay. The aircraft is expected to be out of service for approximately two months while certain repairs are made. World Airways expects insurance to cover repair and certain related costs, but expects that its loss of revenues that would have been generated by the aircraft's use will have an adverse effect on its financial condition and results of operations for the fourth quarter of 1997. OTHER MATTERS LEGAL AND ADMINISTRATIVE PROCEEDINGS World Airways and WorldCorp (the "World Defendants") were defendants in litigation brought by the Committee of Unsecured Creditors of Washington Bancorporation in August 1992, captioned Washington Bancorporation v. Boster et. al., Adv. Proc. 92-0133 (Bankr. D.D.C.) (the "Boster Litigation"). Under a settlement agreement, the plaintiff agreed to dismiss with prejudice the Boster Litigation against all defendants, including the World Defendants, with each party to bear its own costs. Under the settlement agreement, the World Defendants do not have any further liability in the Boster Litigation. World Airways has periodically received correspondence from the FAA with respect to minor noncompliance matters. In November 1996, as the FAA has increased its scrutiny of U.S. airlines, World Airways was assessed a preliminary fine of $810,000 in connection with certain security violations by ground handling crews contracted by World Airways for services at foreign airport locations. Under 49 U.S.C., Section 46301, any violation of pertinent provisions of 49 U.S.C. Subsection 40101 or related rules is subject to a civil penalty for each violation. Upon review of the evidence or facts and circumstances relating to the violation, the statute allows for the compromise of proposed civil penalties. The penalties were proposed by the FAA in connection with recent inspections at foreign airport facilities and relate 31 primarily to ground handling services provided by World Airways' customers in connection with their operations; specifically, the inspection procedures of its aircraft, passengers and associated cargo. In each of these instances, World Airways was in compliance with international regulations, but not the more stringent U.S. requirements, despite the fact that the flights in question did not originate or terminate in the United States. World Airways has taken steps to comply with the U.S. requirements. In September 1997, World Airways entered into a consent order and settlement agreement with the FAA in connection with the above-mentioned alleged violations. Pursuant to this agreement, World Airways is liable for the sum of $610,000, of which $405,000 was paid in September. The remaining $205,000 was suspended and will be forgiven if it complies with the provisions of the settlement agreement, including not incurring any security violations during the one year period following the execution of the settlement agreement. While World Airways believes it is currently in compliance in all material respects with all appropriate standards and has all required licenses and authorities, any material non-compliance by World Airways therewith or the revocation or suspension of licenses or authorities could have a material adverse effect on the financial condition or results of operations of World Airways. In connection with the discontinuance of World Airways' scheduled service operations, World Airways is subject to claims by various third parties and may be subject to further claims in the future. One claim which had been filed in connection with World Airways' discontinuance of scheduled service to South Africa, and which sought approximately $37.8 million in compensatory and punitive damages, has been settled by the parties for approximately $0.7 million. InteliData's subsidiary filed suit in September 1997 against Worldwide Telecom Partners, Inc. ("WTP"), Blau Marketing Technologies, Inc. ("BMT") and Barry Blau in Connecticut Superior Court seeking payment by WTP of past due accounts receivable in the amount of approximately $11.0 million and making certain other claims including breach of contract. WTP is a terminated joint venture which provided telecommunications products combined with marketing services to telcos. BMT filed a separate suite against InteliData and its subsidiary, WTP and John C. Backus on October 31, 1997 alleging breach of contract and making certain other claims and seeking damages in excess of $15,000. InteliData believes that its claims and defenses in the above-described actions are meritorious and intends to vigorously pursue its remedies. In addition, the Company is party to routine litigation and administrative proceedings incidental to its business, none of which is believed by the Company to be likely to have a material adverse effect on the financial condition of the Company. EMPLOYEES The Company employs four individuals. The majority of its administrative requirements are performed by employees of World Airways. The Company is charged an appropriate monthly fee for these services. DIVIDEND POLICY WorldCorp has never paid any dividends and does not plan to do so for the foreseeable future. The Purchase Agreement governing the Notes, and the Indenture governing the Company's Debentures, in certain circumstances, restrict the Company from paying dividends or making distributions on its common stock. As a holding company, all of WorldCorp's funds are generated through its positions in World Airways and InteliData, neither of whom intend to pay dividends in the foreseeable future. INCOME TAXES At December 31 1996, WorldCorp had approximately $53.6 million in net operating loss carryforwards ("NOLs") that are available to offset future federal taxable income. There can be no assurance that the Company will generate taxable income in future years so as to allow the Company to realize a tax benefit from its NOLs. The NOLs are subject to examination by the IRS and, thus, are subject to adjustment or disallowance resulting from any such IRS examination. In addition, ownership changes of the Company, pursuant to the Internal Revenue Code, may occur in the future and may result in the imposition of an annual limitation on the Company's NOLs existing at the time of any such ownership change. In addition, a portion of World Airways' NOLs are subject to an annual limitation as a result of a previous ownership change, for tax purposes, which occurred in 1991. World Airways does not file a consolidated income tax return with the Company. 32 INFLATION The Company believes that inflation has not had a material effect on the Company's revenues during the past three years. NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128 ("FAS #128") Earnings per Share, and SFAS No. 129 ("FAS #129") Disclosure of Information About Capital Structure. FAS #128 was issued to simplify the computation of earnings per share and to make the U.S. standard more compatible with the standards of other countries and that of the International Accounting Standards Committee. FAS #128 replaces primary and full diluted earnings per share with basic earnings and diluted earnings per share. FAS #129 will change some of the required disclosures about capital structure. It is not expected that these statements will have a material effect on the Company's financial statements in the future. The statements are effective for the year ended December 31, 1997. 33 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (a) Exhibits --------
Exhibit No. Exhibit ------ ------- 3.1 Certificate of Incorporation of WorldCorp, Inc. dated March 16, 1987. Incorporated [Filed as Exhibit 3.1 to WorldCorp, Inc.'s Registration by reference Statement on Form S-4 (Commission File No. 33012735) filed on March 19, 1987 and incorporated herein by reference.] 3.2 Amended and Restated Bylaws of WorldCorp, Inc. dated November 13, Incorporated 1987. (Filed as Exhibit 3.1 to WorldCorp, Inc.'s Annual Report on by reference Form 10-K for the fiscal year ended December 31, 1987 and incorporated herein by reference.) 4.6 First Supplemental Indenture dated as of February 22, 1994 between Incorporated WorldCorp, Inc. and The First National Bank of Boston, as Trustee. by reference (Filed as Exhibit 4.6 to WorldCorp, Inc's Form S-3 Registration Statement (Commission file No. 33-60247) filed on June 15, 1995 and incorporated herein by reference.) 4.8 Stock Option Agreement dated as of April 1, 1995 between WorldCorp, Incorporated Inc. and Patrick F. Graham. (Filed as Exhibit 4.8 to by reference WorldCorp Inc's Form S-3 Registration Statement (Commission file No. 33-60247) filed on June 15, 1995 and incorporated herein by reference.) 10.5 Merger Agreement and Plan of Reorganization dated as of April 28, Incorporated 1987 by and among World Airways, Inc., World Merger Corporation by reference and WorldCorp, Inc. [Filed as Exhibit 10.50 to WorldCorp, Inc.'s Form S-2 Registration Statement (Commission File No. 33-1358276) filed on July 31, 1987 and incorporated herein by reference.] 10.9 Form of Assumption Agreement dated as of June 23, 1987 among Incorporated WorldCorp, Inc., World Airways, Inc. and each Indemnified Party. by reference [Filed as Exhibit 10.60 to WorldCorp, Inc.'s Form S-2 Registration Statement (Commission File No. 33-1358276) filed on July 31, 1987 and incorporated herein by reference.] 10.14 Office Lease - The Hallmark Building dated as of May 16, 1987 Incorporated between WorldCorp, Inc. and GT Renaissance Centre Limited by reference Partnership. (Filed as Exhibit 10.36 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and incorporated herein by reference.) 10.15 Lease Amendment dated as of June 27, 1989 between WorldCorp, Inc. Incorporated and GT Renaissance Centre Limited Partnership. (Filed as Exhibit by reference 10.37 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and incorporated herein by reference.) 10.16 Office Lease - The Hallmark Building dated as of September 20, 1989 Incorporated between World Airways, Inc. and GT Renaissance Centre Limited by reference Partnership. (Filed as Exhibit 10.38 to WorldCorp, Inc's Annual Report on form 10-K for the fiscal year ended December 31, 1989 and incorporated herein by reference.)
34 10.17 Warrant Agreement dated as of July 22, 1989 between WorldCorp, Incorporated Inc. and Charles W. Pollard. (Filed as Exhibit 10.45 to by reference WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and incorporated herein by reference.) 10.21 Amendment No. 1 to WorldCorp Inc. Employee Savings and Stock Incorporated Ownership Plan. (Filed as Exhibit 10.50 to WorldCorp, Inc.'s by reference Annual Report on Form 10-K for the fiscal year ended December 31, 1989 and incorporated herein by reference.) 10.27 Aircraft Warranty Bill of Sale dated as of January 15, 1991 between Incorporated World Airways, Inc. and First Security Bank of Utah, N.A., not by reference in its individual capacity, but solely as Owner Trustee. (Filed as Exhibit 10.46 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by reference.) 10.28 Aircraft Lease Agreement dated as of January 15, 1991 between World Incorporated Airways, Inc. and First Security Bank of Utah, N.A., not in its by reference individual capacity, but solely as Owner Trustee. (Filed as Exhibit 10.47 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1990 and incorporated herein by reference.) 10.32 Aircraft Engine Purchase Agreement dated as of April 26, 1991 between Incorporated Terandon Leasing Corporation and World Airways, Inc. (Filed as by reference Exhibit 10.41 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.) 10.33 Aircraft Engine Lease Agreement dated as of April 26, 1991 between Incorporated Terandon Leasing Corporation and World Airways, Inc. (Filed as by reference Exhibit 10.42 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.) 10.34 Guaranty Agreement I dated as of February 12, 1992 between McDonnell Incorporated Douglas Finance Corporation and World Airways, Inc. (Filed as by reference Exhibit 10.43 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.) 10.35 Guaranty Agreement II dated as of February 12, 1992 between McDonnell Incorporated World Airways, Inc. (Filed as Douglas Finance Corporation and by reference Exhibit 10.44 to WorldCorp, Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference.) 10.38 Aircraft Lease Agreement for Aircraft Serial Number 48518 dated as Incorporated of September 30, 1992 between World Airways, Inc. and by reference International Lease Finance Corporation. 10.39 Aircraft Lease Agreement for Aircraft Serial Number 48519 dated as Incorporated of September 30, 1992 between World Airways, Inc. and by reference International Lease Finance Corporation. 10.40 Aircraft Lease Agreement for Aircraft Serial Number 48520 dated as Incorporated of September 30, 1992 between World Airways, Inc. and by reference International Lease Finance Corporation. 10.41 Aircraft Lease Agreement for Aircraft Serial Number 48633 dated as Incorporated
35 of September 30, 1992 between World Airways, Inc. and by reference International Lease Finance Corporation. 10.42 Aircraft Lease Agreement for Aircraft Serial Number 48631 dated as Incorporated of September 30, 1992 between World Airways, Inc. and by reference International Lease Finance Corporation. 10.43 Aircraft Lease Agreement for Aircraft Serial Number 48632 dated as Incorporated of September 30, 1992 between World Airways, Inc. and by reference International Lease Finance Corporation. 10.46 Accounts Receivable Management and Security Agreement dated as Incorporated of December 7, 1993 between World Airways, Inc. and BNY by reference Financial Corporation. 10.47 Aircraft Parts Security Agreement dated as of December 7, 1993 Incorporated between World Airways, Inc. and BNY Financial Corporation. by reference 10.48 Warrant Certificate dated as of December 7, 1993 between WorldCorp, Incorporated Inc. and BNY Financial Corporation. by reference 10.62 Consignment Agreement dated as of September 30, 1993 between World Incorporated Airways Inc. and The Memphis Group. by reference 10.63 Assignment and Assumption and Consent and Release for Aircraft Incorporated Serial Number 47818 dated as of July 20, 1993 among World by reference Airways, Inc., WorldCorp, Inc., McDonnell Douglas Corporation, and McDonnell Douglas Finance Corporation. 10.64 Assignment and Assumption and Consent and Release for Aircraft Incorporated Serial Number 46999 dated as of July 9, 1993 among World by reference Airways, Inc., WorldCorp, Inc., McDonnell Douglas Corporation, and McDonnell Douglas Finance Corporation. 10.65 Aircraft Lease Agreement for Aircraft Serial Number 48458 dated as Incorporated of January 15, 1993 between World Airways, Inc. and Wilmington by reference Trust Company/GATX Capital Corporation. 10.66 Aircraft Lease Supplement for Aircraft Serial Number 48458 dated as Incorporated of April 23, 1993 between World Airways, Inc. and Wilmington Trust by reference Company/GATX Capital Corporation. 10.67 Aircraft Spare Parts Lease Agreement dated as of April 15, 1993 Incorporated between World Airways, Inc. and GATX Capital Corporation. by reference 10.68 Amendment No. 1 To Aircraft Lease Agreement for Aircraft Serial Incorporated Number 48518 dated as of November 1993 between World Airways, by reference Inc. and International Lease Finance Corporation. 10.69 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated Number 48518 dated as of March 8, 1993 between World Airways, by reference Inc. and International Lease Finance Corporation. 10.70 Assignment of Rights for Aircraft Serial Number 48518 dated as of Incorporated March 8, 1993 between World Airways, Inc. and International Lease by reference Finance Corporation.
36 10.71 Assignment of Rights for Aircraft Engines Serial Numbers P723942, Incorporated P723945, and P723943 dated as of March 1, 1993 between World by reference Airways, Inc. and International Lease Finance Corporation. 10.72 Agency Agreement for Aircraft Serial Number 48518 dated as of Incorporated January 15, 1993 between World Airways, Inc. and International by reference Lease Finance Corporation. 10.73 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated Number 48437 dated as of March 31, 1993 between World Airways, by reference Inc. and International Lease Finance Corporation. 10.74 Amendment No. 3 to Aircraft Lease Agreement for Aircraft Serial Incorporated Number 48437 dated as of April 15, 1993 between World Airways, by reference Inc. and International Lease Finance Corporation. 10.75 Agency Agreement for Aircraft Serial Number 48437 dated as of Incorporated January 15, 1993 between World Airways, Inc. and International by reference Lease Finance Corporation. 10.76 Assignment of Rights for Aircraft Serial Number 48437 dated as of Incorporated April 15, 1993 between World Airways, Inc. and International Lease by reference Finance Corporation. 10.77 Assignment of Rights for Aircraft Engines Serial Numbers P723913, Incorporated P723912, and P723914 dated as of April 15, 1993 between World by reference Airways, Inc. and International Lease Finance Corporation. 10.78 Amendment No. 2 to Aircraft Lease Agreement for Aircraft Serial Incorporated Number 48520 dated as of April 22, 1993 between World Airways, by reference Inc. and International Lease Finance Corporation. 10.79 Agency Agreement for Aircraft Serial Number 48520 dated as of Incorporated January 15, 1993 between World Airways, Inc. and International by reference Lease Finance Corporation. 10.80 Assignment of Rights for Aircraft Serial Number 48520 dated as of Incorporated April 22, 1993 between World Airways, Inc. and International Lease by reference Finance Corporation. 10.81 Assignment of Rights for Aircraft Engines Serial Numbers P723957, Incorporated P723958, and P723956 dated as of March 1, 1993 between World by reference Airways, Inc. and International Lease Finance Corporation. 10.82 Aircraft Charter Agreement dated as of July 24, 1993 between World Incorporated Airways, Inc. and Malaysian Airline System Berhad. by reference 10.85 Return Agreement for Aircraft Serial Numbers 47818 and 46999 dated Incorporated as of July 9, 1993 among World Airways, Inc., WorldCorp, Inc., by reference International Lease Finance Corporation, McDonnell Douglas Corporation, and McDonnell Douglas Finance Corporation. 10.86/1/ Acquisition Agreement Among VISA International Service Association, Incorporated US Order, Inc, and WorldCorp, Inc, dated as of July 15, 1994. by reference 10.87 Stock Purchase Agreement by and among World Airways, Inc., Incorporated WorldCorp, Inc., and Malaysian Helicopter Services Berhad dated as by reference
37 of October 30, 1993. 10.88 Stock Registration Rights Agreement between World Airways, Inc. Incorporated and Malaysian Helicopter Services Berhad dated as of October 30, by reference 1993. 10.89 Shareholders Agreement between Malaysian Helicopter Services Incorporated Berhad and WorldCorp, Inc., and World Airways, Inc. dated as of by reference February 3, 1994. 10.90 Amendment No. 1 to Shareholders Agreement dated as of February 28, Incorporated 1994, among WorldCorp, World Airways, and MHS. by reference 10.94 Stock Option Agreement dated as of August 1, 1994 ("Grant Date") Incorporated between WorldCorp, Inc. and William F. Gorog. by reference 10.95 Employment Agreement dated as of August 1, 1994 between US Incorporated Order, Inc. and John C. Backus, Jr. by reference 10.96 Employment Agreement dated as of August 19, 1994 between Incorporated WorldCorp, Inc. and T. Coleman Andrews, III. by reference 10.97 Stock Option Agreement dated as of August 19, 1994 ("Grant Date") Incorporated by and between WorldCorp, Inc. and T. Coleman Andrews, III. by reference 10.98 Agreement between World Airways, Inc. and the International Incorporated Brotherhood of Teamsters representing the Cockpit Crewmembers by reference employed by World Airways, Inc. dated August 15, 1994-June 30, 1998. 10.101 Aircraft Services Agreement dated September 26, 1994 by and between Incorporated World Airways, Inc. ("World") and Malaysian Airlines. by reference 10.102 Freighter Services Agreement dated October 1, 1994 by and between Incorporated World Airways, Inc. and Malaysian Airline System Berhad. by reference 10.103 World Airways, Inc. 1995 AMC Contract F11626-94-D0027 dated Incorporated October 1, 1994 between World Airways, Inc. and Air Mobility by reference Command. 10.105 Stock Purchase Agreement (the "Agreement") dated as of December Incorporated 31, 1994 by and between MHS Berhad, a Malaysian corporation (the by reference "Shareholder") and WorldCorp, Inc., a Delaware corporation (the "Purchaser"). 10.107 Amendment No. 1 to Passenger Aircraft Services and Freighter Incorporated Services Agreement dated December 31, 1994 by and between World by reference Airways, Inc. and Malaysian Airline System Berhad. 10.109 Customer Agreement between WorldCorp ESSOP and Scott & Incorporated Stringfellow, Inc. dated January 11, 1995 for a margin loan. by reference 10.110 Side Letter dated January 11, 1995 from Scott & Stringfellow, Inc. to Incorporated William F. Gorog, Trustee of WorldCorp Employee Savings and Stock by reference Ownership Plan for a margin loan to the WorldCorp ESSOP. 10.111 Guarantee Agreement dated January 11, 1995 by WorldCorp, Inc. Incorporated ("Guarantor") for the benefit of Scott & Stringfellow, Inc. (the by reference "Lender").
38 10.112 Registration Rights Agreement dated as of January 11, 1995 by and Incorporated between WorldCorp, Inc. and Scott & Stringfellow, Inc. by reference 10.113 Side Letter dated January 11, 1995 from WorldCorp, Inc. to Scott & Incorporated Stringfellow, Inc. regarding commitment to make contributions by reference to the WorldCorp Employee Savings and Stock Ownership Plan (the "ESSOP"), for the duration of the Scott & Stringfellow loan to the ESSOP. 10.115 Amendment No. 2 to Passenger Aircraft Services and Freighter Incorporated Aircraft Service Agreement dated February 9, 1995 by and between by reference World Airways, Inc. and Malaysian Airline System Berhad. 10.116 Riverside 10% Notes. Indenture between WorldCorp, Inc. and Incorporated Norwest Bank, National Association, Trustee, dated as of by reference September 30, 1996, for $10,000,000 10% Senior Subordinated Notes due September 30, 2000. [Filed as Exhibit 4.2 and 4.3 to WorldCorp, Inc's S-4 (Commission file No. 333-19481) Filed on January 9, 1997 and incorporated herein by reference] 11 Statement on Calculation of Earnings (Loss) Per Common Share. Filed Herewith 27 Financial Data Schedule for the quarter ended September 30, 1997. Filed Herewith
/1/ Confidential treatment of portions of the Agreement has been granted by the Commission. The copy filed as an exhibit omits the information subject to confidentiality request. Confidential portions so omitted have been filed separately with the Commission. (b) Reports on Form 8-K Form 8-K dated July 1, 1997, was filed with the Securities and Exchange Commission on July 1, 1997. Form 8-K dated July 14, 1997, was filed with the Securities and Exchange Commission on July 14, 1997. Form 8-K dated September 18, 1997, was filed with the Securities and Exchange Commission on October 3, 1997. * * * * * * * * * * * 39 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WORLDCORP, INC. By: /s/ T. Coleman Andrews, III --------------------------- (T. Coleman Andrews, III) Chief Executive Officer, President and Principal Accounting Officer Date: November 14, 1997 40 EX-11 2 EXHIBIT 11 EXHIBIT 11 PAGE 1 OF 2 WORLDCORP, INC. AND SUBSIDIARIES CALCULATIONS OF EARNINGS (LOSS) PER COMMON SHARE FOR THE THREE MONTHS ENDED SEPTEMBER 30, (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
1997 1996 ----------- ----------- Loss from continuing operations $ (14,119) $ (4,147) Discontinued operations -- 107 ----------- ----------- Net loss $ (14,119) $ (4,040) =========== =========== PRIMARY NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE Continuing operations $ (0.94) $ (0.24) Discontinued operations -- 0.01 ----------- ----------- Net loss $ (0.94) $ (0.23) =========== =========== PRIMARY WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Weighted average common shares outstanding 14,988,934 16,545,420 Weighted average options and warrants treated as common stock equivalents -- 668,779 ----------- ----------- Primary number of shares 14,988,934 17,214,199 =========== =========== FULLY DILUTED NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE Continuing operations $ * $ * Discontinued operations * * ----------- ----------- Net loss $ * $ * =========== =========== FULLY DILUTED WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Weighted average common shares outstanding * * Weighted average options and warrants treated as common stock equivalents * * Weighted average other dilutive securities * * ----------- ----------- Fully diluted number of shares * * =========== ===========
* Fully diluted earnings per share are anti-dilutive. EXHIBIT 11 PAGE 2 OF 2 WORLDCORP, INC. AND SUBSIDIARIES CALCULATIONS OF EARNINGS (LOSS) PER COMMON SHARE FOR THE NINE MONTHS ENDED SEPTEMBER 30, (IN THOUSANDS EXCEPT SHARE DATA) (UNAUDITED)
1997 1996 ------------ ---------- Loss from continuing operations $ (13,623) $ (6,360) Loss from discontinued operations -- (19,271) ----------- ----------- Net loss $ (13,623) $ (25,631) =========== =========== PRIMARY NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE Continuing operations $ (0.91) $ (0.39) Discontinued operations -- (1.17) ----------- ----------- Net loss $ (0.91) $ (1.56) =========== =========== PRIMARY WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Weighted average common shares outstanding 15,004,837 16,447,127 Weighted average options and warrants treated as common stock equivalents -- -- ----------- ----------- Primary number of shares 15,004,837 16,447,127 =========== =========== FULLY DILUTED NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE Continuing operations $ * $ * Discontinued operations * * ----------- ----------- Net loss $ * $ * =========== =========== FULLY DILUTED WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING Weighted average common shares outstanding * * Weighted average options and warrants treated as common stock equivalents * * Weighted average other dilutive securities * * ----------- ----------- Fully diluted number of shares * * =========== ===========
* Fully diluted earnings per share are anti-dilutive. EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM WORLD CORP FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JUL-01-1997 SEP-30-1997 8,665 0 0 0 0 9,735 3,276 2,988 24,136 13,011 0 0 0 16,636 (70,251) 24,136 0 55,416 0 53,873 (14,981) 0 2,420 (13,438) 0 (14,119) 0 0 0 (14,119) (0.94) 0 Fully diluted earnings per share are anti-dilutive.
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