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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q/A
 (Amendment No. 1)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: June 30, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from ___to ___
 Commission File Number 0-26582
 WORLD AIR HOLDINGS, INC.
  DELAWARE
(State or other jurisdiction
of incorporation or organization)
    
    20-2121036
(I.R.S. Employer
Identification Number)
 
 
 
  þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  o þ




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##### 



WORLD AIR HOLDINGS, INC.
 QUARTERLY REPORT ON FORM 10-Q/A
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
 TABLE OF CONTENTS
 PageAmendment No. 1 Overview
    
    
    3PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets (Unaudited),
June 30, 2005 (Restated) and December 31, 2004
    
    
    4Condensed Consolidated Statements of Operations (Unaudited),
Three Months Ended June 30, 2005 (Restated) and 2004
    
    
    6Condensed Consolidated Statements of Operations (Unaudited),
Six Months Ended June 30, 2005 (Restated) and 2004
    
    
    7Condensed Consolidated Statement of Changes in Stockholders Equity (Unaudited),
Six months ended June 30, 2005 (Restated)
    
    
    8Condensed Consolidated Statements of Cash Flows (Unaudited),
Six months ended June 30, 2005 (Restated) and 2004
    
    
    9Notes to Condensed Consolidated Financial Statements (Unaudited) (Restated)
    
    
    10Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations.
    
    
    22Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29PART II  OTHER INFORMATION
    
    
    31Item 1. Legal Proceedings
    
    
    31Item 6. Exhibits
    
    
    31EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE INTERIM CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE INTERIM CFO
  2




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Amendment No. 1 Overview
       3




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ITEM 1. FINANCIAL STATEMENTS
WORLD AIR HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 ASSETS
(in thousands)
(unaudited)
 June 30,2005
    
    
    December 31,(As restated)
    
    
    2004CURRENT ASSETSCash and cash equivalents
    
    $
    46,501
    
    
    $
    49,956Restricted cash
    
    
    5,936
    
    
    
    4,926Accounts receivable, less allowance for doubtful accounts
of $180 at June 30, 2005 and $209 at December 31, 2004
    
    
    57,850
    
    
    
    52,382Prepaid expenses and other current assets
    
    
    15,876
    
    
    
    8,335Deferred tax assets
    
    
    6,906
    
    
    
    6,685Total current assets
    
    
    133,069
    
    
    
    122,284EQUIPMENT AND PROPERTYFlight and other equipment
    
    
    82,170
    
    
    
    84,514Less: accumulated depreciation and amortization
    
    
    47,205
    
    
    
    51,321Net equipment and property
    
    
    34,965
    
    
    
    33,193GOODWILL AND OTHER INTANGIBLE ASSETSGoodwill
    
    
    21,883
    
    
    
    Other intangible assets, net of accumulated amortization of
$192 at June 30, 2005
    
    
    7,903
    
    
    
    Net goodwill and other intangible assets
    
    
    29,786
    
    
    
    LONG-TERM DEPOSITS
    
    
    23,015
    
    
    
    18,237OTHER ASSETS AND DEFERRED CHARGES, NET OF ACCUMULATED
AMORTIZATION OF $2,872 AT JUNE 30, 2005 AND $2,019 AT
DECEMBER 31, 2004
    
    
    5,034
    
    
    
    5,603TOTAL ASSETS
    
    $
    225,869
    
    
    $
    179,317
  4




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WORLD AIR HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)
 LIABILITIES AND STOCKHOLDERS EQUITY
(in thousands except share amounts)
(unaudited)
 June 30,2005
    
    
    December 31,(As restated)
    
    
    2004CURRENT LIABILITIESCurrent maturities of long-term debt
    
    $
    30,000
    
    
    $
    6,000Accounts payable
    
    
    41,659
    
    
    
    35,482Current portion of accrued rent
    
    
    5,550
    
    
    
    5,489Current portion of deferred rent
    
    
    
    
    
    
    3,242Unearned revenue
    
    
    25,757
    
    
    
    6,293Accrued maintenance
    
    
    6,238
    
    
    
    4,179Accrued salaries, wages and profit sharing
    
    
    18,263
    
    
    
    20,463Accrued taxes
    
    
    7,522
    
    
    
    8,482Other accrued liabilities
    
    
    6,628
    
    
    
    1,861Total current liabilities
    
    
    141,617
    
    
    
    91,491Long-term debt, net of current maturities
    
    
    
    
    
    
    43,879Deferred gain from sale-leaseback transactions, net of
accumulated amortization of $4,654 at June 30, 2005
and $4,269 at December 31, 2004
    
    
    1,260
    
    
    
    1,645Accrued post-retirement benefits
    
    
    4,331
    
    
    
    4,081Accrued and deferred rent, net of current portion
    
    
    5,120
    
    
    
    5,615Deferred income taxes
    
    
    4,098
    
    
    
    2,208TOTAL LIABILITIES
    
    
    156,426
    
    
    
    148,919STOCKHOLDERS EQUITYPreferred stock, $.001 par value (5,000,000 shares authorized;
no shares issued or outstanding)
    
    
    
    
    
    
    Common stock, $.001 par value (100,000,000 shares authorized;
24,864,995 shares issued and 23,783,752 shares outstanding at
June 30, 2005; 17,430,023 shares issued and 16,348,780 shares
outstanding at December 31, 2004)
    
    
    25
    
    
    
    18Additional paid-in capital
    
    
    66,636
    
    
    
    42,712Retained earnings
    
    
    15,929
    
    
    
    525Deferred stock-based compensation
    
    
    (290
    )
    
    
    Treasury stock, at cost (1,081,243 shares at June 30, 2005 and December 31, 2004)
    
    
    (12,857
    )
    
    
    (12,857
    )Total stockholders equity
    
    
    69,443
    
    
    
    30,398COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    225,869
    
    
    $
    179,317
  5




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WORLD AIR HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended June 30, 2005 and 2004
 (in thousands except per share data)
 (unaudited)
 2005(As restated)
    
    
    2004REVENUESFlight operations
    
    $
    171,091
    
    
    $
    114,707Other
    
    
    791
    
    
    
    353Total revenues
    
    
    171,882
    
    
    
    115,060OPERATING EXPENSESFlight
    
    
    48,582
    
    
    
    37,705Maintenance
    
    
    25,740
    
    
    
    20,032Aircraft costs
    
    
    27,270
    
    
    
    17,426Fuel
    
    
    31,338
    
    
    
    16,363Flight operations subcontracted to other carriers
    
    
    1,217
    
    
    
    81Commissions
    
    
    7,702
    
    
    
    4,831Depreciation and amortization
    
    
    1,965
    
    
    
    1,274Sales, general and administrative
    
    
    17,279
    
    
    
    12,960Total operating expenses
    
    
    161,093
    
    
    
    110,672OPERATING INCOME
    
    
    10,789
    
    
    
    4,388OTHER INCOME (EXPENSE)Interest expense
    
    
    (1,142
    )
    
    
    (1,247
    )Interest income
    
    
    241
    
    
    
    125Other, net
    
    
    (1,023
    )
    
    
    (347
    )Total other income (expense)
    
    
    (1,924
    )
    
    
    (1,469
    )EARNINGS BEFORE INCOME TAX EXPENSE
    
    
    8,865
    
    
    
    2,919INCOME TAX EXPENSE
    
    
    3,359
    
    
    
    350NET EARNINGS
    
    $
    5,506
    
    
    $
    2,569BASIC EARNINGS PER SHARENet earnings
    
    $
    0.23
    
    
    $
    0.22Weighted average shares outstanding
    
    
    23,600
    
    
    
    11,637DILUTED EARNINGS PER SHARENet earnings
    
    $
    0.21
    
    
    $
    0.12Weighted average shares outstanding
    
    
    26,668
    
    
    
    23,252
  6




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WORLD AIR HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Six Months Ended June 30, 2005 and 2004
 (in thousands except per share data)
 (unaudited)
 2005(As restated)
    
    
    2004REVENUESFlight operations
    
    $
    330,111
    
    
    $
    243,726Other
    
    
    1,320
    
    
    
    918Total revenues
    
    
    331,431
    
    
    
    244,644OPERATING EXPENSESFlight
    
    
    93,751
    
    
    
    78,507Maintenance
    
    
    50,695
    
    
    
    37,888Aircraft costs
    
    
    48,199
    
    
    
    37,097Fuel
    
    
    61,809
    
    
    
    34,565Flight operations subcontracted to other carriers
    
    
    1,725
    
    
    
    1,599Commissions
    
    
    16,561
    
    
    
    11,131Depreciation and amortization
    
    
    3,420
    
    
    
    2,561Sales, general and administrative
    
    
    27,304
    
    
    
    23,269Total operating expenses
    
    
    303,464
    
    
    
    226,617OPERATING INCOME
    
    
    27,967
    
    
    
    18,027OTHER INCOME (EXPENSE)Interest expense
    
    
    (2,127
    )
    
    
    (2,789
    )Interest income
    
    
    510
    
    
    
    247Other, net
    
    
    (1,226
    )
    
    
    (980
    )Total other income (expense)
    
    
    (2,843
    )
    
    
    (3,522
    )EARNINGS BEFORE INCOME TAX EXPENSE
    
    
    25,124
    
    
    
    14,505INCOME TAX EXPENSE
    
    
    9,720
    
    
    
    4,061NET EARNINGS
    
    $
    15,404
    
    
    $
    10,444BASIC EARNINGS PER SHARENet earnings
    
    $
    0.72
    
    
    $
    0.91Weighted average shares outstanding
    
    
    21,325
    
    
    
    11,536DILUTED EARNINGS PER SHARENet earnings
    
    $
    0.59
    
    
    $
    0.46Weighted average shares outstanding
    
    
    26,508
    
    
    
    23,858
  7




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WORLD AIR HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED
STATEMENT OF CHANGES
IN STOCKHOLDERS EQUITY
 Six months Ended June 30, 2005
 (in thousands except share amounts)
 (unaudited)
 (As restated)
 Additional
    
    
    
    
    
    
    Deferred
    
    
    Treasury
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Stock-based
    
    
    Stock,
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    Compensation
    
    
    at Cost
    
    
    EquityBalances at December 31,
2004
    
    $
    18
    
    
    $
    42,712
    
    
    $
    525
    
    
    $
    
    
    
    $
    (12,857
    )
    
    $
    30,398Amortization of warrants
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76Exercise of 698,325
stock options
    
    
    
    
    
    
    1,635
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,635Exercise of warrants for
1,076,345 shares
    
    
    1
    
    
    
    2,499
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,500Issuance of 5,660,302
shares upon conversion of debt
    
    
    6
    
    
    
    18,119
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,125Tax benefit of stock
option exercises
    
    
    
    
    
    
    1,292
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,292Awards of deferred
stock-based compensation
    
    
    
    
    
    
    303
    
    
    
    
    
    
    
    (303
    )
    
    
    
    
    
    
    Amortization of deferred
stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    13Net earnings and
comprehensive earnings
    
    
    
    
    
    
    
    
    
    
    15,404
    
    
    
    
    
    
    
    
    
    
    
    15,404Balances at June 30, 2005
    
    $
    25
    
    
    $
    66,636
    
    
    
    15,929
    
    
    $
    (290
    )
    
    $
    (12,857
    )
    
    $
    69,443
  8




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WORLD AIR HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWSSix Months Ended June 30, 2005 and 2004
 (in thousands)
 (unaudited)
 2005(As restated)
    
    
    2004CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD
    
    $
    49,956
    
    
    $
    30,535CASH FLOWS FROM OPERATING ACTIVITIESNet earnings
    
    
    15,404
    
    
    
    10,444Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    3,420
    
    
    
    2,561Deferred gain recognition
    
    
    (385
    )
    
    
    (566
    )Loss on disposals of equipment and property
    
    
    937
    
    
    
    507Tax benefit of stock option exercises
    
    
    1,292
    
    
    
    1,108Amortization of warrants and debt issuance costs
    
    
    853
    
    
    
    1,008Deferred income taxes
    
    
   (855
    )
    
    
    Provision for doubtful accounts
    
    
    (29
    )
    
    
    (9
    )Other
    
    
    449
    
    
    
    77Changes in operating assets and liabilities, exclusive of acquisitions:Accounts receivable
    
    
    7,412
    
    
    
    (15,019
    )Restricted cash
    
    
    1,362
    
    
    
    712Deposits, prepaid expenses and other assets
    
    
    (4,890
    )
    
    
    2,089Accounts payable, accrued expenses and other liabilities
    
    
    (11,574
    )
    
    
    (6,229
    )Unearned revenue
    
    
    10,013
    
    
    
    414Net cash provided by (used in) operating activities
    
    
    23,409
    
    
    
    (2,903
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchases of equipment and property
    
    
    (4,362
    )
    
    
    (778
    )Proceeds from disposals of equipment and property
    
    
    27
    
    
    
    6Acquisition of North American, less cash acquired
    
    
    (24,951
    )
    
    
    Net cash used in investing activities
    
    
    (29,286
    )
    
    
    (772
    )CASH FLOWS FROM FINANCING ACTIVITIESDecrease in restricted cash due to repayment of debt
    
    
    
    
    
    
    18,000Repayment of debt
    
    
    
    
    
    
    (18,000
    )Proceeds from exercise of stock options
    
    
    1,635
    
    
    
    1,441Proceeds from exercise of warrants
    
    
    2,500
    
    
    
    Payment of debt issuance costs
    
    
    
    
    
    
    (548
    )Repayment of aircraft rent obligations
    
    
    (1,713
    )
    
    
    (7,196
    )Net cash provided by (used in) financing activities
    
    
    2,422
    
    
    
    (6,303
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (3,455
    )
    
    
    (9,978
    )CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    46,501
    
    
    $
    20,557SUPPLEMENTAL INFORMATION:Interest paid
    
    $
    750
    
    
    $
    1,888Income taxes paid
    
    $
    14,663
    
    
    $
    2,988Non-cash
Investing Activities:Adjustment to North American
purchase price for excess distributions made to Seller for tax
payments, as provided in the Stock Purchase Agreement
    
    $
    2,567
    
    
    $
    Non-cash Financing Activities:Conversion of the Companys
convertible senior subordinated debentures to common stock
    
    $
    18,125
    
    
    $
    
  9




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WORLD AIR HOLDINGS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1.
    
    Basis of PresentationThe unaudited Condensed Consolidated Financial Statements include the accounts of World Air
Holdings and its wholly-owned subsidiaries, World Airways, Inc., North American and World Risk
Solutions, Ltd. (World Risk Solutions). World Airways Parts Company LLC is a wholly-owned
subsidiary of World Airways. The Company acquired North American, a privately held airline
based in Jamaica, New York, on April 27, 2005. All significant inter-company accounts and
transactions have been eliminated.Management believes that all adjustments necessary
for a fair statement of results have been included in the unaudited Condensed Consolidated
Financial Statements for the interim periods presented. The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates and the results of operations for the
six months ended June 30, 2005 are not necessarily indicative of the results to be expected for
the year ending December 31, 2005.The Condensed Consolidated Balance Sheet for December 31, 2004 is derived from the Consolidated
Financial Statements included in the Companys Annual Report on
Form 10-K for the year ended December 31, 2004 (the 2004 Form
10K). These interim period Condensed
Consolidated Financial Statements and accompanying footnotes should be read in conjunction with
the Consolidated Financial Statements contained in the 2004 Form
10-K.Certain items in prior year financial statements included herein have been reclassified to
conform to the 2005 financial statement presentation.2.
    
    RestatementWorld Air Holdings is filing this Amendment to amend and restate the Companys
condensed consolidated financial statements and other financial information contained in this
report in order to reflect adjustments for errors and
reclassifications, primarily at the
Companys subsidiary North American. Prior to becoming a subsidiary of the Company, North
American was a privately-held company and was not required to maintain disclosure controls and
procedures or internal controls over financial reporting in accordance with the rules and
regulations of the SEC. After completing the acquisition of North American on April 27, 2005,
the Companys management team began a review of the processes, controls and systems of North
American in order to assess their adequacy and, as appropriate, begin implementing improvements.
The Companys management continued to review the controls subsequent to the filing of the
original Form 10-Q for the three and six month period ended June 30, 2005 and discovered
numerous accounting errors.The adjustments at North American include entries to record
operating expenses in the correct accounting periods including adjustments to flight,
maintenance, aircraft costs, and sales, general and administrative costs and a reclassification
of the fuel reconciliation adjustments from revenue to fuel expense to conform the Companys
subsidiaries to the same accounting practice. Management noted that
costs at North American, including ground handling, catering,
maintenance, workers compensation and aircraft insurance were not
being recognized in the appropriate period due to errors in
estimating expense and ineffective cutoff procedures. The impact of these North American adjustments to
the Companys earnings before income tax expense and the net
earnings for the three and six month periods ended June 30, 2005 was a net
increase of approximately $1.4 million and $1.1 million for both periods.The Company determined there were errors in the opening balance
sheet of North American on the date of acquisition. Additionally, the North American adjustments reduced the net assets acquired of
North American from $34.8 million to $33.6 million. At the
acquisition date, accounts receivable and other current
assets increased by $1.9 million, equipment and property, net
decreased $0.1 million, goodwill increased $0.3 million and accounts
payable and other liabilities increased $3.3 million.In addition to the North American adjustments, there were adjustments to correct errors in
the application of generally accepted accounting principles at World
Airways. These adjustments include
entries regarding the timing of expensing recoverable spare parts, flight crew special pay
requests, asset disposals and certain other operating expenses including hotels, ground handling
and outside consultant fees, the timing of recognizing a vendor rebate and the incorrect use of
the original cost as a basis for recognizing depreciation expense of certain aircraft parts that
were impaired. In addition, the
Company was in violation of several covenants of the ATSB loan which
had not been waived, and therefore, the entire balance of the loan
was classified as a current liability. The impact of these World Airways adjustments to the
Companys earnings before income tax expense
for the three and six month periods ended June 30, 2005 was a net increase of approximately
$0.4 million for both periods. The out of period impact of these
adjustments was deemed not material to the interim
periods of 2005 or to the prior annual periods. As a result of the
World Airways adjustments for the three and six month periods ended
June 30, 2005,
revenues increased approximately $0.2 million, operating
expenses decreased $1.0 million, total
other expenses increased $0.8 million, $0.2 million
increase in income tax expense, thus net earnings increased $0.2 million. The impact of
the World Airways adjustments on the Condensed Consolidated Balance Sheet at June 30, 2005 was
an increase in accounts receivable, net of $0.2 million, an increase of $0.6 million to prepaid
expenses and other current assets, a decrease in equipment and property, net of $0.9 million, a
decrease in accounts payable of $0.7 million, an increase of $0.3 million in accrued salaries
and wages, an increase of $0.1 million in accrued taxes, an
increase in current maturities of long-term debt and a corresponding
decrease in long-term debt, net of current maturities of
$19.0 million, and an increase to retained earnings of $0.2 million.
 10




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June 30, 2005Condensed Consolidated Balance Sheets
    
    As previously reported
    
    
    Restatements/reclassifications
    
    
    As restatedASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    46,501
    
    
    $
    
    
    
    $
    46,501Restricted cash
    
    
    5,936
    
    
    
    
    
    
    
    5,936Accounts receivable, net
    
    
    55,662
    
    
    
    2,188
    
    
    
    57,850Prepaid expenses and other current
assets
    
    
    11,173
    
    
    
    4,703
    
    
    
    15,876Deferred tax assets
    

6,203
    
    

703
    
    

6,906Total current assets
    
125,475
    
    
7,594
    
    
133,069Equipment and property, net
    
    
    35,956
    
    
    
    (991
    )
    
    
    34,965Net goodwill and other intangible
assets
    
    
    29,505
    
    
    
    281
    
    
    
    29,786Long-term deposits
    
    
    23,015
    
    
    
    
    
    
    
    23,015Other assets and deferred charges, net
    
    
    5,040
    
    
    
    (6
    )
    
    
    5,034TOTAL ASSETS
    
    $
    218,991
    
    
    $
    6,878
    
    
    $
    225,869LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESCurrent maturities of long-term debt
    
    $
    11,000
    
    
    $
    19,000
    
    
    
    30,000Accounts payable
    
    
    39,127
    
    
    
    2,532
    
    
    
    41,659Current portion of accrued rent
    
    
    5,550
    
    
    
    
    
    
    
    5,550Unearned revenue
    
    
    25,757
    
    
    
    
    
    
    
    25,757Accrued maintenance
    
    
    5,650
    
    
    
    588
    
    
    
    6,238Accrued salaries, wages and profit
sharing
    
    
    17,785
    
    
    
    478
    
    
    
    18,263Accrued taxes
    
    
    6,246
    
    
    
    1,276
    
    
    
    7,522Other accrued liabilities
    
    
    7,057
    
    
    
    (429
    )
    
    
    6,628Total current liabilities
    
    
    118,172
    
    
    
    23,445
    
    
    $
    141,617Long-term debt, net
    
    
    19,000
    
    
    
    (19,000
    )
    
    
    Deferred gain from sale-leaseback
transaction, net
    
    
    1,260
    
    
    
    
    
    
    
    1,260Accrued post-retirement benefits
    
    
    4,331
    
    
    
    
    
    
    
    4,331Accrued and deferred rent, net
    
    
    3,028
    
    
    
    2,092
    
    
    
    5,120Deferred income taxes
    
    
    5,077
    
    
    
    (979
    )
    
    
    4,098TOTAL LIABILITIES
    
    
    150,868
    
    
    
    5,558
    
    
    
    156,426STOCKHOLDERS EQUITYPreferred stock
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    25
    
    
    
    
    
    
    
    25Additional paid-in-capital
    
    
    66,636
    
    
    
    
    
    
    
    66,636Retained earnings
    
    
    14,609
    
    
    
    1,320
    
    
    
    15,929Deferred stock-based compensation
    
    
    (290
    )
    
    
    
    
    
    
    (290
    )Treasury stock
    
    
    (12,857
    )
    
    
    
    
    
    
    (12,857
    )Total stockholders equity
    
    
    68,123
    
    
    
    1,320
    
    
    
    69,443TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY
    
    $
    218,991
    
    
    $
    6,878
    
    
    $
    225,869
 11




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##### Table of Contents



Condensed Consolidated Statements of Operations
 Three Months Ended June 30, 2005As previously reported
    
    
    Restatements/reclassifications
    
    
    As restatedTotal Revenues
    
    $
    172,598
    
    
    $
    (716
    )
    
    $
    171,882Operating ExpensesFlight
    
    
    48,722
    
    
    
    (140
    )
    
    
    48,582Maintenance
    
    
    27,829
    
    
    
    (2,089
    )
    
    
    25,740Aircraft costs
    
    
    27,738
    
    
    
    (468
    )
    
    
    27,270Fuel
    
    
    32,105
    
    
    
    (767
    )
    
    
    31,338Flight operations
subcontracted to other
carriers
    
    
    1,120
    
    
    
    97
    
    
    
    1,217Commissions
    
    
    7,702
    
    
    
    
    
    
    
    7,702Depreciation and
amortization
    
    
    1,736
    
    
    
    229
    
    
    
    1,965Sales, general and
administrative
    
    
    17,442
    
    
    
    (163
    )
    
    
    17,279Total Operating Expenses
    
    
    164,394
    
    
    
    (3,301
    )
    
    
    161,093OPERATING INCOME
    
    
    8,204
    
    
    
    2,585
    
    
    
    10,789Total other income
(expense)
    
    
    (1,146
    )
    
    
    (778
    )
    
    
    (1,924
    )EARNINGS BEFORE INCOME
TAX EXPENSE
    
    
    7,058
    
    
    
    1,807
    
    
    
    8,865INCOME TAX EXPENSE
    
    
    2,872
    
    
    
    487
    
    
    
    3,359NET EARNINGS
    
    $
    4,186
    
    
    $
    1,320
    
    
    $
    5,506BASIC EARNINGS PER SHARENet earnings
    
    $
    0.18
    
    
    $
    .05
    
    
    $
    0.23Weighted average shares
outstanding
    
    
    23,600
    
    
    
    
    
    
    
    23,600FULLY DILUTED EARNINGS
PER SHARENet earnings
    
    $
    0.16
    
    
    $
    .05
    
    
    $
    0.21Weighted average shares
outstanding
    
    
    26,671
    
    
    
    (3
    )
    
    
    26,668
 Six Months Ended June 30, 2005As previously reported
    
    
    Restatements/reclassifications
    
    
    As restatedTotal Revenues
    
    $
    332,147
    
    
    $
    (716
    )
    
    $
    331,431Operating ExpensesFlight
    
    
    93,891
    
    
    
    (140
    )
    
    
    93,751Maintenance
    
    
    52,784
    
    
    
    (2,089
    )
    
    
    50,695Aircraft costs
    
    
    48,667
    
    
    
    (468
    )
    
    
    48,199Fuel
    
    
    62,576
    
    
    
    (767
    )
    
    
    61,809Flight operations
subcontracted to other
carriers
    
    
    1,628
    
    
    
    97
    
    
    
    1,725Commissions
    
    
    16,561
    
    
    
    
    
    
    
    16,561Depreciation and
amortization
    
    
    3,191
    
    
    
    229
    
    
    
    3,420Sales, general and
administrative
    
    
    27,467
    
    
    
    (163
    )
    
    
    27,304Total Operating Expenses
    
    
    306,765
    
    
    
    (3,301
    )
    
    
    303,464
 OPERATING INCOME
    
    
    25,382
    
    
    
    2,585
    
    
    
    27,967Total other income
(expense)
    
    
    (2,065
    )
    
    
    (778
    )
    
    
    (2,843
    )EARNINGS BEFORE INCOME TAX
EXPENSE
    
    
    23,317
    
    
    
    1,807
    
    
    
    25,124INCOME TAX EXPENSE
    
    
    9,233
    
    
    
    487
    
    
    
    9,720NET EARNINGS
    
    $
    14,084
    
    
    $
    1,320
    
    
    $
    15,404BASIC EARNINGS PER SHARENet earnings
    
    $
    0.66
    
    
    $
    .06
    
    
    $
    0.72Weighted average shares
outstanding
    
    
    21,325
    
    
    
    
    
    
    
    21,325FULLY DILUTED EARNINGS PER
SHARENet earnings
    
    $
    0.54
    
    
    $
    .05
    
    
    $
    0.59Weighted average shares
outstanding
    
    
    26,510
    
    
    
    (2
    )
    
    
    26,508
 12




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##### Table of Contents



As previouslyreported
    
    
    As restatedNet cash
provided by operating
activities
    
    $
    24,632
    
    
    $
    23,409Net cash used in investing activities
    
    
    (30,509
    )
    
    
    (29,286
    )Net cash provided by financing
activities
    
    
    2,422
    
    
    
    2,422Net decrease in cash and cash
equivalents
    
    $
    (3,455
    )
    
    $
    (3,455
    )
  3.
    
    Long-Term Operating DepositsLong-term operating deposits of $23.0 million at June 30, 2005 consisted of aircraft and engine
(flight equipment) deposits of $22.3 million and building and miscellaneous deposits of $0.7
million. At December 31, 2004, long-term operating deposits of $18.2 million consisted of
aircraft and engine deposits of $17.8 million and building and miscellaneous deposits of $0.4
million.4.
    
    Earnings per ShareBasic earnings per share are computed by dividing net earnings by the weighted average number of shares outstanding during the period. Diluted earnings per share include the effects of common
equivalent shares outstanding during the period. The following table sets forth the computation
of basic and diluted earnings per share (in thousands except per share data):
 Three Months Ended June 30, 2005 (as restated)Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSEarnings available to common stockholders
    
    $
    5,506
    
    
    
    23,600
    
    
    $
    0.23Effect of Dilutive SecuritiesWarrants
    
    
    
    
    
    
    1,685Options
    
    
    
    
    
    
    1,376Restricted stock
    
    
    
    
    
    
    7Diluted EPSEarnings available to common stockholders
plus assumed conversions
    
    $
    5,506
    
    
    
    26,668
    
    
    $
    0.21
 13




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##### Table of Contents



Three Months Ended June 30, 2004Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSEarnings available to common stockholders
    
    $
    2,569
    
    
    
    11,637
    
    
    $
    0.22Effect of Dilutive SecuritiesWarrants
    
    
    
    
    
    
    1,544Options
    
    
    
    
    
    
    2,0888% convertible debentures
    
    
    323
    
    
    
    7,983Profit sharing
    
    
    (123
    )
    
    
    Amortization of debt issuance costs
    
    
    50
    
    
    
    Aircraft lease restructuring fees
    
    
    (68
    )
    
    
    Diluted EPSEarnings available to common stockholders
plus assumed conversions
    
    $
    2,751
    
    
    
    23,252
    
    
    $
    0.12
 Six Months Ended June 30, 2005 (as restated)Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSEarnings available to common stockholders
    
    $
    15,404
    
    
    
    21,325
    
    
    $
    0.72Effect of Dilutive SecuritiesWarrants
    
    
    
    
    
    
    1,715Options
    
    
    
    
    
    
    1,451Restricted stock
    
    
    
    
    
    
    28% convertible debentures
    
    
    162
    
    
    
    2,015Profit sharing
    
    
    
    
    
    
    Amortization of debt issuance costs
    
    
    35
    
    
    
    Aircraft lease restructuring fees
    
    
    (13
    )
    
    
    Diluted EPSEarnings available to common stockholders
plus assumed conversions
    
    $
    15,588
    
    
    
    26,508
    
    
    $
    0.59
 Six Months Ended June 30, 2004Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSEarnings available to common stockholders
    
    $
    10,444
    
    
    
    11,536
    
    
    $
    0.91Effect of Dilutive SecuritiesWarrants
    
    
    
    
    
    
    1,760Options
    
    
    
    
    
    
    2,2688% convertible debentures
    
    
    717
    
    
    
    8,294Profit sharing
    
    
    (179
    )
    
    
    Amortization of debt issuance costs
    
    
    92
    
    
    
    Aircraft lease restructuring fees
    
    
    (57
    )
    
    
    Diluted EPSEarnings available to common stockholders
plus assumed conversions
    
    $
    11,017
    
    
    
    23,858
    
    
    $
    0.46
 14




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##### Table of Contents



As noted in the 2004 Form 10-K, the Company amended its fully diluted EPS
calculation for the years ended December 31, 2004 and 2003, and for certain quarters within
those years. The following table shows the effect of the revision on previously reported diluted
EPS calculations for the quarter and six months ended June 30, 2004.
 Diluted EPS
 Quarter Ended June 30, 2004
    
    Six Months Ended June 30, 2004As previously reported
    
    $
    0.13
    
    
    $
    0.47Revised
    
    
    0.12
    
    
    
    0.46Variance
    
    $
    (0.01
    )
    
    $
    (0.01
    )
 5.
    
    Accounting for Stock-Based CompensationAt June 30, 2005, the Company had three stock-based compensation plans. The 1995 Stock
Incentive Plan was amended in May 2004 to allow for various forms of equity awards including
restricted stock. In the second quarter of 2005, the Company issued 50,000 shares of restricted
stock which vest over four years. The Company accounts for these plans under the recognition
and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related Interpretations. No stock-based compensation cost
related to stock options is reflected in net earnings for the three and six month periods ended
June 30, 2005, as all options granted during those periods had an exercise price equal to the
market value of the underlying common stock on the date of grant. The following table
illustrates the effect on net earnings and earnings per share if the Company had applied the
fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based compensation (in thousands, except per share data):
 Quarter Ended June 30,
    
    
    Six Months Ended June 30,(as restated)
    
    
    
    
    
    
    (as restated)2005
    
    
    2004
    
    
    2005
    
    
    2004Net earnings, as reported
    
    $
    5,506
    
    
    $
    2,569
    
    
    $
    15,404
    
    
    $
    10,444Deduct: Total stock-based compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    (138
    )
    
    
    (361
    )
    
    
    (326
    )
    
    
    (485
    )Pro forma net earnings
    
    $
    5,368
    
    
    $
    2,208
    
    
    $
    15,078
    
    
    $
    9,959Earnings per shareBasic as reported
    
    $
    0.23
    
    
    $
    0.22
    
    
    $
    0.72
    
    
    $
    0.91Basic  pro forma
    
    $
    0.23
    
    
    $
    0.19
    
    
    $
    0.71
    
    
    $
    0.86Diluted as reported
    
    $
    0.21
    
    
    $
    0.12
    
    
    $
    0.59
    
    
    $
    0.46Diluted  pro forma
    
    $
    0.20
    
    
    $
    0.10
    
    
    $
    0.58
    
    
    $
    0.44
 The per share weighted-average fair value of stock options granted during the second
quarter of 2004 was $2.35 and first six months of 2004 was $2.37 (no stock options were granted
during the first six months of 2005) on the date of grant using the Black
Scholes option-pricing model with the following weighted-average assumptions:
 Quarter Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Risk-free interest rate
    
    
    3.5
    %
    
    
    3.9
    %
    
    
    3.5
    %
    
    
    3.8
    %Expected life (in years)
    
    
    4.2
    
    
    
    4.9
    
    
    
    4.2
    
    
    
    4.9Risk-free volatility
    
    
    71
    %
    
    
    80
    %
    
    
    71
    %
    
    
    80
    %
 15




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##### Table of Contents



6.
    
    Virginia Lease ObligationThe Company is obligated under an operating lease for office space at its former headquarters
in Herndon, Virginia, through April 2006. The Company had a liability balance of $1.1 million
at December 31, 2004. During the first quarter of 2005, the Company reviewed market conditions
and determined that an additional $0.6 million should be added to the liability. This
resulted in a $1.7 million balance at March 31, 2005, which was the present value of the total
remaining cash obligation under this lease. At the end of the second quarter, market conditions
were the same which resulted in a liability of $1.3 million at June 30, 2005. The liability is
included within other accrued liabilities on the accompanying Condensed Consolidated Balance
Sheets at June 30, 2005.7.
    
    Union NegotiationsWorld Airways cockpit crewmembers, who constitute approximately 29% of its employees and are
represented by the International Brotherhood of Teamsters (the Teamsters), are subject to a
collective bargaining agreement that became amendable June 30, 2003. The Company continued
negotiations with the Teamsters during the second quarter of 2005, under the auspices of the
National Mediation Board (NMB).World Airways aircraft dispatchers, who are represented by the Transport Workers Union (TWU),
are subject to a collective bargaining agreement that became amendable December 31, 2003. Fewer
than 15 World Airways employees are subject to this collective bargaining agreement. The
Company continued negotiations with the TWU during the second quarter of 2005.The NMB certified the Teamsters to represent North Americans cockpit crewmembers on January 16,
2004 (approximately 130 employees). North American and the Teamsters commenced negotiations for
their first collective bargaining agreement on April 6, 2004 and have met on a number of
occasions. Though representatives from North American and the Teamsters continue to negotiate
the terms of a comprehensive final agreement under the auspices of the NMB, no collective
bargaining agreement has yet been reached.On July 26, 2005, the NMB authorized a union election (the Teamsters) among North Americans
flight attendants. The NMB mailed to the home address of each eligible voter a set of Telephone
Electronic Voting instructions on August 10, 2005. The NMB will count the votes on August 31,
2005 at the NMBs offices in Washington, D.C.8.
    
    Post-Retirement Health Care Benefits PlanWorld Airways cockpit crewmembers and eligible dependents are covered by a post-retirement
health care benefits plan. A summary of the net periodic post-retirement benefit costs for the
three and six months ended June 30 is as follows (in thousands):
 Quarter Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    192
    
    
    $
    95
    
    
    $
    384
    
    
    $
    190Interest cost
    
    
    111
    
    
    
    61
    
    
    
    222
    
    
    
    122Net amortized loss
    
    
    70
    
    
    
    3
    
    
    
    141
    
    
    
    6Net periodic post-retirement benefit cost
    
    $
    373
    
    
    $
    159
    
    
    $
    747
    
    
    $
    318
 The Company anticipates that it will contribute approximately $146,000 to fund its health
care obligations in 2005. As of June 30, 2005, $73,000 of contributions have been made.9.
    
    Other Comprehensive Income (Loss)The Company reports other comprehensive income in its Consolidated Statement of Changes in
Stockholders Equity. For the three and six month periods ending June 30, 2005 and 2004, there
were no items of other comprehensive income or loss
 16




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##### Table of Contents



for the Company.10.
    
    Segment Reporting (as restated)Beginning in the second quarter of 2005, the Company has two reportable segments: World
Airways and North American. The
Company operates and manages these companies as two distinct airlines, and prepares separate
financial statements for each entity which are reviewed by senior management at World Air
Holdings as well as the chief operating officer and other management at the operating company
level. Financial information for the three and six month periods ended June 30, 2005 by
reporting segment is set forth below (in thousands). North Americans financial results have
been included from April 28, 2005, the day following the acquisition, to June 30, 2005.
 Quarter Ended June 30, 2005 (as restated)World Airways
    
    North American
    

World
Air Holdingsand World RiskSolutions
    
    TotalTotal revenues
    
    $
    140,258
    
    
    $
    31,624
    
    
    $
    
    
    
    $
    171,882Operating income (loss)
    
    $
    12,389
    
    
    $
    (1,905
    )
    
    $
    305
    
    
    $
    10,789Net income (loss)
    
    $
    6,396
    
    
    $
    (1,343
    )
    
    $
    453
    
    
    $
    5,506Total assets
    
    $
    148,650
    
    
    $
    69,580
    
    
    $
    7,639
    
    
    $
    225,869Total block hours
    
    
    13,969
    
    
    
    3,928
    
    
    
    
    
    
    
    17,897Six Months Ended June 30, 2005 (as restated)World Airways
    
    North American
    
World
Air Holdingsand World RiskSolutions
    
    TotalTotal revenues
    
    $
    299,807
    
    
    $
    31,624
    
    
    $
    
    
    
    $
    331,431Operating income (loss)
    
    $
    29,051
    
    
    $
    (1,905
    )
    
    $
    821
    
    
    $
    27,967Net income (loss)
    
    $
    16,115
    
    
    $
    (1,343
    )
    
    $
    632
    
    
    $
    15,404Total assets
    
    $
    148,650
    
    
    $
    69,580
    
    
    $
    7,639
    
    
    $
    225,869Total block hours
    
    
    27,084
    
    
    
    3,928
    
    
    
    
    
    
    
    31,012
 The U.S. Air Force (USAF) is the largest customer
for both World Airways and North American. For the three and six
month periods ended June 30, 2005, the USAF provided
74.5 percent and 79.7 percent of World Airways revenues,
respectively. For the three and six month periods ended June 30,
2004, the USAF provided 76.3 percent and 79.9 percent of
World Airways revenues, respectively. For the period from acquisition
through June 30, 2005, the USAF provided 53.5 percent of
North Americans revenues.11.
    
    North American Acquisition (as restated)On April 27, 2005, the Company acquired North American, a privately-held airline based in
Jamaica, New York, for approximately $35 million in cash which was funded from internal
resources. In addition, the Company has expended approximately $2.2 million for transaction
costs, consisting primarily of financial advisory, legal and accounting fees. These transaction
costs consisted of $1.4 million capitalized as part of the purchase price and $0.8 million
expensed in the second quarter of 2005. In addition, there was a $2.6 million subsequent
reduction in the purchase price based on terms of the purchase contract. North American
provides passenger service to tour operators, selected scheduled service markets and the USAF.
This acquisition will help the Company diversify its product mix as well as its customer base.
North American currently has three Boeing 767 and five Boeing 757 aircraft, which will
complement the service provided by World Airways with its larger wide-body aircraft. North
American will maintain its operational headquarters at John F. Kennedy International Airport in
New York, with World Airways and World Air Holdings continuing to be based in Peachtree City,
Georgia.The Company commenced the consolidation of North American on April 28, 2005 and the acquisition
was accounted for using the purchase method of accounting in accordance with Statement of
Financial Accounting Standards (SFAS) No. 141, Business Combinations.The following
summarized the total purchase price for North American (in thousands):
 Cash consideration
    
    $
    34,750Direct acquisition costs
    
    
    1,408Adjustment
to North American purchase price for excess distributions made to Seller for tax
payments, as provided in
Stock Purchase Agreement
    
    
    (2,567
    )$
    33,591
 Under the purchase method of accounting, the total purchase price is allocated to North
Americans net tangible and intangible assets based upon their estimated fair value as of the
date of the acquisition with any amount paid in excess of the fair value of the net assets
recorded as goodwill. Based upon the purchase price and review of the net assets acquired and
liabilities assumed, the purchase price allocation is as follows (in thousands):
 17




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##### Table of Contents



Fair Value of NetAssets AcquiredCash and cash equivalents
    
    $
    8,640Restricted cash
    
    
    2,372Other current assets
    
    
    16,239Equipment and property, net
    
    
    1,498Long-term deposits and other assets
    
    
    5,931Intangible assets acquired:ETOPS * program added value
    
    
    4,680Aircraft leases at market rates in excess of rental rates
    
    
    2,840Trademark
    
    
    575Goodwill
    
    
    21,883Total assets acquired
    
    
    64,658Liabilities
assumed:Accounts payable and accrued liabilities
    
    
    (29,155
    )Deferred tax liabilities
    
    
    (1,912
    )Net assets acquired
    
    $
    33,591
 
 *
    
    ETOPS  Extended range two engine operations Goodwill and Other Intangible Assets
  Quarter Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Total revenues
    
    $
    188,829
    
    
    $
    163,251
    
    
    $
    407,391
    
    
    $
    347,422Net earnings
    
    $
    4,093
    
    
    $
    2,417
    
    
    $
    17,998
    
    
    $
    7,832Basic earnings per shareNet earnings
    
    $
    0.17
    
    
    $
    0.21
    
    
    $
    0.84
    
    
    $
    0.68Weighted average shares outstanding
    
    
    23,600
    
    
    
    11,637
    
    
    
    21,325
    
    
    
    11,536Fully diluted earnings per shareNet earnings
    
    $
    0.15
    
    
    $
    0.11
    
    
    $
    0.69
    
    
    $
    0.35Weighted average shares outstanding
    
    
    26,668
    
    
    
    23,252
    
    
    
    26,508
    
    
    
    23,858
  12. Legal Proceedings
 - World Airways, Inc.
   18




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19




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- North American Airlines, Inc.
    20




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13. Recently Issued Accounting Standards
 Share-Based
Payment.
 21




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##### Table of Contents



14. Subsequent Events and Reclassification of Debt (as restated)
    
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (as restated)
      22




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OVERVIEW
 General
   Quarter Ended June 30,2005
    
    2004Block hours:Full service passenger
    
    
    6,415
    
    
    
    46
    %
    
    
    6,163
    
    
    
    56
    %ACMI * passenger
    
    
    1,606
    
    
    
    12
    %
    
    
    1,184
    
    
    
    11
    %Full service cargo
    
    
    19
    
    
    
    0
    %
    
    
    386
    
    
    
    3
    %ACMI * cargo
    
    
    5,748
    
    
    
    41
    %
    
    
    3,072
    
    
    
    28
    %Miscellaneous
    
    
    181
    
    
    
    1
    %
    
    
    207
    
    
    
    2
    %Total
    
    
    13,969
    
    
    
    100
    %
    
    
    11,012
    
    
    
    100
    %
 Operating aircraft at quarter-end
    
    
    17
    
    
    
    16Average available aircraft per day
    
    
    16.6
    
    
    
    16.0Average daily utilization
    
    
    9.3
    
    
    
    7.6(block hours flown per day per aircraft)
 
 *
    ACMI contracts are those where World Airways provides the aircraft, crew, maintenance and
insurance.  Period Ended June 30,2005Block hours:Full service passenger
    
    
    1,903
    
    
    
    48
    %ACMI * passenger
    
    
    637
    
    
    
    16
    %Scheduled passenger
    
    
    1,354
    
    
    
    35
    %Miscellaneous
    
    
    34
    
    
    
    1
    %Total
    
    
    3,928
    
    
    
    100
    %
 Operating aircraft at quarter-end
    
    
    8Average available aircraft per day
    
    
    8.0Average daily utilization
    
    
    7.7(block hours flown per day per aircraft)
 
    23




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##### Table of Contents



Six Months Ended June 30,2005
    
    
    2004Block hours:Full service passenger
    
    
    14,493
    
    
    
    54
    %
    
    
    13,728
    
    
    
    61
    %ACMI * passenger
    
    
    2,674
    
    
    
    10
    %
    
    
    2,370
    
    
    
    11
    %Full service cargo
    
    
    19
    
    
    
    0
    %
    
    
    668
    
    
    
    3
    %ACMI * cargo
    
    
    9,520
    
    
    
    35
    %
    
    
    5,085
    
    
    
    23
    %Miscellaneous
    
    
    378
    
    
    
    1
    %
    
    
    490
    
    
    
    2
    %Total
    
    
    27,084
    
    
    
    100
    %
    
    
    22,341
    
    
    
    100
    %
 Operating
aircraft at June 30
    
    
    17
    
    
    
    16Average available aircraft per day
    
    
    16.2
    
    
    
    16.0Average daily utilization
    
    
    9.3
    
    
    
    7.7(block hours flown per day per aircraft)
 
   
    
    continue working to diversify the commercial revenue mix by adding profitable
customers, while continuing to provide excellent service to all of the Companys
customers;
    
    continue to actively manage the Companys major cost categories;
    
    work on concluding an agreement with World Airways cockpit crewmembers and
dispatchers as well as a new collective bargaining agreement with North Americans
cockpit crewmembers;
    
    manage fleet plans to meet customer needs; and
    
    begin implementing organizational changes including the restructuring of the North American
finance organization, synergy enhancements and financial reporting standardization
related to the acquisition of North American Airlines.
 Significant Customer Relationships
  World Airways
 Quarter Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004USAF
    
    
    74.5
    %
    
    
    76.3
    %
    
    
    79.7
    %
    
    
    79.9
    %Eva Airways
    
    
    7.6
    %
    
    
    
    %
    
    
    5.3
    %
    
    
    
    %Sonair Serviceo Aereo
    
    
    5.2
    %
    
    
    6.1
    %
    
    
    4.6
    %
    
    
    5.7
    %United Parcel Service
(formerly Menlo Worldwide)
    
    
    3.5
    %
    
    
    5.2
    %
    
    
    3.3
    %
    
    
    4.3
    %Air Canada
    
    
    2.4
    %
    
    
    
    %
    
    
    1.1
    %
    
    
    
    %China Airlines
    
    
    1.3
    %
    
    
    2.1
    %
    
    
    2.1
    %
    
    
    1.0
    %
 North American
 Quarter Ended June 30,2005USAF
    
    
    53.5
    %Scheduled service
    
    
    21.1
    %GWV Vacations
    
    
    5.0
    %Air Jamaica
    
    
    4.0
    %EirJet
    
    
    2.9
    %
 24




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RESULTS OF OPERATIONS
 Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
   Revenues
 World Airways
 Quarter Ended June 30,2005
    
    2004
    
    Change
    
    % ChangeTotal block hours
    
    
    13,969
    
    
    
    11,012
    
    
    
    2,957
    
    
    
    26.9
    %Revenue per block hour
    
    $
    10,041
    
    
    $
    10,448
    
    
    $
    (407
    )
    
    
    -3.9
    %
 North American
 Quarter Ended June 30,2005Total block hours
    
    
    3,928Revenue per block hour
    
    $
    8,051
 Operating Expenses
 World Airways
 Quarter Ended June 30,2005
    
    2004
    
    Change
    
    % ChangeOperating expense per block hour
    
    $
    9,154
    
    
    $
    10,050
    
    
    $
    (896
    )
    
    
    -8.9
    %
 North American
 Quarter Ended June 30,2005Operating expense per block hour
    
    $
    8,536
   25




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Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
  Revenues
 World Airways
 Six Months Ended June 30,2005
    
    2004
    
    Change
    
    % ChangeTotal block hours
    
    
    27,084
    
    
    
    22,341
    
    
    
    4,743
    
    
    
    21.2
    %Revenue per block hour
    
    $
    11,070
    
    
    $
    10,950
    
    
    $
    120
    
    
    
    1.1
    %
 Operating Expenses
 World Airways
 Six Months Ended June 30,2005
    
    2004
    
    Change
    
    % ChangeOperating expense per block hour
    
    $
    9,997
    
    
    $
    10,144
    
    
    $
    (147
    )
    
    
    -1.4
    %
 26




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LIQUIDITY AND CAPITAL RESOURCES
   27




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.
    Cash Flows from Operating Activities
  28




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Cash Flows from Investing Activities
   Cash Flows from Financing Activities
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Aircraft
fuel:
 
 ITEM 4. CONTROLS AND PROCEDURES
 (a) Evaluation of Disclosure Controls and Procedures
   29




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(b) Changes in internal controls
  30




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PART II
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 6. EXHIBITS
 No.
    
    Description10.13*+
    
    Employment Agreement, dated as of May 5, 2005, by and between World Air Holdings, Inc. and
Mark M. McMillin.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Interim Chief Financial Officer pursuant to Rule 13a-14(a) to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Interim Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Incorporated by reference pursuant to Rule 12b-32 of the Exchange Act, filed on Form 8-K on May
25, 2006.+
    
    Management contract or compensatory plan or arrangement.  31




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SIGNATURES
   WORLD AIR HOLDINGS, INC.By:
    
    /s/ Virginia G. ClarkVirginia G. ClarkInterim Chief Financial Officer