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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM SEPTEMBER 1, 1996 TO DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-25202
KITTY HAWK, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 75-2564006
(State of Incorporation) (I.R.S. Employer
Identification No.)
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1515 WEST 20TH STREET
P.O. BOX 612787
DALLAS/FORT WORTH INTERNATIONAL AIRPORT, TEXAS 75261
(972) 456-2200
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On April 4, 1997, the aggregate market price of the voting stock held by
nonaffiliates of the registrant was approximately $44.0 million. (For purposes
of determination of the above stated amount, only directors, executive officers
and 10% or greater stockholders have been deemed affiliates).
On April 4, 1997, there were 10,451,807 outstanding shares of Common Stock,
par value $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
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PART I
ITEM 1. BUSINESS
GENERAL
Kitty Hawk provides air freight charter services, emphasizing
highly-reliable, time-sensitive services. The Company's air freight carrier's
revenue fleet is comprised of 25 owned and 3 leased aircraft, 17 of which are
currently used in scheduled airport-to-airport freight service under contracts
primarily with major freight forwarders in North and Central America and the
Pacific Rim. These contracts generally require the Company to supply aircraft,
crew, maintenance, and insurance ("ACMI") and to meet certain on-time
performance standards, while its customers are responsible for substantially all
other operating expenses, including fuel. Additionally, Kitty Hawk provides
same-day air logistics charter services in North America. Through its advanced,
proprietary computer software, the Company manages delivery of extremely time-
sensitive freight utilizing the on-demand charter services of both third-party
air freight carriers and planes from the Company's fleet that are not then
committed to ACMI service. The Company's principal executive offices are located
at 1515 West 20th Street, P.O. Box 612787, Dallas/Fort Worth International
Airport, Texas 75261, its telephone number is (972) 456-2200 and its Internet
address is http://www.kha.com. Unless the context otherwise requires, the
"Company" or "Kitty Hawk" refers to Kitty Hawk, Inc., its predecessor and its
subsidiaries.
On December 4, 1996, the Company changed its fiscal year end from August 31
to December 31. The following discussion presents results for a four month
interim period from September 1, 1996 to December 31, 1996 (the "Transition
Period").
AIR FREIGHT CARRIER
General
Kitty Hawk has owned and operated aircraft for on-demand air freight
charter services since 1985. In 1987, the Company's air freight carrier was
expanded to include ACMI contract charter service. Pursuant to ACMI contracts,
the Company's air freight carrier provides scheduled charters carrying
heavyweight freight and mail for entities that engage primarily in next-day and
two-day delivery service to their customers.
Revenue Fleet
Of the Company's revenue fleet of 28 aircraft, the Company operates 25
aircraft in active revenue service, is in the process of converting two Boeing
727-200 aircraft to cargo configuration, and anticipates converting an
additional Boeing 727-200 aircraft to cargo configuration during 1997. These
aircraft do not include the Company's undivided one-third interest in four
Falcon 20 jet aircraft leased to a third-party operator. See "Item 11. Executive
Compensation -- Compensation Committee Interlocks and Insider Participation."
ACMI Contracts
As an FAA Part 121 certificated carrier, the Company's air freight carrier
provides primary lift capacity as well as additional lift capacity for overflow
and seasonal freight transportation needs on an ACMI contract basis. During the
Transition Period, ACMI contracts accounted for approximately 28.2% of the
Company's total revenues.
As of March 24, 1997, Kitty Hawk was operating nine Boeing 727-200s, six
Convairs and two Douglas DC9-15Fs under ACMI contracts with Burlington Air
Express, Inc., Ting Hong Oceanic Enterprises Co., Ltd., Pacific East Asia Cargo
Airlines, Inc., DHL Airways, Inc., and Emery Worldwide Airlines, Inc.
The Company's ACMI contracts typically require the Company to supply
aircraft, crew, maintenance, and insurance, while its customers are responsible
for substantially all other aircraft operating expenses, including fuel, fuel
servicing, airport freight handling fees, landing and parking fees, ground
handling expenses, and aircraft push-back costs.
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These ACMI contracts also typically require the Company to operate specific
aircraft and/or provide minimum air freight capacity, and generally are
terminable if the Company (i) fails to meet certain minimum performance levels,
(ii) otherwise breaches the contract, or (iii) becomes subject to other
customary events of default. The ACMI contracts also provide that the Company
has exclusive operating control and direction of each aircraft the Company
operates and that certain foreign-based customers must obtain any government
authorizations and permits required to service the designated routes. Therefore,
the Company's route structure is limited to areas in which customers gain access
from the relevant governments. The Company is permitted under certain of its
ACMI contracts to utilize, and, in fact often does utilize, its aircraft in
on-demand service in the periods between ACMI contract flights.
Burlington Air Express, Inc.
Burlington Air Express, Inc. ("Burlington") currently leases under one ACMI
contract seven of the Company's Boeing 727-200s and under a separate ACMI
contract one of the Company's Convairs. Under each contract, Burlington pays the
Company a fixed fee for each scheduled round-trip flown by the Company and a per
hour charge for any nonscheduled flight requested by Burlington.
The Burlington Boeing 727-200 ACMI contract is for a term expiring on March
1, 1999, but pursuant to the terms of the contract, either party may upon thirty
days' written notice terminate the services of two Boeing 727-200 aircraft
immediately and one additional Boeing 727-200 aircraft on or after each of March
1, 1998 and September 1, 1998. In addition, Burlington may earlier terminate the
contract if, among other reasons, the Company fails to meet certain performance
standards or if majority ownership or control of the Company is acquired by a
competitor of Burlington. The Company operates one Convair on behalf of
Burlington pursuant to a contract between the parties on terms substantially
similar to those set forth in the Boeing 727-200 ACMI contract between the
parties.
On-Demand Charter Service
The air freight carrier provides on-demand charter service for customers of
the Company's air logistics business. Approximately 7.1%, 8.7%, 9.0% and 5.8% of
the on-demand charters managed by the Company during fiscal years 1994, 1995,
and 1996 and the Transition Period, respectively, were flown by the air freight
carrier. A substantial portion of these charters were flown for GM. The Company
also has flown its own aircraft on certain of the seasonal charters it has
managed for the U.S. Postal Service.
Maintenance
The Company's aircraft require considerable maintenance in order to remain
in compliance with FAA regulations. The Company estimates that at current rates
of operation of its existing fleet, during the remainder of fiscal year 1997,
the next scheduled major overhaul maintenance checks for five Boeing 727-200s
will be completed and, during the fiscal year 1998, one will be completed. The
Company does not anticipate any of its aircraft, at current rates of operation,
requiring major overhaul maintenance checks during fiscal year 1999. The Company
estimates that the service life of each of its revenue aircraft extends beyond
the year 2000. Kitty Hawk historically has followed, and currently intends to
follow, a policy of retiring Convairs at the time of their next scheduled major
overhaul maintenance checks rather than expending the amounts necessary for such
checks.
Any equipment being placed on the Company's operating certificate is
inspected and repaired prior to being utilized by the Company for either
on-demand or ACMI contract charters. The Company's maintenance facilities enable
it to perform all required airframe maintenance and minor engine repairs on the
aircraft ranging from overnight "turnaround" checks to major airframe overhauls.
The Company performs all maintenance for its fleet, including line maintenance,
at its own maintenance facilities, except for repairs to avionics and overhauls
of engines and airframes. All contract maintenance is performed by subcontracted
FAA-approved maintenance facilities under the on-site supervision and/or
inspection of Company quality assurance personnel. Management currently
anticipates no difficulties in acquiring needed parts.
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Acquisition Program
Kitty Hawk is engaged in a program of selective aircraft acquisitions. In
October 1996, the Company sold 2,700,000 shares of Common Stock (the "Offering")
raising net proceeds of approximately $29.3 million to purchase and modify to
cargo configuration five Boeing 727-200 aircraft. As of March 24, 1997, the
Company has purchased four of these five aircraft.
As of March 24, 1997, the Company has purchased from the net proceeds of
the Offering (i) one Boeing 727-200 freighter aircraft for $4.7 million, (ii)
one Boeing 727-200 aircraft for $2.31 million, which is currently being modified
to cargo configuration for an additional cost of approximately $3.1 million
(including approximately $1.82 million for noise abatement equipment which has
been purchased), (iii) one Boeing 727-200 aircraft for $3.5 million, which is
currently being modified to cargo configuration for an additional cost of
approximately $5.0 million (including approximately $2.45 million for noise
abatement equipment), and (iv) one Boeing 727-200 aircraft for $3.5 million,
which the Company anticipates modifying to cargo configuration in 1997 for an
additional cost of approximately $5.0 million (including approximately $2.45
million for noise abatement equipment). As of March 24, 1997, the Company has
used approximately $16.8 million of the net proceeds of the Offering to fund
these expenses.
The Company recently acquired an undivided one-third interest in four
Falcon 20 jet aircraft and pursuant to a co-ownership agreement leases such
aircraft to a third-party operator for cargo charter service. See "Item 11.
Executive Compensation -- Compensation Committee Interlocks and Insider
Participation."
AIR LOGISTICS
General
On-demand air charters of heavy-weight freight generally are used when
"next-flight-out" delivery services of commercial airlines or the next-day
delivery services of air freight companies or other service providers cannot
meet the customer's delivery deadline. Utilizing a proprietary computerized
database, the Company's air logistics services involve coordinating
"door-to-door" transportation by arranging for ground pick-up, loading, air
transportation, unloading, and ground delivery of the freight. The most frequent
use of on-demand charters is to deliver manufacturing or replacement parts to
avoid a work stoppage. Manufacturers who employ "just-in-time" inventory systems
encourage the order and delivery of inventory just before it is needed at the
assembly plant. On-demand charters also are used to transport replacement parts
on an expedited basis so that critical equipment can be kept operational or put
back in service to avoid or minimize the length of a shutdown. Firms that are
reducing inventory and shortening product cycle times through direct air
shipments also use on-demand charters.
The customers of the Company's on-demand air logistics services include
companies that are engaged in industries such as automotive, chemical, computer,
mail and bulk package delivery, retail merchandising, and oil field service and
equipment. Typically, the premium costs incurred in utilizing on-demand charters
to achieve expedited same-day delivery are justified by the Company's customers
on the basis that greater costs would otherwise be incurred as a result of a
work stoppage or having to maintain greater inventory levels. A significant
portion of all on-demand, same-day air freight charters in North America is
accounted for by the automotive industry. The importance of the automotive
industry to on-demand air charters reflects the large number of automobile
parts, the complexity of an automotive manufacturer's supplier and assembly
plant network, and the high cost of shutting down production facilities. Kitty
Hawk believes that "just-in-time" inventory systems have increased the use of
on-demand air charters by the automotive industry and that on-demand air
charters are an integral cost of such "just-in-time" inventory management
systems. Because automotive manufacturers generally carry less inventory than in
the past, unanticipated parts shortages may occur more frequently.
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Delivery of Logistics Services
During the Transition Period, Kitty Hawk arranged an average of
approximately 34 on-demand charters per day. Each transaction originates from a
customer's telephonic request to arrange a charter answered by one of the
Company's full-time account managers who are on duty 24 hours per day, 365 days
per year.
Database, Information Software, and Tracking Systems
The Company believes it provides dependable service on a cost-effective
basis because of its computerized database, information software, and tracking
systems, its training of account managers, and its standardized charter
management procedures.
Database System. Kitty Hawk believes that its database is critical to its
ability to arrange on-demand air charters in a timely and reliable manner. The
Company maintains in its database a carrier profile for over 500 air freight
carriers that provide on-demand charter service. The Company has implemented an
Internet system to provide its account managers with real-time updates on
available third party on-demand air charter aircraft across North America. The
most utilized carriers are visited by Company representatives at least annually
to inspect the carrier's facilities and equipment and to update the carrier
database. The database also contains information concerning ground
transportation and aircraft loading companies in North America that is similar
to its information concerning air carriers.
Information Software System. The Company's logistics system was developed
in 1990 to automate access to the Company's database and has been frequently
revised and improved. This system provides on-screen information regarding air
carriers, aircraft type and specifications, fuel suppliers, cargo handlers, and
surface carriers, along with relevant cost information. In addition, Kitty Hawk
is an on-line subscriber to Jeppesen's Flight Planning and Kavouras
Meteorological services. The flight planning services provided by Jeppesen
integrate airport analyses (comprised of runway lengths, altitudes, hours of
operation and noise abatement procedures) with the current weather data and
other information to provide an automated flight plan. This flight planning
service then transmits electronically the automated flight plan to the pilot and
to the FAA contemporaneously.
Tracking System. In December 1993, the Company began operation of its
HawkEye system, which was developed internally by its full time programming and
computer support staff. HawkEye allows an account manager to track an aircraft's
progress from origin to destination on his or her computer screen and on the
main projection board of the control room. Aircraft icons show each flight, its
direction, and information about the flight including the type of aircraft, the
flight number, its current altitude, ground speed, distance to destination, and
times of departure and estimated arrival. The data supporting the HawkEye System
is a direct data feed obtained from the FAA's Air Traffic Control computer
system.
U. S. Postal Service
Since 1986, Kitty Hawk has managed Christmas season charters for the U.S.
Postal Service utilizing third-party air freight carriers in order to provide
additional lift capacity for this peak period. The U.S. Postal Service awards
contracts periodically pursuant to a public bidding process that considers
quality of service and other factors. Bids for contracts to provide these
Christmas season charters generally are submitted in the summer of each year and
are typically awarded during the following fall.
Of the Company's total revenues during the Transition Period, the U.S.
Postal Service accounted for $26.2 million (43.7%). Of these revenues, $23.3
million (88.9%) were attributable to the Company's air logistics business in
connection with its management of seasonal Christmas charters flown by
third-party air cargo carriers, and $2.9 million (11.1%) were attributable to
the air freight carrier for ACMI contract charters flown by the Company on
designated routes. Of the Company's gross profits from air logistics during the
Transition Period, the U.S. Postal Service accounted for $4.4 million (77.7%).
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Relationship With GM
Under the terms of its agreement with GM (the "GM Agreement"), the
Company's air logistics business is encouraged to utilize the air freight
carrier but is prohibited from (i) placing with the Company's air freight
carrier in excess of 30% of the total number of air charters arranged for GM in
any calendar year and (ii) placing with the Company's air freight carrier
charters producing revenue in excess of 30% of the total revenue derived from
air charters arranged for GM in any calendar year. During the Transition Period,
the Company's air freight carrier flew 115 on-demand charters (or 5.4% of total
charters arranged for GM by the Company's air logistics business) resulting in
$1.3 million of revenues to the Company (or 13.1% of the total revenues derived
by the Company from GM). The GM Agreement does not provide for automatic fuel
price adjustments.
The term of the GM Agreement extends through May 1997 and thereafter from
month-to-month until terminated by thirty days' written notice. The GM
Agreement, however, stipulates that in the event of an irreconcilable
difference, either party may, with or without cause, terminate the agreement
following a quarterly review meeting by giving the other party at least 30 days'
prior written notice thereof. Furthermore, GM may terminate the GM Agreement on
ten days' written notice if there is a change in (i) management of Kitty Hawk
Charters, Inc., the Company's wholly-owned subsidiary, through which the
Company's air logistics business is conducted, or (ii) the stock ownership of
the Company such that (a) Mr. Christopher no longer holds a majority of the
outstanding Common Stock of the Company or (b) a major automobile manufacturer
acquires more than 20% of the outstanding Common Stock of the Company, unless
such changes are communicated to GM at least 60 days prior to the effective date
and GM concurs with the changes.
Of the Company's total revenues during the Transition Period, GM accounted
for $9.8 million (16.3%). Of the revenues from GM, $8.5 million (86.9%) were
attributable to air logistics primarily in connection with on-demand charters
flown by third-party air cargo carriers, and $1.3 million (13.1%) were
attributable to on-demand charters flown by the Company's air freight carrier.
Of the Company's gross profits from air logistics during the Transition Period,
GM accounted for $573,000 (10.2%). GM accounted for 47.3% of the total number of
on-demand charters that were flown by the air freight carrier during the
Transition Period. In addition to revenues derived from GM, the Company believes
approximately 12.1% of its total revenues during the Transition Period were
generated from services provided to other participants in the U.S. automotive
industry, a substantial portion of which the Company believes were GM suppliers.
SEASONALITY
Certain customers of the Company engage in seasonal businesses, especially
the U.S. Postal Service, GM, and other customers in the automotive industry. As
a result, Kitty Hawk's air logistics business has historically experienced its
highest quarterly revenues and profitability during the fourth quarter of the
calendar year due to the peak Christmas season activity of the U.S. Postal
Service and during the period from June 1 to November 30 when production
schedules of the automotive industry typically increase. Consequently, the
Company experiences its lowest quarterly revenue and profitability during the
first quarter of the calendar year.
The following table reflects certain selected quarterly operating results,
which have not been audited or reviewed, for each quarter since the fiscal
quarter ended August 31, 1994. The information has been prepared on the same
basis as the audited Consolidated Financial Statements appearing elsewhere in
this Form 10-K and includes all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the information shown. The
Company's results vary significantly from quarter to quarter and the operating
results for any quarter are not necessarily indicative of the results that may
be expected for any future period.
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FISCAL QUARTER ENDED
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NOVEMBER 30, FEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 29,
1994 1995 1995 1995 1995 1996
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Total revenues........... $29,593 $31,743 $16,835 $25,539 $36,045 $48,577
Gross profit............. 5,210 6,290 2,310 4,368 5,936 8,190
Operating income......... 3,310 3,912 660 1,463 3,564 2,447
Net income (loss)........ 1,960 2,298 192 (34) 1,956 1,273
Net income (loss) per
share................... $ 0.25 $ 0.29 $ 0.02 $ (0.01) $ 0.25 $ 0.16
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FISCAL QUARTER ENDED ONE MONTH
----------------------------------- ENDED
MAY 31, AUGUST 31, NOVEMBER 30, DECEMBER 31,
1996 1996 1996 1996
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Total revenues........... $22,504 $35,289 $25,414 $34,571
Gross profit............. 3,265 6,124 5,118 7,287
Operating income......... 897 2,126 2,851 5,867
Net income (loss)........ 182 698 1,632 3,662
Net income (loss) per
share................... $ 0.02 $ 0.09 $ 0.18 $ 0.35
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EMPLOYEES
At March 24, 1997, Kitty Hawk employed approximately 306 full-time
personnel.
GOVERNMENT REGULATION
The Company's air freight carrier is subject to Title 49 of the United
States Code (formerly the Federal Aviation Act of 1958, as amended), under which
the DOT and the FAA exercise regulatory authority over air carriers. The DOT is
primarily responsible for regulating economic issues affecting air service,
including, among other things, air carrier certification and fitness, insurance,
consumer protection, unfair methods of competition, and transportation of
hazardous materials. The FAA is primarily responsible for regulating air safety
and flight operations, including, among other things, airworthiness requirements
for each type of aircraft the Company's air freight carrier operates, pilot and
crew certification, aircraft maintenance and operational standards, noise
abatement, airport slots, and other safety-related factors. In addition, the
Company's air freight carrier is subject to regulation by various other federal,
state, local and foreign authorities, including the Department of Defense and
the Environmental Protection Agency.
The Company's operations are subject to routine, and periodically more
intensive, inspections and oversight by the FAA. Following a review of safety
procedures at ValuJet, Inc., the FAA adopted changes to the FAA's and air
carriers' oversight of contract maintenance and training procedures. The Company
believes it is currently in compliance with such changes.
The FAA has proposed amendments to its flight and rest time regulations
which, if adopted as proposed, could restrict the ability of the Company to
respond to a shipper's request for same day delivery and/or would require the
Company to hire and train additional qualified pilots to perform the Company's
flight operations.
The adoption of new laws, policies, or regulations or changes in the
interpretation or application of existing laws, policies, or regulations,
whether by the FAA, the DOT, the United States government, or any foreign,
state, or local government, could have a material adverse impact on Kitty Hawk
and its operations.
The Company's revenue fleet is comprised of fifteen Boeing 727-200 aircraft
manufactured between 1969 and 1978, five Douglas DC9-15F aircraft manufactured
during 1967 and 1968, and eight turbo-prop Convairs manufactured between 1948
and 1957. Manufacturer's Service Bulletins ("Service Bulletins") and FAA
Airworthiness Directives ("Directives") issued under the FAA's "Aging Aircraft"
program or issued on an ad hoc basis cause certain of these aircraft to be
subject to extensive aircraft examinations and require certain of these aircraft
to undergo structural inspections and modifications to address problems of
corrosion and structural fatigue at specified times. It is possible that
additional Service Bulletins or Directives applicable to the types of aircraft
included in the Company's fleet could be issued in the future. The cost of
compliance with such Directives and Service Bulletins cannot currently be
estimated, but could be substantial.
Airline operators must comply with FAA noise standard regulations primarily
promulgated under the Airport Noise and Capacity Act of 1990 (the "Noise
Regulations"). The Noise Regulations affect the Company's five Douglas DC9-15Fs
and its fifteen Boeing 727-200s (the "Jet Fleet"). Nine of the aircraft in the
Jet Fleet are currently in compliance with Stage III noise control standards. By
the following deadlines, the Company must bring the Jet Fleet into Stage III
compliance to the extent indicated: January 1, 1999, 75%; and January 1, 2000,
100%. Certain airport operations have adopted local regulations which, among
other things, impose curfews and other noise abatement requirements.
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In December 1996, the Company amended its agreement with its supplier of
noise abatement equipment for Boeing 727-200 aircraft to increase the number of
hushkits it has firmly committed to purchase and to establish fixed prices. In
connection with this amendment, the Company paid the vendor an additional
$350,000 in deposits on seven future, firm orders that will cost the Company
between $13 and $17.5 million, depending on the type selected.
The DOT and the FAA have the authority to modify, amend, suspend, or revoke
the authority and licenses issued to the Company for failure to comply with the
provisions of law or applicable regulation. In addition, the DOT and the FAA may
impose civil or criminal penalties for violations of applicable rules and
regulations. Such actions by the FAA or the DOT, if taken, could have a material
adverse effect on Kitty Hawk. The DOT exercises regulatory jurisdiction over the
transportation of hazardous materials. The Company may from time to time
transport articles that are subject to these regulations. Shippers of hazardous
materials share responsibility for compliance with these regulations and are
responsible for proper packaging and labeling. Substantial civil monetary
penalties can be imposed on both shippers and air carriers for infractions of
these regulations.
Certain of the Company's air freight carrier operations are conducted
wholly between two or more points that are all located outside of the United
States. As with the certificates and license obtained from U.S. authorities, the
Company must comply with all applicable rules and regulations imposed by these
foreign aeronautical authorities or be subject to the suspension, amendment or
modification of its operating authorities.
On March 7, 1997, a 6.25% federal transportation excise tax applicable to
air freight transportation was reinstated through September 30, 1997.
Reinstatement of the tax by the government will result in higher costs to
shippers of air freight and air freight carriers, which may have a material
adverse effect on freight traffic, yields, revenue, and margins.
The Company has been advised by the FAA that it is reexamining the
supplemental type certificates previously issued to certain companies approving
main deck cargo door and interior modifications to Boeing 727-200 passenger
category aircraft of the type operated by the Company. The Company's Boeing
727-200 aircraft all have been modified in reliance upon the FAA's prior
approval of these cargo-related modifications. As a result of the reexamination,
the FAA will likely require structural changes to the previously installed
modifications which may be costly to perform and require significant aircraft
down time. Before such changes can be completed, the FAA will likely impose
operating limitations on the Boeing 727-200 aircraft which will reduce the
effective payload of the Company's Boeing 727-200 aircraft which could have a
material adverse effect on Kitty Hawk and its operations.
Under current federal aviation law, the Company's air freight carrier could
cease to be eligible to operate as an air freight carrier if more than 25% of
the voting stock of the Company were owned or controlled by non-U.S. citizens.
Moreover, in order to hold an air freight carrier certificate, the president and
two-thirds of the directors and officers of an air carrier must be U.S.
citizens. All of the Company's directors and officers are U.S. citizens.
Furthermore, (i) the Certificate of Incorporation limits the aggregate voting
power of non-U.S. persons to 22 1/2% of the votes voting on or consenting to any
matter and (ii) the Bylaws do not permit non-U.S. citizens to serve as directors
or officers of the Company.
INSURANCE
The Company is vulnerable to potential losses which may be incurred in the
event of an aircraft accident. Any such accident could involve not only repair
or replacement of a damaged aircraft and its consequent temporary or permanent
loss from service, but also potential claims involving injury to persons or
property. The Company is required by the DOT to carry liability insurance on
each of its aircraft, and each of the Company's aircraft leases and ACMI
contracts also requires the Company to carry such insurance. Any extended
interruption of the Company's operations due to the loss of an aircraft could
have a material adverse effect on the Company. The Company currently maintains
public liability and property damage insurance and aircraft liability insurance
for each of the aircraft in the revenue fleet in amounts consistent with
industry standards. All-risk aircraft hull insurance is maintained for all
aircraft in the revenue fleet other than the
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Convairs. The Company maintains baggage and cargo liability insurance if not
provided by its customers under ACMI contracts. Although the Company believes
that its insurance coverage is adequate, there can be no assurance that the
amount of such coverage will not be changed upon renewal or that the Company
will not be forced to bear substantial losses from accidents. Substantial claims
resulting from an accident could have a material adverse effect on the Company's
financial condition and could affect the ability of the Company to obtain
insurance in the future.
The Company attempts to monitor the amount of liability insurance
maintained by the third-party carriers utilized in its air logistics business
through, among other things, the obtaining of certificates of insurance.
COMPETITION
The market for air freight carrier services has been and is expected to
remain highly competitive. Kitty Hawk competes with other air freight carriers
with regard to furnishing on-demand charters and ACMI contract charters. The
Company believes that the basis for such competition is price, quality of
service, and the location and performance characteristics of aircraft. The
Company's air freight carrier is also subject to competition from other modes of
transportation including, but not limited to, railroads and trucking. Numerous
competitors of Kitty Hawk provide or coordinate door-to-door air freight
charters on an expedited basis. The market for air logistics also has been and
is expected to remain highly competitive. The Company's principal competitors
for on-demand air logistics services are other air logistics companies, air
freight carriers which seek to book charters directly with customers, and air
freight companies that offer expedited service. Each of Emery Worldwide, FedEx,
and the United Parcel Service compete in the expedited freight business by
offering "next-flight-out" service.
The Company's ability to attract and retain business also is affected by
the decisions of the transportation departments of commercial and industrial
businesses whether, and to what extent, to coordinate their own transportation
needs. Prior to 1990, GM conducted its air logistics business in-house. GM and
certain other customers maintain transportation departments that could be
expanded to manage charters in-house which could have a material adverse effect
on Kitty Hawk. With respect to the Company's ACMI contract charter business, the
Company could be adversely affected by the decision of certain of its
certificated customers to acquire additional aircraft, or by its uncertificated
customers to acquire and operate their own aircraft, to service routes currently
serviced by Company aircraft. Many of the Company's competitors and customers
have substantially greater financial resources than the Company.
ITEM 2. PROPERTIES
Kitty Hawk occupies a 40,000 square foot facility (the "Facility") located
at Dallas/Fort Worth International Airport. The Facility includes administrative
offices, maintenance work areas, and hangar and parts storage facilities as well
as flight operations and training facilities. In February 1997, the Company
purchased the lease to the Facility from the sublessor for approximately $1.76
million. The lease expires on December 31, 2007. See "Item 11. Executive
Compensation -- Compensation Committee Interlocks and Insider Participation."
In addition, the Company maintains an approximately 20,000 square foot
secondary maintenance facility located in Ypsilanti, Michigan comprised of a
maintenance work area, hangar and an area for the storage of certain aircraft
repair parts and maintenance items. Additionally, Kitty Hawk rents small parts
storage spaces at a number of origin airports and apartments in various
locations for flight crew layovers.
ITEM 3. LEGAL PROCEEDINGS
ANET Litigation
The U.S. Postal Service selected the Company's air freight carrier in
September 1992 as the successful bidder on a contract for a multi-city network
of air transportation services supporting the U.S. Postal Service's Express Mail
system. Another air freight carrier (the "Co-Bidder") was associated with the
Company in the
9
<PAGE> 10
successful bid (the "ANET bid"). Two unsuccessful bidders, including Emery
Worldwide Airlines, Inc. ("Emery") (the incumbent), sued to enjoin the award.
This litigation (the "ANET litigation") was settled in April 1993 by agreements
under which the U.S. Postal Service terminated the Company's contract for
convenience and awarded the contract to Emery. In lieu of damages for the
contract's termination, the U.S. Postal Service paid $10.0 million into an
escrow account to be divided between the Company and the Co-Bidder. Also under
the settlement, Emery delivered releases of the Company's contractual
obligations to purchase more than $40 million in aircraft and equipment, paid
$2.7 million into the escrow account, and agreed to pay $162,500 into the escrow
each quarter for up to 10 years so long as the Emery contract remained in
effect.
Before settling the ANET litigation, the Company, Mr. Christopher, the
Co-Bidder and the Co-Bidder's stockholder agreed, among other things, to hold
the escrowed funds in escrow until they had agreed upon an allocation and
distribution, or until the matter was resolved by binding arbitration.
Subsequent disagreements led to litigation and arbitration among the Company,
Mr. Christopher, the Co-Bidder and the Co-Bidder's stockholder that were
resolved pursuant to a comprehensive settlement reached in August 1994. Under
the comprehensive settlement, the Company received approximately $3.5 million in
cash from the escrowed funds, and obtained a Boeing 727-200. Also under the
comprehensive settlement agreement, Mr. Christopher received rights to one-half
of any future contingent quarterly payments from Emery.
Qui Tam Litigation
In March 1995, the Company was served with a complaint filed on behalf of
the U.S. government by a third-party plaintiff seeking to share a recovery under
the Federal False Claims Act (the "False Claims Act"). The suit, filed in May
1994 in the federal District Court for the District of Columbia, was filed under
seal in accordance with the False Claims Act, to enable the U.S. Government to
review the claim before its disclosure to the defendants. The U.S. Government
declined to pursue the claim, but the third-party plaintiff chose to continue.
The suit claimed that the Company and the Co-Bidder fraudulently failed to
disclose to the U.S. Postal Service, both in the ANET bid and in the settlement
of the ANET litigation, that some of the aircraft the Company proposed to
purchase and use to perform the contract were aging aircraft with high use, and
claimed that the Company, the Co-Bidder and Emery similarly fraudulently
conspired in connection with the settlement of the ANET litigation. The suit
sought to recover treble the $10 million settlement payment made by the U.S.
Postal Service in settling the ANET litigation, plus the third-party plaintiff's
costs and fees.
In May 1996, the court granted the Company its motion to dismiss the suit
and awarded the Company its attorneys' fees and costs. The plaintiff has asked
the court to reconsider its ruling. The Company does not expect the outcome to
have a material adverse effect upon the Company's financial condition or results
of operations.
Litigation about Charter Agreement
The Company filed suit in the 14th Judicial District Court of Dallas
County, Texas against Express One International, Inc. ("Express One") in July
1992 claiming under a one-year aircraft charter by Express One to the Company
that Express One breached its obligations and seeking actual damages of
approximately $60,000. Express One counterclaimed that the Company wrongfully
repudiated the charter and fraudulently induced Express One to provide services
not required by the charter. Express One claimed damages of $356,718 for
services allegedly performed, $1,140,000 for additional fees it would have
received under the charter, an unspecified amount of punitive damages, and
additional amounts for its attorneys' fees and costs.
In February 1995, a jury verdict awarded the Company $25,000 in damages
plus its attorneys' fees and denied Express One's counterclaims. In May 1995,
the court entered judgment in favor of the Company for $25,000 in damages, for
$148,115 in attorneys' fees through trial, and for additional attorneys' fees if
Express One appealed. Before the time for appeal expired, Express One filed a
petition under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy
Court for the Eastern District of Texas (Sherman Division). The Company filed
its claim based on the judgment in the bankruptcy proceeding. In November 1995,
Express
10
<PAGE> 11
One filed an appeal, to which the Company responded. Kitty Hawk does not expect
the outcome to have a material adverse effect upon the Company's financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 3, 1996, the Company held its 1996 Annual Meeting of
Stockholders. The only matter voted on at this meeting was the re-election of
two persons, Mr. Richard R. Wadsworth and Mr. Lewis S. White, as Class 2
directors to serve as members of the Company's Board of Directors for terms of
three years ending at the 1999 Annual Meeting of Stockholders, or until their
successors are duly elected and qualified. With respect to each nominee,
7,750,000 shares were voted for such nominee and no shares were voted against or
withheld. There were no abstentions or broker non-votes. Each Class 1 and 3
director continued as a member of the Company's Board of Directors after the
meeting.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "KTTY". The range of high and low bid information for the Company's
Common Stock during the three months ended November 30, 1996 and the one month
ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Three Months Ended November 30, 1996(1)..................... $14.75 $10.00
One Month Ended December 31, 1996........................... 13.50 8.00
</TABLE>
- ---------------
(1) Does not include the period prior to the Offering.
At April 4, 1997, the Company had approximately 1,827 holders of record and
beneficial owners of the Company's Common Stock.
The Company's policy has been to reinvest earnings to fund future growth.
Accordingly, the Company has not paid dividends and does not anticipate
declaring dividends on its Common Stock in the foreseeable future. In addition,
the terms of the Company's Credit Agreement ("Credit Agreement") with Wells
Fargo Bank, National Association and Bank One, Texas, N.A. restrict Kitty Hawk's
ability to declare and pay dividends to its stockholders during any fiscal year
to an amount not to exceed 25% of the Company's net income during the
immediately preceding fiscal year.
The Company granted certain unregistered options to Mr. Tilmon J. Reeves
and Mr. Wadsworth in October 1994. All such options were issued in connection
with employment or consulting services rendered pursuant to Rule 701 and/or
Section 4(2) of the Securities Act of 1933, as amended (the "Act"). Both stock
options were canceled on June 12, 1996. See "Item 11. Executive Compensation."
The Company granted certain unregistered options to Messrs. Reeves and
Wadsworth in December 1995 and June 1996, respectively. All such options were
issued in connection with employment or consulting services rendered pursuant to
Rule 701 and/or Section 4(2) of the Act, as amended. Both stock options were
exercised at an exercise price of $0.01 per share on June 26, 1996. The
unregistered Common Stock issued upon exercise of such options was issued to
Messrs. Reeves and Wadsworth pursuant to Rule 701, Section 4(2) and/or Section
3(a)(9) of the Act. See "Item 11. Executive Compensation."
11
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The following table sets forth selected financial and operating data with
respect to Kitty Hawk for each of the fiscal years indicated and for the four
months ended December 31, 1995 and December 31, 1996. This information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements,
including the Notes thereto, appearing elsewhere in this Form 10-K. The selected
income statement and balance sheet data as of and for each of the fiscal years
ended August 31, 1992 through 1996 and for the four months ended December 31,
1996 has been derived from audited consolidated financial statements of the
Company. Operating results for the four months ended December 31, 1996 are not
necessarily indicative of results that may be expected for a calendar year. In
the opinion of management of the Company, the selected income statement and
balance sheet data presented as of and for the four months ended December 31,
1995, which are derived from the Company's unaudited consolidated financial
statements, reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations for such period.
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31, DECEMBER 31,
------------------------------------------------------ ----------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- -------- -------- -------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Air freight carrier............. $ 6,760 $12,939 $ 28,285 $ 41,117 $ 52,922 $17,994 $20,577
Air logistics................... 45,893 52,840 79,415 62,593 89,493 51,734 39,408
------- ------- -------- -------- -------- ------- -------
Total revenues.................... 52,653 65,779 107,700 103,710 142,415 69,728 59,985
Total costs of revenues........... 48,465 55,201 92,951 85,532 118,900 57,682 47,580
------- ------- -------- -------- -------- ------- -------
Gross profit...................... 4,188 10,578 14,749 18,178 23,515 12,046 12,405
General and administrative
expenses........................ 2,930 4,394 6,013 7,832 9,080 2,862 2,725
Non-qualified profit sharing
expense......................... -- 250 732 1,001 1,170 889 962
Stock option grants to
executives...................... -- -- -- -- 4,231(1) -- --
------- ------- -------- -------- -------- ------- -------
Operating income.................. 1,258 5,934 8,004 9,345 9,034 8,295 8,718
Interest expense.................. (157) (134) (343) (1,185) (1,859) (482) (684)
Contract settlement income,
net(2).......................... -- 725 1,178 -- -- -- --
Loss on asset disposal............ -- -- -- -- (589) -- --
Other income (expense)............ 287 193 (432) (601) 291 38 626
------- ------- -------- -------- -------- ------- -------
Income before income taxes........ 1,388 6,718 8,407 7,559 6,877 7,851 8,660
Income taxes...................... 375 2,613 3,146 3,143 2,768 3,097 3,367
------- ------- -------- -------- -------- ------- -------
Net income........................ $ 1,013 $ 4,105 $ 5,261 $ 4,416 $ 4,109(1) $ 4,754 $ 5,293
======= ======= ======== ======== ======== ======= =======
Net income per share.............. $ 0.12 $ 0.52 $ 0.66 $ 0.55 $ 0.52(1) $ 0.60 $ 0.55
======= ======= ======== ======== ======== ======= =======
Weighted average common and common
equivalent shares outstanding... 8,671 7,968 7,968 7,968 7,928 7,968 9,610
OPERATING DATA:
Air Freight Carrier
Revenue Fleet (at end of
period)....................... 11 10 15 21 22 21 26
Flight hours flown(3)........... 3,567 7,030 11,795 15,183 20,237 6,320 7,670
Number of on-demand charters
flown......................... 292 752 1,182 1,238 1,448 827 243
Number of ACMI contract charters
flown......................... 655 1,314 1,734 2,601 3,493 1,002 1,488
Air Logistics
Number of on-demand charters
managed(4).................... 8,708 9,748 16,713 14,198 16,043 9,356 4,185
BALANCE SHEET DATA (IN THOUSANDS):
Working capital................... $ 895 $ 4,679 $ 4,223 $ 1,747 $ (6,962)(5) $12,722 $33,519
Total assets...................... 9,874 18,598 37,911 47,954 79,828 80,109 123,027
Long-term debt, including current
maturities...................... 2,367 976 9,145 16,981 36,912 21,695 24,768
Stockholders' equity.............. 3,184 7,289 12,550 16,966 23,639 21,721 58,292
</TABLE>
12
<PAGE> 13
- ---------------
(1) Results for fiscal year ended August 31, 1996, lack comparability to prior
periods because such period includes nonrecurring grants to two executive
officers of stock options that resulted in a charge to earnings of
approximately $4,231,000. Had these grants of stock options not occurred,
net income for fiscal year ended August 31, 1996 would have been
approximately $6,637,000 and net income per share would have been $0.84. See
"Item 11. Executive Compensation."
(2) Reflects sums received in settlement of litigation. See "Item 3. Legal
Proceedings -- ANET litigation" and Note 5 of Notes to Consolidated
Financial Statements.
(3) As reported by the Company to the FAA.
(4) Includes on-demand charters flown by the Company's air freight carrier.
(5) Working capital includes a $10 million Revolving Credit Facility classified
as a current liability that has subsequently been repaid.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
General
On December 4, 1996, the Company changed its fiscal year end from August 31
to December 31. The following discussion is of the Company's financial condition
and results of operations (i) for the four months ended December 31, 1995 and
December 31, 1996, and (ii) for the fiscal years ended 1994, 1995, 1996.
Revenues. The Company's revenues are derived from two related businesses:
(i) air freight carrier and (ii) air logistics. Air freight carrier revenues are
derived substantially from ACMI contract and on-demand charters flown with
Company aircraft. Air logistics revenues are derived substantially from
on-demand air freight charters arranged by Kitty Hawk for its customers
utilizing the flight services of third-party air freight carriers. With respect
to on-demand charters that are arranged by the Company and flown by its air
freight carrier, charges to the customer for air transportation are accounted
for as air freight carrier revenues and charges for ground handling and
transportation are accounted for as air logistics revenues.
GM and the U.S. Postal Service have accounted for a substantial majority of
the Company's revenues for the last three fiscal years and the Transition
Period. A contract with GM for on-demand charters produced revenues of $67.9
million, $48.9 million, $58.4 million, and $9.8 million in fiscal years 1994,
1995, and 1996 and the Transition Period, respectively, which represented 63.1%,
47.1%, 41.0%, and 16.3% of the Company's total revenues for such periods. Of the
revenues derived from GM for fiscal years 1994, 1995, and 1996 and the
Transition Period, 15.4%, 20.8%, 20.2%, and 13.1%, respectively, were
attributable to the air freight carrier and 84.6%, 79.2%, 79.8%, and 86.9%,
respectively, were attributable to air logistics. Revenues derived from GM for
fiscal years 1994, 1995, and 1996 and the Transition Period constituted 36.9%,
24.7%, 22.3%, and 6.2%, respectively, of the revenues derived from the air
freight carrier business and 72.4%, 61.9%, 52.1%, and 21.6%, respectively, of
the revenues derived from the air logistics business. Of the Company's gross
profits from air logistics in fiscal years 1994, 1995, and 1996 and the
Transition Period, GM accounted for $3.0 million (50.4%), $1.4 million (27.1%),
$3.5 million (37.3%), and $573,000 (10.2%), respectively.
The U.S. Postal Service accounted for revenues of $11.1 million, $10.0
million, 21.3 million, and $26.2 million in fiscal years 1994, 1995, and 1996
and the Transition Period, respectively, which represented 10.3%, 9.7%, 14.9%,
and 43.7%, respectively, of the Company's total revenues for such periods. Of
the revenues derived from the U.S. Postal Service for fiscal years 1994, 1995,
and 1996 and the Transition Period, 74.5%, 59.6%, 92.5%, and 88.9%,
respectively, were attributable to air logistics for seasonal Christmas charters
flown by third-party air freight carriers and 25.5%, 40.4%, 7.5%, and 11.1%,
respectively, were attributable to the air freight carrier for ACMI contract
charters. Revenues derived from the U.S. Postal Service for fiscal years 1994,
1995, and 1996 and the Transition Period, constituted 10.0%, 9.9%, 3.0%, and
14.1%, respectively, of the revenues derived from the air freight carrier
business and 10.4%, 9.6%, 22.0%, and 59.1%, respectively, of the revenues
derived from the air logistics business. Of the Company's gross profits from air
logistics in fiscal years 1994, 1995, and 1996 and the Transition Period, the
U.S. Postal Service accounted for $2.0 million (33.8%), $1.0 million (18.9%),
$3.8 million (40.6%), and $4.4 million (77.7%), respectively.
Burlington accounted for revenues of $15.6 million and $7.1 million in
fiscal year 1996 and the Transition Period, respectively, which represented
10.9% and 11.9%, respectively, of the total revenues for such period and
constituted 28.5% and 33.8%, respectively, of the revenues derived from the air
freight carrier business and 0.6% and 0.4%, respectively, of the revenues
derived from the air logistics business. Of these revenues, 96.8% and 97.7%,
respectively, were attributable to the air freight carrier for ACMI contract
charters and 3.2% and 2.3%, respectively, were attributable to air logistics.
Costs of Revenues. The principal components of the costs of revenues
attributable to the air freight carrier consist of the costs for the maintenance
and operation of its aircraft including the salaries of pilots and maintenance
personnel, charges for fuel, insurance and maintenance, and depreciation of
engines and airframes. Generally, charges for fuel are only applicable for the
on-demand charters flown by the air freight carrier because fuel for the ACMI
contract charters is generally provided by the customer or billed to them on
14
<PAGE> 15
a direct pass-through basis. The principal components of the costs of revenues
attributable to air logistics consist of sub-charter costs paid to third-party
air freight carriers and costs paid for ground handling and transportation. With
respect to on-demand charters that are flown by the air freight carrier, all
related air transportation expenses are allocated to the air freight carrier and
all related cargo ground handling and transportation expenses are allocated to
air logistics.
Under an earlier version of the Kitty Hawk, Inc. Amended and Restated
Annual Incentive Compensation Plan, the Company awarded semiannual cash bonuses
to its employees. The aggregate amount of the bonuses for each of fiscal years
1994, 1995, and 1996 and the Transition Period, have equaled 8.0%, 11.7%, 9.5%,
and 10.0%, respectively, of the Company's income before the deduction of income
taxes, stock option grants to executives and the bonuses that were paid under
the Kitty Hawk, Inc. Amended and Restated Annual Incentive Compensation Plan.
Significant Events Affecting Comparability of Results of Operations. Since
September 1, 1993, several events have affected the comparability of results of
operations for each of the last three fiscal years. In fiscal year 1996, the
Company granted Messrs. Reeves and Wadsworth options to purchase 390,707 and
153,567 shares of Common Stock, respectively, for an exercise price of $0.01 per
share, that resulted in a charge to earnings of approximately $4,231,000. In
fiscal year 1995, the Company expensed approximately $727,000 relating to the
Company's attempted initial public offering. In fiscal year 1994, contract
settlement income amounted to approximately $1,178,000. See Note 5 of Notes to
Consolidated Financial Statements.
Recent Developments. Due to strikes and labor disruptions at certain GM
plants during the Transition Period, there was a decrease in the number of
charters flown by the Company's air logistics business. These strikes and labor
disruptions have been settled as of December 31, 1996.
RESULTS OF OPERATIONS
The following table sets forth, on a comparative basis for the periods
indicated, the components of the Company's gross profit (in thousands) and the
gross profit margin by revenue type:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
---------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Air freight carrier:
Revenues................................ $28,285 100.0% $41,117 100.0% $52,922 100.0%
Costs of revenues....................... 19,550 69.1 28,104 68.4 38,760 73.2
------- ----- ------- ----- ------- -----
Gross profit............................ $ 8,735 30.9% $13,013 31.6% $14,162 26.8%
======= ===== ======= ===== ======= =====
Air logistics:
Revenues................................ $79,415 100.0% $62,593 100.0% $89,493 100.0%
Costs of revenues....................... 73,402 92.4 57,428 91.7 80,140 89.5
------- ----- ------- ----- ------- -----
Gross profit............................ $ 6,013 7.6% $ 5,165 8.3% $ 9,353 10.5%
======= ===== ======= ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
FOUR MONTHS ENDED DECEMBER 31,
------------------------------------
1995 1996
---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Air freight carrier:
Revenues.............................................. $17,995 100.0% $20,577 100.0%
Costs of revenues..................................... 11,685 64.9 13,784 67.0
------- ----- ------- -----
Gross profit.......................................... $ 6,309 35.1% $ 6,793 33.0%
======= ===== ======= =====
Air logistics:
Revenues.............................................. $51,733 100.0% $39,408 100.0%
Costs of revenues..................................... 45,997 88.9 33,795 85.8
------- ----- ------- -----
Gross profit.......................................... $ 5,736 11.1% $ 5,613 14.2%
======= ===== ======= =====
</TABLE>
15
<PAGE> 16
The following table presents, for the periods indicated, consolidated
income statement data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FOUR MONTHS ENDED
AUGUST 31, DECEMBER 31,
----------------------- --------------------
1994 1995 1996 1995 1996
----- ----- ----- ----------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Air freight carrier.......................... 26.3% 39.6% 37.2% 25.8% 34.3%
Air logistics................................ 73.7 60.4 62.8 74.2 65.7
----- ----- ----- ----- -----
Total revenues................................. 100.0 100.0 100.0 100.0 100.0
Total costs of revenues........................ 86.3 82.5 83.5 82.7 79.3
----- ----- ----- ----- -----
Gross profit................................... 13.7 17.5 16.5 17.3 20.7
General and administrative expenses............ 5.6 7.6 6.4 4.1 4.5
Non-qualified profit sharing expense........... 0.7 0.9 .8 1.3 1.6
Stock option grants to executives.............. -- -- 3.0 -- --
----- ----- ----- ----- -----
Operating income............................... 7.4 9.0 6.3 11.9 14.6
Interest expense............................... (0.3) (1.1) (1.3) (0.7) (1.2)
Contract settlement income, net................ 1.1 -- -- -- --
Loss on asset disposal......................... -- -- (0.4) -- --
Other income (expense)......................... (0.4) (0.6) 0.2 0.1 1.0
----- ----- ----- ----- -----
Income before income taxes..................... 7.8 7.3 4.8 11.3 14.4
Income taxes................................... 2.9 3.0 1.9 4.4 5.6
----- ----- ----- ----- -----
Net income..................................... 4.9% 4.3% 2.9% 6.9% 8.8%
===== ===== ===== ===== =====
</TABLE>
FOUR MONTHS ENDED DECEMBER 31, 1996 COMPARED TO FOUR MONTHS ENDED DECEMBER 31,
1995
Revenues -- Air Freight Carrier. Air freight carrier on-demand and ACMI
contract charter revenues were $3.0 million and $16.9 million, or 14.5% and
82.3%, respectively, of total air freight carrier revenues for the four months
ended December 31, 1996, as compared to $7.8 million and $9.2 million, or 43.2%
and 51.3%, respectively, for the four months ended December 31, 1995. ACMI
contract charter revenues for the four months ended December 31, 1996, increased
83.7% over the four months ended December 31, 1995, primarily as the result of
additional Boeing 727-200 ACMI contract charters. Revenues from on-demand
charters flown by Company aircraft for the four months ended December 31, 1996
decreased 61.6% from the comparable prior year period primarily as the result of
shifting the air freight carrier's aircraft being used for on demand charters to
ACMI contract charters. For the four months ended December 31, 1996, as compared
to the four months ended December 31, 1995, prices for the Company's on-demand
and ACMI contract charters remained relatively constant.
Revenues -- Air Logistics. Air logistics revenues decreased $12.3 million,
or 23.8%, to $39.4 million in the four months ended December 31, 1996, from
$51.7 million in the four months ended December 31, 1995. This decrease was
primarily due to decreased demand for on demand charters from the automobile
industry in the fourth quarter of calendar year 1996 and is partially offset by
an increase in the number of managed charters for the U.S. Postal Service during
December 1996. For the four months ended December 31, 1996, as compared to the
four months ended December 31, 1995, prices for the Company's air logistics
services remained relatively constant.
Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $2.1 million, or 18.0%, to $13.8 million in the four months
ended December 31, 1996, from $11.7 million in the four months ended December
31, 1995, reflecting the increased volume of business from Boeing 727-200 ACMI
contract charters. Gross profit margin from the air freight carrier decreased to
33.0% in the four months ended December 31, 1996, from 35.1% in the comparable
prior year period. This decrease reflects the increase in ACMI contract
charters, which produce lower gross margins than on-demand charters.
16
<PAGE> 17
As reported to the FAA, overall aircraft utilization increased to 7,670
flight hours for the four months ended December 31, 1996, from 6,320 in the four
months ended December 31, 1995, a 21.4% increase. This increase was primarily
due to the increased hours flown for ACMI contract charters.
Costs of Revenues -- Air Logistics. Air logistics costs of revenues
decreased $12.2 million, or 26.5%, to $33.8 million in the four months ended
December 31, 1996, from $46.0 million in the four months ended December 31,
1995, reflecting the decreased volume of business. The gross profit margin from
air logistics increased to 14.2% in the four months ended December 31, 1996,
from 11.1% in the comparable prior year period, an increase of 27.9%. This
increase was primarily due to the Company's additional revenues and increased
gross profit margin from the Company's U.S. Postal Service Christmas contract in
December 1996, and its success in reducing its costs paid to third-party air
freight carriers and ground service providers.
General and Administrative Expenses. General and administrative expenses
decreased $137,000, or 4.8%, to $2.7 million in the four months ended December
31, 1996, from $2.9 million in the four months ended December 31, 1995. This
decrease was primarily due to a reduction of professional fees and bank charges
in the four months ended December 31, 1996. As a percentage of total revenues,
general and administrative expenses increased to 4.5% in the four months ended
December 31, 1996, from 4.1% in the four months ended December 31, 1995.
Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased $73,000, or 8.2%, to $962,000 in the four months ended
December 31, 1996, from $889,000 in the four months ended December 31, 1995,
reflecting the increased profitability from operating activities of Kitty Hawk
in the four months ended December 31, 1996.
Operating Income. Operating income increased $423,000, or 5.1%, to $8.7
million in the four months ended December 31, 1996, from $8.3 million in the
four months ended December 31, 1995. Operating income margin increased to 14.6%
from 11.9%, for the four months ended December 31, 1996 and 1995, respectively.
Interest Expense. Interest expense increased to $684,000 for the four
months ended December 31, 1996 from $482,000 in the four months ended December
31, 1995, a 42.0% increase. The increase was primarily the result of the
incurrence of additional long-term debt to finance the acquisition of Boeing
727-200 aircraft subsequent to December 31, 1995.
Other Income (Expense). Other income increased to $626,000 in the four
months ended December 31, 1996, from $38,000 in the comparable prior year
period. The increase was primarily due to the temporary investment of the net
proceeds of the Offering.
Income Taxes. Income taxes as a percentage of income before income taxes
decreased to 38.9% for the four months ended December 31, 1996, from 39.4% for
the comparable prior year period. The decrease was primarily due to decreased
state income taxes.
Net Income. As a result of the above, net income increased to $5.3 million
in the four months ended December 31, 1996, from $4.8 million in the four months
ended December 31, 1995, a 11.3% increase. Net income as a percentage of total
revenues increased to 8.8% in the four months ended December 31, 1996, from 6.9%
in the comparable prior year period.
FISCAL YEAR ENDED AUGUST 31, 1996 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1995
Revenues -- Air Freight Carrier. Air freight carrier on-demand and ACMI
contract charter revenues were $20.7 million and $30.1 million, or 39.2% and
56.8%, respectively, of total air freight carrier revenues for fiscal year 1996,
as compared to $18.1 million and $20.9 million, or 44.2% and 50.8%,
respectively, for fiscal year 1995. ACMI contract charter revenues for fiscal
year 1996, increased 44.0% over fiscal year 1995, primarily as the result of
additional Boeing 727-200 ACMI contract charters. Revenues from on-demand
charters flown by Company aircraft for fiscal year 1996 increased 14.0% from the
comparable prior year period. For fiscal year 1996, as compared to fiscal year
1995, prices for the Company's on-demand and ACMI contract charters remained
relatively constant.
17
<PAGE> 18
Revenues -- Air Logistics. Air logistics revenues increased $26.9 million,
or 43.0%, to $89.5 million in fiscal year 1996, from $62.6 million in fiscal
year 1995. This increase was primarily due to increased demand for on demand
charters from the automobile industry in the fourth quarter of calendar year
1995 and a substantial increase in the number of managed charters for the U.S.
Postal Service during December 1995. For fiscal year 1996, as compared to fiscal
year 1995, prices for the Company's air logistics services remained relatively
constant.
Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $10.7 million, or 37.9%, to $38.8 million in fiscal year
1996, from $28.1 million in fiscal year 1995, reflecting the increased volume of
business from Boeing 727-200 ACMI contract charters. Gross profit margin from
the air freight carrier decreased to 26.8% in fiscal year 1996, from 31.6% in
the comparable prior year period. This decrease reflects the increase in ACMI
contract charters, which produce lower gross margins than on-demand charters.
As reported to the FAA, overall aircraft utilization increased to 20,237
flight hours for fiscal year 1996, from 15,183 in fiscal year 1995, a 33.3%
increase. This increase was primarily due to the increased hours flown for ACMI
contract charters.
Costs of Revenues -- Air Logistics. Air logistics costs of revenues
increased $22.7 million, or 39.5%, to $80.1 million in fiscal year 1996, from
$57.4 million in fiscal year 1995, reflecting the increased volume of business.
The gross profit margin from air logistics increased to 10.5% in fiscal year
1996, from 8.3% in the comparable prior year period, a 26.5% increase. This
increase was primarily due to the Company's success in reducing its costs paid
to third-party air freight carriers and ground service providers and increased
gross profit margin from the Company's U.S. Postal Service Christmas contract in
December 1995.
General and Administrative Expenses. General and administrative expenses
increased $1.2 million, or 15.9%, to $9.1 million in fiscal year 1996, from $7.8
million in fiscal year 1995. This increase was primarily due to an increase in
support functions and administrative costs associated with the growth in the
aircraft fleet and the increased revenue volume for the air freight carrier in
fiscal year 1996. As a percentage of total revenues, general and administrative
expenses decreased to 6.4% in fiscal year 1996, from 7.6% in fiscal year 1995.
Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased $169,000, or 16.9%, to $1.2 million in fiscal year 1996, from
$1.0 million in fiscal year 1995, reflecting the increased profitability from
operating activities of Kitty Hawk in fiscal year 1996.
Stock Option Grants to Executives. During fiscal year 1996, the Company
granted two executive officers options to purchase 544,274 shares of Common
Stock that resulted in a charge to earnings of approximately $4,231,000.
Operating Income. Operating income decreased $311,000, or 3.3%, to $9.0
million in fiscal year 1996, from $9.3 million in fiscal year 1995. Operating
income margin decreased to 6.3% from 9.0%, for fiscal year 1996 and 1995,
respectively.
Interest Expense. Interest expense increased to $1.9 million for fiscal
year 1996 from $1.2 million in fiscal year 1995, a 56.9% increase. The increase
was primarily the result of the incurrence of additional long-term debt to
finance the acquisition of two Boeing 727-200 aircraft in the second half of
fiscal year 1995 and two additional Boeing 727-200 aircraft in fiscal year 1996.
Loss on Asset Disposal. Loss on asset disposal for fiscal year 1996 was
$589,000, which resulted from write-downs associated with equipment
dispositions. There were no losses on asset disposal in fiscal year 1995.
Other Income (Expense). Other income increased to $291,000 in fiscal year
1996, from an expense of $601,000 in the comparable prior year period. The
increase was primarily due to the write-off of costs associated with the
Company's attempted initial public offering in fiscal year 1995 and increased
interest income in fiscal year 1996.
Income Taxes. Income taxes as a percentage of income before income taxes
decreased to 40.3% for fiscal year 1996, from 41.6% for the comparable prior
year period. The decrease was primarily due to decreased state income taxes.
18
<PAGE> 19
Net Income. As a result of the above, net income decreased to $4.1 million
in fiscal year 1996, from $4.4 million in fiscal year 1995, a 7.0% decrease. Net
income as a percentage of total revenues decreased to 2.9% in fiscal year 1996,
from 4.3% in the comparable prior year period.
FISCAL YEAR ENDED AUGUST 31, 1995 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1994
Revenues -- Air Freight Carrier. Air freight carrier on-demand and ACMI
contract charter revenues were $18.1 million and $20.9 million, or 44.2% and
50.8%, respectively, of total air freight carrier revenues for fiscal year 1995,
as compared to $15.4 million and $10.6 million, or 54.5% and 37.4%,
respectively, for fiscal year 1994. The increase in on-demand and ACMI contract
charter revenues for fiscal year 1995 over fiscal year 1994, was 17.9% and
97.1%, respectively. These increases were primarily the result of additional
Boeing 727-200 ACMI contract charters and increased on-demand charters flown by
the Company's jet aircraft. For fiscal year 1995 as compared to fiscal year
1994, prices for the Company's ACMI contract charter services and U.S. Postal
Service Christmas contracts remained relatively constant.
Revenues -- Air Logistics. Air logistics revenues decreased $16.8 million,
or 21.2%, to $62.6 million in fiscal year 1995 from $79.4 million in fiscal year
1994 primarily due to the substantial decline in volume of on-demand charters
for the automobile industry in the first half of calendar 1995 as compared to
the same period in 1994. This decline was primarily the result of the temporary
decision by GM to significantly reduce use of expedited transportation,
including Kitty Hawk's air logistics services, as part of a cost containment
initiative. Prices for the Company's on-demand charters decreased slightly due
to a revenue rate reduction in the GM Agreement which took effect on May 1,
1994.
Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of
revenues increased $8.6 million, or 43.8%, to $28.1 million in fiscal year 1995
from $19.5 million in fiscal year 1994, reflecting the increased volume of
business from ACMI contract and on-demand charters flown by the Company's jet
aircraft. Gross profit margin from the air freight carrier increased slightly to
31.6% in fiscal year 1995 from 30.9% in fiscal year 1994, a 2.3% increase. As
reported to the FAA, overall aircraft utilization increased to 15,183 flight
hours for fiscal year 1995 from 11,795 flight hours in fiscal year 1994, a 28.7%
increase. This increase was primarily the result of the inclusion of an
additional four Boeing 727-200s, and two Douglas DC9-15F aircraft into the
Company's operations during fiscal year 1995.
Costs of Revenues -- Air Logistics. Air logistics costs of revenues
decreased $16.0 million, or 21.8%, to $57.4 million in fiscal year 1995 from
$73.4 million in fiscal year 1994, reflecting the decrease in the volume of
business. The gross profit margin from air logistics increased to 8.3% in fiscal
year 1995 from 7.6% in fiscal year 1994, a 9.2% increase. This increase was
primarily due to the Company's success in reducing its costs paid to third party
air freight carriers and ground service providers in the second half of fiscal
year 1995.
General and Administrative Expenses. General and administrative expenses
increased $1.8 million, or 30.3%, to $7.8 million in fiscal year 1995 from $6.0
million in fiscal year 1994. As a percentage of total revenues, general and
administrative expenses increased to 7.6% in fiscal year 1995 from 5.6% in
fiscal year 1994. This increase was primarily due to an increase in support
functions and number of personnel associated with the growth in the aircraft
fleet and the revenue volume for the air freight carrier in fiscal year 1995.
Non-qualified Employee Profit Sharing Expense. Employee profit sharing
expense increased to $1.0 million in fiscal year 1995 from $732,000 in fiscal
year 1994, a 36.8% increase, reflecting the increased profitability from
operating activities of Kitty Hawk in fiscal year 1995.
Operating Income. Operating income increased $1.3 million, or 16.8%, to
$9.3 million in fiscal year 1995 from $8.0 million in fiscal year 1994.
Operating income margin increased to 9.0% from 7.4% for fiscal year 1995 and
1994, respectively.
Interest Expense. Interest expense increased to $1.2 million for fiscal
year 1995 from $343,000 in fiscal year 1994, a 246.0% increase. The increase was
primarily the result of the incurrence of additional long-term debt to finance
the acquisition of two Boeing 727-200 aircraft in the second half of fiscal year
1994 and two Douglas DC9-15F aircraft and two Boeing 727-200 aircraft in fiscal
year 1995.
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<PAGE> 20
Other Income (Expense). Other expense increased to $601,000 in fiscal year
1995 from $432,000 in fiscal year 1994, a 39.1% increase. This increase was
primarily due to the write off of costs associated with the Company's attempted
initial public offering.
Income Taxes. Income taxes as a percentage of income before income taxes
increased to 41.6% for fiscal year 1995 from 37.4% in fiscal year 1994. The
increase was primarily due to higher state income taxes.
Net Income. As a result of the above, net income decreased to $4.4 million
for fiscal year 1995 from $5.3 million in fiscal year 1994, a 16.0% decrease.
Net income as a percentage of total revenues was 4.3% in fiscal year 1995
compared to 4.9% for fiscal year 1994.
LIQUIDITY AND CAPITAL RESOURCES
In October 1996, the Company sold in an initial public offering 2,700,000
shares of Common Stock, raising net proceeds of approximately $29.3 million to
purchase and modify to cargo configuration five Boeing 727-200 aircraft.
The Company's capital requirements are primarily for the acquisition and
modification of aircraft and working capital. In addition, Kitty Hawk has, and
will continue to have, capital requirements for the requisite periodic and major
overhaul maintenance checks for its air freight carrier fleet. The Company's
funding of its capital requirements historically has been from a combination of
internally generated funds and bank borrowings. In addition, the Company has
leased aircraft and entered into a sale leaseback for aircraft acquisition and
may do so in the future.
Cash used in operating activities was $5.0 million and $373,000 in the four
months ended December 31, 1995 and December 31, 1996, respectively. At the end
of the four months ended December 31, 1995 and December 31, 1996, the Company
had working capital of $12.7 million and $33.6 million, respectively.
On August 14, 1996 Kitty Hawk entered into a Credit Agreement with Wells
Fargo Bank (Texas), National Association ("WFB"), and Bank One, Texas, N.A.
("BOT") for a $15 million Revolving Credit Loans Facility (the "Revolving Credit
Facility"), and a $10 million Term Loan Facility (the "Term Loan")
(collectively, the "Commitments"). As of March 28, 1997 approximately $2.65
million was outstanding under the Revolving Credit Facility and $2.2 million was
outstanding under the Term Loan. Borrowings under these Commitments bear
interest at WFB's prime rate or, at Kitty Hawk's option, a Eurodollar rate plus
1.5% to 2.0% based upon a debt-to-cash flow ratio of Kitty Hawk.
Under the Credit Agreement, $10.0 million of proceeds of the Revolving
Credit Facility are restricted to use from time to time for interim financing of
up to $6.5 million per aircraft for aircraft acquisitions by the Company; the
remaining $5 million of the Revolving Credit Facility may be used for general
corporate purposes, including interim financing for acquired aircraft that
exceeds the limits that apply to the restricted portion. The Term Loan must be
used to finance the purchase of one DC9-15F hushkit and up to seven major
maintenance checks for jet aircraft.
The Revolving Credit Facility expires on December 31, 1998. Any advance
under the portion of the Revolving Credit Facility that is restricted to interim
financing for aircraft acquisition must be repaid in full within 150 days of
first advance for the acquired aircraft. All advances under the Term Loan must
be made by April 29, 1998. The Term Loan matures on March 31, 2003. The
Commitments are cross-collateralized and are secured by certain aircraft owned
by the Company, all aircraft acquired with advances under the restricted portion
of the Revolving Credit Facility while those advances are outstanding, certain
leases of aircraft and engines, accounts, chattel paper, general intangibles and
other personal property.
The Credit Agreement prohibits (i) the redemption or repurchase of the
Company's securities, (ii) the payment of dividends to Kitty Hawk's stockholders
in an amount over 25% of the Company's net income of the immediately preceding
fiscal year, (iii) certain investments, acquisitions of stock, acquisitions of
assets to the extent that the business acquired is not in the present lines of
business of the Company, and other business combinations, and (iv) certain
transactions with affiliates. In addition, the Credit Agreement prohibits the
Company from incurring any additional indebtedness, liabilities or obligations
other than debt incurred
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<PAGE> 21
(a) with the prior written consent of WFB or BOT or (b) in the ordinary course
of business not to exceed $25 million.
The Credit Agreement also contains certain other covenants, including
limitations on the ability of the Company to change its lines of business. If a
"Change of Control" occurs, WFB and BOT may accelerate or terminate the
Commitments. "Change of Control" includes (a) the failure of Kitty Hawk to own
all of the outstanding stock of certain of its subsidiaries, (b) Mr. Christopher
failing to own at least 51% of the outstanding stock of Kitty Hawk, (c) Mr.
Christopher ceasing to be Chief Executive Officer of Kitty Hawk or active in the
management of the Company, or (d) if, after the consummation of a public
offering, any person (or two or more persons acting as a group) acquiring
beneficial ownership of 25% or more of the outstanding shares of Common Stock.
During the Transition Period, these restrictions and prohibitions did not have a
material impact on the Company's ability to meet its cash obligations and the
Company does not believe that the restrictions under the Credit Agreement will
have any such impact in the future.
In addition, the Company has a loan with 1st Source Bank. As of March 24,
1997, the outstanding balance of this loan was approximately $900,000. The loan
bears interest at 9.75%, is secured by a DC9-15F and matures in May 2000. The
1st Source loan contains certain aircraft maintenance covenants Company's
business is an event of default upon which 1st Source Bank may declare all or
any part of the remaining unpaid principal due and payable.
In November 1996, in connection with the Company's recent acquisition of a
one-third undivided interest in four Falcon 20 jet aircraft, the Company and the
two other co-owners of such aircraft entered into a five year, $4.3 million term
loan. The loan bears interest at a floating prime rate, is secured by the four
Falcon 20 jet aircraft and requires monthly payments of principal and interest.
The Company's liability under such loan is limited to $2.0 million. See "Item
11. Executive Compensation -- Compensation Committee Interlocks and Insider
Participation."
Capital expenditures were $13.9 million, $17.9 million, $33.5 million, and
$13.8 million for fiscal years 1994, 1995 and 1996 and the Transition Period,
respectively. Capital expenditures for the Transition Period were primarily for
the purchase of: (i) one Boeing 727-200 aircraft, (ii) cargo and noise abatement
modifications for two Boeing 727-200 aircraft, (iii) one used JT8D-7 jet engine,
(iv) various equipment and (v) leasehold improvements to a Boeing 727-200
aircraft. The $33.5 million in capital expenditures for fiscal year 1996 were
primarily for the purchase of: (i) five Boeing 727-200 aircraft and the cargo
and noise abatement modification of four of these aircraft and (ii) six used
JT8D-7/-9 jet engines. The $17.9 million in capital expenditures for fiscal year
1995 were due primarily to the purchase of: (i) two Boeing 727-200 aircraft and
their cargo modification, (ii) three JT8D15 jet engines for installation on one
of the Boeing 727-200 aircraft, (iii) two Douglas DC9-15F aircraft in cargo
configuration, (iv) noise abatement equipment with respect to one of the Douglas
DC9-15F aircraft, (v) five used/overhauled Rolls Royce Dart Convair engines,
(vi) two used JT8D7/-9 jet engines, (vii) a Westwind 1124 jet aircraft to be
used for corporate purposes only, and (viii) the cargo modification of one
Boeing 727-200 aircraft acquired at the end of fiscal year 1994. The $13.9
million in capital expenditures for fiscal year 1994 were primarily for the
purchase of: (i) two Boeing 727- 200 aircraft and the cargo modification of
these aircraft, (ii) two Douglas DC9-15F aircraft in cargo configuration, (iii)
three Convair 600/640 turbo-prop aircraft, and (iv) ground handling equipment.
The acquisitions of all of the Boeing 727-200 aircraft and subsequent cargo
conversions, the Douglas DC9-15F aircraft and the JT8D-15 engines in the past
three years were financed by bank borrowings and internally generated funds,
except for one Boeing 727-200 aircraft received in the settlement of the ANET
litigation described in "Item 3. Legal Proceedings." All other capital
acquisitions were financed from internally generated funds.
Kitty Hawk anticipates modifying to cargo configuration three of four
recently purchased Boeing 727-200s (including modifying two of these Boeing
727-200s with noise abatement equipment for approximately $4.9 million) for an
aggregate capital expenditure of approximately $10.0 million in fiscal year
1997. The Company further believes the $4.9 million amount for noise abatement
modifications proposed for fiscal year 1997 for two of four recently purchased
aircraft, together with an additional $1.4 million to modify currently owned
aircraft with noise abatement equipment during fiscal 1997, represents the total
capital expenditures
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<PAGE> 22
that would currently be necessary to comply with the requirements of existing
applicable environmental regulations for such fiscal year. In fiscal year 1998,
the Company anticipates an aggregate capital expenditure ranging from $9.0
million to $11.0 million for noise abatement modifications to aircraft currently
owned or proposed to be purchased. In the event the Company acquires more
aircraft than currently proposed, the Company's anticipated aggregate capital
expenditure for noise abatement modifications in fiscal year 1998 could
materially increase. See "Item 1. Business -- Government Regulation."
The Company historically has followed, and currently intends to follow, a
policy of retiring Convairs at the time of their next scheduled major overhaul
maintenance checks rather than expending the amounts necessary for such checks.
In February 1997, the Company acquired the lease to the Facility for
approximately $1.76 million. See "Item 2. Properties" and "Item 11. Executive
Compensation -- Compensation Committee Interlocks and Insider Participation."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted as a separate section of this Form
10-K. See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company, their ages, and
positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
M. Tom Christopher(1)...................... 50 Chairman of the Board of Directors and
Chief Executive Officer
Tilmon J. Reeves........................... 57 President, Chief Operating Officer, and
Director
Richard R. Wadsworth....................... 50 Senior Vice President -- Finance, Chief
Financial Officer, Secretary, and Director
Ted J. Coonfield(2)........................ 48 Director
James R. Craig............................. 58 Director
Robert F. Grammer(1)....................... 61 Director
Lewis S. White(1)(2)....................... 57 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
The Board of Directors consists of seven members, including four
independent directors. Executive officers are elected by the Board of Directors
and serve at its discretion.
M. TOM CHRISTOPHER has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since its inception in 1985, and serves
in the class of directors whose terms expire at the 1997 annual meeting of
stockholders. Prior to assuming these positions, he formed and managed Kitty
Hawk Charters, Inc. He has over 20 years of experience in the air freight
industry, including serving as an account manager for Burlington Northern
Airfreight from 1976 to 1978.
TILMON J. REEVES has served as President and Chief Operating Officer of the
Company since May 1993 and has over 30 years of aviation experience. Prior to
assuming his current positions, he served as Vice
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<PAGE> 23
President of the Company's air freight carrier from March 1992 to May 1993.
Prior to joining Kitty Hawk, Mr. Reeves served as Vice President (Sales) of
Express One from April 1991 to March 1992. Mr. Reeves served as the Managing
Director -- Cargo Services for American Airlines, Inc. from March 1989 to
January 1991. Mr. Reeves became a director in October 1994 and serves in the
class of directors whose terms expire at the 1998 annual meeting of
stockholders.
RICHARD R. WADSWORTH has served as Senior Vice President -- Finance since
October 1992, Chief Financial Officer since September 1994, and Secretary since
October 1994. Prior to his current role, he served in a consulting capacity to
Kitty Hawk in the preparation of various bids for the Company's contract air
freight service from December 1991 to September 1992. Mr. Wadsworth became a
director in October 1994 and serves in the class of directors whose terms expire
at the 1999 annual meeting of stockholders.
TED J. COONFIELD became a director of the Company in October 1994 and
serves in the class of directors whose terms expire at the 1998 annual meeting
of stockholders. Since April 1996, Mr. Coonfield has been a consultant with
Performance Consulting Group, a firm specializing in change management
consulting primarily in the banking and insurance industry. From January 1993 to
April 1996, Mr. Coonfield was a consultant with the Richard-Rogers Group, a
consulting firm specializing in total quality issues, where he primarily engaged
in consulting for firms in the transportation industry. From 1990 to December
1992, Mr. Coonfield was the Special Assistant to the Director of the Department
of Human Resources for the State of Oregon. Since 1985, Mr. Coonfield has been
the President of Oregon Wine Designs, Inc., a wine production and marketing
firm.
JAMES R. CRAIG became a director of the Company in October 1994 and serves
in the class of directors whose terms expire at the 1997 annual meeting of
stockholders. Mr. Craig is an attorney who has served of counsel to Burke,
Wright & Keiffer, P.C. since 1990. Prior to his affiliation with Burke, Wright &
Keiffer, P.C., Mr. Craig was in private law practice in Dallas since 1971, and
in 1989 served as President of Whitehall Development Company, a real estate
development firm, of which he is now a director.
ROBERT F. GRAMMER became a director of the Company in October 1994 and
serves in the class of directors whose terms expire at the 1997 annual meeting
of stockholders. From 1986 to October 1993, Mr. Grammer was Chairman, President
and owner of R.G. Aviation, a provider of aircraft-related services. Mr. Grammer
retired from this position in October of 1993 to manage his personal
investments.
LEWIS S. WHITE became a director of the Company in October 1994 and serves
in the class of directors whose terms expire at the 1999 annual meeting of
stockholders. Since 1988, Mr. White has been President of L. S. White & Co., a
firm engaged in business planning, corporate finance, acquisitions, and in
business start-ups, turnarounds and restructurings. Prior to 1988, he held
senior management positions with Paramount Communications Inc. and Union Carbide
Corporation. Mr. White is also a director of Whitehall Corporation, a company
principally involved in aircraft maintenance.
SECTION 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and beneficial owners of more than
10% of the Common Stock to file with the Securities and Exchange Commission (the
"Commission") initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Based solely upon
its review of the copies of such forms received by it and its knowledge that no
Form 5s were required from reporting persons, the Company believes that, except
as disclosed below, all such reports were submitted on a timely basis during
fiscal year 1996. In April 1997, Messrs. Coonfield and Grammer, directors of the
Company, each amended his Form 3 on file with the Commission to add one
transaction.
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<PAGE> 24
ITEM 11. EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and longterm
compensation for services in all capacities to Kitty Hawk for fiscal years 1994,
1995, and 1996 and during the four months ended December 31, 1996, with respect
to those persons who were during the four months ended December 31, 1996 (i) the
Chief Executive Officer and (ii) the other two most highly compensated executive
officers of the Company (collectively, with the Chief Executive Officer, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
--------------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITIONS FISCAL YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
---------------------------- ----------- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
M. Tom Christopher 1994 $120,000 $512,000 -- -- 25,022(1)
Chairman of the Board of 1995 120,000 898,731 -- -- 352,163(2)
Directors and Chief Executive 1996 190,000 719,419 -- -- 376,844(3)
Officer 1996(5) 80,000 -- -- -- 81,250(4)
Tilmon J. Reeves 1994 101,000 225,000 -- -- 2,982(6)
President and Chief 1995 125,000 108,335 -- 245,708(7) 2,310(6)
Operating Officer 1996 125,000 85,000 $3,726,182(8) 390,707 2,375(6)
1996(5) 41,667 15,000 -- -- --
Richard R. Wadsworth 1994 110,000 96,000 -- -- 1,675(6)
Senior Vice President 1995 110,000 70,000 -- 92,140(7) 2,262(6)
Finance, Chief Financial 1996 110,00 70,000 1,464,572(8) 153,567 2,375(6)
Officer, and Secretary 1996(5) 36,664 15,000 -- -- 583(6)
</TABLE>
- ---------------
(1) Consists of (i) matching contributions of $2,975 to the Company's 401(k)
Savings Plan for Mr. Christopher and (ii) life insurance premiums of $22,047
paid on Mr. Christopher's behalf. Does not include any contingent payments
to Mr. Christopher under the ANET litigation settlement made subsequent to
fiscal year 1994. These payments are contingent upon the Emery contract
remaining in effect. See "Item 3. Legal Proceedings -- ANET litigation."
(2) Consists of (i) contingent payments in the amount of $325,000 received by
Mr. Christopher under the ANET litigation settlement during fiscal year
1995, (ii) life insurance premiums of $25,500 paid on Mr. Christopher's
behalf, and (iii) matching contributions of $1,663 to the Company's 401(k)
Savings Plan for Mr. Christopher.
(3) Consists of (i) contingent payments in the amount of $325,000 received by
Mr. Christopher under the ANET litigation settlement during fiscal year
1996, (ii) life insurance premiums of $48,397 paid on Mr. Christopher's
behalf, and (iii) matching contributions of $3,447 to the Company's 401(k)
Savings Plan for Mr. Christopher.
(4) Consists of contingent payments received by Mr. Christopher under the ANET
litigation settlement during the four months ended December 31, 1996.
(5) Represents the four months ended December 31, 1996.
(6) Consists of matching contributions to the Company's 401(k) Savings Plan.
(7) The option covering these shares was rescinded on June 12, 1996.
(8) Represents the difference between the exercise price and the fair market
value of the Common Stock underlying the stock options on June 26, 1996, the
date of exercise, of the stock options granted in fiscal year 1996. See
"Item 11. Executive Compensation -- Stock Option Exercises."
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<PAGE> 25
STOCK OPTION GRANTS
The following table sets forth certain information concerning options
granted in fiscal year 1996 to the Company's Named Executive Officers. Messrs.
Reeves and Wadsworth fully exercised these options on June 26, 1996. The Company
did not grant any options to the Company's Named Executive Officers in the four
months ended December 31, 1996. No options for the purchase of Common Stock are
currently outstanding. The Company has no outstanding stock appreciation rights
and granted no stock appreciation rights during fiscal year 1996 or the four
months ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR FAIR VALUE ON
OPTIONS EMPLOYEES IN BASE PRICE DATE OF GRANT
NAME GRANTED FISCAL YEAR ($/SH) ($/SH) EXPIRATION DATE
---- ---------- ------------ ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Tilmon J. Reeves 390,707 71.8% $0.01 $7.45 December 31, 2004
Richard R. Wadsworth 153,567 28.2% $0.01 $8.63 June 12, 2005
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
TERM
------------------------------------
NAME 5%($) 10%($) 0%($)
---- ---------- ---------- ----------
<S> <C> <C> <C>
Tilmon J. Reeves $4,511,648 $6,859,530 $2,910,665
Richard R. Wadsworth $2,054,414 $3,123,413 $1,325,732
</TABLE>
STOCK OPTION EXERCISES
The following table sets forth certain information concerning options
exercised in fiscal year 1996 by certain of the Company's Named Executive
Officers. Messrs. Reeves and Wadsworth fully exercised these options on June 26,
1996. No options for the purchase of Common Stock were outstanding during the
four months ended December 31, 1996 and none are currently outstanding.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED($)
---- --------------- -----------
<S> <C> <C>
Tilmon J. Reeves............................................ 390,707(1) $3,726,182
Richard R. Wadsworth........................................ 153,567(2) $1,464,572
</TABLE>
- ---------------
(1) The Company withheld 156,283 of these shares in satisfaction of its
withholding obligations with respect to the exercise of these options.
(2) The Company withheld 61,427 of these shares in satisfaction of its
withholding obligations with respect to the exercise of these options.
DIRECTOR COMPENSATION
Pursuant to the Company's Bylaws, the members of the Board of Directors may
be compensated in a manner and at a rate determined from time to time by the
Board of Directors. Directors who are employees of Kitty Hawk do not receive
additional compensation for service as a director. Under the Company's Omnibus
Securities Plan, directors who are not employees of the Company may receive
shares of Common Stock in an amount equal to their net annual retainer (which is
currently $10,000).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Offering, Mr. Christopher determined executive officer
compensation. Subsequent to the Offering and prior to November 6, 1996, Messrs.
Grammer, Craig and Coonfield comprised the Company's Compensation Committee and
determined executive officer compensation. Subsequent to November 6, 1996,
Messrs. Coonfield and White comprised the Company's Compensation Committee and
determined executive
25
<PAGE> 26
officer compensation. None of the foregoing individuals serving on the
Compensation Committee are or have been officers or employees of the Company or
its subsidiaries.
Mr. Craig, a director of the Company, is of counsel to Burke, Wright &
Keiffer, P.C., counsel to the Company. During fiscal year 1996 and the four
months ended December 31, 1996, the Company paid an aggregate of approximately
$506,000 to Burke, Wright & Keiffer, P.C. for legal services rendered.
In August 1996, the Company acquired an undivided one-third interest in two
Falcon 20 jet aircraft with two co-owners (the "Co-Owners") who are unaffiliated
with the Company and who each hold a one-third interest in such aircraft. An
interim acquisition note in the amount of $1,700,000, covering the purchase
price and necessary maintenance, was executed by Mr. Christopher and one of the
Co-Owners. In November 1996, the Company and the Co-Owners each acquired an
undivided one-third interest in two additional Falcon 20 jet aircraft using the
proceeds of a new five-year, $4.3 million term loan that also repaid the interim
loan on the first two aircraft.
The Company and the Co-Owners entered into a co-ownership and contribution
agreement (the "Co-Ownership Agreement") which requires the parties to
contribute equally to the payment of all amounts due under the term loan, and
under which the parties leased the four Falcon 20 jet aircraft to Ameristar Jet
Charters, Inc. ("Ameristar"), an air carrier affiliated with one of the
Co-Owners, for operation in cargo charter service. The lease calls for monthly
lease payments which exceed the installments on the term loan, and requires
Ameristar to maintain the aircraft and to carry appropriate hull insurance on
the aircraft and liability insurance of at least $50 million combined single
limit coverage, with the Company and the Co-Owners named as loss payees and
additional insureds.
During fiscal year 1996 and the four months ended December 31, 1996, Mr.
Grammer, a director of the Company, subleased the Facility to the Company.
During such period, the Company paid an aggregate of approximately $339,000 to
Mr. Grammer in lease payments. In February 1997, the Company purchased the lease
to the Facility from Mr. Grammer for approximately $1.76 million.
The Company believes that the terms of each transaction discussed above
were as favorable to Kitty Hawk as would have been obtainable from unaffiliated
parties under similar circumstances.
Under the terms of the settlement allocating the benefits of the ANET
litigation, Mr. Christopher received rights to certain contingent future
payments.
EMPLOYMENT AGREEMENTS
Mr. Christopher has an employment agreement with Kitty Hawk that provides
for an initial annual base salary of at least $125,000 and bonuses determined by
the Compensation Committee pursuant to the Company's Annual Incentive
Compensation Plan and otherwise. Mr. Christopher's employment agreement contains
(i) a confidentiality provision that prohibits disclosure of the Company's
proprietary information and (ii) a covenant not to compete that provides upon
Mr. Christopher's termination of employment with the Company for any reason, Mr.
Christopher shall not engage, directly or indirectly, in the air logistics,
charter brokerage, on-demand, or scheduled carriage business under an FAA Part
121 or Part 135 certificate for five years following such termination. The
employment agreement may be terminated by either party with or without cause. If
the employment agreement is terminated by the Company without a material breach
by Mr. Christopher, he is entitled to six months of compensation at his
then-current salary.
Messrs. Reeves and Wadsworth have employment agreements with Kitty Hawk
that provide for an initial annual base salary of at least $115,000 and
$110,000, respectively, and annual bonuses determined by the Compensation
Committee pursuant to the Company's Annual Incentive Compensation Plan and
otherwise. These employment agreements provide that Mr. Reeves and Mr. Wadsworth
are prohibited from engaging in the air logistics, charter brokerage, on-demand,
or scheduled carriage business under an FAA Part 121 or Part 135 certificate for
three and two years, respectively, following termination of employment. These
employment agreements also contain a confidentiality provision that prohibits
disclosure of the Company's proprietary information. These employment agreements
may be terminated by either party thereto with or without cause. Mr. Reeves'
employment agreement provides that if he is terminated by the Company without
26
<PAGE> 27
material breach by Mr. Reeves, he shall be entitled to 100% of his then-current
salary in the year following termination and 50% of such annual compensation in
both the second and third year following termination and all rights under the
stock options and other benefits described above. Mr. Wadsworth's employment
agreement provides that if he is terminated by the Company without material
breach by Mr. Wadsworth, he shall be entitled to 100% of his then-current salary
in the year following termination and 50% of such annual compensation in the
second and third year following termination and all rights under the stock
options and other benefits described above.
ITEM 12. CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock as of April 4, 1997 (except
as noted) by (i) each person known by the Company to own beneficially more than
5% of the Company's Common Stock, (ii) each director of the Company, (iii) each
executive officer of the Company, and (iv) all of the directors and executive
officers of the Company as a group. Except as noted, all shares shown in the
table below are held with sole voting and investment power, subject to community
property laws.
<TABLE>
<CAPTION>
SHARES OWNED
BENEFICIALLY
--------------------
NAME AND ADDRESS NUMBER PERCENT
---------------- --------- -------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
M. Tom Christopher(1)....................................... 6,673,436 63.8%
Tilmon J. Reeves(1)......................................... 234,424 2.2%
Richard R. Wadsworth(1)..................................... 92,140 (2)
DIRECTORS:
Ted J. Coonfield(1)......................................... 600 (2)
James R. Craig(1)........................................... 0 (2)
Robert F. Grammer(1)........................................ 2,000 (2)
Lewis S. White(1)........................................... 0 (2)
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (7
PERSONS).................................................. 7,002,600 67.0%
RCM Capital Management, L.L.C.(3)........................... 616,900 5.9%
Four Embarcadero Center, Suite 2900
San Francisco, California 94111
</TABLE>
- ---------------
(1) The address for this stockholder is 1515 West 20th Street, Dallas/Fort Worth
International Airport, Texas 75261.
(2) Less than 1%.
(3) Based upon a Schedule 13G filed with the Securities and Exchange Commission
by such beneficial owner on February 6, 1997. RCM Capital Management, L.L.C.
("RCM Capital"), an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, holds sole dispositive power with respect
to all such shares and sole voting power with respect to 525,900 of such
shares. RCM Limited, L.P. ("RCM Limited") is the managing agent of RCM
Capital and has beneficial ownership of such shares only to the extent it
may be deemed to beneficially own such shares. RCM General Corporation is
the general partner of RCM Limited and has beneficial ownership of such
shares only to the extent it may be deemed to beneficially own such shares.
RCM Capital is a wholly owned subsidiary of Dresdner Bank AG ("Dresdner"),
an international banking organization headquartered in Frankfurt, Germany.
Dresdner has beneficial ownership of such shares only to the extent it may
be deemed to beneficially own such shares.
27
<PAGE> 28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Item 11. Executive Compensation -- Compensation Committee Interlocks
and Insider Participation."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS -- see Index to Consolidated Financial Statements on
page F-1.
The following financial statements are filed as a part of this report:
Report of Independent Auditors
Consolidated Financial Statements:
Consolidated Balance Sheets as of August 31, 1995 and 1996 and
December 31, 1996
Consolidated Statements of Income for the years ended August 31, 1994,
1995 and 1996 and the four months ended December 31, 1995 (unaudited) and
1996
Consolidated Statements of Stockholders' Equity for the years ended
August 31, 1994, 1995 and 1996 and the four months ended December 31, 1996
Consolidated Statements of Cash Flows for the years ended August 31,
1994, 1995 and 1996 and the four months ended December 31, 1995 (unaudited)
and 1996
Notes to Consolidated Financial Statements
(a)2. FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because they are not applicable or are not required
(a)3. EXHIBITS
The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Incorporation of the Company.(2)
3.2 -- Bylaws of the Company.(2)
3.3 -- Amendment No. 1 to the Certificate of Incorporation of
the Company.(2)
3.4 -- Amendment No. 1 to the Bylaws of the Company.(2)
4.1 -- Specimen Common Stock Certificate.(3)
10.1 -- Master Agreement for Air Charter Transportation Services
("GM Agreement") dated as of June 4, 1990 by and between
General Motors Corp. ("GM") and the Company.(2)
10.2 -- Addendum No. 1 to the GM Agreement dated as of August 9,
1990 by and between the Company and GM.(2)
10.3 -- Addendum No. 1 to the GM Agreement dated as of June 4,
1991 by and between the Company and GM.(2)
10.4 -- Addendum No. 2 to the GM Agreement dated as of October 1,
1990 by and between the Company and GM.(2)
10.5 -- Addendum No. 3 to the GM Agreement dated as of November
5, 1990 by and between the Company and GM.(2)
10.6 -- Addendum No. 4 to the GM Agreement dated as of December
3, 1990 by and between the Company and GM.(2)
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.7 -- Addendum No. 5 to the GM Agreement dated as of January 7,
1991 by and between the Company and GM.(2)
10.8 -- Addendum No. 6 to the GM Agreement dated as of February
4, 1991 by and between the Company and GM.(2)
10.9 -- Addendum No. 7 to the GM Agreement dated as of March 4,
1991 by and between the Company and GM.(2)
10.10 -- Revision to Appendices and to Master Agreement for Air
Charter Transportation Services dated August 13, 1992 by
and between the Company and GM.(2)
10.11 -- Addendum No. 5 to the GM Agreement dated as of May 1,
1994 by and between the Company and GM.(2)
10.12 -- Aircraft Charter Agreement dated as of February 9, 1994
by and between the Company and DHL Airways, Inc.(2)
10.13 -- Agreement to Furnish Three (3) CV-600 Aircraft and Air
Cargo Services dated as of May 15, 1995 by and between
the Company and Burlington Air Express Inc.
("Burlington").(3)
10.14 -- Agreement to Furnish Five (5) B727-200 Aircraft and Air
Cargo Services dated as of March 1, 1996 by and between
the Company and Burlington.(3)
10.15 -- Aircraft Operating Lease dated as of March 14, 1995 by
and between Ting Hong Oceanic Enterprises Co., Ltd.
("Ting Hong") and the Company.(3)
10.16 -- Amendment and Extension of Aircraft Operating Lease dated
April 24, 1996 by and between Ting Hong and the
Company.(3)
10.17 -- Aircraft Operating Lease dated April 19, 1996 by and
between the Company and Pacific East Asia Cargo Airlines,
Inc.(3)
10.18 -- Settlement Agreement dated as of August 22, 1994 by and
between the Company, Aircargo, Leasing, M. Tom
Christopher, American International Airways, Inc., and
Conrad Kalitta.(2)
10.19 -- Sublease Agreement dated as of March 1, 1993 by and
between Robert F. Grammer and M. Tom Christopher.(2)
10.20 -- Transfer and Assignment of Sublease Agreement dated as of
October 26, 1994 by and between the Company, M. Tom
Christopher and Robert F. Grammer.(2)
10.2 -- Salary Continuation Agreement dated as of June 15, 1993
by and between the Company and M. Tom Christopher.(2)(4)
10.22 -- Split Dollar Insurance Agreement dated as of June 15,
1993 by and between the Company and James R. Craig.(2)(4)
10.23 -- Split Dollar Insurance Agreement dated as of June 15,
1993 by and between the Company and James R. Craig.(2)(4)
10.24 -- Kitty Hawk, Inc. Amended and Restated Omnibus Securities
Plan, dated as of September 3, 1996.(3)(4)
10.25 -- Kitty Hawk, Inc. Amended and Restated Employee Stock
Purchase Plan, dated as of September 3, 1996.(3)(4)
10.26 -- Kitty Hawk, Inc. Amended and Restated Annual Incentive
Compensation Plan, dated as of September 3, 1996.(3)(4)
10.27 -- Kitty Hawk, Inc. 401(k) Savings Plan.(2)(4)
10.28 -- Employment Agreement dated as of October 27, 1994 by and
between the Company and M. Tom Christopher.(2)(4)
10.29 -- Amended and Restated Employment Agreement dated as of
June 12, 1996 by and between the Company and Richard R.
Wadsworth.(3)(4)
10.30 -- Amended and Restated Employment Agreement dated as of
December 31, 1995 by and between the Company and Tilmon
J. Reeves.(3)(4)
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.31 -- Request for written consent to expand ownership without
management change dated as of October 26, 1994 granted by
GM.(2)
10.32 -- Request for written consent to certain disclosures of
Master Agreement and contractual relationship dated as of
October 26, 1994 granted by GM.(2)
10.33 -- Kavouras Customer Order Acknowledgment.(2)
10.34 -- Kavouras Meteorological Services Agreement.(2)
10.35 -- Computer Flight Plan and Weather Service Agreement dated
as of June 11, 1992 by and between Aircargo and Jeppesen
DataPlan, Inc.(2)
10.36 -- Purchase Agreement between Federal Express Corporation
and Postal Air, Inc. (predecessor to the Company) dated
as of October 22, 1992 (the "FEASI Agreement").(3)
10.37 -- Amendment No. 1 dated November 7, 1992 to the FEASI
Agreement.(3)
10.38 -- Amendment No. 2 dated February 1993 to the FEASI
Agreement.(3)
10.39 -- Amendment No. 3 dated June 11, 1993 to the FEASI
Agreement.(3)
10.40 -- Amendment No. 4 dated May 10, 1994 to the FEASI
Agreement.(3)
10.41 -- Amendment No. 5 dated September 29, 1995 to the FEASI
Agreement.(3)
10.42 -- Amendment No. 6 dated December 1996 to the FEASI
Agreement.(5)
10.43 -- Amended and Restated Credit Agreement, dated as of August
4, 1996, by and among the Company, Wells Fargo Bank
(Texas), National Association, and Bank One, Texas,
N.A.(3)
10.44 -- Aircraft Lease (N751US) between the Company and Fleet
Capital Corporation ("Fleet") dated December 27, 1996.(5)
10.45 -- Aircraft Lease Agreement between the Company and Pegasus
Capital Corporation dated as of November 25, 1996.(5)
10.46 -- Aircraft Lease (N750US) between the Company and Fleet
dated December 27, 1996.(5)
10.47 -- Agreement for Sale of Leasehold between the Company and
Robert F. Grammer dated December 6, 1996.(1)
11.1 -- Statement of Computation of Net Income per Share.(1)
21.1 -- Subsidiaries of the Registrant.(3)
23.1 -- Consent of Ernst & Young LLP.(6)
27.1 -- Financial Data Schedule.(1)
</TABLE>
- ---------------
(1) Previously filed.
(2) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (Reg. No. 33-85698) dated as of December 1994, and incorporated
herein by reference.
(3) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (Reg. No. 333-8307) dated as of October 1996, and incorporated
herein by reference.
(4) The exhibit is a management contract or compensatory plan or arrangement.
(5) Previously filed as an exhibit to the Company's quarterly report on Form
10-Q for the quarter ended November 30, 1996, and incorporated herein by
reference.
(6) Filed herewith.
(b) REPORTS ON FORM 8-K
The Company filed a Form 8-K dated December 17, 1996. The Form 8-K reported
a change in fiscal year end (Item 8) from August 31 to December 31.
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on the 4th day of April, 1997.
KITTY HAWK, INC.
By: /s/ RICHARD R. WADSWORTH
----------------------------------
Richard R. Wadsworth
Senior Vice President -- Finance,
Chief Financial Officer, and Secretary
31
<PAGE> 32
KITTY HAWK, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of August 31, 1995 and 1996
and December 31, 1996..................................... F-3
Consolidated Statements of Income for the years ended August
31, 1994, 1995, and 1996 and for the four months ended
December 31, 1995 (unaudited) and 1996.................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended August 31, 1994, 1995, and 1996 and for the
four months ended December 31, 1996....................... F-5
Consolidated Statements of Cash Flows for the years ended
August 31, 1994, 1995, and 1996 and for the four months
ended December 31, 1995 (unaudited) and 1996.............. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 33
REPORT OF INDEPENDENT AUDITORS
Stockholders
Kitty Hawk, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Kitty Hawk,
Inc. and subsidiaries as of August 31, 1995 and 1996 and December 31, 1996 and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended August 31, 1996 and for
the four months ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kitty Hawk,
Inc. and subsidiaries at August 31, 1995 and 1996 and December 31, 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended August 31, 1996 and for the four months ended
December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
February 7, 1997
F-2
<PAGE> 34
KITTY HAWK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
----------- ------------ ------------
<S> <C> <C> <C>
Current assets
Cash and cash equivalents....................... $ 3,801,378 $ 5,763,904 $ 27,320,402
Trade accounts receivable....................... 12,967,734 14,195,990 37,828,018
Income tax receivable........................... -- 765,395 --
Deferred income taxes........................... 50,410 156,562 107,564
Inventory and aircraft supplies................. 98,386 1,713,812 2,789,982
Prepaid expenses and other assets............... 797,825 918,929 1,143,989
Deposits on aircraft............................ -- -- 5,438,628
----------- ------------ ------------
Total current assets.................... 17,715,733 23,514,592 74,628,583
Property and equipment
Aircraft........................................ 36,179,455 53,695,320 53,140,853
Aircraft work-in-progress....................... -- 13,476,355 6,732,878
Machinery and equipment......................... 1,425,272 1,776,319 2,680,692
Leasehold improvements.......................... -- 75,313 778,879
Furniture and fixtures.......................... 251,349 166,057 166,057
Transportation equipment........................ 176,057 236,708 289,499
----------- ------------ ------------
38,032,133 69,426,072 63,788,858
Less: accumulated depreciation and
amortization................................. (7,794,332) (13,112,786) (15,390,015)
----------- ------------ ------------
Net property and equipment.............. 30,237,801 56,313,286 48,398,843
----------- ------------ ------------
Total assets...................................... $47,953,534 $ 79,827,878 $123,027,426
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................ $ 9,327,109 $ 12,952,180 $ 8,853,292
Accrued expenses................................ 1,336,696 1,580,465 23,668,609
Income taxes payable............................ -- -- 2,526,737
Accrued maintenance reserves.................... 2,026,255 2,323,466 2,373,157
Revolving Credit Facility for aircraft
acquisitions expected to be refinanced....... -- 10,000,000 --
Current maturities of long-term debt............ 3,278,553 3,620,240 3,687,888
----------- ------------ ------------
Total current liabilities............... 15,968,613 30,476,351 41,109,683
Long-term debt.................................... 13,702,652 23,291,302 21,080,452
Deferred income taxes............................. 1,316,365 2,421,480 2,544,900
Commitments and contingencies
Stockholders' equity
Preferred stock, $1 par value: Authorized
shares -- 1,000,000, none issued............. -- -- --
Common stock, $.01 par value: Authorized
shares -- 25,000,000; issued and
outstanding -- 7,423,436 and 7,967,710 at
August 31, 1995 and 1996, respectively and
10,669,517 at December 31, 1996.............. 74,234 79,677 106,695
Additional paid-in capital...................... -- 4,635,524 33,968,700
Retained earnings............................... 16,891,670 20,999,846 26,293,298
Less common stock in treasury, 217,710 shares at
August 31, 1996 and December 31, 1996........ -- (2,076,302) (2,076,302)
----------- ------------ ------------
Total stockholders' equity.............. 16,965,904 23,638,745 58,292,391
----------- ------------ ------------
Total liabilities and stockholders' equity........ $47,953,534 $ 79,827,878 $123,027,426
=========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 35
KITTY HAWK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, FOUR MONTHS ENDED DECEMBER 31,
-------------------------------------------- ------------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Air freight carrier................... $ 28,284,894 $ 41,117,564 $ 52,921,762 $17,994,371 $20,577,072
Air logistics......................... 79,414,952 62,592,819 89,492,974 51,733,438 39,408,484
------------ ------------ ------------ ----------- -----------
Total revenues................ 107,699,846 103,710,383 142,414,736 69,727,809 59,985,556
------------ ------------ ------------ ----------- -----------
Costs of revenues:
Air freight carrier................... 19,549,833 28,104,280 38,760,430 11,684,882 13,784,331
Air logistics......................... 73,401,606 57,428,344 80,139,570 45,996,786 33,795,567
------------ ------------ ------------ ----------- -----------
Total costs of revenues....... 92,951,439 85,532,624 118,900,000 57,681,668 47,579,898
------------ ------------ ------------ ----------- -----------
Gross profit............................ 14,748,407 18,177,759 23,514,736 12,046,141 12,405,658
General and administrative expenses..... 6,012,975 7,832,167 9,079,891 2,861,518 2,724,763
Non-qualified employee profit sharing
expense............................... 731,862 1,000,957 1,169,880 889,046 962,263
Stock option grants to executives....... -- -- 4,230,954 -- --
------------ ------------ ------------ ----------- -----------
Operating income........................ 8,003,570 9,344,635 9,034,011 8,295,577 8,718,632
Other income (expense):
Interest expense...................... (342,502) (1,184,921) (1,859,284) (481,670) (684,173)
Contract settlement income, net....... 1,177,742 -- -- -- --
Loss on asset disposal................ -- -- (589,049) -- --
Other, net............................ (431,957) (600,667) 291,255 37,507 625,910
------------ ------------ ------------ ----------- -----------
Income before income taxes.............. 8,406,853 7,559,047 6,876,933 7,851,414 8,660,369
Income taxes............................ 3,146,157 3,142,653 2,767,744 3,096,769 3,366,917
------------ ------------ ------------ ----------- -----------
Net income.............................. $ 5,260,696 $ 4,416,394 $ 4,109,189 $ 4,754,645 $ 5,293,452
============ ============ ============ =========== ===========
Net income per share.................... $ 0.66 $ 0.55 $ 0.52 $ 0.60 $ 0.55
============ ============ ============ =========== ===========
Weighted average common and common
equivalent shares outstanding......... 7,967,710 7,967,710 7,927,856 7,967,710 9,609,920
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 36
KITTY HAWK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER OF COMMON PAID-IN RETAINED TREASURY
SHARES STOCK CAPITAL EARNINGS STOCK TOTAL
---------- -------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1993.............. 10,604,908 $106,048 $ -- $ 7,243,766 $ (61,000) $ 7,288,814
Retirement of treasury stock in
connection with the Kitty Hawk,
Inc. merger........................ (3,181,472) (31,814) -- (29,186) 61,000 --
Net income............................ -- -- -- 5,260,696 -- 5,260,696
---------- -------- ----------- ----------- ----------- -----------
Balance at August 31, 1994.............. 7,423,436 74,234 -- 12,475,276 -- 12,549,510
Net income............................ -- -- -- 4,416,394 -- 4,416,394
---------- -------- ----------- ----------- ----------- -----------
Balance at August 31, 1995.............. 7,423,436 74,234 -- 16,891,670 -- 16,965,904
Stock option grants to executives..... -- -- 4,230,954 -- -- 4,230,954
Exercise of employee stock options
(See Note 1)....................... 544,274 5,443 -- (1,013) -- 4,430
Purchase of treasury stock, 217,710
shares, at cost.................... -- -- -- -- (2,076,302) (2,076,302)
Tax benefit of stock option grants to
executives......................... -- -- 404,570 -- -- 404,570
Net income............................ -- -- -- 4,109,189 -- 4,109,189
---------- -------- ----------- ----------- ----------- -----------
Balance at August 31, 1996.............. 7,967,710 79,677 4,635,524 20,999,846 (2,076,302) 23,638,745
Shares sold in initial public
offering.............................. 2,700,000 27,000 29,311,510 -- -- 29,338,510
Shares issued to employees under the
Annual Incentive Compensation Plan.... 1,807 18 21,666 -- -- 21,684
Net income for the four months ended
December 31, 1996..................... -- -- -- 5,293,452 -- 5,293,452
---------- -------- ----------- ----------- ----------- -----------
Balance at December 31, 1996............ 10,669,517 $106,695 $33,968,700 $26,293,298 $(2,076,302) $58,292,391
========== ======== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 37
KITTY HAWK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOUR MONTHS ENDED
YEAR ENDED AUGUST 31, DECEMBER 31,
------------------------------------------ ---------------------------
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income......................... $ 5,260,696 $ 4,416,394 $ 4,109,189 $ 4,754,645 $ 5,293,452
Adjustments to reconcile net income
net cash provided by operating
activities:
Depreciation and amortization... 1,935,348 4,095,156 6,873,033 1,681,489 3,201,903
Loss on disposal of property and
equipment..................... 62,251 -- 589,049 -- --
Aircraft received in contract
settlement.................... (750,000) -- -- -- --
Deferred income taxes........... (638,568) 732,795 998,963 -- 172,418
Stock option grants to
executives.................... -- -- 4,230,954 -- --
Changes in operating assets and
liabilities:
Trade accounts receivable..... (8,036,613) 2,673,139 (1,228,256) (27,954,848) (23,632,028)
Contract settlement
receivable................. 3,500,000 -- -- -- --
Receivables from affiliates... (53,035) 481,297 -- -- --
Income taxes receivable....... -- -- (765,395) -- 765,395
Inventory and aircraft
supplies................... (19,778) 23,285 (1,615,426) (298,872) (1,076,170)
Prepaid expenses and other.... 283,342 (532,693) (121,104) (5,854,576) (5,663,688)
Accounts payable and accrued
expenses................... 4,063,034 (2,379,510) 3,868,840 19,622,927 17,989,256
Accrued maintenance
reserves................... 379,535 1,429,886 297,211 281,184 49,691
Income taxes payable.......... 1,614,521 (1,883,898) -- 2,782,766 2,526,737
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities............... 7,600,733 9,055,851 17,237,058 (4,985,285) (373,034)
Investing activities:
Proceeds from sale of assets....... -- -- -- -- 18,508,431
Capital expenditures............... (13,875,983) (17,929,106) (33,537,567) (174,697) (13,795,891)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities............... (13,875,983) (17,929,106) (33,537,567) (174,697) 4,712,540
Financing activities:
Proceeds from issuance of common
stock........................... -- -- 4,430 -- 29,338,510
Proceeds from issuance of long-term
debt............................ 10,916,656 9,911,240 23,117,000 5,725,000 1,500,000
Repayments of long-term debt....... (2,747,533) (2,074,970) (3,186,663) (1,011,103) (13,643,202)
Acquisition of treasury shares..... -- -- (2,076,302) -- --
Shares issued under Annual
Incentive Compensation Plan..... -- -- -- -- 21,684
Tax benefit of stock option grant
to executives................... -- -- 404,570 -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities......................... 8,169,123 7,836,270 18,263,035 4,713,897 17,216,992
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents................... 1,893,873 (1,036,985) 1,962,526 (446,085) 21,556,498
Cash and cash equivalents at
beginning of period................ 2,944,490 4,838,363 3,801,378 3,801,378 5,763,904
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of
period............................. $ 4,838,363 $ 3,801,378 $ 5,763,904 $ 3,355,293 $ 27,320,402
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 38
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Kitty Hawk, Inc. and its subsidiaries (the "Company") provide air freight
services through two related businesses: (i) an air freight carrier and (ii) an
air logistics service provider, all primarily in North America. The Company
provided air logistics services to one customer which accounted for
approximately 63%, 47%, 41% and 16% of its total revenues in fiscal years 1994,
1995, 1996 and for the four months ended December 31, 1996, respectively.
Related accounts receivable from this customer at August 31, 1995 and 1996 and
December 31, 1996, were approximately $5,089,000, $4,915,000 and $2,156,000,
respectively. The contract for these services is effective through May 31, 1997;
however, such contract may be canceled by either party with 30 days notice.
Another customer accounted for approximately 10%, 10%, 15% and 44% of the
Company's total revenues in fiscal years 1994, 1995, 1996 and for the four
months ended December 31, 1996, respectively. Related accounts receivable from
this customer at August 31, 1995 and 1996 and December 31, 1996 were
approximately $22,000, $0 and $27,086,000, respectively. The Company generally
sells on open accounts with 30-day terms and does not require collateral for
credit sales.
On December 4, 1996, the Company elected to change its fiscal year end to
December 31. Operating results for the four month period ended December 31, 1996
are not necessarily indicative of the results that may be expected for a
calendar year. Operating results for the four month period ended December 31,
1995 (unaudited) include all adjustments management believes are necessary for a
fair presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line and accelerated methods over estimated useful lives ranging
from three to ten years. Convair and DC-9 airframes are fully depreciated over
the period remaining to the next major airframe overhaul since the Company does
not expect to perform major airframe overhauls on these aircraft. Boeing 727-200
airframes are fully depreciated over an estimated useful life of ten years.
Costs relating to major airframe overhauls are capitalized as incurred and
amortized over the estimated number of flight hours until the next overhaul (the
deferral method). No major airframe overhauls have been performed to date.
With respect to aircraft engines, the useful life is the estimated number
of flight hours remaining until the next required engine overhaul.
Income Taxes
Income taxes have been provided using the liability method in accordance
with the Financial Accounting Standards Board Statement No. 109, Accounting for
Income Taxes.
Revenue Recognition
Revenues are recognized as services are provided.
F-7
<PAGE> 39
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net Income Per Share
Net income per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. The effect of options to purchase 390,707 and 153,567 shares of the
Company's common stock at $0.01 granted to certain executives in December 1995
and June 1996, respectively, have been included in the calculation of weighted
average common and common equivalent shares for the years ended August 31, 1994,
1995 and 1996.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and held in banks, money market funds, and other investments with
original maturities of three months or less.
Inventory
Inventory consists of aircraft parts and supplies and is stated at the
lower of average cost or market.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Stock-Based Compensation
The Company accounts for stock-based compensation utilizing Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). Under the provisions of SFAS No. 123, the Company
has elected to continue to apply the provisions of APB Opinion No. 25 to its
stock-based compensation arrangements and provide supplementary financial
statement disclosures as required under SFAS No. 123.
Reorganization
In October, 1994, Kitty Hawk, Inc. was organized as a wholly-owned
subsidiary of Kitty Hawk Group, Inc. ("Group"). Group subsequently merged with
Kitty Hawk, Inc. with Kitty Hawk, Inc. being the surviving entity. In connection
therewith, each outstanding share of Group common stock was exchanged for
106,049 shares of Kitty Hawk, Inc. common stock. Additionally, Group stock held
in treasury was retired. The accompanying consolidated financial statements
present the effects of the merger on a retroactive basis.
Reclassifications
Certain amounts from prior years have been reclassified to conform to
current year presentation.
Stock Split
On June 28, 1996 the Company approved a 1.2285391-for-1 stock split
effected as a stock dividend. All references to common stock and per share data
have been restated to give effect to the split.
F-8
<PAGE> 40
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
----------- ----------- ------------
<S> <C> <C> <C>
(1) Note payable, bearing interest at prime plus
1.75% payable in 48 monthly installments of
$25,021 plus interest, with a maturity date of
December 1996.................................. $ 350,291 $ 50,042 $ --
(2) Note payable, bearing interest at 9.75% payable
in 18 monthly installments of interest only and
42 monthly installments of $28,212 including
interest beginning December 1996, with a
maturity date of May 2000; secured by a Douglas
DC-9 aircraft, with a carrying value of
approximately $940,000 at December 31, 1996.... 1,000,500 1,000,500 980,417
(3) Note payable, bearing interest at an adjusted
Eurodollar rate plus 1.50% to 2.00% based upon
a fixed charge coverage ratio of the Company
(7.125% at December 31, 1996), payable in 28
quarterly installments plus interest beginning
September 1996, with a maturity date of June
2003; secured by two Boeing 727-200 aircraft,
with a carrying value of approximately
$11,036,000 at December 31, 1996............... -- 11,225,000 10,605,923
(4) Note payable, bearing interest at an adjusted
Eurodollar rate plus 1.50% to 2.00% based upon
a fixed charge coverage ratio of the Company
(7.125% at December 31, 1996), payable in 23
quarterly installments of $531,000 plus
interest beginning September 1996, with a
maturity date of June, 2002; secured by four
Douglas DC-9 aircraft and four Boeing 727-200
aircraft, with a net carrying value of
approximately $17,918,000 at December 31,
1996........................................... -- 12,744,000 11,682,000
(5) Note payable, bearing interest at an adjusted
Eurodollar rate plus 2.25% payable in 21
quarterly installments of $153,354 plus
interest, with a maturity date of September
1999. (See (4) above.)......................... 2,607,021 -- --
(6) Note payable, bearing interest at an adjusted
Eurodollar rate plus 2.25% payable in 71
monthly installments of $76,891 plus interest,
with a maturity date of October 2000. (See (4)
above.)........................................ 4,767,245 -- --
(7) Note payable, bearing interest at an adjusted
Eurodollar rate plus 2.00% payable in 72
monthly installments of $60,517 plus interest,
with a maturity date of March 2001. (See (4)
above.)........................................ 4,054,641 -- --
(8) Note payable, bearing interest at an adjusted
Eurodollar rate plus 2.00% payable in 72
monthly installments of $59,077 plus interest,
with a maturity date of July 2001. (See (4)
above.)........................................ 4,201,507 -- --
</TABLE>
F-9
<PAGE> 41
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
----------- ----------- ------------
<S> <C> <C> <C>
(9) Revolving Credit Facility for general corporate
purposes....................................... -- 1,892,000 1,500,000
----------- ----------- -----------
16,981,205 26,911,542 24,768,340
Less current portion................................ 3,278,553 3,620,240 3,687,888
----------- ----------- -----------
$13,702,652 $23,291,302 $21,080,452
=========== =========== ===========
</TABLE>
Maturities of long-term debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................ $ 3,687,888
1998........................................ 5,317,534
1999........................................ 3,958,056
2000........................................ 3,911,104
2001........................................ 3,900,557
Thereafter.................................. 3,993,201
-----------
$24,768,340
===========
</TABLE>
During August 1996, the Company entered into a new Credit Agreement (notes
(3), (4) and (9) above) with a bank and refinanced a portion of the existing
notes payable. Proceeds of note (4) in the amount of $12,744,000 were used to
pay down the outstanding balances of the existing notes payable (notes (5), (6),
(7), and (8)).
The Credit Agreement subjects the Company to financial covenants, including
fixed charge coverage, cash flow and leverage ratios. In addition, the Credit
Agreement prohibits redemption of Company securities, certain investments
outside the Company's line of business, transactions with affiliates and
additional indebtedness without prior consent of the Bank. The Credit Agreement
also limits the ability of the Company to change its line of business and limits
the payment of dividends.
At December 31, 1996 the Company has outstanding two interest rate swap
agreements with the commercial bank to whom note (3) is payable, having a total
notional principal amount of $11,225,000. These swap agreements effectively
change the interest rate exposure on note (3) to a fixed 7.75 percent. The
notional principal amounts of the interest rate swaps reduce in proportion to
required principal reductions on the related note. The Company is exposed to
credit loss in the event of nonperformance by the other party in the interest
rate swap agreements. However, the Company does not anticipate nonperformance by
the counterparty. Based on a quote provided by the bank, these swap agreements
could have been terminated at December 31, 1996 in exchange for a payment to the
Company of $106,059.
Under the Credit Agreement, the Company also has a $15 million Revolving
Credit Facility available, of which $10 million is restricted for interim
financing of up to $6.5 million per aircraft for aircraft acquisitions by the
Company; the remaining $5 million is for general corporate purposes, including
interim financing for acquired aircraft that exceeds the limits that apply to
the restricted portion. Any advance under the portion that is restricted to
interim financing for aircraft acquisition ($0 at December 31, 1996) must be
repaid in full within 150 days of first advance for the acquired aircraft. The
outstanding balance of the Revolving Credit Facility results from borrowings in
connection with working capital requirements. The Revolving Credit Facility
bears interest at an adjusted Eurodollar rate plus 1.50% to 2.00% based upon a
fixed charge coverage ratio of the Company or at prime (8.25% at December 31,
1996). The Revolving Credit Facility expires on December 31, 1998 and $13.5
million was available to be borrowed by the Company at December 31, 1996.
Under the Credit Agreement, the Company also has a $10 million facility
available to finance the purchase of one DC9-15F hushkit and up to seven major
maintenance checks for jet aircraft. The funds will be
F-10
<PAGE> 42
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
available to the Company until April 29, 1998, and any borrowings under this
facility mature March 31, 2003. At December 31, 1996, the entire $10 million was
available to the Company. At December 31, 1996, the Company had approximately
$1,400,000 in standby letters of credit outstanding.
All amounts outstanding under the Credit Agreement are cross-collateralized
and are secured by certain aircraft owned by the Company, all aircraft acquired
under the restricted portion of the Revolving Credit Facility while those
advances are outstanding, certain leases of aircraft and engines, accounts,
chattel paper, general intangibles, and other personal property.
Based upon the variable interest rates provided for in the substantial
majority of the Company's long-term debt, management believes the fair value of
its long-term debt approximates its carrying value at December 31, 1996.
In connection with the Company's recent acquisition of a one-third
undivided interest in four Falcon 20 jet aircraft, the co-owners of the aircraft
entered into a five year, $4.3 million term loan, bearing interest at a floating
prime rate, which is secured by all four Falcon 20 aircraft and requires monthly
payments of principal and interest. The co-owners leased the aircraft to an air
carrier affiliated with one of the co-owners. The lease calls for monthly lease
payments which exceed the installments on the term loan. The Company's liability
under this term loan is limited to $2.0 million.
The Company made cash interest payments of $280,754, $1,088,928, $1,765,523
and $664,164 during fiscal years ended 1994, 1995, 1996 and for the four months
ended December 31, 1996, respectively.
3. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED AUGUST 31, ENDED
------------------------------------ DECEMBER 31,
1994 1995 1996 1996
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Current income tax:
Federal........................... $3,434,725 $1,829,723 $1,352,390 $2,768,672
State............................. 350,000 580,135 416,391 425,827
---------- ---------- ---------- ----------
Total current income
tax..................... 3,784,725 2,409,858 1,768,781 3,194,499
---------- ---------- ---------- ----------
Deferred income tax:
Federal........................... (608,460) 627,993 758,138 141,169
State............................. (30,108) 104,802 240,825 31,249
---------- ---------- ---------- ----------
Total deferred income
tax..................... (638,568) 732,795 998,963 172,418
---------- ---------- ---------- ----------
$3,146,157 $3,142,653 $2,767,744 $3,366,917
========== ========== ========== ==========
</TABLE>
The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate to income before
income taxes are as follows:
<TABLE>
<CAPTION>
FOUR MONTHS
YEAR ENDED AUGUST 31, ENDED
------------------------------------ DECEMBER 31,
1994 1995 1996 1996
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Income tax computed at statutory
rate.............................. $2,858,330 $2,570,076 $2,338,157 $3,031,129
State income taxes, net of federal
benefit........................... 211,129 452,058 433,763 297,928
Other, net.......................... 76,698 120,519 (4,176) 37,860
---------- ---------- ---------- ----------
Total..................... $3,146,157 $3,142,653 $2,767,744 $3,366,917
========== ========== ========== ==========
</TABLE>
F-11
<PAGE> 43
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax liabilities recognized on the
accompanying balance sheets are as follows:
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1995 1996 1996
----------- ----------- ------------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation.............................. $(2,071,971) $(3,318,803) $(3,461,603)
Prepaid expenses.......................... (117,440) (17,229) (66,228)
----------- ----------- -----------
Total deferred tax liabilities.... (2,189,411) (3,336,032) (3,527,831)
----------- ----------- -----------
Deferred tax assets:
Nondeductible accruals.................... 167,850 173,790 173,790
Airframe reserves......................... 755,606 897,324 916,705
----------- ----------- -----------
Total deferred tax assets......... 923,456 1,071,114 1,090,495
----------- ----------- -----------
Net deferred tax liability.................. $(1,265,955) $(2,264,918) $(2,437,336)
=========== =========== ===========
</TABLE>
The Company made cash income tax payments of $2,170,203, $4,552,371,
$2,078,673 and $571,420 during fiscal years 1994, 1995, 1996 and for the four
months ended December 31, 1996, respectively.
4. COMMITMENTS
The Company leases its primary office and maintenance space under a
non-cancelable operating lease which expires in fiscal year 1998 from a party
who, effective October 1994, became a member of the Company's Board of
Directors. Rent expense under this lease was $260,970, $252,595, $254,934 and
$84,305 for fiscal years 1994, 1995, 1996 and for the four months ended December
31, 1996, respectively. Under the lease agreement, the Company has the option to
purchase the office facilities and the landlord's interest in the associated
ground lease at any time prior to March 1, 1997 for consideration of $2,200,000
less $5,000 for each monthly rental payment made after March 1, 1993. Based upon
an agreement with the lessor of the facility, the Company expects to close the
purchase of the facility for approximately $1.76 million in February 1997.
The Company leases its secondary maintenance space under a cancelable
operating lease which expires in May 1999. The lease can be canceled by either
party with 60 days notice. Rent expense under this lease was $59,853, $163,500,
and $54,500 in fiscal years 1995, 1996 and for the four months ended December
31, 1996, respectively.
In December 1996, the Company sold at cost two recently acquired and
modified Boeing 727-200 aircraft to a third party and entered into an operating
lease agreement for such aircraft commencing January 1, 1997, ending December
31, 1997, with monthly lease payments of approximately $252,000, with five
successive one year renewal options. The Company has an option to purchase the
aircraft at the end of each year, and guarantees to the lessor certain minimum
sale values if the Company elects not to renew the lease or exercise its
purchase option. The funds from the sale were partially used to pay indebtedness
incurred to acquire, convert to cargo configuration, perform maintenance updates
and hushkit the aircraft.
In November 1996, the Company acquired a Boeing 727-200 aircraft in
passenger configuration under a seven year operating lease at a monthly rate of
$50,000. The aircraft is being modified to cargo configuration and is undergoing
maintenance updates at the Company's cost.
F-12
<PAGE> 44
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum annual rentals at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................. $3,793,476
1998............................................. 763,500
1999............................................. 668,125
2000............................................. 600,000
2001............................................. 600,000
Thereafter....................................... 1,200,000
----------
$7,625,101
==========
</TABLE>
During December 1996, the Company entered into firm purchase commitments to
acquire hushkits for seven of its Boeing 727-200 aircraft for a total purchase
price of up to $17,500,000.
5. CONTRACT SETTLEMENT
In September 1992, the Company was awarded a contract by the United States
Postal Service (the "USPS"). An unaffiliated air freight carrier (the
"associated bidder") was associated with the Company in the successful bid.
Prior to the commencement of the contract, competing bidders filed suit against
the USPS seeking to set aside the award.
In April 1993, to avoid the expense and uncertainty of continued
litigation, the Company accepted a settlement. Under the settlement, the
contract was terminated for convenience and re-awarded to the incumbent.
Additionally, the Company received $12.7 million and the right to receive up to
a total of $6.5 million over ten years in installments of $162,500 per quarter,
contingent on the re-awarded contract remaining in effect. Appropriate releases
were exchanged.
At August 31, 1993, the Company and the associated bidder had not agreed
upon the division of the settlement proceeds, which were held in escrow; but the
Company reasonably estimated its share of the proceeds, exclusive of the $6.5
million to be paid in installments over ten years, to be at least $3.5 million.
The Company therefore recorded the $3.5 million as a receivable and, net of
contract-related expense, settlement income of $724,683 for fiscal year 1993.
During fiscal year 1994, the Company and the associated bidder agreed to a
division of the settlement proceeds and resolution of all their related claims.
Under that agreement, the Company received from escrow approximately $3.5
million cash, obtained title to a Boeing 727-200 aircraft, independently valued
and recorded by the Company at $750,000, and was relieved of $1.2 million of
previously accrued transportation costs. Additionally, one-half of the
contingent future quarterly installment payments were allocated to the Company's
majority stockholder. As a result of this settlement, for fiscal year 1994, the
Company recorded additional contract settlement income of $1,177,742, which is
net of approximately $730,000 in additional settlement costs, principally legal
fees. This amount also included both income and an offsetting expense of
$677,239, representing the estimated fair value of the future quarterly
installment payments that will be paid directly to the Company's majority
stockholder.
6. LITIGATION
The Company filed suit against Express One International, Inc. ("Express
One") in July 1992 in Dallas County, Texas, claiming that Express One breached
an aircraft charter agreement and seeking actual damages of approximately
$60,000. Express One counterclaimed, asserting that the Company wrongfully
repudiated the lease agreement and seeking damages of $356,718 for services
performed, $1,140,000 for additional fees it would have received under the
contract, punitive damages and its attorney's fees and costs.
F-13
<PAGE> 45
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1995, a jury verdict in the case granted the Company $25,000 in
damages plus its attorneys fees and denied Express One's claims. The court
entered judgment in favor of the Company for $25,000 in damages, for $148,115 in
attorneys fees through trial and for additional attorneys fees if Express One
appeals. Before expiration of the time for appeal, Express One filed a petition
under Chapter 11 of the U.S. Bankruptcy Code. There is a dispute about whether
Express One has preserved a right to appeal and whether the judgment has become
final. Therefore, the judgment awarded to the Company has not been recorded in
the financial statements. The Company does not expect the outcome to have a
material adverse effect upon the Company's financial condition or results of
operations.
The USPS selected the Company's air freight carrier in September 1992 as
the successful bidder on a contract for a multi-city network of air
transportation services supporting the USPS Express Mail system. Two
unsuccessful bidders sued the USPS to enjoin the award. The Company intervened.
This litigation (the "ANET Litigation") was settled in April 1993 by agreements
under which the USPS terminated the Company's contract for convenience and
awarded the contract to the incumbent contractor, Emery Worldwide Airlines, Inc.
("Emery").
In March 1995, the Company was served with a complaint in a qui tam lawsuit
filed on behalf of the U.S. Government by a third-party plaintiff seeking to
share a recovery under the Federal False Claims Act (the "Act"). The suit, filed
in May 1994, was filed under seal in accordance with the Act, to enable the U.S.
Government to review the claim before its disclosure to the defendants. The U.S.
Government declined to pursue the claim, but the third-party plaintiff chose to
continue. The suit claimed that the Company and another defendant fraudulently
failed to disclose to the USPS, both in the Company's successful bid and in the
settlement of the ANET litigation, that some of the aircraft the Company
proposed to purchase and use to perform the contract were aging aircraft with
high use, and claimed that the Company and Emery similarly fraudulently
conspired in connection with the settlement of the ANET litigation. The suit
sought to recover treble the $10 million settlement payment made by the USPS in
settling the ANET litigation, plus the third party plaintiff's costs and fees.
The Company moved to dismiss the suit with prejudice on grounds that it was
barred by the Act. The Company also sought to recover its attorneys' fees from
the plaintiff and to obtain sanctions against the plaintiff's attorneys. The
Company believes the suit was clearly frivolous because, among other things, the
Company in the ANET bid identified each aircraft by serial number, age, hours
and cycles, and made available use and maintenance records for each aircraft as
required by the request for proposal, and that the USPS reviewed and inspected
the aircraft, data and records and found them acceptable. In May 1996, the court
dismissed the suit and awarded the Company its attorneys' fees and costs. The
plaintiff has asked the court to reconsider its ruling. The Company does not
expect the outcome to have a material adverse effect upon the Company's
financial condition or results of operations.
Additionally, in the normal course of business, the Company is a party to
matters of litigation, none of which, in the opinion of management, will have a
material adverse effect on the Company's financial condition or the results of
operations.
7. STOCK OPTIONS
In October 1994 the Company granted non-qualified options to two executives
to purchase a total of 337,848 shares of common stock at $7.81 per share.
In December 1995, the Company canceled 245,708 of the options outstanding
and granted to an executive a nonqualified option to purchase 390,707 shares of
common stock at $0.01 per share. The new option had a term of nine years and was
fully vested. In June 1996, the Company canceled the remaining 92,140 options
outstanding and granted to another executive a non-qualified option to purchase
153,567 shares of common stock at $0.01 per share. The new option had a term of
nine years and was fully vested. On
F-14
<PAGE> 46
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 26, 1996, the executives fully exercised their options. No options remain
outstanding at December 31, 1996. Based on an independent appraisal commissioned
by the Company, the fair value of the options of $4,230,954 is reflected as a
charge to earnings in the accompanying statement of income for the year ended
August 31, 1996, under APB Opinion No. 25 and represents the fair value which
would have been charged under SFAS 123. Accordingly, no supplemental disclosures
under SFAS No. 123 are necessary.
8. RELATED PARTY TRANSACTIONS
The Company provided maintenance and other services as well as cash
advances to Martinaire East, Inc. ("Martinaire"), a company in which a minority
interest was owned by the Company's majority stockholder. Total sales to
Martinaire for fuel and services were approximately, $235,000 and $22,000 in
fiscal years 1994 and 1995, respectively. Martinaire also flies charter service
for the Company. During fiscal years 1994 and 1995, Martinaire provided the
Company services in the amount of approximately $982,000 and $232,000,
respectively. At December 31, 1996, Martinaire is no longer considered to be a
related party.
9. EMPLOYEE COMPENSATION PLANS AND ARRANGEMENTS
The Company has a retirement savings plan under Section 401(k) of the
Internal Revenue Code which covers substantially all employees meeting minimum
service requirements. Under the plan, voluntary contributions are made by
employees and the Company provides matching contributions based upon the
employees' contribution. The Company incurred $80,812, $121,217, $159,967 and
$56,378 in matching contributions related to this plan during fiscal years 1994,
1995, 1996 and for the four months ended December 31, 1996, respectively.
The Company has adopted:
- An Omnibus Securities Plan (the Plan) under which 300,000 shares of its
common stock are reserved for issuance to its employees. The Plan is
administered by the Company's Compensation Committee which may grant
stock based and nonstock based compensation to the Plan participants. No
awards have been granted under the Plan as of December 31, 1996.
- An Annual Incentive Compensation Plan (the Compensation Plan) under which
the Compensation Committee awards semiannual bonuses to employees of the
Company. The aggregate amount of bonuses available for award is limited
to 10% of the Company's income before income taxes and the bonuses to be
paid under the Compensation Plan. The Company may elect to pay the full
amount of the bonuses in common stock, which is limited to total stock
distributions of 200,000 shares of common stock. As of December 31, 1996,
198,193 shares were available for distribution.
- An Employee Stock Purchase Plan covering up to 100,000 shares of the
Company's common stock.
F-15
<PAGE> 47
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. CALENDAR YEAR INCOME STATEMENT (UNAUDITED)
As described above, the Company has changed its year end to December 31.
The following table presents historical information recast on a calendar quarter
basis for 1996.
QUARTERS FOR THE CALENDAR YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996 TOTAL
--------- -------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues:
Air freight carrier................ $10,059 $15,215 $14,341 $15,889 $ 55,504
Air logistics...................... 10,195 16,815 16,134 34,024 77,168
------- ------- ------- ------- --------
Total revenues............. 20,254 32,030 30,475 49,913 132,672
------- ------- ------- ------- --------
Costs of revenues:
Air freight carrier................ 8,256 12,084 9,348 11,172 40,860
Air logistics...................... 9,155 15,112 14,872 28,799 67,938
------- ------- ------- ------- --------
Total costs of revenues.... 17,411 27,196 24,220 39,971 108,798
------- ------- ------- ------- --------
Gross profit......................... 2,843 4,834 6,255 9,942 23,874
General and administrative
expenses........................... 2,271 2,301 2,305 2,066 8,943
Non-qualified employee profit sharing
expense............................ (91) 58 477 796 1,240
Stock option grants to executives.... 0 4,232 (1) 0 4,231
------- ------- ------- ------- --------
Operating income..................... 663 (1,757) 3,474 7,080 9,460
Other income (expense):
Interest expense................... (520) (504) (507) (531) (2,062)
Loss on asset disposal............. 0 0 (589) 0 (589)
Other, net......................... 102 36 125 617 880
------- ------- ------- ------- --------
Income before income taxes........... 245 (2,225) 2,503 7,166 7,689
Income taxes......................... 95 (927) 1,096 2,769 3,033
------- ------- ------- ------- --------
Net income (loss).................... $ 150 $(1,298) $ 1,407 $ 4,397 $ 4,656
======= ======= ======= ======= ========
Net income (loss) per share.......... $ 0.02 $ (0.16) $ 0.18 $ 0.43 $ 0.55
======= ======= ======= ======= ========
Net income, adjusted for
non-recurring items................ $ 150 $ 1,264 $ 2,467 $ 4,397 $ 8,278
======= ======= ======= ======= ========
Net income per share, adjusted for
non-recurring items................ $ 0.02 $ 0.16 $ 0.32 $ 0.43 $ 0.98
======= ======= ======= ======= ========
Weighted average common and common
equivalent shares outstanding...... 7,968 7,968 7,750 10,215 8,477
======= ======= ======= ======= ========
</TABLE>
F-16
<PAGE> 48
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Incorporation of the Company.(2)
3.2 -- Bylaws of the Company.(2)
3.3 -- Amendment No. 1 to the Certificate of Incorporation of
the Company.(2)
3.4 -- Amendment No. 1 to the Bylaws of the Company.(2)
4.1 -- Specimen Common Stock Certificate.(3)
10.1 -- Master Agreement for Air Charter Transportation Services
("GM Agreement") dated as of June 4, 1990 by and between
General Motors Corp. ("GM") and the Company.(2)
10.2 -- Addendum No. 1 to the GM Agreement dated as of August 9,
1990 by and between the Company and GM.(2)
10.3 -- Addendum No. 1 to the GM Agreement dated as of June 4,
1991 by and between the Company and GM.(2)
10.4 -- Addendum No. 2 to the GM Agreement dated as of October 1,
1990 by and between the Company and GM.(2)
10.5 -- Addendum No. 3 to the GM Agreement dated as of November
5, 1990 by and between the Company and GM.(2)
10.6 -- Addendum No. 4 to the GM Agreement dated as of December
3, 1990 by and between the Company and GM.(2)
10.7 -- Addendum No. 5 to the GM Agreement dated as of January 7,
1991 by and between the Company and GM.(2)
10.8 -- Addendum No. 6 to the GM Agreement dated as of February
4, 1991 by and between the Company and GM.(2)
10.9 -- Addendum No. 7 to the GM Agreement dated as of March 4,
1991 by and between the Company and GM.(2)
10.10 -- Revision to Appendices and to Master Agreement for Air
Charter Transportation Services dated August 13, 1992 by
and between the Company and GM.(2)
10.11 -- Addendum No. 5 to the GM Agreement dated as of May 1,
1994 by and between the Company and GM.(2)
10.12 -- Aircraft Charter Agreement dated as of February 9, 1994
by and between the Company and DHL Airways, Inc.(2)
10.13 -- Agreement to Furnish Three (3) CV-600 Aircraft and Air
Cargo Services dated as of May 15, 1995 by and between
the Company and Burlington Air Express Inc.
("Burlington").(3)
10.14 -- Agreement to Furnish Five (5) B727-200 Aircraft and Air
Cargo Services dated as of March 1, 1996 by and between
the Company and Burlington.(3)
10.15 -- Aircraft Operating Lease dated as of March 14, 1995 by
and between Ting Hong Oceanic Enterprises Co., Ltd.
("Ting Hong") and the Company.(3)
10.16 -- Amendment and Extension of Aircraft Operating Lease dated
April 24, 1996 by and between Ting Hong and the
Company.(3)
10.17 -- Aircraft Operating Lease dated April 19, 1996 by and
between the Company and Pacific East Asia Cargo Airlines,
Inc.(3)
</TABLE>
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.18 -- Settlement Agreement dated as of August 22, 1994 by and
between the Company, Aircargo, Leasing, M. Tom
Christopher, American International Airways, Inc., and
Conrad Kalitta.(2)
10.19 -- Sublease Agreement dated as of March 1, 1993 by and
between Robert F. Grammer and M. Tom Christopher.(2)
10.20 -- Transfer and Assignment of Sublease Agreement dated as of
October 26, 1994 by and between the Company, M. Tom
Christopher and Robert F. Grammer.(2)
10.2 -- Salary Continuation Agreement dated as of June 15, 1993
by and between the Company and M. Tom Christopher.(2)(4)
10.22 -- Split Dollar Insurance Agreement dated as of June 15,
1993 by and between the Company and James R. Craig.(2)(4)
10.23 -- Split Dollar Insurance Agreement dated as of June 15,
1993 by and between the Company and James R. Craig.(2)(4)
10.24 -- Kitty Hawk, Inc. Amended and Restated Omnibus Securities
Plan, dated as of September 3, 1996.(3)(4)
10.25 -- Kitty Hawk, Inc. Amended and Restated Employee Stock
Purchase Plan, dated as of September 3, 1996.(3)(4)
10.26 -- Kitty Hawk, Inc. Amended and Restated Annual Incentive
Compensation Plan, dated as of September 3, 1996.(3)(4)
10.27 -- Kitty Hawk, Inc. 401(k) Savings Plan.(2)(4)
10.28 -- Employment Agreement dated as of October 27, 1994 by and
between the Company and M. Tom Christopher.(2)(4)
10.29 -- Amended and Restated Employment Agreement dated as of
June 12, 1996 by and between the Company and Richard R.
Wadsworth.(3)(4)
10.30 -- Amended and Restated Employment Agreement dated as of
December 31, 1995 by and between the Company and Tilmon
J. Reeves.(3)(4)
10.31 -- Request for written consent to expand ownership without
management change dated as of October 26, 1994 granted by
GM.(2)
10.32 -- Request for written consent to certain disclosures of
Master Agreement and contractual relationship dated as of
October 26, 1994 granted by GM.(2)
10.33 -- Kavouras Customer Order Acknowledgment.(2)
10.34 -- Kavouras Meteorological Services Agreement.(2)
10.35 -- Computer Flight Plan and Weather Service Agreement dated
as of June 11, 1992 by and between Aircargo and Jeppesen
DataPlan, Inc.(2)
10.36 -- Purchase Agreement between Federal Express Corporation
and Postal Air, Inc. (predecessor to the Company) dated
as of October 22, 1992 (the "FEASI Agreement").(3)
10.37 -- Amendment No. 1 dated November 7, 1992 to the FEASI
Agreement.(3)
10.38 -- Amendment No. 2 dated February 1993 to the FEASI
Agreement.(3)
10.39 -- Amendment No. 3 dated June 11, 1993 to the FEASI
Agreement.(3)
10.40 -- Amendment No. 4 dated May 10, 1994 to the FEASI
Agreement.(3)
10.41 -- Amendment No. 5 dated September 29, 1995 to the FEASI
Agreement.(3)
10.42 -- Amendment No. 6 dated December 1996 to the FEASI
Agreement.(5)
</TABLE>
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.43 -- Amended and Restated Credit Agreement, dated as of August
4, 1996, by and among the Company, Wells Fargo Bank
(Texas), National Association, and Bank One, Texas,
N.A.(3)
10.44 -- Aircraft Lease (N751US) between the Company and Fleet
Capital Corporation ("Fleet") dated December 27, 1996.(5)
10.45 -- Aircraft Lease Agreement between the Company and Pegasus
Capital Corporation dated as of November 25, 1996.(5)
10.46 -- Aircraft Lease (N750US) between the Company and Fleet
dated December 27, 1996.(5)
10.47 -- Agreement for Sale of Leasehold between the Company and
Robert F. Grammer dated December 6, 1996.(1)
11.1 -- Statement of Computation of Net Income per Share.(1)
21.1 -- Subsidiaries of the Registrant.(3)
23.1 -- Consent of Ernst & Young LLP.(6)
27.1 -- Financial Data Schedule.(1)
</TABLE>
- ---------------
(1) Previously filed.
(2) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (Reg. No. 33-85698) dated as of December 1994, and incorporated
herein by reference.
(3) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (Reg. No. 333-8307) dated as of October 1996, and incorporated
herein by reference.
(4) The exhibit is a management contract or compensatory plan or arrangement.
(5) Previously filed as an exhibit to the Company's quarterly report on Form
10-Q for the quarter ended November 30, 1996, and incorporated herein by
reference.
(6) Filed herewith.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-15667) pertaining to the Kitty Hawk, Inc. Amended and
Restated Annual Incentive Compensation Plan and in the Registration Statement
(Form S-8 No. 333-23597) pertaining to the Kitty Hawk, Inc. Amended and
Restated Omnibus Securities Plan and to the use of our report dated February 7,
1997, included in the Transition Report on Form 10-K/A of Kitty Hawk, Inc. for
the four months ended December 31, 1996, with respect to the consolidated
financial statements, as amended, included in this Form 10-K/A.
ERNST & YOUNG LLP
Dallas, Texas
April 7, 1997
