<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported):
NOVEMBER 19, 1997
KITTY HAWK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
State of Delaware 0-25202 75-2564006
(STATE OF INCORPORATION) (COMMISSION FILE NO.) (IRS EMPLOYER IDENTIFICATION NO.)
</TABLE>
1515 West 20th Street
P.O. Box 612787
Dallas/Fort Worth International Airport, Texas 75261
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (972) 456-2200
Not Applicable
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 22, 1997, Kitty Hawk, Inc. ("Kitty Hawk" or the "Company"), Kitty
Hawk - AIA, Inc. ("Kitty Hawk - AIA"), Kitty Hawk - AIT, Inc. ("Kitty Hawk -
AIT"), Kitty Hawk - FOL, Inc. ("Kitty Hawk - FOL"), Kitty Hawk - KFS, Inc.
("Kitty Hawk - KFS"), Kitty Hawk - OK, Inc. ("Kitty Hawk - OK"), M. Tom
Christopher, Conrad A. Kalitta, American International Airways, Inc. ("AIA"),
American International Travel, Inc. ("AIT"), Flight One Logistics, Inc.
("FOL"), Kalitta Flying Service, Inc. ("KFS") and O.K. Turbines, Inc. ("OK"),
entered into an Agreement and Plan of Merger, which was subsequently amended
(as amended, the "Merger Agreement"). As used herein, Kitty Hawk - AIA, Kitty
Hawk - AIT, Kitty Hawk - FOL, Kitty Hawk - KFS and Kitty Hawk - OK are
collectively referred to as the "Merger Subs" and AIA, AIT, FOL, KFS and OK are
collectively referred to as the "Kalitta Companies".
On November 19, 1997, the Company consummated the transactions contemplated by
the Merger Agreement and acquired the Kalitta Companies from Mr. Kalitta.
Pursuant to the terms of the Merger Agreement, each of the Kalitta Companies
were merged with and into separate Merger Subs, with each Kalitta Company
surviving as a direct, wholly owned subsidiary of the Company. In connection
with the mergers, (i) four of the Kalitta Companies' outstanding shares of
common stock were converted, in the aggregate, into 4,099,150 shares of the
Company's common stock, par value $.01 per share and (ii) one of the Kalitta
Companies' outstanding shares of common stock were converted into the right to
receive $20 million cash. The terms of the Merger Agreement, including the
amount of consideration to be paid by the Company in connection with the
mergers, were derived through arm's length negotiations between the parties.
Subsequent to the merger, Mr. Kalitta became Vice Chairman of the Company and
beneficially owns 4,099,150 shares of the Company's common stock or 24.5% of
the Company's outstanding common stock.
The Company funded the $20 million cash portion of the merger consideration
through a concurrent 2,200,000 share common stock offering and a $340 million
senior secured note offering.
Prior to the mergers, the Kalitta Companies provided scheduled and charter air
freight carrier services, air passenger charter services and aircraft
maintenance services. The Company expects the Kalitta Companies to continue to
provide these services after the merger.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
Historical financial statements of the Kalitta Companies required by
Item 7(a) of Form 8-K are filed herewith.
<TABLE>
<CAPTION>
Financial Statement Index Page
------------------------- ----
<S> <C>
Independent Auditors' Report................................ F-1
Combined Balance Sheets at December 31, 1995 and 1996 and
September 30, 1997 (unaudited)............................ F-2
Combined Statements of Operations for the years ended
December 31, 1994, 1995 and 1996 and the nine month
periods ended September 30, 1996 and 1997 (unaudited)..... F-3
Combined Statements of Stockholder's Equity for the years
ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1997 (unaudited)...................... F-4
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996 and the nine month
periods ended September 30, 1996 and 1997 (unaudited)..... F-5
Notes to Combined Financial Statements...................... F-7
</TABLE>
(b) Pro Forma Financial Information
Pro forma financial information relating to the acquisition of the
Kalitta Companies required by Item 7(b) of Form 8-K is filed herewith.
<TABLE>
<CAPTION>
Pro Forma Financial Statements Index Page
------------------------------------ ----
<S> <C>
Unaudited Pro Forma Combined Financial Information.......... F-17
Unaudited Pro Forma Combined Balance Sheet at
September 30, 1997........................................ F-18
Unaudited Pro Forma Combined Statement of Operations for
the year ended December 31, 1996.......................... F-19
Unaudited Pro Forma Combined Statement of Operations for
the nine months ended September 30, 1997.................. F-20
Notes to Unaudited Pro Forma Combined Financial
Information............................................... F-21
</TABLE>
2
<PAGE> 3
(c) Exhibits
2.1 Agreement and Plan of Merger, dated as of September 22, 1997
(the "Merger Agreement"), by and among Kitty Hawk, Inc., Kitty Hawk -
AIA, Inc., Kitty Hawk - AIT, Inc., Kitty Hawk - FOL, Inc., Kitty Hawk
- KFS, Inc., Kitty Hawk - OK, Inc., M. Tom Christopher, American
International Airways, Inc., American International Travel, Inc.,
Flight One Logistics, Inc., Kalitta Flying Service, Inc., O.K.
Turbines, Inc., and Conrad Kalitta. (1)
2.2 Amendment No. 1 to the Merger Agreement, dated October 23,
1997. (1)
2.3 Amendment No. 2 to the Merger Agreement, dated October 29,
1997. (1)
2.4 Amendment No. 3 to the Merger Agreement, dated November 14,
1997. (1)
23.1 Consent of Deloitte & Touche, LLP. (2)
_____________
(1) Incorporated by reference from the Company's Registration Statement on
Form S-1 (Reg. No. 333-36125), dated November 1997.
(2) Filed herewith.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
KITTY HAWK, INC.
Date: December 3, 1997 By: /s/ RICHARD R. WADSWORTH
----------------------------------
Name: Richard R. Wadsworth
Title: Senior Vice President --
Finance
4
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of
American International Airways, Inc. and Related Companies
Ypsilanti, Michigan
We have audited the accompanying combined balance sheets of American
International Airways, Inc. and related companies as of December 31, 1996 and
1995, and the related combined statements of operations, stockholder's equity
and cash flows for each of the three years in the period ended December 31,
1996. The combined financial statements include the accounts of American
International Airways, Inc. and its 60% owned partnership, American
International Cargo; and related companies Kalitta Flying Services, Inc., O.K.
Turbines, Inc., American International Travel, Inc. and Flight One Logistics,
Inc. (collectively, the "Companies"). These Companies are under common ownership
and common management. These financial statements are the responsibility of the
Companies' 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, such financial statements present fairly, in all material
respects, the combined financial position of American International Airways,
Inc. and related companies as of December 31, 1996 and 1995, and the results of
their combined operations and cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Companies will continue as a going concern. As discussed in Note 11 to the
financial statements, the Companies (1) are experiencing difficulty in
generating sufficient cash flows to meet their obligations and sustain their
operations, (2) failed to make certain principal payments and are not in
compliance with certain covenants of their long-term debt agreements (3) have
negative working capital and (4) have incurred substantial losses subsequent to
December 31, 1996, which raises substantial doubt about their ability to
continue as a going concern. Management's plans concerning these matters are
described in Note 11. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Ann Arbor, Michigan
October 16, 1997
F-1
<PAGE> 6
AMERICAN INTERNATIONAL AIRWAYS, INC. AND RELATED COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND SEPTEMBER 30, 1997
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 1,091,960 $ 2,324,353 $ 3,282,142
Restricted cash........................................... 795,030 14,036,924
Accounts receivable, net (Notes 1 and 3).................. 88,273,823 67,081,125 64,908,684
Accounts receivable -- related parties.................... 4,390,261 2,960,778 1,254,798
Expendable parts and supplies............................. 12,330,854 20,742,140 24,624,354
Aircraft held for resale (Note 4)......................... 6,593,069 6,117,266 5,346,453
Deposits, prepaid expenses and other assets............... 4,914,056 8,018,273 7,326,008
Prepaid fuel.............................................. 4,080,373 5,828,047 6,999,565
Notes receivable, current................................. 186,085 186,085 100,804
------------ ------------ ------------
Total current assets.................................... 121,860,481 114,053,097 127,879,732
PROPERTY AND EQUIPMENT:
Land and improvements..................................... 228,678 228,678 228,678
Building and leasehold improvements (Note 4).............. 9,347,825 12,752,356 14,363,228
Rotable parts (Note 3).................................... 14,560,287 16,779,386 17,661,392
Equipment (Note 3)........................................ 19,685,442 23,677,640 26,317,512
Aircraft (Note 3)......................................... 264,266,383 320,276,140 303,778,995
------------ ------------ ------------
Total............................................... 308,088,615 373,714,200 362,349,805
Less accumulated depreciation............................. 81,246,881 109,707,512 113,883,560
------------ ------------ ------------
Net................................................. 226,841,734 264,006,688 248,466,245
Aircraft in modification (Note 3)......................... 25,557,078 988,541 21,925,586
Construction in progress.................................. 3,152,560 923,150 1,427,361
------------ ------------ ------------
Total property and equipment, net................... 255,551,372 265,918,379 271,819,192
NOTES RECEIVABLE, LESS CURRENT PORTION...................... 184,968 131,805 --
RECEIVABLE FROM AFFILIATED COMPANY.......................... -- -- 777,284
------------ ------------ ------------
TOTAL ASSETS (Notes 3 and 4)................................ $377,596,821 $380,103,281 $400,476,208
============ ============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable:
Trade (Note 1).......................................... $ 62,125,228 $ 46,070,230 $ 49,898,805
Related parties......................................... 4,421,143 77,450 121
Accrued liabilities....................................... 20,342,988 24,172,883 22,969,507
Deferred gain on sale of aircraft (Note 11)............... -- -- 30,255,291
Deferred revenue.......................................... -- 795,030 3,036,924
Notes payable to bank, reclassified as current (Note 3)... -- 47,105,413 55,434,351
Long term debt, reclassified as current (Note 4).......... -- 155,910,954 104,623,812
Notes payable to bank (Note 3)............................ 12,226,496 1,024,035 2,994,849
Current maturities of long-term debt (Note 4)............. 42,444,612 34,310,440 91,739,507
------------ ------------ ------------
Total current liabilities........................... 141,560,467 309,466,435 360,953,167
NOTES PAYABLE, NONCURRENT (Note 3).......................... 34,983,000 -- --
LONG-TERM DEBT, LESS CURRENT PORTION (Note 4)............... 130,717,485 -- --
NOTE PAYABLE TO STOCKHOLDER (Note 8)........................ 100,000 -- 300,462
------------ ------------ ------------
Total liabilities................................... 307,360,952 309,466,435 361,253,629
COMMITMENTS AND CONTINGENCIES
(Notes 6 and 9)
MINORITY INTEREST IN AMERICAN INTERNATIONAL CARGO........... 3,944,070 3,551,735 3,572,437
STOCKHOLDER'S EQUITY (Note 5):
Common stock, par value $1 per share, authorized 275,000
shares in 1995, 1996 and 1997, issued and outstanding
53,000 shares in 1995, 1996 and 1997.................... 53,000 53,000 53,000
Additional paid-in capital.................................. 14,062,669 17,839,157 17,839,157
Retained earnings........................................... 52,176,130 49,192,954 17,757,985
------------ ------------ ------------
Total stockholder's equity.......................... 66,291,799 67,085,111 35,650,142
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................. $377,596,821 $380,103,281 $400,476,208
============ ============ ============
</TABLE>
See notes to combined financial statements.
F-2
<PAGE> 7
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (Note 9):
Air transportation services..... $298,080,850 $359,404,248 $388,192,479 $275,211,481 $302,344,768
Maintenance and other........... 7,448,982 14,278,793 36,348,245 25,801,347 23,299,368
------------ ------------ ------------ ------------ ------------
Total revenues........... 305,529,832 373,683,041 424,540,724 301,012,828 325,644,136
Operating Costs and Expenses:
Flight.......................... 115,613,706 168,774,779 150,255,587 107,006,096 126,207,639
Maintenance..................... 64,722,079 103,388,710 115,081,955 81,561,290 107,432,257
Fuel............................ 57,361,888 54,538,321 82,717,539 58,433,493 55,094,783
Depreciation.................... 13,809,281 20,971,405 32,091,119 23,958,549 26,467,600
Selling, general and
administrative................ 13,272,361 21,676,079 21,889,355 15,353,022 17,847,884
Provision for doubtful
accounts...................... 2,231,485 1,862,283 1,010,663 2,386,059 1,633,958
------------ ------------ ------------ ------------ ------------
Total cost and
expenses............... 267,010,800 371,211,577 403,046,218 288,698,509 334,684,121
------------ ------------ ------------ ------------ ------------
Income (Loss) from Operations..... 38,519,032 2,471,464 21,494,506 12,314,319 (9,039,985)
Other Income (Expense):
Interest expense, net........... (8,007,389) (14,748,611) (21,632,389) (15,755,315) (19,740,204)
Gain on disposition of property
and equipment, net............ 3,389,881 11,707,673 130,934 425,742 624,395
Gain on contract settlement..... -- -- 1,123,200 1,123,200 --
Gain on insurance
reimbursement................. -- 8,147,878 -- -- 542,302
Merger related costs............ -- -- -- -- (1,269,100)
Net, miscellaneous.............. (550,000) (110) 13,116 13,214 --
------------ ------------ ------------ ------------ ------------
Total other (expense)
income................. (5,167,508) 5,106,830 (20,365,139) (14,193,159) (19,842,607)
------------ ------------ ------------ ------------ ------------
Income (Loss) Before Minority
Interest in American
International Cargo............. 33,351,524 7,578,294 1,129,367 (1,878,840) (28,882,592)
Minority Interest in American
International Cargo............. (2,758,372) (3,092,513) (1,146,019) (907,730) (1,858,958)
------------ ------------ ------------ ------------ ------------
Net Income (Loss)................. $ 30,593,152 $ 4,485,781 $ (16,652) $ (2,786,570) $(30,741,550)
============ ============ ============ ============ ============
Unaudited Pro forma Data (Note 1):
Income (loss) before provision
for income taxes.............. $ 30,593,152 $ 4,485,781 $ (16,652) $ (2,786,570) $(30,741,550)
Provision for income taxes...... 11,625,398 1,704,597 -- -- --
------------ ------------ ------------ ------------ ------------
Pro forma net income (loss)....... $ 18,967,754 $ 2,781,184 $ (16,652) $ (2,786,570) $(30,741,550)
============ ============ ============ ============ ============
</TABLE>
See notes to combined financial statements.
F-3
<PAGE> 8
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
AMERICAN KALITTA AMERICAN FLIGHT
INTERNATIONAL FLYING O.K. GRAND INTERNATIONAL ONE
AIRWAYS SERVICES, TURBINES, HOLDINGS, TRAVEL, LOGISTICS
INC. INC. INC. INC. INC. INC. TOTAL
------------- --------- --------- --------- ------------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993..... $25,000 $25,000 $1,000 $ -- $ -- $ -- $51,000
Acquisition of Grand
Holdings, Inc. (Note 2).... -- -- -- 100 -- -- 100
Distributions to
stockholder................ -- -- -- -- -- -- --
Net income................... -- -- -- -- -- -- --
------- ------- ------ ----- ------ ------ -------
Balance, December 31, 1994..... 25,000 25,000 1,000 100 -- -- 51,100
Issuance of common stock..... -- -- -- -- 1,000 1,000 2,000
Disposal of Grand Holdings,
Inc. (Note 2).............. -- -- -- (100) -- -- (100)
Contributions by stockholder
(Note 2)................... -- -- -- -- -- -- --
Distributions to
stockholder................ -- -- -- -- -- -- --
Net income................... -- -- -- -- -- -- --
------- ------- ------ ----- ------ ------ -------
Balance, December 31, 1995..... 25,000 25,000 1,000 -- 1,000 1,000 53,000
Contributions by
stockholder................ -- -- -- -- -- -- --
Distributions to
stockholder................ -- -- -- -- -- -- --
Net loss..................... -- -- -- -- -- -- --
------- ------- ------ ----- ------ ------ -------
Balance, December 31, 1996..... 25,000 25,000 1,000 -- 1,000 1,000 53,000
Distributions to stockholder
(unaudited)................ -- -- -- -- -- -- --
Net loss (unaudited)......... -- -- -- -- -- -- --
------- ------- ------ ----- ------ ------ -------
Balance, September 30, 1997
(Unaudited).................. $25,000 $25,000 $1,000 $ -- $1,000 $1,000 $53,000
======= ======= ====== ===== ====== ====== =======
<CAPTION>
ADDITIONAL
PAID-IN RETAINED
CAPITAL EARNINGS
----------- ------------
<S> <C> <C>
Balance, December 31, 1993..... $ 7,054,995 $ 39,354,622
Acquisition of Grand
Holdings, Inc. (Note 2).... 8,875,000 --
Distributions to
stockholder................ -- (8,830,125)
Net income................... -- 30,593,152
----------- ------------
Balance, December 31, 1994..... 15,929,995 61,117,649
Issuance of common stock..... -- --
Disposal of Grand Holdings,
Inc. (Note 2).............. (8,875,000) 303,411
Contributions by stockholder
(Note 2)................... 7,007,674 --
Distributions to
stockholder................ -- (13,730,711)
Net income................... -- 4,485,781
----------- ------------
Balance, December 31, 1995..... 14,062,669 52,176,130
Contributions by
stockholder................ 3,776,488 --
Distributions to
stockholder................ -- (2,966,524)
Net loss..................... -- (16,652)
----------- ------------
Balance, December 31, 1996..... 17,839,157 49,192,954
Distributions to stockholder
(unaudited)................ -- (693,419)
Net loss (unaudited)......... -- (30,741,550)
----------- ------------
Balance, September 30, 1997
(Unaudited).................. $17,839,157 $ 17,757,985
=========== ============
</TABLE>
See notes to combined financial statements.
F-4
<PAGE> 9
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ---------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 30,593,152 $ 4,485,781 $ (16,652) $ (2,786,570) $(30,741,550)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation................................. 13,809,281 20,971,405 32,091,119 23,958,549 26,467,600
Provision for doubtful accounts.............. 2,231,485 1,862,283 1,010,663 2,386,059 1,633,958
Gain (loss) on disposition of property and
equipment.................................. (3,389,881) (11,707,673) (130,934) (425,742) (624,395)
Minority interest in American International
Cargo...................................... 2,758,372 3,093,262 1,143,637 907,730 1,858,958
Changes in assets and liabilities which
provided (used) cash:
Restricted cash............................ -- -- -- -- (11,000,000)
Accounts receivable........................ (20,725,807) (17,819,263) 21,611,518 33,008,115 2,819,463
Expendable parts and supplies.............. (4,454,286) (3,470,152) (7,034,678) (3,987,431) (4,118,881)
Deposits, prepaid expenses and other
assets................................... (1,845,978) (3,740,088) (3,972,997) (3,327,352) (1,466,394)
Aircraft held for resale................... (6,975,000) 21,754,521 (1,702,354) (440,061) (1,261,293)
Accounts payable........................... 17,099,346 26,128,641 (20,398,691) (21,757,622) 4,543,332
Accrued liabilities........................ 4,742,342 7,956,796 3,829,895 140,188 (1,203,376)
------------ ------------ ------------ ------------ ------------
Total adjustments........................ 3,249,874 45,029,732 26,447,178 30,462,433 17,648,972
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities............................. 33,843,026 49,515,513 26,430,526 27,675,863 (13,092,578)
Cash flows from investing activities:
Purchase of property and equipment............. (77,831,613) (153,719,347) (53,413,262) (43,597,858) (54,508,576)
Proceeds from disposition of property and
equipment.................................... 5,250,000 33,603,329 11,008,725 10,145,798 55,127,500
Collections on note receivable................. 139,620 119,324 53,163 53,163 --
Issuance of notes receivable to affiliated
company...................................... -- -- -- -- (777,284)
Disposal of Grand Holdings, Inc., net of
cash......................................... -- (948,818) -- -- --
Acquisition of Grand-Holdings, Inc. net of cash
acquired..................................... (97,077) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities............................. (72,539,070) (120,945,512) (42,351,374) (33,398,897) (158,360)
Cash flows from financing activities:
Repayments of notes and long-term debt......... (21,997,617) (36,899,953) (52,117,964) (53,307,078) (63,198,575)
Borrowings under notes and long-term debt
agreements................................... 74,466,207 119,952,548 70,097,213 61,295,530 79,640,259
Net (repayments) borrowings under note payable
to stockholder............................... -- 14,000 (100,000) 340,462 300,462
Issuance of common stock....................... -- 2,000 -- -- --
Contribution of capital by stockholder......... -- 554,102 3,776,488 3,759,903 --
Distributions to American International Cargo
minority stockholder......................... (1,367,328) (2,106,000) (1,535,972) (1,540,000) (1,840,000)
Distributions to stockholder................... (8,830,125) (13,730,711) (2,966,524) (2,580,655) (693,419)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities............................. 42,271,137 67,785,986 17,153,241 7,968,162 14,208,727
------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash...................... 3,575,093 (3,644,013) 1,232,393 2,245,128 957,789
Cash, beginning of period........................ 1,160,880 4,735,973 1,091,960 1,091,960 2,324,353
------------ ------------ ------------ ------------ ------------
Cash, end of period.............................. $ 4,735,973 $ 1,091,960 $ 2,324,353 $ 3,337,088 $ 3,282,142
============ ============ ============ ============ ============
Supplemental disclosure of cash flow
information -- Cash paid during the period for
interest....................................... $ 7,677,452 $ 16,334,750 $ 21,806,688 $ 13,688,820 $ 18,916,308
============ ============ ============ ============ ============
</TABLE>
F-5
<PAGE> 10
Noncash operating and investing activities:
In 1994, the Companies transferred assets with a net book value of $738,094
from property and equipment to aircraft held for resale.
In 1995, the sole stockholder sold 80% of Grand Holdings, Inc. The nonmonetary
combining effect on the Companies was $8,193,747.
In 1995, the Companies refinanced $680,000 of notes payable to a bank on a
long-term basis.
In 1995, the sole stockholder of the Companies contributed property and
equipment of $6,453,572.
In 1996, the Companies transferred assets with a net book value of $1,436,000
from aircraft held for resale to property and equipment.
In 1996, the Companies transferred assets with a net book value of $1,376,608
from property and equipment to inventory.
In 1996, the Companies received $795,030 in restricted cash from customers for
deposit.
In 1996, the Companies deferred a $878,894 loss on the sale-leaseback of an
aircraft held for resale.
In 1997 (unaudited), the Companies sold certain assets held for resale for
$1,150,000 in exchange for accounts receivable and reduction of outstanding
liabilities.
In 1997 (unaudited), the Companies received $2,241,894 in restricted cash from
customers for deposit.
In 1997 (unaudited), the Companies transferred assets with a net book value of
$137,000 from inventory to property and equipment.
In 1997 (unaudited), the Companies transferred assets with a net book value of
$635,774 from property and equipment to assets held for resale.
In 1997 (unaudited), the Companies netted $217,086 due under notes receivable
with outstanding liabilities.
In 1997 (unaudited), the Companies deferred a gain of $30,255,291 on the sale
of 16 Boeing 727 aircraft to Kitty Hawk.
See notes to combined financial statements.
F-6
<PAGE> 11
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description -- American International Airways, Inc. and its
related companies (the "Companies") provide worldwide scheduled air cargo and
charter services. The scheduled air cargo delivery business includes an
overnight freight service operating within a network of North American cities.
By integrating their scheduled and charter freight business and scheduled air
cargo from the United States to the Far East, the Companies are able to provide
air express delivery of virtually any type of air freight throughout the world.
The Companies also provide a wide variety of aviation services, including ground
handling support and airframe and engine maintenance and overhaul for their own
aircraft and for other aircraft operators, travel services for the Companies'
flight crews and maintenance personnel, and air charter management and services
for the Companies.
Significant Accounting Policies:
Principles of Combined Financial Statements -- The combined financial
statements include the accounts of American International Airways, Inc. and its
60% owned partnership, American International Cargo ("AIA"); and related
companies Kalitta Flying Services, Inc. ("KFS"), O.K. Turbines, Inc. ("O.K."),
American International Travel, Inc. ("AIT") and Flight One Logistics, Inc.
("FOL") (collectively referred to as the "Companies"). Combined financial
statements are presented because AIA and the related companies are owned by the
same individual and are operated by common management. All significant
intercompany accounts and transactions have been eliminated.
Interim Financial Statements -- The combined financial statements as of and
for the nine months ended September 30, 1996 and 1997 reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations for such
periods.
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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Financial Instruments of the Companies consist principally of accounts
receivable, accounts payable, notes payable to stockholder, debt and letters of
credit. The recorded value of financial instruments included in the financial
statements approximates fair value.
Restricted Cash represents passenger customer deposits held in escrow with
a corresponding credit to deferred revenue until the charter services are
provided. In addition, at September 30, 1997, $11 million was held in escrow for
the modification of a Boeing 747 aircraft (unaudited).
Accounts Receivable are net of an allowance of $2,062,000 and $2,389,000
for the years ended December 31, 1995 and 1996 and $3,381,000 for the nine
months ended September 30, 1997 (unaudited), respectively.
Expendable Parts and Supplies are carried at the lower of cost (using the
first-in, first-out method or average cost convention) or market.
Aircraft Held for Resale -- The Companies may periodically purchase
aircraft for resale. These aircraft are carried at the lower of cost or net
realizable value. The long-term portion of debt associated with these aircraft
is classified as current (Note 4). The sale of such assets is expected within
twelve months.
F-7
<PAGE> 12
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Building and leasehold improvements......................... 5 - 40
Aircraft.................................................... 5 - 14
Equipment................................................... 3 - 10
Rotable parts............................................... 3 - 7
</TABLE>
During 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121").
SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to these assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS 121 is required to be adopted for the
Companies' 1996 fiscal year. The Companies have completed the process of
evaluating the impact on the combined financial statements that will result from
adopting SFAS 121 and does not believe the effect to be material.
Rotable Parts are net of an allowance of $1,016,667 and $816,667 for the
years ended December 31, 1995 and 1996 and $1,016,667 for the nine months ended
September 30, 1997 (unaudited), respectively.
Aircraft In Modification includes aircraft in the process of being
converted from passenger to freighter configuration.
Accounts Payable Trade includes bank overdrafts of $4,954,225 and
$4,812,147 at December 31, 1995 and 1996 and $5,430,166 at September 30, 1997
(unaudited), respectively.
Revenue Recognition -- Revenue from scheduled and chartered services
represent charges for movement of air cargo and passengers and is recognized
when movement is complete. Revenue for maintenance, overhaul and repair services
is recognized when services are rendered.
Export Sales -- The Companies consider sales of services to unaffiliated
customers in foreign countries as export sales.
Taxes on Income -- The Companies have elected to be taxed as S Corporations
under the Internal Revenue Code. As S Corporations, the income of the Companies
is taxable to the sole stockholder and, accordingly, these combined financial
statements do not include a provision for corporate income taxes.
Approximately $3,390,000 of the Companies' retained earnings at December
31, 1996 was earned prior to the S Corporation elections and would be taxed to
the sole stockholder in the event of distribution.
The unaudited pro forma provision for income taxes reported on the combined
statements of operations shows the approximate federal and state income taxes
(by applying statutory rates) that would have been incurred if the Companies had
been subject to tax as a C Corporation. No tax benefit has been provided for the
year ended December 31, 1996 and for the nine months ended September 30, 1996
and 1997 due to the uncertainty of the Companies' ability to recover such
benefits.
Interest Costs -- Interest on funds used to finance the acquisition and
modification of aircraft up to the date the asset is placed in service is
capitalized and included in the cost of the asset. Interest capitalized during
the years ended December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1996 was $668,000, $1,692,000, $562,000 and $533,000,
respectively. No interest cost was capitalized for the nine months ended
September 30, 1997 (unaudited).
F-8
<PAGE> 13
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Transactions -- All significant monetary transactions of the
Companies are denominated in U.S. currency.
Reclassifications -- Certain reclassifications were made to the 1994, 1995
and 1996 financial statements to conform with the classifications used in 1997.
2. ACQUISITION AND DISPOSAL OF RELATED COMPANY
On December 31, 1994, the sole stockholder of the Companies acquired all
outstanding shares of Grand Holdings, Inc. ("GHI") for $8,875,100 in cash and
notes. GHI operated a charter passenger service. The acquisition was accounted
for under the purchase method of accounting and, accordingly, the purchase price
was allocated to the fair value of assets acquired and liabilities assumed. The
primary assets acquired from the transaction were three aircraft.
On June 30, 1995, the sole stockholder of the Companies sold 80% of his
share in Grand Holdings, Inc. ("GHI"). Prior to June 30, 1995, the aircraft of
GHI were distributed to the sole stockholder and in turn contributed to AIA.
3. NOTES PAYABLE TO BANK
Notes payable to banks consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current:
Outstanding borrowings on a bridge loan with a bank
(Note 10), at the bank's prime rate plus 2%
(10.25% effective rate at December 31, 1996),
expires December 9, 1999. Under the terms of the
bridge loan, the Companies may borrow up to
$14,250,000 to cover the purchase and
modification of certain aircraft until permanent
financing is obtained. The principal collateral
for the bridge loan is the related aircraft. The
loan is also secured by all assets of KFS and the
assignment of a life insurance policy on the
stockholder and the guaranty of the
stockholder...................................... $ 9,456,496 $ -- $ --
Outstanding borrowings on a $3,000,000 revolving
credit agreement with a bank under which the
Companies may borrow up to 75% on eligible
accounts receivable. The agreement calls for
interest at the bank's prime rate plus .5% (8.75%
effective rate at December 31, 1996). Security
consists of accounts receivable and the guaranty
of the stockholder and the minority interest
holder of American International Cargo........... 2,770,000 1,024,035 2,994,849
----------- ----------- -----------
Total....................................... $12,226,496 $ 1,024,035 $ 2,994,849
=========== =========== ===========
</TABLE>
F-9
<PAGE> 14
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Long-term, reclassified as current:
Outstanding borrowings on a $60,000,000 revolving
credit agreement with a bank under which the
Companies may borrow on eligible accounts
receivable, a percentage of eligible rotable and
consumable parts and 50% of the fair value of
eligible aircraft. The agreement calls for
interest at the bank's prime rate plus 1.25%
(9.5% effective at December 31, 1996). The
agreement expires December 9, 1999 at which time
the entire amount outstanding is due. At December
31, 1996 and September 30, 1997 (unaudited), the
credit available was $4,521,537 and $1,410,137,
respectively. Security consists of accounts
receivable and aircraft spare parts as well as an
assignment of life insurance policy on the
stockholder. Also secured by all assets of KFS
and guaranteed by the stockholder................ $ -- $47,105,413 $55,434,351
=========== =========== ===========
Long-Term:
Outstanding borrowings on a $40,000,000 revolving
credit agreement with a bank under which the
Companies may borrow on eligible accounts
receivable. The agreement calls for interest at
the bank's prime rate plus .5% (9% effective at
December 31, 1995). The agreement expires June 1,
1997 at which time the entire amount outstanding
is due. Security consists of accounts receivable
and aircraft spare parts as well as an assignment
of life insurance policy on the stockholder. The
note is also secured by all assets of KFS and
guaranteed by the stockholder.................... $34,983,000 $ -- $ --
=========== =========== ===========
</TABLE>
These credit agreements include certain restrictive covenants. At December
31, 1996, the Companies were in violation of the following covenants: (1)
maintaining a combined fixed charge ratio of 1 to 1 and (2) certain cross
collateralization covenants. As a result of these and other non-financial loan
covenant violations, all debt has been classified as current.
At September 30, 1997 (unaudited), the Companies had failed to make certain
principal payments and were in violation of the following covenants: (1)
maintaining a minimum tangible net worth of not less than $60 million; (2)
maintaining a minimum debt to net worth ratio of not more than 5 to 1 and (3)
certain cross collateralization covenants. As a result of these and other
non-financial loan covenant violations, all debt has been classified as current.
F-10
<PAGE> 15
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------
1995 1996 1997
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Various notes payable with interest rates ranging
from 7.49% to 12%. Certain interest rates are at
prime plus 1% to 2.5% (9.25% to 10.75% effective
rates at December 31, 1996). The notes are
secured by property and equipment with a net book
value of $231,792,981. Certain notes are also
secured by substantially all of the Companies'
assets, and the personal guaranty of the
stockholder...................................... $173,162,097 $190,221,394 $196,363,319
Less:
Current maturities of long-term debt............. 37,608,059 31,568,769 88,072,920
Outstanding debt on aircraft held for resale..... 4,836,553 2,741,671 3,666,587
------------ ------------ ------------
Total.................................... 42,444,612 34,310,440 91,739,507
------------ ------------ ------------
Net long-term debt, reclassified as current........ -- 155,910,954 104,623,812
------------ ------------ ------------
Net long-term debt................................. $130,717,485 $ -- $ --
============ ============ ============
</TABLE>
Without regard to the lenders exercising their right to demand payment, the
aggregate amount of required payments on long-term debt and notes payable to
bank (Note 3) as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997................................................... $ 35,334,475
1998................................................... 69,298,498
1999................................................... 75,547,575
2000................................................... 23,925,286
2001................................................... 19,417,825
Thereafter............................................. 14,827,183
------------
Total........................................ $238,350,842
============
</TABLE>
These credit agreements include certain restrictive covenants. At December
31, 1996, the Companies were in violation of the following covenants: (1)
maintaining a minimum net worth of not less than $78 million; (2) maintaining a
debt service coverage ratio of not less than 1.2 to 1; (3) maintaining a maximum
debt to net worth ratio of not more than 4 to 1; (4) maintaining an EBITDA ratio
of not less than 1.1 to 1; and (5) certain cross collateralization covenants. As
a result of these and other non-financial loan covenant violations, all debt has
been classified as current.
At September 30, 1997 (unaudited), the Companies had failed to make certain
principal payments on indebtedness and were in violation of the following
covenants: (1) ratio of earnings to fixed charges; (2) ratio of cash flow to
fixed charges; (3) cash flow to coverage; (4) minimum net income; (5) current
ratio; (6) tangible net worth; (7) shareholder's equity; (8) debt service
coverage; (9) fixed charge coverage; (10) debt to net worth ratios; (11) certain
cross collateralization covenants as well as restrictions relating to
encumbering their assets. As a result of these and other non-financial loan
covenant violations, all debt has been classified as current.
F-11
<PAGE> 16
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Effective in July and August 1997, the Companies entered into agreements
with certain lenders for the deferment of principal payments for a period of one
to eight months. The aggregate monthly deferrals range from $693,000 to
$2,824,000. The Companies are to make interest payments only during this period.
At the end of the deferral periods, the Companies will resume principal payments
in accordance with the terms of the loan agreement.
5. COMMON STOCK
Common stock of the Companies is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------ -------------
1995 1996 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
American International Airways, Inc., $1 par value;
25,000 shares authorized, 25,000 shares issued and
outstanding....................................... $25,000 $25,000 $25,000
Kalitta Flying Services, Inc., $1 par value; 100,000
shares authorized, 25,000 shares issued and
outstanding....................................... 25,000 25,000 25,000
O.K. Turbines, Inc., $1 par value; 50,000 shares
authorized, 1,000 shares issued and outstanding... 1,000 1,000 1,000
American International Travel, Inc., $1 par value;
50,000 shares authorized, 1,000 shares issued and
outstanding....................................... 1,000 1,000 1,000
Flight One Logistics, Inc., $1 par value; 50,000
shares authorized, 1,000 shares issued and
outstanding....................................... 1,000 1,000 1,000
------- ------- -------
Total..................................... $53,000 $53,000 $53,000
======= ======= =======
</TABLE>
6. OPERATING LEASES
The Companies lease office building, hangars, cargo storage, and related
facilities under noncancelable operating leases which expire on various dates
through 2011. In addition, the Companies periodically lease aircraft and other
equipment under month-to-month lease agreements. Lease expense for all operating
leases was $15,659,000, $24,095,000, $10,815,000, $7,576,000 and $6,094,000, for
the years ended December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1996 and 1997 (unaudited), respectively.
Aggregate future minimum rental payments required under noncancelable
operating leases at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
Years Ending December 31:
1997.................................................. $ 3,177,000
1998.................................................. 1,950,000
1999.................................................. 1,620,000
2000.................................................. 1,006,000
2001.................................................. 789,000
Thereafter............................................ 5,685,000
-----------
Total minimum rental payments................. $14,227,000
===========
</TABLE>
F-12
<PAGE> 17
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. EMPLOYEE SAVINGS PLAN
The Companies have three separate 401(k) employee savings plans, covering
substantially all employees. The Companies' contributions to the plans are
discretionary and were $133,000, $158,000, $353,000, $4,430 and $91,771, for the
years ended December 31, 1994, 1995 and 1996 and for the nine months ended
September 30, 1996 and 1997 (unaudited), respectively.
8. RELATED PARTY TRANSACTIONS
The Companies lease certain aircraft to a company owned and operated by a
relative of the sole stockholder of the Companies. In addition to providing
services to unrelated third parties, the related company flies subcharter
flights for the Companies and also provides lift capacity for the Companies'
overnight scheduled cargo service. The Companies perform ground handling for the
related company in certain locations. The related company also reimburses the
Companies for certain applicable fuel, parking and landing and ground handling
paid on the related company's behalf.
The Companies also have certain transactions with an affiliated company
that is partially owned by the Companies' sole stockholder. The remaining
ownership of this affiliated company are relatives of the sole stockholder of
the Companies. The Companies lease an office facility from this affiliated
company for an annual rent of approximately $713,000. The lease expires May 14,
2007.
Transactions and balances with related parties were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Transactions and balances
with sole stockholder:
Note payable, noninterest
bearing................ $ -- $ 100,000 $ -- $ -- $ 300,462
Contribution of cash...... -- 473,972 2,266,630 -- --
Contribution of aircraft
and equipment.......... -- 6,453,572 -- -- --
Transactions with a company
owned by a relative of the
sole stockholder:
Revenues.................. 352,800 11,582,257 5,176,150 5,043,643 916,849
Cost of revenues.......... 2,366,288 6,097,447 28,727 28,646 121,511
Sale of DC8............... -- 5,200,000 -- -- --
Transactions and balances
with an affiliated
company:
Receivable from affiliated
company................... -- -- -- -- 777,284
Rental expense............ -- -- -- -- 266,342
Transactions with GHI --
Purchase of three DC8
engines................... -- 1,950,000 -- -- --
Transactions with sole
stockholder and relatives
of the sole stockholder --
Promotional revenues...... 830,616 1,257,771 1,206,529 898,209 315,934
Promotional expenses...... 2,602,038 3,643,611 3,096,724 2,128,292 2,344,562
</TABLE>
F-13
<PAGE> 18
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
Purchase Commitments -- In March 1997, the Companies committed to purchase
three Boeing 747-200 aircraft and associated engines, four additional spare
engines and certain other related spare parts for approximately $63,000,000. In
connection with these purchase commitments, the Companies intend to modify these
aircraft for approximately $24,000,000. The Companies took delivery of one of
the aircraft and a spare engine on September 26, 1997, for $21 million and
negotiated a revised agreement to purchase the remaining two aircraft and
related spare parts for $42 million which includes a $1 million non-refundable
deposit and a $1 million option purchase price which the seller can retain if
the Companies fail to complete the purchase by February 16, 1998.
In July 1997, the Companies purchased two L1011 aircraft for a total
purchase price of $7,000,000. In connection with this purchase, the Companies
have a commitment for the modification of these aircraft for $11,400,000.
In addition, the Companies have a nonrefundable deposit of $320,000 with
respect to a purchase commitment of $1,400,000. The realization of this deposit
is dependent upon the Companies' ability to fulfill this purchase commitment.
Letters of Credit -- The Companies' banks have issued to various airports
and suppliers letters of credit totaling $5,071,000, $3,088,000, and $3,155,512,
at December 31, 1995 and 1996 and September 30, 1997, respectively, against
which accounts receivable are pledged as collateral. The last of the letters of
credit expires in 1998.
Legal Proceedings, Claims and Other -- The Companies are subject to legal
proceedings and claims which have arisen in the ordinary course of business.
Management intends to vigorously defend against these legal proceedings and
believes, based upon the advice of legal counsel, that the outcome will not have
a materially adverse effect on the Companies' financial position, results of
operations, or cash flows.
In January 1996, the FAA issued a series of Directives on certain Boeing
747 aircraft which were modified for freight hauling by GATX-Airlog Company, a
subsidiary of General American Transportation Corp ("GATX"). The Directives,
which became effective on January 30, 1996, were issued because of concerns
relating to the integrity of the cargo door and surrounding floor area in the
event the aircraft were operated at their maximum cargo capacity of
approximately 220,000 pounds. In spite of the fact that the aircraft affected by
the Directives have flown over 83,000 hours without incident, the Directives
require certain modifications to be made to the aircraft. Absent such
modifications, the Directives limit the cargo capacity of these aircraft to
120,000 lbs., a limit which restricts the Companies' ability to profitably
operate the aircraft.
One of each of the Companies' Boeing 747-200 and Boeing 747-100 freighters
are affected by these Directives and have been out of service since January
1996. GATX has proposed a solution to the problem identified by one of the
Directives which has been approved by the FAA. An appropriate means to test the
proposed solution, however, has not yet been identified. Currently, the
Companies anticipate modifying the Boeing 747-100 to be in compliance with a
portion of the Directive for which the FAA has approved a solution by the latter
half of 1998, which will allow the Companies to operate it with a reduced cargo
capacity of 160,000 lbs. The Companies are awaiting engineering solutions to
address the remaining Directives. If the cost necessary to fully implement these
solutions and return both the Boeing 747-100 and -200 to maximum cargo capacity
is uneconomical, the Companies may either operate one or both of the aircraft at
limited load or use one or both for spare parts. The Companies are currently
involved in litigation against GATX to recover the cost to repair these aircraft
as well as revenues lost as a consequence of the aircraft downtime.
In September 1996 pursuant to the FAA's National Aviation Safety Inspection
Program, the Companies underwent a broad but routine inspection of all of the
Companies' aircraft and maintenance operations. This
F-14
<PAGE> 19
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
inspection resulted in a report from the FAA citing the Companies with a number
of regulatory infractions, none of which were sufficiently serious to cause the
FAA to curtail or otherwise restrict any of the Companies' operations. As a
consequence of the FAA's inspection, however, the FAA and the Companies entered
into a Consent Order in January 1997 which required the Companies to revise
certain internal policies and procedures to address the regulatory violations
noted in the inspection report as well as enforcement actions that had been
pending prior to the inspection. Without admitting any fault, the Companies
agreed to pay a fine of $450,000, one-third of which is suspended and will be
forgiven if the Companies comply with all the terms of the Consent Order. At
this time, management believes the Companies are in compliance with the Consent
Order and expect the FAA to conduct another inspection of similar scope in the
fourth quarter of 1997 to verify such compliance. The Consent Order also
provides that it is a full and conclusive settlement of any civil penalties the
Companies could incur for regulatory violations occurring before January 1,
1997, but does not preclude the FAA from taking enforcement action to revoke the
Companies' air carrier operating certificate.
Only six of the Companies' twenty Douglas DC-8 aircraft comply with the FAA
Stage III noise control standards. The Companies may elect not to modify the
fourteen remaining Douglas DC-8 aircraft to meet the Stage III noise control
standards because the anticipated cost of approximately $3.5 million per
aircraft (not including aircraft downtime) may exceed the economic benefits of
such modifications. If the Companies cannot or do not modify these fourteen
Douglas DC-8 aircraft, the Companies will have to remove these aircraft from
service in the United States before January 1, 2000 and may have to replace them
with other aircraft. In addition, thirteen of the Companies' Boeing 727 aircraft
currently do not comply with the Stage III noise control standards. The
Companies currently anticipate modifying their Boeing 727 fleet (at an
anticipated cost of approximately $24 million) to be in compliance with the
Stage III noise control standards by the applicable deadlines. However, there
can be no assurance that the Companies will have sufficient funds or be able to
obtain financing to cover the costs of these modifications or to replace such
aircraft.
10. MAJOR CUSTOMERS
The Companies had sales to two major customers which are entities of the
United States Government, representing approximately 28%, 17%, 21%, 15% and 7%
of combined revenues for the years ended December 31, 1994, 1995, 1996 and for
the nine months ended September 30, 1996 and 1997 (unaudited), respectively.
Accounts receivable from these customers were approximately $45,118,000,
$12,024,000 and $3,997,000 at December 31, 1995, 1996 and September 30, 1997
(unaudited), respectively.
11. MANAGEMENT'S PLANS -- SALE OF AIRCRAFT AND PLANNED MERGER
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Companies (1) are experiencing
difficulty in generating sufficient cash flows to meet their obligations and
sustain their operations, (2) failed to make certain principal payments and are
not in compliance with certain covenants of their long-term debt agreements (3)
have negative working capital and (4) have incurred substantial losses
subsequent to December 31, 1996. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary
should the Companies be unable to continue as a going concern. The Companies'
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet their obligations on a timely basis, to comply with
the terms and covenants of their financing agreements, to obtain additional
financing or refinancing as may be required, and ultimately to attain successful
operations. Management is continuing its efforts to obtain additional funds so
that the Company can meet its obligations and sustain operations from sources
that are described below.
F-15
<PAGE> 20
AMERICAN INTERNATIONAL AIRWAYS, INC.
AND RELATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On September 22, 1997, the Companies, the sole stockholder of the
Companies, and Kitty Hawk, Inc. ("Kitty Hawk") entered into a merger agreement,
under which each of the respective Companies will be merged with separate
subsidiaries of Kitty Hawk, with each of the Companies surviving the merger as a
direct, wholly owned subsidiary of Kitty Hawk. On October 23, 1997, the merger
agreement was amended so that at the effective time of the merger, the
outstanding shares of capital stock of four Companies (AIA, AIT, FOL and O.K.)
will be converted, into the right to receive their prorata portion of 4,099,150
shares of Kitty Hawk common stock (unaudited). The outstanding shares of capital
stock of KFS will be converted into the right to receive $20,000,000.
Concurrent with the consummation of the merger agreement will be the
closing of a proposed 3,000,000 share common stock offering (of which Kitty Hawk
will sell 2,200,000 shares, not including up to 450,000 additional shares for
which Kitty Hawk has granted the underwriters a 30 day option to purchase) and
the consummation of a proposed note offering under Rule 144A of the Securities
Act for $340,000,000 aggregate principal amount of senior secured notes of Kitty
Hawk. The proceeds of the notes and a portion of the proceeds of the sale of
shares will be used to pay the cash portion of the acquisition of the Companies
and to refinance and restructure the outstanding debt of the Companies and Kitty
Hawk.
As an interim step toward the merger, on September 17, 1997, the Companies
sold to Kitty Hawk sixteen Boeing 727-200 aircraft constituting the Companies'
727-200 fleet for approximately $51 million. This interim transaction was deemed
necessary in order to generate cash to be used to pay for the acquisition of a
Boeing 747 aircraft from an unrelated third party (see Note 9), to acquire an
L-1011 aircraft and provide the Companies with working capital. As part of the
transaction, the Companies assigned to Kitty Hawk all of its customer contracts
relating to the aircraft sold. The purchase agreement provides the Companies the
option to repurchase, no later than March 31, 1998, all except three of the
727-200 aircraft from Kitty Hawk at Kitty Hawk's purchase price, less $14
million for the three aircraft not subject to the option, plus any costs
incurred by Kitty Hawk to maintain the repurchased aircraft. Similarly, Kitty
Hawk has the option to require the Companies to repurchase, no later than
December 31, 1997, all except three of the 727-200 aircraft at Kitty Hawk's
purchase price less $14 million for the three aircraft not subject to the
option, plus any costs incurred by Kitty Hawk to maintain the repurchased
aircraft. At September 30, 1997, the Companies deferred a gain of approximately
$30 million (unaudited) in connection with this transaction. This gain will be
recognized if the merger is not finalized and the put and call options are not
exercised.
F-16
<PAGE> 21
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following sets forth the Company's Unaudited Pro Forma Combined
Financial Information for 1996 and the nine months ended September 30, 1997,
in each case giving effect to (i) the Company's November 1997 3,000,000 share
common stock offering (2,200,000 shares of which were sold by the Company and
800,000 shares of which were sold by certain stockholders of the Company) (the
"Common Stock Offering"), (ii) the Company's November 1997 $340 million senior
secured note offering (the "Note Offering"), (iii) the Company's November 1997
acquisition of the Kalitta Companies by merger (the "Merger"), (iv) the November
1997 refinancing of all but approximately $10 million of the outstanding
indebtedness of the Company and the Kalitta Companies with a portion of the net
proceeds of the Common Stock Offering, the Note Offering and a new $45.9 million
term loan (the "Refinancings"), (v) a $750,000 distribution by the Kalitta
Companies to Mr. Kalitta for a portion of his 1997 income tax liability (the
"Kalitta Tax Distribution") and (vi) the sale of a Hawker Siddeley HS-125
aircraft by the Kalitta Companies to Mr. Kalitta (the "Hawker Sale"). The
Company's Unaudited Pro Forma Combined Statement of Operations Information
gives effect to the Common Stock Offering, the Note Offering, the Merger, the
Refinancings, the Kalitta Tax Distribution and the Hawker Sale, as if they had
been consummated at the beginning of 1996. The Company's Unaudited Pro Forma
Combined Balance Sheet Information gives effect to the Common Stock Offering,
the Note Offering, the Merger, the Refinancings, the Kalitta Tax Distribution
and the Hawker Sale as if they had been consummated on September 30, 1997.
The Unaudited Pro Forma Combined Financial Information of the Company is
presented for illustrative purposes only and does not purport to present the
financial position or results of operations of the Company had the Common
Stock Offering, the Note Offering, the Merger, the Refinancings, the Kalitta
Tax Distribution and the Hawker Sale occurred on the dates indicated, nor are
they necessarily indicative of the results of operations which may be expected
to occur in the future. The Unaudited Pro Forma Combined Financial Information
should be read in conjunction with the separate historical financial statements
of Kitty Hawk appearing in its annual and transition reports on Form 10-K and
of the Kalitta Companies appearing elsewhere in this Form 8-K. Certain amounts
reported in the Kalitta Companies' historical combined financial statements
have been reclassified to conform with the Kitty Hawk presentations in the
Unaudited Pro Forma Combined Financial Information.
The accompanying Unaudited Pro Forma Combined Financial Information has
been prepared under guidelines established by Article 11 of Regulation S-X
under the Securities Act. Under those guidelines, there are limitations on the
adjustments that can be made in the presentation of pro forma financial
information. Accordingly, no pro forma adjustments have been applied to reflect
(i) revenues or operating costs expected to be generated from two Boeing 747s
expected to be purchased and modified to cargo configuration with approximately
$56 million of the net proceeds from the Note Offering or the recent purchase of
one Boeing 747 or (ii) operating efficiencies or cost savings (other than
approximately $1.5 million of insurance savings) expected to result from the
Merger. In addition, pro forma results have not been adjusted to eliminate
abnormally high engine overhaul expenses, costs incurred to add and maintain
flight crews in anticipation of increased air freight carrier business which
has not yet materialized in part due to delays in acquiring aircraft and
start-up costs associated with establishing the Kalitta Companies' wide-body
passenger charter business.
The historical balance sheet information for Kitty Hawk and the Kalitta
Companies has been derived from the unaudited September 30, 1997 balance sheets
of Kitty Hawk appearing in its quarterly report on Form 10-Q for the quarter
ended September 30, 1997 and of the Kalitta Companies included elsewhere in this
Form 8-K. The historical statement of operations data for 1996 has been derived
from unaudited information presented in Footnote 10 to Kitty Hawk's audited
financial statements included in its transition report on Form 10-K and from
the audited combined statements of operations of the Kalitta Companies for the
year ended December 31, 1996 included elsewhere in this Form 8-K. The
historical statement of operations data for Kitty Hawk and the Kalitta
Companies for the nine months ended September 30, 1997 has been derived from
the unaudited statements of operations for the nine months ended September 30,
1997 of Kitty Hawk appearing in its quarterly report on Form 10-Q for the
quarter ended September 30, 1997 and of the Kalitta Companies appearing
elsewhere in this Form 8-K.
The pro forma adjustments relating to the purchase of the Kalitta Companies
represent the Company's preliminary determinations of these adjustments and are
based upon available information and certain assumptions the Company considers
reasonable under the circumstances. Final amounts could differ from those set
forth therein and those differences could be material. The Company will finalize
its purchase price allocation subsequent to the date hereof. The unaudited
interim financial statements of Kitty Hawk referred to above include, in the
opinion of management of Kitty Hawk, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of Kitty
Hawk for the unaudited interim period. The unaudited interim financial
statements of the Kalitta Companies referred to above include, in the opinion of
management of the Kalitta Companies, all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results of the
Kalitta Companies for the unaudited interim period.
F-17
<PAGE> 22
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA
KALITTA -----------------------
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents....................... $ 2,403 $ 3,282 $ 5,9653a $ 11,650
Restricted cash................................. -- 14,037 56,0003b 70,037
Trade accounts receivable....................... 21,645 64,909 -- 86,554
Accounts receivable -- related parties.......... -- 1,255 -- 1,255
Inventory and aircraft supplies................. 5,588 24,624 -- 30,212
Prepaid expenses and other current assets....... 6,808 19,773 (101)3c 26,480
-------- -------- --------- --------
Total current assets.................... 36,444 127,880 61,864 226,188
Property and equipment, net....................... 140,357 271,819 46,2763d 458,452
Other assets...................................... -- 777 10,1233e 10,900
-------- -------- --------- --------
Total assets............................ $176,801 $400,476 $ 118,263 $695,540
======== ======== ========= ========
Current Liabilities
Accounts payable and accrued expenses........... $ 27,968 $ 75,906 $ 15,6833f $119,557
Deferred gain on sale of aircraft............... -- 30,255 (30,255)3g --
Notes payable to bank, classified as current.... -- 55,434 (55,434)3h --
Long-term debt, classified as current........... -- 196,364 (196,364)3h --
Note payable and bank line of credit............ -- 2,995 (2,995)3h --
Current maturities of long-term debt............ 8,373 -- (4,573)3h 3,800
-------- -------- --------- --------
Total current liabilities............... 36,341 360,954 (273,938) 123,357
Note payable...................................... -- 300 -- 300
Existing long-term debt........................... 72,674 -- (66,474)3h 6,200
Notes............................................. -- -- 340,0003h 340,000
Term Loan......................................... -- -- 45,9003h 45,900
Deferred income taxes............................. 2,545 -- 8,9553i 11,500
Minority interest................................. -- 3,572 -- 3,572
Stockholders' equity, net......................... 65,241 35,650 63,8204 164,711
-------- -------- --------- --------
Total liabilities and stockholders'
equity................................ $176,801 $400,476 $ 118,263 $695,540
======== ======== ========= ========
</TABLE>
See accompanying notes.
F-18
<PAGE> 23
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA
KALITTA -----------------------
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Air freight carrier.............................. $ 55,504 $388,193 $ (5,432)2a $438,265
Air logistics.................................... 77,168 -- -- 77,168
Maintenance and other............................ -- 36,348 -- 36,348
-------- -------- -------- --------
Total revenues........................... 132,672 424,541 (5,432) 551,781
Costs of Revenues:
Air freight carrier.............................. 40,860 357,830 (3,996)2b 394,694
Air logistics.................................... 67,938 -- -- 67,938
Maintenance and other............................ -- 22,316 -- 22,316
-------- -------- -------- --------
Total costs of revenues.................. 108,798 380,146 (3,996) 484,948
-------- -------- -------- --------
Gross profit (loss)................................ 23,874 44,395 (1,436) 66,833
General and administrative expenses................ 8,943 22,900 -- 31,843
Non-qualified employee profit sharing.............. 1,243 -- -- 1,243
Stock option grants to executives.................. 4,231 -- -- 4,231
-------- -------- -------- --------
Total operating expenses................. 14,417 22,900 -- 37,317
-------- -------- -------- --------
Operating income (loss)............................ 9,457 21,495 (1,436) 29,516
Other Income (expense):
Interest expense, net............................ (2,062) (21,632) (16,632)2c (40,326)
Other, net....................................... 291 1,266 -- 1,557
-------- -------- -------- --------
Income (loss) before income taxes and minority
interest......................................... 7,686 1,129 (18,068) (9,253)
Minority interest.................................. -- (1,146) -- (1,146)
-------- -------- -------- --------
Income (loss) before income taxes.................. 7,686 (17) (18,068) (10,399)
Income taxes (benefit)............................. 3,038 -- (3,038)2d --
-------- -------- -------- --------
Net income (loss)........................ $ 4,648 $ (17) $(15,030) $(10,399)
======== ======== ======== ========
Net income (loss) per share........................ $ 0.55 $ (0.70)
======== ========
Weighted average common and common equivalent
shares outstanding............................... 8,477 6,299 14,776
======== ======== ========
</TABLE>
See accompanying notes.
F-19
<PAGE> 24
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
----------------------- PRO FORMA
KALITTA ------------------------
KITTY HAWK COMPANIES ADJUSTMENTS COMBINED
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Air freight carrier...................... $55,789 $302,345 $ (4,942)2a $353,192
Air logistics............................ 45,878 -- -- 45,878
Maintenance and other.................... -- 23,299 -- 23,299
------- -------- -------- --------
Total revenues................... 101,667 325,644 (4,942) 422,369
Costs of Revenues:
Air freight carrier...................... 38,076 297,968 (16,721)2b 319,323
Air logistics............................ 42,037 -- -- 42,037
Maintenance and other.................... -- 17,235 -- 17,235
------- -------- -------- --------
Total costs of revenues.......... 80,113 315,203 (16,721) 378,595
------- -------- -------- --------
Gross profit............................... 21,554 10,441 11,779 43,774
General and administrative expenses........ 7,550 19,481 -- 27,031
Non-qualified employee profit sharing...... 1,161 -- -- 1,161
------- -------- -------- --------
Total operating expenses......... 8,711 19,481 -- 28,192
------- -------- -------- --------
Operating income (loss).................... 12,843 (9,040) 11,779 15,582
Other Income (expense):
Interest expense, net.................... (1,809) (19,740) (8,696)2c (30,245)
Other, net............................... 579 (103) -- 476
------- -------- -------- --------
Income (loss) before income taxes and
minority
interest................................. 11,613 (28,883) 3,083 (14,187)
Minority interest.......................... -- (1,859) -- (1,859)
------- -------- -------- --------
Income (loss) before income taxes.......... 11,613 (30,742) 3,083 (16,046)
Income taxes (benefit)..................... 4,645 -- (4,645)2d --
------- -------- -------- --------
Net income (loss)................ $ 6,968 $(30,742) $ 7,728 $(16,046)
======= ======== ======== ========
Net income (loss) per share................ $ 0.67 $ (0.96)
======= ========
Weighted average common and common
equivalent shares outstanding............ 10,452 6,299 16,751
======= ======== ========
</TABLE>
See accompanying notes.
F-20
<PAGE> 25
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
1. Allocation of Purchase Price -- Based upon the Kalitta Companies' September
30, 1997 unaudited balance sheet, the purchase price would have been
calculated and allocated as follows:
<TABLE>
<S> <C>
PURCHASE PRICE DETERMINATION:
Cash...................................................... $ 20,000
4,099,150 shares of Kitty Hawk common stock at an assumed
value of $15 per share................................. 61,487
Related expenses.......................................... 2,178
Plus fair value of liabilities assumed:
Accounts payable and accrued expenses (including
$14,933 maintenance accrual to conform to Kitty Hawk
accounting method and record the Kalitta Tax
Distribution)......................................... 91,589
Notes payable, reclassified as current................. 58,429
Long-term debt, reclassified as current, including
approximately $3,000 in early payment penalties....... 199,364
Note payable........................................... 300
Deferred income taxes.................................. 8,955
Minority interest...................................... 3,572
---------
Total purchase price to allocate.................. $ 445,874
=========
PURCHASE PRICE ALLOCATION:
Current assets............................................ $ 127,779
Property and equipment, principally aircraft.............. 318,095
---------
$ 445,874
=========
</TABLE>
The foregoing purchase price determination and allocation are based on the
September 30, 1997 Kalitta Companies' balance sheet and preliminary estimates
of fair value of assets acquired and liabilities assumed. The final purchase
price allocation is contingent upon final assessment or appraisal of the fair
value of the net assets acquired and the final consideration given.
F-21
<PAGE> 26
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
2. Pro Forma Combined Statement of Operations -- The Company's Pro Forma
Combined Statement of Operations data for the year ended December 31, 1996
and the nine months ended September 30, 1997 includes the following
adjustments:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
a. Revenues:
- Elimination of intercompany revenue................... $ (4,914) $ (4,639)
- Elimination of revenue on aircraft to be purchased by
Mr. Kalitta........................................... (518) (303)
-------- ---------
(5,432) (4,942)
-------- ---------
b. Costs of revenues:
- Elimination of intercompany revenue................... (4,914) (4,639)
- Elimination of the cost of revenues associated with
the aircraft to be purchased by Mr. Kalitta........... (466) (273)
- Conforming the Kalitta Companies' aircraft maintenance
accounting policy to that of Kitty Hawk............... (2,323) (14,534)
- Decreasing insurance costs for the combined fleet..... (1,500) (1,125)
- Increase in depreciation expense from the step-up in
fair value of acquired property and equipment,
principally aircraft, and adjusting the useful lives
of the acquired aircraft.............................. 5,207 3,850
-------- ---------
(3,996) (16,721)
-------- ---------
c. Interest expense:
- Repaying existing Kalitta Company credit facilities... 20,912 19,200
- Repaying existing Kitty Hawk credit facilities........ 1,882 1,674
- The Notes............................................. (33,830) (25,373)
- Term Loan............................................. (4,039) (3,029)
- Amortizing deferred financing costs................... (1,557) (1,168)
-------- ---------
(16,632) (8,696)
d. Adjustments to reduce income tax expense by the amount
incurred by Kitty Hawk.................................. (3,038) (4,645)
-------- ---------
$(15,030) $ 7,728
======== =========
</TABLE>
The tax effects of the remaining pro forma net operating loss carryforward at
December 31, 1996 and at September 30, 1997 have not been reflected as an
income tax benefit in the pro forma statements of operations due the
uncertainty of future realization.
Interest expense on the $340 million of senior secured notes (the "Notes") is
based upon an interest rate of 9.95%. Interest expense on the Company's $45.9
million term loan (the "Term Loan") is calculated assuming an interest rate
of 8.8%. Interest on the Term Loan currently accrues at approximately 8.7%
and subsequently will accrue at a variable rate equal to LIBOR plus 3% or a
base rate plus 1.5%, subject to reduction. Each 1/4 percentage point change
in the interest rate of the Term Loan results in a change in interest expense
of $115 and $86 for 1996 and the nine months ended September 30, 1997,
respectively.
F-22
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION -- (CONTINUED)
(DOLLARS IN THOUSANDS)
3. Pro Forma Balance Sheet -- For purposes of preparing the Unaudited Pro Forma
Combined Balance Sheet, the Kalitta Companies' assets and liabilities assumed
have been recorded at their estimated fair values, the final determination of
which has not yet been made. Accordingly, the purchase accounting adjustments
made in connection with the development of the unaudited pro forma financial
information reflect the Company's best estimate based upon currently
available information. However, such adjustments could change and such
changes may be material.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
--------------------
<S> <C> <C>
a. Cash:
- Issuing 2,200,000 shares of common stock at an offering
price of $19 per share................................. $ 41,800
- Cash payment to Mr. Kalitta............................ (20,000)
- Proceeds of the Notes.................................. 340,000
- Repaying existing credit facilities including early
payment penalties of approximately $3,000.............. (328,840)
- Restricted cash........................................ (56,000)
- Expenses of the Transactions and the Refinancings...... (16,895)
- Proceeds from the Term Loan............................ 45,900
---------
$ 5,965
b. Restricted Cash resulting from the proceeds from the Note
Offering used to fund the acquisition of two Boeing
747s..................................................... 56,000
c. Other current assets..................................... (101)
d. Property and equipment................................... 46,276
e. Other assets, principally deferred debt costs............ 10,123
f. Adjusting accrued maintenance to conform the Kalitta
Companies' accounting policy to that of Kitty Hawk and
recording the Kalitta Tax Distribution................... 15,683
g. Deferred gain on sale of aircraft........................ (30,255)
h. Adjusting debt outstanding for the following:
- The Note Offering...................................... 340,000
- Repayment of existing credit facilities................ (325,840)
- Term Loan.............................................. 45,900
---------
60,060
i. Recording deferred income taxes related to the book and
tax basis differences of the assets acquired and
liabilities assumed in the Merger........................ $ 8,955
</TABLE>
Approximately $10 million of existing debt was not refinanced in connection
with the Refinancings. This amount has been reflected on the pro forma
balance sheet as Current maturities of long-term debt and Existing
long-term debt.
4. Stockholders' Equity -- Stockholders' equity has been adjusted to reflect the
issuance of 4,099,150 shares of Kitty Hawk's common stock in conjunction with
the Merger and the issuance of 2,200,000 shares at an offering price of $19
per share.
F-23
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of September 22, 1997 (the
"Merger Agreement"), by and among Kitty Hawk, Inc., Kitty Hawk - AIA,
Inc., Kitty Hawk - AIT, Inc., Kitty Hawk - FOL, Inc., Kitty Hawk -
KFS, Inc., Kitty Hawk - OK, Inc., M. Tom Christopher, American
International Airways, Inc., American International Travel, Inc.,
Flight One Logistics, Inc., Kalitta Flying Service, Inc., O.K.
Turbines, Inc., and Conrad Kalitta. (1)
2.2 Amendment No. 1 to the Merger Agreement, dated October 23, 1997. (1)
2.3 Amendment No. 2 to the Merger Agreement, dated October 29, 1997. (1)
2.4 Amendment No. 3 to the Merger Agreement, dated November 14, 1997. (1)
23.1 Consent of Deloitte & Touche, LLP. (2)
</TABLE>
_____________
(1) Incorporated by reference from the Company's Registration Statement on
Form S-1 (Reg. No. 333-36125), dated November 1997.
(2) Filed herewith.
<PAGE> 1
EXHIBIT 23.1
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
American International Airways, Inc. and Related Companies
Ypsilanti, Michigan
We consent to the incorporation by reference in Registration Statements
333-15667, 333-28553 and 333-23597 of Kitty Hawk, Inc. on Forms S-8 pertaining
to the Kitty Hawk, Inc. Amended and Restated Annual Incentive Compensation
Plan, Kitty Hawk, Inc. Amended and Restated Employee Stock Purchase Plan and
Kitty Hawk, Inc. Amended and Restated Omnibus Securities Plan, respectively, of
our report relating to the combined financial statements of American
International Airways, Inc. and related companies (collectively the
"Companies") dated October 16, 1997 (which report expressed an unqualified
opinion and includes an explanatory paragraph which indicates that there are
matters that raise substantial doubt about the Companies' ability to continue
as a going concern) appearing in this Current Report - Form 8-K of Kitty Hawk,
Inc. dated December 4, 1997.
DELOITTE & TOUCHE LLP
Ann Arbor, Michigan
December 4, 1997
