<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 0-25202
KITTY HAWK, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2564006
(State of Incorporation) (I.R.S. Employer Identification No.)
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)
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 [ ]
Number of shares outstanding of the registrant's common stock, $0.01 par value,
as of May 13, 1999: 16,995,987.
<PAGE> 2
KITTY HAWK, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 .............................. 3
Condensed Consolidated Statements of Operations
Three months ended March 31, 1999 and 1998 ........................ 4
Condensed Consolidated Statements of Stockholders' Equity
Three months ended March 31, 1999 ................................. 5
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998 ........................ 6
Notes to Condensed Consolidated Financial Statements ................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................. 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....... 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................ 21
Item 2. Changes in Securities ............................................ 21
Item 3. Defaults upon Senior Securities .................................. 21
Item 4. Submission of Matters to a Vote of Security Holders .............. 21
Item 5. Other Information ................................................ 21
Item 6. Reports on Form 8-K and Exhibits ................................. 21
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- --------
ASSETS (unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents ........................ $ 13,663 $ 15,077
Restricted cash and short-term investments ....... -- 1,964
Trade accounts receivable ........................ 73,007 140,014
Deferred income taxes ............................ 16,088 16,088
Inventory and aircraft supplies .................. 49,390 50,135
Prepaid expenses and other current assets ........ 23,284 22,871
-------- --------
Total current assets ......................... 175,432 246,149
Property and equipment, net ........................... 734,978 720,808
Other assets, net ..................................... 17,511 15,628
-------- --------
Total assets .......................................... $927,921 $982,585
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ................................. $ 45,050 $ 53,967
Accrued expenses ................................. 83,402 104,278
Accrued maintenance reserves ..................... 21,592 22,382
Current maturities of long-term debt ............. 19,158 20,564
-------- --------
Total current liabilities .................... 169,202 201,191
Revolving credit facility ............................. 71,900 86,900
Long-term debt ........................................ 380,726 382,287
Deferred income taxes ................................. 113,261 113,261
Minority interest ..................................... -- 4,749
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
-16,995,987 and 16,927,942, respectively ...... 170 169
Additional capital ............................... 133,801 133,166
Retained earnings ................................ 58,861 60,862
-------- --------
Total stockholders' equity ................... 192,832 194,197
-------- --------
Total liabilities and stockholders' equity ............ $927,921 $982,585
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
--------- ---------
<S> <C> <C>
Revenues:
Air freight carrier ......................... $ 65,055 $ 72,424
Air logistics ............................... 26,348 27,691
Scheduled freight ........................... 42,991 36,181
Maintenance and other ....................... 4,111 8,718
--------- ---------
Total revenues .......................... 138,505 145,014
Costs of revenues:
Flight expense .............................. 59,220 69,190
Maintenance expense ......................... 34,598 34,208
Aircraft fuel expense ....................... 11,785 15,450
Depreciation expense ........................ 16,784 10,881
--------- ---------
Total costs of revenues ................. 122,387 129,729
--------- ---------
Gross profit ..................................... 16,118 15,285
General and administrative expenses .............. 8,410 7,801
Non-qualified employee profit sharing expense .... -- 530
--------- ---------
Operating income ................................. 7,708 6,954
Other income (expense):
Interest expense ............................ (12,182) (9,699)
Other, net .................................. 1,336 675
--------- ---------
Loss before minority interest and income taxes ... (3,138) (2,070)
Minority interest ................................ 196 812
--------- ---------
Loss before income taxes ......................... (3,334) (2,882)
Income tax benefit ............................... (1,333) (1,153)
--------- ---------
Net loss ......................................... $ (2,001) $ (1,729)
========= =========
Basic and diluted loss per share ................. $ (0.12) $ (0.10)
========= =========
Weighted average common shares outstanding ....... 16,981 16,759
========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
NUMBER OF COMMON ADDITIONAL RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
---------- ------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 ........... 16,927,942 $169 $133,166 $ 60,862 $ 194,197
Shares issued in connection with the
Employee Stock Purchase Plan ......... 68,045 1 635 -- 636
Net loss ............................... -- -- -- (2,001) (2,001)
---------- ---- -------- -------- ---------
Balance at March 31, 1999 .............. 16,995,987 $170 $133,801 $ 58,861 $ 192,832
========== ==== ======== ======== =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
KITTY HAWK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
-------- --------
<S> <C> <C>
Operating activities:
Net loss .............................................. $ (2,001) $ (1,729)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization ....................... 17,478 11,500
Gain on sale of assets .............................. (877) (32)
Minority interest ................................... 196 812
Changes in operating assets and liabilities:
Trade accounts receivable ......................... 67,517 46,732
Inventory and aircraft supplies ................... (4,367) (15,521)
Prepaid expenses and other current assets ......... (405) (5,311)
Accounts payable and accrued expenses ............. (32,344) (21,382)
Accrued maintenance reserves ...................... (1,181) 868
-------- --------
Net cash provided by operating activities ................ 44,016 15,937
Investing activities:
Capital expenditures .................................. (26,347) (61,907)
Redemption of short term investments .................. -- 43,795
Proceeds from sale of assets .......................... 1,234 1,832
-------- --------
Net cash used in investing activities .................... (25,113) (16,280)
Financing activities:
Proceeds from issuance of long-term debt .............. 2,965 --
Repayments of long-term debt .......................... (8,282) (575)
Net borrowings (paydowns) on revolving
credit facility ...................................... (15,000) 5,000
Distributions to minority interest .................... -- (800)
Note receivable issued to stockholder ................. -- 41
-------- --------
Net cash (used in) provided by financing activities ...... (20,317) 3,666
-------- --------
Net increase (decrease) in cash and cash equivalents ..... (1,414) 3,323
Cash and cash equivalents at beginning of period ......... 15,077 17,907
-------- --------
Cash and cash equivalents at end of period ............... $ 13,663 $ 21,230
======== ========
</TABLE>
See accompanying notes.
6
<PAGE> 7
KITTY HAWK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements, which should
be read in conjunction with the consolidated financial statements and footnotes
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission for the year ended December 31, 1998, are unaudited
(except for the December 31, 1998 condensed consolidated balance sheet which was
derived from the Company's audited consolidated balance sheet included in the
aforementioned Form 10-K), but have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
2. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
the outcome of these claims cannot be predicted with certainty, management does
not believe that the outcome of any of these legal matters will have a material
adverse effect on the Company's financial position or results of operations.
3. SEGMENT REPORTING
The Company operates in four principal businesses: an air freight carrier,
an air logistics service provider, a scheduled freight service provider and a
maintenance operation. Each of these is a business segment, with its respective
financial performance detailed below. Included in each are intersegment
transactions for revenues and costs of revenues which generally approximate
market prices. Each business segment is currently evaluated on financial
performance at the operating income line.
The Company's air freight carrier provides services to third parties under
contractual arrangements where the Company provides the aircraft, crew,
maintenance and insurance (ACMI). Additionally, the air freight carrier performs
ad hoc charters for the air logistics service provider and other governmental
and commercial customers. The air freight carrier is further divided into a
wide-body division (Kitty Hawk International, Inc., formerly American
International Airways, Inc.) and a narrow-body division (Kitty Hawk Aircargo,
Inc.). The air freight carrier also provided passenger charters during fiscal
years 1997 and 1998. The Company eliminated its passenger charter division in
January 1999.
The Company's air logistics service provider arranges the delivery of time
sensitive freight within North America, principally the United States. Also
included in this segment is the Company's fleet of small jet and prop aircraft.
The air logistics service provider utilizes third party aircraft as well as its
own fleet of small aircraft and the fleet of the air freight carrier.
The Company's scheduled freight service consists of an overnight freight
service provider operating in a network of approximately 46 North American
cities, as well as a service between Los Angeles, the Hawaiian islands and
several Pacific Rim countries.
The Company's maintenance operation provides engine overhauls for third
parties as well as for certain of the Company's aircraft. The Company has
recently curtailed its third party maintenance operation to provide only engine
overhauls on JT3 engines for Douglas DC8s and JT8 engines for Boeing 727s and
Douglas DC9s. The Company's maintenance operation also provides airframe repairs
for the Company's Boeing 727s and Douglas DC-9s.
7
<PAGE> 8
The other category consists of corporate activities as well as the
activities of Longhorn Solutions, Inc., its wholly owned software
developer/reseller and in house management information systems service supplier.
Business assets are owned by or allocated to each of the business segments.
Assets included in other include cash, investment in subsidiaries and
intercompany receivable.
<TABLE>
<CAPTION>
ACMI ACMI Total
Wide- Narrow- Air Freight Air Scheduled
Body Body Carrier Logistics Freight
---- ---- ------- --------- -------
(AMOUNTS IN THOUSANDS)
Quarter ended March 31, 1999
<S> <C> <C> <C> <C> <C>
Revenue from external customers $ 27,352 $ 38,909 $ 66,261 $29,159 $42,991
Revenue from intersegment operations 29,806 11,487 41,293 600 202
Operating income 340 2,960 3,300 2,940 2,199
Interest expense
Other income (expense)
Loss before minority interest and taxes
Total assets $ 705,438 $240,552 $945,990 $64,437 $35,230
Quarter ended March 31, 1998
Revenue from external customers $ 56,988 $ 21,459 $ 78,447 $30,386 $36,181
Revenue from intersegemnt operations 16,913 7,620 24,533 3,143 334
Operating income (498) 4,281 3,783 2,154 726
Interest expense
Other income (expense)
Income before minority interest and taxes
Total assets $ 550,280 $133,346 $683,626 $57,850 $24,733
<CAPTION>
Intersegment Consolidated
Other Eliminations Balance
----- ------------ -------
Quarter ended March 31, 1999
<S> <C> <C> <C>
Revenue from external customers $ 94 $138,505
Revenue from intersegemnt operations 112 $ (42,207) --
Operating income (731) 7,708
Interest expense (12,182)
Other income (expense) 1,336
Loss before minority interest and taxes $ (3,138)
Total assets $ 559,929 $(677,665) $927,921
Quarter ended March 31, 1998
Revenue from external customers $ -- $145,014
Revenue from intersegement operations -- $ (28,010) --
Operating income 291 6,954
Interest expense (9,699)
Other income (expense) 675
Income before minority interest and taxes $ (2,070)
Total assets $ 483,569 $(428,422) $821,356
</TABLE>
The Company does not separately report results of its maintenance operation
and related asset information to the Company's chief operating decision maker.
Accordingly, financial data for the maintenance operation is included under the
ACMI Wide-Body, ACMI Narrow-Body and Air Logistics captions above. Third party
maintenance revenue included under the ACMI Wide-Body, ACMI Narrow-Body and Air
Logistics captions above amounted to $0.7 million, $0.5 million and $2.8 million
for the quarter ended March 31, 1999, respectively, and $6 million, $0 and $2.7
million for the quarter ended March 31, 1998, respectively.
4. Supplemental Guarantor Information
In connection with the issuance of the $340 million 9.95% Senior
Secured Notes (the "Notes") in November 1997, each of the Company's
subsidiaries, with the exception of American International Cargo ("AIC"),
(collectively, the "Guarantors") have fully and unconditionally and jointly and
severally guaranteed (the "Guarantees") on a senior basis, the full and prompt
performance of the Company's obligations under the Notes. The Guarantees are
limited to the largest amount that would not render such Guarantees subject to
avoidance under any applicable federal or state fraudulent conveyance or similar
law. The Guarantees rank senior in right of payment to any subordinated
indebtedness and, except with respect to collateral, pari passu with all
existing and future unsubordinated indebtedness of the Guarantors. Each of the
Guarantors is a wholly-owned subsidiary of the Company.
The Company has not presented separate financial statements and other
disclosures concerning the Guarantors because the Company's management believes
that such information is not material to investors.
8
<PAGE> 9
Kitty Hawk, Inc.
Supplemental Consolidating Balance Sheets
Condensed Financial Information
March 31, 1999
<TABLE>
<CAPTION>
ASSETS
Kitty Hawk, Subsidiaries AIC
Inc. (Parent) (Guarantors) (Non-Guarantor) Eliminations Total
------------- ------------ --------------- ------------ -----
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 7,930 $ (1,162) $ 6,895 $ -- $ 13,663
Trade accounts receivable 143 60,442 12,422 -- 73,007
Deferred income taxes -- 16,088 -- -- 16,088
Inventory and aircraft supplies -- 49,390 -- -- 49,390
Prepaid expenses and other current assets 1,222 22,012 50 -- 23,284
--------- --------- -------- --------- --------
Total current assets 9,295 146,770 19,367 -- 175,432
Property and equipment, net 790 733,347 841 -- 734,978
Intercompany receivable 448,468 29,141 -- (477,609) --
Investment in subsidiaries 84,242 -- -- (84,242) --
Other assets, net 13,652 3,859 -- -- 17,511
--------- --------- -------- --------- --------
Total assets $ 556,447 $ 913,117 $ 20,208 $(561,851) $927,921
========= ========= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 392 $ 39,902 $ 4,756 $ -- $ 45,050
Accrued expenses 11,365 65,472 6,565 -- 83,402
Intercompany payable 29,141 448,980 8 (512) (477,609) --
Accrued maintenance reserves -- 21,592 -- -- 21,592
Current maturities of long-term debt 700 18,458 -- -- 19,158
--------- --------- -------- --------- --------
Total current liabilities 41,598 594,404 10,809 (477,609) 169,202
Revolving credit facility 71,900 -- -- -- 71,900
Long-term debt 341,650 39,076 -- -- 380,726
Deferred income taxes -- 113,261 -- -- 113,261
--------- --------- -------- --------- --------
Total liabilities 455,148 746,741 10,809 (477,609) 735,089
--------- --------- -------- --------- --------
Stockholders' equity
Preferred stock -- -- -- -- --
Common stock 170 -- -- -- 170
Additional capital 133,801 75,618 8,624 (84,242) 133,801
Retained earnings (32,672) 90,758 775 -- 58,861
--------- --------- -------- --------- --------
Total stockholders' equity 101,299 166,376 9,399 (84,242) 192,832
--------- --------- -------- --------- --------
Total liabilities and stockholders' equity $ 556,447 $ 913,117 $ 20,208 $(561,851) $927,921
========= ========= ======== ========= ========
</TABLE>
9
<PAGE> 10
Kitty Hawk, Inc.
Supplemental Consolidating Statements of Operations
Condensed Financial Information
For the quarter ended March 31, 1999
<TABLE>
<CAPTION>
Kitty Hawk, Subsidiaries AIC
Inc. (Parent) (Guarantors) (Non-Guarantor) Eliminations Total
------------- ------------ --------------- ------------ -----
<S> <C> <C> <C> <C> <C>
Revenue
Air freight carrier $ -- $ 73,289 $ -- $(8,234) $ 65,055
Air logistics -- 26,348 -- -- 26,348
Scheduled freight -- 27,828 15,163 -- 42,991
Maintenance and other -- 4,223 -- (112) 4,111
----- --------- -------- ------- ---------
Total revenues -- 131,688 15,163 (8,346) 138,505
Costs of revenues
Flight expense -- 57,148 10,306 (8,234) 59,220
Maintenance expense -- 34,598 -- -- 34,598
Aircraft fuel expense -- 8,524 3,261 -- 11,785
Depreciation expense -- 16,736 48 -- 16,784
----- --------- -------- ------- ---------
Total costs of revenues -- 117,008 13,615 (8,234) 122,387
----- --------- -------- ------- ---------
Gross profit -- 14,682 1,548 (112) 16,118
General and administrative expenses 670 7,381 471 (112) 8,410
Non-qualified employee profit
sharing expense -- -- -- -- --
----- --------- -------- ------- ---------
Operating income (670) 7,301 1,077 -- 7,708
Other income (expense):
Interest expense 432 (12,465) (149) -- (12,182)
Other, net 107 1,186 43 -- 1,336
----- --------- -------- ------- ---------
Income (loss) before minority
interest and income taxes (131) (3,978) 971 -- (3,138)
Minority interest in AIC -- -- -- 196 196
----- --------- -------- ------- ---------
Loss before income taxes (131) (3,978) 971 (196) (3,334)
Income tax benefit (52) (1,473) 192 -- (1,333)
----- --------- -------- ------- ---------
Net loss $ (79) $ (2,505) $ 779 $ (196) $ (2,001)
===== ========= ======== ======= =========
</TABLE>
Kitty Hawk, Inc.
Supplemental Consolidating Statement of Cash Flows
Condensed Financial Information
For the quarter ended March 31, 1999
<TABLE>
<CAPTION>
Kitty Hawk, Subsidiaries AIC
Inc. (Parent) (Guarantors) (Non-Guarantor) Eliminations Total
------------- ------------ --------------- ------------ -----
<S> <C> <C> <C> <C> <C>
Cash provided by operating activities $ 9,216 $ 33,410 $ 1,390 $ -- $ 44,016
Investing activities:
Capital expenditures (603) (25,742) (2) -- (26,347)
Proceeds from sale of assets -- 1,226 8 -- 1,234
-------- -------- ------- ------- --------
Net cash used in investing activities (603) (24,516) 6 -- (25,113)
Financing activities
Proceeds from issuance of
long-term debt, net -- 2,965 -- -- 2,965
Repayments of debt -- (8,282) -- -- (8,282)
Paydown on revolving credit facility (15,000) -- -- -- (15,000)
-------- -------- ------- ------- --------
Net cash used in investing activities (15,000) (5,317) -- -- (20,317)
-------- -------- ------- ------- --------
Increase (decrease) in cash (6,387) 4,973 1,396 -- (1,414)
Cash and cash equivalents,
beginning of period 14,317 (4,739) 5,499 -- 15,077
-------- -------- ------- ------- --------
Cash and cash equivalents, end of period $ 7,930 $ (1,162) $ 6,895 $ -- $ 13,663
======== ======== ======= ======= ========
</TABLE>
10
<PAGE> 11
Kitty Hawk, Inc.
Supplemental Consolidating Balance Sheets
Condensed Financial Information
December 31, 1998
<TABLE>
<CAPTION>
ASSETS
Kitty Hawk, Subsidiaries AIC
Inc excluding AIC (Non-
(Parent) (Guarantors) Guarantor) Eliminations Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents........................ $ 14,317 $ (4,739) $ 5,499 $ -- $ 15,077
Restricted cash and short-term
investments ................................... -- 1,964 -- -- 1,964
Trade accounts receivable ....................... -- 129,938 10,618 (542) 140,014
Deferred income taxes ........................... -- 16,088 -- -- 16,088
Inventory and aircraft supplies ................. -- 50,135 -- -- 50,135
Prepaid expenses and other current assets ....... 3,955 18,852 64 -- 22,871
--------- --------- --------- --------- ---------
Total current assets ......................... 18,272 212,238 16,181 (542) 246,149
Property and equipment, net ..................... 211 719,697 900 -- 720,808
Intercompany receivable ......................... 423,295 4,261 -- (427,556) --
Investment in Guarantors ........................ 84,242 -- -- (84,242) --
Investment in AIC ............................... -- 8,024 -- (8,024) --
Other assets, net ............................... 11,687 3,941 -- -- 15,628
--------- --------- --------- --------- ---------
Total assets ................................. $ 537,707 $ 948,161 $ 17,081 $(520,364) $ 982,585
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ................................ $ 528 $ 50,992 $ 2,989 $ (542) $ 53,967
Accrued expenses ................................ 5,276 98,283 719 -- 104,278
Intercompany payables ........................... 4,261 423,295 -- (427,556) --
Accrued maintenance reserves .................... -- 22,382 -- -- 22,382
Current maturities of long-term debt ............ -- 20,564 -- -- 20,564
--------- --------- --------- --------- ---------
Total current liabilities .................... 10,065 615,516 3,708 (428,098) 201,191
Revolving credit facility ....................... 86,900 -- -- -- 86,900
Long-term debt .................................. 340,000 42,287 -- -- 382,287
Deferred income taxes ........................... -- 113,261 -- -- 113,261
--------- --------- --------- --------- ---------
Total liabilities ............................ 436,965 771,064 3,708 (428,098) 783,639
Minority interest in AIC ........................ -- -- -- 4,749 4,749
Stockholders' equity
Preferred stock .............................. -- -- -- -- --
Common stock ................................. 169 -- -- -- 169
Additional capital ........................... 133,166 84,242 5,857 (90,099) 133,166
Retained earnings ............................ (32,593) 92,855 7,516 (6,916) 60,862
--------- --------- --------- --------- ---------
Total stockholders' equity ................. 100,742 177,097 13,373 (94,748) 194,197
--------- --------- --------- --------- ---------
Total liabilities and
stockholders' equity ...................... $ 537,707 $ 948,161 $ 17,081 $(520,364) $ 982,585
========= ========= ========= ========= =========
</TABLE>
11
<PAGE> 12
Kitty Hawk, Inc.
Supplemental Consolidating Statements of Operations
Condensed Financial Information
For the quarter ended March 31, 1998
<TABLE>
<CAPTION>
Kitty Hawk, Subsidiaries AIC
Inc. Excluding AIC (Non-
(Parent) (Guarantors) Guarantor) Eliminations Total
--------- ------------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C>
Revenues:
Air freight carrier............... $ -- $ 79,490 $ -- $ (7,066) $ 72,424
Air logistics..................... -- 27,691 -- -- 27,691
Scheduled freight................. -- 21,835 14,346 -- 36,181
Maintenance and other............. -- 8,718 -- -- 8,718
--------- ------------- ---------- ------------ --------
Total revenues................ -- 137,734 14,346 (7,066) 145,014
Costs of revenues:
Flight expense.................... -- 64,290 11,966 (7,066) 69,190
Maintenance expense............... -- 34,208 -- -- 34,208
Aircraft fuel expense............. -- 15,450 -- -- 15,450
Depreciation expense.............. -- 10,881 -- -- 10,881
--------- ------------- ---------- ------------ --------
Total costs of revenues....... -- 124,829 11,966 (7,066) 129,729
--------- ------------- ---------- ------------ --------
Gross profit......................... -- 12,905 2,380 -- 15,285
General and administrative expenses.. (314) 7,726 389 -- 7,801
Non-qualified employee profit
sharing expense................... 530 -- -- -- 530
--------- ------------- ---------- ------------ --------
Operating income (loss).............. (216) 5,179 1,991 -- 6,954
Other income (expense):
Interest expense.................. (159) (9,540) -- -- (9,699)
Other, net........................ 99 538 38 -- 675
--------- ------------- ---------- ------------ --------
Income (loss) before minority
interest and income taxes......... (276) (3,823) 2,029 -- (2,070)
Minority interest in AIC............. -- -- -- 812 812
--------- ------------- ---------- ------------ --------
Income (loss) before income taxes.... (276) (3,823) 2,029 (812) (2,882)
Income tax benefit................... (110) (1,043) -- -- (1,153)
--------- ------------- ---------- ------------ --------
Net income (loss).................... $ (166) $ (2,780) $ 2,029 $ (812) $ (1,729)
========= ============= ========== ============ ========
</TABLE>
12
<PAGE> 13
Kitty Hawk, Inc.
Supplemental Consolidating Statement of Cash Flows
Condensed Financial Information
For the quarter ended March 31, 1998
<TABLE>
<CAPTION>
Kitty Hawk, Subsidiaries AIC
Inc. excluding AIC (Non-
(Parent) (Guarantors) Guarantor) Eliminations Total
------------ ------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in)
operating activities........... $ (36,476) $ 50,538 $ 2,687 $ (812) $ 15,937
Investing activities:
Capital expenditures.......... -- (61,888) (19) -- (61,907)
Redemption of short term 43,321 474 -- -- 43,795
investments....................
Investment in AIC............. -- 388 -- (388) --
Proceeds from sale of assets.. -- 1,832 -- -- 1,832
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities............. 43,321 (59,194) (19) (388) (16,280)
Financing activities
Repayments of debt............ -- (575) -- -- (575)
Net borrowings................ 5,000 -- -- -- 5,000
Distributions to minority -- -- (2,000) 1,200 (800)
interest.......................
Note receivable from
shareholder................. -- 41 -- -- 41
---------- ---------- ---------- ---------- ----------
Net cash provided by
(used in) investing
activities............. 5,000 (534) (2,000) 1,200 3,666
---------- ---------- ---------- ---------- ----------
Increase (decrease) in cash...... 11,845 (9,190) 668 -- 3,323
Cash and cash equivalents,
beginning of period............ 6,620 10,004 1,282 -- 17,907
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of
period......................... $ 18,465 $ 814 $ 1,950 $ -- $ 21,230
========== ========== ========== ========== ==========
</TABLE>
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Revenues. The Company's revenues are derived from four related businesses:
(i) an air freight carrier, (ii) an air logistics service provider, (iii) a
scheduled freight service provider and (iv) a maintenance operation. Air freight
carrier revenues are derived substantially from aircraft, crew, maintenance, and
insurance ("ACMI") contract charters. In addition, revenues from the Company's
passenger charter service (which was eliminated in January 1999) are also
included in air freight carrier revenues. Air logistics revenues are derived
substantially from on-demand air freight charters arranged by the Company for
its customers utilizing the flight services of third party air freight carriers
as well as the Company's own fleet of small jet and prop aircraft and the fleet
of the air freight carrier. Scheduled freight service revenues are generated
through an overnight airport-to-airport freight service to approximately 46 U.S.
cities and an international service between Los Angeles and Honolulu, among the
Hawaiian islands and once a week through Melbourne, Hong Kong and other Pacific
Rim locations. Maintenance revenue was previously generated from third party
maintenance work performed on engines and airframes. During the fourth quarter
of 1998, the Company stopped providing third party airframe repairs and engine
overhaul services, other than on JT3 engines used on Douglas DC-8s and JT8
engines used on Boeing 727s and Douglas DC-9s.
The principal factors that have contributed to revenue growth over the past
several years have been increases in the Company's fleet from 10 aircraft at
December 31, 1993 to 102 aircraft at March 31, 1999, the general U.S. economic
expansion and increased global demand for time sensitive air freight services.
Costs of Revenues. The principal components of the costs of revenues are
flight expense, maintenance expense, aircraft fuel expense and depreciation
expense. Flight expense includes the salaries and expenses for pilots and flight
operations personnel, insurance, sub-charter costs paid to third party air
freight carriers and costs paid for ground handling and transportation.
Maintenance expense includes salaries and expenses for maintenance personnel and
maintenance on the aircraft. Aircraft fuel expense is generally applicable only
to the air logistics service provider and the scheduled freight services
provider because fuel for the ACMI contract charters is generally provided by
the customer or billed to the customer on a direct pass-through basis.
Depreciation expense includes depreciation on airframes and engines and all
other property and equipment associated with the operation of the each business
segment.
14
<PAGE> 15
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, condensed
consolidated statement of operations data expressed as a percentage of total
revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1999 1998
------- -------
<S> <C> <C>
Revenues:
Air freight carrier................. 47.0% 49.9%
Air logistics....................... 19.0 19.1
Scheduled freight service........... 31.0 25.0
Maintenance and other............... 3.0 6.0
------- -------
Total revenues ................. 100.0 100.0
Costs of revenues:
Flight expense...................... 42.8 47.7
Maintenance expense................. 25.0 23.6
Aircraft fuel expense............... 8.5 10.7
Depreciation expense................ 12.1 7.5
------- -------
Total costs of revenues.......... 88.4 89.5
------- -------
Gross profit............................. 11.6 10.5
General and administrative expenses...... 6.1 5.4
Non-qualified employee profit sharing
expense................................ -- 0.3
------- -------
Operating income ........................ 5.5 4.8
Interest expense......................... (8.8) (6.7)
Other income............................. 1.0 0.5
------- -------
Loss before minority interest and (2.3) (1.4)
income taxes...........................
Minority interest........................ 0.1 0.6
------- -------
Loss before income taxes................. (2.4) (2.0)
Income tax (benefit)..................... (1.0) (0.8)
------- -------
Net loss................................. (1.4)% (1.2)%
======= =======
</TABLE>
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998
Revenues - Air Freight Carrier. Air freight carrier revenues decreased $7.4
million, or 10.2%, to $65.1 million in the quarter ended March 31, 1999, from
$72.4 million in the quarter ended March 31, 1998. This decrease was primarily
attributable to the elimination of the Company's passenger charter division
which contributed $13.8 million of revenue in the quarter ended March 31, 1998.
This decrease was partially offset by placing four additional Boeing 727s and
two Boeing 747s into cargo service during mid to late 1998 and increased
utilization of aircraft during non-peak cargo hours. The Company has also
implemented selective price increases for its ACMI contract charters.
Revenues - Air Logistics. Air logistics revenues decreased $1.3 million, or
4.9%, to $26.3 million in the quarter ended March 31, 1999, from $27.7 million
in the quarter ended March 31, 1998. This decrease was primarily due to a
decrease in average revenue per trip resulting from a decrease in the average
size aircraft used in the trip. The number of trips managed increased slightly
from 4,408 in the quarter ended March 31, 1998 to 4,910 in the quarter ended
March 31, 1999. Prices for the Company's air logistics services remained
relatively constant.
Revenues - Scheduled Freight. Scheduled freight revenues increased $6.8
million, or 18.8%, to $43 million in the quarter ended March 31, 1999, from
$36.2 million in the quarter ended March 31, 1998. This increase was primarily
due to a 5% price increase effective March 1, 1998, as well as additional flight
days in the quarter ended March 31, 1999 as compared to the quarter ended March
31, 1998. Freight volumes in scheduled freight operation decreased approximately
1.2% from the quarter ended March 31, 1998 as compared to the quarter ended
March 31, 1999.
Revenues - Maintenance and Other. Maintenance and other revenues decreased
$4.6 million, or 52.8%, to $4.1 million in the quarter ended March 31, 1999,
from $8.7 million in the quarter ended March 31, 1998. This decrease was
primarily due the Company's decision to stop providing third party airframe
repairs and engine overhaul services, other than on JT3 engines used on Douglas
DC-8s and JT8 engines used on Boeing 727s and Douglas DC-9s.
15
<PAGE> 16
Costs of Revenues - Flight Expense. Flight expense decreased $10 million, or
14.4%, to $59.2 million in the quarter ended March 31, 1999, from $69.2 million
in the quarter ended March 31, 1998. As a percent of revenues, flight expense
decreased to 42.8% for the quarter ended March 31, 1999 as compared to 47.7% for
the quarter ended March 31, 1998. This decrease was primarily due to the
elimination of the passenger charter division (which resulted in reduced wages
and ground handling costs, a savings of $1.3 million), a general reduction in
crew travel costs, and an overall reduction in subcharter expense as more
Company aircraft were available in the quarter ended March 31, 1999 versus the
quarter ended March 31, 1998 due to less downtime for maintenance activities.
Costs of Revenues - Maintenance Expense. Maintenance expense increased $0.4
million, or 1.1%, to $34.6 million in the quarter ended March 31, 1999, from
$34.2 million in the quarter ended March 31, 1998. The increase is primarily due
to the increased parts expense and labor costs associated with operating an
aging fleet.
Costs of Revenues - Aircraft Fuel Expense. Aircraft fuel expense decreased
$3.7 million, or 23.7%, to $11.8 million in the quarter ended March 31, 1999,
from $15.5 million in the quarter ended March 31, 1998. As a percent of
revenues, aircraft fuel expense decreased from 10.7% for the quarter ended March
31, 1998 to 8.5% for the quarter ended March 31, 1999 is primarily due to a 16%
decline in fuel prices from an average price of $0.64 per gallon for the quarter
ended March 31, 1998 as compared to an average price of $0.54 per gallon for the
quarter ended March 31, 1999. Additionally, the Company is no longer incurring
aircraft fuel expense from its passenger charter business, which resulted in a
savings of $2 million.
Costs of Revenues - Depreciation Expense. Depreciation expense increased
$5.9 million, or 54.2%, to $16.8 million in the quarter ended March 31, 1999,
from $10.9 million in the quarter ended March 31, 1998. As a percent of
revenues, depreciation expense decreased from 7.5% for the quarter ended March
31, 1998 to 12.1% for the quarter ended March 31, 1999 is primarily due to the
depreciation of capital expenditures of $185.3 million since March 31, 1998,
consisting principally of cargo modifications to two Boeing 747s and two Boeing
727s, engine overhauls and noise abatement modifications to nine Boeing 727s and
one Douglas DC-9 aircraft.
General and Administrative Expenses. General and administrative expenses
increased $0.6 million, or 7.8%, to $8.4 million in the quarter ended March 31,
1999, from $7.8 million in the quarter ended March 31, 1998. This increase was
primarily due to an increase in support functions and administrative costs
associated with the growth in the aircraft fleet. As a percentage of total
revenues, general and administrative expenses increased to 6.1% in the quarter
ended March 31, 1999, as compared to 5.4% for the quarter ended March 31, 1998,
principally reflecting a decrease in revenues.
Operating Income. As a result of the above, operating income increased $0.8
million to $7.7 million in the quarter ended March 31, 1999, from $6.9 million
in the quarter ended March 31, 1998. Operating income margin increased to 5.5%
in the quarter ended March 31, 1999, from 4.8% in the quarter ended March 31,
1998.
Interest Expense. Interest expense increased to $12.2 million for the
quarter ended March 31, 1999, from $9.7 million for the quarter ended March 31,
1998, a 25.6% increase. The increase was primarily the result of increased
borrowings on the Company's Revolving Credit Facility, an increase of $56.9
million from March 31, 1998 and an overall increase in the interest rate under
the December 10, 1998 amendment to the Revolving Credit Facility. Additionally,
approximately $0.7 million of interest expense was capitalized during the
quarter ended March 31, 1998 in connection with funds used in the cargo
modification of one Boeing 747.
Income Tax Benefit. Income tax benefit as a percentage of loss before income
taxes remained consistent at 40% for the quarters ended March 31, 1999 and 1998.
Net Loss. As a result of the above, the Company's net loss increased to $2
million in the quarter ended March 31, 1999, compared to a net loss of $1.7
million in the quarter ended March 31, 1998. Net loss as a percentage of total
revenues increased to (1.4)% in the quarter ended March 31, 1999, from (1.2)% in
the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements are primarily for the acquisition and
modification of aircraft and working
16
<PAGE> 17
capital. In addition, the Company has, and will continue to have, capital
requirements for the requisite periodic and major overhaul maintenance checks
for its fleet and for debt service. The Company also has seasonal working
capital needs, because it generates higher revenue in the fourth calendar
quarter and lower revenue in the first calendar quarter. Funding requirements
have historically been met through internally generated funds, bank borrowings
and aircraft sales and from public and private offerings of equity and debt
securities. From time to time, the Company has entered into sale/leaseback
transactions to acquire aircraft and may do so in the future.
In November 1997, the Company issued $340 million of 9.95% Senior Secured
Notes (the "Notes"), resulting in net proceeds to the Company of approximately
$329.1 million. The Notes provide for semi-annual interest payments of
approximately $16.9 million on each May 15 and November 15 and mature in
November 2004. The Notes are secured by a fleet of 30 aircraft, including nine
Boeing 747s, eight Lockheed L-1011s and 13 Boeing 727s. The Notes are guaranteed
by all of the Company's subsidiaries.
The Company has a $43.7 million outstanding Term Loan. The Term Loan is due
in quarterly installments of $2.25 million commencing in March 1999, with the
balance of $12.15 million due upon maturity in September 2002. Except as noted
below, interest on the Term Loan accrues at LIBOR plus 3% or a Base Rate plus
1.5%, subject to reduction. The Base Rate is the higher of the Prime Rate of
Wells Fargo Bank, N.A. ("WFB") or the Federal Funds Rate plus 0.5%. As of March
31, 1999, the interest rate was 8.25%. Except as provided below, the Term Loan
is secured by accounts receivable, all spare parts (including rotables),
inventory, intangibles and contract rights, cash, 15 Boeing 727s and related
engines and the stock of each of the Company's subsidiaries. The Term Loan is
guaranteed by all of the Company's subsidiaries.
In addition, to fund ongoing capital requirements, including possible
acquisitions, the Company has entered into a Credit Facility with WFB,
individually and as agent for various lenders. The Credit Facility provides the
Company with up to $100 million in revolving loans (subject to a current
borrowing base limitation of approximately $92.2 million, including an increase
of $30 million to the borrowing base as a result of an amendment to the Credit
Facility (the "Amendment") on December 10, 1998) that is secured by the same
collateral as the Term Loan. Except as provided below, the Credit Facility bears
interest at LIBOR plus 2.75% or a Base Rate plus 1.25%, subject to adjustment.
The Base Rate is the higher of WFB's Prime Rate or the Federal Funds Rate plus
0.5%. Borrowings under the Credit Facility are subject to borrowing base
limitations based on eligible inventory and accounts receivable. The Credit
Facility matures in November 2002. As of March 31, 1999, the Company had a
balance of $71.9 million outstanding under the Credit Facility bearing interest
at 9.5% and available borrowings under the Credit Facility of approximately
$20.8 million. Borrowings under the Credit Facility and Term Loan are subject to
certain financial covenants. As of March 31, 1999, the Company was in compliance
with all financial covenants.
In connection with the Amendment, the Company pledged 11 Douglas DC-8-60s
and eight Douglas DC-8-50s under the Credit Facility and the Term Loan. The
Company can request WFB to release its liens on the Douglas DC-8-50 aircraft at
any time in connection with a sale of the aircraft for full and fair
consideration. With respect to the Douglas DC-8-60 aircraft, the Company can
request WFB to release its liens on the Douglas DC-8-60s after first repaying
the amount borrowed, if any, under the Amendment's $30 million increase to the
borrowing base. Prior to December 31, 1999, WFB is not obligated to release its
liens on the Douglas DC-8-60s except in connection with a sale of the aircraft
for full and fair consideration. After December 31, 1999, WFB is not obligated
to release its liens on the Douglas DC-8-60s unless the Company meets specified
financial criteria.
The Amendment's increase in the borrowing base is available through January
1, 2000, subject to earlier termination by the Company (the "Loan Pricing
Increase Period"). During the Loan Pricing Increase Period, the interest rate of
the Term Loan and the Credit Facility is either the Prime Rate of WFB plus 1.75%
or LIBOR plus 3.25%, regardless of financial covenant performance. Upon
termination of this borrowing base increase, the interest rates on the Term Loan
and the Credit Facility revert to those stated above.
Capital expenditures were $26.3 million and $61.9 million for three months
ended March 31, 1999 and 1998, respectively. Capital expenditures for the first
quarter of 1999 were primarily for (i) modification of one Boeing 727 to cargo
configuration, (ii) noise abatement modifications for one Boeing 727 and (iii)
engine overhauls. Capital expenditures for the first quarter of 1998 were
primarily for (i) the purchase of two Boeing 747s, (ii) cargo modifications to
one Boeing 747 and one Boeing 727, (iii) heavy maintenance checks on three
Boeing 727s, (iv) noise abatement modifications for three Boeing 727s, (v)
engine overhauls, (vi) improvements to new office space
17
<PAGE> 18
at Dallas/Fort Worth International Airport and (vii) purchase of rotable
aircraft parts.
During the remainder of 1999, the Company estimates that capital
expenditures will aggregate approximately $80 million and that it will make
substantial capital expenditures thereafter.
During the remainder of 1999, the Company anticipates capital expenditures
of $15 million for noise abatement modifications to one Douglas DC-9 and seven
Boeing 727 aircraft currently owned. The entire fleet must comply with Federal
Aviation Administration ("FAA") noise regulations by the year 2000. In the event
more aircraft are acquired, anticipated capital expenditures for noise abatement
modifications could materially increase.
Service bulletins and directives issued under the FAA's "Aging Aircraft"
program or issued on an ad hoc basis cause certain of the Company's aircraft to
be subject to extensive aircraft examinations and/or structural inspections and
modifications to address problems of corrosion and structural fatigue, among
other things. Directives applicable to the Company's fleet can be issued at any
time. The cost of complying with such potential future directives cannot
currently be estimated, but could be substantial.
The Company operates a fleet of 31 Boeing 727s, all of which were previously
converted from passenger configuration to cargo configuration by the
installation of a large cargo door and numerous interior modifications related
to the installation of cargo container handling systems. The FAA has issued a
Directive which limits the cargo capacity of these Boeing 727s from
approximately 8,000 pounds per cargo position to 4,000 pounds per cargo position
until certain modifications are made.. Recently, the Company received approval
from the FAA to modify its fleet of Boeing 727s to increase their cargo capacity
to approximately 6,000 pounds per cargo position. The modifications are expected
to take from three to four days to complete and to cost between $25,000 and
$50,000 per aircraft, not including aircraft downtime.
The Company believes that available funds, bank borrowings and cash flows
expected to be generated by operations and through asset sales will be
sufficient to meet its anticipated cash needs for working capital, debt service
and capital expenditures for at least the next 12 months. Thereafter, if cash
generated by operations is insufficient to satisfy the Company's liquidity
requirements, the Company may sell additional equity or debt securities or
obtain additional credit facilities. However, there can be no assurance that the
Company will be able to sell any additional equity or debt securities or obtain
additional credit facilities. Notwithstanding the foregoing, the Company may
sell additional equity or debt securities or obtain additional credit facilities
at any time.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions or engage in normal business activities.
Based on recent assessments, the Company determined that it will be
required to modify or replace portions of its software so that those systems
will properly utilize dates beyond December 31, 1999. The Company presently
believes that with modifications or replacements of existing software the Year
2000 issue can be mitigated. However, if such modifications and replacements are
not made, or are not completed timely, the Year 2000 Issue could have a material
impact on the operations of the Company.
The Company's plan to resolve the Year 2000 issue involves the following
four phases: assessment, remediation, testing and implementation. To date, the
Company has nearly completed its assessment of all systems that could be
significantly affected by the Year 2000. The assessment completed to date
indicates that most of the Company's significant information technology systems
could be affected. The Company has determined that most of the services it has
sold and will continue to sell do not require remediation to be Year 2000
compliant. Accordingly, the Company does not believe that the Year 2000 presents
a material exposure as it relates to the Company's services. In addition, the
Company has plans to gather information about the Year 2000 compliance status of
its significant suppliers and subcontractors and will continue to monitor their
compliance.
18
<PAGE> 19
With regard to the Company's information technology exposure, to date the
Company is approximately 95% complete on the assessment phase and expects to
complete software reprogramming and replacement (remediation) no later than May
31, 1999. Once software is reprogrammed or replaced, the Company will begin
testing and implementation. These phases will run concurrently for different
systems. Completion of the testing phase for all significant systems is expected
by July 31, 1999, with all remediated systems fully tested and implemented by
August 31, 1999, with 100% completion targeted for September 30, 1999.
The Company is in the process of working with third party vendors to ensure
that any of the Company's systems that interface directly with third parties are
Year 2000 compliant by May 31, 1999.
The Company has launched a program to query its significant suppliers and
subcontractors that do not share information systems with the Company ("external
agents"). To date, the Company is not aware of any external agent with a Year
2000 issue that would materially impact the Company's results of operations,
liquidity, or capital resources although the Company understands that certain
fuel refiners may be particularly susceptible to disruption caused by
non-compliant embedded chips, and that certain electrical power suppliers may be
similarly affected. The Company has no means of ensuring that external agents
will be Year 2000 ready. The inability of certain external agents, such as the
FAA, fuel refiners and suppliers generally, and electrical power suppliers, to
complete their Year 2000 resolution process in a timely fashion could materially
impact the Company. The effect of non-compliance by external agents is not
determinable.
The Company is utilizing both internal and external resources to reprogram
or replace, test, and implement the software and operating equipment for Year
2000 modifications. The total cost of the Year 2000 project is estimated at less
than $0.5 million and is being funded through operating cash flows. As of April
30, 1999, the Company has incurred approximately $250,000 related to all phases
of the Year 2000 project. The remaining project costs relate to repair of
hardware and software and will be expensed as incurred.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. However, it is possible that the
Company's or third parties' systems and equipment could fail and result in the
reduction or suspension of the Company's operations. As noted above, the Company
has not yet completed all necessary phases of the Year 2000 program. Disruptions
in the economy generally resulting from Year 2000 also issues could materially
adversely affect the Company. The amount of potential liability and lost revenue
cannot be reasonably estimated at this time.
The Company currently has no contingency plans in place in the event it
does not complete all phases of the Year 2000 program. The Company plans to
evaluate the status of completion in May 1999 and determine whether such a plan
is necessary.
If the Company's expectations or assessments of the impact of the Year 2000
issue prove to be incorrect, the Company's business may be materially affected.
SEASONALITY
Certain of the Company's customers engage in seasonal businesses, especially
the U.S. Postal Service and customers in the automotive industry. As a result,
the Company 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.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q
contains forward-looking statements, which can be identified by the use of
forward looking terminology, such as "may," "will," "expect," "could,"
"anticipate," "estimate" or "continue" or the negative thereof or other
variations thereon or comparable terminology. These forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
materially from those referred to in the forward-looking statements. Factors
that might cause such a difference
19
<PAGE> 20
include, but are not limited to, those discussed in "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Factors That May Affect Future Results" of the Company's 1998 Annual Report on
Form 10-K. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. We undertake no obligation to publicly revise these forward-looking
statements to reflect events or circumstances that arise after the date hereof.
Readers should carefully review the risk factors described in other documents we
file from time to time with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the period ended March 31, 1999, the Company did not experience any
material changes in market risk exposures that affect the quantitative and
qualitative disclosures presented in the Company's 1998 Annual Report on Form
10-K.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. REPORTS ON FORM 8-K AND EXHIBITS
(a) Reports on Form 8-K:
Not applicable.
(b) Exhibits:
The following exhibits are filed herewith or are incorporated by reference from
previous filings with the Securities and Exchange Commission.
EXHIBIT NO. DESCRIPTION
----------- ---------------------------------------------------------------
3.1 - Certificate of Incorporation of the Company.(2)
3.2 - Amended and Restated Bylaws of the Company.(4)
3.3 - Amendment No. 1 to the Certificate of Incorporation of the
Company.(2)
4.1 - Specimen Common Stock Certificate.(3)
4.3 - Specimen Global Note in respect of 9.95% Senior Secured Notes
due 2004.(4)
4.4 - Indenture, dated November 17, 1997, in regard to 9.95% Senior
Secured Notes due 2004 by and among the Company and certain
of its subsidiaries and Bank One, N.A. as Trustee and
Collateral Trustee.(4)
4.5 - First Supplemental Indenture, dated February 5, 1998, in
regard to 9.95% Senior Secured Notes due 2004 by and among
the Company and certain of its subsidiaries and Bank One,
N.A. as Trustee and Collateral Trustee.(4)
21.1 - Subsidiaries of the Registrant.(4)
27.1 - Financial Data Schedule.(1)
21
<PAGE> 22
- ----------
(1) Filed herewith.
(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) Previously filed as an exhibit to the Company's Registration Statement
on Form S-4 (Reg. No. 333-43645) dated as of February 1998, and
incorporated herein by reference.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements 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 May 14, 1999.
KITTY HAWK, INC.
By: /s/ Richard R. Wadsworth
------------------------------------------
Richard R. Wadsworth, Jr.
Senior Vice President - Finance,
Chief Financial Officer, and Secretary
23
<PAGE> 24
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- ---------------------------------------------------------------
3.1 - Certificate of Incorporation of the Company.(2)
3.2 - Amended and Restated Bylaws of the Company.(4)
3.3 - Amendment No. 1 to the Certificate of Incorporation of the
Company.(2)
4.1 - Specimen Common Stock Certificate.(3)
4.3 - Specimen Global Note in respect of 9.95% Senior Secured Notes
due 2004.(4)
4.4 - Indenture, dated November 17, 1997, in regard to 9.95% Senior
Secured Notes due 2004 by and among the Company and certain
of its subsidiaries and Bank One, N.A. as Trustee and
Collateral Trustee.(4)
4.5 - First Supplemental Indenture, dated February 5, 1998, in
regard to 9.95% Senior Secured Notes due 2004 by and among
the Company and certain of its subsidiaries and Bank One,
N.A. as Trustee and Collateral Trustee.(4)
21.1 - Subsidiaries of the Registrant.(4)
27.1 - Financial Data Schedule.(1)
- ----------
(1) Filed herewith.
(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) Previously filed as an exhibit to the Company's Registration Statement
on Form S-4 (Reg. No. 333-43645) dated as of February 1998, and
incorporated herein by reference.
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