-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cll13M4R28hnNdJhchEV0rGzAOi5MybfexwRe0pLe9ZvgMwCRKgk/B4rvIKBvB0c lruT+acnQMqw50uM7OUjyw== 0000950134-96-006615.txt : 19961202 0000950134-96-006615.hdr.sgml : 19961202 ACCESSION NUMBER: 0000950134-96-006615 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960831 FILED AS OF DATE: 19961127 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KITTY HAWK INC CENTRAL INDEX KEY: 0000932110 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, NONSCHEDULED [4522] IRS NUMBER: 752564006 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-25202 FILM NUMBER: 96673869 BUSINESS ADDRESS: STREET 1: 1515 WEST 20TH STREET STREET 2: SECOND FLOOR CITY: DALLAS/FORT WORTH IN STATE: TX ZIP: 75240 BUSINESS PHONE: 2144562200 MAIL ADDRESS: STREET 1: P O BOX 612787 CITY: DALLAS/FORT WORTH IN STATE: TX ZIP: 75261 10-K 1 FORM 10-K FOR YEAR ENDED AUGUST 31, 1996 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 1996 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) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [x] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] On November 1, 1996, the aggregate market price of the voting stock held by nonaffiliates of the registrant was approximately $36.2 million. (For purposes of determination of the above stated amount, only directors, executive officers and 10% or greater stockholders have been deemed affiliates). On November 22, 1996, there were 10,450,000 outstanding shares of Common Stock, par value $0.01 per share. DOCUMENTS INCORPORATED BY REFERENCE: None. 2 PART I ITEM 1. BUSINESS GENERAL Kitty Hawk provides air freight charter services in the United States, emphasizing highly-reliable, time- sensitive services. The Company's air freight carrier owns 25 aircraft, 18 of which are currently used in scheduled airport-to-airport freight service under contracts primarily with major freight forwarders in North and Central America, the Pacific Rim and Europe. These contracts generally require the Company to supply aircraft, crew, maintenance, and insurance ("ACMI") and to meet certain on-time performance standards, while its customers are responsible for substantially all other operating expenses, including fuel. Additionally, Kitty Hawk provides same-day air logistics charter services in North America. Through its advanced, proprietary computer software, the Company manages delivery of extremely time-sensitive freight utilizing the on-demand charter services of both third-party air freight carriers and planes from the Company's fleet that are not then committed to ACMI service. The Company's principal executive offices are located at 1515 West 20th Street, P.O. Box 612787, Dallas/Fort Worth International Airport, Texas 75261, its telephone number is (972) 456-2200 and its Internet address is http://www.kha.com. Unless the context otherwise requires, the "Company" or "Kitty Hawk" refers to Kitty Hawk, Inc., its predecessor and its subsidiaries. AIR FREIGHT CARRIER General Kitty Hawk has owned and operated aircraft for on-demand air freight charter services since 1985. In 1987, the Company's air freight carrier was expanded to include ACMI contract charter service. Pursuant to ACMI contracts, the Company's air freight carrier provides scheduled charters carrying heavy-weight freight and mail for entities that engage primarily in next-day and two-day delivery service to their customers. Revenue Fleet The Company owns and operates 23 aircraft in revenue service. In addition, the Company owns one additional aircraft that it expects to place into revenue service prior to January 1997. These aircraft do not include (i) two Boeing 727-200 aircraft the Company recently entered into an agreement to purchase from Intrepid Aviation Partners, LLC, (ii) one Boeing 727-200 aircraft the Company recently entered into an agreement to purchase from International Aero Components, Inc., (iii) one Boeing 727-200F aircraft the Company recently entered into an agreement to purchase from International Technical Consultants, Inc., and (iv) the Company's undivided one-third interest in four Falcon 20 jet aircraft leased to a third-party operator. See "Item 1. Business -- Acquisition Program" and "Item 11. Executive Compensation -- Compensation Committee Interlocks and Insider Participation." ACMI Contracts As an FAA Part 121 certificated carrier, the Company's air freight carrier provides primary lift capacity as well as additional lift capacity for overflow and seasonal freight transportation needs on an ACMI contract basis. During fiscal year 1996, ACMI contracts accounted for approximately 21.1% of the Company's total revenues. As of November 22, 1996, Kitty Hawk was operating eight Boeing 727-200Fs, seven Convairs and three Douglas DC-9-15Fs under ACMI contracts with Burlington Air Express, Inc., Ting Hong Oceanic Enterprises Co., Ltd., Pacific East Asia Cargo Airlines, Inc., DHL Airways, Inc., Emery Worldwide Airlines, Inc., and Pan Air Lineas, S.A. The Company's ACMI contracts typically require the Company to supply aircraft, crew, maintenance, and insurance, while its customers are responsible for substantially all other aircraft operating expenses, including fuel, fuel servicing, airport freight handling fees, landing and parking fees, ground handling expenses, and aircraft push-back costs. These ACMI contracts also typically require the Company to operate specific aircraft and/or provide minimum air freight capacity, and generally are terminable if the Company (i) fails to meet certain minimum performance levels, (ii) otherwise breaches the contract, or (iii) becomes subject to other customary events of default. The ACMI contracts also provide that the Company has exclusive operating control and direction of each aircraft the Company operates and that certain foreign-based customers must obtain any government authorizations and permits required to service the designated routes. Therefore, the Company's route structure is limited to areas in which customers gain access from the relevant governments. The Company is permitted under its ACMI Contracts to utilize, and, in fact often does utilize, its aircraft in on-demand service in the periods between ACMI contract flights. - 2 - 3 Burlington Air Express, Inc. Burlington Air Express, Inc. ("Burlington") currently leases under one ACMI contract five of the Company's Boeing 727-200Fs and under a separate ACMI contract two of the Company's Convairs and one of the Company's Douglas DC-9- 15Fs. Under each contract, Burlington pays the Company a fixed fee for each scheduled round-trip flown by the Company and a per hour charge for any non-scheduled flight requested by Burlington. The Burlington Boeing 727-200F ACMI contract is for a term expiring on March 1, 1999, but pursuant to the terms of the contract, either party may upon thirty days' written notice terminate the services of one Boeing 727-200F aircraft immediately and one additional Boeing 727-200F aircraft on or after each of March 1, 1997, March 1, 1998 and September 1, 1998. In addition, Burlington may earlier terminate the contract if, among other reasons, the Company fails to meet certain performance standards or if majority ownership or control of the Company is acquired by a competitor of Burlington. The Company operates two Convairs and one Douglas DC-9-15F on behalf of Burlington pursuant to a contract between the parties on terms substantially similar to those set forth in the Boeing 727-200F ACMI contract between the parties. On-Demand Charter Service The air freight carrier provides on-demand charter service for customers of the Company's air logistics business. Approximately 7.1%, 8.7%, and 9.0% of the on-demand charters managed by the Company during fiscal years 1994, 1995, and 1996, respectively, were flown by the air freight carrier. These charters were flown mostly for GM. The Company also has flown its own aircraft on certain of the seasonal charters it has managed for the U.S. Postal Service. Maintenance The Company's aircraft require considerable maintenance in order to remain in compliance with FAA regulations. The Company estimates that at current rates of operation of its existing fleet, during the fiscal year 1997, the next scheduled major overhaul maintenance checks for six Boeing 727-200Fs will be completed and, during the fiscal year 1998, one will be completed. The Company does not anticipate any of its aircraft, at current rates of operation, requiring major overhaul maintenance checks during fiscal year 1999. The Company estimates that the service life of each of its revenue aircraft extends beyond the year 2000. Kitty Hawk historically has followed, and currently intends to follow, a policy of retiring Convairs at the time of their next scheduled major overhaul maintenance checks rather than expending the amounts necessary for such checks. Any equipment being placed on the Company's operating certificate is inspected and repaired prior to being utilized by the Company for either on-demand or ACMI contract charters. The Company's maintenance facilities enable it to perform all required airframe maintenance and minor engine repairs on the aircraft ranging from overnight "turnaround" checks to major airframe overhauls. The Company performs all maintenance for its fleet, including line maintenance, at its own maintenance facilities, except for repairs to avionics and overhauls of engines and airframes. All contract maintenance is performed by subcontracted FAA-approved maintenance facilities under the on-site supervision and/or inspection of Company quality assurance personnel. Management currently anticipates no difficulties in acquiring needed parts. Acquisition Program Kitty Hawk has embarked on a program of selective aircraft acquisitions. In October 1996, the Company sold 2,700,000 shares of Common Stock (the "Offering") raising net proceeds of approximately $30.1 million to purchase and modify to cargo configuration five Boeing 727-200 aircraft. Currently, the Company has entered into agreements to purchase four of these five aircraft. Any jet aircraft not in use on an ACMI contract charter route may be employed in on-demand service. In September 1996, the Company entered into an agreement to purchase from Intrepid Aviation Partners, LLC for an aggregate purchase price of $7.0 million two Boeing 727-200 aircraft, which aircraft represent two of the five Boeing 727-200 aircraft the Company intends to purchase with the net proceeds of the Offering. Both aircraft are currently utilized in passenger service and the Company intends to commence noise suppression and cargo conversion modifications - 3 - 4 immediately upon their delivery. Subject to fulfillment of customary final inspections and closing conditions, both aircraft are to be delivered in January 1997. In November 1996, the Company entered into an agreement to purchase from International Aero Components, Inc. for an aggregate purchase price of $675,000 one Boeing 727-200 aircraft, which represents one of the five Boeing 727-200 aircraft the Company intends to purchase with the net proceeds of the Offering. The purchase price does not include three P&W JT8D-7B aircraft engines. The Company intends to commence cargo conversion modifications immediately upon its delivery. Subject to fulfillment of customary final inspections and closing conditions, this aircraft is to be delivered by the end of November 1996. In November 1996, the Company entered into an agreement to purchase from International Technical Consultants, Inc., for an aggregate purchase price of $4.7 million, one Boeing 727-200F aircraft, which also represents one of the five Boeing 727-200 aircraft the Company intends to purchase with the net proceeds of the Offering. Subject to fulfillment of customary final inspections and closing conditions, this aircraft is to be delivered by the end of November 1996. The Company recently acquired an undivided one-third interest in four Falcon 20 jet aircraft and pursuant to a co-ownership agreement leases such aircraft to a third-party operator for cargo charter service. See "Item 11. Executive Compensation -- Compensation Committee Interlocks and Insider Participation." AIR LOGISTICS General On-demand air charters of heavy-weight freight generally are used when "next-flight-out" delivery services of commercial airlines or the next-day delivery services of air freight companies or other service providers cannot meet the customer's delivery deadline. Utilizing a proprietary computerized database, the Company's air logistics services involve coordinating "door-to-door" transportation by arranging for ground pick-up, loading, air transportation, unloading, and ground delivery of the freight. The most frequent use of on-demand charters is to deliver manufacturing or replacement parts to avoid a work stoppage. Manufacturers who employ the "just-in-time" methodology encourage the order and delivery of inventory just before it is needed at the assembly plant. On-demand charters also are used to transport replacement parts on an expedited basis so that critical equipment can be kept operational or put back in service to avoid or minimize the length of a shut-down. Firms that are reducing inventory and shortening product cycle times through direct air shipments also use on-demand charters. The customers of the Company's on-demand air logistics services include companies that are engaged in industries such as automotive, chemical, computer, mail and bulk package delivery, retail merchandising, and oil field service and equipment. Typically, the premium costs incurred in utilizing on-demand charters to achieve expedited same-day delivery are justified by the Company's customers on the basis that greater costs would otherwise be incurred as a result of a work stoppage or having to maintain greater inventory levels. A significant portion of all on-demand, same-day air freight charters in North America is accounted for by the automotive industry. The importance of the automotive industry to on-demand air charters reflects the large number of automobile parts, the complexity of an automotive manufacturer's supplier and assembly plant network, and the high cost of shutting down production facilities. Kitty Hawk believes that "just-in-time" inventory systems have increased the use of on-demand air charters by the automotive industry and that on-demand air charters are an integral cost of such "just-in-time" inventory management systems. Because automotive manufacturers generally carry less inventory than in the past, unanticipated parts shortages may occur more frequently. Delivery of Logistics Services For fiscal year 1996, Kitty Hawk arranged an average of approximately 44 on-demand charters per day. Each transaction originates from a customer's telephonic request to arrange a charter answered by one of the Company's 16 full-time account managers who are on duty 24 hours per day, 365 days per year. The Company believes it provides dependable service on a cost-effective basis because of its computerized database, information software, and tracking systems, its training of account managers, and its standardized charter management procedures. Database, Information Software, and Tracking Systems Database System. Kitty Hawk believes that its database is critical to its ability to arrange on-demand air charters in a timely and reliable manner. The Company maintains in its database a carrier profile for over 500 air freight carriers that provide on-demand charter service. The Company has developed and is testing an Internet system to provide its account managers with real-time updates on available third party on-demand air charter aircraft across North America. The most utilized carriers are visited by Company representatives at least annually to inspect the carrier's facilities and equipment and to update the carrier database. The database also contains information concerning ground transportation and aircraft loading companies in North America that is similar to its information concerning air carriers. Information Software System. The Company's logistics system was developed in 1990 to automate access to the Company's database and has been frequently revised and improved. This system provides on-screen information regarding air carriers, aircraft type and specifications, fuel suppliers, cargo handlers, and surface carriers, along with relevant cost information. In addition, Kitty Hawk is an on-line subscriber to Jeppesen's Flight Planning and Kavouras Meteorological services. The flight planning services provided by Jeppesen integrate airport analyses (comprised of runway lengths, altitudes, hours of operation and noise abatement procedures) with the current weather data and other information to - 4 - 5 provide an automated flight plan. This flight planning service then transmits electronically the automated flight plan to the pilot and to the FAA contemporaneously. Tracking System. In December 1993, the Company began operation of its HawkEye system, which was developed internally by its full time programming and computer support staff. HawkEye allows account managers to track an aircraft's progress from origin to destination on his or her computer screen and on the main projection board of the control room. Aircraft icons show each flight, its direction, and information about the flight including the type of aircraft, the flight number, its current altitude, ground speed, distance to destination, and times of departure and estimated arrival. The data supporting the HawkEye System is a direct data feed obtained from the FAA's Air Traffic Control computer system. U. S. Postal Service Of the Company's total revenues in fiscal year 1996, the U.S. Postal Service accounted for $21.3 million (14.9%). Of these revenues, $19.7 million (92.5%) were attributable to the Company's air logistics business in connection with its management of seasonal Christmas charters flown by third-party air cargo carriers, and $1.6 million (7.5%) were attributable to the air freight carrier for ACMI contract charters flown by the Company on designated routes. Of the Company's gross profits from air logistics in fiscal year 1996, the U.S. Postal Service accounted for $3.8 million (40.6%). Since 1986, Kitty Hawk has managed Christmas season charters for the U.S. Postal Service utilizing third-party air freight carriers in order to provide additional lift capacity for this peak period. Of the Company's total revenues for fiscal year 1996, these Christmas season managed charters accounted for $19.7 million (13.8%). The U.S. Postal Service awards contracts periodically pursuant to a public bidding process that considers quality of service and other factors. Bids for contracts to provide these Christmas season charters generally are submitted in the summer of each year and are typically awarded during the following fall. The Company recently was awarded a contract with the U.S. Postal Service for the 1996 Christmas season peak mailing period. Relationship With GM Under the terms of its agreement with GM (the "GM Agreement"), the Company's air logistics business is encouraged to utilize the air freight carrier but is prohibited from (i) placing with the Company's air freight carrier in excess of 30% of the total number of air charters arranged for GM in any calendar year and (ii) placing with the Company's air freight carrier charters producing revenue in excess of 30% of the total revenue derived from air charters arranged for GM in any calendar year. In fiscal year 1996, the Company's air freight carrier flew 885 on-demand charters (or 8.7% of total charters arranged for GM by the Company's air logistics business) resulting in $11.8 million of revenues to the Company (or 20.2% of the total revenues derived by the Company from GM). The GM Agreement does not provide for automatic fuel price adjustments. The term of the GM Agreement extends through May 1997 and thereafter from month-to-month until terminated by thirty days' written notice. The GM Agreement, however, stipulates that in the event of an irreconcilable difference, either party may, with or without cause, terminate the agreement following a quarterly review meeting by giving the other party at least 30 days' prior written notice thereof. Furthermore, GM may terminate the GM Agreement on ten days' written notice if there is a change in (i) management of Kitty Hawk Charters, Inc., the Company's wholly-owned subsidiary, through which the Company's air logistics business is conducted, or (ii) the stock ownership of the Company such that (a) Mr. Christopher no longer holds a majority of the outstanding Common Stock of the Company or (b) a major automobile manufacturer acquires more than 20% of the outstanding Common Stock of the Company, unless such changes are communicated to GM at least 60 days prior to the effective date and GM concurs with the changes. Of the Company's total revenues in fiscal year 1996, GM accounted for $58.4 million (41.0%). Of the revenues from GM, $46.6 million (79.8%) were attributable to air logistics primarily in connection with on-demand charters flown by third-party air cargo carriers, and $11.8 million (20.2%) were attributable to on-demand charters flown by the Company's air freight carrier. Of the Company's gross profits from air logistics in fiscal year 1996, GM accounted for $3.5 million (37.3%). GM accounted for 61.1% of the total number of on-demand charters that were flown by the air freight carrier in 1996. In addition to GM, the Company believes approximately 16.3% of its total revenues in fiscal year 1996 were generated from services provided to other participants in the U.S. automotive industry, a substantial portion of which the Company believes were GM suppliers. SEASONALITY Certain customers of the Company engage in seasonal businesses, especially the U.S. Postal Service, GM, and other customers in the automotive industry. As a result, Kitty Hawk's air logistics business has historically experienced its highest quarterly revenues and profitability in its second fiscal quarter due to the peak activity of the U.S. Postal - 5 - 6 Service during the Christmas season and in its first and fourth fiscal quarters when production schedules of the automotive industry typically increase. The following table reflects certain selected quarterly operating results, which have not been audited or reviewed, for each quarter since the fiscal quarter ended August 31, 1994. The information has been prepared on the same basis as the audited Consolidated Financial Statements appearing elsewhere in this Annual Report and includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the information shown. The Company's results vary significantly from quarter to quarter and the operating results for any quarter are not necessarily indicative of the results that may be expected for any future period.
FISCAL QUARTER ENDED ----------------------------------------------------------------------------------------------- NOVEMBER 30, FEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 29, MAY 31, AUGUST 31, 1994 1995 1995 1995 1995 1996 1996 1996 ----------- ----------- ------- --------- ----------- ---------- ------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenues $29,593 $31,743 $16,835 $25,539 $36,045 $48,577 $22,504 $35,289 Gross profit 5,210 6,290 2,310 4,368 5,936 8,190 3,265 6,124 Operating income loss 3,310 3,912 660 1,463 3,564 2,447 897 2,126 Net income (loss) 1,960 2,298 192 (34) 1,956 1,273 182 698 Net income (loss) per share $ 0.25 $ 0.29 $ 0.02 $(0.01) $ 0.25 $ 0.16 $ 0.02 $ 0.09
EMPLOYEES At August 31, 1996, Kitty Hawk employed approximately 295 full-time personnel, of which 49 were involved in sales and administrative functions and 246 in maintenance and flight operations (including 136 pilots). The Company is not party to any collective bargaining agreements. GOVERNMENT REGULATION The Company's air freight carrier is subject to Title 49 of the United States Code (formerly the Federal Aviation Act of 1958, as amended), under which the DOT and the FAA exercise regulatory authority over air carriers. The DOT is primarily responsible for regulating economic issues affecting air service, including, among other things, air carrier certification and fitness, insurance, consumer protection, unfair methods of competition, and transportation of hazardous materials. The FAA is primarily responsible for regulating air safety and flight operations, including, among other things, airworthiness requirements for each type of aircraft the Company's air freight carrier operates, pilot and crew certification, aircraft maintenance and operational standards, noise abatement, airport slots, and other safety- related factors. In addition, the Company's air freight carrier is subject to regulation by various other federal, state, local and foreign authorities, including the Department of Defense and the Environmental Protection Agency. The Company's operations are subject to routine, and periodically more intensive, inspections and oversight by the FAA. Following a review of safety procedures at ValuJet, Inc., the FAA adopted changes to the FAA's and air carriers' oversight of contract maintenance and training procedures. The Company believes it is currently in compliance with such changes. The FAA has proposed amendments to its flight and rest time regulations which, if adopted as proposed, could restrict the ability of the Company to respond to a shipper's request for same day delivery and/or would require the Company to hire and train additional qualified pilots to perform the Company's flight operations. The adoption of new laws, policies, or regulations or changes in the interpretation or application of existing laws, policies, or regulations, whether by the FAA, the DOT, the United States government, or any foreign, state, or local government, could have a material adverse impact on Kitty Hawk and its operations. The Company's revenue fleet is comprised of nine Boeing 727-200F aircraft manufactured between 1969 and 1978, five Douglas DC-9-15F aircraft manufactured during 1967 and 1968, and nine turbo-prop Convairs manufactured between 1948 and 1957. Manufacturer's Service Bulletins ("Service Bulletins") and FAA Airworthiness Directives ("Directives") issued under the FAA's "Aging Aircraft" program or issued on an ad hoc basis cause certain of these aircraft to be subject to extensive aircraft examinations and require certain of these aircraft to undergo structural inspections and modifications to address problems of corrosion and structural fatigue at specified times. It is possible that additional Service Bulletins or Directives applicable to the types of aircraft included in the Company's fleet could be issued in the future. The cost of compliance with such Directives and Service Bulletins cannot currently be estimated, but could be substantial. Airline operators must comply with FAA noise standard regulations primarily promulgated under the Airport Noise and Capacity Act of 1990 (the "Noise Regulations"). The Noise Regulations affect the Company's five Douglas DC-9-15Fs and its ten Boeing 727-200Fs (the "Jet Fleet"). Four of the aircraft in the Jet Fleet are currently in compliance with Stage III noise control standards. By the following deadlines, the Company must bring the Jet Fleet into Stage III compliance to the extent indicated: December 31, 1996, 50%; December 31, 1998, 75%; and January 1, 2000, 100%. Kitty Hawk intends to comply with the next deadline of December 31, 1996 by modifying one of its DC-9-15Fs and two of its Boeing 727-200Fs with noise suppression kits during November and December of 1996 for a total cost of $6.8 million (FAA rules permit rounding down to the next whole aircraft to determine 50% of fleet size). In addition to three firm orders for noise suppression kits, the Company currently holds an option for six noise suppression kits and their installation for Boeing 727-200Fs at a cost of $2.6 million for each aircraft modified. Certain airport operations have adopted local regulations which, among other things, impose curfews and other noise abatement requirements. The DOT and the FAA have the authority to modify, amend, suspend, or revoke the authority and licenses issued to the Company for failure to comply with the provisions of law or applicable regulation. In addition, the DOT and the FAA may impose civil or criminal penalties for violations of applicable rules and regulations. Such actions by the FAA or the DOT, if taken, could have a material adverse effect on Kitty Hawk. The DOT and the Environmental Protection Agency exercise regulatory jurisdiction over the transportation of hazardous materials. The Company may from time to time transport articles that are subject to these regulations. Shippers of hazardous materials share responsibility for compliance with these regulations and are responsible for proper packaging and labeling. Substantial civil monetary penalties can be imposed on both shippers and air carriers for infractions of these regulations. Certain of the Company's air freight carrier operations are conducted wholly between two or more points that are all located outside of the United States. As with the certificates and license obtained from U.S. authorities, the Company must comply with all applicable rules and regulations imposed by these foreign aeronautical authorities or be subject to the suspension, amendment or modification of its operating authorities. On August 27, 1996, a 6.25% federal transportation excise tax applicable to air freight transportation was reinstated through December 31, 1996. A Commission has been established to determine whether the excise tax should be continued after December 31, 1996 or replaced with a user fee or other funding device. The Company understands the FAA has established an internal procedure to review approvals for new and existing transport category airplane cargo door and other modifications that could affect the Company's fleet of Boeing 727-200F aircraft. The Company believes that as a result of this FAA review, refinements to existing and future cargo door and other modifications may be required in 1997 or thereafter. While it is unknown at this time the precise nature of the refinements that may be required, if any, or the impact of the refinements on Kitty Hawk's fleet of Boeing 727-200F aircraft, compliance with any such refinements could have a material adverse impact on Kitty Hawk and its operations. Under current federal aviation law, the Company's air freight carrier could cease to be eligible to operate as an air freight carrier if more than 25% of the voting stock of the Company were owned or controlled by non-U.S. citizens. Moreover, in order to hold an air freight carrier certificate, the president and two-thirds of the directors and officers of an air carrier must be U.S. citizens. All of the Company's directors and officers are U.S. citizens. Furthermore, (i) the Certificate of Incorporation limits the aggregate voting power of non-U.S. persons to 22 1/2% of the votes voting on or consenting to any matter and (ii) the Bylaws do not permit non-U.S. citizens to serve as directors or officers of the Company. - 6 - 7 INSURANCE The Company is vulnerable to potential losses which may be incurred in the event of an aircraft accident. Any such accident could involve not only repair or replacement of a damaged aircraft and its consequent temporary or permanent loss from service, but also potential claims involving injury to persons or property. The Company is required - 7 - 8 by the DOT to carry liability insurance on each of its aircraft, and each of the Company's aircraft leases and ACMI contracts also requires the Company to carry such insurance. Any extended interruption of the Company's operations due to the loss of an aircraft could have a material adverse effect on the Company. The Company currently maintains public liability and property damage insurance and aircraft liability insurance for each of the aircraft in the revenue fleet in amounts consistent with industry standards. All-risk aircraft hull insurance is maintained for all aircraft in the revenue fleet other than the Convairs. The Company maintains baggage and cargo liability insurance if not provided by its customers under ACMI contracts. Although the Company believes that its insurance coverage is adequate, there can be no assurance that the amount of such coverage will not be changed upon renewal or that the Company will not be forced to bear substantial losses from accidents. Substantial claims resulting from an accident could have a material adverse effect on the Company's financial condition and could affect the ability of the Company to obtain insurance in the future. The Company attempts to monitor the amount of liability insurance maintained by the third-party carriers utilized in its air logistics business through, among other things, the obtaining of certificates of insurance. COMPETITION The market for air freight carrier services has been and is expected to remain highly competitive. Kitty Hawk competes with other air freight carriers with regard to furnishing on-demand charters and ACMI contract charters. The Company believes that the basis for such competition is price, quality of service, and the location and performance characteristics of aircraft. The Company's air freight carrier is also subject to competition from other modes of transportation including, but not limited to, railroads and trucking. Numerous competitors of Kitty Hawk provide or coordinate door-to-door air freight charters on an expedited basis. The market for air logistics also has been and is expected to remain highly competitive. The Company's principal competitors for on-demand air logistics services are other air logistics companies, air freight carriers which seek to book charters directly with customers, and air freight companies that offer expedited service. During the last two years, each of Emery Worldwide, FedEx, and the United Parcel Service have entered the expedited freight business by offering "next-flight-out" service. The Company's ability to attract and retain business also is affected by the decisions of the transportation departments of commercial and industrial businesses whether, and to what extent, to coordinate their own transportation needs. Prior to 1990, GM conducted its air logistics business in-house. GM and certain other customers maintain transportation departments that could be expanded to manage charters in-house which could have a material adverse effect on Kitty Hawk. With respect to the Company's ACMI contract charter business, the Company could be adversely affected by the decision of certain of its certificated customers to acquire additional aircraft, or by its uncertificated customers to acquire and operate their own aircraft, to service routes currently serviced by Company aircraft. Many of the Company's competitors and customers have substantially greater financial resources than the Company. ITEM 2. PROPERTIES Kitty Hawk occupies a 40,000 square foot facility located at Dallas/Fort Worth International Airport. This facility includes administrative offices, maintenance work areas, and hangar and parts storage facilities as well as flight operations and training facilities. The Company has an option to purchase the building, subject to the consent of the Dallas/Fort Worth Regional Airport Board, with an exercise price of $1.99 million at August 31, 1996, which option amount decreases by $5,000 per month, pursuant to a five-year lease agreement that commenced March 1, 1993. The option to purchase the property will expire on March 1, 1997. There is no stated renewal on the lease. See "Item 11. Executive Compensation -- Compensation Committee Interlocks and Insider Participation." In addition, the Company maintains an approximately 20,000 square foot secondary maintenance facility located in Ypsilanti, Michigan comprised of a maintenance work area, hangar and an area for the storage of certain aircraft repair parts and maintenance items. Additionally, Kitty Hawk rents small parts storage spaces at a number of origin airports and apartments in various locations for flight crew layovers. ITEM 3. LEGAL PROCEEDINGS ANET Litigation The U.S. Postal Service selected the Company's air freight carrier in September 1992 as the successful bidder on a contract for a multi-city network of air transportation services supporting the U.S. Postal Service's Express Mail system. Another air freight carrier (the "Co-Bidder") was associated with the Company in the successful bid (the "ANET bid"). Two unsuccessful bidders, including Emery Worldwide Airlines, Inc. ("Emery") (the incumbent), sued to enjoin the award. This litigation (the "ANET Litigation") was settled in April 1993 by agreements under which the U.S. Postal Service terminated the Company's contract for convenience and awarded the contract to Emery. In lieu of damages for the contract's termination, the U.S. Postal Service paid $10.0 million into an escrow account to be divided between the - 8 - 9 Company and the Co-Bidder. Also under the settlement, Emery delivered releases of the Company's contractual obligations to purchase more than $40 million in aircraft and equipment, paid $2.7 million into the escrow account, and agreed to pay $162,500 into the escrow each quarter for up to 10 years so long as the Emery contract remained in effect. Before settling the ANET litigation, the Company, Mr. Christopher, the Co-Bidder and the Co-Bidder's stockholder agreed, among other things, to hold the escrowed funds in escrow until they had agreed upon an allocation and distribution, or until the matter was resolved by binding arbitration. Subsequent disagreements led to litigation and arbitration among the Company, Mr. Christopher, the Co-Bidder and the Co-Bidder's stockholder that were resolved pursuant to a comprehensive settlement reached in August 1994. Under the comprehensive settlement, the Company received approximately $3.5 million in cash from the escrowed funds, and obtained a Boeing 727-200. Also under the comprehensive settlement agreement, Mr. Christopher received rights to one-half of any future contingent quarterly payments from Emery. Qui Tam Litigation In March 1995, the Company was served with a complaint filed on behalf of the U.S. government by a third-party plaintiff seeking to share a recovery under the Federal False Claims Act (the "Act"). The suit, filed in May 1994 in the federal district court for the District of Columbia, was filed under seal in accordance with the Act, to enable the U.S. Government to review the claim before its disclosure to the defendants. The U.S. Government declined to pursue the claim, but the third-party plaintiff chose to continue. The suit claimed that the Company and the Co-Bidder fraudulently failed to disclose to the U.S. Postal Service, both in the ANET bid and in the settlement of the ANET litigation, that some of the aircraft the Company proposed to purchase and use to perform the contract were aging aircraft with high use, and claimed that the Company, the Co-Bidder and Emery similarly fraudulently conspired in connection with the settlement of the ANET litigation. The suit sought to recover treble the $10 million settlement payment made by the U.S. Postal Service in settling the ANET litigation, plus the third-party plaintiff's costs and fees. In May 1996, the court granted the Company its motion to dismiss the suit and awarded the Company its attorneys' fees and costs. The plaintiff has asked the court to reconsider its ruling. The Company does not expect the outcome to have a material adverse effect upon the Company's financial condition or results of operations. Litigation about Charter Agreement The Company filed suit in the 14th Judicial District Court of Dallas County, Texas against Express One International, Inc. ("Express One") in July 1992 claiming under a one-year aircraft charter by Express One to the Company that Express One breached its obligations and seeking actual damages of approximately $60,000. Express One counterclaimed that the Company wrongfully repudiated the charter and fraudulently induced Express One to provide services not required by the charter. Express One claimed damages of $356,718 for services allegedly performed, $1,140,000 for additional fees it would have received under the charter, an unspecified amount of punitive damages, and additional amounts for its attorneys' fees and costs. In February 1995, a jury verdict awarded the Company $25,000 in damages plus its attorneys' fees and denied Express One's counterclaims. In May 1995, the court entered judgment in favor of the Company for $25,000 in damages, for $148,115 in attorneys' fees through trial, and for additional attorneys' fees if Express One appealed. Before the time for appeal expired, Express One filed a petition under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Eastern District of Texas (Sherman Division). The Company filed its claim based on the judgment in the bankruptcy proceeding. In November 1995, Express One filed an appeal, to which the Company responded. Kitty Hawk does not expect the outcome to have a material adverse effect upon the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is quoted under the symbol "KTTY" on the Nasdaq National Market. Prior to the Company's initial public offering in October 1996, there was no established public trading market for the Company's Common Stock. According to the records of the Company's transfer agent, at November 18, 1996, the Company had approximately twenty-one stockholders of record. Because many of such shares are held by brokers and other institutions - 9 - 10 on behalf of stockholders, the Company is unable to estimate the total number of stockholders represented by these record holders. The Company's policy has been to reinvest earnings to fund future growth. Accordingly, the Company has not paid dividends and does not anticipate declaring dividends on its Common Stock in the foreseeable future. In addition, the terms of the Company's Credit Agreement with Wells Fargo Bank, National Association and Bank One, Texas, N.A. restrict Kitty Hawk's ability to declare and pay dividends to its stockholders during any fiscal year to an amount not to exceed 25% of the Company's net income during the immediately preceding fiscal year. The Company granted certain unregistered options to Mr. Tilmon J. Reeves and Mr. Richard R. Wadsworth in October 1994. All such options were issued in connection with employment or consulting services rendered pursuant to Rule 701 and/or Section 4(2) of the Securities Act of 1933, as amended (the "Act"). Both stock options were cancelled on June 12, 1996. See "Item 11. Executive Compensation." The Company granted certain unregistered options to Messrs. Reeves and Wadsworth in December 1995 and June 1996, respectively. All such options were issued in connection with employment or consulting services rendered pursuant to Rule 701 and/or Section 4(2) of the Act, as amended. Both stock options were exercised at an exercise price of $0.01 per share on June 26, 1996. The unregistered common stock issued upon exercise of such options was issued to Messrs. Reeves and Wadsworth pursuant to Rule 701, Section 4(2) and/or Section 3(a)(9) of the Act. See "Item 11. Executive Compensation." ITEM 6. SELECTED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA) The following table sets forth selected financial and operating data with respect to Kitty Hawk for each of the fiscal years indicated. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements, including the Notes thereto, appearing elsewhere in this Form 10-K. The selected income statement and balance sheet data as of and for each of the fiscal years ended August 31, 1992 through 1996 has been derived from audited consolidated financial statements of the Company. - 10 - 11
FISCAL YEAR ENDED AUGUST 31, ----------------------------------------------- 1992 1993 1994 1995 1996 ------ ------ ------ ------- ------ INCOME STATEMENT DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS): Revenues: Air freight carrier $ 6,760 $ 12,939 $ 28,285 $ 41,117 $ 52,922 Air logistics 45,893 52,840 79,415 62,593 89,493 ------- ------- ------- ------- ------- Total revenues 52,653 65,779 107,700 103,710 142,415 Total costs of revenues 48,465 55,201 92,951 85,532 118,900 ------- ------- ------- ------- ------- Gross profit 4,188 10,578 14,749 18,178 23,515 General and administrative expenses 2,930 4,394 6,013 7,832 9,080 Non-qualified profit sharing expense -- 250 732 1,001 1,170 Stock option grants to executives -- -- -- -- 4,231(1) ------- ------- ------- ------- ------- Operating income 1,258 5,934 8,004 9,345 9,034 Interest expense (157) (134) (343) (1,185) (1,859) Contract settlement income, net(2) -- 725 1,178 -- -- Loss on asset disposal -- -- -- -- (589) Other income (expense) 287 193 (432) (601) 291 ------- ------- ------- ------- ------- Income before income taxes 1,388 6,718 8,407 7,559 6,877 Income taxes 375 2,613 3,146 3,143 2,768 ------- ------- ------- ------- ------- Net income $ 1,013 $ 4,105 $ 5,261 $ 4,416 $ 4,109(1) ======= ======= ======= ======= ======= Net income per share $0.12 $ 0.52 $ 0.66 $ 0.55 $ 0.52(1) ======= ======= ======= ======= ======= Weighted average common and common equivalent shares outstanding 8,671 7,968 7,968 7,968 7,928 OPERATING DATA: Air Freight Carrier Revenue aircraft owned (at end of 11 10 15 21 22 period) Flight hours flown(3) 3,567 7,030 11,795 15,183 20,237 Number of on-demand charters flown 292 752 1,182 1,238 1,448 Number of ACMI contract charters flown 655 1,314 1,734 2,601 3,493 Air Logistics Number of on-demand charters managed(4) 8,708 9,748 16,713 14,198 16,043 BALANCE SHEET DATA (IN THOUSANDS): Working capital $ 895 $ 4,679 $ 4,223 $ 1,747 $ (6,962)(5) Total assets 9,874 18,598 37,911 47,954 79,828 Long-term debt, including current 2,367 976 9,145 16,981 36,912 maturities Stockholders' equity 3,184 7,289 12,550 16,966 23,639
- ---------- - 11 - 12 (1) Results for fiscal year ended August 31, 1996, lack comparability to prior periods because such period includes nonrecurring grants to two executive officers of stock options that resulted in a charge to earnings of approximately $4,231,000. Had these grants of stock options not occurred, net income for fiscal year ended August 31, 1996 would have been approximately $6,637,000 and net income per share would have been $0.84. See "Item 11. Executive Compensation." (2) Reflects sums received in settlement of litigation. See "Item 3. Legal Proceedings -- ANET Litigation" and Note 5 of Notes to Consolidated Financial Statements. (3) As reported by the Company to the FAA. (4) Includes on-demand charters flown by the Company's air freight carrier. (5) Working capital includes a $10 million Revolving Credit Facility classified as a current liability, that the Company is in negotiations to refinance over a long-term period. Had this Revolving Credit Facility been refinanced, working capital for fiscal year 1996 would have been $3,038,000. See Note 2 of Notes to Consolidated Financial Statements. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Revenues. The Company's revenues are derived from two related businesses: (i) air freight carrier and (ii) air logistics. Air freight carrier revenues are derived substantially from ACMI contract and on-demand charters flown with Company aircraft. Air logistics revenues are derived substantially from on-demand air freight charters arranged by Kitty Hawk for its customers utilizing the flight services of third-party air freight carriers. With respect to on-demand charters that are arranged by the Company and flown by its air freight carrier, charges to the customer for air transportation are accounted for as air freight carrier revenues and charges for ground handling and transportation are accounted for as air logistics revenues. GM and the U.S. Postal Service have accounted for a substantial majority of the Company's revenues for the last three fiscal years. A contract with GM for on-demand charters produced revenues of $67.9 million, $48.9 million, and $58.4 million in fiscal years 1994, 1995, and 1996, respectively, which represented 63.1%, 47.1%, and 41.0% of the Company's total revenues for such periods. Of the revenues derived from GM for fiscal years 1994, 1995, and 1996, 15.4%, 20.8%, and 20.2%, respectively, were attributable to the air freight carrier and 84.6%, 79.2%, and 79.8%, respectively, were attributable to air logistics. Revenues derived from GM for fiscal years 1994, 1995, and 1996 constituted 36.9%, 24.7%, and 22.3%, respectively, of the revenues derived from the air freight carrier business and 72.4%, 61.9%, and 52.1%, respectively, of the revenues derived from the air logistics business. Of the Company's gross profits from air logistics in fiscal years 1994, 1995, and 1996, GM accounted for $3.0 million (50.4%), $1.4 million (27.1%), and $3.5 million (37.3%), respectively. The U.S. Postal Service accounted for revenues of $11.1 million, $10.0 million, and $21.3 million in fiscal years 1994, 1995, and 1996, respectively, which represented 10.3%, 9.7%, and 14.9% of the Company's total revenues for such periods, respectively. Of the revenues derived from the U.S. Postal Service for fiscal years 1994, 1995, and 1996, 74.5%, 59.6%, and 92.5%, respectively, were attributable to air logistics for seasonal Christmas charters flown by third-party air freight carriers and 25.5%, 40.4%, and 7.5%, respectively, were attributable to the air freight carrier for ACMI contract charters. Revenues derived from the U.S. Postal Service for fiscal years 1994, 1995, and 1996, constituted 10.0%, 9.9%, and 3.0%, respectively, of the revenues derived from the air freight carrier business and 10.4%, 9.6%, and 22.0%, respectively, of the revenues derived from the air logistics business. Of the Company's gross profits from air logistics in fiscal years 1994, 1995, and 1996, the U.S. Postal Service accounted for $2.0 million (33.8%), $1.0 million (18.9%), and $3.8 million (40.6%), respectively. Burlington Air Express, Inc. accounted for revenues of $15.6 million in fiscal year 1996, which represented 10.9% of the total revenues for such period and constituted 28.5% of the revenues derived from the air freight carrier business and 0.6% of the revenues derived from the air logistics business. Of these revenues, 96.8% were attributable to the air freight carrier for ACMI contract charters and 3.2% were attributable to air logistics. Costs of Revenues. The principal components of the costs of revenues attributable to the air freight carrier consist of the costs for the maintenance and operation of its aircraft including the salaries of pilots and maintenance personnel, charges for fuel, insurance and maintenance, and depreciation of engines and airframes. Generally, charges for fuel are only applicable for the on-demand charters flown by the air freight carrier because fuel for the ACMI contract charters is generally provided by the customer or billed to them on a direct pass-through basis. The principal components of the - 12 - 13 costs of revenues attributable to air logistics consist of sub-charter costs paid to third-party air freight carriers and costs paid for ground handling and transportation. With respect to on-demand charters that are flown by the air freight carrier, all related air transportation expenses are allocated to the air freight carrier and all related cargo ground handling and transportation expenses are allocated to air logistics. Under an earlier version of the Kitty Hawk, Inc. Amended and Restated Annual Incentive Compensation Plan, the Company awarded semiannual cash bonuses to its employees. The aggregate amount of the bonuses for each of fiscal years 1994, 1995, and 1996, have equaled 8.0%, 11.7%, and 9.5% of the Company's income before the deduction of income taxes, stock option grant to executives and the bonuses that were paid under the Kitty Hawk, Inc. Amended and Restated Annual Incentive Compensation Plan. Significant Events Affecting Comparability of Results of Operations. Since September 1, 1993, several events have affected the comparability of results of operations for each of the last three fiscal years. In fiscal year 1996, the Company granted Messrs. Reeves and Wadsworth options to purchase 390,707 and 153,567 shares of Common Stock, respectively, for an exercise price of $0.01 per share, that resulted in a charge to earnings of approximately $4,231,000. In fiscal year 1995, the Company expensed approximately $727,000 relating to the Company's attempted initial public offering. In fiscal year 1994, contract settlement income amounted to approximately $1,178,000. See Note 5 to Consolidated Financial Statements. Recent Developments. Due to recent strikes and labor disruptions at certain GM plants, there has been a decrease during the first quarter of fiscal 1997 in the number of charters flown by the Company's air logistics business. The Company believes these strikes and labor disruptions have been settled and does not anticipate the adverse impact of such strikes and labor disruptions to extend beyond the end of the 1996 calendar year. RESULTS OF OPERATIONS The following table sets forth, on a comparative basis for the periods indicated, the components of the Company's gross profit (in thousands) and the gross profit margin by revenue type:
FISCAL YEAR ENDED AUGUST 31, ----------------------------------------------------------- 1994 1995 1996 ----------------- ----------------- ----------------- Air freight carrier: Revenues . . . . . . . $28,285 100.0% $41,117 100.0% $52,922 100.0% Costs of revenues . . . 19,550 69.1 28,104 68.4 38,760 73.2 ------- ------- ------- ------- ------- ------- Gross profit . . . . . . $ 8,735 30.9% $13,013 31.6% $14,162 26.8% ======= ======= ======= ======= ======= ======= Air logistics: Revenues . . . . . . . $79,415 100.0% $62,593 100.0% $89,493 100.0% Costs of revenues . . . 73,402 92.4 57,428 91.7 80,140 89.5 ------- ------- ------- ------- ------- ------- Gross profit . . . . . . $ 6,013 7.6% $ 5,165 8.3% $ 9,353 10.5% ======= ======= ======= ======= ======= =======
The following table presents, for the periods indicated, consolidated income statement data expressed as a percentage of total revenues:
FISCAL YEAR ENDED AUGUST 31, ----------------------------- 1994 1995 1996 -------- -------- --------- Revenues: Air freight carrier .............. 26.3% 39.6% 37.2% Air logistics .................... 73.7 60.4 62.8 ----- ----- ----- Total revenues ..................... 100.0 100.0 100.0 Total costs of revenues ............ 86.3 82.5 83.5 ----- ----- ----- Gross profit ....................... 13.7 17.5 16.5 General and administrative expenses 5.6 7.6 6.4 Non-qualified profit sharing expense 0.7 0.9 .8 Stock option grants to executives .. -- -- 3.0 ----- ----- ----- Operating income ................... 7.4 9.0 6.3 Interest expense ................... (0.3) (1.1) (1.3) Contract settlement income, net .... 1.1 -- -- Loss on asset disposal ............. -- -- (0.4) Other income (expense) ............. (0.4) (0.6) 0.2 ----- ----- ----- Income before income taxes ......... 7.8 7.3 4.8 Income taxes ....................... 2.9 3.0 1.9 ----- ----- ----- Net income ......................... 4.9% 4.3% 2.9% ===== ===== =====
- 13 - 14 FISCAL YEAR ENDED AUGUST 31, 1996 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1995 Revenues -- Air Freight Carrier. Air freight carrier on-demand and ACMI contract charter revenues were $20.7 million and $30.1 million, or 39.2% and 56.8%, respectively, of total air freight carrier revenues for fiscal year 1996, as compared to $18.1 million and $20.9 million, or 44.2% and 50.8%, respectively, for fiscal year 1995. ACMI contract charter revenues for fiscal year 1996, increased 44.0% over fiscal year 1995, primarily as the result of additional Boeing 727-200F ACMI contract charters. Revenues from on-demand charters flown by Company aircraft for fiscal year 1996 increased 14.0% from the comparable prior year period. For fiscal year 1996, as compared to fiscal year 1995, prices for the Company's on-demand and ACMI contract charters remained relatively constant. Revenues -- Air Logistics. Air logistics revenues increased $26.9 million, or 43.0%, to $89.5 million in fiscal year 1996, from $62.6 million in fiscal year 1995. This increase was primarily due to increased demand for on- demand charters from the automobile industry in the fourth quarter of calendar year 1995 and a substantial increase in the number of managed charters for the U.S. Postal Service during December 1995. For fiscal year 1996, as compared to fiscal year 1995, prices for the Company's air logistics services remained relatively constant. Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of revenues increased $10.7 million, or 37.9%, to $38.8 million in fiscal year 1996, from $28.1 million in fiscal year 1995, reflecting the increased volume of business from Boeing 727-200F ACMI contract charters. Gross profit margin from the air freight carrier decreased to 26.8% in fiscal year 1996, from 31.6% in the comparable prior year period. This decrease reflects the increase in ACMI contract charters, which produce lower gross margins than on-demand charters. As reported to the FAA, overall aircraft utilization increased to 20,237 flight hours for fiscal year 1996, from 15,183 in fiscal year 1995, a 33.3% increase. This increase was primarily due to the increased hours flown for ACMI contract charters. Costs of Revenues -- Air Logistics. Air logistics costs of revenues increased $22.7 million, or 39.5%, to $80.1 million in fiscal year 1996, from $57.4 million in fiscal year 1995, reflecting the increased volume of business. The gross profit margin from air logistics increased to 10.5% in fiscal year 1996, from 8.3% in the comparable prior year period, a 26.5% increase. This increase was primarily due to the Company's success in reducing its costs paid to third-party air freight carriers and ground service providers and increased gross profit margin from the Company's U.S. Postal Service Christmas contract in December 1995. General and Administrative Expenses. General and administrative expenses increased $1.2 million, or 15.9%, to $9.1 million in fiscal year 1996, from $7.8 million in fiscal year 1995. This increase was primarily due to an increase in support functions and administrative costs associated with the growth in the aircraft fleet and the increased revenue volume for the air freight carrier in fiscal year 1996. As a percentage of total revenues, general and administrative expenses decreased to 6.4% in fiscal year 1996, from 7.6% in fiscal year 1995. Non-qualified Employee Profit Sharing Expense. Employee profit sharing expense increased $169,000, or 16.9%, to $1.2 million in fiscal year 1996, from $1.0 million in fiscal year 1995, reflecting the increased profitability from operating activities of Kitty Hawk in fiscal year 1996. Stock Option Grants to Executives. During fiscal year 1996, the Company granted two executive officers options to purchase 544,274 shares of Common Stock that resulted in a charge to earnings of approximately $4,231,000. Operating Income. Operating income decreased $311,000, or 3.3%, to $9.0 million in fiscal year 1996, from $9.3 million in fiscal year 1995. Operating income margin decreased to 6.3% from 9.0%, for fiscal year 1996 and 1995, respectively. Interest Expense. Interest expense increased to $1.9 million for fiscal year 1996 from $1.2 million in fiscal year 1995, a 56.9% increase. The increase was primarily the result of the incurrence of additional long-term debt to finance the acquisition of two Boeing 727-200 aircraft in the second half of fiscal year 1995 and two additional Boeing 727-200 aircraft in fiscal year 1996. Loss on Asset Disposal. Loss on asset disposal for fiscal year 1996 was $589,000, which resulted from write-downs associated with equipment dispositions. There were no losses on asset disposal in fiscal year 1995. Other Income (Expense). Other income increased to $291,000 in fiscal year 1996, from an expense of $601,000 in the comparable prior year period. The increase was primarily due to the write-off of costs associated with the Company's attempted initial public offering in fiscal year 1995 and increased interest income in fiscal year 1996. - 14 - 15 Income Taxes. Income taxes as a percentage of income before income taxes decreased to 40.3% for fiscal year 1996, from 41.6% for the comparable prior year period. The decrease was primarily due to decreased state income taxes. Net Income. As a result of the above, net income decreased to $4.1 million in fiscal year 1996, from $4.4 million in fiscal year 1995, a 7.0% decrease. Net income as a percentage of total revenues decreased to 2.9% in fiscal year 1996, from 4.3% in the comparable prior year period. FISCAL YEAR ENDED AUGUST 31, 1995 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1994 Revenues -- Air Freight Carrier. Air freight carrier on-demand and ACMI contract charter revenues were $18.1 million and $20.9 million, or 44.2% and 50.8%, respectively, of total air freight carrier revenues for fiscal year 1995, as compared to $15.4 million and $10.6 million, or 54.5% and 37.4%, respectively, for fiscal year 1994. The increase in on-demand and ACMI contract charter revenues for fiscal year 1995 over fiscal year 1994, was 17.9% and 97.1%, respectively. These increases were primarily the result of additional Boeing 727-200F ACMI contract charters and increased on-demand charters flown by the Company's jet aircraft. For fiscal year 1995 as compared to fiscal year 1994, prices for the Company's ACMI contract charter services and U.S. Postal Service Christmas contracts remained relatively constant. Revenues -- Air Logistics. Air logistics revenues decreased $16.8 million, or 21.2%, to $62.6 million in fiscal year 1995 from $79.4 million in fiscal year 1994 primarily due to the substantial decline in volume of on-demand charters for the automobile industry in the first half of calendar 1995 as compared to the same period in 1994. This decline was primarily the result of the temporary decision by GM to significantly reduce use of expedited transportation, including Kitty Hawk's air logistics services, as part of a cost containment initiative. Prices for the Company's on-demand charters decreased slightly due to a revenue rate reduction in the GM Agreement which took effect on May 1, 1994. Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of revenues increased $8.6 million, or 43.8%, to $28.1 million in fiscal year 1995 from $19.5 million in fiscal year 1994, reflecting the increased volume of business from ACMI contract and on-demand charters flown by the Company's jet aircraft. Gross profit margin from the air freight carrier increased slightly to 31.6% in fiscal year 1995 from 30.9% in fiscal year 1994, a 2.3% increase. As reported to the FAA, overall aircraft utilization increased to 15,183 flight hours for fiscal year 1995 from 11,795 flight hours in fiscal year 1994, a 28.7% increase. This increase was primarily the result of the inclusion of an additional four Boeing 727-200Fs, and two Douglas DC9-15F aircraft into the Company's operations during fiscal year 1995. Costs of Revenues -- Air Logistics. Air logistics costs of revenues decreased $16.0 million, or 21.8%, to $57.4 million in fiscal year 1995 from $73.4 million in fiscal year 1994, reflecting the decrease in the volume of business. The gross profit margin from air logistics increased to 8.3% in fiscal year 1995 from 7.6% in fiscal year 1994, a 9.2% increase. This increase was primarily due to the Company's success in reducing its costs paid to third- party air freight carriers and ground service providers in the second half of fiscal year 1995. General and Administrative Expenses. General and administrative expenses increased $1.8 million, or 30.3%, to $7.8 million in fiscal year 1995 from $6.0 million in fiscal year 1994. As a percentage of total revenues, general and administrative expenses increased to 7.6% in fiscal year 1995 from 5.6% in fiscal year 1994. This increase was primarily due to an increase in support functions and number of personnel associated with the growth in the aircraft fleet and the revenue volume for the air freight carrier in fiscal year 1995. Non-qualified Employee Profit Sharing Expense. Employee profit sharing expense increased to $1.0 million in fiscal year 1995 from $732,000 in fiscal year 1994, a 36.8% increase, reflecting the increased profitability from operating activities of Kitty Hawk in fiscal year 1995. Operating Income. Operating income increased $1.3 million, or 16.8%, to $9.3 million in fiscal year 1995 from $8.0 million in fiscal year 1994. Operating income margin increased to 9.0% from 7.4% for fiscal year 1995 and 1994, respectively. Interest Expense. Interest expense increased to $1.2 million for fiscal year 1995 from $343,000 in fiscal year 1994, a 246.0% increase. The increase was primarily the result of the incurrence of additional long-term debt to finance the acquisition of two Boeing 727-200 aircraft in the second half of fiscal year 1994 and two Douglas DC9-15F aircraft and two Boeing 727-200 aircraft in fiscal year 1995. Other Income (Expense). Other expense increased to $601,000 in fiscal year 1995 from $432,000 in fiscal year 1994, a 39.1% increase. This increase was primarily due to the write off of costs associated with the Company's attempted initial public offering. - 15 - 16 Income Taxes. Income taxes as a percentage of income before income taxes increased to 41.6% for fiscal year 1995 from 37.4% in fiscal year 1994. The increase was primarily due to higher state income taxes. Net Income. As a result of the above, net income decreased to $4.4 million for fiscal year 1995 from $5.3 million in fiscal year 1994, a 16.0% decrease. Net income as a percentage of total revenues was 4.3% in fiscal year 1995 compared to 4.9% for fiscal year 1994. LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements are primarily for the acquisition and modification of aircraft and working capital. In addition, Kitty Hawk has, and will continue to have, capital requirements for the requisite periodic and major overhaul maintenance checks for its air freight carrier fleet. The Company's funding of its capital requirements historically has been from a combination of internally generated funds and bank borrowings. Cash provided by operating activities was $7.6 million, $9.1 million, and $17.2 million in fiscal years 1994, 1995 and 1996, respectively. At the end of fiscal years 1994, 1995, and 1996, the Company had working capital of $4.2 million, $1.7 million, and $(7.0) million, respectively. On August 14, 1996 Kitty Hawk entered into the Credit Agreement with Wells Fargo Bank (Texas), National Association ("WFB"), successor in interest to First Interstate Bank of Texas, N.A., and Bank One, Texas, N.A. ("BOT") for a $15 million Revolving Credit Loans Facility (the "Revolving Credit Facility"), an approximately $12.7 million Term Loans A Facility (the "Term Loans A"), an approximately $11.2 million Term Loans B Facility (the "Term Loans B") and a $10 million Term Loans C Facility (the "Term Loans C") (collectively, the "Commitments"). As of November 22, 1996 approximately $11.9 million was outstanding under the Revolving Credit Facility, approximately $12.2 million was outstanding under the Term Loans A, approximately $10.9 million was outstanding under the Term Loans B and $0 was outstanding under the Term Loans C. The Commitments bear interest at WFB's prime rate or, at Kitty Hawk's option, a Eurodollar rate plus 1.5% to 2.0% based upon a debt-to-cash flow ratio of Kitty Hawk. Under the Credit Agreement, $10 million of proceeds of the Revolving Credit Facility are restricted to use from time to time for interim financing of up to $6.5 million per aircraft for aircraft acquisitions by the Company; the remaining $5 million of the Facility may be used for general corporate purposes, including interim financing for acquired aircraft that exceeds the limits that apply to the restricted portion. The outstanding balance of the Revolving Credit Facility results from borrowing to pay revolving credit indebtedness to WFB which was recently incurred by Kitty Hawk in connection with purchasing two Boeing 727-200s that are being converted to freighter configuration, and to fund such cargo conversion, noise abatement modifications and maintenance on those two aircraft. The Revolving Credit Facility expires on December 31, 1998. Any advance under the portion of the Revolving Credit Facility that is restricted to interim financing for aircraft acquisition must be repaid in full within 150 days of first advance for the acquired aircraft. All advances under the commitment for Term Loans C must be made by April 29, 1998. The Term Loans A matures on March 31, 2002 and the Term Loans B and C mature on March 31, 2003. The Commitments are cross-collateralized and are secured by certain aircraft owned by the Company, all aircraft acquired with advances under the restricted portion of the Revolving Credit Facility while those advances are outstanding, certain leases of aircraft and engines, accounts, chattel paper, general intangibles and other personal property. The Credit Agreement prohibits (i) the redemption or repurchase of the Company's securities, (ii) the payment of dividends to Kitty Hawk's stockholders in an amount over 25% of the Company's net income of the immediately preceding fiscal year, (iii) certain investments, acquisitions of stock, acquisitions of assets to the extent that the business acquired is not in the present lines of business of the Company, and other business combinations, (iv) certain transactions with affiliates and (v) the Company to incur any additional indebtedness, liabilities or obligations other than debt incurred (a) with the prior written consent of certain lenders, (b) with WFB or BOT or (c) in the ordinary course of business not to exceed $25 million. The Credit Agreement also contains certain other covenants, including limitations on the ability of the Company to change its lines of business. If a "Change of Control" occurs, WFB and BOT may accelerate or terminate the Commitments. "Change of Control" includes (a) the failure of Kitty Hawk to own all of the outstanding stock of certain of its subsidiaries, (b) Mr. Christopher failing to own at least 51% of the outstanding stock of Kitty Hawk, (c) Mr. Christopher ceasing to be Chief Executive Officer of Kitty Hawk or active in the management of the Company or (d) if, after the consummation of a public offering, any person (or two or more persons acting as a group) acquiring beneficial ownership of 25% or more of the outstanding shares of Common Stock. During fiscal years 1994, 1995, and 1996, similar restrictions and prohibitions under the Company's other credit facilities did not have a material impact on the Company's ability to meet its cash obligations and the Company does not believe that the restrictions under the Credit Agreement will have any such impact in the future. - 16 - 17 In addition, the Company has a loan with 1st Source Bank. As of November 22, 1996, the outstanding balance of this loan was approximately $1 million. The loan bears interest at 9.75%, is secured by a DC9-15F and matures in May 2000. The 1st Source loan contains certain aircraft maintenance covenants and provides that a change in the Company's business is an event of default upon which 1st Source may declare all or any part of the remaining unpaid principal. In November 1996, in connection with the Company's recent acquisition of a one-third undivided interest in four Falcon 20 jet aircraft, the Company and the two other co-owners of such aircraft entered into a five year, $4.3 million term loan. The loan bears interest at a floating prime rate, is secured by the four Falcon 20 jet aircraft and requires monthly payments of principal and interest. The Company's liability under such loan is limited to $2.0 million. See "Item 11. Executive Compensation -- Compensation Committee Interlocks and Insider Participation." In October 1996, the Company sold in an initial public offering 2,700,000 shares of Common Stock, raising net proceeds of approximately $30.1 million to purchase and modify to cargo configuration five Boeing 727-200 aircraft. Capital expenditures were $13.9 million, $17.9 million, and $33.5 million for fiscal years 1994, 1995 and 1996, respectively. The $33.5 million in capital expenditures for fiscal year 1996 were primarily for the purchase of: (i) five Boeing 727-200 aircraft and the cargo and noise abatement modification of four of these aircraft and (ii) six used JT8D-7/-9 jet engines. The $17.9 million in capital expenditures for fiscal year 1995 were due primarily to the purchase of: (i) two Boeing 727-200 aircraft and their cargo modification, (ii) three JT8D-15 jet engines for installation on one of the Boeing 727-200 aircraft, (iii) two Douglas DC9-15F aircraft in cargo configuration, (iv) noise abatement equipment with respect to one of the Douglas DC9-15F aircraft, (v) five used/overhauled Rolls Royce Dart Convair engines, (vi) two used JT8D-7/-9 jet engines, (vii) a Westwind 1124 jet aircraft to be used for corporate purposes only, and (viii) the cargo modification of one Boeing 727-200 aircraft acquired at the end of fiscal year 1994. The $13.9 million in capital expenditures for fiscal year 1994 were primarily for the purchase of: (i) two Boeing 727- 200 aircraft and the cargo modification of these aircraft, (ii) two Douglas DC9-15F aircraft in cargo configuration, (iii) three Convair 600/640 turbo-prop aircraft, and (iv) ground handling equipment. Capital expenditures in fiscal year 1993 were primarily for cargo containers and ground handling equipment. The acquisitions of all of the Boeing 727- 200 aircraft and subsequent cargo conversions, the Douglas DC9-15F aircraft and the JT8D-15 engines in the past three years were financed by bank borrowings and internally generated funds, except for one Boeing 727-200 aircraft received in the settlement of the ANET litigation described in "Item 3. Legal Proceedings." All other capital acquisitions were financed from internally generated funds. Kitty Hawk anticipates purchasing five Boeing 727-200s (including one in cargo configuration) and modifying to cargo configuration four of these Boeing 727-200s (including modifying two of these Boeing 727-200s with noise abatement equipment for approximately $5.0 million) for an aggregate capital expenditure of approximately $31.3 million in fiscal year 1997. The Company further believes the $5.0 million amount for noise abatement modifications proposed for fiscal year 1997 for two of these five aircraft proposed to be purchased, together with an additional $6.8 million to modify currently owned aircraft with noise abatement equipment during fiscal 1997, represents the total capital expenditures that would currently be necessary to comply with the requirements of existing applicable environmental regulations for such fiscal year. In fiscal year 1998, the Company anticipates an aggregate capital expenditure ranging from $9.0 million to $11.0 million for noise abatement modifications to aircraft currently owned or proposed to be purchased. In the event the Company acquires more aircraft than currently proposed, the Company's anticipated aggregate capital expenditure for noise abatement modifications in fiscal year 1998 could materially increase. See "Item 1. Business -- Government Regulation." The Company historically has followed, and currently intends to follow, a policy of retiring Convairs at the time of their next scheduled major overhaul maintenance checks rather than expending the amounts necessary for such checks. Kitty Hawk presently intends to purchase the facility it currently occupies at Dallas/Fort Worth International Airport on or before March 1, 1997. Based upon negotiations with the lessor of the facility, the Company expects to purchase the facility for approximately $1.75 million. The Company believes that the net proceeds from its initial public offering, together with available funds, bank borrowings, and cash flows expected to be generated by operations, will be sufficient to meet its anticipated cash needs for working capital 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. In March 1995, the Financial Accounting Standard Board issued Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company will adopt SFAS 121 in the first quarter of fiscal year 1997 and, based on current circumstances, does not believe that adopting SFAS No. 121 will affect materially its financial statements. The Company accounts for stock-based compensation utilizing the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock Based Compensation". The Company is not required to adopt the provisions of SFAS No. 123 until fiscal 1997. Under SFAS 123, companies are allowed to continue to apply - 17 - 18 the provisions of APB Opinion No. 25 to their stock-based compensation arrangements. As such, the Company will only be required to supplement its financial statements with additional disclosures in fiscal 1997. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is submitted as a separate section of this Form 10-K. See Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers and directors of the Company, their ages, and positions are as follows:
Name Age Position with Company ---- --- --------------------- M. Tom Christopher (1) . . . . . . . . . . . 49 Chairman of the Board of Directors and Chief Executive Officer Tilmon J. Reeves . . . . . . . . . . . . . . 57 President, Chief Operating Officer, and Director Richard R. Wadsworth . . . . . . . . . . . . 49 Senior Vice President--Finance, Chief Financial Officer, Secretary, and Director Theodore J. Coonfield (2) . . . . . . . . . . 48 Director James R. Craig . . . . . . . . . . . . . . . 58 Director Robert F. Grammer (1) . . . . . . . . . . . . 60 Director Lewis S. White (1)(2) . . . . . . . . . . . . 56 Director
- ----------------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. The Board of Directors consists of seven members, including four independent directors. Executive officers are elected by the Board of Directors and serve at its discretion. M. TOM CHRISTOPHER has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since its inception in 1985, and serves in the class of directors whose terms expire at the 1997 annual meeting of stockholders. Prior to assuming these positions, he formed and managed Kitty Hawk Charters, Inc. He has over 18 years of experience in the air freight industry, including serving as an account manager for Burlington Northern Airfreight from 1976 to 1978. TILMON J. REEVES has served as President and Chief Operating Officer of the Company since May 1993 and has over 30 years of aviation experience. Prior to assuming his current positions, he served as Vice President of the Company's air freight carrier from March 1992 to May 1993. Prior to joining Kitty Hawk, Mr. Reeves served as Vice President (Sales) of Express One from April 1991 to March 1992. Mr. Reeves served as the Managing Director -- Cargo Services for American Airlines, Inc. from March 1989 to January 1991. Mr. Reeves became a director in October 1994 and serves in the class of directors whose terms expire at the 1998 annual meeting of stockholders. RICHARD R. WADSWORTH has served as Senior Vice President -- Finance since October 1992, Chief Financial Officer since September 1994, and Secretary since October 1994. Prior to his current role, he served in a consulting capacity to Kitty Hawk in the preparation of various bids for the Company's contract air freight service from December 1991 to September 1992. Mr. Wadsworth served as Senior Underwriter in the Dallas office of Stephens Inc. from September 1989 until July 1991. Mr. Wadsworth filed for bankruptcy protection in his individual capacity in February of 1992. Mr. Wadsworth became a director in October 1994 and serves in the class of directors whose terms expire at the 1999 annual meeting of stockholders. - 18 - 19 THEODORE J. COONFIELD became a director of the Company in October 1994 and serves in the class of directors whose terms expire at the 1998 annual meeting of stockholders. Since April 1996, Mr. Coonfield has been a consultant with Performance Consulting Group, a firm specializing in change management consulting primarily in the banking and insurance industry. From January 1993 to April 1996, Mr. Coonfield was a consultant with the Richard-Rogers Group, a consulting firm specializing in total quality issues, where he primarily engaged in consulting for firms in the transportation industry. From 1990 to December 1992, Mr. Coonfield was the Special Assistant to the Director of the Department of Human Resources for the State of Oregon. Since 1985, Mr. Coonfield has been the President of Oregon Wine Designs, Inc., a wine production and marketing firm. JAMES R. CRAIG became a director of the Company in October 1994 and serves in the class of directors whose terms expire at the 1997 annual meeting of stockholders. Mr. Craig is an attorney who has served of counsel to Burke, Wright & Keiffer, P.C. since 1990. Prior to his affiliation with Burke, Wright & Keiffer, P.C., Mr. Craig was in private law practice in Dallas since 1971, and in 1989 served as President of Whitehall Development Company, a real estate development firm, of which he is now a director. ROBERT F. GRAMMER became a director of the Company in October 1994 and serves in the class of directors whose terms expire at the 1997 annual meeting of stockholders. From 1986 to October 1993, Mr. Grammer was Chairman, President and owner of R.G. Aviation, a provider of aircraft-related services. Mr. Grammer retired from this position in October of 1993 to manage his personal investments. LEWIS S. WHITE became a director of the Company in October 1994 and serves in the class of directors whose terms expire at the 1999 annual meeting of stockholders. Since 1988, Mr. White has been President of L. S. White & Co., a firm specializing in strategic planning, corporate finance, acquisitions, and in business start-ups, turnarounds and restructurings. Prior to 1988, he held senior financial positions with Paramount Communications Inc. and Union Carbide Corporation. Mr. White is also a director of Whitehall Corporation, a company principally involved in aircraft maintenance. ITEM 11. EXECUTIVE COMPENSATION The table below sets forth information concerning the annual and long-term compensation for services in all capacities to Kitty Hawk for fiscal years 1994, 1995, and 1996, with respect to those persons who were during fiscal year 1996 (i) the Chief Executive Officer and (ii) the other two most highly compensated executive officers of the Company (collectively, with the Chief Executive Officer, the "Named Executive Officers"). - 19 - 20 SUMMARY COMPENSATION TABLE
Long-Term Annual Compensation Compensation ------------------------------------ ------------ Securities Fiscal Other Annual Underlying All Other Name and Principal Positions Year Salary Bonus Compensation Options Compensation - ---------------------------- ---- ------- ----- ------------ ------- ------------ M. Tom Christopher 1994 $ 120,000 $ 512,000 -- -- $ 25,022(1) Chairman of the Board of 1995 120,000 898,731 -- -- 352,163(2) Directors and Chief Executive Officer 1996 190,000 719,419 -- -- 376,844(3) Tilmon J. Reeves 1994 101,000 225,000 -- -- 2,982(4) President and Chief Operating 1995 125,000 108,335 -- 245,708(5) 2,310(4) Officer 1996 125,000 85,000 $3,726,182(6) -- 2,375(4) Richard R. Wadsworth 1994 110,000 96,000 -- -- 1,675(4) Senior Vice 1995 110,000 70,000 -- 92,140(5) 2,262(4) President--Finance, Chief Financial Officer, and 1996 110,000 70,000 1,464,572(6) -- 2,375(4) Secretary
- ------------ (1) Consists of (i) matching contributions of $2,975 to the Company's 401(k) Savings Plan for Mr. Christopher and (ii) life insurance premiums of $22,047 paid on Mr. Christopher's behalf. Does not include any contingent payments to Mr. Christopher under the ANET litigation settlement made subsequent to fiscal year 1994. These payments are contingent upon the Emery contract remaining in effect. See "Item 3. Legal Proceedings -- ANET Litigation." (2) Consists of (i) contingent payments in the amount of $325,000 received by Mr. Christopher under the ANET litigation settlement during fiscal year 1995, (ii) life insurance premiums of $25,500 paid on Mr. Christopher's behalf, and (iii) matching contributions of $1,663 to the Company's 401(k) Savings Plan for Mr. Christopher. (3) Consists of (i) contingent payments in the amount of $325,000 received by Mr. Christopher under the ANET litigation settlement during fiscal year 1996, (ii) life insurance premiums of $48,397 paid on Mr. Christopher's behalf, and (iii) matching contributions of $3,447 to the Company's 401(k) Savings Plan for Mr. Christopher. (4) Consists of matching contributions to the Company's 401(k) Savings Plan. (5) The option covering these shares was rescinded on June 12, 1996. (6) Represents the difference between the exercise price and the fair market value of the Common Stock underlying the stock options on June 26, 1996, the date of exercise, of the stock options granted in fiscal year 1996. See "Item 11. Executive Compensation -- Stock Option Exercises." STOCK OPTION GRANTS The following table sets forth certain information concerning options granted in fiscal year 1996 to the Company's Named Executive Officers. The Company has no outstanding stock appreciation rights and granted no stock appreciation rights during fiscal year 1996. Messrs. Reeves and Wadsworth fully exercised these options on June 26, 1996. No options for the purchase of Common Stock are currently outstanding. OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at Assumed Annual Rates of Stock Individual Grants Price Appreciation for Option Term ------------------------------------------------------------ ----------------------------------- Percent of Number of Total Exercise Fair Securities Options or Value on Underlying Granted to Base Date of Options Employees in Price Grant Expiration Name Granted Fiscal Year ($/sh) ($/sh) Date 5%($) 10%($) 0%($) - ---------------------- ---------- ------------- ------ --------- ----------- -------- -------- --------- December Tilmon J. Reeves . 390,707 71.8% $0.01 $7.45 31, 2004 $4,511,648 $6,859,530 $2,910,665 Richard R. June 12, Wadsworth . . . . . 153,567 28.2% $0.01 $8.63 2005 $2,054,414 $3,123,413 $1,325,732
- 20 - 21 STOCK OPTION EXERCISES The following table sets forth certain information concerning options exercised in fiscal year 1996 by certain of the Company's Named Executive Officers. Messrs. Reeves and Wadsworth fully exercised these options on June 26, 1996. No options for the purchase of Common Stock are currently outstanding. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
Name Shares Acquired on Exercise Value Realized ($) ---- --------------------------- ------------------- Tilmon J. Reeves . . . . . . . . . . . . . . 390,707(1) $3,726,182 Richard R. Wadsworth . . . . . . . . . . . . 153,567(2) $1,464,572
- ---------- (1) The Company withheld 156,283 of these shares in satisfaction of its withholding obligations with respect to the exercise of these options. (2) The Company withheld 61,427 of these shares in satisfaction of its withholding obligations with respect to the exercise of these options. DIRECTOR COMPENSATION Pursuant to the Company's Bylaws, the members of the Board of Directors may be compensated in a manner and at a rate determined from time to time by the Board of Directors. Directors who are employees of Kitty Hawk do not receive additional compensation for service as a director. Under the Company's Omnibus Securities Plan, directors who are not employees of the Company shall receive shares of Common Stock in an amount equal to their net annual retainer (which is currently anticipated to be $10,000). COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During fiscal year 1996, Mr. Christopher determined executive officer compensation. During fiscal years 1994 and 1995, Martinaire East, Inc. ("Martinaire"), a Delaware corporation in which Mr. Christopher owned a minority interest, leased a Learjet (the "Learjet"), 50% owned by Mr. Christopher, from the Company and provided the Company with on-demand charter services utilizing the Learjet. During fiscal years 1994 and 1995 the Company paid Martinaire $982,000 and $232,000, respectively, for on-demand charter services rendered, which amounts Mr. Christopher believed represented market rates. The Company's charges to Martinaire for leasing the Learjet and related operating expenses (at costs Mr. Christopher believed represented market rates) went largely unpaid until October 1994. The balance owed to Kitty Hawk for the Learjet lease and related operating expenses at fiscal year end 1994 was $481,297. In accordance with Company policy, no interest was accrued on these amounts. On October 24, 1994, the owners of the Learjet, including Mr. Christopher, agreed to sell the Learjet. In connection with this sale, Martinaire repaid the Company approximately $636,000 representing all unpaid amounts owed to the Company at that date for the Learjet lease and related operating expenses. In August 1996, the Company acquired an undivided one-third interest in two Falcon 20 jet aircraft with two co-owners (the "Co-Owners") who are unaffiliated with the Company and who each hold a one-third interest in such aircraft. An interim acquisition note in the amount of $1,700,000, covering the purchase price and necessary maintenance, was executed by Mr. Christopher and one of the Co-Owners. In November 1996, the Company and the Co-Owners each acquired an undivided one-third interest in two additional Falcon 20 jet aircraft using the proceeds of a new five-year, $4.3 million term loan that also repaid the interim loan on the first two aircraft. The term loan is secured by all four Falcon 20 jet aircraft, bears interest at a floating prime rate, and is payable in monthly installments of principal and interest. The Company's liability under the term loan is limited to $2.0 million. The Company and the Co-Owners entered into a co-ownership and contribution agreement (the "Co-Ownership Agreement") which requires the parties to contribute equally to the payment of all amounts due under the term loan, and under which the parties leased the four Falcon 20 jet aircraft to Ameristar Jet Charters, Inc. ("Ameristar"), an air carrier affiliated with one of the Co-Owners, for operation in cargo charter service. The lease calls for monthly lease payments which exceed the installments on the term loan, and requires Ameristar to maintain the aircraft and to carry appropriate hull insurance on the aircraft and liability insurance of at least $50 million combined single limit coverage, with the Company and the Co-Owners named as loss payees and additional insureds. - 21 - 22 Beginning in March 1993, Mr. Christopher, in his individual capacity, subleased the Company's present facility at Dallas/Fort Worth International Airport for a guaranteed minimum rent of $21,000 per month from Robert F. Grammer, a director of the Company. During October 1994, Mr. Christopher transferred his entire interest in this sublease to the Company, and the Company assumed Mr. Christopher's obligations and liabilities to Mr. Grammer under the sublease, including environmental liabilities, if any. Other than the delay in collecting the Martinaire receivable, the Company believes that the terms of each transaction discussed above were as favorable to Kitty Hawk as would have been obtainable from unaffiliated parties under similar circumstances. Under the terms of the settlement allocating the benefits of the ANET Litigation, Mr. Christopher received rights to certain contingent future payments. EMPLOYMENT AGREEMENTS Mr. Christopher has an employment agreement with Kitty Hawk that provides for an initial annual base salary of at least $125,000 and bonuses determined by the Compensation Committee pursuant to the Company's Annual Incentive Compensation Plan and otherwise. Mr. Christopher's employment agreement contains (i) a confidentiality provision that prohibits disclosure of the Company's proprietary information and (ii) a covenant not to compete that provides upon Mr. Christopher's termination of employment with the Company for any reason, Mr. Christopher shall not engage, directly or indirectly, in the air logistics, charter brokerage, on-demand, or scheduled carriage business under an FAA Part 121 or Part 135 certificate for five years following such termination. The employment agreement may be terminated by either party with or without cause. If the employment agreement is terminated by the Company without a material breach by Mr. Christopher, he is entitled to six months of compensation at his then-current salary. Messrs. Reeves and Wadsworth have employment agreements with Kitty Hawk that provide for an initial annual base salary of at least $115,000 and $110,000, respectively, and annual bonuses determined by the Compensation Committee pursuant to the Company's Annual Incentive Compensation Plan and otherwise. These employment agreements provide that Mr. Reeves and Mr. Wadsworth are prohibited from engaging in the air logistics, charter brokerage, on-demand, or scheduled carriage business under an FAA Part 121 or Part 135 certificate for three and two years, respectively, following termination of employment. These employment agreements also contain a confidentiality provision that prohibits disclosure of the Company's proprietary information. These employment agreements may be terminated by either party thereto with or without cause. Mr. Reeves' employment agreement provides that if he is terminated by the Company without material breach by Mr. Reeves, he shall be entitled to 100% of his then-current salary in the year following termination and 50% of such annual compensation in both the second and third year following termination and all rights under the stock options and other benefits described above. Mr. Wadsworth's employment agreement provides that if he is terminated by the Company without material breach by Mr. Wadsworth, he shall be entitled to 100% of his then-current salary in the year following termination and 50% of such annual compensation in the second and third year following termination and all rights under the stock options and other benefits described above. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information concerning the beneficial ownership of the Company's Common Stock as of November 22, 1996 by (i) each person known by the Company to own beneficially more than 5% of the Company's Common Stock, (ii) each director of the Company, (iii) each executive officer of the Company, and (iv) all of the directors and executive officers of the Company as a group. All shares shown in the table below are held with sole voting and investment power, subject to community property laws.
Shares Owned Beneficially ------------------------- Name Number Percent ---- ----------- ------- M. Tom Christopher (1) . . . . . . . . . . . . . . . . . . 6,673,436 63.8% Tilmon J. Reeves (1) . . . . . . . . . . . . . . . . . . . 234,424 2.2% Richard R. Wadsworth (1) . . . . . . . . . . . . . . . . . 92,140 (2) All directors and executive officers as a group . . . . . . 7,000,000 67.0%
- --------- (1) The address for this stockholder is 1515 West 20th Street, P.O. Box 612787, Dallas/Fort Worth International Airport, Texas 75261. (2) Less than 1%. - 22 - 23 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Craig, a director of the Company, is of counsel to Burke, Wright & Keiffer, P.C., counsel to the Company. During fiscal years 1994, 1995, and 1996, the Company paid an aggregate of approximately $813,000 to Burke, Wright & Keiffer, P.C. for legal services rendered. See "Item 11. Executive Compensation -- Compensation Committee Interlocks and Insider Participation." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS -- see Index to Consolidated Financial Statements on page F-1. The following financial statements are filed as a part of this report: Report of Independent Auditors Consolidated Financial Statements: Consolidated Balance Sheets as of August 31, 1995 and 1996 Consolidated Statements of Income for the years ended August 31, 1994, 1995, and 1996 Consolidated Statements of Stockholders' Equity for the years ended August 31, 1994, 1995, and 1996 Consolidated Statements of Cash Flows for the years ended August 31, 1994, 1995, and 1996 Notes to Consolidated Financial Statements (a) 2. FINANCIAL STATEMENT SCHEDULES Schedules are omitted because they are not applicable or are not required (a) 3. EXHIBITS The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Securities and Exchange Commission.
EXHIBIT NO. DESCRIPTION - -------------------- ------------------------------------------------------------------------ 3.1 -- Certificate of Incorporation of the Company .(2) 3.2 -- Bylaws of the Company.(2) 3.3 -- Amendment No. 1 to the Certificate of Incorporation of the Company.(2) 3.4 -- Amendment No. 1 to the Bylaws of the Company.(2) 4.1 -- Specimen Common Stock Certificate.(3) 10.1 -- Master Agreement for Air Charter Transportation Services ("GM Agreement") dated as of June 4, 1990 by and between General Motors Corp. ("GM") and the Company.(2) 10.2 -- Addendum No. 1 to the GM Agreement dated as of August 9, 1990 by and between the Company and GM.(2) 10.3 -- Addendum No. 1 to the GM Agreement dated as of June 4, 1991 by and between the Company and GM.(2) 10.4 -- Addendum No. 2 to the GM Agreement dated as of October 1, 1990 by and between the Company and GM.(2) 10.5 -- Addendum No. 3 to the GM Agreement dated as of November 5, 1990 by and between the Company and GM.(2) 10.6 -- Addendum No. 4 to the GM Agreement dated as of December 3, 1990 by and between the Company and GM.(2) 10.7 -- Addendum No. 5 to the GM Agreement dated as of January 7, 1991 by and between the Company and GM.(2) 10.8 -- Addendum No. 6 to the GM Agreement dated as of February 4, 1991 by and between the Company and GM.(2) 10.9 -- Addendum No. 7 to the GM Agreement dated as of March 4, 1991 by and between the Company and GM.(2) 10.10 -- Revision to Appendices and to Master Agreement for Air Charter Transportation Services dated August 13, 1992 by and between the Company and GM.(2) 10.11 -- Addendum No. 5 to the GM Agreement dated as of May 1, 1994 by and between the Company and GM.(2) 10.12 -- Aircraft Charter Agreement dated as of February 9, 1994 by and between the Company and DHL Airways, Inc.(2) 10.13 -- Agreement to Furnish Three (3) CV-600 Aircraft and Air Cargo Services dated as of May 15, 1995 by and between the Company and Burlington Air Express Inc. ("Burlington").(3) 10.14 -- Agreement to Furnish Five (5) B727-200 Aircraft and Air Cargo Services dated as of March 1, 1996 by and between the Company and Burlington.(3) 10.15 -- Aircraft Operating Lease dated as of March 14, 1995 by and between Ting Hong Oceanic Enterprises Co., Ltd. ("Ting Hong") and the Company.(3) 10.16 -- Amendment and Extension of Aircraft Operating Lease dated April 24, 1996 by and between Ting Hong and the Company.(3) 10.17 -- Aircraft Operating Lease dated April 19, 1996 by and between the Company and Pacific East Asia Cargo Airlines, Inc.(3) 10.18 -- Settlement Agreement dated as of August 22, 1994 by and between the Company, Aircargo, Leasing, M. Tom Christopher, American International Airways, Inc., and Conrad Kalitta.(2) 10.19 -- Sublease Agreement dated as of March 1, 1993 by and between Robert F. Grammer and M. Tom Christopher.(2) 10.20 -- Transfer and Assignment of Sublease Agreement dated as of October 26, 1994 by and between the Company, M. Tom Christopher and Robert F. Grammer.(2) 10.21 -- Salary Continuation Agreement dated as of June 15, 1993 by and between the Company and M. Tom Christopher.(2)(4) 10.22 -- Split Dollar Insurance Agreement dated as of June 15, 1993 by and between the Company and James R. Craig.(2)(4) 10.23 -- Split Dollar Insurance Agreement dated as of June 15, 1993 by and between the Company and James R. Craig.(2)(4) 10.24 -- Kitty Hawk, Inc. Amended and Restated Omnibus Securities Plan, dated as of September 3, 1996.(3)(4) 10.25 -- Kitty Hawk, Inc. Amended and Restated Employee Stock Purchase Plan, dated as of September 3, 1996.(3)(4) 10.26 -- Kitty Hawk, Inc. Amended and Restated Annual Incentive Compensation Plan, dated as of September 3, 1996.(3)(4) 10.27 -- Kitty Hawk, Inc. 401(k) Savings Plan.(2)(4) 10.28 -- Employment Agreement dated as of October 27, 1994 by and between the Company and M. Tom Christopher.(2)(4) 10.29 -- Amended and Restated Employment Agreement dated as of June 12, 1996 by and between the Company and Richard R. Wadsworth.(3)(4) 10.30 -- Amended and Restated Employment Agreement dated as of December 31, 1995 by and between the Company and Tilmon J. Reeves.(3)(4) 10.31 -- Request for written consent to expand ownership without management change dated as of October 26, 1994 granted by GM.(2) 10.32 -- Request for written consent to certain disclosures of Master Agreement and contractual relationship dated as of October 26, 1994 granted by GM.(2) 10.33 -- Kavouras Customer Order Acknowledgment.(2) 10.34 -- Kavouras Meteorological Services Agreement.(2) 10.35 -- Computer Flight Plan and Weather Service Agreement dated as of June 11, 1992 by and between Aircargo and Jeppesen DataPlan, Inc.(2) 10.36 -- Purchase Agreement between Federal Express Corporation and Postal Air, Inc. (predecessor to the Company) dated as of October 22, 1992 (the "FEASI Agreement").(3) 10.37 -- Amendment No. 1 dated November 17, 1992 to the FEASI Agreement.(3) 10.38 -- Amendment No. 2 dated February 1993 to the FEASI Agreement.(3) 10.39 -- Amendment No. 3 dated June 11, 1993 to the FEASI Agreement.(3) 10.40 -- Amendment No. 4 dated May 10, 1994 to the FEASI Agreement.(3) 10.41 -- Amendment No. 5 dated September 29, 1995 to the FEASI Agreement.(3) 10.42 -- Amended and Restated Credit Agreement, dated as of August 14, 1996, by and among the Company, Wells Fargo Bank (Texas), National Association, and Bank One, Texas, N.A.(3) 10.43 -- Aircraft Purchase Agreement between the Company and Intrepid Aviation Partners, LLC dated as of September 24, 1996.(3) 10.44 -- Purchase Agreement between the Company and International Aero Components, Inc. dated as of November 15, 1996.(1) 10.45 -- Purchase Agreement between the Company and International Technical Consultants, Inc. dated as of November 25, 1996.(1) 11.1 -- Statement of Computation of Net Income per Share.(1) 21.1 -- Subsidiaries of the Registrant.(3) 23.1 -- Consent of Ernst & Young LLP.(1) 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) The exhibit is a management contract or compensatory plan or arrangement. (b) REPORTS ON FORM 8-K None. - 23 - 24 KITTY HAWK, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Auditors ................................... F-2 Consolidated Balance Sheets as of August 31, 1995 and 1996 ....... F-3 Consolidated Statements of Income for the years ended August 31, 1994, 1995 and 1996 ........................... F-4 Consolidated Statements of Stockholders' Equity for the years ended August 31, 1994, 1995 and 1996 ..................... F-5 Consolidated Statements of Cash Flows for the years ended August 31, 1994, 1995 and 1996 ........................... F-6 Notes to Consolidated Financial Statements ....................... F-7
F-1 25 REPORT OF INDEPENDENT AUDITORS Stockholders Kitty Hawk, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Kitty Hawk, Inc. and subsidiaries as of August 31, 1995 and 1996 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended August 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kitty Hawk, Inc. and subsidiaries at August 31, 1995 and 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended August 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Dallas, Texas October 31, 1996 F-2 26 KITTY HAWK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
AUGUST 31, ----------------------------- ASSETS 1995 1996 ------------ ------------ Current assets Cash and cash equivalents .................................. $ 3,801,378 $ 5,763,904 Trade accounts receivable .................................. 12,967,734 14,195,990 Deferred income taxes ...................................... 50,410 156,562 Income tax receivable ...................................... -- 765,395 Inventory and aircraft supplies ............................ 98,386 1,713,812 Prepaid expenses and other assets .......................... 797,825 918,929 ------------ ------------ Total current assets .................................... 17,715,733 23,514,592 Property and equipment Aircraft ................................................... 36,179,455 53,695,320 Aircraft work-in-progress .................................. -- 13,476,355 Machinery and equipment .................................... 1,425,272 1,776,319 Furniture and fixtures ..................................... 251,349 241,370 Transportation equipment ................................... 176,057 236,708 ------------ ------------ 38,032,133 69,426,072 Less: accumulated depreciation and amortization ........... (7,794,332) (13,112,786) ------------ ------------ Net property and equipment............................... 30,237,801 56,313,286 ------------ ------------ Total assets ................................................... $ 47,953,534 $ 79,827,878 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable ........................................... $ 9,327,109 $ 12,952,180 Accrued expenses ........................................... 1,336,696 1,580,465 Accrued maintenance reserves ............................... 2,026,255 2,323,466 Revolving Credit Facility for aircraft acquisitions expected to be refinanced ................................ -- 10,000,000 Current maturities of long-term debt ....................... 3,278,553 3,620,240 ------------ ------------ Total current liabilities................................ 15,968,613 30,476,351 Long-term debt ................................................. 13,702,652 23,291,302 Deferred income taxes .......................................... 1,316,365 2,421,480 Commitments and contingencies Stockholders' equity Preferred stock, $1 par value: Authorized shares --1,000,000, none issued ................................ -- -- Common stock, $.01 par value: Authorizedshares -- 25,000,000; issued and outstanding --7,423,436 and 7,967,710, respectively ................. 74,234 79,677 Additional paid in capital ................................. -- 4,635,524 Retained earnings .......................................... 16,891,670 20,999,846 Less common stock in treasury, no shares and 217,710 shares, respectively............... -- (2,076,302) ------------ ------------ Total stockholders' equity............................... 16,965,904 23,638,745 ------------ ------------ Total liabilities and stockholders' equity ..................... $ 47,953,534 $ 79,827,878 ============ ============
See accompanying notes. F-3 27 KITTY HAWK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED AUGUST 31, ------------------------------------------------- 1994 1995 1996 ------------- ------------- ------------- Revenues: Air freight carrier .......................... $ 28,284,894 $ 41,117,564 $ 52,921,762 Air logistics ................................ 79,414,952 62,592,819 89,492,974 ------------- ------------- ------------- Total revenues .......................... 107,699,846 103,710,383 142,414,736 Costs of revenues: Air freight carrier .......................... 19,549,833 28,104,280 38,760,430 Air logistics ................................ 73,401,606 57,428,344 80,139,570 ------------- ------------- ------------- Total costs of revenues ................. 92,951,439 85,532,624 118,900,000 ------------- ------------- ------------- Gross profit ..................................... 14,748,407 18,177,759 23,514,736 General and administrative expenses .............. 6,012,975 7,832,167 9,079,891 Non-qualified employee profit sharing expense .... 731,862 1,000,957 1,169,880 Stock option grants to executives ................ -- -- 4,230,954 ------------- ------------- ------------- Operating income ................................. 8,003,570 9,344,635 9,034,011 Other income (expense): Interest expense ............................. (342,502) (1,184,921) (1,859,284) Contract settlement income, net .............. 1,177,742 -- -- Loss on asset disposal ....................... -- -- (589,049) Other, net ................................... (431,957) (600,667) 291,255 ------------- ------------- ------------- Income before income taxes ....................... 8,406,853 7,559,047 6,876,933 Income taxes ..................................... 3,146,157 3,142,653 2,767,744 ------------- ------------- ------------- Net income ....................................... $ 5,260,696 $ 4,416,394 $ 4,109,189 ============= ============= ============= Net income per share ............................. $ 0.66 $ 0.55 $ 0.52 ============= ============= ============= Weighted average common and common equivalent shares outstanding ............... 7,967,710 7,967,710 7,927,856 ============= ============= =============
See accompanying notes. F-4 28 KITTY HAWK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL NUMBER OF COMMON PAID IN RETAINED TREASURY SHARES STOCK CAPITAL EARNINGS STOCK TOTAL ----------------------------------------------------------------------------------------- Balance at August 31, 1993 ............. 10,604,908 $ 106,048 $ -- $ 7,243,766 $ (61,000) $ 7,288,814 Retirement of treasury stock in connection with the Kitty Hawk, Inc. merger ................... (3,181,472) (31,814) -- (29,186) 61,000 -- Net income ......................... -- -- -- 5,260,696 -- 5,260,696 ----------------------------------------------------------------------------------------- Balance at August 31, 1994 ............. 7,423,436 74,234 -- 12,475,276 -- 12,549,510 Net income ......................... -- -- -- 4,416,394 -- 4,416,394 ----------------------------------------------------------------------------------------- Balance at August 31, 1995 ............ 7,423,436 74,234 -- 16,891,670 -- 16,965,904 Stock option grants to executives .. -- -- 4,230,954 -- -- 4,230,954 Exercise of employee stock options (See Note 1) .................... 544,274 5,443 -- (1,013) -- 4,430 Purchase of treasury stock, 217,710 shares at cost .......... -- -- -- -- (2,076,302) (2,076,302) Tax benefit of stock option grants to executives ................... -- -- 404,570 -- -- 404,570 Net income ......................... -- -- -- 4,109,189 -- 4,109,189 ----------------------------------------------------------------------------------------- Balance at August 31, 1996 ............. 7,967,710 $ 79,677 $ 4,635,524 $ 20,999,846 $ (2,076,302) $ 23,638,745 =========================================================================================
See accompanying notes. F-5 29 KITTY HAWK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED AUGUST 31, -------------------------------------------- 1994 1995 1996 ------------ ------------ ------------ Operating activities: Net income ................................. $ 5,260,696 $ 4,416,394 $ 4,109,189 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .............. 1,935,348 4,095,156 6,873,033 Loss disposal of property and equipment ............................... 62,251 -- 589,049 Aircraft received in contract settlement ... (750,000) -- -- Deferred income taxes ...................... (638,568) 732,795 998,963 Stock option grants to executives .......... -- -- 4,230,954 Deferred income ............................ -- -- -- Changes in operating assets and liabilities: Trade accounts receivable ................ (8,036,613) 2,673,139 (1,228,256) Contract settlement receivable ........... 3,500,000 -- -- Receivables from affiliates .............. (53,035) 481,297 -- Income taxes receivable .................. -- -- (765,395) Inventory and aircraft supplies .......... (19,778) 23,285 (1,615,426) Prepaid expenses and other ............... 283,342 (532,693) (121,104) Accounts payable and accrued expenses .... 4,063,034 (2,379,510) 3,868,840 Accrued maintenance reserves ............. 379,535 1,429,886 297,211 Income taxes payable ..................... 1,614,521 (1,883,898) -- ------------ ------------ ------------ Net cash provided by operating activities ........... 7,600,733 9,055,851 17,237,058 Investing activities: Capital expenditures ....................... (13,875,983) (17,929,106) (33,537,567) ------------ ------------ ------------ Net cash used in investing activities ............... (13,875,983) (17,929,106) (33,537,567) Financing activities: Proceeds from issuance of long-term debt ... 10,916,656 9,911,240 23,117,000 Repayments of long-term debt ............... (2,747,533) (2,074,970) (3,186,663) Acquisition of treasury shares ............. -- -- (2,076,302) Proceeds from issuance of common stock ..... -- -- 4,430 Tax benefit of stock option grant to executives ........................... -- -- 404,570 ------------ ------------ ------------ Net cash provided by financing activities ................................. 8,169,123 7,836,270 18,263,035 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents ................................... 1,893,873 (1,036,985) 1,962,526 Cash and cash equivalents at beginning of period ..................................... 2,944,490 4,838,363 3,801,378 ------------ ------------ ------------ Cash and cash equivalents at end of period .......... $ 4,838,363 $ 3,801,378 $ 5,763,904 ============ ============ ============
F-6 30 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Kitty Hawk, Inc. and its subsidiaries (the "Company") provide air freight services through two related businesses: (i) an air freight carrier and (ii) an air logistics service provider, all primarily in North America. The Company provided air logistics services to one customer which accounted for approximately 63%, 47% and 41% of its total revenues in fiscal years 1994, 1995 and 1996, respectively. Related accounts receivable from this customer at August 31, 1995 and 1996, were approximately $5,089,000, and $4,915,000, respectively. The contract for these services is effective through May 31, 1997; however, such contract may be canceled by either party with 30 days notice. Another customer accounted for approximately 10%, 10% and 15% of the Company's total revenues in fiscal years 1994, 1995 and 1996, respectively. The Company generally sells on open accounts with 30-day terms and does not require collateral for credit sales. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line and accelerated methods over estimated useful lives ranging from three to ten years. Convair and DC-9 airframes are fully depreciated over the period remaining to the next major airframe overhaul since the Company does not expect to perform major airframe overhauls on these aircraft. Boeing 727-200 airframes are fully depreciated over an estimated useful life of ten years. Costs relating to major airframe overhauls are capitalized as incurred and amortized over the estimated number of flight hours until the next overhaul (the deferral method). No major airframe overhauls have been performed to date. Estimated costs relating to periodic jet airframe maintenance are accrued over the flight hours remaining before such periodic maintenance must be performed. Costs relating to non-jet periodic airframe maintenance are expensed as incurred. With respect to aircraft engines, the useful life is the estimated number of flight hours remaining until the next required engine overhaul. F-7 31 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Income Taxes Income taxes have been provided using the liability method in accordance with the Financial Accounting Standards Board Statement No. 109, Accounting for Income Taxes. Revenue Recognition Revenues are recognized as services are provided. Net Income Per Share Net income per share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. The effect of options to purchase 390,707 and 153,567 shares of the Company's common stock at $0.01 granted to certain executives in December 1995 and June 1996, respectively, have been included in the calculation of weighted average common and common equivalent shares for all periods presented. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash on hand and held in banks, money market funds, and other investments with original maturities of three months or less. Inventory Inventory consists of aircraft parts and is stated at the lower of average cost or market. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Reorganization In October, 1994, Kitty Hawk, Inc. was organized as a wholly owned subsidiary of Kitty Hawk Group, Inc. ("Group"). Group subsequently merged with Kitty Hawk, Inc. with Kitty Hawk, Inc. being the surviving entity. In connection therewith, each outstanding share of Group common stock was exchanged for 106,049 shares of Kitty Hawk, Inc. common stock. Additionally, Group stock held in treasury was retired. The accompanying consolidated financial statements present the effects of the merger on a retroactive basis. F-8 32 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Reclassifications Certain amounts from prior years have been reclassified to conform to current year presentation. Stock Split On June 28, 1996 the Company approved a 1.2285391-for-1 stock split effected as a stock dividend. All references to common stock and per share data have been restated to give effect to the split. 2. DEBT Long-term debt consists of the following:
AUGUST 31, ----------------------- 1995 1996 ---------- ---------- (1)Note payable, bearing interest at prime plus 1.75% (10.00% at August 31, 1996) payable in 48 monthly installments of $25,021 plus interest, with a maturity date of December 1996; secured by a Douglas DC-9 aircraft, with a carrying value of approximately $767,000 at August 31, 1996 ........................................................... $ 350,291 $ 50,042 (2)Note payable, bearing interest at an adjusted Eurodollar rate plus 2.25% payable in 21 quarterly installments of $153,354 plus interest, with a maturity date of September 1999. (See (8) below.) ................. 2,607,021 -- (3)Note payable, bearing interest at an adjusted Eurodollar rate plus 2.25% payable in 71 monthly installments of $76,891 plus interest, with a maturity date of October 2000. (See (8) below.) .................... 4,767,245 -- (4)Note payable, bearing interest at an adjusted Eurodollar rate plus 2.00% payable in 72 monthly installments of $60,517 plus interest, with a maturity date of March 2001. (See (8) below.) ...................... 4,054,641 -- (5)Note payable, bearing interest at an adjusted Eurodollar rate plus 2.00% payable in 72 monthly installments of $59,077 plus interest, with a maturity date of July 2001. (See (8) below.) ....................... 4,201,507 -- (6)Note payable, bearing interest at 9.75% payable in 18 monthly installments of interest only and 42 monthly installments of $28,212 including interest beginning December 1996, with a maturity date of May 2000; secured by a Douglas DC-9 aircraft, with a carrying value of approximately $767,000 at August 31, 1996 .............................. 1,000,500 1,000,500
F-9 33 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. DEBT (CONTINUED)
AUGUST 31, ----------------------- 1995 1996 ---------- ---------- (7)Note payable, bearing interest at an adjusted Eurodollar rate plus 1.50% to 2.00% based upon a fixed charge coverage ratio of the Company (7.0625% at August 31, 1996), payable in 28 quarterly installments plus interest beginning September 1996, with a maturity date of June 2003; secured by two Boeing 727-200 aircraft, with a carrying value of approximately $11,783,000 at August 31,1996 .................................................... -- 11,225,000 (8)Note payable, bearing interest at an adjusted Eurodollar rate plus 1.50% to 2.00% based upon a fixed charge coverage ratio of the Company (7.07% at August 31, 1996), payable in 23 quarterly installments of $531,000 plus interest beginning September 1996, with a maturity date of June, 2002; secured by four Douglas DC-9 aircraft and four Boeing 727-200 aircraft, with a net carrying value of approximately $18,398,000 at August 31, 1996 ............. -- 12,744,000 (9)Revolving Credit Facility for general corporate purposes .......... -- 1,892,000 ----------- ----------- 16,981,205 26,911,542 Less current portion ................................................. 3,278,553 3,620,240 ----------- ----------- $13,702,652 $23,291,302 =========== ===========
Maturities of long-term debt at August 31, 1996 are as follows: 1997............................. $ 3,620,240 1998............................. 5,645,349 1999............................. 3,888,291 2000............................. 3,950,162 2001............................. 3,847,154 Thereafter....................... 5,960,346 ----------- $26,911,542 ===========
During August 1996, the Company entered into a new Credit Agreement (notes (7), (8) and (9) above) with a bank and refinanced a portion of the existing notes payable. Proceeds of note (8) in the amount of $12,744,000 were used to pay down the outstanding balances of notes (2), (3), (4) and (5). The Credit Agreement subjects the Company to financial covenants, including fixed charge coverage, cash flow and leverage ratios. The Credit Agreement also limits the payment of dividends. F-10 34 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At August 31, 1996 the Company has outstanding two interest rate swap agreements with the commercial bank to whom note (7) is payable, having a total notional principal amount of $11,225,000. These swap agreements effectively change the interest rate exposure on note (7) to a fixed 7.75 percent. The notional principal amounts of the interest rate swaps reduce in proportion to required principal reductions on the related note. The Company is exposed to credit loss in the event of nonperformance by the other party in the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparty. Based on a quote provided by the bank, these swap agreements could have been terminated at August 31, 1996 in exchange for a payment to the Company of $343,408. Under the Credit Agreement, the Company also has a $15 million Revolving Credit Facility available, of which $10 million is restricted for interim financing of up to $6.5 million per aircraft for aircraft acquisitions by the Company; the remaining $5 million is for general corporate purposes, including interim financing for acquired aircraft that exceeds the limits that apply to the restricted portion. Any advance under the portion that is restricted to interim financing for aircraft acquisition ($10 million at August 31, 1996) must be repaid in full within 150 days of first advance for the acquired aircraft. The outstanding balance of the Revolving Credit Facility results from borrowings in connection with purchasing two Boeing 727-200s that are being converted to freighter configuration, and to fund such cargo conversion, noise abatement modifications and maintenance on those two aircraft. The Revolving Credit Facility bears interest at an adjusted Eurodollar rate plus 1.50% to 2.00% based upon a fixed charge coverage ratio of the Company (6.96875% at August 31, 1996). The Revolving Credit Facility expires on December 31, 1998 and $3,108,000 was available to be borrowed by the Company at August 31, 1996. The company is currently negotiating to refinance this debt on a long-term basis. Under the Credit Agreement, the Company has a $10 million facility available. The funds will be available to the Company until April 29, 1998, and any borrowings under this facility mature March 31, 2003. At August 31, 1996, the entire $10 million was available to the Company. Based upon the variable interest rates provided for in the substantial majority of the Company's long-term debt, management believes the fair value of its long-term debt approximates its carrying value at August 31, 1996. In connection with the Company's recent acquisition of a one-third undivided interest in four Falcon 20 jet aircraft, the co-owners of the aircraft entered into a five year, $4.3 million term loan, bearing interest at a floating prime rate, which is secured by all four Falcon 20 aircraft and requires monthly payments of principal and interest. The co-owners leased the aircraft to an air carrier affiliated with one of the co-owners. The lease calls for monthly lease payments which exceed the installments on the term loan. The Company's liability under this term loan is limited to $2.0 million. The Company made cash interest payments of $280,754, $1,088,928, and $1,765,523 during fiscal years ended 1994, 1995 and 1996, respectively. F-11 35 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. INCOME TAXES The provision for income taxes consists of the following:
Year ended August 31, ---------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Current income tax: Federal ........................ $ 3,434,725 $ 1,829,723 $ 1,352,390 State .......................... 350,000 580,135 416,391 ----------- ----------- ----------- Total current income tax .... 3,784,725 2,409,858 1,768,781 ----------- ----------- ----------- Deferred income tax: Federal ........................ (608,460) 627,993 758,138 State .......................... (30,108) 104,802 240,825 ----------- ----------- ----------- Total deferred income tax ... (638,568) 732,795 998,963 ----------- ----------- ----------- $ 3,146,157 $ 3,142,653 $ 2,767,744 =========== =========== ===========
The differences between the provision for income taxes and the amount computed by applying the statutory federal income tax rate to income before income taxes are as follows:
Year ended August 31, --------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Income tax computed at statutory rate ......... $ 2,858,330 $ 2,570,076 $ 2,338,157 State income taxes, net of federal benefit .... 211,129 452,058 433,763 Other, net .................................... 76,698 120,519 (4,176) ----------- ----------- ----------- Total ...................................... $ 3,146,157 $ 3,142,653 $ 2,767,744 =========== =========== ===========
The components of the net deferred tax liabilities recognized on the accompanying balance sheets are as follows:
August 31, -------------------------- 1995 1996 ----------- ----------- Deferred tax liabilities: Depreciation .................... $(2,071,971) $(3,318,803) Prepaid expenses ................ (117,440) (17,229) ----------- ----------- Total deferred tax liabilities .. (2,189,411) (3,336,032) ----------- ----------- Deferred tax assets: Nondeductible accruals .......... 167,850 173,790 Airframe reserves ............... 755,606 897,324 ----------- ----------- Total deferred tax assets ..... 923,456 1,071,114 ----------- ----------- Net deferred tax liability ......... $(1,265,955) $(2,264,918) =========== ===========
The Company made cash income tax payments of $2,170,203, $4,552,371, and $2,078,673 during fiscal years 1994, 1995 and 1996 respectively. F-12 36 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. COMMITMENTS The Company leases its primary office and maintenance space under a non-cancelable operating lease which expires in fiscal year 1998 from a party who, effective October 1994, became a member of the Company's Board of Directors. Rent expense under this lease was $260,970, $252,595, and $254,934 for fiscal years 1994, 1995 and 1996, respectively. The minimum annual rental under the noncancelable operating lease is $252,000 and $126,000 for fiscal year 1997 and 1998, respectively. Under the lease agreement, the Company has the option to purchase the office facilities and the landlord's interest in the associated ground lease at any time prior to March 1, 1997 for consideration of $2,200,000 less $5,000 for each monthly rental payment made after March 1, 1993. The Company leases its secondary maintenance space under a cancelable operating lease which expires in May 1999. The lease can be canceled by either party with 60 days notice. Rent expense under this lease was $59,853 and $163,500 in fiscal years 1995 and 1996, respectively. The minimum annual rental under this lease is $163,500, $163,500, and $122,625 fiscal year 1997, 1998 and 1999, respectively. 5. CONTRACT SETTLEMENT In September 1992, the Company was awarded a contract by the United States Postal Service (the "USPS"). An unaffiliated air freight carrier (the "associated bidder") was associated with the Company in the successful bid. Prior to the commencement of the contract, competing bidders filed suit against the USPS seeking to set aside the award. In April 1993, to avoid the expense and uncertainty of continued litigation, the Company accepted a settlement. Under the settlement, the contract was terminated for convenience and re-awarded to the incumbent. Additionally, the Company received $12.7 million and the right to receive up to a total of $6.5 million over ten years in installments of $162,500 per quarter, contingent on the re-awarded contract remaining in effect. Appropriate releases were exchanged. At August 31, 1993, the Company and the associated bidder had not agreed upon the division of the settlement proceeds, which were held in escrow; but the Company reasonably estimated its share of the proceeds, exclusive of the $6.5 million to be paid in installments over ten years, to be at least $3.5 million. The Company therefore recorded the $3.5 million as a receivable in current assets and, net of contract-related expense, settlement income of $724,683 for fiscal year 1993. During fiscal year 1994, the Company and the associated bidder agreed to a division of the settlement proceeds and resolution of all their related claims. Under that agreement, the Company received from escrow approximately $3.5 million cash, obtained title to a Boeing 727-200 aircraft, independently valued and recorded by the Company at $750,000, and was relieved of $1.2 million of previously accrued transportation costs. Additionally, one-half of the contingent future quarterly installment payments were allocated to the Company's majority stockholder. As a result of this settlement, for fiscal year 1994, the Company recorded additional contract settlement income of $1,177,742, which is net of approximately $730,000 in additional settlement costs, principally legal fees. This amount also included both income and an offsetting expense of $677,239, representing the estimated fair value of the future quarterly installment payments that will be paid directly to the Company's majority stockholder. F-13 37 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. LITIGATION The Company filed suit against Express One International, Inc. ("Express One") in July 1992 in Dallas County, Texas, claiming that Express One breached an aircraft charter agreement and seeking actual damages of approximately $60,000. Express One counterclaimed, asserting that the Company wrongfully repudiated the lease agreement and seeking damages of $356,718 for services performed, $1,140,000 for additional fees it would have received under the contract, punitive damages and its attorney's fees and costs. In February 1995, a jury verdict in the case granted the Company $25,000 in damages plus its attorneys fees and denied Express One's claims. The court entered judgment in favor of the Company for $25,000 in damages, for $148,115 in attorneys fees through trial and for additional attorneys fees if Express One appeals. Before expiration of the time for appeal, Express One filed a petition under Chapter 11 of the U.S. Bankruptcy Code. There is a dispute about whether Express One has preserved a right to appeal and whether the judgment has become final. Therefore, the judgment awarded to the Company has not been recorded in the financial statements. The Company does not expect the outcome to have a material adverse effect upon the Company's financial condition or results of operations. The USPS selected the Company's air freight carrier in September 1992 as the successful bidder on a contract for a multi-city network of air transportation services supporting the USPS Express Mail system. Two unsuccessful bidders sued the USPS to enjoin the award. The Company intervened. This litigation (the "ANET Litigation") was settled in April 1993 by agreements under which the USPS terminated the Company's contract for convenience and awarded the contract to the incumbent contractor, Emery Worldwide Airlines, Inc. ("Emery"). In March 1995, the Company was served with a complaint in a qui tam lawsuit filed on behalf of the U.S. Government by a third-party plaintiff seeking to share a recovery under the Federal False Claims Act (the "Act"). The suit, filed in May 1994, was filed under seal in accordance with the Act, to enable the U.S. Government to review the claim before its disclosure to the defendants. The U.S. Government declined to pursue the claim, but the third-party plaintiff chose to continue. The suit claimed that the Company and another defendant fraudulently failed to disclose to the USPS, both in the Company's successful bid and in the settlement of the ANET litigation, that some of the aircraft the Company proposed to purchase and use to perform the contract were aging aircraft with high use, and claimed that the Company and Emery similarly fraudulently conspired in connection with the settlement of the ANET litigation. The suit sought to recover treble the $10 million settlement payment made by the USPS in settling the ANET litigation, plus the third party plaintiff's costs and fees. The Company moved to dismiss the suit with prejudice on grounds that it was barred by the Act. The Company also sought to recover its attorneys' fees from the plaintiff and to obtain sanctions against the plaintiff's attorneys. The Company believes the suit was clearly frivolous because, among other things, the Company in the ANET bid identified each aircraft by serial number, age, hours and cycles, and made available use and maintenance records for each aircraft as required by the request for proposal, and that the USPS reviewed and inspected the aircraft, data and records and found them F-14 38 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS acceptable. In May 1996, the court dismissed the suit and awarded the Company its attorneys' fees and costs. The plaintiff has asked the court to reconsider its ruling. The Company does not expect the outcome to have a material adverse effect upon the Company's financial condition or results of operations. Additionally, in the normal course of business, the Company is a party to matters of litigation, none of which, in the opinion of management, will have a material adverse effect on the Company's financial condition or the results of operations. 7. STOCK OPTIONS In October 1994 the Company granted non-qualified options to two executives to purchase a total of 337,848 shares of common stock at $7.81 per share. In December 1995, the Company canceled 245,708 of the options outstanding and granted to an executive a non-qualified option to purchase 390,707 shares of common stock at $0.01 per share. The new option has a term of nine years and is fully vested. In June 1996, the Company canceled the remaining 92,140 options outstanding and granted to another executive a non-qualifying option to purchase 153,567 shares of common stock at $0.01 per share. The new option has a term of nine years and is fully vested. On June 26, 1996, the executives fully exercised their options. No options remain outstanding at August 31, 1996. Based on an independent appraisal commissioned by the Company, the fair value of the options of $4,230,954 is reflected as a charge to earnings in the accompanying statement of income for the year ended August 31, 1996. 8. RELATED PARTY TRANSACTIONS The Company provided maintenance and other services as well as cash advances to Martinaire East, Inc. ("Martinaire"), a company in which a minority interest was owned by the Company's majority stockholder. Total sales to Martinaire for fuel and services were approximately, $235,000 and $22,000 in fiscal years 1994 and 1995, respectively. Martinaire also flies charter service for the Company. During fiscal years 1994 and 1995, Martinaire provided the Company services in the amount of approximately, $982,000 and $232,000, respectively. At August 31, 1995 there were no amounts due from Martinaire. At August 31, 1996, Martinaire is no longer considered to be a related party. F-15 39 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9. EMPLOYEE COMPENSATION PLANS AND ARRANGEMENTS The Company has a retirement savings plan under Section 401(k) of the Internal Revenue Code. Established effective September 1, 1993, the plan covers substantially all employees meeting minimum service requirements. Under the plan, contributions are voluntarily made by employees and the Company provides matching contributions based upon the employees' contribution. The Company incurred $80,812, $121,217, and $159,967 in matching contributions related to this plan during fiscal year 1994, 1995 and 1996, respectively. The Company has adopted: - -- An Omnibus Securities Plan (the Plan) under which 300,000 shares of its common stock are reserved for issuance to its employees. The Plan will be administered by the Company's Compensation Committee which may grant stock based and non-stock based compensation to the Plan participants. - -- An Annual Incentive Compensation Plan (the Compensation Plan) under which the Compensation Committee will determine and award semiannual bonuses to employees of the Company. The aggregate amount of bonuses available for award is limited to 10% of the Company's income before income taxes and the bonuses to be paid under the Compensation Plan. The Company may elect to pay the full amount of the bonuses in common stock, which is limited to total stock distributions of 200,000 shares of common stock. - -- An Employee Stock Purchase Plan covering up to 100,000 shares of the Company's common stock. 10. SUBSEQUENT EVENT In October 1996, the Company sold in an initial public offering 2,700,000 shares of Common Stock, raising net proceeds of approximately $30.1 million to purchase and modify to cargo configuration five Boeing 727-200 aircraft. F-16 40 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 27th day of November, 1996. KITTY HAWK, INC. By: /s/ RICHARD R. WADSWORTH --------------------------------------------- Richard R. Wadsworth Senior Vice President -- Finance, Chief Financial Officer, and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Company and in the capacities indicated on the 27th day of November, 1996.
NAME CAPACITIES ---- ---------- /s/ M. TOM CHRISTOPHER Chairman of the Board of Directors and Chief - ------------------------------------------- Executive Officer M. Tom Christopher /s/ TILMON J. REEVES President, Chief Operating Officer and Director - ------------------------------------------- Tilmon J. Reeves /s/ RICHARD R. WADSWORTH Senior Vice President -- Finance, Chief Financial - ------------------------------------------- Officer, Secretary, Director and Principal Financial Richard R. Wadsworth and Accounting Officer /s/ TED J. COONFIELD Director - ------------------------------------------- Ted J. Coonfield /s/ JAMES R. CRAIG Director - ------------------------------------------- James R. Craig /s/ ROBERT F. GRAMMER Director - ------------------------------------------- Robert F. Grammer /s/ LEWIS S. WHITE Director - ------------------------------------------- Lewis S. White
- 24 - 41 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - -------------------- ------------------------------------------------------------------------ 3.1 -- Certificate of Incorporation of the Company .(2) 3.2 -- Bylaws of the Company.(2) 3.3 -- Amendment No. 1 to the Certificate of Incorporation of the Company.(2) 3.4 -- Amendment No. 1 to the Bylaws of the Company.(2) 4.1 -- Specimen Common Stock Certificate.(3) 10.1 -- Master Agreement for Air Charter Transportation Services ("GM Agreement") dated as of June 4, 1990 by and between General Motors Corp. ("GM") and the Company.(2) 10.2 -- Addendum No. 1 to the GM Agreement dated as of August 9, 1990 by and between the Company and GM.(2) 10.3 -- Addendum No. 1 to the GM Agreement dated as of June 4, 1991 by and between the Company and GM.(2) 10.4 -- Addendum No. 2 to the GM Agreement dated as of October 1, 1990 by and between the Company and GM.(2) 10.5 -- Addendum No. 3 to the GM Agreement dated as of November 5, 1990 by and between the Company and GM.(2) 10.6 -- Addendum No. 4 to the GM Agreement dated as of December 3, 1990 by and between the Company and GM.(2) 10.7 -- Addendum No. 5 to the GM Agreement dated as of January 7, 1991 by and between the Company and GM.(2) 10.8 -- Addendum No. 6 to the GM Agreement dated as of February 4, 1991 by and between the Company and GM.(2) 10.9 -- Addendum No. 7 to the GM Agreement dated as of March 4, 1991 by and between the Company and GM.(2) 10.10 -- Revision to Appendices and to Master Agreement for Air Charter Transportation Services dated August 13, 1992 by and between the Company and GM.(2) 10.11 -- Addendum No. 5 to the GM Agreement dated as of May 1, 1994 by and between the Company and GM.(2) 10.12 -- Aircraft Charter Agreement dated as of February 9, 1994 by and between the Company and DHL Airways, Inc.(2) 10.13 -- Agreement to Furnish Three (3) CV-600 Aircraft and Air Cargo Services dated as of May 15, 1995 by and between the Company and Burlington Air Express Inc. ("Burlington").(3) 10.14 -- Agreement to Furnish Five (5) B727-200 Aircraft and Air Cargo Services dated as of March 1, 1996 by and between the Company and Burlington.(3) 10.15 -- Aircraft Operating Lease dated as of March 14, 1995 by and between Ting Hong Oceanic Enterprises Co., Ltd. ("Ting Hong") and the Company.(3) 10.16 -- Amendment and Extension of Aircraft Operating Lease dated April 24, 1996 by and between Ting Hong and the Company.(3) 10.17 -- Aircraft Operating Lease dated April 19, 1996 by and between the Company and Pacific East Asia Cargo Airlines, Inc.(3) 10.18 -- Settlement Agreement dated as of August 22, 1994 by and between the Company, Aircargo, Leasing, M. Tom Christopher, American International Airways, Inc., and Conrad Kalitta.(2) 10.19 -- Sublease Agreement dated as of March 1, 1993 by and between Robert F. Grammer and M. Tom Christopher.(2) 10.20 -- Transfer and Assignment of Sublease Agreement dated as of October 26, 1994 by and between the Company, M. Tom Christopher and Robert F. Grammer.(2) 10.21 -- Salary Continuation Agreement dated as of June 15, 1993 by and between the Company and M. Tom Christopher.(2)(4) 10.22 -- Split Dollar Insurance Agreement dated as of June 15, 1993 by and between the Company and James R. Craig.(2)(4) 10.23 -- Split Dollar Insurance Agreement dated as of June 15, 1993 by and between the Company and James R. Craig.(2)(4) 10.24 -- Kitty Hawk, Inc. Amended and Restated Omnibus Securities Plan, dated as of September 3, 1996.(3)(4) 10.25 -- Kitty Hawk, Inc. Amended and Restated Employee Stock Purchase Plan, dated as of September 3, 1996.(3)(4) 10.26 -- Kitty Hawk, Inc. Amended and Restated Annual Incentive Compensation Plan, dated as of September 3, 1996.(3)(4) 10.27 -- Kitty Hawk, Inc. 401(k) Savings Plan.(2)(4) 10.28 -- Employment Agreement dated as of October 27, 1994 by and between the Company and M. Tom Christopher.(2)(4) 10.29 -- Amended and Restated Employment Agreement dated as of June 12, 1996 by and between the Company and Richard R. Wadsworth.(3)(4) 10.30 -- Amended and Restated Employment Agreement dated as of December 31, 1995 by and between the Company and Tilmon J. Reeves.(3)(4) 10.31 -- Request for written consent to expand ownership without management change dated as of October 26, 1994 granted by GM.(2) 10.32 -- Request for written consent to certain disclosures of Master Agreement and contractual relationship dated as of October 26, 1994 granted by GM.(2) 10.33 -- Kavouras Customer Order Acknowledgment.(2) 10.34 -- Kavouras Meteorological Services Agreement.(2) 10.35 -- Computer Flight Plan and Weather Service Agreement dated as of June 11, 1992 by and between Aircargo and Jeppesen DataPlan, Inc. (2) 10.36 -- Purchase Agreement between Federal Express Corporation and Postal Air, Inc. (predecessor to the Company) dated as of October 22, 1992 (the "FEASI Agreement").(3) 10.37 -- Amendment No. 1 dated November 17, 1992 to the FEASI Agreement.(3) 10.38 -- Amendment No. 2 dated February 1993 to the FEASI Agreement.(3) 10.39 -- Amendment No. 3 dated June 11, 1993 to the FEASI Agreement.(3) 10.40 -- Amendment No. 4 dated May 10, 1994 to the FEASI Agreement.(3) 10.41 -- Amendment No. 5 dated September 29, 1995 to the FEASI Agreement.(3) 10.42 -- Amended and Restated Credit Agreement, dated as of August 14, 1996, by and among the Company, Wells Fargo Bank (Texas), National Association, and Bank One, Texas, N.A. (3) 10.43 -- Aircraft Purchase Agreement between the Company and Intrepid Aviation Partners, LLC dated as of September 24, 1996.(3) 10.44 -- Purchase Agreement between the Company and International Aero Components, Inc. dated as of November 15, 1996.(1) 10.45 -- Purchase Agreement between the Company and International Technical Consultants, Inc. dated as of November 25, 1996.(1) 11.1 -- Statement of Computation of Net Income per Share.(1) 21.1 -- Subsidiaries of the Registrant.(3) 23.1 -- Consent of Ernst & Young LLP.(1) 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) The exhibit is a management contract or compensatory plan or arrangement. EX-10.44 2 PURCHASE AGRMT BETWEEN THE CO. & INT'L AERO COMP. 1 EXHIBIT 10.44 PURCHASE AGREEMENT DATED AS OF NOVEMBER 15, 1996 BETWEEN INTERNATIONAL AERO COMPONENTS, INC. AS SELLER AND KITTY HAWK AIRCARGO INC. AS PURCHASER ------------------ One (1) Boeing model 727-200 aircraft, bearing U.S. Registration Number N252US, and MSN 19971 ------------------ 2 TABLE OF CONTENTS
PAGE SECTION 1 DEFINITIONS 1 SECTION 2 SALE AND PURCHASE; OTHER AGREEMENTS 3 SECTION 3 CLOSING; CONDITIONS TO CLOSING 4 SECTION 4 REPRESENTATIONS, WARRANTIES AND AGREEMENTS 6 SECTION 5 INDEMNIFICATION; FILINGS 8 SECTION 6 MISCELLANEOUS 9
EXHIBITS EXHIBIT A AIRCRAFT DESCRIPTION 1. SPECIFICATIONS 2. AVIONICS 3. SPECIFIC INSTALLED PARTS LIST EXHIBIT B AIRCRAFT DOCUMENTS EXHIBIT C BILLS OF SALE EXHIBIT D DELIVERY RECEIPT
3 PURCHASE AGREEMENT THIS AGREEMENT, dated as of November 15, 1996 (the "Agreement"), is by and between INTERNATIONAL AERO COMPONENTS, INC., an Arizona corporation (the "Seller"), and KITTY HAWK AIRCARGO INC., a Delaware corporation, (the "Purchaser"). WITNESSETH ---------- WHEREAS, Seller is the legal and beneficial owner of that Boeing model 727-200 aircraft, bearing U.S. Registration N252US, and MSN 19971; and WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, all of Seller's right, title and interest in and to the Aircraft on the terms and conditions, and subject to the limitations and exclusions, set forth herein. NOW, THEREFORE, for and in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows. ARTICLE I DEFINITIONS SECTION 1.1. DEFINED TERMS. (a) Unless the context otherwise requires, the following terms shall have the following respective meanings for all purposes of this Agreement and shall be equally applicable to both the singular and the plural forms of the terms herein defined: AIRCRAFT shall mean the Airframe, more particularly described in Exhibit A, together with: (i) all Parts and all components thereof (see Exhibit A); (ii) all ancillary equipment or devices furnished with the Aircraft under this Agreement; (iii) all Aircraft Documents, and (iv) all substitutions, replacements and renewals of any and all thereof. AIRCRAFT DOCUMENTS shall mean the maintenance and inspection records and all other current and historical records and documentation pertaining to the Aircraft, and all such documents and records required to be maintained under Applicable Law and in accordance with the requirements of the FAA and/or Boeing or any other manufacturer of the Aircraft or Part. 1 4 AIRFRAME shall mean: (a) the Boeing model 727-200 aircraft (excluding the Engines) bearing manufacturer's serial number 19971 and U.S. Registration N252US; and (b) any and all Parts applicable or pertaining thereto. APPLICABLE LAW shall mean: (i) any law, statute, decree, constitution, regulation, order, judgment, rule, license, permit, injunction or other directive of any Governmental Entity; (ii) any treaty, pact, compact or other agreement to which any Governmental Entity is a signatory or party; (iii) any judicial interpretation or application of those described in (i) or (ii) above; (iv) any administrative interpretation or application of those described in (i) or (ii) above; and (v) any amendment or revision of any of those described in (i), (ii), (iii) or (iv) above. BILLS OF SALE shall mean the warranty bill of sale and a duly executed FAA Form 8050-2, in the form attached as Exhibit C hereto, to be delivered by Seller to Purchaser for the Aircraft. BUSINESS DAY shall mean any day other than a Saturday, Sunday or other day on which banking institutions in Tucson, Arizona are authorized or required by law to be closed. DELIVERY DATE shall mean the date on which Seller is obligated to tender title to the Aircraft to Purchaser, and Seller accepts delivery of the Aircraft, all as further provided in Section 3.1 hereof. DELIVERY RECEIPT shall mean the delivery and acceptance receipt, dated the Delivery Date, in the form of Exhibit D hereto. EVENT OF LOSS shall mean any of the following events with respect to the Aircraft or Airframe: (a) Loss of such property or its use due to theft or disappearance, damage economic repair, or rendition of such property permanently unfit for normal use by Lessee for any reason whatsoever; (b) any damage to such property which results in an insurance settlement with respect to such property on the basis of a total loss, or; (c) the condemnation, confiscation, appropriation or seizure of, or requisition of title to, such condemnation, confiscation, appropriation or seizure of, or requisition of title to, such property; or the use of such property by any Governmental Entity. In the event of a partial loss event which is insured against by Seller, Purchaser shall have the discretion to elect that if such insurance provides for proceeds to be applied to correct the partial loss, that such partial loss be corrected and not be treated as an Event of Loss. GOVERNMENTAL ENTITY shall mean and include: (i) the FAA; (ii) any national, state, or local government (whether domestic or foreign), any political subdivision thereof or local jurisdiction therein; (iii) any board, commission, department, division, organ, instrumentality, court or agency of any entity described in (ii) above, however 2 5 constituted, and those of the United States of America; and (iv) any association, organization or institution of which any entity described in (ii) or (iii) above is a member or to whose jurisdiction any such entity is subject or in whose activities any such entity is a participant but only (except for purposes of defining "Applicable Law" above) to the extent that any entity described in (i) through (iv) above has jurisdiction over this Agreement, or the Aircraft and its operations, or any of the parties hereto or the transactions contemplated hereby. INDEMNITEES shall mean, collectively, Purchaser and its officers, directors, shareholders, controlling persons, agents, employees and their respective successors and assigns. LIEN shall mean any mortgage, pledge, security interest, encumbrance, lien, easement, servitude or charge of any kind or nature whatsoever. OPERATIVE DOCUMENTS shall mean this Agreement, the Bill of Sale and all of the agreements, instruments, certificates and other documents of any nature executed in connection therewith, including any amendments, modifications or supplements thereto from time to time. PARTS shall mean all appliances components, parts, instruments, appurtenances, avionics, accessories, furnishings and other equipment of whatever nature which may now or from time to time prior to the Delivery Date be incorporated or installed in or attached to (or if not then attached or installed, which pertain thereto and would be so attached or installed but for repairs and/or inspection as of the Delivery Date) the Airframe, including those described in Exhibit A. PERSON shall mean any individual, corporation, partnership, joint venture, business association, joint-stock company, trust or unincorporated organization or any government or political subdivision thereof or any governmental agency. TAXES shall mean any and all sales, use, business, gross income, personal property, transfer, fuel, leasing, occupational, value added, excess profits, excise, gross receipts, franchise, stamp, documentation, registration, income, levies, imposts, withholdings or other taxes or duties of any nature, together with any penalties, fines, charges or interest thereon. (b) All references in this Agreement to sections, paragraphs, clauses, schedules, appendices and exhibits are to sections, paragraphs, clauses, schedules, appendices and exhibits in and to this Agreement unless otherwise indicated. ARTICLE II SALE AND PURCHASE; OTHER AGREEMENTS 3 6 SECTION 2.1. SALE AND PURCHASE; TERMINATION. (a) Subject to the terms and conditions set forth herein, on the Delivery Date, Seller agrees to sell, convey, transfer and assign to Purchaser, and Purchaser agrees to purchase and accept from Seller, all of the Seller's right, title and interest in and to the Aircraft, free and clear of any and all Liens and other encumbrances whatsoever. (b) EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, THE AIRCRAFT IS BEING SOLD BY SELLER TO PURCHASER "AS IS, WHERE IS" AND SELLER MAKES NO WARRANTIES OR GUARANTIES, EITHER EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, AS TO THE CONDITION OF THE AIRCRAFT OR ANY PART THEREOF. SECTION 2.2. DEPOSIT; PURCHASE PRICE, RENT ADJUSTMENT; PAYMENT. (a) Purchaser shall deposit an amount equal to One Hundred Thousand Dollars (US$100,000) with Seller upon signing this Agreement, such amount to be fully credited against the purchase price. Such amount is to be fully and promptly reimbursed to Purchaser if Seller defaults in its obligations hereunder or this Agreement becomes otherwise unperformable. (b) The purchase price payable by Purchaser to Seller for the Aircraft on the Delivery Date (the "Purchase Price") is an amount equal to Six Hundred and Seventy Five Thousand Dollars (US$675,000.00) less the amount of Purchaser's US$100,000 Deposit. The Purchase Price shall be payable by Purchaser in lawful currency of the United States of America in the manner contemplated by paragraph (b) of this Section 2.2. (c) Payment of the purchase price on the Delivery Date shall be made by Purchaser by wire transfer of immediately available funds, to such account as Seller may direct in writing. SECTION 2.3. TAXES. Purchaser shall be responsible for payment of any Taxes and similar charges lawfully imposed by any Governmental Entity upon the sale and Purchase of the Aircraft as contemplated hereby. ARTICLE III CLOSING; CONDITIONS TO CLOSING 4 7 SECTION 3.1. CLOSING/DELIVERY OF THE AIRCRAFT. The Seller shall deliver the Aircraft to Purchaser in Tucson, Arizona on such date as the parties shall mutually agree, but no later than November 29, 1996. Seller shall have completely assembled the Airframe at Seller's cost, performed an A and B check on the Airframe, performed a landing gear swing, and performed a weight and balance calculation. Purchaser shall have provided three (3) JT8D-7B engines in Quick Engine Change configuration ("QEC") and installed such engines on the Airframe at Purchaser's expense. Purchaser shall be responsible for obtaining a Ferry Permit from the U.S. FAA, and Seller and Buyer will use their reasonable best efforts to work together to obtain the Ferry Permit. If either party, in its sole and reasonable judgment, believes that obtaining ferry permit is not an economically feasible alternative, the sale will be terminated. If Purchaser is unable to provide such ferry engines, Seller shall use its best efforts to assist Purchaser in locating such ferry engines, including lending Purchaser appropriate ferry engines in Seller's possession on commercial terms, including commercial price for such loan. Seller hereby warrants to Purchaser that it has good and marketable title to the Aircraft free and clear of any and all Liens whatsoever, and upon execution and delivery of the Bills of Sale to Purchaser hereunder, Seller shall have transferred good and marketable title to such Aircraft to Purchaser,that Purchaser shall be fully vested with the same; and further that Seller shall forever defend such title against any and all claims and demands whatsoever, at Seller's sole cost and expense. SECTION 3.2. SELLER'S CONDITIONS TO CLOSING. The obligation of Seller to sell the Aircraft on the Delivery Date as provided herein is subject to the compliance (to the reasonable satisfaction of Seller) on or before the Delivery Date with, or the waiver by Seller on or before the Delivery Date of, the following conditions precedent: (a) Litigation. No action, proceeding or investigation shall have been instituted or threatened before any Governmental Entity, nor shall any order, writ, judgment or decree have been issued or proposed to be issued by any Governmental Entity, which in any case questions the validity or legality of this Agreement, the Operative Documents, the transactions contemplated hereby and thereby, or the ability of either party to consummate any of such transactions. (b) Purchase Price / Delivery Receipt. Purchaser shall have paid the Purchase Price as contemplated by Section 2.2 hereof, and executed and tendered the Delivery Receipts. SECTION 3.3. PURCHASER'S CONDITIONS TO CLOSING. The obligation of Purchaser to purchase the Aircraft, and to pay the Purchase Price on the Delivery Date as provided herein is subject to the compliance by Seller on or before the Delivery Date 5 8 with, or the express waiver by Purchaser on or before the Delivery Date of, the following conditions precedent: (a) Consents Under Other Obligations; Governmental Authority Notices and Approvals. All approvals and consents of, or notices to, any Governmental Authority, which are required in connection with the transactions contemplated by the Operative Documents, shall to the reasonable satisfaction of Purchaser have been duly obtained, given or accomplished. (b) Litigation. No action, proceeding or investigation shall have been instituted or threatened before any Governmental Entity, nor shall any order, writ, judgment or decree have been issued or proposed to be issued by any Governmental Entity, which in any case questions the validity or legality of this Agreement, the Operative Documents, the transactions contemplated hereby and thereby or the ability of either party hereto to consummate any of such transactions. (c) Bills of Sale. The Bills of Sale shall have been duly authorized, executed and tendered by Seller. (d) Event of Loss. No Event of Loss, or any event which, with notice, lapse of time, or both, would become an Event of Loss, shall have occurred. (e) Tender of Aircraft. Seller shall have tendered delivery and possession of the Aircraft. (f) Proceedings Satisfactory. All proceedings taken in connection with the transactions contemplated hereby and all documents and papers relating thereto shall be reasonably satisfactory to Purchaser, and Purchaser shall have received copies of such documents and papers as Purchaser may reasonably request in connection therewith, all in form and substance satisfactory to Purchaser. ARTICLE IV REPRESENTATIONS, WARRANTIES AND AGREEMENTS SECTION 4.1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF SELLER. Seller represents, warrants and covenants to, and agrees with, Purchaser as follows, such representations, warranties and covenants to survive the execution and delivery of this Agreement and the Operative Documents. (a) Organization, Corporate Authority, Etc. Seller is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Arizona, and is duly qualified to own its properties and carry on its business in each jurisdiction where the failure to be so qualified would have a material adverse effect on 6 9 Seller's business. Seller has all requisite corporate power and authority to enter into and perform its obligations under this Agreement and the Operative Documents executed and delivered by it in connection herewith. (b) Authorization, Etc. This Agreement and the transactions contemplated hereby have been duly authorized, executed and delivered by Seller. This Agreement constitutes the legal, valid and binding obligations of Seller enforceable against Seller in accordance with its terms, except as enforcement of the terms hereof and thereof may be limited by applicable bankruptcy, insolvency, reorganization, liquidation, moratorium or similar laws affecting enforcement of creditors' rights generally. (c) No Violation. Neither execution, delivery or performance by Seller of this Agreement or any other Operative Document or agreement related hereto, or the consummation by Seller of any of the transactions contemplated hereby or thereby, will contravene any Applicable Law binding on Seller or any of its property, or any provision of the charter or bylaws of Seller, or will result in a breach of, or constitute a default under, or contravene any provision of, any agreement or instrument to which Seller is a party or by which Seller or any of its property is bound (which breach, default or contravention would have a material adverse effect on such execution, delivery or performance). (d) No Consents and Approvals. Neither the execution, delivery or performance by Seller of this Agreement or any other document or agreement related hereto, nor the consummation by Seller of any of the transactions contemplated hereby or thereby, requires the consent or approval of, the giving of notice to, the registration, recording or filing of any documents with, or the taking of any other action in respect of, any Governmental Entity or the terms and provisions of any thereof, except such as have been obtained or effected on or prior to the Closing Date. (e) Prior Transfers; Title. Seller is the sole legal and beneficial owner of the Aircraft and registered owner of the Aircraft with the FAA. There are no Liens on the Aircraft, and Seller will convey to Purchaser good and marketable title to the Aircraft, free and clear of any and all other Liens. (f) No Defaults. Seller is not in default with respect to any of its obligations hereunder nor does any condition exist, the existence of which, upon the giving of notice or the lapse of time, or both, would constitute such a default. In addition, no Event of Default, or other similar event or condition giving rise to substantially the same consequences hereunder or thereunder has occurred and is continuing. (g) No Material Litigation. There are no pending or, to the best of Seller's knowledge, threatened investigations, suits or proceedings against Seller or affecting Seller, the Aircraft or its properties, which would materially adversely affect the consummation of the transactions contemplated by, or the performance by Seller of its obligations under, this Agreement and the other Operative Documents. 7 10 SECTION 4.2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF PURCHASER. Purchaser represents, warrants and covenants to Seller as follows, such representations, warranties and covenants to survive the execution and delivery of this Agreement: (a) Organization, Corporate Authority, Etc. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The purchase and sale of property similar to the Aircraft is within the ordinary course of business conducted by Purchaser and Purchaser has all requisite corporate power and authority to enter into and perform its obligations under this Agreement and the other Operative Documents to which it is a party. (b) Authorization, Etc. This Agreement has been duly authorized, executed and delivered by Purchaser. This Agreement constitutes the legal, valid and binding obligations of Purchaser, enforceable against it in accordance with its respective terms, except as enforcement of the terms hereof and thereof may be limited by applicable bankruptcy, insolvency, reorganization, liquidation, moratorium or similar laws affecting enforcement of creditors' rights generally. (c) No Violation. Neither the execution, delivery or performance by Purchaser of this Agreement or the other Operative Documents to which it is a party, or the consummation of any of the transactions contemplated hereby or thereby, will contravene any Applicable Law binding on Purchaser or any of its property, or any provision of the articles of incorporation or bylaws of Purchaser, or will result in a breach of, or constitute a default under, or contravene any provision of, any agreement or instrument to which Purchaser is a party or by which Purchaser or any of its property is bound (which breach, default, or contravention would have a material adverse effect on such execution, delivery or performance) ARTICLE V INDEMNIFICATION; FILINGS SECTION 5.1. INDEMNIFICATION. (a) Seller agrees to indemnify, defend and hold Purchaser, its officers, directors, employees and shareholders harmless from any and all liabilities, damages, losses, expenses, demands, claims, suits or judgments by, or on behalf of, any third party or parties, including reasonable attorneys fees and expenses, arising out of: (i) the breach of any representation, warranty, or covenant of Seller set forth herein; (ii) any breach or other default by Seller under this Agreement or the other Operative Documents; and (iii) any act or event occurring prior to delivery of the Aircraft to Purchaser on the Closing Date and related to the Aircraft and Seller's ownership of the 8 11 same. (b) Purchaser hereby agrees to indemnify, defend and hold Seller, its officers, directors and employees, harmless from any and all liabilities, damages, losses, expenses, demands, claims, suits or judgments by, or on behalf of, any third party or parties, including reasonable attorneys fees and expenses arising out of: (i) the breach of any representation, warranty or covenant of Purchaser set forth herein; (ii) any breach or other default by Purchaser hereunder; and (iii) any act or event occurring after delivery of the Aircraft to Purchaser on the Closing Date and related to the Aircraft and Purchaser's ownership of the same. ARTICLE VI MISCELLANEOUS SECTION 6.1. TRANSACTION COSTS. Each party hereto agrees to pay the fees and expenses of its own counsel and/or special counsel in connection with the transactions contemplated hereby. SECTION 6.2. BROKERS, FINDERS, ETC. Except with respect to Purchaser's arrangement with Fieldstone, each party represents to the other that it has dealt with no broker or finder in connection with the transactions contemplated hereby, and no broker or person acting on such a party's behalf is entitled to any brokerage fee, financial advisory fee, commission or finder's fee in connection with such transactions. Seller and Purchaser each agree to indemnify and hold harmless the other from and against any and all loss, liability, damage, cost, claim or expense (including without limitation attorneys' fees) incurred by reason of any such commission, brokerage fee, financial advisory fee or finder's fee alleged to be payable because of any act, omission or statement of the indemnifying party. SECTION 6.3. COUNTERPARTS; EFFECTIVE DATE. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 6.4. AMENDMENTS, ETC.; ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof, and supersede all prior agreements and understandings between the parties, whether written or oral. Neither this Agreement, nor any of the terms hereof or thereof may be terminated, amended, supplemented, waived or modified orally, but only by an instrument which purports to terminate, amend, supplement, waive or modify this Agreement, or any of the terms hereof or thereof, signed by the party against which the enforcement of the termination, amendment, supplement, waiver or modification is sought. The schedules, exhibits and appendices attached to this Agreement constitute 9 12 a part of this Agreement and are incorporated herein by reference as if set forth in full in the main body of this Agreement. SECTION 6.5. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns. Neither party hereto shall assign its rights hereunder without the consent of the other party unless required to do so by Applicable Law. SECTION 6.6. GOVERNING LAW. This Agreement, including all matters of construction, validity and performance, shall in all respects be governed by, and construed in accordance with, the law of the State of Arizona applicable to contracts made in such state and to be performed entirely within such state, without giving effect to principles relating to conflicts of law. Any dispute under this Agreement shall be settled exclusively by arbitration under the commercial arbitration rules of the American Arbitration Association. The locale of arbitration shall, at the request of either party, be in the State of Arizona. Judgment upon an arbitration award may be entered in any court having jurisdiction. The prevailing party in arbitration or in litigation to enforce an arbitration award shall be entitled to recover reasonable attorney's fees and costs. SECTION 6.7. NOTICES. All notices, offers, acceptances, approvals, waivers, requests, demands and other communications hereunder or under any instrument, certificate or other instrument delivered in connection with the transactions described herein shall be in writing, shall be addressed as provided below and shall be considered as properly given (a) if delivered in person, (b) if sent by FedEx or DHL, (c) if mailed by first class United States mail, postage prepaid, registered or certified with return receipt requested, (d) if sent by prepaid telegram or by telex and confirmed, or (e) if sent by any electronic data transmission facility and confirmed. Notice so given shall be effective upon receipt; provided, that if any notice is tendered to an addressee and the delivery thereof is refused by such addressee, such notice shall be effective upon such tender. For the purpose of notice, the address of the parties shall be as set forth below; provided, that any party shall have the right to change its address for notice hereunder to any other location by the giving of prior notice to the other party in the manner set forth hereinabove. The initial addresses of the parties hereto are as follows: Purchaser: Kitty Hawk Aircargo, Inc. 1515 West 20th Street DFW Airport, Texas 75261 Attn: Richard Wadsworth Fax: 972-456-2305 Seller: International Aero Components, Inc. 2285 East Elvira Tucson, Arizona 85706 10 13 Attention: General Manager Fax: (520) 741-0480 SECTION 6.8. SEVERABILITY OF PROVISIONS. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 6.9. HEADINGS. The headings used herein are for convenience of reference only and shall not define or limit any of the term or provisions hereof. SECTION 6.10. SURVIVAL. The representations, warranties and covenants of the parties contained in this Agreement, or in any instrument, certificate or other document delivered in connection herewith or therewith, shall survive execution and delivery hereof. SECTION 6.11. FURTHER ASSURANCES. Seller and Purchaser shall do and perform such further acts and execute and deliver such further instruments as may be required by law or reasonably requested by either party to carry out and effectuate the purposes of this Agreement. [Remainder of Page Intentionally Left Blank] 11 14 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year set forth above. SELLER: INTERNATIONAL AERO COMPONENTS, INC. By: /s/ RICHARD W. DOUST Name: Richard W. Doust Title: Director PURCHASER: KITTY HAWK AIRCARGO INC. By: /s/ RICHARD R. WADSWORTH Name: Richard R. Wadsworth Title: Vice President CFO 12 EX-10.45 3 PURCHASE AGRMT BETWEEN THE CO. & INT'L TECHNICAL 1 EXHIBIT 10.45 - -------------------------------------------------------------------------------- AGREEMENT FOR PURCHASE AND SALE OF AIRCRAFT - -------------------------------------------------------------------------------- 1.0 DATE AND PARTIES 1.1 DATE. This agreement is effective as of November 25, 1996. 1.2 PARTIES. The parties to this agreement are: A. International Technical Consultants, Inc. ("ITC") Attention: Russell Wainwright, President PO Box 765 - 77 West 200 South, Suite 218 Salt Lake City, UT 84101 B. Aircraft Leasing, Inc. ("Leasing") Attention: Richard R. Wadsworth, Jr., President 1515 West 2th St DFW Int'l Airport, TX 75261 2.0 RECITATIONS 2.1 ITC; THE AIRCRAFT. ITC owns one Boeing 727-224, serial number 20667, registration number N69739, in cargo configuration, with three Pratt & Whitney JT8D-9A aircraft engines, serial numbers 687788, 665294 and 665591 installed thereon, with all installed thereon, with all installed appliances and Agreement for Purchase and Sale of Aircraft Page 1 2 accessories (collectively, the "Aircraft"). ITC wishes to sell the Aircraft to Leasing under this agreement. 2.2 LEASING. Leasing owns and leases aviation equipment to operators holding FAA Part 121 certificates, among them Kitty Hawk Aircargo, Inc. ("Aircargo"). Leasing wishes to purchase the Aircraft under this agreement, intending to lease or sell the Aircraft to Aircargo or other certificated aircraft operators for use in providing air cargo transportation services. 3.0 PURCHASE PRICE, PAYMENT AND CLOSING 3.1 PURCHASE, PURCHASE PRICE. Under this agreement, ITC will sell, assign and deliver to Leasing, and Leasing will purchase, the Aircraft, with all operational and maintenance records pertaining to the Aircraft, which are identified in Exhibit A (the "Aircraft Records"), and with ITC's obligation to pay up to $500,000 of the post-closing costs of a "C" check and associated maintenance for the Aircraft under 3.3, for an aggregate purchase price of $4,700,000. 3.2 CLOSING. Closing will occur by escrow through Federal Aviation Title Company ("FATCO"), Oklahoma City, Oklahoma, on or before November 29, 1996. Leasing will pay all escrow fees charged by FATCO in connection with the closing. 3.3 EXTRAORDINARY MAINTENANCE. At closing, ITC promises to deliver $500,000 (the "escrow") out the purchase price in escrow to FATCO. FATCO must hold the escrow at interest and must disburse therefrom to Leasing, in whole or in part from time to Agreement for Purchase and Sale of Aircraft Page 2 3 time up to the aggregate amount of the escrow plus interest earned thereon, upon Leasing's request and certification in writing to FATCO no later than one year after closing that Leasing has incurred costs in the amount of the requested disbursement for a "C" check (which may be, at Leasing's election, a "C" check under the maintenance program of Custom Air Transport, Inc., the maintenance program of Kitty Hawk Aircargo, Inc., or the maintenance program of another certificated cargo air carrier chosen by Leasing) and associated maintenance for the Aircraft performed by Kitty Hawk Aircargo, Inc., Aero Corp, AAR of Oklahoma City, or another certified FAA maintenance station chosen by Leasing. If on the anniversary of closing any amount remains in the escrow for which Leasing has not so requested disbursement, FATCO must deliver the remaining escrow to LeasingqM_ a reduction in the purchase price of the Aircraft. FATCO will have no further obligation to ITC or Leasing with respect to the escrow. ITC shall have no rights in the escrow and no other obligation with respect to maintenance or condition of the Aircraft. 3.4 INSPECTION. Leasing has inspected the Aircraft and the Aircraft Records. If at any time before closing, Leasing reasonably determines that any condition of the FAA title or lien records concerning the Aircraft, or that any of ITC's warranties in Paragraphs 3.6(A) and (B) and 4.1 are untrue, Leasing may by notice to ITC terminate this agreement, in which case neither party will have any further obligations under this agreement. 3.5 DELIVERY. At consummation of closing, ITC will deliver the Aircraft to Leasing at Aircargo's hangar at DFW Airport, Texas, Agreement for Purchase and Sale of Aircraft Page 3 4 with all avionics and appliances, and will deliver the Aircraft Records to Leasing either with the Aircraft or at the offices of Custom Air Transport, Inc., in Ft. Lauderdale, Florida. Upon accepting delivery of the Aircraft, Leasing will execute and deliver to ITC a written receipt of acceptance of the Aircraft, which will constitute (i) Leasing's acknowledgment that the Aircraft as delivered confirmed to the terms of this agreement, and (ii) Leasing's waiver of all claims against ITC with respect to the condition of the Aircraft, except claims under Paragraphs 3.6(A) and (B) below; but Leasing's receipt of acceptance will not be deemed a waiver of any claim by Leasing against any third party under any warranty assigned to Leasing by ITC. This paragraph is not intended to give Leasing any right to reject the Aircraft that would not exist under the other terms of this agreement. 3.6 LIMITED WARRANTIES, LIMITATION OF WARRANTIES, AND DISCLAIMERS. A. ITC represents, warrants and promises to Leasing that ITC holds and will transfer, convey and deliver to Leasing at closing good and merchantable title to the Aircraft, free and clear of liens, security interests, lease or possessory rights, and other adverse claims and encumbrances (including without limitation any artisans' liens and any storage or labor charges of any third persons). Agreement for Purchase and Sale of Aircraft Page 4 5 B. ITC represents and warrants to Leasing that ITC has no actual knowledge (I) that the Aircraft is not in good, airworthy and serviceable condition, or that it has not been regularly maintained in accordance with FAA requirements, manufacturers' recommendations, and good maintenance practice, or (ii) that the Aircraft Records are incomplete or have not been accurately and regularly maintained in accordance with FAA requirements; but ITC has made no inspection, investigation or inquiry in order to make this representation and warranty. C. EXCEPT FOR EXPRESS WARRANTIES CONTAINED IN Paragraph 3.6(A) AND Paragraph 3.6(B); THE AIRCRAFT IS BEING SOLD "AS IS, WHERE IS," WITHOUT ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR USE OR PURPOSE, WITHOUT ANY OTHER IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USE OF TRADE; AND WITHOUT ANY OTHER WARRANTY OF ANY KIND, EXPRESS OR IMPLIED. WITHOUT LIMITING THE FOREGOING OR ANY OTHER LIMITATION, WAIVER OR DISCLAIMER CONTAINED IN THIS AGREEMENT, ITC MAKES NO REPRESENTATION OR WARRANTY THAT THE AIRCRAFT IS IN ANY RESPECT SUITABLE FOR ANY USE OR APPLICATION BY LEASING OR AIRCARGO. D. BOTH PARTIES WAIVE ALL CLAIMS FOR INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT. 3.7 ITC'S CLOSING OBLIGATIONS. At closing, ITC will execute and deliver in escrow to FATCO (i) a warranty bill of sale (the "ITC Agreement for Purchase and Sale of Aircraft Page 5 6 bill of sale") in the form of Exhibit B, assigning and transferring to Leasing the Aircraft and the Aircraft Records, warranting good and unencumbered title as required under Paragraph 3.6(A), and assigning to Leasing, without recourse, all expressed and implied warranty rights of ITC with respect to the Aircraft, including without limitation those under express or implied warranties with respect to cargo conversion of the Aircraft, and (ii) an FAA Form 8050-2 bill of sale (the "FAA bill of sale"); with escrow instruction that upon consummation of closing the ITC bill of sale is to be delivered to Leasing and the FAA bill of sale is to be filed with the FAA registry. 3.8 LEASING'S CLOSING OBLIGATIONS. At closing, Leasing will deliver to FATCO in escrow the purchase price in good funds; with instructions that the amount delivered (less the escrow to be retained by FATCO under Paragraph 3.4) is to be delivered to ITC or it's assigns upon consummation of closing. 4.0 OTHER REPRESENTATIONS AND WARRANTIES 4.1 ITC. ITC represents and warrants to Leasing that (i) ITC is a Nevada corporation in good standing, whose execution and delivery of this agreement, and closing under this agreement, have been duly authorized. 4.2 LEASING. Leasing represents and warrants to ITC that Leasing is a Texas corporation in good standing, whose execution and delivery of this agreement, and closing under this agreement, have been duly authorized. Agreement for Purchase and Sale of Aircraft Page 6 7 5.0 OTHER COVENANTS 5.1 ACTIONS BEFORE CLOSING. Until closing, unless this agreement is terminated, each party promises to do nothing that would cause any of its representations or warranties under Paragraph 3.6 and Section 4.0 to become untrue; and each party promises to exert its best efforts to prevent any of its representations and warranties from becoming untrue. 5.2 COMMISSION OR FINDERS' FEE. No party will owe any commission or finder's fee under this agreement. Each party will indemnify the other and hold it harmless against liability, loss and cost of defense upon any claim to a commission or finders fee based upon the actions of the indemnitor. 5.3 TAXES. Leasing will be solely responsible for and timely pay any sales, use or excise taxes lawfully imposed upon ITC or Leasing that are attributable to the sale or transfer of the Aircraft under this agreement. 5.4 RISK OF LOSS. All risk of loss of the Aircraft will be upon ITC until closing under this agreement, at which time Leasing will have risk of loss of the Aircraft unless otherwise agreed in writing by the parties hereafter. Agreement for Purchase and Sale of Aircraft Page 7 8 6.0 GENERAL PROVISIONS 6.1 AMENDMENTS. To amend this agreement, both parties must sign a written amendment that identifies by paragraph number the provision that it purports to amend. No noncomplying course of dealing may be construed to amend this agreement. 6.2 NOTICES. Notices will be in writing. Notices may be given by US Express Mail, postage prepaid, return receipt requested, addressed to the intended recipient at its address in paragraph 1.2, or to such other notice address as that party designates by notice to the other parties, and any notice so given will be effective three business days after mailing. A business day is any day other than a Saturday, Sunday, or legal holiday in Texas. A notice given by other means will be effective only when actually received by the addressee. 6.3 CONSTRUCTION. Texas and federal law will govern the effect and construction of this agreement. This agreement binds and benefits the parties and their respective successors and assigns. This agreement constitutes the entire agreement between the parties, and any prior understanding or representation of any kind preceding, the date of this agreement will not be binding on any party except to the extent expressly incorporated in this agreement in writing. All representations and warranties contained in this agreement will survive investigation and closing. No waiver of a default under this agreement may be construed to be a waiver of any other default. No rule of construction resolving any ambiguity against a drafting party will apply. Titles and headings are only Agreement for Purchase and Sale of Aircraft Page 8 9 for convenient reference and are not to be construed in interpretation. Exhibits A and B are attached to and incorporated as part of this agreement. 6.4 ARBITRATION. Any dispute under this agreement must exclusively be resolved by binding arbitration under the commercial Arbitration Rules of the American Arbitration Association (the "AAA"); except that Paragraph 6.3 will govern applicable law and construction, the locale of the arbitration will be the locale of the party against whom the first arbitration claim is filed with the AAA, and the arbitrators must provide written findings of fact and conclusions of law. The prevailing party in arbitration or litigation about this agreement will be entitled to recover its reasonable attorneys' fees and costs. INTERNATIONAL TECHNICAL CONSULTANTS, INC. By: /s/ RUSSELL WAINWRIGHT ----------------------------------- Russell Wainwright, President AIRCRAFT LEASING, INC. By: /s/ RICHARD R. WADSWORTH, JR. ----------------------------------- Richard R. Wadsworth, Jr., President Agreement for Purchase and Sale of Aircraft Page 9 10 EXHIBIT B BILL OF SALE INTERNATIONAL TECHNICAL CONSULTANTS, INC. TO AIRCRAFT LEASING, INC. International Technical Consultants, Inc. ("ITC"), a Nevada corporation, for good, valuable and sufficient consideration that it acknowledges receiving, by this bill of sale sells, transfers and assigns to Aircraft Leasing, Inc. ("Leasing") one Boeing 727-224 airframe, serial number 20667, registration number N69739, in cargo configuration, with three Pratt & Whitney JT8D-9A aircraft engines, serial numbers 687788, 665294 and 665591 installed thereon, with all installed appliances and accessories (collectively, the "Aircraft"), with all operational and maintenance records pertaining to the Aircraft. ITC warrants that it is the lawful owner of the Aircraft; that it has and by this bill of sale it transfers to Leasing good and merchantable title to the Aircraft, free and clear of all liens, leases, mortgages, security interests, charges and encumbrances of any kind; and that it shall defend the title transferred by this bill of sale against all claims and demands. ITC also by this bill of sale assigns to Leasing all express and implied warranty rights of ITC with respect to the Aircraft, including without limitation those under express or implied warranties with respect to cargo conversion of the Aircraft. Agreement for Purchase and Sale of Aircraft Page 10 11 This bill of sale is delivered under an Agreement for Purchase and Sale of Aircraft (the "sales agreement") dated November ____, 1996, between ITC and Leasing. Excepting only the warranties expressed in the preceding paragraph and the transfer of title that this bill of sale does not alter the rights and responsibilities of ITC and leasing as expressed and limited in the sales agreement. THE AIRCRAFT IS SOLD "AS IS, WHERE IS," WITHOUT ANY EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY USE, AND WITHOUT ANY OTHER IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USE OF TRADE. Signed November ____, 1996. INTERNATIONAL TECHNICAL CONSULTANTS, INC. By: ----------------------------------- Russell Wainwright, President Agreement for Purchase and Sale of Aircraft Page 11 12 STATE OF TEXAS COUNTY OF __________________. On November ____, 1996, before me, a Notary Public in an for said County and State, personally appeared Russell Wainwright, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to this instrument, and acknowledged to me that he executed this instrument in his authorized capacity on behalf of International Technical Consultants, Inc., and that by his signature on this instrument International Technical Consultants, Inc., executed this instrument. Witness my hand and official seal. --------------------------------------- Notary Public in and for said County and State --------------------------------------- My commission expires: Agreement for Purchase and Sale of Aircraft Page 12 EX-11.1 4 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 KITTY HAWK, INC. STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
Year Ended August 31, -------------------------------------- 1994 1995 1996 ---------- ---------- ---------- Primary net income per share (1): Weighted average number of common shares outstanding 7,423,436 7,423,436 7,481,999 Common shares related to SAB No. 83 (2) 544,274 544,274 445,857(3) ---------- ---------- ---------- Weighted average common and common equivalent shares outstanding 7,967,710 7,967,710 7,927,856 ========== ========== ========== Net income $5,260,696 $4,416,394 $4,109,189 ========== ========== ========== Net income per share $0.66 $0.55 $0.52 ========== ========== ========== Fully diluted net income per share: Weighted average number of common shares outstanding 7,423,436 7,423,436 7,481,999 Common shares related to SAB No. 83 (2) 544,274 544,274 445,857(3) ---------- ---------- ---------- Weighted average common and common equivalent shares outstanding 7,967,710 7,967,710 7,927,856 ========== ========== ========== Net income $5,260,696 $4,416,394 $4,109,189 ========== ========== ========== Net income per share $0.66 $0.55 $0.52 ========== ========== ==========
- ---------------------------- (1) The Company reports primary net income per share as the effect of dilutive securities is less than 3%. (2) Stock options granted to executives within 12 months of the filing date have been included in this line item through the date of exercise. See Note 1 of Notes to Consolidated Financial Statements. (3) Stock option grants were exercised on June 26, 1996. EX-23.1 5 CONSENT OF ERNST & YOUNG 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-15667) pertaining to the Kitty Hawk, Inc. Amended and Restated Annual Incentive Compensation Plan of our report dated October 31, 1996, with respect to the consolidated financial statements of Kitty Hawk, Inc. included in the Annual Report (Form 10-K) for the year ended August 31, 1996. ERNST & YOUNG LLP Dallas, Texas November 22, 1996 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 YEAR AUG-31-1996 AUG-31-1996 5,763,904 0 14,195,990 0 1,713,812 23,514,592 69,426,072 (13,112,786) 79,827,878 30,476,351 0 0 0 79,677 23,559,068 79,827,878 0 142,414,736 0 118,900,000 5,698,628 0 1,859,284 6,876,933 2,767,744 4,109,189 0 0 0 4,109,189 .52 .52
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