-----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, O0QLnD1G9t/W/wkDmq7zwK7z5Z1sK62l8nwDOyGMfCpsELzLZaHkBBzn0XtEsLHM C5W3QZQ/NCKRh/IVbJGXFA== 0000950134-97-002687.txt : 19970409 0000950134-97-002687.hdr.sgml : 19970409 ACCESSION NUMBER: 0000950134-97-002687 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970407 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: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25202 FILM NUMBER: 97575978 BUSINESS ADDRESS: STREET 1: 1515 WEST 20TH ST STREET 2: SECOND FLOOR CITY: DALLAS/FORT WORTH IN STATE: TX ZIP: 75240 BUSINESS PHONE: 9724562200 MAIL ADDRESS: STREET 1: P O BOX 612787 CITY: DALLAS/FORT WORTH IN STATE: TX ZIP: 75261 10-K/A 1 AMENDMENT NO.1 TO FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM SEPTEMBER 1, 1996 TO DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-25202 KITTY HAWK, INC. (Exact name of registrant as specified in its charter) 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 [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] On April 4, 1997, the aggregate market price of the voting stock held by nonaffiliates of the registrant was approximately $44.0 million. (For purposes of determination of the above stated amount, only directors, executive officers and 10% or greater stockholders have been deemed affiliates). On April 4, 1997, there were 10,451,807 outstanding shares of Common Stock, par value $0.01 per share. DOCUMENTS INCORPORATED BY REFERENCE: None. ================================================================================ 2 PART I ITEM 1. BUSINESS GENERAL Kitty Hawk provides air freight charter services, emphasizing highly-reliable, time-sensitive services. The Company's air freight carrier's revenue fleet is comprised of 25 owned and 3 leased aircraft, 17 of which are currently used in scheduled airport-to-airport freight service under contracts primarily with major freight forwarders in North and Central America and the Pacific Rim. These contracts generally require the Company to supply aircraft, crew, maintenance, and insurance ("ACMI") and to meet certain on-time performance standards, while its customers are responsible for substantially all other operating expenses, including fuel. Additionally, Kitty Hawk provides same-day air logistics charter services in North America. Through its advanced, proprietary computer software, the Company manages delivery of extremely time- sensitive freight utilizing the on-demand charter services of both third-party air freight carriers and planes from the Company's fleet that are not then committed to ACMI service. The Company's principal executive offices are located at 1515 West 20th Street, P.O. Box 612787, Dallas/Fort Worth International Airport, Texas 75261, its telephone number is (972) 456-2200 and its Internet address is http://www.kha.com. Unless the context otherwise requires, the "Company" or "Kitty Hawk" refers to Kitty Hawk, Inc., its predecessor and its subsidiaries. On December 4, 1996, the Company changed its fiscal year end from August 31 to December 31. The following discussion presents results for a four month interim period from September 1, 1996 to December 31, 1996 (the "Transition Period"). AIR FREIGHT CARRIER General Kitty Hawk has owned and operated aircraft for on-demand air freight charter services since 1985. In 1987, the Company's air freight carrier was expanded to include ACMI contract charter service. Pursuant to ACMI contracts, the Company's air freight carrier provides scheduled charters carrying heavyweight freight and mail for entities that engage primarily in next-day and two-day delivery service to their customers. Revenue Fleet Of the Company's revenue fleet of 28 aircraft, the Company operates 25 aircraft in active revenue service, is in the process of converting two Boeing 727-200 aircraft to cargo configuration, and anticipates converting an additional Boeing 727-200 aircraft to cargo configuration during 1997. These aircraft do not include the Company's undivided one-third interest in four Falcon 20 jet aircraft leased to a third-party operator. See "Item 11. Executive Compensation -- Compensation Committee Interlocks and Insider Participation." ACMI Contracts As an FAA Part 121 certificated carrier, the Company's air freight carrier provides primary lift capacity as well as additional lift capacity for overflow and seasonal freight transportation needs on an ACMI contract basis. During the Transition Period, ACMI contracts accounted for approximately 28.2% of the Company's total revenues. As of March 24, 1997, Kitty Hawk was operating nine Boeing 727-200s, six Convairs and two Douglas DC9-15Fs under ACMI contracts with Burlington Air Express, Inc., Ting Hong Oceanic Enterprises Co., Ltd., Pacific East Asia Cargo Airlines, Inc., DHL Airways, Inc., and Emery Worldwide Airlines, Inc. The Company's ACMI contracts typically require the Company to supply aircraft, crew, maintenance, and insurance, while its customers are responsible for substantially all other aircraft operating expenses, including fuel, fuel servicing, airport freight handling fees, landing and parking fees, ground handling expenses, and aircraft push-back costs. 2 3 These ACMI contracts also typically require the Company to operate specific aircraft and/or provide minimum air freight capacity, and generally are terminable if the Company (i) fails to meet certain minimum performance levels, (ii) otherwise breaches the contract, or (iii) becomes subject to other customary events of default. The ACMI contracts also provide that the Company has exclusive operating control and direction of each aircraft the Company operates and that certain foreign-based customers must obtain any government authorizations and permits required to service the designated routes. Therefore, the Company's route structure is limited to areas in which customers gain access from the relevant governments. The Company is permitted under certain of its ACMI contracts to utilize, and, in fact often does utilize, its aircraft in on-demand service in the periods between ACMI contract flights. Burlington Air Express, Inc. Burlington Air Express, Inc. ("Burlington") currently leases under one ACMI contract seven of the Company's Boeing 727-200s and under a separate ACMI contract one of the Company's Convairs. Under each contract, Burlington pays the Company a fixed fee for each scheduled round-trip flown by the Company and a per hour charge for any nonscheduled flight requested by Burlington. The Burlington Boeing 727-200 ACMI contract is for a term expiring on March 1, 1999, but pursuant to the terms of the contract, either party may upon thirty days' written notice terminate the services of two Boeing 727-200 aircraft immediately and one additional Boeing 727-200 aircraft on or after each of March 1, 1998 and September 1, 1998. In addition, Burlington may earlier terminate the contract if, among other reasons, the Company fails to meet certain performance standards or if majority ownership or control of the Company is acquired by a competitor of Burlington. The Company operates one Convair on behalf of Burlington pursuant to a contract between the parties on terms substantially similar to those set forth in the Boeing 727-200 ACMI contract between the parties. On-Demand Charter Service The air freight carrier provides on-demand charter service for customers of the Company's air logistics business. Approximately 7.1%, 8.7%, 9.0% and 5.8% of the on-demand charters managed by the Company during fiscal years 1994, 1995, and 1996 and the Transition Period, respectively, were flown by the air freight carrier. A substantial portion of these charters were flown for GM. The Company also has flown its own aircraft on certain of the seasonal charters it has managed for the U.S. Postal Service. Maintenance The Company's aircraft require considerable maintenance in order to remain in compliance with FAA regulations. The Company estimates that at current rates of operation of its existing fleet, during the remainder of fiscal year 1997, the next scheduled major overhaul maintenance checks for five Boeing 727-200s will be completed and, during the fiscal year 1998, one will be completed. The Company does not anticipate any of its aircraft, at current rates of operation, requiring major overhaul maintenance checks during fiscal year 1999. The Company estimates that the service life of each of its revenue aircraft extends beyond the year 2000. Kitty Hawk historically has followed, and currently intends to follow, a policy of retiring Convairs at the time of their next scheduled major overhaul maintenance checks rather than expending the amounts necessary for such checks. Any equipment being placed on the Company's operating certificate is inspected and repaired prior to being utilized by the Company for either on-demand or ACMI contract charters. The Company's maintenance facilities enable it to perform all required airframe maintenance and minor engine repairs on the aircraft ranging from overnight "turnaround" checks to major airframe overhauls. The Company performs all maintenance for its fleet, including line maintenance, at its own maintenance facilities, except for repairs to avionics and overhauls of engines and airframes. All contract maintenance is performed by subcontracted FAA-approved maintenance facilities under the on-site supervision and/or inspection of Company quality assurance personnel. Management currently anticipates no difficulties in acquiring needed parts. 3 4 Acquisition Program Kitty Hawk is engaged in a program of selective aircraft acquisitions. In October 1996, the Company sold 2,700,000 shares of Common Stock (the "Offering") raising net proceeds of approximately $29.3 million to purchase and modify to cargo configuration five Boeing 727-200 aircraft. As of March 24, 1997, the Company has purchased four of these five aircraft. As of March 24, 1997, the Company has purchased from the net proceeds of the Offering (i) one Boeing 727-200 freighter aircraft for $4.7 million, (ii) one Boeing 727-200 aircraft for $2.31 million, which is currently being modified to cargo configuration for an additional cost of approximately $3.1 million (including approximately $1.82 million for noise abatement equipment which has been purchased), (iii) one Boeing 727-200 aircraft for $3.5 million, which is currently being modified to cargo configuration for an additional cost of approximately $5.0 million (including approximately $2.45 million for noise abatement equipment), and (iv) one Boeing 727-200 aircraft for $3.5 million, which the Company anticipates modifying to cargo configuration in 1997 for an additional cost of approximately $5.0 million (including approximately $2.45 million for noise abatement equipment). As of March 24, 1997, the Company has used approximately $16.8 million of the net proceeds of the Offering to fund these expenses. The Company recently acquired an undivided one-third interest in four Falcon 20 jet aircraft and pursuant to a co-ownership agreement leases such aircraft to a third-party operator for cargo charter service. See "Item 11. Executive Compensation -- Compensation Committee Interlocks and Insider Participation." AIR LOGISTICS General On-demand air charters of heavy-weight freight generally are used when "next-flight-out" delivery services of commercial airlines or the next-day delivery services of air freight companies or other service providers cannot meet the customer's delivery deadline. Utilizing a proprietary computerized database, the Company's air logistics services involve coordinating "door-to-door" transportation by arranging for ground pick-up, loading, air transportation, unloading, and ground delivery of the freight. The most frequent use of on-demand charters is to deliver manufacturing or replacement parts to avoid a work stoppage. Manufacturers who employ "just-in-time" inventory systems encourage the order and delivery of inventory just before it is needed at the assembly plant. On-demand charters also are used to transport replacement parts on an expedited basis so that critical equipment can be kept operational or put back in service to avoid or minimize the length of a shutdown. Firms that are reducing inventory and shortening product cycle times through direct air shipments also use on-demand charters. The customers of the Company's on-demand air logistics services include companies that are engaged in industries such as automotive, chemical, computer, mail and bulk package delivery, retail merchandising, and oil field service and equipment. Typically, the premium costs incurred in utilizing on-demand charters to achieve expedited same-day delivery are justified by the Company's customers on the basis that greater costs would otherwise be incurred as a result of a work stoppage or having to maintain greater inventory levels. A significant portion of all on-demand, same-day air freight charters in North America is accounted for by the automotive industry. The importance of the automotive industry to on-demand air charters reflects the large number of automobile parts, the complexity of an automotive manufacturer's supplier and assembly plant network, and the high cost of shutting down production facilities. Kitty Hawk believes that "just-in-time" inventory systems have increased the use of on-demand air charters by the automotive industry and that on-demand air charters are an integral cost of such "just-in-time" inventory management systems. Because automotive manufacturers generally carry less inventory than in the past, unanticipated parts shortages may occur more frequently. 4 5 Delivery of Logistics Services During the Transition Period, Kitty Hawk arranged an average of approximately 34 on-demand charters per day. Each transaction originates from a customer's telephonic request to arrange a charter answered by one of the Company's full-time account managers who are on duty 24 hours per day, 365 days per year. Database, Information Software, and Tracking Systems The Company believes it provides dependable service on a cost-effective basis because of its computerized database, information software, and tracking systems, its training of account managers, and its standardized charter management procedures. Database System. Kitty Hawk believes that its database is critical to its ability to arrange on-demand air charters in a timely and reliable manner. The Company maintains in its database a carrier profile for over 500 air freight carriers that provide on-demand charter service. The Company has implemented an Internet system to provide its account managers with real-time updates on available third party on-demand air charter aircraft across North America. The most utilized carriers are visited by Company representatives at least annually to inspect the carrier's facilities and equipment and to update the carrier database. The database also contains information concerning ground transportation and aircraft loading companies in North America that is similar to its information concerning air carriers. Information Software System. The Company's logistics system was developed in 1990 to automate access to the Company's database and has been frequently revised and improved. This system provides on-screen information regarding air carriers, aircraft type and specifications, fuel suppliers, cargo handlers, and surface carriers, along with relevant cost information. In addition, Kitty Hawk is an on-line subscriber to Jeppesen's Flight Planning and Kavouras Meteorological services. The flight planning services provided by Jeppesen integrate airport analyses (comprised of runway lengths, altitudes, hours of operation and noise abatement procedures) with the current weather data and other information to provide an automated flight plan. This flight planning service then transmits electronically the automated flight plan to the pilot and to the FAA contemporaneously. Tracking System. In December 1993, the Company began operation of its HawkEye system, which was developed internally by its full time programming and computer support staff. HawkEye allows an account manager to track an aircraft's progress from origin to destination on his or her computer screen and on the main projection board of the control room. Aircraft icons show each flight, its direction, and information about the flight including the type of aircraft, the flight number, its current altitude, ground speed, distance to destination, and times of departure and estimated arrival. The data supporting the HawkEye System is a direct data feed obtained from the FAA's Air Traffic Control computer system. U. S. Postal Service Since 1986, Kitty Hawk has managed Christmas season charters for the U.S. Postal Service utilizing third-party air freight carriers in order to provide additional lift capacity for this peak period. The U.S. Postal Service awards contracts periodically pursuant to a public bidding process that considers quality of service and other factors. Bids for contracts to provide these Christmas season charters generally are submitted in the summer of each year and are typically awarded during the following fall. Of the Company's total revenues during the Transition Period, the U.S. Postal Service accounted for $26.2 million (43.7%). Of these revenues, $23.3 million (88.9%) were attributable to the Company's air logistics business in connection with its management of seasonal Christmas charters flown by third-party air cargo carriers, and $2.9 million (11.1%) were attributable to the air freight carrier for ACMI contract charters flown by the Company on designated routes. Of the Company's gross profits from air logistics during the Transition Period, the U.S. Postal Service accounted for $4.4 million (77.7%). 5 6 Relationship With GM Under the terms of its agreement with GM (the "GM Agreement"), the Company's air logistics business is encouraged to utilize the air freight carrier but is prohibited from (i) placing with the Company's air freight carrier in excess of 30% of the total number of air charters arranged for GM in any calendar year and (ii) placing with the Company's air freight carrier charters producing revenue in excess of 30% of the total revenue derived from air charters arranged for GM in any calendar year. During the Transition Period, the Company's air freight carrier flew 115 on-demand charters (or 5.4% of total charters arranged for GM by the Company's air logistics business) resulting in $1.3 million of revenues to the Company (or 13.1% of the total revenues derived by the Company from GM). The GM Agreement does not provide for automatic fuel price adjustments. The term of the GM Agreement extends through May 1997 and thereafter from month-to-month until terminated by thirty days' written notice. The GM Agreement, however, stipulates that in the event of an irreconcilable difference, either party may, with or without cause, terminate the agreement following a quarterly review meeting by giving the other party at least 30 days' prior written notice thereof. Furthermore, GM may terminate the GM Agreement on ten days' written notice if there is a change in (i) management of Kitty Hawk Charters, Inc., the Company's wholly-owned subsidiary, through which the Company's air logistics business is conducted, or (ii) the stock ownership of the Company such that (a) Mr. Christopher no longer holds a majority of the outstanding Common Stock of the Company or (b) a major automobile manufacturer acquires more than 20% of the outstanding Common Stock of the Company, unless such changes are communicated to GM at least 60 days prior to the effective date and GM concurs with the changes. Of the Company's total revenues during the Transition Period, GM accounted for $9.8 million (16.3%). Of the revenues from GM, $8.5 million (86.9%) were attributable to air logistics primarily in connection with on-demand charters flown by third-party air cargo carriers, and $1.3 million (13.1%) were attributable to on-demand charters flown by the Company's air freight carrier. Of the Company's gross profits from air logistics during the Transition Period, GM accounted for $573,000 (10.2%). GM accounted for 47.3% of the total number of on-demand charters that were flown by the air freight carrier during the Transition Period. In addition to revenues derived from GM, the Company believes approximately 12.1% of its total revenues during the Transition Period were generated from services provided to other participants in the U.S. automotive industry, a substantial portion of which the Company believes were GM suppliers. SEASONALITY Certain customers of the Company engage in seasonal businesses, especially the U.S. Postal Service, GM, and other customers in the automotive industry. As a result, Kitty Hawk's air logistics business has historically experienced its highest quarterly revenues and profitability during the fourth quarter of the calendar year due to the peak Christmas season activity of the U.S. Postal Service and during the period from June 1 to November 30 when production schedules of the automotive industry typically increase. Consequently, the Company experiences its lowest quarterly revenue and profitability during the first quarter of the calendar year. The following table reflects certain selected quarterly operating results, which have not been audited or reviewed, for each quarter since the fiscal quarter ended August 31, 1994. The information has been prepared on the same basis as the audited Consolidated Financial Statements appearing elsewhere in this Form 10-K and includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the information shown. The Company's results vary significantly from quarter to quarter and the operating results for any quarter are not necessarily indicative of the results that may be expected for any future period. 6 7
FISCAL QUARTER ENDED -------------------------------------------------------------------------------- NOVEMBER 30, FEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30, FEBRUARY 29, 1994 1995 1995 1995 1995 1996 ------------ ------------ ------- ---------- ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenues........... $29,593 $31,743 $16,835 $25,539 $36,045 $48,577 Gross profit............. 5,210 6,290 2,310 4,368 5,936 8,190 Operating income......... 3,310 3,912 660 1,463 3,564 2,447 Net income (loss)........ 1,960 2,298 192 (34) 1,956 1,273 Net income (loss) per share................... $ 0.25 $ 0.29 $ 0.02 $ (0.01) $ 0.25 $ 0.16 FISCAL QUARTER ENDED ONE MONTH ----------------------------------- ENDED MAY 31, AUGUST 31, NOVEMBER 30, DECEMBER 31, 1996 1996 1996 1996 ------- ---------- ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Total revenues........... $22,504 $35,289 $25,414 $34,571 Gross profit............. 3,265 6,124 5,118 7,287 Operating income......... 897 2,126 2,851 5,867 Net income (loss)........ 182 698 1,632 3,662 Net income (loss) per share................... $ 0.02 $ 0.09 $ 0.18 $ 0.35
EMPLOYEES At March 24, 1997, Kitty Hawk employed approximately 306 full-time personnel. GOVERNMENT REGULATION The Company's air freight carrier is subject to Title 49 of the United States Code (formerly the Federal Aviation Act of 1958, as amended), under which the DOT and the FAA exercise regulatory authority over air carriers. The DOT is primarily responsible for regulating economic issues affecting air service, including, among other things, air carrier certification and fitness, insurance, consumer protection, unfair methods of competition, and transportation of hazardous materials. The FAA is primarily responsible for regulating air safety and flight operations, including, among other things, airworthiness requirements for each type of aircraft the Company's air freight carrier operates, pilot and crew certification, aircraft maintenance and operational standards, noise abatement, airport slots, and other safety-related factors. In addition, the Company's air freight carrier is subject to regulation by various other federal, state, local and foreign authorities, including the Department of Defense and the Environmental Protection Agency. The Company's operations are subject to routine, and periodically more intensive, inspections and oversight by the FAA. Following a review of safety procedures at ValuJet, Inc., the FAA adopted changes to the FAA's and air carriers' oversight of contract maintenance and training procedures. The Company believes it is currently in compliance with such changes. The FAA has proposed amendments to its flight and rest time regulations which, if adopted as proposed, could restrict the ability of the Company to respond to a shipper's request for same day delivery and/or would require the Company to hire and train additional qualified pilots to perform the Company's flight operations. The adoption of new laws, policies, or regulations or changes in the interpretation or application of existing laws, policies, or regulations, whether by the FAA, the DOT, the United States government, or any foreign, state, or local government, could have a material adverse impact on Kitty Hawk and its operations. The Company's revenue fleet is comprised of fifteen Boeing 727-200 aircraft manufactured between 1969 and 1978, five Douglas DC9-15F aircraft manufactured during 1967 and 1968, and eight turbo-prop Convairs manufactured between 1948 and 1957. Manufacturer's Service Bulletins ("Service Bulletins") and FAA Airworthiness Directives ("Directives") issued under the FAA's "Aging Aircraft" program or issued on an ad hoc basis cause certain of these aircraft to be subject to extensive aircraft examinations and require certain of these aircraft to undergo structural inspections and modifications to address problems of corrosion and structural fatigue at specified times. It is possible that additional Service Bulletins or Directives applicable to the types of aircraft included in the Company's fleet could be issued in the future. The cost of compliance with such Directives and Service Bulletins cannot currently be estimated, but could be substantial. Airline operators must comply with FAA noise standard regulations primarily promulgated under the Airport Noise and Capacity Act of 1990 (the "Noise Regulations"). The Noise Regulations affect the Company's five Douglas DC9-15Fs and its fifteen Boeing 727-200s (the "Jet Fleet"). Nine of the aircraft in the Jet Fleet are currently in compliance with Stage III noise control standards. By the following deadlines, the Company must bring the Jet Fleet into Stage III compliance to the extent indicated: January 1, 1999, 75%; and January 1, 2000, 100%. Certain airport operations have adopted local regulations which, among other things, impose curfews and other noise abatement requirements. 7 8 In December 1996, the Company amended its agreement with its supplier of noise abatement equipment for Boeing 727-200 aircraft to increase the number of hushkits it has firmly committed to purchase and to establish fixed prices. In connection with this amendment, the Company paid the vendor an additional $350,000 in deposits on seven future, firm orders that will cost the Company between $13 and $17.5 million, depending on the type selected. The DOT and the FAA have the authority to modify, amend, suspend, or revoke the authority and licenses issued to the Company for failure to comply with the provisions of law or applicable regulation. In addition, the DOT and the FAA may impose civil or criminal penalties for violations of applicable rules and regulations. Such actions by the FAA or the DOT, if taken, could have a material adverse effect on Kitty Hawk. The DOT exercises regulatory jurisdiction over the transportation of hazardous materials. The Company may from time to time transport articles that are subject to these regulations. Shippers of hazardous materials share responsibility for compliance with these regulations and are responsible for proper packaging and labeling. Substantial civil monetary penalties can be imposed on both shippers and air carriers for infractions of these regulations. Certain of the Company's air freight carrier operations are conducted wholly between two or more points that are all located outside of the United States. As with the certificates and license obtained from U.S. authorities, the Company must comply with all applicable rules and regulations imposed by these foreign aeronautical authorities or be subject to the suspension, amendment or modification of its operating authorities. On March 7, 1997, a 6.25% federal transportation excise tax applicable to air freight transportation was reinstated through September 30, 1997. Reinstatement of the tax by the government will result in higher costs to shippers of air freight and air freight carriers, which may have a material adverse effect on freight traffic, yields, revenue, and margins. The Company has been advised by the FAA that it is reexamining the supplemental type certificates previously issued to certain companies approving main deck cargo door and interior modifications to Boeing 727-200 passenger category aircraft of the type operated by the Company. The Company's Boeing 727-200 aircraft all have been modified in reliance upon the FAA's prior approval of these cargo-related modifications. As a result of the reexamination, the FAA will likely require structural changes to the previously installed modifications which may be costly to perform and require significant aircraft down time. Before such changes can be completed, the FAA will likely impose operating limitations on the Boeing 727-200 aircraft which will reduce the effective payload of the Company's Boeing 727-200 aircraft which could have a material adverse effect on Kitty Hawk and its operations. Under current federal aviation law, the Company's air freight carrier could cease to be eligible to operate as an air freight carrier if more than 25% of the voting stock of the Company were owned or controlled by non-U.S. citizens. Moreover, in order to hold an air freight carrier certificate, the president and two-thirds of the directors and officers of an air carrier must be U.S. citizens. All of the Company's directors and officers are U.S. citizens. Furthermore, (i) the Certificate of Incorporation limits the aggregate voting power of non-U.S. persons to 22 1/2% of the votes voting on or consenting to any matter and (ii) the Bylaws do not permit non-U.S. citizens to serve as directors or officers of the Company. INSURANCE The Company is vulnerable to potential losses which may be incurred in the event of an aircraft accident. Any such accident could involve not only repair or replacement of a damaged aircraft and its consequent temporary or permanent loss from service, but also potential claims involving injury to persons or property. The Company is required by the DOT to carry liability insurance on each of its aircraft, and each of the Company's aircraft leases and ACMI contracts also requires the Company to carry such insurance. Any extended interruption of the Company's operations due to the loss of an aircraft could have a material adverse effect on the Company. The Company currently maintains public liability and property damage insurance and aircraft liability insurance for each of the aircraft in the revenue fleet in amounts consistent with industry standards. All-risk aircraft hull insurance is maintained for all aircraft in the revenue fleet other than the 8 9 Convairs. The Company maintains baggage and cargo liability insurance if not provided by its customers under ACMI contracts. Although the Company believes that its insurance coverage is adequate, there can be no assurance that the amount of such coverage will not be changed upon renewal or that the Company will not be forced to bear substantial losses from accidents. Substantial claims resulting from an accident could have a material adverse effect on the Company's financial condition and could affect the ability of the Company to obtain insurance in the future. The Company attempts to monitor the amount of liability insurance maintained by the third-party carriers utilized in its air logistics business through, among other things, the obtaining of certificates of insurance. COMPETITION The market for air freight carrier services has been and is expected to remain highly competitive. Kitty Hawk competes with other air freight carriers with regard to furnishing on-demand charters and ACMI contract charters. The Company believes that the basis for such competition is price, quality of service, and the location and performance characteristics of aircraft. The Company's air freight carrier is also subject to competition from other modes of transportation including, but not limited to, railroads and trucking. Numerous competitors of Kitty Hawk provide or coordinate door-to-door air freight charters on an expedited basis. The market for air logistics also has been and is expected to remain highly competitive. The Company's principal competitors for on-demand air logistics services are other air logistics companies, air freight carriers which seek to book charters directly with customers, and air freight companies that offer expedited service. Each of Emery Worldwide, FedEx, and the United Parcel Service compete in the expedited freight business by offering "next-flight-out" service. The Company's ability to attract and retain business also is affected by the decisions of the transportation departments of commercial and industrial businesses whether, and to what extent, to coordinate their own transportation needs. Prior to 1990, GM conducted its air logistics business in-house. GM and certain other customers maintain transportation departments that could be expanded to manage charters in-house which could have a material adverse effect on Kitty Hawk. With respect to the Company's ACMI contract charter business, the Company could be adversely affected by the decision of certain of its certificated customers to acquire additional aircraft, or by its uncertificated customers to acquire and operate their own aircraft, to service routes currently serviced by Company aircraft. Many of the Company's competitors and customers have substantially greater financial resources than the Company. ITEM 2. PROPERTIES Kitty Hawk occupies a 40,000 square foot facility (the "Facility") located at Dallas/Fort Worth International Airport. The Facility includes administrative offices, maintenance work areas, and hangar and parts storage facilities as well as flight operations and training facilities. In February 1997, the Company purchased the lease to the Facility from the sublessor for approximately $1.76 million. The lease expires on December 31, 2007. See "Item 11. Executive Compensation -- Compensation Committee Interlocks and Insider Participation." In addition, the Company maintains an approximately 20,000 square foot secondary maintenance facility located in Ypsilanti, Michigan comprised of a maintenance work area, hangar and an area for the storage of certain aircraft repair parts and maintenance items. Additionally, Kitty Hawk rents small parts storage spaces at a number of origin airports and apartments in various locations for flight crew layovers. ITEM 3. LEGAL PROCEEDINGS ANET Litigation The U.S. Postal Service selected the Company's air freight carrier in September 1992 as the successful bidder on a contract for a multi-city network of air transportation services supporting the U.S. Postal Service's Express Mail system. Another air freight carrier (the "Co-Bidder") was associated with the Company in the 9 10 successful bid (the "ANET bid"). Two unsuccessful bidders, including Emery Worldwide Airlines, Inc. ("Emery") (the incumbent), sued to enjoin the award. This litigation (the "ANET litigation") was settled in April 1993 by agreements under which the U.S. Postal Service terminated the Company's contract for convenience and awarded the contract to Emery. In lieu of damages for the contract's termination, the U.S. Postal Service paid $10.0 million into an escrow account to be divided between the Company and the Co-Bidder. Also under the settlement, Emery delivered releases of the Company's contractual obligations to purchase more than $40 million in aircraft and equipment, paid $2.7 million into the escrow account, and agreed to pay $162,500 into the escrow each quarter for up to 10 years so long as the Emery contract remained in effect. Before settling the ANET litigation, the Company, Mr. Christopher, the Co-Bidder and the Co-Bidder's stockholder agreed, among other things, to hold the escrowed funds in escrow until they had agreed upon an allocation and distribution, or until the matter was resolved by binding arbitration. Subsequent disagreements led to litigation and arbitration among the Company, Mr. Christopher, the Co-Bidder and the Co-Bidder's stockholder that were resolved pursuant to a comprehensive settlement reached in August 1994. Under the comprehensive settlement, the Company received approximately $3.5 million in cash from the escrowed funds, and obtained a Boeing 727-200. Also under the comprehensive settlement agreement, Mr. Christopher received rights to one-half of any future contingent quarterly payments from Emery. Qui Tam Litigation In March 1995, the Company was served with a complaint filed on behalf of the U.S. government by a third-party plaintiff seeking to share a recovery under the Federal False Claims Act (the "False Claims Act"). The suit, filed in May 1994 in the federal District Court for the District of Columbia, was filed under seal in accordance with the False Claims Act, to enable the U.S. Government to review the claim before its disclosure to the defendants. The U.S. Government declined to pursue the claim, but the third-party plaintiff chose to continue. The suit claimed that the Company and the Co-Bidder fraudulently failed to disclose to the U.S. Postal Service, both in the ANET bid and in the settlement of the ANET litigation, that some of the aircraft the Company proposed to purchase and use to perform the contract were aging aircraft with high use, and claimed that the Company, the Co-Bidder and Emery similarly fraudulently conspired in connection with the settlement of the ANET litigation. The suit sought to recover treble the $10 million settlement payment made by the U.S. Postal Service in settling the ANET litigation, plus the third-party plaintiff's costs and fees. In May 1996, the court granted the Company its motion to dismiss the suit and awarded the Company its attorneys' fees and costs. The plaintiff has asked the court to reconsider its ruling. The Company does not expect the outcome to have a material adverse effect upon the Company's financial condition or results of operations. Litigation about Charter Agreement The Company filed suit in the 14th Judicial District Court of Dallas County, Texas against Express One International, Inc. ("Express One") in July 1992 claiming under a one-year aircraft charter by Express One to the Company that Express One breached its obligations and seeking actual damages of approximately $60,000. Express One counterclaimed that the Company wrongfully repudiated the charter and fraudulently induced Express One to provide services not required by the charter. Express One claimed damages of $356,718 for services allegedly performed, $1,140,000 for additional fees it would have received under the charter, an unspecified amount of punitive damages, and additional amounts for its attorneys' fees and costs. In February 1995, a jury verdict awarded the Company $25,000 in damages plus its attorneys' fees and denied Express One's counterclaims. In May 1995, the court entered judgment in favor of the Company for $25,000 in damages, for $148,115 in attorneys' fees through trial, and for additional attorneys' fees if Express One appealed. Before the time for appeal expired, Express One filed a petition under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Eastern District of Texas (Sherman Division). The Company filed its claim based on the judgment in the bankruptcy proceeding. In November 1995, Express 10 11 One filed an appeal, to which the Company responded. Kitty Hawk does not expect the outcome to have a material adverse effect upon the Company's financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On September 3, 1996, the Company held its 1996 Annual Meeting of Stockholders. The only matter voted on at this meeting was the re-election of two persons, Mr. Richard R. Wadsworth and Mr. Lewis S. White, as Class 2 directors to serve as members of the Company's Board of Directors for terms of three years ending at the 1999 Annual Meeting of Stockholders, or until their successors are duly elected and qualified. With respect to each nominee, 7,750,000 shares were voted for such nominee and no shares were voted against or withheld. There were no abstentions or broker non-votes. Each Class 1 and 3 director continued as a member of the Company's Board of Directors after the meeting. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the Nasdaq National Market under the symbol "KTTY". The range of high and low bid information for the Company's Common Stock during the three months ended November 30, 1996 and the one month ended December 31, 1996 is as follows:
HIGH LOW ------ ------ Three Months Ended November 30, 1996(1)..................... $14.75 $10.00 One Month Ended December 31, 1996........................... 13.50 8.00
- --------------- (1) Does not include the period prior to the Offering. At April 4, 1997, the Company had approximately 1,827 holders of record and beneficial owners of the Company's Common Stock. The Company's policy has been to reinvest earnings to fund future growth. Accordingly, the Company has not paid dividends and does not anticipate declaring dividends on its Common Stock in the foreseeable future. In addition, the terms of the Company's Credit Agreement ("Credit Agreement") with Wells Fargo Bank, National Association and Bank One, Texas, N.A. restrict Kitty Hawk's ability to declare and pay dividends to its stockholders during any fiscal year to an amount not to exceed 25% of the Company's net income during the immediately preceding fiscal year. The Company granted certain unregistered options to Mr. Tilmon J. Reeves and Mr. Wadsworth in October 1994. All such options were issued in connection with employment or consulting services rendered pursuant to Rule 701 and/or Section 4(2) of the Securities Act of 1933, as amended (the "Act"). Both stock options were canceled on June 12, 1996. See "Item 11. Executive Compensation." The Company granted certain unregistered options to Messrs. Reeves and Wadsworth in December 1995 and June 1996, respectively. All such options were issued in connection with employment or consulting services rendered pursuant to Rule 701 and/or Section 4(2) of the Act, as amended. Both stock options were exercised at an exercise price of $0.01 per share on June 26, 1996. The unregistered Common Stock issued upon exercise of such options was issued to Messrs. Reeves and Wadsworth pursuant to Rule 701, Section 4(2) and/or Section 3(a)(9) of the Act. See "Item 11. Executive Compensation." 11 12 ITEM 6. SELECTED FINANCIAL DATA SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA) The following table sets forth selected financial and operating data with respect to Kitty Hawk for each of the fiscal years indicated and for the four months ended December 31, 1995 and December 31, 1996. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements, including the Notes thereto, appearing elsewhere in this Form 10-K. The selected income statement and balance sheet data as of and for each of the fiscal years ended August 31, 1992 through 1996 and for the four months ended December 31, 1996 has been derived from audited consolidated financial statements of the Company. Operating results for the four months ended December 31, 1996 are not necessarily indicative of results that may be expected for a calendar year. In the opinion of management of the Company, the selected income statement and balance sheet data presented as of and for the four months ended December 31, 1995, which are derived from the Company's unaudited consolidated financial statements, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial position and results of operations for such period.
FOUR MONTHS ENDED FISCAL YEAR ENDED AUGUST 31, DECEMBER 31, ------------------------------------------------------ ---------------------- 1992 1993 1994 1995 1996 1995 1996 ------- ------- -------- -------- -------- ----------- ------- (UNAUDITED) INCOME STATEMENT DATA: Revenues: Air freight carrier............. $ 6,760 $12,939 $ 28,285 $ 41,117 $ 52,922 $17,994 $20,577 Air logistics................... 45,893 52,840 79,415 62,593 89,493 51,734 39,408 ------- ------- -------- -------- -------- ------- ------- Total revenues.................... 52,653 65,779 107,700 103,710 142,415 69,728 59,985 Total costs of revenues........... 48,465 55,201 92,951 85,532 118,900 57,682 47,580 ------- ------- -------- -------- -------- ------- ------- Gross profit...................... 4,188 10,578 14,749 18,178 23,515 12,046 12,405 General and administrative expenses........................ 2,930 4,394 6,013 7,832 9,080 2,862 2,725 Non-qualified profit sharing expense......................... -- 250 732 1,001 1,170 889 962 Stock option grants to executives...................... -- -- -- -- 4,231(1) -- -- ------- ------- -------- -------- -------- ------- ------- Operating income.................. 1,258 5,934 8,004 9,345 9,034 8,295 8,718 Interest expense.................. (157) (134) (343) (1,185) (1,859) (482) (684) Contract settlement income, net(2).......................... -- 725 1,178 -- -- -- -- Loss on asset disposal............ -- -- -- -- (589) -- -- Other income (expense)............ 287 193 (432) (601) 291 38 626 ------- ------- -------- -------- -------- ------- ------- Income before income taxes........ 1,388 6,718 8,407 7,559 6,877 7,851 8,660 Income taxes...................... 375 2,613 3,146 3,143 2,768 3,097 3,367 ------- ------- -------- -------- -------- ------- ------- Net income........................ $ 1,013 $ 4,105 $ 5,261 $ 4,416 $ 4,109(1) $ 4,754 $ 5,293 ======= ======= ======== ======== ======== ======= ======= Net income per share.............. $ 0.12 $ 0.52 $ 0.66 $ 0.55 $ 0.52(1) $ 0.60 $ 0.55 ======= ======= ======== ======== ======== ======= ======= Weighted average common and common equivalent shares outstanding... 8,671 7,968 7,968 7,968 7,928 7,968 9,610 OPERATING DATA: Air Freight Carrier Revenue Fleet (at end of period)....................... 11 10 15 21 22 21 26 Flight hours flown(3)........... 3,567 7,030 11,795 15,183 20,237 6,320 7,670 Number of on-demand charters flown......................... 292 752 1,182 1,238 1,448 827 243 Number of ACMI contract charters flown......................... 655 1,314 1,734 2,601 3,493 1,002 1,488 Air Logistics Number of on-demand charters managed(4).................... 8,708 9,748 16,713 14,198 16,043 9,356 4,185 BALANCE SHEET DATA (IN THOUSANDS): Working capital................... $ 895 $ 4,679 $ 4,223 $ 1,747 $ (6,962)(5) $12,722 $33,519 Total assets...................... 9,874 18,598 37,911 47,954 79,828 80,109 123,027 Long-term debt, including current maturities...................... 2,367 976 9,145 16,981 36,912 21,695 24,768 Stockholders' equity.............. 3,184 7,289 12,550 16,966 23,639 21,721 58,292
12 13 - --------------- (1) Results for fiscal year ended August 31, 1996, lack comparability to prior periods because such period includes nonrecurring grants to two executive officers of stock options that resulted in a charge to earnings of approximately $4,231,000. Had these grants of stock options not occurred, net income for fiscal year ended August 31, 1996 would have been approximately $6,637,000 and net income per share would have been $0.84. See "Item 11. Executive Compensation." (2) Reflects sums received in settlement of litigation. See "Item 3. Legal Proceedings -- ANET litigation" and Note 5 of Notes to Consolidated Financial Statements. (3) As reported by the Company to the FAA. (4) Includes on-demand charters flown by the Company's air freight carrier. (5) Working capital includes a $10 million Revolving Credit Facility classified as a current liability that has subsequently been repaid. 13 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW General On December 4, 1996, the Company changed its fiscal year end from August 31 to December 31. The following discussion is of the Company's financial condition and results of operations (i) for the four months ended December 31, 1995 and December 31, 1996, and (ii) for the fiscal years ended 1994, 1995, 1996. Revenues. The Company's revenues are derived from two related businesses: (i) air freight carrier and (ii) air logistics. Air freight carrier revenues are derived substantially from ACMI contract and on-demand charters flown with Company aircraft. Air logistics revenues are derived substantially from on-demand air freight charters arranged by Kitty Hawk for its customers utilizing the flight services of third-party air freight carriers. With respect to on-demand charters that are arranged by the Company and flown by its air freight carrier, charges to the customer for air transportation are accounted for as air freight carrier revenues and charges for ground handling and transportation are accounted for as air logistics revenues. GM and the U.S. Postal Service have accounted for a substantial majority of the Company's revenues for the last three fiscal years and the Transition Period. A contract with GM for on-demand charters produced revenues of $67.9 million, $48.9 million, $58.4 million, and $9.8 million in fiscal years 1994, 1995, and 1996 and the Transition Period, respectively, which represented 63.1%, 47.1%, 41.0%, and 16.3% of the Company's total revenues for such periods. Of the revenues derived from GM for fiscal years 1994, 1995, and 1996 and the Transition Period, 15.4%, 20.8%, 20.2%, and 13.1%, respectively, were attributable to the air freight carrier and 84.6%, 79.2%, 79.8%, and 86.9%, respectively, were attributable to air logistics. Revenues derived from GM for fiscal years 1994, 1995, and 1996 and the Transition Period constituted 36.9%, 24.7%, 22.3%, and 6.2%, respectively, of the revenues derived from the air freight carrier business and 72.4%, 61.9%, 52.1%, and 21.6%, respectively, of the revenues derived from the air logistics business. Of the Company's gross profits from air logistics in fiscal years 1994, 1995, and 1996 and the Transition Period, GM accounted for $3.0 million (50.4%), $1.4 million (27.1%), $3.5 million (37.3%), and $573,000 (10.2%), respectively. The U.S. Postal Service accounted for revenues of $11.1 million, $10.0 million, 21.3 million, and $26.2 million in fiscal years 1994, 1995, and 1996 and the Transition Period, respectively, which represented 10.3%, 9.7%, 14.9%, and 43.7%, respectively, of the Company's total revenues for such periods. Of the revenues derived from the U.S. Postal Service for fiscal years 1994, 1995, and 1996 and the Transition Period, 74.5%, 59.6%, 92.5%, and 88.9%, respectively, were attributable to air logistics for seasonal Christmas charters flown by third-party air freight carriers and 25.5%, 40.4%, 7.5%, and 11.1%, respectively, were attributable to the air freight carrier for ACMI contract charters. Revenues derived from the U.S. Postal Service for fiscal years 1994, 1995, and 1996 and the Transition Period, constituted 10.0%, 9.9%, 3.0%, and 14.1%, respectively, of the revenues derived from the air freight carrier business and 10.4%, 9.6%, 22.0%, and 59.1%, respectively, of the revenues derived from the air logistics business. Of the Company's gross profits from air logistics in fiscal years 1994, 1995, and 1996 and the Transition Period, the U.S. Postal Service accounted for $2.0 million (33.8%), $1.0 million (18.9%), $3.8 million (40.6%), and $4.4 million (77.7%), respectively. Burlington accounted for revenues of $15.6 million and $7.1 million in fiscal year 1996 and the Transition Period, respectively, which represented 10.9% and 11.9%, respectively, of the total revenues for such period and constituted 28.5% and 33.8%, respectively, of the revenues derived from the air freight carrier business and 0.6% and 0.4%, respectively, of the revenues derived from the air logistics business. Of these revenues, 96.8% and 97.7%, respectively, were attributable to the air freight carrier for ACMI contract charters and 3.2% and 2.3%, respectively, were attributable to air logistics. Costs of Revenues. The principal components of the costs of revenues attributable to the air freight carrier consist of the costs for the maintenance and operation of its aircraft including the salaries of pilots and maintenance personnel, charges for fuel, insurance and maintenance, and depreciation of engines and airframes. Generally, charges for fuel are only applicable for the on-demand charters flown by the air freight carrier because fuel for the ACMI contract charters is generally provided by the customer or billed to them on 14 15 a direct pass-through basis. The principal components of the costs of revenues attributable to air logistics consist of sub-charter costs paid to third-party air freight carriers and costs paid for ground handling and transportation. With respect to on-demand charters that are flown by the air freight carrier, all related air transportation expenses are allocated to the air freight carrier and all related cargo ground handling and transportation expenses are allocated to air logistics. Under an earlier version of the Kitty Hawk, Inc. Amended and Restated Annual Incentive Compensation Plan, the Company awarded semiannual cash bonuses to its employees. The aggregate amount of the bonuses for each of fiscal years 1994, 1995, and 1996 and the Transition Period, have equaled 8.0%, 11.7%, 9.5%, and 10.0%, respectively, of the Company's income before the deduction of income taxes, stock option grants to executives and the bonuses that were paid under the Kitty Hawk, Inc. Amended and Restated Annual Incentive Compensation Plan. Significant Events Affecting Comparability of Results of Operations. Since September 1, 1993, several events have affected the comparability of results of operations for each of the last three fiscal years. In fiscal year 1996, the Company granted Messrs. Reeves and Wadsworth options to purchase 390,707 and 153,567 shares of Common Stock, respectively, for an exercise price of $0.01 per share, that resulted in a charge to earnings of approximately $4,231,000. In fiscal year 1995, the Company expensed approximately $727,000 relating to the Company's attempted initial public offering. In fiscal year 1994, contract settlement income amounted to approximately $1,178,000. See Note 5 of Notes to Consolidated Financial Statements. Recent Developments. Due to strikes and labor disruptions at certain GM plants during the Transition Period, there was a decrease in the number of charters flown by the Company's air logistics business. These strikes and labor disruptions have been settled as of December 31, 1996. RESULTS OF OPERATIONS The following table sets forth, on a comparative basis for the periods indicated, the components of the Company's gross profit (in thousands) and the gross profit margin by revenue type:
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% ======= ===== ======= ===== ======= =====
FOUR MONTHS ENDED DECEMBER 31, ------------------------------------ 1995 1996 ---------------- ---------------- (UNAUDITED) Air freight carrier: Revenues.............................................. $17,995 100.0% $20,577 100.0% Costs of revenues..................................... 11,685 64.9 13,784 67.0 ------- ----- ------- ----- Gross profit.......................................... $ 6,309 35.1% $ 6,793 33.0% ======= ===== ======= ===== Air logistics: Revenues.............................................. $51,733 100.0% $39,408 100.0% Costs of revenues..................................... 45,997 88.9 33,795 85.8 ------- ----- ------- ----- Gross profit.......................................... $ 5,736 11.1% $ 5,613 14.2% ======= ===== ======= =====
15 16 The following table presents, for the periods indicated, consolidated income statement data expressed as a percentage of total revenues:
FISCAL YEAR ENDED FOUR MONTHS ENDED AUGUST 31, DECEMBER 31, ----------------------- -------------------- 1994 1995 1996 1995 1996 ----- ----- ----- ----------- ----- (UNAUDITED) Revenues: Air freight carrier.......................... 26.3% 39.6% 37.2% 25.8% 34.3% Air logistics................................ 73.7 60.4 62.8 74.2 65.7 ----- ----- ----- ----- ----- Total revenues................................. 100.0 100.0 100.0 100.0 100.0 Total costs of revenues........................ 86.3 82.5 83.5 82.7 79.3 ----- ----- ----- ----- ----- Gross profit................................... 13.7 17.5 16.5 17.3 20.7 General and administrative expenses............ 5.6 7.6 6.4 4.1 4.5 Non-qualified profit sharing expense........... 0.7 0.9 .8 1.3 1.6 Stock option grants to executives.............. -- -- 3.0 -- -- ----- ----- ----- ----- ----- Operating income............................... 7.4 9.0 6.3 11.9 14.6 Interest expense............................... (0.3) (1.1) (1.3) (0.7) (1.2) Contract settlement income, net................ 1.1 -- -- -- -- Loss on asset disposal......................... -- -- (0.4) -- -- Other income (expense)......................... (0.4) (0.6) 0.2 0.1 1.0 ----- ----- ----- ----- ----- Income before income taxes..................... 7.8 7.3 4.8 11.3 14.4 Income taxes................................... 2.9 3.0 1.9 4.4 5.6 ----- ----- ----- ----- ----- Net income..................................... 4.9% 4.3% 2.9% 6.9% 8.8% ===== ===== ===== ===== =====
FOUR MONTHS ENDED DECEMBER 31, 1996 COMPARED TO FOUR MONTHS ENDED DECEMBER 31, 1995 Revenues -- Air Freight Carrier. Air freight carrier on-demand and ACMI contract charter revenues were $3.0 million and $16.9 million, or 14.5% and 82.3%, respectively, of total air freight carrier revenues for the four months ended December 31, 1996, as compared to $7.8 million and $9.2 million, or 43.2% and 51.3%, respectively, for the four months ended December 31, 1995. ACMI contract charter revenues for the four months ended December 31, 1996, increased 83.7% over the four months ended December 31, 1995, primarily as the result of additional Boeing 727-200 ACMI contract charters. Revenues from on-demand charters flown by Company aircraft for the four months ended December 31, 1996 decreased 61.6% from the comparable prior year period primarily as the result of shifting the air freight carrier's aircraft being used for on demand charters to ACMI contract charters. For the four months ended December 31, 1996, as compared to the four months ended December 31, 1995, prices for the Company's on-demand and ACMI contract charters remained relatively constant. Revenues -- Air Logistics. Air logistics revenues decreased $12.3 million, or 23.8%, to $39.4 million in the four months ended December 31, 1996, from $51.7 million in the four months ended December 31, 1995. This decrease was primarily due to decreased demand for on demand charters from the automobile industry in the fourth quarter of calendar year 1996 and is partially offset by an increase in the number of managed charters for the U.S. Postal Service during December 1996. For the four months ended December 31, 1996, as compared to the four months ended December 31, 1995, prices for the Company's air logistics services remained relatively constant. Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of revenues increased $2.1 million, or 18.0%, to $13.8 million in the four months ended December 31, 1996, from $11.7 million in the four months ended December 31, 1995, reflecting the increased volume of business from Boeing 727-200 ACMI contract charters. Gross profit margin from the air freight carrier decreased to 33.0% in the four months ended December 31, 1996, from 35.1% in the comparable prior year period. This decrease reflects the increase in ACMI contract charters, which produce lower gross margins than on-demand charters. 16 17 As reported to the FAA, overall aircraft utilization increased to 7,670 flight hours for the four months ended December 31, 1996, from 6,320 in the four months ended December 31, 1995, a 21.4% increase. This increase was primarily due to the increased hours flown for ACMI contract charters. Costs of Revenues -- Air Logistics. Air logistics costs of revenues decreased $12.2 million, or 26.5%, to $33.8 million in the four months ended December 31, 1996, from $46.0 million in the four months ended December 31, 1995, reflecting the decreased volume of business. The gross profit margin from air logistics increased to 14.2% in the four months ended December 31, 1996, from 11.1% in the comparable prior year period, an increase of 27.9%. This increase was primarily due to the Company's additional revenues and increased gross profit margin from the Company's U.S. Postal Service Christmas contract in December 1996, and its success in reducing its costs paid to third-party air freight carriers and ground service providers. General and Administrative Expenses. General and administrative expenses decreased $137,000, or 4.8%, to $2.7 million in the four months ended December 31, 1996, from $2.9 million in the four months ended December 31, 1995. This decrease was primarily due to a reduction of professional fees and bank charges in the four months ended December 31, 1996. As a percentage of total revenues, general and administrative expenses increased to 4.5% in the four months ended December 31, 1996, from 4.1% in the four months ended December 31, 1995. Non-qualified Employee Profit Sharing Expense. Employee profit sharing expense increased $73,000, or 8.2%, to $962,000 in the four months ended December 31, 1996, from $889,000 in the four months ended December 31, 1995, reflecting the increased profitability from operating activities of Kitty Hawk in the four months ended December 31, 1996. Operating Income. Operating income increased $423,000, or 5.1%, to $8.7 million in the four months ended December 31, 1996, from $8.3 million in the four months ended December 31, 1995. Operating income margin increased to 14.6% from 11.9%, for the four months ended December 31, 1996 and 1995, respectively. Interest Expense. Interest expense increased to $684,000 for the four months ended December 31, 1996 from $482,000 in the four months ended December 31, 1995, a 42.0% increase. The increase was primarily the result of the incurrence of additional long-term debt to finance the acquisition of Boeing 727-200 aircraft subsequent to December 31, 1995. Other Income (Expense). Other income increased to $626,000 in the four months ended December 31, 1996, from $38,000 in the comparable prior year period. The increase was primarily due to the temporary investment of the net proceeds of the Offering. Income Taxes. Income taxes as a percentage of income before income taxes decreased to 38.9% for the four months ended December 31, 1996, from 39.4% for the comparable prior year period. The decrease was primarily due to decreased state income taxes. Net Income. As a result of the above, net income increased to $5.3 million in the four months ended December 31, 1996, from $4.8 million in the four months ended December 31, 1995, a 11.3% increase. Net income as a percentage of total revenues increased to 8.8% in the four months ended December 31, 1996, from 6.9% in the comparable prior year period. FISCAL YEAR ENDED AUGUST 31, 1996 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1995 Revenues -- Air Freight Carrier. Air freight carrier on-demand and ACMI contract charter revenues were $20.7 million and $30.1 million, or 39.2% and 56.8%, respectively, of total air freight carrier revenues for fiscal year 1996, as compared to $18.1 million and $20.9 million, or 44.2% and 50.8%, respectively, for fiscal year 1995. ACMI contract charter revenues for fiscal year 1996, increased 44.0% over fiscal year 1995, primarily as the result of additional Boeing 727-200 ACMI contract charters. Revenues from on-demand charters flown by Company aircraft for fiscal year 1996 increased 14.0% from the comparable prior year period. For fiscal year 1996, as compared to fiscal year 1995, prices for the Company's on-demand and ACMI contract charters remained relatively constant. 17 18 Revenues -- Air Logistics. Air logistics revenues increased $26.9 million, or 43.0%, to $89.5 million in fiscal year 1996, from $62.6 million in fiscal year 1995. This increase was primarily due to increased demand for on demand charters from the automobile industry in the fourth quarter of calendar year 1995 and a substantial increase in the number of managed charters for the U.S. Postal Service during December 1995. For fiscal year 1996, as compared to fiscal year 1995, prices for the Company's air logistics services remained relatively constant. Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of revenues increased $10.7 million, or 37.9%, to $38.8 million in fiscal year 1996, from $28.1 million in fiscal year 1995, reflecting the increased volume of business from Boeing 727-200 ACMI contract charters. Gross profit margin from the air freight carrier decreased to 26.8% in fiscal year 1996, from 31.6% in the comparable prior year period. This decrease reflects the increase in ACMI contract charters, which produce lower gross margins than on-demand charters. As reported to the FAA, overall aircraft utilization increased to 20,237 flight hours for fiscal year 1996, from 15,183 in fiscal year 1995, a 33.3% increase. This increase was primarily due to the increased hours flown for ACMI contract charters. Costs of Revenues -- Air Logistics. Air logistics costs of revenues increased $22.7 million, or 39.5%, to $80.1 million in fiscal year 1996, from $57.4 million in fiscal year 1995, reflecting the increased volume of business. The gross profit margin from air logistics increased to 10.5% in fiscal year 1996, from 8.3% in the comparable prior year period, a 26.5% increase. This increase was primarily due to the Company's success in reducing its costs paid to third-party air freight carriers and ground service providers and increased gross profit margin from the Company's U.S. Postal Service Christmas contract in December 1995. General and Administrative Expenses. General and administrative expenses increased $1.2 million, or 15.9%, to $9.1 million in fiscal year 1996, from $7.8 million in fiscal year 1995. This increase was primarily due to an increase in support functions and administrative costs associated with the growth in the aircraft fleet and the increased revenue volume for the air freight carrier in fiscal year 1996. As a percentage of total revenues, general and administrative expenses decreased to 6.4% in fiscal year 1996, from 7.6% in fiscal year 1995. Non-qualified Employee Profit Sharing Expense. Employee profit sharing expense increased $169,000, or 16.9%, to $1.2 million in fiscal year 1996, from $1.0 million in fiscal year 1995, reflecting the increased profitability from operating activities of Kitty Hawk in fiscal year 1996. Stock Option Grants to Executives. During fiscal year 1996, the Company granted two executive officers options to purchase 544,274 shares of Common Stock that resulted in a charge to earnings of approximately $4,231,000. Operating Income. Operating income decreased $311,000, or 3.3%, to $9.0 million in fiscal year 1996, from $9.3 million in fiscal year 1995. Operating income margin decreased to 6.3% from 9.0%, for fiscal year 1996 and 1995, respectively. Interest Expense. Interest expense increased to $1.9 million for fiscal year 1996 from $1.2 million in fiscal year 1995, a 56.9% increase. The increase was primarily the result of the incurrence of additional long-term debt to finance the acquisition of two Boeing 727-200 aircraft in the second half of fiscal year 1995 and two additional Boeing 727-200 aircraft in fiscal year 1996. Loss on Asset Disposal. Loss on asset disposal for fiscal year 1996 was $589,000, which resulted from write-downs associated with equipment dispositions. There were no losses on asset disposal in fiscal year 1995. Other Income (Expense). Other income increased to $291,000 in fiscal year 1996, from an expense of $601,000 in the comparable prior year period. The increase was primarily due to the write-off of costs associated with the Company's attempted initial public offering in fiscal year 1995 and increased interest income in fiscal year 1996. Income Taxes. Income taxes as a percentage of income before income taxes decreased to 40.3% for fiscal year 1996, from 41.6% for the comparable prior year period. The decrease was primarily due to decreased state income taxes. 18 19 Net Income. As a result of the above, net income decreased to $4.1 million in fiscal year 1996, from $4.4 million in fiscal year 1995, a 7.0% decrease. Net income as a percentage of total revenues decreased to 2.9% in fiscal year 1996, from 4.3% in the comparable prior year period. FISCAL YEAR ENDED AUGUST 31, 1995 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1994 Revenues -- Air Freight Carrier. Air freight carrier on-demand and ACMI contract charter revenues were $18.1 million and $20.9 million, or 44.2% and 50.8%, respectively, of total air freight carrier revenues for fiscal year 1995, as compared to $15.4 million and $10.6 million, or 54.5% and 37.4%, respectively, for fiscal year 1994. The increase in on-demand and ACMI contract charter revenues for fiscal year 1995 over fiscal year 1994, was 17.9% and 97.1%, respectively. These increases were primarily the result of additional Boeing 727-200 ACMI contract charters and increased on-demand charters flown by the Company's jet aircraft. For fiscal year 1995 as compared to fiscal year 1994, prices for the Company's ACMI contract charter services and U.S. Postal Service Christmas contracts remained relatively constant. Revenues -- Air Logistics. Air logistics revenues decreased $16.8 million, or 21.2%, to $62.6 million in fiscal year 1995 from $79.4 million in fiscal year 1994 primarily due to the substantial decline in volume of on-demand charters for the automobile industry in the first half of calendar 1995 as compared to the same period in 1994. This decline was primarily the result of the temporary decision by GM to significantly reduce use of expedited transportation, including Kitty Hawk's air logistics services, as part of a cost containment initiative. Prices for the Company's on-demand charters decreased slightly due to a revenue rate reduction in the GM Agreement which took effect on May 1, 1994. Costs of Revenues -- Air Freight Carrier. Air freight carrier costs of revenues increased $8.6 million, or 43.8%, to $28.1 million in fiscal year 1995 from $19.5 million in fiscal year 1994, reflecting the increased volume of business from ACMI contract and on-demand charters flown by the Company's jet aircraft. Gross profit margin from the air freight carrier increased slightly to 31.6% in fiscal year 1995 from 30.9% in fiscal year 1994, a 2.3% increase. As reported to the FAA, overall aircraft utilization increased to 15,183 flight hours for fiscal year 1995 from 11,795 flight hours in fiscal year 1994, a 28.7% increase. This increase was primarily the result of the inclusion of an additional four Boeing 727-200s, and two Douglas DC9-15F aircraft into the Company's operations during fiscal year 1995. Costs of Revenues -- Air Logistics. Air logistics costs of revenues decreased $16.0 million, or 21.8%, to $57.4 million in fiscal year 1995 from $73.4 million in fiscal year 1994, reflecting the decrease in the volume of business. The gross profit margin from air logistics increased to 8.3% in fiscal year 1995 from 7.6% in fiscal year 1994, a 9.2% increase. This increase was primarily due to the Company's success in reducing its costs paid to third party air freight carriers and ground service providers in the second half of fiscal year 1995. General and Administrative Expenses. General and administrative expenses increased $1.8 million, or 30.3%, to $7.8 million in fiscal year 1995 from $6.0 million in fiscal year 1994. As a percentage of total revenues, general and administrative expenses increased to 7.6% in fiscal year 1995 from 5.6% in fiscal year 1994. This increase was primarily due to an increase in support functions and number of personnel associated with the growth in the aircraft fleet and the revenue volume for the air freight carrier in fiscal year 1995. Non-qualified Employee Profit Sharing Expense. Employee profit sharing expense increased to $1.0 million in fiscal year 1995 from $732,000 in fiscal year 1994, a 36.8% increase, reflecting the increased profitability from operating activities of Kitty Hawk in fiscal year 1995. Operating Income. Operating income increased $1.3 million, or 16.8%, to $9.3 million in fiscal year 1995 from $8.0 million in fiscal year 1994. Operating income margin increased to 9.0% from 7.4% for fiscal year 1995 and 1994, respectively. Interest Expense. Interest expense increased to $1.2 million for fiscal year 1995 from $343,000 in fiscal year 1994, a 246.0% increase. The increase was primarily the result of the incurrence of additional long-term debt to finance the acquisition of two Boeing 727-200 aircraft in the second half of fiscal year 1994 and two Douglas DC9-15F aircraft and two Boeing 727-200 aircraft in fiscal year 1995. 19 20 Other Income (Expense). Other expense increased to $601,000 in fiscal year 1995 from $432,000 in fiscal year 1994, a 39.1% increase. This increase was primarily due to the write off of costs associated with the Company's attempted initial public offering. Income Taxes. Income taxes as a percentage of income before income taxes increased to 41.6% for fiscal year 1995 from 37.4% in fiscal year 1994. The increase was primarily due to higher state income taxes. Net Income. As a result of the above, net income decreased to $4.4 million for fiscal year 1995 from $5.3 million in fiscal year 1994, a 16.0% decrease. Net income as a percentage of total revenues was 4.3% in fiscal year 1995 compared to 4.9% for fiscal year 1994. LIQUIDITY AND CAPITAL RESOURCES In October 1996, the Company sold in an initial public offering 2,700,000 shares of Common Stock, raising net proceeds of approximately $29.3 million to purchase and modify to cargo configuration five Boeing 727-200 aircraft. The Company's capital requirements are primarily for the acquisition and modification of aircraft and working capital. In addition, Kitty Hawk has, and will continue to have, capital requirements for the requisite periodic and major overhaul maintenance checks for its air freight carrier fleet. The Company's funding of its capital requirements historically has been from a combination of internally generated funds and bank borrowings. In addition, the Company has leased aircraft and entered into a sale leaseback for aircraft acquisition and may do so in the future. Cash used in operating activities was $5.0 million and $373,000 in the four months ended December 31, 1995 and December 31, 1996, respectively. At the end of the four months ended December 31, 1995 and December 31, 1996, the Company had working capital of $12.7 million and $33.6 million, respectively. On August 14, 1996 Kitty Hawk entered into a Credit Agreement with Wells Fargo Bank (Texas), National Association ("WFB"), and Bank One, Texas, N.A. ("BOT") for a $15 million Revolving Credit Loans Facility (the "Revolving Credit Facility"), and a $10 million Term Loan Facility (the "Term Loan") (collectively, the "Commitments"). As of March 28, 1997 approximately $2.65 million was outstanding under the Revolving Credit Facility and $2.2 million was outstanding under the Term Loan. Borrowings under these Commitments bear interest at WFB's prime rate or, at Kitty Hawk's option, a Eurodollar rate plus 1.5% to 2.0% based upon a debt-to-cash flow ratio of Kitty Hawk. Under the Credit Agreement, $10.0 million of proceeds of the Revolving Credit Facility are restricted to use from time to time for interim financing of up to $6.5 million per aircraft for aircraft acquisitions by the Company; the remaining $5 million of the Revolving Credit Facility may be used for general corporate purposes, including interim financing for acquired aircraft that exceeds the limits that apply to the restricted portion. The Term Loan must be used to finance the purchase of one DC9-15F hushkit and up to seven major maintenance checks for jet aircraft. The Revolving Credit Facility expires on December 31, 1998. Any advance under the portion of the Revolving Credit Facility that is restricted to interim financing for aircraft acquisition must be repaid in full within 150 days of first advance for the acquired aircraft. All advances under the Term Loan must be made by April 29, 1998. The Term Loan matures on March 31, 2003. The Commitments are cross-collateralized and are secured by certain aircraft owned by the Company, all aircraft acquired with advances under the restricted portion of the Revolving Credit Facility while those advances are outstanding, certain leases of aircraft and engines, accounts, chattel paper, general intangibles and other personal property. The Credit Agreement prohibits (i) the redemption or repurchase of the Company's securities, (ii) the payment of dividends to Kitty Hawk's stockholders in an amount over 25% of the Company's net income of the immediately preceding fiscal year, (iii) certain investments, acquisitions of stock, acquisitions of assets to the extent that the business acquired is not in the present lines of business of the Company, and other business combinations, and (iv) certain transactions with affiliates. In addition, the Credit Agreement prohibits the Company from incurring any additional indebtedness, liabilities or obligations other than debt incurred 20 21 (a) with the prior written consent of WFB or BOT or (b) in the ordinary course of business not to exceed $25 million. The Credit Agreement also contains certain other covenants, including limitations on the ability of the Company to change its lines of business. If a "Change of Control" occurs, WFB and BOT may accelerate or terminate the Commitments. "Change of Control" includes (a) the failure of Kitty Hawk to own all of the outstanding stock of certain of its subsidiaries, (b) Mr. Christopher failing to own at least 51% of the outstanding stock of Kitty Hawk, (c) Mr. Christopher ceasing to be Chief Executive Officer of Kitty Hawk or active in the management of the Company, or (d) if, after the consummation of a public offering, any person (or two or more persons acting as a group) acquiring beneficial ownership of 25% or more of the outstanding shares of Common Stock. During the Transition Period, these restrictions and prohibitions did not have a material impact on the Company's ability to meet its cash obligations and the Company does not believe that the restrictions under the Credit Agreement will have any such impact in the future. In addition, the Company has a loan with 1st Source Bank. As of March 24, 1997, the outstanding balance of this loan was approximately $900,000. The loan bears interest at 9.75%, is secured by a DC9-15F and matures in May 2000. The 1st Source loan contains certain aircraft maintenance covenants Company's business is an event of default upon which 1st Source Bank may declare all or any part of the remaining unpaid principal due and payable. In November 1996, in connection with the Company's recent acquisition of a one-third undivided interest in four Falcon 20 jet aircraft, the Company and the two other co-owners of such aircraft entered into a five year, $4.3 million term loan. The loan bears interest at a floating prime rate, is secured by the four Falcon 20 jet aircraft and requires monthly payments of principal and interest. The Company's liability under such loan is limited to $2.0 million. See "Item 11. Executive Compensation -- Compensation Committee Interlocks and Insider Participation." Capital expenditures were $13.9 million, $17.9 million, $33.5 million, and $13.8 million for fiscal years 1994, 1995 and 1996 and the Transition Period, respectively. Capital expenditures for the Transition Period were primarily for the purchase of: (i) one Boeing 727-200 aircraft, (ii) cargo and noise abatement modifications for two Boeing 727-200 aircraft, (iii) one used JT8D-7 jet engine, (iv) various equipment and (v) leasehold improvements to a Boeing 727-200 aircraft. The $33.5 million in capital expenditures for fiscal year 1996 were primarily for the purchase of: (i) five Boeing 727-200 aircraft and the cargo and noise abatement modification of four of these aircraft and (ii) six used JT8D-7/-9 jet engines. The $17.9 million in capital expenditures for fiscal year 1995 were due primarily to the purchase of: (i) two Boeing 727-200 aircraft and their cargo modification, (ii) three JT8D15 jet engines for installation on one of the Boeing 727-200 aircraft, (iii) two Douglas DC9-15F aircraft in cargo configuration, (iv) noise abatement equipment with respect to one of the Douglas DC9-15F aircraft, (v) five used/overhauled Rolls Royce Dart Convair engines, (vi) two used JT8D7/-9 jet engines, (vii) a Westwind 1124 jet aircraft to be used for corporate purposes only, and (viii) the cargo modification of one Boeing 727-200 aircraft acquired at the end of fiscal year 1994. The $13.9 million in capital expenditures for fiscal year 1994 were primarily for the purchase of: (i) two Boeing 727- 200 aircraft and the cargo modification of these aircraft, (ii) two Douglas DC9-15F aircraft in cargo configuration, (iii) three Convair 600/640 turbo-prop aircraft, and (iv) ground handling equipment. The acquisitions of all of the Boeing 727-200 aircraft and subsequent cargo conversions, the Douglas DC9-15F aircraft and the JT8D-15 engines in the past three years were financed by bank borrowings and internally generated funds, except for one Boeing 727-200 aircraft received in the settlement of the ANET litigation described in "Item 3. Legal Proceedings." All other capital acquisitions were financed from internally generated funds. Kitty Hawk anticipates modifying to cargo configuration three of four recently purchased Boeing 727-200s (including modifying two of these Boeing 727-200s with noise abatement equipment for approximately $4.9 million) for an aggregate capital expenditure of approximately $10.0 million in fiscal year 1997. The Company further believes the $4.9 million amount for noise abatement modifications proposed for fiscal year 1997 for two of four recently purchased aircraft, together with an additional $1.4 million to modify currently owned aircraft with noise abatement equipment during fiscal 1997, represents the total capital expenditures 21 22 that would currently be necessary to comply with the requirements of existing applicable environmental regulations for such fiscal year. In fiscal year 1998, the Company anticipates an aggregate capital expenditure ranging from $9.0 million to $11.0 million for noise abatement modifications to aircraft currently owned or proposed to be purchased. In the event the Company acquires more aircraft than currently proposed, the Company's anticipated aggregate capital expenditure for noise abatement modifications in fiscal year 1998 could materially increase. See "Item 1. Business -- Government Regulation." The Company historically has followed, and currently intends to follow, a policy of retiring Convairs at the time of their next scheduled major overhaul maintenance checks rather than expending the amounts necessary for such checks. In February 1997, the Company acquired the lease to the Facility for approximately $1.76 million. See "Item 2. Properties" and "Item 11. Executive Compensation -- Compensation Committee Interlocks and Insider Participation." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is submitted as a separate section of this Form 10-K. See Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers and directors of the Company, their ages, and positions are as follows:
NAME AGE POSITION WITH COMPANY ---- --- --------------------- M. Tom Christopher(1)...................... 50 Chairman of the Board of Directors and Chief Executive Officer Tilmon J. Reeves........................... 57 President, Chief Operating Officer, and Director Richard R. Wadsworth....................... 50 Senior Vice President -- Finance, Chief Financial Officer, Secretary, and Director Ted J. Coonfield(2)........................ 48 Director James R. Craig............................. 58 Director Robert F. Grammer(1)....................... 61 Director Lewis S. White(1)(2)....................... 57 Director
- --------------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. The Board of Directors consists of seven members, including four independent directors. Executive officers are elected by the Board of Directors and serve at its discretion. M. TOM CHRISTOPHER has served as Chairman of the Board of Directors and Chief Executive Officer of the Company since its inception in 1985, and serves in the class of directors whose terms expire at the 1997 annual meeting of stockholders. Prior to assuming these positions, he formed and managed Kitty Hawk Charters, Inc. He has over 20 years of experience in the air freight industry, including serving as an account manager for Burlington Northern Airfreight from 1976 to 1978. TILMON J. REEVES has served as President and Chief Operating Officer of the Company since May 1993 and has over 30 years of aviation experience. Prior to assuming his current positions, he served as Vice 22 23 President of the Company's air freight carrier from March 1992 to May 1993. Prior to joining Kitty Hawk, Mr. Reeves served as Vice President (Sales) of Express One from April 1991 to March 1992. Mr. Reeves served as the Managing Director -- Cargo Services for American Airlines, Inc. from March 1989 to January 1991. Mr. Reeves became a director in October 1994 and serves in the class of directors whose terms expire at the 1998 annual meeting of stockholders. RICHARD R. WADSWORTH has served as Senior Vice President -- Finance since October 1992, Chief Financial Officer since September 1994, and Secretary since October 1994. Prior to his current role, he served in a consulting capacity to Kitty Hawk in the preparation of various bids for the Company's contract air freight service from December 1991 to September 1992. Mr. Wadsworth became a director in October 1994 and serves in the class of directors whose terms expire at the 1999 annual meeting of stockholders. TED J. COONFIELD became a director of the Company in October 1994 and serves in the class of directors whose terms expire at the 1998 annual meeting of stockholders. Since April 1996, Mr. Coonfield has been a consultant with Performance Consulting Group, a firm specializing in change management consulting primarily in the banking and insurance industry. From January 1993 to April 1996, Mr. Coonfield was a consultant with the Richard-Rogers Group, a consulting firm specializing in total quality issues, where he primarily engaged in consulting for firms in the transportation industry. From 1990 to December 1992, Mr. Coonfield was the Special Assistant to the Director of the Department of Human Resources for the State of Oregon. Since 1985, Mr. Coonfield has been the President of Oregon Wine Designs, Inc., a wine production and marketing firm. JAMES R. CRAIG became a director of the Company in October 1994 and serves in the class of directors whose terms expire at the 1997 annual meeting of stockholders. Mr. Craig is an attorney who has served of counsel to Burke, Wright & Keiffer, P.C. since 1990. Prior to his affiliation with Burke, Wright & Keiffer, P.C., Mr. Craig was in private law practice in Dallas since 1971, and in 1989 served as President of Whitehall Development Company, a real estate development firm, of which he is now a director. ROBERT F. GRAMMER became a director of the Company in October 1994 and serves in the class of directors whose terms expire at the 1997 annual meeting of stockholders. From 1986 to October 1993, Mr. Grammer was Chairman, President and owner of R.G. Aviation, a provider of aircraft-related services. Mr. Grammer retired from this position in October of 1993 to manage his personal investments. LEWIS S. WHITE became a director of the Company in October 1994 and serves in the class of directors whose terms expire at the 1999 annual meeting of stockholders. Since 1988, Mr. White has been President of L. S. White & Co., a firm engaged in business planning, corporate finance, acquisitions, and in business start-ups, turnarounds and restructurings. Prior to 1988, he held senior management positions with Paramount Communications Inc. and Union Carbide Corporation. Mr. White is also a director of Whitehall Corporation, a company principally involved in aircraft maintenance. SECTION 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors, executive officers and beneficial owners of more than 10% of the Common Stock to file with the Securities and Exchange Commission (the "Commission") initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Based solely upon its review of the copies of such forms received by it and its knowledge that no Form 5s were required from reporting persons, the Company believes that, except as disclosed below, all such reports were submitted on a timely basis during fiscal year 1996. In April 1997, Messrs. Coonfield and Grammer, directors of the Company, each amended his Form 3 on file with the Commission to add one transaction. 23 24 ITEM 11. EXECUTIVE COMPENSATION The table below sets forth information concerning the annual and longterm compensation for services in all capacities to Kitty Hawk for fiscal years 1994, 1995, and 1996 and during the four months ended December 31, 1996, with respect to those persons who were during the four months ended December 31, 1996 (i) the Chief Executive Officer and (ii) the other two most highly compensated executive officers of the Company (collectively, with the Chief Executive Officer, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION ------------ --------------------------------------------------- SECURITIES OTHER ANNUAL UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITIONS FISCAL 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 1996 190,000 719,419 -- -- 376,844(3) Officer 1996(5) 80,000 -- -- -- 81,250(4) Tilmon J. Reeves 1994 101,000 225,000 -- -- 2,982(6) President and Chief 1995 125,000 108,335 -- 245,708(7) 2,310(6) Operating Officer 1996 125,000 85,000 $3,726,182(8) 390,707 2,375(6) 1996(5) 41,667 15,000 -- -- -- Richard R. Wadsworth 1994 110,000 96,000 -- -- 1,675(6) Senior Vice President 1995 110,000 70,000 -- 92,140(7) 2,262(6) Finance, Chief Financial 1996 110,00 70,000 1,464,572(8) 153,567 2,375(6) Officer, and Secretary 1996(5) 36,664 15,000 -- -- 583(6)
- --------------- (1) Consists of (i) matching contributions of $2,975 to the Company's 401(k) Savings Plan for Mr. Christopher and (ii) life insurance premiums of $22,047 paid on Mr. Christopher's behalf. Does not include any contingent payments to Mr. Christopher under the ANET litigation settlement made subsequent to fiscal year 1994. These payments are contingent upon the Emery contract remaining in effect. See "Item 3. Legal Proceedings -- ANET litigation." (2) Consists of (i) contingent payments in the amount of $325,000 received by Mr. Christopher under the ANET litigation settlement during fiscal year 1995, (ii) life insurance premiums of $25,500 paid on Mr. Christopher's behalf, and (iii) matching contributions of $1,663 to the Company's 401(k) Savings Plan for Mr. Christopher. (3) Consists of (i) contingent payments in the amount of $325,000 received by Mr. Christopher under the ANET litigation settlement during fiscal year 1996, (ii) life insurance premiums of $48,397 paid on Mr. Christopher's behalf, and (iii) matching contributions of $3,447 to the Company's 401(k) Savings Plan for Mr. Christopher. (4) Consists of contingent payments received by Mr. Christopher under the ANET litigation settlement during the four months ended December 31, 1996. (5) Represents the four months ended December 31, 1996. (6) Consists of matching contributions to the Company's 401(k) Savings Plan. (7) The option covering these shares was rescinded on June 12, 1996. (8) Represents the difference between the exercise price and the fair market value of the Common Stock underlying the stock options on June 26, 1996, the date of exercise, of the stock options granted in fiscal year 1996. See "Item 11. Executive Compensation -- Stock Option Exercises." 24 25 STOCK OPTION GRANTS The following table sets forth certain information concerning options granted in fiscal year 1996 to the Company's Named Executive Officers. Messrs. Reeves and Wadsworth fully exercised these options on June 26, 1996. The Company did not grant any options to the Company's Named Executive Officers in the four months ended December 31, 1996. No options for the purchase of Common Stock are currently outstanding. The Company has no outstanding stock appreciation rights and granted no stock appreciation rights during fiscal year 1996 or the four months ended December 31, 1996. OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS --------------------------------------------------------------------------- PERCENT OF NUMBER OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO EXERCISE OR FAIR VALUE ON OPTIONS EMPLOYEES IN BASE PRICE DATE OF GRANT NAME GRANTED FISCAL YEAR ($/SH) ($/SH) EXPIRATION DATE ---- ---------- ------------ ----------- ------------- ----------------- Tilmon J. Reeves 390,707 71.8% $0.01 $7.45 December 31, 2004 Richard R. Wadsworth 153,567 28.2% $0.01 $8.63 June 12, 2005 POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM ------------------------------------ NAME 5%($) 10%($) 0%($) ---- ---------- ---------- ---------- Tilmon J. Reeves $4,511,648 $6,859,530 $2,910,665 Richard R. Wadsworth $2,054,414 $3,123,413 $1,325,732
STOCK OPTION EXERCISES The following table sets forth certain information concerning options exercised in fiscal year 1996 by certain of the Company's Named Executive Officers. Messrs. Reeves and Wadsworth fully exercised these options on June 26, 1996. No options for the purchase of Common Stock were outstanding during the four months ended December 31, 1996 and none are currently outstanding. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
SHARES ACQUIRED VALUE NAME ON EXERCISE REALIZED($) ---- --------------- ----------- 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 may receive shares of Common Stock in an amount equal to their net annual retainer (which is currently $10,000). COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to the Offering, Mr. Christopher determined executive officer compensation. Subsequent to the Offering and prior to November 6, 1996, Messrs. Grammer, Craig and Coonfield comprised the Company's Compensation Committee and determined executive officer compensation. Subsequent to November 6, 1996, Messrs. Coonfield and White comprised the Company's Compensation Committee and determined executive 25 26 officer compensation. None of the foregoing individuals serving on the Compensation Committee are or have been officers or employees of the Company or its subsidiaries. Mr. Craig, a director of the Company, is of counsel to Burke, Wright & Keiffer, P.C., counsel to the Company. During fiscal year 1996 and the four months ended December 31, 1996, the Company paid an aggregate of approximately $506,000 to Burke, Wright & Keiffer, P.C. for legal services rendered. In August 1996, the Company acquired an undivided one-third interest in two Falcon 20 jet aircraft with two co-owners (the "Co-Owners") who are unaffiliated with the Company and who each hold a one-third interest in such aircraft. An interim acquisition note in the amount of $1,700,000, covering the purchase price and necessary maintenance, was executed by Mr. Christopher and one of the Co-Owners. In November 1996, the Company and the Co-Owners each acquired an undivided one-third interest in two additional Falcon 20 jet aircraft using the proceeds of a new five-year, $4.3 million term loan that also repaid the interim loan on the first two aircraft. The Company and the Co-Owners entered into a co-ownership and contribution agreement (the "Co-Ownership Agreement") which requires the parties to contribute equally to the payment of all amounts due under the term loan, and under which the parties leased the four Falcon 20 jet aircraft to Ameristar Jet Charters, Inc. ("Ameristar"), an air carrier affiliated with one of the Co-Owners, for operation in cargo charter service. The lease calls for monthly lease payments which exceed the installments on the term loan, and requires Ameristar to maintain the aircraft and to carry appropriate hull insurance on the aircraft and liability insurance of at least $50 million combined single limit coverage, with the Company and the Co-Owners named as loss payees and additional insureds. During fiscal year 1996 and the four months ended December 31, 1996, Mr. Grammer, a director of the Company, subleased the Facility to the Company. During such period, the Company paid an aggregate of approximately $339,000 to Mr. Grammer in lease payments. In February 1997, the Company purchased the lease to the Facility from Mr. Grammer for approximately $1.76 million. The Company believes that the terms of each transaction discussed above were as favorable to Kitty Hawk as would have been obtainable from unaffiliated parties under similar circumstances. Under the terms of the settlement allocating the benefits of the ANET litigation, Mr. Christopher received rights to certain contingent future payments. EMPLOYMENT AGREEMENTS Mr. Christopher has an employment agreement with Kitty Hawk that provides for an initial annual base salary of at least $125,000 and bonuses determined by the Compensation Committee pursuant to the Company's Annual Incentive Compensation Plan and otherwise. Mr. Christopher's employment agreement contains (i) a confidentiality provision that prohibits disclosure of the Company's proprietary information and (ii) a covenant not to compete that provides upon Mr. Christopher's termination of employment with the Company for any reason, Mr. Christopher shall not engage, directly or indirectly, in the air logistics, charter brokerage, on-demand, or scheduled carriage business under an FAA Part 121 or Part 135 certificate for five years following such termination. The employment agreement may be terminated by either party with or without cause. If the employment agreement is terminated by the Company without a material breach by Mr. Christopher, he is entitled to six months of compensation at his then-current salary. Messrs. Reeves and Wadsworth have employment agreements with Kitty Hawk that provide for an initial annual base salary of at least $115,000 and $110,000, respectively, and annual bonuses determined by the Compensation Committee pursuant to the Company's Annual Incentive Compensation Plan and otherwise. These employment agreements provide that Mr. Reeves and Mr. Wadsworth are prohibited from engaging in the air logistics, charter brokerage, on-demand, or scheduled carriage business under an FAA Part 121 or Part 135 certificate for three and two years, respectively, following termination of employment. These employment agreements also contain a confidentiality provision that prohibits disclosure of the Company's proprietary information. These employment agreements may be terminated by either party thereto with or without cause. Mr. Reeves' employment agreement provides that if he is terminated by the Company without 26 27 material breach by Mr. Reeves, he shall be entitled to 100% of his then-current salary in the year following termination and 50% of such annual compensation in both the second and third year following termination and all rights under the stock options and other benefits described above. Mr. Wadsworth's employment agreement provides that if he is terminated by the Company without material breach by Mr. Wadsworth, he shall be entitled to 100% of his then-current salary in the year following termination and 50% of such annual compensation in the second and third year following termination and all rights under the stock options and other benefits described above. ITEM 12. CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information concerning the beneficial ownership of the Company's Common Stock as of April 4, 1997 (except as noted) by (i) each person known by the Company to own beneficially more than 5% of the Company's Common Stock, (ii) each director of the Company, (iii) each executive officer of the Company, and (iv) all of the directors and executive officers of the Company as a group. Except as noted, all shares shown in the table below are held with sole voting and investment power, subject to community property laws.
SHARES OWNED BENEFICIALLY -------------------- NAME AND ADDRESS NUMBER PERCENT ---------------- --------- ------- DIRECTORS AND EXECUTIVE OFFICERS: M. Tom Christopher(1)....................................... 6,673,436 63.8% Tilmon J. Reeves(1)......................................... 234,424 2.2% Richard R. Wadsworth(1)..................................... 92,140 (2) DIRECTORS: Ted J. Coonfield(1)......................................... 600 (2) James R. Craig(1)........................................... 0 (2) Robert F. Grammer(1)........................................ 2,000 (2) Lewis S. White(1)........................................... 0 (2) ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (7 PERSONS).................................................. 7,002,600 67.0% RCM Capital Management, L.L.C.(3)........................... 616,900 5.9% Four Embarcadero Center, Suite 2900 San Francisco, California 94111
- --------------- (1) The address for this stockholder is 1515 West 20th Street, Dallas/Fort Worth International Airport, Texas 75261. (2) Less than 1%. (3) Based upon a Schedule 13G filed with the Securities and Exchange Commission by such beneficial owner on February 6, 1997. RCM Capital Management, L.L.C. ("RCM Capital"), an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, holds sole dispositive power with respect to all such shares and sole voting power with respect to 525,900 of such shares. RCM Limited, L.P. ("RCM Limited") is the managing agent of RCM Capital and has beneficial ownership of such shares only to the extent it may be deemed to beneficially own such shares. RCM General Corporation is the general partner of RCM Limited and has beneficial ownership of such shares only to the extent it may be deemed to beneficially own such shares. RCM Capital is a wholly owned subsidiary of Dresdner Bank AG ("Dresdner"), an international banking organization headquartered in Frankfurt, Germany. Dresdner has beneficial ownership of such shares only to the extent it may be deemed to beneficially own such shares. 27 28 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See "Item 11. Executive Compensation -- Compensation Committee Interlocks and Insider Participation." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS -- see Index to Consolidated Financial Statements on page F-1. The following financial statements are filed as a part of this report: Report of Independent Auditors Consolidated Financial Statements: Consolidated Balance Sheets as of August 31, 1995 and 1996 and December 31, 1996 Consolidated Statements of Income for the years ended August 31, 1994, 1995 and 1996 and the four months ended December 31, 1995 (unaudited) and 1996 Consolidated Statements of Stockholders' Equity for the years ended August 31, 1994, 1995 and 1996 and the four months ended December 31, 1996 Consolidated Statements of Cash Flows for the years ended August 31, 1994, 1995 and 1996 and the four months ended December 31, 1995 (unaudited) and 1996 Notes to Consolidated Financial Statements (a)2. FINANCIAL STATEMENT SCHEDULES Schedules are omitted because they are not applicable or are not required (a)3. EXHIBITS The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Securities and Exchange Commission.
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)
28 29
EXHIBIT NO. DESCRIPTION ------- ----------- 10.7 -- Addendum No. 5 to the GM Agreement dated as of January 7, 1991 by and between the Company and GM.(2) 10.8 -- Addendum No. 6 to the GM Agreement dated as of February 4, 1991 by and between the Company and GM.(2) 10.9 -- Addendum No. 7 to the GM Agreement dated as of March 4, 1991 by and between the Company and GM.(2) 10.10 -- Revision to Appendices and to Master Agreement for Air Charter Transportation Services dated August 13, 1992 by and between the Company and GM.(2) 10.11 -- Addendum No. 5 to the GM Agreement dated as of May 1, 1994 by and between the Company and GM.(2) 10.12 -- Aircraft Charter Agreement dated as of February 9, 1994 by and between the Company and DHL Airways, Inc.(2) 10.13 -- Agreement to Furnish Three (3) CV-600 Aircraft and Air Cargo Services dated as of May 15, 1995 by and between the Company and Burlington Air Express Inc. ("Burlington").(3) 10.14 -- Agreement to Furnish Five (5) B727-200 Aircraft and Air Cargo Services dated as of March 1, 1996 by and between the Company and Burlington.(3) 10.15 -- Aircraft Operating Lease dated as of March 14, 1995 by and between Ting Hong Oceanic Enterprises Co., Ltd. ("Ting Hong") and the Company.(3) 10.16 -- Amendment and Extension of Aircraft Operating Lease dated April 24, 1996 by and between Ting Hong and the Company.(3) 10.17 -- Aircraft Operating Lease dated April 19, 1996 by and between the Company and Pacific East Asia Cargo Airlines, Inc.(3) 10.18 -- Settlement Agreement dated as of August 22, 1994 by and between the Company, Aircargo, Leasing, M. Tom Christopher, American International Airways, Inc., and Conrad Kalitta.(2) 10.19 -- Sublease Agreement dated as of March 1, 1993 by and between Robert F. Grammer and M. Tom Christopher.(2) 10.20 -- Transfer and Assignment of Sublease Agreement dated as of October 26, 1994 by and between the Company, M. Tom Christopher and Robert F. Grammer.(2) 10.2 -- Salary Continuation Agreement dated as of June 15, 1993 by and between the Company and M. Tom Christopher.(2)(4) 10.22 -- Split Dollar Insurance Agreement dated as of June 15, 1993 by and between the Company and James R. Craig.(2)(4) 10.23 -- Split Dollar Insurance Agreement dated as of June 15, 1993 by and between the Company and James R. Craig.(2)(4) 10.24 -- Kitty Hawk, Inc. Amended and Restated Omnibus Securities Plan, dated as of September 3, 1996.(3)(4) 10.25 -- Kitty Hawk, Inc. Amended and Restated Employee Stock Purchase Plan, dated as of September 3, 1996.(3)(4) 10.26 -- Kitty Hawk, Inc. Amended and Restated Annual Incentive Compensation Plan, dated as of September 3, 1996.(3)(4) 10.27 -- Kitty Hawk, Inc. 401(k) Savings Plan.(2)(4) 10.28 -- Employment Agreement dated as of October 27, 1994 by and between the Company and M. Tom Christopher.(2)(4) 10.29 -- Amended and Restated Employment Agreement dated as of June 12, 1996 by and between the Company and Richard R. Wadsworth.(3)(4) 10.30 -- Amended and Restated Employment Agreement dated as of December 31, 1995 by and between the Company and Tilmon J. Reeves.(3)(4)
29 30
EXHIBIT NO. DESCRIPTION ------- ----------- 10.31 -- Request for written consent to expand ownership without management change dated as of October 26, 1994 granted by GM.(2) 10.32 -- Request for written consent to certain disclosures of Master Agreement and contractual relationship dated as of October 26, 1994 granted by GM.(2) 10.33 -- Kavouras Customer Order Acknowledgment.(2) 10.34 -- Kavouras Meteorological Services Agreement.(2) 10.35 -- Computer Flight Plan and Weather Service Agreement dated as of June 11, 1992 by and between Aircargo and Jeppesen DataPlan, Inc.(2) 10.36 -- Purchase Agreement between Federal Express Corporation and Postal Air, Inc. (predecessor to the Company) dated as of October 22, 1992 (the "FEASI Agreement").(3) 10.37 -- Amendment No. 1 dated November 7, 1992 to the FEASI Agreement.(3) 10.38 -- Amendment No. 2 dated February 1993 to the FEASI Agreement.(3) 10.39 -- Amendment No. 3 dated June 11, 1993 to the FEASI Agreement.(3) 10.40 -- Amendment No. 4 dated May 10, 1994 to the FEASI Agreement.(3) 10.41 -- Amendment No. 5 dated September 29, 1995 to the FEASI Agreement.(3) 10.42 -- Amendment No. 6 dated December 1996 to the FEASI Agreement.(5) 10.43 -- Amended and Restated Credit Agreement, dated as of August 4, 1996, by and among the Company, Wells Fargo Bank (Texas), National Association, and Bank One, Texas, N.A.(3) 10.44 -- Aircraft Lease (N751US) between the Company and Fleet Capital Corporation ("Fleet") dated December 27, 1996.(5) 10.45 -- Aircraft Lease Agreement between the Company and Pegasus Capital Corporation dated as of November 25, 1996.(5) 10.46 -- Aircraft Lease (N750US) between the Company and Fleet dated December 27, 1996.(5) 10.47 -- Agreement for Sale of Leasehold between the Company and Robert F. Grammer dated December 6, 1996.(1) 11.1 -- Statement of Computation of Net Income per Share.(1) 21.1 -- Subsidiaries of the Registrant.(3) 23.1 -- Consent of Ernst & Young LLP.(6) 27.1 -- Financial Data Schedule.(1)
- --------------- (1) Previously filed. (2) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994, and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (Reg. No. 333-8307) dated as of October 1996, and incorporated herein by reference. (4) The exhibit is a management contract or compensatory plan or arrangement. (5) Previously filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarter ended November 30, 1996, and incorporated herein by reference. (6) Filed herewith. (b) REPORTS ON FORM 8-K The Company filed a Form 8-K dated December 17, 1996. The Form 8-K reported a change in fiscal year end (Item 8) from August 31 to December 31. 30 31 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 4th day of April, 1997. KITTY HAWK, INC. By: /s/ RICHARD R. WADSWORTH ---------------------------------- Richard R. Wadsworth Senior Vice President -- Finance, Chief Financial Officer, and Secretary 31 32 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 and December 31, 1996..................................... F-3 Consolidated Statements of Income for the years ended August 31, 1994, 1995, and 1996 and for the four months ended December 31, 1995 (unaudited) and 1996.................... F-4 Consolidated Statements of Stockholders' Equity for the years ended August 31, 1994, 1995, and 1996 and for the four months ended December 31, 1996....................... F-5 Consolidated Statements of Cash Flows for the years ended August 31, 1994, 1995, and 1996 and for the four months ended December 31, 1995 (unaudited) and 1996.............. F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 33 REPORT OF INDEPENDENT AUDITORS Stockholders Kitty Hawk, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Kitty Hawk, Inc. and subsidiaries as of August 31, 1995 and 1996 and December 31, 1996 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended August 31, 1996 and for the four months ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kitty Hawk, Inc. and subsidiaries at August 31, 1995 and 1996 and December 31, 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended August 31, 1996 and for the four months ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Dallas, Texas February 7, 1997 F-2 34 KITTY HAWK, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
AUGUST 31, AUGUST 31, DECEMBER 31, 1995 1996 1996 ----------- ------------ ------------ Current assets Cash and cash equivalents....................... $ 3,801,378 $ 5,763,904 $ 27,320,402 Trade accounts receivable....................... 12,967,734 14,195,990 37,828,018 Income tax receivable........................... -- 765,395 -- Deferred income taxes........................... 50,410 156,562 107,564 Inventory and aircraft supplies................. 98,386 1,713,812 2,789,982 Prepaid expenses and other assets............... 797,825 918,929 1,143,989 Deposits on aircraft............................ -- -- 5,438,628 ----------- ------------ ------------ Total current assets.................... 17,715,733 23,514,592 74,628,583 Property and equipment Aircraft........................................ 36,179,455 53,695,320 53,140,853 Aircraft work-in-progress....................... -- 13,476,355 6,732,878 Machinery and equipment......................... 1,425,272 1,776,319 2,680,692 Leasehold improvements.......................... -- 75,313 778,879 Furniture and fixtures.......................... 251,349 166,057 166,057 Transportation equipment........................ 176,057 236,708 289,499 ----------- ------------ ------------ 38,032,133 69,426,072 63,788,858 Less: accumulated depreciation and amortization................................. (7,794,332) (13,112,786) (15,390,015) ----------- ------------ ------------ Net property and equipment.............. 30,237,801 56,313,286 48,398,843 ----------- ------------ ------------ Total assets...................................... $47,953,534 $ 79,827,878 $123,027,426 =========== ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable................................ $ 9,327,109 $ 12,952,180 $ 8,853,292 Accrued expenses................................ 1,336,696 1,580,465 23,668,609 Income taxes payable............................ -- -- 2,526,737 Accrued maintenance reserves.................... 2,026,255 2,323,466 2,373,157 Revolving Credit Facility for aircraft acquisitions expected to be refinanced....... -- 10,000,000 -- Current maturities of long-term debt............ 3,278,553 3,620,240 3,687,888 ----------- ------------ ------------ Total current liabilities............... 15,968,613 30,476,351 41,109,683 Long-term debt.................................... 13,702,652 23,291,302 21,080,452 Deferred income taxes............................. 1,316,365 2,421,480 2,544,900 Commitments and contingencies Stockholders' equity Preferred stock, $1 par value: Authorized shares -- 1,000,000, none issued............. -- -- -- Common stock, $.01 par value: Authorized shares -- 25,000,000; issued and outstanding -- 7,423,436 and 7,967,710 at August 31, 1995 and 1996, respectively and 10,669,517 at December 31, 1996.............. 74,234 79,677 106,695 Additional paid-in capital...................... -- 4,635,524 33,968,700 Retained earnings............................... 16,891,670 20,999,846 26,293,298 Less common stock in treasury, 217,710 shares at August 31, 1996 and December 31, 1996........ -- (2,076,302) (2,076,302) ----------- ------------ ------------ Total stockholders' equity.............. 16,965,904 23,638,745 58,292,391 ----------- ------------ ------------ Total liabilities and stockholders' equity........ $47,953,534 $ 79,827,878 $123,027,426 =========== ============ ============
See accompanying notes. F-3 35 KITTY HAWK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED AUGUST 31, FOUR MONTHS ENDED DECEMBER 31, -------------------------------------------- ------------------------------ 1994 1995 1996 1995 1996 ------------ ------------ ------------ ------------- ------------- (UNAUDITED) Revenues: Air freight carrier................... $ 28,284,894 $ 41,117,564 $ 52,921,762 $17,994,371 $20,577,072 Air logistics......................... 79,414,952 62,592,819 89,492,974 51,733,438 39,408,484 ------------ ------------ ------------ ----------- ----------- Total revenues................ 107,699,846 103,710,383 142,414,736 69,727,809 59,985,556 ------------ ------------ ------------ ----------- ----------- Costs of revenues: Air freight carrier................... 19,549,833 28,104,280 38,760,430 11,684,882 13,784,331 Air logistics......................... 73,401,606 57,428,344 80,139,570 45,996,786 33,795,567 ------------ ------------ ------------ ----------- ----------- Total costs of revenues....... 92,951,439 85,532,624 118,900,000 57,681,668 47,579,898 ------------ ------------ ------------ ----------- ----------- Gross profit............................ 14,748,407 18,177,759 23,514,736 12,046,141 12,405,658 General and administrative expenses..... 6,012,975 7,832,167 9,079,891 2,861,518 2,724,763 Non-qualified employee profit sharing expense............................... 731,862 1,000,957 1,169,880 889,046 962,263 Stock option grants to executives....... -- -- 4,230,954 -- -- ------------ ------------ ------------ ----------- ----------- Operating income........................ 8,003,570 9,344,635 9,034,011 8,295,577 8,718,632 Other income (expense): Interest expense...................... (342,502) (1,184,921) (1,859,284) (481,670) (684,173) Contract settlement income, net....... 1,177,742 -- -- -- -- Loss on asset disposal................ -- -- (589,049) -- -- Other, net............................ (431,957) (600,667) 291,255 37,507 625,910 ------------ ------------ ------------ ----------- ----------- Income before income taxes.............. 8,406,853 7,559,047 6,876,933 7,851,414 8,660,369 Income taxes............................ 3,146,157 3,142,653 2,767,744 3,096,769 3,366,917 ------------ ------------ ------------ ----------- ----------- Net income.............................. $ 5,260,696 $ 4,416,394 $ 4,109,189 $ 4,754,645 $ 5,293,452 ============ ============ ============ =========== =========== Net income per share.................... $ 0.66 $ 0.55 $ 0.52 $ 0.60 $ 0.55 ============ ============ ============ =========== =========== Weighted average common and common equivalent shares outstanding......... 7,967,710 7,967,710 7,927,856 7,967,710 9,609,920 ============ ============ ============ =========== ===========
See accompanying notes. F-4 36 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 Shares sold in initial public offering.............................. 2,700,000 27,000 29,311,510 -- -- 29,338,510 Shares issued to employees under the Annual Incentive Compensation Plan.... 1,807 18 21,666 -- -- 21,684 Net income for the four months ended December 31, 1996..................... -- -- -- 5,293,452 -- 5,293,452 ---------- -------- ----------- ----------- ----------- ----------- Balance at December 31, 1996............ 10,669,517 $106,695 $33,968,700 $26,293,298 $(2,076,302) $58,292,391 ========== ======== =========== =========== =========== ===========
See accompanying notes. F-5 37 KITTY HAWK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOUR MONTHS ENDED YEAR ENDED AUGUST 31, DECEMBER 31, ------------------------------------------ --------------------------- 1994 1995 1996 1995 1996 ------------ ------------ ------------ ------------ ------------ (UNAUDITED) Operating activities: Net income......................... $ 5,260,696 $ 4,416,394 $ 4,109,189 $ 4,754,645 $ 5,293,452 Adjustments to reconcile net income net cash provided by operating activities: Depreciation and amortization... 1,935,348 4,095,156 6,873,033 1,681,489 3,201,903 Loss on disposal of property and equipment..................... 62,251 -- 589,049 -- -- Aircraft received in contract settlement.................... (750,000) -- -- -- -- Deferred income taxes........... (638,568) 732,795 998,963 -- 172,418 Stock option grants to executives.................... -- -- 4,230,954 -- -- Changes in operating assets and liabilities: Trade accounts receivable..... (8,036,613) 2,673,139 (1,228,256) (27,954,848) (23,632,028) Contract settlement receivable................. 3,500,000 -- -- -- -- Receivables from affiliates... (53,035) 481,297 -- -- -- Income taxes receivable....... -- -- (765,395) -- 765,395 Inventory and aircraft supplies................... (19,778) 23,285 (1,615,426) (298,872) (1,076,170) Prepaid expenses and other.... 283,342 (532,693) (121,104) (5,854,576) (5,663,688) Accounts payable and accrued expenses................... 4,063,034 (2,379,510) 3,868,840 19,622,927 17,989,256 Accrued maintenance reserves................... 379,535 1,429,886 297,211 281,184 49,691 Income taxes payable.......... 1,614,521 (1,883,898) -- 2,782,766 2,526,737 ------------ ------------ ------------ ------------ ------------ Net cash provided by (used in) operating activities............... 7,600,733 9,055,851 17,237,058 (4,985,285) (373,034) Investing activities: Proceeds from sale of assets....... -- -- -- -- 18,508,431 Capital expenditures............... (13,875,983) (17,929,106) (33,537,567) (174,697) (13,795,891) ------------ ------------ ------------ ------------ ------------ Net cash provided by (used in) investing activities............... (13,875,983) (17,929,106) (33,537,567) (174,697) 4,712,540 Financing activities: Proceeds from issuance of common stock........................... -- -- 4,430 -- 29,338,510 Proceeds from issuance of long-term debt............................ 10,916,656 9,911,240 23,117,000 5,725,000 1,500,000 Repayments of long-term debt....... (2,747,533) (2,074,970) (3,186,663) (1,011,103) (13,643,202) Acquisition of treasury shares..... -- -- (2,076,302) -- -- Shares issued under Annual Incentive Compensation Plan..... -- -- -- -- 21,684 Tax benefit of stock option grant to executives................... -- -- 404,570 -- -- ------------ ------------ ------------ ------------ ------------ Net cash provided by financing activities......................... 8,169,123 7,836,270 18,263,035 4,713,897 17,216,992 ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents................... 1,893,873 (1,036,985) 1,962,526 (446,085) 21,556,498 Cash and cash equivalents at beginning of period................ 2,944,490 4,838,363 3,801,378 3,801,378 5,763,904 ------------ ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period............................. $ 4,838,363 $ 3,801,378 $ 5,763,904 $ 3,355,293 $ 27,320,402 ============ ============ ============ ============ ============
See accompanying notes. F-6 38 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Kitty Hawk, Inc. and its subsidiaries (the "Company") provide air freight services through two related businesses: (i) an air freight carrier and (ii) an air logistics service provider, all primarily in North America. The Company provided air logistics services to one customer which accounted for approximately 63%, 47%, 41% and 16% of its total revenues in fiscal years 1994, 1995, 1996 and for the four months ended December 31, 1996, respectively. Related accounts receivable from this customer at August 31, 1995 and 1996 and December 31, 1996, were approximately $5,089,000, $4,915,000 and $2,156,000, respectively. The contract for these services is effective through May 31, 1997; however, such contract may be canceled by either party with 30 days notice. Another customer accounted for approximately 10%, 10%, 15% and 44% of the Company's total revenues in fiscal years 1994, 1995, 1996 and for the four months ended December 31, 1996, respectively. Related accounts receivable from this customer at August 31, 1995 and 1996 and December 31, 1996 were approximately $22,000, $0 and $27,086,000, respectively. The Company generally sells on open accounts with 30-day terms and does not require collateral for credit sales. On December 4, 1996, the Company elected to change its fiscal year end to December 31. Operating results for the four month period ended December 31, 1996 are not necessarily indicative of the results that may be expected for a calendar year. Operating results for the four month period ended December 31, 1995 (unaudited) include all adjustments management believes are necessary for a fair presentation. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Property and Equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line and accelerated methods over estimated useful lives ranging from three to ten years. Convair and DC-9 airframes are fully depreciated over the period remaining to the next major airframe overhaul since the Company does not expect to perform major airframe overhauls on these aircraft. Boeing 727-200 airframes are fully depreciated over an estimated useful life of ten years. Costs relating to major airframe overhauls are capitalized as incurred and amortized over the estimated number of flight hours until the next overhaul (the deferral method). No major airframe overhauls have been performed to date. With respect to aircraft engines, the useful life is the estimated number of flight hours remaining until the next required engine overhaul. Income Taxes Income taxes have been provided using the liability method in accordance with the Financial Accounting Standards Board Statement No. 109, Accounting for Income Taxes. Revenue Recognition Revenues are recognized as services are provided. F-7 39 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Net Income Per Share Net income per share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. The effect of options to purchase 390,707 and 153,567 shares of the Company's common stock at $0.01 granted to certain executives in December 1995 and June 1996, respectively, have been included in the calculation of weighted average common and common equivalent shares for the years ended August 31, 1994, 1995 and 1996. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash on hand and held in banks, money market funds, and other investments with original maturities of three months or less. Inventory Inventory consists of aircraft parts and supplies and is stated at the lower of average cost or market. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Stock-Based Compensation The Company accounts for stock-based compensation utilizing Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). Under the provisions of SFAS No. 123, the Company has elected to continue to apply the provisions of APB Opinion No. 25 to its stock-based compensation arrangements and provide supplementary financial statement disclosures as required under SFAS No. 123. Reorganization In October, 1994, Kitty Hawk, Inc. was organized as a wholly-owned subsidiary of Kitty Hawk Group, Inc. ("Group"). Group subsequently merged with Kitty Hawk, Inc. with Kitty Hawk, Inc. being the surviving entity. In connection therewith, each outstanding share of Group common stock was exchanged for 106,049 shares of Kitty Hawk, Inc. common stock. Additionally, Group stock held in treasury was retired. The accompanying consolidated financial statements present the effects of the merger on a retroactive basis. Reclassifications Certain amounts from prior years have been reclassified to conform to current year presentation. Stock Split On June 28, 1996 the Company approved a 1.2285391-for-1 stock split effected as a stock dividend. All references to common stock and per share data have been restated to give effect to the split. F-8 40 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. DEBT Long-term debt consists of the following:
AUGUST 31, AUGUST 31, DECEMBER 31, 1995 1996 1996 ----------- ----------- ------------ (1) Note payable, bearing interest at prime plus 1.75% payable in 48 monthly installments of $25,021 plus interest, with a maturity date of December 1996.................................. $ 350,291 $ 50,042 $ -- (2) Note payable, bearing interest at 9.75% payable in 18 monthly installments of interest only and 42 monthly installments of $28,212 including interest beginning December 1996, with a maturity date of May 2000; secured by a Douglas DC-9 aircraft, with a carrying value of approximately $940,000 at December 31, 1996.... 1,000,500 1,000,500 980,417 (3) Note payable, bearing interest at an adjusted Eurodollar rate plus 1.50% to 2.00% based upon a fixed charge coverage ratio of the Company (7.125% at December 31, 1996), payable in 28 quarterly installments plus interest beginning September 1996, with a maturity date of June 2003; secured by two Boeing 727-200 aircraft, with a carrying value of approximately $11,036,000 at December 31, 1996............... -- 11,225,000 10,605,923 (4) Note payable, bearing interest at an adjusted Eurodollar rate plus 1.50% to 2.00% based upon a fixed charge coverage ratio of the Company (7.125% at December 31, 1996), payable in 23 quarterly installments of $531,000 plus interest beginning September 1996, with a maturity date of June, 2002; secured by four Douglas DC-9 aircraft and four Boeing 727-200 aircraft, with a net carrying value of approximately $17,918,000 at December 31, 1996........................................... -- 12,744,000 11,682,000 (5) Note payable, bearing interest at an adjusted Eurodollar rate plus 2.25% payable in 21 quarterly installments of $153,354 plus interest, with a maturity date of September 1999. (See (4) above.)......................... 2,607,021 -- -- (6) Note payable, bearing interest at an adjusted Eurodollar rate plus 2.25% payable in 71 monthly installments of $76,891 plus interest, with a maturity date of October 2000. (See (4) above.)........................................ 4,767,245 -- -- (7) Note payable, bearing interest at an adjusted Eurodollar rate plus 2.00% payable in 72 monthly installments of $60,517 plus interest, with a maturity date of March 2001. (See (4) above.)........................................ 4,054,641 -- -- (8) Note payable, bearing interest at an adjusted Eurodollar rate plus 2.00% payable in 72 monthly installments of $59,077 plus interest, with a maturity date of July 2001. (See (4) above.)........................................ 4,201,507 -- --
F-9 41 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, AUGUST 31, DECEMBER 31, 1995 1996 1996 ----------- ----------- ------------ (9) Revolving Credit Facility for general corporate purposes....................................... -- 1,892,000 1,500,000 ----------- ----------- ----------- 16,981,205 26,911,542 24,768,340 Less current portion................................ 3,278,553 3,620,240 3,687,888 ----------- ----------- ----------- $13,702,652 $23,291,302 $21,080,452 =========== =========== ===========
Maturities of long-term debt at December 31, 1996 are as follows: 1997........................................ $ 3,687,888 1998........................................ 5,317,534 1999........................................ 3,958,056 2000........................................ 3,911,104 2001........................................ 3,900,557 Thereafter.................................. 3,993,201 ----------- $24,768,340 ===========
During August 1996, the Company entered into a new Credit Agreement (notes (3), (4) and (9) above) with a bank and refinanced a portion of the existing notes payable. Proceeds of note (4) in the amount of $12,744,000 were used to pay down the outstanding balances of the existing notes payable (notes (5), (6), (7), and (8)). The Credit Agreement subjects the Company to financial covenants, including fixed charge coverage, cash flow and leverage ratios. In addition, the Credit Agreement prohibits redemption of Company securities, certain investments outside the Company's line of business, transactions with affiliates and additional indebtedness without prior consent of the Bank. The Credit Agreement also limits the ability of the Company to change its line of business and limits the payment of dividends. At December 31, 1996 the Company has outstanding two interest rate swap agreements with the commercial bank to whom note (3) is payable, having a total notional principal amount of $11,225,000. These swap agreements effectively change the interest rate exposure on note (3) to a fixed 7.75 percent. The notional principal amounts of the interest rate swaps reduce in proportion to required principal reductions on the related note. The Company is exposed to credit loss in the event of nonperformance by the other party in the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparty. Based on a quote provided by the bank, these swap agreements could have been terminated at December 31, 1996 in exchange for a payment to the Company of $106,059. Under the Credit Agreement, the Company also has a $15 million Revolving Credit Facility available, of which $10 million is restricted for interim financing of up to $6.5 million per aircraft for aircraft acquisitions by the Company; the remaining $5 million is for general corporate purposes, including interim financing for acquired aircraft that exceeds the limits that apply to the restricted portion. Any advance under the portion that is restricted to interim financing for aircraft acquisition ($0 at December 31, 1996) must be repaid in full within 150 days of first advance for the acquired aircraft. The outstanding balance of the Revolving Credit Facility results from borrowings in connection with working capital requirements. The Revolving Credit Facility bears interest at an adjusted Eurodollar rate plus 1.50% to 2.00% based upon a fixed charge coverage ratio of the Company or at prime (8.25% at December 31, 1996). The Revolving Credit Facility expires on December 31, 1998 and $13.5 million was available to be borrowed by the Company at December 31, 1996. Under the Credit Agreement, the Company also has a $10 million facility available to finance the purchase of one DC9-15F hushkit and up to seven major maintenance checks for jet aircraft. The funds will be F-10 42 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) available to the Company until April 29, 1998, and any borrowings under this facility mature March 31, 2003. At December 31, 1996, the entire $10 million was available to the Company. At December 31, 1996, the Company had approximately $1,400,000 in standby letters of credit outstanding. All amounts outstanding under the Credit Agreement are cross-collateralized and are secured by certain aircraft owned by the Company, all aircraft acquired under the restricted portion of the Revolving Credit Facility while those advances are outstanding, certain leases of aircraft and engines, accounts, chattel paper, general intangibles, and other personal property. Based upon the variable interest rates provided for in the substantial majority of the Company's long-term debt, management believes the fair value of its long-term debt approximates its carrying value at December 31, 1996. In connection with the Company's recent acquisition of a one-third undivided interest in four Falcon 20 jet aircraft, the co-owners of the aircraft entered into a five year, $4.3 million term loan, bearing interest at a floating prime rate, which is secured by all four Falcon 20 aircraft and requires monthly payments of principal and interest. The co-owners leased the aircraft to an air carrier affiliated with one of the co-owners. The lease calls for monthly lease payments which exceed the installments on the term loan. The Company's liability under this term loan is limited to $2.0 million. The Company made cash interest payments of $280,754, $1,088,928, $1,765,523 and $664,164 during fiscal years ended 1994, 1995, 1996 and for the four months ended December 31, 1996, respectively. 3. INCOME TAXES The provision for income taxes consists of the following:
FOUR MONTHS YEAR ENDED AUGUST 31, ENDED ------------------------------------ DECEMBER 31, 1994 1995 1996 1996 ---------- ---------- ---------- ------------ Current income tax: Federal........................... $3,434,725 $1,829,723 $1,352,390 $2,768,672 State............................. 350,000 580,135 416,391 425,827 ---------- ---------- ---------- ---------- Total current income tax..................... 3,784,725 2,409,858 1,768,781 3,194,499 ---------- ---------- ---------- ---------- Deferred income tax: Federal........................... (608,460) 627,993 758,138 141,169 State............................. (30,108) 104,802 240,825 31,249 ---------- ---------- ---------- ---------- Total deferred income tax..................... (638,568) 732,795 998,963 172,418 ---------- ---------- ---------- ---------- $3,146,157 $3,142,653 $2,767,744 $3,366,917 ========== ========== ========== ==========
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:
FOUR MONTHS YEAR ENDED AUGUST 31, ENDED ------------------------------------ DECEMBER 31, 1994 1995 1996 1996 ---------- ---------- ---------- ------------ Income tax computed at statutory rate.............................. $2,858,330 $2,570,076 $2,338,157 $3,031,129 State income taxes, net of federal benefit........................... 211,129 452,058 433,763 297,928 Other, net.......................... 76,698 120,519 (4,176) 37,860 ---------- ---------- ---------- ---------- Total..................... $3,146,157 $3,142,653 $2,767,744 $3,366,917 ========== ========== ========== ==========
F-11 43 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of the net deferred tax liabilities recognized on the accompanying balance sheets are as follows:
AUGUST 31, AUGUST 31, DECEMBER 31, 1995 1996 1996 ----------- ----------- ------------ Deferred tax liabilities: Depreciation.............................. $(2,071,971) $(3,318,803) $(3,461,603) Prepaid expenses.......................... (117,440) (17,229) (66,228) ----------- ----------- ----------- Total deferred tax liabilities.... (2,189,411) (3,336,032) (3,527,831) ----------- ----------- ----------- Deferred tax assets: Nondeductible accruals.................... 167,850 173,790 173,790 Airframe reserves......................... 755,606 897,324 916,705 ----------- ----------- ----------- Total deferred tax assets......... 923,456 1,071,114 1,090,495 ----------- ----------- ----------- Net deferred tax liability.................. $(1,265,955) $(2,264,918) $(2,437,336) =========== =========== ===========
The Company made cash income tax payments of $2,170,203, $4,552,371, $2,078,673 and $571,420 during fiscal years 1994, 1995, 1996 and for the four months ended December 31, 1996, respectively. 4. COMMITMENTS The Company leases its primary office and maintenance space under a non-cancelable operating lease which expires in fiscal year 1998 from a party who, effective October 1994, became a member of the Company's Board of Directors. Rent expense under this lease was $260,970, $252,595, $254,934 and $84,305 for fiscal years 1994, 1995, 1996 and for the four months ended December 31, 1996, respectively. Under the lease agreement, the Company has the option to purchase the office facilities and the landlord's interest in the associated ground lease at any time prior to March 1, 1997 for consideration of $2,200,000 less $5,000 for each monthly rental payment made after March 1, 1993. Based upon an agreement with the lessor of the facility, the Company expects to close the purchase of the facility for approximately $1.76 million in February 1997. The Company leases its secondary maintenance space under a cancelable operating lease which expires in May 1999. The lease can be canceled by either party with 60 days notice. Rent expense under this lease was $59,853, $163,500, and $54,500 in fiscal years 1995, 1996 and for the four months ended December 31, 1996, respectively. In December 1996, the Company sold at cost two recently acquired and modified Boeing 727-200 aircraft to a third party and entered into an operating lease agreement for such aircraft commencing January 1, 1997, ending December 31, 1997, with monthly lease payments of approximately $252,000, with five successive one year renewal options. The Company has an option to purchase the aircraft at the end of each year, and guarantees to the lessor certain minimum sale values if the Company elects not to renew the lease or exercise its purchase option. The funds from the sale were partially used to pay indebtedness incurred to acquire, convert to cargo configuration, perform maintenance updates and hushkit the aircraft. In November 1996, the Company acquired a Boeing 727-200 aircraft in passenger configuration under a seven year operating lease at a monthly rate of $50,000. The aircraft is being modified to cargo configuration and is undergoing maintenance updates at the Company's cost. F-12 44 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Minimum annual rentals at December 31, 1996 are as follows: 1997............................................. $3,793,476 1998............................................. 763,500 1999............................................. 668,125 2000............................................. 600,000 2001............................................. 600,000 Thereafter....................................... 1,200,000 ---------- $7,625,101 ==========
During December 1996, the Company entered into firm purchase commitments to acquire hushkits for seven of its Boeing 727-200 aircraft for a total purchase price of up to $17,500,000. 5. CONTRACT SETTLEMENT In September 1992, the Company was awarded a contract by the United States Postal Service (the "USPS"). An unaffiliated air freight carrier (the "associated bidder") was associated with the Company in the successful bid. Prior to the commencement of the contract, competing bidders filed suit against the USPS seeking to set aside the award. In April 1993, to avoid the expense and uncertainty of continued litigation, the Company accepted a settlement. Under the settlement, the contract was terminated for convenience and re-awarded to the incumbent. Additionally, the Company received $12.7 million and the right to receive up to a total of $6.5 million over ten years in installments of $162,500 per quarter, contingent on the re-awarded contract remaining in effect. Appropriate releases were exchanged. At August 31, 1993, the Company and the associated bidder had not agreed upon the division of the settlement proceeds, which were held in escrow; but the Company reasonably estimated its share of the proceeds, exclusive of the $6.5 million to be paid in installments over ten years, to be at least $3.5 million. The Company therefore recorded the $3.5 million as a receivable and, net of contract-related expense, settlement income of $724,683 for fiscal year 1993. During fiscal year 1994, the Company and the associated bidder agreed to a division of the settlement proceeds and resolution of all their related claims. Under that agreement, the Company received from escrow approximately $3.5 million cash, obtained title to a Boeing 727-200 aircraft, independently valued and recorded by the Company at $750,000, and was relieved of $1.2 million of previously accrued transportation costs. Additionally, one-half of the contingent future quarterly installment payments were allocated to the Company's majority stockholder. As a result of this settlement, for fiscal year 1994, the Company recorded additional contract settlement income of $1,177,742, which is net of approximately $730,000 in additional settlement costs, principally legal fees. This amount also included both income and an offsetting expense of $677,239, representing the estimated fair value of the future quarterly installment payments that will be paid directly to the Company's majority stockholder. 6. LITIGATION The Company filed suit against Express One International, Inc. ("Express One") in July 1992 in Dallas County, Texas, claiming that Express One breached an aircraft charter agreement and seeking actual damages of approximately $60,000. Express One counterclaimed, asserting that the Company wrongfully repudiated the lease agreement and seeking damages of $356,718 for services performed, $1,140,000 for additional fees it would have received under the contract, punitive damages and its attorney's fees and costs. F-13 45 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In February 1995, a jury verdict in the case granted the Company $25,000 in damages plus its attorneys fees and denied Express One's claims. The court entered judgment in favor of the Company for $25,000 in damages, for $148,115 in attorneys fees through trial and for additional attorneys fees if Express One appeals. Before expiration of the time for appeal, Express One filed a petition under Chapter 11 of the U.S. Bankruptcy Code. There is a dispute about whether Express One has preserved a right to appeal and whether the judgment has become final. Therefore, the judgment awarded to the Company has not been recorded in the financial statements. The Company does not expect the outcome to have a material adverse effect upon the Company's financial condition or results of operations. The USPS selected the Company's air freight carrier in September 1992 as the successful bidder on a contract for a multi-city network of air transportation services supporting the USPS Express Mail system. Two unsuccessful bidders sued the USPS to enjoin the award. The Company intervened. This litigation (the "ANET Litigation") was settled in April 1993 by agreements under which the USPS terminated the Company's contract for convenience and awarded the contract to the incumbent contractor, Emery Worldwide Airlines, Inc. ("Emery"). In March 1995, the Company was served with a complaint in a qui tam lawsuit filed on behalf of the U.S. Government by a third-party plaintiff seeking to share a recovery under the Federal False Claims Act (the "Act"). The suit, filed in May 1994, was filed under seal in accordance with the Act, to enable the U.S. Government to review the claim before its disclosure to the defendants. The U.S. Government declined to pursue the claim, but the third-party plaintiff chose to continue. The suit claimed that the Company and another defendant fraudulently failed to disclose to the USPS, both in the Company's successful bid and in the settlement of the ANET litigation, that some of the aircraft the Company proposed to purchase and use to perform the contract were aging aircraft with high use, and claimed that the Company and Emery similarly fraudulently conspired in connection with the settlement of the ANET litigation. The suit sought to recover treble the $10 million settlement payment made by the USPS in settling the ANET litigation, plus the third party plaintiff's costs and fees. The Company moved to dismiss the suit with prejudice on grounds that it was barred by the Act. The Company also sought to recover its attorneys' fees from the plaintiff and to obtain sanctions against the plaintiff's attorneys. The Company believes the suit was clearly frivolous because, among other things, the Company in the ANET bid identified each aircraft by serial number, age, hours and cycles, and made available use and maintenance records for each aircraft as required by the request for proposal, and that the USPS reviewed and inspected the aircraft, data and records and found them acceptable. In May 1996, the court dismissed the suit and awarded the Company its attorneys' fees and costs. The plaintiff has asked the court to reconsider its ruling. The Company does not expect the outcome to have a material adverse effect upon the Company's financial condition or results of operations. Additionally, in the normal course of business, the Company is a party to matters of litigation, none of which, in the opinion of management, will have a material adverse effect on the Company's financial condition or the results of operations. 7. STOCK OPTIONS In October 1994 the Company granted non-qualified options to two executives to purchase a total of 337,848 shares of common stock at $7.81 per share. In December 1995, the Company canceled 245,708 of the options outstanding and granted to an executive a nonqualified option to purchase 390,707 shares of common stock at $0.01 per share. The new option had a term of nine years and was fully vested. In June 1996, the Company canceled the remaining 92,140 options outstanding and granted to another executive a non-qualified option to purchase 153,567 shares of common stock at $0.01 per share. The new option had a term of nine years and was fully vested. On F-14 46 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) June 26, 1996, the executives fully exercised their options. No options remain outstanding at December 31, 1996. Based on an independent appraisal commissioned by the Company, the fair value of the options of $4,230,954 is reflected as a charge to earnings in the accompanying statement of income for the year ended August 31, 1996, under APB Opinion No. 25 and represents the fair value which would have been charged under SFAS 123. Accordingly, no supplemental disclosures under SFAS No. 123 are necessary. 8. RELATED PARTY TRANSACTIONS The Company provided maintenance and other services as well as cash advances to Martinaire East, Inc. ("Martinaire"), a company in which a minority interest was owned by the Company's majority stockholder. Total sales to Martinaire for fuel and services were approximately, $235,000 and $22,000 in fiscal years 1994 and 1995, respectively. Martinaire also flies charter service for the Company. During fiscal years 1994 and 1995, Martinaire provided the Company services in the amount of approximately $982,000 and $232,000, respectively. At December 31, 1996, Martinaire is no longer considered to be a related party. 9. EMPLOYEE COMPENSATION PLANS AND ARRANGEMENTS The Company has a retirement savings plan under Section 401(k) of the Internal Revenue Code which covers substantially all employees meeting minimum service requirements. Under the plan, voluntary contributions are made by employees and the Company provides matching contributions based upon the employees' contribution. The Company incurred $80,812, $121,217, $159,967 and $56,378 in matching contributions related to this plan during fiscal years 1994, 1995, 1996 and for the four months ended December 31, 1996, respectively. The Company has adopted: - An Omnibus Securities Plan (the Plan) under which 300,000 shares of its common stock are reserved for issuance to its employees. The Plan is administered by the Company's Compensation Committee which may grant stock based and nonstock based compensation to the Plan participants. No awards have been granted under the Plan as of December 31, 1996. - An Annual Incentive Compensation Plan (the Compensation Plan) under which the Compensation Committee awards semiannual bonuses to employees of the Company. The aggregate amount of bonuses available for award is limited to 10% of the Company's income before income taxes and the bonuses to be paid under the Compensation Plan. The Company may elect to pay the full amount of the bonuses in common stock, which is limited to total stock distributions of 200,000 shares of common stock. As of December 31, 1996, 198,193 shares were available for distribution. - An Employee Stock Purchase Plan covering up to 100,000 shares of the Company's common stock. F-15 47 KITTY HAWK, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. CALENDAR YEAR INCOME STATEMENT (UNAUDITED) As described above, the Company has changed its year end to December 31. The following table presents historical information recast on a calendar quarter basis for 1996. QUARTERS FOR THE CALENDAR YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
QUARTER ENDED --------------------------------------------------- MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1996 1996 1996 1996 TOTAL --------- -------- ------------- ------------ -------- Revenues: Air freight carrier................ $10,059 $15,215 $14,341 $15,889 $ 55,504 Air logistics...................... 10,195 16,815 16,134 34,024 77,168 ------- ------- ------- ------- -------- Total revenues............. 20,254 32,030 30,475 49,913 132,672 ------- ------- ------- ------- -------- Costs of revenues: Air freight carrier................ 8,256 12,084 9,348 11,172 40,860 Air logistics...................... 9,155 15,112 14,872 28,799 67,938 ------- ------- ------- ------- -------- Total costs of revenues.... 17,411 27,196 24,220 39,971 108,798 ------- ------- ------- ------- -------- Gross profit......................... 2,843 4,834 6,255 9,942 23,874 General and administrative expenses........................... 2,271 2,301 2,305 2,066 8,943 Non-qualified employee profit sharing expense............................ (91) 58 477 796 1,240 Stock option grants to executives.... 0 4,232 (1) 0 4,231 ------- ------- ------- ------- -------- Operating income..................... 663 (1,757) 3,474 7,080 9,460 Other income (expense): Interest expense................... (520) (504) (507) (531) (2,062) Loss on asset disposal............. 0 0 (589) 0 (589) Other, net......................... 102 36 125 617 880 ------- ------- ------- ------- -------- Income before income taxes........... 245 (2,225) 2,503 7,166 7,689 Income taxes......................... 95 (927) 1,096 2,769 3,033 ------- ------- ------- ------- -------- Net income (loss).................... $ 150 $(1,298) $ 1,407 $ 4,397 $ 4,656 ======= ======= ======= ======= ======== Net income (loss) per share.......... $ 0.02 $ (0.16) $ 0.18 $ 0.43 $ 0.55 ======= ======= ======= ======= ======== Net income, adjusted for non-recurring items................ $ 150 $ 1,264 $ 2,467 $ 4,397 $ 8,278 ======= ======= ======= ======= ======== Net income per share, adjusted for non-recurring items................ $ 0.02 $ 0.16 $ 0.32 $ 0.43 $ 0.98 ======= ======= ======= ======= ======== Weighted average common and common equivalent shares outstanding...... 7,968 7,968 7,750 10,215 8,477 ======= ======= ======= ======= ========
F-16 48 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)
49
EXHIBIT NO. DESCRIPTION ------- ----------- 10.18 -- Settlement Agreement dated as of August 22, 1994 by and between the Company, Aircargo, Leasing, M. Tom Christopher, American International Airways, Inc., and Conrad Kalitta.(2) 10.19 -- Sublease Agreement dated as of March 1, 1993 by and between Robert F. Grammer and M. Tom Christopher.(2) 10.20 -- Transfer and Assignment of Sublease Agreement dated as of October 26, 1994 by and between the Company, M. Tom Christopher and Robert F. Grammer.(2) 10.2 -- Salary Continuation Agreement dated as of June 15, 1993 by and between the Company and M. Tom Christopher.(2)(4) 10.22 -- Split Dollar Insurance Agreement dated as of June 15, 1993 by and between the Company and James R. Craig.(2)(4) 10.23 -- Split Dollar Insurance Agreement dated as of June 15, 1993 by and between the Company and James R. Craig.(2)(4) 10.24 -- Kitty Hawk, Inc. Amended and Restated Omnibus Securities Plan, dated as of September 3, 1996.(3)(4) 10.25 -- Kitty Hawk, Inc. Amended and Restated Employee Stock Purchase Plan, dated as of September 3, 1996.(3)(4) 10.26 -- Kitty Hawk, Inc. Amended and Restated Annual Incentive Compensation Plan, dated as of September 3, 1996.(3)(4) 10.27 -- Kitty Hawk, Inc. 401(k) Savings Plan.(2)(4) 10.28 -- Employment Agreement dated as of October 27, 1994 by and between the Company and M. Tom Christopher.(2)(4) 10.29 -- Amended and Restated Employment Agreement dated as of June 12, 1996 by and between the Company and Richard R. Wadsworth.(3)(4) 10.30 -- Amended and Restated Employment Agreement dated as of December 31, 1995 by and between the Company and Tilmon J. Reeves.(3)(4) 10.31 -- Request for written consent to expand ownership without management change dated as of October 26, 1994 granted by GM.(2) 10.32 -- Request for written consent to certain disclosures of Master Agreement and contractual relationship dated as of October 26, 1994 granted by GM.(2) 10.33 -- Kavouras Customer Order Acknowledgment.(2) 10.34 -- Kavouras Meteorological Services Agreement.(2) 10.35 -- Computer Flight Plan and Weather Service Agreement dated as of June 11, 1992 by and between Aircargo and Jeppesen DataPlan, Inc.(2) 10.36 -- Purchase Agreement between Federal Express Corporation and Postal Air, Inc. (predecessor to the Company) dated as of October 22, 1992 (the "FEASI Agreement").(3) 10.37 -- Amendment No. 1 dated November 7, 1992 to the FEASI Agreement.(3) 10.38 -- Amendment No. 2 dated February 1993 to the FEASI Agreement.(3) 10.39 -- Amendment No. 3 dated June 11, 1993 to the FEASI Agreement.(3) 10.40 -- Amendment No. 4 dated May 10, 1994 to the FEASI Agreement.(3) 10.41 -- Amendment No. 5 dated September 29, 1995 to the FEASI Agreement.(3) 10.42 -- Amendment No. 6 dated December 1996 to the FEASI Agreement.(5)
50
EXHIBIT NO. DESCRIPTION ------- ----------- 10.43 -- Amended and Restated Credit Agreement, dated as of August 4, 1996, by and among the Company, Wells Fargo Bank (Texas), National Association, and Bank One, Texas, N.A.(3) 10.44 -- Aircraft Lease (N751US) between the Company and Fleet Capital Corporation ("Fleet") dated December 27, 1996.(5) 10.45 -- Aircraft Lease Agreement between the Company and Pegasus Capital Corporation dated as of November 25, 1996.(5) 10.46 -- Aircraft Lease (N750US) between the Company and Fleet dated December 27, 1996.(5) 10.47 -- Agreement for Sale of Leasehold between the Company and Robert F. Grammer dated December 6, 1996.(1) 11.1 -- Statement of Computation of Net Income per Share.(1) 21.1 -- Subsidiaries of the Registrant.(3) 23.1 -- Consent of Ernst & Young LLP.(6) 27.1 -- Financial Data Schedule.(1)
- --------------- (1) Previously filed. (2) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (Reg. No. 33-85698) dated as of December 1994, and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 (Reg. No. 333-8307) dated as of October 1996, and incorporated herein by reference. (4) The exhibit is a management contract or compensatory plan or arrangement. (5) Previously filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarter ended November 30, 1996, and incorporated herein by reference. (6) Filed herewith. EX-23.1 2 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-15667) pertaining to the Kitty Hawk, Inc. Amended and Restated Annual Incentive Compensation Plan and in the Registration Statement (Form S-8 No. 333-23597) pertaining to the Kitty Hawk, Inc. Amended and Restated Omnibus Securities Plan and to the use of our report dated February 7, 1997, included in the Transition Report on Form 10-K/A of Kitty Hawk, Inc. for the four months ended December 31, 1996, with respect to the consolidated financial statements, as amended, included in this Form 10-K/A. ERNST & YOUNG LLP Dallas, Texas April 7, 1997 -----END PRIVACY-ENHANCED MESSAGE-----