KHK Kitty Hawk

Kitty Hawk, Inc. (AMEX:KHK), the parent company of Kitty Hawk Cargo, Inc., Kitty Hawk Ground, Inc. and Kitty Hawk Aircargo, Inc., today reported second quarter 2006 revenue of $45.5 million, an increase of 24.7% as compared to the $36.5 million reported for the second quarter of 2005 and a 13.4% increase over the first quarter of 2006. Kitty Hawk generated a net loss allocable to common stockholders for the second quarter of 2006 of $8.9 million, or a loss of $0.17 per diluted common share. For the second quarter of 2005, Kitty Hawk reported a net loss of $2.2 million or a loss of $0.04 per diluted common share. "During the second quarter, we continued to implement our long-term strategy to build the only seamless independent overnight air and expedited ground freight transportation network in North America, which, as we previously communicated, would require an on going investment in operations throughout 2006," said Robert W. Zoller, President and CEO. "The initial results from this effort include doubling the amount of chargeable weight carried by our network, completing the purchase of substantially all the operating assets of Air Container Transport (ACT), the West Coast's premier airport-to-airport expedited ground freight network, and substantially completing the start-up investment in our scheduled airport-to-airport expedited ground network. During this transition period, our team members continued to provide service levels to our customers that we believe are, in all standards of measurement, equal to or better than our competitors. During the second quarter, our financial performance was impacted by an aggressive competitive pricing environment, continued escalation in fuel costs and economic weakness in some key markets. We also identified improvements necessary to produce efficiencies and lower operating costs. "Under the new leadership of Steve Markhoff, Senior Vice President and Chief Operating Officer of Kitty Hawk Cargo, and Gary Jensen, Vice President and Chief Operating Officer of Kitty Hawk Ground, we are focusing on several areas where we could capture synergies and improve efficiencies, and we began implementing various actions to accomplish these goals," Mr. Zoller continued. "Working with the experienced ACT team members, we've accelerated the integration of the ACT assets we acquired and are capitalizing on operating synergies. As a result, we expect to improve our ground network operating performance. "With the expected year end implementation of new, state-of-the-art, Internet-based cargo information technology, we believe we will be positioned for solid growth," added Mr. Zoller. "During the second quarter, we launched a new specialized air cargo program for one of the nation's largest passenger carriers. We continue to pursue other strategic relationships. As a result of these developments and other ongoing initiatives, our entire organization is expecting to generate steadily improving operating performance over the long term," Mr. Zoller concluded. Scheduled freight revenue for the second quarter of 2006 was $44.3 million, an increase of $8.8 million compared to the second quarter 2005, and $4.2 million compared to the first quarter of 2006. Second quarter 2006 system chargeable weight (accounting for associated oversize and special handling requirements) increased 101.8% as compared to the second quarter of 2005, and average yield decreased 37.3% both resulting from the launch of the Company's new ground product which has significantly lower yields than the Company's expedited air products. Airport-to-airport expedited ground network revenues during the second quarter of 2006 were approximately $6.9 million. The operation of the assets acquired from ACT increased revenue for the second quarter of 2006 by approximately $1.2 million. The Company expects to expand segment reporting for the quarter ending September 30, 2006 to include our expedited ground operations. Conference Call Information Management will host a conference call on Monday, August 14, 2006 at 5:00 p.m. Eastern time to review the financial results. To access the call, dial 800-218-0713, or 303-262-2211 for international callers. To listen to the live web cast go to www.kittyhawkcompanies.com under the Investor Relations area of the web site. A replay of the conference call will be available approximately one hour after the call's conclusion and through midnight ET August 21, 2006 by dialing 800-405-2236 or 303-590-3000 for international callers and entering the pass code 11067127#. About Kitty Hawk, Inc. www.kittyhawkcompanies.com As a recognized leader in customer service, Kitty Hawk is the premier provider of guaranteed, mission-critical, scheduled overnight air and scheduled time-definite expedited ground freight transportation to major business centers and surrounding communities throughout North America, including, Alaska, Hawaii, Toronto, Canada, and San Juan, Puerto Rico. With more than 30 years experience in the aviation and air freight industries, Kitty Hawk plays a key connecting role in the global supply chain. Kitty Hawk serves the logistics needs of more than 550 freight forwarders, integrated carriers, logistics companies and major airlines with its extensive integrated air and ground network, fleet of Boeing 737-300SF and 727-200 cargo aircraft, as well as a 239,000 square-foot cargo warehouse, U.S. Customs clearance and sort facility at its Fort Wayne, Indiana hub. In 2005, Kitty Hawk became the North American launch customer for the fuel-efficient and environmentally-friendly Boeing 737-300SF cargo aircraft. Kitty Hawk's air and ground cargo networks and award-winning, guaranteed overnight time-definite service are ideal for heavy-weight shipments (over 150 lbs.), special goods with unique dimensions, perishables, animals and other valuable shipments. Statement under the Private Securities Litigation Reform Act: This report may contain forward-looking statements that are intended to be subject to the safe harbor protection provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or future financial and operating performance and involve known and unknown risks and uncertainties that may cause actual results or performance to be materially different from those indicated by any forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "forecast," "may," "will," "could," "should," "expect," "intends," "plan," "believe," "potential" or other similar words indicating future events or contingencies. Some of the things that could cause actual results to differ from expectations are: economic conditions; the impact of high fuel prices; our inability to successfully implement and operate our expanded scheduled airport-to-airport expedited ground freight network; our inability to successfully operate and integrate the Air Container Transport operation and to retain their customers; failure of key suppliers and vendors to perform; our inability to attract sufficient customers at economical prices for our expanded ground network; unforeseen increases in liquidity and working capital requirements related to our expanded ground network; potential competitive responses from other operators of nationwide airport-to-airport ground freight networks; the continued impact of terrorist attacks, global instability and potential U.S. military involvement; the Company's significant lease obligations and indebtedness; the competitive environment and other trends in the Company's industry; changes in laws and regulations; changes in the Company's operating costs including fuel; changes in the Company's business plans; interest rates and the availability of financing; liability and other claims asserted against the Company; labor disputes; the Company's ability to attract and retain qualified personnel; and inflation. For a discussion of these and other risk factors, see the Company's most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission. All of the forward-looking statements are qualified in their entirety by reference to the risk factors discussed therein. These risk factors may not be exhaustive. The Company operates in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on the Company's business or events described in any forward-looking statements. The Company disclaims any obligation to publicly update or revise any forward-looking statements after the date of this report to conform them to actual results. -0- *T KITTY HAWK, INC. AND SUBSIDIARIES STATEMENTS OF OPERATIONS (unaudited) Three months ended Six months ended June 30, June 30, ----------------------- ----------------------- 2006 2005 2006 2005 ----------- ----------- ----------- ----------- (in thousands, except share and per share data) Revenue: Scheduled freight network $44,263 $35,462 $84,350 $68,304 ACMI 930 12 930 532 Miscellaneous 275 977 275 1,244 ----------- ----------- ----------- ----------- Total revenue 45,468 36,451 85,555 70,080 Cost of revenue: Flight expense 8,189 6,675 16,757 13,281 Transportation expense 12,707 3,917 21,815 6,845 Fuel expense 14,150 13,244 27,354 25,185 Maintenance expense 3,877 2,505 7,611 5,052 Freight handling expense 8,953 6,546 16,953 12,805 Depreciation and amortization 776 1,002 1,529 1,825 Operating overhead expense 3,298 2,873 6,319 5,822 ----------- ----------- ----------- ----------- Total cost of revenue 51,950 36,762 98,338 70,815 ----------- ----------- ----------- ----------- Gross loss (6,482) (311) (12,783) (735) General and administrative expense 2,276 1,856 4,578 4,076 ----------- ----------- ----------- ----------- Operating loss (8,758) (2,167) (17,361) (4,811) Other (income) expense: Interest expense 73 73 142 143 Other, net (194) (85) (482) (687) ----------- ----------- ----------- ----------- Net loss $(8,637) $(2,155) $(17,021) $(4,267) =========== =========== =========== =========== Preferred stock dividends 296 -- 592 -- ----------- ----------- ----------- ----------- Net loss allocable to common stockholders $(8,933) $(2,155) $(17,613) $(4,267) =========== =========== =========== =========== Basic loss per share $(0.17) $(0.04) $(0.34) $(0.08) =========== =========== =========== =========== Diluted loss per share $(0.17) $(0.04) $(0.34) $(0.08) =========== =========== =========== =========== Weighted average common shares outstanding - basic 52,024,419 51,439,964 51,849,914 51,313,764 =========== =========== =========== =========== Weighted average diluted common shares outstanding - diluted 52,024,419 51,439,964 51,849,914 51,313,764 =========== =========== =========== =========== KITTY HAWK, INC. AND SUBSIDIARIES BALANCE SHEET HIGHLIGHTS (unaudited) June 30, December 31, 2006 2005 ------------ ------------ (in thousands) Cash and cash equivalents $7,165 $26,650 Total assets 50,243 56,934 Notes payable and long-term obligations 3,314 2,304 Stockholders' equity $11,906 $27,407 *T