KHK Kitty Hawk

Kitty Hawk, Inc. (AMEX:KHK) today reported a first quarter 2005 net loss of $2.1 million, or $0.04 per diluted share, compared to a net loss of $1.8 million, or $0.04 per diluted share, for the first quarter of 2004. First quarter 2005 results were impacted by, among other things, the following items: -- $0.5 million in expense for the Company's planned induction of seven (7) new generation fuel-efficient Boeing 737-300SF cargo aircraft; and -- $0.4 million cash benefit related to the recovery of retroactive adjustments on a worker's compensation policy and $0.1 million cash benefit from the recovery of a customer accounts receivable balance, both of which related to predecessor company operations. First quarter 2004 results were impacted by, among other things, a $1.2 million charge incurred for incremental lease return expenses to meet the lease return conditions on four (4) Boeing 727-200 cargo aircraft in anticipation of their return to the lessor pursuant to the lease. Scheduled freight revenue for the first quarter of 2005 was $32.8 million, a decrease of $0.4 million or 1.1% from first quarter 2004. This year's first quarter system chargeable weight (accounting for associated oversize and special handling requirements) decreased 6.6% and average yield (revenue per unit of chargeable weight) increased 5.9% over the same period last year. The decrease in chargeable weight is due to a decrease in demand resulting from negative economic conditions for some domestic manufacturing sectors, and to a shift in customer demands towards less expensive modes of transportation which we believe is largely due to our charging our customers higher total prices as we increased our fuel surcharge to offset the rising cost of jet fuel. The decrease in chargeable weight resulting from these factors was partially offset by an increase in chargeable weight resulting from our second quarter 2004 expansion into San Juan, Puerto Rico. The increase in yield is due to an increase in fuel and security surcharges implemented to help defray the rising costs of these items as well as a revised pricing structure, all of which were partially offset by competitive pricing pressures in selected markets and a higher proportion of chargeable weight from markets with lower yields. "First quarter is typically a seasonal 'low-point' for domestic heavy-weight air cargo shipments and is characterized by excess industry capacity. To compensate, the Company reduced its planned overnight network capacity in early December 2004 and again for the first quarter 2005," said Robert W. Zoller, president and CEO. "Regardless, the Company was unable to fully anticipate both the impact of yet another rapid increase in fuel cost in late January and the resulting economic pressures within the domestic U.S. economy, especially the automotive sector. Kitty Hawk team members have made continuing progress towards managing unit costs in the face of record high fuel costs and deteriorating market conditions. In addition, during what was planned as a transition year for the Company, the negative effect from record fuel prices continues to offset positive progress in other areas." The Company has taken delivery of the first and second of its more fuel-efficient Boeing 737-300SF cargo aircraft. Kitty Hawk has completed Federal Aviation Administration (FAA) requirements for operation of the B737-300SF aircraft and one aircraft has begun scheduled revenue service. The second aircraft is expected to enter revenue service later in May. Kitty Hawk expects the remaining five (5) aircraft to be delivered and placed into revenue service during the remainder of 2005. The Company expects to incur additional Boeing 737-300SF cargo aircraft introduction-related charges, investments in inventory and lease deposits during 2005 in excess of $2.5 million. As a recognized leader in air cargo customer service, Kitty Hawk is the premier provider of guaranteed, mission-critical, scheduled overnight air freight transportation to major business centers throughout North America and Alaska, Hawaii, Toronto, Canada, San Juan, Puerto Rico and Mexico. 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 fleet of Boeing 727 cargo aircraft, its ground truck-network, as well as its 239,000 square-foot cargo warehouse, U.S. Customs clearance and sort facility at its Fort Wayne, Ind. hub. Kitty Hawk is the North American launch customer for the fuel-efficient and environmentally friendly Boeing 737-300SF cargo aircraft that will be inducted throughout 2005. Kitty Hawk's extensive air-ground cargo network and award winning, guaranteed overnight express service is ideal for heavy-weight shipments, special goods with unique dimensions, perishables, animals and other valuable shipments. 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 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," "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 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; inflation; and costs, delays and problems integrating the Boeing 737-300SF cargo aircraft into our fleet. For a discussion of these and other risk factors, see Item 7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2004. 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 Three months ended March 31, ----------------------- 2005 2004 ----------- ----------- (in thousands, except share and per share data) Revenue: Scheduled freight $32,842 $33,224 ACMI 520 -- Other/Miscellaneous 267 518 ----------- ----------- Total revenue 33,629 33,742 Cost of revenue: Flight expense 6,606 7,189 Transportation expense 2,928 2,825 Fuel expense 11,941 9,203 Maintenance expense 2,547 3,380 Freight handling expense 6,259 6,488 Depreciation and amortization 823 812 Operating overhead expense 2,949 2,655 ----------- ----------- Total cost of revenue 34,053 32,552 ----------- ----------- Gross profit (loss) (424) 1,190 General and administrative expense 2,220 2,921 ----------- ----------- Operating loss (2,644) (1,731) Other (income) expense: Interest expense 70 96 Other, net (602) (39) ----------- ----------- Net loss $(2,112) $(1,788) =========== =========== Basic loss per share $(0.04) $(0.04) =========== =========== Weighted average common shares outstanding 51,187,563 50,574,970 =========== =========== Diluted loss per share $(0.04) $(0.04) =========== =========== Weighted average diluted common shares outstanding 51,187,563 50,574,970 =========== =========== *T