KHK Kitty Hawk

Kitty Hawk, Inc. (AMEX:KHK) today reported third quarter 2005 gross revenues of $40.7 million, a decrease of $1.8 million, or 4.3%, from third quarter 2004 and a third quarter 2005 net loss of $0.4 million, or $0.01 loss per diluted share, compared to net income of $2.3 million, or $0.04 income per diluted share, for the third quarter of 2004. During both the third quarter of 2005 and third quarter of 2004, operating results were impacted by, among other things, $0.8 million and $0.2 million, respectively, in overhead expense for the Company's induction into service of seven newer generation fuel-efficient Boeing 737-300SF cargo aircraft. "During the third quarter, in response to customer demand, we embarked on a growth strategy that efficiently combines existing internal and external resources to expand our service offering," said Robert W. Zoller, president and CEO. "As a result, on October 31, we launched with our logistic and forwarding customers a deferred freight product with the same level of superior customer service found in the Kitty Hawk "mission-critical" air network. Initially, the Kitty Hawk team is offering a ground network serving 28 business centers in North America with coast-to-coast, scheduled, less-than-truckload (LTL) service. The new LTL service is off to an excellent start with service and delivery results matching the excellent level of our air cargo operations, and we plan to expand the service to 46 business centers during the first quarter of 2006. "Kitty Hawk's dependability, reliability and superior customer service continues to stimulate other new opportunities for strategic growth," continued Mr. Zoller. "Expanding the number of transportation service options for our current and future customers means we can more efficiently and effectively serve the logistic needs of shippers throughout North America as well as provide additional air and ground connecting options for global freight and maximize the productivity of our resources. We believe the launch of the scheduled LTL service, combined with the efficiencies of the Boeing 737-300SF aircraft, as well as other programs to improve operating efficiency and productivity, will position us over the long term for profitable growth in a high fuel cost operating environment," Mr. Zoller concluded. For the first nine months of 2005, Kitty Hawk reported gross revenues of $110.8 million, a decrease of $3.3 million, or 2.9%, from the first nine months of 2004 and a net loss for the nine months ended September 30, 2005 of $4.7 million, or $0.09 loss per diluted share, compared to net income of $1.1 million, or $0.02 income per diluted share, for the same period in 2004. Results for the nine months ended September 30, 2005 were impacted by, among other things, $1.5 million in incremental expense for the induction of the seven Boeing 737-300SF cargo aircraft, $0.4 million cash benefit related to the recovery of retroactive adjustments on a worker's compensation policy and $0.6 million cash benefit from the recovery of a customer accounts receivable balance. Results for the nine months ended September 30, 2004 also included, among other things, $1.5 million in expense during the first six months of 2004 incurred for incremental lease return expenses to meet the lease return conditions on four Boeing 727-200F cargo aircraft, an additional $0.4 million charge related to Pratt & Whitney JT8D-9A engine maintenance reserves and a $0.5 million reversal of expense in the first quarter of 2004 related to excess airframe maintenance reserves on one Boeing 727-200F cargo aircraft that completed a heavy maintenance check at a cost that was lower than expected.. Third quarter 2005 average yield (revenue per unit of chargeable weight) increased 13.4% and chargeable weight (accounting for associated oversize and special handling requirements) decreased 13.7% over the same period last year. For the nine months ended September 30, 2005, average yield increased 10.3% and chargeable weight decreased 11.7% over the same period last year on reduced capacity. The increase in average 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 introduced in January 2005, 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. Volumes for the higher-priced expedited freight were down as the effects of higher fuel prices contributed to a shift by customers to lower-priced non-expedited services. The decrease in chargeable weight for 2005 resulting from these factors was partially offset by an improvement in chargeable weight for operations in San Juan, Puerto Rico, which started during the second quarter of 2004. The Company has placed into revenue service the seventh and final of its leased, fuel-efficient Boeing 737-300SF cargo aircraft. "The successful integration of B737-300SF cargo aircraft into the Kitty Hawk Aircargo fleet during 2005 has been a major achievement for the Kitty Hawk team and a significant strategic milestone for the Company," added Mr. Zoller. Kitty Hawk, Inc. also announced today the sale of 14,800 shares of Series B Convertible Preferred Stock coupled with warrants in a private placement to accredited investors. The placement resulted in net proceeds to Kitty Hawk of approximately $14 million, which will be used to fund the Company's scheduled LTL ground freight transportation network expansion and for general corporate purposes. In addition, the Company announced the expansion of Kitty Hawk's revolving line of credit with Wells Fargo Business Credit, Inc. to $15 million from $10 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 and 737 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, Indiana hub. Kitty Hawk is the North American launch customer for the fuel-efficient and environmentally friendly Boeing 737-300SF cargo aircraft. 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 and inflation. 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 Nine months ended September 30, September 30, ----------------------- ----------------------- 2005 2004 2005 2004 ----------- ----------- ----------- ----------- (in thousands, except share and per share data) Revenue: Scheduled freight $39,724 $40,603 $108,028 $110,991 ACMI 400 1,197 932 1,837 Miscellaneous 566 702 1,810 1,291 ----------- ----------- ----------- ----------- Total revenue 40,690 42,502 110,770 114,119 Cost of revenue: Flight expense 8,134 6,955 21,415 21,525 Transportation expense 3,381 4,254 10,226 10,504 Fuel expense 13,874 12,102 39,059 32,181 Maintenance expense 3,219 2,446 8,271 8,623 Freight handling expense 6,472 7,234 19,277 20,584 Depreciation and amortization 966 790 2,791 2,290 Operating overhead expense 3,152 2,924 8,974 8,421 ----------- ----------- ----------- ----------- Total cost of revenue 39,198 36,705 110,013 104,128 ----------- ----------- ----------- ----------- Gross profit 1,492 5,797 757 9,991 General and administrative expense 1,898 2,733 5,974 8,087 ----------- ----------- ----------- ----------- Operating income (loss) (406) 3,064 (5,217) 1,904 Other (income) expense: Interest expense 66 72 209 240 Other, net (63) 25 (750) (100) ----------- ----------- ----------- ----------- Income before income taxes (409) 2,967 (4,676) 1,764 Income taxes -- 644 -- 644 ----------- ----------- ----------- ----------- Net income (loss) $(409) $2,323 $(4,676) $1,120 =========== =========== =========== =========== Basic income (loss) per share $(0.01) $0.05 $(0.09) $0.02 =========== =========== =========== =========== Weighted average common shares outstanding 51,582,032 50,791,723 51,403,186 50,688,309 =========== =========== =========== =========== Diluted income (loss) per share $(0.01) $0.04 $(0.09) $0.02 =========== =========== =========== =========== Weighted average diluted common shares outstanding 51,582,032 54,405,449 51,403,186 54,206,167 =========== =========== =========== =========== *T