##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: June 30, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period fromto
 Commission File Number 0-26582
 WORLD AIR HOLDINGS, INC.
  DELAWARE
(State or other jurisdiction
of incorporation or organization)
    
    20-2121036
(I.R.S. Employer
Identification Number)
 
 
   þ o
  o þ o
  o þ




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##### 



WORLD AIR HOLDINGS, INC.
 QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006
 TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets (Unaudited), June 30, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations (Unaudited), Three and Six Months Ended June 30,
2006 and 2005
    
    
    5Condensed Consolidated Statement of Changes in Stockholders Equity (Unaudited), Six Months ended
June 30, 2006
    
    
    6Condensed Consolidated Statements of Cash Flows (Unaudited), Six Months ended June 30, 2006 and 2005
    
    
    7Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 2. Submission of Matters to a Vote of Security Holders
    
    
    24Item 6. Exhibits
    
    
    24SIGNATURESEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO
  2




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##### Table of Contents



ITEM 1. FINANCIAL STATEMENTS
 WORLD AIR HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except share data)
 (unaudited
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assetsCash and cash equivalents
    
    $
    16,018
    
    
    $
    46,202Restricted cash
    
    
    12,042
    
    
    
    6,262Short-term investments
    
    
    18,545
    
    
    
    827Trade accounts receivable,
less sales allowance and allowance for doubtful accounts of $1,965
at June 30, 2006 and $1,643 at December 31, 2005
    
    
    29,900
    
    
    
    57,235Other receivables
    
    
    12,532
    
    
    
    21,564Prepaid expenses and other current assets
    
    
    26,042
    
    
    
    20,246Deferred income taxes
    
    
    2,040
    
    
    
    3,846Total current assets
    
    
    117,119
    
    
    
    156,182Equipment and propertyFlight and other equipment
    
    
    84,257
    
    
    
    81,206Less: accumulated depreciation and amortization
    
    
    49,227
    
    
    
    47,480Net equipment and property
    
    
    35,030
    
    
    
    33,726Goodwill and other intangible assetsGoodwill
    
    
    25,370
    
    
    
    25,370Other intangible assets, net of accumulated amortization of $1,237 at
June 30, 2006 and $740 at December 31, 2005
    
    
    6,858
    
    
    
    7,355Net goodwill and other intangible assets
    
    
    32,228
    
    
    
    32,725Long-term deposits
    
    
    30,141
    
    
    
    28,298Other assets and deferred charges, net of accumulated amortization of $45 at June 30, 2006 and  $3,558
at December 31, 2005
    
    
    4,486
    
    
    
    9,715Total assets
    
    $
    219,004
    
    
    $
    260,646
  3




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##### Table of Contents



WORLD AIR HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
 June 30,
    
    
    December 31,2006
    
    
    2005LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent maturities of long-term debt
    
    $
    
    
    
    $
    24,000Accounts payable
    
    
    36,354
    
    
    
    50,757Current portion of accrued rent
    
    
    7,930
    
    
    
    4,700Current portion of deferred rent
    
    
    2,801
    
    
    
    2,455Unearned revenue
    
    
    27,707
    
    
    
    16,512Accrued maintenance
    
    
    9,556
    
    
    
    9,739Accrued salaries, wages and profit sharing
    
    
    15,913
    
    
    
    25,576Accrued taxes
    
    
    6,066
    
    
    
    5,534Other accrued liabilities
    
    
    5,969
    
    
    
    8,727Total current liabilities
    
    
    112,296
    
    
    
    148,000Deferred gain from sale-leaseback transactions, net of accumulated
amortization of $5,060 at June 30, 2006 and $4,857
at December 31, 2005
    
    
    447
    
    
    
    650Accrued post-retirement benefits
    
    
    7,771
    
    
    
    6,995Accrued and deferred rent, net of current portion
    
    
    9,920
    
    
    
    14,551Deferred income taxes
    
    
    4,056
    
    
    
    3,612Total liabilities
    
    
    134,490
    
    
    
    173,808Stockholders equityPreferred stock, $.001 par value (5,000,000 shares authorized; no shares
issued or outstanding)
    
    
    
    
    
    
    Common stock, $.001 par value (100,000,000 shares authorized;
25,282,645 shares issued and 24,201,402 shares outstanding at
June 30, 2006; 25,002,645 shares issued and 23,921,402 shares
outstanding at December 31, 2005)
    
    
    25
    
    
    
    25Additional paid-in capital
    
    
    69,130
    
    
    
    67,770Retained earnings
    
    
    28,216
    
    
    
    32,153Deferred stock-based compensation
    
    
    
    
    
    
    (253
    )Treasury stock, at cost (1,081,243 shares at June 30, 2006 and
December 31, 2005)
    
    
    (12,857
    )
    
    
    (12,857
    )Total stockholders equity
    
    
    84,514
    
    
    
    86,838Commitments and contingencies
    
    
    
    
    
    
    Total liabilities and stockholders equity
    
    $
    219,004
    
    
    $
    260,646
  4




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##### Table of Contents



WORLD AIR HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share data)
 (unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Operating revenuesFlight operations
    
    $
    176,300
    
    
    $
    171,091
    
    
    $
    392,167
    
    
    $
    330,111Other
    
    
    357
    
    
    
    791
    
    
    
    743
    
    
    
    1,320Total operating revenues
    
    
    176,657
    
    
    
    171,882
    
    
    
    392,910
    
    
    
    331,431Operating expensesFlight
    
    
    53,955
    
    
    
    48,582
    
    
    
    115,370
    
    
    
    93,751Maintenance
    
    
    36,441
    
    
    
    25,740
    
    
    
    66,875
    
    
    
    50,695Aircraft costs
    
    
    30,689
    
    
    
    27,270
    
    
    
    59,950
    
    
    
    48,199Fuel
    
    
    39,970
    
    
    
    31,338
    
    
    
    89,299
    
    
    
    61,809Flight operations subcontracted to other carriers
    
    
    5
    
    
    
    1,217
    
    
    
    2,111
    
    
    
    1,725Commissions
    
    
    7,387
    
    
    
    7,702
    
    
    
    18,352
    
    
    
    16,561Depreciation and amortization
    
    
    1,639
    
    
    
    1,965
    
    
    
    3,310
    
    
    
    3,420Sales, general and administrative
    
    
    19,519
    
    
    
    17,279
    
    
    
    41,145
    
    
    
    27,304Total operating expenses
    
    
    189,605
    
    
    
    161,093
    
    
    
    396,412
    
    
    
    303,464Operating income (loss)
    
    
    (12,948
    )
    
    
    10,789
    
    
    
    (3,502
    )
    
    
    27,967Other income (expense)Interest expense
    
    
    
    
    
    
    (1,142
    )
    
    
    (3,573
    )
    
    
    (2,127
    )Interest income
    
    
    428
    
    
    
    241
    
    
    
    767
    
    
    
    510Other, net
    
    
    (200
    )
    
    
    (1,023
    )
    
    
    (314
    )
    
    
    (1,226
    )Total other income (expense)
    
    
    228
    
    
    
    (1,924
    )
    
    
    (3,120
    )
    
    
    (2,843
    )Earnings (loss) before income tax expense
    
    
    (12,720
    )
    
    
    8,865
    
    
    
    (6,622
    )
    
    
    25,124Income tax expense (benefit)
    
    
    (5,241
    )
    
    
    3,359
    
    
    
    (2,685
    )
    
    
    9,720Net earnings (loss)
    
    $
    (7,479
    )
    
    $
    5,506
    
    
    $
    (3,937
    )
    
    $
    15,404Basic earnings per shareNet earnings (loss)
    
    $
    (0.31
    )
    
    $
    0.23
    
    
    $
    (0.16
    )
    
    $
    0.72Weighted average shares outstanding
    
    
    24,034
    
    
    
    23,600
    
    
    
    23,986
    
    
    
    21,325Diluted earnings per shareNet earnings (loss)
    
    $
    (0.31
    )
    
    $
    0.21
    
    
    
    (0.16
    )
    
    $
    0.59Weighted average shares outstanding
    
    
    24,034
    
    
    
    26,668
    
    
    $
    23,986
    
    
    
    26,508
  5




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##### Table of Contents



WORLD AIR HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENT OF CHANGES
 IN STOCKHOLDERS EQUITY
 SIX MONTHS ENDED JUNE 30, 2006
 (in thousands, except share amounts)
 (unaudited)
 Additional
    
    
    
    
    
    
    Deferred
    
    
    Treasury
    
    
    TotalCommon
    
    
    Paid-In
    
    
    Retained
    
    
    Stock-Based
    
    
    Stock, at
    
    
    StockholdersStock
    
    
    Capital
    
    
    Earnings
    
    
    Compensation
    
    
    Cost
    
    
    EquityBalances at
December 31, 2005
    
    $
    25
    
    
    $
    67,770
    
    
    $
    32,153
    
    
    $
    (253
    )
    
    $
    (12,857
    )
    
    $
    86,838Exercise of 280,000
stock options
    
    
    
    
    
    
    385
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    385Excess tax benefit
of stock option
exercises
    
    
    
    
    
    
    1,027
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,027Amortization of
warrants
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68Stock-based
compensation
    
    
    
    
    
    
    183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183Reversal of award
of deferred
stock-based
compensation
    
    
    
    
    
    
    (303
    )
    
    
    
    
    
    
    303
    
    
    
    
    
    
    
    Reversal of
prior period amortization of
deferred
stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    
    
    
    
    (50
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (3,937
    )
    
    
    
    
    
    
    
    
    
    
    (3,937
    )Balances at
June 30, 2006
    
    $
    25
    
    
    $
    69,130
    
    
    $
    28,216
    
    
    $
    
    
    
    $
    (12,857
    )
    
    $
    84,514
  6




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##### Table of Contents



WORLD AIR HOLDINGS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 SIX MONTHS ENDED JUNE 30, 2006 and 2005
 (in thousands)
 (unaudited)
 2006
    
    
    2005Cash and cash equivalents at beginning of year
    
    $
    46,202
    
    
    $
    16,306Cash flow from operating activitiesNet earnings (loss)
    
    
    (3,937
    )
    
    
    15,404Adjustments
to reconcile net earnings (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    3,310
    
    
    
    3,420Deferred gain recognition
    
    
    (203
    )
    
    
    (385
    )Loss on disposals of equipment and property
    
    
    251
    
    
    
    937Tax benefit of stock option exercises
    
    
    
    
    
    
    1,292Amortization of warrants and debt issuance costs
    
    
    2,781
    
    
    
    853Deferred income taxes
    
    
    2,181
    
    
    
    (855
    )Provision for doubtful accounts and sales allowance
    
    
    552
    
    
    
    (29
    )Stock-based compensation
    
    
    183
    
    
    
    Other
    
    
    59
    
    
    
    449Changes in operating assets and liabilities, exclusive of acquisitions:Trade and other receivables
    
    
    35,765
    
    
    
    7,412Restricted cash
    
    
    (5,780
    )
    
    
    1,362Deposits, prepaid expenses and other assets
    
    
    (4,637
    )
    
    
    (4,890
    )Accounts payable, accrued expenses and other liabilities
    
    
    (26,754
    )
    
    
    (11,574
    )Unearned revenue
    
    
    11,195
    
    
    
    10,013Net cash provided by operating activities
    
    
    14,966
    
    
    
    23,409Cash flows from investing activitiesPurchases of equipment and property
    
    
    (4,657
    )
    
    
    (4,362
    )Net sales (purchases) of short term investments
    
    
    (17,718
    )
    
    
    23,650Proceeds from disposals of equipment and property
    
    
    289
    
    
    
    27Acquisition of North American, less cash acquired
    
    
    
    
    
    
    (24,951
    )Net cash used in investing activities
    
    
    (22,086
    )
    
    
    (5,636
    )Cash flows from financing activitiesRepayment of debt
    
    
    (24,000
    )
    
    
    Proceeds from exercise of stock options
    
    
    385
    
    
    
    1,635Proceeds from exercise of warrants
    
    
    
    
    
    
    2,500Excess tax benefit from employees stock-based compensation plan
    
    
    918
    
    
    
    Debt issuance cost
    
    
    (367
    )Repayment of aircraft rent obligations
    
    
    
    
    
    
    (1,713
    )Net cash provided by (used in) financing activities
    
    
    (23,064
    )
    
    
    2,422Net increase (decrease) in cash and cash equivalents
    
    
    (30,184
    )
    
    
    20,195Cash and cash equivalents at end of period
    
    $
    16,018
    
    
    $
    36,501Supplemental information:Interest paid
    
    $
    363
    
    
    $
    750Income taxes paid
    
    $
    88
    
    
    $
    14,663Conversion of the Companys convertible senior subordinated
debentures to common stock
    
    $
    
    
    
    $
    18,125
  7




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##### Table of Contents



WORLD AIR HOLDINGS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 1. Basis of Presentation
     2. Segment Reporting
  Three Months Ended June 30, 2006World AirHoldings, WorldWorld
    
    North
    
    Risk Solutions, andAirways
    
    American
    
    Eliminations
    
    TotalTotal operating revenues
    
    $
    115,605
    
    
    $
    61,192
    
    
    $
    (140
    )
    
    $
    176,657Total operating expenses
    
    $
    126,614
    
    
    $
    63,426
    
    
    $
    (435
    )
    
    $
    189,605Operating income (loss)
    
    $
    (11,009
    )
    
    $
    (2,234
    )
    
    $
    295
    
    
    $
    (12,948
    )Total assets
    
    $
    136,996
    
    
    $
    76,809
    
    
    $
    5,199
    
    
    $
    219,004Total block hours
    
    
    13,000
    
    
    
    5,944
    
    
    
    
    
    
    
    18,944
 8




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##### Table of Contents



Three Months Ended June 30, 2005World AirHoldings, WorldWorld
    
    North
    
    Risk Solutions, andAirways
    
    American*
    
    Eliminations
    
    TotalTotal operating revenues
    
    $
    140,258
    
    
    $
    31,624
    
    
    $
    
    
    
    $
    171,882Total operating expenses
    
    $
    127,869
    
    
    $
    33,529
    
    
    $
    (305
    )
    
    $
    161,093Operating income (loss)
    
    $
    12,389
    
    
    $
    (1,905
    )
    
    $
    305
    
    
    $
    10,789Total assets
    
    $
    148,650
    
    
    $
    69,580
    
    
    $
    7,639
    
    
    $
    225,869Total block hours
    
    
    13,969
    
    
    
    3,928
    
    
    
    
    
    
    
    17,897
 
 *
    
    Financial data above includes the results of North American from April 28, 2005 to June 30, 2005. Six Months Ended June 30, 2006World AirHoldings, WorldWorld
    
    North
    
    Risk Solutions, andAirways
    
    American
    
    Eliminations
    
    TotalTotal operating revenues
    
    $
    273,987
    
    
    $
    119,290
    
    
    $
    (367
    )
    
    $
    392,910Total operating expenses
    
    $
    275,247
    
    
    $
    121,212
    
    
    $
    (47
    )
    
    $
    396,412Operating loss
    
    $
    (1,260
    )
    
    $
    (1,922
    )
    
    $
    (320
    )
    
    $
    (3,502
    )Total assets
    
    $
    136,996
    
    
    $
    76,809
    
    
    $
    5,199
    
    
    $
    219,004Total block hours
    
    
    27,772
    
    
    
    11,780
    
    
    
    
    
    
    
    39,552
 Six Months Ended June 30, 2005World AirHoldings, WorldWorld
    
    North
    
    Risk Solutions, andAirways
    
    American*
    
    Eliminations
    
    TotalTotal operating revenues
    
    $
    299,807
    
    
    $
    31,624
    
    
    $
    
    
    
    $
    331,431Total operating expenses
    
    $
    270,756
    
    
    $
    33,529
    
    
    $
    (821
    )
    
    $
    303,464Operating income (loss)
    
    $
    29,051
    
    
    $
    (1,905
    )
    
    $
    821
    
    
    $
    27,967Total assets
    
    $
    148,650
    
    
    $
    69,580
    
    
    $
    7,639
    
    
    $
    225,869Total block hours
    
    
    27,084
    
    
    
    3,928
    
    
    
    
    
    
    
    31,012
 
 *
    
    Financial data above includes the results of North American from April 28, 2005 to June 30, 2005. 3. Long-Term Operating Deposits
  4. Earnings (Loss) per Share
  Three Months Ended June 30, 2006Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic and Diluted EPSLoss available to common stockholders
    
    $
    (7,479
    )
    
    
    24,034
    
    
    $
    (0.31
    )
 9




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##### Table of Contents



Three Months Ended June 30, 2005Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSEarnings available to
common stockholders
    
    $
    5,506
    
    
    
    23,600
    
    
    $
    0.23Effect of dilutive securitiesWarrants
    
    
    
    
    
    
    1,685Options
    
    
    
    
    
    
    1,376Restricted stock
    
    
    
    
    
    
    7Diluted EPSEarnings available to common
shareholders plus assumed
conversion
    
    $
    5,506
    
    
    
    26,668
    
    
    $
    0.21
 Six Months Ended June 30, 2006Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic and Diluted EPSLoss available to common stockholders
    
    $
    (3,937
    )
    
    
    23,986
    
    
    $
    (0.16
    )
 Six Months Ended June 30, 2005Earnings
    
    
    Shares
    
    
    Per Share(Numerator)
    
    
    (Denominator)
    
    
    AmountBasic EPSEarnings available to common
stockholders
    
    $
    15,404
    
    
    
    21,325
    
    
    $
    0.72Effect of dilutive securitiesWarrants
    
    
    
    
    
    
    1,715Options
    
    
    
    
    
    
    1,4518% convertible debentures
    
    
    162
    
    
    
    2,015Restricted stock
    
    
    
    
    
    
    2Amortization of debt issuance cost
    
    
    35
    
    
    
    Aircraft lease restructuring fees
    
    
    (13
    )
    
    
    Diluted EPSEarnings available to common
shareholders plus assumed
conversion
    
    $
    15,588
    
    
    
    26,508
    
    
    $
    0.59
  5. Long-term Debt
  10




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##### Table of Contents



6. Lease Obligations
   7. Accounting for Stock-Based Compensation
   Share-Based Payments
 11




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##### Table of Contents



Accounting for Stock Issued to Employees )
 Accounting for Stock-Based
Compensation
 Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005Net earnings, as reported
    
    $
    5,506
    
    
    $
    15,404Deduct: Total stock-based
compensation expense
determined under fair value
based method for all awards,
net of related tax effects
    
    
    (138
    )
    
    
    (326
    )Pro forma net earnings
    
    $
    5,368
    
    
    $
    15,078Earnings per shareBasic  as reported
    
    $
    0.23
    
    
    $
    0.72Basic  pro forma
    
    $
    0.23
    
    
    $
    0.71Diluted  as reported
    
    $
    0.21
    
    
    $
    0.59Diluted  pro forma
    
    $
    0.20
    
    
    $
    0.58
    Expected dividend yield
    
    
    0
    %Risk-free interest rate
    
    
    3.5
    %Expected life (in years)
    
    
    4.2Risk-free volatility
    
    
    71
    %
  Weighted AverageNumber of
    
    
    Weighted
    
    
    Remaining
    
    
    AggregateOptions
    
    
    Average
    
    
    Contractual Term
    
    
    Intrinsic Value(in thousands)
    
    
    Exercise Price
    
    
    (in years)
    
    
    (in thousands)Outstanding at
December 31, 2005
    
    
    1,728
    
    
    $
    2.25Granted
    
    
    
    
    
    
    Exercised
    
    
    (280
    )
    
    $
    1.38Forfeited
    
    
    (25
    )
    
    $
    1.68Outstanding at June 30, 2006
    
    
    1,423
    
    
    $
    2.44
    
    
    
    4.4
    
    
    $
    8,758Exercisable at June 30, 2006
    
    
    1,162
    
    
    $
    2.09
    
    
    
    4.0
    
    
    $
    7,551
 12




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##### Table of Contents



8. North American Acquisition
 Business Combinations
   Three Months Ended
    
    Six Months EndedJune 30, 2005
    
    June 30, 2005Total operating revenues
    
    $
    188,829
    
    
    $
    407,391Net earnings
    
    $
    4,093
    
    
    $
    17,998Basic earnings per share
    
    $
    0.17
    
    
    $
    0.84Weighted average shares outstanding
    
    
    23,600
    
    
    
    21,325Fully diluted earnings per share
    
    $
    0.15
    
    
    $
    0.69Weighted average shares outstanding
    
    
    26,668
    
    
    
    26,508
  9. Post-Retirement Health Care Benefits Plan
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    334
    
    
    $
    192
    
    
    $
    526
    
    
    $
    384Interest cost
    
    
    159
    
    
    
    111
    
    
    
    270
    
    
    
    222Amortization of prior service cost
    
    
    3
    
    
    
    
    
    
    
    6
    
    
    
    Net amortized loss
    
    
    59
    
    
    
    70
    
    
    
    78
    
    
    
    141Net periodic post-retirement benefit cost
    
    $
    555
    
    
    $
    373
    
    
    $
    880
    
    
    $
    747
 13




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##### Table of Contents



10. Major Customers and Products
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,World Airways
    
    2006
    
    2005
    
    2006
    
    2005U.S. Air Force (USAF) Air Mobility Command
    
    $
    74.5
    
    
    $
    104.3
    
    
    $
    199.5
    
    
    $
    238.8
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,North American
    
    2006
    
    2005*
    
    2006
    
    2005*U.S. Air Force (USAF) Air Mobility Command
    
    $
    39.1
    
    
    $
    16.9
    
    
    $
    77.1
    
    
    $
    16.9
 
 *
    
    Financial data above includes the results of North American from April 28, 2005 to June 30, 2005.  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,World Airways
    
    2006
    
    2005
    
    2006
    
    2005Passenger Charter Operations
    
    $
    86.6
    
    
    $
    116.1
    
    
    $
    217.4
    
    
    $
    259.9Cargo Charter Operations
    
    $
    28.5
    
    
    $
    24.2
    
    
    $
    55.6
    
    
    $
    39.9
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,North American
    
    2006
    
    2005*
    
    2006
    
    2005*Passenger Charter Operations
    
    $
    50.7
    
    
    $
    20.6
    
    
    $
    99.4
    
    
    $
    20.6Passenger Scheduled Service
    
    $
    10.3
    
    
    $
    6.6
    
    
    $
    19.5
    
    
    $
    6.6
 
 *
    
    Financial data above includes the results of North American from April 28, 2005 to June 30, 2005. 11. Commitments and Contingencies
 Union Negotiations and Litigation:
 World Airways Cockpit Crewmembers:
 World Airways Flight Attendant s :
 14




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##### Table of Contents



North Americans Cockpit Crewmembers:
  North Americans Flight Attendants:
 Other Litigation:
     12. Recently Issued Accounting Standards
 Accounting Changes and Error Corrections, .
 Accounting for Uncertainty in Income Taxes
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   15




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##### Table of Contents



RESULTS OF OPERATIONS
 Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
  General
   Three Months EndedJune 30,World Airways
    
    2006
    
    2005Block hours
    
    
    13,000
    
    
    
    13,969Operating aircraft at quarter end
    
    
    16
    
    
    
    17Average available aircraft per day
    
    
    16.3
    
    
    
    16.6Average daily utilization (block hours flown per day per aircraft)
    
    
    8.8
    
    
    
    9.3
  Three Months EndedJune 30,North American
    
    2006
    
    2005*Block hours
    
    
    5,944
    
    
    
    3,928Operating aircraft at quarter end
    
    
    9
    
    
    
    8Average available aircraft per day
    
    
    9.0
    
    
    
    8.0Average daily utilization (block hours flown per day per aircraft)
    
    
    7.3
    
    
    
    7.7
 
 *
    
    Statistical data above includes results of North American from April 28, 2005 to June 30, 2005. Operating Revenues.
  16




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##### Table of Contents



Three Months EndedJune 30,
    
    Increase/World Airways
    
    2006
    
    2005
    
    (Decrease)
    
    % ChangeTotal block hours
    
    
    13,000
    
    
    
    13,969
    
    
    
    (969
    )
    
    
    (6.9
    %)Total operating revenue per block hour
    
    $
    8,893
    
    
    $
    10,041
    
    
    
    ($1,148
    )
    
    
    (11.4
    %)
 Three Months EndedJune 30,
    
    Increase/North American
    
    2006
    
    2005*
    
    (Decrease)
    
    % ChangeTotal block hours
    
    
    5,944
    
    
    
    3,928
    
    
    
    
    
    
    
    Total operating revenue per block hour
    
    $
    10,295
    
    
    $
    8,051
    
    
    
    
    
    
    
    
 
 *
    
    Financial and statistical data above includes the results of North American from April 28, 2005 to June 30, 2005. Operating
Expenses.
 Three Months EndedJune 30,
    
    Increase/World Airways
    
    2006
    
    2005
    
    (Decrease)
    
    % ChangeTotal operating expense per block hour
    
    $
    9,740
    
    
    $
    9,154
    
    
    $
    586
    
    
    
    6.4
    %
 Three Months EndedJune 30,
    
    Increase/North American
    
    2006
    
    2005*
    
    (Decrease)
    
    % ChangeTotal operating expense per block hour
    
    $
    10,671
    
    
    $
    8,536
    
    
    
    
    
    
    
    
 
 *
    
    Financial data above includes the results of North American from April 28, 2005 to June 30, 2005. Flight Operations
  Maintenance
  17




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##### Table of Contents



Aircraft Costs
  Fuel
  Flight Operations Subcontracted to Other Carriers
  Commissions
  Sales, General and Administrative
  Other Income (Expense)
  Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
  General
  18




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##### Table of Contents



Six Months EndedJune 30,World Airways
    
    2006
    
    2005Block hours
    
    
    27,772
    
    
    
    27,084Operating aircraft at end of period
    
    
    16
    
    
    
    17Average available aircraft per day
    
    
    16.7
    
    
    
    16.2Average daily utilization (block hours flown per day per aircraft)
    
    
    9.2
    
    
    
    9.3
  Six Months EndedJune 30,North American
    
    2006
    
    2005*Block hours
    
    
    11,780
    
    
    
    3,928Operating aircraft at end of period
    
    
    9
    
    
    
    8Average available aircraft per day
    
    
    8.6
    
    
    
    8.0Average daily utilization (block hours flown per day per aircraft)
    
    
    7.6
    
    
    
    7.7
 
 *
    
    Statistical data above includes results of North American from April 28, 2005 to June 30, 2005. Operating
Revenues.
  Six Months EndedJune 30,
    
    Increase/World Airways
    
    2006
    
    2005
    
    (Decrease)
    
    % ChangeTotal block hours
    
    
    27,772
    
    
    
    27,084
    
    
    
    688
    
    
    
    2.5
    %Total operating revenue per block hour
    
    $
    9,866
    
    
    $
    11,070
    
    
    
    ($1,204
    )
    
    
    (10.9
    %)
 Six Months EndedJune 30,
    
    Increase/North American
    
    2006
    
    2005*
    
    (Decrease)
    
    % ChangeTotal block hours
    
    
    11,780
    
    
    
    3,928
    
    
    
    
    
    
    
    Total operating revenue per block hour
    
    $
    10,126
    
    
    $
    8,051
    
    
    
    
    
    
    
    
 
 *
    
    Financial and statistical data above includes the results of North American from April 28, 2005 to June 30, 2005. Operating
Expenses.
 19




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##### Table of Contents



Six Months EndedJune 30,
    
    Increase/World Airways
    
    2006
    
    2005
    
    (Decrease)
    
    % ChangeTotal operating expense per block hour
    
    $
    9,911
    
    
    $
    9,997
    
    
    
    ($86
    )
    
    
    (0.9
    %)
 Six Months EndedJune 30,
    
    Increase/North American
    
    2006
    
    2005*
    
    (Decrease)
    
    % ChangeTotal operating expense per block hour
    
    $
    10,290
    
    
    $
    8,536
    
    
    
    
    
    
    
    
 
 *
    
    Financial data above includes the results of North American from April 28, 2005 to June 30, 2005. Flight Operations
  Maintenance
  Aircraft Costs
  Fuel
  Commissions
  Sales, General and Administrative
  20




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##### Table of Contents



Other Income (Expense)
  LIQUIDITY AND CAPITAL RESOURCES
   Cash Flows from Operating Activities
  Cash Flows from Investing Activities
  Cash Flows from Financing Activities
   Description of Certain Indebtedness
  21




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Quantitative and Qualitative Disclosures About Market Risk
 Aircraft fuel:
 Interest rates:
 Foreign currency exchange rate risks
 
 ITEM 4. CONTROLS AND PROCEDURES
 A. Disclosure Controls and Procedures
 Controls and Procedures
  22




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##### Table of Contents



B. Changes in Internal Control Over Financial Reporting
    C. Inherent Limitations of Any Control System
  23




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##### Table of Contents



PART II
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  For
    
    WithheldGeneral Ronald R. Fogleman
    
    
    19,455,345
    
    
    
    3,536,504Jeffrey L. MacKinney
    
    
    19,158,424
    
    
    
    3,833,425Russell L. Ray, Jr.
    
    
    17,894,763
    
    
    
    5,097,086
 
 ITEM 6. EXHIBITS
 No.
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
  24




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##### Table of Contents



SIGNATURES
   WORLD AIR HOLDINGS, INC.By:
    /s/ Michael W. ToweMichael W. ToweChief Financial Officer 25