##### Table of Contents



UNITED STATES
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, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-25202
 KITTY HAWK, INC.
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    75-2564006
(I.R.S. Employer
Identification No.)1515 West 20th Street
P.O. Box 612787
Dallas/Fort Worth International Airport, Texas
(Address of principal executive offices)
    
    75261
(Zip Code)
 
 R £
 £ R
 R £




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##### Table of Contents



PAGE NUMBERPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at June 30, 2005 and December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the three months ended
June 30, 2005 and 2004 and the six months ended June 30, 2005 and 2004
    
    
    4Condensed Consolidated Statement of Stockholders Equity for the six months ended
June 30, 2005
    
    
    5Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2005 and 2004
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    27Certification of Principal Executive OfficerCertification of Principal Financial OfficerCertification Pursuant to 18 U.S.C. Section 1350
 2




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June 30,
    
    December 31,2005
    
    2004(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,986
    
    
    $
    16,284Restricted cash and short-term investments
    
    
    250
    
    
    
    1,221Trade accounts receivable, net of allowance for doubtful accounts of $0.7
million and $0.7 million, respectively
    
    
    13,649
    
    
    
    13,158Assets held for sale
    
    
    135
    
    
    
    65Inventory and aircraft supplies, net
    
    
    5,025
    
    
    
    4,720Deposits and prepaid expenses
    
    
    2,708
    
    
    
    1,750Prepaid fuel
    
    
    1,950
    
    
    
    2,310Other current assets, net
    
    
    44
    
    
    
    201Total current assets
    
    
    35,747
    
    
    
    39,709Property and equipment, net
    
    
    8,838
    
    
    
    8,961Other assets, net
    
    
    
    
    
    
    400Total assets
    
    $
    44,585
    
    
    $
    49,070LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Current liabilities:Accounts payable  trade
    
    $
    2,611
    
    
    $
    1,775Accrued wages and compensation related expenses
    
    
    2,134
    
    
    
    3,123Other accrued expenses
    
    
    5,862
    
    
    
    5,501Taxes payable, other than income
    
    
    1,428
    
    
    
    1,711Current portion of accrued maintenance reserves
    
    
    
    
    
    
    89Current maturities of long-term debt
    
    
    1,949
    
    
    
    1,949Total current liabilities
    
    
    13,984
    
    
    
    14,148Other long-term liabilities
    
    
    607
    
    
    
    806Total liabilities
    
    
    14,591
    
    
    
    14,954Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Preferred stock, $0.01 par value: Authorized shares - 10,000,000; none issued
    
    
    
    
    
    
    Common stock, $0.000001 par value: Authorized shares - 100,000,000; issued
and outstanding  50,310,061 and 46,620,883 at June 30, 2005 and December
31, 2004, respectively
    
    
    
    
    
    
    Additional capital
    
    
    22,438
    
    
    
    22,293Retained earnings
    
    
    7,556
    
    
    
    11,823Total stockholders equity
    
    
    29,994
    
    
    
    34,116Total liabilities and stockholders equity
    
    $
    44,585
    
    
    $
    49,070
  3




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Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Revenue:Scheduled freight
    
    $
    35,462
    
    
    $
    37,164
    
    
    $
    68,304
    
    
    $
    70,388ACMI
    
    
    12
    
    
    
    640
    
    
    
    532
    
    
    
    640Miscellaneous
    
    
    977
    
    
    
    71
    
    
    
    1,244
    
    
    
    589Total revenue
    
    
    36,451
    
    
    
    37,875
    
    
    
    70,080
    
    
    
    71,617Cost of revenue:Flight expense
    
    
    6,675
    
    
    
    7,381
    
    
    
    13,281
    
    
    
    14,570Transportation expense
    
    
    3,917
    
    
    
    3,424
    
    
    
    6,845
    
    
    
    6,249Fuel expense
    
    
    13,244
    
    
    
    10,876
    
    
    
    25,185
    
    
    
    20,079Maintenance expense
    
    
    2,505
    
    
    
    2,797
    
    
    
    5,052
    
    
    
    6,177Freight handling expense
    
    
    6,546
    
    
    
    6,862
    
    
    
    12,805
    
    
    
    13,350Depreciation and amortization
    
    
    1,002
    
    
    
    688
    
    
    
    1,825
    
    
    
    1,500Operating overhead expense
    
    
    2,873
    
    
    
    2,842
    
    
    
    5,822
    
    
    
    5,497Total cost of revenue
    
    
    36,762
    
    
    
    34,870
    
    
    
    70,815
    
    
    
    67,422Gross profit (loss)
    
    
    (311
    )
    
    
    3,005
    
    
    
    (735
    )
    
    
    4,195General and administrative expense
    
    
    1,856
    
    
    
    2,433
    
    
    
    4,076
    
    
    
    5,354Operating income (loss)
    
    
    (2,167
    )
    
    
    572
    
    
    
    (4,811
    )
    
    
    (1,159
    )Other (income) expense:Interest expense
    
    
    73
    
    
    
    72
    
    
    
    143
    
    
    
    167Other, net
    
    
    (85
    )
    
    
    (85
    )
    
    
    (687
    )
    
    
    (123
    )Net income (loss)
    
    $
    (2,155
    )
    
    $
    585
    
    
    $
    (4,267
    )
    
    $
    (1,203
    )Basic income (loss) per share
    
    $
    (0.04
    )
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    (0.02
    )Weighted average common shares outstanding
    
    
    51,439,964
    
    
    
    50,698,234
    
    
    
    51,313,764
    
    
    
    50,636,602Diluted income (loss) per share
    
    $
    (0.04
    )
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    (0.02
    )Weighted average diluted common shares outstanding
    
    
    51,439,964
    
    
    
    53,994,513
    
    
    
    51,313,764
    
    
    
    50,636,602
  4




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Common StockNumber of
    
    
    
    
    
    Additional
    
    RetainedShares
    
    Amount
    
    Capital
    
    Earnings
    
    TotalBalance at December 31, 2004
    
    
    46,620,883
    
    
    $
    
    
    
    $
    22,293
    
    
    $
    11,823
    
    
    $
    34,116Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,267
    )
    
    
    (4,267
    )Compensation expense associated
with stock option grants
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    
    
    
    
    23Issuance of common stock related
to exercise of options to
acquire stock
    
    
    407,757
    
    
    
    
    
    
    
    122
    
    
    
    
    
    
    
    122Issuance of common stock related
to exercise of warrants to
acquire stock
    
    
    3,281,421
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at June 30, 2005
    
    
    50,310,061
    
    
    $
    
    
    
    $
    22,438
    
    
    $
    7,556
    
    
    $
    29,994
  5




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Six months ended June 30,2005
    
    2004Operating activities:Net loss
    
    $
    (4,267
    )
    
    $
    (1,203
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization expense
    
    
    1,996
    
    
    
    1,728Gain on disposal of property and equipment
    
    
    (470
    )
    
    
    (22
    )Compensation expense related to stock options
    
    
    23
    
    
    
    60(Recovery) provision for doubtful accounts
    
    
    (1
    )
    
    
    120Changes in operating assets and liabilities:Trade accounts receivable
    
    
    87
    
    
    
    (2,462
    )Settlement receivable
    
    
    
    
    
    
    1,000Inventory and aircraft supplies
    
    
    (306
    )
    
    
    80Prepaid expenses and other assets
    
    
    (643
    )
    
    
    (1,043
    )Accounts payable and accrued expenses
    
    
    (406
    )
    
    
    1,629Accrued maintenance reserves
    
    
    (27
    )
    
    
    (755
    )Net cash used in operating activities
    
    
    (4,014
    )
    
    
    (868
    )Investing activities:Proceeds from sale of assets
    
    
    998
    
    
    
    171Change in restricted cash
    
    
    971
    
    
    
    (800
    )Capital expenditures
    
    
    (2,375
    )
    
    
    (1,789
    )Net cash used in investing activities
    
    
    (406
    )
    
    
    (2,418
    )Financing activities:Borrowings of long-term debt
    
    
    
    
    
    
    1,949Repurchase restricted common stock
    
    
    
    
    
    
    (31
    )Cash received on exercise of stock options
    
    
    122
    
    
    
    75Loan origination costs
    
    
    
    
    
    
    (109
    )Repayments of long-term debt
    
    
    
    
    
    
    (2,382
    )Net cash provided by (used in) financing activities
    
    
    122
    
    
    
    (498
    )Net decrease in cash and cash equivalents
    
    
    (4,298
    )
    
    
    (3,784
    )Cash and cash equivalents at beginning of period
    
    
    16,284
    
    
    
    15,729Cash and cash equivalents at end of period
    
    $
    11,986
    
    
    $
    11,945
  6




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7




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Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Risk free interest rate
    
    
    3.70
    %
    
    
    4.05
    %
    
    
    4.02
    %
    
    
    4.05
    %Expected life (years)
    
    
    5.85
    
    
    
    10
    
    
    
    7.63
    
    
    
    10Volatility
    
    
    47.85
    %
    
    
    50
    %
    
    
    47.85
    %
    
    
    50
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(In thousands, except per share data)Net income (loss), as reported
    
    $
    (2,155
    )
    
    $
    585
    
    
    $
    (4,267
    )
    
    $
    (1,203
    )Add: Total stock-based employee compensation
expense determined under the intrinsic
method for all awards
    
    
    11
    
    
    
    50
    
    
    
    23
    
    
    
    60Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards
    
    
    (130
    )
    
    
    (91
    )
    
    
    (260
    )
    
    
    (168
    )Pro forma net income (loss)
    
    $
    (2,274
    )
    
    $
    544
    
    
    $
    (4,504
    )
    
    $
    (1,311
    )Basic income (loss) per share  as reported
    
    $
    (0.04
    )
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    (0.02
    )Basic income (loss) per share  pro forma
    
    $
    (0.04
    )
    
    $
    0.01
    
    
    $
    (0.09
    )
    
    $
    (0.03
    )Diluted income (loss) per share  as reported
    
    $
    (0.04
    )
    
    $
    0.01
    
    
    $
    (0.08
    )
    
    $
    (0.02
    )Diluted income (loss) per share  pro forma
    
    $
    (0.04
    )
    
    $
    0.01
    
    
    $
    (0.09
    )
    
    $
    (0.03
    )
   WeightedAvailable for
    
    Options
    
    AverageGrant
    
    Outstanding
    
    Exercise PriceBalance at December 31, 2004
    
    
    1,189,041
    
    
    
    4,030,404
    
    
    $
    0.54Authorized for grant
    
    
    500,000
    
    
    
    
    
    
    
    Granted (weighted-average fair value $0.72)
    
    
    (105,000
    )
    
    
    105,000
    
    
    
    1.26Exercised
    
    
    
    
    
    
    (407,757
    )
    
    
    0.30Canceled
    
    
    313,472
    
    
    
    (313,472
    )
    
    
    1.02Balance at June 30, 2005
    
    
    1,897,513
    
    
    
    3,414,175
    
    
    
    0.55
 8




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Weighted
    
    Weighted AverageNumber of
    
    Average
    
    Exercise Price
    
    Number of
    
    Weighted AverageOptions
    
    Remaining
    
    of Options
    
    Options
    
    Exercise PriceExercise Prices
    
    Outstanding
    
    Life (Years)
    
    Outstanding
    
    Vested (1)
    
    of Vested Options$0.30
    
    
    2,680,786
    
    
    
    8.08
    
    
    $
    0.30
    
    
    
    1,475,368
    
    
    $
    0.30$1.08
    
    
    10,000
    
    
    
    10.00
    
    
    $
    1.08
    
    
    
    2,500
    
    
    $
    1.08$1.105
    
    
    6,945
    
    
    
    8.58
    
    
    $
    1.105
    
    
    
    1,945
    
    
    $
    1.105$1.14
    
    
    50,000
    
    
    
    10.00
    
    
    $
    1.14
    
    
    
    
    
    
    $
    1.14$1.40
    
    
    277,000
    
    
    
    9.25
    
    
    $
    1.40
    
    
    
    
    
    
    $
    1.40$1.41
    
    
    94,444
    
    
    
    8.67
    
    
    $
    1.41
    
    
    
    94,444
    
    
    $
    1.41$1.43
    
    
    45,000
    
    
    
    9.75
    
    
    $
    1.43
    
    
    
    
    
    
    $
    1.43$1.62
    
    
    250,000
    
    
    
    8.92
    
    
    $
    1.62
    
    
    
    121,875
    
    
    $
    1.623,414,175
    
    
    
    9.09
    
    
    $
    0.55
    
    
    
    1,696,132
    
    
    $
    0.46
 
 (1)
    
    Each of the outstanding options are currently exercisable. Option holders who exercise
unvested options will receive restricted stock for such unvested options. The restrictions on such
restricted stock will lapse on the same schedule that the underlying options would have vested.   June 30,
    
    December 31,2005
    
    2004(In thousands)Freight handling expenses
    
    $
    1,815
    
    
    $
    2,342Landing and parking expenses
    
    
    1,086
    
    
    
    998Other
    
    
    2,961
    
    
    
    2,161Total other accrued expenses
    
    $
    5,862
    
    
    $
    5,501
    9




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ScheduledFreight
    
    Air Freight
    
    
    
    
    
    
    
    
    
    ConsolidatedNetwork
    
    Carrier
    
    Other
    
    Eliminations
    
    Balance(in thousands)Three months ended June 30, 2005:Revenue from external customers
    
    $
    36,054
    
    
    $
    397
    
    
    $
    
    
    
    $
    
    
    
    $
    36,451Revenue from intersegment operations
    
    
    
    
    
    
    10,353
    
    
    
    
    
    
    
    (10,353
    )
    
    
    Depreciation and amortization
    
    
    128
    
    
    
    874
    
    
    
    87
    
    
    
    
    
    
    
    1,089Operating loss
    
    
    (1,504
    )
    
    
    (645
    )
    
    
    (18
    )
    
    
    
    
    
    
    (2,167
    )Interest expense
    
    
    13
    
    
    
    1
    
    
    
    59
    
    
    
    
    
    
    
    73Other (income) expense
    
    
    (15
    )
    
    
    (2
    )
    
    
    (68
    )
    
    
    
    
    
    
    (85
    )Net loss
    
    $
    (1,502
    )
    
    $
    (644
    )
    
    $
    (9
    )
    
    $
    
    
    
    $
    (2,155
    )Total assets
    
    $
    16,647
    
    
    $
    14,983
    
    
    $
    25,157
    
    
    $
    (12,202
    )
    
    $
    44,585Three months ended June 30, 2004:Revenue from external customers
    
    $
    37,164
    
    
    $
    711
    
    
    $
    
    
    
    $
    
    
    
    $
    37,875Revenue from intersegment operations
    
    
    
    
    
    
    10,845
    
    
    
    
    
    
    
    (10,845
    )
    
    
    Depreciation and amortization
    
    
    106
    
    
    
    582
    
    
    
    117
    
    
    
    
    
    
    
    805Operating income (loss)
    
    
    912
    
    
    
    (258
    )
    
    
    (82
    )
    
    
    
    
    
    
    572Interest expense
    
    
    21
    
    
    
    1
    
    
    
    50
    
    
    
    
    
    
    
    72Other (income) expense
    
    
    (26
    )
    
    
    (1
    )
    
    
    (58
    )
    
    
    
    
    
    
    (85
    )Net income (loss)
    
    $
    917
    
    
    $
    (258
    )
    
    $
    (74
    )
    
    
    
    
    
    $
    585Total assets
    
    $
    14,843
    
    
    $
    17,614
    
    
    $
    21,971
    
    
    $
    (7,976
    )
    
    $
    46,452Six months ended June 30, 2005:Revenue from external customers
    
    $
    69,123
    
    
    $
    957
    
    
    $
    
    
    
    $
    
    
    
    $
    70,080Revenue from intersegment operations
    
    
    
    
    
    
    20,359
    
    
    
    
    
    
    
    (20,359
    )
    
    
    Depreciation and amortization
    
    
    259
    
    
    
    1,564
    
    
    
    173
    
    
    
    
    
    
    
    1,996Operating loss
    
    
    (3,745
    )
    
    
    (999
    )
    
    
    (67
    )
    
    
    
    
    
    
    (4,811
    )Interest expense
    
    
    35
    
    
    
    2
    
    
    
    106
    
    
    
    
    
    
    
    143Other (income) expense
    
    
    (145
    )
    
    
    (10
    )
    
    
    (532
    )
    
    
    
    
    
    
    (687
    )Net income (loss)
    
    $
    (3,635
    )
    
    $
    (991
    )
    
    $
    359
    
    
    $
    
    
    
    $
    (4,267
    )Total assets
    
    $
    16,647
    
    
    $
    14,983
    
    
    $
    25,157
    
    
    $
    (12,202
    )
    
    $
    44,585Six months ended June 30, 2004:Revenue from external customers
    
    $
    70,388
    
    
    $
    1,229
    
    
    $
    
    
    
    $
    
    
    
    $
    71,617Revenue from intersegment operations
    
    
    
    
    
    
    22,340
    
    
    
    
    
    
    
    (22,340
    )
    
    
    Depreciation and amortization
    
    
    199
    
    
    
    1,301
    
    
    
    228
    
    
    
    
    
    
    
    1,728Operating loss
    
    
    (698
    )
    
    
    (252
    )
    
    
    (209
    )
    
    
    
    
    
    
    (1,159
    )Interest expense
    
    
    44
    
    
    
    3
    
    
    
    120
    
    
    
    
    
    
    
    167Other (income) expense
    
    
    (54
    )
    
    
    (1
    )
    
    
    (68
    )
    
    
    
    
    
    
    (123
    )Net loss
    
    $
    (688
    )
    
    $
    (254
    )
    
    $
    (261
    )
    
    $
    
    
    
    $
    (1,203
    )Total assets
    
    $
    14,843
    
    
    $
    17,614
    
    
    $
    21,971
    
    
    $
    (7,976
    )
    
    $
    46,452
   10




---



##### Table of Contents



11




---



##### Table of Contents



Executive Overview
  Scheduled Freight Network.
      12




---



##### Table of Contents



Cargo Airline.
     Jet Fuel Costs.
  13




---



##### Table of Contents



Fixed Costs
 Capital Requirements, Capital Resources and Liquidity
 Capital Requirements.
 Capital Resources.
 Credit Facility.
 14




---



##### Table of Contents



Liquidity.
   Results of Operations
 Revenue.
 
    
    Scheduled freight revenue,which is generated from freight transportation services
provided by our expedited scheduled freight network. It also includes revenue generated
from our fuel and security surcharges. The fuel surcharge seeks to mitigate the increases
in our fuel expense resulting from higher fuel
 15




---



##### Table of Contents



prices. The security surcharge seeks to mitigate the increased costs of security measures
that have been implemented as a result of regulations adopted by the Transportation Security
Administration.
    
    ACMI revenue,which is generated from short to medium-term contracts with third
parties by our cargo airline under which we generally provide the aircraft, crew,
maintenance and insurance; and
    
    Miscellaneous revenue,which is generated from ad-hoc charters provided by our
cargo airline, maintenance revenue and freight handling services provided for third
parties.
 Cost of Revenue.
 
    
    Flight Expense,which consists of costs related to the flight operations of our cargo airline, including:
 
    
    flight crew member wages, benefits, training and travel;
    
    operating usage and lease expense under an aircraft and engine use
agreement and leased aircraft operated and flown by Kitty Hawk Aircargo;
    
    insurance costs related to aircraft operated and flown by Kitty Hawk Aircargo; and
    
    flight operations and airline management costs, including associated wages and benefits.
 
    
    Transportation Expense,which consists of costs related to the physical movement of
freight between our cargo facilities and which is not otherwise classified as flight
expense, including:
 
    
    third party aircraft charter expense;
    
    aircraft ground operating costs, such as landing and parking fees charged by
airports and the cost of deicing aircraft;
    
    trucking expenses for cities in our expedited scheduled freight network that
are not served by our aircraft; and
    
    pickup and/or final delivery expenses as directed by customers.
 
    
    Fuel Expense,which consists of the all-inclusive cost of all jet fuel consumed in
our expedited scheduled freight network and on ad-hoc charters that include jet fuel in
the charter service, and the cost of all taxes, fees and surcharges necessary to deliver
the jet fuel into the aircraft.
 
    
    Maintenance Expense,which consists of costs to maintain airframes and aircraft
engines operated by our cargo airline, including:
    
    wages and benefits for maintenance, records and maintenance management personnel;
    
    costs for contract mechanics at cargo facility outstations;
    
    costs of aircraft parts and supplies; and
    
    accruals for maintenance of airframes and engines.
 
    
    Freight Handling Expense,which consists of costs to handle the loading and
unloading of freight on aircraft and trucks operating within our expedited scheduled
freight network, including:
 
    
    wages and benefits for our Fort Wayne, Indiana hub sort and ramp operations personnel;
    
    contract services to warehouse, load and unload aircraft principally at outstation cargo facilities; and
 16




---



##### Table of Contents




    
    wages and benefits for our outstation cargo facility personnel and field operations managers.
 
    
    Depreciation and Amortization,which consists of depreciation and amortization
expenses for our owned airframes and aircraft engines and freight-handling equipment.
    
    Operating Overhead Expense,which consists of direct overhead costs related to
operating our expedited scheduled freight network and cargo airline, including:
 
    
    wages and benefits for operational managers and customer service personnel of Kitty Hawk Cargo;
    
    expedited scheduled freight network sales and marketing expenses;
    
    rent and utilities;
    
    bad debt expense;
    
    general operational office expenses; and
    
    induction costs related to the Boeing 737-300SF cargo aircraft.
 General and Administrative Expenses.
 Critical Accounting Policies
  Recent Accounting Pronouncements
   17




---



##### Table of Contents



Three months ended June 30,2005
    
    2004Revenue:Scheduled freight
    
    
    97.3
    %
    
    
    98.1
    %Other
    
    
    2.7
    
    
    
    1.9Total revenue
    
    
    100.0
    
    
    
    100.0Cost of revenue
    
    
    100.8
    
    
    
    92.1Gross profit (loss)
    
    
    (0.8
    )
    
    
    7.9General and administrative expenses
    
    
    5.1
    
    
    
    6.4Operating income (loss)
    
    
    (5.9
    )
    
    
    1.5Other (income) expense:Interest expense
    
    
    0.2
    
    
    
    0.2Other (income) expense
    
    
    (0.2
    )
    
    
    (0.2
    )Total other (income) expense
    
    
    
    
    
    
    Net loss
    
    
    (5.9
    )%
    
    
    1.5
    %
 Revenue
 General
 Three months ended June 30,2005
    
    2004Percentage
    
    
    
    
    
    Percentage
    
    Percentageof Total
    
    
    
    
    
    of Total
    
    Change fromRevenue
    
    Revenue
    
    Revenue
    
    Revenue
    
    2004 to 2005(dollars in thousands)Scheduled freight
    
    $
    35,462
    
    
    
    97.3
    %
    
    $
    37,164
    
    
    
    98.1
    %
    
    
    (4.6
    )%Other:ACMI
    
    
    12
    
    
    
    
    
    
    
    640
    
    
    
    1.7
    
    
    
    (98.1
    )Miscellaneous
    
    
    977
    
    
    
    2.7
    
    
    
    71
    
    
    
    0.2
    
    
    
    1,276.1Total revenue
    
    $
    36,451
    
    
    
    100.0
    %
    
    $
    37,875
    
    
    
    100.0
    %
    
    
    (3.8
    )%
 Scheduled Freight.
   18




---



##### Table of Contents



ACMI.
 Miscellaneous.
 Cost of Revenue
 General.
 Three months ended June 30,2005
    
    2004Cost
    
    Percentage
    
    Cost
    
    Percentage
    
    Percentageof
    
    of Total
    
    of
    
    of Total
    
    Change fromRevenue
    
    Revenue
    
    Revenue
    
    Revenue
    
    2004 to 2005(dollars in thousands)Flight expense
    
    $
    6,675
    
    
    
    18.3
    %
    
    $
    7,381
    
    
    
    19.5
    %
    
    
    (9.6
    )%Transportation expense
    
    
    3,917
    
    
    
    10.8
    
    
    
    3,424
    
    
    
    9.0
    
    
    
    14.4Fuel expense
    
    
    13,244
    
    
    
    36.3
    
    
    
    10,876
    
    
    
    28.8
    
    
    
    21.8Maintenance expense
    
    
    2,505
    
    
    
    6.9
    
    
    
    2,797
    
    
    
    7.4
    
    
    
    (10.4
    )Freight handling expense
    
    
    6,546
    
    
    
    17.9
    
    
    
    6,862
    
    
    
    18.1
    
    
    
    (4.6
    )Depreciation and amortization
    
    
    1,002
    
    
    
    2.7
    
    
    
    688
    
    
    
    1.8
    
    
    
    45.6Operating overhead expense
    
    
    2,873
    
    
    
    7.9
    
    
    
    2,842
    
    
    
    7.5
    
    
    
    1.1Total cost of revenue
    
    $
    36,762
    
    
    
    100.8
    %
    
    $
    34,870
    
    
    
    92.1
    %
    
    
    5.4
    %
 Flight Expense.
  Transportation Expense.
 Fuel Expense.
 19




---



##### Table of Contents



Maintenance Expense.
   Freight Handling Expense.
 Depreciation and Amortization.
 Operating Overhead Expense.
 Gross
Profit (Loss)
  General and Administrative Expense
  Other (Income) Expense
  20




---



##### Table of Contents



Income Taxes
    Six months ended June 30,2005
    
    2004Revenue:Scheduled freight
    
    
    97.5
    %
    
    
    98.3
    %Other
    
    
    2.5
    
    
    
    1.7Total revenue
    
    
    100.0
    
    
    
    100.0Cost of revenue
    
    
    101.1
    
    
    
    94.1Gross profit (loss)
    
    
    (1.1
    )
    
    
    5.9General and administrative expenses
    
    
    5.8
    
    
    
    7.5Operating loss
    
    
    (6.9
    )
    
    
    (1.6
    )Other (income) expense:Interest expense
    
    
    0.2
    
    
    
    0.2Other (income) expense
    
    
    (1.0
    )
    
    
    (0.2
    )Total other (income) expense
    
    
    (0.8
    )
    
    
    Net loss
    
    
    (6.1
    )%
    
    
    (1.6
    )%
 Revenue
 General
 Six months ended June 30,2005
    
    2004Percentage
    
    
    
    
    
    Percentage
    
    Percentage Changeof Total
    
    
    
    
    
    of Total
    
    fromRevenue
    
    Revenue
    
    Revenue
    
    Revenue
    
    2004 to 2005(dollars in thousands)Scheduled freight
    
    $
    68,304
    
    
    
    97.5
    %
    
    $
    70,388
    
    
    
    98.3
    %
    
    
    (3.0
    )%Other:ACMI
    
    
    532
    
    
    
    0.7
    
    
    
    640
    
    
    
    0.9
    
    
    
    (16.9
    )Miscellaneous
    
    
    1,244
    
    
    
    1.8
    
    
    
    589
    
    
    
    0.8
    
    
    
    111.2Total revenue
    
    $
    70,080
    
    
    
    100.0
    %
    
    $
    71,617
    
    
    
    100.0
    %
    
    
    (2.1
    )%
 Scheduled Freight.
   21




---



##### Table of Contents



ACMI.
 Miscellaneous.
 Cost of Revenue
 General.
 Six months ended June 30,2005
    
    2004Cost
    
    Percentage
    
    Cost
    
    Percentage
    
    Percentageof
    
    of Total
    
    of
    
    of Total
    
    Change fromRevenue
    
    Revenue
    
    Revenue
    
    Revenue
    
    2004 to 2005(dollars in thousands)Flight expense
    
    $
    13,281
    
    
    
    19.0
    %
    
    $
    14,570
    
    
    
    20.3
    %
    
    
    (8.8
    )%Transportation expense
    
    
    6,845
    
    
    
    9.8
    
    
    
    6,249
    
    
    
    8.7
    
    
    
    9.5Fuel expense
    
    
    25,185
    
    
    
    35.9
    
    
    
    20,079
    
    
    
    28.0
    
    
    
    25.4Maintenance expense
    
    
    5,052
    
    
    
    7.2
    
    
    
    6,177
    
    
    
    8.6
    
    
    
    (18.2
    )Freight handling expense
    
    
    12,805
    
    
    
    18.3
    
    
    
    13,350
    
    
    
    18.7
    
    
    
    (4.1
    )Depreciation and amortization
    
    
    1,825
    
    
    
    2.6
    
    
    
    1,500
    
    
    
    2.1
    
    
    
    21.7Operating overhead expense
    
    
    5,822
    
    
    
    8.3
    
    
    
    5,497
    
    
    
    7.7
    
    
    
    5.9Total cost of revenue
    
    $
    70,815
    
    
    
    101.1
    %
    
    $
    67,422
    
    
    
    94.1
    %
    
    
    5.0
    %
 Flight Expense.
  Transportation Expense.
 22




---



##### Table of Contents



Fuel Expense.
 Maintenance Expense.
   Freight Handling Expense.
 Depreciation and Amortization.
 Operating Overhead Expense.
 Gross Profit (Loss)
  General and Administrative Expense
  23




---



##### Table of Contents



Other (Income) Expense
  Income Taxes
  Contractual Obligations
  Six Months
    
    Two Years
    
    Two YearsEnding
    
    Ending
    
    EndingContractual Obligations
    
    Total
    
    December 31, 2005
    
    December 31, 2007
    
    December 31, 2009
    
    ThereafterDebt
    
    $
    3,008
    
    
    $
    2,202
    
    
    $
    806
    
    
    $
    
    
    
    $
    Non-aircraft operating
leases
    
    
    33,897
    
    
    
    1,334
    
    
    
    4,765
    
    
    
    4,448
    
    
    
    23,350Aircraft operating
leases and use
agreements
    
    
    133,832
    
    
    
    11,230
    
    
    
    33,682
    
    
    
    23,809
    
    
    
    65,111Total contractual cash
obligations
    
    $
    170,737
    
    
    $
    14,766
    
    
    $
    39,253
    
    
    $
    28,257
    
    
    $
    88,461
 Forward-Looking Statements
    
    
    loss of key suppliers, significant customers or key management personnel;
    
    increased competition, including the possible impact of any mergers, alliances or combinations of
competitors;
    
    changes in the cost and availability of jet fuel and our ability to recapture increases in the cost
of jet fuel through the use of fuel surcharges;
 24




---



##### Table of Contents




    
    continuing high cost of fuel leading to a higher total price for our services which impacts the
expedited freight purchasing decision for our customers and/or shippers resulting in a shift toward
non-expedited and/or less expensive modes of transportation;
    
    limitations upon financial and operating flexibility due to the terms of our credit facility;
    
    change in our capital resources and liquidity;
    
    financial costs and operating limitations imposed by both the current and the potential additional
future unionization of our workforce;
    
    payment defaults by our customers;
    
    writedowns of the value of our parts, airframes or aircraft engines
    
    changes in the cost of airframe or aircraft engine maintenance and in our maintenance reserves;
    
    changes in general economic conditions;
    
    changes in the cost and availability of ground handling and storage services;
    
    changes in the cost and availability of aircraft or replacement parts;
    
    changes in our business strategy or development plans;
    
    changes in government regulation and policies, including regulations affecting maintenance
requirements for, and availability of, aircraft;
    
    foreign political instability and acts of war or terrorism;
    
    adverse litigation judgments or awards;
    
    the ability to efficiently integrate the Boeing 737-300SF cargo aircraft into our operations;
    
    future delays in receiving or placing the Boeing 737-300SF cargo aircraft into revenue service;
    
    the ability to negotiate reasonably economical maintenance agreements to maintain our cargo aircraft;
    
    findings of environmental contamination; and
    
    limitations in our ability to offset income with our future deductible tax attributes.
  25




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##### Table of Contents



Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Controls.
  
  
  General Motors.
 Other.
 
   26




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##### Table of Contents



Exhibit No.
    
    
    
    EXHIBIT31.1*
    
    
    
    Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.31.2*
    
    
    
    Certification of Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.1*
    
    
    
    Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 
 *
    
    Each document marked with an asterisk is filed or furnished herewith. 27




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##### Table of Contents



KITTY HAWK, INC.By:
    
    /s/ JAMES R. KUPFERSCHMIDJames R. KupferschmidVice President  Finance and Chief FinancialOfficer (Authorized officer and principalfinancial officer)
 28