-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HRLBLA/0/hh+Gb8F1QaRoygPH64NireqkhW+HFb35NJYp6Rab6LkrCIrjAHB55QS fehP3RSUIzIpNHGnCL+13A== 0000912057-99-004791.txt : 19991115 0000912057-99-004791.hdr.sgml : 19991115 ACCESSION NUMBER: 0000912057-99-004791 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAWAIIAN AIRLINES INC/HI CENTRAL INDEX KEY: 0000046205 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 990042880 STATE OF INCORPORATION: HI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08836 FILM NUMBER: 99746854 BUSINESS ADDRESS: STREET 1: 3375 KOAPAKA ST STREET 2: STE G350 CITY: HONOLULU STATE: HI ZIP: 96819 BUSINESS PHONE: 8088353700 FORMER COMPANY: FORMER CONFORMED NAME: HAL INC /HI/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: HAWAIIAN AIRLINES INC DATE OF NAME CHANGE: 19850314 FORMER COMPANY: FORMER CONFORMED NAME: INTER ISLAND AIRWAYS LTD DATE OF NAME CHANGE: 19670920 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 ( ) 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 1-8836 HAWAIIAN AIRLINES, INC. (Exact Name of Registrant as Specified in Its Charter) Hawaii 99-0042880 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 3375 Koapaka Street, Suite G-350 Honolulu, Hawaii 96819 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (808) 835-3700 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (X) Yes ( ) No Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. (X) Yes ( ) No As of November 1, 1999, 40,997,335 shares of Common Stock shares were outstanding. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HAWAIIAN AIRLINES, INC. CONDENSED BALANCE SHEETS (IN THOUSANDS)
(UNAUDITED) SEPTEMBER 30, DECEMBER 31, 1999 1998 - --------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents............................................. $ 35,597 $ 31,011 Restricted cash........................................................ 19,955 6,432 Accounts receivable, net.............................................. 31,853 29,995 Inventories, net...................................................... 11,722 8,546 Prepaid expenses and other............................................ 6,240 5,923 --------------- --------------- TOTAL CURRENT ASSETS.............................................. 105,367 81,907 --------------- --------------- Property and equipment, less accumulated depreciation and amortization of $34,937 and $25,584 in 1999 and 1998, respectively.... 106,174 84,922 Other assets.............................................................. 7,235 8,232 Reorganization value in excess of amounts allocable to identifiable assets, net ("Excess Reorganization Value"). 39,229 46,850 --------------- --------------- TOTAL ASSETS...................................................... $258,005 $221,911 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt..................................... $ 4,638 $ 3,532 Current portion of capital lease obligations.......................... 4,214 4,614 Accounts payable...................................................... 34,106 28,883 Air traffic liability................................................. 42,078 22,131 Accrued liabilities................................................... 18,543 16,517 --------------- --------------- TOTAL CURRENT LIABILITIES......................................... 103,579 75,677 --------------- --------------- Long-Term Debt............................................................ 23,561 14,454 Capital Lease Obligations................................................. 2,930 5,966 Other Liabilities and Deferred Credits.................................... 30,870 34,927 SHAREHOLDERS' EQUITY: Common and Special Preferred Stock..................................... 410 410 Capital in excess of par value........................................ 99,418 99,418 Warrants.............................................................. 3,153 3,153 Notes receivable from Common Stock sales.............................. (1,581) (1,581) Retained earnings (accumulated deficit)............................... 171 (6,007) Accumulated other comprehensive loss.................................. (4,506) (4,506) --------------- --------------- TOTAL SHAREHOLDERS' EQUITY........................................ 97,065 90,887 --------------- --------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................... $258,005 $221,911 =============== ===============
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS. HAWAIIAN AIRLINES, INC. CONDENSED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------------------------------------------------- 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- OPERATING REVENUES: Passenger...................................... $111,987 $ 97,358 $304,054 $270,652 Charter........................................ 10,891 8,416 30,741 26,519 Cargo.......................................... 5,829 5,686 16,877 16,514 Other.......................................... 6,324 4,072 15,690 11,096 ------------- -------------- -------------- ------------- TOTAL...................................... 135,031 115,532 367,362 324,781 ------------- -------------- -------------- ------------- OPERATING EXPENSES: Wages and benefits............................. 36,276 31,486 103,752 90,412 Aircraft fuel, including taxes and oil......... 20,451 15,138 51,710 50,989 Maintenance materials and repairs.............. 26,774 20,546 75,076 62,725 Rentals and landing fees....................... 7,806 8,357 22,453 23,016 Sales commissions.............................. 3,572 2,574 10,611 8,712 Depreciation and amortization.................. 4,723 3,317 12,529 9,442 Other.......................................... 28,299 22,604 78,258 63,824 ------------- -------------- -------------- ------------- TOTAL...................................... 127,901 104,022 354,389 309,120 ------------- -------------- -------------- ------------- OPERATING INCOME................................... 7,130 11,510 12,973 15,661 ------------- -------------- -------------- ------------- NONOPERATING EXPENSE: Interest expense, net.......................... (252) (31) (910) (392) Loss on disposition of equipment............... (59) (83) (842) (142) Other, net..................................... (196) (31) 425 (78) ------------- -------------- -------------- ------------- TOTAL...................................... (507) (145) (1,327) (612) ------------- -------------- -------------- ------------- INCOME BEFORE INCOME TAXES......................... 6,623 11,365 11,646 15,049 INCOME TAX PROVISION............................... (3,133) (5,231) (5,468) (7,070) ------------- -------------- -------------- ------------- NET INCOME......................................... 3,490 6,134 6,178 7,979 OTHER COMPREHENSIVE INCOME......................... - - - - ------------- -------------- -------------- ------------- COMPREHENSIVE INCOME............................... $ 3,490 $ 6,134 $ 6,178 $ 7,979 ============= ============== ============== ============= NET INCOME PER COMMON STOCK SHARE: Basic......................................... $ 0.09 $ 0.15 $ 0.15 $ 0.20 ============= ============== ============== ============= Diluted....................................... $ 0.08 $ 0.15 $ 0.15 $ 0.19 ============= ============== ============== ============= WEIGHTED AVERAGE NUMBER OF COMMON STOCK SHARES OUTSTANDING: Basic......................................... 40,997 40,932 40,997 40,906 ============= ============== ============== ============= Diluted....................................... 42,144 42,045 42,195 42,182 ============= ============== ============== =============
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS. HAWAIIAN AIRLINES, INC. CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1999 1998 - ---------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................................. $ 6,178 $ 7,979 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................................... 12,529 9,442 Net periodic postretirement benefit cost.............................. 1,030 1,071 Loss on disposition of equipment....................................... 842 142 Income tax provision recognized as a reduction to Excess Reorganization Value........................................ 5,468 7,070 Increase in restricted cash........................................... (13,523) (2,701) Increase in accounts receivable........................................ (1,858) (1,148) Decrease (increase) in inventories.................................... (3,176) 68 Decrease (increase) in prepaid expenses and other..................... (317) 2,542 Increase (decrease) in accounts payable............................... 5,223 (320) Increase in air traffic liability..................................... 19,947 945 Increase in accrued liabilities........................................ 2,026 483 Other, net............................................................. (4,698) 1,428 ------------- -------------- NET CASH PROVIDED BY OPERATING ACTIVITIES......................... 29,671 27,001 ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment......................................... (32,168) (9,291) Net proceeds from disposition of equipment................................. 306 871 Sale of investment securities............................................. - 4,001 ------------- -------------- NET CASH USED IN INVESTING ACTIVITIES.............................. (31,862) (4,419) ------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt................................... 12,449 563 Repayment of long-term debt................................................ (2,236) (990) Repayment of capital lease obligations..................................... (3,436) (3,146) Proceeds from issuance of Common Stock..................................... - 77 Proceeds on notes receivable from Common Stock sales...................... - 133 ------------- -------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............... 6,777 (3,363) ------------- -------------- NET INCREASE IN CASH AND CASH EQUIVALENTS.......................... 4,586 19,219 Cash and cash equivalents - Beginning of Period................................. 31,011 15,713 ------------- -------------- CASH AND CASH EQUIVALENTS - END OF PERIOD....................................... $ 35,597 $34,932 ============= ==============
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS. HAWAIIAN AIRLINES, INC. STATISTICAL DATA (IN THOUSANDS, EXCEPT AS OTHERWISE INDICATED) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ---------------------------------- 1999 1998 1999 1998 - -------------------------------------------------------------------------------------- ---------------------------------- SCHEDULED OPERATIONS: Revenue passengers flown......................... 1,461 1,333 4,092 3,786 Revenue passenger miles ("RPM").................. 1,123,450 992,615 3,054,878 2,748,244 Available seat miles ("ASM")..................... 1,437,071 1,268,422 4,064,180 3,699,817 Passenger load factor............................ 78.2% 78.3% 75.2% 74.3% Passenger revenue per passenger mile ("Yield")... 10.0 CENTS 9.8 CENTS 10.0 CENTS 9.8 CENTS OVERSEAS CHARTER OPERATIONS: Revenue passengers flown......................... 70 60 202 187 RPM.............................................. 195,261 166,061 563,283 515,167 ASM.............................................. 205,339 177,454 591,029 548,693 TOTAL OPERATIONS: Revenue passengers flown......................... 1,531 1,393 4,294 3,973 RPM.............................................. 1,318,711 1,158,676 3,618,161 3,263,411 ASM.............................................. 1,642,410 1,445,876 4,655,209 4,248,510 Revenue per ASM.................................. 8.2 CENTS 8.0 CENTS 7.9 CENTS 7.6 CENTS Cost per ASM..................................... 7.8 CENTS 7.2 CENTS 7.6 CENTS 7.3 CENTS
HAWAIIAN AIRLINES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION In the opinion of management, the unaudited condensed financial statements included in this report contain all adjustments necessary for a fair presentation of the results of operations and statements of cash flows for the interim periods covered and the financial position of Hawaiian Airlines, Inc. ("Hawaiian Airlines" or the "Company") for the periods indicated. The operating results for the interim period are not necessarily indicative of the results to be expected for the full fiscal year. The accompanying financial statements should be read in conjunction with the financial statements and the notes thereto contained in Hawaiian Airlines' Annual Report on Form 10-K for the year ended December 31, 1998. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH, CASH EQUIVALENTS AND RESTRICTED CASH The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. As of September 30, 1999 and December 31, 1998, approximately $20.0 million and $6.4 million, respectively, of cash was restricted as to withdrawal. These funds serve as collateral to support a credit card holdback for advance ticket sales and are classified as restricted cash in the accompanying condensed balance sheets. Funds are made available as air travel is provided. DERIVATIVE FINANCIAL INSTRUMENTS The Company utilizes derivative financial instruments principally comprised of heating oil forward contracts to manage market risks and hedge its exposure to fluctuations in its aircraft fuel costs. These contracts qualify for hedge accounting treatment as they manage risk, identify firm commitments for set time periods and meet correlation criteria for effectiveness. The Company accounts for its derivative contracts on a deferral basis. Initial and subsequent margin deposit requirements are reflected in prepaid expenses and other assets. Realized and unrealized gains and losses, fees and commissions are deferred and recognized upon settlement of the underlying contract. INCOME TAXES The Company's reorganization and the associated implementation of fresh start reporting in September 1994 gave rise to significant items of expense for financial reporting purposes that are not deductible for income tax purposes. In large measure, it is these nondeductible expenses that result in an effective tax rate (for financial reporting purposes) significantly different than the current United States ("U.S.") corporate statutory rate of 35.0%. For the three and nine month periods ended September 30, 1999, estimated interperiod tax provisions of $3.1 million and $5.5 million, respectively, have been reflected in the accompanying condensed statements of earnings. While generally accepted accounting principles require that a provision for income taxes be recorded, a majority of the amount recorded will not require cash outlay as the provision will be offset by net operating loss carryforwards available to the Company. The estimated income tax benefit from the expected utilization of these net operating loss carryforwards has been applied as a reduction to reorganization value in excess of amounts allocable to identifiable assets. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of air traffic liability, accruals for loss contingencies and the amounts reported for accumulated pension and other postretirement benefit obligations. Management believes that such estimates have been appropriately established in accordance with generally accepted accounting principles. RECLASSIFICATIONS Certain prior year amounts were reclassified to conform to the 1999 presentation. Such reclassifications had no effect on previously reported financial condition and/or results of operations. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The provisions of SFAS No. 133, as amended by SFAS No. 137, are effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company will adopt SFAS No. 133 on January 1, 2001 but has not yet determined the impact of its adoption. In March 1998, the American Institute of Certified Public Accountants Accounting Standards Executive Committee (the "AcSEC") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" which requires that certain costs related to the development or purchase of internal-use software be capitalized and amortized over the estimated useful life of the software. The SOP also requires that costs related to the preliminary project stage and the post-implementation/operations stage, as defined, in an internal-use computer software development project be expensed as incurred. In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-up Activities," which requires that costs incurred during start-up activities, including organization costs, be expensed as incurred. Adoption of the provisions of SOP 98-1 and SOP 98-5 by the Company as of January 1, 1999 did not have a material impact on the Company's financial position or results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FORWARD LOOKING INFORMATION Certain statements contained in this report that are not related to historical results, including, without limitation, statements regarding the Company's business strategy and objectives, future financial position and estimated cost savings, are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act and involve risks and uncertainties. Although the Company believes that the assumptions on which any forward-looking statements are based are reasonable, there can be no assurance that such assumptions will prove to be accurate and actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed under Part I, Item I, Business of the Company's Form 10-K Annual Report for the year ended December 31, 1998 and heretofore, as well as those discussed elsewhere in this Form 10-Q. All forward-looking statements contained in this Form 10-Q are qualified in their entirety by this cautionary statement. It is not reasonably possible to itemize all of the many factors and specific events that could affect the outlook of an airline operating in the global economy. Some factors that could significantly impact capacity, load factors, revenues, expenses and cash flows include the airline pricing environment, fuel costs, labor union situations both at the Company and other carriers, low-fare carrier expansion, capacity decisions of other carriers, actions of the U.S. and foreign governments, foreign currency exchange rate fluctuations, inflation, the general economic environment and other factors discussed herein. Developments in any of these areas, as well as other risks and uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings, could cause the Company's results to differ from results that have been or may be projected by or on behalf of the Company. The Company cautions that the foregoing list of important factors is not exclusive. The Company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the Company. SEGMENT INFORMATION Due to the centralization of the Company's operations in the State of Hawaii and the interdependence of its routes, management considers its operations to be one operating segment. RESULTS OF OPERATIONS In third quarter 1999, the Company generated operating and net income of $7.1 million and $3.5 million, respectively. For the nine months ended September 30, 1999, the Company generated operating and net income of $13.0 million and $6.2 million, respectively. For the three and nine months ended September 30, 1999, operating revenues respectively increased by $19.5 million and $42.6 million compared to the corresponding periods in 1998, principally due to increases in scheduled and chartered passenger revenues. For the comparable periods in 1999, operating expenses increased by $23.9 million and $45.3 million, respectively, compared to the corresponding periods in 1998, a result of higher labor, aircraft fuel, maintenance and general administrative expenses. The Company also continues to incur additional expenses from its increased flight operations and investments in infrastructure to support the Company's growth. Incremental labor and training costs related to the Company's expansion totaled more than $2 million during the nine month period ended September 30, 1999. As evidenced throughout 1999, overall tourism in Hawaii has shown gradual improvement period over period. Preliminary statistics from the Hawaii Visitors & Convention Bureau revealed that visitor arrivals to the State of Hawaii through the first nine months of 1999 increased by 1.4%. Through September 1999, a 6.3% decrease in Eastbound visitor traffic was offset by a 6.0% increase in Westbound visitor traffic. THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999 The following table compares third quarter 1999 operating passenger revenues and statistics to those in third quarter 1998, in thousands, except as otherwise indicated:
Three Months Ended September 30, Operating Passenger ----------------------------------- Increase Revenues and Statistics 1999 1998 (Decrease) % - ----------------------------------------------------------------------------------- ------------------------------ Scheduled: Passenger revenues.................... $ 111,987 $ 97,358 $ 14,629 15.0 Revenue passengers flown.............. 1,461 1,333 128 9.6 RPMs.................................. 1,123,450 992,615 130,835 13.2 ASMs.................................. 1,437,071 1,268,422 168,649 13.3 Passenger load factor................. 78.2% 78.3% (0.1) - Yield................................. 10.0 CENTS 9.8 CENTS 0.2 CENTS 2.0 Overseas Charter: Charter revenues...................... $ 10,891 $ 8,416 $ 2,475 29.4 Revenue passengers flown.............. 70 60 10 16.7 RPMs.................................. 195,261 166,061 29,200 17.6 ASMs.................................. 205,339 177,454 27,885 15.7 Total Operations: Scheduled passenger and overseas charter revenues.......... $ 122,878 $ 105,774 $ 17,104 16.2 Revenue passengers flown.............. 1,531 1,393 138 9.9 RPMs.................................. 1,318,711 1,158,676 160,035 13.8 ASMs.................................. 1,642,410 1,445,876 196,534 13.6
Significant quarter to quarter variances were as follows: Scheduled passenger revenues totaled $112.0 million in third quarter 1999, an increase of $14.6 million or 15.0% over third quarter 1998. On a scheduled system-wide basis, the Company experienced an approximate 13.2% increase in RPMs, complemented by a 2.0% increase in yield. Quarter over quarter, the Company's Interisland and Transpacific passenger revenues increased by $2.5 million and $11.6 million, respectively. These scheduled passenger revenue increases were primarily driven by an 8% increase in Interisland passengers carried and RPMs and a 14% increase in Transpacific revenue passengers carried and RPMs, respectively. Overseas charter revenues increased $2.5 million or 29.4%, principally due to (1) the commencement in August 1999 of a two-year agreement providing for approximately 20 round-trip charter flights per month between Los Angeles and Tahiti and (2) additional ad hoc charters flown quarter over quarter. The following table compares operating expenses per ASM for third quarter 1999 with third quarter 1998 by major category:
Three Months Ended September 30, ---------------------------- Increase Operating Expenses Per ASM 1999 1998 (Decrease) % - --------------------------------------------- ---------------------------- ----------------------------- Wages and benefits........................... 2.21 CENTS 2.18 CENTS 0.03 CENTS 1.4 Aircraft fuel, including taxes and oil....... 1.25 1.05 0.20 19.0 Maintenance materials and repairs............ 1.63 1.42 0.21 14.8 Rentals and landing fees..................... 0.48 0.58 (0.10) (17.2) Sales commissions............................ 0.22 0.18 0.04 22.2 Depreciation and amortization................ 0.29 0.23 0.06 26.1 Other........................................ 1.72 1.56 0.16 10.3 ---------- ---------- ---------- ----------- Total............................. 7.80 CENTS 7.20 CENTS 0.60 CENTS 8.3 ========== ========== ========== ===========
All fluctuations in operating expenses were affected by an overall increase in ASM of approximately 13.6% quarter over quarter. Significant quarter to quarter variances were as follows: Quarter over quarter, wages and benefits increased by $4.8 million or 15.2%. Wages and benefits totaled $36.3 million in third quarter 1999 versus $31.5 million in third quarter 1998. A majority of the increase is attributable to (1) a 3% wage increase effective December 1, 1998 and (2) additional wages and benefits from increased flying. Aircraft fuel cost, including taxes and oil ("Aircraft Fuel Cost") per ASM increased by 0.20 CENTS or 19.0%. Quarter over quarter, the Company incurred approximately $5.3 million or 35.1% more Aircraft Fuel Cost. Due to increased flying, gallons consumed increased by 14.4% while the average cost of aircraft fuel per gallon, excluding taxes, increased by 13.2 CENTS or 28.4%. For the remainder of 1999, the Company anticipates that the average cost of aircraft fuel per gallon will reflect those levels experienced during third quarter 1999. Maintenance materials and repairs per ASM increased by 0.21 CENTS or 14.8%. Quarter over quarter, the Company incurred approximately $6.2 million or 30.3% in additional expense due to (1) $2.9 million more in DC-9 airframe maintenance and (2) $3.3 million more in DC-10 maintenance expense, the result of increases in the maintenance rates charged by American Airlines, Inc. ("American") and the number of DC-10 aircraft used and hours flown. Rentals and landing fees decreased by 0.10 CENTS or 17.2% in third quarter 1999 compared to third quarter 1998. Rentals and landing fees totaled $7.8 million for third quarter 1999, a decrease of $551,000 or 6.6% from third quarter 1998. The decrease primarily resulted from the net of (1) $1.6 million less in DC-10 rental expense as the Company renegotiated its leases of American DC-10 aircraft in second quarter 1999 and (2) $608,000 in additional landing fees as the two-year moratorium placed on landing fees at all airports in the State of Hawaii ended on September 1, 1999. Sales commissions increased by 0.04 CENTS or 22.2% in third quarter 1999 compared to third quarter 1998. Sales commissions totaled $3.6 million in third quarter 1999, an increase of $1.0 million or 38.8% principally due to an increase in the volume of sales from travel agency and retail sales sources. Depreciation and amortization per ASM increased by 0.06 CENTS or 26.1%. Additional depreciation of approximately $1.5 million was incurred from owned DC-9 and DC-10 aircraft placed into service in 1999. Other operating expenses increased quarter over quarter by $5.7 million or 25.2%, principally attributable to expenses associated with the Company's increased flying schedule and passengers flown, including but not limited to, credit card fees, ground handling, food and beverage, personnel expenses and communication. NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 The following table compares operating passenger revenues and statistics for the nine month periods ended September 30, 1999 and 1998, in thousands, except as otherwise indicated:
Nine Months Ended September 30, Operating Passenger ----------------------------------- Increase Revenues and Statistics 1999 1998 (Decrease) % - ---------------------------------------------------------------------------------- ---------------------------- Scheduled: Passenger revenues................... $ 304,054 $ 270,652 $ 33,402 12.3 Revenue passengers flown............. 4,092 3,786 306 8.1 RPMs................................. 3,054,878 2,748,244 306,634 11.2 ASMs................................. 4,064,180 3,699,817 364,363 9.8 Passenger load factor................ 75.2% 74.3% 0.9 1.2 Yield................................ 10.0 CENTS 9.8 CENTS 0.2 CENTS 2.0 Overseas Charter: Charter revenues..................... $ 30,741 $ 26,519 $ 4,222 15.9 Revenue passengers flown............. 202 187 15 8.0 RPMs................................. 563,283 515,167 48,116 9.3 ASMs................................. 591,029 548,693 42,336 7.7 Total Operations: Scheduled passenger and overseas charter revenues......... $ 334,795 $ 297,171 $ 37,624 12.7 Revenue passengers flown............. 4,294 3,973 321 8.1 RPMs................................. 3,618,161 3,263,411 354,750 10.9 ASMs................................. 4,655,209 4,248,510 406,699 9.6
Significant period to period variances were as follows: Scheduled passenger revenues totaled $304.1 million during the nine month period ended September 30, 1999, an increase of $33.4 million or 12.3% over passenger revenues of $270.7 million for the nine month period ended September 30, 1998. The Company experienced period over period increases of $4.6 million and $27.4 million in its Interisland and Transpacific passenger revenues, respectively. The Company's concentrated efforts throughout the year to improve fare and passenger mix and initiate and maintain general price increases resulted in, for the nine months ended September 30, 1999 (1) higher yields in the Transpacific market of approximately 6% and (2) a 7% and 12% increase in Interisland and Transpacific RPMs and passengers carried, respectively. Overseas charter revenues totaled $30.7 million in the nine month period ended September 30, 1999, an increase of $4.2 million or 15.9% from the nine month period ended September 30, 1998. As described above, the increase is primarily associated with the Company commencing charters between Los Angeles and Tahiti and the flying of additional ad hoc charters period over period. The following table compares operating expenses per ASM by major category for the nine month periods ended September 30, 1999 and 1998:
Nine Months Ended September 30, ---------------------------- Increase Operating Expenses Per ASM 1999 1998 (Decrease) % - --------------------------------------------------------------------------------- ---------------------------- Wages and benefits............................ 2.23 CENTS 2.13 CENTS 0.10 CENTS 4.7 Aircraft fuel, including taxes and oil........ 1.11 1.20 (0.09) (7.5) Maintenance materials and repairs............. 1.61 1.48 0.13 8.8 Rentals and landing fees...................... 0.48 0.54 (0.06) (11.1) Sales commissions............................. 0.23 0.21 0.02 9.5 Depreciation and amortization................. 0.27 0.22 0.05 22.7 Other......................................... 1.68 1.50 0.18 12.0 ========== ========== ========== =========== Total.............................. 7.61 CENTS 7.28 CENTS 0.33 CENTS 4.5 ========== ========== ========== ===========
All fluctuations in operating expenses were affected by an overall increase in ASM of approximately 9.6% period over period. Significant period to period variances were as follows: Wages and benefits totaled $103.8 million versus $90.4 million for the respective nine month periods in 1999 and 1998, an increase of $13.3 million or 14.8%. Similar to above, a majority of the increase is primarily attributable to (1) a 3% wage increase effective December 1, 1998 and (2) additional wages and benefits from increased flying and implementation of the Company's 1999 growth strategies. Maintenance materials and repairs per ASM increased by 0.13 CENTS or 8.8% for the nine months ended September 30, 1999 compared to the same period in 1998. For the nine months ended September 30, 1999, the Company incurred approximately $12.4 million or 19.7% in additional maintenance expense as compared to the same period in 1998 due to (1) $4.4 million more in DC-9 airframe and engine repairs and (2) $7.7 million more in DC-10 maintenance expense, the result of increased American maintenance rates and the number of DC-10 aircraft used and flown. Sales commissions per ASM increased by 0.02 CENTS or 9.5%. Sales commissions totaled $10.6 million, an increase of $1.9 million or 21.8%. As mentioned above, the increase is primarily the result of increased sales activity from travel agency and retail sales sources. Depreciation and amortization per ASM increased by 0.05 CENTS or 22.7% for the first nine months of 1999 compared to the same period in 1998. Additional depreciation of approximately $2.9 million was incurred from owned DC-9 and DC-10 aircraft and related rotable parts placed into service in 1999. Other operating expenses per ASM increased by 0.18 CENTS or 12.0% period over period. Other operating expenses increased period over period by $14.4 million or 22.6%. Similar to that discussed above, the increase is primarily attributable to expenses associated with the Company's increased flying schedule and passengers flown, including but not limited to, ground handling, security, food and beverage, advertising and promotion and personnel expenses. AIRCRAFT On September 22, 1999, the Company announced that, subject to the negotiation and execution of a definitive agreement, it had accepted an offer from The Boeing Company ("Boeing") to purchase up to 20 Boeing 717-200 aircraft to replace its present Interisland fleet. The Company currently utilizes 15 DC-9-50 aircraft to service its Interisland routes. The 717s (1) have the same Type Rating as the DC-9, allowing easier maintenance and crew training transitioning; (2) seat eight passengers in first class and 115 in coach; (3) utilize twin BMW Rolls-Royce BR715 engines that generate emissions 60% below existing federal standards; and (4) meet federal Stage 3 and Stage 4, as currently defined, requirements. The 717s are also expected to be 25% more fuel-efficient, less costly to maintain than the Company's current DC-9-50 fleet and able to fly with greater frequency than the DC-9s. This would allow an expanded Interisland flight schedule to accommodate existing and increasing passenger demand generated from the Company's marketing efforts, its code share agreements with American, Continental Airlines, Inc. ("Continental") and Northwest Airlines, Inc. and the Company's own expanded Transpacific operations. A firm order valued at more than $430 million for 13 Boeing 717-200 aircraft has been placed, with the Company anticipating taking delivery of the 13 new aircraft throughout the year 2001. Financing will be provided through Boeing for acquisition of the initial 13 aircraft. The Company also recently announced agreements to sublease two DC-10-30 aircraft from Continental for use in its charter operations and its nonstop Transpacific Los Angeles to Maui route. The Company expects delivery of the first aircraft on or about November 15, 1999 and the second aircraft on or about April 2000. LIQUIDITY AND CAPITAL RESOURCES The Company believes that it has various options available to meet its current and future capital, debt and operating commitments, including cash and liquid short-term investment securities on hand on September 30, 1999 of $35.6 million and internally generated funds. The Company also has restricted cash representing a credit card holdback of $20.0 million resulting from advance ticket sales. These funds are made available to the Company for general use as air travel is provided and fluctuate based upon advance booking trends. The Company also maintains a credit facility with a total availability of $9.3 million as of September 30, 1999 with aggregate term loans and letters of credit outstanding in the amounts of $5.3 million and $3.2 million, respectively. The Company will continue to consider various borrowing or leasing options to supplement its cash requirements. Cash and cash equivalents for the nine month period ended September 30, 1999 increased by $4.6 million. Operating activities for the nine month period ended September 30, 1999 provided $29.7 million in cash and cash equivalents, primarily due to the Company generating positive operating and net income and net increases in accounts payable, air traffic liability and accrued liabilities. Through September 30, 1999, the Company incurred $32.2 million in capital expenditures, approximately $19.5 million of which is associated with the acquisition of additional DC-9 and DC-10 aircraft. Capitalized portions of aircraft improvements and continued investments in improved software, related hardware and ground equipment and other assets represent a majority of the remaining capital expenditures. The Company estimates that its 1999 capital expenditures will approximate $47.8 million. DERIVATIVE FINANCIAL INSTRUMENTS The Company utilizes heating oil forward contracts to manage market risks and hedge its financial exposure resulting from fluctuations in its aircraft fuel costs. When fully implemented, the Company plans to employ a strategy whereby heating oil contracts are used to cover approximately 50% of the Company's anticipated aircraft fuel needs on a rolling six month basis. At September 30, 1999, the Company held petroleum forward contracts to purchase 256,000 barrels of heating oil in the aggregate amount of $6.2 million through April 2000. These forward contracts represented approximately 17% of the Company's anticipated 1999 aircraft fuel needs for the next six months. Realized gains on liquidated contracts amounting to $87,000 and $111,000, are included as a component of Aircraft Fuel Cost for the three and nine month periods ended September 30, 1999. INFORMATION TECHNOLOGY SYSTEMS AND YEAR 2000 The Company has brought a number of major information technology systems on line for strategic purposes as well as to address issues associated with the year 2000. These information technology projects either replaced or enhanced existing systems, including local and wide area networks, yield management and all or portions of revenue and financial accounting. Essentially all development and implementation efforts related to these projects have been completed. Approximately $8 million of external costs associated with these efforts have been incurred as of September 30, 1999. The Company's efforts have transitioned whereby, as necessary, these projects have been incorporated into or complement those Year 2000 programs described below. The Company's dedicated Year 2000 Director and Year 2000 Project Office continue to oversee the Company's Year 2000 compliance efforts, which operate on four tracks including (1) information and communication systems; (2) hardware; (3) business partnerships; and (4) government and externalities. Each track utilizes the Federal General Accounting Office methodology and available best practices. STATE OF READINESS The Company has and continues to perform constant awareness activities through regular informational briefings and newsletter updates along with formal briefs of management and senior management. The Company has initiated public relations activities, and is working with the Air Transport Association in a continuing coordinated industry effort. The Company has inventoried all of its hardware and software applications and is in the process of formally documenting its inventory assessments. Applications and hardware configurations of computers operating on the Company's networks have been audited using automated tools and stand-alone machines have been subjected to the same detailed audits. Remediation of legacy systems is 100% complete with all remediation and testing of mission critical systems completed as of September 30, 1999. The Company has contracted with external vendors to assist in its testing efforts and is currently completing testing on two remaining systems. Departments are currently engaged in final documentation of their business partners, including critical third-party service providers, with all activities scheduled for completion in November 1999. Hardware assessments have identified a very small amount of equipment which is date aware, with no systems yet identified as requiring remediation. All mission critical systems have been documented compliant either through manufacturer assurances or testing by the Company. ESTIMATED COSTS TO ADDRESS YEAR 2000 ISSUES Because a substantial portion of the Company's information systems were replaced by new applications that are represented to be Year 2000 compliant, the Company's remaining Year 2000 issues are primarily related to remediation of legacy code and assistance in conducting Year 2000 testing. The Company estimates that it will expend $1 million to $2 million for such remediation and testing. This will be in addition to the $8 million expended on those replacement systems described above. CONTINGENCY PLANS FOR HAWAIIAN AIRLINES In addition to those Company contingency plans already on file for a number of operational functions as a part of U.S. Federal Aviation Administration (the "FAA") regulations and its normal operational disaster recovery plans, the Company has undertaken Year 2000-specific contingency activities. To this end, the Company has established a dedicated position for the coordination of contingency plans. While the Company believes that all systems will be Year 2000 ready, the Company has substantively developed appropriate contingency plans to address complete and partial systems failure for all critical, vital, and important internal systems and those relied on from third-party service providers. Hawaiian will continue to refine and test its contingency plans throughout the remainder of 1999. RISKS OF YEAR 2000 ISSUES Preliminary reviews of flight systems have found little potential impact of Year 2000 issues, and existing contingency plans and training address the loss of most affected operations systems. The primary risks to Hawaiian Airlines are those of business continuity. While indications to date are that its business partners are actively preparing for the Year 2000, the Company will continue to aggressively address both its supply and revenue chains to ensure, to the best of the Company's knowledge, that both products and business operations of its partners are not adversely affected by the Year 2000 problem. Notwithstanding the foregoing, the Company's business, financial condition or results of operations could be materially adversely affected by the failure of its systems or, which the Company believes is the most reasonably likely worst case scenario, failure of those systems operated by third parties on which the Company's business relies (including those of the FAA) to operate properly beyond 1999. There can be no assurance that such systems will be modified for Year 2000 operational requirements on a timely basis. Because of the variables associated with the year 2000 date problem, management cannot give assurance that in-progress system transitions will be sufficient or assure that the Company will not be affected by the year 2000 issue in some form or manner. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is subject to certain market risks related to its aircraft fuel. Refer to DERIVATIVE FINANCIAL INSTRUMENTS as described above for further discussion on aircraft fuel and related financial instruments. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. No material developments in matters previously reported or reportable events arising in the three or nine months ended September 30, 1999 were noted. ITEM 2. CHANGES IN SECURITIES. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. To be considered for inclusion in the Company's 2000 proxy material, shareholder proposals to be considered for presentation at the 2000 Annual Meeting of Shareholders must be received by the Corporate Secretary of the Company at its principal offices at 3375 Koapaka Street, Suite G-350, Honolulu, Hawaii 96819 on or before December 17, 1999. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. Exhibit 27 Financial Data Schedule. (b) Reports on Form 8-K. (i) Current Report on Form 8-K dated September 14, 1999 (date of event August 28, 1999) reporting Item 5, "Other Events" and Item 7, "Financial Statements, Proforma Financial Information and Exhibits." (ii) Current Report on Form 8-K dated September 27, 1999 (date of event September 22, 1999) reporting Item 5, "Other Events." (iii) Current Report on Form 8-K dated October 5, 1999 (date of event September 28, 1999) reporting Item 4, "Changes In Registrant's Certifying Accountant." (iv) Current Report on Form 8-K/A dated October 12, 1999 (date of event September 28, 1999) reporting Item 4, "Changes In Registrant's Certifying Accountant" and Item 7, "Financial Statements, Proforma Financial Information and Exhibits." SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HAWAIIAN AIRLINES, INC. November 12, 1999 By /s/ JOHN L. GARIBALDI ---------------------------------------- John L. Garibaldi Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) EX-27 2 EXHIBIT 27
5 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 55,552 0 32,353 500 11,722 105,367 141,111 34,937 258,005 103,579 26,491 0 0 410 96,655 258,005 367,362 367,362 354,389 354,389 415 0 910 11,646 5,468 6,178 0 0 0 6,178 0.15 0.15
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