-----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, R1SApEGv7CSrDNbjjMty2YbzCb/G2b18I9XyTLP/oANTTM5JWIZJ0hPT9F+/QBba fMnSbx6aLq/7kO2AxPMSww== 0000912057-00-021617.txt : 20000505 0000912057-00-021617.hdr.sgml : 20000505 ACCESSION NUMBER: 0000912057-00-021617 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000504 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: 618689 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 March 31, 2000 ( ) 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 May 1, 2000, 40,859,635 shares of Common Stock were outstanding. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. HAWAIIAN AIRLINES, INC. CONDENSED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED)
MARCH 31, DECEMBER 31, 2000 1999 - ------------------------------------------------------------------------------------------------------------ ASSETS CURRENT ASSETS: Cash and cash equivalents ........................................ $ 81,958 $ 63,631 Accounts receivable, net ......................................... 23,330 24,921 Inventories, net ................................................. 13,376 13,965 Deferred tax assets, net ......................................... 9,625 9,625 Prepaid expenses and other ....................................... 7,805 6,521 --------- --------- TOTAL CURRENT ASSETS ......................................... 136,094 118,663 --------- --------- Property and equipment, less accumulated depreciation and amortization of $15,653 and $12,541 in 2000 and 1999, respectively 66,021 65,272 Deferred tax assets, net ............................................. 14,500 12,375 Other assets ......................................................... 9,313 8,930 Reorganization value in excess of amounts allocable to identifiable assets, net ............................ 33,320 33,897 --------- --------- TOTAL ASSETS ................................................. $ 259,248 $ 239,137 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt ................................ $ 3,561 $ 3,853 Current portion of capital lease obligations ..................... 1,462 3,379 Accounts payable ................................................. 40,295 41,864 Air traffic liability ............................................ 76,815 50,426 Accrued liabilities .............................................. 22,468 20,920 --------- --------- TOTAL CURRENT LIABILITIES .................................... 144,601 120,442 --------- --------- Long-Term Debt ....................................................... 23,621 23,858 Capital Lease Obligations ............................................ 2,603 2,790 Other Liabilities and Deferred Credits ............................... 24,895 25,921 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) Accumulated deficit .............................................. (37,872) (35,274) --------- --------- SHAREHOLDERS' EQUITY ......................................... 63,528 66,126 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................... $ 259,248 $ 239,137 ========= =========
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS. 2 HAWAIIAN AIRLINES, INC. CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------------------- 2000 1999 - -------------------------------------------------------------------------------------------------- OPERATING REVENUES: Passenger .............................................. $ 104,430 $ 90,486 Charter ................................................ 20,171 10,187 Cargo .................................................. 6,446 5,135 Other .................................................. 4,986 3,867 --------- --------- TOTAL .............................................. 136,033 109,675 --------- --------- OPERATING EXPENSES: Wages and benefits ..................................... 38,910 32,989 Aircraft fuel, including taxes and oil ................. 28,146 13,819 Maintenance materials and repairs ...................... 28,294 23,760 Rentals and landing fees ............................... 8,923 7,420 Sales commissions ...................................... 2,358 3,414 Depreciation and amortization .......................... 3,932 3,596 Other .................................................. 29,925 23,538 --------- --------- TOTAL .............................................. 140,488 108,536 --------- --------- OPERATING INCOME (LOSS) .................................... (4,455) 1,139 --------- --------- NONOPERATING INCOME (EXPENSE): Interest expense, net .................................. 72 (229) Loss on disposition of equipment ....................... (153) (420) Other, net ............................................. (187) 648 --------- --------- TOTAL .............................................. (268) (1) --------- --------- INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (4,723) 1,138 INCOME TAX (PROVISION) BENEFIT ............................. 2,125 (535) --------- --------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ..................... (2,598) 603 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF INCOME TAXES .................................... - (772) --------- --------- NET INCOME (LOSS) .......................................... (2,598) (169) OTHER COMPREHENSIVE INCOME (LOSS) .......................... - - --------- --------- COMPREHENSIVE INCOME (LOSS) ................................ $ (2,598) $ (169) ========= =========
3 HAWAIIAN AIRLINES, INC. CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS, EXCEPT PER SHARE DATA)(UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------------------- 2000 1999 - ------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) PER COMMON STOCK SHARE: BASIC Before Cumulative Effect of Change in Accounting Principle $ (0.06) $ 0.01 Cumulative Effect of Change in Accounting Principle, Net of Income Taxes ................................... - (0.02) ------- ---------- NET INCOME (LOSS) PER COMMON STOCK SHARE ..................... $ (0.06) $ (0.01) ======== ========== DILUTED Before Cumulative Effect of Change in Accounting Principle $ (0.06) $ 0.01 Cumulative Effect of Change in Accounting Principle, Net of Income Taxes ................................... - (0.02) -------- ---------- NET INCOME (LOSS) PER COMMON STOCK SHARE ..................... $ (0.06) $ (0.01) ======== ========== WEIGHTED AVERAGE NUMBER OF COMMON STOCK SHARES OUTSTANDING: BASIC AND DILUTED ............................................ 40,997 40,997 ======== ==========
4 HAWAIIAN AIRLINES, INC. CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------------------- 2000 1999 - -------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ........................................... $ (2,598) $ (169) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation ............................................ 2,515 2,436 Amortization ............................................ 1,417 1,160 Net periodic postretirement benefit cost ................ 280 188 Loss on disposition of equipment ........................ 153 420 Decrease (increase) in accounts receivable .............. 1,591 (2,980) Decrease (increase) in inventories ...................... 589 (1,298) Decrease (increase) in prepaid expenses.................. (1,284) 416 Increase in deferred tax assets ......................... (2,125) - Increase (decrease) in accounts payable ................. (1,569) 5,347 Increase air traffic liability .......................... 26,389 3,860 Increase in accrued liabilities ......................... 1,548 3,517 Other, net .............................................. (2,124) (605) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES ........... 24,782 12,292 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment .......................... (1,514) (14,636) Progress payments on flight equipment ....................... (2,313) - Net proceeds from disposition of equipment .................. 5 190 -------- -------- NET CASH USED IN INVESTING ACTIVITIES ............... (3,822) (14,446) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt .................................. 232 8,531 Repayment of long-term debt ................................. (761) (573) Repayment of capital lease obligations ...................... (2,104) (1,121) -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES . (2,633) 6,837 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS ..................................... 18,327 4,683 Cash and cash equivalents - Beginning of Period .................. 63,631 31,011 -------- -------- CASH AND CASH EQUIVALENTS - END OF PERIOD ........................ $ 81,958 $ 35,694 ======== ========
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS. 5 HAWAIIAN AIRLINES, INC. STATISTICAL DATA (IN THOUSANDS, EXCEPT AS OTHERWISE INDICATED) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------------------------ 2000 1999 - ---------------------------------------------------------------------------------------------- SCHEDULED OPERATIONS: Revenue passengers flown ..................... 1,407 1,295 Revenue passenger miles ("RPM") .............. 978,872 898,305 Available seat miles ("ASM") ................. 1,407,308 1,255,333 Passenger load factor ........................ 69.6% 71.6% Passenger revenue per passenger mile ("Yield") 10.7 CENTS 10.1 CENTS OVERSEAS CHARTER OPERATIONS: Revenue passengers flown ..................... 96 69 RPM .......................................... 298,724 192,457 ASM .......................................... 319,025 198,787 TOTAL OPERATIONS: Revenue passengers flown ..................... 1,503 1,364 RPM .......................................... 1,277,596 1,090,762 ASM .......................................... 1,726,333 1,454,120 Revenue per ASM .............................. 7.88 CENTS 7.54 CENTS Cost per ASM ................................. 8.14 CENTS 7.46 CENTS
6 HAWAIIAN AIRLINES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. BUSINESS AND BASIS OF PRESENTATION Hawaiian Airlines, Inc. ("Hawaiian Airlines" or the "Company") was incorporated in January 1929 under the laws of the Territory of Hawaii and is the largest airline headquartered in Hawaii based on operating revenues. The Company is engaged primarily in the scheduled transportation of passengers, cargo and mail. The Company's passenger airline business is its chief source of revenue. Scheduled passenger service consists of, on average and depending on seasonality, approximately 175 flights per day with daily service from Hawaii, principally Honolulu to Las Vegas, Nevada and the four key United States ("U.S.") West Coast gateway cities of Los Angeles and San Francisco, California, Seattle, Washington and Portland, Oregon ("Transpac"), daily service among the six major islands of the State of Hawaii ("Interisland") and twice weekly service to Pago Pago, American Samoa and Papeete, Tahiti in the South Pacific ("Southpac"). The Company also provides charter service from Honolulu to Las Vegas and Anchorage, Alaska and from Los Angeles to Papeete, Tahiti ("Overseas Charter"). The Company operates a fleet consisting of DC-9 aircraft and DC-10 aircraft. 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 condition of Hawaiian Airlines, Inc. ("Hawaiian Airlines" or the "Company") as of March 31, 2000 and December 31, 1999. 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, 1999. 2. 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%. The Company presently expects that its full year 2000 results will require a provision for income taxes. 3. FREQUENT FLYER PROGRAM The Company sells mileage credits to participating partners such as hotels, car rental agencies and credit card companies. During 1999, as promulgated by the Securities and Exchange Commissions' Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," the Company changed the method it uses to account for the sale of these mileage credits. This change, applied retroactively to January 1, 1999, totaled approximately $772,000, net of income tax benefit of approximately $515,000 and is reflected as a cumulative effect of change in accounting principle in the accompanying condensed statements of operations. This change also decreased the Company's income before cumulative effect of change in accounting principle for the three months ended March 31, 1999 by $177,000. Under the new accounting method, revenue from the sale of mileage credits is deferred and recognized when transportation is provided. Previously, the resulting revenue was recorded in the period in which the credits were sold. The quarterly information for 1999 presented herein reflects this change. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements, including 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. Forward-looking statements involve risks and uncertainties that may impact the actual results of operations. 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, 1999 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 Principally all operations of the Company either originate or end in the State of Hawaii. The management of such operations is based on a system-wide approach due to the interdependence of the Company's route structure in its various markets. The Company operates as a matrix form of organization as it has overlapping sets of components for which managers are held responsible. Managers report to the Company's chief operating decision-maker on both the Company's geographic components and the Company's product and service components, resulting in the components based on products and services constituting the operating segment. As the Company offers only one service (i.e., air transportation), management has concluded that it has only one segment. RESULTS OF OPERATIONS In first quarter 2000, the Company incurred operating and net losses of $4.5 million and $2.6 million, respectively. Quarter over quarter, operating revenues increased by $26.4 million, primarily due to a $23.9 million increase in scheduled and chartered passenger revenues. First quarter 2000 operating revenues were impacted favorably as (1) the Company continued to experience the effects of particular pricing and growth strategies implemented in 1999 which principally introduced higher fares and additional capacity and services into the Company's Transpac, Interisland and Overseas Charter products and (2) preliminary statistics from the Hawaii Visitors & Convention Bureau ("HVCB") revealed that 8 quarter over quarter, visitor arrivals to the State of Hawaii increased by 1.7%. Quarter over quarter, a 4.8% increase in domestic arrivals, or those visitors arriving aboard flights from the continental U.S., was offset by a 2.4% decrease in international arrivals, or visitors arriving aboard flights from foreign countries. Operating expenses also increased by $32.0 million quarter over quarter, however as the cost of aircraft fuel, consistent with that of all oil derivative products, trended upward throughout first quarter 2000 and labor, maintenance and general administrative expenses were influenced by the aforementioned growth strategies initiated in 1999. The following table compares first quarter 2000 operating passenger revenues and statistics to those in first quarter 1999, in thousands, except as otherwise indicated:
Three Months Ended March 31, Operating Passenger Revenues ----------------------------- Increase and Statistics 2000 1999 (Decrease) % - ------------------------------------------------------------------------ ------------------------- Scheduled: Passenger revenues ............ $ 104,430 $ 90,486 $ 13,944 15.4 Revenue passengers flown ...... 1,407 1,295 112 8.7 RPM ........................... 978,872 898,305 80,567 9.0 ASM ........................... 1,407,308 1,255,333 151,975 12.1 Passenger load factor ......... 69.6% 71.6% (2.0) (2.8) Yield ......................... 10.7 CENTS 10.1 CENTS 0.6 CENTS 5.9 Overseas Charter: Passenger revenues ............ $ 20,171 $ 10,187 $ 9,984 98.0 Revenue passengers flown ...... 96 69 27 39.1 RPM ........................... 298,724 192,457 106,267 55.2 ASM ........................... 319,025 198,787 120,238 60.5 Total Operations: Passenger revenues ............ $ 124,601 $ 100,673 $ 23,928 23.8 Revenue passengers flown ...... 1,503 1,364 139 10.1 RPM ........................... 1,277,596 1,090,762 186,834 17.1 ASM ........................... 1,726,333 1,454,120 272,213 18.7
Passenger revenues totaled $104.4 million during first quarter 2000, an increase of $13.9 million or 15.4% over first quarter 1999. Significant period to period variances were as follows: As mentioned above, due to higher fares and increased capacity, the Company experienced increases in its Transpac and Interisland passenger revenues of $8.5 million and $5.5 million, respectively. Transpac revenue passengers flown and yield increased by 9% and 6%, respectively. Similarly, Interisland revenue passengers flown and yield increased by 9% and 6%, respectively. Overseas charter revenues increased by $10.0 million or 98.0% as first quarter 2000 included a full quarter's revenue for the Renaissance Cruise charter flights between Los Angeles and Papeete, Tahiti which commenced in August 1999. 9 The following table compares operating expenses per ASM for first quarter 2000 with first quarter 1999 by major category:
Three Months Ended March 31, -------------------- Increase Operating Expenses Per ASM 2000 1999 (Decrease) % - ------------------------------------------------------------------------- ----------------------- Wages and benefits .......................... 2.25 CENTS 2.27 CENTS (0.02) CENTS (0.9) Aircraft fuel, including taxes and oil ...... 1.63 0.95 0.68 71.6 Maintenance materials and repairs ........... 1.64 1.63 0.01 0.6 Rentals and landing fees .................... 0.52 0.51 0.01 2.0 Sales commissions ........................... 0.14 0.23 (0.09) (39.1) Depreciation and amortization ............... 0.23 0.25 (0.02) (8.0) Other ....................................... 1.73 1.62 0.11 6.8 ---- ---- ---- ---- Total ............................ 8.14 CENTS 7.46 CENTS 0.68 CENTS 9.1 ==== ==== ==== ====
All fluctuations in operating expenses were affected by an overall increase in ASM of approximately 18.7% quarter over quarter. Significant period to period variances were as follows: Wages and benefits decreased by 0.02 CENTS as the dilutive effect of increased ASMs quarter over quarter offset the increase in wages and benefits of $5.9 million or 17.9%. A majority of the increase is attributable to (1) a 3% wage increase effective January 1, 2000 and (2) increased flying in first quarter 2000 compared to first quarter 1999. Additional labor costs, taxes and benefits related to increased flight activity approximated $5.6 million. Aircraft fuel cost, including taxes and oil ("Aircraft Fuel Cost") increased in first quarter 2000 over first quarter 1999 by $14.3 million or 103.7%. The average cost of aircraft fuel per gallon of 84.1 CENTS, including taxes and the effects of the Company's fuel hedging derivative program, increased by 34.2 CENTS or 68.4% in first quarter 2000. The Company also consumed 5.9 million or 21.4% more gallons in first quarter 2000. The Company anticipates high aircraft fuel prices for the foreseeable future. For the month ended March 31, 2000, the Company's average cost per gallon was 89.6 CENTS. A one-cent change in the cost per gallon of fuel has an impact on the Company's operating expenses of approximately $101,000 per month (based on 1999 consumption). Significant changes in fuel costs or continuation of high current fuel prices will materially affect the Company's operating results. Maintenance materials and repairs increased by approximately $4.5 million or 19.1% quarter over quarter, primarily due to $3.9 million more in DC-10 maintenance expense, the result of increases in the number of DC-10 aircraft used and hours flown. Rentals and landing fees in first quarter 2000 increased by $1.5 million or 20.3% when compared to first quarter 1999. The increase is principally due to $1.1 million of 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. Other operating expenses increased by $6.4 million or 27.0% in first quarter 2000 versus first quarter 1999. The increase is due to a combination of additional expenses incurred in first quarter 2000 including (1) $1.4 million or 18.1% of aircraft service related expenses; (2) $1.3 million or 44.7% in passenger 10 food and beverage; (3) $1.0 million or 20.6% in advertising, promotion and reservation costs; and (4) $2.6 million or 33.6% in general and administrative expenses, including professional and legal fees. AIRCRAFT On December 31, 1999, the Company signed, subject to approval by the Company's Board of Directors, a definitive purchase agreement with The Boeing Company ("Boeing") to acquire 13 new Boeing 717-200 aircraft, with rights to purchase an additional seven aircraft. On March 2, 2000, the Company announced that the Company's Board of Directors had approved the definitive purchase agreement with Boeing. The firm order is valued at approximately $430 million at Boeing's list price for the 717-200. The agreement provides for monthly deliveries of the thirteen 717-200 aircraft between February and December 2001, with two units to be delivered in each of June and September 2001. The agreement also requires the Company to fund through June 2001, a total of $20 million toward the acquisition of the aircraft. As of March 31, 2000, the Company had made approximately $9.5 million of these progress payments. The Company intends to use lease financing provided through Boeing upon delivery of each aircraft. The Company currently utilizes 15 DC-9-50 aircraft to service its Interisland routes. The 717s (a) have the same Type Rating as the DC-9, allowing easier maintenance and crew training transitioning; (b) seat eight passengers in first class and 115 in coach; (c) utilize twin BMW Rolls-Royce BR715 engines that generate emissions 60% below existing federal standards; and (d) meet federal Stage 3 and proposed Stage 4, as currently defined, requirements. The 717s are reported to be 25% more fuel-efficient and less costly to maintain than the Company's current DC-9-50 fleet. LIQUIDITY AND CAPITAL RESOURCES The Company believes that it has various options available to meet its capital, debt and operating commitments, including cash and liquid short-term investment securities on hand at March 31, 2000 of $82.0 million, internally generated funds and a credit facility with total availability of $9.0 million as of March 31, 2000 with aggregate term loans and letters of credit outstanding in the amounts of $5.8 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 three-month period ending March 31, 2000 increased by $18.3 million. Operating activities for first quarter 2000 provided $24.8 million in cash and cash equivalents, primarily due to a $26.4 million increase in air traffic liability. The Company experienced an improvement in the mix of its advance bookings and increased sales from all of its major internal, wholesale and retail distribution channels. In addition to $2.3 million in required progress payments made to Boeing as discussed above, the Company expended $1.5 million for capital expenditures in first quarter 2000. The Company plans for approximately $27.7 million in capital expenditures for 2000. 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 March 31, 2000, the Company held petroleum forward contracts to purchase 669,000 barrels of heating oil in the aggregate amount of $17.4 million through July 2000. These forward contracts represented approximately 40% of the Company's anticipated aircraft fuel needs for the next six months. A realized net gain on liquidated contracts amounting to $1.8 million is included as a component of Aircraft Fuel Cost for the quarter ended March 31, 2000. 11 STOCK REPURCHASES In March 2000, the Company announced that its Board of Directors approved a stock repurchase program authorizing the Company to buy up to 5 million shares of its Common Stock. Under the approved stock repurchase plan, the Company may repurchase Common Stock from time to time in the open market and in private transactions. The amount and timing of any repurchases is subject to a number of factors, including the "trading practices rules" promulgated under the Securities Exchange Act of 1934, the price and availability of the Company's stock and general market conditions. While no repurchases were made in first quarter 2000, in April 2000, 137,700 shares of Common Stock had been repurchased by the Company for approximately $316,000. EMPLOYEES The majority of Hawaiian Airlines' employees are covered by labor agreements with the International Association of Machinists and Aerospace Workers (AFL-CIO) ("IAM"), the Air Line Pilots Association International ("ALPA"), the Association of Flight Attendants ("AFA"), the Transport Workers Union and the Communications Section Employees Union with the amendable date of all five contracts being February 28, 2000. As of the date of this report, the Company had commenced discussions with the IAM, ALPA and AFA. Management cannot currently estimate the timeframe or results of the ensuing discussions. There can be no assurance that the discussions will result in favorable agreement and ratification between the Company and each labor group. Should the Company and the labor groups reach an impasse, the Company could be adversely affected. DEFERRED TAX ASSETS As of March 31, 2000, the Company had net deferred tax assets aggregating $24.1 million based on gross deferred tax assets of $54.7 million less a valuation allowance of $18 million and deferred tax liabilities of $12.6 million. Utilization of these deferred tax assets are predicated on the Company being profitable in future years. The Company will continually assess the adequacy of its financial performance in determination of its valuation allowance which, should there be an adjustment required, may result in an adverse effect on the Company's income tax provision. INFORMATION TECHNOLOGY SYSTEMS AND IMPACT OF YEAR 2000 In prior years, the Company discussed the nature and progress of its efforts to be Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed in 1999 approximately $1 million in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the Year 2000 to ensure that any latent year 2000 matters that may arise are addressed promptly. 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. 12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. No material developments in matters previously reported or reportable events arising in the three months ended March 31, 2000 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. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. Exhibit 10.1 Further Letter Agreements relating to Purchase Agreement Number 2252 filed as exhibit 10(11) to the Company's Annual Report on Form 10-K for the year ended December 31, 1999: (a) Supplemental Agreement No.1; (b) Other Matters. Exhibit 27 Financial Data Schedule. (b) Reports on Form 8-K. None. 13 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. MAY 4, 2000 By /s/ JOHN L. GARIBALDI ---------------------- John L. Garibaldi Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 14 EX-10.1(A) 2 EX-10.1(A) SUPPLEMENTAL AGREEMENT NO. 1 to PURCHASE AGREEMENT NO. 2252 between MCDONNELL DOUGLAS CORPORATION and HAWAIIAN AIRLINES, INC. Relating to Boeing Model 717-22A Aircraft ---------------- THIS SUPPLEMENTAL AGREEMENT, entered into as of March 1, 2000, by and between MCDONNELL DOUGLAS CORPORATION, a wholly-owned subsidiary of The Boeing Company (Boeing), and HAWAIIAN AIRLINES, INC., a corporation doing business in the State of Hawaii, with its principal office in Honolulu, Hawaii (Customer); W I T N E S S E T H: WHEREAS, the parties hereto entered into an agreement dated as of December 31, 1999, relating to Boeing Model 717-22A aircraft, which agreement, as amended, and supplemented together with all exhibits and specifications attached thereto and made a part thereof which is hereinafter called the "Purchase Agreement," and; WHEREAS, the parties desire to amend the Agreement to revise the delivery stream to reschedule one of the October 2001 aircraft to September 2001. NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree to supplement the Purchase Agreement as follows: SA1-1 1. The Table of Contents of the Agreement is deleted in its entirety and a new Table of Contents (attached) is substituted in lieu thereof (to reflect the changes listed below). 2. Table 1., "AIRCRAFT DELIVERIES AND DESCRIPTIONS", is deleted in its entirety and a new Table 1., "AIRCRAFT DELIVERIES AND DESCRIPTIONS", (attached) is substituted in lieu thereof (to reflect the revised delivery stream). 3. Letter Agreement 6-1166-EMM-0299, "Other Matters" is deleted in its entirety and a revision, Letter Agreement 6-1166-EMM-0299R1, "Other Matters" (attached) is substituted in lieu thereof (to add further schedule definition to the second September 2001 aircraft delivery). The Purchase Agreement shall be deemed to be supplemented to the extent herein provided and as so supplemented will continue in full force and effect. EXECUTED IN DUPLICATE as of the day and year first above written. MCDONNELL DOUGLAS CORPORATION a wholly-owned subsidiary of THE BOEING COMPANY HAWAIIAN AIRLINES, INC. By: /S/ By: /S/ ------------------------ ----------------------- Its: Attorney-In-Fact Its: ----------------------- ---------------------- By: /S/ ----------------------- Its: ---------------------- SA1-2 TABLE 1 TO PURCHASE AGREEMENT NO. 2252 AIRCRAFT DELIVERY, DESCRIPTION, PRICE AND ADVANCE PAYMENTS REDACTED IN ITS ENTIRETY Page 1 TABLE OF CONTENTS
REVISED BY SA ARTICLES NUMBER - -------- ------ 1. Quantity, Model and Description 2. Delivery Schedule 3. Price 4. Payment 5. Miscellaneous TABLE - ----- 1. Aircraft Information Table SA-1 EXHIBIT - ------- A. Aircraft Configuration B. Aircraft Delivery Requirements and Responsibilities SUPPLEMENTAL EXHIBITS - --------------------- BFE1. BFE Variables CS1. Customer Support Variables EE1. Engine Escalation/Engine Warranty and Patent Indemnity SLP1. Service Life Policy Components i REVISED BY SA NUMBER LETTER AGREEMENTS - ----------------- STANDARD: - --------- 2252-1 Customer Support Matters 2252-2 Spares Initial Provisioning CONFIDENTIAL: - ------------- 6-1166-EMM-0251 Aircraft Performance Guarantees 6-1166-EMM-0252 Promotional Support 6-1166-EMM-0253 Business Matters 6-1166-EMM-0254 Purchase Rights Aircraft and Aircraft Model Substitution 6-1166-EMM-0255 Deferred Advance Payments 6-1166-EMM-0272 Liquidated Damages for Non-Excusable Delay canceled and superseded by: 6-1166-EMM-0299R1 Other Matters SA-1 6-1166-EMM-0300 Financing Matters 6-1166-EMM-0301 Spares Commitments
ii EX-10.1(B) 3 EX-10.1(B) 6-1166-EMM-299R1 Hawaiian Airlines, Inc. Honolulu International Airport P.O. Box 30008 Honolulu, HI 96820-0008 Subject: Other Matters Reference: Purchase Agreement No. 2252 (the Purchase Agreement) between McDonnell Douglas Corporation (MDC) and Hawaiian Airlines, Inc. (Customer) relating to Model 717-22A aircraft (the Aircraft) This Letter Agreement amends and supplements the Purchase Agreement. All terms used but not defined in this Letter Agreement have the same meaning as in the Purchase Agreement. 1. DELIVERY SCHEDULE. ----------------------------------------------------------- The provisions of Letter Agreement 6-1166-EMM-0272 would not be applicable in the event Customer requests a further delay in delivery beyond the revised delivery date. 2. SEPTEMBER 2001 AIRCRAFT ----------------------------------------------------------- 3. CONFIDENTIAL TREATMENT Customer understands that certain commercial and financial information contained in this Letter Agreement are considered by MDC as confidential. Customer agrees that it will treat this Letter Agreement and the information contained herein as confidential and will not, without the prior written consent of MDC, disclose this Letter Agreement or any information contained herein to any other person or entity, except to the extent that such disclosure is required by law or by any Government Entity (as such term is defined below), provided that Customer gives reasonable notice to MDC so as to enable MDC to seek appropriate protective orders or, if possible, challenge the requirement of such disclosure. As used herein, "Government Entity" means (i) any national government, political subdivision thereof, or local jurisdiction therein, (ii) any instrumentality, board, commission, court, or agency of any of the above, however constituted, and (iii) any association, organization, or institution of which any of the above is a member or to whose jurisdiction any therof is subject or in whose activities any of the above is a participant. Very truly yours, MCDONNELL DOUGLAS CORPORATION a wholly-owned subsidiary of THE BOEING COMPANY By /s/ ------------------------------- Its Attorney-In-Fact ------------------------------ ACCEPTED AND AGREED TO this Date: March 1, 2000 HAWAIIAN AIRLINES, INC. By /s/ ------------------------------- Its ------------------------------ By /s/ ------------------------------- Its ------------------------------ EX-27 4 EX-27
5 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 81,958 0 23,830 500 13,376 136,094 81,674 15,653 259,248 144,601 26,224 0 0 410 63,118 259,248 136,033 136,033 140,488 140,488 340 0 72 4,723 2,125 2,598 0 0 0 2,598 0.06 0.06
-----END PRIVACY-ENHANCED MESSAGE-----