<PAGE>
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 June 30, 1998
( ) 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 August 1, 1998, 40,691,047 shares of Common Stock were outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Hawaiian Airlines, Inc.
Condensed Balance Sheets (in thousands) (Unaudited)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 31,969 $ 15,713
Investment securities........................................................ 1,000 4,003
Accounts receivable, net..................................................... 28,305 31,387
Inventories, net............................................................. 9,472 9,350
Assets held for sale......................................................... 1,344 1,344
Prepaid expenses............................................................. 3,012 4,344
-------- --------
TOTAL CURRENT ASSETS.................................................... 75,102 66,141
-------- --------
Property and equipment, less accumulated depreciation and
amortization of $21,311 and $17,165 in 1998 and 1997, respectively........... 68,413 66,243
Assets held for sale.............................................................. 3,194 3,970
Other assets...................................................................... 8,203 6,920
Reorganization value in excess of amounts
allocable to identifiable assets, net (Excess Reorganization Value).......... 53,976 57,550
-------- --------
TOTAL ASSETS............................................................ $208,888 $200,824
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt............................................ $ 2,294 $ 2,260
Current portion of capital lease obligations................................. 4,440 4,244
Accounts payable............................................................. 27,026 27,587
Air traffic liability........................................................ 28,387 21,169
Accrued liabilities.......................................................... 15,954 14,934
-------- --------
TOTAL CURRENT LIABILITIES............................................... 78,101 70,194
-------- --------
Long-Term Debt.................................................................... 3,634 3,991
Capital Lease Obligations......................................................... 8,309 10,580
Other Liabilities and Deferred Credits............................................ 30,068 29,186
SHAREHOLDERS' EQUITY:
Common and Special Preferred Stock........................................... 409 409
Capital in excess of par value............................................... 99,301 99,237
Warrants..................................................................... 3,153 3,153
Notes receivable from Common Stock sales..................................... (1,714) (1,714)
Accumulated deficit.......................................................... (12,373) (14,212)
Accumulated other comprehensive income (loss)................................ - -
-------- --------
SHAREHOLDERS' EQUITY.............................................................. 88,776 86,873
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................................ $208,888 $200,824
-------- --------
-------- --------
</TABLE>
2
<PAGE>
HAWAIIAN AIRLINES, INC.
CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger................................................. $ 91,086 $ 84,501 $173,294 $165,516
Charter................................................... 8,670 9,932 18,103 20,669
Cargo..................................................... 5,657 5,472 10,829 10,548
Other..................................................... 3,590 3,955 7,023 6,893
-------- -------- -------- --------
TOTAL................................................ 109,003 103,860 209,249 203,626
-------- -------- -------- --------
OPERATING EXPENSES:
Wages and benefits........................................ 29,379 28,059 58,926 57,589
Aircraft fuel, including taxes and oil.................... 17,047 19,287 35,851 41,091
Maintenance materials and repairs......................... 20,997 19,580 42,179 38,187
Rentals and landing fees.................................. 7,314 8,670 14,659 17,730
Sales commissions......................................... 2,971 3,553 6,138 6,923
Depreciation and amortization............................. 3,394 2,662 6,125 5,264
Other..................................................... 21,837 20,050 41,226 39,347
-------- -------- -------- --------
TOTAL................................................ 102,939 101,861 205,104 206,131
-------- -------- -------- --------
OPERATING INCOME (LOSS)........................................ 6,064 1,999 4,145 (2,505)
-------- -------- -------- --------
NONOPERATING INCOME (EXPENSE):
Interest expense, net..................................... (39) (128) (361) (179)
Loss on disposition of equipment.......................... (46) - (59) -
Other, net................................................ (99) (345) (47) (585)
-------- -------- -------- --------
TOTAL................................................ (184) (473) (467) (764)
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES.............................. 5,880 1,526 3,678 (3,269)
INCOME TAX BENEFIT (PROVISION)................................. (2,939) (323) (1,839) 2,075
-------- -------- -------- --------
NET INCOME (LOSS).............................................. 2,941 1,203 1,839 (1,194)
OTHER COMPREHENSIVE INCOME (LOSS).............................. - - - -
-------- -------- -------- --------
COMPREHENSIVE INCOME (LOSS).................................... $ 2,941 $ 1,203 $ 1,839 $ (1,194)
-------- -------- -------- --------
-------- -------- -------- --------
NET INCOME (LOSS) PER COMMON STOCK SHARE:
Basic..................................................... $ 0.07 $ 0.03 $ 0.04 $ (0.03)
-------- -------- -------- --------
-------- -------- -------- --------
Diluted................................................... $ 0.07 $ 0.03 $ 0.04 $ (0.03)
-------- -------- -------- --------
-------- -------- -------- --------
WEIGHTED AVERAGE NUMBER OF COMMON STOCK
SHARES OUTSTANDING:
Basic..................................................... 40,898 40,300 40,885 40,066
-------- -------- -------- --------
-------- -------- -------- --------
Diluted................................................... 42,178 41,555 42,246 40,066
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
3
<PAGE>
HAWAIIAN AIRLINES, INC.
CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------- --------
1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................... $ 1,839 $(1,194)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization.................................. 6,125 5,264
Net periodic postretirement benefit cost....................... 669 642
Loss on disposition of equipment............................... 59 -
Decrease (increase) in accounts receivable..................... 3,082 (3,472)
Increase in inventories........................................ (122) (2,322)
Decrease in prepaid expenses................................... 1,332 1,615
Increase (decrease) in accounts payable........................ (561) 185
Increase in air traffic liability.............................. 7,218 5,147
Increase (decrease) in accrued liabilities..................... 1,020 (770)
Other, net..................................................... 945 (2,203)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. 21,606 2,892
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of investment securities....................................... 3,001 -
Purchase of property and equipment.................................. (6,850) (5,757)
Net proceeds from disposition of equipment.......................... 742 716
------- -------
NET CASH USED IN INVESTING ACTIVITIES..................... (3,107) (5,041)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.............................. 64 1,959
Issuance of long-term debt.......................................... 425 489
Repayment of long-term debt......................................... (657) (1,151)
Repayment of capital lease obligations.............................. (2,075) (2,767)
------- -------
NET CASH USED IN FINANCING ACTIVITIES..................... (2,243) (1,470)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.......................................... 16,256 (3,619)
Cash and cash equivalents - Beginning of Period.......................... 15,713 37,237
------- -------
CASH AND CASH EQUIVALENTS - END OF PERIOD................................ $31,969 $33,618
------- -------
------- -------
</TABLE>
4
<PAGE>
HAWAIIAN AIRLINES, INC.
Statistical Data (in thousands, except as otherwise indicated) (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ---------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SCHEDULED OPERATIONS:
Revenue passengers flown....................... 1,268 1,258 2,453 2,484
Revenue passenger miles ("RPM")................ 960,980 947,851 1,755,629 1,738,807
Available seat miles ("ASM")................... 1,227,900 1,183,988 2,431,395 2,350,001
Passenger load factor.......................... 78.3% 80.1% 72.2% 74.0%
Passenger revenue per passenger mile ("Yield"). 9.5 CENTS 8.9 CENTS 9.9 CENTS 9.5 CENTS
Cargo and mail ton miles....................... 16,731 17,543 31,673 33,056
OVERSEAS CHARTER OPERATIONS:
Revenue passengers flown....................... 60 71 127 141
RPM............................................ 165,729 188,418 349,106 376,536
ASM............................................ 176,470 201,496 371,239 416,120
TOTAL OPERATIONS:
Revenue passengers flown....................... 1,328 1,329 2,580 2,625
RPM............................................ 1,126,709 1,136,269 2,104,735 2,115,343
ASM............................................ 1,404,370 1,385,484 2,802,634 2,766,121
Cargo and mail ton miles....................... 16,731 17,543 31,673 33,056
</TABLE>
5
<PAGE>
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 condition of Hawaiian Airlines, Inc.
("Hawaiian Airlines" or the "Company") as of June 30, 1998 and December 31,
1997. 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, 1997, which are
incorporated herein by reference.
Certain reclassifications have been made to conform prior year's data to current
year's presentation.
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 1998 results will require a
provision for income taxes. For second quarter 1998 and for the six month
period ended June 30, 1998, estimated interperiod tax provisions of $2.9
million and $1.8 million, respectively, have been reflected in the
accompanying condensed statements of operations.
3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for the reporting and display
of comprehensive income and its components in a full set of general-purpose
financial statements. SFAS requires reclassification of financial statements for
earlier periods provided for comparative purposes.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 requires restatement of comparative information
presented for earlier periods.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which amends the disclosure
requirements of SFAS No. 87, "Employer's Accounting for Pensions," No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits" and No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." SFAS No. 132 addresses
disclosure only and does not change any of the measurement or recognition
provisions provided for in
6
<PAGE>
SFAS Nos. 87, 88 or 106. SFAS No. 132 requires restatement of comparative
information presented for earlier periods.
In June 1998, the FASB issued 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. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999.
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. SOP 98-1 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. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998.
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. The provisions of SOP
98-5 are effective for fiscal years beginning after December 15, 1998.
Provisions of SFAS No. 130, 131 and 132 are effective for fiscal years or
periods beginning after December 15, 1997. Adoption of the provisions of SFAS
No. 130, 131 and 132 by the Company as of January 1, 1998 did not have a
material impact on the Company's previously reported financial information.
Further, management does not expect the adoption of SFAS No. 133, SOP 98-1 or
SOP 98-5 to have a material impact on the Company's results of operations or
reported financial information.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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, 1997 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,
7
<PAGE>
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
industry segment. Refer to the discussion below for those certain operating
revenue products which constitute the segment.
RESULTS OF OPERATIONS
In second quarter 1998, the Company generated operating and net income of $6.1
million and $2.9 million, respectively. This represented a $4.1 million and
$1.7 million increase from second quarter 1997 operating and net income of $2.0
million and $1.2 million, respectively.
Period over period, for the six months ended June 30, 1998, the Company improved
operating and net income by $6.7 million and $3.0 million, respectively.
Operating and net income for the six months ended June 30, 1998 totaled $4.1
million and $1.8 million, respectively.
In second quarter 1998 and for the six month period ended June 30, 1998, the
Company has increased its operating revenues, primarily in passenger service.
In the aggregate, operating expenses have also either been stable or remained
flat.
8
<PAGE>
THREE MONTH PERIOD ENDED JUNE 30, 1998
The following table compares second quarter 1998 operating passenger revenues
and statistics to those in second quarter 1997, in thousands, except as
otherwise indicated:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------------- Increase
1998 1997 (Decrease) %
----------- ---------- ------------------------
<S> <C> <C> <C> <C>
Interisland:
Passenger revenues............... $ 35,333 $ 31,704 $ 3,629 11.4
Revenue passengers flown......... 929 918 11 1.2
RPM.............................. 123,454 122,383 1,071 0.9
ASM.............................. 217,000 216,657 343 0.2
Passenger load factor............ 56.9% 56.5% 0.4 0.7
Yield............................ 28.6 CENTS 25.9 CENTS 2.7 CENTS 10.4
Transpacific ("Transpac"):
Passenger revenues............... $ 51,149 $ 48,124 $ 3,025 6.3
Revenue passengers flown......... 324 325 (1) (0.3)
RPM.............................. 797,015 785,363 11,652 1.5
ASM.............................. 946,357 904,403 41,954 4.6
Passenger load factor............ 84.2% 86.8% (2.6) (3.0)
Yield............................ 6.4 CENTS 6.1 CENTS 0.3 CENTS 4.9
SouthPacific ("Southpac"):
Passenger revenues............... $ 4,604 $ 4,673 $ (69) (1.5)
Revenue passengers flown......... 15 15 - -
RPM.............................. 40,511 40,105 406 1.0
ASM.............................. 64,543 62,928 1,615 2.6
Passenger load factor............ 62.8% 63.7% (0.9) (1.4)
Yield............................ 11.4 CENTS 11.7 CENTS (0.3) CENTS (2.6)
Overseas Charter:
Charter revenues................. $ 8,670 $ 9,932 $ (1,262) (12.7)
Revenue passengers flown......... 60 71 (11) (15.5)
RPM.............................. 165,729 188,418 (22,689) (12.0)
ASM.............................. 176,470 201,496 (25,026) (12.4)
</TABLE>
Significant quarter to quarter variances were as follows:
Passenger revenues totaled $91.1 million during second quarter 1998, an increase
of $6.6 million or 7.8% over second quarter 1997 passenger revenues of $84.5
million. The Company experienced quarter over quarter increases of $3.6 million
and $3.0 million in its Interisland and Transpac passenger revenues,
respectively. Both increases were primarily driven by higher yields resulting
from general price increases initiated by the Company in both the Interisland
and Transpac markets.
Overseas charter revenues totaled $8.7 million in second quarter 1998, a
decrease of $1.2 million or 12.7% from second quarter 1997 overseas charter
revenues of $9.9 million. The decrease is principally associated with (i) the
Company flying, on average, six charters per week to Las Vegas in
9
<PAGE>
second quarter 1998 versus eight per week in second quarter 1997 and (ii)
general decreases quarter over quarter in prices charged for both its Las
Vegas and Anchorage charter flights.
The following table compares operating expenses per ASM for second quarter 1998
with second quarter 1997 by major category:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------------- Increase
1998 1997 (Decrease) %
------------------------- -------------------
<S> <C> <C> <C> <C>
Wages and benefits................................... 2.09 CENTS 2.03 CENTS 0.06 CENTS 3.0
Aircraft fuel, including taxes and oil............... 1.21 1.39 (0.18) (12.9)
Maintenance materials and repairs.................... 1.50 1.41 0.09 6.4
Rentals and landing fees............................. 0.52 0.63 (0.11) (17.5)
Sales commissions.................................... 0.21 0.26 (0.05) (19.2)
Depreciation and amortization........................ 0.24 0.19 0.05 26.3
Other................................................ 1.55 1.45 0.10 6.9
---------- ---------- ------------ -----
Total...................................... 7.32 CENTS 7.36 CENTS (0.04) CENTS (0.5)
---------- ---------- ------------ -----
---------- ---------- ------------ -----
</TABLE>
All fluctuations in operating expenses were affected by an overall increase
in ASM of approximately 1.4% quarter over quarter. Significant period to
period variances were as follows:
Wages and benefits per ASM increased by 0.06 CENTS or 3.0%. Quarter over
quarter, wages and benefits increased by approximately $1.3 million or 4.7%.
Second quarter 1997 benefits were adjusted by $750,000 due to favorable
experience in the Company's workers compensation and postretirement service
costs. No such adjustments were recorded in second quarter 1998.
Aircraft fuel cost, including taxes and oil ("Aircraft Fuel Cost") per ASM
decreased in second quarter 1998 over second quarter 1997 by 0.18 CENTS or
12.9%. The Company incurred $2.2 million or 11.6% less in Aircraft Fuel Cost
in second quarter 1998, principally due to the average cost of aircraft fuel
per gallon, excluding taxes, decreasing by 8.7 CENTS or 13.3% quarter over
quarter.
Maintenance materials and repairs per ASM increased by 0.09 CENTS or 6.4%.
Quarter over quarter the Company incurred approximately $1.4 million or 7.2%
in additional maintenance expense due to (i) $738,000 more in DC-9 airframe
and engine repairs and (ii) $618,000 more in DC-10 maintenance expense,
chiefly due to an increase in the monthly maintenance rates charged by
American Airlines, Inc. in second quarter 1998 versus second quarter 1997.
Rentals and landing fees per ASM decreased by 0.11 CENTS or 17.5%. Commencing
September 1, 1997, a two-year moratorium was placed on landing fees at all
airports in the State of Hawaii. The Governor of the State of Hawaii has
reserved the right, however to reinstate the landing fee charges before the
two-year period ends. Under the current moratorium, the Company incurred
approximately $1.5 million less for landing fees in second quarter 1998 than
in second quarter 1997.
Sales commissions decreased by 0.05 CENTS or 19.2%. Sales commissions
decreased by $583,000 or 16.4% in second quarter 1998, principally due to the
Company selling a greater portion of non-commissionable tickets quarter over
quarter.
10
<PAGE>
Depreciation and amortization increased by 0.05 CENTS or 26.3%. The Company
incurred approximately $374,000 and $295,000 of additional DC-9 overhaul and
ground equipment depreciation and amortization, respectively, in second
quarter 1998.
Other operating expenses per ASM increased by 0.10 CENTS or 6.9%. The Company
incurred approximately $1.8 million or 8.9% of additional other operating
expenses in second quarter 1998. The increase primarily represents an
aggregation of $1.7 million of additional advertising and promotion,
professional and computer services, credit card processing, loss and damage
and inflight media expenses over second quarter 1997.
SIX MONTH PERIOD ENDED JUNE 30, 1998
The following table compares operating passenger revenues and statistics for
the six month periods ended June 30, 1998 and 1997, in thousands, except as
otherwise indicated:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------- Increase
1998 1997 (Decrease) %
----------- ----------- ------------------------
<S> <C> <C> <C> <C>
Interisland:
Passenger revenues............ $ 69,666 $ 66,235 $ 3,431 5.2
Revenue passengers flown...... 1,840 1,869 (29) (1.6)
RPM........................... 244,736 248,762 (4,026) (1.6)
ASM........................... 425,651 433,915 (8,264) (1.9)
Passenger load factor......... 57.5% 57.3% 0.2 0.3
Yield......................... 28.5 CENTS 26.6 CENTS 1.9 CENTS 7.1
Transpac:
Passenger revenues............ $ 95,245 $ 90,439 $ 4,806 5.3
Revenue passengers flown...... 586 588 (2) (0.3)
RPM........................... 1,438,414 1,417,086 21,328 1.5
ASM........................... 1,878,246 1,791,868 86,378 4.8
Passenger load factor......... 76.6% 79.1% (2.5) (3.2)
Yield......................... 6.6 CENTS 6.4 CENTS 0.2 CENTS 3.1
Southpac:
Passenger revenues............ $ 8,383 $ 8,842 $ (459) (5.2)
Revenue passengers flown...... 27 27 - -
RPM........................... 72,479 72,959 (480) (0.7)
ASM........................... 127,498 124,218 3,280 2.6
Passenger load factor......... 56.8% 58.7% (1.9) (3.2)
Yield......................... 11.6 CENTS 12.1 CENTS (0.5) CENTS (4.1)
Overseas Charter:
Charter revenues.............. $ 18,103 $ 20,669 $ (2,566) (12.4)
Revenue passengers flown...... 127 141 (14) (9.9)
RPM........................... 349,106 376,536 (27,430) (7.3)
ASM........................... 371,239 416,120 (44,881) (10.8)
</TABLE>
Significant period to period variances were as follows:
11
<PAGE>
Passenger revenues totaled $173.3 million during the six month period ended June
30, 1998, an increase of $7.8 million or 4.7% over passenger revenues of $165.5
million for the six month period ended June 30, 1997. As indicated above, the
Company experienced period over period increases of $3.4 million and $4.8
million in its Interisland and Transpac passenger revenues, respectively,
primarily due to higher yields in both the Interisland and Transpac markets.
Overseas charter revenues totaled $18.1 million in the six month period ended
June 30, 1998, representing a decrease of $2.6 million or 12.4% from the six
month period ended June 30, 1997. Again, the decrease is associated with the
Company flying fewer charters per week to Las Vegas in the six month period
ended June 30, 1998 versus the six month period ended June 30, 1997 and general
price decreases period over period for its Las Vegas and Anchorage charter
flights.
The following table compares operating expenses per ASM by major category for
the six month periods ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------- Increase
1998 1997 (Decrease) %
-------------------------- --------------------
<S> <C> <C> <C> <C>
Wages and benefits........................... 2.10 CENTS 2.08 CENTS 0.02 CENTS 1.0
Aircraft fuel, including taxes and oil....... 1.28 1.49 (0.21) (14.1)
Maintenance materials and repairs............ 1.50 1.38 0.12 8.7
Rentals and landing fees..................... 0.52 0.64 (0.12) (18.8)
Sales commissions............................ 0.22 0.25 (0.03) (12.0)
Depreciation and amortization................ 0.22 0.19 0.03 15.8
Other........................................ 1.47 1.42 0.05 3.5
---------- ---------- ------------ ------
Total.............................. 7.31 CENTS 7.45 CENTS (0.14) CENTS (1.9)
---------- ---------- ------------ ------
---------- ---------- ------------ ------
</TABLE>
All fluctuations in operating expenses were affected by an overall increase in
ASM of approximately 1.3% period over period. For the six month period ended
June 30, 1998, variances for wages and benefits, sales commissions, depreciation
and amortization and other operating expenses per ASM were primarily due to the
effects of the respective second quarter variances described earlier. Other
significant period to period variances were as follows:
Aircraft Fuel Cost per ASM decreased in the six month period ended June 30, 1998
over the six month period ended June 30, 1997 by 0.21 CENTS or 14.1%.
Approximately $5.3 million or 12.8% less Aircraft Fuel Cost was incurred by the
Company in the six month period ended June 30, 1998 compared to the six month
period ended June 30, 1997. Period over period, average cost of aircraft fuel
per gallon, excluding taxes, decreased by 10.5CENTS or 14.9%.
Maintenance materials and repairs per ASM increased by 0.12 CENTS or 8.7%. In
1998, the Company incurred approximately $4.0 million or 10.5% in additional
maintenance expense as compared to the same period in 1997 due to (i) $2.2
million more in DC-9 airframe and engine repairs and (ii) $1.8 million more in
DC-10 maintenance expense, the result of increased monthly maintenance rates as
described above and increased DC-10 flight hours flown in the first three months
of 1998.
12
<PAGE>
Rentals and landing fees per ASM decreased by 0.12 CENTS or 18.8%. As discussed
previously, the Company incurred approximately $3.0 million less in landing fees
in the six month period ended June 30, 1998 than in the six month period ended
June 30, 1997 as a result of the two-year moratorium placed on landing fees at
all airports in the State of Hawaii commencing September 1, 1997.
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 on June 30, 1998 of $33.0 million, internally generated funds
and a credit facility with total availability of $11.4 million as of June 30,
1998 with aggregate term loans and letters of credit outstanding in the amounts
of $5.2 million and $100,000, respectively. The Company will continue to
consider various borrowing or leasing options to supplement its cash
requirements.
Cash and cash equivalents for the six month period ending June 30, 1998
increased by $16.3 million. Operating activities for the six month period ended
June 30, 1998 provided $21.6 million in cash and cash equivalents. Operating
activities reflect the combined effects of (i) a $7.2 million increase in air
traffic liability, the result of advance bookings and ticket sales for
historically peak third quarter passenger traffic and (ii) miscellaneous changes
in other operating accounts due to timing and receipt of payments. For the six
month period ended June 30, 1998, the Company expended $6.9 million of its $22.2
million in planned capital expenditures for 1998. Capitalized portions of
scheduled DC-9 checks and overhauls and continued investments in improved
software, related hardware and implementation costs represent a majority of
these capital expenditures.
DERIVATIVE FINANCIAL INSTRUMENTS
As of June 30, 1998, the Company utilized crude oil forward contracts to manage
market risks and hedge its financial exposure resulting from fluctuations in its
aircraft fuel costs. The Company employs a strategy whereby crude oil contracts
are used to cover up to 45% of the Company's anticipated aircraft fuel needs on
a rolling twelve month basis.
At June 30, 1998, the Company had petroleum forward contracts to purchase
165,000 barrels of crude oil in the aggregate amount of $2.7 million through
November 1998. These forward contracts represented approximately 8% of the
Company's anticipated 1998 aircraft fuel needs. At June 30, 1998, the estimated
fair value and carrying value of these outstanding contracts was a net
receivable of $442,000. Included as a component of Aircraft Fuel Cost are net
realized and unrealized losses on such contracts amounting to $463,000 and $1.3
million for the three and six month periods ended June 30, 1998.
INFORMATION TECHNOLOGY SYSTEMS
The Company is currently in the process of bringing 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 are designed to either replace or enhance existing systems, including
local and wide area networks, yield management, revenue and financial
accounting, human resources and payroll. Implementation of these systems is
scheduled for completion by end of 1998 to mid-1999, with external costs
expected to approximate $10 to $11 million in total.
In addition to replacing a number of core information systems, the Company is
also actively engaged in inventorying, assessing, and remediating systems that
may be impacted by the year 2000 issue. The Company has hired a dedicated
director for year 2000 compliance and is working aggressively towards
13
<PAGE>
mitigating the impact of the year 2000 date problem. Current Company efforts
are focused on identifying and remediating mission critical operations with
the goal of maintaining safety with minimal disruption to customer services.
Along with the identification of information systems vulnerable to year 2000
issues, the Company is also conducting an exhaustive review of its hardware and
related systems to assess and mitigate any potential year 2000 risk. Toward
this end, the Company has adopted a strategy of partnerships with industry and
trade associations, which will minimize duplication and overlap.
The Company is developing a project framework based on best practices currently
being used by other industry and government entities. While the ultimate cost
of year 2000 compliance is unknown at this time, the Company believes it will
avoid substantial costs through its replacement of major information systems.
Because of the variables associated with the year 2000 date problem, management
cannot currently estimate the necessary commitment required to address all year
2000 system issues, 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.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
No material developments in matters previously reported or reportable
events arising in the three or six months ended June 30, 1998 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 1999 proxy material,
shareholder proposals to be considered for presentation at the 1999
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 January 22,
1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K.
Current Report on Form 8-K dated May 21, 1998 (date of event May
21, 1998) reporting Item 5, "Other Events" and Item 7, "Financial
Statements, Proforma Financial Information and Exhibits."
15
<PAGE>
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.
August 13, 1998 By /s/ JOHN L. GARIBALDI
----------------------------
John L. Garibaldi
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 31,969
<SECURITIES> 1,000
<RECEIVABLES> 28,805
<ALLOWANCES> 500
<INVENTORY> 9,472
<CURRENT-ASSETS> 75,102
<PP&E> 89,724
<DEPRECIATION> 21,311
<TOTAL-ASSETS> 208,888
<CURRENT-LIABILITIES> 78,101
<BONDS> 11,943
0
0
<COMMON> 409
<OTHER-SE> 88,367
<TOTAL-LIABILITY-AND-EQUITY> 208,888
<SALES> 209,249
<TOTAL-REVENUES> 209,249
<CGS> 205,104
<TOTAL-COSTS> 205,104
<OTHER-EXPENSES> 106
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 361
<INCOME-PRETAX> 3,678
<INCOME-TAX> 1,839
<INCOME-CONTINUING> 1,839
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,839
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
