ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the Company and its operations. This discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. We have based these forward-looking statements on our current expectations and projections of future events. However, our actual results could differ materially from those discussed herein as a result of the risks that we face, including but not limited to those risks stated in the "Risk Factors" section of this report. See "Cautionary Note Regarding Forward-Looking Statements," above. In addition, the following discussion should be read in conjunction with the audited consolidated financial statements and the related notes thereto included elsewhere in this report.
Year in Review
2017
Financial Highlights
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•
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Operating income increased to
$484 million
compared to
$416 million
in the prior-year period.
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•
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Pre-tax income grew to
$411 million
compared to
$379 million
in the prior-year period.
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•
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GAAP net income of
$364 million
or
$6.82
per diluted share compared to
$235 million
or
$4.36
per diluted share in the prior year period.
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•
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Adjusted net income of
$301 million
or
$5.64
per diluted share compared to
$280 million
or
$5.19
per share in the prior year period.
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|
•
|
Unrestricted cash and cash equivalents and short-term investments of
$460 million
compared to
$610 million
in the prior year period.
|
See "Non-GAAP Financial Measures" below for our reconciliation of non-GAAP measures.
Outlook
Looking ahead, industry capacity increases in North America and parts of our International network are expected to increase in the first half of 2018. We expect our capacity to grow between 3.0% to 5.0% in the first quarter of 2018 as compared to the first quarter of 2017, primarily driven by new service between Los Angeles-Kauai and Portland-Maui. For the first quarter of 2018, we expect the aforementioned increases in capacity will result in operating revenue (based on the new revenue recognition standard) per available seat mile between a decrease of 0.5% to an increase of 2.5% as compared to the first quarter of 2017. We also expect that our operating costs per available seat mile will increase by 3.3% to 6.7% during the first quarter of 2018 primarily due to expected increases in wages and benefits costs and the continuation of Airbus A321neo pilot training.
Selected Consolidated Statistical Data
Below are the operating statistics we use to measure our operating performance.
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Year ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(in thousands, except as otherwise indicated)
|
Scheduled Operations (a) :
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|
|
|
|
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|
Revenue passengers flown
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11,498
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|
11,044
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|
10,665
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Revenue passenger miles (RPM)
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16,307,344
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15,484,369
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14,450,564
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Available seat miles (ASM)
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18,991,566
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18,371,544
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17,710,309
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|
Passenger revenue per RPM (Yield)
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|
14.48
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¢
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|
|
13.86
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¢
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|
|
14.02
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¢
|
Passenger load factor (RPM/ASM)
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85.9
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%
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84.3
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%
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|
81.6
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%
|
Passenger revenue per ASM (PRASM)
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|
12.44
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¢
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|
11.68
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¢
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|
11.44
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¢
|
Total Operations (a) :
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Revenue passengers flown
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11,505
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11,051
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10,673
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RPM
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16,316,739
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15,492,509
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14,462,191
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ASM
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19,006,682
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18,384,637
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17,726,322
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Operating revenue per ASM (RASM)
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14.18
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¢
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13.33
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¢
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13.07
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¢
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Operating cost per ASM (CASM)
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11.64
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¢
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11.07
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¢
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|
10.55
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¢
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CASM excluding aircraft fuel and special items (b)
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9.20
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¢
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8.61
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¢
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8.19
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¢
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Aircraft fuel expense per ASM (c)
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2.32
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¢
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1.87
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¢
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2.36
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¢
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Revenue block hours operated
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189,881
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179,254
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173,546
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Gallons of jet fuel consumed
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259,915
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244,118
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234,183
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Average cost per gallon of jet fuel (actual) (c)
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$
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1.69
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$
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1.41
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$
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1.78
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(a)
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Includes the operations of our contract carrier under a capacity purchase agreement. Total Operations includes both scheduled and chartered operations.
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(b)
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Represents adjusted unit costs, a non-GAAP measure. We believe this is a useful measure because it better reflects our controllable costs. See "Non-GAAP Financial Measures" below for our reconciliation of non-GAAP measures.
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(c)
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Includes applicable taxes and fees.
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Operating Revenue
Our revenue is derived primarily from transporting passengers on our aircraft. Revenue is recognized when either the transportation is provided or when the related ticket expires unused. We measure capacity in terms of available seat miles, which represent the number of seats available for passengers multiplied by the number of miles the seats are flown. Yield, or the average amount one passenger pays to fly one mile, is calculated by dividing passenger revenue by RPMs. We strive to increase passenger revenue primarily by increasing our yield per flight or by filling a higher proportion of available seats, which produces higher operating revenue per available seat mile. Other revenue primarily consists of baggage fees, cargo revenue, incidental services revenue, ticket change and cancellation fees, marketing component related to the sale of frequent flyer miles, inflight revenue, contract services and charter services revenue.
Operating revenue was
$2.70 billion
,
$2.45 billion
and
$2.32 billion
for the years ended
December 31, 2017
,
2016
and
2015
, respectively. The increase in operating revenue in
2017
from
2016
was driven primarily by an increase in passenger revenue and is discussed below:
2017
vs.
2016
Passenger Revenue
Passenger revenue was
$2.36 billion
and
$2.15 billion
for the years ended
December 31, 2017
and
2016
, respectively. Details of these changes are described in the table below:
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Year Ended December 31, 2017 as compared to December 31, 2016
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Change in scheduled passenger revenue
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Change in
Yield
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Change in
RPM
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Change in
ASM
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(in millions)
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Domestic
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$
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85.8
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5.7
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%
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(0.5
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)%
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(2.3
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)%
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International
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130.6
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7.2
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19.2
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15.6
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Total scheduled
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$
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216.4
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4.5
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%
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5.3
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%
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3.4
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%
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Domestic revenue increased by
$85.8 million
on a yield improvement of
5.7%
. North America routes drove the yield improvement as a result of strong demand and the relatively steady industry capacity environment in 2017, which resulted in higher unit prices.
International revenue increased by
$130.6 million
for the year ended
December 31, 2017
as compared to the prior year period. A 19.2% increase in RPMs along with yield improvement of 7.2% drove the strong revenue performance. The increase in RPMs flown is attributed to the expansion of Hawai'i to Japan service in 2016, which was fully realized in 2017 for these routes; the expansion of Honolulu to Tokyo/Narita (July 2016 start), Kona to Tokyo/Haneda (December 2016 start), and expansion of existing Honolulu to Tokyo/Haneda, Japan service (December 2016 start).
Other Operating Revenue
Other operating revenue increased by
$28.7 million
, or
9.4%
, in
2017
, as compared to
2016
, due to an increase in cargo revenue of $18.4 million, or 26.0%, due to an increase in freight volumes. The increase was also due to a $2.8 million increase in contract services (e.g. ground handling). Other components within our Other operating revenue line include, but are not limited to: charter revenue, baggage revenue, inflight revenue, and other miscellaneous items.
Operating Expenses
The largest components of our operating expenses are wages and benefits provided to our employees and aircraft fuel (including taxes and delivery). Increases (decreases) in operating expenses are detailed below.
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Changes for the year ended December 31, 2017 as compared to December 31, 2016
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$
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|
%
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(in thousands)
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|
Operating expense:
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Aircraft fuel, including taxes and delivery
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$
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96,061
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27.9
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%
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Wages and benefits
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97,733
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18.3
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Aircraft rent
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13,199
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10.6
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Maintenance materials and repairs
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(9,417
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)
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(4.1
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)
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Aircraft and passenger servicing
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13,690
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10.8
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Commissions and other selling
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6,052
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4.8
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Depreciation and amortization
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5,149
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4.8
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Other rentals and landing fees
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8,676
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|
8.0
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Purchased services
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14,513
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15.1
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Special items
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(85,692
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)
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(78.5
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)
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Other
|
17,044
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13.4
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Total
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$
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177,008
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8.7
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%
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The price and availability of aircraft fuel is volatile due to global economic and geopolitical factors that we can neither control nor accurately predict. The increases in aircraft fuel expense are illustrated in the following table:
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Year Ended December 31,
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2017
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2016
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% Change
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(in thousands, except per-gallon amounts)
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|
Aircraft fuel expense, including taxes and delivery
|
$
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440,383
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$
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344,322
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27.9
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%
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Fuel gallons consumed
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259,915
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|
244,118
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|
6.5
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%
|
Average fuel price per gallon, including taxes and delivery
|
$
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1.69
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|
$
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1.41
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|
19.9
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%
|
The increase in fuel expense from
2016
to
2017
is due to an increase in average fuel price per gallon and increased fuel consumption due to additional flights.
We believe
economic fuel expense
is the best measure of the effect of fuel prices on our business as it most closely approximates the net cash outflow associated with the purchase of fuel for our operations and is consistent with how management manages our business and assesses our operating performance. We define
economic fuel expense
as GAAP fuel expense plus (gains)/losses realized through actual cash (receipts)/payments received from or paid to hedge counterparties for fuel hedge derivative contracts settled in the period inclusive of costs related to hedging premiums.
Economic fuel expense
is calculated as follows:
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Year Ended December 31,
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2017
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|
2016
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% Change
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|
(in thousands, except per-gallon amounts)
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|
Aircraft fuel expense, including taxes and delivery
|
$
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440,383
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$
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344,322
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27.9
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%
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Realized losses on settlement of fuel derivative contracts
|
534
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27,572
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(98.1
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)%
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Economic fuel expense
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$
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440,917
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$
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371,894
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18.6
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%
|
Fuel gallons consumed
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259,915
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244,118
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6.5
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%
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Economic fuel costs per gallon
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$
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1.70
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$
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1.52
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11.8
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%
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See Item 7A,
Quantitative and Qualitative Disclosures about Market Risk
, for additional discussion of our jet fuel costs and related derivative program.
Wages and benefits expense increased by
$97.7 million
, or
18.3%
, in
2017
as compared to
2016
, of which approximately $43.4 million was due to the Air Line Pilots Association (ALPA) contract amendment effective April 1, 2017. In addition, employee benefits expenses (including health insurance) increased by $18.4 million for the year. The higher wages and benefits expenses also reflected an increase in the number of flight crew and training to prepare for the induction of our A321neo fleet, in addition to an overall increase in employee headcount by approximately 7.4% as compared to December 31, 2016, which includes flight attendants, machinists, and non-contract employees.
Aircraft rent increased by
$13.2 million
, or
10.6%
, in
2017
as compared to
2016
, due to a sale leaseback transaction for three Boeing 767-300 aircraft in April 2017 and the addition of two leased Boeing 717-200 aircraft in November 2016.
Aircraft and passenger servicing expenses increased
$13.7 million
, or
10.8%
, in
2017
as compared to
2016
, resulting directly from higher passenger counts, specifically a 21.5% increase in international passengers flown which generally have a higher associated food and handling cost per passenger. This increase resulted in an an overall increase of $5.4 million in food and beverage costs and $5.6 million in ground handling costs.
Purchased services expense increased by
$14.5 million
, or
15.1%
, in
2017
as compared to
2016
, due to an increase of $8.6 million in various third party expenses including: outsourced web and IT fees and outsourced labor resources associated with the maintenance hangar project.
Special items expense decreased by
$85.7 million
, or
78.5%
, in
2017
as compared to
2016
. See
Note 11
to the consolidated financial statements for further discussion surrounding both 2017 and 2016 Special items.
Other expenses increased by
$17.0 million
, or
13.4%
, in
2017
as compared to
2016
, due to an increase of $3.8 million in hotel and personnel related expenses for our crew members (e.g. meals and entertainment), as well as a $4.1 million increase in other
supplies expenses. Other components of our Other expense line item include, but are not limited to: communications costs, professional and technical fees, insurance costs, legal fees and other miscellaneous expenses.
Nonoperating Expense
Net nonoperating expense increased by
$36.9 million
in
2017
, as compared to
2016
, due to a $35.2 million loss on plan termination and a $10.4 million partial settlement and curtailment loss, which were recorded in Other nonoperating special items in 2017. These expenses were partially offset by an $11.7 million fluctuation in fuel hedge gains during the same period.
In 2016, the Hawaiian Airlines, Inc. Pension Plan for Salaried Employees (the Salaried Plan) was consolidated into the Hawaiian Airlines, Inc. Pension Plan for Employees Represented by the International Association of Machinists (IAM), which established the Hawaiian Airlines, Inc. Salaried & IAM Merged Pension Plan (the Merged Plan). At that time, the net liabilities of the Salaried Plan were transferred to the Merged Plan. In August 2017, we completed the termination of the Merged Plan by transferring the assets and liabilities to a third-party insurance company. The Merged Plan was fully funded and we recognized a one-time Other nonoperating special item expense of $35.2 million as an Other nonoperating special item in our Consolidated Statement of Operations.
In 2017, we recognized a one-time Other nonoperating special item expense of $10.4 million related to the settlement of a portion of our pilots' other post-retirement medical plan liability, pursuant to which the parties agreed to eliminate the post-65 post-retirement medical benefit for all active pilots and to replace the benefit with a health retirement account (HRA) managed by ALPA. This transaction represented a curtailment and partial settlement of the pilots' other post-retirement benefit plan. In August 2017, we made a one-time cash payment of approximately $101.9 million to fund the HRA and settle the post-65 post-retirement medical plan obligation. The cash contributed was distributed to the trust funding the individual health retirement notional accounts of the participants.
2016
vs.
2015
Passenger Revenue
Passenger revenue was
$2.15 billion
and
$2.03 billion
for the years ended
December 31, 2016
and
2015
, respectively. Details of these changes are described in the table below:
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|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016 as compared to December 31, 2015
|
|
Change in scheduled passenger revenue
|
|
Change in
Yield
|
|
Change in
RPM
|
|
Change in
ASM
|
|
(in millions)
|
|
|
|
|
|
|
Domestic
|
$
|
104.2
|
|
|
0.1
|
%
|
|
6.6
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%
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|
2.9
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%
|
International
|
15.9
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|
(4.7
|
)
|
|
8.6
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|
5.6
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|
Total scheduled
|
$
|
120.1
|
|
|
(1.1
|
)%
|
|
7.2
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%
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|
3.7
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%
|
Domestic revenue increased by
$104.2 million
in
2016
, as compared to
2015
, primarily due to capacity, yield, and load factor increases on our North America routes; along with increases in capacity on our Neighbor Island routes.
International revenue increased by
$15.9 million
in
2016
, as compared to
2015
, due to increased capacity. The strengthening of the U.S. dollar combined with lower fuel surcharges resulted in decreased average fares for our International routes compared to the prior period. Increased capacity was driven by changes we made to our network in 2016, including the introduction of service from Honolulu to Narita, Japan (July 2016) and expansion of service for the Kona to Haneda, Japan (December 2016) route.
Other Operating Revenue
Other operating revenue increased by
$13.0 million
, or
4.4%
, in
2016
, as compared to
2015
, due to increased sale of miles and other revenue related to our co-branded credit card agreement and cancellation penalty revenue. Other components of our Other operating revenue line item include, but are not limited to, cargo revenue, charter revenue, freight services, baggage revenue, inflight revenue, and other miscellaneous items.
Operating Expenses
The largest components of our operating expenses are wages and benefits provided to our employees, aircraft fuel (including taxes and delivery) and aircraft maintenance materials and repairs. Increases (decreases) in operating expenses are detailed below.
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|
|
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|
Changes for the year ended December 31, 2016 as compared to December 31, 2015
|
|
$
|
|
%
|
|
(in thousands)
|
|
|
Operating expense:
|
|
|
|
|
|
Aircraft fuel, including taxes and delivery
|
$
|
(73,406
|
)
|
|
(17.6
|
)%
|
Wages and benefits
|
58,285
|
|
|
12.2
|
|
Aircraft rent
|
8,912
|
|
|
7.7
|
|
Maintenance materials and repairs
|
4,322
|
|
|
1.9
|
|
Aircraft and passenger servicing
|
9,427
|
|
|
8.0
|
|
Commissions and other selling
|
5,985
|
|
|
5.0
|
|
Depreciation and amortization
|
2,547
|
|
|
2.4
|
|
Other rentals and landing fees
|
13,032
|
|
|
13.7
|
|
Purchased services
|
14,436
|
|
|
17.6
|
|
Special items
|
109,142
|
|
|
100.0
|
|
Other
|
13,329
|
|
|
11.7
|
|
Total
|
$
|
166,011
|
|
|
8.9
|
%
|
Decreases in aircraft fuel expense are illustrated in the following table:
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|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
% Change
|
|
(in thousands, except per-gallon amounts)
|
|
|
Aircraft fuel expense, including taxes and delivery
|
$
|
344,322
|
|
|
$
|
417,728
|
|
|
(17.6
|
)%
|
Fuel gallons consumed
|
244,118
|
|
|
234,183
|
|
|
4.2
|
%
|
Average fuel price per gallon, including taxes and delivery
|
$
|
1.41
|
|
|
$
|
1.78
|
|
|
(20.8
|
)%
|
The decrease in fuel expense from
2015
to
2016
is primarily due to the decrease in average fuel price per gallon, partially offset by increased fuel consumption due to an additional aircraft in the fleet (Airbus 330-200).
Economic fuel expense
is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
2015
|
|
% Change
|
|
(in thousands, except per-gallon amounts)
|
|
|
Aircraft fuel expense, including taxes and delivery
|
$
|
344,322
|
|
|
$
|
417,728
|
|
|
(17.6
|
)%
|
Realized losses on settlement of fuel derivative contracts
|
27,572
|
|
|
60,946
|
|
|
(54.8
|
)%
|
Economic fuel expense
|
$
|
371,894
|
|
|
$
|
478,674
|
|
|
(22.3
|
)%
|
Fuel gallons consumed
|
244,118
|
|
|
234,183
|
|
|
4.2
|
%
|
Economic fuel costs per gallon
|
$
|
1.52
|
|
|
$
|
2.04
|
|
|
(25.5
|
)%
|
Wages and benefits expense increased by
$58.3 million
, or
12.2%
, in
2016
, as compared to
2015
, due to an overall headcount increase of 11.7% resulting from growing capacity in 2016, increased pension and postretirement benefit expenses, and increased profit-sharing expenses due to our improved financial performance as compared to the prior period.
Other rentals and landing fees expense increased by
$13.0 million
, or
13.7%
, in
2016
as compared to
2015
, due to increased rates and landing frequencies.
Purchased services expense increased by
$14.4 million
, or
17.6%
, in
2016
as compared to
2015
, due to an increase in outsourced web and third-party vendor reservation fees because of increased passenger counts.
In 2016, we incurred
$109.1 million
in Special items. The
$109.1 million
is comprised of three components: (1)
$49.4 million
in impairment charges in connection with our owned Boeing 767-300 fleet and related assets, (2) $38.8 million related to retroactive bonuses included within a tentative agreement between us and ALPA as of February 2017 and profit sharing for other contract groups, and (3)
$21.0 million
related to the termination of our Boeing 767-300 maintenance contract.
The impairment analysis and ultimate charge was triggered by the decision in the fourth quarter of 2016 to early exit the Boeing 767-300 fleet in 2018. The early exit of the Boeing 767-300 fleet was made possible by our decision to acquire one Airbus A330 (delivered in 2017), lease two additional Airbus A321s (to be delivered in 2018 in addition to our existing aircraft orders), and our ability to early terminate our long-term power-by-the-hour maintenance contract for the Boeing 767-300 fleet. This fleet change allows us to streamline our fleet, simplify our operations, and potentially reduce our cost structure in the future. In order to assess whether there was an impairment of our owned Boeing 767-300 asset group, we compared the projected undiscounted cash flows of the fleet to the book value of the assets and determined the book value was in excess of the undiscounted cash flows. We estimated the fair value of our owned Boeing 767-300 fleet assets using third party pricing information and quotes from potential buyers of our owned aircraft, which resulted in a
$49.4 million
impairment charge. Our determination of fair value considered attributes specific to our owned Boeing 767-300 fleet and aircraft condition (e.g. age, maintenance requirements, cycles, etc.). The Boeing 767-300 asset group consists of both owned and leased aircraft. We expect to remove three leased Boeing 767-300 aircraft from service in 2018. At that time, these aircraft will have remaining lease payments of approximately
$54.3 million
. At the time each aircraft is removed from service, we will accrue for any remaining lease payments not mitigated through an arrangement with the lessor.
In March 2017 the Air Line Pilots Association (ALPA) voted to ratify their collective bargaining agreement. The agreement is for a 63-month contract amendment which includes (amongst other various benefits) a pay adjustment and ratification bonus. As of December 31, 2016, we accrued
$34.0 million
related to past service (prior to January 1, 2017), which was paid upon ratification.
Other expenses increased by
$13.3 million
, or
11.7%
, in
2016
as compared to
2015
, due to an increase of $5.9 million in hotel expenses for our crew members, professional and technical fees of $4.5 million, as well as personnel related expenses such as meals and entertainment. Other components of our Other expense line item include, but are not limited to: communications costs, insurance costs, legal fees and other miscellaneous expenses.
Nonoperating Expense
Net nonoperating expense decreased by
$116.7 million
in
2016
, as compared to
2015
, due to reduced debt levels which resulted in a
$19.1 million
reduction in interest expense as compared to the prior year period. The decrease in net nonoperating expense was also due to gains on our fuel hedge portfolio of
$20.1 million
in 2016 compared to losses of
$59.9 million
in the prior year period.
Income Tax Expense
We recorded income tax expense of
$46.5 million
,
$144.0 million
, and
$113.0 million
during the years ended
December 31, 2017
,
2016
, and
2015
, respectively. In
2017
,
2016
, and
2015
, we had an effective tax rate of
11.3%
,
38.0%
, and
38.2%
, respectively.
As a result of the Tax Cuts and Jobs Act of 2017, we recognized a one-time benefit of
$104.2 million
in the quarter ended December 31, 2017 from the estimated impact of the revaluation of deferred tax assets and liabilities to the new corporate federal rate of 21%. ASC 740 requires companies to account for the effects of changes in income tax rates and laws on deferred tax balances in the period in which the legislation is enacted. As of December 31, 2017, we have made a reasonable estimate of the effects on our existing deferred tax balances. We are still analyzing the new legislation and refining our calculations, which could potentially impact the measurement of our tax balances. For 2018, we expect the reduction in the corporate federal tax rate will result in an all-in book tax rate for us of
24%
to
26%
. However, the actual tax rate could differ due to a number of factors.
See
Note 10
to the consolidated financial statements for further discussion.
Liquidity and Capital Resources
Our liquidity is dependent on the cash we generate from operating activities, our existing cash resources, and our debt financing arrangements. As of
December 31, 2017
, we had
$191.0 million
in cash and cash equivalents and
$269.3 million
in short-term investments, representing a decrease of
$149.8 million
from
December 31, 2016
. Our restricted cash balance consists of cash
held as collateral by entities that process our credit card transactions for advanced ticket sales and, as of
December 31, 2017
and
2016
, our balance was
$1.0 million
and
$5.0 million
, respectively.
In 2018, we have significant obligations in order to fund our current aircraft orders, and we are currently evaluating our options to finance these transactions via our operating cash flows coupled with debt financing. We have been able to generate sufficient funds from our operations to meet our working capital requirements and we typically finance our aircraft through secured debt and lease financings. At
December 31, 2017
, we had
$570.7 million
of debt and capital lease obligations, including
$59.5 million
classified as a current liability in the Consolidated Balance Sheets. As of
December 31, 2017
, our current liabilities exceeded our current assets by approximately
$189.8 million
. However, approximately
$545.4 million
of our current liabilities are related to our advanced ticket sales and frequent flyer deferred revenue, both of which largely represent revenue to be recognized for travel within the next 12 months and not actual cash outlays. The deficit in working capital does not have an adverse impact to our cash flows, liquidity, or operations.
In December 2016, we amended and restated the existing credit agreement with Citigroup Global Markets Inc. by increasing the secured revolving credit facility (Revolving Credit Facility) from $175 million to $225 million. This Revolving Credit Facility will expire in December 2019. As of
December 31, 2017
, we had no outstanding borrowings under the Revolving Credit Facility.
Cash Flows
Net cash provided by operating activities was
$331.1 million
,
$437.0 million
, and
$476.0 million
in
2017
,
2016
, and
2015
, respectively. The decrease in 2017 was primarily due to: (1) cash used to settle the Merged Plan, (2) cash used to partially settle the (Pilots) OPEB liability, and (3) a prepayment in the amount of $75 million to one of our maintenance vendors for which we will receive benefits in excess of the amount paid. The decrease in 2016 (versus 2015) was primarily due to a $66.1 million decrease in our deferred income tax expense as a result of becoming a cash taxpayer, and a $42.7 million net increase in pension and postretirement benefit contributions, which were partially offset by an increase of $52.8 million in net income adjusted for the $49.4 million increase relating to the impairment of our owned Boeing 767-300 assets.
Net cash used in investing activities was
$294.7 million
,
$154.1 million
, and
$35.3 million
for
2017
,
2016
, and
2015
, respectively. The increase in net cash used in investing activities in 2017 was primarily due to a $174.4 million increase in cash payments for the purchases of property and equipment, including two Airbus A321neo's and one Airbus A330 aircraft. We also made pre-delivery deposits for our Airbus A321neo's during 2017 of $87.8 million. The increase in net cash used in 2016 was primarily due to a $69.9 million decrease in cash received compared to 2015, for purchase assignment and leaseback transactions, and engine credit payments received from the manufacturer and an increase of $60.0 million in cash payments for property and equipment, including pre-delivery deposits for our Airbus A330-200 and Airbus A321neo fleet.
Net cash used in financing activities was
$175.5 million
,
$238.5 million
, and
$424.9 million
for
2017
and
2016
, and
2015
, respectively. The decrease in cash used in financing activities in 2017 was due to a reduction in repayment of long-term debt and capital lease obligations as compared to 2016. The decrease in cash used in 2016 was due to the lower amount of share repurchases and payments for settlements of our convertible notes in 2015.
Covenants under our Financing Arrangements
Under our bank-issued credit card processing agreements, certain proceeds from advance ticket sales may be held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. These holdbacks, which are included in restricted cash in our Consolidated Balance Sheets totaled
$1.0 million
and
$5.0 million
as of
December 31, 2017
and
2016
, respectively.
In the event of a material adverse change in our business, the holdback could increase to an amount up to 100% of the applicable credit card activity for all unflown tickets, which would also result in an increase in the required level of restricted cash. If we are unable to obtain a waiver of, or otherwise mitigate the increase in the restriction of cash, it could have a material adverse impact on our operations.
Pension and Other Postretirement Benefit Plan Funding
As of
December 31, 2017
, the excess of the projected benefit obligations over the fair value of plan assets was approximately
$224.0 million
. We voluntarily contributed $30.2 million, $57.8 million, and $20.4 million to our defined benefit pension plans (excluding one-time settlement payments) and disability plan during
2017
,
2016
, and
2015
, respectively. Future funding requirements for our defined benefit and other postretirement plans are dependent upon many factors such as interest rates, funded status, applicable regulatory requirements, and the level and timing of asset returns. We have made significant contributions (above the minimum required) to our defined benefit pension and disability plans in the past few years. In
2018
, our minimum required contribution has been determined to be nil.
In 2016, the Hawaiian Airlines, Inc. Pension Plan for Salaried Employees (Salaried Plan) was consolidated into the Hawaiian Airlines, Inc. Pension Plan for Employees Represented by the International Association of Machinists (IAM), which established the Hawaiian Airlines, Inc. Salaried & IAM Merged Pension Plan (the Merged Plan). At that time, the net liabilities of the Salaried Plan were transferred to the Merged Plan. In August 2017, we completed the termination of the Merged Plan by transferring the assets and liabilities to a third-party insurance company. In 2017, we contributed
$18.5 million
in cash to fully fund the Merged Plan and recognized a one-time financial loss of $35.2 million as an Other nonoperating special item on our Consolidated Statement of Operations. We no longer have any expected contributions to the Merged Plan due to the final settlement.
In March 2017, we announced the ratification of a 63-month contract amendment with our pilots as represented by the Air Line Pilots Association (ALPA). In connection with the ratification of the agreement, the parties agreed to eliminate the post-65 post-retirement medical benefit for all active pilots and replace the benefit with a heath retirement account (HRA) managed by ALPA, which represented a curtailment and partial settlement of the pilots' other postretirement benefit plan. In August 2017, we made a one-time cash payment of approximately $101.9 million to fund the HRA and settle the post-65 postretirement medical plan obligation. The cash contributed was distributed to the trust funding the individual health retirement notional accounts of the participants. In connection with the partial settlement of the liability, the discount rate was updated to 3.86%. We recognized a one-time settlement loss as an Other nonoperating special item of $10.4 million. The obligation recorded for the unsettled portion of this plan was $73.4 million as of the partial settlement date.
Off-Balance Sheet Arrangements
An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (i) made guarantees, (ii) retained a contingent interest in transferred assets, (iii) an obligation under derivative instruments classified as equity or (iv) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the company, or that engages in leasing, hedging or research and development arrangements with the company. We have no arrangements of the types described in the first three categories that we believe may have a current or future material effect on our financial condition, liquidity or results of operations. We do have obligations arising out of variable interests in unconsolidated entities related to certain aircraft leases. To the extent our leases and related guarantees are with a separate legal entity other than a governmental entity, we are not the primary beneficiary because the lease terms are consistent with market terms at the inception of the lease, and the lease does not include a residual value guarantee, fixed price purchase option, or similar feature.
Contractual Obligations
Our estimated contractual obligations as of
December 31, 2017
are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
Total
|
|
Less than 1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than 5 Years
|
|
(in thousands)
|
Debt and capital lease obligations(1)
|
$
|
735,415
|
|
|
$
|
88,858
|
|
|
$
|
157,689
|
|
|
$
|
156,015
|
|
|
$
|
332,853
|
|
Operating leases—aircraft and related equipment(2)
|
629,980
|
|
|
127,235
|
|
|
215,787
|
|
|
123,241
|
|
|
163,717
|
|
Operating leases—non-aircraft
|
124,342
|
|
|
6,891
|
|
|
12,983
|
|
|
13,287
|
|
|
91,181
|
|
Purchase commitments—capital(3)
|
1,504,089
|
|
|
455,923
|
|
|
745,991
|
|
|
180,594
|
|
|
121,581
|
|
Other commitments(4)
|
506,198
|
|
|
73,041
|
|
|
114,674
|
|
|
102,322
|
|
|
216,161
|
|
Projected employee benefit contributions(5)
|
38,481
|
|
|
3,591
|
|
|
34,890
|
|
|
—
|
|
|
—
|
|
Total contractual obligations
|
$
|
3,538,505
|
|
|
$
|
755,539
|
|
|
$
|
1,282,014
|
|
|
$
|
575,459
|
|
|
$
|
925,493
|
|
|
|
(1)
|
Amounts reflect capital lease obligations for one Airbus A330-200 aircraft, two Boeing 717-200 aircraft, one Airbus A330 flight simulator, aircraft and IT related equipment, and the building component of the cargo and maintenance hangar (within the capital commitments section).
|
|
|
(2)
|
Amounts reflect leases for ten Airbus A330-200 aircraft, seven Boeing 767-300 aircraft, and three Boeing 717-200 aircraft as of
December 31, 2017
. Subsequent to year ended
December 31, 2017
, in January 2018 we purchased three of our existing Boeing 767-300 that were classified as operating leases from the lessor and entered into a forward sale agreement for those same three aircraft (to be delivered later in 2018) with another airline. As these obligations are presented as of
December 31, 2017
, the associated lease payments are reflective in the table above. We are in process of evaluating the transactions and we expect to take a loss on the lease termination during the first quarter of 2018 between $15.0 million and $18.0 million related to this transaction.
|
|
|
(3)
|
Amounts include our firm commitments for aircraft and aircraft related equipment.
|
|
|
(4)
|
Amounts include commitments for services provided by third-parties for aircraft maintenance for our Airbus fleet, capacity purchases, IT, and reservations. Total contractual obligations do not include long-term contracts where the commitment is variable in nature (with no minimum guarantee), such as aircraft maintenance deposits due under operating leases and fees due under certain other agreements such as aircraft maintenance power-by-the-hour, computer reservation systems and credit card processing agreements, or when the agreements contain short-term cancellation provisions.
|
|
|
(5)
|
Amounts include our estimated contributions to our pension plans (based on actuarially determined estimates) and our pilots' disability plan. Amounts are subject to change based on numerous factors, including interest rate levels, the amount and timing of asset returns and the impact of future legislation. We are currently unable to estimate the projected contributions beyond 2020.
|
Capital Commitments
As of
December 31, 2017
, we had the following capital commitments consisting of firm aircraft and engine orders and purchase rights:
|
|
|
|
|
|
|
|
|
Aircraft Type
|
Firm
Orders
|
|
Purchase
Rights
|
|
Expected Delivery Dates
|
A321neo aircraft
|
14
|
|
|
9
|
|
|
Between 2018 and 2020
|
A330-800neo aircraft
|
6
|
|
|
6
|
|
|
Between 2019 and 2021
|
Pratt & Whitney spare engines:
|
|
|
|
|
|
A321neo spare engines
|
3
|
|
|
2
|
|
|
Between 2018 and 2019
|
Rolls-Royce spare engines:
|
|
|
|
|
|
|
|
A330-800neo spare engines
|
2
|
|
|
—
|
|
|
Between 2019 and 2020
|
Committed expenditures for these aircraft, engines, and related flight equipment are approximately
$456 million
in
2018
,
$503 million
in
2019
,
$242 million
in
2020
,
$170 million
in
2021
,
$10 million
in
2022
, and
$122 million
thereafter.
In order to complete the purchase of these aircraft and fund related costs, we may need to secure acceptable financing. We have backstop financing available from aircraft and engine manufacturers, subject to certain customary conditions. Financing may be necessary to satisfy our capital commitments for firm order aircraft and other related capital expenditures. We can provide no assurance that any financing not already in place for aircraft and spare engine deliveries will be available to us on acceptable terms when necessary or at all.
In November 2016, we entered into a lease agreement with the Department of Transportation of the State of Hawai'i to lease a cargo and maintenance hangar at the Daniel K. Inouye International Airport with a lease term of
35
years. As the hangar was not fully constructed, we took responsibility for the remainder of the construction and were responsible for the remainder of the construction costs of
$33.3 million
. In accordance with the applicable accounting guidance, specifically as it relates to our involvement in the construction of the hangar, we were considered the owner of the asset under construction and have recognized a
$73.0 million
asset, with a corresponding lease liability, for the amount previously spent by the lessor.
We placed the hangar into service in late 2017. The
$73.0 million
liability will be reduced as we make rental payments under the agreement and the
$106.3 million
asset will be depreciated over the lease term.
Non-GAAP Financial Measures
We believe the disclosure of non-GAAP financial measures is useful information to readers of our financial statements because:
|
|
•
|
We believe it is the basis by which we are evaluated by industry analysts and investors;
|
|
|
•
|
These measures are often used in management and board of directors' decision making analysis;
|
|
|
•
|
It improves a reader's ability to compare our results to those of other airlines; and
|
|
|
•
|
It is consistent with how we present information in our quarterly earnings press releases.
|
See table below for reconciliation between GAAP consolidated net income to adjusted consolidated net income, including per share amounts (in thousands unless otherwise indicated). The adjustments are described below:
|
|
•
|
Changes in fair value of derivative contracts, net of tax, are based on market prices for open contracts as of the end of the reporting period. This adjustment includes the unrealized gains and losses on fuel and interest rate derivatives (not designated as hedges) that will settle in future periods and the reversal of prior period unrealized amounts. Excluding
|
the impact of these derivative adjustments allows investors to analyze our core operational performance and compare our results to other airlines in the periods presented below.
|
|
•
|
Loss on extinguishment of debt, net of tax, is excluded to allow investors to analyze our core operational performance and compare our results to other airlines in the periods presented below.
|
|
|
•
|
As a result of the Tax Cuts and Jobs Act of 2017, we recognized a one-time benefit of $104.2 million in the fourth quarter of 2017 from the estimated impact of the revaluation of deferred tax assets and liabilities. This tax benefit is being excluded from our results as a Special item. We expect our effective tax rate in 2018 to be in the range of
24
to
26
percent. We excluded the Tax Cuts and Jobs Act of 2017 effect (on the financial statements) in order to allow investors to better analyze our core results and allow the information to be presented on a comparative basis to the prior year.
|
2016 Special Items
|
|
•
|
The impairment analysis and ultimate charge was triggered by the decision in the fourth quarter of 2016 to exit the Boeing 767-300 fleet in 2018. We estimated the fair value of the owned Boeing 767-300 fleet assets using third party pricing information and quotes from potential buyers, which resulted in a $49.4 million impairment charge.
|
|
|
•
|
In 2016, we accrued $34.0 million associated with the tentative agreement with ALPA related to past service (prior to January 1, 2017) and also elected to pay a $4.8 million profit sharing bonus payment to other labor groups related to prior period service.
|
|
|
•
|
In connection with the decision to exit the Boeing 767-300 fleet, we negotiated a termination of our Boeing 767-300 maintenance agreement and recorded a $21.0 million charge related to the amount paid to terminate the contract.
|
2017 Special Items
|
|
•
|
In August 2017, we terminated the Hawaiian Airlines, Inc. Salaried & IAM Merged Pension Plan (the Merged Plan) and settled a portion of our pilots' other post-retirement medical plan liability. In connection with the reduction of these liabilities we recorded one-time Other nonoperating special charges of $35.2 million related to the Merged Plan termination and $10.4 million related to the other post-retirement (OPEB) medical plan partial settlement.
|
|
|
•
|
In April 2017, we executed a sale leaseback transaction with an independent third party for three Boeing 767-300 aircraft. The lease terms for the three aircraft commenced in April 2017 and continues through November 2018, December 2018, and January 2019, respectively. During the twelve months ended December 31, 2017, we recorded a loss on sale of aircraft of $4.8 million.
|
|
|
•
|
In February 2017, we reached a tentative agreement with ALPA, covering our pilots. In March 2017, we received notice from ALPA that the agreement was ratified by ALPA's members. The agreement became effective April 1, 2017 and has a term of 63 months. The agreement includes, among other various benefits, a pay adjustment and ratification bonus computed based on previous service. During the twelve months ended December 31, 2017, we expensed $18.7 million primarily related to a one-time payment to reduce our future 401K employer contribution for certain pilot groups, which is not recoverable once paid.
|
We believe that excluding such special items helps investors analyze our operational performance and compare our results to other airlines in the periods presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
Net Income
|
|
Diluted Net Income Per Share
|
|
Net Income
|
|
Diluted
Net Income Per Share
|
|
Net Income
|
|
Diluted Net Income Per Share
|
|
(in thousands, except for per share data)
|
As reported—GAAP
|
$
|
364,041
|
|
|
$
|
6.82
|
|
|
$
|
235,432
|
|
|
$
|
4.36
|
|
|
$
|
182,646
|
|
|
$
|
2.98
|
|
Add: estimated effect of revaluation of deferred tax liability
|
(104,176
|
)
|
|
(1.95
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Add: changes in fair value of derivative contracts
|
(3,846
|
)
|
|
(0.07
|
)
|
|
(47,678
|
)
|
|
(0.88
|
)
|
|
(1,015
|
)
|
|
(0.02
|
)
|
Add: loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
10,473
|
|
|
0.19
|
|
|
12,058
|
|
|
0.20
|
|
Add: special items
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of aircraft
|
4,771
|
|
|
0.09
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Collective bargaining charge
|
18,679
|
|
|
0.35
|
|
|
38,781
|
|
|
0.72
|
|
|
—
|
|
|
—
|
|
Impairment charge
|
—
|
|
|
—
|
|
|
49,361
|
|
|
0.92
|
|
|
—
|
|
|
—
|
|
Termination charge
|
—
|
|
|
—
|
|
|
21,000
|
|
|
0.39
|
|
|
—
|
|
|
—
|
|
Nonoperating
|
|
|
|
|
|
|
|
|
|
|
|
Partial settlement and curtailment loss
|
10,384
|
|
|
0.19
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss on plan termination
|
35,201
|
|
|
0.66
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Tax effect of adjustments
|
(23,924
|
)
|
|
(0.45
|
)
|
|
(27,307
|
)
|
|
(0.51
|
)
|
|
(4,417
|
)
|
|
(0.07
|
)
|
Adjusted net income
|
$
|
301,130
|
|
|
$
|
5.64
|
|
|
$
|
280,062
|
|
|
$
|
5.19
|
|
|
$
|
189,272
|
|
|
$
|
3.09
|
|
Operating Costs per Available Seat Mile (CASM)
We have separately listed in the table below our fuel costs per ASM and non-GAAP unit costs, excluding fuel and special items. These amounts are included in CASM, but for internal purposes we consistently use cost metrics that exclude fuel and special items (if applicable) to measure and monitor its costs.
CASM and CASM, excluding fuel and special items, are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(in thousands, except for CASM figures)
|
GAAP operating expenses
|
$
|
2,211,856
|
|
|
$
|
2,034,848
|
|
|
$
|
1,868,837
|
|
Less: aircraft fuel, including taxes and delivery
|
(440,383
|
)
|
|
(344,322
|
)
|
|
(417,728
|
)
|
Less: special items
|
|
|
|
|
|
Loss on sale of aircraft
|
(4,771
|
)
|
|
—
|
|
|
—
|
|
Collective bargaining charge
|
(18,679
|
)
|
|
(38,781
|
)
|
|
—
|
|
Impairment charge
|
—
|
|
|
(49,361
|
)
|
|
—
|
|
Termination of Boeing 767-300 engine maintenance contract
|
—
|
|
|
(21,000
|
)
|
|
—
|
|
Adjusted operating expenses—excluding aircraft fuel and special items
|
$
|
1,748,023
|
|
|
$
|
1,581,384
|
|
|
$
|
1,451,109
|
|
Available Seat Miles
|
19,006,682
|
|
|
18,384,637
|
|
|
17,726,322
|
|
CASM—GAAP
|
|
11.64
|
¢
|
|
|
11.07
|
¢
|
|
|
10.55
|
¢
|
Less: aircraft fuel
|
(2.32
|
)
|
|
(1.87
|
)
|
|
(2.36
|
)
|
Less: special items
|
|
|
|
|
|
Loss on sale of aircraft
|
(0.02
|
)
|
|
—
|
|
|
—
|
|
Collective bargaining charge
|
(0.10
|
)
|
|
(0.20
|
)
|
|
—
|
|
Impairment charge
|
—
|
|
|
(0.28
|
)
|
|
—
|
|
Termination of Boeing 767-300 engine maintenance contract
|
—
|
|
|
(0.11
|
)
|
|
—
|
|
CASM—excluding aircraft fuel and special items
|
|
9.20
|
¢
|
|
|
8.61
|
¢
|
|
|
8.19
|
¢
|
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon financial statements that have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets and liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results could differ from those estimates.
Critical accounting policies and estimates are defined as those accounting policies and accounting estimates that are reflective of significant judgments and uncertainties, and that potentially result in materially different results under different assumptions and conditions. Our most critical accounting policies and estimates are described below. See the summary of significant accounting policies included in Note 1 to the consolidated financial statements for additional discussion of the application of these estimates and other accounting policies.
Revenue Standard (ASC 606), effective January 1, 2018
The new revenue standard (ASC 606), effective January 1, 2018, will affect our accounting policies and processes (including systems) regarding frequent flyer, passenger revenue, credit card fees, and booking fees. The adoption of the standard will have a significant impact on our financial statements and our critical accounting policies related to the standard will change as a result of adoption. As described and quantified in Note 1, we expect total operating revenue for the years under restatement to decrease by less than 1%, primarily due to changes in the accounting for our frequent flyer program. We will record an increase in deferred revenue related to miles earned for flights, which will result in a decrease in revenue compared to historical reporting as activity under the frequent flyer program grows. See Note 1 to our Consolidated Financial Statements for additional information including estimated quantification of the effect on our 2016 and 2017 financial statements.
Frequent Flyer Accounting (pre ASC 606)
HawaiianMiles,
Hawaiian's frequent flyer travel award program, provides a variety of awards to program members based on accumulated mileage. We utilize the incremental cost method of accounting for free travel awards earned by passengers issued from the
HawaiianMiles
program through flight activity. This method utilizes a number of estimates including the incremental cost per mile and breakage. We record a liability for the estimated incremental cost of providing travel awards that are expected to be redeemed on Hawaiian or the contractual rate of expected redemption on other airlines. We estimate the incremental cost of travel awards based on periodic studies of actual costs and apply these cost estimates to all issued miles, less an appropriate breakage factor for estimated miles that will not be redeemed. Incremental costs include the cost of fuel, meals and beverages, insurance and certain other passenger traffic-related costs, but does not include any costs for aircraft ownership and maintenance. The breakage factor is estimated based on an analysis of historical expirations.
We also sell mileage credits to companies participating in our frequent flyer program. These sales are accounted for as multiple-element arrangements, with one element representing the transportation that will ultimately be provided when the mileage credits are redeemed and the other elements consisting of marketing related activities that we conduct with the participating company.
We account for our co-branded credit card agreement as a multiple deliverable revenue arrangement, which requires the allocation of the overall consideration received to each deliverable using the estimated selling price. The objective of using estimated selling price based methodology is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis.
The following four deliverables or elements were identified in the agreement: (i) travel miles; (ii) use of the Hawaiian brand and access to member lists; (iii) advertising elements; and (iv) other airline benefits including checked baggage services and travel discounts. We determined the relative fair value of each element by estimating the selling prices of the deliverables by considering discounted cash flows using multiple inputs and assumptions, including: (1) the expected number of miles to be awarded and redeemed; (2) the estimated weighted average equivalent ticket value, adjusted by a fulfillment discount; (3) the estimated total annual cardholder spend; (4) an estimated royalty rate for the Hawaiian portfolio; and (5) the expected use of each of the airline benefits. The overall consideration received is allocated to the deliverables based on their relative selling prices. The transportation element is deferred and recognized as passenger revenue over the period when the transportation is expected to be provided (
23 months
). The other elements are generally recognized as other revenue when earned.
Under the programs of certain participating companies, credits are accumulated in accounts maintained by the participating company, then transferred into a member's
HawaiianMiles
account for immediate redemption of free travel awards. For those transactions, revenue is recognized over the period during which the mileage is projected to be used for travel (four months).
On an annual basis, we review the deferral period and deferral rate for mileage credits sold to participating companies (except for miles sold under our co-branded credit card agreement), as well as the breakage rate assumption for free travel awards earned in connection with the purchase of passenger tickets. The cost components of the incremental cost assumptions are reviewed on a quarterly basis.
Pension and Other Postretirement and Postemployment Benefits
The calculation of pension and other postretirement and postemployment benefit expenses and its corresponding liabilities require the use of significant assumptions, including the assumed discount rate, the expected long-term rate of return on plan assets, expected mortality rates of the plan participants, and the expected health care cost trend rate. Changes in these assumptions will impact the expense and liability amounts, and future actual experience may differ from these assumptions. The significant assumptions as of
December 31, 2017
are as follows:
|
|
|
|
|
|
Pension:
|
|
|
|
|
Discount rate to determine projected benefit obligation
|
3.70
|
%
|
|
|
Expected return on plan assets
|
6.34
|
%
|
|
^
|
Postretirement:
|
|
|
|
|
Discount rate to determine projected benefit obligation (as of December 31, 2017)
|
3.71
|
%
|
|
|
Discount rate used to determine the partial settlement and curtailment as of August 1, 2017
|
3.86%
|
|
|
^^
|
Expected return on plan assets
|
N/A
|
|
|
|
Expected health care cost trend rate:
|
|
|
|
|
Initial
|
7.25
|
%
|
|
|
Ultimate
|
4.75
|
%
|
|
|
Years to reach ultimate trend rate
|
5
|
|
|
|
Disability:
|
|
|
|
|
Discount rate to determine projected benefit obligation
|
3.72
|
%
|
|
|
Expected return on plan assets
|
4.60
|
%
|
|
^
|
N/A Not Applicable
|
|
^
|
Expected return on plan assets used to determine the net periodic benefit expense for
2018
is
7.33%
for the pension plans and
4.90%
for the disability plan.
|
|
|
^^
|
As of August 1, 2017 the Company partially settled the pilots' other post-retirement benefit plan. See Note 12 for further discussion.
|
The expected long-term rate of return assumption is developed by evaluating input from the trustee managing the plans' assets, including the trustee's review of asset class return expectations by several consultants and economists, as well as long-term inflation assumptions. Our expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on our goal of earning the highest rate of return while maintaining risk at acceptable levels. The Retirement Plan for Pilots of Hawaiian Airlines, Inc. and the Pilot's Voluntary Employee Beneficiary Association Disability and Survivor's Benefit Plan strive to have assets sufficiently diversified so that adverse or unexpected results from any one security class will not have an unduly detrimental impact on the entire portfolio. We believe that our long-term asset allocation on average will approximate the targeted allocation. We periodically review our actual asset allocation and rebalance the pension plan's investments to our targeted allocation when considered appropriate. Pension expense increases as the expected rate of return on plan assets decreases. Lowering the expected long-term rate of return by 100 basis points will have the following effects on our estimated
2018
pension and disability benefit expense recorded in wages and benefits and nonoperating expense:
|
|
|
|
|
|
100 Basis Point Decrease
|
|
(in millions)
|
Increase in estimated 2018 pension expense
|
$
|
2.9
|
|
Increase in estimated 2018 disability benefit expense
|
0.3
|
|
We determine the appropriate discount rate for each of our plans based on current rates on high quality corporate bonds that would generate the cash flow necessary to pay plan benefits when due. The pension and other postretirement benefit liabilities
and future expense both increase as the discount rate is reduced. Lowering the discount rate by 100 basis points would have the following effects:
|
|
|
|
|
|
100 Basis Point Decrease
|
|
(in millions)
|
Increase in pension obligation as of December 31, 2017
|
$
|
54.4
|
|
Increase in other postretirement benefit obligation as of December 31, 2017
|
15.4
|
|
Increase in estimated 2018 pension expense (operating and nonoperating)
|
(0.4
|
)
|
Increase in estimated 2018 other postretirement benefit expense (operating and nonoperating)
|
1.0
|
|
The health care cost trend rate is based upon an evaluation of our historical trends and experience taking into account current and expected market conditions. Changes in the assumed current health care cost trend rate by year by 100 basis points would have the following annual effects:
|
|
|
|
|
|
100 Basis Point Increase
|
|
(in millions)
|
Increase in other postretirement benefit obligation as of December 31, 2017
|
$
|
8.5
|
|
Increase in estimated 2018 other postretirement benefit expense (operating and nonoperating)
|
0.8
|
|
|
|
|
|
|
|
100 Basis Point Decrease
|
|
(in millions)
|
Decrease in other postretirement benefit obligation as of December 31, 2017
|
$
|
7.3
|
|
Decrease in estimated 2018 other postretirement benefit expense (operating and nonoperating)
|
1.0
|
|
In 2017, we recognized a one-time Other nonoperating special item expense of $10.4 million related to the settlement of a portion of our pilots' other post-retirement medical plan liability, pursuant to which the parties agreed to eliminate the post-65 post-retirement medical benefit for all active pilots and to replace the benefit with a health retirement account (HRA) managed by ALPA. We evaluated the accounting for the transaction in accordance with ASC 715-60 Compensation-Retirement Benefits - Defined Benefit Plans-Other Postretirement, and determined that it represented a curtailment and partial settlement of the pilots' other post-retirement benefit plan. The discount rate was revised to remeasure the remaining liability at that time. No other assumptions were updated because there was no indication of a significant change in trends in other assumptions, such as health care trends.
Impairment of Long-Lived Assets and Finite-lived Intangible Assets
Long-lived assets used in operations, consisting principally of property and equipment and finite-lived intangible assets, are tested for impairment when events or changes in circumstances indicate, in management's judgment, that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amount. When testing for impairment management considers market trends, the expected useful lives of the assets, changes in economic conditions, recent transactions involving sales of similar assets and, if necessary, estimates of future undiscounted cash flows. To determine whether impairment exists for aircraft used in operations, assets are grouped at the fleet-type level (the lowest level for which there are identifiable cash flows) and future cash flows are estimated based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant factors. If, at any time, management determines the net carrying value of an asset is not recoverable, the amount is reduced to its fair value during the period in which such determination is made. Any changes in the estimated useful lives of these assets will be accounted for prospectively.
The impairment analysis and ultimate charge in 2016 was triggered by the decision in the fourth quarter of 2016 to exit the Boeing 767-300 fleet in 2018. The early exit of the Boeing 767-300 fleet was made possible by our decision to acquire one Airbus A330 (delivered in 2017), lease two additional Airbus A321s (to be delivered in 2018 in addition to our existing aircraft orders), and our ability to early terminate our long-term power-by-the-hour maintenance contract for the Boeing 767-300 fleet. This fleet change allows us to streamline our fleet, simplify our operations, and reduce our cost structure in the future. In order to assess whether there was an impairment of the Boeing 767-300 asset group, we compared the projected undiscounted cash flows of the fleet to the book value of the assets and determined the book value was in excess of the undiscounted cash flows. We estimated the fair value of our owned Boeing 767-300 fleet assets using third party pricing information and quotes from potential buyers of our owned aircraft, which resulted in a
$49.4 million
impairment charge. Our determination of fair value considered attributes specific to our Boeing 767-300 fleet and aircraft condition (e.g. age, maintenance requirements, cycles,
etc.). The Boeing 767-300 asset group consisted of both owned and leased (at the time of the assessment) aircraft. We expect to remove three leased Boeing 767-300 aircraft from service in 2018. At the time of the assessment, these aircraft had remaining lease payments of approximately
$54.3 million
.
Subsequent to year end, in January 2018 we purchased three of our existing Boeing 767-300 that were classified as operating leases from the lessor and entered into a forward sale agreement of those same three aircraft (to be delivered later in 2018) with another airline. We are in process of evaluating the transactions, and we expect to take a loss on the lease termination during the first quarter of 2018 between $15.0 million and $18.0 million related to this transaction.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
Page
|
Hawaiian Holdings, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Hawaiian Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Hawaiian Holdings, Inc. (the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the PCAOB, the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated
February 13, 2018
expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 1999.
Honolulu, Hawai‘i
February 13, 2018
Hawaiian Holdings, Inc.
Consolidated Statements of Operations
For the Years ended December 31,
2017
,
2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
(in thousands, except per share data)
|
Operating Revenue:
|
|
|
|
|
|
|
|
|
Passenger
|
$
|
2,362,076
|
|
|
$
|
2,145,742
|
|
|
$
|
2,025,610
|
|
Other
|
333,552
|
|
|
304,838
|
|
|
291,857
|
|
Total
|
2,695,628
|
|
|
2,450,580
|
|
|
2,317,467
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
Wages and benefits
|
632,997
|
|
|
535,264
|
|
|
476,979
|
|
Aircraft fuel, including taxes and delivery
|
440,383
|
|
|
344,322
|
|
|
417,728
|
|
Aircraft rent
|
137,764
|
|
|
124,565
|
|
|
115,653
|
|
Maintenance materials and repairs
|
219,553
|
|
|
228,970
|
|
|
224,648
|
|
Aircraft and passenger servicing
|
140,566
|
|
|
126,876
|
|
|
117,449
|
|
Commissions and other selling
|
131,783
|
|
|
125,731
|
|
|
119,746
|
|
Depreciation and amortization
|
113,277
|
|
|
108,128
|
|
|
105,581
|
|
Other rentals and landing fees
|
116,763
|
|
|
108,087
|
|
|
95,055
|
|
Purchased services
|
110,787
|
|
|
96,274
|
|
|
81,838
|
|
Special items
|
23,450
|
|
|
109,142
|
|
|
—
|
|
Other
|
144,533
|
|
|
127,489
|
|
|
114,160
|
|
Total
|
2,211,856
|
|
|
2,034,848
|
|
|
1,868,837
|
|
Operating Income
|
483,772
|
|
|
415,732
|
|
|
448,630
|
|
Nonoperating Income (Expense):
|
|
|
|
|
|
|
|
Other nonoperating special items
|
(45,585
|
)
|
|
—
|
|
|
—
|
|
Interest expense and amortization of debt discounts and issuance costs
|
(30,901
|
)
|
|
(36,612
|
)
|
|
(55,678
|
)
|
Interest income
|
6,132
|
|
|
4,007
|
|
|
2,811
|
|
Capitalized interest
|
8,437
|
|
|
2,651
|
|
|
3,261
|
|
Other components of net periodic benefit cost, excluding settlements
|
(16,713
|
)
|
|
(20,270
|
)
|
|
(22,527
|
)
|
Gains (losses) on fuel derivatives
|
3,312
|
|
|
20,106
|
|
|
(59,931
|
)
|
Loss on extinguishment of debt
|
—
|
|
|
(10,473
|
)
|
|
(12,058
|
)
|
Other, net
|
2,101
|
|
|
4,323
|
|
|
(8,820
|
)
|
Total
|
(73,217
|
)
|
|
(36,268
|
)
|
|
(152,942
|
)
|
Income Before Income Taxes
|
410,555
|
|
|
379,464
|
|
|
295,688
|
|
Income tax expense
|
46,514
|
|
|
144,032
|
|
|
113,042
|
|
Net Income
|
$
|
364,041
|
|
|
$
|
235,432
|
|
|
$
|
182,646
|
|
Net Income Per Common Stock Share:
|
|
|
|
|
|
|
|
Basic
|
$
|
6.86
|
|
|
$
|
4.40
|
|
|
$
|
3.38
|
|
Diluted
|
$
|
6.82
|
|
|
$
|
4.36
|
|
|
$
|
2.98
|
|
Weighted Average Number of Common Stock Shares Outstanding:
|
|
|
|
|
|
|
|
Basic
|
53,074
|
|
|
53,502
|
|
|
54,031
|
|
Diluted
|
53,413
|
|
|
53,958
|
|
|
61,256
|
|
Cash Dividends Declared Per Common Share
|
$
|
0.12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income
For the Years ended December 31,
2017
,
2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(in thousands)
|
Net Income
|
$
|
364,041
|
|
|
$
|
235,432
|
|
|
$
|
182,646
|
|
Other Comprehensive Income (Loss), net:
|
|
|
|
|
|
|
|
|
Net change related to employee benefit plans, net of tax expense of $22,321 for 2017, tax benefit of $3,588 for 2016, and tax expense of $18,826 for 2015
|
34,249
|
|
|
(6,337
|
)
|
|
31,655
|
|
Net change in derivative instruments, net of benefit of $3,548 for 2017, tax expense of $1,290 for 2016, and tax benefit of $4,866 for 2015
|
(5,822
|
)
|
|
2,111
|
|
|
(8,002
|
)
|
Net change in available-for-sale investments, net of tax benefit of $120 for 2017. tax expense of $6 for 2016, and tax benefit of $72 for 2015
|
(198
|
)
|
|
10
|
|
|
(118
|
)
|
Total Other Comprehensive Income (Loss)
|
28,229
|
|
|
(4,216
|
)
|
|
23,535
|
|
Total Comprehensive Income
|
$
|
392,270
|
|
|
$
|
231,216
|
|
|
$
|
206,181
|
|
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Balance Sheets
December 31,
2017
and
2016
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
(in thousands, except share data)
|
ASSETS
|
|
|
|
|
Current Assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
190,953
|
|
|
$
|
325,991
|
|
Restricted cash
|
1,000
|
|
|
5,000
|
|
Short-term investments
|
269,297
|
|
|
284,075
|
|
Accounts receivable, net
|
140,279
|
|
|
96,067
|
|
Spare parts and supplies, net
|
35,361
|
|
|
20,363
|
|
Prepaid expenses and other
|
65,196
|
|
|
66,740
|
|
Total
|
702,086
|
|
|
798,236
|
|
Property and equipment, net
|
|
|
|
|
Flight equipment
|
1,848,061
|
|
|
1,658,698
|
|
Pre-delivery deposits on flight equipment
|
150,652
|
|
|
117,762
|
|
Other property and equipment
|
402,098
|
|
|
332,338
|
|
|
2,400,811
|
|
|
2,108,798
|
|
Less accumulated depreciation and amortization
|
(558,548
|
)
|
|
(454,231
|
)
|
Total
|
1,842,263
|
|
|
1,654,567
|
|
Other Assets:
|
|
|
|
|
Long-term prepayments and other
|
193,632
|
|
|
132,724
|
|
Intangible assets, net
|
15,187
|
|
|
16,411
|
|
Goodwill
|
106,663
|
|
|
106,663
|
|
Total Assets
|
$
|
2,859,831
|
|
|
$
|
2,708,601
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
Accounts payable
|
$
|
140,805
|
|
|
$
|
116,507
|
|
Air traffic liability
|
545,362
|
|
|
482,496
|
|
Other accrued liabilities
|
146,283
|
|
|
172,214
|
|
Current maturities of long-term debt, less discount, and capital lease obligations
|
59,470
|
|
|
58,899
|
|
Total
|
891,920
|
|
|
830,116
|
|
Long-Term Debt and Capital Lease Obligations
|
511,201
|
|
|
497,908
|
|
Other Liabilities and Deferred Credits:
|
|
|
|
|
Accumulated pension and other postretirement benefit obligations
|
220,788
|
|
|
355,968
|
|
Other liabilities and deferred credits
|
95,636
|
|
|
173,613
|
|
Deferred tax liability, net
|
174,344
|
|
|
170,543
|
|
Total
|
490,768
|
|
|
700,124
|
|
Commitments and Contingent Liabilities
|
|
|
|
|
|
Shareholders' Equity:
|
|
|
|
|
Special preferred stock, $0.01 par value per share, three shares issued and outstanding at December 31, 2017 and 2016
|
—
|
|
|
—
|
|
Common stock, $0.01 par value per share, 51,173,453 and 53,435,234 shares issued and outstanding as of December 31, 2017 and 2016, respectively
|
512
|
|
|
534
|
|
Capital in excess of par value
|
126,743
|
|
|
127,266
|
|
Accumulated income
|
913,951
|
|
|
656,146
|
|
Accumulated other comprehensive loss, net
|
(75,264
|
)
|
|
(103,493
|
)
|
Total
|
965,942
|
|
|
680,453
|
|
Total Liabilities and Shareholders' Equity
|
$
|
2,859,831
|
|
|
$
|
2,708,601
|
|
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
For the Years ended December 31,
2017
,
2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock(*)
|
|
Special
Preferred
Stock(**)
|
|
Capital In Excess of Par Value
|
|
Accumulated Income
|
|
Accumulated Other Comprehensive Loss
|
|
Total
|
|
|
|
|
(in thousands)
|
|
|
|
|
Balance at December 31, 2014
|
$
|
545
|
|
|
$
|
—
|
|
|
$
|
251,432
|
|
|
$
|
238,068
|
|
|
$
|
(122,812
|
)
|
|
$
|
367,233
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
182,646
|
|
|
—
|
|
|
182,646
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,535
|
|
|
23,535
|
|
Issuance of 660,271 shares of common stock related to stock awards, net of shares withheld for taxes
|
6
|
|
|
—
|
|
|
(5,489
|
)
|
|
—
|
|
|
—
|
|
|
(5,483
|
)
|
Repurchase and retirement of 1,714,400 shares common stock
|
(17
|
)
|
|
—
|
|
|
(40,120
|
)
|
|
—
|
|
|
—
|
|
|
(40,137
|
)
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
5,075
|
|
|
—
|
|
|
—
|
|
|
5,075
|
|
Excess tax benefits from stock issuance
|
—
|
|
|
—
|
|
|
373
|
|
|
—
|
|
|
—
|
|
|
373
|
|
Reacquisition of equity component of convertible notes
|
—
|
|
|
—
|
|
|
(109,301
|
)
|
|
—
|
|
|
—
|
|
|
(109,301
|
)
|
Settlement of convertible note call options
|
—
|
|
|
—
|
|
|
304,752
|
|
|
—
|
|
|
—
|
|
|
304,752
|
|
Settlement of convertible note warrants
|
—
|
|
|
—
|
|
|
(282,631
|
)
|
|
—
|
|
|
—
|
|
|
(282,631
|
)
|
Balance at December 31, 2015
|
$
|
534
|
|
|
$
|
—
|
|
|
$
|
124,091
|
|
|
$
|
420,714
|
|
|
$
|
(99,277
|
)
|
|
$
|
446,062
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
235,432
|
|
|
—
|
|
|
235,432
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,216
|
)
|
|
(4,216
|
)
|
Issuance of 412,857 shares of common stock related to stock awards, net of shares withheld for taxes
|
4
|
|
|
—
|
|
|
(7,589
|
)
|
|
—
|
|
|
—
|
|
|
(7,585
|
)
|
Repurchase and retirement of 379,062 shares common stock
|
(4
|
)
|
|
—
|
|
|
(13,759
|
)
|
|
—
|
|
|
—
|
|
|
(13,763
|
)
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
6,005
|
|
|
—
|
|
|
—
|
|
|
6,005
|
|
Excess tax benefits from stock issuance
|
—
|
|
|
—
|
|
|
19,656
|
|
|
—
|
|
|
—
|
|
|
19,656
|
|
Reacquisition of equity component of convertible notes
|
—
|
|
|
—
|
|
|
(1,138
|
)
|
|
$
|
—
|
|
|
—
|
|
|
(1,138
|
)
|
Balance at December 31, 2016
|
$
|
534
|
|
|
$
|
—
|
|
|
$
|
127,266
|
|
|
$
|
656,146
|
|
|
$
|
(103,493
|
)
|
|
680,453
|
|
Net Income
|
—
|
|
|
—
|
|
|
—
|
|
|
364,041
|
|
|
—
|
|
|
364,041
|
|
Dividends declared on common stock ($0.12 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,261
|
)
|
|
—
|
|
|
(6,261
|
)
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,229
|
|
|
28,229
|
|
Issuance of 247,852 shares of common stock related to stock awards, net of shares withheld for taxes
|
3
|
|
|
—
|
|
|
(7,535
|
)
|
|
—
|
|
|
—
|
|
|
(7,532
|
)
|
Repurchase and retirement of 2,509,633 shares common stock
|
(25
|
)
|
|
—
|
|
|
—
|
|
|
(99,975
|
)
|
|
—
|
|
|
(100,000
|
)
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
7,012
|
|
|
—
|
|
|
—
|
|
|
7,012
|
|
Balance at December 31, 2017
|
$
|
512
|
|
|
$
|
—
|
|
|
$
|
126,743
|
|
|
$
|
913,951
|
|
|
$
|
(75,264
|
)
|
|
965,942
|
|
(*) Common Stock—$0.01 par value; 118,000,000 authorized as of December 31,
2017
and
2016
.
(**) Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of December 31,
2017
and
2016
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Consolidated Statements of Cash Flows
For the Years ended December 31,
2017
,
2016
and
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
(in thousands)
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
Net Income
|
$
|
364,041
|
|
|
$
|
235,432
|
|
|
$
|
182,646
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
1,224
|
|
|
2,322
|
|
|
2,640
|
|
Depreciation and amortization of property and equipment
|
112,627
|
|
|
107,041
|
|
|
104,176
|
|
Deferred income taxes, net
|
(14,792
|
)
|
|
36,372
|
|
|
102,446
|
|
Impairment of assets
|
—
|
|
|
49,361
|
|
|
—
|
|
Stock compensation
|
7,286
|
|
|
8,424
|
|
|
6,616
|
|
Loss on extinguishment of debt
|
—
|
|
|
10,473
|
|
|
12,058
|
|
Amortization of debt discounts and issuance costs
|
5,251
|
|
|
5,579
|
|
|
6,678
|
|
Post retirement payments
|
(153,959
|
)
|
|
(60,931
|
)
|
|
(23,340
|
)
|
Pension and postretirement benefit cost
|
29,580
|
|
|
34,569
|
|
|
38,879
|
|
Partial settlement and curtailment loss
|
45,585
|
|
|
—
|
|
|
—
|
|
Change in unrealized (gain) loss on fuel derivative contracts
|
(3,845
|
)
|
|
(47,678
|
)
|
|
(1,015
|
)
|
Other, net
|
11,170
|
|
|
2,172
|
|
|
(1,811
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable, net
|
(40,780
|
)
|
|
(18,956
|
)
|
|
(1,850
|
)
|
Spare parts and supplies, net
|
(21,964
|
)
|
|
(5,259
|
)
|
|
(4,323
|
)
|
Prepaid expenses and other current assets
|
4,158
|
|
|
(12,319
|
)
|
|
7,065
|
|
Accounts payable
|
21,965
|
|
|
12,305
|
|
|
44
|
|
Air traffic liability
|
62,866
|
|
|
51,730
|
|
|
6,430
|
|
Other accrued liabilities
|
(24,668
|
)
|
|
47,582
|
|
|
10,075
|
|
Other assets and liabilities, net
|
(74,610
|
)
|
|
(21,175
|
)
|
|
28,614
|
|
Net cash provided by operating activities
|
331,135
|
|
|
437,044
|
|
|
476,028
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
Additions to property and equipment, including pre-delivery deposits
|
(341,515
|
)
|
|
(178,838
|
)
|
|
(118,828
|
)
|
Proceeds from purchase assignment and leaseback transactions
|
—
|
|
|
31,851
|
|
|
101,738
|
|
Net proceeds from disposition of equipment
|
33,941
|
|
|
16
|
|
|
3,669
|
|
Purchases of investments
|
(231,393
|
)
|
|
(260,987
|
)
|
|
(257,448
|
)
|
Sales of investments
|
244,261
|
|
|
253,855
|
|
|
236,062
|
|
Other
|
—
|
|
|
—
|
|
|
(500
|
)
|
Net cash used in investing activities
|
(294,706
|
)
|
|
(154,103
|
)
|
|
(35,307
|
)
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
Repayments of long-term debt and capital lease obligations
|
(61,486
|
)
|
|
(214,025
|
)
|
|
(216,157
|
)
|
Dividend payments
|
(6,261
|
)
|
|
—
|
|
|
—
|
|
Repurchases and conversion of convertible notes
|
—
|
|
|
(1,426
|
)
|
|
(184,645
|
)
|
Repurchases of common stock
|
(100,000
|
)
|
|
(13,763
|
)
|
|
(40,138
|
)
|
Proceeds from settlement of convertible note call options
|
—
|
|
|
—
|
|
|
304,752
|
|
Payment for settlement of convertible note warrants
|
—
|
|
|
—
|
|
|
(282,631
|
)
|
Debt issuance costs
|
(188
|
)
|
|
(1,653
|
)
|
|
(572
|
)
|
Payment for taxes withheld for stock compensation
|
(7,532
|
)
|
|
(7,585
|
)
|
|
(5,481
|
)
|
Net cash used in financing activities
|
(175,467
|
)
|
|
(238,452
|
)
|
|
(424,872
|
)
|
Net increase (decrease) in cash and cash equivalents
|
(139,038
|
)
|
|
44,489
|
|
|
15,849
|
|
Cash, cash equivalents, and restricted cash—Beginning of Year
|
330,991
|
|
|
286,502
|
|
|
270,653
|
|
Cash, cash equivalents, and restricted cash—End of Year
|
$
|
191,953
|
|
|
$
|
330,991
|
|
|
$
|
286,502
|
|
See accompanying Notes to Consolidated Financial Statements.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
Hawaiian Holdings, Inc. (the Company, Holdings, we, us and our) and its direct wholly-owned subsidiary, Hawaiian Airlines, Inc. (Hawaiian), are incorporated in the State of Delaware. The Company's primary asset is its sole ownership of all issued and outstanding shares of common stock of Hawaiian.
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including its principal subsidiary, Hawaiian, through which the Company conducts substantially all of its operations. All significant inter-company balances and transactions have been eliminated upon consolidation.
Certain prior period amounts were reclassified to conform to the current period presentation. None of these reclassifications had a material effect on the consolidated financial statements.
Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments with an original maturity of three months or less at the date of purchase.
Restricted Cash
Restricted cash consists of cash held as collateral by institutions that process our credit card transactions for advanced ticket sales.
Spare Parts and Supplies
Spare parts and supplies are valued at average cost, and primarily consist of expendable parts for flight equipment and other supplies. An allowance for obsolescence of expendable parts is provided over the estimated useful lives of the related aircraft and engines for spare parts expected to be on hand at the date the aircraft are retired from service. These allowances are based on management's estimates and are subject to change.
Property, Equipment and Depreciation
Property and equipment are stated at cost and depreciated on a straight-line basis to their estimated residual values over the asset's estimated useful life. Depreciation begins when the asset is placed into service. Aircraft and related parts begin depreciating on the aircraft's first revenue flight.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Estimated useful lives and residual values of property and equipment are as follows:
|
|
|
Boeing 717-200 aircraft and engines
|
7 - 11 years, 7 - 34% residual value
|
Boeing 767-300 aircraft and engines (1)
|
1 year (1)
|
Airbus A330-200 aircraft and engines
|
25 years, 10% residual value
|
Airbus A321neo aircraft and engines
|
25 years, 10% residual value
|
ATR turboprop aircraft and engines
|
10 years, 15% residual value
|
Aircraft under capital leases
|
8 - 12 years, no residual value
|
Flight simulator under capital lease
|
10 years, no residual value
|
Major rotable parts
|
Average lease term or useful life for related aircraft, 10% - 15% residual value
|
Improvements to leased flight equipment and the cargo maintenance hangar
|
Shorter of lease term or useful life
|
Facility leasehold improvements
|
Shorter of lease term, including assumed lease renewals when renewal is economically compelled at key airports, or useful life
|
Furniture, fixtures and other equipment
|
3 - 7 years, no residual value
|
Capitalized software
|
3 - 7 years, no residual value
|
(1) In 2016, the Company made a determination to early retire its Boeing 767-300 fleet by the end of 2018. Useful lives and residual values have been adjusted accordingly to reflect this decision and match the retirement dates of the aircraft. See Note 11 for further discussion.
Additions and modifications that significantly enhance the operating performance and/or extend the useful lives of property and equipment are capitalized and depreciated over the lesser of the remaining useful life of the asset or the remaining lease term, as applicable. Expenditures that do not improve or extend asset lives are charged to expense as incurred. Pre-delivery deposits are capitalized when paid.
Aircraft under capital leases are recorded at an amount equal to the present value of minimum lease payments utilizing the Company's incremental borrowing rate at lease inception and amortized on a straight-line basis over the lesser of the remaining useful life of the aircraft or the lease term. The amortization is recorded in depreciation and amortization expense on the Consolidated Statement of Operations. Accumulated amortization of aircraft and other capital leases was
$70.9 million
and
$56.1 million
as of
December 31, 2017
and
2016
, respectively.
The Company capitalizes certain costs related to the acquisition and development of computer software and amortizes these costs using the straight-line method over the estimated useful life of the software. The net book value of computer software, which is included in Other property and equipment on the consolidated balance sheets, was
$34.6 million
and
$31.0 million
at
December 31, 2017
and
2016
, respectively. The value of construction in progress, primarily consisting of aircraft in 2017 and aircraft facilities in 2016 which is included in property and equipment on the consolidated balance sheets, was
$135.3 million
and
$157.8 million
as of
December 31, 2017
and
2016
, respectively. Amortization expense related to computer software was
$12.3 million
,
$9.7 million
and
$6.3 million
for the years ended
December 31, 2017
,
2016
, and
2015
respectively.
Aircraft Maintenance and Repair Costs
Maintenance and repair costs for owned and leased flight equipment, including the overhaul of aircraft components, are charged to operating expenses as incurred. Engine overhaul costs covered by power-by-the-hour arrangements are paid and expensed as incurred or expensed on a straight-line basis and are based on the amount of hours flown per contract. Under the terms of these power-by-the-hour agreements, the Company pays a set dollar amount per engine hour flown on a monthly basis and the third-party vendor assumes the obligation to repair the engines at
no
additional cost, subject to certain specified exclusions. As of December 31, 2017 and 2016 the Company had approximately
$109.3 million
and
$50.0 million
, respectively in prepayments to one of its power-by-the-hour vendors, which is recoverable over the next
four years
.
Additionally, although the Company's aircraft lease agreements specifically provide that it is responsible for maintenance of the leased aircraft, the Company pays maintenance reserves to the aircraft lessors that are applied toward the cost of future maintenance events. These reserves are calculated based on a performance measure, such as flight hours, and are available for reimbursement to the Company upon the completion of the maintenance of the leased aircraft. However, reimbursements are
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
limited to the available reserves associated with the specific maintenance activity for which the Company requests reimbursement.
Under certain aircraft lease agreements, the lessor is entitled to retain excess amounts on deposit at the expiration of the lease, if any; whereas at the expiration of certain other existing aircraft lease agreements any such excess amounts are returned to the Company, provided that it has fulfilled all of its obligations under the lease agreements. The maintenance reserves paid under the lease agreements do not transfer either the obligation to maintain the aircraft or the cost risk associated with the maintenance activities to the aircraft lessor. In addition, the Company maintains the right to select any third-party maintenance provider.
Maintenance reserve payments that are expected to be recovered from lessors are recorded as deposits in the Consolidated Balance Sheets as an asset until it is less than probable that any portion of the deposit is recoverable. In addition, payments of maintenance reserves that are not substantially and contractually related to the maintenance of the leased assets are expensed as incurred. Any costs that are substantially and contractually unrelated to the maintenance of the leased asset are considered to be unrecoverable. In order to properly account for the costs that are related to the maintenance of the leased asset, the Company bifurcates its maintenance reserves into
two
groups and expenses the proportionate share that is expected to be unrecoverable.
Goodwill and Indefinite-lived Intangible Assets
Goodwill and intangible assets with indefinite lives are not amortized, but are tested for impairment at least annually using a three-step process in accordance with Accounting Standard Codification (ASC)
Intangibles—Goodwill and Other
(ASC 350).
In the event that the Company determines that the values of goodwill or indefinite-lived intangible assets have become impaired, the Company will incur an accounting charge during the period in which such determination is made.
Impairment of Long-Lived Assets and Finite-lived Intangible Assets
Long-lived assets used in operations, consisting principally of property and equipment and finite-lived intangible assets, are tested for impairment when events or changes in circumstances indicate, in management's judgment, that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amount. When testing for impairment management considers market trends, the expected useful lives of the assets, changes in economic conditions, recent transactions involving sales of similar assets and, if necessary, estimates of future undiscounted cash flows. To determine whether impairment exists for aircraft used in operations, assets are grouped at the fleet-type level (the lowest level for which there are identifiable cash flows) and future cash flows are estimated based on projections of capacity, passenger mile yield, fuel costs, labor costs and other relevant factors. If, at any time, management determines the net carrying value of an asset is not recoverable, the amount is reduced to its fair value during the period in which such determination is made. Any changes in the estimated useful lives of these assets will be accounted for prospectively. In 2016, a
$49.4 million
impairment charge was recorded as the Company determined that the Boeing 767-300 fleet and related assets were impaired. See Note 11 for further details.
Operating Leases
The Company leases aircraft, engines, airport terminal facilities, office space, and other equipment under operating leases. Some of these lease agreements include escalation clauses and renewal options. For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy, the Company records minimum rental expenses on a straight-line basis over the terms of the leases in the Consolidated Statements of Operations. When lease renewals are considered to be reasonably assured, the rental payments that will be due during the renewal periods are included in the determination of rent expense over the life of the lease. Rental expense for operating leases totaled
$208.0 million
,
$193.0 million
, and
$174.9 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
Leased Aircraft Return Costs
Costs associated with the return of leased aircraft are accrued when it is probable that a payment will be made and that amount is reasonably estimable. Any accrual is based on the time remaining on the lease, planned aircraft usage, and the provisions included in the lease agreement, although the actual amount due to any lessor upon return will not be known with certainty until lease termination.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Revenue Recognition
Passenger revenue is recognized either when the transportation is provided or when tickets expire unused. The value of passenger tickets for future travel is included as air traffic liability.
Various taxes and fees assessed on the sale of tickets to end customers are collected by the Company as an agent and remitted to taxing authorities. These taxes and fees have been presented on a net basis in the accompanying Consolidated Statements of Operations and recorded as a liability until remitted to the appropriate taxing authority.
Other operating revenue includes checked baggage revenue, cargo revenue, ticket change and cancellation fees, charter revenue, ground handling fees, commissions and fees earned under certain joint marketing agreements with other companies, inflight revenue, and other incidental sales.
Ticket change and cancellation fees are recognized at the time the fees are assessed. All other revenue is recognized as revenue when the related goods and services are provided.
Frequent Flyer Program
HawaiianMiles,
Hawaiian's frequent flyer travel award program provides a variety of awards to program members based on accumulated mileage. The Company utilizes the incremental cost method of accounting for free travel awards earned by passengers issued from the
HawaiianMiles
program through flight activity. The Company records a liability for the estimated incremental cost of providing travel awards that are expected to be redeemed on Hawaiian or the contractual rate of expected redemption on other airlines. The Company estimates the incremental cost of travel awards based on periodic studies of actual costs and applies these cost estimates to all issued miles, less an appropriate breakage factor for estimated miles that will not be redeemed. Incremental cost includes the costs of fuel, meals and beverages, insurance and certain other passenger traffic-related costs, but does not include any costs for aircraft ownership and maintenance. The breakage factor is estimated based on an analysis of historical expirations.
The Company also sells mileage credits to companies participating in our frequent flyer program. These sales are accounted for as multiple-element arrangements, with one element representing the travel that will ultimately be provided when the mileage credits are redeemed and the other consisting of marketing related activities that we conduct with the participating company.
The Company accounts for the co-branded credit card agreement as a multiple deliverable revenue arrangement, which requires the allocation of the overall consideration received to each deliverable using the estimated selling price. The objective of using estimated selling price based methodology is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis.
The following
four
deliverables or elements were identified in the agreement: (i) travel miles; (ii) use of the Hawaiian brand and access to member lists; (iii) advertising elements; and (iv) other airline benefits including checked baggage services and travel discounts. The Company determined the relative fair value of each element by estimating the selling prices of the deliverables by considering discounted cash flows using multiple inputs and assumptions, including: (1) the expected number of miles to be awarded and redeemed; (2) the estimated weighted average equivalent ticket value, adjusted by a fulfillment discount; (3) the estimated total annual cardholder spend; (4) an estimated royalty rate for the Hawaiian portfolio; and (5) the expected use of each of the airline benefits. The overall consideration received is allocated to the deliverables based on their relative selling prices. The transportation element is deferred and recognized as passenger revenue over the period when the transportation is expected to be provided (
23 months
). The other elements will generally be recognized as other revenue when earned.
The Company's total frequent flyer liability for future award redemptions is reflected as components of Air traffic liability (for sold miles) and Other liabilities and deferred credits (for miles at incremental cost) within the Consolidated Balance Sheets as
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
follows:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2017
|
|
2016
|
|
(in thousands)
|
Air traffic liability
|
$
|
71,537
|
|
|
$
|
67,936
|
|
Other liabilities and deferred credits
|
19,795
|
|
|
18,461
|
|
Total frequent flyer liability
|
$
|
91,332
|
|
|
$
|
86,397
|
|
Under the programs of certain participating companies, credits are accumulated in accounts maintained by the participating company and then transferred into a member's
HawaiianMiles
account for immediate redemption of free travel awards. For those transactions, revenue is recognized over the period during which the mileage is projected to be used for travel (
four months
).
On an annual basis, the Company reviews the deferral period and deferral rate for mileage credits sold to participating companies, as well as the breakage rate assumption for free travel awards earned in connection with the purchase of passenger tickets. The Company's incremental cost assumption is reviewed on a quarterly basis.
Pension and Postretirement and Postemployment Benefits
The Company accounts for its defined benefit pension and other postretirement and postemployment plans in accordance with ASC 715,
Compensation—Retirement Benefits
(ASC 715), which requires companies to measure their plans' assets and obligations to determine the funded status at fiscal year-end, reflect the funded status in the statement of financial position as an asset or liability, and recognize changes in the funded status of the plans in comprehensive income during the year in which the changes occur. Pension and other postretirement and postemployment benefit expenses are recognized on an accrual basis over each employee's service periods. Pension expense is generally independent of funding decisions or requirements.
The Company uses the corridor approach in the valuation of its defined benefit pension and other postretirement and postemployment plans. The corridor approach defers all actuarial gains and losses resulting from variances between actual results and actuarial assumptions. These unrecognized actuarial gains and losses are amortized when the net gains and losses exceed 10% of the greater of the market-related value of plan assets or the projected benefit obligation at the beginning of the year. The amount in excess of the corridor is amortized over the expected average remaining service period of active plan participants for the open plans and is amortized over the expected average remaining lifetime of inactive participants for plans whose population is “all or almost all” inactive.
As described further in Note 12, in August 2017, the Company made a one-time cash payment of
$101.9 million
to fund the HRA and settle the post-65 post-retirement medical plan obligation for all active pilots as of April 1, 2017. The cash contributed was distributed to the trust funding the individual health retirement notional accounts of the participants. In connection with the settlement of the liability, the discount rate was updated to
3.86%
. The Company recognized a one-time settlement loss of
$10.4 million
. The obligation recorded for the unsettled portion of this plan was
$73.4 million
as of the partial settlement date. No other assumptions were updated because there was no indication of a significant change in trends in other assumptions, such as health care trends.
Advertising Costs
Advertising costs are expensed when incurred. Advertising expense was
$16.6 million
,
$18.3 million
and
$17.6 million
for the years ended
December 31, 2017
,
2016
, and
2015
, respectively.
Capitalized Interest
Interest is capitalized upon the payment of predelivery deposits for aircraft and engines, and is depreciated over the estimated useful life of the asset from service inception date.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Stock Compensation Plans
The Company has a stock compensation plan for it and its subsidiaries' officers' and non-employee directors. The Company accounts for stock compensation awards under ASC 718,
Compensation—Stock Compensation
, which requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of such awards on the dates they are granted. The fair value of the awards are estimated using the following: (1) option-pricing models for grants of stock options or (2) fair value at the measurement date (usually the grant date) for awards of stock subject to time and / or performance-based vesting. The resultant cost is recognized as compensation expense over the period of time during which an employee is required to provide services to the Company (the service period) in exchange for the award, the service period generally being the vesting period of the award.
Financial Derivative Instruments
The Company uses derivatives to manage risks associated with certain assets and liabilities arising from the potential adverse impact of fluctuations in global aircraft fuel prices, interest rates and foreign currency exchange rates.
The following table summarizes the accounting treatment of the Company's derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification of Unrealized
Gains (Losses)
|
Derivative Type
|
|
Accounting Designation
|
|
Classification of Realized
Gains and Losses
|
|
Effective Portion
|
|
Ineffective Portion
|
Interest rate contracts
|
|
Designated as cash flow hedges
|
|
Interest expense and amortization of debt discounts and issuance costs
|
|
AOCI
|
|
Nonoperating income (expense)
|
Foreign currency exchange contracts
|
|
Designated as cash flow hedges
|
|
Passenger revenue
|
|
AOCI
|
|
Nonoperating income (expense)
|
Fuel hedge contracts
|
|
Not designated as hedges
|
|
Gains (losses) on fuel derivatives
|
|
Change in fair value is recorded in nonoperating income (expense)
|
Foreign currency exchange contracts
|
|
Not designated as hedges
|
|
Nonoperating income (expense), Other
|
|
Change in fair value is recorded in nonoperating income (expense)
|
If the Company terminates a derivative designated for hedge accounting under ASC 815, prior to its contractual settlement date, then the cumulative gain or loss recognized in AOCI at the termination date remains in AOCI until the forecasted transaction occurs. In a situation where it becomes probable that a hedged forecasted transaction will not occur, any gains and/or losses that have been recorded to AOCI would be required to be immediately reclassified into earnings. All cash flows associated with purchasing and settling derivatives are classified as operating cash flows in the Consolidated Statements of Cash Flows.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates.
Recently Adopted Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, requiring an employer to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. ASU 2017-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption only permitted in the first quarter of 2017. The Company early adopted this standard during the first quarter of 2017. The adoption of ASU 2017-07 resulted in a reclassification of
$20.3 million
and
$22.5 million
from wages and benefits to other components of net periodic benefit cost on the Company's consolidated statement of operations for the
twelve months ended December 31, 2016
and
2015
, respectively.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, Restricted Cash, requiring restricted cash and restricted cash equivalents to be included with cash and cash equivalents on the statement of cash flows when reconciling the
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The guidance is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company early adopted this standard during the first quarter of 2017. Restricted cash is now included as a component of cash, cash equivalents, and restricted cash on the Company's condensed consolidated statement of cash flows. The inclusion of restricted cash increased the beginning balances of the condensed consolidated statement of cash flows by
$5.0 million
and
$6.7 million
and the ending balances by
$5.0 million
for the
twelve months ended December 31, 2016
and
2015
, respectively.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, requiring all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. ASU 2016-09 will also allow an employer to withhold more shares for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016. The Company adopted this standard during the first quarter of 2017. The primary impact of the adoption of the standard on the Company's consolidated financial statements was the recognition of excess tax benefits in the provision for income taxes rather than additional paid-in capital, which reduced income tax expense by
$5.7 million
for the
twelve months ended December 31, 2017
.
Recently Issued Accounting Pronouncements
In February 2018, the FASB issued a proposed ASU which would require a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the newly enacted federal corporate income tax rate. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate. Consequently, the amendments in this proposed ASU would eliminate the stranded tax effects associated with the change in the federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017. If this ASU is finalized, we will consider adoption in 2018, which would result in a reclassification of approximately
$12.5 million
from accumulated other comprehensive income to retained earnings
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging, which better aligns a company's risk management activities and financial reporting for hedging relationships and is intended to simplify the hedge accounting requirements. ASU 2017-12 is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the components and options within ASU 2017-12.
In February 2016, the FASB issued ASU 2016-02, Leases, requiring a lessee to recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018. ASU 2016-02 requires entities to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is evaluating the impact the adoption of this standard will have on its consolidated financial statements and believes this ASU will have a significant impact on its consolidated balance sheet but does not expect that the ASU will have a material impact on the Company's results of operations or cash flows. The effect of adopting the new standard will be to record right-of-use assets and operating lease obligations for fixed payments associated with current operating leases on the Company's balance sheet. See
Note 9
which discusses our lease obligations as of
December 31, 2017
.
In November 2017, the FASB directed the staff to draft a proposed ASU that would provide transition relief allowing entities to continue to apply the guidance in ASC 840, including its disclosure requirements, in the comparative periods presented in the year that a Company adopts the new leases guidance (ASC 842). Entities that elect this option would record the cumulative effect of adoption on the effective date rather than at the beginning of the earliest comparative period presented. The Company is awaiting the finalized pronouncement.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, and created a new topic (ASC 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASC 606 will replace most existing revenue recognition guidance in GAAP when it becomes effective. ASC 606 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company will elect to adopt the full retrospective transition method as of January 1, 2018, resulting in the restatement of certain prior periods on the date of adoption.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company completed its overall analysis for the provisions of ASC 606 specific to its consolidated financial statements and related disclosures. The Company has also designed and implemented controls and systems in anticipation of the adoption of the standard, effective January 1, 2018 which has a material impact on its consolidated financial statements. The overall decrease in equity as of January 1, 2016 is approximately
$76.0 million
net of tax, with an offsetting change primarily in Other liabilities and deferred credits.
The most significant impact of the standard relates to the accounting for the Company's frequent flyer travel award program. This change as well as other less significant changes, are briefly described below:
|
|
•
|
Frequent flyer
- The standard requires the Company to account for miles earned by passengers in the
HawaiianMiles
program through flight activity as a component of the passenger revenue ticket transaction at the estimated selling price of the miles (effectively eliminating the incremental cost accounting currently applied). Under ASC 606, ticket consideration received is allocated between the performance obligations, primarily travel and miles earned by passengers. The allocated value of the miles will be deferred based on the equivalent ticket value (ETV) of a mile until the free travel or other award is used by the passenger, at which time it will be included in passenger revenues. In order to calculate ETV the Company analyzed the prior 12 months' weighted average ETV of similar fares as those used to settle award redemptions, considering cabin class and geographic region. ASC 606 will result in a significant increase to the deferred revenue liability on the Company's balance sheet, as the estimated selling price of the miles significantly exceeds the value previously recorded for incremental cost. The allocated value of miles earned through flights and sold to partners, will be recognized at the time the free travel or other award is used by the passenger.
|
|
|
•
|
Passenger revenue
- Prior to January 1, 2018, passenger revenue was recognized either when the transportation was provided or when tickets expire unused. However, after the application of ASC 606, passenger revenue associated with unused tickets, which represent unexercised passenger rights, is expected to be recognized in proportion to the pattern of rights exercised by related passengers (e.g. scheduled departure dates). This will have the effect of reducing the recorded balance in air traffic liability as of the date of the cumulative effect adjustment on January 1, 2016 but is not expected to have a significant effect on annual revenue recognition.
|
|
|
•
|
Other operating revenue
- Other operating revenue includes checked baggage revenue, cargo revenue, ticket change and cancellation fees, charter revenue, ground handling fees, commissions and fees earned under certain joint marketing agreements with other companies, inflight revenue, and other incidental sales. Ticket change and cancellation fees are currently recognized at the time the fees are assessed. The Company expects to defer the recognition of ticket change fees as a component of air traffic liability until the related transportation is provided. Certain amounts currently classified in other revenue (e.g. bag and other ancillary fees) will be reclassified to passenger revenue.
|
|
|
•
|
Selling Costs
- Certain selling costs to issue passenger tickets (e.g. credit card and booking fees) are currently recognized when incurred. Consistent with the Company’s current accounting for commissions, under ASC 606 the Company will capitalize selling costs associated with credit card and booking fees and recognize the associated expense at the ticketed flight date.
|
The adoption of the standard required the implementation of new accounting processes and systems, which will change the Company's internal control over revenue recognition (effective January 1, 2018). Select recast pro forma financial statement information, which reflect the adoption of the ASC is below.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Pro Forma
|
|
As Reported
|
|
Adjustments
|
|
Recast for Adoption of ASC 606
|
|
(in thousands)
|
Operating Revenue:
|
|
|
|
|
|
Passenger
|
$
|
2,145,742
|
|
|
$
|
125,945
|
|
|
$
|
2,271,687
|
|
Other
|
304,838
|
|
|
(144,112
|
)
|
|
160,726
|
|
Total
|
$
|
2,450,580
|
|
|
$
|
(18,167
|
)
|
|
$
|
2,432,413
|
|
Operating Expenses
|
2,034,848
|
|
|
78
|
|
|
2,034,926
|
|
Operating Income
|
415,732
|
|
|
(18,245
|
)
|
|
397,487
|
|
Nonoperating Income (Expense)
|
(36,268
|
)
|
|
—
|
|
|
(36,268
|
)
|
Income tax expense
|
144,032
|
|
|
(6,933
|
)
|
|
137,099
|
|
Net Income
|
$
|
235,432
|
|
|
$
|
(11,312
|
)
|
|
$
|
224,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
Pro Forma
|
|
As Reported
|
|
Adjustments
|
|
Recast for Adoption of ASC 606
|
|
(in thousands)
|
Operating Revenue:
|
|
|
|
|
|
Passenger
|
$
|
2,362,076
|
|
|
$
|
124,751
|
|
|
$
|
2,486,827
|
|
Other
|
333,552
|
|
|
(145,234
|
)
|
|
188,318
|
|
Total
|
$
|
2,695,628
|
|
|
$
|
(20,483
|
)
|
|
$
|
2,675,145
|
|
Operating Expenses
|
2,211,856
|
|
|
(749
|
)
|
|
2,211,107
|
|
Operating Income
|
483,772
|
|
|
(19,734
|
)
|
|
464,038
|
|
Nonoperating Income (Expense)
|
(73,217
|
)
|
|
—
|
|
|
(73,217
|
)
|
Income tax expense
|
46,514
|
|
|
13,697
|
|
|
60,211
|
|
Net Income
|
$
|
364,041
|
|
|
$
|
(33,431
|
)
|
|
$
|
330,610
|
|
Select consolidated balance sheet line items, which reflect the adoption of the new standard are as follows:
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Pro Forma Balance Sheet Data
|
|
As Reported
|
|
Adjustments
|
|
Recast for Adoption of ASC 606
|
|
(in thousands)
|
ASSETS
|
|
|
|
|
|
Prepaid expenses and other
|
$
|
65,196
|
|
|
$
|
13,990
|
|
|
$
|
79,186
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
Air traffic liability
|
545,362
|
|
|
43,731
|
|
|
589,093
|
|
Other accrued liabilities
|
146,283
|
|
|
1,310
|
|
|
147,593
|
|
Noncurrent Liabilities:
|
|
|
|
|
|
Other liabilities and deferred credits
|
95,636
|
|
|
129,969
|
|
|
225,605
|
|
Deferred tax liability
|
174,344
|
|
|
(40,203
|
)
|
|
134,141
|
|
Shareholders' Equity:
|
|
|
|
|
|
Accumulated income
|
913,951
|
|
|
(120,817
|
)
|
|
793,134
|
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Accumulated Other Comprehensive Loss
Reclassifications out of accumulated other comprehensive loss by component is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
Details about accumulated other comprehensive loss components
|
|
2017
|
|
2016
|
|
2015
|
|
Affected line items in the statement where net income is presented
|
|
|
(in thousands)
|
|
|
Derivatives designated as hedging instruments under ASC 815
|
|
|
|
|
|
|
|
|
|
Foreign currency derivative (gains) losses, net
|
|
$
|
(2,391
|
)
|
|
$
|
196
|
|
|
$
|
(17,443
|
)
|
|
Passenger revenue
|
Interest rate derivative losses, net
|
|
—
|
|
|
944
|
|
|
687
|
|
|
Interest expense
|
Total before tax
|
|
(2,391
|
)
|
|
1,140
|
|
|
(16,756
|
)
|
|
|
Tax expense (benefit)
|
|
906
|
|
|
(438
|
)
|
|
6,333
|
|
|
|
Total, net of tax
|
|
$
|
(1,485
|
)
|
|
$
|
702
|
|
|
$
|
(10,423
|
)
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
|
|
|
|
|
Actuarial loss
|
|
$
|
8,792
|
|
|
$
|
7,730
|
|
|
$
|
11,407
|
|
|
Other components of net periodic benefit cost
|
Prior service cost
|
|
254
|
|
|
227
|
|
|
227
|
|
|
Other components of net periodic benefit cost
|
Partial settlement and curtailment loss
|
|
10,384
|
|
|
—
|
|
|
—
|
|
|
Other nonoperating special items
|
Loss on plan termination
|
|
35,201
|
|
|
—
|
|
|
—
|
|
|
Other nonoperating special items
|
Total before tax
|
|
54,631
|
|
|
7,957
|
|
|
11,634
|
|
|
|
Tax benefit
|
|
(21,519
|
)
|
|
(3,048
|
)
|
|
(4,396
|
)
|
|
|
Total, net of tax
|
|
$
|
33,112
|
|
|
$
|
4,909
|
|
|
$
|
7,238
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
Realized gain on sales of investments, net
|
|
(32
|
)
|
|
(108
|
)
|
|
(8
|
)
|
|
Other nonoperating income
|
Total before tax
|
|
(32
|
)
|
|
(108
|
)
|
|
(8
|
)
|
|
|
Tax expense
|
|
12
|
|
|
41
|
|
|
3
|
|
|
|
Total, net of tax
|
|
(20
|
)
|
|
(67
|
)
|
|
(5
|
)
|
|
|
Total reclassifications for the period
|
|
$
|
31,607
|
|
|
$
|
5,544
|
|
|
$
|
(3,190
|
)
|
|
|
A rollforward of the amounts included in accumulated other comprehensive loss, net of taxes, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017
|
Foreign
Currency
Derivatives
|
|
Defined
Benefit
Pension Items
|
|
Short-Term Investments
|
|
Total
|
|
(in thousands)
|
Beginning balance
|
$
|
7,071
|
|
|
$
|
(110,202
|
)
|
|
$
|
(362
|
)
|
|
$
|
(103,493
|
)
|
Other comprehensive income (loss) before reclassifications, net of tax
|
(4,337
|
)
|
|
1,137
|
|
|
(178
|
)
|
|
(3,378
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
|
(1,485
|
)
|
|
33,112
|
|
|
(20
|
)
|
|
31,607
|
|
Net current-period other comprehensive income (loss), net of tax
|
(5,822
|
)
|
|
34,249
|
|
|
(198
|
)
|
|
28,229
|
|
Ending balance
|
$
|
1,249
|
|
|
$
|
(75,953
|
)
|
|
$
|
(560
|
)
|
|
$
|
(75,264
|
)
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016
|
Interest
Rate
Derivative
|
|
Foreign
Currency
Derivatives
|
|
Defined
Benefit
Pension Items
|
|
Short-Term Investments
|
|
Total
|
|
(in thousands)
|
Beginning balance
|
$
|
81
|
|
|
$
|
4,879
|
|
|
$
|
(103,865
|
)
|
|
$
|
(372
|
)
|
|
$
|
(99,277
|
)
|
Other comprehensive income (loss) before reclassifications, net of tax
|
(668
|
)
|
|
2,077
|
|
|
(11,246
|
)
|
|
77
|
|
|
(9,760
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
|
587
|
|
|
115
|
|
|
4,909
|
|
|
(67
|
)
|
|
5,544
|
|
Net current-period other comprehensive income (loss), net of tax
|
(81
|
)
|
|
2,192
|
|
|
(6,337
|
)
|
|
10
|
|
|
(4,216
|
)
|
Ending balance
|
$
|
—
|
|
|
$
|
7,071
|
|
|
$
|
(110,202
|
)
|
|
$
|
(362
|
)
|
|
$
|
(103,493
|
)
|
3. Earnings Per Share
Basic earnings per share, which excludes dilution, is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(in thousands, except for per share data)
|
Numerator:
|
|
|
|
|
|
|
|
|
Net Income
|
$
|
364,041
|
|
|
$
|
235,432
|
|
|
$
|
182,646
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding—Basic
|
53,074
|
|
|
53,502
|
|
|
54,031
|
|
Assumed exercise of stock options and awards
|
339
|
|
|
450
|
|
|
438
|
|
Assumed exercise of convertible note premium
|
—
|
|
|
6
|
|
|
1,245
|
|
Assumed conversion of warrants
|
—
|
|
|
—
|
|
|
5,542
|
|
Weighted average common shares outstanding—Diluted
|
53,413
|
|
|
53,958
|
|
|
61,256
|
|
Net Income Per Common Stock Share:
|
|
|
|
|
|
|
|
|
Basic
|
$
|
6.86
|
|
|
$
|
4.40
|
|
|
$
|
3.38
|
|
Diluted
|
$
|
6.82
|
|
|
$
|
4.36
|
|
|
$
|
2.98
|
|
Convertible Notes
In 2016, the Company settled the remaining
$0.3 million
of the convertible note outstanding. In 2015, the Company repurchased and converted
$70.8 million
in principal of the Convertible Notes, respectively. During the years ended December 31, 2016 and 2015, the average share price of the Company’s common stock exceeded the conversion price of
$7.88
per share. Therefore, shares related to the conversion premium of the Convertible Notes (for which share settlement is assumed for EPS purposes) are included in the Company's computation of diluted earnings per share for the period the related Notes were outstanding. See
Note 8
for further information over the Convertible Notes.
Convertible Note Call Options and Warrants
In March 2011, the Company entered into a convertible note transaction which included the sale of convertible notes, purchase of call options and sale of warrants. The call options and warrants were settled by the Company with its respective counterparties in 2015. The outstanding convertible notes matured on March 15, 2016.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
For the year ended December 31, 2015, the average share price of the Company's common stock exceeded the warrant strike price of
$10.00
per share. Therefore, the impact of the assumed conversion of the warrants are included in the Company's computation of diluted earnings per share for the period they were outstanding.
Dividends
In October 2017, the Company announced that its Board of Directors declared a quarterly cash dividend of
$0.12
per share payable on November 30, 2017, to stockholders of record as of November 17, 2017. The Company paid dividends of
$6.3 million
to shareholders of record during 2017 and
$0.0 million
during 2016 and 2015. In February 2018, the Company announced that its Board of Directors declared a quarterly cash dividend of
$0.12
per share payable on February 28, 2018, to stockholders of record as of February 14, 2018. The Company's dividend payments may change from time to time. The Company cannot provide assurance that it will continue to declare dividends for any fixed period and payment of dividends may be suspended at any time at its discretion.
Stock Repurchase Program
In April 2017, the Company's Board of Directors approved the repurchase of up to
$100 million
of its outstanding common stock over a
two
-year period through May 2019 via the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules and regulations, which was completed in December 2017. In November 2017, the Company's Board of Directors approved a new stock repurchase program pursuant to which the Company may repurchase up to an additional
$100 million
of its outstanding common stock over a
two
-year period through December 2019. The stock repurchase program is subject to modification or termination at any time.
In
2017
, the Company spent
$100.0 million
to repurchase approximately
2.5 million
shares of the Company's common stock in open market transactions. In
2016
, the Company spent
$13.8 million
to repurchase approximately
379,000
shares of the Company's common stock in open market transactions. As of
December 31, 2017
, the Company has
$100.0 million
remaining to spend under its stock repurchase program. See Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of this report for additional information on the stock repurchase program.
4. Short-Term Investments
Debt securities that are not classified as cash equivalents are classified as available-for-sale investments and are stated at fair value. Realized gains and losses on sales of investments are reflected in nonoperating income (expense). Unrealized gains and losses on available-for-sale securities are reflected as a component of accumulated other comprehensive income/(loss).
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The following is a summary of short-term investments held as of
December 31, 2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
|
(in thousands)
|
Corporate debt
|
|
$
|
165,610
|
|
|
$
|
8
|
|
|
$
|
(535
|
)
|
|
$
|
165,083
|
|
U.S. government and agency debt
|
|
59,054
|
|
|
1
|
|
|
(215
|
)
|
|
58,840
|
|
Municipal bonds
|
|
21,517
|
|
|
—
|
|
|
(104
|
)
|
|
21,413
|
|
Other fixed income securities
|
|
23,973
|
|
|
1
|
|
|
(13
|
)
|
|
23,961
|
|
Total short-term investments
|
|
$
|
270,154
|
|
|
$
|
10
|
|
|
$
|
(867
|
)
|
|
$
|
269,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Amortized Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized Losses
|
|
Fair Value
|
|
|
(in thousands)
|
Corporate debt
|
|
$
|
171,139
|
|
|
$
|
84
|
|
|
$
|
(357
|
)
|
|
$
|
170,866
|
|
U.S. government and agency debt
|
|
53,916
|
|
|
8
|
|
|
(134
|
)
|
|
53,790
|
|
Municipal bonds
|
|
22,893
|
|
|
1
|
|
|
(144
|
)
|
|
22,750
|
|
Other fixed income securities
|
|
36,670
|
|
|
—
|
|
|
(1
|
)
|
|
36,669
|
|
Total short-term investments
|
|
$
|
284,618
|
|
|
$
|
93
|
|
|
$
|
(636
|
)
|
|
$
|
284,075
|
|
Contractual maturities of short-term investments as of
December 31, 2017
are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under 1 Year
|
|
1 to 5 Years
|
|
Total
|
|
|
(in thousands)
|
Corporate debt
|
|
$
|
73,786
|
|
|
$
|
91,297
|
|
|
$
|
165,083
|
|
U.S. government and agency debt
|
|
43,252
|
|
|
15,588
|
|
|
58,840
|
|
Municipal bonds
|
|
11,243
|
|
|
10,170
|
|
|
21,413
|
|
Other fixed income securities
|
|
18,299
|
|
|
5,662
|
|
|
23,961
|
|
Total short-term investments
|
|
$
|
146,580
|
|
|
$
|
122,717
|
|
|
$
|
269,297
|
|
The Company classifies investments as current assets as these securities are available for use in its current operations.
5. Fair Value Measurements
ASC 820 defines fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
|
|
Level 1—Observable inputs such as quoted prices in active markets for identical assets or liabilities;
|
|
Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term for the assets or liabilities; and
|
|
Level 3—Unobservable inputs in which there is little or no market data and that are significant to the fair value of the assets or liabilities.
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The tables below present the Company's financial assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2017
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(in thousands)
|
Cash equivalents
|
$
|
62,310
|
|
|
$
|
27,807
|
|
|
$
|
34,503
|
|
|
$
|
—
|
|
Restricted cash
|
1,000
|
|
|
1,000
|
|
|
—
|
|
|
—
|
|
Short-term investments
|
269,297
|
|
|
—
|
|
|
269,297
|
|
|
—
|
|
Fuel derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil call options
|
20,272
|
|
|
—
|
|
|
20,272
|
|
|
—
|
|
Heating oil swaps
|
336
|
|
|
—
|
|
|
336
|
|
|
—
|
|
Foreign currency derivatives
|
4,300
|
|
|
—
|
|
|
4,300
|
|
|
—
|
|
Total assets measured at fair value
|
$
|
357,515
|
|
|
$
|
28,807
|
|
|
$
|
328,708
|
|
|
$
|
—
|
|
Foreign currency derivatives
|
1,713
|
|
|
—
|
|
|
1,713
|
|
|
—
|
|
Total liabilities measured at fair value
|
$
|
1,713
|
|
|
$
|
—
|
|
|
$
|
1,713
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2016
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(in thousands)
|
Cash equivalents
|
$
|
123,120
|
|
|
$
|
104,113
|
|
|
$
|
19,007
|
|
|
$
|
—
|
|
Restricted cash
|
5,000
|
|
|
5,000
|
|
|
—
|
|
|
—
|
|
Short-term investments
|
284,075
|
|
|
—
|
|
|
284,075
|
|
|
—
|
|
Fuel derivative contracts:
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil call options
|
8,489
|
|
|
—
|
|
|
8,489
|
|
|
—
|
|
Heating oil swaps
|
6,601
|
|
|
—
|
|
|
6,601
|
|
|
—
|
|
Foreign currency derivatives
|
12,906
|
|
|
—
|
|
|
12,906
|
|
|
—
|
|
Total assets measured at fair value
|
$
|
440,191
|
|
|
$
|
109,113
|
|
|
$
|
331,078
|
|
|
$
|
—
|
|
Foreign currency derivatives
|
1,469
|
|
|
—
|
|
|
1,469
|
|
|
—
|
|
Total liabilities measured at fair value
|
$
|
1,469
|
|
|
$
|
—
|
|
|
$
|
1,469
|
|
|
$
|
—
|
|
Cash equivalents.
The Company’s Level 1 cash equivalents consist of money market securities and the Level 2 cash equivalents consist of U.S. agency bonds, mutual funds, and commercial paper. The instruments classified as Level 2 are valued using quoted prices for similar assets in active markets.
Restricted cash
. The Company’s restricted cash consist of money market securities.
Short-term investments.
Short-term investments include U.S. and foreign government notes and bonds, U.S. agency bonds, variable rate corporate bonds, asset backed securities, foreign and domestic corporate bonds, municipal bonds, and commercial paper. These instruments are valued using quoted prices for similar assets in active markets or other observable inputs.
Fuel derivative contracts.
The Company’s fuel derivative contracts consist of heating oil swaps and crude oil call options which are not traded on a public exchange. The fair value of these instruments are determined based on inputs available or derived from public markets including contractual terms, market prices, yield curves, fuel price curves and measures of volatility, among others.
Foreign currency derivatives.
The Company’s foreign currency derivatives consist of Japanese Yen and Australian Dollar forward contracts and are valued based primarily on data readily observable in public markets.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The table below presents the Company's debt (excluding obligations under capital leases and financing obligations) measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Debt
|
December 31, 2017
|
|
December 31, 2016
|
Carrying
Amount
|
|
Fair Value
|
|
Carrying
Amount
|
|
Fair Value
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
(in thousands)
|
|
(in thousands)
|
$
|
433,072
|
|
|
$
|
444,099
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
444,099
|
|
|
$
|
481,874
|
|
|
$
|
484,734
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
484,734
|
|
The fair value estimates of the Company's debt were based on the discounted amount of future cash flows using the Company's current incremental rate of borrowing for similar obligations.
The carrying amounts of cash, other receivables, and accounts payable approximate fair value due to the short-term nature of these financial instruments.
During the fourth quarter of 2016, the Company recorded a
$49.4 million
impairment charge for its Boeing 767-300 fleet. To determine the fair value of the Boeing 767-300 fleet and related assets, the Company utilized quoted prices, assuming that the asset would be exchanged in an orderly transaction between market participants. The Company's determination of fair value considered attributes specific to its Boeing 767-300 fleet and aircraft condition (e.g. age, maintenance requirements, cycles, etc.), and is therefore considered a Level 3 measurement. See Note 11 for further details.
6. Financial Derivative Instruments
The Company uses derivatives to manage risks associated with certain assets and liabilities arising from the potential adverse impact of fluctuations in global fuel prices, interest rates and foreign currencies.
Fuel Risk Management
The Company's operations are inherently dependent upon the price and availability of aircraft fuel. To manage economic risks associated with fluctuations in aircraft fuel prices, the Company periodically enters into derivative financial instruments. The Company primarily used heating oil swaps and crude oil call options to hedge its aircraft fuel expense. As of
December 31, 2017
, the Company had heating oil swaps and crude oil call options, which were not designated as hedges under ASC Topic 815,
Derivatives and Hedging
(ASC 815), for hedge accounting treatment. As a result, any changes in fair value of these derivative instruments are adjusted through other nonoperating income (expense) in the period of change.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table reflects the amount of realized and unrealized gains and losses recorded as nonoperating income (expense) in the Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(in thousands)
|
Losses realized at settlement
|
$
|
(534
|
)
|
|
$
|
(27,572
|
)
|
|
$
|
(60,946
|
)
|
Reversal of prior period unrealized amounts
|
(7,946
|
)
|
|
39,731
|
|
|
41,583
|
|
Unrealized gains (losses) that will settle in future periods
|
11,792
|
|
|
7,947
|
|
|
(40,568
|
)
|
Gains (losses) on fuel derivatives recorded as Nonoperating income (expense)
|
$
|
3,312
|
|
|
$
|
20,106
|
|
|
$
|
(59,931
|
)
|
Foreign Currency Exchange Rate Risk Management
The Company is subject to foreign currency exchange rate risk due to revenues and expenses denominated in foreign currencies, with the primary exposures being the Japanese Yen and Australian Dollar. To manage exchange rate risk, the Company executes its international revenue and expense transactions in the same foreign currency to the extent practicable. The Company enters into foreign currency forward contracts to further manage the effects of fluctuating exchange rates. The effective portion of the gain or loss is reported as a component of AOCI and reclassified into earnings in the same period in which the related sales are recognized as passenger revenue. The effective portion of the foreign currency forward contracts represents the change in fair value of the hedge that offsets the change in the fair value of the hedged item. To the extent the change in the fair value of the hedge does not perfectly offset the change in the fair value of the hedged item, the ineffective portion of the hedge is immediately recognized as nonoperating income (expense).
The Company believes that its foreign currency forward contracts will continue to be effective in offsetting changes in cash flow attributable to the hedged risk. The Company expects to reclassify a net gain of approximately
$1.4 million
into earnings over the next
12 months
from AOCI based on the values at
December 31, 2017
.
The following tables present the gross fair value of asset and liability derivatives that are designated as hedging instruments under ASC 815 and derivatives that are not designated as hedging instruments under ASC 815, as well as the net derivative positions and location of the asset and liability balances within the Consolidated Balance Sheets.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Derivative positions as of
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
Location
|
|
Notional Amount
|
|
Final
Maturity
Date
|
|
Gross fair
value of
assets
|
|
Gross fair
value of
(liabilities)
|
|
Net
derivative
position
|
|
|
|
(in thousands)
|
|
|
|
(in thousands)
|
Derivatives designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
Prepaid expenses and other
|
|
16,732,375 Japanese Yen
47,805 Australian Dollars
|
|
December 2018
|
|
3,737
|
|
|
(1,441
|
)
|
|
2,296
|
|
|
Long-term prepayments and other
|
|
4,666,700 Japanese Yen
9,180 Australian Dollars
|
|
December 2019
|
|
546
|
|
|
(195
|
)
|
|
351
|
|
Derivatives not designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
Other accrued liabilities
|
|
866,150 Japanese Yen
3,148 Australian Dollars
|
|
March 2018
|
|
17
|
|
|
(77
|
)
|
|
(60
|
)
|
Fuel derivative contracts
|
Prepaid expenses and other
|
|
94,332 gallons
|
|
December 2018
|
|
20,608
|
|
|
—
|
|
|
20,608
|
|
Derivative positions as of
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
Location
|
|
Notional Amount
|
|
Final
Maturity
Date
|
|
Gross fair
value of
assets
|
|
Gross fair
value of
(liabilities)
|
|
Net
derivative
position
|
|
|
|
(in thousands)
|
|
|
|
(in thousands)
|
Derivatives designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
Prepaid expenses and other
|
|
16,121,500 Japanese Yen
41,917 Australian Dollars
|
|
December 2017
|
|
9,803
|
|
|
(1,349
|
)
|
|
8,454
|
|
|
Long-term prepayments and other
|
|
4,371,900 Japanese Yen
8,434 Australian Dollars
|
|
December 2018
|
|
2,632
|
|
|
(59
|
)
|
|
2,573
|
|
Derivatives not designated as hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
Prepaid expenses and other
|
|
879,050 Japanese Yen
5,802 Australian Dollars
|
|
March 2017
|
|
471
|
|
|
(61
|
)
|
|
410
|
|
Fuel derivative contracts
|
Prepaid expenses and other
|
|
88,368 gallons
|
|
December 2017
|
|
15,090
|
|
|
—
|
|
|
15,090
|
|
The following table reflects the impact of cash flow hedges designated for hedge accounting treatment and their location within the Consolidated Statements of Comprehensive Income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) Loss recognized in AOCI on derivatives (effective portion)
|
|
(Gain) Loss reclassified from AOCI into income (effective portion)
|
|
Gain recognized in nonoperating (income) expense (ineffective portion)
|
|
Year ended December 31,
|
|
Year ended December 31,
|
|
Year ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
|
(in thousands)
|
Foreign currency derivatives
|
$
|
6,983
|
|
|
$
|
(3,350
|
)
|
|
$
|
(4,854
|
)
|
|
$
|
(2,391
|
)
|
|
$
|
196
|
|
|
$
|
(17,443
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest rate derivatives
|
—
|
|
|
923
|
|
|
182
|
|
|
—
|
|
|
944
|
|
|
687
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Risk and Collateral
The financial derivative instruments expose the Company to possible credit loss in the event the counterparties to the agreements fail to meet their obligations. To manage such credit risks, the Company (1) selects its counterparties based on past experience and credit ratings, (2) limits its exposure to any single counterparty, and (3) periodically monitors the market position and credit rating of each counterparty. Credit risk is deemed to have a minimal impact on the fair value of the derivative instruments as cash collateral would be provided to or by the counterparties based on the current market exposure of the derivative.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company's agreements with its counterparties also require the posting of cash collateral in the event the aggregate value of the Company's positions exceeds certain exposure thresholds. The aggregate fair value of the Company's derivative instruments that contain credit-risk related contingent features that are in a net asset position was
$23.2 million
and a net asset position of
$26.5 million
as of
December 31, 2017
and
December 31, 2016
, respectively.
ASC 815 requires a reporting entity to elect a policy of whether to offset rights to reclaim cash collateral or obligations to return cash collateral against derivative assets and liabilities executed with the same counterparty under a master netting agreement, or present such amounts on a gross basis. The Company's accounting policy is to present its derivative assets and liabilities on a net basis, including any collateral posted with the counterparty. The Company had
no
collateral posted with its counterparties as of
December 31, 2017
and
December 31, 2016
.
The Company is also subject to market risk in the event these financial instruments become less valuable in the market. However, changes in the fair value of the derivative instruments will generally offset the change in the fair value of the hedged item, limiting the Company's overall exposure.
7. Intangible Assets
The following tables summarize the gross carrying values of intangible assets less accumulated amortization, and the useful lives assigned to each asset.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
|
|
Gross carrying
value
|
|
Accumulated
amortization
|
|
Net book value
|
|
Approximate
useful life (years)
|
|
|
(in thousands)
|
|
|
|
Favorable aircraft maintenance contracts
|
$
|
8,740
|
|
|
$
|
(7,708
|
)
|
|
$
|
1,032
|
|
|
14
|
(*)
|
Hawaiian Airlines trade name
|
13,000
|
|
|
—
|
|
|
13,000
|
|
|
Indefinite
|
|
Operating certificates
|
3,660
|
|
|
(3,660
|
)
|
|
—
|
|
|
12
|
|
Other
|
1,888
|
|
|
(733
|
)
|
|
1,155
|
|
|
3
|
|
Total intangible assets
|
$
|
27,288
|
|
|
$
|
(12,101
|
)
|
|
$
|
15,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
|
Gross carrying
value
|
|
Accumulated
amortization
|
|
Net book value
|
|
Approximate
useful life (years)
|
|
|
(in thousands)
|
|
|
|
Favorable aircraft maintenance contracts
|
$
|
8,740
|
|
|
$
|
(7,132
|
)
|
|
$
|
1,608
|
|
|
14
|
(*)
|
Hawaiian Airlines trade name
|
13,000
|
|
|
—
|
|
|
13,000
|
|
|
Indefinite
|
|
Operating certificates
|
3,660
|
|
|
(3,475
|
)
|
|
185
|
|
|
12
|
|
Other
|
1,888
|
|
|
(270
|
)
|
|
1,618
|
|
|
3
|
|
Total intangible assets
|
$
|
27,288
|
|
|
$
|
(10,877
|
)
|
|
$
|
16,411
|
|
|
|
|
_______________________________________________________________________________
(*) Weighted average is based on the gross carrying values and estimated useful lives as of June 2, 2005 (the date Hawaiian emerged from bankruptcy).
Amortization expense related to the above intangible assets was
$1.2 million
,
$2.3 million
, and
$2.6 million
for the years ended
December 31, 2017
,
2016
, and
2015
, respectively. Amortization of the favorable aircraft maintenance contracts are included in maintenance materials and repairs in the accompanying Consolidated Statements of Operations. The estimated future amortization expense as of
December 31, 2017
for the intangible assets subject to amortization is as follows (in thousands):
|
|
|
|
|
2018
|
$
|
1,538
|
|
2019
|
649
|
|
|
$
|
2,187
|
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
8. Debt
Long-term debt (including capital and financing lease obligations) net of unamortized discounts is outlined as follows:
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
(in thousands)
|
Class A EETC, fixed interest rate of 3.9%, semiannual principal and interest payments, remaining balance due at maturity in January 2026(1)
|
$
|
263,864
|
|
|
$
|
284,692
|
|
Class B EETC, fixed interest rate of 4.95%, semiannual principal and interest payments, remaining balance of due at maturity in January 2022(1)
|
94,580
|
|
|
100,159
|
|
Boeing 717-200 Aircraft Facility Agreements, fixed interest rate of 8%, monthly principal and interest payments, remaining balance due at maturity in June 2019(2)
|
74,629
|
|
|
97,023
|
|
Capital & Financing lease obligations (see Note 9)
|
149,039
|
|
|
88,729
|
|
Total debt, capital, and financing lease obligations
|
$
|
582,112
|
|
|
$
|
570,603
|
|
Less:
|
|
|
|
|
|
Unamortized debt discount, debt issuance costs and discount on convertible note
|
(11,441
|
)
|
|
(13,796
|
)
|
Current maturities
|
(59,470
|
)
|
|
(58,899
|
)
|
Long-Term Debt, less discount, Capital, and Financing Lease Obligations
|
$
|
511,201
|
|
|
$
|
497,908
|
|
_______________________________________________________________________________
(1)
The equipment notes underlying these EETCs are the direct obligations of Hawaiian
(2)
Aircraft Facility Agreements are secured by aircraft
Enhanced Equipment Trust Certificates (EETC)
In 2013, Hawaiian consummated an EETC financing, whereby it created
two
pass-through trusts, each of which issued pass-through certificates. The proceeds of the issuance of the pass-through certificates were used to purchase equipment notes issued by the Company to fund a portion of the purchase price for
six
Airbus aircraft, all of which were delivered in 2013 and 2014. The equipment notes are secured by a lien on the aircraft, and the payment obligations of Hawaiian under the equipment notes will be fully and unconditionally guaranteed by the Company. The Company issued the equipment notes to the trusts as aircraft were delivered to Hawaiian. Hawaiian received all proceeds from the pass-through trusts by 2014 and recorded the debt obligation upon issuance of the equipment notes rather than upon the initial issuance of the pass-through certificates.
The Company evaluated whether the pass-through trusts formed are variable interest entities ("VIEs") required to be consolidated by the Company under applicable accounting guidance, and determined that the pass-through trusts are VIEs. The Company determined that it does not have a variable interest in the pass-through trusts. Neither the Company nor Hawaiian invested in or obtained a financial interest in the pass-through trusts. Rather, Hawaiian has an obligation to make interest and principal payments on it equipment notes held by the pass-through trusts, which are fully and unconditionally guaranteed by the Company. Neither the Company nor Hawaiian intends to have any voting or non-voting equity interest in the pass-through trusts or to absorb variability from the pass-through trusts. Based on this analysis, the Company determined that it is not required to consolidate the pass-through trusts.
Convertible Notes
On March 2011, the Company issued
$86.25 million
principal amount of the Convertible Notes due March 2016. The Convertible Notes were issued at par and bore interest at a rate of
5.00%
per annum. Interest was paid semiannually, in arrears, on March 15 and September 15 each year. The outstanding convertible notes matured on March 15, 2016.
During 2016, the Company settled the remaining
$0.3 million
of the convertible notes outstanding. During 2015, the Company repurchased and converted
$70.8 million
in principal of its Convertible Notes for
$184.6 million
. The cash consideration was allocated to the fair value of the liability component immediately before extinguishment and the remaining consideration was allocated to the equity component and recognized as a reduction of shareholders' equity. During 2015, the repurchase and
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
conversion of the Convertible Notes resulted in a loss on extinguishment of
$7.4 million
, which is reflected in nonoperating income (expense) in the Consolidated Statement of Operations.
In connection with the issuance of the Convertible Notes, the Company entered into separate call option transactions and separate warrant transactions with certain financial investors to reduce the potential dilution of the Company's common stock and to offset potential payments by the Company to holders of the Convertible Notes in excess of the principal of the Convertible Notes upon conversion.
During the quarter ended December 31, 2015, the Company settled the call options and warrants with its respective counterparties and received net settlement proceeds of
$22.1 million
, which was recognized as an increase to shareholders' equity. Gross proceeds from the settlement of the call options of
$304.8 million
and gross payments for the settlement of the warrants of
$282.6 million
are reflected in the Consolidated Statements of Shareholders' Equity and Consolidated Statements of Cash Flows.
Debt Extinguishment
In 2017, the Company had
no
debt extinguishment activity. In 2016, Hawaiian extinguished
$140.5 million
of its existing debt under secured financing agreements, which were originally scheduled to mature in 2022 and 2023. This debt extinguishment resulted in a loss of
$10.0 million
, which is reflected in nonoperating income (expense) in the Consolidated Statement of Operations.
In 2015, Hawaiian extinguished
$123.9 million
of existing debt under
four
secured financing agreements, which were originally scheduled to mature in 2018, 2023 and 2024. This debt extinguishment resulted in a loss of
$4.7 million
, which is reflected in nonoperating income (expense) in the Consolidated Statement of Operations.
Revolving Credit Facility
In December 2016, Hawaiian amended and restated the existing credit agreement with Citigroup Global Markets Inc. by increasing the secured revolving credit and letter to
$225 million
, maturing in December 2019 (Revolving Credit Facility). Hawaiian may, from time to time, grant liens on certain eligible account receivables, aircraft, spare engines, ground support equipment and route authorities, as well as cash and certain cash equivalents, in order to secure its outstanding obligations under the Revolving Credit Facility. Indebtedness under the Revolving Credit Facility will bear interest, at a per annum rate based on, at Hawaiian's option: (1) a variable rate equal to the London interbank offer rate plus a margin of
2.5%
; or (2) another rate based on certain market interest rates plus a margin of
1.5%
. Hawaiian is also subject to compliance and liquidity covenants under the Revolving Credit Facility. As of
December 31, 2017
, the Company had
no
outstanding borrowing under the Revolving Credit Facility.
Schedule of Maturities of Long-Term Debt
As of
December 31, 2017
, the scheduled maturities of long-term debt are as follows (in thousands):
|
|
|
|
|
2018
|
$
|
48,244
|
|
2019
|
72,927
|
|
2020
|
21,413
|
|
2021
|
49,060
|
|
2022
|
56,856
|
|
Thereafter
|
184,573
|
|
|
$
|
433,073
|
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
9. Leases
As of
December 31, 2017
, the Company had lease contracts for
23
of its
60
aircraft. Of the
23
lease contracts,
3
aircraft lease contracts were accounted for as capital leases, with the remaining
20
lease contracts accounted for as operating leases. These aircraft leases have remaining lease terms ranging from approximately less than
1 year
to
10 years
.
As of
December 31, 2017
, the scheduled future minimum rental payments under capital leases and operating leases with non-cancellable basic terms of more than one year are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital & Financing Leases
|
|
Operating Leases
|
|
Aircraft
|
|
Other
|
|
Aircraft (1)
|
|
Other
|
|
(in thousands)
|
2018
|
$
|
13,803
|
|
|
$
|
6,998
|
|
|
$
|
127,235
|
|
|
$
|
6,891
|
|
2019
|
13,803
|
|
|
6,338
|
|
|
118,070
|
|
|
6,584
|
|
2020
|
10,473
|
|
|
4,405
|
|
|
97,717
|
|
|
6,399
|
|
2021
|
10,323
|
|
|
4,330
|
|
|
64,730
|
|
|
6,509
|
|
2022
|
10,323
|
|
|
4,634
|
|
|
58,511
|
|
|
6,778
|
|
Thereafter
|
14,501
|
|
|
112,509
|
|
|
163,717
|
|
|
91,181
|
|
|
73,226
|
|
|
139,214
|
|
|
$
|
629,980
|
|
|
$
|
124,342
|
|
Less amounts representing interest
|
(10,981
|
)
|
|
(52,420
|
)
|
|
|
|
|
|
|
Present value of minimum capital & financing lease payments
|
$
|
62,245
|
|
|
$
|
86,794
|
|
|
|
|
|
|
|
(1)
Subsequent to year ended
December 31, 2017
, in January 2018 the Company purchased
three
of its existing Boeing 767-300 that were classified as operating leases from the lessor and entered into a forward sale agreement for those same
three
aircraft (to be delivered later in 2018) with another airline. As these obligations are presented as of
December 31, 2017
, the associated lease payments are reflective in the table above. Management is in the process of evaluating the transactions and expects to take a loss on the lease termination during the first quarter of 2018 between
$15.0 million
and
$18.0 million
related to this transaction.
Maintenance Hangar
In November 2016, the Company entered into a lease agreement with the Department of Transportation of the State of Hawai'i to lease a cargo and maintenance hangar at the Daniel K. Inouye International Airport with a lease term of
35
years. As the hangar was not fully constructed, we took responsibility of the construction and were responsible for the remainder of the construction costs of
$33.3 million
. In accordance with the applicable accounting guidance, specifically as it relates to the Company's involvement in the construction of the hangar, the Company was considered the owner of the asset under construction and has recognized a
$73.0 million
asset, with a corresponding lease liability, for the amount previously spent by the lessor.
The Company placed the hangar into service in late 2017. The
$73.0 million
liability will be relieved as the Company makes rental payments under the agreement and the
$106.3 million
asset (the original
$73.0 million
plus an additional
$33.3 million
of asset additions), will be depreciated over the lease term.
10. Income Taxes
As a result of the Tax Cuts and Jobs Act of 2017, the Company recognized a one-time benefit of
$104.2 million
in the quarter ended December 31, 2017 from the estimated impact of the revaluation of deferred tax assets and liabilities. ASC 740 requires companies to account for the effects of changes in income tax rates and laws on deferred tax balances in the period in which the legislation is enacted. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company has recognized the provisional tax impacts related to the revaluation of deferred tax assets and
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The Company will continue to refine the calculations as additional analysis is completed. In addition, these estimates may also be affected as the Company gains a more thorough understanding of the tax law, including those related to the deductibility of purchased assets and state tax treatment. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Act. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in 2018.
The significant components of income tax expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(in thousands)
|
Current
|
|
|
|
|
|
|
|
|
Federal
|
$
|
49,835
|
|
|
$
|
94,459
|
|
|
$
|
5,008
|
|
State
|
11,471
|
|
|
13,201
|
|
|
5,588
|
|
|
$
|
61,306
|
|
|
$
|
107,660
|
|
|
$
|
10,596
|
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
$
|
82,870
|
|
|
$
|
32,334
|
|
|
$
|
94,457
|
|
State
|
6,514
|
|
|
4,038
|
|
|
7,989
|
|
Estimated Tax Cuts and Jobs Act impact
|
(104,176
|
)
|
|
—
|
|
|
—
|
|
|
$
|
(14,792
|
)
|
|
$
|
36,372
|
|
|
$
|
102,446
|
|
Income tax expense
|
$
|
46,514
|
|
|
$
|
144,032
|
|
|
$
|
113,042
|
|
The income tax expense differed from amounts computed at the statutory federal income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(in thousands)
|
Income tax expense computed at the statutory federal rate
|
$
|
143,694
|
|
|
$
|
132,813
|
|
|
$
|
103,491
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
State income taxes, net of federal tax effect
|
11,690
|
|
|
11,261
|
|
|
8,825
|
|
Nondeductible meals
|
1,146
|
|
|
1,100
|
|
|
915
|
|
Estimated Tax Cuts and Jobs Act impact
|
(104,176
|
)
|
|
—
|
|
|
—
|
|
Excess tax benefits from stock issuance
|
(5,288
|
)
|
|
—
|
|
|
—
|
|
Other
|
(552
|
)
|
|
(1,142
|
)
|
|
(189
|
)
|
Income tax expense
|
$
|
46,514
|
|
|
$
|
144,032
|
|
|
$
|
113,042
|
|
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including the reversal of deferred tax liabilities) during the periods in which those deferred tax assets will become deductible. The Company's management assesses the realizability of its deferred tax assets, and records a valuation allowance when it is more likely than not that a portion, or all, of the deferred tax assets will not be realized.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The components of the Company's deferred tax assets and liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2017
|
|
2016
|
|
(in thousands)
|
Deferred tax assets:
|
|
|
|
|
|
Accumulated pension and other postretirement benefits
|
$
|
54,784
|
|
|
$
|
136,066
|
|
Leases
|
4,490
|
|
|
8,323
|
|
Air traffic liability
|
9,406
|
|
|
13,366
|
|
Federal and state net operating loss carryforwards
|
2,547
|
|
|
2,115
|
|
Accrued compensation
|
7,627
|
|
|
35,505
|
|
Other accrued assets
|
11,661
|
|
|
18,733
|
|
Fuel derivative contracts
|
2,156
|
|
|
2,705
|
|
Other assets
|
12,642
|
|
|
20,320
|
|
Total gross deferred tax assets
|
105,313
|
|
|
237,133
|
|
Less: Valuation allowance
|
(2,547
|
)
|
|
(1,992
|
)
|
Net deferred tax assets
|
$
|
102,766
|
|
|
$
|
235,141
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Intangible assets
|
$
|
(3,432
|
)
|
|
$
|
(5,601
|
)
|
Property and equipment, principally accelerated depreciation
|
(265,293
|
)
|
|
(385,831
|
)
|
Other liabilities
|
(8,385
|
)
|
|
(14,252
|
)
|
Total deferred tax liabilities
|
(277,110
|
)
|
|
(405,684
|
)
|
Net deferred tax liability
|
$
|
(174,344
|
)
|
|
$
|
(170,543
|
)
|
As of
December 31, 2017
, the Company had available for state income tax purposes net operating loss carryforwards of
$73.3 million
. As of
December 31, 2016
, the Company had available for state income tax purposes net operating loss carryforwards of
$73.5 million
. The tax benefit of the net operating loss carryforwards as of
December 31, 2017
was
$2.5 million
, substantially all of which has a valuation allowance.
In accordance with ASC 740, the Company reviews its uncertain tax positions on an ongoing basis. The Company may be required to adjust its liability as these matters are finalized, which could increase or decrease its income tax expense and effective income tax rates or result in an adjustment to the valuation allowance. The Company does not expect that the unrecognized tax benefit related to uncertain tax positions will significantly change within the next 12 months.
The table below reconciles beginning and ending amounts of unrecognized tax benefits related to uncertain tax positions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
(in thousands)
|
Balance at January 1
|
$
|
3,329
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Increases related to prior year tax positions
|
253
|
|
|
2,830
|
|
|
—
|
|
Increases related to current year tax positions
|
499
|
|
|
499
|
|
|
—
|
|
Balance at December 31
|
$
|
4,081
|
|
|
$
|
3,329
|
|
|
$
|
—
|
|
The Company's policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes.
No
interest or penalties related to these positions were accrued as of
December 31, 2017
.
The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company's federal and state income tax returns for tax years 2014 and beyond remain subject to examination by the Internal Revenue Service.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
11. Special Items
Special items in the statements of consolidated operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(in thousands)
|
Operating
|
|
|
|
|
|
Loss on sale of aircraft
(2)
|
$
|
4,771
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Collective bargaining agreement
(3)(5)
|
18,679
|
|
|
38,781
|
|
|
—
|
|
Impairment charge in connection with its owned Boeing 767-300 fleet and related assets
(4)
|
—
|
|
|
49,361
|
|
|
—
|
|
Termination of Boeing 767-300 engine maintenance contract
(6)
|
—
|
|
|
21,000
|
|
|
—
|
|
Total Operating special items
|
$
|
23,450
|
|
|
$
|
109,142
|
|
|
$
|
—
|
|
Nonoperating
|
|
|
|
|
|
Partial settlement and curtailment loss
(1)
|
$
|
10,384
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Loss on plan termination
(1)
|
35,201
|
|
|
—
|
|
|
—
|
|
Total Other nonoperating special items
|
$
|
45,585
|
|
|
$
|
—
|
|
|
$
|
—
|
|
2017
(1) In August 2017, the Company terminated the Hawaiian Airlines, Inc. Salaried & IAM Merged Pension Plan (the Merged Plan) and settled a portion of its pilots' other post-retirement medical plan liability. In connection with the reduction of these liabilities the Company recorded one-time Other nonoperating special charges of
$35.2 million
related to the Merged Plan termination and
$10.4 million
related to the other post-retirement (OPEB) medical plan partial settlement.
(2) In April 2017, the Company executed a sale leaseback transaction with an independent third party for three Boeing 767-300 aircraft. The lease terms for the
three
aircraft commenced in April 2017 and continues through November 2018, December 2018, and January 2019, respectively. During the twelve months ended December 31, 2017, the Company recorded a loss on sale of aircraft of
$4.8 million
.
(3) In February 2017, the Company reached a tentative agreement with ALPA, covering the Company's pilots. In March 2017, the Company received notice from ALPA that the agreement was ratified by ALPA's members. The agreement became effective April 1, 2017 and has a term of
63
months. The agreement includes, among other various benefits, a pay adjustment and ratification bonus computed based on previous service. During the twelve months ended December 31, 2017, the Company expensed
$18.7 million
principally related to a one-time payment to reduce the Company's future 401K employer contribution for certain pilot groups, which is not recoverable once paid.
2016
(4) The impairment analysis and ultimate charge was triggered by the decision in the fourth quarter of 2016 to exit the Boeing 767-300 fleet in 2018. The early exit of the Boeing 767-300 fleet was made possible by the Company's decision to acquire
one
Airbus A330-200 (delivered in 2017), lease
two
additional Airbus A321neo's (to be delivered in 2018 and in addition to the Company's existing aircraft orders), and the Company's ability to early terminate our long-term power-by-the-hour maintenance contract for the Boeing 767-300 fleet. This fleet change allows the Company to streamline the fleet, simplify operations, and potentially reduce costs in the future. In order to assess whether there was an impairment of the Boeing 767-300 asset group, the Company compared the projected undiscounted cash flows of the fleet to the book value of the assets and determined the book value was in excess of the undiscounted cash flows. The Company estimated the fair value of the owned Boeing 767-300 fleet assets using third party pricing information and quotes from potential buyers, which resulted in a
$49.4 million
impairment charge (
$0.92
per diluted share). The Company's determination of fair value considered attributes specific to the owned Boeing 767-300 fleet and aircraft condition (e.g. age, maintenance requirements, cycles, etc.). The Company expects to remove
three
leased Boeing 767-300 aircraft from service in 2018. At that time, these aircraft will have remaining lease payments of approximately
$54.3 million
. At the time each aircraft is removed from service the Company will accrue for any remaining lease payments not mitigated through an arrangement with the lessor.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
(5) In 2016, the Company accrued
$34.0 million
associated with the tentative agreement with ALPA related to past service (prior to January 1, 2017) and also elected to pay a
$4.8 million
profit sharing bonus payment to other labor groups related to prior period service.
(6) In connection with the decision to exit the Boeing 767-300 fleet, the Company negotiated a termination of its Boeing 767-300 maintenance agreement and recorded a
$21.0 million
charge related to the amount paid to terminate the contract.
12. Employee Benefit Plans
Defined Benefit Plans
Hawaiian sponsors various defined benefit pension plans covering the Air Line Pilots Association (ALPA), International Association of Machinists and Aerospace Workers (AFL-CIO) (IAM) and other personnel (salaried, Transport Workers Union, Network Engineering Group). The plans for the IAM and other employees were frozen in September 1993. Effective January 1, 2008, benefit accruals for pilots under age
50
as of July 1, 2005 were frozen (with the exception of certain pilots who were both age
50
and older and participants of the plan on July 1, 2005) and Hawaiian began making contributions to an alternate defined contribution retirement program for its pilots. All of the pilots' accrued benefits under their defined benefit plan at the date of the freeze were preserved. In addition, Hawaiian sponsors
four
unfunded defined benefit postretirement medical and life insurance plans and a separate plan to administer the pilots' disability benefits.
In 2016, the Hawaiian Airlines, Inc. Pension Plan for Salaried Employees (Salaried Plan) was consolidated into the Hawaiian Airlines, Inc. Pension Plan for Employees Represented by the International Association of Machinists (IAM), which established the Hawaiian Airlines, Inc. Salaried & IAM Merged Pension Plan (the Merged Plan). At that time, the net liabilities of the Salaried Plan were transferred to the Merged Plan. In August 2017, the Company completed the termination of the plan by transferring the assets and liabilities to a third-party insurance company. In 2017, the Company contributed a total of
$18.5 million
in cash to fully fund the plan and recognized a one-time financial loss of
$35.2 million
as an Other nonoperating special item on the Company's Consolidated Statement of Operations. The Company no longer has any expected contributions to the Merged Plan due to the final settlement.
In March 2017, the Company announced the ratification of a
63
-month contract amendment with its pilots as represented by the Air Line Pilots Association (ALPA). In connection with the ratification of the agreement, the parties agreed to eliminate the post-65 post-retirement medical benefit for all active pilots, and replace the benefit with a heath retirement account (HRA) managed by ALPA, which represented a curtailment and partial settlement of the pilots' other post-retirement benefit plan. In August 2017, the Company made a one-time cash payment of
$101.9 million
to fund the HRA and settle the post-65 post-retirement medical plan obligation (for active pilots as of April 1, 2017). The cash contributed was distributed to the trust funding the individual health retirement notional accounts of the participants. In connection with the settlement of the liability, the discount rate was updated to
3.86%
. The Company recognized a one-time settlement loss of
$10.4 million
. The obligation recorded for the unsettled portion of this plan was
$73.4 million
as of the partial settlement date.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The following tables summarize changes to projected benefit obligations, plan assets, funded status and applicable amounts included in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Pension
|
|
Other
|
|
Pension
|
|
Other
|
|
(in thousands)
|
Change in benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligations, beginning of year
|
$
|
(462,762
|
)
|
|
$
|
(224,316
|
)
|
|
$
|
(445,619
|
)
|
|
$
|
(211,716
|
)
|
Service cost
|
(480
|
)
|
|
(12,403
|
)
|
|
(681
|
)
|
|
(13,618
|
)
|
Interest cost
|
(18,042
|
)
|
|
(8,022
|
)
|
|
(19,969
|
)
|
|
(10,227
|
)
|
Actuarial gains (losses)
|
(42,775
|
)
|
|
17,484
|
|
|
(21,432
|
)
|
|
7,966
|
|
Benefits paid
|
23,999
|
|
|
4,587
|
|
|
24,007
|
|
|
4,217
|
|
Less: federal subsidy on benefits paid
|
N/A
|
|
|
(57
|
)
|
|
N/A
|
|
|
(58
|
)
|
Plan amendments
|
—
|
|
|
381
|
|
|
932
|
|
|
(880
|
)
|
Settlements
|
73,994
|
|
|
101,929
|
|
|
—
|
|
|
—
|
|
Benefit obligation at end of year
(a)
|
$
|
(426,066
|
)
|
|
$
|
(120,417
|
)
|
|
$
|
(462,762
|
)
|
|
$
|
(224,316
|
)
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of assets, beginning of year
|
$
|
302,982
|
|
|
$
|
24,751
|
|
|
$
|
259,626
|
|
|
$
|
21,893
|
|
Actual return on plan assets
|
42,652
|
|
|
2,629
|
|
|
12,618
|
|
|
889
|
|
Employer contribution
|
48,745
|
|
|
3,285
|
|
|
54,745
|
|
|
6,186
|
|
Benefits paid
|
(23,999
|
)
|
|
(4,587
|
)
|
|
(24,007
|
)
|
|
(4,217
|
)
|
Settlements
|
(73,994
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Fair value of assets at end of year
|
$
|
296,386
|
|
|
$
|
26,078
|
|
|
$
|
302,982
|
|
|
$
|
24,751
|
|
Unfunded status at December 31
|
$
|
(129,680
|
)
|
|
$
|
(94,339
|
)
|
|
$
|
(159,780
|
)
|
|
$
|
(199,565
|
)
|
Amounts recognized in the statement of financial position consist of:
|
|
|
|
|
|
|
|
|
|
|
|
Current benefit liability
|
$
|
(214
|
)
|
|
$
|
(3,017
|
)
|
|
$
|
(25
|
)
|
|
$
|
(3,352
|
)
|
Noncurrent benefit liability
|
(129,466
|
)
|
|
(91,322
|
)
|
|
(159,755
|
)
|
|
(196,213
|
)
|
|
$
|
(129,680
|
)
|
|
$
|
(94,339
|
)
|
|
$
|
(159,780
|
)
|
|
$
|
(199,565
|
)
|
Amounts recognized in accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized actuarial loss (gain)
|
$
|
112,417
|
|
|
$
|
(13,521
|
)
|
|
$
|
140,205
|
|
|
$
|
15,593
|
|
Prior service cost (credit)
|
—
|
|
|
1,962
|
|
|
(980
|
)
|
|
2,626
|
|
|
$
|
112,417
|
|
|
$
|
(11,559
|
)
|
|
$
|
139,225
|
|
|
$
|
18,219
|
|
_______________________________________________________________________________
|
|
(a)
|
The accumulated pension benefit obligation as of
December 31, 2017
and
2016
was
$424.2 million
and
$459.5 million
, respectively.
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table sets forth the net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
Pension
|
|
Other
|
|
Pension
|
|
Other
|
|
Pension
|
|
Other
|
|
(in thousands)
|
Components of Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
480
|
|
|
$
|
12,403
|
|
|
$
|
681
|
|
|
$
|
13,618
|
|
|
$
|
1,016
|
|
|
$
|
15,335
|
|
Other cost:
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
18,042
|
|
|
8,022
|
|
|
19,969
|
|
|
10,227
|
|
|
19,788
|
|
|
9,930
|
|
Expected return on plan assets
|
(17,291
|
)
|
|
(1,106
|
)
|
|
(16,746
|
)
|
|
(1,137
|
)
|
|
(17,753
|
)
|
|
(1,072
|
)
|
Recognized net actuarial loss (gain)
|
9,033
|
|
|
(241
|
)
|
|
7,526
|
|
|
204
|
|
|
8,889
|
|
|
2,518
|
|
Prior service cost (credit)
|
(28
|
)
|
|
282
|
|
|
(2
|
)
|
|
229
|
|
|
(2
|
)
|
|
229
|
|
Total other components of the net periodic benefit cost
|
$
|
9,756
|
|
|
$
|
6,957
|
|
|
$
|
10,747
|
|
|
$
|
9,523
|
|
|
$
|
10,922
|
|
|
$
|
11,605
|
|
Settlement and curtailment loss
|
35,201
|
|
|
10,384
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
$
|
45,437
|
|
|
$
|
29,744
|
|
|
$
|
11,428
|
|
|
$
|
23,141
|
|
|
$
|
11,938
|
|
|
$
|
26,940
|
|
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
Current year actuarial (gain) loss
|
$
|
17,414
|
|
|
$
|
(18,972
|
)
|
|
$
|
25,559
|
|
|
$
|
(7,677
|
)
|
|
$
|
(14,762
|
)
|
|
$
|
(24,085
|
)
|
Current year prior service cost
|
—
|
|
|
(381
|
)
|
|
(932
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of actuarial gain (loss)
|
(9,033
|
)
|
|
241
|
|
|
(7,526
|
)
|
|
(204
|
)
|
|
(8,889
|
)
|
|
(2,518
|
)
|
Amortization of prior service credit (cost)
|
28
|
|
|
(282
|
)
|
|
2
|
|
|
(229
|
)
|
|
2
|
|
|
(229
|
)
|
Settlement and curtailment loss
|
(35,201
|
)
|
|
(10,384
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total recognized in other comprehensive loss
|
$
|
(26,792
|
)
|
|
$
|
(29,778
|
)
|
|
$
|
17,103
|
|
|
$
|
(8,110
|
)
|
|
$
|
(23,649
|
)
|
|
$
|
(26,832
|
)
|
Total recognized in net periodic benefit cost and other comprehensive loss
|
$
|
18,645
|
|
|
$
|
(34
|
)
|
|
$
|
28,531
|
|
|
$
|
15,031
|
|
|
$
|
(11,711
|
)
|
|
$
|
108
|
|
The weighted average actuarial assumptions used to determine the net periodic benefit expense and the projected benefit obligation were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Postretirement
|
|
Disability
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Discount rate to determine net periodic benefit expense
|
4.19
|
%
|
|
4.56
|
%
|
|
4.29
|
%
|
|
4.72
|
%
|
|
4.24
|
%
|
|
4.61
|
%
|
|
Discount rate to determine projected benefit obligation
|
3.70
|
%
|
|
4.19
|
%
|
|
3.71
|
%
|
|
4.29
|
%
|
|
3.72
|
%
|
|
4.24
|
%
|
|
Expected return on plan assets
|
6.34
|
%
|
**
|
6.69
|
%
|
|
N/A
|
|
|
N/A
|
|
|
4.60
|
%
|
**
|
5.37
|
%
|
|
Rate of compensation increase
|
Various
|
|
*
|
Various
|
|
*
|
N/A
|
|
|
N/A
|
|
|
Various
|
|
*
|
Various
|
|
*
|
Health care trend rate to determine net periodic benefit expense
|
N/A
|
|
|
N/A
|
|
|
7.75
|
%
|
|
8.25
|
%
|
|
N/A
|
|
|
N/A
|
|
|
Ultimate trend rate
|
N/A
|
|
|
N/A
|
|
|
7.25
|
%
|
|
4.75
|
%
|
|
N/A
|
|
|
N/A
|
|
|
Years to reach ultimate trend rate
|
N/A
|
|
|
N/A
|
|
|
6
|
|
|
7
|
|
|
N/A
|
|
|
N/A
|
|
|
Health care trend rate to determine projected benefit obligation
|
N/A
|
|
|
N/A
|
|
|
7.25
|
%
|
|
7.75
|
%
|
|
N/A
|
|
|
N/A
|
|
|
Ultimate trend rate
|
N/A
|
|
|
N/A
|
|
|
4.75
|
%
|
|
4.75
|
%
|
|
N/A
|
|
|
N/A
|
|
|
Years to reach ultimate trend rate
|
N/A
|
|
|
N/A
|
|
|
5
|
|
|
6
|
|
|
N/A
|
|
|
N/A
|
|
|
_______________________________________________________________________________
* Differs for each pilot based on current fleet and seat position on the aircraft and seniority service. Negotiated salary increases and expected changes in fleet and seat positions on the aircraft are included in the assumed rate of compensation increase, which ranged from
2.0%
to
7.3%
for
2017
(
4.0%
to
35.2%
for
2016
).
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
** Expected return on plan assets used to determine the net periodic benefit expense for
2018
is
7.33%
for Pension and
4.90%
for Disability.
A change in the assumed health care cost trend rates would have the following effects:
|
|
|
|
|
|
|
|
|
|
100 Basis
Point
Increase
|
|
100 Basis
Point
Decrease
|
|
(in thousands)
|
Effect on postretirement benefit obligation at December 31, 2017
|
$
|
8,545
|
|
|
$
|
(7,304
|
)
|
Effect on total service and interest cost for the year ended December 31, 2017
|
952
|
|
|
(788
|
)
|
Estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost in
2018
are as follows:
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Other
|
|
(in thousands)
|
Actuarial (gain) loss
|
$
|
3,223
|
|
|
$
|
(729
|
)
|
Amortization of prior service cost (credit)
|
—
|
|
|
225
|
|
To be recognized in net periodic benefit cost from accumulated other comprehensive loss
|
$
|
3,223
|
|
|
$
|
(504
|
)
|
Plan Assets
The Company develops the expected long-term rate of return assumption based on historical experience and by evaluating input from the trustee managing the plan's assets, including the trustee's review of asset class return expectations by several consultants and economists, as well as long-term inflation assumptions. The Company's expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on the goal of earning the highest rate of return while maintaining risk at acceptable levels. The Retirement Plan for Pilots of Hawaiian Airlines, Inc. and the Pilot's Voluntary Employee Beneficiary Association Disability and Survivor's Benefit Plan (VEBA) strive to have assets sufficiently diversified so that adverse or unexpected results from any one security class will not have an unduly detrimental impact on the entire portfolio. Prior to termination, the Merged Plan targeted to have its assets align with the potential liability as of the expected settlement date. The actual allocation of the Company's pension and disability plan assets and the target allocation of assets by category at
December 31, 2017
are as follows:
|
|
|
|
|
|
|
|
Asset Allocation for Pilots pension and VEBA Plans
|
|
2017
|
|
Target
|
Equity securities
|
59
|
%
|
|
60
|
%
|
Fixed income securities
|
36
|
%
|
|
35
|
%
|
Real estate investment trusts
|
5
|
%
|
|
5
|
%
|
|
100
|
%
|
|
100
|
%
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The table below presents the fair value of the Company's pension plan and other postretirement plan investments (excluding cash and receivables):
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31,
|
|
2017
|
|
2016
|
|
(in thousands)
|
Pension Plan Assets:
|
|
|
|
|
|
Equity index funds
|
$
|
177,252
|
|
|
$
|
147,440
|
|
Fixed income funds
|
100,504
|
|
|
140,454
|
|
Real estate investment fund
|
14,587
|
|
|
12,304
|
|
Insurance company pooled separate account
|
4,044
|
|
|
2,293
|
|
Total
|
$
|
296,387
|
|
|
$
|
302,491
|
|
Postretirement Assets:
|
|
|
|
|
|
Common collective trust fund
|
$
|
25,973
|
|
|
$
|
21,544
|
|
The fair value of the investments in the table above have been estimated using the net asset value per share, and in accordance with subtopic 820-10, Fair Value Measurement and Disclosures, are not required to be presented in the fair value hierarchy.
Equity index funds.
The investment objective of these funds are to obtain a reasonable rate of return while investing principally or entirely in foreign or domestic equity securities. There are currently no redemption restrictions on these investments.
Fixed income funds.
The investment objective of these funds are to obtain a reasonable rate of return while principally investing in foreign and domestic bonds, mortgage-backed securities, and asset-backed securities. There are currently no redemption restrictions on these investments.
Real estate investment fund.
The investment objective of this fund is to obtain a reasonable rate of return while principally investing in real estate investment trusts. There are currently no redemption restrictions on these investments.
Insurance Company Pooled Separate Account.
The investment objective of the Insurance Company Pooled Separate Account is to invest in short-term cash equivalent securities to provide a high current income consistent with the preservation of principal and liquidity.
Common collective trust (CCT).
The postretirement plan's CCT investment consists of a balanced profile fund and a conservative profile fund. These funds primarily invest in mutual funds and exchange-traded funds. The balanced profile fund is designed for participating trusts that seek substantial capital growth, place modest emphasis on short-term stability, have long-term investment objectives, and accept short-term volatility in the value of the fund's portfolio. The conservative profile fund is designed for participating trusts that place modest emphasis on capital growth, place moderate emphasis on short-term stability, have intermediate-to-long-term investment objectives, and accept moderate short-term volatility in the value of the fund's portfolio. There are currently no redemption restrictions on these investments.
Based on current legislation and current assumptions, the contribution that the Company expects to have a minimum contribution requirement of nil for 2018. The Company projects that Hawaiian's pension plans and other postretirement benefit plans will make the following benefit payments, which reflect expected future service, during the years ending December 31:
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits
|
|
|
Pension
Benefits
|
|
Gross
|
|
Expected
Federal Subsidy
|
|
|
(in thousands)
|
2018
|
|
$
|
21,889
|
|
|
$
|
4,803
|
|
|
$
|
(48
|
)
|
2019
|
|
23,216
|
|
|
5,441
|
|
|
(54
|
)
|
2020
|
|
24,216
|
|
|
6,032
|
|
|
(59
|
)
|
2021
|
|
24,895
|
|
|
6,751
|
|
|
(62
|
)
|
2022
|
|
25,392
|
|
|
7,258
|
|
|
(64
|
)
|
2023 - 2027
|
|
130,599
|
|
|
43,478
|
|
|
(349
|
)
|
|
|
$
|
250,207
|
|
|
$
|
73,763
|
|
|
$
|
(636
|
)
|
Defined Contribution Plans
The Company also sponsors separate defined contribution plans for its pilots, flight attendants and ground, and salaried personnel. Contributions to the Company's defined contribution plans were
$39.1 million
,
$31.6 million
and
$29.4 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
13. Capital Stock and Share-based Compensation
Common Stock and Dividend Declaration
The Company has
one
class of common stock issued and outstanding. Each share of common stock is entitled to
one
vote per share.
In October 2017, the Company announced that its Board of Directors declared a quarterly cash dividend of
$0.12
per share payable on November 30, 2017, to stockholders of record as of November 17, 2017. The total cash payment for dividends during the year ended
December 31, 2017
was
$6.3 million
and
no
dividends were paid by the Company during the years ended
December 31, 2016
or
2015
. In February 2018, the Company announced that its Board of Directors declared a quarterly cash dividend of
$0.12
per share payable on February 28, 2018, to stockholders of record as of February 14, 2018.
Special Preferred Stock
The IAM, AFA, and ALPA each hold
one
share of Special Preferred Stock, which entitles each union to nominate
one
director to the Company's Board of Directors. In addition, each series of the Special Preferred Stock, unless otherwise specified: (i) ranks senior to the Company's common stock and ranks
pari passu
with each other series of Special Preferred Stock with respect to liquidation, dissolution and winding up of the Company and will be entitled to receive
$0.01
per share before any payments are made, or assets distributed to holders of any stock ranking junior to the Special Preferred Stock; (ii) has no dividend rights unless a dividend is declared and paid on the Company's common stock, in which case the Special Preferred Stock would be entitled to receive a dividend in an amount per share equal to
two
times the dividend per share paid on the common stock; (iii) is entitled to
one
vote per share of such series and votes with the common stock as a single class on all matters submitted to holders of the Company's common stock; and (iv) automatically converts into the Company's common stock on a
1
:1 basis, at such time as such shares are transferred or such holders are no longer entitled to nominate a representative to the Company's Board of Directors pursuant to their respective collective bargaining agreements.
Share-Based Compensation
Total share-based compensation expense recognized by the Company under ASC 718 was
$7.3 million
,
$8.4 million
and
$6.6 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively. As of
December 31, 2017
,
$6.9 million
of share-based compensation expense related to unvested stock options and other stock awards (inclusive of
$0.4 million
for stock options and other stock awards granted to non-employee directors) attributable to future performance and has not yet been recognized. The related expense will be recognized over a weighted average period of approximately
1.1
years.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Performance-Based Stock Awards
During
2017
, the Company granted performance-based stock awards covering
355,897
shares of common stock (the Target Award) with a maximum payout of
414,240
shares of common stock (the Maximum Award) to employees pursuant to the Company's 2015 Stock Incentive Plan. These awards vest over a period of
one
or
three
years. The Company valued the performance-based stock awards using grant date fair values equal to the Company's share price on the measurement date.
The following table summarizes information about performance-based stock awards:
|
|
|
|
|
|
|
|
|
Number of units
|
|
Weighted
average
grant date
fair value
|
Non-vested at January 1, 2015
|
1,003,629
|
|
|
$
|
7.19
|
|
Granted
|
183,827
|
|
|
19.01
|
|
Vested
|
(419,097
|
)
|
|
6.41
|
|
Forfeited
|
(89,617
|
)
|
|
9.76
|
|
Non-vested at December 31, 2015
|
678,742
|
|
|
$
|
10.53
|
|
Granted
|
117,849
|
|
|
33.94
|
|
Vested
|
(349,403
|
)
|
|
7.32
|
|
Forfeited
|
(24,891
|
)
|
|
13.45
|
|
Non-vested at December 31, 2016
|
422,297
|
|
|
$
|
14.00
|
|
Granted
|
355,897
|
|
|
43.51
|
|
Vested
|
(358,619
|
)
|
|
12.71
|
|
Forfeited
|
(37,619
|
)
|
|
27.60
|
|
Non-vested at December 31, 2017
|
381,956
|
|
|
$
|
28.03
|
|
In 2017 there were
144,780
additional shares from a prior year grant that the performance metric was achieved and vested, thus included in the 2017 amounts. The fair value of performance-based stock awards vested in the years ended
December 31, 2017
,
2016
and
2015
was
$17.9 million
,
$11.3 million
and
$10.5 million
, respectively. Fair value of the awards are based on the stock price on date of vest.
Service-Based Stock Awards
During
2017
, the Company awarded
22,898
service-based stock awards to employees and non-employee directors, pursuant to the Company's 2015 Stock Incentive Plan. These stock awards vest over a
one
year period and have a grant date fair value equal to the Company's share price on the measurement date.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes information about outstanding service-based stock awards:
|
|
|
|
|
|
|
|
|
Number of units
|
|
Weighted
average
grant date
fair value
|
Non-vested at January 1, 2015
|
437,961
|
|
|
$
|
9.66
|
|
Granted
|
149,138
|
|
|
21.24
|
|
Vested
|
(224,268
|
)
|
|
9.01
|
|
Forfeited
|
(92,110
|
)
|
|
14.25
|
|
Non-vested at December 31, 2015
|
270,721
|
|
|
$
|
15.02
|
|
Granted
|
110,276
|
|
|
37.08
|
|
Vested
|
(169,218
|
)
|
|
16.32
|
|
Forfeited
|
(16,330
|
)
|
|
20.46
|
|
Non-vested at December 31, 2016
|
195,449
|
|
|
$
|
24.29
|
|
Granted
|
22,898
|
|
|
49.95
|
|
Vested
|
(110,575
|
)
|
|
23.80
|
|
Forfeited
|
(16,394
|
)
|
|
26.71
|
|
Non-vested at December 31, 2017
|
91,378
|
|
|
$
|
28.12
|
|
The fair value of service-based stock awards vested in
2017
,
2016
, and
2015
was
$5.6 million
,
$6.1 million
and
$4.6 million
, respectively. Fair value of the awards are based on the stock price on date of vest.
14. Commitments and Contingent Liabilities
Commitments
The Company has commitments with a third-party to provide aircraft maintenance services which include fixed payments as well as variable payments based on flight hours for the Company's Airbus fleet through 2027. The Company also has commitments with third-party service providers for reservations, IT, and accounting services through 2024. Committed capital and other expenditures include escalation and variable amounts based on estimated forecasts.
The gross committed expenditures for upcoming aircraft deliveries and other commitments for the next five years and thereafter are detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft and aircraft related
|
|
Other
|
|
Total Committed
Expenditures
|
|
(in thousands)
|
2018
|
$
|
455,923
|
|
|
$
|
73,041
|
|
|
$
|
528,964
|
|
2019
|
503,496
|
|
|
59,444
|
|
|
562,940
|
|
2020
|
242,495
|
|
|
55,230
|
|
|
297,725
|
|
2021
|
170,480
|
|
|
51,097
|
|
|
221,577
|
|
2022
|
10,113
|
|
|
51,225
|
|
|
61,338
|
|
Thereafter
|
121,582
|
|
|
216,161
|
|
|
337,743
|
|
|
$
|
1,504,089
|
|
|
$
|
506,198
|
|
|
$
|
2,010,287
|
|
As of
December 31, 2017
, we had the following capital commitments consisting of firm aircraft and engine orders and purchase rights:
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
Aircraft Type
|
Firm
Orders
|
|
Purchase
Rights
|
|
Expected Delivery Dates
|
A321neo aircraft
|
14
|
|
|
9
|
|
|
Between 2018 and 2020
|
A330-800neo aircraft
|
6
|
|
|
6
|
|
|
Between 2019 and 2021
|
Pratt & Whitney spare engines:
|
|
|
|
|
|
A321neo spare engines
|
3
|
|
|
2
|
|
|
Between 2018 and 2019
|
Rolls-Royce spare engines:
|
|
|
|
|
|
|
|
A330-800neo spare engines
|
2
|
|
|
—
|
|
|
Between 2019 and 2020
|
In order to complete the purchase of these aircraft and fund related costs, we may need to secure acceptable financing. The Company has backstop financing available from aircraft and engine manufacturers, subject to certain customary conditions. Financing may be necessary to satisfy our capital commitments for firm order aircraft and other related capital expenditures. The Company can provide no assurance that any financing not already in place for aircraft and spare engine deliveries will be available to us on acceptable terms when necessary or at all.
Litigation and Contingencies
The Company is subject to legal proceedings arising in the normal course of its operations. Management does not anticipate that the disposition of any currently pending proceeding will have a material effect on the Company's operations, business or financial condition.
General Guarantees and Indemnifications
In the normal course of business, the Company enters into numerous aircraft financing and real estate leasing arrangements that have various guarantees included in the contract. It is common in such lease transactions for the lessee to agree to indemnify the lessor and other related third-parties for tort liabilities that arise out of or relate to the lessee's use of the leased aircraft or occupancy of the leased premises. In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by their gross negligence or willful misconduct. Additionally, the lessee typically indemnifies such parties for any environmental liability that arises out of or relates to its use of the real estate leased premises. The Company believes that it is insured (subject to deductibles) for most tort liabilities and related indemnities described above with respect to the aircraft and real estate that it leases. The Company cannot estimate the potential amount of future payments, if any, under the foregoing indemnities and agreements.
Credit Card Holdback
Under the Company's bank-issued credit card processing agreements, certain proceeds from advance ticket sales may be held back to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. These holdbacks, which are included in restricted cash in the Company's Consolidated Balance Sheets, totaled
$1.0 million
and
$5.0 million
at
December 31, 2017
and
2016
, respectively.
In the event of a material adverse change in the business, the holdback could increase to an amount up to
100%
of the applicable credit card air traffic liability, which would also cause an increase in the level of restricted cash.
Labor Negotiations
As of
December 31, 2017
, approximately
83%
of employees were represented by unions. Additionally, the collective bargaining agreement for the Association of Flight Attendants (AFA), which represents
29%
of employees became amendable on January 1, 2017, the Company is currently in negotiations with the AFA. The Company can provide no assurance that a successful or timely resolution of these labor negotiations will be achieved.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
15. Geographic Information
The Company's primary operations are that of its wholly-owned subsidiary, Hawaiian. Principally all operations of Hawaiian either originate and/or end in the State of Hawai'i. The management of such operations is based on a system-wide approach due to the interdependence of Hawaiian's route structure in its various markets. As Hawaiian offers only
one
significant line of business (i.e., air transportation), management has concluded that it has only
one
segment.
The Company's operating revenues by geographic region (as defined by the Department of Transportation, DOT) are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(in thousands)
|
Domestic
|
$
|
1,988,686
|
|
|
$
|
1,906,840
|
|
|
$
|
1,775,355
|
|
Pacific
|
706,942
|
|
|
543,740
|
|
|
542,112
|
|
Total operating revenue
|
$
|
2,695,628
|
|
|
$
|
2,450,580
|
|
|
$
|
2,317,467
|
|
Hawaiian attributes operating revenue by geographic region based upon the origin and destination of each flight segment. Hawaiian's tangible assets consist primarily of flight equipment, which are mobile across geographic markets, and, therefore, have not been allocated to specific geographic regions.
16. Supplemental Cash Flow Information
Supplemental disclosures of cash flow information and non-cash investing and financing activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
|
(in thousands)
|
Cash payments for interest (net of amounts capitalized)
|
$
|
23,134
|
|
|
$
|
29,751
|
|
|
$
|
45,519
|
|
Cash payments (refunds) for income taxes
|
65,812
|
|
|
92,934
|
|
|
4,664
|
|
Investing and Financing Activities Not Affecting Cash:
|
|
|
|
|
|
|
|
|
Property and equipment acquired through a capital or financing lease
|
72,996
|
|
*
|
6,092
|
|
|
2,791
|
|
Maintenance hangar project
(see Note 9 for further discussion)
|
—
|
|
|
72,996
|
|
*
|
—
|
|
* Amount was reclassified from an other liability as of December 31, 2016 to a financing (lease) liability at the date of in-service, and reflected as such as of December 31, 2017.
17. Condensed Consolidating Financial Information
The following condensed consolidating financial information is presented in accordance with Regulation S-X paragraph 210.3-10 because, in connection with the issuance by
two
pass-through trusts formed by Hawaiian (which is also referred to in this
Note 17
as Subsidiary Issuer / Guarantor) of pass-through certificates, as discussed in
Note 8
, the Company (which is also referred to in this
Note 17
as Parent Issuer / Guarantor), is fully and unconditionally guaranteeing the payment obligations of Hawaiian, which is a
100%
owned subsidiary of the Company, under equipment notes to be issued by Hawaiian to purchase new aircraft.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed consolidating financial statements are presented in the following tables:
Condensed Consolidating Statements of Operations and
Comprehensive Income (Loss)
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
Operating Revenue
|
$
|
—
|
|
|
$
|
2,687,918
|
|
|
$
|
8,102
|
|
|
$
|
(392
|
)
|
|
$
|
2,695,628
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel, including taxes and delivery
|
—
|
|
|
440,383
|
|
|
—
|
|
|
—
|
|
|
440,383
|
|
Wages and benefits
|
—
|
|
|
632,997
|
|
|
—
|
|
|
—
|
|
|
632,997
|
|
Aircraft rent
|
—
|
|
|
137,289
|
|
|
475
|
|
|
—
|
|
|
137,764
|
|
Maintenance materials and repairs
|
—
|
|
|
215,473
|
|
|
4,080
|
|
|
—
|
|
|
219,553
|
|
Aircraft and passenger servicing
|
—
|
|
|
140,566
|
|
|
—
|
|
|
—
|
|
|
140,566
|
|
Commissions and other selling
|
85
|
|
|
131,706
|
|
|
129
|
|
|
(137
|
)
|
|
131,783
|
|
Depreciation and amortization
|
—
|
|
|
109,458
|
|
|
3,819
|
|
|
—
|
|
|
113,277
|
|
Other rentals and landing fees
|
—
|
|
|
116,763
|
|
|
—
|
|
|
—
|
|
|
116,763
|
|
Purchased services
|
478
|
|
|
109,436
|
|
|
933
|
|
|
(60
|
)
|
|
110,787
|
|
Special items
|
—
|
|
|
23,450
|
|
|
—
|
|
|
—
|
|
|
23,450
|
|
Other
|
5,391
|
|
|
137,499
|
|
|
1,838
|
|
|
(195
|
)
|
|
144,533
|
|
Total
|
5,954
|
|
|
2,195,020
|
|
|
11,274
|
|
|
(392
|
)
|
|
2,211,856
|
|
Operating Income (Loss)
|
(5,954
|
)
|
|
492,898
|
|
|
(3,172
|
)
|
|
—
|
|
|
483,772
|
|
Nonoperating Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed net income of subsidiaries
|
367,715
|
|
|
—
|
|
|
—
|
|
|
(367,715
|
)
|
|
—
|
|
Other nonoperating special items
|
—
|
|
|
(45,585
|
)
|
|
—
|
|
|
—
|
|
|
(45,585
|
)
|
Interest expense and amortization of debt discounts and issuance costs
|
—
|
|
|
(30,901
|
)
|
|
—
|
|
|
—
|
|
|
(30,901
|
)
|
Interest income
|
301
|
|
|
5,831
|
|
|
—
|
|
|
—
|
|
|
6,132
|
|
Capitalized interest
|
—
|
|
|
8,437
|
|
|
—
|
|
|
—
|
|
|
8,437
|
|
Other components of net periodic benefit cost
|
—
|
|
|
(16,713
|
)
|
|
—
|
|
|
—
|
|
|
(16,713
|
)
|
Gains on fuel derivatives
|
—
|
|
|
3,312
|
|
|
—
|
|
|
—
|
|
|
3,312
|
|
Other, net
|
—
|
|
|
2,101
|
|
|
—
|
|
|
—
|
|
|
2,101
|
|
Total
|
368,016
|
|
|
(73,518
|
)
|
|
—
|
|
|
(367,715
|
)
|
|
(73,217
|
)
|
Income (Loss) Before Income Taxes
|
362,062
|
|
|
419,380
|
|
|
(3,172
|
)
|
|
(367,715
|
)
|
|
410,555
|
|
Income tax expense (benefit)
|
(1,979
|
)
|
|
49,602
|
|
|
(1,109
|
)
|
|
—
|
|
|
46,514
|
|
Net Income (Loss)
|
$
|
364,041
|
|
|
$
|
369,778
|
|
|
$
|
(2,063
|
)
|
|
$
|
(367,715
|
)
|
|
$
|
364,041
|
|
Comprehensive Income (Loss)
|
$
|
392,270
|
|
|
$
|
398,007
|
|
|
$
|
(2,063
|
)
|
|
$
|
(395,944
|
)
|
|
$
|
392,270
|
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Operations and
Comprehensive Income (Loss)
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
Operating Revenue
|
$
|
—
|
|
|
$
|
2,444,646
|
|
|
$
|
6,297
|
|
|
$
|
(363
|
)
|
|
$
|
2,450,580
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel, including taxes and delivery
|
—
|
|
|
344,322
|
|
|
—
|
|
|
—
|
|
|
344,322
|
|
Wages and benefits
|
—
|
|
|
535,264
|
|
|
—
|
|
|
—
|
|
|
535,264
|
|
Aircraft rent
|
—
|
|
|
124,521
|
|
|
44
|
|
|
—
|
|
|
124,565
|
|
Maintenance materials and repairs
|
—
|
|
|
225,633
|
|
|
3,337
|
|
|
—
|
|
|
228,970
|
|
Aircraft and passenger servicing
|
—
|
|
|
126,876
|
|
|
—
|
|
|
—
|
|
|
126,876
|
|
Commissions and other selling
|
72
|
|
|
125,661
|
|
|
124
|
|
|
(126
|
)
|
|
125,731
|
|
Depreciation and amortization
|
—
|
|
|
104,689
|
|
|
3,439
|
|
|
—
|
|
|
108,128
|
|
Other rentals and landing fees
|
—
|
|
|
108,087
|
|
|
—
|
|
|
—
|
|
|
108,087
|
|
Purchased services
|
149
|
|
|
95,525
|
|
|
660
|
|
|
(60
|
)
|
|
96,274
|
|
Special items
|
—
|
|
|
109,142
|
|
|
—
|
|
|
—
|
|
|
109,142
|
|
Other
|
5,300
|
|
|
121,104
|
|
|
1,262
|
|
|
(177
|
)
|
|
127,489
|
|
Total
|
5,521
|
|
|
2,020,824
|
|
|
8,866
|
|
|
(363
|
)
|
|
2,034,848
|
|
Operating Income (Loss)
|
(5,521
|
)
|
|
423,822
|
|
|
(2,569
|
)
|
|
—
|
|
|
415,732
|
|
Nonoperating Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed net income of subsidiaries
|
238,772
|
|
|
—
|
|
|
—
|
|
|
(238,772
|
)
|
|
—
|
|
Interest expense and amortization of debt discounts and issuance costs
|
117
|
|
|
(36,729
|
)
|
|
—
|
|
|
—
|
|
|
(36,612
|
)
|
Interest income
|
265
|
|
|
3,742
|
|
|
—
|
|
|
—
|
|
|
4,007
|
|
Capitalized interest
|
—
|
|
|
2,651
|
|
|
—
|
|
|
—
|
|
|
2,651
|
|
Other components of net periodic benefit cost
|
—
|
|
|
(20,270
|
)
|
|
—
|
|
|
—
|
|
|
(20,270
|
)
|
Gains on fuel derivatives
|
—
|
|
|
20,106
|
|
|
—
|
|
|
—
|
|
|
20,106
|
|
Loss on extinguishment of debt
|
—
|
|
|
(10,473
|
)
|
|
—
|
|
|
—
|
|
|
(10,473
|
)
|
Other, net
|
—
|
|
|
4,323
|
|
|
—
|
|
|
—
|
|
|
4,323
|
|
Total
|
239,154
|
|
|
(36,650
|
)
|
|
—
|
|
|
(238,772
|
)
|
|
(36,268
|
)
|
Income (Loss) Before Income Taxes
|
233,633
|
|
|
387,172
|
|
|
(2,569
|
)
|
|
(238,772
|
)
|
|
379,464
|
|
Income tax expense (benefit)
|
(1,799
|
)
|
|
146,730
|
|
|
(899
|
)
|
|
—
|
|
|
144,032
|
|
Net Income (Loss)
|
$
|
235,432
|
|
|
$
|
240,442
|
|
|
$
|
(1,670
|
)
|
|
$
|
(238,772
|
)
|
|
$
|
235,432
|
|
Comprehensive Income (Loss)
|
$
|
231,216
|
|
|
$
|
236,226
|
|
|
$
|
(1,670
|
)
|
|
$
|
(234,556
|
)
|
|
$
|
231,216
|
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Operations and
Comprehensive Income (Loss)
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
Operating Revenue
|
$
|
—
|
|
|
$
|
2,313,159
|
|
|
$
|
4,645
|
|
|
$
|
(337
|
)
|
|
$
|
2,317,467
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel, including taxes and delivery
|
—
|
|
|
417,728
|
|
|
—
|
|
|
—
|
|
|
417,728
|
|
Wages and benefits
|
—
|
|
|
476,979
|
|
|
—
|
|
|
—
|
|
|
476,979
|
|
Aircraft rent
|
—
|
|
|
115,653
|
|
|
—
|
|
|
—
|
|
|
115,653
|
|
Maintenance materials and repairs
|
—
|
|
|
223,135
|
|
|
1,513
|
|
|
—
|
|
|
224,648
|
|
Aircraft and passenger servicing
|
—
|
|
|
117,449
|
|
|
—
|
|
|
—
|
|
|
117,449
|
|
Commissions and other selling
|
5
|
|
|
119,749
|
|
|
103
|
|
|
(111
|
)
|
|
119,746
|
|
Depreciation and amortization
|
—
|
|
|
102,586
|
|
|
2,995
|
|
|
—
|
|
|
105,581
|
|
Other rentals and landing fees
|
—
|
|
|
95,055
|
|
|
—
|
|
|
—
|
|
|
95,055
|
|
Purchased services
|
985
|
|
|
80,775
|
|
|
141
|
|
|
(63
|
)
|
|
81,838
|
|
Other
|
4,927
|
|
|
108,594
|
|
|
802
|
|
|
(163
|
)
|
|
114,160
|
|
Total
|
5,917
|
|
|
1,857,703
|
|
|
5,554
|
|
|
(337
|
)
|
|
1,868,837
|
|
Operating Income (Loss)
|
(5,917
|
)
|
|
455,456
|
|
|
(909
|
)
|
|
—
|
|
|
448,630
|
|
Nonoperating Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed net income of subsidiaries
|
192,278
|
|
|
—
|
|
|
—
|
|
|
(192,278
|
)
|
|
—
|
|
Interest expense and amortization of debt discounts and issuance costs
|
(1,733
|
)
|
|
(53,945
|
)
|
|
—
|
|
|
—
|
|
|
(55,678
|
)
|
Interest income
|
220
|
|
|
2,591
|
|
|
—
|
|
|
—
|
|
|
2,811
|
|
Capitalized interest
|
—
|
|
|
3,261
|
|
|
—
|
|
|
—
|
|
|
3,261
|
|
Other components of net periodic benefit cost
|
—
|
|
|
(22,527
|
)
|
|
—
|
|
|
—
|
|
|
(22,527
|
)
|
Losses on fuel derivatives
|
—
|
|
|
(59,931
|
)
|
|
—
|
|
|
—
|
|
|
(59,931
|
)
|
Loss on extinguishment of debt
|
(7,387
|
)
|
|
(4,671
|
)
|
|
—
|
|
|
—
|
|
|
(12,058
|
)
|
Other, net
|
—
|
|
|
(8,821
|
)
|
|
1
|
|
|
—
|
|
|
(8,820
|
)
|
Total
|
183,378
|
|
|
(144,043
|
)
|
|
1
|
|
|
(192,278
|
)
|
|
(152,942
|
)
|
Income (Loss) Before Income Taxes
|
177,461
|
|
|
311,413
|
|
|
(908
|
)
|
|
(192,278
|
)
|
|
295,688
|
|
Income tax expense (benefit)
|
(5,185
|
)
|
|
118,546
|
|
|
(319
|
)
|
|
—
|
|
|
113,042
|
|
Net Income (Loss)
|
$
|
182,646
|
|
|
$
|
192,867
|
|
|
$
|
(589
|
)
|
|
$
|
(192,278
|
)
|
|
$
|
182,646
|
|
Comprehensive Income (Loss)
|
$
|
206,181
|
|
|
$
|
216,402
|
|
|
$
|
(589
|
)
|
|
$
|
(215,813
|
)
|
|
$
|
206,181
|
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Balance Sheets
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
57,405
|
|
|
$
|
125,861
|
|
|
$
|
7,687
|
|
|
$
|
—
|
|
|
$
|
190,953
|
|
Restricted cash
|
—
|
|
|
1,000
|
|
|
—
|
|
|
—
|
|
|
1,000
|
|
Short-term investments
|
—
|
|
|
269,297
|
|
|
—
|
|
|
—
|
|
|
269,297
|
|
Accounts receivable, net
|
25
|
|
|
139,008
|
|
|
1,455
|
|
|
(209
|
)
|
|
140,279
|
|
Spare parts and supplies, net
|
—
|
|
|
35,361
|
|
|
—
|
|
|
—
|
|
|
35,361
|
|
Prepaid expenses and other
|
171
|
|
|
64,943
|
|
|
82
|
|
|
—
|
|
|
65,196
|
|
Total
|
57,601
|
|
|
635,470
|
|
|
9,224
|
|
|
(209
|
)
|
|
702,086
|
|
Property and equipment at cost
|
—
|
|
|
2,326,249
|
|
|
74,562
|
|
|
—
|
|
|
2,400,811
|
|
Less accumulated depreciation and amortization
|
—
|
|
|
(546,831
|
)
|
|
(11,717
|
)
|
|
—
|
|
|
(558,548
|
)
|
Property and equipment, net
|
—
|
|
|
1,779,418
|
|
|
62,845
|
|
|
—
|
|
|
1,842,263
|
|
Long-term prepayments and other
|
—
|
|
|
193,449
|
|
|
183
|
|
|
—
|
|
|
193,632
|
|
Deferred tax assets, net
|
31,845
|
|
|
—
|
|
|
—
|
|
|
(31,845
|
)
|
|
—
|
|
Goodwill and other intangible assets, net
|
—
|
|
|
120,695
|
|
|
1,155
|
|
|
—
|
|
|
121,850
|
|
Intercompany receivable
|
—
|
|
|
392,791
|
|
|
—
|
|
|
(392,791
|
)
|
|
—
|
|
Investment in consolidated subsidiaries
|
1,258,758
|
|
|
—
|
|
|
—
|
|
|
(1,258,758
|
)
|
|
—
|
|
TOTAL ASSETS
|
$
|
1,348,204
|
|
|
$
|
3,121,823
|
|
|
$
|
73,407
|
|
|
$
|
(1,683,603
|
)
|
|
$
|
2,859,831
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
622
|
|
|
$
|
138,818
|
|
|
$
|
1,574
|
|
|
$
|
(209
|
)
|
|
$
|
140,805
|
|
Air traffic liability
|
—
|
|
|
540,635
|
|
|
4,727
|
|
|
—
|
|
|
545,362
|
|
Other accrued liabilities
|
32
|
|
|
145,901
|
|
|
350
|
|
|
—
|
|
|
146,283
|
|
Current maturities of long-term debt, less discount, and capital lease obligations
|
—
|
|
|
59,470
|
|
|
—
|
|
|
—
|
|
|
59,470
|
|
Total
|
654
|
|
|
884,824
|
|
|
6,651
|
|
|
(209
|
)
|
|
891,920
|
|
Long-term debt and capital lease obligations
|
—
|
|
|
511,201
|
|
|
—
|
|
|
—
|
|
|
511,201
|
|
Intercompany payable
|
381,608
|
|
|
—
|
|
|
11,183
|
|
|
(392,791
|
)
|
|
—
|
|
Other liabilities and deferred credits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated pension and other postretirement benefit obligations.
|
—
|
|
|
220,788
|
|
|
—
|
|
|
—
|
|
|
220,788
|
|
Other liabilities and deferred credits
|
—
|
|
|
94,531
|
|
|
1,105
|
|
|
—
|
|
|
95,636
|
|
Deferred tax liabilities, net
|
—
|
|
|
206,189
|
|
|
—
|
|
|
(31,845
|
)
|
|
174,344
|
|
Total
|
—
|
|
|
521,508
|
|
|
1,105
|
|
|
(31,845
|
)
|
|
490,768
|
|
Shareholders' equity
|
965,942
|
|
|
1,204,290
|
|
|
54,468
|
|
|
(1,258,758
|
)
|
|
965,942
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
1,348,204
|
|
|
$
|
3,121,823
|
|
|
$
|
73,407
|
|
|
$
|
(1,683,603
|
)
|
|
$
|
2,859,831
|
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Balance Sheets
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
67,629
|
|
|
$
|
249,985
|
|
|
$
|
8,377
|
|
|
$
|
—
|
|
|
$
|
325,991
|
|
Restricted cash
|
—
|
|
|
5,000
|
|
|
—
|
|
|
—
|
|
|
5,000
|
|
Short-term investments
|
—
|
|
|
284,075
|
|
|
—
|
|
|
—
|
|
|
284,075
|
|
Accounts receivable, net
|
28
|
|
|
94,852
|
|
|
1,392
|
|
|
(205
|
)
|
|
96,067
|
|
Spare parts and supplies, net
|
—
|
|
|
20,363
|
|
|
—
|
|
|
—
|
|
|
20,363
|
|
Prepaid expenses and other
|
29
|
|
|
66,665
|
|
|
46
|
|
|
—
|
|
|
66,740
|
|
Total
|
67,686
|
|
|
720,940
|
|
|
9,815
|
|
|
(205
|
)
|
|
798,236
|
|
Property and equipment at cost
|
—
|
|
|
2,038,931
|
|
|
69,867
|
|
|
—
|
|
|
2,108,798
|
|
Less accumulated depreciation and amortization
|
—
|
|
|
(445,868
|
)
|
|
(8,363
|
)
|
|
—
|
|
|
(454,231
|
)
|
Property and equipment, net
|
—
|
|
|
1,593,063
|
|
|
61,504
|
|
|
—
|
|
|
1,654,567
|
|
Long-term prepayments and other
|
—
|
|
|
132,724
|
|
|
—
|
|
|
—
|
|
|
132,724
|
|
Deferred tax assets, net
|
28,757
|
|
|
—
|
|
|
—
|
|
|
(28,757
|
)
|
|
—
|
|
Goodwill and other intangible assets, net
|
—
|
|
|
121,456
|
|
|
1,618
|
|
|
—
|
|
|
123,074
|
|
Intercompany receivable
|
—
|
|
|
277,732
|
|
|
—
|
|
|
(277,732
|
)
|
|
—
|
|
Investment in consolidated subsidiaries
|
855,289
|
|
|
—
|
|
|
—
|
|
|
(855,289
|
)
|
|
—
|
|
TOTAL ASSETS
|
$
|
951,732
|
|
|
$
|
2,845,915
|
|
|
$
|
72,937
|
|
|
$
|
(1,161,983
|
)
|
|
$
|
2,708,601
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
492
|
|
|
$
|
114,935
|
|
|
$
|
1,285
|
|
|
$
|
(205
|
)
|
|
$
|
116,507
|
|
Air traffic liability
|
—
|
|
|
478,109
|
|
|
4,387
|
|
|
—
|
|
|
482,496
|
|
Other accrued liabilities
|
4,088
|
|
|
167,864
|
|
|
262
|
|
|
—
|
|
|
172,214
|
|
Current maturities of long-term debt, less discount, and capital lease obligations
|
—
|
|
|
58,899
|
|
|
—
|
|
|
—
|
|
|
58,899
|
|
Total
|
4,580
|
|
|
819,807
|
|
|
5,934
|
|
|
(205
|
)
|
|
830,116
|
|
Long-term debt and capital lease obligations
|
—
|
|
|
497,908
|
|
|
—
|
|
|
—
|
|
|
497,908
|
|
Intercompany payable
|
266,699
|
|
|
—
|
|
|
11,033
|
|
|
(277,732
|
)
|
|
—
|
|
Other liabilities and deferred credits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated pension and other postretirement benefit obligations.
|
—
|
|
|
355,968
|
|
|
—
|
|
|
—
|
|
|
355,968
|
|
Other liabilities and deferred credits
|
—
|
|
|
172,783
|
|
|
830
|
|
|
|
|
|
173,613
|
|
Deferred tax liabilities, net
|
—
|
|
|
199,300
|
|
|
—
|
|
|
(28,757
|
)
|
|
170,543
|
|
Total
|
—
|
|
|
728,051
|
|
|
830
|
|
|
(28,757
|
)
|
|
700,124
|
|
Shareholders' equity
|
680,453
|
|
|
800,149
|
|
|
55,140
|
|
|
(855,289
|
)
|
|
680,453
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
951,732
|
|
|
$
|
2,845,915
|
|
|
$
|
72,937
|
|
|
$
|
(1,161,983
|
)
|
|
$
|
2,708,601
|
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
Net Cash Provided By (Used In) Operating Activities:
|
$
|
(4,803
|
)
|
|
$
|
334,433
|
|
|
$
|
1,505
|
|
|
$
|
—
|
|
|
$
|
331,135
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payments to affiliates
|
(2,500
|
)
|
|
(103,254
|
)
|
|
—
|
|
|
105,754
|
|
|
—
|
|
Additions to property and equipment, including pre-delivery deposits
|
—
|
|
|
(336,820
|
)
|
|
(4,695
|
)
|
|
—
|
|
|
(341,515
|
)
|
Proceeds from disposition of property and equipment
|
—
|
|
|
33,941
|
|
|
—
|
|
|
—
|
|
|
33,941
|
|
Purchases of investments
|
—
|
|
|
(231,393
|
)
|
|
—
|
|
|
—
|
|
|
(231,393
|
)
|
Sales of investments
|
—
|
|
|
244,261
|
|
|
—
|
|
|
—
|
|
|
244,261
|
|
Net cash used in investing activities
|
(2,500
|
)
|
|
(393,265
|
)
|
|
(4,695
|
)
|
|
105,754
|
|
|
(294,706
|
)
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt and capital lease obligations
|
—
|
|
|
(61,486
|
)
|
|
—
|
|
|
—
|
|
|
(61,486
|
)
|
Dividend payments
|
(6,261
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,261
|
)
|
Repurchases of common stock
|
(100,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(100,000
|
)
|
Debt issuance costs
|
—
|
|
|
(188
|
)
|
|
—
|
|
|
—
|
|
|
(188
|
)
|
Net payments from affiliates
|
103,254
|
|
|
—
|
|
|
2,500
|
|
|
(105,754
|
)
|
|
—
|
|
Other
|
86
|
|
|
(7,618
|
)
|
|
—
|
|
|
|
|
|
(7,532
|
)
|
Net cash provided by (used in) financing activities
|
(2,921
|
)
|
|
(69,292
|
)
|
|
2,500
|
|
|
(105,754
|
)
|
|
(175,467
|
)
|
Net decrease in cash and cash equivalents
|
(10,224
|
)
|
|
(128,124
|
)
|
|
(690
|
)
|
|
—
|
|
|
(139,038
|
)
|
Cash, cash equivalents, and restricted cash—Beginning of Period
|
67,629
|
|
|
254,985
|
|
|
8,377
|
|
|
—
|
|
|
330,991
|
|
Cash, cash equivalents, and restricted cash—End of Period
|
$
|
57,405
|
|
|
$
|
126,861
|
|
|
$
|
7,687
|
|
|
$
|
—
|
|
|
$
|
191,953
|
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
Net Cash Provided By (Used In) Operating Activities:
|
$
|
(4,954
|
)
|
|
$
|
440,203
|
|
|
$
|
1,795
|
|
|
$
|
—
|
|
|
$
|
437,044
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payments to affiliates
|
—
|
|
|
(28,927
|
)
|
|
—
|
|
|
28,927
|
|
|
—
|
|
Additions to property and equipment, including pre-delivery deposits
|
—
|
|
|
(165,710
|
)
|
|
(13,128
|
)
|
|
—
|
|
|
(178,838
|
)
|
Proceeds from purchase assignment and leaseback transactions
|
—
|
|
|
31,851
|
|
|
—
|
|
|
—
|
|
|
31,851
|
|
Proceeds from disposition of property and equipment
|
—
|
|
|
15
|
|
|
1
|
|
|
—
|
|
|
16
|
|
Purchases of investments
|
—
|
|
|
(260,987
|
)
|
|
—
|
|
|
—
|
|
|
(260,987
|
)
|
Sales of investments
|
—
|
|
|
253,855
|
|
|
—
|
|
|
—
|
|
|
253,855
|
|
Net cash provided by (used in) investing activities
|
—
|
|
|
(169,903
|
)
|
|
(13,127
|
)
|
|
28,927
|
|
|
(154,103
|
)
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt and capital lease obligations
|
—
|
|
|
(214,025
|
)
|
|
—
|
|
|
—
|
|
|
(214,025
|
)
|
Repurchases and conversion of convertible notes
|
(1,426
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,426
|
)
|
Repurchases of common stock
|
(13,763
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,763
|
)
|
Debt issuance costs
|
—
|
|
|
(1,653
|
)
|
|
—
|
|
|
—
|
|
|
(1,653
|
)
|
Net payments from affiliates
|
17,894
|
|
|
—
|
|
|
11,033
|
|
|
(28,927
|
)
|
|
—
|
|
Other
|
458
|
|
|
(8,043
|
)
|
|
—
|
|
|
|
|
|
(7,585
|
)
|
Net cash provided by (used in) financing activities
|
3,163
|
|
|
(223,721
|
)
|
|
11,033
|
|
|
(28,927
|
)
|
|
(238,452
|
)
|
Net increase (decrease) in cash and cash equivalents
|
(1,791
|
)
|
|
46,579
|
|
|
(299
|
)
|
|
—
|
|
|
44,489
|
|
Cash, cash equivalents, and restricted cash—Beginning of Period
|
69,420
|
|
|
208,406
|
|
|
8,676
|
|
|
—
|
|
|
286,502
|
|
Cash, cash equivalents, and restricted cash—End of Period
|
$
|
67,629
|
|
|
$
|
254,985
|
|
|
$
|
8,377
|
|
|
$
|
—
|
|
|
$
|
330,991
|
|
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
Condensed Consolidating Statements of Cash Flows
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Issuer /
Guarantor
|
|
Subsidiary
Issuer /
Guarantor
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
(in thousands)
|
Net Cash Provided By (Used In) Operating Activities:
|
$
|
(4,084
|
)
|
|
$
|
477,310
|
|
|
$
|
2,802
|
|
|
$
|
—
|
|
|
$
|
476,028
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net payments to affiliates
|
(25,000
|
)
|
|
(220,538
|
)
|
|
—
|
|
|
245,538
|
|
|
—
|
|
Additions to property and equipment, including pre-delivery deposits
|
—
|
|
|
(95,252
|
)
|
|
(23,576
|
)
|
|
—
|
|
|
(118,828
|
)
|
Proceeds from purchase assignment and leaseback transactions
|
—
|
|
|
101,738
|
|
|
—
|
|
|
—
|
|
|
101,738
|
|
Net proceeds from disposition of equipment
|
—
|
|
|
3,598
|
|
|
71
|
|
|
—
|
|
|
3,669
|
|
Purchases of investments
|
—
|
|
|
(257,448
|
)
|
|
—
|
|
|
—
|
|
|
(257,448
|
)
|
Sales of investments
|
—
|
|
|
236,062
|
|
|
—
|
|
|
—
|
|
|
236,062
|
|
Other
|
—
|
|
|
—
|
|
|
(500
|
)
|
|
—
|
|
|
(500
|
)
|
Net cash used in investing activities
|
(25,000
|
)
|
|
(231,840
|
)
|
|
(24,005
|
)
|
|
245,538
|
|
|
(35,307
|
)
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt and capital lease obligations
|
—
|
|
|
(216,157
|
)
|
|
—
|
|
|
—
|
|
|
(216,157
|
)
|
Repurchases and conversion of convertible notes
|
(184,645
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(184,645
|
)
|
Repurchases of common stock
|
(40,138
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(40,138
|
)
|
Proceeds from settlement of convertible note call options
|
304,752
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
304,752
|
|
Payment for settlement of convertible note warrants
|
(282,631
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(282,631
|
)
|
Debt issuance costs
|
—
|
|
|
(572
|
)
|
|
—
|
|
|
—
|
|
|
(572
|
)
|
Net payments to parent company
|
220,538
|
|
|
—
|
|
|
25,000
|
|
|
(245,538
|
)
|
|
—
|
|
Other
|
1,096
|
|
|
(6,577
|
)
|
|
—
|
|
|
—
|
|
|
(5,481
|
)
|
Net cash provided by (used in) financing activities
|
18,972
|
|
|
(223,306
|
)
|
|
25,000
|
|
|
(245,538
|
)
|
|
(424,872
|
)
|
Net increase (decrease) in cash and cash equivalents
|
(10,112
|
)
|
|
22,164
|
|
|
3,797
|
|
|
—
|
|
|
15,849
|
|
Cash, cash equivalents, and restricted cash—Beginning of Period
|
79,532
|
|
|
186,242
|
|
|
4,879
|
|
|
—
|
|
|
270,653
|
|
Cash, cash equivalents, and restricted cash—End of Period
|
$
|
69,420
|
|
|
$
|
208,406
|
|
|
$
|
8,676
|
|
|
$
|
—
|
|
|
$
|
286,502
|
|
Income Taxes
The income tax expense (benefit) is presented as if each entity that is part of the consolidated group files a separate return.
Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
18. Supplemental Financial Information (unaudited)
Unaudited Quarterly Financial Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
|
(in thousands, except per share data)
|
|
2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
$
|
614,185
|
|
|
$
|
675,335
|
|
|
$
|
719,559
|
|
|
$
|
686,549
|
|
|
Operating income
|
67,294
|
|
|
142,549
|
|
|
173,751
|
|
|
100,178
|
|
|
Nonoperating income (loss)
|
(15,812
|
)
|
|
(13,191
|
)
|
|
(54,113
|
)
|
|
9,899
|
|
*
|
Net income
|
36,912
|
|
|
80,433
|
|
|
74,566
|
|
|
172,130
|
|
**
|
Net Income Per Common Stock Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.69
|
|
|
$
|
1.50
|
|
|
$
|
1.40
|
|
|
$
|
3.31
|
|
|
Diluted
|
0.68
|
|
|
1.49
|
|
|
1.39
|
|
|
3.29
|
|
|
2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
$
|
551,180
|
|
|
$
|
594,590
|
|
|
$
|
671,837
|
|
|
$
|
632,973
|
|
|
Operating income
|
96,950
|
|
|
123,952
|
|
|
178,908
|
|
|
15,922
|
|
|
Nonoperating income (loss)
|
(13,846
|
)
|
|
4,688
|
|
|
(14,749
|
)
|
|
(12,361
|
)
|
|
Net income
|
51,466
|
|
|
79,570
|
|
|
102,454
|
|
|
1,942
|
|
|
Net Income Per Common Stock Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
0.96
|
|
|
$
|
1.48
|
|
|
$
|
1.92
|
|
|
$
|
0.04
|
|
|
Diluted
|
0.95
|
|
|
1.48
|
|
|
1.91
|
|
|
0.04
|
|
|
* During the fourth quarter of 2017, the Company recorded a
$4.6 million
reduction in its OPEB settlement related to the third quarter of 2017 revising the settlement from
$15.0 million
to
$10.4 million
.
** Amount reflects the 2017 Tax Cut and Jobs Act adjustment, see Note 10 for further discussion.
The sum of the quarterly net income (loss) per common stock share amounts does not equal the annual amount reported since per share amounts are computed independently for each quarter and for the full year based on respective weighted-average common shares outstanding and other dilutive potential common shares.
The Company's quarterly financial results are subject to seasonal fluctuations. Historically its second and third quarter financial results, which reflect periods of higher travel demand, are better than its first and fourth quarter financial results.