Company Quick10K Filing
Quick10K
Hawaiian Holdings
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$26.71 48 $1,280
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-20 Shareholder Vote
8-K 2019-04-23 Earnings, Exhibits
8-K 2019-04-08 Earnings, Exhibits
8-K 2019-01-29 Earnings, Exhibits
8-K 2019-01-10 Earnings, Exhibits
8-K 2018-12-11 Regulation FD
8-K 2018-12-05 Regulation FD, Exhibits
8-K 2018-10-23 Earnings, Exhibits
8-K 2018-10-08 Earnings, Exhibits
8-K 2018-10-05 Enter Agreement
8-K 2018-09-05 Regulation FD, Exhibits
8-K 2018-07-24 Earnings, Exhibits
8-K 2018-07-18 Enter Agreement
8-K 2018-06-11 Regulation FD, Exhibits
8-K 2018-05-30 Shareholder Vote
8-K 2018-04-24 Earnings, Exhibits
8-K 2018-03-12 Earnings, Exhibits
8-K 2018-01-29 Earnings, Exhibits
8-K 2018-01-08 Earnings, Exhibits
STE Steris 10,980
ABM ABM Industries 2,530
PWOD Penns Woods Bancorp 198
BCAC Bison Capital Acquisition 88
BKEP Blueknight Energy Partners 47
WTT Wireless Telecom Group 33
VLDI Validian 0
COSM Cosmos Holdings 0
KERX Keryx Biopharmaceuticals 0
VIST Vist Financial 0
HA 2019-03-31
Part I. Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 ex311q12019.htm
EX-31.2 ex312q12019.htm
EX-32.1 ex321q12019.htm
EX-32.2 ex322q12019.htm

Hawaiian Holdings Earnings 2019-03-31

HA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ha-03312019x10q.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
 
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
 o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from       to       
 
Commission file number 1-31443
 HAWAIIAN HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
71-0879698
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification No.)
3375 Koapaka Street, Suite G-350
 
 
Honolulu, HI
 
96819
(Address of Principal Executive Offices)
 
(Zip Code)

(808) 835-3700
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
Common Stock ($0.01 par value)
 
HA
 
NASDAQ Stock Market, LLC
 
 
 
 
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act: None
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ý Yes o No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ý Yes o No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes ý No
 
As of April 19, 2019, 48,044,924 shares of the registrant’s common stock were outstanding.




Hawaiian Holdings, Inc.
Form 10-Q
Quarterly Period ended March 31, 2019
 
Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



PART I. FINANCIAL INFORMATION

ITEM 1.                   FINANCIAL STATEMENTS.
Hawaiian Holdings, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(unaudited)
Operating Revenue:
 
 

 
 

Passenger
 
$
601,304

 
$
611,600

Other
 
55,447

 
53,812

Total
 
656,751

 
665,412

Operating Expenses:
 
 

 
 

Wages and benefits
 
175,065

 
168,709

Aircraft fuel, including taxes and delivery
 
126,104

 
133,446

Maintenance, materials and repairs
 
63,045

 
58,141

Aircraft and passenger servicing
 
38,900

 
36,518

Depreciation and amortization
 
38,151

 
32,245

Aircraft rent
 
30,396

 
31,900

Commissions and other selling
 
30,836

 
31,925

Other rentals and landing fees
 
31,046

 
30,815

Purchased services
 
32,453

 
31,121

Contract terminations expense
 

 
35,322

Other
 
38,079

 
39,005

Total
 
604,075

 
629,147

Operating Income
 
52,676

 
36,265

Nonoperating Income (Expense):
 
 

 
 

Interest expense and amortization of debt discounts and issuance costs
 
(7,530
)
 
(8,555
)
Gains (losses) on fuel derivatives
 
570

 
4,617

Interest income
 
2,983

 
1,474

Capitalized interest
 
1,285

 
2,238

Other, net
 
(1,025
)
 
1,056

Total
 
(3,717
)
 
830

Income Before Income Taxes
 
48,959

 
37,095

Income tax expense
 
12,601

 
8,553

Net Income
 
$
36,358

 
$
28,542

Net Income Per Common Stock Share:
 
 

 
 

Basic
 
$
0.75

 
$
0.56

Diluted
 
$
0.75

 
$
0.56

Weighted Average Number of Common Stock Shares Outstanding:
 
 
 
 
Basic
 
48,392

 
51,055

Diluted
 
48,429

 
51,199


See accompanying Notes to Consolidated Financial Statements.

3



Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)

 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(unaudited)
Net Income
 
$
36,358

 
$
28,542

Other comprehensive income (loss), net:
 
 

 
 

Net change related to employee benefit plans, net of tax expense of $135 and $166 for 2019 and 2018, respectively
 
576

 
513

Net change in derivative instruments, net of tax expense of $374 and net of tax benefit of $2,345 for 2019 and 2018, respectively
 
1,145

 
(7,244
)
Net change in available-for-sale investments, net of tax expense of $175 and net of tax benefit of $149 for 2019 and 2018, respectively
 
540

 
(460
)
Total other comprehensive income (loss)
 
2,261

 
(7,191
)
Total Comprehensive Income
 
$
38,619

 
$
21,351


See accompanying Notes to Consolidated Financial Statements.


4



Hawaiian Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except shares)
 
 
March 31, 2019
 
December 31, 2018
 
 
(unaudited)
ASSETS
 
 

 
 

Current Assets:
 
 

 
 

Cash and cash equivalents
 
$
365,100

 
$
268,577

Short-term investments
 
166,817

 
232,241

Accounts receivable, net
 
110,658

 
111,834

Spare parts and supplies, net
 
36,461

 
33,942

Prepaid expenses and other
 
60,553

 
58,573

Total
 
739,589

 
705,167

Property and equipment, less accumulated depreciation and amortization of $678,428 and $663,461 as of March 31, 2019 and December 31, 2018, respectively
 
2,109,857

 
2,185,111

Other Assets:
 
 

 
 

Operating lease right-of-use assets
 
613,103

 

Long-term prepayments and other
 
171,013

 
185,556

Intangible assets, less accumulated amortization of $19,199 and $18,939 as of March 31, 2019 and December 31, 2018, respectively
 
13,889

 
14,149

Goodwill
 
106,663

 
106,663

Total Assets
 
$
3,754,114

 
$
3,196,646

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 

 
 

Current Liabilities:
 
 

 
 

Accounts payable
 
$
145,067

 
$
143,146

Air traffic liability and current frequent flyer deferred revenue
 
691,010

 
603,736

Other accrued liabilities
 
130,746

 
158,154

Current maturities of long-term debt and finance lease obligations
 
93,483

 
101,097

Current maturities of operating leases
 
90,481

 

Total
 
1,150,787

 
1,006,133

Long-Term Debt and Finance Lease Obligations
 
519,105

 
608,684

Other Liabilities and Deferred Credits:
 
 

 
 

Noncurrent operating leases
 
480,979

 

Accumulated pension and other post-retirement benefit obligations
 
180,232

 
182,620

Other liabilities and deferred credits
 
107,497

 
119,826

Noncurrent frequent flyer deferred revenue
 
170,149

 
163,619

Deferred tax liability, net
 
170,305

 
167,770

Total
 
1,109,162

 
633,835

Commitments and Contingencies
 


 


Shareholders’ Equity:
 
 

 
 

Special preferred stock, $0.01 par value per share, three shares issued and outstanding as of March 31, 2019 and December 31, 2018
 

 

Common stock, $0.01 par value per share, 48,202,199 and 48,540,280 shares outstanding as of March 31, 2019 and December 31, 2018, respectively
 
482

 
485

Capital in excess of par value
 
128,891

 
128,448

Accumulated income
 
936,566

 
912,201

Accumulated other comprehensive loss, net
 
(90,879
)
 
(93,140
)
Total
 
975,060

 
947,994

Total Liabilities and Shareholders’ Equity
 
$
3,754,114

 
$
3,196,646


See accompanying Notes to Consolidated Financial Statements.

5



Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
Three months ended March 31, 2019
 
Common
Stock(*)
 
Special
Preferred
Stock(**)
 
Capital In Excess of Par Value
 
Accumulated Income
 
Accumulated Other Comprehensive Income (Loss)
 
Total
 
 
(unaudited)
Balance at December 31, 2018
 
$
485

 
$

 
$
128,448

 
$
912,201

 
$
(93,140
)
 
$
947,994

Net Income
 

 

 

 
36,358

 

 
36,358

Dividends declared on common stock ($0.12 per share)
 

 

 

 
(5,811
)
 

 
(5,811
)
Other comprehensive income
 

 

 

 

 
2,261

 
2,261

Issuance of 65,517 shares of common stock, net of shares withheld for taxes
 
1

 

 
(983
)
 

 

 
(982
)
Repurchase and retirement of 403,598 shares common stock
 
(4
)
 

 

 
(11,082
)
 

 
(11,086
)
Share-based compensation expense
 

 

 
1,426

 

 

 
1,426

Cumulative effect of accounting change (ASU 2016-02), net of tax
 

 

 

 
4,900

 

 
4,900

Balance at March 31, 2019
 
$
482

 
$

 
$
128,891

 
$
936,566

 
$
(90,879
)
 
$
975,060


Three months ended March 31, 2018
 
Common
Stock(*)
 
Special
Preferred
Stock(**)
 
Capital In Excess of Par Value
 
Accumulated Income
 
Accumulated Other Comprehensive Income (Loss)
 
Total
 
 
(unaudited)
Balance at December 31, 2017
 
$
512

 
$

 
$
126,743

 
$
793,134

 
$
(75,264
)
 
$
845,125

Net Income
 

 

 

 
28,542

 

 
28,542

Dividends declared on common stock ($0.12 per share)
 

 

 

 
(6,145
)
 

 
(6,145
)
Other comprehensive loss
 

 

 

 

 
(7,191
)
 
(7,191
)
Issuance of 146,923 shares of common stock, net of shares withheld for taxes
 
1

 

 
(3,230
)
 

 

 
(3,229
)
Repurchase and retirement of 548,861 shares common stock
 
(5
)
 

 

 
(20,238
)
 

 
(20,243
)
Share-based compensation expense
 

 

 
1,355

 

 

 
1,355

Balance at March 31, 2018
 
$
508

 
$

 
$
124,868

 
$
795,293

 
$
(82,455
)
 
$
838,214

(*)    Common Stock—$0.01 par value; 118,000,000 authorized as of March 31, 2019 and December 31, 2018.
(**)    Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of March 31, 2019 and December 31, 2018.

See accompanying Notes to Consolidated Financial Statements.

6



Hawaiian Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(unaudited)
Net cash provided by Operating Activities
 
$
150,680

 
$
225,545

Cash flows from Investing Activities:
 
 

 
 

Additions to property and equipment, including pre-delivery payments
 
(74,261
)
 
(110,897
)
Proceeds from the disposition of aircraft related equipment
 
2,780

 

Purchases of investments
 
(71,454
)
 
(30,386
)
Sales of investments
 
137,286

 
53,984

Other
 
(6,275
)
 

Net cash used in investing activities
 
(11,924
)
 
(87,299
)
Cash flows from Financing Activities:
 
 

 
 

Repayments of long-term debt and finance lease obligations
 
(24,354
)
 
(20,395
)
Dividend payments
 
(5,811
)
 
(6,145
)
Repurchases of common stock
 
(11,086
)
 
(20,243
)
Other
 
(982
)
 
(3,231
)
Net cash used in financing activities
 
(42,233
)
 
(50,014
)
Net increase in cash and cash equivalents
 
96,523

 
88,232

Cash, cash equivalents, and restricted cash - Beginning of Period
 
268,577

 
191,953

Cash, cash equivalents, and restricted cash - End of Period
 
$
365,100

 
$
280,185

 
See accompanying Notes to Consolidated Financial Statements.


7



Hawaiian Holdings, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 
1. Business and 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 accompanying unaudited financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (SEC).  Accordingly, these interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, the accompanying financial statements contain all adjustments, including normal recurring adjustments, necessary for the fair presentation of the Company’s results of operations and financial position for the periods presented. Due to seasonal fluctuations, among other factors common to the airline industry, the results of operations for the periods presented are not necessarily indicative of the results of operations to be expected for the entire year.  The accompanying unaudited Consolidated Financial Statements should be read in conjunction with the financial statements and the notes of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
 
2. Significant Accounting Policies
 
Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (ASU 2016-02), which was subsequently codified within Accounting Standards Codification (ASC) 842, Leases (ASC 842). ASC 842 requires a lessee to recognize a right-of-use asset and a lease liability in the statement of financial position for all leases (with the exception of short-term leases) at the lease commencement date and recognize expenses similar to the current ASC 840, Leases. ASC 842 is effective for fiscal years, and interim periods beginning after December 15, 2018.

The Company adopted ASC 842 as of January 1, 2019 using the transition method that provides for a cumulative-effect adjustment to retained earnings upon adoption. The Company elected the package of transition provisions available for expired or existing contracts, which allows the Company to carry-forward our historical assessments of (a) whether contracts are, or contain leases, (b) lease classification, and (c) initial direct costs.

The adoption of the New Lease Standard had a significant impact on the Company's consolidated balance sheet due to the recognition of approximately $593.5 million of operating lease liabilities and right-of-use (ROU) assets for operating leases of $635.6 million. Additionally, the Company recognized a $4.9 million (net of tax of $1.6 million) cumulative effect adjustment credit to retained earnings.

The adjustment to retained earnings was driven principally by ASC 842's elimination of the previous build-to-suit lease accounting guidance under ASC 840, Leases, and resulted in the derecognition of build-to-suit assets and liabilities that remained on the balance sheet after the end of the construction period. ASC 842 then required the application of lease accounting to the agreement, which resulted in an operating lease. This resulted in the recognition of a ROU asset, inclusive of building costs incurred by the Company to place the asset into service, of $124.7 million, and a lease liability of $90.8 million.

The unaudited Consolidated Financial Statements as of and for the quarter ended March 31, 2019 are presented under the new standard, while comparative periods presented are not adjusted and continue to be reported in accordance with our historical accounting policy. See Note 9, Leases, for additional information.

In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities (ASU 2017-02), which better aligns a company's risk management activities and financial reporting for hedging relationships and is intended to simplify hedge accounting requirements. ASU 2017-12 is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company adopted this standard during the first quarter of 2019. The adoption of this standard did not have an impact on the Company's Consolidated Financial Statements.


8



3. Accumulated Other Comprehensive Income (Loss)
 
Reclassifications out of accumulated other comprehensive income (loss) by component are as follows: 
Details about accumulated other comprehensive (income) loss components
 
Three months ended March 31,
 
Affected line items in the statement where net income is presented
 
2019
 
2018
 
 
 
(in thousands)
 
 
Derivatives designated as hedging instruments under ASC 815
 
 
 
 
 
 
Foreign currency derivative losses (gains)
 
$
(1,587
)
 
$
1,221

 
Passenger revenue
Total before tax
 
(1,587
)
 
1,221

 
 
Tax expense (benefit)
 
391

 
(299
)
 
 
Total, net of tax
 
$
(1,196
)
 
$
922

 
 
Amortization of defined benefit plan items
 
 

 
 

 
 
Actuarial loss
 
$
831

 
$
624

 
Nonoperating Income (Expense), Other, net
Prior service cost
 
56

 
56

 
Nonoperating Income (Expense), Other, net
Total before tax
 
887

 
680

 
 
Tax benefit
 
(168
)
 
(167
)
 
 
Total, net of tax
 
$
719

 
$
513

 
 
Short-term investments
 
 

 
 

 
 
Realized losses (gain) on sales of investments, net
 
$
(98
)
 
$
5

 
Nonoperating Income (Expense), Other, net
Total before tax
 
(98
)
 
5

 
 
Tax expense (benefit)
 
24

 
(1
)
 
 
Total, net of tax
 
$
(74
)
 
$
4

 
 
Total reclassifications for the period
 
$
(551
)
 
$
1,439

 
 

A rollforward of the amounts included in accumulated other comprehensive income (loss), net of taxes, for the three months ended March 31, 2019 and 2018 is as follows:

Three months ended March 31, 2019
 
Foreign Currency Derivatives
 
Defined Benefit
Plan Items
 
Short-Term Investments
 
Total
 
 
(in thousands)
Beginning balance
 
$
3,317

 
$
(95,855
)
 
$
(602
)
 
$
(93,140
)
Other comprehensive income (loss) before reclassifications, net of tax
 
2,341

 
(143
)
 
614

 
2,812

Amounts reclassified from accumulated other comprehensive income (loss), net of tax
 
(1,196
)
 
719

 
(74
)
 
(551
)
Net current-period other comprehensive income
 
1,145

 
576

 
540

 
2,261

Ending balance
 
$
4,462

 
$
(95,279
)
 
$
(62
)
 
$
(90,879
)

9




Three months ended March 31, 2018
 
Foreign Currency Derivatives
 
Defined Benefit Plan Items
 
Short-Term Investments
 
Total
 
 
(in thousands)
Beginning balance
 
$
1,249

 
$
(75,953
)
 
$
(560
)
 
$
(75,264
)
Other comprehensive loss before reclassifications, net of tax
 
(8,166
)
 

 
(464
)
 
(8,630
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
 
922

 
513

 
4

 
1,439

Net current-period other comprehensive income (loss)
 
(7,244
)
 
513

 
(460
)
 
(7,191
)
Ending balance
 
$
(5,995
)
 
$
(75,440
)
 
$
(1,020
)
 
$
(82,455
)

4. 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. For the three months ended March 31, 2019 and 2018, anti-dilutive shares, which were excluded from the calculation of diluted earnings per share, were immaterial.
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(in thousands, except for per share data)
Numerator:
 
 

 
 

Net Income
 
$
36,358

 
$
28,542

Denominator:
 
 

 
 

Weighted average common stock shares outstanding - Basic
 
48,392

 
51,055

Assumed exercise of stock options and awards
 
37

 
144

Weighted average common stock shares outstanding - Diluted
 
48,429

 
51,199

Net Income Per Share
 
 

 
 

Basic
 
$
0.75

 
$
0.56

Diluted
 
$
0.75

 
$
0.56


Stock Repurchase Program

In November 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 December 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 2018. In November 2018, 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 2020. The stock repurchase program is subject to modification or termination at any time. The Company will repurchase shares of its common stock subject to prevailing market conditions and may discontinue such repurchases at any time.

The Company spent $11.1 million and $20.2 million to repurchase and retire approximately 404 thousand shares and 549 thousand shares of the Company's common stock in open market transactions during the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, the Company had $86.4 million remaining to spend under its stock repurchase program.


10



Dividends

During the three months ended March 31, 2019, the Company declared a cash dividend of $0.12 per share for stockholders of record as of February 8, 2019, which was paid on February 22, 2019, totaling $5.8 million. During the three months ended March 31, 2018, the Company declared and paid cash dividends of $0.12 per share, or $6.1 million.

5. Revenue Recognition
The majority of the Company's revenue is derived from transporting passengers on our aircraft. The Company accounts for revenue in accordance with ASC 606, which was adopted on January 1, 2018, using the full retrospective method.
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 is engaged in 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 U.S. Department of Transportation) are summarized below:
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Geographic Information
 
(in thousands)
Domestic
 
$
477,520

 
$
492,202

Pacific
 
179,231

 
173,210

Total operating revenue
 
$
656,751

 
$
665,412

Hawaiian attributes operating revenue by geographic region based on the 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.
Passenger & Other revenue - Generally, the Company’s contracts with customers have two principal performance obligations, which are the promise to provide transportation to the passenger and the frequent flyer miles earned on the flight. In addition, the Company often charges additional fees for items such as baggage and in-flight entertainment. Such items are not capable of being distinct from the transportation provided because the customer can only benefit from the services during the flight. The transportation performance obligation, including the redemption of HawaiianMiles awards for flights, is satisfied, and revenue is recognized, as transportation is provided. In some instances, tickets sold by the Company can include a flight segment on another carrier which is referred to as an interline segment. In this situation, the Company acts as an agent for the other carrier and revenue is recognized net of cost in other revenue. Tickets sold by other airlines where the Company provides the transportation are recognized as passenger revenue at the estimated value to be billed to the other airline when travel is provided. Differences between amounts billed and the actual amounts may be rejected and rebilled or written off if the amount recorded was different from the original estimate.
Other operating revenue consists of cargo revenue, ground handling fees, commissions, and fees earned under certain joint marketing agreements with other companies. These amounts are recognized when the service is provided.
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Passenger Revenue by Type
 
(in thousands)
Passenger revenue, excluding frequent flyer
 
$
567,855

 
$
577,955

Frequent flyer revenue, transportation component
 
33,449

 
33,645

Passenger Revenue
 
$
601,304

 
$
611,600

 
 
 
 
 
Other revenue (e.g., cargo and other miscellaneous)
 
$
36,231

 
$
38,690

Frequent flyer revenue, marketing and brand component
 
19,216

 
15,122

Other Revenue
 
$
55,447

 
$
53,812


11



For the three months ended March 31, 2019 and 2018, the Company's total revenue was $656.8 million and $665.4 million, respectively. As of March 31, 2019 and December 31, 2018, the Company's Air traffic liability balance as it relates to passenger tickets (excluding frequent flyer) was $514.9 million and $427.8 million, respectively, which represents future revenue that is expected to be realized over the next 12 months. During the three months ended March 31, 2019 and 2018, the amount of passenger ticket revenue recognized that was included in Air traffic liability as of the beginning of the respective period was $296.9 million and $260.3 million, respectively.
Passenger revenue associated with unused tickets, which represent unexercised passenger rights, is recognized in proportion to the pattern of rights exercised by related passengers (e.g., scheduled departure dates). To calculate the portion to be recognized as revenue in the period, the Company utilizes historical information and applies the trend rate to the current air traffic liability balances for that specific period.
Certain governmental taxes are imposed on the Company's ticket sales through a fee included in ticket prices. The Company collects these fees and remits them to the appropriate government agency. Management has elected (via a practical expedient election) to exclude from the measurement of the transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected from a customer (e.g., sales, use, value added, and certain excise taxes). These fees have been presented on a net basis in the accompanying Consolidated Statements of Operations and recorded as a liability until remitted.
Frequent Flyer Revenue - Hawaiian's frequent flyer travel award program provides a variety of awards to program members based on accumulated mileage. ASC 606 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. Ticket consideration received is allocated between the performance obligations, primarily travel and miles earned by passengers. The allocated value of the miles is deferred until the free travel or other award is used by the passenger, at which time it is included in passenger revenue. The value of the ticket used in the determination of the estimated selling price is based on the historical value of equivalent flights to those provided for loyalty awards and the related miles redeemed to obtain that award adjusted for breakage or fulfillment. The equivalent ticket value (ETV) includes a fulfillment discount (breakage) to reflect the value of the award ticket over the number of miles that, based on historical experience, will be needed to obtain the award. On a quarterly basis, the Company calculates the ETV by analyzing the fares of similar tickets for the prior 12 months, considering cabin class and geographic region.
The Company also sells mileage credits to companies participating in our frequent flyer program. These contracts generally include multiple performance obligations, including the transportation that will ultimately be provided when the mileage credits are redeemed and marketing and brand related activities. The marketing and brand performance obligations are effectively provided each time a HawaiianMiles member uses the co-branded credit card and monthly access to customer lists and marketing is provided, which corresponds to the timing of when the Company issues or is obligated to issue the mileage credits to the HawaiianMiles member. Therefore, the Company recognizes revenue for the marketing and brand performance obligations when HawaiianMiles members use their co-brand credit card and the resulting mileage credits are issued to them, which best correlates with the Company’s performance in satisfying the obligation.

During the first quarter of 2018, the Company amended its partnership with Barclaycard US, Hawaiian's co-branded credit card partner. Management determined that the amendment should be accounted for as a termination of the existing contract and the creation of a new contract under ASC 606 and the relative selling price was determined for each performance obligation of the new agreement. The new agreement continues through 2024 and includes improved economics and enhanced product offerings for our Barclay's co-branded cardholders. The amended agreement did not change any terms of the original agreement, and includes the following performance obligations: (i) transportation that will ultimately be provided when mileage credits are redeemed (transportation); (ii) the Hawaiian Airlines brand and access to its members lists (collectively, brand performance); (iii) marketing; and (iv) airline benefits to cardholders, including discounts and anniversary travel benefits, baggage waivers and inflight purchase credits. The Company determined the relative fair value of each performance obligation 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 performance obligations based on their relative selling prices.

The transportation performance obligation is deferred and recognized as passenger revenue when the transportation is expected to be provided.


12



Accounting for mileage sales to co-branded partners involves the use of various techniques to estimate revenue. To determine the total estimated transaction price, the Company forecasts future credit card activity using historical information. The relative selling price is determined using management’s standalone estimated selling price of each performance obligation. The objective of using the 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. Accordingly, the Company determines the best estimate of selling price by considering multiple inputs and methods including, but not limited to, discounted cash flows, brand value, published selling prices, number of miles awarded and number of miles redeemed. The Company estimates the selling price of miles using an ETV adjusted for a fulfillment discount as described above.

Miles expire after 18 months of member account inactivity. The Company reviews its breakage estimates annually based upon the latest available information regarding redemption and expiration patterns (e.g., credit card and non-credit card holders). The Company’s estimate of the expected expiration of miles requires significant management judgment. Current and future changes to expiration assumptions or to the expiration policy, or to program rules and program could affect the estimated value of a mile.

The Company's frequent flyer liability is recorded in Air traffic liability and current frequent flyer deferred revenue and Noncurrent frequent flyer deferred revenue in the Company's consolidated balance sheet based on estimated and expected redemption patterns using historical data and analysis. As of March 31, 2019 and December 31, 2018, the Company's contract liability balance was $339.7 million and $332.2 million, respectively.

Accounts Receivable - Accounts receivable primarily consist of amounts due from credit card companies, non-airline partners, and cargo transportation customers. The Company provides an allowance for uncollectible accounts equal to the estimated losses expected to be incurred based on historical chargebacks, write-offs, bankruptcies and other specific analyses. Bad debt expense was not material in any period presented.
Costs to obtain or fulfill a contract - In order for the Company to provide transportation to our customers we incur fulfillment costs which are generally: booking fees, credit card fees, and commission/selling costs. As of March 31, 2019 and December 31, 2018, the Company's asset balance associated with these costs were $19.2 million and $16.3 million, respectively. During the three months ended March 31, 2019 and 2018, expenses related to these costs totaled to $22.5 million and $23.9 million, respectively. To determine the amount to capitalize and expense at the end of each period, the Company uses historical sales data and estimates the amount associated with unflown tickets.

6. Short-Term Investments
 
Debt securities that are not classified as cash equivalents are classified as available-for-sale investments and are stated as current assets at fair value as these securities are available for use in current operations. Realized gains and losses on sales of investments are reflected in nonoperating income (expense) in the Company's unaudited Consolidated Statements of Operations. Unrealized gains and losses on available for sale securities are reflected as a component of Accumulated other comprehensive loss, net.

The following is a summary of short-term investments held as of March 31, 2019 and December 31, 2018:
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
March 31, 2019
 
(in thousands)
Corporate debt
 
$
101,348

 
$
231

 
$
(238
)
 
$
101,341

U.S. government and agency debt
 
16,043

 

 
(17
)
 
16,026

Municipal bonds
 
9,073

 
1

 
(9
)
 
9,065

Certificates of Deposit
 
23,213

 

 

 
23,213

Other fixed income securities
 
17,181

 

 
(9
)
 
17,172

Total short-term investments
 
$
166,858

 
$
232

 
$
(273
)
 
$
166,817

 

13



 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
December 31, 2018
 
(in thousands)
Corporate debt
 
$
142,748

 
$
49

 
$
(695
)
 
$
142,102

U.S. government and agency debt
 
37,163

 
3

 
(59
)
 
37,107

Municipal bonds
 
9,903

 

 
(32
)
 
9,871

Other fixed income securities
 
43,183

 
2

 
(24
)
 
43,161

Total short-term investments
 
$
232,997

 
$
54

 
$
(810
)
 
$
232,241


Contractual maturities of short-term investments as of March 31, 2019 are shown below. 
 
 
Under 1 Year
 
1 to 5 Years
 
Total
 
 
(in thousands)
Corporate debt
 
$
38,940

 
$
62,401

 
$
101,341

U.S. government and agency debt
 
16,026

 

 
16,026

Municipal bonds
 
7,235

 
1,830

 
9,065

Certificates of Deposit
 
22,210

 
1,003

 
23,213

Other fixed income securities
 
15,672

 
1,500

 
17,172

Total short-term investments
 
$
100,083

 
$
66,734

 
$
166,817


 
7.  Fair Value Measurements
 
ASC Topic 820, Fair Value Measurement (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 for which there is little or no market data and that are significant to the fair value of the assets or liabilities.

The tables below present the Company’s financial assets and liabilities measured at fair value on a recurring basis:
 
 
Fair Value Measurements as of March 31, 2019
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
(in thousands)
Cash equivalents
 
$
152,947

 
$
122,825

 
$
30,122

 
$

Short-term investments
 
166,817

 

 
166,817

 

Fuel derivative contracts
 
5,084

 

 
5,084

 

Foreign currency derivatives
 
5,022

 

 
5,022

 

Total assets measured at fair value
 
$
329,870

 
$
122,825

 
$
207,045

 
$

Foreign currency derivatives
 
228

 

 
228

 

Total liabilities measured at fair value
 
$
228

 
$

 
$
228

 
$

 

14



 
 
Fair Value Measurements as of December 31, 2018
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
(in thousands)
Cash equivalents
 
$
121,154

 
$
42,175

 
$
78,979

 
$

Short-term investments
 
232,241

 

 
232,241

 

Fuel derivative contracts
 
1,572

 

 
1,572

 

Foreign currency derivatives
 
4,579

 

 
4,579

 

Total assets measured at fair value
 
$
359,546

 
$
42,175

 
$
317,371

 
$

Foreign currency derivatives
 
1,347

 

 
1,347

 

Total liabilities measured at fair value
 
$
1,347

 
$

 
$
1,347

 
$


Cash equivalents.  The Company's Level 1 cash equivalents consist of money market securities and certificates of deposit. The carrying amounts approximate fair value because of the short-term maturity of these assets. The Company's Level 2 cash equivalents consist of U.S. agency bonds, mutual funds, and commercial paper. These instruments are valued using quoted prices for similar assets in active markets.

Short-term investments.  Short-term investments shown in the table above are classified as available-for-sale. 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 crude oil call options, which are not traded on a public exchange. The fair value of these instruments is determined based on inputs available or derived from public markets including contractual terms, market prices, yield 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 primarily based upon data readily observable in public markets.

The table below presents the Company’s debt (excluding obligations under finance leases and financing obligations) measured at fair value: 
Fair Value of Debt
March 31, 2019
 
December 31, 2018
Carrying
 
Fair Value
 
Carrying
 
Fair Value
Amount
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Amount
 
Total
 
Level 1
 
Level 2
 
Level 3
(in thousands)
$
448,399

 
$
448,960

 
$

 
$

 
$
448,960

 
$
467,760

 
$
461,805

 
$

 
$

 
$
461,805

 
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 instruments.
 
The carrying amounts of cash, other receivables, and accounts payable approximate fair value due to the short-term nature of these financial instruments.
 
8.  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 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. During the three months ended March 31, 2019, the Company primarily used crude oil call options and jet fuel swaps to hedge its aircraft fuel expense. These derivative instruments 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.


15



The following table reflects the amount of realized and unrealized gains and losses recorded as nonoperating income (expense) in the Company's unaudited Consolidated Statements of Operations.
 
 
Three months ended March 31,
Fuel derivative contracts
 
2019
 
2018
 
 
(in thousands)
Gains (losses) realized at settlement
 
$
(2,844
)
 
$
5,661

Reversal of prior period unrealized amounts
 
8,181

 
(11,792
)
Unrealized gains (losses) that will settle in future periods
 
(4,767
)
 
10,748

Gains (losses) on fuel derivatives recorded as nonoperating income (expense)
 
$
570

 
$
4,617


Foreign Currency Exchange Rate Risk Management
 
The Company is subject to foreign currency exchange rate risk due to revenues and expenses that are 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 of designated cash flow hedges is reported as a component of accumulated other comprehensive income (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). Foreign currency forward contracts that are not designated as cash flow hedges are recorded at fair value, and any changes in fair value are recognized as other nonoperating income (expense) in the period of change.
 
The Company believes that its foreign currency forward contracts that are designated as cash flow hedges 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 $4.8 million into earnings over the next 12 months from AOCI based on the values at March 31, 2019.
 
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 Company's unaudited Consolidated Balance Sheets.

Derivative position as of March 31, 2019 
 
 
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
 
15,964,300 Japanese Yen
46,360 Australian Dollars
 
March 2020
 
4,133

 
(180
)
 
3,953

 
 
Long-term prepayments and other
 
4,457,800 Japanese Yen
7,571 Australian Dollars
 
March 2021
 
809

 
(31
)
 
778

Derivatives not designated as hedges
 
 
 
 
 
 
 
 

 
 

 
 
Foreign currency derivatives
 
Prepaid expenses and other
 
841,550 Japanese Yen
2,304 Australian Dollars
 
June 2019
 
80

 
(17
)
 
63

Fuel derivative contracts
 
Prepaid expenses and other
 
95,760 gallons
 
March 2020
 
5,084

 

 
5,084

 

16



Derivative position as of December 31, 2018
 
 
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
 
15,933,550 Japanese Yen
48,709 Australian Dollars
 
December 2019
 
3,922

 
(915
)
 
3,007

 
 
Long-term prepayments and other
 
4,491,350 Japanese Yen
9,419 Australian Dollars
 
December 2020
 
633

 
(292
)
 
341

Derivatives not designated as hedges
 
 
 
 
 
 
 
 

 
 

 
 
Foreign currency derivatives
 
Other accrued liabilities
 
832,900 Japanese Yen
2,785 Australian Dollars
 
March 2019
 
24

 
(140
)
 
(116
)
Fuel derivative contracts
 
Prepaid expenses and other
 
95,256 gallons
 
December 2019
 
1,572

 

 
1,572

 
The following table reflects the impact of cash flow hedges designated for hedge accounting treatment and their location within the Company's unaudited Consolidated Statements of Comprehensive Income. 
 
 
(Gain) loss recognized in AOCI on derivatives (effective portion)
 
(Gain) loss reclassified from AOCI
into income (effective portion)
 
(Gain) loss recognized in
nonoperating (income) expense
(ineffective portion)
 
 
Three months ended March 31,
 
Three months ended March 31,
 
Three months ended March 31,
 
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
 
(in thousands)
Foreign currency derivatives
 
$
(3,106
)
 
$
10,809

 
$
(1,587
)
 
$
1,221

 
$

 
$


Risk and Collateral
 
Financial derivative instruments expose the Company to possible credit loss in the event the counterparties 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) regularly 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 by the counterparties based on the current market exposure of the derivative.

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 counterparties as of March 31, 2019 and December 31, 2018.

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.

9.  Leases
As discussed in Note 2, the Company adopted ASC 842 as of January 1, 2019, using the modified retrospective approach. Prior year financial statements were not recast under the new standard and, therefore, those amounts are not presented below.
The Company leases aircraft, engines, airport terminal facilities, maintenance hangars, commercial real estate, and other property and equipment, among other items. The Company combines lease and nonlease components in calculating the ROU asset and lease liabilities for the aforementioned asset groups. Certain leases include escalation clauses, renewal options, and/or termination options. When lease renewals or termination options are considered to be reasonably certain, such periods are included in the lease term and fixed payments are included in the calculation of the lease liability and ROU asset.

17



When available, the Company utilizes the rate implicit in the lease to discount lease payments to present value; however, the majority of the Company's leases do not provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate to discount the lease payments based on information available at lease commencement. The Company gives consideration to its recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.
Aircraft and Engines
As of March 31, 2019, the Company leased 19 aircraft, of which 5 are under finance leases and 14 are under operating leases. These leases have remaining lease terms with terms ranging from approximately 1 year to 11 years. The Company also had 5 engines under operating leases with remaining lease terms ranging from less than 1 year to 8 years. Aircraft and engine finance leases continue to be reported on our consolidated balance sheet, while operating leases were added to the balance sheet with the adoption of the new standard.
Airport Terminal Facilities
The Company's facility leases are primarily for space at airports that it serves, most notably, its operations in the State of Hawai'i. These leases are classified as operating leases and reflect the Company's use of airport terminals, office space, cargo and maintenance facilities. The Company leases space from government agencies that control the use of the airport. The remaining lease terms vary from 1 month to 33 years. At the majority of U.S. airports, the lease rates depend on airport operating costs or the use of the facilities and are reset at least annually. Because of the variable nature of the rates, these leases are not recorded on our balance sheet as a ROU asset and lease liability.
Other Commercial Real Estate
The Company leases non-airport facility office space supporting its operations, including its headquarters in Honolulu, Hawaii. These leases are classified as operating and have remaining lease terms ranging between 1 to 8 years.
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 remaining lease term of 33 years. As the hangar was not fully constructed, the Company took responsibility of the construction and was responsible for the remainder of the construction costs of $37.3 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 previously recognized an additional $73.0 million asset, with a corresponding finance liability, for the amount previously spent by the lessor.

As discussed in Note 2, ASC 842 eliminated the previous build-to-suit lease accounting guidance and resulted in the derecognition of build-to-suit assets and liabilities that remained on the balance sheet after the end of the construction period. ASC 842 then required the application of lease accounting to the agreement. The agreement is accounted for as an operating lease under ASC 842.

Other Property and Equipment
The Company leases certain IT assets (including data center access, equipment, etc.) and various other non-aircraft equipment. The remaining lease terms range from 1 to 3 years. Certain lease IT assets are embedded within service agreements. The combined lease and nonlease components of those agreements are included in the ROU asset and lease liability.

18



Lease Position as of March 31, 2019
The table below presents the lease-related assets and liabilities recorded on the consolidated balance sheet.
 
 
 
 
Three Months Ended March 31,
 
 
Classification on the Balance Sheet
 
2019
 
 
 
 
(in thousands)
Assets:
 
 
 
 
Operating lease assets
 
Operating lease right-of use assets
 
$
613,103

Finance lease assets
 
Property and equipment, net
 
164,558

Total lease assets
 
 
 
$
777,661

 
 
 
 
 
Liabilities:
 
 
 
 
Current
 
 
 
 
Operating
 
Current maturities of operating leases
 
$
90,481

Finance
 
Current maturities of long-term debt and finance lease obligations
 
21,702

Noncurrent
 
 
 
 
Operating
 
Noncurrent operating leases
 
480,979

Finance
 
Long-Term Debt and Finance Lease Obligations
 
152,403

Total lease liabilities
 
 
 
$
745,565

 
 
 
 
 
Weighted-average remaining lease term
 
 
 
 
Operating leases
 
 
 
11.1 years

Finance leases
 
 
 
9.1 years

Weighted-average discount rate
 
 
 
 
Operating leases (1)
 
 
 
4.97
%
Finance leases
 
 
 
4.74
%
(1) Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.
Lease Costs
During the three months ended March 31, 2019, the total lease costs for finance and operating leases were as follows:
 
 
Three Months Ended March 31,
 
 
2019
 
 
(in thousands)
Finance lease cost:
 
 
Amortization of right-of-use assets
 
$
6,098

Interest of lease liabilities
 
2,092

Operating lease cost (1)
 
29,468

Short-term lease cost (1)
 
1,988

Variable lease cost (1)
 
29,986

Total lease cost
 
$
69,632

(1) Expenses are classified within aircraft rent and other rentals and landing fees in the consolidated statements of operations.

19



During the three months ended March 31, 2019, the cash paid for amounts included in the measurement of lease liabilities were as follows:
 
 
Three Months Ended March 31,
 
 
2019
 
 
(in thousands)
Operating cash flows from operating leases
 
28,958

Operating cash flows from finance leases
 
2,092

Financing cash flows from finance lease
 
5,622

Undiscounted Cash Flows
As of March 31, 2019, the scheduled future minimum rental payments under operating and finance leases with non-cancellable basic terms of more than one year were as follows:
 
Finance Leases
 
Operating Leases
 
Aircraft
 
Other
 
Aircraft
 
Other
 
(in thousands)
Remaining in 2019
$
18,638

 
$
3,665

 
$
80,789

 
$
6,133

2020
24,850

 
3,255

 
90,391

 
8,217

2021
24,850

 
1,798

 
74,713

 
8,424

2022
24,415

 
1,779

 
68,133

 
8,822

2023
21,370

 
5,019

 
60,022

 
9,029

Thereafter
75,891

 
7,083

 
156,680

 
194,209

Total minimum lease payments
190,014

 
22,599

 
530,728

 
234,834

Less: amounts representing interest
(33,224
)
 
(5,284
)
 
(77,600
)
 
(116,502
)
Present value of future minimum lease payments
$
156,790

 
$
17,315

 
$
453,128

 
$
118,332

Less: current maturities of lease obligations
(17,817
)
 
(3,885
)
 
(87,908
)
 
(2,573
)
Long-term lease obligations
$
138,973

 
$
13,430

 
$
365,220

 
$
115,759

10. Employee Benefit Plans
 
The components of net periodic benefit cost for the Company’s defined benefit and other post-retirement plans included the following: 
 
 
Three months ended March 31,
Components of Net Period Benefit Cost
 
2019
 
2018
 
 
(in thousands)
Service cost
 
$
2,096

 
$
1,962

Other cost:
 
 
 
 
Interest cost
 
5,608

 
5,009

Expected return on plan assets
 
(5,483
)
 
(5,588
)
Recognized net actuarial loss
 
887

 
680

Total other components of the net periodic benefit cost
 
1,012

 
101

Net periodic benefit cost
 
$
3,108

 
$
2,063

 
Total other components of the net periodic benefit cost are recorded within the nonoperating income (expense), other, net line item in the consolidated statements of operations.

During the three months ended March 31, 2019 and 2018, the Company was not required to, and did not to make contributions to its defined benefit and other post-retirement plans.


20




11. Commitments and Contingent Liabilities
 
Commitments

As of March 31, 2019, the Company had the following capital commitments consisting of firm aircraft and engine orders and purchase rights for additional aircraft and engines:
Aircraft Type
 
Firm Orders
 
Purchase Rights
 
Expected Delivery Dates
A321neo aircraft
 
6

 
3

 
Between 2019 and 2020
B787-9 aircraft
 
10

 
10

 
Between 2021 and 2025
 
 
 
 
 
 
 
Pratt & Whitney spare engines:
 
 

 
 

 
 
A321neo spare engines
 
1

 
2

 
In 2019
General Electric GEnx spare engines:
 
 

 
 

 
 
B787-9 spare engines
 
2

 
2

 
Between 2021 and 2025

In February 2018, the Company exercised its right to terminate its aircraft purchase agreement between the Company and Airbus for six Airbus A330-800neo aircraft and the purchase rights for an additional six Airbus A330-800neo aircraft. Refer to Note 12 below for discussion on the contract termination charge.

In July 2018, the Company entered into a purchase agreement for the purchase of 10 Boeing 787-9 "Dreamliner" aircraft with purchase rights for an additional 10 aircraft with scheduled delivery from 2021 to 2025. In October 2018, the Company entered into a definitive agreement for the selection of GEnx engines to power its Boeing 787-9 fleet. The agreement provides for the purchase of 20 GEnx engines, the right to purchase an additional 20 GEnx engines, and the purchase of up to four spare engines. The committed expenditures under these agreements are reflected in the table below. In December 2018, the Company entered into an amendment to the purchase agreement with Boeing, which includes an option for the Company to accelerate delivery of Boeing 787-9 aircraft from 2024 and 2025 to 2023; however, the Company does not currently expect to execute the option to accelerate its planned delivery schedule. The Company also intends to enter into additional related agreements in connection with the Boeing 787-9 purchases, including for the purchase of a flight simulator, spare parts and materials, and related services.

Committed capital and operating expenditures include escalation amounts based on estimates. Capital expenditures represent aircraft and aircraft related equipment commitments, and operating expenditures represent all other non-aircraft commitments the Company has entered into. The gross committed expenditures and committed payments for those deliveries as of March 31, 2019 are detailed below: 
 
 
Aircraft and aircraft related
 
Other
 
Total Committed
Expenditures
 
 
(in thousands)
Remaining in 2019
 
$
277,660

 
$
55,886

 
$
333,546

2020
 
161,854

 
69,729

 
231,583

2021
 
313,668

 
66,104

 
379,772

2022
 
435,406

 
58,499

 
493,905

2023
 
245,465

 
53,357

 
298,822

Thereafter
 
477,144

 
164,846

 
641,990

 
 
$
1,911,197

 
$
468,421

 
$
2,379,618

 
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.


21



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 such contracts. 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 such parties' gross negligence or willful misconduct. Additionally, the lessee typically indemnifies such parties for any environmental liability that arises out of or relates to the lessee's use of the real estate leased premises. The Company believes that it is insured (subject to deductibles) for most of the tort liabilities and related indemnities described above with respect to the aircraft and real estate that it leases. The Company cannot reasonably 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 are included in restricted cash in the Company’s unaudited Consolidated Balance Sheets. As of March 31, 2019 and December 31, 2018, there were no holdbacks held with the Company's credit card processors.
 
In the event of a material adverse change in the Company's business, the holdback could increase to an amount up to 100% of the outstanding credit card amounts that is unflown (e.g., air traffic liability, excluding frequent flyer deferred revenue), which would also cause an increase in the level of restricted cash. If the Company is unable to obtain a waiver of, or otherwise mitigate the increase in the restriction of cash, it could have a material adverse impact on the Company's operations, business or financial condition.

12. Contract Terminations Expense

Contract terminations expense

For the three months ended March 31, 2018, the Company terminated two contracts which incurred a total of $35.3 million in contract terminations expense. The transactions are described below:

In February 2018, the Company exercised its right to terminate the aircraft purchase agreement between the Company and Airbus for six Airbus A330-800neo aircraft and the purchase rights for an additional six Airbus A330-800neo aircraft. To terminate the purchase agreement, the Company was obligated to repay Airbus for concessions received relating to a prior firm order, training credits, as well as forfeit the pre-delivery progress payments made towards the flight equipment. The Company recorded a contract terminations expense to reflect a portion of the termination penalty within the Consolidated Statements of Operations.

In January 2018, the Company entered into a transaction with its lessor to early terminate and purchase three Boeing 767-300 aircraft leases and concurrently entered into a forward sale agreement for the same three Boeing 767-300 aircraft, including two Pratt & Whitney 4060 engines for each aircraft. These aircraft were previously accounted for as operating leases. In order to exit the lease and purchase the aircraft, the Company agreed to pay a total of $67.1 million (net of all deposits) of which a portion was expensed immediately and recognized as a contract termination fee. The expensed amount represents the total purchase price amount over fair value of the aircraft purchased as of the date of the transaction.

13. 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 13 as Subsidiary Issuer / Guarantor) of pass-through certificates, the Company (which is also referred to in this Note 13 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 issued by Hawaiian to purchase new aircraft.

The Company's condensed consolidating financial statements are presented in the following tables:


22



Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Three months ended March 31, 2019
 
 
Parent Issuer /
Guarantor
 
Subsidiary
Issuer /
Guarantor
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
Operating Revenue
 
$

 
$
656,090

 
$
792

 
$
(131
)
 
$
656,751

Operating Expenses:
 
 

 
 

 
 

 
 

 
 

Wages and benefits
 

 
175,065

 

 

 
175,065

Aircraft fuel, including taxes and delivery
 

 
126,104

 

 

 
126,104

Maintenance, materials and repairs
 

 
61,802

 
1,243

 

 
63,045

Aircraft and passenger servicing
 

 
38,900

 

 

 
38,900

Commissions and other selling
 

 
30,865

 
18

 
(47
)
 
30,836

Aircraft rent
 

 
30,367

 
29

 

 
30,396

Other rentals and landing fees
 

 
31,019

 
27

 

 
31,046

Depreciation and amortization
 

 
36,492

 
1,659

 

 
38,151

Purchased services
 
54

 
32,193

 
222

 
(16
)
 
32,453

Other
 
1,842

 
35,856

 
449

 
(68
)
 
38,079

Total
 
1,896

 
598,663

 
3,647

 
(131
)
 
604,075

Operating Income (Loss)
 
(1,896
)
 
57,427

 
(2,855
)
 

 
52,676

Nonoperating Income (Expense):
 
 

 
 

 
 

 
 

 
 

Undistributed net income of subsidiaries
 
37,849

 

 

 
(37,849
)
 

Interest expense and amortization of debt discounts and issuance costs
 

 
(7,514
)
 
(16
)
 

 
(7,530
)
Interest income
 
8

 
2,975

 

 

 
2,983

Capitalized interest
 

 
1,285

 

 

 
1,285

Gains on fuel derivatives
 

 
570

 

 

 
570

Other, net
 

 
(1,069
)
 
44

 

 
(1,025
)
Total
 
37,857

 
(3,753
)
 
28

 
(37,849
)
 
(3,717
)
Income (Loss) Before Income Taxes
 
35,961

 
53,674

 
(2,827
)
 
(37,849
)
 
48,959

Income tax expense (benefit)
 
(397
)
 
13,591

 
(593
)
 

 
12,601

Net Income (Loss)
 
$
36,358

 
$
40,083

 
$
(2,234
)
 
$
(37,849
)
 
$
36,358

Comprehensive Income (Loss)
 
$
38,619