HA-06.30.2015-10Q


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 June 30, 2015
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)
  
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
 
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See the definitions of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
 
Accelerated filer x
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 

 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 July 24, 2015, 54,866,511 shares of the registrant’s common stock were outstanding.




Hawaiian Holdings, Inc.
Form 10-Q
Quarterly Period ended June 30, 2015
 
Table of Contents
 
Part I.
Financial Information
3
 
 
 
Item 1.
Consolidated Financial Statements of Hawaiian Holdings, Inc. (Unaudited)
3
 
 
 
 
Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014
3
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2015 and 2014
4
 
 
 
 
Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014
5
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014
6
 
 
 
 
Notes to Consolidated Financial Statements
7
 
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
29
 
 
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
38
 
 
 
Item 4.
Controls and Procedures
39
 
 
 
Part II.
Other Information
41
 
 
 
Item 1.
Legal Proceedings
41
 
 
 
Item 1A.
Risk Factors
41
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
41
 
 
 
Item 3.
Defaults Upon Senior Securities
41
 
 
 
Item 4.
Mine Safety Disclosures
41
 
 
 
Item 5.
Other Information
41
 
 
 
Item 6.
Exhibits
42
 
 
 
 
Signatures
43

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 June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(unaudited)
Operating Revenue:
 
 

 
 

 
 
 
 
Passenger
 
$
499,387

 
$
506,797

 
$
968,532

 
$
974,810

Other
 
71,908

 
68,923

 
143,043

 
125,768

Total
 
571,295

 
575,720

 
1,111,575

 
1,100,578

Operating Expenses:
 
 

 
 

 
 
 
 
Aircraft fuel, including taxes and delivery
 
112,519

 
174,139

 
223,846

 
345,278

Wages and benefits
 
123,977

 
112,478

 
243,991

 
219,972

Aircraft rent
 
28,817

 
26,095

 
57,188

 
52,374

Maintenance materials and repairs
 
57,071

 
58,399

 
112,316

 
116,709

Aircraft and passenger servicing
 
29,348

 
30,860

 
57,664

 
61,081

Commissions and other selling
 
30,484

 
30,773

 
60,912

 
62,108

Depreciation and amortization
 
27,537

 
23,765

 
52,716

 
46,576

Other rentals and landing fees
 
23,248

 
21,656

 
46,079

 
42,218

Other
 
46,878

 
45,961

 
94,283

 
92,631

Total
 
479,879

 
524,126

 
948,995

 
1,038,947

Operating Income
 
91,416

 
51,594

 
162,580

 
61,631

Nonoperating Income (Expense):
 
 

 
 

 
 
 
 
Interest expense and amortization of debt discounts and issuance costs
 
(13,718
)
 
(15,997
)
 
(29,236
)
 
(31,007
)
Interest income
 
725

 
398

 
1,361

 
617

Capitalized interest
 
975

 
1,974

 
2,268

 
4,750

Gains (losses) on fuel derivatives
 
2,026

 
6,285

 
(3,661
)
 
(614
)
Loss on extinguishment of debt
 
(287
)
 

 
(7,242
)
 

Other, net
 
(1,876
)
 
725

 
(4,810
)
 
1,310

Total
 
(12,155
)
 
(6,615
)
 
(41,320
)
 
(24,944
)
Income Before Income Taxes
 
79,261

 
44,979

 
121,260

 
36,687

Income tax expense
 
30,427

 
17,652

 
46,543

 
14,435

Net Income
 
$
48,834

 
$
27,327

 
$
74,717

 
$
22,252

Net Income Per Share
 
 

 
 

 
0

 
 
Basic
 
$
0.89

 
$
0.51

 
$
1.37

 
$
0.42

Diluted
 
$
0.79

 
$
0.43

 
$
1.18

 
$
0.39

 
See accompanying Notes to Consolidated Financial Statements.


3



Hawaiian Holdings, Inc.
Consolidated Statements of Comprehensive Income
(in thousands)
 
 
 
Three Months Ended June 30,
 
 
2015
 
2014
 
 
(unaudited)
Net Income
 
$
48,834

 
$
27,327

Other comprehensive income (loss), net:
 
 

 
 

Net change related to employee benefit plans, net of tax expense of $1,037 and $85 for 2015 and 2014, respectively
 
1,699

 
140

Net change in derivative instruments, net of tax benefit of $898 and $2,049 for 2015 and 2014, respectively
 
(1,475
)
 
(3,372
)
Net change in available-for-sale investments, net of tax benefit of $75 and tax expense of $21 for 2015 and 2014, respectively
 
(124
)
 
56

Total other comprehensive income (loss)
 
100

 
(3,176
)
Total Comprehensive Income
 
$
48,934

 
$
24,151


 
 
Six Months Ended June 30,
 
 
2015
 
2014
 
 
(unaudited)
Net Income
 
$
74,717

 
$
22,252

Other comprehensive income (loss), net:
 
 
 
 

Net change related to employee benefit plans, net of tax expense of $2,046 and $209 for 2015 and 2014, respectively
 
3,357

 
345

Net change in derivative instruments, net of tax benefit of $1,386 and $5,352 for 2015 and 2014, respectively
 
(2,277
)
 
(8,807
)
Net change in available-for-sale investments, net of tax expense of $110 and $21 for 2015 and 2014, respectively
 
180

 
35

Total other comprehensive income (loss)
 
1,260

 
(8,427
)
Total Comprehensive Income
 
$
75,977

 
$
13,825


 
See accompanying Notes to Consolidated Financial Statements.


4



Hawaiian Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except shares)
 
 
 
June 30, 2015
 
December 31, 2014
 
 
(unaudited)
 
 
ASSETS
 
 

 
 

Current Assets:
 
 

 
 

Cash and cash equivalents
 
$
344,782

 
$
264,087

Restricted cash
 
5,000

 
6,566

Short-term investments
 
261,281

 
260,121

Accounts receivable, net
 
83,871

 
80,737

Spare parts and supplies, net
 
20,399

 
18,011

Deferred tax assets, net
 
22,657

 
21,943

Prepaid expenses and other
 
48,051

 
53,382

Total
 
786,041

 
704,847

Property and equipment, less accumulated depreciation and amortization of $392,992 and $367,507 as of June 30, 2015 and December 31, 2014, respectively
 
1,607,933

 
1,673,493

Other Assets:
 
 

 
 

Long-term prepayments and other
 
95,299

 
96,225

Intangible assets, less accumulated amortization of $35,754 and $34,434 as of June 30, 2015 and December 31, 2014, respectively
 
19,980

 
21,300

Goodwill
 
106,663

 
106,663

Total Assets
 
$
2,615,916

 
$
2,602,528

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 

 
 

Current Liabilities:
 
 

 
 

Accounts payable
 
$
103,618

 
$
97,260

Air traffic liability
 
544,947

 
424,336

Other accrued liabilities
 
122,629

 
141,919

Current maturities of long-term debt, less discount, and capital lease obligations
 
98,394

 
156,349

Total
 
869,588

 
819,864

Long-Term Debt and Capital Lease Obligations
 
848,217

 
893,288

Other Liabilities and Deferred Credits:
 
 

 
 

Accumulated pension and other postretirement benefit obligations
 
406,804

 
407,864

Other liabilities and deferred credits
 
81,372

 
72,650

Deferred tax liability, net
 
81,241

 
41,629

Total
 
569,417

 
522,143

Commitments and Contingencies
 


 


Shareholders’ Equity:
 
 

 
 

Special preferred stock, $0.01 par value per share, three shares issued and outstanding as of June 30, 2015 and December 31, 2014
 

 

Common stock, $0.01 par value per share, 54,866,511 and 54,455,568 shares outstanding as of June 30, 2015 and December 31, 2014, respectively
 
548

 
545

Capital in excess of par value
 
154,534

 
251,432

Treasury stock, at cost
 
(17,621
)
 

Accumulated income
 
312,785

 
238,068

Accumulated other comprehensive loss, net
 
(121,552
)
 
(122,812
)
Total
 
328,694

 
367,233

Total Liabilities and Shareholders’ Equity
 
$
2,615,916

 
$
2,602,528

 
See accompanying Notes to Consolidated Financial Statements.

5



Hawaiian Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
 
 
 
Six Months Ended June 30,
 
 
2015
 
2014
 
 
(unaudited)
Net cash provided by Operating Activities
 
$
297,520

 
$
203,969

Cash flows from Investing Activities:
 
 

 
 

Additions to property and equipment, including pre-delivery payments
 
(72,902
)
 
(331,766
)
Proceeds from purchase assignment and leaseback transactions
 
86,033

 

Proceeds from disposition of equipment
 
3,513

 
350

Purchases of investments
 
(115,218
)
 
(234,143
)
Sales of investments
 
112,886

 
30,859

Net cash provided by (used in) investing activities
 
14,312

 
(534,700
)
Cash flows from Financing Activities:
 
 

 
 

Long-term borrowings
 

 
293,430

Repayments of long-term debt and capital lease obligations
 
(43,460
)
 
(30,756
)
Repurchases of convertible notes
 
(168,407
)
 

Repurchases of common stock
 
(17,621
)
 

Other
 
(1,649
)
 
4,954

Net cash provided by (used in) financing activities
 
(231,137
)
 
267,628

Net increase (decrease) in cash and cash equivalents
 
80,695

 
(63,103
)
Cash and cash equivalents - Beginning of Period
 
264,087

 
423,384

Cash and cash equivalents - End of Period
 
$
344,782

 
$
360,281

 
See accompanying Notes to Consolidated Financial Statements.


6



Hawaiian Holdings, Inc. 
Notes to Consolidated Financial Statements (Unaudited)
 
1. Business and Basis of Presentation
 
Hawaiian Holdings, Inc. (the Company or Holdings) is a holding company 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 Airlines, Inc. (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, 2014.
 
2. Significant Accounting Policies
 
Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09), 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. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The amendments in ASU 2014-09 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and allow for either full retrospective or modified retrospective adoption. Organizations are permitted to adopt the new revenue standard early, but not before December 15, 2016.
The Company is currently evaluating the effect that the provisions of ASU 2014-09 will have on its consolidated financial statements and related disclosures. We have determined that the new standard, once effective, will preclude the Company from accounting for miles earned under its HawaiianMiles customer loyalty program using the incremental cost method, and will require use of the deferred revenue method. This change could have a significant impact on the Company's financial statements.
In April 2015, the FASB issued Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03), requiring an entity to present its debt issuance costs on the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. We are currently evaluating the impact the adoption of this standard will have on the Company's financial statements.

7



3. Accumulated Other Comprehensive Loss
 
Reclassifications out of accumulated other comprehensive loss by component is as follows: 
Details about accumulated other comprehensive loss components
 
Three months ended June 30,
 
Six months ended June 30,
 
Affected line items in the statement where net income is presented
 
2015
 
2014
 
2015
 
2014
 
 
 
(in thousands)
 
 
Derivatives designated as hedging instruments under ASC 815
 
 

 
 

 
 

 
 

 
 
Foreign currency derivative gains, net
 
$
(4,460
)
 
$
(1,608
)
 
$
(8,412
)
 
$
(5,226
)
 
Passenger revenue
Interest rate derivative losses, net
 
179

 
206

 
366

 
417

 
Interest expense
Total before tax
 
(4,281
)
 
(1,402
)
 
(8,046
)
 
(4,809
)
 
 
Tax expense
 
1,618

 
527

 
3,040

 
1,815

 
 
Total, net of tax
 
$
(2,663
)
 
$
(875
)
 
$
(5,006
)
 
$
(2,994
)
 
 
Amortization of defined benefit pension items
 
 

 
 

 
 

 
 

 
 
Actuarial loss
 
$
2,680

 
$
226

 
$
5,360

 
$
452

 
Wages and benefits
Prior service cost (credit)
 
57

 
(1
)
 
114

 
(2
)
 
Wages and benefits
Total before tax
 
2,737

 
225

 
5,474

 
450

 
 
Tax benefit
 
(1,038
)
 
(85
)
 
(2,076
)
 
(210
)
 
 
Total, net of tax
 
$
1,699

 
$
140

 
$
3,398

 
$
240

 
 
Short-term investments
 
 

 
 

 
 

 
 

 
 
Realized gain on sales of investments, net
 
$
(25
)
 
$
(1
)
 
$
(35
)
 
$
(2
)
 
Other nonoperating income
Total before tax
 
(25
)
 
(1
)
 
(35
)
 
(2
)
 
 
Tax expense
 
6

 

 
7

 

 
 
Total, net of tax
 
$
(19
)
 
$
(1
)
 
$
(28
)
 
$
(2
)
 
 
Total reclassifications for the period
 
$
(983
)
 
$
(736
)
 
$
(1,636
)
 
$
(2,756
)
 
 

A rollforward of the amounts included in accumulated other comprehensive loss, net of taxes, for the three and six months ended June 30, 2015 and 2014 is as follows:
Three months ended June 30, 2015
 
Interest
Rate
Derivatives
 
Foreign
Currency
Derivatives
 
Defined
Benefit
Pension
Items
 
Short-Term Investments
 
Total
 
 
(in thousands)
Beginning balance
 
$
(108
)
 
$
12,268

 
$
(133,862
)
 
$
50

 
$
(121,652
)
Other comprehensive income (loss) before reclassifications, net of tax
 
260

 
928

 

 
(105
)
 
1,083

Amounts reclassified from accumulated other comprehensive income (loss), net of tax
 
110

 
(2,773
)
 
1,699

 
(19
)
 
(983
)
Net current-period other comprehensive income (loss)
 
370

 
(1,845
)
 
1,699

 
(124
)
 
100

Ending balance
 
$
262

 
$
10,423

 
$
(132,163
)
 
$
(74
)
 
$
(121,552
)
 

8



Three months ended June 30, 2014
 
Interest
Rate
Derivatives
 
Foreign
Currency
Derivatives
 
Defined
Benefit
Pension
Items
 
Short-Term Investments
 
Total
 
 
(in thousands)
Beginning balance
 
$
865

 
$
3,073

 
$
(51,854
)
 
$
(21
)
 
$
(47,937
)
Other comprehensive income (loss) before reclassifications, net of tax
 
(520
)
 
(1,977
)
 

 
57

 
(2,440
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
 
126

 
(1,001
)
 
140

 
(1
)
 
(736
)
Net current-period other comprehensive income (loss)
 
(394
)
 
(2,978
)
 
140

 
56

 
(3,176
)
Ending balance
 
$
471

 
$
95

 
$
(51,714
)
 
$
35

 
$
(51,113
)

Six months ended June 30, 2015
 
Interest
Rate
Derivatives
 
Foreign
Currency
Derivatives
 
Defined
Benefit
Pension
Items
 
Short-Term Investments
 
Total
 
 
(in thousands)
Beginning balance
 
$
254

 
$
12,708

 
$
(135,520
)
 
$
(254
)
 
$
(122,812
)
Other comprehensive income (loss) before reclassifications, net of tax
 
(216
)
 
2,945

 
(41
)
 
208

 
2,896

Amounts reclassified from accumulated other comprehensive income (loss), net of tax
 
224

 
(5,230
)
 
3,398

 
(28
)
 
(1,636
)
Net current-period other comprehensive income (loss)
 
8

 
(2,285
)
 
3,357

 
180

 
1,260

Ending balance
 
$
262

 
$
10,423

 
$
(132,163
)
 
$
(74
)
 
$
(121,552
)

Six months ended June 30, 2014
 
Interest
Rate
Derivatives
 
Foreign
Currency
Derivatives
 
Defined
Benefit
Pension
Items
 
Short-Term Investments
 
Total
 
 
(in thousands)
Beginning balance
 
$
1,096

 
$
8,277

 
$
(52,059
)
 
$

 
$
(42,686
)
Other comprehensive income (loss) before reclassifications, net of tax
 
(883
)
 
(4,930
)
 
105

 
37

 
(5,671
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
 
258

 
(3,252
)
 
240

 
(2
)
 
(2,756
)
Net current-period other comprehensive income (loss)
 
(625
)
 
(8,182
)
 
345

 
35

 
(8,427
)
Ending balance
 
$
471

 
$
95

 
$
(51,714
)
 
$
35

 
$
(51,113
)


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. 

9



 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(in thousands, except for per share data)
Numerator:
 
 

 
 

 
 

 
 

Net Income
 
$
48,834

 
$
27,327

 
$
74,717

 
$
22,252

Denominator:
 
 

 
 

 
 

 
 

Weighted average common stock shares outstanding - Basic
 
54,619

 
53,499

 
54,617

 
53,095

Assumed exercise of stock options and awards
 
430

 
1,009

 
488

 
583

Assumed conversion of convertible note premium
 
546

 
4,972

 
2,252

 
2,133

Assumed conversion of warrants
 
6,260

 
3,367

 
6,033

 
1,235

Weighted average common stock shares outstanding - Diluted
 
61,855

 
62,847

 
63,390

 
57,046

Net Income Per Share
 
 

 
 

 
 

 
 

Basic
 
$
0.89

 
$
0.51

 
$
1.37

 
$
0.42

Diluted
 
$
0.79

 
$
0.43

 
$
1.18

 
$
0.39

 
The table below summarizes those common stock equivalents that could potentially dilute basic earnings per share in the future but were excluded from the computation of diluted earnings per share because the instruments were antidilutive. 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
 
 
(in thousands)
Restricted stock
 
16

 

 
11

 


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. As of June 30, 2015, the Company’s 5% Convertible Notes due in 2016 ("Convertible Notes") had an outstanding principal balance of $4.2 million and can be redeemed with either cash or the Company’s common stock, or a combination thereof, at the Company’s option.  During the three and six months ended June 30, 2015, the Company repurchased $3.8 million and $66.8 million in principal of the Convertible Notes, respectively. The 0.5 million shares into which the currently outstanding Convertible Notes can be converted will not impact the dilutive earnings per share calculation in the current and future periods under the if-converted method, as the Company has the intent and ability to redeem the principal amount of the Convertible Notes with cash.

During the three and six months ended June 30, 2015 and 2014 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 earnings per share purposes) are included in the Company's computation of diluted earnings per share.
 
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.

The call options to repurchase the Company’s common stock will always be antidilutive and, therefore, will have no effect on diluted earnings per share and are excluded from the table above.
 
During the three and six months ended June 30, 2015 and 2014 the average share price of the Company's common stock exceeded the warrant strike price of $10.00 per share. Therefore, the assumed conversion of the warrants is included in the Company's computation of diluted earnings per share.

In April 2015, the Company's Board of Directors approved a stock repurchase program under which the Company may repurchase up to $100 million of its outstanding common stock over a two-year period through the open market, established plans or privately negotiated transactions in accordance with all applicable securities laws, rules and regulations. The stock repurchase program is subject to modification or termination at any time. The Company spent $17.6 million to repurchase approximately 0.8 million shares of the Company's common stock in open market transactions during the three months ended

10



June 30, 2015. As of June 30, 2015, the Company has $82.4 million remaining to spend under the stock repurchase program. See Part II, Item 2., “Unregistered Sales of Equity Securities and Use of Proceeds” of this report for additional information on the stock repurchase program.
 
5. 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) in the unaudited consolidated statements of operations.  Unrealized gains and losses on available-for-sale securities are reflected as a component of accumulated other comprehensive loss.

The following is a summary of short-term investments held as of June 30, 2015 and December 31, 2014:
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
June 30, 2015
 
(in thousands)
Corporate debt
 
$
173,651

 
$
56

 
$
(213
)
 
$
173,494

U.S. government and agency debt
 
41,994

 
52

 
(2
)
 
42,044

Municipal bonds
 
24,182

 
8

 
(14
)
 
24,176

Other fixed income securities
 
21,572

 

 
(5
)
 
21,567

Total short-term investments
 
$
261,399

 
$
116

 
$
(234
)
 
$
261,281

 
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
December 31, 2014
 
(in thousands)
Corporate debt
 
$
180,794

 
$
43

 
$
(394
)
 
$
180,443

U.S. government and agency debt
 
38,268

 

 
(40
)
 
38,228

Municipal bonds
 
23,849

 
4

 
(16
)
 
23,837

Other fixed income securities
 
17,618

 

 
(5
)
 
17,613

Total short-term investments
 
$
260,529

 
$
47

 
$
(455
)
 
$
260,121


Contractual maturities of short-term investments as of June 30, 2015 are shown below. 
 
 
Under 1 Year
 
1 to 5 Years
 
Total
 
 
(in thousands)
Corporate debt
 
$
67,168

 
$
106,326

 
$
173,494

U.S. government and agency debt
 
20,330

 
21,714

 
42,044

Municipal bonds
 
15,220

 
8,956

 
24,176

Other fixed income securities
 
19,063

 
2,504

 
21,567

Total short-term investments
 
$
121,781

 
$
139,500

 
$
261,281

 
The Company classifies investments as current assets as these securities are available for use in its current operations.
 
6.  Fair Value Measurements
 
ASC Topic 820, Fair Value Measurement (ASC 820) clarifies that fair value is 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;
 

11



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 June 30, 2015
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
(in thousands)
Cash equivalents
 
$
104,044

 
$
84,793

 
$
19,251

 
$

Restricted cash
 
5,000

 
5,000

 

 

Short-term investments
 
261,281

 

 
261,281

 

Fuel derivative contracts:
 
0

 
 

 
 

 
 

Heating oil put options
 
4,836

 

 
4,836

 

Heating oil swaps
 
3,171

 

 
3,171

 

Foreign currency derivatives
 
13,699

 

 
13,699

 

Total assets measured at fair value
 
$
392,031

 
$
89,793

 
$
302,238

 
$

Fuel derivative contracts:
 
 

 
 

 
 

 
 

Heating oil swaps
 
$
19,739

 
$

 
$
19,739

 
$

Foreign currency derivatives
 
152

 

 
152

 

Interest rate derivative
 
68

 

 
68

 

Total liabilities measured at fair value
 
$
19,959

 
$

 
$
19,959

 
$

 
 
 
Fair Value Measurements as of December 31, 2014
 
 
Total
 
Level 1
 
Level 2
 
Level 3
 
 
(in thousands)
Cash equivalents
 
$
55,072

 
$
35,913

 
$
19,159

 
$

Restricted cash
 
6,566

 
6,566

 

 

Short-term investments
 
260,121

 

 
260,121

 

Fuel derivative contracts:
 
0

 
 

 
 

 
 

Heating oil put options
 
32,637

 

 
32,637

 

Foreign currency derivatives
 
19,746

 

 
19,746

 

Total assets measured at fair value
 
$
374,142

 
$
42,479

 
$
331,663

 
$

 
 
 
 
 
 
 
 
 
Fuel derivative contracts:
 
 

 
 

 
 

 
 

Heating oil swaps
 
$
71,447

 
$

 
$
71,447

 
$

Interest rate derivative
 
129

 

 
129

 

Negative arbitrage derivative
 
500

 

 

 
500

Total liabilities measured at fair value
 
$
72,076

 
$

 
$
71,576

 
$
500

 
Cash equivalents.  The Company’s cash equivalents consist of money market securities, U.S. agency bonds, foreign and domestic corporate bonds, 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.


12



Fuel derivative contracts.  The Company’s fuel derivative contracts consist of heating oil puts and swaps 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 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 available or derived from public markets.
 
Interest rate derivative.  The Company’s interest rate derivative consists of an interest rate swap and is valued based primarily on data available or derived from public markets.

The table below presents the Company’s debt (excluding obligations under capital leases) measured at fair value: 
Fair Value of Debt
June 30, 2015
 
December 31, 2014
Carrying
 
Fair Value
 
Carrying
 
Fair Value
Amount
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Amount
 
Total
 
Level 1
 
Level 2
 
Level 3
(in thousands)
 
(in thousands)
$
846,611

 
$
851,993

 
$

 
$
4,272

 
$
847,721

 
$
947,897

 
$
956,811

 
$

 
$
69,766

 
$
887,045

 
The fair value estimates of the Company’s debt were based on either market prices or the discounted amount of future cash flows using the Company’s current incremental rate of borrowing for similar liabilities.
 
The carrying amounts of cash, other receivables and accounts payable approximate fair value due to the short-term nature of these financial instruments.
 
7.  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 and six months ended June 30, 2015, the Company primarily used heating oil puts and 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.

The following table reflects the amount of realized and unrealized gains and losses recorded as nonoperating income (expense) in the unaudited Consolidated Statements of Operations.
 
 
Three months ended June 30,
 
Six months ended June 30,
Fuel derivative contracts
 
2015
 
2014
 
2015
 
2014
 
 
(in thousands)
Losses realized at settlement
 
$
(16,553
)
 
$
(2,009
)
 
$
(31,144
)
 
$
(1,899
)
Reversal of prior period unrealized amounts
 
16,327

 
2,625

 
29,313

 
(1,613
)
Unrealized gains (losses) that will settle in future periods
 
2,252

 
5,669

 
(1,830
)
 
2,898

Gains (losses) on fuel derivatives recorded as Nonoperating income (expense)
 
$
2,026

 
$
6,285

 
$
(3,661
)
 
$
(614
)

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.  

13



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 (loss) (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 $13.6 million into earnings over the next 12 months from AOCI based on the values at June 30, 2015.
 
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 unaudited Consolidated Balance Sheets.

Derivative position as of June 30, 2015 
 
 
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
 
 
 
 
 
 
 
 

 
 

 
 

Interest rate derivative
 
Other accrued liabilities
 
$54,200 U.S. dollars
 
April 2023
 
$

 
$
(14
)
 
$
(14
)
 
 
Other liabilities and deferred credits (1)
 
 
 
 
 

 
(54
)
 
(54
)
Foreign currency derivatives
 
Prepaid expenses and other
 
7,629,030 Japanese Yen
38,901 Australian Dollars
 
June 2016
 
11,542

 
(76
)
 
11,466

 
 
Long-term prepayments and other
 
3,753,650 Japanese Yen
7,075 Australian Dollars
 
May 2017
 
2,112

 
(57
)
 
2,055

Derivatives not designated as hedges
 
 
 
 
 
 
 
 

 
 

 
0

Foreign currency derivatives
 
Prepaid expenses and other
 
4,367,750 Japanese Yen
16,945 Australian Dollars
 
June 2016
 
41

 
(19
)
 
22

 
 
Long-term prepayments and other
 
957,000 Japanese Yen
118 Australian Dollars
 
August 2016
 
4

 

 
4

Fuel derivative contracts
 
Prepaid expenses and other
 
14,414 gallons
 
May 2016
 
1,082

 
(513
)
 
569


 
Other accrued liabilities
 
67,953 gallons
 
June 2016
 
6,925

 
(19,226
)
 
(12,301
)
 
(1)
Represents the noncurrent portion of the $54.2 million interest rate derivative with final maturity in April 2023.


14



Derivative position as of December 31, 2014
 
 
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
 
 
 
 
 
 
 
 

 
 

 
 

Interest rate derivative
 
Other accrued liabilities
 
$57,400 U.S. dollars
 
April 2023
 
$

 
$
(26
)
 
$
(26
)
 
 
Other liabilities and deferred credits(1)
 
 
 
 
 

 
(103
)
 
(103
)
Foreign currency derivatives
 
Prepaid expenses and other
 
6,909,050 Japanese Yen
51,380 Australian Dollars
 
December 2015
 
13,921

 

 
13,921

 
 
Long-term prepayments and other
 
3,758,500 Japanese Yen
13,080 Australian Dollars
 
November 2016
 
4,565

 

 
4,565

Derivatives not designated as hedges
 
 
 
 
 
 
 
 

 
 

 
 
Foreign currency derivatives
 
Prepaid expenses and other
 
7,714,291 Japanese Yen
43,546 Australian Dollars
 
December 2015
 
1,191

 

 
1,191

 
 
Long-term prepayments and other
 
2,762,000 Japanese Yen
3,500 Australian Dollars
 
August 2016
 
69

 

 
69

Fuel derivative contracts
 
Other accrued liabilities
 
90,994 gallons
 
December 2015
 
32,637

 
(71,447
)
 
(38,810
)
Negative arbitrage derivative
 
Other accrued liabilities
 
$444,540 U.S. dollars
 
January 2015
 

 
(500
)
 
(500
)

(1) Represents the noncurrent portion of the $57.4 million interest rate derivative with final maturity in April 2023.
 
The following table reflects the impact of cash flow hedges designated for hedge accounting treatment and their location within the unaudited Consolidated Statements of Comprehensive Income (Loss). 
 
 
(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 June 30,
 
Three months ended June 30,
 
Three months ended June 30,
 
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
 
(in thousands)
Foreign currency derivatives
 
$
(1,492
)
 
$
3,180

 
$
(4,460
)
 
$
(1,608
)
 
$

 
$

Interest rate derivatives
 
(619
)
 
605

 
179

 
206

 

 


 
 
(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)
 
 
Six months ended June 30,
 
Six months ended June 30,
 
Six months ended June 30,
 
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
 
(in thousands)
Foreign currency derivatives
 
$
(4,737
)
 
$
7,708

 
$
(8,412
)
 
$
(5,226
)
 
$

 
$

Interest rate derivatives
 
(62
)
 
951

 
366

 
417

 

 


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

15



derivative instruments as cash collateral would be provided by the counterparties based on the current market exposure of the derivative.

The Company's agreements with its counterparties also requires the posting of cash collateral in the event the aggregate value of the Company's positions exceeds certain exposure thresholds that are based upon certain liquidity metrics of the Company. The aggregate fair value of the Company's derivative instruments that contain credit-risk related contingent features that are in a net liability position as of June 30, 2015 was $12.3 million.

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 June 30, 2015 and $0.6 million in collateral posted with counterparties as of December 31, 2014.

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.

8.  Debt
 
As of June 30, 2015, the expected maturities of long-term debt for the remainder of 2015 and the next four years, and thereafter, were as follows (in thousands): 
Remaining months in 2015
$
45,961

2016
82,861

2017
82,092

2018
87,425

2019
99,070

Thereafter
449,317

 
$
846,726

 
Convertible Notes

During the three and six months ended June 30, 2015 a condition for conversion of the Convertible Notes was satisfied, which permits holders of the Convertible Notes to surrender their notes for conversion during the quarter ending September 30, 2015.  Therefore, the principal balance is classified accordingly in the table above. As of June 30, 2015, the carrying value of $4.2 million is reflected as a current liability in the unaudited Consolidated Balance Sheets.

During the three and six months ended June 30, 2015, the Company repurchased $3.8 million and $66.8 million, respectively, in principal of its Convertible Notes for an aggregate repurchase price of $11.9 million and $168.4 million, respectively. 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.
The repurchase of the Convertible Notes resulted in a loss on extinguishment of $0.3 million and $7.2 million for the three and six months ended June 30, 2015, respectively, which is reflected in nonoperating income (expense) in the unaudited Consolidated Statement of Operations.  
9.  Leases

The Company leases aircraft, engines and other assets under long-term lease arrangements. Other leased assets include real property, airport and terminal facilities, maintenance facilities, and general offices. Certain leases include escalation clauses and renewal options. 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.
During the three months ended June 30, 2015, the Company took delivery of an Airbus A330-200 aircraft under an operating lease with a lease term of 12 years.


16



As of June 30, 2015, the scheduled future minimum rental payments under operating leases with non-cancellable basic terms of more than one year were as follows:
 
 
Aircraft
 
Other
 
(in thousands)
Remaining months in 2015
 
$
55,746

 
$
2,756

2016
 
102,656

 
5,405

2017
 
98,384

 
4,717

2018
 
97,635

 
4,648

2019
 
97,491

 
4,356

Thereafter
 
290,757

 
26,481

 
 
$
742,669

 
$
48,363

10. Employee Benefit Plans
 
The components of net periodic benefit cost for the Company’s defined benefit and other postretirement plans included the following: 
 
 
Three months ended June 30,
 
Six months ended June 30,
Components of Net Period Benefit Cost
 
2015
 
2014
 
2015
 
2014
 
 
(in thousands)
Service cost
 
$
4,225

 
$
2,952

 
$
8,450

 
$
5,904

Interest cost
 
7,389

 
6,986

 
14,778

 
13,972

Expected return on plan assets
 
(4,716
)
 
(4,845
)
 
(9,432
)
 
(9,690
)
Recognized net actuarial loss
 
2,737

 
225

 
5,474

 
450

Net periodic benefit cost
 
$
9,635

 
$
5,318

 
$
19,270

 
$
10,636

 
The Company contributed $0.8 million and $13.6 million to its defined benefit and other postretirement plans during the three and six months ended June 30, 2015, respectively, including $7.3 million above the minimum funding requirements. The Company contributed $3.8 million and $6.6 million to its defined benefit and other postretirement plans during the three and six months ended June 30, 2014, respectively.
 
11. Commitments and Contingent Liabilities
 
Commitments

As of June 30, 2015, the Company had the following capital commitments consisting of firm aircraft and engine orders and purchase rights:
Aircraft Type
 
Firm Orders
 
Purchase Rights
 
Expected Delivery Dates
A330-200 aircraft
 
1

 

 
In 2015
A330-800neo aircraft
 
6

 
6

 
Between 2019 and 2021
A321neo aircraft
 
16

 
9

 
Between 2017 and 2020
ATR turboprop aircraft
 
3

 

 
In 2015
Rolls-Royce spare engines:
 
 

 
 

 
 
A330-800neo spare engines
 
2

 

 
Between 2019 and 2020
Pratt & Whitney spare engines:
 
 

 
 

 
 
A321neo spare engines
 
2

 

 
Between 2017 and 2018

The Company has operating commitments with a third-party to provide aircraft maintenance services which require fixed payments as well as variable payments based on flight hours for its Airbus fleet through 2027. The Company also has operating commitments with third-party service providers for reservations, IT, and accounting services through 2020.
 

17



Committed capital and operating expenditures include escalation and variable amounts based on estimates. The gross committed expenditures and committed financings for those deliveries as of June 30, 2015 are detailed below: 
 
 
Capital
 
Operating
 
Total Committed
Expenditures
 
Less: Committed
Financing for Upcoming
Aircraft Deliveries*
 
Net Committed
Expenditures
 
 
(in thousands)
Remaining months in 2015
 
$
79,029

 
$
35,166

 
$
114,195

 
$
48,138

 
$
66,057

2016
 
78,018

 
58,719

 
136,737

 

 
136,737

2017
 
220,433

 
58,637

 
279,070

 

 
279,070

2018
 
397,793

 
51,942

 
449,735

 

 
449,735

2019
 
481,519

 
47,362

 
528,881

 

 
528,881

Thereafter
 
433,101

 
264,181

 
697,282

 

 
697,282

 
 
$
1,689,893

 
$
516,007

 
$
2,205,900

 
$
48,138

 
$
2,157,762

 
*See below for a detailed discussion of the committed financings Hawaiian has received for its upcoming capital commitments for aircraft deliveries.
 
Purchase Assignment and Lease Financing Agreement

Hawaiian has a commitment to assign its purchase of an Airbus A330-200 aircraft at delivery and simultaneously enter into a lease agreement for the aircraft with scheduled delivery in October 2015 with total committed lease financing of $48 million. Both the gross capital commitment for the cost of the aircraft and the committed financing are reflected in the table above. The agreement has an initial lease term of 12 years and fixed monthly rental payments that will be determined upon delivery of the aircraft.

The anticipated future minimum payments for this lease, which is not included in the operating lease table at Note 9, are $2.2 million for the remainder of 2015, $8.4 million in each of the years 2016 through 2019, and $65.4 million thereafter.
 
Aircraft Lease Commitment

In June 2015, Hawaiian entered into a six-year lease agreement for an Airbus A330-200 aircraft with an expected delivery date in the second quarter of 2016, which is not included in the table above. The Company will determine whether this lease will be classified as a capital or operating lease in the period it takes delivery of the aircraft.

The anticipated future minimum payments for this lease, which is not included in the operating lease table at Note 9, are $5.1 million in 2016, $8.9 million in each of the years 2017 through 2019, and $21.5 million thereafter.

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.
 

18



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 unaudited Consolidated Balance Sheets, totaled $5.0 million at June 30, 2015 and December 31, 2014.
 
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. 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.
 
12. Supplemental Cash Flow Information
 
Non-cash investing and financing activities for the six months ended June 30, 2015 and 2014 were as follows:
 
Six months ended June 30,
 
2015
 
2014
 
(in thousands)
Investing and Financing Activities Not Affecting Cash:
 
 
 
Property and equipment acquired through a capital lease
$
2,791

 
$


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.

Condensed consolidating financial statements are presented in the following tables:


19



Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
Three months ended June 30, 2015
 
 
Parent Issuer /
Guarantor
 
Subsidiary
Issuer /
Guarantor
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
 
(in thousands)
Operating Revenue
 
$

 
$
570,254

 
$
1,168

 
$
(127
)
 
$
571,295

Operating Expenses:
 
 

 
 

 
 

 
 

 
 

Aircraft fuel, including taxes and delivery
 

 
112,519

 

 

 
112,519

Wages and benefits
 

 
123,977

 

 

 
123,977

Aircraft rent
 

 
28,817

 

 

 
28,817

Maintenance materials and repairs
 

 
56,555

 
516

 

 
57,071

Aircraft and passenger servicing
 

 
29,348

 

 

 
29,348

Commissions and other selling
 

 
30,505

 
19

 
(40
)
 
30,484

Depreciation and amortization
 

 
26,790

 
747

 

 
27,537

Other rentals and landing fees
 

 
23,248

 

 

 
23,248

Other
 
1,252

 
45,422

 
291

 
(87
)
 
46,878

Total
 
1,252

 
477,181

 
1,573

 
(127
)
 
479,879

Operating Income (Loss)
 
(1,252
)
 
93,073

 
(405
)
 

 
91,416

Nonoperating Income (Expense):
 
 

 
 

 
 

 
 

 
 

Undistributed net income of subsidiaries
 
49,759