HAWAIIAN HOLDINGS INC

Income Taxes

As a result of the Tax Cuts and Jobs Act of 2017, the Company recognized a one-time benefit of $104.2 million in the quarter ended December 31, 2017 from the estimated impact of the revaluation of deferred tax assets and liabilities. ASC 740 requires companies to account for the effects of changes in income tax rates and laws on deferred tax balances in the period in which the legislation is enacted. On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. The Company has recognized the provisional tax impacts related to the revaluation of deferred tax assets and liabilities and included these amounts in its consolidated financial statements for the year ended December 31, 2017. The Company will continue to refine the calculations as additional analysis is completed. In addition, these estimates may also be affected as the Company gains a more thorough understanding of the tax law, including those related to the deductibility of purchased assets and state tax treatment. The ultimate impact may differ from these provisional amounts, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued, and actions the Company may take as a result of the Act. The accounting is expected to be complete when the 2017 U.S. corporate income tax return is filed in 2018.

The significant components of income tax expense are as follows:



	Years Ended December 31,
	2017			2016		2015
	(in thousands)
Current
Federal	$	49,835		$	94,459	$	5,008
State	11,471			13,201		5,588
	$	61,306		$	107,660	$	10,596
Deferred
Federal	$	82,870		$	32,334	$	94,457
State	6,514			4,038		7,989
Estimated Tax Cuts and Jobs Act impact	(104,176		)	—		—
	$	(14,792	)	$	36,372	$	102,446
Income tax expense	$	46,514		$	144,032	$	113,042

The income tax expense differed from amounts computed at the statutory federal income tax rate as follows:



	Years Ended December 31,
	2017			2016			2015
	(in thousands)
Income tax expense computed at the statutory federal rate	$	143,694		$	132,813		$	103,491
Increase (decrease) resulting from:
State income taxes, net of federal tax effect	11,690			11,261			8,825
Nondeductible meals	1,146			1,100			915
Estimated Tax Cuts and Jobs Act impact	(104,176		)	—			—
Excess tax benefits from stock issuance	(5,288		)	—			—
Other	(552		)	(1,142		)	(189		)
Income tax expense	$	46,514		$	144,032		$	113,042

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income (including the reversal of deferred tax liabilities) during the periods in which those deferred tax assets will become deductible. The Company's management assesses the realizability of its deferred tax assets, and records a valuation allowance when it is more likely than not that a portion, or all, of the deferred tax assets will not be realized.

The components of the Company's deferred tax assets and liabilities were as follows:



	December 31,
	2017			2016
	(in thousands)
Deferred tax assets:
Accumulated pension and other postretirement benefits	$	54,784		$	136,066
Leases	4,490			8,323
Air traffic liability	9,406			13,366
Federal and state net operating loss carryforwards	2,547			2,115
Accrued compensation	7,627			35,505
Other accrued assets	11,661			18,733
Fuel derivative contracts	2,156			2,705
Other assets	12,642			20,320
Total gross deferred tax assets	105,313			237,133
Less: Valuation allowance	(2,547		)	(1,992		)
Net deferred tax assets	$	102,766		$	235,141
Deferred tax liabilities:
Intangible assets	$	(3,432	)	$	(5,601	)
Property and equipment, principally accelerated depreciation	(265,293		)	(385,831		)
Other liabilities	(8,385		)	(14,252		)
Total deferred tax liabilities	(277,110		)	(405,684		)
Net deferred tax liability	$	(174,344	)	$	(170,543	)

As of December 31, 2017, the Company had available for state income tax purposes net operating loss carryforwards of $73.3 million. As of December 31, 2016, the Company had available for state income tax purposes net operating loss carryforwards of $73.5 million. The tax benefit of the net operating loss carryforwards as of December 31, 2017 was $2.5 million, substantially all of which has a valuation allowance.

In accordance with ASC 740, the Company reviews its uncertain tax positions on an ongoing basis. The Company may be required to adjust its liability as these matters are finalized, which could increase or decrease its income tax expense and effective income tax rates or result in an adjustment to the valuation allowance. The Company does not expect that the unrecognized tax benefit related to uncertain tax positions will significantly change within the next 12 months.

The table below reconciles beginning and ending amounts of unrecognized tax benefits related to uncertain tax positions:



	2017		2016		2015
	(in thousands)
Balance at January 1	$	3,329	$	—	$	—
Increases related to prior year tax positions	253		2,830		—
Increases related to current year tax positions	499		499		—
Balance at December 31	$	4,081	$	3,329	$	—

The Company's policy is to include interest and penalties related to unrecognized tax benefits within the provision for income taxes. No interest or penalties related to these positions were accrued as of December 31, 2017.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Company's federal and state income tax returns for tax years 2014 and beyond remain subject to examination by the Internal Revenue Service.