hwtl_Current folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

 

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

OR

[  ]

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: 001-34686

 

Hawaiian Telcom Holdco, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

16-1710376

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

1177 Bishop Street

Honolulu, Hawaii  96813

(Address of principal executive offices)

 

808-546-4511

(Registrant's telephone number, including area code)

 

Not Applicable

(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.  Yes [X]  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). Yes [X] 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 definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large Accelerated Filer [  ]

 

Accelerated Filer [X]

 

Non-Accelerated Filer [  ]

 

Smaller reporting company [  ]

 

 

 

 

(Do not check if smaller
reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ]  No [X]

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [  ]

 

As of November 9, 2015,  11,466,398 shares of the registrant’s common stock were outstanding.

 

 

 

 


 

Table of Contents

Table of Contents

 

 

 

 

 

 

Page

Part I 

Financial Information

 

Item 1 

Condensed Consolidated Financial Statements (Unaudited)

Item 2 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20 

Item 3 

Quantitative and Qualitative Disclosures About Market Risk

31 

Item 4 

Controls and Procedures

32 

 

 

 

Part II 

Other Information

 

Item 1 

Legal Proceedings

33 

Item 1A 

Risk Factors

33 

Item 5 

Other Information

34 

Item 6 

Exhibits

35 

 

 

 

 


 

Table of Contents

PART I — FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements (Unaudited)

 

Hawaiian Telcom Holdco, Inc.

Condensed Consolidated Statements of Income

(Unaudited, dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Operating revenues

 

$

100,905

 

$

97,252

 

$

294,208

 

$

291,109

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues (exclusive of depreciation and amortization)

 

 

41,013

 

 

42,621

 

 

120,415

 

 

124,858

 

Selling, general and administrative

 

 

33,146

 

 

28,294

 

 

92,645

 

 

86,280

 

Depreciation and amortization

 

 

22,551

 

 

19,717

 

 

65,772

 

 

57,321

 

Total operating expenses

 

 

96,710

 

 

90,632

 

 

278,832

 

 

268,459

 

Operating income

 

 

4,195

 

 

6,620

 

 

15,376

 

 

22,650

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(4,148)

 

 

(4,103)

 

 

(12,651)

 

 

(12,401)

 

Interest income and other

 

 

4

 

 

13

 

 

15

 

 

27

 

Total other expense

 

 

(4,144)

 

 

(4,090)

 

 

(12,636)

 

 

(12,374)

 

Income before income tax provision

 

 

51

 

 

2,530

 

 

2,740

 

 

10,276

 

Income tax provision (credit)

 

 

(54)

 

 

1,014

 

 

1,204

 

 

4,155

 

Net income

 

$

105

 

$

1,516

 

$

1,536

 

$

6,121

 

Net income per common share -

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.01

 

$

0.14

 

$

0.14

 

$

0.58

 

Diluted

 

$

0.01

 

$

0.13

 

$

0.14

 

$

0.54

 

Weighted average shares used to compute net income per common share -

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

11,040,299

 

 

10,586,690

 

 

10,844,478

 

 

10,567,036

 

Diluted

 

 

11,318,641

 

 

11,311,691

 

 

11,275,655

 

 

11,329,328

 

 

See accompanying notes to condensed consolidated financial statements.

3


 

Table of Contents

Hawaiian Telcom Holdco, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited, dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Net income

 

$

105

 

$

1,516

 

$

1,536

 

$

6,121

 

Other comprehensive income (loss) -

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during period

 

 

(1)

 

 

(3)

 

 

(1)

 

 

(4)

 

Retirement plan gain (loss)

 

 

(8,786)

 

 

43

 

 

(6,711)

 

 

(202)

 

Income tax credit (provision) on comprehensive income

 

 

3,357

 

 

(17)

 

 

2,565

 

 

83

 

Other comprehensive income (loss), net of tax

 

 

(5,430)

 

 

23

 

 

(4,147)

 

 

(123)

 

Comprehensive income (loss)

 

$

(5,325)

 

$

1,539

 

$

(2,611)

 

$

5,998

 

 

See accompanying notes to condensed consolidated financial statements.

4


 

Table of Contents

Hawaiian Telcom Holdco, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, dollars in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2015

    

2014

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,845

 

$

39,885

 

Receivables, net

 

 

33,580

 

 

32,662

 

Material and supplies

 

 

9,126

 

 

9,337

 

Prepaid expenses

 

 

5,085

 

 

3,598

 

Deferred income taxes

 

 

6,481

 

 

6,840

 

Other current assets

 

 

3,633

 

 

3,481

 

Total current assets

 

 

86,750

 

 

95,803

 

Property, plant and equipment, net

 

 

572,242

 

 

565,956

 

Intangible assets, net

 

 

35,454

 

 

37,328

 

Goodwill

 

 

12,104

 

 

12,104

 

Deferred income taxes

 

 

82,917

 

 

81,626

 

Other assets

 

 

10,133

 

 

9,151

 

Total assets

 

$

799,600

 

$

801,968

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

3,000

 

$

3,000

 

Accounts payable

 

 

44,707

 

 

50,499

 

Accrued expenses

 

 

15,331

 

 

19,399

 

Advance billings and customer deposits

 

 

16,540

 

 

14,686

 

Other current liabilities

 

 

6,630

 

 

6,790

 

Total current liabilities

 

 

86,208

 

 

94,374

 

Long-term debt

 

 

287,752

 

 

289,423

 

Employee benefit obligations

 

 

102,762

 

 

99,366

 

Other liabilities

 

 

17,467

 

 

14,271

 

Total liabilities

 

 

494,189

 

 

497,434

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock, par value of $0.01 per share, 245,000,000 shares authorized and 11,122,880 and 10,673,292 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively

 

 

111

 

 

107

 

Additional paid-in capital

 

 

174,005

 

 

170,521

 

Accumulated other comprehensive loss

 

 

(28,094)

 

 

(23,947)

 

Retained earnings

 

 

159,389

 

 

157,853

 

Total stockholders’ equity

 

 

305,411

 

 

304,534

 

Total liabilities and stockholders’ equity

 

$

799,600

 

$

801,968

 

 

See accompanying notes to condensed consolidated financial statements.

5


 

Table of Contents

Hawaiian Telcom Holdco, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

    

2015

    

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

1,536

 

$

6,121

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

Depreciation and amortization

 

 

65,772

 

 

57,321

 

Employee retirement benefits

 

 

(3,315)

 

 

(10,557)

 

Provision for uncollectibles

 

 

2,640

 

 

2,493

 

Stock based compensation

 

 

1,087

 

 

3,066

 

Deferred income taxes

 

 

1,633

 

 

4,770

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables

 

 

(3,558)

 

 

(1,350)

 

Material and supplies

 

 

211

 

 

(685)

 

Prepaid expenses and other current assets

 

 

(2,538)

 

 

(1,421)

 

Accounts payable and accrued expenses

 

 

(3,222)

 

 

1,296

 

Advance billings and customer deposits

 

 

4,054

 

 

(50)

 

Other current liabilities

 

 

(693)

 

 

(568)

 

Other

 

 

1,988

 

 

1,380

 

Net cash provided by operating activities

 

 

65,595

 

 

61,816

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

 

(76,732)

 

 

(76,474)

 

Funds released from restricted cash account

 

 

400

 

 

 —

 

Net cash used in investing activities

 

 

(76,332)

 

 

(76,474)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from stock issuance

 

 

3,342

 

 

 —

 

Loan refinancing costs

 

 

(150)

 

 

 —

 

Proceeds from installment financing

 

 

2,779

 

 

2,085

 

Repayment of capital lease and installment financing

 

 

(3,083)

 

 

(2,014)

 

Repayment of debt

 

 

(2,250)

 

 

(2,250)

 

Taxes paid related to net share settlement of equity awards

 

 

(941)

 

 

(1,021)

 

Net cash used in financing activities

 

 

(303)

 

 

(3,200)

 

Net change in cash and cash equivalents

 

 

(11,040)

 

 

(17,858)

 

Cash and cash equivalents, beginning of period

 

 

39,885

 

 

49,551

 

Cash and cash equivalents, end of period

 

$

28,845

 

$

31,693

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Interest paid, net of amounts capitalized

 

$

11,234

 

$

11,033

 

 

See accompanying notes to condensed consolidated financial statements.

6


 

Table of Contents

Hawaiian Telcom Holdco, Inc.

Condensed Consolidated Statement of Changes in Stockholders’ Equity

(Unaudited, dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Total

 

 

 

Common Stock

 

Paid-In

 

Comprehensive

 

Retained

 

Stockholders’

 

 

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Earnings

    

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2015

 

10,673,292

 

$

107

 

$

170,521

 

$

(23,947)

 

$

157,853

 

$

304,534

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 —

 

 

 —

 

 

1,087

 

 

 —

 

 

 —

 

 

1,087

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of warrant agreement

 

376,333

 

 

4

 

 

3,338

 

 

 —

 

 

 —

 

 

3,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for stock compensation plans, net of shares withheld and withholding paid for employee taxes

 

73,255

 

 

 —

 

 

(941)

 

 

 —

 

 

 —

 

 

(941)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,536

 

 

1,536

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax

 

 —

 

 

 —

 

 

 —

 

 

(4,147)

 

 

 —

 

 

(4,147)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2015

 

11,122,880

 

$

111

 

$

174,005

 

$

(28,094)

 

$

159,389

 

$

305,411

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2014

 

10,495,856

 

$

105

 

$

167,869

 

$

(4,716)

 

$

149,754

 

$

313,012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock based compensation

 

 —

 

 

 —

 

 

3,066

 

 

 —

 

 

 —

 

 

3,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of warrant agreement

 

15,361

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for stock compensation plans, net of shares withheld and withholding paid for employee taxes

 

75,888

 

 

1

 

 

(1,022)

 

 

 —

 

 

 —

 

 

(1,021)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

6,121

 

 

6,121

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax

 

 —

 

 

 —

 

 

 —

 

 

(123)

 

 

 —

 

 

(123)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2014

 

10,587,105

 

$

106

 

$

169,913

 

$

(4,839)

 

$

155,875

 

$

321,055

 

 

See accompanying notes to condensed consolidated financial statements.

7


 

Table of Contents

Hawaiian Telcom Holdco, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Description of Business

 

Business Description

 

Hawaiian Telcom Holdco, Inc. and subsidiaries (the “Company”) is the incumbent local exchange carrier for the State of Hawaii with an integrated telecommunications network. The Company offers a variety of telecommunication services to residential and business customers in Hawaii including local telephone, network access and data transport, television, Internet, long distance and wireless phone service. The Company also provides communications equipment sales and maintenance, data center colocation and network managed services.

 

Organization

 

The Company has one direct wholly-owned subsidiary, Hawaiian Telcom Communications, Inc. which has two direct wholly-owned subsidiaries – Hawaiian Telcom, Inc. and Hawaiian Telcom Services Company, Inc.  Hawaiian Telcom, Inc. operates the regulated local exchange carrier and Hawaiian Telcom Services Company, Inc. operates all other businesses.

 

2. Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America and pursuant to rules and regulations of the U.S. Securities and Exchange Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted and condensed. In the opinion of the Company’s management, all adjustments (consisting of only normal and recurring accruals) have been made to present fairly the results of operations, comprehensive income, financial position and cash flows for the periods presented. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. Although the Company believes that the disclosures are adequate to make the information presented not misleading, these financial statements should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2014.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash and money market accounts with maturities at acquisition of three months or less.  The majority of cash balances at September 30, 2015 are held in one bank in demand deposit accounts.  During the nine months ended September 30, 2015, funds amounting to $0.4 million in a restricted cash account held in conjunction with a lease agreement provision were released and deposited into unrestricted cash.

 

Supplemental Non-Cash Investing and Financing Activities

 

Accounts payable included $14.5 million and $15.1 million at September 30, 2015 and 2014, respectively, for additions to property, plant and equipment.

 

Taxes Collected from Customers

 

The Company presents taxes collected from customers and remitted to governmental authorities on a gross basis, including such amounts in the Company’s reported operating revenues. Such amounts represent primarily Hawaii state general excise taxes and Hawaii Public Utility Commission fees. Such taxes and fees amounted to $2.1 million and $6.1 million for the three and nine months ended September 30, 2015, and $1.9 million and $5.5 million for the three and nine months ended September 30, 2014, respectively.

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Table of Contents

 

Earnings per Share

 

Basic earnings per share is based on the weighted effect of all common shares issued and outstanding, and is calculated by dividing earnings by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing earnings, adjusted for the effect, if any, from assumed conversion of all potentially dilutive common shares outstanding, by the weighted average number of common shares used in the basic earnings per share calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive common shares outstanding. The denominator used to compute basic and diluted earnings per share was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Basic earnings per share - weighted average shares

 

11,040,299

 

10,586,690

 

10,844,478

 

10,567,036

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Employee and director restricted stock units

 

19,045

 

122,530

 

76,058

 

153,752

 

Warrants

 

259,297

 

602,471

 

355,119

 

608,540

 

Diluted earnings per share - weighted average shares

 

11,318,641

 

11,311,691

 

11,275,655

 

11,329,328

 

 

The computation of weighted average dilutive shares outstanding excluded grants of restricted stock units convertible into 84,259 of common stock for the three months ended September 30, 2015. The unrecognized compensation on a per unit basis for these restricted stock units was greater than the average market price of the Company’s common stock for the period presented. Therefore, the effect would be anti-dilutive.  For the nine months ended September 30, 2015 and for the three and nine months ended September 30, 2014, there were no restricted stock units that were anti-dilutive to earnings per share.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board issued a new accounting standard which provides guidance for revenue recognition which was amended in July 2015.  The amendment deferred the effective date for the Company to the first quarter of 2018 with either full retrospective or modified retrospective adoption permitted. Early adoption is allowed from the first quarter of 2017. The Company is currently evaluating the impact of the adoption of this accounting standard on the Company’s financial position, results of operations and cash flows.

 

In April 2015, the FASB issued an accounting standard simplifying the presentation of debt issuance costs.  The new standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability which is consistent with debt discounts. The standard requires retrospective adoption and will be effective beginning in the first quarter of 2016 for the Company. Early adoption is permitted. The Company is currently evaluating the impact and timing of adopting this new accounting standard and the impact it will have on the Company’s financial position, results of operations and cash flows.

 

3. Receivables

 

Receivables consisted of the following (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2015

    

2014

 

Customers and other

 

$

37,453

 

$

36,417

 

Allowance for doubtful accounts

 

 

(3,873)

 

 

(3,755)

 

 

 

$

33,580

 

$

32,662

 

 

 

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Table of Contents

4. Long-Lived Assets

 

Property, plant and equipment consisted of the following (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2015

    

2014

 

Property, plant and equipment

 

$

910,799

 

$

843,589

 

Less accumulated depreciation

 

 

(338,557)

 

 

(277,633)

 

 

 

$

572,242

 

$

565,956

 

 

Depreciation expense amounted to $22.0 million and $63.9 million for the three and nine months ended September 30, 2015, respectively.  Depreciation expense amounted to $19.0 million and $55.1 million for the three and nine months ended September 30, 2014, respectively.

 

The gross carrying amount and accumulated amortization of identifiable intangible assets are as follows (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

December 31, 2014

 

 

    

Gross

    

 

 

    

Net

    

Gross

    

 

 

    

Net

 

 

 

Carrying

 

Accumulated

 

Carrying

 

Carrying

 

Accumulated

 

Carrying

 

 

 

Value

 

Amortization

 

Value

 

Value

 

Amortization

 

Value

 

Subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

21,709

 

$

13,628

 

$

8,081

 

$

21,709

 

$

11,799

 

$

9,910

 

Trade name and other

 

 

320

 

 

247

 

 

73

 

 

320

 

 

202

 

 

118

 

 

 

 

22,029

 

 

13,875

 

 

8,154

 

 

22,029

 

 

12,001

 

 

10,028

 

Not subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Brand name

 

 

27,300

 

 

 —

 

 

27,300

 

 

27,300

 

 

 —

 

 

27,300

 

 

 

 

27,300

 

 

 —

 

 

27,300

 

 

27,300

 

 

 —

 

 

27,300

 

 

 

$

49,329

 

$

13,875

 

$

35,454

 

$

49,329

 

$

12,001

 

$

37,328

 

 

Amortization expense amounted to $0.6 million and $1.9 million for the three and nine months ended September 30, 2015, respectively.  Amortization expense amounted to $0.7 million and $2.2 million for the three and nine months ended September 30, 2014, respectively.  Estimated amortization expense for the next five years and thereafter is as follows (dollars in thousands):

 

 

 

 

 

 

2015 (remaining months)

    

$

624

 

2016

 

 

2,101

 

2017

 

 

1,703

 

2018

 

 

1,308

 

2019

 

 

930

 

Thereafter

 

 

1,488

 

 

 

$

8,154

 

 

 

5.  Accrued Expenses and Other Current Liabilities

 

Accrued expenses consisted of the following (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2015

    

2014

 

Salaries and benefits

 

$

11,750

 

$

15,910

 

Interest

 

 

2,531

 

 

2,550

 

Other taxes

 

 

1,050

 

 

939

 

 

 

$

15,331

 

$

19,399

 

 

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Other current liabilities consisted of the following (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

    

2015

    

2014

 

Other postretirement benefits, current

 

$

2,660

 

$

2,660

 

Installment financing contracts, current

 

 

2,733

 

 

2,787

 

Other

 

 

1,237

 

 

1,343

 

 

 

$

6,630

 

$

6,790

 

 

 

6. Long-Term Debt

 

Long-term debt consisted of the following (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate

 

 

 

 

 

 

 

 

 

 

 

at September 30,

 

Final

 

September 30,

 

December 31,

 

 

    

2015

    

Maturity

    

2015

    

2014

 

Term loan

 

5.00

%  

June 6, 2019

 

$

293,888

 

$

296,138

 

Original issue discount

 

 

 

 

 

 

(3,136)

 

 

(3,715)

 

 

 

 

 

 

 

 

290,752

 

 

292,423

 

Current

 

 

 

 

 

 

3,000

 

 

3,000

 

Noncurrent

 

 

 

 

 

$

287,752

 

$

289,423

 

 

The term loan outstanding at September 30, 2015 provides for interest at the Alternate Base Rate, a rate which is indexed to the prime rate with certain adjustments as defined, plus a margin of 3.00% or a Eurocurrency rate on deposits of one, two, three or six months but no less than 1.00% per annum plus a margin of 4.00%.  The Company has selected the Eurocurrency rate as of September 30, 2015 resulting in an interest rate currently at 5.00%.

 

The term loan provides for interest payments no less than quarterly.  In addition, quarterly principal payments of $0.8 million are required.  The balance of the loan is due at maturity on June 6, 2019.  The Company must prepay, generally within three months after year end, 50% or 25% of excess cash flow, as defined.  The percent of excess cash flow required is dependent on the Company’s leverage ratio.  The excess cash flow payment due for the year ended December 31, 2014 was not significant.  The Company must also make prepayments on loans in the case of certain events such as large asset sales.

 

The Company also has a revolving credit facility which was extended on April 9, 2015 to mature on December 6, 2018.  The facility has an available balance of $30.0 million with no amounts drawn as of or for the periods ended September 30, 2015 and 2014.  A commitment fee is payable quarterly to the lender under the facility.  Interest on amounts outstanding is based on, at the Company’s option, the bank prime rate plus a margin of 3.0% to 6.0% or the Eurocurrency rate for one,  two, three or six month periods plus a margin of 4.0% to 5.5%.  The margin is dependent on the Company’s leverage, as defined in the agreement, at the time of the borrowing.

 

Maturities

 

The annual requirements for principal payments on long-term debt as of September 30, 2015 are as follows (dollars in thousands):

 

 

 

 

 

 

Years ended December 31,

    

    

 

 

2015 (remainder of year)

    

$

750

 

2016

 

 

3,000

 

2017

 

 

3,000

 

2018

 

 

3,000

 

2019

 

 

284,138

 

 

 

$

293,888

 

 

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Capitalized Interest

 

Interest capitalized by the Company amounted to $0.3 million and $0.8 million for the three and nine months ended September 30, 2015, respectively.  Interest capitalized by the Company amounted to $0.3 million and $0.8 million for the three and nine months ended September 30, 2014, respectively.

 

7. Employee Benefit Plans

 

The Company sponsors a defined benefit pension plan, with benefits frozen as of March 1, 2012, and postretirement health and life insurance benefits for union employees.  The Company also sponsors a cash balance pension plan for nonunion employees, with benefits frozen as of April 1, 2007, and certain management employees receive postretirement health and life insurance under grandfathered provisions of a terminated plan.

 

The following provides the components of benefit costs (income) for the three and nine months ended September 30, 2015 and 2014 (dollars in thousands):

 

Pension

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Interest cost

 

$

2,107

 

$

2,208

 

$

6,164

 

$

6,624

 

Expected asset return

 

 

(3,146)

 

 

(3,178)

 

 

(9,906)

 

 

(9,534)

 

Amortization of loss

 

 

24

 

 

29

 

 

5

 

 

87

 

Net periodic benefit income

 

 

(1,015)

 

 

(941)

 

 

(3,737)

 

 

(2,823)

 

Settlement loss

 

 

4,118

 

 

 —

 

 

6,366

 

 

 —

 

Net benefit expense (income)

 

$

3,103

 

$

(941)

 

$

2,629

 

$

(2,823)

 

 

Other Postretirement Benefits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Service cost

 

$

259

 

$

230

 

$

777

 

$

691

 

Interest cost

 

 

589

 

 

602

 

 

1,767

 

 

1,805

 

Amortization of loss

 

 

150

 

 

15

 

 

449

 

 

45

 

Net periodic benefit cost

 

$

998

 

$

847

 

$

2,993

 

$

2,541

 

 

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During the three and nine months ended September 30, 2015, the Company’s pension plan for union employees paid lump-sum benefits to plan participants in full settlement of obligations due amounting to $25.7 million and $45.5 million, respectively.  During the nine months ended September 30, 2015, the Company’s pension plan for management employees paid lump sum benefits in full settlement amounting to $0.6 million.  The Company’s pension plan for management employees paid such benefits for the first quarter of 2015 only.  This resulted in the recognition of a loss on settlement for both pension plans amounting to $4.1 million and $6.4 million for the three and nine months ended September 30, 2015, respectively.  Because of the settlements, the Company measured its union pension plan obligations and plan assets as of September 30, 2015.  The Company had previously measured its union plan obligations and plan assets as of June 30, 2015 and March 31, 2015 and its management pension plan obligations and plan assets as of March 31, 2015 in determining its employee benefit obligations as of those dates.  The Company used discount rates of 4.03%, 4.09% and 3.54% as of September 30, June 30 and March 31, 2015, respectively, to measure the union pension plan obligations.  The Company used a discount rate of 3.57% to measure the management plan obligations as of March 31, 2015.  The new measurements resulted in other comprehensive loss of $9.0  million and $ 7.3 million for the three and nine months ended September 30, 2015, respectively.

 

The Company previously disclosed in its consolidated financial statements for the year ended December 31, 2014 that it expected to contribute $10.0 million to its pension plan in 2015.  As of September 30, 2015, the Company has contributed $7.6 million.  The Company expects to contribute $9.3 million for the year ended December 31, 2015.  The lower expected contribution than previously reported is because of changes in funding requirements.

 

8. Income Taxes

 

The income tax provision (credit) differs from the amounts determined by applying the statutory federal income tax rate of 34% to the income before income tax provision for the following reasons (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

Income tax at federal rate

 

$

17

 

$

860

 

$

932

 

$

3,494

 

Increase (decrease) resulting from:

 

 

 

 

 

 

 

 

 

 

 

 

 

State income taxes, net of federal income tax

 

 

3

 

 

101

 

 

116

 

 

411

 

Permanent difference for compensation limitation

 

 

14

 

 

177

 

 

242

 

 

531

 

Expense reflected in tax basis

 

 

(158)

 

 

 

 

53

 

 

 

Other permanent differences

 

 

55

 

 

1

 

 

209

 

 

249

 

Capital goods excise tax credit

 

 

15

 

 

(125)

 

 

(348)

 

 

(530)

 

Total income tax provision (credit)

 

$

(54)

 

$

1,014

 

$

1,204

 

$

4,155

 

 

The Company evaluates its tax positions for liability recognition.  As of September 30, 2015, the Company had no unrecognized tax benefits.  No interest or penalties related to tax assessments were recognized in the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2015 or 2014.  All tax years from 2011 remain open for both federal and Hawaii state tax purposes.

 

9. Stock Compensation

 

The Company has an equity incentive plan.  The Compensation Committee of the Company’s Board of Directors may grant awards under the plan in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards.  The maximum number of shares issuable under the equity incentive plan is 1,400,000 shares with 748,000 shares remaining to be issued at September 30, 2015.  All grants under the equity incentive plan will be issued to acquire shares at the fair value on date of grant.

 

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As of September 30, 2015, all awards were restricted stock units.  Activity with respect to outstanding restricted stock units for the nine months ended September 30, 2015 and 2014 was as follows:  

 

 

 

 

 

 

 

 

 

    

 

    

Weighted-

 

 

 

 

 

Average

 

 

 

 

 

Grant-Date

 

 

 

Shares

 

Fair Value

 

2015

 

 

 

 

 

 

Nonvested at January 1,  2015

 

245,752

 

$

27

 

Granted

 

140,909

 

 

26

 

Vested

 

(109,426)

 

 

28

 

Forfeited

 

(101,520)

 

 

26

 

Nonvested at September 30, 2015

 

175,715

 

$

26

 

 

 

 

 

 

 

 

2014

 

 

 

 

 

 

Nonvested at January 1,  2014

 

260,734

 

 

18

 

Granted

 

155,146

 

 

31

 

Vested

 

(111,037)

 

 

25

 

Forfeited

 

(7,221)

 

 

23

 

Nonvested at September 30, 2014

 

297,622

 

$

24

 

 

The Company recognized compensation expense of $0.2 million and $1.1 million for the three and nine months ended September 30, 2015, respectively.  The Company recognized compensation expense of $1.0 million and $3.1 million for the three and nine months ended September 30, 2014, respectively.  The fair value as of the vesting date for the restricted stock units that vested during the nine months ended September 30, 2015 and 2014 was $2.6 million and $2.7 million, respectively.  Upon vesting, unit holders have the option to net share-settle to cover the required withholding tax and the remaining amount is converted into an equivalent number of shares of common stock.   The total shares withheld were 36,171 and 35