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 |
|
(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 |
|
|
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
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Page |
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3 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 | |
31 | ||
32 | ||
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33 | ||
33 | ||
34 | ||
35 |
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, |
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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) |
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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 - |
|
|
|
|
|
|
|
|
|
|
|
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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
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
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 |
|
|
|
|
|
|
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Current liabilities |
|
|
|
|
|
|
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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 |
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Employee benefit obligations |
|
|
102,762 |
|
|
99,366 |
|
Other liabilities |
|
|
17,467 |
|
|
14,271 |
|
Total liabilities |
|
|
494,189 |
|
|
497,434 |
|
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
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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
Hawaiian Telcom Holdco, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, dollars in thousands)
|
|
Nine Months Ended |
|
||||
|
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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
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
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.
8
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 |
|
9
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 |
|
10
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 |
|
11
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 |
|
12
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.
13
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