Form 10-Q Hawaiian Telcom Holdco, For: Sep 30

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November 10, 2014 6:03 AM EST

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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, 2014

�

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: 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 o

�

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 o

�

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 o��	Accelerated Filer x	Non-Accelerated Filer o	Smaller reporting company o
�	�	(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 o� 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 o

�

As of November�10, 2014, 10,673,103 shares of the registrant�s common stock were outstanding.

�

Table of Contents

�

Table of Contents

�

�	�	Page
Part�I	Financial Statements	�
Item 1	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2	Management�s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4	Controls and Procedures	33
�	�	�
Part�II	Other Information	�
Item 1	Legal Proceedings	34
Item 1A	Risk Factors	34
Item 5	Other Information	35
Item 6	Exhibits	36

�

Table of Contents

�

PART�I � FINANCIAL STATEMENTS

�

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,

�

2014

�

2013

�

2014

�

2013

�

Operating revenues

�

97,252

�

97,682

�

291,109

�

290,643

�

Operating expenses:

�

Cost of revenues (exclusive of depreciation and amortization)

�

42,621

�

41,829

�

124,858

�

122,073

�

Selling, general and administrative

�

28,294

�

27,965

�

86,280

�

84,860

�

Gain on sale of property

�

(6,546

)

Depreciation and amortization

�

19,717

�

19,974

�

57,321

�

58,532

�

Total operating expenses

�

90,632

�

89,768

�

268,459

�

258,919

�

Operating income

�

6,620

�

7,914

�

22,650

�

31,724

�

Other income (expense):

�

Interest expense

�

(4,103

)

(4,089

)

(12,401

)

(14,712

)

Loss on early extinguishment of debt

�

(3,660

)

Interest income and other

�

Total other expense

�

(4,090

)

(4,082

)

(12,374

)

(18,344

)

�

Income before income tax provision

�

2,530

�

3,832

�

10,276

�

13,380

�

Income tax provision

�

1,014

�

1,771

�

4,155

�

5,521

�

Net income

�

1,516

�

2,061

�

6,121

�

7,859

�

Net income per common share -

�

Basic

�

0.14

�

0.20

�

0.58

�

0.76

�

Diluted

�

0.13

�

0.18

�

0.54

�

0.71

�

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

�

Basic

�

10,586,690

�

10,337,488

�

10,567,036

�

10,321,905

�

Diluted

�

11,311,691

�

11,206,159

�

11,329,328

�

11,096,177

�

See accompanying notes to condensed consolidated financial statements.

�

Table of Contents

�

Hawaiian Telcom Holdco,�Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, dollars in thousands)

�

Three�Months�Ended

�

Nine�Months�Ended

�

September�30,

�

September�30,

�

2014

�

2013

�

2014

�

2013

�

Net income

�

1,516

�

2,061

�

6,121

�

7,859

�

Other comprehensive income (loss) -

�

Unrealized holding gains (losses) arising during period

�

)

�

)

(22

)

Retirement plan (gain) loss

�

222

�

(202

)

667

�

Income tax credit (charge) on comprehensive income

�

(17

)

(88

)

�

(263

)

Other comprehensive income (loss), net of tax

�

140

�

(123

)

382

�

Comprehensive income

�

1,539

�

2,201

�

5,998

�

8,241

�

See accompanying notes to condensed consolidated financial statements.

�

Table of Contents

�

Hawaiian Telcom Holdco,�Inc.

Condensed Consolidated Balance Sheets

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

�

�	�	September�30,		�	December�31,		�
�	�	2014		�	2013		�
�	�	�		�	�		�
Assets	�	�		�	�		�
�	�	�		�	�		�
Current assets	�	�		�	�		�
Cash and cash equivalents	�	$	31,693	�	$	49,551	�
Receivables, net	�	33,378		�	34,521		�
Material and supplies	�	10,146		�	15,939		�
Prepaid expenses	�	4,779		�	3,724		�
Deferred income taxes	�	7,968		�	8,146		�
Other current assets	�	3,218		�	2,851		�
Total current assets	�	91,182		�	114,732		�
Property, plant and equipment, net	�	553,467		�	524,375		�
Intangible assets, net	�	38,051		�	40,225		�
Goodwill	�	12,104		�	12,104		�
Deferred income taxes	�	70,765		�	75,274		�
Other assets	�	9,935		�	11,305		�
�	�	�		�	�		�
Total assets	�	$	775,504	�	$	778,015	�
�	�	�		�	�		�
Liabilities and Stockholders� Equity	�	�		�	�		�
�	�	�		�	�		�
Current liabilities	�	�		�	�		�
Current portion of long-term debt	�	$	3,000	�	$	3,000	�
Accounts payable	�	45,378		�	40,228		�
Accrued expenses	�	15,877		�	18,787		�
Advance billings and customer deposits	�	16,072		�	16,122		�
Other current liabilities	�	7,222		�	6,412		�
Total current liabilities	�	87,549		�	84,549		�
Long-term debt	�	289,985		�	291,679		�
Employee benefit obligations	�	69,966		�	80,321		�
Other liabilities	�	6,949		�	8,454		�
Total liabilities	�	454,449		�	465,003		�
�	�	�		�	�		�
Commitments and contingencies (Note 12)	�	�		�	�		�
�	�	�		�	�		�
Stockholders� equity	�	�		�	�		�
Common stock, par value of $0.01 per share, 245,000,000 shares authorized and 10,587,105 and 10,495,856 shares issued and outstanding at September�30, 2014 and December�31, 2013, respectively	�	106		�	105		�
Additional paid-in capital	�	169,913		�	167,869		�
Accumulated other comprehensive loss	�	(4,839		)	(4,716		)
Retained earnings	�	155,875		�	149,754		�
Total stockholders� equity	�	321,055		�	313,012		�
�	�	�		�	�		�
Total liabilities and stockholders� equity	�	$	775,504	�	$	778,015	�

�

See accompanying notes to condensed consolidated financial statements.

�

Table of Contents

�

Hawaiian Telcom Holdco,�Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)

�

�	�	Nine�Months�Ended					�
�	�	September�30,					�
�	�	2014		�	2013		�
�	�	�		�	�		�
Cash flows from operating activities:	�	�		�	�		�
Net income	�	$	6,121	�	$	7,859	�
Adjustments to reconcile net income to net cash provided by operating activities	�	�		�	�		�
Depreciation and amortization	�	57,321		�	58,532		�
Loss on early extinguishment of debt	�	�		�	3,660		�
Gain on sale of property	�	�		�	(6,546		)
Employee retirement benefits	�	(10,557		)	(10,324		)
Provision for uncollectibles	�	2,493		�	2,003		�
Stock based compensation	�	3,066		�	1,886		�
Deferred income taxes	�	4,770		�	6,018		�
Changes in operating assets and liabilities:	�	�		�	�		�
Receivables	�	(1,350		)	(4,142		)
Material and supplies	�	(685		)	(3,916		)
Prepaid expenses and other current assets	�	(1,421		)	(1,064		)
Accounts payable and accrued expenses	�	1,296		�	(2,064		)
Advance billings and customer deposits	�	(50		)	323		�
Other current liabilities	�	(568		)	106		�
Other	�	1,380		�	2,446		�
Net cash provided by operating activities	�	61,816		�	54,777		�
�	�	�		�	�		�
Cash flows from investing activities:	�	�		�	�		�
Capital expenditures	�	(76,474		)	(69,809		)
Acquisitions	�	�		�	(11,858		)
Proceeds on sale of property	�	�		�	13,118		�
Net cash used in investing activities	�	(76,474		)	(68,549		)
�	�	�		�	�		�
Cash flows from financing activities:	�	�		�	�		�
Repayment of capital lease and installment financing	�	(2,014		)	(406		)
Repayment of debt including premium	�	(2,250		)	(302,333		)
Proceeds from installment financing	�	2,085		�	�		�
Proceeds from borrowing	�	�		�	298,500		�
Loan refinancing costs	�	�		�	(3,442		)
Taxes paid related to net share settlement of equity awards	�	(1,021		)	(426		)
Net cash used in financing activities	�	(3,200		)	(8,107		)
�	�	�		�	�		�
Net change in cash and cash equivalents	�	(17,858		)	(21,879		)
Cash and cash equivalents, beginning of period	�	49,551		�	66,993		�
�	�	�		�	�		�
Cash and cash equivalents, end of period	�	$	31,693	�	$	45,114	�
�	�	�		�	�		�
Supplemental disclosure of cash flow information:	�	�		�	�		�
Interest paid, net of amounts capitalized	�	$	11,033	�	$	14,416	�

�

See accompanying notes to condensed consolidated financial statements.

�

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, 2014

�

10,495,856

�

105

�

167,869

�

(4,716

)

149,754

�

313,012

�

Stock based compensation

�

3,066

�

3,066

�

Exercise of warrant

�

15,361

�

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

�

75,888

�

(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

�

Balance, January�1, 2013

�

10,291,897

�

103

�

165,941

�

(28,450

)

139,266

�

276,860

�

Stock based compensation

�

1,886

�

1,886

�

Exercise of warrant

�

297

�

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

�

46,543

�

(426

)

�

(426

)

�

Net income

�

7,859

�

7,859

�

Other comprehensive income, net of tax

�

382

�

382

�

Balance, September�30, 2013

�

10,338,737

�

103

�

167,401

�

(28,068

)

147,125

�

286,561

�

See accompanying notes to condensed consolidated financial statements.

�

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, long distance,�Internet, television 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, 2013.

�

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, 2014 are held in one bank in demand deposit accounts.

�

Supplemental Non-Cash Investing and Financing Activities

�

Accounts payable included $15.1 million and $6.2 million at September�30, 2014 and 2013, 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 $1.9 million and $5.5 million for the three and nine months ended September�30, 2014 and $1.9 million and $5.6 million for the three and nine months ended September�30, 2013, respectively.

�

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,			�
�	�	2014	�	2013	�	2014	�	2013	�
�	�	�	�	�	�	�	�	�	�
Basic earnings per share - weighted average shares	�	10,586,690	�	10,337,488	�	10,567,036	�	10,321,905	�
Effect of dilutive securities:	�	�	�	�	�	�	�	�	�
Employee and director restricted stock units	�	122,530	�	173,405	�	153,752	�	166,461	�
Warrants	�	602,471	�	695,266	�	608,540	�	607,811	�
�	�	�	�	�	�	�	�	�	�
Diluted earnings per share - weighted average shares	�	11,311,691	�	11,206,159	�	11,329,328	�	11,096,177	�

�

No restricted stock units were deemed anti-dilutive and excluded from the computation of diluted earnings per share for the three and nine months ended September�30, 2014 and 2013.

�

Recent Accounting Pronouncements

�

In May�2014, the Financial Accounting Standards Board (�FASB�) issued a new accounting standard which provides guidance for revenue recognition.� The new accounting standard will supersede the current revenue recognition requirements and most industry-specific guidance.� The standard�s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard will be effective for the Company in the first quarter of 2017 and either full retrospective or modified retrospective adoption is permitted. Early adoption is not permitted. The Company is currently evaluating the impact of the adoption of this accounting standard on the consolidated financial statements.

�

In August�2014, the FASB issued an accounting standard with new guidance on management�s responsibility to evaluate whether there is substantial doubt about an entity�s ability to continue as a going concern and to provide related disclosures. Management must evaluate whether it is probable that known conditions or events, considered in the aggregate, would raise substantial doubt about the entity�s ability to continue as a going concern within one year after the date that the financial statements are issued. If such conditions or events are identified, the standard requires management�s mitigation plans to alleviate the doubt or a statement of the substantial doubt about the entity�s ability to continue as a going concern to be disclosed in the financial statements. The standard is effective for fiscal years and interim periods beginning after December�15, 2016 with early adoption permitted. The adoption of this standard is not expected to impact the consolidated financial statements.

�

3.� SystemMetrics Corporation Acquisition

�

On September�30, 2013, the Company completed its acquisition of all of the voting stock of SystemMetrics Corporation (�SystemMetrics�) for $16.3 million in cash, net of cash acquired and purchase price adjustments.� Of the total purchase price, $11.9 million was paid at closing with the balance subject to an earn-out over a three year period.� Payment of the earn-out is contingent on SystemMetrics meeting certain performance metrics and continued employment of the SystemMetrics� key executive.� For financial reporting purposes, the earn-out is accounted for as compensation expense as earned.

�

Table of Contents

�

SystemMetrics provides virtual and physical data center colocation services in the State of Hawaii along with other telecommunication services that are complementary to the Company�s operations.

�

The Company followed the acquisition method of accounting and allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their provisional fair values, and the estimates and assumptions were subject to change within the measurement period.� There were no changes made to the allocation of the purchase price in 2014.� The measurement period was considered closed as of June�30, 2014.

�

For the three months ended September�30, 2014, SystemMetrics revenue amounted to $2.5 million and the net loss amounted to $0.2 million.� For the nine months ended September�30, 2014, SystemMetrics revenue amounted to $7.2 million and the net loss was $0.4 million.

�

The following unaudited pro forma results of operations are provided for the three and nine months ended September�30, 2013 as if the acquisition of SystemMetrics occurred on January�1, 2012.� The pro forma combined results of operations have been prepared by adjusting the historical results of the Company to include the historical results of SystemMetrics.� Adjustments were made to the historical results for the purchase price allocation to adjust depreciation and amortization, to eliminate the interest on certain debt financing which was not assumed in the purchase, to eliminate certain intercompany revenue between the entities and to reallocate the transaction related expenses from the 2013 to the 2012 periods.

�

These supplemental pro forma results of operations are provided for illustrative purposes only and do not purport to be indicative of the actual results that would have been achieved by the combined company for the periods presented or that may be achieved by the combined company in the future.� The pro forma results of operations do not include any costs savings or synergies that resulted, or will result, from the acquisition or any estimated costs that will be incurred to integrate SystemMetrics.� Future results may vary significantly from the results reflected in this pro forma financial information because of future events and transactions as well as other factors.

�

The pro forma results are as follows (dollars in thousands):

�

�	�	For�the�Three		�	For�the�Nine		�
�	�	Months�Ended		�	Months�Ended		�
�	�	September�30,		�	September�30,		�
�	�	2013		�	2013		�
�	�	�		�	�		�
Revenues	�	$	99,649	�	$	296,443	�
Expenses	�	91,610		�	264,808		�
Operating income	�	8,039		�	31,635		�
Other income (expense)	�	(4,082		)	(18,344		)
Income before income tax benefit	�	3,957		�	13,291		�
Income tax expense	�	1,301		�	4,970		�
�	�	�		�	�		�
Net income	�	$	2,656	�	$	8,321	�

�

Table of Contents

�

4.� Receivables

�

Receivables consisted of the following (dollars in thousands):

�

�	�	September�30,		�	December�31,		�
�	�	2014		�	2013		�
�	�	�		�	�		�
Customers and other	�	$	37,252	�	$	38,463	�
Allowance for doubtful accounts	�	(3,874		)	(3,942		)
�	�	�		�	�		�
�	�	$	33,378	�	$	34,521	�

�

5.� Long-Lived Assets

�

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

�

�	�	September�30,		�	December�31,		�
�	�	2014		�	2013		�
�	�	�		�	�		�
Property, plant and equipment	�	$	812,423	�	$	729,364	�
Less accumulated depreciation	�	(258,956		)	(204,989		)
�	�	�		�	�		�
�	�	$	553,467	�	$	524,375	�

�

Depreciation expense amounted to $19.0 million and $55.1 million for the three and nine months ended September�30, 2014, respectively.� Depreciation expense amounted to $19.3 million and $56.5 million for the three and nine months ended September�30, 2013, respectively.

�

In February�2013, the Company entered into an agreement to sell a parcel of land and warehouse not actively used in the Company�s operations for a purchase price, as amended, of $13.9 million. The sale was subject to due diligence by the buyer and approval of the Hawaii Public Utilities Commission (�HPUC�). The HPUC approval was received in May�2013 and the sale was consummated in June�2013. The net proceeds, net of commissions and other costs paid through escrow of $0.8 million, amounted to $13.1 million. A gain on the sale of $6.5 million was recognized in the second quarter of 2013 as management concluded the land sold was not grouped with the assets subject to the composite depreciation method. The HPUC approval requires the Company to spend $0.3 million on training employees on broadband telecommunication deployment and operation. In addition, the HPUC approval provides for the Company to make improvements to its broadband network in an amount equal to the net proceeds less the training cost commitment. The planned training expenses and network capital spending are being recognized as the costs are incurred.

�

Table of Contents

�

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

�

September�30,�2014

�

December�31,�2013

�

Gross

�

Gross

�

Carrying

�

Accumulated

�

Net�Carrying

�

Carrying

�

Accumulated

�

Net�Carrying

�

Value

�

Amortization

�

Value

�

Value

�

Amortization

�

Value

�

Subject to amortization �

�

Customer relationships

�

21,709

�

11,096

�

10,613

�

21,709

�

8,983

�

12,726

�

Trade name and other

�

320

�

182

�

138

�

320

�

121

�

199

�

22,029

�

11,278

�

10,751

�

22,029

�

9,104

�

12,925

�

Not subject to amortization �

�

Brand name

�

27,300

�

27,300

�

27,300

�

27,300

�

27,300

�

27,300

�

27,300

�

27,300

�

49,329

�

11,278

�

38,051

�

49,329

�

9,104

�

40,225

�

Amortization expense amounted to $0.7 million and $2.2 million for the three and nine months ended September�30, 2014, respectively.� Amortization expense amounted to $0.7 million and $2.0 million for the three and nine months ended September�30, 2013, respectively.� Estimated amortization expense for the next five years and thereafter is as follows (dollars in thousands):

�

2014 (remaining months)	�	$	722	�
2015	�	2,498		�
2016	�	2,101		�
2017	�	1,703		�
2018	�	1,308		�
Thereafter	�	2,419		�
�	�	�		�
�	�	$	10,751	�

�

6.� Accrued Expenses

�

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

�

�	�	September�30,		�	December�31,		�
�	�	2014		�	2013		�
�	�	�		�	�		�
Salaries and benefits	�	$	12,317	�	$	15,160	�
Interest	�	2,557		�	2,576		�
Other taxes	�	1,003		�	1,051		�
�	�	�		�	�		�
�	�	$	15,877	�	$	18,787	�

�

Table of Contents

�

7.� Long-Term Debt

�

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

�

�	�	Interest�Rate	�	�	�	�		�	�		�
�	�	at�September�30,	�	Final	�	September�30,		�	December�31,		�
�	�	2014	�	Maturity	�	2014		�	2013		�
�	�	�	�	�	�	�		�	�		�
Term loan	�	5.00	%	June�6, 2019	�	$	296,888	�	$	299,138	�
Original issue discount	�	�	�	�	�	(3,903		)	(4,459		)
�	�	�	�	�	�	292,985		�	294,679		�
Current	�	�	�	�	�	3,000		�	3,000		�
�	�	�	�	�	�	�		�	�		�
Noncurrent	�	�	�	�	�	$	289,985	�	$	291,679	�

�

The term loan outstanding at September�30, 2014 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, 2014 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.� No excess cash flow payment was due for the year ended December�31, 2013.� 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 matures on October�3, 2015.� The facility has an available balance of $30.0 million with no amounts drawn as of or for the periods ended September�30, 2014 and 2013.� 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.

�

Refinancing

�

In June�2013, the Company refinanced its term loan debt. The Company paid a premium on the repayment of the old term loan of $3.0 million. In addition, the Company paid $3.4 million in underwriting fees and legal costs. The premium on repayment of debt, existing original issue discount, existing deferred financing costs, underwriting fees and legal costs were accounted for in accordance with accounting standards for modification of debt instruments with different terms. The Company compared each syndicated lenders� loan under the old term loan with the syndicated lenders� loan under the new term loans. For loans under the new term loan that were substantially different, the Company recognized the exchange of debt instruments as a debt extinguishment. For loans under the new term loan that were not substantially different, the Company accounted for the exchange of debt instruments as a modification. As a result of the refinancing, the Company deferred $2.7 million of financing related costs and recognized a loss on early extinguishment of debt of $3.7 million.

�

Table of Contents

�

Maturities

�

The annual requirements for principal payments on long-term debt as of September�30, 2014 are as follows (dollars in thousands):

�

Years�ended�December�31,	�	�		�
2014 (remainder of year)	�	$	750	�
2015	�	3,000		�
2016	�	3,000		�
2017	�	3,000		�
2018	�	3,000		�
Thereafter	�	284,138		�
�	�	�		�
�	�	$	296,888	�

�

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, 2014, respectively.�� Interest capitalized by the Company amounted to $0.3 million and $0.9 million for the three and nine months ended September�30, 2013, respectively.

�

8.� 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, 2014 and 2013 (dollars in thousands):

�

Pension

�

Three�Months�Ended

�

Nine�Months�Ended

�

September�30,

�

September�30,

�

2014

�

2013

�

2014

�

2013

�

Interest cost

�

2,208

�

2,055

�

6,624

�

6,166

�

Expected asset return

�

(3,178

)

(2,934

)

(9,534

)

(8,804

)

Amortization of loss

�

148

�

444

�

Net periodic benefit income

�

(941

)

(731

)

(2,823

)

(2,194

)

�

Other Postretirement Benefits

�

Three�Months�Ended

�

Nine�Months�Ended

�

September�30,

�

September�30,

�

2014

�

2013

�

2014

�

2013

�

Service cost

�

230

�

277

�

691

�

832

�

Interest cost

�

602

�

516

�

1,805

�

1,548

�

Amortization of loss

�

223

�

Net periodic benefit cost

�

847

�

867

�

2,541

�

2,603

�

Table of Contents

�

The Company previously disclosed in its consolidated financial statements for the year ended December�31, 2013 that it expected to contribute $13.1 million to its pension plan in 2014.� As of September�30, 2014, the Company has contributed $8.7 million.� The Company contributed an additional $1.0 million in October�2014 for a total of $9.7 million for the year.� No additional contributions are expected for 2014.� The amount contributed for the year is less than originally anticipated because of recent changes in the plan funding rules.

�

9.� Income Taxes

�

Income tax expense 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,�2014

�

September�30,�2014

�

2014

�

2013

�

2014

�

2013

�

Income tax at federal rate

�

860

�

1,303

�

3,494

�

4,549

�

Increase (decrease) resulting from:

�

State income taxes, net of federal income tax

�

101

�

411

�

461

�

Permanent differences

�

178

�

539

�

780

�

850

�

Capital goods excise tax credit

�

(125

)

(104

)

(530

)

(339

)

�

Total income tax expense

�

1,014

�

1,771

�

4,155

�

5,521

�

The Company evaluates its tax positions for liability recognition.� As of September�30, 2014, 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, 2014 or 2013.� All tax years from 2010 remain open for both federal and Hawaii state purposes.

�

10.� 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.� All grants under the equity incentive plan will be issued to acquire shares at the fair value on date of grant.

�

Table of Contents

�

As of September�30, 2014, all awards were restricted stock units.� Activity with respect to outstanding restricted stock units for the nine months ended September�30, 2014 and 2013 was as follows:

�

�	�	�	�	Weighted-		�
�	�	�	�	Average		�
�	�	�	�	Grant-Date		�
�	�	Shares	�	Fair�Value		�
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	�
�	�	�	�	�		�
2013	�	�	�	�		�
Nonvested at January�1, 2013	�	223,224	�	$	15	�
Granted	�	181,330	�	20		�
Vested	�	(67,233	)	17		�
Forfeited	�	(22,918	)	17		�
�	�	�	�	�		�
Nonvested at September�30, 2013	�	314,403	�	$	17	�

�

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 Company recognized compensation expense of $0.7 million and $1.9 million for the three and nine months ended September�30, 2013, respectively.� The fair value as of the vesting date for the restricted stock units that vested during the nine months ended September�30, 2014 and 2013 was $2.7 million and $1.3 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 35,147 and 20,692 for the nine months ended September�30, 2014 and 2013, respectively, and were based on the value of the restricted stock units as determined by the Company�s closing stock price on the date of vesting.� Total payments for the employees� tax obligations to the tax authorities amounted to $1.0 million and $0.4 million for the nine months ended September�30, 2014 and 2013, respectively.� Other than reimbursements for tax withholdings, there was no cash received under all share-based arrangements.� In March�2014, the terms of certain restricted stock units were modified which resulted in the restricted stock units vesting as of the date of the modification.� The Company recognized the incremental value of $0.6 million as additional expense in the first quarter of 2014.

�

11.�� Stockholders� Equity

�

Warrants

�

In 2010, the Company issued warrants to purchase 1,481,055 shares of common stock for $14.00 per share.� The warrants to purchase shares may be exercised anytime from January�26, 2011 to the maturity on October�28, 2015.� The warrants may be exercised on a cashless basis whereby additional warrants are tendered in lieu of payment for the exercise price.� During the nine months ended September�30, 2014 and 2013, warrants were exercised on a cashless basis resulting in the issuance of 15,361 shares and 297 shares of common stock, respectively.

�

Table of Contents

�

Accumulated Other Comprehensive Income (Loss)

�

The components of accumulated other comprehensive income (loss) are as follows (dollars in thousands):

�

�	�	Unrealized		�	�		�	�		�
�	�	Gain�(Loss)�on		�	Retirement		�	�		�
�	�	Investments		�	Plans		�	Total		�
�	�	�		�	�		�	�		�
2014	�	�		�	�		�	�		�
January�1, 2014	�	$	(60	)	$	(4,656	)	$	(4,716	)
Other comprehensive income (loss) for 2014	�	(4		)	(119		)	(123		)
�	�	�		�	�		�	�		�
September�30, 2014	�	$	(64	)	$	(4,775	)	$	(4,839	)
�	�	�		�	�		�	�		�
2013	�	�		�	�		�	�		�
January�1, 2013	�	$	(36	)	$	(28,414	)	$	(28,450	)
Other comprehensive income (loss) for 2013	�	(22		)	404		�	382		�
�	�	�		�	�		�	�		�
September�30, 2013	�	$	(58	)	$	(28,010	)	$	(28,068	)

�

Reclassifications out of other comprehensive income (loss) for the three and nine months ended September�30, 2014 and 2013 were as follows (dollars in thousands):

�

Three�Months�Ended

�

Nine�Months�Ended

�

September�30,

�

September�30,

�

2014

�

2013

�

2014

�

2013

�

Retirement plans

�

Amortization of (gain) loss

�

222

�

(202

)

667

�

Income tax credit (charge) on comprehensive income

�

(17

)

(88

)

�

(263

)

�

Net of tax

�

134

�

(119

)

404

�

The amortization of (gain) loss was recognized primarily in selling, general and administrative expense for the periods ended September�30, 2014 and 2013.

�

12.�� Commitments and Contingencies

�

Trans-Pacific Submarine Cable

�

In August�2014, the Company joined several other telecommunication companies to form a consortium to build and operate a trans-Pacific submarine cable system.� The total system cost is expected to be $245 million and is primarily composed of a supply contract with the lead contractor.� The Company will invest $25 million over the multi-year construction period for a fractional ownership in the system.� The investment is expected to be $2.5 million in 2014, $10.2 million in 2015, $10.5 million in 2016 and $1.8 million in 2017.� In addition, the Company will construct a cable landing station in Hawaii and provide cable landing services in exchange for additional system capacity.� The value of this capacity is estimated at $5.0 million.� The system is expected to be operational in December�2016.

�

Table of Contents

�

Power Purchase Agreement

�

In July�2014, the Company entered into a power purchase agreement to acquire all of the power generated from solar photovoltaic systems that are to be installed by a third party on selected company properties.� The agreement provides for all power generated to be purchased at a fixed price over a 25 year term.� Based on planned solar installations and expected power generated, the Company estimates it will purchase power amounting to $0.7 million in 2015.� Power purchased in future years will be dependent on the level of photovoltaic units installed by the third party and the power generated.

�

Tropical Storm Iselle

�

On August�8, 2014, Tropical Storm Iselle made landfall in the State of Hawaii with the most significant damage occurring on the east side of the island of Hawaii.� The cost of replacement of the Company�s damaged outside plant is estimated to amount to $2.5 million as of September�30, 2014.� The Company is insured but there are limitations based on proximity of poles and lines to other Company property and based on deductibles determined by insured location as well as by event.� As of September�30, 2014, the Company has not recognized a recovery in the condensed consolidated financial statements.� The expense attributed to the storm recognized in the condensed consolidated statements of income after cost capitalization amounted to $0.9 million for the three and nine months ended September�30, 2014.

�

Puna Lava Flow

�

A lava flow from Kilauea volcano is impacting the Puna district on the island of Hawaii.� The Company has been monitoring the progress of the lava flow and has contingency plans to reduce disruption to its services in the area.� These plans are subject to change depending on the direction and advancement of the lava flow which has been unpredictable.� It is not possible at this time to estimate what loss, if any, to Company facilities will be incurred as a result of the lava flow.

�

Collective Bargaining Agreement

�

The Company has a collective bargaining agreement with the International Brotherhood of Electrical Workers Local 1357 (�IBEW�) with an effective date of January�1, 2013 for a term of five years.� The agreement covers approximately half of the Company�s work force.

�

Third Party Claims

�

In the normal course of conducting its business, the Company is involved in various disputes with third parties, including vendors and customers.� The outcome of such disputes is generally uncertain and subject to commercial negotiations.� The Company periodically assesses its liabilities in connection with these matters and records reserves for those matters where it is probable that a loss has been incurred and the loss can be reasonably estimated.� Based on management�s most recent assessment, the Company believes that the risk of loss in excess of liabilities recorded is not material for all outstanding claims and disputes and the ultimate outcome of such matters will not have a material adverse effect on the Company�s results of operations, cash flows or financial position.

�

Litigation

�

The Company is involved in litigation arising in the normal course of business.� The outcome of litigation is not expected to have a material adverse impact on the Company�s condensed consolidated financial statements.

�

13.� Fair Value of Financial Instruments

�

The following method and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate the fair value.

�

Cash and cash equivalents, accounts receivable and accounts payable � The carrying amount approximates fair value.� The valuation is based on settlements of similar financial instruments all of which are short-term in nature and generally settled at or near cost.� Cash is measured at Level 1.

�

Table of Contents

�

Investment securities � The fair value of investment securities is based on quoted market prices.� Investment securities are included in other assets on the condensed consolidated balance sheets.

�

Debt � The fair value of debt is based on the value at which the debt is trading among holders.

�

The estimated fair value of financial instruments is as follows (dollars in thousands):

�

�	�	Carrying		�	Fair		�
�	�	Value		�	Value		�
�	�	�		�	�		�
September�30, 2014	�	�		�	�		�
Assets - investment in U.S. Treasury obligations	�	$	807	�	$	807	�
Liabilities - long-term debt (carried at amortized cost)	�	292,985		�	298,372		�
�	�	�		�	�		�
December�31, 2013	�	�		�	�		�
Assets - investment in U.S. Treasury obligations	�	$	807	�	$	807	�
Liabilities - long-term debt (carried at amortized cost)	�	294,679		�	299,886		�

�

Fair Value Measurements

�

Fair value for accounting purposes is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

�

Accounting standards establish a fair value hierarchy that prioritizes the inputs used to measure fair value.� The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

�

Assets measured at fair value on a recurring basis represent investment securities included in other assets.� Liabilities carried at amortized cost with fair value disclosure on a recurring basis represent long-term debt.� A summary is as follows (dollars in thousands):

�

�	�	September�30,		�	December�31,		�
�	�	2014		�	2013		�
�	�	�		�	�		�
Asset value measurements using:	�	�		�	�		�
Quoted prices in active markets for identical assets (Level 1)	�	$	807	�	$	807	�
Signficant other observable inputs (Level 2)	�	�		�	�		�
Significant unobservable inputs (Level 3)	�	�		�	�		�
�	�	�		�	�		�
�	�	$	807	�	$	807	�
�	�	�		�	�		�
Liability value measurements using:	�	�		�	�		�
Quoted prices in active markets for identical liabilities (Level 1)	�	$	�	�	$	�	�
Signficant other observable inputs (Level 2)	�	298,372		�	299,886		�
Significant unobservable inputs (Level 3)	�	�		�	�		�
�	�	�		�	�		�
�	�	$	298,372	�	$	299,886	�

�

14.� Segment Information

�

The Company operates in two reportable segments of telecommunications and data center colocation.� This conclusion is based on how resources are allocated and performance is assessed by the Chief Executive Officer, the Company�s chief operating decision maker.� The telecommunications segment provides local voice services, long distance voice services, high-speed internet and video.� In addition, the segment provides network access which includes data transport.� Various related telephony services are provided including equipment and managed services.� The data center colocation segment provides physical colocation, virtual colocation and various related telephony services.

�

Table of Contents

�

In the fourth quarter of 2013, the Company reevaluated its reportable segments.� This was prompted by the acquisition of SystemMetrics and the Company�s current strategic focus.� Previously, the Company presented a wireline and other segment (which was primarily wireless services).� With the diminishing significance of the wireless segment, the Company no longer provides separate wireless information to the Company�s chief operating decision maker.� Both these segments are now combined into the telecommunications segment.� Prior to the acquisition of SystemMetrics on September�30, 2013, the Company did not have data center colocation operations.� Hence, the Company had a single reportable segment prior to September�30, 2013 under the revised reportable segment structure.

�

The following table provides operating financial information for the Company�s reportable segments for the three and nine months ended September�30, 2014 (dollars in thousands):

�

Tele-

�

Data�Center

�

Intersegment

�

communications

�

Colocation

�

Elimination

�

Total

�

Three months ended September�30, 2014 �

�

Operating revenues

�

95,040

�

2,485

�

(273

)

97,252

�

Depreciation and amortization

�

19,298

�

419

�

19,717

�

Operating income (loss)

�

6,723

�

(103

)

�

6,620

�

Nine months ended September�30, 2014 �

�

Operating revenues

�

284,617

�

7,213

�

(721

)

291,109

�

Depreciation and amortization

�

56,078

�

1,243

�

57,321

�

Operating income (loss)

�

22,888

�

(238

)

�

22,650

�

Capital expeditures

�

76,949

�

468

�

77,417

�

Intersegment revenue represents primarily network access services provided by the telecommunications segment for data center colocation.� For the three and nine months ended September�30, 2014 total operating income above reconciles to the condensed consolidated statement of income as follows:

�

�	�	Three�Months		�	Nine�Months		�
�	�	Ended		�	Ended		�
�	�	September�30,		�	September�30,		�
�	�	2014		�	2014		�
�	�	�		�	�		�
Operating income	�	$	6,620	�	$	22,650	�
Corporate other expense	�	(4,090		)	(12,374		)
�	�	�		�	�		�
Income before income tax provision	�	$	2,530	�	$	10,276	�

�

The following table provides information on the Company�s revenue, net of intersegment eliminations, by product group (dollars in thousands):

�

Three�Months�Ended

�

Nine�Months�Ended

�

September�30,

�

September�30,

�

2014

�

2013

�

2014

�

2013

�

Local voice and other retail services

�

63,694

�

65,485

�

189,583

�

193,003

�

Network access services

�

31,073

�

32,197

�

94,313

�

97,640

�

Data center colocation

�

2,485

�

7,213

�

97,252

�

97,682

�

291,109

�

290,643

�

Table of Contents

�

Item 2. Management�s Discussion and Analysis of

Financial Condition and Results of Operations

�

Forward-Looking Statements

�

This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance (including our anticipated cost structure) and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.� In some cases, you can identify forward-looking statements by terminology such as �may,� �should,� �expects,� �intends,� �plans,� �anticipates,� �believes,� �estimates,� �predicts,� �potential,� �continues,� �assumption� or the negative of these terms or other comparable terminology. These statements (including statements related to our anticipated cost structure) are only predictions. Actual events or results may differ materially from those anticipated or projected due to a number of factors. These factors include, but are not limited to:

�

�� failures in critical back-office systems and IT infrastructure or a breach of our cyber security systems;

�� our ability to fund capital expenditures for network enhancements;

�� our ability to maintain arrangements with third-party service providers;

�� changes in regulations and legislation applicable to providers of telecommunications services;

�� changes in demand for our products and services;

�� our ability to retain experienced personnel;

�� economic conditions in Hawaii;

�� technological changes affecting the telecommunications industry; and

�� our indebtedness could adversely affect our financial condition.

�

These and other factors may cause our actual results to differ materially from any forward-looking statement.� Refer to our Annual Report on Form�10-K for a detailed discussion of risks that could materially adversely affect our business, financial condition or results of operations.� Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business operations.

�

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These forward-looking statements are made as of the date of issuance of these quarterly condensed consolidated financial statements, we assume no obligation to update or revise them or to provide reasons why actual results may differ.

�

We do not undertake any responsibility to release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of issuance of these quarterly condensed consolidated financial statements. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by the forward-looking statements contained in this quarterly report.

�

Background

�

In the following discussion and analysis of financial condition and results of operations, unless the context otherwise requires, �we,� �us� or the �Company� refers, collectively, to Hawaiian Telcom Holdco,�Inc. and its subsidiaries.

�

Table of Contents

�

Segments and Sources of Revenue

�

We operate in two reportable segments (telecommunication and data center colocation) based on how resources are allocated and performance is assessed by our chief operating decision maker.� Our chief operating decision maker is our Chief Executive Officer.

�

In the fourth quarter of 2013, we reevaluated our reportable segments.� This was prompted by the acquisition of SystemMetrics and our current strategic focus.� Previously, we presented a wireline and other segment (which was primarily wireless services).� With the diminishing significance of the wireless segment, we no longer provide separate wireless information to our chief operating decision maker.� Both these segments are now combined into the telecommunications segment.� Prior to the acquisition of SystemMetrics on September�30, 2013, we did not have data center colocation operations.� Hence, we were in a single segment prior to September�30, 2013 under the revised reportable segment structure.

�

Telecommunications

�

The telecommunications segment derives revenue from the following sources:

�

Local Telephone Services � We receive revenue from providing local exchange telephone services.� These revenues include monthly charges for basic service, local private line services and enhanced calling features such as voice mail, caller ID and 3-way calling.

�

Network Access Services � We receive revenue for access to our network for wholesale carrier data, business customer data including Dedicated Internet Access, switched carrier access and subscriber line charges imposed on end users.� Switched carrier access revenue compensates us for origination, transport and termination of calls for long distance and other interexchange carriers.

�

Long Distance Services � We receive revenue from providing long distance services to our customers.

�

High-Speed Internet (�HSI�) Services � We provide HSI to our residential and business customers.

�

Video Services � Our video services marketed as Hawaiian Telcom TV is an advanced entertainment service.

�

Equipment and managed services � We provide installation and maintenance of customer premise equipment as well as managed service for customer telephone and IT networks.

�

Wireless � We receive revenue from wireless services, including the sale of wireless handsets and other wireless accessories.

�

Data Center Colocation

�

The data center colocation segment provides physical colocation, virtual colocation and various related telephony services.

�

Table of Contents

�

Results of Operations for the Three and Nine Months Ended September�30, 2014 and 2013

�

Operating Revenues

�

The following tables summarize our volume information (lines or subscribers) as of September�30, 2014 and 2013, and our operating revenues for the three and nine months ended September�30, 2014 and 2013.� For comparability, we also present volume information as of September�30, 2014 compared to June�30, 2014.

�

Previously, revenues from business VoIP customers for equipment usage and other ancillary services were classified as other revenue.� Because all of these revenues relate to providing local telephone service to the customer, they are now presented as local voice services.� Comparative information for prior periods, including the first quarter of 2014, has been modified to conform to the current period presentation.

�

Volume Information

�

As of September�30, 2014 compared to September�30, 2013

�

�	�	September�30,	�	September�30,	�	Change			�
�	�	2014	�	2013	�	Number	�	Percentage	�
�	�	�	�	�	�	�	�	�	�
Voice access lines	�	�	�	�	�	�	�	�	�
Residential	�	173,656	�	190,013	�	(16,357	)	-8.6	%
Business	�	189,207	�	194,623	�	(5,416	)	-2.8	%
Public	�	3,954	�	4,246	�	(292	)	-6.9	%
�	�	366,817	�	388,882	�	(22,065	)	-5.7	%
�	�	�	�	�	�	�	�	�	�
High-Speed Internet lines	�	�	�	�	�	�	�	�	�
Residential	�	92,265	�	90,253	�	2,012	�	2.2	%
Business	�	19,552	�	19,163	�	389	�	2.0	%
Wholesale	�	853	�	986	�	(133	)	-13.5	%
�	�	112,670	�	110,402	�	2,268	�	2.1	%
�	�	�	�	�	�	�	�	�	�
Long distance lines	�	�	�	�	�	�	�	�	�
Residential	�	109,702	�	119,096	�	(9,394	)	-7.9	%
Business	�	78,207	�	79,320	�	(1,113	)	-1.4	%
�	�	187,909	�	198,416	�	(10,507	)	-5.3	%
�	�	�	�	�	�	�	�	�	�
Video services	�	�	�	�	�	�	�	�	�
Subscribers	�	25,766	�	15,796	�	9,970	�	63.1	%
Homes Enabled	�	152,000	�	111,000	�	41,000	�	36.9	%

�

Table of Contents

�

As of September�30, 2014 compared to June�30, 2014

�

�	�	September�30,	�	June�30,	�	Change			�
�	�	2014	�	2014	�	Number	�	Percentage	�
�	�	�	�	�	�	�	�	�	�
Voice access lines	�	�	�	�	�	�	�	�	�
Residential	�	173,656	�	177,953	�	(4,297	)	-2.4	%
Business	�	189,207	�	190,754	�	(1,547	)	-0.8	%
Public	�	3,954	�	4,028	�	(74	)	-1.8	%
�	�	366,817	�	372,735	�	(5,918	)	-1.6	%
�	�	�	�	�	�	�	�	�	�
High-Speed Internet lines	�	�	�	�	�	�	�	�	�
Residential	�	92,265	�	91,405	�	860	�	0.9	%
Business	�	19,552	�	19,465	�	87	�	0.4	%
Wholesale	�	853	�	866	�	(13	)	-1.5	%
�	�	112,670	�	111,736	�	934	�	0.8	%
�	�	�	�	�	�	�	�	�	�
Long distance lines	�	�	�	�	�	�	�	�	�
Residential	�	109,702	�	112,231	�	(2,529	)	-2.3	%
Business	�	78,207	�	78,522	�	(315	)	-0.4	%
�	�	187,909	�	190,753	�	(2,844	)	-1.5	%
�	�	�	�	�	�	�	�	�	�
Video services	�	�	�	�	�	�	�	�	�
Subscribers	�	25,766	�	23,101	�	2,665	�	11.5	%
Homes Enabled	�	152,000	�	142,000	�	10,000	�	7.0	%

�

Table of Contents

�

Operating Revenues (dollars in thousands)

�

For Three Months

�

�	�	Three�Months�Ended					�	�		�	�	�
�	�	September�30,					�	Change				�
�	�	2014		�	2013		�	Amount		�	Percentage	�
�	�	�		�	�		�	�		�	�	�
Telecommunications	�	�		�	�		�	�		�	�	�
Local voice services	�	$	32,668	�	$	34,665	�	$	(1,997	)	-5.8	%
Network access services	�	�		�	�		�	�		�	�	�
Business data	�	6,470		�	6,282		�	188		�	3.0	%
Wholesale carrier data	�	14,416		�	14,850		�	(434		)	-2.9	%
Subscriber line access charge	�	8,786		�	9,442		�	(656		)	-6.9	%
Switched carrier access	�	1,401		�	1,623		�	(222		)	-13.7	%
�	�	31,073		�	32,197		�	(1,124		)	-3.5	%
Long distance services	�	5,554		�	6,091		�	(537		)	-8.8	%
High-Speed Internet	�	10,909		�	9,999		�	910		�	9.1	%
Video	�	6,531		�	3,717		�	2,814		�	75.7	%
Equipment and managed services	�	4,818		�	7,228		�	(2,410		)	-33.3	%
Wireless	�	515		�	676		�	(161		)	-23.8	%
Other	�	2,699		�	3,109		�	(410		)	-13.2	%
�	�	94,767		�	97,682		�	(2,915		)	-3.0	%
Data center colocation	�	2,485		�	�		�	2,485		�	NA	�
�	�	$	97,252	�	$	97,682	�	$	(430	)	-0.4	%
�	�	�		�	�		�	�		�	�	�
Channel	�	�		�	�		�	�		�	�	�
Business	�	$	41,728	�	$	42,739	�	$	(1,011	)	-2.4	%
Consumer	�	37,141		�	35,298		�	1,843		�	5.2	%
Wholesale	�	15,817		�	16,473		�	(656		)	-4.0	%
Other	�	2,566		�	3,172		�	(606		)	-19.1	%
�	�	$	97,252	�	$	97,682	�	$	(430	)	-0.4	%

�

Table of Contents

�

For Nine Months

�

�	�	Nine�Months�Ended					�	�		�	�	�
�	�	September�30,					�	Change				�
�	�	2014		�	2013		�	Amount		�	Percentage	�
�	�	�		�	�		�	�		�	�	�
Telecommunications	�	�		�	�		�	�		�	�	�
Local voice services	�	$	98,806	�	$	104,896	�	$	(6,090	)	-5.8	%
Network access services	�	�		�	�		�	�		�	�	�
Business data	�	19,806		�	18,885		�	921		�	4.9	%
Wholesale carrier data	�	43,082		�	45,123		�	(2,041		)	-4.5	%
Subscriber line access charge	�	26,985		�	28,507		�	(1,522		)	-5.3	%
Switched carrier access	�	4,440		�	5,125		�	(685		)	-13.4	%
�	�	94,313		�	97,640		�	(3,327		)	-3.4	%
Long distance services	�	17,176		�	18,804		�	(1,628		)	-8.7	%
High-Speed Internet	�	32,206		�	29,495		�	2,711		�	9.2	%
Video	�	16,759		�	8,784		�	7,975		�	90.8	%
Equipment and managed services	�	14,030		�	19,724		�	(5,694		)	-28.9	%
Wireless	�	1,646		�	2,084		�	(438		)	-21.0	%
Other	�	8,960		�	9,216		�	(256		)	-2.8	%
�	�	283,896		�	290,643		�	(6,747		)	-2.3	%
Data center colocation	�	7,213		�	�		�	7,213		�	NA	�
�	�	$	291,109	�	$	290,643	�	$	466	�	0.2	%
�	�	�		�	�		�	�		�	�	�
Channel	�	�		�	�		�	�		�	�	�
Business	�	$	126,308	�	$	126,158	�	$	150	�	0.1	%
Consumer	�	109,312		�	104,794		�	4,518		�	4.3	%
Wholesale	�	47,523		�	50,248		�	(2,725		)	-5.4	%
Other	�	7,966		�	9,443		�	(1,477		)	-15.6	%
�	�	$	291,109	�	$	290,643	�	$	466	�	0.2	%

�

The decrease in local voice services revenues was caused primarily by the decline of voice access lines.� Continued competition in the telecommunications industry has increasingly resulted in customers using technologies other than traditional phone lines for voice and data.� Residential customers are increasingly using wireless services in place of traditional wireline phone services as well as moving local voice service to VoIP technology offered by competitors.� Generally, VoIP technology offered by cable providers is less expensive than traditional wireline phone service, requiring us to respond with more competitive pricing.� Additionally, Competitive Local Exchange Carriers (CLECs) and our cable competitor continue to focus on business customers and selling services to our customer base.

�

In an effort to slow the rate of line loss, we are continuing retention and acquisition programs, and are increasingly focusing efforts on bundling of services.� We have instituted various �saves� tactics designed to focus on specific circumstances where we believe customer churn is controllable.� These tactics include targeted offers to �at risk� customers as well as other promotional tools designed to enhance customer retention.� We also emphasize win-back and employee referral programs.� Additionally, we are intensifying our efforts relative to developing tools and training to enhance our customer service capability to improve customer retention and growth.

�

Business data revenues for the three and nine months ended September�30, 2014 increased when compared to the prior year periods because of business win-backs and increasing bandwidth needs from our customers.� Wholesale carrier data revenue declined for the three and nine months ended September�30, 2014 compared to the prior year periods.� For the nine month period this was caused, in part, because of one-time service termination and other fees amounting to $0.8 million in 2013.� In addition, certain carriers have replaced older legacy circuits with more cost effective alternatives.� The impact of the decline in voice access lines is reflected in subscriber line access charges and switched carrier access charges.

�

Table of Contents

�

The decrease in long distance revenue was primarily because of the decline in long distance lines and customers moving to wireless and VoIP based technologies for long distance calling.

�

HSI revenues increased when compared to the prior year as a result of year-over-year increases in total HSI subscribers as well as premium pricing on higher bandwidth offerings.

�

We are continuing the roll out of Hawaiian Telcom TV on the island of Oahu focusing on the delivery of superior service and an ongoing excellent customer experience.� Our volume is ramping up as more homes become enabled for video service.� We expect to expand both the availability and the capabilities of our Hawaiian Telcom TV service over the next several years through additional capital investment and innovation.

�

Equipment and managed services sales have decreased because of fewer sales and installations of customer premise equipment for certain large institutional customers during the three and nine months ended September�30, 2014 compared to the same periods in the prior year.� Revenue from equipment sales varies from period to period based on the volume of large installation projects.� The volume of such projects has declined in recent quarters as customers chose more hosted solutions in lieu of purchasing equipment.� The outlook for future periods is uncertain.

�

Wireless revenues and other service revenues decreased as we attempted to focus our marketing efforts on other segments of our business.

�

Data center colocation revenues are the result of the acquisition of SystemMetrics on September�30, 2013.

�

Operating Costs and Expenses

�

The following tables summarize our costs and expenses for the three and nine months ended September�30, 2014 compared to the costs and expenses for the three and nine months ended September�30, 2013 (dollars in thousands):

�

For Three Months

�

Three�Months�Ended

�

September�30,

�

Change

�

2014

�

2013

�

Amount

�

Percentage

�

Cost of revenues (exclusive of depreciation and amortization)

�

42,621

�

41,829

�

792

�

1.9

Selling, general and administrative expenses

�

28,294

�

27,965

�

329

�

1.2

Depreciation and amortization

�

19,717

�

19,974

�

(257

)

-1.3

�

90,632

�

89,768

�

864

�

1.0

�

Table of Contents

�

For Nine Months

�

Nine�Months�Ended

�

September�30,

�

Change

�

2014

�

2013

�

Amount

�

Percentage

�

Cost of revenues (exclusive of depreciation and amortization)

�

124,858

�

122,073

�

2,785

�

2.3

Selling, general and administrative expenses

�

86,280

�

84,860

�

1,420

�

1.7

Gain on sale of property

�

(6,546

)

6,546

�

-100.0

Depreciation and amortization

�

57,321

�

58,532

�

(1,211

)

-2.1

�

268,459

�

258,919

�

9,540

�

3.7

�

There were no operations for the data center colocation segment through September�30, 2013 as it was newly acquired on September�30, 2013.� Hence, a discussion of results of operations for the data center colocation segment comparing 2014 to 2013 would not be meaningful given that the number of months of operations is not equivalent.� However, explanations have been provided below to the extent that the data center colocation segment significantly impacted the comparison of results of operations between periods for all segments.

�

The Company�s total headcount as of September�30, 2014 was 1,388 compared to 1,382 as of September�30, 2013.� Employee related costs are included in both cost of revenues and selling, general and administrative expenses.

�

Cost of revenues consists of costs we incur to provide our products and services including those for operating and maintaining our networks, installing and maintaining customer premise equipment, and cost of services sold directly associated with various products.� Cost of revenues for the three and nine month periods ended September�30, 2014 increased when compared to the prior year periods because of expenses attributed to the damage caused by Tropical Storm Iselle of $0.9 million.� In addition, for the nine months ended September�30, 2014 we incurred wages of $1.4 million for employees of SystemMetrics which was acquired on September�30, 2013.

�

Selling, general and administrative expenses include costs related to sales and marketing, information systems and other administrative functions.� The expenses for the three months ended September�30, 2014 were comparable to the same period in the prior year.� For the nine months ended September�30, 2014, the increase was because of additional advertising expense of $1.5 million for the promotion of Hawaiian Telcom TV.

�

In 2013, we sold a parcel of land and warehouse not actively used in our operations for a purchase price, as amended, of $13.9 million. A gain on the sale of $6.5 million was recognized in the second quarter of 2013. The HPUC approval of the sale provides we spend $0.3 million on training employees on broadband telecommunication deployment and operation. In addition, the HPUC approval provides for the balance of the sales price to be used for improvement of our broadband network.

�

Depreciation and amortization for the three and nine month periods ended September�30, 2014 was lower than the same periods in the prior year because of certain assets becoming fully depreciated near the end of 2013.

�

Table of Contents

�

Other Income and (Expense)

�

The following tables summarize other income (expense) for the three and nine months ended September�30, 2014 and 2013 (dollars in thousands).

�

For Three Months

�

Three�Months�Ended

�

September�30,

�

Change

�

2014

�

2013

�

Amount

�

Percentage

�

Interest expense

�

(4,103

)

(4,089

)

(14

)

0.3

Interest income and other

�

85.7

�

(4,090

)

(4,082

)

0.2

�

For Nine Months

�

Nine�Months�Ended

�

September�30,

�

Change

�

2014

�

2013

�

Amount

�

Percentage

�

Interest expense

�

(12,401

)

(14,712

)

2,311

�

-15.7

Loss on early extinguishment of debt

�

(3,660

)

3,660

�

-100.0

Interest income and other

�

)

-3.6

�

(12,374

)

(18,344

)

5,970

�

-32.5

�

Interest expense decreased for the nine month period primarily because of the lower interest rates on the debt which was refinanced in the second quarter of 2013.� Interest capitalized was comparable between years for all periods presented.

�

In connection with the refinancing of debt in the second quarter of 2013, we incurred charges of $3.7 million which consisted of the loss on the repayment of the old debt and certain refinancing costs.

�

Income Tax Provision

�

We had effective tax rates of 40.1% and 40.4% for the three and nine months ended September�30, 2014, respectively.� We had effective tax rates of 46.2% and 41.3% for the three and nine months ended September�30, 2013, respectively.� The income tax provision for the quarter ended September�30, 2013 included additional income attributed primarily to our recognizing certain tax attributes for income tax purposes.� We consider a variety of factors in determining the effective tax rate, including our forecasted full-year pretax results, the U.S. federal statutory rate, expected nondeductible expenses and estimated state taxes.

�

As of December�31, 2013, net operating losses available for carry forward through 2033 amounted to $60.0 million for federal purposes and $66.3 million for state purposes.� Availability of net operating losses in future periods may be subject to additional limitations if there is a deemed change in control for income tax reporting purposes.� Such change in control will be determined for income tax reporting purposes based on future changes in stock ownership.

�

Table of Contents

�

Liquidity and Capital Resources

�

As September�30, 2014, we had cash of $31.7 million. From an ongoing operating perspective, our cash requirements in 2014 consist of supporting the development and introduction of new products, capital expenditure projects, pension funding obligations and other changes in working capital.� A combination of cash-on-hand and cash generated from operating activities will be used to fund our cash requirements.

�

We have continued to take actions to conserve cash and improve liquidity.� Efforts have also been taken to generate further operating efficiencies and focus on expense management.� We have focused on improving operating results, including efforts to simplify product offerings, improve our customer service experience and increase our revenue enhancement activities.� There can be no assurance that these additional actions will result in improved overall cash flow.� We continue to have sizable retirement obligations for our existing employee base.� Any sustained declines in the value of pension trust assets or higher levels of pension lump sum benefit payments will increase the magnitude of future plan contributions.

�

Agreements with the Hawaii Public Utilities Commission and the debt agreements of Hawaiian Telcom Communications,�Inc. limit the ability of our subsidiaries to pay dividends to the parent company and restrict the net assets of all of our subsidiaries.� This can limit our ability to pay dividends to our shareholders.� As the parent company has no operations, debt or other obligations, this restriction has no other immediate impact on our operations.

�

Cash Flows for Nine Months Ended September�30, 2014 and 2013

�

Our primary source of funds continues to be cash generated from operations.� We use the net cash generated from operations to fund network expansion and modernization.� We expect that our capital spending requirements will continue to be financed through internally generated funds.� We also expect to use cash generated in future periods for debt service.� Additional debt or equity financing may be needed to fund additional development activities or to maintain our capital structure to ensure financial flexibility.

�

Net cash provided by operations amounted to $61.8 million for the nine months ended September�30, 2014.� Our cash flows from operations are impacted by our results of operations, changes in working capital and payments on certain long-term pension liabilities.� Net cash provided by operations amounted to $54.8 million for the nine months ended September�30, 2013.� The increase in cash provided by operations was because of improved management of working capital.

�

Cash used in investing activities was $76.5 million for the nine months ended September�30, 2014 and was comprised of capital expenditures.� Cash used in investing activities included capital expenditures of $69.8 million for the nine months ended September�30, 2013.� The level of capital expenditures for 2014 is expected to be in the high-$90 million range which is higher than 2013 as we invest in systems to support new product introductions and transform our network to enable next-generation technologies.

�

Cash financing activities for the nine months ended September�30, 2014 include installment financing and debt repayment activity.� For the nine months ended September�30, 2013 cash financing activities include the impact of the 2013 refinancing of our debt.

�

Outstanding Debt and Financing Arrangements

�

As of September�30, 2014, we had outstanding $296.9 million in aggregate long-term debt with a maturity date of June�2019.� We do not expect to generate the necessary cash flow from operations to repay the facility in its entirety by the maturity date and repayment is dependent on our ability to refinance the credit facility at reasonable terms.� The ability to refinance the indebtedness at reasonable terms before maturity cannot be assured.

�

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�

Contractual Obligations

�

In August�2014, we joined several other telecommunication companies to form a consortium to build and operate a trans-Pacific submarine cable system.� The total system cost is expected to be $245 million and is primarily composed of a supply contract with the lead contractor.� We will invest $25 million over the multi-year construction period for a fractional ownership in the system.� The investment is expected to be $2.5 million in 2014, $10.2 million in 2015, $10.5 million in 2016 and $1.8 million in 2017.

�

During the nine months ended September�30, 2014, the Company�s future contractual obligations have not changed materially from the amounts disclosed as of December�31, 2013 in our Form�10-K other than the agreement to invest in the trans-Pacific submarine cable system for the amounts described above.

�

We do not maintain any off balance sheet financing or other arrangements.

�

Critical Accounting Policies and Estimates

�

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported in consolidated financial statements.� Changes in these estimates and assumptions are considered reasonably possible and may have a material effect on the condensed consolidated financial statements and thus actual results could differ from the amounts reported and disclosed herein.� The Company�s critical accounting policies that require the use of estimates and assumptions were discussed in detail in our Annual Report on Form�10-K for the year ended December�31, 2013, and have not changed materially from that discussion.

�

Table of Contents

�

Item 3.� Quantitative and Qualitative Disclosures About Market Risk

�

As of September�30, 2014, our floating rate obligations consisted of $296.9 million of debt outstanding under our term loan facility.� Accordingly, our earnings and cash flow are affected by changes in interest rates.� Based on our borrowings at September�30, 2014 and assuming a 1.0 percentage point increase or decrease in the average interest rate under these borrowings, we estimate that our annual interest expense would increase or decrease by approximately $3.0 million.

�

Table of Contents

�

Item 4.� Controls and Procedures

�

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

�

Eric K. Yeaman, Chief Executive Officer, and Robert F. Reich, Chief Financial Officer, have evaluated the disclosure controls and procedures of Hawaiian Telcom Holdco,�Inc. (the �Company�) as of September�30, 2014. Based on their evaluations, as of September�30, 2014, they have concluded that the disclosure controls and procedures (as defined in Rules�13a-15(e)�and 15d-15(e)�under the Securities Exchange Act of 1934, as amended) were effective in ensuring that information required to be disclosed by the Company in reports the Company files or submits under the Securities Exchange Act of 1934:

�

(1)�� is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules�and forms, and

�

(2)�� is accumulated and communicated to the Company�s management, including the Company�s principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

�

Changes in Internal Control over Financial Reporting

�

There have been no changes in internal control over financial reporting during the quarter ended September�30, 2014 that have materially affected, or are reasonably likely to materially affect, the Company�s internal control over financial reporting.

�

Certifications

�

The certifications attached hereto as Exhibits 31.1, 31.2, 32.1 and 32.2 should be read in conjunction with the disclosures set forth herein.

�

Table of Contents

�

PART�II � OTHER INFORMATION

�

Item 1.� Legal Proceedings

�

Other than ordinary routine litigation incidental to the business, we are not involved in any material pending legal proceedings that are likely to have a material adverse effect on us.

�

Item 1A.� Risk Factors

�

See Part�I,�Item 1a, �Risk Factors,� of our 2013 Annual Report for a detailed discussion of risk factors related to our business, results of operations and financial condition.

�

Table of Contents

�

Item 5.� Other Information.

�

Hawaiian Telcom Holdco,�Inc. issued a press release on November�10, 2014 announcing its 2014 third quarter earnings.� This information, attached as Exhibit�99.1, is being furnished to the SEC pursuant to Item 2.02 of Form�8-K.

�

Table of Contents

�

Item 6.� Exhibits

�

See Exhibit�Index following the signature page�of this Report.

�

Table of Contents

�

SIGNATURES

�

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

�

�	HAWAIIAN TELCOM HOLDCO,�INC.
�	�
November�10, 2014	/s/ Eric K. Yeaman
�	Eric K. Yeaman Chief Executive Officer
�	�
November�10, 2014	/s/ Robert F. Reich
�	Robert F. Reich Senior Vice President and Chief Financial Officer

�

Table of Contents

�

EXHIBIT�INDEX

�

31.1	�	Certification of Chief Executive Officer Pursuant to Section�302 of the Sarbanes-Oxley Act of 2002.
31.2	�	Certification of Chief Financial Officer Pursuant to Section�302 of the Sarbanes-Oxley Act of 2002.
32.1	�	Certification of Chief Executive Officer Pursuant to Section�906 of the Sarbanes-Oxley Act of 2002.
32.2	�	Certification of Chief Financial Officer Pursuant to Section�906 of the Sarbanes-Oxley Act of 2002.
99.1	�	Press Release dated November�10, 2014 announcing third quarter earnings.
101.INS	�	XBRL Instance Document
101.SCH	�	XBRL Taxonomy Extension Schema Document
101.CAL	�	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	�	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	�	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	�	XBRL Taxonomy Extension Presentation Linkbase Document

�

Exhibit�31.1

�

Certification Pursuant To Section�302 of the Sarbanes-Oxley Act of 2002

�

I, Eric K. Yeaman, certify that:

�

1.�� I have reviewed this quarterly report on Form�10-Q of Hawaiian Telcom Holdco,�Inc.;

�

2.�� Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

�

3.�� Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

�

4.�� The registrant�s other certifying officer(s)�and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules�13a-15(e)�and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules�13a-15(f)�and 15d-15(f)) for the registrant and have:

�

(a)�� Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

�

(b)� Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

�

(c)�� Evaluated the effectiveness of the registrant�s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

�

(d)�� Disclosed in this report any change in the registrant�s internal control over financial reporting that occurred during the registrant�s most recent fiscal quarter (the registrant�s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant�s internal control over financial reporting; and

�

5.�� The registrant�s other certifying officer(s)�and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant�s auditors and the audit committee of the registrant�s board of directors (or persons performing the equivalent functions):

�

(a)�� All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant�s ability to record, process, summarize and report financial information; and

�

(b)�� Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant�s internal control over financial reporting.

�

November�10, 2014	/s/ Eric K. Yeaman
�	Eric K. Yeaman Chief Executive Officer

�

Exhibit�31.2

�

Certification Pursuant To Section�302 of the Sarbanes-Oxley Act of 2002

�

I, Robert F. Reich, certify that:

�

1.�� I have reviewed this quarterly report on Form�10-Q of Hawaiian Telcom Holdco,�Inc.;

�

(b)�� Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

�

(b)�� Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant�s internal control over financial reporting.

�

November�10, 2014	/s/ Robert F. Reich
�	Robert F. Reich Senior Vice President and Chief Financial Officer

�

Exhibit�32.1

�

CERTIFICATION PURSUANT TO

18 U.S.C.�1350,

AS ADOPTED PURSUANT TO

SECTION�906 OF THE SARBANES-OXLEY ACT OF 2002

�

In connection with the Quarterly Report of Hawaiian Telcom Holdco,�Inc. (the �Company�) on Form�10-Q for the period ended September�30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the �Report�),�I, Eric K. Yeaman, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.�1350, as adopted pursuant to Section�906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

�

(1)�� The Report fully complies with the requirements of Section�13(a)�or 15(d)�of the Securities Exchange Act of 1934; and

�

(2)�� The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

�

November�10, 2014	/s/ Eric K. Yeaman
�	Eric K. Yeaman Chief Executive Officer

�

Exhibit�32.2

�

CERTIFICATION PURSUANT TO

18 U.S.C.�1350,

AS ADOPTED PURSUANT TO

SECTION�906 OF THE SARBANES-OXLEY ACT OF 2002

�

In connection with the Quarterly Report of Hawaiian Telcom Holdco,�Inc. (the �Company�) on Form�10-Q for the period ended September�30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the �Report�),�I, Robert F. Reich, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.�1350, as adopted pursuant to Section�906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

�

(1)�� The Report fully complies with the requirements of Section�13(a)�or 15(d)�of the Securities Exchange Act of 1934; and

�

(2)�� The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

�

November�10, 2014	/s/ Robert F. Reich
�	Robert F. Reich Senior Vice President and Chief Financial Officer

�

Exhibit 99.1

�

Investor Relations Contact:

Brian Tanner, Hawaiian Telcom

(201) 706-8965

[email protected]

Media Contact:

Su Shin, Hawaiian Telcom

(808) 546-2344

[email protected]

�

For Immediate Release

�

Hawaiian Telcom Reports Third Quarter 2014 Results

�

Achieved Consumer Revenue Growth of 5.2 percent

�

Strong Hawaiian Telcom TV subscriber growth of more than 2,600

�

Delivered Business Data Revenue Growth of 3.0 percent

�

Joined New Trans-Pacific Submarine Cable Consortium

�

HONOLULU (Monday, November�10, 2014) � Hawaiian Telcom Holdco,�Inc. (NASDAQ: HCOM) reported financial results for its third quarter ended September�30.� The highlights are as follows:

�

�� Revenue totaled $97.3 million, consistent with the same period a year ago, resulting in Adjusted EBITDA(1)�of $29.0 million.

�

�� Generated net income of $1.5 million, or $0.13 per diluted share for the quarter, compared to $2.1 million, or $0.18 per diluted share in the same period a year ago.� Excluding one-time costs relating to Tropical Storm Iselle recorded in the third quarter 2014, net income for the quarter would have been consistent with the prior year.

�

�� Consumer revenue increased 5.2 percent year-over-year to $37.1 million, the best quarterly growth performance since Hawaiian Telcom TV was launched, as revenue growth in video and high-speed Internet (HSI) services more than offset declines from legacy services.

�

�� Added over 2,600 Hawaiian Telcom TV subscribers during the third quarter, ending the quarter with approximately 25,800 subscribers resulting in penetration of 17.0 percent of households enabled.

�

�� Enabled 10,000 households in the quarter, increasing the reach of our next-generation fiber network to 152,000 households.

�

�� Added over 900 HSI subscribers, the strongest quarterly performance of the year, ending the quarter with approximately 112,700 subscribers.� HSI average revenue per user (ARPU) grew 7 percent year-over-year.

�

�� Business data revenue increased 3.0 percent year-over-year to $6.5 million, driven by growth in switched Ethernet,�IP-VPN and dedicated Internet access revenues.

�

�� Participating in a landmark project to build and operate the first submarine cable directly connecting Indonesia and the United States, providing the Company with new growth opportunities and securing low cost network capacity.

�

�Hawaiian Telcom�s continued investment in its next-generation fiber network, innovative new products, and strong execution by our dedicated employees have resulted in consistent financial performance and strong results in our strategic growth services,� said Eric K. Yeaman, Hawaiian Telcom�s president and CEO.� �We have been working very hard to transform our business, and the industry-leading growth in our consumer channel this quarter, the highest in our history as a standalone company, demonstrates that the investments we are making in strategic growth areas are yielding positive results and generating strong momentum for the future.

�

�Our investment in Fiber-to-the-Tower (FTTT) projects and the demand for network capacity in the form of special access circuits drove sequential growth in the wholesale channel for the first time in almost two years, so we are seeing positive results there as well.� We furthered our strategy to invest in our network and systems during the quarter with our participation in a consortium to build and operate a new trans-Pacific submarine cable system.� This investment not only enables us to cost-effectively meet our future bandwidth growth requirements, but it also provides us with a unique opportunity to participate in the growing demand for trans-Pacific bandwidth.

�

�Our investments are transforming the Company and successfully repositioning us for the future.� I am pleased with the progress we are making in executing our strategic plan, and confident about the Company�s growth prospects and our ability to drive long-term value for our shareholders,� concluded Yeaman.

�

Third Quarter 2014 Results

�

Third quarter revenue was $97.3 million, compared to $97.7 million in the third quarter of 2013.� Revenue growth in the quarter, driven by video, HSI, and $2.2 million of net incremental data center colocation revenue from SystemMetrics, was offset by a $2.4 million decrease in equipment and managed services revenue, related to lower customer premise equipment sales, and a 5.7 percent decline in voice access lines.� Adjusted EBITDA was $29.0 million, a decrease of $1.0 million year-over-year, primarily due to increased direct cost of services related to video.

�

The Company generated net income of $1.5 million, or $0.13 per diluted share for the quarter, compared to $2.1 million, or $0.18 per diluted share in the same period a year ago.� Excluding one-time costs relating to Tropical Storm Iselle recorded in the third quarter 2014, net income for the quarter would have been consistent with the prior year.

�

Consumer Revenue

�

Third quarter consumer revenue totaled $37.1 million, up 5.2 percent year-over-year primarily driven by revenue growth from two of the Company�s key strategic services, Hawaiian Telcom TV and HSI services.� The reach and awareness for Hawaiian Telcom TV is steadily increasing, giving the Company positive momentum and positioning it to drive further growth in video and HSI services.

�

Video revenue grew to $6.5 million for the quarter, up from $3.7 million in the same period a year ago, driven by the addition of approximately 10,000 subscribers for a total of approximately 25,800 subscribers at the end of the third quarter.� Hawaiian Telcom TV average revenue per user (ARPU) was up approximately 5.7 percent year-over-year and 5.9 percent when compared to the second quarter 2014.� During the quarter, 10,000 additional households were enabled, increasing the total number of households enabled to 152,000 with over 53 percent of those households capable of connecting directly to the Company�s next-generation fiber network.� Hawaiian Telcom TV penetration of households enabled was approximately 17.0 percent at the end of the third quarter.

�

Consumer HSI revenue also was up from the same period a year ago led by a 2.2 percent year-over-year increase in consumer HSI subscribers to approximately 92,300 and a 9.5 percent increase in consumer HSI ARPU.� As of September�30, 2014, approximately 53 percent of all video subscribers had triple-play bundles and approximately 92 percent had double- or triple-play bundles.� Revenue increases from video and HSI were partially offset by legacy revenue declines related to consumer voice access and long distance line losses of 8.6 percent and 7.9 percent, respectively.

�

Business Revenue

�

Third quarter business revenue totaled $41.7 million, down $1.0 million from the same period a year ago, primarily due to a $2.4 million year-over-year decrease in equipment and managed services revenue, mostly related to a $2.3 million sale of equipment to a large Hawai�i-based public school in the third quarter of 2013.� Additionally, the year-over-year decline in legacy business access and long distance revenues contributed to the decline in business revenue.� These decreases were largely offset by $2.2 million of incremental net revenue added as a result of the SystemMetrics acquisition and a 3.0 percent year-over-year increase in business data revenue driven by higher demand for IP-based data services.

�

Wholesale Revenue

�

Third quarter wholesale revenue totaled $15.8 million, down $0.7 million from the same period a year ago.� Wholesale carrier data revenue declined $0.4 million year-over-year to $14.4 million, mainly due to certain wireless carriers disconnecting lower bandwidth legacy circuits, which were replaced with new, more efficient fiber-based, higher bandwidth Ethernet circuits.� Switched carrier access revenue declined $0.2 million year-over-year to $1.4 million, equally attributable to the overall decline in voice access lines and minutes of use and the impact of intercarrier compensation reform.

�

Operating Expenses, Capital Expenditures and Liquidity

�

Operating expenses, exclusive of depreciation and amortization, non-cash stock compensation, SystemMetrics earn-out and other one-time charges, including costs relating to Tropical Storm Iselle, increased 0.9 percent to $68.3 million, primarily due to increased direct cost of services related to video and incremental costs related to the SystemMetrics� operations, partially offset by decreased cost of goods related to lower levels of equipment sales.

�

Capital expenditures totaled $76.5 million in the nine months ended September�30, 2014, up from $69.8 million for the nine-month period a year ago primarily due to the success-based spending to support the growth of Hawaiian Telcom TV fiber-to-the-premise subscribers, success-based spending related to the fiber-to-the-tower initiative and costs associated consolidating and virtualizing internal data centers. �Overall, total capital expenditures for 2014 are expected to be in the high-$90 million range.

�

At the end of third quarter 2014, the Company had $31.7 million in cash and cash equivalents compared to $49.6 million at the end of 2013.� The use of cash is primarily related to higher levels of expansion related and success-based capital expenditures, as well as temporary uses of working capital.� Net Debt(2)�was $261.3 million, resulting in a Net Debt to Adjusted EBITDA ratio as of September�30, 2014 of 2.22x.

�

Conference Call

�

The Company will host a conference call to discuss its third quarter 2014 results at 9:00�a.m. (Hawai�i Time), or 2:00�p.m. (Eastern Time) on Monday, November�10, 2014.

�

To access the call, participants should dial (877) 280-4961 (US/Canada), or (857) 244-7318 (International) ten minutes prior to the start of the call and enter passcode 37732925.

�

A live webcast of the conference call, including a slide presentation, will be available from the Investor Relations section of the Company�s website at www.hawaiiantel.com.� The webcast will be archived at the same location.

�

A telephonic replay of the conference call will be available one hour after the conclusion of the call until 11:59�p.m. (Eastern Time) November�17, 2014.� Access the replay by dialing (888) 286-8010 and entering passcode 97352426.� Alternatively, the replay can be accessed by dialing (617) 801-6888 and entering passcode 97352426.

�

Use of Non-GAAP Financial Measures

�

This press release contains information about adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) and Net Debt. These are non-GAAP financial measures used by Hawaiian Telcom management when evaluating results of operations. Management believes these measures also provide users of the financial statements with additional and useful comparisons of current results of operations with past and future periods. Non-GAAP financial measures should not be construed as being more important than comparable GAAP measures. Detailed reconciliations of Adjusted EBITDA and Net Debt to comparable GAAP financial measures have been included in the tables distributed with this release and are available in the Investor Relations section of the Company�s website at www.hawaiiantel.com.

�

Forward-Looking Statements

�

In addition to historical information, this release includes certain statements and predictions that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.� In particular, any statement, projection or estimate that includes or references the words �believes�, �anticipates�, �intends�, �expected�, or any similar expression falls within the safe harbor of forward-looking statements contained in the Reform Act.� Actual results or outcomes may differ materially from those indicated or suggested by any such forward-looking statement for a variety of reasons, including, but not limited to, Hawaiian Telcom�s ability to maintain, or expand its market position in communications services, including voice, video,�Internet, data, wireless, and advanced communication and network services; general economic trends affecting the purchase or supply of communication services; world and national events that may affect the ability to provide services; changes in the regulatory environment; any rulings, orders or decrees that may be issued by any court or arbitrator; restrictions imposed under various credit facilities and debt instruments; work stoppages�caused by labor disputes; and Hawaiian Telcom�s ability to develop and launch new products and services. More information on potential risks and uncertainties is available in recent filings with the Securities and Exchange Commission, including Hawaiian Telcom�s 2013 Annual Report on Form�10-K. The information contained in this release is as of November�10, 2014. It is anticipated that subsequent events and developments may cause estimates to change, and the Company undertakes no duty to update forward-looking statements.

�

About Hawaiian Telcom

�

Hawaiian Telcom Holdco,�Inc., headquartered in Honolulu, is Hawai�i�s leading provider of integrated communications, data center and entertainment solutions for business and residential customers. With roots in Hawai�i beginning in 1883, the Company offers a full range of services including voice, video,�Internet, data solutions, managed services, data center services including colocation and virtual private cloud, and other cloud-based services, and wireless supported by the reach and reliability of its network and Hawai�i�s only 24/7 state-of-the-art network operations center. With employees statewide sharing a commitment to innovation and a passion for delivering superior service, Hawaiian Telcom provides an Always OnSM�customer experience.� For more information, visit www.hawaiiantel.com.

�

(1)� Adjusted EBITDA is EBITDA plus non-cash stock compensation, SystemMetrics earn-out and other non-recurring costs not expected to occur regularly in the ordinary course of business.� EBITDA is defined as net income plus interest expense (net of interest income and other), income taxes, depreciation and amortization and gain on sale of property.� The Company believes both of these non-GAAP measures, Adjusted EBITDA and EBITDA, are meaningful performance measures for investors because they are used by our Board and management to evaluate performance, enhance comparability between periods and make operating decisions.� Our use of Adjusted EBITDA and EBITDA may not be comparable to similarly titled measures used by other companies in the telecommunications industry.� A detailed reconciliation of Adjusted EBITDA and EBITDA to comparable GAAP financial measures has been included in the tables distributed with this release.

�

(2)� Net Debt provides a useful measure of liquidity and financial health. The Company defines Net Debt as the sum of the face amount of short-term and long-term debt and unamortized premium and/or discount, offset by cash and cash equivalents.� A detailed reconciliation of Net Debt has been included in the tables distributed with this release.

�

Hawaiian Telcom Holdco,�Inc.

Consolidated Statements of Income

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

�

Three�Months�Ended

�

Nine�Months�Ended

�

September�30,

�

September�30,

�

2014

�

2013

�

2014

�

2013

�

Operating revenues

�

97,252

�

97,682

�

291,109

�

290,643

�

Operating expenses:

�

Cost of revenues (exclusive of depreciation and amortization)

�

42,621

�

41,829

�

124,858

�

122,073

�

Selling, general and administrative

�

28,294

�

27,965

�

86,280

�

84,860

�

Gain on sale of property

�

(6,546

)

Depreciation and amortization

�

19,717

�

19,974

�

57,321

�

58,532

�

Total operating expenses

�

90,632

�

89,768

�

268,459

�

258,919

�

Operating income

�

6,620

�

7,914

�

22,650

�

31,724

�

Other income (expense):

�

Interest expense

�

(4,103

)

(4,089

)

(12,401

)

(14,712

)

Loss on early extinguishment of debt

�

(3,660

)

Interest income and other

�

Total other expense

�

(4,090

)

(4,082

)

(12,374

)

(18,344

)

�

Income before income tax provision

�

2,530

�

3,832

�

10,276

�

13,380

�

Income tax provision

�

1,014

�

1,771

�

4,155

�

5,521

�

Net income

�

1,516

�

2,061

�

6,121

�

7,859

�

Net income per common share -

�

Basic

�

0.14

�

0.20

�

0.58

�

0.76

�

Diluted

�

0.13

�

0.18

�

0.54

�

0.71

�

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

�

Basic

�

10,586,690

�

10,337,488

�

10,567,036

�

10,321,905

�

Diluted

�

11,311,691

�

11,206,159

�

11,329,328

�

11,096,177

�

Hawaiian Telcom Holdco,�Inc.

Consolidated Balance Sheets

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

�

�	�	September�30,		�	December�31,		�
�	�	2014		�	2013		�
�	�	�		�	�		�
Assets	�	�		�	�		�
�	�	�		�	�		�
Current assets	�	�		�	�		�
Cash and cash equivalents	�	$	31,693	�	$	49,551	�
Receivables, net	�	33,378		�	34,521		�
Material and supplies	�	10,146		�	15,939		�
Prepaid expenses	�	4,779		�	3,724		�
Deferred income taxes	�	7,968		�	8,146		�
Other current assets	�	3,218		�	2,851		�
Total current assets	�	91,182		�	114,732		�
Property, plant and equipment, net	�	553,467		�	524,375		�
Intangible assets, net	�	38,051		�	40,225		�
Goodwill	�	12,104		�	12,104		�
Deferred income taxes	�	70,765		�	75,274		�
Other assets	�	9,935		�	11,305		�
�	�	�		�	�		�
Total assets	�	$	775,504	�	$	778,015	�
�	�	�		�	�		�
Liabilities and Stockholders� Equity	�	�		�	�		�
�	�	�		�	�		�
Current liabilities	�	�		�	�		�
Current portion of long-term debt	�	$	3,000	�	$	3,000	�
Accounts payable	�	45,378		�	40,228		�
Accrued expenses	�	15,877		�	18,787		�
Advance billings and customer deposits	�	16,072		�	16,122		�
Other current liabilities	�	7,222		�	6,412		�
Total current liabilities	�	87,549		�	84,549		�
Long-term debt	�	289,985		�	291,679		�
Employee benefit obligations	�	69,966		�	80,321		�
Other liabilities	�	6,949		�	8,454		�
Total liabilities	�	454,449		�	465,003		�
�	�	�		�	�		�
Stockholders� equity	�	�		�	�		�
Common stock, par value of $0.01 per share, 245,000,000 shares authorized and 10,587,105 and 10,495,856 shares issued and outstanding at September�30, 2014 and December�31, 2013, respectively	�	106		�	105		�
Additional paid-in capital	�	169,913		�	167,869		�
Accumulated other comprehensive loss	�	(4,839		)	(4,716		)
Retained earnings	�	155,875		�	149,754		�
Total stockholders� equity	�	321,055		�	313,012		�
�	�	�		�	�		�
Total liabilities and stockholders� equity	�	$	775,504	�	$	778,015	�

�

Hawaiian Telcom Holdco,�Inc.

Consolidated Statements of Cash Flows

(Unaudited, dollars in thousands)

�

�	�	Nine�Months�Ended					�
�	�	September�30,					�
�	�	2014		�	2013		�
�	�	�		�	�		�
Cash flows from operating activities:	�	�		�	�		�
Net income	�	$	6,121	�	$	7,859	�
Adjustments to reconcile net income to net cash provided by operating activities	�	�		�	�		�
Depreciation and amortization	�	57,321		�	58,532		�
Loss on early extinguishment of debt	�	�		�	3,660		�
Gain on sale of property	�	�		�	(6,546		)
Employee retirement benefits	�	(10,557		)	(10,324		)
Provision for uncollectibles	�	2,493		�	2,003		�
Stock based compensation	�	3,066		�	1,886		�
Deferred income taxes	�	4,770		�	6,018		�
Changes in operating assets and liabilities:	�	�		�	�		�
Receivables	�	(1,350		)	(4,142		)
Material and supplies	�	(685		)	(3,916		)
Prepaid expenses and other current assets	�	(1,421		)	(1,064		)
Accounts payable and accrued expenses	�	1,296		�	(2,064		)
Advance billings and customer deposits	�	(50		)	323		�
Other current liabilities	�	(568		)	106		�
Other	�	1,380		�	2,446		�
Net cash provided by operating activities	�	61,816		�	54,777		�
�	�	�		�	�		�
Cash flows from investing activities:	�	�		�	�		�
Capital expenditures	�	(76,474		)	(69,809		)
Acquisitions	�	�		�	(11,858		)
Proceeds on sale of property	�	�		�	13,118		�
Net cash used in investing activities	�	(76,474		)	(68,549		)
�	�	�		�	�		�
Cash flows from financing activities:	�	�		�	�		�
Repayment of capital lease and installment financing	�	(2,014		)	(406		)
Repayment of debt including premium	�	(2,250		)	(302,333		)
Proceeds from installment financing	�	2,085		�	�		�
Proceeds from borrowing	�	�		�	298,500		�
Loan refinancing costs	�	�		�	(3,442		)
Taxes paid related to net share settlement of equity awards	�	(1,021		)	(426		)
Net cash used in financing activities	�	(3,200		)	(8,107		)
�	�	�		�	�		�
Net change in cash and cash equivalents	�	(17,858		)	(21,879		)
Cash and cash equivalents, beginning of period	�	49,551		�	66,993		�
�	�	�		�	�		�
Cash and cash equivalents, end of period	�	$	31,693	�	$	45,114	�
�	�	�		�	�		�
Supplemental disclosure of cash flow information:	�	�		�	�		�
Interest paid, net of amounts capitalized	�	$	11,033	�	$	14,416	�

�

Hawaiian Telcom Holdco,�Inc.

Revenue by Category and Channel

(Unaudited, dollars in thousands)

�

For Three Months

�

�	�	Three�Months�Ended					�	�				�
�	�	September�30,					�	Change				�
�	�	2014		�	2013		�	Amount		�	Percentage	�
�	�	�		�	�		�	�		�	�	�
Telecommunications	�	�		�	�		�	�		�	�	�
Local voice services	�	$	32,668	�	$	34,665	�	$	(1,997	)	-5.8	%
Network access services	�	�		�	�		�	�		�	�	�
Business data	�	6,470		�	6,282		�	188		�	3.0	%
Wholesale carrier data	�	14,416		�	14,850		�	(434		)	-2.9	%
Subscriber line access charge	�	8,786		�	9,442		�	(656		)	-6.9	%
Switched carrier access	�	1,401		�	1,623		�	(222		)	-13.7	%
�	�	31,073		�	32,197		�	(1,124		)	-3.5	%
Long distance services	�	5,554		�	6,091		�	(537		)	-8.8	%
High-Speed Internet	�	10,909		�	9,999		�	910		�	9.1	%
Video	�	6,531		�	3,717		�	2,814		�	75.7	%
Equipment and managed services	�	4,818		�	7,228		�	(2,410		)	-33.3	%
Wireless	�	515		�	676		�	(161		)	-23.8	%
Other	�	2,699		�	3,109		�	(410		)	-13.2	%
�	�	94,767		�	97,682		�	(2,915		)	-3.0	%
Data center colocation	�	2,485		�	�		�	2,485		�	NA	�
�	�	$	97,252	�	$	97,682	�	$	(430	)	-0.4	%
�	�	�		�	�		�	�		�	�	�
Channel	�	�		�	�		�	�		�	�	�
Business	�	$	41,728	�	$	42,739	�	$	(1,011	)	-2.4	%
Consumer	�	37,141		�	35,298		�	1,843		�	5.2	%
Wholesale	�	15,817		�	16,473		�	(656		)	-4.0	%
Other	�	2,566		�	3,172		�	(606		)	-19.1	%
�	�	$	97,252	�	$	97,682	�	$	(430	)	-0.4	%

�

For Nine Months

�

�	�	Nine�Months�Ended					�	�				�
�	�	September�30,					�	Change				�
�	�	2014		�	2013		�	Amount		�	Percentage	�
�	�	�		�	�		�	�		�	�	�
Telecommunications	�	�		�	�		�	�		�	�	�
Local voice services	�	$	98,806	�	$	104,896	�	$	(6,090	)	-5.8	%
Network access services	�	�		�	�		�	�		�	�	�
Business data	�	19,806		�	18,885		�	921		�	4.9	%
Wholesale carrier data	�	43,082		�	45,123		�	(2,041		)	-4.5	%
Subscriber line access charge	�	26,985		�	28,507		�	(1,522		)	-5.3	%
Switched carrier access	�	4,440		�	5,125		�	(685		)	-13.4	%
�	�	94,313		�	97,640		�	(3,327		)	-3.4	%
Long distance services	�	17,176		�	18,804		�	(1,628		)	-8.7	%
High-Speed Internet	�	32,206		�	29,495		�	2,711		�	9.2	%
Video	�	16,759		�	8,784		�	7,975		�	90.8	%
Equipment and managed services	�	14,030		�	19,724		�	(5,694		)	-28.9	%
Wireless	�	1,646		�	2,084		�	(438		)	-21.0	%
Other	�	8,960		�	9,216		�	(256		)	-2.8	%
�	�	283,896		�	290,643		�	(6,747		)	-2.3	%
Data center colocation	�	7,213		�	�		�	7,213		�	NA	�
�	�	$	291,109	�	$	290,643	�	$	466	�	0.2	%
�	�	�		�	�		�	�		�	�	�
Channel	�	�		�	�		�	�		�	�	�
Business	�	$	126,308	�	$	126,158	�	$	150	�	0.1	%
Consumer	�	109,312		�	104,794		�	4,518		�	4.3	%
Wholesale	�	47,523		�	50,248		�	(2,725		)	-5.4	%
Other	�	7,966		�	9,443		�	(1,477		)	-15.6	%
�	�	$	291,109	�	$	290,643	�	$	466	�	0.2	%

�

Hawaiian Telcom Holdco,�Inc.

Schedule of Adjusted EBITDA Calculation

(Unaudited, dollars in thousands)

�

Three�Months�Ended

�

Nine�Months�Ended

�

LTM�Ended

�

September�30,

�

September�30,

�

September�30,

�

2014

�

2013

�

2014

�

2013

�

2014

�

Net income

�

1,516

�

2,061

�

6,121

�

7,859

�

8,750

�

Income tax provision

�

1,014

�

1,771

�

4,155

�

5,521

�

7,416

�

Interest expense and other income and expense, net

�

4,090

�

4,082

�

12,374

�

18,344

�

16,531

�

Depreciation and amortization

�

19,717

�

19,974

�

57,321

�

58,532

�

76,090

�

Gain on sale of property

�

(6,546

)

�

EBITDA

�

26,337

�

27,888

�

79,971

�

83,710

�

108,787

�

Non-cash stock compensation

�

967

�

735

�

3,066

�

1,886

�

3,916

�

SystemMetrics earn-out

�

271

�

815

�

815

�

Non-recurring costs

�

402

�

733

�

2,046

�

1,858

�

2,741

�

Severance costs

�

304

�

712

�

Wavecom integration costs

�

341

�

252

�

969

�

626

�

Storm Iselle costs

�

943

�

943

�

943

�

Adjusted EBITDA

�

28,994

�

30,001

�

87,093

�

89,135

�

117,828

�

Hawaiian Telcom Holdco,�Inc.

Net Debt to LTM Adjusted EBITDA Ratio

(Unaudited, dollars in thousands)

�

Long-term debt as of September�30, 2014	�	$	292,985	�
Less cash on hand	�	(31,693		)
Total Net Debt as of September�30, 2014	�	$	261,292	�
�	�	�		�
LTM Adjusted EBITDA as of September�30, 2014	�	$	117,828	�
�	�	�		�
Total Net Debt to Adjusted EBITDA	�	2.22x		�

�

Hawaiian Telcom Holdco,�Inc.

Volume Information

(Unaudited)

�

�	�	September�30,	�	September�30,	�	Change			�
�	�	2014	�	2013	�	Number	�	Percentage	�
�	�	�	�	�	�	�	�	�	�
Voice access lines	�	�	�	�	�	�	�	�	�
Residential	�	173,656	�	190,013	�	(16,357	)	-8.6	%
Business	�	189,207	�	194,623	�	(5,416	)	-2.8	%
Public	�	3,954	�	4,246	�	(292	)	-6.9	%
�	�	366,817	�	388,882	�	(22,065	)	-5.7	%
�	�	�	�	�	�	�	�	�	�
High-Speed Internet lines	�	�	�	�	�	�	�	�	�
Residential	�	92,265	�	90,253	�	2,012	�	2.2	%
Business	�	19,552	�	19,163	�	389	�	2.0	%
Wholesale	�	853	�	986	�	(133	)	-13.5	%
�	�	112,670	�	110,402	�	2,268	�	2.1	%
�	�	�	�	�	�	�	�	�	�
Long distance lines	�	�	�	�	�	�	�	�	�
Residential	�	109,702	�	119,096	�	(9,394	)	-7.9	%
Business	�	78,207	�	79,320	�	(1,113	)	-1.4	%
�	�	187,909	�	198,416	�	(10,507	)	-5.3	%
�	�	�	�	�	�	�	�	�	�
Video services	�	�	�	�	�	�	�	�	�
Subscribers	�	25,766	�	15,796	�	9,970	�	63.1	%
Homes Enabled	�	152,000	�	111,000	�	41,000	�	36.9	%

�

�	�	September�30,	�	June�30,	�	Change			�
�	�	2014	�	2014	�	Number	�	Percentage	�
�	�	�	�	�	�	�	�	�	�
Voice access lines	�	�	�	�	�	�	�	�	�
Residential	�	173,656	�	177,953	�	(4,297	)	-2.4	%
Business	�	189,207	�	190,754	�	(1,547	)	-0.8	%
Public	�	3,954	�	4,028	�	(74	)	-1.8	%
�	�	366,817	�	372,735	�	(5,918	)	-1.6	%
�	�	�	�	�	�	�	�	�	�
High-Speed Internet lines	�	�	�	�	�	�	�	�	�
Residential	�	92,265	�	91,405	�	860	�	0.9	%
Business	�	19,552	�	19,465	�	87	�	0.4	%
Wholesale	�	853	�	866	�	(13	)	-1.5	%
�	�	112,670	�	111,736	�	934	�	0.8	%
�	�	�	�	�	�	�	�	�	�
Long distance lines	�	�	�	�	�	�	�	�	�
Residential	�	109,702	�	112,231	�	(2,529	)	-2.3	%
Business	�	78,207	�	78,522	�	(315	)	-0.4	%
�	�	187,909	�	190,753	�	(2,844	)	-1.5	%
�	�	�	�	�	�	�	�	�	�
Video services	�	�	�	�	�	�	�	�	�
Subscribers	�	25,766	�	23,101	�	2,665	�	11.5	%
Homes Enabled	�	152,000	�	142,000	�	10,000	�	7.0	%

�

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Form 10-Q Hawaiian Telcom Holdco, For: Sep 30

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