Hawaiian Telcom Reports Fourth Quarter and Full Year 2007 Results

HONOLULU--(Business Wire)--
Hawaiian Telcom Communications, Inc. today reported financial
results for its fourth quarter and full year 2007. Quarterly
highlights for the Company include:

-- The completion of the sale of its Directory publishing
business to Local Insight Media, L.P. for $435 million,
subject to certain adjustments.

-- The prepayment of $160 million principal amount of its Tranche
C Term Loan and the subsequent first quarter 2008 prepayment
of $211 million and $50 million principal amount of its
Tranche C Term Loan and Revolving Loans, respectively.

-- Quarterly net income of $109.9 million, primarily attributable
to the sale of the Directory publishing business, compared to
a quarterly net loss of $29.9 million in the same period a
year ago. Full year 2007 net income was $117.3 million
compared to a net loss of $144.6 million in 2006.

-- Quarterly operating revenue of $116.4 million, which resulted
in Adjusted EBITDA (as defined herein) of $29.6 million.
Revenue for the full year 2007 totaled $483.7 million, a
decline of $19.5 million or 3.9 percent from 2006, which
resulted in Adjusted EBITDA of $157.3 million, up 1 percent
from 2006.

"Hawaiian Telcom experienced a very challenging 2007, and since
joining the Company earlier this year I have had the pleasure of
meeting and talking with many employees, who in spite of the
challenges have demonstrated a steadfast commitment to serving our
customers," said Stephen F. Cooper, Hawaiian Telcom's chief executive
officer. "We have expanded the management team to include a broader
representation of the Company and are currently evaluating options
that will sharpen our operational focus so we can realize the
long-term potential of this Company."

Fourth Quarter 2007 Results

Revenues

Fourth quarter consolidated revenue was $116.4 million, $4.0
million below the prior quarter and 6.6 percent lower than that of the
previous year's fourth quarter, driven principally by the decline in
switched access lines.

Local services revenue was $51.8 million, down 0.8 percent from
the prior quarter, and down 5.3 percent from the previous year's
fourth quarter, primarily due to a corresponding 2.2 percent and 7.0
percent quarter-over-quarter and year-over-year decline in switched
access lines.

Fourth quarter network access services revenue was $33.7 million,
down 3.3 percent from the prior quarter and down 9.3 percent from the
previous year's fourth quarter, primarily due to the decline in
switched access lines as well as reserves established for carrier
wholesale disputes.

Revenue from long distance services was $8.8 million in the fourth
quarter, a decline of 10.8 percent from the same period a year ago.
This decrease was largely due to the decline in switched access lines,
an overall decline in international usage as well as a reduction in
average rate per minute in connection with certain international rate
plans.

In the fourth quarter HSI revenue was up 1.6 percent to $8.9
million versus the prior quarter, but decreased 3.5 percent from that
of the previous year's fourth quarter, primarily due to certain
promotional pricing programs. Fourth quarter total HSI subscribers
were approximately 93,450, up 1.0 percent from the prior quarter.

Operating Expenses

Fourth quarter operating expenses, exclusive of depreciation and
amortization and non-recurring costs, were up 8.3 percent to $86.8
million when compared with the prior quarter operating expenses of
$80.2 million, and up 4.4 percent when compared with the previous
year's fourth quarter. The increase was largely related to an increase
in bad debt expense recorded in the quarter, as well as high levels of
overtime as a result of severe weather conditions experienced in
Hawaii in the fourth quarter of 2007.

Full Year 2007 Results

Revenues

For the full year, total revenue was $483.7 million, a decline of
$19.5 million or 3.9 percent from 2006. The year over year decline was
principally attributable to an overall 7.0 percent decline in switched
access lines, which impacted local services, network access and long
distance revenues. These declines were partially offset by higher
levels of installation and maintenance revenues for customer premise
equipment.

Operating Expenses

For the full year, operating expenses, exclusive of depreciation
and amortization and non-recurring costs, were $326.3 million, a
decrease of 6.0 percent to 2006. The year over year decrease was
largely related to lower labor costs as a result of cost reduction
initiatives as well as lower bad debt expense during 2007.

Loss from Continuing Operations/EBITDA Reconciliation

To supplement our consolidated financial statements prepared and
presented in accordance with generally accepted accounting principles
(GAAP), we use Adjusted EBITDA for debt compliance and management
reporting purposes as a non-GAAP financial measure. Adjusted EBITDA is
a non-GAAP financial measure used by management to evaluate the
effectiveness of the Company's operating performance and to enhance
the comparability between periods. Our use of Adjusted EBITDA may not
be comparable to similarly titled measures used by other companies in
the telecommunications industry. The presentation of this financial
information is not intended to be considered in isolation or as a
substitute for, or superior to, the financial information prepared and
presented in accordance with GAAP.

Adjusted EBITDA from continuing operations for the fourth quarter
2007 was $29.6 million and for the full year 2007 was $157.3 million.
Adjusted EBITDA was determined as follows (dollars in thousands):

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Three Months Ended Twelve Months Ended
--------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2007 2006 2007 2006
---------- ---------- ---------- -----------

Loss from continuing
operations ($20,388) ($26,216) ($65,205) ($137,358)
Provision (benefit) for
income taxes (52,900) 939 (47,700) 2,482
Interest expense and
other income and
expense, net 22,538 20,519 84,190 79,829
Loss on early
extinguishment of debt 1,516 0 9,296 0
Depreciation and
amortization 41,311 36,373 159,872 163,967
---------- ---------- ---------- -----------
EBITDA from continuing
operations (7,923) 31,615 140,453 108,920
Settlement with
BearingPoint 3,462 0 (42,219) 0
Intangible asset
impairment 21,900 0 21,900 0
Non-recurring costs 12,144 9,875 37,202 47,108
---------- ---------- ---------- -----------
Adjusted EBITDA from
continuing operations $ 29,583 $ 41,490 $ 157,336 $ 156,028
========== ========== ========== ===========
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Cash & Liquidity

At the end of the fourth quarter, Hawaiian Telcom had drawn $57.0
million under its committed $200.0 million revolving credit facility,
up from $35.0 million at the end of the third quarter. At the end of
the fourth quarter, $32.8 million was available subject to covenants
and a $0.2 million outstanding letter of credit. In January 2008, the
Company prepaid $211.0 million and $50.0 million principal amounts of
its Tranche C Term Loan and Revolving Loans, respectively. As a result
of this $50.0 million Revolving Loan prepayment, the Company requested
a permanent reduction in the revolver commitment to $150.0 million.

At the end of fourth quarter, the Company had $8.8 million in cash
and cash equivalents compared to $11.1 million at the end of the third
quarter and $4.8 million a year ago. Cash and cash equivalents at
December 31, 2007 excludes segregated cash of $271.5 million, which
represents remaining proceeds from the sale of the Directories
publishing segment. The segregated cash was utilized to make the debt
prepayments in January 2008, as described above.

Capital expenditures for the fourth quarter were $27.7 million and
$97.6 million for full year 2007. Year-end net debt, representing
total debt less cash and cash equivalents and segregated cash, totaled
$972.5 million, down $430.0 million from year-end 2006.

Conference Call

The Company will host a conference call to discuss its fourth
quarter and full year results at 9:00 a.m. (Eastern Time), or 3:00
a.m. (Hawaii Time) on Monday, March 31st, 2008.

To access the call, participants should dial (877) 381-5057
(US/Canada), or (706) 679-4138 (International) five minutes prior to
the start of the call. A telephonic replay of the conference call will
be available one hour after the conclusion of the call until 11:00
a.m. (Eastern Time), or 5:00 a.m. (Hawaii Time) April 7th, 2008.
Access the replay by dialing (800) 633-8625 and entering confirmation
code 21378780. Alternatively, the replay can be accessed by dialing
(402) 977-9141 and entering confirmation code 21378780.

Use of Non-GAAP Financial Measures

EBITDA is defined as net income plus interest expense (net of
interest income), income taxes, and depreciation and amortization.
Adjusted EBITDA is EBITDA plus items related to our purchase of
Verizon Hawaii affecting comparability, such as Directories deferrals
resulting from purchase accounting and non-recurring costs not
expected to occur regularly in the ordinary course of business. 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 as well as
for covenant compliance purposes under the senior credit facility. Our
use of Adjusted EBITDA may not be comparable to similarly titled
measures used by other companies in the telecommunications industry.

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", "expects", 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 its market position in communications services,
including wireless, wireline and Internet 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; adjustments resulting from
year-end audit procedures; 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 annual
report on Form 10-K for the fiscal year ended December 31, 2007. The
information contained in this release is as of December 31, 2007. It
is anticipated that subsequent events and developments will cause
estimates to change.

About Hawaiian Telcom

Hawaiian Telcom is the state's leading telecommunications
provider, offering a wide spectrum of telecommunications products and
services, which include local and long distance service, high-speed
Internet, and wireless services.

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Hawaiian Telcom Communications, Inc.
Consolidated Statements of Operations
(Dollars in thousands)

Year Ended Three Months Ended
December 31, December 31,
--------------------- -------------------
2007 2006 2007 2006
---------- ---------- --------- ---------

Operating revenues $ 483,676 $ 503,135 $116,401 $124,643
---------- ---------- --------- ---------

Operating expenses:
Cost of services and sales
(exclusive of
depreciation and
amortization) 190,238 214,535 49,959 44,449
Selling, general and
administrative 173,304 179,680 49,003 48,579
Settlement with
BearingPoint (42,219) - 3,462 -
Intangible asset
impairment 21,900 - 21,900 -
Depreciation and
amortization 159,872 163,967 41,311 36,373
---------- ---------- --------- ---------

Total operating expenses 503,095 558,182 165,635 129,401
---------- ---------- --------- ---------

Operating loss (19,419) (55,047) (49,234) (4,758)
---------- ---------- --------- ---------

Other income (expense):
Interest expense (85,945) (80,256) (23,928) (20,622)
Loss on early
extinguishment of debt (9,296) - (1,516) -
Interest income and other,
net 1,755 427 1,390 103
---------- ---------- --------- ---------

Total other expense (93,486) (79,829) (24,054) (20,519)
---------- ---------- --------- ---------

Loss from continuing
operations before provision
for income taxes (112,905) (134,876) (73,288) (25,277)

Provision (benefit) for
income taxes (47,700) 2,482 (52,900) 939
---------- ---------- --------- ---------

Loss from continuing
operations (65,205) (137,358) (20,388) (26,216)

Income (loss) from
discontinued operations,
net of tax 182,531 (7,279) 130,297 (3,666)
---------- ---------- --------- ---------

Net income (loss) $ 117,326 $(144,637) $109,909 $(29,882)
========== ========== ========= =========
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Hawaiian Telcom Communications, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share information)

December 31,
-----------------------
2007 2006
----------- -----------
Assets
Current assets
Cash and cash equivalents $ 8,772 $ 4,752
Segregated cash 271,464 -
Receivables, net 65,392 100,370
Material and supplies 6,600 9,915
Prepaid expenses 3,343 4,894
Other current assets 4,890 7,690
----------- -----------
Total current assets 360,461 127,621
Property, plant and equipment, net 794,051 818,172
Deferred financing and other assets 25,891 46,372
Intangible assets, net 457,437 583,220
Goodwill - 136,779
----------- -----------

Total assets $1,637,840 $1,712,164
=========== ===========

Liabilities and Stockholder's Equity
Current liabilities
Accounts payable $ 54,099 $ 91,690
Accrued expenses 27,396 23,941
Income taxes payable 1,150 -
Advance billings and customer deposits 15,496 15,540
Current maturities of long-term debt 263,000 26,500
Other current liabilities 16,648 3,764
----------- -----------
Total current liabilities 377,789 161,435
Long-term debt 989,700 1,380,500
Deferred income taxes - 10,300
Employee benefit obligations 57,176 50,874
Other liabilities 11,695 7,016
----------- -----------
Total liabilities 1,436,360 1,610,125
----------- -----------

Commitments and contingencies

Stockholder's equity
Common stock, par value of $0.01 per share,
1,000 shares authorized and issued - -
Additional paid-in capital 428,565 428,118
Accumulated other comprehensive income
(loss) (6,696) 11,636
Accumulated deficit (220,389) (337,715)
----------- -----------
Total stockholder's equity 201,480 102,039
----------- -----------

Total liabilities and stockholder's equity $1,637,840 $1,712,164
=========== ===========
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Hawaiian Telcom Communications, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)

Year Ended
December 31,
-----------------------
2007 2006
------------ ----------

Cash flows from operating activities:
Net income (loss) $ 117,326 $(144,637)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization 162,443 172,732
Deferred income taxes, net (10,300) 6,200
Employee retirement benefits 6,005 6,733
Provision for uncollectibles 16,290 25,563
Write-down of software costs 22,055 -
Loss on early extinguishment of debt 9,296 -
Intangible asset impairment 21,900 -
Gain on sale of directories publishing
segment (231,788) -
Changes in operating assets and liabilities:
Receivables 13,135 (49,248)
Material and supplies 3,315 (4,204)
Other current assets 1,245 (1,876)
Accounts payable and accrued expenses (36,940) 29,435
Other current liabilities 2,414 (5,743)
Other, net 5,112 3,344
------------ ----------
Net cash provided by operating activities 101,508 38,299
------------ ----------

Cash flows from investing activities:
Capital expenditures (97,640) (106,868)
Proceeds from sale of directories publishing
segment 437,282 -
Transfer and use of segregated cash (271,464) -
Proceeds on sale of investments 800 2,500
Other (5,818) -
------------ ----------
Net cash provided by (used in) investing
activities 63,160 (104,368)
------------ ----------

Cash flows from financing activities:
Issuance of common stock - -
Proceeds from issuance of debt 985,000 443,000
Repayment of debt (1,139,300) (382,500)
Payment of debt issue costs (6,348) -
------------ ----------
Net cash provided by (used in) financing
activities (160,648) 60,500
------------ ----------

Net change in cash and cash equivalents 4,020 (5,569)
Cash and cash equivalents, beginning of period 4,752 10,321
------------ ----------

Cash and cash equivalents, end of period $ 8,772 $ 4,752
============ ==========
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Hawaiian Telcom
Brian Tanner, 808-546-3442 (Investor Relations)
Ann Nishida, 808-546-1888 (Media Relations)

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