Hector Communic (AMEX:HCT)
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Hector Communications Corporation Reports Revenues and Earnings for The Third
Quarter of 2003
HECTOR, Minn., Nov. 18 /PRNewswire-FirstCall/ -- Hector Communications
Corporation today reported operating results for its third quarter and
nine-month periods ended September 30, 2003. The Company's operating results
for the current and prior periods have been restated pursuant to SFAS 144 to
reflect the effects of the split-up of Alliance Telecommunications Corporation.
Revenues from continuing operations were $8,107,000 for the three months ended
September 30, 2003, a decrease of 2% from $8,299,000 in 2002. The revenue
decrease was due to lower access revenues from interexchange carriers and lower
video service revenues following the sales of five cable television systems in
the second quarter of 2003. Operating income from continuing operations
decreased 19% to $2,120,000 in 2003 from $2,629,000 in 2002. Income from the
Company's investment in Midwest Wireless Holdings LLC was $596,000 in the 2003
period compared to $642,000 in 2002. Income from continuing operations was
$1,008,000 or $.27 per diluted share in 2003 compared to $1,087,000 or $.29 per
diluted share in 2002. The Company recorded a gain on the split-up of Alliance
Telecommunications Corporation of $210,000 in the 2003 period. Income from
discontinued operations was $242,000 in the 2002 period. Net income came to
$1,217,000 or $.32 per diluted share in 2003, compared to $1,329,000 or $.35 per
diluted share in 2002.
Revenues from continuing operations for the first nine months of 2003 were
$24,194,000, an increase of 5% from $23,066,000 in the same period of 2002.
Operating income from continuing operations increased 3% to $5,772,000 in 2003
from $5,594,000 in 2002. Income from the Company's investment in Midwest
Wireless Holdings LLC was $1,903,000 in the 2003 period compared to $1,835,000
in 2002. The Company recorded gains on sales of cable television systems
totaling $1,081,000 ($.12 per diluted share net of income taxes and minority
interest) in the 2003 period. Income from continuing operations was $3,030,000
or $.81 per diluted share in 2003 compared to $2,207,000 or $.58 per diluted
share in 2002. Income from discontinued operations, including the $210,000 gain
on the split-up of Alliance, was $882,000 in 2003. Income from discontinued
operations in the 2002 period totaled $945,000. Income before the cumulative
effect of a change in accounting principle for the 2003 period was $3,912,000 or
$1.04 per diluted share, compared to $3,151,000 or $.83 per diluted share in
2002.
During the first half of 2002, the Company tested the value of its goodwill and
intangible assets as required under the provisions of Statement of Financial
Accounting Standards No. 142. As a result of this test, the Company concluded
that the carrying value of the goodwill and intangible assets in certain of its
operating units exceeded the market value. Accordingly, the Company recognized
an impairment loss, net of income taxes and minority interest, of $3,147,000
($.83 per diluted share) and recorded it as a cumulative effect of change in
accounting principle against first quarter 2002 earnings. The Company's net
income for the first nine months of 2002, after the impairment loss, was
$5,000.
The Company completed the Alliance Telecommunications Corporation split-up
transactions on July 7, 2003. In the transactions, Golden West
Telecommunications Cooperative, Inc. and Alliance Communications Cooperative,
Inc. exchanged their minority interests in Alliance for the Company's majority
interest in two rural ILECs which serve 8,650 telephone access lines and 2,400
cable television customers. The minority partners also received their pro rata
share of Alliance's ownership interest in Midwest Wireless Holdings, LLC, which
reduced the Company's ownership interest in Midwest Wireless Holdings from 10.4%
to 8.0%. As part of the transaction the Company's debt to CoBank was reduced by
35% and stands at $26,812,000 at September 30, 2003.
Curtis A. Sampson, Chairman and Chief Executive Officer, said he was pleased the
Company had completed the split-up of Alliance. "The split-up will facilitate
efforts to streamline the Company's operating costs due to efficiencies gained
in eliminating the minority interests and the elimination of further expenses
related to the split-up. The Company is aggressively pursuing new revenue
sources to offset the decline in access revenues the whole industry is
experiencing. The broadband initiative now offered in four of the Company's
exchanges has proven very successful. The Company offers packages of local
service, video and high-speed internet service in those exchanges using
state-of-the-art technology."
Hector Communications Corporation is a telecommunications holding company which,
through its wholly-owned and majority-owned subsidiaries, provides
telecommunications services in rural communities in Minnesota, Wisconsin, South
Dakota, North Dakota and Iowa. The Company serves 30,060 telephone access
lines, 9,100 cable television subscribers and 10,100 internet customers and has
minority ownership interests in many other telecommunications companies.
From time to time in reports filed with the Securities and Exchange Commission,
in press releases, and in other communications to shareholders and the investing
public, the Company may make statements regarding the Company's future financial
performance. Such forward looking statements are subject to risks and
uncertainties, including but not limited to, the effects of the
Telecommunications Act, new technological developments which may reduce barriers
for competitors entering the Company's local exchange or cable television
markets, higher than expected expenses and other risks involving the
telecommunications industry generally. All such forward-looking statements
should be considered in light of such risks and uncertainties.
Hector Communications Corporation and Subsidiaries
Earnings Summary
Three Months Ended September 30
2003 2002
Revenues from continuing operations $8,106,588 $8,298,827
Operating income from continuing
operations 2,120,314 2,628,740
Other income (expense):
Income (loss) from investments:
Midwest Wireless Holdings, LLC 596,331 641,727
Other unconsolidated affiliates (30,556) 70,242
Other income 51,455 56,090
Interest expense (961,574) (897,167)
Net other expense (344,344) (129,108)
Income from continuing operations
before income taxes 1,775,970 2,499,632
Income tax expense (768,000) (1,005,000)
Minority interest in earnings of
continuing operations of Alliance
Telecommunications Corp. (408,059)
Income from continuing operations 1,007,970 1,086,573
Income from discontinued operations 209,505 242,227
Net Income $1,217,475 $1,328,800
Basic net income per common share:
Continuing operations $.29 $.31
Discontinued operations .06 .07
$.35 $.38
Diluted net income per share:
Continuing operations $.27 $.29
Discontinued operations .05 .06
$.32 $.35
Hector Communications Corporation and Subsidiaries
Earnings Summary
Nine Months Ended September 30
2003 2002
Revenues from continuing operations $24,193,995 $23,065,618
Operating income from continuing
operations 5,772,394 5,594,024
Other income (expense):
Income (loss) from investments:
Midwest Wireless Holdings, LLC 1,903,090 1,834,513
Other unconsolidated affiliates (75,904) 4,999
Gain on sale of cable television
systems 1,080,723
Other income 186,921 168,274
Interest expense (2,730,426) (2,623,250)
Net other expense 364,404 (615,464)
Income from continuing operations
before income taxes 6,136,798 4,978,560
Income tax expense (2,447,000) (2,002,000)
Minority interest in earnings of
continuing operations of Alliance
Telecommunications Corp. (659,624) (770,019)
Income from continuing operations 3,030,174 2,206,541
Income from discontinued operations 881,854 944,689
Income before cumulative effect of
change in accounting principle 3,912,028 3,151,230
Cumulative effect of change in
accounting principle, net of income taxes
and minority interest (3,146,569)
Net income $3,912,028 $4,661
Basic net income per common share:
Before cumulative effect of change
in accounting principle
Continuing operations $.87 $.63
Discontinued operations .25 .27
1.12 .90
Cumulative effect of accounting change (.90)
$1.12 $ -
Diluted net income per common share:
Before cumulative effect of change
in accounting principle
Continuing operations $.81 $.58
Discontinued operations .23 .25
1.04 .83
Cumulative effect of accounting change (.83)
$1.04 $ -
Hector Communications Corporation and Subsidiaries
Condensed Balance Sheet
September 30 December 31
2003 2002
Cash $15,565,965 $12,020,186
Other current assets 8,951,961 6,888,678
Property, plant and equipment, net 44,011,389 56,665,798
Excess of cost over net assets
acquired, net 31,691,927 49,074,993
Investment in Midwest Wireless
Holdings, LLC 13,352,542 16,232,707
Investments in other unconsolidated
affiliates 2,664,125 4,373,597
Other investments 6,444,798 8,818,502
Other assets 438,103 411,499
Total Assets $123,120,810 $154,485,960
Notes payable and current portion of
long-term debt $6,127,300 $7,364,600
Other current liabilities 4,968,406 5,826,281
Long-term debt, less current portion 59,640,204 75,147,560
Deferred taxes and credits 5,002,862 5,894,308
Deferred compensation 651,389 976,179
Minority Interest 17,027,697
Stockholders' equity 46,730,649 42,249,335
Total Liabilities and Stockholders'
Equity $123,120,810 $154,485,960
DATASOURCE: Hector Communications Corporation
CONTACT: Curtis A. Sampson, Chairman and Chief Executive Officer, Steven
H. Sjogren, President, or Paul N. Hanson, Vice President and Treasurer, of
Hector Communications Corporation, +1-320-848-6611