-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vn0+CMTegOXa4vis31ktir6IU5xhk60uT9KO2AaLY2voYtehsK8fguAbrxmTuf1s JBcqrzCos4utp8T3DdX2Ew== 0000863437-01-500003.txt : 20010511 0000863437-01-500003.hdr.sgml : 20010511 ACCESSION NUMBER: 0000863437-01-500003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HECTOR COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000863437 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 411666660 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13891 FILM NUMBER: 1628164 BUSINESS ADDRESS: STREET 1: 211 S MAIN ST STREET 2: P O BOX 428 CITY: HECTOR STATE: MN ZIP: 55342 BUSINESS PHONE: 6128486611 MAIL ADDRESS: STREET 1: P O BOX 428 STREET 2: 211 S MAIN ST CITY: HECTOR STATE: MN ZIP: 55342 10-Q 1 hcc1q01.txt HECTOR COMMUNICATIONS CORP. FORM 10-Q (3/31/01) - -------------------------------------------------------------------------------- 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 MARCH 31, 2001 -------------------------------------------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------- ------------------------- Commission File Number: 0-18587 ------- HECTOR COMMUNICATIONS CORPORATION ................................................................................ (Exact name of registrant as specified in its charter) MINNESOTA 41-1666660 (State or other jurisdiction of (Federal Employer incorporation or organization) Identification No.) 211 South Main Street, Hector, MN 55342 ................................................................................ (Address of principal executive offices) (Zip Code) (320) 848-6611 ................................................................................ Registrant's telephone number, including area code 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 ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. CLASS Outstanding at April 30, 2001 ------------------------- ----------------------------- Common Stock, par value 3,481,422 $.01 per share Total Pages (14) Exhibit at Page 14 - -------------------------------------------------------------------------------- HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES INDEX Page No. Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Income and Comprehensive Income 4 Consolidated Statements of Stockholders' Equity 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II. Other Information 13 2 PART I. FINANCIAL INFORMATION HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS (unaudited) March 31 December 31 Assets: 2001 2000 ------------ ------------ Current assets: Cash and cash equivalents $ 13,219,986 $ 13,834,110 Construction fund 787,837 317,837 Accounts receivable, net 5,216,913 5,548,622 Materials, supplies and inventories 1,401,692 825,673 Prepaid expenses 164,107 302,704 ------------ ------------ Total current assets 20,790,535 20,828,946 Property, plant and equipment 98,408,275 97,311,532 less accumulated depreciation (43,292,280) (41,085,007) ------------ ------------ Net property, plant and equipment 55,115,995 56,226,525 Other assets: Excess of cost over net assets acquired, net 55,022,004 55,475,430 Marketable securities 2,586,748 2,895,272 Wireless telephone investments 12,581,759 12,509,975 Other investments 11,648,651 10,527,727 Other assets 177,945 214,106 ------------ ------------ Total other assets 82,017,107 81,622,510 ------------ ------------ Total Assets $157,923,637 $158,677,981 ============ ============ Liabilities and Stockholders' Equity: Current liabilities: Notes payable and current portion of long-term debt $ 6,442,900 $ 6,337,200 Accounts payable 3,198,929 2,664,520 Accrued expenses 2,121,478 2,479,779 Income taxes payable 227,715 387,100 ------------ ------------ Total current liabilities 11,991,022 11,868,599 Long-term debt, less current portion 83,210,783 84,378,149 Deferred investment tax credits 59,283 79,668 Deferred income taxes 6,445,222 6,603,310 Deferred compensation 880,811 904,071 Minority stockholders interest in Alliance Telecommunications Corp. 15,941,554 15,736,317 Stockholders' Equity 39,394,962 39,107,867 ------------ ------------ Total Liabilities and Stockholders' Equity $157,923,637 $158,677,981 ============ ============ See notes to consolidated financial statements.
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HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (unaudited) Three Months Ended March 31 --------------------------------- 2001 2000 ------------- ------------- Revenues: Local network $ 1,697,201 $ 1,491,384 Network access 5,623,490 4,851,504 Nonregulated activities 1,576,342 1,174,708 Cable television revenues 987,808 970,120 ------------- ------------- Total revenues 9,884,841 8,487,716 Costs and expenses: Plant operations 1,345,858 1,192,842 Depreciation and amortization 2,710,219 2,356,367 Customer operations 640,939 466,368 General and administrative 1,193,318 1,340,152 Other operating expenses 1,354,628 934,496 ------------- ------------- Total costs and expenses 7,244,962 6,290,225 Operating income 2,639,879 2,197,491 Other income and (expenses): Interest expense (1,394,859) (1,533,012) Gain on sales of marketable securities 1,622,191 Interest and dividend income 169,625 383,322 Income from investments in unconsolidated affiliates 395,484 273,059 ------------- ------------- Other income (expense), net (829,750) 745,560 Income before income taxes 1,810,129 2,943,051 Income tax expense 859,000 1,300,000 ------------- ------------- Income before minority interest 951,129 1,643,051 Minority interest in earnings of Alliance Telecommunications Corporation 257,463 438,235 ------------- ------------- Net income $ 693,666 $ 1,204,816 ------------- ------------- Other comprehensive loss: Unrealized holding losses on marketable securities (308,524) (862,001) Less: reclassification adjustment for gains included in net income (1,622,191) ------------- ------------- Other comprehensive loss before income taxes (308,524) (2,484,192) Income tax benefit related to items of other comprehensive loss (123,409) (345,375) Income tax benefit related to reclassification adjustment for gains included in net income (649,956) Minority interest in other comprehensive loss of Alliance Telecommunications Corporation (52,225) (475,370) ------------- ------------- Other comprehensive loss (132,890) (1,013,491) ------------- ------------- Comprehensive income $ 560,776 $ 191,325 ============= ============= Basic net income per share $ .20 $ .33 Diluted net income per share $ .19 $ .30 See notes to consolidated financial statements.
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HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Accumulated Preferred Stock Common Stock Additional Other ------------------- -------------------- Paid-in Retained Comprehensive Shares Amount Shares Amount Capital Earnings Income Total --------- -------- --------- --------- ----------- ----------- ---------- ----------- BALANCE AT DECEMBER 31, 1999 229,300 $229,300 3,574,712 $35,747 $13,274,444 $23,115,945 $3,326,482 $39,981,918 Net income 3,309,423 3,309,423 Issuance of common stock under Employee Stock Purchase Plan 10,742 108 115,167 115,275 Issuance of common stock under Employee Stock Option Plan 37,620 376 266,813 267,189 Issuance of common stock in exchange for preferred stock (8,000) (8,000) 8,000 80 7,920 0 Issuance of common stock from exercise of outstanding warrants 88,311 883 756,417 757,300 Issuance of common stock to ESOP 6,928 69 96,923 96,992 Purchase and retirement of common stock (221,950) (2,219) (1,672,908) (1,479,856) (3,154,983) Change in unrealized gains on marketable securities, net of deferred taxes (2,265,247) (2,265,247) --------- -------- --------- --------- ----------- ----------- ---------- ----------- BALANCE AT DECEMBER 31, 2000 221,300 221,300 3,504,363 35,044 12,844,776 24,945,512 1,061,235 39,107,867 Net income 693,666 693,666 Issuance of common stock under Employee Stock Option Plan 31,175 312 204,276 204,588 Issuance of common stock to ESOP 8,709 87 91,906 91,993 Purchase and retirement of common stock (50,485) (505) (187,183) (382,574) (570,262) Change in unrealized gains on marketable securities, net of deferred taxes (132,890) (132,890) --------- -------- --------- --------- 0---------- ----------- ---------- ----------- BALANCE AT March 31, 2001 221,300 $221,300 3,493,762 $34,938 $12,953,775 $25,256,604 $ 928,345 $39,394,962 ========= ======== ========= ========= =========== =========== ========== =========== See notes to consolidated financial statements.
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HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended March 31 ----------------------------- 2001 2000 ----------- ----------- Cash Flows from Operating Activities: Net income $ 693,666 $ 1,204,816 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,710,219 2,356,367 Minority stockholders' interest in earnings of Alliance Telecommunications Corporation 257,463 438,235 Gain on sales of marketable securities (1,622,191) Income from unconsolidated affiliates (395,484) (273,059) Proceeds from wireless telephone investments 169,100 198,096 Changes in assets and liabilities: Decrease in accounts receivable 331,709 301,664 Increase in materials, supplies and inventories (576,019) (40,776) Decrease in prepaid expenses 138,597 59,188 Increase in accounts payable 534,409 1,345,863 Decrease in accrued expenses (266,308) (105,380) Decrease in income taxes payable (159,385) (2,157,973) Decrease in deferred investment credits (20,385) (25,024) Decrease in deferred taxes (34,680) (657,549) Decrease in deferred compensation (23,260) (23,260) ----------- ----------- Net cash provided by operating activities 3,359,642 999,017 Cash Flows from Investing Activities: Capital expenditures, net (1,141,970) (1,089,257) Sales of marketable securities 1,005,042 Purchases of marketable securities (4,506,003) Decrease (increase) in construction fund (470,000) 18,107 Purchases of wireless telephone investments (16,876) (183,273) Purchases of other investments (949,448) (877,431) Decrease (increase) in other assets 31,868 (61,311) ----------- ----------- Net cash used in investing activities (2,546,426) (5,694,126) Cash Flows from Financing Activities: Repayment of long-term debt (1,531,666) (1,375,864) Proceeds from issuance of notes payable and long-term debt 470,000 Issuance of common stock 204,588 766,888 Purchase of stock (570,262) (2,485,662) ----------- ----------- Net cash used in financing activities (1,427,340) (3,094,638) ----------- ----------- Net Decrease in Cash and Cash Equivalents (614,124) (7,789,747) Cash and Cash Equivalents at Beginning of Period 13,834,110 27,055,772 ----------- ----------- Cash and Cash Equivalents at End of Period $13,219,986 $19,266,025 =========== =========== Supplemental disclosures of cash flow information: Interest paid during the period $ 1,385,580 $ 1,555,068 Income taxes paid during the period 1,038,515 3,477,240 See notes to consolidated financial statements.
6 NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS The balance sheet and statement of stockholders' equity as of March 31, 2001 and the statements of income and comprehensive income and the statements of cash flows for the periods ended March 31, 2001 and 2000 have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and changes in cash flows at March 31, 2001 and 2000 have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2000 Annual Report to Shareholders. The results of operations for the periods ended March 31 are not necessarily indicative of the operating results for the entire year. Certain amounts in the 2000 financial statements have been reclassified to conform to the 2001 financial statement presentation. These reclassifications had no effect on net income or stockholders' equity as previously reported. NOTE 2 - MARKETABLE SECURITIES AND GAINS ON SALES OF INVESTMENTS Marketable securities consist principally of equity securities of other telecommunications companies. The Company's marketable securities portfolio is classified as available-for-sale. The cost and fair value of available-for-sale investment securities was as follows: Gross Gross Unrealized Unrealized Fair Cost Gains Losses Value --------- ----------- --------- ----------- March 31, 2001 $ 277,444 $ 2,323,434 $ (14,130) $ 2,586,748 December 31, 2000 277,444 2,630,212 (12,384) 2,895,272 Net unrealized gains on marketable securities, net of related deferred taxes, are included in accumulated other comprehensive income as follows: Accumulated Net Deferred Other Unrealized Income Minority Comprehensive Gains Taxes Interest Income ---------- ----------- --------- ----------- March 31, 2001 $2,309,304 $ (954,477) $(426,482) $ 928,345 December 31, 2000 2,617,828 (1,077,886) (478,707) 1,061,235 These amounts have no cash effect and are not included in the statement of cash flows. Proceeds from sales of available-for-sale securities (including receivable amounts of $2,647,000 at March 31, 2000) were $3,652,000 in the three-month period ended March 31, 2000. Gross realized gains on sales of securities were $1,622,000 in the 2000 period. Realized gains on sales are based on the difference between net sales proceeds and the book value of securities sold, using the specific identification method. 7 NOTE 3 - WIRELESS TELEPHONE INVESTMENTS The Company's investments in wireless telephone partnerships and limited liability companies are recorded on the equity method of accounting, which reflects original cost and recognition of the Company's share of income or losses. Income recognized on the Company's investment in Midwest Wireless LLC, net of amortization, was $241,000 and $283,000 for the three-month periods ended March 31, 2001 and 2000 respectively. At March 31, 2001, the Company owned 10.4% of Midwest Wireless Holdings LLC. Losses from the Company's Wireless North LLC PCS investments were $17,000 in the first quarter of 2001 compared to income of $14,000 in the first quarter of 2000. The Company suspended use of the equity method of accounting for these investments when its recorded losses equaled the total of its cash investments and loan guarantees. As a result, the Company has unrecorded losses of $1,771,000 on its investment. At March 31, 2001, the Company owned 10.4% of Wireless North LLC. The Company made additional cash investments of $17,000 and $183,000 in the respective 2001 and 2000 periods to support the operations of its wireless investments. Cash distributions received from cellular telephone investments were $169,000 and $198,000 in 2001 and 2000, respectively. NOTE 4 - INCOME TAXES AND INVESTMENT CREDITS Income taxes have been calculated in proportion to the earnings and tax credits generated by operations. Investment tax credits have been deferred and are included in income over the estimated useful lives of the related assets. The Company's effective income tax rate is higher than the U.S. rate due to the effect of state income taxes and non-deductible expenses. NOTE 5 - ACQUISITIONS Effective June 9, 2000, Alliance Telecommunications Corporation acquired all of the outstanding common stock of Hager TeleCom, Inc. for $9,124,500 of cash plus acquisition costs. In the acquisition, the following assets were acquired and liabilities assumed: Property, plant and equipment $ 3,819,916 Excess of cost over net assets acquired 5,809,643 Wireless telephone investments 2,500,000 Long-term debt (3,612,396) Deferred income taxes (281,872) Other assets and liabilities 978,961 ------------ Net assets acquired 9,214,252 Less cash and cash equivalents acquired (681,860) ------------ Payment for Hager TeleCom, Inc. net of cash acquired $ 8,532,392 ============ The acquisition is being accounted for as a purchase. The excess of cost over net assets acquired is being amortized over 25 years. The operations of Hager, which are not material to the Company's operations, have been included in consolidated results since the acquisition date. 8 NOTE 6 - SEGMENT INFORMATION The Company is organized into two business segments: Hector Communications Corporation and its wholly owned subsidiaries, and Alliance Telecommunications Corporation and its subsidiaries. Segment information is as follows:
Hector Alliance Consolidated --------------- --------------- --------------- Three Months Ended March 31, 2001 Revenues $ 2,315,241 $ 7,569,600 $ 9,884,841 Costs and expenses 1,949,933 5,295,029 7,244,962 --------------- --------------- --------------- Operating income 365,308 2,274,571 2,639,879 Interest expense (247,777) (1,147,082) (1,394,859) Income from unconsolidated affiliates 64,817 330,667 395,484 Interest and dividend income 77,208 92,417 169,625 --------------- --------------- --------------- Income before income taxes $ 259,556 $ 1,550,573 $ 1,810,129 =============== =============== =============== Depreciation and amortization $ 782,624 $ 1,927,595 $ 2,710,219 =============== =============== =============== Total assets $ 30,018,343 $ 127,905,294 $ 157,923,637 =============== =============== =============== Capital expenditures $ 512,673 $ 629,297 $ 1,141,970 =============== =============== ===============
Hector Alliance Consolidated --------------- --------------- --------------- Three Months Ended March 31, 2000 Revenues $ 2,270,452 $ 6,217,264 $ 8,487,716 Costs and expenses 1,793,081 4,497,144 6,290,225 --------------- --------------- --------------- Operating income 477,371 1,720,120 2,197,491 Interest expense (257,690) (1,275,322) (1,533,012) Interest and dividend income 79,074 304,248 383,322 Income from unconsolidated affiliates 174,812 98,247 273,059 Gain on sale of marketable securities 1,622,191 1,622,191 --------------- --------------- --------------- Income before income taxes $ 473,567 $ 2,469,484 $ 2,943,051 =============== =============== =============== Depreciation and amortization $ 702,612 $ 1,653,755 $ 2,356,367 =============== =============== =============== Total assets $ 29,326,117 $ 132,706,880 $ 162,032,997 =============== =============== =============== Capital expenditures $ 289,579 $ 799,678 $ 1,089,257 =============== =============== ===============
9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000 Hector Communications Corporation ("HCC" or "Company") is a telecommunications holding company which, through its wholly-owned and majority-owned subsidiaries, primarily provides local telephone and cable television service. The Company also invests in other companies providing wireless telephone and other telecommunications related services. HCC operates five wholly-owned local exchange company subsidiaries (generally referred to as "local exchange carriers" or "LECs") which served 7,467 access lines in 9 rural communities in Minnesota and Wisconsin at March 31, 2001. HCC, through its subsidiaries, also provides cable television service to 4,842 subscribers in Minnesota and Wisconsin. HCC's 68% owned subsidiary, Alliance Telecommunications Corporation, owns and operates six additional LEC subsidiaries which served 31,298 access lines in 28 rural communities in Minnesota, Wisconsin, Iowa and South Dakota at March 31, 2001. Alliance, through its subsidiaries, also served 8,270 cable television subscribers in Minnesota, North Dakota and South Dakota. Golden West Telecommunications Cooperative, Inc. of Wall, South Dakota, and Split Rock Telecom Cooperative, Inc. of Garretson, South Dakota own the remaining interests in Alliance. Consolidated revenues increased 16% from $8,488,000 in 2000 to $9,885,000 in 2000. The revenue breakdown by operating group was as follows:
Hector Alliance ------------------------------------ ----------------------------------- 2001 2000 2001 2000 ---------------- ---------------- --------------- --------------- Local network $ 381,817 $ 419,969 $ 1,315,384 $ 1,071,415 Network access 1,310,781 1,291,521 4,312,709 3,559,983 Nonregulated activities 265,938 184,187 1,310,404 990,521 Cable television 356,705 374,775 631,103 595,345 ---------------- ---------------- --------------- --------------- $ 2,315,241 $ 2,270,452 $ 7,569,600 $ 6,217,264 ---------------- ---------------- --------------- ---------------
Consolidated local service revenues increased $206,000 or 14%. The increase was due to growth in access lines served (38,765 at March 31, 2001). Access line growth was due to the acquisition of Hager TeleCom, increased development within the Company's service areas and increased demand for telephone lines to provide advanced telephone services such as internet services. Hector's local network revenues declined due to rate reductions in Wisconsin exchanges mandated by the public service commission. Network access revenues increased $772,000 or 16% due to increased usage of the phone network and the acquisition of Hager TeleCom. Nonregulated revenues increased $402,000 or 34%. The Company's nonregulated revenues come from a variety of sources, including internet services, leases of fiber optic transport facilities, retail sales of telecommunications equipment, engineering fees, directory services, billing and collections services provided to IXCs and resale of long distance services. At March 31, 2001, the Company had 8,289 internet customers. Cable television revenues increased $18,000 or 2%. Consolidated operating costs and expenses grew from $6,290,000 in 2000 to $7,245,000 in 2001, an increase of $955,000 or 15%. Costs and expenses by operating group were as follows: 10
Hector Alliance ------------------------------------ ----------------------------------- 2001 2000 2001 2000 ---------------- ---------------- --------------- --------------- Plant operations $ 348,417 $ 295,391 $ 997,441 $ 897,451 Depreciation and amortization 782,624 702,612 1,927,595 1,653,755 Customer operations 84,236 76,822 556,703 389,546 General and administrative 381,667 355,196 811,651 984,956 Other operating expenses 352,989 363,060 1,001,639 571,436 ---------------- ---------------- --------------- --------------- $ 1,949,933 $ 1,793,081 $ 5,295,029 $ 4,497,144 ---------------- ---------------- --------------- ---------------
Consolidated plant operations expenses increased $153,000 or 13%, due to increases in the Company's customer base. Depreciation and amortization increased $354,000 or 15% due to depreciation on new plant additions and shorter useful lives on telephone switching equipment. Customer operations expenses increased $175,000, or 37%. General and administrative expenses decreased $147,000 or 11%. Other operating expenses increased $420,000 or 45% due to the acquisition of Hager TeleCom. Consolidated operating income increased $442,000 or 20%. Interest expenses decreased $138,000 due to patronage accruals on interest payments made by the Company to CoBank. Interest expenses also decreased due to principal payments made which reduced the Company's long-term debt. Interest and dividend income decreased $214,000 due to lower cash balances available for investment. The Company had income from its partnership and LLC investments of $395,000 for the 2001 period compared to income of $273,000 in 2000 (Note 3). Alliance had gains on sales of marketable securities of $1,622,000 in 2000. Income before income taxes decreased to $1,810,000 in 2001 from $2,943,000 in 2000. The Company's effective income tax rate of 47% is higher than the standard U.S. tax rate due to state income taxes and the effect of nondeductible amortization expenses. Income before minority interest in Alliance's earnings decreased to $951,000 in 2001 from $1,643,000 in 2000. Minority interests in earnings of Alliance were $257,000 compared to $438,000 in 2000. Net income decreased 42% to $694,000 in 2001 compared to $1,205,000 in 2000. Liquidity and Capital Resources Cash flows from consolidated operating activities for the three-month periods were $3,360,000 and $999,000 in 2001 and 2000, respectively. Cash flow from operations in the 2000 period was adversely affected by income tax payments on marketable securities sales made in the fourth quarter of 1999. The increase in operating cash flow was due to increased operating income, increased noncash expenses and increased accounts payable which offset increases in materials and supplies and decreases in income taxes payable and deferred income taxes. At March 31, 2001, the Company's cash, cash equivalents and marketable securities totaled $15,807,000 compared to $16,729,000 at December 31, 2000. Alliance's cash and securities were $10,106,000 of this total. Working capital at March 31, 2001 was $8,800,000 compared to $8,960,000 at December 31, 2000. The current ratio was 1.7 to 1 at March 31, 2001. The Company makes periodic improvements to its facilities to provide up-to-date services to its telephone and cable television customers. Hector's plant additions in the 2001 and 2000 three-month periods were $513,000 and $290,000, respectively. Alliance's plant additions in the same periods were $629,000 and $800,000, respectively. Plant additions for 2001 for Hector and Alliance are expected to total $4,530,000 and $7,109,000, respectively. and will provide customers with additional advanced telecommunications services and expand usage of high capacity fiber optics in the telephone network. 11 Interest and dividend income has been derived almost exclusively from interest earned on the Company's cash and cash equivalents. Interest income has fluctuated in relation to changes in interest rates and availability of cash for investment. In 2000, Alliance sold 51,000 shares of U.S. West Communications, Inc. for $3,652,000 ($2,647,000 of which was receivable at March 31, 2000). The Company is an investor in Wireless North, a limited liability corporation that has acquired licenses to operate PCS systems in 13 markets in Minnesota, Wisconsin, North Dakota and South Dakota. The PCS systems have incurred significant losses. At March 31, 2001, the Company had invested $2,090,000 of cash and guaranteed $1,091,000 of debt in Wireless North. Due to the lack of success of Wireless North's operations, the Company believes it will be necessary to repay at least a portion of its loan guarantees in cash. In August 2000, the Company's Board of Directors authorized the purchase and retirement of up to 335,000 shares of the Company's stock in open market transactions or in private transactions consistent with overall market and financial conditions. During the first three months of 2001, the Company purchased and retired 50,485 shares of common stock. At March 31, 2001, 95,565 shares could be purchased under the remaining authorization. The Company received $205,000 from issuances of common stock in the first quarter of 2001. Cash receipts were principally due to exercises of stock options issued to employees. The Company is always looking to acquire properties that advance its plan to be a provider of top quality telecommunications services to rural customers. In 2000, the Company acquired Hager TeleCom, Inc. In 1998, the Company acquired Felton Telephone Company and eight cable television systems from Spectrum Cablevision Limited Partnership. The Company cannot predict if it will be successful in acquiring additional properties in the future and does not currently have financing plans in place to pay for possible acquisitions. By utilizing cash flow from operations, current cash and investment balances, and other available financing sources, the Company feels it has adequate resources to meet its anticipated operating, debt service and capital expenditure requirements. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 12 PART II. OTHER INFORMATION Items 1 - 5. Not Applicable Item 6(a). Exhibits Exhibit 11, "Calculation of Earnings Per Share" is attached to this Form 10-Q. Item 6(b). Exhibits and Reports on Form 8-K. - --------------------------------------------- None. 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 thereto duly authorized. Hector Communications Corporation By /s/Charles A. Braun ----------------------------- Charles A. Braun Chief Financial Officer Date: May 14, 2001 13
HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES EXHIBIT 11 CALCULATION OF EARNINGS PER SHARE Three Months Ended March 31 ----------------------------- Basic: 2001 2000 - ------- ---------- ---------- Net income $ 693,666 $1,204,816 ========== ========== Common shares: Weighted average number of common shares outstanding 3,481,215 3,630,584 ========== ========== Net income per common share $ .20 $ .33 ========== ========== Diluted: - ------------- Net income $ 693,666 $1,204,816 ========== ========== Common and common equivalent shares: Weighted average number of common shares outstanding 3,481,215 3,630,584 Dilutive effect of convertible preferred shares outstanding 221,300 221,700 Dilutive effect of stock options outstanding after application of treasury stock method 34,569 112,800 Dilutive effect of Employee Stock Purchase Plan shares subscribed 2,477 2,517 ---------- ---------- 3,739,561 3,967,601 ========== ========== Diluted net income per share $ .19 $ .30 ========== ==========
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