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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 5, 2003
Hector Communications Corporation
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(Exact name of Registrant as specified in its charter)
Minnesota 0-18587 41-1666660
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(State or other (Commission (IRS Employer
jurisdiction File Number) Identification
of incorporation) No.)
211 South Main Street
Hector, Minnesota 55342
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (320) 848-6611
Item 9. Regulation FD Disclosure.
The following information is furnished pursuant to Item 12, "Results of
Operations and Financial Condition."
On August 5, 2003, Hector Communications Corporation (the "Company") reported
its financial results for its second fiscal quarter ended June 30, 2003. See the
Company's press release dated August 5, 2003, which is furnished as Exhibit 99
and incorporated by reference in this Current Report on Form 8-K.
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.
Hector Communications Corporation
Date: August 6, 2003 By /s/ Charles A. Braun
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Charles A. Braun
Chief Financial Officer
No. Exhibit Manner of Filing
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99 Press Release dated August 5, 2003. Filed Electronically
Contact: Curtis A. Sampson, Chairman and Chief Executive Officer
Steven H. Sjogren, President
Paul N. Hanson, Vice President and Treasurer
For Immediate Release
Hector Communications Corporation Reports
Revenues and Earnings for the second quarter of 2003
August 5, 2003--Hector, MN--Hector Communications Corporation (AMEX: HCT) today
reported revenues of $10,345,000 for the three months ended June 30, 2003, an
increase of 8% from $9,557,000 in 2002. The revenue increase was almost entirely
due to access revenues which were negatively affected by the bankruptcy filings
of interexchange carriers in 2002. Operating income increased 26% to $2,662,000
in 2003 from $2,106,000 in 2002. Income from the Company's investment in Midwest
Wireless Holdings LLC was $886,000 in the 2003 period compared to $727,000 in
2002. The Company recorded gains on sales of cable television systems totaling
$1,081,000 in the 2003 period. Net income came to $1,568,000 or $.42 per diluted
share in 2003, compared to $738,000 or $.19 per diluted share in 2002.
Revenues for the first six months of 2003 were $20,838,000, an increase of 7%
from $19,416,000 in the same period of 2002. Operating income increased 18% to
$5,483,000 in 2003 from $4,663,000 in 2002. Income from the Company's investment
in Midwest Wireless Holdings LLC was $1,692,000 in the 2003 period compared to
$1,520,000 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 before the cumulative effect of a
change in accounting principle for the 2003 period was $2,695,000 or $.72 per
diluted share, compared to $1,822,000 or $.48 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 loss
for the first six months of 2002, after the impairment loss, was $1,324,000 or
$.35 per diluted share.
The Company completed the Alliance Telecommunications Corporation breakup
transactions on July 7, 2003, which was subsequent to the end of the periods
reported herein. In the transactions, Golden West Telecommunications
Cooperative, Inc. and Alliance Communications Cooperative, Inc. exchanged their
minority interests in Alliance for two rural ILECs which serve 8,650 telephone
access lines and 2,400 cable television customers. Revenues and operating income
from these operations in the first six months of 2003 totaled $4,751,000 and
$1,909,000, respectively. The Company's ownership interest in Midwest Wireless
Holdings, LLC was reduced from 10.4% to 8.0%. The Company's debt to CoBank,
incurred in the 1996 purchase of Ollig Utilities ($37,311,000 at June 30, 2003)
was reduced by $13,145,000. On a pro forma basis, if this transaction had
occurred effective January 1, 2003 the Company's net income for the first six
months of 2003 would have been reduced to $2,536,000 and net income per diluted
share would have been reduced to $.68.
Curtis A. Sampson, chairman and chief executive officer, said he was encouraged
that the Company grew revenues and operating income in the first half of 2003,
despite the down economy. He said the two small groups of cable television
systems totaling 2,100 subscribers were sold because they did not fit into the
Company's plan to streamline operations. He also said that, while the breakup of
Alliance will make the Company appear smaller in future periods, completion of
the breakup will assist efforts to pare down future operating costs. As it will
be difficult to achieve significant revenue growth in the current regulatory and
competitive environment, cost control will be increasingly important to the
achievement of the Company's profit goals.
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. Following the breakup of Alliance, the Company
serves 30,100 telephone access lines, 9,100 cable television subscribers and
10,200 internet customers and has minority ownership interests in many other
telecommunications companies.
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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.
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2
Hector Communications Corporation and Subsidiaries
Earnings Summary
Three Months Ended June 30
2003 2002
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Revenues $ 10,344,697 $ 9,557,447
Operating income 2,661,767 2,106,259
Other income (expense):
Income from investments:
Midwest Wireless Holdings, LLC 885,654 726,869
Other unconsolidated affiliates 122,629 20,461
Gain on sale of cable television systems 1,080,723
Other income 86,757 73,253
Interest expense (1,230,679) (1,217,267)
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Net other income (expense) 945,084 (396,684)
Income before income taxes and minority interest 3,606,851 1,709,575
Income tax expense 1,443,000 677,000
Income before minority interest 2,163,851 1,032,575
Minority interest in earnings of Alliance
Telecommunications Corp. 595,816 294,870
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Net Income $ 1,568,035 $ 737,705
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Basic net income per common share:
Before cumulative effect of change in
accounting principle $ .45 $ .21
Cumulative effect of accounting change
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$ .45 $ .21
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Diluted net income per share:
Before cumulative effect of change in
accounting principle $ .42 $ .19
Cumulative effect of accounting change
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$ .42 $ .19
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Six Months Ended June 30
2003 2002
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Revenues $ 20,838,284 $19,416,043
Operating income 5,483,099 4,663,011
Other income (expense):
Income from investments:
Midwest Wireless Holdings, LLC 1,692,018 1,520,217
Other unconsolidated affiliates 131,270 106,932
Gain on sale of cable television systems 1,080,723
Other income 181,377 168,534
Interest expense (2,448,911) (2,346,733)
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Net other income (expense) 636,477 (551,050)
Income before income taxes and minority interest 6,119,576 4,111,961
Income tax expense 2,449,000 1,597,000
Income before minority interest 3,670,576 2,514,961
Minority interest in earnings of Alliance
Telecommunications Corp. 976,023 692,531
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Income before cumulative effect of change in
accounting principle 2,694,553 1,822,430
Cumulative effect of change in accounting
principle, net of income taxes and
minority interest (3,146,569)
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Net income (loss) $ 2,694,553 $(1,324,139)
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Basic net income per common share:
Before cumulative effect of change in
accounting principle $ .78 $ .52
Cumulative effect of accounting change (.90)
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$ .78 $ (.38)
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Diluted net income per share:
Before cumulative effect of change in
accounting principle $ .72 $ .48
Cumulative effect of accounting change (.83)
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$ .72 $ (.35)
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Hector Communications Corporation and Subsidiaries
Condensed Balance Sheet
June 30 December 31
2003 2002
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Cash $ 19,848,854 $ 12,020,186
Other current assets 10,010,214 6,888,678
Property, plant and equipment, net 53,155,110 56,665,798
Excess of cost over net assets acquired, net 48,104,320 49,074,993
Investment in Midwest Wireless Holdings, LLC 17,502,877 16,232,707
Investments in other unconsolidated affiliates 4,349,880 4,373,597
Other investments 8,569,625 8,818,502
Other assets 400,426 411,499
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Total Assets $161,941,306 $154,485,960
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Notes payable and current portion of
long-term debt $ 7,877,000 $ 7,364,600
Other current liabilities 6,417,404 5,826,281
Long-term debt, less current portion 77,492,479 75,147,560
Deferred taxes and credits 5,902,525 5,894,308
Deferred compensation 964,010 976,179
Minority interest in Alliance
Telecommunications Corp. 18,009,817 17,027,697
Stockholders' equity 45,278,071 42,249,335
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Total Liabilities and Stockholders' Equity $161,941,306 $154,485,960
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