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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, 1997
-------------------
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
................................................................................
(Former name, address, and 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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
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 ___ NO ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.
CLASS Outstanding at April 30, 1997
Common Stock, par value 1,883,857
$.01 per share
Total Pages (13) Exhibit at Page 13
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HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of 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 12
2
PART I. FINANCIAL INFORMATION
HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31 December 31
Assets: 1997 1996
------------ ------------
Current assets:
Cash and cash equivalents $ 11,330,385 $ 9,571,879
Temporary cash investments 1,579,800 1,079,900
Construction fund 74,447 74,337
Accounts receivable, net 3,641,093 3,965,754
Materials, supplies and inventories 500,096 512,114
Prepaid expenses 131,916 160,291
------------ ------------
Total current assets 17,257,737 15,364,275
Property, plant and equipment 60,653,663 61,700,777
less accumulated depreciation (15,033,255) (14,661,825)
------------ ------------
Net property, plant and equipment 45,620,408 47,038,952
Other assets:
Excess of cost over net assets acquired, net 52,283,255 52,510,459
Marketable securities 5,851,892 5,458,400
Cellular telephone investments 9,907,371 9,777,801
Other investments 6,050,593 5,693,906
Deferred debenture issue costs, net 921,923 969,201
Other assets 579,027 535,019
------------ ------------
Total other assets 75,594,061 74,944,786
------------ ------------
Total Assets $ 138,472,206 $ 137,348,013
============ ============
Liabilities and Stockholders' Equity:
Current liabilities:
Notes payable and current portion of
long-term debt $ 10,026,300 $ 10,047,000
Accounts payable 2,616,841 1,860,579
Accrued expenses 1,608,823 2,090,639
Income taxes payable 96,982 59,015
------------ ------------
Total current liabilities 14,348,946 14,057,233
Long-term debt, less current portion 96,411,511 96,127,379
Deferred investment tax credits 482,034 526,347
Deferred income taxes 7,600,905 7,457,907
Deferred compensation 976,064 987,944
Minority stockholders interest in Alliance
Telecommunications Corporation 8,339,739 8,245,365
Stockholders' Equity 10,313,007 9,945,838
-------------- --------------
Total Liabilities and Stockholders' Equity $ 138,472,206 $ 137,348,013
============== ==============
See notes to consolidated financial statements.
3
HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended March 31
---------------------------
1997 1996
------------- ------------
Revenues:
Local network $ 1,143,312 $ 355,676
Network access 3,985,573 885,614
Billing and collection 264,989 51,745
Nonregulated activities 925,046 78,644
Cable television revenues 563,171 294,239
------------- ------------
Total revenues 6,882,091 1,665,918
Costs and expenses:
Plant operations 992,570 206,658
Depreciation and amortization 1,822,617 447,931
Customer operations 493,793 69,664
General and administrative 1,180,404 363,672
Other operating expenses 413,300 205,549
------------- ------------
Total costs and expenses 4,902,684 1,293,474
Operating income 1,979,407 372,444
Other income and (expenses):
Investment income 168,837 163,700
Interest expense (1,746,943) (434,782)
Gain on sales of marketable securities 687,947
Partnership and LLC income 115,146 31,500
------------- ------------
Other income (expense), net (1,462,960) 448,365
Income before income taxes 516,447 820,809
Income taxes 291,000 327,000
------------- ------------
Income before minority interest 225,447 493,809
Minority interest in earnings of
Alliance Telecommunications Corporation 94,374
------------- ------------
Net income $ 131,073 $ 493,809
============= ============
Net income per common and
common equivalent share $ .06 $ .22
============= ============
Net income per common share
- assuming full dilution $ .06 $ .19
============= ============
Average common and common equivalent
shares outstanding 2,278,000 2,256,000
============ ============
See notes to consolidated financial statements.
4
HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
Unrealized
Additional Unearned Marketable
Preferred Stock Common Stock Paid-in Retained ESOP Securities
Shares Amount Shares Amount Capital Earnings Shares Gains Total
-------- --------- ---------- -------- --------- ---------- ---------- --------- -----------
BALANCE at December 31, 1995 389,487 $ 389,487 1,880,294 $ 18,803 $ 74,215 $ 7,797,098 $(145,256) $ 8,134,347
Net income 1,208,670 1,208,670
Issuance of common stock under
Employee Stock Purchase Plan 3,563 36 21,732 21,768
ESOP shares allocated 6,056 43,944 50,000
Unrealized gain on marketable
securities, net of deferred
taxes $ 531,053 531,053
-------- --------- ---------- -------- --------- ---------- ---------- --------- -----------
BALANCE at December 31, 1996 389,487 389,487 1,883,857 18,839 102,003 9,005,768 (101,312) 531,053 9,945,838
Net income 131,073 131,073
Unrealized gain on marketable
securities, net of deferred
taxes 236,096 236,096
-------- --------- ---------- -------- --------- ---------- ---------- --------- -----------
BALANCE at March 31, 1997 389,487 $ 389,487 1,883,857 $ 18,839 $102,003 $ 9,136,841 $(101,312) $ 767,149 $10,313,007
======== ========= ========== ======== ========= ========== ========== ========= ===========
See notes to consolidated
financial statements.
5
HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended March 31
-------------------------
1997 1996
----------- -----------
Cash Flows from Operating Activities:
Net income $ 131,073 $ 493,809
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,869,895 495,209
Minority stockholders' interest in Alliance
Telecommunications Corporation 94,374
Gain on sales of marketable securities (687,947)
Income from partnership and LLC investments (115,146) (31,500)
Changes in assets and liabilities:
Sales of marketable securities 1,499,073
Decrease in accounts receivable 324,661 44,901
Decrease (increase) in materials, supplies
and inventories 12,018 (9,009)
Decrease in prepaid expenses 28,375 2,703
Increase (decrease) in accounts payable 756,262 (50,298)
Decrease in accrued expenses (481,816) (269,328)
Increase in income taxes payable 37,967 36,853
Decrease in deferred investment credits (44,313) (7,853)
Increase (decrease) in deferred taxes (14,399) 143,000
Decrease in deferred compensation (11,880)
----------- -----------
Net cash provided by operating activities 2,587,071 1,659,613
Cash Flows from Investing Activities:
Capital expenditures, net (30,595) (213,763)
Purchases of temporary cash investments (499,900)
Sales of marketable securities 553,645
Decrease (increase) in construction fund (110) 89,630
Investments in partnerships and LLCs (14,424)
Purchases of other investments (356,687) (3,415)
Sales of other investments 256,772
Increase in other assets (68,031) (399,962)
Increase on Ollig Utilities Company acquisition costs (39,388)
Increase in excess of cost over net assets acquired (122,250)
----------- -----------
Net cash provided by (used in)
investing activities (1,091,997) 243,519
Cash Flows from Financing Activities:
Repayment of long-term debt (722,568) (108,318)
Proceeds from issuance of notes payable
and long-term debt 986,000 400,000
----------- -----------
Net cash provided by financing activities 263,432 291,682
----------- -----------
Net Increase in Cash and Cash Equivalents 1,758,506 2,194,814
Cash and Cash Equivalents at Beginning of Period 9,571,879 9,040,138
----------- -----------
Cash and Cash Equivalents at End of Period $11,330,385 $11,234,952
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid during the period $ 1,721,082 $ 656,686
Income taxes paid during the period 314,350 155,106
See notes to consolidated financial statements.
6
HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
The balance sheet and statement of stockholders' equity as of March 31, 1997 and
the statements of income and statements of cash flows for the three month
periods ended March 31, 1997 and 1996 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, 1997 and 1996 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, 1996 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.
NOTE 2 - ACQUISITION OF OLLIG UTILITIES COMPANY
On April 25, 1996, a newly formed subsidiary of the Company, Alliance
Telecommunications Corporation ("Alliance"), purchased Ollig Utilities Company
("Ollig") for $80,000,000 in cash. The Company owns 68% of Alliance with the
remaining interest owned by Golden West Telecommunications Cooperative, Inc. of
Wall, South Dakota and Split Rock Telecom Cooperative, Inc. of Garretson, South
Dakota. Alliance financed the acquisition using the combined equity investments
of its shareholders and debt financing provided by St. Paul Bank for
Cooperatives ("St. Paul Bank"). The Company's investment in Alliance is
approximately $16,903,000, which includes $6,000,000 of short term borrowing by
the Company from St. Paul Bank, purchase price deposits made by the Company in
1995, and $73,000 of acquisition costs.
The acquisition is being accounted for as a purchase. The excess of cost over
net assets acquired in the transaction was $51,948,000 (including $6,272,000
allocated to cellular telephone partnerships) which is being amortized on a
straight line basis over 40 years. The results of operations of Ollig have been
included in the Company's financial results subsequent to April 25, 1996.
Unaudited consolidated results of operations on a pro forma basis as though
Ollig was acquired January 1, 1996 are as follows:
Three Months Ended March 31
1996
Revenues $ 6,586,492
Income before minority interest 431,469
Net income 410,429
Net income per share $ .18
Net income per share - assuming full dilution $ .16
Pro forma financial information is not necessarily indicative of the results of
operations had the acquisition occurred at the beginning of the periods
presented, nor are they necessarily indicative of the results of future
operations.
7
HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTE 3 - MARKETABLE SECURITIES AND GAINS ON SALES OF INVESTMENTS
Marketable securities consist principally of equity securities obtained by the
Company in sales of its investments in cellular telephone partnerships and
equity securities of other telecommunications companies. The Company's
marketable securities portfolio is classified as available-for-sale. The cost
and fair values of available-for-sale investment securities was as follows:
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
March 31, 1997 $4,680,892 $1,578,646 $(407,646) $5,851,892
December 31, 1996 $4,680,892 $1,390,273 $(612,765) $5,458,400
Stockholders' equity at March 31, 1997 includes a change of $393,492 less
deferred taxes of $157,396 for net unrealized holding gain on investments. These
amounts have no cash effect and are not included in the statement of cash flows
In February, 1996, Rural Cellular Corporation ("RCC") completed an initial
offering of its common stock to the public. As part of the offering, the Company
sold 61,133 shares of RCC. Gross proceeds from the sale were $554,000 and gain
on the sale was $485,000.
In February, 1996, the Company sold its investment in Telephone and Data
Systems, Inc. ("TDS") common stock in a series of cash transactions. Gross
proceeds from the stock sales were $1,499,000 and the Company recognized a gain
on sale of $203,000.
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 on the Company's income
tax expense.
NOTE 5 - NET INCOME PER SHARE
Net income per common and common equivalent share was computed by dividing net
income by the weighted average number of common and common equivalent shares
outstanding during the periods. Common equivalent shares include the dilutive
effect of outstanding stock options, warrants and convertible preferred stock,
which are common stock equivalents. Net income per common share - assuming full
dilution for the three months ended March 31, 1996 was calculated assuming all
outstanding convertible debentures were converted to common stock effective
January 1, 1996. The effect of the convertible debentures on per share earnings
in the 1997 period was anti-dilutive. The calculation of the Company's earnings
per share is included as Exhibit 11 to this Form 10-Q.
The Financial Accounting Standards Board (FASB) has issued SFAS 128, "Earnings
per Share" which requires public companies to present basic earnings per share
and, if applicable, diluted earnings per share instead of primary and fully
diluted earnings per share. SFAS 128 is effective for interim and annual periods
ending after December 15, 1997. The Company will restate its earnings per share
numbers from prior periods to conform to the new standard when it goes into
effect. Had the new standard been in effect the Company's net income per share
for the periods ended March 31, 1997 and 1996 would have been as follows:
8
HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Three Months Ended March 31
-------------------------------
Basic: 1997 1996
- ------- ------------- -------------
Net income $ 131,073 $ 493,809
============= =============
Common shares:
Weighted average number of common shares outstanding 1,883,857 1,880,294
Weighted average number of unallocated shares held by ESOP (11,817) (18,556)
------------- -------------
1,872,040 1,861,738
============= =============
Net income per common and common equivalent share $ .07 $ .27
============= =============
Diluted:
- -------------
Net income $ 131,073 $ 493,809
Interest on convertible debentures, net of tax (1) 189,654
------------- -------------
Adjusted net income $131,073 $683,463
============= =============
Common and common equivalent shares:
Weighted average number of common shares outstanding 1,883,857 1,880,294
Assumed conversion of convertible debentures into common stock (1) 1,423,125
Dilutive effect of convertible preferred shares outstanding 389,487 389,487
Dilutive effect of stock options outstanding after application of
treasury stock method 16,473 4,775
Weighted average number of unallocated shares held by ESOP (11,817) (18,556)
------------- -------------
2,278,000 3,679,125
============= =============
Diluted net income per share $ .06 $ .19
============= =============
(1) The effect of the convertible debentures on net income per share is
anti-dilutive for the 1997 period.
NOTE 6 - SUBSEQUENT EVENT
In April, 1997, a large area of northwestern Minnesota and eastern North Dakota,
including areas served by the Company's telephone and cable television
subsidiaries, were struck by floods of historic proportions. The Company
estimates its uninsured losses to buildings, electronic equipment and work
equipment are between $50,000 and $75,000. Additionally, the Company believes
some of its underground telephone and cable television cables serving the area
may be damaged due to water leakage. However, to date the Company has been
unable to ascertain the extent of any such damage. The Company does not know how
much its future revenues may be affected due to displacement and disruption of
its customers due to the flood.
9
HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three Months Ended March 31, 1997 Compared to
Three Months Ended March 31, 1996
Effective April 25, 1996, the Company's 68% owned subsidiary, Alliance
Telecommunications Corporation ("Alliance") purchased Ollig Utilities Company
("Ollig"), a privately owned telecommunications company which served
approximately 25,000 telephone access lines and 3,400 cable television customers
in Minnesota, Iowa, North Dakota and South Dakota for $80,000,000. Prior to the
acquisition, the Company served approximately 6,300 access lines and 4,200 cable
television customers. The operations of Ollig, which were substantially larger
than those of the Company prior to the acquisition, had a huge impact on the
Company's operating results over the last eight months of 1996 and the first
three months of 1997. The Company's 1997 consolidated revenues increased
$5,216,000 from the 1996 period. The following table shows revenues from Ollig's
operations separate from those of the Company for the respective three month
periods ended March 31:
Ollig Utilities Hector Communications Corp.
1997 1997 1996
------------ ------------ ------------
Revenues:
Local network $ 778,337 $ 364,975 $ 355,676
Network access 3,078,275 907,298 885,614
Billing and collection 214,100 50,889 51,745
Nonregulated activities 854,249 70,797 78,644
Cable television revenues 228,043 335,128 294,239
------------ ------------ ------------
Total revenues $ 5,153,004 $ 1,729,087 $ 1,665,918
============ ============ ============
Revenues from the Company's existing operations increased $63,000 or 4%. Local
network revenues increased $9,000 or 3% due to increases in the number of access
lines served by the Company. Network access revenues increased $22,000 or 2%.
The increase was due to increased use of the telephone network by customers,
which offset decreases in the rates charged by the Company to long distance
service providers. Cable television revenues increased $41,000 or 14% due to the
acquisition of two cable systems in the fourth quarter of 1996. Billing and
collection revenues declined $1,000 or 2%.
Operating costs and administrative expenses for 1997 increased $3,609,000 from
the 1996 period. Operating costs and administrative expenses for Ollig
operations and existing Company operations for the respective periods ended
March 31 were as follows:
Ollig Utilities Hector Communications Corp.
1997 1997 1996
------------ ------------ ------------
Costs and expenses:
Plant operations $ 749,440 $ 243,130 $ 206,658
Depreciation and amortization 1,332,256 490,361 447,931
Customer operations 434,112 59,681 69,664
General and administrative 808,665 371,739 363,672
Nonregulated and miscellaneous 170,654 242,646 205,549
------------ ------------ ------------
Total costs and expenses: $ 3,495,127 $ 1,407,557 $ 1,293,474
============ ============ ============
10
HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Management's Discussion (continued)
Operating costs and expenses for existing operations increased $114,000 or 9%.
Plant operations expenses increased $36,000 or 18% due to increased buried cable
maintenance expenses. Depreciation and amortization expenses increased $42,000
or 9% due to depreciation rate changes mandated by regulatory authorities.
Nonregulated expenses increased $37,000 or 18% due to increased cable television
expenses caused by the acquisition of additional systems. Operating income from
existing operations decreased $51,000 or 14%. Consolidated operating income
increased $1,607,000.
Consolidated interest expense, net of investment income increased $1,307,000.
Net interest expense for HCC increased $233,000, reflecting interest on
$6,000,000 of short-term borrowing from St. Paul Bank used in the acquisition of
Ollig and reduced investment income due to decreased cash available for
investment. Interest expense on Alliance is mainly on a $55,250,000 acquisition
loan from St. Paul Bank for Cooperatives associated with the purchase of Ollig
Utilities Company, and interest on RUS and RTB loans existing prior to the
acquisition. HCC's investment income benefited from gains on sales of marketable
securities of $687,000 made during the first quarter of 1996. Income from
investments in partnerships and LLCs increased $84,000 due to the Company's
increased ownership percentages of these operations from the Ollig acquisition
and also due to the increasing profitability of these operations.
Consolidated income before income taxes was $516,000 compared to $821,000 in
1996. HCC's existing operations had a loss before income taxes of $105,000 in
the 1997 period. Income tax expense was $291,000 in the 1997 period compared to
$327,000 in 1996. The Company's effective tax rate of 56% in 1997 is higher than
the standard tax rate because the amortization expenses associated with excess
of cost over net assets acquired in the acquisition of Ollig are not tax
deductible. The 32% minority shareholders' interest in earnings of Alliance was
$94,000 in the 1997 period. Net income was $131,000 compared to 494,000 in 1996.
Liquidity and Capital Resources
On April 25, 1996, a newly formed subsidiary of the Company, Alliance
Telecommunications Corporation ("Alliance"), purchased Ollig Utilities Company
("Ollig") for $80,000,000 in cash. The Company owns 68% of Alliance with the
remaining interest owned by Golden West Telecommunications Cooperative, Inc. of
Wall, South Dakota and Split Rock Telecom Cooperative, Inc. of Garretson, South
Dakota. Alliance financed the acquisition using the combined equity investments
of its shareholders and $55,250,000 of long-term debt financing provided by St.
Paul Bank for Cooperatives ("St. Paul Bank"). The Company has locked in the
interest rates on $30,000,000 of this debt for periods of 5 - 7 years at rates
of 7.61% - 7.67%. Interest on the remaining $25,250,000 floats at St. Paul
Bank's cost of money plus 130 basis points (6.72% at March 31, 1997).
The Company's investment in Alliance is approximately $16,903,000, which
includes $6,000,000 of short term borrowing by the Company from St. Paul Bank,
purchase price deposits made by the Company in 1995, and $73,000 of acquisition
costs. The Company is exploring alternatives to repay or refinance the
$6,000,000 of short-term financing. These alternatives could include asset
sales, new debt borrowings if feasible, or public equity offerings.
The Company finances its telephone asset additions from internally generated
funds and drawdowns of Rural Utilities Service ("RUS") and Rural Telephone Bank
("RTB") loan funds. Proceeds from long-term borrowings by the telephone
companies from these sources were $986,000 in the 1997 period. Expected
telephone and cable television plant additions for 1997 are $4,000,000.
11
HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Liquidity and Capital Resources (continued)
The Company's investment income has been derived almost exclusively from
interest earned on its cash and cash equivalents. Interest income earned by the
Company has fluctuated in relation to changes in interest rates and availability
of cash for investment. In the first quarter of 1996, the Company received
$1,499,000 from the sale of its remaining shares of Telephone and Data Systems,
Inc., obtained in the 1994 sale of its Rochester, MN cellular MSA interest. The
Company also sold 61,133 shares of Rural Cellular Corporation in that company's
initial public offering of its common stock in February, 1996. Proceeds to the
Company after selling expenses were $554,000. At March 31, 1997, the Company's
marketable securities portfolio consisted primarily of the remaining shares of
Rural Cellular Corp. (Nasdaq National Market: RCCC) which the Company received
in exchange for its investment in the cellular RSA partnerships in northern
Minnesota and shares of Rural Cellular Corp., U.S. West Communications, Inc. and
U.S. West Media, Inc. owned by Ollig Utilities Company prior to the acquisition.
The Company produced cash from operating activities of $2,587,000 in the
first three months of 1997 compared to $1,660,000 in the 1996 period. At March
31, 1997, the Company's cash, cash equivalents, temporary cash investments and
marketable securities totaled $18,762,000 compared to $16,110,000 at December
31, 1996. Working capital at March 31, 1997 improved to $2,909,000 compared to
$1,307,000 at December 31, 1996. Working capital is low due to the Company's
need to refinance its short-term debt with St. Paul Bank. 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.
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). Not Applicable.
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, 1997
12
HECTOR COMMUNICATIONS CORPORATION AND SUBSIDIARIES
EXHIBIT 11
CALCULATION OF EARNINGS PER SHARE
Three Months Ended March 31
--------------------------------
Primary: 1997 1996
- ------- ------------- -------------
Net income $ 131,073 $ 493,809
============= =============
Common and common equivalent shares:
Weighted average number of common shares outstanding 1,883,857 1,880,294
Dilutive effect of convertible preferred shares outstanding 389,487 389,487
Dilutive effect of stock options outstanding after
application of treasury stock method 16,473 4,775
Weighted average number of unallocated shares
held by employee stock ownership plan (11,817) (18,556)
------------- -------------
2,278,000 2,256,000
============= =============
Net income per common and common equivalent share $ .06 $ .22
============= =============
Fully Diluted (1):
- -------------
Net income $ 131,073 $ 493,809
Interest on convertible debentures, net of tax (2) 189,654
------------- -------------
Adjusted net income $ 131,073 $ 683,463
============= =============
Common and common equivalent shares:
Weighted average number of common shares outstanding 1,883,857 1,880,294
Assumed conversion of convertible debentures
into common stock (2) 1,423,125
Dilutive effect of convertible preferred shares outstanding 389,487 389,487
Dilutive effect of stock options outstanding after
application of treasury stock method 16,473 4,775
Weighted average number of unallocated shares
held by employee stock ownership plan (11,817) (18,556)
------------- -------------
2,278,000 3,679,125
============= =============
Net income per common share - assuming full dilution $ .06 $ .19
============= =============
- --------------------------------------------------------------------------------
(1) Primary and fully diluted earnings per share for the 1997 periods are
substantially the same.
(2) The effect of the convertible debentures on net income per share is
anti-dilutive for the 1997 periods.
13