Hungarian Telephone and Cable Announces Results for Second Quarter of 2005
August 12 2005 - 1:10PM
Business Wire
Hungarian Telephone and Cable Corp. (AMEX:HTC) today announced
results for the second quarter and six months ended June 30, 2005.
Results for the three and six months ended June 30, 2005 include
the results of PanTel for three and four months, respectively.
RESULTS FOR SECOND QUARTER For the quarter ended June 30, 2005, the
Company reported net telephone service revenues of $30.7 million,
an increase of 109% compared with the second quarter of 2004. Net
measured service and subscription revenues increased 20% to $14.8
million, while other operating revenues, which includes revenues
generated from the provision of leased lines, ADSL access, VPN
services, Internet services and other services, increased 668% to
$14.6 million, over the comparable period during 2004. Pro-forma
net income and adjusted EBITDA, which excludes foreign exchange
losses/gains, fair value changes on interest rate swaps and
variable option non-cash accounting charges, were $4.8 million and
$15.0 million, respectively, compared with $3.8 million and $9.0
million in the same period last year. This represents growth of 26%
in pro-forma net income and 67% growth in adjusted EBITDA comparing
the two periods, while pro-forma diluted earnings per share were
$0.33 for the quarter ended June 30, 2005. The Company's income
from operations and net income attributable to common stockholders,
determined in accordance with U.S. generally accepted accounting
principles (GAAP), were $8.5 million and $0.9 million,
respectively, for the three months ended June 30, 2005, compared
with income from operations of $6.1 million and net income
attributable to common stockholders of $2.4 million in the same
period last year. Diluted earnings per share was $0.06 for the
quarter ended June 30, 2005, compared with diluted earnings per
share of $0.19 in the same period last year. The Company's results
were affected by non-recurring compensation expenses during the
quarter of $1.3 million. The Company reported a net foreign
exchange loss of $0.9 million for the quarter ended June 30, 2005,
compared to a net loss of $1.7 million for the second quarter of
2004. The loss for the quarter reflects a lower rate of devaluation
of the Hungarian forint against the euro in the second quarter of
2005 as compared to 2004. Included in the results for the quarter
is a $3.8 million loss due to changes in the fair value of the
Company's interest rate swaps which were entered into on March 31,
2005. This loss is due to a significant downward movement, as of
June 30, in the market value of interest rate swaps. If the market
prices of interest rate swaps moves upward from June 30 levels, as
is the case presently, the Company would record a gain on the
change in the fair value of its interest rate swaps at its next
reporting date. If the market prices of interest rate swaps
continue to move downwards from June 30 levels, the Company would
record an additional loss on the change in the fair value of its
interest rate swaps at its next reporting date. A reconciliation of
GAAP to Non-GAAP financial measures has been provided in the
financial statement tables included in the press release. An
explanation of these measures is also included below under the
heading "Non-GAAP Financial Measures". Cash from operations for the
second quarter of 2005 was $8.9 million, an increase of 31% on a
year-over-year basis. HTCC had cash and cash equivalents of $30.6
million at June 30, 2005. RESULTS FOR SIX MONTHS For the six months
ended June 30, 2005, the Company reported net telephone service
revenues of $51.1 million, an increase of 69% compared with the
first six months of 2004. Net measured service and subscription
revenues increased 10% to $27.9 million, while other operating
revenues, which includes revenues generated from the provision of
leased lines, ADSL access, VPN services, Internet services and
other services, increased 458% to $21.2 million, over the
comparable period during 2004. Pro-forma net income and adjusted
EBITDA, which excludes foreign exchange losses/gains, fair value
changes on interest rate swaps and variable option non-cash
accounting charges, were $8.6 million and $24.9 million,
respectively, compared with $8.4 million and $18.8 million in the
same period last year. This represents growth of 2% in pro-forma
net income and 32% growth in adjusted EBITDA comparing the two
periods, while pro-forma diluted earnings per share were $0.60 for
the six months ended June 30, 2005. The Company's income from
operations and net income attributable to common stockholders,
determined in accordance with U.S. generally accepted accounting
principles (GAAP), were $14.0 million and $0.1 million,
respectively, for the six months ended June 30, 2005, compared with
income from operations of $12.8 million and net income attributable
to common stockholders of $10.1 million in the same period last
year. Diluted earnings per share was $0.01 for the six months ended
June 30, 2005, compared with diluted earnings per share of $0.79 in
the same period last year. The Company's results were affected by
non-recurring compensation expenses during the period of $1.3
million. The Company reported a net foreign exchange loss of $4.5
million for the six months ended June 30, 2005, compared to a net
gain of $2.0 million for the same period in 2004. The loss for the
period reflects the devaluation of the Hungarian forint against the
euro, on the Company's 150.0 million euro average outstanding debt
during the six months ended June 30, 2005, compared to the
appreciation of the Hungarian forint against the euro, on the
Company's 50.4 million euro average outstanding debt during the
same period in 2004. Included in the results for the six months is
a $3.8 million loss due to changes in the fair value of the
Company's interest rate swaps which were entered into on March 31,
2005. This loss is due to a significant downward movement, as of
June 30, in the market value of interest rate swaps. If the market
prices of interest rate swaps moves upward from June 30 levels, as
is the case presently, the Company would record a gain on the
change in the fair value of its interest rate swaps at its next
reporting date. If the market prices of interest rate swaps
continue to move downwards from June 30 levels, the Company would
record an additional loss on the change in the fair value of its
interest rate swaps at its next reporting date. A reconciliation of
GAAP to Non-GAAP financial measures has been provided in the
financial statement tables included in the press release. An
explanation of these measures is also included below under the
heading "Non-GAAP Financial Measures". Cash from operations for the
six months ended June 30, 2005 was $21.3 million, an increase of
44% on a year-over-year basis. COMMENTS FROM TORBEN V. HOLM
Commenting on these results, Torben V. Holm, President and Chief
Executive Officer stated, "This is the first quarter which fully
includes the results of Pantel. We are pleased with the financial
performance of Pantel and what it is contributing to the results of
the HTCC Group. I am happy to report that the organizational
integration of Hungarotel and Pantel is already at an advanced
stage and as a consequence of this we are positioned to realize the
cost synergies we were expecting beginning in 2006. In addition,
despite intensified competition within the Hungarian
telecommunications market, we have realized improvements in our
operational results." NON-GAAP FINANCIAL MEASURES The Company uses
certain non-GAAP financial measures in evaluating its performance.
These include pro-forma net income and Adjusted EBITDA (earnings
before interest expense, interest income, foreign exchange
gains/loss, taxes, depreciation and amortization, fair value
changes on interest rate swaps and other, net). A reconciliation of
the differences between these non-GAAP financial measures and the
most comparable financial measures calculated and presented in
accordance with GAAP is included in the tables that follow. The
non-GAAP financial measures referred to in this press release are
by definition not measures of financial performance under generally
accepted accounting principles and are not alternatives to
operating income or net income/loss reflected in the statement of
operations and are not necessarily indicative of cash available to
fund all cash flow needs. The non-GAAP financial measures used by
the Company may not be comparable to similarly titled measures of
other companies. Pro-forma net income is net income without taking
into account the recorded foreign exchange gain/loss, fair value
changes on interest rate swaps and non-cash variable option
accounting charges. The Company adopted variable option accounting
for stock options in the fourth quarter of 2004 as a result of
modifications to its stock option plans. The variable option charge
is non-cash and, due to its potentially volatile effect on the
statement of operations, management believes that its exclusion
from pro-forma net income provides additional information in
measuring the financial performance of the Company. The fair value
changes on interest rate swaps is non-cash and represents the value
to be paid/received by the Company, at the balance sheet date, for
terminating its interest rate swap obligations. The Company is
required under the terms of its credit agreement to maintain, at
all times, some form of interest rate hedging protection. Adjusted
EBITDA is cash flow from operations adjusted for changes in working
capital, income taxes paid, interest paid, interest received, and
other miscellaneous changes. Management uses these non-GAAP
financial measures for various purposes including: measuring and
evaluating the Company's financial and operational performance;
making compensation decisions; planning and budgeting decisions;
and financial planning purposes. The Company believes that
presentation of these non-GAAP financial measures is useful to
investors because it (i) reflects management's view of core
operations and cash flow generation upon which management bases
financial, operational, compensation and planning decisions and
(ii) presents measurements that investors and its lending banks
have indicated to management are important in assessing the Company
and its liquidity. While the Company utilizes these non-GAAP
financial measures in managing its business and believes they are
useful to management and to investors for the reasons described
above, these non-GAAP financial measures have certain shortcomings.
In particular, Adjusted EBITDA does not take into account changes
in working capital and financial statement items below income from
operations, and the resultant effect of these items on the
Company's cash flow. Pro-forma net income does not take into
account the foreign exchange gains/losses, however these
gains/losses may recur in future periods depending upon currency
movements. Management compensates for the shortcomings of these
measures by utilizing them in conjunction with their comparable
GAAP financial measures. The information in this press release
should be read in conjunction with the financial statements and
footnotes contained in our documents to be filed with the U.S.
Securities and Exchange Commission. ABOUT HUNGARIAN TELEPHONE AND
CABLE CORP. Hungarian Telephone and Cable Corp. is the leading
alternative telecommunications service provider in the Republic of
Hungary with a presence in other countries in Central and Eastern
Europe. Note: This press release contains forward-looking
statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. These and all forward-looking
statements are only predictions or statements of current plans that
are constantly under review by the Company. Such statements are
qualified by important factors that may cause actual results to
differ from those contemplated, including as a result of those
factors detailed from time to time in the company's Securities and
Exchange Commission filings. The foregoing information should be
read in conjunction with the company's filings with the U.S.
Securities and Exchange Commission including, but not limited to,
reports on Forms 10-K and 10-Q. The company has no obligation to
update or revise these forward-looking statements to reflect the
occurrence of future events or circumstances. -0- *T Hungarian
Telephone and Cable Corp. Financial Highlights (In Millions, Except
Per Share Data) (unaudited) Statements of Income Three Months Six
Months Ended Ended June 30 June 30 ------------ ------------ 2005
2004 2005 2004 ----- ----- ----- ----- Measured Service Revenues
$12.3 $ 7.7 $21.3 $15.8 Subscription Revenues 6.3 6.0 12.6 12.3 Net
Interconnect Charges (3.8) (1.4) (6.0) (2.8) ----- ----- -----
----- Net Measured Service and Subscription Revenues 14.8 12.3 27.9
25.3 Connection Fees 0.2 0.5 0.5 1.1 Wholesale revenues 1.1 - 1.5 -
Other Operating Revenues, net: Provision of direct lines 9.3 1.1
13.3 2.1 ADSL access, VPN services 2.2 0.1 3.2 0.2 Internet
Services 1.9 0.1 2.6 0.2 Other 1.2 0.6 2.1 1.3 ----- ----- -----
----- Other Operating Revenues Total 14.6 1.9 21.2 3.8 ----- -----
----- ----- Telephone Service Revenues, Net 30.7 14.7 51.1 30.2
----- ----- ----- ----- Income from Operations 8.5 6.1 14.0 12.8
Interest Expense 3.3 2.3 7.1 4.8 Fair Value Changes on Interest
Rate Swaps (Loss) Gain (3.8) - (3.8) - Net Income 0.9 2.4 0.1 10.1
Net Income Per Common Share: Basic $0.07 $0.20 $0.01 $0.82 Diluted
$0.06 $0.19 $0.01 $0.79 Weighted Average Number of Shares
Outstanding: Basic 12.7 12.3 12.7 12.3 Diluted 14.6 12.9 14.4 12.9
Balance Sheet Quarter Ended Year Ended June 30 December 31 2005
2004 ------------ ------------ (unaudited) Current Assets $ 75.4 $
21.1 Property, Plant and Equipment, net 166.1 129.4 Total Assets
309.9 192.3 Total Current Liabilities 60.6 35.6 Long Term Debt
171.6 71.7 Total Stockholders Equity 72.3 81.5 Total Liabilities
and Stockholders Equity 309.9 192.3 Reconciliation of Non-GAAP
Financial Measures: Net Income to Pro-Forma Net Income Excluding
Certain Items (In Millions) (unaudited) Three Months Six Months
Ended Ended June 30 June 30 ------------ ------------ 2005 2004
2005 2004 ------------ ------------ Net Income as Reported 0.9 2.4
0.1 10.1 Foreign Exchange Loss (Gain) 0.9 1.7 4.5 (2.0) Variable
option accounting charge (non-cash) (0.1) - 1.7 - Fair Value
Changes on Interest Rate Swaps Loss (Gain) 3.8 - 3.8 - Deferred
Income Tax effect on Pro-Forma Adjustments (0.7) (0.3) (1.5) 0.3
------------ ------------ Pro-Forma Net Income Excluding Certain
Items 4.8 3.8 8.6 8.4 ============ ============ Net Income Per
Share Fully Diluted to Pro-Forma Net Income Per Share Fully Diluted
Excluding Certain Items (unaudited) Three Months Six Months Ended
Ended June 30 June 30 ------------ ------------ 2005 2004 2005 2004
------------ ------------ Net Income as Reported 0.06 0.19 0.01
0.79 Foreign Exchange Loss (Gain) 0.06 0.13 0.31 (0.16) Fair Value
Changes on Interest Rate Swaps Loss (Gain) (0.00) - 0.12 - Interest
Rate Swap Loss (Gain) 0.26 - 0.26 - Deferred Income Tax effect on
Pro-Forma Adjustments (0.05)(0.02) (0.10) 0.02 ------------
------------ Pro-Forma Net Income Excluding Certain Items 0.33 0.30
0.60 0.65 ============ ============ Cash Flow from Operations to
Adjusted EBITDA (In Millions) (unaudited) Three Months Six Months
Ended Ended June 30 June 30 ------------- ------------ 2005 2004
2005 2004 ------------- ------------ Cash Flow from Operations 8.9
6.8 21.3 14.8 Changes in Working Capital 2.5 0.9 0.4 1.6 Income
Taxes Paid 0.3 - 0.3 - Interest Paid 3.5 2.2 4.8 3.9 Interest
Received (0.2) (0.8) (0.4) (1.4) Variable option acct. (non-cash)
0.1 - (1.6) - Other (0.1) (0.1) 0.1 (0.1) -------------
------------ Adjusted EBITDA 15.0 9.0 24.9 18.8 =============
============ *T
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