**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

**FORM 10-Q**

 

| **(Mark One)** |
|----------------|
| **ý**     | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|           |   |
|           | **FOR THE QUARTERLY PERIOD ENDED  March 31, 2004** |
|           |   |
|           | **OR** |
|           |   |
| **o**          | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|           |   |
|           | **FOR THE TRANSITION PERIOD  FROM                  TO                  ** |

 

**Commissionfile number   0-13721**

 

**HICKORY TECH CORPORATION**

(Exact name of registrant as specified in itscharter)

 

| **Minnesota**                                                                       |   | **41-1524393**      |
|-------------------------------------------------------------------------------------|--------|---------------------|
| (State or other jurisdiction of                                                     |   | (I.R.S. Employer    |
| incorporation or organization)                                                      |   | Identification No.) |
|                                                                                |   |                |
| **221 East Hickory Street  Mankato, Minnesota 56002-3248**                          |
| (Address of principal executive offices and  zip code)                              |
|                                                                                |
| **(800) 326-5789**                                                                  |
| (Registrant’s telephone number, including  area code)                          |
|                                                                                |
|                                                                                |
| (Former name, former address and former  fiscal year, if changed since last report) |

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.    Yes  ý  No  o

 

Indicate by check mark whether the Registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).     Yes  ý  No  o

 

The total number of shares of the registrant’s common stock outstandingas of March 31, 2004: 12,975,253.

 

 

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**HICKORY TECH CORPORATION**

March 31,2004

PARTI. FINANCIAL INFORMATION

ITEM1.   FINANCIAL STATEMENTS.

CONSOLIDATEDSTATEMENTS OF OPERATIONS

(UNAUDITED)

 
|                                                                                   |   | **For Three  Months Ended** |   |
|----------------------------------------------------------------------------------------|--------|-----------------------------|--------|
| **(In Thousands Except Per Share  Amounts)**                                           |   | **3/31/2004**               |   | **3/31/2003** |   |
| OPERATING REVENUES:                                                                    |   |                        |   |   |   |
| Telecom Sector                                                                         |   | $                           | 19,426 |   | $ | 18,568 |   |
| Information Solutions Sector                                                           |   | 966                         |   | 1,098 |   |
| Enterprise Solutions Sector                                                            |   | 2,295                       |   | 3,911 |   |
| TOTAL OPERATING REVENUES                                                               |   | 22,687                      |   | 23,577 |   |
| COSTS AND EXPENSES:                                                                    |   |                        |   |   |   |
| Cost of Products Sold, Enterprise Solutions                                            |   | 1,509                       |   | 2,519 |   |
| Cost of Services, excluding Depreciation  and Amortization                             |   | 8,608                       |   | 8,268 |   |
| Selling, General and Administrative  Expenses, excluding Depreciation and Amortization |   | 3,656                       |   | 3,824 |   |
| Depreciation                                                                           |   | 3,876                       |   | 3,502 |   |
| Amortization of Intangibles                                                            |   | 236                         |   | 326 |   |
| TOTAL COSTS AND EXPENSES                                                               |   | 17,885                      |   | 18,439 |   |
| OPERATING INCOME                                                                       |   | 4,802                       |   | 5,138 |   |
| OTHER INCOME/(EXPENSE):                                                                |   |                        |   |   |   |
| Equity in Net Loss of Investees                                                        |   | —                      |   | (3 | ) |
| Interest and Other Income                                                              |   | 15                          |   | 9 |   |
| Interest Expense                                                                       |   | (1,189                      | )      | (1,565 | ) |
| TOTAL OTHER INCOME/(EXPENSE)                                                           |   | (1,174                      | )      | (1,559 | ) |
|                                                                                   |   |                        |   |   |   |
| INCOME BEFORE INCOME TAXES                                                             |   | 3,628                       |   | 3,579 |   |
| INCOME TAX PROVISION                                                                   |   | 1,467                       |   | 1,462 |   |
| INCOME FROM CONTINUING OPERATIONS                                                      |   | 2,161                       |   | 2,117 |   |
| DISCONTINUED OPERATIONS (Note 4)                                                       |   |                        |   |   |   |
| Income/(Loss) from Operations of  Discontinued Component                               |   | (99                         | )      | 390 |   |
| Income Tax (Benefit)/Provision                                                         |   | (40                         | )      | 160 |   |
| INCOME/(LOSS) FROM DISCONTINUED OPERATIONS                                             |   | (59                         | )      | 230 |   |
| NET INCOME                                                                             |   | $                           | 2,102  |   | $ | 2,347 |   |
|                                                                                   |   |                        |   |   |   |
| Basic Earnings Per Share - Continuing  Operations:                                     |   | $                           | 0.17   |   | $ | 0.15 |   |
| Basic Earnings/(Loss) Per Share -  Discontinued Operations:                            |   | (0.01                       | )      | 0.02 |   |
|                                                                                   |   | $                           | 0.16   |   | $ | 0.17 |   |
| Dividends Per Share                                                                    |   | $                           | 0.11   |   | $ | 0.11 |   |
| Weighted Average Common Shares Outstanding                                             |   | 12,970                      |   | 13,994 |   |
|                                                                                   |   |                        |   |   |   |
| Diluted Earnings Per Share - Continuing  Operations:                                   |   | $                           | 0.17   |   | $ | 0.15 |   |
| Diluted Earnings/(Loss) Per Share -  Discontinued Operations:                          |   | (0.01                       | )      | 0.02 |   |
|                                                                                   |   | $                           | 0.16   |   | $ | 0.17 |   |
| Weighted Average Common and Equivalent  Shares Outstanding                             |   | 13,020                      |   | 14,007 |   |

 

The accompanying notes arean integral part of the consolidated financial statements.

 

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**HICKORY TECH CORPORATION**

March 31,2004

CONSOLIDATEDBALANCE SHEETS

(UNAUDITED)

 
| **(In Thousands Except  Share and Per Share Amounts)**                                                                                   |   | **3/31/2004** |        | **12/31/2003** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-------------|----------------|--------|
| ASSETS                                                                                                                                        |   |          |        |           |   |
| CURRENT ASSETS:                                                                                                                               |   |          |        |           |   |
| Cash and Cash Equivalents                                                                                                                     |   | **$**         | **143**     |           | $      | 278 |   |
| Receivables, Net of Allowance for Doubtful  Accounts of $1,265 and $1,283                                                                     |   | **9,803**     |        | 9,984          |   |
| Income Taxes Receivable                                                                                                                       |   | **—**    |        | 2,838          |   |
| Costs in Excess of Billings on Contracts                                                                                                      |   | **333**       |        | 934            |   |
| Inventories                                                                                                                                   |   | **4,400**     |        | 4,453          |   |
| Deferred Income Taxes                                                                                                                         |   | **1,057**     |        | 1,057          |   |
| Other                                                                                                                                         |   | **2,033**     |        | 2,497          |   |
| TOTAL CURRENT ASSETS                                                                                                                          |   | **17,769**    |        | 22,041         |   |
| INVESTMENTS                                                                                                                                   |   | **4,371**     |        | 6,710          |   |
| PROPERTY, PLANT AND EQUIPMENT                                                                                                                 |   | **232,447**   |        | 230,490        |   |
| Less ACCUMULATED DEPRECIATION                                                                                                                 |   | **120,211**   |        | 116,487        |   |
| PROPERTY, PLANT AND EQUIPMENT, NET                                                                                                            |   | **112,236**   |        | 114,003        |   |
| OTHER ASSETS:                                                                                                                                 |   |          |        |           |   |
| Goodwill                                                                                                                                      |   | **25,086**    |        | 25,086         |   |
| Intangible Assets, Net                                                                                                                        |   | **456**       |        | 481            |   |
| Financial Derivative Instruments                                                                                                              |   | **1,038**     |        | 2,515          |   |
| Deferred Costs and Other                                                                                                                      |   | **4,532**     |        | 4,876          |   |
| TOTAL OTHER ASSETS                                                                                                                            |   | **31,112**    |        | 32,958         |   |
| TOTAL ASSETS                                                                                                                                  |   | **$**         | **165,488** |           | $      | 175,712 |   |
|                                                                                                                                          |   |          |        |           |   |
| LIABILITIES & SHAREHOLDERS’ EQUITY                                                                                                   |   |          |        |           |   |
| CURRENT LIABILITIES:                                                                                                                          |   |          |        |           |   |
| Cash Overdraft                                                                                                                                |   | **$**         | **28**      |           | $      | 1,001 |   |
| Accounts Payable                                                                                                                              |   | **2,868**     |        | 3,771          |   |
| Accrued Expenses                                                                                                                              |   | **3,361**     |        | 3,243          |   |
| Accrued Interest                                                                                                                              |   | **62**        |        | 41             |   |
| Accrued Income Taxes                                                                                                                          |   | **334**       |        | —         |   |
| Billings in Excess of Costs on Contracts                                                                                                      |   | **200**       |        | 73             |   |
| Advanced Billings and Deposits                                                                                                                |   | **3,076**     |        | 3,040          |   |
| Current Maturities of Long-Term Obligations                                                                                                   |   | **1,506**     |        | 1,572          |   |
| TOTAL CURRENT LIABILITIES                                                                                                                     |   | **11,435**    |        | 12,741         |   |
| LONG-TERM OBLIGATIONS, Net of Current  Maturities                                                                                             |   | **109,643**   |        | 118,040        |   |
| DEFERRED INCOME TAXES                                                                                                                         |   | **9,720**     |        | 10,331         |   |
| DEFERRED REVENUE AND EMPLOYEE BENEFITS                                                                                                        |   | **6,011**     |        | 5,883          |   |
| TOTAL LIABILITIES                                                                                                                             |   | **136,809**   |        | 146,995        |   |
| COMMITMENTS AND CONTINGENCIES (Note 9)                                                                                                        |   | **—**    |        | —         |   |
| SHAREHOLDERS’ EQUITY:                                                                                                                    |   |          |        |           |   |
| Common Stock, no par value, $.10 stated  value  Shares authorized: 100,000,000  Shares outstanding: 12,975,253 in 2004 and 12,967,811 in 2003 |   | **1,298**     |        | 1,297          |   |
| Additional Paid-In Capital                                                                                                                    |   | **7,842**     |        | 7,690          |   |
| Retained Earnings                                                                                                                             |   | **18,921**    |        | 18,246         |   |
| Accumulated Other Comprehensive Income                                                                                                        |   | **618**       |        | 1,484          |   |
| TOTAL SHAREHOLDERS’ EQUITY                                                                                                               |   | **28,679**    |        | 28,717         |   |
| TOTAL LIABILITIES & SHAREHOLDERS’  EQUITY                                                                                            |   | **$**         | **165,488** |           | $      | 175,712 |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

 

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**HICKORY TECH CORPORATION**

March 31, 2004

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 
|                                                                                  |   | **For Three  Months Ended** |       |
|---------------------------------------------------------------------------------------|--------|-----------------------------|------------|
| **(Dollars In Thousands)**                                                            |   | **3/31/2004**               |       | **3/31/2003** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                 |   |                        | ** ** |   |   |
| Net Income                                                                            |   | **$**                       | **2,102**  | ** ** | $ | 2,347 |   |
| Adjustments to Reconcile Net Income to Net  Cash Provided by Operating Activities:    |   |                        | ** ** |   |   |
| Depreciation and Amortization                                                         |   | **4,112**                   | ** ** | 4,488 |   |
| Gain on Sale of Assets                                                                |   | **—**                  | ** ** | (1 | ) |
| Stock-Based Compensation                                                              |   | **35**                      | ** ** | 257 |   |
| Employee Retirement Benefits and Deferred  Compensation                               |   | **166**                     | ** ** | (34 | ) |
| Accrued Patronage Refunds                                                             |   | **(107**                    | **)**      | (181 | ) |
| Equity in Net Loss of Investees                                                       |   | **—**                  | ** ** | 3 |   |
| Provision for Losses on Accounts Receivable                                           |   | **144**                     | ** ** | 235 |   |
| Changes in Operating Assets and  Liabilities:                                         |   |                        | ** ** |   |   |
| Receivables                                                                           |   | **3,208**                   | ** ** | 2,995 |   |
| Inventories                                                                           |   | **53**                      | ** ** | 131 |   |
| Billings and Costs on Contracts                                                       |   | **729**                     | ** ** | 479 |   |
| Accounts Payable and Accrued Expenses                                                 |   | **(764**                    | **)**      | (1,787 | ) |
| Advance Billings and Deposits                                                         |   | **36**                      | ** ** | (3 | ) |
| Deferred Revenue and Employee Benefits                                                |   | **(38**                     | **)**      | (29 | ) |
| Other                                                                                 |   | **443**                     | ** ** | 377 |   |
| Net Cash Provided By Operating Activities                                             |   | **10,119**                  | ** ** | 9,277 |   |
|                                                                                  |   |                        | ** ** |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                 |   |                        | ** ** |   |   |
| Additions to Property, Plant and Equipment                                            |   | **(2,122**                  | **)**      | (1,735 | ) |
| Redemption of Investments                                                             |   | **2,600**                   | ** ** | 4,100 |   |
| Proceeds from Sale of Assets                                                          |   | **12**                      | ** ** | 60 |   |
| Net Cash Provided By Investing Activities                                             |   | **490**                     | ** ** | 2,425 |   |
|                                                                                  |   |                        | ** ** |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                 |   |                        | ** ** |   |   |
| Change in Cash Overdraft                                                              |   | **(973**                    | **)**      | — |   |
| Payments of Capital Lease Obligations                                                 |   | **(213**                    | **)**      | (145 | ) |
| Repayments on Credit Facility                                                         |   | **(9,250**                  | **)**      | (9,750 | ) |
| Borrowings on Credit Facility                                                         |   | **1,000**                   | ** ** | — |   |
| Proceeds from Issuance of Common Stock                                                |   | **118**                     | ** ** | 131 |   |
| Dividends Paid                                                                        |   | **(1,426**                  | **)**      | (1,540 | ) |
| Stock Repurchase                                                                      |   | **—**                  | ** ** | (161 | ) |
| Net Cash Used In Financing Activities                                                 |   | **(10,744**                 | **)**      | (11,465 | ) |
| NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS                                 |   | **(135**                    | **)**      | 237 |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF  PERIOD                                     |   | **278**                     | ** ** | 1,874 |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                            |   | **$**                       | **143**    | ** ** | $ | 2,111 |   |
|                                                                                  |   |                        | ** ** |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW  INFORMATION:                                    |   |                        | ** ** |   |   |
| Cash Paid for Interest                                                                |   | **$**                       | **1,236**  | ** ** | $ | 1,734 |   |
| Cash Paid for Income Taxes, Net of Tax  Refunds of $1,750 and $1,600 in 2004 and 2003 |   | **$**                       | **(1,745** | **)** | $ | (1,600 | ) |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

 

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**HICKORYTECH CORPORATION**

**MARCH 31,2004**

**PART1. FINANCIAL INFORMATION**

 

**ITEM 1.****     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

 

NOTE 1. BASIS OF PRESENTATION

 

The accompanying unaudited condensedconsolidated financial statements have been prepared in accordance withgenerally accepted accounting principles for interim financial information andwith the instructions to Form 10-Q and Article 10 of Regulation S-X.Accordingly, they do not include all of the information necessary for a fairpresentation of results of operations, financial position, and cash flows inconformity with accounting principles generally accepted in the United Statesof America. In the opinion of management, the condensed consolidated financialstatements reflect all adjustments (consisting only of normal recurringadjustments) considered necessary for a fair presentation of Hickory TechCorporation’s (HickoryTech) results for the periods presented. Operating resultsfor interim periods are not necessarily indicative of results that may beexpected for the fiscal year as a whole. The preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America requires management to make estimates and assumptionsthat affect the reported amounts of assets, liabilities, revenues, expenses,and related disclosures at the date of the financial statements and during thereporting period. Actual results could differ from these estimates. Theseunaudited interim condensed consolidated financial statements should be read inconjunction with HickoryTech’s Annual Report on Form 10-K for the year endedDecember 31, 2003.

 

The condensed consolidated financial statements of HickoryTech includeHickory Tech Corporation and its subsidiaries in the following three businesssegments: (i) Telecom Sector, (ii) Information Solutions Sector and (iii)Enterprise Solutions Sector.  During thefirst quarter of 2003, the Information Solutions Sector had an investment in anunconsolidated partnership, which was accounted for using the equity method.This partnership was dissolved in the fourth quarter of 2003. All inter-companytransactions have been eliminated from the consolidated financial statements.

 

Certain expenses reported as operating expenses in 2003 have beenreclassified between cost of services and selling, general and administrativeexpenses to conform to the 2004 presentation. These reclassifications did notchange previously reported net income, shareholders’ equity or cash flows.

 

Cost of services include all costs related to delivery of HickoryTech’scommunications services and products. These costs include all costs ofperforming services and providing related products. It does not include costsassociated with selling, general and administrative, depreciation andamortization of property, plant and equipment and intangible assets, and costof products sold for the Enterprise Solutions Sector.

 

On December 15, 2003, HickoryTech sold its wireless business,Minnesota Southern Wireless Company (MSWC), to Western Wireless Corporation(WWC). The wireless operations are reported as part of the Telecom Sector. Theresults of operations of the wireless business are reported as discontinuedoperations for all periods presented (see Note 4).

 

NOTE 2. EARNINGS AND CASH DIVIDENDS PER COMMON SHARE

 

Basic earnings per share is computed by dividing net income by theweighted average number of shares of common stock outstanding during the applicableperiod. Shares used in the earnings per share assuming dilution calculation arebased on the weighted average number of shares of common stock outstandingduring the quarter increased by potentially dilutive common shares. Potentiallydilutive common shares include stock options and stock subscribed under theemployee stock purchase plan (ESPP).

 

4

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|                                |   | **For Three  Months Ended** |   |
|-------------------------------------|--------|-----------------------------|--------|
|                                |   | **3/31/2004**               |   | **3/31/2003** |   |
| Weighted Average Shares Outstanding |   | 12,969,590                  |   | 13,993,696 |   |
| Stock Options (dilutive only)       |   | 37,350                      |   | 2,535 |   |
| Stock Subscribed (ESPP)             |   | 12,958                      |   | 11,095 |   |
| Total Dilutive Shares Outstanding   |   | 13,019,898                  |   | 14,007,326 |   |

 

Options to purchase 406,433 and 555,835 shares for the three monthsended March 31, 2004 and 2003, respectively, were not included in thecomputation of earnings per share assuming dilution because their effect onearnings per share would have been antidilutive.

 

Cash dividends are based on the number of common shares outstanding atthe respective record dates. Listed below is the number of shares outstandingas of the record date for the first quarter of 2004 and 2003.  

 
| **Shares Outstanding on Record Date** |   | **2004**   |   | **2003**   |   |
|---------------------------------------|--------|------------|--------|------------|--------|
| First Quarter (Feb. 15)               |   | 12,967,886 |   | 14,003,335 |   |

 

Dividends per share are based on the quarterly dividend per share asdeclared by the HickoryTech Board of Directors.

 

During the first three months of 2004 and 2003, shareholders haveelected to reinvest $67,000 and $66,000, respectively, of dividends intoHickoryTech common stock pursuant to the HickoryTech Dividend ReinvestmentPlan.

 

NOTE 3. COMPREHENSIVE INCOME

 

HickoryTech follows the provisions of SFAS No. 130, “ReportingComprehensive Income.” This statement established rules for the reporting ofcomprehensive income and its components. In addition to net income,HickoryTech’s comprehensive income includes changes in unrealized gains andlosses on derivative instruments qualifying and designated as cash flow hedges.Comprehensive income for the three months ended March 31, 2004 and 2003was $1,236,000 and $2,347,000, respectively.

 

NOTE 4. DISCONTINUED OPERATIONS

 

On December 15, 2003, HickoryTech soldits wireless business, Minnesota Southern Wireless Company (MSWC), to WesternWireless Corporation (WWC). The wireless operations are reported as part of theTelecom Sector. The consolidated statements of operations for all periodspresented have been restated to reflect wireless operations as discontinuedoperations.

 

Wireless business revenue and income before income taxes included indiscontinued operations are as follows:

 
|                              |   | **For Three  Months Ended** |   |
|-----------------------------------|--------|-----------------------------|--------|
| **(Dollars in Thousands)**        |   | **3/31/2004**               |   | **3/31/2003** |   |
| Revenues                          |   | $                           | — |   | $ | 3,393 |   |
|                              |   |                        |   |   |   |
| Income/(Loss) Before Income Taxes |   | $                           | (99    | ) | $ | 390 |   |

 

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NOTE 5. INVENTORIES

 

Inventories, which consist of equipment for resale, materials andsupplies, are stated at the lower of average cost or market. Cost is determinedon a first-in first-out (FIFO) basis. The net realizable value of the inventoryis reflected by reserves, which offset the cost of inventory.

 

NOTE 6. INTANGIBLE ASSETS

 

Effective January 1, 2002, HickoryTech adopted SFAS No. 142,“Goodwill and Other Intangible Assets.” SFAS No. 142 established newstandards related to how acquired goodwill and other intangible assets are tobe recorded upon their acquisition as well as how they are to be accounted forafter they have been initially recognized in the financial statements.

 

Effective with the adoption of this standard, HickoryTech is no longeramortizing acquired goodwill. Instead, SFAS No. 142 requires acquiredgoodwill to be evaluated for impairment using a two-step test based upon a fairvalue approach. The first step is used to identify potential impairment basedupon the fair value of the applicable reporting unit. If the fair value of thereporting unit is less than its carrying value, a second step is required todetermine the fair value of the individual assets and liabilities of thereporting unit in order to measure the amount of the goodwill impairment. Uponadoption of this standard, HickoryTech completed a transitional impairment testfor its acquired goodwill, determining fair value using primarily a discountedcash flow model. The determined fair value was sufficient to pass the firststep impairment test, and therefore no impairment was recorded.

 

On a prospective basis, HickoryTech is required to test acquiredgoodwill for impairment on an annual basis based upon a fair value approach.Additionally, goodwill shall be tested for impairment between annual tests ifan event occurs or circumstances change that would more likely than not reducethe fair value of an entity below its carrying value. Other indefinite-livedintangible assets will be tested between annual tests if events or changes incircumstances indicate that the asset might be impaired.

 

The carrying value of HickoryTech’s goodwill is $25,086,000 as ofMarch 31, 2004 and December 31, 2003.

 

The components of HickoryTech’s other intangible assets are shown inthe following table:

 
|                             |   | **As of  March 31, 2004** |   | **As of  December 31, 2003** |   |
|----------------------------------|--------|--------------------------------|--------|-----------------------------------|--------|
| **(Dollars in Thousands)**       |   | **Gross  Carrying  Amount**    |   | **Accumulated  Amortization**     |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   |
|                             |   |                           |   |                              |   |   |   |   |   |
| Definite-Lived Intangible Assets |   |                           |   |                              |   |   |   |   |   |
| Customers                        |   | $                              | 821    |                              | $      | 365 |   | $ | 821 |   | $ | 340 |   |
| Other Intangibles                |   | 100                            |   | 100                               |   | 100 |   | 100 |   |
| Total                            |   | $                              | 921    |                              | $      | 465 |   | $ | 921 |   | $ | 440 |   |

 

Amortization expense related to the definite-lived intangible assetsfor the three months ended March 31, 2004 and 2003 was $25,000 and$26,000, respectively. Total estimated amortization expense for the remainingnine months of 2004 and the five years subsequent to 2004 is as follows: 2004(April 1 through December 31) - $77,000; 2005 - $102,000; 2006 -$102,000; 2007 - $102,000; 2008 - $73,000 and 2009 - $0.

 

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NOTE 7. RECENT ACCOUNTING DEVELOPMENTS

 

In January 2003, the FASB issued FIN No. 46, *Consolidation of Variable InterestEntities*. This interpretation provides guidance on how to identify avariable interest entity and addresses when the assets, liabilities and resultsof operations of such entities must be included in a company’s consolidatedfinancial statements. This interpretation was effective immediately forvariable interest entities created after January 31, 2003 and for variableinterest entities in which the Company obtains an interest after that date. Forinterests in variable interest entities that were acquired prior toJanuary 31, 2003, the Company adopted the provisions of thisinterpretation on July 1, 2003. Adoption of this statement did not resultin the consolidation or disclosure of any variable interest entities in whichthe Company maintains an interest. The Company did not absorb the majority ofthe losses or residual returns of the variable interest entities in which theCompany maintains an interest and these interests are not significant. InDecember 2003, the FASB issued a revised FIN No. 46 which clarifiescertain aspects of the accounting for variable interest entities. The revisionof FIN No. 46 had no impact on our results of operations or financial position.

 

In January 2004, the FASB issued FASB Staff Position (FSP) No. FAS106-1, *Accountingand Disclosure Requirements Related to the Medicare Prescription DrugImprovement and Modernization Act of 2003*. This FSP outlines theappropriate accounting treatment for the effects of the new Medicare law, aswell as the required financial statement disclosures. The new law introduces aprescription drug benefit under Medicare, as well as a federal subsidy tosponsors of retiree health care benefit plans that provide a benefit that is atleast actuarially equivalent to the Medicare plan. The retiree medical plans doprovide prescription drug coverage. However, as permitted by FSP No. FAS 106-1,the Company has elected to defer recognition of the impacts of the new law onthe accumulated post-retirement benefit obligation and net periodicpost-retirement benefit expense presented in the consolidated financial statements.Specific authoritative accounting guidance on the accounting for the federalsubsidy provided for in the Act is pending. That guidance, when issued, couldrequire the Company to change previously reported information. BeginningJanuary 1, 2006, Medicare’s prescription drug plan will be the primaryplan for qualified retirees when they become age 65 and are eligible forMedicare. Thus, the Company may see a decrease in the amount of prescriptiondrug benefits to be paid beginning in 2006.

 

In December 2003, the FASB issued a revision of SFAS No. 132, *Employers’Disclosures about Pensions and Other Post-retirement Benefits*. Thisstatement revises the disclosures required for pension and otherpost-retirement benefit plans. The Company has incorporated the new disclosurerequirements into the Notes to Consolidated Financial Statements included inthis report.

 

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NOTE 8. QUARTERLY SECTOR FINANCIAL SUMMARY

 
| **(Dollars In Thousands)**                                           |   | **Telecom** |   | **Information  Solutions** |   | **Enterprise  Solutions** |   | **Corporate  and  Eliminations** |   | **HickoryTech  Consolidated** |   |
|----------------------------------------------------------------------|--------|-------------|--------|----------------------------|--------|---------------------------|--------|----------------------------------|--------|-------------------------------|--------|
| **Three Months Ended  3/31/04**                                      |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Operating Revenue from Unaffiliated  Customers                       |   | $           | 19,426 |                       | $      | 966                       |   | $                                | 2,295  |                          | $      | — |   | $ | 22,687 |   |
| Intersegment Revenues                                                |   | 69          |   | 1,047                      |   | —                    |   | (1,116                           | )      | —                        |   |
| Total                                                                |   | 19,495      |   | 2,013                      |   | 2,295                     |   | (1,116                           | )      | 22,687                        |   |
|                                                                 |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Depreciation and Amortization                                        |   | 3,407       |   | 639                        |   | 51                        |   | 15                               |   | 4,112                         |   |
| Operating Income (Loss)                                              |   | 6,079       |   | (706                       | )      | (376                      | )      | (195                             | )      | 4,802                         |   |
| Interest Expense                                                     |   | 3           |   | 13                         |   | —                    |   | 1,173                            |   | 1,189                         |   |
| Income Taxes (Benefit)                                               |   | 2,460       |   | (290                       | )      | (152                      | )      | (551                             | )      | 1,467                         |   |
|                                                                 |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Income (Loss) from Continuing Operations                             |   | 3,619       |   | (426                       | )      | (224                      | )      | (808                             | )      | 2,161                         |   |
| Loss from Discontinued Operations Including  Intersegment Revenues   |   | (59         | )      | —                     |   | —                    |   | —                           |   | (59                           | )      |
| Net Income (Loss)                                                    |   | 3,560       |   | (426                       | )      | (224                      | )      | (808                             | )      | 2,102                         |   |
|                                                                 |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Identifiable Assets                                                  |   | 143,933     |   | 7,483                      |   | 7,714                     |   | 6,358                            |   | 165,488                       |   |
| Property, Plant and Equip., Net                                      |   | 106,782     |   | 4,865                      |   | 409                       |   | 180                              |   | 112,236                       |   |
| Capital Expenditures                                                 |   | 2,121       |   | 1                          |   | —                    |   | —                           |   | 2,122                         |   |
|                                                                 |   |        |   |                       |   |                      |   |                             |   |                          |   |
| **Three Months Ended  3/31/03**                                      |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Operating Revenue from Unaffiliated  Customers                       |   | $           | 18,568 |                       | $      | 1,098                     |   | $                                | 3,911  |                          | $      | — |   | $ | 23,577 |   |
| Intersegment Revenues                                                |   | 69          |   | 763                        |   | —                    |   | (832                             | )      | —                        |   |
| Total                                                                |   | 18,637      |   | 1,861                      |   | 3,911                     |   | (832                             | )      | 23,577                        |   |
|                                                                 |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Depreciation and Amortization                                        |   | 3,185       |   | 544                        |   | 61                        |   | 38                               |   | 3,828                         |   |
| Operating Income (Loss)                                              |   | 6,304       |   | (749                       | )      | 74                        |   | (491                             | )      | 5,138                         |   |
| Interest Expense                                                     |   | 5           |   | 18                         |   | —                    |   | 1,542                            |   | 1,565                         |   |
| Income Taxes (Benefit)                                               |   | 2,660       |   | (259                       | )      | 27                        |   | (966                             | )      | 1,462                         |   |
|                                                                 |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Income (Loss) from Continuing Operations                             |   | 3,708       |   | (496                       | )      | 39                        |   | (1,134                           | )      | 2,117                         |   |
| Income from Discontinued Operations  Including Intersegment Revenues |   | 65          |   | 124                        |   | —                    |   | 41                               |   | 230                           |   |
| Net Income (Loss)                                                    |   | 3,773       |   | (372                       | )      | 39                        |   | (1,093                           | )      | 2,347                         |   |
|                                                                 |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Identifiable Assets                                                  |   | 148,793     |   | 8,917                      |   | 9,363                     |   | 9,197                            |   | 176,270                       |   |
| Property, Plant and Equip., Net                                      |   | 110,307     |   | 5,845                      |   | 537                       |   | 212                              |   | 116,901                       |   |
| Capital Expenditures                                                 |   | 1,051       |   | 144                        |   | 92                        |   | 127                              |   | 1,414                         |   |

 

8

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The Telecom Segment Identifiable Assets, Property Plant and Equipmentand Capital Expenditures presented above, exclude the following amounts relatedto the wireless business, which is reported as a discontinued operation:

 
|                            |   | **Three  Months Ended** |   |
|---------------------------------|--------|-------------------------|--------|
| **(Dollars in Thousands)**      |   | **3/31/2004**           |   | **3/31/2003** |   |
| Identifiable Assets             |   | $                       | — |   | $ | 53,286 |   |
| Property, Plant and Equip., Net |   | $                       | — |   | $ | 16,888 |   |
| Capital Expenditures            |   | $                       | — |   | $ | 321 |   |

 

NOTE 9. CONTINGENCIES

 

HickoryTech is involved in certain contractual disputes in the ordinarycourse of business. HickoryTech does not believe the ultimate resolution of anyof these existing matters will have a material adverse effect on its financialposition, results of operations or cash flows.

 

NOTE 10. STOCK COMPENSATION

 

At March 31, 2004, HickoryTech had four stock-based employee anddirector compensation plans, which are described more fully in the HickoryTechAnnual Report on Form 10-K for the year ended December 31, 2003.HickoryTech has elected to account for these employee and director stockcompensation plans using the intrinsic value method as permitted by AccountingPrinciples Board Opinion No. 25 and related interpretations.

 

In 2002, HickoryTech’s Board of Directors modified the terms of thestock options of a retiring officer. The modification extended the period afterretirement during which the officer can exercise his vested options. Thismodification resulted in HickoryTech recognizing $173,000 of compensationexpense during the first quarter of 2003. During the third quarter of 2003, theBoard of Directors extended the period during which this option holder canexercise his vested options to December 31, 2004. This extension will notresult in any additional compensation charges.

 

If HickoryTech had elected to recognize compensation cost based on thefair value of the options and other stock compensation as prescribed by SFASNo. 123, the following operating results would have occurred using theBlack-Scholes option-pricing model to determine the fair value of the options: 

 
|                                                                                                                                          |   | **For Three  Months Ended** |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|------------|
| **(Dollars in Thousands)**                                                                                                                    |   | **3/31/2004**               |       | **3/31/2003** |   |
|                                                                                                                                          |   |                        |       |   |   |
| Reported Net Income                                                                                                                           |   | **$**                       | **2,102**  | ** ** | $ | 2,347 |   |
| Add:  Stock-based employee compensation expense included in reported net income,  net of related tax effects                                  |   | **21**                      | ** ** | 152 |   |
| Deduct:  Total stock-based employee compensation expense determined under fair value  based method for all awards, net of related tax effects |   | **(88**                     | **)**      | (293 | ) |
|                                                                                                                                          |   |                        | ** ** |   |   |
| Pro Forma Net Income                                                                                                                          |   | **$**                       | **2,035**  | ** ** | $ | 2,206 |   |
|                                                                                                                                          |   |                        | ** ** |   |   |
| Earnings per share:                                                                                                                           |   |                        | ** ** |   |   |
| Basic - as reported                                                                                                                           |   | **$**                       | **0.16**   | ** ** | $ | 0.17 |   |
| Basic - pro forma                                                                                                                             |   | **$**                       | **0.16**   | ** ** | $ | 0.16 |   |
|                                                                                                                                          |   |                        | ** ** |   |   |
| Diluted - as reported                                                                                                                         |   | **$**                       | **0.16**   | ** ** | $ | 0.17 |   |
| Diluted - pro forma                                                                                                                           |   | **$**                       | **0.16**   | ** ** | $ | 0.16 |   |

 

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NOTE 11. FINANCIAL DERIVATIVE INSTRUMENTS

 

HickoryTech accounts for derivative instruments in accordance with SFASNo. 133, as amended by SFAS No. 149, “Accounting for Derivative Instruments andHedging Activities,” which requires derivative instruments to be recorded onthe balance sheet at fair value. Changes in fair value of derivativeinstruments must be recognized in earnings unless specific hedge accountingcriteria are met, in which case the gains and losses are included in othercomprehensive income rather than in earnings.

 
| **(Dollars in Thousands)**                                                |   | **Interest  Rate  Swap Agreement** |   |
|---------------------------------------------------------------------------|--------|------------------------------------|--------|
|                                                                      |   |                               |   |
| Accumulated other comprehensive income  balance at December 31, 2003 |   | $                                  | 1,484  |   |
| Market value decrease on interest rate swap  agreement                    |   | (866                               | )      |
|                                                                      |   |                               |   |
| Accumulated other comprehensive income  balance at March 31, 2004    |   | $                                  | 618    |   |

 

HickoryTech has variable rate debt instruments, which subject theCompany to interest rate risk. Beginning in the second quarter of 2003,HickoryTech entered into interest rate swap agreements, with remainingmaturities of three months to fifty-one months, to manage its exposure tointerest rate movements on a portion of its variable rate debt obligations. Themarket value of the cumulative gain or loss on these derivative instruments isreported as a component of accumulated other comprehensive income in shareholders’equity and will be recognized in earnings when the term of the swap agreementis concluded.

 

The fair value of HickoryTech’s derivatives at March 31, 2004 andDecember 31, 2003 is a net asset of $1,038,000 and $2,515,000,respectively, which is included in other assets in the accompanyingconsolidated balance sheet.

 

NOTE 12. EMPLOYEE POST-RETIREMENT BENEFITS

 

HickoryTech provides post-retirement health care and life insurancebenefits for certain employees. HickoryTech is not currently funding these post-retirementbenefits, but has accrued these liabilities during the first quarter of 2004and 2003.

 
|                                                         |   | **For Three  Months Ended** |       |
|--------------------------------------------------------------|--------|-----------------------------|------------|
| **(Dollars in Thousands)**                                   |   | **3/31/2004**               |       | **3/31/2003** |   |
| Components of Net Periodic Benefit Cost                      |   |                        | ** ** |   |   |
| Service Cost                                                 |   | **$**                       | **93**     | ** ** | $ | 53 |   |
| Interest Cost                                                |   | **131**                     | ** ** | 90 |   |
| Expected Return on Plan Assets                               |   | **—**                  | ** ** | — |   |
| Amortization of Transition Obligation                        |   | **15**                      | ** ** | 15 |   |
| Amortization of Prior Service Cost                           |   | **(3**                      | **)**      | (3 | ) |
| Recognized Net Actuarial Loss                                |   | **59**                      | ** ** | 24 |   |
| Net Periodic Benefit Cost                                    |   | **$**                       | **295**    | ** ** | $ | 179 |   |
|                                                         |   |                        | ** ** |   |   |
|                                                         |   | **2004**                    | ** ** |   |   |
| Employer’s Contributions                                |   |                        |       |   |   |
| Contributions Made For the Three Months  Ended 03/31/04      |   | **$**                       | **45**     | ** ** |   |   |
| Expected Contributions for Remainder of  2004                |   | **136**                     | ** ** |   |   |
| Total Estimated Employer Contributions for  Fiscal Year 2004 |   | **$**                       | **181**    | ** ** |   |   |

 

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NOTE 13. REGULATORY ASSET AND LIABILITY

 

Effective January 1, 2002, the FCC, in its “MAG Order” on AccessCharge Reform, directed all rate-of-return carriers to file revisions to theirtariffs to eliminate the transport interconnection charge (TIC) as a separaterate element. In effect, the costs previously recovered through the TIC werereallocated over all other access categories, including carrier common line,transport, local switching, information surcharge and special access. The FCCmade it clear that “this tariff filing should be a revenue neutral tarifffiling.”

 

The total revenues reallocated from the TIC to the remaining accesselements were limited to the total revenues recovered from the TIC for thetwelve-month period ended June 30, 2001. These revenues were calculatedusing the carrier’s traffic volumes and the TIC rate for the twelve-monthperiod ended June 30, 2001. These calculations were prepared by anindependent third-party and approved by NECA (National Exchange CarrierAssociation). TIC was eliminated by reallocating the costs to the other accessbilling categories.

 

The FCC conducted an investigation of all tariff filings, includingNECA’s CCL (Carrier Common Line) tariff and Heartland’s Traffic Sensitive (TS)tariff, to determine if the filing parties had properly reallocated the TICcosts among the other access charge categories.

 

The FCC terminated its investigation of several tariff filings,concluding that “the carriers have substantially complied with theRate-of-Return Access Charge Reform Order and their tariffs no longer warrantinvestigation.” Despite this ruling by the FCC during the fourth quarter of2003, NECA informed HickoryTech’s Heartland subsidiary that it would not allowit to recover a portion of the TIC costs allocated to the CCL, because anincorrect TIC rate was used in the calculation.

 

As a result of this billing error, the Company recovered $611,000 ofexcess revenues from the NECA CCL pool. NECA will require Heartland to repaythe $611,000 by November 2004. As of March 31, 2004, $200,000 hasbeen repaid.

 

The FCC approved a mid-course correction to Heartland’s TS tariff as asupportable method of recouping NECA’s CCL reduction. The revision corrects theTIC rate originally used, and factors recovery of the $611,000, into the TSrate elements. HickoryTech recoups this revenue over the remaining eighteenmonths of the TS tariff, which began January 1, 2004. As of March 31,2004, HickoryTech has recouped $102,000 of the revenue.

 

In accordance with SFAS No. 71, HickoryTech recorded a regulatory assetfor the revenue it would recoup with a balance of $509,000 at March 31,2004 and $611,000 at December 31, 2003. Similarly, HickoryTech has recorded a liability for the amounts that willbe repaid to the NECA CCL pool with a balance of $411,000 at March 31,2004 and $611,000 at December 31, 2003.

 

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ITEM 2.     MANAGEMENT’SDISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

#### **FORWARD-LOOKING STATEMENTS**

 

Statements in this Form 10-Qthat are not historical fact are forward-looking statements that are based onmanagement’s current expectations, estimates and projections about the industryin which HickoryTech operates and management’s beliefs and assumptions. Suchforward-looking statements are subject to important risks and uncertaintiesthat could cause HickoryTech’s future actual results to differ materially fromsuch statements. These statements are not guarantees of future performance andinvolve certain risks, uncertainties and probabilities, which are difficult topredict. Therefore, actual outcomes and results may differ materially from whatis expressed or forecasted in such forward-looking statements, whether as aresult of new information, future events or otherwise. Factors that might causesuch a difference include, but are not limited to, those contained in this“Management’s Discussion and Analysis” (Item 2) and the Cautionary Statementfor Purposes of the “Safe Harbor” Provision of the Private SecuritiesLitigation Reform Act of 1995 on pages 29-30 of HickoryTech’s Annual Report onForm 10-K for the year ended December 31, 2003, which is incorporatedherein by reference. You are cautioned not to place undue reliance on theseforward looking statements, which speak only as of the date on which they weremade. Except as otherwise required by federal securities law, HickoryTechundertakes no obligation to update any of its forward-looking statements forany reason.

 

**BUSINESSES**

 

HickoryTech operates in threebusiness segments: the Telecom, Information Solutions and Enterprise SolutionsSectors. Its largest and oldest business (since 1898) has been the operation ofincumbent local exchange carriers (ILECs) or traditional wireline telephoneservice. The ILEC business is in HickoryTech’s Telecom Sector. In 1998,HickoryTech began its competitive local exchange carrier (CLEC) line ofbusiness, competing for the telephone dial tone, dial-up and broadband Internetaccess, data and long distance calling business in other ILEC territories. TheCLEC business is in HickoryTech’s Telecom Sector. Since 1964, HickoryTech’sInformation Solutions Sector has provided computer data processing andsoftware, predominantly for HickoryTech’s Telecom Sector operations and also toother telecommunications companies. HickoryTech acquired its EnterpriseSolutions Sector in 1990 and it has operated as a telecommunications and dataequipment distributor from a base in Minneapolis/St. Paul, Minnesota.HickoryTech also began its wireless operations in 1998 by acquiring its firstwholly owned wireless service license, an additional wireless service licensein 1999 and two PCS licenses in 2001. HickoryTech sold the wireless operationson December 15, 2003. The wireless operations are reported as part of theTelecom Sector. All financial statements and schedules have been restated toreflect wireless operations as discontinued operations for all periodspresented.

 

The eight subsidiaries ofHickoryTech, all of which publicly operate and conduct business as HickoryTech,and the business segments in which they operate are:

 

**TELECOM SECTOR**

MankatoCitizens Telephone Company (MCTC)

Mid-Communications,Inc. (Mid-Comm)

HeartlandTelecommunications Company of Iowa, Inc. (Heartland)

CableNetwork, Inc. (CNI)

CrystalCommunications, Inc. (Crystal)

MinnesotaSouthern Wireless Company (MSWC)-Discontinued Operations

**INFORMATION SOLUTIONS SECTOR**

NationalIndependent Billing, Inc. (NIBI)

**ENTERPRISE SOLUTIONS SECTOR**

CollinsCommunications Systems Co. (Collins)

 

12

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HickoryTech and itssubsidiaries are engaged in businesses that provide services to their customersfor a fee. Many of these services are recurring, and, as a result, backlogorders and seasonality are not significant factors. Working capitalrequirements primarily involve the funding of the construction of networks andswitches and maintenance of a relatively high amount of fixed assets. Otherworking capital requirements include the payroll costs of highly skilled labor,the inventory to service its telephone equipment customers and the carryingvalue of trade accounts receivable for periods up to ninety days in the normalcourse of business.

 

The materials and supplies thatare necessary for the operation of the businesses of HickoryTech and itssubsidiaries are available from a variety of sources, and no future supplyproblems are anticipated. All of HickoryTech’s central office switches, as wellas a majority of HickoryTech’s equipment sold in its Enterprise SolutionsSector, are supplied by Nortel. Nortel is a leading supplier of communicationsequipment, and HickoryTech’s dependence on this brand is not viewed as asignificant risk. An additional layer of network infrastructure equipment forbroadband services is provided by Nextlevel. Nextlevel, a subsidiary ofMotorola, is a newer supplier of communications equipment and the Company ismonitoring the risk of maintaining Nextlevel as a supplier.

 

**INDUSTRY SEGMENTS**

 

*TELECOM SECTOR*

 

HickoryTech’s Telecom Sector provides localexchange wireline telephone service, long distance, dial-up and broadbandInternet access, and owns and operates fiber optic cable facilities. Thissector includes three incumbent local exchange carriers (ILECs): MCTC, Mid-Command Heartland. MCTC and Mid-Comm provide telephone service in south centralMinnesota, specifically Mankato (a regional hub) and eleven rural communitiessurrounding Mankato. The third ILEC, Heartland, provides telephone service foreleven rural communities in northwest Iowa.

 

The Telecom Sector also includes Crystal, acompetitive local exchange carrier (CLEC). Crystal provides local telephoneservice, long distance, dial-up and broadband Internet access and digitaltelevision on a competitive basis. Crystal has customers in ten ruralcommunities, encompassing eight exchanges, in Minnesota and three communities,encompassing two exchanges, in Iowa that are not in HickoryTech’s ILEC serviceareas.  HickoryTech discontinued itsservice to four other Iowa communities in 2003.

 

HickoryTech also owns and operates fiberoptic cable facilities in Minnesota in its subsidiary CNI. These facilities areused to transport interexchange communications as a service to telephone industrycustomers. HickoryTech’s Minnesota ILECs and its CLEC are the primary users ofthe fiber optic cable facilities.

 

The Telecom Sector included the operations ofMSWC, which was sold December 15, 2003. None of the remaining companies inthe Telecom sector experienced major changes in operations during the firstquarter of 2004 or 2003.

 

MCTC derives its principal revenues andincome from local services charged to subscribers in its service area, accessservices charged to interexchange carriers, and the operation of a tolltandem-switching center in Mankato, Minnesota. Revenues and income for Mid-Commare also derived from local service charges in its area of operation and byproviding access to long distance services for its subscribers through the tollcenter in Mankato. Local and interexchange telephone access for the twocompanies is provided on an integrated basis. The local and interexchangetelephone access for both telephone companies utilize the same facilities andequipment and is managed and maintained by a common workforce. Heartlandderives its principal revenues and income from local services charged tosubscribers in its service area in Iowa, as well as from providinginterexchange access for its subscribers. Interexchange telephone access isprovided by all three of HickoryTech’s telephone subsidiaries by connecting thecommunications networks of interexchange and wireless carriers with theequipment and facilities of end users through its switched networks or privatelines.

 

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MCTC and Mid-Comm are Minnesota publicutilities operating pursuant to indeterminate permits issued by the MinnesotaPublic Utilities Commission. Heartland is also a public utility, which operatespursuant to a certificate of public convenience and necessity issued by theIowa Utilities Board. These state agencies regulate the services provided byMCTC, Mid-Comm and Heartland. CNI’s operations are not subject to regulation bythe state regulatory authority.  Neitherthe Minnesota Public Utilities Commission nor the Iowa Utilities Boardregulates the rate of return or profits of each of HickoryTech’s ILECoperations due to the size of these companies relative to state regulation. InMinnesota, MCTC and Mid-Comm’s price and service levels are monitored byregulators. MCTC’s and Mid-Comm’s local service rates are below those of mostMinnesota ILECs. Regardless of whether a particular rate is subject toregulatory review, the ability of HickoryTech and its subsidiaries to changerates will be determined by various factors, including economic and competitivecircumstances.

 

As local exchange telephone companies, MCTC,Mid-Comm and Heartland provide end office switching and dedicated circuits tolong distance interexchange carriers. These relationships allow HickoryTech’stelephone subscribers to place long distance telephone calls and gain access tothe telephone network. HickoryTech provides interexchange access for all of theindividual customers who select an alternative long distance carrier. Thisinterexchange access business is separate and distinct from HickoryTech’s ownlong distance retail business, which is operated in its Crystal subsidiary. Thelong distance interexchange carriers are significant customers of HickoryTech,but no carrier represents more than ten percent of HickoryTech’s consolidatedrevenues.

 

Alternatives to HickoryTech service includecustomers leasing private lines in lieu of switched voice services and dataservices in or adjacent to the territories served by HickoryTech, which permitsthe bypassing of local telephone switching facilities. Additionally servicesprovided by other companies utilizing various wireline or wireless technologiespermit bypass of the local exchange network. These alternatives to localexchange service represent a potential threat to HickoryTech’s long-termability to provide local exchange service at economical rates.

 

Competition in HickoryTech’s ILEC servicearea exists in one of Heartland’s exchanges. In the city of Hawarden, Iowa, themunicipal utilities overbuilt the city’s telephone service infrastructure andis providing an alternative to HickoryTech’s telephone service. The HawardenCLEC has acquired approximately 1,000 access lines, or approximately 60% ofthat community’s telephone business from HickoryTech. HickoryTech managementdoes not believe there will be significant further impact from competition inHawarden.

 

Competition also exists for some of theHickoryTech services provided to interexchange carriers, such as customerbilling services, dedicated private lines, network switching and networkrouting. This competition comes primarily from the interexchange carriersthemselves, in that carriers may decide that the services provided byHickoryTech may be redirected or handled on their own network. The provision ofthese services is of a contractual nature or is month-to-month service out of ageneral tariff, which is a schedule of terms, rates and conditions that isapproved by the appropriate state or federal agency. In either case, the use ofthese services is primarily controlled by the interexchange carriers. Asinterexchange carriers make these service decisions, they have the potential toreduce the Company’s revenue in the Telecom Sector. Other services, such asdirectory advertising and end user equipment, are open to competition. Thistype of competition is based primarily on service and experience.

 

In September 2003, a potential competitor filed a request tonegotiate interconnection arrangements with HickoryTech’s Minnesota ILECs, MCTC& Mid-Comm.  This potentialcompetitor is a multi-state communications company with the ability to offerbundled services. MCTC and Mid-Comm made a filing with the Minnesota PublicUtilities commission exerting their rural exemption from certain components ofthis request. The competitor’s request was subsequently withdrawn inFebruary 2004.

 

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The passage of the 1996 TelecommunicationsAct created the opportunity for HickoryTech to offer communications service interritories served by other telephone companies, and Crystal began operationsin January 1998 as a new competitive local exchange carrier (CLEC).Crystal offers local service, long distance, dial-up and broadband Internetaccess services, and digital television, on a competitive basis to customers insouthern Minnesota and Iowa, which were not previously served by HickoryTech’sTelecom Sector service area. These service offerings provide customersalternatives to the incumbent communication providers in various communitiesand are offered under the brand name HickoryTech service. These services arecurrently offered to customers in ten rural communities, encompassing eightexchanges, in Minnesota, as well as three communities, encompassing twoexchanges, in Iowa. Crystal also provides the long distance service, dial-upand broadband Internet access services to HickoryTech’s ILEC subscribers.

 

CLEC activities require Crystal to file for authority to operate withthe appropriate public utilities commission in each state it serves. Crystalcompetes directly against existing ILECs in the areas in which it operates.Crystal is not dependent upon any single customer or small group of customers.No single customer in Crystal accounts for ten percent or more of HickoryTech’sconsolidated revenues.

 

It is common in the ILEC industry for carriers to dispute certainaccess charges. There is currently a multi-state ILEC industry dispute with alarge RBOC (Regional Bell Operating Company) regarding certain access charges.The ILEC industry in Minnesota has jointly filed a formal complaint regardingthis dispute with the Minnesota Public Utilities Commission.

 

On December 15, 2003, HickoryTech soldits wireless business, Minnesota Southern Wireless Company (MSWC), to WesternWireless Corporation (WWC). The wireless operations are reported as part of theTelecom Sector. The consolidated statements of operations for all periodspresented have been restated to reflect wireless operations as discontinuedoperations.

 

REGULATED INDUSTRY

 

ILEC Minnesota - HickoryTech’s two MinnesotaILEC subsidiaries continue to operate under an alternative form of regulationas defined in Minnesota Chapter 237, whereby companies with less than 50,000customers are regulated on price and service level rather than profit. TheMinnesota Public Utilities Commission (PUC) has been considering intrastateaccess reform and universal service for several years. The Minnesota PUCrecently issued an order to refer the access reform issue to a contested casehearing. The process in Minnesota in matters such as these usually involvesfull development of a public record. The ILEC industry, interexchange carriers and state agencies are alsoconcurrently negotiating in hopes of an agreement to transition access ratechanges over several years, possibly through legislative change. The outcome ofthis process, whether by negotiation and legislation or commission orderresulting from a hearing will not likely be realized until late in 2004, orlater. HickoryTech cannot estimate the impact, if any, of future potentialstate access revenue changes.

 

ILEC Iowa - In Iowa, companies with fewer than15,000 access lines remain unregulated. HickoryTech’s Iowa ILEC subsidiaryfalls below this regulation threshold.

 

Wireline InterState - The HickoryTech ILECcompanies do not participate in the NECA traffic sensitive pool and set accessrates according to a nationwide average cost of providing access. This biannualrate process was completed in June 2003 and established traffic sensitiveinterstate rates for the period from July 1, 2003 through June 30,2005. HickoryTech ILEC companies participate in the NECA common line pool. InJuly of 2003, common line rates charged to interexchange carriers werereduced (to zero), and common line charges to end users were increased inaccordance with an FCC October 2001 order (a/k/a MAG Plan). Fundscollected are pooled, and HickoryTech revenues are based on settlementsdistributed from the pool. Pool settlements are adjusted from time to time.HickoryTech’s CLEC interstate access rates are established in accordance withthe FCC’s April 2001 order and no further changes are known at the presenttime.

 

15

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CLEC - HickoryTech’s CLEC company provideslocal exchange services in Minnesota and Iowa with less regulatory oversightthan the HickoryTech ILEC companies. Additionally, Crystal offers digitaltelevision service in the St. Peter, Minnesota market under a franchisenegotiated with the local municipality. Crystal also offers long distance services. In-State services inMinnesota are regulated by the Public Utility Commission with respect touniform pricing statewide. In-State long distance service in Iowa isunregulated.  Long distance services arealso deregulated at the federal level (for Inter-State services), but aresubject to annual certification of geographic rate averaging and rateintegration.  Dial-up and broadbandInternet access are unregulated at both the state and federal levels.

 

Other - The FCC has an open docket onintercarrier compensation as well as several dockets on Voice over InternetProtocol (VoIP). HickoryTech cannot predict the outcome of such proceedings norcan it estimate the impact, if any, on HickoryTech.

 

Local Number Portability - Section 251(b) of the CommunicationsAct of 1934 (the “34 Act”), as amended, requires, in part, that local exchangecarriers provide local number portability to any requesting telecommunicationscarrier. Wireless carriers are generally defined as “telecommunicationscarriers” under the 34 Act, and are therefore eligible to port numbers withwireline carriers, which is referred to as “intermodal porting”.  OnNovember 10, 2003, the FCC released a decision providing guidance onintermodal porting issues. The FCC stated that number porting from awireline carrier to a wireless carrier is required upon bona fide request wherethe coverage area of the wireless carrier (i.e. the area in which the wirelesscarrier provides service) overlaps the geographic location in which thewireline number was provisioned. Further, while the FCC required thewireless carrier to maintain the rate center designation of the number, it alsonoted that wireless carriers were not required to have either directconnections or interconnection agreements with wireline carriers nor werewireless carriers required to have numbering resources in the rate center inwhich the wireline number is located in order to subject the wireline number tointermodal porting. The FCC’s guidance requires that wireline numbers beported to wireless carriers across traditional wireline rate centers, althoughthe FCC left issues governing the payment of call routing costs to anotherpending proceeding. While this requirement took effect onNovember 24, 2003 for wireline carriers in the top 100 MetropolitanStatistical Area’s (MSAs), it will take effect on May 24, 2004 for wirelinecarriers operating in markets below the top 100 MSAs. The United States TelecomAssociation (USTA), along with certain rural telephone companies, appealed theFCC’s November 10, 2003 decision to the U.S. District Court, and theappeal is pending before the Court. The Company’s wireline operations areconducted in markets below the top 100 MSAs that will be subject to the laterMay 24, 2004 implementation date for intermodal porting. Further, HeartlandTelecommunications Company of Iowa has joined in an industry action by the IowaTelecommunications Association to suspend the requirements for small ruralcarriers.  The Iowa Utilities Board hasgranted a 180-day stay on implementation of Local Number Portability (LNP) inrural areas while it considers the petition, with a decision due no later thanOctober 6, 2004.  However, thisstay could be challenged on a company-by-company basis by an intervener, suchas a cellular carrier. At this time, the Company cannot fully quantify theeffects on its wireline operations of implementing intermodal porting or thepotential outcome of any court appeal. However, it is possible that theserequirements, when implemented, will adversely affect the Company’s wirelineoperating costs and customer growth rates. HickoryTech is also unable toquantify the revenue impact of wireline customers that may switch to wirelessalternatives.

 

*INFORMATION SOLUTIONS SECTOR*

 

Through NIBI,HickoryTech’s Information Solutions Sector provides data processing and relatedservices, principally for HickoryTech, other local exchange telephonecompanies, CLECs, interexchange network carriers, wireless companies,municipalities and utilities. The Information Solutions Sector’s principalactivity is the provision of monthly batch processing of computerized data forHickoryTech as well as non-affiliated companies. Services for telephone companycustomers include the processing of long distance telephone calls from datasources and telephone switches, the preparation of the subscriber telephonebills, customer record keeping, carrier access bills and general accounting andpayroll services. NIBI, under the brand name HickoryTech Information Solutions,also provides certain billing clearinghouse functions for interexchangecarriers.

 

16

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There are a number ofcompanies engaged in supplying data processing services comparable to thosefurnished by the Information Solutions Sector. Competition is based primarilyon price and service. HickoryTech’s Information Solutions Sector has developedan integrated billing and management system called SuiteSolution. SuiteSolutioncan provide wireline and wireless carriers the individual benefits of a billingplatform or a total system solution. Management is unable to quantify whateffect, if any, the sale of HickoryTech’s wireless business may have on themarketplace for this product.

 

### ***ENTERPRISE SOLUTIONS SECTOR***

### ** **

Through Collins, HickoryTech’s EnterpriseSolutions Sector provides telephone and data equipment sales and services aswell as the sale, installation and service of Voice over Internet Protocol(VoIP) business systems to companies primarily based in metropolitanMinneapolis/St. Paul, Minnesota. This sector also supports the businesstelephone system service for HickoryTech ILEC and CLEC operations in southernMinnesota and in Iowa. The customers in the Enterprise Solutions Sector’smarket are the individual business end users of telecommunications service withongoing service requirement offerings. Products consist of telecommunicationplatforms such as Nortel on the voice side of the Enterprise Solutions’business, and Cisco and Bay Networks (Nortel) equipment on the data side of itsbusiness. Enterprise Solutions specializes in the quality custom installationand maintenance of data wide area networking solutions.

 

Revenues are primarilyearned by the sales, installation and service of business telephone and datasystems. Enterprise Solutions continues its commitment to service and supportof its core product, Nortel, while identifying new opportunities such as callcenters, computer telephone integration voice mail and interactive voiceresponse systems.

 

HickoryTech’s Enterprise Solutions Sector isnot dependent upon any single customer or small group of customers. No singlecustomer in the Enterprise Solutions Sector accounts for ten percent or more ofHickoryTech’s consolidated revenues.

 

Enterprise Solutions doesbusiness in a competitive market where a large number of companies compete forthe sale, installation and servicing of telecommunications equipment and Voiceover Internet Protocol communications products. Competition is based primarilyon price and service. No single company is dominant in this market.

 

**RESULTS OF OPERATIONS**

 

CONSOLIDATED OPERATING RESULTS:

 

The following is a summarized discussion of consolidated results ofoperations. More detailed discussion of operating results by segment followsthis discussion.

 

OPERATINGREVENUES:

 

Consolidated operating revenueswere $22,687,000, which is $890,000 or 3.8% lower in the three months endedMarch 31, 2004 compared to the three months ended March 31, 2003. Thedecrease in revenues in the three months ended March 31, 2004 compared tothe three months ended March 31, 2003 can be primarily attributed to alower volume of business in the Enterprise Solutions Sector. This decrease waspartially offset by an increase in revenues in the Telecom Sector, which wasdriven by revenue increases in ILEC network access and growth in the CLECbusiness.

##### *** ***

COST OF PRODUCTS SOLD,ENTERPRISE SOLUTIONS:

 

Cost of products sold,which is related to the Enterprise Solutions Sector was $1,509,000, which is$1,010,000 or 40.1% lower in the three months ended March 31, 2004compared to the three months ended March 31, 2003. The decrease in firstquarter 2004 cost of products sold compared to first quarter 2003 wascomparable to the decrease in operating revenues in this sector, as grossprofit margins remained relatively consistent at 34.2% in the first quarter of2004 compared to 35.6% in the first quarter of 2003.

 

17

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COST OF SERVICES(excluding Depreciation and Amortization):

 

Cost of services,excluding depreciation and amortization increased $340,000 or 4.1% in firstquarter 2004 compared to first quarter 2003. This increase was due primarily to increased expenses surroundingpost-retirement health care benefits, long distance costs corresponding to theincreased customer base, and an increase in bad debt expense.

 

SELLING, GENERAL ANDADMINISTRATIVE EXPENSES (excluding Depreciation and Amortization):

 

Selling, general andadministrative expenses, excluding depreciation and amortization decreased$168,000 or 4.4% in first quarter 2004 compared to first quarter 2003.  Increases in sales and marketing relatedexpenses were largely offset by cost reduction measures implemented in theEnterprise Solutions sector as well as a decrease in corporate wages due to aone time charge in 2003 caused by the 2002 modification of the terms of thestock options of a retiring officer. This modification extended the period afterretirement during which the officer can exercise his vested options. Thismodification resulted in HickoryTech recognizing $173,000 of compensationexpense during the first quarter of 2003.

 

DEPRECIATION ANDAMORTIZATION:

 

Depreciation expense was$3,876,000, which is $374,000 or 10.7% higher in the three months endedMarch 31, 2004 compared to the three months ended March 31, 2003. Theincrease in depreciation for the three months ended March 31, 2004 was dueto an increase in the Telecom Sector’s network assets, as well as an increaserelated to the depreciation of billing software in the Information SolutionsSector. Amortization expense from continuing operations was $236,000, which is$90,000 or 27.6% lower in the three months ended March 31, 2004 comparedto the three months ended March 31, 2003. The decrease in amortization expense from continuing operations waslargely due to an intangible asset in the Information Solutions Sector becomingfully amortized in the second quarter of 2003.

 

OPERATING INCOME:

 

Operating income was $4,802,000, which is $336,000 or 6.5% lower in thethree months ended March 31, 2004 compared to the three months endedMarch 31, 2003.  The decrease inoperating income for the three months ended March 31, 2004 was largely dueto the decline in income in the Enterprise Solutions Sector, and for the otherreasons described above.

 

INTEREST EXPENSE:

 

Interest expense decreased $376,000 or 24.0% to $1,189,000 in the threemonths ended March 31, 2004 compared to the three months endedMarch 31, 2003. The decrease in interest expense for the period wasprimarily due to a decrease in total debt outstanding. The outstanding balanceof the revolving credit facility was $110,250,000 at March 31, 2004 and$148,250,000 at March 31, 2003.

 

INCOME TAXES:

 

The effective income tax rate of approximately 40.5% and 41%respectively for first quarter 2004 and first quarter 2003 exceeds the federalstatutory rate primarily due to state income taxes.

 

INCOME FROM CONTINUING OPERATIONS:

 

Consolidated income from continuing operations was $2,161,000, which is$44,000 or 2.1% higher in the three months ended March 31, 2004 comparedto the three months ended March 31, 2003. The increase in income from continuing operations was driven by the$1,010,000 decrease in cost of goods sold and the $376,000 decrease in interestexpense, both of which were explained above. These expense decreases were partially offset by the $890,000 decreasein operating revenues, the $340,000 increase in cost of services, and the$374,000 increase in depreciation, all of which were also described above.

 

18

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SECTOR RESULTS OF OPERATIONS FROM CONTINUING OPERATIONS

 

TELECOM – The following table provides abreakdown of the Telecom Sector operating results.

 

**TELECOMSECTOR**

 
|                                                                                    |   | **For Three  Months Ended** |       |
|-----------------------------------------------------------------------------------------|--------|-----------------------------|------------|
| **(Dollars in Thousands)**                                                              |   | **3/31/2004**               |       | **3/31/2003** |   |
|                                                                                    |   |                        | ** ** |   |   |
| Revenues Before Intersegment Eliminations                                               |   |                        | ** ** |   |   |
| ILEC                                                                                    |   |                        | ** ** |   |   |
| Local Service                                                                           |   | **$**                       | **3,731**  | ** ** | $ | 3,809 |   |
| Network Access                                                                          |   | **8,677**                   | ** ** | 8,324 |   |
| Data                                                                                    |   | **522**                     | ** ** | 450 |   |
| Intersegment                                                                            |   | **69**                      | ** ** | 69 |   |
| Other                                                                                   |   | **1,747**                   | ** ** | 1,801 |   |
| Total ILEC                                                                              |   | **14,746**                  | ** ** | 14,453 |   |
|                                                                                    |   |                        | ** ** |   |   |
| CLEC                                                                                    |   |                        | ** ** |   |   |
| Local Service                                                                           |   | **929**                     | ** ** | 839 |   |
| Network Access                                                                          |   | **680**                     | ** ** | 542 |   |
| Data                                                                                    |   | **381**                     | ** ** | 232 |   |
| Other                                                                                   |   | **430**                     | ** ** | 432 |   |
| Total CLEC                                                                              |   | **2,420**                   | ** ** | 2,045 |   |
|                                                                                    |   |                        | ** ** |   |   |
| Long Distance                                                                           |   | **1,228**                   | ** ** | 1,117 |   |
|                                                                                    |   |                        | ** ** |   |   |
| Internet                                                                                |   | **995**                     | ** ** | 941 |   |
|                                                                                    |   |                        | ** ** |   |   |
| Digital TV                                                                              |   | **106**                     | ** ** | 81 |   |
|                                                                                    |   |                        | ** ** |   |   |
| Total Telecom Revenues                                                                  |   | **$**                       | **19,495** | ** ** | $ | 18,637 |   |
|                                                                                    |   |                        | ** ** |   |   |
| Total Telecom Revenues Before Intersegment  Eliminations                                |   |                        | ** ** |   |   |
| Unaffiliated Customers                                                                  |   | **$**                       | **19,426** | ** ** | $ | 18,568 |   |
| Intersegment                                                                            |   | **69**                      | ** ** | 69 |   |
|                                                                                    |   | **19,495**                  |       | 18,637 |   |
|                                                                                    |   |                        | ** ** |   |   |
| Cost of Services, excluding Depreciation  and Amortization                              |   | **7,480**                   | ** ** | 6,801 |   |
| Selling, General, and Administrative  Expenses, excluding Depreciation and Amortization |   | **2,529**                   | ** ** | 2,347 |   |
| Depreciation and Amortization                                                           |   | **3,407**                   | ** ** | 3,185 |   |
| Operating Income                                                                        |   | **$**                       | **6,079**  | ** ** | $ | 6,304 |   |
|                                                                                    |   |                        | ** ** |   |   |
| Income from Continuing Operations, Net of  Tax                                          |   | **$**                       | **3,619**  | ** ** | $ | 3,708 |   |
| Income/(Loss) from Discontinued Operations                                              |   | **(59**                     | **)**      | 65 |   |
| Net Income                                                                              |   | **$**                       | **3,560**  | ** ** | $ | 3,773 |   |
| Capital Expenditures                                                                    |   | **$**                       | **2,121**  | ** ** | $ | 1,051 |   |
|                                                                                    |   |                        | ** ** |   |   |
| ILEC Access Lines                                                                       |   | **62,242**                  | ** ** | 64,495 |   |
|                                                                                    |   |                        | ** ** |   |   |
| CLEC Access Lines                                                                       |   |                        | ** ** |   |   |
| Overbuild                                                                               |   | **10,131**                  | ** ** | 8,035 |   |
| Unbundled Network Element (UNE)                                                         |   | **1,694**                   | ** ** | 1,361 |   |
| Total Service Resale (TSR)                                                              |   | **2,504**                   | ** ** | 4,875 |   |
| Total                                                                                   |   | **14,329**                  | ** ** | 14,271 |   |
|                                                                                    |   |                        | ** ** |   |   |
| Long Distance Customers                                                                 |   | **41,695**                  | ** ** | 36,610 |   |
|                                                                                    |   |                        | ** ** |   |   |
| Internet Customers                                                                      |   | **16,453**                  | ** ** | 14,988 |   |
|                                                                                    |   |                        | ** ** |   |   |
| Total Telecom Customers                                                                 |   | **134,719**                 | ** ** | 130,364 |   |
|                                                                                    |   |                        | ** ** |   |   |
| DSL Customers                                                                           |   | **8,324**                   | ** ** | 4,740 |   |
|                                                                                         |        |                             |            |  |  |  |  |  |  |

 

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Telecom Sector operating revenues beforeintersegment eliminations were $19,495,000, which is $858,000 or 4.6% higher inthe three months ended March 31, 2004 compared to the three months endedMarch 31, 2003.  The increase infirst quarter 2004 compared to first quarter 2003 was primarily due toincreased ILEC network access and growth in the CLEC business.

 

ILEC network access revenue was $8,677,000, which is $353,000 or 4.2%higher in the three months ended March 31, 2004 compared to the three monthsended March 31, 2003.  The increasein network access revenue in 2004 compared to 2003 was driven by higher demandfor dedicated lines and high-speed circuits. HickoryTech does not belong to anyNECA traffic sensitive access revenue reimbursement pools, but instead,establishes access rates bi-annually following nationwide averages of providingaccess. HickoryTech’s interstate access rates were adjusted as ofJuly 2003. Long-term continuation of these revenues is uncertain, however,as changes in the industry occur.

 

On October 16, 2003, the United States District Court, District ofMinnesota, issued an injunction providing relief from regulation of aninterexchange carrier providing Voice over Internet Protocol (VoIP) basedservices in Minnesota. The Minnesota Public Utilities Commission has appealedthis decision. Depending on the outcome, this may result in a change in thebusiness relationship between HickoryTech ILEC businesses and the interexchangecarriers, as interconnections with certain VoIP providers may not be governedby tariffed Minnesota access charges. HickoryTech cannot, at this time,estimate the revenue impact, if any, related to this decision.

 

ILEC data revenue was $72,000 or 16.0% higher in first quarter 2004compared to first quarter 2003. The increase is the result of increased DigitalSubscriber Line (DSL) customers.

 

CLEC local servicerevenue was $929,000, which is $90,000 or 10.7% higher in the three monthsended March 31, 2004 compared to the three months ended March 31,2003. The increase in CLEC local service revenue in first quarter 2004 comparedto first quarter 2003 is driven primarily by an increase in revenues frombusiness customers and an increase in local trunking revenue due primarily to anew customer relationship in northwest Iowa. In the second quarter of 2003, HickoryTech decided to exit severalexchanges in its Iowa territories which utilized a resale of services approach.As a result of this decision, HickoryTech has stopped providing service for 734customers. Related revenues have decreased approximately $100,000 in the firstquarter of 2004 compared to the first quarter of 2003.  However, this decreasein revenues is largely offset by increased local service revenues in severalother CLEC communities.

 

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CLEC network accessrevenue was $138,000 or 25.5% higher in first quarter 2004 compared to firstquarter 2003. This increase is primarily the result of increased penetration ofoverbuild lines in CLEC communities.

 

CLEC data revenue was$149,000 or 64.2% higher in first quarter 2004 compared to first quarter 2003.The increase is the result of increased DSL penetration in CLEC communities.

 

Long distance revenue was$111,000 or 9.9 % higher in the three months ended March 31, 2004 comparedto the three months ended March 31, 2003. This increase is the result of acorresponding increase in customers. HickoryTech experienced a 5,085 or 13.9% increase in its long distancecustomer base between March 31, 2003 and March 31, 2004. Although thecustomer base is increasing, revenue per customer is decreasing. The decreasein revenue per customer is primarily the result of optional long distanceservices available to customers, the increased use of Internet services and otheralternatives to long distance services. Also, a competitor of HickoryTech received approval from the state ofMinnesota to offer long distance services in all HickoryTech territories. Thiscompetitor already offers local telephone service in HickoryTech’s CLECterritories and with this approval, has the potential to create strongercompetition with HickoryTech in these markets, which could result in areduction in long distance revenue in future periods.

 

Internet revenue was$54,000, or 5.7% higher in the three months ended March 31, 2004 comparedto the three months ended March 31, 2003. The increase in revenue was caused primarily by an increase in Internetcustomers of 1,465 or 9.8% between March 31, 2003 and March 31, 2004.

 

Cost of Services, excluding  Depreciation and Amortization:

 

Cost of services,excluding depreciation and amortization was $679,000 or 10.0% higher in thefirst quarter of 2004 compared to the first quarter of 2003. The increase isprimarily due to increased expenses relating to long distance services thatincreased in conjunction with the corresponding increase in long distancecustomers and revenue, as well as increased billing costs. These increases weresomewhat offset by decreases in charges relating to the large decrease in TotalService Resale (TSR) customers.  In thesecond quarter of 2003, HickoryTech decided to exit several exchanges in itsIowa territories, which utilized a resale of services approach. As a result ofthis decision, HickoryTech has stopped providing service for 734 customers.

 

Selling, General andAdministrative Expenses (excluding Depreciation and Amortization):

 

Selling, general andadministrative expenses, excluding depreciation and amortization was $182,000or 7.8% higher in the first quarter of 2004 compared to the first quarter of2003.  This increase is primarily due toan increase in sales and marketing related expenses as well as corporateallocations. These increases were partially offset by a decrease in expensesrelated to cost reduction measures in the Iowa CLEC office that took place inthe third quarter of 2003.

 

Depreciation andAmortization:

 

Depreciation andamortization were $3,407,000, which is $222,000 or 7.0% higher in the threemonths ended March 31, 2004 compared to the same period in 2003.  The increase in depreciation expense can belargely attributed to increased network infrastructure.

 

Operating and Net Income:

 

Operating income was$6,079,000, which is $225,000 or 3.6% lower in the three months endedMarch 31, 2004 compared to the three months ended March 31,2003.  Net income was $3,560,000, whichis $213,000 or 5.6% lower in the three months ended March 31, 2004compared to the three months ended March 31, 2003.  These decreases were driven by the $679,000increase in cost of services, $222,000 increase in depreciation andamortization and $182,000 increase in selling, general and administrativeexpenses mentioned above, offset by the $858,000 increase in revenue, alsomentioned above.

 

Discontinued Operations:

 

On December 15,2003, HickoryTech sold its wireless business, Minnesota Southern WirelessCompany (MSWC), to Western Wireless Corporation (WWC). The wireless operationsare reported as part of the Telecom sector. The consolidated statements ofoperations for all periods presented have been restated to reflect wirelessoperations as discontinued operations.

 

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INFORMATION SOLUTIONS – The following tableprovides a breakdown of the Information Solutions Sector operating results.

 

**INFORMATION SOLUTIONS SECTOR**

 
|                                                                                    |   | **For Three Months Ended** |     |
|-----------------------------------------------------------------------------------------|--------|----------------------------|----------|
| **(Dollars in Thousands)**                                                              |   | **3/31/2004**              |     | **3/31/2003** |   |
| Revenues Before Eliminations                                                            |   |                       |     |   |   |
| Unaffiliated Customers                                                                  |   | **$**                      | **966**  |   | $ | 1,098 |   |
| Intersegment                                                                            |   | **1,047**                  |     | 763 |   |
|                                                                                    |   | **2,013**                  |     | 1,861 |   |
| Cost of Services, excluding Depreciation  and Amortization                              |   | **1,886**                  |     | 1,881 |   |
| Selling, General, and Administrative  Expenses, excluding Depreciation and Amortization |   | **194**                    |     | 185 |   |
| Depreciation and Amortization                                                           |   | **639**                    |     | 544 |   |
|                                                                                    |   |                       |     |   |   |
| Operating Loss                                                                          |   | **$**                      | **(706** | **)** | $ | (749 | ) |
| Net Loss                                                                                |   | **$**                      | **(426** | **)** | $ | (496 | ) |
|                                                                                    |   |                       |     |   |   |
| Capital Expenditures                                                                    |   | **$**                      | **1**    |   | $ | 144 |   |

 

Revenues:

 

Operating revenues from unaffiliated customers decreased $132,000 or12.0% in the first quarter 2004 compared to the first quarter 2003. In firstquarter 2004, $359,000 or 37.1% of the Unaffiliated Customer revenue was from atemporary customer that ends early in second quarter 2004. The decrease inoperating revenues was primarily due to the loss of CABS processing customersand a decline in volume to existing customers.

 

Depreciation and Amortization:

 

Depreciation and amortization increased $95,000 or 17.5% in firstquarter 2004 compared to first quarter 2003. The primary reason for the increase is due to the depreciation of a newbilling system.

 

Operating and Net Loss:

 

Operating loss decreased $43,000 or 5.7% in first quarter 2004 comparedto first quarter 2003.  Net lossdecreased $70,000 or 14.1% in first quarter 2004 compared to first quarter2003.  The decrease in operating lossand net loss in first quarter 2004 compared to first quarter 2003 was primarilyattributable to the increase in operating revenues.

 

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ENTERPRISE SOLUTIONS – The following tableprovides a breakdown of the Enterprise Solutions Sector operating results.

 

**ENTERPRISE SOLUTIONS SECTOR**

 
|                                                                                   |   | **For Three  Months Ended** |       |
|----------------------------------------------------------------------------------------|--------|-----------------------------|------------|
| **(Dollars in Thousands)**                                                             |   | **3/31/2004**               |       | **3/31/2003** |   |
| Revenues Before Intersegment Eliminations                                              |   |                        |       |   |   |
| Installation                                                                           |   | **$**                       | **653**    | ** ** | $ | 1,958 |   |
| Service                                                                                |   | **1,642**                   | ** ** | 1,953 |   |
|                                                                                   |   | **2,295**                   |       | 3,911 |   |
| Cost of Products Sold                                                                  |   | **1,509**                   | ** ** | 2,519 |   |
| Cost of Services, excluding Depreciation  And Amortization                             |   | **325**                     | ** ** | 385 |   |
| Selling, General and Administrative  Expenses, excluding Depreciation and Amortization |   | **786**                     | ** ** | 872 |   |
| Depreciation and Amortization                                                          |   | **51**                      | ** ** | 61 |   |
| Operating Income/(Loss)                                                                |   | **$**                       | **(376**   | **)** | $ | 74 |   |
| Net Income/(Loss)                                                                      |   | **$**                       | **(224**   | **)** | $ | 39 |   |
|                                                                                   |   |                        | ** ** |   |   |
| Capital Expenditures                                                                   |   | **$**                       | **—** | ** ** | $ | 92 |   |

 

Revenues:

 

Operating revenues decreased $1,616,000 or 41.3% in the first quarterof 2004 compared to the first quarter of 2003. Installation revenue decreased$1,305,000 or 66.7% in the first quarter of 2004 compared to the first quarterof 2003. The decrease in installation revenue in the first quarter of 2004compared to the first quarter of 2003 was primarily a result of a decrease insales and installations of PBX systems of $572,000 or 94.3%, as well as adecrease in sales of data network equipment of $668,000 or 56.9%.  Service revenue was $311,000 or 15.9% lowerin the first quarter of 2004 compared to the first quarter of 2003.  This sector has encountered across the boardreductions in demand in all of its major products and services. The reductionstarted in early 2002, and is believed to be associated with the economy’seffect on customers of this sector, and due to changing technology (i.e. voice vs.data protocol) in the communications products, which this sector provides. Dueto the uncertainty of the economy, HickoryTech cannot estimate when or ifcustomer demand for these products and services may return to higher levels.

 

Cost of Products Sold:

 

Cost of products sold decreased $1,010,000 or 40.1% in the firstquarter of 2004 compared to the first quarter of 2003.  The decrease in first quarter 2004 cost ofproducts sold compared to first quarter 2003 was in line with the decrease inoperating revenues in this sector, as gross profit margins remained relativelyconsistent at 34.2% in the first quarter of 2004 compared to 35.6% in the firstquarter of 2003.

 

Cost of Services, excluding Depreciation and Amortization:

 

Cost of services excluding depreciation and amortization decreased$60,000 or 15.6% in the first quarter 2004 compared to the first quarter 2003.The decrease in cost of services excluding depreciation and amortization in thefirst quarter 2004 compared to the first quarter 2003 was largely the result ofcost reduction measures, which included workforce reductions.

 

Selling, General and Administrative, excluding Depreciation andAmortization:

 

Selling, general and administrative expenses, excluding depreciationand amortization decreased $86,000 or 9.9% in the first quarter 2004 comparedto the first quarter 2003.  The decreasein selling, general and administrative expenses was largely due to costreduction measures, which included workforce reductions.

 

Operating and Net Income/(Loss):

 

Operating loss was $376,000 in the first quarter 2004 compared tooperating income of $74,000 in 2003. The change between first quarter 2004 loss compared to the first quarter2003 income resulted primarily from the decrease in operating revenues describedabove.

 

23

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LIQUIDITY AND CAPITAL RESOURCES

 

CASH FLOWS – Cash provided by operations was$10,119,000 in the first three months of 2004 compared to $9,277,000 in thefirst three months of 2003. Cash flows from operations in the first threemonths of 2004 were primarily attributable to net income plus non-cash expensesfor depreciation and amortization as well as a decrease in income taxesreceivable. Cash flows from operations in the first three months of 2003 wereprimarily attributable to net income plus non-cash expenses for depreciationand amortization and a decrease in receivables, partially offset by decreasesin accounts payable related to the timing of payments.

 

Cash flows provided by investing activities were $490,000 in the firstthree months of 2004 compared to cash flows provided by $2,425,000 for the sameperiod in 2003. Capital expenditures were $2,122,000 during the first threemonths of 2004 as compared to $1,735,000 for the same period in 2003. Firstquarter 2004 capital expenditures were incurred primarily to provide additionalnetwork facilities in the Telecom Sector. Management expects capitalexpenditures in the remainder of 2004 to be approximately $16,000,000. As partof the 2004 capital spending, HickoryTech is investing in an enhanced network,including an Internet Protocol (IP) capable switch and high capacity cableinfrastructure for its ILEC market, as well as investments in growth for itsCLEC markets.  There were $2,600,000 redemptionsof investments in the first three months of 2004, compared to $4,100,000 in thefirst three months of 2003. The redemptions in the first three months of both2004 and 2003 reflect the amount by which HickoryTech was permitted to reduceits equity investment in one of its lenders, through conditions of its debtagreements.

 

Cash flows used in financing activities were $10,744,000 for the firstthree months of 2004 compared to $11,465,000 for the first three months of2003. Included in cash flows used in financing activities are debt repaymentsand dividend payments. HickoryTech made payments on its revolving creditfacility of $9,250,000 during the first three months of 2004, and $9,750,000during the first three months of 2003. HickoryTech borrowed $1,000,000 on itsrevolving credit facility during the first three months of 2004. Dividendpayments for the first three months of 2004 were $1,426,000 compared to$1,540,000 for the same period in 2003. During the first three months of 2003,HickoryTech repurchased 16,100 common shares for $161,000. No shares werepurchased during the three months ended March 31, 2004 and there are nofuture plans for additional repurchases.

 

WORKING CAPITAL – Working capital (i.e.current assets minus current liabilities) was $6,334,000 as of March 31,2004, compared to working capital of $9,300,000 as of December 31, 2003.The ratio of current assets to current liabilities was 1.6 to 1.0 as ofMarch 31, 2004 and 1.7 to 1.0 as of December 31, 2003.

 

LONG-TERM OBLIGATIONS- HickoryTech’s long-termobligations as of March 31, 2004 were $109,643,000, excluding currentmaturities of $1,506,000. As of March 31, 2004, HickoryTech had a$152,583,000 credit facility with a syndicate of banks. The credit facility iscomprised of a $120,833,000 revolving credit component and a $31,750,000 termloan component. The available line of credit on the $120,833,000 revolvingcredit component decreases in increments beginning in March 2004 with afinal maturity date in September 2008. However, since not all of theavailable revolving credit has been utilized as of March 31, 2004, thepayment schedule is as follows: 2006 - $17,562,000, 2007 - $32,813,000 and2008 - $28,125,000. The term loan component requires equal quarterly principalpayments of $250,000 during the period of March 2001 toDecember 2008, $23,000,000 in the first quarter of 2009 and $4,000,000 inthe second quarter of 2009. The weighted average interest rate associated withthis credit facility and related instruments varies with LIBOR and certainother rates and was 4.1% at March 31, 2004 and 4.3% at March 31,2003. HickoryTech has implemented fixed interest terms on various portions ofthe overall debt outstanding for varying terms. The longest fixed interestterm, on $60,000,000 of the debt, is fixed until June 2008. As ofMarch 31, 2004, HickoryTech had drawn $110,250,000 on this credit facilityand had $42,333,000 of available credit. Management believes the remainingavailable credit is sufficient to cover future cash requirements.

 

HickoryTech’s Information Solutions Sector leases certain computerequipment under capital lease arrangements. During the first quarter of 2004,this sector did not record any additions to property, plant and equipmentrelated to these capital lease arrangements.

 

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CONSTRUCTION PLANS - HickoryTech has embarkedon a five-year network enhancement program in its core telephone property inMankato in support of its leading broadband service strategy. The Company willadd approximately $20,000,000 to the network over a five-year period, inaddition to the historical levels of capital spending in 2003 and 2002.  Management believes that the enhancementwill support the broadband product deployment strategies of the future, as wellas serving as defense against competition in its core market.  These upgrades to an already state of theart network will give HickoryTech the capability to offer more diversifiedservices to its core customer base.

 

OTHER - HickoryTech operates with originalequity capital, retained earnings and recent additions to indebtedness in theform of bank term and revolving lines of credit. HickoryTech believes itscurrent level of debt to total capital is acceptable for ongoing operations.

 

In November 2002, HickoryTech began repurchasing its stock inover-the-counter trading under a previously announced repurchase plan.HickoryTech funds the repurchase of its stock from cash flows from operations.During the three months ended March 31, 2003, HickoryTech purchased 16,100common shares for $161,000.  No shareswere purchased during the three months ended March 31, 2004 and there areno future plans for additional repurchases.

 

CRITICAL ACCOUNTING POLICIES

 

Management’s discussion and analysis of financial condition and resultsof operations stated in this Form 10-Q are based upon HickoryTech’sconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America and,where applicable, conform to the accounting principles as prescribed by federaland state telephone utility regulatory authorities. HickoryTech presently givesaccounting recognition to the actions of regulators where appropriate, asprescribed by Statement of Financial Accounting Standards (SFAS) No. 71,“Accounting for the Effects of Certain Types of Regulation.” The preparation ofthese financial statements requires management to make estimates and judgmentsthat affect the reported amounts of assets, liabilities, revenues, and expensesand related disclosure of contingent assets and liabilities. Managementbelieves that the application of the accounting policies, which are importantto HickoryTech’s financial position and results of operations, requiressignificant judgments and estimates on the part of management.  A description of the critical accountingpolicies adhered to by HickoryTech is contained in the Management’s Discussionand Analysis of Financial Condition and Results of Operations in HickoryTech’sAnnual Report on Form 10-K for the year ended December 31, 2003. Therewere no significant changes to these critical accounting policies during thequarter ended March 31, 2004. During 2003, HickoryTech purchased aninterest rate swap contract, which is accounted for pursuant to the provisionsof SFAS No. 133 as described in Note 11 of the notes to the accompanyingfinancial statements.

 

RECENT ACCOUNTING DEVELOPMENTS

 

In January 2003, the FASB issued FIN No. 46, *Consolidation of Variable InterestEntities*. This interpretation provides guidance on how to identify avariable interest entity and addresses when the assets, liabilities and resultsof operations of such entities must be included in a company’s consolidatedfinancial statements. This interpretation was effective immediately forvariable interest entities created after January 31, 2003 and for variableinterest entities in which the Company obtains an interest after that date. Forinterests in variable interest entities that were acquired prior toJanuary 31, 2003, the Company adopted the provisions of thisinterpretation on July 1, 2003. Adoption of this statement did not resultin the consolidation or disclosure of any variable interest entities in whichthe Company maintains an interest. The Company did not absorb the majority ofthe losses or residual returns of the variable interest entities in which theCompany maintains an interest and these interests are not significant. InDecember 2003, the FASB issued a revised FIN No. 46 which clarifiescertain aspects of the accounting for variable interest entities. The revisionof FIN No. 46 had no impact on our results of operations or financial position.

 

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In January 2004, the FASB issued FASB Staff Position (FSP) No. FAS106-1, *Accountingand Disclosure Requirements Related to the Medicare Prescription DrugImprovement and Modernization Act of 2003*. This FSP outlines theappropriate accounting treatment for the effects of the new Medicare law, aswell as the required financial statement disclosures. The new law introduces aprescription drug benefit under Medicare, as well as a federal subsidy tosponsors of retiree health care benefit plans that provide a benefit that is atleast actuarially equivalent to the Medicare plan. The retiree medical plans doprovide prescription drug coverage. However, as permitted by FSP No. FAS 106-1,the Company has elected to defer recognition of the impacts of the new law onthe accumulated post-retirement benefit obligation and net periodicpost-retirement benefit expense presented in the consolidated financialstatements. Specific authoritative accounting guidance on the accounting forthe federal subsidy provided for in the Act is pending. That guidance, whenissued, could require the Company to change previously reported information.Beginning January 1, 2006, Medicare’s prescription drug plan will be theprimary plan for qualified retirees when they become age 65 and are eligiblefor Medicare. Thus, the Company may see a decrease in the amount ofprescription drug benefits to be paid beginning in 2006.

 

In December 2003, the FASB issued a revision of SFAS No. 132, *Employers’Disclosures about Pensions and Other Post-retirement Benefits*. Thisstatement revises the disclosures required for pension and otherpost-retirement benefit plans. The Company has incorporated the new disclosurerequirements into the Notes to Consolidated Financial Statements included inthis report.

 

ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

HickoryTech does not have operations subject to risks of foreigncurrency fluctuations. HickoryTech does however, use derivative financialinstruments to manage exposure to interest rate fluctuations. HickoryTech’sobjectives for holding derivatives are to minimize interest rate risks usingthe most effective methods to eliminate or reduce the impact of theseexposures. Variable rate debt instruments are subject to interest rate risk.HickoryTech has entered into interest rate swap agreements with remainingmaturities ranging from three months to fifty-one months to manage its exposureto interest rate movements on a portion of its variable rate debt obligations.The effective portion of the cumulative gain or loss on these derivativeinstruments is reported as a component of accumulated other comprehensiveincome in shareholders’ equity and is recognized in earnings when the term ofthe swap agreement is concluded. HickoryTech’s earnings are affected by changesin interest rates as a portion of its long-term debt has variable interestrates based on LIBOR. If interest rates for the portion of HickoryTech’slong-term debt based on variable rates had averaged 10% more for the quarterended March 31, 2004, HickoryTech’s interest expense for the quarter wouldhave increased $38,000.

 

ITEM 4.     CONTROLSAND PROCEDURES

 

HickoryTech carried out an evaluation under the supervision, and withthe participation of, the Company’s management, including its Chief ExecutiveOfficer (“CEO”) and Chief Financial Officer (“CFO”) of the effectiveness of theCompany’s disclosure controls and procedures (as defined in Rule 13a-15(e)under the Exchange Act) as of March 31, 2004, the end of the periodcovered by this report. Disclosure controls and procedures are designed withthe objective of ensuring that information required to be disclosed in theCompany’s reports filed or submitted under the Securities Exchange Act, such asthis Form 10-Q, is recorded, processed, summarized and reported within the timeperiods specified in the Securities and Exchange Commission’s applicable rulesand forms. Based on that evaluation, the CEO and CFO have concluded that thedisclosure controls and procedures are effective to satisfy the objectives forwhich they are intended. During the quarter ended March 31, 2004, therehas been no change in the Company’s internal control over financial reporting(as defined in Rule 13a-15(f) of the Exchange Act) that has materially affectedor is reasonably likely to materially affect our internal control overfinancial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1.             LegalProceedings.

 

Other than routine litigation incidental to HickoryTech’s business,there are no material pending legal proceedings to which HickoryTech is a partyor to which any of its property is subject.

 

Item 2.             Changesin Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

 

On October 30, 2002, the Board of Directors authorized a plan forHickoryTech to purchase shares of its outstanding common stock having a valueof up to $2,000,000 in the aggregate in the year 2002, as well as $2,000,000 inthe aggregate in the year 2003, primarily through open-market transactions.

 

Information on HickoryTech’spurchases of equity securities follows: 

 
| **Period**                                      |   | **Total  Number of  Shares  Purchased  (a)** |   | **Average  Price Paid  per Share  (b)** |   | **Total  Number of  Shares  Purchased as  Part of Publicly  Announced  Plans or  Programs  (c)** |   | **Maximum  Number  of Shares that  May Yet Be  Purchased Under  the Plans or  Programs (at end  of period) (1)  (d)** |   |
|-------------------------------------------------|--------|----------------------------------------------|--------|-----------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------|--------|
|                                            |   |                                         |   |                                    |   |                                                                                             |   |                                                                                                                  |   |
| January 1, 2004 - January 31,  2004   |   | —                                       |   | —                                  |   | —                                                                                           |   | —                                                                                                                |   |
|                                            |   |                                         |   |                                    |   |                                                                                             |   |                                                                                                                  |   |
| February 1, 2004 - February 29,  2004 |   | —                                       |   | —                                  |   | —                                                                                           |   | —                                                                                                                |   |
|                                            |   |                                         |   |                                    |   |                                                                                             |   |                                                                                                                  |   |
| March 1, 2004 - March 31, 2004        |   | —                                       |   | —                                  |   | —                                                                                           |   | —                                                                                                                |   |

 

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(1)  The plan approved by the HickoryTech boardin October 2002 terminated on December 31, 2003.

 

Item 3.    Default Upon Senior Securities.

 

None.

 

Item 4.    Submission of Matters to a Vote of SecurityHolders.

 

None.

 

Item 5.    Other Information.

 

None.

 

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Item 6.             Exhibitsand Reports on Form 8-K.

 

(a)          Exhibits

Exhibit 31(a) Certification pursuant to rule 13a-14(a) under theExchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Actof 2002

Exhibit 31(b) Certification pursuant to rule 13a-14(a) under theExchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Actof 2002

Exhibit 32(a) Certification pursuant to 18 U.S.C. 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32(b) Certification pursuant to 18 U.S.C. 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

(b)         HickoryTech furnished aForm 8-K on February 17, 2004 reporting under Item 7 and Item 12 a pressrelease announcing its fourth quarter consolidated operating results.

 

HickoryTech filed a Form 8-K/A on March 9, 2004 amending the Form8-K filed by HickoryTech on December 30, 2003, relating to the dispositionof its wireless business to include the pro forma financial information underItem 7.

 

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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 theundersigned, thereunto duly authorized.

 
| Dated: | May 5, 2004 |                                          | HICKORY TECH CORPORATION |
|--------|-------------|-----------------------------------------------|--------------------------|
|   |        |
|   |        |
|   | By:         |   /s/ John E. Duffy.                     |                     |
|   |        | John E. Duffy, Chief Executive Officer        |
|   |        |
|   |        |
|   | By:         |   /s/ David A. Christensen               |                     |
|   |        | David A. Christensen, Chief Financial Officer |
|        |             |                                               |                          |  |  |  |

 

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