**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, 2003** |
|           |   |
|           | **OR** |
|           |   |
| **o**          | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|           |   |
|           | **FOR THE TRANSITION  PERIOD FROM               TO               ** |

 

**Commission file number   0-13721**

 

**HICKORY TECH CORPORATION**

(Exact name ofregistrant as specified in its charter)

 

| **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 whetherthe Registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.    Yes ý      No o

 

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

 

The totalnumber of shares of the registrant’s common stock outstanding as of March 31,2003: 13,998,182.

 

 

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**HICKORY TECH CORPORATION**

March 31, 2003

 

PART I. FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 
|                                                         |   | **For Three  Months Ended** |       |
|--------------------------------------------------------------|--------|-----------------------------|------------|
| **(In  Thousands Except Per Share Amounts)**                 |   | **3/31/2003**               | ** ** | **3/31/2002** | ** ** |
| OPERATING REVENUES:                                          |   |                        |       |   |   |
| Telecom Sector                                               |   | 21,961                      |       | 20,717 |   |
| Information Solutions Sector                                 |   | 1,098                       |       | 1,034 |   |
| Enterprise Solutions Sector                                  |   | 3,911                       |       | 3,361 |   |
| TOTAL OPERATING REVENUES                                     |   | 26,970                      |       | 25,112 |   |
|                                                         |   |                        |       |   |   |
| COSTS AND EXPENSES:                                          |   |                        |       |   |   |
| Cost of Sales, Enterprise Solutions                          |   | 2,519                       |       | 2,184 |   |
| Operating Expenses, excluding Depreciation  and Amortization |   | 14,436                      |       | 13,286 |   |
| Depreciation                                                 |   | 4,162                       |       | 3,813 |   |
| Amortization of Intangibles                                  |   | 326                         |       | 361 |   |
| TOTAL COSTS AND EXPENSES                                     |   | 21,443                      |       | 19,644 |   |
|                                                         |   |                        |       |   |   |
| OPERATING INCOME                                             |   | 5,527                       |       | 5,468 |   |
| OTHER INCOME (EXPENSE):                                      |   |                        |       |   |   |
| Equity in Net Loss of Investees                              |   | (3                          | )          | (19 | ) |
| Interest and Other Income                                    |   | 10                          |       | 43 |   |
| Interest Expense                                             |   | (1,565                      | )          | (1,956 | ) |
| TOTAL OTHER INCOME (EXPENSE)                                 |   | (1,558                      | )          | (1,932 | ) |
|                                                         |   |                        |       |   |   |
| INCOME BEFORE INCOME TAXES                                   |   | 3,969                       |       | 3,536 |   |
| INCOME TAXES                                                 |   | 1,622                       |       | 1,446 |   |
| NET INCOME                                                   |   | $                           | 2,347      |   | $ | 2,090 |   |
|                                                         |   |                        |       |   |   |
| Basic Earnings Per Share                                     |   | $                           | 0.17       |   | $ | 0.15 |   |
| Dividends Per Share                                          |   | $                           | 0.11       |   | $ | 0.11 |   |
| Weighted Average Common Shares Outstanding                   |   | 13,994                      |       | 13,961 |   |
|                                                         |   |                        |       |   |   |
| Diluted Earnings Per Share                                   |   | $                           | 0.17       |   | $ | 0.15 |   |
| Weighted Average Common and Equivalent  Shares Outstanding   |   | 14,007                      |       | 14,063 |   |

 

The accompanying notes are an integral partof the consolidated financial statements.

 

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**HICKORY TECH CORPORATION**

March31, 2003

CONSOLIDATEDBALANCE SHEETS

(UNAUDITED)

 
| **(In  Thousands Except  Share and Per Share  Amounts)**             |   | **3/31/2003** |        | **12/31/2002** |   |
|---------------------------------------------------------------------------|--------|---------------|-------------|----------------|--------|
| ASSETS                                                                    |   |          |        |           |   |
| CURRENT ASSETS:                                                           |   |          |        |           |   |
| Cash and Cash Equivalents                                                 |   | **$**         | **2,111**   |           | $      | 1,874 |   |
| Receivables, Net of Allowance for Doubtful Accounts of $1,263 and  $1,358 |   | **11,048**    |        | 11,056         |   |
| Income Taxes Receivable                                                   |   | **—**    |        | 3,222          |   |
| Costs in Excess of Billings on Contracts                                  |   | **1,687**     |        | 2,107          |   |
| Inventories                                                               |   | **4,928**     |        | 5,059          |   |
| Deferred Income Taxes                                                     |   | **951**       |        | 951            |   |
| Other                                                                     |   | **2,479**     |        | 2,840          |   |
| TOTAL CURRENT ASSETS                                                      |   | **23,204**    |        | 27,109         |   |
|                                                                      |   |          |        |           |   |
| INVESTMENTS                                                               |   | **6,742**     |        | 10,517         |   |
|                                                                      |   |          |        |           |   |
| PROPERTY, PLANT AND EQUIPMENT                                             |   | **248,969**   |        | 247,375        |   |
| Less ACCUMULATED DEPRECIATION                                             |   | **115,180**   |        | 111,101        |   |
| PROPERTY, PLANT AND EQUIPMENT, NET                                        |   | **133,789**   |        | 136,274        |   |
|                                                                      |   |          |        |           |   |
| OTHER ASSETS:                                                             |   |          |        |           |   |
| Goodwill                                                                  |   | **25,086**    |        | 25,086         |   |
| Intangible Assets, Net                                                    |   | **34,608**    |        | 34,669         |   |
| Deferred Costs and Other                                                  |   | **6,127**     |        | 6,556          |   |
| TOTAL OTHER ASSETS                                                        |   | **65,821**    |        | 66,311         |   |
|                                                                      |   |          |        |           |   |
| TOTAL ASSETS                                                              |   | **$**         | **229,556** |           | $      | 240,211 |   |
|                                                                      |   |          |        |           |   |
| LIABILITIES &  SHAREHOLDERS’ EQUITY                              |   |          |        |           |   |
| CURRENT LIABILITIES:                                                      |   |          |        |           |   |
| Accounts Payable                                                          |   | **$**         | **3,297**   |           | $      | 4,543 |   |
| Accrued Expenses                                                          |   | **3,211**     |        | 3,719          |   |
| Accrued Interest                                                          |   | **479**       |        | 512            |   |
| Billings in Excess of Costs on Contracts                                  |   | **139**       |        | 80             |   |
| Advanced Billings and Deposits                                            |   | **3,738**     |        | 3,741          |   |
| Current Maturities of Long-Term Obligations                               |   | **1,405**     |        | 1,441          |   |
| TOTAL CURRENT LIABILITIES                                                 |   | **12,269**    |        | 14,036         |   |
|                                                                      |   |          |        |           |   |
| LONG-TERM OBLIGATIONS, Net of Current Maturities                          |   | **147,740**   |        | 157,599        |   |
|                                                                      |   |          |        |           |   |
| DEFERRED INCOME TAXES                                                     |   | **4,377**     |        | 4,377          |   |
|                                                                      |   |          |        |           |   |
| DEFERRED REVENUE AND BENEFITS                                             |   | **5,541**     |        | 5,604          |   |
|                                                                      |   |          |        |           |   |
| TOTAL LIABILITIES                                                         |   | **169,927**   |        | 181,616        |   |
|                                                                      |   |          |        |           |   |
| COMMITMENTS AND CONTINGENCIES (Note 8)                                    |   | **—**    |        | —         |   |
|                                                                      |   |          |        |           |   |
| SHAREHOLDERS’ EQUITY:                                                |   |          |        |           |   |
| Common Stock, no par value, $.10 stated value                             |   |          |        |           |   |
| Shares authorized: 100,000,000                                            |   |          |        |           |   |
| Shares outstanding: 13,998,182 in 2003 and 13,983,929 in 2002             |   | **1,400**     |        | 1,398          |   |
| Additional Paid-In Capital                                                |   | **8,262**     |        | 7,885          |   |
| Retained Earnings                                                         |   | **49,967**    |        | 49,312         |   |
| TOTAL SHAREHOLDERS’ EQUITY                                           |   | **59,629**    |        | 58,595         |   |
|                                                                      |   |          |        |           |   |
| TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY                         |   | **$**         | **229,556** |           | $      | 240,211 |   |

 

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

 

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**HICKORY TECH CORPORATION**

March 31, 2003

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 
|                                                                               |   | **For Three  Months Ended** |      |
|------------------------------------------------------------------------------------|--------|-----------------------------|-----------|
| **Dollars In Thousands**                                                           |   | **3/31/2003**               |      | **3/31/2002** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                              |   |                        |      |   |   |
| Net Income                                                                         |   | **$**                       | **2,347** |   | $ | 2,090 |   |
| Adjustments to Reconcile Net Income to Net Cash Provided by Operating  Activities: |   |                        |      |   |   |
| Depreciation and Amortization                                                      |   | **4,488**                   |      | 4,174 |   |
| Gain on Sale of Assets                                                             |   | **(1**                      | )         | — |   |
| Stock-Based Compensation                                                           |   | **257**                     |      | 172 |   |
| Employee Retirement Benefits and Deferred Compensation                             |   | **(34**                     | )         | 96 |   |
| Accrued Patronage Refunds                                                          |   | **(181**                    | )         | (285 | ) |
| Equity in Net Loss of Investees                                                    |   | **3**                       |      | 19 |   |
| Provision for Losses on Accounts Receivable                                        |   | **235**                     |      | 452 |   |
| Changes in Operating Assets and Liabilities:                                       |   |                        |      |   |   |
| Receivables                                                                        |   | **2,995**                   |      | 3,127 |   |
| Inventories                                                                        |   | **131**                     |      | (145 | ) |
| Billings and Costs on Contracts                                                    |   | **479**                     |      | 374 |   |
| Accounts Payable and Accrued Expenses                                              |   | **(1,787**                  | )         | (2,625 | ) |
| Advance Billings and Deposits                                                      |   | **(3**                      | )         | 12 |   |
| Deferred Revenue and Benefits                                                      |   | **(29**                     | )         | (120 | ) |
| Other                                                                              |   | **377**                     |      | 567 |   |
| Net Cash Provided By Operating Activities                                          |   | **9,277**                   |      | 7,908 |   |
|                                                                               |   |                        |      |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                              |   |                        |      |   |   |
| Additions to Property, Plant and Equipment                                         |   | **(1,735**                  | )         | (3,488 | ) |
| Redemption of Investments                                                          |   | **4,100**                   |      | 100 |   |
| Proceeds from Sale of Assets                                                       |   | **60**                      |      | 172 |   |
| Net Cash Provided By (Used In) Investing Activities                                |   | **2,425**                   |      | (3,216 | ) |
|                                                                               |   |                        |      |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                              |   |                        |      |   |   |
| Payments of Capital Lease Obligations                                              |   | **(145**                    | )         | (105 | ) |
| Repayments on Credit Facility                                                      |   | **(9,750**                  | )         | (4,250 | ) |
| Proceeds from Issuance of Common Stock                                             |   | **131**                     |      | 210 |   |
| Dividends Paid                                                                     |   | **(1,540**                  | )         | (1,537 | ) |
| Stock Repurchase                                                                   |   | **(161**                    | )         | — |   |
| Net Cash Used In Financing Activities                                              |   | **(11,465**                 | )         | (5,682 | ) |
|                                                                               |   |                        |      |   |   |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               |   | **237**                     |      | (990 | ) |
|                                                                               |   |                        |      |   |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                   |   | **1,874**                   |      | 2,008 |   |
|                                                                               |   |                        |      |   |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                         |   | **$**                       | **2,111** |   | $ | 1,018 |   |

 

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

 

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**HICKORY TECH CORPORATION**

**MARCH 31, 2003**

**PART 1. FINANCIAL INFORMATION**

 

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

 

NOTE 1. BASIS OF PRESENTATION

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with generally accepted accounting principles forinterim financial information and with the instructions to Form 10-Q andArticle 10 of Regulation S-X. Accordingly, they do not include all of theinformation necessary for a fair presentation of results of operations,financial position, and cash flows in conformity with accounting principlesgenerally accepted in the United States of America. In the opinion ofmanagement, the condensed consolidated financial statements reflect alladjustments (consisting only of normal recurring adjustments) considerednecessary for a fair presentation of Hickory Tech Corporation’s (HickoryTech)results for the periods presented. Operating results for interim periods are not necessarily indicative ofresults that may be expected for the fiscal year as a whole. The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets, liabilities,revenues, expenses, and related disclosures at the date of the financialstatements and during the reporting period. Actual results could differ fromthese estimates. These unaudited interim condensed consolidated financialstatements should be read in conjunction with HickoryTech’s Annual Report onForm 10-K for the year ended December 31, 2002.

 

The consolidated financial statements of HickoryTech include HickoryTech Corporation and its subsidiaries in the following three business segments:(i) Telecom Sector, (ii) Information Solutions Sector and (iii) EnterpriseSolutions Sector. An investment in an unconsolidated partnership for theInformation Solutions Sector is accounted for using the equity method. Allintercompany transactions have been eliminated from the consolidated financialstatements.

 

Certain reclassifications were made to the financial statements as ofand for the three months ended March 31, 2002 to conform to the 2003presentation.  These reclassificationshad no impact on previously reported operating revenue, net income orshareholders’ equity.

 

Operating expenses include all costs related to delivery ofHickoryTech’s communications services and products. These costs include allselling, general and administrative costs and all costs of performing servicesand providing related products, except for costs associated with thedepreciation and amortization of property, plant and equipment and intangibleassets.

 

NOTE 2. EARNINGS AND CASHDIVIDENDS PER COMMON SHARE

 

Basic earningsper share is computed by dividing net income by the weighted average number ofshares of common stock outstanding during the quarter. Shares used in theearnings per share assuming dilution calculation are based on the weightedaverage number of shares of common stock outstanding during the quarterincreased by potentially dilutive common shares. Potentially dilutive commonshares include stock options and stock subscribed under the employee stockpurchase plan (ESPP).

 

4

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|                                         |   | **For Three  Months Ended** |   |
|----------------------------------------------|--------|-----------------------------|--------|
|                                         |   | **3/31/2003**               |   | **3/31/2002** |   |
| Weighted Average Shares Outstanding          |   | 13,993,696                  |   | 13,960,708 |   |
| Stock Options (dilutive only)                |   | 2,535                       |   | 92,553 |   |
| Weighted Average Stock Subscribed (ESPP)     |   | 11,095                      |   | 9,542 |   |
| Weighted Average Dilutive Shares Outstanding |   | 14,007,326                  |   | 14,062,803 |   |

 

Options topurchase 555,835 shares and 76,650 shares for the three months ended March 31,2003 and 2002, respectively, were not included in the computation of earningsper share assuming dilution calculation because their effect on earnings pershare would have been antidilutive.

 

Cash dividends are based on the number of common shares outstanding atthe respective record dates. Listed below are the number of shares outstandingas of the record date for the first quarter of 2003 and 2002.

 
| **Shares  Outstanding on Record Date** |   | **2003**   |   | **2002**   |   |
|----------------------------------------|--------|------------|--------|------------|--------|
| First Quarter (Feb. 15)                |   | 14,003,335 |   | 13,971,484 |   |

 

Dividends per share is based on the quarterly dividend pershare as declared by the HickoryTech Board of Directors.

 

During the first three months of 2003 and 2002, shareholders haveelected to reinvest $66,000 and $60,000, respectively, of dividends intoHickoryTech common stock pursuant to the HickoryTech Dividend ReinvestmentPlan.

 

NOTE 3. COMPREHENSIVE INCOME

 

For the three months ended March 31, 2003 and 2002, comprehensiveincome was comprised solely of net income.

 

NOTE 4. INVENTORIES

 

Inventories, which consist of equipment for resale, materials andsupplies, are stated at the lower of average cost or market.

 

NOTE 5. INTANGIBLE ASSETS

 

Effective January 1, 2002, HickoryTech adopted SFAS No. 142, “Goodwilland Other Intangible Assets.” SFAS No. 142 established new standards related tohow acquired goodwill and other intangible assets are to be recorded upon theiracquisition as well as how they are to be accounted for after they have beeninitially recognized in the financial statements.

 

Effective with the adoption of this standard, HickoryTech is no longeramortizing acquired goodwill. Instead, SFAS No. 142 requires acquired goodwillto be evaluated for impairment using a two-step test based upon a fair valueapproach. The first step is used to identify potential impairment, while thesecond step calculates the amount of impairment, if any. Upon adoption of thisstandard, HickoryTech completed a transitional impairment test for its acquiredgoodwill, determining the fair value using primarily a discounted cash flowmodel. The determined fair value was sufficient to pass the first stepimpairment test, and therefore no impairment was recorded.

 

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Additionally,upon adoption of SFAS No. 142, HickoryTech was required to reassess theuseful lives of its other intangible assets. HickoryTech’s other intangibleassets primarily consist of wireless FCC licenses (FCC licenses). HickoryTech’sFCC licenses have terms of ten years, but are renewable.  The renewal of FCC licenses is a routinematter involving a nominal fee and HickoryTech has determined that no legal,regulatory, contractual, competitive, economic or other factors currently existthat limit the useful life of its FCC licenses. As such, effective with theadoption of SFAS No. 142, HickoryTech is no longer amortizing FCC licensesas they are deemed to be intangible assets that have indefinite lives.  Prospectively, HickoryTech will continue toperiodically reevaluate its determination of an indefinite useful life withregards to FCC licenses. SFAS No. 142 requires that indefinite livedintangible assets be tested for impairment by comparing the fair value of theassets to their carrying amount. Upon adoption of this standard, HickoryTechcompleted a transitional impairment test for FCC licenses, calculating fairvalue using primarily a discounted cash flow model and corroboratingmarketplace transactions, and determined that there was no impairment to berecorded. The FCC licenses were tested for impairment on an aggregate basis,which is consistent with HickoryTech’s management of the wireless businesswithin the Telecom Sector. HickoryTech also re-assessed the useful life of itsother intangible assets and concluded that the existing lives of up to eightyears should be continued.

 

On aprospective basis, HickoryTech is required to test both acquired goodwill andFCC licenses for impairment on an annual basis based upon a fair valueapproach. Additionally, goodwill shall be tested for impairment between annualtests if an event occurs or circumstances change that would more likely thannot reduce the 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.

 

HickoryTechwill test for impairment of acquired goodwill and FCC licenses at the end ofthe fourth quarter of 2003, unless events or occurrences deem it necessary totest for impairment in an interim period.

 

The carrying value of HickoryTech’s goodwill is $25,086,000 as of March31, 2003 and December 31, 2002.

 

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

 
|                               |   | **As of  March 31, 2003**   |   | **As of  December 31, 2002**  |   |
|------------------------------------|--------|-----------------------------|--------|-------------------------------|--------|
| **(Dollars in Thousands)**         |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   |
|                               |   |                        |   |                          |   |   |   |   |   |
| Definite-Lived Intangible Assets   |   |                        |   |                          |   |   |   |   |   |
| Customers                          |   | $                           | 821    |                          | $      | 263 |   | $ | 821 |   | $ | 237 |   |
| Other Intangibles                  |   | 150                         |   | 100                           |   | 185 |   | 100 |   |
| Total                              |   | $                           | 971    |                          | $      | 363 |   | $ | 1,006 |   | $ | 337 |   |
|                               |   |                        |   |                          |   |   |   |   |   |
| Indefinite-Lived Intangible Assets |   |                        |   |                          |   |   |   |   |   |
| FCC Licenses                       |   | $                           | 34,000 |                          |   |   | $ | 34,000 |   |   |   |

 

Amortizationexpense related to the definite-lived intangible assets for the three monthsended March 31, 2003 amounted to $26,000. Total estimated amortization expensefor 2003 and the five years subsequent to 2003 is as follows: 2003 - $102,000;2004 - $102,000; 2005 - $102,000; 2006 - $102,000; 2007 - $102,000 and 2008 -$74,000.

 

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NOTE 6. RECENT ACCOUNTINGDEVELOPMENTS

 

In June 2001,the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.”SFAS No. 143 requires entities to record the fair value of the liability forlegal obligations associated with an asset retirement in the period in whichthe obligation is incurred. When the liability is initially recorded, theentity capitalizes the cost of the asset retirement obligation by increasingthe carrying amount of the related long-lived asset. Over time, the liabilityis accreted to its present value each period, and the capitalized cost isdepreciated over the useful life of the related asset.

 

HickoryTech’s incumbent local exchange carrier companies (ILECs) followthe provisions of SFAS No. 71, and therefore conform to the accountingprinciples as prescribed by the respective state public utilities commissionsand other federal agencies and, where applicable, accounting principlesgenerally accepted in the United States of America. On December 20, 2002, theFederal Communications Commission (FCC) notified carriers that they would notadopt SFAS No. 143 for regulatory accounting purposes.  At January 1, 2003, HickoryTech determinedthe amount of asset retirement obligations required to be recorded for its ILECcompanies under the provisions of SFAS No. 143 were not significant, andtherefore the implementation of SFAS No. 143 on January 1, 2003 did not impactHickoryTech’s financial position or results of operations.

 

HickoryTech’s competitive local telephone companies (CLEC) also adoptedSFAS No. 143 effective January 1, 2003. HickoryTech has determined that itscompetitive local telephone companies do not have a material legal obligationto remove long-lived assets as described by SFAS No. 143, and accordingly,adoption of SFAS No. 143 did not impact HickoryTech’s financial position orresults of operations.

 

HickoryTechalso adopted the provisions of SFAS No. 143 for its wireless operations as ofJanuary 1, 2003. HickoryTech performed an analysis to identify all potentialAsset Retirement Obligations.  The legal obligations identified consist ofobligations to remediate leased property where cell sites are located. However,based upon HickoryTech’s experience and expectations, there is significantuncertainty as to whether third parties that own these leased properties wouldenforce their remediation rights related to the sites.  Therefore,pursuant to the provisions of SFAS No. 143, HickoryTech did not record thispotential asset retirement obligation upon adoption and will not record anobligation until such time as the fair value of the obligation can bereasonably estimated.

 

In April 2002,the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64,Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishmentof Debt,” and an amendment of that Statement, FASB Statement No. 64,“Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.” SFAS No.145 also rescinds FASB Statement No. 44, “Accounting for Intangible Assets ofMotor Carriers,” and amends FASB Statement No. 13, “Accounting for Leases.”HickoryTech adopted the provisions of SFAS No. 145 on January 1, 2003.  Adoption of this standard had no impact onthe financial statements presented in this Form 10-Q.

 

In June 2002,the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit orDisposal Activities,” which replaces Emerging Issues Task Force (EITF) IssueNo. 94-3, “Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (including Certain Costs Incurred in aRestructuring).” SFAS No. 146 requires companies to recognize costs associatedwith exit or disposal activities when they are incurred rather than at the dateof a commitment to an exit or disposal plan. HickoryTech has engaged in noactivities in the first quarter of 2003 that are subject to the provisions ofSFAS No. 146.  Accordingly, the adoptionof SFAS No. 146 did not impact HickoryTech’s financial position or results ofoperations.

 

7

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In December2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation –Transition Disclosure – an amendment of SFAS No. 123” (SFAS No. 148).  This Statement amends SFAS No. 123,“Accounting for Stock-Based Compensation,” to provide alternative methods oftransition for a voluntary change to the fair value based method of accountingfor stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFASNo. 123 to require prominent disclosures in both annual and interim financialstatements about the method of accounting for stock-based employee compensationand the effect of the method used on reported results. The provisions of SFASNo. 148 are effective for financial statements for fiscal years ending afterDecember 15, 2002, and disclosure requirements shall be effective for interimperiods beginning after December 15, 2002. The Company will continue to account for stock-based compensation to itsemployees and directors using the intrinsic value method prescribed by APBOpinion No. 25, and related interpretations. The Company adopted the provisions of SFAS No. 148 and has made certaindisclosures required by SFAS No. 148 in the consolidated financial statementspresented in this report. The adoption of SFAS No. 148 did not impactHickoryTech’s financial position or results of operations.

 

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others.” This interpretation elaborates on the disclosures required in financialstatements concerning obligations under certain guarantees.  It also clarifies the requirements relatedto the recognition of liabilities by a guarantor at the inception of certainguarantees.  The disclosure requirementsof this interpretation were effective for HickoryTech on December 31, 2002 butdid not require any additional disclosures. The recognition provisions of the interpretation are effective forHickoryTech in 2003 and are applicable only to guarantees issued or modifiedafter December 31, 2002.  The adoptionof Interpretation No. 45 does not have a material impact on the financialposition or results of operations of HickoryTech.

 

8

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NOTE 7. QUARTERLY SECTORFINANCIAL SUMMARY

 

Business segment information for the first quarter of 2003 and 2002 isas follows. Certain amounts in 2002 have been reclassified to conform to the2003 presentation.

 
| **(In  Thousands)**                           |   | **Telecom** | ** ** | **Information  Solutions** | ** ** | **Enterprise  Solutions** | ** ** | **Corporate  and  Eliminations** | ** ** | **HickoryTech  Consolidated** | ** ** |
|-----------------------------------------------|--------|-------------|------------|----------------------------|------------|---------------------------|------------|----------------------------------|------------|-------------------------------|------------|
| **Three Months Ended 3/31/03**                |   |        |       |                       |       |                      |       |                             |       |                          |       |
| Operating Revenue from Unaffiliated Customers |   | $           | 21,961     |                       | $          | 1,098                     |       | $                                | 3,911      |                          | $          | — |   | $ | 26,970 |   |
| Intersegment Revenues                         |   | 69          |       | 973                        |       | —                    |       | (1,042                           | )          | —                        |       |
| Total                                         |   | 22,030      |       | 2,071                      |       | 3,911                     |       | (1,042                           | )          | 26,970                        |       |
|                                          |   |        |       |                       |       |                      |       |                             |       |                          |       |
| Depreciation and Amortization                 |   | 3,845       |       | 544                        |       | 61                        |       | 38                               |       | 4,488                         |       |
| Operating Income (Loss)                       |   | 6,444       |       | (539                       | )          | 74                        |       | (452                             | )          | 5,527                         |       |
| Interest Expense                              |   | 5           |       | 18                         |       | —                    |       | 1,542                            |       | 1,565                         |       |
| Income Taxes                                  |   | 2,613       |       | (259                       | )          | 27                        |       | (759                             | )          | 1,622                         |       |
| Net Income (Loss)                             |   | 3,773       |       | (373                       | )          | 39                        |       | (1,092                           | )          | 2,347                         |       |
| Identifiable Assets                           |   | 201,718     |       | 8,917                      |       | 9,363                     |       | 9,558                            |       | 229,556                       |       |
| Property, Plant and Equip., Net               |   | 127,195     |       | 5,845                      |       | 537                       |       | 212                              |       | 133,789                       |       |
| Capital Expenditures                          |   | 1,372       |       | 144                        |       | 92                        |       | 127                              |       | 1,735                         |       |
|                                          |   |        |       |                       |       |                      |       |                             |       |                          |       |
| **Three Months Ended 3/31/02**                |   |        |       |                       |       |                      |       |                             |       |                          |       |
| Operating Revenue from                        |   |        |       |                       |       |                      |       |                             |       |                          |       |
| Unaffiliated Customers                        |   | $           | 20,717     |                       | $          | 1,034                     |       | $                                | 3,361      |                          | $          | — |   | $ | 25,112 |   |
| Intersegment Revenues                         |   | 68          |       | 915                        |       | —                    |       | (983                             | )          | —                        |       |
| Total                                         |   | 20,785      |       | 1,949                      |       | 3,361                     |       | (983                             | )          | 25,112                        |       |
|                                          |   |        |       |                       |       |                      |       |                             |       |                          |       |
| Depreciation and Amortization                 |   | 3,538       |       | 510                        |       | 70                        |       | 56                               |       | 4,174                         |       |
| Operating Income (Loss)                       |   | 6,510       |       | (525                       | )          | (151                      | )          | (366                             | )          | 5,468                         |       |
| Interest Expense                              |   | 5           |       | 14                         |       | —                    |       | 1,937                            |       | 1,956                         |       |
| Income Taxes                                  |   | 2,643       |       | (244                       | )          | (69                       | )          | (884                             | )          | 1,446                         |       |
| Net Income (Loss)                             |   | 3,813       |       | (352                       | )          | (99                       | )          | (1,272                           | )          | 2,090                         |       |
| Identifiable Assets                           |   | 246,450     |       | 8,445                      |       | 9,104                     |       | 13,542                           |       | 277,541                       |       |
| Property, Plant and Equip., Net               |   | 129,859     |       | 4,836                      |       | 643                       |       | 146                              |       | 135,484                       |       |
| Capital Expenditures                          |   | 2,787       |       | 522                        |       | 40                        |       | 139                              |       | 3,488                         |       |

 

NOTE 8.CONTINGENCIES

 

HickoryTech isinvolved in certain contractual disputes in the ordinary course of business.HickoryTech does not believe the ultimate resolution of any of these existingmatters will have a material adverse effect on its financial position, resultsof operations or cash flows.

 

NOTE 9.STOCK COMPENSATION

 

At March 31,2003, HickoryTech has four stock-based employee compensation plans, which aredescribed more fully in the HickoryTech Annual Report of Form 10-K for the yearended December 31, 2002.  HickoryTechhas elected to apply Accounting Principles Board Opinion No. 25 and relatedinterpretations in accounting for its employee and directors’ stock compensationplans.

 

9

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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 options.  This modification resulted in HickoryTechrecognizing $173,000 of compensation expense during the first quarter of 2003.

 

If HickoryTech had elected to recognize compensation cost based on thefair value of the options as prescribed by SFAS No. 123, the followingoperating results would have occurred using the Black-Scholes option-pricingmodel to determine the fair value of the options:

 

|                                                                                                                                         |   | **For Three Months Ended** |      |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|-----------|
| **(Dollars  in Thousands)**                                                                                                                  |   | **3/31/2003**              |      | **3/31/2002** |   |
|                                                                                                                                         |   |                       |      |   |   |
| Reported Net Income                                                                                                                          |   | **$**                      | **2,347** |   | $ | 2,090 |   |
| Add: Stock-based employee compensation expense included in reported  net income, net of related tax effects                                  |   | **257**                    |      | 172 |   |
| Deduct: Total stock-based employee compensation expense determined  under fair value based method for all awards, net of related tax effects |   | **(398**                   | **)**     | (369 | ) |
|                                                                                                                                         |   |                       |      |   |   |
| Pro Forma Net Income                                                                                                                         |   | **$**                      | **2,206** |   | $ | 1,893 |   |
|                                                                                                                                         |   |                       |      |   |   |
| Earnings per share:                                                                                                                          |   |                       |      |   |   |
| Basic - as reported                                                                                                                          |   | **$**                      | **0.17**  |   | $ | 0.15 |   |
| Basic - pro forma                                                                                                                            |   | **$**                      | **0.16**  |   | $ | 0.14 |   |
|                                                                                                                                         |   |                       |      |   |   |
| Diluted - as reported                                                                                                                        |   | **$**                      | **0.17**  |   | $ | 0.15 |   |
| Diluted - pro forma                                                                                                                          |   | **$**                      | **0.16**  |   | $ | 0.14 |   |

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFRESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

**FORWARD-LOOKING STATEMENTS**

 

Statements inthis Form 10-Q that are not historical fact are forward-looking statements thatare based on management’s current expectations, estimates and projections aboutthe industry in which HickoryTech operates and management’s beliefs andassumptions. Such forward-looking statements are subject to important risks anduncertainties that could cause HickoryTech’s future actual results to differmaterially from such statements. These statements are not guarantees of futureperformance and involve certain risks, uncertainties and probabilities, whichare difficult to predict. Therefore, actual outcomes and results may differmaterially from what is expressed or forecasted in such forward-lookingstatements, whether as a result of new information, future events orotherwise.  Factors that might causesuch a difference include, but are not limited to, those contained in this“Management’s Discussion and Analysis” (Item 2) and Exhibit 99 (CautionaryStatement for Purposes of the “Safe Harbor” Provision of the Private SecuritiesLitigation Reform Act of 1995) to HickoryTech’s Annual Report on Form 10-K forthe year ended December 31, 2002, which is incorporated herein by reference.You are cautioned not to place undue reliance on these forward lookingstatements, which speak only as of the date on which they were made. Except asotherwise required by law, HickoryTech undertakes no obligation to update anyof its forward-looking statements for any reason.

 

10

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**BUSINESSES**

 

HickoryTechoperates in three business segments: the Telecom, Information Solutions andEnterprise Solutions Sectors. Its largest and oldest business (since 1898) hasbeen the operation of incumbent local exchange carriers (ILECs) or traditionalwireline telephone service. The ILEC business is in HickoryTech’s Telecom Sector.In 1998, HickoryTech began its competitive local exchange carrier (CLEC),competing for the telephone dial tone, data and long distance calling businessin other ILECs’ territories. CLEC is in HickoryTech’s Telecom Sector.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. These wireless operations, combined withILEC and CLEC, form 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 Enterprise SolutionsSector in 1990 and it has operated as a leading telecommunications and dataequipment distributor from a base in Minneapolis/St. Paul, Minnesota.

 

**THECOMPANY**

 

The eightsubsidiaries of HickoryTech, all of which publicly operate and conduct businessas 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)

Cable Network,Inc. (CNI)

Crystal Communications,Inc. (Crystal)

MinnesotaSouthern Wireless Company (MSWC)

**INFORMATION SOLUTIONS SECTOR**

NationalIndependent Billing, Inc. (NIBI)

**ENTERPRISE SOLUTIONS SECTOR**

CollinsCommunications Systems Co. (Collins)

 

HickoryTechand its subsidiaries are engaged in businesses that provide services to theircustomers for a fee. Many of these services are repetitive and recurring, and,as a result, backlog orders and seasonality are not significant factors.Working capital requirements primarily involve the funding of the constructionand maintenance of telephone wireline and wireless fixed assets, the payrollcosts of highly skilled labor and the inventory to service its telephoneequipment customers.

 

The materialsand supplies that are necessary for the operation of the businesses ofHickoryTech and its subsidiaries are available from a variety of sources, andno future supply problems are anticipated. All of HickoryTech’s ILEC and CLECcentral office switches and wireless switches, as well as a majority of HickoryTech’sequipment sold in its Enterprise Solutions Sector, are supplied by Nortel.Nortel is a leading supplier of communications equipment, and HickoryTech’sdependence on this brand is not viewed as a significant risk.

 

**INDUSTRYSEGMENTS**

 

*TELECOM SECTOR*

 

HickoryTech’sTelecom Sector provides local exchange wireline and wireless telephone service,long distance, dial-up Internet access and owns and operates fiber optic cablefacilities.  This sector includes threeincumbent local exchange carriers (ILECs), MCTC, Mid-Comm and Heartland.  MCTC and Mid-Comm provide telephone servicein south central Minnesota, specifically Mankato (a regional hub) and elevenrural communities surrounding Mankato. The third ILEC, Heartland, provides telephone service for eleven ruralcommunities in northwest Iowa.

 

11

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The TelecomSector also includes Crystal, a competitive local exchange carrier (CLEC).Crystal provides local telephone service, long distance and dial-up Internetaccess on a competitive basis.  Crystalhas customers in eight rural communities in Minnesota and six rural communitiesin Iowa that are not in HickoryTech’s ILEC service areas.

 

HickoryTechalso owns and operates fiber optic cable facilities (CNI) in Minnesota, whichare used to transport interexchange communications as a service to telephoneindustry customers.  HickoryTech’sMinnesota ILECs and its CLEC are the primary users of the fiber optic cablefacilities.

 

The TelecomSector also owns and operates a wireless telephone business in south centralMinnesota. The wireless telephone business consists of the “A-side” FCCwireless license to operate in Minnesota’s Rural Service Area  10 (RSA 10), the Minneapolis/St. Paul MetroA-2 (Metro A-2) wireless license and two digital personal communicationsservices (PCS) licenses covering the Minnesota Basic Trading Areas (BTAs) ofMankato-Fairmont and Rochester-Austin-Albert Lea.

 

MCTC derivesits principal revenues and income from local services charged to subscribers inits service area, access services charged to interexchange carriers and theoperation of a toll tandem switching center in Mankato, Minnesota. Revenues andincome for Mid-Comm are also derived from local service charges in its area ofoperation and by providing access to long distance services for its subscribersthrough the toll center in Mankato. Local and interexchange telephone accessfor the two companies is provided on an integrated basis. The local andinterexchange telephone access for both telephone companies utilize the samefacilities and equipment and is managed and maintained by a common work force.Heartland derives its principal revenues and income from local services chargedto subscribers 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.

 

MCTC andMid-Comm are Minnesota public utilities operating pursuant to indeterminatepermits issued by the Minnesota Public Utilities Commission. Heartland is alsoa public utility, which operates pursuant to a certificate of publicconvenience and necessity issued by the Iowa Utilities Board. These stateagencies regulate the services provided by MCTC, Mid-Comm and Heartland.  CNI’s operations are not subject toregulation by the state regulatory authority. Neither the Minnesota Public Utilities Commission nor the Iowa UtilitiesBoard regulates the rate of return or profits of each of HickoryTech’s ILECoperations. However, the Minnesota Public Utilities Commission regulates the pricesand service levels provided by MCTC and Mid-Comm because each company’soperations fall below the 50,000 customer line minimum level for rateregulation in Minnesota. In Iowa, Heartland’s operations are not rate regulatedby the Iowa Utilities Board. MCTC, Mid-Comm and Heartland are each required tofile local service rates as tariffs with the applicable state public utilitiescommission. 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 localexchange telephone companies, MCTC, Mid-Comm and Heartland provide end officeswitching and dedicated circuits to long distance interexchange carriers. Theserelationships allow HickoryTech’s telephone subscribers to place long distancetelephone calls and gain access to the telephone network.  HickoryTech provides long distance accessfor all of the individual customers who select an alternative long distancecarrier.  The long distanceinterexchange carriers are significant customers of HickoryTech, but no carrierrepresents more than ten percent of HickoryTech’s consolidated revenues.

 

Alternativesto HickoryTech service include customers leasing private line switched voiceand data services in or adjacent to the territories served by HickoryTech,which permits the bypassing of local telephone switching facilities. Inaddition, microwave transmission services, wireless communications, fiber opticand coaxial cable deployment and other services provided by other companiespermit 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.

 

12

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Competition inHickoryTech’s ILEC service area exists in one of Heartland’s exchanges. In thecity of Hawarden, Iowa, the municipal city government overbuilt the city’stelephone service infrastructure and is providing an alternative toHickoryTech’s telephone service. The Hawarden CLEC has acquired approximately1,000 access lines of that community’s telephone business from HickoryTech.HickoryTech management does not believe there will be significant furtherimpact from competition in Hawarden. HickoryTech constantly responds tocompetitive changes with active programs to market products and to engineer itsinfrastructure for higher customer satisfaction.

 

Competitionalso exists for some of the services provided to interexchange carriers, suchas customer billing services, dedicated private lines, and network switching.This competition comes primarily from the interexchange carriers themselves.The provision of these services is of a contractual nature and is primarilycontrolled by the interexchange carriers. Other services, such as directoryadvertising and wireless communications, are open to competition.  Competition is based primarily on serviceand experience.

 

The passage ofthe 1996 Telecommunications Act created the opportunity for HickoryTech tooffer communications service in territories served by other telephonecompanies, and Crystal began operations in January 1998 as a new competitivelocal exchange carrier (CLEC). Crystal offers local service, long distance anddial-up Internet access services on a competitive basis to customers in townsin southern Minnesota and Iowa, which are not served by HickoryTech’s TelecomSector’s service area. These service offerings provide customers alternativesto the incumbent telephone carrier in various communities and are offered underthe brand name HickoryTech wireline service. These services are currently beingoffered to customers in eight rural communities in Minnesota, as well as sixrural communities in Iowa. Crystal’s primary strategy is to provide service byoverbuilding with new telecommunications switching networks and telephonelines.  Crystal also provides the longdistance service and dial-up Internet access services to HickoryTech’ssubscribers in both ILEC and CLEC markets.

 

Crystal is notsubject to regulation by the public utilities commissions in the states itserves regarding rates and services. 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 Crystaloperates.

 

Crystal is notdependent upon any single customer or small group of customers. No one customerin Crystal accounts for ten percent or more of HickoryTech’s consolidatedrevenues.

 

HickoryTech,through its subsidiary MSWC, owns and operates wireless telephone businesses insouth central Minnesota and in the Minneapolis/St. Paul area. In south centralMinnesota, MSWC provides wireless service for Minnesota’s Rural Service Area 10(RSA 10), under the brand name of HickoryTech Wireless. This business is in HickoryTech’sTelecom Sector.  This sector owns 100%of the  “A-side” FCC wireless license tooperate in seven counties in south central Minnesota. The area overlaps and islarger than HickoryTech’s Minnesota ILEC and CLEC service areas and serves apopulation of approximately 230,000. This sector also owns the Minneapolis/St.Paul Metro A-2 (Metro A-2) wireless license, which was acquired on June 1,1999. The Metro A-2 property surrounds the metropolitan Minneapolis/St. Paularea and is located in five Minnesota counties and in one Wisconsin county.Metro A-2 provides service to an area with a population of approximately170,000. In addition, this sector also owns the PCS licenses for the MinnesotaBTAs of Mankato-Fairmont and Rochester-Austin-Albert Lea. The two BTAs arelocated in 16 Minnesota counties and one Iowa county and provide service to anarea with a population of approximately 493,000, some of which coincide withthe previously mentioned wireless RSA 10 population of 230,000.

 

MSWC, whichowns all four of the Company’s FCC wireless licenses, derives its principalrevenues and income from providing wireless telephone service to the retailcustomers in seven counties in south central Minnesota and from wirelessroaming traffic. MSWC also derives roaming revenue from the six countiessurrounding the metropolitan Minneapolis/St. Paul Metro A-2 area and roamingrevenues from the PCS service territory that is comprised of 17 counties. MSWCdirectly competes against local wireless and PCS companies in southernMinnesota and in the Minneapolis/St. Paul area.

 

13

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*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.

 

There are anumber of companies engaged in supplying data processing services comparable tothose furnished by the Information Solutions Sector. Competition is basedprimarily on price and service. HickoryTech’s Information Solutions Sector hasdeveloped an integrated billing and management system called SuiteSolution. Forinternal use, SuiteSolution enables HickoryTech to become a full-servicebilling provider for all aspects of the telecommunications industry on a fullyintegrated basis. For external use, SuiteSolution can provide wireline orwireless carriers the individual benefits of a billing platform, or tointegrated service providers, such as HickoryTech, a total system solution.SuiteSolution was implemented in the Company’s CLEC businesses in 2002 and willbe implemented in the Company’s wireless business in 2003. SuiteSolution iscurrently available to external customers.

 

*ENTERPRISE SOLUTIONS SECTOR*

 

ThroughCollins, HickoryTech’s Enterprise Solutions Sector provides telephone and dataequipment sales and services as well as the sale, installation and service ofvoice over Internet Protocol business systems to companies primarily based inmetropolitan Minneapolis/St. Paul, Minnesota. This sector also supports thebusiness telephone system service for HickoryTech ILEC and CLEC operations insouthern Minnesota and in Iowa. The customers in the Enterprise SolutionsSector’s market are the individual business end users of telecommunicationsservice with ongoing service requirement offerings. Products consist oftelecommunication platforms such as Nortel on the voice side of the EnterpriseSolutions’ business, and Cisco and Bay Networks (Nortel) equipment on the dataside of its business. Enterprise Solutions specializes in the quality custominstallation and maintenance of wide area networking, local networking andtransport solutions in telecommunications for end user customers.

 

Revenues areprimarily earned by the sales, installation and service of business telephonesystems. 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’sEnterprise Solutions Sector is not dependent upon any single customer or smallgroup of customers. No one customer in the Enterprise Solutions Sector accountsfor ten percent or more of HickoryTech’s consolidated revenues.

 

There arecompanies competing in the equipment sales and service and voice over InternetProtocol communications products market in which Enterprise Solutions operates.Competition is based primarily on price and service. No one company is dominantin this field. Enterprise Solutions offers customer premises telephone and dataequipment through well-trained and experienced market representatives withlong-term customer relationships. The Enterprise Solutions Sector enjoys a verystrong brand awareness and a reputation for quality service. EnterpriseSolutions has built a strong base of solid customers with ongoing needs andEnterprise Solutions’ goal is to derive 60-70% of its recurring revenue fromsales to its existing customer base.  The Enterprise Solutions Sector’s activitiesare focused on the sale, installation and service of business telephone systemsand data communications equipment to companies based in metropolitanMinneapolis/St. Paul, Minnesota.  Thissector also supports the business telephone system service for HickoryTech’sILEC and CLEC operations in Minnesota and Iowa.

 

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**RESULTSOF OPERATIONS**

 

CONSOLIDATEDOPERATING RESULTS

 

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

 

OPERATING REVENUES - Consolidated operatingrevenues were $1,858,000 or 7.4% higher in the first quarter of 2003 comparedto the first quarter of 2002. The revenue increase in the first quarter of 2003was primarily attributable to a higher volume of business in the EnterpriseSolutions Sector and an increase in revenue in the Telecom Sector. TheEnterprise Solutions increase is primarily the result of completing the finalphase of work for a large specialty retailer. This project, which began in 2002, involved installing a voice overInternet Protocol network in a corporate office.  The Telecom Sector increases can be primarily attributed to theincrease in the CLEC customer base and the result of services provided underterms of a multi-year contract awarded to HickoryTech effective July 1, 2002 toprovide Internet access and video conferencing to schools and libraries insouth central Minnesota served by the Project SOCRATES distance-learningnetwork.

 

COST OF SALES, ENTERPRISE SOLUTIONS - Cost ofsales is related to the Enterprise Solutions Sector and was $335,000 or 15.3%higher in the first quarter of 2003 compared to the first quarter of 2002. Thechange in cost of sales is primarily the result of the change in sales volumein the Enterprise Solutions Sector.  Thegross profit margin in the Enterprise Solutions Sector was 35.6% and 35.0% forthe quarters ended March 31, 2003 and 2002, respectively.

 

OPERATING EXPENSES (excluding Depreciationand Amortization)- Operating expenses excluding depreciation and amortization would haveincreased $1,150,000 or 8.7% in the first quarter of 2003 compared to the firstquarter of 2002. Operating expenses in the first quarter of 2003 were higherlargely due to increased expenses in the Telecom Sector related to the growthin CLEC customers and the costs associated with Project Socrates, adistance-learning network that provides Internet access and video conferencingto schools and libraries in south central Minnesota.

 

DEPRECIATION AND AMORTIZATION - Depreciation expense was $349,000 or 9.2%higher in the first quarter of 2003 compared to the first quarter of 2002.Increases in the ILEC, CLEC and Wireless network assets primarily account forthe increase in depreciation expense. Amortization expense was $35,000 or 9.7%lower in the first quarter of 2003 compared to the first quarter of 2002.

 

OPERATING INCOME - Operating income was$5,527,000 which is $59,000 or 1.1% higher in the first quarter of 2003compared to the first quarter of 2002. The increase in operating income waslargely due to increased revenues in the Enterprise Solutions Sector, andincreased CLEC revenues in the Telecom Sector, which were offset by theincrease in the cost of sales of the Enterprise Solutions Sector and theincrease in operating expenses of the Telecom Sector.

 

INTEREST EXPENSE - Interest expense decreased $391,000 or 20.0%in the first quarter of 2003 compared to the first quarter of 2002. Thedecrease in interest expense in the first quarter of 2003 was primarily due toa decrease in the weighted average interest rate on HickoryTech’s revolvingcredit facility from 5.2% to 4.3% in the first quarter of the years 2002 and2003, respectively, and a decrease in total debt outstanding. The outstandingbalance of the revolving credit facility was $148,250,000 at March 31, 2003 and$165,750,000 at March 31, 2002.

 

NET INCOME - Consolidatednet income was $257,000 or 12.3% higher in the first quarter of 2003 comparedto the first quarter of 2002.****Theincrease in the operating revenues of the Telecom and Enterprise SolutionsSectors was partially offset by the increase in the Enterprise Solutions costof sales and Telecom operating expenses.

 

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SECTOR RESULTSOF OPERATIONS

 

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

 

**TELECOM SECTOR**

 
|                                                                     |   | **For Three  Months Ended** |       |
|--------------------------------------------------------------------------|--------|-----------------------------|------------|
| **(Dollars  in Thousands)**                                              |   | **3/31/2003**               |       | **3/31/2002** |   |
|                                                                     |   |                        |       |   |   |
| Revenues Before Intersegment Eliminations                                |   |                        |       |   |   |
| ILEC                                                                     |   |                        |       |   |   |
| Local Service                                                            |   | **$**                       | **3,799**  |   | $ | 3,802 |   |
| Network Access                                                           |   | **8,324**                   |       | 8,067 |   |
| Intersegment                                                             |   | **69**                      |       | 68 |   |
| Other                                                                    |   | **2,262**                   |       | 2,327 |   |
| Total ILEC                                                               |   | **14,454**                  |       | 14,264 |   |
|                                                                     |   |                        |       |   |   |
| CLEC                                                                     |   |                        |       |   |   |
| Local Service                                                            |   | **908**                     |       | 699 |   |
| Other                                                                    |   | **1,306**                   |       | 660 |   |
| Total CLEC                                                               |   | **2,214**                   |       | 1,359 |   |
|                                                                     |   |                        |       |   |   |
| Long Distance                                                            |   | **1,028**                   |       | 913 |   |
|                                                                     |   |                        |       |   |   |
| Internet                                                                 |   | **941**                     |       | 847 |   |
|                                                                     |   |                        |       |   |   |
| Wireless                                                                 |   |                        |       |   |   |
| Service                                                                  |   | **2,447**                   |       | 2,334 |   |
| Home Roaming                                                             |   | **174**                     |       | 194 |   |
| Roaming                                                                  |   | **772**                     |       | 874 |   |
| Total Wireless                                                           |   | **3,393**                   |       | 3,402 |   |
|                                                                     |   |                        |       |   |   |
| Total Telecom Revenues                                                   |   | **$**                       | **22,030** |   | $ | 20,785 |   |
|                                                                     |   |                        |       |   |   |
| Total Telecom Revenues Before Intersegment  Eliminations                 |   |                        |       |   |   |
| Unaffiliated Customers                                                   |   | **$**                       | **21,961** |   | $ | 20,717 |   |
| Intersegment                                                             |   | **69**                      |       | 68 |   |
|                                                                     |   | **22,030**                  |       | 20,785 |   |
|                                                                     |   |                        |       |   |   |
| Operating Expenses, excluding Depr. and  Amort.                          |   | **11,741**                  |       | 10,737 |   |
| Depreciation and Amortization                                            |   | **3,845**                   |       | 3,538 |   |
| Operating Income                                                         |   | **$**                       | **6,444**  |   | $ | 6,510 |   |
|                                                                     |   |                        |       |   |   |
| Net Income                                                               |   | **$**                       | **3,773**  |   | $ | 3,813 |   |
|                                                                     |   |                        |       |   |   |
| Operating Income/(Loss)                                                  |   | **$**                       | **6,444**  |   | $ | 6,510 |   |
| Depreciation and Amortization                                            |   | **3,845**                   |       | 3,538 |   |
| Earnings Before Interest, Taxes,  Depreciation and Amortization (EBITDA) |   | **$**                       | **10,289** |   | $ | 10,048 |   |
|                                                                     |   |                        |       |   |   |
| Capital Expenditures                                                     |   | **$**                       | **1,372**  |   | $ | 2,787 |   |
|                                                                     |   |                        |       |   |   |
| ILEC Access Lines                                                        |   | **64,495**                  |       | 66,212 |   |
|                                                                     |   |                        |       |   |   |
| CLEC Access Lines                                                        |   |                        |       |   |   |
| Overbuild                                                                |   | **8,035**                   |       | 6,241 |   |
| Unbundled Network Element (UNE)                                          |   | **1,361**                   |       | 1,188 |   |
| Total Service Resale (TSR)                                               |   | **4,875**                   |       | 4,304 |   |
| Total                                                                    |   | **14,271**                  |       | 11,733 |   |
|                                                                     |   |                        |       |   |   |
| Long Distance Customers                                                  |   | **36,610**                  |       | 25,436 |   |
|                                                                     |   |                        |       |   |   |
| Internet Customers                                                       |   | **14,988**                  |       | 13,517 |   |
|                                                                     |   |                        |       |   |   |
| Wireless Customers                                                       |   | **26,349**                  |       | 26,091 |   |
| Total Telecom Customers                                                  |   | **156,713**                 |       | 142,989 |   |

 

16

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Telecom Sectoroperating revenues before intersegment eliminations increased $1,245,000 or 6%in first quarter of 2003 compared to the first quarter of 2002. The increase inthe first quarter of 2003 compared to the first quarter of 2002 was primarilydue to growth in the CLEC, Long Distance and Internet service revenues as wellas increased ILEC network access, and increased wireless service revenue,partially offset by decreases in roaming revenue and ILEC local servicerevenue.

 

ILEC local service revenue decreased $3,000 or 0.1% in the firstquarter of 2003 compared to the first quarter of 2002.****This decrease was due to a 1,717 or 2.6%decline in ILEC access lines between March 31, 2002 and March 31, 2003.****The decline in access lines was offset byhigher revenue from vertical services such as caller identification, callwaiting and three-way calling in the first quarter of 2003 compared to thefirst quarter of 2002.

 

ILEC network access revenue increased $257,000 or 3.2% in the firstquarter of 2003 compared to the first quarter of 2002.  The increase in network access revenue inthe first quarter of 2003 compared to the first quarter of 2002 was driven byhigher demand for dedicated lines and high-speed circuits.

 

CLEC local service revenue increased $209,000 or 29.9% in the firstquarter of 2003 compared to the first quarter of 2002. CLEC access linesincreased 2,538 or 21.6% between March 31, 2002 and March 31, 2003, which wasthe primary reason for the increase.

 

Other CLEC revenue increased $646,000 or 97.9% in the first quarter of2003 compared to the first quarter of 2002. Other revenue included networkaccess, high-speed data revenues and digital TV, which generally grew alongwith the increase in access lines in the first quarter of 2003 compared to thefirst quarter of 2002. Another reason for the increase in other revenue in thefirst quarter of 2003 was the additional $370,000 of revenue recognized as aresult of services provided under terms of a multi-year contractawarded to HickoryTech effective July 1, 2002 to provide Internet access andvideo conferencing to schools and libraries in south central Minnesota servedby the Project SOCRATES distance-learning network.

 

17

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Long distancerevenue increased $115,000 or 12.6% in the first quarter of 2003 compared tothe first quarter of 2002. HickoryTech experienced an 11,174 or 43.9% increasein its long distance customer base between March 31, 2002 and March 31, 2003.Although the customer base is increasing, revenue per customer isdecreasing.  The decrease in revenue percustomer is primarily the result of optional long distance services available tocustomers, the increased use of Internet services and other alternatives tolong distance services.

 

Internet revenue increased $94,000 or 11.1% in the first quarter of2003 compared to the first quarter of 2002. The increase in revenue was causedprimarily by an increase in Internet customers of 1,471 between March 31, 2002and March 31, 2003. In addition to the increase in customers, Internet revenueincreased due to a migration of Internet customers from low-price introductoryrate plans to mid-range full-service Internet packages.

 

Wirelessservice revenue increased $113,000 or 4.8% in the first quarter of 2003compared to the first quarter of 2002. Wireless customer counts increased 258or 1% between March 31, 2002 and March 31, 2003. The increase in servicerevenue was largely a result of increased equipment revenue, offset by adecline in the average revenue per subscriber.

 

Wirelessroaming revenue decreased $102,000 or 11.7% in the first quarter of 2003compared to the first quarter of 2002. Roaming minutes from other wirelesscarriers’ customers traveling into HickoryTech’s wireless service territoryhave declined from historical levels, particularly due to technological changesamong other wireless providers, which re-route the roaming minutes fromHickoryTech’s wireless service towers to other providers. In addition, otherPCS wireless carriers have continued to build-out PCS licenses to carry theirown customers’ traffic rather than pay roaming to HickoryTech.

 

Operatingexpenses excluding depreciation and amortization would have increased$1,004,000 or 9.4% in the first quarter of 2003 compared to the first quarterof 2002. The increase in operating expenses was due primarily to the costsassociated with the growth in CLEC customers and costs associated with ProjectSOCRATES, a distance-learning network that provides Internet access and videoconferencing to schools and libraries in south central Minnesota.

 

Depreciation and amortization increased $307,000 or 8.7% in the firstquarter of 2003 compared to the first quarter of 2002. Depreciation expenseincreased $113,000 or 5.1% for the first quarter of 2003 compared to the firstquarter of 2002 for the increased network infrastructure associated with ILECservices. Depreciation expense increased $136,000 or 18.1% in the first quarterof 2003 compared to the first quarter of 2002 for the increased networkinfrastructure associated with CLEC services. Depreciation expense increased$124,000 or 23.3% in the first quarter of 2003 compared to the first quarter of2002 for the networks associated with Wireless services. These increases werepartially offset by a $66,000 decrease in amortization expense.

 

Total operating expenses increased $1,311,000 in the first quarter of2003 compared to the first quarter of 2002 for the reasons described in thepreceding two paragraphs.

 

Operating income decreased $66,000 or 1.0% in the first quarter of 2003compared to the first quarter of 2002. Net income decreased $40,000 or 1.0% inthe first quarter of 2003 compared to the first quarter of 2002. These decreaseswere for the reasons described above.

 

18

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Earnings before Interest, Taxes, Depreciation and Amortizationincreased $241,000 or 2.4% in the first quarter of 2003 compared to the firstquarter of 2002. EBITDA margins (i.e. EBITDA divided by revenues) for thissector were 46.7% and 48.3% for the three months ended March 31, 2003 and 2002,respectively. Despite the $1,245,000 increase in revenues, EBITDA increasedonly $241,000 due to the increase in operating expenses, excluding depreciationand amortization, as discussed above. EBITDA represents a non-GAAP financialmeasure.  A reconciliation of thismeasure to the appropriate GAAP measure is included in the table above.  HickoryTech defines EBITDA as operatingincome/(loss) excluding depreciation and amortization expense. EBITDA, which isnot a measure of financial performance or liquidity under generally acceptedaccounting principles, is provided because management believes that EBITDA is auseful supplement to operating income/(loss) and other statements of operationsdata in understanding HickoryTech’s ability to service and/or incurindebtedness and is useful in measuring the performance and relative value ofHickoryTech’s business.  Because of thevariety of methods used by companies and analysts to calculate EBITDA, and thefact that EBITDA calculations may not accurately measure a company’sprofitability or its ability to meet debt service requirements, caution shouldbe used in relying on any EBITDA presentation. EBITDA should not be consideredas an indicator of operating performance or whether cash flows will besufficient to fund cash needs.

 

INFORMATION SOLUTIONS – The following table provides a breakdown ofthe Information Solutions Sector operating results.

 

**INFORMATION SOLUTIONS SECTOR**

 

|                                                                     |   | **For Three Months Ended** |      |
|--------------------------------------------------------------------------|--------|----------------------------|-----------|
| **(Dollars  in Thousands)**                                              |   | **3/31/2003**              |      | **3/31/2002** |   |
| Revenues Before Eliminations                                             |   |                       |      |   |   |
| Unaffiliated Customers                                                   |   | **$**                      | **1,098** |   | $ | 1,034 |   |
| Intersegment                                                             |   | **973**                    |      | 915 |   |
|                                                                     |   | **2,071**                  |      | 1,949 |   |
| Operating Expenses, excluding Depr. and  Amort.                          |   | **2,066**                  |      | 1,964 |   |
| Depreciation and Amortization                                            |   | **544**                    |      | 510 |   |
|                                                                     |   |                       |      |   |   |
|                                                                     |   |                       |      |   |   |
| Operating Loss                                                           |   | **$**                      | **(539**  | ) | $ | (525 | ) |
| Net Loss                                                                 |   | **$**                      | **(373**  | ) | $ | (352 | ) |
|                                                                     |   |                       |      |   |   |
| Operating Loss                                                           |   | **$**                      | **(539**  | ) | $ | (525 | ) |
| Depreciation and Amortization                                            |   | **544**                    |      | 510 |   |
| Earnings Before Interest, Taxes,  Depreciation and Amortization (EBITDA) |   | **$**                      | **5**     |   | $ | (15 | ) |
|                                                                     |   |                       |      |   |   |
| Capital Expenditures                                                     |   | **$**                      | **144**   |   | $ | 522 |   |

 

Operating revenues from unaffiliated customers increased $64,000 or6.2% in the first quarter of 2003 compared to the first quarter of 2002. Theincrease in operating revenues in the first quarter of 2003 was primarily dueto the impact of a new customer relationship for monthly batch processingservices using the WRITE2K billing platform.   

 

Operatingexpenses excluding depreciation and amortization would have increased $102,000or 5.2% in the first quarter of 2003 compared to the first quarter of2002.  There were several smallvariances that contributed to this change between periods.  Expenses for the remainder of the year areexpected to be comparable to the first quarter of 2003.  

 

Depreciationand amortization expense increased $34,000 or 6.7% in the first quarter of 2003compared to the first quarter of 2002. Depreciation expense in the firstquarter of 2003 was $10,000 lower compared to the first quarter of 2002.Amortization expense increased $44,000 or 17.1% in the first quarter of 2003compared to the first quarter of 2002.

 

19

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Totaloperating expenses increased $136,000 in the first quarter of 2003 compared tothe first quarter of 2002 for the reasons described in the preceding twoparagraphs.

 

Operating lossincreased $14,000 or 2.7% in the first quarter of 2003 compared to the firstquarter of 2002. Net loss increased $21,000 or 6.0% in the first quarter of2003 compared to the first quarter of 2002. The increase in operating loss and net loss was primarily attributableto the increase in operating expenses, depreciation and amortization, partiallyoffset by the increase in revenue, discussed above.

 

Earnings before Interest, Taxes, Depreciation and Amortizationincreased $20,000 or 133.3% in the first quarter of 2003 compared to the firstquarter of 2002. The EBITDA margin (i.e. EBITDA divided by revenues) for thissector was 0.2% in the first quarter 2003, compared to (0.8%) in the firstquarter of 2002. The increase in EBITDA and the EBITDA margin was primarily dueto increased operating revenues.  EBITDArepresents a non-GAAP financial measure.  A reconciliation of this measure to the appropriate GAAP measureis included in the table above. HickoryTech defines EBITDA as operating income/(loss) excludingdepreciation and amortization expense. EBITDA, which is not a measure of financial performance or liquidityunder generally accepted accounting principles, is provided because managementbelieves that EBITDA is a useful supplement to operating income/(loss) andother statements of operations data in understanding HickoryTech’s ability toservice and/or incur indebtedness and is useful in measuring the performanceand relative value of HickoryTech’s business. Because of the variety of methods used by companies and analysts tocalculate EBITDA, and the fact that EBITDA calculations may not accuratelymeasure a company’s profitability or its ability to meet debt servicerequirements, caution should be used in relying on any EBITDApresentation.  EBITDA should not beconsidered as an indicator of operating performance or whether cash flows willbe sufficient to fund cash needs.

 

ENTERPRISE SOLUTIONS – The following table provides a breakdown ofthe Enterprise Solutions Sector operating results.

 

**ENTERPRISE SOLUTIONS SECTOR**

 

|                                                                     |   | **For Three  Months Ended** |      |
|--------------------------------------------------------------------------|--------|-----------------------------|-----------|
| **(Dollars  in Thousands)**                                              |   | **3/31/2003**               |      | **3/31/2002** |   |
| Revenues Before Intersegment Eliminations                                |   |                        |      |   |   |
| Installation                                                             |   | **$**                       | **1,958** |   | $ | 1,395 |   |
| Service                                                                  |   | **1,953**                   |      | 1,966 |   |
|                                                                     |   | **3,911**                   |      | 3,361 |   |
| Cost of Sales                                                            |   | **2,519**                   |      | 2,184 |   |
| Operating Expenses, excluding Depr. and  Amort.                          |   | **1,257**                   |      | 1,258 |   |
| Depreciation and Amortization                                            |   | **61**                      |      | 70 |   |
|                                                                     |   |                        |      |   |   |
|                                                                     |   |                        |      |   |   |
| Operating Income (Loss)                                                  |   | **$**                       | **74**    |   | $ | (151 | ) |
| Net Income (Loss)                                                        |   | **$**                       | **39**    |   | $ | (99 | ) |
|                                                                     |   |                        |      |   |   |
| Operating Income (Loss)                                                  |   | **$**                       | **74**    |   | $ | (151 | ) |
| Depreciation and Amortization                                            |   | **61**                      |      | 70 |   |
| Earnings Before Interest, Taxes,  Depreciation and Amortization (EBITDA) |   | **$**                       | **135**   |   | $ | (81 | ) |
|                                                                     |   |                        |      |   |   |
| Capital Expenditures                                                     |   | **$**                       | **92**    |   | $ | 40 |   |

 

20

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Operatingrevenues increased $550,000 or 16.4% in the first quarter of 2003 compared tothe first quarter of 2002. Installation revenue was $563,000 or 40.4% higher inthe first quarter of 2003 compared to the first quarter of 2002. The increasein installation revenue in first quarter of 2003 compared to the first quarterof 2002 was****primarily a result ofan increase in sales and installations of PBX systems of $272,000 and anincrease in sales of data****networkequipment of $219,000.  The majority ofthe increase in installation revenue was the result of completing the finalphase of work for a large specialty retailer. This project, which began in 2002, involved installing a voice overInternet Protocol network in a corporate office.  Service revenue was****$13,000or .7% lower in the first quarter of 2003 compared to the first quarter of2002.

 

Cost of salesincreased $335,000 or 15.3% in the first quarter of 2003 compared to the firstquarter of 2002. Gross profit margin for this sector in the first quarter of2003 and 2002 was 35.6% and 35.0%, respectively. The increase in cost of saleswas the result of the increased installation efforts described above.

 

Operatingexpenses excluding depreciation and amortization would have decreased $1,000 or0.1% in the first quarter of 2003 compared to the first quarter of 2002.  Depreciation and amortization decreased$9,000 or 12.9% in the first quarter of 2003 compared to the first quarter of2002.

 

Totaloperating expenses decreased $10,000 in the first quarter of 2003 compared tothe first quarter of 2002 for the reasons described in the preceding twoparagraphs.

 

Operatingincome was $74,000 in the first quarter of 2003 compared to operating loss of$151,000 in the first quarter of 2002.****Netincome in the first quarter of 2003 was $39,000 compared to a net loss of$99,000 in the first quarter of 2002. The income generated in the first quarterof 2003 as compared to the loss in the first quarter of 2002 resulted primarilyfrom the changes in operating revenues described above.

 

Earnings before Interest, Taxes, Depreciation and Amortizationincreased $216,000****or****266.7% in the first quarter of 2003compared to the first quarter of 2002. The EBITDA margin (i.e. EBITDA dividedby revenues) for this sector was 3.5% in the first quarter of 2003 compared to****(2.4%) in the first quarter of 2002.****The changes in EBITDA and the EBITDAmargin were primarily due to the increase in operating revenues.  EBITDA represents a non-GAAP financialmeasure.  A reconciliation of thismeasure to the appropriate GAAP measure is included in the table above.  HickoryTech defines EBITDA as operatingincome/(loss) excluding depreciation and amortization expense.  EBITDA, which is not a measure of financialperformance or liquidity under generally accepted accounting principles, isprovided because management believes that EBITDA is a useful supplement tooperating income/(loss) and other statements of operations data inunderstanding HickoryTech’s ability to service and/or incur indebtedness and isuseful in measuring the performance and relative value of HickoryTech’sbusiness.  Because of the variety ofmethods used by companies and analysts to calculate EBITDA, and the fact thatEBITDA calculations may not accurately measure a company’s profitability or itsability to meet debt service requirements, caution should be used in relying onany EBITDA presentation.  EBITDA shouldnot be considered as an indicator of operating performance or whether cashflows will be sufficient to fund cash needs.

 

LIQUIDITY ANDCAPITAL RESOURCES

 

CASH FLOWS – Cash provided by operations was $9,277,000 inthe first quarter of 2003 compared to $7,908,000 in the first quarter of2002.  Cash flows from operations in thefirst quarter of 2003 and 2002 were primarily attributable to net income plusnon-cash expenses for depreciation and amortization and a decrease inreceivables, partially offset by decreases in accounts payable related totiming of payments.  The increase incash flows from operations in the first quarter of 2003 relative to the sameperiod in 2002 was primarily due to a $257,000 increase in net income and a$1,787,000 reduction in accounts payable and accrued expenses during the firstquarter of 2003, compared to a $2,625,000 reduction during the first quarter of2002.

 

21

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Cash flows provided by investing activities were $2,425,000 in thefirst quarter of 2003 compared to cash flows used of $3,216,000 for the sameperiod in 2002. Capital expenditures relating to ongoing businesses were$1,735,000 during the first quarter of 2003 as compared to $3,488,000 for thesame period in 2002. Capital expenditures were incurred primarily to constructadditional network facilities to provide CLEC services and continued buildoutof the PCS network in the Telecom Sector in 2002.  In addition, there was a $4,100,000 redemption of investments inthe first quarter of 2003, compared to $100,000 in the first quarter of2002.  The first quarter of 2003redemption reflects the amount by which HickoryTech was permitted to reduce itsequity investment in one of its lenders.

 

Cash flows used in financing activities were $11,465,000 for the firstquarter of 2003 compared to $5,682,000 for the first quarter of 2002.  Included in cash flows from financingactivities are debt repayments and dividend payments.   HickoryTech made payments on its revolving credit facility of$9,750,000 during the first quarter of 2003, and $4,250,000 during the firstquarter of 2002.  Dividend payments forthe first quarter of 2003 were $1,540,000 compared to $1,537,000 for the sameperiod in 2002.  During the firstquarter of 2003, HickoryTech also repurchased 16,100 common shares for$161,000.

 

WORKING CAPITAL – Working capital (i.e. current assets minuscurrent liabilities) was $10,935,000 as of March 31, 2003, compared to workingcapital of $13,073,000 as of December 31, 2002.  The ratio of current assets to current liabilities was 1.9:1.0 asof March 31, 2003 and as of December 31, 2002. Management believes adequateinternal and external resources are available to finance ongoing operatingrequirements, including capital expenditures, business development, debtservice and the payment of dividends for at least the next twelve months.

 

LONG-TERM OBLIGATIONS - HickoryTech’s long-term obligations as ofMarch 31, 2003 were $147,740,000, excluding current maturities of $1,405,000.As of March 31, 2003, HickoryTech had a $182,750,000 credit facility with asyndicate of banks.  The credit facilityis comprised of a $125,000,000 revolving credit component and a $57,750,000term loan component.  The available lineof credit on the $125,000,000 revolving credit component decreases inincrements beginning in March 2004 with a final maturity date in September2008.  The term loan component requiresequal quarterly principal payments of $250,000 during the period of March 2001to December 2008, and $23,000,000 of principal payments per quarter for thefirst two quarters in 2009 and $6,000,000 in the third quarter of 2009.  The weighted average interest rateassociated with this credit facility varies with LIBOR and certain other ratesand was 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 interest term, on $40,000,000 of the debt, isfixed until June 2003.  As of March 31,2003, HickoryTech had drawn $148,250,000 on this credit facility and had$34,500,000 of available credit. Management believes the remaining availablecredit is sufficient to cover future cash requirements.

 

HickoryTech’s Information Solutions Sector leases certain computerequipment under capital lease arrangements. During the first quarter of 2003,this sector recorded no additions to property, plant and equipment related tothese capital lease arrangements.

 

The following table sets forth HickoryTech’s contractual obligations,along with the cash payments due each period:

 
|                               |   | **Payments  Due by Year** |    |
|------------------------------------|--------|---------------------------|---------|
| **(Dollars in Thousands)**         |   | **Total**                 |    | **Remainder  of 2003** |   | **2004 to  2006** |   | **2007 to  2008** |   | **2009 and  after** |   |
| Contractual Obligations            |   |                      |    |   |   |   |   |   |   |   |   |
| Long-term Debt                     |   | $                         | 148,250 |   | $ | 750 |   | $ | 32,563 |   | $ | 62,937 |   | $ | 52,000 |   |
| Interest on Long-term Debt         |   | 32,659                    |    | 5,228 |   | 18,159 |   | 8,056 |   | 1,216 |   |
| Capital Lease Obligations          |   | 895                       |    | 296 |   | 599 |   | — |   | — |   |
| Interest on Capital Leases         |   | 64                        |    | 33 |   | 31 |   | — |   | — |   |
| Operating Leases                   |   | 3,862                     |    | 861 |   | 1,810 |   | 465 |   | 726 |   |
| Total Contractual Cash Obligations |   | $                         | 185,730 |   | $ | 7,168 |   | $ | 53,162 |   | $ | 71,458 |   | $ | 53,942 |   |

 

Interest on Long-term Debt is estimated using interest rated as ofMarch 31, 2003.

 

22

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The total commitment to HickoryTech on its revolving credit facilityexpires as follows:

 

|                       |   | **Amount of  Commitment Expiration per Year** |    |
|----------------------------|--------|-----------------------------------------------|---------|
| **(Dollars in Thousands)** |   | **Total**                                     |    | **Remainder  of 2003** |   | **2004 to  2006** |   | **2007 to  2008** |   | **2009 and  after** |   |
| Revolving Credit Component |   | $                                             | 125,000 |   | $ | — |   | $ | 64,063 |   | $ | 60,937 |   | $ | — |   |
|                            |        |                                               |         |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

OTHER - HickoryTech operates with original equitycapital, retained earnings and recent additions to indebtedness in the form ofbank term and revolving lines of credit. HickoryTech believes its current levelof debt to total capital is acceptable for ongoing operations.

 

HickoryTech primarily uses variable interest rate financial instrumentsas of March 31, 2003. HickoryTech continually monitors the interest rates onits bank loans and has implemented fixed interest terms on various portions ofthe overall debt outstanding for varying terms.  A lower level of interest expense is likely to occur because of atrend of reducing levels of debt and potentially lower weighted averageinterest rates.

 

In November 2002, HickoryTech began repurchasing its stock inover-the-counter trading under a previously announced repurchase plan.  HickoryTech funds the repurchase of itsstock from cash flows from operations. During the first quarter of 2003, HickoryTech purchased 16,100 commonshares for $161,000.

 

CRITICALACCOUNTING POLICIES

 

This Form 10-Q is based upon HickoryTech’s consolidated financialstatements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States of America and, where applicable,conform to the accounting principles as prescribed by federal and statetelephone utility regulatory authorities. A description of the criticalaccounting policies adhered to by HickoryTech is contained in the Management’sDiscussion and Analysis of Financial Condition and Results of Operations inHickoryTech’s Annual Report on Form 10-K for the year ended December 31,2002.  There were no significant changesto these critical accounting policies during the first three months of 2003.

 

RECENTACCOUNTING DEVELOPMENTS

 

Effective January 1, 2002, HickoryTech adopted SFAS No. 142, “Goodwilland Other Intangible Assets.” SFAS No. 142 established new standards related tohow acquired goodwill and other intangible assets are to be recorded upon theiracquisition as well as how they are to be accounted for after they have beeninitially recognized in the financial statements.

 

Effective with the adoption of this standard, HickoryTech is no longeramortizing acquired goodwill. Instead, SFAS No. 142 requires acquired goodwillto be evaluated for impairment using a two-step test based upon a fair valueapproach. The first step is used to identify potential impairment, while thesecond step calculates the amount of impairment, if any. Upon adoption of thisstandard, HickoryTech completed a transitional impairment test for its acquiredgoodwill, determining the fair value using primarily a discounted cash flowmodel. The determined fair value was sufficient to pass the first stepimpairment test, and therefore no impairment was recorded.

 

23

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Additionally,upon adoption of SFAS No. 142, HickoryTech was required to reassess theuseful lives of its other intangible assets. HickoryTech’s other intangibleassets primarily consist of wireless FCC licenses (FCC licenses). HickoryTech’sFCC licenses have terms of ten years, but are renewable.  The renewal of FCC licenses is a routinematter involving a nominal fee and HickoryTech has determined that no legal,regulatory, contractual, competitive, economic or other factors currently existthat limit the useful life of its FCC licenses. As such, effective with theadoption of SFAS No. 142, HickoryTech is no longer amortizing FCC licensesas they are deemed to be intangible assets that have indefinite lives.  Prospectively, HickoryTech will continue toperiodically reevaluate its determination of an indefinite useful life withregards to FCC licenses. SFAS No. 142 requires that indefinite livedintangible assets be tested for impairment by comparing the fair value of theassets to their carrying amount. Upon adoption of this standard, HickoryTechcompleted a transitional impairment test for FCC licenses, calculating fairvalue using primarily a discounted cash flow model and corroborating marketplacetransactions, and determined that there was no impairment to be recorded. TheFCC licenses were tested for impairment on an aggregate basis, which isconsistent with HickoryTech’s management of the wireless business within theTelecom Sector. HickoryTech also re-assessed the useful life of its otherintangible assets and concluded that the existing lives of up to eight yearsshould be continued.

 

On aprospective basis, HickoryTech is required to test both acquired goodwill andFCC licenses for impairment on an annual basis based upon a fair valueapproach. Additionally, goodwill shall be tested for impairment between annualtests if an event occurs or circumstances change that would more likely thannot reduce the fair value of an entity below its carrying value. Otherindefinite-lived intangible assets will be tested between annual tests ifevents or changes in circumstances indicate that the asset might be impaired.During the fourth quarter of 2002, HickoryTech completed its annual impairment testsfor both acquired goodwill and FCC licenses using methodologies consistent withthose applied for its transitional impairment tests performed as ofJanuary 1, 2002. Such testing resulted in no impairment charge to goodwillas the determined fair value was again sufficient to pass the first stepimpairment test. The first annual reassessment of HickoryTech’s FCC licenses,however, resulted in a total pre-tax impairment charge of $41,635,000 in thefourth quarter of 2002 in the Telecom Sector.

 

HickoryTechwill test for impairment of acquired goodwill and FCC licenses at the end ofthe fourth quarter of 2003, unless events or occurrences deem it necessary totest for impairment in an interim period.

 

In June 2001,the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.”SFAS No. 143 requires entities to record the fair value of the liability forlegal obligations associated with an asset retirement in the period in whichthe obligation is incurred. When the liability is initially recorded, theentity capitalizes the cost of the asset retirement obligation by increasingthe carrying amount of the related long-lived asset. Over time, the liabilityis accreted to its present value each period, and the capitalized cost isdepreciated over the useful life of the related asset.

 

HickoryTech’s incumbent local exchange carrier companies (ILECs) followthe provisions of SFAS No. 71, and therefore conform to the accountingprinciples as prescribed by the respective state public utilities commissionsand other federal agencies and, where applicable, accounting principlesgenerally accepted in the United States of America. On December 20, 2002, theFederal Communications Commission (FCC) notified carriers that they would notadopt SFAS No. 143 for regulatory accounting purposes.  At January 1, 2003, HickoryTech determinedthe amount of asset retirement obligations required to be recorded for its ILECcompanies under the provisions of SFAS No. 143 were not significant, andtherefore the implementation of SFAS No. 143 on January 1, 2003 did not impactHickoryTech’s financial position or results of operations.

 

HickoryTech’s competitive local telephone companies (CLEC) also adoptedSFAS No. 143 effective January 1, 2003. HickoryTech has determined that itscompetitive local telephone companies do not have a material legal obligationto remove long-lived assets as described by SFAS No. 143, and accordingly,adoption of SFAS No. 143 did not impact HickoryTech’s financial position orresults of operations.

 

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HickoryTechalso adopted the provisions of SFAS No. 143 for its wireless operations as ofJanuary 1, 2003. HickoryTech performed an analysis to identify all potentialAsset Retirement Obligations.  The legal obligations identified consist ofobligations to remediate leased property where cell sites are located. However,based upon HickoryTech’s experience and expectations, there is significantuncertainty as to whether third parties that own these leased properties wouldenforce their remediation rights related to the sites.  Therefore,pursuant to the provisions of SFAS No. 143, HickoryTech did not record thispotential asset retirement obligation upon adoption and will not record anobligation until such time as the fair value of the obligation can bereasonably estimated.

 

In April 2002,the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64,Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishmentof Debt,” and an amendment of that Statement, FASB Statement No. 64,“Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.” SFAS No.145 also rescinds FASB Statement No. 44, “Accounting for Intangible Assets ofMotor Carriers,” and amends FASB Statement No. 13, “Accounting for Leases.”HickoryTech adopted the provisions of SFAS No. 145 on January 1, 2003.  Adoption of this standard had no impact onthe financial statements presented in this Form 10-Q.

 

In June 2002,the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit orDisposal Activities,” which replaces Emerging Issues Task Force (EITF) IssueNo. 94-3, “Liability Recognition for Certain Employee Termination Benefits andOther Costs to Exit an Activity (including Certain Costs Incurred in aRestructuring).” SFAS No. 146 requires companies to recognize costs associatedwith exit or disposal activities when they are incurred rather than at the dateof a commitment to an exit or disposal plan. HickoryTech engaged in noactivities in the first quarter of 2003 that are subject to the provisions ofSFAS No. 146.  Accordingly, the adoptionof SFAS No. 146 did not impact HickoryTech’s financial position or results ofoperations.

 

In December 2002, the FASB issued SFAS No. 148, “Accounting forStock-Based Compensation – Transition Disclosure – an amendment of SFAS No.123” (SFAS No. 148).  This Statementamends SFAS No. 123, “Accounting for Stock-Based Compensation,” to providealternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation.  In addition, this Statement amends thedisclosure requirements of SFAS No. 123 to require prominent disclosures inboth annual and interim financial statements about the method of accounting forstock-based employee compensation and the effect of the method used on reportedresults. The provisions of SFAS No. 148 are effective for financial statementsfor fiscal years ending after December 15, 2002, and disclosure requirementsshall be effective for interim periods beginning after December 15, 2002.  The Company will continue to account forstock-based compensation to its employees and directors using the intrinsicvalue method prescribed by APB Opinion No. 25, and relatedinterpretations.  The Company adoptedthe provisions of SFAS No. 148 and has made certain disclosures required bySFAS No. 148 in the consolidated financial statements presented in this report.The adoption of SFAS No. 148 did not impact HickoryTech’s financial position orresults of operations.

 

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including Indirect Guaranteesof Indebtedness of Others.”  Thisinterpretation elaborates on the disclosures required in financial statementsconcerning obligations under certain guarantees.  It also clarifies the requirements related to the recognition ofliabilities by a guarantor at the inception of certain guarantees.  The disclosure requirements of thisinterpretation were effective for HickoryTech on December 31, 2002 but did notrequire any additional disclosures.  Therecognition provisions of the interpretation are effective for HickoryTech in2003 and are applicable only to guarantees issued or modified after December31, 2002.  The adoption ofInterpretation No. 45 does not have a material impact on the financial positionor results of operations of HickoryTech.

 

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ITEM 3.QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

HickoryTechdoes not have operations subject to risks of foreign currency fluctuations, nordoes HickoryTech use derivative financial instruments in its operations orinvestment portfolio. HickoryTech’s earnings are affected by changes ininterest rates as a portion of its long-term debt has variable interest ratesbased on LIBOR. If interest rates for the portion of HickoryTech’s long-termdebt based on variable rates had averaged 10% more for the entire quarter endedMarch 31, 2003, HickoryTech’s interest expense would have increased $113,000for the three months ended March 31, 2003. In case of a change of suchmagnitude, management would likely act to mitigate its exposure to the changeby converting a portion of its variable-rate debt to fixed-rate debt.

 

ITEM 4.CONTROLS AND PROCEDURES

 

Within the90-day period prior to the date of this report, an evaluation was carried outunder the supervision and with the participation of our management, includingour Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of theeffectiveness of our disclosure controls and procedures.  Disclosure controls and procedures areprocedures that are designed with the objective of ensuring that informationrequired to be disclosed in our reports filed under the Securities Exchange Actof 1934, such as this Form 10-Q, is recorded, processed, summarized andreported within the time periods specified in the Securities and ExchangeCommission’s rules and forms.  Based onthat evaluation, our CEO and CFO have concluded that our disclosure controlsand procedures are effective to satisfy the objectives for which they areintended.  Subsequent to the date of ourmanagement’s evaluation, there were no significant changes in our internalcontrols or in other factors that could significantly affect these controls,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 

PART II. OTHERINFORMATION

 

Item 1.    Legal Proceedings.

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

 

Item 2.    Changes in Securities.

None

 

Item 3.    Default Upon Senior Securities.

None.

 

Item 4.    Submission of Matters to a Vote of Security Holders.

None

 

Item 5.    Other Information.

None.

 

Item 6.    Exhibits and Reports of Form 8-K.

 

(a)   Exhibits

10(a)  Hickory Tech CorporationExecutive Incentive Plan Amended and Restated December 4, 2002.

 

(b)   HickoryTech filed a Form 8-Kon March 3, 2003 containing a press release announcing its fourth quarter andfull year 2002 consolidated operating results.

 

HickoryTech filed a Form 8-K onMarch 7, 2003 announcing the company’s mailing of a communication toshareholders which contained the Chairman’s and President’s letters to theshareholders.

 

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SIGNATURES

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
| Dated: | May 12, 2003 |                                           | 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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**CERTIFICATIONS**

 

I, John E. Duffy, certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of HickoryTech;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

4.                                       The registrant’s other certifying officers and Iare responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a)              designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)             evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)              presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)              allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)             anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date:  | May 12, 2003            |   |   |
|--------|-------------------------|--------|--------|
|   |                    |
|   | /s/ John E. Duffy       |   |
|   | John E. Duffy           |
|   | Chief Executive Officer |

 

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**CERTIFICATIONS**

 

I, David A. Christensen,certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-Q of HickoryTech;

 

2.                                       Based on my knowledge, this quarterly report doesnot contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report;

 

3.                                       Based on my knowledge, the financial statements,and other financial information included in this quarterly report, fairlypresent in all material respects the financial condition, results of operationsand cash flows of the registrant as of, and for, the periods presented in thisquarterly report;

 

4.                                       The registrant’s other certifying officers and Iare responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

 

a)              designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)             evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)              presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)              allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)             anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       The registrant’s other certifying officers and Ihave indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses.

 
| Date:  | May 12, 2003             |   |   |
|--------|--------------------------|--------|--------|
|   |                     |
|   | /s/ David A. Christensen |   |
|   | David A. Christensen     |
|   | Chief Financial Officer  |

 

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CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with theQuarterly Report of Hickory Tech Corporation (HickoryTech) on Form 10-Q for theperiod ending March 31, 2003 as filed with the Securities and ExchangeCommission on the date hereof (the Report), I, John E. Duffy, Chief ExecutiveOfficer of HickoryTech, certify, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

 

(1)                                  The Report fully complies with the requirementsof section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)                                  The information contained in the Report fairlypresents, in all material respects, the financial condition and results ofoperations of HickoryTech.

 

 
| /s/ John E. Duffy       |   |
|-------------------------|--------|
| John E. Duffy           |
| Chief Executive Officer |
| May 12, 2003            |

 

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CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with theQuarterly Report of Hickory Tech Corporation (HickoryTech) on Form 10-Q for theperiod ending March 31, 2003 as filed with the Securities and ExchangeCommission on the date hereof (the Report), I, David A. Christensen, Chief FinancialOfficer of HickoryTech, certify, pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

 

(1)                                  The Report fully complies with the requirementsof section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)                                  The information contained in the Report fairlypresents, in all material respects, the financial condition and results ofoperations of HickoryTech.

 
| /s/ David A. Christensen |   |
|--------------------------|--------|
| David A. Christensen     |
| Chief Executive Officer  |
| May 12, 2003             |

 

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