**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON,DC 20549**

** **

**FORM10-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 September 30, 2002**                                                                                                                                                                          |
|                                                                                                                                                                                                                           |
| **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  incorporation or organization)                    | (I.R.S. Employer  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) |

 

Indicateby check mark whether the Registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.    Yes   ý     No   o

 

The total number of shares of the registrant's common stock outstandingas of  September 30, 2002:  14,080,442.

 

 

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**HICKORY TECH CORPORATION**

September30, 2002

 

PARTI. FINANCIAL INFORMATION

 

ITEM 1.   FINANCIAL STATEMENTS.

 

CONSOLIDATEDSTATEMENTS OF INCOME

(UNAUDITED)

 
|                                                         |   | **For Quarter Ended** |   | **For Nine Months Ended** |   |
|--------------------------------------------------------------|--------|-----------------------|--------|---------------------------|--------|
| ***(In Thousands Except Per Share  Amounts)***               |   | **9/30/2002**         |   | **9/30/2001**             |   | **9/30/2002** |   | **9/30/2001** |   |
| OPERATING REVENUES:                                          |   |                  |   |                      |   |   |   |   |   |
| Telecom                                                      |   | $                     | 22,474 |                      | $      | 20,873 |   | $ | 64,596 |   | $ | 63,114 |   |
| Information Solutions                                        |   | 981                   |   | 1,207                     |   | 3,064 |   | 3,150 |   |
| Enterprise Solutions                                         |   | 5,257                 |   | 5,479                     |   | 11,655 |   | 15,480 |   |
| TOTAL OPERATING REVENUES                                     |   | 28,712                |   | 27,559                    |   | 79,315 |   | 81,744 |   |
|                                                         |   |                  |   |                      |   |   |   |   |   |
| COSTS AND EXPENSES:                                          |   |                  |   |                      |   |   |   |   |   |
| Cost of Sales, Enterprise  Solutions                         |   | 3,688                 |   | 3,866                     |   | 7,905 |   | 10,503 |   |
| Operating Expenses,  excluding Depreciation and Amortization |   | 15,333                |   | 13,117                    |   | 42,909 |   | 40,922 |   |
| Depreciation                                                 |   | 4,052                 |   | 3,271                     |   | 11,796 |   | 9,216 |   |
| Amortization of  Intangibles                                 |   | 381                   |   | 1,066                     |   | 1,122 |   | 2,645 |   |
| TOTAL COSTS AND EXPENSES                                     |   | 23,454                |   | 21,320                    |   | 63,732 |   | 63,286 |   |
|                                                         |   |                  |   |                      |   |   |   |   |   |
| OPERATING INCOME                                             |   | 5,258                 |   | 6,239                     |   | 15,583 |   | 18,458 |   |
| OTHER INCOME (EXPENSE):                                      |   |                  |   |                      |   |   |   |   |   |
| Equity in Net Loss of  Investees                             |   | (29                   | )      | (19                       | )      | (27 | ) | (32 | ) |
| Gain on Sale of Assets                                       |   | —                |   | 1,069                     |   | — |   | 1,210 |   |
| Interest and Other Income                                    |   | 66                    |   | 29                        |   | 138 |   | 104 |   |
| Interest Expense                                             |   | (1,752                | )      | (2,753                    | )      | (5,566 | ) | (8,444 | ) |
| TOTAL OTHER INCOME  (EXPENSE)                                |   | (1,715                | )      | (1,674                    | )      | (5,455 | ) | (7,162 | ) |
|                                                         |   |                  |   |                      |   |   |   |   |   |
| INCOME BEFORE INCOME TAXES                                   |   | 3,543                 |   | 4,565                     |   | 10,128 |   | 11,296 |   |
| INCOME TAXES                                                 |   | 1,449                 |   | 1,825                     |   | 4,142 |   | 4,589 |   |
| NET INCOME                                                   |   | $                     | 2,094  |                      | $      | 2,740 |   | $ | 5,986 |   | $ | 6,707 |   |
|                                                         |   |                  |   |                      |   |   |   |   |   |
| Basic Earnings Per Share                                     |   | $                     | 0.15   |                      | $      | 0.20 |   | $ | 0.43 |   | $ | 0.48 |   |
| Dividends Per Share                                          |   | $                     | 0.11   |                      | $      | 0.11 |   | $ | 0.33 |   | $ | 0.33 |   |
| Weighted Average Common Shares  Outstanding                  |   | 14,059                |   | 13,908                    |   | 14,009 |   | 13,896 |   |
|                                                         |   |                  |   |                      |   |   |   |   |   |
| Diluted Earnings Per Share                                   |   | $                     | 0.15   |                      | $      | 0.20 |   | $ | 0.43 |   | $ | 0.48 |   |
| Weighted Average Common  and Equivalent Shares Outstanding   |   | 14,117                |   | 14,014                    |   | 14,093 |   | 13,991 |   |

 

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

 

1

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**HICKORY TECH CORPORATION**

September30, 2002

 

CONSOLIDATEDBALANCE SHEETS

(UNAUDITED)

 
| ***(In Thousands Except Share and Per  Share Amounts)***                                                                                |   | **9/30/2002** |        | **12/31/2001** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-------------|----------------|--------|
| ASSETS                                                                                                                                  |   |          |        |           |   |
| CURRENT ASSETS:                                                                                                                         |   |          |        |           |   |
| Cash and Cash Equivalents                                                                                                               |   | **$**         | **389**     |           | $      | 2,008 |   |
| Receivables, Net of  Allowance for Doubtful Accounts of $2,358 and $1,231                                                               |   | **12,708**    |        | 14,616         |   |
| Income Taxes Receivable                                                                                                                 |   | —        |        | 1,675          |   |
| Costs in Excess of  Billings on Contracts                                                                                               |   | **1,472**     |        | 1,520          |   |
| Inventories                                                                                                                             |   | **5,113**     |        | 4,989          |   |
| Deferred Income Taxes                                                                                                                   |   | **646**       |        | 646            |   |
| Other                                                                                                                                   |   | **2,351**     |        | 2,329          |   |
| TOTAL CURRENT ASSETS                                                                                                                    |   | **22,679**    |        | 27,783         |   |
|                                                                                                                                    |   |          |        |           |   |
| INVESTMENTS                                                                                                                             |   | **10,825**    |        | 10,701         |   |
|                                                                                                                                    |   |          |        |           |   |
| PROPERTY, PLANT AND  EQUIPMENT                                                                                                          |   | **243,916**   |        | 231,675        |   |
| Less ACCUMULATED  DEPRECIATION                                                                                                          |   | **107,597**   |        | 96,031         |   |
| PROPERTY, PLANT AND  EQUIPMENT, NET                                                                                                     |   | **136,319**   |        | 135,644        |   |
|                                                                                                                                    |   |          |        |           |   |
| OTHER ASSETS:                                                                                                                           |   |          |        |           |   |
| Goodwill                                                                                                                                |   | **25,086**    |        | 25,086         |   |
| Intangible Assets, Net                                                                                                                  |   | **76,640**    |        | 76,991         |   |
| Deferred Costs and Other                                                                                                                |   | **6,857**     |        | 7,087          |   |
| TOTAL OTHER ASSETS                                                                                                                      |   | **108,583**   |        | 109,164        |   |
| TOTAL ASSETS                                                                                                                            |   | **$**         | **278,406** |           | $      | 283,292 |   |
|                                                                                                                                    |   |          |        |           |   |
| LIABILITIES & SHAREHOLDERS' EQUITY                                                                                                  |   |          |        |           |   |
| CURRENT LIABILITIES:                                                                                                                    |   |          |        |           |   |
| Accounts Payable                                                                                                                        |   | **$**         | **2,891**   |           | $      | 5,301 |   |
| Accrued Expenses                                                                                                                        |   | **3,485**     |        | 3,372          |   |
| Income Taxes Payable                                                                                                                    |   | **2,514**     |        | —         |   |
| Accrued Interest                                                                                                                        |   | **534**       |        | 382            |   |
| Billings in Excess of  Costs on Contracts                                                                                               |   | **68**        |        | 169            |   |
| Advanced Billings and  Deposits                                                                                                         |   | **3,809**     |        | 3,580          |   |
| Current Maturities of  Long-Term Obligations                                                                                            |   | **1,434**     |        | 1,242          |   |
| TOTAL CURRENT LIABILITIES                                                                                                               |   | **14,735**    |        | 14,046         |   |
|                                                                                                                                    |   |          |        |           |   |
| LONG-TERM OBLIGATIONS, Net  of Current Maturities                                                                                       |   | **160,880**   |        | 169,659        |   |
|                                                                                                                                    |   |          |        |           |   |
| DEFERRED INCOME TAXES                                                                                                                   |   | **13,876**    |        | 13,876         |   |
|                                                                                                                                    |   |          |        |           |   |
| DEFERRED REVENUE AND  BENEFITS                                                                                                          |   | **5,435**     |        | 4,946          |   |
|                                                                                                                                    |   |          |        |           |   |
| TOTAL LIABILITIES                                                                                                                       |   | **194,926**   |        | 202,527        |   |
|                                                                                                                                    |   |          |        |           |   |
| COMMITMENTS AND  CONTINGENCIES (Note 8)                                                                                                 |   | —        |        | —         |   |
|                                                                                                                                    |   |          |        |           |   |
| SHAREHOLDERS' EQUITY:                                                                                                                   |   |          |        |           |   |
| Common  Stock, no par value, $.10 stated value  Shares authorized: 100,000,000   Shares outstanding: 2002, 14,080,442; 2001, 13,935,308 |   | **1,408**     |        | 1,394          |   |
| Additional Paid-In Capital                                                                                                              |   | **7,593**     |        | 6,254          |   |
| Retained Earnings                                                                                                                       |   | **74,479**    |        | 73,117         |   |
| TOTAL SHAREHOLDERS' EQUITY                                                                                                              |   | **83,480**    |        | 80,765         |   |
|                                                                                                                                    |   |          |        |           |   |
| TOTAL LIABILITIES &  SHAREHOLDERS' EQUITY                                                                                           |   | **$**         | **278,406** |           | $      | 283,292 |   |

 

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

 

2

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**HICKORY TECH CORPORATION**

September30, 2002

 

CONSOLIDATEDSTATEMENTS OF CASH FLOWS

(UNAUDITED)

 
|                                                                               |   | **For Nine Months Ended** |       |
|------------------------------------------------------------------------------------|--------|---------------------------|------------|
| ***In Thousands***                                                                 |   | **9/30/2002**             |       | **9/30/2001** |   |
| CASH FLOWS FROM OPERATING  ACTIVITIES:                                             |   |                      | ** ** |   |   |
| Net Income                                                                         |   | **$**                     | **5,986**  | ** ** | $ | 6,707 |   |
| Adjustments to Reconcile  Net Income to Net Cash Provided by Operating Activities: |   |                      | ** ** |   |   |
| Depreciation and  Amortization                                                     |   | **12,918**                | ** ** | 11,861 |   |
| Stock-Based Compensation                                                           |   | **701**                   | ** ** | 320 |   |
| Employee Retirement  Benefits and Deferred Compensation                            |   | **460**                   | ** ** | 199 |   |
| Accrued Patronage Refunds                                                          |   | **(589**                  | **)**      | (697 | ) |
| Equity in Net Loss of  Investees                                                   |   | **27**                    | ** ** | 32 |   |
| Gain on Sale of Assets                                                             |   | —                    | ** ** | (1,210 | ) |
| Deferred Income Taxes                                                              |   | —                    | ** ** | (513 | ) |
| Provision for Losses on  Accounts Receivable                                       |   | **2,218**                 | ** ** | 387 |   |
| Changes in Operating  Assets and Liabilities:                                      |   |                      | ** ** |   |   |
| Receivables                                                                        |   | **1,365**                 | ** ** | 256 |   |
| Inventories                                                                        |   | **(124**                  | **)**      | (895 | ) |
| Billings and Costs on  Contracts                                                   |   | **(53**                   | **)**      | (1,038 | ) |
| Accounts Payable and  Accrued Expenses                                             |   | **(116**                  | **)**      | 190 |   |
| Advance Billings and  Deposits                                                     |   | **230**                   | ** ** | 110 |   |
| Deferred Revenue and  Benefits                                                     |   | **28**                    | ** ** | (148 | ) |
| Other                                                                              |   | **(226**                  | **)**      | 25 |   |
| Net Cash Provided By  Operating Activities                                         |   | **22,825**                | ** ** | 15,586 |   |
|                                                                               |   |                      | ** ** |   |   |
| CASH FLOWS FROM INVESTING  ACTIVITIES:                                             |   |                      | ** ** |   |   |
| Additions to Property,  Plant and Equipment                                        |   | **(12,222**               | **)**      | (26,646 | ) |
| Additions to Capitalized  Software Development Costs                               |   | —                    | ** ** | (2,695 | ) |
| Redemption of Investments                                                          |   | **100**                   | ** ** | — |   |
| Proceeds from Sale of  Assets                                                      |   | **243**                   | ** ** | 6,949 |   |
| Acquisition of Licenses                                                            |   | —                    | ** ** | (11,399 | ) |
| Net Cash Used In Investing  Activities                                             |   | **(11,879**               | **)**      | (33,791 | ) |
|                                                                               |   |                      | ** ** |   |   |
| CASH FLOWS FROM FINANCING  ACTIVITIES:                                             |   |                      | ** ** |   |   |
| Repayments of Debt                                                                 |   | —                    | ** ** | (162 | ) |
| Payments of Capital Lease  Obligations                                             |   | **(329**                  | **)**      | — |   |
| Borrowings on Credit  Facility                                                     |   | **2,200**                 | ** ** | 29,500 |   |
| Repayments on Credit  Facility                                                     |   | **(10,950**               | **)**      | (7,250 | ) |
| Proceeds from Issuance of  Common Stock                                            |   | **952**                   | ** ** | 416 |   |
| Dividends Paid                                                                     |   | **(4,438**                | **)**      | (4,584 | ) |
| Net Cash (Used In)  Provided By Financing Activities                               |   | **(12,565**               | **)**      | 17,920 |   |
|                                                                               |   |                      | ** ** |   |   |
| NET DECREASE IN CASH AND  CASH EQUIVALENTS                                         |   | **(1,619**                | **)**      | (285 | ) |
|                                                                               |   |                      | ** ** |   |   |
| CASH AND CASH EQUIVALENTS  AT BEGINNING OF PERIOD                                  |   | **2,008**                 | ** ** | 1,190 |   |
|                                                                               |   |                      | ** ** |   |   |
| CASH AND CASH EQUIVALENTS  AT END OF PERIOD                                        |   | **$**                     | **389**    | ** ** | $ | 905 |   |

 

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

 

3

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HICKORY TECH CORPORATION

SEPTEMBER 30, 2002

PART 1. FINANCIALINFORMATION

 

ITEM1.  NOTES TO CONSOLIDATED FINANCIALSTATEMENTS.

 

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, 2001.

 

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.

 

Beginning in the first quarter 2002, HickoryTech reports its previouslyreported business segments of Telephone, Communications Services and WirelessServices as a single segment referred to as the Telecom Sector. This new basisof segment reporting reflects the integration of HickoryTech’s management,sales, service and support functions in these three areas, as well asreflecting the level at which management now reviews and makes resource allocationand other management decisions regarding the operations of the company. Allsegment information reported in 2001 has been reclassified to conform to thisnew presentation.

 

In addition to the change in business segments, certainreclassifications were made to the financial statements as of and for the threemonths and nine months ended September 30, 2001 to conform to the 2002presentation. These reclassifications had no impact on previously reportedoperating revenue, net income or shareholders’ 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 and Enterprise Solutions Sector costs of sales.

 

NOTE2.  EARNINGS AND CASH DIVIDENDS PER COMMON SHARE

 

Basic earnings pershare 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** |   | **For Nine  Months Ended** |   |
|-----------------------------------------------|--------|-----------------------------|--------|----------------------------|--------|
|                                          |   | **9/30/02**                 |   | **9/30/01**                |   | **9/30/02** |   | **9/30/01** |   |
|                                          |   |                        |   |                       |   |   |   |   |   |
| Weighted Average  Shares Outstanding          |   | 14,058,750                  |   | 13,907,884                 |   | 14,008,985 |   | 13,895,659 |   |
| Stock Options  (dilutive only)                |   | 42,885                      |   | 105,745                    |   | 68,996 |   | 95,720 |   |
| Weighted Average  Stock Subscribed (ESPP)     |   | 15,692                      |   | 269                        |   | 14,951 |   | 90 |   |
| Weighted Average  Dilutive Shares Outstanding |   | 14,117,327                  |   | 14,013,898                 |   | 14,092,932 |   | 13,991,469 |   |

 

Options to purchase 117,150 shares and 39,750 shares for the threemonths ended September 30, 2002 and 2001, respectively, and 76,650 shares and39,750 shares for the nine months ended September 30, 2002 and 2001,respectively, were not included in the computation of earnings per shareassuming dilution because their effect on earnings per share would have beenantidilutive.

 

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 three quarters of 2002 and 2001.

 

| **Shares Outstanding on Record Date** |   | **2002**   |   | **2001**   |   |
|---------------------------------------|--------|------------|--------|------------|--------|
| First Quarter (Feb. 15)               |   | 13,971,484 |   | 13,886,669 |   |
| Second Quarter (May 15)               |   | 14,007,250 |   | 13,892,254 |   |
| Third Quarter (Aug. 15)               |   | 14,049,776 |   | 13,897,929 |   |

 

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

 

During the first nine months of 2002 and 2001, shareholders haveelected to reinvest $185,000 and $184,000, respectively, of dividends intoHickoryTech common stock pursuant to the HickoryTech Dividend ReinvestmentPlan.

 

NOTE3.  COMPREHENSIVE INCOME

 

For the three months and nine months ended September 30, 2002 and 2001,comprehensive income was comprised solely of net income.

 

NOTE4.  INVENTORIES

 

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

 

NOTE5.  INTANGIBLE ASSETS

 

HickoryTech adopted the provisions of Statement of Financial AccountingStandards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” effectiveJanuary 1, 2002. SFAS No. 142 required that goodwill and intangible assets withindefinite useful lives no longer be amortized, but instead tested forimpairment at least annually. Accordingly, at January 1, 2002, HickoryTechceased amortizing its goodwill (net carrying value as of September 30, 2002 of$25,086,000) and FCC licenses (net carrying value as of September 30, 2002 of$75,635,000). HickoryTech tested these intangible assets for impairment atJanuary 1, 2002 pursuant to the method prescribed by SFAS No. 142 anddetermined that these assets’ carrying values were not impaired.

 

5

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The following table adjusts previously reported net income to excludeamortization expense recognized from goodwill and FCC licenses as if SFAS No.142 had taken effect in 2001:

 

| ***(Dollars in Thousands, except Per  Share Amount*** |   | **For  Three Months Ended** |   | **For  Nine Months Ended** |   |
|-------------------------------------------------------|--------|-----------------------------|--------|----------------------------|--------|
| ***   and shown Net of  Income Tax)***      |   | **9/30/02**                 |   | **9/30/01**                |   | **9/30/02** |   | **9/30/01** |   |
|                                                  |   |                        |   |                       |   |   |   |   |   |
| Reported Net Income                                   |   | $                           | 2,094  |                       | $      | 2,740 |   | $ | 5,986 |   | $ | 6,707 |   |
| Goodwill Amortization                                 |   |                        |   | 113                        |   |   |   | 339 |   |
| FCC License Amortization                              |   |                        |   | 258                        |   |   |   | 776 |   |
| Adjusted Net Income                                   |   | $                           | 2,094  |                       | $      | 3,111 |   | $ | 5,986 |   | $ | 7,822 |   |
|                                                  |   |                        |   |                       |   |   |   |   |   |
| Basic and Diluted  Earnings Per Share:                |   |                        |   |                       |   |   |   |   |   |
| Reported Net Income                                   |   | $                           | 0.15   |                       | $      | 0.20 |   | $ | 0.43 |   | $ | 0.48 |   |
| Goodwill Amortization                                 |   |                        |   | 0.01                       |   |   |   | 0.03 |   |
| FCC License Amortization                              |   |                        |   | 0.02                       |   |   |   | 0.06 |   |
| Adjusted Net Income                                   |   | $                           | 0.15   |                       | $      | 0.23 |   | $ | 0.43 |   | $ | 0.57 |   |

 

Upon adoption at January 1, 2002, SFAS No. 142 also requiredHickoryTech to reassess the useful lives over which its other intangible assetsare amortized. These useful lives were not changed as a result of thisreassessment and, accordingly, these assets continue to be amortized over periodsranging from two to eight years.

 

The components of HickoryTech’s intangible assets are shown in thefollowing table:

 
|                               |   | **As of September 30, 2002** |   | **As of December 31, 2001**   |   |
|------------------------------------|--------|------------------------------|--------|-------------------------------|--------|
|                               |   | **Gross Carrying  Amount**   |   | **Accumulated  Amortization** |   | **Gross Carrying  Amount** |   | **Accumulated  Amortization** |   |
| Definite-Lived Intangible Assets   |   |                         |   |                          |   |   |   |   |   |
| Customers                          |   | $                            | 1,701  |                          | $      | 989 |   | $ | 1,701 |   | $ | 780 |   |
| Other Intangibles                  |   | 538                          |   | 245                           |   | 538 |   | 103 |   |
| Total                              |   | $                            | 2,239  |                          | $      | 1,234 |   | $ | 2,239 |   | $ | 883 |   |
|                               |   |                         |   |                          |   |   |   |   |   |
| Indefinite-Lived Intangible Assets |   |                         |   |                          |   |   |   |   |   |
| FCC Licenses                       |   | $                            | 75,635 |                          |   |   | $ | 75,635 |   |   |   |

 

Amortization expense related to the definite-lived intangible assetsfor the three months and nine months ended September 30, 2002 amounted to$124,000 and $351,000, respectively. Total estimated amortization expense for2002 and the five years subsequent to 2002 is as follows: 2002 - $466,000; 2003- $326,000; 2004 - $185,000; 2005 - $102,000; 2006 - $102,000 and 2007 -$102,000.

 

NOTE6.  RECENT ACCOUNTING DEVELOPMENTS

 

HickoryTech adopted the provisions of SFAS No. 144, “Accounting forImpairment or Disposal of Long-Lived Assets,” as of January 1, 2002. SFAS No.144 requires that long-lived assets that are to be disposed of by sale bemeasured at the lower of book value or fair value less cost to sell and alsosets forth requirements for recognizing and measuring impairment losses oncertain long-lived assets to be held or used. The adoption of SFAS No. 144 hadno impact on HickoryTech’s financial position or its results of operations.

 

In June 2001, the Financial Accounting Standards Board (FASB) issuedSFAS No. 143, “Accounting for Asset Retirement Obligations,” which addressesfinancial accounting and reporting for obligations associated with theretirement of tangible long-lived assets that result from the acquisition,construction, development or normal use of the asset. SFAS No. 143 is effectiveJanuary 1, 2003. HickoryTech is currently evaluating the provisions of SFAS No.143 and does not expect that adoption will have a material impact on itsfinancial position or its results of operations.

 

6

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In April 2002, the FASB issued SFAS No. 145, “Rescission of FASBStatements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and TechnicalCorrections.” SFAS No. 145 rescinds FASB Statement No. 4, “Reporting Gains andLosses from Extinguishment of Debt,” and an amendment of that Statement, FASBStatement No. 64, “Extinguishments of Debt Made to Satisfy Sinking-FundRequirements.” SFAS No. 145 also rescinds FASB Statement No. 44, “Accountingfor Intangible Assets of Motor Carriers,” and amends FASB Statement No. 13,“Accounting for Leases.” In June 2000, HickoryTech recorded an extraordinaryloss of $233,000, net of income tax benefit of $158,000, as a result of anextinguishment of debt. Under SFAS No. 145, this extraordinary loss on debtextinguishment will be reclassified to operating expenses when HickoryTechadopts SFAS No. 145 in the first quarter of 2003.

 

In June 2002, the FASB issued SFAS No. 146, “Accounting for CostsAssociated with Exit of Disposal Activities,” which replaces Emerging IssuesTask Force (EITF) Issue No. 94-3, “Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including CertainCosts Incurred in a Restructuring).” SFAS No. 146 requires companies torecognize costs associated with exit or disposal activities when they areincurred rather than at the date of a commitment to an exit or disposal plan.SFAS No. 146 is effective for, and HickoryTech will apply this standard on,exit or disposal activities that are initiated after December 31, 2002.

 

NOTE7.  QUARTERLY SECTOR FINANCIAL SUMMARY

 
| ***(In Thousands)***                           |   | **Telecom** |   | **Information  Solutions** |   | **Enterprise  Solutions** |   | **Corporate and  Eliminations** |   | **HickoryTech  Consolidated** |   |
|------------------------------------------------|--------|-------------|--------|----------------------------|--------|---------------------------|--------|---------------------------------|--------|-------------------------------|--------|
| **Three  Months Ended 9/30/02**                |   |        |   |                       |   |                      |   |                            |   |                          |   |
| Operating Revenue from  Unaffiliated Customers |   | $           | 22,474 |                       | $      | 981                       |   | $                               | 5,257  |                          | $      | — |   | $ | 28,712 |   |
| Intersegment Revenues                          |   | 68          |   | 1,062                      |   | —                    |   | (1,130                          | )      | —                        |   |
| Total                                          |   | 22,542      |   | 2,043                      |   | 5,257                     |   | (1,130                          | )      | 28,712                        |   |
|                                           |   |        |   |                       |   |                      |   |                            |   |                          |   |
| Depreciation and  Amortization                 |   | 3,793       |   | 519                        |   | 65                        |   | 56                              |   | 4,433                         |   |
| Operating Income/(Loss)                        |   | 6,446       |   | (600                       | )      | 282                       |   | (870                            | )      | 5,258                         |   |
| Interest Expense                               |   | 9           |   | 14                         |   | —                    |   | 1,729                           |   | 1,752                         |   |
| Income Taxes                                   |   | 2,647       |   | (293                       | )      | 109                       |   | (1,014                          | )      | 1,449                         |   |
| Net Income/(Loss)                              |   | 3,817       |   | (421                       | )      | 157                       |   | (1,459                          | )      | 2,094                         |   |
| Identifiable Assets                            |   | 250,448     |   | 7,082                      |   | 8,487                     |   | 12,389                          |   | 278,406                       |   |
| Property, Plant and  Equip., Net               |   | 129,792     |   | 5,820                      |   | 527                       |   | 180                             |   | 136,319                       |   |
| Capital Expenditures                           |   | 2,167       |   | 658                        |   | —                    |   | 72                              |   | 2,897                         |   |
|                                           |   |        |   |                       |   |                      |   |                            |   |                          |   |
| **Three  Months Ended 9/30/01**                |   |        |   |                       |   |                      |   |                            |   |                          |   |
| Operating Revenue from  Unaffiliated Customers |   | $           | 20,873 |                       | $      | 1,207                     |   | $                               | 5,479  |                          | $      | — |   | $ | 27,559 |   |
| Intersegment Revenues                          |   | 65          |   | 1,206                      |   | —                    |   | (1,271                          | )      | —                        |   |
| Total                                          |   | 20,938      |   | 2,413                      |   | 5,479                     |   | (1,271                          | )      | 27,559                        |   |
|                                           |   |        |   |                       |   |                      |   |                            |   |                          |   |
| Depreciation and  Amortization                 |   | 3,791       |   | 396                        |   | 91                        |   | 59                              |   | 4,337                         |   |
| Operating Income/(Loss)                        |   | 6,067       |   | (75                        | )      | 250                       |   | (3                              | )      | 6,239                         |   |
| Interest Expense                               |   | 7           |   | —                     |   | —                    |   | 2,746                           |   | 2,753                         |   |
| Income Taxes                                   |   | 2,369       |   | (57                        | )      | 95                        |   | (582                            | )      | 1,825                         |   |
| Net Income/(Loss)                              |   | 3,419       |   | (83                        | )      | 137                       |   | (733                            | )      | 2,740                         |   |
| Identifiable Assets                            |   | 250,523     |   | 5,989                      |   | 9,013                     |   | 13,321                          |   | 278,846                       |   |
| Property, Plant and  Equip., Net               |   | 128,036     |   | 3,460                      |   | 727                       |   | 30                              |   | 132,253                       |   |
| Capital Expenditures                           |   | 11,307      |   | 99                         |   | 107                       |   | —                          |   | 11,513                        |   |
|                                           |   |        |   |                       |   |                      |   |                            |   |                          |   |
| **Nine  Months Ended 9/30/02**                 |   |        |   |                       |   |                      |   |                            |   |                          |   |
| Operating Revenue from  Unaffiliated Customers |   | $           | 64,596 |                       | $      | 3,064                     |   | $                               | 11,655 |                          | $      | — |   | $ | 79,315 |   |
| Intersegment Revenues                          |   | 205         |   | 2,921                      |   | —                    |   | (3,126                          | )      | —                        |   |
| Total                                          |   | 64,801      |   | 5,985                      |   | 11,655                    |   | (3,126                          | )      | 79,315                        |   |
|                                           |   |        |   |                       |   |                      |   |                            |   |                          |   |
| Depreciation and  Amortization                 |   | 11,000      |   | 1,548                      |   | 201                       |   | 169                             |   | 12,918                        |   |
| Operating Income/(Loss)                        |   | 18,953      |   | (1,693                     | )      | (169                      | )      | (1,508                          | )      | 15,583                        |   |
| Interest Expense                               |   | 18          |   | 44                         |   | —                    |   | 5,504                           |   | 5,566                         |   |
| Income Taxes                                   |   | 7,746       |   | (794                       | )      | (90                       | )      | (2,720                          | )      | 4,142                         |   |
| Net Income/(Loss)                              |   | 11,171      |   | (1,143                     | )      | (129                      | )      | (3,913                          | )      | 5,986                         |   |
| Identifiable Assets                            |   | 250,448     |   | 7,082                      |   | 8,487                     |   | 12,389                          |   | 278,406                       |   |
| Property, Plant and  Equip., Net               |   | 129,792     |   | 5,820                      |   | 527                       |   | 180                             |   | 136,319                       |   |
| Capital Expenditures                           |   | 10,090      |   | 1,866                      |   | 55                        |   | 211                             |   | 12,222                        |   |
|                                           |   |        |   |                       |   |                      |   |                            |   |                          |   |
| **Nine  Months Ended 9/30/01**                 |   |        |   |                       |   |                      |   |                            |   |                          |   |
| Operating Revenue from  Unaffiliated Customers |   | $           | 63,114 |                       | $      | 3,150                     |   | $                               | 15,480 |                          | $      | — |   | $ | 81,744 |   |
| Intersegment Revenues                          |   | 203         |   | 3,751                      |   | —                    |   | (3,954                          | )      | —                        |   |
| Total                                          |   | 63,317      |   | 6,901                      |   | 15,480                    |   | (3,954                          | )      | 81,744                        |   |
|                                           |   |        |   |                       |   |                      |   |                            |   |                          |   |
| Depreciation and  Amortization                 |   | 10,820      |   | 596                        |   | 264                       |   | 181                             |   | 11,861                        |   |
| Operating Income/(Loss)                        |   | 17,603      |   | 785                        |   | 842                       |   | (772                            | )      | 18,458                        |   |
| Interest Expense                               |   | 23          |   | —                     |   | —                    |   | 8,421                           |   | 8,444                         |   |
| Income Taxes                                   |   | 7,005       |   | 276                        |   | 324                       |   | (3,016                          | )      | 4,589                         |   |
| Net Income/(Loss)                              |   | 10,080      |   | 397                        |   | 466                       |   | (4,236                          | )      | 6,707                         |   |
| Identifiable Assets                            |   | 250,523     |   | 5,989                      |   | 9,013                     |   | 13,321                          |   | 278,846                       |   |
| Property, Plant and  Equip., Net               |   | 128,036     |   | 3,460                      |   | 727                       |   | 30                              |   | 132,253                       |   |
| Capital Expenditures                           |   | 25,104      |   | 1,168                      |   | 197                       |   | 177                             |   | 26,646                        |   |

 

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NOTE8.  CONTINGENCIES

 

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

 

In the second quarter of 2002, HickoryTech’s Board of Directorsmodified the terms of the stock options of a retiring officer. The modificationextended the period after retirement during which the officer can exerciseoptions. This modification may result in HickoryTech recognizing up to $173,000of compensation expense during the first quarter of 2003.

 

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ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OFRESULTS OF OPERATIONS AND FINANCIAL CONDITION.

 

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

* *

*This Form 10-Qcontains forward-looking statements that are based on management’s currentexpectations, estimates and projections about the industry in which HickoryTechoperates and management’s beliefs and assumptions. Such forward-lookingstatements are subject to important risks and uncertainties that could causeHickoryTech’s future actual results to differ materially from such statements.These statements are not guarantees of future performance and involve certainrisks, uncertainties and probabilities, which are difficult to predict.Therefore, actual outcomes and results may differ materially from what isexpressed or forecasted in such forward-looking statements, whether as a resultof new information, future events or otherwise.  Factors that might cause such a difference include, but are notlimited to, those contained in this “Management’s Discussion and Analysis” (Item2) and Exhibit 99 (Cautionary Statement for Purposes of the “Safe Harbor”Provision of the Private Securities Litigation Reform Act of 1995) toHickoryTech’s Annual Report on Form 10-K for the year ended December 31, 2001.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.*

** **

**BUSINESSES**

 

The business segments of HickoryTech are:

 

*TELECOM SECTOR*

 

HickoryTech’s Telecom Sector (formerly the individual Telephone Sector,Communications Services Sector and Wireless Services Sector) provides localexchange wireline and wireless telephone service, long distance, dial-upinternet access and owns and operates fiber optic cable facilities. This sectorincludes three incumbent local exchange carriers (ILECs). Two ILECs providetelephone service in south central Minnesota, specifically Mankato (a smallurban city) and eleven rural communities surrounding Mankato. The third ILECprovides telephone service for eleven rural communities in northwest Iowa. Thissector also includes HickoryTech’s competitive local exchange carrier (CLEC),which provides local telephone service, long distance and dial-up Internetaccess on a competitive basis to customers in eight rural communities inMinnesota and six rural communities in Iowa not in HickoryTech’s ILEC serviceareas. The Telecom Sector also includes a wireless telephone business in southcentral Minnesota. The wireless telephone business consists of the “A-side” FCCcellular license to operate in Minnesota’s Rural Service Area (RSA) 10, theMinneapolis/St. Paul Metro A-2 cellular license and two digital personalcommunications services (PCS) licenses covering the Minnesota Basic TradingAreas (BTAs) of Mankato-Fairmont and Rochester-Austin-Albert Lea. HickoryTechalso owns and operates fiber optic cable facilities in Minnesota, which areused to transport interexchange communications as a service to telephoneindustry customers. HickoryTech’s Minnesota ILECs and its CLEC are the primaryusers of the fiber optic cable facilities.

* *

*INFORMATIONSOLUTIONS SECTOR*

 

HickoryTech’s Information Solutions Sector provides data processing andrelated services, principally for HickoryTech, other ILECs, CLECs,interexchange network carriers, wireless companies, municipalities andutilities. HickoryTech’s Information Solutions Sector’s principal activity isthe provision of monthly batch processing of computerized data. This sector hasdeveloped a new integrated billing and management system called SuiteSolution.For internal use, SuiteSolution enables HickoryTech to become a full-servicebilling provider for all aspects of the telecommunications industry. Forexternal use, SuiteSolution can provide a billing platform for wireline andwireless carriers. The Information Solutions Sector also has legacy systems,such as its carrier access billing products.

 

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*ENTERPRISE SOLUTIONS SECTOR*

 

The Enterprise Solutions Sector’s activities are focused on the sale,installation and service of business telephone systems and data communicationsequipment to companies based in metropolitan Minneapolis/St. Paul,Minnesota.  This sector also supportsthe business telephone system service for HickoryTech ILEC and CLEC operationsin Minnesota and Iowa.

 

**RESULTS OF 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 operating revenues were $1,153,000 or 4.2% higher for the threemonths ended September 30, 2002 than for the three months ended September 30,2001. The revenue increase in the third quarter was attributable to a 10.7%increase in HickoryTech’s total customer base in its Telecom Sector, local rateincreases by HickoryTech’s ILECs and revenue recognized as a result of servicesprovided under terms of a multi-year contract awarded to HickoryTech effectiveJuly 1, 2002 to provide Internet access and video conferencing to schools andlibraries in south central Minnesota served by the Project SOCRATES distance-learningnetwork. Consolidated operating revenues were $2,429,000 or 3.0% lower for thenine months ended September 30, 2002 than for the nine months ended September30, 2001. The revenue decrease was primarily attributable to a lower volume ofbusiness in the Enterprise Solutions Sector and a decline in wireless roamingrevenue in the Telecom Sector. These decreases were partially offset by theincrease in HickoryTech’s total customer base in its Telecom Sector, inaddition to the impact of local rate increases by HickoryTech’s ILECs, also inthe Telecom Sector.

 

COST OF SALES,ENTERPRISE SOLUTIONS – Cost of sales in the EnterpriseSolutions Sector were $178,000 or 4.6% lower for the three months endedSeptember 30, 2002 than for the three months ended September 30, 2001. Cost ofsales were $2,598,000 or 24.7% lower for the nine months ended September 30,2002 than for the nine months ended September 30, 2001. The decrease in cost ofsales is the result of the decrease in revenue and a related decrease in volumein the Enterprise Solutions Sector. The gross profit margin in the EnterpriseSolutions Sector for the three months and nine months ended September 30, 2002was 29.8% and 32.2%, respectively, as compared to 29.4% and 32.2% for the sameperiods in 2001.

 

OPERATING EXPENSES(excluding Depreciation and Amortization) - Operatingexpenses for the three months ended September 30, 2002 increased $2,216,000 or16.9% compared with the same period in 2001. Operating expenses for the ninemonths ended September 30, 2002 increased $1,987,000 or 4.9% compared with thesame period in 2001. Operating expenses in the three months and nine monthsended September 30, 2002 were higher due to bad debt expense of $551,000 and$1,746,000, respectively, due in large part to bankruptcies of interexchangecarriers in the telecommunications industry. Telecom Sector operating expensesin the third quarter were also higher due to higher customer counts in thissector, along with higher advertising and marketing expenses. Another reasonfor the increased operating expenses in the third quarter were higher corporatecosts related to executive management, insurance and human resource studies.

 

10

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DEPRECIATION AND AMORTIZATION - Depreciation expense for the three months ended September 30, 2002was $781,000 or 23.9% higher than for the same period in 2001. Depreciationexpense for the nine months ended September 30, 2002 was $2,580,000 or 28.0%higher than for the same period in 2001. The buildout of HickoryTech’s CLEC andfiber optic networks primarily account for the increase in depreciationexpense. Amortization expense for the three months ended September 30, 2002 was$685,000 or 64.3% lower than for the same period in 2001. Amortization expensefor the nine months ended September 30, 2002 was $1,523,000 or 57.6% lower thanfor the same period in 2001. If SFAS No. 142 had taken effect in 2001,amortization expense for the third quarter 2002 would have decreased $55,000over the third quarter 2001 and amortization expense would have increased$367,000 over the first nine months of 2001. The increase in amortizationexpense for the first nine months of 2002 was due to amortization ofcapitalized software development costs related to the Information SolutionsSector’s SuiteSolution billing software, which began in the third quarter 2001.

 

OPERATING INCOME- Operating income was 15.7% lower for the three months ended September 30,2002 than for the three months ended September 30, 2001. Operating income was15.6% lower for the nine months ended September 30, 2002 than for the ninemonths ended September 30, 2001. The decrease in operating income primarilyreflects the impact of the increase in operating expenses for this period,along with the increase in depreciation expense related to building out theinfrastructure of the CLEC business in the Telecom Sector and the decrease inoperating revenues for the Enterprise Solutions Sector. These impacts werepartially offset by lower amortization expense due to the adoption of SFAS No.142.

 

INTEREST EXPENSE- Interest expense decreased $1,001,000 or 36.4% for the three months endedSeptember 30, 2002, compared to the same period in 2001. Interest expensedecreased $2,878,000 or 34.1% for the nine months ended September 30, 2002,compared to the same period in 2001. The decrease in interest expense wasprimarily due to a decrease in the weighted average interest rate onHickoryTech’s revolving credit facility from 6.30% on September 30, 2001 to 4.37%on September 30, 2002. The outstanding balance of the revolving credit facilitywas $161,250,000 on September 30, 2002.

 

NET INCOME- Consolidated net income for the threemonths ended September 30, 2002 was $646,000 or 23.6% lower than the comparableperiod in 2001. Consolidated net income for the nine months ended September 30,2002 was $721,000 or 10.7% lower than the comparable period in 2001. The thirdquarter 2001 included an after-tax gain on the sale of Amana Colonies TelephoneCompany (ACTC) of $598,000. The nine months ended September 30, 2001 includedafter-tax gains on the sale of ACTC and other assets of $681,000. If SFAS No.142 had taken effect in 2001 and excluding the gains in 2001, net income forthe third quarter 2002 would have decreased $419,000 or 16.7% compared to thethird quarter 2001 and net income would have decreased $1,155,000 or 16.2% forthe first nine months of 2002 compared to the same period in 2001.  The primary reasons for this decrease in netincome for HickoryTech were the decrease in operating revenues for theEnterprise Solutions Sector for the first nine months of 2002, the increase indepreciation expense due to the building out of the CLEC infrastructure and theadditional allowance for doubtful accounts recorded in 2002.

 

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SECTORRESULTS OF OPERATIONS

 

TELECOM – Thefollowing table provides a breakdown of the Telecom Sector operating results.

 

**TELECOM**

 
|                                                                        |   | **For Three Months Ended** |       | **For Nine Months Ended** |       |
|-----------------------------------------------------------------------------|--------|----------------------------|------------|---------------------------|------------|
| ***(Dollars in Thousands)***                                                |   | **9/30/02**                |       | **9/30/01**               |       | **9/30/02** |   | **9/30/01** |   |
| Revenues Before Intersegment Eliminations                                   |   |                       |       |                      |       |   |   |   |   |
| ILEC                                                                        |   |                       |       |                      |       |   |   |   |   |
| Local Service                                                               |   | $                          | 3,760      |                      | $          | 3,675 |   | $ | 11,319 |   | $ | 10,739 |   |
| Network Access                                                              |   | 8,096                      |       | 7,607                     |       | 24,154 |   | 23,567 |   |
| Intersegment                                                                |   | 68                         |       | 65                        |       | 205 |   | 203 |   |
| Other                                                                       |   | 2,231                      |       | 2,281                     |       | 6,889 |   | 6,993 |   |
| Total ILEC                                                                  |   | 14,155                     |       | 13,628                    |       | 42,567 |   | 41,502 |   |
|                                                                        |   |                       |       |                      |       |   |   |   |   |
| CLEC                                                                        |   |                       |       |                      |       |   |   |   |   |
| Local Service                                                               |   | 820                        |       | 618                       |       | 2,216 |   | 1,652 |   |
| Other                                                                       |   | 1,247                      |       | 519                       |       | 2,703 |   | 1,441 |   |
| Total CLEC                                                                  |   | 2,067                      |       | 1,137                     |       | 4,919 |   | 3,093 |   |
|                                                                        |   |                       |       |                      |       |   |   |   |   |
| Long Distance                                                               |   | 1,028                      |       | 933                       |       | 2,928 |   | 2,812 |   |
|                                                                        |   |                       |       |                      |       |   |   |   |   |
| Internet                                                                    |   | 918                        |       | 750                       |       | 2,648 |   | 2,256 |   |
|                                                                        |   |                       |       |                      |       |   |   |   |   |
| Wireless                                                                    |   |                       |       |                      |       |   |   |   |   |
| Service                                                                     |   | 2,502                      |       | 2,719                     |       | 7,336 |   | 7,801 |   |
| Home Roaming                                                                |   | 284                        |       | 253                       |       | 758 |   | 536 |   |
| Roaming                                                                     |   | 1,588                      |       | 1,518                     |       | 3,645 |   | 5,317 |   |
| Total Wireless                                                              |   | 4,374                      |       | 4,490                     |       | 11,739 |   | 13,654 |   |
|                                                                        |   |                       |       |                      |       |   |   |   |   |
| **Total Telecom  Revenues Before Intersegment Eliminations**                |   |                       | ** ** |                      | ** ** |   | ** ** |   | ** ** |
| Unaffiliated Customers                                                      |   | $                          | 22,474     |                      | $          | 20,873 |   | $ | 64,596 |   | $ | 63,114 |   |
| Intersegment                                                                |   | 68                         |       | 65                        |       | 205 |   | 203 |   |
|                                                                        |   | 22,542                     |       | 20,938                    |       | 64,801 |   | 63,317 |   |
| Operating Expenses, excluding Depr. and Amort.                              |   | 12,303                     |       | 11,080                    |       | 34,848 |   | 34,894 |   |
| Depreciation and Amortization                                               |   | 3,793                      |       | 3,791                     |       | 11,000 |   | 10,820 |   |
| Operating Income                                                            |   | $                          | 6,446      |                      | $          | 6,067 |   | $ | 18,953 |   | $ | 17,603 |   |
| Net Income                                                                  |   | $                          | 3,817      |                      | $          | 3,419 |   | $ | 11,171 |   | $ | 10,080 |   |
| Earnings Before Interest, Taxes, Depreciation and Amortization  (EBITDA)(1) |   | $                          | 10,239     |                      | $          | 9,858 |   | $ | 29,953 |   | $ | 28,423 |   |
|                                                                        |   |                       |       |                      |       |   |   |   |   |
| Capital Expenditures                                                        |   | $                          | 2,167      |                      | $          | 11,307 |   | $ | 10,090 |   | $ | 25,104 |   |
|                                                                        |   |                       |       |                      |       |   |   |   |   |
| ILEC Access Lines                                                           |   | 65,360                     |       | 65,783                    |       |   |   |   |   |
|                                                                        |   |                       |       |                      |       |   |   |   |   |
| CLEC Access Lines                                                           |   |                       |       |                      |       |   |   |   |   |
| Overbuild                                                                   |   | 7,385                      |       | 4,083                     |       |   |   |   |   |
| UNE                                                                         |   | 1,311                      |       | 1,363                     |       |   |   |   |   |
| TSR                                                                         |   | 4,736                      |       | 5,448                     |       |   |   |   |   |
| Total                                                                       |   | 13,432                     |       | 10,894                    |       |   |   |   |   |
|                                                                        |   |                       |       |                      |       |   |   |   |   |
| Long Distance Customers                                                     |   | 33,746                     |       | 23,070                    |       |   |   |   |   |
|                                                                        |   |                       |       |                      |       |   |   |   |   |
| Internet Customers                                                          |   | 13,936                     |       | 11,852                    | (a)        |   |   |   |   |
|                                                                        |   |                       |       |                      |       |   |   |   |   |
| Wireless Customers                                                          |   | 26,254                     |       | 26,328                    |       |   |   |   |   |
|                                                                        |   |                       |       |                      |       |   |   |   |   |
| Total Telecom Customers                                                     |   | 152,728                    |       | 137,927                   |       |   |   |   |   |

 

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(a)     Internet customer count reported for the quarter ended September 30,2001 was 14,089. This count included 2,237 inactive accounts, which have beenremoved from the customer base.

 

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Telecom Sector operating revenues before intersegment eliminations forthe three months ended September 30, 2002 increased $1,604,000 or 7.7% comparedwith the same period in 2001. Operating revenues before intersegmenteliminations for the nine months ended September 30, 2002 increased $1,484,000or 2.3% compared with the same period in 2001. Amana Colonies Telephone Company(ACTC), which was sold on August 6, 2001, contributed $143,000 and $830,000 ofrevenues to this sector during the three months and nine months ended September30, 2001, respectively. Local service rates were increased in HickoryTech’sIowa ILEC in May 2001 and in the Minnesota ILECs in December 2001, whichcontributed $218,000 of incremental revenue in the third quarter of 2002 and$724,000 of incremental revenue for the first nine months of 2002. Without thelocal service rate increases and excluding the revenues from ACTC, Telecomrevenues would have increased $1,529,000 or 7.4% for the third quarter of 2002and $1,590,000 or 2.5% for the first nine months of 2002 compared to the sameperiods in 2001.

 

ILEC local service revenue increased $85,000 or 2.3% for the threemonths ended September 30, 2002 and $580,000 or 5.4% for the nine months endedSeptember 30, 2002 compared with the same periods in 2001. ACTC contributed$47,000 and $159,000 to local service revenue for the third quarter and for thefirst nine months of 2001, respectively. Without the local service rateincrease and excluding the revenues from ACTC, local service revenue would havedecreased $86,000 or 2.4% for the three months ended September 30, 2002 andincreased $15,000 or 0.1% for the nine months ended September 30, 2002 comparedwith the same periods in 2001. The decrease in local service revenue for thethird quarter was due to a 0.6% decline in ILEC access lines and credits givento Centrex customers based on trunk equivalency for the subscriber line charge,which was increased in January 2002. The trunk equivalency credits were offsetby increased demand for local private lines and higher revenue from verticalservices such as caller identification, call waiting and three-way calling inthe first nine months of 2002.

 

ILEC network access revenue increased $489,000 or 6.4% for the threemonths ended September 30, 2002 and $587,000 or 2.5% for the nine months endedSeptember 30, 2002 compared with the same periods in 2001. ACTC contributed$88,000 and $592,000 to network access revenue for the third quarter and forthe first nine months of 2001, respectively. Excluding the revenue from ACTC,network access revenue would have increased $577,000 or 7.7% for the threemonths ended September 30, 2002 and $1,179,000 or 5.1% for the nine monthsended September 30, 2002 compared with the same periods in 2001. The increasein network access revenue was driven by higher demand for dedicated lines andhigh-speed circuits. These increases in network access revenue were partiallyoffset by a 3.8% decline in access minutes of use for the first nine months of2002 compared to the same period in 2001. This decline in minutes of use is expected to continue in the future.

 

CLEC local service revenue increased $202,000 or 32.7% for the threemonths ended September 30, 2002 and $564,000 or 34.1% for the nine months endedSeptember 30, 2002 compared with the same periods in 2001. CLEC access lines grew23.3% from September 30, 2001 to September 30, 2002, which was the primaryreason for the increase in local service revenue.

 

Other CLEC revenue increased $728,000 or 140.3% for the three monthsended September 30, 2002 and $1,262,000 or 87.6% for the nine months endedSeptember 30, 2002 compared with the same periods in 2001. Other revenueincluded network access and high-speed data revenues which generally grew alongwith the increase in access lines. Also included in other revenue was therevenue recorded from the CLEC’s offering of digital TV service, which wasrolled out in May 2001 and has grown to 728 customers as of September 30, 2002.This growth in digital TV resulted in increased revenues of $35,000 and$128,000 for the three and nine months ended September 30, 2002, respectively,as compared to the same periods in 2001. Another reason for the increase inother revenue in 2002 was the additional $386,000 of revenue recognized as aresult of services provided under terms of a multi-year contract awardedto HickoryTech effective July 1, 2002 to provide Internet access and videoconferencing to schools and libraries in south central Minnesota served by theProject SOCRATES distance-learning network.

 

Long distance revenue increased $95,000 or 10.2% for the three monthsended September 30, 2002 and $116,000 or 4.1% for the nine months endedSeptember 30, 2002 compared with the same periods in 2001. This sectorexperienced a 46.3% increase in its long distance customer base from September30, 2001 to September 30, 2002, with long distance revenues for the first ninemonths of 2002 only increasing 4.1% over the same period in 2001. This slowergrowth in long distance revenues is the result of the decreasing long distancerevenue per customer that the entire industry is experiencing.

 

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Internet revenue increased $168,000 or 22.4% for the three months endedSeptember 30, 2002 and $392,000 or 17.4% for the nine months ended September30, 2002 compared with the same periods in 2001. The increase in revenue wascaused primarily by an increase in Internet customers of 17.6% from September30, 2001 to September 30, 2002. The Internet customer count reported as ofSeptember 30, 2001 was 14,089. This customer count included 2,237 inactiveaccounts, which subsequently have been removed from the customer base. Inaddition to the increase in customers, Internet revenue increased due to amigration of Internet customers from low-price introductory rate plans to mid-rangefull-service Internet packages.

 

Wireless service revenue decreased $217,000 or 8.0% for the threemonths ended September 30, 2002 and $465,000 or 6.0% for the nine months endedSeptember 30, 2002 compared with the same periods in 2001. Wireless customercounts declined 0.3% from September 30, 2001 to September 30, 2002, accountingfor a portion of the decline in service revenue. The remainder of the decreasein service revenue was due to a decline in the average revenue per subscriber.HickoryTech began marketing new wireless service plans during the third quarterof 2002 which offered customers less expensive options, as well as options forunlimited airtime. The introduction of these new plans was the primary reasonwhy the wireless customer base grew 1.7% since June 30, 2002, and has alsoresulted in less revenue per subscriber.

 

Wireless roaming revenue increased $70,000 or 4.6% for the three monthsended September 30, 2002 and decreased $1,672,000 or 31.4% for the nine monthsended September 30, 2002 compared with the same periods in 2001. Roamingminutes from other wireless carriers’ customers travelling into HickoryTech’scellular service territory have eroded from historical levels, particularly dueto technological changes among other wireless providers which re-route theroaming minutes from HickoryTech’s wireless service towers to other providers.In addition, other PCS wireless carriers have continued to build-out PCSlicenses to compete with HickoryTech in RSA 10. This decline in roaming minuteswas experienced by HickoryTech during the third quarter 2001, and has persistedfrom that time. This trend of reduced roaming revenue is expected to continue.The wireless roaming revenue increase in the third quarter of 2002 compared tothe third quarter of 2001 was a potentially temporary reversal of what hasbecome a trend of decreasing roaming revenue, possibly caused by a seasonalpeak of high roaming traffic in the wireless area served by HickoryTech.

 

Operating expenses excluding depreciation and amortizationincreased  $1,223,000 or 11.0% for thethree months ended September 30, 2002 and decreased $46,000 or 0.1% for thenine months ended September 30, 2002 compared with the same periods in 2001.ACTC contributed $138,000 and $656,000 of operating expenses to this sectorduring the three months and nine months ended September 30, 2001, respectively.Excluding the operating expenses from ACTC, Telecom operating expenses wouldhave increased $1,361,000 or 12.4% for the third quarter of 2002 and $610,000or 1.8% for the first nine months of 2002 compared to the same periods in 2001.One reason for the increase in operating expenses was the $551,000 and$1,746,000 of additional bad debt expense recorded in the third quarter andfirst nine months of 2002, respectively, due in large part to bankruptcies ofinterexchange carriers in the telecommunications industry. In addition, thissector’s operating expenses grew due to increased advertising and marketing ofits competitive local service and the new wireless service plans, along withincreased wireless phone expense due to a large number of gross customeradditions during the quarter. Project SOCRATES also added to the increase inoperating expenses as HickoryTech either uses its own facilities for the provisionof this service or it pays other carriers when it utilizes their networks toprovide this service. The increases in operating expenses noted above for thenine months ended September 30, 2002 were partially offset by improvedefficiencies achieved in the design and operation of HickoryTech’s network asit pertains to its CLEC and internet operations. In addition, managementactions aimed at reducing operating costs, which began in the first quarter of2001, and the combination of certain operating functions aided in reducingoperating expenses for this sector through the first nine months of 2002.HickoryTech has also implemented specific cost reduction initiatives such asusing its PCS network to reduce roaming expense for its wireless product, closelyauditing the interconnection fees paid to other carriers for its CLEC productand reducing the plant installation and engineering costs of its Network Designand Operations Division.

 

Depreciation and amortization increased $2,000 for the three months endedSeptember 30, 2002 and $180,000 or 1.8% for the nine months ended September 30,2002 compared with the same periods in 2001. Depreciation expense increased$660,000 or 21.7% for the three months ended September 30, 2002 and $2,020,000or 23.1% for the nine months ended September 30, 2002 compared with the sameperiods in 2001. The buildout of HickoryTech’s CLEC and

 

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fiber optic networks primarily account for theincrease in depreciation expense. For the three months and nine months endedSeptember 30, 2002 compared to the same periods in 2001, depreciation expenseincreased $208,000 or 10.3% and $686,000 or 11.6%, respectively, for thenetworks associated with its ILEC product and $373,000 or 74.3% and $1,271,000or 109.8%, respectively, for the networks associated with its CLEC product.Amortization expense decreased $658,000 or 88.4% for the three months endedSeptember 30, 2002 and $1,840,000 or 88.6% for the nine months ended September30, 2002 compared with the same periods in 2001. If SFAS No. 142 had takeneffect in 2001, amortization expense would have decreased $63,000 and $57,000for the three months and nine months ended September 30, 2002, respectively,compared with the same periods in 2001.

 

Operating income increased $379,000 or 6.2% for the three months endedSeptember 30, 2002 and $1,350,000 or 7.7% for the nine months ended September30, 2002 compared with the same periods in 2001. Net income increased $398,000or 11.6% for the three months ended September 30, 2002 and $1,091,000 or 10.8%for the nine months ended September 30, 2002 compared with the same periods in2001. The increases in operating and net income resulted from the decrease inamortization expense and increases in revenues described above, partiallyoffset by the increases in operating expenses described above. If SFAS No. 142had taken effect in 2001, operating income for the quarter and nine monthsended September 30, 2002 would have decreased $216,000 or 3.2% and $433,000 or2.2%, respectively, compared with the same periods in 2001. If SFAS No. 142 hadtaken effect in 2001, net income for the quarter and nine months endedSeptember 30, 2002 would have increased $47,000 or 1.2% and $39,000 or 0.4%,respectively, compared with the same periods in 2001.

 

EBITDA(1) increased  $381,000 or3.9% for the three months ended September 30, 2002 and $1,530,000 or 5.4% forthe nine months ended September 30, 2002 compared with the same periods in2001. The EBITDA(1) margin for this sector was 45.4% and 46.2% for the threemonths and nine months ended September 30, 2002, respectively, compared to47.1% and 44.9% for the same periods in 2001. The increase in EBITDA and EBITDAmargin was primarily due to the increase in revenues, partially offset by theincreases in operating expenses.

 

INFORMATION SOLUTIONS – The following table provides a breakdown of the InformationSolutions Sector operating results.

 

**INFORMATION SOLUTIONS**

 
|                                           |   | **For Three Months Ended** |   | **For Nine Months Ended** |   |
|------------------------------------------------|--------|----------------------------|--------|---------------------------|--------|
| ***(Dollars in  Thousands)***                  |   | **9/30/02**                |   | **9/30/01**               |   | **9/30/02** |   | **9/30/01** |   |
| Revenues Before Intersegment Eliminations      |   |                       |   |                      |   |   |   |   |   |
| Unaffiliated Customers                         |   | $                          | 981    |                      | $      | 1,207 |   | $ | 3,064 |   | $ | 3,150 |   |
| Intersegment                                   |   | 1,062                      |   | 1,206                     |   | 2,921 |   | 3,751 |   |
|                                           |   | 2,043                      |   | 2,413                     |   | 5,985 |   | 6,901 |   |
| Operating Expenses, excluding Depr. and Amort. |   | 2,124                      |   | 2,092                     |   | 6,130 |   | 5,520 |   |
| Depreciation and Amortization                  |   | 519                        |   | 396                       |   | 1,548 |   | 596 |   |
| Operating Income/(Loss)                        |   | $                          | (600   | )                         | $      | (75 | ) | $ | (1,693 | ) | $ | 785 |   |
| Net Income/(Loss)                              |   | $                          | (421   | )                         | $      | (83 | ) | $ | (1,143 | ) | $ | 397 |   |
| Earnings Before Interest, Taxes,               |   |                       |   |                      |   |   |   |   |   |
| Depreciation and Amortization (EBITDA)(1)      |   | $                          | (81    | )                         | $      | 321 |   | $ | (145 | ) | $ | 1,381 |   |
|                                           |   |                       |   |                      |   |   |   |   |   |
| Capital Expenditures                           |   | $                          | 658    |                      | $      | 99 |   | $ | 1,866 |   | $ | 1,168 |   |

 

Operating revenues from unaffiliated customers for the three monthsended September 30, 2002 decreased $226,000 or 18.7% compared with the sameperiod in 2001. Operating revenues from unaffiliated customers for the ninemonths ended September 30, 2002 decreased $86,000 or 2.7% compared with thesame period in 2001. The decrease in operating revenues for the third quarterwas due to the recognition of $165,000 of revenue during the third quarter of2001 related to one-time processing of certain billing information for a newcustomer. For the first nine months of 2002, this decrease in operatingrevenues was partially offset by the impact of new customer relationships formonthly batch processing services, as well as the implementation of thepredecessor to SuiteSolution called WRITE2Kby a new customer.

 

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Operating expensesexcluding depreciation and amortization increased $32,000 or 1.5% for the threemonths ended September 30, 2002 and $610,000 or 11.1% for the nine months endedSeptember 30, 2002 compared with the same periods in 2001. This sectorcapitalized internal development costs associated with SuiteSolution during2001. The capitalization of these costs ended during the third quarter of 2001as the development of SuiteSolution had reached the point where the product wasavailable for release to customers. As a result of development costs forSuiteSolution no longer being capitalized, operating expenses for this sectorwere higher in the first nine months of 2002 as development personnel weredeployed on routine operating and implementation duties.

 

Depreciation andamortization increased $123,000 or 31.1% for the three months ended September30, 2002 and $952,000 or 159.7% for the nine months ended September 30, 2002compared with the same periods in 2001. Depreciation expense for the threemonths ended September 30, 2002 was $112,000 higher than the three months endedSeptember 30, 2001. Depreciation expense for the nine months ended September30, 2002 was $520,000 higher than the nine months ended September 30, 2001. Theincrease was due to depreciation expense recorded on capitalized leases for newcomputer equipment and depreciation expense recorded on other capitalexpenditures related to equipment acquired in support of the development andimplementation of SuiteSolution. Amortization expense for the three monthsended September 30, 2002 was $10,000 higher than the three months endedSeptember 30, 2001. Amortization expense for the nine months ended September30, 2002 was $431,000 higher than the nine months ended September 30, 2001. Theincrease was due to the amortization of capitalized SuiteSolution developmentcosts, which began in the third quarter of 2001.

 

Operating incomedecreased $525,000 or 700.0% for the three months ended September 30, 2002 and$2,478,000 or 315.7% for the nine months ended September 30, 2002 as comparedto the same periods in 2001. Net income decreased $338,000 or 407.2% for thethree months ended September 30, 2002 and $1,540,000 or 387.9% for the ninemonths ended September 30, 2002 compared to the same periods in 2001. The decrease in operating income and net incomewas primarily attributable to the decrease in operating revenues and theincrease in operating expenses, including depreciation and amortization.

 

EBITDA(1) decreased $402,000 or 125.2% for the quarter ended September30, 2002 and $1,526,000 or 110.5% for the nine months ended September 30, 2002compared with the same periods in 2001. The EBITDA(1) margin for this sectorwas (4.0%) for the quarter ended September 30, 2002 compared to 13.3% for thesame quarter in 2001. The EBITDA(1) margin for this sector was (2.4%) for thenine months ended September 30, 2002 compared to 20.0% for the same period in2001. The decrease in EBITDA and the EBITDA margin was primarily due todecreased operating revenues and increased operating expenses.

 

ENTERPRISE SOLUTIONS– The following table provides a breakdown of the Enterprise Solutions Sectoroperating results.

 

**ENTERPRISE SOLUTIONS**

 
|                                           |   | **For Three Months Ended** |   | **For Nine Months Ended** |   |
|------------------------------------------------|--------|----------------------------|--------|---------------------------|--------|
| ***(Dollars in  Thousands)***                  |   | **9/30/02**                |   | **9/30/01**               |   | **9/30/02** |   | **9/30/01** |   |
| Revenues Before Intersegment Eliminations      |   |                       |   |                      |   |   |   |   |   |
| Installation                                   |   | $                          | 3,352  |                      | $      | 3,339 |   | $ | 6,008 |   | $ | 8,745 |   |
| Service                                        |   | 1,905                      |   | 2,140                     |   | 5,647 |   | 6,735 |   |
|                                           |   | 5,257                      |   | 5,479                     |   | 11,655 |   | 15,480 |   |
| Cost of Sales                                  |   | 3,688                      |   | 3,866                     |   | 7,905 |   | 10,503 |   |
| Operating Expenses, excluding Depr. and Amort. |   | 1,222                      |   | 1,272                     |   | 3,718 |   | 3,871 |   |
| Depreciation and Amortization                  |   | 65                         |   | 91                        |   | 201 |   | 264 |   |
| Operating Income/(Loss)                        |   | $                          | 282    |                      | $      | 250 |   | $ | (169 | ) | $ | 842 |   |
| Net Income/(Loss)                              |   | $                          | 157    |                      | $      | 137 |   | $ | (129 | ) | $ | 466 |   |
| Earnings Before Interest, Taxes,               |   |                       |   |                      |   |   |   |   |   |
| Depreciation and Amortization (EBITDA)(1)      |   | $                          | 347    |                      | $      | 341 |   | $ | 32 |   | $ | 1,106 |   |
|                                           |   |                       |   |                      |   |   |   |   |   |
| Capital Expenditures                           |   | $                          | — |                      | $      | 107 |   | $ | 55 |   | $ | 197 |   |

 

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Operating revenues decreased $222,000 or 4.1% for the three monthsended September 30, 2002 and $3,825,000 or 24.7% for the nine months endedSeptember 30, 2002 compared with the same periods in 2001. Sales volumes in the2002 are down in this sector compared to 2001. Installation revenue was 0.4%higher for the three months ended September 30, 2002 and 31.3% lower for thenine months ended September 30, 2002 compared with the same periods in 2001.The decrease in installation revenue for the first nine months of 2002 wasprimarily a result of a decrease in sales and installations of PBX and smallbusiness systems of 38.8%. Service revenue was 11.0% lower for the three monthsended September 30, 2002 and 16.2% lower for the nine months ended September30, 2002 compared with the same periods in 2001. This sector has encounteredacross the board reductions in demand in all of its major products andservices. The reduction occurred in early 2002, and is believed to be associatedwith the economy’s effect on customers of this sector, and due to the changingof technology (i.e. voice vs. data protocol) in the communications productswhich this sector provides. These factors appear to be affecting the industryand not merely this sector in any unique way. It is unknown when customerdemand for these products and services may return to historical levels. Thissector did experience an increase in its installation revenues during the thirdquarter of 2002 due to revenues related to a significant voice over InternetProtocol network HickoryTech is installing in the corporate offices of a largespecialty retailer. This contract represents what is expected to be the largestsingle-campus telecommunication deployment in the United States this year andadded significant revenues to Enterprise Solutions in the third quarter of2002. As of September 30, 2002, this contract was estimated to be approximately65% completed.

 

Cost of sales decreased $178,000 or 4.6% for the three months endedSeptember 30, 2002 and $2,598,000 or 24.7% for the nine months ended September30, 2002 compared with the same periods in 2001. Gross profit margin for thissector for the three months and nine months ended September 30, 2002 was 29.8%and 32.2%, respectively, as compared to 29.4% and 32.2% for the same periods in2001. The decrease in cost of sales was in line with the decrease in operatingrevenues in this sector.

 

Operating expenses excluding depreciation and amortization decreased$50,000 or 3.9% for the three months ended September 30, 2002 and $153,000 or4.0% for the nine months ended September 30, 2002 compared with the sameperiods in 2001.  This sector reducedits operating expenses through proactive management steps, such as workforcereductions.

 

Depreciation and amortization decreased $26,000 or 28.6% for the threemonths ended September 30, 2002 and $63,000 or 23.9% for the nine months endedSeptember 30, 2002 compared with the same periods in 2001. Depreciation expensedecreased $4,000 for the three months ended September 30, 2002 and increased$6,000 for the nine months ended September 30, 2002 compared with the sameperiods in 2001. Due to the implementation of SFAS No. 142, there was noamortization expense for the first nine months of 2002. If SFAS No. 142 hadtaken effect in 2001, then no amortization expense would have been recorded in2001.

 

Operating income increased $32,000 or 12.8% for the three months endedSeptember 30, 2002 compared to the three months ended September 30, 2001.Operating income decreased $1,011,000 to a loss of $169,000 for the nine monthsended September 30, 2002 compared to income of $842,000 for the nine monthsended September 30, 2001. Net income increased $20,000 or 14.6% for the threemonths ended September 30, 2002 and decreased $595,000 or 127.7% for the ninemonths ended September 30, 2002 compared with the same periods in 2001. Theincrease in operating and net income in the third quarter resulted from thedecrease in operating expenses and depreciation and amortization describedabove. The decrease in operating and net income in the first nine months of2002 as compared to the first nine months of 2001 resulted primarily from thedecrease in operating revenues described above. If SFAS No.142 had taken effectin 2001, operating income would have increased $10,000 for the three monthsended September 30, 2002 and decreased $1,080,000 for the nine months endedSeptember 30, 2002 compared with the same periods in 2001. If SFAS No. 142 hadtaken effect in 2001, net income would have increased $7,000 for the threemonths ended September 30, 2002 and decreased $636,000 for the nine monthsended September 30, 2002 compared with the same period in 2001. The decrease inoperating income and net income for the first nine months of 2002 wasattributable to the decrease in sales volumes.

 

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EBITDA(1) increased $6,000 or 1.8% for the three months ended September30, 2002 and decreased $1,074,000 or 97.1% for the nine months ended September30, 2002 compared with the same periods in 2001. The EBITDA(1) margin for thissector was 6.6% for the quarter ended September 30, 2002 compared to 6.2% forthe same quarter in 2001. The EBITDA(1) margin for this sector was 0.3% for thenine months ended September 30, 2002 compared to 7.1% for the nine months endedSeptember 30, 2001.  The decline inEBITDA and the EBITDA margin was primarily due to the decrease in operatingrevenues.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

CAPITAL STRUCTURE– The total long-term capital structure (long-term obligations plusshareholders’ equity) for HickoryTech was $244,360,000 at September 30, 2002,reflecting 34.2% equity and 65.8% debt. This compares to a capital structure of$250,424,000 at December 31, 2001, reflecting 32.3% equity and 67.7% debt.Management believes adequate internal and external resources are available tofinance ongoing operating requirements, including capital expenditures,business development, debt service and the payment of dividends for at leastthe next twelve months.

 

CASH FLOWS – Cashprovided by operations was $22,825,000 for the nine-month period endedSeptember 30, 2002 compared to $15,586,000 for the nine-month period endedSeptember 30, 2001.  Cash flows fromoperations for the nine months ended September 30, 2002 and 2001 were primarilyattributable to net income plus non-cash expenses for depreciation andamortization and a decrease in receivables. The increase in cash flows from operations in the first nine months of2002 relative to the same period in 2001 was primarily due to a $1,365,000reduction in receivables and a $2,218,000 provision for losses on accountsreceivable during 2002 related primarily to bankruptcies of interexchangecarriers, along with a $1,038,000 increase in billings and costs on contractsduring the first three quarters of 2001.

 

Cash flows used in investing activities were $11,879,000 for the ninemonths ended September 30, 2002 compared to $33,791,000 for the same period in2001. Capital expenditures were $12,222,000 during the first nine months of2002 as compared to $26,646,000 for the same period in 2001. Capitalexpenditures were incurred primarily to construct additional network facilitiesto provide CLEC services and continued buildout of the PCS network in theTelecom Sector. The level of capital expenditures in 2002 is lower than 2001 aspart of HickoryTech’s planned control of liquidity and debt reduction. Alsoincluded in cash flows used in investing activities for the nine months endedSeptember 30, 2001 were additions to capitalized software development costs forthe Information Solutions Sector’s SuiteSolution billing product of $2,695,000.Cash flows used in investing activities for the nine months ended September 30,2001 also included cash paid for the acquisition of PCS licenses in southernMinnesota for $11,399,000 and cash proceeds related to the sale of ACTC andother assets for $6,949,000.

 

Cash flows used in financing activities were $12,565,000 for thenine-month period ended September 30, 2002 compared to cash flows provided byfinancing activities of $17,920,000 for the nine-month period ended September30, 2001.  Included in cash flows fromfinancing activities are debt borrowings, debt repayments, and dividendpayments. During the first nine months of 2002, HickoryTech made payments andhad additional borrowings on its revolving credit facility of $10,950,000 and$2,200,000, respectively. During the first nine months of 2001, HickoryTechborrowed $29,500,000 under its revolving credit facility to cover cashrequirements, primarily for capital expenditures and the PCS acquisition, whileit made payments of $7,250,000 on its revolving credit facility. Dividendpayments for the first nine months of 2002 were $4,438,000 compared to$4,584,000 for the same period in 2001.

 

WORKING CAPITAL –Working capital was $7,944,000 as of September 30, 2002, compared to workingcapital of $13,737,000 as of December 31, 2001. The decrease is primarily dueto the decreases in cash, accounts receivable and income taxes receivable.  The ratio of current assets to currentliabilities was 1.5:1.0 as of September 30, 2002 and 2.0:1.0 as of December 31,2001.

 

LONG-TERM OBLIGATIONS - HickoryTech’s long-term obligations as of September 30, 2002 were$160,880,000, excluding current maturities of $1,434,000. As of September 30,2002, HickoryTech had a $183,250,000 credit facility with a syndicate ofbanks.  The credit facility is comprisedof a $125,000,000 revolving credit component

 

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and a $58,250,000 term loan component.  The available line of credit on the$125,000,000 revolving credit component decreases in increments beginning inMarch 2004 with a final maturity date in September 2008.  The term loan component requires equalquarterly principal payments of $250,000 during the period March 2001 toDecember 2008, $23,000,000 of principal payments per quarter for the first twoquarters in 2009 and $6,000,000 in the third quarter 2009.  The weighted average interest rateassociated with this credit facility varies with LIBOR and certain other ratesand was 4.37% at September 30, 2002. HickoryTech has implemented fixed interestterms on various portions of the overall debt outstanding for varying terms.The longest fixed interest term, on $40,000,000 of the debt, is fixed untilJune 2003.  As of September 30, 2002,HickoryTech had drawn $161,250,000 on this credit facility and had $22,000,000of available credit. In April 2002, HickoryTech reduced its revolving creditfacility by $40,000,000 to its current level as of September 30, 2002.Management believes the remaining available credit is sufficient to coverfuture cash requirements.

 

HickoryTech’s Information Solutions Sector leases certain computerequipment under capital lease arrangements. During the first three quarters of2002, this sector recorded additions to property, plant and equipment of$492,000 related to these capital lease arrangements.

 

The following table sets forth HickoryTech’s contractual obligations,along with the cash payments due each period (long-term debt and capital leasepayments do not include associated interest):

 
|                               |   | **Payments Due by Year** |    |
|------------------------------------|--------|--------------------------|---------|
| ***(Dollars in  Thousands)***      |   | **Total**                |    | **Remainderof 2002** |   | **2003 to2005** |   | **2006 to2007** |   | **2008 andafter** |   |
| Contractual Obligations            |   |                     |    |   |   |   |   |   |   |   |   |
| Long-term Debt                     |   | $                        | 161,250 |   | $ | 250 |   | $ | 18,500 |   | $ | 61,375 |   | $ | 81,125 |   |
| Capital Lease Obligations          |   | 1,064                    |    | 87 |   | 977 |   | — |   | — |   |
| Operating Leases                   |   | 2,995                    |    | 267 |   | 1,749 |   | 298 |   | 681 |   |
| Total Contractual Cash Obligations |   | $                        | 165,309 |   | $ | 604 |   | $ | 21,226 |   | $ | 61,673 |   | $ | 81,806 |   |

 

The total commitment toHickoryTech on its revolving credit facility expires as follows:

 
|                          |   | **Amount of Commitment Expiration per Year** |    |
|-------------------------------|--------|----------------------------------------------|---------|
| ***(Dollars in  Thousands)*** |   | **Total**                                    |    | **Remainderof 2002** |   | **2003 to2005** |   | **2006 to2007** |   | **2008 andafter** |   |
| Revolving Credit Component    |   | $                                            | 125,000 |   | $ | — |   | $ | 37,500 |   | $ | 59,375 |   | $ | 28,125 |   |
|                               |        |                                              |         |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

OTHER -HickoryTech operates with original equity capital, retained earnings and recentadditions to indebtedness in the form of bank term and revolving lines ofcredit. HickoryTech believes its current level of debt to total capital isacceptable for ongoing operations.

 

HickoryTech primarily uses variable interest rate financial instrumentsas of September 30, 2002. HickoryTech continually monitors the interest rateson its bank loans and has implemented fixed interest terms on various portionsof the overall debt outstanding for varying terms. A lower level of interestexpense is likely to occur because of a trend of reducing levels of debt andpotentially lower weighted average interest rates.

 

InNovember 2002, Hickory Tech began repurchasing its stock in over-the-countertrading under a previously announced repurchase plan.  HickoryTech plans to fund the repurchase of its stock from cashflows from operations.

 

 

**CRITICAL ACCOUNTING 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, conformto the accounting principles as prescribed by federal and state telephoneutility regulatory authorities. A description of the critical accountingpolicies adhered to by HickoryTech is contained in the Management’s Discussionand Analysis of Financial Condition and Results of Operations in HickoryTech’sAnnual Report on Form 10-K for the year ended December 31, 2001.

 

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**RECENT ACCOUNTING DEVELOPMENTS**

 

HickoryTech adopted the provisions of SFAS No. 142, “Goodwill and OtherIntangible Assets,” effective January 1, 2002. SFAS No. 142 required thatgoodwill and intangible assets with indefinite useful lives no longer beamortized, but instead tested for impairment at least annually. Accordingly, atJanuary 1, 2002, HickoryTech ceased amortizing its goodwill (net carrying valueas of September 30, 2002 of $25,086,000) and FCC licenses (net carrying valueas of September 30, 2002 of $75,635,000). HickoryTech tested these intangibleassets for impairment at January 1, 2002 pursuant to the method prescribed bySFAS No. 142 and determined that these assets’ carrying values were notimpaired.

 

The following table adjusts previously reported net income to excludeamortization expense recognized from goodwill and FCC licenses as if SFAS No.142 had taken effect in 2001:

 
| ***(Dollars in Thousands, except Per  Share Amounts*** |   | **For Three Months Ended** |   | **For Nine Months Ended** |   |
|--------------------------------------------------------|--------|----------------------------|--------|---------------------------|--------|
| ***    and shown Net of IncomeTax)***        |   | **9/30/02**                |   | **9/30/01**               |   | **9/30/02** |   | **9/30/01** |   |
|                                                   |   |                       |   |                      |   |   |   |   |   |
| Reported Net Income                                    |   | $                          | 2,094  |                      | $      | 2,740 |   | $ | 5,986 |   | $ | 6,707 |   |
| Goodwill Amortization                                  |   |                       |   | 113                       |   |   |   | 339 |   |
| FCC License Amortization                               |   |                       |   | 258                       |   |   |   | 779 |   |
| Adjusted Net Income                                    |   | $                          | 2,094  |                      | $      | 3,111 |   | $ | 5,986 |   | $ | 7,825 |   |
|                                                   |   |                       |   |                      |   |   |   |   |   |
| Basic and Diluted  Earnings Per Share:                 |   |                       |   |                      |   |   |   |   |   |
| Reported Net Income                                    |   | $                          | 0.15   |                      | $      | 0.20 |   | $ | 0.43 |   | $ | 0.48 |   |
| Goodwill Amortization                                  |   |                       |   | 0.01                      |   |   |   | 0.03 |   |
| FCC License Amortization                               |   |                       |   | 0.02                      |   |   |   | 0.06 |   |
| Adjusted Net Income                                    |   | $                          | 0.15   |                      | $      | 0.23 |   | $ | 0.43 |   | $ | 0.57 |   |

 

Upon adoption at January 1, 2002, SFAS No. 142 also requiredHickoryTech to reassess the useful lives over which its other intangible assetsare amortized. These useful lives were not changed as a result of thisreassessment and, accordingly, these assets continue to be amortized overperiods ranging from two to eight years.

 

HickoryTech also adopted the provisions of SFAS No. 144, “Accountingfor Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires thatlong-lived assets that are to be disposed of by sale be measured at the lowerof book value or fair value less cost to sell and also sets forth requirementsfor recognizing and measuring impairment losses on certain long-lived assets tobe held or used. The adoption of SFAS No. 144 had no impact on HickoryTech’sfinancial position or its results of operations.

 

In June 2001, the Financial Accounting Standards Board (FASB) issuedSFAS No. 143, “Accounting for Asset Retirement Obligations,” which addressesfinancial accounting and reporting for obligations associated with theretirement of tangible long-lived assets that result from the acquisition,construction, development or normal use of the asset. SFAS No. 143 is effectiveJanuary 1, 2003. HickoryTech is currently evaluating the provisions of SFAS No.143 and does not expect that adoption will have a material impact on itsfinancial position or its results of operations.

 

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASBStatements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and TechnicalCorrections.” SFAS No. 145 rescinds FASB Statement No. 4, “Reporting Gains andLosses from Extinguishment of Debt,” and an amendment of that Statement, FASBStatement No. 64, “Extinguishments of Debt Made to Satisfy Sinking-FundRequirements.” SFAS No. 145 also rescinds FASB Statement No. 44, “Accountingfor Intangible Assets of Motor Carriers,” and amends FASB Statement No. 13,“Accounting for Leases.” In June 2000, HickoryTech recorded an extraordinaryloss of $233,000, net of income tax benefit of $158,000, as a result of an extinguishmentof debt. Under SFAS No. 145, this extraordinary loss on debt extinguishmentwill be reclassified to operating expenses when HickoryTech adopts SFAS No. 145in the first quarter of 2003.

 

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In June 2002, the FASB issued SFAS No. 146, “Accounting for CostsAssociated with Exit of Disposal Activities,” which replaces Emerging IssuesTask Force (EITF) Issue No. 94-3, “Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (including CertainCosts Incurred in a Restructuring).” SFAS No. 146 requires companies torecognize costs associated with exit or disposal activities when they areincurred rather than at the date of a commitment to an exit or disposal plan.SFAS No. 146 is effective for, and HickoryTech will apply this new standard on,exit or disposal activities that are initiated after December 31, 2002.

 

ITEM 3. QUANTATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

HickoryTech doesnot have operations subject to risks of foreign currency fluctuations, nor doesHickoryTech 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 andnine months ended September 30, 2002, HickoryTech’s interest expense would haveincreased $183,000 for the three months ended September 30, 2002 and $597,000for the nine months ended September 30, 2002. 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 in evenmore aggressive timetables than it has already.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

During the 90-dayperiod prior to the date of this report, HickoryTech evaluated theeffectiveness of the design and operation of the company’s disclosure controlsand procedures. This evaluation was conducted under the supervision and withthe participation of HickoryTech’s Chief Executive Officer and Chief FinancialOfficer. Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that the disclosure controls and procedures wereeffective, in all material respects, to ensure that information required to bedisclosed in the reports HickoryTech files and submits under the Exchange Actis recorded, processed, summarized and reported as and when required.

 

There have been nosignificant changes in HickoryTech’s internal controls or in other factorswhich could significantly affect internal controls subsequent to the date ofthe evaluation. There were no significant deficiencies or material weaknessesidentified in the evaluation and, therefore, no corrective actions were taken.

 

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(1) – EBITDA represents operating income plusdepreciation and amortization expense. EBITDA margin represents EBITDA dividedby total operating revenues before eliminations. EBITDA, which is not a measureof financial performance or liquidity under generally accepted accountingprinciples, is provided because such information is used by certain investorswhen analyzing the financial position and performance of HickoryTech andbecause EBITDA is a measure which HickoryTech uses to manage and monitor itsown business plan. Because of the variety of methods used by companies andanalysts to calculate EBITDA, and the fact that EBITDA calculations may notaccurately measure a company’s ability to meet debt service requirements,caution should be used in relying on any EBITDA presentation. HickoryTech seesvalue in disclosing its calculation of EBITDA for the financial community andin displaying the change in EBITDA. HickoryTech believes an increasing EBITDAdepicts increased ability to attract financing and increased valuation ofHickoryTech’s business.

 

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| PART II. OTHER INFORMATION |
|----------------------------|
|                       |   |   |
| Item 1.                    |   | Legal Proceedings. |
|                       |   | None |
|                       |   |   |
| 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 | Change of Control Agreement  dated July 1, 2002, between registrant and John E. Duffy |
|                       |   |   |   |
|                       |   | (b) | No Reports on Form 8-K were  filed during the third quarter 2002. |

 

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SIGNATURES

 

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

 
| Dated: | November 14, 2002 | 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.                    I have reviewed this quarterly report on Form10-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)                   designed such disclosure controls and proceduresto ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is being prepared;

 

b)                  evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

 

c)                   presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.                    The registrant’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a)                   all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)                  any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal 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:  November 14, 2002 |                    |
|-------------------------------|-------------------------|
|                          |                    |
|                          |                    |
|                          | /s/ John E. Duffy       |   |
|                          | John E. Duffy           |
|                          | Chief Executive Officer |

 

24

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**CERTIFICATIONS**

 

I, David A. Christensen, certify that:

 

1.                    I have reviewed this quarterly report on Form10-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)                   designed such disclosure controls and proceduresto ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

 

b)                  evaluated the effectiveness of the registrant’sdisclosure controls and procedures as of a date within 90 days prior to thefiling date of this quarterly report (the “Evaluation Date”); and

 

c)                   presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date;

 

5.                    The registrant’s other certifying officers and Ihave disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent function):

 

a)                   all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and

 

b)                  any fraud, whether or not material, that involvesmanagement or other employees who have a significant role in the registrant’sinternal 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:  November 14, 2002 |                     |
|-------------------------------|--------------------------|
|                          |                     |
|                          |                     |
|                          | /s/ David A. Christensen |   |
|                          | David A. Christensen     |
|                          | Chief Financial Officer  |

 

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CERTIFICATIONPURSUANT TO

18U.S.C. SECTION 1350,

ASADOPTED PURSUANT TO

SECTION906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report ofHickory Tech Corporation (HickoryTech) on Form 10-Q for the period endingSeptember 30, 2002 as filed with the Securities and Exchange Commission on thedate hereof (the Report), I, John E. Duffy, Chief Executive Officer ofHickoryTech, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002 that:

 

(1)                        The Report fully complies with the requirements of section 13(a) or15(d) of the Securities Exchange Act of 1934; and

 

(2)                        The information contained in the Report fairly presents, in allmaterial respects, the financial condition and results of operations ofHickoryTech.

 

 
| /s/ John E. Duffy       |   |
|-------------------------|--------|
| John E. Duffy           |
| Chief Executive Officer |
| November 14, 2002       |

 

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CERTIFICATIONPURSUANT TO

18U.S.C. SECTION 1350,

ASADOPTED PURSUANT TO

SECTION906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report ofHickory Tech Corporation (HickoryTech) on Form 10-Q for the period ending September30, 2002 as filed with the Securities and Exchange Commission on the datehereof (the Report), I, David A. Christensen, Chief Financial Officer ofHickoryTech, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002 that:

 

(1)                        The Report fully complies with the requirements of section 13(a) or15(d) of the Securities Exchange Act of 1934; and

 

(2)                        The information contained in the Report fairly presents, in allmaterial respects, the financial condition and results of operations ofHickoryTech.

 

 
| /s/ David A. Christensen |   |
|--------------------------|--------|
| David A. Christensen     |
| Chief Financial Officer  |
| November 14, 2002        |

 

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