**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

 

**FORM 10-Q/A**

 
| **(Mark  One)** |
|-----------------|
| **ý**      | **QUARTERLY REPORT PURSUANT TO SECTION  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**FOR THE QUARTERLY PERIOD ENDED June 30, 2002 **

** **

**OR**

 
| **o** | **TRANSITION REPORT PURSUANT TO SECTION  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**FOR THE TRANSITION PERIODFROM                TO                **

 

**Commission file number   0-13721**

 

**HICKORY TECH CORPORATION**

(Exact name of registrant as specified in its charter)

 

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

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.    Yes  ý      No  o

 

The total number of shares of the registrant's common stock outstandingas of  June 30, 2002:  14,046,196.

 

 

----

 

**HICKORYTECH CORPORATION**

June 30, 2002

 

PART I. FINANCIALINFORMATION

 

ITEM 1.   FINANCIAL STATEMENTS.

 

CONSOLIDATED STATEMENTSOF INCOME

(UNAUDITED)

 
|                                                         |   | **For  Quarter Ended** |   | **For Six  Months Ended** |   |
|--------------------------------------------------------------|--------|------------------------|--------|---------------------------|--------|
| **(In  Thousands Except Per Share Amounts)**                 |   | **6/30/2002**          |   | **6/30/2001**             |   | **6/30/2002** |   | **6/30/2001** |   |
| OPERATING  REVENUES:                                         |   |                   |   |                      |   |   |   |   |   |
| Telecom                                                      |   | $                      | 21,405 |                      | $      | 21,153 |   | $ | 42,122 |   | $ | 42,241 |   |
| Information  Solutions                                       |   | 1,049                  |   | 965                       |   | 2,083 |   | 1,943 |   |
| Enterprise  Solutions                                        |   | 3,037                  |   | 4,836                     |   | 6,398 |   | 10,001 |   |
| TOTAL OPERATING  REVENUES                                    |   | 25,491                 |   | 26,954                    |   | 50,603 |   | 54,185 |   |
|                                                         |   |                   |   |                      |   |   |   |   |   |
| COSTS AND  EXPENSES:                                         |   |                   |   |                      |   |   |   |   |   |
| Cost of Sales,  Enterprise Solutions                         |   | 2,033                  |   | 3,236                     |   | 4,217 |   | 6,637 |   |
| Operating  Expenses, excluding Depreciation and Amortization |   | 14,290                 |   | 13,880                    |   | 27,576 |   | 27,805 |   |
| Depreciation                                                 |   | 3,931                  |   | 2,999                     |   | 7,744 |   | 5,945 |   |
| Amortization of  Intangibles                                 |   | 380                    |   | 790                       |   | 741 |   | 1,579 |   |
| TOTAL COSTS AND  EXPENSES                                    |   | 20,634                 |   | 20,905                    |   | 40,278 |   | 41,966 |   |
|                                                         |   |                   |   |                      |   |   |   |   |   |
| OPERATING INCOME                                             |   | 4,857                  |   | 6,049                     |   | 10,325 |   | 12,219 |   |
|                                                         |   |                   |   |                      |   |   |   |   |   |
| OTHER INCOME  (EXPENSE):                                     |   |                   |   |                      |   |   |   |   |   |
| Equity in Net  Income (Loss) of Investees                    |   | 21                     |   | (6                        | )      | 2 |   | (13 | ) |
| Gain on Sale of  Assets                                      |   | —                 |   | 141                       |   | — |   | 141 |   |
| Interest and Other  Income                                   |   | 29                     |   | 38                        |   | 72 |   | 75 |   |
| Interest Expense                                             |   | (1,858                 | )      | (2,819                    | )      | (3,814 | ) | (5,691 | ) |
| TOTAL OTHER  INCOME (EXPENSE)                                |   | (1,808                 | )      | (2,646                    | )      | (3,740 | ) | (5,488 | ) |
|                                                         |   |                   |   |                      |   |   |   |   |   |
| INCOME BEFORE  INCOME TAXES                                  |   | 3,049                  |   | 3,403                     |   | 6,585 |   | 6,731 |   |
|                                                         |   |                   |   |                      |   |   |   |   |   |
| INCOME TAXES                                                 |   | 1,247                  |   | 1,399                     |   | 2,693 |   | 2,764 |   |
|                                                         |   |                   |   |                      |   |   |   |   |   |
| NET INCOME                                                   |   | $                      | 1,802  |                      | $      | 2,004 |   | $ | 3,892 |   | $ | 3,967 |   |
|                                                         |   |                   |   |                      |   |   |   |   |   |
| Basic Earnings  Per Share                                    |   | $                      | 0.13   |                      | $      | 0.14 |   | $ | 0.28 |   | $ | 0.28 |   |
| Dividends Per  Share                                         |   | $                      | 0.11   |                      | $      | 0.11 |   | $ | 0.22 |   | $ | 0.22 |   |
| Weighted Average  Common Shares Outstanding                  |   | 14,006                 |   | 13,894                    |   | 13,984 |   | 13,889 |   |
|                                                         |   |                   |   |                      |   |   |   |   |   |
| Diluted Earnings  Per Share                                  |   | $                      | 0.13   |                      | $      | 0.14 |   | $ | 0.28 |   | $ | 0.28 |   |
| Weighted Average  Common and Equivalent Shares Outstanding   |   | 14,096                 |   | 13,973                    |   | 14,078 |   | 13,990 |   |

 

The accompanyingnotes are an integral part of the consolidated financial statements.

 

1

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**HICKORY TECH CORPORATION**

June 30, 2002

 

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 
| **(In  Thousands Except  Share and Per Share  Amounts)**                                                                        |   | **6/30/2002** |        | **12/31/2001** |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|-------------|----------------|--------|
| ASSETS                                                                                                                               |   |          |        |           |   |
| CURRENT ASSETS:                                                                                                                      |   |          |        |           |   |
| Cash and Cash Equivalents                                                                                                            |   | **$**         | **735**     |           | $      | 2,008 |   |
| Receivables, Net of Allowance for Doubtful Accounts of $2,396 and $1,231                                                             |   | **12,535**    |        | 14,616         |   |
| Income Taxes Receivable                                                                                                              |   | **—**    |        | 1,675          |   |
| Costs in Excess of Billings on Contracts                                                                                             |   | **555**       |        | 1,520          |   |
| Inventories                                                                                                                          |   | **5,293**     |        | 4,989          |   |
| Deferred Income Taxes                                                                                                                |   | **646**       |        | 646            |   |
| Other                                                                                                                                |   | **1,895**     |        | 2,329          |   |
| TOTAL CURRENT ASSETS                                                                                                                 |   | **21,659**    |        | 27,783         |   |
|                                                                                                                                 |   |          |        |           |   |
| INVESTMENTS                                                                                                                          |   | **10,786**    |        | 10,701         |   |
|                                                                                                                                 |   |          |        |           |   |
| PROPERTY, PLANT AND EQUIPMENT                                                                                                        |   | **241,094**   |        | 231,675        |   |
| Less ACCUMULATED DEPRECIATION                                                                                                        |   | **103,560**   |        | 96,031         |   |
| PROPERTY, PLANT AND EQUIPMENT, NET                                                                                                   |   | **137,534**   |        | 135,644        |   |
|                                                                                                                                 |   |          |        |           |   |
| OTHER ASSETS:                                                                                                                        |   |          |        |           |   |
| Goodwill                                                                                                                             |   | **25,086**    |        | 25,086         |   |
| Intangible Assets, Net                                                                                                               |   | **76,764**    |        | 76,991         |   |
| Deferred Costs and Other                                                                                                             |   | **6,524**     |        | 7,087          |   |
| TOTAL OTHER ASSETS                                                                                                                   |   | **108,374**   |        | 109,164        |   |
|                                                                                                                                 |   |          |        |           |   |
| TOTAL ASSETS                                                                                                                         |   | **$**         | **278,353** |           | $      | 283,292 |   |
|                                                                                                                                 |   |          |        |           |   |
| LIABILITIES &  SHAREHOLDERS' EQUITY                                                                                              |   |          |        |           |   |
| CURRENT LIABILITIES:                                                                                                                 |   |          |        |           |   |
| Accounts Payable                                                                                                                     |   | **$**         | **3,243**   |           | $      | 5,301 |   |
| Accrued Expenses                                                                                                                     |   | **3,117**     |        | 3,372          |   |
| Income Taxes Payable                                                                                                                 |   | **902**       |        | —         |   |
| Accrued Interest                                                                                                                     |   | **584**       |        | 382            |   |
| Billings in Excess of Costs on Contracts                                                                                             |   | **598**       |        | 169            |   |
| Advanced Billings and Deposits                                                                                                       |   | **3,559**     |        | 3,580          |   |
| Current Maturities of Long-Term Obligations                                                                                          |   | **1,376**     |        | 1,242          |   |
| TOTAL CURRENT LIABILITIES                                                                                                            |   | **13,379**    |        | 14,046         |   |
|                                                                                                                                 |   |          |        |           |   |
| LONG-TERM OBLIGATIONS, Net of Current Maturities                                                                                     |   | **163,298**   |        | 169,659        |   |
|                                                                                                                                 |   |          |        |           |   |
| DEFERRED INCOME TAXES                                                                                                                |   | **13,876**    |        | 13,876         |   |
|                                                                                                                                 |   |          |        |           |   |
| DEFERRED REVENUE AND BENEFITS                                                                                                        |   | **5,112**     |        | 4,946          |   |
|                                                                                                                                 |   |          |        |           |   |
| TOTAL LIABILITIES                                                                                                                    |   | **195,665**   |        | 202,527        |   |
|                                                                                                                                 |   |          |        |           |   |
| COMMITMENTS AND CONTINGENCIES (Note 8)                                                                                               |   | **—**    |        | —         |   |
|                                                                                                                                 |   |          |        |           |   |
| SHAREHOLDERS' EQUITY:                                                                                                                |   |          |        |           |   |
| Common Stock, no par value, $.10 stated value Shares authorized:  100,000,000 Shares outstanding: 2002, 14,046,196; 2001, 13,935,308 |   | **1,405**     |        | 1,394          |   |
| Additional Paid-In Capital                                                                                                           |   | **7,352**     |        | 6,254          |   |
| Retained Earnings                                                                                                                    |   | **73,931**    |        | 73,117         |   |
| TOTAL SHAREHOLDERS' EQUITY                                                                                                           |   | **82,688**    |        | 80,765         |   |
|                                                                                                                                 |   |          |        |           |   |
| TOTAL LIABILITIES & SHAREHOLDERS' EQUITY                                                                                         |   | **$**         | **278,353** |           | $      | 283,292 |   |

 

Theaccompanying notes are an integral part of the consolidated financialstatements.

 

2

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**HICKORY TECH CORPORATION**

June 30, 2002

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 
|                                                   |   | **For Six  Months Ended** |      |
|--------------------------------------------------------|--------|---------------------------|-----------|
| **In Thousands**                                       |   | **6/30/2002**             |      | **6/30/2001** |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                  |   |                      |      |   |   |
| Net Income                                             |   | **$**                     | **3,892** |   | $ | 3,967 |   |
| Adjustments to Reconcile Net Income to Net             |   |                      |      |   |   |
| Cash Provided by Operating Activities:                 |   |                      |      |   |   |
| Depreciation and Amortization                          |   | **8,485**                 |      | 7,524 |   |
| Stock-Based Compensation                               |   | **343**                   |      | 533 |   |
| Employee Retirement Benefits and Deferred Compensation |   | **228**                   |      | 142 |   |
| Accrued Patronage Refunds                              |   | **(446**                  | )         | (497 | ) |
| Equity in Net (Income) Loss of Investees               |   | **(2**                    | )         | 13 |   |
| Gain on Sale of Assets                                 |   | **—**                |      | (141 | ) |
| Provision for Losses on Accounts Receivable            |   | **1,647**                 |      | 467 |   |
| Changes in Operating Assets and Liabilities:           |   |                      |      |   |   |
| Receivables                                            |   | **2,110**                 |      | 255 |   |
| Inventories                                            |   | **(304**                  | )         | (401 | ) |
| Billings and Costs on Contracts                        |   | **1,394**                 |      | (624 | ) |
| Accounts Payable and Accrued Expenses                  |   | **(1,439**                | )         | (3,604 | ) |
| Advance Billings and Deposits                          |   | **(20**                   | )         | 14 |   |
| Deferred Revenue and Benefits                          |   | **(63**                   | )         | (144 | ) |
| Other                                                  |   | **744**                   |      | 97 |   |
| Net Cash Provided By Operating Activities              |   | **16,569**                |      | 7,601 |   |
|                                                   |   |                      |      |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                  |   |                      |      |   |   |
| Additions to Property, Plant and Equipment             |   | **(9,325**                | )         | (15,133 | ) |
| Additions to Capitalized Software Development Costs    |   | **—**                |      | (2,154 | ) |
| Redemption of Investments                              |   | **100**                   |      | — |   |
| Proceeds from Sale of Assets                           |   | **184**                   |      | 724 |   |
| Acquisition of Licenses                                |   | **—**                |      | (11,357 | ) |
| Net Cash Used In Investing Activities                  |   | **(9,041**                | )         | (27,920 | ) |
|                                                   |   |                      |      |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                  |   |                      |      |   |   |
| Increase in Cash Overdraft                             |   | **—**                |      | 3,836 |   |
| Repayments of Debt                                     |   | **—**                |      | (108 | ) |
| Payments of Capital Lease Obligations                  |   | **(219**                  | )         | — |   |
| Borrowings on Credit Facility                          |   | **1,500**                 |      | 21,500 |   |
| Repayments on Credit Facility                          |   | **(8,000**                | )         | (1,500 | ) |
| Proceeds from Issuance of Common Stock                 |   | **996**                   |      | 281 |   |
| Dividends Paid                                         |   | **(3,078**                | )         | (3,056 | ) |
| Net Cash (Used In) Provided By Financing Activities    |   | **(8,801**                | )         | 20,953 |   |
|                                                   |   |                      |      |   |   |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS   |   | **(1,273**                | )         | 634 |   |
|                                                   |   |                      |      |   |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD       |   | **2,008**                 |      | 1,190 |   |
|                                                   |   |                      |      |   |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD             |   | **$**                     | **735**   |   | $ | 1,824 |   |

 

The accompanyingnotes are an integral part of the consolidated financial statements.

 

3

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HICKORY TECHCORPORATION

JUNE 30, 2002

PART 1. FINANCIALINFORMATION

 

ITEM 1.  NOTES TO CONSOLIDATEDFINANCIAL STATEMENTS.

 

NOTE 1.  BASIS OF PRESENTATION

 

The accompanyingunaudited condensed consolidated financial statements have been prepared in accordancewith generally accepted accounting principles for interim financial informationand with the instructions to Form 10-Q and Article 10 of Regulation S-X.Accordingly, they do not include all of the information necessary for a fairpresentation of results of operations, financial position, and cash flows inconformity with accounting principles generally accepted in the United Statesof America. In the opinion of management, the condensed consolidated financialstatements reflect all adjustments (consisting only of normal recurringadjustments) considered necessary for a fair presentation of Hickory TechCorporation’s (HickoryTech) results for the periods presented.  Operating results for interim periods are notnecessarily indicative of results that may be expected for the fiscal year as awhole. The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets, liabilities, revenues, expenses, and related disclosures at the dateof the financial statements and during the reporting period. Actual resultscould differ from these estimates. These unaudited interim condensedconsolidated financial statements should be read in conjunction withHickoryTech’s Annual Report on Form 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 resourceallocation and other management decisions regarding the operations of thecompany. All segment information reported in 2001 has been reclassified toconform to this new presentation.

 

In addition to the change in business segments, certainreclassifications were made to the financial statements as of and for the threemonths and six months ended June 30, 2001 to conform to the 2002 presentation.These reclassifications had no impact on previously reported operating 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.

 

NOTE 2. 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 Six  Months Ended** |   |
|-----------------------------------------------|--------|-----------------------------|--------|---------------------------|--------|
|                                          |   | **6/30/02**                 |   | **6/30/01**               |   | **6/30/02** |   | **6/30/01** |   |
|                                          |   |                        |   |                      |   |   |   |   |   |
| Weighted Average  Shares Outstanding          |   | 14,006,421                  |   | 13,893,551                |   | 13,983,691 |   | 13,889,449 |   |
| Stock Options  (dilutive only)                |   | 74,775                      |   | 65,897                    |   | 82,222 |   | 89,308 |   |
| Weighted Average  Stock Subscribed (ESPP)     |   | 14,653                      |   | 13,382                    |   | 11,967 |   | 11,367 |   |
| Weighted Average  Dilutive Shares Outstanding |   | 14,095,849                  |   | 13,972,830                |   | 14,077,880 |   | 13,990,124 |   |

 

Options to purchase 76,650 shares and 39,750 shares for the threemonths and six months ended June 30, 2002 and 2001, respectively, were notincluded in the computation of earnings per share assuming dilution becausetheir effect on earnings per share would have been antidilutive.

 

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

 

Dividends per share is based onthe quarterly dividend per share as declared by the HickoryTech Board ofDirectors.

 

During the first six months of2002 and 2001, shareholders have elected to reinvest $121,000 and $123,000,respectively, of dividends into HickoryTech common stock pursuant to theHickoryTech Dividend Reinvestment Plan.

 

NOTE3. COMPREHENSIVE INCOME

 

For the three months and sixmonths ended June 30, 2002 and 2001, comprehensive income was comprised solelyof net income.

 

NOTE4. INVENTORIES

 

Inventories, which consist ofequipment for resale, materials and supplies, are stated at the lower ofaverage cost or market.

 

NOTE5.    INTANGIBLE ASSETS

 

HickoryTech adopted theprovisions of Statement of Financial Accounting Standards (SFAS) No. 142,“Goodwill and Other Intangible Assets,” effective January 1, 2002. SFAS No. 142required that goodwill and intangible assets with indefinite useful lives nolonger be amortized, but instead tested for impairment at least annually.Accordingly, at January 1, 2002, HickoryTech ceased amortizing its goodwill(net carrying value as of June 30, 2002 of $25,086,000) and FCC licenses (netcarrying value as of June 30, 2002 of $75,635,000). HickoryTech also testedthese intangible assets for impairment at January 1, 2002 pursuant to themethod prescribed by SFAS No. 142 and determined that these assets’ carryingvalues are not impaired.

 

The following table adjustspreviously reported net income to exclude amortization expense recognized fromgoodwill and FCC licenses as if SFAS No. 142 had taken effect in 2001:

 

5

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|                                                                              |   | **For Three  Months Ended** |   | **For Six  Months Ended** |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------|--------|---------------------------|--------|
| **(Dollars in Thousands, except Per  Share Amounts and shown Net of Income Tax)** |   | **6/30/02**                 |   | **6/30/01**               |   | **6/30/02** |   | **6/30/01** |   |
|                                                                              |   |                        |   |                      |   |   |   |   |   |
| Reported Net  Income                                                              |   | $                           | 1,802  |                      | $      | 2,004 |   | $ | 3,892 |   | $ | 3,967 |   |
| Goodwill  Amortization                                                            |   |                        |   | 113                       |   |   |   | 226 |   |
| FCC License  Amortization                                                         |   |                        |   | 259                       |   |   |   | 518 |   |
| Adjusted Net  Income                                                              |   | $                           | 1,802  |                      | $      | 2,376 |   | $ | 3,892 |   | $ | 4,711 |   |
|                                                                              |   |                        |   |                      |   |   |   |   |   |
| Basic and  Diluted Earnings Per Share:                                            |   |                        |   |                      |   |   |   |   |   |
| Reported Net  Income                                                              |   | $                           | 0.13   |                      | $      | 0.14 |   | $ | 0.28 |   | $ | 0.28 |   |
| Goodwill  Amortization                                                            |   |                        |   | 0.01                      |   |   |   | 0.02 |   |
| FCC License  Amortization                                                         |   |                        |   | 0.02                      |   |   |   | 0.04 |   |
| Adjusted Net  Income                                                              |   | $                           | 0.13   |                      | $      | 0.17 |   | $ | 0.28 |   | $ | 0.34 |   |

 

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.

 

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

 

|                          |   | **As of June 30, 2002**    |   | **As of December 31, 2001**   |   |
|-------------------------------|--------|----------------------------|--------|-------------------------------|--------|
|                          |   | **Gross Carrying  Amount** |   | **Accumulated  Amortization** |   | **Gross Carrying  Amount** |   | **Accumulated  Amortization** |   |
|                          |   |                       |   |                          |   |   |   |   |   |
| Amortized Intangible Assets   |   |                       |   |                          |   |   |   |   |   |
| Customers                     |   | $                          | 1,701  |                          | $      | 920 |   | $ | 1,701 |   | $ | 780 |   |
| Other Intangibles             |   | 538                        |   | 190                           |   | 538 |   | 103 |   |
| Total                         |   | $                          | 2,239  |                          | $      | 1,110 |   | $ | 2,239 |   | $ | 883 |   |
|                          |   |                       |   |                          |   |   |   |   |   |
| Unamortized Intangible Assets |   |                       |   |                          |   |   |   |   |   |
| FCC Licenses                  |   | $                          | 75,635 |                          |   |   | $ | 75,635 |   |   |   |

 

Amortization expense related to the amortized intangible assets for thethree months and six months ended June 30, 2002 amounted to $123,000 and$227,000, respectively. Total estimated amortization expense for 2002 and thefive 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 theprovisions of SFAS No. 144, “Accounting for Impairment or Disposal ofLong-Lived Assets,” as of January 1, 2002. 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 FinancialAccounting Standards Board (FASB) issued SFAS No. 143, “Accounting for AssetRetirement Obligations,” which addresses financial accounting and reporting forobligations associated with the retirement of tangible long-lived assets thatresult from the acquisition, construction, development or normal use of theasset. SFAS No. 143 is effective January 1, 2003. HickoryTech is currently evaluatingthe provisions of SFAS No. 143 and does not expect that adoption will have amaterial impact on its financial position or its results of operations.

 

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 In April 2002, the FASB issuedSFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment ofFASB Statement No. 13, and Technical Corrections.” SFAS No. 145 rescinds FASBStatement No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” andan amendment of that Statement, FASB Statement No. 64, “Extinguishments of DebtMade to Satisfy Sinking-Fund Requirements.” SFAS No. 145 also rescinds FASBStatement No. 44, “Accounting  forIntangible 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 would be reclassified to operating expenses.

 

NOTE7.  QUARTERLY SECTOR FINANCIAL SUMMARY

 
| **(In  Thousands)**                           |   | **Telecom** |   | **Information  Solutions** |   | **Enterprise  Solutions** |   | **Corporate  and  Eliminations** |   | **HickoryTech  Consolidated** |   |
|-----------------------------------------------|--------|-------------|--------|----------------------------|--------|---------------------------|--------|----------------------------------|--------|-------------------------------|--------|
| **Three Months Ended 6/30/02**                |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Operating Revenue from Unaffiliated Customers |   | $           | 21,405 |                       | $      | 1,049                     |   | $                                | 3,037  |                          | $      | — |   | $ | 25,491 |   |
| Intersegment Revenues                         |   | 69          |   | 944                        |   | —                    |   | (1,013                           | )      | —                        |   |
| Total                                         |   | 21,474      |   | 1,993                      |   | 3,037                     |   | (1,013                           | )      | 25,491                        |   |
|                                          |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Depreciation and Amortization                 |   | 3,669       |   | 519                        |   | 66                        |   | 57                               |   | 4,311                         |   |
| Operating Income/(Loss)                       |   | 5,997       |   | (568                       | )      | (300                      | )      | (272                             | )      | 4,857                         |   |
| Interest Expense                              |   | 4           |   | 16                         |   | —                    |   | 1,838                            |   | 1,858                         |   |
| Income Taxes                                  |   | 2,456       |   | (257                       | )      | (130                      | )      | (822                             | )      | 1,247                         |   |
| Net Income/(Loss)                             |   | 3,541       |   | (370                       | )      | (187                      | )      | (1,182                           | )      | 1,802                         |   |
| Identifiable Assets                           |   | 248,272     |   | 7,827                      |   | 7,962                     |   | 13,640                           |   | 277,701                       |   |
| Property, Plant and Equip.,Net                |   | 130,750     |   | 5,413                      |   | 591                       |   | 128                              |   | 136,882                       |   |
| Capital Expenditures                          |   | 5,136       |   | 686                        |   | 15                        |   | —                           |   | 5,837                         |   |
|                                          |   |        |   |                       |   |                      |   |                             |   |                          |   |
| **Three Months Ended 6/30/01**                |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Operating Revenue from Unaffiliated Customers |   | $           | 21,153 |                       | $      | 965                       |   | $                                | 4,836  |                          | $      | — |   | $ | 26,954 |   |
| Intersegment Revenues                         |   | 69          |   | 1,242                      |   | —                    |   | (1,311                           | )      | —                        |   |
| Total                                         |   | 21,222      |   | 2,207                      |   | 4,836                     |   | (1,311                           | )      | 26,954                        |   |
|                                          |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Depreciation and Amortization                 |   | 3,541       |   | 100                        |   | 88                        |   | 60                               |   | 3,789                         |   |
| Operating Income/(Loss)                       |   | 5,675       |   | 298                        |   | 225                       |   | (149                             | )      | 6,049                         |   |
| Interest Expense                              |   | 9           |   | —                     |   | —                    |   | 2,810                            |   | 2,819                         |   |
| Income Taxes                                  |   | 2,292       |   | 109                        |   | 86                        |   | (1,088                           | )      | 1,399                         |   |
| Net Income/(Loss)                             |   | 3,288       |   | 158                        |   | 124                       |   | (1,566                           | )      | 2,004                         |   |
| Identifiable Assets                           |   | 246,991     |   | 5,105                      |   | 8,724                     |   | 15,848                           |   | 276,668                       |   |
| Property, Plant and Equip.,Net                |   | 121,489     |   | 3,413                      |   | 689                       |   | 46                               |   | 125,637                       |   |
| Capital Expenditures                          |   | 8,466       |   | 682                        |   | 85                        |   | 144                              |   | 9,377                         |   |
|                                          |   |        |   |                       |   |                      |   |                             |   |                          |   |
| **Six Months Ended 6/30/02**                  |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Operating Revenue from Unaffiliated Customers |   | $           | 42,122 |                       | $      | 2,083                     |   | $                                | 6,398  |                          | $      | — |   | $ | 50,603 |   |
| Intersegment Revenues                         |   | 137         |   | 1,859                      |   | —                    |   | (1,996                           | )      | —                        |   |
| Total                                         |   | 42,259      |   | 3,942                      |   | 6,398                     |   | (1,996                           | )      | 50,603                        |   |
|                                          |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Depreciation and Amortization                 |   | 7,207       |   | 1,029                      |   | 136                       |   | 113                              |   | 8,485                         |   |
| Operating Income/(Loss)                       |   | 12,507      |   | (1,093                     | )      | (451                      | )      | (638                             | )      | 10,325                        |   |
| Interest Expense                              |   | 9           |   | 30                         |   |                      |   | 3,775                            |   | 3,814                         |   |
| Income Taxes                                  |   | 5,099       |   | (501                       | )      | (199                      | )      | (1,706                           | )      | 2,693                         |   |
| Net Income/(Loss)                             |   | 7,354       |   | (722                       | )      | (286                      | )      | (2,454                           | )      | 3,892                         |   |
| Identifiable Assets                           |   | 248,272     |   | 7,827                      |   | 7,962                     |   | 13,640                           |   | 277,701                       |   |
| Property, Plant and Equip.,Net                |   | 130,750     |   | 5,413                      |   | 591                       |   | 128                              |   | 136,882                       |   |
| Capital Expenditures                          |   | 7,923       |   | 1,208                      |   | 55                        |   | 139                              |   | 9,325                         |   |
|                                          |   |        |   |                       |   |                      |   |                             |   |                          |   |
| **Six Months Ended 6/30/01**                  |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Operating Revenue from Unaffiliated Customers |   | $           | 42,241 |                       | $      | 1,943                     |   | $                                | 10,001 |                          | $      | — |   | $ | 54,185 |   |
| Intersegment Revenues                         |   | 138         |   | 2,545                      |   | —                    |   | (2,683                           | )      | —                        |   |
| Total                                         |   | 42,379      |   | 4,488                      |   | 10,001                    |   | (2,683                           | )      | 54,185                        |   |
|                                          |   |        |   |                       |   |                      |   |                             |   |                          |   |
| Depreciation and Amortization                 |   | 7,029       |   | 200                        |   | 173                       |   | 122                              |   | 7,524                         |   |
| Operating Income/(Loss)                       |   | 11,536      |   | 860                        |   | 592                       |   | (769                             | )      | 12,219                        |   |
| Interest Expense                              |   | 16          |   | —                     |   | —                    |   | 5,675                            |   | 5,691                         |   |
| Income Taxes                                  |   | 4,636       |   | 333                        |   | 229                       |   | (2,434                           | )      | 2,764                         |   |
| Net Income/(Loss)                             |   | 6,661       |   | 480                        |   | 329                       |   | (3,503                           | )      | 3,967                         |   |
| Identifiable Assets                           |   | 246,991     |   | 5,105                      |   | 8,724                     |   | 15,848                           |   | 276,668                       |   |
| Property, Plant and Equip.,Net                |   | 121,489     |   | 3,413                      |   | 689                       |   | 46                               |   | 125,637                       |   |
| Capital Expenditures                          |   | 13,797      |   | 1,069                      |   | 90                        |   | 177                              |   | 15,133                        |   |
|                                               |        |             |        |                            |        |                           |        |                                  |        |                               |        |  |  |  |  |  |  |  |

 

7

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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 compensationexpense in 2003. The amount of compensation expense, if any, is notdeterminable at this time.

 

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

 

**FORWARD-LOOKING STATEMENTS**

 

This Form 10-Q contains forward-looking statements that are based onmanagement’s current expectations, estimates and projections about the industryin which HickoryTech operates and management’s beliefs and assumptions. Suchforward-looking statements are subject to important risks and uncertaintiesthat could cause HickoryTech’s future actual results to differ materially fromsuch statements. These statements are not guarantees of future performance andinvolve certain risks, uncertainties and probabilities, which are difficult topredict. Therefore, actual outcomes and results may differ materially from whatis expressed or forecasted in such forward-looking statements, whether as aresult of new information, future events or otherwise.  Factors that might cause such a differenceinclude, but are not limited to, those contained in this “Management’sDiscussion and Analysis” (Item 2) and Exhibit 99 (Cautionary Statement forPurposes of the “Safe Harbor” Provision of the Private Securities LitigationReform Act of 1995) to HickoryTech’s Annual Report on Form 10-K for the yearended December 31, 2001, which is incorporated herein by reference. You arecautioned not to place undue reliance on these forward looking statements,which speak only as of the date on which they were made. Except as otherwiserequired by law, HickoryTech undertakes no obligation to update any of itsforward-looking statements for any reason. 

 

**BUSINESSES**

 

The business segments ofHickoryTech 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 Trading Areas(BTAs) of Mankato-Fairmont and Rochester-Austin-Albert Lea. HickoryTech alsoowns and operates fiber optic cable facilities in Minnesota, which are used totransport interexchange communications as a service to telephone industrycustomers. HickoryTech’s Minnesota ILECs and its CLEC are the primary users ofthe 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 on a fullyintegrated basis. For external use, SuiteSolution can provide wireline andwireless carriers the individual benefits of a billing platform, or tointegrated service providers, such as HickoryTech, a total system. TheInformation Solutions Sector also has legacy systems, such as its carrieraccess 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 summarizeddiscussion of consolidated results of operations. More detailed discussion ofoperating results by segment follows this discussion.

 

OPERATING REVENUES - Consolidatedoperating revenues were $1,463,000 or 5.4% lower for the three months endedJune 30, 2002 than for the three months ended June 30, 2001. Consolidatedoperating revenues were $3,582,000 or 6.6% lower for the six months ended June30, 2002 than for the six months ended June 30, 2001. The revenue decrease wasprimarily attributable to a lower volume of business in the EnterpriseSolutions Sector and a continuing decline in roaming revenue in the TelecomSector. These decreases were partially offset by a 4.3% increase inHickoryTech’s total customer base in its Telecom Sector, in addition to theimpact of local rate increases by HickoryTech’s ILECs, also in the TelecomSector.

 

 COST OF SALES, ENTERPRISE SOLUTIONS- Cost of sales in the Enterprise Solutions Sector were $1,203,000 or 37.2%lower for the three months ended June 30, 2002 than for the three months endedJune 30, 2001. Cost of sales were $2,420,000 or 36.5% lower for the six monthsended June 30, 2002 than for the six months ended June 30, 2001. The decreasein cost of sales is the result of the decrease in revenue in the EnterpriseSolutions Sector.

 

OPERATING EXPENSES (excludingDepreciation and Amortization) - Operating expenses for the three monthsended June 30, 2002 increased $410,000 or 3.0% compared with the same period in2001. Operating expenses for the six months ended June 30, 2002 decreased$229,000 or 0.8% compared with the same period in 2001. Operating expenses inthe second quarter were higher due to additions to the allowance for doubtfulaccounts of $1,195,000, due in large part to bankruptcies of interexchangecarriers in the telecommunications industry. The large increase in theallowance for doubtful accounts was partially offset in the Telecom Sector dueto continued management actions aimed at reducing costs.

 

DEPRECIATION AND AMORTIZATION- Depreciation expense for the three months ended June 30, 2002 was $932,000 or31.1% higher than for the same period in 2001. Depreciation expense for the sixmonths ended June 30, 2002 was $1,799,000 or 30.3% higher than for the sameperiod in 2001. The buildout of HickoryTech’s CLEC and fiber optic networksprimarily account for the increase in depreciation expense. Amortizationexpense for the three months ended June 30, 2002 was $410,000 or 51.9% lowerthan for the same period in 2001. Amortization expense for the six months endedJune 30, 2002 was $838,000 or 53.1% lower than for the same period in 2001. IfSFAS No. 142 had taken effect in 2001, amortization expense for the secondquarter 2002 would have increased $220,000 over the second quarter 2001 andamortization expense would have increased $422,000 over the first six months of2001. The increase in amortization expense was due to amortization ofcapitalized software development costs related to the Information SolutionsSector’s SuiteSolution billing software .

 

OPERATING INCOME - Operating income was19.7% lower for the three months ended June 30, 2002 than for the three monthsended June 30, 2001. Operating income was 15.5% lower for the six months endedJune 30, 2002 than for the six months ended June 30, 2001. The decrease inoperating income primarily reflects the impact of the decrease in operatingrevenues for this period and the increase in depreciation expense related tobuilding out the infrastructure of the CLEC business in the Telecom Sector. Inaddition, operating income was lower due to the additional allowance fordoubtful accounts recorded in the second quarter 2002. These impacts werepartially offset by the effect of management actions aimed at reducingoperating expenses and lower amortization expense due to the adoption of SFASNo. 142.

 

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INTEREST EXPENSE- Interest expense decreased $961,000 or 34.1% for the three months ended June30, 2002, compared to the same period in 2001. Interest expense decreased$1,877,000 or 33.0% for the six months ended June 30, 2002, compared to thesame period in 2001. The decrease in interest expense was primarily due to adecrease in the weighted average interest rate on HickoryTech’s revolvingcredit facility from 7.01% on June 30, 2001 to 4.41% on June 30, 2002. Theoutstanding balance of the revolving credit facility was $163,500,000 on June30, 2002.  

 

NET INCOME - Consolidated net income for the three months ended June 30, 2002 was$202,000 or 10.1% lower than the comparable period in 2001. Consolidated netincome for the six months ended June 30, 2002 was $75,000 or 1.9% lower thanthe comparable period in 2001. The second quarter 2001 included an after-taxgain on the sale of assets of $83,000. If SFAS No. 142 had taken effect in 2001and excluding the gain in 2001, net income for the second quarter 2002 wouldhave decreased $491,000 or 21.4% compared to the second quarter 2001 and netincome would have decreased $736,000 or 15.9% for the first six months of 2002compared to the same period in 2001. The primary reasons for this decrease in net income for HickoryTech werethe decrease in operating revenues, the increase in depreciation expense due tothe building out of the CLEC infrastructure and the additional allowance fordoubtful accounts recorded in the second quarter 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 Six Months Ended** |       |
|-------------------------------------------------------------|--------|----------------------------|------------|--------------------------|------------|
| **(Dollars  in Thousands)**                                 |   | **6/30/02**                |       | **6/30/01**              |       | **6/30/02** |   | **6/30/01** |   |
| Revenues Before Intersegment Eliminations                   |   |                       |       |                     |       |   |   |   |   |
| ILEC                                                        |   |                       |       |                     |       |   |   |   |   |
| Local Service                                               |   | $                          | 3,757      |                     | $          | 3,577 |   | $ | 7,559 |   | $ | 7,064 |   |
| Network Access                                              |   | 7,991                      |       | 7,711                    |       | 16,058 |   | 15,960 |   |
| Intersegment                                                |   | 69                         |       | 69                       |       | 137 |   | 138 |   |
| Other                                                       |   | 2,331                      |       | 2,390                    |       | 4,658 |   | 4,712 |   |
| Total ILEC                                                  |   | 14,148                     |       | 13,747                   |       | 28,412 |   | 27,874 |   |
|                                                        |   |                       |       |                     |       |   |   |   |   |
| CLEC                                                        |   |                       |       |                     |       |   |   |   |   |
| Local Service                                               |   | 697                        |       | 541                      |       | 1,396 |   | 1,034 |   |
| Other                                                       |   | 796                        |       | 503                      |       | 1,456 |   | 922 |   |
| Total CLEC                                                  |   | 1,493                      |       | 1,044                    |       | 2,852 |   | 1,956 |   |
|                                                        |   |                       |       |                     |       |   |   |   |   |
| Long Distance                                               |   | 987                        |       | 935                      |       | 1,900 |   | 1,879 |   |
|                                                        |   |                       |       |                     |       |   |   |   |   |
| Internet                                                    |   | 883                        |       | 737                      |       | 1,730 |   | 1,506 |   |
|                                                        |   |                       |       |                     |       |   |   |   |   |
| Wireless                                                    |   |                       |       |                     |       |   |   |   |   |
| Service                                                     |   | 2,500                      |       | 2,603                    |       | 4,834 |   | 5,082 |   |
| Home Roaming                                                |   | 280                        |       | 124                      |       | 474 |   | 283 |   |
| Roaming                                                     |   | 1,183                      |       | 2,032                    |       | 2,057 |   | 3,799 |   |
| Total Wireless                                              |   | 3,963                      |       | 4,759                    |       | 7,365 |   | 9,164 |   |
|                                                        |   |                       |       |                     |       |   |   |   |   |
| **Total Telecom Revenues Before Intersegment Eliminations** |   |                       | ** ** |                     | ** ** |   | ** ** |   | ** ** |
| Unaffiliated Customers                                      |   | $                          | 21,405     |                     | $          | 21,153 |   | $ | 42,122 |   | $ | 42,241 |   |
| Intersegment                                                |   | 69                         |       | 69                       |       | 137 |   | 138 |   |
|                                                        |   | 21,474                     |       | 21,222                   |       | 42,259 |   | 42,379 |   |
| Operating Expenses, excluding Depr. and  Amort.        |   | 11,808                     |       | 12,006                   |       | 22,545 |   | 23,814 |   |
| Depreciation and Amortization                               |   | 3,669                      |       | 3,541                    |       | 7,207 |   | 7,029 |   |
| Operating Income                                            |   | $                          | 5,997      |                     | $          | 5,675 |   | $ | 12,507 |   | $ | 11,536 |   |
| Net Income                                                  |   | $                          | 3,541      |                     | $          | 3,288 |   | $ | 7,354 |   | $ | 6,661 |   |
| Earnings Before Interest, Taxes,                            |   |                       |       |                     |       |   |   |   |   |
| Depreciation and Amortization (EBITDA) (1)                  |   | $                          | 9,666      |                     | $          | 9,216 |   | $ | 19,714 |   | $ | 18,565 |   |
|                                                        |   |                       |       |                     |       |   |   |   |   |
| Capital Expenditures                                        |   | $                          | 5,136      |                     | $          | 8,466 |   | $ | 7,923 |   | $ | 13,797 |   |
|                                                        |   |                       |       |                     |       |   |   |   |   |
| ILEC Access Lines                                           |   | 63,985                     |       | 65,599                   |       |   |   |   |   |
|                                                        |   |                       |       |                     |       |   |   |   |   |
| CLEC Access Lines                                           |   |                       |       |                     |       |   |   |   |   |
| Overbuild                                                   |   | 6,846                      |       | 2,704                    |       |   |   |   |   |
| UNE                                                         |   | 1,217                      |       | 1,586                    |       |   |   |   |   |
| TSR                                                         |   | 4,366                      |       | 5,678                    |       |   |   |   |   |
| Total                                                       |   | 12,429                     |       | 9,968                    |       |   |   |   |   |
|                                                        |   |                       |       |                     |       |   |   |   |   |
| Long Distance Customers                                     |   | 26,723                     |       | 21,871                   |       |   |   |   |   |
|                                                        |   |                       |       |                     |       |   |   |   |   |
| Internet Customers                                          |   | 13,643                     |       | 12,837                   |       |   |   |   |   |
|                                                        |   |                       |       |                     |       |   |   |   |   |
| Wireless Customers                                          |   | 25,806                     |       | 26,548                   |       |   |   |   |   |
|                                                        |   |                       |       |                     |       |   |   |   |   |
| Total Telecom Customers                                     |   | 142,586                    |       | 136,823                  |       |   |   |   |   |

 

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Telecom Sector operating revenues before intersegment eliminations forthe three months ended June 30, 2002 increased $252,000 or 1.2% compared withthe same period in 2001. Operating revenues before intersegment eliminationsfor the six months ended June 30, 2002 decreased $120,000 or 0.3% compared withthe same period in 2001. Amana Colonies Telephone Company (ACTC), which wassold on August 6, 2001, contributed $346,000 and $687,000 of revenues to thissector during the three months ended June 30, 2001 and six months ended June30, 2001, respectively. Local service rates were increased in HickoryTech’sIowa ILEC in May 2001 and in the Minnesota ILECs in December 2001, whichcontributed $225,000 of revenue in the second quarter of 2002 and $506,000 ofrevenue for the first six months of 2002. Without the local service rateincreases and excluding the revenues from ACTC, Telecom revenues would haveincreased $373,000 or 1.8% for the second quarter of 2002 and $61,000 or 0.1%for the first six months of 2002 compared to the same periods in 2001. 

 

ILEC local service revenue increased $180,000 or 5.0% for the threemonths ended June 30, 2002 and $495,000 or 7.0% for the six months ended June30, 2002 compared with the same periods in 2001. ACTC contributed $57,000 and$112,000 to local service revenue for the second quarter and for the first sixmonths of 2001, respectively. Without the local service rate increase and excludingthe revenues from ACTC, local service revenue would have increased $12,000 or0.3% for the three months ended June 30, 2002 and $101,000 or 1.5% for the sixmonths ended June 30, 2002 compared with the same periods in 2001. Increaseddemand for local private lines and higher penetration of vertical services suchas caller identification, call waiting and three-way calling was the primarysource of the growth in local service revenue in 2002, partially offset by adecline in access lines.

 

ILEC network access revenue increased $280,000 or 3.6% for the threemonths ended June 30, 2002 and $98,000 or 0.6% for the six months ended June30, 2002 compared with the same periods in 2001. ACTC contributed $237,000 and$504,000 to network access revenue for the second quarter and for the first sixmonths of 2001, respectively. Excluding the revenue from ACTC, network accessrevenue would have increased $517,000 or 6.9% for the three months ended June30, 2002 and $602,000 or 3.9% for the six months ended June 30, 2002 comparedwith the same periods in 2001. The increase in network access revenue wasdriven by higher demand for dedicated lines and high-speed circuits, along witha 54.3% increase in the subscriber line charge billed to customers following arate increase set forth by the FCC in January 2002. These increases in networkaccess revenue were partially offset by a 1.8% decline in access minutes of usefor the first six months of 2002 compared to the 2001.

 

CLEC local service revenue increased $156,000 or 28.8% for the threemonths ended June 30, 2002 and $362,000 or 35.0% for the six months ended June30, 2002 compared with the same periods in 2001. CLEC access lines grew 24.7%from June 30, 2001 to June 30, 2002, which was the primary reason for the increasein local service revenue.

 

Other CLEC revenue increased $293,000 or 58.3% for the three monthsended June 30, 2002 and $534,000 or 57.9% for the six months ended June 30,2002 compared with the same periods in 2001. Other revenue included network accessand high-speed data revenues which generally grew along with the increase inaccess lines. Also included in other revenue was the revenue recorded from theCLEC’s offering of digital TV service, which was rolled out in May 2001 and hasgrown to 607 customers as of June 30, 2002.

 

Long distance revenue increased $52,000 or 5.6% for the three monthsended June 30, 2002 and $21,000 or 1.1% for the six months ended June 30, 2002compared with the same periods in 2001. One industry trend impacting the TelecomSector is the decrease in average long distance revenue per customer. Thissector experienced a 22.2% increase in its long distance customer base fromJune 30, 2001 to June 30, 2002, with long distance revenues for the first sixmonths of 2002 only increasing 1.1% 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.

 

Internet revenue increased $146,000 or 19.8% for the three months endedJune 30, 2002 and $224,000 or 14.9% for the six months ended June 30, 2002compared with the same periods in 2001. The increase in revenue was causedprimarily by an increase in internet customers of 6.3% from June 30, 2001 toJune 30, 2002, and by a migration of internet customers from low-priceintroductory rate plans to mid-range full-service internet packages.

 

13

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Wireless service revenue decreased $103,000 or 4.0% for the threemonths ended June 30, 2002 and $248,000 or 4.9% for the six months ended June30, 2002 compared with the same periods in 2001. The decrease in servicerevenue was primarily due to a 2.8% decline in wireless customers from June 30,2001 to June 30, 2002.

 

Wireless roaming revenue decreased $849,000 or 41.8% for the threemonths ended June 30, 2002 and $1,742,000 or 45.9% for the six months endedJune 30, 2002 compared with the same periods in 2001. Roaming minutes fromother wireless carriers’ customers travelling into HickoryTech’s cellularservice territory have continued to erode, particularly due to technologicalchanges among other wireless providers which re-route the roaming minutes fromHickoryTech’s wireless service towers to other providers. In addition, other PCSwireless carriers have continued to build-out PCS licenses to compete withHickoryTech in RSA 10. This trend of reduced roaming revenue is expected tocontinue.

 

Operating expenses excluding depreciation and amortizationdecreased  $198,000 or 1.6% for thethree months ended June 30, 2002 and $1,269,000 or 5.3% for the six monthsended June 30, 2002 compared with the same periods in 2001. ACTC contributed$238,000 and $518,000 of operating expenses to this sector during the threemonths and six months ended June 30, 2001, respectively. Excluding theoperating expenses from ACTC, Telecom operating expenses would have increased$40,000 or 0.3% for the second quarter of 2002 and decreased $751,000 or 3.2%for the first six months of 2002 compared to the same periods in 2001. Onereason for the decrease in operating expenses was the improved efficienciesachieved in the design and operation of HickoryTech’s network as it pertains toits CLEC and internet operations. In addition, management actions aimed at reducingoperating costs, which began in the first quarter of 2001, and the combinationof certain business office functions aided in reducing operating expenses forthis sector. HickoryTech has also implemented specific cost reductioninitiatives such as using its PCS network to reduce roaming expense for itswireless product, closely auditing the interconnection fees paid to othercarriers for its CLEC product and reducing the plant installation andengineering workforce of its Network Design and Operations Division. Theemployment levels in this sector are 10% lower than in 2001, mostly due tore-arrangements and attrition. The decrease in operating expenses werepartially offset by the $1,195,000 additional allowance for doubtful accountsrecorded in the second quarter of 2002, due in large part to bankruptcies ofinterexchange carriers in the telecommunications industry.

 

Depreciation and amortization increased $128,000 or 3.6% for the threemonths ended June 30, 2002 and $178,000 or 2.5% for the six months ended June30, 2002 compared with the same periods in 2001. Depreciation expense increased$710,000 or 24.6% for the three months ended June 30, 2002 and $1,358,000 or23.9% for the six months ended June 30, 2002 compared with the same periods in2001. The buildout of HickoryTech’s CLEC and fiber optic networks primarilyaccount for the increase in depreciation expense. For the three months and sixmonths ended June 30, 2002 compared to the same periods in 2001, depreciationexpense increased $245,000 or 12.5% and $478,000 or 12.2%, respectively, forthe networks associated with its ILEC product and $435,000 or 117.7% and$898,000 or 136.9%, respectively, for the networks associated with its CLECproduct. Amortization expense decreased $582,000 or 87.3% for the three monthsended June 30, 2002 and $1,182,000 or 88.7% for the six months ended June 30,2002 compared with the same periods in 2001. If SFAS No. 142 had taken effectin 2001, amortization expense would have increased $38,000 and $57,000 for the threemonths and six months ended June 30, 2002, respectively, compared with the sameperiods in 2001.

 

Operating income increased $322,000 or 5.7% for the three months endedJune 30, 2002 and $971,000 or 8.4% for the six months ended June 30, 2002compared with the same periods in 2001. Net income increased $253,000 or 7.7%for the three months ended June 30, 2002 and $693,000 or 10.4% for the sixmonths ended June 30, 2002 compared with the same periods in 2001. If SFAS No.142 had taken effect in 2001, operating income and net income for the secondquarter 2002 would have decreased $279,000 or 4.4% and $78,000 or 2.1%,respectively, compared with the same period in 2001. If SFAS No. 142 had takeneffect in 2001, operating income and net income for the six months ended June30, 2002 would have decreased $233,000 or 1.8% and $17,000 or 0.2%,respectively, compared with the same period in 2001.  

 

EBITDA(1) increased  $450,000 or4.9% for the three months ended June 30, 2002 and $1,149,000 or 6.2% for thesix months ended June 30, 2002 compared with the same periods in 2001. TheEBITDA(1) margin for this sector was 45.0% and 46.7% for the three months andsix months ended June 30, 2002, respectively, compared to 43.4% and 43.8% forthe same periods in 2001. The increase in EBITDA and EBITDA margin wasprimarily because of the management actions taken to reduce operating expenses.

 

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

 

**INFORMATIONSOLUTIONS**

** **
|                                                                         |   | **For Three Months Ended** |   | **For Six Months Ended** |   |
|------------------------------------------------------------------------------|--------|----------------------------|--------|--------------------------|--------|
| **(Dollars  in Thousands)**                                                  |   | **6/30/02**                |   | **6/30/01**              |   | **6/30/02** |   | **6/30/01** |   |
| Revenues Before Intersegment Eliminations                                    |   |                       |   |                     |   |   |   |   |   |
| Unaffiliated Customers                                                       |   | $                          | 1,049  |                     | $      | 965 |   | $ | 2,083 |   | $ | 1,943 |   |
| Intersegment                                                                 |   | 944                        |   | 1,242                    |   | 1,859 |   | 2,545 |   |
|                                                                         |   | 1,993                      |   | 2,207                    |   | 3,942 |   | 4,488 |   |
| Operating Expenses, excluding Depr. and Amort.                               |   | 2,042                      |   | 1,809                    |   | 4,006 |   | 3,428 |   |
| Depreciation and Amortization                                                |   | 519                        |   | 100                      |   | 1,029 |   | 200 |   |
| Operating Income/(Loss)                                                      |   | $                          | (568   | )                        | $      | 298 |   | $ | (1,093 | ) | $ | 860 |   |
| Net Income/(Loss)                                                            |   | $                          | (370   | )                        | $      | 158 |   | $ | (722 | ) | $ | 480 |   |
| Earnings Before Interest, Taxes, Depreciation and  Amortization (EBITDA) (1) |   | $                          | (49    | )                        | $      | 398 |   | $ | (64 | ) | $ | 1,060 |   |
|                                                                         |   |                       |   |                     |   |   |   |   |   |
| Capital Expenditures                                                         |   | $                          | 686    |                     | $      | 682 |   | $ | 1,208 |   | $ | 1,069 |   |

 

 Operating revenues fromunaffiliated customers for the three months ended June 30, 2002 increased$84,000 or 8.7% compared with the same period in 2001. Operating revenues fromunaffiliated customers for the six months ended June 30, 2002 increased$140,000 or 7.2% compared with the same period in 2001. The increase inoperating revenues was the result of new customer relationships for monthlybatch processing utilizing this sector’s legacy software systems, as well asthe implementation of the predecessor to SuiteSolution called WRITE2K by a new customer. 

 

Operating expenses excluding depreciation and amortization increased$233,000 or 12.9% for the three months ended June 30, 2002 and $578,000 or16.9% for the six months ended June 30, 2002 compared with the same periods in2001. This sector capitalized internal development costs associated withSuiteSolution during the first two quarters of 2001. The capitalization ofthese costs ended during the third quarter of 2001 as the development ofSuiteSolution had reached the point where the product was available for releaseto customers. As a result of development costs for SuiteSolution no longerbeing capitalized, operating expenses for this sector were higher in the firsttwo quarters of 2002 as development personnel were deployed on routineoperating and implementation duties.

 

Depreciation and amortization increased $419,000 or 419.0% for thethree months ended June 30, 2002 and $829,000 or 414.5% for the six monthsended June 30, 2002 compared with the same periods in 2001. Depreciationexpense for the three months ended June 30, 2002 was $209,000 higher than thethree months ended June 30, 2001. Depreciation expense for the six months endedJune 30, 2002 was $408,000 higher than the six months ended June 30, 2001. Theincrease was due to depreciation expense recorded on capitalized leases for newcomputer equipment and other capital expenditures related to the developmentand implementation of SuiteSolution. Amortization expense for the three monthsended June 30, 2002 was $210,000 higher than the three months ended June 30,2001. Amortization expense for the six months ended June 30, 2002 was $421,000higher than the six months ended June 30, 2001. The increase was due to theamortization of capitalized SuiteSolution development costs, which began in thethird quarter of 2001.

 

Operating income decreased $866,000 or 290.6% for the three monthsended June 30, 2002 and $1,953,000 or 227.1% for the six months ended June 30,2002 as compared to the same periods in 2001. Net income decreased $528,000 or334.2% for the three months ended June 30, 2002 and $1,202,000 or 250.4% forthe six months ended June 30, 2002 compared to the same periods in 2001. Thedecrease in operating income and net income was attributable to the increase inoperating expenses, including depreciation and amortization.

 

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EBITDA(1) decreased $447,000 or 112.3% for the quarter ended June 30,2002 and $1,124,000 or 106.0% for the six months ended June 30, 2002 comparedwith the same periods in 2001. The EBITDA(1) margin for this sector was (2.5%)for the quarter ended June 30, 2002 compared to 18.0% for the same quarter in2001. The EBITDA(1) margin for this sector was (1.6%) for the six months endedJune 30, 2002 compared to 23.6% for the same period in 2001. The decrease inEBITDA and the EBITDA margin was primarily due to increased operating expenses,and the fact that this sector has finished development of its next key softwareplatform, requiring development costs which were previously capitalized to berecorded in operating expenses, offset by the fact that external revenue forthe new product is being delayed while HickoryTech applies the software for itsinternal use.

 

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

 

**ENTERPRISE SOLUTIONS**
|                                                                         |   | **For Three Months Ended** |   | **For Six Months Ended** |   |
|------------------------------------------------------------------------------|--------|----------------------------|--------|--------------------------|--------|
| **(Dollars in Thousands)**                                                   |   | **6/30/02**                |   | **6/30/01**              |   | **6/30/02** |   | **6/30/01** |   |
| Revenues Before Intersegment Eliminations                                    |   |                       |   |                     |   |   |   |   |   |
| Installation                                                                 |   | $                          | 1,260  |                     | $      | 2,875 |   | $ | 2,656 |   | $ | 5,406 |   |
| Service                                                                      |   | 1,777                      |   | 1,961                    |   | 3,742 |   | 4,595 |   |
|                                                                         |   | 3,037                      |   | 4,836                    |   | 6,398 |   | 10,001 |   |
| Cost of Sales                                                                |   | 2,033                      |   | 3,236                    |   | 4,217 |   | 6,637 |   |
| Operating Expenses, excluding Depr. and Amort.                               |   | 1,238                      |   | 1,287                    |   | 2,496 |   | 2,599 |   |
| Depreciation and Amortization                                                |   | 66                         |   | 88                       |   | 136 |   | 173 |   |
| Operating Income/(Loss)                                                      |   | $                          | (300   | )                        | $      | 225 |   | $ | (451 | ) | $ | 592 |   |
| Net Income/(Loss)                                                            |   | $                          | (187   | )                        | $      | 124 |   | $ | (286 | ) | $ | 329 |   |
| Earnings Before Interest, Taxes, Depreciation and  Amortization (EBITDA) (1) |   | $                          | (234   | )                        | $      | 313 |   | $ | (315 | ) | $ | 765 |   |
|                                                                         |   |                       |   |                     |   |   |   |   |   |
| Capital Expenditures                                                         |   | $                          | 15     |                     | $      | 85 |   | $ | 55 |   | $ | 90 |   |

 

Operating revenues decreased $1,799,000 or 37.2% for the three monthsended June 30, 2002 and $3,603,000 or 36.0% for the six months ended June 30,2002 compared with the same periods in 2001. Sales volumes in the secondquarter 2002, as well as the first two quarters of 2002, are down in thissector compared to the same periods in 2001. Installation revenue was 56.2%lower for the three months ended June 30, 2002 and 50.9% lower for the sixmonths ended June 30, 2002 compared with the same periods in 2001, primarily aresult of a decrease in sales and installations of PBX and small businesssystems of 72.8% for the three months ended June 30, 2002 and 71.8% for the sixmonths ended June 30, 2002. Service revenue was 9.4% lower for the three monthsended June 30, 2002 and 18.6% lower for the six months ended June 30, 2002compared with the same periods in 2001. This sector has encountered across theboard reductions in demand in all of its major products and services. Thereduction occurred in early 2002, and is believed to be associated with theeconomy’s effect on customers of this sector, and due to the crossroads oftechnology (i.e. voice vs. data protocol) in the communications products whichthis sector provides. These factors appear to be affecting the industry and notmerely this sector in any unique way. It is unknown when the factors willrevert and allow customer demand to return to normal levels. This sector isexpecting to see an increase in its revenues for the remainder of 2002 due to acontract signed with a specialty retailer in North America to provide a voiceover Internet Protocol network in its home office campus in Minneapolis,Minnesota. This contract represents what is expected to be the largestsingle-campus telecommunication deployment in the United States this year andwill add significant revenues to Enterprise Solutions in the second half of2002.

 

Cost of sales decreased $1,203,000 or 37.2% for the three months endedJune 30, 2002 and $2,420,000 or 36.5% for the six months ended June 30, 2002compared with the same periods in 2001. Gross profit margin for this sector forthe three months and six months ended June 30, 2002 was 33.1% and 34.1%,respectively, as compared to 33.1% and 33.6% for the same periods in 2001. Thedecrease in cost of sales was in line with the decrease in operating revenuesin this sector.

 

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Operating expenses excluding depreciation and amortization decreased$49,000 or 3.8% for the three months ended June 30, 2002 and $103,000 or 4.0%for the six months ended June 30, 2002 compared with the same periods in2001.  This sector reduced its operatingexpenses through proactive management steps, such as workforce reductions.

 

Depreciation and amortization decreased $22,000 or 25.0% for the threemonths ended June 30, 2002 and $37,000 or 21.4% for the six months ended June30, 2002 compared with the same periods in 2001. Depreciation expense increased$2,000 for the three months ended June 30, 2002 and $10,000 for the six monthsended June 30, 2002 compared with the same periods in 2001. Due to the implementationof SFAS No. 142, there was no amortization expense for the first six months of2002. If SFAS No. 142 had taken effect in 2001, then no amortization expensewould have been recorded in 2001.

 

Operating income decreased $525,000 to a loss of $300,000 for the threemonths ended June 30, 2002 compared to income of $225,000 for the three monthsended June 30, 2001. Operating income decreased $1,043,000 to a loss of$451,000 for the six months ended June 30, 2002 compared to income of $592,000for the six months ended June 30, 2001. Net income decreased $311,000 or 250.8%for the three months ended June 30, 2002 and $615,000 or 186.9% for the sixmonths ended June 30, 2002 compared with the same periods in 2001. If SFASNo.142 had taken effect in 2001, operating income would have decreased $549,000and $1,090,000, respectively, for the three months and six months ended June30, 2002 compared with the same periods in 2001. If SFAS No. 142 had takeneffect in 2001, net income would have decreased $325,000 and $643,000,respectively, for the three months and six months ended June 30, 2002 comparedwith the same period in 2001. The decrease in operating income and net incomewas attributable to the decrease in sales volumes.

 

EBITDA(1) decreased $547,000 or 174.8% for the three monthsended June 30, 2002 and $1,080,000 or 141.2% for the six months ended June 30,2002 compared with the same periods in 2001. The EBITDA(1) marginfor this sector was (7.7%) for the quarter ended June 30, 2002 compared to 6.5%for the same quarter in 2001. The EBITDA(1) margin for this sectorwas (4.9%) for the six months ended June 30, 2002 compared to 7.6% for the sixmonths ended June 30, 2001.  The declinein EBITDA and the EBITDA margin was primarily due to the decrease in operatingrevenues, combined with a slower reduction in operating expenses.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

CAPITAL STRUCTURE– The total long-term capital structure (long-term obligations plusshareholders’ equity) for HickoryTech was $245,986,000 at June 30, 2002,reflecting 33.6% equity and 66.4% 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 $16,569,000 for the six-month period ended June 30,2002 compared to $7,601,000 for the six-month period ended June 30, 2001.  Cash flows from operations for the sixmonths ended June 30, 2002 and 2001 were primarily attributable to net incomeplus non-cash expenses for depreciation and amortization and a decrease inreceivables, partially offset by decreases in accounts payable related totiming of payments.  The increase incash flows from operations in the first two quarters of 2002 relative to thesame period in 2001 was primarily due to a $2,110,000 reduction in receivables,$1,647,000 provision for losses on accounts receivable and a $1,394,000reduction in billings and costs on contracts during the first two quarters of2002.

 

Cash flows used in investing activities were $9,041,000 for the six monthsended June 30, 2002 compared to $27,920,000 for the same period in 2001.Capital expenditures were $9,325,000 during the first six months of 2002 ascompared to $15,133,000 for the same period in 2001. Capital expenditures wereincurred primarily to construct additional network facilities to provide CLECservices and continued buildout of the PCS network in the Telecom Sector. Thelevel 

 

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ofcapital expenditures in 2002 is lower than 2001 as part of HickoryTech’splanned control of liquidity and debt reduction. Also included in cash flowsused in investing activities for the six months ended June 30, 2001 wereadditions to capitalized software development costs for the InformationSolutions Sector’s SuiteSolution billing product of $2,154,000. Cash flows usedin investing activities for the six months ended June 30, 2001 also include theacquisition of PCS licenses in southern Minnesota for $11,357,000.

 

Cash flows used in financing activities were $8,801,000 for thesix-month period ended June 30, 2002 compared to cash flows provided byfinancing activities of $20,953,000 for the six-month period ended June 30,2001.  Included in cash flows fromfinancing activities are debt borrowings, debt repayments, and dividendpayments. During the first six months of 2002, HickoryTech made payments on itsrevolving credit facility of $8,000,000. During the first six months of 2001,HickoryTech borrowed $21,500,000 under its revolving credit facility to covercash requirements, primarily for capital expenditures and the PCS acquisition.Dividend payments for the first six months of 2002 were $3,078,000 compared to$3,056,000 for the same period in 2001. 

 

WORKING CAPITAL –Working capital was $8,280,000 as of June 30, 2002, compared to working capitalof $13,737,000 as of December 31, 2001. The decrease is primarily due to thedecreases in cash, accounts receivable and income taxes receivable.  The ratio of current assets to currentliabilities was 1.6:1.0 as of June 30, 2002 and 2.0:1.0 as of December 31,2001.

 

LONG-TERM OBLIGATIONS - HickoryTech’s long-term obligations as of June 30, 2002 were$163,298,000, excluding current maturities of $1,376,000. As of June 30, 2002,HickoryTech had a $183,500,000 credit facility with a syndicate of banks.  The credit facility is comprised of a$125,000,000 revolving credit component and a $58,500,000 term loancomponent.  The available line of crediton the $125,000,000 revolving credit component decreases in increments beginningin March 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 4.41% at June 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 June 30, 2002,HickoryTech had drawn $163,500,000 on this credit facility and had $20,000,000 ofavailable credit. In April 2002, HickoryTech reduced its revolving creditfacility by $40,000,000 to its current level as of June 30, 2002. Managementbelieves the remaining available credit is sufficient to cover future cashrequirements and expects reductions in interest expense for the remainder of2002 as a result of the lower credit facility.

 

HickoryTech’s Information Solutions Sector leases certain computerequipment under capital lease arrangements. During the first two 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**                |       | **Remainder  of 2002** |   | **2003 to  2005** |   | **2006 to  2007** |   | **2008 and  after** |   |
| Contractual Obligations            |   |                     | ** ** |   | ** ** |   | ** ** |   | ** ** |   |   |
| Long-term Debt                     |   | $                        | 163,500    |   | $ | 500 |   | $ | 20,500 |   | $ | 61,375 |   | $ | 81,125 |   |
| Capital Lease Obligations          |   | 1,174                    |       | 156 |   | 1,018 |   | — |   | — |   |
| Operating Leases                   |   | 3,262                    |       | 534 |   | 1,749 |   | 298 |   | 681 |   |
| Total Contractual Cash Obligations |   | $                        | 167,936    |   | $ | 1,190 |   | $ | 23,267 |   | $ | 61,673 |   | $ | 81,806 |   |

 

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

 
|                        |   | **Amount of Commitment Expiration per Year** |    |
|-----------------------------|--------|----------------------------------------------|---------|
| **(Dollars  in Thousands)** |   | **Total**                                    |    | **Remainder  of 2002** |   | **2003 to  2005** |   | **2006 to  2007** |   | **2008 and  after** |   |
| 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 June 30, 2002. HickoryTech continually monitors the interest rates on itsbank loans and has implemented fixed interest terms on various portions of theoverall debt outstanding for varying terms. A lower level of interest expenseis likely to occur because of more limited use of the revolving credit facilityfor capital expenditures and potentially lower weighted average interest rates.

 

**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,conform to the accounting principles as prescribed by federal and statetelephone utility regulatory authorities. A description of the criticalaccounting policies adhered to by HickoryTech is contained in the Management’sDiscussion and Analysis of Financial Condition and Results of Operations inHickoryTech’s Annual Report on Form 10-K for the year ended December 31, 2001,which is incorporated herein by reference.

 

**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 June 30, 2002 of $25,086,000) and FCC licenses (net carrying value as ofJune 30, 2002 of $75,635,000). HickoryTech also tested these intangible assetsfor impairment at January 1, 2002 pursuant to the method prescribed by SFAS No.142 and determined that these assets’ carrying values are not impaired.

 

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:

 
|                                                                                 |   | **For Three  Months Ended** |   | **For Six  Months Ended** |   |
|--------------------------------------------------------------------------------------|--------|-----------------------------|--------|---------------------------|--------|
| **(Dollars in Thousands, except Per  Share Amounts and shown Net of IncomeTax****)** |   | **6/30/02**                 |   | **6/30/01**               |   | **6/30/02** |   | **6/30/01** |   |
|                                                                                 |   |                        |   |                      |   |   |   |   |   |
| Reported Net  Income                                                                 |   | $                           | 1,802  |                      | $      | 2,004 |   | $ | 3,892 |   | $ | 3,967 |   |
| Goodwill  Amortization                                                               |   |                        |   | 113                       |   |   |   | 226 |   |
| FCC License  Amortization                                                            |   |                        |   | 259                       |   |   |   | 518 |   |
| Adjusted Net  Income                                                                 |   | $                           | 1,802  |                      | $      | 2,376 |   | $ | 3,892 |   | $ | 4,711 |   |
|                                                                                 |   |                        |   |                      |   |   |   |   |   |
| Basic and Diluted  Earnings Per Share:                                               |   |                        |   |                      |   |   |   |   |   |
| Reported Net  Income                                                                 |   | $                           | 0.13   |                      | $      | 0.14 |   | $ | 0.28 |   | $ | 0.28 |   |
| Goodwill  Amortization                                                               |   |                        |   | 0.01                      |   |   |   | 0.02 |   |
| FCC License  Amortization                                                            |   |                        |   | 0.02                      |   |   |   | 0.04 |   |
| Adjusted Net  Income                                                                 |   | $                           | 0.13   |                      | $      | 0.17 |   | $ | 0.28 |   | $ | 0.34 |   |

 

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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,“Accounting  for Intangible Assets ofMotor Carriers,” and amends FASB Statement No. 13, “Accounting for Leases.” InJune 2000, HickoryTech recorded an extraordinary loss of $233,000, net ofincome tax benefit of $158,000, as a result of an extinguishment of debt. UnderSFAS No. 145, this extraordinary loss on debt extinguishment would bereclassified to operating expenses.

 

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(1)– EBITDA represents operating income plus depreciation and amortizationexpense. EBITDA margin represents EBITDA divided by total operating revenuesbefore eliminations. EBITDA, which is not a measure of financial performance orliquidity under generally accepted accounting principles, is provided becausesuch information is used by certain investors when analyzing the financialposition and performance of HickoryTech and because EBITDA is a measure whichHickoryTech uses to manage and monitor its own business plan. Because of thevariety of methods used by companies and analysts to calculate EBITDA, and thefact that EBITDA calculations may not accurately measure a company’s ability tomeet debt service requirements, caution should be used in relying on any EBITDApresentation. HickoryTech sees value in disclosing its calculation of EBITDAfor the financial community and in displaying the change in EBITDA. HickoryTechbelieves an increasing EBITDA depicts increased ability to attract financingand increased valuation of HickoryTech’s business.

 

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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 andsix months ended June 30, 2002, HickoryTech’s interest expense would haveincreased $196,000 for the three months ended June 30, 2002 and $414,000 forthe six months ended June 30, 2002. In case of a change of such magnitude,management would likely act to mitigate its exposure to the change byconverting a portion of its variable-rate debt to fixed-rate debt in even moreaggressive timetables than it has already. 

 

PART II. OTHERINFORMATION

 

Item1.    Legal Proceedings.

 None

 

Item2.    Changes inSecurities.

 None

 

Item3.    Default UponSenior Securities.

 None.

 

Item4.   Submission of Matters to a Vote of Security Holders.

 

a.        Theannual shareholders’ meeting was held on April 8, 2002.

b.        Fourdirectors were elected to serve three-year terms. The names of the directorselected at the annual meeting and the applicable votes were as follows:

 
| **Director**         |   | **For**    |   | **Withheld** |   | **Broker  Nonvotes** |   |
|----------------------|--------|------------|--------|--------------|--------|----------------------|--------|
|                 |   |       |   |         |   |                 |   |
| Robert D. Alton, Jr. |   | 10,847,812 |   | 150,387      |   | NONE                 |   |
| Robert K. Else       |   | 10,887,647 |   | 110,552      |   | NONE                 |   |
| R. Wynn Kearney, Jr. |   | 10,861,243 |   | 136,956      |   | NONE                 |   |
| Robert E. Switz      |   | 10,889,577 |   | 108,622      |   | NONE                 |   |

 

Item5.    Other Information.

None.

 

Item6.   Exhibits and Reports of Form 8-K.

 

(a)          Exhibits

 

99.1CertificationPursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the 

Sarbanes-Oxley Act of 2002

 

99.2CertificationPursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the 

Sarbanes-Oxley Act of 2002

 

(b)          HickoryTechfiled a Form 8-K on April 10, 2002 announcing the retirement of Robert D.Alton, Jr. as President and Chief Executive Officer of the company.

 

HickoryTech filed a Form 8-K on June 4, 2002 announcingthe appointment of John E. Duffy as President and Chief Executive Officer ofthe company effective July 1, 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: | August  15, 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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