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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
- or -
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-13721
HICKORY TECH CORPORATION
P.O. Box 3248
221 East Hickory Street
Mankato, Minnesota 56002-3248
(800) 326-5789
Incorporated in Minnesota I.R.S. Employer Identification
41-1524393
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. (X)
The number of shares outstanding of each of the Registrant's classes of common
stock, as of the latest practicable date: 5,122,328 shares of no par common
stock as of March 31, 1996.
HICKORY TECH CORPORATION
MARCH 31, 1996
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
In Thousands
For Quarter Ended
3-31-96 3-31-95
OPERATING REVENUES
Telephone $ 7,925 $ 7,544
Computer 2,674 1,824
Equipment Sales 3,375 3,597
Telecommunications Product Development 1,567 1,682
-------- --------
TOTAL OPERATING REVENUES 15,541 14,647
COSTS AND EXPENSES
Cost of Sales 2,859 3,060
Operating Expenses 7,141 6,139
Depreciation 1,385 1,350
Amortization of Intangibles 302 483
-------- --------
TOTAL COSTS AND EXPENSES 11,687 11,032
-------- --------
OPERATING INCOME 3,854 3,615
OTHER INCOME 299 136
INTEREST EXPENSE 95 30
-------- --------
INCOME BEFORE INCOME TAXES 4,058 3,721
INCOME TAXES 1,642 1,500
-------- --------
CONSOLIDATED NET INCOME $ 2,416 $ 2,221
======== ========
EARNINGS PER SHARE $0.47 $0.43
DIVIDENDS PER SHARE $0.275 $0.25
The accompanying notes are an integral part of the financial statements.
HICKORY TECH CORPORATION
MARCH 31, 1996
CONSOLIDATED BALANCE SHEET (UNAUDITED)
In Thousands 3-31-96
12-31-95
-------- --------
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 5,740 $ 4,517
Temporary Cash Investments 5,512 7,176
Receivables, Net of Allowance 10,204 9,381
Inventories 3,178 2,846
Deferred Tax Benefit and Other 1,013 985
-------- --------
TOTAL CURRENT ASSETS 25,647 24,905
INVESTMENTS 2,869 2,714
PROPERTY, PLANT & EQUIPMENT:
Telecommunications Plant 70,326 69,162
Other Property and Equipment 11,170 11,433
-------- --------
TOTAL 81,496 80,595
Less Accumulated Depreciation 45,952 44,507
-------- --------
NET PROPERTY, PLANT AND EQUIPMENT 35,544 36,088
OTHER ASSETS:
Intangible Assets 10,043 9,457
Note Receivable 300 340
Miscellaneous 413 433
-------- --------
TOTAL OTHER ASSETS 10,756 10,230
-------- --------
TOTAL ASSETS $74,816 $ 73,937
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 5,607 $ 5,568
Accrued Taxes 1,104 459
Advanced Billings & Deposits 1,463 1,679
Current Maturities of Long-Term Debt 205 206
-------- --------
TOTAL CURRENT LIABILITIES 8,379 7,912
LONG-TERM DEBT, NET OF CURRENT MATURITIES 1,037 1,087
DEFERRED CREDITS:
Investment Tax Credits 213 233
Income Taxes 3,719 3,735
Compensation, Benefits and Other 2,906 3,063
-------- --------
TOTAL DEFERRED CREDITS 6,838 7,031
SHAREHOLDERS' EQUITY:
Common Stock 1,941 2,294
Reinvested Earnings 56,621 55,613
-------- --------
TOTAL SHAREHOLDERS' EQUITY 58,562 57,907
-------- --------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $74,816 $ 73,937
======== ========
The accompanying notes are an integral part of the financial statements
HICKORY TECH CORPORATION
MARCH 31, 1996
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For Quarter Ended
In Thousands 3-31-96 3-31-95
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,416 $ 2,221
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities
Depreciation and Amortization 1,836 1,833
Equity in Subsidiary Income (140) (142)
Changes in Assets and Liabilities:
(Increase) Decrease in:
Receivables (823) 1,088
Inventories (331) 188
Increase (Decrease) in:
Accounts Payable 39 (455)
Accrued Taxes 645 997
Advanced Billings & Deposits (216) 39
Deferred Investments Tax Credits (20) (24)
Deferred Income Taxes (16) -
Other (99) (71)
-------- --------
Net Cash Provided by Operating Activities 3,291 5,674
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant & Equipment (993) (1,159)
Additions to Intangible Assets (888) (357)
Issuance of Note Receivable - (73)
(Increase) Decrease in Investments (39) 177
Decrease in Temporary Cash Investments 1,664 53
-------- --------
Net Cash Used in Investing Activities (256) (1,359)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of Debt (51) (350)
Proceeds from Issuance of Common Stock 106 12
Acquisition of Common Stock (459) -
Dividends Paid (1,408) (1,281)
-------- --------
Net Cash Used in Financing Activities (1,812) (1,619)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,223 2,696
CASH AND CASH EQUIVALENTS At Beginning of Year 4,517 5,065
-------- --------
CASH AND CASH EQUIVALENTS At End of Period $ 5,740 $ 7,761
======== ========
The accompanying notes are an integral part of the financial statements.
HICKORY TECH CORPORATION
MARCH 31, 1996
PART 1. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
The preceding unaudited Consolidated Statement of Income, Balance
Sheet and Statement of Cash Flows include all adjustments which are,
in the opinion of management, necessary to a fair statement of the
results for the interim periods reported on.
Note 1. BASIS OF CONSOLIDATION
The Registrant is a diversified communications company headquartered
in Mankato, Minnesota. The consolidated financial statements of the
Registrant include Hickory Tech Corporation, the parent company, and
its seven operating subsidiaries. The companies and operations of the
Registrant are grouped into four primary lines of business:
MANKATO CITIZENS TELEPHONE COMPANY, MID-COMMUNICATIONS, INC. and AMANA
COLONIES TELEPHONE COMPANY are local exchange telephone companies.
Mankato Citizens Telephone Company also owns and operates a direct
broadcast satellite license under the trade name DirectVision. CABLE
NETWORK, INC. owns and operates fiber optic cable facilities for the
transportation of long distance communications. It also operates cable
television systems. Cable Network, Inc. owns partnership interests in
three cellular properties in south central Minnesota. This interest
will become an ownership interest in an expanded limited liability
corporation when a nonaffiliated reorganization is completed in the
second quarter of 1996. These four wholly-owned subsidiaries comprise
the Registrant's Telephone Segment.
COMPUTOSERVICE, INC. (CSI) provides data processing for the Telephone
Segment as well as other unrelated telephone companies. It also
provides services to interexchange long distance companies and
enhanced service providers throughout the United States through its
subsidiary, National Independent Billing, Inc. CSI also provides
standard batch processing of telephone billing and rating in large
volume applications, as well as specialized contract data processing
services, through sales of its unique software applications to
interexchange network carriers and enhanced service providers. The
operations of this wholly-owned subsidiary constitute the Registrant's
Computer Segment.
COLLINS COMMUNICATIONS SYSTEMS CO. sells, installs and services
telecommunications equipment in the retail market in the metropolitan
Minneapolis/St. Paul area. The Registrant's Equipment Sales Segment is
made up of this wholly-owned subsidiary as well as the retail sales
and service operations of the Registrant's local exchange telephone
companies in southern Minnesota and east-central Iowa.
DIGITAL TECHNIQUES, INC. designs, assembles and distributes unique
business telephone system components. Its operations comprise the
Registrant's Telecommunications Product Development Segment. The
Registrant owns 96% of Digital Techniques, Inc., which increased form
81% at December 31, 1995, as the result of the purchase of some of the
minority interest for cash. The final minority interest in Digital
Techniques, Inc. will be acquired by the Registrant in the second
quarter of 1996 through the distribution of 6,757 shares of the
Registrant's common stock. This will give the Registrant 100%
ownership of Digital Techniques, Inc.
The accounting policies of the Registrant are in conformity with
generally accepted accounting principles and, where applicable,
conform to the accounting principles as prescribed by federal and
state telephone utility regulatory authorities.
All intercompany transactions have been eliminated from the
consolidated financial statements.
NOTE 2. EARNINGS AND CASH DIVIDENDS PER COMMON SHARE
Earnings per common share are based on the weighted average number of
shares of common stock equivalents outstanding during all periods. For
the quarter ended March 31, 1996, the earnings per common share
calculation was based on 5,122,339 shares. For the quarter ended March
31, 1995, the earnings per common share calculation was based on
5,124,291 shares.
Cash dividends are based on the number of common shares outstanding at
the respective record dates. The number of shares outstanding as of
the record date for the quarter ended March 31, 1996 was 5,121,873.
The number of shares outstanding as of the record date for the quarter
ended March 31, 1995, was 5,124,291.
NOTE 3. INVENTORIES
Inventories are stated at the lower of average cost or market and
consist of the following:
(in Thousands) 3-31-96 12-31-95
-------- --------
Finished Goods $ 387 $ 344
Work in Process 81 142
Materials and Supplies 2,710 2,360
-------- --------
Total $ 3,178 $ 2,846
-------- --------
NOTE 4 COMMON STOCK
The Registrant's common stock has no par value. There are 25,000,000
shares authorized. There were 5,122,328 shares outstanding on March
31, 1996, and 5,134,021 shares outstanding on December 31, 1995.
Pursuant to the Retainer Stock Plan for Directors, 455 shares of
common stock were issued in lieu of retainers to five members of the
Registrant's Board of Directors on March 31, 1996. Pursuant to a long-
term incentive award plan for officers, 3,152 shares of common stock
were issued to officers of the Registrant. Shares issued to directors
and officers were issued at 100% of fair market value on the date of
issue.
During the quarter ended March 31, 1996, 15,300 shares of common stock
were retired at a cost of $459,000.
On April 8, 1996, the Registrant announced a program to repurchase up
to 500,000 shares, which represents 9.8% of its outstanding common
stock. This program was reported on Form 8-K dated April 8, 1996.
NOTE 5 CORPORATE DEVELOPMENT
The Registrant has entered into agreements to purchase the assets of
eleven rural telephone exchanges in the State of Iowa from US West
Communications, Inc. ("US West") for $35,271,000. The eleven exchanges
contain approximately 12,200 access lines. The acquisitions will be
structured as a purchase of telephone assets from US West and must be
approved by the Public Utilities Board of Iowa and the Federal
Communications Commission. It is anticipated that the approvals for
the purchase of the exchanges should be completed in the fourth
quarter of 1996.
The Registrant is anticipating utilizing new long-term debt
instruments to fund the majority of its $35,271,000 acquisition price
for the US West property. Negotiations are presently taking place to
secure such funding. No difficulty is anticipated in obtaining this
financing.
NOTE 6 OTHER
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
these condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Registrant's
December 31, 1995 Form 10-K.
HICKORY TECH CORPORATION
MARCH 31, 1996
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Consolidated Net Income for the quarter ended March 31, 1996, was 8.8%
higher than the same period in 1995, as illustrated by the following
table:
NET INCOME (thousands) 1996 1995 1994 1993
1st Quarter $2,416 $2,221 $2,121 $2,233
Operating Revenues were 6.1% higher for the quarter ended March 31,
1996, than for the quarter ended March 31, 1995, as illustrated by the
following table:
OPERATING REVENUES (thousands) 1996 1995 1994 1993
1st Quarter $15,541 $14,647 $14,095 $13,309
A. Material changes in results of operations:
1. TELEPHONE - Operating Revenues for the first quarter of 1996 were
$381,000 or 5.1% higher than the same period in 1995. Access line
growth was the primary contributor to the revenue growth,
providing both access revenue as well as additional minutes of
use revenue.
2. COMPUTER - Operating Revenues for the first quarter of 1996 were
$850,000 or 46.6% higher than for the first quarter of 1995. This
increase in Revenue was primarily due to a software sale,
consulting and management contract with a single customer. This
contract was entered into in the second quarter of 1995 and was
the source of $1,307,000 or 48.9% of this segment's total revenue
in the first quarter of 1996. The termination of a contract in
1995 with another customer resulted in a $412,000 reduction of
Revenue in the first quarter of 1996.
3. EQUIPMENT SALES - Operating Revenues for this segment were down
$222,000 or 6.2% for the first quarter, 1996, when compared to
the same period in 1995. The Registrant sold the assets of its
California division in 1995. The Revenue from the California
division for the first quarter of 1995 was $453,000. Without
consideration of the Revenue from the California division,
Operating Revenues for this segment would have increased 7.3%.
Additionally, gross margins for this segment, without
consideration of the margins provided by the California division,
increased from 37.3% to 38.8%.
4. TELECOMMUNICATIONS PRODUCT DEVELOPMENT - Operating Revenues for
the quarter ended March 31, 1996, were down $115,000 or 6.8%
when compared to the first quarter of 1995. Sales to Other
Equipment Manufacturers accounted for $99,000 of the reduction.
While this reduction was anticipated, Standard Product Sales were
expected to be higher than what was experienced in the first
quarter of 1996. Standard Product Sales were affected by a large
customer of this segment's E911 product. The customer has put
E911 purchases on hold while it is evaluating alternative
solutions. Standard Product Sales in 1996 were also affected by
the delayed deployment of the new Qstar product.
5. COST OF SALES - Consolidated Cost of Sales was $201,000 or 6.6%
lower for the quarter ended March 31, 1996, than the same period
in 1995. Operating Revenues for the two segments (Equipment
Sales and Telecommunications Product Development), which
generated most of the Cost of Sales, were lower during the same
period due to sales volume as described in previous paragraphs.
In terms of percentage of Operating Revenues from these two
segments, Cost of Sales was 56% for both the quarter ended March
31, 1996, as well as the quarter ended March 31, 1995.
6. OPERATING EXPENSES - Operating Expenses for the quarter ended
March 31, 1996, were $1,002,000 or 16.3% higher than the same
period in 1995. $495,000 of the increase was incurred by the
Computer Segment. $276,000 was the result of a decision during
the second quarter of 1995 to discontinue the capitalization of
software development. Other increases in Operating Expenses for
the Computer Segment related to costs associated with a new
contract for software management and consulting services. These
costs relate to the increase in Operating Revenue experienced by
the Computer Segment. The Telecommunications Product Development
Segment incurred increases in Engineering, Sales and Marketing
expenses totaling $276,000. These increases related to the
development of new products.
7. AMORTIZATION OF INTANGIBLES - Amortization for the quarter ended
March 31, 1996, was $181,000 lower than for the quarter ended
March 31, 1995. This reduction resulted from the sale of assets
and full amortization of some intangible assets associated with
acquisitions made in 1990 and 1992.
B. Material changes in financial condition:
1. CASH FLOWS - Cash and Cash Equivalents increased $1,223,000 for
the three months ended March 31, 1996, compared with an increase
of $2,696,000 for the same period in 1995. The primary source of
cash for both periods was internal operations which generated
$3.3 million in 1996 and $5.7 million in 1995. Additions to
Property, Plant and Equipment required $993,000 in 1996 and $1.2
million in 1995. Dividends paid for the first quarter were higher
(9.9%) in 1996 than 1995 reflecting a $0.025 per share increase.
2. WORKING CAPITAL - Current Assets exceeded Current Liabilities by
$17.3 million dollars as of March 31, 1996, compared to a working
capital surplus of $17.0 million as of December 31, 1995. The
primary source of working capital was internal operations. The
ratio of current assets to current liabilities was 3.06 as of
March 31, 1996.
3. USES OF CAPITAL - Additions to Property, Plant and Equipment
constituted the Registrant's largest investing activity, using
$17.9 million for the three years ended December 31, 1995. The
$993,000 of internal working capital used during the first three
months of 1996 was indicative of the continuing need for funding
in the Registrant's capital intensive industry.
4. LONG-TERM DEBT - The Registrant's Long-Term Debt as of March 31,
1996, was $1,037,000. Current Maturities of Long-Term Debt were
$205,000. The general purpose of this debt was the financing of
telephone property, plant and equipment of Mid-Communications,
Inc. This debt has final maturities at various times in 2003
through 2007 with interim sinking fund payments. Currently debt
service is being funded out of operations. Plans have not been
completed for the long-term funding of the debts maturing in 2003
through 2007.
The Registrant is anticipating utilizing new long-term debt
instruments of various maturities to fund the majority of the $35
million acquisition of the Iowa - US West telephone property in
1996. Negotiations are presently taking place to obtain such
funding. No difficulty is anticipated in obtaining this funding.
In September, 1995, the Registrant secured a $7,000,000 line of
credit arrangement. This line of credit will be used for general
corporate purposes and as bridge financing for future acquisition
activity. The line of credit provides for borrowing at the prime
interest rate. Through March 31, 1996, no advances have been made
against this line of credit.
5. CAPITAL FROM OPERATIONS - Management believes the Registrant will
be able to generate sufficient working capital internally from
operations to meet its immediate operating needs, and sustain its
historical dividend levels. The Registrant has completed five
acquisitions since 1990 which were all funded out of existing
cash balances.
HICKORY TECH CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Default Upon Senior Securities,
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports of Form 8-K.
On January 26, 1996, the Registrant filed a Form 8-K. Item 5 (Other
Events) was reported on the Form 8-K. The Form 8-K reported that in
addition to the purchase of the assets of six exchanges from US West
Communications, Inc., a Colorado corporation ("US West"), as reported
in a Form 8-K dated December 14, 1995, the Registrant will also
purchase the assets of another five exchanges from US West for
$13,171,000. The result is that the Registrant will purchase the
assets of eleven telephone exchanges in Iowa from US West for
$35,271,000. There are approximately 12,200 access lines in the eleven
exchanges.
The acquisition will be structured as a purchase of telephone assets
from US West and must be approved by the Public Utilities Board of
Iowa and the Federal Communications Commission. It is anticipated that
approvals for the purchase of the exchanges will be completed in the
fourth quarter of 1996.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereto duly authorized.
Dated: May 13, 1996
HICKORY TECH CORPORATION
/s/ Robert D. Alton, Jr.
Robert D. Alton, Jr., Chief Executive Officer
/s/ David A. Christensen
David A. Christensen, Chief Financial Officer
