<PAGE>
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, 1997
- 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: 4,665,298 shares of no par common
stock as of March 31, 1997.
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HICKORY TECH CORPORATION
MARCH 31, 1997
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED INCOME STATEMENT
(NOT AUDITED)
In Thousands For Three Months Ended
--------------------------
3/31/97 3/31/96
------- -------
OPERATING REVENUES
Telephone $ 9,016 $ 8,545
Billing and Data Services 2,304 2,674
Equipment Sales 4,467 2,755
Telecom. Product Development 1,703 1,567
-------- --------
TOTAL OPERATING REVENUES 17,490 15,541
COSTS AND EXPENSES
Cost of Sales 4,320 2,859
Operating Expenses 7,204 7,141
Depreciation 1,423 1,385
Amortization of Intangibles 198 302
-------- --------
TOTAL COSTS AND EXPENSES 13,145 11,687
-------- --------
OPERATING INCOME 4,345 3,854
OTHER INCOME 332 299
INTEREST EXPENSE 56 95
-------- --------
INCOME BEFORE INCOME TAXES 4,621 4,058
INCOME TAXES 1,899 1,642
-------- --------
CONSOLIDATED NET INCOME $ 2,722 $ 2,416
-------- --------
-------- --------
EARNINGS PER SHARE $ 0.58 $ 0.47
DIVIDENDS PER SHARE $ 0.30 $ 0.275
The accompanying notes are an integral part of the financial statements.
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HICKORY TECH CORPORATION
MARCH 31, 1997
CONSOLIDATED BALANCE SHEET (NOT AUDITED)
In Thousands 3/31/97 12/31/96
------- --------
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 478 $ 2,954
Receivables, Net of Allowance 11,127 10,782
Inventories 2,702 2,859
Deferred Tax Benefit and Other 1,270 1,372
------- -------
TOTAL CURRENT ASSETS 15,577 17,967
INVESTMENTS 3,139 2,980
PROPERTY, PLANT & EQUIPMENT
Telecommunications Plant 79,521 78,132
Other Property and Equipment 9,684 9,464
------- -------
TOTAL 89,205 87,596
Less Accumulated Depreciation 48,418 46,723
------- -------
NET PROPERTY, PLANT & EQUIPMENT 40,787 40,873
OTHER ASSETS:
Intangible Assets 8,601 8,735
Note Receivable 105 230
Miscellaneous 477 478
------- -------
TOTAL OTHER ASSETS 9,183 9,443
TOTAL ASSETS $68,686 $71,263
------- -------
------- -------
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note Payable $ 2,170 $ -
Accounts Payable 5,874 8,674
Accrued Taxes 1,696 722
Advanced Billings & Deposits 1,467 2,080
Current Maturities of Long-Term Debt - 212
------- -------
TOTAL CURRENT LIABILITIES 11,207 11,688
LONG-TERM DEBT, NET OF CURRENT MATURITIES 1,037 877
DEFERRED CREDITS:
Investment Tax Credits 137 153
Income Taxes 2,768 2,768
Compensation Benefits and Other 3,214 3,150
------- -------
TOTAL DEFERRED CREDITS 6,119 6,071
SHAREHOLDERS' EQUITY
Common stock 467 479
Additional Paid-In Capital 1,823 1,778
Reinvested Earnings 48,033 50,370
------- -------
TOTAL SHAREHOLDERS' EQUITY 50,323 52,627
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $68,686 $71,263
------- -------
------- -------
The accompanying notes are an integral part of the financial statements.
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HICKORY TECH CORPORATION
MARCH 31, 1997
CONSOLIDATED STATEMENT OF CASH FLOWS (NOT AUDITED)
In Thousands For Three Months Ended
--------------------------
3/31/97 3/31/96
------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,722 $ 2,416
Adjustments to Reconcile Net
Income to Net
Cash Provided by Operating Activities
Depreciation and Amortization 1,665 1,836
Equity in Partnership Income (148) (140)
Provision for Losses on Notes Rec. &
Investments 175 25
Gain on Disposition of Assets (326) -
(Increase) Decrease in:
Receivables (345) (823)
Inventories 157 (331)
Increase (Decrease) in:
Accounts Payable and Accrued Taxes (1,826) 684
Advance Billings & Deposits (613) (216)
Deferred Investment Tax Credits (16) (20)
Deferred Income Taxes - (16)
Other 167 (99)
-------- --------
Net Cash Provided by
Operating Activities 1,612 3,316
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Additions to Property, Plant & Equipment (1,452) (993)
Additions to Intangible Assets (64) (888)
Increase in Notes Receivable and Investments (61) (64)
Changes in Temporary Cash Investments - 1,664
Proceeds from Sale of Assets 397 -
-------- --------
Net Cash Used in Investing
Activities (1,180) (281)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of Debt (52) (51)
Advances on Line of Credit 2,170 -
Proceeds from Issuance of Common Stock 93 106
Retirement of Common Stock (3,699) (459)
Dividends Paid (1,420) (1,408)
-------- --------
Net Cash Used in Financing Activities (2,908) (1,812)
-------- --------
NET INCREASE(DECREASE) IN CASH AND
CASH EQUIVALENTS (2,476) 1,223
CASH AND CASH EQUIVALENTS At Beginning
of Year 2,954 4,517
-------- --------
CASH AND CASH EQUIVALENTS At End of Period $ 478 $ 5,740
-------- --------
-------- --------
The accompanying notes are an integral part of the financial statements.
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HICKORY TECH CORPORATION
MARCH 31, 1997
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 present a fair statement of the results
for the interim periods being reported.
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 wholly-owned 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 in southern Minnesota which are
used to transport interexchange communications as a service to telephone
exchange carriers. It also holds a minority ownership interest in a rural
cellular limited liability company in south central Minnesota. These four
subsidiaries comprise the Registrant's Telephone Sector.
COMPUTOSERVICE, INC. (CSI) provides data processing service to
local telephone companies, interexchange long distance companies and enhanced
service providers throughout the United States. CSI also provides standard
batch processing of telephone billing and rating in large volume
applications, as well as specialized contract data processing services,
through its subsidiary, National Independent Billing, Inc. (NIB). The
operations of CSI and NIB constitute the Registrant's Billing and Data
Services Sector.
COLLINS COMMUNICATIONS SYSTEMS CO. (Collins) sells, installs and
services telecommunications equipment in the retail market in the
metropolitan Minneapolis/St. Paul area. Collins primarily installs and
maintains Nortel PBX and key system equipment and integrated software. The
Registrant's Equipment Sales Sector is made up of this subsidiary.
DIGITAL TECHNIQUES, INC. (DTI) designs, assembles and distributes
unique business telecommunications components for business telephone systems
throughout North America, the United Kingdom and the Pacific Rim. The
operations comprise the Registrant's Telecommunications Product Development
Sector.
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.
Certain balances for 1996 have been restated to conform with
presentation of 1997. In 1997 and 1996, $608,000 and $621,000 respectively,
of revenues associated with Equipment Sales in southern Minnesota were
reclassified from the Equipment Sales Sector to the Telephone Sector. This
reclassification more closely matches the Registrant's management reporting
lines. Total revenues and all other subtotals of the Consolidated Income
Statement remain unchanged.
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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, 1997, the earnings per common share calculation was
based on 4,712,448 shares. For the quarter ended March 31, 1996, the earnings
per common share calculation was based on 5,122,339 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, 1997 was 4,733,981. The number
of shares outstanding as of the record date for the quarter ended March 31,
1996 was 5,121,873.
NOTE 3. INVENTORIES
Inventories are stated at the lower of average cost or market and
consist of the following:
(In Thousands) 3/31/97 12/31/96
------- --------
Finished Goods $ 245 $ 211
Work in Process 125 156
Materials and Supplies 2,332 2,492
------- --------
Total $2,702 $2,859
------- --------
------- --------
NOTE 4. COMMON STOCK
The Registrant's common stock has no par value. There are
25,000,000 shares authorized. There were 4,665,298 shares outstanding on
March 31, 1997, and 4,790,229 shares outstanding on December 31, 1996.
Pursuant to the Retainer Stock Plan for Directors, 264 shares of
common stock were issued in lieu of retainers to three members of the
Registrant's Board of Directors on March 31, 1997. Pursuant to a long-term
incentive award plan for officers, 3,155 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, 1997, 128,350 shares of common
stock were retired at a cost of $3,699,495.
On January 29, 1997, the Board of Directors of the Registrant
adopted a new share repurchase program authorizing the Registrant to
repurchase up to 500,000 additional shares, which represents 10.8% of its
outstanding common stock. This new repurchase program follows the repurchase
program which the Registrant announced on April 8, 1996. Due to the
successful completion of the initial repurchase program in February 1997, the
Registrant began the new repurchase program effective February 17, 1997.
This program was reported on Form 8-K dated February 17, 1997.
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NOTE 5. CORPORATE DEVELOPMENT
On January 31, 1997, the Registrant sold the assets associated with
its cable television operations to Woodstock LLC. The Registrant recorded a
gain on the sale of the assets of $326,000.
On April 10, 1997, the Registrant acquired 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
12,500 access lines. The acquisition was structured as a purchase of
telephone assets from US West. The acquisition was financed by new long-term
debt instruments from seven institutional investors in a private debt
placement. A total of $40,000,000 in senior unsecured notes was funded.
This acquisition was reported on Form 8-K dated April 25, 1997.
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, 1996
Form 10-K.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Consolidated net income for the quarter ended March 31, 1997, was
12.7% higher than the same period in 1996, as illustrated by the following
table:
NET INCOME (thousands) 1997 1996 1995 1994
------ ------ ------ ------
1st Quarter $2,722 $2,416 $2,221 $2,121
Operating Revenues were 12.5% higher for the quarter ended March
31, 1997, than for the quarter ended March 31, 1996, as illustrated by the
following table:
OPERATING REVENUES (thousands) 1997 1996 1995 1994
------ ------ ------ ------
1st Quarter $17,490 $15,541 $14,647 $14,095
A. Material changes in results of operations:
1. TELEPHONE - Operating Revenues for the first quarter of 1997
increased $471,000 or 5.5% compared with the same period in 1996. New fiber
optic cable networks providing additional toll transport revenue as well as
access line and minutes of use growth were the primary contributors to the
revenue growth.
2. BILLING AND DATA SERVICES - Operating Revenues for the first
quarter of 1997 decreased $370,000 or 13.8% compared with the same period in
1996. This decline was due to less contract programming services as compared
to the same period in the prior year. Although the revenues were lower, the
higher margins associated with processing the sector's growing volume of
service bureau transactions resulted in a significant increase in
profitability for this sector.
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3. EQUIPMENT SALES - Operating Revenues for this sector increased
$1,712,000 or 62.1% compared with the first quarter of 1997 when compared to
the first quarter of 1996. This increase in Operating Revenues was a result
of a $758,000 increase in new phone system installations and $881,000
increase in phone system moves, adds and changes (MAC) over first quarter
1996. The Equipment Sales Sector experienced considerable customer base
growth in 1996 which has assisted in the higher margin MAC activity in the
first quarter 1997.
4. TELECOMMUNICATIONS PRODUCT DEVELOPMENT - Operating Revenues
for the quarter ended March 31, 1997 increased $136,000 or 8.7% compared with
the first quarter of 1996. Standard Product Sales increased $191,000 as
compared to 1996's first quarter. Standard Product Sales are sold at a
higher margin than Original Equipment Manufacturer (OEM) Sales. The OEM
Sales were flat as compared to the same period in 1996. The sector is
generating a net profit in 1997, and it was not in 1996.
5. COST OF SALES - Consolidated Cost of Sales increased
$1,461,000 or 51.1% for the quarter ended March 31, 1997, compared with the
same period in 1996. Through the first three months of 1997, Operating
Revenues for the two sectors (Equipment Sales and Telecommunications Product
Development) which generated most of the Cost of Sales increased $1,848,000
or 42.8% compared with Operating Revenues during the three months ended March
31, 1996. In terms of percentage of Operating Revenues from these two
sectors, Cost of Sales was 70.0% for the three months ended March 31, 1997,
compared to 66.1% for the same period in 1996. Operating margins have been
satisfactory to management, considering the new business development for
Collins and DTI.
6. OPERATING EXPENSES - Operating Expenses for the quarter ended
March 31, 1997, increased $63,000 or .9% compared with the same period in
1996. This minimal increase, in light of a 12.5% increase in revenues, is a
result of various cost control measures implemented in 1996. 0perating
Expense curtailment has been particularly effective in the Billing and Data
Services and the Telecommunications Product Development Sectors.
7. AMORTIZATION OF INTANGIBLES - Amortization for the quarter
ended March 31, 1997, was $104,000 lower than for the quarter ended March 31,
1996. The decrease is a result of some intangible assets associated with
capitalized software development in the Billing and Data Services Sector that
became fully amortized in 1996.
8. OTHER INCOME - Other Income increased $33,000 or 11.0% for the
quarter ended March 31, 1997, compared to the same period last year. Gain on
the sale of cable television assets of $326,000 offset by a note receivable
write-off of $110,000 were the main contributors to the balance.
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B. Material changes in financial condition:
1. CASH FLOWS - Cash and Cash Equivalents decreased $2,476,000
for the three months ended March 31, 1997, compared with an increase of
$1,223,000 for the same period in 1996. The primary sources of cash in 1997
were from internal operations and $2,170,000 of advances on the Registrant's
line of credit. The primary use of cash in the first three months of 1997
was the Registrant's stock repurchase program which required $3,699,000.
Additions to Property, Plant and Equipment required $1,452,000 in 1997 and
$993,000 in 1996. Dividends paid for the first three months were $1,420,000
in 1997 compared to $1,408,000 for the same period in 1996. The 0.9% increase
was due to a combination of a $0.025 or 9.1% per share increase in dividends
paid, offset by a 388,000 or 7.6% decrease in the number of shares outstanding
on the respective record dates.
2. WORKING CAPITAL - Current Assets exceeded Current Liabilities
by $4,370,000 as of March 31, 1997, compared to a working capital surplus of
$6,279,000 as of December 31, 1996. The primary source of working capital
was internal operations. The ratio of current assets to current liabilities
was 1.4:1.0 as of March 31, 1997.
3. USES OF CAPITAL - The largest use of internal capital during
the quarter ended March 31, 1997 was the Registrant's repurchase of 128,350
shares of its common stock. The stock repurchase program used $3,699,000 of
capital during the quarter. Additions to Property, Plant and Equipment have
historically been the Registrant's largest investing activity, using
$22,325,000 for the three years ended December 31, 1996. During the first
three months of 1997, $1,452,000 of working capital was used to purchase
fixed assets.
4. LONG-TERM DEBT - The Registrant's Long-Term Debt as of March
31, 1997, was $1,037,000. Due to accumulated principal prepayment credits
with Rural Utilities Service (RUS), the Registrant has not recorded current
maturities on the long-term debt. The accumulated prepayment credits will be
applied to the long-term debt payments over the next twelve months. The
general purpose of this debt was the financing of telephone property, plant
and equipment of Mid-Communications, Inc. in the 1970's. 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. No
material liquidity problems are anticipated from the long-term funding of the
debts maturing in 2003 through 2007.
On April 8, 1997, the Registrant secured new $40,000,000 long-term
debt instruments with 15 year maturities to fund the $35,271,000 acquisition
of the Iowa - US West telephone exchanges. The new long-term debt will
accrue interest at 7.11%. No principal payments are due during the first
four years.
In July, 1996, the Registrant secured a $10,000,000 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 a variable annual rate equal to 150 basis points in
excess of the 30 day LIBOR rate. On March 31, 1997, the Registrant had made
advances of $2,170,000 against this line of credit.
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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 seven acquisitions in the
previous six years which were funded out of existing cash balances. The April
1997 acquisition of Iowa rural telephone property from US West required
external debt financing. Growth plans and acquisitions in the future will
require additional debt financing. Should the Registrant have a
need to secure additional senior debt financing as a result of pursuing
additional corporate acquisitions, the Registrant has been assured by its
financial capital sources that no difficulty should be anticipated.
The Registrant's stock repurchase program has been funded with
internal cash and advances on the line of credit to date. It is anticipated
the same sources will be utilized for financing future stock repurchases.
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HICKORY TECH CORPORATION
MARCH 31, 1997
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 February 17, 1997, the Registrant filed a Form 8-K. Item 5
(Other Events) was reported on the Form 8-K. The Form 8-K reported that on
January 29, 1997, the Board of Directors of the Company adopted a new share
repurchase program authorizing the Company to repurchase up to 500,000
additional shares of its outstanding common stock. This new repurchase
program follows the repurchase program which the Company announced on
April 8, 1996.
On April 25, 1997, the Registrant filed a Form 8-K. Items 2
(Acquisition or Disposition of Assets) and 7 (Financial Statements and
Exhibits) were reported on the Form 8-K. The Form 8-K reported that on April
10, 1997, the Company acquired the assets of 11 rural telephone exchanges in
the State of Iowa from US West Communications, Inc. Pro forma financial
statements were filed with the Form 8-K.
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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 12, 1997 HICKORY TECH CORPORATION
------------
By /s/ Robert D. Alton, Jr.
-------------------------------------------------------------
Robert D. Alton, Jr., Chief Executive Officer
By /s/ David A. Christensen
--------------------------------------------------------------
David A. Christensen, Chief Financial Officer
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 478
<SECURITIES> 0
<RECEIVABLES> 11,399
<ALLOWANCES> 271
<INVENTORY> 2,702
<CURRENT-ASSETS> 15,577
<PP&E> 89,205
<DEPRECIATION> 48,418
<TOTAL-ASSETS> 68,686
<CURRENT-LIABILITIES> 11,207
<BONDS> 0
0
0
<COMMON> 467
<OTHER-SE> 49,856
<TOTAL-LIABILITY-AND-EQUITY> 68,686
<SALES> 6,170
<TOTAL-REVENUES> 17,490
<CGS> 4,320
<TOTAL-COSTS> 13,145
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 255
<INTEREST-EXPENSE> 56
<INCOME-PRETAX> 4,621
<INCOME-TAX> 1,899
<INCOME-CONTINUING> 2,396
<DISCONTINUED> 326
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