<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(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, 1999 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
- ------------------------------------------------------------------------------
(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) (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 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. Yes X No
--- ---
The number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date: 13,740,547 shares of no par
common stock as of March 31, 1999.
<PAGE>
HICKORY TECH CORPORATION
March 31, 1999
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Dollars in Thousands Except Per Share Amounts For Three Months Ended
--------------------------
3/31/99 3/31/98
---------- ----------
<S> <C> <C>
OPERATING REVENUES
Local Exchange Telephone $ 12,069 $ 11,670
Communications Services 3,382 175
Billing/Data Services 1,128 2,158
Communications Products 5,580 6,675
---------- ----------
TOTAL OPERATING REVENUES 22,159 20,678
COSTS AND EXPENSES
Cost of Sales 5,105 5,137
Operating Expenses 9,160 7,869
Depreciation 2,140 1,858
Amortization of Intangibles 486 202
---------- ----------
TOTAL COSTS AND EXPENSES 16,891 15,066
---------- ----------
OPERATING INCOME 5,268 5,612
OTHER INCOME 599 347
INTEREST EXPENSE (1,202) (772)
---------- ----------
INCOME BEFORE INCOME TAXES 4,665 5,187
INCOME TAXES 1,866 2,145
---------- ----------
NET INCOME $ 2,799 $ 3,042
---------- ----------
---------- ----------
- ---------------------------------------------------------------------------------------
Basic Earnings Per Share $ 0.20 $ 0.22
---------- ----------
Dividends Per Share $ 0.11 $ 0.11
---------- ----------
Weighted Average Common Shares Outstanding 13,704,606 13,615,758
---------- ----------
- ---------------------------------------------------------------------------------------
Diluted Earnings Per Share $ 0.20 $ 0.22
---------- ----------
Weighted Average Common and Equiv. Shares Outstanding 13,743,848 13,655,907
---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-1-
<PAGE>
HICKORY TECH CORPORATION
March 31, 1999
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Dollars in Thousands 3/31/99 3/31/98
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,610 $ 1,133
Receivables, Net of Allowance for Doubtful Accounts 13,725 18,345
of $621 and $618
Taxes Receivable - 310
Inventories 2,606 2,302
Deferred Tax Benefit and Other 2,004 2,094
-------- --------
TOTAL CURRENT ASSETS 20,945 24,184
INVESTMENTS 4,326 4,007
PROPERTY, PLANT & EQUIPMENT
Telecommunications Plant 116,496 115,352
Other Property and Equipment 19,095 17,727
-------- --------
TOTAL 135,591 133,079
Less Accumulated Depreciation 70,673 68,615
-------- --------
PROPERTY, PLANT & EQUIPMENT, NET 64,918 64,464
OTHER ASSETS
Intangible Assets 64,907 65,337
Deposit on Pending Acquisition 2,845 2,812
Miscellaneous 632 625
-------- --------
TOTAL OTHER ASSETS 68,384 68,774
TOTAL ASSETS $158,573 $161,429
-------- --------
-------- --------
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 6,548 $ 10,506
Accrued Taxes 1,091 -
Accrued Interest 1,694 970
Advanced Billings and Deposits 2,830 3,047
Current Maturities of Long-Term Debt 682 680
-------- --------
TOTAL CURRENT LIABILITIES 12,845 15,203
LONG-TERM DEBT, Net of Current Maturities 73,309 75,362
DEFERRED CREDITS
Income Taxes 3,985 3,985
Compensation, Benefits and Other 2,493 3,250
-------- --------
TOTAL DEFERRED CREDITS 6,478 7,235
SHAREHOLDERS' EQUITY:
Common Stock, no par value, $.10 stated value
Shares authorized: 25,000,000
Shares outstanding: 1999, 13,740,547; 1998, 13,662,216 1,374 1,366
Additional Paid-In Capital 3,018 2,005
Retained Earnings 61,549 60,258
-------- --------
TOTAL SHAREHOLDERS' EQUITY 65,941 63,629
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $158,573 $161,429
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-2-
<PAGE>
HICKORY TECH CORPORATION
March 31, 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Dollars in Thousands For Three Months Ended
----------------------
3/31/99 3/31/98
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,799 $ 3,042
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 2,651 2,060
Equity in Net Income of Investees (385) (254)
Gain Resulting from Sale of Assets - (12)
Changes in Operating Assets and Liabilities:
Receivables 4,910 (1,728)
Inventories (304) (16)
Accounts Payable and Accrued Liabilities (1,958) 1,372
Advance Billings & Deposits (217) 808
Deferred Income Taxes - (242)
Other 150 (111)
------- -------
Net Cash Provided by Operating Activities 7,646 4,919
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant & Equipment (2,642) (1,087)
Increase in Investments (38) (43)
Distributions from Investees 103 183
Proceeds from Sale of Assets 23 13
Other (56) (72)
------- -------
Net Cash Used In Investing Activities (2,610) (1,006)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of Debt (51) -
Borrowings on Line of Credit 2,000 -
Repayments on Line of Credit (4,000) -
Dividends Paid (1,508) (1,499)
------- -------
Net Cash Provided by Financing Activities (3,559) (1,499)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,477 2,414
CASH AND CASH EQUIVALENTS At Beginning of Period 1,133 1,219
------- -------
CASH AND CASH EQUIVALENTS At End of Period $ 2,610 $ 3,633
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
HICKORY TECH CORPORATION
MARCH 31, 1999
PART 1. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
The preceding, unaudited, Consolidated Statements of Income, Balance
Sheets and Statements of Cash Flows contain all adjustments, representing
normal recurring items, which are, in the opinion of management, necessary to
present a fair statement of the results for the interim periods being
reported.
The accounting policies of the Company 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. Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses. Actual results may differ from
these estimates. The preceding interim results are not necessarily indicative
of results for a full year.
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 Company's December 31, 1998 Form
10-K.
NOTE 1. BASIS OF CONSOLIDATION
The Company is a communications holding company headquartered in
Mankato, Minnesota. The consolidated financial statements of the Company
include Hickory Tech Corporation and its subsidiaries. The subsidiaries and
operations of Hickory Tech Corporation are grouped into four business
sectors. All intercompany transactions have been eliminated from the
consolidated financial statements. Certain balances for 1998 have been
reclassified to conform to the 1999 presentation.
The Company's operations are conducted in the following four sectors:
LOCAL EXCHANGE TELEPHONE SECTOR
The Company's Local Exchange Telephone Sector provides local
exchange telephone service and owns and operates fiber optic cable
facilities. MANKATO CITIZENS TELEPHONE COMPANY (MCTC), MID-COMMUNICATIONS,
INC. (Mid-Com), AMANA COLONIES TELEPHONE COMPANY and HEARTLAND
TELECOMMUNICATIONS COMPANY OF IOWA are local exchange telephone companies.
Mankato Citizens Telephone Company and Mid-Communications, Inc. provide
telephone service in south central Minnesota, specifically, Mankato
(population 42,000) and eleven communities surrounding Mankato. Amana
Colonies Telephone Company provides telephone service for the seven
communities of the Amana Colonies in east central Iowa. Heartland
Telecommunications Company of Iowa provides telephone service for eleven
communities in northwest Iowa. 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 companies,
primarily MCTC and Mid-Com. It also holds a minority ownership interest in a
rural cellular limited liability company that operates in southern Minnesota.
-4-
<PAGE>
COMMUNICATIONS SERVICES SECTOR
MINNESOTA SOUTHERN WIRELESS COMPANY (MSWC) owns and operates a
cellular phone business for Minnesota's Rural Service Area (RSA) 10, under
the business name of CellularOne. This business, acquired on May 1, 1998,
holds 100% of the "A-side" FCC license for seven counties in south central
Minnesota. The service area overlaps and is larger than the Company's
Minnesota telephone line service area. CRYSTAL COMMUNICATIONS, INC. (Crystal)
markets resale long distance service to the Company's Local Exchange
Telephone Sector's southern Minnesota and northwestern Iowa subscribers. In
addition, Crystal offers an alternative choice for local telecommunications
service to customers in towns in southern Minnesota and Iowa not currently in
the Company's Local Exchange Telephone Sector's service area. This
alternative service, known as CLEC operations (Competitive Local Exchange
Carrier) in the telecommunications industry, is currently being offered by
Crystal to customers in several southern Minnesota communities.
BILLING/DATA SERVICES SECTOR
Through NATIONAL INDEPENDENT BILLING, INC. (NIBI), the Company's
Billing/Data Services Sector provides data processing and related services,
principally for the Company, other local exchange telephone companies,
CLEC's, interexchange network carriers, municipalities and utilities. NIBI's
principal activity is the provision of monthly batch processing of
computerized data. NIBI is currently developing a software platform for
future sales on a turnkey or a service bureau basis.
COMMUNICATIONS PRODUCTS SECTOR
Through COLLINS COMMUNICATIONS SYSTEMS COMPANY (Collins), the
Company's Communications Products Sector sells, installs and services
business telephone systems and data communications equipment in metropolitan
Minneapolis/St. Paul, Minnesota.
NOTE 2. EARNINGS AND CASH DIVIDENDS PER COMMON SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
quarter. Shares used in the earnings per share assuming dilution calculation
are based on the weighted average number of shares of common stock
outstanding during the quarter increased by potentially dilutive shares.
Potentially dilutive shares include stock options, stock acquired under the
employee stock purchase plan (ESPP) and the accrued shares under incentive
stock awards.
<TABLE>
<CAPTION>
For Quarter Ended
------------------------------
3/31/99 3/31/98
---------- ----------
<S> <C> <C>
Weighted average shares outstanding 13,704,606 13,615,758
Stock options 20,807 8,889
Stock subscribed (ESPP) 13,349 11,305
Accrued Incentive Stock 5,086 19,955
---------- ----------
Total dilutive shares outstanding 13,743,848 13,655,907
---------- ----------
---------- ----------
</TABLE>
-5-
<PAGE>
Cash dividends are based on the number of common shares outstanding
at the respective record dates. Listed below are the number of shares
outstanding as of the record date for the first quarter of 1999 and 1998. The
1998 shares were restated for a three-for-one stock split effective August
17, 1998:
<TABLE>
<CAPTION>
Shares Outstanding on Record Date 1999 1998
- --------------------------------- ---------- ----------
<S> <C> <C>
First Quarter (Feb. 15) 13,708,231 13,628,016
</TABLE>
NOTE 3. DEBT
The Company has entered into a commitment for a new unsecured
revolving credit facility with a syndicate of banks for $90,000,000. This new
credit facility will replace the existing $45,000,000 credit facility from
the same syndicate of banks. The increase of funds available will be used for
the $37,500,000 pending cellular acquisition in the Minneapolis/St. Paul,
Minnesota area. The Company expects to close on the new credit facility and
cellular acquisition in the second quarter of 1999. The new credit facility
has no mandatory principal repayment terms and will have a termination date
of five years after the closing date. The interest rate on the new credit
facility varies with LIBOR and will be approximately 50 basis points above
the current credit facility. The weighted average interest rate of the
current credit facility was 5.98% on March 31, 1999.
NOTE 4. COMMON STOCK
The Company's common stock has no par value. There are 25,000,000
shares authorized with a stated value of $0.10 per share. There were
13,740,547 shares outstanding on March 31, 1999, and 13,628,820 shares
outstanding on March 31, 1998, after restating for a three-for-one stock
split on August 17, 1998.
In February 1999, the Board of Directors of the Company adopted a
Shareholder Rights Plan wherein shareholders of the Company received rights
to purchase the Company's common stock at a discount in the event of an
acquisition of 15% or more of the Company's outstanding common stock by any
person or group in a transaction not approved by the Board. The rights expire
in March 2009.
NOTE 5. ACQUISITIONS AND DISPOSITIONS
On May 1, 1998, the Company completed a stock purchase transaction
in which it acquired a cellular property from Frontier Corporation in
southern Minnesota. The cellular property, known in the industry as
Minnesota's Rural Service Area (RSA) 10, is the "A-side" FCC license
encompassing seven counties of south central Minnesota. The population of the
service area is 230,000, and this service area overlaps the telephone line
service area of the Company's Minnesota telephone property. The acquisition
was accounted for under the purchase method of accounting. The total purchase
price was approximately $40,300,000. The Company attributed $34,100,000 of
the purchase price as cost in excess of net assets acquired. The Company
financed $38,000,000 of the acquisition from a new revolving credit facility
and paid the remainder in cash generated from internal operations. The
operations of the acquisition are included in the Communications Services
Sector.
On September 30, 1998, the Company sold 100% of its ownership in
Digital Techniques, Inc. (DTI), of Allen, Texas to a DTI employee group and
Troy Holding International, a computer telephony product firm with operations
in Toronto, Detroit and the United Kingdom. The Company recorded a pre-tax
gain on the sale of the stock of $320,000 from the sale price of $4,250,000.
The operations of DTI were previously included in the Company's
Communications Products Sector.
-6-
<PAGE>
In December 1998, the Company announced that it had entered into a
purchase agreement to acquire a cellular property in the Minneapolis/St.
Paul, Minnesota area in a cash transaction. The property surrounds the
metropolitan Twin Cities area and is located in five Minnesota counties
(Chisago, Wright, Carver, Scott and Dakota) and in one Wisconsin county (St.
Croix). The population of the serving area is 200,000. The Company
anticipates completing the purchase by the close of the second quarter of
1999. On December 22, 1998, the Company paid $2,812,000 into an escrow
account as part of the acquisition price for the cellular property. This
escrow payment is included in Deposit on Pending Acquisition on the Balance
Sheet.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
OPERATING REVENUES
Operating Revenues were 7.2% higher for the quarter ended March 31,
1999, than for the quarter ended March 31, 1998, as illustrated in the
following table. The revenue increase was primarily due to the growth in the
Local Exchange Telephone Sector and the May 1998 cellular property
acquisition as well as the continued growth of the CLEC business in the
Communications Services Sector.
BUSINESS SECTOR OPERATING REVENUES
(thousands)
<TABLE>
<CAPTION>
For Quarter Ended
3/31/1999 3/31/1998
--------- ---------
<S> <C> <C>
OPERATING REVENUES:
Local Exchange Telephone $12,069 $11,670
Communication Services 3,382 175
Billing / Data Services 1,128 2,158
Communications Products 5,580 6,675
------- -------
Total Operating Revenues 22,159 20,678
</TABLE>
<TABLE>
<CAPTION>
For Quarter Ended
3/31/1999 3/31/1998
--------- ---------
<S> <C> <C>
OPERATING REVENUES PRIOR
TO INTERSEGMENT ELIMINATIONS:
Local Exchange Telephone $13,626 $13,000
Communication Services 3,382 175
Billing / Data Services 1,774 2,829
Communications Products 5,580 6,675
Intersegment Eliminations (2,203) (2,001)
------- -------
Total Operating Revenues 22,159 20,678
</TABLE>
-7-
<PAGE>
QUARTER TREND IN NET INCOME
(thousands)
Consolidated net income for the quarter ended March 31, 1999 was
8.0% lower than the same period in 1998 as illustrated by the following
table. The primary reason for the decrease in profitability for the Company
was the net loss recorded by the Billing/Data Services Sector, as it recorded
lower programming contract services when it lost the service to a large
interexchange carrier and it recognized significant costs associated with the
development of its new WRITE2k product.
Net Income by Business Sectors described in following discussions
are shown prior to intercompany eliminations.
BUSINESS SECTOR NET INCOME
(thousands)
<TABLE>
<CAPTION>
For Quarter Ended
3/31/99 3/31/98
------- -------
<S> <C> <C>
NET INCOME
Local Exchange Telephone $3,866 $3,342
Communication Services (157) (185)
Billing / Data Services (157) 398
Communications Products 137 272
Corporate, including gains and interest (890) (785)
------ -----
Total Net Income 2,799 3,042
</TABLE>
A. Material changes in results of operations:
1. LOCAL EXCHANGE TELEPHONE - Operating revenues for the first
quarter of 1999 increased $399,000 or 3.4% compared with the same period in
1998. Local service rates were increased late in the first quarter of 1998.
This increase was not fully recognized in the first quarter of 1998, and full
recognition of the increase in 1999 contributed to the growth in operating
revenues in the first quarters of 1999. Access line growth and increased
network usage accounted for the remaining revenue increase in the first
quarter.
Net income from this business sector increased $524,000 or 15.7% for
the first quarter of 1999 compared to the same period in 1998. This
incremental profit increase was due to the local service rate increase at the
Company's Minnesota local exchange telephone companies, improved margins and
expense control.
2. COMMUNICATIONS SERVICES - The newly organized Communications
Services Sector operates the Company's long distance business, its start up
efforts in the competitive local exchange business (CLEC) and its newly
acquired wireless communications business.
For the first quarter of 1999, operating revenues for Crystal
Communications, Inc. (long distance and CLEC business) were $479,000 compared
to $175,000 for the first quarter of 1998. This increase was attributable to
increased market share and customer penetration. Despite the increase in
revenues, continuing start-up expenses offset the revenue increase. The first
quarter 1999 loss for Crystal was $479,000 compared to a first quarter 1998
loss of $185,000.
Minnesota Southern Wireless Company (cellular business) was
purchased in the second quarter of 1998 and generated revenues and net income
of $2,903,000 and $322,000, respectively, in the first quarter of 1999.
-8-
<PAGE>
3. BILLING / DATA SERVICES - Operating revenues for the first quarter
of 1999 decreased $1,030,000 or 47.7% compared with the same period in 1998.
This decline was due to lower contract programming services as compared to
the same period in the prior year. This decline is primarily due to the loss
of service to a large interexchange carrier. Net income for the first quarter
of 1999 decreased $555,000 or 139.4% as compared with the same period in
1998. The decline in net income was largely attributable to increased
expenses associated with the development of a new software platform with
Sepro Telecom International Limited of Dublin, Ireland and the contract
programming service decline. The Sepro partnership will produce the Sector's
next software product offering, WRITE2k. WRITE2k is a wireless/wireline
convergent billing system. Beta testing on this new product will be performed
during second quarter 1999, and the Company currently anticipates the product
sales will begin later in 1999.
4. COMMUNICATIONS PRODUCTS - Operating revenues for this sector for
the first quarter of 1999 decreased $1,095,000 or 16.4% compared with the
same period in 1998. The primary reason for the revenue decline was the sale
of Digital Techniques, Inc. (DTI), on September 30, 1998. Without the sale of
DTI, operating revenues would have increased $615,000 or 12.4% for the three
month period ended March 31, 1999. Net income for the first quarter of 1999
decreased $135,000 or 49.6% as compared with the same period in 1998. Without
the sale of DTI, net income for the first quarter of 1999 still would have
decreased $40,000 or 22.8% as compared to the same period in 1998. Higher
operating expenses, both in dollars and as a percentage of sales resulted in
lower net income for the Communications Products Sector in the first quarter
of 1999 compared to the first quarter of 1998.
5. COST OF SALES - Consolidated cost of sales decreased $32,000 or
.6% for the quarter ended March 31, 1999, compared with the same period in
1998. Without the sale of DTI, consolidated cost of sales would have
increased $706,000 or 16.0%. Cost of sales as a percentage of operating
revenues for the Communications Products Sector (which generated most of the
cost of sales) was 71.4% for the three months ended March 31, 1999, compared
to 71.6% for the same period in 1998 after excluding DTI operations in 1998.
The cost of sales for the Company's other sectors increased from $843,000 for
the three month period ended March 31, 1998 to $1,122,000 for the three month
period ended March 31, 1999. The increase was mostly attributable to new
customer premise equipment (CPE) sales from the Company's CLEC business in
the Communications Services Sector.
6. OPERATING EXPENSES - Operating expenses for the quarter ended
March 31, 1999, increased $1,291,000 or 16.4% compared with the same period
in 1998. Without the addition of MSWC and the sale of DTI, operating expenses
would have only increased $200,000 or 2.5% for the three months ended March
31, 1999. The Company has implemented company-wide cost control measures over
the last two years. As employee staffing position vacancies are filled, the
operating expense advantage may decline.
7. DEPRECIATION - Depreciation expense for the quarter ended March
31, 1999 was $282,000 or 15.2% higher than for the same period in 1998. This
increase was attributable to the addition of MSWC and the sale of DTI.
8. INTEREST EXPENSE - Interest expense increased $430,000 for the
quarter ended March 31, 1999, compared to the same period last year. The
increase in interest expense was due to a $45,000,000 revolving credit
facility obtained in April 1998. The revolving credit facility had a weighted
average interest rate of 5.98% on March 31, 1999 and was used for the
acquisition of the Minnesota cellular property. The outstanding balance of
the revolving credit facility was $32,500,000 on March 31, 1999 and
$34,500,000 on December 31, 1998.
-9-
<PAGE>
B. Material changes in financial condition:
1. CAPITAL STRUCTURE - The total capital structure for the Company
was $139,250,000 at March 31, 1999, reflecting 47.4% equity and 52.6% debt.
This compares to a capital structure of $138,991,000 at December 31, 1998,
reflecting 45.8% equity and 54.2% debt. Management believes adequate internal
and external resources are available to finance ongoing operating
requirements, including capital expenditures, business development, debt
service and the payment of dividends.
2. CASH FLOWS - Cash provided from operations was $7,646,000 for the
three month period ended March 31, 1999 compared to $4,919,000 for the three
month period ended March 31, 1998. The increase reflects a net decrease in
working capital requirements and an increase in collections on accounts
receivable.
Cash flows used in investing activities were $2,610,000 for the
three months ended March 31, 1999 compared to $1,006,000 for the same period
in 1998. Capital expenditures relating to ongoing businesses were $2,642,000
during the first three months of 1999 as compared to $1,087,000 for the same
period in 1998. The Company funds the majority of its capital expenditures
through internally generated funds. Capital expenditures were incurred to
modernize and upgrade the Company's telecommunications network and to
construct additional network facilities to provide CLEC services. The primary
reasons for the increase in first quarter 1999 compared to first quarter 1998
were capital expenditures used to convert the cellular network from analog to
digital and an increase in building CLEC networks.
Included in cash flows from financing activities are debt borrowings
and repayments and dividend payments. During the first three months of 1999,
the Company borrowed $2,000,000 under the $45,000,000 revolving credit
facility to cover short-term cash requirements and also made $4,000,000 of
debt repayments on the credit facility. Dividend payments for the first three
months of 1999 were $1,508,000 compared to $1,499,000 for the same period in
1998.
3. WORKING CAPITAL - Current assets exceeded current liabilities by
$8,100,000 as of March 31, 1999, compared to a working capital surplus of
$8,981,000 as of December 31, 1998. The primary source of working capital was
internal operations. The ratio of current assets to current liabilities was
1.6:1.0 as of both March 31, 1999 and December 31, 1998.
4. LONG-TERM DEBT - The Company's long-term debt as of March 31,
1999, was $73,309,000.
In April 1998, the Company obtained a $45,000,000 unsecured
revolving credit facility with a syndicate of banks to finance the
$40,300,000 acquisition of the Minnesota cellular property. The weighted
average interest rate associated with this credit facility varies with LIBOR
rates and is currently 5.98%. There are no mandatory principal repayment
terms. The unsecured credit facility has a termination date of April 29,
2003. As of March 31, 1999, the Company had drawn $32,500,000 on this credit
facility.
In April 1997, the Company obtained $40,000,000 senior unsecured
notes with 15 year maturities to fund the $35,271,000 acquisition of the
telephone exchanges in Iowa. The notes accrue interest at 7.11%. No principal
payments are due during the first four years.
As of March 31, 1999, the Company has $809,000 of long term
outstanding debt remaining with the Rural Utilities Service and the Rural
Telephone Bank for the financing of telephone property, plant and equipment
of Mid-Communications, Inc.
Provisions of the various notes and credit facilities contain
covenants relating to liens, consolidated net worth and cash flow coverage.
The Company is in compliance with all debt covenants.
-10-
<PAGE>
5. CAPITAL FROM OPERATIONS - Management believes the Company will be
able to generate sufficient working capital internally from operations to
meet its immediate operating needs and sustain its historical dividend
levels. The Company has completed several acquisitions in the previous six
years, which were funded with cash and debt. Growth plans and acquisitions in
the future will require additional debt financing. The Company has received
debt commitments from bank sources to expand its revolving credit facility to
finance its announced acquisition of the additional cellular property in
second quarter 1999. This expanded revolving credit facility will also be
used for capital expenditures by the Communications Services Sector. A higher
level of interest expense is likely to occur because of the expanded use of
the revolving credit facility and higher weighted average interest rates.
Based on the Company's banking relationships and the level of financing
activity taking place in the Company's industry, the Company believes it will
continue to be able to obtain required debt financing.
The Company's stock repurchase program has been funded with internal
cash and advances on a revolving credit facility to date. It is anticipated
the same sources will be utilized for financing any future stock repurchases.
No shares were repurchased during 1998 or 1999.
6. ANTICIPATED SALE OF INVESTMENT - The Company holds a 6.4% equity
interest in Midwest Wireless Communications, LLC (MWC), a rural cellular
telecommunications provider in southern Minnesota. This investment has been
accounted under the equity method, and is included in the Investments at
$3,566,000 on March 31, 1999. The proportional share of MWC net income
recorded in Other Income in the Consolidated Statements of Income and was
$365,000 for the first quarter of 1999 and $209,000 for the first quarter of
1998. The Company is in discussions with MWC to sell its 6.4% equity interest
directly back to MWC. While Agreements are not finalized, anticipated
proceeds of the sale are between $12 million and $13 million. Proceeds of the
sale, if completed, will be utilized by the Company to apply to Long-Term
Debt reduction.
7. YEAR 2000 COMPLIANCE - The "Year 2000 Issue" is the result of
computer programs that were written using two digits rather than four to
define the applicable year. If the Company's computer programs with
date-sensitive functions are not Year 2000 compliant, they may recognize a
date using "00" as the Year 1900 rather than the Year 2000. This could result
in a system failure or miscalculations causing disruptions of operations.
These disruptions may include a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
Each of the Company's business sectors has organized a committee to
analyze Year 2000 compliance.
LOCAL EXCHANGE TELEPHONE The Telephone Sector has identified 160 software
and hardware products used in its operations and is in the process of
contacting the vendors to verify Year 2000 compliance. Assessments have been
performed or received on all of the products. The Telephone Sector has
identified which software upgrades for its predominant Nortel switching and
transport network are necessary to become Year 2000 compliant, and all
upgrades have been ordered. As of March 31, 1999, 22% of the upgrades had
been performed. The remaining switching upgrades are to be completed in the
second quarter 1999. The switching upgrades are part of an ongoing contract
that is entered into every three years to keep the network up to current
standards. The Telephone Sector would normally be entering into these
contracts in 1999 and will not need to accelerate any upgrades to become Year
2000 compliant.
-11-
<PAGE>
The Telephone Sector's internal business software consists of a
proprietary software package created and maintained by the Company's
Billing/Data Services Sector. This software package, Intelesystem, is in the
process of being replaced as part of a planned business software upgrade. The
Telephone Sector is scheduled to convert to WRITE2k (billing software being
co-developed by the Billing/Data Services Sector) in late 1999 and early
2000. The WRITE2k software is Year 2000 compliant. As a precaution, the
Intelesystem software package is being made Year 2000 compliant, with
expected completion during the third quarter 1999. In addition, the Telephone
Sector will be converting to a Great Plains software system for accounting
and financial reporting purposes in late 1999 and early 2000. The conversion
to the Great Plains system is part of a three-year migration began by all of
the Company's sectors in 1996. The Great Plains software system is Year 2000
compliant.
The Year 2000 compliance expenditures associated with the Telephone
Sector are expected to be less than $500,000, because the majority of the
upgrades are normal course-of-business expenses.
COMMUNICATIONS SERVICES The Company expects that Minnesota Southern Wireless
Company will convert to the Billing/Data Services Sector's wireless billing
software version of WRITE2k by third quarter 1999. Crystal Communications
will continue to use the Billing/Data Services Sector's billing software
package called EasyTel2000, which is anticipated to be Year 2000 compliant by
July 1999. The Communications Services Sector is already using the Great
Plains system for accounting and financial reporting.
The wireless operations will be updating its Nortel switch in the
second quarter 1999 to ensure Year 2000 compliance. The switch upgrade is
part of the Company's ongoing network enhancement program. The wireless
operations voicemail system will also be enhanced in the second quarter 1999
in order to make it Year 2000 compliant.
The Communications Services Sector's expenses associated with Year
2000 compliance are estimated at $100,000.
BILLING/DATA SERVICES NIBI utilizes the Great Plains software system as its
internal business software system. This system is Year 2000 compliant. The
Company anticipates that all of NIBI's billing platforms for its customers
will be Year 2000 compliant by July 1999.
The costs of internal resources dedicated to Year 2000 remediation
are estimated to be less than $200,000 for the Billing/Data Services Sector.
COMMUNICATIONS PRODUCTS Collins is currently using a UNIX-based system for
its internal business software. Plans were made in 1997 to convert Collins to
a Great Plains software system, with the actual conversion scheduled to take
place in May 1999. This conversion will take place in the normal course of
business and was not influenced by the Year 2000 issue.
-12-
<PAGE>
YEAR 2000 SUMMARY To date, the Company's business sectors have incurred less
than $100,000 for expenses associated with Year 2000 compliance.
The information presented above sets forth the key steps taken by
the Company to address the Year 2000 issue. There can be no absolute
assurance that third parties will convert their systems in a timely manner
and in a way that is compatible with the Company's systems. The Company
believes that its actions with vendors and customers will minimize these
risks and that the cost of Year 2000 compliance for its information and
operation systems will not be material to its consolidated results of
operations and financial position. The information presented above also
represents management's best estimates at the present time, and could change.
The estimates are based upon assumptions as to future events. There can be no
guarantee that these assumptions will prove accurate, and actual results
could differ from those estimated if these assumptions prove inaccurate.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
From time to time, the Company or one of its subsidiaries is
involved in litigation incidental to its business, including administrative
hearings of state public utility commissions, actions relating to employee
claims and miscellaneous other lawsuits. Based on the information currently
available, the Company believes that none of such current proceedings,
individually or in the aggregate, will have a material adverse effect on
their financial positions, results of operations or cash flows.
Item 2. CHANGES IN SECURITIES.
In April 1999, the Company's Articles of Incorporation were amended
to increase the number of authorized shares from 25,000,000 to 100,000,000.
In February 1999, the Board of Directors of the Company adopted a
Shareholder Rights Plan and declared a dividend of one Right on each
outstanding share of Common Stock. The dividend was paid to the shareholders
of record on March 12, 1999, and the Rights will expire ten years later
unless redeemed or exchanged at an earlier date. Each Right entitles
shareholders of the Company to buy one one-hundredth of a share of Series A
Junior Participating Preferred Stock of the Company at a price of $65.00 per
one-hundredth of a Preferred Share. The Rights will become exercisable
following the public announcement that a person or group has acquired,
without approval of the Board of Directors of the Company, beneficial
ownership of 15% or more of the Company's outstanding Common Stock, or at the
close of business ten days after the commencement of, or a public
announcement of the intent to commence, a tender or exchange offer that would
result in ownership by a person or group of 15% or more of the Company's
Common Stock. If any person or group acquires 15% or more of the Company's
Common Stock, without approval of the Board of Directors, each holder of
Rights other than the 15% shareholder will have the right to purchase the
Company's Common Stock at a 50% discount from the current market price. After
any one of these events, the Company may also exchange all or any portion of
the outstanding Rights, other than Rights held by such 15% shareholder, for
shares of the Company's Common Stock at an exchange ratio of one share of
Common Stock per Right, subject to the provisions of the Rights Plan. The
Board of Directors of the Company may redeem the rights for $0.01 per Right
at any time prior to the date a person or group acquires 15% or more of the
Company's outstanding Common Stock and in certain other instances. In
addition, the exercise price and the value of stock that may be acquired for
that price are subject to adjustment for stock splits, stock dividends and
certain other events. Until a Right is exercised, the holder thereof will
have no rights as a shareholder of the Company, including the right to vote
or to receive dividends.
-13-
<PAGE>
Item 3. DEFAULT UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS OF FORM 8-K.
(a) Exhibits
3. Articles of Incorporation, as amended to date.
4. Rights Agreement dated as of February 25, 1999 between
the Company and Norwest Bank Minnesota, National
Association, as Rights Agent (incorporated by reference
to Exhibit 1 to the Company's registration statement on
Form 8-A dated March 12, 1999).
10. Amended and Restated Directors' Option Plan.
27. Financial Data Schedule
(b) The Company filed a report on Form 8-K dated February 25, 1999
relating to the adoption of its shareholder rights plan.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by
the undersigned hereto duly authorized.
Dated: May 6, 1999 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
-15-
<PAGE>
HICKORY TECH CORPORATION AND SUBSIDIARIES
Exhibit Index to
Form 10-Q for the Quarter Ended March 31, 1999
<TABLE>
<CAPTION>
Exhibit Number Document Description
- -------------- --------------------
<S> <C>
3 Articles of Incorporation, as amended April 12, 1999.
10 Amended and Restated Directors' Option Plan
27 Financial Data Schedule
</TABLE>
-16-
<PAGE>
Exhibit 3
RESTATED
ARTICLES OF INCORPORATION
OF
HICKORY TECH CORPORATION
ARTICLE I
The name of this Corporation is Hickory Tech Corporation.
ARTICLE II
The registered office of this Corporation is located at 221 East Hickory
Street, Mankato, Minnesota 56001.
ARTICLE III
This Corporation is authorized to issue an aggregate total of One Hundred
Million (100,000,000) shares, which shares shall have no par value.
ARTICLE IV
Except as otherwise required by applicable law, each share shall have such
voting rights as may be established by the Board of Directors. There shall
be no cumulative voting of shares except as otherwise determined by the Board
of Directors in connection with establishing the rights and preferences of
shares in accordance with Article VII hereof.
ARTICLE V
No shareholder of this Corporation shall have any preemptive rights to
subscribe for, purchase or acquire any shares of the Corporation of any
class, whether unissued or now or hereafter authorized, or any obligations or
other securities convertible into or exchangeable for any such shares.
ARTICLE VI
The business and affairs of this Corporation shall be managed by or under the
direction of a Board of Directors consisting of not less than six and not
more than twelve persons, who need not be shareholders. The directors shall
be divided into three classes, designated Class I, Class II and Class III.
Each class shall consist of not less than two and not more than four
directors. The exact number of directors in each class shall be determined
by the Board of Directors prior to the regular meeting at which directors of
such class are to be elected; but thereafter the authorized number of
directors in such class may be increased by the Board of Directors.
The term of the initial directors in Class I shall expire at the regular
meeting of the shareholders of this Corporation held in 1986. The term of
the initial directors in Class II shall expire at the regular meeting of the
shareholders of this Corporation held in 1987. The term of office of the
initial directors in Class III shall expire at the regular meeting of the
shareholders of this Corporation held in 1988. At each succeeding regular
meeting of shareholders beginning with the regular meeting held in 1986,
successors to the class of directors whose term expires at that regular
meeting shall be elected for a three-year term. Any director
<PAGE>
of any class elected to fill a vacancy in such class shall hold office for a
term that shall coincide with the remaining term of that class. A director
shall hold office until the regular meeting held in the year in which the
director's term expires and until a successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. A director (including a director
named by the Board of Directors to fill a vacancy) may be removed from office
only for cause. Any vacancy on the Board of Directors may be filled by a
majority of the directors then in office, although less than a quorum, or by
a sole remaining director. Any director elected to fill a vacancy shall have
the same remaining term as that of such director's predecessor.
The manner of election, time and place of meeting, and the powers and duties
of the directors of this Corporation shall be prescribed by the Bylaws except
as otherwise provided by law or these Articles of Incorporation.
There shall initially be twelve directors of this Corporation, and each class
of directors shall consist of four directors.
The names of the first directors of this Corporation and the classes in which
such directors will serve is as follows:
Class I
Charles R. Butler
P. M. Ferguson
Waldo R. Jaax
Laird D. Waldo
Class II
Lowell W. Andreas
William C. Blethen
Lee T. Snilsberg
Paul L. Stevens
Class III
Thomas R. Borchert
Richard L. Myers
Brett M. Taylor, Jr.
Jerome F. Thomas
ARTICLE VII
<PAGE>
The Board of Directors shall have the authority to create and authorize the
issuance of any number of classes or series of shares of this Corporation,
and to establish the rights and preferences thereof.
ARTICLE VIII
Any amendment of the Articles of Incorporation shall be adopted only if it
receives the affirmative vote of the holders of not less than two-thirds of
the outstanding shares entitled to vote thereon.
ARTICLE IX
The affirmative vote of the holders of not less than two-thirds of the
outstanding shares entitled to vote thereon shall be required for the
adoption of any agreement of merger or exchange of shares involving this
Corporation, or for approving the dissolution of this Corporation, or for the
authorization of any sale, lease, exchange or other disposition of all or
substantially all of the property and assets of this Corporation, including
its good will.
ARTICLE X.
The provisions of Minnesota Statutes Section 302A.671 relating to Control
Share Acquisitions shall apply to this Corporation.
ARTICLE XI.
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except to the extent provided by applicable law, (i) for
any breach of the director's duty of loyalty to the Corporation or the
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) under Section
302A.559 or 80A.23 of the Minnesota Statutes, (iv) for any transaction from
which the director derived an improper personal benefit, or (v) for any act
or omission occurring prior to the date when this Article Eleven becomes
effective. If the Minnesota Business Corporation Act hereafter is amended to
authorize the further elimination or limitation of the liability of
directors, then the liability of the directors of the Corporation, in
addition to the limitation and elimination on personal liability provided
herein, shall be eliminated or limited to the fullest extent permitted by the
Minnesota Business Corporation Act, as so amended. No amendment to or repeal
of this Article Eleven shall apply to, or have any effect on, the liability
or alleged liability of any director for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
ARTICLE XII.
A. In addition to any affirmative vote required by law or these Articles of
Incorporation, and except as otherwise expressly provided in Section B of
this Article XII, a Business Combination (as hereinafter defined) shall
require the affirmative vote of not less than seventy-five percent (75%) of
the votes entitled
<PAGE>
to be cast by the holders of all then outstanding shares of Voting Stock (as
hereinafter defined), voting together as a single class. Such affirmative
vote shall be required notwithstanding the fact that no vote may be required,
or that a lesser percentage or separate class vote may be specified, by law
or any other provision of these Articles of Incorporation or otherwise.
B. The provisions of Section A of this Article XII shall not be applicable
to any particular Business Combination, and such Business Combination shall
require only such affirmative vote, if any, as is required by law or by any
other provision of these Articles of Incorporation, if the conditions
specified in either of the following Paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a majority of the
Continuing Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of cash and the Fair Market Value (as hereinafter
defined) as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of Common
Stock in such Business Combination shall be at least equal to the higher
amount determined under clauses (i) and (ii) below:
(i) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by or on
behalf of the Interested Shareholder (as hereinafter defined) for any share
of Common Stock in connection with the acquisition by the Interested
Shareholder of beneficial ownership of shares of Common Stock (a) within the
two-year period immediately prior to the date of the first public
announcement of the proposed Business Combination (the "Announcement Date")
or (b) in the transaction in which it became an Interested Shareholder,
whichever is higher; and
(ii) the Fair Market Value per share of Common Stock on the date on which
the Interested Shareholder became an Interested Shareholder (such latter date
being referred to herein as the "Determination Date"), whichever is higher.
b. The aggregate amount of cash and the Fair Market Value as of the date of
the consummation of the Business Combination of consideration other than cash
to be received per share by holders of shares of any class or series of
outstanding Capital Stock (as hereinafter defined), other than Common Stock,
shall be at least equal to the highest amount determined under clauses (i),
(ii), and (iii) below:
(i) (if applicable) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by or on
behalf of the Interested Shareholder for any share of such class or series of
Capital Stock in connection with the acquisition by the Interested
Shareholder of beneficial ownership of shares of such class or series of
Capital Stock (a) within the two-year period immediately prior to the
Announcement Date or (b) in the transaction in which it became an Interested
Shareholder, whichever is higher; and
<PAGE>
(ii) the Fair Market Value per share of such class or series of Capital
Stock on the Announcement Date or on the Determination Date, whichever is
higher; and
(iii) (if applicable) the highest preferential amount per share to which the
holders of shares of such class or series of Capital Stock would be entitled
in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, regardless of whether the
Business Combination to be consummated constitutes such an event.
c. The consideration to be received by holders of a particular class or
series of outstanding Capital Stock shall be in cash or in the same form as
previously has been paid by or on behalf of the Interested Shareholder in
connection with its direct or indirect acquisition of beneficial ownership of
shares of such class or series of Capital Stock. If the consideration so
paid for shares of any class or series of Capital Stock varied as to form,
the form of consideration for such class or series of Capital Stock shall be
either cash or the form used to acquire beneficial ownership of the largest
number of shares of such class or series of Capital Stock previously acquired
by the Interested Shareholder. The price determined in accordance with
Paragraphs 2.a and 2.b of Section B of this Article XII shall be subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination of shares or similar event.
d. After such Interested Shareholder has become an Interested Shareholder
and prior to the consummation of such Business Combination: (i) there shall
have been no reduction in the annual rate of dividends paid on the Common
Stock (except as necessary to reflect any stock dividend, stock split,
combination of shares or similar event), except as approved by a majority of
the Continuing Directors; (ii) there shall have been an increase in the
annual rate of dividends paid on the Common Stock as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction that has the effect of reducing the
number of outstanding shares of Common Stock, unless the failure to increase
such annual rate is approved by a majority of the Continuing Directors; and
(iii) except as approved by a majority of the Continuing Directors, such
Interested Shareholder shall not have become the beneficial owner of any
additional shares of Capital Stock except as part of the transaction that
results in such Interested Shareholder becoming an Interested Shareholder and
except in a transaction that, after giving effect thereto, would not result
in any increase in the Interested Shareholder's percentage beneficial
ownership of Capital Stock.
e. After such Interested Shareholder has become an Interested Shareholder,
such Interested Shareholder shall not have received the benefit, directly or
indirectly (except proportionately as a shareholder of the Corporation), of
any loans, advances, guarantees, pledges or other financial assistance or any
tax credits or other tax advantages provided by the Corporation whether in
anticipation of or in connection with such Business Combination or otherwise.
f. A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange
Act of 1934 and the rules and regulations thereunder (the "Act") shall be
mailed to all shareholders of the Corporation at least 30 days prior to the
consummation of such Business Combination. The proxy or information
statement shall contain on the first page thereof, in a prominent place, any
statement as to the advisability (or inadvisability) of the Business
Combination that a majority of the Continuing Directors may choose to make
and, if deemed advisable by a majority of the
<PAGE>
Continuing Directors, the opinion of an investment banking firm selected by a
majority of the Continuing Directors as to the fairness (or lack of fairness)
of the terms of the Business Combination from a financial point of view to
the holders of the outstanding shares of Capital Stock other than the
Interested Shareholder and its Affiliates (as hereinafter defined) or
Associates (as hereinafter defined).
g. Such Interested Shareholder shall not have made or caused to be made any
major change in the Corporation's business or equity capital structure
without the approval of a majority of the Continuing Directors.
C. For the purposes of this Article XII:
1. The term "Business Combination" shall mean:
a. any merger, consolidation or statutory exchange of shares of the
Corporation or any Subsidiary (as hereinafter defined) with (i) any
Interested Shareholder or (ii) any other corporation (whether or not itself
an Interested Shareholder) which is or after such merger, consolidation or
statutory share exchange would be an Affiliate or Associate of an Interested
Shareholder; provided, however, that the foregoing shall not include the
merger of a wholly-owned Subsidiary of the Corporation into the Corporation
or the merger of two or more wholly-owned Subsidiaries of the Corporation; or
b. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with an
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder of any assets of the Corporation or any Subsidiary equal to or
greater than ten percent (10%) of the book value of the consolidated assets
of the Corporation; or
c. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with the
Corporation or any Subsidiary of any assets of any Interested Shareholder or
any Affiliate or Associate of any Interested Shareholder equal to or greater
than ten percent (10%) of the book value of the consolidated assets of the
Corporation; or
d. the issuance or transfer by the Corporation or any Subsidiary (in one
transaction or a series of transactions) to any Interested Shareholder or any
Affiliate or Associate of any Interested Shareholder of any securities of the
Corporation (except pursuant to stock dividends, stock splits, or similar
transactions which would not have the effect, directly or indirectly, of
increasing the proportionate share of any class or series of Capital Stock,
or any securities convertible into Capital Stock or into equity securities of
any Subsidiary, that is beneficially owned by any Interested Shareholder or
any Affiliate or Associate of any Interested Shareholder) or of any
securities of a Subsidiary (except pursuant to a pro rata distribution to all
holders of Common Stock of the Corporation); or
e. the adoption of any plan or proposal for the liquidation or dissolution
of the Corporation proposed by or on behalf of an Interested Shareholder or
any Affiliate or Associate of any Interested Shareholder; or
f. any transaction (whether or not with or otherwise involving an Interested
Shareholder) that has the effect, directly or indirectly, of increasing the
proportionate share of any class or series of Capital Stock, or any
securities convertible into Capital Stock or into equity securities of any
Subsidiary, that is beneficially
<PAGE>
owned by any Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder, including, without limitation any reclassification of
securities (including any reverse stock split), or recapitalization of the
Corporation, or any merger, consolidation or statutory exchange of shares of
the Corporation with any of its Subsidiaries; or
g. any agreement, contract or other arrangement or understanding providing
for any one or more of the actions specified in the foregoing clauses (a) to
(f).
2. The term "Capital Stock" shall mean all capital stock of the Corporation
authorized to be issued from time to time under Article III of these Articles
of Incorporation. The term "Voting Stock" shall mean all Capital Stock of
the Corporation entitled to vote generally in the election of directors of
the Corporation.
3. The term "person" shall mean any individual, firm, corporation or other
entity and shall include any group comprised of any person and any other
person with whom such person or any Affiliate or Associate of such person has
any agreement, arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of Capital Stock.
4. The term "Interested Shareholder" shall mean any person (other than the
Corporation or any Subsidiary and other than any profit-sharing, employee
stock ownership or other employee benefit plan of the Corporation or any
Subsidiary or any trustee of or fiduciary with respect to any such plan when
acting in such capacity) who (a) is the beneficial owner of Voting Stock
representing ten percent (10%) or more of the votes entitled to be cast by
the holders of all outstanding shares of Voting Stock; or (b) is an Affiliate
or Associate of the Corporation and at any time within the two-year period
immediately prior to the date in question was the beneficial owner of Voting
Stock representing ten percent (10%) or more of the votes entitled to be cast
by the holders of all then outstanding shares of Voting Stock; or (c) is an
assignee of or has otherwise succeeded to any shares of Voting Stock which
were at any time within the two-year period immediately prior to the date in
question beneficially owned by any Interested Shareholder, if such assignment
or succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
5. A person shall be a "beneficial owner" of any Capital Stock (a) which
such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (b) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; (b) which such person
or any of its Affiliates or Associates has, directly or indirectly, (i) the
right to acquire (whether such right is exercisable immediately or subject
only to the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (ii) the right to vote pursuant to any
agreement, arrangement or understanding, or (iii) the right to dispose or
direct the disposition of, pursuant to any agreement, arrangement or
understanding; or (c) which are beneficially owned, directly or indirectly,
by any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of Capital Stock. For
the purposes of determining whether a person is an Interested Shareholder
pursuant to Paragraph 4 of this Section C, the number of shares of Capital
Stock deemed to be outstanding shall include shares deemed beneficially owned
by such person through application of this Paragraph 5, but shall not include
any other shares of Capital Stock that may be
<PAGE>
issuable pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, exchange rights, warrants or options, or
otherwise.
6. The term "Affiliate", used to indicate a relationship with a specified
person, shall mean a person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, such specified person. The term "Associate", used to indicate a
relationship with a specified person, shall mean (a) any person (other than
the Corporation or a Subsidiary) of which such specified person is an officer
or partner or is, directly or indirectly, the beneficial owner of ten percent
(10%) or more of any class of equity securities, (b) any trust or other
estate in which such specified person has a substantial beneficial interest
or as to which such specified person serves as trustee or in a similar
fiduciary capacity, (c) any relative or spouse of such specified person or
any relative of such spouse, who has the same home as such specified person
or who is a director or officer of the Corporation or any Subsidiary, and (d)
any person who is a director or officer of such specified person or any of
its parents or subsidiaries (other than the Corporation or a Subsidiary).
7. The term "Subsidiary" shall mean any corporation of which a majority of
any class of equity security is beneficially owned, directly or indirectly,
by the Corporation; provided however, that for the purposes of Paragraph 4 of
this Section C, the term "Subsidiary" shall mean only a corporation of which
a majority of each class of equity security is beneficially owned, directly
or indirectly, by the Corporation.
8. The term "Continuing Director" shall mean any member of the Board of
Directors of the Corporation, while such person is a member of the Board of
Directors, who was a member of the Board of Directors prior to the time that
the Interested Shareholder involved in the Business Combination in question
became an Interested Shareholder, and any member of the Board of Directors,
while such person is a member of the Board of Directors, whose election, or
nomination for election by the Corporation's shareholders, was approved by a
vote of a majority of the Continuing Directors; provided, however, that in no
event shall an Interested Shareholder involved in the Business Combination in
question or any Affiliate, Associate or representative of such Interested
Shareholder, be deemed to be a Continuing Director.
9. The term "Fair Market Value" shall mean (a) in the case of cash, the
amount of such cash; (b) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of a
share of such stock on the National Association of Securities Dealers, Inc.
Automated Quotations System or any similar system then in use, or if no such
quotations are available, the fair market value on the date in question of a
share of such stock as determined by a majority of the Continuing Directors
in good faith; and (c) in the case of property other than cash or stock, the
fair market value of such property on the date in question as determined in
good faith by a majority of the Continuing Directors.
10. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used
in Paragraphs 2.a and 2.b of Section B of this Article XII shall include the
shares of Common Stock and/or the shares of any other class or series of
Capital Stock retained by the holders of such shares.
<PAGE>
D. The Continuing Directors by majority vote shall have the power to
determine for the purposes of this Article XII, on the basis of information
known to them after reasonable inquiry, (a) whether a person is an Interested
Shareholder, (b) the number of shares of Capital Stock (including Voting
Stock) or other securities beneficially owned by any person, (c) whether a
person is an Affiliate or Associate of another, (d) whether the assets that
are the subject of any Business Combination equal or exceed ten percent (10%)
of the book value of the consolidated assets of the Corporation, (e) whether
a proposed plan of dissolution or liquidation is proposed by or on behalf of
an Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder, (f) whether any transaction has the effect, directly or
indirectly, of increasing the proportionate share of any class or series of
Capital Stock, or any securities convertible into Capital Stock or into
equity securities of any Subsidiary, that is beneficially owned by an
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder, (g) whether any Business Combination satisfies the conditions
set forth in Paragraph 2 of Section B of this Article XII, and (h) such other
matters with respect to which a determination is required under this Article
XII. Any such determination made in good faith shall be binding and
conclusive on all parties.
E. Nothing contained in this Article XII shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
F. The fact that any Business Combination complies with the provisions of
Section B of this Article XII shall not be construed to impose any fiduciary
duty, obligation or responsibility on the Board of Directors, or any member
thereof, or the Continuing Directors, or any of them, to approve such
Business Combination or recommend its adoption or approval to the
shareholders of the Corporation, nor shall such compliance limit, prohibit or
otherwise restrict in any manner the Board of Directors, or any member
thereof, or the Continuing Directors, or any of them, with respect to
evaluations of or actions and responses taken with respect to such Business
Combination.
G. Notwithstanding any other provisions of these Articles of Incorporation
(and notwithstanding the fact that a lesser percentage or separate class vote
may be specified by law or these Articles of Incorporation), the affirmative
vote of the holders of not less than seventy-five percent (75%) of the votes
entitled to be cast by the holders of all then outstanding shares of Voting
Stock, voting together as single class, shall be required to amend or repeal,
or adopt any provisions inconsistent with, this Article XII.
<PAGE>
Exhibit 10
HICKORY TECH CORPORATION
DIRECTORS' STOCK OPTION PLAN
AMENDED AND RESTATED FEBRUARY 10, 1999
1. PURPOSE OF THE PLAN. The purpose of this Hickory Tech Corporation
Directors' Stock Option Plan is to attract and retain the best available
individuals for service as Directors of the Company and to provide additional
incentive to the Outside Directors of the Company to serve as Directors.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "COMMON STOCK" shall mean the Common Stock of the Company.
(c) "COMPANY" shall mean Hickory Tech Corporation, a Minnesota
corporation.
(d) "DIRECTOR" shall mean a member of the Board.
(e) "EMPLOYEE" shall mean any person, including officers and
Directors, employed by the Company or any parent or subsidiary of the Company.
(f) "FAIR MARKET VALUE" shall have the meaning set forth in
Section 7.
(g) "GAAP" shall mean generally accepting accounting principles in
the United States in effect from time to time.
(h) "OPTION" shall mean a stock option granted pursuant to the Plan.
(i) "OPTIONEE" shall mean an Outside Director who receives an
Option.
(j) "OUTSIDE DIRECTOR" shall mean a Director who is not an Employee.
(k) "PERFORMANCE CRITERIA" shall mean, for a given fiscal year,
consolidated return on equity of 15% based on beginning shareholders' equity.
The Performance Criteria shall be determined in accordance with GAAP based
solely on the audited financial statements of the Company for the relevant
fiscal years.
(l) "PLAN" shall mean this Directors' Stock Option Plan.
(m) "SHARES" shall mean shares of the Common Stock.
3. SHARES SUBJECT TO THE PLAN. Subject to Section 10, the maximum
aggregate number of Shares that may be optioned and sold under the Plan is
300,000 shares of Common Stock. If an Option should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares that were subject thereto shall become available for
future grant under the Plan.
4. GRANTS OF OPTIONS UNDER THE PLAN. On the date of the close of the
audit following each of the
<PAGE>
fiscal years in which the Company satisfies the Performance Criteria, each
Outside Director shall automatically receive an Option to purchase 3,000
Shares at fair market value on the date of grant. Each Option shall be for a
term of ten years.
5. POWERS OF THE BOARD. Subject to the provisions and restrictions of
the Plan, the Board shall have the authority, in its discretion: (i) to
determine the fair market value of the Common Stock; (ii) to interpret the
Plan; (iii) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option granted hereunder;
and (iv) to make all other determinations deemed necessary or advisable for
the administration of the Plan. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.
6. EFFECTIVE DATE OF PLAN. The Plan shall become effective upon its
approval by the shareholders of the Company as described in Section 15.
7. FAIR MARKET VALUE. The fair market value of a Share shall be, in
the event the Common Stock is traded on the NASDAQ National Market System or
listed on a stock exchange, the average closing sale price on such system or
exchange during the five trading days on which there was actual trading
ending on the trading day on which there was actual trading immediately
preceding the date of grant of the Option, as reported in THE WALL STREET
JOURNAL. In the event the Common Stock is not so traded or listed, the Board
shall determine fair market value.
8. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. An Option
shall be deemed to be exercised when written notice of such exercise has been
given to the Company by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Until the issuance of the stock certificate
evidencing the Shares so purchased, the purchaser shall have no right to vote
or receive dividends or any other rights as a shareholder. A share
certificate for the number of Shares purchased shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10.
(b) DEATH OF OPTIONEE. Notwithstanding Section 8(a) in the event
of the death of an Optionee, the Option may be exercised at any time within
six months following the date of death, by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or
inheritance.
9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold,
pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION OR MERGER.
In the event that the number of outstanding shares of Common Stock of the
Company is changed by a stock dividend, stock split, reverse stock split,
combination, reclassification or similar change in the capital structure of
the Company without consideration, the number of Shares available under this
Plan and the number of Shares subject to outstanding Options and the exercise
price per share of such Options shall be proportionately adjusted. Such
adjustment shall be made by the Board, whose determination in that respect
shall be conclusive.
11. AMENDMENT AND TERMINATION OF THE PLAN.
<PAGE>
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuance shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. CONDITIONS UPON ISSUANCE OF SHARES. As a condition to the exercise
of an Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell
or distribute such Shares, if, in the opinion of counsel for the Company,
such a representation is required by law.
13. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of the Shares
available for issuance pursuant to this Plan as shall be sufficient to
satisfy the requirements of the Plan.
14. OPTION AGREEMENT. Options may, but need not, be evidenced by
written option agreements in such form as the Board shall approve.
15. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, BALANCE SHEETS AND STATEMENTS OF CASH FLOWS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,610
<SECURITIES> 0
<RECEIVABLES> 14,346
<ALLOWANCES> 621
<INVENTORY> 2,606
<CURRENT-ASSETS> 20,945
<PP&E> 135,591
<DEPRECIATION> 70,673
<TOTAL-ASSETS> 158,573
<CURRENT-LIABILITIES> 12,845
<BONDS> 73,309
0
0
<COMMON> 1,374
<OTHER-SE> 64,567
<TOTAL-LIABILITY-AND-EQUITY> 158,573
<SALES> 5,580
<TOTAL-REVENUES> 22,159
<CGS> 5,105
<TOTAL-COSTS> 16,891
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,202
<INCOME-PRETAX> 4,665
<INCOME-TAX> 1,866
<INCOME-CONTINUING> 2,799
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,799
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
