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Hickorytech
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MANKATO, MN., July 29, 2002 — HickoryTech Corporation today reported net income for the second quarter ended June 30, 2002, of $1.8 million, or 13 cents per diluted share, a decrease of 10.1 percent from $2.0 million, or 14 cents per diluted share, in the same period in 2001. Second quarter revenues were $25.5 million this year, compared with $27.0 million last year. Beginning in the first quarter of 2002, HickoryTech discontinued amortization of certain intangible assets and goodwill due to a change in the accounting rules (SFAS 142). Had these new rules taken effect in 2001, net income in the second quarter of 2001 would have been $2.4 million, or 17 cents per diluted share.

The company took an additional charge of $1.0 million to bad debt expense during the second quarter of 2002 due to complications with a number of long distance carriers, including the bankruptcy of a large provider. Had the company not taken this charge, the after-tax effect would have been an additional 4 cents in earnings per diluted share – besting previous company estimates by 3 cents per share.

In other second quarter performance highlights, the company:

• Reduced interest expense by $1.0 million, or 34.1 percent, from the second quarter of 2001, and by $0.1 million from the first quarter of this year.
• Lowered outstanding debt by $2.2 million during the quarter, a $6.2 million reduction year-to-date.
• Reduced operating expense by $0.6 million (prior to this quarter’s $1.0 million charge to bad debt expense and excluding depreciation and amortization), or 4.4 percent, from the second quarter of 2001.
• Increased contribution margins in its Telecom Sector, which also reported slightly higher revenues for the quarter.

Second quarter 2002 operating income was $4.9 million, down 19.7 percent from $6.0 million in 2001. 

Earnings before interest, taxes, depreciation and amortization (EBITDA) was $9.2 million this year, down 6.8 percent from the second quarter of last year.

During the second quarter, the company successfully implemented its new billing platform, SuiteSolution™, into its CLEC operations. This is the first stage in a three-stage implementation that will result in HickoryTech’s ILEC, CLEC and Wireless service offices all operating on a single billing platform. This common platform will ultimately allow for the integration of HickoryTech’s service office and sales functions, gaining efficiencies in the management of its customer relationships.

In other second quarter developments, HickoryTech launched three new wireless product offerings targeted at the local, mobile customer segment. Wireless customer additions during the last two months have been encouraging, with nearly 600 new customers subscribing to those plans. Customer churn has also remained low at 1.97 percent.

On July 1, 2002, HickoryTech welcomed its new President and Chief Executive Officer, John E. Duffy. “We were very fortunate to find a CEO of the caliber of Mr. Duffy,” said Robert D. Alton, Jr., retiring President and CEO and current Chairman of HickoryTech. “Although the telecommunications industry continues to struggle as a whole, I know that HickoryTech is as strong as ever and will continue to thrive under the leadership of John Duffy.”

“HickoryTech is very well positioned for future growth,” Duffy said. “Having signed key contracts with Best Buy, Minnesota State University-Mankato and Project SOCRATES in the past two months, I believe this company has raised the level of excellence and has again demonstrated itself as a market leader.”

Last week, HickoryTech’s Enterprise Solutions division announced the signing of a multi-million dollar contract to install the telecommunications system for Best Buy Co., Inc.’s new 42.5-acre campus in Richfield, Minn. The system, designed to serve more than 7,500 users, is believed to be one of the largest single-campus telecommunications system installations in the United States this year. This spring, HickoryTech was awarded a contract to provide a distance-learning network in south central Minn. for Project SOCRATES, a consortium of schools and libraries operating at 73 sites throughout the area. HickoryTech also signed a contract in early July with Minnesota State University – Mankato to provide all of the long distance services for the campus, serving more than 5,000 users.

“The third quarter will see HickoryTech continue to roll out innovative, new products for our customers,” Duffy said. “Later this quarter we will launch four bundled product offerings, which offer combinations of wireline, wireless, long distance, Internet and high-speed data for low, flat rate prices. Those packages, coupled with HickoryTech’s strong, local presence in Minnesota and Iowa, will increase the company’s overall customer base while keeping churn to a minimum.”

For the six months ended June 30, 2002, net income decreased 1.9 percent to $3.9 million, or 28 cents per diluted share, from $4.0 million, or 28 cents per diluted share, in the same period of 2001. If SFAS 142 had taken effect in 2001, net income for the first six months of the year would have been $4.7 million, or 34 cents per diluted share, representing a decrease of 17.4 percent.

Revenues for the first six months of this year were $50.6 million, compared with $54.2 million in the first six months of last year. Operating income decreased 15.5 percent, to $10.3 million, from $12.2 million for the same period of 2001. If SFAS 142 had taken effect in 2001, operating income for the first six months of the year would have been $13.5 million, a decrease of 23.4 percent. For the first six months of 2002 EBITDA decreased 4.7 percent, to $18.8 million, from $19.7 million in the previous year.

As previously stated, bankruptcies of outside telecom firms and collection issues in the long distance sector resulted in HickoryTech taking an additional charge of $0.3 million in the first quarter and $1.0 million in the second quarter of 2002 to bad debt expense. Had these charges not occurred, the company would have posted net income of $4.6 million for the six months ended June 30, 2002, a 17 percent increase over the same period of 2001. For the first six months of 2002, EBITDA would have been $20.1 million, an increase of 1.9 percent from the comparable period of the previous year. Operating income would have been $11.6 million for the first half of 2002, a decrease of 4.9 percent from 2001.

Change in Business Segment Reporting
During the first quarter of 2002 HickoryTech changed the presentation of its business segment reporting to consolidate Telephone, Communication Services and Wireless Services segments into a single segment, referred to as the Telecom Sector. This change reflects the integration of the company’s operations, sales, service and support functions. Accompanying this release is supplemental financial data that disaggregates Telecom Sector detail, including revenues and other selected metrics. All comparisons to prior period results contained in this release have been made after accounting for HickoryTech's Telecom Sector presentation.

During the first quarter of 2002 HickoryTech adopted Statement of Financial Accounting Standard ("SFAS") No. 142 and ceased amortizing its wireless licenses and goodwill. A recap of the effect of this change is included in a table accompanying our financial results.

About HickoryTech
HickoryTech Corporation is a diversified communications company headquartered in Mankato, Minn., with 500 employees and operations in Minnesota and Iowa. HickoryTech is in its 105th year of operation with its roots in the local telephone exchange business. From this base, it has expanded into wireless communications, competitive local service, long distance, Internet, information solutions and enterprise solutions. To learn more about HickoryTech Corporation, visit the company's Web page at www.hickorytech.com.

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