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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
COMMISSION FILE NUMBER: 0-13721
HICKORY TECH CORPORATION
MINNESOTA 41-1524393
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
221 EAST HICKORY STREET
P.O. BOX 3248
MANKATO, MINNESOTA 56002
(Address of principal executive offices and zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 800-326-5789
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
-------------------------------
TITLE OF CLASS
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 Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by a check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 5, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $164,570,400.
The total number of shares outstanding of the Registrant's common stock as of
March 5, 1999: 13,708,231.
Documents Incorporated by Reference: Portions of the Annual Report to
Shareholders for the year ended December 31, 1998 are incorporated by
reference into Parts I and II of this Form 10-K. Hickory Tech Corporation's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held
on April 12, 1999 is incorporated by reference into Part III of this Form
10-K.
TABLE OF CONTENTS
Item Page
---- ----
PART I
1. Business I-1
2. Properties I-9
3. Legal Proceedings I-10
4. Submission of Matters to a Vote of Security Holders I-10
PART II
5. Market for Company's Common Equity and Related Stockholder
Matters II-1
6. Selected Financial Data II-1
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations II-1
7A. Quantitative and Qualitative Disclosures About Market Risk II-2
8. Financial Statements and Supplementary Data II-2
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure II-2
PART III
10. Directors and Executive Officers of the Company III-1
11. Executive Compensation III-1
12. Security Ownership of Certain Beneficial Owners and Management III-1
13. Certain Relationships and Related Transactions III-1
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K IV-1
PART I
ITEM 1. BUSINESS.
GENERAL
Hickory Tech Corporation (the Company) is a holding company with subsidiaries
operating predominantly in the telecommunications industry. In the
telecommunications industry, local exchange companies (LECs) generate the
largest share of total revenues. The Company's core business is the operation
of four LECs. This business consists of connecting customers to the telephone
network, providing switched service and dedicated private lines, connecting
customers to long distance service providers and providing many other
services associated with LECs. The Company also provides wireless
telecommunications services to customers in and in the area surrounding its
LEC service territory in Minnesota, provides data processing services to the
telecommunications industry and installs and maintains telephone systems. In
addition, the Company undertook business startup initiatives in long
distance, internet access and competitive local exchange carrier (CLEC)
businesses in 1998.
In a 1985 reorganization, the Company became a holding company for the
Company's subsidiaries. The Company's predecessor as the parent holding
company, Mankato Citizens Telephone Company, has been in business since 1898,
and remains as one of the Company's subsidiaries. The Company has the nine
operating subsidiaries listed below:
-Mankato Citizens Telephone Company (MCTC), a Minnesota corporation;
-Mid-Communications, Inc. (Mid-Comm), a Minnesota corporation;
-Heartland Telecommunications Company of Iowa (Heartland), a Minnesota
corporation;
-Amana Colonies Telephone Company (ACTC), a Minnesota corporation;
-Cable Network, Inc. (CNI), a Minnesota corporation;
-Crystal Communications, Inc. (Crystal), a Minnesota corporation;
-Minnesota Southern Wireless Company (MSWC), a Minnesota corporation;
-National Independent Billing, Inc. (NIBI), a Minnesota corporation; and
-Collins Communications Systems Co. (Collins), a Minnesota corporation.
The Company and its subsidiaries are engaged in businesses that provide
services to their customers for a fee. These services are repetitive and
recurring, and, as a result, backlog orders and seasonality are not
significant factors. Working capital requirements primarily involve the
funding of the construction and maintenance of telephone fixed assets, the
payroll costs of highly skilled labor and the inventory to service its
telephone equipment customers.
The materials and supplies which are necessary for the operation of the
businesses of the Company and its subsidiaries are available from a variety
of sources, and no future supply problems are anticipated. All of the
Company's LEC central office switches, and a majority of the Company's
equipment sold in its Communications Products Segment, are the Nortel brand.
Nortel is a leading supplier of telecommunications equipment, and the
Company's dependence on this brand is not viewed as a significant risk.
As of December 31, 1998, the Company and its subsidiaries had 479 full-time
equivalent employees.
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FORWARD-LOOKING STATEMENTS
This report on Form 10-K and other documents filed by the Company under the
federal securities laws, including Form 10-Q and Form 8-K, and future oral or
written statements by the Company and its management, may include
forward-looking statements. These statements may include, without limitation,
statements with respect to anticipated future operating and financial
performance, growth opportunities and growth rates, acquisition and
divestiture opportunities, business strategies, business and competitive
outlook, Year 2000 compliance and other similar forecasts and statements of
expectation. Words such as expects, anticipates, intends, plans, believes,
seeks, estimates and should and variations of these words and similar
expressions are intended to identify these forward-looking statements. Such
forward-looking statements are subject to uncertainties that could cause the
Company's actual results to differ materially from such statements.
Uncertainties causing differing results from those expressed in the
forward-looking statements include, but are not limited to, those
uncertainties set forth below:
-The effects of on-going deregulation in the telecommunications industry
as a result of the Federal Telecommunications Act of 1996 (the
"Telecommunications Act") (which allows competition among telephone
companies for the rights to offer telephone service to customers in a
franchised service area) and other similar federal and state legislation
and regulations, including, without limitation, (i) greater than
anticipated competition in the Company's predominately rural local
exchange telephone markets, (ii) greater than anticipated reductions in
revenues received from federal and state access charges for switching
long distance traffic, (iii) the final outcome of regulatory and judicial
proceedings with respect to interconnection agreements and access charge
reforms, and (iv) future state regulatory actions taken in response to
the Telecommunications Act.
-The Company's ability to successfully introduce new products and
services, including, without limitation, (i) the ability of Crystal
(which started its CLEC business in January 1998) to provide
competitive local service in new markets, (ii) the ability of NIBI (which
is a billing and data services company) to implement, market, and sell
their new WRITE2k billing system, (iii) the ability of MSWC (a cellular
telephone company purchased in May 1998) to successfully implement,
market, and sell its new digital wireless network products and service,
(iv) the ability of the Company to offer bundled service packages on
terms attractive to its customers, (v) the ability of the Company to
expand successfully its long distance and Internet offerings to new
markets and (vi) the ability of the Company to introduce and sell the
equipment and systems of Nortel, Bay Networks and Cisco versus the
competitive alternatives of other suppliers.
-Possible changes in the demand for the Company's products and services,
including, without limitation, lower than anticipated demand for,
(i) premium telephone services, additional access lines per household or
minutes of use volume associated with telephone service, (ii) wireless
telephone service, installations and/or the traffic associated with
service, (iii) data processing services or billing systems, and (iv)
communication and data equipment.
-The effects of greater than anticipated competition, including, without
limitation, competition requiring new pricing or marketing strategies or
new product offerings and
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the attendant risk that the Company will not be able to respond on a timely
or profitable basis.
-The risks inherent in rapid technological change, including, without
limitation, the risk that technologies will not be developed by the Company
on a timely or cost-effective basis or perform according to expectations.
-Regulatory limits on the Company's ability to change its prices for
telephone services in response to competitive pressures.
-The Company's ability to effectively manage its growth, including,
without limitation, the Company's ability to (i) integrate the operations
of Crystal and MSWC into the Company's operations, (ii) manage NIBI's
development of and migration to WRITE2k as its new primary software
platform, (iii) achieve projected economies of scale and cost savings,
(iv) meet pro forma cash flow projections developed by management in
valuing newly-acquired businesses, and (v) implement necessary internal
controls and retain and attract key personnel.
-Any difficulties in the Company's ability to expand through additional
acquisitions, whether caused by financing constraints, a decrease in the
pool of attractive target companies, or competition for acquisitions from
other interested buyers.
-The lack of assurance that the Company can compete effectively against
superior capitalized competitors, or competitors with a larger national
or regional market niche.
-The effects of more general factors, including, without limitation:
-Changes in general industry and market conditions and growth rates.
-Changes in interest rates or other general national, regional, or
local economic conditions.
-Changes in legislation, regulation or public policy, including changes
in federal rural financing programs.
-Unanticipated increases in capital, operating or administrative costs,
or the impact of new business opportunities requiring significant
up-front investments.
-The continued availability of financing in amounts, terms and
conditions necessary to support the Company's operations.
-Changes in the Company's relationships with vendors.
-Changes in the Company's debt ratios and the resultant effect on debt
ratings.
-Unfavorable outcomes of regulatory or legal proceedings.
-Changes in accounting policies or practices adopted voluntarily or as
required by generally accepted accounting principles.
For additional information, see the description of the Company's business
included below. Due to the uncertainties listed above and the fact that
these forward-looking statements by the Company and its management are
based on estimates, projections, beliefs and assumptions of management
and are not guarantees of future performance, the Company disclaims any
obligation to update or revise any forward-looking statements based on
the occurrence of future events, the receipt of new information, or
otherwise.
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ACQUISITIONS
On May 1, 1998, the Company completed a stock purchase of MSWC, a cellular
phone company in southern Minnesota, from Frontier Corporation. The service
area for MSWC is known as Minnesota's Rural Service Area (RSA) 10, and MSWC
holds the "A-side" FCC license for seven counties in south central Minnesota.
The population of the service area is 230,000, and it overlaps the telephone
wireline service area of the Company's Minnesota LEC service territory.
In December 1998, the Company announced that it had entered into a purchase
agreement to acquire an additional cellular phone business in a part of the
metropolitan Minneapolis/St. Paul area with a service area population of
200,000. The Company is awaiting approval from the Federal Communications
Commission, and anticipates completing the purchase in the second quarter
of 1999.
DISPOSITIONS
On September 30, 1998, the Company sold 100% of its ownership in Digital
Techniques, Inc. of Allen, Texas to a DTI employee group and Troy Holding
International.
START-UP BUSINESS
In January 1998, the Company established Crystal Communications, Inc. as a
startup company and initiated long distance and internet services. Crystal
offers telephone service as a CLEC.
INDUSTRY SEGMENTS FINANCIAL DATA
Financial information about the industry segments is included on pages 20 to
43 of the annual report to shareholders, which part of the annual report is
incorporated by reference.
INDUSTRY SEGMENTS
The Company's operations are conducted in the following four segments:
Telephone Segment
MCTC, Mid-Comm, Heartland, ACTC and CNI provide telephone-related services
and are combined into the Company's Telephone Segment. None of the companies
in the Telephone Segment experienced major changes in scope or direction of
their operations during the past year. MCTC owns and operates an independent
telephone system serving the cities of Mankato and North Mankato and adjacent
rural areas in Blue Earth and Nicollet Counties in south central Minnesota,
approximately 75 miles south of Minneapolis/St. Paul. Mid-Comm provides
telephone services to the communities of Amboy, Cambria, Eagle Lake, Garden
City, Good Thunder, Judson, Lake Crystal, Madison Lake, Mapleton, Pemberton,
St. Clair and Vernon Center and to the surrounding rural areas located
primarily in Nicollet and Blue Earth Counties in south central Minnesota. The
Mid-Comm service territory is adjacent to and surrounds the MCTC service
territory. Heartland provides service to the northwest Iowa communities of
Akron, Bancroft, Boyden, Doon, Hawarden, Hull, Ireton, Lakota, Rock Rapids,
Rock Valley and Sibley. ACTC provides telephone services to the Amana
Colonies in east central Iowa. CNI owns and operates
I-4
fiber optic cable facilities in southern Minnesota, which are used to
transport interexchange communications as a service to telephone exchange
companies, primarily to MCTC and Mid-Comm. CNI also holds a minority
ownership interest in a rural cellular limited liability company that
operates in southern Minnesota.
MCTC derives its principal revenues and income from local services charged to
subscribers in its service area and from the operation of a toll tandem
switching center in Mankato, Minnesota. Revenues and income for Mid-Comm are
also derived from local service charges in its area of operation and from
providing access to long distance services for its subscribers through the
toll center in Mankato. Local and interexchange telephone access for the two
companies are provided on an integrated basis. The local and interexchange
telephone access for both telephone companies utilize the same facilities and
equipment and are managed and maintained by the same work force. Heartland
and ACTC derive their principal revenues and income from local services
charged to subscribers in their respective service areas in Iowa and from
providing interexchange access for their subscribers. Interexchange telephone
access is provided by all four of the Company's telephone subsidiaries by
connecting the communications networks of interexchange and cellular carriers
with the equipment and facilities of end users by use of its switched
networks or private lines.
MCTC and Mid-Comm are Minnesota public utilities operating pursuant to
Indeterminate Permits issued by the Minnesota Public Utilities Commission.
Heartland and ACTC are also public utilities, which operate pursuant to
Certificates of Public Convenience and Necessity issued by the Iowa Utilities
Board. These state agencies regulate the services provided by MCTC, Mid-Comm,
Heartland and ACTC. None of CNI's operations are subject to regulation by the
Minnesota Public Utilities Commission. Due to the size of the Company's
operations in Minnesota and in Iowa, these state agencies do not regulate the
rate of return or profits of the Company's telephone operations. Local
service rates are filed as tariffs with the applicable state regulatory
authority. At the present time, Iowa's level of regulation of local service
rates is less restrictive than Minnesota's. Regardless of whether a
particular rate is subject to regulatory review, the Company's ability to
change rates will be determined by various factors, including economic and
competitive circumstances. Due to the rural nature of the Company's service
territory and the relatively small size of the Company's service territory in
each state, management does not expect state or federal regulation to
materially impact the Company's operations in the near future. The Company's
telephone subsidiaries are exempt from certain obligations of the
Telecommunications Act, unless, in response to a bona fide request, a state
regulatory commission removes the exemption.
As local exchange telephone companies, MCTC, Mid-Comm, Heartland and ACTC
provide end office switching and ancillary services to long distance
interexchange carriers, such as AT&T, US West, MCI and Sprint. These
relationships allow the Company's telephone subscribers to place long
distance telephone calls. By paying long distance access charges for all of
the individual customers who use their service, the long distance
interexchange carriers are large customers of the Company, but individually
none of them represent more than ten percent of the Company's consolidated
revenues.
Competitors of the Company now offer private line switched voice and data
services in or adjacent to the territories served by the Company, which
permits the bypassing of local telephone facilities. In addition, microwave
transmission services, wireless communications, fiber optic and coaxial cable
deployment and other services permit bypass of the local exchange network.
These alternatives to local exchange service represent a potential threat to
the Company's long-term ability to provide local exchange service at
economical rates.
I-5
In order to meet this competition, the Company has deployed new technology
for its local exchange network to increase operating efficiencies and to
provide new services to its customers. These new technologies include the
latest release of digital switching technology on all of the Company's
switches, remote switching technology to within 12,000 feet of every customer
in the local network, installation of over 450 miles of fiber optic cable and
installation of SS7 (an out-of-band system) for all of its access lines. The
Company has also protected its interexchange network with fiber-ring
(redundant route designs which allow traffic to re-route if trouble appears
in the line), which allows the Company to provide a very reliable level of
service to its customers.
Competition exists for some of the services provided to interexchange
carriers, such as customer billing services, operator services, and network
switching. This competition comes primarily from the interexchange carriers
themselves. The provision of these services is of a contractual nature and is
primarily controlled by the interexchange carriers. Other services, such as
directory advertising, local private line transport and cellular
communications, are open to competition. Competition is based primarily on
service and experience.
Competition is less likely to be a factor in rural areas because population
densities are much lower and rural LECs, such as the ones operated by the
Company, are advanced in terms of technology. The Company has already begun
to respond to competitive changes with active programs to market products and
to engineer its infrastructure.
Communications Services Segment
MSWC owns and operates a cellular phone business for Minnesota's Rural
Service Area (RSA) 10, under the business name of Cellular One. This
business, acquired on May 1, 1998, holds the "A-side" FCC license for seven
counties in south central Minnesota. The area overlaps and is larger than the
telephone line service area of the Company's Minnesota telephone service
area. Crystal began operations in January 1998 as a new startup business.
Crystal markets resale long distance service to the Company's Telephone
Segment'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 Telephone Segment's service area. This alternative service is
currently being offered by Crystal to customers in Nicollet, Janesville and
New Richland, Minnesota. Additional opportunities are being pursued in
communities in Minnesota and Iowa.
MSWC derives its principal revenues and income from providing cellular
telephone service to the seven counties in south central Minnesota. Revenues
and income for Crystal are derived from local service charges in its area of
operation, providing long distance and telecommunication services for its
subscribers and providing interexchange access for their subscribers.
The telephone companies in the Communications Services Segment are not
subject to regulation by the public utilities commissions in the states it
serves regarding rates and service quality. The CLEC activities of Crystal do
require it to file for authority to operate in each state it enters.
The businesses of the Company's Communications Services Segment are not
dependent upon any single customer or small group of customers. These service
activities are more of a commodity relationship and tend to provide more
customers with smaller individual transactions than the Company's LEC
business. There is no one customer that accounts for ten percent or more of
the Company's consolidated revenue.
I-6
The passage of the Telecommunications Act created the opportunity for the
Company to offer communications service in territories served by other
telephone companies. In 1998, Crystal began offering local dial tone, long
distance and local call internet access services to select markets as a CLEC
business. Crystal competes directly against existing LECs in the areas in
which Crystal operates. Crystal will continue to offer services to other
markets and will require additional investment of assets to be competitive in
those markets. MSWC competes against one local cellular company and multiple
non-local cellular companies offering service in its area. In December 1998,
MSWC announced that it had entered into a purchase agreement to acquire a
cellular phone business in a part of the metropolitan Minneapolis/St. Paul
with a service area population of 200,000 in the second quarter of 1999. MSWC
will require additional investment of assets to build the infrastructure to
provide service to this service area.
Billing/Data Services Segment
Through NIBI, the Company's Billing/Data Services Segment provides data
processing and related services, principally for the Company, other local
exchange telephone companies, CLECs, interexchange network carriers,
municipalities and utilities. The computer operations of NIBI are considered
a separate segment of business in the Company's consolidated financial
statements. NIBI's principal activity is the provision of monthly batch
processing of computerized data. Services for telephone company customers
include the processing of long distance telephone calls from data sources and
telephone switches, the preparation of the subscriber telephone bills,
customer record keeping and general accounting and payroll services. NIBI
also provides certain billing clearinghouse functions for interexchange
carriers. NIBI obtains specialty programming contracts with these carriers
due to its expertise in the telecommunications field. The provision of
programming and consulting services in connection with telecommunications
data processing has become a primary source of revenue for NIBI. Services for
municipal customers consist of preparation of utility bills, payroll and fund
accounting, as well as a full array of turnkey management systems. NIBI
generates revenues from the initial sale of software products as well as
related support and contract programming services.
There are a number of companies engaged in supplying data processing services
comparable to those furnished by NIBI. Competition is based primarily on
price and service. There are some companies of much larger size that dominate
certain aspects of this field. Local telephone service companies are entering
this business as CLECs require facilities for rating, billing and other
related services. NIBI is in a position to provide these services for the
CLECs.
In September 1997, NIBI signed a joint software development agreement with
Sepro Telecom Int. Ltd. of Dublin, Ireland to co-develop a new billing
product called WRITE2k. Its first application will be in the wireless
telecommunications market. The Company considers the wireless market, whether
it is cellular, personal communications services (PCS) or paging, an
important component in the future of telecommunications. WRITE2k, scheduled
for release in 1999, should enable NIBI to become a full-service billing
provider for all aspects of the telecommunications industry.
NIBI is currently developing services to become more attractive to new
entrants in the telecommunications markets. Entities such as wireless
communications companies, CLECs, electric utilities and cable providers are
moving toward convergent billing operations but do not have in-house
facilities and operations to accommodate these requirements. Convergent
billing entails the billing and marketing of multiple elements, and the
ability to bundle, discount and tally
I-7
the charges for the services of these similar but unrelated businesses. NIBI
is well positioned in this market because of its technical expertise in
communications, its proprietary software, its experience and existing
customer base of LECs, municipal power companies, long distance companies,
CLECs and its ability to tailor products to an end-user.
Communications Products Segment
Through Collins, the Communications Products Segment activities are centered
on the sale, installation and service of business telephone systems and data
communications equipment in metropolitan Minneapolis/St. Paul, Minnesota. The
customers in the Communications Products Segment's market are the individual
business end users of telecommunications service with ongoing service needs.
Products consist of telecommunication platforms such as Nortel and Octel on
the voice side of Collin's business, and Cisco and Bay (Nortel) equipment on
the data side of its business. Collins specializes in the quality custom
installation and maintenance of wide area networking, local networking and
transport solutions in telecommunications for end user customers.
Revenues are primarily earned by the sales, installation and service of
business telephone systems. Collins continues its commitment to service and
support of its core product, Nortel, while identifying new opportunities such
as call centers, Meridian Link, computer telephone integration voice mail and
interactive voice response systems.
The Company's Communications Products Segment is not dependent upon any
single customer or small group of customers. Its activities are more of a
commodity business and no one customer accounts for ten percent or more of
the Company's consolidated revenues in the Communications Products Segment.
There are several companies competing in the communications products market
in which Collins operates. Competition is based primarily on price and
service. No one company is dominant in this field. Collins offers customer
premises telephone equipment through well-trained and experienced market
representatives with long-term customer relationships. It also enjoys a very
strong reputation for quality service. Collins has built a strong base of
customers, and most of its recurring revenues are attributable to this base.
OTHER REGULATION
There are no material portions of the businesses of the Company or its
subsidiaries that may be terminated or adversely affected by government
regulations.
The Company and its subsidiaries do not anticipate any material effects on
their capital expenditures, earnings or competitive position because of laws
pertaining to the protection of the environment.
OTHER COMPETITION
Since the mid-1980's, the Company's business strategy has been to position
itself as a "one-stop" telecommunications services provider. Long-term
business relationships with its customers have strengthened the Company's
business position. The Company believes that its customers value the fact
that it is the "local company" whose goal is to meet the customers' total
communications needs.
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The Company has several competitive advantages: its prices and costs are low;
its service reputation is high; its investment in technology has been strong
and it has a direct billing relationship with almost all of the customers in
its service territories.
The long-range effect of competition on the provision of telecommunications
services and equipment will depend on technological advances, regulatory
actions at both the state and federal levels, court decisions, and possible
additional future state and federal legislation. The trend resulting from
past legislation has been to expand competition in the telecommunications
industry. It is imperative to the Company that competition in this industry
is open on an equal basis to all providers. The Company has chosen to
participate in the competitive trend by establishing its Communications
Services Segment, particularly Crystal.
ITEM 2. PROPERTIES.
The Company's business is primarily focused on the provision of services and
its properties are used for administrative support and to store and safeguard
equipment. At December 31, 1998, the Company's gross book value of
$133,079,000 consisted primarily of telephone plant and equipment. The
Company owns or leases the telephone property, plant and equipment which it
utilizes to operate its telephone systems. The four telephone subsidiaries of
the Company in Minnesota and Iowa own central telephone offices with related
real estate in all of the communities they serve. It is the opinion of the
Company's management that the properties of the Company are suitable and
adequate to provide modern and effective telecommunications services within
its service areas, including both local and long distance service. The
capacity for furnishing these services both currently and in the future are
under ongoing review by the Company's engineering staff. Facilities are
placed in full use after installation and appropriate testing according to
two, three and five year construction plans.
The Company's principal properties are the following:
(1) MCTC's general offices and principal central office exchange
building are located in downtown Mankato, Minnesota. This facility is a
three-level brick and stone building containing approximately 60,000 square
feet of floor space. Portions of this building are leased to the Company for
its general offices and to NIBI for its data processing equipment.
(2) MCTC's main warehouse is located in Mankato, Minnesota. The
warehouse, built in 1996, is a one-story concrete building containing
approximately 48,000 square feet. The warehouse is used to store vehicles and
supplies and is also used as office space for engineering and outside
telephone personnel.
(3) Heartland's main central office equipment is located in a
one-story brick structure in Rock Rapids, Iowa.
(4) ACTC leases general office and telephone central office
equipment space in Homestead, Iowa.
(5) NIBI owns a three-story building in Mankato, Minnesota. The
building contains 17,000 square feet. NIBI also owns a mainframe computer and
related peripheral equipment that it uses to provide data processing services
for the Company and other customers. NIBI also leases an operations office in
Minneapolis, Minnesota.
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(6) The Company leases building and warehouse space for Collins in
Roseville and Brooklyn Park, Minnesota.
(7) The Company leases office space for MSWC and Crystal in Mankato,
Minnesota.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this 1998 Annual Report on Form 10-K.
I-10
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The common stock of the Company has traded on the NASDAQ National Market
Trading System under the symbol HTCO since March 1995. Previously, it was
traded on the over-the-counter market.
Quarterly market price information in 1998 was as follows:
Quarter High Low End of Qtr.
------- ---- --- -----------
4th $13.0000 $11.0000 $12.6250
3rd $15.5625 $10.6250 $12.3750
2nd $14.6875 $12.2500 $13.4375
1st $12.8125 $11.6875 $12.3750
Quarterly market price information in 1997 was as follows:
Quarter High Low End of Qtr.
------- ---- --- -----------
4th $11.9375 $10.9375 $11.6875
3rd $10.9375 $9.0625 $10.6875
2nd $10.0000 $8.9375 $9.2500
1st $10.1875 $9.0000 $9.4375
The amounts shown above have been restated for the three-for-one stock split
which occurred in August 1998. The total number of registered shareholders
with a security position in the Company as of March 5, 1999, was
approximately 2,500.
The Company declared dividends for the two years ended December 31, 1998 as
follows:
Quarter 1998 1997
------- ---- ----
First $ .11 $ .10
Second $ .11 $ .10
Third $ .11 $ .10
Fourth $ .11 $ .10
On February 10, 1999, the Board of Directors of the Company announced a
quarterly cash dividend of $ .11 per share of common stock. The dividend was
payable on March 5, 1999, to stockholders of record at the close of business
on February 15, 1999.
ITEM 6. SELECTED FINANCIAL DATA.
Selected Financial Data is included on page 43 of the annual report to
shareholders, which is incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and Results of
Operations is included on pages 21 to 28 of the annual report to
shareholders, which is incorporated by reference.
II-1
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial Statements and Supplementary Data is included on pages 29 to 42 of
the annual report to shareholders, which is incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
There has been no disagreement with the accountants regarding accounting or
financial disclosures within the 24 month period ending December 31, 1998.
On March 11, 1998, the Company filed a Current Report on Form 8-K (the "Form
8-K"). The Form 8-K reported that on March 5, 1998, the Company had notified
Olsen, Thielen & Co., Ltd. of their dismissal as the Company's certifying
independent accountants effective April 13, 1998. There were no disagreements
with the accountants or reportable events (as described in Regulation S-K
Item 304 (a)(1)(v)). The Company had provided a copy of the Form 8-K to
Olsen, Thielen & Co., Ltd. and this firm furnished a letter addressed to the
Securities and Exchange Commission stating their agreement with the
statements concerning their firm in the Form 8-K.
On April 14, 1998, the Company filed another Current Report on Form 8-K. This
Current Report on Form 8-K reported that on April 13, 1998, the shareholders
of the Company confirmed the Board of Directors' selection of
PricewaterhouseCoopers LLP (formerly Coopers & Lybrand L.L.P.) as the
Company's auditors for 1998.
II-2
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information as to Directors and Executive Officers of the Company is
included on pages 3 and 5 of the Proxy Statement, which is incorporated by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information as to Executive Compensation is included on pages 6 to 10 of
the Proxy Statement, which is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
On March 5, 1999, no person is known to the Company to be the beneficial
owner of more than five percent of any class of the Company's voting
securities.
SECURITY OWNERSHIP OF MANAGEMENT
The information as to Security Ownership of Management is included on page 4 of
the Proxy Statement, which is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
No reportable transactions occurred in 1998 involving directors, management
or shareholders.
III-1
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The following documents are filed as part of this report:
Page(s)
in 1998 Annual
Report to Shareholders
----------------------
Financial Section Index 20
Management's Discussion and Analysis 21-28
Report of Management and Report of
Independent Accountants 29
Consolidated Statements of Income
Years Ended December 31, 1998, 1997, and 1996 30
Consolidated Balance Sheets
December 31, 1998 and 1997 31
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997, and 1996 32
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1998, 1997, and 1996 33
Business Segment Data 34
Notes to Consolidated Financial Statements 35-42
Selected Financial and Operating Data 43
2. Financial Statement Schedules
All schedules are omitted because of the absence of conditions under
which they are required or because the required information is given
in the financial statements or notes thereto.
3. Exhibits
Exhibit 13(a) contains certain financial and other financial sections
(pages 20 - 43) of the Annual Report to Shareholders for the year ended
December 31, 1998.
Exhibit 13(b) contains the Report of Independent Accountants for the
years ended December 31, 1997 and 1996.
Exhibit 21 contains a listing of the Subsidiaries of the Company.
Exhibits 23(a) and 23(b) contain the Consent of Independent Accountants
regarding the Registration Statement of Hickory Tech Corporation on
Form S-8.
Exhibit 27 contains the financial data schedules.
IV-1
Other exhibits incorporated by reference are listed on the exhibit
index on pages IV-4 and IV-5.
(b) 1. REPORTS ON FORM 8-K
On March 3, 1999, the Company filed a Current Report on Form 8-K.
The Form 8-K reported that on February 25, 1999, the Board of
Directors of the Company adopted a Shareholders Rights Plan. This
plan gives each shareholder the right to purchase shares of a newly
authorized series of preferred stock in the event that a tender
offer for the Company is announced, or an acquirer purchases at
least 15 percent of the Company's common stock.
On January 22, 1999, the Company filed a Current Report on Form 8-K.
The Form 8-K reported that on January 21, 1999, the Company issued a
press release announcing earnings for the fourth quarter of 1998.
On December 28, 1998, the Company filed a Current Report on Form
8-K. The Form 8-K reported that on December 22, 1998, the Company
issued a press release announcing the signing of a definitive
agreement to purchase a cellular property from McElroy Electronics
Corporation. Under the agreement, the Company will acquire the
assets and license of this cellular property in a cash transaction.
The cellular property is a portion of the Minneapolis/St. Paul
metropolitan service area (MSA) and consists generally of a ring
around the metropolitan Twin Cities area. The cellular property
consists of six counties in Minnesota and one county in Wisconsin.
It covers a population of approximately 200,000 people. The
transaction is expected to close by the second quarter of 1999 once
the Federal Communications Commission approval has been received.
IV-2
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Company has duly caused this report
to be signed on its behalf by the undersigned, thereto duly authorized.
Dated: March 26, 1999 HICKORY TECH CORPORATION
------------------
By: /s/ David A Christensen
----------------------------------
David A Christensen, Secretary,
Vice President, Chief Financial
Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Robert D. Alton, Jr. March 31, 1999
------------------------------
Robert D. Alton, Jr.
Chairman, President and Chief Executive Officer
(principal executive officer)
/s/ Lyle T. Bosacker March 31, 1999
------------------------------
Lyle T. Bosacker, Director
/s/ Robert K. Else March 31, 1999
------------------------------
Robert K. Else, Director
/s/ James H. Holdrege March 31, 1999
------------------------------
James H. Holdrege, Director
/s/ R. Wynn Kearney, Jr. March 31, 1999
------------------------------
R. Wynn Kearney, Jr., Director
/s/ David A Christensen March 31, 1999
------------------------------
David A Christensen, Secretary,
Vice President, Chief Financial Officer and Treasurer
(principal financial officer and principal accounting officer)
IV-3
HICKORY TECH CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX TO
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998
Filed in Filed in
Regulation S-K Securities Exchange
Reference Title of Document Act Form Act Form
- -------------- --------------------- -------------- --------
3(a) Articles of Incorporation S-8 dated
June 22, 1993
3(b) By-Laws S-8 dated
June 22, 1993
4 Shareholder Rights Agreement Form 8-A dated
March 9, 1999
10(a) & (b) Supplemental Retirement S-8 dated
Agreements June 22, 1993
10(c) Company's Executive S-8 dated
Incentive Plan June 22, 1993
10(d) Change of Control Agreements S-8 dated
June 22, 1993
10(h) Employment Agreement S-8 dated
June 22, 1993
10(i) Company's Retirement S-8 dated
Savings Plan and Trust June 22, 1993
10(j) Employee Stock Purchase Plan S-8 dated
June 22, 1993
10(k) Company's 1993 Stock Award Form 10-K dated
Plan March 26, 1997
10(l) Company's Stock Plan for S-8 dated
Directors June 22, 1993
10(m) Company's Directors' S-8 dated
Stock Option Plan December 28, 1998
13(a) Section (pages 20 - 43) Filed herewith
of the Annual Report to Shareholders at page IV-6
13(b) Report of Former Independent Filed herewith
Accountants at page IV-30
HICKORY TECH CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX TO
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998
Filed in Filed in
Regulation S-K Securities Exchange
Reference Title of Document Act Form Act Form
- -------------- --------------------- -------------- --------
21 Subsidiaries of the Company Filed herewith
at page IV-31
23(a) Consent of Independent Filed herewith
Accountants at page IV-32
23(b) Consent of Former Independent Filed herewith
Accountants at page IV-33
27 Financial Data Schedule Filed herewith
at page IV-34
IV-5