Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 contains certain safe harbor provisions regarding forward-looking statements. This Quarterly Report on Form 10-Q 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, and other similar forecasts and statements of expectation. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "targets," "projects," "will," "may," "continues," 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 risks and uncertainties that could cause HickoryTech's actual results to differ materially from such statements. Factors that might cause such a difference include, but are not limited to, those contained in Item 1A of Part II, "Risk Factors" of this quarterly report on Form 10-Q and Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2008 which is incorporated herein by reference.

Because of these risks, uncertainties, and assumptions and the fact that any forward-looking statements made by HickoryTech and its management are based on estimates, projections, beliefs, and assumptions of management, they are not guarantees of future performance and you should not place undue reliance on them. In addition, forward-looking statements speak only as of the date they are made. With the exception of the requirements set forth in the federal securities laws or the rules and regulations of the Securities and Exchange Commission, we do not undertake any obligations or update or review any forward-looking information, whether as a result of new information, future events or otherwise.

Critical Accounting Policies

The preparation of our financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We believe that the application of the accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. A description of the critical accounting policies that we adhere to is contained in the Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2008.

Overview-Trends

We operate in two business segments: the Telecom Sector and the Enventis Sector. The Telecom Sector leverages more than 110 years of experience providing communications solutions to business and residential customers in southern Minnesota, and northwestern and central Iowa. We offer local voice, long distance, high-speed internet, Digital TV and high-capacity data transmission service. Additionally, we offer integrated communication business solutions and own fiber optic infrastructure. The Telecom Sector's National Independent Billing Inc. (NIBI) division develops telecom and carrier access billing and customer management software for our internal operations and external customers. The Enventis Sector specializes in providing integrated voice, data and network communications solutions for businesses of all sizes - from enterprise multi-office organizations to small and medium businesses. In addition to providing capacity on its statewide fiber optic network, Enventis provides Internet protocol ("IP") telephony, transport, data and network integration services that combine voice and data into a single platform. Since 1997, Enventis, a Cisco Gold Certified Partner, has distributed Cisco Systems communications and data equipment for a broad spectrum of business clients.

Our consolidated revenue decreased 18.5% and 12.9% for the three and six months ended June 30, 2009 compared to 2008 impacted heavily by the down-turn we experienced in our Enterprise Network Services ("ENS") product line, which is driven by our customers' hesitancy to buy capital equipment in the current economic environment. The decline in equipment sales in our ENS product line was offset, in part, by increased revenue from the Enventis Transport Services ("ETS") product line, which represents recurring revenue for the use of our fiber network and network connections. Our Telecom Sector produced solid results in the second quarter and year-to-date 2009 offsetting a slight decrease in revenue with cost savings driven by both operational efficiencies and specific management actions to limit or decrease expenses throughout the Telecom Sector.

Telecom Sector net income was $2,205,000 for the second quarter of 2009, a 26.2% increase from the same quarter in 2008 and was $4,183,000 for year-to-date 2009, a 9.6% increase from the same period in 2008. Revenue continues to be impacted by heightened competition within local service with access lines declining by 8.8%. Our Digital TV services continue to gain market share growing our subscriber base by 21.0% during the past year to 8,895 subscribers. The Digital TV service bundled with our local and DSL services creates a compelling value for our customers to maintain their local voice line. Costs and expenses within this sector were down $847,000 or 5.6% in the three month period and $1,194,000 or 4.0% in the six month period ended June 30, 2009 compared to 2008.

Our ETS product line within the Enventis Sector has continued to grow in 2009 and has partially offset lower equipment sales. Utilization of our statewide fiber network to provide new technologies including Multi-Protocol Label Switching ("MPLS"), and high-capacity transport is allowing our ETS line of business to produce double-digit revenue growth in 2009 compared to 2008. We are experiencing strong transport revenue growth in all market segments including increased demand for our hosted unified communications solution product, SingleLinkTM.

We have strengthened our cash position in 2009 to $11,308,000 cash on hand as of June 30, 2009 compared to $1,626,000 as of December 31, 2008 by focusing on the management of our cash flow. Through a combination of aggressive management of accounts receivable and inventory, an organization-wide focus on operating efficiencies and expense management, specific cost-controlling management items, and reduced capital spending we significantly strengthened our cash and working capital position on our Balance Sheet. Capital expenditures, besides necessary maintenance to our network infrastructure, are focused on revenue generating products, services and customer-based key initiatives. Capital expenditures total $7,294,000 for the six months ended June 30, 2009, a decrease of $666,000 or 8.4% compared to the same period in 2008.

Telecom Sector
The following table provides a breakdown of the Telecom Sector operating results.

                                        TELECOM SECTOR

                                              Three Months Ended           Six Months Ended
                                                   June 30                      June 30
(Dollars in thousands)                        2009          2008          2009          2008
Revenue before intersegment eliminations

Revenue
  Local Service                            $    3,880     $   4,086     $   7,757     $   8,217
  Network Access                                5,955         5,952        12,165        12,777
  Long Distance                                 1,027         1,197         2,058         2,387
  Data                                          1,899         1,903         3,775         3,751
  Internet                                      1,252         1,189         2,506         2,267
  Digital TV                                    1,080           858         2,088         1,602
  Directory                                     1,023         1,004         2,100         2,004
  Bill Processing                                 961           905         1,630         1,499
  Intersegment                                    234           161           477           291
  Other                                           704           905         1,374         1,789
Total Telecom Revenue                      $   18,015     $  18,160     $  35,930     $  36,584

Total Telecom revenue before
intersegment eliminations
  Unaffiliated customers                   $   17,781     $  17,999     $  35,453     $  36,293
  Intersegment                                    234           161           477           291
                                               18,015        18,160        35,930        36,584

Cost of services (excluding depreciation
and amortization)                               7,440         7,845        15,016        15,492
Selling, general and administrative
expenses                                        3,040         3,301         5,874         6,605
Depreciation and amortization                   3,827         4,008         7,947         7,934
  Total Telecom costs and expenses             14,307        15,154        28,837        30,031

Operating Income                           $    3,708     $   3,006     $   7,093     $   6,553

Net income                                 $    2,205     $   1,747     $   4,183     $   3,815

Capital expenditures                       $    2,351     $   2,545     $   3,786     $   4,965

Key metrics
  Business access lines                        25,034        27,023
  Residential access lines                     32,334        35,872
Total access lines                             57,368        62,895
Long distance customers                        37,557        40,565
Digital Subscriber Line customers              19,065        18,126
Digital TV customers                            8,895         7,353

Local Service. We primarily receive monthly recurring revenue for basic voice telephone service, enhanced calling features, local private lines and circuits, miscellaneous local services from end-user customers, and reciprocal compensation from wireless carriers. Local service revenue was $3,880,000, which is $206,000 or 5.0% lower in the three months ended June 30, 2009 compared to the three months ended June 30, 2008. Local service revenue was $7,757,000, which is $460,000 or 5.6% lower in the six months ended June 30, 2009 compared to the six months ended June 30, 2008. This decrease was primarily due to a 5,527 or 8.8% decrease in access lines from June 30, 2009 compared to June 30, 2008, offset by a local rate increase that was implemented in January 2009.

A large local business customer reconfigured its Mankato network service in the later part of 2008 impacting local service revenue by $89,000 and $227,000 for the three and six months ended June 30, 2009 compared to June 30, 2008, respectively. Our local access line loss from June 30, 2009 compared to June 30, 2008 would have been 4,195 or 6.7% without the removal of these lines.

The number of access lines we serve as an incumbent local exchange carrier has been decreasing, which is consistent with the general trend in our industry. To help offset declines in local service revenue, we implemented a local rate increase in January 2009, our first rate increase since December of 2001. Our overall strategy continues to focus on selling a competitive bundle of services. Our focus on marketing competitive service bundles to our customers creates a compelling value for customers to maintain their local voice line. These bundled packages are customizable and offer competitive discounts as more services, such as specific voice calling features, high-speed DSL and Digital TV, are added to the bundle.

Network Access. We receive a variety of fees and settlements to compensate us for the origination, transport, and termination of calls and traffic on our network. These include the fees assessed to interexchange carriers, subscriber line charges imposed on end-users, and settlements from nationally administered and jointly funded revenue pools. The amount of revenue we have collectively received from all these sources for network access during the past two years has been impacted not only by industry trends of decreasing access lines and minutes of use, but also by periodic settlement of disputes with interexchange carriers settlement agencies.

Network access revenue of $5,955,000 for the second quarter of 2009 was consistent with the revenue in the second quarter of 2008. A dispute with the Universal Service Administrative Company ("USAC") stemming from its reversal of earlier interpretations of revenue distribution rules negatively impacted second quarter 2008 network access revenue by $475,000 claiming previously distributed revenue for years prior to 2008. We continue to appeal the USAC interpretation as arbitrary and unprecedented, however USAC is largely unregulated and there is no likely forum for recovery of this lost revenue.

Network access revenue was $12,165,000, which is $612,000 or 4.8% lower in the six months ended June 30, 2009 compared to the six months ended June 30, 2008. The decrease in residential and business access lines that we have experienced during the past year along with carriers optimizing their networks and lowering the demand for special access circuits have significantly impacted 2009 minutes of use on our network and likewise year-to-date revenue.

Long Distance. Our end-user customers are billed for toll or long distance service on either a per call or flat-rate basis. This includes the provision of directory assistance, operator service, and long distance private lines. Long distance revenue was $1,027,000, which is $170,000 or 14.2% lower in the three months ended June 30, 2009 compared to the three months ended June 30, 2008 and was $2,058,000, which is $329,000 or 13.8% lower in the six months ended June 30, 2009 compared to the six months ended June 30, 2008. The decrease in revenue is the result of the loss of 3,008 customers, or 7.4% in the customer base from June 30, 2009 compared to June 30, 2008, a growing number of residential customers selecting unlimited long distance calling plans, and to decreased rates per minute charged to customers due to aggressive competition in the markets we serve.

Data. We provide a variety of enhanced data network services on a monthly recurring basis to our end-user customers. This includes the DSL access portion of traditional Telecom DSL service. Data revenue was $1,899,000 and $3,775,000 in the three and six months ended June 30, 2009, respectively which is on a comparable level with data revenue realized in the three and six months ended June 30, 2008. As anticipated, revenue dollars have stabilized and growth rates have declined as our DSL markets have matured and our customers are replacing low speed data circuits with new technologies such as Ethernet and MPLS services. In accordance with our business plans, a portion of our future growth in data services is likely to be reflected in our Enventis Sector as part of our MPLS growth strategy.

Digital TV. We receive monthly recurring revenue from our subscribers for the provision of commercial TV programming in competition with local cable TV, satellite dish TV, and on-air TV service providers. Digital TV revenue was $1,080,000, which is $222,000 or 25.9% higher in the three months ended June 30, 2009 compared to the three months ended June 30, 2008 and was $2,088,000, which is $486,000 or 30.3% higher in the six months ended June 30, 2009 compared to the six months ended June 30, 2008. The increase in both periods is due to the increase in the customer base combined with an increase in rates charged to customers of approximately 5.5%. The number of Digital TV customers grew by 1,542 or 21.0% from June 30, 2008 to June 30, 2009. In April of 2009, we launched our Digital TV service to Mapleton, MN which is our 12th service community. In addition, we continue to expand our coverage area in Mankato, our largest market, and now are able to serve approximately 89% of homes in this community with our Digital TV product.

Directory. We receive monthly recurring revenue from end-user subscribers for the yellow page advertising in our telephone directories. Directory revenue was $1,023,000, which is $19,000 or 1.9% higher in the three months ended June 30, 2009 compared to the three months ended June 30, 2008 and was $2,100,000, which is $96,000 or 4.8% higher in the six months ended June 30, 2009 compared to the six months ended June 30, 2008. This increase was the result of a favorable sales cycle of yellow-page advertising in our directory.

Bill Processing. We provide data processing as a service to other telephone service providers. We collect a combination of monthly recurring revenues, software license fees, and integration services revenue from companies with whom we have established a long-term data processing relationship. NIBI bill processing revenue was $961,000, which is $56,000 or 6.2% higher in the three months ended June 30, 2009 compared to the three months ended June 30, 2008 and was $1,630,000, which is $131,000 or 8.7% higher in the six months ended June 30, 2009 compared to the six months ended June 30, 2008. The increase in NIBI bill processing revenue was due to an increase in recurring support fees revenue of $31,000 in the three months and $71,000 in the six months, ended June 30, 2009 and an increase in contracted services revenue of $55,000 in the three months and $93,000 in the six months ended, June 30, 2009.

Other. Other revenue was $704,000, which is $201,000 or 22.2% lower in the three months ended June 30, 2009 compared to the three months ended June 30, 2008 and was $1,374,000, which is $415,000 or 23.2% lower in the six months ended June 30, 2009 compared to the six months ended June 30, 2008. The decrease in both periods was primarily due to: 1) a decrease in revenue from the provision of customer premise equipment of $148,000 in the three month period and $302,000 in the six month period, 2) a decrease of $97,000 in the three month period and $175,000 in the six month period from Add/Move/Change revenue, which is associated with customer premise equipment and 3) an increase of $52,000 in the three month period and $78,000 in the six month period from contract services revenue. The decline in customer premise equipment sales is driven by our decision to phase out sales of Nortel customer premise equipment in favor of the Cisco brand. All Cisco sales are reported within the Enventis Sector.

Cost of Services (excluding Depreciation and Amortization)

Telecom Sector cost of services (excluding depreciation and amortization) was $7,440,000, which is $405,000 or 5.2% lower in the three months ended June 30, 2009 compared to the three months ended June 30, 2008 and was $15,016,000, which is $476,000 or 3.1% lower in the six months ended June 30, 2009 compared to the six months ended June 30, 2008. The decrease in both periods is driven by the combination of gains in operational efficiencies and management actions to limit or decrease expense growth throughout the Telecom Sector.

Telecom selling, general and administrative expenses were $3,040,000, which is $261,000 or 7.9% lower in the three months ended June 30, 2009 compared to the three months ended June 30, 2008 and was $5,874,000, which is $731,000 or 11.1% lower in the six months ended June 30, 2009 compared to the six months ended June 30, 2008. The decrease in both periods is impacted by lower allocated corporate expense, Telecom management actions reducing Telecom expenses and by general company cost control actions implemented across our organization. In 2009 we expect our selling, general and administrative expenses to remain at levels lower than those reported in 2008.

Year-to-date 2009 selling, general and administrative expenses were also favorably impacted by a $246,000 decrease in a specific market access fees related to the release of a contingent liability we had established related to a civil suit. In March of 2009, we received a favorable court ruling in a complaint filed by the City of St. Peter in 2008, and reversed a contingent liability.

Depreciation and Amortization

Telecom Sector depreciation and amortization was $3,827,000, which is $181,000 or 4.5% lower in the three months ended June 30, 2009 compared to the three months ended June 30, 2008. Depreciation expense increases from new capital expenditures were offset in the second quarter of 2009 by asset retirements and assets becoming fully depreciated.

Operating Income

Telecom Sector operating income was $3,708,000, which is $702,000 or 23.3% higher in the three months ended June 30, 2009 compared to the three months ended June 30, 2008 and was $7,093,000, which is $540,000 or 8.2% higher in the six months ended June 30, 2009 compared to the six months ended June 30, 2008. The increase was primarily due to decreases in cost of services and selling, general and administrative expenses due to enhanced cost management, partly offset by a slight decrease in revenue.

The following table provides a breakdown of the Enventis Sector operating results.

                                        ENVENTIS SECTOR

                                              Three Months Ended           Six Months Ended
                                                   June 30                      June 30
(Dollars in thousands)                        2009          2008          2009          2008
Revenue before intersegment eliminations

Revenue
ENS equipment                              $    5,393     $  12,709     $  12,184     $  22,877
ENS services                                    2,749         3,056         5,090         5,121
ETS services                                    6,480         5,981        13,137        11,354
Intersegment                                      142           128           283           266
Total Enventis revenue                     $   14,764     $  21,874     $  30,694     $  39,618

Total Enventis revenue before
intersegment eliminations
  Unaffiliated customers                   $   14,622     $  21,746     $  30,411     $  39,352
  Intersegment                                    142           128           283           266
                                               14,764        21,874        30,694        39,618

Cost of sales, equipment
 (excluding depreciation and
amortization)                                   4,717        10,718        10,716        19,415
Cost of services
 (excluding depreciation and
amortization)                                   4,849         4,880        10,087         9,159
Selling, general and administrative
expenses                                        2,294         2,413         4,683         4,740
Depreciation and amortization                   1,201         1,025         2,350         2,045
  Total Enventis costs and expenses            13,061        19,036        27,836        35,359

Operating income                           $    1,703     $   2,838     $   2,858     $   4,259
Net income                                 $    1,018     $   1,660     $   1,699     $   2,494

Capital expenditures                       $    2,262     $   1,984     $   3,453     $   2,977

We manage and evaluate the Enventis operations in their entirety. The following table provides an illustration of the relative contributions and associated trends from each of the Enventis primary product lines. Certain allocations have been made, particularly in the area of selling, general and administrative expenses, in order to develop these tables.

                                                        ENVENTIS PRODUCT LINE REPORTING

                                    Three Months Ended June 30                                       Six Months Ended June 30
                    Enterpise Network Services      Enventis Transport Services         Enterpise Network          Enventis Transport Services
                              (ENS)                            (ETS)                     Services (ENS)                       (ETS)
(Dollars in
thousands)           2009               2008          2009              2008          2009            2008           2009               2008

Revenue before
intersegment
eliminations:
Equipment          $   5,393         $   12,709     $       -         $       -     $  12,184       $  22,877     $        -         $        -
Service                2,749              3,056         6,480             5,981         5,090           5,121         13,137             11,354
Intersegment               -                  -           142               128             -               -            283                266
Total Enventis
revenue            $   8,142         $   15,765     $   6,622         $   6,109     $  17,274       $  27,998     $   13,420         $   11,620

Cost of sales,
equipment
 (excluding
depreciation and
amortization)          4,701             10,714            16                 4        10,699          19,406             17                  9
Cost of services
 (excluding
depreciation and
amortization)          1,649              2,143         3,200             2,737         3,601           3,975          6,486              5,184
Selling, general
and
administrative
expenses               1,211              1,273         1,083             1,140         2,499           2,532          2,184              2,208
Depreciation and
amortization             104                123         1,097               902           186             244          2,164              1,801
  Total costs
and expenses           7,665             14,253         5,396             4,783        16,985          26,157         10,851              9,202

Operating income   $     477         $    1,512     $   1,226         $   1,326     $     289       $   1,841     $    2,569         $    2,418
Net income         $     284         $      885     $     734         $     775     $     173       $   1,078     $    1,526         $    1,416

Capital
expenditures       $     119         $      156     $   2,143         $   1,828     $     262       $     289     $    3,191         $    2,688