form10q.htm


UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 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 June 30, 2009
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
 
 
For the transition period from__________ to __________
 

Commission File No.: 000-09881

SHENANDOAH TELECOMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)

VIRGINIA
54-1162807
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)

500 Shentel Way, Edinburg, Virginia    22824
(Address of principal executive offices)  (Zip Code)

(540) 984-4141
(Registrant's telephone number, including area code)
 

 
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 (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 ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ¨   No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ¨
   Accelerated filer x
Non-accelerated filer ¨
 Smaller reporting company ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨    No  x

The number of shares of the registrant’s common stock outstanding on July 24, 2009 was 23,639,517.


 


 
1

 
 
SHENANDOAH TELECOMMUNICATIONS COMPANY
INDEX
 

   
Page
Numbers
     
PART I.
FINANCIAL INFORMATION
 
     
Item 1
Financial Statements
 
     
 
3-4
     
 
5
     
 
6
     
 
7-8
     
 
9-14
     
Item 2.
15-27
     
Item 3.
27
     
Item 4.
28
     
PART II.
OTHER INFORMATION
 
     
Item 1A.
29
     
Item 2.
29
     
Item 4.
29
     
Item 6.
30
     
 
31
     
 
32

 
2


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

 
ASSETS
 
June 30,
2009
   
December 31,
2008
 
             
             
Current Assets
           
Cash and cash equivalents
  $ 13,266     $ 5,240  
Accounts receivable, net
    16,921       16,131  
Vendor credits receivable
    178       5,232  
Income taxes receivable
          7,366  
Materials and supplies
    4,600       6,376  
Prepaid expenses and other
    2,512       2,283  
Assets held for sale
    10,782       28,310  
Deferred income taxes
    1,848       1,483  
Total current assets
    50,107       72,421  
                 
Investments, including $1,635 and $1,440 carried at fair value
    8,406       8,388  
                 
Property, Plant and Equipment
               
Plant in service
    336,598       323,096  
Plant under construction
    20,797       5,076  
      357,395       328,172  
Less accumulated amortization and depreciation
    166,284       151,695  
Net property, plant and equipment
    191,111       176,477  
                 
                 
Other Assets
               
Intangible assets, net
    2,871       3,163  
Cost in excess of net assets of businesses acquired
    4,547       4,547  
Deferred charges and other assets, net
    1,523       1,841  
Net other assets
    8,941       9,551  
Total assets
  $ 258,565     $ 266,837  
                 
 
See accompanying notes to unaudited condensed consolidated financial statements.

(Continued)
 
 
3


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

 LIABILITIES AND SHAREHOLDERS’ EQUITY
 
June 30, 
2009
   
December 31,
2008
 
             
Current Liabilities
           
Current maturities of long-term debt
  $ 5,703     $ 4,399  
Accounts payable
    6,823       5,607  
Advanced billings and customer deposits
    6,305       5,151  
Accrued compensation
    2,041       2,584  
Liabilities held for sale
    827       1,013  
Income taxes payable
    2,308       -  
Accrued liabilities and other
    5,189       5,631  
 Total current liabilities
    29,196       24,385  
                 
Long-term debt, less current maturities
    24,476       36,960  
                 
Other Long-Term Liabilities
               
Deferred income taxes
    23,416       29,505  
Deferred lease payable
    3,208       3,142  
Other liabilities
    8,665       6,533  
 Total other liabilities
    35,289       39,180  
                 
Commitments and Contingencies
               
                 
Shareholders’ Equity
               
Common stock
    16,877       16,139  
Retained earnings
    155,233       152,706  
Accumulated other comprehensive loss, net of tax
    (2,506 )     (2,533 )
Total shareholders’ equity
    169,604       166,312  
                 
Total liabilities and shareholders’ equity
  $ 258,565     $ 266,837  
                 
                 
   
See accompanying notes to unaudited condensed consolidated financial statements.
 
   

 
4

 
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
 
   
Three Months Ended
June 30, 2008
   
Six Months Ended
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
                         
Operating revenues
  $ 40,140     $ 36,309     $ 80,241     $ 69,896  
                                 
Operating expenses:
                               
                                 
Cost of goods and services, exclusive of  depreciation and amortization shown separately below
    13,044       10,017       25,749       20,682  
Selling, general and administrative, exclusive of depreciation and amortization  shown separately below
    7,348       6,255       14,878       13,328  
Depreciation and amortization
    8,111       6,459       15,965       12,820  
Total operating expenses
    28,503       22,731       56,592       46,830  
Operating income
    11,637       13,578       23,649       23,066  
                                 
Other income (expense):
                               
Interest expense
    (405 )     (346 )     (935 )     (680 )
Gain (loss) on investments, net
    223       90       (404 )     (359 )
Non-operating income, net
    188       279       355       484  
Income from continuing operations before income taxes
    11,643       13,601       22,665       22,511  
                                 
                                 
Income tax expense
    4,828       5,596       9,693       9,106  
Net income from continuing operations
    6,815       8,005       12,972       13,405  
Loss from discontinued operations, net of tax (expense) benefits of $(363), $514, $6,391 and $928, respectively
    (75 )     (820 )     (10,445 )     (1,493 )
Net income
  $ 6,740     $ 7,185     $ 2,527     $ 11,912  
                                 
Basic and diluted income (loss) per share:
                               
                                 
Net income from continuing operations
  $ 0.29     $ 0.34     $ 0.55     $ 0.57  
Loss from discontinued operations
          (0.03 )     (0.44 )     (0.06 )
Net income
  $ 0.29     $ 0.31     $ 0.11     $ 0.51  
                                 
Weighted average shares outstanding,  basic
    23,637       23,533       23,629       23,527  
 
                               
Weighted average shares, diluted
    23,732       23,575       23,715       23,582  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
5

 
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
 
   
Shares
   
Common
Stock
   
Retained
Earnings
   
Accumulated Other 
Comprehensive 
Income (Loss)
   
Total
 
Balance, December 31, 2007, as previously reported
    23,509     $ 14,691     $ 136,667     $ (1,739 )     149,619  
Prior period adjustment (see note 3)
                (1,036 )           (1,036 )
Balance, December 31, 2007, as adjusted
    23,509     $ 14,691     $ 135,631     $ (1,739 )   $ 148,583  
Comprehensive income:
                                       
Net income
                24,145             24,145  
Reclassification adjustment for unrealized loss from pension plans included in net income, net of tax
                      137       137  
Net unrealized loss from pension plans,net of tax
                      (931 )     (931 )
Total comprehensive income
                                    23,351  
Dividends declared ($0.30 per share)
                (7,070 )           (7,070 )
Dividends reinvested in common stock
    24       550                   550  
Stock—based compensation
          161                   161  
Conversion of liability classified awards to equity classified awards
          65                   65  
Common stock issued through  exercise of incentive stock  options
    72       597                   597  
Net excess tax benefit from stock options exercised
          75                   75  
                                         
Balance, December 31, 2008
    23,605     $ 16,139     $ 152,706     $ (2,533 )   $ 166,312  
                                         
Comprehensive income:
                                       
Net income
                2,527             2,527  
Reclassification adjustment for unrealized loss from pension plansincluded in net income, net of tax
                      27       27  
Total comprehensive income
                                    2,554  
                                         
Stock—based compensation
          318                   318  
Conversion of liability classified awards to equity classified awards
          85                   85  
Common stock issued through exercise of incentive  stock  options
    32       277                   277  
Net excess tax benefit from stock optionsexercised
          58                   58  
                                         
Balance, June 30, 2009
    23,637     $ 16,877     $ 155,233     $ (2,506 )   $ 169,604  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
6


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

   
Six Months Ended
June 30,
 
   
2009
   
2008
 
             
Cash Flows from Operating Activities
           
Net income
  $ 2,527     $ 11,912  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Impairment on assets held for sale
    17,545        
Depreciation
    15,676       15,075  
Amortization
    289       326  
Stock based compensation expense
    296       (18 )
Excess tax benefits on stock option exercises
    (58 )     (45 )
Deferred income taxes
    (6,453 )     (1,253 )
Loss on disposal of assets
    285       127  
Realized losses on investments carried at fair value
    188       39  
Unrealized (gains) losses on investments carried at fair value
    (307 )     198  
Net (gain) loss from patronage and equity investments
    422       203  
Other
    1,978       (777 )
Changes in assets and liabilities:
               
(Increase) decrease in:
               
Accounts receivable
    (502 )     (1,951 )
Materials and supplies
    1,801       277  
Increase (decrease) in:
               
Accounts payable
    1,225       (1,156 )
Deferred lease payable
    64       119  
Other prepaids, deferrals and accruals
    9,656       3,452  
 
Net cash provided by operating activities
  $ 44,632     $ 26,528  
                 
Cash Flows From Investing Activities
               
Purchase and construction of plant and equipment
  $ (25,506 )   $ (18,734 )
Proceeds from sale of equipment
    66       108  
Purchase of investment securities
    (331 )     (337 )
Proceeds from investment activities
    10       72  
 
Net cash used in investing activities
  $ (25,761 )   $ (18,891 )
 
(Continued)
 
 
7


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
   
Six Months Ended
June 30,
 
   
2009
   
2008
 
             
Cash Flows From Financing Activities
           
Principal payments on long—term debt
  $ (13,180 )   $ (2,106 )
Amounts borrowed under debt agreements
    2,000        
Excess tax benefits on stock option exercises
    58       45  
Proceeds from exercise of incentive stock options
    277       186  
                 
Net cash provided by (used in) financing activities
  $ (10,845 )   $ (1,875 )
                 
Net increase in cash and cash equivalents
  $ 8,026     $ 5,762  
                 
Cash and cash equivalents:
               
Beginning
    5,240       17,245  
Ending
  $ 13,266     $ 23,007  
                 
Supplemental Disclosures of Cash Flow Information
               
Cash payments for:
               
                 
Interest
  $ 1,017     $ 805  
                 
Income taxes
  $ 189     $ 4,889  

During the six months ended June 30, 2009, the Company utilized $5,054 of vendor credits receivable to reduce cash paid for acquisitions of property, plant and equipment.

See accompanying notes to unaudited condensed consolidated financial statements.

 
8


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  The interim condensed consolidated financial statements of Shenandoah Telecommunications Company and Subsidiaries (collectively, the “Company”) are unaudited.  In the opinion of management, all adjustments necessary for a fair presentation of the interim results have been reflected therein.  All such adjustments were of a normal and recurring nature.  These statements should be read in conjunction with the consolidated financial statements and related notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.  The balance sheet information at December 31, 2008 was derived from the audited December 31, 2008 consolidated balance sheet.
 
2.  Operating revenues and income from operations for any interim period are not necessarily indicative of results that may be expected for the entire year.
 
3.  During the second quarter of 2009, the Company determined that it had understated its asset retirement obligations relating to co-located cell sites beginning with the year ended December 31, 2003.  As a result, the Company has corrected its consolidated balance sheet as of December 31, 2008 and its consolidated income statements for the three months and six months ended June 30, 2008, included in this report.

The cumulative effect of this correction, net of tax effects, is a reduction of retained earnings of $1,036,000 as of the beginning of fiscal year 2008 and a decrease to net income of $65,000 and $130,000 for the three and six months ended June 30, 2008, respectively.

The corrections do not affect historical net cash flows from operating, investing or financing activities.

Following is a summary of the effects of these changes on the Company’s consolidated balance sheet as of December 31, 2008, as well as the effects of these changes on the Company’s consolidated statements of income for the three months and six months ended June 30, 2008; and the effects of these changes on the consolidated statement of shareholders’ equity and comprehensive income for the year ended December 31, 2008:
 
Consolidated Statements of Income
   
As Previously Reported
   
Adjustments
   
As Adjusted
 
   
(in thousands)
 
Three months ended June 30, 2008
                 
Cost of goods and services
  $ 9,967     $ 50     $ 10,017  
Depreciation and amortization
    6,400       59       6,459  
Total operating expenses
    22,622       109       22,731  
Operating income
    13,687       (109 )     13,578  
Income from continuing operations before income taxes
    13,710       (109 )     13,601  
Income tax expense
    5,640       (44 )     5,596  
Net income from continuing operations
    8,070       (65 )     8,005  
Net income
    7,250       (65 )     7,185  
                         
Six months ended June 30, 2008
                       
Cost of goods and services
  $ 20,582     $ 100     $ 20,682  
Depreciation and amortization
    12,702       118       12,820  
Total operating expenses
    46,612       218       46,830  
Operating income
    23,284       (218 )     23,066  
Income from continuing operations before income taxes
    22,729       (218 )     22,511  
Income tax expense
    9,194       (88 )     9,106  
Net income from continuing operations
    13,535       (130 )     13,405  
Net income
    12,042       (130 )     11,912  
 
 
9


Consolidated Balance Sheet
   
As Previously Reported
   
Adjustments
   
As Adjusted
 
   
(in thousands)
 
December 31, 2008
                 
Plant in service
  $ 321,044     $ 2,052     $ 323,096  
Accumulated amortization and depreciation
    150,499       1,196       151,695  
Net property, plant and equipment
    175,621       856       176,477  
Total assets
    265,981       856       266,837  
Deferred income taxes
    30,401       (896 )     29,505  
Other liabilities
    3,485       3,048       6,533  
Total other liabilities
    37,028       2,152       39,180  
Retained earnings
    154,002       (1,296 )     152,706  
Total shareholders’ equity
    167,608       (1,296 )     166,312  
Total liabilities and shareholders’ equity
    265,981       856       266,837  
 
Consolidated Statement of Shareholders’ Equity and Comprehensive Income
 
   
As Previously Reported
   
Adjustments
   
As Adjusted
 
         
(in thousands)
       
As of December 31, 2007
                 
Retained earnings
  $ 136,667     $ (1,036 )   $ 135,631  
Total stockholders’ equity
    149,619       (1,036 )     148,583  

4.  In September 2008, the Company announced its intention to sell its Converged Services operation, and the related assets and liabilities were reclassified as held for sale in the consolidated balance sheet and the historical operating results were reclassified as discontinued operations.  Depreciation and amortization on long-lived assets was also discontinued.

The Company began an auction process with respect to the sale of the Converged Services assets in the fourth quarter of 2008.  The Company determined, both at September 30, 2008 and December 31, 2008, based on its analysis of similar transactions, comparable values for other companies in the industry, and the broad range of values indicated by potential buyers during the early stages of the auction process, that no write-down of the carrying value of the net assets held for sale was required.

Subsequently, in connection with the preparation of the Company’s first quarter 2009 financial statements, based upon changes in the marketplace for this type of asset and further developments in the auction process, the Company determined that the fair value of Converged Services had declined from earlier estimates.  Accordingly, the Company recorded an impairment loss of $17.5 million ($10.7 million, net of taxes) to reduce the carrying value of these assets to their estimated fair value less cost to sell as of March 31, 2009.  At June 30, 2009, negotiations to complete the sale continue, and there has been no change in the estimated fair value of the assets.

Assets and liabilities held for sale consisted of the following:

   
June 30, 2009
   
December 31, 2008
 
Assets held for sale:
           
Property, plant and equipment, net
  $ 7,577     $ 15,414  
Goodwill
          6,539  
Intangible assets, net
    915       1,931  
Deferred charges
    1,603       3,384  
Other assets
    687       1,042  
    $ 10,782     $ 28,310  
Liabilities:
               
Other liabilities
  $ 827     $ 1,013  
 
 
10

 
Discontinued operations included the following amounts of operating revenue and income (loss) before income taxes:
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Operating revenues
  $ 3,354     $ 2,827     $ 6,910     $ 5,727  
Income (loss) before income taxes
  $ 288     $ (1,334 )   $ (16,836 )   $ (2,421 )

 
5.  Basic net income (loss) per share was computed on the weighted average number of shares outstanding.  Diluted net income (loss) per share was computed under the treasury stock method, assuming the conversion as of the beginning of the period for all dilutive stock options.  During 2007, the Company issued approximately 68,000 performance share units that are “contingently issuable shares” under the treasury stock method.  Based upon the Company’s stock price during the thirty day periods prior to June 30, 2009 and 2008, these shares did not meet the threshold to be considered dilutive shares, and were excluded from the respective diluted net income per share computations. At June 30, 2009, approximately 57,000 share units were outstanding, while at June 30, 2008, approximately 61,000 performance share units were outstanding. During February 2009, the Company issued approximately 169,000 options to purchase shares at an exercise price of $25.26 per share.  Based upon the Company’s average daily closing price, these options were anti-dilutive and were excluded from the dilutive net income (loss) per share calculation for the three months and six months ended June 30, 2009.  There were no adjustments to net income.

6.  Investments include $1.6 million and $1.4 million of investments carried at fair value as of June 30, 2009 and December 31, 2008, respectively, consisting of equity, bond and money market mutual funds.  These investments were acquired under a rabbi trust arrangement related to a non-qualified supplemental retirement plan maintained by the Company.  During the three months ended June 30, 2009, the Company contributed $23 thousand to the trust, recognized net losses on dispositions of investments of $7 thousand, recognized $9 thousand in dividend and interest income from investments, and recognized net unrealized gains of $204 thousand on these investments.  During the six months ended June 30, 2009, the Company contributed $64 thousand to the trust, recognized net losses on dispositions of investments of $188 thousand, recognized $18 thousand in dividend and interest income from investments, and recognized net unrealized gains of $300 thousand on these investments.  Fair values for these investments held under the rabbi trust were determined by Level 1 quoted market prices for the underlying mutual funds.

7.  Financial instruments on the consolidated balance sheets that approximate fair value include:  cash and cash equivalents, receivables, investments carried at fair value, payables, accrued liabilities, and long-term debt.  Due to the relatively short time frame to maturity of the Company’s fixed rate debt, market value approximates its carrying value.

8.  Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision makers.  During 2009, the Company restructured its business segments to reflect changes in the Company’s corporate direction and strategy in response to changes in the economic environment and other factors.  The Company has three reportable segments, which the Company operates and manages as strategic business units organized by lines of business: (1) Wireless, (2) Wireline, and (3) Cable TV.   The Other column primarily includes Shenandoah Telecommunications Company, the parent holding company.  Prior period comparative information has been restated to conform to the current structure.

The Wireless segment provides digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, as a Sprint PCS Affiliate of Sprint Nextel.  This segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers.

The Wireline segment provides regulated and unregulated voice services, dial-up and DSL internet access, and long distance access services throughout Shenandoah County, Virginia, and leases fiber optic facilities throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor, including portions of West Virginia and Maryland.

The Cable TV segment provides cable television services in Shenandoah County, Virginia, and beginning December 1, 2008, in various franchise areas in West Virginia and Alleghany County, Virginia.

 
11


Selected financial data for each segment is as follows:
 
Three months ended June 30, 2009
 
(In thousands)
 
   
Wireless
   
Wireline
   
Cable TV
   
Other
   
Eliminations
   
Consolidated Totals
 
External revenues
                                   
Service revenues
  $ 25,701     $ 3,324     $ 3,549     $     $     $ 32,574  
Access charges
          2,152                         2,152  
Facilities and tower lease
    1,109       1,398                         2,507  
Equipment
    1,169       53       24                   1,246  
Other
    434       987       240                   1,661  
Total external revenues
    28,413       7,914       3,813                   40,140  
Internal revenues
    647       3,059       8             (3,714 )      
Total operating revenues
    29,060       10,973       3,821             (3,714 )     40,140  
                                                 
Operating expenses
                                               
Costs of goods and services, exclusive of depreciation and amortization shown separately below
    8,904       4,212       3,089       86       (3,247 )     13,044  
Selling, general and administrative, exclusive of depreciation and amortization shown separately below
    3,948       1,770       1,275       822       (467 )     7,348  
                                                 
Depreciation and amortization
    4,971       2,183       874       83             8,111  
Total operating expenses
    17,823       8,165       5,238       991       (3,714 )     28,503  
Operating income (loss)
    11,237       2,808       (1,417 )     (991 )           11,637  
Non-operating income (expense)
    91       121       33       490       (324 )     411  
Interest expense
    (54 )     (60 )     (54 )     (561 )     324       (405 )
Income (loss) from continuing operations before  income taxes
    11,274       2,869       (1,438 )     (1,062 )           11,643  
Income taxes
    (4,667 )     (1,081 )     549       371             (4,828 )
Net income (loss) from continuing operations
  $ 6,607     $ 1,788     $ (889 )   $ (691 )   $     $ 6,815  
 
Three months ended June 30, 2008
 
(In thousands)
 
 
 
Wireless
   
Wireline
   
Cable TV
   
Other
   
Eliminations
   
Consolidated Totals
 
External revenues
                                   
Service revenues
  $ 22,510     $ 3,273     $ 1,197     $     $     $ 26,980  
Access charges
          2,320                         2,320  
Facilities and tower lease
    1,006       1,652                         2,658  
Equipment
    1,511       58       15                   1,584  
Other
    1,710       957       100                   2,767  
Total external revenues
    26,737       8,260       1,312                   36,309  
Internal revenues
    604       2,861       8             (3,473 )      
Total operating revenues
    27,341       11,121       1,320             (3,473 )     36,309  
                                                 
Operating expenses
                                               
Costs of goods and services, exclusive of depreciation and amortization shown separately below
     8,181        3,842        932        94       (3,032 )      10,017  
Selling, general and administrative, exclusive of depreciation and amortization shown separately below
     3,634        1,958        331        773       (441 )      6,255  
Depreciation and amortization
    4,261       1,864       262       72             6,459  
Total operating expenses
    16,076       7,664       1,525       939       (3,473 )     22,731  
Operating income (loss)
    11,265       3,457       (205 )     (939 )           13,578  
                                                 
Non—operating income (expense)
    170       86       8       711       (606 )     369  
Interest expense
    (118 )     (121 )     (66 )     (647 )     606       (346 )
Income (loss) from continuing operations  before income taxes
    11,317       3,422       (263 )     (875 )           13,601  
Income taxes
    (4,667 )     (1,306 )     100       277             (5,596 )
Net income (loss) from continuing operations
  $ 6,650     $ 2,116     $ (163 )   $ (598 )   $     $ 8,005  
 

 
  12

 
Six months ended June 30, 2009

(In thousands)
 
   
Wireless
   
Wireline
   
Cable TV
   
Other
   
Eliminations
   
Consolidated Totals
 
External Revenues
                                   
Service revenues
  $ 51,061     $ 6,589     $ 7,155     $     $     $ 64,805  
Access charges
          4,576                         4,576  
Facilities and tower lease
    2,187       2,811                         4,998  
Equipment
    2,439       87       35                   2,561  
Other
    908       1,934       459                   3,301  
Total external revenues
    56,595       15,997       7,649                   80,241  
Internal Revenues
    1,269       6,128       16             (7,413 )      
Total operating revenues
    57,864       22,125       7,665             (7,413 )     80,241  
                                                 
Operating expenses
                                               
Costs of goods and services, exclusive of depreciation and amortization shown separately below
    17,939       8,218       5,926       151       (6,485 )     25,749  
Selling, general and administrative, exclusive of  depreciation and amortization shown separately below 8,115
    3,439       2,457       1,795       (928 )     14,878          
Depreciation and amortization
    9,843       4,334       1,619       169             15,965  
Total operating expenses
    35,897       15,991       10,002       2,115       (7,413 )     56,592  
Operating income (loss)
    21,967       6,134       (2,337 )     (2,115 )           23,649  
Non—operating income (expense)
    68       102       20       385       (624 )     (49 )
Interest expense
    (167 )     (124 )     (91 )     (1,177 )     624       (935 )
Income (loss) from continuing operations before income taxes
    21,868       6,112       (2,408 )     (2,907 )           22,665  
Income taxes
    (9,065 )     (2,310 )     916       766             (9,693 )
Net income (loss) from continuing operations
  $ 12,803     $ 3,802     $ (1,492 )   $ (2,141 )   $     $ 12,972  
 
Six months ended June 30, 2008

(In thousands)
   
Wireless
   
Wireline
   
Cable TV
   
Other
   
Eliminations
   
Consolidated
Totals
 
External Revenues
                                   
Service revenues
  $ 43,562     $ 6,540     $ 2,403     $     $     $ 52,505  
Access charges
          4,813                         4,813  
Facilities and tower lease
    1,993       3,305                         5,298  
Equipment
    2,811       142       32                   2,985  
Other
    2,183       1,910       202                   4,295  
Total external revenues
    50,549       16,710       2,637                   69,896  
Internal Revenues
    1,199       5,833       16             (7,048 )      
Total operating revenues51
    51,748       22,543       2,653             (7,048 )     69,896  
Operating expenses
                                               
Costs of goods and services, exclusive of depreciation and amortization shown separately below
    17,147       7,642       1,842       209       (6,158 )     20,682  
Selling, general and administrative, exclusive of depreciation and amortization shown separately below
    8,268       3,685       648       1,617       (890 )     13,328  
Depreciation and amortization
    8,544       3,611       519       146             12,820  
Total operating expenses
    33,959       14,938       3,009       1,972       (7,048 )     46,830  
Operating income (loss)
    17,789       7,605       (356 )     (1,972 )           23,066  
                                                 
Non—operating income (expense)
    246       66       (3 )     977       (1,161 )     125  
Interest expense
    (202 )     (225 )     (131 )     (1,283 )     1,161       (680 )
Income (loss) from continuing operations before income taxes
    17,833       7,446       (490 )     (2,278 )           22,511  
Income taxes
    (7,368 )     (2,842 )     186       918             (9,106 )
Net income (loss) from continuing operations
  $ 10,465     $ 4,604     $ (304 )   $ (1,360 )   $     $ 13,405  
 
 
 
13

 
The Company’s assets by segment are as follows:
 
(In thousands)
 
 
 
 
June 30,
2009
   
December 31,
2008
 
             
             
Wireless
  $ 128,794     $ 121,453  
Wireline
    74,613       67,884  
Cable TV
    19,743       19,065  
Other (includes assets held for sale)
    182,578       196,932  
Combined totals
    405,728       405,334  
Inter-segment eliminations
    (147,163 )     (138,497 )
Consolidated totals
  $ 258,565     $ 266,837  
 
9. The Company files U.S. federal income tax returns and various state and local income tax returns.  With few exceptions, years prior to 2005 are no longer subject to examination.  No state or federal income tax audits were in process as of June 30, 2009.

10.  The Company has evaluated subsequent events for potential recognition and/or disclosure through August 3, 2009, the date the consolidated financial statements included in this Quarterly Report on Form 10-Q were issued.

 
14


ITEM 2. 
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This management’s discussion and analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions as they relate to Shenandoah Telecommunications Company or its management are intended to identify these forward-looking statements.  All statements regarding Shenandoah Telecommunications Company’s expected future financial position and operating results, business strategy, financing plans, forecasted trends relating to the markets in which Shenandoah Telecommunications Company operates and similar matters are forward-looking statements.  We cannot assure you that the Company’s expectations expressed or implied in these forward-looking statements will turn out to be correct.  The Company’s actual results could be materially different from its expectations because of various factors, including those discussed below and under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2008.  The following management’s discussion and analysis should be read in conjunction with the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2008, including the financial statements and related notes included therein.

General

Overview. Shenandoah Telecommunications Company is a diversified telecommunications company providing both regulated and unregulated telecommunications services through its wholly owned subsidiaries.  These subsidiaries provide local exchange telephone services and wireless personal communications services (as a Sprint PCS Affiliate of Sprint Nextel), as well as cable television, video, Internet and data services, long distance, sale of telecommunications equipment, fiber optics facilities, paging and leased tower facilities. The Company has the following three reporting segments, which it operates and manages as strategic business units organized by lines of business:

·  
Wireless, which provides wireless personal communications services, or PCS, as a Sprint PCS Affiliate of Sprint Nextel, through Shenandoah Personal Communications Company, and tower facilities for personal communications services, leased to both affiliated and non-affiliated entities through Shenandoah Mobile Company;
 
·  
Wireline, which involves the provision of regulated and non-regulated telephone services, Internet access, and leased fiber optic facilities, primarily through Shenandoah Telephone Company, ShenTel Service Company, and Shenandoah Network Company, respectively, and long-distance and CLEC services through Shenandoah Long Distance Company, ShenTel Communications Company and Shentel Converged Services of West Virginia, Inc.; and
 
·  
Cable TV, which involves the provision of cable television services, through Shenandoah Cable Television Company in Shenandoah County, Virginia, and since December 1, 2008, in Alleghany County, Virginia and various locales throughout West Virginia, through Shentel Cable Company.
 
The Other category includes the provision of investments and management services to its subsidiaries, through Shenandoah Telecommunications Company.
 
In September 2008, the Company announced its intention to sell its Converged Services operation, and the related assets and liabilities were reclassified as held for sale in the consolidated balance sheet and the historical operating results were reclassified as discontinued operations.  Depreciation and amortization on long-lived assets was discontinued.

The Company began an auction process with respect to the sale of the Converged Services assets in the fourth quarter of 2008.  The Company determined, both at September 30, 2008 and December 31, 2008, based on its analysis of similar transactions, comparable values for other companies in the industry, and the broad range of values indicated by potential buyers during the early stages of the auction process, that no write-down of the carrying value of the net assets held for sale was required.
 
 
15

 
Subsequently, in connection with the preparation of the Company’s first quarter 2009 financial statements, based upon changes in the marketplace for this type of asset and further developments in the auction process, the Company determined that the fair value of Converged Services had declined from earlier estimates.  Accordingly, the Company recorded an impairment loss of $17.5 million ($10.7 million, net of taxes) to reduce the carrying value of these assets to their estimated fair value less cost to sell as of March 31, 2009.    At June 30, 2009, negotiations to complete the sale continue, and there has been no change in the estimated fair value of the assets.

Additional Information About the Company’s Business

The following table shows selected operating statistics of the Company for the three months ending on, or as of, the dates shown:

   
June 30,
   
Dec. 31,
   
June 30,
   
Dec. 31,
 
   
2009
   
2008
   
2008
   
2007
 
                         
Retail PCS Subscribers
    216,067       211,462       200,397       187,303  
PCS Market POPS (000) (1)
    2,324       2,310       2,308       2,297  
PCS Covered POPS (000) (1)
    1967       1,931       1,838       1,814  
PCS Average Monthly Retail Churn % (2)
    2.07 %     1.87 %     1.74 %     2.32 %
CDMA Base Stations (sites)
    432       411       364       346  
EVDO-enabled sites
    278       211       93       52  
EVDO Covered POPS (000) (1)
    1,858       1,663       1,041       624  
Towers (100 foot and over)
    108       103       101       101  
Towers (under 100 foot)
    17       15       15       14  
Telephone Access Lines
    24,046       24,209       24,325       24,536  
Total Switched Access Minutes (000)
    83,488       90,460       92,917       92,331  
Originating Switched Access Minutes (000)
    23,903       25,425       27,235       26,128  
Long Distance Subscribers
    10,769       10,842       10,840       10,689  
Long Distance Calls (000) (3)
    7,923       7,981       8,891       7,944  
Total Fiber Miles – Wireline
    47,654       46,733       39,260       35,872  
Fiber Route Miles – Wireline
    767       756       674       647  
DSL Subscribers
    10,526       10,038       8,951       8,136  
Dial-up Internet Subscribers
    4,417       5,151       6,287       7,547  
Cable Television Subscribers (4)
    25,260       25,369       8,193       8,303  
Employees (full time equivalents)
    465       445       414       411  

1)  
POPS refers to the estimated population of a given geographic area and is based on information purchased from third par