SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 30, 1995 Commission File Number 0-9881
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Virginia 54-1162807
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) Number)
P. O. Box 459, Edinburg, Virginia 22824
(Address of principal executive office and zip code)
Registrant's telephone number,
including area code: (703) 984-4141
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 the number of shares outstanding of each of the issuer's
classes of common stock as of the close of the period covered by
this report.
Class Outstanding at March 1, 1995
Common Stock, No Par Value 3,760,760 Shares
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 1995 December 31, 1994
CURRENT ASSETS
Cash & Cash Equivalents $6,772,797 $6,270,849
Certificates of Deposit 1,136,166 930,911
Investments Held to
Maturity 3,210,865 3,254,460
Accounts Receivable 2,288,021 2,880,428
Leases Receivable (Net) 81,140 81,140
Materials 1,444,217 1,511,006
Prepaid and Other
Current Assets 263,488 236,191
--------- ---------
Total Current Assets 15,196,694 15,164,985
---------- ----------
NONCURRENT ASSETS
Other Securities and
Investments 3,977,790 4,615,689
Securities Available for Sale 1,571,977 0
Investments Held to Maturity 1,998,175 499,687
Investment in Direct
Financing Leases 290,356 287,584
--------- ---------
Total Noncurrent Assets 7,838,298 5,402,960
--------- ---------
PLANT, PROPERTY AND EQUIPMENT
Plant in Service 49,535,272 49,102,832
Plant Under Construction 228,501 248,717
Less Accumulated Depreciation 17,298,556 17,455,344
---------- ----------
Net Plant, Property,
and Equipment 32,465,217 31,896,205
---------- ----------
TOTAL ASSETS $55,500,209 $52,464,150
========== ==========
See accompanying notes to consolidated financial statements.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
March 31, 1995 December 31, 1994
CURRENT LIABILITIES
Current Maturities
of Long-Term Debt $423,329 $423,329
Accounts Payable 339,180 307,691
Advance Billing 480,563 526,105
Customer Deposits 112,582 137,793
Other Current Liabilities 730,176 910,968
Income Taxes Payable 949,008 26,618
Other Accrued Taxes 138,740 53,739
--------- ---------
Total Current Liabilities 3,173,578 2,386,243
--------- ---------
LONG-TERM DEBT, LESS
CURRENT MATURITIES 9,414,369 9,517,880
---------- ---------
OTHER LIABILITIES AND
DEFERRED CREDITS
Deferred Investment Tax Credits 424,434 442,844
Deferred Income Taxes 3,711,656 3,535,014
Pension and Other 777,234 745,935
--------- ---------
Total Other Liabilities
and Deferred Credits 4,913,324 4,723,793
--------- ---------
Minority interests 1,329,329 1,219,493
--------- ---------
STOCKHOLDERS' EQUITY
Common Stock, no par,
8,000,000 shares authorized
(3,760,760 shares issued and
outstanding) 4,740,677 4,740,677
Retained Earnings 31,810,497 29,876,064
Unrealized Gain on Securities
Available for Sale, Net 118,435 0
---------- ----------
Total Stockholders' Equity 36,669,609 34,616,741
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $55,500,209 $52,464,150
========== ==========
See accompanying notes to consolidated financial statements.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended
March 31
-----------------------------
1995 1994
OPERATING REVENUES ---- ----
Telephone Revenues
Local Service $751,840 $673,038
Access 1,615,985 1,723,085
Toll 3,474 2,602
Miscellaneous:
Directory 293,115 264,287
Facility Leases 418,503 225,832
Billing & Collection 106,069 113,372
Other Miscellaneous 27,511 55,755
--------- ---------
Total Telephone Revenues 3,216,497 3,057,971
Cable Television Revenues 214,642 168,739
ShenTel Service Revenues 417,438 281,645
Leasing Revenues 6,093 4,055
Mobile Revenues 1,051,865 905,827
Long Distance Revenues 288,608 293,253
Network revenues 123,843 80,198
--------- ---------
Total Revenues and Sales 5,318,986 4,791,688
--------- ---------
OPERATING EXPENSES
Cost of Products and
Services Sold 211,960 91,645
Line Costs 131,264 131,583
Plant Specific 434,202 425,476
Plant Non-Specific:
Network & Other 410,550 433,723
Depreciation and Amortization 683,470 654,702
Customer Operations 555,888 580,251
Corporate Operations 468,047 444,254
Other Operating Income & Expense 45,451 35,461
Taxes Other Than Income 85,344 75,069
--------- ---------
Total Operating Expenses 3,026,176 2,872,164
--------- ---------
Operating Income 2,292,810 1,919,524
See accompanying notes to consolidated financial statements.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended
March 31
-----------------------------
1995 1994
OPERATING EXPENSES (Cont'd)
Gain on Sale of Investment 872,125 0
Non-Operating Income
less Expenses 1,058,937 6,570
Interest Expense (179,033) (172,760)
--------- ---------
Income Before Income Taxes 3,172,714 1,753,334
Provision for Income Taxes 1,128,444 605,014
--------- ---------
Net Income Before
Minority Interest 2,044,270 1,148,320
Minority Interest (109,836) (58,275)
Net Income $1,934,434 $1,090,045
============ ============
EARNINGS PER SHARE
Weighted Average Common
Shares Outstanding 3,760,760 3,760,760
============ ===========
Net Income per share $0.51 $0.29
============ ===========
See accompanying notes to consolidated financial statements.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income $1,934,434 $1,090,045
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
Amortization 683,470 654,702
Deferred taxes 166,610 (18,925)
Gain on Sale of
Equity investment (872,125) 0
Investment (Gains)/Losses (38,725) 53,889
Minority Share of Income 109,836 58,275
Other 8,379 24,794
Decrease (increase) in
Accounts receivable 217,407 198,159
Materials and Supplies 66,789 (5,909)
Increase (decrease) in
Accounts Payable (2,954) (189,760)
Income taxes payable 922,390 224,320
Other current liabilities (166,544) (212,689)
Net cash provided by
operating activities 3,028,967 1,876,901
See accompanying notes to consolidated financial statements.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
1995 1994
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of Property
and Equipment (1,227,733) (663,599)
Investment in Direct
Financing Leases (26,378) (175,394)
Payments Received on Direct
Financing Leases 23,606 18,602
Purchase of Investments
Securities (1,725,956) (25,471)
Sale of Investments Securities 157,954 156,375
Proceeds from matured
note receivable 375,000 0
Net cash provided by
investing activities (2,423,507) (689,487)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from Notes Payable 0 (92,481)
Payment of notes payable (103,512) (875,000)
------------ ------------
Net cash provided by
financing activities (103,512) (967,481)
------------ ------------
NET INCREASE/(DECREASE)
IN CASH 501,948 219,933
CASH AND CASH EQUIVALENTS:
Beginning 6,270,849 5,695,891
------------ ------------
Ending $6,772,797 $5,915,824
============ ============
See accompanying notes to consolidated financial statements.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying
consolidated financial statements contain all
adjustments (consisting of only normal recurring
accruals) necessary to present fairly Shenandoah
Telecommunications Company's financial position as of
March 31, 1995 and the results of operations and cash
flows for the three month periods ended March 31, 1994
and 1993.
While the Company believes that the disclosures
presented are adequate, to make the information not
misleading, it is suggested that these condensed
financial statements be read in conjunction with the
financial statements and notes included in the
Company's annual report in Form 10-K.
2. Earnings per share of common stock have been determined
by using the weighted average number of shares
outstanding during the period.
3. The results of operations for the three-month period
ended March 31, 1995 are not necessarily indicative of
the results to be expected for the full year.
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
ITEM II, MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summary
The following tables set forth, for the periods indicated, the
percentages
which certain items reflected in the financial data bear to total
operating
revenues and the percentage increase of such items as compared to the
indicated
prior period:
RELATIONSHIP TO PERIOD
TO PERIOD
TOTAL OPERATING REVENUES INCREASE
OR DECREASE
---------------------------------
- -------------------------
Three months ended Three
months ended
March 31 March
31
1995 1994 1995-94
1994-93
OPERATING REVENUES
Telephone Revenues
Local Service 14.1% 14.0% 11.7%
4.6%
Access 30.4% 36.0% -6.2%
15.2%
Toll 0.1% 0.1% 33.5%
-167.6%
Miscellaneous:
Directory 5.5% 5.5% 10.9%
12.0%
Facility Leases 7.9% 4.7% 85.3%
-18.5%
Billing & Collection 2.0% 2.4% -6.4%
6.6%
Other Miscellaneous 0.5% 1.2% -50.7%
74.1%
Total Telephone Revenues 60.5% 63.8% 5.2%
9.7%
Cable Television Revenues 4.0% 3.5% 27.2%
3.8%
ShenTel Service Revenues 7.8% 5.9% 48.2%
28.2%
Leasing Revenues 0.1% 0.1% 50.3%
-90.8%
Mobile Revenues 19.9% 18.9% 16.1%
54.2%
Long Distance Revenues 5.4% 6.1% -1.6%
-9.9%
Network revenues 2.3% 1.7% 54.4%
-15.9%
------- ------ --------
- --------
Total Revenues and Sales 100.0% 100.0% 11.0%
13.5%
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
ITEM II, MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RELATIONSHIP TO PERIOD
TO PERIOD
TOTAL OPERATING REVENUES INCREASE
OR DECREASE
---------------------------------
- -------------------------
Three months ended Three
months ended
March 31 March
31
1995 1994 1995-94
1994-93
OPERATING EXPENSES
Cost of Products and Services Sold 4.0% 1.9% 131.3%
34.2%
Line Costs 2.5% 2.7% -0.2%
6.7%
Plant Specific 8.2% 8.9% 2.1%
2.3%
Plant Non-Specific:
Network & Other 7.7% 9.1% -5.3%
22.6%
Depreciation and Amortization 12.8% 13.7% 4.4%
5.4%
Customer Operations 10.5% 12.1% -4.2%
8.9%
Corporate Operations 8.8% 9.3% 5.4%
-3.7%
Other Operating Income & Expense 0.9% 0.7% 28.2%
5.7%
Taxes Other Than Income 1.6% 1.6% 13.7%
25.8%
------- ------ --------
- --------
Total Operating Expenses 57.0% 60.0% 5.4%
7.6%
Operating Income 43.0% 40.0% 19.4%
23.7%
Gain on Sale of Investment 16.4% 0.0% N/A
N/A
Non-Operating Income less Expenses 3.5% 0.1% 2743.4%
-83.2%
Interest Expense -3.4% -3.6% 3.6%
14.7%
Income Before Income Taxes 43.1% 36.5% 81.0%
21.8%
Provision for Income Taxes 21.2% 12.6% 86.5%
19.1%
Net Income Before Minority Interest 21.9% 23.9% 78.0%
23.2%
Minority Interest -2.1% -1.2% 88.5%
- -1037.3%
Net Income 19.8% 22.7% 77.5%
16.2%
======= ====== ========
========
PAGE
SHENANDOAH TELECOMMUNICATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Shenandoah Telecommunications Company is a diversified
telecommunications holding company providing both regulated and
unregulated telecommunications services through its seven
wholly-owned subsidiaries.
The regulated local exchange telephone company is the largest
subsidiary, accounting for over 60.0% of revenue and 78.5% of
net income (excluding the gain on the sale of equity security).
This industry is in a period of transition from a regulated
monopoly to a competitive environment with changing technology.
As a result, Shenandoah Telecommunications has made and plans
to continue to make significant investments in new and emerging
technologies.
Other significant services provided are cellular, cable
television, long distance, and facilities leased to
interexchange carriers on a Company owned fiber optic cable
network. The Company also sells and leases equipment, mainly
related to services provided.
The Company also participates in emerging technologies by
direct investment in non-affiliated companies.
RESULTS OF OPERATIONS
The Company's largest source of revenue continues to be for
access to the Company's local exchange network by interexchange
carriers. The volume for these access revenues is measured in
minutes of use. The minutes of use during the first three
months of 1995 increased 2.71% compared to the same period in
1994. Changes in NECA settlement procedures, effective July 1,
1994, offset the increases in minutes of use.
The increase in the ShenTel Service revenues category for the
first quarter of 1995, compared to the same period in 1994, is
due to an increase in retail equipment sales. The increase
equaled $118,946 or 129.0%.
The increase in Mobile Company revenues was due to growth in
our cellular operation. Cellular revenues increased 16.9% in
the first quarter of 1995 compared to the same period in 1994.
For the first three months of 1995, net additions of customers
were approximately the same as net additions for the same
period in 1994.
PAGE
SHENANDOAH TELECOMMUNICATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
On September 1, 1994, the cable television company restructured
its rates by increasing its rates for basic and premium service
and decreasing or eliminating its charges for other services
such as rental of converters. As a result, total revenue for
cable television services for the final four months of 1994
increased 17.3% over the previous four months' total, and 26.0%
over the final four months of 1993. The number of Cable
subscribers increased 7.8% from March 31, 1994. The Company
estimates that our cable rates are within the limits prescribed
by the FCC for cable systems of our size. None of the local
governments within the Company's cable television serving area
have indicated that they will exercise any authority they may
have to regulate rates.
The Company also leases capacity on fiber optic facilities in
West Virginia and Maryland to interexchange carriers. The
revenue for this activity appears as Network revenues on the
income statement. This service experienced a revenue increase
of 54.4% in 1994. The increase is due to new contracts being
added.
For the first quarter of 1995, operating expenses account for
57% of revenues compared to 60% of revenues for the first
quarter of 1994. Two categories of expenses show significant
decreases compared to the year earlier period.
The first category showing a significant decrease is Network
and Other. Over 55% of this category is for facilities costs
for the Cellular operations. During the first quarter of 1995,
these costs were 8.1% less than the first quarter of 1994 when
two software implementations were in progress. The Company's
cost for billing operations decreased 22.5% compared to the
first quarter of 1994. This is responsible for the decrease in
the customer service category.
PAGE
SHENANDOAH TELECOMMUNICATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Another factor was that depreciation, still our largest expense
category, increased at a slower rate than the previous year.
This is due to putting less equipment in service during the
past year than prior years. Management expects this to change
during the second half of 1995 due to accelerated network
construction plans.
The Company, along with other telecommunications providers,
founded an organization that built a fiber optic network in the
Richmond, Virginia metropolitan area to provide competitive
access to businesses. As a result of a strategic change, it
was agreed to sell this business to Metropolitan Fiber Systems.
The Company recognized a gain on the sale in January of 1995.
The amount of the gain was $872,125. The Company recognized
losses of $51,191 during the first quarter of 1994 as our
portion of the operations of this organization. These losses
are included in the Non-Operating Income Less Expenses
category.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to generate a strong cash flow from
operations that adequately meets the Company's need for cash.
Other available sources of liquidity are $4,500,000 unsecured
lines of credit with two local banks. No advances have been
made from these lines of credit in 1995. The Company has a
loan agreement with the Rural Telephone Bank (RTB) in the
amount of $9,240,000. Advances on this note may be taken until
February 1996. The Company expects to receive an additional
advance during the second or third quarter of 1995. As of
December 31, 1994, the Company has received advances in the
amount of $3,386,000. Expenditure of these loan funds is
limited to approved capital projects for the regulated local
exchange carrier.
The Company has reached an agreement in principle to construct
and manage part of a network that will provide Personal
Communications Services (PCS). The service will be provided
under a license held by an unaffiliated company. This will
require significant investment in new plant and equipment. The
Company has budgeted approximately $6,000,000 for new plant in
1995. It is estimated that up to 50.0% of this amount may be
financed with loans from external services.
PAGE
SHENANDOAH TELECOMMUNICATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Continued)
Due to the competition coming from new sources, management is
unable to predict the potential impact on the Company's cash
flow.
The Company has no material contractual commitments for capital
expenditures, however, the Company's Board of Directors has
approved a construction budget of approximately $14,000,000 in
1995. This budget includes the expenditures for PCS discussed
above. The remaining amounts are primarily for telephone
central office equipment and fiber optic cable facilities. The
Company expects to finance these expenditures through
internally generated cash flows as well as additional advances
from the RTB note.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
PART II
OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security
Holders
No matters were submitted to a vote of security
holders.
ITEM 6. Exhibits and Reports on Form 8-K
Reported memorandum of understanding with
American Personal Communications ("APC") pursuant
to which the Registrant will act as manager of a
portion of APC's personal communications service
("PCS") system in portions of rural northwestern
Virginia, West Virginia, Maryland, and south
central Pennsylvania.
The Registrant is currently evaluating the
possible purchase of cable television systems
within its local telephone service area. It is
not clear whether the Registrant will be able to
reach a definitive agreement.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Registrant)
May 12, 1995 CHRISTOPHER E. FRENCH
Christopher E. French
President
May 12, 1995 LAURENCE F. PAXTON
Laurence F. Paxton
Vice President - Finance
