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 31, 1996
Commission File Number 0-9881
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Virginia 54-1162806
(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: (540) 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 31, 1996
Common Stock, No Par Value 3,760,760 Shares
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 1996 December 31, 1995
CURRENT ASSETS
Cash & Cash Equivalents $ 5,646,245 $ 6,106,447
Certificates of Deposit 1,254,084 1,242,228
Investments Held to Maturity 2,489,694 2,488,773
Accounts Receivable 3,117,922 3,068,379
Investment in Direct
Financing Leases -
Current Portion 74,350 74,350
Materials 2,293,123 1,922,090
Prepaid and Other
Current Assets 272,594 406,653
Total Current Assets $15,148,012 $15,308,920
NONCURRENT ASSETS
Investment in available for
sale Securities $ 1,993,270 $ 2,000,077
Investment in held-to-maturity
securities 2,098,969 2,098,968
Other investments 3,451,022 3,412,464
Investment in Direct
Financing Leases 228,276 250,321
Total Noncurrent Assets $ 7,771,537 $ 7,761,830
PLANT, PROPERTY AND EQUIPMENT
Plant in Service $55,396,601 $53,316,016
Plant Under Construction 2,845,193 2,372,750
Less Accumulated Depreciation 19,477,949 18,862,526
Net Plant, Property,
and Equipment $38,763,845 $36,826,240
TOTAL ASSETS $61,683,394 $59,896,990
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, 1996 December 31, 1995
CURRENT LIABILITIES
Current Maturities of
Long-Term Debt $ 461,927 $ 461,927
Accounts Payable 787,968 813,887
Advance Billing 496,009 625,559
Customer Deposits 104,735 107,509
Accrued construction costs 930,938 1,097,844
Other Current Liabilities 768,481 1,066,225
Income Taxes Payable 635,999 0
Other Accrued Taxes 178,043 85,804
Total Current Liabilities $ 4,364,100 $ 4,258,755
LONG TERM DEBT,
LESS CURRENT MATURITIES $ 9,981,163 $10,097,026
OTHER LIABILITIES AND
DEFERRED CREDITS
Deferred Investment
Tax Credits $ 348,732 $ 367,143
Deferred Income Taxes 4,072,958 3,965,318
Pension and Other 455,638 438,324
Total Other Liabilities
and Deferred Credits $ 4,877,328 $ 4,770,785
Minority interests $ 1,620,592 $ 1,499,151
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 35,675,132 34,301,584
Unrealized Gain on available-
for-sale securities, net 424,402 229,012
Total Stockholders' Equity $40,840,211 $39,271,273
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $61,683,394 $59,896,990
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
1996 1995
OPERATING REVENUES
Telephone Revenues
Local Service $790,812 $751,840
Access 1,773,788 1,615,985
Toll 4,355 3,474
Miscellaneous:
Directory 283,668 293,115
Facility Leases 433,198 418,503
Billing & Collection 114,042 106,069
Other Miscellaneous 29,160 27,511
Total Telephone Revenues 3,429,023 3,216,497
Cable Television Revenues 220,134 214,642
ShenTel Service Revenues 393,562 417,438
Leasing Revenues 4,609 6,093
Mobile Revenues 1,367,139 1,051,865
Long Distance Revenues 284,352 288,608
Network Revenues 123,843 123,843
Total Revenues and Sales 5,822,662 5,318,986
OPERATING EXPENSES
Cost of Products and
Services Sold 273,941 211,960
Line Costs 134,581 131,264
Plant Specific 524,398 434,202
Plant Non-Specific:
Network & Other 661,936 410,550
Depreciation and Amortization 802,521 683,470
Customer Operations 764,042 555,888
Corporate Operations 519,644 468,047
Other Operating Income & Expense 46,366 45,451
Taxes Other Than Income 100,302 85,344
Total Operating Expenses 3,827,731 3,026,176
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
1996 1995
OPERATING EXPENSES (Continued)
Operating Income 1,994,931 2,292,810
Gain on Sale of Investment 228,250 872,125
Non-Operating Income
less Expenses 194,003 186,812
Interest Expense (141,260) (179,033)
Income Before Income Taxes 2,275,924 3,172,714
Provision for Income Taxes 780,935 1,128,444
Net Income Before
Minority Interest 1,494,989 2,044,270
Minority Interest (121,441) (109,836)
Net Income $1,373,548 $1,934,434
EARNINGS PER SHARE
Weighted Average Common
Shares Outstanding 3,760,760 3,760,760
Net Income per share $0.37 $0.51
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
1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income $1,373,548 $1,934,434
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and Amortization $ 802,521 $ 683,470
Deferred taxes (30,838) 158,232
Gain on Sale of Equity investment (228,250) (872,125)
Investment (Gains)/Losses (32,925) (38,725)
Minority Share of Income 121,441 109,836
Other 99,515 11,226
Decrease (increase) in
Accounts receivable (49,543) 217,407
Materials, Prepaid and Other (399,834) 39,492
Increase (decrease) in
Accounts Payable (25,919) (2,954)
Income taxes payable 798,859 922,390
Deferrals and accruals (317,747) (133,716)
Net cash provided by
operating activities $2,110,828 $3,028,967
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
1996 1995
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property
and Equipment ($3,006,185) ($1,227,733)
Investment in Direct
Financing Leases (746) (26,378)
Payments Received on Direct
Financing Leases 22,791 23,606
Purchase of Certificates of Deposit (111,856) (205,255)
Sale of Certificates of Deposit 100,000 0
Purchase of Investments Securities (40,053) (1,520,701)
Sales of Investments Securities 549,400 58,810
Cash flows from Securities 31,482 99,144
Proceeds from matured
note receivable 0 375,000
Net cash used in
investing activities ($2,455,167) ($2,423,507)
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from notes payable $0 $0
Principal payments on
long term debt (115,863) (103,512)
Net cash used in
financing activities (115,863) (103,512)
NET INCREASE/(DECREASE) IN CASH ($460,202) $501,948
CASH AND CASH EQUIVALENTS:
Beginning 6,106,447 6,270,849
Ending $ 5,646,245 $ 6,772,797
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, 1996 and the results of operations and cash
flows for the three month periods ended March 31, 1995 and
1994.
While the Company believes that the disclosures presented
are adequate, to make the information not misleading, it is
suggested that these 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, 1996 and 1995 are not necessarily indicative of
the results to be expected for the full year.
4. The Company signed a letter of intent in February 1996 to
acquire the Shenandoah County assets of FrontierVision
Operating Partners, LP. The Company expects to finalize the
definitive agreement for this purchase in the second or
third quarter of 1996.
PAGE
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
1996 1995 1996-95 1995-94
OPERATING REVENUES
Telephone Revenues
Local Service 13.6% 14.1% 5.2% 11.7%
Access 30.5% 30.4% 9.8% -6.2%
Toll 0.1% 0.1% 25.4% 33.5%
Miscellaneous:
Directory 4.9% 5.5% -3.2% 10.9%
Facility Leases 7.4% 7.9% 3.5% 85.3%
Billing & Collection 2.0% 2.0% 7.5% -6.4%
Other Miscellaneous 0.5% 0.5% 6.0% -50.7%
Total Telephone Revenues 59.0% 60.5% 6.6% 5.2%
Cable Television Revenues 3.8% 4.0% 2.6% 27.2%
ShenTel Service Revenues 6.8% 7.8% -5.7% 48.2%
Leasing Revenues 0.1% 0.1% -24.4% 50.3%
Mobile Revenues 23.3% 19.9% 30.0% 16.1%
Long Distance Revenues 4.9% 5.4% -1.5% -1.6%
Network revenues 2.1% 2.3% 0.0% 54.4%
------- ------ -------- --------
Total Revenues and Sales 100.0% 100.0% 9.5% 11.0%
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
1996 1995 1996-95 1995-94
OPERATING EXPENSES
Cost of Products and Services Sold 4.7% 4.0% 29.2% 131.3%
Line Costs 2.3% 2.5% 2.5% -0.2%
Plant Specific 9.0% 8.2% 20.8% 2.1%
Plant Non-Specific:
Network & Other 11.4% 7.7% 61.2% -5.3%
Depreciation and Amortization 13.8% 12.8% 17.4% 4.4%
Customer Operations 13.1% 10.5% 37.4% -4.2%
Corporate Operations 8.9% 8.8% 11.0% 5.4%
Other Operating Income & Expense 0.8% 0.9% 2.0% 28.2%
Taxes Other Than Income 1.7% 1.6% 17.5% 13.7%
------- ------ -------- --------
Total Operating Expenses 65.7% 57.0% 26.5% 5.4%
Operating Income 34.3% 43.0% -13.0% 19.4%
Gain on Sale of Investment 3.9% 16.4% -73.8% N/A
Non-Operating Income less Expenses 3.3% 3.5% 3.8% 2743.4%
Interest Expense -2.4% -3.4% -21.1% 3.6%
Income Before Income Taxes 39.1% 59.5% -28.3% 81.0%
Provision for Income Taxes 13.4% 21.2% -30.8% 86.5%
Net Income Before Minority Interest 25.7% 38.3% -26.9% 78.0%
Minority Interest -2.1% -2.1% 10.6% 88.5%
Net Income 23.6% 36.2% -29.0% 77.5%
======= ====== ======== ========
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
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 eight wholly-
owned subsidiaries.
This industry is in a period of transition from a protected
monopoly to a competitive environment as evidenced by the recent
passage of the Telecommunications Act of 1996. As a result,
Shenandoah Telecommunications has made and plans to continue to
make significant investments in the new and emerging
technologies.
The most significant revenue contributors are regulated
telephone local exchange company accounting for 58.9% of revenue
and the cellular dominated operations of the Mobile subsidiary,
accounting for 23.3% of revenue during the most recent quarter.
Other significant services provided are paging, newly emerging
personal communications services (PCS), cable television,
Internet access, long distance, and fiber facilities and towers
leased to other telecommunications carriers. 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 approximately two-thirds of these
access revenues generally tracks with changes in minutes of use.
The minutes of use during the first quarter of 1996 increased
14.6% over the total minutes of use in the first quarter of 1995,
leading to the 12.9% increase in the associated revenues. The
total access revenue increase was not as large as the minutes of
use increase, principally due to a major growth in the non-
traffic sensitive elements.
First quarter cable television revenues increased 2.6% over
the first quarter of 1995. The increase was due to an increase
in the customer base of 3.2%. The Company recently announced
that it had signed a letter of intent to acquire CATV assets
located in our service area. Management has not estimated the
effect this acquisition will have on CATV revenues.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
The decrease in the ShenTel Service revenues category for
1996 compared to 1995, is due to decreases in retail equipment
sales, sales commissions, and equipment rentals. Equipment sales
were $71,213 or 30.0% less during the first quarter of 1996
compared to the same period in 1995. Sales commissions and
equipment rentals decreased $11,898 and $8,273 respectively
compared to a year earlier. Offsetting this decrease is an
increase in revenues from our Internet Service operation of
$73,536 or 690.5% compared to the first quarter of 1995. This
increase is due to the increasing customer base. The Company
began offering local access to the Internet in 1994.
Financing lease revenues are chiefly for leases and rentals
of customer premise equipment such as PBXs and home satellite
dishes sold through Company subsidiaries.
The Mobile revenues are mainly comprised of revenues from
wireless communications services. First quarter 1996 local
cellular revenues increased $146,422 or 28.6% compared to the
same period in 1995. First quarter 1996 outcollect roamer
revenues increased $143,853 or 28.8% compared to the same period
in 1995. The increase in local cellular revenues was due to a
38.6% increase in the customer base from the end of the first
quarter of 1995. Included in local cellular revenues are
revenues for the sale of phones. These revenues were down 31.1%
in the first quarter of 1996 compared to the same period in 1995.
This was due to promotional discounts given on the sale phones in
1996. The promotional pricing began in the fourth quarter of
1995.
Total payroll costs (including capitalized costs) in the
first quarter of 1996 increased $291,248 or 24.8% compared to the
same period in 1995. The increase is due to an increase in full-
time equivalent employees, primarily due to the start-up of the
Internet Service and Personal Communications Services operations.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
The expense category with the largest increase in the first
quarter of 1996 over the first quarter of 1995 was Network and
Other. The 61.2% increase was due primarily to facilities costs
attributed to our Internet Service operation and to network costs
for our wireless businesses. First quarter 1996 facilities costs
of $81,504 for our Internet access business, were 553.3% higher
than for the first quarter of 1995. Costs for incollect roaming
on our cellular network for the first quarter of 1996, increased
$52,504 or 32.2% compared to the first quarter of 1995. Network
costs for our PCS operation were $58,426 during the first quarter
of 1996. The build out of this network began in late 1995 and so
no costs were recorded during the first quarter of 1995.
Depreciation and amortization, our largest expense category,
was 17.4% higher in the first quarter of 1996 compared to the
same period in 1995. This is due to the increased pace of plant
acquisition for the twelve months ended March 31, 1996. During
this period, expenditures for construction and purchases of
property and equipment equaled $8,475,928. Comparable
expenditures during the twelve month period ended March 31, 1995
equaled $3,914,654.
First quarter 1996 customer operations increased 37.4%
compared to the same period in 1995. These costs are for the
marketing and sales, billing, and customer service functions. As
with the network and other category, increases for the Internet
access, cellular, and PCS businesses are primarily responsible
for the increase.
The increase in Taxes Other Than Income, comprised primarily
of property taxes, was due to the increase in capital
expenditures discussed above.
The Non-operating Income Less Expenses category consists
mainly of the income or loss from investments made by the
Company. Interest income from certificates of deposit and held
to maturity securities increased 9.6% despite the total amount
invested at March 31, 1996 decreasing 12.4% compared to March 31,
1995. This was due to increasing the portion invested in longer
term securities. Income from investments in non affiliated
companies accounted for by the equity method, had a decrease of
$6,275 or 13.3%.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
The Company, along with other telecommunications providers,
founded Virginia Metrotel to construct and operate a fiber optic
network in the Richmond, Virginia metropolitan area. The fiber
network would provide competitive access to businesses in the
area. As a result of a strategic change, it was agreed to sell
this business to MFS Communications Company. The Company
recognized a gain on the sale in January 1995. The amount of the
gain was $872,125. The Company recognized further gains of
$269,261 on subsequent sales of MFS stock in 1995. In January of
1996 the Company completed the sale of the remaining MFS stock,
resulting in a gain on the sale of $228,250.
LIQUIDITY AND CAPITAL RESOURCES
The Company continued to generate a cash flow from
operations that adequately met the Company's need for cash in the
first quarter 1996. Other available sources of liquidity are
$4,500,000 in unsecured lines of credit with two local banks. No
advances have been made from these lines of credit in 1996. The
Company has a loan agreement with the Rural Telephone Bank in the
amount of $9,240,000. The Company received an advance of
$1,047,900 in August of 1995. As of April 30, 1996, the Company
has received advances in the amount of $4,433,900. Expenditure
of these loan funds is limited to capital projects for the
regulated local exchange carrier.
As discussed above, the Company recently began participating
in the new personal communications services (PCS) business. This
will require significant investment in new plant and equipment.
The Company has a material contractual commitment for these
capital expenditures, requiring the build out of our PCS network
within a certain time period. The Company has budgeted
approximately $6,000,000 for PCS-related new plant in 1996, and
anticipates additional cash flow requirements for inventory and
initial operating losses.
In addition, the Company signed a letter of intent in
February 1996 to acquire the Shenandoah County cable television
assets of FrontierVision Operating Partners, L.P. The Company
expects to finance these cash needs, as well as budgeted capital
expenditures of approximately $8,000,000 for our other
subsidiaries through internally generated cash flows, additional
advances from the RTB note, and new debt of approximately $25
million. The Company signed a commitment letter with CoBank on
May 3, 1996 for this new debt. 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 the signing of a Letter of Intent to
acquire the Shenandoah County, Virginia cable
television systems of FrontierVision Operating
Partners, L.P., of Denver, Colorado. The
acquisition is subject to execution of a
definitive agreement and approval by the local
governing bodies for the transfer of the existing
franchises.
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 9, 1996 CHRISTOPHER E. FRENCH
Christopher E. French
President
May 9, 1996 LAURENCE F. PAXTON
Laurence F. Paxton
Vice President - Finance
5
3-MOS
DEC-31-1996
MAR-31-1996
5646245
4092239
3117922
0
2293123
15148012
55396601
19477949
61683394
4364100
9981163
0
0
4740677
36099534
61683394
188778
5822662
273941
3827731
121441
9702
141260
2154483
780935
1231942
0
0
0
1373548
.37
.37
