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 June 30, 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 August 12, 1996
Common Stock, No Par Value 3,760,760 Shares
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 1 - 3
Consolidated Statements of Income
Three and Six Months Ended
June 30, 1996 and 1995 4 - 6
Consolidated Statements of Cash Flow
Six Months Ended
June 30, 1996 and 1995 7 - 8
Notes To Consolidated Financial
Statements 9
Item II. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10 - 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters To a Vote
of Security Holders 17 - 18
Item 6. Exhibits and Reports On Form 8-K 18
Signatures 19
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, 1996 December 31, 1995
CURRENT ASSETS
Cash & Cash Equivalents $4,863,872 $6,106,447
Certificates of Deposit 1,331,366 1,242,228
Investments Held to Maturity 1,151,123 2,488,773
Accounts Receivable 3,161,055 3,068,379
Leases Receivable (Net) 74,350 74,350
Materials 2,408,770 1,922,090
Prepaid and Other Current Assets 255,730 406,653
--------- ---------
Total Current Assets $13,246,266 $15,308,920
--------- ---------
NONCURRENT ASSETS
Investment in available for sale Securities $1,888,910 $2,000,077
Investment in held-to-maturity securities 2,622,404 2,098,968
Other investments 3,084,160 3,412,464
Investment in Direct Financing Leases 229,016 250,321
--------- ---------
Total Noncurrent Assets $7,824,490 $7,761,830
--------- ---------
PLANT, PROPERTY AND EQUIPMENT
Plant in Service $56,769,893 $53,316,016
Plant Under Construction 4,540,868 2,372,750
Less Accumulated Depreciation 20,202,536 18,862,526
---------- ----------
Net Plant, Property, and Equipment $41,108,225 $36,826,240
---------- ----------
TOTAL ASSETS $62,178,981 $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
June 30, 1996 December 31, 1995
CURRENT LIABILITIES
Current Maturities of Long-Term Debt $461,927 $461,927
Accounts Payable 479,507 813,887
Advance Billing 369,334 625,559
Customer Deposits 101,863 107,509
Accrued construction costs 198,137 1,097,844
Other Current Liabilities 891,586 1,066,225
Income Taxes Payable 10,339 0
Other Accrued Taxes 252,259 85,804
--------- ---------
Total Current Liabilities $2,764,952 $4,258,755
--------- ---------
LONG TERM DEBT, LESS CURRENT MATURITIES $10,978,182 $10,097,026
---------- ----------
OTHER LIABILITIES AND DEFERRED CREDITS
Deferred Investment Tax Credits $329,807 $367,143
Deferred Income Taxes 4,029,999 3,965,318
Pension and Other 487,448 438,324
--------- ---------
Total Other Liabilities and Deferred Credits $4,847,254 $4,770,785
--------- ---------
Minority interests $1,546,013 $1,499,151
--------- ---------
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
June 30, 1996 December 31, 1995
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 36,942,246 34,301,584
Unrealized Gain on available-for-sale securities 359,657 229,012
---------- ----------
Total Stockholders' Equity $42,042,580 $39,271,273
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $62,178,981 $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 Six months ended
June 30 June 30
------------------------- ---------------------------
1996 1995 1996 1995
OPERATING REVENUES ---- ---- ---- ----
Telephone Revenues
Local Service $811,613 $764,253 $1,602,425 $1,516,093
Access 1,696,340 1,607,465 3,470,128 3,223,450
Toll 4,412 3,314 8,767 6,788
Miscellaneous:
Directory 296,408 271,595 580,076 564,710
Facility Leases 451,974 425,262 885,172 843,765
Billing & Collection 108,967 73,275 223,009 179,344
Other Miscellaneous 23,068 31,280 52,228 58,791
--------- --------- --------- ---------
Total Telephone Revenues 3,392,782 3,176,444 6,821,805 6,392,941
Cable Television Revenues 221,843 216,922 441,977 431,564
ShenTel Service Revenues 380,664 266,443 774,226 683,881
Leasing Revenues 5,163 6,438 9,772 12,531
Mobile Revenues 1,674,507 1,239,610 3,041,646 2,291,475
Long Distance Revenues 249,376 273,981 533,728 562,589
Network Revenues 123,842 123,842 247,685 247,685
--------- --------- --------- ---------
Total Revenues and Sales 6,048,177 5,303,680 11,870,839 10,622,666
--------- --------- --------- ---------
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 Six months ended
June 30 June 30
------------------------- ---------------------------
1996 1995 1996 1995
OPERATING EXPENSES
Cost of Products and Services Sold 249,042 115,315 522,983 327,275
Line Costs 90,860 115,745 225,441 247,009
Plant Specific 502,049 484,915 1,026,447 919,117
Plant Non-Specific:
Network & Other 801,581 484,608 1,463,517 895,158
Depreciation and Amortization 815,439 707,211 1,617,960 1,390,681
Customer Operations 830,548 571,742 1,594,590 1,127,630
Corporate Operations 556,244 466,496 1,075,888 934,543
Other Operating Income & Expense 47,435 46,565 93,801 92,016
Taxes other than income 101,684 81,835 201,986 167,179
--------- --------- --------- ---------
Total Operating Expenses 3,994,882 3,074,432 7,822,613 6,100,608
--------- --------- --------- ---------
Operating income 2,053,295 2,229,248 4,048,226 4,522,058
Gain on Sale of Investment 0 0 228,250 872,125
Non-operating income less expenses 242,528 251,845 436,531 438,657
Interest expense 128,418 171,659 269,678 350,692
--------- --------- --------- ---------
Income before taxes 2,167,405 2,309,434 4,443,329 5,482,148
Provision for income taxes 719,871 779,998 1,500,806 1,908,442
--------- --------- --------- ---------
Net income before minority interest 1,447,534 1,529,436 2,942,523 3,573,706
Minority interest (180,421) (145,144) (301,862) (254,980)
Net Income $1,267,113 $1,384,292 $2,640,661 $3,318,726
======== ======== ========= =========
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 Six months ended
June 30 June 30
------------------------- ---------------------------
1996 1995 1996 1995
EARNINGS PER SHARE
Weighted Average Common
Shares Outstanding 3,760,760 3,760,760 3,760,760 3,760,760
======= ======= ======= =======
Net Earnings per Share $0.34 $0.37 $0.70 $0.88
======= ======= ======= =======
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)
SIX MONTHS ENDED JUNE 30
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $2,640,661 $3,318,726
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and Amortization 1,617,960 1,390,681
Deferred taxes (53,107) 185,020
Gain on Sale of Equity investment (228,250) (872,125)
Investment (Gains)/Losses (140,082) (119,532)
Minority Share of Income 46,862 254,980
Payment to Pension Fund 0 (176,186)
Other 143,002 122,652
Decrease (increase) in
Accounts receivable (92,676) 100,047
Materials and Supplies (486,680) (265,477)
Increase (decrease) in
Accounts Payable (334,380) 123,812
Income taxes payable 173,199 137,856
Other prepaids, deferrals, and accruals (228,407) (171,804)
--------------- ---------------
Net cash provided by operating activities 3,058,102 4,028,650
--------------- ---------------
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)
SIX MONTHS ENDED JUNE 30
1996 1995
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (6,941,932) (2,612,565)
Investment in Direct Financing Leases (21,854) (36,184)
Payments Received on Direct Financing Leases 43,159 45,056
Purchase of Certificates of Deposit (611,856) (1,271,970)
Sale of Certificates of Deposit 522,718 441,564
Purchase of Investments Securities (563,488) (3,549,591)
Sales of Investments Securities 2,249,231 1,159,670
Cash flows from Securities 142,189 183,298
Proceeds from matured note receivable 0 375,000
-------------- ---------------
Net cash used by investing activities (5,181,833) (5,265,722)
------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt 1,117,000 0
Principal payments on long term debt (235,844) (211,375)
--------------- ---------------
Net cash used by financing activities 881,156 (211,375)
--------------- ---------------
NET INCREASE / (DECREASE) IN CASH (1,242,575) (1,448,447)
CASH AND CASH EQUIVALENTS: --------------- ---------------
Beginning 6,106,447 6,270,849
--------------- ---------------
Ending $4,863,872 $4,822,402
=============== ===============
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 June 30, 1996 and the results of operations and cash
flows for the six month periods ended June 30, 1996 and
1995.
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. The results of operations for the three-month and six-month
periods ended June 30, 1996 and 1995 are not necessarily
indicative of the results to be expected for the full year.
3. The Company signed a letter of intent in February 1996 to
acquire the Shenandoah County assets of FrontierVision
Operating Partners, LP. The Company signed the definitive
agreement for this purchase on July 30, 1996.
4. The Company signed a note with CoBank on August 2, 1996 to
borrow up to $25 million. The Company expects to begin
drawing these funds in the third quarter of 1996.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
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 Six months Three months Six months
ended June 30 ended June 30 ended June 30 ended June 30
1996 1995 1996 1995 1996-95 1995-94 1996-95 1995-94
OPERATING REVENUES
Telephone Revenues
Local Service 13.4% 14.4% 13.5% 14.3% 6.2% 5.9% 5.7% 8.7%
Access 28.0% 30.3% 29.2% 30.3% 5.5% 3.5% 7.7% -1.6%
Toll 0.1% 0.1% 0.1% 0.1% 33.1% -116.4% 29.2% -138.7%
Miscellaneous:
Directory 4.9% 5.1% 4.9% 5.3% 9.1% 8.3% 2.7% 9.6%
Facility Leases 7.5% 8.0% 7.5% 7.9% 6.3% 12.7% 4.9% 39.9%
Billing & Collection 1.8% 1.4% 1.9% 1.7% 48.7% -32.6% 24.3% -19.3%
Other Miscellaneous 0.4% 0.6% 0.4% 0.6% -26.3% -39.3% -11.2% -45.2%
Total Telephone Revenues 56.1% 59.9% 57.5% 60.2% 6.8% 4.4% 6.7% 4.8%
Cable Television Revenues 3.7% 4.1% 3.7% 4.1% 2.3% 24.3% 2.4% 25.7%
ShenTel Service Revenues 6.3% 5.0% 6.5% 6.4% 42.9% -43.3% 13.2% -9.0%
Leasing Revenues 0.1% 0.1% 0.1% 0.1% -19.8% 18.0% -22.0% 31.8%
Mobile Revenues 27.7% 23.4% 25.6% 21.6% 35.1% 18.0% 32.7% 17.1%
Long Distance Revenues 4.1% 5.2% 4.5% 5.3% -9.0% -0.2% -5.1% -0.9%
Network Revenues 2.0% 2.3% 2.1% 2.3% 0.0% 54.4% 0.0% 54.4%
------ ------- ------ ------ ------ -------- -------- --------
Total Revenues and Sales 100.0% 100.0% 100.0% 100.0% 14.0% 4.0% 11.8% 7.4%
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
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 Six months Three months Six months
ended June 30 ended June 30 ended June 30 ended June 30
1996 1995 1996 1995 1996-95 1995-94 1996-95 1995-94
OPERATING EXPENSES
Cost of Products and
Services Sold 4.1% 2.2% 4.4% 3.1% 116.0% -52.4% 59.8% -2.1%
Line Costs 1.5% 2.2% 1.9% 2.3% -21.5% -8.0% -8.7% -4.1%
Plant Specific 8.3% 9.1% 8.6% 8.7% 3.5% 34.2% 11.7% 16.8%
Plant Non-Specific:
Network & Other 13.3% 9.1% 12.3% 8.4% 65.4% 22.6% 63.5% 8.0%
Depreciation and
Amortization 13.5% 13.3% 13.6% 13.1% 15.3% 5.2% 16.3% 4.8%
Customer Operations 13.7% 10.8% 13.4% 10.6% 45.3% 4.5% 41.4% 0.0%
Corporate Operations 9.2% 8.8% 9.1% 8.8% 19.2% 0.9% 15.1% 3.1%
Other Operating Income
& Expense 0.8% 0.9% 0.8% 0.9% 1.9% 23.1% 1.9% 25.6%
Taxes other than income 1.7% 1.5% 1.7% 1.6% 24.3% -8.5% 20.8% 1.6%
------ ------- ------ ------ -------- ------ -------- --------
Total Operating Expenses 66.1% 57.9% 65.8% 57.5% 29.9% 4.8% 28.2% 5.1%
Operating income 33.9% 42.0% 34.1% 42.6% -7.9% 3.0% -10.5% 10.8%
Gain on Sale of
Investment 0.0% 0.0% 1.9% 8.2% N/A N/A -73.8% N/A
Non-operating income
less expenses 4.0% 4.7% 3.7% 4.1% -3.7% -548.3% -0.5% -865.9%
Interest expense 2.1% 3.2% 2.3% 3.3% -25.2% 14.8% -23.1% 8.8%
------ ------- ------ ------ ------ ----- -------- --------
Income before taxes 35.8% 43.5% 37.4% 51.6% -6.1% 12.5% -18.9% 44.0%
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
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 Six months Three months Six months
ended June 30 ended June 30 ended June 30 ended June 30
1996 1995 1996 1995 1996-95 1995-94 1996-95 1995-94
Provision for
income taxes 11.9% 14.7% 12.6% 18.0% -7.7% 11.3% -21.4% 46.1%
------ ---- ----- ----- ------ ------ ------ --------
Net income before
minority interest 23.9% 28.8% 24.8% 33.6% -5.4% 13.1% -17.7% 42.9%
Minority interest -3.0% -2.7% -2.5% -2.4% 24.3% 41.0% 18.4% 58.2%
Net Income 21.0% 26.1% 22.2% 31.2% -8.5% 10.8% -20.4% 41.9%
====== ======= ====== ====== ====== ====== ======== ========
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 56.1% of revenue
and the cellular dominated operations of the Mobile subsidiary,
accounting for 27.7% 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 half of and the second
quarter of 1996 increased 10.1% and 5.7% respectively over the
total minutes of use in the first half and second quarter of
1995, leading to a 7.7% year-to-date and 5.5% second quarter
increase in the associated revenues. The total access revenue
increase was not as large as the minutes of use increase,
principally due to major growth in the non-traffic sensitive
elements.
Second quarter cable television revenues increased 2.3% over
the second quarter of 1995. The year-to-date increase 2.4%. The
increase was due to an increase in the customer base. The
Company signed a definitive agreement on July 30, 1996, to
acquire CATV assets located in our service area. The Company
expects to close this transaction before the end of the year.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
The increase in the ShenTel Service revenues category for
1996 compared to 1995, is due primarily to increases in Internet
Service revenues. Second quarter 1996 revenues from our Internet
Service operations were up $77,363 or 312.6% compared to the
second quarter of 1995. On a year-to-date basis, these revenues
increased $150,300 or 419.0% compared to the first half of 1995.
This increase is due to the increasing customer base. The
Company began offering local access to the Internet in 1994.
Equipment sales increased $33,576 or 39.5% during the second
quarter of 1996 compared to the same period in 1996. However, on
a year-to-date basis, sales are down $25,626 or 8.7%. Equipment
rentals for the second quarter and year-to-date decreased $10,198
and $18,372 respectively compared to a year earlier.
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. Second quarter 1996 local
cellular revenues increased $191,862 or 35.1% compared to the
same period in 1995. Year-to-date local cellular revenues have
increased $338,284 or 32.0% compared to the first six months of
1995. Included in local cellular revenues are revenues for the
sale of phones. These revenues were down 44.7% and 33.9%
respectively in the second quarter and year-to-date, compared to
the same periods in 1995. This was due to promotional discounts
given on the sale of phones in 1996. The promotional pricing
began in the fourth quarter of 1995. The increase in local
cellular revenues was due to a 49.7% increase in the customer
base from the end of the second quarter of 1995. Second quarter
1996 outcollect roamer revenues increased $548,749 or 46.0%
compared to the same period in 1995. The increase in outcollect
roamers year-to-date is $909,784 or 40.9%.
Total payroll costs (including capitalized costs) in the
first half of 1996 increased $497,978 or 24.0% compared to the
same period in 1995. Payroll costs in the second quarter of 1996
were $229,041 or 21.8% higher than the second quarter of 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
half of 1996 over the first half of 1995 was Network and Other.
The 63.5% increase was due primarily to facilities costs
attributed to our Internet Service operation and to network costs
for our wireless businesses. Second quarter and year-to-date
1996 facilities costs for our Internet access business, were
118.76% and 224.24% higher respectively than for the same periods
of 1995. Costs for incollect roaming on our cellular network for
the second quarter of 1996, increased 73.0% compared to the
second quarter of 1995. The year-to-date increase was 52.8%.
Network costs for our PCS operation were $110,111 during the
first half of 1996. The build out of this network began in late
1995 and hence no costs were recorded during the first half 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 June 30, 1996. During
this period, expenditures for construction and purchases of
property and equipment equaled $11,026,843. Comparable
expenditures during the twelve month period ended June 30, 1995
equaled $4,268,687.
Customer operations increased 45.3% for the quarter and
41.4% year-to-date 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.
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,
in 1992 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
On August 2, 1996, the Company signed a note with CoBank to
borrow up to $25 million. The Company expects to begin drawing
these funds in the third quarter of this year. These funds will
be used for the acquisition of the Shenandoah County CATV assets
of FrontierVision discussed above. This acquisition is expected
to close before the end of the year. The new debt will also be
used to finance the building of the new network for the PCS
operation discussed above. The Company has a material
contractual commitment for these capital expenditures, requiring
the build out of the network within a certain time period. The
Company has budgeted approximately $6,000,000 for PCS-related
plant in 1996, and anticipates additional cash flow requirements
for inventory and initial operating losses.
The Company has budgeted capital expenditures of
approximately $8,000,000 for our other subsidiaries for 1996.
These capital needs will be met through internally generated cash
flows and the existing Rural Telephone Bank note. The loan
agreement with the RTB is in the amount of $9,240,000. The
Company received an advance of $1,172,850 in June 1996. As of
August 12, 1996, the Company has received advances in the amount
of $5,606,750. Expenditure of these loan funds is limited to
capital projects for the regulated local exchange carrier.
Other available sources of liquidity is $2,000,000 in an
unsecured line of credit with a local bank. An advance of
$1,100,000 was made from this line of credit on August 8, 1996.
The Company expects the advance to be repaid when the first draw
is made from the new CoBank loan.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
PART II
OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) At the Annual Meeting of Shareholders of the Company
held on April 16, 1996, 2,673,375 of the Company's 3,760,760
outstanding shares were present in person or by proxy and
entitled to vote, which constituted a quorum.
(b) At the Annual Meeting, the following nominees were
elected to serve until the 1997 Annual Meeting:
Noel M. Borden
Dick D. Bowman
Ken L. Burch
Christopher E. French
Philip M. Grabill, Jr.
Grover M. Holler, Jr.
Harold Morrison, Jr.
Zane Neff
James E. Zerkel II
(c) At the Annual Meeting the following matters were voted
upon and received the vote set forth below:
(1) Election of Directors. Provided that a quorum is
present, the nominees receiving the greatest number of votes cast
are elected as directors and, as a result in tabulating the vote,
votes withheld have no effect upon the election of directors.
Each nominee for director was elected, having received the
following vote:
Nominee FOR WITHHELD
Noel M. Borden 2,642,620 30,755
Dick D. Bowman 2,648,044 25,331
Ken L. Burch 2,648,748 24,627
Christopher E. French 2,648,068 25,307
Philip M. Grabill, Jr. 2,638,453 34,922
Grover M. Holler, Jr. 2,642,121 31,254
Harold Morrison, Jr. 2,648,708 24,667
Zane Neff 2,663,124 10,251
James E. Zerkel II 2,642,019 31,356
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
PART II
OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(Continued)
(2) Approval of Stock Incentive Plan. Provided that a
quorum is present, ratification of the Stock Incentive Plan
requires the affirmative vote of a majority of the votes cast,
and as a result, in tabulating the vote, abstentions do not have
the effect of working against ratification. Adoption of the
Stock Incentive Plan was approved, having received the following
vote:
FOR: 2,537,590
AGAINST: 80,447
ABSTAIN: 55,338
ITEM 6. Exhibits and Reports on Form 8-K
None
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)
August 13, 1996 CHRISTOPHER E. FRENCH
Christopher E. French
President
August 13, 1996 LAURENCE F. PAXTON
Laurence F. Paxton
Vice President - Finance
5
3-MOS 6-MOS
DEC-31-1996 DEC-31-1996
JUN-30-1996 JUN-30-1996
4863872 4863872
4511314 4511314
3161055 3161055
0 0
2408770 2408770
13246266 13246266
56769893 56769893
20202536 20202536
62178981 62178981
2764952 2764952
10978182 10978182
0 0
0 0
4740677 4740677
37301903 37301903
62178981 62178981
134139 308998
6048177 11870839
249042 522983
3994882 7822613
180421 301862
17839 27541
128418 269678
1986984 4141467
719871 1500806
1273864 2511519
0 0
0 0
0 0
1267113 2640661
.34 .70
.34 .70
