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 September 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 September 30, 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
March 31, 1996 and December 1995 1 - 2
Consolidated Statements of Income
Three Months Ended
March 31, 1996 and 1995 3 - 4
Consolidated Statements of Cash Flow
Three Months Ended
March 31, 1996 and 1995 5 - 6
Notes To Consolidated Financial
Statements 7
Item II. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 13
PART II. OTHER INFORMATION
Item 4. Submission of Matters To a Vote
of Security Holders 14
Item 6. Exhibits and Reports On Form 8-K 14
Signatures 15
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, 1996 December 31, 1995
CURRENT ASSETS
Cash & Cash Equivalents $4,256,393 $6,106,447
Certificates of Deposit 1,142,181 1,242,228
Investments Held to Maturity 1,148,974 2,488,773
Accounts Receivable 3,326,364 3,068,379
Leases Receivable (Net) 74,350 74,350
Materials 2,571,799 1,922,090
Prepaid and Other Current Assets 233,857 406,653
Total Current Assets $12,753,918 $15,308,920
NONCURRENT ASSETS
Investment in available for sale Securities $1,691,239 $2,000,077
Investment in held-to-maturity securities 2,622,404 2,098,968
Other investments 4,685,535 3,412,464
Investment in Direct Financing Leases 209,936 250,321
--------- ---------
Total Noncurrent Assets $9,209,114 $7,761,830
--------- ---------
PLANT, PROPERTY AND EQUIPMENT
Plant in Service $63,642,286 $53,076,538
Plant Under Construction 4,748,418 2,372,750
Less Accumulated Depreciation 20,849,787 18,795,430
---------- ----------
Net Plant, Property, and Equipment $47,540,917 $36,653,858
---------- ----------
GOODWILL AND OTHER INTANGIBLES, NET $ 6,036,562 $ 172,382
TOTAL ASSETS $75,540,511 $59,896,990
See accompanying notes to consolidated financial statements.
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, 1996 December 31, 1995
CURRENT LIABILITIES
Current Maturities of Long-Term Debt $461,927 $461,927
Accounts Payable 994,302 813,887
Advance Billing 318,116 625,559
Customer Deposits 89,613 107,509
Accrued construction costs 906,499 1,097,844
Other Current Liabilities 963,164 1,066,225
Income Taxes Payable 280,541 0
Other Accrued Taxes 354,976 85,804
--------- ---------
Total Current Liabilities $4,369,138 $4,258,755
--------- ---------
LONG TERM DEBT, LESS CURRENT MATURITIES $21,468,564 $10,097,026
---------- ----------
OTHER LIABILITIES AND DEFERRED CREDITS
Deferred Investment Tax Credits $310,882 $367,143
Deferred Income Taxes 3,947,256 3,965,318
Pension and Other 532,997 438,324
--------- ---------
Total Other Liabilities and Deferred Credits $4,791,135 $4,770,785
--------- ---------
Minority interests $1,734,396 $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
September 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 38,199,500 34,301,584
Unrealized Gain on available-for-sale securities 237,101 229,012
---------- ----------
Total Stockholders' Equity $43,177,278 $39,271,273
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $75,540,511 $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 Nine months ended
Sept 30 Sept 30
------------------------- ---------------------------
1996 1995 1996 1995
OPERATING REVENUES ---- ---- ---- ----
Telephone Revenues
Local Service $825,715 $777,591 $2,428,140 $2,293,684
Access 1,783,876 1,599,319 5,254,004 4,822,769
Toll 8,800 1,146 17,567 7,934
Miscellaneous:
Directory 283,377 273,033 863,452 837,743
Facility Leases 462,707 418,896 1,347,879 1,262,661
Billing & Collection 108,116 119,105 331,125 298,449
Other Miscellaneous 24,330 30,374 76,558 89,165
--------- --------- --------- ---------
Total Telephone Revenues 3,496,921 3,219,464 10,318,725 9,612,405
Cable Television Revenues 221,407 216,789 663,384 648,353
ShenTel Service Revenues 511,462 312,698 1,285,688 996,579
Leasing Revenues 4,673 6,017 14,445 18,548
Mobile Revenues 1,889,133 1,323,502 4,930,779 3,614,977
Long Distance Revenues 262,815 287,433 796,543 850,022
Network Revenues 133,806 123,843 381,491 371,528
--------- --------- --------- ---------
Total Revenues and Sales 6,520,217 5,489,746 18,391,055 16,112,412
--------- --------- --------- ---------
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 Nine months ended
Sept 30 Sept 30
------------------------- ---------------------------
1996 1995 1996 1995
OPERATING EXPENSES
Cost of Products and Services Sold 471,648 144,813 994,632 472,088
Line Costs 95,316 141,625 320,757 408,916
Plant Specific 633,204 427,922 1,659,650 1,347,039
Plant Non-Specific:
Network & Other 901,708 492,220 2,365,225 1,367,096
Depreciation and Amortization 861,454 728,177 2,479,414 2,118,858
Customer Operations 842,222 627,798 2,436,812 1,755,428
Corporate Operations 588,437 503,054 1,664,325 1,437,597
Other Operating Income & Expense 49,897 44,860 143,698 136,876
Taxes other than income 93,263 80,199 295,249 247,378
--------- --------- --------- ---------
Total Operating Expenses 4,537,149 3,190,668 12,359,762 9,291,276
--------- --------- --------- ---------
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 Nine months ended
Sept 30 Sept 30
------------------------- ---------------------------
1996 1995 1996 1995
Operating income 1,983,068 2,299,078 6,031,293 6,821,136
Gain on Sale of Investment 0 268,722 228,250 1,140,847
Non-operating income less expenses 367,883 287,103 804,416 725,760
Interest expense 170,181 174,027 439,859 524,719
--------- --------- --------- ---------
Income before taxes 2,180,770 2,680,876 6,624,100 8,163,024
Provision for income taxes 735,133 910,728 2,235,939 2,819,170
--------- --------- --------- ---------
Net income before minority interest 1,445,637 1,770,148 4,388,161 5,343,854
Minority interest (188,383) (179,463) (490,245) (434,443)
Net Income $1,257,254 $1,590,685 $3,897,916 $4,909,411
======== ======== ========= =========
EARNINGS PER SHARE
Weighted Average Common
Shares Outstanding 3,760,760 3,760,760 3,760,760 3,760,760
======= ======= ======= =======
Net Earnings per Share $0.33 $0.42 $1.04 $1.31
======= ======= ======= =======
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)
NINE MONTHS ENDED SEPTEMBER 30
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $3,897,916 $4,909,411
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and Amortization 2,479,414 2,118,858
Deferred taxes (79,661) 185,020
Gain on Sale of Equity investment (228,250) (1,140,848)
Investment (Gains)/Losses (276,487) (214,357)
Minority Share of Income 235,245 434,443
Payment to Pension Fund 0 (176,186)
Other 162,481 259,966
Decrease (increase) in
Accounts receivable (257,985) (474,907)
Materials and Supplies (649,709) (158,131)
Increase (decrease) in
Accounts Payable 180,415 236,105
Income taxes payable 443,401 (30,499)
Other prepaids, deferrals, and accruals (48,435) (178,983)
--------------- ---------------
Net cash provided by operating activities 5,858,345 5,769,892
--------------- ---------------
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)
NINE MONTHS ENDED SEPTEMBER 30
1996 1995
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment (13,697,225) (4,324,329)
Purchase of Intangible assets (5,886,171) (60,000)
Investment in Direct Financing Leases (21,854) (36,729)
Payments Received on Direct Financing Leases 62,239 64,639
Purchase of Certificates of Deposit (1,134,527) (1,084,965)
Sale of Certificates of Deposit 1,234,574 441,564
Purchase of Investments Securities (3,057,549) (8,431,580)
Sales of Investments Securities 3,399,434 4,967,411
Cash flows from Securities 171,902 261,433
Proceeds from matured note receivable 0 375,000
--------------- ---------------
Net cash provided by investing activities (18,929,177) (7,827,556)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt 11,525,322 998,000
Principal payments on long term debt (304,544) (316,206)
--------------- ---------------
Net cash provided by financing activities 11,220,778 681,794
--------------- ---------------
NET INCREASE / (DECREASE) IN CASH (1,850,054) (1,375,870)
CASH AND CASH EQUIVALENTS: --------------- ---------------
Beginning 6,106,447 6,270,849
--------------- ---------------
Ending $4,256,393 $4,894,979
=============== ===============
See accompanying notes to consolidated financial statements.
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 September 30, 1996 and the results of operations and
cash flows for the three and nine month periods ended
September 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. 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 and nine-month
periods ended September 30, 1996 and 1995 are not
necessarily indicative of the results to be expected for the
full year.
4. On September 30, 1996, the Company acquired for cash the
Shenandoah County cable television assets of FrontierVision
Operating Partners, LP for approximately $7.8 million. This
was funded with the CoBank loan described in Note 5. These
assets will be integrated into the Company's current CATV
operations. The excess of the total acquisition cost over
the fair value of the net assets acquired of approximately
$5.8 million is being amortized over a period of 15 years.
The acquisition has been accounted for as a purchase and the
transaction is included in the September 30, 1996 balance
sheet.
5. On August 2, 1996, the Company signed a note with CoBank to
borrow up to $25 million. The term of the loan is for up to
15 years, with multiple interest options. The Company began
drawing these funds in the third quarter of this year. A
portion of these funds were used for the acquisition of the
Shenandoah County CATV assets of FrontierVision discussed
above. The new debt is also being used to finance the
building of the new network for the PCS operation discussed
above. As of September 30, 1996, $10,444,171 has been
drawn.
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 Nine months Three months Nine months
ended Sept 30 ended Sept 30 ended Sept 30 ended Sept 30
1996 1995 1996 1995 1996-95 1995-94 1996-95 1995-94
OPERATING REVENUES
Telephone Revenues
Local Service 12.6% 14.2% 13.2% 14.3% 6.2% 6.4% 5.9% 7.9%
Access 27.4% 29.1% 28.6% 29.9% 11.5% 0.3% 8.9% -1.0%
Toll 0.1% 0.0% 0.1% 0.0% 667.9% -108.1% 121.4% -125.0%
Miscellaneous:
Directory 4.3% 5.0% 4.7% 5.2% 3.8% 9.5% 3.1% 9.6%
Facility Leases 7.1% 7.6% 7.3% 7.8% 10.5% 34.0% 6.7% 37.9%
Billing & Collection 1.7% 2.2% 1.8% 1.9% -9.2% -1.2% 10.9% -12.9%
Other Miscellaneous 0.4% 0.6% 0.4% 0.6% -19.9% 105.6% -14.1% -27.0%
Total Telephone Revenues 53.6% 58.7% 56.1% 59.7% 8.6% 7.0% 7.3% 5.5%
Cable Television Revenues 3.4% 3.9% 3.6% 4.0% 2.1% 13.8% 2.3% 21.5%
ShenTel Service Revenues 7.8% 5.7% 7.0% 6.2% 63.6% -27.6% 29.0% -15.8%
Leasing Revenues 0.1% 0.1% 0.1% 0.1% -22.3% 18.6% -22.1% 27.2%
Mobile Revenues 29.0% 24.1% 26.8% 22.4% 42.7% 17.7% 36.4% 17.4%
Long Distance Revenues 4.0% 5.2% 4.3% 5.3% -8.6% -2.9% -6.3% -1.6%
Network Revenues 2.1% 2.3% 2.1% 2.3% 8.0% 54.4% 2.7% 54.4%
------ ------- ------ ------ -------- -------- -------- -------
Total Revenues and Sales 100.0% 100.0% 100.0% 100.0% 18.8% 6.9% 14.1% 7.2%
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 Nine months Three months Nine months
ended Sept 30 ended Sept 30 ended Sept 30 ended Sept 30
1996 1995 1996 1995 1996-95 1995-94 1996-95 1995-94
OPERATING EXPENSES
Cost of Products and Services Sold 7.2% 2.6% 5.4% 2.9% 225.7% -28.0% 110.7% -11.8%
Line Costs 1.5% 2.6% 1.7% 2.5% -32.7% 2.6% -21.6% 3.4%
Plant Specific 9.7% 7.8% 9.0% 8.4% 48.0% -0.9% 23.2% 10.5%
Plant Non-Specific:
Network & Other 13.8% 9.0% 12.9% 8.5% 83.2% 20.8% 73.0% 10.6%
Depreciation and Amortization 13.2% 13.3% 13.5% 13.2% 18.3% 2.5% 17.0% 4.0%
Customer Operations 12.9% 11.4% 13.2% 10.9% 34.2% 2.7% 38.8% 0.9%
Corporate Operations 9.0% 9.2% 9.0% 8.9% 17.0% -4.1% 15.8% 0.5%
Other Operating Income & Expense 0.8% 0.8% 0.8% 0.8% 11.2% 12.5% 5.0% 21.0%
Taxes other than income 1.4% 1.5% 1.6% 1.5% 16.3% -2.6% 19.4% 0.2%
------ ------- ------ ------ -------- -------- -------- -------
Total Operating Expenses 69.5% 58.2% 67.1% 57.6% 42.2% 1.4% 33.0% 3.8%
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 Nine months Three months Nine months
ended Sept 30 ended Sept 30 ended Sept 30 ended Sept 30
1996 1995 1996 1995 1996-95 1995-94 1996-95 1995-94
Operating income 30.4% 41.9% 32.8% 42.3% -13.7% 15.5% -11.6% 12.3%
Gain on Sale of Investment 0.0% 4.9% 1.2% 7.1% N/A N/A N/A N/A
Non-operating income less expenses 5.6% 5.2% 4.4% 4.5% 28.1% -290.7% 10.8% -510.4%
Interest expense 2.6% 3.2% 2.4% 3.3% -2.2% 1.6% -16.2% 6.3%
------ ------- ------ ------ -------- -------- -------- -------
Income before taxes 33.4% 48.8% 36.0% 50.7% -18.7% 41.7% -18.9% 43.2%
Provision for income taxes 11.3% 16.6% 12.2% 17.5% 19.3% 62.1% -20.7% 51.0%
------ ------- ------ ------ -------- -------- -------- -------
Net income before minority interest 22.2% 32.2% 23.9% 33.2% -18.3% 33.0% -17.9% 39.5%
Minority interest -2.9% -3.3% -2.7% -2.7% 5.0% 62.3% 12.8% 59.8%
Net Income 19.3% 29.0% 21.2% 30.5% -21.0% 30.4% -20.6% 37.9%
====== ======= ====== ====== ======== ======== ======== =======
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 53.6% of revenue
and the cellular dominated operations of the Mobile subsidiary,
accounting for 29.0% 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 nine months and the third
quarter of 1996 increased 10.7% and 10.8% respectively over the
total minutes of use in comparative periods of 1995, leading to
an 8.9% year-to-date and 11.5% third quarter increase in the
associated revenues.
Third quarter cable television revenues increased 2.1% over
the third quarter of 1995. The year-to-date increase is 2.3%.
The increase was due to an increase in the customer base. The
Company acquired the CATV assets owned by FrontierVision
Operating Partnership located in our service area on September
30, 1996. The transaction is included in the financial
statements, but had no immediate effect on revenues.
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 to increases in Internet Service
revenues. Third quarter 1996 revenues from our Internet Service
operations were up $73,939 or 159.1% compared to the third
quarter of 1995. On a year-to-date basis, these revenues
increased $223,177 or 259.1% compared to the first nine months 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 $115,608 or 102.1% during the third
quarter of 1996 compared to the same period in 1996. On a year-
to-date basis, sales have increased $89,982 or 22.0%. Equipment
rentals for the second quarter and year-to-date decreased $6,285
and $27,656 respectively compared to a year earlier.
Financing lease revenues are chiefly for leases and rentals
of customer premise equipment such as PBXs sold through Company
subsidiaries.
The Mobile revenues are mainly comprised of revenues from
wireless communications services. Third quarter 1996 local
cellular revenues increased $232,075 or 41.9% compared to the
same period in 1995. Year-to-date local cellular revenues have
increased $568,463 or 35.8% compared to the first nine months of
1995. Included in local cellular revenues are revenues for the
sale of phones. These revenues were down 12.7% and 27.9%
respectively in the third 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 an increase in the customer base.
Third quarter 1996 outcollect roamer revenues increased $234,262
or 32.5% compared to the same period in 1995. The increase in
outcollect roamers year-to-date is $582,931 or 31.2%.
Total payroll costs (including capitalized costs) in the
first nine months of 1996 increased $600,834 or 19.4% compared to
the same period in 1995. Payroll costs in the third quarter of
1996 were $287,690 or 24.3% higher than the third 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)
Cost of goods sold have increased 110.7% year-to-date and
increased 225.7% in the third quarter compared to the same period
in 1995. This is due to an increase in the volume of cellular
phones sold due to the promotional pricing discussed above. In
addition, the volume of PCS handsets being sold has begun to
increase and accounted for 50.2% of the increase year-to-date,
and 54.8% of the quarter-to-quarter increase.
The expense category Network and Other consists primarily of
network support, engineering, and leased facilities costs. For
the quarter ended September 30, 1996 it was the Company's largest
expense category, although depreciation is the largest year to
date. Of the 83.2% or $409,489 increase for the third quarter
over the third quarter of 1995, 48.4% is due to increases from
our cellular operation, 21.4% from the new PCS operation, and
19.4% from the Internet access operation. These three operations
account for 80.7% of the year-to-date increase of $998,129 or
73.01%.
Depreciation and amortization, our largest expense category
year-to-date, was 18.3% higher in the third quarter of 1996
compared to the same period in 1995. This is due to the
increased pace of plant acquisition. Expenditures for
construction and purchases of property and equipment for the
first nine months of 1996 equaled $13,697,225. Comparable
expenditures during the nine month period ended September 30,
1995 equaled $4,324,329.
Customer operations increased 34.2% for the quarter and
38.8% year-to-date compared to the same periods 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. This category showed an increase of 28.1% in the third
quarter compared to the same period in 1995. Income from
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
investments accounted for by the equity method increased $41,582
or 43.9%, accounting for 51.5% of the total increase. Interest
income increased $37,546 or 20.1% in the same period.
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
On August 2, 1996, the Company signed a note with CoBank to
borrow up to $25 million. The term of the loan is for up to 15
years, with multiple interest options. The Company began drawing
these funds in the third quarter of this year. A portion of
these funds were used for the acquisition of the Shenandoah
County CATV assets of FrontierVision discussed above. The new
debt is also being 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 budgeted approximately $6,000,000 for PCS-
related plant in 1996, and anticipates additional cash flow
requirements for inventory and initial operating losses.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Continued)
The Company 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 October 31, 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.
Through August of this year, the Company maintained a
$2,500,000 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 advance was repaid when the first draw was made
from the new CoBank loan, and the line of credit was terminated.
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 July 30, 1996 signing of a Definitive
Agreement on to acquire the Shenandoah County,
Virginia cable television systems of
FrontierVision Operating Partners, L.P., of
Denver, Colorado. The acquisition is subject to
approval by the local governing bodies for the
transfer of the existing franchises.
Reported the September 30, 1996 acquisition of
Shenandoah County, Virginia cable television
systems of FrontierVision Operating Partners,
L.P., of Denver, Colorado.
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)
November 13, 1996 CHRISTOPHER E. FRENCH
Christopher E. French
President
November 13, 1996 LAURENCE F. PAXTON
Laurence F. Paxton
Vice President - Finance
5
3-MOS 9-MOS
DEC-31-1996 DEC-31-1996
SEP-30-1996 SEP-30-1996
4,256,393 4,256,393
5,462,617 5,462,617
3,326,364 3,326,364
0 0
2,571,799 2,571,799
12,753,918 12,753,918
63,642,286 63,642,286
20,849,787 20,849,787
75,540,511 75,540,511
4,369,138 4,369,138
21,468,564 21,468,564
0 0
0 0
4,740,677 4,740,677
38,436,601 38,436,601
75,540,511 75,540,511
306,348 670,019
6,520,217 18,391,055
470,054 988,237
4,537,149 12,359,762
188,383 490,245
49,110 76,651
170,181 439,859
1,992,387 6,133,855
735,133 2,235,939
1,257,254 3,897,916
0 0
0 0
0 0
1,257,254 3,897,916
.33 1.04
.33 1.04
