SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1996
Commission File No.: 0-9881
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1162807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
124 South Main Street, Edinburg, VA 22824
(Address of principal executive office, including zip code)
Registrant's telephone number, including area code (540) 984-4141
Securities Registered Pursuant to Section 12(b) of the Act:
COMMON STOCK (NO PAR VALUE)
(Title of Class)
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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
Aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 1, 1997. $78,149,991. (In
determining this figure, the registrant has assumed that all of
its officers and directors are affiliates. Such assumption shall
not be deemed to be conclusive for any other purpose.) The
Company's stock is not listed on any national exchange nor
NASDAQ; therefore, the value of the Company's stock has been
determined based upon the average of the prices of transactions
in the Company's stock that were reported to the Company during
the year.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 1, 1997
Common Stock, No Par Value 3,760,760
Documents Incorporated by Reference
1996 Annual Report to Security Holders Parts I, II, IV
Proxy Statement, Dated March 28, 1997 Parts III
EXHIBIT INDEX PAGES 7 - 8
SHENANDOAH TELECOMMUNICATIONS COMPANY
Item Page
Number Number
PART I
1. Business 1
2. Properties 1-2
3. Legal Proceedings 2
4. Submission of Matters to a Vote of
Security Holders 2
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters 3
6. Selected Financial Data 3
7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 4
8. Financial Statements and Supplementary Data 4
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 5
PART III
10. Directors and Executive Officers of the
Registrant 5
11. Executive Compensation 5
12. Security Ownership of Certain Beneficial
Owners and Management 5
13. Certain Relationships and Related
Transactions 5
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 6-7
PAGE
PART I
ITEM 1. BUSINESS
(a) General development of business is incorporated by
reference -
1996 Annual Report to Security Holders -
Inside Front Cover
(b) Financial information about industry segments -
Not Applicable
(c) Narrative description of business is incorporated
by reference -
1996 Annual Report to Security Holders -
Pages 4 - 7
(d) The registrant does not engage in operations in
foreign countries.
ITEM 2. PROPERTIES
The properties of the Company consist of land,
structures, plant and equipment required in providing
telephone, CATV, wireless communications and related
telecommunications services. The Company's main office
and corporate headquarters is in Edinburg, VA and a
service building is located outside the town limits of
Edinburg, VA. Additionally, the Company owns and
operates nine local telephone exchanges (switching
units) housed in brick/concrete buildings. One of
these is the main attended central office co-located
with the main office in Edinburg, Virginia. The
unattended central offices and outside plant are
located at:
(a) Basye, VA
(b) Bergton, VA
(c) Fort Valley, VA
(d) Mount Jackson, VA
(e) New Market, VA
(f) Strasburg, VA
(g) Toms Brook, VA
(h) Woodstock, VA
The Company owns long distance facilities outside of
its local franchised area as follows:
(a) Hagerstown, MD
(b) Harrisonburg, VA
(c) Martinsburg, WV
PAGE
PART I (Continued)
ITEM 2. PROPERTIES (Continued)
(d) Stephens City, VA
(e) Weyers Cave, VA
(f) Winchester, VA
CATV reception equipment is located at the service
building, outside the town limits of Edinburg, Virginia
and at Basye, Virginia.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security
holders for the three months ended December 31, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(a) Common stock price ranges are incorporated by
reference -
1996 Annual Report to Security Holders
Market Information - Inside Front Cover
(b) Number of equity security holders are
incorporated by reference -
1996 Annual Report to Security Holders
Five-Year Summary of Selected Financial Data -
Page 3
(c) Frequency and amount of cash dividends are
incorporated by reference -
1996 Annual Report to Security Holders
Market and Dividend Information - Inside Front
Cover
Additionally, the terms of a mortgage agreement
require the maintenance of defined amounts of the
subsidiary's equity and working capital after
payment of dividends. Accordingly, approximately
$11,200,000 of retained earnings was available for
payment of dividends at December 31, 1996.
For additional information, see Note 3 in the
Consolidated Financial Statements of the 1996
Annual Report to Security Holders, which is
incorporated as a part of this report.
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary of Selected Financial Data is
incorporated by reference -
1996 Annual Report to Security Holders
Five-Year Summary of Selected Financial Data - Page 3
PAGE
PART II (Continued)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of operations, liquidity, and capital resources
are incorporated by reference -
1996 Annual Report to Security Holders
Management's Discussion and Analysis of Financial
Condition and Results of Operations - Pages 8-9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements included in the 1996
Annual Report to Security Holders are incorporated by
reference as identified in Part IV, Item 14, on
Pages 10-17.
and 7.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PAGE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and executive officers
is incorporated by reference -
Proxy Statement, Dated March 28, 1997 - Pages 1 - 5
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is
incorporated by reference -
Proxy Statement, Dated March 28, 1997 - Page 4
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) No person, director or officer owned over 5
percent of the common stock as of March 1, 1997.
(b) Security ownership by management is incorporated
by reference -
Proxy Statement, Dated March 28, 1997
Stock Ownership - Page 4
(c) Contractual arrangements -
The Company knows of no contractual arrangements
which may, at a subsequent date, result in change
of control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships or transactions to disclose
other than services provided by Directors which are
incorporated by reference -
Proxy Statement, Dated March 28, 1997
Directors - Page 3
PAGE
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
A. Document List
The following documents are filed as part of this
Form 10-K. Financial statements are incorporated
by reference and are found on the pages noted.
Page
Reference
Annual
Report
1. Financial Statements
The following consolidated financial
statements of Shenandoah Telecommunications
are included in Part II, Item 8
Auditor's Report 1996, 1995, and 1994
Financial Statements 17
Consolidated Balance Sheets at
December 31, 1996, 1995, and 1994 10 & 11
Consolidated Statements of Income for
the Years Ending December 31, 1996,
1995, and 1994 12
Consolidated Statement of Retained Earnings
Years Ended December 31, 1996, 1995, and 1994 12
Consolidated Statements of Cash Flow
for the Years Ending December 31, 1996,
1995, and 1994 13
Notes to Consolidated Financial Statements 14-17
PAGE
PART IV (Continued)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)
Page
Reference
Annual
Report
2. Financial Statement Schedules
All other schedules are omitted because
they are not applicable, or not required,
or because the required information is
included in the accompanying financial
statements or notes thereto.
3. Exhibits
Exhibit No.
99. Proxy Statement, prepared by Registrant
for 1996 Annual Stockholders Meeting -
Filed Herewith
13. Annual Report to Security Holders -
Filed Herewith
21. List of Subsidiaries -
Filed Herewith
27. Financial Data Schedule
B. Reports on Form 8-K
On October 11, 1996, reported the September 30,
1996 acquisition, for cash, of the Shenandoah
County, Virginia cable television systems of
FrontierVision Operating Partners, L.P., of
Denver, Colorado for approximately $7,864,171.
PAGE
PART IV (Continued)
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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
March 28, 1997 By CHRISTOPHER E. FRENCH, PRESIDENT
Christopher E. French, President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report signed by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
President & Chief Executive
CHRISTOPHER E. FRENCH Officer March 28, 1997
Christopher E. French
LAURENCE F. PAXTON Principal Financial March 28, 1997
Laurence F. Paxton Accounting Officer
DICK D. BOWMAN Treasurer & Director March 28, 1997
Dick D. Bowman
DOUGLAS C. ARTHUR Director March 28, 1997
Douglas C. Arthur
KEN L. BURCH Director March 28, 1997
Ken L. Burch
HAROLD MORRISON Director March 28, 1997
Harold Morrison
NOEL M. BORDEN Director March 28, 1997
Noel M. Borden
JAMES E. ZERKEL II Director March 28, 1997
James E. Zerkel II
PAGE
EXHIBIT 99. PROXY STATEMENT
SHENANDOAH TELECOMMUNICATIONS COMPANY
124 South Main Street
Edinburg, Virginia
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 22, 1997
March 28, 1997
TO THE STOCKHOLDERS OF
SHENANDOAH TELECOMMUNICATIONS COMPANY:
The annual meeting of stockholders of Shenandoah
Telecommunications Company will be held in the Social Hall of the
Edinburg Fire Department, Stoney Creek Boulevard, Edinburg,
Virginia, on Tuesday, April 22, 1997, at 11:00 a.m. for the
following purposes:
1. To elect nine directors to serve for the ensuing year; and
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Only stockholders of record at the close of business March 26,
1997, will be entitled to vote at the meeting.
Lunch will be provided.
By Order of the Board of Directors
Harold Morrison, Jr.
Secretary
IMPORTANT
YOU ARE URGED TO COMPLETE, SIGN, AND RETURN THE ENCLOSED PROXY CARD
IN THE SELF-ADDRESSED STAMPED (FOR U. S. MAILING) ENVELOPE PROVIDED
AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING IN PERSON. IF YOU DO ATTEND THE MEETING IN PERSON, YOU MAY
THEN WITHDRAW YOUR PROXY AND VOTE YOUR OWN SHARES.
SEE PROXY STATEMENT ON THE FOLLOWING PAGES
PAGE
PROXY STATEMENT
P. O. Box 459
Edinburg, VA 22824
March 28, 1997
TO THE STOCKHOLDERS OF
SHENANDOAH TELECOMMUNICATIONS COMPANY:
Your proxy in the enclosed form is solicited by the management
of the Company for use at the Annual Meeting of Stockholders to be
held in the Social Hall of the Edinburg Fire Department, Stoney
Creek Boulevard, Edinburg, Virginia, on Tuesday, April 22, 1997, at
11:00 a.m., and any adjournment thereof.
The mailing address of the Company's executive offices is P.
O. Box 459, Edinburg, Virginia 22824.
The Company has 8,000,000 authorized shares of common stock,
of which 3,760,760 shares were outstanding on March 26, 1997. This
proxy statement and the Company's annual report, including
financial statements for 1996, are being mailed on or about March
28, 1997, to approximately 3,409 stockholders of record on March
26, 1997. Only stockholders of record on that date are entitled to
vote. Each outstanding share will entitle the holder to one vote
at the Annual Meeting. No director, officer, or other party owns
as much as five percent of the outstanding shares of the common
stock of the Company. The Company intends to solicit proxies by
the use of the mail, in person, and by telephone. The cost of
soliciting proxies will be paid by the Company.
Executed proxies may be revoked at any time prior to exercise.
Proxies will be voted as indicated by the stockholders.
THE ELECTION OF DIRECTORS
At the meeting, nine directors (constituting the entire Board
of Directors of the Company) are to be elected for the ensuing
year.
The proxy holders will vote the proxies received by them
(unless contrary instructions are noted on the proxies) for the
election as directors of the following nominees, all of whom are
now members of and constitute the Company's Board of Directors. If
any such nominees should be unavailable, the proxy holders will
vote for substitute nominees in their discretion. Stockholders may
withhold the authority to vote for the election of directors or one
or more of the nominees. Directors will be elected by a plurality
of the votes cast. Abstentions and shares held in street name that
are not voted in the election of directors will not be included in
determining the number of votes cast.
On February 17, 1997, Douglas C. Arthur was elected by the
Board to fill the vacancy created by the death of Philip M.
Grabill, Jr.
PAGE
Nominees for Election of Directors
Elected Principal Occupation and Other
Name of Director Director Age Directorships for Past Five Years
(1) (2) (3)
Douglas C. Arthur 1997 54 Attorney-at-Law; Dir., 1st National
Corp.
Noel M. Borden 1972 60 Pres., H. L. Borden Lumber Co. (a
Vice President retail building materials firm); Chairman
of the
Board, 1st National Corp.
Dick D. Bowman 1980 68 Pres., Bowman Bros., Inc. (a farm
Treasurer of the Co. equip. dealer); Dir., Shen. Valley Elec.
Coop.; Dir., Rockingham Mutual Ins. Co.;
Dir., Old Dominion Electric Coop.
Ken L. Burch 1995 52 Farmer
Christopher E. French 1996 39 Pres., Shen. Telecommunications Co.
President & its Subsidiaries; Dir., 1st National
Corp.
Grover M. Holler, Jr. 1952 76 Pres., Valley View, Inc. (a real
estate developer)
Harold Morrison, Jr. 1979 67 Chairman of the Board, Woodstock
Secretary of the Co. Garage, Inc. (auto sales & repair
firm); Dir., 1st Virginia Bank-BR
Zane Neff 1976 68 Retired Manager, Hugh Saum Co.,
Asst. Secretary Inc. (a hardware and furniture
of the Co. store); Dir., Crestar Bank
James E. Zerkel II 1985 52 Vice Pres., James E. Zerkel, Inc. (a
heating, gas, & hardware firm); Dir.,
Shenandoah Valley Electric Coop.)
PAGE
(1) The directors who are not full-time employees of the Company were compensated in 1996 for
their services on the Board and one or more of the Boards of the Company's subsidiaries
at the rate of $355 per month plus $355 for each Board meeting attended. Additional
compensation was paid to the Vice President, Secretary, Assistant Secretary, and
Treasurer, for their services in these capacities, in the amounts of $1,300, $2,720,
$1,300, and $2,720, respectively.
(2) Years shown are when first elected to the Board of the Company or the Company's
predecessor, Shenandoah Telephone Company. Each nominee has served continuously since
the year he joined the Board.
(3) Each director also serves as a director of one or more of the Company's subsidiaries.
PAGE
Standing Audit, Nominating, and Compensation Committees
of the Board of Directors
1. Audit Committee - The Finance Committee of the Board of
Directors, consisted of the following directors: Dick D.
Bowman (Chairman), Grover M. Holler, Jr., and Noel M. Borden.
It performed a function similar to that of an Audit
Committee. This committee is responsible for the employment
of outside auditors and for receiving and reviewing the
auditor's report. During 1996 there were two meetings of the
Finance Committee. Additional business of the committee was
conducted in connection with the regular Board meetings.
2. Nominating Committee - The Board of Directors does not have
a standing Nominating Committee.
3. Compensation Committee - The Personnel Committee of the Board
of Directors, consisted of the following directors: Noel M.
Borden (Chairman), Harold Morrison, Jr., and Philip M.
Grabill, Jr. James E. Zerkel II has been named to this
committee to replace Mr. Grabill. This committee performed
a function similar to that of a Compensation Committee. It
is responsible for the wages, salaries, and benefit programs
for all employees. During 1996 there were three meetings of
this committee.
Attendance of Board Members at Board and Committee Meetings
During 1996, the Board of Directors held 13 meetings. All of
the directors attended at least 75 percent of the aggregate
of: (1) the total number of meetings of the Board of
Directors; and (2) the total number of meetings held by all
committees of the Board on which they served.
Certain Transactions
In 1996, the Company received services from Mr. Morrison's company
in the amount of $24,239 and from Mr. Zerkel's company in the amount
of $20,145. Management believes that each of the companies provides
these services to the Company on terms comparable to those available
to the Company from other similar companies. No other director is an
officer, director, employee, or owner of a significant supplier or
customer of the Company.
PAGE
STOCK OWNERSHIP
The following table presents information relating to the beneficial ownership of the
Company's outstanding shares of common stock by all directors, the president, and all directors
and officers as a group.
No. of Shares
Name and Address Owned as of 2-1-97 Percent of Class
(1) (2)
Douglas C. Arthur 1,440 *
Strasburg, VA 22657
Noel M. Borden 17,896 *
Strasburg, VA 22657
Dick D. Bowman 42,944 1.14
Edinburg, VA 22824
Ken L. Burch 45,172 1.20
Quicksburg, VA 22847
Christopher E. French 129,228 3.44
Woodstock, VA 22664
Grover M. Holler, Jr. 70,736 1.88
Edinburg, VA 22824
Harold Morrison, Jr. 20,378 *
Woodstock, VA 22664
Zane Neff 7,616 *
Edinburg, VA 22824
James E. Zerkel II 4,348 *
Mt. Jackson, VA 22842
Total shares beneficially
owned by 13 directors and
officers as a group 341,714 9.09
PAGE
(1) Includes shares held by relatives and in certain trust relationships, which may be
deemed to be beneficially owned by the nominees under the rules and regulations of the
Securities and Exchange Commission; however, the inclusion of such shares does not
constitute an admission of beneficial ownership.
(2) Asterisk indicates less than 1%.
SUMMARY COMPENSATION TABLE
The following Summary Table is furnished as to the salary and incentive payment paid by
the Company and its subsidiaries on an accrual basis during the fiscal years 1994, 1995, and
1996 to, or on behalf of, the chief executive officer and each of the next four most highly
compensated executive officers who earn $100,000 or more per year.
Name and Principal Incentive
Position Year Salary Payment
Christopher E. French 1996 $130,612 $ 11,013
President 1995 114,684 20,150
1994 107,816 14,875
/TABLE
RETIREMENT PLAN
The Company maintains a noncontributory defined benefit
Retirement Plan for its employees. The following table illustrates
normal retirement benefits based upon Final Average Compensation
and years of credited service. The normal retirement benefit is
equal to the sum of:
(1) 1.14% times Final Average Compensation plus 0.65% times
Final Average Compensation in excess of Covered
Compensation (average annual compensation with respect to
which Social Security benefits would be provided at Social
Security retirement age) times years of service (not
greater than 30); and
(2) 0.29% times Final Average Compensation times years of
service in excess of 30 years (such excess service not to
exceed 15 years).
Estimated Annual Pension
Years of Credited Service
Final Average
Compensation 15 20 25 30 35
$20,000 $ 3,420 $ 4,560 $ 5,700 $ 6,840 $ 7,130
35,000 6,540 8,720 10,901 13,081 13,588
50,000 10,568 14,090 17,613 21,136 21,861
75,000 17,280 23,040 28,801 34,561 35,648
100,000 23,993 31,990 39,988 47,986 49,436
125,000 30,705 40,940 51,176 61,411 63,223
150,000 37,418 49,890 62,363 74,836 77,011
Covered Compensation for those retiring in 1997 is $29,304.
Final Average Compensation equals an employee's average annual
compensation for the five consecutive years of credited service for
which compensation was the highest. The amounts shown as estimated
annual pensions were calculated on a straight-life basis assuming
the employee retires in 1997. The Company did not make a
contribution to the Retirement Plan in 1996, as the Plan was
adequately funded. Christopher French had 15 years of credited
service under the plan as of January 1, 1997.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The members of the Personnel Committee of the Board of
Directors of the Company perform the function of a Compensation
Committee. The Committee's approach to compensation of the
Company's executive officers, including the chief executive
officer, is to award a total compensation package consisting of
salary, incentive, and fringe benefit components. The compensation
package is designed to provide a level of compensation to enable
the Company to attract
PAGE
and retain the executive talent necessary for the long-term success
of the organization. The incentive plan component of the total
compensation package provides an incentive to the officers to meet
or exceed certain performance objectives. The plan also places a
portion of the officers' total compensation at risk in the event
the Company does not achieve its objectives. The objectives
include a component measuring the improvement in the level of
service provided to the Company's customers and a component
measuring the Company's financial performance. In 1996, the
Company reached over 57 percent of its combined goals.
Submitted by the Company's Personnel Committee:
Noel Borden, Chairman
Harold Morrison, Jr.
James Zerkel II
PAGE
FIVE-YEAR STOCKHOLDER RETURN COMPARISON
The Securities and Exchange Commission requires that the
Company include in its Proxy Statement a line graph presentation
comparing cumulative, five-year stockholder returns on an indexed
basis with a performance indicator of the overall stock market and
either a nationally recognized industry standard or an index of
peer companies selected by the Company. The broad market index
used in the graph is the NASDAQ Market Index. The S&P Telephone
Index consists of the seven regional Bell Operating Companies and
GTE.
The Company's stock is not listed on any national exchange nor
NASDAQ; therefore, for purposes of the following graph, the value
of the Company's stock, including the price at which dividends are
assumed to have been reinvested, has been determined based upon the
average of the prices of transactions in the Company's stock that
were reported to the Company in each fiscal year.
.Comparison of Five-Year Cumulative Total Return* among Shenandoah
Telecommunications Company, NASDAQ Market Index, and S&P Telephone
Index
1991 1992 1993 1994 1995 1996
Shenandoah
Telecommunications 100.00 105.49 110.47 105.52 113.78 118.35
NASDAQ Market
Index 100.00 116.40 133.60 130.60 184.70 227.20
S&P Telephone
Index 100.00 109.73 126.73 121,49 183.02 184.85
Assumes $100 invested December 31, 1991 in Shenandoah
Telecommunications Company stock, NASDAQ Market Index, and S&P
Telephone Index
*Total return assumes reinvestment of dividends
PAGE
EMPLOYMENT OF AUDITORS
The Board of Directors, on the recommendation of the Audit
Committee, has appointed the firm of McGladrey and Pullen as
auditors to make an examination of the accounts of the Company for
the 1997 fiscal year. It is not expected that representatives of
the firm will be present at the annual meeting.
PROPOSALS OF SECURITY HOLDERS
Proposals of security holders to be included in management's
proxy statement and form of proxy relating to next year's annual
meeting must be received at the Company's principal executive
offices not later than November 28, 1997.
OTHER MATTERS
Management does not intend to bring before the meeting any
matters other than those specifically described above and knows of
no matters other than the foregoing to come before the meeting. If
any other matters properly come before the meeting, it is the
intention of the persons named in the accompanying form of proxy to
vote such proxy in accordance with their judgment on such matters,
including any matters dealing with the conduct of the meeting.
FORM 10-K
The Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission is available to stockholders,
without charge, upon request to Mr. Laurence F. Paxton, Vice
President-Finance, Shenandoah Telecommunications Company, P. O. Box
459, Edinburg, VA 22824.
PAGE
EXHIBIT 13. ANNUAL REPORT
(inside front cover)
STOCKHOLDER INFORMATION
Our Business
Shenandoah Telecommunications Company is a holding company
which provides telephone service through its subsidiary, Shenandoah
Telephone Company, primarily in Shenandoah County and small service
areas in Rockingham, Frederick, and Warren counties, all in
Virginia. The Company provides cable television service in
Shenandoah County through its subsidiary, Shenandoah Cable
Television Company. The Company provides unregulated
communications equipment and services through its subsidiary,
ShenTel Service Company, which sells and maintains PBXs, key
systems, and security systems. The Company finances purchases of
telecommunications facilities and equipment through its subsidiary,
Shenandoah Valley Leasing Company. Shenandoah Mobile Company
furnishes paging, mobile telephone, business radio, and cellular
telephone services in the northern Shenandoah Valley. Shenandoah
Mobile Company is the managing general partner of a partnership
providing cellular services in Virginia RSA 10 covering the
northwestern portion of Virginia. The Company resells long
distance services through Shenandoah Long Distance Company.
Shenandoah Network Company operates and maintains the Company's
interstate fiber optic network. Under an agreement with American
Personal Communications, Shenandoah Personal Communications Company
is building and operating a personal communications network in the
four-state region from Chambersburg, Pennsylvania to Harrisonburg,
Virginia.
Annual Meeting
The Board of Directors extends an invitation to all
stockholders to attend the Annual Meeting of Stockholders. The
meeting will be held Tuesday, April 22, 1997, at 11:00 a.m. in the
Social Hall of the Edinburg Fire Department, Stoney Creek
Boulevard, Edinburg, Virginia. Notice of the Annual Meeting, Proxy
Statement, and Proxy were mailed to each stockholder on or about
March 28, 1997.
Form 10-K
The Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission is available to stockholders,
without charge, upon request to Mr. Laurence F. Paxton, Vice
President - Finance, Shenandoah Telecommunications Company, P. O.
Box 459, Edinburg, VA 22824.
PAGE
(Inside front cover bottom)
Market and Dividend Information
The stock of Shenandoah Telecommunications Company is not
listed on any national exchange or NASDAQ, and the Company is not
aware of any broker who maintains a position in the Company's
stock. It, however, is aware of unconfirmed transactions of the
stock which have been handled privately and by brokers and local
auctioneers. Additionally, the stock is traded on the over-the-
counter bulletin board system. Some of these prices include
commissions and auctioneers' fees. Since some prices are not
reported to the Company and family transactions are not applicable,
all transactions are not included in the following summary of
prices. The Company has maintained a policy of declaring an annual
cash dividend.
1996 1995
No. No. No. No.
Qtr. Trans. Shares High Low Trans. Shares High Low
1st 145 14,045 $28.00 $19.75 69 10,123 $25.00 $18.41
2nd 123 10,368 27.00 20.00 221 22,860 40.00 19.00
3rd 126 12,391 25.50 20.00 167 13,860 31.00 19.00
4th 92 9,339 31.00 20.00 119 10,885 30.00 19.00
Weighted average price
per share - $21.86 $21.42
Annual cash dividend
per share - .42 .42
Special cash dividend
per share - - .06
Corporate Headquarters Independent Auditors
Shenandoah Telecommunications Company McGladrey & Pullen, LLP
124 South Main Street 1051 East Cary Street
Edinburg, VA 22824 Richmond, VA 23218
Stockholders' Questions and Stock Transfers - Call (540) 984-5260
Transfer Agent - Common Stock
Shenandoah Telecommunications Company
P. O. Box 459
Edinburg, VA 22824
PAGE>
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
1996 1995 1994 1993 1992
Operating Revenues $25,429,854 $21,919,150 $20,229,178 $18,329,886 $17,359,114
Operating Expenses 17,485,203 13,027,468 12,050,713 11,455,136 10,454,448
Income Taxes 2,821,586 3,572,956 2,577,641 2,481,764 2,189,663
Other Income less Other
Expenses (1) 446,574 456,544 (90,897) (154,454) 188,210
Interest Expense 803,300 685,971 658,908 621,944 667,900
Gain (loss) on Security
Sales or Writedown 228,250 1,141,386 - - (220,000)
Net Income $ 4,994,589 $ 6,230,685 $ 4,851,019 $ 4,602,619 $ 4,015,313
Net Income from Continuing
Operations (2) $ 4,790,006 $ 5,522,904 $ 4,851,019 $ 4,156,300 $ 4,151,801
Total Assets $79,374,097 $59,896,990 $52,464,150 $49,652,064 $44,839,501
Long-Term Obligations $24,706,239 $10,558,953 $ 9,941,209 $ 9,381,813 $ 8,754,524
Stockholder Information
Number of Stockholders 3,399 3,226 2,979 2,879 2,683
Shares of Stock (3) 3,760,760 3,760,760 3,760,760 3,760,760 3,760,760
Earnings per Share (3) $ 1.33 $ 1.66 $ 1.29 $ 1.22 $ 1.07
Continuing Operations (3) $ 1.27 $ 1.47 $ 1.29 $ 1.11 $ 1.10
Regular Cash Dividend per
Share (3) $ .42 $ .42 $ .375 $ .30 $ .275
Special Cash Dividend per
Share (3) $ - $ .06 $ - $ - $ -
(1) Includes non-operating income less expenses and minority interest in net income of
consolidated subsidiaries.
(2) Excludes gain on sale of investments in MFS Communications Company and South
Atlantic Venture Fund III in 1996; gain on sale of investments in Virginia Metrotel
and MFS Communications Company in 1995; gain on sale of fiber optic lease asset;
write-off of portion of investment in Metrotel Services, Ltd.; share of loss of
Virginia Metrotel in 1993; and write-down of AvData in 1992. All items netted for
estimated income tax effect.
(3) The information has been restated to reflect a 2-for-1 split to stockholders of
record January 23, 1995.
/TABLE
CABLE TELEVISION EXPANSION
On September 30, 1996, Shenandoah Cable Television Company
acquired the Shenandoah County CATV systems formerly owned by C4
Media. These systems, which had been purchased in February of 1996
by FrontierVision Operating Partners, L.P. of Denver, Colorado,
have become a part of Shenandoah Cable's existing CATV system,
increasing its customer base to 7,798 customers. This company now
provides cable television service to all the incorporated towns and
to a large part of the rural portion of Shenandoah County.
The enactment of the Telecommunications Act of 1996 removed
requirements for approval by the Federal Communications Commission,
allowing Shenandoah Cable to purchase and build CATV facilities in
the same area where its affiliate, Shenandoah Telephone Company,
provides local telephone service. Operation of both the CATV and
Telephone networks in the same area will allow both services to
share common network elements.
Planning is presently under way to integrate and upgrade the
technical capabilities of the separate systems. Engineering has
been completed to utilize our fiber optic facilities to combine the
three existing CATV headends. The Woodstock and New Market
headends will be eliminated, and all signals will be gathered and
processed from our Edinburg site. This will provide our customers
increased service dependability and separate routing of the signal
trunking to individual towns. Existing network facilities will
also be used to trunk Washington, DC off-air signals from our
Berryville mobile tower site to Edinburg. This should greatly
improve the picture quality of the six off-air channels presently
being carried out of the Washington/Baltimore area.
We have budgeted $800,000 for 1997 to upgrade our existing
Edinburg 300 megahertz system to 750 megahertz. The newly acquired
450 megahertz systems of Woodstock and New Market will also be
engineered to a 750 megahertz system and will be upgraded in 1998
at a cost of approximately $500,000. This 750 megahertz hybrid
fiber coaxial network will allow us to offer all of our CATV
customers a broad selection of video programming and supplement the
basic services with additional features and functionality in the
future. We will have the potential to use the bandwidth capacity
of the CATV network for the delivery of new services, such as high-
speed Internet access, advanced pay-per-view services, development
of a community public access channel, and deployment of interactive
programming.
This acquisition will allow us to offer the residents of
Shenandoah County the benefits of local ownership and operation of
their CATV services. At the same time, it will enable Shenandoah
Cable to continue expanding its broadband network services in order
to provide the services needed by our customers today and in the
future.
PAGE
PCS MOVING FORWARD
Shenandoah Personal Communications Company had a very busy year
in 1996. It reviewed over 100 potential sites for communications
towers and attended more than 50 public meetings to obtain the
necessary local governmental approvals. Since we were the first
PCS provider to ask for communication sites in many jurisdictions,
we helped several of the local authorities write or rewrite their
zoning ordinances regarding towers and wireless communications
facilities. Our efforts were always geared toward using existing
structures whenever possible; but, if we had to build a new
structure, we made it available to other providers. By the end of
the year we had built twelve communication towers, averaging over
250 feet tall. At the same time, fifteen PCS base stations were
also installed. By July 31, we had extended PCS south from
Martinsburg, West Virginia to Woodstock, Virginia and, by September
30, to Harrisonburg, Virginia.
In the third quarter of 1996 we focused our attention on areas
that required additional coverage. We decided to improve service
in many of the towns and cities along our coverage area; and we
started the zoning, building, and installation process for the
additional sites. The results of this work will be seen in the
first half of 1997 as we bring additional sites on the air in
Hagerstown, Strasburg, Woodstock, Edinburg, and Front Royal.
Additional sites will follow later in 1997.
During 1996 we also identified two sites for additional
Shentel/Sprint Spectrum retail stores. In the spring of 1997 we
will open a PCS store at the Company's retail sales office building
at 1923 South Loudoun Street in Winchester. We will then open a
third PCS store at 182 Neff Avenue in Harrisonburg.
Our sales efforts were very successful as well, despite the
delay of commercial availability of service. During the year our
sales staff concentrated on selling our PCS phones through our
Sprint Spectrum store in Hagerstown, as well as through our
extensive network of independent retailers like Radio Shack,
Circuit City, and Sears.
PAGE
1996 FLOODS IMPACT SERVICE
During 1996, the tranquility of the Shenandoah River was
disturbed on two different occasions - first in January and again
in September - by floods of massive proportions. Not only did the
floods do considerable damage to low-lying areas along the river
banks; they also had an impact on the facilities of Shenandoah
Telephone Company. Many of our facilities in areas along the river
were damaged or destroyed by the force of the flood waters,
affecting the service of many of our customers.
The capabilities of our Shenandoah Telephone Company personnel
were severely challenged to restore service in a timely manner to
our affected customers. In some cases, in order to provide
emergency service to some of the people that were isolated because
of flood damage, the Company was able to equip the residents of
those areas with cellular telephones to use until normal service
was restored. Despite the adverse conditions remaining after the
flood waters receded, most known service outages were restored
within four days. Our personnel worked long hours to restore
service to the level of service standards our customers have come
to expect.
PAGE
PERSONNEL
The business growth and expansion of our organization was
reflected in the increase in our number of employees. At the end
of the year we had 152 full-time equivalent (FTE) employees, as
compared to 140 FTE employees at the end of 1995. This growth was
partly due to acquiring the Shenandoah County CATV systems,
formerly owned by FrontierVision; expanding our PCS operations; and
the growth of our Internet business.
Employees hired in 1996 include: Shenandoah Telephone Company
- - Larry Drake, Vice President-Network Service; Sandra Crabill and
Paula Lam, Data Processing System Operators; Laura Drummond and
Stacey Smith, Service Representatives; Melissa Lloyd, Part-time
Communications Center Operator; Keith Jones, Central Office
Technician; Chris Haynes, Installer-Repairman; Steven Richman,
Janitor; John Bauserman, Mark Loving, Bryan Mauck, and Alan Moomaw,
Jr., Laborers. Shenandoah Cellular - Anna Shifflett, Service
Representative; and Sean Lannoo, Installer-Repairman. Shenandoah
Personal Communications Company - (Hagerstown office) - Laurie
Nigh, Retail Sales Representative; (Winchester office) - Jon
Clatterbuck, Anita Kellam, and Dawn Sager, Retail Sales
Representatives; and Edward Budd, Area Manager of the Harrisonburg
office.
In addition, the following employees received promotions and
transfers: Kelly Clark, Cellular Sales Representative; Lewis
Fadely, Vice President-Operations; Dale Jordan, Installer-
Repairman; Bobby Lloyd, Cable Splicer; Rhonda Lively, System
Technician; Jeff Manning, Central Office Technician; Patricia
Marcey-Miller and David Mathias, PCS Assistant Managers; Tracy
Miller, Cellular Retail Sales Representative; David Myers II,
System Technician; Kerwin Ralls, Cellular Assistant Manager; Dawn
Sager, PCS Retail Sales Representative; Sen Soan, Lineman; Gary
Strosnider, Construction Foreman; Tamara Weekley, Cellular Sales
Representative; Teresa Brock, Accounting Clerk; Jane deCourcy and
Lisa Mauck, Service Representatives; Melvin Kibler, Jr., Installer-
Repairman; and Jerry Mason, Field Engineer.
Many milestone anniversaries were reached in 1996. We
recognized the following 26 employees for a total of 410 years of
service: 35 years - Janice Clem; 30 years, James Wellard, Dot
Baker, Earnest Moomaw, Jr., and Melvin Kibler, Jr.; 25 years - Ben
Myers, Betty Bly, Gary Kronk, and Daniel Burner; 15 years -Jane
deCourcy, Susan Foltz, and Christopher French; 10 years - Tom
Smith, Ronald Bankert, Joe O'Rear, Christina Price, Ruth Hoffman,
Tracy Miller, Gary Shipe, and Sen Soan; 5 years - Donna Justice,
Judy Baker, Laurence Paxton, Cynthia Soltis, Kerwin Ralls, and Neil
Fadely.
Our summer internship program was again active during 1996. A
total of 24 college students assisted our organization during the
summer months and holiday vacations.
PAGE
During the year our employees were once again generous with
their time, talents, and money by supporting the American Cancer
Society's Relay for Life and assisting Shenandoah County Social
Services in providing Christmas gifts for foster children. The
employees also participated in community and industry events,
including telephone book recycling, parades, Sandy Hook Truck Day,
and a wide variety of other charitable and civic organizations.
Warren B. French, Jr., Chairman Emeritus of the Board of
Directors of the Company, was honored by Lord Fairfax Community
College by having the new Telecommunications Center named after
him. The Warren B. French, Jr. Telecommunications Center opened
for class in the fall of 1996 and presently offers fully
interactive classes in conjunction with the high schools in
Shenandoah County.
PAGE
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.
The regulated telephone local exchange company is the largest
subsidiary, accounting for 54.5% of revenue. This industry is in a
period of transition from a protected monopoly to a competitive
environment as evidenced by the 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. In 1994 the Company began providing
Internet access and in December of 1995 became the first in the
United States to offer Personal Communications Services in a rural
location. On September 30, 1996, the Company purchased the
Shenandoah County cable television assets of FrontierVision
Operating Partners, L.P., more than doubling the cable television
customer base.
Other significant services provided are cellular phone, 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, and
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 changes in access revenues generally
corresponds with growth in minutes of use and in access lines. The
minutes of use during 1996 increased 8.8% compared to an increase
of 7.2% in 1995. The number of access lines increased by 3.8% in
1996 and 3.1% in 1995.
Cable Television revenues increased principally as a result of
the acquisition mentioned above. Cable Television revenues
increased 47.1% in 1996 as compared to 17.1% in 1995.
Approximately 95.1% of the 1996 gain is attributed to the
acquisition's revenues for the last quarter. The 1995 increase was
due to a restructuring of rates charged beginning September 1,
1994.
The increase in the ShenTel Service revenues equaled $309,595
or 22.5% for 1996 compared to a $176,648 decrease in 1995. The
1996 increase in revenues is due to expansion of our Internet
Service operation, with a revenue gain of $305,099 or 203.2%. The
decrease in 1995 was due to lower retail equipment sales.
PAGE
The Mobile revenues are mainly comprised of revenues from
wireless communications services. Local cellular service revenues
increased $776,949 or 35.6% in 1996 compared to $177,761 or 8.9% in
1995. Outcollect roamer revenues increased $819,092 or 31.6% in
1996 compared to $536,772 or 26.1% in 1995. The increase in local
cellular revenues was due to a 56.7% increase in the customer base
in 1996 and a 27.5% increase in 1995.
Long Distance revenues declined by 7.7% in 1996 and by 1.7% in
1995 due to a loss of market share. The 1996 revenue decrease of
$87,471 was more than offset by the $122,809 reduction in
underlying line costs stemming from a new contract.
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 8.1% in
1996. New contracts added in late 1994 were primarily responsible
for the 1995 increase of 42.6%.
Cost of Products Sold increased by $861,917 or 112.8% in 1996.
Handset sales in the personal communications and cellular
operations were responsible for 94.7% of this change.
Plant Specific is chiefly comprised of ongoing operating and
maintenance expense for physical plant. This category increased by
22.3% in 1996 and 6.2% in 1995. Almost half of the 1996 increase
is for building, tower, land rentals, and maintenance. The
remainder of the increase is primarily attributed to additional
plant placed in service during 1996.
The expense category with the largest increase in 1996 was
Network and Other. The increases in 1996 and 1995 were due
primarily to facilities costs attributed to the PCS, Cellular, and
Internet Service operations. These costs increased $1,231,818 or
59.8% in 1996 primarily due to the rapidly increasing customer base
for these services.
Depreciation and Amortization, our largest expense category,
increased by 23.2% in 1996 compared to 4.9% in 1995. Plant in
Service, combined with goodwill and non-compete values appraised
for the CATV acquisition, collectively increased the basis for this
category by $17,671,554 or 33.3% in 1996. In addition to the CATV
acquisition, other significant investments were made in towers and
equipment for wireless services and normal telephone network
expansion.
Total payroll costs (including capitalized costs) increased
23.4% in 1996 compared to 1995. Total payroll costs in 1995
increased 8.9% from the previous year. The cost increases are
primarily due to an increase in the number of employees,
principally in the Personal Communications Services operations.
Payroll is primarily responsible for the 35.8% increase in customer
operations and 15.5% increase in corporate operations expense in
1996.
PAGE
The increase in Taxes Other Than Income in 1996 was primarily
due to the increased amount of Plant in Service.
The Non-operating Income Less Expenses category consists mainly
of the income or loss from interest bearing instruments and
external investments made by the Company. The increase reflected
on the income statement is principally due to income recognized in
one of the Company's partnership investments.
LIQUIDITY AND CAPITAL RESOURCES
The Company has two principal sources of funds for funding
current expansion activities. First, the Company has a loan
agreement with the Rural Telephone Bank with approximately
$3,600,000 remaining for future advances. Expenditure of these
loan funds is limited to capital projects for the regulated local
exchange carrier.
The second principal liquidity source is a credit facility
agreement with CoBank, entered into in July 1996. Pursuant to this
agreement, the Company can borrow up to $25,000,000 for a three-
year period ending September 1, 1999. During this period only
interest is payable. On September 1, 1999, the outstanding
principal balance will be amortized and repaid in monthly
installments over the next twelve years, with the final installment
due August 20, 2011. Draws on this loan for 1996 totaled
$13,467,838.
As discussed above, the Company's new Personal Communications
Services (PCS) business requires significant investment in new
plant and equipment. The Company's Board of Directors has approved
a construction budget of potential projects totaling approximately
$25,910,000. This budget includes approximately $13,674,000 for
PCS-related new plant in 1997. The remaining amounts are primarily
for telephone central office equipment and fiber optic cable
facilities.
The Company expects to finance these planned additions through
internally generated cash flows and additional advances from the
RTB note and CoBank agreement.
PAGE
Independent Auditor's Report
The Board of Directors
Shenandoah Telecommunications Company
Edinburg, Virginia
We have audited the accompanying consolidated balance sheets of
Shenandoah Telecommunications Company and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated
statements of income, retained earnings, and cash flows for the
years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Shenandoah Telecommunications Company and
subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on
the basic consolidated financial statements taken as a whole.
The consolidating information is presented for purposes of
additional analysis of the basic consolidated financial
statements rather than to present the financial position and
results of operations of the individual companies. The
consolidating information has been subjected to the auditing
procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, is fairly stated in
all material respects in relation to the basic consolidated
financial statements taken as a whole.
Richmond, Virginia
January 24, 1997
PAGE
Shenandoah Telecommunications Company and Subsidiaries
Consolidated Balance Sheets
December 31, 1996, 1995 and 1994
ASSETS 1996 1995 1994
Current Assets
Cash and cash equivalents $ 3,763,468 $ 6,106,447 $ 8,574,559
Certificates of deposit 1,142,181 1,242,228 930,911
Held-to-maturity securities
(Note 2) 2,148,945 2,488,773 950,750
Accounts receivable, including
interest receivable 4,208,742 3,068,379 2,880,428
Materials and supplies 2,888,709 1,922,090 1,511,006
Prepaid expenses and other
current assets 399,074 481,003 317,331
------------------------------------------------------
Total current assets 14,551,119 15,308,920 15,164,985
------------------------------------------------------
Securities and Investments (Note 2)
Available-for-sale securities 2,738,431 2,333,411 -
Held-to-maturity securities 1,622,433 2,098,968 499,687
Other investments 4,112,947 3,072,728 4,607,845
------------------------------------------------------
8,473,811 7,505,107 5,107,532
Property, Plant and Equipment (Note 3)
Plant in service 65,215,491 53,076,538 49,039,958
Plant under construction 5,626,710 2,372,750 248,717
------------------------------------------------------
70,842,201 55,449,288 49,288,675
Less accumulated depreciation 21,648,820 18,795,430 17,402,341
------------------------------------------------------
49,193,381 36,653,858 31,886,334
------------------------------------------------------
See Notes to Consolidated Financial Statements.
PAGE
Shenandoah Telecommunications Company and Subsidiaries
Consolidated Balance Sheets (Continued)
December 31, 1996, 1995 and 1994
1996 1995 1994
Other Assets
Cost in excess of net assets of
business acquired, less accumulated
amortization (Note 6) 5,532,601 - -
Deferred charges and other assets 523,185 429,105 305,299
Deposit 1,100,000 - -
------------------------------------------------------
7,155,786 429,105 305,299
------------------------------------------------------
$ 79,374,097 $ 59,896,990 $ 52,464,150
------------------------------------------------------
See Notes to Consolidated Financial Statements.
PAGE
Shenandoah Telecommunications Company and Subsidiaries
Consolidated Balance Sheets (Continued)
December 31, 1996, 1995 and 1994
LIABILITIES AND STOCKHOLDERS'
EQUITY
1996 1995 1994
Current Liabilities
Current maturities of
long-term debt (Note 3) $ 529,405 $ 461,927 $ 423,329
Accounts payable 2,097,115 813,887 307,691
Advance billings and payments 590,336 625,559 526,105
Customers' deposits 89,591 107,509 137,793
Other current liabilities 1,117,795 2,164,069 937,586
Other taxes payable 128,144 85,804 53,739
____________________________________________________
Total current liabilities 4,552,386 4,258,755 2,386,243
____________________________________________________
Long-Term Debt, less
current maturities (Note 3) 24,176,834 10,097,026 9,517,880
____________________________________________________
Other Liabilities and
Deferred Credits
Deferred investment
tax credit 291,957 367,143 442,844
Deferred income taxes (Note 4) 4,908,170 3,965,318 3,535,014
Pension and other (Note 5) 573,363 438,324 745,935
____________________________________________________
5,773,490 4,770,785 4,723,793
____________________________________________________
Minority Interests 1,743,465 1,499,151 1,219,493
____________________________________________________
See Notes to Consolidated Financial Statements.
PAGE
Shenandoah Telecommunications Company and Subsidiaries
Consolidated Balance Sheets (Continued)
December 31, 1996, 1995 and 1994
1996 1995 1994
Stockholders' Equity (Note 3)
Common stock, no par value,
authorized 8,000,000 shares;
issued 3,760,760 shares 4,740,677 4,740,677 4,740,677
Retained earnings 37,716,654 34,301,584 29,876,064
Unrealized gain on
available-for-sale
securities, net (Note 2) 670,591 229,012 -
____________________________________________________
43,127,922 39,271,273 34,616,741
____________________________________________________
$ 79,374,097 $ 59,896,990 $ 52,464,150
See Notes to Consolidated Financial Statements.
PAGE
Shenandoah Telecommunications Company and Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Operating revenues
Telephone revenues:
Local service $ 3,319,648 $ 3,072,097 $ 2,868,656
Access and toll service 7,021,504 6,658,076 6,455,953
Directory 1,131,540 1,119,858 1,024,740
Facility leases 1,838,293 1,699,709 1,291,390
Billing and collection 432,212 409,983 447,008
Other miscellaneous 117,148 109,910 121,538
____________________________________________________
Total telephone revenues 13,860,345 13,069,633 12,209,285
Cable Television revenues 1,277,017 868,310 741,491
ShenTel Service revenues 1,688,795 1,379,200 1,555,848
Long Distance revenues 1,042,083 1,129,554 1,148,705
Mobile revenues 6,620,093 4,952,967 4,206,736
Network revenues 535,225 495,370 347,317
PCS revenues 387,446 - -
Other 18,850 24,116 19,796
____________________________________________________
Total operating revenues 25,429,854 21,919,150 20,229,178
____________________________________________________
Operating expenses:
Cost of products sold 1,626,181 764,264 802,904
Line costs 421,064 543,873 543,887
Plant specific 2,262,224 1,850,316 1,742,824
Plant nonspecific:
Network and other 3,291,073 2,059,255 1,649,329
Depreciation and amortization 3,529,554 2,864,521 2,730,938
Customer operations 3,347,804 2,465,316 2,206,931
Corporate operations 2,297,308 1,988,852 1,903,653
Taxes other than income 367,590 305,938 316,006
Other 342,405 185,133 154,241
____________________________________________________
17,485,203 13,027,468 12,050,713
____________________________________________________
See Notes to Consolidated Financial Statements.PAGE
Shenandoah Telecommunications Company and Subsidiaries
Consolidated Statements of Income (Continued)
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Operating income $ 7,944,651 $ 8,891,682 $ 8,178,465
Other income (expenses):
Nonoperating income,
less expenses 1,115,888 991,202 302,420
Interest expense (803,300) (685,971) (658,908)
Gain on sale of assets 228,250 1,141,386 -
____________________________________________________
8,485,489 10,338,299 7,821,977
Income taxes (Note 4) 2,821,586 3,572,956 2,577,641
____________________________________________________
5,663,903 6,765,343 5,244,336
Minority interests (669,314) (534,658) (393,317)
____________________________________________________
Net income $ 4,994,589 $ 6,230,685 $ 4,851,019
Net income per share $ 1.33 $ 1.66 $ 1.29
Cash dividends per share $ 0.42 $ 0.48 $ 0.375
Weighted average shares
outstanding 3,760,760 3,760,760 3,760,760
See Notes to Consolidated Financial Statements.
PAGE
Shenandoah Telecommunications Company and Subsidiaries
Consolidated Statements of Retained Earnings
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Balance, beginning $ 34,301,584 $ 29,876,064 $ 26,435,330
Net income 4,994,589 6,230,685 4,851,019
____________________________________________________
39,296,173 36,106,749 31,286,349
Cash dividends 1,579,519 1,805,165 1,410,285
____________________________________________________
Balance, ending $ 37,716,654 $ 34,301,584 $ 29,876,064
See Notes to Consolidated Financial Statements.
PAGE
Shenandoah Telecommunications Company and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash Flows From
Operating Activities
Net income $ 4,994,589 $ 6,230,685 $ 4,851,019
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 3,402,794 2,864,521 2,730,938
Amortization 126,760 - -
Deferred taxes 695,921 323,680 (53,324)
Gain on sale of assets (228,250) (1,141,386) -
Losses on equity investments 189,389 43,763 207,510
Minority share of income,
net of distributions 244,314 279,658 223,317
Other 75,883 (4,551) 224,378
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (1,134,612) (187,951) (596,231)
Material and supplies (952,981) (411,084) 34,076
Increase (decrease) in:
Accounts payable 1,283,228 396,307 (209,571)
Other prepaids, deferrals
and accruals 43,018 (232,349) (130,487)
____________________________________________________
Net cash provided by
operating activities 8,740,053 8,161,293 7,281,625
____________________________________________________
Cash Flows From Investing Activities
Purchases of property
and equipment (15,217,862) (6,697,476) (3,356,079)
Acquisition of FrontierVision
System (7,617,199) - -
Deposit (1,100,000) - -
Purchase of certificates
of deposit (1,134,528) (1,252,016) (930,911)
(Continued)PAGE
Shenandoah Telecommunications Company and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Maturities of certificates
of deposits 1,234,575 940,699 106,375
Cash flows from securities
(Note 2) 185,437 (2,427,349) (810,461)
Other 54,628 44,053 (249,861)
____________________________________________________
Net cash used in
investing activities (23,594,949) (9,392,089) (5,240,937)
____________________________________________________
Cash Flows From Financing
Activities
Dividends paid (1,579,519) (1,805,165) (1,410,285)
Payment on notes payable - - (875,000)
Proceeds from long-term debt 14,584,839 998,000 893,000
Principal payments on
long-term debt (493,403) (430,151) (378,259)
____________________________________________________
Net cash provided by
(used in)
financing activities 12,511,917 (1,237,316) (1,770,544)
____________________________________________________
Net increase (decrease)
in cash and cash
equivalents (2,342,979) (2,468,112) 270,144
Cash and cash equivalents:
Beginning 6,106,447 8,574,559 8,304,415
____________________________________________________
Ending $ 3,763,468 $ 6,106,447 $ 8,574,559
(Continued)
Shenandoah Telecommunications Company and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Supplemental Disclosures
of Cash Flow Information
Cash payments for:
Interest, net of capitalized
interest of $210,168 in 1996
and $39,070 in 1995 $ 726,242 $ 683,313 $ 661,029
Income taxes 2,071,027 3,081,596 3,013,201
Supplemental Schedule of Noncash
Investing and Financing Activities
Common stock received in sale of
equity investee - 1,446,942 -
Change in classification of
investments from cost method to
available-for-sale (Note 2) - 1,225,858 -
Proceeds of long-term debt for
stock in Rural Telephone Bank 55,850 49,900 44,650
See Notes to Consolidated Financial Statements.
/TABLE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Summary of Accounting Policies
Shenandoah Telecommunications Company and subsidiaries (the
"Company") operates entirely in the telecommunications industry.
The Company provides telephone service, cable television
service, unregulated communications equipment and services,
paging, mobile telephone, business radio, cellular telephone,
and personal communications services. In addition, through its
subsidiaries, the Company finances purchases of telecommunications
facilities and equipment and operates and maintains an interstate
fiber optic network. The Company's operations are primarily
located in the Northern Shenandoah Valley of Virginia and the
surrounding areas. A summary of the Company's significant
accounting policies follows:
Principles of consolidation: The consolidated financial
statements include the accounts of all wholly-owned
subsidiaries and those partnerships where effective control is
exercised. All significant intercompany accounts and
transactions have been eliminated.
Accounting estimates: The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and cash equivalents: The Company considers all temporary
cash investments with a purchased maturity of three months or
less to be cash equivalents. The Company places its temporary
cash investments with high credit quality financial
institutions. At times such investments may be in excess of the
FDIC insurance limit.
Securities and investments: The Company has investments in debt
and equity securities, which consist of shares of common and
preferred stock and partnership interests. Debt securities
consist primarily of obligations of the U. S. Government.
The Company follows the provisions of Financial Accounting
Standards Board Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Statement 115
requires that management determine the appropriate
classification of debt and equity securities that have readily
determinable fair values. Classification is determined at the
date individual investment securities are acquired. The
appropriateness of such classification is reassessed
continually. The classification of those securities and the
related accounting policies are as follows:
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Summary of Accounting Policies (Continued)
Held-to-maturity securities: These consist entirely of debt
securities which are obligations of the U. S. Government. The
Company has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or
changes in general economic conditions. These securities are
valued at amortized cost.
Available-for-sale securities: Securities classified as
available for sale are those securities that the Company intends
to hold for an indefinite period of time, but not necessarily to
maturity. Any decision to sell a security classified as
available for sale would be based on various factors, including
changes in market conditions, liquidity needs and other similar
factors. Available-for-sale securities are carried at fair
value. Unrealized gains and losses are reportable as increases
and decreases in stockholders' equity net of tax. Realized
gains and losses, determined on the basis of the cost of
specific securities sold, are included in earnings.
Investments carried at cost: These investments are those where
the Company does not have significant ownership and for which
there is no ready market. Information regarding these and all
other investments is reviewed continuously for evidence of
impairment in value. No impairment was deemed to have occurred
at December 31, 1996.
Equity method investments: These investments consist of
partnership and corporate investments where the Company's
ownership is 20% or more, except where such investments meet the
requirements for consolidation. Under the equity method, the
Company's equity in earnings or losses of these companies is
reflected in the earnings.
Materials and supplies: New and reusable materials are carried
in inventory principally at average original cost. Specific
costs are used in the case of large individual items.
Nonreusable material is carried at estimated salvage value.
Property, plant and equipment: Property, plant and equipment
is stated at cost. Accumulated depreciation is charged with the
cost of property retired, plus removal cost, less salvage.
Depreciation is determined under the remaining life method and
straight-line composite rates. Depreciation provisions were
approximately 5.8%, 5.7% and 5.7% of average depreciable assets
for the years 1996, 1995 and 1994, respectively.
Pension plan: The Company maintains a noncontributory defined
benefit retirement plan covering substantially all employees.
Pension benefits are based primarily on the employee's
compensation and years of service. The Company's policy is to
fund the maximum allowable contribution calculated under federal
income tax regulations.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1. Summary of Accounting Policies (Continued)
Income taxes: Deferred taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible
temporary differences and deferred tax liabilities are
recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of
assets and liabilities and their tax bases. Deferred tax assets
and liabilities are adjusted for the effect of changes in tax
laws and rates on the date of enactment. Investment tax credits
have been deferred and are amortized over the estimated life of
the related assets.
Revenue recognition: Revenues are recognized when earned
regardless of the period in which they are billed.
Earnings per common share: Earnings per common share is
computed by dividing net income by the weighted average number
of common shares outstanding. All per share amounts have been
restated to give effect to stock splits.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 2. Investments
Investments consist of the following:
Investment in held-to-maturity
securities: 1996 1995 1994
U. S. Treasury securities, current $ 2,148,945 $ 2,488,773 $ 950,750
U. S. Treasury securities,
noncurrent (due within three years) 1,622,433 2,098,968 499,687
--------------------------------------
$ 3,771,378 $ 4,587,741 $1,450,437
The fair market value approximates the carrying value for all held to maturity
investments at December 31, 1996, 1995 and 1994.
1996 1995 1994
Investment in available-for-
sale securities:
Orion Network Systems, Inc.,
Common and Preferred (including
unrealized gains of $1,070,007
in 1996 and $142,263 in 1995) $ 2,705,926 $ 1,778,189 $ -
MFS Communications Company,
Inc. (including unrealized gain
of $210,750 in 1995) - 532,500 -
Comsat Corporation
(including unrealized gains
of $25,906 in 1996 and $16,123
in 1995) 32,505 22,722 -
Total securities available
for sale $ 2,738,431 $ 2,333,411 $ -
The Company realized a gain of approximately $228,000 in 1996 and $269,000
in 1995 on the sale of available-for-sale securities. PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 2. Investments (Continued)
Changes in the unrealized gain on available-for-sale securities
during the years ended December 31, 1996 and 1995 reported as a
separate component of stockholders' equity are as follows:
1996 1995 1994
Unrealized gain, beginning balance $ 369,136 $ - $ -
Unrealized holding gains during the year 937,527 369,136 -
Realization of prior year unrealized gains (210,750) - -
Unrealized gains, ending balance 1,095,913 369,136 -
Deferred tax effect related to net
unrealized gains 425,322 140,124 -
Unrealized gain included in stockholders'
equity $ 670,591 $ 229,012 $ -
Cash flows from purchases, sales and
maturities of securities: 1996 1995 1994
Available-for-sale securities:
Sales $ 550,000 $1,392,354 $ -
Purchases - (83,335) -
Held-to-maturity securities:
Maturities 2,488,773 5,466,558 969,384
Purchases (1,672,410) (8,603,862) (1,450,439)
Other investments:
Sales - 63,751 -
Purchases (1,180,926) (662,815) (329,406)
________________________________________
Total $ 185,437 $(2,427,349) $ (810,461)
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 2. Investments (Continued)
Other investments comprised of equity securities which do not
have readily determinable fair values consist of the following:
1996 1995 1994
Cost method:
Orion Network Systems, Inc. $ - $ - $1,552,592
USTN Holdings, Inc. 843,486 - -
Independent Telecommunications Network, Inc. - 782,125 782,125
U. S. Intelco Holdings, Inc. - 38,493 38,493
AvData Systems, Inc. 149,860 149,860 149,860
Rural Telephone Bank 624,837 568,992 519,097
Concept Five Technologies 1,000,003 - -
Other 163,002 170,165 188,219
________________________________________
2,781,188 1,709,635 3,230,386
________________________________________
Equity method:
Virginia MetroTel - - 633,627
South Atlantic Venture Fund III L.P. 589,632 369,289 125,000
Virginia Independent Telephone Alliance 234,943 206,138 234,888
Rural Service Area - 6 474,007 378,989 368,554
Other 33,177 408,677 15,390
________________________________________
1,331,759 1,363,093 1,377,459
________________________________________
$ 4,112,947 $3,072,728 $4,607,845
During the year ended December 31, 1995, Orion Network Systems,Inc. became publicly
traded and was therefore reclassified from cost method to available-for-sale.
In January 1995, Virginia MetroTel was sold in exchange for stock of the acquiring
company, MFS Communications Company, Inc. and approximately $59,000 in cash. A gain
of approximately $872,000 resulted from the sale.
During the year ended December 31, 1996, Independent Telecommunications Network, Inc.
and U. S. Intelco Holdings, Inc. merged to form USTN Holdings, Inc.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 3. Long-Term Debt
Long-term debt consists of the following:
Interest
Rate 1996 1995 1994
Rural Telephone
Bank (RTB) 6.04% - 8% $10,582,040 $ 9,765,672 $ 9,004,549
Rural Utilities
Service (RUS) 2% - 5% 619,638 716,562 819,945
CoBank 6.69% - 7.97% 13,467,838 - -
Other 77.7% of prime 36,723 76,719 116,715
_______________________________________
24,706,239 10,558,953 9,941,209
Current maturities 529,405 461,927 423,329
_______________________________________
Total long-term debt $24,176,834 $10,097,026 $ 9,517,880
The notes payable are pursuant to an agreement which allows for additional
borrowings of approximately $3,600,000.
In July 1996, the Company entered into a financing agreement with CoBank.
Pursuant to this agreement, the Company can borrow up to $25,000,000, for
a three-year period ended September 1, 1999. During this period only
interest is payable. On September 1, 1999, the outstanding principal
balance will be amortized and repaid in monthly installments over the next
twelve years, with the final installment due August 20, 2011. As borrowings
occur, the Company can choose between several fixed and variable rate
interest options.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 3. Long-Term Debt (Continued)
The approximate annual debt maturities for the five years subsequent to
December 31, 1996 are as follows:
Year Amount
1997 $ 529,405
1998 521,947
1999 752,832
2000 1,177,115
2001 1,405,689
Later years 20,319,251
____________
$ 24,706,239
Substantially all of the Company's assets serve as collateral for the
long-term debt. The long-term debt agreements contain restrictions on
the payment of dividends and redemption of capital stock. The terms of
the agreements require the maintenance of defined amounts of equity and
working capital after payment of dividends. Accordingly, approximately
$11,200,000 of retained earnings was available for payment of dividends
at December 31, 1996.
Long-term debt carries rates which approximate market rates for similar
debt being issued. Therefore the carrying value of long-term debt is not
significantly different than fair market value at December 31, 1996.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 4. Income Taxes
The Company and its subsidiaries file consolidated tax returns. The provision for
income taxes included in the consolidated statements of income consists of the
following components:
Years Ended December 31,
1996 1995 1994
Current:
Federal $ 1,905,945 $ 2,837,187 $ 2,402,840
State 219,720 412,089 228,125
_________________________________________
Total 2,125,665 3,249,276 2,630,965
Deferred:
Federal 585,923 272,529 (72,622)
State 109,998 51,151 19,298
_________________________________________
Total 695,921 323,680 (53,324)
_________________________________________
Provision for income taxes $ 2,821,586 $ 3,572,956 $ 2,577,641
A reconciliation of income taxes determined using the statutory federal income tax
rates to actual income taxes provided is as follows:
Years Ended December 31,
1996 1995 1994
Federal income tax expense at
statutory rates $ 2,657,499 $ 3,336,620 $ 2,525,744
State income taxes net of federal
tax benefit 217,614 305,738 163,299
Amortization of investment tax credit (75,701) (75,701) (75,701)
Other 22,174 6,299 (35,701)
_________________________________________
Provision for income taxes $ 2,821,586 $ 3,572,956 $ 2,577,641
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 4. Income Taxes (Continued)
Net deferred tax liabilities consist
of the following at December 31:
1996 1995 1994
Deferred tax liabilities:
Accelerated depreciation $ 4,776,802 $ 4,106,119 $ 4,019,391
Unrealized gain on securities
available for sale 425,322 140,124 -
_________________________________________
5,202,124 4,246,243 4,019,391
Deferred tax assets:
Accrued compensation costs 96,292 92,329 76,413
Accrued pension costs 152,684 105,084 139,432
Equity investments 44,978 83,512 268,532
__________________________________________
293,954 280,925 484,377
__________________________________________
Net deferred tax liabilities $ 4,908,170 $ 3,965,318 $ 3,535,014
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 5. Pension Plan
The Company maintains a noncontributory defined benefit pension plan. The following
table presents the plan's funded status and amounts recognized in the Company's
consolidated balance sheets.
1996 1995 1994
Actuarial present value of
benefit obligations:
Vested $ 2,882,966 $ 2,645,748 $ 2,263,951
Nonvested 82,376 52,826 62,286
_________________________________________
Accumulated benefit obligations $ 2,965,342 $ 2,698,574 $ 2,326,237
Projected benefit obligation for
service rendered to date $ 5,112,231 $ 4,408,161 $ 3,800,239
Plan assets at fair value,
common stocks and bonds 5,077,518 4,669,840 3,676,436
_________________________________________
Plan assets in excess (deficient) of
projected benefit obligation (34,713) 261,679 (123,803)
Unrecognized prior service cost 257,808 278,513 299,218
Unrecognized transition asset at
January 1, 1987, being recognized
over 17 years (210,490) (239,234) (267,978)
Unrecognized net gain (466,565) (621,588) (276,453)
________________________________________
Net pension liability $ (453,960) $ (320,630) $ (369,016)
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 5. Pension Plan (Continued)
Net pension cost included the following components:
1996 1995 1994
Service costs (benefits earned) $ 170,089 $ 147,568 $ 143,072
Interest cost on projected
benefit obligation 326,314 280,691 263,693
Actual (return) loss on plan assets (532,311) (914,207) 46,130
Net amortization and deferral 169,238 634,762 (347,255)
________________________________________
Net periodic pension cost $ 133,330 $ 148,814 $ 105,640
Assumptions used by the Company in the determination of pension plan information
consisted of the following at December 31, 1996, 1995 and 1994:
1996 1995 1994
Discount rate 7.50% 7.50% 7.50%
Rate of increase in compensation
levels 5.50 5.50 5.50
Expected long-term rate of return
on plan assets 7.50 7.50 7.50
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 6. Acquisition
On September 30, 1996, the Company acquired for cash the Shenandoah
County cable television assets of FrontierVision Operating
Partners, LP for approximately $7,600,000. These assets were
integrated into the Company's existing cable television operations.
The excess of the total acquisition cost over the fair value of the
net assets acquired of approximately $5,600,000 is being amortized
over 15 years by the straight-line method.
The acquisition has been accounted for as a purchase and results of
operations since the date of acquisition are included in the 1996
consolidated financial statements.
The unaudited consolidated results of operations on a pro forma
basis as though the cable television system had been acquired as of
the beginning of each year is as follows:
1996 1995
Revenue $ 26,583,913 $ 23,559,774
Net income 4,462,084 5,924,752
Net income per share 1.19 1.58
The above amounts reflect adjustments for amortization of goodwill,
additional depreciation on revalued purchased assets, and imputed
interest on borrowed funds.
The pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating
results that would have occurred had the acquisition been
consummated as of the above dates, nor are they necessarily
indicative of future operating results.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 7. Stock Incentive Plan
On April 16, 1996, the stockholders approved a Company Stock
Incentive Plan providing for the grant of incentive compensation
to employees in the form of stock options, stock appreciation
rights, and stock awards. The Plan authorized the issuance of
up to 240,000 shares of common stock over a ten-year period.
Options granted under the Plan may be incentive stock options or
nonqualified stock options. The option price will be fixed at
the time the option is granted, but the price cannot be less
than the fair market value at the date of the grant.
As of December 31, 1996, no options have been granted under the
Plan.
Note 8. Major Customer
The Company has one customer that accounts for greater than 10%
of its revenue, primarily consisting of carrier access charges
for long distance service, as follows:
Percent of
Operating
Year Revenue
1996 16%
1995 19
1994 21
Note 9. Reclassification
Certain amounts on the 1995 and 1994 financial statements have
been reclassified, with no effect on net income or stockholders'
equity, to conform with the classifications adopted in 1996.
PAGE
EXHIBIT 21. LIST OF SUBSIDIARIES
The following are all subsidiaries of Shenandoah
Telecommunications Company:
- Shenandoah Telephone Company
- ShenTel Service Company
- Shenandoah Cable Television Company
- Shenandoah Long Distance Company
- Shenandoah Valley Leasing Company
- Shenandoah Mobile Company
- Shenandoah Network Company
- Shenandoah Personal Communications Company
5
YEAR YEAR YEAR
DEC-31-1996 DEC-31-1995 DEC-31-1994
DEC-31-1996 DEC-31-1995 DEC-31-1994
3763468 6106447 6270849
6509809 6921152 1450437
4208742 3068379 2880428
0 0 0
2888709 1922090 1511006
14551119 15308920 15164985
65215491 53076538 49039958
21648820 18795430 17402341
79374097 59896990 52464150
4552386 4258755 2386243
24176834 10097026 9517880
0 0 0
0 0 0
4740677 4740677 4740677
38387245 34530596 29876064
79374097 59896990 52464150
679920 558031 890675
25429854 21919150 20229178
1626181 764264 802904
17485203 13027468 12050713
669314 536254 452090
129214 29386 47796
803300 685971 658908
7816175 9803641 7428660
2821586 3572956 2577641
4877188 5522904 4851019
0 0 0
0 0 0
0 0 0
4994589 6230685 4851019
1.33 1.66 1.29
1.33 1.66 1.29
