SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997
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 April 29, 1997
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, 1997 and December 1996 1 - 2
Consolidated Statements of Income
Three Months Ended
March 31, 1997 and 1996 3 - 4
Consolidated Statements of Cash Flow
Three Months Ended
March 31, 1997 and 1996 5 - 6
Notes To Consolidated Financial
Statements 7
Item II. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters To a Vote
of Security Holders 15
Item 6. Exhibits and Reports On Form 8-K 15
Signatures 16
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
[CAPTION]
March 31, 1997 December 31, 1996
[S] [C] [C]
Current Assets
Cash & Cash Equivalents $ 5,092,202 $ 3,763,468
Certificates of Deposit 1,142,181 1,142,181
Held-to-Maturity Securities 2,161,545 2,148,945
Accounts Receivable 4,114,031 4,208,742
Materials and Supplies 2,936,131 2,888,709
Prepaid Expenses and Other 325,896 399,074
15,771,986 14,551,119
Securities and Investments
Available-for-sale securities 1,844,305 2,738,431
Held-to-Maturity Securities 1,622,433 1,622,433
Other Investments 4,099,968 4,112,947
7,566,706 8,473,811
Property, Plant, and Equipment
Plant in Service 68,045,309 65,215,491
Plant Under Construction 5,050,623 5,626,710
73,095,932 70,842,201
Less Accumulated Depreciation 22,609,194 21,648,820
50,486,738 49,193,381
Other Assets
Cost in Excess of Net Assets of
Business acquired less
Accumulated Amortization 5,574,452 5,532,601
Deferred Charges and Other
Assets 606,591 523,185
Deposit 0 1,100,000
6,181,043 7,155,786
$80,006,473 $79,374,097
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
[CAPTION] LIABILITIES AND STOCKHOLDERS' EQUITY
[S] March 31, 1997 December 31, 1996
Current Liabilities
Current Maturities of [C] [C]
Long-Term Debt $ 519,406 $ 529,405
Accounts Payable 1,392,162 2,097,115
Advance Billing and Payments 472,169 590,336
Customers' Deposits 94,296 89,591
Other Current Liabilities 1,032,253 1,117,795
Income Taxes Payable 561,964 0
Other Taxes Payable 202,312 128,144
4,274,562 4,552,386
Long Term Debt, Less
Current Maturities 24,654,400 24,176,834
Other Liabilities and
Deferred Credits
Deferred Investment
Tax Credit 273,031 291,957
Deferred Income Taxes 4,569,717 4,908,170
Pension and Other 701,086 573,363
5,543,834 5,773,490
Minority Interest 1,954,521 1,743,465
Stockholders' Equity
Common Stock, no par value,
authorized 8,000,000 shares;
issued 3,760,760 shares 4,740,677 4,740,677
Retained Earnings 38,731,188 37,716,654
Unrealized gain on Available-
for-Sale Securities, net 107,291 670,591
43,579,156 43,127,922
$80,006,473 $79,374,097
See accompanying notes to consolidated financial statements.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
[CAPTION] CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended
March 31
[S] 1997 1996
OPERATING REVENUES
Telephone Revenues [C] [C]
Local Service $859,022 $790,812
Access 1,739,682 1,773,788
Toll 6,135 4,355
Miscellaneous:
Directory 273,030 283,668
Facility Leases 476,706 433,198
Billing & Collection 105,036 114,042
Other Miscellaneous 48,386 29,160
Total Telephone Revenues 3,507,997 3,429,023
Cable Television Revenues 615,121 220,134
ShenTel Service Revenues 473,950 393,562
Leasing Revenues 3,622 4,609
Mobile Revenues 2,045,866 1,367,139
Long Distance Revenues 241,978 284,352
Network Revenues 153,733 123,843
Total Revenues and Sales 7,042,267 5,822,662
OPERATING EXPENSES
Cost of Products and Service 397,208 273,941
Line Costs 95,361 134,581
Plant Specific 622,388 524,398
Plant Non-Specific:
Network & Other 929,994 661,936
Depreciation and Amortization 1,110,488 802,521
Customer Operations 995,668 764,042
Corporate Operations 669,621 519,644
Other Operating Expenses 194,914 46,366
Taxes Other Than Income 98,177 100,302
Total Operating Expenses 5,113,819 3,827,731
See accompanying notes to consolidated financial statements.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
[CAPTION] CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended
March 31
1997 1996
[S] [C] [C]
Operating Income $1,928,448 $1,994,931
Gain on Sale of Investment 0 228,250
Non-Operating Income
less Expenses 229,416 194,003
Interest Expense (356,449) (141,260)
Income Before Income Taxes 1,801,415 2,275,924
Provision for Income Taxes 575,822 780,935
Net Income Before
Minority Interest 1,225,593 1,494,989
Minority Interest (211,056) (121,441)
Net Income $ 1,014,537 $1,373,548
EARNINGS PER SHARE
Weighted Average Common
Shares Outstanding 3,760,760 3,760,760
Net Income per share $0.27 $0.37
See accompanying notes to consolidated financial statements.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
[CAPTION] CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
1997 1996
[S]
CASH FLOWS FROM OPERATING
ACTIVITIES [C] [C]
Net Income $1,014,534 $1,373,548
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and Amortization 1,111,989 802,521
Deferred taxes (7,628) (30,838)
Gain on Sale of Equity Investment 0 (228,250)
Investment (Gains)/Losses 40,187 (1,443)
Minority Share of Income 211,056 121,441
Other (41,997) 99,515
Decrease (increase) in:
Accounts Receivable 94,711 (49,543)
Materials and Supplies (47,422) (399,834)
Increase (Decrease) in:
Accounts Payable (704,953) (25,919)
Income Taxes Payable 588,568 798,859
Other Deferrals and Accruals (24,930) (317,747)
Net cash provided by
operating activities 2,234,115 2,142,310
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property
and Equipment (2,330,946) (3,006,185)
Purchase of Certificates of Deposit (499,582) (111,856)
Maturities of Certificates of Deposit 486,982 100,000
Cash Flows from Securities 0 509,347
Return of Deposit 953,400 0
Other 17,198 22,045
Net cash used in investing activities (1,372,948) (2,486,649)
See accompanying notes to consolidated financial statements.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
[CAPTION] CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
THREE MONTHS ENDED MARCH 31
1997 1996
[S]
CASH FLOWS FROM [C] [C]
FINANCING ACTIVITIES
Proceeds from Long Term Debt $ 601,500 $ 0
Principal payments on Long Term Debt (133,933) (115,863)
Net cash provided by financing
activities 467,567 (115,863)
Net increase (decrease) in cash
and cash equivalents 1,328,734 (460,202)
Cash and Cash Equivalents:
Beginning 3,763,468 6,106,447
Ending $5,092,202 $5,646,245
See accompanying notes to consolidated financial statements.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying consolidated
financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly
Shenandoah Telecommunications Company's financial position
as of March 31, 1997 and the results of operations and cash
flows for the three month periods ended March 31, 1997 and
1996.
While the Company believes that the disclosures presented
are adequate, to make the information not misleading, it is
suggested that these financial statements be read in
conjunction with the financial statements and notes included
in the Company's annual report in Form 10-K.
2. The results of operations for the three-month period ended
March 31, 1997 and 1996 are not necessarily indicative of
the results to be expected for the full year.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
ITEM II, MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 REVENUES INCREASE OR DECREASE
Three months ended Three months ended
March 31 March 31
1997 1996 1997-96 1996-95
OPERATING REVENUES
Telephone Revenues
Local Service 12.20 13.58 8.63 5.18
Access 24.70 30.46 (1.92) 9.77
Toll 0.09 0.07 40.87 25.36
Miscellaneous:
Directory 3.88 4.87 (3.75) (3.22)
Facility Leases 6.77 7.44 10.04 3.51
Billing & Collection 1.49 1.96 (7.90) 7.52
Other Miscellaneous 0.69 0.50 65.93 5.99
Total Telephone Revenues 49.81 58.89 2.30 6.61
Cable Television Revenues 8.73 3.78 179.43 2.56
ShenTel Service Revenues 6.73 6.76 20.43 (5.72)
Leasing Revenues 0.05 0.08 (21.41) (24.36)
Mobile Revenues 29.05 23.48 49.65 29.97
Long Distance Revenues 3.44 4.88 (14.90) (1.47)
Network Revenues 2.18 2.13 24.14 0.00
Total Revenues 100.00 100.00 20.95 9.47
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
ITEM II, MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RELATIONSHIP TO PERIOD TO PERIOD
TOTAL REVENUES INCREASE OR DECREASE
Three months ended Three months ended
March 31 March 31
1997 1996 1997-96 1996-95
OPERATING EXPENSES
Cost of Products Sold 5.64 4.70 45.00 29.24
Line Costs 1.35 2.31 (29.14) 2.53
Plant Specific 8.84 9.01 18.69 20.77
Plant Non-Specific:
Network & Other 13.21 11.37 40.50 61.23
Depreciation and Amortization 15.77 13.78 38.37 17.42
Customer Operations 14.14 13.12 30.32 37.45
Corporate Operations 9.51 8.92 28.86 11.02
Other Operating Income & Expense 2.77 0.80 320.38 2.01
Taxes Other Than Income 1.39 1.72 (2.12) 17.53
Total Operating Expenses 72.62 65.74 33.60 26.49
Operating Income 27.38 34.26 (3.33) (12.99)
Gain on Sale of Investment 0.00 3.92 (100.00) (73.83)
Non-Operating Income less Expenses 3.26 3.33 18.25 3.85
Interest Expense (5.06) (2.43) 152.34 (21.10)
Income Before Income Taxes 25.58 39.09 (20.85) (28.27)
Provision for Income Taxes 8.18 13.41 (26.27) (30.80)
Income Before Minority Interest 17.40 25.68 (18.02) (26.87)
Minority Interest (3.00) (2.09) 73.79 10.57
Net Income 14.41 23.59 (26.14) (28.99)
/TABLE
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
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 the regulated
telephone local exchange company accounting for 49.81% of revenue
and the cellular dominated operations of the Mobile subsidiary,
accounting for 29.05% of revenue during the most recent quarter.
Other significant services provided are paging, personal
communications services (PCS), cable television, Internet access,
long distance, and fiber facilities and towers leased to other
telecommunications carriers. The Company also sells and leases
equipment, mainly related to services provided. The Company also
participates in emerging technologies by direct investment in
non-affiliated companies.
RESULTS OF OPERATIONS
The Company's largest source of revenue continues to be for
access to the Company's local exchange network by interexchange
carriers. The volume for approximately two-thirds of these
access revenues generally tracks with changes in minutes of use.
The minutes of use during the first quarter of 1997 decreased
.16% from the total minutes of use in the first quarter of 1996,
leading to a 1.92% decrease in the associated revenues.
Management attributes these decreases to inclement weather
experienced.
First quarter cable television revenues increased 179.43%
over the first quarter of 1996. The increase was due to the
acquisition of the CATV assets owned by FrontierVision Operating
Partnership located in our service area on September 30, 1996.
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
the first quarter of 1997 compared to 1996 was 20.43%. This was
due to increases in Internet Service revenues. First quarter
1997 revenues from our Internet Service operations were up
$97,640 or 115.98% compared to the first quarter of 1996. The
increase is due to the increasing customer base. The increases
in Internet access revenues were partially offset by decreases in
equipment sales and rentals. These revenues decreased $15,624 or
6.20% compared to the first quarter of 1996.
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. First quarter 1997 local
cellular revenues increased $167,934 or 25.72% compared to the
same period in 1996. The increase in local cellular revenues was
due to an increase in the customer base. First quarter 1997
outcollect roamer revenues increased $236,187 or 36.68% compared
to the same period in 1996. Total revenues from the Cellular
operation accounted for 24.15% of total Company revenues in the
first quarter, compared to 22.38% in the first quarter of 1996.
Total payroll costs (including capitalized costs) in the
first three months of 1997 decreased $11,202 or 1.00% compared to
the same period in 1996. The decrease is due to high maintenance
costs incurred in January of 1996 to repair blizzard and flood
damage not being repeated in 1997, as well as, reduced sales
commissions in the ShenTel subsidiary. These items were
partially offset by increases in the PCS subsidiary as its sales
force grows with the opening of new retail stores.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Cost of Goods Sold increased 45.00% in the first quarter
compared to the same period in 1996. This is due to an increase
in the volume of PCS phones sold as network coverage expands.
The volume increase added 507.47% to the total cost of PCS phones
sold as compared to the first quarter of 1996. The PCS increase
was partially offset by decreases in the cost of goods sold by
the ShenTel subsidiary related to the decline in equipment sales
discussed above.
The expense category Network and Other consists primarily of
network support, engineering, and leased facilities costs. Of
the 40.50% or $268,058 increase for the first quarter over the
first quarter of 1997, 40.95% is due to increases from our
cellular operation, 23.41% from the new PCS operation, and 32.20%
from the Internet access operation.
Depreciation and Amortization, our largest expense category,
was 38.37% higher in the first quarter of 1997 compared to the
same period in 1996. This is due to the increased pace of plant
acquisition. Expenditures for construction and purchases of
property and equipment for 1996 equaled $22,835,061. Comparable
expenditures during 1995 equaled $6,697,476. Budgeted 1997
expenditures for plant and equipment are approximately the same
as 1996.
Customer Operations increased 30.32% for the quarter
compared to the same period in 1996. 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.
Corporate Operations increased $149,977 or 28.86% in the
first quarter of 1997 compared to the same period in 1996. The
Corporate Operations category includes expenses for executive and
general management, accounting, external relations, human
resources, legal, purchasing, insurance, and other general and
administrative costs. The PCS subsidiary accounts for 53.69% or
$80,518 of the increase in this category.
The Other Operating Expense category consists of royalty
expense paid to programming providers for the Cable Television
subsidiary. The increase in these expenses year-to-date compared
with the first quarter of 1996 is due to the acquisition of the
Shenandoah County CATV assets of FrontierVision on September 30,
1996.PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
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 18.28% in the first
quarter compared to the same period in 1996. Income from
investments accounted for by the equity method increased $54,647
or 111.77%. Interest income decreased $19,278 or 12.60% in the
same period, due to decreased investment in Treasury Bills.
Interest expense has increased 152.34% in the first quarter
compared to the first quarter of 1996. The Company began drawing
funds on the CoBank note (described below) in the third quarter
of 1996. Draws on this note at March 31, 1997 equaled
$14,069,338.
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 1996. A portion of these
funds were used for the acquisition of the Shenandoah County CATV
assets of FrontierVision in September of 1996. The new debt is
also being used to finance the building of the new network for
the PCS operation. The Company budgeted approximately
$12,000,000 for PCS-related plant in 1997, 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
$11,500,00 for our other subsidiaries for 1997. These capital
needs will be met through internally generated cash flows and the
existing Rural Telephone Bank note. The loan agreement with the
RTB allows for additional borrowings of approximately $3,600,000.
Expenditures of these loan funds is limited to capital projects
for the regulated local exchange carrier.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
PART II
OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security
Holders
No matters were submitted to a vote of security
holders.
ITEM 6. Exhibits and Reports on Form 8-K
None
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Registrant)
May 7, 1997 CHRISTOPHER E. FRENCH
Christopher E. French
President
May 7, 1997 LAURENCE F. PAXTON
Laurence F. Paxton
Vice President - Finance
5
3-MOS
DEC-31-1997
MAR-31-1997
5,092,202
5,628,283
4,114,031
3,083
2,936,131
15,771,986
68,045,309
22,609,194
80,006,473
4,274,562
24,654,400
0
0
4,740,677
38,838,479
80,006,473
215,566
7,042,267
397,208
5,113,819
211,056
21,298
356,449
1,590,359
575,822
1,014,537
0
0
0
1,014,537
.27
.27
