SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998
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 November 1, 1998
Common Stock, No Par Value 3,755,760 Shares
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
September 30, 1998 December 31, 1997
CURRENT ASSETS
Cash & Cash Equivalents $5,575,696 $5,203,521
Certificates of Deposit 100,000 204,122
Investments Held to Maturity Securities 499,581 1,622,433
Accounts Receivable 8,739,295 5,682,798
Materials 3,071,400 3,968,791
Prepaid and Other Current Assets 448,000 507,165
TOTAL CURRENT ASSETS $18,433,972 $17,188,830
NON-CURRENT ASSETS
Investment in Available for Sale Securities $ 2,217,397 $3,597,997
Investment in Held-To-Maturity Securities 0 499,581
Other Investments 5,830,038 4,721,517
TOTAL NON-CURRENT ASSETS $ 8,047,435 $8,819,095
PROPERTY, PLANT AND EQUIPMENT
Plant in Service $86,113,565 $74,144,956
Plant Under Construction 6,305,976 8,232,517
Less Accumulated Depreciation 28,447,665 25,313,297
NET PROPERTY, PLANT AND EQUIPMENT $63,971,876 $57,064,176
OTHER ASSETS
Cost in Excess of net assets of Business
less Accumulated Amortization $ 4,982,598 $ 5,157,078
Deferred Charges and Other Assets 341,177 476,687
Radio Spectrum License net of
Accumulated Amortization 665,367 702,036
Deposit $ 5,989,142 $ 6,335,801
TOTAL ASSETS $96,442,425 $89,407,902
See accompanying notes to consolidated financial statements.
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
September 30, 1998 December 31, 1997
CURRENT LIABILITIES
Current Maturities of Long-Term Debt $ 522,615 $ 544,954
Accounts Payable 3,699,585 3,743,701
Advance Billings and Payments 349,327 631,815
Customers' Deposits 110,125 98,905
Other Current Liabilities 1,771,801 1,926,769
Income Taxes Payable 1,027,417 0
Other Taxes Payable 439,528 153,678
TOTAL CURRENT LIABILITIES $ 7,920,398 $ 7,099,822
LONG TERM DEBT, LESS CURRENT MATURITIES 28,825,163 26,815,706
OTHER LIABILITIES AND DEFERRED CREDITS
Deferred Investment Tax Credits $163,305 $ 216,256
Deferred Income Taxes 5,412,752 5,987,860
Pension and Other 1,226,367 883,568
6,802,424 7,087,684
MINORITY INTERESTS $ 2,504,434 $ 1,894,206
STOCKHOLDERS' EQUITY
Common Stock $ 4,734,377 $ 4,740,677
Retained Earnings 45,293,245 40,579,090
Unrealized Gain on available-for-sale securities 362,384 1,190,717
50,390,006 46,510,484
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $96,442,425 $89,407,902
See accompanying notes to consolidated financial statements.
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Nine months ended
September 30 September 30
------------------------- ---------------------------
1998 1997 1998 1997
OPERATING REVENUES
Telephone Revenues
Local Service $962,261 $928,153 $2,813,616 $2,670,093
Access 1,914,811 1,912,794 5,861,962 5,401,305
Toll 18,800 7,446 49,142 20,920
Miscellaneous:
Directory 287,577 276,707 888,724 841,880
Facility Leases 528,230 492,197 1,525,164 1,478,567
Billing & Collection 133,238 115,337 389,372 328,758
Other Miscellaneous 30,174 36,953 111,398 93,280
Total Telephone Revenues 3,875,091 3,769,587 11,639,378 10,834,803
Cable Television Revenues 802,010 635,619 2,302,911 1,876,770
ShenTel Service Revenues 716,104 538,855 1,816,072 1,539,376
Leasing Revenues 3,965 3,539 12,853 10,935
Mobile Revenues 2,611,213 2,238,521 7,094,584 6,192,078
PCS Revenues 847,990 478,586 2,425,674 1,186,458
Long Distance Revenues 251,484 220,100 686,479 696,332
Network Revenues 153,733 153,733 461,200 461,200
Total Revenues and Sales 9,261,590 8,038,540 26,439,151 22,797,952
OPERATING EXPENSES
Cost of Products and Services Sold 418,974 486,282 1,125,201 1,353,657
Line Costs 89,812 97,966 299,178 291,112
Plant Specific 833,803 705,510 2,142,949 1,999,365
Plant Non-Specific:
Network & Other 1,384,463 1,102,724 4,068,187 3,102,389
Depreciation and Amortization 1,386,371 1,187,999 3,980,466 3,449,816
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Nine months ended
September 30 September 30
------------------------- ---------------------------
1998 1997 1998 1997
OPERATING EXPENSES (Continued)
Customer Operations $1,271,145 $1,126,625 $ 3,683,190 $3,157,588
Corporate Operations 620,100 662,455 1,959,632 1,951,810
Other Operating Expenses 225,188 179,519 653,990 523,446
Taxes other than income 124,394 106,406 392,076 315,106
Total Operating Expenses 6,354,250 5,655,486 18,304,869 16,144,289
Operating income 2,907,340 2,383,054 8,134,282 6,653,663
Gain on Sale of Investment 2,000 0 2,000 0
Non-operating income less expenses 965,914 427,147 1,588,681 911,977
Interest expense 431,429 409,832 1,162,695 1,154,001
Income before taxes 3,443,825 2,400,369 8,562,268 6,411,639
Provision for income taxes 1,119,138 765,466 2,799,184 2,039,180
Net income before minority interest 2,324,687 1,634,903 5,763,084 4,372,459
Minority interest (373,223) (307,234) (955,229) (814,841)
Net Income $1,951,464 $1,327,669 $4,807,855 $3,557,618
EARNINGS PER SHARE
Weighted Average Common
Shares Outstanding 3,755,760 3,760,760 3,756,602 3,760,760
Net Earnings per Share $0.52 $0.35 $1.28 $0.95
See accompanying notes to consolidated financial statements.
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $4,807,855 $3,557,618
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and Amortization $3,980,466 $3,449,816
Deferred taxes (22,841) (22,885)
Gain on Sale of Equity Investments 0 (31,103)
Investments (gains)/losses (1,333,463) (504,914)
Minority share of income 610,228 219,841
Other 258,227 (38,405)
Decrease/(increase) in
Accounts receivable (3,056,497) (1,332,717)
Material 897,391 (1,011,027)
Increase/(decrease)in
Accounts payable (44,116) (244,960)
Income taxes payable 1,027,417 866,367
Deferrals & accruals 261,578 595,464
Net cash provided by operating activities 7,386,245 5,503,095
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
1998 1997
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property & Equipment ($10,745,522) (7,085,725)
FCC Deposit Refund 0 953,400
Purchase of Investment Securities (1,037,263) (1,648,658)
Maturities of Certificates of Deposit 104,122 938,060
Maturity of Investment Securities 1,622,433 2,186,646
Cash flows from Securities 1,155,042 25,954
Net Cash Used In Investing Activities (8,901,188) (4,630,323)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term debt $ 2,405,500 $ 1,704,400
Stock Redemption (100,000) 0
Principal payments on long term debt (418,382) (413,326)
Net cash provided by financing activities 1,887,118 1,291,074
NET INCREASE IN CASH $ 372,175 $2,163,846
CASH AND CASH EQUIVALENTS:
Beginning 5,203,521 3,763,468
Ending $ 5,575,696 $ 5,927,314
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 September 30, 1998 and the results of
operations and for the three and nine month periods ended September
30,1998 and 1997, and cash flows for the nine month periods ended
September 30, 1998 and 1997.
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 basic and diluted results of operations for the nine month period
ended September 30, 1998 and 1997 are not necessarily indicative of the
results to be expected for the full year.
3. The earnings per common share were computed on the weighted average number
of shares outstanding. The company has stock options outstanding, which
are not dilutive, therefore basic and diluted earnings per share are the
same.
4. Comprehensive income includes net income along with losses on the Company's
available-for-sale investments.
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
Net Income $1,951,464 $1,327,669 $4,807,855 $3,557,618
Net Unrealized
Gains and Losses (1,257,159) 790,614 (828,333) 537,078
Comprehensive
Income $ 694,305 $2,118,283 $3,979,522 $4,094,696
5. In April 1998, the Board approved renewing a $2 million line of credit
with First Union Bank, and in July 1998 the Board approved renewing a $5
million line of with CoBank. The First Union line of credit matures in
May 1999, with a variable of Libor + 1.25%. Interest due is payable
monthly with any unpaid principal balance due at maturity. The CoBank
line of credit matures in August 1999. There are three interest rate
options, a weekly variable rate quoted by CoBank, a fixed rate quoted by
CoBank for such periods as may be agreeable to CoBank, or Libor + 1.25%.
Interest s payable monthly with any unpaid principal balance due at
maturity. No draws have been made on these lines of credit.
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summary
The following tables set forth, for the periods indicated, the percentages which
certain items reflected in the financial data bear to total operating revenues and
the percentage increase of such items as compared to the indicated prior period:
RELATIONSHIP TO PERIOD TO PERIOD
TOTAL OPERATING REVENUES INCREASE OR DECREASE
Three months Nine months Three months Nine months
ended September 30 ended September 30 ended September 30 ended
September 30
1998 1997 1998 1997 1998-97 1997-96 1998-97 1997-96
OPERATING REVENUES
Telephone Revenues
Local Service 10.40% 11.60% 10.60% 11.70% 3.70% 12.40% 5.40% 10.00%
Access 20.70% 23.80% 22.20% 23.70% 0.10% 7.20% 8.50% 2.80%
Toll 0.20% 0.10% 0.20% 0.10% 152.50% -15.40% 134.90% 19.10%
Miscellaneous:
Directory 3.10% 3.40% 3.40% 3.70% 3.90% -2.40% 5.60% -2.50%
Facility Leases 5.70% 6.10% 5.80% 6.50% 7.30% 6.40% 3.20% 9.70%
Billing & Collection 1.40% 1.40% 1.50% 1.40% 15.50% 6.70% 18.40% -0.70%
Other Miscellaneous 0.30% 0.50% 0.40% 0.40% -18.30% 51.90% 19.40% 21.80%
Total Telephone Revenues 41.80% 46.90% 44.00% 47.50% 2.80% 7.80% 7.40% 5.00%
Cable Television Revenues 8.70% 7.90% 8.70% 8.20% 26.20% 187.10% 22.70% 182.90%
ShenTel Service Revenues 7.70% 6.70% 6.90% 6.80% 32.90% 5.40% 18.00% 19.70%
Leasing Revenues 0.00% 0.00% 0.10% 0.10% 12.00% -24.30% 17.50% -24.30%
Mobile Revenues 28.20% 27.90% 26.80% 27.20% 16.70% 18.50% 14.60% 25.60%
PCS Revenues 9.20% 6.00% 9.20% 5.20% 77.20% 536.10% 104.50% 961.60%
Long Distance Revenues 2.70% 2.70% 2.60% 3.10% 14.30% -16.30% -1.40% -12.60%
Network Revenues 1.70% 1.90% 1.70% 2.00% 0.00% 14.90% 0.00% 20.90%
----- ----- ----- ----- ----- ----- ----- -----
Total Revenues and Sales 100.00% 100.00% 100.00% 100.00% 15.20% 23.30% 16.00% 24.00%
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RELATIONSHIP TO PERIOD TO PERIOD
TOTAL OPERATING REVENUES INCREASE OR DECREASE
Three months Nine months Three months Nine months
ended SEPT 30 ended SEPT 30 ended SEPT 30 ended SEPT 30
1998 1997 1998 1997 1998-97 1997-96 1998-97 1997-96
OPERATING EXPENSES
Cost of Products and
Services Sold 4.50% 6.10% 4.30% 5.90% -13.80% 3.10% -16.90% 36.10%
Line Costs 1.00% 1.20% 1.10% 1.30% -8.30% 2.80% 2.80% -9.20%
Plant Specific 9.00% 8.80% 8.10% 8.80% 18.20% 11.40% 7.20% 20.50%
Plant Non-Specific:
Network & Other 15.00% 13.70% 15.40% 13.60% 25.60% 22.30% 31.10% 31.20%
Depreciation 15.00% 14.80% 15.10% 15.10% 16.70% 37.90% 15.40% 39.10%
Customer Operations 13.07% 14.00% 13.90% 13.90% 12.80% 33.80% 16.70% 29.60%
Corporate Operations 6.70% 8.20% 7.40% 8.60% -6.40% 12.60% 0.40% 17.30%
Other Operating Expenses 2.40% 2.20% 2.50% 2.30% 25.40% 259.80% 24.90% 264.30%
Taxes other than income 1.30% 1.30% 1.50% 1.40% 16.90% 14.10% 24.40% 6.70%
----- ----- ---- ----- ----- ----- ----- ------
Total Operating Expenses 68.60% 70.40% 69.20% 70.80% 12.40% 24.70% 13.40% 30.60%
Operating income 31.40% 29.70% 30.80% 29.20% 22.00% 20.20% 22.30% 10.30%
Gain on Sale of Investment
Non-operating income
less expenses 10.40% 5.30% 6.00% 4.00% 126.10% 16.10% 74.20% 13.40%
Interest expense 4.70% 5.10% 4.40% 5.10% 5.30% 140.80% 0.80% 162.40%
----- ----- ----- ----- ------ ----- ------ -----
Income before income taxes 37.20% 29.90% 32.40% 28.10% 43.50% 10.10% 33.50% -3.20%
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RELATIONSHIP TO PERIOD TO PERIOD
TOTAL OPERATING REVENUES INCREASE OR DECREASE
Three months Nine months Three months Nine months
ended June 30 ended June 30 ended June 30 ended June 30
1998 1997 1998 1997 1998-97 1997-96 1998-97 1997-96
Provision for income taxes 12.10% 9.50% 10.60% 8.90% 46.20% 4.10% 37.30% -8.80%
----- ----- ----- ----- ----- ----- ----- -----
Net income before minority
interest 25.10% 20.30% 21.80% 19.20% 42.20% 13.10% 31.80% -0.40%
Minority interest -4.00% -3.80% -3.60% -3.60% 21.50% 63.10% 17.20% 66.20%
Net Income 21.10% 16.50% 18.20% 15.60% 47.00% 5.60% 35.10% -8.70%
===== ===== ===== ===== ===== ===== ===== =====
PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Shenandoah Telecommunications Company is a diversified telecommunications
holding company providing both regulated and unregulated telecommunications
services through its eight wholly-owned subsidiaries.
This industry is in a period of transition from a protected monopoly to a
competitive environment as evidenced by the recent passage of the
Telecommunications Act of 1996. As a result, Shenandoah Telecommunications
has made and plans to continue to make significant investments in the new and
emerging technologies.
The most significant revenue contributors are the regulated telephone local
exchange company accounting for 41.8% of revenue and the cellular dominated
operations of the Mobile subsidiary, accounting for 28.2% 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 regulated telephone subsidiary's largest source of revenue continues to be
for access to the local exchange network by interexchange carriers. The
volume for approximately two-thirds of these access revenues typically tracks
with changes in minutes of use. The minutes of use during the first nine
months and the third quarter of 1998 increased 10.4% and 7.6% respectively
from the total minutes of use in comparative periods in 1998. The revenue
increased 8.5% year-to-date and .1% in the third quarter for the associated
revenues. Price reductions effective July 1 impacted the third quarter.
Third quarter cable television revenues increased 26.2% over the third quarter
of 1997. The year-to-date increase of 22.7% is primarily attributable to a
rate increase effective in the fourth quarter of 1997. Customer growth slowed
to 2.2%, due in part to the rate increase.
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 third quarter of
1998 compared to 1997 was 32.9%. The year-to-date increase is 18.0%. This
was due to increases in Internet Service revenues. Third quarter 1998
revenues from our Internet operations were up $159,069 or 65.5% compared to
the third quarter of 1997.
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 cellular services.
Third quarter 1998 local cellular revenues increased $185,363 or 18.8%. The
increase in local cellular revenues was due to an increase in the customer
base. Third quarter 1998 outcollect roamer revenues increased $151,526 or
12.8% compared to the same period in 1997 because of increased roamer
activity. The year-to-date increase in out-collect revenues is $203,996 or
6.3%. Industry-wide competitive pressures are resulting in decreased roamer
rates.
Total revenues from the Cellular operation accounted for 26.8% of total
Company revenues in the third quarter and 25.4% year-to-date, compared to
26.6% in the third quarter of 1997 and 25.9% for the first nine months of
1997.
PCS revenues increased $369,404 or 77.2% in the third quarter compared to the
third quarter of 1997. The year-to-date increase is $1,239,216 or 104.5%.
This growth is due to the expanding customer base in our PCS markets.
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Cost of Goods Sold decreased 13.8% in the third quarter compared to the same
period in 1997. The year-to-date decrease is 16.9%. This is due primarily to
a decrease in Shentel equipment sales.
Plant Specific expenses consist mainly of maintenance to the Company's plant
in service. This expense category increased 18.2% in the third quarter
compared to the third quarter of 1997. The year-to-date increase is 7.2% over
the same period of 1997. The increased maintenance and operating costs are
due to the recent additions in our fixed facilities that support our expanding
fiber, cable, and PCS operations.
The expense category Network and Other consists primarily of network support,
engineering, and leased facilities costs. These costs increased 25.6% in the
third quarter compared to the third quarter of 1997. The year-to-date
increase is 31.1%. These increases are primarily due to increased incollect
roaming costs in the cellular operation, and increases in leased facilities
costs in the PCS and Internet operations due to network expansion.
Depreciation and Amortization, our largest expense category, was 16.7% higher
in the third quarter of 1998 compared to the same period in 1997. The
year-to-date increase is 15.4%, due mainly to the expansion of our fiber
network and Cable TV upgrade.
Customer operation increased 12.8% for the quarter and 16.7% year-to-date
compared to the same periods in 1997. These costs are for the marketing and
sales, billing, and customer service functions. As with the network and other
category, customer growth in the Internet, cellular, and PCS businesses are
primarily responsible for the increase.
The Other Operating Expense category consists of royalty expense paid to
programming providers for the Cable Television subsidiary. Royalty expense
has increased $130,457 or 24.9% over the first nine months of 1997. This
increase is primarily the result of additional channels being added to our
basic service.
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Non-operating income increased 126.1% in the third quarter of 1998 as compared
to 1997 and 74.2% for the nine-month period. This increase is due to an
increase in non-operating income from the company's investments which
increased $728,973 or 120.2% over the first nine months of 1997.
Interest expense has increased 5.3% in the third quarter compared to the third
quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a credit facility with CoBank to borrow up to $25 million.
The agreement is 15 years, with multiple interest and term options. The
Company has borrowed approximately $18 million against this note.
The Company has a $2 million line of credit with First Union Bank and a $5
million line of credit with CoBank. No draws have been made on these lines of
credit.
The Company budgeted capital expenditures of approximately $18 million for our
subsidiaries for 1998. These capital needs will be met through internally
generated cash flows, the existing Rural Telephone Bank note, and the CoBank
credit facility. The $9 million loan agreement with the RTB allows for
additional borrowings of approximately $3,000,000. Expenditures of the Rural
Telephone Bank loan funds is limited to capital projects for the regulated
local exchange carrier.
YEAR 2000 ISSUE
The Year 2000 ("Y2K") issue is the result of computer programs using a two-
digit format, as opposed to four digits, to indicate the year. Some computer
systems will be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, leading to disruptions in the
Company's operation. The Company has developed a four-phase program for Y2K
information systems compliance.
Phase I (Identification and planning):
In this Phase, which was started in 1997 and essentially complete in mid-1998,
the Company identified those systems with which the Company has its largest
exposure to Y2K issues. The Company performed an inventory of all known
services and computer products in its operation. The Company identified that
software provided by third parties was its' most vulnerable link to the Y2K
event. This included switching, end user billing, carrier access billing, and
financial accounting software. The Company further identified that it has one
mainframe and approximately 75 individual microcomputers with operating
systems that may or may not be vulnerable.
Phase II (Select and implement solutions):
In this Phase, the Company has taken steps to test and install Y2K releases
that are part of the normal process of installing new releases with service
enhancements, as well as replacing obsolete hardware that was not meeting our
organization's needs. Y2K versions of switching software have either been
received and are currently being tested, or are scheduled for delivery in the
first quarter of 1999. A Y2K release of the end user billing software should
be available for testing in late 1998. The remainder of the work is scheduled
for completion by mid-1999.
Phase III (Configure and test improved software):
In this Phase, the Company has taken steps to replace obsolete software
systems that were not meeting our organizaiton's needs, and/or would not have
been functional in the Year 2000. Training and testing of the financial
accounting software began in the first half of 1998, and the critical
functions are expected to be operational in January 1999. less critical
functions in this software should be operational by mid-1999. Testing of new
carrier access billing software will begin in December 1998, and is scheduled
to be operational in February 1999.
Phase IV (Utilization and monitoring):
With the majority of the required hardware and software changes occurring
before the end of march 1999, the Company will be utilizing the changes in a
production setting. This approach minimizes disruption to current operations
and provides a basis for ongoing testing and monitoring. Contingency plans,
if deemed necessary, will be developed in the first half of 1999.
With this four-phase program, the Company believes that its non-routing
expense will be minimal in making its core operations Y2K compliant. The
Company has also reviewed other third-party relationships that could affect
its operation. Most relationships are with large interexchange carriers and
suppliers who state that they are or will be Y2K compliant.
SHENANDOAH TELECOMMUNICATIONS COMPANY
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
A. Exhibit No. 27 - Financial Data Schedule
B. No reports on Form 8-K were filed for the period covered by
this report.
SHENANDOAH TELECOMMUNICATIONS COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Registrant)
November 16, 1998 CHRISTOPHER E. FRENCH
Christopher E. French
President
November 16, 1998 LAURENCE F. PAXTON
Laurence F. Paxton
Vice President - Finance
5
3-MOS
DEC-31-1998
SEP-30-1998
5,675,696
8,547,016
8,739,295
0
3,071,400
18,433,972
92,419,541
28,447,665
96,442,425
8,920,398
11,067,939
0
0
4,734,377
45,655,629
96,442,425
303,578
9,261,590
418,974
6,354,250
(965,914)
0
431,429
3,070,602
1,119,138
2,324,687
0
0
0
1,951,464
.52
.52
