SEC Filing - Shenandoah Telecommunications Co

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, 2000 Commission File Number 0-9881 SHENANDOAH TELECOMMUNICATIONS COMPANY (Exact name of registrant as specified in its charter) Virginia 54-1162806 (State or other jurisdiction of (I.R.S. Employer of incorporation or organization Identification Number) PO 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 latest practicable date. Class Outstanding at October 31, 2000 Common Stock, No Par Value 3,759,244 Shares

INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets September 30, 2000 (unaudited), and December 31,1999 1-2 Condensed Consolidated Statements of Income Three Months and Nine Months Ended September 30, 2000 and 1999 (unaudited) 3 Condensed Consolidated Statements of Stockholders' Equity Nine Months Ended September 30, 2000 and 1999 (unaudited) 4 Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2000 and 1999 (unaudited) 5 Notes To Condensed Consolidated Financial Statements 6-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-19 Item 3. Quantitative and Qualitative Disclosures about Market Risk 20 PART II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 20 Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21

ITEM 1. Financial Statements SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS Dollars in thousands ASSETS September 30 December 31, 2000 1999 (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 3,648 $ 7,156 Accounts receivable, including interest 4,563 4,918 Materials and supplies 3,335 4,089 Prepaid expenses and other current assets 471 544 ------- ------- Total Current Assets 12,017 16,707 SECURITIES AND INVESTMENTS Available-for-sale securities 14,743 30,719 Other Investments 6,604 5,094 ------- ------- 21,347 35,813 PROPERTY, PLANT AND EQUIPMENT Plant in service 112,834 97,344 Plant under construction 28,614 9,134 -------- -------- 141,448 106,478 Less accumulated depreciation 36,266 31,929 -------- -------- 105,182 74,549 OTHER ASSETS Cost in excess of net assets of business Acquired 5,630 5,630 Deferred charges and other assets 552 590 Radio spectrum license 1,341 1,341 -------- -------- 7,523 7,561 Less accumulated amortization 1,777 1,579 -------- -------- 5,746 5,982 TOTAL ASSETS $144,292 $133,051 ======== ======== See accompanying notes to the condensed consolidated financial statements.

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS Dollars in thousands LIABILITIES AND STOCKHOLDERS' EQUITY September 30, December 31 2000 1999 (unaudited) -------------- ----------- CURRENT LIABILITIES Current maturities of long-term debt $ 2,167 $ 1,341 Accounts payable 3,922 2,196 Advance billings & payments 363 871 Refundable equipment deposit 3,871 3,871 Customers' deposits 125 119 Accrued compensation 932 947 Other current liabilities 1,204 781 Other taxes payable 1,212 909 -------- -------- Total Current Liabilities 13,796 11,035 Long-Term Debt, less current maturities 45,945 31,689 OTHER LIABILITIES AND DEFERRED CREDITS Deferred investment tax credit 28 76 Deferred income taxes 9,909 16,062 Pension and other 1,465 1,454 -------- -------- 11,402 17,592 Minority Interests 1,975 2,460 STOCKHOLDERS' EQUITY Common stock 4,796 4,734 Retained earnings 59,355 48,499 Accumulated other comprehensive income, unrealized gain on available-for-sale securities, net 7,023 17,042 -------- -------- Total Stockholders' Equity 71,174 70,275 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $144,292 $133,051 ======== ======== See accompanying notes to the condensed consolidated financial statements.

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Dollars in thousands, except per share data THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 Operating Revenues 2000 1999 2000 1999 ----------------------------- ----------------------------- Telephone: Local service $ 1,145 $ 1,040 $ 3,367 $ 3,009 Access 2,103 1,825 6,012 5,665 Directory 314 297 963 911 Facility leases 1,077 786 3,261 1,909 Miscellaneous 118 156 438 488 ---------------------- ----------------------- Total Telephone revenues 4,757 4,104 14,041 11,982 PCS 4,757 891 10,724 2,532 Mobile 4,602 3,777 12,728 9,357 ShenTel Service 1,260 965 3,871 2,695 Cable Television 923 886 2,708 2,548 Long Distance, Network and other 428 467 1,253 1,317 --------------------- ---------------------- Total Operating Revenues 16,727 11,090 45,325 30,431 Operating Expense Cost of products and services sold 1,544 546 4,306 1,827 Line costs 699 636 2,070 1,513 Plant specific 1,472 878 3,780 2,445 Plant non-specific: Network and other 2,925 1,353 6,986 3,856 Depreciation and amortization 1,819 1,599 5,593 4,774 Customer operations 1,822 1,429 5,264 3,909 Corporate operations 809 775 2,158 2,131 Other operating expenses 209 143 1,269 342 ---------------------- ----------------------- Total Operating Expense 11,299 7,359 31,426 20,797 ---------------------- ----------------------- Operating Income 5,428 3,731 13,899 9,634 Non-operating income, net 119 469 725 1,343 Gain on investments - - 6,885 - Interest expense 741 442 1,741 1,352 --------------------- ---------------------- Income before income taxes 4,806 3,758 19,768 9,625 Provision for income taxes 1,487 1,181 6,593 3,136 --------------------- ---------------------- Net income before minority interest 3,319 2,577 13,175 6,489 Minority interest (863) (623) (2,319) (1,281) ---------------------- ----------------------- Net income $ 2,456 $ 1,954 $10,856 $ 5,208 ====================== ======================= EARNINGS PER SHARE Net earnings per share, basic $ 0.65 $ 0.52 $ 2.89 $ 1.39 ====================== ======================= Net earnings per share, diluted $ 0.64 $ 0.52 $ 2.88 $ 1.39 ====================== ======================== See accompanying notes to the condensed consolidated financial statements.

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) Dollars in thousands Accumulated Other Common Retained Comprehensive Shares Stock Earnings Income Total ---------------------------------------------------------------- Balance, December 31, 1998 3,756 $ 4,734 $ 44,174 $ 639 $ 49,547 ---------- Comprehensive income Net income 6,428 6,428 Change in unrealized gain on securities available-for-sale net of tax ($10,079) 16,403 16,403 --------- Total comprehensive income 22,831 Dividends declared (2,103) (2,103) - ------------------------------------------------------------- Balance, December 31, 1999 3,756 4,734 48,499 17,042 70,275 --------- Comprehensive income Net income 10,856 10,856 Change in unrealized gain on securities available-for-sale net of tax $6,130 (10,019) (10,019) --------- Total comprehensive income 837 Issue shares of common stock 2 62 62 ---------------------------------------------------------------- Balance, September 30, 2000 3,758 $ 4,796 $ 59,355 $ 7,023 $ 71,174 ================================================================ See accompanying notes to the condensed consolidated financial statements.

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Dollars in thousands Nine Months Ended September 30, September 30, 2000 1999 ---------------------------- Cash Flows from Operating Activities Net income $ 10,856 $ 5,208 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 5,248 4,429 Amortization 346 346 Deferred taxes (22) (75) (Gain)/loss on equity investments (6,992) -- Equity in earnings of investees (717) (1,125) Loss on impairment of equipment 673 -- Minority share of income, net of distributions (486) 23 Other (198) (47) Decrease/(increase) in Accounts receivable 356 (703) Materials 755 (372) Increase in Accounts payable 1,726 1,464 Deferrals & accruals 331 858 -------- --------- Net cash provided by operating activities 11,876 10,006 Cash Flows from Investing Activities Purchase of property and equipment (36,554) (12,793) Purchase of intangible assets -- (561) Purchase of investments (1,654) (139) Maturity of investments -- 500 Cash flows from investments 7,680 1,025 -------- --------- Net cash used in investing activities (30,528) (11,968) Cash Flows from Financing Activities Proceeds from long-term debt 16,223 4,386 Issuance of common stock 62 -- Principal payments on long-term debt (1,141) (503) -------- --------- Net cash provided by financing activities 15,144 3,883 -------- --------- Net increase (decrease) in cash and cash equivalents (3,508) 1,921 Cash and cash equivalents: Beginning 7,156 4,891 -------- --------- Ending $ 3,648 $ 6,812 ======== ======== See accompanying notes to the condensed consolidated financial statements.

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. Accounting Policies In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position as of September 30, 2000 and December 31, 1999 its results of operations for the three and nine month periods ended September 30, 2000 and 1999, and its cash flows for the nine months ended September 30, 2000 and 1999. Such adjustments consist only of normal recurring accruals. The balance sheet at December 31, 1999 is derived from the audited financial statements at that date. While the Company believes the disclosures presented are adequate for a fair presentation, it is suggested that these financial statements be read in conjunction with the financial statements and notes included in the Company's annual report on Form 10-K. The results of operations for the three-month and nine month periods ended September 30, 2000 and 1999 are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to the prior years' financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or retained earnings.

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 2. Earnings per Share Basic earnings per share are calculated for the three and nine month periods ended September 30, 2000 and 1999 are calculated by dividing net income by weighted average common shares outstanding for the period. Diluted earnings per common share are calculated by dividing net income by weighted average common shares outstanding during the period plus dilutive potential common shares. Dilutive potential common shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options are used to repurchase common stock at market value. The following is a reconciliation between the calculation of basic and diluted net earnings per common share: In thousands except per share data For the three months For the nine months ended September 30, ended September 30, 2000 1999 2000 1999 ------------ ----------- ----------- ---------- Basic EPS Computation Numerator: Net earnings $ 2,456 $ 1,954 $ 10,856 $ 5,208 Denominator Weighted average common shares outstanding 3,757 3,756 3,757 3,756 Basic earnings per share $ .65 $ .52 $ 2.89 $ 1.39 Diluted EPS Computation Numerator: Net earnings $ 2,456 $ 1,954 $10,856 $ 5,208 Denominator: Common shares outstanding 3,757 3,756 3,757 3,756 Effect of outstanding stock options 11 3 11 3 Diluted weighted average common shares outstanding 3,768 3,759 3,768 3,759 Diluted earnings per share .64 .52 2.88 1.39

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 3. Segment Information The Company has identified nine reporting segments based on the products and services each provide. Each segment is managed and evaluated separately because of diverse technologies and marketing strategies. A summary of external operating revenues, internal operating revenues and net income of each segment is as follows: Dollars in thousands For the nine months ended September 30, 2000 September 30, 2000 External Internal Operating Operating Net Total Revenues Revenues Income Assets ------------------------------------------------- --------------------- Holding $ - $ - $ 425 $ 63,4139 Telephone 14,041 1,778 4,487 75,749 Cable TV 2,708 2 (104) 12,053 ShenTel 3,871 170 (19) 5,226 Leasing 11 10 290 - Mobile 12,728 650 7,401 5,566 PCS 10,724 20 (1,712) 41,079 Long Distance 808 285 135 214 Network 434 143 233 1,146 ------------------------------------------------- --------------------- Combined Totals $ 45,325 $ 3,048 $ 10,856 $ 204,736 Inter-segment eliminations (3,048) (60,444) - ------------------------------------------------- --------------------- Consolidated Totals $ 45,325 $ - $ 10,856 $ 144,292 ================================================= ===================== For the nine months ended September 30, 1999 September 30, 1999 External Internal Operating Operating Net Total Revenues Revenues Income Assets ------------------------------------------------- --------------------- Holding $ - $ - $ 476 $ 30,128 Telephone 11,982 4,211 1,347,808 70,719 Cable TV 2,548 (147) 1,800 11,072 ShenTel 2,695 (163) 181,121 3,881 Leasing 15 8 - 295 Mobile 9,357 1,703 334,866 10,327 PCS 2,532 (1,301) 11,956 22,422 Long Distance 785 156 229,666 358 Network 524 258 72,971 1,647 ------------------------------------------------- --------------------- Combined Totals $ 30,431 $ 2,180 $ 5,208 $ 150,849 Inter-segment eliminations (2,180) (45,707) - ------------------------------------------------- --------------------- Consolidated Totals $ 30,431 $ - $ 5,208 $ 105,142 ================================================= =====================

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) Dollars in thousands For the three months ended September 30, 2000 External Internal Net Revenues Revenues Income ------------------------------------------------------ Holding $ - $ - $ 147 Telephone 4,757 658 1,480 Cable TV 923 1 (36) ShenTel 1,260 56 (78) Leasing 6 - 1 Mobile 4,602 245 1,116 PCS 4,757 8 (280) Long Distance 278 90 40 Network 144 49 66 -------------------------------------------------- Combined totals $ 16,727 $ 1,107 $ 2,456 Inter-segment eliminations - (1,107) ------------------------------------------------- Consolidated totals $ 16,727 $ - $ 2,456 ================================================= For the three months ended September 30, 1999 External Internal Net Revenues Revenues Income -------------------------------------------------- Holding $ - $ - $ 223 Telephone 4,104 470 1,307 Cable TV 886 1 (12) ShenTel 965 60 (126) Leasing 2 - 5 Mobile 3,777 140 861 PCS 891 4 (467) Long Distance 264 94 53 Network 201 23 110 -------------------------------------------------- Combined totals $ 11,090 $ 792 $ 1,954 Inter-segment eliminations - (792) -------------------------------------------------- Consolidated totals $ 11,090 $ - $ 1,954 ================================================== Inter-segment eliminated assets represent amounts invested in and notes payable between the reporting segments.

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 4. Comprehensive Income Comprehensive income includes net income along with gains and losses on the Company's available-for-sale investments. Dollars in thousands For the three months For the nine months ended September 30 ended September 30 2000 1999 2000 1999 -------------------------------------------------- Net income $ 2,456 $ 1,954 $ 10,856 $ 5,208 Net unrealized gain (loss) (7,133) 435 (10,019) 439 -------------------------------------------------- Comprehensive income (loss) $ (4,677) $ 2,389 $ 837 $ 5,647 ================================================== 5. Subsequent Events On October 9, 2000, the Company declared a cash dividend of $0.66 per share payable December 1, 2000 to shareholders of record on November 9,2000. At October 31, 2000, the Company's management wrote down to fair market value certain equity and debt security investments. The write-down amounted to approximately $1.5 million dollars and was due to a decline in the value of the securities, which, in the opinion of management, was considered to be other than temporary. 6. Staff Accounting Bulletin In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). SAB (101) requires that revenue and related costs from telecommunication service activation fees be deferred and recognized over the life of the contract or relationship. In June 2000, the SEC issued an amendment to SAB 101, which deferred the required adoption date for those registrants with fiscal years that end after December 15, 2000 until the fourth quarter of 2000. The effective date for Shentel will be for the quarter ending December 31, 2000. Management has not completed its evaluation of the impact of this pronouncement.

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES ITEM 2. Management's Discussion and Analysis of Financial Condition and Results Operations (Continued) This report contains forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to changes in the interest rate environment; management's business strategy, national, regional and local market conditions; and legislative and regulatory conditions. Readers should not place undue reliance on forward-looking statements, which reflect management's view only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect subsequent events or circumstances. Shenandoah Telecommunications Company is a diversified telecommunication holding company providing both regulated and unregulated telecommunication services through its nine wholly owned subsidiaries. These subsidiaries provide local exchange telephone services as well as cable television, cellular, paging, personal communications services (PCS), Internet access, long distance, and leased fiber and tower facilities. Competitive local exchange carrier (CLEC) services are also being planned. Additionally, the Company sells and leases equipment, mainly related to services provided, and also participates in emerging technologies by direct investment in non-affiliated companies. In recent years, the Company has made significant investments to take advantage of new technologies in the increasingly competitive telecommunications industry. Net Plant in service increased from $36.8 million at the end of 1995 to $105.2 million at September 30, 2000. This increase incorporates continued expansion of our operations from Virginia's northern Shenandoah Valley to other surrounding areas. In conjunction with our growing PCS service, we are expanding our presence in central Pennsylvania and will be operational by early 2001. Our business is changing; as the PCS business grows, it is becoming a more significant portion of our total revenue. In the calendar year 1995, Telephone revenue was 60% of the total revenue, mobile revenue, consisting primarily of cellular and tower rental revenue was 23% of total revenue, and PCS was 0% of total revenue. For the nine months ended September 30, 2000, Telephone revenue was 30% of total revenue, mobile revenue was 28% of total revenue and PCS revenue had grown to nearly 24% of total revenue. This revenue shift will continue as the impact of the PCS expansion and growth is reflected in the Company's results. The Company's strategy is to continue the expansion of services and the geographic areas served. In late 1999, our PCS subsidiary executed an affiliate agreement with Sprint PCS and finished constructing and activated a CDMA network where our GSM network existed. Additionally, we converted our then GSM customer base to CDMA service. The agreement expands our PCS territory from an area serving a population of nearly 0.7 million, to an area serving a population of nearly 2.1 million potential customers. The

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES ITEM 2. Management's Discussion and Analysis of Financial Condition and Results Operations (Continued) additional areas are in the Altoona, Harrisburg, and York-Hanover Basic Trading Areas of Pennsylvania. The capital build out and initial operating losses associated with thisexpansion, which will require significant capital resources, are consistent with the strategy to take advantage of new technologies and expand our service areas. Losses in the PCS operation are expected to continue and also increase, particularly in the fourth quarter of 2000 and in the first part of 2001, when the additional network facilities are anticipated to commence operations. Additionally, incremental selling, marketing and administrative costs are being incurred to support the expansion of the PCS network. RESULTS OF OPERATIONS THIRD QUARTER 2000 VS THIRD QUARTER 1999 Revenues Total revenue for the third quarter 2000 increased $5.6 million or 50.8% to $16.7 million compared to the same period last year. The significant revenue increase is due primarily to a large increase in PCS revenues, along with increases in cellular roaming revenue, telephone revenues, equipment sales, and tower rental revenues. Earnings increased $0.5 million or 25.7% to $2.5 million compared to $2.0 million for the same quarter last year. Net earnings per share, basic and fully diluted, increased $0.13 cents per share, up 25.0% to $0.65 cents per share. Comparable third quarter results for 1999 were $0.52 cents per share. The PCS (Personal Communications Services) business experienced continued growth in revenues during the quarter. Revenue increased $3.9 million or 433 %, to $4.8 million compared to the same period last year for the existing quad-state network area. The on-going work to expand the PCS CDMA network into the south-central part of Pennsylvania is continuing. There have been minor delays in the project, with startup anticipated by early 2001. The addition to the network will increase covered pops (population) from 0.4 million to nearly 1.1 million pops. The expanded network will increase major road coverage from less than 200 miles, to over 500 miles. The Company will benefit from this expanding network with increased potential customers in addition to increased revenue from non-customer usage of the Company's network. The Company joined the Sprint PCS network as an affiliate in late 1999. This affiliation has helped spur the growth in revenue, which should continue, as we expand our PCS network and market presence. As part of this expansion, the Company plans to open several retail store locations within the next 90 to 120 days. These retail locations will be located in the central Pennsylvania markets where the added network coverage is being built. The Company's customer base continued to grow to over 17,000 as of September 30, 2000, compared to 7,600 at January 1, 2000. Comparative numbers as of the end of September 1999 are not meaningful, as the Company changed to CDMA technology for its PCS service in late fall 1999. SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES ITEM 2. Management's Discussion and Analysis of Financial Condition and Results Operations (Continued) Operating Expenses Operating expenses increased $3.9 million or 53.5% to $11.3 million compared to third quarter last year. Network and other operating expenses were up $1.6 million due to the expansion and increased use of the network, particularly in support of wireless services. The cost of products sold increased $1.0 million, driven by increased handset sales in the PCS business and increased equipment sales in the ShenTel service operation. Plant specific costs combined with depreciation increased by $0.8 million as new assets have been added to the networks along with expanded services compared to the same period last year. Customer support operations costs increased $0.4 million as additional staff and support have been added to service new subscribers. Other costs have increased $0.1 million compared to the same period last year. Interest expense increased $0.3 million or 67.7% to $0.7 million over the same period last year, a result of increased borrowing levels to support the PCS expansion. The Company expects interest expense will continue to increase compared to the prior year same-period, until the PCS business generates adequate cash to fund its cash needs. Income before taxes is up $1.0 million due to the increase in operating income somewhat offset by higher interest expense. Minority interest increased $0.2 million due to the improved performance of the cellular operation, which is not wholly owned by the Company. Net income is up $0.5 million or 25.7% to $2.5 million for the third quarter due to continued growth in revenues in the wireless businesses compared to last year's results. RESULTS OF OPERATIONS FIRST NINE MONTHS 2000 VS FIRST NINE MONTHS 1999 Revenues Through the first nine months of 2000, the Company's total revenues are up $14.9 million or 48.9% to $45.3 million, compared to the nine-month revenue results of 1999, which were $30.4 million. The increase was the result of a large increase in PCS revenues, which made up over 55% of the total increase in revenue. Additionally, revenue growth occurred in cellular operations, Internet services, telephone services and also equipment sales, compared to the same period last year. The Company's net income grew to $10.9 million, up $5.7 million or 108% over 1999 year to date results. This significant increase includes a one-time after tax gain of $4.3 million, on the sale of the Companys partnership interest in a cellular operation, which occurred during the second quarter of this year. Net earnings per share, basic and diluted, increased $1.50 over 1999 nine month results to $2.89 per share. SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES ITEM 2. Management's Discussion and Analysis of Financial Condition and Results Operations (Continued) PCS revenues grew $8.2 million or 323% to $10.7 million in the first nine months, up from $2.5 million in the prior year. The increase was the result of higher service revenues of $3.6 million which were generated by adding PCS customers to our Sprint PCS service. Travel revenue, which results from the use of our network by other Sprint PCS users, was up $4.2 million, while PCS equipment sales increased $0.4 million over the same period last year. Roamer revenue, which results from our Sprint PCS customers roaming on non-Sprint PCS or affiliate networks also increased $0.4 million compared to the first nine-months of 1999. Mobile revenue increased $3.4 million or 36.0% to $12.7 million for the nine-months of 2000. Cellular roaming revenue increased $3.7 million, somewhat offset by a $0.3 million decrease in service revenue and equipment sales related to the cellular operation. The roaming revenue is the result of other cellular providers' customers making calls in our network coverage area. Telephone revenues increased $2.1 million or 17.1% to $14.0 million compared to 1999 results through the first nine months. Increased access lines and higher facility lease revenues contributed to the increased revenue for 2000 compared to 1999. The increased use of the Company's expanded fiber network contributed nearly $1.4 million of the increase in revenue. This increase was a 70.8% increase over the nine-month 1999 facilities revenues. Local service revenue increased $0.4 million or 11.8% to $3.4 million for the nine-month period, due to increased customers and higher valued services purchased by existing customers. Access revenue increased $0.3 million, the result of increased use of our local telephone network by other service providers. ShenTel Service revenue increased $1.2 million for the first nine months of 2000, due to increased sales of telephone system equipment and the increase in Internet subscribers compared to last year. Equipment sales are up $0.8 million compared to 1999 year-to-date equipment sales. Internet revenue increased $0.4 million to $2.1 million for the nine months of 2000, compared to $1.7 million for the same period of 1999. The number of Internet subscribers has increased from 9,400 at the end of September 1999, to 14,000 as of September 30, 2000. Cable Television revenue increased $0.2 million or 6.2%, to $2.7 million, compared to $2.5 million for the nine-months of 1999. Revenues have grown, as customers upgrade to higher value services, such as digital and pay per view services, and also due to a 1% increase in subscribers compared to the same period last year. SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES ITEM 2. Management's Discussion and Analysis of Financial Condition and Results Operations (Continued) Operating Expenses Operating expenses are up $10.6 million or 51.1% to $31.4 million for the nine-month period ended September 30, 2000 compared to $20.8 million for the same period last year. Network expenses were up $3.1 million, or 81.2% to $7.0 million due to expansion of the PCS network, compared to $3.9 million last year. Costs related to equipment sold are up $2.5 million, or 135% due to increased handset sales in the PCS business, in addition to higher sales in telephone equipment business. Line costs increased $0.5 million and plant costs are up $1.3 million over the same period from 1999. Depreciation expenses increased $0.8 million, a result of new equipment that has been added to expand and enhance the Company's networks. Customer operations expenses increased $1.4 million or 34% to $5.3 million due to added support expenses related to the growing customer base. Other expenses accounted for the remaining $0.4 million of the increased operating expenses on a year-to-date comparison. Operating Income is up $4.3 million or 44.3%, to $13.9 million. Increased travel revenue and roamer revenue from the wireless businesses contributed to the incremental improvement in operating income. The significant change in non-operating income primarily reflects the one-time gain on the sale of the Virginia 6-RSA Partnership interest, which was $6.9 million, and occurred in the second quarter 2000, and was previously disclosed in the 10Q filed in May 2000. Additionally, in the first nine-months of 2000, the Company realized income of $0.7 million generated from investments. Interest expense is up $0.4 million, primarily due to increased borrowing to cover the continued expansion of the PCS network into the southern portions of central Pennsylvania. Income before taxes increased $10.1 million, which reflects the improved results from operations, and the one-time gain mentioned above. Provisions for income taxes are up $3.5 million based on applying the applicable statutory tax rates. Minority interest is up $1.0 million, as the operation that is not wholly owned continues to increase its net income after taxes. Net income is up $5.6 million compared to the nine-month results of 1999, the result of higher operating income of $1.3 million, and the impact of the after-tax gain of $4.3 million on the sale of the Virginia 6-RSA Partnership interest.

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES ITEM 2. Management's Discussion and Analysis of Financial Condition and Results Operations (Continued) INVESTMENTS IN NON-AFFILIATED COMPANIES The Company participates in emerging technologies by investing in start-up companies. This includes indirect participation through capital venture funds such as South Atlantic Funds and Dolphin Communications Funds. It also includes direct participation in start-up companies such as Concept Five and Coriss.Net. For those investments that eventually go public, it is the intent of the Company to evaluate whether to hold or sell parts or all of each investment on an individual basis. The Company currently holds shares of four companies with NASDAQ or NYSE listings. As of September 30, 2000, the market value of these investments were, $12.9 million in Illuminet (ILUM); $0.7 million in ITC^DeltaCom (ITCD); $0.9 million in Loral Communications (LOR) and $0.2 million in NetIQ (NTIQ). Unrealized gains on the securities available for sale decreased $7.1 million during the third quarter of 2000 to $7.0 million, with a year to date decrease of $10.0 million, both of which reflect the volatile stock prices of these technology securities and current market conditions. Subsequent to the end of the period, the valuation of the Loral investment was reexamined, due to Loral's announcement concerning its own investment in Globalstar. As a result, the Company will value its Loral investment at the lower of cost or market beginning with the period ended December 31, 2000. Based on this approach, and Loral's share price as of October 31, 2000, the Company will record a loss on the impairment of the investment in Loral. Management is also reviewing the valuation of ITC^DeltaCom, due to its recent market performance, and the performance of several similar enterprises. Based the October 31, 2000 valuations, the Company expects to record an impairment charge of approximately $1.5 million. The actual charge may differ from this value depending on the market value of these investments at the time of the valuation. Subsequent to the close of the quarter, the Board of Directors authorized management to invest up to $1.5 million in two new ventures. These ventures will be funded over an unspecified term in the future. LIQUIDITY AND CAPITAL RESOURCES The Company's two principal sources of funds for financing expansion activities are internally generated funds and loan arrangements with CoBank. On January 12, 2000 the Company entered into a $35.0 million bridge loan agreement with CoBank, principally to finance the PCS build-out in Pennsylvania. Outstanding draws on this facility as of September 30, 2000 were $11.8 million. The Company and CoBank contemplate replacing this $35.0 million bridge loan and a previously existing $25.0 million CoBank credit facility with a single term loan agreement for $60.0 million at terms similar to the existing facilities. The existing $25.0 million credit facility is almost fully drawn, with monthly repayment requirements through August 2011.

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES ITEM 2. Management's Discussion and Analysis of Financial Condition and Results Operations (Continued) Additionally, the Company has a $9.2 million loan agreement with the Rural Telephone Bank (RTB) with approximately $0.5 million remaining as of September 30, 2000 for future advances. Expenditure of these loan funds is limited to capital projects for the regulated local exchange carrier subsidiary. The Company maintains an unsecured line of credit for $2 million with a local bank. No draws were made on this line during the first nine-months of 2000 and no amounts are outstanding as of September 30, 2000. At its option, the Company may also liquidate portions of the securities available for sale portfolio, to provide for its expansion needs. These securities had a market value of $14.7 million as of September 30, 2000. Management believes that the funds generated from operations, in addition to the funds available from the above sources, will provide ample capital resources to meet the capital, operating and investing needs of the Company. Year-to-date capital spending was $36.6 million, compared to a total annual capital budget of $45.0 million. The budget includes approximately $26.8 million for equipment and towers associated with the PCS expansion, principally in Pennsylvania. Included in the $26.8 million amount is $11.0 million for CDMA equipment and towers that were purchased from Sprint, primarily in the third quarter of 2000. The remaining PCS equipment purchases and installations planned for this year, are in progress, and should be substantially complete by the end of 2000. Spending to date on this equipment is approximately $13.1 million. The Telephone subsidiary capital budget is $10.9 million, primarily for central office equipment and fiber optic and metallic cable facilities with year-to date spending at approximately $5.5 million. Thus far in 2000, the Company has funded its capital projects through internally generated funds, proceeds from the sale of the partnership noted above, and debt.

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES ITEM 2. Management's Discussion and Analysis of Financial Condition and Results Operations (Continued) REIMBURSEMENT FOR PCS CONVERSION As part of the execution of the Sprint PCS affiliate agreement, the Company received approximately $3.9 million as partial reimbursement for the Company' expenditures in building the CDMA network, which replaces the Company's earlier PCS network constructed using GSM technology. Under the terms of the agreement, all or a portion of this amount is to be reimbursed in the event the GSM network is sold. The Company has signed a letter of intent to sell the GSM network, and as a result, has reflected the $3.9 million as a current liability. NASDAQ LISTING Subsequent to the end of the third quarter, the Company's application for listing of the Company's stock on the NASDAQ National Market exchange was accepted. Trading of the Company's stock on the NASDAQ National Market began on October 23, 2000 under the symbol SHET. DIVIDEND DECLARATION Subsequent to the end of the quarter, the Board of Directors of the Company declared a cash dividend of $0.66 cents per share payable on December 1, 2000, to shareholders of record on November 9, 2000. The total payout of the dividend will be approximately $2.5 million. STAFF ACCOUNTING BULLETIN In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). SAB (101) requires that revenue and related costs from telecommunication service activation fees be deferred and recognized over the life of the contract or relationship. In June 2000, the SEC issued an amendment to SAB 101, which deferred the required adoption date for those registrants with fiscal years that end after December 15, 2000 until the fourth quarter of 2000. The effective date for Shentel will be for the quarter ending December 31, 2000. Management has not completed its evaluation of the impact of this pronouncement. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk Our market risks relate primarily to changes in interest rates, on instruments held for other than trading purposes. Our interest rate risk involves two components. The first component is outstanding debt with variable rates. This consists of notes payable to CoBank totaling $15.0 million. The rate of this note is based upon the lender's cost of funds. The Company also has a variable rate line of credit totaling $2 million, with no outstanding borrowings at September 30, 2000. The Company's remaining debt has fixed rates through its maturity. The second component of market risk is temporary excess cash, primarily invested in overnight repurchase agreements and short-term certificates of deposit. As the Company continues to expand its operations, temporary excess cash is expected to be minimal. Available cash will be used for existing and anticipated new debt obligations, maintaining and upgrading capital equipment, ongoing operations, and investment opportunities in new and emerging technologies.

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES ITEM 4. Submission of Matters to a Vote of Security Holders set forth below: None ITEM 6. Exhibits and Reports on Form 8-K A. Exhibit 27 - Financial Data Schedule B. One report on Form 8-K was 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 9, 2000 /s/ CHRISTOPHER E FRENCH Christopher E. French President November 9, 2000 /s/ LAURENCE F PAXTON Laurence F. Paxton Vice President - Finance

5 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 3,648 14,643 4,563 0 3,335 12,017 141,448 36,266 144,292 13,796 45,945 0 0 4,796 7,023 144,292 0 45,325 4,306 31,426 0 0 1,741 17,449 6,593 10,856 0 0 0 10,856 2.89 2.88