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, 2001
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 (IRS Employer
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 close of the period covered by this report.
Class Outstanding at April 30, 2001
Common Stock, No Par Value 3,760,658 Shares
1
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARY COMPANIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2001 and December 31, 2000 3-4
Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 2001 and 2000 5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2001 and 2000 6
Condensed Consolidated Statements of
Shareholders' Equity for the Three Months Ended
March 31, 2001 and 2000 7
Notes To Unaudited Condensed Consolidated
Financial Statements 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-15
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15-16
PART II. Other Information
Item 4. Submission of Matters To a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
2
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets
March 31, December 31,
2001 2000
(Unaudited)
------------- -------------
Current Assets
Cash and cash equivalents $4,547 $3,133
Accounts receivable, net 5,275 5,380
Income tax receivable 1,945 2,052
Materials and supplies 3,715 2,856
Prepaid expenses 787 854
------------- -------------
Total current assets 16,269 14,275
Securities and Investments
Available for sale securities 10,293 11,771
Other investments 6,872 6,996
------------- -------------
Total securities and investments 17,165 18,767
Property, Plant and Equipment, net 108,360 111,808
Other Assets
Cost in excess of net assets of business
acquired, less accumulated amortization
of $1,693 and $1,600 3,937 4,030
Equipment deposit 4,904 --
Deferred charges and other assets 327 340
Radio spectrum license, net -- 1,133
------------- -------------
Total other assets 9,168 5,503
$150,962 $150,353
============= =============
See accompanying notes to unaudited condensed consolidated financial statements.
3
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
Liabilities and Shareholders' Equity
March 31, December 31,
2001 2000
(Unaudited)
------------ -------------
Current Liabilities
Current maturities of long-term debt $2,875 $2,403
Accounts payable 3,240 4,914
Refund due wireless franchisor 4,670 2,800
Advance billings and deposits 1,654 1,577
Refundable equipment payment -- 3,871
Other current liabilities 2,557 2,834
------------ -------------
Total current liabilities 14,996 18,399
Long-Term Debt, less current maturities 56,704 53,084
Other Liabilities
Deferred income taxes 9,225 9,218
Pension & other 1,668 1,602
------------ -------------
Total other liabilities 10,893 10,820
Minority Interests 1,833 1,715
Shareholders' Equity
Common stock 4,832 4,817
Retained earnings 56,362 55,873
Accumulated other comprehensive income 5,342 5,645
------------ -------------
Total shareholders' equity 66,536 66,335
$150,962 $150,353
============ =============
See accompanying notes to unaudited condensed consolidated financial statements.
4
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Three months ended
March 31,
2001 2000
(Unaudited)
-----------------------------
Operating Revenues
Wireline $6,684 $5,727
Wireless 9,906 6,185
Other revenues 1,128 1,367
-----------------------------
Total revenues 17,718 13,279
Operating Expenses
Cost of goods and services 1,537 1,505
Network operating costs 6,219 3,509
Depreciation and amortization 2,483 1,841
Selling, general and administrative 3,581 2,525
-----------------------------
Total operating expense 13,820 9,380
-----------------------------
Operating Income 3,898 3,899
Other Income (expense):
Non-operating income (expense), net (1,391) 530
Interest expense 838 508
-----------------------------
Income before income taxes and
minority interest 1,669 3,921
Income tax provision 297 1,233
-----------------------------
1,372 2,688
Minority interest (883) (660)
-----------------------------
Net income $489 $2,028
=============================
Net earnings per share, basic and diluted $0.13 $0.54
=============================
Weighted average shares outstanding 3,760 3,756
=============================
See accompanying notes to unaudited condensed consolidated financial statements.
5
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
Three months ended
March 31,
2001 2000
(Unaudited)
------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $489 $2,028
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation 2,390 1,724
Amortization 93 116
Deferred tax charges (benefit) 200 (1,583)
Impairment charges on investments 990 --
Loss from patronage and equity investments 109 508
Minority interest, net of distributions 118 (427)
Other 69 (17)
Changes in assets and liabilities:
(Increase)/decrease in
Accounts receivable 105 742
Materials and supplies (859) 186
Increase/(decrease) in
Accounts payable (1,674) (299)
Other prepaids, deferrals and accruals (2,027) (395)
------------------------
Net cash provided by operating activities 3 2,583
Cash Flows from Investing Activities
Purchase of property plant & equipment (4,303) (8,919)
Purchase of investment securities (24) (329)
Cash flows from securities 39 389
Proceeds from disposal of assets 1,592 --
------------------------
Net cash used in investing activities (2,696) (8,859)
Cash Flows from Financing Activities
Proceeds from long-term debt and revolving loan 4,620 6,286
Principal payments on long term debt (528) (356)
Issue of common stock exercise of stock options 15 28
------------------------
Net cash provided by financing activities 4,107 5,958
------------------------
Net increase (decrease) in cash 1,414 (318)
Cash and Cash Equivalents
Beginning 3,133 7,156
------------------------
Ending $4,547 $6,838
========================
Non-Cash Transaction
The Company closed on the sale of its GSM equipment in January 2001, for
approximately $6,500 of which approximately $4,900 was escrowed as part of a
like-kind exchange transaction. The escrowed funds will be disbursed as new
equipment is received by the Company.
See accompanying notes to unaudited condensed consolidated financial statements.
6
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
Accumulated
Other
Common Retained Comprehensive
Shares Stock Earnings Income Total
-------------------------------------------------------------------
Balance, December 31, 1999 3,756 $4,734 $48,499 $17,042 $70,275
Comprehensive income
Net income -- -- 9,855 -- 9,855
Change in unrealized gain
on securities available-for-sale
net of tax of $7,258 -- -- -- (11,860) (11,860)
Reclassification of net recognized
loss on securities available-for-sale,
net of tax of ($284) -- -- -- 463 463
----------
Total comprehensive loss (1,542)
Dividends declared -- -- (2,481) -- (2,481)
Common stock issued 3 83 -- -- 83
-------------------------------------------------------------------
Balance, December 31, 2000 3,759 4,817 55,873 5,645 66,335
(Unaudited)
Comprehensive income
Net income -- -- 489 -- 489
Change in unrealized gain
on securities available-for-sale
net of tax of $559 -- -- -- (917) (917)
Reclassification of net recognized
loss on securities available-for-sale,
net of tax of ($376) -- -- -- 614 614
----------
Total comprehensive income 186
Common stock issued 1 15 -- -- 15
-------------------------------------------------------------------
Balance, March 31, 2001 3,760 4,832 56,362 5,342 $66,536
===================================================================
See accompanying notes to unaudited condensed consolidated financial statements.
7
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARY COMPANIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The interim condensed consolidated financial statements of Shenandoah
Telecommunications Company (the Company) are unaudited. In the opinion of
management, all adjustments necessary for a fair statement of the interim
results have been reflected therein. All such adjustments were of a normal and
recurring nature.
These statements should be read in conjunction with the consolidated financial
statements and related notes in the Company's Annual Report to Shareholders and
which are included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 (the "2000 Form 10-K").
2. Operating revenues and net earnings for any interim period are not
necessarily indicative of results that may be expected for the entire year.
3. Basic earnings per common share were computed on the weighted average number
of shares outstanding. Diluted net income per share for the three months ended
March 31, 2001 (which was not different from the basic net income per share) was
computed under the treasury stock method, assuming the conversion as of the
beginning of the period, for all dilutive stock options. There were no
adjustments to net income in the computation of dilutive net income per share
for either period.
4. 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 unaudited
external operating revenues, internal operating revenues and net income of each
segment is as follows:
March 31,
For the three months ended March 31, 2001 2001
External Internal Net Total
Revenues Revenues Income Assets
-------------------------------------------------------------------
Holding $ 0 $ 0 $(803) $71,922
Telephone 5,242 579 1,764 77,706
Cable TV 942 1 (42) 12,050
ShenTel 1,122 91 (35) 5,125
Leasing 6 0 2 261
Mobile 4,617 184 1,130 1,404
PCS 5,289 1 (1,689) 46,353
Long Distance 274 89 32 156
Network 226 33 130 1,024
-------------------------------------------------------------------
Combined totals $17,718 $978 $489 $216,001
Inter-segment eliminations 0 (978) 0 (65,039)
-------------------------------------------------------------------
Consolidated totals $17,718 $ 0 $489 $150,962
===================================================================
8
March 31,
For the three months ended March 31, 2001 2001
External Internal Net Total
Revenues Revenues Income Assets
---------------------------------------------------------------
Holding $ 0 $ 0 $280 $54,515
Telephone 4,419 538 1,370 75,355
Cable TV 888 1 (30) 11,472
ShenTel 1,365 61 24 5,395
Leasing 2 0 4 297
Mobile 3,758 263 945 16,997
PCS 2,427 5 (708) 18,322
Long Distance 274 97 54 257
Network 146 45 89 1,178
---------------------------------------------------------------
Combined totals $13,279 $1,010 $2,028 $183,788
Inter-segment eliminations 0 (1,010) 0 (48,043)
---------------------------------------------------------------
Consolidated totals $13,279 $ 0 $2,028 $135,745
=============================================================
5. Comprehensive income includes net income along with losses on the Company's
available-for-sale investments. A summary of the unaudited results follow:
For the three months ended March 31,
2001 2000
-------------------------------------
Net income $489 $2,028
Net unrealized gain (loss) (303) (2,698)
-------------------------------------
Comprehensive income $186 $(670)
=====================================
6. 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.
7. On May 10, 2001, the Company received a commitment letter from CoBank to fund
a $23 million, 12-year note at 7.37%. This facility will term out the current
borrowing under the $35 million revolving line of credit. Closing on this
facility is contingent on certain legal requirements of the lender, with funding
expected by August 31, 2001. Additionally, CoBank extended the Company's $35
million revolving line of credit to June 1, 2002.
9
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements contained in this report on Form 10Q that are not purely
historical are forward looking statements within the meaning of Section 27 A of
the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of
1934, including statements regarding our expectations, hopes, intentions or
strategies regarding the future. 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 takes no obligation to publicly revise
these forward-looking statements to reflect subsequent events or circumstances.
Shenandoah Telecommunications Company and subsidiaries (the Company) provides
telephone service, long distance, personal communications service (PCS),
cellular telephone, cable television, unregulated telecommunications equipment
and services, internet access, paging, and digital subscriber loop (DSL)
services. In addition, through its subsidiaries, the Company leases towers and
operates and maintains an interstate fiber optic network. Competitive local
exchange carrier (CLEC) services are currently being evaluated in certain target
markets. The Company's operations are principally along the Interstate 81
corridor from the Northern Shenandoah Valley of Virginia through West Virginia,
Maryland, and into South Central Pennsylvania.
To better conform to industry standards, the Company has adopted the approach of
reporting revenues as wireline, wireless and other revenues. These revenue
classifications are defined as follows: Wireline revenues include the following
subsidiary revenues in the financial results: Telephone Company, Network
Company, Cable Television Company, and the Long Distance Company. Wireless
revenues are made up of the PCS (Personal Communications Service) Company,
Mobile Company and within the Mobile company the revenues of the Cellular
Partnership. Other revenues are comprised of the revenues of ShenTel Service
Company, the Leasing Company, and the Holding Company. The Company has
reclassified prior period results to reflect this change.
RECENT DEVELOPMENTS
The Company continued to make significant investments in its PCS operations
during the first quarter of 2001. In mid-February 2001, the Company turned up
the PCS network in the South Central Pennsylvania market. This market
encompasses the Harrisburg and York areas. Later this year, the Company will
continue expanding its network in the
10
Altoona, Pennsylvania market. As a result of this extensive growth of the PCS
business, it is becoming a more significant portion of our total revenue. Over
recent history, our revenue has shifted from traditional wireline revenues to
wireless revenues. For the three months ended March 31, 2001, Wireline revenue
was 38% of total revenue, Wireless revenue contributed 56% of total revenue, and
Other revenue was 6% of total revenue. This shift in revenue will likely
continue as the Company's PCS revenues grow from the expanded markets covered by
the PCS network.
The Company's strategy is to continue the expansion of its services and the
geographic areas served primarily through the expansion and fill in of the PCS
network using the CDMA technology under the national brand of Sprint PCS. During
the quarter, the Company closed the sale of its GSM equipment and several
spectrum licenses for $6.5 million. There was no gain or loss recorded as a
result of the transaction, since the assets were written down to fair value in
June 2000. A portion of the transaction was consummated as a like-kind exchange,
and accordingly $4.9 million of the proceeds have been escrowed by a third
party, and will be used for the purchase of new equipment. These funds have been
recorded on the balance sheet as Equipment deposit in other assets, as they will
be used to purchase property and equipment.
The Company is dependent on Sprint PCS for the reporting of a significant
portion of all revenues from the PCS operation, particularly travel and service
revenue. During the quarter, the Company was informed by Sprint PCS that certain
travel revenues (which is for network traffic exchanged between Sprint PCS and
its affiliates) had been incorrectly allocated and paid to Shenandoah for the
2000 year and through February 2001. The Company filed its 10K for 2000 with the
statements reflecting the impact of the 2000 adjustment. The misallocation of
revenues required the Company to amend the three 10Q filings for 2000. The March
31, 2000 information reflected in this report is based on the 10Q/A filed on or
about May 10, 2001. The aggregate impact of the revenue misstatement was $4.6
million, of which $2.8 million was reflected in the 2000 year-end results. The
remaining $1.8 million has been recorded correctly in the first quarter of 2001.
Due to the levels of inaccuracy of the information that has been provided by
Sprint PCS in the past, there is no absolute certainty that all adjustments have
been communicated to the Company at this time. The Company is continuing to work
with Sprint PCS to verify and confirm the accuracy of the information provided
by Sprint PCS, which includes the total amount that may be required to be repaid
to Sprint PCS. As a result, trends are uncertain for travel and service revenues
provided by Sprint PCS.
RESULTS OF OPERATIONS FIRST QUARTER 2001 VS FIRST QUARTER 2000
General
Total revenue for the first quarter 2001 increased $4.4 million or 33.4% to
$17.7 million compared to the same period last year. The revenue increase is due
primarily to a $3.7 million or 60.2% increase in wireless revenues. Net earnings
decreased $1.5 million or
11
75.9% to $0.5 million compared to $2.0 million for the same quarter last year.
The earnings decline is the result of a $1.9 million decline in non-operating
income, primarily due to the write down of several of the Company's investments,
as well as startup costs generated in the PCS South Central Pennsylvania
expansion. Net earnings per share; basic and fully diluted were $0.13 cents per
share, compared to $0.54 cents per share for the same period last year.
Revenues
Total revenues increased $4.4 million or 33.5 % to $17.7 million from $13.3
million in first quarter 2000. Wireless revenue increased $3.7 million or 60.2%
due to higher travel traffic on the PCS network in addition to higher roamer
revenue in the cellular operation compared to the same period a year ago. The
Company is dependent on Sprint PCS for the reporting of a significant portion of
revenues from the PCS operation. Since March 2000, the Company added
approximately 15,000 subscribers to its PCS customer-base, which also
contributed significantly to the increase in wireless revenue. Wireline revenues
increased $0.9 million or 16.7%, due to increased access revenue in the
telephone business, the increase of usage of the fiber network facilities and
due to higher revenues in the cable TV operation, primarily generated by
increased subscription to the Company's digital cable TV service. Other revenue
decreased $0.2 million due to an decrease in equipment sales by ShenTel Service
company, somewhat offset by an increase in Internet subscribers.
Operating Expenses
Operating expenses increased $4.4 million or 47.3% to $13.8 million compared to
first quarter last year. Network Operating expenses increased $2.7 million due
to added traffic over the network, particularly in support of the expanded
wireless services. Depreciation increased by $0.6 million compared to the same
period last year, as new assets, particularly in the PCS expansion, have been
added to the networks. Selling General and Administrative costs are up $1.1
million or 41.8% due primarily to opening new PCS stores in the Harrisburg and
York, Pennsylvania markets and adding new employees to support those operations.
The Company's operating margin was 22%, down from 29% for the same period last
year. This decline was expected due to the impact of the increase in network
costs to support the expanded PCS network in South Central Pennsylvania.
Management expects lower operating margins for at least several quarters, until
there are adequate subscribers and additional revenues generated from the
Pennsylvania operation to reverse the trend.
Non Operating Income declined $1.9 million to an expense of $1.4 million. The
Company's investments were adversely impacted by the overall market decline. The
Company therefore recorded an impairment charge on several of its investments
which management deemed to be other than temporary.
12
Interest expense increased $0.3 million or 65.0% to $0.8 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 for the next three or four quarters due
to higher amounts borrowed. Interest expense is expected to remain elevated
until the PCS operation generates sufficient revenues and cash flow to
adequately fund cash needs for the business.
Income before taxes and minority interest decreased $2.2 million due to the
impact of the investment write down of $1.9 million and the $0.3 million in
higher interest expense.
The Company measures ongoing operations as net income excluding gains and losses
on external investments unaffiliated with operations. This measure is an
evaluation tool for the core business of the Company. This calculation
eliminates the impact of investment gains or losses which management cannot
directly influence. The first quarter results show $2.2 million for ongoing
operations before taxes, compared to $2.7 million for ongoing operations from
first quarter 2000. The $0.5 million change reflects the anticipated increase in
interest expense of $0.3 million due to higher amounts borrowed, and a $0.2
million increase in minority interest.
Income tax expense declined $0.9 million due to lower earnings and the impact of
the minority interest effect on the cellular partnership earnings within the
operation.
Minority interest increased $0.2 million or 33.8% to $0.9 due to the improved
performance of the cellular operation, which is 66% owned by the Company.
Net income decreased $1.5 million or 75.9% to $0.5 million for the quarter, due
to the results of investment losses and start up costs incurred in Pennsylvania
from the PCS network.
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 Venture Fund III, South Atlantic Private Equity IV,
Dolphin Communications Parallel Fund, Dolphin Communications Fund II and Burton
Partnership. It also includes direct participation in start-up companies such as
Concept Five Technologies. 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 March 31, 2001, the market
value of these investments were; $9.5 million in Illuminet (ILUM) with 463,504
shares, $0.4 million in ITC^Delta Com (ITCD) with 62,276 shares, $0.3 million in
Loral Communications (LOR) with 150,332 shares, and $0.1 million in Net IQ
(NTIQ) with 3,744 shares held. Net unrealized gains on the securities available
for sale, decreased $1.5 million during the first quarter of 2001 to $8.7
million, which reflect the volatile stock prices of these technology securities
and current market conditions.
13
During the quarter ended March 31, 2001, the Company charged $1.0 million to
earnings as a result of the lower market valuations for ITC^Delta Com, Loral
Communications and Net IQ investments. These changes in valuation are the result
of management's view, that for the foreseeable future the market decline of
these investments is not temporary. Management monitors the carrying value of
all investments on an ongoing basis, including those investments that have
previously been written down.
LIQUIDITY AND CAPITAL RESOURCES
The Company's two principal sources of funds for financing expansion activities
and operations are internally generated funds and loan arrangements primarily
with CoBank. The Company has a $35.0 million revolver loan agreement with
CoBank, principally to finance the PCS build-out in Pennsylvania which matures
on June 1, 2002. Outstanding draws on the $35.0 million facility as of March 31,
2001 were $23.8 million. Management executed a commitment from CoBank on May 10,
2001 to term-out approximately $23.0 million of the balance as long-term debt,
for 12 years at 7.37%. Other terms and conditions are expected to be similar to
the existing long-term facility that is outstanding with CoBank. Excluding the
revolver mentioned above, the Company's existing long-term CoBank debt
outstanding is $23.3 million. Following the closing of the new 12-year term note
above, total long-term debt outstanding with CoBank will be approximately $46
million. Repayment of the existing long-term facility totaling $23.3 million
requires monthly payments on this debt through August 2011.
Additionally, the Company made its final draw of $0.5 million on its loan
facility with the Rural Telephone Bank (RTB) during the quarter. Total RUS/RTB
debt was $12.5 million at the end of March 2001, with maturity beyond 2006.
Each of the Company's long-term debt facilities require the Company to maintain
certain operating results and debt coverage ratios, including leverage ratio,
equity to total assets, and debt service coverage. A portion of the Company's
debt pricing is tied to the Company's covenant coverage.
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 three-months of 2001 and
no amounts are outstanding as of March 31, 2001. Management replaced this
facility on May 8, 2001, with a similar facility at another bank.
At its option, the Company may also liquidate portions of the securities
available for sale portfolio, to provide for its cash and capital needs. These
securities had a market value of $10.3 million as of March 31, 2001.
Year-to-date capital spending was $4.3 million, compared to a total capital
budget of $34.9 million. The budget includes approximately $19.1 million for
equipment and towers associated with the PCS expansion, principally in
Pennsylvania. The Telephone subsidiary capital budget is $11.7 million,
primarily for central office equipment and
14
fiber optic and metallic cable facilities with year-to date spending at
approximately $1.1 million.
Management expects cash flow from operations, current and anticipated loan
facilities, and the potential liquidation of portions of its available for sale
securities will provide the Company with adequate cash resources through 2001.
REIMBURSEMENT FOR PCS CONVERSION
As part of the execution of the Sprint PCS affiliate agreement, the Company
received approximately $3.9 million in late 1999 as partial reimbursement for
the Company's expenditures in building the CDMA network, which replaced the
Company's earlier PCS network constructed using GSM technology. In early January
2001, the Company closed on the sale of its GSM equipment and reimbursed the
grantor the $3.9 million.
A portion of the sale of the equipment mentioned above was transacted as a
like-kind exchange, and accordingly, proceeds from the sale of approximately
$4.9 million were escrowed with a third party. The Company ordered new equipment
with a value of over $5 million which will principally be paid for with the
funds escrowed by the third party, and is anticipated to meet the requirements
of the like-kind exchange. Management expects the like-kind exchange transaction
will be complete by the end of the second quarter of 2001, and therefore the
equipment deposit of $4.9 million reflected on the balance sheet in other assets
will be disbursed and reflected as property, plant and equipment.
TRAVEL RATE CHANGES
Sprint PCS announced April 27, 2001, that the travel exchange rate between and
among Sprint PCS and its affiliates will decrease from $0.20 per minute to $0.15
per minute effective June 1, 2001. The travel rate is expected to further
decline to $0.12 on October 1, 2001 and decrease again to about $0.10 per minute
by January 1, 2002. Based on information provided to the Company by Sprint PCS,
travel by the Company's customers on other Sprint PCS networks is approximately
equal to the travel by other Sprint PCS customers traveling on the Company's
network. This essentially creates a balance of travel revenue and expense,
therefore rate changes to travel are only expected to have an impact on total
revenue and total expense and are not expected to materially impact the
Company's gross margin or results of operations.
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 two notes payable to CoBank
totaling $25.6 million. The rates of these notes are based upon the
lender's cost of funds. The Company also has variable rate line of
credit totaling $2
15
million, with no outstanding borrowings at March 31, 2001. 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 and potential dividends
to the Company's shareholders. Management does not view market risk as
a significant risk to the Company's results of operations, although
adverse results could be generated if interest rates were to escalate
markedly.
ITEM 4. Submission of Matters to a Vote of Security Holders set
forth below:
NONE
ITEM 6. Exhibits and Reports on Form 8-K
1/17/2001 Sale of GSM equipment
3/16/2001 Auditor Change
3/23/2001 Amended Earnings release
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARY COMPANIES
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 14, 2001 /s/ CHRISTOPHER E. FRENCH
Christopher E. French
President
May 14, 2001 /s/ LAURENCE F. PAXTON
Laurence F. Paxton
Vice President - Finance
16