UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
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July 16, 2002
Date of Report
(Date of earliest event reported)
Shenandoah Telecommunications Company
(Exact name of registrant as specified in its charter)
Virginia 0-9881 54-1162807
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
P.O. Box 459
Edinburg, VA 22824
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (540) 984-4141
Item 5. Other Events
NEWS RELEASE
For further information, please contact Laurence F. Paxton at 540-984-5222.
SHENANDOAH TELECOMMUNICATIONS COMPANY
ANNOUNCES SECOND QUARTER RESULTS
EDINBURG, VA, (July 16, 2002) - Shenandoah Telecommunications Company
(NASDAQ: SHEN) announced unaudited revenues and financial results for the three
and six month periods ended June 30, 2002. The results are a combination of
strong revenue and ongoing operating income growth, offset by losses on external
investments. The ongoing operating performance was the result of continued
growth and expansion of its wireless businesses (which includes its PCS,
cellular, and tower operations); improvements in its wireline operations (which
includes its local telephone, cable television, and fiber optic networks); and,
increases in other services, primarily Internet access and online information
services.
Total consolidated net loss for second quarter 2002 was $2.1 million,
versus net income of $2.0 million in the second quarter of 2001. Net loss per
share for the second quarter was $0.56 on a diluted basis, compared to net
income per share of $0.53 on a diluted basis in second quarter 2001. Total
consolidated net income for the six months ended June 30, 2002 was $42,000,
versus net income of $2.5 million for the first six months of 2001. Results for
all periods include gains and losses on external investments, as further
described in a following section of this release.
Net income from ongoing operations increased by $0.9 million or 47 percent
to $2.9 million for the second quarter of 2002, or $0.76 per share on a diluted
basis, up from $2.0 million
and $0.52 per share in second quarter 2001. Net income from ongoing operations
for the six months ended June 30, 2002 increased by $2.0 million or 63 percent
to $5.5 million, or $1.44 per share on a diluted basis, compared to $3.4 million
or $0.89 per share for the first six months of 2001. The Company defines ongoing
operations as net income excluding gains and losses on external investments
unaffiliated with operations. Total revenues were $27.5 million in first quarter
2002, as compared to $21.3 million in for the comparable period in 2001, an
increase of 29 percent. The Company's revenue growth was primarily driven by
large increases in its wireless businesses.
The Company invested an additional $8.7 million in its operations during
the quarter, bringing its gross property, plant, and equipment to $189.6
million. Total debt was $62.3 million at the end of the quarter, compared to
$60.7 million at the end of the first quarter and $62.6 million at year-end
2001.
President and CEO, Christopher E. French, commented: "Although we are
disappointed with our losses on external investments, we are very pleased with
the operating financial results of second quarter 2002. We are currently
focusing our capital program on enhancing our portion of Sprint's nationwide PCS
network in preparation for the launch of 3G services later this summer."
Wireless Operations
Total Wireless revenues grew to $19.1 million, an increase of $5.9 million
or 45 percent compared to second quarter 2001. The Company experienced strong
growth in its PCS revenues as a Network Partner of Sprint, which increased by
$5.5 million, or 71 percent, to $13.2 million for the second quarter of 2002.
Revenues from the cellular operation grew by $0.3 million to $5.3 million, an
increase of 6 percent. The Company also recorded a $0.2 million increase in
tower revenue from outside parties for lease of space on its wireless towers. In
addition to this external revenue, the Company's towers are also used in the
provision of the Company's own wireless services.
The Company's base of Sprint PCS customers ended the quarter at
approximately 60,000, as compared to approximately 57,000 as of March 31, 2002
and 31,000 as of June 30, 2001. The customer numbers for periods prior to June
30, 2002 have been revised from previously released figures to correct an
internal data tabulation error. This correction had no financial impact. Gross
additions for the quarter were negatively impacted by the introduction of a $125
deposit for sales to certain prospective customers deemed credit challenged.
PCS travel revenue, which is generated by use of the Company's network by
PCS customers located in Sprint and its other affiliate markets, generated $3.9
million in second quarter 2002. The offsetting expense, generated by Sprint PCS
customers located in Shentel's territory, using other portions of Sprint's
nationwide PCS network, was $2.5 million, resulting in a positive net of $1.4
million. The net of travel revenue and expense for second quarter 2001 was $0.6
million. Roaming revenue generated by non-Sprint PCS customer use of the network
was $0.8 million, versus the offsetting expense of $0.1 million by the Company's
own customers' roaming off the Sprint PCS network, for a net of $0.7 million.
The net of roamer revenue and expense for second quarter 2001 was negative $0.1
million.
The PCS operation generated $1.4 million of EBITDA (Earnings Before
Interest, Taxes, Depreciation and Amortization), its fourth consecutive positive
quarter. EBITDA for this operation was negative $0.3 million in second quarter
2001. Depreciation expense in the PCS operation was $2.1 million for the second
quarter 2002, as compared to $1.2 million in second
quarter 2001. Net loss for the Company's Sprint PCS operations was $0.9 million
for the quarter, compared to a loss of $1.4 million in second quarter 2001.
Wireline Operations
Total wireline revenues reached $6.9 million, an increase of $0.2 million
or 2 percent, compared to second quarter 2001. The local telephone operation
exhibited improvements during the quarter driven by an increase in access
revenues of $0.3 million. This revenue growth was driven by increased use of our
network by other telecommunications providers.
The Company's interstate fiber optic network generated a total of $1.2
million of lease revenue, a decrease of $0.4 million compared to second quarter
2001 and a decrease of $0.6 million compared to first quarter 2002. Competitive
pricing has resulted in lease rate decreases for both renewed and new
agreements. In addition to generating revenue from outside leases, the Company's
fiber network is also extensively used to support its telephone, CATV, Internet
and wireless operations.
The primary customers for access and fiber lease services are other
telecommunications carriers. The Company has recently experienced delayed
payment by some of the financially distressed carriers. Accordingly, the
telephone subsidiary's allowance for uncollectibles was increased by $0.1
million in the second quarter.
Other Operations
Within other revenues, Internet access and web services revenues increased
by 37 percent to $1.2 million. The Company ended the quarter with approximately
18,000 Internet Customers.
External Investments
Pre-tax losses on investments of $8.1 million are included in total
results for the quarter. This included a loss of $8.0 million associated with
the decreased market value in the
Company's 260,158 shares of VeriSign, Inc. held as of June 30, 2002. In 2001 the
Company had recognized a $12.7 million non-cash gain resulting from the December
12, 2001 merger between Illuminet Holdings, Inc. and VeriSign, Inc. At the time
of the closing of this merger, the Company received 310,158 shares of VeriSign
valued at $13.2 million. The Company's recognition of the gain on exchange of
Illuminet shares for VeriSign shares in 2001 was required by generally accepted
accounting principles. The Company sold 50,000 shares of VeriSign in first
quarter of 2002.
On July 10, 2002, the Company liquidated its remaining investment in
VeriSign, receiving proceeds of approximately $1.3 million. A pre-tax loss of
$0.6 million will be reflected in the financial results of the Company for the
third quarter of 2002 as a result of this sale.
The Company's investment in VeriSign is a result of its prior investments
in Illuminet's predecessor companies. In total, the Company originally invested
$0.9 million and has received cash proceeds of $5.3 million from sales of
Illuminet stock prior to the exchange for VeriSign shares, and $2.8 million in
the sale of VeriSign shares post-merger, bringing total cash proceeds on this
$0.9 million investment to $8.1 million.
Additional Information
Summary financial information with reconciliation between total net income
and results from ongoing operations is attached to this release. Additional
information and detail may be found in the Company's upcoming Form 10Q filing,
which is due to be filed with the Securities and Exchange Commission by August
14, 2002.
Shenandoah Telecommunications Company is a holding company which provides
a broad range of telecommunications services through its nine operating
subsidiaries. The
Company celebrated its 100th anniversary of service on June 9, 2002. The Company
is traded on the NASDAQ National Market under the symbol "SHEN." The Company's
operating subsidiaries provide local telephone, cable, Internet access,
interexchange facilities, cellular and PCS services, along with many other
associated services, to the Quad State region from Harrisonburg, Virginia to
Harrisburg and Altoona, Pennsylvania.
/s/ LAURENCE F. PAXTON
Laurence F. Paxton
Vice President -Finance
Income from ongoing operations and EBITDA are not measures of financial
performance under generally accepted accounting principles and should not be
considered alternatives to net income (loss) as measures of performance or to
cash flows as a measure of liquidity. This release contains forward-looking
statements that are subject to various risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of unforeseen factors. A discussion of
factors that may cause actual results to differ from management's projections,
forecasts, estimates and expectations is available in the Company filings with
the SEC. Those factors may include changes in general economic conditions,
increases in costs and other competitive factors.
SUMMARY FINANCIAL INFORMATION (unaudited)
(In thousands, except per share amounts)
June December
Condensed Balance Sheets 30, 31,
2002 2001
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Total current assets $ 16,208 $ 16,034
Total securities and investments 9,442 18,463
Property, plant and equipment 189,633 175,286
Less accumulated depreciation (54,012) (47,182)
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Net property, plant and equipment 135,621 128,104
Other assets, net 4,229 4,196
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Total assets $ 165,500 $ 166,797
========= =========
Current liabilities, exclusive of
debt of $12,487 and $10,587 $ 11,184 $ 11,054
Long- and short-term debt 62,299 62,636
Total other liabilities 15,346 16,667
Minority interests 1,884 1,838
Total stockholders' equity 74,787 74,602
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Total liabilities and stockholders' equity $ 165,500 $ 166,797
========= =========
Three months ended Six months ended
Condensed Statements of Income June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Operating Revenues-Wireless $ 19,096 $ 13,201 $ 36,006 $ 23,226
-Wireline 6,896 6,733 14,311 13,410
-Other 1,495 1,346 3,016 2,478
-------- -------- -------- --------
Total operating revenue 27,487 21,280 53,333 39,114
-------- -------- -------- --------
Cost of goods and services 1,943 1,843 4,621 3,372
Network operating costs 8,953 7,351 16,554 13,569
Depreciation and amortization 3,638 2,909 7,133 5,392
Selling, general and administrative 5,950 4,102 11,519 7,808
-------- -------- -------- --------
Total operating expenses 20,484 16,205 39,827 30,141
-------- -------- -------- --------
Operating income 7,003 5,075 13,506 8,973
Minority interest (1,320) (1,114) (2,579) (1,997)
Interest expense (1,052) (996) (2,120) (2,037)
Other income (expense) (8,153) 208 (8,726) (979)
Income tax provision 1,408 (1,177) (39) (1,475)
-------- -------- -------- --------
Net income (loss) $ (2,114) $ 1,996 $ 42 $ 2,485
======== ======== ======== ========
Net earnings/(loss) per share, diluted $ (0.56) $ 0.53 $ 0.01 $ 0.66
RECONCILIATION OF NET INCOME TO RESULTS FROM ONGOING OPERATIONS
(In thousands)
Three months ended Six months ended
June 30, June 30,
2002 2001 2002 2001
------- ------- ------- -------
Net income (loss) $(2,114) $ 1,996 $ 42 $ 2,485
Adjustment for (gain)/loss on investments 8,221 (42) 8,914 1,398
Tax effect on investment results (3,206) 16 (3,476) (530)
------- ------- ------- -------
Results from ongoing operations $ 2,901 $ 1,970 $ 5,480 $ 3,353
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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)
July 16, 2002 /s/ CHRISTOPHER E. FRENCH
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Christopher E. French
President
July 16, 2002 /s/ LAURENCE F. PAXTON
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Laurence F. Paxton
Vice President - Finance
