UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
----------
February 28, 2003
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 File Number) (I.R.S. Employer
incorporation or organization) 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 2. Acquisition or Disposition of Assets
On February 28, 2003, Shenandoah Mobile Company ("SMC"), a wholly-owned
subsidiary of Shenandoah Telecommunications Company (the "Registrant"),
completed the sale of SMC's general partner interest in the Virginia 10 RSA
Limited Partnership, a Virginia limited partnership (the "Partnership"), to
Cellco Partnership d/b/a Verizon Wireless (the "Purchaser"). On that date, the
Registrant filed with the Securities and Exchange Commission a Current Report on
Form 8-K which included a copy of the press release announcing completion of the
sale.
The Partnership is the sole holder of a cellular license granted by the
Federal Communications Commission for the Virginia 10 B2 Rural Service Area
#690. The Partnership operates a cellular network under this license, covering
approximately 198,000 people in Frederick, Shenandoah, Page, Warren, Clarke, and
Rappahannock counties of Virginia.
The Purchaser paid a total purchase price of approximately $37 million in
cash for SMC's general partner interest, of which $5 million was paid into
escrow under the terms of the purchase agreement as security for SMC's
post-closing indemnification obligations under the purchase agreement. In
addition to the purchase price, the Purchaser paid to SMC at closing
approximately $1.7 million for SMC's share of the estimated working capital of
the Partnership as of the closing date. This estimate is subject to adjustment
after the closing date when final working capital amounts have been determined.
The purchase price was established on the basis of arms-length negotiations
between unrelated parties. The Registrant will recognize a taxable gain as a
result of the sale.
Item 7. Financial Statements and Exhibits
(b) Pro Forma Financial Information.
The following unaudited pro forma condensed consolidated financial statements
are filed with this report:
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2002
Pro Forma Condensed Consolidated Statement of Income:
Year Ended December 31, 2001
Nine Months Ended September 30, 2002
Notes to Pro Forma Condensed Consolidated Financial Statements
The following pro forma condensed consolidated balance sheet as of
September 30, 2002 and pro forma condensed consolidated statements of income for
the year ended December 31, 2001 and nine months ended September 30, 2002
are adjusted to reflect the sale by SMC of its interest in the Partnership to
the Purchaser, as of the dates indicated. The pro forma condensed consolidated
financial statements are unaudited, except for the information of the Registrant
for the year ended December 31, 2001, which is derived from the Registrant's
audited consolidated financial statements for such period.
The pro forma balance sheet gives effect to the Transaction as though it
had occurred on September 30, 2002, and the pro forma condensed consolidated
statements of income give effect to the Transaction as though it had occurred as
of the beginning of the periods presented. The Registrant believes that, on the
basis of the assumptions set forth herein, the pro forma condensed consolidated
2
financial statements reflect a reasonable estimate of the effects of the
Transaction. In accordance with Securities and Exchange Commission policy
governing pro forma financial statements, no pro forma interest income is
recognized in the pro forma consolidated statements of income for funds assumed
invested in cash investments.
The pro forma statements are for illustrative purposes only and are not
necessarily indicative of the financial position or results of operations that
would actually have occurred if the Transaction had taken place on the
applicable dates or for the periods indicated or that may occur in the future.
The pro forma condensed consolidated financial statements should be read
in conjunction with previously filed consolidated financial statements and
accompanying notes of the Registrant contained in its Annual Report on Form 10-K
for the year ended December 31, 2001, and the Quarterly Report on Form 10-Q for
the quarter ended September 30, 2002. The notes to the pro forma consolidated
financial statements are an integral part thereof.
3
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
September 30, 2002
(unaudited)
Divested
Historical Partnership Pro forma Pro forma
9/30/2002 Interest (a) Adjustments 9/30/2002
--------- ------------ ----------- ---------
In thousands
Assets
Current assets
Cash $ 2,450 (301) 33,482(b) $ 35,631
Accounts receivable 10,925 (2,788) 8,137
Inventories 1,840 (27) 1,813
Other current assets 1,666 (22) 1,644
--------- ------ ------ ---------
Total current assets 16,881 (3,138) 33,482 47,225
Other assets
Investments 7,568 -- 7,568
Other assets 4,228 -- 5,000(c) 9,228
--------- ------ ------ ---------
Total other assets 11,796 -- 5,000 16,796
Property, plant and equipment 193,013 (5,876) -- 187,137
Accumulated depreciation (57,564) 3,094 -- (54,470)
--------- ------ ------ ---------
Net property plant and equipment 135,449 (2,782) -- 132,667
--------- ------ ------ ---------
Total assets $ 164,126 (5,920) 38,482 $ 196,688
========= ====== ====== =========
Liabilities and Shareholders' equity
Current liabilities
Current maturities $ 4,428 -- $ 4,428
Notes payable 4,661 -- 4,661
Accounts payable 4,522 (171) 4,351
Other accruals and liabilities 7,015 (380) 12,350(d) 18,985
--------- ------ ------ ---------
Total current liabilities 20,626 (551) 12,350 32,425
Long-term debt 48,724 -- -- 48,724
Other liabilities 15,960 -- 3,950(e) 19,910
Minority interest 1,790 (1,790) --
Shareholders equity 77,026 (3,579) 22,182(f) 95,629
--------- ------ ------ ---------
Total liabilities and shareholders' equity $ 164,126 (5,920) 38,482 $ 196,688
========= ====== ====== =========
See accompanying notes.
4
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 2001
in thousands, except per share amounts
(unaudited)
Divested Pro forma Pro forma
Historical Operations(g) Adjustments Dec. 31, 2001
---------- ------------- ----------- -------------
Operating revenues:
Wireless $ 56,144 $20,012 170(h) $ 36,302
Wireline 27,468 0 14(h) 27,482
Other 5,103 0 5,103
-------- ------- --- --------
Total operating revenues 88,715 20,012 184 68,887
-------- ------- --- --------
Operating expenses:
Cost of goods and services 7,612 220 7,392
Network operating costs 29,949 3,194 26,755
Depreciation and amortization 11,834 571 11,263
Selling, general and administrative 17,558 689 16,869
-------- ------- --- --------
Total operating expenses 66,953 4,674 0 62,279
-------- ------- --- --------
Operating income 21,762 15,338 184 6,608
-------- ------- --- --------
Other income (expense):
Interest expense (4,127) 0 (4,127)
Net gain (loss) on investments 12,943 0 12,943
Non-operating income, net 281 16 0 265
-------- ------- --- --------
9,097 16 9,081
-------- ------- --- --------
Income before income taxes and minority interest 30,859 15,354 184 15,689
Minority interest 4,526 4,526 0
-------- ------- --- --------
Income tax provision (benefit) 9,961 4,150 72(i) 5,883
-------- ------- --- --------
Continuing operations(k) 16,372 6,678 112 9,806
======== ======= === ========
Income per share from continuing operations:
Basic income per share:
Income from continuing operations $ 4.35 $ 2.61
======== ========
Weighted average shares outstanding 3,761 3,761
======== ========
Diluted Income per share:
Income from continuing operations $ 4.34 $ 2.60
======== ========
Weighted average shares, diluted 3,774 3,774
======== ========
See accompanying notes.
5
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
PRO FROMA CONSOLIDATED STATEMENT OF INCOME
Nine months ended September 30, 2002
in thousands, except per share amounts
(unaudited)
Divested Pro forma Pro forma
Historical Operations(g) Adjustments Sep. 30, 2002
---------- ------------- ----------- -------------
Operating revenues:
Wireless $ 57,009 $15,670 150(h) $ 41,489
Wireline 21,428 0 11(h) 21,439
Other 4,734 0 4,734
-------- ------- --- --------
Total operating revenues 83,171 15,670 161 67,662
Operating expenses:
Cost of goods and services 7,346 78 7,268
Network operating costs 25,446 1,731 23,715
Depreciation and amortization 11,040 448 10,592
Selling, general and administrative 19,107 485 18,622
-------- ------- --- --------
Total operating expenses 62,939 2,742 0 60,197
-------- ------- --- --------
Operating income 20,232 12,928 161 7,465
Other income (expense):
Interest expense (3,177) 0 (3,177)
Net gain (loss) on investments (9,594) 0 (9,594)
Non-operating income, net 141 3 138
-------- ------- --- --------
(12,630) 3 0 (12,633)
-------- ------- --------
Income before income taxes and minority interest 7,602 12,931 161 (5,168)
Minority interest 3,879 3,879 0
-------- ------- --- --------
Income tax provision (benefit) 1,457 3,530 63(i) (2,010)
-------- ------- --- --------
Continuing operations (k) $ 2,266 5,522 98 $ (3,158)
======== ======= === ========
Income (loss) per share:
Basic income (loss) per share:
Income (loss) from continuing operations $ 0.60 $ (0.84)
======== ========
Weighted average shares outstanding, basic 3,768 3,768
======== ========
Diluted Income (loss) per share:
Income (loss) from continuing operations $ 0.60 $ (0.84)
======== ========
Weighted average shares, diluted 3,794 (26)(j) 3,768
======== === ========
See accompanying notes.
6
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA STATEMENTS
(a) The proforma adjustments are to eliminate the assets, liabilities,
minority intererests, and equity of the Virginia RSA 10 Limited
Partnership consolidated in the Company's September 30,2002
Condensed Consolidated Balance Sheet.
(b) To record the initial purchase price of $38.7 million, less the $5.0
million held in escrow and the costs incurred to complete the
transaction of $0.2 million. The purchase price includes $1.7
million for working capital, which will be adjusted after the
financial statements are finalized.
(c) To record the escrow funds as a long-term receivable.
(d) To record the current taxes payable on the portion of cash received.
(e) To record the deferred portion of taxes payable based on the
escrowed cash, net of the deferred taxes previously recorded.
(f) To record the gain on the sale of the partnership interest, net of
the tax effect.
(g) To eliminate the revenues and expenses of the divested partnership
entity.
(h) To reflect additional revenues to the divested partnership,
previously recorded as intercompany.
(i) To reflect the tax impact on the additional revenues in (h).
(j) Because the pro forma income statement reflects a net loss from
continuing operations for the nine months ended September 2002, the
diluted income (loss) per share is the same as basic income (loss)
per share since including any potentially dilutive securities would
be antidilutive to the net loss per share from continuing
operations.
(k) Excludes the gain on the sale of the partnership interest.
7
(c) Exhibits.
Exhibit No. Description
----------- -----------
10.1 Partnership Interest Purchase Agreement dated as of
November 21, 2002 among Shenandoah Mobile Company,
Shenandoah Telecommunications Company and Cellco
Partnership d/b/a/ Verizon Wireless. Filed as Exhibit
10.1 to the Company's Current Report on Form 8-K filed
on November 25, 2002 and incorporated herein by
reference.
8
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)
March 17, 2003 /s/ LAURENCE F. PAXTON
--------------------------
Laurence F. Paxton
Vice President-Finance
9
