form10q.htm


UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended June 30, 2011
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from__________ to __________
 
Commission File No.: 000-09881

SHENANDOAH TELECOMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)

VIRGINIA
54-1162807
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

500 Shentel Way, Edinburg, Virginia    22824
(Address of principal executive offices)  (Zip Code)

(540) 984-4141
(Registrant's telephone number, including area code)
 


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 þ    No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ¨   No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ¨     Accelerated filer þ Non-accelerated filer ¨    Smaller reporting company ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨   No  þ

The number of shares of the registrant’s common stock outstanding on July 22, 2011 was 23,781,017.
 


 
 

 

SHENANDOAH TELECOMMUNICATIONS COMPANY
INDEX

    Page Numbers
PART I.
FINANCIAL INFORMATION
   
       
Item 1.
Financial Statements
   
       
   
3-4
       
   
5
       
   
6
       
   
7-8
       
   
9-14
       
Item 2.
 
15-32
       
Item 3.
 
32
       
Item 4.
 
33
       
PART II.
OTHER INFORMATION
   
       
Item 1A.
 
34
       
Item 2.
 
34
       
Item 6.
 
35
       
   
36
       
   
37

 
2


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

ASSETS
 
June 30,
 2011
   
December 31,
2010
 
             
Current Assets
           
Cash and cash equivalents
  $ 25,431     $ 27,453  
Accounts receivable, net
    20,614       20,634  
Income taxes receivable
    3,419       2,576  
Materials and supplies
    6,576       6,360  
Prepaid expenses and other
    3,718       3,770  
Assets held for sale
    7,867       9,305  
Deferred income taxes
    715       702  
Total current assets
    68,340       70,800  
                 
Investments, including $2,375 and $2,287 carried at fair value
     8,691        9,090  
                 
Property, plant and equipment, net
    289,337       280,051  
                 
Other Assets
               
Intangible assets, net
    85,543       90,389  
Cost in excess of net assets of businesses acquired
    10,962       10,962  
Deferred charges and other assets, net
    4,426       5,145  
Net other assets
    100,931       106,496  
Total assets
  $ 467,299     $ 466,437  

See accompanying notes to unaudited condensed consolidated financial statements.

(Continued)
 
 
3


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
June 30,
2011
   
December 31,
2010
 
             
Current Liabilities
           
Current maturities of long-term debt
  $ 19,559     $ 14,823  
Accounts payable
    10,953       12,237  
Advanced billings and customer deposits
    8,989       8,067  
Accrued compensation
    1,401       3,278  
Liabilities held for sale
    799       910  
Accrued liabilities and other
    6,849       5,583  
Total current liabilities
    48,550       44,898  
                 
Long-term debt, less current maturities
    169,500       180,289  
                 
Other Long-Term Liabilities
               
Deferred income taxes
    36,494       35,902  
Deferred lease payable
    3,949       3,734  
Asset retirement obligations
    6,777       6,542  
Other liabilities
    4,887       4,767  
Total other liabilities
    52,107       50,945  
                 
Commitments and Contingencies
               
                 
Shareholders’ Equity
               
Common stock
    20,651       19,833  
Retained earnings
    176,491       170,472  
Total shareholders’ equity
    197,142       190,305  
                 
Total liabilities and shareholders’ equity
  $ 467,299     $ 466,437  

See accompanying notes to unaudited condensed consolidated financial statements.
 
 
4


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
 
   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Operating revenues
  $ 61,555     $ 42,361     $ 121,983     $ 83,959  
                                 
Operating expenses:
                               
Cost of goods and services, exclusive of depreciation and  amortization shown separately below
    25,216       15,278       51,277       29,336  
Selling, general and administrative, exclusive of depreciation and amortization shown separately below
     13,901        10,810       27,239       18,590  
Depreciation and amortization
    14,444       8,483       28,382       16,724  
Total operating expenses
    53,561       34,571       106,898       64,650  
Operating income
    7,994       7,790       15,085       19,309  
                                 
Other income (expense):
                               
Interest expense
    (2,846 )     (266 )     (4,665 )     (576 )
Gain (loss) on investments, net
    (124 )     (76 )     (249 )     (142 )
Non-operating income, net
    290       182       508       269  
Income from continuing operations before income taxes
    5,314       7,630       10,679       18,860  
                                 
Income tax expense
    2,276       3,117       4,581       7,766  
Net income from continuing operations
    3,038       4,513       6,098       11,094  
Earnings (loss) from discontinued operations, net of tax  (expense) benefit of $31, $(38), $52 and $(150), respectively
    (46 )     59       (79 )     233  
Net income
  $ 2,992     $ 4,572     $ 6,019     $ 11,327  
                                 
Basic and diluted income (loss) per share:
                               
                                 
Net income from continuing operations
  $ 0.13     $ 0.19     $ 0.25     $ 0.47  
Net earnings (loss) from discontinued operations
    -       -       -       0.01  
Net income
  $ 0.13     $ 0.19     $ 0.25     $ 0.48  
                                 
Weighted average shares outstanding, basic
    23,772       23,738       23,769       23,718  
                                 
Weighted average shares, diluted
    23,797       23,781       23,823       23,757  
 
 
5

 
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
 
   
Share
   
Common Stock
   
Retained Earnings
   
Accumulated Other Comprehensive Income (Loss)
   
Total
 
                               
Balance, December 31, 2009
    23,681     $ 17,890     $ 160,230     $ (2,448 )   $ 175,672  
Comprehensive income:
                                       
Net income
    -       -       18,075       -       18,075  
Reclassification adjustment for unrealized loss from pension plans included in net income, net of tax
     -        -        -        2,596        2,596  
Net unrealized gain from pension plans, net of tax
     -        -        -       (148 )     (148 )
Total comprehensive income
                                    20,523  
Dividends declared ($0.33 per share)
    -       -       (7,833 )     -       (7,833 )
Dividends reinvested in common stock
    29       520       -       -       520  
Stock-based compensation
    -       792       -       -       792  
Common stock issued through  exercise of incentive stock  options
     57        561        -        -        561  
Net excess tax benefit from stock options exercised
     -        70        -        -        70  
                                         
Balance, December 31, 2010
    23,767     $ 19,833     $ 170,472     $ -     $ 190,305  
Comprehensive income:
                                       
Net income
    -       -       6,019       -       6,019  
Total comprehensive income
                                    6,019  
Stock-based compensation
    -       902       -       -       902  
Common stock issued for share awards
    19       -       -       -       -  
Common stock repurchased
    (5 )     (92 )     -       -       (92 )
Common stock issued
    -       8       -       -       8  
Balance, June 30, 2011
     23,781     $ 20,651     $ 176,491     $ -     $ 197,142  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
6

 
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

   
Six Months Ended
June 30,
 
   
2011
   
2010
 
             
Cash Flows From Operating Activities
           
Net income
  $ 6,019     $ 11,327  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    22,333       16,503  
Amortization
    6,049       221  
Provision for bad debt
    1,929       366  
Stock based compensation expense
    902       279  
Pension settlement and curtailment expenses
    -       3,964  
Excess tax benefits on stock option exercises
    -       (70 )
Deferred income taxes
    579       204  
Net loss on disposal of equipment
    111       158  
Realized loss on disposal of investments
    27       147  
Unrealized (gains) losses on investments
    (104 )     (94 )
Net (gain) loss from patronage and equity investments
    173       15  
Other
    113       61  
Changes in assets and liabilities:
               
(Increase) decrease in:
               
Accounts receivable
    (1,919 )     (2,320 )
Materials and supplies
    (216 )     671  
Income taxes receivable
    (843 )     5,531  
Increase (decrease) in:
               
Accounts payable
    (1,224 )     (3,853 )
Deferred lease payable
    214       165  
Income taxes payable
    -       954  
Other prepaids, deferrals and accruals
    198       891  
Net cash provided by operating activities
  $ 34,341     $ 35,120  
                 
Cash Flows From Investing Activities
               
Purchase and construction of property, plant and equipment
  $ (31,631 )   $ (19,264 )
Proceeds from sale of assets
    920       -  
Proceeds from sale of equipment
    184       249  
Purchase of investment securities
    (84 )     (66 )
Proceeds from sale of investment securities
    386       46  
                 
Net cash used in investing activities
  $ (30,225 )   $ (19,035 )
 
(Continued)
 
 
7

 
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

   
Six Months Ended
June 30,
 
   
2011
   
2010
 
             
Cash Flows From Financing Activities
           
Principal payments on long-term debt
  $ (6,054 )   $ (2,259 )
Excess tax benefits on stock option exercises
    -       70  
Repurchases of stock
    (92 )     -  
Proceeds from exercise of incentive stock options
    8       554  
                 
Net cash used in financing activities
  $ (6,138 )   $ (1,635 )
                 
Net increase (decrease) in cash and cash equivalents
  $ (2,022 )   $ 14,450  
                 
Cash and cash equivalents:
               
Beginning
    27,453       12,054  
Ending
  $ 25,431     $ 26,504  
                 
Supplemental Disclosures of Cash Flow Information
               
Cash payments for:
               
                 
Interest
  $ 3,872     $ 752  
                 
Income taxes
  $ 4,793     $ 1,189  
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
 
8

 
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  Basis of Presentation

The interim condensed consolidated financial statements of Shenandoah Telecommunications Company and Subsidiaries (collectively, the “Company”) are unaudited.  In the opinion of management, all adjustments necessary for a fair presentation 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 on Form 10-K for the year ended December 31, 2010.  The balance sheet information at December 31, 2010 was derived from the audited December 31, 2010 consolidated balance sheet. Operating revenues and income from operations for any interim period are not necessarily indicative of results that may be expected for the entire year.

2.  Discontinued Operations

In September 2008, the Company announced its intention to sell its Converged Services operation, and the related assets and liabilities were reclassified as held for sale in the consolidated balance sheet and the historical operating results were reclassified as discontinued operations.  Depreciation and amortization on long-lived assets was also discontinued.

During 2009 and 2010, the Company determined that the fair value of Converged Services had declined.  Accordingly, the Company recorded an impairment loss of $17.5 million ($10.7 million, net of taxes) as of March 31, 2009, and recorded an additional impairment loss of $1.9 million ($1.1 million, net of taxes) as of December 31, 2010, to reduce the carrying value of these assets to their estimated fair value less cost to sell.

During the first quarter of 2011, the Company made the decision to transfer service contracts and related equipment for five Converged Services’ properties that were within the Shentel Cable franchised cable footprint and could be serviced by the Company’s nearby cable headends.  These properties, with an aggregate net book value of approximately $0.4 million, were transferred to Shentel Cable and have been reclassified from discontinued operations for all prior periods.  The Company recorded an adjustment to depreciation expense of $0.1 million to reduce the carrying value of the assets transferred to the lower of their carrying value net of the impairment charge or the carrying value as if depreciation had been recorded on these assets at all times.

During the second quarter of 2011, the Company sold service contracts and related equipment for seven Converged Services’ properties to a third-party purchaser, receiving cash proceeds of $0.9 million (with an additional $0.1 million in proceeds placed in escrow for twelve months).  The total proceeds approximated the carrying value of the assets sold.

At June 30, 2011, negotiations with potential purchasers continue.  Based upon indications of interest made by potential buyers in recent months, the Company has determined that there has been no change in the estimated fair value of the remaining assets in the aggregate.  If sub-groupings of service contracts are sold in multiple transactions, the Company may incur losses on some and recognize gains on others.

Assets and liabilities held for sale consisted of the following:

   
June 30, 2011
   
December 31, 2010
 
Assets held for sale:
           
Property, plant and equipment, net
  $ 5,740     $ 6,614  
Intangible assets, net
    706       706  
Deferred charges
    739       1,310  
Other assets
    682       675  
    $ 7,867     $ 9,305  
Liabilities:
               
Other liabilities
  $ 799     $ 910  

 
9


Discontinued operations included the following amounts of operating revenue and income (loss) before income taxes:

   
Three Months Ended
June 30,
 
   
2011
   
2010
 
Operating revenues
  $ 3,031     $ 3,255  
Earnings (loss) before income taxes
  $ (77 )   $ 98  

   
Six Months Ended
June 30,
 
   
2011
   
2010
 
Operating revenues
  $ 6,337     $ 6,702  
Earnings (loss) before income taxes
  $ (131 )   $ 383  

3.  Property, Plant and Equipment

Property, plant and equipment consisted of the following:

   
June 30, 2011
   
December 31, 2010
 
Plant in service
  $ 496,103     $ 466,658  
Plant under construction
    22,526       25,515  
      518,629       492,173  
Less accumulated amortization and depreciation
    229,292       212,122  
Net property, plant and equipment
  $ 289,337     $ 280,051  

4.  Earnings per share

Basic net income (loss) per share was computed on the weighted average number of shares outstanding.  Diluted net income (loss) per share was computed under the treasury stock method, assuming the conversion as of the beginning of the period, for all dilutive stock options.  Of 521 thousand and 287 thousand shares and options outstanding at June 30, 2011 and 2010, respectively, 210 thousand and 215 thousand were anti-dilutive, respectively.  These options have been excluded from the computations of diluted earnings per share for their respective period.  There were no adjustments to net income for either period.

5.  Investments Carried at Fair Value

Investments include $2.4 million and $2.3 million of investments carried at fair value as of June 30, 2011 and December 31, 2010, respectively, consisting of equity, bond and money market mutual funds.  These investments were acquired under a rabbi trust arrangement related to a non-qualified supplemental retirement plan maintained by the Company.  During the six months ended June 30, 2011, the Company recognized $27 thousand in net losses on dispositions of investments, recognized $11 thousand in dividend and interest income from investments, and recognized net unrealized gains of $104 thousand on these investments.  Fair values for these investments held under the rabbi trust were determined by Level 1 quoted market prices for the underlying mutual funds.

6.  Financial Instruments

Financial instruments on the consolidated balance sheets that approximate fair value include:  cash and cash equivalents, receivables, investments carried at fair value, payables, accrued liabilities, and long-term debt.  Due to the relatively short time frame to maturity of the Company’s fixed rate debt, fair value approximates its carrying value.

The Company measures its interest rate swap at fair value based on information provided by the counterparty and recognizes it as a liability on the Company’s condensed consolidated balance sheet.  Changes in the fair value of the swap are recognized in interest expense, as the Company did not designate the swap agreement as a cash flow hedge for accounting purposes.
 
 
10


7.  Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision makers.  The Company has three reportable segments, which the Company operates and manages as strategic business units organized by lines of business: (1) Wireless, (2) Wireline, and (3) Cable TV.   A fourth segment, Other, primarily includes Shenandoah Telecommunications Company, the parent holding company as well as certain general and administrative costs historically charged to Converged Services that cannot be allocated to discontinued operations.

The Wireless segment provides digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, as a Sprint PCS Affiliate of Sprint Nextel.  This segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers.

The Wireline segment provides regulated and unregulated voice services, dial-up and DSL internet access, and long distance access services throughout Shenandoah County and portions of northwestern Augusta County, Virginia, and leases fiber optic facilities throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor, including portions of West Virginia and Maryland.

The Cable TV segment provides video, internet and voice services in Virginia, West Virginia and Maryland.  It includes the operations acquired from JetBroadBand, LLC, since July 30, 2010, and the operations acquired from Suddenlink since November 30, 2010.

The financial information below includes revenues and related expenses billed by one segment of the Company to another segment within the Company.  These internal revenues and related expenses are eliminated in order to arrive at the consolidated total revenues and expenses as shown below.  All individual segment financial results includes these internal  revenues and expenses, which are only eliminated at the consolidated level. Selected financial data for each segment is as follows:

Three months ended June 30, 2011
 
(In thousands)

   
Wireless
   
Wireline
   
Cable TV
   
Other
   
Eliminations
   
Consolidated Totals
 
External revenues
                                   
Service revenues
  $ 33,806     $ 3,660     $ 14,602     $ -     $ -     $ 52,068  
Other
    2,927       4,407       2,153       -       -       9,487  
Total external revenues
    36,733       8,067       16,755       -       -       61,555  
Internal revenues
    801       4,199       79       -       (5,079 )     -  
Total operating revenues
    37,534       12,266       16,834       -       (5,079 )     61,555  
                                                 
Operating expenses
                                               
Costs of goods and services, exclusive of depreciation and amortization shown separately below
     13,391        4,817        11,435        30       (4,457 )      25,216  
Selling, general and administrative, exclusive of depreciation and amortization shown separately below
     7,651        1,866        4,234        772       (622 )      13,901  
Depreciation and amortization
    6,140       2,155       6,088       61       -       14,444  
Total operating expenses
    27,182       8,838       21,757       863       (5,079 )     53,561  
Operating income (loss)
    10,352       3,428       (4,923 )     (863 )     -       7,994  
 
 
11

 
Three months ended June 30, 2010 
 
                                     
(In thousands)
 
Wireless
   
Wireline
   
Cable TV
   
Other
   
Eliminations
   
Consolidated Totals
 
External revenues
                                   
Service revenues
  $ 26,264     $ 3,623     $ 3,679     $ -     $ -     $ 33,566  
Other
    3,008       5,395       392       -       -       8,795  
Total external revenues
    29,272       9,018       4,071       -       -       42,361  
Internal revenues
    759       3,439       14       -       (4,212 )     -  
Total operating revenues
    30,031       12,457       4,085       -       (4,212 )     42,361  
                                                 
Operating expenses
                                               
Costs of goods and services, exclusive of depreciation and amortization shown separately below
     9,993        4,594        4,367        65       (3,741 )      15,278  
Selling, general and administrative, exclusive of depreciation and amortization shown separately below
     4,820        3,334        2,224        903       (471 )      10,810  
Depreciation and amortization
    5,286       1,935       1,195       67       -       8,483  
Total operating expenses
    20,099       9,863       7,786       1,035       (4,212 )     34,571  
Operating income (loss)
    9,932       2,594       (3,701 )     (1,035 )     -       7,790  

Six months ended June 30, 2011 
 
                                   
(In thousands)
 
Wireless
   
Wireline
   
Cable TV
   
Other
   
Eliminations
   
Consolidated Totals
 
External revenues
                                   
Service revenues
  $ 66,010     $ 7,245     $ 29,062     $ -     $ -     $ 102,317  
Other
    6,402       9,077       4,187       -       -       19,666  
Total external revenues
    72,412       16,322       33,249       -       -       121,983  
Internal revenues
    1,590       8,028       116       -       (9,734 )     -  
Total operating revenues
    74,002       24,350       33,365       -       (9,734 )     121,983  
                                                 
Operating expenses
                                               
Costs of goods and services, exclusive of depreciation and amortization shown separately below
     27,004        9,350        23,359        64       (8,500 )      51,277  
Selling, general and administrative, exclusive of depreciation and amortization shown separately below
     14,197        3,667        8,863        1,746       (1,234 )      27,239  
Depreciation and amortization
    12,374       4,105       11,786       117       -       28,382  
Total operating expenses
    53,575       17,122       44,008       1,927       (9,734 )     106,898  
Operating income (loss)
    20,427       7,228       (10,643 )     (1,927 )     -       15,085  

Six months ended June 30, 2010 
 
                                   
(In thousands)
 
Wireless
   
Wireline
   
Cable TV
   
Other
   
Eliminations
   
Consolidated Totals
 
External revenues
                                   
Service revenues
  $ 52,791     $ 7,000     $ 7,292     $ -     $ -     $ 67,083  
Other
    5,968       10,137       771       -       -       16,876  
Total external revenues
    58,759       17,137       8,063       -       -       83,959  
Internal revenues
    1,505       6,700       24       -       (8,229 )     -  
Total operating revenues
    60,264       23,837       8,087       -       (8,229 )     83,959  
                                                 
Operating expenses
                                               
Costs of goods and services, exclusive of depreciation and amortization shown separately below
     19,871        8,757        7,834        132       (7,258 )      29,336  
Selling, general and administrative, exclusive of depreciation and amortization shown separately below
     8,923        5,166        3,757        1,715       (971 )      18,590  
Depreciation and amortization
    10,525       3,860       2,199       140       -       16,724  
Total operating expenses
    39,319       17,783       13,790       1,987       (8,229 )     64,650  
Operating income (loss)
    20,945       6,054       (5,703 )     (1,987 )     -       19,309  

 
12

 
A reconciliation of the total of the reportable segments’ operating income to consolidated income from continuing operations before income taxes is as follows:

   
Three Months Ended
 June 30,
 
   
2011
   
2010
 
Total consolidated operating income
  $ 7,994     $ 7,790  
Interest expense
    (2,846 )     (266 )
Non-operating income (expense), net
    166       106  
Income from continuing operations before income taxes
  $ 5,314     $ 7,630  

   
Six Months Ended
 June 30,
 
   
2011
   
2010
 
Total consolidated operating income
  $ 15,085     $ 19,309  
Interest expense
    (4,665 )     (576 )
Non-operating income (expense), net
    259       127  
Income from continuing operations before income taxes
  $ 10,679     $ 18,860  

The Company’s assets by segment are as follows:
 
(In thousands)
 
 
June 30,
2011
   
December 31,
2010
 
             
Wireless
  $ 127,021     $ 124,854  
Wireline
    80,944       78,552  
Cable TV
    209,519       208,039  
Other (includes assets held for sale)
    395,251       393,340  
Combined totals
    812,735       804,785  
Inter-segment eliminations
    (345,436 )     (338,348 )
Consolidated totals
  $ 467,299     $ 466,437  

8.  Income Taxes

The Company files U.S. federal income tax returns and various state and local income tax returns.  With few exceptions, years prior to 2007 are no longer subject to examination. The Company is under audit in the state of Maryland for the 2007, 2008 and 2009 tax years.   No other state or federal income tax audits were in process as of June 30, 2011.
 
 
13


9.  Long-Term Debt

As of June 30, 2011 and December 31, 2010, the Company’s outstanding long-term debt consisted of the following:

(In thousands)
 
   
June
2011
   
December
2010
 
       
CoBank (fixed term loan)
  $ 5,777     $ 6,984  
CoBank Term Loan A
    182,683       187,428  
Other debt
    599       700  
      189,059       195,112  
Current maturities
    19,559       14,823  
Total long-term debt
  $ 169,500     $ 180,289  

As of June 30, 2011, the Company was in compliance with the covenants in its Credit Agreement.

10.  Subsequent Events

Effective August 1, 2011, the Company amended its credit agreement dated July 30, 2010, changing the fixed charge coverage ratio covenant for the four-quarter periods ended September 30, 2011 and December 31, 2011, from a ratio of 0.80:1 to 0.75:1.
 
 
14


ITEM 2.  
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This management’s discussion and analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions as they relate to Shenandoah Telecommunications Company or its management are intended to identify these forward-looking statements.  All statements regarding Shenandoah Telecommunications Company’s expected future financial position and operating results, business strategy, financing plans, forecasted trends relating to the markets in which Shenandoah Telecommunications Company operates and similar matters are forward-looking statements.  We cannot assure you that the Company’s expectations expressed or implied in these forward-looking statements will turn out to be correct.  The Company’s actual results could be materially different from its expectations because of various factors, including those discussed below and under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2010.  The following management’s discussion and analysis should be read in conjunction with the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2010, including the financial statements and related notes included therein.

General

Overview. Shenandoah Telecommunications Company is a diversified telecommunications company providing both regulated and unregulated telecommunications services through its wholly owned subsidiaries.  These subsidiaries provide wireless personal communications services (as a Sprint PCS Affiliate of Sprint Nextel) and local exchange telephone services, as well as cable television, video, Internet and data services, long distance, fiber optics facilities, and leased tower facilities. The Company has the following three reporting segments, which it operates and manages as strategic business units organized by lines of business:

 
*
The Wireless segment provides digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, as a Sprint PCS Affiliate of Sprint Nextel.  This segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers.
 
 
*
The Wireline segment provides regulated and unregulated voice services, dial-up and DSL internet access, and long-distance access services throughout Shenandoah County and portions of northwestern Augusta County, Virginia, and leases fiber optic facilities, throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor, including portions of West Virginia and Maryland.
 
 
*
The Cable TV segment provides video, internet and voice services in franchise areas throughout Virginia, West Virginia and Maryland.
 
 
*
A fourth segment, Other, primarily includes Shenandoah Telecommunications Company, the parent holding company, as well as certain general and administrative costs historically charged to Converged Services that cannot be allocated to discontinued operations.
 
In September 2008, the Company announced its intention to sell its Converged Services operation, and the related assets and liabilities were reclassified as held for sale in the consolidated balance sheet and the historical operating results were reclassified as discontinued operations.  Depreciation and amortization on long-lived assets was discontinued.

In March, 2009, the Company recorded an impairment loss of $17.5 million ($10.7 million, net of taxes) to reduce the carrying value of these assets to their estimated fair value less cost to sell.    In December 2010, the Company recorded an additional impairment charge of $1.9 million ($1.1 million, net of tax), to reduce the carrying value of these assets to their revised estimated fair value less cost to sell.  In March, 2011, the Company transferred service contracts for five properties from Converged Services to Shentel Cable, as these properties are located in the Company’s franchise cable footprint as a result of the JetBroadBand acquisition.  Operating results for these properties have been reclassified as continuing operations for all periods presented, and the Company recorded an adjustment to depreciation expense of $0.1 million to reduce the carrying value of assets transferred to the lower of their carrying value net of the impairment charge or the carrying value as if depreciation had been recorded on these assets at all times.  During the second quarter of 2011, the Company sold service contracts and related equipment for seven Converged Services’ properties to a third-party purchaser, receiving cash proceeds of $0.9 million (with an additional $0.1 million in proceeds placed in escrow for twelve months).  The total proceeds approximated the carrying value of the assets sold.
 
 
15


At June 30, 2011, negotiations with several potential purchasers continue.  Based upon indications of interest made by potential buyers in recent months, the Company has determined that there has been no change in the estimated fair value of the remaining assets in the aggregate.

Acquisition of Virgin Mobile Customers and Initiation of Prepaid Wireless Sales

In July 2010, the Company acquired the right to receive a share of revenues from approximately 50,000 Virgin Mobile customers in our service area, and effective July 11, 2010, the Company began selling Virgin Mobile and Boost prepaid products and services.  The Company incurs significant costs of acquisition (including handset subsidies, commissions, and other sales and marketing costs) in the month of customer activation.   Due to expensing all costs of acquisition in the month of acquisition, the Company expects that the sale of prepaid products and services will have a net negative impact on operating results until the base of customers is sufficient such that the aggregate monthly revenue less recurring expenses exceeds the up-front costs for new activations.

Cable Acquisitions

On July 30, 2010, the Company completed the acquisition of cable operations and subscribers from JetBroadBand for approximately $148 million in cash.  The acquired cable operations offer video, high speed Internet and voice services representing approximately 66,000 revenue generating units in southern Virginia and southern West Virginia.  The acquired networks pass approximately 115,000 homes.  The operating results of the acquired cable operations are now included in the Company’s Cable Television segment, significantly impacting that segment’s operating revenues and expenses in subsequent periods.

On November 30, 2010, the Company completed the acquisition of two small cable systems from Suddenlink for $4.5 million.  These systems are located in West Virginia and Maryland, pass approximately 7,000 homes and represented approximately 4,200 revenue generating units.
 
 
16

 
Results of Operations

Three Months Ended June 30, 2011 Compared with the Three Months Ended June 30, 2010

Consolidated Results
 
The Company’s consolidated results from continuing operations for the second quarters of 2011 and 2010 are summarized as follows:
 
(in thousands)
 
Three Months Ended
June 30,
   
Change
 
   
2011
   
2010
        %  
                           
Operating revenues
  $ 61,555     $ 42,361     $ 19,194       45.3  
Operating expenses
    53,561       34,571       18,990       54.9  
Operating income
    7,994       7,790       204       2.6  
                                 
Interest expense
    (2,846 )     (266 )     (2,580 )     (969.8 )
Other income (expense)
    166       106       60       56.6  
Income before taxes
    5,314       7,630       (2,316 )     (30.4 )
Income tax expense
    2,276       3,117       841       27.0  
Net income from continuing operations
  $ 3,038     $ 4,513     $ (1,475 )     (32.7 )

Operating revenues

For the three months ended June 30, 2011, operating revenues increased $19.2 million, or 45.3%. The increase was primarily due to incremental cable segment revenues of $11.7 million resulting from the cable acquisitions which occurred in the latter half of 2010, and to $5.3 million in incremental net revenues from prepaid PCS customers. Postpaid PCS revenues increased $2.2 million over the second quarter of 2010, while cable revenues in the markets acquired in 2008 increased $1.1 million over the second quarter of 2010.  All other revenues decreased $1.1 million, net, in the second quarter of 2011 from the second quarter of 2010.

Operating expenses

For the three months ended June 30, 2011, operating expenses increased $19.0 million, or 54.9%, compared to the 2010 period.  This increase included $6.0 million of additional depreciation and amortization expense, including $4.9 million associated with the cable systems acquired in July and December of 2010, and $0.7 million associated with the acquisition of prepaid subscribers in the third quarter of 2010.  Other cable segment operating expenses increased $9.1 million overall, primarily due to $6.6 million in direct incremental operating expenses associated with the cable operations acquired in 2010.  Costs associated with prepaid PCS offerings totaled $4.9 million in the 2011 second quarter, excluding amortization on the acquired subscribers. Wireless segment marketing costs increased $0.7 million in the in the second quarter over the second quarter of 2010. Costs related to the expansion of the wireless network and the provision of high-speed wireless internet data access services added $1.0 million in incremental site rent, power and backhaul costs.  Costs related to increases in head count, salary and benefits added $0.8 million in incremental costs. All other operating expenses increased $0.3 million in the second quarter of 2011, compared to the second quarter of 2010.  Operating expenses in 2010 included $3.8 million related to the settlement of the Company’s defined benefit pension plan and curtailment of the non-qualified supplemental retirement plan.

Interest expense

The increase in interest expense resulted primarily from the increased borrowings used to fund the JetBroadband cable acquisition in 2010.   In addition, during the second quarter of 2011 the Company recorded $0.6 million in interest expense, representing the change from March 31, 2011, in the fair value of the Company’s interest rate swap contract.  The Company also reversed $0.4 million of interest previously capitalized to plant under construction, increasing interest expense for the second quarter of 2011.

Income tax expense

The Company’s effective tax rate on income from continuing operations increased from 40.9% in the second quarter of 2010 to 42.8% in the second quarter of 2011 due to changes in the mix of taxable income to generally higher tax states and reductions of taxable income in generally lower tax states, primarily as a result of the expansion of cable operations.

 
17


Net income from continuing operations

For the three months ended June 30, 2011, net income from continuing operations decreased $1.5 million, reflecting depreciation and amortization on the acquired businesses, costs of acquiring prepaid PCS and cable customers and the higher interest costs associated with funding the cable acquisitions.

Six Months Ended June 30, 2011 Compared with the Six Months Ended June 30, 2010

Consolidated Results

The Company’s consolidated results from continuing operations for the first six months of 2011 and 2010 are summarized as follows:

(in thousands)
 
Six Months Ended
June 30,
   
Change
 
   
2011
   
2010
    $     %  
                           
Operating revenues
  $ 121,983     $ 83,959     $ 38,024       45.3  
Operating expenses
    106,898       64,650       42,248       65.3  
Operating income
    15,085       19,309       (4,224 )     (21.9 )
                                 
Interest expense
    (4,665 )     (576 )     (4,089 )     709.9  
Other income (expense)
    259       127       132       103.9  
Income before taxes
    10,679       18,860       (8,181 )     (43.4 )
Income tax expense
    4,581       7,766       3,185       41.0  
Net income from continuing operations
  $ 6,098     $ 11,094     $ (4,996 )     (45.0 )

Operating revenues

For the six months ended June 30, 2011, operating revenues increased $38.0 million, or 45.3%. The increase was primarily due to incremental cable segment revenues of $23.4 million resulting from the cable acquisitions which occurred in the latter half of 2010, and to $9.8 million in incremental net revenues from prepaid PCS customers. Postpaid PCS revenues increased $3.5 million over the first half of 2010, while cable revenues in the markets acquired in 2008 increased $2.0 million over the first half of 2010.  All other revenues decreased $0.7 million, net, in the first half of 2011 compared to the first half of 2010.

Operating expenses

For the six months ended June 30, 2011, operating expenses increased $42.2 million, or 65.3%, compared to the 2010 period.  This included an increase of $11.7 million of depreciation and amortization expense, including $9.1 million associated with the cable systems acquired in late 2010 and $1.4 million of amortization associated with the prepaid subscribers acquired in the third quarter of 2010.  Excluding depreciation, cable segment operating costs increased $20.6 million overall in 2011 over 2010.  The cable operations acquired in the second half of 2010 incurred $14.8 million of direct incremental operating expenses, while the cable operations acquired in 2008 accounted for $1.4 million of the year over year increase.  Costs (other than amortization) associated with prepaid PCS offerings totaled $9.7 million in 2011.  Costs related to the expansion of the wireless network and the provision of high-speed wireless internet data access services added $1.5 million in incremental site rent, power and backhaul costs.  Marketing costs increased $1.5 million in the Wireless segment in the 2011 first half over 2010. Costs related to increases in head count, salary and benefits added $1.7 million in incremental costs. All other operating expenses decreased $0.7 million in the first half of 2011, compared to the first half of 2010.  Operating expenses in 2010 included $3.8 million related to the settlement of the Company’s defined benefit pension plan and curtailment of the non-qualified supplemental retirement plan.

Interest expense

The increase in interest expense resulted primarily from the increased borrowings used to fund the JetBroadband cable acquisition in 2010.  In addition, during the first half of 2011 the Company recorded $0.4 million in interest expense, representing the change from December 31, 2010, in the fair value of the Company’s interest rate swap contract.  The Company also reversed $0.4 million of interest previously capitalized to plant under construction, increasing interest expense for 2011.

 
18


Income tax expense

The Company’s effective tax rate on income from continuing operations increased from 41.2% in the first half of 2010 to 42.9% in the first half of 2011 due primarily to changes in the mix of taxable income to generally higher tax states and reductions of taxable income in generally lower tax states, primarily as a result of the expansion of cable operations.

Net income from continuing operations

For the six months ended June 30, 2011, net income from continuing operations decreased $5.0 million, reflecting costs of acquiring prepaid PCS and cable customers and the higher interest costs associated with funding the cable acquisitions.

Wireless

The Company’s Wireless segment provides digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, through Shenandoah Personal Communications Company (“PCS”), a Sprint PCS Affiliate of Sprint Nextel.  This segment also leases land on which it builds Company-owned cell towers, which it leases to affiliated and non-affiliated wireless service providers, throughout the same four-state area described above, through Shenandoah Mobile Company (“Mobile”).

PCS receives revenues from Sprint Nextel for subscribers that obtain service in PCS’s network coverage area.  PCS relies on Sprint Nextel to provide timely, accurate and complete information to record the appropriate revenue for each financial period.  Postpaid revenues received from Sprint Nextel are recorded net of certain fees retained by Sprint Nextel.  These fees totaled 16.8% of net postpaid billed revenue, as defined, until June 2010, when Sprint Nextel exercised its right to re-evaluate the net service fee component, and increased the total fees retained by Sprint Nextel to 20%.   Sprint Nextel retains a 6% management fee on prepaid revenues.

The following tables show selected operating statistics of the Wireless segment as of the dates shown:

   
June 30,
2011
   
Dec. 31,
2010
   
June 30,
2010
   
Dec. 31,
2009
 
                         
Retail PCS Subscribers – Postpaid (1)
    240,862       234,809       227,437       222,818  
Retail PCS Subscribers – Prepaid
    91,332       66,956       n/a       n/a  
PCS Market POPS (000) (2)
    2,397       2,337       2,337       2,327  
PCS Covered POPS (000) (2)
    2,114       2,049       2,046       2,033  
CDMA Base Stations (sites)
    507       496       483       476  
EVDO-enabled sites
    393       381       346       334  
EVDO Covered POPS (000) (2)
    2,045       1,981       1,959       1,940  
Towers
    149       146       142       140  
Non-affiliate cell site leases
    219       216       210       196  

 
19


   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Gross PCS Subscriber Additions – Postpaid
    14,673       14,740       30,159       29,668  
Net PCS Subscriber Additions – Postpaid
    3,037       2,911       6,053       4,619  
Gross PCS Subscriber Additions – Prepaid
    22,864       n/a       46,034       n/a  
Net PCS Subscriber Additions – Prepaid
    11,089       n/a       24,376       n/a  
PCS Average Monthly Retail Churn % - Postpaid
    1.62 %     1.66 %     1.69 %     1.79 %
PCS Average Monthly Retail Churn % - Prepaid
    4.58 %     n/a       4.53 %     n/a  
 
 
1)
Postpaid subscriber counts for December 31, 2010 have been reduced by 888 to exclude certain rate plans incorrectly counted as subscribers in the latter months of 2010.
 
2)
POPS refers to the estimated population of a given geographic area and is based on information purchased from third parties.  Market POPS are those within a market area which the Company is authorized to serve under its Sprint PCS affiliate agreements, and Covered POPS are those covered by the Company’s network.

Three Months Ended June 30, 2011 Compared with the Three Months Ended June 30, 2010
 
 
(in thousands)
 
Three Months Ended
June 30,
   
Change
 
   
2011
   
2010
    $     %  
                           
Segment operating revenues
 
 
         
 
         
Wireless service revenue
  $ 33,806     $ 26,264     $ 7,542       28.7  
Tower lease revenue
    2,199       2,006       193       9.6  
Equipment revenue
    1,059       1,287       (228 )     (17.7 )
Other revenue
    470       474       (4 )     (0.8 )
Total segment operating revenues
    37,534       30,031       7,503       25.0  
Segment operating expenses
                               
Cost of goods and services, exclusive of depreciation and amortization shown separately below
     13,391        9,993        3,398        34.0  
Selling, general and administrative, exclusive of depreciation and amortization shown separately below
     7,651        4,820        2,831        58.7  
Depreciation and amortization
    6,140       5,286       854       16.2  
Total segment operating expenses
    27,182       20,099       7,083       35.2  
Segment operating income
  $ 10,352     $ 9,932     $ 420       4.2  

Operating revenues

Wireless service revenue increased $7.5 million, or 28.7%, for the three months ended June 30, 2011, compared to the comparable 2010 period.  Net prepaid revenue represented $5.3 million of this increase.  Average postpaid subscribers increased 6.0% in the current quarter compared to the 2010 second quarter, contributing to a 10.2% increase in postpaid voice service revenue.  Total credits against gross billed revenue, including fees retained by Sprint Nextel and bad debt write-offs, increased $1.5 million from the second quarter of 2010, principally due to the increase in the net service fee from 8.8% to 12.0% effective June 1, 2010.   Fees retained by Sprint Nextel increased by $1.4 million, or 24.0%, while bad debt write-offs declined by $0.3 million, or 22.7%, and all other credits increased $0.5 million.

The increase in tower lease revenue resulted primarily from additional cell site leases.
 
 
20


The decrease in equipment revenue resulted from an increase in the number of handset discounts offered in 2011 compared to the second quarter of 2010. The discounts were partially offset by a change in the mix of handsets sold.

Cost of goods and services

Cost of goods and services increased $3.4 million, or 34.0%, in 2011 from the second quarter of 2010.  Handset costs associated with prepaid customer acquisitions generated $2.3 million of incremental costs on 22,864 gross adds, while postpaid handset costs increased $0.1 million. Costs of the expanded network coverage and expansion of EVDO coverage and capacity resulted in a $1.0 million increase in network costs including rent for additional tower and co-location sites, power and backhaul line costs.

Selling, general and administrative

Selling, general and administrative costs increased $2.8 million, or 58.7%, in the second quarter of 2011 over the comparable 2010 period.  Costs associated with prepaid customers accounted for $2.6 million of the increase in costs, principally marketing and selling costs, including $1.6 million in costs associated with gross adds and the remaining $1.0 million to support the existing subscriber base.  Operating taxes and other sales and marketing costs accounted for the remainder of the increase.

Depreciation and amortization

Depreciation and amortization increased $0.9 million in 2011 over the 2010 second quarter, due to $0.7 million of amortization of the initial purchase cost of acquired prepaid customers.  The remainder of the increase resulted from capital projects for EVDO capability and new towers and cell sites placed in service since second quarter of 2010.

Six Months Ended June 30, 2011 Compared with the Six Months Ended June 30, 2010

 
(in thousands)
 
Six Months Ended
June 30,
   
Change
 
   
2011
   
2010
    $     %  
                           
Segment operating revenues
 
 
         
 
         
Wireless service revenue
  $ 66,010     $ 52,791     $ 13,219       25.0  
Tower lease revenue
    4,375       3,954       421       10.6  
Equipment revenue
    2,628       2,505       123       4.9  
Other revenue
    989       1,014       (25 )     (2.5 )
Total segment operating revenues
    74,002       60,264       13,738       22.8  
Segment operating expenses
                               
Cost of goods and services, exclusive of depreciation and amortization shown separately below
     27,004        19,871        7,133        35.9  
Selling, general and administrative, exclusive of depreciation and amortization shown separately below
     14,197        8,923        5,274        59.1  
Depreciation and amortization
    12,374       10,525       1,849       17.6  
Total segment operating expenses
    53,575       39,319       14,256       36.3  
Segment operating income
  $ 20,427     $ 20,945     $ (518 )     (2.5 )

Operating revenues

Wireless service revenue increased $13.2 million, or 25.0%, for the six months ended June 30, 2011, compared to the comparable 2010 period.  Net prepaid revenue represented $9.8 million of this increase.  Average postpaid subscribers increased 5.8% in the 2011 six months compared to the 2010 six months, contributing to an 8.5% increase in postpaid voice service revenue.  Total credits against gross billed revenue, including fees retained by Sprint Nextel and bad debt write-offs, increased $2.9 million from the first half of 2010, principally due to the increase in the net service fee from 8.8% to 12.0% effective June 1, 2010.   Fees retained by Sprint Nextel increased by $2.9 million, or 25.5%, while bad debt write-offs decreased by $0.7 million, or 8.9%, and all other credits increased $0.7 million.
 
 
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The increase in tower lease revenue resulted primarily from additional cell site leases.

The increase in equipment revenue resulted from a change in the mix of handsets sold.  Total gross revenue from handset sales was slightly higher in 2010. The increase was partially offset by an increase in the number of handset discounts offered in 2011 compared to the first half of 2010.

Cost of goods and services

Cost of goods and services increased $7.1 million, or 35.9%, in 2011 from the first half of 2010.  Handset costs associated with prepaid customer acquisitions generated $4.8 million of incremental costs for 46,034 gross adds during the first half of 2011, while postpaid handset costs increased $0.6 million. Costs of the expanded network coverage and expansion of EVDO coverage and capacity resulted in a $1.8 million increase in network costs including rent for additional tower and co-location sites, power and backhaul line costs.

Selling, general and administrative

Selling, general and administrative costs increased $5.3 million, or 59.1%, in the first half of 2011 over the comparable 2010 period.  Costs associated with prepaid customers accounted for $4.8 million of the increase in costs, principally marketing and selling costs, including $2.8 million in costs associated with gross adds and $2.0 million to support the existing customer base.  Operating taxes and other sales and marketing costs (both exclusively postpaid, and shared prepaid and postpaid expenses) accounted for the remainder of the increase.

Depreciation and amortization

Depreciation and amortization increased $1.8 million in 2011 over the first half of 2010, due principally to $1.4 million of amortization of the initial purchase cost of acquired prepaid customers.  The remainder of the increase resulted from capital projects for EVDO capability and new towers and cell sites placed in service since second quarter of 2010.

Cable Television

The Cable Television segment provides analog, digital and high-definition television service under franchise agreements in Virginia, West Virginia and Maryland.

The Company has been upgrading its cable systems since early 2009, and by December 2010 had completed upgrades to the systems acquired in late 2008.  The Company has introduced expanded video and internet service offerings as market upgrades were completed beginning in the second half of 2009, and began introducing voice service in several upgraded markets as the first quarter of 2010 ended.  The Company has continued rolling out expanded video services, internet and voice services to additional markets as upgrades have been completed.

The Company closed on the acquisition of cable operations from JetBroadBand effective July 30, 2010, and Suddenlink effective November 30, 2010.  The acquired cable operations offer video, high speed Internet and voice services representing approximately 70,000 revenue generating units in Virginia, West Virginia and Maryland and pass approximately 122,000 homes. For the cable operations acquired in July 2010, systems passing approximately 10% of the homes have been upgraded.   The Cable segment results include the operating results of the acquired operations from July 30, 2010 and November 30, 2010, forward, respectively.

 
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The following table shows selected operating statistics of the Cable Television segment as of the dates shown:

   
June 30,
2011
   
Dec. 31,
2010(1)
   
June 30,
2010(1)
   
Dec. 31,
2009(1)
 
                         
Homes Passed (2)
    180,050       178,763       56,395       56,268  
Video
                               
Customers (3)
    65,870       67,235       23,500       23,022  
Penetration (4)
    36.6 %     37.6 %     41.7 %     40.9 %
Digital video customers (5)
    23,666       22,855       8,199       6,487  
Digital video penetration (5)
    35.9 %     34.0 %     34.9 %     28.2 %
High-speed Internet
                               
Available Homes (6)
    150,623       144,099       33,301       25,748  
Customers (3)
    33,680       31,832       4,261       2,525  
Penetration (4)
    22.4 %     22.1 %     12.8 %     9.8 %
Voice
                               
Available Homes (6)
    129,027       118,652       27,914       -  
Customers (3)
    7,794       6,340       840       22  
Penetration (4)
    6.0 %     5.3 %     3.0 %     n/a  
Revenue Generating Units (7)
    131,010       128,262       36,800       32,056  
Total Fiber Miles
    33,548       31,577       4,726       4,558  
Fiber Route Miles (8)
    1,854       1,389       417       403