SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
Commission File No. 0-9881
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1162807
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
124 South Main Street, Edinburg, VA 22824
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code (703)
984-4141
Securities Registered Pursuant to Section 12(b) of the Act:
COMMON STOCK (NO PAR VALUE)
(Title of Class)
Indicate by check mark it disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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
Aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 1, 1995.
$67,568,680. (In determining this figure, the registrant has
assumed that all of its officers and directors are affiliates.
Such assumption shall not be deemed to be conclusive for any
other purpose.) The Company's stock is not listed on any
national exchange nor NASDAQ; therefore, the value of the
Company's stock has been determined based upon the average of
the prices of transactions in the Company's stock that were
reported to the Company during the year.
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
CLASS OUTSTANDING AT MARCH 1, 1995
Common Stock, No Par Value 3,760,760
Documents Incorporated by Reference
1994 Annual Report to Security Holders Parts I, II, IV
Proxy Statement, Dated March 24, 1995 Parts III
EXHIBIT INDEX PAGES 5 - 6<PAGE>
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
Item Page
Number Number
PART I
1. Business 1
2. Properties 1
3. Legal Proceedings 2
4. Submission of Matters to a Vote of
Security Holders 2
PART II
5. Market for the Registrant's Common Stock
and Related Stockholder Matters 3
6. Selected Financial Data 3
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
8. Financial Statements and Supplementary Data 3
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 4
PART III
10. Directors and Executive Officers of the Registrant 5
11. Executive Compensation 5
12. Security Ownership of Certain Beneficial Owners
and Management 5
13. Certain Relationships and Related Transactions 5
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 6-7
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General development of business is incorporated
by reference -
1994 Annual Report to Security Holders -
Inside Front Cover
(b) Financial information about industry segments -
Not Applicable
(c) Narrative description of business is
incorporated by reference -
1994 Annual Report to Security Holders -
Pages 4 - 7
(d) The registrant does not engage in operations in
foreign countries.
ITEM 2. PROPERTIES
The properties of the Company consist of land,
structures, plant and equipment required in
providing telephone, CATV, and related
telecommunications services. The Company's main
office and corporate headquarters is in Edinburg,
VA and a service building is located outside the
town limits of Edinburg, VA. Additionally, the
Company owns and operates nine local telephone
exchanges (switching units) housed in
brick/concrete buildings. One of these is the
main attended central office co-located with the
main office in Edinburg, Virginia. The unattended
central offices and outside plant are located at:
(a) Basye, VA
(b) Bergton, VA
(c) Fort Valley, VA
(d) Mount Jackson, VA
(e) New Market, VA
(f) Strasburg, VA
(g) Toms Brook, VA
(h) Woodstock, VA
The Company owns long distance facilities outside
of its local franchised area as follows:
(a) Hagerstown, MD
(b) Harrisonburg, VA
(c) Martinsburg, WV<PAGE>
PART I (Continued)
ITEM 2. PROPERTIES (Continued)
(d) Richmond, VA
(e) Stephens City, VA
(f) Weyers Cave, VA
(g) Winchester, VA
CATV reception equipment is located at the service
building, outside the town limits of Edinburg,
Virginia and at Basye, Virginia.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No matters were submitted to a vote of security
holders for the three months ended December 31,
1994.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
(a) Common stock price ranges are incorporated by
reference -
1994 Annual Report to Security Holders
Market Information - Inside Front Cover
(b) Number of equity security holders are
incorporated by reference -
1994 Annual Report to Security Holders
Five-Year Summary of Selected Financial Data
- Page 3
(c) Frequency and amount of cash dividends are
incorporated by reference -
1994 Annual Report to Security Holders
Market and Dividend Information - Inside
Front Cover
Additionally, the terms of a mortgage
agreement require the maintenance of defined
amounts of the subsidiary's equity and working
capital after payment of dividends.
Accordingly, approximately $15,638,000 of
retained earnings was available for payment
of dividends at December 31, 1994.
For additional information, see Note 4 of the
1994 Annual Report to Security Holders, which
is incorporated as a part of this report.
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary of Selected Financial Data is
incorporated by reference -
1994 Annual Report to Security Holders
Five-Year Summary of Selected Financial Data
- Page 3<PAGE>
PART II (Continued)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of operations, liquidity, and capital
resources are incorporated by reference -
1994 Annual Report to Security Holders
Management's Discussion and Analysis of Financial
Condition and Results of Operations - Pages 8-9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements included in the
1994 Annual Report to Security Holders are
incorporated by reference as identified in Part IV,
Item 14, on Pages 5 and 6.
<PAGE>
PART II (Continued)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
CHANGES IN REGISTRANTS CERTIFYING ACCOUNTANT
Shenandoah Telecommunications has dismissed S. B.
Hoover & Company, LLP as its certifying accountant
as of December 3, 1993. Shenandoah
Telecommunications has engaged McGladrey & Pullen,
LLP as our new certifying accountants as of December
1, 1993. The engagement is for the calendar year
financial statements for 1994, 1995, and 1996.
The accountants report on the financial statements
of Shenandoah Telecommunications for the two most
recent fiscal years, ended December 31, 1991 and
December 31, 1992 have not contained an adverse
opinion, or a disclaimer of opinion, nor has it
been qualified or modified as to uncertainty,
audit scope, accounting principles, or any other
reason.
Shenandoah Telecommunications Company requested
proposals from several accounting firms to conduct
Shenandoah's audit of the financial statements for
the calendar years 1994, 1995, and 1996. Based on
the proposals received, the decision to dismiss
our former accountants and engage McGladrey &
Pullen, LLP as our new accountants was recommended
by the Finance Committee of the Board of Directors
and approved by vote of the full Board.
There are no disagreements with S. B. Hoover &
Company, LLP on any matter of accounting principles
or practices, financial statements disclosures, or
auditing scope of procedure which disagreements
were not resolved to the satisfaction of S. B.
Hoover, LLP. Shenandoah Telecommunications has not
consulted with McGladrey & Pullen, LLP on any issue
during the last two years or from December 31,
1992 to December 3, 1993.<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and executive
officers is incorporated by reference -
Proxy Statement, Dated March 24, 1995 -
Pages 1 - 7
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is
incorporated by reference -
Proxy Statement, Dated March 24, 1995 - Page 5
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
(a) No person, director or officer owned over 5
percent of the common stock as of March 1,
1995.
(b) Security ownership by management is
incorporated by reference -
Proxy Statement, Dated March 24, 1995
Stock Ownership - Page 4
(c) Contractual arrangements -
The Company knows of no contractual
arrangements which may, at a subsequent date,
result in change of control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships or transactions to
disclose other than services provided by Directors
which are incorporated by reference -
Proxy Statement, Dated March 24, 1995
Directors - Page 2
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
A. Document List
The following documents are filed as part of this Form
10-K. Financial statements are incorporated by
reference and are found on the pages noted.
Page Reference
Annual
Form 10-K Report
1. Financial Statements
The following consolidated financial
statements of Shenandoah Telecommunications
are included in Part II, Item 8
Auditor's Report 1994 Financial Statements 17
Auditor's Report 1992 and 1993 Financial
Statements
Consolidated Balance Sheets at
December 31, 1994, 1993, and 1992 10 & 11
Consolidated Statements of Income for
the Years Ending December 31, 1994,
1993, and 1992 12
Consolidated Statement of Retained Earnings
Years Ended December 31, 1994, 1993, and 1992 12
Consolidated Statements of Cash Flow
for the Years Ending December 31, 1994,
1993, and 1992 13
Notes to Consolidated Financial Statements 14-17
<PAGE>
PART IV (Continued)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K (Continued)
Page Reference
Annual
Form 10-K Report
2. Financial Statement Schedules
All other schedules are omitted because
they are not applicable, or not required,
or because the required information is
included in the accompanying financial
statements or notes thereto.
3. Exhibits
Exhibit No.
99. Proxy Statement, prepared by
Registrant for 1994 Annual
Stockholders Meeting Filed Herewith
13. Annual Report to Security
Holders Filed Herewith
23. Prior Certifying Accountant's
Consent Filed Herewith
B. Reports on Form 8-K
No reports on Form 8-K for the three months ended
December 31, 1994, were required to be filed.
<PAGE>
PART IV (Continued)
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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
March 31, 1995 By CHRISTOPHER E. FRENCH, PRESIDENT
Christopher E. French, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
President & Chief Executive
CHRISTOPHER E. FRENCH Officer March 31, 1995
Christopher E. French
LAURENCE F. PAXTON Principal Financial March 31, 1995
Laurence F. Paxton Accounting Officer
DICK D. BOWMAN Treasurer & Director March 31, 1995
Dick D. Bowman
WARREN B. FRENCH, JR. Director March 31, 1995
Warren B. French, Jr.
I. CLINTON MILLER Director March 31, 1995
I. Clinton Miller
HAROLD MORRISON Director March 31, 1995
Harold Morrison
NOEL M. BORDEN Director March 31, 1995
Noel M. Borden
JAMES E. ZERLEL II Director March 31, 1995
James E. Zerkel II<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
124 South Main Street
Edinburg, Virginia
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 18, 1995
March 24, 1995
TO THE STOCKHOLDERS OF
SHENANDOAH TELECOMMUNICATIONS COMPANY:
The annual meeting of stockholders of Shenandoah
Telecommunications Company will be held in the Social Hall of the
Edinburg Fire Department, Stoney Creek Boulevard, Edinburg,
Virginia, on Tuesday, April 18, 1995, at 11:00 a.m. for the
following purposes:
1. To elect nine directors to serve for the ensuing year;
2. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Only stockholders of record at the close of business March 22,
1995, will be entitled to vote at the meeting.
Lunch will be provided.
By Order of the Board of Directors
Harold Morrison, Jr.
Secretary
IMPORTANT
YOU ARE URGED TO COMPLETE, SIGN, AND RETURN THE ENCLOSED PROXY CARD
IN THE SELF-ADDRESSED STAMPED (FOR U. S. MAILING) ENVELOPE PROVIDED
AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING IN PERSON. IF YOU DO ATTEND THE MEETING IN PERSON, YOU MAY
THEN WITHDRAW YOUR PROXY AND VOTE YOUR OWN SHARES.
SEE PROXY STATEMENT ON THE FOLLOWING PAGES
PAGE
<PAGE>
PROXY STATEMENT
P. O. Box 459
Edinburg, VA 22824
March 24, 1995
TO THE STOCKHOLDERS OF
SHENANDOAH TELECOMMUNICATIONS COMPANY:
Your proxy in the enclosed form is solicited by the management
of the Company for use at the Annual Meeting of Stockholders to be
held in the Social Hall of the Edinburg Fire Department, Stoney
Creek Boulevard, Edinburg, Virginia, on Tuesday, April 18, 1995, at
11:00 a.m., and any adjournment thereof.
The mailing address of the Company's executive offices is P. O.
Box 459, Edinburg, Virginia 22824.
The Company has 8,000,000 authorized shares of common stock, of
which 3,760,760 shares were outstanding on March 22, 1995. This
proxy statement and the Company's annual report, including
financial statements for 1994, are being mailed on or about March
24, 1995, to approximately 2,987 stockholders of record on March
22, 1995. Only stockholders of record on that date are entitled to
vote. Each outstanding share will entitle the holder to one vote
at the Annual Meeting. No director, officer, or other party owns
as much as five percent of the outstanding shares of the common
stock of the Company. The Company intends to solicit proxies by
the use of the mail, in person, and by telephone. The cost of
soliciting proxies will be paid by the Company.
Executed proxies may be revoked at any time prior to exercise.
Proxies will be voted as indicated by the stockholders.
THE ELECTION OF DIRECTORS
At the meeting, nine directors (constituting the entire Board of
Directors of the Company) are to be elected for the ensuing year.
The proxy holders will vote the proxies received by them (unless
contrary instructions are noted on the proxies) for the election as
directors of the following nominees, all of whom are now members of
and constitute the Company's Board of Directors. If any such
nominees should be unavailable, the proxy holders will vote for
substitute nominees in their discretion. Stockholders may withhold
the authority to vote for the election of directors or one or more
of the nominees. Directors will be elected by a plurality of the
votes cast. Abstentions and shares held in street name that are
not voted in the election of directors will not be included in
determining the number of votes cast.
PAGE
<PAGE>
<TABLE>
Nominees for Election of Directors
<CAPTION>
Elected Principal Occupation and
Other
Name of Director Director Age Directorships for Past Five
Years
(1) (2) (3)
<S> <C> <C> <C>
Noel M. Borden 1972 58 Pres., H. L. Borden Lumber
Co. (a
Vice Chairman retail building materials
firm);
Chairman of Board,
1st National Corp.
Dick D. Bowman 1980 66 Pres., Bowman Bros., Inc. (a
farm
Treasurer of the Co. equip. dealer); Dir., Shen.
Valley
Elec. Coop.; Dir., Rockingham
Mutual
Ins. Co.; Dir., Old Dominion
Electric Coop.
Ken L. Burch 1995 50 Farmer
Warren B. French, Jr. 1973 71 Chairman of the Board,
Shenandoah
(4) Telecommunications Co.; Dir.,
1st
National Corp.; Dir., Orion
Network
Systems, Inc.; Dir., AvData
Systems,
Inc.
Grover M. Holler, Jr. 1952 74 Pres., Blue Ridge Homes, Inc.
(a real
estate developer); Pres.,
Valley
View, Inc.
I. Clinton Miller 1983 55 Attorney-at-Law; Dir., F&M
Bank
Harold Morrison, Jr. 1979 65 Chairman of the Board,
Woodstock
Secretary of the Co. Garage, Inc. (auto sales &
repair
firm); Dir., 1st Va. Bank-SV
Zane Neff 1976 66 Retired Manager, Hugh Saum
Co., Inc.
Asst. Secretary (a hardware and furniture
store);
of the Co. Director, Crestar Bank
James E. Zerkel II 1985 50 Vice Pres., James E. Zerkel,
Inc.
(a plumbing, heating, gas, &
hardware
firm)
<FN>
(1) The directors who are not full-time employees of the Company
were
compensated in 1994 for their services on the Board and one or
more of
the Boards of the Company's subsidiaries at the rate of $325
per month
plus $325 for each Board meeting attended. Additional
compensation was
paid to the Chairman of the Board, Vice Chairman, Secretary,
Assistant
Secretary, and Treasurer, for their services in these
capacities,
in the amounts of $3,840, $1,180, $2,480, $1,180, and $2,480,
respectively.
(2) Years shown are when first elected to the Board of the Company
or the
Company's predecessor, Shenandoah Telephone Company. Each
nominee has
served continuously since
the year he joined the Board.
(3) Each director also serves as a director of one or more of the
Company's
subsidiaries.
(4) Warren French's son, Christopher French, is the President of
the
Company and all of its subsidiaries.
<PAGE>
Standing Audit, Nominating, and Compensation Committees
of the Board of Directors
1. Audit Committee - The Finance Committee of the Board of
Directors, consisting of the following directors: Dick D.
Bowman (Chairman), Grover M. Holler, Jr., and Noel M.
Borden, performs a function similar to that of an Audit
Committee. This committee is responsible for the employment
of outside auditors and for receiving and reviewing the
auditor's report. During 1994 there was one meeting of the
Audit Committee. Additional business of the committee was
conducted in connection with the regular Board meetings.
2. Nominating Committee - The Board of Directors does not have
a standing Nominating Committee.
3. Compensation Committee - The Personnel Committee of the
Board of Directors, consisting of the following directors:
Noel M. Borden (Chairman), Harold Morrison, Jr., and I.
Clinton Miller, performs a function similar to that of a
Compensation Committee. This committee is responsible for
the wages, salaries, and benefit programs for all employees.
During 1994 there were three meetings of this committee.
Attendance of Board Members at Board and Committee Meetings
During 1994, the Board of Directors held 13 meetings. All of the
directors attended at least 75 percent of the aggregate of: (1)
the total number of meetings of the Board of Directors; and (2) the
total number of meetings held by all committees of the Board on
which they served.
Certain Transactions
Under the terms of a Supplemental Employment Agreement approved
and executed by Shenandoah Telephone Company in February 1984,
Warren B. French, Jr. was paid $12,649 in 1994, as an additional
retirement benefit. He was also paid $12,000 for consulting
services provided to the Company.
In 1994, the Company received services from Mr. Morrison's
company in the amount of $51,034.61 and from Mr. Zerkel's company
in the amount of $6,962. Management believes that each of the
companies provides these services to the Company on terms
comparable to those available to the Company from other similar
companies. No other director is an officer, director, employee, or
owner of a significant supplier or customer of the Company.
<PAGE>
STOCK OWNERSHIP
The following table presents information relating to the
beneficial ownership of the Company's outstanding shares of common
stock by all directors, the president, and all directors and
officers as a group.
No. of Shares
Name and Address Owned as of 2-1-95 Percent of Class
(1) (2)
Noel M. Borden 17,456 *
Strasburg, VA 22657
Dick D. Bowman 40,144 1.07
Edinburg, VA 22824
Ken L. Burch 46,762 1.24
Quicksburg, VA 22847
Christopher E. French 114,948 3.06
Woodstock, VA 22664
Warren B. French, Jr. 56,942 1.51
Edinburg, VA 22824
Grover M. Holler, Jr. 70,736 1.88
Edinburg, VA 22824
I. Clinton Miller 1,440 *
Woodstock, VA 22664
Harold Morrison, Jr. 20,148 *
Woodstock, VA 22664
Zane Neff 7,516 *
Edinburg, VA 22824
James E. Zerkel II 4,198 *
Mt. Jackson, VA 22842
Total shares beneficially
owned by 13 directors and
officers as a group 382,326 10.17
(1) Includes shares held by relatives and in certain trust
relationships, which may be deemed to be beneficially owned
by the nominees under the rules and regulations of the
Securities and Exchange Commission; however, the inclusion
of such shares does not constitute an admission of
beneficial ownership.
(2) Asterisk indicates less than 1%.
PAGE
<PAGE>
SUMMARY COMPENSATION TABLE
The following Summary Table is furnished as to the salary and
incentive payment paid by the Company and its subsidiaries on an
accrual basis during the fiscal years 1992, 1993, and 1994 to, or
on behalf of, the chief executive officer and each of the next four
most highly compensated executive officers who earn $100,000 or
more per year.
Name and Principal Incentive
Position Year Salary Payment
Christopher E. French 1994 $107,816 $ 14,875
President 1993 100,904 14,159
1992 93,923 22,185
RETIREMENT PLAN
The Company maintains a noncontributory defined benefit
Retirement Plan for its employees. The following table illustrates
normal retirement benefits based upon Final Average Compensation
and years of credited service. The normal retirement benefit is
equal to the sum of:
(1) 1.14% times Final Average Compensation plus 0.65% times
Final Average Compensation in excess of Covered Compensation
(average annual compensation with respect to which Social
Security benefits would be provided at Social Security
retirement age) times years of service (not greater than
30); and
(2) 0.29% times Final Average Compensation times years of
service in excess of 30 years (such excess service not to
exceed 15 years).
Estimated Annual Pension
Years of Credited Service
Final Average
Compensation 15 20 25 30 35
$ 20,000 3,420 4,560 5,700 6,840 7,130
35,000 6,870 9,160 11,451 13,741 14,248
50,000 10,898 14,530 18,163 21,796 22,521
75,000 17,610 23,480 29,351 35,221 36,308
100,000 24,323 32,430 40,538 48,646 50,096
120,000 29,693 39,590 49,488 59,386 61,126
Covered Compensation for those retiring in 1995 is $25,920.
Final Average Compensation equals an employee's average annual
compensation for the five consecutive years of credited service for
which compensation was the highest. The amounts shown as estimated
annual pensions were calculated on a straight-life basis assuming
the employee retires in 1995. The Company did not make a
contribution to the Retirement Plan in 1994, as the plan was
adequately funded. Christopher French has 13 years of credited
service under the plan as of January 1, 1995.
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The members of the Personnel Committee of the Board of Directors
of the Company perform the function of a Compensation Committee.
The Committee's approach to compensation of the Company's executive
officers, including the chief executive officer, is to award a
total compensation package consisting of salary, incentive, and
fringe benefit components. The compensation package is designed to
provide a level of compensation to enable the Company to attract
and retain the executive talent necessary for the long-term success
of the organization.
The incentive plan component of the total compensation package
provides an incentive to the officers to meet or exceed certain
performance objectives. The plan also places a portion of the
officers' compensation at risk in the event the Company does not
achieve its objectives. The objectives include a component
measuring the improvement in the level of service provided to the
Company's customers and a component measuring the increase in the
Company's net income. In 1994, the Company reached over 100
percent of its combined goals.
Submitted by the Company's Personnel Committee:
Noel M. Borden, Chairman
Harold Morrison, Jr.
I. Clinton Miller
FIVE-YEAR STOCKHOLDER RETURN COMPARISON
The Securities and Exchange Commission requires that the Company
include in its Proxy Statement a line graph presentation comparing
cumulative, five-year stockholder returns on an indexed basis with
a performance indicator of the overall stock market and either a
nationally recognized industry standard or an index of peer
companies selected by the Company. The broad market index used in
the graph is the NASDAQ Market Index. The S&P Telephone Index
consists of the seven regional Bell Operating Companies and GTE.
The Company's stock is not listed on any national exchange nor
NASDAQ; therefore, for purposes of the following graph, the value
of the Company's stock, including the price at which dividends are
assumed to have been reinvested, has been determined based upon the
average of the prices of transactions in the Company's stock that
were reported to the Company in each fiscal year.
PAGE
<PAGE>
Comparison of Five-Year Cumulative Total Return* among Shenandoah
Telecommunications Company, NASDAQ Market Index, and S&P Telephone
Index
1989 1990 1991 1992 1993 1994
Shenandoah
Telecommunications 100.00 107.30 190.03 200.46 209.92 200.52
NASDAQ Market
Index 100.00 84.92 136.28 158.58 180.93 176.91
S&P Telephone
Index 100.00 95.46 102.66 112.65 130.10 124.72
Assumes $100 invested December 31, 1989 in Shenandoah
Telecommunications Company stock, NASDAQ Market Index, and S&P
Telephone Index
*Total return assumes reinvestment of dividends
EMPLOYMENT OF AUDITORS
The Board of Directors, on the recommendation of the Audit
Committee, has appointed the firm of McGladrey and Pullen as
auditors to make an examination of the accounts of the Company for
the 1995 fiscal year. It is not expected that representatives of
the firm will be present at the annual meeting.
PROPOSALS OF SECURITY HOLDERS
Proposals of security holders to be included in management's
proxy statement and form of proxy relating to next year's annual
meeting must be received at the Company's principal executive
offices not later than November 24, 1995.
OTHER MATTERS
Management does not intend to bring before the meeting any
matters other than those specifically described above and knows of
no matters other than the foregoing to come before the meeting. If
any other matters properly come before the meeting, it is the
intention of the persons named in the accompanying form of proxy to
vote such proxy in accordance with their judgment on such matters,
including any matters dealing with the conduct of the meeting.
FORM 10-K
The Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission is available to stockholders,
without charge, upon request to Mr. Laurence F. Paxton, Vice
President-Finance, Shenandoah Telecommunications Company, P. O. Box
459, Edinburg, VA 22824.
PAGE
<PAGE>
(Inside front cover - top)
STOCKHOLDER INFORMATION
Our Business
Shenandoah Telecommunications Company is a holding company
which provides telephone service through its subsidiary,
Shenandoah Telephone Company, primarily in Shenandoah County
and small service areas in Rockingham, Frederick, and Warren
counties, all in Virginia. The Company provides cable
television service through its subsidiary, Shenandoah Cable
Television Company, at Edinburg and in rural areas in the
vicinity of Edinburg, Woodstock, and Bryce Mountain. The
Company provides unregulated communications equipment and
services through its subsidiary, ShenTel Service Company, which
sells and maintains PBXs, key systems, computers, and security
systems. The Company finances purchases of telecommunications
facilities and equipment through its subsidiary, Shenandoah
Valley Leasing Company. Shenandoah Mobile Company furnishes
paging, mobile telephone, business radio, and cellular
telephone services in the northern Shenandoah Valley.
Shenandoah Mobile Company is the managing general partner of a
partnership providing cellular services in Virginia RSA 10
covering the northwestern portion of Virginia. The Company
resells long distance services through Shenandoah Long Distance
Company. Shenandoah Network Company operates and maintains the
Company's interstate fiber optic network.
Annual Meeting
The Board of Directors extends an invitation to all
stockholders to attend the Annual Meeting of Stockholders. The
meeting will be held Tuesday, April 18, 1995, at 11:00 a.m. in
the Social Hall of the Edinburg Fire Department, Stoney Creek
Boulevard, Edinburg, Virginia. Notice of the Annual Meeting,
Proxy Statement, and Proxy were mailed to each stockholder on
or about March 24, 1995.
Form 10-K
The Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission is available to
stockholders, without charge, upon request to Mr. Laurence F.
Paxton, Vice President - Finance, Shenandoah Telecommunications
Company, P. O. Box 459, Edinburg, VA 22824.<PAGE>
(Inside front cover - bottom)
Market and Dividend Information
The stock of Shenandoah Telecommunications Company is not
listed on any national exchange or NASDAQ, and the Company is
not aware of any broker who maintains a position in the
Company's stock. It, however, is aware of unconfirmed
transactions of the stock which have been handled privately and
by brokers and local auctioneers. Some of these prices include
commissions and auctioneers' fees. Since some prices are not
reported to the Company and family transactions are not
applicable, all transactions are not included in the following
summary of prices. The shares, prices, and cash dividends for
1993 and 1994 have been adjusted to reflect a 2-for-1 stock
split which was paid to stockholders of record January 23,
1995. The Company has maintained a policy of declaring an
annual cash dividend.
1994 1993
No. No. No. No.
Quarter Trans. Shares High Low Trans. Shares High Low
1st 59 11,348 $25.00 $20.00 90 16,592 $32.50 $19.00
2nd 45 9,086 25.00 14.41 129 15,396 30.50
17.50
3rd 112 13,870 25.00 17.50 86 16,376 33.75 18.25
4th 57 6,600 25.00 19.00 227 22,900 23.00
17.75
Average price per share - $20.31 $21.66
Annual cash dividend per share -.375 .30
Corporate Headquarters Independent Auditors
Shenandoah Telecommunications Company McGladrey & Pullen, LLP
124 South Main Street 1051 East Cary Street
Edinburg, VA 22824 Richmond, VA 23210
Stockholders' Questions and Stock Transfers - Call (703) 984-5260
Transfer Agent - Common Stock
Shenandoah Telecommunications Company
P. O. Box 459
Edinburg, VA 22824<PAGE>
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
1994 1993 1992 1991
1990
Operating Revenues $20,229,178 $18,329,886 $17,359,114
$15,180,205 $13,260,122
Operating Expenses 12,050,713 11,455,136 10,454,448 9,535,090
7,878,993
Income Taxes 2,577,641 2,481,764 2,189,663 1,792,022
3,507,302
Other Income less Other
Expenses (1) (90,897) (154,454) 188,210 307,259
144,177
Interest Expense 658,908 621,944 667,900 771,285
858,378
Gain (loss) on Security
Sales or Writedown - - (220,000) -
5,825,118
Consolidated Net Income $ 4,851,019 $ 4,602,619 $ 4,015,313 $ 3,389,067
$ 6,984,744
Consolidated Net Income from
Operations (2) $ 4,851,019 $ 4,156,300 $ 4,151,801 $ 3,389,067
$ 3,153,379
Total Assets $52,464,150 $49,652,064 $44,839,501 $42,206,407
$38,966,585
Long-Term Obligations $ 9,941,209 $ 9,381,813 $ 8,754,524 $ 9,033,561
$ 9,990,286
Stockholder Information
Number of Stockholders 2,979 2,879 2,683 2,519
2,347
Shares of Stock (3) 3,760,760 3,760,760 3,760,760 3,760,760
3,760,760
Earnings per Share (3) $ 1.29 $ 1.22 $ 1.07 $ .90 $
1.86
- Continuing
Operations (3) $ 1.29 $ 1.11 $ 1.10 $ .90 $
.84
Dividends per Share (3) $ .375 $ .30 $ .275 $ .25 $
.57
(1) Includes non-operating income less expenses and minority interest in net
income of
consolidated subsidiaries.
(2) Excludes gain on sale of fiber optic lease asset, write-off of portion of
investment in
Metrotel Services, Ltd., and share of loss of Virginia Metrotel in 1993;
write-down of AvData
in 1992; gain on sale of TeleCom*USA stock in 1990.
(3) The information has been restated to reflect a 4-for-1 stock split to
stockholders of
record December 1, 1990 and a 2-for-1 split to stockholders of record January 23,
1995.
<PAGE>
SUBSIDIARY COMPANY HIGHLIGHTS
Shenandoah Telephone Company
- Net income increases 9.7 percent on revenue increase of
5.2 percent.
- Conversion of billing, service order, and plant record
system completed in April 1994.
- Last of Seiscor analog carrier systems, first installed in
1975, removed from service.
ShenTel Service Company
- Net income increases 194 percent on revenue increase of
47.4 percent.
- Local access to the Internet offered as new service to
northern Shenandoah Valley area.
- Interactive Video System installed for Shenandoah County
School System.
- Awarded a contract to provide six VHF to UHF translators
for the county of Shenandoah.
- Installed large Mitel digital PBX with on-site Voice Mail
for Shenandoah Valley Press.
Shenandoah Mobile Company
- Virginia RSA 10 Partnership, managed by the Company,
records profit increase of 464.2 percent; Company's share
of earnings from its limited partnership interest in the
Virginia RSA 6 partnership is $57,873.
- Construction begun on new cell site for Berryville area,
in service date expected in first quarter 1995.
Shenandoah Cable Television Company
- General rate increase effective September 1, 1994; four
channels added to lineup.
- Maintenance expenses remain high with continuation of
"system sweep" mandated by FCC to verify system's
technical performance.
Shenandoah Network Company
- Fiber interconnection with MCI Communications fiber
network completed in West Virginia.
Shenandoah Valley Leasing Company
- Net income decreases due to large, one-time gain in 1993
for sale of fiber system.<PAGE>
LOCAL INTERNET SERVICE
On September 1, 1994, ShenTel Service Company became the first
provider in the northern Shenandoah Valley area to offer local
access to the Internet. The Company's offering was the result
of our desire to make the world-wide information community
locally accessible even though national on-line service
providers would not establish local service in our area.
ShenTel teamed with GlobalCom, an Internet service provider in
Falls Church, Virginia to offer dial-up and dedicated access in
Rockingham, Shenandoah, and Frederick counties. The service
has since been expanded to cover the areas of Page and Warren
counties, and the cities of Martinsburg, West Virginia and
Hagerstown, Maryland.
The Internet has its origins in the Department of Defense's
ARPAnet over 20 years ago and the National Science Foundation's
NFSNET of the 1980's. Today's Internet is a network of
networks which is comprised of the educational and research
computing centers of its past. It has expanded to include on-
line services, such as America Online, major corporate
networks, community bulletin boards, library card catalogs,
governmental services, and many, many others.
Using ShenTel's service, customers now have local access to the
broad range of services and applications which can use the
Internet. Those now available include electronic mail;
database access via Gopher; news or discussion groups; file
transfers via File Transfer Protocol (FTP); and World Wide Web
browsers, such as Mosaic, which combines text, sound, and
graphics. These capabilities put the world's information
resources in easy reach of our customers.
<PAGE>
INTERACTIVE VIDEO
The Shenandoah County School's Classroom Communication System
carried its first interactive classes at the start of the
school year on September 6, 1994. On the first day of classes
the Interactive Video System was used for a calculus class
taught by one teacher to students at the three different high
schools. A second class on economics was taught in the
afternoon by one teacher to students in two different
locations; and, a third class of 20th century history was
taught by one teacher to students at three different locations.
The Interactive Video System was provided by Shenandoah
Telephone Company and its affiliate, ShenTel Service Company.
The fiber optic based system simultaneously provides two-way,
interactive, full motion, color video between all three sites,
along with high-quality audio to and from each location.
The Shenandoah County School Board, with assistance from
Shenandoah Telephone Company, applied for and received a grant
from the Rural Electrification Administration for partial
funding for the classroom equipment needed for the Interactive
Video System. Shenandoah County received one of 28 grants
awarded nationwide out of over 200 applicants. In addition to
the grant, the ShenTel Foundation has made a commitment of
contributions to the Shenandoah County School System to assist
with the funding for the operating expenses during the first
three years.<PAGE>
COUNTY TRANSLATORS
The Shenandoah County Board of Supervisors voted on July 12,
1994, to accept ShenTel Service Company's proposal to provide
new TV translators at two sites within Shenandoah County. The
existing translators had been in service since the early 1960's
and were no longer performing at a technically acceptable
level. Three translators were replaced at Fetzer's Gap on
Little North Mountain and another three were replaced on the
Big Mountain site at New Market Gap. The installation of the
new translators provided county residents with dependable
performance for a sharp, clear signal of Washington Channels 4,
5, and 9.
Our leasing company provided financing over a ten-year period
for $137,200 of the $145,600 replacement cost of the translator
equipment.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Shenandoah Telecommunications Company is a diversified
telecommunications holding company providing both regulated and
unregulated telecommunications services through its seven
wholly-owned subsidiaries.
The regulated local exchange telephone company is the largest
subsidiary, accounting for over 60.0% of revenue and 82.0% of
net income. This industry is in a period of transition from a
regulated monopoly to a competitive environment with changing
technology. As a result, Shenandoah Telecommunications has
made and plans to continue to make significant investments in
new and emerging technologies.
Other significant services provided are cellular, cable
television, long distance, and facilities leased to
interexchange carriers on a Company owned fiber optic cable
network. The Company also sells and leases equipment, mainly
related to services provided.
The Company also participates in emerging technologies by
direct investment in non-affiliated companies.
RESULTS OF OPERATIONS
The Company's largest source of revenue continues to be for
access to the Company's local exchange network by interexchange
carriers. The volume for these access revenues is measured in
minutes of use. The minutes of use during 1994 increased 6.8%
compared to an increase of 7.1% in 1993. Changes in NECA
settlement procedures, effective July 1, 1994, partially offset
the increases in minutes of use.
The increase in the ShenTel Service revenues category for 1994,
compared to 1993, is due to an increase in retail equipment
sales. The increase equaled $405,311 for 1994 and $258,514 for
1993.
The increase in Mobile Company revenues was due to growth in
our cellular operation. Cellular service revenues increased
$495,088 or 33.7% in 1994, compared to $477,421 or 48.2% in
1993. Airtime minutes of use increased 37.0% in 1994, compared
to an increase of 44.9% in 1993. In 1994, customers were added
at a rate below that of last year. During 1994, net additions
of customers were 43.6% less than the additions for 1993. Net
additions for 1993 were .3% below those in 1992.
Financing lease revenues are chiefly for leases and rentals of
a few large telecommunications systems, small systems sold by
Company subsidiaries, and customer premise equipment. One
lease for fiber optic facilities between Charlottesville and
Richmond, which accounted for $143,683 of 1993 revenue, expired
at the end of 1993. The lessee exercised the fair market buy-
out provision, resulting in a one-time after tax gain of
$611,734 in 1993. The remaining lease revenues are derived
from smaller leases for equipment such as PBXs and home
satellite dishes sold through Company subsidiaries.
On September 1 the cable television company restructured its
rates by increasing its rates for basic and premium service and
decreasing or eliminating its charges for other services such
as rental of converters. As a result, total revenue for cable
television services for the final four months of 1994 increased
17.3% over the previous four months' total, and 26.0% over the
final four months of 1993. The Company estimates that our
cable rates are within the limits prescribed by the FCC for
cable systems of our size. None of the local governments
within the Company's cable television serving area have
indicated that they will exercise any authority they may have
to regulate rates.
The Company also leases capacity on fiber optic facilities in
West Virginia and Maryland to interexchange carriers. The
revenue for this activity appears as Network revenues on the
income statement. This service experienced a revenue decrease
of 9.5% in 1994. The decrease is due to contracts expiring and
being renewed at lower rates.
During 1994, revenues increased 10.4% and operating expenses
increased 5.2%. For the calendar year 1993, the Company's
expenses increased at a greater percentage than its revenues.
For 1993, operating expenses increased 9.6% and revenues
increased 5.6%.
One of the factors in this reversal is payroll costs. The
total payroll costs decreased 2.5% in 1994 compared to 1993.
Total payroll costs in 1993 increased 7.1% from the previous
year. The decreases are due to a decrease in full-time
equivalent employees for the past two years, which offset wage
and salary increases.
Another factor was that depreciation, still our largest expense
category, increased at a slower rate than the previous year.
Our additions to Property, Plant, and Equipment during 1994
were lower than in 1993, when a new computer system was
installed. In 1992 a major building renovation and
construction of a new building were completed.
The increase in Cellular revenues discussed above, compared
with the increase in the Cellular network costs is another
factor in the lower increase in expenses. Network costs, is
33.1% of service revenues during 1994 compared with 39.8% of
revenues during 1993. These expenses account for the increases
in the category Network and Other.
The increase in Taxes Other Than Income is primarily due to a
rate increase in the real estate tax for the local jurisdiction
in which a majority of our regulated Telephone plant is
located.
The Non-operating Income Less Expenses category consists mainly
of the income or loss from investments made by the Company.
The increase reflected on the income statement is $1,440,247 or
a 16.4% increase in the amount of temporary investments
compared to a year earlier and an increase in the rates of
returns from those investments. The losses recorded on
investments accounted for by the equity method, that are also
included in this category, decreased $52,072 or 33.3% from
1993.
The Company, along with other telecommunications providers,
founded an organization that built a fiber optic network in the
Richmond, Virginia metropolitan area. The fiber network
provided competitive access to businesses in the area. As a
result of a strategic change, it was agreed to sell this
business to Metropolitan Fiber Systems. The Company will
recognize a gain on the sale in January of 1995. The amount of
the gain was approximately $875,000. The Company recognized
losses of $221,477 in 1994 as our portion of the operations of
this organization.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to generate a strong cash flow from
operations that adequately meets the Company's need for cash.
Other available sources of liquidity are two $2,000,000
unsecured lines of credit with local banks. No advances were
made from these lines of credit in 1994. The Company has a
loan agreement with the Rural Telephone Bank (RTB) in the
amount of $9,240,000. Advances on this note may be taken until
February 1996. The Company received an advance of $937,650 in
December of this year. As of December 31, 1994, the Company
has received advances in the amount of $3,386,000. Expenditure
of these loan funds is limited to approved capital projects for
the regulated local exchange carrier.
The FCC is currently licensing new Personal Communication
Services (PCS). Management expects this to impact the
Company's cash flow as the Company will be participating in
this new business. This will require significant investment in
new plant and equipment. The Company has budgeted
approximately $6,000,000 for new plant in 1995. It is
estimated that up to 50.0% of this amount may be financed with
loans from external services.
Due to the competition coming from new sources, management is
unable to predict the potential impact on the Company's cash
flow.
The Company has no material contractual commitments for capital
expenditures, however, the Company's Board of Directors has
approved a construction budget of approximately $14,000,000.
This budget includes the expenditures for PCS discussed above.
The remaining amounts are primarily for telephone central
office equipment and fiber optic cable facilities. The Company
expects to finance these expenditures through internally
generated cash flows as well as additional advances from the
RTB note.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994<PAGE>
CONTENTS
INDEPENDENT AUDITOR'S REPORT
ON THE CONSOLIDATED FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Consolidated balance sheets 2 - 3
Consolidated statements of income 4 - 5
Consolidated statements of retained earnings 6
Consolidated statements of cash flows 7 - 8
Notes to consolidated financial statements 9 - 17
SUPPLEMENTARY INFORMATION
Consolidating balance sheets 18 - 19
Consolidating statements of income 20 - 21
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Shenandoah Telecommunications Company and Subsidiaries
Edinburg, Virginia
We have audited the accompanying consolidated balance sheet of
Shenandoah Telecommunications Company and subsidiaries as of
December 31, 1994, and the related consolidated statements of
income, retained earnings, and cash flows for the year then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The
consolidated financial statements of Shenandoah
Telecommunications Company and subsidiaries for the years ended
December 31, 1993 and December 31, 1992 were audited by other
auditors whose report, dated January 21, 1994, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Shenandoah Telecommunications Company and
subsidiaries as of December 31, 1994, and the results of its
operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
As disclosed in Note 1 to the consolidated financial statements,
in 1994 the Company changed its method of accounting for certain
investments in debt and equity securities to conform with
Statement of Financial Accounting Standards No. 115.
MCGLADREY & PULLEN, LLP
Richmond, Virginia
January 24, 1995
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and the Stockholders of Shenandoah
Telecommunications Company
We have audited the accompanying consolidated balance sheets of
Shenandoah Telecommunications Company and subsidiaries, as of
December 31, 1993 and 1992, and the related consolidated statements
of income, retained earnings, and cash flows for the years then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Shenandoah Telecommunications Company and subsidiaries as of
December 31, 1993 and 1992, and the results of their operations and
their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Our audits also included the related financial statement schedules of
Shenandoah Telecommunications Company listed in Item 14. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set
forth therein.
S.B. HOOVER & COMPANY, LLP
Harrisonburg, VA 22801
January 21, 1994
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994, 1993 and 1992
ASSETS 1994 1993 1992
Current Assets
Cash and cash equivalents $ 6,270,849 $ 5,695,891 $ 2,528,610
Certificates of deposit 930,911 106,375 106,375
Short-term investments
(Note 2) - 3,577,906 2,819,231
Investments held to maturity
(Note 2) 3,254,460 - -
Accounts receivable 2,880,428 2,284,197 2,232,964
Direct financing leases
(Note 5) 81,140 63,243 284,664
Materials and supplies 1,511,006 1,545,082 1,582,351
Prepaid and other current
assets 236,191 356,678 457,154
Total current assets 15,164,985 13,629,372 10,011,349
Investments and Other Assets
Other securities and
investments (Note 2) 4,615,689 4,463,221 3,193,905
Investments held to maturity
(Note 2) 499,687 - -
Direct financing leases
(Note 5) 287,584 55,620 981,689
5,402,960 4,518,841 4,175,594
Property, Plant and Equipment (Note 4)
Plant in service 49,102,832 47,290,763 44,439,943
Plant under construction 248,717 476,378 1,634,016
49,351,549 47,767,141 46,073,959
Less accumulated
depreciation 17,455,344 16,263,290 15,421,401
31,896,205 31,503,851 30,652,558
$52,464,150 $49,652,064 $44,839,501
See Notes to Consolidated Financial Statements.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994, 1993 and 1992
LIABILITIES AND STOCKHOLDERS'
EQUITY 1994 1993 1992
Current Liabilities
Notes payable, bank
(Note 4 ) $ - $ 875,000 $ -
Current maturities of
long-term debt (Note 4) 423,329 329,891 254,302
Accounts payable 307,691 537,884 508,511
Advance billings and payments 526,105 550,413 522,076
Customers' deposits 137,793 147,952 136,412
Other current liabilities 910,968 907,867 944,205
Income taxes payable 26,618 462,325 285,336
Other taxes payable 53,739 43,294 58,731
Total current liabilities $ 2,386,243 $ 3,854.626 $ 2,709,573
Long-Term Debt, less current
maturities (Note 4) 9,517,880 9,051,922 8,500,222
Other Liabilities and
Deferred Credits
Deferred investment tax
credit 442,844 518,545 594,246
Deferred income taxes
(Note 6) 3,535,014 3,512,637 3,955,296
Pension and other
(Note 3) 745,935 542,151 451,909
4,723,793 4,573,333 5,001,451
Minority Interests 1,219,493 996,176 26,639
Stockholders' Equity
(Notes 4 and 7)
Common stock, no par value,
authorized 8,000,000 shares;
issued 3,760,760 shares 4,740,677 4,740,677 4,740,677
Retained earnings 29,876,064 26,435,330 22,960,939
34,616,741 31,176,007 27,701,616
$ 52,464,150 $49,652,064 $44,839,501
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
Operating Revenues
Telephone revenues:
Local service $ 2,868,656 $ 2,665,975 $ 2,513,412
Access service 6,447,067 6,396,425 6,115,025
Toll service 8,886 11,154 29,730
Miscellaneous:
Directory 1,024,740 993,053 905,078
Facility leases 1,291,390 994,344 1,299,192
Billing and collection 447,008 440,836 595,362
Other miscellaneous 121,538 101,590 121,709
Total telephone revenues 12,209,285 11,603,377 11,579,508
Cable Television revenues 741,491 686,951 663,521
ShenTel Service revenues 1,555,848 1,150,537 892,023
Leasing revenues 19,796 162,577 217,109
Shenandoah Long Distance
revenues 1,148,705 1,170,713 1,169,863
Mobile revenues 4,206,736 3,172,041 2,506,673
Network revenues 347,317 383,690 330,417
Total operating revenues 20,229,178 18,329,886 17,359,114
Operating Expenses:
Cost of products sold 802,904 579,015 601,432
Line costs 543,887 523,212 569,074
Plant specific 1,742,824 1,726,444 1,630,722
Plant nonspecific:
Network and other 1,649,329 1,571,935 1,204,492
Depreciation 2,730,938 2,536,920 2,264,141
Customer operations 2,206,931 2,264,622 2,155,238
Corporate operations 1,903,653 1,847,065 1,662,206
Other operating expense 154,241 135,955 123,491
Taxes other than income 316.306 269,968 243,652
12,050,713 11,455,136 10,454,448
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1994, 1993 and 1992
Operating income $ 8,178,465 $ 6,874,750 $ 6,904,666
Other income (expenses):
Nonoperating income
less expenses 302,420 (84,918) 161,962
Interest expense (658,908) (621,944) (667,900)
Gain on sale of equipment - 986,031 -
Provision for writedown
of investment - (220,000) -
7,821,977 7,153,919 6,178,728
Income taxes (Note 6) 2,577,641 2,481,764 2,189,663
5,244,336 4,672,155 3,989,065
Minority interests (393,317) (69,536) 26,248
Net income $ 4,851,019 $ 4,602,619 $ 4,015,313
Net income per share $ 1.29 $ 1.22 $ 1.07
Cash dividends per
share (Note 4) $ 0.375 $ 0.300 $ 0.275
Weighted average shares
outstanding 3,760,760 3,760,760 3,760,760
See Notes to Consolidated Financial Statements.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
Retained Earnings
Balance, January 1 $26,435,330 $22,960,939 $19,979,835
Net income 4,851,019 4,602,619 4,015,313
31,286,349 27,563,558 23,995,148
Cash dividends 1,410,285 1,128,228 1,034,209
Balance, December 31 $29,876,064 $26,435,330 $22,960,939
See Notes to Consolidated Financial Statements.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
Cash Flows from Operating
Activities
Net income $ 4,851,019 $ 4,602,619 $ 4,015,313
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 2,730,938 2,536,920 2,264,141
Deferred taxes (53,324) (518,360) (30,319)
Gain on sale of equipment - (986,031) -
Investment losses 104,170 276,205 277,413
Minority share of
income (loss) 223,317 69,537 (26,248)
Other 224,378 253,857 50,205
Changes in assets and
liabilities:
(Increase) decrease in:
Accounts receivable (221,231) (154,233) (99,247)
Material and supplies 34,076 37,269 307,937
(Decrease) increase in:
Accounts payable (209,571) 172,802 65,216
Income taxes payable (435,707) 176,989 52,022
Other prepaid deferrals
and accruals 305,220 166,554 377,468
Net cash provided by
operating activities 7,553,285 6,634,128 7,253,901
Cash Flows From Investing
Activities
Purchases of property
and equipment (3,356,079) (3,762,267) (7,186,654)
Investment in direct
financing leases (332,213) (74,733) (25,534)
Payments received on direct
financing leases 82,352 315,323 1,345,254
Sale of lease residual - 1,892,931 -
Sale of investment
securities 1,482,165 782,897 902,507
Purchase ofinvestment
securities (2,812,348) (2,948,610) (1,864,051)
Payments received on loans - - 492,777
Cash distributions received
from partnership 103,340 - -
Issue note receivable (375,000) - -
Net cash (used in)
investing activities (5,207,783) (3,794,459) (6,335,701)<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
Cash Flows from Financing
Activities
Dividends paid $(1,410,285) $(1,128,228) $(1,034,209)
Proceeds from notes payable 875,000 -
Payment on notes payable (875,000) - -
Proceeds from long-term debt 893,000 929,000 1,519,350
Principal payments on
long-term debt (378,259) (348,160) (1,798,387)
Investment by minority
interest - - 190,399
Net cash provided by
(used in)
financing activities (1,770,544) 327,612 (1,122,847)
Net increase (decrease)
in cash 574,958 3,167,281 (204,647)
Cash and cash equivalents:
Beginning 5,695,891 2,528,610 2,733,257
Ending $ 6,270,849 $ 5,695,891 $ 2,528,610
Supplemental Disclosures of
Cash Flow Information
Cash payments for:
Interest $ 661,029 $ 623,715 $ 670,933
Income taxes 3,013,201 2,820,772 2,166,791
Supplemental Schedule of
Noncash Investing and
Financing Activities
Notes receivable exchanged
for investment in stock - 103,000 102,589
Proceeds of long-term
debt for stock in
Rural Telephone Bank 44,655 46,450 -
See Notes to Consolidated Financial Statements.<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Accounting Policies
The Company operates entirely in the telecommunications
industry. Significant accounting policies follow:
Principles of consolidation: The consolidated financial
statements include the accounts of the Company, its wholly owned
subsidiaries and those partnerships where the Company, as
managing partner, exercises control. All significant
intercompany accounts and transactions have been eliminated.
Cash and cash equivalents: The Company considers all temporary
cash investments with a purchased maturity of three months or
less to be cash equivalents. The Company places its temporary
cash investments with high credit quality financial
institutions. At times such investments may be in excess of the
FDIC insurance limit.
Materials and supplies: New and reusable materials are carried
in inventory principally at average original cost. Specific
costs are used in the case of large individual items.
Nonreusable material is carried at estimated salvage value.
Securities and investments and accounting change: The Company
has investments in debt and equity securities and partnerships.
Debt securities consist primarily of obligations of the U.S.
government. Equity securities consist primarily of common and
preferred stock of companies which are not publicly traded and
have no ready market.
The Company adopted the provisions of FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity
Securities, as of January 1, 1994. Statement 115 requires that
management determine the appropriate classification of debt and
equity securities that have readily determinable fair values.
Classification is determined at the date of adoption, and
thereafter at the date individual investment securities are
acquired. The appropriateness of such classification is
reassessed at each balance sheet date. For the Company,
Statement 115 is applicable to its debt securities which are
classified as Held to Maturity. Since the Company neither buys
investment securities in anticipation of short-term fluctuations
in market prices nor has investments for which there is a ready
market, no investments are classified as trading or
available-for-sale.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Accounting Policies (Continued)
Prior to the adoption of Statement 115, the Company stated its
debt securities at the lower of amortized cost or fair value.
Under both the newly adopted accounting standard and the
Company's former accounting practices, premiums and discounts on
investments in debt securities are amortized over their
contractual lives. The method of amortization results in a
constant yield on those securities (the interest method).
Interest on debt securities is recognized in income as accrued.
Realized gains and losses, including losses from declines in
value of specific securities determined by management to be
other-than-temporary, are included in income. Realized gains
and losses are determined on the basis of specific securities
sold.
Held to maturity securities: These consist entirely of debt
securities which are obligations of the U.S. government. The
Company has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or
changes in general economic conditions.
Investments carried at cost: These investments are those where
the Company does not have significant ownership and for which
there is no ready market. Information regarding these and all
other investments is reviewed continuously for evidence for
impairment in value. No impairment was deemed to have occurred
at December 31, 1994.
Equity method investments: These investments consist of
partnership and corporate investments where the Company's
ownership is 20% or more, except where such investments meet the
requirements for consolidation. Under the equity method, the
Company's equity in earnings or losses of these companies is
reflected in the earnings.
Property and equipment: Property and equipment is stated at
cost. Accumulated depreciation is charged with the cost of
property retired, plus removal cost, less salvage. Depreciation
is determined under the remaining life method and straight-line
composite rates. Depreciation provisions were approximately
5.7%, 5.6%, and 5.3% of average depreciable assets for the years
1994, 1993 and 1992, respectively.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Accounting Policies (Continued)
Pension plan: The Company maintains a non-contributory defined
benefit retirement plan covering substantially all employees.
Pension benefits are based primarily on the employee's
compensation and years of service. The Company's policy is to
fund the maximum allowable contribution calculated under federal
income tax regulations.
Income taxes: Deferred taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible
temporary differences and deferred tax liabilities are
recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of
assets and liabilities and their tax bases. Deferred tax assets
and liabilities are adjusted for the effect of changes in tax
laws and rates on the date of enactment. Investment tax credits
have been deferred and are amortized over the estimated life of
the related assets.
Revenue recognition: Local, access, toll and cellular revenues
are recognized when earned regardless of the period in which
they are billed. The Telephone Subsidiary participates in the
telephone revenue pooling and settlements process of the
National Exchange Carriers Association. The Company has
settled all toll and access charge revenue agreements through
December 31, 1992.
Earnings per common share: Earnings per common share is
computed by dividing net income by the weighted average number
of common shares outstanding. All per share amounts have been
restated to give effect to stock splits (see Note 7).<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Securities and Investments and Accounting Change
As of January 1, 1994, the Company changed its method of
accounting for debt and equity securities in accordance with
FASB Statement No. 115. As provided by this statement, the 1993
and 1992 comparative financial statements have not been restated
for the change in accounting principle.
HELD TO MATURITY 1994 1993 1992
U. S. Treasuries,
current $3,254,460 $ - $ -
U. S. Treasuries,
non-current 499,687
$3,754,147 $ - $ -
The fair market value approximates the carrying value for all
held to maturity investments at December 31, 1994. At December
31, 1993 and 1992, investments in debt securities were
classified on the accompanying balance sheets as short-term
investments and were recorded at amortized cost, which
approximated market value.
Other securities and investments consist of the following:
COST METHOD 1994 1993 1992
Orion Network Systems, Inc. $1,552,592 $1,352,592 $1,302,589
Independent Telecommunications
Network, Inc. 773,600 773,600 427,925
AvData Systems, Inc. 149,860 149,860 149,860
Rural Telephone Bank 519,097 474,442 427,992
Other 368,081 252,550 345,774
$3,363,230 $3,003,044 $2,654,140
EQUITY METHOD
Virginia MetroTel 633,627 855,104 251,072
Virginia Independent
Telephone Alliance 234,888 269,266 -
Rural Service Area - 6 368,554 329,207 196,385
Other 15,390 6,600 92,308
1,252,459 1,460,177 539,765
TOTAL OTHER SECURITIES AND
INVESTMENTS $4,615,689 $4,463,221 $3,193,905
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Securities and Investments and Accounting Change
(Continued)
Orion Network Systems, Inc. and Independent Telecommunications
Network, Inc. are development stage companies and the
profitability of the companies is yet to be proven. Management
believes that each company will be successful in its respective
future operations and, accordingly, in spite of significant
development stage losses, management does not believe the losses
represent a permanent impairment of the investment. Subsequent
to December 31, 1994, Virginia MetroTel was sold in exchange for
stock of the acquiring company, which is publicly traded on a
national exchange, and approximately $62,000. A gain of
approximately $875,000 resulted from the sale.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Pension Plan
The Company maintains a non-contributory defined benefit pension
plan. The following table presents the plan's funded status and
amounts recognized in the Company's consolidated balance sheets.
1994 1993 1992
Actuarial present value of
benefit obligations:
Vested $2,263,951 $2,091,910 $1,995,561
Nonvested 62,286 63,968 23,295
Accumulated benefit
obligations $2,326,237 $2,155,878 $2,018,856
Projected benefit obligation
for service rendered
to date $3,800,239 $3,573,241 $3,370,344
Plan assets at fair value,
ommon stocks and bonds 3,676,436 3,839,827 3,492,711
Plan assets in excess
(deficient) of projected
benefit obligation (123,803) 266,586 122,367
Unrecognized prior
service cost 299,218 319,923 255,883
Unrecognized transition asset
at January 1, 1987, being
recognized over 17 years (267,978) (296,722) (325,466)
Unrecognized net gain (276,453) (553,163 (217,668)
Net pension liability $ (369,016) $ (263,376) $ (164,884)
Net pension cost included
the following components:
Service costs
(benefits earned) $ 143,072 $ 123,592 $ 133,650
Interest cost on projected
benefit obligation 263,693 246,235 226,792
Actual return (loss) on
plan assets 46,130 (455,124) (156,948)
Net amortization and
deferral (347,255) 183,789 (117,384)
Net periodic pension cost $ 105,640 $ 98,492 $ 86,110
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Pension Plan (Continued)
Assumptions used by the Company in the determination of pension
plan information consisted of the following at December 31,
1994, 1993 and 1992:
1994 1993 1992
Discount rate 7.50% 7.50% 7.50%
Rate of increase in
compensation levels 5.50% 5.50% 7.50%
Expected long-term rate
of return on plan assets 7.50% 7.50% 7.50%
Note 4. Long-Term Debt and Lines of Credit
Long-term debt is comprised of notes payable to the Rural
Electrification Administration (REA), and the Rural Telephone
Bank (RTB) which are secured by assets, with a book value of
approximately $33,863,000, of the telephone subsidiary, and
Industrial Development Bonds (IDB) which bear interest at a
floating rate based upon the bank's prime rate. The IDB carries
the guarantee of the Company.
On February 1, 1991, the telephone subsidiary entered into a
loan agreement with the RTB to borrow up to $9,240,000. Funds
are drawn as necessary to finance the telephone subsidiary's
qualified capital construction projects.
Interest
Rate Due 1994 1993 1992
REA 2% - 5% 1995-2003 $ 819,945 $ 924,289 $1,036,812
RTB 6.04% - 8% 1995-2019 9,004,549 8,300,813 7,521,005
IDB 77.7% of 1995-1997 116,715 156,711 196,707
prime
$9,941,209 $9,381,813 $8,754,524
Current maturities 423,329 329,891 254,302
Total long-term debt $9,517,880 $9,051,922 $8,500,222
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Long-Term Debt (Continued)
The approximate annual debt maturities for the five years
subsequent to December 31, 1994 are as follows:
Year Amount
1995 $ 423,329
1996 437,313
1997 458,819
1998 447,184
1999 469,121
Thereafter 7,795,443
$ 9,941,209
The long-term debt agreements contain restrictions on the
payment of dividends or redemption of capital stock by the
Company's subsidiaries. The terms of the mortgage agreement
require the maintenance of defined amounts of the subsidiary's
equity and working capital after payment of dividends.
Accordingly, approximately $15,638,000 of retained earnings was
available for payment of dividends at December 31, 1994.
As of December 31, 1994, the Company had no borrowings
outstanding on other approved lines of credit for $4,000,000
Note 5. Direct Financing Leases
The Company is the lessor of various telecommunication equipment
under direct financing leases. The typical lease agreement is
for a period of 2 to 10 years. The payments below are net of
unearned interest income as of December 31, 1994.
Future Minimum Lease Payments Amount
1995 $ 81,140
1996 70,288
1997 66,701
1998 78,011
1999 18,970
Thereafter 53,614
Aggregate lease payments receivable $ 368,724
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Direct Financing Leases (Continued)
Investments in direct financing leases consist of the following:
December 31,
1994 1993 1992
Leases receivable $596,407 $137,440 $ 529,302
Estimated residual value - - 906,900
Unearned finance income (227,683) (18,577) (169,849)
$368,724 $118,863 $1,266,353
Note 6. Income Taxes and Accounting Change
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes, which requires the liability method of accounting
for deferred income taxes and the recognition of net deferred
tax assets subject to an ongoing assessment of realizability.
The principal difference between the liability method and the
method previously used is that under the liability method
deferred tax assets and liabilities are adjusted to reflect
changes in statutory tax rates, as income adjustments, in the
period changes are enacted. At January 1, 1993, the adjustment
of deferred tax assets and liabilities resulting from the
cumulative effect of the change in accounting principle was not
material to the results of operations.
The Company and its subsidiaries file consolidated tax returns.
The provision for income taxes included in the consolidated
statements of income consists of the following components:
Years Ended December 31,
1994 1993 1992
Current:
Federal $2,402,840 $2,642,516 $1,994,258
State 228,125 356,353 224,556
Total 2,630,965 2,998,869 2,218,814
Deferred:
Federal (72,622) (452,481) (31,276)
State 19,298 (64,624) 2,125
Total (53,324) (517,105) (29,151)
Provision for income taxes $2,577,641 $2,481,764 $2,189,663
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Income Taxes and Accounting Change (Continued)
A reconciliation of income taxes determined using the statutory
federal income tax rate of 34% to actual income taxes provided
is as follows:
Years Ended December 31,
1994 1993 1992
Federal income tax expense
at statutory rates $2,525,744 $2,408,690 $2,109,692
State income taxes net of
federal tax benefit 163,299 190,515 148,953
Amortization of investment
tax credit (75,701) (75,701) (75,701)
Other (35,701) (41,740) 6,719
Provision for income taxes $2,577,641 $2,481,764 $2,189,663
Net deferred tax liabilities consist of the following at
December 31, 1994 and 1993:
1994 1993
Deferred tax liabilities:
Accelerated depreciation $4,019,391 $3,877,476
Deferred tax assets:
Accrued compensation costs 76,413 86,815
Accrued pension costs 139,432 92,396
Equity investments 268,532 184,460
Other - 1,168
484,377 364.839
Net deferred tax liabilities $3,535,014 $3,512,637
Note 7. Stock Split
On January 9, 1995, the Company's Board of Directors authorized
an increase in the number of authorized shares from 4,000,000 to
8,000,000 at no par value and declared a two-for-one stock split
to stockholders of record as of January 23, 1995. All share
data has been adjusted to reflect the stock split.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Reclassification
During the year ended December 31, 1994, the Company changed its
method of presenting the statement of cash flows for operating
activities from the direct method (which showed principal
components of operating cash receipts and payments) to the
indirect method (which adjusts net income to remove the effects
of noncash operating transactions). This change has been
applied retroactively to the 1993 and 1992 statements. Certain
other amounts on the 1993 and 1992 financial statements have
been reclassified, with no effect on net income, to conform with
the classifications adopted in 1994.<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use of our report, dated January 21,
1994, relating to the Consolidated Financial Statements and Schedules
of Shenandoah Telecommunications Company for 1993 and 1992, which is
included in the Company's 1994 Form 10-K.
S. B. HOOVER & COMPANY, LLP
Harrisonburg, VA 22801
March 29, 1995
</TABLE>
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<PERIOD-END> DEC-31-1994 DEC-31-1993 DEC-31-1992
<CASH> 6270849 5695891 2528610
<SECURITIES> 6600 6600 6600
<RECEIVABLES> 2880428 2284197 2232964
<ALLOWANCES> 0 0 0
<INVENTORY> 1511006 1545082 1852351
<CURRENT-ASSETS> 15164985 13629372 10011349
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