SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998
Commission File Number 0-9881
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Virginia 54-1162806
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) Number)
P.O. Box 459, Edinburg, Virginia 22824
(Address of principal executive office and zip code)
Registrant's telephone number,
including area code: (540) 984-4141
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the close of the period covered by
this report.
Class Outstanding at August 1, 1998
Common Stock, No Par Value 3,755,760 Shares
PAGE
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
Consolidated Balance Sheets
June 30, 1998 and December 31, 1997 1 - 2
Consolidated Statements of Income
Three and Six Months Ended
June 30, 1998 and 1997 3 - 4
Consolidated Statements of Cash Flow
Six Months Ended
June 30, 1998 and 1997 5 - 6
Notes To Consolidated Financial
Statements 7
Item II. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters To a Vote
of Security Holders 15
Item 6. Exhibits and Reports On Form 8-K 16
Signatures 17
PAGE
<PAGE>
<TABLE> SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<CAPTION> ASSETS (UNAUDITED)
<S> June 30, 1998 December 31, 1997
CURRENT ASSETS <C> <C>
Cash & Cash Equivalents $6,386,983 $5,203,521
Certificates of Deposit 100,000 204,122
Investments Held to Maturity Securities 523,435 1,622,433
Accounts Receivable 6,747,303 5,682,798
Materials 3,846,286 3,968,791
Prepaid and Other Current Assets 331,783 507,165
TOTAL CURRENT ASSETS $17,935,790 $17,188,830
NON-CURRENT ASSETS
Investment in available for sale Securities $ 4,312,663 $3,597,997
Investment in held-to-maturity securities 499,581 499,581
Other investments 5,562,745 4,721,517
TOTAL NON-CURRENT ASSETS $10,374,989 $8,819,095
PROPERTY, PLANT AND EQUIPMENT
Plant in Service $79,245,406 $74,144,956
Plant Under Construction 9,713,489 8,232,517
Less Accumulated Depreciation 27,465,077 25,313,297
NET PROPERTY, PLANT AND EQUIPMENT $61,493,818 $57,064,176
OTHER ASSETS
Cost in Excess of net assets of Business
less Accumulated Amortization $ 4,969,316 $ 5,157,078
Deferred Charges and Other Assets 526,710 476,687
Radio Spectrum License net of
Accumulated Amortization 677,590 702,036
$ 6,173,616 $ 6,335,801
TOTAL ASSETS $95,978,213 $89,407,902
See accompanying notes to consolidated financial statements.PAGE
<PAGE>
</TABLE>
<TABLE> SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<CAPTION> LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
<S> June 30, 1998 December 31, 1997
CURRENT LIABILITIES <C> <C>
Current Maturities of Long-Term Debt $ 502,345 $ 544,954
Accounts Payable 3,654,312 3,743,701
Advance Billings and Payments 427,080 631,815
Customers' Deposits 110,897 98,905
Other Current Liabilities 2,039,758 1,926,769
Income Taxes Payable 553,866 0
Other Taxes Payable 327,239 153,678
TOTAL CURRENT LIABILITIES $ 7,615,497 $ 7,099,822
LONG TERM DEBT, LESS CURRENT MATURITIES 28,895,714 26,815,706
OTHER LIABILITIES AND DEFERRED CREDITS
Deferred Investment Tax Credit $180,702 $216,256
Deferred Income Taxes 6,258,487 5,987,860
Pension and Other 1,098,751 883,568
7,537,940 7,087,684
MINORITY INTERESTS $ 2,136,211 $ 1,894,206
STOCKHOLDERS' EQUITY
Common Stock $4,734,377 $4,740,677
Retained Earnings 43,438,931 40,579,090
Unrealized Gain on available-for-sale securities 1,619,543 1,190,717
49,792,851 46,510,484
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $95,978,213 $89,407,902
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
</TABLE>
<TABLE> SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
<CAPTION> CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Six months ended
June 30 June 30
------------------------- ---------------------------
<S> 1998 1997 1998 1997
OPERATING REVENUES <C> <C> <C> <C>
Telephone Revenues
Local Service $929,325 $882,918 $1,851,355 $1,741,940
Access 2,022,831 1,748,830 3,947,151 3,488,512
Toll 17,708 7,339 30,341 13,474
Miscellaneous:
Directory 307,660 292,143 601,147 565,173
Facility Leases 494,319 509,664 996,934 986,370
Billing & Collection 137,710 108,386 256,134 213,422
Other Miscellaneous 39,817 7,941 81,224 56,327
Total Telephone Revenues 3,949,370 3,557,221 7,764,286 7,065,218
Cable Television Revenues 784,233 626,029 1,500,901 1,241,150
ShenTel Service Revenues 573,601 526,571 1,099,968 1,000,521
Leasing Revenues 4,303 3,775 8,888 7,397
Mobile Revenues 2,426,328 2,163,234 4,483,371 3,953,557
PCS Revenues 910,948 452,329 1,577,684 707,872
Long Distance Revenues 216,162 234,254 434,995 476,232
Network Revenues 153,733 153,733 307,467 307,467
Total Revenues and Sales 9,018,678 7,717,146 17,177,560 14,759,414
OPERATING EXPENSES
Cost of Products and Services Sold 340,969 470,167 706,227 867,375
Line Costs 108,988 97,786 209,367 193,147
Plant Specific 609,624 671,468 1,309,146 1,293,855
Plant Non-Specific:
Network & Other 1,443,094 1,069,671 2,683,724 1,999,666
Depreciation 1,312,564 1,151,328 2,594,095 2,261,817
<PAGE>
</TABLE>
<TABLE> SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
<CAPTION> CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Six months ended
June 30 June 30
------------------------- ---------------------------
<S> 1998 1997 1998 1997
OPERATING EXPENSES (Continued) <C> <C> <C> <C>
Customer Operations $1,213,359 $1,035,295 $2,412,045 $2,030,962
Corporate Operations 649,256 619,734 1,339,532 1,289,355
Other Operating Income & Expense 210,082 149,013 428,801 343,927
Taxes other than income 134,172 110,523 267,682 208,700
Total Operating Expenses 6,022,108 5,374,985 11,950,619 10,488,804
Operating income 2,996,570 2,342,161 5,226,941 4,270,610
Non-operating income less expenses 413,381 255,417 622,768 484,829
Interest expense 418,422 387,719 731,266 744,168
Income before income taxes 2,991,529 2,209,859 5,118,443 4,011,271
Provision for income taxes 997,104 697,893 1,680,046 1,273,714
Net income before minority interest 1,994,425 1,511,966 3,438,397 2,737,557
Minority interest (326,397) (296,552) (582,006) (507,608)
Net Income $1,668,028 $1,215,414 $2,856,391 $2,229,949
Weighted Average Common
Shares Outstanding 3,755,760 3,760,760 3,757,031 3,760,760
Earnings per Share, basic $0.44 $0.32 $0.76 $0.59
and diluted
See accompanying notes to consolidated financial statements.
<PAGE>
</TABLE>
<TABLE> SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
SIX MONTHS ENDED JUNE 30
1998 1997
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income $2,856,391 $2,229,948
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and Amortization $2,594,095 $2,261,815
Deferred taxes 270,627 443,799
Gain on Sale of Equity investment 0 0
Investment (Gains)/Losses (741,692) (203,582)
Minority Share of Income 242,005 252,607
Other 57,809 99,990
Decrease (increase) in
Accounts receivable (1,064,505) (617,837)
Materials 122,505 (116,886)
Increase (decrease) in
Accounts Payable (89,389) (712,460)
Income taxes payable 553,866 54,466
Deferrals and accruals 424,638 316,941
Net cash provided by
operating activities $5,226,350 $4,008,801
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I, FINANCIAL INFORMATION
ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
SIX MONTHS ENDED JUNE 30
1998 1997
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property, Plant
and Equipment ($6,895,181) ($4,096,812)
Purchase of Investment Securities (623,457) 0
Purchase of Certificates of Deposit 104,122 609,869
Maturities of Certificates of Deposit 1,098,998 0
Cash flows from Securities 335,231 (134,202)
Net cash used in
investing activities ($5,980,287) ($3,621,145)
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from long term debt $2,166,556 $1,100,000
Stock Redemption (100,000) 0
Principal payments on
long term debt (129,157) (272,021)
Net cash provided by
financing activities 1,937,399 827,979
NET INCREASE IN CASH $1,183,462 $1,215,635
CASH AND CASH EQUIVALENTS:
Beginning 5,203,521 3,763,468
Ending $ 6,386,983 $ 4,979,103
See accompanying notes to consolidated financial statements.<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying consolidated financial statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly Shenandoah Telecommunications
Company's financial position as of June 30, 1998 and the results of operations and cash flows for the six
month periods ended June 30, 1998 and 1997.
While the Company believes that the disclosures presented are adequate, to make the information not
misleading, it is suggested that these financial statements be read in conjunction with the financial
statements and notes included in the Company's annual report in Form 10-K.
2. The results of operations for the six-month period ended June 30, 1998 and 1997 are not necessarily indicative
of the results to be expected for the full year.
3. The earnings per common share were computed on the weighted average number of shares outstanding. The Company
has stock options outstanding, which are not dilutive, therefore basic
and diluted earnings per share are the same.
4. Comprehensive income includes net income along with losses on the Company's available-for-sale investments.
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
Net Income $1,668,028 $1,215,414 $2,856,391 $2,229,949
Net Unrealized Gains and Losses 33,825 167,423) 428,826 (395,877)
---------- ---------- ---------- ----------
Comprehensive Income $1,701,853 $1,382,837 $3,285,217 $1,834,072
5. In April the Board approved renewing a $2 million line of credit with First Union Bank, and in July 1998 the
Board approved renewing a $5 million line of credit with CoBank. The First Union line of credit matures in
May 1999, with a variable rate of Libor + 1.25%. Interest due is payable monthly with any unpaid principal
balance due at maturity. The CoBank line of credit matures in August 1999. There are three interest rate
options, a weekly variable rate quoted by CoBank, a fixed rate quoted by CoBank for such periods as may
be agreeable to CoBank, or Libor + 1.25%. Interest due is payable monthly with any unpaid principal balance
due at maturity. No draws have been made on these lines of credit as of July 31, 1998.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summary
The following tables set forth, for the periods indicated, the percentages which
certain items reflected in the financial data bear to total operating revenues and
the percentage increase of such items as compared to the indicated prior period:
<CAPTION> RELATIONSHIP TO PERIOD TO PERIOD
TOTAL OPERATING REVENUES INCREASE OR DECREASE
Three months Six months Three months Six months
ended June 30 ended June 30 ended June 30 ended June 30
<S> 1998 1997 1998 1997 1998-97 1997-96 1998-97 1997-96
OPERATING REVENUES
Telephone Revenues <C> <C> <C> <C> <C> <C> <C> <C>
Local Service 10.3% 11.4% 10.8% 11.8% 5.3% 8.8% 6.3% 8.7%
Access 22.4% 22.7% 23.0% 23.6% 15.7% 3.1% 13.2% 0.5%
Toll 0.2% 0.1% 0.2% 0.1% 141.3% 66.3% 125.2% 53.7%
Miscellaneous:
Directory 3.4% 3.8% 3.5% 3.8% 5.3% -1.4% 6.4% -2.6%
Facility Leases 5.5% 6.6% 5.8% 6.7% -3.0% 12.8% 1.1% 11.4%
Billing & Collection 1.5% 1.4% 1.5% 1.5% 27.1% -0.5% 20.0% -4.3%
Other Miscellaneous 0.4% 0.1% 0.5% 0.4% 401.4% -65.6% 44.2% 7.9%
Total Telephone Revenues 43.8% 46.1% 45.2% 47.9% 11.0% 4.9% 9.9% 3.6%
Cable Television Revenues 8.7% 8.1% 8.7% 8.4% 25.3% 182.2% 20.9% 180.8%
ShenTel Service Revenues 6.4% 6.8% 6.4% 6.8% 8.9% 38.3% 9.9% 29.2%
Leasing Revenues 0.1% 0.1% 0.1% 0.1% 14.0% -26.9% 20.2% -24.3%
Mobile Revenues 26.9% 28.0% 26.1% 26.8% 12.2% 31.1% 13.4% 31.6%
PCS Revenues 10.1% 5.9% 9.2% 4.8% 101.4% N/A 122.9% N/A
Long Distance Revenues 2.4% 3.0% 2.5% 3.2% -7.7% -6.1% -8.7% -10.8%
Network Revenues 1.7% 2.0% 1.8% 2.1% 0.0% 24.1% 0.0% 24.1%
----- ----- ----- ----- ----- ----- ----- -----
Total Revenues and Sales 100.0% 100.0% 100.0% 100.0% 16.9% 27.6% 16.4% 24.3%
PAGE
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<CAPTION> RELATIONSHIP TO PERIOD TO PERIOD
TOTAL OPERATING REVENUES INCREASE OR DECREASE
Three months Six months Three months Six months
ended June 30 ended June 30 ended June 30 ended June 30
1998 1997 1998 1997 1998-97 1997-96 1998-97 1997-96
<S>
OPERATING EXPENSES
Cost of Products and <C> <C> <C> <C> <C> <C> <C> <C>
Services Sold 3.8% 6.1% 4.1% 5.9% -27.5% 88.8% -18.6% 65.9%
Line Costs 1.2% 1.3% 1.2% 1.3% 11.5% 7.6% 8.4% -14.3%
Plant Specific 6.8% 8.7% 7.6% 8.8% -9.2% 33.8% 1.2% 26.1%
Plant Non-Specific:
Network & Other 16.0% 13.9% 15.6% 13.6% 34.9% 33.5% 34.2% 36.6%
Depreciation 14.6% 14.9% 15.1% 15.3% 14.0% 41.2% 14.7% 39.8%
Customer Operations 13.5% 13.4% 14.0% 13.8% 17.2% 24.7% 18.8% 27.4%
Corporate Operations 7.2% 8.0% 7.8% 8.7% 4.8% 11.4% 3.9% 19.8%
Other Operating Income
& Expenses 2.3% 1.9% 2.5% 2.3% 41.0% 214.1% 24.7% 266.7%
Taxes other than income 1.5% 1.4% 1.6% 1.4% 21.4% 8.7% 28.3% 3.3%
----- ----- ---- ----- ----- ----- ----- -----
Total Operating Expenses 66.8% 69.7% 69.6% 71.1% 12.0% 34.6% 13.9% 34.1%
Operating income 33.2% 30.4% 30.4% 28.9% 27.9% 14.1% 22.4% 5.5%
Non-operating income
less expenses 4.6% 3.3% 3.6% 3.3% 61.9% 5.3% 28.5% 11.1%
Interest expense 4.6% 5.0% 4.3% 5.0% 7.9% 201.9% -1.7% 176.0%
----- ----- ----- ----- ----- ----- ----- -----
Income before income taxes 33.2% 28.6% 29.8% 27.2% 35.4% 2.0% 27.6% -9.7%
PAGE
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<CAPTION> RELATIONSHIP TO PERIOD TO PERIOD
TOTAL OPERATING REVENUES INCREASE OR DECREASE
Three months Six months Three months Six months
ended June 30 ended June 30 ended June 30 ended June 30
1998 1997 1998 1997 1998-97 1997-96 1998-97 1997-96
<S> <C> <C> <C> <C> <C> <C> <C>
Provision for income taxes 11.1% 9.0% 9.8% 8.6% 42.9% -3.1% 31.9% -15.1%
----- ----- ----- ----- ----- ----- ----- -----
Net income before minority
interest 22.1% 19.6% 20.0% 18.6% 31.9% 4.5% 25.6% -7.0%
Minority interest -3.6% -3.8% -3.4% -3.4% 10.1% 64.4% 14.7% 68.2%
Net Income 18.5% 15.8% 16.6% 15.1% 37.2% -4.0% 28.1% -15.6%
===== ===== ===== ===== ===== ===== ===== =====
/TABLE
<PAGE>
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
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 eight wholly-
owned subsidiaries.
This industry is in a period of transition from a protected
monopoly to a competitive environment as evidenced by the recent
passage of the Telecommunications Act of 1996. As a result,
Shenandoah Telecommunications has made and plans to continue to
make significant investments in the new and emerging
technologies.
The most significant revenues are from the telephone local exchange
company accounting for 43.8% of revenue and the cellular dominated
operations of the Mobile subsidiary, accounting for 26.9% of
revenue during the most recent quarter. Other significant
services provided are paging, personal communications services
(PCS), cable television, Internet access, long distance, and fiber
facilities and towers leased to other telecommunications carriers.
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 approximately two-thirds of these
access revenues typically correlates with changes in minutes of use.
The minutes of use during the first six months and the second
quarter of 1998 increased 11.9% and 11.8% respectively from the total
minutes of use in comparative periods in 1997. The revenue increased
13.2% year-to-date and 15.7% in the second quarter for the associated
revenues.
Second quarter cable television revenues increased 25.3% over
the second quarter of 1997. The year-to-date increase 20.9% is
attributable to a rate increase effective in the fourth quarter of 1997.
PAGE
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
The increase in the ShenTel Service revenues category for the
second quarter of 1998 compared to 1997 was 8.9%. The year-to-
date increase is 9.9%. This was due to increases in Internet
Service revenues. Second quarter 1998 revenues from our
Internet Service operations were up $150,643 or 71.1% compared
to the second quarter of 1997. Equipment sales revenues for
the second quarter decreased by $109,511 or 68.5% compared to the
second quarter of 1997.
Financing lease revenues are chiefly for leases and rentals of
customer premise equipment such as PBXs sold through Company
subsidiaries.
The Mobile revenues are mainly comprised of revenues from
cellular services. Second quarter 1998 local cellular revenues
increased $210,732 or 10.2% compared to the same period in 1997.
The year-to-date increase is $461,304 or 12.2%. The increase in
local cellular revenues was due to an increase in the customer
base. Second quarter 1998 outcollect roamer revenues increased
$310,413 or 36.5% compared to the same period 1997. The year-to-
date increase in outcollect revenues is $546,600 or 36.6%. Total
revenues from the Cellular operation accounted for 26.7% of total
Company revenues in the second quarter and 25.4% year-to-date,
compared to 25.8% in the second quarter of 1997 and 24.4% for the
first six months of 1997.
PCS revenues increased $458,329 or 101.4% in the second quarter
compared to the second quarter of 1997. The year-to-date
increase is $869,812 or 122.9%. This growth is due to the expanding
customer base in our PCS markets.
Total payroll costs (including capitalized costs) in the second
quarter of 1998 increased by $355,743 or 28.5% compared to
the same period in 1997. The year-to-date increase is $532,104 or
20.5%.
PAGE
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Cost of Goods Sold decreased 27.5% in the second quarter compared
to the same period in 1997. The year-to-date decrease is 18.6%.
This is due primarily to the decrease in Shentel equipment sales.
Plant Specific expenses consist mainly of maintenance to the
Company's plant in service. This expense category increased
9.2% in the second quarter compared to the second quarter of
1997. The year-to-date increase is 1.2% over the same period of
1997.
The expense category Network and Other consists primarily of
network support, engineering, and leased facilities costs. This
was our largest expense category in the second quarter. These
costs increased 34.9% in the second quarter compared to the
second quarter of 1997. The year-to-date increase is 34.2%.
These increases are primarily due to increased incollect roaming
costs in the cellular operation, and increases in leased
facilities costs in the PCS and Internet operations due to
network expansion.
Depreciation and Amortization, historically our largest expense
category, was 14.0% higher in the second quarter of 1998 compared
to the same period in 1997. The year-to-date increase is 14.7%,
due mainly to the expansion of our fiber network and our Cable TV
upgrade.
Customer operations increased 17.2% for the quarter and 18.8%
year-to-date compared to the same periods in 1997. These costs
are for the marketing and sales, billing, and customer service
functions. As with the network and other category, customer
growth in the Internet, cellular, and PCS businesses are primarily
responsible for the increase.
The Other Operating Expense category consists of royalty expense
paid to programming providers for the Cable Television
subsidiary.
Interest expense has increased 7.9% in the second quarter
compared to the second quarter of 1997.
PAGE
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company has a note with CoBank to borrow up to $25 million.
The term of the loan is for up to 15 years, with multiple interest
options. The Company has borrowed $18,279,838 at July 31 against
this note.
The Company has a $2 million line of credit with First Union Bank
and a $5 million line of credit with CoBank. No draws have been
made on these lines of credit as of July 31, 1998.
The Company budgeted capital expenditures of approximately
$17,893,350 for our subsidiaries for 1998. These capital needs
will be met through internally generated cash flows and the
existing Rural Telephone Bank note. The loan agreement with the
RTB allows for additional borrowings of approximately $3,000,000.
Expenditures of these loan funds is limited to capital projects
for the regulated local exchange carrier.
Based on its initial assessment, the Company has determined that
significant portions of its software must be modified or replaced
so that its computer systems will properly utilize dates beyond
December 31, 1999. The vast majority of this software is provided
by third parties. The Company has installed and is now
implementing third party financial software that is Year 2000
certified, at an estimated cost of $900,000. The Company
also utilizes third party software for customer care applications.
These suppliers have asserted their software is presently
Year 2000 compliant or will be in late 1998. The Company estimates
its remaining software will be Year 2000 compliant by June 30, 1999.
PAGE
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
PART II
OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) At the Annual Meeting of Shareholders of the Company
held on April 21, 1998, 2,743,597 of the Company's 3,755,760
outstanding shares were present in person or by proxy and
entitled to vote, which constituted a quorum.
(b) At the Annual Meeting, the following nominees were
elected:
CLASS I DIRECTORS - To serve until the 1999 Annual Meeting
Douglas C. Arthur
Harold Morrison, Jr.
Zane Neff
CLASS II DIRECTORS - To serve until the 2000 Annual Meeting
Noel M. Borden
Ken L. Burch
Grover M. Holler, Jr.
CLASS III DIRECTORS - To serve until the 2001 Annual Meeting
Dick D. Bowman
Christopher E. French
James E. Zerkel II
(c) At the Annual Meeting the following matters were voted
upon and received the vote set forth below:
(1) Election of Directors. Provided that a quorum is
present, the nominees receiving the greatest number of votes cast
are elected as directors and, as a result in tabulating the vote,
votes withheld have no effect upon the election of directors.
Each nominee for director was elected, having received the
following vote:
Nominee FOR WITHHELD
Douglas C. Arthur 2,623,829 119,768
Noel M. Borden 2,625,720 117,877
Dick D. Bowman 2,624,459 119,138
Ken L. Burch 2,625,320 118,277
Christopher E. French 2,626,160 117,437
Grover M. Holler, Jr. 2,623,808 119,789
Harold Morrison, Jr. 2,629,511 114,086
Zane Neff 2,718,840 24,757
James E. Zerkel II 2,617,997 125,600
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
PART II
OTHER INFORMATION
(2) Adoption of amendment to the Company's Articles of
Incorporation effective as of the 1998 Annual Meeting that the
Board of Directors shall be divided into three classes
designated as Class I, Class II, and Class III. The term of
office for one class shall expire at each annual meeting. The
initial terms are staggered as indicated in section (b). The amendment
was adopted, having received 2,164,644 votes for and 22,297
votes withheld, while 15,844 votes abstained.
ITEM 6. Exhibits and Reports on Form 8-K
A. Exhibit No. 27 - Financial Data Schedule
B. No reports on Form 8-K were filed for the period
covered by this report.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Registrant)
August 13, 1998 CHRISTOPHER E. FRENCH
Christopher E. French
President
August 13, 1998 LAURENCE F. PAXTON
Laurence F. Paxton
Vice President - Finance
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 6,386,983
<SECURITIES> 5,335,679
<RECEIVABLES> 6,747,303
<ALLOWANCES> 0
<INVENTORY> 3,846,286
<CURRENT-ASSETS> 17,935,790
<PP&E> 88,958,895
<DEPRECIATION> 27,465,077
<TOTAL-ASSETS> 95,978,213
<CURRENT-LIABILITIES> 7,615,497
<BONDS> 28,895,714
0
0
<COMMON> 4,734,377
<OTHER-SE> 43,438,391
<TOTAL-LIABILITY-AND-EQUITY> 95,978,213
<SALES> 0
<TOTAL-REVENUES> 9,018,678
<CGS> 0
<TOTAL-COSTS> 6,022,108
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 418,422
<INCOME-PRETAX> 2,991,529
<INCOME-TAX> 997,104
<INCOME-CONTINUING> 1,668,028
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,668,028
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
