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 March 31, 2000
Commission File Number 0-9881
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Virginia 54-1162806
(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization Identification Number)
PO 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 April 30, 2000
Common Stock, No Par Value 3,757,094 Shares
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
INDEX
Page
Nuumber
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2000 and December 1999 1-2
Condensed Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flow
Three Months Ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of
Stockholders' Equity March 31, 2000 and
December 1999 5
Notes To Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-14
PART II. Other Information
Item 3a. Quantitative and Qualitative Disclosures about Market Risk 15
Item 4. Submission of Matters To a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 15
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, 2000 December 31, 1999
(Unaudited)
------------ ---------------
Current Assets
Cash & cash equivalents $6,837,583 $7,155,827
Accounts receivable 4,176,291 4,918,089
Materials 3,904,098 4,089,605
Prepaid and other current assets 625,910 543,735
------------ ---------------
Total Current Assets 15,543,882 16,707,256
Securities and Investments
Available for sale 26,569,263 30,719,358
securities
Other investments 6,101,772 5,094,020
------------ ---------------
32,671,035 35,813,378
Net Property, Plant and
Equipment
Plant in service 107,634,667 99,821,705
Plant under construction 9,871,373 9,133,665
------------ ---------------
117,506,040 108,955,370
Less accumulated depreciation 35,855,240 34,406,816
------------ ---------------
81,650,800 74,548,554
Other Assets
Cost in excess of net assets of
business acquired 5,630,042 5,630,042
Deferred charges and other assets 511,807 590,019
Radio spectrum license 1,340,750 1,340,750
------------ ---------------
7,482,599 7,560,811
Less accumulated amortiziation 1,603,491 1,579,417
------------ ---------------
5,879,108 5,981,394
------------ ---------------
$135,744,825 $133,050,582
============ ===============
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES & STOCKHOLDERS' EQUITY
March 31, 2000 December 31, 1999
(Unaudited)
-------------- -----------------
Current Liabilities
Current maturities of long-term debt $ 1,423,515 $ 1,340,711
Accounts payable 1,800,860 2,195,958
Advance billings & payments 649,936 870,717
Refundable equipment payment 3,871,365 3,871,365
Customers' deposits 123,852 118,641
Accrued compensation 697,981 947,401
Other current liabilities 975,555 781,248
Income and other taxes payable 722,196 908,677
------------ ---------------
Total Current Liabilities 10,434,260 11,034,718
Long-Term Debt, less current maturities 37,535,901 31,688,737
Other Liabilities and Deferred Credits
Deferred investment tax credit 58,927 76,323
Deferred income taxes 14,647,705 16,061,709
Pension & other 1,385,409 1,453,724
------------ ---------------
15,923,041 17,591,756
Minority Interests 2,032,933 2,460,412
Stockholders' Equity
Common stock 4,762,673 4,734,377
Retained earnings 50,588,657 48,498,503
Unrealized gains on available for 14,467,360 17,042,079
sale security
------------ ---------------
69,818,690 70,274,959
------------ ---------------
$135,744,825 $133,050,582
============ ===============
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended March 31,
2000 1999
OPERATING REVENUES
Telephone revenues
Local service $1,083,908 $ 960,104
Access 1,923,337 1,890,951
Toll 7,328 5,802
Miscellaneous:
Directory 323,603 314,146
Facility leases 894,901 502,382
Billing & collection 116,558 123,952
Other miscellaneous 69,260 37,987
Total telephone revenues 4,418,895 3,835,324
Cable television revenues 887,950 785,741
ShenTel service revenues 1,364,533 932,744
Leasing revenues 2,452 3,294
Mobile revenues 3,757,979 2,421,434
PCS revenues 2,523,851 702,478
Long distance revenues 273,553 280,259
Network revenues 145,824 153,733
Total Revenues and Sales 13,375,037 9,115,007
OPERATING EXPENSES
Cost of products and services 1,212,325 462,114
sold
Line costs 137,220 107,176
Plant specific 1,084,100 755,839
Plant non-specific:
Network & other 2,287,709 1,494,575
Depreciation and 1,840,602 1,557,936
amortization
Customer operations 1,673,576 1,213,148
Corporate operations 667,689 668,269
Other operating expenses 292,710 264,517
Taxes other than income 184,056 39,368
Total Operating Expense 9,379,987 6,562,942
Operating Income 3,995,050 2,552,065
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended March 31,
2000 1999
Non-operating income less expense $ 530,119 $ 232,530
Interest Expense 507,890 468,561
Income before income taxes 4,017,279 2,316,034
Provision for income taxes 1,266,604 784,639
Net income before minority 2,750,675 1,531,395
interest
Minority interest (660,521) (218,498)
Net income $ $
2,090,154 1,312,897
Weighted average common
shares outstanding 3,756,232 3,755,760
Basic and diluted earnings per share $ 0.56 $ 0.35
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
Three months ended
March 31,
2000 1999
Cash Flows From Operating Activities
Net Income 2,090,154 $1,312,897
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,724,364 1,451,832
Amortization 116,238 106,104
Deferred taxes (benefits) (1,583,004) (196,926)
Loss on equity investments 508,227 53,843
Minority share of income, net of distributions (427,479) (277,562)
Other (17,396) (95,720)
Decrease (increase) in:
Accounts receivable 741,798 (56,351)
Materials and supplies 185,507 396,995
Increase (decrease) in:
Accounts payable (395,098) 68,880
Other prepaids, deferrals and accruals (529,442) 538,286
------------------------
Net cash provided by operating activities 2,582,869 3,302,278
Cash Flows From Investing Activities
Purchase of property plant and equipment, net
of retirements (8,918,774) (2,090,427)
Purchase of investment securities (329,343) (38,697)
Maturity of held-to-maturity securities 0 499,581
Cash flows from investments, principally
distributions from equity investments 388,740 303,166
------------------------
Net cash used in investing activities (8,859,377) (1,326,377)
Cash Flows From Financing Activities
Proceeds from long term debt 6,285,863 0
Proceeds from issuance of common stock 28,296 0
Principal payments on long term debt (355,895) (144,900)
------------------------
Net cash provided by (used in) financing 5,958,264
activities 5,958,264 (144,900)
------------------------
Net increase (decrease) in cash (318,244) 1,831,001
Cash and cash equivalents
Beginning 7,155,827 4,891,109
Ending $6,837,583 $6,722,110
See accompanying notes to the condensed consolidated financial statements.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARY COMPANIES
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
Accumulated
Other
Common Retained Comprehensive
Shares Stock Earnings Income Total
----------------------------------------------------
Balance,
December 31, 1998 3,755,760 $4,734,377 $44,173,730 $ 638,619 $49,546,726
------------
Comprehensive income
Net income 6,427,999 6,427,999
Change in unrealized gain
on securities available-for-sale
net of tax $10,078,972 16,403,460 16,403,460
------------
Total comprehensive income 22,831,459
-----------
Dividends declared (2,103,226) (2,103,226)
----------------------------------------------------
Balance,
December 31, 1999 3,755,760 4,734,377 48,498,503 17,042,079 70,274,959
----------
Comprehensive income
Net income 2,090,154 2,090,154
Change in unrealized gain
on securities available-for-sale
net of tax ($1,575,376) (2,574,719) (2,574,719)
------------
Total comprehensive income (484,565)
------------
Issue shares of Common
Stock 1,334 28,296 28,296
-----------------------------------------------------
Balance, March 31, 2000 3,757,094 4,762,673 50,588,657 14,467,360 $69,818,690
=======================================================
See accompanying notes to condensed consolidated financial statements.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying condensed financial
statements which are unaudited, except for the condensed balance sheet at
December 31, 1999, contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly Shenandoah
Telecommunications Company's financial position as of March 31, 2000 and
the results of operations and cash flows for the three month periods ended
March 31, 2000 and 1999.
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 on Form 10-K.
2. The results of operations for the three-month period ended March 31, 2000
and 1999 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. Diluted net income per share for the quarter ended
March 31, 2000 (which was not materially different from basic net income
per share) was computed under the treasury stock method, assuming the
conversion, as of the beginning of the quarter, of all dilutive stock
options. There were no adjustments to net income in the computation of
diluted net income per share for 1999.
4. The Company has identified nine reporting segments based on the products
and services each provide. Each segment is managed and evaluated separately
because of differing technologies and marketing strategies. A summary of
external revenues and net income of each segment is as follows:
For the three months ended March 31, 2000 March 31, 2000
External Internal Net Total
Operating Operating
Revenues Revenues Income Assets
---------------------------------- ------------
Holding $ - $ - $ 280,326 $54,514,806
Telephone 4,418,895 537,935 1,370,435 75,355,059
Cable TV 887,950 600 (29,977) 11,471,815
ShenTel 1,364,533 61,164 23,881 5,395,203
Leasing 2,452 - 4,098 296,975
Mobile 3,757,979 263,695 945,026 16,996,600
PCS 2,523,851 4,747 (646,591) 18,322,229
Long Distance 273,553 97,354 53,628 257,141
Network 145,824 44,897 89,328 1,177,906
---------------------------------- ------------
Combined Totals $13,375,037 $1,010,392 $ 2,090,154 $183,787,734
Inter-segment
Eliminations - (1,010,392) - (48,042,909)
---------------------------------- ------------
Consolidated Totals $13,375,037 $ $2,090,154 $135,744,825
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
For the three months ended March 31, 199 March 31, 1999
External Internal Net Total
Operating Operating
Revenues Revenues Income Assets
---------------------------------- ------------
Holding $ - $ - $ 12,661 $26,515,528
Telephone 3,835,324 431,271 1,403,292 66,443,845
Cable TV 785,741 600 (90,630) 11,056,597
ShenTel 932,744 63,559 52,596 3,842,816
Leasing 3,294 - 5,586 283,351
Mobile 2,421,434 146,244 271,866 13,089,147
PCS 702,478 4,265 (467,141) 8,884,511
Long Distance 280,259 58,144 67,521 262,422
Network 153,733 21,312 57,146 1,425,108
---------------------------------- ------------
Combined Totals $9,115,007 $ 725,395 $1,312,897 $131,803,325
Inter-segment
Eliminations - (725,395) - (37,587,896)
---------------------------------- ------------
Consolidated Totals $9,115,007 $ - $1,312,897 $94,215,429
Inter-segment eliminated assets represent amounts invested in and notes
payable between the reporting segments.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements. These statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to
changes in the interest rate environment; management's business strategy;
national, regional, and local market conditions; and legislative and regulatory
conditions. Readers should not place undue reliance on forward-looking
statements, which reflect management's view only as of the date hereof. The
Company undertakes no obligation to publicly revise these forward-looking
statements to reflect subsequent events or circumstances.
Shenandoah Telecommunications Company is a diversified telecommunications
holding company providing both regulated and unregulated telecommunications
services through its nine wholly-owned subsidiaries. These subsidiaries provide
local exchange telephone services as well as cable television, cellular, paging,
personal communications services (PCS), Internet access, long distance, and
leased fiber and tower facilities. Competitive local exchange carrier (CLEC)
services are also being planned. Additionally, the Company sells and leases
equipment, mainly related to services provided, and also participates in
emerging technologies by direct investment in non-affiliated companies.
In recent years the Company has made significant investments to take
advantage of new technologies and the increasingly competitive
telecommunications industry. Net Plant in Service increased from $36.8 million
at the end of 1995 to $81.7 million at March 31, 2000. This increase
incorporates continued expansion of our operations from Virginia's northern
Shenandoah Valley to other surrounding areas. In conjunction with growing our
PCS and Internet services, we expanded our presence north along the
Interstate-81 corridor in West Virginia, Maryland, and southern Pennsylvania.
The Company's strategy is to continue the expansion of services and the
geographic areas served. During the fourth quarter of 1999 our PCS subsidiary
executed an affiliate agreement with Sprint PCS, finished constructing and
activated a CDMA network where our GSM network existed, and converted our PCS
customer base from GSM to CDMA service. The agreement expands our existing PCS
territory from an area serving a population of 679,000 to one of 2,048,000
people. The additional areas are in the Altoona, Harrisburg, and York-Hanover
Basic Trading Areas of Pennsylvania. The capital build out and initial operating
losses associated with this expansion, which will require significant capital
resources, are a continuation of the strategy to take advantage of new
technologies and expand our service areas. Losses in the PCS subsidiary are
expected to increase during 2000, particularly in the fourth quarter when the
additional network facilities are expected to be placed in service.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The regulated telephone company's largest source of revenue is for access
to the local exchange network by interexchange carriers. These revenues
increased 1.7% in first quarter 2000 compared to a decrease of 1.7 % in first
quarter1999. The small changes in 1999 and 2000 are due in part to reductions in
tariffed pricing by the National Exchange Carrier Association (NECA) for
interstate traffic. The price reductions negated growth in the traditional main
drivers of access revenues, which are minutes of use and access lines. The
minutes of use increased 8.2% in first quarter 2000 compared to an increase of
5.8% in first quarter1999. The number of access lines increased by 4.4% in first
quarter 2000 versus an increase of 3.7% in first quarter 1999.
Cable Television revenues increased 13.0% in first quarter 2000 compared to
9.6% in the same period for 1999. Cable Television revenues increased
principally as a result of an increase in rates in early 1999. Significant
capital investments have been made in the past two years to increase channel
capacity and improve service quality. The Company recently completed an upgrade
of the entire system to 750 megahertz capacity, and is in the early stages of
introducing advanced digital services such as cable modems for Internet access.
There were approximately 8,600 cable television customers as of March 31, 2000,
compared to 8,500 for the same date in 1999.
The increase in the ShenTel Service revenues category for the first quarter
of 2000 was 46.3% compared to 77.2% in 1999. The increases in both years were
due in part to Internet Service revenue growth, as a result of customer growth
in our existing and new Internet service areas. There were approximately 12,000
Internet customers as of March 31, 2000, compared to 8,000 for the same date in
1999. First quarter Internet revenues increased $125,000 or 23.5%. First quarter
1999 revenues from our Internet Service operations increased $229,000 or 76.4%.
Pricing reductions in the Internet service were implemented in the second half
of 1999. Equipment sales revenue for the first quarter of 2000 increased
$325,000 or 139.1% compared to a $164,000 or 237.4% increase in first quarter
1999. Management expects equipment sales revenue to decrease during the
subsequent reporting periods of 2000.
The Mobile revenues are mainly derived from wireless communications
services, particularly analog cellular services. Total cellular revenues
represented 25.7% of the Company's revenues during the first quarter of 2000
compared to 24.9% in first quarter 1999. There were approximately 12,000
customers at March 31, 2000 and approximately 11,000 at March 31 the prior year.
During the past year the cellular operation has experienced increased customer
turnover and implemented rate reductions in response to increased competition.
The quarterly increase in outcollect roamer revenues was about $1,250,000 or
111.3% compared to an increase of approximately $160,000 or 16.7% the prior
year. This change is principally attributed to increased wireless usage by the
traveling public.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Management believes that cellular outcollect roamer revenues may have
peaked and may begin to decline in the increasingly competitive wireless
industry.
Long Distance revenues are principally for toll calls placed to locations
outside the regulated telephone service area. These revenues decreased by 2.4%
for the first quarter and increased 28.1% for the same period in 1999. Lower
priced calling plans have more than offset increases in the customer base.
Network revenues are derived from fiber facility leases in Maryland and
West Virginia. These revenues decreased an immaterial amount the first quarter
of 2000, and had no change between the first quarters of 1999 and 1998.
Additional leases secured in 1999 have been offset in part by rate reductions in
this increasingly competitive business.
PCS revenues increased by $1,820,000 or 259.3% in the first quarter of 2000
compared to a first quarter increase of 5.36% in 1999. PCS revenues were 18.9%
of total revenues for first quarter 2000 versus 7.7% of total revenues for first
quarter 1999. First quarter 1999 results included negative adjustments of almost
$150,000. There were about 6,900 customers at March 31, 1999 and approximately
11,700 at March 31, 2000. As discussed above, in the fourth quarter of 1999 the
Company became a Sprint PCS affiliate, adopting the CDMA air interface
technology as the standard for its network and turning up the new network in
late October of 1999. National branding and improved roaming were major factors
in our decision. While the technology transition limited customer growth for
most of 1999, a majority of the GSM customers were converted to the new
technology by year end. Thus far the new service has been well received in the
market, as the majority of the customer growth experienced in the past year
occurred in the November, 1999 to March, 2000 timeframe.
Cost of Goods Sold increased 162.3% in the first quarter. Customer
additions in PCS and equipment sales in ShenTel Service Company, related to the
revenue increases discussed above, were responsible for the majority of this
change. The increase was 26.5% for the same period in 1999.
Plant Specific expense consists mainly of operations and maintenance of the
Company's plant in service. This expense increased 43.4% in first quarter 2000
compared to an 8.1% increase in the prior year. The first quarter 2000 changes
occurred principally in the Telephone, Internet, and PCS operations due to
network expansions and additional information technology support associated with
territory additions and customer growth.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
Network and Other expenses consists primarily of network support,
engineering and leased facilities costs. This was our largest expense category
in the first quarter. These costs increased $793,000 or 53.1% in the first
quarter compared to $254,000 or 20.5% the first quarter of 1999. These increases
are primarily in the PCS operations. Roaming charges have increased as a result
of the growing customer base and the improved ability to roam on other provider
networks. This is due in part to the introduction of affordable dual band PCS
handsets. There have also been increased leased facilities costs associated with
the GSM to CDMA transition. A portion of the Network and Other increase is also
related to territory expansion and customer growth in the Internet operation.
Management expects Network and Other costs to continue to increase as the
Internet and PCS operations continue to grow.
Depreciation and Amortization was 18.1% higher in the first quarter of 2000
compared to the same period in 1999. This is principally due to the pace of
plant additions in the PCS operation. Plant in Service increased $13 million or
14.4% at March 31, 2000 compared to March 31, 1999. Depreciation expense
increased by 21.6 % in the first quarter of 1999 due to a combination of plant
expansion and decreasing the useful life estimates on a portion of the wireless
equipment, effective January 1, 1999.
Customer Operations increased 38.0% in first quarter 2000 compared to 5.1%
in the same period of 1999. These costs are for the marketing and sales,
directory services, billing, and other customer service functions. Customer
growth in the Internet and PCS businesses is primarily responsible for the
increase.
Corporate Operations decreased .1% in first quarter 2000 compared to a
decrease of 9.1% in first quarter 1999.
The Other Operating Expense category consists mainly of royalty expense
paid to programming providers for the Cable Television subsidiary. The increase
was 10.7% in first quarter 2000, due in principally to customer additions
discussed in the cable television revenue section above. The increase in first
quarter 1999 was 98.1% due principally to expansion of the channel lineup.
The changes in Taxes Other Than Income for first quarter 2000 and first
quarter 1999 were primarily due to changes in provisions for operating taxes in
the PCS subsidiary.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALE OF PARTNERSHIP INTEREST
On May 1, 2000, the Company sold its limited interest in the Virginia RSA 6
cellular partnership, which serves Augusta and Rockingham counties in Virginia,
for $7.4 million in cash. The Company will book a one time pre-tax gain of
approximately $6.9 million on the sale.
INVESTMENTS IN NON-AFFILIATED COMPANIES
The Company participates in emerging technologies by investments in
start-up companies. This includes indirect participation through capital venture
funds such as South Atlantic Venture Fund III, South Atlantic Private Equity IV,
and Dolphin communications. It also includes direct participation in start-up
companies such as Concept Five and Coriss.net. For those investments that
eventually go public, it is the intent of the Company to evaluate whether to
hold or sell parts or all of each investment on an individual basis. The Company
currently holds shares in three securities with NASDAQ or NYSE listings. As of
March 31, 2000 the market value of these stock was $22,818,000 in Illuminet
(ILUM), $2,020,000 in ITC^DeltaCom (ITCD), and $1,532,200 in Loral
Communications (LOR). Unrealized Gains on Available for Sale Securities, which
decreased by $2,698,000 during the first quarter of 2000, reflects the volatile
stock prices of these technology securities.
LIQUIDITY AND CAPITAL RESOURCES
The Company had three principal sources of funds for financing expansion
activities in first quarter 2000. First, the Company has a $9,200,000 loan
agreement with the Rural Telephone Bank (RTB) with approximately $500,000
remaining for future advances as of March 31, 2000. A draw of approximately
$2,500,000 was received on January 20, 2000. Expenditure of these loan funds is
limited to capital projects for the regulated local exchange carrier subsidiary.
The second principal liquidity source in first quarter 2000 was a term loan
agreement with CoBank, entered into in July 1996. Pursuant to this agreement,
the Company can borrow up to $25,000,000 for a three-year period ending August
31, 1999, amended on May 24, 1999 for advances to be made through August 31,2000
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On September 1, 1999, amortization and repayment of the outstanding
principal balance in monthly installments began, with the final installment due
August 20, 2011. Draws on this loan for first quarter 2000 totaled $1,755,000,
and there were no draws in 1999. The majority of these drawn funds in 2000 were
used for the further expansion of the PCS operation in Pennsylvania. The
outstanding principal at March 31, 2000 was approximately $24,400,000, with
$600,000 available for future advances.
On January 12, 2000 the Company entered into an additional $35,000,000 loan
agreement with CoBank, principally to finance the PCS buildout in Pennsylvania.
The Company drew $1,884,000 on this facility during the first quarter of 2000.
The Company and CoBank contemplate replacing the existing $25,000,000 credit
facility and this $35,000,000 bridge loan with a single term loan agreement for
$60,000,000.
The Company's Board of Directors has approved a 2000 capital budget of
potential projects totaling approximately $45,000,000. This budget includes
approximately $26,800,000 for equipment and towers associated with the PCS
expansion, principally in Pennsylvania. Included in the $26,800,000 amount is
$6,000,000 for a PCS switch that was ordered in late 1999, and approximately
$11,000,000 for CDMA equipment and towers that will be purchased from Sprint as
part of the agreement discussed above. Approximately $5,227,000 of the assets
had been transferred from Sprint as of March 31, 2000. Additionally, almost
$10,900,000 is budgeted for the telephone local exchange company, primarily for
central office equipment and fiber optic and metallic cable facilities. The
Company expects to finance these planned additions primarily through internally
generated cash flows and additional advances from the CoBank bridge loan.
The Company maintains an unsecured line of credit for $2 million with a
local bank. No draws were made on this line during the first quarter of 2000 and
no amounts are outstanding as of March 31, 2000.
REIMBURSEMENT FOR PCS CONVERSION
As part of the execution of the Sprint PCS affiliate agreement, the Company
received approximately $3.9 million as partial reimbursement for the Company's
expenditures in building the CDMA network, which replaces the Company's earlier
PCS network constructed using GSM technology. Under the terms of the agreement,
all or a portion of this amount is to be reimbursed in the event the GSM network
is sold. The GSM equipment had a carrying value of approximately $6.2 million at
March 31, 2000. The Company is negotiating a potential sale of the GSM equipment
with another PCS provider that uses the GSM platform. Management expects that
cash flows from the GSM equipment will be sufficient to recover the book value
so as not to result in impairment.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NASDAQ APPLICATION
The Company intends to file an application for NASDAQ listing of the
Company's stock. The filing is expected to be made in the second quarter of
2000.
<PAGE>
SHENANDOAH TELECOMMUNICATIONS COMPANY
PART II
OTHER INFORMATION
ITEM 3a. Quantitative and Qualitative Disclosures About Market Risk
Our market risks relate primarily to changes in interest rates, on
instruments held for other than trading purposes. Our interest rate risk
involves two components. The first component is outstanding debt with variable
rates. This consists of a note payable to CoBank of approximately $6.2 million.
The rate of this note is based upon the lender's cost of funds. The Company also
has variable rate lines of credit totaling $7 million that had no outstanding
borrowings at March 31, 2000. The Company's remaining debt has fixed rates
through its maturity. The second component of market risk is excess cash,
primarily invested in overnight repurchase agreements and short-term
certificates of deposit. Our average balance in those securities over the past
year was approximately $6.8 million. Earnings from these cash equivalents
totaled approximately $90,000 for the period ending March 31, 2000. If market
interest rates were to increase by 10% from levels at March 31, 2000, our net
income and cash flows would decrease an immaterial amount.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders.
ITEM 6. Exhibits and Reports on Form 8-K
A. Exhibit 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)
May 12, 2000 /s/ CHRISTOPHER E. FRENCH
Christopher E. French
President
May 12, 2000 /s/ LAURENCE F. PAXTON
Laurence F. Paxton
Vice President - Finance
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 6,837,583
<SECURITIES> 32,671,035
<RECEIVABLES> 4,176,291
<ALLOWANCES> 0
<INVENTORY> 3,904,098
<CURRENT-ASSETS> 15,543,882
<PP&E> 117,506,040
<DEPRECIATION> 35,885,240
<TOTAL-ASSETS> 135,744,825
<CURRENT-LIABILITIES> 10,434,260
<BONDS> 37,535,901
0
0
<COMMON> 4,762,673
<OTHER-SE> 50,588,657
<TOTAL-LIABILITY-AND-EQUITY> 135,744,825
<SALES> 0
<TOTAL-REVENUES> 13,375,037
<CGS> 1,212,325
<TOTAL-COSTS> 9,379,987
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 507,890
<INCOME-PRETAX> 3,356,758
<INCOME-TAX> 1,266,604
<INCOME-CONTINUING> 2,090,154
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,090,154
<EPS-BASIC> .56
<EPS-DILUTED> .56
</TABLE>
