-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JbiUxwh2BPiE4MA+lI4RdnbkOhrbrUxlakm9nDNjVF4MkWS0WbyYABAKfWlhZmNh eo1sSGVtawrzLb7gOad26Q== 0000354963-96-000013.txt : 19960816 0000354963-96-000013.hdr.sgml : 19960816 ACCESSION NUMBER: 0000354963-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHENANDOAH TELECOMMUNICATIONS CO/VA/ CENTRAL INDEX KEY: 0000354963 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 541162807 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09881 FILM NUMBER: 96615246 BUSINESS ADDRESS: STREET 1: PO BOX 459 STREET 2: 124 SOUTH MAIN ST CITY: EDINBURG STATE: VA ZIP: 22824 BUSINESS PHONE: 7039845247 MAIL ADDRESS: STREET 1: P O BOX 459 CITY: EDINBURG STATE: VA ZIP: 22824 10-Q 1 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, 1996 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 12, 1996 Common Stock, No Par Value 3,760,760 Shares PAGE SHENANDOAH TELECOMMUNICATIONS COMPANY INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets June 30, 1996 and December 31, 1995 1 - 3 Consolidated Statements of Income Three and Six Months Ended June 30, 1996 and 1995 4 - 6 Consolidated Statements of Cash Flow Six Months Ended June 30, 1996 and 1995 7 - 8 Notes To Consolidated Financial Statements 9 Item II. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 16 PART II. OTHER INFORMATION Item 4. Submission of Matters To a Vote of Security Holders 17 - 18 Item 6. Exhibits and Reports On Form 8-K 18 Signatures 19 PAGE SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARY COMPANIES PART I, FINANCIAL INFORMATION ITEM I, FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
ASSETS June 30, 1996 December 31, 1995 CURRENT ASSETS Cash & Cash Equivalents $4,863,872 $6,106,447 Certificates of Deposit 1,331,366 1,242,228 Investments Held to Maturity 1,151,123 2,488,773 Accounts Receivable 3,161,055 3,068,379 Leases Receivable (Net) 74,350 74,350 Materials 2,408,770 1,922,090 Prepaid and Other Current Assets 255,730 406,653 --------- --------- Total Current Assets $13,246,266 $15,308,920 --------- --------- NONCURRENT ASSETS Investment in available for sale Securities $1,888,910 $2,000,077 Investment in held-to-maturity securities 2,622,404 2,098,968 Other investments 3,084,160 3,412,464 Investment in Direct Financing Leases 229,016 250,321 --------- --------- Total Noncurrent Assets $7,824,490 $7,761,830 --------- --------- PLANT, PROPERTY AND EQUIPMENT Plant in Service $56,769,893 $53,316,016 Plant Under Construction 4,540,868 2,372,750 Less Accumulated Depreciation 20,202,536 18,862,526 ---------- ---------- Net Plant, Property, and Equipment $41,108,225 $36,826,240 ---------- ---------- TOTAL ASSETS $62,178,981 $59,896,990 ========== ========== See accompanying notes to consolidated financial statements.PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARY COMPANIES PART I, FINANCIAL INFORMATION ITEM I, FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, 1996 December 31, 1995 CURRENT LIABILITIES Current Maturities of Long-Term Debt $461,927 $461,927 Accounts Payable 479,507 813,887 Advance Billing 369,334 625,559 Customer Deposits 101,863 107,509 Accrued construction costs 198,137 1,097,844 Other Current Liabilities 891,586 1,066,225 Income Taxes Payable 10,339 0 Other Accrued Taxes 252,259 85,804 --------- --------- Total Current Liabilities $2,764,952 $4,258,755 --------- --------- LONG TERM DEBT, LESS CURRENT MATURITIES $10,978,182 $10,097,026 ---------- ---------- OTHER LIABILITIES AND DEFERRED CREDITS Deferred Investment Tax Credits $329,807 $367,143 Deferred Income Taxes 4,029,999 3,965,318 Pension and Other 487,448 438,324 --------- --------- Total Other Liabilities and Deferred Credits $4,847,254 $4,770,785 --------- --------- Minority interests $1,546,013 $1,499,151 --------- --------- See accompanying notes to consolidated financial statements. PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARY COMPANIES PART I, FINANCIAL INFORMATION ITEM I, FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, 1996 December 31, 1995 STOCKHOLDERS' EQUITY Common Stock, no par, 8,000,000 shares authorized (3,760,760 shares issued and outstanding) $4,740,677 $4,740,677 Retained Earnings 36,942,246 34,301,584 Unrealized Gain on available-for-sale securities 359,657 229,012 ---------- ---------- Total Stockholders' Equity $42,042,580 $39,271,273 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $62,178,981 $59,896,990 ========== ========== See accompanying notes to consolidated financial statements. PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARY COMPANIES PART I, FINANCIAL INFORMATION ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three months ended Six months ended June 30 June 30 ------------------------- --------------------------- 1996 1995 1996 1995 OPERATING REVENUES ---- ---- ---- ---- Telephone Revenues Local Service $811,613 $764,253 $1,602,425 $1,516,093 Access 1,696,340 1,607,465 3,470,128 3,223,450 Toll 4,412 3,314 8,767 6,788 Miscellaneous: Directory 296,408 271,595 580,076 564,710 Facility Leases 451,974 425,262 885,172 843,765 Billing & Collection 108,967 73,275 223,009 179,344 Other Miscellaneous 23,068 31,280 52,228 58,791 --------- --------- --------- --------- Total Telephone Revenues 3,392,782 3,176,444 6,821,805 6,392,941 Cable Television Revenues 221,843 216,922 441,977 431,564 ShenTel Service Revenues 380,664 266,443 774,226 683,881 Leasing Revenues 5,163 6,438 9,772 12,531 Mobile Revenues 1,674,507 1,239,610 3,041,646 2,291,475 Long Distance Revenues 249,376 273,981 533,728 562,589 Network Revenues 123,842 123,842 247,685 247,685 --------- --------- --------- --------- Total Revenues and Sales 6,048,177 5,303,680 11,870,839 10,622,666 --------- --------- --------- --------- See accompanying notes to consolidated financial statements.PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARY COMPANIES PART I, FINANCIAL INFORMATION ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three months ended Six months ended June 30 June 30 ------------------------- --------------------------- 1996 1995 1996 1995 OPERATING EXPENSES Cost of Products and Services Sold 249,042 115,315 522,983 327,275 Line Costs 90,860 115,745 225,441 247,009 Plant Specific 502,049 484,915 1,026,447 919,117 Plant Non-Specific: Network & Other 801,581 484,608 1,463,517 895,158 Depreciation and Amortization 815,439 707,211 1,617,960 1,390,681 Customer Operations 830,548 571,742 1,594,590 1,127,630 Corporate Operations 556,244 466,496 1,075,888 934,543 Other Operating Income & Expense 47,435 46,565 93,801 92,016 Taxes other than income 101,684 81,835 201,986 167,179 --------- --------- --------- --------- Total Operating Expenses 3,994,882 3,074,432 7,822,613 6,100,608 --------- --------- --------- --------- Operating income 2,053,295 2,229,248 4,048,226 4,522,058 Gain on Sale of Investment 0 0 228,250 872,125 Non-operating income less expenses 242,528 251,845 436,531 438,657 Interest expense 128,418 171,659 269,678 350,692 --------- --------- --------- --------- Income before taxes 2,167,405 2,309,434 4,443,329 5,482,148 Provision for income taxes 719,871 779,998 1,500,806 1,908,442 --------- --------- --------- --------- Net income before minority interest 1,447,534 1,529,436 2,942,523 3,573,706 Minority interest (180,421) (145,144) (301,862) (254,980) Net Income $1,267,113 $1,384,292 $2,640,661 $3,318,726 ======== ======== ========= ========= See accompanying notes to consolidated financial statements.PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARY COMPANIES PART I, FINANCIAL INFORMATION ITEM I, FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three months ended Six months ended June 30 June 30 ------------------------- --------------------------- 1996 1995 1996 1995 EARNINGS PER SHARE Weighted Average Common Shares Outstanding 3,760,760 3,760,760 3,760,760 3,760,760 ======= ======= ======= ======= Net Earnings per Share $0.34 $0.37 $0.70 $0.88 ======= ======= ======= ======= See accompanying notes to consolidated financial statements. 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 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES Net Income $2,640,661 $3,318,726 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and Amortization 1,617,960 1,390,681 Deferred taxes (53,107) 185,020 Gain on Sale of Equity investment (228,250) (872,125) Investment (Gains)/Losses (140,082) (119,532) Minority Share of Income 46,862 254,980 Payment to Pension Fund 0 (176,186) Other 143,002 122,652 Decrease (increase) in Accounts receivable (92,676) 100,047 Materials and Supplies (486,680) (265,477) Increase (decrease) in Accounts Payable (334,380) 123,812 Income taxes payable 173,199 137,856 Other prepaids, deferrals, and accruals (228,407) (171,804) --------------- --------------- Net cash provided by operating activities 3,058,102 4,028,650 --------------- --------------- See accompanying notes to consolidated financial statements. 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 1996 1995 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Property and Equipment (6,941,932) (2,612,565) Investment in Direct Financing Leases (21,854) (36,184) Payments Received on Direct Financing Leases 43,159 45,056 Purchase of Certificates of Deposit (611,856) (1,271,970) Sale of Certificates of Deposit 522,718 441,564 Purchase of Investments Securities (563,488) (3,549,591) Sales of Investments Securities 2,249,231 1,159,670 Cash flows from Securities 142,189 183,298 Proceeds from matured note receivable 0 375,000 -------------- --------------- Net cash used by investing activities (5,181,833) (5,265,722) ------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long term debt 1,117,000 0 Principal payments on long term debt (235,844) (211,375) --------------- --------------- Net cash used by financing activities 881,156 (211,375) --------------- --------------- NET INCREASE / (DECREASE) IN CASH (1,242,575) (1,448,447) CASH AND CASH EQUIVALENTS: --------------- --------------- Beginning 6,106,447 6,270,849 --------------- --------------- Ending $4,863,872 $4,822,402 =============== =============== 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, 1996 and the results of operations and cash flows for the six month periods ended June 30, 1996 and 1995. 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 three-month and six-month periods ended June 30, 1996 and 1995 are not necessarily indicative of the results to be expected for the full year. 3. The Company signed a letter of intent in February 1996 to acquire the Shenandoah County assets of FrontierVision Operating Partners, LP. The Company signed the definitive agreement for this purchase on July 30, 1996. 4. The Company signed a note with CoBank on August 2, 1996 to borrow up to $25 million. The Company expects to begin drawing these funds in the third quarter of 1996. 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:
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 1996 1995 1996 1995 1996-95 1995-94 1996-95 1995-94 OPERATING REVENUES Telephone Revenues Local Service 13.4% 14.4% 13.5% 14.3% 6.2% 5.9% 5.7% 8.7% Access 28.0% 30.3% 29.2% 30.3% 5.5% 3.5% 7.7% -1.6% Toll 0.1% 0.1% 0.1% 0.1% 33.1% -116.4% 29.2% -138.7% Miscellaneous: Directory 4.9% 5.1% 4.9% 5.3% 9.1% 8.3% 2.7% 9.6% Facility Leases 7.5% 8.0% 7.5% 7.9% 6.3% 12.7% 4.9% 39.9% Billing & Collection 1.8% 1.4% 1.9% 1.7% 48.7% -32.6% 24.3% -19.3% Other Miscellaneous 0.4% 0.6% 0.4% 0.6% -26.3% -39.3% -11.2% -45.2% Total Telephone Revenues 56.1% 59.9% 57.5% 60.2% 6.8% 4.4% 6.7% 4.8% Cable Television Revenues 3.7% 4.1% 3.7% 4.1% 2.3% 24.3% 2.4% 25.7% ShenTel Service Revenues 6.3% 5.0% 6.5% 6.4% 42.9% -43.3% 13.2% -9.0% Leasing Revenues 0.1% 0.1% 0.1% 0.1% -19.8% 18.0% -22.0% 31.8% Mobile Revenues 27.7% 23.4% 25.6% 21.6% 35.1% 18.0% 32.7% 17.1% Long Distance Revenues 4.1% 5.2% 4.5% 5.3% -9.0% -0.2% -5.1% -0.9% Network Revenues 2.0% 2.3% 2.1% 2.3% 0.0% 54.4% 0.0% 54.4% ------ ------- ------ ------ ------ -------- -------- -------- Total Revenues and Sales 100.0% 100.0% 100.0% 100.0% 14.0% 4.0% 11.8% 7.4% PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 1996 1995 1996 1995 1996-95 1995-94 1996-95 1995-94 OPERATING EXPENSES Cost of Products and Services Sold 4.1% 2.2% 4.4% 3.1% 116.0% -52.4% 59.8% -2.1% Line Costs 1.5% 2.2% 1.9% 2.3% -21.5% -8.0% -8.7% -4.1% Plant Specific 8.3% 9.1% 8.6% 8.7% 3.5% 34.2% 11.7% 16.8% Plant Non-Specific: Network & Other 13.3% 9.1% 12.3% 8.4% 65.4% 22.6% 63.5% 8.0% Depreciation and Amortization 13.5% 13.3% 13.6% 13.1% 15.3% 5.2% 16.3% 4.8% Customer Operations 13.7% 10.8% 13.4% 10.6% 45.3% 4.5% 41.4% 0.0% Corporate Operations 9.2% 8.8% 9.1% 8.8% 19.2% 0.9% 15.1% 3.1% Other Operating Income & Expense 0.8% 0.9% 0.8% 0.9% 1.9% 23.1% 1.9% 25.6% Taxes other than income 1.7% 1.5% 1.7% 1.6% 24.3% -8.5% 20.8% 1.6% ------ ------- ------ ------ -------- ------ -------- -------- Total Operating Expenses 66.1% 57.9% 65.8% 57.5% 29.9% 4.8% 28.2% 5.1% Operating income 33.9% 42.0% 34.1% 42.6% -7.9% 3.0% -10.5% 10.8% Gain on Sale of Investment 0.0% 0.0% 1.9% 8.2% N/A N/A -73.8% N/A Non-operating income less expenses 4.0% 4.7% 3.7% 4.1% -3.7% -548.3% -0.5% -865.9% Interest expense 2.1% 3.2% 2.3% 3.3% -25.2% 14.8% -23.1% 8.8% ------ ------- ------ ------ ------ ----- -------- -------- Income before taxes 35.8% 43.5% 37.4% 51.6% -6.1% 12.5% -18.9% 44.0% PAGE
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 1996 1995 1996 1995 1996-95 1995-94 1996-95 1995-94 Provision for income taxes 11.9% 14.7% 12.6% 18.0% -7.7% 11.3% -21.4% 46.1% ------ ---- ----- ----- ------ ------ ------ -------- Net income before minority interest 23.9% 28.8% 24.8% 33.6% -5.4% 13.1% -17.7% 42.9% Minority interest -3.0% -2.7% -2.5% -2.4% 24.3% 41.0% 18.4% 58.2% Net Income 21.0% 26.1% 22.2% 31.2% -8.5% 10.8% -20.4% 41.9% ====== ======= ====== ====== ====== ====== ======== ======== 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 revenue contributors are regulated telephone local exchange company accounting for 56.1% of revenue and the cellular dominated operations of the Mobile subsidiary, accounting for 27.7% of revenue during the most recent quarter. Other significant services provided are paging, newly emerging 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 generally tracks with changes in minutes of use. The minutes of use during the first half of and the second quarter of 1996 increased 10.1% and 5.7% respectively over the total minutes of use in the first half and second quarter of 1995, leading to a 7.7% year-to-date and 5.5% second quarter increase in the associated revenues. The total access revenue increase was not as large as the minutes of use increase, principally due to major growth in the non-traffic sensitive elements. Second quarter cable television revenues increased 2.3% over the second quarter of 1995. The year-to-date increase 2.4%. The increase was due to an increase in the customer base. The Company signed a definitive agreement on July 30, 1996, to acquire CATV assets located in our service area. The Company expects to close this transaction before the end of the year. 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 1996 compared to 1995, is due primarily to increases in Internet Service revenues. Second quarter 1996 revenues from our Internet Service operations were up $77,363 or 312.6% compared to the second quarter of 1995. On a year-to-date basis, these revenues increased $150,300 or 419.0% compared to the first half of 1995. This increase is due to the increasing customer base. The Company began offering local access to the Internet in 1994. Equipment sales increased $33,576 or 39.5% during the second quarter of 1996 compared to the same period in 1996. However, on a year-to-date basis, sales are down $25,626 or 8.7%. Equipment rentals for the second quarter and year-to-date decreased $10,198 and $18,372 respectively compared to a year earlier. Financing lease revenues are chiefly for leases and rentals of customer premise equipment such as PBXs and home satellite dishes sold through Company subsidiaries. The Mobile revenues are mainly comprised of revenues from wireless communications services. Second quarter 1996 local cellular revenues increased $191,862 or 35.1% compared to the same period in 1995. Year-to-date local cellular revenues have increased $338,284 or 32.0% compared to the first six months of 1995. Included in local cellular revenues are revenues for the sale of phones. These revenues were down 44.7% and 33.9% respectively in the second quarter and year-to-date, compared to the same periods in 1995. This was due to promotional discounts given on the sale of phones in 1996. The promotional pricing began in the fourth quarter of 1995. The increase in local cellular revenues was due to a 49.7% increase in the customer base from the end of the second quarter of 1995. Second quarter 1996 outcollect roamer revenues increased $548,749 or 46.0% compared to the same period in 1995. The increase in outcollect roamers year-to-date is $909,784 or 40.9%. Total payroll costs (including capitalized costs) in the first half of 1996 increased $497,978 or 24.0% compared to the same period in 1995. Payroll costs in the second quarter of 1996 were $229,041 or 21.8% higher than the second quarter of 1995. The increase is due to an increase in full-time equivalent employees, primarily due to the start-up of the Internet Service and Personal Communications Services operations. PAGE SHENANDOAH TELECOMMUNICATIONS COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (Continued) The expense category with the largest increase in the first half of 1996 over the first half of 1995 was Network and Other. The 63.5% increase was due primarily to facilities costs attributed to our Internet Service operation and to network costs for our wireless businesses. Second quarter and year-to-date 1996 facilities costs for our Internet access business, were 118.76% and 224.24% higher respectively than for the same periods of 1995. Costs for incollect roaming on our cellular network for the second quarter of 1996, increased 73.0% compared to the second quarter of 1995. The year-to-date increase was 52.8%. Network costs for our PCS operation were $110,111 during the first half of 1996. The build out of this network began in late 1995 and hence no costs were recorded during the first half of 1995. Depreciation and amortization, our largest expense category, was 17.4% higher in the first quarter of 1996 compared to the same period in 1995. This is due to the increased pace of plant acquisition for the twelve months ended June 30, 1996. During this period, expenditures for construction and purchases of property and equipment equaled $11,026,843. Comparable expenditures during the twelve month period ended June 30, 1995 equaled $4,268,687. Customer operations increased 45.3% for the quarter and 41.4% year-to-date compared to the same period in 1995. These costs are for the marketing and sales, billing, and customer service functions. As with the network and other category, increases for the Internet access, cellular, and PCS businesses are primarily responsible for the increase. The increase in Taxes Other Than Income, comprised primarily of property taxes, was due to the increase in capital expenditures discussed above. PAGE SHENANDOAH TELECOMMUNICATIONS COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (Continued) The Company, along with other telecommunications providers, in 1992 founded Virginia Metrotel to construct and operate a fiber optic network in the Richmond, Virginia metropolitan area. The fiber network would provide competitive access to businesses in the area. As a result of a strategic change, it was agreed to sell this business to MFS Communications Company. The Company recognized a gain on the sale in January 1995. The amount of the gain was $872,125. The Company recognized further gains of $269,261 on subsequent sales of MFS stock in 1995. In January of 1996 the Company completed the sale of the remaining MFS stock, resulting in a gain on the sale of $228,250. LIQUIDITY AND CAPITAL RESOURCES On August 2, 1996, the Company signed a note with CoBank to borrow up to $25 million. The Company expects to begin drawing these funds in the third quarter of this year. These funds will be used for the acquisition of the Shenandoah County CATV assets of FrontierVision discussed above. This acquisition is expected to close before the end of the year. The new debt will also be used to finance the building of the new network for the PCS operation discussed above. The Company has a material contractual commitment for these capital expenditures, requiring the build out of the network within a certain time period. The Company has budgeted approximately $6,000,000 for PCS-related plant in 1996, and anticipates additional cash flow requirements for inventory and initial operating losses. The Company has budgeted capital expenditures of approximately $8,000,000 for our other subsidiaries for 1996. These capital needs will be met through internally generated cash flows and the existing Rural Telephone Bank note. The loan agreement with the RTB is in the amount of $9,240,000. The Company received an advance of $1,172,850 in June 1996. As of August 12, 1996, the Company has received advances in the amount of $5,606,750. Expenditure of these loan funds is limited to capital projects for the regulated local exchange carrier. Other available sources of liquidity is $2,000,000 in an unsecured line of credit with a local bank. An advance of $1,100,000 was made from this line of credit on August 8, 1996. The Company expects the advance to be repaid when the first draw is made from the new CoBank loan. 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 16, 1996, 2,673,375 of the Company's 3,760,760 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 to serve until the 1997 Annual Meeting: Noel M. Borden Dick D. Bowman Ken L. Burch Christopher E. French Philip M. Grabill, Jr. Grover M. Holler, Jr. Harold Morrison, Jr. Zane Neff 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 Noel M. Borden 2,642,620 30,755 Dick D. Bowman 2,648,044 25,331 Ken L. Burch 2,648,748 24,627 Christopher E. French 2,648,068 25,307 Philip M. Grabill, Jr. 2,638,453 34,922 Grover M. Holler, Jr. 2,642,121 31,254 Harold Morrison, Jr. 2,648,708 24,667 Zane Neff 2,663,124 10,251 James E. Zerkel II 2,642,019 31,356 PAGE SHENANDOAH TELECOMMUNICATIONS COMPANY PART II OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders (Continued) (2) Approval of Stock Incentive Plan. Provided that a quorum is present, ratification of the Stock Incentive Plan requires the affirmative vote of a majority of the votes cast, and as a result, in tabulating the vote, abstentions do not have the effect of working against ratification. Adoption of the Stock Incentive Plan was approved, having received the following vote: FOR: 2,537,590 AGAINST: 80,447 ABSTAIN: 55,338 ITEM 6. Exhibits and Reports on Form 8-K None 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, 1996 CHRISTOPHER E. FRENCH Christopher E. French President August 13, 1996 LAURENCE F. PAXTON Laurence F. Paxton Vice President - Finance
EX-27 2
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