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 the Three Months Ended March 31, 2003
Commission File Number 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 Number)
PO Box 459, Edinburg, Virginia 22824
(Address of principal executive offices 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 by check mark whether the registration is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of April 30, 2003 set forth below:
Class Outstanding at April 30, 2003
Common Stock, No Par Value 3,785,975 Shares
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
INDEX
Page
Numbers
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets
March 31, 2003 and December 31, 2002 3-4
Unaudited Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 2003 and 2002 5-6
Unaudited Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 2003 and 2002 7
Unaudited Condensed Consolidated Statements of
Shareholders' Equity and Comprehensive Income
for the Three Months Ended March 31, 2003 and the
Twelve Months Ended December 31, 2002 8
Notes to Unaudited Condensed Consolidated
Financial Statements 9-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-21
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 22
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 23
Certifications 23-25
Signatures 26
2
Item 1. FINANCIAL STATEMENTS
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
Assets 2003 2002
-------- --------
Current Assets
Cash and cash equivalents $ 36,288 $ 2,209
Accounts receivable, net 6,083 7,536
Income tax receivable -- 12
Materials and supplies 1,722 1,787
Prepaid expenses and other 2,041 2,205
Deferred income taxes 1,230 1,197
Assets held for sale -- 5,548
-------- --------
Total current assets 47,364 20,494
Securities and investments
Available-for-sale securities 132 151
Other investments 7,077 7,272
-------- --------
Total securities and investments 7,209 7,423
Property, plant and equipment, net 130,267 132,152
Other Assets
Cost in excess of net assets of business
acquired 3,217 3,217
Deferred charges and other assets, net 689 718
Escrow account (Note 8) 5,005 --
-------- --------
Total other assets 8,911 3,935
-------- --------
Total Assets $193,751 $164,004
======== ========
(continued)
3
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
March 31, December 31,
Liabilities and Shareholders' Equity 2003 2002
--------- ---------
Current Liabilities
Current maturities of long-term debt $ 4,181 $ 4,482
Notes payable -- 3,503
Accounts payable 5,234 5,003
Advance billings and deposits 3,541 3,538
Income taxes payable 13,705 --
Liabilities held for sale -- 542
Other current liabilities (Note 9) 2,625 2,832
--------- ---------
Total current liabilities 29,286 19,900
Long-term debt, less current maturities 43,028 47,561
Other Liabilities
Deferred income taxes 17,392 15,859
Pension & other 2,767 2,441
--------- ---------
Total other liabilities 20,159 18,300
Minority interests in discontinued operations -- 1,666
Shareholders' Equity
Common stock 5,472 5,246
Retained earnings 95,818 71,335
Accumulated other comprehensive income
(loss) (12) (4)
--------- ---------
Total shareholders' equity 101,278 76,577
--------- ---------
Total Liabilities and Shareholders' Equity $ 193,751 $ 164,004
========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
4
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three months ended
(in thousands, except per share data) March 31,
2003 2002
-------- --------
Operating Revenues
Wireless $ 15,634 $ 11,754
Wireline 7,639 7,421
Other revenues 1,674 1,521
-------- --------
Total revenues 24,947 20,696
Operating Expenses
Cost of goods and services 2,289 2,649
Network operating costs 8,046 7,047
Depreciation and amortization 4,021 3,344
Selling, general and administrative 6,441 5,340
-------- --------
Total operating expense 20,797 18,380
-------- --------
Operating Income 4,150 2,316
Other Income (expense):
Non-operating income, net 204 119
Loss on investments, net (328) (692)
Interest expense (954) (1,068)
-------- --------
Income before income taxes, discontinued
operations and cumulative effect 3,072 675
Income tax provision (1,141) (305)
-------- --------
Income from continuing operations 1,931 370
Income from discontinued operations, net of
income taxes 22,628 1,786
Cumulative effect of a change in accounting, net
of income taxes (76) --
-------- --------
Net income $ 24,483 $ 2,156
======== ========
Net income per share, basic
Continuing operations $ 0.51 $ 0.10
Discontinued operations, net of income taxes 5.98 0.47
Cumulative effect of a change in accounting,
net of income taxes (0.02) --
-------- --------
Total net income per share, basic $ 6.47 $ 0.57
======== ========
Net income per share, diluted
Continuing operations $ 0.51 $ 0.10
Discontinued operations, net of income taxes 5.96 0.47
Cumulative effect of a change in accounting,
Net of income taxes (0.02) --
-------- --------
Total net income per share, diluted $ 6.45 $ 0.57
======== ========
Weighted average shares outstanding, basic 3,782 3,765
======== ========
Weighted average shares, diluted 3,796 3,783
======== ========
(continued)
5
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(continued)
Three months ended
(in thousands, except per share data) March 31,
2002
---------
Pro forma amounts assuming the Company adopted
FAS 143 retroactively:
Pro forma income from continuing operations $ 367
Discontinued operations, net of income taxes 1,786
---------
Pro forma net income $ 2,153
=========
Pro forma net income per share, basic
Pro forma income from continued operations $ 0.10
Discontinued operations, net of income taxes 0.47
---------
Pro forma net income per share, basic $ 0.57
=========
Pro forma net income per share, diluted
Pro forma income from continuing operations $ 0.10
Discontinued operations, net of income taxes 0.47
---------
Pro forma net income per share, diluted $ 0.57
=========
See accompanying notes to unaudited condensed consolidated financial statements.
6
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Three months ended
March 31,
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 1,931 $ 370
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 4,019 3,342
Amortization 2 2
Deferred income taxes 1,554 116
(Gain) loss on investments (83) 394
Net loss from patronage and equity investments 292 126
Loss on disposal of equipment 20 14
Other 99 392
Changes in current assets and liabilities:
(Increase) decrease in:
Accounts receivable 1,453 (1,887)
Materials and supplies 65 (2,105)
Increase (decrease) in
Accounts payable 231 2,979
Other prepaids, deferrals and accruals 138 730
-------- --------
Net cash provided by operating activities 9,721 4,473
Cash Flows from Investing Activities
Purchases of property, plant & equipment (2,027) (5,814)
Purchases of other investments (177) (1,345)
Proceeds from sale of available-for-sale securities 151 57
Proceeds from disposal of assets -- 1,704
-------- --------
Net cash used in investing activities (2,053) (5,398)
Cash Flows from Financing Activities
Payments on long-term debt and revolving loan (8,337) (1,909)
Proceeds from issuance of common stock upon
exercise of stock options 226 53
-------- --------
Net cash used in financing activities (8,111) (1,856)
-------- --------
Net cash used in continuing operations (443) (2,781)
Net cash provided by discontinued operations 34,522 1,720
-------- --------
Net increase (decrease) in cash and cash equivalents 34,079 (1,061)
Cash and Cash Equivalents
Beginning 2,209 2,037
-------- --------
Ending $ 36,288 $ 976
======== ========
Cash paid for:
Interest paid $ 962 $ 1,067
Income taxes (net of refunds) $ 121 $ 31
See accompanying notes to unaudited condensed consolidated financial statements.
7
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(in thousands)
Accumulated
Other
Common Retained Comprehensive
Shares Stock Earnings Income (Loss) Total
--------- --------- --------- --------- ---------
Balance, December 31, 2001 3,765 $ 4,950 $ 69,610 $ 42 $ 74,602
Comprehensive income:
Net income -- -- 4,519 -- 4,519
Net unrealized change in
securities available-for-sale,
net of tax of $ 29 -- -- -- (46) (46)
---------
Total comprehensive income 4,473
Dividends declared ($ 0.74 per share) (2,794) (2,794)
Common stock issued through the
exercise of incentive stock options
and stock grants 11 296 -- -- 296
--------- --------- --------- --------- ---------
Balance, December 31, 2002 3,776 $ 5,246 $ 71,335 $ (4) $ 76,577
(unaudited)
Comprehensive income: Net income -- -- 24,483 -- 24,483
Net unrealized change in securities
available-for-sale, net of tax of $ 5 -- -- -- (8) (8)
---------
Total comprehensive income 24,475
Common stock issued through the
exercise of incentive stock options 10 226 -- -- 226
--------- --------- --------- --------- ---------
Balance, March 31, 2003 3,786 $ 5,472 $ 95,818 $ (12) $ 101,278
========= ========= ========= ========= =========
See accompanying notes to unaudited condensed consolidated financial statements.
8
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The interim condensed consolidated financial statements of Shenandoah
Telecommunications Company and Subsidiaries (collectively, the Company) are
unaudited. In the opinion of management, all adjustments necessary for a fair
statement of the interim results have been reflected therein. All such
adjustments were of a normal and recurring nature. These statements should be
read in conjunction with the consolidated financial statements and related notes
in the Company's Annual Report to Shareholders, which are incorporated by
reference in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002. The balance sheet information at December 31, 2002 was
derived from the audited December 31, 2002 consolidated balance sheet.
2. Operating revenues and income from continuing operations and discontinued
operations for any interim period are not necessarily indicative of results that
may be expected for the entire year.
3. To account for its stock options granted under the Company Stock Incentive
Plan (the Plan), the Company applies the intrinsic value-based method of
accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations including
Financial Accounting Standards Board (FASB) Interpretation No. 44, Accounting
for Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25 issued in March 2000. Under this method, compensation expense is
recorded on the date of the grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 123, Accounting for
Stock-Based Compensation, established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123, as amended
by SFAS No. 148, Accounting for Stock-Based Compensation--Transition and
Disclosure--an amendment of FASB Statement No. 123.
Grants of options under the Plan are accounted for following the APB Opinion No.
25 and related interpretations. Accordingly, no compensation expense has been
recognized under the Plan. Had compensation expense been recorded, based on fair
values of the awards at the grant date (the method prescribed in SFAS No. 123),
reported net income and earnings per share would have been reduced to the pro
forma amounts shown in the following table:
For the three months ended March 31, 2003 2002
---- ----
(in thousands, except
per share amounts)
Net Income
As reported $ 24,483 $ 2,156
Pro forma 24,427 2,100
Earnings per share, basic and diluted
As reported, basic $ 6.47 $ 0.57
As reported, diluted 6.45 0.57
Pro forma, basic 6.45 0.56
Pro forma, diluted 6.43 0.56
9
4. Basic net income per share was computed on the weighted average number of
shares outstanding. Diluted net income per share was computed under the treasury
stock method, assuming the conversion as of the beginning of the period, for all
dilutive stock options. There were no adjustments to net income in the
computation of dilutive net income per share for any period.
5. The Company has identified nine reporting segments based on the products and
services each provide. Each segment is managed and evaluated separately because
of diverse technologies and marketing strategies. A summary of unaudited
external operating revenues, internal operating revenues, operating income
(loss), income (loss) from continuing operations, income from discontinued
operations, cumulative effect of accounting change, and net income (loss) of
each segment is as follows.
In thousands For the three months ended
(unaudited) March 31, 2003
Income Cumulative
Operating (loss) from Income from effect of
External Internal Income continuing discontinued accounting Net income
Revenues Revenues (loss) operations operations change (loss)
--------- --------- --------- --------- --------- --------- ---------
Holding $ -- $ -- $ (140) $ (47) -- -- $ (47)
Telephone 6,003 734 3,573 2,162 12 -- 2,162
Cable TV 1,097 1 246 73 -- -- 73
ShenTel 1,659 80 370 209 -- -- 209
Leasing 4 -- 1 1 -- -- 1
Mobile 658 300 258 (6) 22,628 (76) 22,546
PCS 14,976 -- (305) (684) -- -- (684)
Long Distance 341 127 206 131 -- -- 131
Network 198 31 155 96 -- -- 96
ShenTel Communications 11 -- (8) (4) -- -- (4)
--------- --------- --------- --------- --------- --------- ---------
Combined totals $ 24,947 $ 1,273 $ 4,356 $ 1,931 $ 22,640 (76) $ 24,483
Inter-segment
eliminations -- (1,273) (206) -- (12) -- --
--------- --------- --------- --------- --------- --------- ---------
Consolidated totals $ 24,947 $ -- $ 4,150 $ 1,931 22,628 (76) $ 24,483
========= ========= ========= ========= ========= ========= =========
10
In thousands For the three months ended
(unaudited) March 31, 2002
Income Cumulative
(loss) from Income from effect of
External Internal Operating continuing discontinued accounting Net income
Revenues Revenues Income operations operations change (loss)
-------- -------- -------- -------- -------- -------- --------
Holding $ -- $ -- $ (156) $ (359) -- -- $ (359)
Telephone 5,797 670 3,396 1,929 18 -- 1,929
Cable TV 1,087 1 308 104 1 -- 104
ShenTel 1,515 89 173 27 -- -- 27
Leasing 6 -- (135) 2 -- -- 2
Mobile 593 320 395 (16) 1,786 -- 1,770
PCS 11,161 9 (1,761) (1,558) -- -- (1,558)
Long Distance 273 151 161 99 -- -- 99
Network 264 32 223 142 -- -- 142
ShenTel Communications -- -- (3) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Combined totals $ 20,696 $ 1,272 $ 2,601 $ 370 $ 1,805 -- $ 2,156
Inter-segment
eliminations -- (1,272) (285) -- (19) -- --
-------- -------- -------- -------- -------- -------- --------
Consolidated totals $ 20,696 $ -- $ 2,316 $ 370 $ 1,786 -- $ 2,156
======== ======== ======== ======== ======== ======== ========
The Company's assets by segment as of March 31, 2003, December 31, 2002, and
March 31, 2002 are as follows:
In thousands March 31, December 31, March 31,
(unaudited) 2003 2002 2002
--------- --------- ---------
Holding $ 143,631 $ 112,765 $ 114,390
Telephone 57,173 59,554 58,977
Cable TV 10,776 10,961 10,953
ShenTel 6,115 6,255 5,227
Leasing 183 187 257
Mobile 16,854 17,482 18,804
PCS 68,104 71,256 62,482
Long Distance 552 343 367
Network 1,232 1,084 1,545
ShenTel Communications 111 115 100
--------- --------- ---------
Combined totals 304,731 $ 280,002 $ 273,102
Inter-segment eliminations (110,980) (115,998) (104,812)
--------- --------- ---------
Consolidated totals $ 193,751 $ 164,004 $ 168,290
========= ========= =========
6. Comprehensive income includes net income along with net unrealized gains and
losses on the Company's available-for-sale investments. A summary of the
unaudited results follow:
In thousands For the three months ended
March 31,
2003 2002
-------- --------
Net income $ 24,483 $ 2,156
Net unrealized loss (8) (1,789)
-------- --------
Comprehensive income $ 24,475 $ 367
======== ========
11
7. Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation. These reclassifications
had no effect on previously reported results of operations or retained earnings.
8. On February 28, 2003, the Company completed the sale of its 66% interest in
the Virginia 10 RSA Limited Partnership for $37.0 million. At closing, the
Company received cash of $33.7 million, which included $1.7 million related to
the Company's portion of the partnership's working capital as of the closing
date. As part of the sales agreement, $5.0 million was paid into an escrow
account for a period of two years to offset certain liabilities of the
partnership that may arise which relate to its operation during the Company's
management of the partnership. The Company recorded a gain on the sale of $21.5
million after taxes, and has recorded the transaction as a component of the
discontinued operations in the condensed consolidated statements of income for
the three-month period ended March 31, 2003.
9. The Company adopted Statements of Financial Accounting Standards (SFAS) No.
143, Accounting for Asset Retirement Obligations, effective January 1, 2003.
SFAS No. 143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it becomes a legal obligation.
The impact of the adoption of this statement is reflected as a cumulative effect
of a change in accounting on the condensed consolidated statements of income for
the three-month period ended March 31, 2003. The impact of the adoption of SFAS
No. 143 was the recording of a capitalized asset retirement obligation of $158
thousand, the related accumulated depreciation of $32 thousand, the present
value of the future removal obligation of $249 thousand, and the cumulative
effect of the accounting change of $76 thousand after taxes recorded on the
income statement.
The Company recorded the retirement obligation on towers owned where there is a
legal obligation to remove the tower at the time the Company discontinues its
use. The obligation was estimated based on the size of the tower. The Company's
cost to remove the towers is accrued over the life of the tower. The pro forma
liability on January 1, 2002 would have been $236 thousand, and was $249
thousand on December 31, 2002. On March 31, 2003, the liability was $252
thousand. The current expense for the accretion and depreciation related to the
adoption of SFAS No.143 is $5 thousand before taxes.
10. Subsequent to March 31, 2003, because of the Company's enhanced liquidity
resulting from the asset sale described in Note 8, the Company elected to
terminate its $20.0 revolving line of credit with CoBank effective May 15, 2003.
The Company is also considering terminating its $2.5 million revolving line of
credit with SunTrust Bank, as a result of its enhanced liquidity position.
12
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The statements contained in this management's discussion that are not purely
historical are forward-looking statements within the meaning of Section 27 A of
the Securities Act of 1933 and Section 21 E of the Securities Exchange Act of
1934, including statements regarding our expectations, hopes, intentions or
strategies regarding the future. 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 takes no obligation to publicly revise
these forward-looking statements to reflect subsequent events or circumstances.
Shenandoah Telecommunications Company and subsidiaries (the Company) provide
telephone service, long distance, personal communications service (PCS), cable
television, unregulated telecommunications equipment and services, internet
access, paging, and digital subscriber loop (DSL) services. In addition, through
its subsidiaries, the Company leases towers and operates and maintains an
interstate fiber optic network. Competitive local exchange carrier (CLEC)
services are currently being offered on a limited basis. The Company's
operations are principally along the Interstate 81 corridor from the Northern
Shenandoah Valley of Virginia through West Virginia, Maryland, and into South
Central Pennsylvania.
The Company reports revenues in three categories; wireless, wireline and other
revenues. These revenue classifications are defined as follows: Wireless
revenues are made up of Shenandoah Personal Communications Company (PCS), and
the Mobile Company, including tower revenues. The wireline revenues include the
following subsidiary revenues in the financial results: the Telephone Company,
the Network Company, the Cable Television Company, and the Long Distance
Company. Other revenues are comprised of the revenues of ShenTel Service
Company, the Leasing Company, ShenTel Communications Company, and the Holding
Company.
13
Selected Operating Statistics
The following table shows selected operating statistics of the Company for the
previous five quarters. This information is unaudited, and is provided as a
supplement to the financial statements.
Three Month Period Ended
(Unaudited) Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
2003 2002 2002 2002 2002
-------- -------- -------- -------- --------
Telephone Access Lines 24,903 24,879 24,933 24,859 24,751
CATV Subscribers 8,704 8,677 8,707 8,729 8,740
Internet Subscribers 19,026 18,696 18,559 18,300 18,083
Digital PCS Subscribers 72,480 67,842 62,434 59,962 56,624
Paging Subscribers 2,805 2,940 3,002 3,071 3,136
Long Distance Subscribers 9,312 9,310 9,338 9,316 9,341
Fiber Route Miles 552 549 543 543 524
Total Fiber Miles 28,729 28,403 28,243 28,243 26,804
Long Distance Calls (000) (1) 6,812 5,969 6,138 5,949 5,431
Switched Access Minutes (000) (1) 48,380 46,627 46,525 42,816 38,398
CDMA Base Stations (sites) 240 237 231 220 207
Towers (over 100 foot) 72 72 72 72 65
Towers (under 100 foot) 10 10 10 10 10
(See (2) for definitions of terms)
PCS Market POPS (000) 2,048 2,048 2,048 2,048 2,048
PCS Covered POPS (000) 1,555 1,555 1,555 1,512 1,455
PCS ARPU (ex. Travel) $ 52.22 $ 51.38 $ 53.58 $ 49.93 $ 50.49
PCS Travel rev. per sub $ 17.39 $ 31.21 $ 31.90 $ 26.56 $ 21.91
PCS Ave. mgmt. Fee per sub $ 4.40 $ 4.64 $ 4.29 $ 3.99 $ 4.04
PCS Ave. monthly churn % 2.30% 3.40% 4.00% 3.21% 2.84%
PCS CPGA $ 276.97 $ 390.66 $ 344.77 $ 281.79 $ 235.40
PCS CCPU $ 45.87 $ 53.52 $ 53.93 $ 48.26 $ 46.45
(1) - Originated by customers of the Company's Telephone subsidiary
(2) - POPS refers to the estimated population of a given geographic area. Market
POPS are those within a market area, and Covered POPS are those covered by
the network's service area. ARPU is Average Revenue Per User, before
travel, roaming revenue, and management fee, net of adjustments divided by
average subscribers. PCS Travel revenue includes roamer revenue and is
divided by average subscribers. PCS Average management fee per subscriber
is 8 % of collected revenue paid to Sprint, excluding travel revenue. PCS
Ave Monthly Churn is the average of three monthly calculations of
deactivations (excluding returns less than 30 days) divided by beginning
of period subscribers. CPGA is Cost Per Gross Add and includes selling
costs, product costs, and advertising costs. CCPU is Cash Cost Per User,
and includes network, customer care and other costs.
14
Recent Developments
In recent years, the principal source of the Company's revenues has shifted from
traditional wireline revenues to wireless revenues. For the three months ended
March 31, 2003, wireless revenue was 62.7% of total revenue, wireline revenue
contributed 30.6% of total revenue, and other revenue was 6.7% of total revenue.
These results compare to 56.8% for wireless, 35.9% for wireline and 7.3% for
other, for the three months ended March 31, 2002.
The Company's strategy in the last several years has been to expand its services
and the geographic areas served. This strategy has been implemented primarily
through enhancing the PCS network, using CDMA technology, under the national
brand of Sprint. The Company's efforts to market its services in the expanded
PCS network area contributed to new subscribers purchasing phones and services
which continued to contribute higher revenues during the first three months of
2003. The Company had 240 PCS CDMA base stations in service at March 31, 2003,
compared to 207 base stations in service March 31, 2002. This increase in base
stations is primarily the result of supplementing the network coverage and
extending coverage along several highly traveled secondary roads in the
Company's market areas. The Company has shifted its focus from building the
initial network to improving service and operating the network in an effective
manner to provide good service to the subscribers and to improve operating
results.
The Company is dependent on Sprint for the reporting of a significant portion of
PCS revenues, particularly travel and service revenue. Controls and processes
have been adopted by the Company and Sprint to review, test, and validate
information being reported to the Company. The Company continually monitors and
tracks the data provided by Sprint to identify potential unexpected trends in
the information.
As previously reported, a further reduction in the Sprint travel rate took
effect January 1, 2003. The new rate is $0.058 per minute for payable and
receivable minutes. The Company is in a net travel receivable position of $1.1
million for the current quarter, including the long distance portion of that
traffic.
As discussed in the Company's annual report on Form 10-K for the 2002 year, the
Company experienced a shift in PCS customer additions from prime to sub-prime
credit classes in late 2001 and early 2002, associated with the Sprint ClearPay
no-deposit program. To limit additional exposure to bad debt expense and
customer churn (customer disconnects), the Company initiated a deposit of $125
in April 2002 for credit challenged prospective customers. For the remainder of
2002, the Company experienced high rates of churn and bad debt expense. In the
first quarter of 2003, the Company's average churn rate declined to 2.30%, down
from 3.40% in fourth quarter 2002, and below third quarter's high of 4.00%.
Management is encouraged by this decline, but remains cautious as there is no
guarantee this improving trend will continue into the future. Bad debt expense
reflected a similar improvement compared to fourth quarter results, but the
expense still remains above management's expectations. Bad debt expense
increased significantly in the third and fourth quarters of 2002, as a
downstream result of the ClearPay no-deposit program suspended in April 2002.
Bad debt expense for the PCS operation, as a percentage of service revenues, was
16.8% in third quarter 2002, 12.5% in fourth quarter 2002, and 8.7% in first
quarter 2003.
15
The financial situation of the Company changed during the first quarter of 2003,
due principally to the sale of the Company's 66% interest in the Virginia 10 RSA
partnership. At the close of this transaction on February 28, 2003, the Company
received $37.0 million, of which $5.0 million was placed in escrow. In addition
to the initial proceeds of $32.0 million, the Company received an additional
$1.7 million for working capital adjustments. The proceeds have been invested in
low risk, highly liquid federal government instruments. The Company will pay
approximately $12.0 million in taxes on the transaction this year, with the
remaining taxes due upon the release of amounts remaining in the escrow
arrangement, which terminates in 2005. In addition to this transaction, the
Company experienced improved operating income and decreased capital spending
during the quarter. The Company paid off $8.3 million in debt during the
quarter, of which $3.8 million was a prepayment of fixed rate debt. This was
done without using proceeds from the Virginia 10 RSA transaction. The Company's
ratio of total debt to total assets ended the quarter at 24.4%, compared to
33.8% at the end of 2002.
Operating Risks
The Company has been contacted by Sprint about the potential requirement to
replace certain PCS base station equipment by the end of 2005. Sprint, its
affected PCS affiliates, and the equipment vendor are actively discussing
options for extending the life of this equipment into 2008. If the Company is
required to replace this equipment by 2005, the impact of this change in the
asset lives could increase depreciation expense and have a significant adverse
impact on the results of operations and also on the liquidity of the Company.
The Company continues to monitor the net balance of PCS travel revenue and
expense. This could change significantly due to changes in service plan
offerings, weather, natural disasters, and numerous other factors beyond the
Company's control. Changes in travel habits by the Company's subscribers or
other Sprint subscribers could also impact this relationship. One of the other
PCS affiliates of Sprint has filed for bankruptcy, and two other affiliates have
recently received going concern audit opinions from their external accountants.
The Company's PCS churn rate, bad debt expense and handset upgrades for existing
customers are items that can individually and collectively have a material
adverse impact on the operating results of the Company.
The Company does not have significant control over the service plan mixes
offered to Sprint customers in the increasingly competitive wireless
telecommunications industry. As a result, the plans offered may have a material
adverse effect on the Company's results of operations.
The Company's revenue from fiber leases may be adversely impacted by continued
erosion in demand or in prices charged for these facilities. There is also the
potential for additional bankruptcies of the Company's lease customers. The
Company is monitoring each of its fiber lease customers closely to minimize the
risk related to this business.
The Company's access revenue may be adversely impacted by legislative or
regulatory action that decrease access rates or exempt certain traffic from
paying access to the Company's regulated telephone network.
16
Results Of Operations First Quarter 2003 vs. First Quarter 2002
General
Total revenue for the first quarter of 2003 was $24.9 million, an increase of
$4.2 million, or 20.5% compared to $20.7 million for the first quarter of 2002.
Total revenues include wireless revenue of $15.6 million, an increase of $3.9
million or 33.0%; wireline revenues of $7.6 million, an increase of $0.2
million, or 2.9%; and other revenues of $1.7 million, an increase of $0.2
million or 10.1%. Income from continuing operations increased $1.5 million, to
$1.9 million or 422%, compared to $0.4 million for the same period in 2002.
Income per share from continuing operations, diluted was $0.51 cents per share,
compared to $0.10 cents for the same period last year.
Revenues
Within wireless revenues, the PCS operation added 15,856 PCS subscribers since
March 31, 2002, which contributed to a $2.6 million or 37% increase in
subscriber revenue compared to first quarter of 2002. Total service revenues
were $9.9 million for 2003, an increase of $2.6 million or 36.6% compared to
$7.3 million for 2002. As of March 31, 2003, the Company has 72,480 PCS
subscribers. The Company's Average Revenue Per User (ARPU) increased 3.4% to
$52.22 for the first quarter of 2003, compared to $50.49 for the first quarter
of 2002, and increased 1.6% from the fourth quarter 2002 ARPU of $51.38. As
discussed in the Operating Risks section, competitive pressures may result in
decreased ARPU going forward. PCS travel and roamer revenue combined were $4.6
million, and contributed a $1.2 million or 28.6% increase to the revenue growth
for the first quarter of 2003. Travel and roamer revenue growth was attributable
to increased usage of the network by Sprint wireless customers residing outside
of our PCS territory and other carriers customers using the network. The travel
revenue rate has declined from $0.10 per minute in 2002, to $0.058 per minute as
of January 1, 2003.
Handset sales revenue decreased nominally in the first quarter of 2003, while
tower lease revenue contributed to the additional $50 thousand increase over the
first quarter 2002 results.
Wireline revenues were $7.6 million, an increase of $0.2 million or 2.9%. Access
revenue in the telephone business increased $0.6 million, due to the growing
number of wireless customers' calls transiting segments of the regulated
telephone network. Lease revenue for the Company's fiber network facilities
decreased $0.4 million compared to the same period last year. The Company's
fiber network facility lease business was impacted by the decrease in demand for
fiber capacity. During mid 2002 the Company experienced disconnects and lower
revenues due to bankruptcies of several fiber customers. Highly competitive
pricing by other fiber providers may result in additional pricing reductions as
expiring leases come up for renewal. To maintain competitive advantage, the
Company increasingly offers diversity in its fiber facilities. Cable television
revenues for the first quarter were approximately the same for both 2003 and
2002.
Other revenues were $1.7 million, an increase of $0.2 million or 10.1%. Internet
revenues increased $0.1 million or 11.0%. Internet subscribers increased 943, or
5.2%, compared to March 31, 2002 subscribers. The total subscriber base for the
Company's Internet service was 19,026 as of March 31, 2003. The 511Virginia
travel information project contributed $0.1
17
million to the increased revenues in the first quarter of 2003, due to a renewed
contract with the Commonwealth of Virginia.
Operating Expenses
Total operating expense was $20.8 million, an increase of $2.4 million or 13.2%,
compared to $18.4 million for first quarter last year. The increase in PCS
subscribers and the expanded PCS operation were the principal factors driving
costs higher.
Costs of goods and services were $2.3 million, a decrease of $0.4 million or
13.6%, changing primarily due to the decrease in gross additions of subscribers
in the PCS operation. During the first quarter of 2003, the Company added 10,359
new subscribers before disconnections compared to 13,377 new subscribers added
in the first quarter last year. This 22.6% decline in gross additions is greater
than the decrease in cost of goods sold due to increased average handset costs.
The average cost of a handset has increased due to new feature additions in many
of the handsets sold. The Company also experienced a growing number of handset
upgrades by existing subscribers. This contributed to higher cost of goods sold
over prior period results. Management anticipates this trend will continue, and
may increase significantly in the future. Other costs of goods and services
remained approximately the same compared to the first quarter of 2002.
Network operating costs were $8.0 million, an increase of $1.0 million, or
14.2%. Additional network lines and added traffic over the network were the
major causes for the increase in costs. Line costs in the PCS operation
increased $0.3 million, while travel expense was up $0.3 million compared to
first quarter last year. Increased maintenance costs for towers and buildings
contributed $0.1 million to the increased network operating costs. The Company's
rent expense increased $0.1 million due to added sites in the PCS operation.
In the Company's PCS operation cash cost per user (CCPU) declined to $45.87, a
1.2% decrease from the first quarter of 2002. The reduction in the travel rate
was responsible for part of the decrease, in addition to the increase in total
subscribers contributing to the fixed costs of operating the network. The
Company's cost per gross add (CPGA) increased to $276.97 or 17.7% from first
quarter of 2002, due to decreased gross additions and increased selling costs
over the same period last year. This CPGA figure is a reduction of $115 from the
fourth quarter 2002 high of $390.66 due to the seasonal promotions run in that
period, particularly on the handset sales around the holiday season.
Depreciation and amortization expense was $4.0 million, an increase of $0.7
million or 20.2% compared to $3.3 million for the first quarter of 2002, as new
assets, particularly in the PCS operation, have been added to the networks.
Depreciation expense has not increased as rapidly over the most recent quarters
as the Company's rate of capital spending has slowed from its peak in mid-2001.
Selling, general and administrative costs were $6.4 million, an increase of $1.1
million or 20.6%. Selling expenses and customer support made up $0.6 million of
the increase in selling, general and administrative expenses, due to the
increase in billing and customer care costs and increased customers being served
particularly in the PCS operation. Administrative and other costs increased $0.4
million, due to additional staff added to support the growing Company
operations. Bad debt expense increased $0.1 million, primarily the result of the
growing customer base in the PCS operation, offset in part by a decrease in bad
debt expense as a
18
percentage of PCS local service revenues. As discussed above, bad debt expense
increased significantly in the third and fourth quarters of 2002, as a
downstream result of the ClearPay no-deposit program suspended in April 2002.
Bad debt expense for the PCS operation, as a percentage of local service
revenues, was 16.8% in third quarter 2002, 12.5% in fourth quarter 2002, and
8.7% in first quarter 2003.
The Company's operating margin (operating income divided by total revenue) was
16.6%, up from 11.2% for the same period last year. This change was primarily
due to increased revenues generated in the wireless segment of the business,
contributing more toward the fixed costs, which have not increased as
significantly since first quarter 2002.
Other Income (Expense)
Non-operating income was up $0.1 million due to the contribution of interest
income on the proceeds from the sale of the VA 10 RSA limited partnership
interest.
Loss on external investments was $0.3 million, an improvement of $0.4 million or
52.6%, due primarily to the first quarter 2002 loss of $0.4 million on the write
down of VeriSign, Inc. and the sale of 50,000 shares of VeriSign, Inc. Excluding
the VeriSign transaction, the Company recorded similar results on external
investment in the first quarter of both years.
Interest expense decreased by $0.1 million, or 10.7%, a result of decreased
borrowing levels compared to first quarter 2002. The Company paid back nearly
$8.3 million in debt during the quarter, including $3.7 million paid late in
March 2003. The Company's total debt as of March 31, 2003 was $47.2 million,
compared to $60.7 million as of March 31, 2002 and $55.5 million at December 31,
2002.
Income before income taxes, discontinued operations and cumulative effect was
$3.1 million, an increase of $2.4 million. Operating income increased $1.8
million compared to first quarter 2002 results. Lower other expense and interest
expense also contributed to the Company's improved results.
Income tax provision was $1.1 million, an increase of $0.8 million due to higher
earnings compared to the same period last year. The change in the effective tax
rate was the result of changes in the apportionment of income and losses between
states where the Company operates.
Income from continuing operations was $1.9 million, compared to $0.4 million, an
increase of $1.5 million.
Income from discontinued operations before the gain on the sale of the
partnership was $1.1 million for the two months of 2003 prior to the sale,
compared to $1.8 million for the entire first quarter of 2002. The gain on the
sale of the partnership net of the taxes was $21.5 million.
The Company adopted FAS 143 effective January 1, 2003, and as a result recorded
a charge to earnings for the cumulative effect of this change in accounting of
$76 thousand after taxes. The quarterly impact of the adoption of this statement
was a $3 thousand charge after taxes in first quarter of 2003 and first quarter
of 2002.
19
The Company's net income increased to $24.5 million compared to $2.2 million in
2002. Income from continuing operations increased $1.5 million. Income from
discontinued operations was $22.6 million compared to $1.8 million.
Investments In Non-Affiliated Companies
The Company participates in emerging technologies by investing in entities that
invest in start-up companies. This includes indirect participation through
capital venture funds such as South Atlantic Venture Fund III, South Atlantic
Private Equity IV, Dolphin Communications Parallel Fund, Dolphin Communications
Fund II and Burton Partnership. It also includes direct participation in
companies such as NTC Communications. 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. As of March 31, 2003,
the Company held shares in two companies that are publicly traded, with the
following market values: $42 thousand in Net IQ (NTIQ) with 3,744 shares held,
and $91 thousand in Deutsche Telekom, AG (DT) with 8,219 shares held. Net
unrealized losses on the securities available-for-sale increased $11 thousand
during the first quarter of 2003 to $15 thousand, reflecting the continuing low
value placed on the technology securities in the Company's portfolio and current
market conditions.
Liquidity And Capital Resources
The Company generated $9.7 million in cash from operations in first quarter of
2003, compared to $4.5 million generated in first quarter of 2002. The change in
cash from operations is made up of a $1.5 million increase from income from
continuing operations, an increase in depreciation of $0.7 million, a reduction
in receivables of $3.3 million, and $0.3 million from changes in current asset
and liability accounts. The change in receivables was the result of the Company
receiving $1.5 million in cash of its outstanding receivable balance from
Sprint. In reviewing its cash settlement process, Sprint determined additional
cash was owed to the affiliates. This receipt of cash from Sprint reduced the
receivable balance from Sprint by 26.8%.
The Company's investing activity was approximately 38.0% of the level in first
quarter last year. Total investing was $2.1 million for the first quarter of
2003, versus $5.4 million used in first quarter 2002. Capital spending was $2.0
million, a decrease of $3.8 million or 65.1% compared to first quarter last
year. The capital budget for 2003 is approximately $19.4 million, and management
anticipates the rate of spending will increase over the remaining three quarters
of 2003.
The Company's current financing activities include the payment of long-term
debt, and the payment of revolving debt. As cash is generated from operations,
and with the cash balances available from the sale of the partnership interest,
management anticipates there will be a limited need to borrow on the Company's
revolving debt facilities for the remainder of the year. The Company presently
has the financial strength to consider investment or acquisition opportunities
that may arise as the telecommunications industry works through its financial
difficulties.
The Company's two principal sources of funds for financing expansion activities
and operations are internally generated funds and cash equivalents, the latter
primarily derived from the proceeds from the sale of the VA 10 RSA partnership
interest. As of March 31, 2003 the Company has the $33.8 million invested in
cash equivalents comprised of liquid, low risk,
20
United States government and agency instruments. The Company selected numerous
funds, and several managers to reduce its exposure to fund and management risk.
Approximately $12 million of this amount will be used in 2003 for tax payments
associated with the partnership sale. The $5 million escrow funds are also
invested in similar instruments, although the Company cannot access those funds
for two years from the close date, which was February 28, 2003.
The Company has a $20.0 million revolving line of credit with CoBank scheduled
to mature November 1, 2003. There were no outstanding balances on the $20.0
million facility as of March 31, 2003. Given the Company's current levels of
cash equivalents, the Company elected to terminate this line of credit effective
May 15, 2003. The Company's outstanding long-term CoBank debt is $40.1 million,
all of which is at fixed rates ranging from approximately 6% to 8%. The weighted
average rate of the CoBank debt at March 31, 2003 was approximately 7.6%. The
stated rate excludes patronage credits that are paid to CoBank borrowers after
CoBank's year-end. During the first quarter of 2003, the Company received
patronage credits of approximately 60 basis points on its outstanding CoBank
debt balance. Repayment of the CoBank long-term debt facilities requires monthly
payments on the debt through September 2013. There are three financial covenants
tied to these facilities. These are measured at the end of the quarter, based on
a trailing 12-month basis and are calculated on continuing operations. The ratio
of total debt to operating cash flow, which must be 3.5 or lower, was 1.3. The
equity to total assets ratio, which must be 35% or higher, was 52%. The ratio of
operating cash flow to scheduled debt service, which must exceed 2.0, was 4.5.
The Company has long-term debt with RUS/RTB that totals $7.1 million at the end
of March 2003, with maturities through 2019. The weighted average interest rate
on the RUS/RTB debt is approximately 6.03%, down from 6.51% as a result of
repaying several notes with higher rates of interest. There were no prepayment
penalties incurred with the repayment of $3.8 million on these notes in March
2003.
As part of the cash management services provided by SunTrust Banks, the Company
maintains an unsecured line of credit for $2.5 million to cover temporary
variations in liquidity. The Company made numerous payments on the line during
the quarter and there was no balance outstanding at March 31, 2003. The interest
rate on this facility is variable. The Company is evaluating the need to renew
this facility because of the liquidity available for the remainder of 2003.
Management may determine that this line of credit is not necessary at this time.
Year-to-date capital spending was $2.0 million, compared to a total capital
budget for the year of approximately $19.4 million. Major projects in the
year-to-date spending primarily include enhancements to the PCS network.
Management expects cash flow from operations and current cash and cash
equivalent balances will provide the Company with adequate capital resources for
the remainder of 2003.
21
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Our market risks relate primarily to changes in interest rates on instruments
held to maturity. Our interest rate risk involves two components. The first
component is outstanding debt with variable rates, which for the foreseeable
future will likely be limited to temporary draws on the SunTrust cash management
facility. As of March 31, 2003, the Company did not have any variable rate debt
outstanding. The Company's remaining debt has fixed rates through its maturity.
A 10% decline in interest rates would increase the fair value of the fixed rate
debt by approximately $1.6 million.
The second component of interest rate risk is temporary excess cash, primarily
invested in overnight investments. Available cash will continue to be used to
repay existing and anticipated new debt obligations when economically
beneficial, maintain and upgrading capital equipment, fund ongoing operating
expenses, and fund potential dividends to the Company's shareholders. With its
current level of available cash and cash equivalents, the Company is positioned
to evaluate potential investment or acquisition opportunities that may arise.
Management does not view either market risk as having a significant impact on
the Company's results of operations.
ITEM 4. Controls and Procedures
Within the 90 days prior to the filing date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the President and Chief Executive Officer and
the Vice President-Finance and Chief Financial Officer, of the effectiveness of
the design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. Based upon
that evaluation, the President and Chief Executive Officer and the Vice
President-Finance and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC filings.
Since the date of the evaluation, there have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls.
22
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
There were four Form 8-Ks filed for the three
months ended March 31, 2003, as set forth below:
Filing Date of Report Item Reported
January 22, 2003 Item 9 (press release announcing receipt
of approvals required for the proposed
sale of the Company's Virginia 10 RSA
Limited Partnership interest to Verizon)
February 28, 2003 Item 9 (press release announcing the 2002
year end results)
February 28, 2003 Item 9 (press release announcing the
completion of the sale of the Virginia 10
RSA Limited Partnership interest to
Verizon)
March 17, 2003 Items 2 and 7 (sale of assets and the
discontinuance of operations of the
Virginia 10 RSA Limited Partnership,
including pro forma financial statements
of the Company as of December 31, 2001 and
for the period ended September 30, 2002)
Certifications
The Chief Executive Officer and the Chief Financial Officer
submitted certifications to the Securities and Exchange Commission
required by section 906 of the Sarbanes - Oxley Act of 2002.
23
EXHIBIT A
CERTIFICATE OF CHIEF EXECUTIVE OFFICER
I, Christopher E. French, President and Chief executive Officer of Shenandoah
Telecommunications Company certify that:
1. I have reviewed this quarterly report on Form 10-Q of Shenandoah
Telecommunications Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 13, 2003 /S/ CHRISTOPHER E. FRENCH
-------------------------
Christopher E. French
President and
Chief Executive Officer
24
EXHIBIT B
CERTIFICATE OF CHIEF FINANCIAL OFFICER
I, Laurence F. Paxton, Vice President-Finance and Chief Financial Officer of
Shenandoah Telecommunications Company certify that:
1. I have reviewed this quarterly report on Form 10-Q of Shenandoah
Telecommunications Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 13, 2003 /S/ LAURENCE F. PAXTON
----------------------
Laurence F. Paxton
Vice President-Finance and
Chief Financial Officer
25
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
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 13, 2003 /s/ CHRISTOPHER E. FRENCH
Christopher E. French
President
May 13, 2003 /s/ LAURENCE F. PAXTON
Laurence F. Paxton
Vice President - Finance
26