SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the transition period from _______________ to_____________
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 No.)
500 Shentel Way
P.O. Box 459,
Edinburg, Virginia 22824
(Address of principal executive offices) (Zip Code)
(540) 984-4141
(Registrant's telephone number, including area code)
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. |X| YES |_| NO
Indicate by check mark whether the registration is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). |X| YES |_| NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 28, 2004
----- -------------------------------
Common Stock, No Par Value 7,618,152 Shares
SHENANDOAH TELECOMMUNICATIONS COMPANY
INDEX
Page
Numbers
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets
September 30, 2004 and December 31, 2003 3-4
Unaudited Condensed Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 2004 and 2003 5
Unaudited Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2004 and 2003 6
Unaudited Condensed Consolidated Statements of
Shareholders' Equity and Comprehensive Income
for the Nine Months Ended September 30, 2004 and the
Year Ended December 31, 2003 7
Notes to Unaudited Condensed Consolidated
Financial Statements 8-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-28
Item 3. Quantitative and Qualitative Disclosures about Market Risk 29
Item 4. Controls and Procedures 30-31
PART II. OTHER INFORMATION
Item 6. Exhibits 32
Signatures 33
Exhibit Index 34
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
Assets 2004 2003
------------- ------------
Current Assets
Cash and cash equivalents $ 31,523 $ 28,696
Accounts receivable, net 6,633 6,488
Income tax receivable 59 1,526
Materials and supplies 2,179 2,062
Prepaid expenses and other (Note 10) 6,923 1,669
Deferred income taxes -- 522
--------- ---------
Total current assets 47,317 40,963
Securities and investments
Available-for-sale securities 194 199
Other investments 7,651 7,268
--------- ---------
Total securities and investments 7,845 7,467
Property, plant and equipment, net 142,175 127,686
Other Assets
Cost in excess of net assets of business
acquired 5,105 5,105
Deferred charges and other assets, net 936 999
Escrow account (Note 10) -- 5,000
--------- ---------
6,041 11,104
Accumulated amortization (1,866) (1,856)
--------- ---------
Net other assets 4,175 9,248
--------- ---------
Total Assets $ 201,512 $ 185,364
========= =========
(continued)
3
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
September 30, December 31,
Liabilities and Shareholders' Equity 2004 2003
------------- ------------
Current Liabilities
Current maturities of long-term debt $ 4,313 $ 4,230
Accounts payable 12,391 4,729
Advance billings and deposits 3,343 3,326
Current deferred taxes 1,453 --
Other current liabilities 5,618 3,511
----------- -----------
Total current liabilities 27,118 15,796
Long-term debt, less current maturities 35,872 39,116
Other Liabilities
Deferred income taxes 21,375 20,819
Pension and other 2,317 3,425
----------- -----------
Total other liabilities 23,692 24,244
Shareholders' Equity
Common stock 6,054 5,733
Retained earnings 108,753 100,449
Accumulated other comprehensive income 23 26
----------- -----------
Total shareholders' equity 114,830 106,208
----------- -----------
Total Liabilities and Shareholders' Equity $ 201,512 $ 185,364
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
4
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
(in thousands, except per share data) September 30, September 30,
2004 2003 2004 2003
-------------------------------------------------------------
Operating Revenues
Wireless $ 21,959 $ 18,008 $ 61,591 $ 50,411
Wireline 7,680 7,774 22,437 21,722
Other revenues 1,631 1,800 5,014 5,240
-------------------------------------------------------------
Total revenues 31,270 27,582 89,042 77,373
Operating Expenses
Cost of goods and services 2,091 2,998 8,115 7,987
Network operating costs 9,182 8,535 26,623 25,067
Depreciation and amortization 4,715 4,180 13,447 12,328
Selling, general and administrative 8,812 7,011 25,076 20,463
-------------------------------------------------------------
Total operating expense 24,800 22,724 73,261 65,845
-------------------------------------------------------------
Operating Income 6,470 4,858 15,781 11,528
Other Income (expense):
Non-operating income (expense), net (485) 234 (70) 457
Gain (loss) on investments, net (274) 36 (146) (283)
Interest expense (756) (839) (2,327) (2,686)
-------------------------------------------------------------
Income before income taxes, discontinued
operations and cumulative effect of change in accounting 4,955 4,289 13,238 9,016
Income tax provision (1,844) (1,572) (4,934) (3,324)
-------------------------------------------------------------
Income from continuing operations 3,111 2,717 8,304 5,692
Income (loss) from discontinued operations, net of
income taxes -- (23) -- 22,605
Cumulative effect of a change in accounting,
net of income taxes -- -- -- (76)
-------------------------------------------------------------
Net income $ 3,111 $ 2,694 $ 8,304 $ 28,221
=============================================================
Net income per share, basic
Continuing operations $ 0.41 $ 0.36 $ 1.09 $ 0.75
Discontinued operations, net of income taxes -- -- -- 2.98
Cumulative effect of a change in accounting,
net of income taxes -- -- -- (0.01)
-------------------------------------------------------------
Total net income per share, basic $ 0.41 $ 0.36 $ 1.09 $ 3.72
=============================================================
Net income per share, diluted
Continuing operations $ 0.41 $ 0.35 $ 1.09 $ 0.75
Discontinued operations, net of income taxes -- -- -- 2.97
Cumulative effect of a change in accounting,
net of income taxes -- -- -- (0.01)
-------------------------------------------------------------
Total net income per share, diluted $ 0.41 $ 0.35 $ 1.09 $ 3.71
=============================================================
Weighted average shares outstanding, basic 7,613 7,581 7,608 7,573
=============================================================
Weighted average shares, diluted 7,652 7,615 7,651 7,601
=============================================================
See accompanying notes to unaudited condensed consolidated financial statements.
5
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
2004 2003
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations 8,304 5,692
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 13,437 12,324
Amortization 10 4
Deferred income taxes 1,079 2,977
Gain on investments -- (181)
(Income) loss from patronage and equity investments (112) 247
Loss on disposal of equipment 1,036 93
Other (42) 4
Changes in current assets and liabilities:
(Increase) decrease in:
Accounts receivable (145) 1,401
Materials and supplies (117) (117)
Increase (decrease) in:
Accounts payable 1,253 196
Other prepaids, deferrals and accruals 2,914 (1,389)
---------------------------
Net cash provided by operating activities 27,617 21,251
Cash Flows from Investing Activities
Purchases of property, plant and equipment (21,718) (8,749)
Purchases of other investments (668) (547)
Proceeds from investment activities 397 513
Proceeds from disposal of assets 39 64
---------------------------
Net cash used in investing activities (21,950) (8,719)
Cash Flows from Financing Activities
Payments on long-term debt and revolving loan (3,161) (11,164)
Proceeds from issuance of common stock upon
exercise of stock options 321 387
---------------------------
Net cash used in financing activities (2,840) (10,777)
---------------------------
Net cash provided by continuing operations 2,827 1,755
Net cash provided by discontinued operations -- 27,726
---------------------------
Net increase in cash and cash equivalents 2,827 29,481
Cash and Cash Equivalents
Beginning 28,696 2,209
---------------------------
Ending $ 31,523 $ 31,690
===========================
Cash paid for:
Interest paid $ 2,352 $ 2,758
Income taxes (net of refunds) $ 966 $ 10,106
Other non-cash transactions:
The Company received but had not paid for equipment with a cost of $6.1 million
and $0.4 million as of September 30, 2004 and 2003, respectively.
See accompanying notes to unaudited condensed consolidated financial statements.
6
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, 2002 7,552 $ 5,246 $ 71,335 $ (4) $ 76,577
Comprehensive income:
Net income -- -- 32,074 -- 32,074
Net unrealized change in
securities available-for-sale,
net of tax of $ (18) -- -- -- 30 30
-------------------------
Total comprehensive income 32,104
Dividends declared ($ 0.39 per share) -- -- (2,960) -- (2,960)
Common stock issued through the
exercise of stock options
and stock grants 41 487 -- -- 487
--------------------------------------------------------------------
Balance, December 31, 2003 7,593 $ 5,733 $ 100,449 $ 26 $ 106,208
Comprehensive income:
Net income -- -- 8,304 -- 8,304
Net unrealized change in securities
available-for-sale, net of tax $2 -- -- -- (3) (3)
-------------------------
Total comprehensive income 8,301
Common stock issued through the
exercise of stock options 21 321 -- -- 321
--------------------------------------------------------------------
Balance, September 30, 2004 7,614 $ 6,054 $ 108,753 $ 23 $ 114,830
====================================================================
See accompanying notes to unaudited condensed consolidated financial statements.
7
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
presentation 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 on Form 10-K for the year ended December 31,
2003. The balance sheet information at December 31, 2003 was derived from the
audited December 31, 2003 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 APB Opinion No. 25
and related interpretations. Accordingly, no compensation expense has been
recognized under the Plan for years prior to the 2004 grants. In 2004, the
Company issued tandem awards of stock options and stock appreciation rights. As
a result of the tandem awards, the Company recognized compensation expense for
the vested portion of the awards, which declined $1 thousand for the third
quarter of 2004, and is $25 thousand year to date. Had compensation expense been
recorded for the options 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 and nine months ended September 30:
(in thousands, except Three Months Ended Nine Months Ended
per share amounts) September 30, September 30,
Net Income 2004 2003 2004 2003
-------------------------------------------------------------
As reported $ 3,111 $ 2,694 $ 8,304 $ 28,221
Add: Recorded stock based
compensation expense included in
reported net income, net of related
income tax effects -- -- 16 --
Deduct: Pro forma compensation
expense, net of related income
tax effects (19) (37) (60) (104)
-------------------------------------------------------------
Pro forma $ 3,092 $ 2,657 $ 8,260 $ 28,117
Earnings per share, basic and diluted
As reported, basic $ 0.41 $ 0.36 $ 1.09 $ 3.72
As reported, diluted 0.41 0.35 1.09 3.71
Pro forma, basic 0.41 0.35 1.09 3.71
Pro forma, diluted $ 0.40 $ 0.35 $ 1.08 $ 3.70
8
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. The adjustments to net income reflect the impact of
stock based compensation recorded in the respective periods, and the impact of
the pro forma compensation expense, both net of the income tax effect.
5. The Company has identified ten reporting segments based on the products and
services each provides. Each segment is managed and evaluated separately because
of diverse technologies and marketing strategies. A summary of unaudited
external operating revenues (revenues generated from outside customers or
subscribers), internal operating revenues (revenues generated between the
Company's operating segments), operating income (loss), and net income (loss) of
each segment is as follows for the three months ended September 30, 2004 and
September 30, 2003.
Three Months Ended September 30, 2004
External Internal Operating Net Income
In thousands (unaudited) Revenues Revenues Income (loss) (loss)
--------------------------------------------------------
Holding $ -- $ -- $ (395) $ (388)
PCS 21,176 -- 3,117 1,338
Telephone 6,066 928 2,919 1,798
ShenTel Service 1,613 75 172 79
Cable TV 1,073 8 62 (50)
Mobile 784 324 549 308
Long Distance 374 358 75 49
Network 166 15 115 69
ShenTel Communications 16 -- (142) (91)
Leasing 2 -- (2) (1)
--------------------------------------------------------
Combined totals 31,270 1, 708 6,470 3,111
Inter-segment eliminations -- (1,708) -- --
--------------------------------------------------------
Consolidated totals $ 31,270 $ -- $ 6,470 $ 3,111
========================================================
Three Months Ended September 30, 2003
Net Income Income
(loss) from (loss) from
External Internal Operating continuing discontinued Net Income
In thousands (unaudited) Revenues Revenues Income (loss) operations operations (loss)
----------------------------------------------------------------------------------------
Holding $ -- $ -- $ (182) $ 113 -- $ 113
PCS 17,255 -- 739 9 -- 9
Telephone 6,281 802 3,311 2,010 -- 2,010
ShenTel Service 1,782 75 369 211 -- 211
Cable TV 1,106 15 235 60 -- 60
Mobile 753 313 185 188 (23) 165
Long Distance 206 55 50 31 -- 31
Network 181 37 157 98 -- 98
ShenTel Communications 15 -- (5) (3) -- (3)
Leasing 3 -- 1 -- -- --
----------------------------------------------------------------------------------------
Combined totals 27,582 1,297 4,860 2,717 (23) 2,694
Inter-segment eliminations -- (1,297) (2) -- -- --
----------------------------------------------------------------------------------------
Consolidated totals $ 27,582 $ -- $ 4,858 $ 2,717 $ (23) $ 2,694
========================================================================================
9
A summary of unaudited external operating revenues (revenues generated from
outside customers or subscribers), internal operating revenues (revenues
generated between the Company's operating segments), operating income (loss),
income (loss) from continuing operations, income (loss) from discontinued
operations, cumulative effect of accounting change, and net income (loss) of
each segment is as follows for the nine months ended September 30, 2004 and
September 30, 2003.
Nine Months Ended September 30, 2004
------------------------------------------------------------------------------------------------------
Net Income Income
(loss) from (loss) from
In thousands External Internal Operating continuing discontinued Cum. Net Income
(unaudited) Revenues Revenues Income (loss) operations operations effect (loss)
- -------------------------------------------------------------------------------------------------------------------------------
Holding $ -- $ -- $ (1,341) $ (839) -- -- $ (839)
PCS 59,310 1 6,110 2,716 -- -- 2,716
Telephone 17,598 2,743 8,244 5,100 -- -- 5,100
ShenTel Service 4,958 228 566 264 -- -- 264
Cable TV 3,280 23 334 27 -- -- 27
Mobile 2,282 969 1,505 808 -- -- 808
Long Distance 1,061 1,026 203 131 -- -- 131
Network 497 82 371 230 -- -- 230
ShenTel
Communications 50 -- (207) (131) -- -- (131)
Leasing 6 -- (4) (2) -- -- (2)
------------------------------------------------------------------------------------------------------
Combined totals 89,042 5,072 15,781 8,304 -- -- 8,304
Inter-segment
eliminations -- (5,072) -- -- -- --
------------------------------------------------------------------------------------------------------
Consolidated totals $ 89,042 $ -- $ 15,781 $ 8,304 -- -- $ 8,304
======================================================================================================
Nine Months Ended September 30, 2003
------------------------------------------------------------------------------------------------------
Net Income Income
(loss) from (loss) from
In thousands External Internal Operating continuing discontinued Cum. Net Income
(unaudited) Revenues Revenues Income (loss) operations operations Effect (loss)
- -------------------------------------------------------------------------------------------------------------------------------
Holding $ -- $ -- $ (495) $ 176 $ -- $ -- $ 176
PCS 48,287 1 8 (1,463) -- -- (1,463)
Telephone 16,969 2,300 8,795 5,307 12 -- 5,319
ShenTel Service 5,188 230 1,023 570 -- -- 570
Cable TV 3,312 17 696 178 -- -- 178
Mobile 2,124 918 929 434 22,605 (76) 22,963
Long Distance 877 182 336 213 -- -- 213
Network 564 107 461 286 -- -- 286
ShenTel
Communications 41 -- (19) (11) -- -- (11)
Leasing 11 -- 3 2 -- -- 2
-----------------------------------------------------------------------------------------------------
Combined totals 77,373 3,755 11,737 5,692 22,617 (76) 28,233
Inter-segment
eliminations -- (3,755) (209) -- (12) -- (12)
-----------------------------------------------------------------------------------------------------
Consolidated totals $ 77,373 $ -- $ 11,528 $ 5,692 $ 22,605 $ (76) $ 28,221
=====================================================================================================
10
The Company's assets by segment as of September 30, 2004, December 31, 2003, and
September 30, 2003 are as follows:
In thousands September 30, December 31, September 30,
(unaudited) 2004 2003 2003
-----------------------------------------------
Holding $ 137,361 $ 141,658 $ 142,749
PCS 78,170 68,773 63,179
Telephone 60,147 57,533 57,210
ShenTel Service 10,106 6,721 6,841
Cable TV 10,125 10,340 9,963
Mobile 16,869 18,396 16,897
Long Distance 212 808 1,072
Network 769 1,557 1,967
ShenTel Communications 91 78 152
Leasing 40 188 273
-------------------------------------------
Combined totals 313,890 306,052 300,303
Inter-segment eliminations (112,378) (120,688) (112,648)
-------------------------------------------
Consolidated totals $ 201,512 $ 185,364 $ 187,655
===========================================
6. Comprehensive income includes net income along with net unrealized gains and
losses on the Company's available-for-sale investments, net of the related
income tax effect. Following is a summary of comprehensive income for the
periods indicated:
Three Months Ended Nine Months Ended
In thousands (unaudited) September 30, September 30,
---------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------
Net income $ 3,111 $ 2,694 $ 8,304 $ 28,221
Net unrealized income (loss) (1) (13) (3) 8
---------------------------------------------------------
Comprehensive income $ 3,110 $ 2,681 $ 8,301 $ 28,229
=========================================================
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 20, 2004, the Company effected a 2-for-1 stock split with a
record date of January 30, 2004. Shareholders received one additional share of
common stock for each share of common stock held on the record date. All share
and per share amounts have been retroactively adjusted to reflect the impact of
the split.
11
9. The following table presents pension and other post-retirement benefits
information for the periods presented.
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------
In thousands (unaudited) 2004 2003 2004 2003
- --------------------------------------------------------------------------------------------------------------
Net periodic benefit cost recognized:
Service cost $ 166 $ 133 $ 498 $ 388
Interest cost 189 163 567 480
Expected return (135) (101) (405) (371)
Amortization of unrecognized transition asset (2) (12) (6) (31)
Recognized gains or losses 16 8 48 24
Prior service cost recognized 17 15 51 38
-----------------------------------------------------
Total $ 251 $ 206 $ 753 $ 528
=====================================================
The Company's contribution to the pension plan for 2004 was $2.0 million, which
was contributed on April 30, 2004, of which $0.1 million was a required
contribution. The Company does not plan to make any further contributions to the
plan in 2004.
10. As a result of the previously reported February 2003 sale of the Company's
cellular operation, the Company reflected those operations and the sales
proceeds as discontinued operations in the 2003 first quarter results. Of the
sales price, $5.0 million has been held in escrow and is now reflected as a
current asset under "Prepaid expenses and other" line on the accompanying
balance sheet, as of September 30, 2004. The Company expects to receive the
entire $5.0 million on or about February 28, 2005.
11. Subsequent to the close of the quarter, the Company's Board of Directors
declared a cash dividend to shareholders of record on November 12, 2004, for
$0.43 per share, payable on December 1, 2004. The total dividend will be
approximately $3.3 million.
12. Subject to the completion of due diligence and negotiation of a definitive
agreement, the Company intends to purchase all of the outstanding ownership
units (approximately 83%) of NTC Communications L.L.C. not currently owned by
the Company. NTC Communications provides voice, video and data connections to
off-campus student housing properties at universities and colleges. The total
cost to the Company (including the assumption of NTC's outstanding indebtedness)
is expected to be not more than $23.9 million. This transaction is expected to
close in November 2004.
12
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This management's discussion and analysis includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. When used in this report, the words
"anticipate," "believe," "estimate," "expect," "intend," "plan" and similar
expressions as they relate to Shenandoah Telecommunications Company or its
management are intended to identify these forward-looking statements. All
statements regarding Shenandoah Telecommunications Company's expected future
financial position and operating results, business strategy, financing plans,
forecasted trends relating to the markets in which Shenandoah Telecommunications
Company operates and similar matters are forward-looking statements. We cannot
assure you that the Company's expectations expressed or implied in these
forward-looking statements will turn out to be correct. The Company's actual
results could be materially different from its expectations because of various
factors, including those discussed below and under the caption "Business--Risk
Factors" in the Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 2003. The following management's discussion and analysis should be
read in conjunction with the Company's Annual Report on Form 10-K for its fiscal
year ended December 31, 2003, including the financial statements and related
notes included therein.
Unless indicated otherwise, dollar amounts fifty thousand and over have been
rounded to the nearest hundred thousand dollars and dollar amounts of less than
fifty thousand have been rounded to the nearest thousand dollars.
Overview
Shenandoah Telecommunications Company is a diversified telecommunications
company providing both regulated and unregulated telecommunications services
through its ten wholly owned subsidiaries. These subsidiaries provide local
exchange telephone services, and wireless personal communications services
("PCS"), as well as cable television, paging, Internet access, long distance,
fiber optics facilities, and leased tower facilities. The Company is the
exclusive provider of wireless mobility communications network products and
services under the Sprint brand from Harrisonburg, Virginia to Harrisburg, York
and Altoona, Pennsylvania. The Company refers to the Hagerstown, Maryland;
Martinsburg, West Virginia; and Harrisonburg and Winchester, Virginia markets as
its Quad State markets. The Company refers to the Altoona, Harrisburg, and York,
Pennsylvania markets as its Central Penn markets. Competitive local exchange
carrier ("CLEC") services were established on a limited basis in Virginia,
during 2002. In addition, the Company sells and leases equipment, mainly related
to services it provides, and participates in emerging services and technologies
by direct investment in non-affiliated companies.
The Company reports revenues as wireless, wireline and other revenues. These
revenue classifications are defined as follows: Wireless revenues are generated
by operations of the Personal Communications Company (a PCS Affiliate of Sprint)
and the Mobile Company's paging operations and the leasing of collocation space
on its towers. Wireline revenues are generated by the sale of local and long
distance telephone service, the provision of cable television service and the
sale and lease of network facilities. Other revenues are generated by operations
of ShenTel Service Company, the Leasing Company, ShenTel Communications Company
and the Holding
13
Company which consist primarily of the Company's Internet operation, the
Interstate 81 corridor Travel 511 project, and the sales and service of
telecommunication systems.
Selected Operating Statistics
The following table shows selected operating statistics of the Company for the
most recent five quarters. This information is unaudited, and is provided as a
supplement to the financial statements.
Three Months Ended
---------------------------------------------------------------------
(Unaudited) Sept. 30 Jun. 30, Mar. 31, Dec. 31, Sept. 30,
2004 2004 2004 2003 2003
---------------------------------------------------------------------
Telephone Access Lines 24,818 24,867 24,901 24,877 24,951
Cable Television Subscribers 8,684 8,709 8,701 8,696 8,796
Dial-up Internet Subscribers 15,817 16,422 17,063 17,420 17,616
DSL Subscribers 2,152 1,856 1,637 1,298 1,163
Retail PCS Subscribers 98,053 94,475 89,632 85,139 81,015
Wholesale PCS Users (1) 19,603 18,059 16,349 12,858 7,531
Paging Subscribers 1,684 1,782 1,862 1,989 2,107
Long Distance Subscribers 9,719 9,559 9,542 9,526 9,517
Fiber Route Miles 554 554 552 552 552
Total Fiber Miles 28,771 28,770 28,743 28,740 28,740
Wholesale PCS Minutes (000) 9,833 10,373 8,492 4,974 3,207
Long Distance Calls (000) (2) 6,117 6,228 5,821 5,851 6,078
Total Switched Access Minutes (000) 63,867 60,874 58,099 55,932 54,349
Originating Switched Access MOU (000) 18,596 18,280 18,252 17,829 18,285
Employees (full time equivalents) 303 284 272 268 264
CDMA Base Stations (sites) 261 257 257 253 248
Towers (100 foot and over) 78 78 78 77 76
Towers (under 100 foot) 10 10 11 11 10
(See note (3) for definitions of terms)
PCS Market POPS (000) 2,048 2,048 2,048 2,048 2,048
PCS Covered POPS (000) 1,611 1,610 1,585 1,581 1,581
PCS Average Revenue Per User (ARPU) (ex. Travel) $ 51.97 $ 50.63 $ 50.38 $ 52.05 $ 55.09
PCS Travel Revenue per subscriber (4) $ 19.09 $ 20.12 $ 18.20 $ 20.84 $ 16.50
PCS Ave. Management Fee per subscriber $ 4.16 $ 4.06 $ 4.07 $ 4.02 $ 4.62
PCS Ave. Monthly Retail Churn % 2.2% 1.9% 2.2% 2.3% 2.4%
PCS Cost Per Gross Addition (CPGA)(5) $ 341.59 $ 428.19 $ 371.49 $ 387.47 $ 418.22
PCS Cash Cost Per User (CCPU) (6) $ 38.15 $ 37.78 $ 38.57 $ 36.31 $ 40.05
(1) - Wholesale Digital PCS Users are private label subscribers based in the
Company's wireless network service area
(2) - Originated by customers of the Company's Telephone subsidiary
(3) - POPS refers to the estimated population of a given geographic area based
upon information purchased by Sprint from Geographic Information Systems.
Market POPS are those within a market area, which the Company is
authorized to serve under its agreements with Sprint, and Covered POPS are
those covered by the network's service area. ARPU is revenue before
travel, roaming revenue, and management fee, net of adjustments divided by
average subscribers. PCS Travel revenue includes travel, roaming and
wholesale revenue and is
14
divided by the average number of subscribers. PCS Average management fee
per subscriber is 8% of revenue retained by Sprint, excluding travel and
wholesale revenue. PCS Ave. Monthly Retail Churn % is the average of three
monthly calculations of deactivations (excluding returns less than 30
days) divided by beginning of period subscribers. CPGA includes selling
costs, product costs, and advertising costs. CCPU includes network,
customer care and other costs.
(4) - PCS travel revenue per subscriber in the fourth quarter of 2003 reflects
approximately $0.4 million in favorable adjustments and true-ups recorded
in the quarter.
(5) - The PCS CPGA in the third quarter of 2004 reflects the impact of $0.6
million of adjustments and true ups recorded in the third quarter of 2004.
(6) - PCS CCPU in the fourth quarter reflects approximately $0.6 million of
favorable adjustments and true-ups recorded in December 2003.
Significant Transactions
As previously announced, subject to the completion of due diligence and
negotiation of a definitive agreement, the Company intends to purchase of all of
the outstanding ownership units of NTC Communications L.L.C. not currently owned
by the Company. The total cost to the Company (including the assumption of NTC's
outstanding indebtedness) is expected to be not more than $23.9 million. This
transaction is expected to close in November 2004.
On October 19, 2004, the Company announced a regular dividend of $0.43 per
share, payable on December 1, 2004 to shareholders of record of November 12,
2004. This is an increase of 10.3%, with the total dividend anticipated to be
$3.3 million.
The Company has extended significant effort and resources to prepare for the
legislative requirements of the Sarbanes Oxley Act of 2002. Expenses incurred
for the nine months of 2004 for this project are approximately $0.9 million
including internal labor and costs, with additional costs to be incurred in the
fourth quarter of 2004 and the first quarter of 2005.
The Company is negotiating with a provider of network facilities with respect to
a dispute over rates charged to the Company and previously paid for facility
costs. The amount of dispute is in excess of $1.2 million, and management
believes the Company will prevail in the dispute and receive a credit or cash
settlement. The exact amount of the impact is unknown, and will be recorded at
the point the dispute amount is agreed upon.
Results of Operations
Summary
The Company's three major lines of business are wireless, wireline and other.
Each of the three business lines has unique issues and challenges that are
critical to the understanding of the operations of the Company. The wireless
business is made up of two different operations, the PCS operation and the tower
business. The wireline business is made up of traditional telephone operations,
a cable TV operation, fiber network leasing and long-distance resale. Other
businesses include the Company's Internet operation, the Interstate 81 corridor
Travel 511 project, and the sales and service of telecommunications systems.
15
Since the mid 1990's, the principal source of the Company's revenues has shifted
from traditional wireline revenues to wireless and other revenues. For the three
months ended September 30, 2004, wireless revenues accounted for 70.2% of total
revenues, wireline revenues accounted for 24.6% of total revenues, and other
revenues accounted for 5.2% of total revenues. For the three months ended
September 30, 2003, wireless revenues accounted for 65.3%, wireline revenues for
28.2% and other revenues for 6.5% of total revenues.
The Company's strategy is to expand its services and the geographic areas
served. This strategy has been implemented primarily through enhancing the PCS
network, 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 increase revenues during the
three months ended September 30, 2004. The Company had 261 PCS base stations in
service at September 30, 2004, compared to 248 base stations in service at
September 30, 2003. This increase in base stations is primarily the result of
supplementing network capacity and further extending coverage along highly
traveled secondary roads in the Company's market areas.
The Company operates its wireless network as a PCS affiliate of Sprint. The
Company receives revenues from Sprint for subscribers that obtain service in the
Company's network coverage area and subscribers that use the Company's network
when they travel. The Company relies on Sprint to provide timely, accurate and
complete information for the Company to record the appropriate revenue and
expenses for each financial period.
Through Sprint, the Company began receiving revenue from wholesale resellers in
late 2002. The Company's cost to handle this traffic is the incremental cost to
provide the necessary network capacity.
The Sprint five-year non-exclusive wholesale agreement with AT&T, discussed in
previous filings, may facilitate an increase in the wholesale minutes of use on
the Company's wireless network, which could require additional investment by the
Company to expand its wireless network capacity.
For the fourth consecutive quarter, the Company's PCS operation recorded
profitable operations, largely as a result of attainment by the PCS operation of
a break-even level of revenue generated by the number of customers in the
Company's service area. Achievement of the break-even level has enabled the
Company to cover all fixed costs of operation in addition to the coverage of all
variable costs. The PCS operation achieved this level due to more favorable
pricing from Sprint for back office services such as customer care, and a
continued favorable net travel position, wholesale revenues and a larger
customer base. A change in the contract with Sprint or a change in the economic
conditions could have an impact on the results of the PCS operation.
The Company's net travel and wholesale roaming, including the long distance and
3G data portions of that traffic, increased to a $3.1 million receivable for the
current quarter, compared to a $2.0 million receivable for the same quarter last
year. The Company's travel receivable minutes increased 22.1% to 73.5 million
and the travel payable minutes increased by 33.9% to 54.5 million, compared to
the third quarter of 2003. The increases in travel minutes receivable and
payable are primarily the result of an increase in usage of the Company's
network facilities by subscribers based in other markets and growth in
subscribers in the Company's markets.
On a per-subscriber basis, the Company's average of travel payable minutes
increased to 183 minutes in the third quarter of 2004, which represented an
increase of 19 minutes from third quarter
16
of 2003. A continuation of this trend could negatively affect the results of the
PCS operation and overall results of the Company absent any changes in the
Company's arrangements with Sprint.
In the third quarter of 2004, the Company's average PCS retail customer
turnover, or churn, rate was 2.2%, compared to 2.4% in the third quarter of
2003. To date, Wireless Local Number Portability has not had a significant
effect on the churn rate, although there is no certainty that the rate will not
be affected in future periods. Bad debt expense has improved over the last
several quarters due to the implementation of deposits and more restrictive
credit policies, but, in the third quarter of 2004, there was an increase in PCS
bad debt expense to 3.7% of PCS service revenues compared to 2.9 % in third
quarter 2003. Although management continues to monitor receivables, collection
efforts and new subscriber credit ratings, there is no certainty that the bad
debt expense will continue to remain at current levels in the future.
Over the previous several quarters, the Company experienced lower ARPU than was
experienced in 2003, which management believes was the result of adding
subscribers at a lower rate plan mix in the first nine months of 2004, in
addition to a decline in the subscribers use of minutes in excess of their
respective plans. The Company has focused on selling higher rate service plans
and additional services but there is no certainty that ARPU will not decline.
The wireline business is made up of the Company's traditional telephony, cable
TV, fiber network operations, yellow page directory and long-distance resale
business. These businesses operate in a defined geographic area. The Company's
primary service area for the telephone, cable TV and long-distance business is
Shenandoah County, Virginia. The county is a rural area in northwestern
Virginia, with a population of approximately 37,300 residents according to the
2000 US Census, updated by local data. The potential for significant numbers of
additional customers in the current operating area is limited.
The diversity of the Company's markets related to its various lines of business,
are changing significantly. There is marked population growth in the Winchester,
Virginia; Hagerstown, Maryland; and Martinsburg, West Virginia areas of the
Company's market focus. These are areas currently covered by the Company's PCS
operation. This influx of people provides the Company opportunities to market
new and additional services into those rapidly growing areas.
The Company's telephone access line count declined in the third and fourth
quarters of 2003, increased by a net 24 lines in first quarter of 2004, declined
by 34 lines in the second quarter of 2004, and further declined of 49 lines in
the third quarter of 2004. The Company believes that the declines are
attributable to the migration of traditional telephone lines to wireless and the
elimination of second access lines by conversion from dial-up Internet service
to DSL services. Based on industry experience, the Company anticipates the trend
of further access line declines to continue for the foreseeable future.
Other revenues are derived primarily from Internet services, which are provided
through both dial-up and DSL high-speed service. The Company has experienced a
decline in dial-up subscriptions over the last year, as customers move to
Internet services with faster access. Over the same period, customer desire for
faster Internet connections has contributed to growth of almost 100% in revenues
from DSL service. In Shenandoah County, where the Company provides DSL service
the majority of the loss in dial-up Internet service is offset by growth in DSL
services. In other dial-up service areas, the Company does not offer a high
speed alternative.
17
In the third quarter of 2004, the Company began offering compression technology
to its dial-up Internet customers as part of its basic service. The compression
technology offers download speeds of up to five times faster than traditional
service for certain applications. This offering is intended to enhance the
Internet experience of the dial-up subscriber base, particularly in areas where
the Company cannot offer high-speed broadband access.
The Company is facing competition for revenues it generates in all lines of
business, which may require the Company to differentiate itself from other
providers through its service levels and evolving technologies that are more
reliable and cost effective for the customer.
The Company continues to devote significant resources to comply with the various
requirements of the Sarbanes-Oxley Act.
Three Months Ended September 30, 2004 Compared to Three Months Ended September
30, 2003
General
Total revenues for the third quarter of 2004 were $31.3 million, which
represented an increase of $3.7 million, or 13.4%, compared to $27.6 million for
the third quarter of 2003. Total revenues include wireless revenue of $22.0
million, which increased by $4.0 million, or 21.9%; wireline revenues of $7.7
million, which decreased by $0.1 million, or 1.2%; and other revenues of $1.6
million, which decreased $0.2 million from the third quarter of 2003. Operating
income increased $1.6 million, to $6.5 million, compared to $4.9 million for the
same period in 2003. Income per diluted share from continuing operations was
$0.41 per share for the 2004 third quarter, compared to $0.35 per share for the
2003 third quarter.
Revenues
Wireless revenues are primarily derived from the PCS business. As of September
30, 2004, the Company had 98,053 retail PCS subscribers. The PCS operation added
17,038 net retail subscribers since September 30, 2003, and 3,578 since June 30,
2004. In addition, wholesale users increased by 12,072 since September 30, 2003
and 1,544 since June 30, 2004. Wireless service revenues were $13.8 million for
the third quarter of 2004, which represented an increase of $2.1 million, or
17.7%, compared to $11.8 million for the third quarter of 2003. The Company's
ARPU, (average revenue per subscriber) exclusive of travel revenue, decreased
5.7% to $51.97 for the third quarter of 2004, from $55.09 for the third quarter
of 2003. These changes in ARPU were primarily attributable to subscribers
generating fewer minutes over plan usage and the popularity of Add-a-Phone(SM)
plans, which dilute the per subscriber revenue as more subscribers add phones to
their existing plans.
PCS travel, wholesale and roaming revenues combined for the third quarter 2004
were $6.3 million, which represented a $1.4 million, or 27.8%, increase compared
to the travel, wholesale and roaming revenue for the third quarter of 2003. The
travel, wholesale and roaming revenue increase, which resulted from an increase
in travel usage and growth in wholesale minutes, was offset in part by a decline
in roaming usage for the same period.
18
PCS equipment sales increased $0.5 million, or 84.6%, to $1.0 million for the
third quarter of 2004. The increase was primarily due to more subscribers
upgrading their handsets to access new features provided with the service.
The remainder of the Company's wireless revenue was generated through the
Company's tower business. Tower revenue was $0.8 million for the third quarter
of 2004, compared to $0.7 million for the third quarter of 2003.
Wireline revenues were $7.7 million in the 2004 third quarter, which represented
a decrease of $0.1 million, or 1.2%, from the third quarter of 2003. Access
revenue in the telephone business was nearly the same for both periods. Total
switched minutes of use increased by 17.5% compared to the third quarter of
2003, but reflected the decrease in access rates and settlements from the
National Exchange Carrier Association ("NECA") pools. The mix of minutes that
terminate to wireless carriers compared to total minutes shifted from 36.9% for
the third quarter of 2003 to 43.2% for the third quarter of 2004. The increase
in minutes was primarily attributable to wireless traffic transiting the
Company's telephone network.
Other revenues of $1.6 million decreased $0.2 million compared to other revenues
for the third quarter of 2003. Internet revenues were nearly the same on a
quarter to quarter comparison. The total subscriber base for the Company's
dial-up and DSL Internet services was 17,969 as of September 30, 2004, compared
to 18,779 as of September 30, 2003, a decrease of 4.3%. While DSL subscribers
increased 989, or 85.0%, compared to the September 30, 2003 subscriber base,
there was a decline of 1,799 dial-up subscribers, or 10.2%, from the level at
September 30, 2003. The Company has experienced increased dial up subscriber
deactivations due to migration to competing high-speed Internet services.
During the third quarter of 2004, the revenue from the Travel 511 contract with
the Virginia Department of Transportation, which expires January 31, 2005,
decreased by $45 thousand to $275 thousand, compared to third quarter 2003
revenue of $320 thousand, due to a lower price negotiated for the final year of
the contract period.
Operating Expenses
Total operating expense for the third quarter of 2004 was $24.8 million, which
represented an increase of $2.1 million, or 9.2%, compared to the third quarter
of 2003. The higher operating expense was primarily attributable to an increase
in the number of PCS subscribers, the expanded PCS network operation, and an
increase in selling, general and administrative expenses. The effect of these
factors were offset in part by several true ups of expenses from Sprint for
third party sales commissions and third party rebates.
Costs of goods and services were $2.1 million, which represented a decrease of
$0.9 million, or 29.5%, from the third quarter of 2003. This decrease was due to
$0.6 million of favorable adjustments to management's estimates from Sprint
related to third party retail sales programs and a decrease in the cost of
handsets sold. The cost per gross addition (CPGA) decreased approximately $77 or
18.4% per gross add, from $418 for the third quarter of 2003, to $341 for the
third quarter of 2004, which includes subsidies paid for current PCS customers
to upgrade their handsets. Excluding the favorable adjustments mentioned above,
the CPGA would have been $407 per gross addition, or a 2.6% decrease compared to
the CPGA of third quarter 2003. During the third quarter of 2004, the Company
added 9,977 gross new PCS subscribers compared to 9,354 in the third
19
quarter of 2003. Existing subscribers are purchasing Company subsidized new
handsets to replace their current handsets as new features become available, and
new services are offered that are not available on earlier model handsets. The
upgrade cost for the third quarter of 2004 included in the cost per gross
addition amount was $0.6 million, or $66 per gross addition. Currently, the
Company classifies 100% of the handset cost, including the costs of existing
subscribers electing to up-grade their handsets, as a cost per gross addition.
Management anticipates the upgrade trend may continue, and may increase
significantly, in future periods as wireless carriers offer subsidized handsets
as an inducement for subscribers to extend the term of their service agreements.
Network operating costs for the third quarter of 2004 were $9.2 million, which
represented an increase of $0.9 million, or 10.4%, compared to the third quarter
of 2003. Increased PCS travel costs of $0.9 million were the primary reason for
the increase in the operating costs. The travel costs increased due to an
increase in subscribers and an increase in the average travel minutes used by
the Company's subscribers in the Sprint or Sprint affiliate markets not operated
by the Company.
Depreciation and amortization expense for the 2004 third quarter was $4.7
million, which represented an increase of $0.5 million, or 12.8%, compared to
$4.2 million for the third quarter of 2003, as new assets, primarily in the PCS
and telephone operation, have been added to the networks.
Selling, general and administrative costs were $8.8 million, which represented
an increase of $1.8 million, or 25.7%. Billing and customer care costs incurred
in the PCS operation, primarily charges from Sprint, increased $0.5 million as a
result of the increase in the total number of PCS subscribers, net of cost
reductions obtained as part of amendments signed with Sprint on January 30, 2004
and May 24, 2004. Increased administrative staff and increases in wages and
benefits for existing employees contributed $0.7 million in added costs compared
to the third quarter of 2003. The Company has previously announced plans to
increase staff to manage existing and future growth and for expanded reporting
requirements. Additional costs incurred in connection with Sarbanes-Oxley
compliance were $0.2 million in the third quarter of 2004. Selling and marketing
expenses increased $0.5 million due to added internal sales staff, additional
third party sales agents' commissions and expanded advertising efforts related
to the new Shentel Pages phone book, which began selling advertising for its
2005 book in the later part of the second quarter. Bad debt expense in total
decreased $0.1 million compared to the third quarter of 2003 primarily due to a
$0.2 million write off recorded in third quarter of 2003, offset by somewhat
higher bad debt expense in PCS. PCS bad debt expense, net of recoveries, was
3.7% of total PCS service revenues in the third quarter of 2004; compared to
2.9% of total PCS service revenues in the third quarter of 2003.
In the Company's PCS operation, cash cost per user ("CCPU") for the third
quarter of 2004 declined to $38.15, which represented a 4.7% decrease from the
third quarter of 2003. The change was primarily the result of the amendments to
the Company's management contract with Sprint that were signed on January 30,
2004 and May 24, 2004, and economies of scale due to an increase of 21.5% in the
average number of customers over the third quarter of 2003.
Other Income (Expense)
In connection with the Company's construction plans for 2004, during the third
quarter, approximately 160 PCS base stations, of a planned total of 204, were
exchanged and up-graded for new equipment from Lucent. In connection with the
exchange, the Company expensed $0.6 million of undepreciated installation costs
attributed to the equipment removed in the exchange.
20
Losses on external investments totaled $0.3 million in the third quarter of
2004, compared to a nominal loss in the third quarter of 2003. Third quarter
2004 interest expense decreased by $0.1 million, or 9.9%, a result of decreased
borrowing levels compared to the third quarter of 2003. The Company's total debt
as of September 30, 2004 was $40.2 million, compared to $44.4 million as of
September 30, 2003 and $43.3 million as of December 31, 2003.
Income before income taxes, discontinued operations and cumulative effect of
accounting changes was $5.0 million, which represented an increase of $0.7
million from the $4.3 million reported for the third quarter of 2003.
The results of discontinued operations in 2003 were from the VA 10 RSA limited
partnership, which was sold in February 2003. There were no discontinued
operations in the third quarter of 2004, and nominal results for discontinued
operations for the third quarter of 2003. The Company's 2004 third quarter net
income was $3.1 million compared to $2.7 million in the third quarter of 2003.
Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30,
2003
General
Total revenues for the nine months ended September 30, 2004 (the "2004
nine-month period") was $89.0 million, which represented an increase of $11.7
million, or 15.1%, compared to $77.4 million for the nine months ended September
30, 2003 (the "2003 nine-month period"). Total revenues for the 2004 nine-month
period include wireless revenue of $61.6 million, which increased by $11.2
million, or 22.2%; wireline revenues of $22.4 million, which increased by $0.7
million, or 3.3%; and other revenues of $5.0 million, which decreased $0.2
million or 4.3% from the 2003 nine month period. Operating income increased $4.3
million, to $15.8 million, compared to $11.5 million for the same period in
2003. Income per share from continuing operations, diluted was $1.09 cents per
share for the 2004 nine-month period, compared to $0.75 per share for the same
period of 2003.
The results of the 2003 nine-month period were impacted by an adjustment of $1.2
million recorded in 2003, to reduce access revenues for disputed charges from
two previous years involving inter-exchange carrier customers. There were no
other significant items that impacted either nine-month period reported.
Revenues
Wireless service revenues were $38.5 million for the 2004 nine-month period,
which represented an increase of $6.2 million, or 19.0%, compared to $32.4
million for same period of 2003. The Company's average customer base increased
by 23.1% in 2004, compared to the same period of 2003. The ARPU exclusive of
travel revenue has declined, which the Company believes is primarily
attributable to subscribers generating fewer minutes over plan usage and the
popularity of additional Add-a-Phone(SM) plans, which dilute the revenue per
subscriber. If the current pace of
21
Add-a-Phone sales continues, the Company expects a negative impact on ARPU, but
a favorable impact on churn and bad debt expense.
PCS travel, wholesale and roaming revenue combined for the 2004 nine-month
period were $17.9 million, which represented a $3.5 million, or 24.5%, increase
compared to the travel, wholesale and roaming revenue for the 2003 nine-month
period. The travel, wholesale and roaming revenue increase resulted from an
increase in travel usage and the growth of wholesale minutes, the effect of
which was offset in part by a decline in roaming usage for the same period.
PCS equipment sales increased $1.3 million, or 95.6% to $2.7 million for 2004
nine-month period. The increase was primarily due to an increase in gross
additions and in the number of subscribers replacing phones and upgrading their
handsets to access added features provided with the service.
The Company's tower revenue was $2.1 million for the nine months of 2004,
compared to the $1.9 million for the same period of 2003.
Wireline revenues were $22.4 million in the 2004 nine-month period, which
represented an increase of $0.7 million, or 3.3%, from the 2003 nine-month
period. Access revenue in the telephone business increased $1.1 million, due
primarily to a reduction in revenue of $1.5 million recorded in 2003 related to
a dispute with inter-exchange carriers. Total switched minutes of use increased
18.8% in the 2004 nine-month period, compared to the 2003 nine-month period. The
increased traffic is primarily due to wireless traffic transiting the Company's
telephone subsidiary's network.
Other revenues of $5.0 million decreased $0.2 million compared to the 2003
nine-month period. Internet revenues increased $0.1 million, or 2.1%, while 511
Travel revenue and other equipment sales and service revenues decreased $0.3
million from the 2003 nine-month period. As reported previously, the Company was
informed by the Virginia Department of Transportation during the second quarter
of 2004 that the Company's contract for the 511 Virginia travel business would
not be renewed beyond the term of the existing contract, which extends through
January 2005. The total revenue generated by the 511 Virginia travel business is
$0.9 million in the nine months of 2004.
Operating Expenses
Total operating expense for the 2004 nine-month period was $73.3 million, which
represented an increase of $7.5 million, or 11.5%, compared to the 2003
nine-month period. The higher operating expense was primarily attributable to an
increase in the number of PCS subscribers; the expanded PCS network operation;
and, an increase in selling, general and administrative expenses. The effect of
these factors was offset in part by a decline in bad debt expense.
Costs of goods and services were $8.1 million for the 2004 nine-month period,
which represented an increase of $0.2 million, or 3.0%, from the 2003 nine-month
period. This increase was due primarily to an increase in the number of PCS
gross subscriber additions, higher cost per gross additions and current PCS
customers upgrading their handsets.
Network operating costs for the 2004 nine-month period were $26.6 million, which
represented an increase of $1.6 million, or 6.3%, compared to the same period of
2003. Increased travel costs of $2.6 million were offset in part by lower other
network costs of $1.1 million in the PCS operation.
22
The travel costs increased due to an increase in PCS subscribers and an increase
in the average minutes of use for travel by the Company's subscribers.
Depreciation and amortization expense for the 2004 nine-month period was $13.4
million, which represented an increase of $1.1 million, or 9.1%, compared to
$12.3 million for the 2003 nine-month period, as new assets, primarily in the
PCS and telephone operation, have been added to the networks.
Selling, general and administrative costs were $25.1 million, which represented
an increase of $4.6 million, or 22.5%. Billing and customer care costs incurred
in the PCS operation, primarily charges from Sprint, increased $1.0 million as a
result of the increase in the total number of PCS subscribers, net of cost
reductions obtained as part of the amendments signed with Sprint on January 30,
2004 and May 24, 2004. Increased administrative staff and increases in wages and
benefits for existing employees contributed $1.4 million in added costs compared
to the first nine- months of 2003. Costs incurred in connection with
Sarbanes-Oxley compliance were $0.9 million for the 2004 nine-month period.
Selling and marketing expenses increased $1.5 million due to added internal
sales staff, increasing benefit costs, third party sales agent commissions, and
expanded advertising efforts on the new Shentel Pages phone book introduced in
early 2004. Bad debt expense decreased $0.7 million as a result of reduced PCS
subscriber terminations for non-payment, which were attributable to an improved
credit profile of the subscriber base in the Company's operating area.
Other Income (Expense)
In connection with the Company's construction plans for 2004, during the third
quarter, approximately 160 PCS base stations, of a planned total of 204, were
exchanged and up-graded for new equipment from Lucent. In connection with the
exchange, the Company expensed $0.6 million of undepreciated installation costs
attributed to the equipment removed in the exchange.
Losses on external investments totaled $146 thousand in the 2004 nine-month
period, compared to a $0.3 million loss for the 2003 nine-month period. Interest
expense decreased $0.4 million, or 13.4%, in the 2004 nine-month period compared
to the 2003 nine-month period, a result of decreased borrowing levels.
Income before income taxes, discontinued operations and cumulative effect of
accounting changes was $13.2 million in the 2004 nine-month period, which
represented an increase of $4.2 million from the $9.0 million reported for the
2003 nine-month period.
Income from continuing operations increased $2.6 million, or 45.9%, to $8.3
million for the 2004 nine-month period from $5.7 million for the 2003 nine-month
period.
The results of discontinued operations in 2003 were from the VA 10 RSA limited
partnership, which was sold in February 2003. Income from discontinued
operations, net of the tax effect of the transaction, was $22.6 million in the
2003 nine-month period. There were no discontinued operations in the 2004
nine-month period.
The Company adopted Statement of Financial Accounting Standards No. 143,
"Accounting of Asset Retirement Obligations," effective January 1, 2003, and as
a result, recorded a charge to
23
earnings for the cumulative effect of this change in accounting of $76 thousand
after taxes in the 2003 nine-month period.
The Company's net income for the 2004 nine-month period was $8.3 million
compared to $28.2 million for the 2003 nine-month period.
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 of South Atlantic Venture Fund III, South Atlantic Private
Equity IV, Dolphin Communications Parallel Fund, Dolphin Communications Fund II
and Burton Partnership. The Company also participates by direct investment in
privately held companies. Currently the Company's only direct investment is in
NTC Communications, a provider of voice, video and data connections to
off-campus student housing properties at universities and colleges. As noted
previously, the Company is in the due diligence and negotiation process to
purchase the outstanding ownership interest of NTC that it does not currently
own. For those investments that eventually become publicly-traded, the Company
evaluates whether to hold or sell parts or all of each investment on an
individual basis.
As of September 30, 2004, the Company held shares in two companies that are
publicly-traded, with the following market values: $40 thousand in Net IQ
(NTIQ), with 3,744 shares held, and $153 thousand in Deutsche Telekom, AG (DT),
with 8,219 shares held.
Liquidity and Capital Resources
The Company generated $27.6 million in cash from operations in the 2004
nine-month period, compared to $21.3 million in the 2003 nine-month period.
During the second quarter of 2004, the Company contributed $2.0 million in cash
to the Company's defined benefit pension plan, of which $0.1 million was a
mandatory contribution. This disbursement is reflected as a component of the
"other prepaids, deferrals and accruals" line of the cash flows from operating
activities, appearing elsewhere in this report.
The Company expects that operations will continue to generate positive cash
flows as PCS operations improve and the number of subscribers increases. In the
fourth quarter of 2004, the Company plans to liquidate approximately $12.5
million of its short-term investments, to fund its previously announced purchase
of the outstanding portion of NTC Communications which it does not own.
As of September 30, 2004, the Company's total debt was $40.2 million, with an
annualized overall weighted average interest rate of approximately 7.5%. As of
September 30, 2004, the Company was in compliance with the covenants in its
credit agreements. The Company anticipates borrowing additional funds in the
fourth quarter of 2004 to refinance the debt of NTC Communication in connection
with the planned acquisition.
The Company is obligated to make future payments under various contracts,
including amounts pursuant to its various long-term debt facilities, and
non-cancelable operating lease agreements for retail space, tower space and cell
sites.
24
Capital expenditures budgeted for 2004 total approximately $34 million,
including approximately $24.3 million for additional PCS base stations,
additional towers, additional sites, and switch upgrades to enhance the PCS
network, and approximately $5 million to the telephone operation. An additional
$5 million will be expended for building renovations, vehicles, office
equipment, and other miscellaneous capital needs including the renovation to the
Shentel Center in Edinburg, Virginia, which will house the Company's corporate
offices. The Company has increased its capital budget for 2004 by $1.3 million
to provide funds for new site acquisitions in preparation to improve and expand
the coverage of the PCS network. This funding will cover the initial site
identification costs.
For the 2004 nine-month period, the Company spent $21.7 million in capital
projects. Management anticipates capital spending for 2004 will be approximately
$35 million.
The Company will use funds generated from operations, or liquidate some short
term investments to fund the approximately $3.3 million dividend declared
subsequent to the end the third quarter.
The Company's short-term and long-term cash needs are expected to be met
including working capital requirements, capital projects, debt payments, and
dividend payments, from cash on hand, operating cash flow, and amounts expected
to be available under the Company's existing financing facility. The Company may
liquidate some of its investments to generate additional cash for its capital
needs.
Risks
The Company is one of eleven PCS Affiliates of Sprint, and accordingly, is
affected by decisions and requirements adopted by Sprint in regard to its
wireless operation. Management continually reviews its relationship with Sprint
in light of new developments and requirements.
The Company is dependent on Sprint for the reporting of a significant majority
of PCS revenues, particularly travel and service revenue. Controls and processes
are continually refined, so the Company can monitor, review, test, and validate
information being reported to the Company by Sprint. It is the Company's policy
to estimate and reflect the information supplied by Sprint in the financial
statements in the applicable fiscal periods. Corrections, if any, are made no
earlier than the period in which the parties agree to the corrections. The
Company is at risk for reporting errors that may be made by Sprint.
The net balance of PCS travel revenue and expense, which is currently favorable
to the Company, could change significantly due to changes in service plan
offerings, changes in the travel settlement rate, changes in travel habits by
the subscribers in the Company's market areas or other Sprint subscribers, and
numerous other factors beyond the Company's control. The Company is continuing
to monitor the financial strength of the other PCS Affiliates of Sprint, as
their ability to maintain their segment of the Sprint network may affect the
Company's ability to add new subscribers.
The Company has limited control over the service plans and marketing promotions
offered by Sprint in the competitive wireless telecommunications industry.
Sprint controls the marketing plans, advertising message and market promotions
offered in the Company's market area. The plans and promotions offered may have
a materially adverse effect on the Company's results of operations.
25
The Company relies on Sprint for the development of new products and services to
remain competitive in the wireless industry. These services include text
messaging, video, data transfer, and walkie-talkie features. If these services
do not operate properly or if Sprint should not continue to develop new
competitive products, the results could have a materially adverse impact on the
results of the Company.
The Company is required to participate in national and regional third party
distribution programs formulated and negotiated by Sprint. Sprint has entered
into reseller agreements, which will impact the Company. These distribution and
reseller programs may have an adverse impact on the Company's results.
The Company's PCS network is part of Sprint's nationwide wireless network. The
network is owned and operated by Sprint and its Affiliates. The financial
viability of Sprint and its Affiliates is critical to the success of operating
and marketing Sprint PCS. If financial difficulties are experienced by Sprint or
any Affiliate, those difficulties could have an adverse impact on the Company's
results.
The current competitive nature of the wireless industry may prompt major
wireless providers to strive for financial improvements through industry
consolidation. Such consolidation could include Sprint. It is not clear to what
extent consolidation may occur or which companies may be involved, but certain
consolidating transactions may have an adverse impact on the operating results
and valuation of the Company's wireless operations.
The Company's telephone access revenue may be adversely impacted by legislative
or regulatory actions that decrease access rates or exempt certain traffic from
paying access or by industry trends that shift minutes from the Company's
regulated telephone network. An unfavorable finding, trend or ruling may have an
adverse effect on the Company's telephone operations.
There has been a trend for incumbent local exchange carriers to see a decrease
in access lines due to the effect of wireless and wireline competition, the
elimination of a second line dedicated to dial-up Internet as customers migrate
to broadband connections, and the increase in popularity of Voice Over Internet
Protocol (VOIP) technology. The Company has experienced a slight, but not
material, reduction in its number of access lines to date. An acceleration of
this trend could have a materially adverse effect on the Company's telephone
operations in the future.
The Company may continue to see a decrease in the number of dial up internet
customers as consumers and businesses require and expect broadband high-speed
Internet access in all data applications.
Wireless Local Number Portability ("WLNP") permits a subscriber to change
wireless service providers in the same market area while retaining the
subscriber's existing telephone number. This Federal Communications Commission
mandate was effective November 24, 2003 in the 100 largest metropolitan areas
and became effective in all areas of the United States on May 24, 2004. Although
the initial impact of WLNP on the Company's operations appears to be immaterial,
WLNP may have a significant future effect on the Company's operations. As a
result of WLNP, portions of the PCS subscriber base may migrate to other
wireless providers, thereby contributing to increased churn. Alternatively, the
implementation of WLNP may allow the Company to attract additional subscribers
from other wireless providers.
26
On May 24, 2004, Local Number Portability ("LNP") was implemented in the
Company's local wireline service area. The Company's customers are able to
retain their existing wireline phone number and use it to obtain service from a
competing wireline or wireless provider in the service area. To date, there has
been insignificant activity, but the Company cannot estimate the future impact
of LNP on its telephone operations. If a significant number of customers
disconnect the Company's service, such disconnections may have an adverse impact
on the Company's telephone operating results.
The Company's revenue from fiber leases may be adversely affected by further
erosion in demand or in price competition for these facilities. There also
remains the potential for additional bankruptcies of the Company's customers.
The Company monitors each of its fiber lease customers closely to manage this
risk.
The Company operates the cable television system in Shenandoah County, Virginia.
The Company has seen increased competition from satellite providers that are
larger and have cost advantages over the Company in programming procurement. The
continued success of the satellite television providers is expected to have an
adverse impact on the Company's cable television results.
The Company may not be able to utilize all of its net operating loss carry
forwards for taxes in certain states before they expire.
Section 404 of the Sarbanes Oxley Act of 2002 requires that we evaluate and
report on our systems of internal controls beginning with the Annual Report
filed on Form 10-K for the current year. In addition, the independent auditors
must report on management's evaluation of those controls. The Company is in the
process of documenting and testing its system of internal controls to provide
the basis for its report. However, at this time, due to the ongoing evaluation
and testing of the Company's internal controls, we cannot assure you that there
may not be reportable conditions or material weaknesses that would be required
to be reported.
Recent Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board, (the "FASB") issued
FASB Interpretation No. 46 (revised December 2003),"Consolidation of Variable
Interest Entities," which addresses how a business enterprise should evaluate
whether it has a controlling financial interest in an entity through means other
than voting rights and accordingly should consolidate the entity. FIN 46R
replaces FASB Interpretation No. 46, "Consolidation of Variable Interest
Entities," which was issued in January 2003. The Company is required to apply
FIN 46R to variable interests in Variable Interest Entities created after
December 31, 2003. For variable interests in Variable Interest Entities created
before January 1, 2004, the Interpretation was applied beginning on January 1,
2004, except that the interpretation was required to be applied in the fourth
quarter of 2003 for any Variable Interest Entities that were considered to be
special purpose entities. For any Variable Interest Entities that must be
consolidated under FIN 46R that were created before January 1, 2004, the assets,
liabilities and non-controlling interests of the Variable Interest Entities
initially would be measured at their carrying amounts, with any difference
between the net amount added to the balance sheet and any previously recognized
interest being recognized as the cumulative effect of an accounting change. If
determining the carrying amounts is not practicable, fair value at the date FIN
46R first applies may be used to measure the assets, liabilities and
non-controlling interest of the VIE. The Company has determined the application
of FIN 46R to Variable Interest Entities in
27
which the Company has variable interests has no impact on the Company's
consolidated financial statements.
In May 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 150, "Accounting for Certain Financial Instruments with
Characteristics of Liabilities and Equity," which was effective at the beginning
of the first interim period beginning after June 15, 2003. This Statement
establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. The
Statement also includes required disclosures for financial instruments within
its scope. The Statement was effective for instruments entered into or modified
after May 31, 2003 and otherwise became effective as of January 1, 2004, except
for mandatorily redeemable financial instruments. For certain mandatorily
redeemable financial instruments, the Statement will be effective on January 1,
2005. The effective date has been deferred indefinitely for certain other types
of mandatorily redeemable financial instruments. The Company currently does not
have any financial instruments that are within the scope of this Statement.
In December 2003, the FASB issued SFAS No.132(R). SFAS No.132(R) is a revision
of SFAS No.132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits." SFAS No.132(R) is effective for financial statements with fiscal
years ending after December 15, 2003. SFAS No.132(R) requires additional
disclosures including information describing the types of plan assets,
investment strategy, measurement dates, plan obligations, cash flows, and
components of net periodic benefit cost recognized during interim periods. The
objectives of the revisions are to provide qualitative information about the
items in the financial statements, quantitative information about items
recognized or disclosed in the financial statements, information that enables
users of financial statements to assess the effect that pension plans and other
post-retirement benefit plans have on entities' results of operations, and
information to facilitate assessments of future earnings and cash flows. The
Company has adopted this statement effective December 31, 2003. See note 9 to
the financial statements appearing elsewhere in this report for the disclosures
required by this pronouncement.
28
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risks relate primarily to changes in interest rates on
instruments held for other than trading purposes. The Company's interest rate
risk involves three components, although only one is of any significance at this
time. The first component is outstanding debt with variable rates. As of
September 30, 2004, the Company's variable rate debt balance was zero. The
Company has a variable rate line of credit totaling $0.5 million with SunTrust
Bank. The Company's remaining debt has fixed rates through its maturity. A 10.0%
decline in market interest rates would increase the fair value of the fixed rate
debt by approximately $1.3 million, while the estimated current fair value of
the fixed rate debt is approximately $37.3 million.
The second component of interest rate risk is temporary excess cash, primarily
invested in overnight repurchase agreements and short-term certificates of
deposit and money market funds. The Company currently has approximately $23.5
million of cash equivalents in money market funds, which are accruing interest
at rates of approximately 1.2% per year. The cash is currently in short-term
investment vehicles that have limited interest rate risk. Management continues
to evaluate the most beneficial use of these funds.
The third component of interest rate risk is marked increases in interest rates,
which may adversely affect the rate at which the Company may borrow funds for
growth in the future. Although this risk is real, it is not significant at this
time as the Company has adequate cash for operations, payment of debt and
near-term capital projects.
Management does not view market risk as having a significant impact on the
Company's results of operations, although future results could be adversely
affected if interest rates were to escalate markedly and the Company required
external financing. Since the Company does not currently have significant
investments in publicly traded stock, there is limited risk related to the
Company's available-for-sale securities. General economic conditions affected by
regulatory changes, competition or other external influences may play a higher
risk to the Company's overall results.
As of September 30, 2004, the Company had $7.7 million invested in
privately-held companies directly or through investments with portfolio
managers. Most of the companies are at an early stage of development, and
significant increases in interest rates could have an adverse impact on their
results, ability to raise capital and viability. The Company's market risk is
limited to the funds previously invested and an additional $1.3 million
committed under contracts the Company has signed with portfolio managers.
29
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in reports under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the Securities and Exchange
Commission, and that such information is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
The Company's management, with the participation of its Chief Executive Officer,
who is the Company's principal executive officer, and its Chief Financial
Officer, who is the Company's principal financial officer, has evaluated the
effectiveness of the Company's disclosure controls and procedures as of
September 30, 2004. Based upon that evaluation, the Chief Executive Officer and
the Chief Financial Officer have concluded that the Company's disclosure
controls and procedures are effective in alerting them in a timely manner to
material information relating to Shenandoah Telecommunications Company,
including its consolidated subsidiaries, required to be included in this report
and the other reports that the Company files or submits under the Securities
Exchange Act of 1934.
In connection with the requirements imposed under Section 404 of the
Sarbanes-Oxley Act of 2002, we have retained an outside consulting firm to
assist us in reviewing, documenting, and improving our internal control
processes and have engaged Goodman and Company, a regional accounting firm to
assist in the testing of these controls. On an ongoing basis, the Company
contracted with Goodman and Company to perform internal audit functions.
Except as described in the preceding paragraph, during the third fiscal
quarter of 2004, there were no changes in the Company's internal control over
financial reporting that have materially affected, or that are reasonably likely
to materially affect, its internal control over financial reporting.
Under our agreements with Sprint, Sprint provides us with billing, collections,
customer care, certain network operations and other back office services for the
PCS operation. As a result, Sprint remits to the Company approximately 64% of
the Company's total revenues based on the results of the 2004 third quarter,
while approximately 40% of the expenses reflected in the Company's consolidated
financial statements relate to charges by or through Sprint for expenses such as
billing, collections and customer care, roaming expense, long-distance, and
travel. Due to this relationship, the Company necessarily relies on Sprint to
provide accurate, timely and sufficient data and information to properly record
our revenues, expenses and accounts receivable, which underlie a substantial
portion of our periodic financial statements and other financial disclosures.
Information provided by Sprint includes reports regarding the subscriber
accounts receivable in our markets. Sprint provides us monthly accounts
receivable, billing and cash receipts information on a market level, rather than
a subscriber level. We review these various reports to identify discrepancies or
errors. However, under our agreements with Sprint, we are entitled to only a
portion of the receipts, net of items such as taxes, government surcharges,
certain allocable write-offs and the 8% of revenue retained by Sprint. Because
of our reliance on Sprint for financial information, we must depend on Sprint to
design adequate internal controls with respect to the processes established to
provide this data and information to the Company and Sprint's other PCS
affiliate network partners. To address this issue, Sprint engages independent
auditors to perform a periodic evaluation of these controls and to provide a
"Report on Controls Placed in Operation and
30
Tests of Operating Effectiveness for Affiliates" under guidance provided in
Statement of Auditing Standards No. 70 ("SAS 70 reports"). The report is
provided to the Company on semi-annual basis and covers a twelve-month period.
The current recent report covers the period from April 1, 2003 to March 31,
2004. The most recent report indicated there were no material issues which would
adversely affect the information used to support the recording of the revenues
and expenses provided by Sprint related to the Company's relationship with them.
The Company dedicated significant resources during the second quarter of 2004 in
preparing for the conversion of its PCS point of sale system. The conversion
involved a change from a stand-alone, Company-hosted system, to a system hosted
by Sprint that is integrated into the Sprint PCS billing system. Through this
integration, the Company has eliminated several points of multiple data entry,
thereby reducing the risk of error, and enhancing internal control, while
improving the sales process. The new system was placed in service during
mid-July 2004.
The Company has made significant progress in documenting its internal controls.
To date, while deficiencies have been identified and remediated, no material
weaknesses have been identified. Nonetheless, there is no assurance that the
remediation efforts will meet the requirements of Section 404 of the
Sarbanes-Oxley Act. A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Because of the inherent limitations in all control
systems no evaluation of controls can provide absolute assurance that all
control issues, if any, within a company have been detected.
31
PART II. OTHER INFORMATION
ITEM 6. Exhibits
(a) The following exhibits are filed with this Quarterly Report on Form
10-Q:
31 Certifications pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934.
32 Certifications pursuant to Rule 13a-14(b) under the Securities
Exchange Act of 1934 and 18 U.S.C. 1350.
32
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)
November 8, 2004 /S/ EARLE A. MACKENZIE
----------------------
Earle A. MacKenzie
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
33
EXHIBIT INDEX
Exhibit No. Exhibit
----------- -------
31 Certifications pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934.
32 Certifications pursuant to Rule 13a-14(b) under
the Securities Exchange Act of 1934 and 18 U.S.C.
1350.
34