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, 2005
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, 2005
- ------------------------- -------------------------------
Common Stock, No Par Value 7,672,637 Shares
SHENANDOAH TELECOMMUNICATIONS COMPANY
INDEX
Page
Numbers
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets
September 30, 2005 and December 31, 2004 3-4
Unaudited Condensed Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 2005 and 2004 5
Unaudited Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 2005 and 2004 6
Unaudited Condensed Consolidated Statements of
Shareholders' Equity and Comprehensive Income
for the Nine Months Ended September 30, 2005 and the
Year Ended December 31, 2004 7
Notes to Unaudited Condensed Consolidated
Financial Statements
8-17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18-30
Item 3. Quantitative and Qualitative Disclosures about Market Risk 31
Item 4. Controls and Procedures 31-32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 32
Item 6. Exhibits 33
Signatures
34
Exhibit Index
35
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets September 30, December 31,
2005 2004
------------- ------------
Current Assets
Cash and cash equivalents $ 12,165 $ 14,172
Accounts receivable, net 9,378 9,019
Escrow receivable -- 5,000
Income tax receivable -- 2,341
Materials and supplies 2,706 2,108
Deferred income taxes 680 --
Prepaid expenses and other 1,831 1,877
--------- ---------
Total current assets 26,760 34,517
Securities and investments
Available-for-sale securities -- 232
Other investments 7,163 7,018
--------- ---------
Total securities and investments 7,163 7,250
Property, plant and equipment, net 158,503 156,252
Other Assets
Intangible assets, net 3,201 3,547
Cost in excess of net assets of business acquired 10,707 8,863
Deferred charges and other assets, net 1,046 818
--------- ---------
Net other assets 14,954 13,228
--------- ---------
Total Assets $ 207,380 $ 211,247
========= =========
(continued)
3
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
Liabilities and Shareholders' Equity September 30, December 31,
2005 2004
------------- ------------
Current Liabilities
Current maturities of long-term debt $ 4,486 $ 4,372
Accounts payable 8,021 6,003
Advance billings and deposits 4,224 3,566
Income tax payable 372 --
Current deferred taxes -- 1,453
Other current liabilities 7,628 6,452
--------- ---------
Total current liabilities 24,731 21,846
Long-term debt, less current maturities 32,538 47,919
Other Liabilities
Deferred income taxes 25,333 24,826
Pension and other 2,098 2,859
--------- ---------
Total other liabilities 27,431 27,685
Shareholders' Equity
Common stock 7,201 6,319
Retained earnings 115,479 107,413
Accumulated other comprehensive income -- 65
--------- ---------
Total shareholders' equity 122,680 113,797
--------- ---------
Total Liabilities and Shareholders' Equity $ 207,380 $ 211,247
========= =========
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,
2005 2004 2005 2004
---------------------------------------------------
Operating Revenues $ 37,320 $ 31,103 $ 107,184 $ 88,674
---------------------------------------------------
Operating Expenses
Cost of goods and services, exclusive of depreciation
and amortization shown separately below 14,533 11,869 41,405 33,271
Selling, general and administrative, exclusive of
depreciation and amortization shown separately below 11,681 8,762 34,592 27,024
Depreciation and amortization 5,354 4,715 16,269 13,447
---------------------------------------------------
Total operating expense 31,568 25,346 92,266 73,742
---------------------------------------------------
Operating Income 5,752 5,757 14,918 14,932
Other Income (expense):
Non-operating income (expense), net 211 205 744 655
Gain (loss) on investments, net 55 (251) (223) (22)
Interest expense (777) (756) (2,400) (2,327)
---------------------------------------------------
Income before income taxes 5,241 4,955 13,039 13,238
Income tax provision (2,083) (1,844) (4,973) (4,934)
---------------------------------------------------
Net income $ 3,158 $ 3,111 $ 8,066 $ 8,304
===================================================
Net income per share, basic $ 0.41 $ 0.41 $ 1.05 $ 1.09
===================================================
Net income per share, diluted $ 0.41 $ 0.41 $ 1.05 $ 1.09
===================================================
Weighted average shares outstanding, basic 7,666 7,613 7,652 7,608
===================================================
Weighted average shares, diluted 7,810 7,652 7,728 7,651
===================================================
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,
2005 2004
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 8,066 $ 8,304
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 15,928 13,437
Amortization 341 10
Stock based compensation expense 811 --
Deferred income taxes (1,590) 1,079
Gain on sale of investments (74) --
Loss (income) from patronage and equity investments 84 (112)
Loss on disposal of assets 258 1,036
Other (824) (42)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (359) (145)
Materials and supplies (599) (117)
Increase (decrease) in:
Accounts payable 2,018 1,253
Other prepaids, deferrals and accruals 3,963 2,914
-----------------------
Net cash provided by operating activities 28,023 27,617
Cash Flows from Investing Activities
Purchase and construction of plant and equipment, net
of retirements (20,535) (21,718)
Net purchases of investment securities (156) (668)
Proceeds from investment activities 133 397
Proceeds from sale of equipment 94 39
-----------------------
Net cash used in investing activities (20,464) (21,950)
Cash Flows from Financing Activities
Principal payments on long-term debt (15,267) (3,161)
Proceeds from exercise of incentive stock options 701 321
-----------------------
Net cash used in financing activities (14,566) (2,840)
Net cash used in continuing operations (7,007) 2,827
Net cash provided by discontinued operations from prior years 5,000 --
-----------------------
Net increase in cash and cash equivalents (2,007) 2,827
Cash and Cash Equivalents
Beginning 14,172 28,696
-----------------------
Ending $ 12,165 $ 31,523
=======================
Cash paid for:
Interest paid $ 2,388 $ 2,352
Income taxes paid (net of refunds) $ 3,798 $ 10,106
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 Total
------------------------------------------------------------------
Balance, December 31, 2003 7,593 $ 5,733 $ 100,449 $ 26 $ 106,208
Comprehensive income:
Net income -- -- 10,243 -- 10,243
Net unrealized change in
securities available-for-sale,
net of tax of $ (21) -- -- -- 39 39
---------
Total comprehensive income 10,282
---------
Dividends declared ($ 0.43 per share) -- -- (3,279) -- (3,279)
Common stock issued through the
exercise of stock options 37 586 -- -- 586
------------------------------------------------------------------
Balance, December 31, 2004 7,630 $ 6,319 $ 107,413 $ 65 $ 113,797
Comprehensive income:
Net income -- -- 8,066 -- 8,066
Net unrealized change in securities
available-for-sale, net of tax of $35 -- -- -- (65) (65)
---------
Total comprehensive income 8,001
Stock based compensation -- 181 -- -- 181
Common stock issued through the
exercise of stock options 42 701 -- -- 701
------------------------------------------------------------------
Balance, September 30, 2005 7,672 $ 7,201 $ 115,479 $ -- $ 122,680
==================================================================
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,
2004. The balance sheet information at December 31, 2004 was derived from the
audited December 31, 2004 consolidated balance sheet.
2. Operating revenues and income from operations for any interim period are not
necessarily indicative of results that may be expected for the entire year.
3. In connection with the adoption of a new affiliates agreement which was
approved by the Virginia State Corporation Commission effective January 1, 2005,
and pursuant to assignment and assumption agreements between Shentel Management
Company and Shenandoah Telephone Company, and the Company's other subsidiaries,
effective January 1, 2005, all employees and certain assets and liabilities of
these subsidiaries have been transferred to Shentel Management Company which
will be the entity through which all shared services and shared assets will be
provided to all existing and future affiliates of the Company. The new
affiliates agreement had no impact on the consolidated financial statements.
Effective January 1, 2005, the Company implemented a new methodology for
allocating all shared services and shared assets of the Company. The Company
believes the new allocation methodology more accurately allocates labor,
benefits and shared costs to its affiliates. FAS 131, "Disclosures about
Segments of an Enterprise and Related Information" requires the Company to
restate previously reported segment information following a change in the
composition of an enterprise's segment information unless it is impractical to
do so. Further, if the Company is unable to restate previously reported segment
information, the Company is required to provide current-period segment
information on both the old and new bases of segmentation in the year in which
the change occurs unless it is impracticable to do so. Due to the nature of the
change in allocation methodology, and the process to derive the allocation of
shared costs, management has determined that it would be impractical to restate
prior year segment information or calculate the allocation using both the old
and new methods.
8
4. 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 in accordance with APB
Opinion No. 25 and related interpretations. Accordingly, no compensation expense
has been recognized under the Plan for years prior to 2004 since all such
options were granted with an exercise price equal to the market price at the
date of the grant. During the year ended December 31, 2004, the Company issued
tandem awards of stock options and stock appreciation rights. The awards have
been accounted for as stock appreciation rights and, therefore, the Company
recorded a liability for the related expense since it is assumed the awards will
be settled in cash. On March 18, 2005, the Company issued tandem awards of stock
options and stock appreciation rights with a net-share settlement feature. The
cash-settlement feature has been eliminated for the 2005 option grant. However,
due to the net-share settlement feature, the Company accounts for these awards
as stock appreciation rights and recognizes compensation expense over the
vesting period to the extent the current stock price exceeds the exercise price
of the options. 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 2005 2004 2005 2004
-----------------------------------------------
As reported $ 3,158 $ 3,111 $ 8,066 $ 8,304
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 (7) (19) (48) (60)
-------- -------- -------- --------
Pro forma $ 3,151 $ 3,092 $ 8,018 $ 8,260
Earnings per share, basic and diluted
As reported, basic $ 0.41 $ 0.41 $ 1.05 $ 1.09
As reported, diluted 0.41 0.41 1.05 1.09
Pro forma, basic 0.41 0.41 1.05 1.09
Pro forma, diluted $ 0.40 $ 0.40 $ 1.04 $ 1.08
9
5. 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. For the three and nine months ended September 30, 2005,
the dilutive net income per share was exclusive of approximately 157,000 and
148,000 stock options, respectively, that were anti-dilutive. The adjustments to
net income reflect the impact of compensation related to stock appreciation
rights recorded in the respective periods, and the impact of the pro forma
compensation expense, both net of the income tax effect.
6. FASB Statement No. 131, Disclosures about Segments of an Enterprise and
Related Information, establishes standards for reporting information about
operating segments. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision makers. The Company has six
reportable segments, which the Company operates and manages as strategic
business units organized geographically and by lines of business: (1) PCS, (2)
Telephone, (3) Converged Services (NTC), (4) Mobile, (5) Holding and (6) Other.
The PCS segment, as a PCS Affiliate of Sprint Nextel Corporation ("Sprint
Nextel"), provides digital wireless service to a portion of a four-state area
covering the region from Harrisburg, York and Altoona, Pennsylvania, to
Harrisonburg, Virginia.
The Telephone segment provides both regulated and unregulated telephone services
and leases fiber optic facilities primarily throughout the Northern Shenandoah
Valley.
The Converged Services segment provides local and long distance voice, video,
and internet services on an exclusive and non-exclusive basis to multi-dwelling
unit communities (primarily off-campus college student housing) throughout the
southeastern United States including Virginia, North Carolina, Maryland, South
Carolina, Georgia, Florida, Tennessee and Mississippi. Converged Services
includes NTC Communications LLC (NTC), purchased by the Company on November 30,
2005.
The Mobile segment provides tower rental space to affiliates and non-affiliates
in the Company's PCS markets and paging services throughout the northern
Shenandoah Valley.
The Holding segment invests in both affiliated and non-affiliated companies.
In prior periods, the Company reported 11 segments, however, beginning with the
September 30, 2005 quarterly report, the Company will report six segments with
the following segments combined into "Other": ShenTel Service Company,
Shenandoah Cable Television, Shenandoah Network Company, Shenandoah Long
Distance Company, ShenTel Communications Company and Shentel Wireless Company.
During the third quarter of 2005, Shenandoah Valley Leasing Company changed its
name to Shentel Wireless Company to reflect the activities associated with the
Company's Wireless Broadband Group. The Company believes that the new
presentation will allow for a more meaningful discussion of the segment results.
10
A summary of unaudited external operating revenues (revenues generated from
outside customers or subscribers), inter-segment eliminations (revenues and
expenses generated between the Company's operating segments), operating
expenses, operating income (loss), non-operating income (expense), income taxes
and net income (loss) of each segment is as follows for the three months ended
September 30, 2005 and September 30, 2004:
Three Months Ended September 30, 2005
Converged
Services Consolidated
In thousands (unaudited) PCS Telephone (NTC) Mobile Holding Other Eliminations Totals
-----------------------------------------------------------------------------------------------
External Revenues
Service revenues $ 16,016 $ 1,733 $ 2,260 $ -- $ -- $ 2,735 $ (113) $ 22,631
Access charges -- 3,058 -- -- -- -- (341) 2,717
Travel/roaming revenue 7,386 -- -- -- -- -- -- 7,386
Facilities and tower lease -- 1,589 -- 1,143 -- 730 (1,358) 2,104
Equipment 920 5 12 -- -- 231 -- 1,168
Other 289 762 25 44 -- 536 (342) 1,314
---------------------------------------------------------------------------------------------
Total external revenues 24,611 7,147 2,297 1,187 -- 4,232 (2,154) 37,320
---------------------------------------------------------------------------------------------
Operating expenses
Costs of goods and services 10,167 1,382 2,125 342 -- 2,359 (1,842) 14,533
Depreciation and amortization 3,181 1,080 448 178 16 451 -- 5,354
Selling, general and administrative 7,547 1,568 1,183 137 383 1,175 (312) 11,681
---------------------------------------------------------------------------------------------
Total operating expenses 20,895 4,030 3,756 657 399 3,985 (2,154) 31,568
---------------------------------------------------------------------------------------------
Operating income (loss) 3,716 3,117 (1,459) 530 (399) 247 5,752
Non-operating income (expense) 3 99 12 45 1,019 12 (924) 266
Interest (expense) (447) (109) (270) (80) (652) (143) 924 (777)
Income taxes (1,259) (1,198) 738 (303) 13 (74) -- (2,083)
---------------------------------------------------------------------------------------------
Net income (loss) $ 2,013 $ 1,909 $ (979) $ 192 $ (19) $ 42 $ -- $ 3,158
=============================================================================================
11
Three Months Ended September 30, 2004
Consolidated
In thousands (unaudited) PCS Telephone Mobile Holding Other Eliminations Totals
-----------------------------------------------------------------------------------------
External Revenues
Service revenues $ 13,918 $ 1,701 $ -- $ -- $ 2,374 $ (125) $ 17,868
Access charges -- 3,124 -- -- -- (234) 2,890
Travel/roaming revenue 5,888 -- -- -- -- -- 5,888
Facilities and tower lease -- 1,514 1,060 -- 637 (1,197) 2,014
Equipment 863 11 -- -- 79 -- 953
Other 341 643 47 -- 611 (152) 1,490
---------------------------------------------------------------------------------------
Total external revenues 21,010 6,993 1,107 -- 3,701 (1,708) 31,103
---------------------------------------------------------------------------------------
Operating expenses
Costs of goods and services 9,795 1,288 262 2 2,180 (1,658) 11,869
Depreciation and amortization 3,125 1,105 152 6 327 -- 4,715
Selling, general and administrative 5,559 1,740 144 387 982 (50) 8,762
---------------------------------------------------------------------------------------
Total operating expenses 18,479 4,133 558 395 3,489 (1,708) 25,346
---------------------------------------------------------------------------------------
Operating income (loss) 2,531 2,860 549 (395) 212 5,757
Non-operating income (expense) -- 61 21 463 7 (598) (46)
Interest (expense) (411) (71) (63) (685) (124) 598 (756)
Income taxes (782) (1,052) (199) 229 (40) (1,844)
---------------------------------------------------------------------------------------
Net income (loss) $ 1,338 $ 1,798 $ 308 $ (388) $ 55 $ -- $ 3,111
=======================================================================================
12
A summary of unaudited external operating revenues (revenues generated from
outside customers or subscribers), inter-segment eliminations (revenues and
expenses generated between the Company's operating segments), operating
expenses, operating income (loss), non-operating income (expense), income taxes
and net income (loss) of each segment is as follows for the nine months ended
September 30, 2005 and September 30, 2004:
Nine Months Ended September 30, 2005
Converged
Services Consolidated
In thousands (unaudited) PCS Telephone (NTC) Mobile Holding Other Eliminations Totals
-----------------------------------------------------------------------------------------------
External Revenues
Service revenues $ 45,860 $ 5,144 $ 6,853 $ -- $ -- $ 8,068 $ (345) $ 65,580
Access charges -- 9,080 -- -- -- -- (996) 8,084
Travel/roaming revenue 20,099 -- -- -- -- -- -- 20,099
Facilities and tower lease -- 4,507 -- 3,380 -- 1,964 (3,588) 6,263
Equipment 2,540 12 12 -- -- 488 -- 3,052
Other 894 2,322 58 117 -- 1,716 (1,001) 4,106
---------------------------------------------------------------------------------------------
Total external revenues 69,393 21,065 6,923 3,497 -- 12,236 (5,930) 107,184
---------------------------------------------------------------------------------------------
Operating expenses
Costs of goods and services 29,850 3,964 5,095 898 -- 6,622 (5,024) 41,405
Depreciation and amortization 9,240 3,285 1,806 529 47 1,362 -- 16,269
Selling, general and administrative 22,558 4,864 3,257 435 1,037 3,347 (906) 34,592
---------------------------------------------------------------------------------------------
Total operating expenses 61,648 12,113 10,158 1,862 1,084 11,331 (5,930) 92,266
---------------------------------------------------------------------------------------------
Operating income (loss) 7,745 8,952 (3,235) 1,635 (1,084) 905 14,918
Non-operating income (expense) 4 188 18 111 2,734 31 (2,565) 521
Interest (expense) (1,273) (256) (730) (203) (2,116) (387) 2,565 (2,400)
Income taxes (2,449) (3,332) 1,572 (714) 187 (237) -- (4,973)
---------------------------------------------------------------------------------------------
Net income (loss) $ 4,027 $ 5,552 $ (2,375) $ 829 $ (279) $ 312 $ -- $ 8,066
=============================================================================================
13
Nine Months Ended September 30, 2004
Consolidated
In thousands (unaudited) PCS Telephone Mobile Holding Other Eliminations Totals
-----------------------------------------------------------------------------------------
External Revenues
Service revenues $ 39,044 $ 5,131 $ -- $ -- $ 7,230 $ (395) $ 51,010
Access charges -- 8,734 -- -- -- (704) 8,030
Travel/roaming revenue 16,495 -- -- -- -- -- 16,495
Facilities and tower lease -- 4,500 3,091 -- 1,898 (3,537) 5,952
Equipment 2,336 23 -- -- 238 -- 2,597
Other 1,068 1,953 159 -- 1,845 (435) 4,590
---------------------------------------------------------------------------------------
Total external revenues 58,943 20,341 3,250 -- 11,211 (5,071) 88,674
---------------------------------------------------------------------------------------
Operating expenses
Costs of goods and services 27,213 3,834 843 6 6,305 (4,930) 33,271
Depreciation and amortization 8,644 3,274 457 89 983 -- 13,447
Selling, general and administrative 17,571 5,140 470 1,246 2,738 (141) 27,024
---------------------------------------------------------------------------------------
Total operating expenses 53,428 12,248 1,770 1,341 10,026 (5,071) 73,742
---------------------------------------------------------------------------------------
Operating income (loss) 5,515 8,093 1,480 (1,341) 1,185 14,932
Non-operating income (expense) -- 231 52 2,102 20 (1,772) 633
Interest (expense) (1,210) (231) (192) (2,095) (371) 1,772 (2,327)
Income taxes (1,589) (2,993) (532) 495 (315) (4,934)
---------------------------------------------------------------------------------------
Net income (loss) $ 2,716 $ 5,100 $ 808 $ (839) $ 519 $ -- $ 8,304
=======================================================================================
The Company's assets by segment as of September 30, 2005, December 31, 2004, and
September 30, 2004 are as follows:
In thousands September 30, December 31, September 30,
(unaudited) 2005 2004 2004
--------------------------------------------
PCS $ 72,742 $ 81,090 $ 78,170
Telephone 62,532 59,507 60,147
Converged Services 24,598 24,423 --
Mobile 18,920 17,335 16,869
Holding 142,586 152,002 137,361
Other 22,703 23,256 21,343
-----------------------------------------
Combined totals 344,081 357,613 313,890
Inter-segment eliminations (136,701) (146,366) (112,378)
-----------------------------------------
Consolidated totals $ 207,380 $ 211,247 $ 201,512
=========================================
See Note 3 for additional information about the new affiliates agreement to
allocate all shared services and shared assets to all current and future
affiliates of the Company. The Company's converged services segment initiated
operations upon the acquisition of NTC on November 30, 2004.
14
7. 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. The following is a summary of comprehensive income for the
periods indicated:
Three Months Ended Nine Months Ended
In thousands (unaudited) September 30, September 30,
-------------------------------------------
2005 2004 2005 2004
-------------------------------------------
Net income $ 3,158 $ 3,111 $ 8,066 $ 8,304
Net unrealized income (loss) (41) (1) (65) (3)
-------------------------------------------
Comprehensive income $ 3,117 $ 3,110 $ 8,001 $ 8,301
===========================================
8. Certain amounts reported in the prior period financial statements have been
reclassified to conform to the current period presentation, with no effect on
net income or shareholders' equity, including the following reclassifications
and changes in presentation:
o As of September 30, 2005, the Company combined, for all periods
presented, the income statement line items "network operating
expenses" and "costs of goods and services". Costs of goods and
services consists primarily of the cost of equipment sold, cost of
long distance service resold, cost of video, phone and network
services, cost of PCS travel and roaming services and cost of
operating and maintaining the various networks.
o During the quarter ended September 30, 2005, the Company recorded
commission expense to selling, general and administrative expense.
In prior periods, a portion of these costs were recorded to costs of
goods and services. To conform to the current period presentation,
for the nine months ended September 30, 2005, the Company
reclassified $2.6 million in commission expense to selling, general
and administrative expense. For the three and nine months ended
September 30, 2004, the Company reclassified $(0.8) million and $1.7
million, respectively, of commission expense from costs of goods and
services to selling, general and administrative expense.
9. The following table presents pension information for the periods presented.
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------
In thousands (unaudited) 2005 2004 2005 2004
- ------------------------------------------------------------------------------------------------
Net periodic benefit cost recognized:
Service cost $ 223 $ 166 $ 669 $ 498
Interest cost 211 189 633 567
Expected return (198) (135) (594) (405)
Amortization of unrecognized transition asset -- (2) -- (6)
Amortization of unrecognized loss 23 16 69 48
Amortization of unrecognized prior service cost 17 17 51 51
---------------------------------------
Total $ 276 $ 251 $ 828 $ 753
=======================================
10. As a result of the previously reported February 2003 sale of the Company's
cellular operation, $5.0 million of the sales price was held in escrow and is
reflected as an "Escrow receivable" at December 31, 2004 on the accompanying
balance sheet. The Company received the entire $5.0 million in February 2005.
15
11. During the third quarter of 2005, the Company recorded an adjustment to the
initial allocation of the purchase price related to the November 30, 2004
acquisition of NTC. Property, plant and equipment was reduced by approximately
$1.5 million with a corresponding increase to goodwill. In connection with the
November 30, 2004 acquisition of NTC, the Company has notified the sellers it
has claims for the entire $1 million held in escrow for payment of specified
liabilities. The sellers have disputed a number of the Company's claims. The
final disposition of the escrow is expected to be resolved through arbitration
in 2005. During the second quarter 2005, the Company reduced the outstanding
balance of its revolving line of credit with CoBank by $12 million. The line of
credit had been used to fund the acquisition of NTC.
12. On August 12, 2005, Sprint and Nextel Communications, Inc. completed the
merger announced on December 15, 2004 to form Sprint Nextel Corporation. Since
Nextel was a provider of digital wireless communications services in a small
portion of the Company's PCS service area, the Sprint Nextel merger could have
resulted in a violation of the exclusivity provisions of the Company's
agreements with Sprint. However, prior to the Sprint Nextel merger, on August 9,
2005, Shenandoah Personal Communications Company ("Shentel"), a wholly owned
subsidiary of the Company, entered into a Forbearance Agreement (the
"Forbearance Agreement") with Sprint Corporation and certain of its subsidiaries
relating to the management agreement between Shentel and Sprint. The Forbearance
Agreement reflects Sprint Nextel's and the Company's desire to avoid litigation
while they continue to discuss the possibility of changes to the management
agreement in light of the merger between Sprint and Nextel Communications, Inc.
The Forbearance Agreement sets forth Sprint Nextel's agreement as to certain
parameters for the operation of Nextel's wireless business in the territories
operated by Shentel. The Agreement also sets forth Shentel's agreement not to
initiate litigation or seek certain injunctive or equitable relief under certain
circumstances, in each case during the period of time that the Forbearance
Agreement remains in effect. The overall impact of the Sprint Nextel merger on
the Company's PCS operations remains uncertain as of the date of this report. No
determination has been made as to the impact on the value of the Company or its
business of any of such remedies or whether any such remedy would be more or
less favorable to the Company and its shareholders than the existing
arrangements with Sprint Nextel or any new arrangements the Company may
ultimately negotiate with Sprint Nextel.
The Company has had discussions with Sprint Nextel regarding the continuance of
their long-term relationship and the impact of the Sprint Nextel merger. As a
result of the Sprint Nextel merger, Sprint Nextel may require the Company to
meet additional program requirements, which the Company anticipates would
increase capital expenditures and operating expenses. The Company is committed
to working with Sprint Nextel to reach mutually acceptable arrangements with
respect to the foregoing matters. There can be no assurances, however, that the
Company and Sprint Nextel will be able to reach mutually acceptable
arrangements, that a mutually acceptable arrangement will be reached prior to or
subsequent to the January 1, 2006 expiration of the Forbearance Agreement or as
to the likely impact on the Company or its relationship with Sprint Nextel of
any such arrangements.
The Company believes that a significant portion of its PCS service area overlaps
the service area operated by Nextel Partners under the Nextel brand. Nextel
Partners was not a party to the Sprint Nextel merger. The agreements between
Nextel
16
Partners and Nextel contain exclusivity and other provisions that remain in
place following the Sprint Nextel merger until such time that Nextel Partners
may be acquired by Sprint Nextel. The Company believes that the provisions under
the agreements between Nextel and Nextel Partners conflicts with the Company's
rights under its Management Agreement. Even if such provisions do not conflict,
as long as Nextel Partners remains a stand-alone entity, the ability of the
Company to fully realize any of the benefits from the merger of Sprint and
Nextel may be limited. Furthermore, the continued operation by Nextel Partners
of a competing network could have a negative impact on the Company's results of
operations. Although the shareholders of Nextel Partners have voted to put their
Nextel Partners shares to Sprint Nextel, such an acquisition is unlikely to
occur prior to 2006.
13. On August 4, 2005, the board of directors of the Rural Telephone Bank (the
"RTB") adopted a number of resolutions for the purpose of dissolving RTB as of
October 1, 2005. The proposed dissolution is subject to Congress passing the
agricultural appropriations bill which contains language removing restrictions
on the annual retirement of government stock in the RTB. The Company currently
holds 10,821,770 shares of Class B and Class C RTB Common Stock ($1.00 par
value) which is reflected on the Company's books at $796,000 under the cost
method. As of the date hereof, the agricultural appropriations bill has been
approved by both the House and Senate. If the President signs the agricultural
appropriations bill with the necessary language, the Company has been advised
that it can expect to receive the full par value of its shares or $10,821,770 in
either the first or second quarter of 2006, with an estimated gain of $6.1
million, net of tax, recorded in the period the necessary legislation is
enacted. However, there can be no assurance that the necessary legislation will
be enacted or that changes will not be made to the proposed dissolution of RTB
which would have the effect of either delaying or reducing the amount received
by the Company.
14. In September 2005, the Company settled a claim against Verizon, with respect
to overcharges for completing local calls from Shenandoah PCS customers to
Verizon customers, for $750,000, which was received by the Company in September.
In connection with the settlement, the Company recorded a third quarter
reduction in PCS network costs of $750,000.
15. The Company's Board of Directors declared a cash dividend to shareholders of
record on November 14, 2005, for $0.46 per share, payable on December 1, 2005.
The total dividend will be approximately $3.7 million.
17
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, 2004. 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, 2004, 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 wholly owned subsidiaries. These subsidiaries provide local exchange
telephone services, wireless personal communications services, as a Sprint
Nextel PCS affiliate, as well as cable television, Internet and data services,
long distance, sale of telecommunications equipment, fiber optics facilities,
paging and leased tower facilities. The Company is the exclusive provider of
wireless mobility communications network products and services on the 1900 MHz
band under the Sprint Nextel brand from Harrisonburg, Virginia to Harrisburg,
York and Altoona, Pennsylvania. The Company refers to the Chambersburg,
Pennsylvania; Hagerstown, Maryland; Martinsburg, West Virginia; and Harrisonburg
and Winchester, Virginia markets as its Quad States markets. The Company refers
to the Altoona, Harrisburg, and York, Pennsylvania markets as its Central Penn
markets. 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 38,000
inhabitants, which has increased by approximately 3,000 since 2000. While a
number of new housing developments are being planned for Shenandoah County, the
potential for significant numbers of additional wireline customers in the
Shenandoah County operating area is limited. The Company established competitive
local exchange carrier (CLEC) services on a limited basis during 2002. In
addition, the Company sells and leases equipment, mainly related to services it
provides, and also participates in emerging services and technologies by direct
investment in non-affiliated companies. As a result of the NTC Communications,
L.L.C. (NTC) acquisition on November 30, 2004, the Company, through its
subsidiary Shentel Converged
18
Services, provides local and long distance voice, video, and internet services
on an exclusive and non-exclusive basis to multi-dwelling unit (MDU) communities
(primarily off-campus college student housing) throughout the southeastern
United States including Virginia, North Carolina, Maryland, South Carolina,
Georgia, Florida, Tennessee and Mississippi. In September 2005, the Company
began an initiative to market wireless broadband products and services. The
Company plans to move forward with its initiative to build networks and market
wireless broadband to customers in selected markets in the mid-atlantic and
southeastern United States.
As a result of the continuing growth and diversification of the Company,
including, most recently, the November 30, 2004 acquisition of NTC and the
September 2005 wireless broadband initiative, the Company believes that it is
more meaningful to discuss the results of the Company both on a consolidated
level and in detail by segment. The Company has six reportable segments, which
the Company operates and manages as strategic business units organized
geographically and by line of business: (1) PCS, (2) Telephone, (3) Converged
Services (NTC), (4) Mobile, (5) Holding and (6) Other. In prior periods, the
Company reported 11 segments, however, beginning with the September 30, 2005
quarterly report, the Company will report six segments with the following
segments combined into "Other": ShenTel Service Company, Shenandoah Cable
Television, Shenandoah Network Company, Shenandoah Long Distance Company,
ShenTel Communications Company and Shentel Wireless Company. During the third
quarter of 2005, Shenandoah Valley Leasing Company changed its name to Shentel
Wireless Company to reflect the activities associated with the Company's
Wireless Broadband Group. The Company believes that the new presentation will
allow for a more meaningful discussion of the segment results.
Selected Operating Statistics
The following table shows selected operating statistics of the Company for the
most recent five quarters. This information is provided as a supplement to the
financial statements. The table does not include NTC information.
(Unaudited) Sept. 30, June 30 Mar. 31, Dec. 31, Sept. 30,
2005 2005 2005 2004 2004
---------------------------------------------------------
Telephone Access Lines 24,811 24,877 24,802 24,691 24,818
Cable Television Subscribers 8,677 8,627 8,607 8,631 8,684
Dial-up Internet Subscribers 13,273 14,052 14,829 15,051 15,817
DSL Subscribers 4,062 3,427 2,923 2,646 2,152
Retail PCS Subscribers 116,460 112,090 106,924 102,613 98,053
Wholesale PCS Users (1) 33,848 32,733 31,504 27,337 19,603
Long Distance Subscribers 10,318 10,258 10,055 9,918 9,719
Fiber Route Miles 579 576 574 557 554
Total Fiber Miles 29,734 29,566 29,462 28,830 28,771
Long Distance Calls (000) (2) 6,808 6,808 6,326 6,265 6,117
Total Switched Access Minutes (000) 74,515 70,419 67,824 66,449 63,867
Originating Switched Access MOU (000) 20,627 19,570 19,376 18,870 18,596
Employees (full time equivalents) (3) 375 408 358 374 303
CDMA Base Stations (sites) 301 288 280 271 261
Towers (100 foot and over) 82 81 81 80 78
Towers (under 100 foot) 13 11 11 11 10
PCS Market POPS (000) (4) 2,199 2,199 2,199 2,199 2,168
PCS Covered POPS (000) (4) 1,658 1,649 1,642 1,629 1,611
PCS Ave. Monthly Retail Churn % (5) 2.1% 1.9% 2.1% 2.2% 2.2%
19
(1) - Wholesale PCS Users are private label subscribers with numbers homed in
the Company's wireless network service area.
(2) - Originated by customers of the Company's Telephone subsidiary.
(3) - The June 30, 2005 employee count includes 44 summer interns.
(4) - POPS refers to the estimated population of a given geographic area and
is based on information purchased by Sprint Nextel from Geographic
Information Services. Market POPS are those within a market area which the
Company is authorized to serve under its Sprint Nextel agreements, and
Covered POPS are those covered by the network's service area.
(5) - PCS Ave. Monthly Churn is the average of the three monthly churn
calculations for the period.
Significant Transactions
In connection with the November 30, 2004 acquisition of NTC, the Company has
notified the sellers it has claims for the entire $1 million held in escrow for
payment of specified liabilities. The sellers have disputed a number of the
Company's claims. The final disposition of the escrow is expected to be resolved
through arbitration in 2005.
In September 2005, the Company settled a claim against Verizon, with respect to
overcharges for completing local calls from Shenandoah PCS customers to Verizon
customers, for $750,000, which was received by the Company in September. In
connection with the settlement, the Company recorded a third quarter reduction
in PCS network costs of $750,000.
Results of Operations
Consolidated
The Company's consolidated results in the third quarter and for the first nine
months of 2005 and 2004 are summarized as follows:
Three Months Ended Nine Months Ended
(in millions) September 30, Change September 30, Change
2005 2004 $ % 2005 2004 $ %
--------------------------------------------------------------------------------------
Operating revenues $ 37,320 $ 31,103 $ 6,217 20.0 $ 107,184 $ 88,674 $ 18,510 20.9
Operating expenses 31,568 25,346 6,222 24.5 92,266 73,742 18,524 25.1
Operating income 5,752 5,757 (5) (0.1) 14,918 14,932 (14) (0.1)
Other income (expense) (511) (802) (291) (36.3) (1,879) (1,694) 185 10.9
Net income $ 3,158 $ 3,111 $ 47 15.1 $ 8,066 $ 8,304 $ (238) (2.9)
Revenues
Revenues in the third quarter of 2005 increased $6.2 million, or 20.0%, and
$18.5 million, or 20.9% for the first nine months of 2005 compared to the same
period in 2004. The increase was driven primarily by the growth in the Company's
PCS and Converged Services segments. For the three and nine months ended 2005,
PCS increased $3.6 and $10.5, respectively, while Converged Services increased
$2.3 and $6.9, respectively, compared to the same period in 2004. The Company
purchased NTC on November 30, 2004, therefore there are no Converged Services
results in the
20
three and nine months ended September 30, 2004.
Operating expenses
Operating expenses in the third quarter of 2005 increased $6.2 million, or
24.5%, and $18.5 million, or 25.1% for the first nine months of 2005 compared to
the same period in 2004. The increase was driven primarily by the growth in the
Company's PCS and Converged Services segments. For the three and nine months
ended 2005, PCS increased $2.4 million and $8.2, million respectively, while
Converged Services increased $3.8 and $10.2, respectively.
21
Segment Results
PCS
Three Months Ended Nine Months Ended
(in millions) September 30, Change September 30, Change
2005 2004 $ % 2005 2004 $ %
-----------------------------------------------------------------------------
Segment operating revenues
Wireless service revenue $16,016 $13,918 $ 2,098 15.1 $45,860 $39,044 $ 6,816 17.5
Travel and roaming revenue 7,386 5,888 1,498 25.4 20,099 16,495 3,604 21.9
Equipment revenue 920 863 57 6.6 2,540 2,336 204 8.7
Other revenue 289 341 (52) (15.3) 894 1,068 (174) (16.3)
-----------------------------------------------------------------------------
Total segment operating revenues 24,611 21,010 3,601 17.1 69,393 58,943 10,450 17.7
-----------------------------------------------------------------------------
Segment operating expenses
Costs of goods and services 10,167 9,795 372 3.8 29,850 27,213 2,637 9.7
Depreciation and amortization 3,181 3,125 56 1.8 9,240 8,644 596 6.9
Selling, general and administrative 7,547 5,559 1,988 35.8 22,558 17,571 4,987 28.4
-----------------------------------------------------------------------------
Total segment operating expenses 20,895 18,479 2,416 13.1 61,648 53,428 8,220 15.4
-----------------------------------------------------------------------------
Segment operating income $ 3,716 $ 2,531 $ 1,185 46.8 $ 7,745 $ 5,515 $ 2,230 40.4
=============================================================================
Shenandoah PCS Company, as a PCS affiliate of Sprint Nextel, provides digital
wireless service to a portion of a four-state area covering the region from
Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia.
The Company receives revenues from Sprint Nextel for subscribers that obtain
service in the Company's network coverage area and other subscribers that use
the Company's network when they use PCS service within the Company's service
area. The Company relies on Sprint Nextel to provide timely, accurate and
complete information for the Company to record the appropriate revenue and
expenses for each financial period.
The Company had 301 PCS base stations in service at September 30, 2005, compared
to 261 base stations in service at September 30, 2004. This increase in base
stations is primarily the result of supplementing network capacity and further
extending coverage along more heavily traveled secondary roads in the Company's
market areas.
Through Sprint Nextel, 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 Company's net travel and wholesale roaming, including the long distance and
3G data portions of that traffic, increased to a $3.3 million net contribution
to operating income for the current quarter, compared to a $3.1 million net
contribution to operating income for the same quarter last year. The Company's
travel receivable minutes increased 19.3% to 87.7 million and the travel payable
minutes increased by 17.6% to 64.1 million, compared to the third quarter of
2004. 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 using PCS service outside of the Company's service area.
22
On a per-subscriber basis, the Company's average of travel payable minutes
increased to 186 minutes in the third quarter of 2005, which represented an
increase of three minutes from the third quarter of 2004. 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 Nextel.
In the third quarter of 2005, the Company's average PCS retail customer
turnover, or churn rate, was 2.1%, compared to 2.2% in the third quarter of
2004. 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. In the third quarter of 2005, there was an
increase in PCS bad debt expense to 4.0% of PCS service revenues compared to
3.7% in third quarter 2004. Although management continues to monitor
receivables, collection efforts and new subscriber credit ratings, there is no
certainty that the bad debt expense will not continue to increase in the future.
Revenues
As of September 30, 2005, the Company had 116,460 retail PCS subscribers. The
PCS operation added 4,370 net retail customers in the third quarter of 2005,
18,407 net retail subscribers since September 30, 2004, and 13,847 since
December 31, 2004. In addition, net wholesale users increased by 1,115 in the
third quarter of 2005, 14,245 since September 30, 2004 and 6,511 since December
31, 2004. For the three and nine months ended September 30, 2005, wireless
service revenues from retail customers increased $2.1 million, or 15.1%, and
$6.8 million, or 17.5%, respectively.
For the three and nine months ended September 30, 2005, PCS travel and roaming
revenues increased $1.5 million and $3.6 million, respectively. The travel and
roaming revenue increase resulted from an increase in travel usage.
During the third quarter 2005, the Company's PCS segment recorded Universal
Service Fund revenues, covering the period from late 2004 to September 30, 2005,
of $0.5 million.
For the three and nine months ended September 30, 2005, PCS equipment revenue
increased $0.1 million, or 6.6%, and $0.2 million, or 8.7%, respectively. The
increase was primarily due to more gross new PCS subscribers offset by a lower
average phone price in 2005 and more subscribers upgrading their handsets to
access new features provided with the service.
Costs of Goods and Services
For the three and nine months ended September 30, 2005, costs of PCS goods and
services increased $0.4 million, or 3.8%, and $2.6 million, or 9.7%,
respectively. For the three and nine months ended September 30, 2005, PCS travel
costs increased $0.8 million, or 21.5%, to $4.5 million and $2.4 million, or
22.5%, to $12.5 million, respectively. The travel costs increased due to an
increase in the Company's subscribers and an increase in the average travel
minutes used by the Company's subscribers on the Sprint Nextel or Sprint Nextel
affiliate networks not operated by the Company.
Costs of goods and services experienced additional increases due to the costs of
the PCS phones sold to new and existing customers. During the third quarter of
2005, the Company added 11,624
23
gross new PCS subscribers compared to 9,975 in the third quarter of 2004. For
the nine months ended September 30, 2005 and 2004, the Company added 33,685 and
30,512, respectively, gross new PCS subscribers.
Offsetting the increase, in the third quarter of 2005, the Company recorded a
$0.8 million settlement received from Verizon (see Note 14 for further
discussion.)
Selling, general and administrative
For the three and nine months ended September 30, 2005, selling, general and
administrative costs increased $2.0 million, or 35.8%, and $5.0 million, or
28.4%, respectively, compared to 2004, primarily due to:
o Commission expense increased $1.1 million and $1.0 million for the
three and nine months ended September 30, 2005, respectively.
o Corrections recorded in 2004 for over accrual of commission expense
of $0.8 million and $1.1 million for the three and nine months ended
September 30, 2004, respectively.
o An increase in the amount paid to Sprint Nextel for the
administration of the customer base of $0.3 million and $0.7 million
for the three and nine months ended September 30, 2005,
respectively, due to an increase in customers offset by a reduction
in the cost per customer.
o Rebates to customers have decreased $0.3 million and increased $0.3
million for the three and nine months ended September 30, 2005,
respectively.
o Increase in bad debt expense of $0.1 million and $0.5 million for
the three and nine months ended September 30, 2005, respectively.
Telephone
Three Months Ended Nine Months Ended
(in millions) September 30, Change September 30, Change
2005 2004 $ % 2005 2004 $ %
----------------------------------------------------------------------------
Segment operating revenues
Service revenue - wireline $ 1,733 $ 1,701 $ 32 1.9 $ 5,144 $ 5,131 $ 13 .3
Access revenue 3,058 3,124 (66) (2.1) 9,080 8,734 346 4.0
Facilities and tower lease revenue 1,589 1,514 75 5.0 4,507 4,500 7 0.2
Equipment revenue 5 11 (6) (54.5) 12 23 (11) (47.8)
Other revenue 762 643 119 18.5 2,322 1,953 369 18.9
----------------------------------------------------------------------------
Total segment operating revenues 7,147 6,993 154 2.2 21,065 20,341 724 3.6
----------------------------------------------------------------------------
Segment operating expenses
Costs of goods and services 1,382 1,288 94 7.3 3,964 3,834 130 3.4
Depreciation and amortization 1,080 1,105 (25) (2.3) 3,285 3,274 11 0.3
Selling, general and administrative 1,568 1,740 (172) (9.9) 4,864 5,140 (276) (5.4)
----------------------------------------------------------------------------
Total segment operating expenses 4,030 4,133 (103) (2.5) 12,113 12,248 (135) (1.1)
----------------------------------------------------------------------------
Segment operating income $ 3,117 $ 2,860 $ 257 9.0 $ 8,952 $ 8,093 $ 859 10.6
============================================================================
The Telephone Company provides both regulated and unregulated telephone services
and leases fiber optic facilities primarily throughout the northern Shenandoah
Valley.
From September 30, 2004 to September 30, 2005, the Company's telephone access
line count declined by 7 access lines. The decline is due to the migration to
wireless and DSL services which has been, to some extent, offset by the
increased customer base from the construction of new homes
24
within Shenandoah County. Based on industry experience and national trends, the
Company believes that a downward trend in telephone subscriber counts is likely.
Revenues
For the three and nine months ended September 30, 2005, total switched minutes
of use on the local telephone network increased by 16.7% and 16.4%,
respectively, compared to 2004; however, access revenues did not increase due to
declining access rates. The mix of minutes that terminate to wireless carriers
compared to total minutes shifted from 43.2% and 45.7% for the three and nine
months ended September 30, 2004, respectively, to 51.6% and 50.6% for the three
and nine months ended September 30, 2005, respectively. The increase in minutes
was primarily attributable to the increase in wireless traffic transiting the
Company's telephone network.
Directory revenue, included in "other revenues", increased during the third
quarter 2005 by $82 thousand, or 19.1%, to $0.5 million and $275 thousand, or
20.8%, to $1.6 million in the first nine months of 2005.
Selling, general and administrative
Selling, general and administrative expense decreased during the third quarter
2005 by $0.2 million, or 9.9%, and $0.3 million, or 5.4%, in the first nine
months of 2005, compared to 2004, due primarily to the new allocation
methodology adopted by the Company in 2005 (See Note 3 for further discussion.)
Converged Services
Three Months Ended Nine Months Ended
(in millions) September 30, Change September 30, Change
2005 2004 $ % 2005 2004 $ %
------------------------------------------------------------------------------------
Segment operating revenues
Service revenue - wireline $ 2,260 $ -- $ 2,260 -- $ 6,853 $ -- $ 6,853 --
Equipment revenue 12 -- 12 -- 12 -- 12 --
Other revenue 25 -- 25 -- 58 -- 58 --
------------------------------------------------------------------------------------
Total segment operating revenues 2,297 -- 2,297 -- 6,923 -- 6,923 --
------------------------------------------------------------------------------------
Segment operating expenses
Costs of goods and services 2,125 -- 2,125 -- 5,095 -- 5,095 --
Depreciation and amortization 448 -- 448 -- 1,806 -- 1,806 --
Selling, general and administrative 1,183 -- 1,183 -- 3,257 -- 3,257 --
------------------------------------------------------------------------------------
Total segment operating expenses 3,756 -- 3,756 -- 10,158 -- 10,158 --
------------------------------------------------------------------------------------
Segment operating loss $ (1,459) $ -- $ (1,459) -- $ (3,235) $ -- $ (3,235) --
====================================================================================
The Converged Services segment primarily consists of NTC, which provides local
and long distance voice, data and video services on an exclusive and
non-exclusive basis to multi-dwelling unit communities throughout the
southeastern United States including Virginia, North Carolina, Maryland, South
Carolina, Georgia, Florida, Tennessee and Mississippi.
The Company purchased NTC on November 30, 2004, and prior to that date had no
other activities in this segment, therefore, there are no Converged Services
results in the three and nine months ended September 30, 2004.
25
The following table shows selected operating statistics for NTC. This
information is provided as a supplement to the financial information.
At March 31, 2005
----------------------------------------------
Subscribers
----------------------------------
Accounts Network Video Phone
----------------------------------------------
Bulk Accounts (1) 40 9,527 2,422 6,002
Retail Accounts (2) 11,546 11,419 5,570 3,725
NTC Properties Served (3) 112
At June 30, 2005
----------------------------------------------
Subscribers
----------------------------------
Accounts Network Video Phone
----------------------------------------------
Bulk Accounts (1) 36 8,768 2,275 6,244
Retail Accounts (2) 9,708 9,261 4,346 2,830
NTC Properties Served (3) 111
At September 30, 2005
----------------------------------------------
Subscribers
----------------------------------
Accounts Network Video Phone
----------------------------------------------
Bulk Accounts (1) 41 10,095 2,381 6,282
Retail Accounts (2) 10,945 11,763 6,043 3,561
NTC Properties Served (3) 108
(1) - Service is provided under a single contract with the property owner who
typically provides service to tenants as part of their lease.
(2) - Service is provided under contract with individual subscribers.
(3) - Multi-unit housing complexes where NTC provides service.
The decrease in the number of NTC subscribers, from March 31, 2005 to June 30,
2005 and the subsequent increase from June 30, 2005 to September 30, 2005, is
primarily due to the seasonality of NTC's customer base, which is primarily
college students living in off-campus student housing.
26
Revenues
For the three and nine months ended September 30, 2005, service revenues
consisted of voice, video and data services.
Costs of goods and services
For the three and nine months ended September 30, 2005, costs of goods and
services reflect both the cost of purchasing video and voice services and the
network costs to provide internet services to customers and network maintenance
and repair.
Mobile
Three Months Ended Nine Months Ended
(in millions) September 30, Change September 30, Change
2005 2004 $ % 2005 2004 $ %
-----------------------------------------------------------------------------
Segment operating revenues
Facilities and tower lease revenue-affiliate $ 347 $ 324 $ 23 7.1 $ 1,026 $ 967 $ 59 6.1
Facilities and tower lease revenue-non-affiliate 796 736 60 8.2 2,354 2,124 230 10.8
Other revenue 44 47 (3) (6.4) 117 159 (42) (26.4)
-----------------------------------------------------------------------------
Total segment operating revenues 1,187 1,107 80 7.2 3,497 3,250 247 7.6
-----------------------------------------------------------------------------
Segment operating expenses
Costs of goods and services 342 262 80 30.5 898 843 55 6.5
Depreciation and amortization 178 152 26 17.1 529 457 72 15.8
Selling, general and administrative 137 144 (7) (4.9) 435 470 (35) (7.4)
-----------------------------------------------------------------------------
Total segment operating expenses 657 558 99 17.7 1,862 1,770 92 5.2
-----------------------------------------------------------------------------
Segment operating income $ 530 $ 549 $ (19) (3.5) $ 1,635 $ 1,480 $ 155 10.5
=============================================================================
The Mobile Company provides tower rental space to affiliated and non-affiliated
companies in the Company's PCS markets and paging services throughout the
northern Shenandoah Valley.
For the three and nine months ended September 30, 2005, the Mobile Company did
not have any significant items that need to be discussed.
Liquidity and Capital Resources
The Company generated $28.0 million in cash from operations in the 2005 nine
month period, compared to $27.6 million in the 2004 nine month period. The
Company expects that operations will continue to generate positive cash flows.
As of September 30, 2005, the Company's total debt was $37.0 million, with an
annualized overall weighted average interest rate of approximately 7.2%. As of
September 30, 2005, the Company was in compliance with the covenants in its
credit agreements. During the second quarter 2005, the Company reduced the
outstanding balance of its revolving line of credit with CoBank by $12 million.
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.
27
Capital expenditures budgeted for 2005 total approximately $37.0 million,
including approximately $20.0 million for additional PCS base stations,
additional towers, additional sites and switch upgrades to enhance the PCS
network, approximately $5.0 million for the telephone operation, $4.0 for NTC's
operation and approximately $4.0 million for internal information technology
expenditures and the implementation of new technologies. For the 2005 nine month
period, the Company spent $25.6 million on capital projects.
The Company's short-term and long-term cash needs, including working capital
requirements, capital projects, debt payments, and dividend payments, are
expected to be met 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.
In connection with the November 30, 2004 acquisition of NTC, the Company has
notified the sellers it may have claims for the entire $1 million held in escrow
for payment of specified liabilities. The final disposition of the escrow is
expected to be resolved through arbitration in 2005.
The Company's Board of Directors declared a cash dividend to shareholders of
record on November 14, 2005, for $0.46 per share, payable on December 1, 2005.
The total dividend will be approximately $3.7 million.
Risk Factors
On August 12, 2005, Sprint and Nextel Communications, Inc. completed the merger
announced on December 15, 2004 to form Sprint Nextel Corporation. Since Nextel
was a provider of digital wireless communications services in a small portion of
the Company's PCS service area, the Sprint Nextel merger could have resulted in
a violation of the exclusivity provisions of the Company's agreements with
Sprint. However, prior to the Sprint Nextel merger, on August 9, 2005,
Shenandoah Personal Communications Company ("Shentel"), a wholly owned
subsidiary of the Company, entered into a Forbearance Agreement (the
"Forbearance Agreement") with Sprint Corporation and certain of its subsidiaries
relating to the management agreement between Shentel and Sprint. The Forbearance
Agreement reflects Sprint Nextel's and the Company's desire to avoid litigation
while they continue to discuss the possibility of changes to the management
agreement in light of the merger between Sprint and Nextel Communications, Inc.
The Forbearance Agreement sets forth Sprint Nextel's agreement as to certain
parameters for the operation of Nextel's wireless business in the territories
operated by Shentel. The Agreement also sets forth Shentel's agreement not to
initiate litigation or seek certain injunctive or equitable relief under certain
circumstances, in each case during the period of time that the Forbearance
Agreement remains in effect. The overall impact of the Sprint Nextel merger on
the Company's PCS operations remains uncertain as of the date of this report. No
determination has been made as to the impact on the value of the Company or its
business of any of such remedies or whether any such remedy would be more or
less favorable to the Company and its shareholders than the existing
arrangements with Sprint Nextel or any new arrangements the Company may
ultimately negotiate with Sprint Nextel.
The Company has had discussions with Sprint Nextel regarding the continuance of
their long-term relationship and the impact of the Sprint Nextel merger. As a
result of the Sprint Nextel merger,
28
Sprint Nextel may require the Company to meet additional program requirements,
which the Company anticipates would increase capital expenditures and operating
expenses. The Company is committed to working with Sprint Nextel to reach
mutually acceptable arrangements with respect to the foregoing matters. There
can be no assurances, however, that the Company and Sprint Nextel will be able
to reach mutually acceptable arrangements, that a mutually acceptable
arrangement will be reached prior to or subsequent to the January 1, 2006
expiration of the Forbearance Agreement or as to the likely impact on the
Company or its relationship with Sprint Nextel of any such arrangements.
The Company believes that a significant portion of its PCS service area overlaps
the service area operated by Nextel Partners under the Nextel brand. Nextel
Partners was not a party to the Sprint Nextel merger. The agreements between
Nextel Partners and Nextel contain exclusivity and other provisions that remain
in place following the Sprint Nextel merger until such time that Nextel Partners
may be acquired by Sprint Nextel. The Company believes that the provisions under
the agreements between Nextel and Nextel Partners conflicts with the Company's
rights under its Management Agreement. Even if such provisions do not conflict,
as long as Nextel Partners remains a stand-alone entity, the ability of the
Company to fully realize any of the benefits from the merger of Sprint and
Nextel may be limited. Furthermore, the continued operation by Nextel Partners
of a competing network could have a negative impact on the Company's results of
operations. Although the shareholders of Nextel Partners have voted to put their
Nextel Partners shares to Sprint Nextel, such an acquisition is unlikely to
occur prior to 2006.
At September 30, 2005, the Company is one of nine PCS Affiliates of Sprint
Nextel, and accordingly, is impacted by decisions and requirements adopted by
Sprint Nextel in regard to its wireless operation. Management continually
reviews its relationship with Sprint Nextel as new developments and requirements
are added.
The Company's access revenue may be adversely impacted by legislative or
regulatory actions, or technology developments, that decrease access rates or
exempt certain traffic from paying for access to the Company's regulated
telephone network. The Federal Communications Commission is currently reviewing
the issue of access charges as well as an overhaul of intercarrier compensation.
An unfavorable change 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 and the
elimination of second lines dedicated to dial-up Internet as customers migrate
to broadband connections. Although the Company has not seen a material reduction
in its number of access lines to date, and reported a slight increase during the
2005 nine month period, the dominating nationwide trend has been a decline in
the number of access lines. There is a significant risk that a downward trend
could have a material adverse effect on the Company's telephone operations in
the future.
The Company's revenue from fiber leases may be adversely impacted by price
competition for these facilities. The Company monitors each of its fiber lease
customers to minimize the risk related to this business.
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
29
over the Company in the procurement of programming. The continued success of the
satellite television providers may 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, resulting in the
Company writing off some of its deferred tax assets.
Recent Accounting Pronouncements
In March 2004, the FASB issued EITF Issue No. 03-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments"
which provides new guidance for assessing impairment losses on debt and equity
investments. EITF Issue No. 03-1 also includes new disclosure requirements for
investments that are deemed to be temporarily impaired. In September 2004, the
FASB delayed the accounting provisions of EITF Issue No. 03-1; however, the
disclosure requirements remain effective for the third quarter of 2005. The
Company will evaluate the effect, if any, of EITF Issue No. 03-1 when final
guidance is released.
In December 2004, the FASB issued SFAS No. 123 (R), Share Based Payments, which
is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123 (R) replaces SFAS No. 123, and supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. The
approach in SFAS 123 (R) is similar to the approach described in SFAS No. 123,
however, SFAS No. 123 (R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure will no longer be an
alternative. SFAS No. 123 (R) will be effective for the Company beginning the
first quarter 2006. The Company is still evaluating the impact of applying SFAS
No. 123 (R), however, the Company does not believe the application will have a
material impact on the Company's consolidated financial statements.
In March 2005, the FASB issued FASB Interpretation ("FIN") No. 47 "Accounting
for Conditional Asset Retirement Obligations--an Interpretation of FASB
Statement No. 143" ("FIN No. 47"). FIN No. 47 clarifies the timing of liability
recognition for legal obligations associated with the retirement of a tangible
long-lived asset when the timing and/or method of settlement are conditional on
a future event. FIN No. 47 is effective for us no later than December 31, 2005.
The adoption of FIN No. 47 is not expected to have a material impact on the
Company's consolidated results of operations or financial position.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections--a replacement of APB Opinion No. 20 and FASB Statement No. 3"
("SFAS No. 154"). This Statement replaces APB Opinion No. 20, "Accounting
Changes" and FASB Statement No. 3, "Reporting Accounting Changes in Interim
Financial Statements," and changes the requirements for the accounting for and
reporting of a change in accounting principle. SFAS No. 154 applies to all
voluntary changes in an accounting principle. It also applies to changes
required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. When a
pronouncement includes specific transition provisions, those provisions should
be followed. SFAS No. 154 is effective for accounting changes and error
corrections occurring in fiscal years beginning after December 15, 2005.
30
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 the Company believes only the first
component, outstanding debt with variable rates, is of any potential
significance at this time. The Company has a $15 million variable rate revolving
reducing credit facility with CoBank and, as of September 30, 2005, the
outstanding debt balance was $1.2 million. 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 $1.0 million,
while the estimated current fair value of the fixed rate debt is approximately
$38.0 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 $7.1
million of cash equivalents in overnight repurchase agreements, which are
accruing interest at rates of approximately 3.0% 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 only $1.2 million in variable rate debt and adequate
cash on hand and expected 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 any investments in
publicly traded stock, there is no 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, 2005, the Company's external investments totaled $7.2
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 $0.8
million committed under contracts the Company has signed with portfolio
managers.
ITEM 4. Controls and Procedures
Evaluation Regarding the Effectiveness of Disclosure Controls and Procedures
Management, with the participation of our President and Chief Executive Officer,
who is the principal executive officer, and the Executive Vice President and
Chief Financial Officer, who is the principal financial officer, conducted an
evaluation of our disclosure controls and procedures, as defined by Rule 13a -
15(e) under the Securities Exchange Act of 1934. Based on this evaluation, the
Company's principal executive officer and its principal financial officer
concluded, that the Company's disclosure controls and procedures were effective
as of September 30, 2005.
31
During the third fiscal quarter of 2005, there were changes in the Company's
internal controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, its internal control over financial
reporting as follows: The Company successfully migrated the customer billing
function for NTC, acquired November 30, 2004, into the Company's established
billing system.
Subsequent to the quarter close, the Company identified a control deficiency
around the payment of commissions to employees selling PCS services. Effective
November 1, 2005, the Company modified the commissions processes to remediate
the control deficiency.
Under the Company's agreements with Sprint Nextel, Sprint Nextel provides the
Company with billing, collections, customer care, certain network operations and
other back office services for the PCS operation. As a result, Sprint Nextel
remits to the Company approximately 66% of the Company's total revenues, while
approximately 39% of the expenses reflected in the Company's consolidated
financial statements relate to charges by or through Sprint Nextel 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
Nextel to provide accurate, timely and sufficient data and information to
properly record the Company's revenues, expenses and accounts receivable, which
underlie a substantial portion of the Company's periodic financial statements
and other financial disclosures.
Information provided by Sprint Nextel includes reports regarding the subscriber
accounts receivable in the Company's markets. Sprint Nextel provides the Company
with monthly accounts receivable, billing and cash receipts information on a
market level, rather than a subscriber level. The Company reviews these various
reports to identify discrepancies or errors. However, under the Company's
agreements with Sprint Nextel, the Company is 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 Nextel. Because of the
Company's reliance on Sprint Nextel for financial information, the Company must
depend on Sprint Nextel to design adequate internal controls with respect to the
processes established to provide this data and information to the Company and
Sprint Nextel's other PCS affiliate network partners. To address this issue,
Sprint Nextel engages independent registered accountants to perform a periodic
evaluation of these controls and to provide a "Report on Controls Placed in
Operation and 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 most recent report covers the period from April 1, 2004 to March 31,
2005. 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 Nextel related to the Company's relationship
with them.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In April, 2005, Shenandoah Personal Communications Services Company (Shenandoah
PCS) submitted to arbitration a claim against Verizon South Inc., Verizon
Virginia Inc., Verizon West Virginia Inc., Verizon Pennsylvania Inc., Verizon
North Inc. and Verizon Maryland (collectively "Verizon") with respect to
overcharges for completing local calls from Shenandoah PCS customers to
Verizon's customers. On May 16, 2005,Verizon filed actions in the US District
Court, Maryland District, and in the US District Court, Eastern District of
Virginia, seeking to stay the arbitration
32
proceedings. On July 18, 2005, Shenandoah PCS filed a response to Verizon's
request for a stay and filed counterclaims against Verizon seeking the same
relief as originally set forth in its demand for arbitration. Shenandoah PCS was
claiming that Verizon failed to charge Shenandoah the interconnection rate that
it was entitled to under a number of interconnection agreements negotiated
between Sprint PCS (on behalf of Shenandoah PCS) and Verizon. In the
alternative, Shenandoah PCS was claiming that Verizon failed to comply with
federal law by not offering Shenandoah PCS the "mirror rate" as required by the
FCC, and by charging Shenandoah PCS discriminatory rates. In September 2005, the
Company settled its claim against Verizon for $750,000, which was received by
the Company in September 2005.
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.
33
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 9, 2005 /s/ Earle A. MacKenzie
----------------------------------------------------------
Earle A. MacKenzie
Executive Vice President and
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
34
EXHIBIT INDEX
Exhibit No. Exhibit
----------- -------
31.1 Certifications pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934.
31.2 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.
35