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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
Commission File No.: 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.)
124 South Main Street, Edinburg, VA 22824
(Address of principal executive office, including zip code)
Registrant's telephone number, including area code: (540) 984-4141
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK (NO PAR VALUE)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 24, 2000. $159,375,073. (In determining this figure, the
registrant has assumed that all of its officers and directors are affiliates.
Such assumption shall not be deemed to be conclusive for any other purpose.) The
Company's stock is not listed on any national exchange nor NASDAQ; but it is
traded on the Over-the-Counter (OTC) bulletin board system. The value of the
Company's stock has been determined based upon the last OTC trade price as of
March 24, 2000.
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 MARCH 24, 2000
Common Stock, No Par Value 3,756,634
Documents Incorporated by Reference
1999 Annual Report to Security Holders Parts II, IV
Proxy Statement, Dated March 24, 2000 Parts III
EXHIBIT INDEX PAGES 7 -8
SHENANDOAH TELECOMMUNICATIONS COMPANY
Item Page
Number Number
PART I
1. Business 1
2. Properties 3
3. Legal Proceedings 3
4. Submission of Matters to a Vote of Security Holders 4
PART II
5. Market for the Registrant's Common Stock and
Related Stockholder Matters 5
6. Selected Financial Data 5
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
7.a. Quantative & Qualitative Disclosures about Marekt Risk 6
8. Financial Statements and Supplementary Data 6
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 6
PART III
10. Directors and Executive Officers of the Registrant 7
11. Executive Compensation 7
12. Security Ownership of Certain Beneficial Owners
and Management 7
13. Certain Relationships and Related Transactions 7
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 8-9
PART I
ITEM 1. BUSINESS
Shenandoah Telecommunications Company is a diversified
telecommunications holding company providing both regulated and
unregulated telecommunications services through its nine
wholly-owned subsidiaries. The Company's business strategy is to
provide integrated, full service telecommunications products and
services in the Northern Shenandoah Valley and surrounding areas.
This geographic area includes the four-state region from
Harrisonburg, Virginia to Chambersburg, Pennsylvania, and on a
limited basis into Northern Virginia. Our fiber network,
consisting of 7,468 fiber miles, is a state-of-the-art electronic
backbone utilized for many of our services. The main lines of
this network cover 146 miles on the Interstate-81 corridor and 62
miles on the Interstate-66 corridor. The Company is certified to
offer competitive local exchange services in portions of Virginia
that are outside of our present telephone service area. The
Company has approximately 180 employees. The Company operates
nine reporting segments based on the products and services
provided by the parent company and the operating subsidiaries.
There are minimal seasonal variations in the Company's
operations.
The Company holds licenses for personal communications services,
and as managing partner of the VA 10 RSA partnerships controls a
cellular license, all in the Northern Shenandoah Valley of
Virginia. The Company also holds paging and other radio
telecommunications licenses.
Shenandoah Telecommunications Company
The Holding Company invests in both affiliated and non-affiliated
companies. The Company's largest investments in non-affiliated
companies are Illuminet, ITC^DeltaCom (ITCD), Loral Space and
Communications Limited (Loral), Concept Five Technologies, and
South Atlantic Venture Fund III (SAVF III), and South Atlantic
Private Equity IV LP (SAPE IV). Illuminet is a publicly traded
corporation offering Signaling System 7 (S7) services to the
telecommunications industry. ITCD is a publicly traded
corporation offering telecommunications services in the
southeastern United States. Loral is a publicly traded
corporation offering satellite communications. Concept Five
Technologies is a startup company developing security software
for electronic financial transactions. SAVF III and SAPE IV are
venture capital funds that generally invest in startup
telecommunications companies.
Shenandoah Telephone Company
This subsidiary provides both regulated and non-regulated
telephone services to approximately 23,500 customers, primarily
in Shenandoah County and small service areas in Rockingham,
Frederick, and Warren counties in Virginia. Its largest source of
revenue is for access to the local exchange network by
interexchange carriers. In addition, this subsidiary offers
facility leases of fiber optic capacity in Frederick, Rockingham,
and Shenandoah Counties, and into Herndon, Virginia. The
Telephone subsidiary has a 20 percent ownership in ValleyNet,
which is a partnership offering network facilities in western,
central, and northern Virginia, as well as the Interstate 81
corridor through West Virginia, and Maryland, terminating in
Carlisle, Pennsylvania. One customer of this subsidiary accounts
for greater than 10% of the revenue, primarily consisting of
carrier access charges for long distance service as referenced in
Note 9 to the Consolidated Financial Statements.
Shenandoah Cable Television Company
This subsidiary provides coaxial-based cable television service
to approximately 8,600 customers in Shenandoah County. On
September 30, 1996, the Company purchased the Shenandoah County
cable television assets of FrontierVision Operating Partners LP,
more than doubling the then existing Cable Television customer
base. The rebuild and expansion of this wireline system to a
state-of-the art hybrid fiber coaxial network, initiated in 1997,
was completed in the first quarter of 2000. The upgrade to 750
megahertz provides better signal quality, expands the number of
channels, and provides the infrastructure for future offerings of
broadband services.
ShenTel Service Company (ShenTel)
ShenTel Service Company sells and services telecommunications
equipment and provides Internet access to customers in the
Northern Shenandoah Valley and surrounding areas. The Internet
service, established in late 1994, now represents over 54% of
this subsidiary's total revenues. During 1998, work was completed
on upgrading all of our modems to the v.90 standard, the latest
available for dial-up access. This subsidiary recently began
offering broadband Internet access via ADSL technolgoy and is
currently field trialing cable modem access.
Shenandoah Valley Leasing Company
This subsidiary finances purchases of telecommunications
equipment to customers of the other subsidiaries, particularly
ShenTel Service Company.
Shenandoah Mobile Company
Shenandoah Mobile Company provides paging and mobile telephone
service throughout the Virginia portion of the Northern
Shenandoah Valley. This subsidiary also provides tower services
along the Interstate-81 corridor from Chambersburg, Pennsylvania
to Harrisonburg, Virginia, as well as the western most portions
of the Interstate-66 corridor in Virginia. The towers are
typically located where multiple wireless services can be jointly
offered. Shenandoah Mobile Company is the managing partner and
66% owner of the Virginia 10 RSA Limited Partnership, which
provides cellular service in the Northern Shenandoah Valley of
Virginia. The cellular service is marketed under the Shenandoah
Cellular name through retail stores in Winchester and Front
Royal, Virginia. One customer of this subsidiary, Bell Atlantic
Mobile Systems, accounts for greater than 10 percent of the
Company's revenue, primarily consisting of cellular roamer
revenue as referenced in Note 9 to the Consolidated Financial
Statements.
Shenandoah Long Distance Company
This subsidiary principally offers long distance service for
calls placed to locations outside the regulated telephone service
area. This operation purchases switching and billing and
collection services from the telephone subsidiary.
Shenandoah Network Company
This subsidiary operates the Maryland and West Virginia portions
of our fiber optic network in the Interstate-81 corridor. In
conjunction with the telephone subsidiary, Shenandoah Network
Company is associated with the ValleyNet fiber network.
Shenandoah Personal Communications Company
This subsidiary began offering personal communications services
(PCS) the next generation of wireless telephone and data service,
in 1996. The service was originally offered from Chambersburg,
Pennsylvania to Harrisonburg, Virginia under an agreement with
American Personal Communications (APC), using the GSM air
interface technology. During the fourth quarter of 1999 our PCS
subsidiary executed an affiliate agreement with Sprint PCS,
finished constructing and activated a CDMA network where our GSM
network existed, and converted our PCS customer base from GSM to
CDMA service. The agreement expands our existing PCS territory
from an area serving a population of 679,000 to one of 2,048,000.
The additional areas are in the Altoona, Harrisburg and
York-Hanover Basic Trading Areas of Pennsylvania.
Additional detail on the operating segments is referenced in Note
12 of the 1999 Annual Report.
The registrant does not engage in operations in foreign
countries.
Working capital practices and competitive conditions are
discussed in Management's Discussion and Analysis of the
Consolidated Financial Statements.
The Company has no research and development expenses.
This Annual Report contains forward-looking statements. These
statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those
anticipated in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to changes
in the interest rate environment; management's business strategy;
national, regional, and local market conditions; and legislative
and regulatory conditions. Readers should not place undue
reliance on forward-looking statements which reflect management's
view only as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to
reflect subsequent events or circumstances.
ITEM 2. PROPERTIES
The Company owns a 24,000 square foot building in Edinburg,
Virginia that houses the corporate headquarters and the main
telecommunications equipment. A separate 10,000 square foot
building in Edinburg, Virginia is used for customer services and
retail sales. In late 1999, the Company purchased a 60,000 square
foot building in Edinburg, Virginia to accommodate our Company's
growth. The Company also owns eight telephone exchange buildings
that are located in the major towns and some of the rural
communities, serving the regulated service area. These buildings
contain switching and fiber optic equipment and associated local
exchange telecommunications equipment. The Company owns a 6,000
square foot service building outside of the town limits of
Edinburg, Virginia. The Company owns a 10,000 square foot retail
store in Winchester, Virginia. The Company has fiber optic hubs
or points of presence in Hagerstown, Maryland; Harrisonburg,
Herndon, Stephens City, Weyers Cave, and Winchester, Virginia;
and Martinsburg, West Virginia. The buildings are a mixture of
owned on leased land, leased space, and leasehold improvements.
The majority of the identified properties are of masonry
construction, are suitable to their existing use, and are in
adequate condition to meet the foreseeable future needs of the
organization. The Company also leases retail space in
Harrisonburg and Front Royal, Virginia and Hagerstown, Maryland.
The Company plans to lease additional land, equipment space, and
retail space in support of the planned PCS expansion.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders for the
three months ended December 31, 1999.
EXECUTIVE OFFICERS
Name Title Age Date In Position
Christopher E. French President 42 April 1988
David E. Ferguson Vice President of Customer 53 November 1982
Service
Laurence F. Paxton Vice President of Finance 47 June 1991
William L. Pirtle Vice President of PCS 40 November 1992
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(a) Common stock price ranges are incorporated by reference -
1999 Annual Report to Security Holders
Market Information - Inside Back Cover
(b) Number of equity security holders are incorporated by
reference -
1999 Annual Report to Security Holders
Five-Year Summary of Selected Financial Data - Page 1
(c) Frequency and amount of cash dividends are incorporated
by reference -
1999 Annual Report to Security Holders
Market and Dividend Information - Inside Back Cover
Additionally, the terms of a mortgage agreement require
the maintenance of defined amounts of the subsidiary's
equity and working capital after payment of dividends.
Accordingly, approximately $3,485,000 of retained earnings
was available for payment of dividends at December 31,
1999.
For additional information, see Note 4 in the Consolidated
Financial Statements of the 1999 Annual Report to Security
Holders, which is incorporated as a part of this report.
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary of Selected Financial Data is incorporated by
reference -
1999 Annual Report to Security Holders
Five-Year Summary of Selected Financial Data - Page 1
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of operations, liquidity, and capital resources are
incorporated by reference -
1999 Annual Report to Security Holders
Management's Discussion and Analysis of Financial
Condition and Results of Operations - Pages 11-14
PART II (Continued
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risks relate primarily to changes in interest
rates, on instruments held for other than trading purposes.
Our interest rate risk involves two components. The first
component is outstanding debt with variable rates. This
consists of a note payable to CoBank of approximately $4.3
million. The rate of this note is based upon the lender's
cost of funds. The Company also has variable rate lines of
credit totaling $7,000,000, that had no outstanding
borrowings at year end. The Company's remaining debt has
fixed rates through its maturity. The second component of
market risk is excess cash, primarily invested in overnight
repurchase agreements and short-term certificates of
deposit. Our average balance in those securities over the
past year was approximately $5.5 million. Earnings from
these cash equivalents totaled approximately $290,000 in
1999. If market interest rates were to increase by 10% from
levels at December 31, 1999, our net income and cash flows
would decrease an immaterial amount.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements included in the 1999 Annual
Report to Security Holders are incorporated by reference as
identified in Part IV, Item 14, on Pages 16-35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and is incorporated by reference
- Proxy Statement, Dated March 24, 2000 - Pages 2 - 6
Information concerning executive officers is included in Part I
of this Form 10-K
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by
reference -
Proxy Statement, Dated March 24, 2000 - Pages 4 - 5
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) No person, director or officer owned over 5 percent of the
common stock as of March 1, 2000.
(b) Security ownership by management is incorporated
by reference -
Proxy Statement, Dated March 24, 2000
Stock Ownership - Page 3
(c) Contractual arrangements -
The Company knows of no contractual arrangements which
may, at a subsequent date, result in change of control of
the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships or transactions to disclose other than
services provided by Directors which are incorporated by
reference -
Proxy Statement, Dated March 24, 2000
Directors - Page 3
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
A. Document List
The following documents are filed as part of this Form
10-K. Financial statements are incorporated by reference
and are found on the pages noted.
Page Reference
Annual Report
1. Financial Statements
The following consolidated financial statements of
Shenandoah Telecommunications are included in Part II,
Item 8
Auditor's Report 1999, 1998, and 1997
Financial Statements 15
Consolidated Balance Sheets at
December 31, 1999, 1998, and 1997 16-17
Consolidated Statements of Income for
the Years Ended December 31, 1999,
1998, and 1997 18
Consolidated Statement of Changes in
Stockholders' Earnings Equity
Years Ended December 31, 1999, 1998, and 1997 19
Consolidated Statements of Cash Flow
for the Years Ended December 31, 1999,
1998, and 1997 20-21
Notes to Consolidated Financial Statements 22-35
PART IV (Continued)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)
Page Reference
Annual Report
2. Financial Statement Schedules
All other schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the accompanying financial
statements or notes thereto.
3. Exhibits
Exhibit No.
13. Annual Report to Security Holders -
Filed Herewith
20. Proxy Statement, prepared by Registrant
for 2000 Annual Stockholders Meeting -
21. List of Subsidiaries -
Filed Herewith
23. Consent of McGladrey & Pullen, LLP
27. Financial Data Schedule
B. Reports on Form 8-K
None
PART IV (Continued)
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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
March 30, 2000 By /s/ CHRISTOPHER E. FRENCH
Christopher E. French, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
President & Chief Executive
/s/ CHRISTOPHER E. FRENCH Officer March 30, 2000
Christopher E. French
/s/ LAURENCE F. PAXTON VP-Finance & Principal Financial March 30, 2000
Laurence F. Paxton Accounting Officer
/s/ DICK D. BOWMAN Treasurer & Director March 30, 2000
Dick D. Bowman
/s/ DOUGLAS C. ARTHUR Director March 30, 2000
Douglas C. Arthur
/s/ KEN L. BURCH Director March 30, 2000
Ken L. Burch
/s/GROVER M. HOLLER, JR. Director March 30, 2000
Grover M. Holler, Jr.
/s/ HAROLD MORRISON, Jr. Director March 30, 2000
Harold Morrison, Jr.
/s/ NOEL M. BORDEN Director March 30, 2000
Noel M. Borden
/s/ JAMES E. ZERKEL II Director March 30, 2000
James E. Zerkel II
1999 ANNUAL REPORT
SHENTEL
Comparative Highlights
December 31 Increase/Decrease)
1999 1998 Amount Percent
---- ---- ------ -------
Operating Revenues $ 35,594,025 $ 35,594,025 $ 6,644,775 18.7
Operating Expenses $ 29,697,817 $ 25,089,784 $ 4,608,033 18.4
Income Taxes $ 3,796,981 $ 3,598,642 $ 198,339 5.5
Interest Expense $ 1,933,021 $ 1,501,729 $ 431,292 28.7
Net Income $ 6,427,999 $ 5,603,775 $ 824,224 14.7
Net Income from Operations(1) $ 6,082,444 $ 5,364,242 $ 718,202 13.4
Earnings per Share -
basic & diluted $ 1.71 $ 1.49 $ 0.22 14.8
Cash Dividend per share $ 0.56 $ 0.51 $ 0.05 9.8
Percent Return on Equity 9.1 11.2 (2.1) (18.8)
Common Shares Outstanding 3,755,760 3,755,760 -- --
No. of Stockholders 3,683 3,654 29 0.8
No. of Employees (full-time 181.0 170.5 10.5 6.2
equivalent)
Wages & Salaries $ 6,636,713 $ 6,129,485 $ 507,228 8.3
Investment in Net Plant $ 74,548,554 $ 65,034,477 $ 9,514,077 14.6
Capital Expenditures $ 15,732,857 $ 13,664,692 $ 2,068,165 15.1
Access Lines 23,362 22,357 1,005 4.5
Long Distance Messages 17,700,761 14,550,514 3,150,247 21.7
CATV Customers 8,605 8,428 177 2.1
(1)Excludes gains and losses on external investments unaffiliated with
operations.
5 Year Summary of Selected Financial Data
1999 1998 1997 1996 1995
------------- ------------ ------------ ------------ ------------
Operating Revenues $ 42,238,800 $35,594,025 $30,970,348 $25,429,854 $ 21,919,150
Operating Expenses $ 29,697,817 $25,089,784 $22,603,314 $17,485,203 $ 13,027,468
Income Taxes $ 3,796,981 $ 3,598,642 $ 2,593,631 $ 2,821,586 $ 3,572,956
Interest Expenses $ 1,933,021 $ 1,501,729 $ 1,556,352 $ 803,300 $ 685,971
Gain (loss) on Security
Dispositions $ - - $ (48,628) $ 228,250 $ 1,141,386
Net Income $ 6,427,999 $ 5,603,775 $ 4,479,563 $ 4,994,589 $ 6,230,685
Net Income from
Operations (1) $ 6,082,444 $ 5,364,242 $ 4,530,642 $ 4,790,006 $ 5,522,904
Total Assets $133,050,582 $93,445,744 $89,407,902 $79,374,097 $ 59,896,990
Long-term Obligations $ 33,029,448 $29,262,346 $27,360,660 $24,706,239 $ 10,558,953
Stockholder Information
Number of Stockholders 3,683 3,654 3,567 3,399 3,226
Shares of Stock 3,755,760 3,755,760 3,760,760 3,760,760 3,760,760
Earnings per Share
- basic & diluted $ 1.71 $ 1.49 $ 1.19 $ 1.33 $ 1.66
Cash Dividend per Share
- regular $ 0.56 $ 0.51 $ 0.43 $ 0.42 $ 0.42
- special $ - $ - $ - $ - $ 0.06
(1) Excludes gains and losses on external investments unaffiliated with operations.
LETTER TO THE SHAREHOLDERS
Christopher E. French,
President
March 24, 2000
Dear Shareholders
The year 1999 was one of significant accomplishment for your Company. We
made an important strategic change of direction for our wireless communications
services; an investment made many years ago became extremely valuable; we
purchased additional land and building space to accommodate our future growth;
and our long-term efforts finally were recognized with an impressive increase in
the value of your Company's stock.
Our financial performance was once again very positive. Total net income
reached$6.4 million, up from 1998's total of $5.6 million, or an increase of
14.7 percent. Earnings per share, basic and diluted, were $1.71 as compared to
$1.49 for the previous year. Our growth in revenues increased over the previous
year's growth, as 1999's total revenue of $42.2 million was an increase of 18.7
percent. 1998's revenues had increased by 14.9 percent over 1997's. Leading the
revenue growth for 1999 was our Mobile subsidiary's increase of almost $3.6
million, driven primarily by our cellular operations. Our telephone and Internet
businesses also added to our organization's continued growth by each
contributing over $1.0 million in revenue growth, which were increases of 6.7
and 40.3 percent, respectively. Recognizing the overall improvement in our
financial performance, the Board of Directors declared a cash dividend of 56
cents per share, an increase of 9.8 percent over the previous year and a payout
of approximately 33 percent of the year's net income.
When we entered the field of Personal Communications Service (PCS) in
1995, we recognized that this effort, while giving us an important growth
opportunity, would come with significant demands on our financial and human
resources. To say the least, PCS has been all of that and more. While we have
been pleased with the demand for this improved wireless service, our initial
years of offering this service generated large operating losses as we built and
operated one of the first rural PCS systems in the country. Accumulated losses
in our PCS business totaled $8.3 million by the end of 1999. Earlier in the
year, we wrestled with what direction to take our PCS business, as it became
clear that our system built to the GSM technology standard was not complementary
to Sprint PCS's national CDMA network. After many months of negotiations and
internal discussions, we expanded our management agreement with Sprint PCS and
tripled the size and scope of the service area that would be our responsibility
to construct and manage. Our new agreement expands our service area from
Harrisonburg, Virginia, to the Harrisburg, York and Altoona markets in
Pennsylvania. Sprint PCS is the nation's largest all-digital wireless network,
and just recently announced its fifth consecutive record-breaking quarter in
customer acquisitions. During the last half of 1999, we completely overbuilt our
existing PCS system with a new CDMA system, and converted our customer base to
the newer technology. To finance the necessary construction, we have increased
our loan facility with CoBank by $35 million, to a total of $60 million.
Another source of capital that may be available for our PCS funding is
the recent increase in value of our original $843,486 investment in Illuminet
Holdings, Inc. Our Company, along with many other independent telephone
companies, uses Illuminet's advanced signaling network to more efficiently
operate our switching networks. Illuminet's stock became publicly traded this
past fall, and its price ended the year at about $55 per share, making our
463,604 shares worth more than $25 million. As one of the early and large
investors in Illuminet, our shares are subject to a lock-up provision which
prevents us, as well as other large investors, from selling any of these shares
until early April 2000. Our Board of Directors has not yet made a decision to
sell any of this stock.
We have finished our CATV system upgrade which we started in 1998. This
upgrade increases the use of fiber optics in our CATV network, and will provide
further improvements to the quality of service we can deliver. The newly
completed system will give our CATV customers access to new digital cable
services, including 30 commercial free channels of CD quality music, 24
pay-per-view channels, and multiple premium movie channels.
As our PCS, Internet and other businesses continue to grow, we are
taking the necessary steps to support that growth. Our expanding PCS network
will require additional switching facilities, which will be added to our
Edinburg switching center this spring. We have added employees to support our
additional responsibilities and workload. To accommodate our increasing space
needs, as well as provide a location to accommodate long-term growth, our
Company purchased the Shenandoah Knitting Mills property on the north side of
the town of Edinburg. The property consists of 37 acres and a 60,000 sq. ft.
building, and was purchased at a cost of $910,000. We are already using part of
the building for storage, as we make space available at our Main Street location
for the installation of the new PCS switch. We have also begun discussions with
an architect to relocate one of our larger operating departments to this
facility, and also to evaluate other long-term uses of this property. We will
most likely sell our other buildings in Edinburg that are not adjacent to our
main complex on Main Street.
While we have remained committed to building your Company for long-term
growth, I know many of you have been as impatient as I have about our poor stock
price performance over the past years. I am happy to report that 1999 at last
saw a significant improvement in the value of your stock in the Company. Around
April of 1999, the prices reported for trades in Shenandoah Telecommunications
stock on the Over-the-Counter (OTC) bulletin board system began to increase from
around $20.00 per share to $34.50 per share on December 14. The increases didn't
stop in 1999, and have since reached as high as $42.00 per share.
While we cannot guarantee that our stock performance will continue these
great increases, we remain committed to operating your Company for long-term
growth and profitability. We anticipate additional operating losses as we expand
our PCS operations; however, based on the success of Sprint PCS and other Sprint
affiliates, we believe our efforts will ultimately reward the patient investor.
I thank all of our employees for their efforts and the important role
they play in building this Company, and I thank each of you for your continued
interest and support.
For the Board of Directors,
Christopher E. French
President
BUILDING FOR LONG-TERM GROWTH
Shenandoah Telecommunications continues to be a growth
telecommunications company. Our efforts to expand and improve services for both
our existing and prospective customers require an extensive amount of time to be
properly implemented. In some cases, years may pass between the time preliminary
decisions are made and when projects are finally completed; however, the Company
continually strives to improve both the quality of services it offers to
customers, as well as its capabilities for future services and growth. The new
technologies being deployed by the Company are very capital intensive and have
an increasingly short life cycle. These factors, when combined with our
increasingly competitive industry, mean that many of our business initiatives
are requiring a longer period of time before they can become profitable.
We benefit from competition and new technologies. Both allow us to
maximize the use of the skills and expertise of our employees, and let us build
upon our existing infrastructure as we take advantage of new business
opportunities. Already having in place trained and professional staff and state
of the art systems allow us to expand our service area as well as increase the
number of services we can effectively provide.
CABLE SYSTEM UPGRADE ADDS ADVANCED FEATURES
Your Company has just recently completed a major upgrade to its CATV
system. Our original cable system, which was first built in the early 1980s, as
well as the C4 system we purchased from FrontierVision in 1996, had reached
their capacity limits and were constraining the programming choices the Company
could offer to its customers. Starting in 1997, the Company began upgrading the
original cable system which served rural portions of Shenandoah County. Once
this phase was completed in the summer of 1998, we then turned our focus to the
necessary improvements in the towns. This upgrade would not only increase
channel capacity, but would also incorporate many advanced network design
features which would greatly improve service and increase the programming
options available to customers. Starting with Strasburg in the fall of 1999 and
concluding with New Market in the spring of 2000, the Company and its
contractors essentially rebuilt the entire cable system. The upgraded system now
has the capability to offer digital programming services and has improved the
level of service to all customers by deploying fiber optic nodes which deliver
video signals closer to the customer's home.
With the implementation of digital capabilities, the Company has added
16 new premium programming channels, 24 pay-per-view channels and 30
commercial-free CD quality channels of musicprogramming. In addition to these
new offerings, the Company now has the capacity to add expanded programming in
the future and will continually strive to improve the choice of programming
available to our customers.
Deploying more fiber optics into the CATV network reduces the
susceptibility to service interruptions due to power outages. While still not
completely free from the interruptions caused by lightning storms and failures
in electric service, outages are now isolated to smaller clusters of customers,
as customers are now served shorter distances from the recently deployed fiber
nodes. These nodes also provide the foundation upon which additional broadband
services can be delivered in the future, such as use of the CATV network for
Internet access. The Company has tentatively selected a supplier of cable modems
and is currently undergoing trials and testing of this service. Cable modem
service will be available to our cable customers later this summer.
INFORMATION TECHNOLOGY APPLIED TO SOLVING TRANSPORTATION PROBLEMS
We announced last year that we were involved in a major project to
develop a comprehensive advanced travel information system for the Shenandoah
Valley. Your Company, in conjunction with the Virginia Intelligent
Transportation Implementation Center, the Virginia Tourism Council, and the
Virginia Department of Transportation, began the planning of a pilot project
which was envisioned to ultimately encompass the entire state of Virginia.
During the year, the participants in this pilot project began to realize they
had the opportunity to make enhancements that could make the system much more
user friendly for travelers and those interested in all travel-related
information.
One of the significant enhancements to the Travel Shenandoah project is
to add a voice activated travel information phone system. In addition to the
original Internet-based website of information, this system will provide users
with information concerning traffic alerts, traffic and weather conditions, and
the multitude of information visitors can use to preplan their trips or visits
to the Valley. The initial rollout of the project, while delayed to accommodate
the additional capabilities and features being added, will still cover the I-81
Corridor from the northern state boundary south to Lexington, Virginia. Although
the system is not yet available to the public, interest from tourism and highway
officials from other states has grown, and the project is being closely watched
as a potential prototype for deployment in other regions.
COMMUNICATINGWITH CUSTOMERS
Although many of our products and services are an integral part of our
customers' lives and are used on a daily basis, the primary direct communication
between customers and the Company is the monthly bill. As our products and
services have changed over the years, the monthly bill has increased in
complexity both from mandated changes, such as additional government charges, as
well as from the multiple services customers now have available from one source.
The culmination of another extensive project by company personnel, the new bill
format was introduced in November 1999. While also providing customers with
additional information about their Shentel accounts, this information is now
presented in an easier to read 8.5" x 11" format and has replaced the smaller
multi-page bills that were previously used.
With the use of color shading on the bill, it is now easier for customers to
find the amount and due date, along with other important messages from the
Company. The new bill saves paper, is less expensive to produce and is easier to
handle. There is also a significant cost savings in mailing, due to the
reduction in weight and being able to presort by using a new bar coding system.
These changes, along with the ability to consolidate multiple products and
services onto a single bill, have significantly improved the bill-paying process
for both our customers and the Company.
MIX OF PRODUCTS AND SERVICES CONTINUE TO CHANGE
For most of its almost 100 years' existence, your Company was
essentially a provider of plain old telephone service. While its diversification
efforts started many years before, significant changes in products offered by
the Company began in the early 1980s with our entry into cable television
service, and then again in 1990, when we began providing cellular telephone
service. While the traditional "landline" services of telephone and CATV remain
significant and important businesses for our organization, growth in our
wireless businesses, as well as our Internet and Information Services, has been
phenomenal. Figure 1 (page 7) provides a good graphic representation of how our
mix in services has changed. With only three percent of our customer
relationships being wireless services in 1993, we ended 1999 with approximately
36 percent of our customer base being wireless, just slightly exceeding the 35
percent from our traditional telephone business. In 1993, the Company had just
over 22,000 total customer relationships. By the end of 1999, this number
exceeded 67,000, a compound annual growth rate of over 20 percent.
With the recently announced expansion of our PCS service area (Figure 2,
page 7) and the rapidly growing demand for both wireless and Internet services,
we expect continued rapid growth in these two important segments of our
organization. While the number and complexity of services has increased, the
Company has continually strived to improve its relationship with customers and
to make its products and services more useful in meeting our customers' needs.
Over-the-Counter Bulletin Board System Becomes Primary Market for
Company's Stock It has been said that the Company's stock historically was sold
by auctioneers at estate sales after the owners passed away. Many more of our
shares have been passed down from generation to generation within families. More
recently, there has been a marked increase in the amount of trading in
Shenandoah Telecommunications Company's stock, traded under the symbol "SHET" on
the Over-the-Counter (OTC) bulletin board system. The OTC system reports all
trades that brokerage firms handle in your Company's stock. This trading
information is available not only from brokerage firms, but can also be accessed
by individuals from many websites on the Internet. In addition to current
trading activity, some websites also have historical trading and pricing
information available, although in some cases this information is limited to
only a few recent years.
While the OTC system has become the more active market for your Company
stock, stockholders are still free to arrange private sales, place ads in
newspapers or use auctioneers to handle sales of their stock. It is advisable
for anyone who may be considering buying or selling shares to first obtain as
much current information as possible, to be better able to make an informed
decision concerning the current market values.
Trading volumes were not the only thing to increase in 1999, as the year
at long last saw a significant increase in the price of your Company's stock
(Figure 3, page 7). During the year, the price reached a high of $34.50 on
December 14, and ended the year at $33.75. During January of 2000, the stock
ranged from a low of $31.50 to a high of $42.00. As a company with what is still
a relatively small trading volume, there will likely continue to be times when
the stock price can fluctuate over a wide range. Additionally, there can at
times be a fairly large spread between the quoted price at which investors are
willing to buy or sell shares. While it is expected that there can be periods of
significant changes in the stock price, stockholders wishing to buy or sell
Company shares should take advantage of all available market information.
One other significant stockholder event in 1999 was the implementation
of our Dividend Reinvestment Plan (DRIP). There were approximately 1,000
stockholders who enrolled over 384,000 shares in the plan for 1999. During
December, the plan purchased 6,355 shares of Shenandoah Telecommunications stock
on the open market for an average price of $33.66 per share. Purchasing the
shares on the market allowed the plan to operate without increasing the total
number of shares outstanding, and therefore did not cause any dilution to
stockholders. Participants in the plan were issued statements showing the
activity and balances in their new DRIP accounts. Stockholders who wish to
change their participation, request certificates for the whole shares in their
DRIP account, or terminate or start their participation in the plan, should
contact the Company at 540-984-5200.
FUTURE FOCUS
We have many opportunities to expand our business and continue to
increase stockholder value. Some of our immediate goals are to focus on the
growth opportunities in the I-81 and Pennsylvania Turnpike corridors for both
our wireless PCS business and our Internet and Information Services. At the same
time, we will continue the growth and improvement of our existing services in
our present core area. While we cannot predict the future, we can continue to
plan and implement those initiatives that will allow us to take advantage of the
many opportunities that are, and will be, available for us to grow.
BOARD OF DIRECTORS
(pictured left to right and top to bottom)
Douglas C. Arthur: Attorney-at-Law; Director, First National Corporation
Noel M. Borden, Vice President: President, H.L. Borden Lumber Co.; Chairman of
the Board, First National
Corporation
Dick D. Bowman, Treasurer: President, Bowman Brothers, Inc.; Director, The
Rockingham Group; Director, Old Dominion Electric Cooperative Ken L. Burch:
Farmer
Christopher E. French, President: President, Shenandoah Telecommunications Co.
and its Subsidiaries; Director, First National Corporation Grover M. Holler,
Jr.: President, Valley View Inc. Harold Morrison, Jr., Secretary: Chairman of
the Board, Woodstock Garage, Inc.; Director, First Virginia Bank-Blue Ridge Zane
Neff, Assistant Secretary: Retired Manager, Hugh Saum Co., Inc.; Director,
Crestar Bank James E. Zerkel II: Vice President, James E. Zerkel, Inc.;
Director, Shenandoah Valley Electric Cooperative; Member, Shenandoah County
Industrial Development Authority
SENIOR MANAGEMENT TEAM
Christopher E. French, President (pictured above)
(pictured left to right)
Lewis W. Fadely, Vice President-Operations
David E. Ferguson, Vice President-Customer Service
David K. MacDonald, Vice President-Engineering and Construction
Laurence F. Paxton, Vice President-Finance
William L. Pirtle, Vice President-Personal Communications Services
Cynthia F. Soltis, Personnel Manager
SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
1999 FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Shenandoah Telecommunications Company is a diversified
telecommunications holding company providing both regulated and unregulated
telecommunications services through its nine wholly-owned subsidiaries. These
subsidiaries provide local exchange telephone services as well as cable
television, cellular, paging, personal communications services (PCS), Internet
access, long distance and leased fiber and tower facilities. Competitive local
exchange carrier (CLEC) services are also being planned. Additionally, the
Company sells and leases equipment, mainly related to services provided, and
also participates in emerging technologies by direct investment in
non-affiliated companies.
In recent years the Company has made significant investments to take
advantage of new technologies and the increasingly competitive
telecommunications industry. Net Plant in Service increased from $36.8 million
at the end of 1995 to $74.5 million at year end 1999. This increase incorporates
continued expansion of our operations from Virginia's northern Shenandoah Valley
to other surrounding areas. In conjunction with growing our PCS and Internet
services, we expanded our presence north along the Interstate-81 corridor in
West Virginia, Maryland and southern Pennsylvania.
During this same period we reduced our reliance on telephone subsidiary
revenues from 59.6% to 39.2% of total revenues, even though that subsidiary's
revenues increased by $3,499,203 or 26.8% during the same time. Growth in other
services was most pronounced in the cellular dominated operations of the Mobile
subsidiary, with revenue growth of $8,399,344 or almost 270%, driving Mobile's
portion of total revenues from 22.6% to 31.6%. Other notable gains were in
ShenTel Service Company's Internet operation, with revenues growing from .7% in
1995 to 5.6% of total revenues in 1999; the PCS subsidiary, which had no
revenues in 1995 versus 8.7% of total revenues in 1999; and the Cable Television
subsidiary, where a 395% increase since 1995 resulted in 8.1% of total revenues
for 1999.
The Company's strategy is to continue the expansion of services and the
geographic areas served. During the fourth quarter of 1999 our PCS subsidiary
executed an affiliate agreement with Sprint PCS, finished constructing and
activated a CDMA network where our GSM network existed, and converted our PCS
customer base from GSM to CDMA service. The agreement expands our existing PCS
territory from an area serving a population of 679,000 to one of 2,048,000. The
additional areas are in the Altoona, Harrisburg and York-Hanover Basic Trading
Areas of Pennsylvania. The capital buildout and initial operating losses
associated with this expansion, which will require significant capital
resources, are a continuation of the strategy to take advantage of new
technologies and expand our service areas.
This report contains forward-looking statements. These statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
changes in the interest environment; management's business strategy; national,
regional, and local market conditions; and legislative and regulatory
conditions. Readers should not place undue reliance on forward-looking
statements, which reflect management's view only as of the date hereof. The
Company undertakes no obligation to publicly revise these forward-looking
statements to reflect subsequent events or circumstances.
RESULTS OF OPERATIONS
The regulated Telephone Company's largest source of revenue is for
access to the local exchange network by interexchange carriers. These revenues
increased $42,103 or 0.5% in 1999 compared to $487,806 or 6.6% in 1998. The
small increase in 1999 was due to reductions in tariffed pricing by the National
Exchange Carrier Association (NECA) for interstate traffic. The price reductions
negated growth in the traditional main drivers of access revenues, which are
minutes of use and access lines. The minutes of use increased 4.4% during 1999
compared to an increase of 9.3% in 1998. The number of access lines increased by
4.5% in 1999 and 3.8% in 1998.
Mobile revenues, which are the single largest revenue source outside of
the regulated telephone local exchange operations, are mainly derived from
wireless communications services. Outcollect roamer revenues increased
$2,843,961 or 60.5% in 1999 compared to $381,526 or 8.8% in 1998. Local cellular
service revenues increased $466,553 or 10.6% in 1999 compared to $737,243 or
20.1% in 1998. The increase in local cellular revenues reflects a 12.8% increase
in the customer base in 1999 compared to a 21.0% increase in 1998. Additional
plant placed in service and overall industry usage growth contributed to this
increase.
Cable Television revenues increased $333,696 or 10.8% in 1999 compared
to an increase of $584,358 or 23.2% in 1998. Cable Television revenues increased
principally as a result of an increase in rates in early 1998 as well as in
early 1999. Significant capital investments have been made in the past two years
to increase channel capacity and improve service quality.
The increase in ShenTel Service revenues was $1,018,780 or 40.3% in 1999
compared to an increase of $415,539 or 19.6% for 1998. Both increases are due to
customer growth in our existing and new Internet service areas.
Long distance revenues are principally for toll calls placed to
locations outside the regulated telephone service area. These revenues increased
by $119,320 or 12.8% in 1999 compared to an increase of $28,157 or 3.1% in 1998,
due principally to market share changes.
Network revenues are for leasing capacity to interexchange carriers on
the Company's fiber optic facilities in West Virginia and Maryland. This service
experienced a slight decline in revenues in 1999 as compared to no revenue
increase in 1998.
PCS revenues increased by $533,604 or 17.0% in 1999 compared to an
increase of $1,379,839 or 78.8% in 1998. As discussed above, in the fourth
quarter of 1999 the Company became a Sprint PCS network partner and adopted the
CDMA air interface technology as the standard for its network. The technology
transition impacted customer growth for much of 1999.
Cost of Products Sold increased by $513,989 or 35.1% in 1999 compared to
a decrease of $725,305 or 33.1% in 1998. These changes are due principally to
volume changes in handsets sold in the PCS operation, particularly during the
holiday selling season at year end 1999.
Plant Specific is comprised primarily of ongoing operating and
maintenance expenses for the physical plant. This category increased by $641,957
or 22.5% in 1999 and $132,880 or 4.9% in 1998. Increases in Plant in Service,
particularly in the Telephone and PCS subsidiaries, are primarily responsible
for the large increase in 1999.
The largest expense category in 1999 and 1998 was Network and Other. The
increase in this category was primarily due to switching and facility costs
associated with the rapidly increasing customer base in the Cellular and
Internet service operations and the addition of the CDMA PCS network. Network
and Other costs increased $1,585,635 or 28.9% in 1999 compared to $1,002,255 or
22.4% in 1998.
Depreciation and Amortization increased by $1,282,615 or 23.6% in 1999
compared to $747,957 or 16.0% in 1998. Additional Plant in Service and changes
in the nature of the Plant in Service contributed to the larger increase in
1999.
The decrease in Taxes Other Than Income in 1999 and increase in 1998
were primarily due to changes in provisions for operating taxes in the PCS
subsidiary.
The Non-operating Income Less Expenses category consists mainly of the
income or loss from interest bearing instruments and external investments made
by the Company. The changes reflected on the income statement are principally
due to income recognized in the Company's partnership investments.
INVESTMENTS IN NON-AFFILIATED COMPANIES
During the third quarter of 1999 AvData Systems, Inc. (AvData), in which
the Company had a cost basis of $369,860 and a book basis of $149,860 as a
result of a $220,000 writedown recorded in 1992, was merged with Interstate
FiberNet, Inc., a wholly-owned subsidiary of ITC^DeltaCom, Inc. (ITCD). At the
closing, the Company received 36,579 shares of ITCD common stock as the first of
three tranches. The remaining two tranches, designated as earn out shares and
escrowed shares, may or may not be distributed, based on specific measures. The
earn out and escrow shares have not been recognized by the Company at this time.
Through the investments in South Atlantic Venture Fund III, LP and South
Atlantic Private Equity Fund IV, LP, two non-affiliated companies that were also
invested in AvData, the Company received additional initial distributions of
20,117 shares of ITCD common stock with a basis of $565,777. As of December 31,
1999, the shares of ITCD had a market value of $1,562,670.
During the fourth quarter of 1999 another of the Company's
non-affiliated investments, Illuminet Holding, Inc., went public through an
initial public offering (IPO) of stock. The Company's cost basis and book value
was $843,486 in 463,604 shares (post-IPO). There is a six-month restriction on
the Company selling these shares from the offering date of October 7, 1999. As
of December 31, 1999, the shares of Illuminet had a market value of $25,501,741.
The Illuminet IPO is primarily responsible for the changes in Available-for-Sale
Securities, Other Investments and Unrealized Gain on Available-for-Sale
Securities categories reflected in the consolidated balance sheets. The Board of
Directors has not yet made a decision to sell any of this stock.
REIMBURSEMENT FOR PCS CONVERSION
As part of the execution of the Sprint PCS affiliate agreement, the
Company received approximately $3.9 million as partial reimbursement for the
Company's expenditures in building the CDMA network, which replaces the
Company's earlier PCS network constructed using GSM technology. Under the terms
of the agreement, all or a portion of this amount is to be reimbursed in the
event the GSM network is sold. The GSM equipment had a carrying value of
approximately $6.4 million at December 31, 1999. The Company is negotiating a
potential sale of the GSM equipment with another PCS provider that uses the GSM
platform. Management expects that cash flows from the GSM equipment will be
sufficient to recover the book value so as not to result in impairment.
LIQUIDITY AND CAPITAL RESOURCES
The Company had two principal sources of funs for financing expansion
activities in 1999. First, the Company has a loan agreement with the Rural
Telephone Bank (RTB) with approximately $3,000,000 remaining for future advances
as of December 31, 1999. A draw of approximately $2,500,000 was received on
January 20, 2000, leaving approximately $500,000 for future advances.
Expenditure of these loan funds is limited to capital projects for the regulated
local exchange carrier subsidiary.
The second principal liquidity source in 1999 was a term loan agreement
with CoBank, entered into in July 1996. Pursuant to this agreement, the Company
can borrow up to $25,000,000 for a three-year period ending August 31, 1999,
amended on May 24, 1999 for advances to be made until August 31, 2000. On
September 1, 1999, amortization and repayment of the outstanding principal
balance in monthly installments began, with the final installment due August 20,
2011. Draws on this loan for 1999 totaled $4,597,000 compared to $2,205,500 in
1998. The outstanding principal at the end of 1999 was $22,634,000 and
$2,366,000 was available for future advances,
On January 12, 2000 the Company entered into an additional $35,000,000
loan agreement with CoBank, principally to finance the PCS buildout in
Pennsylvania. The Company and CoBank contemplate replacing the existing
$25,000,000 credit facility and this $35,000,000 bridge loan with a single term
loan agreement for $60,000,000.
The Company's Board of Directors has approved a 2000 Capital Budget of
potential projects totaling approximately $45,000,000. This budget includes
approximately $26,800,000 for equipment and towers associated with the PCS
expansion, principally in Pennsylvania. Included in the $26,800,000 amount is
$6,000,000 for a PCS switch that was ordered in late 1999, and approximately
$11,000,000 for CDMA equipment and towers that will be purchased from Sprint PCS
as part of the agreement discussed above. Additionally, almost $10,900,000 is
budgeted for the telephone local exchange company, primarily for central office
equipment and fiber optic and metallic cable facilities. The Company expects to
finance these planned additions primarily through internally generated cash
flows and additional advances from the CoBank loans.
The Company secured lines of credit for $2 million with First Union Bank
and for $5 million with CoBank in 1999. No draws were outstanding on these lines
of credit as of December 31, 1999.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 (Y2K) issue relates to whether computer systems will
continue to properly recognize and process date-sensitive information with the
change to the year 2000. Systems that do not properly recognize such information
could generate erroneous data or possibly fail. The Company successfully
completed its four-phase Y2K readiness program as scheduled. There were no Y2K
problems that had an impact on business operations.
Laurence F. Paxton
Vice President - Finance
Independent Auditor's Report
The Board of Directors and Stockholders
Shenandoah Telecommunications Company
Edinburg, Virginia
We have audited the accompanying consolidated balance sheets of Shenandoah
Telecommunications Company and Subsidiaries as of December 31, 1999, 1998 and
1997, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Shenandoah
Telecommunications Company and Subsidiaries as of December 31, 1999, 1998 and
1997, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ MCGLADREY & PULLEN, LLP
Richmond, Virginia
January 28, 2000
Shenandoah Telecommunications Company and Subsidiaries
Consolidated Balance Sheets
December 31, 1999, 1998 and 1997
ASSETS (Note 4) 1999 1998 1997
---- ---- ----
Current Assets
Cash and cash equivalents $ 7,155,827 $ 4,891,109 $ 5,203,521
Certificates of deposit 204,122
Held-to-maturity securities (Note 2) 499,581 1,622,433
Accounts receivable (Note 2) 4,918,089 4,272,016 5,682,798
Materials and supplies 4,089,605 3,488,137 3,968,791
Prepaid expenses and other current assets 543,735 777,853 507,165
------- ------- -------
Total current assets 16,707,256 13,928,696 17,188,830
---------- ---------- ----------
Securities and Investments (Note 2)
Available-for-sale securities 30,719,358 2,677,789 3,597,997
Held-to-maturity securities 499,581
Other investments 5,094,020 5,921,206 4,721,517
--------- --------- ---------
35,813,378 8,598,995 8,819,095
---------- --------- ---------
Property, Plant and Equipment
Plant in service (Note 3) 99,821,705 8,8427,844 74,144,956
Plant under construction 9,133,665 5670,371 8,232,517
--------- -------- ---------
108,955,370 9,4098,215 82,377,473
Less accumulated depreciation 34,406,816 2,9063,738 25,313,297
---------- ---------- ----------
74,548,554 6,5034,477 57,064,176
---------- ---------- ----------
Other Assets
Cost in excess of net assets of
business acquired 5,630,042 5,630,042 5,630,042
acquired
Deferred charges and other assets 590,019 603,936 602,425
Radio Spectrum License 1,340,750 733,000 733,000
--------- ------- -------
7,560,811 6,966,978 6,965,467
Less accumulated amortization 1,579,417 1,083,402 629,666
--------- --------- -------
5,981,394 5,883,576 6,335,801
--------- --------- ---------
$133,050,582 $9,3445,744 $89,407,902
============ =========== ===========
See Notes to Consolidated Financial Statements
LIABILITIES AND STOCKHOLDERS'
EQUITY 1999 1998 1997
---- ---- ----
Current Liabilities
Current maturities of long-term debt
(Note 4) $ 1,340,711 $ 863,972 $ 544,954
Accounts payable 2,195,958 1,149,286 3,743,701
Advance billings and payments 870,717 712,581 631,815
Refundable equipment payment (Note 6) 3,871,365
Customers' deposits 118,641 113,586 98,905
Accrued compensation 947,401 890,443 660,659
Other current liabilities 781,248 1,072,422 1,266,110
Income and other taxes payable 908,677 214,433 153,678
------- ------- -------
Total current liabilities 11,034,718 5,016,723 7,099,822
---------- --------- ---------
Long-Term Debt, less current maturities
(Note 4) 31,688,737 28,398,374 26,815,706
- ---------- ---------- ----------
Other Liabilities and Deferred Credits
Deferred investment tax credit 76,323 145,909 216,256
Deferred income taxes (Note 5) 16,061,709 6,741,121 5,987,860
Pension and other (Note 7) 1,453,724 1,331,465 883,568
- --------- --------- -------
17,591,756 8,218,495 7,087,684
---------- --------- ---------
Minority Interests 2,460,412 2,265,426 1,894,206
--------- --------- ---------
Commitments and Contingencies (Notes 2, 3, 6 and 11)
Stockholders' Equity (Notes 4 and 10)
Common stock, no par value, authorized
8,000,000 shares; issued 1999 and 1998
3,755,760 shares, 1997 3,760,760 shares 4,734,377 4,734,377 4,740,677
Retained earnings 48,498,503 44,173,730 40,579,090
Accumulated other comprehensive income,
unrealized gain on available-for-sale
securities, net (Note 2) 17,042,079 638,619 1,190,717
- ---------- ------- ---------
70,274,959 49,546,726 46,510,484
---------- ---------- ----------
$ 133,050,582 $93,445,744 $ 89,407,902
============= =========== ============
Shenandoah Telecommunications Company and Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
-------------------------------------------
Operating revenues:
Telephone:
Local service $ 4,063,511 $ 3,782,026 $ 3,589,042
Access and toll service 7,877,612 7,835,509 7,347,703
Directory 1,224,069 1,189,578 1,129,976
Facility leases (Note 2) 2,781,319 2,043,930 1,977,122
Billing, collection and other 622,325 680,802 589,443
------------------------------------------
Total telephone revenues 16,568,836 15,531,845 14,633,286
Other:
Cable television 3,431,856 3,098,160 2,513,802
ShenTel Service 3,549,762 2,530,982 2,115,443
Long distance 1,049,753 930,433 902,276
Mobile 13,352,311 9,754,858 8,424,016
Network 610,641 614,934 614,934
PCS 3,664,733 3,131,130 1,751,291
Other 10,908 1,683 15,300
-----------------------------------------
Total operating revenues 42,238,800 35,594,025 30,970,348
-----------------------------------------
Operating expenses:
Cost of products sold 1,978,494 1,464,505 2,189,810
Line costs 476,967 387,652 382,924
Plant specific 3,494,648 2,852,691 2,719,811
Plant nonspecific:
Network and other 7,068,888 5,483,253 4,480,998
Depreciation and amortization 6,712,430 5,429,815 4,681,858
Customer operations 5,484,894 4,925,552 4,312,552
Corporate operations 2,925,270 2,702,029 2,669,743
Taxes other than income 490,657 958,681 463,109
Other 1,065,569 885,606 702,509
-----------------------------------------
29,697,817 25,089,784 22,603,314
-----------------------------------------
See Notes to Consolidated Financial Statements.
(Continued)
1
Shenandoah Telecommunications Company and Subsidiaries
Consolidated Statements of Income (Continued)
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
---- ---- ----
Operating income $ 12,540,983 $ 10,504,241 $ 8,367,034
Other income (expenses):
Nonoperating income, less expenses 1,582,369 2,054,437 1,396,881
Interest expense (1,933,021) (1,501,729) (1,556,352)
Loss on disposal of assets (2,365) (718,312) (48,628)
------ -------- -------
12,187,966 10,338,637 8,158,935
Income taxes (Note 5) 3,796,981 3,598,642 2,593,631
- --------- --------- ---------
8,390,985 6,739,995 5,565,304
Minority interests (1,962,986) (1,136,220) (1,085,741)
---------- ---------- ----------
Net income $ 6,427,999 $ 5,603,775 $ 4,479,563
============= =========== ===========
Net earnings per share, basic and diluted $ 1.71 $ 1.49 $ 1.19
============ =========== ===========
Cash dividends per share $ 0.56 $ 0.51 $ 0.43
============ =========== ===========
Weighted average shares outstanding 3,755,760 3,756,388 3,760,760
========= ========= =========
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER
31, 1999, 1998 AND 1997
Accumulated
Other
Common Retained Comprehensive
Shares Stock Earnings Income Total
------ ------ -------- ------- -----
Balance, December 31, 1996 3,760,760 $4,740,677 $37,716,654 $ 670,591 $ 43,127,922
Comprehensive income: -------------
Net income 4,479,563 4,479,563
Change in unrealized
gain on securities
available-for-sale, net
of tax of $346,046 520,126 520,126
Total comprehensive income 4,999,689
Dividends (1,617,127) (1,617,127)
---------- ----------
Balance, December 31, 1997 3,760,760 4,740,677 40,579,090 1,190,717 46,510,484
Comprehensive income: ----------
Net income 5,603,775 5,603,775
Change in unrealized
gain on securities
available-for-sale, net
of tax of ($368,110) (552,098) (552,098)
Total comprehensive income 5,051,677
Dividends (1,915,435) (1,915,435)
Redemption of common stock (5,000) (6,300) (93,700) (100,000)
------ ------ ------- --------
Balance, December 31, 1998 3,755,760 4,734,377 44,173,730 638,619 49,546,726
Comprehensive income:
Net income 6,427,999 6,427,999
Change in unrealized
gain on securities
available-for-sale, net
of tax of $10,078,972 16,403,460 16,403,460
Total comprehensive income 22,831,459
Dividends (2,103,226) (2,103,226)
---------- ----------
Balance, December 31, 1999 3,755,760 $4,734,377 $ 48,498,503 $17,042,079 $ 70,274,959
========= ========== ============ =========== =============
See Notes to Consolidated Financial Statements.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
Cash Flows From Operating Activities ----- ---- ----
Net income $ 6,427,999 $ 5,603,775 $4,479,563
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,216,415 4,976,079 4,246,049
Amortization 496,015 453,736 435,809
Deferred tax charges (benefit) (758,384) 1,121,371 733,644
(Gain) loss on disposal of assets 2,365 718,312 48,628
(Gain) loss on equity investments (1,153,756) (1,816,236) (799,079)
Minority share of income, net of 194,986 371,220 150,741
distributions
Other (69,586) (70,347) (106,665)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (646,073) 1,410,782 (1,474,056)
Material and supplies (601,468) 480,654 (1,080,082)
Increase (decrease) in:
Accounts payable 1,046,672 (2,594,415) 808,119
Other prepaids, deferrals and accruals 4,850,961 369,507 1,028,153
--------- ------- ---------
Net cash provided by
operating activities 16,006,146 11,024,438 8,470,824
---------- ---------- ---------
Cash Flows From Investing Activities
Purchases of property and equipment,
net of retirements (15,732,857) (13,664,692)(10,687,958)
(Payment) refund of license costs (607,750) 397,964
Purchase of certificates of deposit (2,436,818)
Maturities of certificates of deposits 204,122 3,374,877
Cash flows from securities (Note 2) 921,386 2,238,980 1,328,857
Other, net 13,917 (1,511) (16,337)
------ ------ -------
Net cash used in
investing activities (15,405,304) (11,223,101) (8,039,415)
----------- ----------- ----------
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
---- ---- ----
Cash Flows From Financing Activities
Dividends paid $ (2,103,226 $(1,915,435) $( 1,617,127)
Redemption of common stock (100,000)
Proceeds from long-term debt 4,597,674 2,405,500 3,179,500
Principal payments on long-term debt (830,572) (503,814) (553,729)
Net cash provided by (used in)
financing activities 1,663,876 (113,749) 1,008,644
--------- -------- ---------
Net increase (decrease) in cash
and cash equivalents 2,264,718 (312,412) 1,440,053
Cash and cash equivalents:
Beginning 4,891,109 5,203,521 3,763,468
--------- --------- ---------
Ending $ 7,155,827 $4,891,109 $ 5,203,521
============ ========== ===========
Supplemental Disclosures of Cash Flow
Information
Cash payments for:
Interest, net of capitalized interest
of $229,224 in 1999, $422,403 in 1998,
and $279,398 in 1997 $ 2,131,979 $2,116,323 $ 1,835,750
======== ==== ============ ========== ===========
Income taxes $ 3,519,200 $2,760,400 $ 1,929,172
============ ========== ===========
See Notes to Consolidated Financial Statements.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Accounting Policies
Shenandoah Telecommunications Company and subsidiaries (the "Company") provides
telephone service, cable television service, unregulated communications
equipment and services, paging, mobile telephone, cellular telephone, internet
access, and personal communications services. In addition, through its
subsidiaries, the Company finances purchases of telecommunications facilities
and equipment and operates and maintains an interstate fiber optic network. The
Company's operations are located in the four state region surrounding the
Northern Shenandoah Valley of Virginia. The Company grants credit in accordance
with standard industry practices. Accounts receivable are concentrated among
customers within the Company's geographic service area and large
telecommunications companies. A summary of the Company's significant accounting
policies follows:
Principles of consolidation: The consolidated financial statements include the
accounts of all wholly- owned subsidiaries and other entities where effective
control is exercised. All significant intercompany accounts and transactions
have been eliminated.
Accounting estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents: The Company considers all temporary cash investments
with a purchased maturity of three months or less to be cash equivalents. The
Company places its temporary cash investments with high credit quality financial
institutions. At times, these investments may be in excess of the FDIC insurance
limit.
Securities and investments: The classification of debt and equity securities is
determined by management at the date individual investment securities are
acquired. The appropriateness of such classification is reassessed continually.
The classification of those securities and the related accounting policies are
as follows:
Held-to-maturity securities: Debt securities for which the Company has both
the intent and ability to hold to maturity, regardless of changes in market
conditions, liquidity needs or changes in general economic conditions, are
classified as held-to-maturity securities. They are carried at amortized
historical cost.
Available-for-sale securities: Debt and equity securities classified as
available-for-sale consist of securities which the Company intends to hold
for an indefinite period of time, but not necessarily to maturity. Any
decision to sell a security classified as available-for-sale would be based
on various factors, including changes in market conditions, liquidity needs
and similar criteria. Available-for-sale securities are carried at fair
value as determined by quoted market prices. Unrealized gains and losses
are reportable as increases and decreases in other comprehensive income net
of tax. Realized gains and losses, determined on the basis of the cost of
specific securities sold, are included in net income.
Note 1. Summary of Accounting Policies (Continued)
Investments carried at cost: Investments in which the Company does not have
significant ownership and for which there is no ready market are carried at
cost. Information regarding these and all other investments is reviewed
continuously for evidence of impairment in value. No impairment was deemed
to have occurred at December 31, 1999.
Equity method investments: Investments in partnerships and investments in
unconsolidated corporations where the Company's ownership is 20% or more
are reported under the equity method. Under this method, the Company's
equity in earnings or losses of investees is reflected in net income.
Distributions received reduce the carrying value of these investments.
Materials and supplies: New and reusable materials are carried in inventory
principally at average original cost. Specific costs are used in the case of
large individual items. Nonreusable material is carried at estimated salvage
value.
Property, plant and equipment: Property, plant and equipment is stated at cost.
Accumulated depreciation is charged with the cost of property retired, plus
removal cost, less salvage. Depreciation is determined under the remaining life
method and straight-line composite rates. Depreciation provisions were
approximately 6.1% of average depreciable assets for the years 1999, 1998 and
1997.
Cost in excess of net assets of business acquired: Intangible assets consisting
of the cost in excess of identifiable net assets of businesses acquired are
amortized on a straight-line basis over 15 years. The Company periodically
evaluates the recoverability of intangibles resulting from business acquisitions
and measures the amount of impairment, if any, by assessing current and future
levels of income and cash flows as well as other factors, such as business
trends and prospects, as well as market and economic conditions.
Pension plan: The Company maintains a noncontributory defined benefit retirement
plan covering substantially all employees. Pension benefits are based primarily
on the employee's compensation and years of service. The Company's policy is to
fund the maximum allowable contribution calculated under federal income tax
regulations.
Note 1. Summary of Accounting Policies (Continued)
Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets and liabilities are
adjusted for the effect of changes in tax laws and rates on the date of
enactment. Investment tax credits have been deferred and are amortized over the
estimated life of the related assets.
Revenue recognition: Revenues are recognized when earned, regardless of the
period in which they are billed.
Earnings per share: Basic net income per share was computed by dividing net
income by the weighted average number of common shares outstanding during the
year. Diluted net income per share for 1999 (which was not materially different
from basic net income per share), was computed under the treasury stock method,
assuming the conversion, as of the beginning of the year, of all dilutive stock
options. There were no adjustments to net income in the computation of diluted
net income per share for 1999. Stock options outstanding for 1998 and 1997 were
antidilutive; therefore, basic and diluted earnings per share are equal for
those years.
Note 2. Investments
Investments consist of the following:
1999 1998 1997
---- ---- -----
Investment in held-to-maturity securities:
U. S. Treasury securities, current $ $ 499,581 $1,622,433
U. S. Treasury securities, noncurrent 499,581
--------- -------- --------
$ $ 499,581 $2,122,014
===================== ==========
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Investments(Continued)
1999 1998 1997
---- ---- -----
Investment in available-for-sale securities:
Loral Space and Communications, Ltd,
(formerly Orion Network Systems), common
stock (including unrealized gains of
$2,019,035 in 1999, $1,041,877 in 1998
and $1,962,085 in 1997) $ 3,654,947 $ 2,677,789 $ 3,597,997
Illuminet Holdings, Inc., common stock
(including unrealized gains of
$24,658,255 in 1999) 25,501,741
ITC - Deltacom (formerly AvData
Systems, Inc.), common stock (including
unrealized gains of $847,019 in 1999) 1,562,670
---------- -------- ---------
$ 30,719,358 $ 2,677,789 $ 3,597,997
============= =========== ===========
No gains were realized in 1999 and 1998. The Company realized gains of
approximately $25,900 in 1997 on the sale of available-for-sale securities.
The Company held shares of Illuminet Holdings, Inc. (Illuminet) at the time of
its initial public offering in October 1999. Under the terms of the offering,
the Company is restricted from selling certain shares of Illuminet common stock
until six months after the offering.
Changes in the unrealized gain on available-for-sale securities during the years
ended December 31, 1999, 1998 and 1997 reported as a separate component of
stockholders' equity are as follows:
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1999 1998 1997
---- ---- ----
Unrealized holding gains, beginning balance $ 1,041,877 $1,962,085 $1,095,913
Unrealized holding gains (losses)
during the year 26,482,432 (920,208) 892,072
Realization of prior year unrealized gains (25,900)
---------- -------- -------
Unrealized holding gains, ending balance 27,524,309 1,041,877 1,962,085
Deferred tax effect related to net unrealized 10,482,230 403,258 771,368
gains ---------- --------- ---------
Unrealized gain included in
stockholders'equity $17,042,079 $ 638,619 $1,190,717
=========== ========= ==========
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Investments (Continued)
Cash flows from purchases, sales and maturities of securities consist of the
following:
1999 1998 1997
---- ---- ----
Available-for-sale securities:
Sales $ $ $ 1,226,489
Purchases (1,196,296)
Held-to-maturity securities:
Maturities 499,581 1,622,433 2,148,945
Purchases (499,581)
Other investments:
Sales and distributions 1,002,534 1,468,787 48,412
Purchases (580,729) (852,240) (399,112)
-------- -------- --------
Total $ 921,386 $ 2,238,980 $ 1,328,857
During 1999, investments with a carrying value of $1,559,137 under cost and
equity method classifications were reclassified as available-for-sale securities
upon the inception of public markets for those holdings.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Investments (Continued)
Other investments, comprised of equity securities which do not have readily
determinable fair values, consist of the following:
1999 1998 1997
Cost method:
Illuminet Holdings, Inc. $ $ 843,486 $ 843,486
AvData Systems, Inc. 149,860 149,860
Coriss.net 250,000
Rural Telephone Bank 653,492 653,492 653,492
Concept Five Technologies 1,335,276 1,304,083 1,000,003
CoBank 201,622 227,913 19,380
Other 317,545 330,601 133,381
------- ------- -------
2,757,935 3,509,435 2,799,602
--------- --------- ---------
Equity method (with approximate % owned at
December 31, 1999):
South Atlantic Venture Fund III L.P. (1%) 672,393 605,816 765,966
South Atlantic Venture Fund IV L.P. (1%) 821,424 745,122 300,121
Dolphin Communications, L.P. (1%) 171,222 168,258
Virginia Independent Telephone Alliance (22%) 328,169 299,483 271,509
Rural Service Area - 6 (11%) 317,912 416,148 543,255
ValleyNet (20%) 24,965 176,944 41,064
--- ------ ------- ------
2,336,085 2,411,771 1,921,915
--------- --------- ---------
$ 5,094,020 $ 5,921,206 $4,721,517
=========== =========== ==========
The Company has committed to invest an additional $400,000 in the South Atlantic
Venture Fund IV L.P. during 2000 and approximately $810,000 in Dolphin
Communications, L.P. pursuant to capital calls.
The Company leases fiber-optic facilities to ValleyNet under an operating lease
agreement. Facility lease revenue from ValleyNet was approximately $1,600,000,
$913,000, and $913,000 in 1999, 1998 and 1997, respectively. At December 31,
1999, the Company had accounts receivable from ValleyNet of approximately
$770,000.
It is not practical to estimate the fair value of the other investments due to
their limited market and the restrictive nature of their transferability.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Plant in Service
Plant in service consists of the following:
1999 1998 1997
---- ---- ----
Land $ 577,811 $ 530,258 $ 512,407
Buildings and towers 11,536,460 11,025,512 10,336,173
Cable and wire 41,239,718 35,576,276 29,733,511
Equipment 46,467,716 41,295,798 33,562,865
---------- ---------- ----------
$ 99,821,705 $ 88,427,844 $ 74,144,956
============= =============== =============
In January 2000, the Company purchased approximately 39 acres of improved
commercial real estate for approximately $910,000.
Note 4. Long-Term Debt and Lines of Credit
Long-term debt consists of the following:
Interest
Rate 1999 1998 1997
Rural Telephone Bank (RTB) 6.04% - 8% $ 9,813,155 $10,305,886 $10,765,742
Rural Utilities Service (RUS) 2% - 5% 382,210 476,622 520,580
CoBank 6.69% - 8.06% 22,634,083 18,279,838 16,074,338
RUS development loan interest free 200,000 200,000
------- ------- ---------
33,029,448 29,262,346 27,360,660
Current maturities 1,340,711 863,972 544,954
--------- ------- -------
Total long-term debt $31,688,737 $28,398,374 $26,815,706
=========== =========== ===========
The notes payable to RTB are pursuant to an agreement which allows for
additional borrowings of approximately $3,000,000. In January 2000,
approximately $2.5 million was borrowed. In addition, the Company entered into a
supplemental financing agreement with CoBank in January 2000. Pursuant to this
agreement, the Company may incur borrowings up to $35,000,000 under a revolving
credit facility expiring January 31, 2001.
RTB loans are payable $47,754 monthly and $154,686 quarterly, including
interest. RUS loans are payable $23,708 monthly, including interest. The CoBank
facility is payable $60,857 monthly, plus accrued interest until August 2001, at
which time payments increase to $178,475 monthly plus accrued interest.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Long-Term Debt and Lines of Credit
Approximate annual debt maturities are as follows:
Year Amount
- ---- ------
2000 $ 1,340,711
2001 1,832,952
2002 2,805,717
2003 2,792,367
2004 2,836,201
Later years 21,421,500
----------
$ 33,029,448
============
Substantially all of the Company's assets serve as collateral for the long-term
debt. The long-term debt agreements contain restrictions on the payment of
dividends and redemption of capital stock. The terms of the agreements require
the maintenance of defined amounts of equity and working capital after payment
of dividends. Approximately $3,485,000 of retained earnings was available for
payment of dividends at December 31, 1999.
Long-term debt carries rates which approximate market rates for similar debt
being issued. Therefore, the carrying value of long-term debt is not
significantly different than fair value at December 31, 1999.
As of December 31, 1999, the Company had no borrowings outstanding on other
approved lines of credit totalling $7,000,000.
NoteIncome Taxes
The Company and its subsidiaries file consolidated federal and state income tax
returns. The provision for income taxes included in the consolidated statements
of income consists of the following components:
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31,
1999 1998 1997
---- ---- ----
Current $4,555,365 $2,477,271 $1,859,987
Deferred (758,384) 1,121,371 733,644
-------- --------- -------
Total provision for income taxes $3,796,981 $3,598,642 $ 2,593,631
========== ========== ===========
A reconciliation of income taxes determined using the statutory federal income
tax rates to actual income taxes provided is as follows:
Years Ended December 31,
1999 1998 1997
Federal income tax expense at statutory rates $3,476,493 $3,128,822 $2,404,886
State income taxes, net of federal tax benefit 404,909 364,416 220,803
Amortization of investment tax credit (69,586) (70,347) (75,701)
Other (14,835) 175,751 43,643
------- ------- ------
Provision for income taxes $3,796,981 $3,598,642 $2,593,631
========== ========== ==========
Net deferred tax liabilities consist of the following at December 31:
1999 1998 1997
---- ---- ----
Deferred tax liabilities:
Plant-in-service $ 6,063,101 $6,708,551 $5,556,071
Unrealized gain on securities 10,482,230 403,258 771,368
available-for-sale
Other 13,281 53,515 4,701
------ ------ -----
16,558,612 7,165,324 6,332,140
---------- --------- ---------
Deferred tax assets:
Accrued compensation costs 135,507 128,607 115,512
Accrued pension costs 361,396 295,596 228,768
------- ------- -------
496,903 424,203 344,280
------- ------- -------
Net deferred tax liabilities $16,061,709 $6,741,121 $5,987,860
=========== ========== ==========
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Reimbursement for PCS Conversion
During the fourth quarter of 1999, the Company executed a Management Agreement
with Sprint PCS. The agreement expands the PCS territory from an area serving a
population of approximately 680,000 to one of approximately 2 million. With this
agreement, the Company is undertaking to construct and operate a PCS network
using CDMA air interface technology. It is expected that the capital buildout
and operating losses associated with this expansion will require significant
capital resources over the next several years.
As part of the execution of this agreement, the Company received approximately
$3.9 million as partial reimbursement for the Company's expenditures in building
the CDMA network, which replaces the Company's earlier PCS network constructed
using GSM technology. Under the terms of the agreement, all or a portion of this
amount is to be reimbursed in the event the GSM network is sold. The GSM
equipment had a carrying value of approximately $6.4 million at December 31,
1999. The Company is negotiating a potential sale of the GSM equipment with
another PCS provider which uses a GSM equipment platform. Management expects
that cash flows from the GSM equipment will be sufficient to recover the book
value so as not to result in impairment.
Note 7. Retirement Plans
The Company maintains a noncontributory defined benefit pension plan. The
following table presents the plan's funded status and amounts recognized in the
Company's consolidated balance sheets.
1999 1998 1997
Change in benefit obligation:
Benefit obligation, beginning $ 6,434,133 $ 5,504,065 $ 5,112,231
Service cost 321,202 261,595 231,270
Interest cost 429,286 380,726 378,404
Actuarial (gain) loss (1,031,820) 428,028 (86,162)
Benefits paid (148,667) (140,281) (131,678)
-------- -------- --------
Benefit obligation, ending 6,004,134 6,434,133 5,504,065
--------- --------- ---------
Change in plan assets:
Fair value of plan assets, beginning 6,874,626 5,712,651 5,077,518
Actual return on plan assets 1,241,114 1,302,256 766,811
Benefits paid (148,667) (140,281) (131,678)
-------- -------- --------
Fair value of plan assets, ending 7,967,073 6,874,626 5,712,651
--------- --------- ---------
Funded status 1,962,939 440,493 208,586
Unrecognized net gain (3,034,529) (1,344,253) (943,738)
Unrecognized prior service cost 195,693 216,398 237,103
Unrecognized net transition asset (124,258) (153,002) (181,746)
-------- -------- --------
Accrued benefit cost $(1,000,155)$ (840,364) $ (679,795)
----------- -------------- ----------
Components of net periodic benefit cost:
Service cost $ 321,202 $ 261,595 $ 231,270
Interest cost 429,286 380,726 378,404
Expected return on plan assets (544,023) (451,803) (375,800)
Amortization of prior service cost 20,705 20,705 20,705
Amortization of net (gain) loss (38,635) (21,910)
Amortization of net transition asset (28,744) (28,744) (28,744)
------- ------- -------
Net periodic benefit cost $ 159,791) $ 160,569 $225,835
=========== ========= ========
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Retirement Plans (Continued)
Assumptions used by the Company in the determination of pension plan information
consisted of the following at December 31, 1999, 1998 and 1997:
1999 1998 1997
---- ---- ----
Discount rate 6.75 6.75 7.00
Rate of increase in compensation levels 5.00 5.00 5.00
Expected long-term rate of return on plan assets 8.00 8.00 7.50
Note 8. Stock Incentive Plan
The stockholders have approved a Company Stock Incentive Plan providing for the
grant of incentive compensation to employees in the form of stock options. The
Plan authorizes grants of options to purchase up to 240,000 shares of common
stock over a ten-year period. The option price is the market value of the stock
at the date of grant. One-half of the options are exercisable on each of the
first and second anniversaries of the date of grant and the options expire five
years from the date they are granted.
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following assumptions:
1999 1998 1997
---- ---- ----
Dividend rate 1.70% 2.48% 1.96%
Risk free interest rate 4.77% 5.44% 6.13%
Expected lives of options 5 years 5 years 5 years
Price volatility 26.20% 17.98% 19.70%
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Stock Incentive Plan (Continued)
Grants of options under the Plan are accounted for following Accounting
Principles Board Opinion No. 25 and related interpretations. Accordingly, no
compensation cost has been recognized under the Plan. Had compensation cost for
the Plan been determined based on fair values of the awards at the grant date
(the method described in FASB Statement No. 123), reported net income and
earnings per share would have been reduced to the proforma amounts shown below:
1999 1998 1997
---- ---- ----
Net income
As reported $ 6,427,999 $ 5,603,775 $ 4,479,563
Pro forma $ 6,280,662 $ 5,539,768 $ 4,445,578
Earnings per share, basic and diluted
As reported $ 1.71 $ 1.49 $ 1.19
Pro forma $ 1.67 $ 1.47 $ 1.18
A summary of the status of the option plan at December 31, 1999, 1998 and 1997
and changes during the years ended on those dates is as follows:
1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
beginning of year 27,782 $ 21.23 13,375 $ 21.98 $
Granted 17,578 19.94 15,565 20.59 14,044 21.98
Exercised -- -- -- -- -- --
Forfeited (1,303) 20.70 (1,158) 21.33 (669) 21.98
Outstanding at
end of year 44,057 $ 20.73 27,782 $ 21.23 13,375 $21.98
====== ====== ======
Exercisable at end of year 19,708 21.47 6,378 21.98
year
Fair value of options
granted during the year $ 15.40 $ 4.11 $ 5.35
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Stock Incentive Plan (Continued)
The following table summarizes information about stock options outstanding at
December 31, 1999:
Options Weighted- Options
Outstanding Average Exercisable
Number Remaining Number
Exercise of Contractual of
Prices Shares Life Shares
$ 21.98 12,414 2 years 12,414
$ 20.59 14,588 3 years 7,294
$ 19.94 17,055 4 years
Note 9. Major Customer
The Company has two major customers, each accounting for 8-12% of revenues in
each year for the period 1997 through 1999. Revenue from these customers
consists primarily of carrier access charges for long distance service provided
by the Telephone segment and roaming charges for cellular service provided by
the Mobile segment.
Note 10.Stockholder Rights
The Board of Directors has adopted a Stockholder Rights Plan whereby, under
certain circumstances, holders of each right granted in 1998 at one right per
share outstanding will be entitled to purchase $80 worth of the Company's common
stock at a price of $40. As of December 31, 1999, the rights are neither
exercisable nor traded separately from the Company's common stock. The Rights
are only exercisable if a person or group becomes or attempts to become the
beneficial owner of 15% or more of the Company's common stock. Under the terms
of the Plan, such person or group is not entitled to the benefits of the Rights.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Lease Commitments
The Company has leased land, towers, and tower space from others under various
noncancelable agreements which expire between September 1, 2000 and July 1, 2004
and require various minimum annual rentals.
The total minimum rental commitment at December 31, 1999 is due as follows:
Year Ending Amount
2000 $ 368,612
2001 299,927
2002 222,403
2003 161,943
2004 72,972
---- ------
$ 1,125,857
The Company has leased towers, tower space, and communications equipment to
other entities under various noncancelable agreements which require various
minimum annual payments.
The total minimum rental receipts at December 31, 1999 are due as follows:
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ending Amount
2000 $ 431,985
2001 400,442
2002 296,780
2003 222,560
2004 90,678
---- ------
$1,442,445
Note 12. Segment Reporting
The Company has identified nine reporting segments based on the products and
services each provides. Each segment is managed and evaluated separately because
of differing technologies and marketing strategies.
The reporting segments and the nature of their activities are as follows:
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Segment Reporting
The Company has identified nine reporting segments based on the products and
services each provides. Each segment is managed and evaluated separately because
of differing technologies and marketing strategies.
The reporting segments and the nature of their activities are as follows:
Shenandoah Telecommunications Company
(Holding) Holding company which invests in both affiliated and non-affiliated
companies.
Shenandoah Telephone Company (Telephone) Provides both regulated and
non-regulated telephone services primarily throughout the Northern Shenandoah
Valley.
Shenandoah Cable Television Company (CATV) Provides cable service in
Shenandoah County.
ShenTel Service Company (ShenTel) Sells and services telecommunications
equipment and provides internet access to customers in the multistate
region surrounding the Northern Shenandoah Valley.
Shenandoah Valley Leasing Company (Leasing) Finances purchases of
telecommunications equipment to customers of other segments.
Shenandoah Mobile Company (Mobile) Provides tower rental, paging and
cellular services throughout the Northern Shenandoah Valley.
Shenandoah Long Distance Company (Long Distance)
Provides long distance services.
Shenandoah Network Company (Network)
Leases interstate fiber optic facilities.
Shenandoah Personal Communications Company (PCS)
Provides digital wireless service to a four-state area which will cover the
region from Harrisburg and Altoona,Pennsylvania, to Harrisonburg, Virginia.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Performance is evaluated based on
the net income of each company, less dividend income from other segments. Each
segment accounts for intersegment sales and transfers as if the sales or
transfers were to outside parties.
Income recognized from equity method nonaffiliated investees by segment is as
follows:
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income recognized from equity method nonaffiliated investees by segment is as
follows:
Consolidated
Holding Telephone Mobile Totals
1999 $ 540,229 $ 393,846 $ 219,681 $ 1,153,756
1998 485,542 934,249 396,445 1,816,236
1997 267,967 191,550 339,562 799,079
Note 12. Segment Reporting (Continued)
Selected financial data for each segment is as follows:
Holding TelCo CATV ShenTel Leasing
Operating revenues
- - external:
1999 $ $ 16,568,836 $ 3,431,856 $ 3,549,762 $ 10,908
1998 15,531,845 3,098,160 2,530,982 1,683
1997 14,633,286 2,513,802 2,115,443 15,300
Operating revenues - internal:
1999 $ $ 2,004,504 $ 2,400 $ 235,511 $
1998 1,411,023 2,340 224,561
1997 1,248,694 2,329 222,137
Depreciation and amortization:
1999 $ $ 123,423 $ 3,170,415 $ 905,519 $ 354,737
1998 2,735,658 841,452 300,122
1997 2,370,817 773,560 260,585
Nonoperating income less expenses:
1999 $ 1,189,244 $ 2,011,662 $ 3,094 $ 801 $ 4,076
1998 1,005,372 2,245,060 537 2,794 5,069
1997 991,413 1,607,327 3,013 1,017 12,980
Interest expense:
1999 $ 339 $ 1,926,144 $ 759,039 $ 195,741 $
1998 68 1,491,954 685,537 167,998
1997 1,549,799 654,504 161,397
Income tax expense (benefit)
1999 $ 360,585 $ 3,419,530 $ (123,710) $ (199,129) $ (12,016)
1998 294,600 3,712,719 (232,061) (197,800) (15,316)
1997 298,368 3,002,628 (224,947) (204,627) (8,106)
Net income
1999 $ 585,731 $ 5,751,049 $ (202,530) $ (294,976) $ 20,093
1998 480,476 5,737,264 (378,124) (326,786) 14,783
1997 562,806 5,497,074 (379,561) (340,569) 26,257
Total assets
1999 $ 55,234,402 $ 71,551,731 $ 11,414,668 $ 4,128,218 $ 300,990
1998 27,714,953 61,249,082 11,266,265 3,658,486 302,126
1997 24,727,104 60,061,156 10,616,821 3,668,737 386,950
Note 12. Segment Reporting (Continued)
Long Combined Eliminatin Consolidated
Mobile Distance Network PCS Totals Entries Totals
$13,352,311 $1,049,753 $ 610,641 $3,664,733 $42,238,800 $ $42,238,800
9,754,858 930,433 614,934 3,131,130 35,594,025
8,424,016 902,276 614,934 1,751,291 30,970,348 30,970,348
$ 665,991 $ 333,976 $ 132,890 $ 15,879 $3,391,151 $(3,391,151)$
340,382 206,525 105,836 13,623 2,304,290 (2,304,290)
318,577 170,143 99,317 6,888 2,068,085 (2,068,085)
873,392 $ $ 124,199 $1,160,745 $ 6,712,430 $ $ 6,712,430
636,512 161,604 754,467 5,429,815 5,429,815
553,484 118,498 604,914 4,681,858 4,681,858
$ 313,055 $ 3,112 $ 14,405 $ 14,017 $ 3,553,466 $(1,971,097) $1,582,369
501,061 2,682 15,512 (10,548) 3,767,539 (1,713,102) 2,054,437
428,518 6,256 8,755 2,297 3,061,576 (1,664,695) 1,396,881
$ 183,637 $ $ $ 839,218 $ 3,904,118 $(1,971,097) $1,933,021
224,600 644,674 3,214,831 (1,713,102) 1,501,729
341,461 513,886 3,221,047 (1,664,695) 1,556,352
$1,596,996 $ 129,300 $ 197,777$(1,572,352)$ 3,796,981 $ $3,796,981
924,000 98,400 174,500 (1,160,400) 3,598,642 3,598,642
887,496 97,506 200,972 (1,455,659) 2,593,631 2,593,631
$2,606,321 $ 211,241 $ 324,213$(2,573,143)$6,427,999 $ $6,427,999
1,531,128 160,602 284,522 (1,900,090) 5,603,775 5,603,775
1,203,018 160,194 325,215 (2,477,721) 4,576,713 (97,150) 4,479,563
$15,630,863 $ 263,826 $1,144,504$14,351,405$174,020,607$(40,970,025)$133,050,582
15,100,474 201,735 1,314,393 13,614,839 134,422,353 (40,976,609) 93,445,744
13,029,769 231,165 1,437,188 10,209,395 124,368,285 (34,960,383) 89,407,902
Statistics
Percent
Increase Increase
(Decrease) (Decrease)
1999 1998
TELEPHONE
Access Lines
Residential 17,964 17,176 788 4.6
Business Single-Line 3,756 3,580 176 4.9
Paystations 268 288 (20) (6.9)
Business Multi-Line 1,374 1,313 61 4.6
Totals 23,362 22,357 1,005 4.5
Access Lines by Exchange
New Market 2,750 2,655 95 3.6
Mt. Jackson 2,533 2,432 101 4.2
Edinburg 2,976 2,911 65 2.2
Fort Valley 745 693 52 7.5
Woodstock 5,607 5,278 329 6.2
Toms Brook 1,721 1,634 87 5.3
Strasburg 4,526 4,348 178 4.1
Basye 2,052 1,978 74 3.7
Bergton 452 428 24 5.6
Totals 23,362 22,357 1,005 4.5
Exchanges 9 9 - -
Long Distance Calls - - - -
Operator Handled 229,136 275,403 (46,267) (16.8)
Direct Dialed 17,471,625 14,275,111 3,1965140 22.4
---------- ---------- --------- ----
Totals 17,700,761 14,550,514 3,150,247 21.7
Switched Access Minutes 110,148,314 105,465,691 4,682,623 4.4
OTHER SERVICES
CATV 8,605 8,428 177 2.1
Paging 4,946 4,112 834 20.3
VoiceMail 2,016 1,843 173 9.4
PLANT FACILITIES Telephone CATV
Route Miles 2,028.2 492.0
Customers Per Route Mile 11.5 17.5
Miles of Distribution Wire 540.3 -
Telephone Poles 7,850 17
Miles of Aerial Copper Cable 358.9 152.3
Miles of Buried Copper Cable 1,351.2 291.5
Miles of Underground Copper Cable 37.2 1.9
Fiber Optic Cable - Fiber Miles 7,468.6 -
Lines of Switching Equipment 34,270 -
Intertoll Circuits to Interexchange Carriers 1,204 -
Special Service Circuits to Interexchange 220 -
Carriers
OUR BUSINESS
Shenandoah Telecommunications Company is a holding company which provides
various telecommunications services through its operating subsidiaries. These
services include: telephone service, primarily in Shenandoah County and small
service areas in Rockingham, Frederick and Warren counties, all in Virginia;
cable television service in Shenandoah County; unregulated telecommunications
equipment and services; Internet access provided to the multistate region
surrounding the Northern Shenandoah Valley of Virginia; financing of purchases
of telecommunications facilities and equipment; paging and cellular telephone
services in the Northern Shenandoah Valley; resale of long distance services;
operation and maintenance of an interstate fiber optic network; and building and
operating a personal communications and tower network in the four-state region
from Harrisonburg, Virginia to the York, Altoona and Harrisburg, Pennsylvania
markets.
ANNUAL MEETING
The Board of Directors extends an invitation to all stockholders to attend the
Annual Meeting of Stockholders. The meeting will be held Tuesday, April 18,
2000, at 11:00 a.m. in the Social Hall of the Edinburg Fire Department, Stoney
Creek Boulevard, Edinburg, Virginia. Notice of the Annual Meeting, Proxy
Statement, and Proxy were mailed to each stockholder on or about March 24, 2000.
FORM 10-K
The Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission is available to stockholders, without charge, upon
request to: Mr. Laurence F. Paxton, Vice President -Finance, Shenandoah
Telecommunications Co, PO Box 459,Edinburg, VA 22824
CORPORATE HEADQUARTERS
Shenandoah Telecommunications Company
124 South Main Street
Edinburg, VA 22824
INDEPENDENT AUDITOR
McGladrey & Pullen, LLP
1051 East Cary Street
Richmond, VA 23219
STOCKHOLDERS' QUESTIONS AND STOCK TRANSFERS - CALL 540-984-5200 Transfer Agent
- -Common Stock
Shenandoah Telecommunications Company
PO Box 459
Edinburg, VA 22824
MARKET AND DIVIDEND INFORMATION
The Company's stock is not listed on any national exchange or NASDAQ, but it is
traded on the Over-the-Counter (OTC) Bulletin Board system under the symbol
"SHET." Historically, the Company maintained information on the prices of
transactions that were reported to the Company. More recently, information on
OTC trading activity has indicated that the volume of trades significantly
exceeds the volume of trades reported by stockholders or brokers directly to the
Company. Information on OTC trading activity is available from any stockbroker,
or from numerous internet websites. The following summary market information
relates to the OTC trading activity in the Company's stock for the past three
years.
YEAR VOLUME LOW HIGH CLOSE DIVIDEND
1997 60,200 $17.62 $22.00 $19.00 $0.43
1998 100,700 $18.50 $26.00 $19.00 $0.51
1999 219,900 $19.00 $34.50 $33.75 $0.56
This Annual Report to Stockholders contains forward-looking statements. These
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those anticipated in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to: changes in the interest rate environment; management's
business strategy; national, regional, and local market conditions; and
legislative and regulatory conditions. Readers should not place undue reliance
on forward-looking statements which reflect management's view only as of the
date hereof. The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect subsequent events or circumstances.
SHENANDOAH TELECOMMUNICAITONS COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The following are all subsidiaries of Shenandoah Telecommunications
Company, and are incorporated in the State of Virginia.
- - Shenandoah Telephone Company
- - Shenandoah Cable Television Company
- - ShenTel Service Company
- - Shenandoah Long Distance Company
- - Shenandoah Valley Leasing Company
- - Shenandoah Mobile Company
- - Shenandoah Network Company
- - Shenandoah Personal Communications Company
- - Shentel Communications Company
EXHIBIT 23. CONSENT OF INDEPENDENT AUDITORS
As independent auditors, wehereby consent to the
incorporation of our report, dated January 28,2000,
incorporated by reference in this annual report of
Shenandoah Telecommunications Company on Form 10-K, into the
Company's previously filed Form S-8 Registration Statement,
File No. 33-2173 and Form S-3D Registration Statement No.
333-74297.
/s/ MCGLADREY & PULLEN,LLP
McGladrey & Pullen, LLP
Richmond, VA
March 30, 2000