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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, 2000
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 23, 2001. $100,569,487. (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.)
Prior to October 23, 2000 the Company's stock was not listed on any national
exchange or NASDAQ, but was traded on the Over-the-Counter (OTC) Bulletin Board
system under the symbol "SHET." On October 23, 2000 the Company's stock began
trading on the NASDAQ National Market, with continued use of the symbol "SHET."
The value of the Company's stock has been determined based upon the NASDAQ close
price as of March 22, 2001.
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 23, 2001
Common Stock, No Par Value 3,759,670
Documents Incorporated by Reference
2000 Annual Report to Security Holders Parts II, IV
Proxy Statement, Dated March 30, 2001 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. Quantitative & Qualitative Disclosures about Market 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 Harrisburg, Pennsylvania, and on a
limited basis into Northern Virginia. Our fiber network,
consisting of 10,210 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 210 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.
As managing partner of the VA 10 RSA partnership, the Company
controls a cellular license in the Northern Shenandoah Valley of
Virginia. Through its affiliation with Sprint PCS and spectrum
licensed to that party, the Company provides personal
communications service (PCS) from Harrisonburg, Virginia to
Harrisburg and Altoona, Pennsylvania. 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, Burton
Partnership, LP (Burton), Dolphin Communications Parallel Fund,
LP (Dolphin), 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 (SS7)
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. Burton invests in a
combination of small capitalization public companies and
privately owned emerging growth companies. Dolphin, SAVF III, and
SAPE IV are venture capital funds that invest in startup
companies, a large number of which are telecommunications firms.
Shenandoah Telephone Company
This subsidiary provides both regulated and non-regulated
telephone services to approximately 24,000 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 Company's 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 8,700 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 represents almost 58% of this subsidiary's total
revenues. This subsidiary offers broadband Internet access via
ADSL technology 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 service throughout the
Virginia portion of the Northern Shenandoah Valley. This
subsidiary also provides tower services along the Interstate-81
corridor from Harrisonburg, Virginia to Harrisburg, Pennsylvania,
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.
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) a digital 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
activating a CDMA network where our GSM network existed, and
converted our PCS customer base from GSM to CDMA service. The
agreement expanded 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. During 2000 we completed the
initial network buildout of the Harrisburg/York market in
Pennsylvania, placing 74 sites into service in February 2001.
This portion of the network includes Harrisburg, York, Hanover,
Gettysburg, and Carlisle, Pennsylvania, with a population of
1,200,000. Additionally, the network covers 233 miles of
Interstates 81 and 83, and provides Sprint PCS coverage on the
Pennsylvania turnpike between Pittsburgh and Philadelphia. There
were over 23,000 PCS customers at year-end.
Additional detail on the operating segments is referenced in Note
14 of the 2000 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 Financial
Condition and Results of Operations.
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 Company's
main switching center. 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, 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, Hagerstown, Maryland, and
Harrisburg, Mechanicsburg, and York, Pennsylvania. The Company
plans to lease additional land, equipment space, and retail space
in support of the ongoing 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, 2000.
ITEM 4A. EXECUTIVE OFFICERS
Name Title Age Date In Position
Christopher E. French President 43 April 1988
David E. Ferguson Vice President of Customer Service 54 November 1982
David K. MacDonald Vice President of Construction 46 December 1999
Laurence F. Paxton Vice President of Finance 48 June 1991
William L. Pirtle Vice President of PCS 41 November 1992
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(a) Common stock price ranges and other market information
are incorporated by reference -
2000 Annual Report to Security Holders
Market Information - Inside Front Cover
(b) Number of equity security holders are incorporated by
reference -
2000 Annual Report to Security Holders
five-year Summary of Selected Financial Data - Page 8
(c) Frequency and amount of cash dividends are incorporated by
reference -
2000 Annual Report to Security Holders
Market and Dividend Information - Inside Front Cover
Additionally, the terms of a mortgage agreement require the
maintenance of defined amounts of the Telephone subsidiary's
equity and working capital after payment of dividends.
Accordingly, approximately $1,965,000 of retained earnings
was available for payment of dividends at December 31, 2000.
For additional information, see Note 4 in the Consolidated
Financial Statements of the 2000 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 -
2000 Annual Report to Security Holders
Five-Year Summary of Selected Financial Data - Page 8
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 -
2000 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 and as to
debt at variable interest rates. Our interest rate risk involves
two components. The first component is outstanding debt with
variable rates. This consists of notes payable to CoBank of
approximately $21.6 million. The majority of this variable debt
is associated with a $35 million revolving credit facility. The
rates of these notes are based upon the lender's cost of funds.
The Company also has a variable rate line of credit totaling
$2,000,000 that had no outstanding borrowings at year end. At
present, we have no plans to enter into any hedging arrangements
with respect to our borrowings. 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 $5.6 million. Earnings from
these cash equivalents totaled approximately $275,000 in 2000.
If market interest had been 10% higher during the year ended
December 31, 2000, our net income and cash flows would have
decreased by approximately $50,000. For additional information
see Note 4 in the Consolidated Financial Statements of the 2000
Annual Report to Security Holders, which is incorporated as a
part of this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements included in the 2000 Annual
Report to Security Holders are incorporated by reference as
identified in Part IV, Item 14, on Pages 16-39
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 30, 2001 - Pages 2 - 6
Information concerning executive officers is included in Part I,
Item 4A. of this Form 10-K
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by
reference -
Proxy Statement, Dated March 30, 2001 - Pages 4 - 5
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership by certain beneficial owners is
incorporated by reference -
Proxy Statement, Dated March 30, 2001
Stock Ownership - Page 3
(b) Security ownership by management is incorporated by
reference -
Proxy Statement, Dated March 30, 2001
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 30, 2001
Directors - Page 4
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 2000, 1999, and 1998
Financial Statements 15
Consolidated Balance Sheets at
December 31, 2000, 1999, and 1998 16-17
Consolidated Statements of Income for
the Years Ended December 31, 2000,
1999, and 1998 18-19
Consolidated Statements of Cash Flow
for the Years Ended December 31, 2000,
1999, and 1998 20-21
Consolidated Statement of Changes in
Stockholders' Equity
Years Ended December 31, 2000, 1999, and 1998 22
Notes to Consolidated Financial Statements 23-29
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 2001 Annual Stockholders Meeting -
21. List of Subsidiaries -
Filed Herewith
23. Consent of McGladrey & Pullen, LLP
B. Reports on Form 8-K
No reports on Form 8-K have been filed for the three months
ended December 31, 2000.
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, 2001 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 . FRENCH Officer March 30, 2001
Christopher E. French
Vice President & Director March 30, 2001
/s/NOEL M. BORDEN
Noel M. Borden
/s/LAURENCE F. PAXTON VP- Finance & Principal Financial March 30, 2001
Laurence F. Paxton Accounting Officer
/s/HAROLD MORRISON, JR. Secretary & Director March 30, 2001
Harold Morrison, Jr.
/s/DICK D. BOWMAN Treasurer & Director March 30, 2001
Dick D. Bowman
/s/ZANE NEFF Assist. Secretary & Director March 30, 2001
Zane Neff
/s/DOUGLAS C. ARTHUR Director March 30, 2001
Douglas C. Arthur
/s/KEN L BURCH Director March 30, 2001
Ken L. Burch
/s/GROVER M. HOLLER, JR. Director March 30, 2001
Grover M. Holler, Jr.
/s/JAMES E. ZERKEL II Director March 30, 2001
James E. Zerkel II
EXHIBIT 13.
SHENANDOAH TELECOMMUNICATIONS COMPANY
2000 ANNUAL REPORT
SHAREHOLDER INFORMATION
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 ser-vice 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 Altoona and Harrisburg, Pennsylvania markets.
ANNUAL MEETING
The Board of Directors extends an invitation to all shareholders to attend
the Annual Meeting of Shareholders. The meeting will be held Tuesday, April 17,
2001, 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 shareholder on or about March 30, 2001.
FORM 10-K
The Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission is available to shareholders, without charge, upon request
to Mr. Laurence F. Paxton, Vice President - Finance, Shenandoah
Telecommunications Company, P. O. Box 459, Edinburg, VA 22824.
MARKET AND DIVIDEND INFORMATION
Prior to October 23, 2000 the Company's stock was not listed on any
national exchange or NASDAQ, but was traded on the Over-the-Counter (OTC)
Bulletin Board system under the symbol "SHET." On October 23, 2000 the Company's
stock began trading on the NASDAQ National Market, with continued use of the
symbol "SHET." Information on OTC and NASDAQ trading activity is available from
any stockbroker, or from numerous internet websites. The following summary
market information relates to the OTC and NASDAQ trading activity in the
Company's stock for the past two years, as reported on NASDAQ. Prices reflect
daily close values.
1999 2000
------------------------------------------------ --------------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
High $21.00 $27.00 $25.00 $34.50 $55.00 $42.75 $46.00 $38.13
Low $19.00 $19.63 $21.25 $22.00 $32.00 $28.00 $30.50 $32.00
Volume 12,400 60,800 54,300 91,300 122,900 44,300 85,300 53,400
Dividend -- -- -- $0.56 -- -- -- $0.66
CORPORATE HEADQUARTERS INDEPENDENT AUDITOR
Shenandoah Telecommunications Company McGladrey & Pullen, LLP
124 South Main Street 1051 East Cary Street
Edinburg, VA 22824 Richmond, VA 23219
SHAREHOLDERS' QUESTIONS AND STOCK TRANSFERS - CALL (540) 984-5200
Transfer Agent - Common Stock
Shenandoah Telecommunications Company
P.O. Box 459
Edinburg, VA 22824
This Annual Report to Shareholders 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.
2000 Annual Report
LETTER TO THE SHAREHOLDERS
March 30, 2001
[PHOTO]
Christopher E. French,
President
Dear Shareholder:
I am pleased to report on another good year for your Company. The
highlights of our accomplishments include another strong financial performance,
the expansion and buildout of our PCS network into the central Pennsylvania
market, and a significant improvement in the level of service provided by our
Telephone Company subsidiary. These and all of the other accomplishments for the
year are the result of the hard work and efforts of all of our employees. In the
following pages you will read in more detail about what we have accomplished.
Total net income in 2000 was $9.9 million, which equals earnings per share
of $2.61 on a diluted basis. Total net income includes an after-tax gain of $4.3
million on the sale of our limited partnership interest in the Virginia RSA 6
cellular partnership. Net income from ongoing operations increased by $0.2
million to $6.3 million, or 4 percent. On December 1, 2000, the Company paid a
cash dividend of 66 cents per share, an increase of 10 cents per share, or 18
percent over the previous year's dividend.
Total operating revenues increased significantly during the year, growing
by 41 percent to a total of $59.7 million. Contributing to this growth were
revenue increases of $9.6 million by our PCS subsidiary, $3.7 million by our
Mobile subsidiary, and $2.5 million by our Telephone subsidiary. The increase in
PCS revenues was driven by large increases in usage and subscribers in our
Quad-state region which stretches from Harrisonburg, Virginia to Chambersburg,
Pennsylvania; and, indicates the value of being part of the Sprint PCS national
digital network. We expect PCS revenues to significantly increase in 2001
following the launch of our PCS service on February 23, 2001 in the Harrisburg
and York-Hanover markets of Pennsylvania.
Preparing for the expansion of service into our Pennsylvania market was the
primary focus for many parts of our organization during the year. In total, we
invested an additional $33.3 million of capital in our PCS business, and $14.9
million of our additional debt was incurred to finance this expansion.
Significant building construction programs took place at our main switching
center in Edinburg with the renovation of space to accommodate a new Lucent
switch to support our PCS operation, as well as a complete rework of the backup
battery and generator system for the entire complex. In addition to the
switching network and power plant, the Company also constructed 74 cell sites in
preparation for our February 2001 Central Pennsylvania launch and an additional
eight cell sites for service expansion in the Quad-state region. In conjunction
with the expansion of our PCS service territory, the Company also added three
retail stores in Harrisburg, Pennsylvania and the surrounding areas.
While significant emphasis was placed on our PCS business, our ongoing
efforts to improve the service of our Telephone business yielded impressive
results. As measured by our index of trouble reports received from customers,
the Telephone Company's trouble index reached an all-time low of .73 troubles
per 100 access lines. This outstanding achievement is a result of our
ongoing, and long term, improvement efforts. For comparison, the comparable
trouble index was 6.90 in 1980. Through aggressive use of new and advanced
technologies, along with ongoing training of our high-quality workforce, we are
able to continue to improve the quality of our all-digital telephone network.
The Company has an extensive local fiber optic network, and employs the latest
SONET ring transmission capabilities. This technology eliminates a single point
of failure and allows our fiber network to survive accidental cuts or equipment
failure without affecting service. The Company's fiber network and the
improvement and enhancements we continue to make gives the northern Shenandoah
Valley the telecommunications infrastructure demanded by today's high technology
companies. The two satellite earth station complexes located at the Mt. Jackson
Industrial Park are examples of the high-tech businesses which our advanced
digital network can support and help grow.
During 2000 we completed successful negotiations for the sale of our
limited partnership interest in the Virginia 6 cellular partnership. The Company
recognized an after-tax gain of $4.3 million on this sale, the proceeds of which
were used to help fund the continued capital expansion of our PCS business. On
January 11, 2001, the Company closed on the sale of its old GSM based PCS
network, as well as three PCS licenses in the Winchester and Harrisonburg,
Virginia basic trading areas. The GSM network and licenses were of limited value
to the Company once we expanded our relationship with Sprint PCS and launched
our replacement CDMA network. The $6.5 million in proceeds from these sales will
also be used to help fund the capital needs for the continued expansion of our
CDMA network. The GSM transaction also included an agreement whereby the Company
will lease space on its network of towers, generating an additional $3.3 million
of revenue over the next five years.
On October 23, 2000 the Company's stock began trading on the NASDAQ
National Market under the symbol SHET. It is hoped that this move will give a
more orderly market for the buying and selling of shares of your Company's
stock. After hitting some peaks earlier in the year, our stock price stayed in
the low $30's for the last quarter of 2000. The closing price for the year was
$32.125, down from the previous year's close of $33.75. Given the large declines
in other companies' prices and the declining market as a whole, we were pleased
that our price was able to avoid a similar decline.
All investors in stocks know that share prices can move both up and down.
While we don't like to see periods when our price is not moving upwards, we
realize that long-term value will ultimately be determined by our ability to
continue to grow and earn reasonable profits for our shareholders. This will
remain our long-term goal for your Company. On behalf of your Board of
Directors, I thank each of you for your interest and support.
For the Board of Directors,
/s/ Christopher E. French
________________________________
Christopher E. French, President
2000 Annual Report
PCS EXPANSION
One of three new Sprint PCS retail stores in our expanded
Pennsylvania PCS market area.
We reported last year that we had expanded our management agreement with
Sprint PCS. During this past year, we completed the initial network buildout of
the Harrisburg/York market in Pennsylvania, placing 74 sites into service in
February 2001. This portion of the network includes Harrisburg, York, Hanover,
Gettysburg, and Carlisle, Pennsylvania, with a population of 1,200,000.
Additionally, the network covers 233 miles of Interstates 81 and 83, and
provides Sprint PCS coverage on the Pennsylvania turnpike between Pittsburgh and
Philadelphia.
In support of our sales efforts in Central Pennsylvania, we opened three
retail locations in the Harrisburg/York market in early 2001. In addition to our
sales staff in these stores, we have employees responsible for supporting our
extensive third-party retailers network. These 54 retailers include Radio Shack,
Circuit City, Office Depot, Office Max, and Ritz Camera, and are an important
channel for selling Sprint PCS service in this market.
While much of our effort and attention was focused on the expanded Central
Pennsylvania market, we also continued to grow our service in the existing
Quad-state market, which extends from Harrisonburg, Virginia to Chambersburg,
Pennsylvania and represents a population of approximately 687,000. During the
past year, this market's customer base grew by 138%, to a total of 23,232.
In 2001, we plan to add approximately 60 sites in the Quad-state area, to
improve coverage and meet additional capacity demands, particularly in the
higher population density and heavily traveled areas. We will also be extending
coverage to the Altoona, Pennsylvania market. It is
Terry Peiffer, PCS Service Supervisor, makes adjustments to the PCS antenna on a
rooftop site overlooking Hershey, PA
expected that this market, with a population of approximately 222,000, will be
placed on the air around November 2001.
(l-r) Darren Hawkins, Central Office Technician, Steve Moomaw, Electronic
Technician, and Bill Bauserman, Network Engineer, work at the control center of
the newly installed PCS wireless switch in Edinburg.
By year-end 2001, we expect our network to approach 250 sites, with
coverage for approximately 58% of our total market population of 2,048,000 in
Virginia, West Virginia, Maryland, and Pennsylvania. We will own approximately
100 towers, with the remainder of our sites being leased from other tower or
structure owners.
An additional and significant aspect of our network upgrade during the year
was the conversion of a former warehouse area into a state-of-the-art switch
room for our new PCS wireless switch. This new switch presently has the capacity
for operating up to 222 cell sites and will be upgraded in 2001 to provide
additional capacity. This switch construction, which went from demolition to
full switch functionality in six months, was a major milestone in launching our
PCS network in Pennsylvania. Another effort that will be undertaken in the very
near future will be to re-home 55 of our existing CDMA sites from the Sprint PCS
Beltsville, Maryland switch to this new PCS switching center in Edinburg.
We have made a significant commitment to our wireless business, in
particular to Sprint PCS. The installation of our new PCS switch, and
construction of our new cell sites, at a total investment of over $33 million,
is the largest short-term project yet undertaken by Shentel. While the cost and
commitment is considerable, we believe the opportunity is greater.
Bill Bauserman, Network Engineer, inspects the power equipment for the PCS
wireless switch.
2000 Annual Report
SHENTEL STADIUM
In November 2000, we entered into a Stadium Naming Rights Agreement with
Shenandoah University. This agreement establishes the Shentel Stadium at
Shenandoah University, which will serve as the permanent home for the
University's football, lacrosse and field hockey teams. Shentel's $750,000
contract assures that the facility, now under construction in Winchester,
Virginia, will be named Shentel Stadium for a minimum of 10 years.
We are pleased to have our name associated with Shenandoah University and
to be able to enter into this innovative partnership with them. Shentel Stadium
provides us with an excellent opportunity to build awareness of the Shentel
brand as we continue to expand our services in Winchester and Frederick County,
and the entire Northern Shenandoah Valley.
Shentel Stadium is scheduled for completion by fall of 2001. The facility
will house a press box, concessions, rest rooms, 500 chair-back seats, and 2,000
bleacher seats. In return for our financial support, Shentel will receive
signage at all entrances to the stadium, along Interstate 81, and a 25 x 35-foot
scoreboard at the stadium. In addition, the Shentel logo will be featured on
program covers at all stadium-related events.
We look forward to a close working relationship with the University to
promote the new stadium as it hosts numerous University and community events.
IMPROVEMENT IN SERVICE
During the past year, we made significant strides in the level of service
quality we provide to our customers. While our focus has always been on
providing quality service, the past two years have seen a steady and significant
decline in troubles affecting customer service as a result of multiple
initiatives undertaken by our organization. More than two years ago, we
increased our efforts to identify areas of weakness or repeat problems in our
networks, as well as to proactively and aggressively respond to reported
customer service issues. During this time, over 1,500 identified conditions
affecting our network facilities were eliminated as a result of these efforts.
Aaron Judy, CAD Administrator, makes a digital copy of a map at the digitizer
board in the Engineering Department.
Another factor contributing to our successful efforts to reduce troubles
and enhance customer service lies with Shentel's ongoing activities to upgrade
existing network facilities. We have continued to build out and expand the use
of our fiber optic network, with seven of nine dial offices now connected by
fiber. Fiber optic cable is insensitive to electromagnetic interference
generated during electrical storms, making it more reliable than copper cable.
In addition, the fiber network has been engineered and installed in a manner
that avoids network disruption in the event of physical damage to the cable.
This network improvement will reduce service interruptions and provide a higher
level of service to our customers.
We have now completely overhauled the former C-4 cable system, with
installation of improved electronics and conversion to a hybrid fiber-coaxial
network, capable of delivering up to 750 MHz of programming along with
high-speed data services. These enhancements have led to fewer problems and
outages throughout the CATV network and give us the capability to offer advanced
digital services.
In our telephone switching network, we continue to engineer trunking
capacity to handle the ongoing growth in call activity, ensuring our customers
are able to place calls without experiencing network busies. The switching
equipment is constantly monitored for potential problems, which are then
addressed proactively, instead of waiting for a minor equipment failure to cause
a larger or more widespread service interruption.
We also maintain trunking and modem capacity levels to handle potential peak
traffic conditions in our Internet service. This minimizes the potential for
busy signals and provides more reliable service connections. We now offer
customers digital subscriber line service, or DSL, for high-speed data transport
or Internet access.
At our Edinburg switching center, we have significantly upgraded our
battery power plant and electrical distribution system. These improvements were
necessary to provide increased capacity for both our wireline and wireless
switches, and improve the reliability of other services we provide. Part of this
process involved installing a larger emergency generator that provides 24 hours
of backup power to all switching systems. In addition, the battery power plant
was expanded to be able to provide eight hours of backup power to all systems in
the event the emergency generator fails. These improvements will further enhance
Shentel's ability to provide reliable and uninterrupted service during
significant power outages.
Earnest Moomaw, Cable Splicer, performs routine maintenance on one of our many
new remote digital carrier systems.
2000 Annual Report
DIRECTORS & SENIOR MANAGEMENT
[NINE PHOTOS]
BOARD OF DIRECTORS
(pictured left to right and top to bottom)
Douglas C. Arthur: Attorney-at-Law; Director, First National Corporation;
Member, Shenandoah County School Board
Noel M. Borden, Vice President: Retired 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; Director,
Shenandoah Valley 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.
James E. Zerkel II: Vice President, James E. Zerkel, Inc.; Director, Shenandoah
Valley Electric Cooperative
[PHOTO]
SENIOR MANAGEMENT TEAM (left to right, seated)
David E. Ferguson, Vice President-Customer Service
Christopher E. French, President
William L. Pirtle, Vice President-Personal Communications Service
(left to right, standing)
David K. MacDonald, Vice President-Engineering and Construction
Cynthia F. Soltis, Human Resources Manager
Laurence F. Paxton, Vice President-Finance
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The statements contained in this Annual Report that are not purely historical
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21 E of the Securities Exchange Act of 1934,
including statements regarding our expectations, hopes, intentions, or
strategies regarding the future. These statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those anticipated in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, changes in the interest rate
environment, management's business strategy; national, regional and local market
conditions and legislative and regulatory conditions. Readers should not place
undue reliance on forward-looking statements, which reflect management's view
only as of the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect subsequent events or
circumstances.
GENERAL
Shenandoah Telecommunications Company (the Company or Shentel) is a diversified
telecommunications company providing both regulated and unregulated
telecommunications services through its nine wholly owned subsidiaries. These
subsidiaries provide local exchange telephone services, personal communications
services (PCS), as well as cable television, cellular telephone, paging,
Internet access, long distance, and leased fiber optics facilities and tower
facilities. Competitive local exchange carrier (CLEC) services are also being
evaluated. In addition, the Company sells and leases equipment, mainly related
to services it provides, and also participates in emerging technologies by
direct investment in non-affiliated companies.
In recent years, the Company has made significant investments in upgrading and
adding equipment to provide up-to-date services to its customers in an
increasingly dynamic and competitive telecommunications industry. The Company's
net plant in service increased from $36.8 million in 1995 to over $111.8 million
at the end of 2000, including $29.4 million in plant under construction. This
increase is reflective of the Company's continuing expansion of its operations
from its historical roots in Shenandoah County, Virginia to portions of West
Virginia, Maryland and Pennsylvania along the Interstate 81 corridor. Recent
expansion has been mostly in the wireless segment of the business. In late 1999,
the Company became the exclusive provider of Sprint PCS service from
Harrisonburg, Virginia to Harrisburg, York and Altoona, Pennsylvania.
Shentel is also moving away from significant reliance on its telephone revenues,
as the Company continues to expand. With the expansion and growth of the
Company's wireless businesses through its PCS and cellular operations, the
Company's total revenue sources have shifted away from a heavy concentration of
telephone revenues over the last six years. In 1995, 59.6% of the Company's
total revenue was generated by the telephone operation, while in 2000 that
operation only contributed 32.0% of total revenue. The Company is continuing to
expand its PCS operations with additional investments in new sites and store
locations in south central Pennsylvania, activating approximately 70 sites and
three retail stores in mid-February 2001. Accordingly, the Company anticipates
accelerated growth in PCS revenues and customers, and a continued shift away
from its historical revenue mix.
Revenue sources for 2000 were as follows: $19.1 million or 32.0% telephone
revenues, $17.0 million or 28.5% was from mobile operations, (primarily
cellular), $13.3 million or 22.1% PCS revenue, $5.0 million or 8.4% from ShenTel
Service operations, $3.6 million or 6.1% from the cable television operation,
and the remaining $1.7 million or 2.9% from other operations.
The Company's strategy is to continue to expand services and geographic coverage
areas where it is economically feasible. During 2000, this was evident with the
continued build-out of the central Pennsylvania PCS network. The expanded market
area of the PCS operation increases the Company's covered populations from
approximately 400 thousand persons, since the CDMA network was rolled out in
late 1999, to over one million as of mid-February 2001. As a Sprint PCS network
affiliate, the PCS operation markets a nationally branded service with over 10
million nationwide Sprint PCS customers at the end of 2000.
In 2000, the Company adopted the Securities and Exchange Commission Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, which
required the Company to defer activation fee revenue and recognize it over the
2000 SHENANDOAH TELECOMMUNICATIONS FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
expected economic life of the customer. Based on the Company's current churn of
customers, the activation fees will be recognized over approximately 30 months.
The statement of operations reflects the adoption in 2000 with the impact net of
expenses at $0.1 million. The Company expects this number will grow in the near
term as new customers are added to the Company's existing customer base.
RESULTS OF OPERATIONS
2000 COMPARED TO 1999
Total revenue was $59.7 million in 2000, up 41.4% from $42.2 million in 1999.
This increase of $17.5 million was made up primarily of a $9.6 million increase
or 262% in PCS revenues. Subscribers of the PCS services grew 13,476 or 138% to
23,232 at year-end, and contributed $5.3 million of the growth in revenue.
Additionally, PCS roamer revenue grew nearly $4.3 million compared to 1999
results, due to a full year of operation, along with the growth in usage by
Sprint PCS customers from other geographic areas. Mobile revenues increased $3.7
million or 27.4%, primarily the result of increased roaming revenue generated by
persons using the Company's cellular network as they traveled through the
Company's coverage area. Telephone revenue increased $2.5 million or 15.3%.
Other telephone revenues increased $1.7 million, primarily generated by lease
income from non-regulated fiber deployed outside the Company's local telephone
service area, while local service revenue grew $0.5 million and access revenue
increased $0.3 million. ShenTel Service revenues increased $1.4 million or
40.8%, due in part to the growth in Internet revenue of $0.6 million. Internet
subscribers grew by 4,253 to 14,900 subscribers at year-end, which generated
most of the revenue growth in ShenTel's operation. Additionally, the sales of
telecommunication systems alarm systems and installations increased nearly $0.8
million over prior year results. Management does not expect 2000's equipment
sales volume to be repeated in 2001. Cable television revenues increased $0.2
million or 6.1% due to increased subscriber acceptance of the digital television
services and newly added subscribers. Other revenues were up $0.1 million over
1999 results.
Total operating expenses increased $13.8 million or 46.6% over 1999 results, due
to increased sales and added costs related to the support of new customers and
added network costs. The Company expects operating expenses to increase
significantly in 2001 due to additional network usage, incremental costs
generated by expanding customer bases and added expense from operating
additional equipment.
Costs of products and programming increased $3.0 million or 100% to $6.1
million, due to increased sales volume of wireless handsets (primarily PCS
handsets), increased costs of cable television programming and increased costs
of products used in the systems sold through ShenTel Service subsidiary. Plant
specific costs and line costs were up $2.5 million or 43.2% due to increased
facility maintenance costs related to the PCS expansion and added operating
costs to support the Company's expanding portfolio of telecommunication services
through its plant facilities and those leased from other providers.
Network cost and other non-specific costs increased $4.9 million to $10.3
million, due to a full year of operating the PCS network and costs related to
growth in the Internet services. Depreciation and amortization increased $0.6
million primarily as a result of equipment placed into service related to the
expansion and growth of the PCS network and the impact of the completion of the
cable television network upgrade in 1999. With the increased PCS network
equipment turned on in early February 2001 and other new equipment projected to
be added later in 2001, the Company expects depreciation expense will nearly
double compared to depreciation expense this year.
Customer operation expenses increased $2.2 million or 40.2% primarily due to
customer growth in Internet and PCS services. Corporate operations and other
expenses are up $0.6 million or 16.9%, due to added staff and increased support
to sustain the growth of the Company's business.
Operating income increased $3.6 million or 29.1% over 1999, primarily due to
improved results in the wireless area of the business. Higher revenues more than
offset higher expenses but produced a slightly lower operating margin of 27.1%
for 2000 compared to 29.7% for 1999.
2000 SHENANDOAH TELECOMMUNICATIONS FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Non-operating income, less expenses are up $3.9 million due to the sale of the
Virginia RSA 6 Partnership interest in May 2000 for $7.4 million. The Company
realized a one-time gain of $6.9 million and an after-tax gain of approximately
$4.3 million on the transaction. Additionally, the Company incurred impairment
charges of $1.8 million on three investments during the year which somewhat
offset the aforementioned gain and other realized investment gains.
Interest expense is up $0.8 million due to increased borrowing levels to fund
the expansion of the PCS service area. The provision for taxes increased $2.2
million or 57.9%, due to increased earnings and the impact of federal and state
tax rates on those earnings.
Minority interest is up $1.1 million or 56.9%, due to increased earnings of the
cellular partnership, in which outside limited partners have a 34% interest.
Net income increased $3.4 million or 53.3% to $9.9 million, up from $6.4 million
in 1999. This increase consists primarily of the impact of the one-time gain on
the sale of the Virginia RSA 6 partnership interest, higher than expected
roaming revenues from within the mobile segment, and higher than expected travel
revenue in the PCS operation.
1999 COMPARED TO 1998
Total revenue increased $6.6 million or 18.7% to $42.2 million, up from $35.6
million in 1998. The increase was primarily the result of a $3.6 million or
36.9% increase in revenue from the Company's cellular telephone operating
revenues that are reported in Mobile revenues. ShenTel Service Company and the
Company's telephone operations each contributed $1.0 million to the growth in
revenues over 1998 results. The PCS operation experienced a $0.5 million or
17.0% increase in revenue growth over the prior year, a result of changing to
the CDMA technology in late 1999, and also joining with Sprint PCS through a
long-term affiliation agreement. The remainder of the revenue growth was
generated through a $0.3 million increase in cable television revenues and a
$0.2 million increase in other revenues.
Total operating expenses were $29.7 million, up $4.6 million or 18.4% from 1998
results. The increase was the result of increased sales of handsets, equipment
and services and the growth of the business, over 1998 results.
Cost of products and programming increased $0.7 million or 29.5% as the startup
of the PCS CDMA operation handset sales impacted this expense. Plant specific
costs increased $1.3 million, due to ongoing operating and maintenance costs
incurred to support the Company's operation.
Network and other costs increased $1.0 million or 24.1%, due to higher switching
and facility costs related to the increases in Internet and cellular customers
and the addition of the CDMA PCS network operation launched in late 1999.
Depreciation and amortization costs increased $1.3 million or 23.6%, as new
equipment was put in service during the year primarily to provide CDMA
technology to the PCS operation. Customer operations costs increased $0.5
million or 10.5%, due to increased staff and efforts to support the expanding
customer base. Corporate operations were down $0.2 million compared to 1998
results.
Income before income taxes was up $1.8 million or 17.9% over 1998 results,
primarily due to higher revenues and increased services in the wireless
operation, which were somewhat offset by higher operating expenses.
Net income increased $0.8 million or 14.7% over 1998 results, due to higher
roaming revenues in the mobile segment. The minority interest increased due to
higher earnings in the cellular partnership, in which outside limited partners
own 34%.
INVESTMENTS IN NON-AFFILIATED COMPANIES
The Company has investments in numerous available-for-sale securities, which the
Company may elect to sell from time to time. The Company does not have any plans
to dispose of these securities at this time, but may elect to do so if market
conditions present the opportunity, or capital requirements present the need to
liquidate various positions in certain investments.
2000 SHENANDOAH TELECOMMUNICATIONS FINANCIAL STATEMENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
[THE FOLLOWING TEXT WAS OMMITTED IN HARD COPY]
During 2000, the Company recorded three impairment charges against earnings
totaling $1.8 million. Two investments were written down to a lower value due to
ongoing questions about their long-term viability. One was written off as a
total loss, due to its closure and asset liquidation. Unrealized losses in the
Company's available-for-sale securities charged to other comprehensive income
were $11.9 million after a deferred tax benefit of $7.3 million. The fair value
of the Company's available-for-sale securities was $11.8 million at the end of
2000.
SALE OF GSM PCS EQUIPMENT
On January 11, 2001, the Company completed a transaction to sell its GSM
technology PCS equipment and three radio spectrum licenses for $6.5 million,
which was the book value of the assets that were sold. In June 2000, the Company
had recorded a charge of $0.7 million to value the assets it intended to sell at
their estimated realizable value. As a result of the impairment charge in June,
there was no additional impact to the operating statement as a result of the
transaction closing.
As part of the original Sprint PCS affiliate agreements, the Company received a
deposit of $3.9 million in cash from Sprint PCS to provide the Company liquidity
and a safe harbor payment for its GSM equipment in the event a sale did not
materialize. As a result of the sale of the GSM equipment, the Company refunded
the deposit to Sprint PCS in January 2001, as required by the affiliate
agreement.
FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES
The Company had three principle sources of funds available to finance its
capital projects during 2000. The first facility was the remaining $3 million of
availability on its loan agreement with the Rural Telephone Bank, which provided
approximately $2.5 million in 2000. The Company expects to draw the remainder of
these available funds in early 2001.
The Company's second source of capital was a $25.0 million term facility with
CoBank, which was negotiated in 1996 and amended in 1999. The Company drew its
remaining $2.4 million of this facility during 2000. The amortization of the
facility began in 1999, and will increase in August 2001, to $223 thousand per
month, with final payment due in 2011.
The Company's third and most significant capital source was a $35 million
revolving credit facility with CoBank, that was scheduled to mature in January
2001, but was extended to January 2002, subsequent to year-end. The Company had
$15.3 million remaining as of the end of 2000, and as of February 14, 2001,
there is $11.5 million remaining on the revolver. Management has initiated
preliminary discussions with CoBank to establish a term facility for
approximately $35 million with various maturities being evaluated. Additionally,
discussions are in process to extend or reestablish the $35 million revolving
credit facility for more than one year. Management anticipates terms and
conditions for these new facilities to be similar to the existing credit
facilities.
The Board of Directors has approved a three-year Capital Budget for
approximately $70 million. The budget includes $40 million for expansion and
enhancements to the PCS network, which includes $8 million for towers and $32
million for base stations and switch enhancements. An additional $22 million has
been budgeted for the telephone operation. The budget also includes $2.0 million
for cable television extensions and enhancements, and $6 million for various
other projects.
Management anticipates the capital projects listed above will be funded through
operating cash flow, existing financing facilities and the anticipated financing
facilities discussed previously. The Company may, at its election, liquidate
some of its investments to generate cash for its capital needs.
Laurence F. Paxton
Vice President-Finance
2000 SHENANDOAH TELECOMMUNICATIONS FINANCIAL STATEMENTS
Comparative Highlights
(Dollar figures in thousands, except per share data.)
Increase
December 31 (Decrease)
2000 1999 Amount Percent
----------- ----------- ----------- -----------
Operating Revenues $ 59,728 $ 42,239 $ 17,489 41.4
Operating Expenses $ 43,542 $ 29,698 $ 13,844 46.6
Income Taxes $ 5,994 $ 3,797 $ 2,197 57.9
Interest Expense $ 2,684 $ 1,933 $ 751 38.9
Net Income $ 9,855 $ 6,428 $ 3,427 53.3
Net Income from Operations (1) $ 6,329 $ 6,082 $ 247 4.1
Earnings per Share - diluted $ 2.61 $ 1.71 $ .90 52.6
Cash Dividend per share $ .66 $ .56 $ .10 17.9
Percent Return on Equity 14.9 9.1 5.8 63.7
Common Shares Outstanding 3,759,231 3,755,760 3,471 0.1
No. of Shareholders 3,726 3,683 43 1.2
No. of Employees (full-time equivalent) 206.5 181.0 25.5 14.1
Wages & Salaries $ 7,402 $ 6,637 $ 765 11.5
Investment in Net Plant $ 111,808 $ 74,549 $ 37,259 50.0
Capital Expenditures $ 44,267 $ 15,731 $ 28,536 181.4
(1) Excludes gains and losses on external investments unaffiliated with
operations, excludes gain on sale of partnership interest in the Virginia
RSA 6 cellular operation.
Five-Year Summary of Selected Financial Data
(Dollar figures in thousands, except per share data.)
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
Operating Revenues $ 59,728 $ 42,239 $ 35,594 $ 30,970 $ 25,430
Operating Expenses $ 43,542 $ 29,698 $ 25,090 $ 22,603 $ 17,485
Income Taxes $ 5,994 $ 3,797 $ 3,599 $ 2,594 $ 2,822
Interest Expenses $ 2,684 $ 1,933 $ 1,501 $ 1,556 $ 803
Gain (loss) on Security
Dispositions $ -- $ -- $ (49) $ 228
Net Income $ 9,855 $ 6,428 $ 5,604 $ 4,480 $ 4,995
Net Income from Operations (1) $ 6,329 $ 6,082 $ 5,364 $ 4,531 $ 4,790
Total Assets $ 150,353 $ 133,051 $ 93,741 $ 89,408 $ 79,374
Long-term Obligations $ 55,487 $ 33,030 $ 29,262 $ 27,361 $ 24,706
Shareholders Information
Number of Shareholders 3,726 3,683 3,654 3,567 3,399
Shares of Stock 3,759,231 3,755,760 3,755,760 3,760,760 3,760,760
Earnings per Share - diluted $ 2.61 $ 1.71 $ 1.49 $ 1.19 $ 1.33
Cash Dividend per Share $ .66 $ .56 $ .51 $ .43 $ .42
(1) Excludes gains and losses on external investments unaffiliated with
operations, excludes gain on sale of partnership interest in the Virginia
RSA 6 cellular operation.
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Shenandoah Telecommunications Company
Edinburg, Virginia
We have audited the accompanying balance sheets of Shenandoah Telecommunications
Company and Subsidiaries as of December 31, 2000, 1999 and 1998, 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, 2000, 1999 and
1998, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
Richmond, Virginia
January 26, 2001, except for Note 13, as to which
the date is March 23, 2001
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000, 1999 and 1998
in thousands
ASSETS (Note 4) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 3,133 $ 7,156 $ 4,891
Held-to-maturity securities (Note 2) -- -- 500
Accounts receivable 5,380 4,918 4,272
Income taxes receivable 2,052 -- 296
Materials and supplies 2,856 4,089 3,488
Prepaid expenses and other 854 544 778
----------------------------------------------
Total current assets 14,275 16,707 14,225
----------------------------------------------
Securities and Investments (Note 2)
Available-for-sale securities 11,771 30,719 2,678
Other investments 6,996 5,094 5,921
----------------------------------------------
Total securities and investments 18,767 35,813 8,599
----------------------------------------------
Property, Plant and Equipment
Plant in service (Note 3) 122,750 99,822 88,428
Plant under construction 29,350 9,134 5,670
----------------------------------------------
152,100 108,956 94,098
Less accumulated depreciation 40,292 34,407 29,064
----------------------------------------------
Net property, plant and equipment 111,808 74,549 65,034
----------------------------------------------
Other assets
Cost in excess of net assets of business acquired 5,630 5,630 5,630
Deferred charges and other assets 436 590 603
Radio spectrum license 1,341 1,341 733
----------------------------------------------
7,407 7,561 6,966
Less accumulated amortization 1,904 1,579 1,083
----------------------------------------------
Net other assets 5,503 5,982 5,883
----------------------------------------------
Total assets $150,353 $133,051 $ 93,741
==============================================
See Notes to Consolidated Financial Statements.
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Current Liabilities
Current maturities of long-term debt (Note 4) $ 2,403 $ 1,341 $ 864
Accounts payable 7,714 2,196 1,149
Advance billings and deposits 1,453 871 713
Refundable equipment payment (Note 6) 3,871 3,871 --
--------
Customers' deposits 124 119 114
Accrued compensation 996 947 891
Other current liabilities 1,838 950 1,582
Income taxes payable -- 740 --
------------------------------------------
Total current liabilities 18,399 11,035 5,313
------------------------------------------
Long-term debt, less current maturities (Note 4) 53,084 31,689 28,398
------------------------------------------
Other Liabilities
Deferred income taxes (Note 5) 9,218 16,062 6,741
Pension and other (Note 8) 1,602 1,530 1,477
------------------------------------------
Total other liabilities and credits 10,820 17,592 8,218
------------------------------------------
Minority Interests 1,715 2,460 2,265
------------------------------------------
Commitments and Contingencies (Notes 2, 4, 6, 8, 11, and 12)
Stockholders' Equity (Notes 4 and 10)
Common stock, no par value, authorized 8,000
shares; issued and outstanding, 2000 3,759 shares;
1999 and 1998 3,756 shares 4,817 4,734 4,734
Retained earnings 55,873 48,499 44,174
Accumulated other comprehensive income,
unrealized gain on available-for-sale securities,
net (Note 2) 5,645 17,042 639
------------------------------------------
Total stockholders' equity 66,335 70,275 49,547
------------------------------------------
Total liabilities and stockholders' equity $150,353 $133,051 $ 93,741
==========================================
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2000, 1999 and 1998
in thousands, except per share amounts
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Operating revenues:
Telephone:
Local service $ 4,556 $ 4,064 $ 3,782
Access 8,223 7,878 7,836
Other 6,330 4,627 3,914
-------------------------------------------------
Total telephone revenues 19,109 16,569 15,532
-------------------------------------------------
Other:
PCS revenues 13,252 3,664 3,131
Mobile 17,010 13,352 9,755
Cable Television 3,640 3,432 3,098
ShenTel Service 4,997 3,550 2,531
Other 1,720 1,672 1,547
-------------------------------------------------
Total other revenue 40,619 25,670 20,062
-------------------------------------------------
Total operating revenues 59,728 42,239 35,594
-------------------------------------------------
Operating expenses:
Cost of products and programming 6,091 3,044 2,350
Plant specific and line costs 8,207 5,730 4,436
Network and other nonspecific costs 10,279 5,338 4,301
Depreciation and amortization 7,318 6,712 5,430
Customer operations 7,652 5,458 4,938
Corporate operations and other 3,995 3,416 3,635
-------------------------------------------------
Total operating expenses 43,542 29,698 25,090
-------------------------------------------------
Operating income 16,186 12,541 10,504
-------------------------------------------------
(Continued)
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Other income (expense):
Non-operating income, less expenses $ 5,441 $ 1,582 $ 2,054
Interest expense (2,684) (1,934) (1,501)
Loss on disposal of assets (15) (1) (718)
--------------------------------------------------
2,742 (353) (165)
--------------------------------------------------
Income before income taxes and minority interest 18,928 12,188 10,339
Income tax provision (Note 5) 5,994 3,797 3,599
--------------------------------------------------
12,934 8,391 6,740
Minority interest 3,079 1,963 1,136
--------------------------------------------------
Net income $ 9,855 $ 6,428 $ 5,604
==================================================
Net earnings per share, basic $ 2.62 $ 1.71 $ 1.49
==================================================
Net earnings per share, diluted $ 2.61 $ 1.71 $ 1.49
==================================================
Cash dividends per share $ 0.66 $ 0.56 $ 0.51
==================================================
Weighted average shares outstanding 3,757 3,756 3,756
==================================================
See Notes to Consolidated Financial Statements.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000, 1999 and 1998
in thousands
2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 9,855 $ 6,428 $ 5,604
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 6,993 6,216 4,976
Amortization 325 496 454
Deferred tax charges (benefit) 130 (758) 1,121
Loss on disposal of assets 15 1 718
Impairment charges on investments 1,451 -- --
Net gain on disposals of investments (6,629) -- --
Income from patronage and equity investments (975) (1,154) (1,816)
Minority interest, net of distributions (745) 195 371
Other 263 (70) (70)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (787) (646) 1,411
Materials and supplies 1,233 (601) 480
Increase (decrease) in:
Accounts payable 5,518 1,047 (2,594)
Other prepaids, deferrals and accruals (1,444) 4,851 369
--------------------------------------------
Net cash provided by operating activities 15,203 16,005 11,024
--------------------------------------------
Cash Flows From Investing Activities
Purchase and construction of property and equipment,
net of retirements (44,267) (15,731) (13,664)
Payment of license costs -- (607) --
Maturities of certificates of deposit -- -- 204
Net cash flows from securities (Note 2) 4,828 922 2,239
Other, net 154 11 (2)
--------------------------------------------
Net cash used in investing activities (39,285) (15,405) (11,223)
--------------------------------------------
(Continued)
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities
Dividends paid $ (2,481) $ (2,103) $ (1,915)
Issue (redemption) of common stock 83 -- (100)
Proceeds from long-term debt 24,120 4,598 2,406
Principal payments on long-term debt (1,663) (830) (504)
------------------------------------------
Net cash provided by (used in) financing activities 20,059 1,665 (113)
------------------------------------------
Net increase (decrease) in cash and
cash equivalents (4,023) 2,265 (312)
Cash and cash equivalents:
Beginning 7,156 4,891 5,203
------------------------------------------
Ending $ 3,133 $ 7,156 $ 4,891
==========================================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest, net of capitalized interest of 2000 $301;
1999 $229; 1998 $422 $ 3,057 $ 2,132 $ 2,116
==========================================
Income taxes $ 8,656 $ 3,519 $ 2,760
==========================================
See Notes to Consolidated Financial Statements.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2000, 1999 and 1998
in thousands
Accumulated
Other
Common Retained Comprehensive
Shares Stock Earnings Income Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1998 3,761 $ 4,740 $ 40,579 $ 1,191 $ 46,510
--------
Comprehensive income
Net income -- -- 5,604 -- 5,604
Change in unrealized gain
on securities available-for-sale,
net of tax $368 -- -- -- (552) (552)
--------
Total comprehensive income 5,052
--------
Dividends declared -- -- (1,915) -- (1,915)
Redemption of common stock (5) (6) (94) -- (100)
---------------------------------------------------------------------
Balance, December 31, 1998 3,756 4,734 44,174 639 49,547
--------
Comprehensive income
Net income -- -- 6,428 -- 6,428
Change in unrealized gain
on securities available-for-sale,
net of tax ($10,079) -- -- -- 16,403 16,403
--------
Total comprehensive income 22,831
--------
Dividends declared -- -- (2,103) -- (2,103)
---------------------------------------------------------------------
Balance, December 31, 1999 3,756 4,734 48,499 17,042 70,275
--------
Comprehensive income
Net income -- -- 9,855 -- 9,855
Change in unrealized gain
on securities available-for-sale,
net of tax $7,258 -- -- -- (11,860) (11,860)
Reclassification of net recognized
loss on securities available-for-
sale, net of tax ($284) 463 463
--------
Total comprehensive income (1,542)
--------
Dividends declared -- -- (2,481) -- (2,481)
Common stock issued 3 83 -- -- 83
---------------------------------------------------------------------
Balance, December 31, 2000 3,759 $ 4,817 $ 55,873 $ 5,645 $ 66,335
=====================================================================
See Notes to Consolidated Financial Statements.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies
Shenandoah Telecommunications Company and subsidiaries (the "Company") provides
telephone service, personal communications service (PCS), cellular telephone,
cable television, unregulated communications equipment and services, internet
access, paging, and mobile telephone services. In addition, through its
subsidiaries, the Company leases towers 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. Operations follow
the Interstate 81 corridor, through West Virginia, Maryland and into
South-Central Pennsylvania. 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 periods. Actual results could differ from those reported 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 FDIC insurance
limits.
Accounts receivable: The Company grants credit and terms to customers in
accordance with standard industry practices. Accounts receivable are
concentrated among customers within the Company's geographic service area and
large telecommunications companies. The Company had a reserve for uncollectible
receivables of $343 thousand at December 31, 2000 and $16 thousand at December
31, 1999 and 1998.
Securities and investments: The classification of debt and equity securities is
determined by management at the date individual investments 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.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies (Continued)
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 assets sold are included
in net income.
Investments Carried at Cost: Investments in which the Company does not have a
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.
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 6.3%, 6.1% and 6.1% of average depreciable assets for the years
2000, 1999 and 1998, respectively.
Cost in excess of net assets of business acquired: Intangible assets consisting
of the cost in excess of identifiable net assets of business 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, in addition to market and economic conditions.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies (Continued)
Retirement plans: The Company maintains a noncontributory defined benefit 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. The Company also maintains a defined contribution plan under which
substantially all employees may defer up to 15% of their salary on a pretax
basis. The Company may make matching and discretionary contributions to this
plan.
Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary difference and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the difference between the reported amounts of assets and
liabilities and their tax basis. 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 asset.
Revenue recognition: Revenues are recognized when earned, regardless of the
period in which they are billed. The Company records a charge against the
revenues earned to reflect an estimate for uncollectible accounts. The Company
adopted the provisions of Securities and Exchange Commission (SEC) Staff
Accounting Bulletin 101 (SAB 101) during the fourth quarter of 2000, which
coincided with inception of activation fees in its PCS segment. Accordingly,
activation fees are recorded as deferred revenue and recognized over the
estimated life of the customer account. There were no significant amounts of
activation fees in previous periods.
Earnings per share: Basic earnings per share was computed by dividing net income
by the weighted average number of common shares outstanding during the year.
Diluted earnings per share was computed under the treasury stock method,
assuming the conversion, as of the beginning of the year, of all dilutive stock
options. In 2000, all options were dilutive except the 2000 year grants. There
were no adjustments to net income in the computation of diluted earnings per
share for any of the years presented. All stock options outstanding for 1999 and
1998 were antidilutive; therefore, basic and diluted earnings per share are the
same for those years. The following tables show the computation of basic and
diluted earnings per share for 2000:
(in thousands, except per share amounts)
Basic earnings per share
Net income $ 9,855
-------
Weighted average shares outstanding 3,757
-------
Basic earnings per share $ 2.62
=======
Effect of stock options outstanding:
Weighted average shares outstanding 3,757
Assumed exercise of options at strike price at beginning of year 40
Assumed repurchase of options under treasury stock method (26)
-------
Diluted weighted average shares outstanding 3,771
-------
Diluted earnings per share $ 2.61
=======
Reclassifications: Certain amounts reported in the 1999 and 1998 financial
statements have been reclassified to conform with the 2000 presentation, with no
effect on net income or stockholders' equity.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. Investments
Held-to-maturity securities in 1998 consisted of a U.S. Treasury instrument
which matured in 1999, at no gain or loss. The carrying value of the security
approximated its fair value at December 31, 1998.
Available-for-sale securities consist of the following:
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------
(in thousands)
----------------------------------------------------------
2000
----------------------------------------------------------
Loral Space and Communications, LTD $ 885 $ -- $ 406 $ 479
Illuminet Holdings, Inc. 844 9,783 -- 10,627
ITC^DeltaCom, Inc. 715 -- 381 334
Other 174 157 -- 331
----------------------------------------------------------
$ 2,618 $ 9,940 $ 787 $11,771
==========================================================
1999
----------------------------------------------------------
Loral Space and Communcations, LTD $ 1,636 $ 2,019 $ -- $ 3,655
Illuminet Holdings, Inc. 844 24,658 -- 25,502
ITC^DeltaCom, Inc. 715 847 -- 1,562
----------------------------------------------------------
$ 3,195 $27,524 $ -- $30,719
==========================================================
1998
----------------------------------------------------------
Loral Space and Communications, LTD $ 1,636 $ 1,042 $ -- $ 2,678
==========================================================
During 2000, the Company recognized an other-than-temporary impairment charge of
$751 thousand on Loral Space Communications, LTD and realized a gain of $4
thousand on the sale of a portion of its holdings in Illuminet Holdings, Inc. No
realized gains or losses were recorded in 1999 or 1998 on available-for-sale
securities.
Changes in the unrealized gain on available-for-sale securities during the years
ended December 31, 2000, 1999, and 1998 reported as a separate component of
stockholders equity are as follows:
2000 1999 1998
---------------------------------------------
(in thousands)
Unrealized holding gains, beginning balance $ 27,524 $ 1,042 $ 1,962
Unrealized holding gains (losses) during the year (19,118) 26,482 (920)
Reclassification of realized gains and recognized losses 747 -- --
---------------------------------------------
Unrealized holding gains, ending balances 9,153 27,524 1,042
Deferred tax effect related to net unrealized gains 3,508 10,482 403
---------------------------------------------
Unrealized gain included in stockholders' equity $ 5,645 $ 17,042 $ 639
=============================================
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:
2000 1999 1998
--------------------------------------------
(in thousands)
Cost method:
Illuminet $ -- $ -- $ 843
ITC^DeltaCom -- -- 150
Coriss.net -- 250 --
Rural Telephone Bank 771 653 653
Concept Five Technologies 635 1,335 1,304
CoBank 411 202 228
NECA 500 -- --
Other 283 318 331
--------------------------------------------
2,600 2,758 3,509
--------------------------------------------
Equity method:
South Atlantic Venture Fund III L.P. 749 672 606
South Atlantic Private Equity Fund IV L.P. 1,140 822 745
Dolphin Communications Parallel Fund, L.P. 844 171 168
Dolphin Communications Fund II, L.P. 318 -- --
Burton Partnership 1,000 -- --
Virginia Independent Telephone Alliance 326 328 300
Virginia Rural Service Area 6 -- 318 416
ValleyNet 19 25 177
--------------------------------------------
4,396 2,336 2,412
--------------------------------------------
$6,996 $5,094 $5,921
============================================
The Company recognized an impairment charge of $700 thousand on Concept Five
Technologies. The Company sold its limited interest in the Virginia Rural
Service Area 6 cellular partnership in May 2000 for $7.4 million. The Company
recorded a one-time pre-tax gain of approximately $6.9 million on the sale.
The Company has committed to invest an additional $5.5 million in various equity
method investees pursuant to capital calls from the fund managers. It is not
practical to estimate the fair value of the other investments due to their
limited market and restrictive nature of their transferability.
The Company's ownership interests in Virginia Independent Telephone Alliance and
ValleyNet are approximately 22% and 20%, respectively. Prior to its sale, the
Company held approximately 11% interest in Virginia Rural Service Area 6
cellular partnership. Other equity method investees are investment limited
partnerships which are approximately 2% owned each.
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:
2000 1999 1998
-------------------------------------------------------
(in thousands)
Available-for-sale securities:
Sales $ 4 $ -- $ --
Held-to-maturity securities:
Maturities -- 500 1,622
Other investments:
Sales and distributions 7,611 1,003 1,469
Purchases (2,787) (581) (852)
-------------------------------------------------------
Total $ 4,828 $ 922 $ 2,239
=======================================================
Note 3. Plant in Service
Plant in service consists of the following at December 31:
2000 1999 1998
-------------------------------------------------------
(in thousands)
Land $ 757 $ 578 $ 530
Buildings and structures 18,941 11,536 11,026
Cable and wire 41,668 41,240 35,576
Equipment 61,384 46,468 41,296
-------------------------------------------------------
$ 122,750 $ 99,822 $ 88,428
=======================================================
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Long-Term Debt and Lines of Credit
Long-term debt consists of the following:
Interest
Rates 2000 1999 1998
----------------------------------------------------------------
(in thousands)
Rural Telephone Bank (RTB) 6.67% - 8.05% $11,634 $ 9,814 $10,305
Rural Utilities Service (RUS) 2% - 5% 295 382 477
CoBank (term portion) 6.04% - 8.00% 23,637 22,634 18,280
CoBank (revolver) 6.98% - 7.75% 19,721 -- --
RUS Development Loan interest free 200 200 200
--------------------------------------------
55,487 33,030 29,262
Current maturities 2,403 1,341 864
--------------------------------------------
Total long-term debt $53,084 $31,689 $28,398
============================================
The CoBank revolver is a $35 million facility expiring on January 31, 2002, with
interest due monthly. The Company intends to convert this revolver into a
long-term financing facility during 2001.
The RTB loans are payable $70 thousand monthly and $225 thousand quarterly,
including interest. RUS loans are payable $24 thousand monthly, including
interest. The CoBank term facility is payable $112 thousand monthly, plus
accrued interest until August 2001, at which time payments increase to $223
thousand monthly plus accrued interest.
Approximate annual debt maturities are as follows:
Year Amount
---- ----------
2001 $ 2,403
2002 22,787
2003 3,062
2004 3,115
2005 3,175
Later years 20,945
----------
$ 55,487
==========
Substantially all of the Company's assets serve as collateral for the long-term
debt. The long-term debt agreements have certain financial and capital measures
that the Company must maintain. These requirements include maintenance of
defined working capital levels, restrictions on dividends and capital stock
repurchases, and maintenance of certain levels of debt service coverage.
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.
As of December 31, 2000, the Company had a $2 million revolving line of credit
available from a bank, with no outstanding balance at that time. The Company
intends to renew or replace this facility on or before its expiration date of
May 2001.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 5. Income Taxes
The Company and its subsidiaries file income tax returns in several
jurisdictions. The provision for the federal and state income taxes included in
the consolidated statements of income consists of the following components:
Years Ended December 31,
-------------------------------------------------
2000 1999 1998
-------------------------------------------------
(in thousands)
Current $ 5,864 $ 4,555 $ 2,477
Deferred 130 (758) 1,122
-------------------------------------------------
Income tax provision $ 5,994 $ 3,797 $ 3,599
=================================================
A reconciliation of income taxes determined by applying the statuatory income
tax rates to actual income taxes provided is as follows:
Years Ended December 31,
-------------------------------------------------
2000 1999 1998
-------------------------------------------------
(in thousands)
Federal income tax expense at statutory rates $ 5,389 $ 3,477 $ 3,129
State income taxes, net of federal tax benefit 525 405 364
Other, net 80 (85) 106
-------------------------------------------------
Income tax provision $ 5,994 $ 3,797 $ 3,599
=================================================
Net deferred tax liabilities consist of the following at December 31:
2000 1999 1998
-------------------------------------------------
(in thousands)
Deferred tax liabilities:
Plant-in-service $ 7,086 $ 6,063 $ 6,709
Unrealized gain on investments 3,508 10,482 403
Other, net -- 14 53
-------------------------------------------------
10,594 16,559 7,165
-------------------------------------------------
Deferred tax assets:
Recognized investment and impairment losses 658 -- --
Accrued compensation costs 136 136 129
Accrued pension costs 367 361 295
Other, net 215 -- --
-------------------------------------------------
1,376 497 424
-------------------------------------------------
Net deferred tax liabilities $ 9,218 $ 16,062 $ 6,741
=================================================
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6. Significant Contractual Relationship
In 1999, the Company executed a Management Agreement with Sprint PCS (Sprint)
whereby the Company committed to construct and operate a PCS network using CDMA
air interface technology, replacing an earlier PCS network based on GSM
technology. The agreement expands the PCS territory from an area serving a
population of approximately 700,000 to one of approximately 2 million people.
Under this agreement, the Company is the Sprint PCS exclusive franchisee in the
geographic area extending from Altoona, Harrisburg and York, Pennsylvania, south
through Western Maryland, and the pan-handle of West Virginia, to Harrisonburg,
Virginia. The Company initiated coverage of the southern third of the licensed
area in November 1999. During 2000, the Company continued to build the CDMA
network and expects to be fully operational in the geographic area in late 2001.
The Company is an affiliate of Sprint PCS and, therefore, has the exclusive
right to build, own and maintain the PCS network in the aforementioned areas, to
Sprint's specifications. The initial term of the agreement is for 20 years and
is automatically renewable for three 10-year options, unless terminated by
either party under provisions outlined in the management agreement.
As part of the original agreement, the Company received $3.9 million from Sprint
as a partial reimbursement for the Company's expenditures in building the
initial CDMA network. These funds were recorded as a refundable equipment
payment to be repaid following the sale of the Company's original GSM PCS
network assets.
During the second quarter of 2000, the Company recorded an impairment charge of
$673 thousand on its GSM network assets to reflect the estimated net realizable
value of the assets. Subsequent to December 31, 2000, the Company sold its GSM
network assets to VoiceStream and its affiliates for $6.5 million, which equaled
the revised carrying value of the assets. The transaction included the GSM
assets and radio spectrum licenses for two areas in the western part of
Virginia. As a result of the sale of the assets, and per the management
agreement, the Company refunded the $3.9 million to Sprint.
Note 7. Related Party
The Company leases fiber-optic facilities to ValleyNet, an equity method
investee, under an operating lease agreement. Facility lease revenue from
ValleyNet was approximately $3.1 million, $1.6 million, and $0.9 million in
2000, 1999, and 1998, respectively. At December 31, 2000, the Company had
accounts receivable from ValleyNet of approximately $0.7 million.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 8. Retirement Plans
The Company maintains a noncontributory defined benefit pension plan and a
defined contribution plan. The following table presents the defined benefit
plan's funded status and amounts recognized in the Company's consolidated
balance sheets.
2000 1999 1998
-------------------------------------------------
(in thousands)
Change in benefit obligation:
Benefit obligation, beginning $ 6,004 $ 6,434 $ 5,504
Service cost 277 321 261
Interest cost 460 429 381
Actuarial (gain) loss 95 (1,032) 428
Benefits paid (160) (148) (140)
Change in plan provisions 171 -- --
-------------------------------------------------
Benefit obligation, ending 6,847 6,004 6,434
-------------------------------------------------
Change in plan assets:
Fair value of plan assets, beginning 7,967 6,875 5,713
Actual return on plan assets 274 1,241 1,302
Benefits paid (160) (149) (140)
-------------------------------------------------
Fair value of plan assets, ending 8,081 7,967 6,875
-------------------------------------------------
Funded status 1,234 1,963 441
Unrecognized net gain (2,442) (3,035) (1,344)
Unrecognized prior service cost 346 196 216
Unrecognized net transition asset (96) (124) (153)
-------------------------------------------------
Accrued benefit cost $ (958) $(1,000) $ (840)
=================================================
2000 1999 1998
-------------------------------------------------
(in thousands)
Components of net periodic benefit costs:
Service cost $ 277 $ 321 $ 262
Interest cost 460 429 381
Expected return on plan assets (632) (544) (452)
Amortization of prior service costs 21 21 21
Amortization of net gain (140) (39) (22)
Amortization of net transition asset (29) (28) (29)
-------------------------------------------------
Net periodic benefit cost $ (43) $ 160 $ 161
=================================================
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 8. Retirement Plans (Continued)
Assumptions used by the Company in the determination of pension plan information
consisted of the following at December 31:
2000 1999 1998
---------------------------------
Discount rate 7.75% 6.75% 6.75%
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% 8.00%
The Company's matching contributions to the defined contribution plan were
approximately $162 thousand, $144 thousand and $140 thousand for the years ended
December 31, 2000, 1999 and 1998, respectively.
Note 9. Major Customers
The Company has several major customers. In 2000, the Company's relationship
with Sprint PCS increased significantly, due to growth in the PCS business
segment. Approximately 19% of total revenues were generated through Sprint PCS
and its customers using the Company's PCS network. Another customer accounted
for 10% of total revenue in 2000 through carrier access charge revenues. In 1999
and 1998, two customers generated 8-12% of total revenue each, primarily from
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. Stock Incentive Plan
The Company has a shareholder approved 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, with the options
expiring five years after 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:
2000 1999 1998
-------------------------------------
Dividend rate 2.05% 1.70% 2.48%
Risk free interest rate 6.81% 4.77% 5.44%
Expected lives of options 5 years 5 years 5 years
Price volatility 52.51% 26.20% 17.98%
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 10. Stock Incentive Plan (Continued)
Grants of options under the Plan are accounted for following the Accounting
Principles Board No. 25 and related interpretations. Accordingly, no
compensation expense has been recognized under the Plan. Had compensation
expense been recorded, as 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:
2000 1999 1998
----------------------------------------
(in thousands, except per share amounts)
Net income
As reported $ 9,855 $ 6,428 $ 5,603
Proforma $ 9,655 $ 6,281 $ 5,540
Earnings per share
As reported, basic $ 2.62 $ 1.71 $ 1.49
As reported, diluted $ 2.61 $ 1.71 $ 1.49
Proforma, basic $ 2.62 $ 1.67 $ 1.47
Proforma, diluted $ 2.56 $ 1.67 $ 1.47
A summary of the status of the Plan at December 31, 2000, 1999 and 1998 and
changes during the years ended on those dates is as follows:
Weighted
Average
Exercise Fair
Price Value
Per Per
Shares Share Share
-------------------------------------------
Outstanding January 1, 1998 13,375 $ 21.98
Granted 15,565 20.59 $ 4.11
Cancelled (1,158) 21.33
---------
Outstanding December 31, 1998 27,782 21.23
Granted 17,578 19.94 15.40
Cancelled (1,303) 20.70
---------
Outstanding December 31, 1999 44,057 20.73
Granted 19,191 34.37 14.19
Cancelled (1,160) 28.74
Exercised (3,527) 21.47
---------
Outstanding December 31, 2000 58,561 25.00
=========
There were 31,945, 19,708 and 6,378 shares exercisable at December 31, 2000,
1999 and 1998, at weighted average exercise prices per share of $20.88, $21.47
and $21.98, respectively.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 10. Stock Incentive Plan (Continued)
The following table summarizes information about stock options outstanding at
December 31, 2000:
Exercise Shares Option Life Shares
Prices Outstanding Remaining Exercisable
-----------------------------------------------------
$ 21.98 10,501 1 year 10,501
20.59 13,408 2 years 13,408
19.94 16,072 3 years 8,036
34.37 18,580 4 years --
Note 11. Shareholder Rights
The Board of Directors adopted a Shareholder Rights Plan whereby, under certain
circumstances, holders of each right (granted in 1998 at one right per share of
outstanding stock) will be entitled to purchase $80 worth of the Company's
common stock for $40. 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 a person or group is
not entitled to the benefits of the Rights.
Note 12. Lease Commitments
The Company leases land, towers and tower space under various noncancelable
agreements, which expire between 2001 and 2005 and require various minimum
annual rental payments.
The total minimum rental commitment at December 31, 2000 is due as follows:
Year Ending Amount
----------- --------------
(in thousands)
2001 $ 1,162
2002 769
2003 674
2004 506
2005 184
----------
$ 3,295
==========
As lessor, 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, 2000 are due as follows:
Year Ending Amount
----------- --------------
(in thousands)
2001 $ 797
2002 685
2003 602
2004 463
2005 234
----------
$ 2,781
==========
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 13. Subsequent Event and Quarterly Results
On March 15, 2001, Sprint PCS informed the Company that it had inaccurately
allocated certain PCS revenues between the parties (see Note 6 describing
affiliation with Sprint PCS). Sprint PCS identified the error while
conducting a routine revenue assurance review. The effect on the year 2000,
compared to previously released results, was to decrease revenue and
operating income by $2.8 million and net income by $1.7 million or $0.45
per share, diluted. On a quarterly basis, the effect (unaudited) was a
reduction in revenues and operating income by $0.1 million, $0.7 million,
$0.9 million, and $1.1 million; and, a reduction in net income by $72
thousand ($0.02 per share), $450 thousand ($0.12 per share), $524 thousand
($0.15 per share) and $663 thousand ($0.16 per share) for the first,
second, third and fourth quarters, respectively. These changes are
reflected in the table below, which presents restated quarterly financial
information.
(in thousands, except per share data)
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
----------------------------------------------------
2000 (Unaudited)
Revenues $13,279 $14,497 $15,882 $16,070
Operating Income 3,899 3,750 4,583 6,754
Net Income 2,028 5,860 1,932 36
Diluted Net Earnings Per Share 0.54 1.56 0.50 0.01
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 14. Segment Reporting
The Company has identified nine reporting segments based on the products and
services each provide. 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 Holding company which invests in both
Company (Holding) affiliated and non-affiliated companies.
Shenandoah Telephone Company Provides both regulated and unregulated
(Telephone) telephone services and leases fiber optic
facilities primarily throughout the Northern
Shenandoah Valley.
Shenandoah Cable Television Provides cable service in Shenandoah County.
Company (CATV)
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 Finances purchases of telecommunications
Company (Leasing) 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 Provides long distance services.
(Long Distance)
Shenandoah Network Company Leases interstate fiber optic facilities.
(Network)
Shenandoah Personal Provides digital wireless service to a
Communications Company (PCS) 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:
Consolidated
Year Holding Telephone Mobile Totals
--------------------------------------------------------------------
(in thousands)
2000 $ 554 $ 126 $ 87 $ 767
1999 540 394 220 1,154
1998 486 934 396 1,816
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 14. Segment Reporting (Continued)
Selected financial data for each segment is as follows:
Holding Telco CATV ShenTel Leasing
---------------------------------------------------------------------------
(in thousands)
Operating revenues - external:
2000 $ -- $ 19,109 $ 3,640 $ 4,997 $ 17
1999 -- 16,569 3,432 3,550 11
1998 -- 15,532 3,098 2,531 2
===========================================================================
Operating revenues - internal:
2000 $ -- $ 2,362 $ 2 $ 220 $ --
1999 -- 2,005 2 236 --
1998 -- 1,411 2 225 --
===========================================================================
Depreciation and amortization:
2000 $ 196 $ 3,296 $ 979 $ 473 $ --
1999 123 3,170 906 355 --
1998 -- 2,736 841 300 --
===========================================================================
Nonoperating income less expenses:
2000 $ 102 $ 1,972 $ (14) $ (15) $ 3
1999 1,189 2,012 3 1 4
1998 1,005 2,245 1 3 5
===========================================================================
Interest expense:
2000 $ 503 $ 2,350 $ 705 $ 287 $ --
1999 -- 1,927 759 196 --
1998 -- 1,491 686 168 --
===========================================================================
Income tax expense (benefit):
2000 $ (374) $ 3,523 $ (126) $ (76) $ (4)
1999 360 3,420 (124) (199) (12)
1998 294 3,713 (232) (198) (15)
===========================================================================
Net income:
2000 $ (521) $ 6,420 $ (169) $ (127) $ 13
1999 587 5,751 (203) (295) 20
1998 479 5,737 (378) (327) 15
===========================================================================
Total assets:
2000 $ 67,549 $ 77,014 $ 11,949 $ 4,939 $ 295
1999 55,234 71,552 11,415 4,128 301
1998 28,010 61,249 11,266 3,658 302
===========================================================================
Long Combined Eliminating Consolidated
Mobile Distance Network PCS Totals Entries Totals
---------------------------------------------------------------------------------------------
Operating revenues - external:
2000 $ 17,010 $ 1,068 $ 635 $ 13,252 $ 59,728 $ -- $ 59,728
1999 13,352 1,050 611 3,664 42,239 -- 42,239
1998 9,755 930 615 3,131 35,594 -- 35,594
=============================================================================================
Operating revenues - internal:
2000 $ 892 $ 378 $ 192 $ 30 $ 4,076 $ (4,076) $ --
1999 665 334 133 16 3,391 (3,391) --
1998 340 207 106 14 2,305 (2,305) --
=============================================================================================
Depreciation and amortization:
2000 $ 935 $ -- $ 148 $ 1,291 $ 7,318 $ -- $ 7,318
1999 873 -- 124 1,161 6,712 -- 6,712
1998 637 -- 162 754 5,430 -- 5,430
=============================================================================================
Nonoperating income less expenses:
2000 $ 7,038 $ 2 $ 6 $ (670) $ 8,424 $ (2,983) $ 5,441
1999 313 3 14 14 3,553 (1,971) 1,582
1998 501 3 15 (11) 3,767 (1,713) 2,054
=============================================================================================
Interest expense:
2000 $ 71 $ -- $ -- $ 1,751 $ 5,667 $ (2,983) $ 2,684
1999 184 -- -- 839 3,905 (1,971) 1,934
1998 225 -- -- 644 3,214 (1,713) 1,501
=============================================================================================
Income tax expense (benefit):
2000 $ 5,437 $ 104 $ 228 $ (2,718) $ 5,994 $ -- $ 5,994
1999 1,597 129 198 (1,572) 3,797 -- 3,797
1998 924 98 175 (1,160) 3,599 -- 3,599
=============================================================================================
Net income:
2000 $ 7,990 $ 169 $ 339 $ (4,259) $ 9,855 $ -- $ 9,855
1999 2,606 211 324 (2,573) 6,428 -- 6,428
1998 1,531 161 286 (1,900) 5,604 -- 5,604
=============================================================================================
Total assets:
2000 $ 4,527 $ 245 $ 1,182 $ 44,135 $211,835 $(61,482) $150,353
1999 15,631 264 1,145 14,351 174,021 (40,970) 133,051
1998 15,100 202 1,316 13,615 134,718 (40,977) 93,741
=============================================================================================
SELECTED STATISTICS
Percent
Increase Increase
2000 1999 (Decrease) (Decrease)
TELEPHONE
Access Lines
Residential 18,570 17,964 606 3.4
Business Single-Line 3,876 3,756 120 3.2
Paystations 262 268 (6) (2.2)
Business Multi-Line 1,409 1,374 35 2.6
----------- ----------- ----------- -------
Totals 24,117 23,362 755 3.2
Long Distance Calls 19,436,101 17,700,761 1,735,340 9.8
Switched Access Minutes 117,203,665 110,148,314 7,055,351 6.4
WIRELESS
PCS 23,232 9,756 13,476 138.1
Cellular 10,836 11,893 (1,057) (8.9)
Paging 4,786 4,946 (160) (3.2)
OTHER SERVICES
CATV
Basic 8,707 8,605 102 1.2
Premium (1) 1,911 1,789 122 6.8
VoiceMail 2,220 2,016 204 10.1
Internet 14,900 10,647 4,253 40.0
Long Distance 8,178 7,136 1,042 14.6
PLANT FACILITIES Telephone CATV Wireless
Route Miles 2,048.8 500 --
Customers Per Route Mile 11.8 17.4 --
Miles of Distribution Wire 548.8 -- --
Telephone Poles 7,849 20 --
Miles of Aerial Copper Cable 356.1 162.6 --
Miles of Buried Copper Cable 1,385.6 296.6 --
Miles of Underground Copper Cable 39.1 1.9 --
Fiber Optic Cable - Fiber Miles 10,210.4 -- --
Lines of Switching Equipment 35,470 -- --
Intertoll Circuits to Interexchange Carriers 1,276 -- --
Special Service Circuits to Interexchange Carriers 230 -- --
Points of Presence 8 -- --
PCS CDMA Base Stations -- -- 58
Cellular Base Stations -- -- 20
Towers Owned (100 foot and above) -- -- 64
PCS Market POPS -- -- 2,048,000
PCS Covered POPS -- -- 400,000
Cellular Market POPS -- -- 170,000
(1) All CATV premium customers subscribe to basic service.
EXHIBIT 20.
SHENANDOAH TELECOMMUNICATIONS COMPANY
124 South Main Street
Edinburg, Virginia
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 17, 2001
March 30, 2001
TO THE SHAREHOLDERS OF SHENANDOAH TELECOMMUNICATIONS COMPANY:
The annual meeting of shareholders of Shenandoah Telecommunications
Company will be held in the Social Hall of the Edinburg Fire Department, Stoney
Creek Boulevard, Edinburg, Virginia, on Tuesday, April 17, 2001, at 11:00 a.m.
for the following purposes:
1. To elect three Class III Directors to serve until the 2004 Annual
Shareholders' Meeting;
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record at the close of business March 20, 2001,
will be entitled to vote at the meeting.
Lunch will be provided.
By Order of the Board of Directors
Harold Morrison, Jr.
Secretary
IMPORTANT
YOU ARE URGED TO COMPLETE, SIGN, AND RETURN THE ENCLOSED PROXY CARD IN THE
SELF-ADDRESSED STAMPED (FOR U. S. MAILING) ENVELOPE PROVIDED AS PROMPTLY AS
POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. IF YOU DO
ATTEND THE MEETING IN PERSON, YOU MAY THEN WITHDRAW YOUR PROXY AND VOTE YOUR OWN
SHARES.
PROXY STATEMENT
P. O. Box 459
Edinburg, VA 22824
March 30, 2001
TO THE SHAREHOLDERS OF SHENANDOAH TELECOMMUNICATIONS COMPANY:
Your proxy in the enclosed form is solicited by the management of the
Company for use at the Annual Meeting of Shareholders to be held in the Social
Hall of the Edinburg Fire Department, Stoney Creek Boulevard, Edinburg,
Virginia, on Tuesday, April 17, 2001, at 11:00 a.m., and any adjournment
thereof.
The mailing address of the Company's executive offices is P.O. Box 459,
Edinburg, Virginia 22824.
The Company has 8,000,000 authorized shares of common stock, of which
3,759,670 shares were outstanding on March 20, 2001. This proxy statement and
the Company's Annual Report, including financial statements for 2000, are being
mailed on or about March 30, 2001, to approximately 3,731 shareholders of record
on March 20, 2001. Only shareholders of record on that date are entitled to
vote. Each outstanding share will entitle the holder to one vote at the Annual
Meeting. The Company intends to solicit proxies by the use of the mail, in
person, and by telephone. The cost of soliciting proxies will be paid by the
Company.
Executed proxies may be revoked at any time prior to exercise. Proxies
will be voted as indicated by the shareholders. Executed but unmarked proxies
will be voted "FOR" the election of the three nominees for Class III Directors.
THE ELECTION OF DIRECTORS
Directors Standing for Election
There are currently nine directors (constituting the entire Board of
Directors of the Company), divided into three classes. The current term of Class
III Directors expires at the 2001 Annual Meeting. The Board of Directors
proposes that the nominees described below, all of whom are currently serving as
Class III Directors, be re-elected to Class III for a new term of three years
and until their successors are duly elected and qualified.
The proxy holders will vote the proxies received by them (unless
contrary instructions are noted on the proxies) for the election of the three
nominees as directors, all of whom are now members of and constitute the Class
III Directors. If any such nominees should be unavailable, the proxy holders
will vote for substitute nominees in their discretion. Shareholders may withhold
the authority to vote for the election of directors or one or more of the
nominees. Directors will be elected by a plurality of the votes cast.
Abstentions and shares held in street name that are not voted in the election of
directors will not be included in determining the number of votes cast. The
names and principal occupation of the three nominees, six current directors and
executive officers are indicated in the following table. The Board of Directors
unanimously recommends a vote "FOR" election of directors.
BOARD OF DIRECTORS
Year
Elected Principal Occupation and Other Directorships
Name of Director Director Age for Past Five Years
- ----------------------------- --------- ------ -----------------------------------------------
(1) (2) (3)
Nominees for Election of Directors
Class III (Term expires 2004) - The directors standing for election are:
Dick D. Bowman 1980 72 President, Bowman Bros., Inc. (a farm
Treasurer of the Co. equipment dealer); Director, Shenandoah Valley
Electric Cooperative; Director, The Rockingham
Group; Director, Old Dominion Electric
Cooperative.
Christopher E. French 1996 43 President, Shenandoah Telecommunications Co.
President and its subsidiaries; Director, First National
Corporation.
James E. Zerkel II 1985 56 Vice Pres., James E. Zerkel, Inc. (a hardware
firm); Director, Shenandoah Valley Electric
Cooperative.
Directors Continuing in Office
Class I (Term expires 2002)
Douglas C. Arthur 1997 58 Attorney-at-Law, Arthur and Allamong;
Director, First National Corporation; Member,
Shenandoah County School Board.
Harold Morrison, Jr. 1979 71 Chairman of the Board, Woodstock Garage, Inc.
Secretary of the Co. (an auto sales & repair firm); Director, First
Virginia Bank-BR
Zane Neff 1976 72 Retired Manager, Hugh Saum Company, Inc.(a
Asst. Secretary of the Co. hardware and furniture store.)
Class II (Term expires 2003)
Noel M. Borden 1972 64 Retired President, H. L. Borden Lumber Company
Vice President (a retail building materials firm); Chairman
of the Board, First National Corporation.
Ken L. Burch 1995 56 Farmer
Grover M. Holler, Jr. 1952 80 President, Valley View, Inc. (a real estate
developer.)
(1) The directors who are not full-time employees of the Company were
compensated in 2000 for their services on the Board and one or more of
the Boards of the Company's subsidiaries at the rate of $500 per month
plus $500 for each Board meeting attended. Additional compensation was
paid during the year to certain non-employee directors who also serve as
Vice President, Secretary, Assistant Secretary, and Treasurer, for their
services in these capacities, in the amounts of $1,700, $3,440, $1,700,
and $3,440, respectively.
(2) Years shown are when first elected to the Board of the Company or the
Company's predecessor, Shenandoah Telephone Company. Each nominee has
served continuously since the year he joined the Board.
(3) Each director also serves as a director of the Company's subsidiaries.
Attendance of Board Members at Board and Committee Meetings
During 2000, the Board of Directors held 13 meetings. All of the
directors attended at least 75 percent of the aggregate of: (1) the total number
of meetings of the Board of Directors; and (2) the total number of meetings held
by all committees of the Board on which they served.
Standing Audit, Nominating, and Compensation Committees
of the Board of Directors
1. Audit Committee - Prior to October 13, 2000, the Finance Committee of the
Board of Directors performed a function similar to that of an Audit
Committee. The Finance Committee consisted of the following directors: Dick
D. Bowman (Chairman), Grover M. Holler, Jr., and Noel M. Borden. On October
13, 2000 an Audit Committee was created separate from the Finance
Committee. The Audit Committee consists of Grover M. Holler, Jr.
(Chairman), Douglas C. Arthur, and James E. Zerkel II. The Audit Committee
was established so that the committee members would be independent under
the listing standards of the NASDAQ Stock Market. During 2000 there were
three meetings of the Finance Committee. Additional business of the
committees was conducted in connection with the regular Board meetings.
Before October 13, 2000, the Finance Committee was responsible for the
employment of outside auditors and for receiving and reviewing the
auditor's report. As of October 13, 2000, this function is being performed
by the Audit Committee.
2. Nominating Committee - The Board of Directors does not have a standing
Nominating Committee.
3. Compensation Committee - The Personnel Committee of the Board of Directors
performs the function of a compensation committee. The Personnel Committee
consists of the following directors: Noel M. Borden (Chairman), Harold
Morrison, Jr., and James E. Zerkel. The committee is responsible for the
wages, salaries, and benefit programs for all employees. During 2000 there
were three meetings of this committee.
STOCK OWNERSHIP
The following table presents information relating to the beneficial
ownership of the Company's outstanding shares of common stock by all directors,
executive officers, and all directors and officers as a group. The Company is
not aware of any other ownership interest of 5% or more of the Company's
outstanding stock.
No. of Shares Percent
Name and Address Owned as of 2-1-01(1) of Class (2)
- -------------------------------------------------------------------------------
Douglas C. Arthur 1,440 *
Noel M. Borden 18,842 *
Dick D. Bowman 46,564 1.24
Ken L. Burch 45,172 1.20
Christopher E. French 293,979(3) 7.82
Grover M. Holler, Jr. 70,736 1.88
Harold Morrison, Jr. 19,828 *
Zane Neff 7,716 *
James E. Zerkel II 4,498 *
David E. Ferguson 2,459(3) *
David K. MacDonald 640(3) *
Laurence F. Paxton 2,184(3) *
William L. Pirtle 1,525(3) *
Total shares beneficially owned by
13 directors and officers as a group 515,583 13.69
(1) Includes shares held by relatives and in certain trust relationships, which
may be deemed to be beneficially owned by the nominees under the rules and
regulations of the Securities and Exchange Commission; however, the
inclusion of such shares does not constitute an admission of beneficial
ownership.
(2) Asterisk indicates less than 1%.
(3) Includes 1,775, 1,287, 420, 981 and 1,209 shares subject to options
exercisable within 60 days, by Christopher French, David Ferguson, David
MacDonald, Laurence Paxton, and William Pirtle, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 2000, the Company purchased vehicles and received services from Mr.
Morrison's company in the amount of $70,040; and, purchased supplies and
received services from Mr. Zerkel's company in the amount of $5,869. Management
believes that each of the companies provides these services to the Company on
terms comparable to those available to the Company from other similar companies.
No other director is an officer, director, employee, or owner of a significant
supplier or customer of the Company.
SUMMARY COMPENSATION TABLE
The following Summary Table is furnished as to the salary and incentive
payment paid by the Company and its subsidiaries on an accrual basis during the
fiscal years 1998, 1999, and 2000 to, or on behalf of, the Chief Executive
Officer and each of the other executive officers who earn more than $100,000 per
year.
Long-Term
Annual Compensation Compensation
------------------- ------------
Other
Name and Principal Incentive Compensation
Position Year Salary($) Payment($) Options(#) ($)(1)
-------- ---- --------- --------------------- ------
Christopher E. French 2000 $168,375 $43,342 573 $ 8,938
President 1999 159,424 35,700 529 8,225
1998 148,318 38,041 489 7,849
David E. Ferguson 2000 111,681 18,123 406 7,703
Vice President- 1999 105,277 15,705 371 7,161
Customer Service 1998 101,204 16,232 361 7,096
David K. MacDonald 2000 87,004 17,725 317 6,379
Vice President- 1999 84,365 13,039 262 5,720
Engineering &
Construction 1998 70,345 11,925 - 4,488
Laurence F. Paxton 2000 88,839 14,855 287 6,401
Vice President- 1999 84,872 12,290 283 5,906
Finance 1998 81,059 13,439 279 5,972
William L. Pirtle 2000 106,387 17,733 391 6,660
Vice President- 1999 101,633 15,384 378 6,192
Personal Comm. Service 1998 96,990 15,991 329 6,196
(1) Includes amounts contributed by the Company under its 401(k) and Flexible
Benefits Plans, each of which is available to all regular Company employees.
OPTION GRANTS TABLE
Option Grants in Last Fiscal Year
Potential
Individual Grants Realizable Value at
----------------- Assumed Annual Rates
Percent of of Stock Price
Total Options Exercise Apprciation For
Options Granted Or Base Expiration Option Term
Name (Shares) Fiscal Year Per Share Date 5%(1) 10%(1)
- ---- -------------------- --------- ---- ----- ------
Christopher E. French 573 3.0% $34.37 2/14/2005 $5,444 12,022
David E. Ferguson 406 2.1% 34.37 2/14/2005 3,857 8,518
David K. MacDonald 317 1.7% 34.37 2/14/2005 3,012 6,651
Laurence F. Paxton 287 1.5% 34.37 2/14/2005 2,727 6,021
William L. Pirtle 391 2.0% 34.37 2/14/2005 3,715 8,203
(1) In order to realize the potential value set forth, the price per share of
the Company's common stock would be approximately $43.87 and $55.35,
respectively, at the end of the five-year option term.
OPTION EXERCISES AND YEAR END VALUE TABLE
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Value
No. of Value of
Unexercised Unexercised
Options/ in the Money
FY-End (Shares) Options/FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- --------------- ----------- -------- ------------- -------------
Christopher E. French 0 0 1,224/838 12,412/2,964
David E. Ferguson 0 0 898/592 9,091/2,080
David K. MacDonald 0 0 131/448 1,465/1,465
Laurence F. Paxton 0 0 696/429 7,040/1,588
William L. Pirtle 0 0 825/580 9,387/2,114
Closing price on December 31, 2000 was $32.125 and was used in calculating the
value of unexercised options.
RETIREMENT PLAN
The Company maintains a noncontributory defined benefit Retirement Plan
for its employees. The following table illustrates normal retirement benefits
based upon Final Average Compensation and years of credited service. The normal
retirement benefit is equal to the sum of:
(1) 1.14% times Final Average Compensation plus 0.65% times Final
Average Compensation in excess of Covered Compensation (average
annual compensation with respect to which Social Security
benefits would be provided at Social Security retirement age)
times years of service (not greater than 30); and
(2) 0.29% times Final Average Compensation times years of service in
excess of 30 years (such excess service not to exceed 15 years).
Estimated Annual Pension
Years of Credited Service
Final Average
Compensation 15 20 25 30 35
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$ 20,000 $ 3,420 $ 4,560 $ 5,700 $ 6,840 $ 7,130
35,000 5,985 7,980 9,975 11,970 12,478
50,000 9,797 13,062 16,328 19,594 20,319
75,000 16,509 22,012 27,516 33,019 34,106
100,000 23,222 30,962 38,703 46,444 47,894
125,000 29,934 39,912 49,891 59,869 61,681
150,000 36,647 48,862 61,078 73,294 75,469
170,000 42,017 56,022 70,028 84,034 86,499
Covered Compensation for those retiring in 2001 is $37,212. Final
Average Compensation equals an employee's average annual compensation for the
five consecutive years of credited service for which compensation was the
highest. The amounts shown as estimated annual pensions were calculated on a
straight-life basis assuming the employee retires in 2001. The Company did not
make a contribution to the Retirement Plan in 2000, as the Plan was adequately
funded. Christopher French, David Ferguson, David MacDonald, Laurence Paxton,
and William Pirtle had 19 years, 33 years, 5 years, 10 years, and 8 years,
respectively, of credited service under the plan as of January 1, 2001.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors of the Company serves as a
representative of the Board for general oversight of the Company's financial
accounting and reporting systems, managing the audit process, and monitoring
compliance with applicable laws and regulations. The Board of Directors has
adopted a written charter for the Audit Committee, and a copy of the charter is
included as Appendix A to this proxy statement. The Company's management has
primary responsibility for preparing the Company's financial statements and the
Company's financial reporting process. The Company's auditors are responsible
for expressing an opinion on the conformity of the Company's audited financial
statements to generally accepted accounting principles. In this context the
Audit Committee hereby reports as follows:
1. The Committee has reviewed and discussed the audited 2000 financial
statements with management.
2. The Committee has discussed with the independent auditors the matters
required to be discussed by SAS 61.
3. The Committee has received the auditor's disclosures regarding the auditor's
independence from the Company.
4. No item has come to the attention of the Committee which would lead its
members to believe that the audited 2000 financial statements in the
Company's Annual Report contained an untrue statement of a material fact or
omitted a material fact that would make the statements misleading.
5. The Committee recommended to the Board of Directors, and the Board has
approved, that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the calendar year ended December 31, 2000 for
filing with the Securities and Exchange Commission.
Each of the members of the Audit Committee is independent as defined under
the listing standards of the NASDAQ Stock Market.
Submitted by the Company's Audit Committee
Grover M. Holler, Jr., Chairman
Douglas C. Arthur
James E. Zerkel II
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The members of the Personnel Committee of the Board of Directors of the
Company perform the function of a Compensation Committee. The Committee's
approach to compensation of the Company's executive officers, including the
Chief Executive Officer, is to award a total compensation package consisting of
salary, annual and long-term incentives, and fringe benefit components, which
recognizes that the compensation of executive officers should be established at
levels which are consistent with the Company's objectives and achievements. The
compensation package, and the Committee's approach to setting compensation, is
to provide base salaries at levels that are competitive with amounts paid to
senior executives with comparable qualifications, experience, and
responsibilities. The annual incentive compensation is approved upon achievement
of corporate objectives. The longer-term incentive compensation, consisting of
the Company's Incentive Stock Option Plan, is closely tied to the Company's
success in achieving increases in the Company's stock price, thereby benefiting
all shareholders. The Committee reviews industry compensation surveys, and
compares compensation data from public filings by other publicly held companies
in our industry and market region. In setting the compensation of the executive
officers other than the Chief Executive Officer, the Committee receives and
accords significant weight to the input of the Chief Executive Officer.
The Committee has recognized the success of the Company's executives in
accomplishing the Company's various strategic objectives, and has taken into
account management's commitment to the long-term success of the Company. The
Company has continued to expand its product and service offerings and has also
continued its expansion beyond its traditional geographic base. The Company has
also continued to focus its efforts on increasing earnings and on providing
superior customer service while controlling operating costs. These actions will
in turn assist the Company in meeting the challenge of achieving growth in an
increasingly competitive telecommunications industry. Based upon its evaluation
of these and other relevant factors, the Committee is satisfied that the
executives have contributed positively to the Company's long-term financial
performance.
The annual base salary of the Chief Executive Officer is determined by
the Committee in recognition of his leadership role in formulating and executing
strategies for responding to the challenges of our industry, and the Committee's
assessment of his past performance and its expectation for his future
contributions in leading the Company. The 2000 base salary was not set in
response to attainment of any specific goals by the Company, although the
Committee took into consideration his individual contributions to the Company's
performance, reflected by approximately 41% growth in revenues, 53% growth in
earnings, and his efforts to successfully negotiate the sale of two major wire-
less assets.
The annual incentive plan stresses improvement in both financial
performance, as measured by increases in net income, and service provided to the
Company's customers, as measured by trouble reports from customers. Specific
target goals are set each year. In 2000, targets were set for increases in
revenues from the Company's PCS services; increases in earnings from our
non-wireless businesses; reductions in troubles reported by customers; and, a
subjective valuation of overall productivity, timely and cost effective
completion of projects, and improvement in working relationships between
different functional areas of the organization. Performance of these four
factors could range from 0 to 200%, and were weighted by 20%, 25%, 30%, and 25%
respectively. As a result of its increase in earnings and revenues and a
significant improvement in service, the Company reached over 164 percent of its
combined goals. Overall performance greatly exceeded the Company's goals and
exceeded the goals by a larger margin than the previous year's plan; therefore,
incentive payments made to the Company's president and other executive officers
were larger than payments made in the previous year.
The long-term incentive plan involves most employees of the Company, and
incentive stock options are currently being granted on a formula related to base
salary. Rewards under this plan for the executive officers, as well as all
participating employees, are dependent upon increases in the market price of the
Company's stock.
Submitted by the Company's Personnel Committee:
Noel M. Borden, Chairman
Harold Morrison, Jr.
James E. Zerkel II
FIVE-YEAR STOCKHOLDER RETURN COMPARISON
The following graph compares the performance of the Company's stock to
the NASDAQ Market Index and the S&P Telephone Index. The S&P Telephone Index
consists of Alltel Corporation; BellSouth Corporation; CenturyTel, Inc; Qwest
Communications International Inc.; SBC Communications Inc.; and, Verizon
Communications. The graph assumes that the value of the investment in the
Company's stock and each of the indices was $100 at December 31, 1995 and that
all dividends were reinvested. As of October 23, 2000, the Company's stock
became listed on the NASDAQ National Market, and continued to trade under the
symbol "SHET."
1995 1996 1997 1998 1999 2000
Shenandoah Telecommunications Company 100 112 99 102 184 178
NASDAQ Stock Market 100 123 151 213 395 238
S&P Telephone Index 100 101 141 207 219 196
Comparison of Five-Year Cumulative Total Return among Shenandoah
Telecommunications Company, NASDAQ Market Index, and S&P Telephone Index
[OBJECT OMITTED]
SECTION 16(a) - BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Ownership of and transactions in Company stock by executive officers and
directors are required to be reported to the Securities and Exchange Commission
pursuant to Section 16(a) of the Securities and Exchange Act. On February 12,
2001 David K. MacDonald, an executive officer, filed a Form 5 for the year ended
December 31, 2000 to correct an inadvertent failure to report the indirect
ownership of an additional 20 shares on his Form 3 of September 1, 1998. Based
solely upon a review of copies of reports of beneficial ownership provided to
the Company by officers and directors, the Company believes that all reports
required pursuant to Section 16(a) with respect to the year 2000 were timely
filed.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, on the recommendation of the Audit Committee,
has decided to terminate McGladrey and Pullen, LLP's appointment as its auditor
and has appointed the firm of KPMG LLP as auditors to make an examination of the
accounts of the Company for the 2001 fiscal year. McGladrey and Pullen, LLP has
made the annual audits of the Company from 1994 until the year ended December
31, 2000. In connection with its reports on the financial statements of the
Company for each of the years in which it performed an audit, there were no
disagreements with McGladrey and Pullen, LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to their satisfaction would have
caused them to make reference in connection with their opinion to the subject
matter of the disagreement. In addition, these audit reports did not contain an
adverse opinion or a disclaimer of opinion, nor were they qualified or modified
as to uncertainty, audit scope or accounting principles. It is not expected that
representatives of either firm will be present at the annual meeting.
Audit Fees
The aggregate fees billed for Audit of the Company's annual financial
statements for 2000 and the reviews of the financial statements included in the
Company's forms 10-Q for 2000 was $79,536.
Financial Information Systems Design and Implementation Fees
The Company did not engage the principal accountant for any services of
this nature.
All Other Fees
The aggregate of all other fees billed by the principal accountant was
$42,226, the majority of which was for audit of the Company's benefit plans and
assistance in preparing tax returns. The Audit Committee considers the nature of
this work to be compatible with maintaining the principal accountant's
independence.
PROPOSALS OF SHAREHOLDERS
Proposals of shareholders to be included in management's proxy statement
and form of proxy relating to next year's annual meeting must be received at the
Company's principal executive offices no later than November 30, 2001. In
addition, in order for any matter to be properly brought before the 2002 annual
meeting, the stockholder must notify the Company in writing no later than
December 17, 2001.
OTHER MATTERS
Management does not intend to bring before the meeting any matters other
than those specifically described above and knows of no matters other than the
foregoing to come before the meeting. If any other matters properly come before
the meeting, it is the intention of the persons named in the accompanying form
of proxy to vote such proxy in accordance with their judgment on such matters,
including any matters dealing with the conduct of the meeting.
FORM 10-K
The Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission is available to shareholders, without charge, upon request
to Mr. Laurence F. Paxton, Vice President-Finance, Shenandoah Telecommunications
Company, P. O. Box 459, Edinburg, VA 22824; or, can be retrieved from the
Securities and Exchange Commission website at www.sec.gov.
APPENDIX A
SHENANDOAH TELECOMMUNICATIONS COMPANY AUDIT COMMITTEE CHARTER
Organization - There shall be a committee of the board of directors to be known
as the audit committee. The audit committee shall be composed of three or more
directors who are independent of the management of the corporation and are free
of any relationship that, in the opinion of the board of directors, would
interfere with their exercise of independent judgment as a committee member.
Statement of Policy - The audit committee shall provide assistance to the
corporate directors in fulfilling their responsibility to the shareholders,
potential shareholders, and investment community relating to corporate
accounting, reporting practices of the corporation, and the quality and
integrity of the financial reports of the corporation. In so doing, it is the
responsibility of the audit committee to maintain free and open means of
communication between the directors, the independent auditors, and the financial
management of the corporation.
Responsibilities - In carrying out its responsibilities, the audit committee
believes its policies and procedures should remain flexible, in order to best
react to changing conditions and to ensure to the directors and shareholders
that the corporate accounting and reporting practices of the corporation are in
accordance with all requirements and are of the highest quality.
In carrying out these responsibilities, the audit committee will:
o Reassess the adequacy of this written charter on an annual basis.
o Review and recommend to the directors the independent auditors to be
selected to audit the financial statements of the corporation and its
divisions and subsidiaries. The independent auditors will be ultimately
accountable to the directors.
o Meet with the independent auditors and financial management of the
corporation to review the scope of the proposed audit for the current
year and the audit procedures to be utilized, and at the conclusion
thereof review such audit, including any comments or recommendations of
the independent auditors.
o Review with independent auditors and financial and accounting personnel,
the adequacy and effectiveness of the accounting and financial controls
of the corporation, and elicit any recommendations for the improvement
of such internal control procedures or particular areas where new or
more detailed controls or procedures are desirable. Particular emphasis
should be given to the adequacy of such internal controls to expose any
payments, transactions, or procedures that might be deemed illegal or
otherwise improper.
o Ensure that at least one member of the Audit Committee possesses the
necessary financial sophistication for financial oversight
responsibilities, as evidenced by past employment experience in finance
or accounting, or other comparable experience or background.
o Receive from the independent auditors a formal written statement
delineating all relationships between the auditors and the company.
o Review the financial statements contained in the annual report to
shareholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the shareholders.
Any changes in accounting principles should be reviewed.
o Provide sufficient opportunity for the independent auditors to meet with
the members of the audit committee without members of management
present. Among the items to be discussed in these meetings are the
independent auditors' evaluation of the corporation's financial,
accounting, and auditing personnel, and the cooperation that the
independent auditors received during the course of the audit.
o Review human resources and succession planning within the accounting and
financial departments of the company.
o Submit the minutes of all meetings of the audit committee to, or discuss
the matters discussed at each meeting with, the board of directors.
o Investigate any matter brought to its attention within the scope of its
duties, with the power to retain outside counsel for this purpose if, in
its judgment, that is appropriate.
o Review related party transactions for potential conflict of interest
situations.
EXHIBIT 21. LIST OF SUBSIDIARIES
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, we hereby consent to the incorporation
of our report, dated January 26, 2001, except for Note 13, as to which the date
is March 23, 2001, 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. 333-21733 and Form S3-D Registration
Statement No. 333-74297.
Richmond, Virginia
March 30, 2001