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, 2001
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. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 15, 2002. $123,027,700. (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 15, 2002. In April 2002, the Company's trading symbol will be
changed to "SHEN".
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 15, 2002
Common Stock, No Par Value 3,767,695
Documents Incorporated by Reference
2001 Annual Report to Security Holders Parts II, IV
Proxy Statement, Dated March 22, 2002 Parts III
EXHIBIT INDEX PAGE 10
1
SHENANDOAH TELECOMMUNICATIONS COMPANY
Item Page
Number Number
PART I
1. Business 2-5
2. Properties 5
3. Legal Proceedings 6
4. Submission of Matters to a Vote of Security Holders 6
PART II
5. Market for the Registrant's Common Stock and
Related Stockholder Matters 6-7
6. Selected Financial Data 7
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
7.a. Quantitative & Qualitative Disclosures about Market Risk 7-8
8. Financial Statements and Supplementary Data 8
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 8
PART III
10. Directors and Executive Officers of the Registrant 8
11. Executive Compensation 8
12. Security Ownership of Certain Beneficial Owners
and Management 9
13. Certain Relationships and Related Transactions 9
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 9-10
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, is a state-of-the-art electronic backbone utilized for
many of our services with the main lines of this network following the
Interstate-81 corridor and the Interstate-66 corridor in Western Virginia.
Secondary routes supporting redundant coverage of the network are built
over differing routes to provide alternate
2
routing in the event of an outage. The Company is certified to offer
competitive local exchange services in portions of Virginia that are
outside of the present telephone service area. The Company has
approximately 250 employees and operates nine reporting segments based on
the products and services provided by the holding 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. The Company
provides personal communications service (PCS) and is licensed to use the
Sprint brand name in the territory from Harrisonburg, Virginia to
Harrisburg, York and Altoona, Pennsylvania. The Company operates its PCS
network under the Sprint radio spectrum license. 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 VeriSign, Inc. , The Burton Partnership (QP), LP (Burton), Dolphin
Communications Parallel Fund, LP (Dolphin), Dolphin Communications Fund II,
LP (Dolphin II), South Atlantic Venture Fund III (SAVF III), South Atlantic
Private Equity IV LP (SAPE IV), and NTC Communications, L.L.C., (NTC).
VeriSign, Inc. is a publicly traded company offering digital trust services
that enables Internet users to engage in commerce with privacy. The company
has three core offerings, Web identity, authentication and payment
services, powered by a global infrastructure that manages more than five
billion network connections and transactions a day. Burton invests in a
combination of small capitalization public companies and privately owned
emerging growth companies. Dolphin, Dolphin II, SAVF III, and SAPE IV are
venture capital funds that invest in startup companies, a large number of
which are telecommunications firms. NTC is a limited liability company that
provides bundled telecommunication services primarily to multi-unit housing
properties near college and university campuses.
Shenandoah Telephone Company
This subsidiary provides both regulated and non-regulated telephone
services to approximately 25,000 customers, primarily in Shenandoah County
and small service areas in Rockingham, Frederick, and Warren counties in
Virginia. This subsidiary provides access to the local exchange network by
inter-exchange 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 from Johnson City, Tennessee to Carlisle,
Pennsylvania.
Shenandoah Cable Television Company
This subsidiary provides coaxial-based cable television service to
approximately 9,000 customers in Shenandoah County. The
3
company rebuilt and expanded the system to a state-of-the art hybrid fiber
coaxial network, which 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. The network up-grade, including new headend equipment
installed in 2001 have contributed to better service to the cable
customers. Digital program offerings along with pay per view options are
value added options available to the network customers.
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 has approximately 17,000 customers.
This subsidiary offers broadband Internet access via ADSL technology.
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. Additionally, this subsidiary
provides tower service in the PCS service territory mentioned below. 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, and has approximately 9,000
customers.
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. This subsidiary has approximately 9,000 customers.
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.
4
During the fourth quarter of 1999 our PCS subsidiary executed a management
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
build-out 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. In
December 2001, the Altoona, Pennsylvania market was activated bringing the
total population served to approximately 1,395,000. Additionally, the
network covers 233 miles of Interstates 81 and 83, and provides coverage on
a 126 mile stretch of the Pennsylvania Turnpike between Pittsburgh and
Philadelphia. There were approximately 49,000 PCS customers at year-end.
Additional detail on the operating segments is referenced in Note 14 of the
Company's Consolidated Financial Statements in the 2001 Annual Report to
security holders.
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 which was initially used
for storage and limited office space. Renovations are currently underway to
convert a portion of the building into additional office space and meeting
facilities. 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.
5
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, 2001.
ITEM 4A. EXECUTIVE OFFICERS
Name Title Age Date In Position
Christopher E. French President 44 April 1988
David E. Ferguson Vice President of
Customer Service 55 November 1982
David K. MacDonald Vice President of
Engineering and
Construction 47 December 1999
Laurence F. Paxton Vice President of
Finance 49 June 1991
William L. Pirtle Vice President of Personal
Communications Services 42 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 -
2001 Annual Report to Security Holders Market Information - Inside
Front Cover
6
(b) Number of equity security holders are incorporated by reference -
2001 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 -
2001 Annual Report to Security Holders Market and Dividend Information
- Page 3
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 $321,000 of retained earnings was available for payment
of dividends at December 31, 2001.
For additional information, see Note 4 in the Consolidated Financial
Statements in the 2001 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 -
2001 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 -
2001 Annual Report to Security Holders Management's Discussion and
Analysis of Financial Condition and Results of Operations - Pages
36-44
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risks relate primarily to changes in interest rates, on
instruments held for other than trading purposes. Our interest rate
risk involves two components. The first component is outstanding debt
with variable rates. At December 31, 2001, the balance of the
Company's variable rate debt was $6.2 million, made up of a single
traunch of the revolving note payable to CoBank, which matures on June
1, 2002. The rate of this note is based upon the lender's cost of
funds. The Company also has a variable rate line of credit totaling
$2.0 million that had no outstanding borrowings at December 31, 2001.
The Company's remaining debt has fixed rates through its maturity. A
10% decline in interest rates would increase the fair value of the
fixed rate debt by approximately $1.8 million, while the current
8
fair value of the fixed rate debt is approximately $57.1 million. At
present, the Company has no plans to enter into hedging arrangements
with respect to our borrowings.
The second component of market risk is temporary excess cash,
primarily invested in overnight repurchase agreements and short- term
certificates of deposit. As the Company continues to expand its
operations, temporary excess cash is expected to be minimal. Available
cash will be used to repay existing and anticipated new debt
obligations, maintaining and upgrading capital equipment, ongoing
operations expenses, investment opportunities in new and emerging
technologies, and potential dividends to the Company's shareholders.
Management does not view market risk as having a significant impact on
the Company's results of operations, although adverse results could be
generated if interest rates were to escalate markedly.
Due to the significant investment in VeriSign stock, the Company has
an equity price risk related to the investment. As of December 31,
2001, the stock closing price was $38.04 per share, while the range of
closing prices during the time the shares were held (December 12, 2001
through December 31, 2001) was a high of $42.75 per share and a low of
$37.94 per share. Through February 15, 2002, the closing price varied
from $38.06 per share to $23.93 per share. As a result of the
significant swings in value of this security, the equity price risk to
the Company is a risk that is notable, and may impact financial
results when and if the stock is sold.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements included in the 2001 Annual Report
to Security Holders are incorporated by reference as identified in
Part IV, Item 14, on Pages 10-35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and is incorporated by reference -
Proxy Statement, Dated March 22, 2002 - Pages 2 - 7
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 22, 2002 - Pages 4 - 7
8
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 22, 2002 Stock
Ownership - Page 3
(b) Security ownership by management is incorporated by reference -
Proxy Statement, Dated March 22, 2002
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 22, 2002
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 Reports on 2001, 2000, and 1999
Financial Statements 10-11
Consolidated Balance Sheets at
December 31, 2001, 2000, and 1999 12-13
9
PART IV (Continued)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
Consolidated Statements of Income for the Years Ended
December 31, 2001, 2000, and 1999 14
Consolidated Statement of Shareholders' Equity and
Comprehensive Income(Loss) Years Ended December 31, 2001,
2000, and 1999 15
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000, and 1999 16-17
Notes to Consolidated Financial Statements 18-35
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. Independent Auditor's Consent; McGladrey & Pullen, LLP
23. Consent of Independent Auditors; KPMG, LLP
B. Reports on Form 8-K
There was one Form 8-K filed for the three months ended
December 31, 2001. It was filed on October 26, 2001.
10
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 28, 2002 By: /s/ CHRISTOPHER E. FRENCH
Christopher E. French, President
11
PART IV (Continued)
SIGNATURES
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.
/s/CHRISTOPHER E. FRENCH President & Chief Executive Officer
March 28, 2002
Christopher E. French
/s/NOEL M. BORDEN Vice President & Director
March 22, 2002
Noel M. Borden
/s/LAURENCE F. PAXTON VP- Finance & Principal Financial
March 22, 2002
Accounting Officer
Laurence F. Paxton
/s/HAROLD MORRISON, JR. Secretary & Director
March 26, 2002
Harold Morrison, Jr.
/s/DICK D. BOWMAN Treasurer & Director
March 22, 2002
Dick D. Bowman
/s/DOUGLAS C. ARTHUR Director
March 25, 2002
Douglas C. Arthur
/s/KEN L BURCH Director
March 22, 2002
Ken L. Burch
/s/GROVER M. HOLLER, JR. Director
March 25, 2002
Grover M. Holler, Jr.
/s/JAMES E. ZERKEL II Director
March 26, 2002
James E. Zerkel II
12