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, 2002
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 offices) (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. |_|
Indicate by check mark whether the registration is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |X|
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of June 28, 2002. $175,553,414. (In determining this figure, the
registrant has assumed that all of its officers and directors are affiliates.
Such assumption shall not be deemed to be conclusive for any other purpose.) The
value of the Company's stock has been determined based upon the closing price of
such stock on the NASDAQ National Market on March 14, 2003. The Company's stock
is traded on the NASDAQ National Market, under the symbol "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 14, 2003
Common Stock, No Par Value 3,785,913
Documents Incorporated by Reference
2002 Annual Report to Security Holders Parts II, IV
Proxy Statement, Dated March 21, 2003, Part III
EXHIBIT INDEX PAGE 23
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SHENANDOAH TELECOMMUNICATIONS COMPANY
Item Page
Number Number
PART I
1. Business 3-17
2. Properties 17-18
3. Legal Proceedings 18
4. Submission of Matters to a Vote of Security Holders 18
PART II
5. Market for the Registrant's Common Stock and
Related Stockholder Matters 18
6. Selected Financial Data 18-19
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
7.A. Quantitative and Qualitative Disclosures about Market Risk 19
8. Financial Statements and Supplementary Data 20
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 20
PART III
10. Directors and Executive Officers of the Registrant 21
11. Executive Compensation 21
12. Security Ownership of Certain Beneficial Owners
and Management 21-22
13. Certain Relationships and Related Transactions 22
14. Controls and Procedures 22-23
PART IV
15. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 23-35
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PART I
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 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 the Harrisburg and Altoona, Pennsylvania
markets, 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 the north western part of
Virginia. Secondary routes providing redundant capacity are built over
differing routes to provide alternate 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 268 employees and operates ten 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, with the exception of the traditional retail
seasonality in the retail sale of wireless handsets and services in the
November and December months.
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.
In November 2002, the Company entered into an agreement to sell its 66%
general partner interest in the Virginia 10 RSA Limited Partnership
(cellular operation) to Verizon Wireless for $37.0 million. The
partnership interest was owned by our Mobile company subsidiary. The
closing of the sale took place at the close of business on February 28,
2003. The total proceeds received were $38.7 million, including $5.0
million held in escrow, and a $1.7 million adjustment for estimated
working capital at the time of closing. There will be a post closing
adjustment based on the actual working capital balance as of the closing
date. The
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$5.0 million escrow was established for any contingencies and
indemnification issues that may arise during the two-year post-closing
period. The Company's net after tax gain on the total transaction will be
approximately $22 million, which will be recognized in the first quarter
of 2003. As set forth in the Company's financial statements appearing in
the Company's 2002 Annual Report, the operating results of the partnership
are reflected in discontinued operations for all periods presented.
Shenandoah Telecommunications Company
The Holding Company invests in both affiliated and non-affiliated
companies. The Company's largest investments in non-affiliated companies
are CoBank, 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). CoBank is the Company's primary lender, and therefore the Company
is required to own some of CoBank's stock. The growth of this investment
is the result of distributions declared by CoBank, which will be received
by the Company in the future. 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 24,900 customers, primarily in Shenandoah County
and small service areas in Rockingham, Frederick, and Warren counties in
Virginia. This subsidiary provides access for inter-exchange carriers to
the local exchange network. In addition, this subsidiary offers facility
leases of fiber optic capacity in surrounding counties, and into Herndon,
Virginia. The telephone subsidiary has a 20 percent ownership in
ValleyNet, which is a partnership offering fiber network facility capacity
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 8,700 customers in Shenandoah County. The 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. Digital program offerings along with pay per view
options are value added options available to the network customers.
ShenTel Service Company (ShenTel)
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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
18,700 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.
Shenandoah Mobile Company was the managing partner and 66% owner of the
Virginia 10 RSA Limited Partnership, and provided cellular service in the
Northern Shenandoah Valley of Virginia. The cellular service was marketed
under the Shenandoah Cellular name through retail stores in Winchester and
Front Royal, Virginia, and had approximately 6,500 customers. On November
21, 2002, the Company along with Shenandoah Mobile Company, entered into
an agreement to sell its 66% general partnership interest in the Virginia
10 partnership. The closing of the sale took place at the close of
business on February 28, 2003. In the Company's 2002 Annual Report, the
operating results of the partnership are reflected in discontinued
operations for all periods presented.
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 9,300 customers at December
31, 2002.
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.
ShenTel Communications Company
This subsidiary began offering DSL service to a target market in early
2002, outside the Company's regulated service area. The Company is
operating this subsidiary as a Competitive Local Exchange Carrier (CLEC).
With the recent rulings by the Federal Communications Commission (FCC) the
long-term viability of this subsidiary is questionable, as the ability to
lease unbundled facilities from the local provider may be prohibited.
Currently there are minimal subscribers receiving service from this
company.
Shenandoah Personal Communications Company
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This subsidiary began offering personal communications services (PCS)
through a digital wireless telephone and data service in 1995. 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 a management agreement with Sprint, 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 covered
population served to approximately 1,600,000. Additionally, the network
covers 233 miles of Interstates 81 and 83, and provides coverage on a
126-mile section of the Pennsylvania Turnpike between Pittsburgh and
Philadelphia. There were approximately 67,800 PCS customers at December
31, 2002.
Additional detail on the operating segments is referenced in Note 14 of
the Company's Consolidated Financial Statements in the 2002 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 in the 2002 Annual Report.
The Company has no research and development expenses.
RISK FACTORS
Our business and our prospects are subject to many risks. The following
items are representative of the risks, uncertainties and assumptions that
could affect our business, our future performance, our liquidity and the
outcome of the forward-looking statements we make. In addition, our
business, our future performance, our liquidity and forward-looking
statements could be affected by general industry and market conditions and
growth rates, general economic and political conditions, including the
global economy and other future events, including those described below
and elsewhere in this annual report on Form 10-K.
Risks Related to Our PCS Business
Our PCS business is the largest of our operating subsidiaries in terms of
revenues and assets.
6
The Company faces many risks associated with this substantial business.
The Company relies on Sprint's ongoing operations as the basis for its
ability to continue to offer its PCS subscribers seamless national
services that are currently provided. Given the magnitude of the
relationship, any interruption in Sprint's business could adversely impact
the Company's results of operations, liquidity and financial condition.
Our revenues may be less than we anticipate, which could materially
adversely affect our liquidity, financial condition and results of
operations.
Revenue growth is primarily dependent on the size of our subscriber base,
average monthly revenues per user and travel and roaming revenue. During
the year ended December 31, 2002, we experienced slower net subscriber
growth rates than planned. This was due to increased churn, declining
rates of wireless subscriber growth in general, the re-establishment of
deposits for most sub-prime credit subscribers from late April on through
the remainder of the year, the overall economic slowdown, and increased
competition. Other carriers also have reported slower subscriber growth
rates compared to prior periods. We have seen a continuation of
competitive pressures in the wireless telecommunications market causing
some major carriers to offer plans with increasingly larger bundles of
minutes of use at lower prices which may compete with the Sprint wireless
calling plans we support. Increased price competition may lead to lower
average monthly revenues per user than we anticipate. In addition, the
lower reciprocal roaming rate that Sprint instituted for 2003 will reduce
our travel revenue, while the Company's travel expense may not follow the
same trend, depending on our subscribers' travel usage outside our network
area. If our revenues are less than we anticipate, it could impact our
liquidity, financial condition and results of operation.
Our operating costs may be higher than we anticipate which could
materially adversely affect our liquidity, financial condition and results
of operations.
Increased competition may lead to higher promotional costs, losses on
sales of handsets and other costs to acquire subscribers. Further, as
described below under "Risks Related to Our Relationship With Sprint," a
substantial portion of costs of service and roaming are attributable to
fees and charges we pay to Sprint for billing and collections, customer
care and other back-office support. Our ability to manage costs charged by
Sprint is limited. If these costs are more than we anticipate, the actual
amount of funds to implement our strategy and business plan may exceed our
estimates, which could have a material adverse affect on our liquidity,
financial condition and results of operations.
The dynamic nature of the wireless market may limit management's ability
to quickly discern causes of volatility in key operating metrics.
Our business plan and estimated future operating results are based on
estimates of key operating metrics, including subscriber
7
growth, subscriber churn, average monthly revenue per subscriber, losses
on sales of handsets and other subscriber acquisitions costs and other
operating costs. The dynamic nature of the wireless market, the current
economic slowdown, increased competition in the wireless
telecommunications industry, new service offerings of increasingly larger
bundles of minutes of use at lower prices by some major carriers, and
other issues facing the wireless telecommunications industry in general
have created a level of uncertainty that may adversely affect our ability
to predict these key operating metrics.
We may continue to experience a high rate of subscriber turnover, which
could adversely affect our financial performance in the future.
The wireless personal communications services industry in general, and
Sprint and its PCS affiliates in particular, have experienced a higher
rate of subscriber turnover, commonly known as churn, as compared to the
cellular industry averages. This churn rate has been driven higher over
the past year due to the no deposit account spending limit (NDASL) and
Clear Pay programs and the removal of deposit requirements as described
elsewhere in this report. Our business plan assumes that churn will
decline and stabilize over the course of 2003, under existing operating
conditions. Due to significant competition in our industry and general
economic conditions, among other things, this decline may not occur and
our future rate of subscriber turnover may be higher than our historical
rate. Factors that may contribute to higher churn include:
o inability or unwillingness of subscribers to pay, which
results in involuntary deactivations;
o subscriber mix and credit class, particularly sub-prime credit
subscribers;
o competition of products, services and pricing of other
providers;
o network performance and coverage relative to our competitors
in our service area;
o customer service;
o increased prices; and,
o any future changes by Sprint and/or the Company in the
products and services we offer, especially as it relates to
sub-prime credit customers.
A high rate of subscriber turnover could adversely affect our competitive
position, liquidity, financial position, results of operations and our
costs of, or losses incurred in, obtaining new subscribers, especially
because we subsidize some of the costs of initial purchases of handsets by
subscribers.
Our allowance for doubtful accounts is an estimate and may not be
sufficient to cover uncollectible accounts.
8
On an ongoing basis, we estimate the amount of subscriber receivables that
we will not collect based on historical results and review of the
aggregate customer aging for each period. Our business plan assumes that
bad debt as a percentage of service revenues will decline during 2003. Our
allowance for doubtful accounts may underestimate actual unpaid
receivables for various reasons, including:
o our churn rate may exceed our estimates;
o bad debt as a percentage of service revenues may not decline
as we assume in our business plan;
o adverse changes in the economy; or,
o unanticipated changes in Sprint's wireless products and
services.
If our allowance for doubtful accounts is insufficient to cover losses on
our receivables, it could adversely affect our liquidity, financial
condition and results of operations.
Travel revenue could be less than anticipated, which could adversely
affect our liquidity, financial condition and results of operations.
The Company has been notified by Sprint that the travel rate has been
reduced from $0.10 per minute to $0.058 per minute for 2003. The amount of
travel revenue we receive also depends on the minutes of use of our
network by subscribers of Sprint and its PCS Affiliates. If actual usage
is less than we anticipate, our travel revenue would be less and our
liquidity, financial condition and results of operations could be
adversely affected.
The Company may incur significantly higher wireless handset subsidy costs
than we anticipate for existing subscribers who upgrade to a new handset.
As the Company's subscriber base matures, and technological innovations
occur, more existing subscribers will begin to upgrade to new wireless
handsets. The Company subsidizes a portion of the price of wireless
handsets and incurs sales commissions, even for handset upgrades. If more
subscribers upgrade to new wireless handsets than the Company projects,
its results of operations would be adversely affected.
If we lose the right to install our equipment on certain wireless towers
or are unable to renew expiring leases, our financial condition and
results of operations could be adversely impacted.
Many of our cell sites are co-located on leased tower facilities shared
with one or more wireless providers. A few tower companies own a large
portion of these leased tower sites. If economic conditions affect the
leasing company, the Company's lease may be impacted and the ability to
remain on the tower could be jeopardized, which could leave areas of the
Company's service area without service, and therefore our financial
condition and results of operations could be materially and adversely
affected.
9
Risks Related to the Telecommunications Industry
With the enactment of the Telecommunications act in 1996, competition in
all segments of the business is a potential risk to the Company.
As new technologies are developed and deployed by competitors through the
Company's service area, there is the potential that subscribers will elect
other providers' offerings, based on price, capabilities and personal
preferences. If significant numbers of the Company's subscribers elect to
move to other competing providers, it could prevent the Company from
operating profitably.
Competition is intense in the wireless communications industry.
Competition has caused, and we anticipate that competition will continue
to cause, the market prices for two-way wireless products and services to
decline in the future. Our ability to compete will depend, in part, on our
ability to anticipate and respond to various competitive factors affecting
the telecommunications industry as a whole, and the wireless industry
specifically.
Our dependence on Sprint to develop competitive products and services in
the PCS segment may limit our ability to keep pace with competitors on the
introduction of new products, services and equipment.
Most of our competitors are larger than us, possess greater resources and
have more extensive coverage areas, and may also market other services
too. There has been a recent trend in the industry towards consolidation
of wireless service providers through joint ventures, reorganizations and
acquisitions. We expect this consolidation to lead to larger competitors
over time. We may be unable to compete successfully with larger companies
that have substantially greater resources or that offer more services to
larger geographic area than we do.
Market saturation could limit or decrease our rate of new subscriber
additions, particularly in the wireless operation.
Intense competition in the wireless communications industry could cause
prices for wireless products and services to continue to decline. If
prices drop, then our rate of net subscriber additions will take on
greater significance to our financial condition and results of operations.
However, if the wireless penetration rates in our markets increase over
time, our rate of adding net subscribers could decrease. If this decrease
were to happen, it could adversely affect our liquidity, financial
condition and results of operations.
Alternative technologies, changes in the regulatory environment and
current uncertainties in the wireless market may reduce demand for
existing telecommunication services in the future.
The telecommunications industry is experiencing significant technological
change, as evidenced by the increasing pace of digital upgrades in
existing analog wireless systems, evolving
10
industry standards, ongoing improvements in the capacity and quality of
digital technology, shorter development cycles for new products and
enhancements and changes in end-user requirements and preferences.
Technological advances and industry changes could cause the technology
used on our networks to become obsolete. The Company and it vendors may
not be able to respond to such changes and implement new technology on a
timely basis, or at an acceptable cost.
If the Company and other companies that support the Company's operations
are unable to keep pace with these technological changes, the Company may
lose revenues, subscribers or both. This could be the result of changes in
the telecommunications market based on the effects of the
Telecommunications Act of 1996 or from the uncertainty of future
government regulation, the technology used on our networks, or our
business strategy, any of which may become obsolete.
A recession in the United States involving significantly lowered spending
could therefore negatively affect our results of operations.
We are both a consumer business and a provider of services to companies
with consumer businesses. Our subscriber bases are individual consumers
and businesses in a relatively concentrated geographic area, and our
accounts receivable represent unsecured credit. We believe a further
economic downturn could have an adverse affect on our operations. In the
event that the economic downturn that the United States and our markets
have recently experienced becomes more pronounced or lasts longer than
currently expected and spending by consumers drops significantly, our
business may be further negatively affected.
Regulation by government and taxing agencies may increase our costs of
providing service or require us to change our services, either of which
could impair our financial performance.
Our operations may be subject to varying degrees of regulation by the FCC,
the Federal Trade Commission, the Federal Aviation Administration, the
Environmental Protection Agency, the Occupational Safety and Health
Administration along with state and local regulatory agencies and
legislative bodies. Adverse decisions or regulation of these regulatory
bodies could negatively impact our operations and our costs of doing
business. For example, changes in tax laws or the interpretation of
existing tax laws by state and local authorities could subject us to
increased income, sales, gross receipts or other tax costs.
Media reports have suggested that certain radio frequency emissions from
wireless handsets may be linked to various health problems, including
cancer, and may interfere with various electronic medical devices,
including hearing aids and pacemakers. Concerns over radio frequency
emissions may discourage use of wireless handsets or expose us to
potential litigation. Any resulting decrease in demand for wireless
services, or costs of litigation and damage awards, could impair our
ability to achieve and sustain profitability.
Regulation by government or potential litigation relating to the use of
wireless phones while driving could adversely affect our
11
results of operations, liquidity and financial condition. Some studies
have indicated that some aspects of using wireless phones while driving
may impair drivers' attention in certain circumstances, making accidents
more likely. These concerns could lead to litigation relating to
accidents, deaths or serious bodily injuries, or to new restrictions or
regulations on wireless phone use, any of which also could have an adverse
effect on our results of operations. A number of U.S. states and local
governments are considering or have recently enacted legislation that
would restrict or prohibit the use of a wireless handset while driving a
vehicle or, alternatively, require the use of a hands-free telephone.
Legislation of this sort, if enacted, could require wireless service
providers to supply to its subscribers hands-free enhanced services, such
as voice activated dialing and hands-free speaker phones and headsets, so
that they can keep generating revenue from their subscribers, who make
many of their calls while on the road. If we are unable to provide
hands-free services and products to our subscribers in a timely and
adequate fashion, the volume of wireless phone usage would likely
decrease, and our ability to generate revenues would suffer in the
wireless line of our business.
Risks Related to Our Relationship with Sprint
The termination of the Company's affiliation with Sprint would severely
restrict our ability to conduct our wireless business.
The Company does not own the licenses to operate its wireless network. The
ability of the Company to offer Sprint wireless products and services and
operate a PCS network is dependent on the Sprint agreements remaining in
effect and not being terminated. The Company's management agreement
automatically renews at the expiration of the 20-year initial term which
ends in 2019, for an additional 10-year period unless the Company is in
material default. Sprint can choose not to renew the management agreement
at the expiration of the ten-year renewal term or any subsequent ten-year
renewal term. In any event, the management agreement terminates in 50
years.
In addition, each of the agreements can be terminated for breach of any
material term, including, among others, marketing, build-out and network
operational requirements. Many of these requirements are extremely
technical and detailed in nature. In addition, many of these requirements
can be changed by Sprint with little notice. As a result, we may not
always be in compliance with all requirements of the Sprint agreements.
The Company is dependent on Sprint's ability to perform its obligations
under the Sprint agreements. The non-renewal or termination of any of the
Sprint agreements or the failure of Sprint to perform its obligations
under the Sprint agreements would severely restrict our ability to conduct
business in our PCS segment.
Sprint may make business decisions that are not in our best interests,
which may adversely affect our relationships with subscribers in our
territory, increase our expenses and/or decrease our revenues.
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Sprint, under the Sprint agreements, has a substantial amount of control
over the conduct of our PCS business. Accordingly, Sprint may make
decisions that adversely affect our PCS business, such as the following:
o Sprint could price its national plans based on its own
objectives and could set price levels or other terms that may
not be economically sufficient for our business;
o Sprint could develop products and services, such as a one-rate
plan where subscribers are not required to pay roaming
charges, or establish credit policies, such as an NDASL
program, which could adversely affect our results of
operations;
o Sprint could raise the costs to perform back office services
or maintain the costs above those expected, reduce levels of
services or otherwise seek to increase expenses and other
amounts charged;
o Sprint can seek to further reduce the reciprocal roaming rate
charged when Sprint's or PCS Affiliate's subscribers use our
network;
o Sprint could, subject to limitations under our Sprint
agreements, alter its network and technical requirements or
request that we build out additional areas within our
territories, which could result in increased equipment and
build-out costs; or,
o Sprint could make decisions that could adversely affect the
Sprint brand names, products or services; and Sprint could
decide not to renew the Sprint agreements or to no longer
perform its obligations, which would severely restrict our
ability to conduct business in our PCS segment.
The occurrence of any of the foregoing could adversely affect our
relationship with subscribers in our territories, increase our expenses
and/or decrease our revenues and have a material adverse affect on our
liquidity, financial condition and results of operation.
Our dependence on Sprint for services may limit our ability to reduce
costs, which could adversely affect our financial condition and results of
operations or may adversely affect our ability to predict our results of
operations.
A substantial portion of our cost of service and roaming is outside our
control. There can be no assurance that Sprint will lower its operating
costs, or, if these costs are lowered, that Sprint will pass along savings
to its PCS affiliates. If these costs are more than we anticipate in our
business plan, it could adversely affect our liquidity, financial
condition and results of operations and as noted below, our ability to
replace Sprint with lower cost providers may be limited.
Over the past year our growing dependence on Sprint has interjected a
greater degree of uncertainty to our business and financial planning.
Unanticipated expenses and reductions in revenue have
13
had and, if they occur in the future, will have a negative impact on our
liquidity and make it more difficult to reliably predict our future
performance.
In certain aspects of its relationship with Sprint, the Company, at times,
disagrees with the applicability of, or calculation approach and accuracy
of, Sprint supplied revenues and expenses. It is the Company's policy to
reflect the information supplied by Sprint in the financial statements in
the respective periods. Corrections, if any, are made no earlier than the
period in which the parties agree to the corrections.
Inaccuracies in data provided by Sprint could understate our expenses or
overstate our revenues and result in out-of-period adjustments that may
materially adversely affect our financial results.
Because Sprint provides billing and collection services for the Company,
Sprint remits a significant portion of our total revenues to us. As a
result, we rely on Sprint to provide accurate, timely and sufficient data
and information to properly record our revenues, expenses and accounts
receivables which underlie a substantial portion of our periodic financial
statements and other financial disclosures.
The Company and Sprint have previously discovered billing and other errors
or inaccuracies, which, while not material to Sprint, could be material to
the Company. If the Company is required in the future to make additional
adjustments or charges as a result of errors or inaccuracies in data
provided to us by Sprint, such adjustments or charges may have a material
adverse affect on our financial results in the period that the adjustments
or charges are made. We are subject to risks relating to Sprint's
provision of back office services, changes in products, services, plans
and programs.
The inability of Sprint to provide high quality back office services, or
our inability to use Sprints back office services and third-party vendors'
back office systems, could lead to subscriber dissatisfaction, increased
churn or otherwise increase our costs. We rely on Sprint's internal
support systems, including subscriber care, billing and back office
support. Our operations could be disrupted if Sprint is unable to provide
and expand its internal support systems in a high quality manner, or to
efficiently outsource those services and systems through third-party
vendors.
Changes in Sprint's PCS products and services may reduce subscriber
additions, increase subscriber turnover and decrease subscriber credit
quality. The competitiveness of Sprint's PCS products and services is a
key factor in our ability to attract and retain subscribers.
Certain Sprint pricing plans, promotions and programs may result in higher
levels of subscriber turnover and reduce the credit quality of our
subscriber base.
Sprint's roaming arrangements may not be competitive with other wireless
service providers, which may restrict our ability to attract and retain
subscribers and create other risks for us.
14
We rely on Sprint's roaming arrangements with other wireless service
providers for coverage in some areas where Sprint service is not yet
available. The risks related to these arrangements include:
o the quality of the service provided by another provider during
a roaming call may not approximate the quality of the service
provided by the Sprint PCS network;
o the price of a roaming call off our network may not be
competitive with prices of other wireless companies for
roaming calls;
o subscribers must end a call in progress and initiate a new
call when leaving the Sprint PCS network and entering another
wireless network;
o Sprint customers may not be able to use Sprint's advanced
features, such as voicemail notification, while roaming; and,
o Sprint or the carriers providing the service may not be able
to provide us with accurate billing information on a timely
basis.
If Sprint customers are not able to roam instantaneously or efficiently
onto other wireless networks, we may lose current subscribers and our
Sprint wireless services will be less attractive to new subscribers.
Certain provisions of the Sprint agreements may diminish the value of the
Company's common stock and restrict or diminish the value of the business.
Under limited circumstances, Sprint may purchase the operating assets of
the PCS operation at a discount. In addition, Sprint must approve any
assignment of their Sprint agreements. Sprint also has a right of first
refusal if the Company decides to sell its PCS operating assets to a
third-party. These restrictions and other restrictions contained in the
Sprint agreements could adversely affect the value of the Company's common
stock, may limit our ability to sell our business, may reduce the value a
buyer would be willing to pay for our business and may reduce the "entire
business value," as described in our Sprint agreements.
We may have difficulty in obtaining an adequate supply of certain handsets
from Sprint, which could adversely affect our results of operations.
We depend on our relationship with Sprint to obtain handsets. Sprint
orders handsets from various manufacturers. We could have difficulty
obtaining specific types of handsets in a timely manner if:
o Sprint does not adequately project the need for handsets for
itself, its PCS affiliates and its other third-party
distribution channels, particularly in transition to new
technologies;
15
o Sprint gives preference to other distribution channels;
o we do not adequately project our need for handsets;
o Sprint modifies its handset logistics and delivery plan in a
manner that restricts or delays our access to handsets; or,
o there is an adverse development in the relationship between
Sprint and its suppliers or vendors.
The occurrence of any of the foregoing could disrupt our subscriber
service and/or result in a decrease in our subscribers, which could
adversely affect our results of operations.
If Sprint does not complete the construction of its nationwide digital
wireless network, we may not be able to attract and retain subscribers.
Sprint currently intends to cover a significant portion of the population
of the United States, Puerto Rico and the U.S. Virgin Islands by creating
a nationwide network through its own construction efforts and those of its
PCS Affiliates. Sprint is still constructing its nationwide network and
does not offer PCS services, either on its own network or through its
roaming agreements, in every city in the United States. Sprint has entered
into management agreements similar to ours with companies in other markets
under its nationwide digital wireless build-out strategy. Our results of
operations are dependent on Sprint's national network and, to a lesser
extent, on the networks of Sprint's affiliates. Sprint's digital wireless
network may not provide nationwide coverage to the same extent as its
competitors, which could adversely affect our ability to attract and
retain subscribers.
If other Sprint Affiliates have financial difficulties, the Affiliate's
network could be disrupted.
Sprint's national digital wireless network is a combination of networks.
The large metropolitan areas are owned and operated by Sprint, and the
areas in between them are owned and operated by Sprint PCS Affiliates, all
of which are independent companies like we are. We believe that most, if
not all, of these companies have incurred substantial debt to fund the
large cost of building out their networks.
If other PCS Affiliates experience financial difficulties, Sprint's
digital wireless network could be disrupted. If Sprint's agreements with
those PCS Affiliates are similar to ours, Sprint would have the right to
step in and operate the network in the affected territory. In such event,
there can be no assurance that Sprint could transition in a timely and
seamless manner.
Non-renewal or revocation by the Federal Communications Commission (FCC)
of Sprint's PCS licenses would significantly harm our business. PCS
licenses are subject to renewal and revocation by the FCC. There may be
opposition to renewal of Sprint's PCS licenses upon their expiration, and
Sprint's PCS
16
licenses may not be renewed. The FCC has adopted specific standards to
apply to PCS license renewals. Any failure by Sprint or us to comply with
these standards could cause revocation or forfeiture of Sprint's PCS
licenses for our markets. If Sprint loses any of its licenses in our
market, we would be severely restricted in our ability to conduct
business.
If Sprint does not maintain control over its licensed spectrum, the Sprint
agreements may be terminated, which would result in our inability to
provide service to our subscribers.
EXECUTIVE OFFICERS
The following table presents information about our executive officers who
are not directors.
Name Title Age Date In Position
Christopher E. French President 45 April 1988
David E. Ferguson Vice President of
Customer Service 56 November 1982
David K. MacDonald Vice President of
Engineering and
Construction 48 December 1999
Laurence F. Paxton Vice President of
Finance, Secretary
and Treasurer 50 June 1991
William L. Pirtle Vice President of
Personal
Communications
Services 42 November 1992
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. 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 building in Winchester, Virginia used for retail
sales and office space. The Company has fiber optic hubs or points of
presence in Hagerstown, Maryland; Front Royal, Harrisonburg, Herndon,
Leesburg, Stephens City, Warrenton and Winchester, Virginia; and
Martinsburg, West Virginia. The buildings are a mixture of owned on leased
land, leased space,
17
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, 2002.
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 to the following:
2002 Annual Report to Security Holders Market Information - Inside
Front Cover
(b) Number of equity security holders is incorporated by reference to
the following:
2002 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
to the following:
2002 Annual Report to Security Holders Market and Dividend
Information - Page 3
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. Approximately $1,150,000 of the
Telephone subsidiary's retained earnings was available for payment
of dividends at December 31, 2002.
For additional information, see Note 5 in the Consolidated Financial
Statements in the 2002 Annual Report to Security Holders, which is
incorporated as a part of this report.
18
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary of Selected Financial Data is incorporated by reference
to the following:
2002 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 to the following:
2002 Annual Report to Security Holders Management's Discussion and
Analysis of Financial Condition and Results of Operations - Pages 44-48
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risks relate primarily to changes in interest rates
on instruments held for other than trading purposes. Our interest rate
risk involves two components. The first component is outstanding debt with
variable rates. As of December 31, 2002, the balance of the Company's
variable rate debt was $3.5 million, primarily made up of a $3.2 million
balance on the revolving note payable to CoBank, which matures November 1,
2003. 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 $2.5 million with
SunTrust Banks, with $0.3 million outstanding at December 31, 2002. The
Company's remaining debt has fixed rates through its maturity. A 10.0%
decline in interest rates would increase the fair value of the fixed rate
debt by approximately $1.6 million, while the current fair value of the
fixed rate debt is approximately $51.1 million.
The second component of interest rate risk is temporary excess cash,
primarily invested in overnight repurchase agreements and short-term
certificates of deposit. 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. With the Company's sale of its cellular partnership interest
in late February 2003 and the proceeds from the sale, interest rate risk
for its excess cash has increased. Due to the recent date of the
transaction, the cash is currently in short-term investment vehicles that
have limited interest rate risk. Management is evaluating the most
beneficial use of the cash from this transaction.
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. Since the Company
liquidated its significant investments in stock during 2002, currently
there is limited risk related to the Company's available for sale
19
securities. General economic conditions impacted by regulatory changes,
competition or other external influences may play a higher risk to the
Company's overall results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements included in the 2002 Annual Report to
Security Holders are incorporated by reference as identified in Part IV,
Item 14, on Pages 10-36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 11, 2002, the Company's Board of Directors voted to engage the
accounting firm of KPMG LLP as the principal accountant to audit the
Company's financial statements for the fiscal year ending December 31,
2002. On March 12, 2001, the Company's Board of Directors voted to engage
the accounting firm of KPMG LLP as the principal accountant to audit the
Company's financial statements for the fiscal year ending December 31,
2001, to replace the firm of McGladrey & Pullen, LLP, the principal
accountant engaged to audit the Company's financial statements as of
December 31, 2000, and for each of the years in the three year period
ended December 31, 2000.
The Company conducted a competitive proposal process to select the
independent public accountant to audit the Company's financial statements
for the fiscal year ending December 31, 2001. The Company's Audit
Committee received bids from several independent public accounting firms
including McGladrey & Pullen, LLP. After reviewing the proposals, the
Company's Audit Committee selected KPMG LLP, and the Company's Board of
Directors approved this selection on March 12, 2001. McGladrey & Pullen,
LLP did not resign or decline to stand for reelection. The Company
decided, following the competitive proposal process, not to retain
McGladrey & Pullen, LLP with respect to the audit of the Company's
financial statements for periods beginning with the fiscal year ending
December 31, 2001 and thereafter. McGladrey & Pullen, LLP's reports on the
financial statements as of December 31, 2000, and for each of the years in
the three year period ended December 31, 2000, contained no adverse
opinion or disclaimer of opinion and were not qualified as to uncertainty,
audit scope or accounting principles. In connection with the audits of the
three fiscal years ended December 31, 2000 and through the subsequent
interim period preceding the engagement of KPMG LLP, there were no
disagreements with McGladrey & Pullen, LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope
or procedures, which disagreements if not resolved to their satisfaction
would have caused them to make reference in connection with their reports
on the financial statements to the subject matter of the disagreement.
20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and executive officers is incorporated by
reference -
Proxy Statement, Dated March 21, 2003 - Pages 2 - 8
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 21, 2003 - Pages 5 - 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 21, 2003
Stock Ownership - Page 4
(b) Security ownership by management is incorporated by reference -
Proxy Statement, Dated March 21, 2003
Stock Ownership - Page 4
(c) Contractual arrangements -
The Company knows of no contractual arrangements which may, at a
subsequent date, result in change of control of the Company.
(d) The following table sets forth the number of securities by equity
compensation plan, which have been authorized and issued by the
Company as of December 31, 2002. All securities issued reflected in
the table are under the Company Stock Incentive Plan discussed in
Note 10 in the 2002 Annual Report to Security Holders - Page 31.
21
Equity Compensation Plan Information
- -------------------------------------------------------------------------------------
Number of
securities
remaining
available for
future issuance
Weighted- average under equity
Number of securities to exercise price of compensation
be issued upon exercise outstanding plans (excluding
of outstanding options, options, warrants securities
warrants and rights and rights reflected in
column (a))
Plan Category (a) (b) (c)
- ----------------------- ----------------------- ----------------- ----------------
Equity compensation
plans approved by
security holders 74,852 $29.98 127,503
- ----------------------- ----------------------- ----------------- ----------------
Equity compensation
plans not approved by
security holders None None None
- ----------------------- ----------------------- ----------------- ----------------
Total 74,852 $29.98 127,503
- ----------------------- ----------------------- ----------------- ----------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships or transactions to disclose other than services
provided by directors. Information about such services is which are
incorporated by reference to the following:
Proxy Statement, Dated March 21, 2003
Directors - Page 5
ITEM 14. CONTROLS AND PROCEDURES
Within the 90 days prior to the filing date of this report, the Company
carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's
President and Chief Executive Officer and Vice President-Finance and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rule 13a-14 under
the Securities Exchange Act of 1934. Based upon that evaluation, the
Company's President and Chief Executive Officer and Vice President-Finance
and Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC
filings.
Since the date of the evaluation, there have been no significant changes
in the Company's internal controls or in other factors that could
significantly affect these controls.
22
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are incorporated by
reference to the Annual Report to Security Holders on the
pages noted.
Page
Reference
Annual
Report
Financial Statements
The following consolidated financial statements of
Shenandoah Telecommunications Company are
incorporated by reference in Part II, Item 8
Auditors' Reports on 2002, 2001, and 2000
Consolidated Financial Statements 10-11
Consolidated Balance Sheets at
December 31, 2002, 2001, and 2000 12-13
Consolidated Statements of Income for
the Years Ended December 31, 2002, 2001,
and 2000 14
Consolidated Statement of Shareholders' Equity and
Comprehensive Income(Loss)
Years Ended December 31, 2002, 2001, and 2000 15
Consolidated Statements of Cash Flows
for the Years Ended December 31, 2002, 2001,
and 2000 16-17
Notes to Consolidated Financial Statements 18-36
(a)(2) All Schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable and therefore have been omitted.
(a)(3) The following exhibits are either filed with this Form 10K or
incorporated herein by reference. Our Securities Exchange Act
file number is 0-9881.
13. Annual Report to Security Holders - Filed Herewith
21. List of Subsidiaries - Filed Herewith
23
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
23. Consent of Independent Accountants;
23.1 KPMG LLP
23.2 McGladrey & Pullen, LLP
Filed Herewith
(b). Reports on Form 8-K
There were three Form 8-Ks filed for the three months ended
December 31, 2002, as set forth below:
Filing Date of Report Item Reported
--------------------- -------------
October 22, 2002 Item 5 (press release announcing
third quarter results and an
increase in the annual dividend)
November 22, 2002 Item 5 (press release announcing
the agreement to sell the
Company's 66% interest in VA 10
RSA Limited Partnership)
November 25, 2002 Item 5 (filing of the sales
agreement for the sale of the
Company's 66% interest in VA 10
RSA Limited Partnership)
(c). Certifications
The Chief Executive Officer and the Chief Financial Officer
submitted certifications to the Securities and Exchange
Commission required by section 906 of the Sarbanes - Oxley Act
of 2002.
24
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, 2003 By: /s/ CHRISTOPHER E. FRENCH
Christopher E. French, President
25
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 31, 2003
Christopher E. French
/s/LAURENCE F. PAXTON VP- Finance & Principal Financial
March 31, 2003 Accounting Officer, Secretary, and
Laurence F. Paxton Treasurer
/s/DOUGLAS C. ARTHUR Director
March 31, 2003
Douglas C. Arthur
/s/NOEL M. BORDEN Director
March 31, 2003
Noel M. Borden
/s/DICK D. BOWMAN Director
March 31, 2003
Dick D. Bowman
/s/KEN L BURCH Director
March 31, 2003
Ken L. Burch
/s/GROVER M. HOLLER, JR. Director
March 31, 2003
Grover M. Holler, Jr.
/s/HAROLD MORRISON, JR. Director
March 31, 2003
Harold Morrison, Jr.
/s/ZANE NEFF Director
March 31, 2003
Zane Neff
/s/JAMES E. ZERKEL II Director
March 31, 2003
James E. Zerkel II
26
Exhibits Index
Exhibit
Number Exhibit Description
- ------- -------------------
4.1 Shenandoah Telecommunications Company Stock Incentive Plan filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-8 (No.
333-21733) and incorporated herein by reference.
4.2 Amended and Restated Articles of Incorporation of Shenandoah
Telecommunications Company filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-8 (No. 333-21733) and incorporated
herein by reference.
4.3 Bylaws of Shenandoah Telecommunications Company filed as Exhibit 4.3
to the Company's Registration Statement on Form S-8 (No. 333-21733)
and incorporated herein by reference.
4.4 Shenandoah Telecommunications Company Dividend Reinvestment Plan
filed as Exhibit 4.4 to the Company's Registration Statement on Form
S-3D (No. 333-74297) and incorporated herein by reference.
13 Annual Report to Security Holders, Filed Herewith.
21 List of Subsidiaries, Filed Herewith.
23.1 Consent of Independent Accountants; KPMG LLP, Filed Herewith.
23.2 Consent of Independent Accountants; McGladrey & Pullen, LLP, Filed
Herewith.
27
Certification
I, Christopher E. French, Chief Executive Officer of Shenandoah
Telecommunications Company certify that:
1. I have reviewed this annual report on Form 10-K of Shenandoah
Telecommunications Company;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
28
Certification
(continued)
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/S/CHRISTOPHER E. FRENCH, Chief Executive Officer
March 28, 2003
Christopher E. French
29
Certification
I, Laurence F. Paxton, Chief Financial Officer of Shenandoah Telecommunications
Company certify that:
1. I have reviewed this annual report on Form 10-K of Shenandoah
Telecommunications Company;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
6. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
30
Certification
(continued)
7. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/S/LAURENCE F. PAXTON, Chief Financial Officer
March 28, 2003
Laurence F. Paxton
31