SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statement will be effective for the Company on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The Company currently does not have any financial instruments that are within the scope of this Statement. for instruments entered into or modified after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the In December 2003, the Financial Accounting Standards Board issued FASB Statement No. 132(R). Statement No. 132(R) is a revision of Statement No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” SFAS 132(R) is effective for financial statements with fiscal years ending after December 15, 2003. SFAS 132(R) requires additional disclosures including information describing the types of plan assets, investment strategy, measurement date(s), plan obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. The objectives of the revisions are to provide qualitative information about the items in the financial statements, quantitative information about items recognized or disclosed in the financial statements, information that enables users of financial statements to assess the effect that pension plans and other postretirement benefit plans have on entities’ results of operations, and information to fac ilitate assessments of future earnings and cash flows. The Company has adopted this statement effective December 31, 2003 with disclosures included in Note 9. The Company is one of eleven PCS Affiliates of Sprint, and accordingly, is impacted by decisions and requirements adopted by Sprint in regard to its wireless operation. Management continually reviews its relationship with Sprint as new developments and requirements are added. Note 7 to the accompanying consolidated financial statements contains a detailed description of the significant contractual relationship. The Company is dependent on Sprint for the reporting of a significant majority of PCS revenues, particularly travel and service revenue. Controls and processes are continually refined, so the Company can monitor, review, test, and validate information being reported to the Company by Sprint. It is the Company’s policy to estimate and 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 and as noted in these financial statements, there are several dispute settlements, true-ups of estimates and corrections which are recorded in the period the issue has been resolved. The Company is at risk for reporting errors that may be made by Sprint. The net balance of PCS travel revenue and expense could change significantly due to changes in service plan offerings, changes in the travel settlement rate, changes in travel habits by the subscribers in the Company’s market areas or other Sprint subscribers and numerous other factors beyond the Company’s control. The Company is continuing to monitor the financial strength of the other PCS Affiliates of Sprint, as to their ability to maintain their segment of the Sprint network may impact the ability of the Company to add new subscribers. Two other Sprint PCS Affiliates are currently operating under bankruptcy protection. Wireless Local Number Portability (WLNP) permits a subscriber to change wireless service providers in the same market area while retaining their existing telephone number. This Federal Communications Commission mandate was effective November 24, 2003 in the 100 largest metropolitan areas and will be effective in all areas of the United States on May 24, 2004. Although the initial impact of WLNP appears to be insignificant, there may be a significant future impact to the Company’s operation. As a result of WLNP, portions of the PCS subscriber base may migrate to other wireless providers, thereby contributing to increased churn. Alternatively, the implementation of WLNP may allow the Company to attract additional subscribers from other wireless providers. The Company has limited control over the service plans and marketing promotions offered to Sprint customers in the competitive wireless telecommunications industry. Sprint controls the marketing plans, advertising message and market promotions offered in the Company’s market area. As a result, the plans and promotions offered may have a material adverse effect on the Company’s results of operations. The Company relies on Sprint for the development of new products and services to remain competitive in the wireless industry. Examples of these services are text messaging, video, and push to talk walkie-talkie features. If these services do not work properly or if Sprint should not continue to develop new competitive products, the results could have a material adverse impact on the results of the Company. The Company is required to participate in national and regional third party distribution programs formulated and negotiated by Sprint. Sprint has entered into reseller agreements which may impact the Company. These distribution and reseller programs may have an adverse effect on the results of the Company. SHENANDOAH TELECOMMUNICATIONS COMPANY ■  54 RISKS