SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS will be determined based on Sprint’s average revenue per PCS user for voice services divided by the average minutes of use per user. 5. Sprint and the Company will agree on a service level agreement related to the provision of customer services by December 2006. If Sprint does not reach the stated goals, the Company will have the opportunity to either provide the services itself or contract with a third party beginning in 2008. 6. Through 2006, a methodology is provided to determine if the Company is required to make certain capital expenditures and participate in Sprint Programs Requirements. 7. Effective January 1, 2004, the method of cash settlement provided for under the Agreement changed from Sprint distributing cash from customers based on collected revenue to billed revenue. The absolute amount of cash received by the Company should remain the same, but the Company should receive cash on a more timely basis. 8. The Company is entitled to a Most Favored Nations clause. During the period through 2006, the Company will have the opportunity to adopt any addendum to the Management and/or Service Agreements that Sprint signs with another PCS Affiliate. In May 2003, the Board of Directors of the Company adopted a nonqualified supplemental executive retirement plan (SERP) benefit for named executives. The plan was established to provide benefits beyond the pension plan that covers all employees. See Note 9 of the Consolidated Financial Statements for additional information. In November 2003, the Company commenced a management reorganization that will be ongoing into 2004. The reorganization was in recognition of the Company’s growth and changes in the telecom industry. The Company shifted from an organization structure that was focused on lines of business to a plan that organizes on function. The Company plans to expand the senior staff and corresponding departments as needed to better position itself for future opportunities. This reorganization did not require a charge to the operation, as there were no positions lost or values impaired as a result of the reorganization. On November 24, 2003, federal regulations went into effect whereby customers in the 100 largest metropolitan areas were able to change wireless carriers and keep their phone numbers. This is referred to as Wireless Local Number Portability (WLNP). On the same date in those markets, wireline customers could transfer their wireline number to a wireless phone. On May 24, 2004, Local Number Portability (LNP) will be available to wireless and wireline subscribers throughout the United States. To date, the impact of LNP/ WLNP on the Company has been insignificant. The Company’s three major lines of business are wireless, wireline and other businesses. Each of the three areas has unique issues and challenges that are critical to the understanding of the operations of the Company. The wireless business is made up of two different operations, the PCS operation and the tower business. The wireline business is made up of traditional telephone operations, a cable TV operation, fiber network leasing and a company that resells long-distance. Other business includes the Company’s Internet operation, the Interstate 81 corridor Travel 511 project and the sales and service of telecommunications systems. Summary The PCS operation must be understood within the context of the Company’s relationship with Sprint and its PCS Affiliates. The Company operates its PCS wireless network as an affiliate of Sprint. The Company receives revenues from Sprint for subscribers that obtain service in the Company’s network coverage area and those subscribers using the Company’s network when they travel. The Company relies on Sprint to provide timely, accurate and complete information for the Company to record the appropriate revenue and expenses for the periods reflected. The Company’s PCS business has operated in a net travel receivable position for several years. The Company received $6.0 million in net travel in 2003, compared to $5.8 million in 2002, and $4.0 million in 2001. This relationship could change due to service plan changes, subscriber travel habit changes and other changes beyond the control of the Company. SHENANDOAH TELECOMMUNICATIONS COMPANY ■  42