UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q

(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2014
 
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from__________ to __________

Commission File No.: 000-09881

SHENANDOAH TELECOMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)

VIRGINIA
 
54-1162807
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

500 Shentel Way, Edinburg, Virginia    22824
(Address of principal executive offices)  (Zip Code)

(540) 984-4141
(Registrant's telephone number, including area code)
 

 
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  þ   No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  þ   No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
   Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o   No þ
 
The number of shares of the registrant’s common stock outstanding on April 24, 2014 was 24,096,146.
 




SHENANDOAH TELECOMMUNICATIONS COMPANY
INDEX
 
 
 
Page
 
 
Numbers
 
 
 
PART I.
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
3-4
 
 
 
 
5
 
 
 
 
6
 
 
 
 
7-8
 
 
 
 
9-13
 
 
 
Item 2.
14-25
 
 
 
Item 3.
26
 
 
 
Item 4.
27
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
Item 1A.
28
 
 
 
Item 2.
28
 
 
 
Item 6.
29
 
 
 
 
30
 
 
 
 
31

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
ASSETS
 
March 31,
2014
   
December 31,
2013
 
 
 
   
 
Current Assets
 
   
 
Cash and cash equivalents
 
$
53,681
   
$
38,316
 
Accounts receivable, net
   
25,538
     
25,824
 
Income taxes receivable
   
7,745
     
16,576
 
Materials and supplies
   
8,577
     
10,715
 
Prepaid expenses and other
   
5,626
     
5,580
 
Deferred income taxes
   
1,169
     
963
 
Total current assets
   
102,336
     
97,974
 
 
               
Investments, including $2,544 and $2,528 carried at fair value
   
9,463
     
9,332
 
 
               
Property, plant and equipment, net
   
405,729
     
408,963
 
 
               
Other Assets
               
Intangible assets, net
   
69,991
     
70,816
 
Deferred charges and other assets, net
   
9,076
     
9,921
 
Net other assets
   
79,067
     
80,737
 
Total assets
 
$
596,595
   
$
597,006
 

See accompanying notes to unaudited condensed consolidated financial statements.

(Continued)

3

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

LIABILITIES AND SHAREHOLDERS' EQUITY
 
March 31,
2014
   
December 31,
2013
 
 
 
   
 
Current Liabilities
 
   
 
Current maturities of long-term debt
 
$
11,500
   
$
5,750
 
Accounts payable
   
5,727
     
12,604
 
Advanced billings and customer deposits
   
12,042
     
11,661
 
Accrued compensation
   
2,633
     
4,192
 
Accrued liabilities and other
   
9,242
     
9,787
 
Total current liabilities
   
41,144
     
43,994
 
 
               
Long-term debt, less current maturities
   
218,500
     
224,250
 
 
               
Other Long-Term Liabilities
               
Deferred income taxes
   
72,202
     
74,547
 
Deferred lease payable
   
6,393
     
6,156
 
Asset retirement obligations
   
6,611
     
6,485
 
Other liabilities
   
8,137
     
7,259
 
Total other liabilities
   
93,343
     
94,447
 
 
               
Commitments and Contingencies
               
 
               
Shareholders' Equity
               
Common stock
   
27,783
     
26,759
 
Accumulated other comprehensive income
   
2,247
     
2,594
 
Retained earnings
   
213,578
     
204,962
 
Total shareholders' equity
   
243,608
     
234,315
 
 
               
Total liabilities and shareholders' equity
 
$
596,595
   
$
597,006
 

See accompanying notes to unaudited condensed consolidated financial statements.

4

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
(in thousands, except per share amounts)

 
 
Three Months Ended
 March 31,
 
 
 
2014
   
2013
 
 
 
   
 
Operating revenues
 
$
80,452
   
$
76,010
 
 
               
Operating expenses:
               
Cost of goods and services, exclusive of depreciation and  amortization shown separately below
   
32,236
     
30,700
 
Selling, general and administrative, exclusive of depreciation and amortization shown separately below
   
17,149
     
16,129
 
Depreciation and amortization
   
15,387
     
13,972
 
Total operating expenses
   
64,772
     
60,801
 
Operating income
   
15,680
     
15,209
 
 
               
Other income (expense):
               
Interest expense
   
(2,048
)
   
(2,152
)
Gain (loss) on investments, net
   
(18
)
   
148
 
Non-operating income, net
   
628
     
520
 
Income before income taxes
   
14,242
     
13,725
 
 
               
Income tax expense
   
5,626
     
5,374
 
Net income
 
$
8,616
   
$
8,351
 
 
               
Other comprehensive income:
               
Unrealized gain (loss) on interest rate hedge, net of tax
   
(347
)
   
532
 
Comprehensive income
 
$
8,269
   
$
8,883
 
 
               
Earnings per share:
               
Basic and diluted earnings per share
 
$
0.36
   
$
0.35
 
 
               
Weighted average shares outstanding, basic
   
24,059
     
23,973
 
 
               
Weighted average shares, diluted
   
24,221
     
24,032
 

See accompanying notes to unaudited condensed consolidated financial statements.
5

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except per share amounts)

 
 
Shares
   
Common
Stock
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Total
 
Balance, December 31, 2012
   
23,962
   
$
24,688
   
$
184,023
   
$
(863
)
 
$
207,848
 
 
                                       
Net income
   
-
     
-
     
29,586
     
-
     
29,586
 
Other comprehensive income, net of tax
   
-
     
-
     
-
     
3,457
     
3,457
 
Dividends declared ($0.36 per share)
   
-
     
-
     
(8,647
)
   
-
     
(8,647
)
Dividends reinvested in common stock
   
20
     
475
     
-
     
-
     
475
 
Stock based compensation
   
-
     
1,938
     
-
     
-
     
1,938
 
Common stock issued through exercise of incentive stock options
   
66
     
1,186
     
-
     
-
     
1,186
 
Common stock issued for share awards
   
68
     
-
     
-
     
-
     
-
 
Common stock issued
   
1
     
10
     
-
     
-
     
10
 
Common stock repurchased
   
(77
)
   
(1,600
)
   
-
     
-
     
(1,600
)
Net excess tax benefit from stock options exercised
   
-
     
62
     
-
     
-
     
62
 
 
                                       
Balance, December 31, 2013
   
24,040
   
$
26,759
   
$
204,962
   
$
2,594
   
$
234,315
 
 
                                       
Net income
   
-
     
-
     
8,616
     
-
     
8,616
 
Other comprehensive loss, net of tax
   
-
     
-
     
-
     
(347
)
   
(347
)
Stock based compensation
   
-
     
1,147
     
-
     
-
     
1,147
 
Stock options exercised
   
50
     
1,110
     
-
     
-
     
1,110
 
Common stock issued for share awards
   
55
     
-
     
-
     
-
     
-
 
Common stock issued
   
1
     
2
     
-
     
-
     
2
 
Common stock repurchased
   
(50
)
   
(1,540
)
   
-
     
-
     
(1,540
)
Net excess tax benefit from stock options exercised
   
-
     
305
     
-
     
-
     
305
 
Balance, March 31, 2014
   
24,096
   
$
27,783
   
$
213,578
   
$
2,247
   
$
243,608
 

6

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 
 
Three Months Ended
March 31,
 
 
 
2014
   
2013
 
 
 
   
 
Cash Flows From Operating Activities
 
   
 
Net income
 
$
8,616
     
8,351
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
   
14,556
     
12,808
 
Amortization
   
831
     
1,164
 
Provision for bad debt
   
234
     
453
 
Stock based compensation expense
   
1,147
     
425
 
Excess tax benefits on stock awards
   
(305
)
   
(30
)
Deferred income taxes
   
(2,013
)
   
(1,394
)
Net (gain) loss on disposal of equipment
   
(425
)
   
100
 
Realized (gain) loss on disposal of investments
   
-
     
(3
)
Unrealized (gain) loss on investments
   
29
     
(93
)
Net gains from patronage and equity investments
   
(163
)
   
(171
)
Other
   
(12
)
   
696
 
Changes in assets and liabilities:
               
(Increase) decrease in:
               
Accounts receivable
   
52
     
230
 
Materials and supplies
   
2,138
     
2,603
 
Income taxes receivable
   
8,831
     
2,466
 
Increase (decrease) in:
               
Accounts payable
   
(384
)
   
(2,815
)
Deferred lease payable
   
237
     
318
 
Other prepaids, deferrals and accruals
   
(772
)
   
(2,399
)
 
               
Net cash provided by operating activities
 
$
32,597
   
$
22,709
 
 
               
Cash Flows from Investing Activities
               
Purchase and construction of property, plant, and equipment
   
(17,196
)
   
(26,024
)
Proceeds from sale of assets
   
-
     
25
 
Cash received from sales of equipment
   
84
     
128
 
Purchase of investment securities
   
-
     
(12
)
Proceeds from sale of investment securities
   
3
     
45
 
 
               
Net cash used in investing activities
 
$
(17,109
)
 
$
(25,838
)

(Continued)
7

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 
 
Three Months Ended
March 31,
 
 
 
2014
   
2013
 
 
 
   
 
Cash Flows From Financing Activities
 
   
 
Principal payments on long-term debt
 
$
-
   
$
(739
)
Excess tax benefits on stock awards
   
305
     
30
 
Repurchases of stock
   
(1,540
)
   
(155
)
Proceeds from sale of stock
   
1,112
     
2
 
 
               
Net cash used in financing activities
 
$
(123
)
 
$
(862
)
 
               
Net increase (decrease) in cash and cash equivalents
 
$
15,365
   
$
(3,991
)
 
               
Cash and cash equivalents:
               
Beginning
   
38,316
     
71,086
 
Ending
 
$
53,681
   
$
67,095
 
 
               
Supplemental Disclosures of Cash flow Information
               
Cash payments for:
               
 
               
Interest
 
$
1,954
   
$
2,171
 
 
               
Income taxes (refunded) paid, net
 
$
(1,192
)
 
$
4,302
 

During the first three months of 2013, the Company traded in certain PCS equipment and received credits of $3.2 million against the purchase price of new equipment.

At December 31, 2013, accounts payable included approximately $7.6 million associated with capital expenditures related to the Network Vision project.  These payables were disbursed during the three months ended March 31, 2014.

See accompanying notes to unaudited condensed consolidated financial statements.
8


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.  Basis of Presentation

The interim condensed consolidated financial statements of Shenandoah Telecommunications Company and Subsidiaries (collectively, the “Company”) are unaudited.  In the opinion of management, all adjustments necessary for a fair presentation of the interim results have been reflected therein.  All such adjustments were of a normal and recurring nature.  These statements should be read in conjunction with the consolidated financial statements and related notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.  The balance sheet information at December 31, 2013 was derived from the audited December 31, 2013 consolidated balance sheet.  Operating revenues and income from operations for any interim period are not necessarily indicative of results that may be expected for the entire year.

2.  Property, Plant and Equipment

Property, plant and equipment consisted of the following (in thousands):

 
 
March 31,
   
December 31,
 
 
 
2014
   
2013
 
Plant in service
 
$
654,586
   
$
633,480
 
Plant under construction
   
13,136
     
23,181
 
 
   
667,722
     
656,661
 
Less accumulated amortization and depreciation
   
261,993
     
247,698
 
Net property, plant and equipment
 
$
405,729
   
$
408,963
 

3.  Earnings per share

Basic net income per share was computed on the weighted average number of shares outstanding.  Diluted net income per share was computed under the treasury stock method, assuming the conversion as of the beginning of the period, for all dilutive stock options.  Of 676 thousand and 725 thousand shares and options outstanding at March 31, 2014 and 2013, respectively, 96 thousand and 341 thousand were anti-dilutive, respectively.  These shares and options have been excluded from the computations of diluted earnings per share for their respective period.  There were no adjustments to net income for either period.

4.  Investments Carried at Fair Value

Investments include $2.5 million of investments carried at fair value at both March 31, 2014 and December 31, 2013, consisting of equity, bond and money market mutual funds.  These investments were acquired under a rabbi trust arrangement related to a non-qualified supplemental retirement plan maintained by the Company.  During the three months ended March 31, 2014, the Company recognized $45 thousand in dividend and interest income from investments and recorded net unrealized losses of $29 thousand on these investments.  Fair values for these investments held under the rabbi trust were determined by Level 1 quoted market prices for the underlying mutual funds.

5.  Financial Instruments

Financial instruments on the consolidated balance sheets that approximate fair value include:  cash and cash equivalents, receivables, investments carried at fair value, payables, accrued liabilities, interest rate swaps and variable rate long-term debt.
9

6Derivative Instruments, Hedging Activities and Accumulated Other Comprehensive Income

The Company’s objectives in using interest rate derivatives are to add stability to cash flows and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps (both those designated as cash flow hedges as well as those not designated as cash flow hedges) involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The Company entered into a pay-fixed, receive-variable interest rate swap of $63.3 million of notional principal in August 2010.  This interest rate swap was not designated as a cash flow hedge.  Changes in the fair value of interest rate swaps not designated as cash flow hedges are recorded in interest expense each reporting period. The change in fair value recorded in interest expense for the three months ended March 31, 2013 was a decrease of $104 thousand.  This swap expired in July 2013.

The Company entered into a pay-fixed, receive-variable interest rate swap of $174.6 million of notional principal in September 2012.  This interest rate swap was designated as a cash flow hedge.  The total outstanding notional amount of cash flow hedges was $174.6 million as of March 31, 2014.

The effective portion of changes in the fair value of interest rate swaps designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company uses its derivatives to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings through interest expense. No hedge ineffectiveness was recognized during any of the periods presented.

Amounts reported in accumulated other comprehensive income related to the interest rate swap designated and that qualifies as a cash flow hedge are reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of March 31, 2014, the Company estimates that $1.6 million will be reclassified as an increase to interest expense during the next twelve months due to the interest rate swap since the fixed interest rate paid on the hedge exceeds the variable interest rate on the debt.

The table below presents the fair value of the Company’s derivative financial instruments as well as its classification on the consolidated balance sheet as of March 31, 2014 and December 31, 2013 (in thousands; amounts in parentheses indicate debits):
 
 
Derivatives
 
 
  
 
Fair Value as of
 
Balance Sheet
 
March 31,
   
December 31,
 
Location
 
2014
   
2013
 
 
 
 
   
 
Derivatives designated as hedging instruments:
 
   
 
Interest rate swaps
Accrued liabilities and other
 
$
1,639
   
$
1,590
 
Deferred charges and other assets net
   
(5,396
)
   
(5,926
)
Total derivatives designated as hedging instruments
 
$
(3,757
)
 
$
(4,336
)

The fair value of interest rate swaps is determined using a pricing model with inputs that are observable in the market (level 2 fair value inputs).
10

The table below presents change in accumulated other comprehensive income by component for the three months ended March 31, 2014 (in thousands; amounts in parentheses indicate debits):
 
 
 
Gains and (Losses) on Cash Flow Hedges
   
Income Taxes
   
Accumulated Other Comprehensive Income (Loss)
 
 
 
   
   
 
Balance as of December 31, 2013
 
$
4,336
   
$
(1,742
)
 
$
2,594
 
Other comprehensive income before reclassifications
   
(1,002
)
   
401
     
(601
)
Amounts reclassified from accumulated other comprehensive income (to interest expense)
   
423
     
(169
)
   
254
 
Net current period other comprehensive income
   
(579
)
   
232
     
(347
)
Balance as of March 31, 2014
 
$
3,757
   
$
(1,510
)
 
$
2,247
 

7.  Segment Information

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision makers.  The Company has three reportable segments, which the Company operates and manages as strategic business units organized by lines of business: (1) Wireless, (2) Cable, and (3) Wireline.   A fourth segment, Other, primarily includes Shenandoah Telecommunications Company, the parent holding company.

The Wireless segment provides digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, as a Sprint PCS Affiliate.  This segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers.

The Cable segment provides video, internet and voice services in Virginia, West Virginia and Maryland.  It does not include video, internet and voice services provided to customers in Shenandoah County, Virginia.

The Wireline segment provides regulated and unregulated voice services, DSL internet access, and long distance access services throughout Shenandoah County and portions of Rockingham, Frederick, Warren and Augusta counties, Virginia. The segment also provides video services in portions of Shenandoah County, and leases fiber optic facilities throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor, including portions of West Virginia and Maryland.

Effective for fiscal year 2014, our segment presentations were updated to reflect two changes.  First, in late 2013, the Company restructured its management team to primarily align its organization with its operating segments (Wireless, Cable and Wireline), rather than on a functional basis (sales and marketing, operations and engineering).  As part of this restructuring, the Company determined that the operations associated with its video product offered in Shenandoah County, Virginia, would be included in the Wireline segment.  The video services offered in Shenandoah County share much of the network which the regulated telephone company uses to serve its customers. These services had previously been included in the Cable segment.

Second, primarily as a result of the restructuring described above, the Company’s allocations of certain shared general and administrative expenses were updated to reflect how our senior management team makes financial decisions and manages resources.  Since the Vice Presidents managing the operating segments do not directly control these expenses, the Company has chosen to record these at the holding company.  As a result, certain costs, including finance and accounting, executive management, legal, and human resources, are now recorded to the Other segment as corporate costs.  In this way, segment performance presents a clearer picture of the trends in an individual segment’s profitability.
11

The segment information provided below has been updated to reflect these presentation changes for all periods presented.

Three months ended March 31, 2014

(in thousands)

 
 
Wireless
   
Cable
   
Wireline
   
Other
   
Eliminations
   
Consolidated
Totals
 
External revenues
 
   
   
   
   
   
 
Service revenues
 
$
47,232
   
$
17,424
   
$
5,100
   
$
-
   
$
-
   
$
69,756
 
Other
   
2,756
     
3,030
     
4,910
     
-
     
-
     
10,696
 
Total external revenues
   
49,988
     
20,454
     
10,010
     
-
     
-
     
80,452
 
Internal revenues
   
1,091
     
26
     
5,765
     
-
     
(6,882
)
   
-
 
Total operating revenues
   
51,079
     
20,480
     
15,775
     
-
     
(6,882
)
   
80,452
 
 
                                               
Operating expenses
                                               
Costs of goods and services, exclusive of depreciation and amortization shown separately below
   
18,657
     
12,390
     
7,482
     
-
     
(6,293
)
   
32,236
 
Selling, general and administrative, exclusive of depreciation and amortization shown separately below
   
8,432
     
4,646
     
1,244
     
3,416
     
(589
)
   
17,149
 
Depreciation and amortization
   
7,196
     
5,404
     
2,697
     
90
     
-
     
15,387
 
Total operating expenses
   
34,285
     
22,440
     
11,423
     
3,506
     
(6,882
)
   
64,772
 
Operating income (loss)
 
$
16,794
   
$
(1,960
)
 
$
4,352
   
$
(3,506
)
 
$
-
   
$
15,680
 

Three months ended March 31, 2013

(in thousands)

 
 
Wireless
   
Cable
   
Wireline
   
Other
   
Eliminations
   
Consolidated
Totals
 
External revenues
 
   
   
   
   
   
 
Service revenues
 
$
44,065
   
$
16,163
   
$
5,117
   
$
-
   
$
-
   
$
65,345
 
Other
   
3,019
     
2,301
     
5,345
     
-
     
-
     
10,665
 
Total external revenues
   
47,084
     
18,464
     
10,462
     
-
     
-
     
76,010
 
Internal revenues
   
1,073
     
49
     
4,639
     
-
     
(5,761
)
   
-
 
Total operating revenues
   
48,157
     
18,513
     
15,101
     
-
     
(5,761
)
   
76,010
 
 
                                               
Operating expenses
                                               
Costs of goods and services, exclusive of depreciation and amortization shown separately below
   
17,530
     
11,222
     
7,166
     
-
     
(5,218
)
   
30,700
 
Selling, general and administrative, exclusive of depreciation and amortization shown separately below
   
7,887
     
4,425
     
1,361
     
2,999
     
(543
)
   
16,129
 
Depreciation and amortization
   
6,028
     
5,205
     
2,731
     
8
     
-
     
13,972
 
Total operating expenses
   
31,445
     
20,852
     
11,258
     
3,007
     
(5,761
)
   
60,801
 
Operating income (loss)
 
$
16,712
   
$
(2,339
)
 
$
3,843
   
$
(3,007
)
   
-
   
$
15,209
 

A reconciliation of the total of the reportable segments’ operating income to consolidated income from continuing operations before income taxes is as follows:

 
 
Three Months Ended
 
 
 
March 31,
 
 
 
2014
   
2013
 
Total consolidated operating income
 
$
15,680
   
$
15,209
 
Interest expense
   
(2,048
)
   
(2,152
)
Non-operating income (expense), net
   
610
     
668
 
Income before income taxes
 
$
14,242
   
$
13,725
 

12

The Company's assets by segment are as follows:
(in thousands)
 
 
March 31,
   
December 31,
 
 
 
2014
   
2013
 
 
 
   
 
Wireless
 
$
215,734
   
$
229,038
 
Cable
   
209,320
     
199,184
 
Wireline
   
87,777
     
92,455
 
Other
   
428,761
     
435,804
 
Combined totals
   
941,592
     
956,481
 
Inter-segment eliminations
   
(344,997
)
   
(359,475
)
Consolidated totals
 
$
596,595
   
$
597,006
 

8.  Income Taxes

The Company files U.S. federal income tax returns and various state and local income tax returns.  With few exceptions, years prior to 2010 are no longer subject to examination. The Company is under audit in the state of Maryland for the 2009, 2010 and 2011 tax years, and in the state of Pennsylvania for the 2009 tax year.  No other state or federal income tax audits were in process as of March 31, 2014.

13

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This management’s discussion and analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions as they relate to Shenandoah Telecommunications Company or its management are intended to identify these forward-looking statements.  All statements regarding Shenandoah Telecommunications Company’s expected future financial position and operating results, business strategy, financing plans, forecasted trends relating to the markets in which Shenandoah Telecommunications Company operates and similar matters are forward-looking statements.  We cannot assure you that the Company’s expectations expressed or implied in these forward-looking statements will turn out to be correct.  The Company’s actual results could be materially different from its expectations because of various factors, including those discussed below and under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2013.  The following management’s discussion and analysis should be read in conjunction with the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2013, including the financial statements and related notes included therein.

General

Overview. Shenandoah Telecommunications Company is a diversified telecommunications company providing both regulated and unregulated telecommunications services through its wholly owned subsidiaries.  These subsidiaries provide wireless personal communications services (as a Sprint PCS Affiliate), local exchange telephone services, video, internet and data services, long distance, fiber optics facilities, and leased tower facilities. The Company has the following three reportable segments, which it operates and manages as strategic business units organized by lines of business:

* The Wireless segment provides digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, as a Sprint PCS Affiliate.  This segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers.
 
* The Cable segment provides video, internet and voice services in franchise areas in portions of Virginia, West Virginia and western Maryland, and leases fiber optic facilities throughout its service area. It does not include video, internet and voice services provided to customers in Shenandoah County, Virginia.
 
* The Wireline segment provides regulated and unregulated voice services, DSL internet access, and long distance access services throughout Shenandoah County and portions of Rockingham, Frederick, Warren and Augusta counties, Virginia. The segment also provides video services in portions of Shenandoah County, and leases fiber optic facilities throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor, including portions of West Virginia and Maryland.
 
* A fourth segment, Other, primarily includes Shenandoah Telecommunications Company, the parent holding company.
 
Effective for fiscal year 2014, our segment presentations were updated to reflect two changes.  First, in late 2013, the Company restructured its management team to primarily align its organization with its operating segments (Wireless, Cable and Wireline), rather than on a functional basis (sales and marketing, operations and engineering).  As part of this restructuring, the Company determined that the operations associated with its video product offered in Shenandoah County, Virginia, would be included in the Wireline segment.  The video services offered in Shenandoah County share much of the network which the regulated telephone company uses to serve its customers. These services had previously been included in the Cable segment.
14

Second, primarily as a result of the restructuring described above, the Company’s allocations of certain shared general and administrative expenses were updated to reflect how our senior management team makes financial decisions and manages resources.  Since the Vice Presidents managing the operating segments do not directly control these expenses, the Company has chosen to record these at the holding company.  As a result, certain costs, including finance and accounting, executive management, legal, and human resources, are now recorded to the Other segment as corporate costs.  In this way, segment performance presents a clearer picture of the trends in an individual segment’s profitability.

The segment information provided below has been updated to reflect these presentation changes for all periods presented.

Results of Operations

Three Months Ended March 31, 2014 Compared with the Three Months Ended March 31, 2013

Consolidated Results

The Company’s consolidated results from continuing operations for the first quarters of 2014 and 2013 are summarized as follows:

 
 
Three Months Ended
   
   
 
(in thousands)
 
March 31,
   
Change
 
 
 
2014
   
2013
   
$
   
%
 
 
 
   
   
   
 
Operating revenues
 
$
80,452
   
$
76,010
   
$
4,442
     
5.8
 
Operating expenses
   
64,772
     
60,801
     
3,971
     
6.5
 
Operating income
   
15,680
     
15,209
     
471
     
3.1
 
 
                               
Interest expense
   
2,048
     
2,152
     
(104
)
   
(4.8
)
Other income (expense)
   
610
     
668
     
(58
)
   
(8.7
)
Income before taxes
   
14,242
     
13,725
     
517
     
3.8
 
Income tax expense
   
5,626
     
5,374
     
252
     
4.7
 
Net income
 
$
8,616
   
$
8,351
   
$
265
     
3.2
 

Operating revenues

For the three months ended March 31, 2014, operating revenues increased $4.4 million, or 5.8%. Wireless segment revenues increased $2.9 million compared to the first quarter of 2013. Net postpaid service revenues increased $1.2 million, driven by data fees and 4.3% year-over-year growth in average postpaid subscribers. Net prepaid service revenues grew $2.0 million, or 21.9%, due to improved product mix and 5.3% growth in average prepaid subscribers over 2013. Cable segment revenue grew $2.0 million, reflecting 5.8% growth in average subscriber counts and an increase in revenue per subscriber.  Wireline segment revenue increased $0.7 million, including a $1.0 million increase in affiliate revenue, which is eliminated in consolidation.

Operating expenses
 
Total operating expenses were $64.8 million in the first quarter of 2014 compared to $60.8 million in the prior year period. Cost of goods sold increased $1.5 million, including an increase of $0.8 million in maintenance costs and $0.6 million in network costs. Selling, general and administrative expenses increased $1.0 million, primarily due to advertising and commissions costs to add new customers. Depreciation and amortization expense increased $1.4 million, primarily due to completion of the Network Vision upgrade project.
15

Interest and other income (expense)

Interest expense declined $0.1 million from the prior year period. During the first quarter of 2013, the company recorded $0.1 million of interest expense charges to reflect changes in the fair value of an interest rate swap not designated as cash flow hedge. The swap expired in July 2013, and no such charges were recorded during the first quarter of 2014.

Income tax expense

The Company’s effective tax rate increased from 39.2% in the quarter ended March 31, 2013 to 39.5% in the 2014 quarter.

Net income

For the three months ended March 31, 2014, net income increased $0.3 million, or 3.2%, primarily reflecting growth in subscriber counts and revenue per subscriber in both the wireless and cable segments.
 
Wireless

The Company’s Wireless segment provides digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, through Shenandoah Personal Communications, LLC (“PCS”), a Sprint PCS Affiliate.  This segment also leases land on which it builds Company-owned cell towers, which it leases to affiliated and non-affiliated wireless service providers, throughout the same four-state area described above, through Shenandoah Mobile, LLC (“Mobile”).

PCS receives revenues from Sprint for postpaid and prepaid subscribers that obtain service in PCS’s network coverage area.  PCS relies on Sprint to provide timely, accurate and complete information to record the appropriate revenue for each financial period.  Through July 31, 2013, postpaid revenues received from Sprint were recorded net of certain fees totaling 20% of net postpaid billed revenue retained by Sprint.  These fees included an 8% management fee and a 12% net service fee.  Effective August 1, 2013, the net service fee increased to 14%. The management fee remained unchanged at 8%. Sprint also retains a 6% management fee on prepaid revenues.

The following tables show selected operating statistics of the Wireless segment as of the dates shown:

 
 
March 31,
   
December 31,
   
March 31,
   
December 31,
 
 
 
2014
   
2013
   
2013
   
2012
 
 
 
   
   
   
 
Retail PCS Subscribers - Postpaid
   
275,025
     
273,721
     
263,957
     
262,892
 
Retail PCS Subscribers - Prepaid
   
138,537
     
137,047
     
134,404
     
128,177
 
PCS Market POPS (000) (1)
   
2,402
     
2,397
     
2,390
     
2,390
 
PCS Covered POPS (000) (1)
   
2,072
     
2,067
     
2,058
     
2,057
 
CDMA Base Stations (sites)
   
526
     
526
     
521
     
516
 
Towers
   
153
     
153
     
151
     
150
 
Non-affiliate cell site leases (2)
   
206
     
217
     
218
     
216
 

16

 
 
Three Months Ended
 
 
 
March 31,
 
 
 
2014
   
2013
 
 
 
   
 
Gross PCS Subscriber Additions - Postpaid
   
15,585
     
15,824
 
Net PCS Subscriber Additions - Postpaid
   
1,304
     
1,065
 
Gross PCS Subscriber Additions - Prepaid
   
19,172
     
21,422
 
Net PCS Subscriber Additions - Prepaid
   
1,490
     
6,227
 
PCS Average Monthly Retail Churn % - Postpaid (3)
   
1.73
%
   
1.87
%
PCS Average Monthly Retail Churn % - Prepaid (3)
   
4.27
%
   
3.87
%

1) POPS refers to the estimated population of a given geographic area and is based on information purchased from third party sources.  Market POPS are those within a market area which the Company is authorized to serve under its Sprint PCS affiliate agreements, and Covered POPS are those covered by the Company’s network.
2) The decrease from December 31, 2013 to March 31, 2014 is a result of expected termination of Sprint iDEN leases associated with the former Nextel network. The Company expects its remaining 14 iDEN leases to terminate during the second quarter of 2014.
3) PCS Average Monthly Retail Churn is the average of the monthly subscriber turnover, or churn, calculations for the period.

Three Months Ended March 31, 2014 Compared with the Three Months Ended March 31, 2013

 
 
Three Months Ended
   
 
 
 
March 31,
   
Change
 
(in thousands)
 
2014
   
2013
  $    
%
 
Segment operating revenues
 
   
   
         
Wireless service revenue
 
$
47,232
   
$
44,065
   
$
3,167
     
7.2
 
Tower lease revenue
   
2,565
     
2,562
     
3
     
0.1
 
Equipment revenue
   
1,197
     
1,331
     
(134
)
   
(10.1
)
Other revenue
   
85
     
199
     
(114
)
   
(57.3
)
Total segment operating revenues
   
51,079
     
48,157
     
2,922
     
6.1
 
Segment operating expenses
                               
Cost of goods and services, exclusive of depreciation and amortization shown separately below
   
18,657
     
17,530
     
1,127
     
6.4
 
Selling, general, and administrative, exclusive of depreciation and amortization shown separately below
   
8,432
     
7,887
     
545
     
6.9
 
Depreciation and amortization
   
7,196
     
6,028
     
1,168
     
19.4
 
Total segment operating expenses
   
34,285
     
31,445
     
2,840
     
9.0
 
Segment operating income
 
$
16,794
   
$
16,712
   
$
82
     
0.5
 

Operating revenues

Wireless service revenue increased $3.2 million, or 7.2%, for the three months ended March 31, 2014, compared to the comparable 2013 period.  Net postpaid service revenues increased $1.2 million, driven by data fees and 4.3% year-over-year growth in average postpaid subscribers. As stated above, the net service fee increased from 12% of net billed revenues to 14% on August 1, 2013, reducing net postpaid service revenue by $0.9 million, approximately $0.3 million per month.  Net prepaid service revenues grew $2.0 million, or 21.9%, due to improved product mix and 5.3% growth in average prepaid subscribers over 2013.
17

Cost of goods and services

Cost of goods and services increased $1.1 million, or 6.4%, in 2014 from the first quarter of 2013. Postpaid handset costs increased $1.3 million, driven primarily by higher average cost per handset sold. Prepaid handset subsidies decreased $0.6 million on lower volume of handsets sold. Network costs increased $0.7 million, primarily due to increases in rent and backhaul costs associated with the Network Vision project. Maintenance expense grew $0.4 million due to increases in maintenance contracts that support the upgraded wireless network. These increases were largely offset by a one-time $0.4 million gain related to disposal costs for the Network Vision project and by lower costs to maintain prepaid subscribers.

Selling, general and administrative

Selling, general and administrative costs increased $0.5 million, or 6.9%, in the first quarter of 2014 from the comparable 2013 period.  Advertising costs grew $0.4 million as the Company increased marketing of the 4G network that was completed in the fourth quarter of 2013. Commission costs grew $0.4 million as growth in sales of higher-tier rate plans resulted in higher commission rates. Costs to add new prepaid subscribers decreased $0.2 million due to lower volume of gross additions in the current year.

Depreciation and amortization

Depreciation and amortization increased $1.2 million, or 19.4%, in the first quarter of 2014 over the comparable 2013 period. The growth is a result of timing differences in the accelerated depreciation of 3G assets in 2013.

Sprint Framily Plan

The Company began selling Sprint’s “Framily” postpaid service plan in April 2014. Compared to other Sprint plans, the Framily plan offers consumers lower monthly recurring service charges and it eliminates the handset subsidy. Although subsidized handset plans will continue to be offered, management expects that sales of the Framily plan will result in changes in Service revenue, Equipment revenue and Cost of goods sold beginning in the second quarter 2014. The amount of the changes will depend on the number of consumers that select the Framily plan instead of the subsidized handset plans.

Cable

The Cable segment provides video, internet and voice services in franchise areas in portions of Virginia, West Virginia and western Maryland, and leases fiber optic facilities throughout its service area. It does not include video, internet and voice services provided to customers in Shenandoah County, Virginia.
 
As discussed at the beginning of Management’s Discussion and Analysis, the following operating statistics of the Cable segment have been updated to reflect presentation changes for all periods presented.
18

 
 
March 31,
   
December 31,
   
March 31,
   
December 31,
 
 
 
2014
   
2013
   
2013
   
2012
 
Homes Passed (1)
   
170,711
     
170,470
     
169,035
     
168,475
 
Customer Relationships (2)
                               
Video customers
   
51,153
     
51,197
     
53,017
     
52,676
 
Non-video customers
   
19,517
     
18,341
     
16,220
     
15,709
 
Total customer relationships
   
70,670
     
69,538
     
69,237
     
68,385
 
Video
                               
Customers (3)
   
52,725
     
53,076
     
54,624
     
54,840
 
Penetration (4)
   
30.9
%
   
31.1
%
   
32.3
%
   
32.6
%
Digital video penetration (5)
   
57.5
%
   
49.2
%
   
39.6
%
   
39.5
%
High-speed Internet
                               
Available Homes (6)
   
168,573
     
168,255
     
164,789
     
163,273
 
Customers (3)
   
48,068
     
45,776
     
42,435
     
40,981
 
Penetration (4)
   
28.5
%
   
27.2
%
   
25.8
%
   
25.1
%
Voice
                               
Available Homes (6)
   
163,582
     
163,282
     
157,409
     
154,552
 
Customers (3)
   
15,799
     
14,988
     
12,795
     
12,262
 
Penetration (4)
   
9.7
%
   
9.2
%
   
8.1
%
   
8.0
%
Total Revenue Generating Units (7)
   
116,592
     
113,840
     
109,854
     
108,083
 
Fiber Route Miles
   
2,461
     
2,446
     
2,116
     
2,077
 
Total Fiber Miles (8)
   
70,332
     
69,715
     
40,686
     
39,418
 

1) Homes and businesses are considered passed (“homes passed”) if we can connect them to our distribution system without further extending the transmission lines.  Homes passed is an estimate based upon the best available information.
2) Customer relationships represent the number of customers who receive at least one of our services.
3) Generally, a dwelling or commercial unit with one or more television sets connected to our distribution system counts as one video customer.  Where services are provided on a bulk basis, such as to hotels and some multi-dwelling units, the revenue charged to the customer is divided by the rate for comparable service in the local market to determine the number of customer equivalents included in the customer counts shown above.
4) Penetration is calculated by dividing the number of customers by the number of homes passed or available homes, as appropriate.
5) Digital video penetration is calculated by dividing the number of digital video customers by total video customers.  Digital video customers are video customers who receive any level of video service via digital transmission.  A dwelling with one or more digital set-top boxes or digital adapters counts as one digital video customer.
6) Homes and businesses are considered available (“available homes”) if we can connect them to our distribution system without further extending the transmission lines and if we offer the service in that area.
7) Revenue generating units are the sum of video, voice and high-speed internet customers.
8) Fiber miles are measured by taking the number of fiber strands in a cable and multiplying that number by the route distance.  For example, a 10 mile route with 144 fiber strands would equal 1,440 fiber miles. Fiber counts were recalculated after a fiber audit and deployment of enhanced mapping software in the fourth quarter of 2013.

19

Three Months Ended March 31, 2014 Compared with the Three Months Ended March 31, 2013

 
 
Three Months Ended
   
   
 
(in thousands)
 
March 31,
   
Change
 
 
 
2014
   
2013
   
$
   
%
 
 
 
   
   
         
Segment operating revenues
 
   
   
         
Cable service revenue
 
$
17,424
   
$
16,163
   
$
1,261
     
7.8
 
Equipment and other revenue
   
3,056
     
2,350
     
706
     
30.0
 
Total segment operating revenues
   
20,480
     
18,513
     
1,967
     
10.6
 
 
                               
Segment operating expenses
                               
Cost of goods and services, exclusive of depreciation and amortization shown separately below
   
12,390
     
11,222
     
1,168
     
10.4
 
Selling, general, and administrative, exclusive of depreciation and amortization shown separately below
   
4,646
     
4,425
     
221
     
5.0
 
Depreciation and amortization
   
5,404
     
5,205
     
199
     
3.8
 
Total segment operating expenses
   
22,440
     
20,852
     
1,588
     
7.6
 
Segment operating loss
 
$
(1,960
)
 
$
(2,339
)
 
$
379
     
16.2
 

Operating revenues

Cable segment service revenue increased $1.3 million, or 7.8%, due to a 5.8% increase in average revenue generating units, a video rate increase in January 2014, and customers selecting higher-priced digital TV services and higher-speed data access packages.

Growth in equipment and other revenue was driven by an increase in customer premise equipment rents due to fewer discounts on digital access devices and increased rates on DVR boxes.

Operating expenses

Cable segment cost of goods and services increased $1.2 million, or 10.4%, in the first quarter of 2014 over the comparable 2013 period. Cable programming costs increased $0.5 million as the impact of rising rates per subscriber outpaced declining video subscriber counts. Staffing costs increased $0.5 million due to incremental costs for health care claims and stock compensation. Maintenance costs increased $0.3 million due to costs to support network growth.

Selling, general and administrative expenses grew $0.2 million against the prior year quarter as a $0.2 million reduction in current period commissions expense was more than offset by increases in costs related to customer service and administrative functions.

The increase in depreciation and amortization expense consists of $0.5 million of  higher depreciation expense on assets placed in service, offset by lower amortization on the customer base intangible asset recorded when the cable markets were acquired. The amortization of this asset declines on the anniversary of the acquisitions.

Wireline

The Wireline segment provides regulated and unregulated voice services, DSL internet access, and long distance access services throughout Shenandoah County and portions of Rockingham, Frederick, Warren and Augusta counties, Virginia. The segment also provides video services in portions Shenandoah County, and leases fiber optic facilities throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor, including portions of West Virginia and Maryland.
 
As previously mentioned, the numbers below have been updated to reflect presentation changes for all periods presented. The following table shows selected operating statistics of the Wireline segment as of the dates shown.
20

 
 
March 31,
   
December 31,
   
March 31,
   
December 31,
 
 
 
2014
   
2013
   
2013
   
2012
 
Telephone Access Lines
   
21,955
     
22,106
     
22,279
     
22,342
 
Long Distance Subscribers
   
9,773
     
9,851
     
10,116
     
10,157
 
Video Customers
   
6,222
     
6,342
     
6,633
     
6,719
 
DSL Subscribers
   
12,714
     
12,632
     
12,709
     
12,611
 
Fiber Route Miles
   
1,454
     
1,452
     
1,428
     
1,420
 
Total Fiber Miles (1)
   
85,327
     
85,135
     
84,365
     
84,107
 

1) Fiber miles are measured by taking the number of fiber strands in a cable and multiplying that number by the route distance.  For example, a 10 mile route with 144 fiber strands would equal 1,440 fiber miles.
 
Three Months Ended March 31, 2014 Compared with the Three Months Ended March 31, 2013

 
 
Three Months Ended
   
   
 
(in thousands)
 
March 31,
   
Change
 
 
 
2014
   
2013
   
$
   
%
 
 
 
   
   
         
Segment operating revenues
 
   
   
         
Wireline service revenue
 
$
5,585
   
$
5,463
   
$
122
     
2.2
 
Access revenue
   
2,928
     
3,248
     
(320
)
   
(9.9
)
Facilities lease revenue
   
6,443
     
5,148
     
1,295
     
25.2
 
Equipment revenue
   
11
     
9
     
2
     
22.2
 
Other revenue
   
808
     
1,233
     
(425
)
   
(34.5
)
Total segment operating revenues
   
15,775
     
15,101
     
674
     
4.5
 
 
                               
Segment operating expenses
                               
Cost of goods and services, exclusive of depreciation and amortization shown separately below
   
7,482
     
7,166
     
316
     
4.4
 
Selling, general, and administrative, exclusive of depreciation and amortization shown separately below
   
1,244
     
1,361
     
(117
)
   
(8.6
)
Depreciation and amortization
   
2,697
     
2,731
     
(34
)
   
(1.2
)
Total segment operating expenses
   
11,423
     
11,258
     
165
     
1.5
 
Segment operating income
 
$
4,352
   
$
3,843
   
$
509
     
13.2
 

Operating revenues

Total operating revenues in the quarter ended March 31, 2014 increased $0.7 million against the comparable 2013 period.  Increases in service revenue resulted primarily from contracts to lease fiber facilities and to provide the higher capacity backhaul required to support internet access to third parties.  Facilities lease revenue increased $1.0 million due primarily to affiliate billings associated with Network Vision upgrades on the Wireless segment. An additional $0.3 million of facilities lease growth was generated by new service contracts with third parties. The decrease in Access revenue is the result of 2013 changes in certain intrastate access charges. Other revenue decreased $0.4 million due to the conclusion of billings for transition services to buyers of Converged Services’ properties (coupled with a corresponding decrease in costs of goods and services mentioned below).

Operating expenses

Operating expenses overall increased $0.2 million in the quarter ended March 31, 2014, compared to the 2013 quarter. The increase in costs of goods and services resulted from the $0.6 million increase in costs to provide services to affiliates and to other customers, related to the increases in revenue shown above. This increase was partially offset by a $0.3 million decrease in cost of goods and services related to transition services for Converged Services properties.
21

Non-GAAP Financial Measure

In managing our business and assessing our financial performance, management supplements the information provided by financial statement measures prepared in accordance with GAAP with adjusted OIBDA, which is considered a “non-GAAP financial measure” under SEC rules.

Adjusted OIBDA is defined by us as operating income (loss) before depreciation and amortization, adjusted to exclude the effects of:  certain non-recurring transactions; impairment of assets; gains and losses on asset sales; and share-based compensation expense.  Adjusted OIBDA should not be construed as an alternative to operating income as determined in accordance with GAAP as a measure of operating performance.

In a capital-intensive industry such as telecommunications, management believes that adjusted OIBDA and the associated percentage margin calculations are meaningful measures of our operating performance.  We use adjusted OIBDA as a supplemental performance measure because management believes it facilitates comparisons of our operating performance from period to period and comparisons of our operating performance to that of other companies by excluding potential differences caused by the age and book depreciation of fixed assets (affecting relative depreciation expenses) as well as the other items described above for which additional adjustments were made.  In the future, management expects that the Company may again report adjusted OIBDA excluding these items and may incur expenses similar to these excluded items.  Accordingly, the exclusion of these and other similar items from our non-GAAP presentation should not be interpreted as implying these items are non-recurring, infrequent or unusual.

While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the current period allocation of costs associated with long-lived assets acquired or constructed in prior periods, and accordingly may obscure underlying operating trends for some purposes.  By isolating the effects of these expenses and other items that vary from period to period without any correlation to our underlying performance, or that vary widely among similar companies, management believes adjusted OIBDA facilitates internal comparisons of our historical operating performance, which are used by management for business planning purposes, and also facilitates comparisons of our performance relative to that of our competitors.  In addition, we believe that adjusted OIBDA and similar measures are widely used by investors and financial analysts as measures of our financial performance over time, and to compare our financial performance with that of other companies in our industry.

Adjusted OIBDA has limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.  These limitations include the following:

· it does not reflect capital expenditures;
· many of the assets being depreciated and amortized will have to be replaced in the future and adjusted OIBDA does not reflect cash requirements for such replacements;
· it does not reflect costs associated with share-based awards exchanged for employee services;
· it does not reflect interest expense necessary to service interest or principal payments on indebtedness;
· it does not reflect gains, losses or dividends on investments;
· it does not reflect expenses incurred for the payment of income taxes; and
· other companies, including companies in our industry, may calculate adjusted OIBDA differently than we do, limiting its usefulness as a comparative measure.

In light of these limitations, management considers adjusted OIBDA as a financial performance measure that supplements but does not replace the information reflected in our GAAP results.

The following table shows adjusted OIBDA for the three months ended March 31, 2014 and 2013. As previously mentioned, the numbers below have been updated to reflect presentation changes for all periods presented.
 
 
 
Three Months Ended
 
(in thousands)
 
March 31,
 
 
 
2014
   
2013
 
 
 
   
 
Adjusted OIBDA
 
$
31,729
   
$
29,635
 

22

The following table reconciles adjusted OIBDA to operating income, which we consider to be the most directly comparable GAAP financial measure, for the three months ended March 31, 2014 and 2013:

Consolidated:
 
   
 
(in thousands)
 
Three Months Ended
 
 
 
March 31,
 
 
 
2014
   
2013
 
 
 
   
 
Operating income
 
$
15,680
   
$
15,209
 
Plus depreciation and amortization
   
15,387
     
13,972
 
Plus (gain) loss on asset sales
   
(366
)
   
82
 
Plus share based compensation expense
   
1,028
     
372
 
Adjusted OIBDA
 
$
31,729
   
$
29,635
 

The following tables reconcile adjusted OIBDA to operating income by major segment for the three months ended March 31, 2014 and 2013:

Wireless Segment:
 
   
 
(in thousands)
 
Three Months Ended
 
 
 
March 31,
 
 
 
2014
   
2013
 
 
 
   
 
Operating income
 
$
16,794
   
$
16,712
 
Plus depreciation and amortization
   
7,196
     
6,028
 
Plus (gain) loss on asset sales
   
(352
)
   
90
 
Plus share based compensation expense
   
216
     
108
 
Adjusted OIBDA
 
$
23,854
   
$
22,938
 

Cable Segment:
 
   
 
(in thousands)
 
Three Months Ended
 
 
 
March 31,
 
 
 
2014
   
2013
 
 
 
   
 
Operating loss
 
$
(1,960
)
 
$
(2,339
)
Plus depreciation and amortization
   
5,404
     
5,205
 
Plus gain on asset sales
   
(23
)
   
(19
)
Plus share based compensation expense
   
396
     
162
 
Adjusted OIBDA
 
$
3,817
   
$
3,009
 

23

Wireline Segment:
 
   
 
(in thousands)
 
Three Months Ended
 
 
 
March 31,
 
 
 
2014
   
2013
 
 
 
   
 
Operating income
 
$
4,352
   
$
3,843
 
Plus depreciation and amortization
   
2,697
     
2,731
 
Plus loss on asset sales
   
9
     
12
 
Plus share based compensation expense
   
175
     
78
 
Adjusted OIBDA
 
$
7,233
   
$
6,664
 

Liquidity and Capital Resources

The Company has four principal sources of funds available to meet the financing needs of its operations, capital projects, debt service, investments and potential dividends.  These sources include cash flows from operations, existing balances of cash and cash equivalents, the liquidation of investments and borrowings.  Management routinely considers the alternatives available to determine what mix of sources are best suited for the long-term benefit of the Company.

Sources and Uses of Cash. The Company generated $32.6 million of net cash from operations in the first three months of 2014, compared to $22.7 million in the first three months of 2013.  Cash provided by changes in net assets and liabilities increased $9.7 million, driven by cash paid for taxes in 2013 and net tax refunds in 2014. Net income, adjusted for non-cash items such as depreciation, amortization, deferred income taxes and provisions for bad debt provided an additional $0.2 million of growth in net cash provided by operations compared to the prior year period.

Indebtedness. As of March 31, 2014, the Company’s indebtedness totaled $230.0 million, with an annualized overall weighted average interest rate of approximately 3.40% after considering the impact of the swap contract.  Patronage credits provided by the lender reduce the effective cost of our debt by approximately 69 basis points to an effective rate of approximately 2.71%.  The Company has $50 million available under the Revolving Facility, and the right to borrow up to $100 million under one or more Incremental Term Loan facilities, subject to certain restrictions.  The Revolving Facility and Incremental Term Loan Facility are both subject to the terms of the Restated and Amended Credit Agreement entered into in September 2012.
 
The Company is bound by certain financial covenants under its Credit Agreement. Noncompliance with any one or more of the debt covenants may have an adverse effect on our financial condition or liquidity in the event such noncompliance cannot be cured or should we be unable to obtain a waiver from the lenders. As of March 31, 2014, the Company was in compliance with all debt covenants, and ratios at March 31, 2014 were as follows:
 
 
Actual
 
Covenant Requirement at March 31, 2014
Total Leverage Ratio
1.87
 
3.00 or Lower
Debt Service Coverage Ratio
11.70
 
2.50 or Higher
Equity to Assets Ratio
40.8%
 
32.5% or Higher
 
In accordance with the Credit Agreement, the total leverage and debt service coverage ratios noted above are based on the twelve months ended March 31, 2014. In addition to the covenants above, the Company is required to supply the lender with quarterly financial statements and other reports as defined by the Credit Agreement. The Company was in compliance with all reporting requirements at March 31, 2014.

The Company has no off-balance sheet arrangements (other than operating leases) and has not entered into any transactions involving unconsolidated, limited purpose entities or commodity contracts.

24

Capital Commitments. Capital expenditures budgeted for 2014 total $74 million. Approximately $18 million of this will be spent to maintain current networks and an additional $18 million will be spent on capacity, in wireless and cable, primarily to keep up with the growing demand for broadband.  The budget contemplates $22 million for network expansion.  These expenditures are to build new cell sites, additional fiber routes, fiber to tower sites and to expand the cable network footprint.  The budget includes $16 million of success-based spending that will only be spent if there are new revenues to support the expenditures. This would include building a fiber extension to connect a new customer or premise equipment for a new cable customer.  Approximately $17 million of the $74 million budget for 2014 are projects that were delayed from 2013.

For the first three months of 2014, the Company spent $17.2 million on capital projects, compared to $26.0 million in the comparable 2013 period.  Spending related to Wireless projects accounted for $9.7 million in the first three months of 2014, primarily for continued network expansion and upgrades to 800 megahertz voice service. Cable capital spending of $4.6 million related to network expansion and upgrades to support new customers and services. Wireline capital projects cost $1.7 million, driven primarily by fiber builds and switching/routing capability.  Other projects totaled $1.2 million, largely related to information technology projects.

The Company believes that cash on hand, cash flow from operations and borrowings expected to be available under the Company’s existing credit facilities will provide sufficient cash to enable the Company to fund planned capital expenditures, make scheduled principal and interest payments, meet its other cash requirements and maintain compliance with the terms of its financing agreements for at least the next twelve months.  Thereafter, capital expenditures will likely continue to be required to provide increased capacity to meet the Company’s expected growth in demand for its products and services. The actual amount and timing of the Company’s future capital requirements may differ materially from the Company’s estimate depending on the demand for its products and new market developments and opportunities.

The Company’s cash flows from operations could be adversely affected by events outside the Company’s control, including, without limitation, changes in overall economic conditions, regulatory requirements, changes in technologies, demand for its products, availability of labor resources and capital, changes in the Company’s relationship with Sprint, and other conditions.  The Wireless segment’s operations are dependent upon Sprint’s ability to execute certain functions such as billing, customer care, and collections; the subsidiary’s ability to develop and implement successful marketing programs and new products and services; and the subsidiary’s ability to effectively and economically manage other operating activities under the Company's agreements with Sprint.   The Company's ability to attract and maintain a sufficient customer base, particularly in the acquired cable markets, is also critical to its ability to maintain a positive cash flow from operations.  The foregoing events individually or collectively could affect the Company’s results.

Recently Issued Accounting Standards
 
There were no recently issued accounting standards, not adopted by the Company as of  March 31, 2014, that are expected to have a material impact on the Company’s results of operations or financial condition.
25

ITEM 3.
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.  The Company’s interest rate risk generally involves three components.  The first component is outstanding debt with variable rates.  As of March 31, 2014, the Company had $230.0 million of variable rate debt outstanding, bearing interest at a rate of 2.67% as determined on a monthly basis. An increase in market interest rates of 1.00% would add approximately $2.3 million to annual interest expense, excluding the effect of the interest rate swap.  In 2012, the Company entered into a swap agreement that covers notional principal equal to approximately 76% of the outstanding variable rate debt through maturity in 2019, requiring the Company to pay a fixed rate of 1.13% and receive a variable rate based on one month LIBOR, to manage a portion of its interest rate risk.   The 2012 swap currently adds approximately $1.6 million to annual interest expense, based on the spread between the fixed rate and the variable rate currently in effect on our debt.

The second component of interest rate risk consists of temporary excess cash, which can be invested in various short-term investment vehicles such as overnight repurchase agreements and Treasury bills with a maturity of less than 90 days.  The cash is currently invested in a combination of a commercial checking account that has limited interest rate risk, and three money market mutual funds that contain a total investment of $20 million.  Management continues to evaluate the most beneficial use of these funds.

The third component of interest rate risk is marked increases in interest rates that may adversely affect the rate at which the Company may borrow funds for growth in the future.  If the Company should borrow additional funds under any Incremental Term Loan Facility to fund its capital investment needs, repayment provisions would be agreed to at the time of each draw under the Incremental Term Loan Facility.  If the interest rate margin on any draw exceeds by more than 0.25% the applicable interest rate margin on the Term Loan A Facility, the applicable interest rate margin on the Term Loan A Facility shall be increased to equal the interest rate margin on the Incremental Term Loan Facility.  If interest rates increase generally, or if the rate applied under the Company’s Incremental Term Loan Facility causes the Company’s outstanding debt to be repriced, the Company’s future interest costs could increase.

Management views market risk as having a potentially significant impact on the Company's results of operations, as future results could be adversely affected if interest rates were to increase significantly for an extended period, or if the Company’s need for additional external financing resulted in increases to the interest rates applied to all of its new and existing debt.  As of March 31, 2014, the Company has $55.4 million of variable rate debt with no interest rate protection.  The Company’s investments in publicly traded stock and bond mutual funds under the rabbi trust, which are subject to market risks and could experience significant swings in market values, are offset by corresponding changes in the liabilities owed to participants in the Executive Supplemental Retirement Plan.  General economic conditions affected by regulatory changes, competition or other external influences may pose a higher risk to the Company’s overall results.

As of March 31, 2014, the Company has $6.9 million of cost and equity method investments. Approximately $4.2 million consists of illiquid required investments related to business, regulatory or lending arrangements necessary to access services. An additional $0.3 million consists of investments in telephone-related business consortiums.  The remaining $2.4 million is invested in privately held companies through an investment with a portfolio manager.  Most of the companies are in an early stage of development and significant increases in interest rates could have an adverse impact on their results, ability to raise capital and viability.  The Company’s market risk is limited to the funds previously invested.

26

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management, with the participation of our President and Chief Executive Officer, who is the principal executive officer, and the Vice President - Finance and Chief Financial Officer, who is the principal financial officer, conducted an evaluation of our disclosure controls and procedures, as defined by Rule 13a-15(e) under the Securities Exchange Act of 1934.  Based on criteria established in Internal Control – Integrated Framework (1992), issued by the Committee of Sponsoring Organizations of the Treadway Commission, the Company's principal executive officer and its principal financial officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2014.

Changes in Internal Control Over Financial Reporting

During the first quarter of 2014, there were no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Other Matters Relating to Internal Control Over Financial Reporting

Under the Company’s agreements with Sprint, Sprint provides the Company with billing, collections, customer care, certain network operations and other back-office services for the PCS operation. As a result, Sprint remits to the Company approximately 59% of the Company’s total operating revenues.  Due to this relationship, the Company necessarily relies on Sprint to provide accurate, timely and sufficient data and information to properly record the Company’s revenues and accounts receivable, which underlie a substantial portion of the Company’s periodic financial statements and other financial disclosures.

Information provided by Sprint includes reports regarding the subscriber accounts receivable in the Company’s markets.  Sprint provides the Company with monthly accounts receivable, billing and cash receipts information on a market level, rather than a subscriber level.  The Company reviews these various reports to identify discrepancies or errors.  Under the Company’s agreements with Sprint, the Company is entitled to only a portion of the receipts, net of items such as taxes, government surcharges, certain allocable write-offs and the 22.0% of revenue retained by Sprint.  Because of the Company’s reliance on Sprint for financial information, the Company must depend on Sprint to design adequate internal controls with respect to the processes established to provide this data and information to the Company and Sprint’s other Sprint PCS affiliate network partners.  To address this issue, Sprint engages an independent registered public accounting firm to perform a periodic evaluation of these controls and to provide a “Report on Controls Placed in Operation and Tests of Operating Effectiveness” under guidance provided in Statements on Standards for Attestation Engagements No. 16 (“SSAE 16”).  The report is provided to the Company on an annual basis and covers a nine-month period. The most recent report covered the period from January 1, 2013 to September 30, 2013.  The most recent report indicated there were no material issues which would adversely affect the information used to support the recording of the revenues provided by Sprint related to the Company’s relationship with them.
27

PART II.
OTHER INFORMATION

ITEM 1A.
Risk Factors

As previously discussed, our actual results could differ materially from our forward-looking statements. Except as described below, there have been no material changes in the risk factors  from those described in Part 1, Item 1A of  the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
 
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds

The Company maintains a dividend reinvestment plan (the “DRIP”) for the benefit of its shareholders.  When shareholders remove shares from the DRIP, the Company issues a certificate for whole shares, pays out cash for any fractional shares, and cancels the fractional shares purchased.  In conjunction with exercises of stock options and distributions of vested share awards, the Company periodically repurchases shares from recipients to cover some of the exercise price of the options being exercised or taxes payable associated with the distribution of shares.  The following table provides information about the Company’s repurchases of shares during the three months ended March 31, 2014:

 
 
Number of Shares
Purchased
   
Average Price Paid per Share
 
January 1 to January 31
   
2
   
$
24.56
 
February 1 to February 28
   
16,228
   
$
26.15
 
March 1 to March 31
   
33,610
   
$
33.21
 
 
               
Total
   
49,840
   
$
30.91
 

28

ITEM 6.
Exhibits

(a)
The following exhibits are filed with this Quarterly Report on Form 10-Q:

10.43* First Amendment dated January 30, 2014, to the Amended and Restated Credit Agreement among Shenandoah Telecommunications Company, CoBank, ACB, and other Lenders.

10.44* Joinder Agreement dated January 30, 2014, to the Amended and Restated Credit Agreement among Shenandoah Telecommunications Company, CoBank, ACB, and other Lenders.

10.45* Addendum XVI dated as of December 9, 2013, to Sprint PCS Management Agreement by and among Sprint Spectrum, L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications, LLC.

10.46* Addendum XVII dated as of April 11, 2014, to Sprint PCS Management Agreement by and among Sprint Spectrum, L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications, LLC.

10.47* 2014 Stock Incentive Plan.

31.1* Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2* Certification of Vice President - Finance and Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32* Certifications pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. § 1350.

(101) Formatted in XBRL (Extensible Business Reporting Language)

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
 

* Filed herewith

29

SIGNATURES

Pursuant to the requirements 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
(Registrant)

/s/Adele M. Skolits
Adele M. Skolits
Vice President - Finance and Chief Financial Officer
Date: May 2, 2014

30

EXHIBIT INDEX
 
Exhibit No.
Exhibit
 
 
First Amendment dated January 30, 2014, to the Amended and Restated Credit Agreement among Shenandoah Telecommunications Company, CoBank, ACB, and other Lenders.
 
Joinder Agreement dated January 30, 2014, to the Amended and Restated Credit Agreement among Shenandoah Telecommunications Company, CoBank, ACB, and other Lenders.
 
Addendum XVI dated as of December 9, 2013 to Sprint PCS Management Agreement by and among Sprint Spectrum, L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications, LLC
 
Addendum XVII dated as of April 11, 2014, to Sprint PCS Management Agreement by and among Sprint Spectrum, L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications, LLC.
 
2014 Stock Incentive Plan.
 
Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
Certification of Vice President - Finance and Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
 
Certifications pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. 1350.
 
 
(101)
Formatted in XBRL (Extensible Business Reporting Language)
 
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 

* Filed herewith
 
 
31


Exhibit 10.43

EXECUTION VERSION

FIRST AMENDMENT AGREEMENT

This FIRST AMENDMENT AGREEMENT (this “Agreement”) is made and entered into as of January 30, 2014 and effective as of January 1, 2014, by and among SHENANDOAH TELECOMMUNICATIONS COMPANY, a Virginia corporation (“Borrower”), each of the subsidiaries of Borrower identified as guarantors on the signature pages hereto (individually, a “Guarantor” and, collectively, the “Guarantors”; and together with Borrower, individually a “Loan Party” and, collectively, the “Loan Parties”), COBANK, ACB, as Administrative Agent (“Administrative Agent”), and each of the financial institutions executing this Agreement and identified as a Lender on the signature pages hereto (the “Lenders”).

RECITALS

WHEREAS, Borrower, the Guarantors and the Lenders have entered into that certain Amended and Restated Credit Agreement, dated as of September 14, 2012 (as amended, modified, supplemented, extended or restated from time to time, the “Credit Agreement”); and
 
WHEREAS, the Lenders have agreed to certain modifications to the Credit Agreement as more fully described herein.

NOW, THEREFORE, in consideration of the foregoing and the agreements set forth in this Agreement, each of Borrower, the Guarantors and the Lenders party hereto hereby agrees as follows:

SECTION 1.  Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement.
 
SECTION 2.  Amendments. In reliance on the representations and warranties of Borrower and the Guarantors contained in this Agreement and in connection with Borrower’s request therefor, and subject to the effectiveness of this Agreement as described below,
 
(A)     Subsection 2.13 of the Credit Agreement is hereby amended by replacing each reference therein to “Hedge Agreements” with “Related Secured Hedge Agreements”.
 
(B)    Subsection 3.4(G) of the Credit Agreement is hereby amended by adding to the end of such Subsection 3.4(G) “permitted pursuant to Subsection 3.14”.
 
(C)     Subsection 3.14 of the Credit Agreement is hereby amended by amending and restating such Subsection 3.14 in its entirety as follows:

First Amendment Agreement/Shenandoah Telecommunications Company

3.14            Hedge Agreements.  The Loan Parties will not, and will not permit their respective Subsidiaries to, engage in, guaranty or grant a security interest to secure any speculative transactions or any transaction involving a Hedge Agreement except for Hedge Agreements entered into (i) as required by Subsection 2.13 or (ii) in the ordinary course of business solely for hedging (rather than speculative) purposes to provide protection to the Borrower or any other Loan Party against fluctuations in interest rates or currency exchange rates; provided however, that (X) no Loan Party or Subsidiary of any Loan Party shall enter into or incur any Hedge Agreement that constitutes or gives rise to a Swap Obligation, contingent or otherwise, if at the time it enters into or incurs such Swap Obligation it does not constitute an “eligible contract participant” as defined in the Commodity Exchange Act, and (Y) no Loan Party or Subsidiary of any Loan Party shall guaranty or grant a security interest to secure any Swap Obligation if at the time of such guaranty or grant it does not constitute an “eligible contract participant” as defined in the Commodity Exchange Act.
 
(D)     Section 5 of the Credit Agreement is hereby amended by adding to such Section the following Subsection 5.22:
 
5.22            Qualified ECP Guarantor Status.  The Borrower is, and will be, a Qualified ECP Guarantor on the date hereof and on each date it enters into a Hedge Agreement in accordance with the terms hereof.
 
(E)    Subsection 6.1(C) of the Credit Agreement is hereby amended by adding to Subsection 6.1(C) a cross reference to Subsection 9.23 of the Credit Agreement.
 
(F)    Subsection 6.9 of the Credit Agreement is hereby amended by adding to the end of Subsection 6.9 the following sentence:
 
Notwithstanding the foregoing, amounts received from any Loan Party shall not be applied to Secured Obligations that comprise Excluded Swap Obligations of such Loan Party (it being understood that in the event that any amount is applied to Secured Obligations other than Excluded Swap Obligations as a result of this sentence, the Administrative Agent shall make such adjustments as it determines in its sole discretion are appropriate to distributions pursuant to Related Secured Hedge Agreements from amounts received from “eligible contract participants” under the Commodity Exchange Act or any regulations promulgated thereunder to ensure, as nearly as possible, that the proportional aggregate recoveries with respect to Secured Obligations pursuant to Related Secured Hedge Agreements by the holders of any Excluded Swap Obligations are the same as the proportional aggregate recoveries with respect to other Secured Obligations Related Secured Hedge Agreements).

(G)     Section 9 of the Credit Agreement is hereby amended by adding to such Section the following Subsection 9.23:
2

First Amendment Agreement/Shenandoah Telecommunications Company
 
9.23            Keepwell.  In addition to and not in derogation of any other obligation of any Loan Party under this Agreement or any other Loan Document, each Loan Party constituting a Qualified ECP Guarantor hereby jointly and severally absolutely and irrevocably undertakes to provide and guarantees such funds or other support to each other Loan Party as may be needed by such Loan Party from time to time to honor all of its obligations under any Loan Document including obligations with respect to Swap Obligations that would, in the absence of the agreement in this Section 9.23, otherwise constitute Excluded Swap Obligations as to such other Loan Party (but in each case, only up to the maximum amount of such liability that can be hereby incurred without rendering its obligations under this Section 9.23 or otherwise under this Agreement or any other Loan Document, as it relates to such other Loan Parties, voidable under applicable Law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount).  The guarantees, obligations and undertakings of the Loan Parties constituting Qualified ECP Guarantors under this Section 9.23 shall remain in full force and effect until all obligations under any Loan Document have been indefeasibly paid and performed in full and all Commitments have expired or been terminated.  The Loan Parties intend that this Section 9.23 constitute, and this Section 9.23 shall be deemed to constitute, a “keepwell, support, or other agreement” for the benefit of each other Loan Party for all purposes of the Commodity Exchange Act
 
(H)     The definitions of “Hedge Agreement”, “Material Accounts”, “Obligations”, and “Secured Obligations” in Subsection 10.1 of the Credit Agreement are hereby amended and restated in their entirety as set forth below:
 
Hedge Agreement” means (i) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (ii) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement.
 
Material Accounts” means (A) all deposit, securities or other investment accounts in the name of the Loan Parties and their respective Subsidiaries (other than Excluded Subsidiaries) at Branch Banking and Trust Company (or such other financial institution with which Borrower maintains its primary banking relationship) and (B) all other deposit, securities or other investment accounts in the name of the Loan Parties and their respective Subsidiaries (other than Excluded Subsidiaries), in each case, to the extent the average daily or interdaily balance of such accounts for the most recently completed six calendar months exceeds $1,000,000 individually or $2,500,000 in the aggregate.
3

First Amendment Agreement/Shenandoah Telecommunications Company

Obligations” means all obligations, liabilities and Indebtedness of every nature of Borrower and all other Loan Parties under the Loan Documents from time to time owed to Administrative Agent, any Lender or any Indemnitee, including, the principal amount of all debts, claims and Indebtedness, accrued and unpaid interest and all indemnities, fees, costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now or from time to time hereafter owing, due or payable, or any combination thereof, whether before or after the filing of a proceeding under the Bankruptcy Code or any Other Debtor Relief Law (whether or not allowed in such proceeding) by or against any Loan Party or any of its respective Subsidiaries; provided however, Excluded Swap Obligations of any Loan Party shall in any event be excluded from “Obligations” owing by such Loan Party.
 
Secured Obligation” means (i) the Obligations and (ii) all obligations of Borrower or any other Loan Party under any Secured Hedge Agreement; provided however, Excluded Swap Obligations of any Loan Party shall in any event be excluded from “Secured Obligations” owing by such Loan Party.
 
(I)     Subsection 10.1 of the Credit Agreement is hereby amended to add the following definitions:
 
Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
 
Excluded Swap Obligation means, with respect to any Loan Party providing a guaranty of or granting a security interest to secure any Swap Obligation of another Loan Party, any Swap Obligation if, and to the extent that, all or a portion of the guaranty of such Loan Party of, or the grant by such Loan Party of a security interest to secure, such Swap Obligation (or any guaranty thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Loan Party’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act (determined after giving effect to Subsection 9.23 and any other “keepwell, support or other agreements” for the benefit of such Loan Party) at the time the guaranty of or grant of such security interest by such Loan Party becomes effective with respect to such related Swap Obligation.  For the avoidance of doubt, if a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such guaranty or grant of security interest is or becomes illegal.
 
Qualified ECP Guarantor” means, in respect of any Swap Obligation, each Loan Party (a) that has total assets exceeding $10,000,000 at the time of such Swap Obligation or any guaranty of or any granting of a security interest to secure obligations under such Swap Obligation becomes effective or (b) that otherwise constitutes an “eligible contract participant” under the Commodity Exchange Act or any regulations promulgated thereunder and can cause another Person to qualify as an “eligible contract participant” at such time by entering into a keepwell under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.
4

First Amendment Agreement/Shenandoah Telecommunications Company
 
Swap Obligation” means, with respect to any Loan Party, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act.
 
SECTION 3.  This Agreement shall not constitute a novation of the Credit Agreement or any other Loan Document.  Except as expressly provided in this Agreement, the execution and delivery of this Agreement does not and will not amend, modify or supplement any provision of, or constitute a consent to or a waiver of any noncompliance with the provisions of, the Loan Documents, and the Loan Documents shall remain in full force and effect.
 
SECTION 4.  Each of the Loan Parties hereby represents and warrants to the Lenders as follows:
 
(A)          Such Loan Party has the right and power, and has taken all necessary action to authorize it, to execute, deliver and perform this Agreement in accordance with its terms.  This Agreement has been duly executed and delivered by such Loan Party and is a legal, valid and binding obligation of it, enforceable against it in accordance with its terms.
 
(B)          The execution, delivery and performance of this Agreement in accordance with its terms do not and will not, by the passage of time, the giving of notice or otherwise,
 
(1)            require any Governmental Approval or violate any Applicable Law relating to such Loan Party;
 
(2)            conflict with, result in a breach of or constitute a default under the organizational documents of such Loan Party, any material provision of any indenture, agreement or other instrument to which it is a party or by which it or any of its properties may be bound or any Governmental Approval relating to it; or
 
(3)            result in or require the creation or imposition of any Lien (except as permitted by the Loan Documents) upon or with respect to any property now owned or hereafter acquired by such Loan Party.
 
(C)            The representations and warranties of such Loan Party set forth in the Loan Documents are true and correct as of the date hereof as if made on the date hereof.
 
(D)            No Event of Default under the Loan Documents has occurred and is continuing as of this date.

SECTION 5.  Borrower hereby confirms and agrees that (a) each Security Document is and shall continue to be in full force and effect, and (b) the obligations secured by each such document include any and all obligations of the Loan Parties to the Secured Parties under the Credit Agreement.
5

First Amendment Agreement/Shenandoah Telecommunications Company
 
SECTION 6.  Each of the Guarantors hereby confirms and agrees that (a) its guarantee contained in the Credit Agreement and each Security Document to which it is a party is and shall continue to be in full force and effect, and (b) the obligations guaranteed or secured by each such applicable document include any and all obligations of the Loan Parties to the Secured Parties under the Credit Agreement.
 
SECTION 7.  This Agreement shall be effective only upon receipt by the Administrative Agent of an execution counterpart hereto signed by Borrower, each Guarantor, and each Lender.
 
SECTION 8.  Borrower agrees to pay to the Administrative Agent, on demand, all reasonable out-of-pocket costs and expenses incurred by the Administrative Agent, including, without limitation, the reasonable fees and expenses of counsel retained by the Administrative Agent, in connection with the negotiation, preparation, execution and delivery of this Agreement and all other instruments and documents contemplated hereby.
 
SECTION 9.  This Agreement may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original and shall be binding upon all parties and their respective permitted successors and assigns, and all of which taken together shall constitute one and the same agreement.
 
SECTION 10.  This Agreement shall be governed by and shall be construed and enforced in accordance with all provisions of the Credit Agreement, including the governing law provisions thereof.

[Signatures Follow on Next Page.]
6

First Amendment Agreement/Shenandoah Telecommunications Company
 
Witness the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above.

 
SHENANDOAH TELECOMMUNICATIONS COMPANY, as Borrower
 
 
 
 
 
 
By:
/s/
 
 
Name:
Christopher E. French
 
 
Title:
President
 

 
SHENANDOAH CABLE TELEVISION LLC,
 
 
SHENTEL CABLE OF SHENANDOAH COUNTY, LLC,
 
 
SHENANDOAH PERSONAL COMMUNICATIONS, LLC,
 
 
SHENANDOAH MOBILE, LLC,
 
 
SHENTEL COMMUNICATIONS, LLC,
 
 
SHENTEL MANAGEMENT COMPANY,
 
 
each as a Guarantor
 
 
 
 
 
 
By:
/s/
 
 
Name:
Christopher E. French
 
 
Title:
President
 

[Signatures continued on following page]

First Amendment Agreement/Shenandoah Telecommunications Company

[Signatures continued from previous page]

 
COBANK, ACB, as Administrative Agent and a Lender
 
 
 
 
 
 
By:
/s/
 
 
 
Gloria Hancock
 
 
 
Vice President
 

[Signatures continued on following page]


First Amendment Agreement/Shenandoah Telecommunications Company

[Signatures continued from previous page]

 
AgFirst Farm Credit Bank, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
John W. Burnside, Jr.
 
Title:
Vice President

 
Farm Credit Bank of Texas, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
Nicholas King
 
Title:
Vice President

 
Farm Credit Services of America, FLCA, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
Ben Fogle
 
Title:
Vice President

[Signatures continued on following page]

First Amendment Agreement/Shenandoah Telecommunications Company

[Signatures continued from previous page]

 
Farm Credit Mid-America, FLCA, fka Farm Credit Services of Mid-America, FLCA, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
Ralph Bowman
 
Title:
Vice President Capital Markets

 
United FCS, FLCA d/b/a FCS Commercial Finance Group, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
Jeremy Voigts
 
Title:
Vice President

 
GreenStone Farm Credit Services, ACA/FLCA, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
Jeff Pavlik
 
Title:
Vice President

[Signatures continued on following page]

First Amendment Agreement/Shenandoah Telecommunications Company

 [Signatures continued from previous page]

 
1st Farm Credit Services, FLCA, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
Dale A. Richardson
 
Title:
Vice President, Capital Markets Group

 
MidAtlantic Farm Credit FLCA, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
William J. Rutta
 
Title:
Vice President

 
AgStar Financial Services, FLCA, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
Troy Mostaert
 
Title:
VP Capital Markets

[Signatures continued on following page]

First Amendment Agreement/Shenandoah Telecommunications Company

 [Signatures continued from previous page]

 
AgChoice Farm Credit, FLCA, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
Mark F. Kerstetter
 
Title:
Vice President

 
Frontier Farm Credit, ACA, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
Stuart R. Hays
 
Title:
Vice President

 
Northwest Farm Credit Services, FLCA, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
Mark Westfall
 
Title:
Vice President

[Signatures continued on following page]

First Amendment Agreement/Shenandoah Telecommunications Company

 [Signatures continued from previous page]

 
Farm Credit West, FLCA, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
Ben Madonna
 
Title:
Vice President

 
Badgerland Financial, FLCA, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
Terry A. McMahon
 
Title:
Chief Credit Officer

 
American Ag Credit, FLCA, as a voting participant pursuant to Subsection 8.1(D) of the Credit Agreement
 
 
 
 
By:
/s/
 
Name:
Edwin A. Adams, Jr.
 
Title:
Vice President
 
 


Exhibit 10.44
 
EXECUTION VERSION

JOINDER AGREEMENT
 
THIS JOINDER AGREEMENT (this “Joinder”), dated as of January 30, 2014 and effective as of January 1, 2014, is among SHENTEL CABLE OF SHENANDOAH COUNTY, LLC, a Virginia limited liability company (“New Subsidiary”), SHENANDOAH TELECOMMUNICATIONS COMPANY, a Virginia corporation (“Borrower”), the Guarantors under the Credit Agreement (as hereinafter defined), the Grantors under the Pledge and Security Agreement (as defined in the Credit Agreement), and CoBANK, ACB, as Administrative Agent (“Administrative Agent”) under that certain Amended and Restated Credit Agreement, dated as of September 14, 2012, among Borrower, the Guarantors party thereto, Administrative Agent, CoBank, ACB, as a Lender, and such other Lenders as may from time to time become a party thereto (as amended, modified, extended or restated from time to time, the “Credit Agreement”).  All of the defined terms in the Credit Agreement are incorporated herein by reference.
 
Borrower is required by Subsection 2.12 of the Credit Agreement to cause New Subsidiary to become a “Guarantor” and a “Loan Party” thereunder and to become a “Guarantor” and a “Grantor” under the Pledge and Security Agreement.  New Subsidiary will obtain benefits as a result of the continued extension of credit to Borrower under the Credit Agreement, which benefits are hereby acknowledged, and, accordingly, desires to execute and deliver this Joinder.  Therefore, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and to induce the Lenders to continue to extend credit to Borrower under the Credit Agreement, New Subsidiary, Borrower, each existing Guarantor, each existing Grantor and Administrative Agent, for the benefit of the Secured Parties, hereby agree as follows:
 
1. New Subsidiary and Administrative Agent, on behalf of itself and the Lenders, hereby acknowledge, agree and confirm that, by New Subsidiary’s execution of this Joinder, New Subsidiary will be deemed to be a party to the Credit Agreement and a “Guarantor” and a “Loan Party” for all purposes of the Credit Agreement, including, Subsection 9.20 thereof, and the other Loan Documents, and shall have all of the obligations and rights of a Guarantor and a Loan Party thereunder as if it had executed the Credit Agreement and the other Loan Documents.  New Subsidiary hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the Loan Documents, including, (i) all of the representations and warranties of a Loan Party set forth in Section 5 of the Credit Agreement, (ii) all of the affirmative and negative covenants set forth in Sections 2, 3 and 4 of the Credit Agreement, and (iii) the right of set off set forth in Subsection 6.7 of the Credit Agreement.  Without limiting the generality of the foregoing terms of this paragraph 1, New Subsidiary hereby jointly and severally, together with the other Guarantors, unconditionally and irrevocably guarantees as primary obligor and not merely as surety the full and prompt payment when due, whether upon maturity, by acceleration or otherwise, of any and all Secured Obligations strictly in accordance with the terms thereof, on order, or demand, and that in the case of any extension of time of payment or renewal of any of the Secured Obligations of Borrower, the same will be promptly paid in full when due in accordance with the terms of such extension or renewal, all as provided in the Credit Agreement, including, Subsection 9.20 of the Credit Agreement.

2. New Subsidiary and Administrative Agent, on behalf of itself and the Lenders, hereby acknowledge, agree and confirm that, by its execution of this Joinder, New Subsidiary will be deemed to be a party to the Pledge and Security Agreement and a “Guarantor” and a “Grantor” for all purposes of the Pledge and Security Agreement and the other Loan Documents, and shall have all the obligations and rights of a Guarantor and a Grantor thereunder as if it had executed the Pledge and Security Agreement.  New Subsidiary hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the Pledge and Security Agreement, including, all of the representations and warranties and all of the negative and affirmative covenants set forth in the Pledge and Security Agreement.  Without limiting the generality of the foregoing terms of this paragraph 2, New Subsidiary hereby grants to Administrative Agent, for the benefit of the Secured Parties, a continuing security interest in its Collateral, all on the terms and subject to the conditions set forth in the Pledge and Security Agreement.
 
3. New Subsidiary acknowledges and confirms that it has received a copy of the Credit Agreement and the schedules and exhibits thereto and the Pledge and Security Agreement and the annexes and exhibits thereto.  Each of the parties hereto acknowledges and agrees that the information on the schedules to the Credit Agreement and annexes to the Pledge and Security Agreement are hereby amended to provide the information shown on the attached Schedule A.
 
4. Except to the extent excluded pursuant to Section 2.3 of the Pledge and Security Agreement, each of the parties hereto acknowledges and confirms that the Equity Interests described in the Annex A to the attached Schedule A are part of the Equity Interests within the meaning of the Pledge and Security Agreement and are part of the Collateral and secure all of the Secured Obligations as provided in the Pledge and Security Agreement.
 
5. Each of Borrower, the existing Guarantors, and the existing Grantors confirms that all of its obligations under the Credit Agreement, the Pledge and Security Agreement, and the other Loan Documents are, and upon the New Subsidiary becoming a Guarantor and Grantor, shall continue to be, in full force and effect.  The parties hereto confirm and agree that immediately upon the New Subsidiary becoming a Guarantor and Grantor the term “Obligations” and “Secured Obligations”, as used in the Credit Agreement, the Pledge and Security Agreement and the other Loan Documents, shall include all obligations of the New Subsidiary under the Credit Agreement, the Pledge and Security Agreement and under each other Loan Document.
2

6. Each of Borrower, New Subsidiary, the existing Guarantors and the existing Grantors agree that at any time and from time to time, upon the written request of Administrative Agent, they will execute and deliver such further documents and do such further acts and things as Administrative Agent may reasonably request in order to effect the purposes of this Joinder.
 
7. This Joinder may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute one contract.
 
8. This Joinder shall be governed by and shall be construed in accordance with the internal laws of the State of Colorado, without regard to conflicts of law principles that require or permit application of the laws of any other state or jurisdiction.
 
9. This Joinder shall be governed by and shall be construed and enforced in accordance with all provisions of the Credit Agreement.

[Remainder of page intentionally left blank]
3

IN WITNESS WHEREOF, each of Borrower, New Subsidiary, the existing Guarantors, the existing Grantors and Administrative Agent, for the benefit of Administrative Agent and the other Secured Parties, has caused this Joinder to be duly executed by its authorized officer as of the day and year first above written.
 
 
SHENANDOAH TELECOMMUNICATIONS COMPANY, as Borrower and a Grantor
 
 
 
 
 
 
By:
/s/
 
 
 
Name: Christopher E. French
 
 
 
Title: President
 

 
SHENTEL CABLE OF SHENANDOAH COUNTY, LLC, as the New Subsidiary
 
 
 
 
 
 
By:
/s/
 
 
 
Name: Christopher E. French
 
 
 
Title: President
 

 
SHENANDOAH CABLE TELEVISION, LLC,
 
 
SHENANDOAH PERSONAL COMMUNICATIONS, LLC,
 
 
SHENANDOAH MOBILE, LLC,
 
 
SHENTEL MANAGEMENT COMPANY,
 
 
SHENTEL COMMUNICATIONS, LLC, as existing Guarantors and existing Grantors
 
 
 
 
 
 
By:
/s/
 
 
 
Name: Christopher E. French
 
 
 
Title: President
 

 
COBANK, ACB,
 
 
as Administrative Agent
 
 
 
 
 
 
By:
/s/
 
 
 
Name: Gloria Hancock
 
 
 
Title: Vice President
 
 



Exhibit 10.45

ADDENDUM XVI
TO
SPRINT PCS MANAGEMENT AGREEMENT
 
Manager:                      Shenandoah Personal Communications, LLC
 
Service Area:            Altoona, PA #12
Hagerstown, MD-Chambersburg, PA-Martinsburg, WV #179
Harrisburg, PA #181
Harrisonburg, VA #183
Washington, DC (Jefferson County, WV only) #471
Winchester, VA #479
York-Hanover, PA #483

This Addendum XVI dated as of December 9, 2013, contains certain additional and supplemental terms and provisions to that certain Sprint PCS Management Agreement entered into as of November 5, 1999, by the same parties as this Addendum (or their predecessors in interest), which Management Agreement was initially amended by Addenda I-XV (as so amended, the "Management Agreement"). The terms and provisions of this Addendum control, supersede and amend any conflicting terms and provisions contained in the Management Agreement. Except for express modifications made in this Addendum, the Management Agreement continues in full force and effect.
 
Capitalized terms used and not otherwise defined in this Addendum have the meanings ascribed to them in the Management Agreement. Section and Exhibit references are to Sections and Exhibits of the Management Agreement unless otherwise noted.

This Addendum is effective on the date written above (the "Effective Date"). On the Effective Date, the Management Agreement is modified as follows:
 
I.    Spectrum  Availability in the Altoona, PA BTA.  The Parties acknowledge that Sprint PCS has entered  into a spectrum swap transaction with an unrelated third party in which Sprint PCS will transfer certain spectrum in the Altoona, PA BTA and receive in return certain alternative spectrum in the Altoona, PA BTA (the "Spectrum Swap"). The Spectrum Swap will not result in a net change to the amount of spectrum made available to Manager but will result in adjustment of the specific frequency ranges made available for Manager's use in the Altoona, PA BTA under this Agreement. Sprint PCS will notify Manager of the date the Spectrum Swap has been completed and received all necessary approvals (the "Spectrum Swap Effective Date"). The Spectrum Swap Effective Date is expected to occur in the first or second quarter of 2014.  Following the Effective Date, but beginning no sooner than Jan.1, 2014, Sprint PCS will cause the re-tuning of Manager's equipment to the new frequencies.  All costs and expenses charged by Sprint's vendor in connection with re-tuning of Manager's equipment shall be borne by Sprint and paid by Sprint directly to the vendor.   Immediately upon the Spectrum Swap Effective Date: (i) the 1860-1865 MHz on the uplink and 1940-1945 MHz on the downlink spectrum ranges in the Altoona, PA BTA will no longer be available to Manager; and (ii) the following spectrum ranges will become available for use by Manager in the Altoona, PA Service Area with respect to CDMA and LTE: 1905-1910 MHz on the uplink and 1985-1990 MHz on the downlink.
1

2.          Exclusivity. Upon the Spectrum Swap Effective Date, Section 2.3(a) of the Management Agreement is amended to read as follows:

2.3 Exclusivity

 
(a)
Subject only to the exceptions set forth in Section 2.3(d) Manager will be the only person or entity that is a manager, operator or provider of wireless mobility services for Sprint PCS and its Related Parties in the Service Area in the: (i) 1850-1865 MHz and 1870-1885 MHz spectrum ranges on the uplink and 1930-1945 and 1950-1965 MHz spectrum ranges on the downlink with respect to CDMA and LTE in the applicable Shentel Territory; provided, however, that with respect to the Altoona, PA BTA only, the applicable spectrum ranges for purposes of this Section 2.3(a)(i) are 1850-1860 MHz, 1870-1885MHz and 1905-1910 MHz spectrum ranges on the uplink and  1930-1940 and  1950-1965 and  1985-1990 MHz spectrum  ranges on the downlink; (ii) the 1900 MHz PCS G-Block Spectrum Range. with respect to CDMA and LTE, effective upon the Network Vision Completion Date; and (iii) the former iDEN Block in the 800 MHz Spectrum Range (with respect to  CDMA and LTE products and services only), subject to the limitations set forth below in this Section 2.3(a) and upon receipt of written approval from Sprint PCS.   The amount of spectrum in the 800 MHz Spectrum Range made available to Manager by Sprint PCS may vary between BTAs  based on re-banding schedules, conflicts  with local incumbents, conflicts with  residual iDEN usage, regulatory approvals, and other factors. Sprint PCS will notify Manager in writing of specific spectrum availability in each BTA as determined by Sprint PCS in its sole discretion as of the Network Vision Completion Date, and thereafter as additional portions of the 800 MHz Spectrum Range become available.  Manager agrees to comply with all FCC rules related to interference mitigation during its management of spectrum in the 800 MHz Spectrum Range. The rights to manage, operate and provide wireless mobility services utilizing the spectrum ranges set forth in (i) - (iii) in the preceding sentence are collectively referred to as the "Exclusive Rights." Neither Sprint PCS nor any of its Related Parties will permit any other person or entity to manage, operate or provide wireless mobility services in violation of the Exclusive Rights for Sprint PCS and/or its Related Parties in the Service Area, except that Sprint PCS may enter into roaming arrangements with other parties. For purposes of this Section 2.3, "mobility" means the capability to sustain a continuous session (voice or data) throughout a broad geographic area by transferring the session from cell site to cell site as the mobile device moves within the geographic area. For purposes of clarification, Wi-Fi is not a wireless mobility service unless such service can be transferred from cell site to cell site.
2

3.      Manager and Sprint PCS' Representations.  Manager  and  Sprint  PCS  each represents and warrants that its respective  execution, delivery and performance of its obligations described  in this  Addendum  have  been duly authorized  by proper action  of its governing  body and do not and will not violate any material agreements  to which it is a party.  Each of Manager and  Sprint  PCS also  represents  and  warrants  that  there are  no legal  or  other  c1aims, actions, counterclaims,  proceedings  or  suits,   at  law  or  in  arbitration   or  equity,   pending  or,  to  its knowledge,  threatened  against  it, its Related  Parties, officers  or directors  that question  or may affect   the  validity   of  this  Addendum, the  execution   and  performance  of  the  transactions contemplated  by  this  Addendum    or   that   party's   right   or  obligation  to  consummate the transactions contemplated by this Addendum.
 
4.      Reaffirmation of Sprint Agreements. Each of the undersigned reaffirms in their entirety, together with their respective rights and obligations thereunder, the Management Agreement, the Services Agreement, the Trademark and Service Mark License Agreements, and the Schedule of Definitions (as defined in the Management Agreement).

5.      Counterparts.