UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
☐ 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
(State or other jurisdiction of incorporation or organization)
54-1162807
(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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Common Stock (No Par Value)
SHEN
NASDAQ Global Select Market
(Title of Class)
(Trading Symbol)
(Name of Exchange on which Registered)
50,048,651
(The number of shares of the registrant's common stock outstanding on
February 23, 2022)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant at June 30, 2021 based on the closing price of such stock on the Nasdaq Global Select Market on
such date was approximately $1.7 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement relating to its 2022 annual meeting of shareholders (the “2022 Proxy Statement”) are incorporated by reference into Part III of this Annual
Report on Form 10-K where indicated. The 2022 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this
report relates.
Auditor Name:
KPMG LLP
Auditor Location:
McLean, Virginia
Auditor Firm ID:
185
Item
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SHENANDOAH TELECOMMUNICATIONS COMPANY
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
PART I
PART II
Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships, Related Transactions and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS:
PART I
This annual report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities
Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regarding, among other things, our plans, strategies and
prospects, both business and financial including, without limitation, the forward-looking statements set forth in Part I. Item 1, under the heading “Business”
and in Part II. Item 7, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this annual report.
Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot
assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties
and assumptions, including, without limitation, the factors described in Part I. Item 1A, under “Risk Factors” and in Part II. Item 7, under the heading,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this annual report. Many of the forward-looking statements
contained in this annual report may be identified by the use of forward‑looking words such as “believe,” “expect,” “anticipate,” “should,” “planned,”
“will,” “may,” “intend,” “estimated,” “aim,” “on track,” “target,” “opportunity,” “tentative,” “positioning,” “designed,” “create,” “predict,” “project,”
“initiatives,” “seek,” “would,” “could,” “continue,” “ongoing,” “upside,” “increases” and “potential,” among others. Important factors that could cause
actual results to differ materially from the forward-looking statements we make in this annual report are set forth in this annual report and in other reports
or documents that we file from time to time with the SEC, and include, but are not limited to:
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our ability to sustain and grow revenues and cash flow from operations by offering broadband internet, video, voice, cell tower space, fiber optic
network services and other services to residential and commercial customers, to adequately meet the customer demands in our service areas and to
maintain and grow our customer base, particularly in the face of increasingly aggressive competition, the need for innovation and the related
capital expenditures;
the impact of competition from other market participants, including but not limited to fiber to the home providers, incumbent telephone
companies, direct broadcast satellite ("DBS") operators, wireless broadband and telephone providers, digital subscriber line (“DSL”) providers,
incumbent cable providers, video provided over the Internet by (i) market participants that have not historically competed in the multichannel
video business, (ii) traditional multichannel video distributors, and (iii) content providers that have historically licensed cable networks to
multichannel video distributors, and providers of advertising over the Internet;
the ability to acquire fiber optic cable, consumer premise equipment, and other materials and equipment in a timely manner needed to expand our
network and customer base and maintain our current operations;
the availability of cash on hand and access to capital to fund the growth of capital expenditures needed to execute our business plan,
natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as COVID-19;
general business conditions, inflation, economic uncertainty or downturn, unemployment levels and the level of activity in the housing sector;
our ability to obtain programming at reasonable prices or to raise prices to offset, in whole or in part, the effects of higher programming costs;
our ability to develop and deploy new products and technologies including mobile products and any other consumer services and service
platforms;
any events that disrupt our networks, information systems or properties and impair our operating activities or our reputation;
the ability to retain and hire key personnel;
our ability to comply with all covenants in our credit facility, any violation of which, if not cured in a timely manner, could trigger an event of
default.
All forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by this cautionary statement.
We are under no duty or obligation to update any of the forward-looking statements after the date of this annual report.
Unless we indicate otherwise, references in this report to “we,” “us,” “our,” “Shentel” and “the Company” means Shenandoah Telecommunications
Company and its subsidiaries.
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ITEM 1. BUSINESS
Our Company
Shenandoah Telecommunications Company (“Shentel”, “we”, “our”, “us”, or the “Company”), provides broadband services through its high
speed, state-of-the-art cable, fiber-optic and fixed wireless networks to customers in the Mid-Atlantic United States. The Company's services
include: broadband internet, video, and voice; fiber-optic Ethernet, wavelength and leasing; and tower colocation leasing. The Company owns
an extensive regional network with over 7,400 route miles of fiber and over 220 macro cellular towers. For more information, please visit
www.shentel.com.
Description of Business
Broadband Reporting Segment
Our Broadband segment provides broadband internet, video and voice services to residential and commercial customers in portions of Virginia,
West Virginia, Maryland, Pennsylvania, and Kentucky, via fiber optic services under the brand name of Glo Fiber, hybrid fiber coaxial cable
under the brand name of Shentel, and fixed wireless network services under the brand name of Beam. The Broadband segment also leases dark
fiber and provides Ethernet and wavelength fiber optic services to enterprise and wholesale customers throughout the entirety of our service
area. The Broadband segment also provides voice and DSL telephone services to customers in Virginia’s Shenandoah County and portions of
adjacent counties as a Rural Local Exchange Carrier (“RLEC”). These integrated networks are connected by an approximately 7,400 fiber route
mile network. The Broadband segment served 203,655 Revenue Generating Units ("RGUs") at December 31, 2021, representing an increase of
8.2%, from December 31, 2020.
Tower Reporting Segment
Our Tower segment owns over 220 macro cell towers and leases colocation space on the towers to wireless communications providers.
Substantially all of our owned towers are built on ground that we lease from the respective landlords.
Competition
Broadband competition
As the incumbent cable provider passing over 211,000 homes, we primarily compete directly against the incumbent local telephone companies
such as Lumen Technologies, Inc. (CenturyLink, Inc.), Frontier Communications Corp. and Verizon, who are generally provisioning broadband
services over hybrid fiber and copper-based networks, and indirectly from wireless substitution as the bandwidth speeds from wireless providers
have increased with network upgrades to 4 and 5 generation technology. Our Fiber to the Home (“Glo Fiber”) service passes over 75,000
homes and is competing against the incumbent local telephone company such as Verizon with hybrid fiber and copper-based networks and the
incumbent cable company such as Comcast utilizing hybrid fiber coaxial networks. Our recently launched fixed wireless broadband service
(“Beam”) passes over 28,000 homes and is competing against satellite providers, other fixed wireless providers, mobile wireless service
providers and in certain cases the incumbent local telephone company with hybrid fiber and copper-based network.
th
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Competition is also intense and growing in the market for video services. Incumbent cable television companies, which have historically
provided video service, face competition from direct broadcast satellite providers such as Dish and DirecTV and on-line video services, such as
Netflix, YouTube TV, Hulu, Disney and Amazon. Our ability to compete effectively with our competitors in video will depend, in part, on price,
content cost and variety and the convenience of our service offerings.
A continuing trend toward consolidation, mergers, acquisitions and strategic alliances in the telecommunications industry could also increase
the level of competition we face by further strengthening of our competitors.
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Tower competition
We compete with other public tower companies, such as American Tower Co., Crown Castle International Corp., SBA Communications Corp.,
and private tower companies, private equity sponsored firms, carrier-affiliated tower companies, and owners of other alternative structures. We
believe that site location and capacity, price, and leasing terms have been, and will continue to be, significant competitive factors affecting
owners, operators and managers of communications sites.
Regulation
Our operations are subject to regulation by the Federal Communications Commission (“FCC”), the Virginia State Corporation Commission
(“VSCC”), the West Virginia Public Service Commission, the Maryland Public Service Commission, the Pennsylvania Public Utility
Commission, the Kentucky Public Service Commission and other federal, state, and local governmental agencies. The laws governing these
agencies, and the regulations and policies that they administer, are subject to constant review and revision, and some of these changes could
have material impacts on our revenues and expenses.
Regulation of Broadband Internet and Cable Video Services
We provide broadband internet, cable and fiber services to residential and business customers in franchise areas covering portions of Virginia,
West Virginia, western Maryland, central Pennsylvania and eastern Kentucky.
The provision of cable service generally is subject to regulation by the FCC, and cable operators typically also must comply with the terms of
the franchise agreement between the cable operator and the state or local franchising authority. Some states, including Virginia and West
Virginia, have enacted regulations and franchise provisions that also can affect certain aspects of a cable operator’s operations. Our business can
be significantly impacted by changes to the existing regulatory framework, whether triggered by legislative, administrative, or judicial rulings.
The FCC originally classified broadband Internet access services, such as those we offer, as an information service, which by law exempts the
service from traditional common carrier communications laws and regulations. In 2015, the FCC determined that broadband Internet access
services, such as those we offer, were a form of telecommunications service under the Communications Act and, on that basis, imposed rules
(commonly referred to as "Net Neutrality" rules) banning service providers from blocking access to lawful content, restricting data rates for
downloading lawful content, prohibiting the attachment of non-harmful devices, giving special transmission priority to affiliates, and offering
third parties the ability to pay for priority routing. The 2015 rules also imposed a transparency requirement, i.e., an obligation to disclose all
material terms and conditions of our service to consumers.
In 2017, the FCC adopted an order repudiating its treatment of broadband as a telecommunications service, reclassifying broadband as an
information service, and eliminating the 2015 rules other than the transparency requirement, which it eased in significant ways. The FCC also
ruled that state regulators may not impose obligations similar to federal obligations that the FCC removed. In 2019, the U.S. Court of Appeals
for the District of Columbia upheld the information service reclassification, but vacated the FCC’s blanket prohibition of state utility regulation
of broadband services. The court left open the possibility that individual state laws could still be deemed preempted on a case-by-case basis if it
is shown that they conflict with federal law. In October 2020 the FCC, responding to the court’s remand order, issued a further decision
clarifying certain aspects of its earlier order. In this decision the FCC re-classified broadband internet access service as an unregulated
information service, thus eliminating all federal regulatory "network neutrality" obligations beyond requiring broadband providers to accurately
disclose network management practices, performance, and commercial terms of service. These issues may be revisited by the FCC in the current
administration. At the same time, several states (including California, but not anywhere we operate) have adopted state obligations replacing the
Internet access (“net neutrality” type) obligations that the FCC removed, and we expect that additional states will consider the imposition of
new regulations on Internet services like those that we offer. For example, New York adopted legislation that would have required Internet
service providers to offer a discounted Internet service to qualifying low-income consumers, but a federal district judge enjoined enforcement as
likely to be deemed rate regulation of Internet service that would be preempted by federal law. Other state laws and regulations may be adopted
in the future, but will likely be subject to legal challenges. California’s legislation has been challenged in court. We cannot predict how any such
state legislation and court challenges will be resolved. Various governmental jurisdictions are also considering additional regulations in these
and other areas, such as privacy, pricing, service and product quality, imposition of local franchise fees on Internet-related revenue and
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taxation. The adoption of new Internet regulations or the adaptation of existing laws to the Internet, including potential liability for the
infringing activities of Internet subscribers, could adversely affect our business.
Moreover, irrespective of these cases, and as recent history has shown, it is possible that the FCC might further revise its approach to broadband
Internet access in the future, or that Congress might enact legislation affecting the rules applicable to the service.
As the Internet has matured, it has become the subject of increasing regulatory interest. Congress and Federal regulators have adopted a wide
range of measures directly or potentially affecting Internet use. The adoption of new Internet regulations or policies could adversely affect our
business.
On January 29, 2015, the FCC, in a nation-wide proceeding evaluating whether advanced broadband is being deployed in a reasonable and
timely fashion, increased the minimum connection speeds required to qualify as advanced broadband service to 25 Mbps for downloads and 3
Mbps for uploads. As a result, the FCC concluded that advanced broadband was not being sufficiently deployed and initiated a new inquiry into
what steps it might take to encourage broadband deployment. This action may lead the FCC to adopt additional measures affecting our
broadband business. The FCC has ongoing proceedings to allocate additional spectrum for advanced wireless service, which could provide
additional wireless competition to our broadband business.
Federal and state governments have launched numerous programs to provide subsidies for the construction of high-speed broadband facilities to
unserved homes that do not have access to broadband service of 25 Mbps for downloads and 3 Mbps for uploads. The largest of these is the
recently enacted $42.5 billion appropriation in the Infrastructure Investment and Jobs Act for broadband construction and adoption programs
that prioritize currently unserved areas. In addition, funding from the recently adopted American Rescue Plan Act, the Coronavirus Aid, Relief,
and Economic Security Act, and the FCC’s Rural Digital Opportunities Fund, and state programs such as the Virginia Telecommunications
Initiative (VATI) and West Virginia Broadband Development Fund are likely to subsidize broadband construction to unserved homes.
On January 30, 2020, the FCC adopted an order approving the Rural Digital Opportunity Fund (RDOF) to disburse $20.4 billion over the course
of ten years to subsidize the deployment of networks for the provision of high-speed broadband internet access and voice services in unserved
areas via a reverse auction, some of which may be directed to competitive providers in some of the states in which we operate. We prevailed as a
winning bidder in the first RDOF auction of approximately $5.9 million in Virginia and West Virginia to provide broadband and voice service to
unserved areas. Final award of that support is subject to further FCC review of the Company’s long-form application and supporting materials.
In addition, our ability to receive this support is dependent upon satisfying network build out, service delivery and other obligations under FCC
regulations. Following release of the auction award winners, the FCC asked some companies to reconsider whether the areas they targeted for
deployment were in fact unserved. We have considered that question in certain areas where the company won RDOF funding and have filed a
request with the FCC seeking relief from the obligations to build networks in certain areas that will soon be, or already are, served by other
providers. We may be subject to penalties or other adverse action if the FCC does not grant the requested relief.
In 2021, Congress passed the America Rescue Plan Act that provided $1.0 billion in funding to the states in which we operate for broadband
infrastructure expansion. In November 2021, Congress passed the Infrastructure Investment and Jobs Act that will provide an additional $42.5
billion to states to fund broadband construction and adoption programs that prioritize the expansion of high-speed broadband to unserved
markets across the country. With the influx of government grants now available to subsidize broadband fiber to the home (FTTH) construction,
we decided to cease our expansion of our Beam fixed wireless network as it is not designed to compete against the faster broadband services
offered by fiber networks. Competitors that are awarded funds to serve unserved areas near our network may by necessity or choice build new
facilities that pass through our existing service territories, which could result in increased competition for our broadband service offerings.
Federal Treasury guidance on utilizing funds will be based on a broadband definition of 100 mbps download and 20 mbps upload speeds. These
speeds could limit the efficiency of utilizing some types of broadband services like fixed wireless. These definitions and the competitive bidding
for build out to underserved markets by other internet service providers could put at risk our current fixed wireless deployments, including the
plans to build out our RDOF awarded bids.
Our Beam Internet service is provisioned over a fixed wireless network using radio spectrum licensed, or available to, the Company. Beam
Internet service is directly or indirectly subject to many of the same regulations discussed in
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this section, including but not limited to spectrum allocation and licensing, disclosure of network management practices, consumer privacy,
cybersecurity, facilities siting, pole attachments, accessibility and various consumer protection requirements.
Pricing and Packaging. Our cable services are no longer subject to rate regulation and our Internet services have never been rate-regulated. In
December 2020 these services became subject to a federal law requiring itemization of certain charges in notices and invoices to customers, and
we must also comply with generally-applicable marketing and advertising requirements. Congress and the FCC from time to time have
considered imposing new pricing, packaging and consumer protection restrictions on cable operators. We cannot predict whether or when any
such new marketing restrictions may be imposed on us or what effect they would have on our ability to provide cable service.
Must-Carry/Retransmission Consent. Local broadcast television stations can require a cable operator to carry their signals pursuant to federal
“must-carry” requirements. Alternatively, local television stations may require that a cable operator obtain “retransmission consent” for carriage
of the station’s signal, which can enable a popular local television station to obtain concessions from the cable operator for the right to carry the
station’s signal. Although some local television stations today are carried by cable operators under the must-carry obligation, popular broadcast
network affiliated stations, such as ABC, CBS, FOX, CW and NBC, typically are carried pursuant to retransmission consent agreements. The
retransmission consent costs charged by broadcast networks affiliate stations have increased dramatically over the past decade. We cannot
predict the extent to which such retransmission consent costs may increase in the future or the effect such cost increases may have on our ability
to provide cable service.
Copyright Fees. Cable operators pay compulsory copyright fees, in addition to possible retransmission consent fees, to retransmit broadcast
programming. Although the cable compulsory copyright license has been in place for more than 45 years, there have been legislative and
regulatory proposals to modify or even replace the compulsory license with privately negotiated licenses. We cannot predict whether such
proposals will be enacted and how they might affect our business.
Programming Costs. Non-broadcast channels (including satellite-delivered cable programming, such as ESPN, HBO and the Discovery
Channel) are not subject to must-carry/retransmission consent regulations or a compulsory copyright license. The Company negotiates directly
or through the National Cable Television Cooperative (“NCTC”) with these cable programmers for the right to carry their programming. The
cost of acquiring the right to carry cable programming can increase as programmers demand rate increases.
Franchise Matters. Cable and FTTH operators generally must apply for and obtain non-exclusive franchises from local or state franchising
authorities before providing video and data services. The terms and conditions of franchises vary among jurisdictions, but franchises generally
last for a fixed term and are subject to renewal, require the cable operator to collect a franchise fee of as much as 5% of the cable operator’s
gross revenue from video services, and contain certain service quality and customer service obligations. We believe that our ability to obtain
franchise or our franchise renewal prospects are generally favorable but cannot guarantee the initial franchise award or future renewal of any
individual franchise. A significant number of states today have processes in place for obtaining state-wide franchises, and legislation and
regulation have been introduced from time to time in Congress, the FCC, and in various states, including those in which we provide some form
of video or data service, that would modify franchising processes, potentially lowering barriers to entry and increasing competition in the
marketplace for video services. The states in which we currently operate largely leave franchising responsibility in the hands of local
municipalities and counties, but they govern the local government entities’ award of such franchises and their conduct of franchise negotiations.
We cannot predict the extent to which these rules and other developments will accelerate the pace of new entry into the video or data market or
the effect, if any, they may have on our FTTH and cable operations.
Federal law imposes a 5% cap on franchise fees. In 2019, the FCC clarified that the value of in-kind contribution requirements set forth in cable
franchises (such as channel capacity set aside for public, educational and governmental (PEG) use or free cable service to public buildings) is
subject to the statutory cap on franchise fees, and it reaffirmed that state and local authorities are barred from imposing franchise fees on cable
systems providing non-cable services such as Internet services. Those rules were upheld by a federal court in 2021 but the court limited the
amount of the in-kind franchise fee contribution credit to the operator’s marginal costs rather than its market valuation.
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Pole Attachments. The Communications Act requires investor-owned ("IO") utilities and telecommunications carriers to provide cable systems
with access to poles and conduits and simultaneously subjects the rates, terms and conditions of access to either federal or state regulation. The
FCC rules do not directly affect pole attachment rates in states that self-regulate (rather than allow the FCC to regulate) pole rates, but many of
those states have substantially the same rate for cable and telecommunications attachments. Kentucky, Pennsylvania and West Virginia, three
states in which we operate, self-regulate IO pole attachments but do so in using essentially the same rate formula and other pole attachment
rules as the FCC. The FCC pole attachment rules also do not govern government or cooperatively owned utilities. States, however, are free to
regulate such utilities and some do. Of the states in which Shentel operates, Virginia and Kentucky currently regulate cooperatively owned pole
attachments. In 2018, the FCC interpreted another federal law governing state and local regulation of public rights of way to impose cost-based
limitations on what government entities may charge for pole attachments. This interpretation was upheld against challenge by the United States
Court of Appeals for the Ninth Circuit.
In 2018, the FCC adopted rules to permit a "one-touch" make-ready process for poles subject to its jurisdiction. The "one touch" make-ready
rules allow new attachers to alter certain components of existing attachments for "simple make-ready" (i.e. where the alteration of existing
attachments does not involve a reasonable expectation of a service outage, splicing, pole replacement or relocation of a wireless attachment).
The rules are intended to promote broadband deployment and competition by facilitating competing communications providers' service
deployment. Certain aspects of the rules are still pending reconsideration at the FCC. Other aspects were upheld against challenge by the United
States Court of Appeals for the Ninth Circuit. Although Kentucky, West Virginia and Pennsylvania self-regulate, each of these states have
adopted the FCC’s “one touch” make-ready rules.
Privacy. The Company is subject to various federal and state laws intended to protect the privacy of end-users who subscribe to the Company’s
services. For example, the Communications Act of 1934, as amended (the “Communications Act”), limits our ability to collect, use, and
disclose customers’ personally identifiable information for our cable television/video, voice, and Internet services. We are subject to additional
federal, state, and local laws and regulations that impose additional restrictions on the collection, use and disclosure of consumer information.
Further, the FCC, the Federal Trade Commission (“FTC”), and many states regulate and restrict the marketing practices of communications
service providers, including telemarketing and sending unsolicited commercial emails. The FCC also has regulations that place restrictions on
the permissible uses that we can make of customer-specific information, known as Customer Proprietary Network Information (“CPNI”),
received from telecommunications service subscribers, and that govern procedures for release of such information in order to prevent identity
theft schemes. Other laws impose criminal and other penalties for the violation of certain CPNI requirements and related privacy protections.
The FCC or other regulators may expand these duties. For example, the FCC is currently considering a proposal to expand the CPNI breach
reporting obligations for VoIP and telecommunications providers.
As a result of the FCC’s December 2017 decision to reclassify broadband Internet access service as an “information service,” the FTC has the
authority to enforce against unfair or deceptive acts and practices, to protect the privacy of Internet service customers, including our use and
disclosure of certain customer information.
Many states and local authorities have considered legislative or other actions that would impose additional restrictions on our ability to collect,
use and disclose certain information. California’s Consumer Privacy Act (CCPA) and associated regulations, which became effective in 2020,
and the California Privacy Rights Act, which amended the CCPA and comes into effect in January 2023, under certain circumstances regulate
the collection, use, retention, sale and disclosure of the personal information of California consumers, grants California consumers certain rights
to, among other things, access, correct and delete data about them in certain circumstances, and authorizes enforcement actions by the California
Attorney General, the new California Privacy Protection Agency, and certain limited private class actions. Compliance with the CCPA may
increase the cost of providing our services to customers who may be residents in California and increase our litigation exposure. In 2020 the
Virginia State government enacted a new consumer privacy law. Firms are expected to come into compliance by January 2023. The Virginia
privacy law imposes requirements on companies, like Shentel, regarding the handling of consumer data, including a requirement to conduct data
protection impact assessments; obtain opt-in consent from consumers to use sensitive personal information; and allow consumers to access,
delete, correct, and port their data, among other things. We will be working through 2022 to bring operations in compliance with the new
Virginia law. In 2021, Colorado enacted the Colorado Privacy Act, modeled largely after its predecessor in Virginia and in part after the CCPA ,
which will go into effect on July 1, 2023. We expect continued federal and other state efforts to regulate online privacy, data security and
cybersecurity to continue in 2022. We cannot predict whether any of these efforts will be successful, or how new legislation and regulations, if
any, would affect our business. These efforts have the
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potential to create a patchwork of differing and/or conflicting state and/or federal regulations, and to increase the cost of providing our services.
In addition, restrictions exist, and new restrictions are considered from time to time by Congress, federal agencies and states, on the extent to
which customers may receive unsolicited telemarketing calls, text messages, junk e-mail or spam. Congress, federal agencies and certain states
also are considering, and may in the future consider imposing, additional requirements on entities that possess consumer information to protect
the privacy of consumers. The Company is required to file an annual certification of compliance with the FCC’s CPNI rules. Complying with
these requirements may impose costs on the Company or compel the Company to alter the way it provides or promotes its services.
Accessibility. The FCC imposes obligations on multi-channel video programming distributors ("MVPDs"), intended to ensure that individuals
with disabilities are able to access and use video programming services and equipment. FCC rules require video programming delivered on
MVPD systems to be closed captioned unless exempt and require MVPDs to pass through captions to consumers and to take all steps needed to
monitor and maintain equipment to ensure that captioning reaches the consumer intact. Video programming delivered over the Internet must be
captioned if it was delivered previously on television with captions. An MVPD must also pass through audio description provided in broadcast
and non-broadcast programming if it has the technical capability to do so, unless it is using the required technology for another purpose. FCC
rules also require MVPDs to ensure that critical details about emergencies conveyed in video programming are accessible to persons with
disabilities, and that video programming guides are accessible to persons who are blind or visually impaired. We cannot predict if or when
additional changes will be made to the current FCC accessibility rules, or whether and how such changes will affect us.
Voice over Internet Protocol "VoIP" Services. We provide voice communications services over our cable network utilizing interconnected VoIP
technology and service arrangements. Although similar to telephone service in some ways, our VoIP service arrangement utilizes different
technology and is subject to many of the same rules and regulations applicable to traditional telephone service. The FCC order adopted on
October 27, 2011 established rules governing intercarrier compensation payments for the origination and termination of telephone traffic
between carriers and VoIP providers. In May 2014 the United States Court of Appeals for the Tenth Circuit upheld the FCC order reducing
intercarrier compensation payments. The rules have substantially decreased intercarrier compensation payments we may have otherwise
received over a multi-year period. The decreases over the multi-year transition have affected both the amounts that we pay to
telecommunications carriers and the amounts that we receive from other carriers. The schedule and magnitude of these decreases, however, has
varied depending on the nature of the carriers and the telephone traffic at issue. These changes have had a negative impact on our revenues and
expenses for voice services at particular times over this multi-year period.
Further regulatory changes are being considered that could impact our VoIP service. The FCC and state regulatory authorities have considered,
for example, whether certain common carrier regulations traditionally applied to incumbent local exchange carriers (including RLECs) should
be modified or reduced, and the extent to which common carrier requirements should be extended to VoIP providers. The FCC has required
VoIP providers to comply with several regulations that apply to other telephone services, including 911 emergency services, the
Communications Assistance for Law Enforcement Act ("CALEA"), Universal Service Fund ("USF") contribution, customer privacy and CPNI
issues, number portability, network outage, rural call completion, disability access, battery backup, robocall mitigation, regulatory fees, and
discontinuance of service. We cannot predict whether the FCC will impose additional obligations on our VoIP services in the future.
Our VoIP telephone services are also subject to certain state and local regulatory fees such as E911 fees and contributions to state universal
service funds. Although we believe that VoIP telephone services should otherwise be governed only by federal regulation, some states have
attempted to subject cable VoIP services to state level regulation. In March 2007, a federal appeals court affirmed the FCC’s decision concerning
federal regulation of certain VoIP services, but declined to specifically find that VoIP service provided by cable companies, such as we provide,
should be regulated only at the federal level. As a result, certain states, including West Virginia, began proceedings to subject cable VoIP
services to state-level regulation. Although the West Virginia proceeding concluded without any new state-level regulation, it is difficult to
predict whether it, or other state regulators, will continue to attempt to regulate our VoIP service. Some other state attempts to regulate VoIP
have been blocked by federal courts on the basis of the FCC’s preemption of certain state regulations or on the basis that VoIP services are
information services, but as with Internet services, there is uncertainty as to the extent to which courts will preempt state regulation in the future.
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We have registered with, or obtained certificates or authorizations from, the FCC and the state regulatory authorities in those states in which we
offer competitive voice services in order to ensure the continuity of our services and to maintain needed network interconnection arrangements.
Further, it is also unclear whether and how these and other ongoing regulatory matters ultimately will be resolved.
Other Issues. Our ability to provide video service may be affected by a wide range of additional regulatory and related issues, including FCC
regulations pertaining to licensing of systems and facilities, set-top boxes, equipment compatibility, program exclusivity blackouts, commercial
leased access of video channels by unaffiliated third parties, advertising, maintenance of online public files, accessibility to persons with
disabilities, emergency alerts, equal employment opportunity, privacy, consumer protection, and technical standards. Further, the FCC recently
adopted a plan to reallocate for other purposes certain spectrum currently used by satellite providers to deliver video programming to individual
cable systems, which could be disruptive to the satellite video delivery platform we rely upon to provide our video services. We cannot predict
the nature and pace of these and other developments or the effect they may have on our operations.
Regulation of Shenandoah Telephone Company ("Shenandoah Telephone")
State Regulation. Shenandoah Telephone Company is a rural incumbent local exchange carrier (“RLEC”) serving Shenandoah County, Virginia
and portions of Rockingham and Augusta County Virginia. Shenandoah Telephone’s rates for local exchange service, intrastate toll service, and
intrastate access charges are subject to the approval of the Virginia State Corporation Commission, ("VSCC"). The VSCC also establishes and
oversees implementation of certain provisions of the federal and state telecommunications laws, including interconnection requirements,
promotion of competition, and consumer protection standards. The VSCC also regulates rates, service areas, service standards, accounting
methods, affiliated transactions and certain other financial transactions. Pursuant to the FCC’s October 27, 2011 order adopting comprehensive
reforms to the federal intercarrier compensation and universal service policies and rules (as discussed above and further below), the FCC
preempted state regulatory commissions’ jurisdiction over all terminating access charges, including intrastate terminating access charges, which
historically have been within the states’ jurisdiction. However, the FCC vested in the states the obligation to monitor the tariffing of intrastate
rate reductions for a transition period, to oversee interconnection negotiations and arbitrations, and to determine the network edge, subject to
FCC guidance, for purposes of the new “bill-and-keep” framework. A federal appeals court has affirmed the decision. The outcome of those
further challenges could modify or delay the effectiveness of the FCC’s rule changes. In 2017 the FCC initiated a further proceeding to consider
whether additional changes to interconnection obligations are needed, including how and where companies interconnect their networks with the
networks of other providers. Although we are unable to predict the ultimate effect that the FCC’s order will have on the state regulatory
landscape or our operations, the rules may decrease or eliminate revenue sources or otherwise limit our ability to recover the full value of our
network assets.
Interconnection. Federal law and FCC regulations impose certain obligations on incumbent local exchange carriers (including RLECs) to
interconnect their networks with other telecommunications providers (either directly or indirectly) and to enter into interconnection agreements
with certain types of telecommunications providers. Interconnection agreements typically are negotiated on a statewide basis and are subject to
state approval. If an agreement cannot be reached, parties to interconnection negotiations can submit unresolved issues to federal or state
regulators for arbitration. Disputes regarding intercarrier compensation can be brought in a number of forums (depending on the nature and
jurisdiction of the dispute) including state public utility commissions ("PUCs"), the FCC, and the courts. The Company is working to resolve
routine interconnection and intercarrier compensation-related disputes concerning the volume of traffic exchanged between the Company and
third parties, appropriate access rates, and terms for the origination and termination of traffic on third-party networks.
Regulation of Intercarrier Compensation. Shenandoah Telephone participates in the access revenue pools administered by the FCC-supervised
National Exchange Carrier Association (“NECA”), which collects and distributes the revenues from interstate access charges that long-distance
carriers pay us for originating and terminating interstate calls over our network. Shenandoah Telephone also participates in some NECA tariffs
that govern the rates, terms, and conditions of our interstate access offerings. Some of those tariffs are under review by the FCC, and we may be
obligated to refund affected access charges collected in the past or in the future if the FCC ultimately finds that the tariffed rates were
unreasonable. We cannot predict whether, when, and to what extent such refunds may be due.
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On October 27, 2011, the FCC adopted a number of broad changes to the intercarrier compensation rules governing the interstate access rates
charged by small-to-mid-sized RLECs such as Shenandoah Telephone that have had a material impact on our revenues. For example, the FCC
adopted a national “bill-and-keep” framework, which will result in substantial reductions in the access charges paid by long distance carriers
and other interconnecting carriers, possibly to zero, accompanied by increases to the subscriber line charges paid by business and residential end
users. In addition, the FCC has changed some of the rules that determine what compensation voice service providers, including but not limited
to wireless carriers, competitive local exchange carriers, VoIP providers and providers of other Internet-enabled services, should pay and receive
for originating and terminating traffic that is interconnected with RLEC networks.
The VSCC has jurisdiction over local telephone companies’ intrastate intercarrier compensation rates, and has indicated in the past that it might
open a generic proceeding on the rates charged for intrastate access, although the scope and likelihood of such a proceeding is unclear in light of
the FCC’s overhaul of the intercarrier compensation rules (discussed above), which affect states’ jurisdiction over intrastate access charges.
Universal Service Fund. Shenandoah Telephone receives disbursements from the federal USF. In October 2011, the FCC adopted
comprehensive changes to the universal service program. Some of the FCC’s reforms impact the rules that govern disbursements from the USF
to RLECs such as Shenandoah Telephone, and to other providers. These rules have resulted in a substantial decrease in intercarrier
compensation payments over a multi-year period. The Company is not able to predict if or when additional changes will be made to the USF, or
whether and how such changes would affect the extent of our total federal universal service assessments, the amounts we receive, or our ability
to recover costs associated with the USF.
If the Universal Service Administrative Company (“USAC”) were required to account for the USF program in accordance with generally
accepted accounting principles for federal agencies under the Anti-Deficiency Act (the “ADA”), it could cause delays in USF payments to fund
recipients and significantly increase the amount of USF contribution payments charged to wireline and wireless consumers. Each year since
2004, Congress has adopted short-term exemptions for the USAC from the ADA. Congress has from time to time considered adopting a longer
term exemption for the USAC from the ADA, but we cannot predict whether any such exemption will be adopted or the effect it may have on
the Company.
In 2012, the FCC released an order making substantial changes to the rules and regulations governing the federal USF Lifeline Program, which
provides discounted telephone services to low income consumers. The order imposes greater recordkeeping and reporting obligations, and
generally subjects providers of Lifeline-supported services to greater oversight. In 2016, the FCC released a second substantial Lifeline order
that amended the program to provide support for broadband services and phase out support for voice services. Included among the new rules
was a requirement that any eligible telecommunications carrier ("ETC") which offered broadband service, on its own or through an affiliate,
must also offer Lifeline-supported broadband service. Due to this requirement, our Company began offering Lifeline-supported broadband in
areas where it operates as an ETC. In 2017, the FCC released a Lifeline order that included clarifications to the 2016 Lifeline order and
proposed reforms aimed at improving program integrity. As a result of our Company providing Lifeline-supported services, we are subject to
increased reporting and recordkeeping requirements, and could be subject to increased regulatory oversight, investigations or audits.
In May 2021, the FCC introduced the temporary Emergency Broadband Benefit ("EBB") program to help qualifying disadvantaged households
pay for Internet service. The EBB program provides a subsidy of up to $50 per month toward Internet service to the service provider for most
eligible low-income households that elect the benefit and demonstrate their qualification. Congress extended this benefit indefinitely through the
new Affordable Connectivity Program (ACP) that in 2022 is replacing EBB with a $30 subsidy for service provided to most of the same
consumers. These programs are beneficial to participating service providers by increasing the number of customers who can afford and pay for
Internet services. At the same time, participation entails some risk because subsidies will not be received if the customer switches to another
provider or if the service provider does not fulfill all program requirements. Non-participation would make it more difficult to compete as
effectively for business from low-income consumers. The FCC, USAC and other authorities have conducted, and in the future are expected to
continue to conduct, more extensive audits of USF support recipients, as well as other heightened oversight activities. The impact of these
activities on the Company, if any, is uncertain.
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Other Regulatory Obligations. Shenandoah Telephone is subject to requirements relating to CPNI, CALEA implementation, interconnection,
access to rights of way, number portability, number pooling, accessibility of telecommunications for those with disabilities, robocalls mitigation,
and protection for consumer privacy.
The FCC and other authorities continue to consider policies to encourage nationwide advanced broadband infrastructure development. For
example, the FCC has largely deregulated DSL and other broadband services offered by RLECs. Such changes benefit our RLEC, but could
make it more difficult for us (or for NECA) to tariff and pool DSL costs. Broadband networks and services are subject to CALEA rules, network
management disclosure and prohibitions, requirements relating to consumer privacy, and other regulatory mandates.
911 Services. We are subject to FCC rules that require telecommunications carriers to make emergency 911 services available to their
subscribers, including enhanced 911 services that convey the caller’s telephone number and detailed location information to emergency
responders. In December 2013 the FCC adopted a rule requiring all 911 service providers that serve a public safety answering point (a "PSAP")
or other local emergency responder, to take reasonable measures to ensure 911 circuit diversity, availability of backup power at central offices
that directly serve PSAPs, and diversity of network monitoring links. Further, in August 2019 the FCC adopted new 911-related requirements
for service providers offering customers multiline telephone system solutions to business and enterprise customers. These new requirements
require Shentel to take certain additional action to ensure emergency responders can properly respond to 911 calls, such as the delivery of
specific location information and notices.
Long Distance Services. We offer long distance service to our customers through our subsidiary, Shenandoah Cable Television, LLC. Our long
distance rates are not subject to FCC regulation, but we are required to offer long distance service through a subsidiary other than Shenandoah
Telephone, to disclose our long distance rates on a website, to maintain geographically averaged rates, to pay contributions to the USF and make
other mandatory payments based on our long-distance revenues, and to comply with other filing and regulatory requirements. In November
2013 the FCC issued an order imposing greater recordkeeping and reporting obligations on certain long distance providers delivering calls to
rural areas. The order imposes greater recordkeeping and quarterly reporting obligations on such providers, and generally subjects such
providers to greater oversight.
Regulation of Our Other Services
Transfers, Assignments and Changes of Control of Spectrum Licenses. The FCC must give prior approval to the assignment of ownership or
control of a spectrum license, as well as transfers involving substantial changes in such ownership or control. The FCC also requires licensees to
maintain effective working control over their licenses.
Spectrum licenses are typically granted for ten-year terms. Our spectrum licenses for our service area are scheduled to expire on various dates.
Spectrum licensees have an expectation of license renewal if they can satisfy three "safe harbor" certifications which, if made, will result in
routine processing and grant of the license renewal application. Those certifications require the licensee to certify that it has satisfied any
ongoing provision of service requirements applicable to the spectrum license, that it has not permanently discontinued operations (defined as
180 days continuously off the air), and that it has substantially complied with applicable rules and policies. If for some reason a licensee cannot
meet these safe harbor requirements, it can file a detailed renewal showing based on the actual service provided by the station. We utilize
spectrum, pursuant to licenses issued directly to us or leased from third-parties, to deliver our Beam Internet service over a fixed wireless
network.
Construction and Operation of Tower Facilities. Wireless tower systems must comply with certain FCC and Federal Aviation Administration
(“FAA”) regulations regarding the registration, siting, marking, lighting and construction of transmitter towers and antennas. The FCC also
requires that aggregate radio frequency emissions from every site meet certain standards. These regulations affect site selection for new network
build-outs and may increase the costs of improving our network. We cannot predict what impact the costs and delays from these regulations
could have on our operations.
The construction of new towers, and in some cases the modification of existing towers, may also be subject to environmental review pursuant to
the National Environmental Policy Act of 1969 (“NEPA”), which requires federal agencies to evaluate the environmental impacts of their
decisions under some circumstances. FCC regulations implementing NEPA place responsibility on each applicant to investigate any potential
environmental effects of a proposed operation, including health effects relating to radio frequency emissions, and impacts on endangered species
such as certain migratory birds, and to disclose any significant effects on the environment to the agency prior
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to commencing construction. In the event that the FCC determines that a proposed tower would have a significant environmental impact, the
FCC would require preparation of an environmental impact statement, which would be subject to public comment.
In addition, tower construction is subject to regulations including the National Historic Preservation Act. Compliance with FAA, environmental
or historic preservation requirements could significantly delay or prevent the registration or construction of a particular tower or make tower
construction more costly. On July 15, 2016, Congress enacted new tower marking requirements for certain towers located in rural areas, which
may increase our operational costs. However, statutory changes adopted by Congress in the 2018 FAA Reauthorization Act may ameliorate or
mitigate some of those costs. In some jurisdictions, local laws or regulations may impose similar requirements.
Tower Facilities Siting. States and localities are authorized to engage in forms of regulation, including zoning and land-use regulation, which
may affect our ability to select and modify sites for wireless tower facilities. States and localities may not engage in forms of regulation that
effectively prohibit the provision of wireless services, discriminate among functionally equivalent services or regulate the placement,
construction or operation of wireless tower facilities on the basis of the environmental effects of radio frequency emissions. Courts and the FCC
are routinely asked to review whether state and local zoning and land-use actions should be preempted by federal law, and the FCC also is
routinely asked to consider other issues affecting wireless facilities siting in other proceedings. We cannot predict the outcome of these
proceedings or the effect they may have on us.
Communications Assistance for Law Enforcement Act. The CALEA was enacted in 1994 to preserve electronic surveillance capabilities by law
enforcement officials in the face of rapidly changing telecommunications technology. CALEA requires telecommunications carriers and
broadband providers, including the Company, to modify their equipment, facilities and services to allow for authorized electronic surveillance
based on either industry or FCC standards.
Human Capital Management
As of December 31, 2021, the Company employed approximately 860 people in and around the Mid-Atlantic region of the United States, of
which approximately 31% were female, and 23% of managerial employees were female.
Our Chief Human Resources Officer ("CHRO") is responsible for developing and executing the Company’s human capital management strategy
in alignment with the business. This includes the attraction, acquisition, development, retention and engagement of talent to deliver on the
Company’s strategy, the design of employee compensation and benefits programs, and oversight of our diversity and inclusion efforts. Our
CHRO continuously evaluates, modifies, and enhances our internal processes and technologies to increase employee engagement, productivity,
and effectiveness. In addition, the Chief Executive Officer ("CEO") and CHRO regularly update the Company’s board of directors and its
committees on the operation and status of these human capital trends and management programs. Key areas of focus include:
Culture, Values & Ethics
Shentel is committed to operating in a fair, honest, responsible and ethical manner and we expect our employees to commit to these same
principles. The Company has adopted a Code of Business Conduct and Ethics, which is also clearly visible to our customers and vendors on our
external Shentel website (https://investor.shentel.com/corporate-governance/governance-overview). Additionally, at time of hire and at least
annually, we ask all employees and board members to review and certify their commitment to this Code.
In addition to compliance with our Code of Business Conduct and Ethics, the Company attempts to follow a Positive People Philosophy, which
creates the foundation for how all employees work together to drive our collective success. Our culture is built upon values of always looking
for opportunities to improve, taking ownership for resolving issues, effectively communicating to solve problems, working collaboratively as a
team, and providing leadership by setting positive examples for others to follow.
Workplace Safety
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The health and safety of our employees is our highest priority. Exceeding OSHA Regulations is the expectation for Shentel. We have achieved
this level of success through our deliberate creation and management of both regional and corporate safety committees. Our commitment to
safety has also allowed us to achieve a 2021 OSHA Incident Rate of approximately 0.6, compared to the national utilities industry benchmark of
2.2.
Our focus on safety is also evident in our COVID-19 response. We developed a COVID Task Force Team at the outset of the pandemic which
created policies and guidelines based on both the Centers for Disease Control and the Virginia Occupational Safety and Health (VOSH)
Program, which have set forth the most stringent guidelines of all of the states in which we operate. These policies and guidelines are focused
on keeping both our employees and customers as safe as possible as we continue to operate as an essential business during the pandemic.
Compensation and Benefits
We provide employees with compensation and benefits packages that are market-driven and aligned to a consistent Shentel Compensation and
Rewards Philosophy. This philosophy is aligned with the needs of the business, and targeted to be competitive in the Company’s designated
talent markets. As well as ensuring compensation competitiveness, the primary objectives of Shentel’s compensation programs are as follows:
•
•
•
•
•
•
•
Create a competitive advantage to attract, motivate and retain the necessary talent for the Company.
Focus both individual and organizational effort around strategy execution, accountability and Company core values for achieving key
business outcomes.
Emphasize individual performance-based differentiation linked to corporate and shareholder values.
Establish job and salary structures that are market driven and reviewed on an ongoing basis in order to maintain long-term
competitiveness.
Ensure that pay processes are easily understood.
Provide a consistent approach to delivering ongoing competitive compensation to employees of the Company. Consistency will be
measured in terms of pay positioning relative to the Company’s defined competitive survey market as well as in comparison to the
Company’s overall internal compensation philosophy and objectives.
Target the 50th percentile of the Company’s defined competitive survey market for each relevant compensation component.
Our compensation and rewards program consists of three primary components: Base Salary, Short-Term Incentive and Long-Term Incentive.
Base Salary is paid for comparable knowledge, skills and experience. Short-Term Incentive is variable cash compensation designed to recognize
and reward extraordinary performance and is based upon the achievement of a combination of Company-wide financial and service performance
goals and achievement of individual objectives. Long-Term Incentive is equity based compensation that aligns eligible employees’ interests with
those of shareholders and encourages a long term focus and retention.
We also provide eligible employees the ability to participate in a 401(k) Plan which has competitive Company contributions, as well as generous
health and welfare benefits, paid time off, employee assistance programs, and educational assistance, among many others.
Diversity and Inclusion
We believe that a diverse workforce is critical to our success. Our recent efforts have been focused in three areas: inspiring innovation through
an inclusive and diverse culture; expanding our efforts to recruit, hire and retain experienced, diverse talent; and identifying strategic initiatives
to accelerate our inclusion and diversity programs.
Training and Talent Management
To empower employees to realize their full potential, we provide a range of leadership development programs and learning opportunities, which
emphasize skills and identify resources they can use to be successful. Our Shentel University platform supplements our talent development
strategies and provides an online portal that enables employees to access virtual courses and self-directed web-based courses, leveraging both
internally and externally developed and hosted content. In addition, we provide our employees with regular leadership and professional
development events that focus on how we may best advance our team, effectively execute our business strategies, and continue to develop the
talent and potential of our employees. We leverage our training and talent management efforts to ensure we have ready-now successors
identified as the Company continues to grow and evolve.
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Employee Engagement
Our annual employee satisfaction survey captures critical indicators of employee engagement and provides an overall understanding of
employee favorability. During 2021, we conducted our most recent enterprise-wide engagement survey, with the assistance of third party
consultants, which focused on measuring engagement, inclusion, and overall employee satisfaction. We will continue to poll our employees and
build action plans to address feedback shared by our team members.
Information About Our Executive Officers
The following table presents information about our executive officers who, other than Christopher E. French, are not members of our board of
directors. Our executive officers serve at the pleasure of the Board of Directors.
Name
Title
Christopher E. French
President and Chief Executive Officer
Age Date in Position
63 April 1988
Edward H. McKay
Executive Vice President and Chief Operating Officer
James J. Volk
Senior Vice President and Chief Financial Officer
Elaine M. Cheng
Senior Vice President and Chief Information Officer
Heather K. Banks
Vice President and Chief Human Resources Officer
Dennis A. Romps
Vice President and Chief Accounting Officer
Richard W. Mason Jr.
Senior Vice President Engineering and Operations
49 July 2021
58 June 2019
49 March 2019
48 July 2019
54 July 2021
48 July 2021
Derek C. Rieger
General Counsel, Vice President Legal and Corporate Secretary
41 February 2022
Mr. French is President and Chief Executive Officer for Shentel. He is responsible for the overall leadership and strategic direction of the
Company. He has served as President since 1988, and has been a member and Chairman of the Board of Directors since 1996. Prior to
appointment as President, Mr. French held a variety of positions with the Company, including Vice President Network Service and Executive
Vice President. Mr. French holds a bachelor’s degree in electrical engineering and an MBA, both from the University of Virginia. He has held
board and officer positions in both state and national telecommunication associations, including service as a director of the Organization for the
Promotion and Advancement of Small Telecommunications Companies (OPASTCO) and was president and director of the Virginia
Telecommunications Industry Association. Mr. French is currently a member of the Leadership Committee of the USTelecom Association.
Mr. McKay is Executive Vice President and Chief Operating Officer for Shentel. He has served in this role since July 2021 and is responsible
for leading Shentel’s entire integrated broadband business, including the Shentel Cable, Glo Fiber and Beam brands, and the Company’s tower
portfolio. He joined Shentel in 2004 and has more than 25 years of experience in the telecommunications industry. Prior to his current role, he
served as Senior Vice President of Engineering & Operations. He played a key role in the growth and success of Shentel's former wireless
business, led the expansion of the fiber-rich network supporting the Company’s cable and wireline business, and was responsible for delivering
on Shentel’s broadband Fiber First growth strategy for Glo Fiber. Mr. McKay held the title of Senior Vice President - Wireline and Engineering
from 2015 to 2018, with responsibility for managing the Company's commercial fiber and dual incumbent cable and RLEC businesses, network
planning, engineering, construction and operations for Shentel's networks. Mr. McKay began his telecommunications industry career in 1996,
including previous management positions at UUNET and Verizon. He is a graduate of the University of Virginia, where he earned master’s and
bachelor’s degrees in Electrical Engineering. He represents the Company on the Board of ACA Connects and the Board of ValleyNet.
Mr. Volk is Senior Vice President and Chief Financial Officer. He joined Shentel in June 2019. He has more than 27 years of experience in the
telecommunications industry, and has served in a variety of senior financial management roles with both large corporations and high growth,
early stage telecommunication providers. He most recently served as Vice President, Finance and Investor Relations of Uniti Group Inc. Prior to
joining Uniti, he served as CFO of multiple public and private telecommunication companies, including PEG Bandwidth, Hargray
Communications and UbiquiTel Inc. He previously held senior finance positions with AT&T and Comcast. Mr.
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Volk holds a Bachelor of Science Degree in Accounting from the University of Delaware and a Master of Business Administration from
Villanova University.
Mrs. Cheng is Senior Vice President and Chief Information Officer for Shentel. She leads the Information Technology organization, Enterprise
Project Management Office (EPMO), and Enterprise Risk Management program, and is responsible for our Customer Care and Tech Support
functions. She joined the Company in March 2019 and has more than 20 years of experience in diverse business environments across all areas
of Information Technology. Prior to joining Shentel, Mrs. Cheng served as Chief Information Officer and Managing Director of Global Strategic
Design for CFA Institute in Charlottesville, Va. Prior to her time at CFA Institute, Mrs. Cheng held a number of different roles over 16 years
with M&T Bank in Buffalo, NY, including Group Vice President, Technology Business Services, Vice President of Retail Operations and
Assistant Vice President, Web Product Owner. She received her Bachelor of Arts degree from Vassar College and her Masters of Business
Administration from the University of Rochester. Additionally, Mrs. Cheng is a founding board member of Charlottesville Women in Tech, a
non-profit organization which encourages women to join and thrive in technology careers.
Ms. Banks is Vice President and Chief Human Resources Officer at Shentel. She joined the Company in July 2019. Ms. Banks brings more than
20 years of experience in leading and managing strategic HR initiatives to Shentel. Prior to joining Shentel, Ms. Banks was the Chief Human
Resources Officer of American Woodmark, headquartered in Winchester, Virginia. Prior to American Woodmark, Ms. Banks held numerous HR
leadership positions with a variety of organizations across a range of industries, including Carlisle FoodService Products, UTC Aerospace
Systems, Goodrich Corporation, Northern Power Systems, and IGT. She holds a Bachelor of Science in Psychology from Florida State
University and a Master of Arts in Industrial Organizational Psychology from the University of New Haven.
Mr. Romps is Vice President and Chief Accounting Officer for Shentel. He is responsible for all accounting, financial reporting, internal
controls, SEC, Sarbanes-Oxley and income tax compliance. Mr. Romps joined the company in July 2021 and has 30 years of progressive
accounting and finance experience including six years as Chief Accounting Officer of Continental Building Products, a publicly-traded building
materials company, eight years with AT&T (formerly SBC Communications and Ameritech) and four years with Ernst & Young. Mr. Romps is
a certified public accountant and earned a B.A. in Accounting from Michigan State University and MBA from the Kellogg Graduate School of
Management at Northwestern University.
Mr. Mason is Senior Vice President Engineering and Operations at Shentel and is responsible for leading the Company's network strategy,
engineering, construction and operations functions. He joined Shentel in May 2019 as Vice President and Head of Business Operations
responsible for Enterprise Program Management, Performance Management and Process Excellence across all business segments. Prior to
joining Shentel, Mr. Mason was Head of Install and Repair Operations at Google Fiber. Before that, he held a variety of leadership roles over his
20+ year career with Cincinnati Bell, culminating in Vice President of Field Operations. He received his Bachelor of Science degree in
Electrical Engineering from Ohio University and has an MBA from Xavier University.
Mr. Rieger is Vice President – Legal, General Counsel & Corporate Secretary for Shentel. He joined Shentel in 2021 and is responsible for all
legal and regulatory compliance matters for the Company. He also acts as Corporate Secretary to the Company’s Board of Directors. Mr. Rieger
began his career in the contact center industry in 2007, and went on to gain experience in both the financial technology and software-as-a-
service industries. Mr. Rieger has served as General Counsel for Conduit Global, Executive Vice President, Chief Legal Officer and Corporate
Secretary for kgb, and Vice President of Global Corporate and Operational Compliance for Sykes Enterprises. Mr. Rieger received his Bachelor
of Science in Business Administration from Villanova University and his Juris Doctor degree from Widener University.
Websites and Additional Information
The Company maintains a corporate website at www.shentel.com. We make available free of charge, through our website, our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8‑K and all amendments to those reports, as soon as reasonably practicable
after we electronically file or furnish such reports with or to the Securities and Exchange Commission ("SEC"). The contents of our website are
not a part of this report. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and
other information regarding the Company.
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ITEM 1A. RISK FACTORS
Our business and operations are subject to a number of risks and uncertainties. The risks set forth under "Part I Item 1. Business" and the
following risk factors should be read carefully in connection with evaluating our business. The following risks (or additional risks and
uncertainties not presently known to us) could materially affect our financial condition, liquidity, or operating results, as well as the price of our
common stock.
Risks Related to Our Business
Intensifying competition may limit our ability to continue to grow our revenue.
The low interest rate environment and the increasing demand for faster residential internet bandwidth driven by working and learning from
home since the outbreak of COVID-19 has increased the availability of capital to fund fiber-to-the-home (“FTTH”) overbuilds in areas
historically served by incumbent cable and incumbent local telephone providers. If new FTTH competitors overbuild our incumbent cable
service areas, some of our subscribers may select other providers’ offerings based on price, bandwidth speeds, capabilities or personal
preferences. Most of our competitors possess greater resources, have greater brand recognition, have more extensive coverage areas, have access
to spectrum or technologies not available to us, are able to offer bundled service offerings that we are not able to duplicate and offer more
services than we do. If significant numbers of our subscribers elect to move to competing providers, or if market saturation limits the rate of
new subscriber additions, we may not be able to continue to grow our revenue.
Prospective competitors of our Broadband segment may receive grants from federal or state universal service funds or other subsidies. Some of
those potential competitors may receive support under the Connect America Fund, Rural Development Opportunity Fund, American Rescue
Plant Act or Infrastructure Investment and Jobs Act to build broadband facilities to unserved homes that do not meet the minimum broadband
speeds in some areas already served by our Beam fixed wireless and DSL networks and adjacent to our cable and FTTH footprint. As a result,
new competitors may invest in cable and FTTH markets, increasing the number of competitors we face in our network area and in the areas we
hope to expand our broadband network in the future.
Consumers are increasingly accessing video content from alternative sources, such as Internet-based “over the top” providers such as Netflix,
YouTube TV, Amazon, Hulu, and related platforms. The influx of competitors in this area, together with the development of new technologies to
support them, are resulting in significant changes in the video business models and regulatory provisions that have applied to the provision of
video and other services. These developments have led to a loss of video subscribers due to "cord cutting" as customers adopt alternative
sources and may lead to a decline in the demand, price and profitability of our cable and related video services.
Incumbent cable companies also face competition from direct broadcast satellite providers, and from large providers of wireline
telecommunications services (such as Verizon, Lumen and AT&T), which have upgraded their networks in certain markets outside of our cable
footprint to provide video services in addition to voice and broadband services and may offer bundled service offerings that we are not able to
duplicate. Wireless providers are also entering the market for video services by making such services available on handsets and tablets. In some
areas, direct broadcast satellite providers have partnered with large incumbent telecommunications service providers to offer triple-play
services. If direct broadcast satellite providers and large wireline telecommunications service providers were to expand their upgraded networks
into our cable and FTTH footprint, then Shentel would face increased competition within our existing footprint and potential decreases in
revenue from existing sources.
The Company’s Commercial Fiber business faces intense competition from several local and national providers. Most of our competitors
possess greater resources, have greater brand recognition, have more extensive coverage areas, have access to technologies not available to us,
are able to offer bundled service offerings that we are not able to duplicate and offer more services than we do. If a significant numbers of our
customers elect to move to competing providers, our Commercial Fiber revenues could be adversely affected.
Nationwide, incumbent local exchange carriers have experienced a decrease in access lines due to the effect of wireless and wireline
competition. We have experienced reductions in the number of access lines to date, and based on industry experience we anticipate that the
long-term trend toward declining telephone subscriber counts will continue. There is a significant risk that this downward trend will have an
adverse effect on the Company’s landline telephone operations in the future.
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Our future growth is primarily dependent upon our expansion strategy, which may or may not be successful.
We are strategically focused on driving growth by expanding our broadband network in order to provide service in communities that are near or
adjacent to our network. This expansion strategy includes our FTTH broadband service, which we offer under the Glo Fiber brand. This brand is
relatively new in the marketplace. This strategy requires considerable management resources and capital investment and it is uncertain whether
and when it will contribute to positive free cash flow. As a result, we expect our capital expenditures to exceed the cash flow provided from
continuing operations through 2025. Additionally, we must obtain pole attachment agreements, franchises, construction permits, and other
regulatory approvals to commence operations in these communities. Delays in entering into pole attachment agreements, receiving the necessary
franchises and construction permits, procuring needed contractors, materials or supplies, and conducting the construction itself could adversely
impact our scheduled construction plans and, ultimately, our expansion strategy. Difficulty in obtaining necessary resources may also adversely
affect our ability to expand into new markets as could our ability to adequately market a new brand to customers unfamiliar to us as we expand
to markets where we do not currently operate. We may face resistance from competitors who are already in markets we wish to enter. If our
expectations regarding our ability to attract customers in these communities are not met, or if the capital requirements to complete the network
investment or the time required to attract our expected level of customers are incorrect, our financial performance may be negatively impacted.
We may incur significant churn from our largest customer who represents 8% of our revenues.
We lease space on our towers and provide backhaul and transport services to T-Mobile to support their wireless network in our markets. T-
Mobile has announced plans to decommission parts of their recently acquired networks which could lead to a material loss of revenue being
generated from our tower and broadband segments. We may not be able to replace the churn with new revenue from other carriers where our
towers and fiber is located in a timely basis or at all.
Many of our competitors are larger than we are and possess greater resources than we do.
In some instances, we compete against companies with fewer regulatory burdens, greater personnel resources, greater resources for marketing,
greater brand name recognition, and long-established relationships with regulatory authorities and customers. We have begun to realign our
corporate expenses to reflect the sale of our Wireless assets and operations, and to scale for our planned Broadband growth. We anticipate that
this initiative will take multiple years and will be enabled by certain of our information technology initiatives. If we are unable to sufficiently
build the necessary infrastructure and internal support functions to scale and expand our network and customer base, our potential growth could
be limited. We may not be able to successfully compete with competitors or be able to make the operational or financial investments necessary
to successfully serve our targeted customer base. As a result, we could experience greater operating costs, our revenue could decline and we
may lose existing customers and fail to attract new customers.
Alternative technologies, changes in the regulatory environment and current uncertainties in the marketplace may reduce future
demand for existing telecommunication services and materially increase our capital expenditures.
The telecommunications industry is experiencing significant technological change, evolving industry standards, ongoing improvements in the
capacity and quality of digital technology, shorter development cycles for new products and enhancements and changes in end-user
requirements and preferences. Technological advances, industry changes and changes in the regulatory environment could cause the technology
we use to become obsolete. We may not be able to respond to such changes and implement new technology on a timely basis or at an acceptable
cost. Additionally, we may be required to select one developing or new technology over another and may not choose the technology that is
ultimately determined to be the most economic, efficient or attractive to customers. We may also encounter difficulties in implementing new
technologies, products and services and may encounter disruptions in service as a result. As a result, our financial performance may be
negatively impacted.
Our distribution networks may be subject to weather-related events that may damage our networks and adversely impact our ability to
deliver promised services or increase costs related to such events.
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Our distribution networks may be subject to weather-related events that could damage our networks and impact service delivery. Some
published reports predict that warming global temperatures will increase the frequency and severity of such weather-related events. Should such
predictions be correct or if for other reasons there are more weather-related events, and should such events impact the East Coast region covered
by our networks more frequently or more severely than in the past, our revenues and expenses could be materially adversely impacted.
Our programming costs are subject to demands for increased payments.
The cable television industry has continued to experience an increase in the cost of programming, especially sports programming and
retransmission fees. In addition, as we add programming to our video services for existing customers or distribute existing programming to
more customers, we incur increased programming expenses. Broadcasters affiliated with major over-the-air network services have been
increasing their demands for cash payments and other concessions for the right to carry local network television signals on our cable systems.
As compared to large national providers, our smaller base of subscribers limits our ability to negotiate lower programming costs. If we are
unable to raise our customers’ rates, these increased programming costs could have an adverse impact on our results of operations. Moreover, as
our programming contracts and retransmission agreements with programming providers expire, there can be no assurance that they will be
renewed on acceptable terms which could lead to a loss of video customers.
We may not benefit from our acquisition strategy.
As part of our business strategy, we regularly evaluate opportunities to enhance the value of the Company by pursuing acquisitions of other
businesses. Although we remain subject to financial and other covenants in our credit agreement that may limit our ability to pursue certain
strategic opportunities, we intend to continue to evaluate and, when appropriate, pursue strategic acquisition opportunities as they arise. We
cannot provide any assurance, however, with respect to the timing, likelihood, size or financial effect of any potential transaction involving the
Company, as we may not be successful in identifying and consummating any acquisition or in integrating any newly acquired business into our
operations.
The evaluation of business acquisition opportunities and the integration of any acquired businesses pose a number of significant risks, including
the following:
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•
•
acquisitions may place significant strain on our management and financial and other resources by requiring us to expend a substantial
amount of time and resources in the pursuit of acquisitions that we may not complete, or to devote significant attention to the various
integration efforts of any newly acquired businesses, all of which will require the allocation of limited resources;
acquisitions may not have a positive impact on our cash flows or financial performance;
even if acquired companies eventually contribute to an increase in our cash flows or financial performance, such acquisitions may
adversely affect our operating results in the short term as a result of transaction-related expenses we will have to pay or the higher
operating and administrative expenses we may incur in the periods immediately following an acquisition as we seek to integrate the
acquired business into our operations;
• we may not be able to realize anticipated synergies, achieve the desired level of integration of the acquired business or eliminate as many
redundant costs;
• we may not be able to maintain relationships with customers, suppliers and other business partners of the acquired business;
•
our operating and financial systems and controls and information services may not be compatible with those of the companies we may
acquire and may not be adequate to support our integration efforts, and any steps we take to improve these systems and controls may not
be sufficient;
our business plans and projections used to justify the acquisitions and expansion investments are based on assumptions of revenues per
subscriber, penetration rates in specific markets where we operate and expected operating costs. These assumptions may not develop as
projected, which may negatively impact our profitability or the value of our intangible assets;
growth through acquisitions will increase our need for qualified personnel, who may not be available to us or, if they were employed by a
business we acquire, remain with us after the acquisition; and
acquired businesses may have unexpected liabilities and contingencies, which could be significant.
•
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The COVID-19 pandemic has disrupted, and the future outbreak of other highly infectious or contagious diseases could disrupt, the
operation of our business resulting in adverse impacts to our financial condition,
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results of operations, and cash flow and could create significant volatility in the trading and value of the Company’s common stock.
Since being reported in December 2019, an outbreak of a new strain of coronavirus (“COVID-19”) has spread globally, including to every state
in the United States. In March 2020, the World Health Organization declared COVID-19 a pandemic and the United States declared a national
emergency. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant
volatility and disruption of financial markets, and another pandemic in the future could have similar effects. Given the ongoing and dynamic
nature of the circumstances, it is difficult to predict the impact of COVID-19 on the Company, and there is no guarantee that efforts by Shentel,
designed to address adverse impacts of the coronavirus, will be effective.
The Company has limited non-essential travel, in-person meetings and large employee meetings, while also implementing a work-from-home
policy to encourage all employees whose job responsibilities permit remote working to do so. Continued restrictions on travel and limitations on
interaction with customers may impact our sales and marketing activities, including our ability to secure new customers, to qualify and sell new
products, or to grow sales with customers where or with whom we do not have a longer-standing supply relationship.
In addition, the current COVID-19 pandemic, or a future pandemic, could have material and adverse effects on our ability to successfully
operate and on our financial condition, results of operations and cash flows due to, among other factors:
•
•
•
•
•
•
•
•
additional disruptions or delays in our operations or network performance, as well as network maintenance and construction, testing,
supervisory and customer support activities, and inventory and supply procurement;
increases in operating costs, inventory shortages and/or a decrease in productivity related to travel bans, employee illness or quarantine
and social distancing efforts, which could include delays in our ability to install broadband services at customer locations or require our
vendors and contractors to incur additional costs that may be passed on to us;
a deterioration in our ability to operate in affected areas or delays in the supply of products or services to us from vendors that are needed
for our efficient operations or growth objectives;
increases in health insurance and labor-related costs arising from illness, quarantine and the implementation of social distancing and
work-from-home measures;
increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal
information or proprietary or confidential information about us, our customers or other third parties as a result of employees or third-
party vendors' employees working remotely;
a decrease in the ability of our counterparties to meet their obligations to us in full, or at all;
a general reduction in business and economic activity may severely impact our customers and may cause them to be unable to pay for
services provided; and
the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could result in a
deterioration in our ability to ensure business continuity during a disruption and/or impact the ability for us to manage and implement the
planned build out and expansion of our network.
Shentel has implemented policies and procedures designed to mitigate the risk of adverse impacts of the COVID-19 pandemic, or a future
pandemic, on the Company’s operations, but may incur additional costs to ensure continuity of business operations caused by progression of the
COVID-19 pandemic, or other future pandemics, which could adversely affect its financial condition and results of operations. However, the
extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted, including new information that
may emerge concerning the severity of COVID-19 and actions taken to contain COVID-19 or its impact. Additionally, to the extent the COVID-
19 pandemic adversely affects our business, financial condition or results of operations, it may heighten other risks described in this "Risk
Factors" section.
Disruptions of our information technology infrastructure or operations could harm our business.
A disruption of our information technology infrastructure or operations, or the infrastructure or operations of certain vendors who provide
information technology services to us or our customers, could be caused by a natural disaster, energy or manufacturing failure,
telecommunications system failure, ransomware attack, cybersecurity or terrorist attack, intrusion or incident, or defective or improperly
installed new or upgraded business management systems. Although we make significant efforts to maintain the security and integrity of the
Company's information technology infrastructure, there can be no assurance that our security efforts and disaster recovery measures will be
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effective or that attempted security breaches or catastrophic disruptions would not be successful or damaging, especially in light of the growing
sophistication of cyber-attacks and intrusions sponsored by state or other interests. Portions of our information technology infrastructure also
may experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that
takes place from time to time. In the event of any such disruption, we may be unable to conduct our business in the normal course. Moreover,
our business involves the processing, storage and transmission of data, which would also be negatively affected by such an event. A disruption
of our information technology infrastructure or operations could also cause us to lose customers and revenue, particularly during a period of
heavy demand for our services. We also could incur significant expense in repairing system damage and taking other remedial measures.
We have identified material weaknesses in our internal controls over financial reporting that, if not properly corrected, could materially
adversely affect our operations and result in material misstatements in our financial statements.
In accordance with Section 404 of the Sarbanes-Oxley Act, we, along with our independent registered public accounting firm, are required to
report on the effectiveness of our internal controls over financial reporting. Failure to design and maintain effective internal controls could
constitute a material weakness which could result in inaccurate financial statements, inaccurate disclosures or failure to prevent fraud.
As of December 31, 2021, we did not maintain an effective control environment attributable to certain identified material weaknesses. We
describe these material weaknesses in Item 9A. Controls and Procedures in this Annual Report on Form 10-K. The identified control
deficiencies create a reasonable possibility that a material misstatement to the consolidated financial statements will not be prevented or
detected on a timely basis, and therefore we concluded that the deficiencies represent material weaknesses in the Company’s internal control
over financial reporting and that our internal control over financial reporting was not effective as of December 31, 2021. We cannot provide any
assurance that these weaknesses will be effectively remediated or that additional material weaknesses will not occur in the future. The existence
of these or other material weaknesses in our internal controls over financial reporting could also result in errors in our financial statements that
could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause stockholders to lose confidence
in our reported financial information, all of which could materially and adversely affect our business and stock price.
Implementation of our new ERP system could disrupt business operations.
Our current ERP system will be replaced during 2022 as the system will no longer be supported by the software vendor after January 2023.
Implementing a new ERP system is not only costly but complex and difficult. The implementation requires significant investments of time,
money and resources and may result in the diversion of senior management’s attention from our ongoing operations. Furthermore, the
implementation is expected to result in significant changes to many of our existing operational, financial and administrative business processes.
The new ERP system will require us to implement new internal controls and to change our existing internal control framework and procedures
during 2022. If unexpected delays, costs, technical problems or other significant issues arise in connection with the implementation, it could
have a material negative impact on our operations, business, financial results and financial condition. There can be no assurance that we will
successfully implement our new ERP system or that we will avoid these and other negative impacts from our implementation efforts.
If we do not further reduce corporate overhead costs following the sale of our Wireless segment, our earnings and margins will be lower
than the larger peer broadband companies.
Our sales, general and administrative costs, including corporate overhead, are a higher percentage of revenue than larger broadband companies
due to a lack of relative scale. If we cannot further reduce our corporate expenses, our earnings and margins will be lower than our peers which
may affect the value of our stock price.
Our success depends on consistent supply of physical goods and services to build and sustain services to customers. Significant
disruptions to the supply chain could adversely impact our growth and revenue projections.
The supply of critical physical supplies, such as modems, consumer Wi-Fi equipment, and fiber is important to our business operations. These
materials form the core components needed to deliver both video and data services to our customers. We work to ensure we have a forward-
looking supply of these items and redundancy of supply types and
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suppliers. However, global impacts to supply chains across all suppliers and manufacturers could result in significant supply issues. If supplies
to these items became severely impacted, our plans to build out new networks could be adversely impacted. Additionally, the lack of certain
equipment could limit our ability to service existing customers. Significant impact to physical equipment supply chains could materially and
adversely affect our business, including reduced revenues, loss of customers and limitations on future growth. Additionally, at times we choose
to leverage third-party suppliers to help us deliver services to customers because of efficiency reasons or because third-parties provide a service
we cannot replicate easily. Should those third-party suppliers be impacted by either materials, equipment or resources, their inability to provide
services to us could also negatively impact our ability to deliver network services or build out future network.
Our success largely depends on our ability to retain and recruit key personnel, and any failure to do so could adversely affect our ability
to manage our business.
Our historical operational and financial results have depended, and our future results will depend, upon the retention and continued performance
of our management team, as well as the attraction and retention of relevant key roles across our organization. The competition for talent for key
roles in our industry, including our executive officers and key personnel to support our engineering, sales, service delivery, information
technology, finance and accounting functions, is highly competitive and could adversely impact our ability to retain and hire new employees and
contractors. The loss of the services of key members of executive management or other employees or contractors in critical roles, and the
inability or delay in hiring new key employees and contractors could materially and adversely affect our ability to manage and expand our
business and our future operational and financial results. Moreover, an inability to retain sufficient qualified personnel throughout our
organization or to attract new personnel as we grow our business could adversely affect our ability to remediate the material weaknesses over
financial reporting and thereafter maintain an effective system of internal controls and our ability to produce reliable financial reports, which
could materially and adversely affect our financial results, financial condition and our stock price.
We could suffer a loss of revenue and increased costs, exposure to significant liability, reputational harm and other serious negative
consequences if we sustain cyber-attacks or other data security breaches that disrupt our operations or result in the dissemination of
proprietary or confidential information about us or our customers or other third parties.
We utilize our information technology infrastructure to manage and store various proprietary information and sensitive or confidential data
relating to our operations. We routinely process, store and transmit large amounts of data for our customers, including sensitive and personally
identifiable information. We depend on our information technology infrastructure to conduct business operations and provide customer services.
We may be subject to data breaches and disruptions of the information technology systems we use for these purposes. Our industry has
witnessed an increase in the frequency, intensity and sophistication of cybersecurity incidents caused by hackers and other malicious actors such
as foreign governments, criminals, hacktivists, terrorists and insider threats. Hackers and other malicious actors may be able to penetrate our
network security and misappropriate or compromise our confidential, sensitive, personal or proprietary information, or that of third parties, and
engage in the unauthorized use or dissemination of such information. They may be able to create system disruptions, or cause shutdowns.
Hackers and other malicious actors may be able to develop and deploy viruses, worms, ransomware and other malicious software programs that
attack our products or otherwise exploit any security vulnerabilities of our systems. In addition, sophisticated hardware and operating system
software and applications that we procure from third parties may contain defects in design or manufacture, including “bugs,” cybersecurity
vulnerabilities and other problems that could unexpectedly interfere with the operation or security of our systems.
Like many other companies, we increasingly leverage third-party SaaS solutions and external service providers to help us deliver services to our
customers. In the delivery of these services, we are dependent on the security infrastructure of those third-party providers. These providers are
also vulnerable to the myriad of cyber-attacks possible in today’s environment. In the case where a third-party provider becomes victim to an
attack it could have an impact on our operations or ability to service customers.
The COVID-19 pandemic has amplified certain risks to our operations and business, increasing phishing and other cybersecurity attacks as
hackers and malicious actors try to exploit the uncertainty surrounding the COVID-19 pandemic, and an increase in the number of points of
potential attack, such as laptops and mobile devices (both of which are now being used in increased numbers), and any failure to effectively
manage these risks, including to timely identify and appropriately respond to any cyber-attacks, may adversely affect our business.
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To date, interruptions of our information technology infrastructure and third party suppliers have been infrequent and have not had a material
impact on our operations. However, because technology is increasingly complex and cyber-attacks are increasingly sophisticated and more
frequent, there can be no assurance that such incidents will not have a material adverse effect on us in the future. The consequences of a breach
of our security measures or those of a third-party provider, a cyber-related service or operational disruption, or a breach of personal,
confidential, proprietary or sensitive data caused by a hacker or other malicious actor could be significant for us, our customers and other
affected third parties. For example, the consequences could include damage to infrastructure and property, impairment of business operations,
disruptions to customer service, financial costs and harm to our liquidity, costs associated with remediation, loss of revenues, loss of customers,
competitive disadvantage, legal expenses associated with litigation, regulatory action, fines or penalties or damage to our brand and reputation.
In addition, the costs to us to eliminate or address the foregoing security challenges and vulnerabilities before or after a cyber-incident could be
significant. In addition, our remediation efforts may not be successful and could result in interruptions, delays or cessation of service. We could
also lose existing or potential customers for our services in connection with any actual or perceived security vulnerabilities in the services.
We are subject to laws, rules and regulations relating to the collection, use and security of user data. Our operations are also subject to federal
and state laws governing information security. In the event of a data breach or operational disruption caused by an information security incident,
such rules may require consumer and government agency notification and may result in regulatory enforcement actions with the potential of
monetary forfeitures as well as civil litigation. We have incurred, and will continue to incur, expenses to comply with privacy and security
standards and protocols imposed by law, regulation, industry standards and contractual obligations.
Risks Related to Regulation and Legislation
Regulation by government agencies may increase our costs of providing service or require changes in services, either of which could
impair our financial performance.
Our operations are subject to varying degrees of regulation by the FCC, the Federal Trade Commission, the Federal Aviation Administration, the
Environmental Protection Agency and the Occupational Safety and Health Administration, as well as by state and local regulatory agencies and
franchising authorities. Action by these regulatory bodies could negatively affect our operations and our costs of doing business.
Changes to key regulatory requirements can affect our ability to compete.
Our industry is subject to extensive governmental regulation, which impacts many aspects of our operations. Legislators and regulators at all
levels of government frequently consider changing, and sometimes do change, existing statutes, regulations, and interpretations thereof. Future
legislative, judicial, or administrative actions may increase our costs or impose additional challenges and restrictions on our business.
Federal law strictly limits the scope of permissible cable rate regulation, and none of our local franchising authorities currently regulate our rates
for video services. Our rates for broadband services have historically not been subject to rate regulation. However, as broadband service is
increasingly viewed as an essential service, governments could adopt new laws or regulations related to the prices we charge for our services
that could adversely impact our existing business model.
The Company operates data services and cable television systems in largely rural areas of Virginia, West Virginia, Maryland, Pennsylvania and
Kentucky pursuant to local franchise agreements. These franchises are not exclusive, and other entities may secure franchise authorizations in
the future, thereby increasing direct competition to the Company.
Many franchises establish comprehensive facilities and service requirements, as well as specific customer service standards and monetary
penalties for non-compliance. In many cases, franchises are terminable if the franchisee fails to comply with significant provisions set forth in
the franchise agreement governing system operations. Franchises are generally granted for fixed terms and must be periodically renewed.
Franchising authorities may resist granting a renewal if either past performance or the prospective operating proposal is considered inadequate.
Franchise authorities often demand concessions or other commitments as a condition to renewal. If our local franchises are not renewed at
expiration we would have to cease operations or, operate under either temporary operating agreements or without a franchise while negotiating
renewal terms with the local franchising authorities. Although we have
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historically renewed our franchises without incurring significant costs, we cannot offer assurance that we will be able to renew, or to renew as
favorably, our franchises in the future. A termination of or a sustained failure to renew a franchise in one or more key markets or obtaining such
franchise on unfavorable terms could adversely affect our business in the affected geographic area.
Pole attachments are wires and cables that are attached to utility poles. Cable system attachments to investor-owned public utility poles
historically have been regulated at the federal or state level, generally resulting in reasonable pole attachment rates for attachments used to
provide cable service. In contrast, utility poles owned by municipalities or cooperatives are not subject to federal regulation and are, with
exceptions, generally exempt from state regulation and their attachment rates tend to be higher. Future regulatory changes in this area could
impact the pole attachment rates we pay utility companies.
Regulatory constraints could impact our ability to adequately address increases in broadband usage and may cause network capacity
limitations, resulting in service disruptions, reduced capacity or slower transmission speeds for our customers.
Video streaming services, gaming and peer-to-peer file sharing applications use significantly more bandwidth than other Internet activity such as
web browsing and email. As use of these services continues to grow, our broadband customers will likely use much more bandwidth than in the
past. If this occurs, we could be required to make significant capital expenditures to increase network capacity in order to avoid service
disruptions, service degradation or slower transmission speeds for our customers. Alternatively, we could choose to implement network
management practices to reduce the network capacity available to bandwidth-intensive activities during certain times in market areas
experiencing congestion, which could negatively affect our ability to retain and attract customers in affected markets. Competitive or regulatory
constraints may preclude us from recovering costs of network investments designed to address these issues, which could adversely impact our
operating margins, results of operations, financial condition and cash flows.
Our services may be adversely impacted by legislative or regulatory changes that affect our ability to develop and offer services or that
could expose us to liability from customers or others.
The Company provides broadband Internet access services to its fiber, cable, fixed wireless and telephone customers. As the Internet has
matured, it has become the subject of increasing regulatory interest. Congress and Federal regulators have adopted a wide range of measures
directly or potentially affecting Internet use. The adoption of new Internet regulations or policies could adversely affect our business.
In 2015, the FCC determined that broadband Internet access services, such as those we offer, were a form of “telecommunications service”
under the Communications Act and, on that basis, imposed rules banning service providers from blocking access to lawful content, restricting
data rates for downloading lawful content, prohibiting the attachment of non-harmful devices, giving special transmission priority to affiliates,
and offering third parties the ability to pay for priority routing. The 2015 rules also imposed a “transparency” requirement, i.e., an obligation to
disclose all material terms and conditions of our service to consumers.
In December 2017, the FCC adopted an order repudiating its prior (2015) treatment of broadband as a “telecommunications service,”
reclassifying broadband as an “information service,” and eliminating the rules it had imposed at that time (other than a transparency/disclosure-
requirement, which it eased in significant ways). The FCC also ruled that state regulators may not impose obligations similar to federal
obligations that the FCC removed. Various parties have challenged this ruling in court, and, we cannot predict how any such court challenges
will be resolved. Moreover, it is possible that the FCC might further revise its approach to broadband Internet access, or that Congress might
enact legislation affecting the rules applicable to the service. In 2019, the U.S. Court of Appeals for the District of Columbia upheld the
information service reclassification, but vacated the FCC’s blanket prohibition of state utility regulation of broadband services. The court left
open the possibility that individual state laws could still be deemed preempted on a case-by-case basis if it is shown that they conflict with
federal law. In October 2020 the FCC, responding to the court’s remand order, issued a further decision clarifying certain aspects of its earlier
order. In this decision the FCC re-classified broadband internet access service as an unregulated information service, thus eliminating all federal
regulatory "network neutrality" obligations beyond requiring broadband providers to accurately disclose network management practices,
performance, and commercial terms of service. These issues may be revisited by the FCC in the current Administration.
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The FCC imposes obligations on telecommunications service providers, including broadband Internet access service providers, and
multichannel video program distributors, like our cable company. We cannot predict the nature and pace these requirements and other
developments, or the impact they may have on our operations.
Risks Related to our Indebtedness
We may not have sufficient capital to fund our expansion plans and may not be able to repay future indebtedness.
As discussed in the Risks Related to our Business section above, we expect our capital expenditures to exceed the cash flow provided from
continuing operations through 2025 as we invest in our network expansion strategy. As of December 31, 2021, we had no indebtedness
outstanding under our $400 million credit agreement. If our costs to expand our networks are greater than we anticipate, we may not have
sufficient capital nor be able to secure additional capital on terms acceptable to us and may have to curtail our expansion plans. Upon drawing
on available debt under our credit agreement, we may not be able to generate sufficient cash flows from operations in 2026 and beyond or to
raise additional capital in amounts necessary for us to repay the future indebtedness when such indebtedness becomes due and to meet our other
cash needs.
General Risk Factors
Adverse economic conditions in the United States and in our market area involving significantly reduced consumer spending could have
a negative impact on our results of operations.
Unfavorable general economic conditions could negatively affect our business. Although it is difficult to predict the impact of general economic
conditions on our business, these conditions could adversely affect the affordability of, and customer demand for our services, and could cause
customers to delay or forgo purchases of our services. Any national economic weakness, restricted credit markets, high inflation or high
unemployment rates could depress consumer spending and harm our operating performance. In addition, any material adverse economic
conditions that affect our geographic markets in particular could have a disproportionately negative impact on our results.
Negative outcomes of legal proceedings may adversely affect our business and financial condition.
We become involved in legal proceedings from time to time. While we are not currently involved in any material legal proceedings, potential
future proceedings may be complicated, costly and disruptive to our business operations. We might also incur significant expenses in defending
these matters or may be required to pay significant fines, awards and settlements. Any of these potential outcomes, such as judgments, awards,
settlements or orders could have a material adverse effect on our business, financial condition, operating results or our ability to do business.
Our business may be impacted by new or changing tax laws or regulations and actions by federal, state and/or local agencies, or how
judicial authorities apply tax laws.
In connection with the products and services we sell, we calculate, collect and remit various federal, state and local taxes, surcharges and
regulatory fees to numerous federal, state and local governmental authorities, including federal USF contributions and regulatory fees. In
addition, we incur and pay state and local taxes and fees on purchases of goods and services used in our business.
Tax laws are subject to change as new laws are passed and new interpretations of the law are issued or applied. In many cases, the application of
tax laws is uncertain and subject to differing interpretations, especially when evaluated against new technologies and telecommunications
services, such as broadband internet access and cloud related services.
In the event that we have incorrectly calculated, assessed or remitted amounts that were due to governmental authorities, we could be subject to
additional taxes, fines, penalties or other adverse actions, which could materially impact our business, financial condition and operating results.
In the event that federal, state and/or local municipalities were to significantly increase taxes on our network, operations or services, or seek to
impose new taxes, it could have a material adverse effect on our business, financial condition, operating results or ability to do business.
25
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company owns or leases switching and data centers, office and retail space, and warehouses that support its operations located across a
multi-state area covering large portions of central and western Virginia, south-central Pennsylvania, West Virginia, and portions of Maryland,
and Kentucky. The Company also has fiber optic hubs or points of presence in Pennsylvania, Maryland, Virginia, Kentucky and West Virginia.
The Company considers the properties owned or leased generally to be in good operating condition and suitable for its business operations.
ITEM 3. LEGAL PROCEEDINGS
None.
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
PART II
Market Information
The Company's stock is traded on the Nasdaq Global Select Market under the symbol “SHEN.” The following table indicates the closing high and low
sales prices per share of common stock as reported by the Nasdaq Global Select Market for each quarter during the last two years:
2021
High
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
24.44
28.70
46.00
38.77
32.15
57.54
50.88
51.03
Low
$
$
2020
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
$
High
Low
$
47.47
56.14
58.64
49.50
42.87
42.36
44.22
39.32
Stock Performance Graph
The following graph and table show the cumulative total shareholder return on the Company’s common stock compared to the Nasdaq US Index and the
Nasdaq Telecommunications Index for the period between December 31, 2016 and December 31, 2021. The graph tracks the performance of a $100
investment, with the reinvestment of all dividends, from December 31, 2016 to December 31, 2021.
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Table of Contents
Shenandoah Telecommunications Company
NDAQ US
NDAQ Telecom Stocks
$
$
$
100 $
100 $
100 $
125 $
121 $
100 $
164 $
115 $
93 $
155 $
151 $
118 $
163 $
183 $
129 $
157
230
136
2016
2017
2018
2019
2020
2021
Holders
As of February 23, 2022, there were 3,676 holders of record of the Company’s common stock.
Dividend Policy
Under the Company’s credit agreement, the Company is restricted in its ability to pay dividends in the future. So long as no Default or Event of Default, as
defined in the credit agreement, the Company may make, declare and pay lawful cash dividends or distributions to its shareholders or redeem capital stock
in an aggregate amount not to exceed, when the Company’s Total Net Leverage Ratio (as defined in the credit agreement) is greater than 4.00:1.00 on a pro
forma basis, an amount equal to the greater of 6.0% of the net cash proceeds from any public equity issuance of the Company’s equity interests or 4.0% of
the estimated fair market value of the Company’s equity interests or when the Company’s Total Net Leverage (as defined in the credit agreement) is less
than or equal to 4.00:1.00 on a pro forma basis, an unlimited amount; provided, however, that the amount of any dividend or distribution that is not paid in
cash but is reinvested in equity interests of the Company shall be excluded from this calculation and redemptions of equity interests of the Company
surrendered by employees and directors to cover withholding taxes shall be excluded from this calculation.
The table below sets forth the cash dividends per share of our common stock that our board of directors declared during the following years:
Cash Dividend
$
0.26 $
0.27 $
0.29 $
0.34 $
18.82
2017
Years Ended December 31,
2019
2020
2018
2021
Cash dividends in 2021 include a special dividend of $18.75 per share declared in the third quarter of 2021 (the "Special Dividend") following the sale of
our Wireless operations and assets.
Dividend Reinvestment Plan
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 whole shares in book entry form, pays out cash for any fractional shares, and cancels the fractional shares. In conjunction with the
vesting of shares or exercise of stock options, the grantees may surrender awards necessary to cover the statutory tax withholding requirements and any
amounts required to cover stock option strike prices associated with the transaction.
Purchases of Equity Securities by the Issuer or Affiliated Purchasers
None.
28
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ITEM 6.
[Reserved]
29
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial
statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the
following discussion and analysis may contain forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ
materially from those anticipated by forward-looking statements as a result of many factors. We discuss factors that we believe could cause or contribute to
these differences below and elsewhere in this Annual Report on Form 10-K, including those set forth under “Part I. Cautionary Statement Regarding
Forward-Looking Statements” and “Part I. Item 1A. Risk Factors”.
Overview
Shenandoah Telecommunications Company (“Shentel”, “we”, “our”, “us”, or the “Company”), is a provider of a comprehensive range of broadband
communication services and cell tower colocation space in the Mid-Atlantic portion of the United States.
Management’s Discussion and Analysis is organized around our reporting segments. Refer to Item 1 above for our description of our reporting segments
and a description of their respective business activities. Also see Note 3, Discontinued Operations, and Note 15, Segment Reporting, in our consolidated
financial statements for additional information.
2021 Developments
On July 1, 2021, pursuant to the previously announced Asset Purchase Agreement (the “Purchase Agreement”), dated May 28, 2021, between Shentel and
T-Mobile USA, Inc. (“T-Mobile”), Shentel completed the sale to T-Mobile of its Wireless assets and operations for cash consideration of approximately
$1.94 billion, inclusive of the approximately $60 million settlement of the waived management fees by Sprint Corporation, an indirect subsidiary of T-
Mobile (“Sprint”), and net of certain transaction expenses (the “Transaction”). The Company’s Wireless assets and operations were classified as
discontinued operations after Sprint delivered notice to the Company exercising its option to purchase the Wireless assets and operations on August 26,
2020.
Due to the availability of grants awarded under various governmental initiatives, in support of rural fiber to the home ("FTTH") broadband network
expansion projects, we ceased further expansion of our fixed wireless edge-out strategy. As a result, in the fourth quarter of 2021, the Company incurred
approximately $6.0 million of expenses for impairment of expansionary Beam construction assets. The Company plans to continue to operate the existing
Beam network and continue sales and marketing activities to attract new customers; therefore, our remaining Beam assets and operations will continue to
be classified as continuing operations.
Our historical results of operations have been retroactively revised to reflect the correction of an immaterial error related to the capitalization of certain
customer installation costs for our Broadband segment. These revisions ensure comparability across all periods reflected herein. Refer to Note 1, Nature of
Operations, found in our consolidated financial statements contained herein for additional information.
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Results of Operations
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020
The Company’s consolidated results from operations are summarized as follows:
Year Ended December 31,
Change
($ in thousands)
Revenue
Operating expenses
Operating loss
Other income, net
Income before taxes
Income tax benefit
Income from continuing operations
$
2021
245,239
247,669
(2,430)
8,665
6,235
(1,694)
7,929
% of Revenue
100.0 $
101.0
(1.0)
3.5
2.5
(0.7)
3.2
2020
220,775
223,376
(2,601)
3,187
586
(990)
1,576
Income from discontinued operations, net of tax
Net income
990,902
998,831
$
404.1
407.3 $
124,097
125,673
% of Revenue
100.0
101.2
(1.2)
1.4
0.3
(0.4)
0.7
56.2
56.9
$
24,464
24,293
171
5,478
5,649
(704)
6,353
866,805
873,158
%
11.1
10.9
(6.6)
171.9
964.0
(71.1)
403.1
698.5
694.8
Revenue
Revenue increased approximately $24.5 million, or 11.1%, in 2021 compared with 2020, driven by 11.6% growth in Broadband and 3.8% growth in the
Tower segments. Refer to the discussion of the results of operations for the Tower and Broadband segments, included within this annual report, for
additional information.
Operating expenses
Operating expenses increased approximately $24.3 million, or 10.9%, in 2021 compared with 2020, primarily driven by $7.4 million in incremental
Broadband operating expenses incurred to support the continuing expansion of Glo Fiber, $1.7 million of restructuring expenses and $6.0 million of
impairment expenses incurred primarily as a result of our decision to cease expansion of Beam, $6.4 million in depreciation from growth in our broadband
networks, $5.8 million in Broadband maintenance due primarily to higher cable replacements costs, obsolete inventory charges and expensing of software
development costs related to our current ERP system that will be replaced in 2022, partially offset by a decline in corporate expenses.
Other income, net
Other income, net increased $5.5 million primarily due to actuarial gains recognized for the Company's post-retirement benefit plans and transitional
service agreement ("TSA") income realized in 2021.
Income tax benefit
Income tax benefit of approximately $1.7 million increased approximately $0.7 million compared with 2020, primarily due to a $5.0 million of non-cash
tax benefits derived from the revaluation of our deferred tax liabilities driven by the change in our estimated state tax rate that was triggered by the
disposition of our Wireless assets and operations and a change in West Virginia tax regulations, partially offset by a $1.6 million reclassification of income
taxes from other comprehensive income as a result of terminating our interest rate swaps, a $1.1 million reduction in excess tax benefits from share based
compensation and other and $1.6 million as a result of changes in taxable income.
Income from discontinued operations, net of tax
Income from discontinued operations, net of tax, increased $0.9 billion, or 698.5%. The increase was primarily due to the completion of the disposition of
our Wireless assets and operations for proceeds of approximately $1.9 billion resulting in a gain of $1.2 billion, net of approximately $0.3 billion of income
tax expense.
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Broadband
Our Broadband segment provides broadband internet, video and voice services to residential and commercial customers in portions of Virginia, West
Virginia, Maryland, Pennsylvania, and Kentucky, via hybrid fiber coaxial cable under the brand name of Shentel, fiber optics under the brand name of Glo
Fiber and fixed wireless internet service under the brand name of Beam. The Broadband segment also leases dark fiber and provides Ethernet and
Wavelength fiber optic services to enterprise and wholesale customers throughout the entirety of our service area. The Broadband segment also provides
voice and DSL telephone services to customers in Virginia’s Shenandoah County and portions of adjacent counties as a Rural Local Exchange Carrier
(“RLEC”). These integrated networks are connected by over 7,400 fiber route mile network.
The following table indicates selected operating statistics of Broadband:
December 31,
2021
December 31,
2020
December 31,
2019
Broadband homes passed (1)
Incumbent Cable
Glo Fiber
Beam
Broadband customer relationships (2)
Residential & SMB RGUs:
Broadband Data
Incumbent Cable
Glo Fiber
Beam
Video
Voice
Total Residential & SMB RGUs (excludes RLEC)
Residential & SMB Penetration (3)
Broadband Data
Incumbent Cable
Glo Fiber
Beam
Video
Voice
Residential & SMB ARPU (4)
Broadband Data
Incumbent Cable
Glo Fiber
Beam
Video
Voice
Fiber route miles
Total fiber miles (5)
313,976
211,120
75,189
27,667
123,560
119,197
106,345
11,377
1,475
49,945
34,513
203,655
38.0 %
50.4 %
15.1 %
5.3 %
15.9 %
12.8 %
$
$
$
$
$
$
78.62
79.00
74.02
72.65
100.35
28.60
7,392
518,467
246,790
208,691
28,652
9,447
109,458
102,812
98,555
4,158
99
52,817
32,646
188,275
41.7 %
47.2 %
14.5 %
1.0 %
21.4 %
14.8 %
$
$
$
$
$
$
77.93
77.97
78.90
73.17
93.17
29.44
6,794
394,316
208,298
206,575
1,723
—
100,890
84,045
83,919
126
—
53,673
31,380
169,098
40.3 %
40.6 %
7.3 %
— %
25.8 %
16.2 %
78.72
78.72
—
—
87.95
30.68
6,139
320,444
$
$
$
$
$
$
_______________________________________________________
(1) Homes and businesses are considered passed (“homes passed”) if we can connect them to our network without further extending the distribution system. Homes passed is an estimate
based upon the best available information. Homes passed will vary among video, broadband data and voice services.
(2) Customer relationships represent the number of billed customers who receive at least one of our services.
(3) Penetration is calculated by dividing the number of users by the number of homes passed or available homes, as appropriate.
(4) Average Revenue Per Data RGU calculation = (Residential & SMB Revenue * 1,000) / average data RGUs / 12 months
(5) Total 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.
32
Table of Contents
Broadband results from operations are summarized as follows:
($ in thousands)
Broadband operating revenue
Residential & SMB
Commercial Fiber
RLEC & Other
Total broadband revenue
Broadband operating expenses
Cost of services
Selling, general, and administrative
Restructuring expense
Impairment expense
Depreciation and amortization
Total broadband operating expenses
Broadband operating income
Year Ended December 31,
Change
2021
% of Revenue
2020
% of Revenue
$
%
$
$
177,530
34,931
15,619
228,080
97,283
47,840
202
5,986
47,937
199,248
28,832
77.8 $
15.3
6.8
100.0
42.7
21.0
0.1
2.6
21.0
87.4
12.6 $
155,017
32,759
16,571
204,347
84,893
39,472
—
—
41,076
165,441
38,906
75.9
16.0
8.1
100.0 %
41.5
19.3
—
—
20.1
81.0
19.0
22,513
2,172
(952)
23,733
12,390
8,368
202
5,986
6,861
33,807
14.5
6.6
(5.7)
11.6
14.6
21.2
—
—
16.7
20.4
(10,074)
(25.9)
Residential & SMB revenue
Residential & SMB revenue increased approximately $22.5 million, or 14.5%, during 2021 primarily driven by launching services in new markets resulting
in 15.9% growth in broadband RGUs.
Commercial Fiber revenue
Commercial Fiber revenue increased approximately $2.2 million, or 6.6%, during 2021 due primarily to $1.0 million of growth in circuit connections, $0.7
million non-recurring amortized revenue reduction in 2020 and $0.5 million in non-recurring dark fiber sales-type leases in 2021.
RLEC & Other revenue
RLEC & Other revenue decreased approximately $1.0 million, or 5.7%, compared with 2020 due primarily to a decline in residential DSL subscribers,
lower switched access revenue, and lower intercompany phone service. We expect RLEC revenue to continue to decline in future periods as subscribers
migrate to faster speed data services provided by our dual-incumbent cable franchise in Shenandoah County, Virginia.
Cost of services
Cost of services increased approximately $12.4 million, or 14.6%, compared with 2020, primarily driven by $5.8 million increase in maintenance due
primarily to higher cable replacements costs, obsolete network asset charges and expensing of software development costs related to our current ERP
system, $3.6 million in higher compensation costs to support the expansion of Glo Fiber and Beam, and $1.7 million in higher programming fees.
Selling, general and administrative
Selling, general and administrative expense increased $8.4 million or 21.2% compared with 2020 primarily due to $3.8 million in higher compensation and
advertising costs to support the expansion of Glo Fiber and Beam, a $2.4 million increase in software development and service fees as we upgrade our
operating support, customer relationship and enterprise resource systems and a $1.7 million increase in property taxes, facility expense and other costs.
Restructuring expense
Restructuring expense was primarily due to severance related expenses from the sale of Wireless assets and operations.
Impairment
During the fourth quarter, we ceased further expansion of our fixed wireless edge-out strategy. As a result, in the fourth quarter of 2021, the Company
incurred approximately $6.0 million of expenses for impairment of expansionary Beam construction assets.
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Depreciation and amortization
Depreciation and amortization increased $6.9 million or 16.7%, compared with 2020, primarily as a result of our network expansion and the deployment of
infrastructure necessary to support our new fiber-to-the-home service, Glo Fiber.
Tower
Our Tower segment owns cell towers and leases colocation space on the towers to wireless communications providers. Substantially all of our owned
towers are built on ground that we lease from the respective landlords.
The following table indicates selected operating statistics of the Tower segment:
Macro tower sites
Tenants (1)
Average tenants per tower
_______________________________________________________
December 31,
2021
December 31,
2020
December 31,
2019
223
485
2.1
223
427
1.8
225
404
1.8
(1)
Includes 47, 221 and 201 intercompany tenants for our Wireless operations, (reported as a discontinued operation), and Broadband operations, as of December 31, 2021, 2020 and
2019, respectively.
Tower results from operations are summarized as follows:
($ in thousands)
Tower revenue
Tower operating expenses
Tower operating income
Year Ended December 31,
Change
2021
% of Revenue
2020
% of Revenue
$
%
$
$
17,704
8,688
9,016
100.0 $
49.1
50.9 $
17,055
8,232
8,823
100.0 %
48.3
51.7
649
456
193
3.8
5.5
2.2
Revenue
Revenue increased approximately $0.6 million, or 3.8%, in 2021 compared with 2020. This increase was due to a 13.6% increase in tenants and was
partially offset by a 3.2% decline in average revenue per tenant.
Operating expenses
Operating expenses increased approximately $0.5 million compared to the prior year period, due primarily to increases in ground lease rent expense, and
expansion of our tower network team resulting in higher payroll costs, partially offset by a decrease in professional services.
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Table of Contents
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
The Company’s consolidated results from operations are summarized as follows:
($ in thousands)
Revenue
Operating expenses
Operating loss
Other income, net
Income before taxes
Income tax expense (benefit)
Income from continuing operations
Income from discontinued operations, net of tax
Net income
Year Ended December 31,
Change
2020
220,775
223,376
(2,601)
3,187
586
(990)
1,576
124,097
125,673
$
$
$
% of Revenue
100.0 $
101.2
(1.2)
1.4
0.3
(0.4)
0.7 $
56.2
56.9 $
2019
206,862
208,204
(1,342)
3,280
1,938
6
1,932
53,568
55,500
% of Revenue
100.0
100.6
(0.6)
1.6
0.9
—
0.9
25.9
26.8
$
13,913
15,172
(1,259)
(93)
(1,352)
(996)
(356)
70,529
70,173
%
6.7
7.3
93.8
(2.8)
(69.8)
(16,600.0)
(18.4)
131.7
126.4
Revenue
Revenue increased approximately $13.9 million, or 6.7%, in 2020 compared with 2019, driven by 31.3% growth in the Tower and 5.4% growth in
Broadband segments. Refer to the discussion of the results of operations for the Tower and Broadband segments, included within this annual report, for
additional information.
Operating expenses
Operating expenses increased approximately $15.2 million, or 7.3%, in 2020 compared with 2019, driven by incremental Broadband operating expenses
incurred to support the launch of our new fiber-to-the-home service, Glo Fiber, and fixed wireless broadband service, Beam.
Income tax (benefit) expense
Income tax benefit of approximately $1.0 million declined approximately $1.0 million compared with 2019, primarily due to changes in excess tax benefits
from stock based compensation and other discrete items.
Income from discontinued operations, net of tax
Income from discontinued operations, net of tax, increased $70.5 million, or 131.7%. The increase was primarily driven by a $48.5 million decline in
depreciation and amortization primarily as a result of ceasing depreciation and amortization of assets held for sale during the third quarter of 2020,
$25.3 million increase in wireless service revenue driven by our travel revenue settlement with Sprint, a $12.1 million decline in cost of services due to
ceasing amortization on our right of use assets under operating leases during the third quarter of 2020, an $8.8 million decline in interest expense driven by
lower interest rates on our term loans, partially offset by $27.5 million of higher income tax.
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Broadband
Broadband results from operations are summarized as follows:
($ in thousands)
Broadband operating revenue
Residential & SMB
Commercial Fiber
RLEC & Other
Total broadband revenue
Broadband operating expenses
Cost of services
Selling, general, and administrative
Depreciation and amortization
Total broadband operating expenses
Broadband operating income
Year Ended December 31,
Change
2020
% of Revenue
2019
% of Revenue
$
%
$
$
155,017
32,759
16,571
204,347
84,893
39,472
41,076
165,441
38,906
75.9 $
16.0
8.1
100.0
41.5
19.3
20.1
81.0
19.0 $
142,290
30,410
21,243
193,943
79,858
33,545
38,566
151,969
41,974
73.4
15.7
11.0
100.0 %
41.2
17.3
19.9
78.4
21.6
12,727
2,349
(4,672)
10,404
5,035
5,927
2,510
13,472
(3,068)
8.9
7.7
(22.0)
5.4
6.3
17.7
6.5
8.9
(7.3)
Residential & SMB revenue
Residential & SMB revenue increased approximately $12.7 million, or 8.9%, during 2020 primarily driven by 22.3% growth in broadband RGUs and
penetration improvement.
Commercial Fiber revenue
Commercial Fiber revenue increased approximately $2.3 million, or 7.7%, during 2020 due primarily to an increase in new enterprise and backhaul
recurring revenue of $3.9 million partially offset by a decline in amortized upfront fee revenue of $1.6 million.
RLEC & Other revenue
RLEC & Other revenue decreased approximately $4.7 million, or 22.0%, compared with 2019 due primarily to a decline in residential DSL subscribers,
lower governmental support, and lower intercompany phone service. We expect RLEC revenue to decline at a slower rate in future periods as subscribers
migrate to broadband data services.
Cost of services
Cost of services increased approximately $5.0 million, or 6.3%, compared with 2019, primarily driven by higher compensation expense due to the
combination of Glo Fiber and Beam start-up expenses, higher incentive accrual from strong operating results driven by growth in our customer base, and
COVID supplemental pay for customer interfacing employees.
Selling, general and administrative
Selling, general and administrative expense increased $5.9 million or 17.7% compared with 2019 primarily due to increases in compensation expense of
$3.4 million, primarily as a result of Glo Fiber and Beam fixed wireless start-up costs, higher benefit plan and incentive accruals from strong operating
results and $2.8 million of higher software and professional fees.
Depreciation and amortization
Depreciation and amortization increased $2.5 million or 6.5%, compared with 2019, primarily as a result of our network expansion and the deployment of
infrastructure necessary to support new fiber-to-the-home service, Glo Fiber, and fixed wireless solution, Beam.
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Tower
Tower results from operations are summarized as follows:
($ in thousands)
Tower revenue
Tower operating expenses
Tower operating income
Year Ended December 31,
Change
2020
% of Revenue
2019
% of Revenue
$
%
$
$
17,055
8,232
8,823
100.0 $
48.3
51.7 $
12,985
6,690
6,295
100.0
51.5
48.5
4,070
1,542
2,528
31.3
23.0
40.2
Revenue
Revenue increased approximately $4.1 million, or 31.3%, in 2020 compared with 2019. This increase was due to a 5.7% increase in tenants and a 23.4%
increase in average revenue per tenant driven by amendments to intercompany leases.
Revenue derived from our wireless operations was approximately $14.0 million and $10.0 million in 2020 and 2019, respectively.
Operating expenses
Operating expenses increased approximately $1.5 million compared to the prior year period, due primarily to increases in ground lease rent expense and
professional services.
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Financial Condition, Liquidity and Capital Resources
Sources and Uses of Cash: Our principal sources of liquidity are our cash and cash equivalents, cash generated from operations, and proceeds available
under our Credit Agreement.
As of December 31, 2021 our cash and cash equivalents totaled $84.3 million and the availability under our delayed draw term loans and revolving line of
credit was $400.0 million, for total available liquidity of $484.3 million.
Operating activities from continuing operations generated approximately $63.5 million in 2021, representing an increase of $10.1 million compared with
2020, driven by higher income from continuing operations offset by changes in working capital.
Operating activities from discontinued operations resulted in a cash outflow of $314.4 million as compared to cash inflows of $249.5 million in 2020 due
primarily to approximately $434 million of income tax payments paid on the gain from the 2021 disposition of our Wireless assets and operations and due
to the fact that the Wireless business was generating cash flow for the Company for a full year in 2020, compared to only six months in 2021.
Net cash used in investing activities for continuing operations increased $21.6 million in 2021, compared with 2020, primarily due to $39.7 million
increase in capital expenditures for our Broadband segment to enable our Glo Fiber and Beam market expansions, and partially offset by a $16.1 million
decline in payments made for spectrum licenses.
Proceeds received from the July 1, 2021, disposition of our Wireless assets and operations ("the transaction") or, net cash provided by investing activities
for discontinued operations, were approximately $1.9 billion. The Company used the after-tax proceeds from the sale of our Wireless assets and operations
to:
•
•
•
Repay and terminate approximately $684 million of outstanding term loans under our "Prior Credit Agreement", and associated interest rate swap
liabilities, concurrent with the closing of the disposition;
Issue a special dividend of $18.75 per share to Company shareholders, or approximately $937 million in the aggregate (the "Special Dividend").
Pay approximately $434 million in income taxes on the transaction in December 2021.
The transaction was accounted for as an asset sale for income tax purposes. Cash proceeds from the sale were required to be used to immediately repay our
outstanding indebtedness; all principal payments on our debt were therefore presented as cash used to finance our discontinued operations.
Net cash used in financing activities from continuing operations increased approximately $0.9 billion primarily due to the payment of the Special Dividend
following the Wireless sale.
Net cash used in financing activities for discontinued operations increased $0.7 billion to due repayment of debt under our Prior Credit Agreement in 2021.
Indebtedness: On July 1, 2021, we entered into a Credit Agreement (the “Credit Agreement”) with various financial institutions party thereto. The Credit
Agreement provides for the following three credit facilities (collectively, the “Facilities”), in an aggregate amount equal to $400 million: (i) a $100 million
five-year revolving credit facility (the “Revolver”), (ii) a $150 million five-year delayed draw amortizing term loan (the “Term Loan A-1”) and (iii) a $150
million seven-year delayed draw amortizing term loan (the “Term Loan A-2” and, together with the Term Loan A-1, the “Term Loans”). The Credit
Agreement includes a provision under which the Company may request that additional term loans be made to it in an amount not to exceed the sum of (1)
the greater of (a) $75 million and (b) 100% of Consolidated EBITDA (as defined in the Credit Agreement), calculated on a pro forma basis in accordance
with the Credit Agreement, plus (2) an additional unlimited amount subject to a maximum Total Net Leverage Ratio (as defined in the Credit Agreement)
of 4.00:1.00, calculated on a pro forma basis in accordance with the Credit Agreement, subject to the receipt of commitments from one or more lenders for
any such additional term loans and other customary conditions.
The availability of the Facilities to the Company is subject to the satisfaction or waiver of certain customary conditions set forth in the Credit Agreement.
The Company may use the proceeds from the Revolver and the Term Loans to finance capital expenditures, provide working capital, and for other general
corporate purposes, including but not limited to, funding any underfunded amounts of the nTelos pension plan to enable its termination, of the Company
and its subsidiaries. If drawn on, the Term Loans are required to be repaid in quarterly principal installments commencing on September 30, 2023, with the
unpaid balance of the Term Loans due at maturity, as set forth in the Credit Agreement.
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We have not made any borrowings under the Credit Agreement as of this date. We expect to start drawing against the Credit Agreement in first quarter of
2022, with additional borrowings occurring as needed to fund the Company's future capital expenditures. We expect to draw $300 million against the Credit
Agreement by June 2023.
We expect our cash on hand, cash flow from continuing operations, and availability of funds from our Credit Agreement, will be sufficient to meet our
anticipated liquidity needs for business operations for the next twelve months. There can be no assurance that we will continue to generate cash flows at or
above current levels or that we will be able to raise additional financing to support the Company's planned capital expenditures aimed at growth and
expansion.
We expect our capital expenditures to exceed the cash flow provided from continuing operations through 2025, as we shift our focus to expand our
broadband network to support the launch of Glo Fiber to our newly targeted markets covering over 450,000 homes passed.
The actual amount and timing of our future capital requirements may differ materially from our estimates depending on the demand for our products and
services, new market developments and expansion opportunities.
Our cash flows from continuing operations could be adversely affected by events outside our control, including, without limitation, changes in overall
economic conditions, regulatory requirements, changes in technologies, changes in competition, demand for our products and services, availability of labor
resources and capital, natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as COVID-19,
and other conditions. Our ability to attract and maintain a sufficient customer base, particularly in our Broadband markets, is critical to our ability to
maintain a positive cash flow from operations. The foregoing events individually or collectively could affect our results.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP"). The preparation of these
consolidated financial statements requires us to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and
expenses, as well as related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition
or operating results would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the
circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and
estimates, which we discuss further below.
Our significant accounting policies are described in Note 2, Summary of Significant Accounting Policies in our consolidated financial statements. The
following are the accounting policies that we believe involve a greater degree of judgment and complexity and are the most critical to aid in fully
understanding and evaluating our consolidated financial condition and results of operations.
Revenue Recognition
Our Broadband segment provides broadband data, video and voice services to residential and commercial customers in portions of Virginia, West Virginia,
Maryland, Pennsylvania, and Kentucky, via fiber optic, hybrid fiber coaxial cable, and fixed wireless networks. The Broadband segment also provides
voice and DSL telephone services to customers in Virginia’s Shenandoah County and portions of adjacent counties as a Rural Local Exchange Carrier
(“RLEC”). Our service contracts are generally cancellable at the customer’s discretion without penalty at any time. We allocate the total transaction price in
these transactions based upon the standalone selling price of each distinct good or service. We generally recognize these revenues over time as customers
simultaneously receive and consume the benefits of the service, with the exception of equipment sales and home wiring, which are recognized as revenue at
a point in time when control transfers and when installation is complete, respectively. Installation fees, charged upfront without transfer of commensurate
goods or services to the customer, are allocated to services and are recognized ratably over the longer of the contract term or the period in which the
unrecognized fee remains material to the contract, which we estimate to be about one year. Additionally, the Company incurs commission costs which are
capitalized and amortized over the expected weighted average customer life which is approximately six years.
Our Broadband segment also provides Ethernet and Wavelength fiber optic services to enterprise and carrier customers under capacity agreements, and the
related revenue is recognized over time. In some cases, non-refundable upfront fees are charged for connecting enterprise or carrier customers to our fiber
network. Those amounts are recognized ratably over the longer of the contract term or the period in which the unrecognized fee remains material to the
respective contract.
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The Broadband segment also leases dedicated fiber optic strands to customers as part of “dark fiber” agreements, which are accounted for as leases under
ASC 842 Leases ("ASC 842").
Our Tower segment leases space on owned cell towers to our Broadband segment, and to other wireless carriers. Revenue from these leases is accounted
for under ASC 842.
Recently Issued Accounting Standards
Recently issued accounting standards and their expected impact, if any, are discussed in Note 2, Summary of Significant Accounting Policies in our
consolidated financial statements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The outstanding term loans under the Prior Credit Agreement, and associated interest rate swap liabilities, were repaid and terminated on July 1, 2021. We
have not drawn on the Credit Agreement as of December 31, 2021. As a result, our exposure to significant risks concerning fluctuating variable interest
rates has been mitigated. We expect to start drawing against the Credit Agreement in first quarter of 2022, with additional borrowings occurring as needed
to fund the Company's future capital expenditures. We expect to draw $300 million against the Credit Agreement by June 2023. Fluctuations in interest
rates on future borrowings could result in increased market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and supplementary data are included as a separate section included within Item 15 of this Annual Report on Form 10-
K commencing on page F-1 and are incorporated herein by reference.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer, Chief Financial Officer, and Principal Accounting Officer (the certifying officers) have conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the Exchange Act)) as of December 31, 2021. Our certifying officers concluded that, as a result of the material
weaknesses in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of December 31, 2021.
Per Rules 13a-15(e) and 15d-15(e), the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to
ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is
recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to the issuer’s management, including its Chief Executive Officer and Chief Financial Officer, or persons performing similar functions,
as appropriate to allow timely decisions regarding required disclosure.
In light of the material weaknesses described below, management performed additional analysis and other procedures to ensure that our consolidated
financial statements were prepared in accordance with U.S. generally accepted accounting principles (GAAP). Accordingly, management believes that the
consolidated financial statements included in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of
operations, and cash flows as of and for the periods presented, in accordance with U.S. GAAP.
Changes in Internal Control over Financial Reporting
As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, the Company is pursuing a multi-year, phased approach to
remediate its material weaknesses. There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter
ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
of the Exchange Act). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions
or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
In order to evaluate the effectiveness of internal control over financial reporting, under the direction of our certifying officers, we conducted an assessment
using the criteria established in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
Based on this assessment, our certifying officers concluded that the Company’s internal control over financial reporting was not effective as of December
31, 2021 due to a material weakness in our control environment. Unusually high employee turnover and multiple priorities, including the need to
recalibrate control activities for our smaller continuing operations, upgrade our lease accounting and enterprise resource planning (ERP) systems, and
continue our remediation efforts placed strain on our resources. As a result, the Company did not have effective information and communication processes
and did not have effective control activities related to i) the design and operation of process-level controls over the accounting for purchases (current
liabilities and operating expenses), property, plant, and equipment and related depreciation expense, and leases, and ii) reaching and documenting
appropriate historical accounting conclusions related to capitalization of fulfillment costs, fees associated with leases, and cable replacement.
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As a result of the deficiencies described above, there were immaterial misstatements, some of which were corrected during 2021, and an immaterial error
restatement of the 2020 and 2019 consolidated financial statements. The deficiencies described above created a reasonable possibility that a material
misstatement to the consolidated financial statements would not be prevented or detected on a timely basis and therefore we concluded that the deficiencies
represent material weaknesses in the Company’s internal control over financial reporting and our internal control over financial reporting was not effective
as of December 31, 2021.
Our independent registered public accounting firm, KPMG LLP, who audited the consolidated financial statements included in this Annual Report on Form
10-K, issued an adverse opinion on the effectiveness of the Company’s internal control over financial reporting. KPMG LLP’s report appears on page F-3
of this Annual Report on Form 10-K.
Management’s Remediation Plan
The Company is committed to completing its remediation efforts during 2022. Our 2021 accomplishments and 2022 plans are summarized below.
• We designed and began to configure new ERP and lease accounting systems that are scheduled to be implemented during 2022 along with newly
designed controls and processes over purchasing (current liabilities and operating expenses), property, plant, and equipment and related
depreciation expense, and leases.
• We will continue to re-evaluate previously adopted accounting policies to ensure they remain appropriate in light of our smaller continuing
operations, and
• We will hire, retain and train individuals with the appropriate skills and experience related to technical accounting, internal control over financial
reporting, and the design and implementation of information technology solutions to ensure we meet our remediation goals.
We will report regularly to the Audit Committee on the progress and results of the remediation plan, including the identification, status, and resolution of
internal control deficiencies
ITEM 9B. OTHER INFORMATION
None
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
See “Executive Officers of the Registrant” in Part 1, Item 1 of this report for information about our executive officers, which is incorporated by reference in
this Item 10. Other information required by this Item 10 is incorporated by reference to the Company's definitive proxy statement for its 2022 Annual
Meeting of Shareholders, referred to as the “2022 proxy statement,” which we will file with the SEC on or before 120 days after our 2021 fiscal year end,
and which appears in the 2022 proxy statement under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting
Compliance.”
We have adopted a code of ethics applicable to our chief executive officer and all senior financial officers, who include our principal financial officer,
principal accounting officer, and persons performing similar functions. The code of ethics, which is part of our Code of Business Conduct and Ethics, is
available on our website at www.shentel.com. To the extent required by SEC rules, we intend to disclose any amendments to our code of conduct and ethics,
and any waiver of a provision of the code with respect to the Company’s directors, principal executive officer, principal financial officer, principal
accounting officer, or persons performing similar functions, on our website referred to above within four business days following such amendment or
waiver, or within any other period that may be required under SEC rules from time to time.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item 11 is incorporated herein by reference to the 2022 proxy statement, including the information in the 2022 proxy statement
appearing under the captions “Election of Directors-Director Compensation” and “Executive Compensation.”
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Information required by Item 12 is incorporated herein by reference to the 2022 proxy statement appearing under the caption “Security Ownership.”
The Company awards stock options to its employees meeting certain eligibility requirements under its shareholder-approved Company Stock Incentive
Plan, referred to as the 2014 Equity Incentive Plan. The 2014 Equity Incentive Plan authorizes grants of up to an additional 3.0 million shares over a ten-
year period beginning in 2014. Outstanding awards and the number of shares available for future issuance as of December 31, 2021 were as follows:
2014 Equity Incentive Plan
482,673 $
—
1,599,094
Number of securities to be issued upon
exercise of outstanding options and
RSUs
Weighted average exercise
price of outstanding options
Number of securities
remaining available for future
issuance
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Information required by Item 13 is incorporated herein by reference to the 2022 proxy statement, including the information in the 2022 proxy statement
appearing under the caption “Executive Compensation-Certain Relationships and Related Transactions.”
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by Item 14 is incorporated herein by reference to the 2022 proxy statement, including the information in the 2022 proxy statement
appearing under the caption “Shareholder Ratification of Independent Registered Public Accounting Firm.”
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following is a list of documents filed as a part of this report:
PART IV
(1) Financial Statements
(2) Financial Statement Schedule
(3) Exhibits
The exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index directly following Item 16. Form 10-K Summary,
within this Annual Report on Form 10-K.
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SHENANDOAH TELECOMMUNICATIONS COMPANY
AND SUBSIDIARIES
Index to the Consolidated 2021 Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
Financial Statement Schedule
Valuation and Qualifying Accounts
F-1
Page
F-2
F-6
F-7
F-8
F-9
F-10
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Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Shenandoah Telecommunications Company:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Shenandoah Telecommunications Company and subsidiaries (the Company) as of
December 31, 2021 and 2020, the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows for each of the years in
the three-year period ended December 31, 2021, and the related notes and financial statement schedule II - Valuation and Qualifying Accounts (collectively,
the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended
December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2022 expressed an adverse opinion on the
effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Determination of costs capitalized into property, plant, and equipment
As discussed in Notes 2 and 6 to the consolidated financial statements, the property, plant, and equipment, net balance as of December 31, 2021 was
$554.2 million. The determination to capitalize, rather than expense, costs increases operating income and net income.
We identified the determination of costs capitalized into property, plant, and equipment as a critical audit matter. The nature of evidence provided,
such as third-party invoices, can lack specificity of the item acquired or activity performed and required complex judgment to determine that the costs
qualified for capitalization.
The following are the primary procedures we performed to address this critical audit matter. For a sample of costs capitalized, we inspected the
related invoice(s). For those invoices lacking specificity, we inspected additional support, such as project documentation or contracts. In certain
instances, we also involved a professional with specialized skills and knowledge in the telecommunications industry, who assisted in evaluating the
nature of the project and related costs.
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The combination of these procedures was used to independently assess the Company’s determination that such costs qualified for capitalization.
/s/ KPMG LLP
We have served as the Company’s auditor since 2001.
McLean, Virginia
February 28, 2022
F-3
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Shenandoah Telecommunications Company:
Opinion on Internal Control Over Financial Reporting
We have audited Shenandoah Telecommunications Company and subsidiaries' (the Company) internal control over financial reporting as of December 31,
2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the
control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income, shareholders’ equity, and
cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes and financial statement schedule II - Valuation and
Qualifying Accounts (collectively, the consolidated financial statements), and our report dated February 28, 2022 expressed an unqualified opinion on those
consolidated financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following
material weaknesses have been identified and included in management’s assessment:
The Company did not have an effective control environment due to insufficient resources. As a result, the Company was unable to maintain effective
information and communication processes and did not have effective control activities related to: i) the design and operation of process-level controls over
the accounting for purchases (current liabilities and operating expenses), property, plant, and equipment and related depreciation expense, and leases, and
ii) reaching and documenting appropriate historical accounting conclusions related to the capitalization of contract fulfillment costs, upfront fees associated
with lease arrangements, and cable repairs and maintenance.
The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2021 consolidated financial
statements, and this report does not affect our report on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
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preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
McLean, Virginia
February 28, 2022
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SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2021 and 2020
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $352 and $614, respectively
Income taxes receivable
Prepaid expenses and other
Current assets held for sale
Total current assets
Investments
Property, plant and equipment, net
Goodwill and Intangible assets, net
Operating lease right-of-use assets
Deferred charges and other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt, net of unamortized loan fees
Accounts payable
Advanced billings and customer deposits
Accrued compensation
Income taxes payable
Current operating lease liabilities
Accrued liabilities and other
Current liabilities held for sale
Total current liabilities
Other long-term liabilities:
Deferred income taxes
Asset retirement obligations
Benefit plan obligations
Non-current operating lease liabilities
Other liabilities
Total other long-term liabilities
Commitments and contingencies (Note 14)
Shareholders’ equity:
Common stock, no par value, authorized 96,000; 49,965 and 49,868 issued and outstanding at December 31, 2021 and
2020, respectively
Additional paid in capital
Retained earnings
Accumulated other comprehensive loss, net of taxes
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
F-6
2021
2020
$
84,344 $
22,005
30,188
29,830
—
166,367
13,661
554,162
89,831
56,414
10,298
890,733
$
— $
28,542
11,128
9,653
—
3,318
14,649
—
67,290
86,014
9,615
8,216
51,692
25,631
181,168
195,397
70,393
—
7,522
1,133,294
1,406,606
13,769
440,427
106,759
50,387
6,448
2,024,396
688,463
19,599
8,594
16,413
6,951
1,970
13,869
452,202
1,208,061
148,684
4,955
14,645
46,095
24,905
239,284
—
—
49,351
592,924
—
642,275
890,733 $
47,317
534,440
(4,706)
577,051
2,024,396
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SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2021, 2020 and 2019
(in thousands, except per share amounts)
Service revenue and other
Operating expenses:
Cost of services
Selling, general and administrative
Restructuring expense
Impairment expense
Depreciation and amortization
Total operating expenses
Operating loss
Other income, net
Income before income taxes
Income tax (benefit) expense
Income from continuing operations
Discontinued operations:
Income from discontinued operations, net of tax
Gain on the sale of discontinued operations, net of tax
Total income from discontinued operations, net of tax
Net income
Other comprehensive income:
Net gains (losses) on interest rate swaps, net of tax
Comprehensive income
Net income per share, basic and diluted:
Basic - Income from continuing operations
Basic - Income from discontinued operations, net of tax
Basic net income per share
Diluted - Income from continuing operations
Diluted - Income from discontinued operations, net of tax
Diluted net income per share
Weighted average shares outstanding, basic
Weighted average shares outstanding, diluted
Cash dividends declared per share
See accompanying notes to consolidated financial statements.
F-7
2021
2020
2019
$
245,239 $
220,775 $
206,862
102,299
82,451
1,727
5,986
55,206
247,669
(2,430)
8,665
6,235
(1,694)
7,929
94,667
896,235
990,902
998,831
89,657
85,016
—
—
48,703
223,376
(2,601)
3,187
586
(990)
1,576
124,097
—
124,097
125,673
83,572
77,846
—
—
46,786
208,204
(1,342)
3,280
1,938
6
1,932
53,568
—
53,568
55,500
4,706
1,003,537 $
(5,014)
120,659 $
(7,972)
47,528
0.16 $
19.81 $
19.97 $
0.16 $
19.76 $
19.92 $
0.03 $
2.49 $
2.52 $
0.03 $
2.48 $
2.51 $
0.04
1.07
1.11
0.04
1.07
1.11
50,026
50,149
49,901
50,024
18.82 $
0.34 $
49,811
50,101
0.29
$
$
$
$
$
$
$
$
Table of Contents
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 2021, 2020 and 2019
(in thousands, except per share amounts)
Balance, December 31, 2018
Immaterial correction of accumulated error (Note 1)
Balance, December 31, 2018 (adjusted)
Net income
Net loss on interest rate swaps, net of tax
Dividends declared
Dividends reinvested in common stock
Share repurchases
Stock based compensation
Stock options exercised
Common stock issued
Shares retired for settlement of employee taxes upon issuance
of vested equity awards
Common stock issued to acquire non-controlling interest in
nTelos
Balance, December 31, 2019
Net income
Net loss on interest rate swaps, net of tax
Dividends declared
Dividends reinvested in common stock
Stock based compensation
Stock options exercised
Common stock issued
Annual dividend reinvestment
Shares retired for settlement of employee taxes upon issuance
of vested equity awards
Common stock issued to acquire non-controlling interest in
nTelos
Balance, December 31, 2020
Net income
Net gain on interest rate swaps, net of tax
Dividends declared
Stock based compensation
Shares retired for settlement of employee taxes upon issuance
of vested equity awards
Balance, December 31, 2021
See accompanying notes to consolidated financial statements.
Shares of
Common
Stock (no par
value)
49,630
Additional
Paid in Capital
47,456
49,630
47,456
—
—
—
14
(200)
184
29
—
(62)
76
49,671
—
—
—
—
156
—
1
12
(48)
76
49,868
—
—
—
133
—
—
—
499
(7,231)
4,182
81
34
(2,911)
—
42,110
—
—
—
(2)
6,833
36
31
526
(2,217)
—
47,317
—
—
—
3,661
388,496
(3,838)
384,658
55,500
—
(14,442)
—
—
—
—
—
—
—
425,716
125,673
—
(16,950)
—
—
—
—
—
—
—
534,440
998,831
—
(940,347)
—
(36)
49,965 $
(1,627)
49,351 $
—
592,924 $
F-8
Retained
Earnings
Accumulated Other
Comprehensive
Income (Loss)
Total
8,280
8,280
—
(7,972)
—
—
—
—
—
—
—
—
308
—
(5,014)
—
—
—
—
—
—
444,232
(3,838)
440,394
55,500
(7,972)
(14,442)
499
(7,231)
4,182
81
34
(2,911)
—
468,134
125,673
(5,014)
(16,950)
(2)
6,833
36
31
526
—
(2,217)
—
(4,706)
—
4,706
—
—
—
— $
—
577,051
998,831
4,706
(940,347)
3,661
(1,627)
642,275
Table of Contents
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2021, 2020 and 2019
(in thousands)
Cash flows from operating activities:
Net income
Income from discontinued operations, net of tax
Income from continuing operations
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
Amortization
Accretion of asset retirement obligations
Bad debt expense
Stock based compensation expense, net of amount capitalized
Deferred income taxes
Restructuring expense
Impairment expense
Gain from patronage and investments and other
Changes in assets and liabilities:
Accounts receivable
Current income taxes
Operating lease right-of-use assets
Other assets
Accounts payable
Lease liabilities
Other deferrals and accruals
Net cash provided by operating activities - continuing operations
Net cash (used) provided by operating activities - discontinued operations
Net cash (used) provided by operating activities
Cash flows from investing activities:
Capital expenditures
Cash disbursed for acquisitions
Cash disbursed for deposit on FCC spectrum leases
Proceeds from sale of assets and other
Net cash used in investing activities - continuing operations
Net cash provided (used) in investing activities - discontinued operations
Net cash provided (used) in investing activities
Cash flows from financing activities:
Payments for debt issuance costs
Dividends paid, net of dividends reinvested
Share repurchases
Taxes paid for equity award issuances
Payments for financing arrangements and other
Net cash used in financing activities - continuing operations
Net cash used in financing activities - discontinued operations
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
See accompanying notes to consolidated financial statements.
2021
2020
2019
$
$
998,831
990,902
7,929
$
125,673
124,097
1,576
54,389
817
421
1,028
3,408
22,263
1,727
5,986
481
163
(25,149)
4,779
(7,005)
2,976
(4,333)
(6,427)
63,453
(314,387)
(250,934)
(160,101)
—
—
366
(159,735)
1,944,089
1,784,354
(841)
(940,256)
—
(1,627)
(1,193)
(943,917)
(700,556)
(1,644,473)
(111,053)
195,397
84,344
$
47,964
739
333
1,220
5,907
14,906
—
—
(1,311)
(7,318)
(15,896)
3,980
(2,505)
(663)
(3,067)
7,494
53,359
249,508
302,867
(120,450)
(1,890)
(16,118)
370
(138,088)
(17,500)
(155,588)
—
(16,424)
—
(2,217)
(769)
(19,410)
(34,123)
(53,533)
93,746
101,651
195,397
$
$
F-9
55,500
53,568
1,932
46,313
473
410
1,743
3,367
16,681
—
—
(4,769)
(74)
(16,675)
7,593
785
(8,426)
(4,987)
(2,037)
42,329
216,816
259,145
(67,048)
(10,000)
(16,742)
112
(93,678)
(71,656)
(165,334)
—
(13,943)
(7,231)
(2,910)
36
(24,048)
(53,198)
(77,246)
16,565
85,086
101,651
Table of Contents
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations
Shenandoah Telecommunications Company and its subsidiaries (collectively, the “Company”) provide broadband data, video and voice services to
residential and commercial customers in portions of Virginia, West Virginia, Maryland, Pennsylvania and Kentucky, via fiber optic, hybrid fiber coaxial
cable, and fixed wireless networks. We also lease dark fiber and provide Ethernet and Wavelength fiber optic services to enterprise and wholesale
customers throughout the entirety of our service area. The Broadband segment also provides voice and DSL telephone services to customers in Virginia’s
Shenandoah County and portions of adjacent counties as a Rural Local Exchange Carrier (“RLEC”). These integrated networks are connected by a fiber
network. All of these operations are contained within our Broadband reporting segment.
Our Tower segment owns 223 cell towers and leases colocation space on those towers to wireless communications providers, refer to Note 15, Segment
Reporting, for additional information.
Revision of Prior Period Financial Statements
Immaterial correction of accumulated error
During 2021, the Company determined that an error existed in our previously issued financial statements related to the capitalization of labor costs
associated with customer installation activities at existing service locations for the Broadband segment. These activities were incorrectly recognized as
capitalized contract fulfillment costs since the adoption of Accounting Standards Codification 606, Revenue from contracts with customers, (“ASC 606”)
on January 1, 2018. The costs should have been expensed according to application of historical accounting policy in place prior to the adoption of ASC
606, and pursuant to industry specific guidance ASC 922 Entertainment – Cable Television. The error was evaluated under the U.S. Securities and
Exchange Commission's ("SEC's") authoritative guidance on materiality and the quantification of the effect of prior period misstatements on the
Company’s financial statements. Although the Company has determined such error to be immaterial to its prior annual and interim financial statements, the
cumulative effect of the error would be material if corrected in the current year. Therefore, the Company revised its historical financial statements to
properly reflect the historical accounting policy elected pursuant to ASC 922. The cumulative impact of such error, relative to earnings, for the period prior
to 2019 was insignificant.
($ in thousands)
Consolidated Balance Sheet:
Prepaid expenses and other
Deferred charges and other assets
Deferred income taxes
Retained earnings
Consolidated Statement of Comprehensive Income:
Cost of services
Income before income taxes
Income tax (benefit) expense
Income from continuing operations
Net income
Comprehensive income
Net income per share, basic and diluted:
Basic - Income from continuing operations
Basic - Net income per share
Diluted - Income from continuing operations
Diluted - Net income per share
As of and for the Year Ended
December 31, 2020
Pre-Adjustment Error Correction Post-Adjustment
(2,109) $
(5,202)
(1,968)
(5,343)
1,454
(1,454)
(404)
(1,050)
(1,050)
(1,050)
(0.02) $
(0.02) $
(0.02) $
(0.02) $
7,522
6,448
148,684
534,440
89,657
586
(990)
1,576
125,673
120,659
0.03
2.52
0.03
2.51
$
$
$
$
$
9,631 $
11,650
150,652
539,783
88,203
2,040
(586)
2,626
126,723
121,709
0.05 $
2.54 $
0.05 $
2.53 $
F-10
Table of Contents
($ in thousands)
Consolidated Balance Sheet:
Prepaid expenses and other
Deferred charges and other assets
Deferred income taxes
Retained earnings, beginning of year
Retained earnings, end of year
Consolidated Statement of Comprehensive Income:
Cost of services
Income before income taxes
Income tax (benefit) expense
Income from continuing operations
Net income
Comprehensive income
Net income per share, basic and diluted:
Basic - Income from continuing operations
Basic - Net income per share
Diluted - Income from continuing operations
Diluted - Net income per share
Note 2. Summary of Significant Accounting Policies
As of and for the Year Ended
December 31, 2019
Pre-Adjustment Error Correction Post-Adjustment
$
$
$
$
$
11,178 $
9,267
137,567
388,496
430,010
82,949
2,561
173
2,388
55,956
47,984
0.05 $
1.12 $
0.05 $
1.12 $
(2,510) $
(3,349)
(1,565)
(3,838)
(4,294)
623
(623)
(167)
(456)
(456)
(456)
(0.01) $
(0.01) $
(0.01) $
(0.01) $
8,668
5,918
136,002
384,658
425,716
83,572
1,938
6
1,932
55,500
47,528
0.04
1.11
0.04
1.11
Principles of consolidation: The accompanying consolidated financial statements include the accounts of Shenandoah Telecommunications Company and
all of its wholly owned subsidiaries. All intercompany accounts and transactions for continuing operations have been eliminated in consolidation.
Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States, or the U.S.,
requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Due to the inherent uncertainty
involved in making estimates, actual results to be reported in future periods could differ from our estimates.
Cash and cash equivalents: Cash equivalents include all investments with an original maturity of three months or less. The Company places its temporary
cash investments with high credit quality financial institutions. Generally, such investments are in excess of FDIC or SIPC insurance limits.
Property, plant and equipment: Property, plant and equipment is stated at cost less accumulated depreciation. The Company capitalizes all costs associated
with the purchase, deployment and installation of property, plant and equipment, including interest costs and internal labor costs on major capital projects
during the period of their construction. Maintenance expense is recognized as incurred when repairs are performed that do not extend the life of property,
plant and equipment. Expenses for major renewals and improvements, which significantly extend the useful lives of existing property and equipment, are
capitalized and depreciated. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. Labor costs associated with
customer installation activities at existing service locations are expensed as incurred under industry specific guidance. Leasehold improvements are
depreciated over the lesser of their useful lives or respective lease terms. Land is not depreciated. Refer to Note 6, Property, Plant and Equipment, for
additional information.
Indefinite-lived Intangible Assets: Goodwill represents the excess of acquisition costs over the fair value of tangible net assets and identifiable intangible
assets of the businesses acquired. Cable franchise rights provide us with the non-exclusive right to provide video services in a specified area. Spectrum
licenses are issued by the Federal Communications Commission (“FCC”) and provide us with either an exclusive or priority access right to utilize
designated radio frequency spectrum within specific geographic service areas to provide wireless communication services. While some cable franchises
and spectrum licenses are issued for a fixed time (generally ten years and up to fifteen years, respectively), renewals have been granted routinely and at
nominal costs. The Company believes it will be able to meet all requirements necessary to secure renewal of its cable franchise
F-11
Table of Contents
rights and spectrum licenses. Moreover, the Company has determined that there are currently no legal, regulatory, contractual, competitive, economic or
other factors that limit the useful lives of our cable franchises or spectrum licenses and as a result, we account for cable franchise rights and spectrum
licenses as indefinite-lived intangible assets.
Indefinite-lived intangible assets are not amortized, but rather, are subject to impairment testing annually, in the fourth quarter, or whenever events or
changes in circumstances indicate that the carrying amount may not be fully recoverable. These assets are evaluated for impairment based on the
identification of reporting units. Our reporting units align with our reporting segments. We evaluated our reporting units for impairment during the fourth
quarter of 2021, 2020 and 2019, respectively, on the basis of qualitative factors. Our consideration of qualitative factors included but was not limited to
macroeconomic conditions, industry and market conditions, company specific events, changes in circumstances, after tax cash flows and market
capitalization trends. We concluded that there were no indicators that a reporting unit impairment was more likely than not during the years ended
December 31, 2021, 2020, or 2019.
Long-lived Assets: Finite-lived intangible assets, property, plant, and equipment, and other long-lived assets are amortized or depreciated over their
estimated useful lives, as summarized in the respective notes below. These assets are evaluated for impairment based on the identification of asset groups.
Our asset groups align with our reportable segments. We evaluated our asset groups for impairment during the fourth quarter of 2021. We concluded that
there were no indicators that an asset group impairment was more likely than not during the years ended December 31, 2021, 2020, or 2019.
Advertising Costs: The Company expenses advertising costs and marketing production costs as incurred and includes such costs within selling, general and
administrative expenses in the consolidated statements of operations. Advertising expense for the years ended December 31, 2021, 2020 and 2019 was $4.4
million, $2.7 million and $3.5 million, respectively.
Benefit Plan Obligations: The Benefit Plan Obligations caption includes the following:
($ in thousands)
Pension Plan
Postretirement Medical Benefits Plan
Supplemental executive retirement plan ("SERP")
Total
$
$
December 31, 2021
December 31, 2020
2,393
3,506
2,317
8,216
$
$
7,961
3,997
2,687
14,645
The pension plan is a frozen defined benefit plan. Benefits under the plan vested after five years of plan service and were based on years of service and an
average of the five highest consecutive years of compensation subject to certain reductions if the employee elects to receive the benefit prior to age 65. This
plan was amended on December 31, 2012, to freeze future benefit plan accruals for participants.
As of December 31, 2021 and 2020, the fair value of our Pension Plan assets were $31.1 million and $27.0 million, respectively. These investments are
held in mutual funds, and are valued based on the net asset value per share. Our Pension Plan's projected benefit obligation was $33.5 million and $34.9
million, at December 31, 2021 and 2020, respectively. The Pension Plan liability was discounted at 2.74% and 2.41% at December 31, 2021 and 2020,
respectively.
On October 13, 2021, the Company adopted a resolution to terminate its pension plan effective December 31, 2021. Following adoption of the resolution,
on October 28, 2021, the Company provided notice of intent to terminate the pension plan to participants. The Company expects to complete the
termination of the plan, and settle all obligations thereunder, in 2022.
The postretirement medical benefits plan is a frozen, unfunded, defined benefit plan. The postretirement plan liability was discounted at 2.70% and 2.32%
at December 31, 2021 and 2020, respectively.
Following our adoption of ASU 2017-17, Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and
Net Periodic Postretirement Benefit Cost, on January 1, 2018, all components of benefit plan expense are presented in Other income, net and our policy is
to immediately recognize actuarial gains and losses into earnings.
The SERP is a benefit plan that provides deferred compensation to certain employees. The Company holds investments in a rabbi trust as a source of
funding for future payments under the plan. The SERP’s investments were designated as trading securities and will be liquidated and paid out to the
participants upon retirement. The benefit obligation to participants is always equal to the value of the SERP assets under ASC 710 Compensation. Changes
to the investments’ fair value are presented in Other income, net, while the reciprocal changes in the liability representative of compensatory expense, are
presented in selling, general and administrative expense.
F-12
Table of Contents
New Accounting Standards
In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial
Reporting.” This accounting update provides optional accounting relief to entities with contracts, hedge accounting relationships or other transactions that
reference London Interbank Offering Rate (LIBOR) or other interest rate benchmarks for which the referenced rate is expected to be discontinued or
replaced. This optional relief generally allows for contract modifications solely related to the replacement of the reference rate to be accounted for as a
continuation of the existing contract instead of as an extinguishment of the contract, and therefore would not require reassessment of a previous accounting
determination. The Company's Credit Agreement has LIBOR as a reference rate. We plan to apply the accounting relief as any relevant contract
modifications are made to our Credit Agreement during the course of the reference rate reform transition period. The optional relief can be applied
beginning January 1, 2020, and ending December 31, 2022.
We adopted ASU No. 2018-02-Income Statement - Reporting Comprehensive Income, ("ASC 220"), as of January 1, 2019. We elected not to reclassify
stranded income tax effects from accumulated other comprehensive income (OCI) to retained earnings. We utilize the portfolio approach as our policy to
release the income tax effects from accumulated OCI as the entire portfolio is liquidated, sold, or extinguished.
In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832), Disclosures by Business Entities About Government Assistance,”
which requires entities to provide disclosures on material government assistance transactions for annual reporting periods. The disclosures include
information about the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government
assistance on the entity’s financial statements and any significant terms and conditions of the agreements, including commitments and contingencies. The
new standard is effective for the Corporation on January 1, 2022 and only impacts annual financial statement disclosures. The adoption is not expected to
have a material effect on our consolidated financial statements.
Note 3. Discontinued Operations
On August 26, 2020, Sprint Corporation ("Sprint"), an indirect subsidiary of T-Mobile US, Inc., ("T-Mobile"), on behalf of and as the direct or indirect
owner of Sprint PCS, delivered notice to the Company exercising its option to purchase the assets and operations of our Wireless operations for 90% of the
“Entire Business Value” (as defined under our affiliate agreement and determined pursuant to the appraisal process set forth therein). Shortly thereafter, the
Company committed to a plan to sell the discontinued Wireless operations.
On July 1, 2021, pursuant to the previously announced Asset Purchase Agreement (the “Purchase Agreement”), dated May 28, 2021, between Shentel and
T-Mobile, Shentel completed the sale to T-Mobile of its Wireless assets and operations for cash consideration of approximately $1.94 billion, inclusive of
the approximately $60 million settlement of the waived management fees by Sprint, and net of certain transaction expenses (the “Transaction”).
The assets and liabilities that transferred in the sale (the "disposal group") were presented as held for sale within our historical consolidated balance sheets,
and discontinued operations within our historical consolidated statements of comprehensive income.
The transaction was structured as an asset sale for income tax purposes. As a result, no current or deferred tax assets or liabilities were included within the
disposal group. While the Company’s long-term debt did not transfer in the sale, its provisions required full repayment of all outstanding amounts,
concurrent with the consummation of the sale. Accordingly, all debt balances and related interest rate swap liabilities were therefore presented outside of
the disposal group as a current liability as of December 31, 2020, and. the related interest expense and debt extinguishment costs were presented within
discontinued operations under the relevant authoritative guidance.
F-13
Table of Contents
The carrying amounts of the major classes of assets and liabilities, classified as held for sale in the consolidated balance sheets, were as follows:
(in thousands)
ASSETS
Inventory
Prepaid expenses and other
Property, plant and equipment, net
Intangible assets, net
Goodwill
Operating lease right-of-use assets
Deferred charges and other assets
Current assets held for sale
LIABILITIES
Current operating lease liabilities
Accrued liabilities and other
Asset retirement obligations
Current liabilities held for sale
December 31,
2020
$
$
$
$
5,746
47,003
299,647
176,459
146,383
421,586
36,470
1,133,294
409,887
8,770
33,545
452,202
Income from discontinued operations, net of tax in the consolidated statements of comprehensive income consist of the following for the years ended
December 31, 2021, 2020 and 2019:
(in thousands)
Revenue:
2020
2019
2021
Service revenue and other
Equipment revenue
Total revenue
Operating expenses:
Cost of services
Cost of goods sold
Selling, general and administrative
Severance expense
Depreciation and amortization
Total operating expenses
Operating income
Other (expense) income:
Debt extinguishment
Interest expense and other, net
Gain on sale of disposition of Wireless assets and operations
Income before income taxes
Income tax expense
Income from discontinued operations, net of tax
$
$
201,076 $
12,253
213,329
401,035 $
41,338
442,373
38,144
11,964
17,514
465
—
68,087
145,242
(11,032)
(9,178)
1,227,531
1,352,563
361,661
990,902 $
116,394
40,642
34,011
—
62,930
253,977
188,396
—
(20,455)
—
167,941
43,844
124,097 $
375,730
67,659
443,389
128,482
65,148
39,128
—
111,467
344,225
99,164
—
(29,286)
—
69,878
16,310
53,568
Consummation of the sale triggered the recognition of approximately $21.2 million of incremental selling costs during 2021, for contingent deal advisory
fees and severance expenses, which are netted against the gain on sale of disposition of Wireless assets and operations. In addition, also triggered by the
disposition event, we recognized an $11.0 million loss on debt extinguishment and incurred interest expense of approximately $2.6 million on the
termination of our interest rate swaps in connection with the Wireless sale.
F-14
Table of Contents
The Company generated $10.2 million in revenue from T-Mobile throughout the remainder of 2021 after the consummation of the sale.
Note 4. Revenue from Contracts with Customers
Our Broadband segment provides broadband data, video and voice services to residential and commercial customers in portions of Virginia, West Virginia,
Maryland, Pennsylvania and Kentucky, via fiber optic, hybrid fiber coaxial cable, and fixed wireless networks. The Broadband segment also provides voice
and DSL telephone services to customers in Virginia’s Shenandoah County and portions of adjacent counties as a Rural Local Exchange Carrier (“RLEC”).
These contracts are generally cancellable at the customer’s discretion without penalty at any time. We allocate the total transaction price in these
transactions based upon the standalone selling price of each distinct good or service. We generally recognize these revenues over time as customers
simultaneously receive and consume the benefits of the service, with the exception of equipment sales and home wiring, which are recognized as revenue at
a point in time when control transfers and when installation is complete, respectively. Installation fees charged upfront without transfer of commensurate
goods or services to the customer are allocated to services and are recognized ratably over the longer of the contract term or the period in which the
unrecognized fee remains material to the contract, which we estimate to be about one year. Additionally, the Company incurs commission costs related to
in-house and third-party vendors which are capitalized and amortized over the expected weighted average customer life which is approximately six years.
Below is a summary of the Broadband segment's capitalized contract acquisition costs:
(in thousands)
Beginning Balance
Commission payments
Contract amortization
Ending Balance
2021
2020
$
$
7,358 $
3,229
(2,440)
8,147 $
5,147
4,399
(2,188)
7,358
Our Broadband segment also provides Ethernet and Wavelength fiber optic services to commercial fiber customers under capacity agreements, and the
related revenue is recognized over time. In some cases, non-refundable upfront fees are charged for connecting commercial fiber customers to our fiber
network. Those amounts are recognized ratably over the longer of the contract term or the period in which the unrecognized fee remains material to the
respective contract. A related contract liability of $3.5 million at December 31, 2021, is expected to be recognized into revenue at the rate of approximately
$0.2 million per year.
The Broadband segment also leases dedicated fiber optic strands to customers as part of “dark fiber” agreements, which are accounted for as leases under
ASC 842.
Our Tower segment leases space on owned cell towers to our Broadband segment, and to other wireless carriers. Revenue from these leases is accounted
for under ASC 842.
Refer to Note 15, Segment Reporting, for a summary of these revenue streams.
No customers accounted for more than 10% of revenue for the years ended December 31, 2021, 2020 and 2019 and no customer made up more than 10%
of accounts receivable at December 31, 2021 and December 31, 2020.
Note 5. Investments
Investments consist of the following:
(in thousands)
SERP Investments at fair value
Cost method investments
Equity method investments
Total investments
December 31,
2021
December 31,
2020
$
$
2,317 $
11,004
340
13,661 $
2,687
10,536
546
13,769
F-15
Table of Contents
SERP Investments at fair value: The Company holds the SERP investments in a rabbi trust as a source of funding for future payments under the plan. The
SERP’s investments were designated as trading securities and will be liquidated and paid out to the participants six months after retirement. The benefit
obligation to participants is always equal to the value of the SERP assets under ASC 710, Compensation.
Cost Method Investments: Our investment in CoBank’s Class A common stock, derived from the CoBank patronage program, represented substantially all
of our cost method investments with a balance of $10.3 million and $9.8 million at December 31, 2021 and 2020, respectively. We recognized
approximately $2.0 million, $4.2 million and $4.2 million of patronage income in Other income (expense) in 2021, 2020 and 2019, respectively.
Historically, approximately 75% of the patronage distributions were collected in cash and 25% in equity.
Equity Method Investments: At December 31, 2021, the Company had a 20.0% ownership interest in Valley Network Partnership (“ValleyNet”). The
Company and ValleyNet purchase capacity on one another’s fiber network. We recognized revenue of $0.7 million, $0.9 million, and $1.0 million from
providing service to ValleyNet during 2021, 2020, and 2019, respectively. We recognized cost of service of $1.2 million, $2.7 million, and $3.0 million for
the use of ValleyNet’s network during 2021, 2020, and 2019, respectively.
Note 6. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
($ in thousands)
Land
Land improvements
Buildings and structures
Cable and fiber
Equipment and software
Plant in service
Plant under construction
Total property, plant and equipment
Less: accumulated amortization and depreciation
Property, plant and equipment, net
Estimated Useful
Lives
December 31,
2021
December 31,
2020
10 years
10 - 45 years
15 - 30 years
4 - 8 years
$
$
3,771 $
3,478
96,323
453,405
391,293
948,270
79,963
1,028,233
474,071
554,162 $
3,909
2,910
91,335
390,209
331,047
819,410
49,417
868,827
428,400
440,427
Property, plant and equipment net, increased due primarily to capital expenditures in the Broadband segment driven by our Glo Fiber market expansion. In
Q4 2021, the Company ceased expansion of its Beam network, resulting in abandonment of related property, plant and equipment. Consequently, the
Company recorded $6.0 million of impairment charges related to abandonment of Beam property, plant and equipment after estimating the salvage value
based on quoted prices for the assets.
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Note 7. Goodwill and Intangible Assets
The Company's intangible assets consisted of the following:
(in thousands)
Goodwill - Broadband
Indefinite-lived intangibles:
Cable franchise rights
FCC spectrum licenses
Railroad crossing rights
Total indefinite-lived intangibles
Finite-lived intangibles:
FCC spectrum licenses
Subscriber relationships
Other intangibles
Total finite-lived intangibles
Total goodwill and intangible assets
$
$
$
Gross
Carrying
Amount
December 31, 2021
Accumulated
Amortization
and Other
Net
Gross
Carrying
Amount
December 31, 2020
Accumulated
Amortization and
Other
Net
3,244 $
— $
3,244 $
3,244 $
— $
3,244
64,334 $
13,839
141
78,314
6,811
28,425
463
35,699
117,257 $
— $
—
—
—
64,334 $
13,839
141
78,314
64,334 $
29,958
141
94,433
— $
—
—
—
64,334
29,958
141
94,433
(672)
(26,451)
(303)
(27,426)
(27,426) $
6,139
1,974
160
8,273
89,831 $
6,811
28,425
463
35,699
133,376 $
(340)
(26,000)
(277)
(26,617)
(26,617) $
6,471
2,425
186
9,082
106,759
During the third quarter of 2020, the Company was awarded certain indefinite-lived Citizens Broadband Radio Service ("CBRS") spectrum licenses to be
used within the Broadband segment. The Company paid an aggregate deposit of $16.1 million with the licenses subject to final approval and issuance by
the Federal Communications Commission (“FCC”). The licenses will provide us priority access rights over general access users other than incumbents, in
that specific band, in accordance with the FCC’s three-tier CBRS band spectrum sharing framework to utilize designated radio frequency spectrum within
specific geographic service areas to provide wireless communication services. The FCC has delayed the issuance of the licenses because the allowable
spectrum ownership levels for certain of our investors would be exceeded should the licenses be issued. The Company is currently in discussions with the
FCC and is considering to forego the issuance of certain licenses included in this transaction covering 15 markets with a cost basis of approximately
$4.5 million in exchange for a refund and expects resolution in early 2022. The entire deposit of $16.1 million is classified within prepaid expenses and
other in the Company's consolidated balance sheet as of December 31, 2021.
For the years ended December 31, 2021, 2020 and 2019, amortization expense was approximately $0.8 million, $0.7 million and $0.5 million, respectively.
Our finite-lived intangible assets are amortized over the following estimated useful lives:
FCC spectrum licenses
Subscriber relationships
Other intangibles
Estimated Useful Life
18 - 30 years
3 - 10 years
15 - 20 years
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The following table summarizes expected amortization of intangible assets at December 31, 2021:
(in thousands)
Amortization of Intangible Assets
2022
2023
2024
2025
2026
Thereafter
Total
$
$
772
772
772
768
427
4,762
8,273
Note 8. Other Assets and Accrued Liabilities
Prepaid expenses and other, classified as current assets, included the following:
(in thousands)
Deposit for FCC spectrum licenses
Prepaid maintenance expenses
Broadband contract acquisition costs
SERP investments
Other
Prepaid expenses and other
Deferred charges and other assets, classified as long-term assets, included the following:
(in thousands)
Broadband contract acquisition costs
Prepaid expenses and other
Deferred charges and other assets
Accrued liabilities and other, classified as current liabilities, included the following:
(in thousands)
Interest rate swaps
Accrued programming costs
Sales and property taxes payable
Restructuring accrual
Other current liabilities
Accrued liabilities and other
December 31,
2021
December 31,
2020
16,118 $
8,391
2,502
801
2,018
29,830 $
—
4,018
2,308
—
1,196
7,522
December 31,
2021
December 31, 2020
5,645 $
4,653
10,298 $
5,050
1,398
6,448
December 31, 2021
December 31, 2020
— $
3,084
1,065
1,761
8,739
14,649 $
4,048
2,868
1,072
—
5,881
13,869
$
$
$
$
$
$
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Table of Contents
Other liabilities, classified as long-term liabilities, included the following:
(in thousands)
Noncurrent portion of deferred lease revenue
FCC spectrum license obligations
Noncurrent portion of financing leases
Other
Other liabilities
Restructuring activities
December 31,
2021
December 31, 2020
$
$
19,749 $
3,807
1,614
461
25,631 $
18,687
3,845
1,492
881
24,905
During 2021, in connection with the disposition of our Wireless segment, we implemented a restructuring plan whereby certain employees were notified of
their pending dismissal under the workforce reduction program. The following table identifies severance activity that has occurred as a result of the plan:
(in thousands)
Beginning Balance January 1, 2021
Expense (1)
Payments (2)
Ending Balance - December 31, 2021
_______________________________________________________
Year Ended
December 31, 2021
—
3,862
(2,101)
1,761
$
$
(1) For the year ended December 31, 2021, approximately $2.2 million of expense was recognized within discontinued operations and $1.7 million in continuing operations.
(2) For the year ended December 31, 2021, approximately $1.4 million of payments were attributable to discontinued operations and $0.7 million in continued operations.
Asset Retirement Obligations:
Our asset retirement obligations ("ARO") arise from certain of our leases and generally require us to remove our towers from ground leases. The
Company's estimates related to ARO were revised during 2021 resulting in recognition of an additional obligation of $4.3 million. Below is a summary of
our current and non-current asset retirement obligations:
(in thousands)
Balance at beginning of year
Additional liabilities accrued
Changes to prior estimates
Payments
Accretion expense
Balance at end of year
Note 9. Leases
2021
Years Ended December 31,
2020
2019
5,113 $
4,334
(44)
—
421
9,824 $
6,152 $
262
(1,633)
—
332
5,113 $
8,808
593
(3,659)
—
410
6,152
$
$
We adopted ASC 842 on January 1, 2019 using the modified retrospective method. We applied the package of practical expedients and, as a result, did not
reassess prior conclusions regarding lease identification, lease classification and initial direct costs under the new standard. In those circumstances where
the Company is the lessee, we elected to account for non-lease components associated with our leases (e.g., maintenance costs) and lease components as a
single lease component for substantially all of our asset classes.
We lease various telecommunications sites, warehouses, retail stores, and office facilities for use in our business. These agreements include fixed rental
payments as well as variable rental payments, such as those based on relevant inflation indices. The accounting lease term includes optional renewal
periods that we are reasonably certain to exercise based on our assessment of relevant contractual and economic factors. The related lease payments are
discounted at lease commencement using the Company's incremental borrowing rate in order to measure the lease liability and ROU asset.
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The incremental borrowing rate is determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an
amount equal to the lease payments on a collateralized basis over a similar term. The Company uses the observable unsecured borrowing rate and risk-
adjusts that rate to approximate a collateralized rate. At December 31, 2021, our operating leases had a weighted average remaining lease term of twenty
years and a weighted average discount rate of 4.4%. Our finance leases had a weighted average remaining lease term of fourteen years and a weighted
average discount rate of 5.2%.
During 2021, we recognized $7.1 million of operating lease expense and $0.6 million of interest and depreciation expense on finance leases. Operating
lease expense is presented in cost of service or selling, general and administrative expense based on the use of the relevant facility. Variable lease payments
and short-term lease expense were both immaterial. We remitted $5.6 million of operating lease payments during 2021. We also obtained $11.1 million and
$6.8 million of leased assets in exchange for new operating lease liabilities recognized during 2021 and 2020, respectively.
The following table summarizes the expected maturity of lease liabilities at December 31, 2021:
(in thousands)
2022
2023
2024
2025
2026
2027 and thereafter
Total lease payments
Less: Interest
Operating Leases
$
5,546 $
5,159
4,815
4,636
4,150
65,909
90,215
35,205
55,010 $
Present value of lease liabilities
$
Finance Leases
Total
180 $
182
184
186
159
1,503
2,394
696
1,698 $
5,726
5,341
4,999
4,822
4,309
67,412
92,609
35,901
56,708
We recognized $11.1 million of operating lease revenue during 2021 related to the cell site colocation space and dedicated fiber optic strands that we lease
to our customers, which is included in service and other revenue in the consolidated statements of comprehensive income. Substantially all of our lease
revenue relates to fixed lease payments.
Below is a summary of our contractual minimum rental receipts expected under the lease agreements in place at December 31, 2021:
(in thousands)
2022
2023
2024
2025
2026
2027 and thereafter
Operating Leases
$
14,460
12,947
12,083
11,134
8,198
28,915
87,737
Total
Note 10. Debt
$
Our cash payments for interest were $10.4 million and $18.6 million during 2021 and 2020, respectively.
As discussed in Note 3, Discontinued Operations, upon consummation of the Transaction, the Company used approximately $681 million of the proceeds
received from the sale to fully repay all outstanding principal amounts under, and terminate the Credit Agreement existing as of June 30, 2021 ("Prior
Credit Agreement").
On July 1, 2021, the Company entered into a Credit Agreement (the “Credit Agreement”) with various financial institutions thereto (the “Lenders”) and
CoBank, ACB, as administrative agent for the Lenders (in such capacity, the “Administrative Agent”). The Credit Agreement provides for three credit
facilities (collectively, the “Facilities”), in an aggregate amount equal to $400 million: (i) a $100 million five-year revolving credit facility (the
“Revolver”), (ii) a $150 million five-year delay draw
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amortizing term loan (the “Term Loan A-1”) and (iii) a $150 million seven-year delay draw amortizing term loan (the “Term Loan A-2” and, together with
the Term Loan A-1, the “Term Loans”). The Credit Agreement includes a provision under which the Company may request that additional term loans be
made to it in an amount not to exceed the sum of (1) the greater of (a) $75 million and (b) 100% of Consolidated EBIDTA (as defined in the Credit
Agreement), calculated on a pro forma basis in accordance with the Credit Agreement, plus (2) an additional unlimited amount subject to a maximum Total
Net Leverage Ratio (as defined in the Credit Agreement) of 4.00:1.00, calculated on a pro forma basis in accordance with the Credit Agreement, subject to
the receipt of commitments from one or more lenders for any such additional term loans and other customary conditions.
The Company may use the proceeds from the Revolver and the Term Loans to finance capital expenditures, provide working capital, and for other general
corporate purposes of the Company and its subsidiaries, including the payment of fees and expenses in connection with the foregoing. The Term Loans,
when drawn upon, are to be repaid in quarterly principal installments commencing on September 30, 2023, with the unpaid balance of the Term Loans due
at maturity, as set forth in the Credit Agreement. Interest payments on outstanding loans are required monthly, beginning in the period of the initial and any
subsequent draws.
Rates for borrowing under the Credit Agreement are based, at the Company’s election, upon whether the borrowing is a LIBOR loan or a base rate loan.
LIBOR loans will bear interest at an adjusted LIBOR rate (which shall be no less than 0.00%) plus an applicable margin ranging from 1.50% to 2.75% for
the Term Loan A-1 and the Revolver and from 1.50% to 3.00% for the Term Loan A-2, depending on the Company’s Total Net Leverage Ratio. Base rate
loans will bear interest at a base rate plus an applicable margin ranging from 0.50% to 1.75% for the Term Loan A-1 and the Revolver and from 0.50% to
2.00% for the Term Loan A-2, depending on the Company’s Total Net Leverage Ratio. In addition, under the terms of the Credit Agreement, the Company
agrees to pay the Lenders a fee on undrawn portions of the Term Loans and Revolver from time to time. This fee rate is dependent on the Company’s Total
Net Leverage Ratio and ranges from a rate per annum equal to 0.200% to 0.375%.
The Credit Agreement contains representations and warranties, and affirmative and negative financial covenants usual and customary for similar secured
credit facilities, each of which are applicable to the Company and its subsidiaries, including covenants governing the ability of the Company and its
subsidiaries, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or
dispose of assets, pay dividends or make other distributions, enter into transactions with affiliated persons, make investments or change the nature of the
Company’s and its subsidiaries’ businesses. The Company is also subject to certain financial covenants to be measured on a trailing twelve month basis on
the last day of each calendar quarter. These covenants include:
• maintaining a Total Net Leverage Ratio (as defined in the Credit Agreement) not greater than 4.25 to 1.00 (subject to customary increased
leverage periods following certain qualifying acquisitions); and
• maintaining a Debt Service Coverage Ratio (as defined in the Credit Agreement) not less than 2.00 to 1.00.
Indebtedness outstanding under any of the Facilities may be accelerated upon the occurrence of an Event of Default (as defined in the Credit Agreement).
As of December 31, 2021, the Company had not drawn on the Term Loans or the Revolver and was in compliance with the financial covenants in its credit
agreements.
The International Exchange (ICE) Benchmark Administration (the “IBA”) ceased the publication of one-week and two-month LIBOR on December 31,
2021 and expects to phase-out the remaining tenors (overnight, one-month, three-month, six-month and 12-month) on June 30, 2023. Our term loans and
revolver identify LIBOR as a reference rate for tenors ceasing on June 30, 2023 and mature after 2023. Alternative reference rates that replace LIBOR may
not yield the same or similar economic results over the terms of the financial instruments. The transition from LIBOR could result in us paying higher or
lower interest rates on our current LIBOR-indexed Term Loans. Our Credit Agreement includes provisions that provide for the identification of a LIBOR
replacement rate. Due to the uncertainty regarding the transition from LIBOR-indexed financial instruments and the manner in which an alternative
reference rate will apply, we cannot yet reasonably estimate the expected financial impact of the LIBOR transition. Any changes to the reference rate will
be agreed through an amendment to the Credit Agreement and are expected to reference the Secured Overnight Financing Rate, though the timing of such
amendment and applicability to any future amounts owed under the Credit Agreement are not certain at this time.
Note 11. Derivatives and Hedging
As discussed in Note 3, Discontinued Operations, upon consummation of the Transaction, the Company used approximately $2.6 million of the proceeds
received from the sale to fully satisfy its obligations under, and terminate, the interest rate swaps. Amounts reclassified from accumulated other
comprehensive income (loss) are presented as part of income from discontinued operations.
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Table of Contents
The table below summarizes changes in accumulated other comprehensive income (loss) by component, including the reclassification from accumulated
other comprehensive income (loss) into earnings following the swap termination:
(in thousands)
Balance as of December 31, 2020
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss) to
interest expense
Net current period other comprehensive (loss) income
Balance as of December 31, 2021
Note 12. Income Taxes
(Losses) Gains on
Cash Flow
Hedges
Income Tax
(Expense)
Benefit
Accumulated
Other
Comprehensive
(Loss) Income, net of
taxes
$
$
(4,048) $
1,447
2,601
4,048
— $
(658) $
(361)
1,019
658
— $
(4,706)
1,086
3,620
4,706
—
The Company files a consolidated U.S. federal income tax return and various state income tax returns. The provision for the federal and state income taxes
attributable to income (loss) consists of the following components:
(in thousands)
Current (benefit) expense
Federal taxes
State taxes
Total current provision
Deferred expense (benefit)
Federal taxes
State taxes
Total deferred provision
Income tax (benefit) expense
Effective tax rate
2021
Years Ended December 31,
2020
2019
$
$
(21,392)
(2,565)
(23,957)
25,518
(3,255)
22,263
(1,694)
(27.2)%
$
$
(13,748)
(2,148)
(15,896)
13,325
1,581
14,906
(990)
(168.9)%
$
$
(16,393)
(282)
(16,675)
16,286
395
16,681
6
0.3 %
A reconciliation of income tax expense (benefit) determined by applying the federal and state tax rates to income before income taxes is as follows:
(in thousands)
Expected tax expense at federal statutory
State income taxes, net of federal tax effect
Revaluation of deferred tax liabilities
Stranded tax effects reclassified from other comprehensive income
Excess tax benefit from share based compensation and other expense, net
Income tax (benefit) expense
$
$
2021
Years Ended December 31,
2020
2019
1,310 $
438
(5,206)
1,620
144
(1,694) $
24 $
54
—
—
(1,068)
(990) $
371
15
—
—
(380)
6
The effective tax rate in 2021 decreased from 2020, primarily as a result of recognition of non-cash deferred tax benefits triggered by the disposition of
Wireless assets and operations, (see Note 3 – Discontinued Operations), which drove a reduction in the Company’s future estimated tax rate, as
apportionable income and expenses for higher tax rate jurisdictions was reduced, resulting in a revaluation of deferred tax liabilities during the year ended
December 31, 2021.
The Company's net cash payments for income taxes were $459.1 million in the year ended December 31, 2021, which included $434.3 million of payments
related to the taxable gain from the sale of the Wireless business. The Company's cash payments for income taxes were $11.2 million in the year ended
December 31, 2020.
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Table of Contents
Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply in the year of reversal or settlement and arise from
temporary differences between the US GAAP and tax bases of the following assets and liabilities:
(in thousands)
Deferred tax assets:
Leases
Asset retirement obligations
Net operating loss carry-forwards
Pension liabilities
Accruals and stock based compensation
Other
Total gross deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Leases
Intangible assets
Prepaid assets and other
Total gross deferred tax liabilities
Net deferred tax liabilities
December 31,
2021
December 31,
2020
$
$
15,483
2,581
5,878
2,148
2,572
6,300
34,962
—
34,962
92,449
15,410
10,710
2,407
120,976
86,014
$
$
123,129
10,403
7,723
3,868
3,093
5,002
153,218
—
153,218
127,602
126,458
25,722
22,120
301,902
148,684
In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generating future taxable income during the periods in which
those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income,
taxable income in prior carryback years if available and tax planning strategies in making this assessment. Based upon the level of historical taxable
income, projections for future taxable income over the periods for which the deferred tax assets are deductible, and the option to elect out of bonus
depreciation on in-serviced fixed assets, the Company believes it more likely than not that the net deferred tax assets will be realized.
The Company has a deferred tax asset of $5.9 million related to federal and various state net operating losses. As of December 31, 2021, the Company had
approximately $27.8 million of federal net operating losses expiring through 2027. The Company also had approximately $0.3 million of state net
operating losses expiring through 2036.
As of December 31, 2021 and 2020, the Company had no unrecognized tax benefits.
The Company is not currently subject to state or federal income tax audits as of December 31, 2021. The Company's returns are generally open to
examination from 2018 forward and the net operating losses acquired from nTelos are open to examination from 2002 forward.
Note 13. Stock Compensation, Earnings per Share, and Dividends
The Company's 2014 Stock Incentive Plan ("the Plan") allows for the grant of equity based incentive compensation to all employees. The Plan authorizes
grants of up to an additional 3,000,000 shares over a ten-year period beginning in 2014. Under the Plan, grants may take the form of stock awards, awards
of options to acquire stock, stock appreciation rights, and other forms of equity based compensation; both options to acquire stock and stock awards were
granted.
The Company granted approximately 200 thousand restricted stock units (RSUs) to employees and directors during 2021 at an average market price of
$28.99. The Company also granted, approximately 59 thousand performance-based Relative Total Shareholder Return (“RTSR”) awards to employees at an
average value of $34.05 during 2020.
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On July 2, 2021, the Company’s Board of Directors declared a special dividend of $18.75 per share on the issued and outstanding shares of the Company’s
common stock (the “Special Dividend”). On August 4, 2021, in accordance with the Plan, the Company's Board of Directors adopted a resolution to modify
the outstanding equity awards to offset the grantees’ loss in intrinsic value caused by the disposition of wireless and the decline in the Company's share
price following the Special Dividend. Approximately 81 thousand awards were issued, split between RSUs and RTSRs, as a result of this modification. No
other terms or conditions of the outstanding equity awards were modified, no incremental expense was required to be recognized, and there was no
significant impact to dilutive securities.
The Company's RSUs generally have service requirements only or performance and service requirements with vesting periods ranging from one year for
directors to four years for employees. RTSR awards generally vest over an approximate three year period. The performance factor applied to the RTSR
awards is based upon the Company's stock performance compared to a group of peer companies. The actual number of shares to be issued can range from
0% to 150% of the awards granted.
The cost of employee services received in exchange for share-based awards classified as equity is measured using the estimated fair value of the award on
the date of the grant, and the related expense is recorded using the straight-line method consistent with the recipient's respective service period.
Stock-based compensation expense was as follows:
(in thousands)
Stock compensation expense
Capitalized stock compensation
Stock compensation expense, net
2021
Years Ended December 31,
2020
2019
$
$
3,552 $
144
3,408 $
6,227 $
320
5,907 $
3,732
365
3,367
As of December 31, 2021, there was $5.9 million of total unrecognized compensation cost related to non-vested incentive awards that are expected to be
recognized over weighted average period of 1.8 years.
We utilize the treasury stock method to calculate the impact on diluted earnings per share that potentially dilutive stock-based compensation awards have.
The following table indicates the computation of basic and diluted earnings per share:
(in thousands, except per share amounts)
Calculation of net income per share:
Income from continuing operations
Income from discontinued operations, net of tax
Net income
Basic weighted average shares outstanding
Basic net income per share - continuing operations
Basic net income per share - discontinued operations
Basic net income per share
Effect of stock-based compensation awards outstanding:
Basic weighted average shares outstanding
Effect from dilutive shares and options outstanding
Diluted weighted average shares outstanding
Diluted net income per share - continuing operations
Diluted net income per share - discontinued operations
Diluted net income per share
2021
Years Ended December 31,
2020
2019
$
$
$
$
$
$
$
$
$
7,929 $
990,902 $
998,831 $
50,026
0.16 $
19.81 $
19.97 $
50,026
123
50,149
0.16 $
19.76 $
19.92 $
1,576 $
124,097 $
125,673 $
49,901
0.03 $
2.49 $
2.52 $
49,901
123
50,024
0.03 $
2.48 $
2.51 $
1,932
53,568
55,500
49,811
0.04
1.07
1.11
49,811
290
50,101
0.04
1.07
1.11
There were approximately 259 thousand anti-dilutive awards outstanding during 2021 and fewer than 110 thousand anti-dilutive awards outstanding during
2020 and 2019.
The Special Dividend was paid on August 2, 2021. The total payout to Shentel shareholders, including amounts reinvested in the Company’s stock via the
Company’s Dividend Reinvestment Plan, was approximately $937 million. In addition to the Special Dividend, on October 27, 2021, the Company Board
of Directors declared the annual dividend of $0.07 per share on the
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issued and outstanding shares of the Company's common stock (the "Annual Dividend"). The Annual Dividend was paid on December 1, 2021. The total
payout to Shentel shareholders, including amounts reinvested in the Company’s stock via the Company’s Dividend Reinvestment Plan, was approximately
$3 million.
Note 14. Commitments and Contingencies
We are committed to make payments to satisfy our lease liabilities. The scheduled payments under those obligations are summarized in Note 9, Leases. We
also have outstanding unconditional purchase commitments to procure marketing services and IT software licenses through 2026 and commitments for
licenses to access Educational Broadband Service (“EBS”) spectrum channels through 2039. For the years ended December 31, 2021, 2020 and 2019 we
paid $3.4 million, $1.4 million and $0.5 million, respectively, for the marketing services and IT software license purchase commitments. For each of the
years ended December 31, 2021, 2020 and 2019, we paid approximately $0.1 million for access to certain EBS spectrum channels. The Company is
obligated to make the following future minimum payments under the non-cancelable terms of these commitments as of December 31, 2021:
(in thousands)
2022
2023
2024
2025
2026
2027 and thereafter
Total
Purchase
Commitments
3,658
2,410
1,385
840
190
109
8,592
$
$
The Company is subject to claims and legal actions that may arise in the ordinary course of business. The Company does not believe that any of these
pending claims or legal actions are either probable or reasonably possible of a material loss.
Note 15. Segment Reporting
The divestiture of our Wireless operations on July 1, 2021 represented a strategic shift in the Company’s business which therefore qualified the segment as
a discontinued operation. As a result, for all periods presented, the operating results and cash flows related to the Wireless segment were reflected as a
discontinued operation in our Consolidated Statements of Comprehensive Income and the Consolidated Statements of Cash Flows. The tables below reflect
the results of operations of the Company's reportable segments in continuing operations, consistent with internal reporting used by the Company.
Intercompany revenue is primarily derived from services provided to the discontinued operation, for periods prior to the divestiture.
F-25
Table of Contents
Year ended December 31, 2021:
(in thousands)
External revenue
Residential & SMB
Commercial Fiber
RLEC & Other
Tower lease
Service revenue and other
Revenue for service provided to the discontinued Wireless
operations
Total revenue
Operating expenses
Cost of services
Selling, general and administrative
Restructuring expense
Impairment expense
Depreciation and amortization
Total operating expenses
Operating income (loss)
Capital expenditures
Year ended December 31, 2020:
(in thousands)
External revenue
Residential & SMB
Commercial Fiber
RLEC & Other
Tower lease
Service revenue and other
Revenue for service provided to the discontinued Wireless
operations
Total revenue
Operating expenses
Cost of services
Selling, general and administrative
Depreciation and amortization
Total operating expenses
Operating income (loss)
Capital expenditures
Broadband
Tower
Corporate &
Eliminations
Consolidated
177,530 $
30,842
15,249
—
223,621
4,459
228,080
97,283
47,840
202
5,986
47,937
199,248
28,832 $
— $
—
—
12,393
12,393
5,311
17,704
5,438
1,197
—
—
2,053
8,688
9,016 $
— $
—
—
—
—
(545)
(545)
(422)
33,414
1,525
—
5,216
39,733
(40,278) $
177,530
30,842
15,249
12,393
236,014
9,225
245,239
102,299
82,451
1,727
5,986
55,206
247,669
(2,430)
156,131 $
977 $
2,993 $
160,101
Broadband
Tower
Corporate &
Eliminations
Consolidated
154,956 $
24,431
15,971
—
195,358
8,989
204,347
84,893
39,472
41,076
165,441
38,906 $
— $
—
—
7,402
7,402
9,653
17,055
4,896
1,430
1,906
8,232
8,823 $
— $
—
—
—
—
(627)
(627)
(132)
44,114
5,721
49,703
(50,330) $
154,956
24,431
15,971
7,402
202,760
18,015
220,775
89,657
85,016
48,703
223,376
(2,601)
117,246 $
2,001 $
1,203 $
120,450
$
$
$
$
$
$
F-26
Table of Contents
Year ended December 31, 2019:
(in thousands)
External revenue
Residential & SMB
Commercial Fiber
RLEC & Other
Tower lease
Service revenue and other
Revenue for service provided to the discontinued Wireless
operations
Total revenue
Operating expenses
Cost of services
Selling, general and administrative
Depreciation and amortization
Total operating expenses
Operating income (loss)
Capital expenditures
Broadband
Tower
Corporate &
Eliminations
Consolidated
$
$
$
142,290 $
23,004
18,257
—
183,551
10,392
193,943
79,858
33,545
38,566
151,969
41,974 $
— $
—
—
6,965
6,965
6,020
12,985
3,777
937
1,976
6,690
6,295 $
— $
—
—
—
—
(66)
(66)
(63)
43,364
6,244
49,545
(49,611) $
142,290
23,004
18,257
6,965
190,516
16,346
206,862
83,572
77,846
46,786
208,204
(1,342)
60,627 $
921 $
5,500 $
67,048
A reconciliation of the total of the reportable segments’ operating income to consolidated income before taxes is as follows:
(in thousands)
Total consolidated operating loss
Other income, net
Income from continuing operations before income taxes
Years Ended December 31,
2020
2019
2021
$
$
(2,430) $
8,665
6,235 $
(2,601) $
3,187
586 $
(1,342)
3,280
1,938
The Company’s CODM does not currently review total assets by segment since the assets are centrally managed and some of the assets are shared by the
segments, accordingly total assets by segment are not applicable.
F-27
Table of Contents
Note 16. Quarterly Results (unaudited)
The following table reflects selected quarterly results for the Company. Amounts were adjusted from their previous presentation as a result of the error
correction discussed in Note 1.
Three Months Ended
March 31, 2021
June 30, 2021
(in thousands, except per share data)
Revenue
Operating income (loss)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Gain on the sale of discontinued operations, net of tax
Net income
Basic - Income (loss) from continuing operations
Basic - Income from discontinued operations, net of tax
Basic net income per share
Diluted - Income (loss) from continuing operations
Diluted - Income from discontinued operations, net of tax
Diluted net income per share
(in thousands except per share data)
Revenue
Operating income (loss)
Income (loss) from continuing operations
Income from discontinued operations, net of tax
Net income
Basic - Income (loss) from continuing operations
Basic - Income from discontinued operations, net of tax
Basic net income per share
Diluted - Income (loss) from continuing operations
Diluted - Income from discontinued operations, net of tax
Diluted net income per share
$
$
$
$
$
$
$
$
$
$
$
$
$
$
59,691 $
2,230
2,945
48,472
—
51,417
0.06 $
0.97 $
1.03 $
0.06 $
0.97 $
1.03 $
53,134 $
(1,648)
(55)
13,129
13,074
— $
0.26 $
0.26 $
— $
0.26 $
0.26 $
F-28
March 31, 2020
June 30, 2020
September 30, 2021 December 31, 2021
62,604
(7,901)
(3,137)
(4,965)
9,503
1,401
62,244 $
851
6,495
(406)
886,732
892,821
60,700 $
2,390
1,626
51,566
—
53,192
0.03 $
1.04 $
1.07 $
0.03 $
1.03 $
1.06 $
0.13 $
17.73 $
17.86 $
0.13 $
17.68 $
17.81 $
(0.06)
0.09
0.03
(0.06)
0.09
0.03
Three Months Ended
September 30, 2020 December 31, 2020
58,132
1,529
1,539
47,675
49,214
55,173 $
(121)
985
33,509
34,494
54,336 $
(2,361)
(893)
29,784
28,891
(0.02) $
0.60 $
0.58 $
(0.02) $
0.60 $
0.58 $
0.02 $
0.67 $
0.69 $
0.02 $
0.67 $
0.69 $
0.03
0.96
0.99
0.03
0.95
0.98
Table of Contents
Schedule II
Valuation and Qualifying Accounts
Changes in the Company’s allowance for doubtful accounts for accounts receivable for the years ended December 31, 2021, 2020 and 2019 are summarized
below:
(in thousands)
Year Ended December 31, 2021
Allowance for doubtful accounts
Year Ended December 31, 2020
Allowance for doubtful accounts
Year Ended December 31, 2019
Allowance for doubtful accounts
Balance at
Beginning of Year
Recoveries added
to allowance
Bad debt expense
Write-offs
Balance at End of
Year
$
$
$
614 $
533 $
534 $
530 $
1,028 $
(1,820) $
758 $
1,220 $
(1,897) $
649 $
1,743 $
(2,393) $
352
614
533
F-29
Table of Contents
ITEM 16. FORM 10-K SUMMARY
None
Exhibits Index
Exhibit
Number
Exhibit Description
2.1
3.1
3.2
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Asset Purchase Agreement, dated May 28, 2021, between Shenandoah Telecommunications Company and T-Mobile USA, Inc.
(incorporated by reference from Exhibit 2.1 to the Company's Current Report on Form 8-K filed on June 1, 2021).
Amended and Restated Articles of Incorporation of Shenandoah Telecommunications Company, effective August 31, 2019, filed as
exhibit 3.2 to the Company's Quarterly Report on Form 10-Q dated September 30, 2019.
Amended and Restated Bylaws of Shenandoah Telecommunications Company, effective February 22, 2022, filed as exhibit 3.1 to the
Company's Current Report on Form 8-K filed on February 28, 2022.
Description of the Company's Common Stock Registered Under Section 12 of the Exchange Act of 1934
Shenandoah Telecommunications Company Dividend Reinvestment Plan filed as Exhibit 4.4 to the Company’s Registration Statement
on Form S-3D (No. 333-74297).
Credit Agreement, dated July 1, 2021, by and among Shenandoah Telecommunications Company, certain of its subsidiaries as
guarantors, CoBank ACB, as administrative agent, and the other lenders party thereto (incorporated by reference from Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on July 1, 2021).
Supplemental Executive Retirement Plan as amended and restated, filed as Exhibit 10.14 to the Company’s Current Report on Form 8-K
dated March 23, 2007.
Addendum VI dated May 24, 2004 to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., Wireless Co, L.P., APC
PCS, LLC, Phillie Co, L.P., and Shenandoah Personal Communications Company filed as Exhibit 10.15 to the Company’s Report on
Form 10-Q for the quarterly period ended June 30, 2004.
2005 Stock Incentive Plan filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-8 (No. 333-127342).
Addendum VII dated March 13, 2007 to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., Wireless Co., L.P.,
APC PCS, LLC, Phillie Co, L.P., and Shenandoah Personal Communications Company, filed as Exhibit 10.31 to the Company’s Report
on Form 10-K for the year ended December 31, 2006.
Addendum VIII to the Sprint Management Agreement dated November 19, 2007, filed as Exhibit 10.36 to the Company’s Current
Report on Form 8-K dated November 20, 2007.
Addendum IX to the Sprint Management Agreement dated as of April 14, 2009, and filed as Exhibit 10.42 to the Company’s Annual
Report on Form 10-K dated March 8, 2010.
Addendum X dated March 15, 2010 to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., Wireless Co, L.P., APC
PCS, LLC, Phillie Co, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications Company, filed as
Exhibit 10.44 to the Company’s Current Report on Form 10-Q, dated May 7, 2010.
10.10
Addendum XI dated July 7, 2010 to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., Wireless Co, L.P., APC
PCS, LLC, Phillie Co, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications Company, filed as
Exhibit 10.45 to the Company’s Current Report on Form 8-K dated July 8, 2010.
F-30
Table of Contents
10.11
10.12
10.13
10.14
*21
*23.1
*31.1
*31.2
*31.3
**32
(101)
2014 Equity Incentive Plan filed as Appendix A to the Company’s Definitive Proxy Statement filed on March 13, 2014 (No. 333-
196990).
Form of Stock Option Awards for Executives under the 2014 Equity Incentive Plan.
Form of Restricted Stock Unit Award for Executives under the 2014 Equity Incentive Plan.
Form of Performance Share Unit Award for Executives under the 2014 Equity Incentive Plan.
List of Subsidiaries.
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
Certification of Principal Accounting 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.
Formatted in XBRL (Extensible Business Reporting Language)
101.INS
XBRL Instance Document - the instance document does not appear in the interactive data filing because its XBRL tags
are embedded within the Inline XBRL 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
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith
** This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise
subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended
(Securities Act), or the Exchange Act.
Table of Contents
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SIGNATURES
SHENANDOAH TELECOMMUNICATIONS COMPANY
February 28, 2022
/S/ CHRISTOPHER E. FRENCH
Christopher E. French, President & Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
/s/CHRISTOPHER E. FRENCH
February 28, 2022
Christopher E. French
/s/JAMES J. VOLK
February 28, 2022
James J. Volk
/s/DENNIS A. ROMPS
February 28, 2022
Dennis A. Romps
/s/THOMAS A. BECKETT
February 28, 2022
Thomas A. Beckett
/s/TRACY FITZSIMMONS
February 28, 2022
Tracy Fitzsimmons
/s/JOHN W. FLORA
February 28, 2022
John W. Flora
/s/ RICHARD L. KOONTZ, JR.
February 28, 2022
Richard L. Koontz, Jr.
/s/DALE S. LAM
February 28, 2022
Dale S. Lam
/s/KENNETH L. QUAGLIO
February 28, 2022
Kenneth L. Quaglio
/s/LEIGH ANN SCHULTZ
February 28, 2022
Leigh Ann Schultz
/s/VICTOR C. BARNES
February 28, 2022
Victor C. Barnes
President & Chief Executive Officer,
Director (Principal Executive Officer)
Senior Vice President – Chief Financial Officer
(Principal Financial Officer)
Vice President - Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
F-32
EXHIBIT 21 LIST OF SUBSIDIARIES
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
The following are all significant subsidiaries of Shenandoah Telecommunications Company, and are organized in the Commonwealth of Virginia.
Shenandoah Cable Television, LLC
Shenandoah Mobile, LLC
Shenandoah Personal Communications, LLC
Shenandoah Telephone Company
Shentel Management Company
Consent of Independent Registered
Public Accounting Firm
Exhibit 23.1
The Board of Directors
Shenandoah Telecommunications Company:
We consent to the incorporation by reference in the registration statements (No. 333-74297) on Form S-3D and (Nos. 333-127342 and 333-196990) on
Form S-8 of our reports dated February 28, 2022, with respect to the consolidated financial statements and financial statement schedule II – Valuation and
Qualifying Accounts of Shenandoah Telecommunications Company and the effectiveness of internal control over financial reporting.
/s/ KPMG LLP
McLean, VA
February 28, 2022
EXHIBIT 31.1
I, Christopher E. French, certify that:
CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Shenandoah Telecommunications Company, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d‑15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
(c)
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
(d)
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
(a)
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
(b)
control over financial reporting.
/S/ CHRISTOPHER E. FRENCH
Christopher E. French, President and Chief Executive Officer
(Principal Executive Officer)
Date: February 28, 2022
EXHIBIT 31.2
1.
2.
3.
4.
I, James J. Volk, certify that:
I have reviewed this annual report on Form 10-K of Shenandoah Telecommunications Company, Inc.;
CERTIFICATION
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d‑15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
(b)
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
(c)
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
(d)
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
(a)
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
(b)
control over financial reporting.
/s/JAMES J. VOLK
James J. Volk, Senior Vice President – Chief Financial Officer
(Principal Financial Officer)
Date: February 28, 2022
EXHIBIT 31.3
1.
2.
3.
4.
I, Dennis A. Romps, certify that:
I have reviewed this annual report on Form 10-K of Shenandoah Telecommunications Company, Inc.;
CERTIFICATION
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d‑15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
(b)
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
(c)
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
(d)
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
(a)
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
(b)
control over financial reporting.
/s/DENNIS A. ROMPS
Dennis A. Romps, Vice President - Chief Accounting Officer
(Principal Accounting Officer)
Date: February 28, 2022
EXHIBIT 32
Written Statement of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Each of the undersigned, the President and Chief Executive Officer and the Senior Vice President - Chief Financial Officer, of Shenandoah
Telecommunications Company (the “Company”), hereby certifies that, on the date hereof:
(1) The annual report on Form 10-K of the Company for the year ended December 31, 2021 filed on the date hereof with the Securities and
Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) Information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the
Company.
/S/CHRISTOPHER E. FRENCH
Christopher E. French
President and Chief Executive Officer
(Principal Executive Officer)
February 28, 2022
/S/JAMES J. VOLK
James J. Volk
Senior Vice President – Chief Financial Officer
(Principal Fincncial Officer)
February 28, 2022
The foregoing certification is being furnished solely pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and 18
U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document. This certification shall not be deemed “filed” for
purposes of Section 18 of the Exchange Act or otherwise subject to liability under that section. This certification shall not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act except to the extent this Exhibit 32 is expressly and specifically incorporated
by reference in any such filing.