VIRGINIA | 54-1162807 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
500 Shentel Way, Edinburg, Virginia | 22824 | |
(Address of principal executive offices) |
Common Stock (No Par Value) | NASDAQ Global Select Market | |
(Title of Class) | (Name of Exchange on which Registered) |
Item | Page | |
Number | Number | |
PART I | ||
1. | 4 | |
1A. | 19 | |
1B. | 31 | |
2. | 31 | |
3. | 31 | |
4. | 31 | |
PART II | ||
5. | 32 | |
6. | 34 | |
7. | 35 | |
7A. | 59 | |
8. | 59 | |
9. | 60 | |
9A. | 60 | |
9B. | 60 | |
PART III | ||
10. | 61 | |
11. | 61 | |
12. | 61 | |
13. | 62 | |
14. | 62 | |
PART IV | ||
15. | 62 |
SHENANDOAH TELECOMMUNICATIONS COMPANY | ||
TABLE OF CONTENTS | ||
Item Number | Page Number | |
PART I | ||
1. | ||
1A. | ||
1B. | ||
2. | ||
3. | ||
4. | ||
PART II | ||
5. | ||
6. | ||
7. | ||
7A. | ||
8. | ||
9. | ||
9A. | ||
9B. | ||
PART III | ||
10. | ||
11. | ||
12. | ||
13. | ||
14. | ||
PART IV | ||
15. | ||
16. |
ITEM 1. | BUSINESS |
Operation of the Maryland, |
Facility leases of fiber optic capacity, owned by itself and affiliates, in surrounding counties and into Herndon, Virginia. |
Name | Title | Age | Date in Position |
Christopher E. French | President and Chief Executive Officer | April 1988 | |
Earle A. MacKenzie | Executive Vice President and Chief Operating Officer | June 2003 | |
Adele M. Skolits | Vice President – Finance, Chief Financial Officer and Treasurer | September 2007 | |
William L. Pirtle | Senior Vice President – Wireless | ||
Raymond B. Ostroski | General Counsel, Vice | January 2013 | |
Thomas A. Whitaker | Senior Vice President – Cable | ||
Edward H. McKay | Senior Vice President – Wireline | ||
Richard A. Baughman | Vice President – Information Technology | June 2010 |
acquisitions may place significant strain on our management, 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; |
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. |
increase our vulnerability to general adverse economic and industry conditions, including interest rate increases, because as of December 31, 2016, a significant portion of our borrowings were, and may continue to be, subject to |
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, dividends and other general corporate purposes; |
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and place us at a competitive disadvantage relative to companies that have less indebtedness. |
incur additional indebtedness and additional liens on our assets; |
pay dividends or make other distributions; |
voluntarily prepay other indebtedness; |
enter into transactions with affiliated persons; |
make certain investments; and |
change the nature of our business. |
Sprint could price its national plans based on its own objectives and could set price levels or other terms that may not be economically advantageous for us; |
Sprint could develop products and services |
Sprint could make technology and network decisions that could greatly increase our capital investment requirements and our operating costs to continue offering the seamless national service we provide; and |
Sprint could restrict our ability to offer new services needed to remain competitive. This could put us at a competitive disadvantage relative to other wireless service providers if those other wireless service providers |
customers may not be able to use Sprint’s advanced features, such as voicemail notification, while roaming; and |
Sprint or the carriers providing the service may not be able to provide accurate billing information on a timely basis. |
Sprint gives preference to other distribution channels; |
we do not adequately project our need for wireless handsets; |
Sprint modifies its wireless handset logistics and delivery plan in a manner that restricts or delays access to wireless handsets; or |
there is an adverse development in the relationship between Sprint and its suppliers or vendors. |
ITEM 3. | LEGAL PROCEEDINGS |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
2013 | High | Low | ||||||
Fourth Quarter | $ | 28.69 | $ | 22.92 | ||||
Third Quarter | 24.10 | 17.15 | ||||||
Second Quarter | 17.81 | 14.23 | ||||||
First Quarter | 16.04 | 13.76 |
2012 | High | Low | ||||||
Fourth Quarter | $ | 18.71 | $ | 12.92 | ||||
Third Quarter | 18.32 | 13.61 | ||||||
Second Quarter | 13.61 | 10.07 | ||||||
First Quarter | 11.42 | 9.51 |
2016 | High | Low | ||||||
Fourth Quarter | $ | 30.00 | $ | 23.55 | ||||
Third Quarter | 41.46 | 24.78 | ||||||
Second Quarter | 38.68 | 25.74 | ||||||
First Quarter | 26.80 | 20.07 |
2015 | High | Low | ||||||
Fourth Quarter | $ | 25.34 | $ | 20.44 | ||||
Third Quarter | 21.57 | 15.77 | ||||||
Second Quarter | 18.22 | 15.29 | ||||||
First Quarter | 16.45 | 13.78 |
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |||||||
Shenandoah Telecommunications Company | 100 | 150 | 255 | 315 | 438 | 561 | ||||||
NDAQ US | 100 | 116 | 155 | 175 | 176 | 198 | ||||||
NDAQ Telecom Stocks | 100 | 119 | 135 | 139 | 144 | 178 |
2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |||||||||||||||||||
Shenandoah Telecommunications Company | 100 | 74 | 69 | 40 | 60 | 102 | ||||||||||||||||||
NASDAQ U.S. Index (Prior) | 100 | 144 | 170 | 171 | 202 | 282 | ||||||||||||||||||
NDAQ US (New) | 100 | 129 | 152 | 152 | 177 | 237 | ||||||||||||||||||
NASDAQ Telecommunications Index (Prior) | 100 | 150 | 194 | 205 | 277 | 401 | ||||||||||||||||||
NDAQ Telecom Stocks (New) | 100 | 111 | 132 | 141 | 168 | 191 |
Number of Shares Purchased | Average Price Paid per Share | |||||||
October 1 to October 31 | - | $ | - | |||||
November 1 to November 30 | 10,899 | 27.73 | ||||||
December 1 to December 31 | 2 | 25.67 | ||||||
Total | 10,901 | $ | 27.73 |
Number of Shares Purchased | Average Price Paid per Share | |||||
October 1 to October 31 | — | $ | — | |||
November 1 to November 30 | 8 | 26.74 | ||||
December 1 to December 31 | — | — | ||||
Total | 8 | $ | 26.74 |
ITEM 6. | SELECTED FINANCIAL DATA |
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
Operating revenues | $ | 308,942 | $ | 288,075 | $ | 251,145 | $ | 195,206 | $ | 160,935 | ||||||||||
Operating expenses | 253,535 | 253,417 | 218,855 | 162,875 | 117,995 | |||||||||||||||
Operating income | 55,407 | 34,658 | 32,290 | 36,331 | 42,940 | |||||||||||||||
Interest expense | 8,468 | 7,850 | 8,289 | 4,716 | 1,361 | |||||||||||||||
Income taxes | 19,878 | 12,008 | 10,667 | 13,393 | 17,510 | |||||||||||||||
Net income from continuing operations | $ | 29,586 | $ | 16,603 | $ | 13,538 | $ | 18,774 | $ | 25,152 | ||||||||||
Discontinued operations, net of tax (a) | - | (300 | ) | (545 | ) | (699 | ) | (10,060 | ) | |||||||||||
Net income | $ | 29,586 | $ | 16,303 | $ | 12,993 | $ | 18,075 | $ | 15,092 | ||||||||||
Total assets | 597,006 | 570,740 | 479,979 | 466,437 | 271,725 | |||||||||||||||
Total debt – including current maturities | 230,000 | 231,977 | 180,575 | 195,112 | 32,960 | |||||||||||||||
Shareholder Information: | ||||||||||||||||||||
Shares outstanding | 24,040,277 | 23,962,110 | 23,837,528 | 23,766,873 | 23,680,843 | |||||||||||||||
Income per share from continuing operations-diluted | $ | 1.23 | $ | 0.69 | $ | 0.57 | $ | 0.79 | $ | 1.06 | ||||||||||
Loss per share from discontinued operations-diluted | - | (0.01 | ) | (0.02 | ) | (0.03 | ) | (0.42 | ) | |||||||||||
Net income per share-diluted | 1.23 | 0.68 | 0.55 | 0.76 | 0.64 | |||||||||||||||
Cash dividends per share | $ | 0.36 | $ | 0.33 | $ | 0.33 | $ | 0.33 | $ | 0.32 |
2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||
Operating revenues | $ | 535,288 | $ | 342,485 | $ | 326,946 | $ | 308,942 | $ | 288,075 | |||||
Operating expenses | 512,762 | 268,399 | 265,003 | 253,535 | 253,417 | ||||||||||
Operating income | 22,526 | 74,086 | 61,943 | 55,407 | 34,658 | ||||||||||
Interest expense | 25,102 | 7,355 | 8,148 | 8,468 | 7,850 | ||||||||||
Income tax expense | 2,840 | 27,726 | 22,151 | 19,878 | 12,008 | ||||||||||
Net income (loss) from continuing operations | $ | (895 | ) | $ | 40,864 | $ | 33,883 | $ | 29,586 | $ | 16,603 | ||||
Discontinued operations, net of tax (a) | — | — | — | — | (300 | ) | |||||||||
Net income (loss) | $ | (895 | ) | $ | 40,864 | $ | 33,883 | $ | 29,586 | $ | 16,303 | ||||
Total assets (b) | 1,484,407 | 627,151 | 619,242 | 597,006 | 570,740 | ||||||||||
Total debt – including current maturities (b) | 829,265 | 199,661 | 224,250 | 230,000 | 231,977 | ||||||||||
Shareholder Information: | |||||||||||||||
Shares outstanding | 48,934,708 | 48,475,132 | 48,264,994 | 48,080,554 | 47,924,220 | ||||||||||
Income (loss) per share from continuing operations-diluted | $ | (0.02 | ) | $ | 0.83 | $ | 0.70 | $ | 0.62 | $ | 0.35 | ||||
Loss per share from discontinued operations-diluted | — | — | — | — | (0.01 | ) | |||||||||
Net income (loss) per share-diluted | (0.02 | ) | 0.83 | 0.70 | 0.61 | 0.34 | |||||||||
Cash dividends per share | $ | 0.25 | $ | 0.24 | $ | 0.235 | $ | 0.18 | $ | 0.17 |
(a) | Discontinued operations include the operating results of Converged Services. The Company announced its intention to dispose of Converged Services in September 2008, and reclassified its operating results as discontinued operations. |
(b) | As a result of implementing ASU 2015-03 in 2016, the Company reclassified $1.6 million of unamortized loan fees and costs included in deferred charges and other assets as of December 31, 2015 to current and long-term debt. Total assets, as well as total liabilities and shareholders' equity, were also reduced by the same $1.6 million. |
* | The Wireless segment has historically provided digital wireless service as a Sprint PCS Affiliate to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia. Following the acquisition of nTelos, the Company’s wireless service area expanded to include south-central and western Virginia, West Virginia, and small portions of Kentucky and Ohio. In these areas, we are the exclusive provider of Sprint-branded wireless mobility communications network products and services on the 800 MHz, 1900 MHz and 2.5 GHz spectrum bands. This segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers. |
* | The Cable segment provides video, internet and voice services in franchise areas in portions of Virginia, West Virginia and western Maryland, and leases fiber optic facilities throughout its service area. It does not include video, internet and voice services provided to customers in Shenandoah County, Virginia. |
* | The Wireline segment provides regulated and unregulated voice services, DSL internet access and long distance access services throughout Shenandoah County and portions of Rockingham, Frederick, Warren and Augusta counties, Virginia. The segment also provides video and cable modem internet access services in portions of Shenandoah County, and leases fiber optic facilities throughout the northern Shenandoah Valley of Virginia, northern Virginia and adjacent areas along the Interstate 81 corridor through West Virginia, Maryland and portions of central and southern Pennsylvania. |
(in thousands) | Years Ended December 31, | Change | ||||||||||||||
2013 | 2012 | $ | % | |||||||||||||
Operating revenues | $ | 308,942 | $ | 288,075 | 20,867 | 7.2 | ||||||||||
Operating expenses | 253,535 | 253,417 | 118 | 0.0 | ||||||||||||
Operating income | 55,407 | 34,658 | 20,749 | 59.9 | ||||||||||||
Other income (expense) | (5,943 | ) | (6,047 | ) | 104 | 1.7 | ||||||||||
Income tax expense | 19,878 | 12,008 | 7,870 | 65.5 | ||||||||||||
Net income from continuing operations | $ | 29,586 | $ | 16,603 | 12,983 | 78.2 |
(in thousands) | Years Ended December 31, | Change | |||||||||
2016 | 2015 | $ | % | ||||||||
Operating revenues | $ | 535,288 | $ | 342,485 | $ | 192,803 | 56.3 | ||||
Operating expenses | 512,762 | 268,399 | 244,363 | 91.0 | |||||||
Operating income | 22,526 | 74,086 | (51,560 | ) | (69.6 | ) | |||||
Other expense, net | 20,581 | 5,496 | 15,085 | 274.5 | |||||||
Income tax expense | 2,840 | 27,726 | (24,886 | ) | (89.8 | ) | |||||
Net income (loss) | $ | (895 | ) | $ | 40,864 | $ | (41,759 | ) | (102.2 | ) |
Dec. 31, | Dec. 31, | Dec. 31, | ||||||||||
2013 | 2012 | 2011 | ||||||||||
Retail PCS Subscribers – Postpaid | 273,721 | 262,892 | 248,620 | |||||||||
Retail PCS Subscribers – Prepaid | 137,047 | 128,177 | 107,100 | |||||||||
PCS Market POPS (000) (1) | 2,397 | 2,390 | 2,388 | |||||||||
PCS Covered POPS (000) (1) | 2,067 | 2,057 | 2,055 | |||||||||
CDMA Base Stations (sites) | 526 | 516 | 509 | |||||||||
Towers | 153 | 150 | 149 | |||||||||
Non-affiliate Cell Site Leases (2) | 217 | 216 | 219 | |||||||||
Gross PCS Subscriber Additions – Postpaid | 66,558 | 69,124 | 65,240 | |||||||||
Net PCS Subscriber Additions – Postpaid | 10,829 | 14,272 | 13,811 | |||||||||
PCS Average Monthly Retail Churn % - Postpaid (3) | 1.75 | % | 1.79 | % | 1.78 | % | ||||||
Gross PCS Subscriber Additions – Prepaid | 76,416 | 72,793 | 86,328 | |||||||||
Net PCS Subscriber Additions – Prepaid | 8,870 | 21,077 | 40,144 | |||||||||
PCS Average Monthly Retail Churn % - Prepaid (3) | 4.24 | % | 3.67 | % | 4.33 | % |
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | ||||
Retail PCS Subscribers – Postpaid | 722,562 | 312,512 | 287,867 | |||
Retail PCS Subscribers – Prepaid | 236,138 | 142,840 | 145,162 | |||
PCS Market POPS (000) (1) | 5,536 | 2,433 | 2,415 | |||
PCS Covered POPS (000) (1) | 4,807 | 2,224 | 2,207 | |||
CDMA Base Stations (sites) (3) | 1,467 | 552 | 537 | |||
Towers Owned | 196 | 158 | 154 | |||
Non-affiliate Cell Site Leases | 202 | 202 | 198 | |||
Gross PCS Subscriber Additions – Postpaid | 132,593 | 77,067 | 72,891 | |||
Net PCS Subscriber Additions – Postpaid | 5,085 | 24,645 | 14,146 | |||
PCS Average Monthly Retail Churn % - Postpaid (2) | 1.84 | % | 1.47 | % | 1.76 | % |
Gross PCS Subscriber Additions – Prepaid | 111,459 | 83,796 | 74,838 | |||
Net PCS Subscriber Additions (Losses) – Prepaid (4) | (61,664 | ) | (2,322 | ) | 8,115 | |
PCS Average Monthly Retail Churn % - Prepaid (2)(4) | 5.19 | % | 4.93 | % | 4.00 | % |
PCS Subscribers – Postpaid | 404,965 | |
PCS Subscribers – Prepaid | 154,944 | |
PCS Market POPS (000) (1) | 3,099 | |
PCS Covered POPS (000) (1) | 2,298 | |
CDMA Base Stations (sites) (3) | 868 | |
Towers | 20 | |
Non-affiliate Cell Site Leases | 10 |
1) | POPS refers to the estimated population of a given geographic area and is based on information purchased from third party sources. Market POPS are those within a market area which |
PCS Average Monthly Retail Churn is the average of the monthly subscriber turnover, or churn, calculations for the period. |
3) | Net of approximately 160 overlap cell sites we intend to shut down in coming months. |
4) | Prepaid losses include 24,348 subscribers purged from customer counts as a result of a one-time reduction of the length of time a customer is inactive before eliminating them from the customer counts. |
(in thousands) | Years Ended December 31, | Change | |||||||||
2016 | 2015 | $ | % | ||||||||
Segment operating revenues | |||||||||||
Wireless service revenue | $ | 359,769 | $ | 192,752 | $ | 167,017 | 86.6 | ||||
Tower lease revenue | 11,279 | 10,505 | 774 | 7.4 | |||||||
Equipment revenue | 10,674 | 5,175 | 5,499 | 106.3 | |||||||
Other revenue | 7,031 | 369 | 6,662 | NM | |||||||
Total segment operating revenues | $ | 388,753 | $ | 208,801 | $ | 179,952 | 86.2 | ||||
Segment operating expenses | |||||||||||
Cost of goods and services, exclusive of depreciation and amortization shown separately below | 133,113 | 63,570 | 69,543 | 109.4 | |||||||
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | 95,851 | 35,792 | 60,059 | 167.8 | |||||||
Integration and acquisition expenses | 25,927 | — | 25,927 | NM | |||||||
Depreciation and amortization | 107,621 | 34,416 | 73,205 | 212.7 | |||||||
Total segment operating expenses | 362,512 | 133,778 | 228,734 | 171.0 | |||||||
Segment operating income | $ | 26,241 | $ | 75,023 | $ | (48,782 | ) | (65.0 | ) |
(in thousands) | Years Ended December 31, | Change | ||||||||||||||
2013 | 2012 | $ | % | |||||||||||||
Segment operating revenues | ||||||||||||||||
Wireless service revenue | $ | 182,955 | $ | 162,912 | $ | 20,043 | 12.3 | |||||||||
Tower lease revenue | 10,339 | 9,114 | 1,225 | 13.4 | ||||||||||||
Equipment revenue | 5,218 | 5,982 | (764 | ) | (12.8 | ) | ||||||||||
Other revenue | (387 | ) | 1,630 | (2,017 | ) | (123.7 | ) | |||||||||
Total segment operating revenues | $ | 198,125 | $ | 179,638 | $ | 18,487 | 10.3 | |||||||||
Segment operating expenses | ||||||||||||||||
Cost of goods and services, exclusive of depreciation and amortization shown separately below | 72,995 | 63,906 | 9,089 | 14.2 | ||||||||||||
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | 36,828 | 30,716 | 6,112 | 19.9 | ||||||||||||
Depreciation and amortization | 28,177 | 31,660 | (3,483 | ) | (11.0 | ) | ||||||||||
Total segment operating expenses | 138,000 | 126,282 | 11,718 | 9.3 | ||||||||||||
Segment operating income | $ | 60,125 | $ | 53,356 | $ | 6,769 | 12.7 |
(in thousands) | Years Ended December 31, | Change | |||||||||||||
Service Revenues | 2016 | 2015 | $ | % | |||||||||||
Postpaid net billings (1) | $ | 314,579 | $ | 185,174 | $ | 129,405 | 69.9 | ||||||||
Sprint fees | |||||||||||||||
Management fee | (25,543 | ) | (14,805 | ) | (10,738 | ) | (72.5 | ) | |||||||
Net Service fee | (22,953 | ) | (25,909 | ) | 2,956 | 11.4 | |||||||||
Waiver of management fee | 20,674 | — | 20,674 | NM | |||||||||||
(27,822 | ) | (40,714 | ) | 12,892 | (31.7 | ) | |||||||||
Prepaid net billings | |||||||||||||||
Gross billings | 82,672 | 51,081 | 31,591 | 61.8 | |||||||||||
Sprint management fee | (4,960 | ) | (3,074 | ) | (1,886 | ) | (61.4 | ) | |||||||
Waiver of management fee | 3,922 | — | 3,922 | NM | |||||||||||
81,634 | 48,007 | 33,627 | 70.0 | ||||||||||||
Travel and other revenues | 17,382 | 285 | 17,097 | NM | |||||||||||
Accounting adjustments | |||||||||||||||
Amortization of expanded affiliate agreement | (14,030 | ) | — | (14,030 | ) | NM | |||||||||
Straight-line adjustment - management fee waiver | (11,974 | ) | — | (11,974 | ) | NM | |||||||||
(26,004 | ) | — | (26,004 | ) | NM | ||||||||||
Total Service Revenues | $ | 359,769 | $ | 192,752 | $ | 167,017 | 86.6 |
Dec. 31, 2013 | Dec. 31, 2012 | Dec. 31, 2011 | ||||||||||
Homes Passed (1) | 186,565 | 184,533 | 182,156 | |||||||||
Customer Relationships (2) | ||||||||||||
Video customers | 57,244 | 59,089 | 62,835 | |||||||||
Non-video customers | 18,341 | 15,709 | 12,513 | |||||||||
Total customer relationships | 75,585 | 74,798 | 75,348 | |||||||||
Video | ||||||||||||
Customers (3) | 59,418 | 61,559 | 64,979 | |||||||||
Penetration (4) | 31.8 | % | 33.4 | % | 35.7 | % | ||||||
Digital video penetration (5) | 49.2 | % | 39.5 | % | 39.0 | % | ||||||
High-speed Internet | ||||||||||||
Available Homes (6) | 168,255 | 163,273 | 156,119 | |||||||||
Customers (3) | 45,823 | 41,025 | 37,021 | |||||||||
Penetration (4) | 27.2 | % | 25.1 | % | 23.7 | % | ||||||
Voice | ||||||||||||
Available Homes (6) | 163,282 | 154,552 | 143,235 | |||||||||
Customers (3) | 15,034 | 12,307 | 9,881 | |||||||||
Penetration (4) | 9.2 | % | 8.0 | % | 6.9 | % | ||||||
Revenue Generating Units (7) | 120,275 | 114,891 | 111,881 | |||||||||
Fiber Route Miles | 2,446 | 2,077 | 1,990 | |||||||||
Total Fiber Miles (8) | 69,715 | 39,418 | 34,772 |
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | ||||
Homes Passed (1) | 184,710 | 172,538 | 171,589 | |||
Customer Relationships (2) | ||||||
Video customers | 48,512 | 48,184 | 49,247 | |||
Non-video customers | 28,854 | 24,550 | 22,051 | |||
Total customer relationships | 77,366 | 72,734 | 71,298 | |||
Video | ||||||
Customers (3) | 50,618 | 50,215 | 52,095 | |||
Penetration (4) | 27.4 | % | 29.1 | % | 30.4 | % |
Digital video penetration (5) | 77.4 | % | 77.9 | % | 65.9 | % |
High-speed Internet | ||||||
Available Homes (6) | 183,826 | 172,538 | 171,589 | |||
Customers (3) | 60,495 | 55,131 | 50,686 | |||
Penetration (4) | 32.9 | % | 32.0 | % | 29.5 | % |
Voice | ||||||
Available Homes (6) | 181,089 | 169,801 | 168,852 | |||
Customers (3) | 21,352 | 20,166 | 18,262 | |||
Penetration (4) | 11.8 | % | 11.9 | % | 10.8 | % |
Total Revenue Generating Units (7) | 132,465 | 125,512 | 121,043 | |||
Fiber Route Miles | 3,137 | 2,844 | 2,834 | |||
Total Fiber Miles (8) | 92,615 | 76,949 | 72,694 | |||
Average Revenue Generating Units | 131,218 | 124,054 | 117,744 |
1) | Homes and businesses are considered passed (“homes passed”) if we can connect them to our distribution system without further extending the transmission lines. Homes passed is an estimate based upon the best available information. |
2) | Customer relationships represent the number of customers who receive at least one of our services. |
3) | Generally, a dwelling or commercial unit with one or more television sets connected to our distribution system counts as one video customer. Where services are provided on a bulk basis, such as to hotels and some multi-dwelling units, the revenue charged to the customer is divided by the rate for comparable service in the local market to determine the number of customer equivalents included in the customer counts shown above. During the first quarter of 2016, we |
4) | Penetration is calculated by dividing the number of customers by the number of homes passed or available homes, as appropriate. |
5) | Digital video penetration is calculated by dividing the number of digital video customers by total video customers. Digital video customers are video customers who receive any level of video service via digital transmission. A dwelling with one or more digital set-top boxes or digital adapters counts as one digital video customer. |
6) | Homes and businesses are considered available (“available homes”) if we can connect them to our distribution system without further extending the transmission lines and if we offer the service in that area. |
7) | Revenue generating units are the sum of video, voice and high-speed internet customers. |
8) | Total Fiber |
(in thousands) | Years Ended December 31, | Change | ||||||||||||||
2013 | 2012 | $ | % | |||||||||||||
Segment operating revenues | ||||||||||||||||
Service revenue | $ | 70,529 | $ | 66,010 | $ | 4,519 | 6.8 | |||||||||
Equipment and other revenue | 10,894 | 10,313 | 581 | 5.6 | ||||||||||||
Total segment operating revenues | $ | 81,423 | $ | 76,323 | $ | 5,100 | 6.7 | |||||||||
Segment operating expenses | ||||||||||||||||
Cost of goods and services, exclusive of depreciation and amortization shown separately below | 50,151 | 48,978 | 1,173 | 2.4 | ||||||||||||
Goodwill impairment | - | 10,952 | (10,952 | ) | (100.0 | ) | ||||||||||
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | 23,189 | 22,335 | 854 | 3.8 | ||||||||||||
Depreciation and amortization | 22,663 | 23,519 | (856 | ) | (3.6 | ) | ||||||||||
Total segment operating expenses | 96,003 | 105,784 | (9,781 | ) | (9.2 | ) | ||||||||||
Segment operating loss | $ | (14,580 | ) | $ | (29,461 | ) | $ | 14,881 | 50.5 |
Dec. 31, | Dec. 31, | Dec. 31, | ||||||||||
2013 | 2012 | 2011 | ||||||||||
Telephone Access Lines | 22,060 | 22,297 | 23,083 | |||||||||
Long Distance Subscribers | 9,851 | 10,157 | 10,483 | |||||||||
DSL Subscribers | 12,585 | 12,567 | 12,351 | |||||||||
Fiber Route Miles | 1,452 | 1,420 | 1,349 | |||||||||
Total Fiber Miles (1) | 85,135 | 84,107 | 78,523 |
(in thousands) | Years Ended December 31, | Change | ||||||||||||||
2013 | 2012 | $ | % | |||||||||||||
Segment operating revenues | ||||||||||||||||
Service revenue | $ | 17,268 | $ | 16,444 | $ | 824 | 5.0 | |||||||||
Access revenue | 11,721 | 12,604 | (883 | ) | (7.0 | ) | ||||||||||
Facilities lease revenue | 21,836 | 21,153 | 683 | 3.2 | ||||||||||||
Equipment revenue | 32 | 36 | (4 | ) | (11.1 | ) | ||||||||||
Other revenue | 3,062 | 4,421 | (1,359 | ) | (30.7 | ) | ||||||||||
Total segment operating revenues | $ | 53,919 | $ | 54,658 | $ | (739 | ) | (1.4 | ) | |||||||
Segment operating expenses | ||||||||||||||||
Cost of goods and services, exclusive of depreciation and amortization shown separately below | 24,219 | 24,785 | (566 | ) | (2.3 | ) | ||||||||||
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | 6,950 | 6,859 | 91 | 1.3 | ||||||||||||
Depreciation and amortization | 9,848 | 9,171 | 677 | 7.4 | ||||||||||||
Total segment operating expenses | 41,017 | 40,815 | 202 | 0.5 | ||||||||||||
Segment operating income | $ | 12,902 | $ | 13,843 | $ | (941 | ) | (6.8 | ) |
(in thousands) | Years Ended December 31, | Change | |||||||||
2016 | 2015 | $ | % | ||||||||
Segment operating revenues | |||||||||||
Service revenue | $ | 99,070 | $ | 88,980 | $ | 10,090 | 11.3 | ||||
Other revenue | 9,664 | 8,642 | 1,022 | 11.8 | |||||||
Total segment operating revenues | $ | 108,734 | $ | 97,622 | $ | 11,112 | 11.4 | ||||
Segment operating expenses | |||||||||||
Cost of goods and services, exclusive of depreciation and amortization shown separately below | 58,581 | 54,611 | 3,970 | 7.3 | |||||||
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | 19,248 | 19,412 | (164 | ) | (0.8 | ) | |||||
Depreciation and amortization | 23,908 | 23,097 | 811 | 3.5 | |||||||
Total segment operating expenses | 101,737 | 97,120 | 4,617 | 4.8 | |||||||
Segment operating income | $ | 6,997 | $ | 502 | $ | 6,495 | 1293.8 |
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | ||||
Telephone Access Lines (1) | 18,443 | 20,252 | 21,612 | |||
Long Distance Subscribers | 9,149 | 9,476 | 9,571 | |||
Video Customers(2) | 5,264 | 5,356 | 5,692 | |||
DSL and Cable Modem Subscribers (3) | 14,314 | 13,890 | 13,094 | |||
Fiber Route Miles | 1,971 | 1,736 | 1,556 | |||
Total Fiber Miles (4) | 142,230 | 123,891 | 99,387 |
1) | Effective October 1, 2015, we launched cable modem services on our cable plant, and ceased the requirement that a customer have a telephone access line to purchase internet service. |
2) | The Wireline segment’s video service passes approximately 16,000 homes. |
3) | December 2016 and December 2015 totals include 1,072 and 420 customers, respectively, served via the coaxial cable network. During first quarter 2016, we modified the way we count subscribers when a commercial customer upgrades its internet service via a fiber contract. We retroactively applied the new count methodology to prior periods and the net result was increases in internet subscriber counts of 804 and 352 subscribers to December 31, 2015 and December 31, 2014 totals, respectively. |
4) | 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. |
(in thousands) | Years Ended December 31, | Change | |||||||||
2016 | 2015 | $ | % | ||||||||
Segment operating revenues | |||||||||||
Service revenue | $ | 21,917 | $ | 21,880 | $ | 37 | 0.2 | ||||
Carrier access and fiber revenues | 49,532 | 42,303 | 7,229 | 17.1 | |||||||
Other revenue | 3,525 | 3,237 | 288 | 8.9 | |||||||
Total segment operating revenues | $ | 74,974 | $ | 67,420 | $ | 7,554 | 11.2 | ||||
Segment operating expenses | |||||||||||
Cost of goods and services, exclusive of depreciation and amortization shown separately below | 36,259 | 31,668 | 4,591 | 14.5 | |||||||
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | 6,474 | 6,612 | (138 | ) | (2.1 | ) | |||||
Depreciation and amortization | 11,717 | 12,736 | (1,019 | ) | (8.0 | ) | |||||
Total segment operating expenses | 54,450 | 51,016 | 3,434 | 6.7 | |||||||
Segment operating income | $ | 20,524 | $ | 16,404 | $ | 4,120 | 25.1 |
(in thousands) | Years Ended December 31, | Change | ||||||||||||||
2012 | 2011 | $ | % | |||||||||||||
Operating revenues | $ | 288,075 | $ | 251,145 | 36,930 | 14.7 | ||||||||||
Operating expenses | 253,417 | 218,855 | 34,562 | 15.8 | ||||||||||||
Operating income | 34,658 | 32,290 | 2,368 | 7.3 | ||||||||||||
Other income (expense) | (6,047 | ) | (8,085 | ) | 2,038 | (25.2 | ) | |||||||||
Income tax expense | 12,008 | 10,667 | 1,341 | 12.6 | ||||||||||||
Net income from continuing operations | $ | 16,603 | $ | 13,538 | 3,065 | 22.6 |
(in thousands) | Years Ended December 31, | Change | ||||||||
2015 | 2014 | $ | % | |||||||
Operating revenues | $ | 342,485 | $ | 326,946 | $ | 15,539 | 4.8 | |||
Operating expenses | 268,399 | 265,003 | 3,396 | 1.3 | ||||||
Operating income | 74,086 | 61,943 | 12,143 | 19.6 | ||||||
Other expense, net | 5,496 | 5,909 | 413 | 7.0 | ||||||
Income tax expense | 27,726 | 22,151 | 5,575 | 25.2 | ||||||
Net income | $ | 40,864 | $ | 33,883 | $ | 6,981 | 20.6 |
(in thousands) | Years Ended December 31, | Change | ||||||||||||||
2012 | 2011 | $ | % | |||||||||||||
Segment operating revenues | ||||||||||||||||
Wireless service revenue | $ | 162,912 | $ | 137,118 | $ | 25,794 | 18.8 | |||||||||
Tower lease revenue | 9,114 | 8,901 | 213 | 2.4 | ||||||||||||
Equipment revenue | 5,982 | 5,053 | 929 | 18.4 | ||||||||||||
Other revenue | 1,630 | 2,366 | (736 | ) | (31.1 | ) | ||||||||||
Total segment operating revenues | $ | 179,638 | $ | 153,438 | $ | 26,200 | 17.1 | |||||||||
Segment operating expenses | ||||||||||||||||
Cost of goods and services, exclusive of depreciation and amortization shown separately below | 63,906 | 56,705 | 7,201 | 12.7 | ||||||||||||
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | 30,716 | 29,455 | 1,261 | 4.3 | ||||||||||||
Depreciation and amortization | 31,660 | 23,906 | 7,754 | 32.4 | ||||||||||||
Total segment operating expenses | 126,282 | 110,066 | 16,216 | 14.7 | ||||||||||||
Segment operating income | $ | 53,356 | $ | 43,372 | $ | 9,984 | 23.0 |
(in thousands) | Years Ended December 31, | Change | |||||||||
2015 | 2014 | $ | % | ||||||||
Segment operating revenues | |||||||||||
Wireless service revenue | $ | 192,752 | $ | 191,147 | $ | 1,605 | 0.8 | ||||
Tower lease revenue | 10,505 | 10,201 | 304 | 3.0 | |||||||
Equipment revenue | 5,175 | 5,729 | (554 | ) | (9.7 | ) | |||||
Other revenue | 369 | 377 | (8 | ) | (2.1 | ) | |||||
Total segment operating revenues | $ | 208,801 | $ | 207,454 | $ | 1,347 | 0.6 | ||||
Segment operating expenses | |||||||||||
Cost of goods and services, exclusive of depreciation and amortization shown separately below | 63,570 | 73,290 | (9,720 | ) | (13.3 | ) | |||||
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | 35,792 | 33,171 | 2,621 | 7.9 | |||||||
Depreciation and amortization | 34,416 | 31,111 | 3,305 | 10.6 | |||||||
Total segment operating expenses | 133,778 | 137,572 | (3,794 | ) | (2.8 | ) | |||||
Segment operating income | $ | 75,023 | $ | 69,882 | $ | 5,141 | 7.4 |
(in thousands) | Years Ended December 31, | Change | |||||||||
2015 | 2014 | $ | % | ||||||||
Segment operating revenues | |||||||||||
Service revenue (1) | $ | 88,980 | $ | 77,179 | $ | 11,801 | 15.3 | ||||
Other revenue (1) | 8,642 | 7,374 | 1,268 | 17.2 | |||||||
Total segment operating revenues | $ | 97,622 | $ | 84,553 | $ | 13,069 | 15.5 | ||||
Segment operating expenses | |||||||||||
Cost of goods and services, exclusive of depreciation and amortization shown separately below | 54,611 | 51,982 | 2,629 | 5.1 | |||||||
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | 19,412 | 19,521 | (109 | ) | (0.6 | ) | |||||
Depreciation and amortization | 23,097 | 23,148 | (51 | ) | (0.2 | ) | |||||
Total segment operating expenses | 97,120 | 94,651 | 2,469 | 2.6 | |||||||
Segment operating income (loss) | $ | 502 | $ | (10,098 | ) | $ | 10,600 | 105.0 |
(1) | Prior year service and other revenue amounts have been recast to conform to the current year presentation of video and internet equipment revenues being included in service revenue rather than other revenue. |
(in thousands) | Years Ended December 31, | Change | ||||||||||||||
2012 | 2011 | $ | % | |||||||||||||
Segment operating revenues | ||||||||||||||||
Service revenue | $ | 66,010 | $ | 59,051 | $ | 6,959 | 11.8 | |||||||||
Equipment and other revenue | 10,313 | 9,009 | 1,304 | 14.5 | ||||||||||||
Total segment operating revenues | $ | 76,323 | $ | 68,060 | $ | 8,263 | 12.1 | |||||||||
Segment operating expenses | ||||||||||||||||
Cost of goods and services, exclusive of depreciation and amortization shown separately below | 48,978 | 47,417 | 1,561 | 3.3 | ||||||||||||
Goodwill impairment | 10,952 | - | 10,952 | N/A | ||||||||||||
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | 22,335 | 18,827 | 3,508 | 18.6 | ||||||||||||
Depreciation and amortization | 23,519 | 23,198 | 321 | 1.4 | ||||||||||||
Total segment operating expenses | 105,784 | 89,442 | 16,342 | 18.3 | ||||||||||||
Segment operating loss | $ | (29,461 | ) | $ | (21,382 | ) | $ | (8,079 | ) | 37.8 |
(in thousands) | Years Ended December 31, | Change | ||||||||
2015 | 2014 | $ | % | |||||||
Segment operating revenues | ||||||||||
Service revenue (1) | $ | 21,880 | $ | 20,986 | $ | 894 | 4.3 | |||
Carrier access and fiber revenues (1) | 42,303 | 39,202 | 3,101 | 7.9 | ||||||
Other revenue (1) | 3,237 | 2,847 | 390 | 13.7 | ||||||
Total segment operating revenues | $ | 67,420 | $ | 63,035 | $ | 4,385 | 7.0 | |||
Segment operating expenses | ||||||||||
Cost of goods and services, exclusive of depreciation and amortization shown separately below | 31,668 | 30,088 | 1,580 | 5.3 | ||||||
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | 6,612 | 6,009 | 603 | 10.0 | ||||||
Depreciation and amortization | 12,736 | 11,224 | 1,512 | 13.5 | ||||||
Total segment operating expenses | 51,016 | 47,321 | 3,695 | 7.8 | ||||||
Segment operating income | $ | 16,404 | $ | 15,714 | $ | 690 | 4.4 |
(in thousands) | Years Ended December 31, | Change | ||||||||||||||
2012 | 2011 | $ | % | |||||||||||||
Segment operating revenues | ||||||||||||||||
Service revenue | $ | 16,444 | $ | 16,028 | $ | 416 | 2.6 | |||||||||
Access revenue | 12,604 | 13,405 | (801 | ) | (6.0 | ) | ||||||||||
Facilities lease revenue | 21,153 | 16,856 | 4,297 | 25.5 | ||||||||||||
Equipment revenue | 36 | 39 | (3 | ) | (7.7 | ) | ||||||||||
Other revenue | 4,421 | 3,200 | 1,221 | 38.2 | ||||||||||||
Total segment operating revenues | $ | 54,658 | $ | 49,528 | $ | 5,130 | 10.4 | |||||||||
Segment operating expenses | ||||||||||||||||
Cost of goods and services, exclusive of depreciation and amortization shown separately below | 24,785 | 19,702 | 5,083 | 25.8 | ||||||||||||
Selling, general and administrative, exclusive of depreciation and amortization shown separately below | 6,859 | 7,528 | (669 | ) | (8.9 | ) | ||||||||||
Depreciation and amortization | 9,171 | 8,453 | 718 | 8.5 | ||||||||||||
Total segment operating expenses | 40,815 | 35,683 | 5,132 | 14.4 | ||||||||||||
Segment operating income | $ | 13,843 | $ | 13,845 | $ | (2 | ) | (0.0 | ) |
(1) | Prior year categories of access revenue and facilities lease revenue have been combined into the new category of carrier access and fiber revenue to conform to current year presentation. Additionally, set-top box revenues included in other revenue in the prior year are now presented within service revenue |
(in thousands) | Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | ||||||||||
Adjusted OIBDA | $ | 118,596 | $ | 106,765 | $ | 93,148 |
Years Ended December 31, | |||||||||
(in thousands) | 2016 | 2015 | 2014 | ||||||
Adjusted OIBDA | $ | 246,122 | $ | 150,902 | $ | 132,144 | |||
Continuing OIBDA | $ | 221,526 | $ | 150,902 | $ | 132,144 |
(in thousands) | Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | ||||||||||
Operating income | $ | 55,407 | $ | 34,658 | $ | 32,290 | ||||||
Plus depreciation and amortization | 60,722 | 64,412 | 55,770 | |||||||||
Adjusted prepaid wireless results | - | (6,137 | ) | 4,890 | ||||||||
Less (gain) loss on asset sales | 784 | 441 | (1,309 | ) | ||||||||
Plus non-cash goodwill impairment charge | - | 10,952 | - | |||||||||
Plus storm damage costs | - | 813 | - | |||||||||
Plus share based compensation expense | 1,683 | 1,626 | 1,507 | |||||||||
Adjusted OIBDA | $ | 118,596 | $ | 106,765 | $ | 93,148 |
Consolidated Results: | Years Ended December 31, | ||||||||
(in thousands) | 2016 | 2015 | 2014 | ||||||
Operating income | $ | 22,526 | $ | 74,086 | $ | 61,943 | |||
Plus depreciation and amortization | 143,685 | 70,702 | 65,890 | ||||||
Plus (gain) loss on asset sales | (49 | ) | 235 | 2,054 | |||||
Plus share based compensation expense | 3,021 | 2,333 | 2,257 | ||||||
Plus straight line adjustment to management fee waiver | 11,974 | — | — | ||||||
Plus amortization of intangibles netted in rent expense | 728 | — | — | ||||||
Plus amortization of intangible netted in revenue | 14,030 | — | — | ||||||
Plus temporary backoffice costs to support the billing operations through migration (1) | 12,435 | — | — | ||||||
Less actuarial gains on pension plans | (4,460 | ) | — | — | |||||
Plus integration and acquisition related expenses | 42,232 | 3,546 | — | ||||||
Adjusted OIBDA | 246,122 | 150,902 | 132,144 | ||||||
Less waived management fee | (24,596 | ) | — | — | |||||
Continuing OIBDA | $ | 221,526 | $ | 150,902 | $ | 132,144 |
Wireless Segment: (in thousands) | Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | ||||||||||
Operating income | $ | 60,125 | $ | 53,356 | $ | 43,372 | ||||||
Plus depreciation and amortization | 28,177 | 31,660 | 23,906 | |||||||||
Adjusted prepaid results | - | (6,137 | ) | 4,890 | ||||||||
Less (gain) loss on asset sales | 647 | (9 | ) | (1,699 | ) | |||||||
Plus share based compensation expense | 481 | 468 | 444 | |||||||||
Adjusted OIBDA | $ | 89,430 | $ | 79,338 | $ | 70,913 |
Wireless Segment: | Years Ended December 31, | ||||||||
(in thousands) | 2016 | 2015 | 2014 | ||||||
Operating income | $ | 26,241 | $ | 75,023 | $ | 69,882 | |||
Plus depreciation and amortization | 107,621 | 34,416 | 31,111 | ||||||
Plus (gain) loss on asset sales | (131 | ) | 62 | (101 | ) | ||||
Plus share based compensation expense | 1,309 | 554 | 475 | ||||||
Plus straight line adjustment to management fee waiver | 11,974 | — | — | ||||||
Plus amortization of intangible netted in rent expense | 728 | ||||||||
Plus amortization of intangible netted in revenue | 14,030 | — | — | ||||||
Plus temporary backoffice costs to support the billing operations through migration | 12,435 | — | — | ||||||
Plus integration and acquisition related expenses | 25,927 | — | — | ||||||
Adjusted OIBDA | 200,134 | 110,055 | 101,367 | ||||||
Less waived management fee | (24,596 | ) | — | — | |||||
Continuing OIBDA | $ | 175,538 | $ | 110,055 | $ | 101,367 |
Cable Segment: (in thousands) | Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | ||||||||||
Operating income (loss) | $ | (14,580 | ) | $ | (29,461 | ) | $ | (21,382 | ) | |||
Plus depreciation and amortization | 22,663 | 23,519 | 23,198 | |||||||||
Less (gain) loss on asset sales | (59 | ) | 126 | 176 | ||||||||
Plus non-cash goodwill impairment charge | - | 10,952 | - | |||||||||
Plus storm damage costs | - | 813 | - | |||||||||
Plus share based compensation expense | 735 | 692 | 594 | |||||||||
Adjusted OIBDA | $ | 8,759 | $ | 6,641 | $ | 2,586 |
Wireline Segment: (in thousands) | Years Ended December 31, | |||||||||||
2013 | 2012 | 2011 | ||||||||||
Operating income | $ | 12,902 | $ | 13,843 | $ | 13,845 | ||||||
Plus depreciation and amortization | 9,848 | 9,171 | 8,453 | |||||||||
Less (gain) loss on asset sales | 195 | 305 | 214 | |||||||||
Plus share based compensation expense | 356 | 372 | 357 | |||||||||
Adjusted OIBDA | $ | 23,301 | $ | 23,691 | $ | 22,869 |
Cable Segment: | Years Ended December 31, | ||||||||
(in thousands) | 2016 | 2015 | 2014 | ||||||
Operating income (loss) | $ | 6,997 | $ | 502 | $ | (10,098 | ) | ||
Plus depreciation and amortization | 23,908 | 23,097 | 23,148 | ||||||
Plus (gain) loss on asset sales | 156 | 45 | 1,500 | ||||||
Plus share based compensation expense | 756 | 811 | 848 | ||||||
Adjusted OIBDA and Continuing OIBDA | $ | 31,817 | $ | 24,455 | $ | 15,398 |
Wireline Segment: | Years Ended December 31, | ||||||||
(in thousands) | 2016 | 2015 | 2014 | ||||||
Operating income | $ | 20,524 | $ | 16,404 | $ | 15,714 | |||
Plus depreciation and amortization | 11,717 | 12,736 | 11,224 | ||||||
Plus (gain) loss on asset sales | (27 | ) | 169 | 655 | |||||
Plus share based compensation expense | 347 | 408 | 386 | ||||||
Adjusted OIBDA and Continuing OIBDA | $ | 32,561 | $ | 29,717 | $ | 27,979 |
a limitation on the Company’s total leverage ratio, defined as indebtedness divided by earnings before interest, taxes, depreciation and amortization, or EBITDA, of less than or equal to 3.75 to 1.00 through December 30, 2018, then 3.25 to 1.00 through December 30, 2019, and 3.00 |
Actual | Covenant Requirement | |||
Total Leverage Ratio | % | 3.75 or Lower | ||
Debt Service Coverage Ratio | % | 2.00 or Higher | ||
$25 million or Higher |
(in thousands) | Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years | |||||||||||||||
Long-term debt principal (1) | $ | 230,000 | $ | 5,750 | $ | 46,000 | $ | 46,000 | $ | 132,250 | ||||||||||
Interest on long–term debt (1) | 28,775 | 6,139 | 10,896 | 8,441 | 3,299 | |||||||||||||||
“Pay fixed” obligations (2) | 9,250 | 1,973 | 3,503 | 2,713 | 1,061 | |||||||||||||||
Operating leases (3) | 140,819 | 13,114 | 26,168 | 26,059 | 75,478 | |||||||||||||||
Purchase obligations (4) | 14,905 | 8,968 | 3,855 | 2,082 | - | |||||||||||||||
Total obligations | $ | 423,749 | $ | 35,944 | $ | 90,422 | $ | 85,295 | $ | 212,088 |
(in thousands) | Total (5) | Less than 1 year | 1-3 years | 4-5 years | After 5 years | ||||||||||
Long-term debt principal (1) | $ | 847,875 | $ | 36,375 | $ | 157,000 | $ | 419,500 | $ | 235,000 | |||||
Interest on long–term debt (1) | 140,027 | 31,349 | 56,476 | 38,950 | 13,252 | ||||||||||
“Pay fixed” obligations (2) | 23,004 | 5,244 | 9,377 | 6,300 | 2,083 | ||||||||||
Operating leases (3) | 480,788 | 49,006 | 96,334 | 93,608 | 241,840 | ||||||||||
Purchase obligations (4) | 59,794 | 39,087 | 13,805 | 6,902 | — | ||||||||||
Total obligations | $ | 1,551,488 | $ | 161,061 | $ | 332,992 | $ | 565,260 | $ | 492,175 |
1) | Includes principal payments and estimated interest payments on the Term Loan |
2) | Represents the maximum interest payments we are obligated to make under our derivative |
3) | Amounts include payments over reasonably assured renewals. See Note |
4) | Represents open purchase orders at December 31, |
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 9A. | CONTROLS AND PROCEDURES |
(a) | Evaluation of Disclosure Controls and Procedures |
(b) | Management’s Report on Internal Control Over Financial Reporting |
i. | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; |
ii. | Provide reasonable assurance that transactions are recorded as necessary to permit 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 |
iii. | 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. |
(c) | Management’s Remediation Plan |
ITEM 9B. | OTHER INFORMATION |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
ITEM 11. | EXECUTIVE COMPENSATION |
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Number of securities to be issued upon exercise of outstanding options | Weighted average exercise price of outstanding options | Number of securities remaining available for future issuance | ||||||||||
2005 stock option plan | 550,507 | $ | 16.71 | 374,122 |
Number of securities to be issued upon exercise of outstanding options | Weighted average exercise price of outstanding options | Number of securities remaining available for future issuance | |||||||
2005 stock option plan | 524,642 | $ | 6.67 | — | |||||
2014 stock option plan | — | — | 2,563,523 |
ITEM 14. |
Exhibit Number | Exhibit Description |
2.1 | Agreement and Plan of Merger, dated as of August 10, 2015, by and among Shenandoah Telecommunications Company, Gridiron Merger Sub, Inc. and NTELOS Holdings Corp., filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, dated August 11, 2015. | |
3.1 | Amended and Restated Articles of Incorporation of Shenandoah Telecommunications Company filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the period ending June 30, |
3.20 | Amended and Restated Bylaws of Shenandoah Telecommunications Company, effective July 18, 2016, filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K dated |
4.1 | Rights Agreement, dated as of February 8, 2008 between the Company and American Stock Transfer & Trust Company filed as Exhibit 4.1 to the Company's Current Report on Form 8-K, dated January 25, 2008. |
4.2 | Specimen representing the Common Stock, no par value, of Shenandoah Telecommunications Company, filed as Exhibit 4.3 to the Company’s Report on Form 10-K for the year ended December 31, 2007. |
10.1 | Shenandoah Telecommunications Company Dividend Reinvestment Plan filed as Exhibit 4.4 to the Company’s Registration Statement on Form S-3D (No. 333-74297). |
10.2 | Settlement Agreement and Mutual Release dated as of January 30, 2004 by and among Sprint Spectrum L.P., Sprint Communications Company L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P. and Shenandoah Personal Communications Company and Shenandoah Telecommunications Company, dated January 30, 2004; filed as Exhibit 10.3 to the Company’s Report on Form 10-K for the year ended December 31, 2003. |
10.3 | Sprint PCS Management Agreement dated as of November 5, 1999 by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., and Shenandoah Personal Communications Company filed as Exhibit 10.4 to the Company’s Report on Form 10-K for the year ended December 31, 2003. |
10.4 | Sprint PCS Services Agreement dated as of November 5, 1999 by and between Sprint Spectrum L.P. and Shenandoah Personal Communications Company filed as Exhibit 10.5 to the Company’s Report on Form 10-K for the year ended December 31, 2003. |
10.5 | Sprint Trademark and Service Mark License Agreement dated as of November 5, 1999 by and between Sprint Communications Company, L.P. and Shenandoah Personal Communications Company filed as Exhibit 10.6 to the Company’s Report on Form 10-K for the year ended December 31, 2003. |
10.6 | Sprint Spectrum Trademark and Service Mark License Agreement dated as of November 5, 1999 by and between Sprint Spectrum L.P. and Shenandoah Personal Communications Company filed as Exhibit 10.7 to the Company’s Report on Form 10-K for the year ended December 31, 2003. |
10.7 | Addendum I to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., and Shenandoah Personal Communications Company filed as Exhibit 10.8 to the Company’s Report on Form 10-K for the year ended December 31, 2003. | |
10.8 | Asset Purchase Agreement dated November 5, 1999 by and among Sprint Spectrum L.P., Sprint Spectrum Equipment Company, L. P., Sprint Spectrum Realty Company, L.P., and Shenandoah Personal Communications Company, serving as Exhibit A to Addendum I to the Sprint PCS Management Agreement and as Exhibit 2.6 to the Sprint PCS Management Agreement filed as Exhibit 10.9 to the Company’s Report on Form 10-K for the year ended December 31, 2003. |
10.9 | Addendum II dated August 31, 2000 to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., and Shenandoah Personal Communications Company filed as Exhibit 10.10 to the Company’s Report on Form 10-K for the year ended December 31, 2003. |
10.10 | Addendum III dated September 26, 2001 to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., and Shenandoah Personal Communications Company filed as Exhibit 10.11 to the Company’s Report on Form 10-K for the year ended December 31, 2003. |
10.11 | Addendum IV dated May 22, 2003 to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., and Shenandoah Personal Communications Company filed as Exhibit 10.12 to the Company’s Report on Form 10-K for the year ended December 31, 2003. |
10.12 | Addendum V dated January 30, 2004 to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., and Shenandoah Personal Communications Company filed as Exhibit 10.13 to the Company’s Report on Form 10-K for the year ended December 31, 2003. |
10.13 | 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. |
10.14 | Addendum VI dated May 24, 2004 to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, 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. |
10.15 | Description of the Shenandoah Telecommunications Company Incentive Plan filed as Exhibit 10.25 to the Company’s Current Report on Form 8-K dated January 21, 2005. |
10.16 | Description of Compensation of Non-Employee Directors. Filed as Exhibit 10.26 to the Company’s Current Report on Form 8-K dated May 4, 2005. |
10.17 | Description of Management Compensatory Plans and Arrangements. Filed as Exhibit 10.27 to the Company’s current report on Form 8-K dated April 20, 2005. |
10.18 | 2005 Stock Incentive Plan filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-8 (No. 333-127342). |
10.19 | Form of Incentive Stock Option Agreement under the 2005 Stock Incentive Plan filed as Exhibit 10.29 to the Company’s Report on Form 10-K for the year ended December 31, 2005. |
10.20 | 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, Phillieco, 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. |
10.21 | Settlement Agreement and Mutual Release dated March 13, 2007 by and among Sprint Corporation, Sprint Spectrum L.P., Wireless Co., L.P., Sprint Communications Company L.P., APC PCS, LLC, Phillieco, L.P., and Shenandoah Personal Communications Company and Shenandoah Telecommunications, filed as Exhibit 10.32 to the Company’s Report on Form 10-K for the year ended December 31, 2006. |
10.22 | Form of Performance Share Award to Executives filed as Exhibit 10.33 to the Company’s Current Report on Form 8-K dated September 20, 2007. |
10.23 | 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. |
10.24 | Asset Purchase Agreement dated August 6, 2008, between Rapid Communications, LLC, Rapid Acquisition Company, LLC, and Shentel Cable Company, filed as Exhibit 10.37 to the Company’s Report on Form 10-Q for the period ended June 30, 2008. |
10.25 | Amendment Number 1 to the Asset Purchase Agreement dated August 6, 2008, between Rapid Communications, LLC, Rapid Acquisition Company, LLC, and Shentel Cable Company, filed as Exhibit 10.40 to the Company’s Current Report on Form 8-K dated November 7, 2008. |
10.26 | 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. |
10.27 | Asset Purchase Agreement dated as of April 16, 2010, between JetBroadband VA, LLC, Helicon Cable Communications, LLC, JetBroadband WV, LLC, JetBroadband Holdings, LLC, Helicon Cable Holdings, LLC, Shentel Cable Company and Shenandoah Telecommunications Company, filed as Exhibit 10.43 to the Company’s Current Report on Form 8-K, dated April 16, 2010. |
10.28 | Addendum X dated March 15, 2010 to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications Company, filed as Exhibit 10.44 to the Company’s Current Report on Form 10-Q, dated May 7, 2010. |
10.29 | Addendum XI dated July 7, 2010 to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications Company, filed as Exhibit 10.45 to the Company’s Current Report on Form 8-K dated July 8, 2010. |
10.30 | Credit Agreement dated as of July 30, 2010, among Shenandoah Telecommunications Company, CoBank, ACB, Branch Banking and Trust Company, Wells Fargo Bank, N.A., and other Lenders, filed as Exhibit 10.46 to the Company’s Current Report on Form 8-K dated July 30, 2010. |
10.31 | Second Amendment to the Credit Agreement dated as of July 30, 2010, among Shenandoah Telecommunications Company, CoBank, ACB, Branch Banking and Trust Company, Wells Fargo Bank, N.A., and other Lenders, filed as Exhibit 10.47 to the Company’s Current Report on Form 8-K dated April 29, 2011. |
10.32 | Third Amendment to the Credit Agreement dated as of July 30, 2010, among Shenandoah Telecommunications Company, CoBank, ACB, Branch Banking and Trust Company, Wells Fargo Bank, N.A., and other Lenders, filed as Exhibit 10.48 to the Company’s Quarterly Report on Form 10-Q dated August 8, 2011. |
10.33 | Letter Agreement modifying section 10.2.7.2 of Addendum X dated March 15, 2010 to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications Company, filed as Exhibit 10.49 to the Company’s Quarterly Report on Form 10-Q dated August 8, 2011. |
10.34 | Fourth Amendment to the Credit Agreement dated as of July 30, 2010, among Shenandoah Telecommunications Company, CoBank, ACB, Branch Banking and Trust Company, Wells Fargo Bank, N.A., and other Lenders, filed as Exhibit 10.50 to the Company’s Quarterly Report on Form 10-Q dated August 8, 2011. |
10.35 | Addendum XII dated February 1, 2012 to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications Company, filed as Exhibit 10.51 to the Company’s Current Report on Form 8-K dated February 2, 2012. |
10.36 | Fifth Amendment to the Credit Agreement dated as of July 30, 2010, among Shenandoah Telecommunications Company, CoBank, ACB, Branch Banking and Trust Company, Wells Fargo Bank, N.A., and other Lenders, filed as Exhibit 10.52 to the Company’s Current Report on Form 8-K dated February 2, 2012. |
10.37 | Addendum XIII dated September 14, 2012 to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications, LLC, filed as Exhibit 10.53 to the Company’s Current Report on Form 8-K dated September 17, 2012. |
10.38 | Consent and Agreement dated September 14, 2012 related to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications, LLC, filed as Exhibit 10.54 to the Company’s Current Report on Form 8-K dated September 17, 2012. |
10.39 | Amended and Restated Credit Agreement dated as of September 14, 2012, among Shenandoah Telecommunications Company, CoBank, ACB, and other Lenders, filed as Exhibit 10.55 to the Company’s Current Report on Form 8-K dated September 17, 2012. |
10.40 | Addendum XIV dated as of November 19, 2012, to Sprint PCS Management Agreement by and among Sprint Spectrum L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications, LLC, filed as Exhibit 10.42 to the Company’s Annual Report on Form 10-K dated March 5, 2013. |
10.41 | Addendum XV dated as of March 11, 2013, to Sprint PCS Management Agreement by and among Sprint Spectrum, L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal communications, LLC, filed as Exhibit 10.43 to the Company’s Quarterly Report on Form 10-Q dated May 3, 2013. |
10.42 | First Amendment dated January 30, 2014, to the Amended and Restated Credit Agreement among Shenandoah Telecommunications Company, CoBank, ACB, and other Lenders, filed as Exhibit 10.43 to the Company’s Quarterly Report on Form 10-Q dated May 2, 2014. |
10.43 | Joinder Agreement dated January 30, 2014, to the Amended and Restated Credit Agreement among Shenandoah Telecommunications Company, CoBank, ACB, and other Lenders, filed as Exhibit 10.44 to the Company’s Quarterly Report on Form 10-Q dated May 2, 2014. |
10.44 | Addendum XVI dated as of December 9, 2013 to Sprint PCS Management Agreement by and among Sprint Spectrum, L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications, LLC, filed as Exhibit 10.45 to the Company’s Quarterly Report on Form 10-Q dated May 2, 2014. |
10.45 | Addendum XVII dated as of April 11, 2014, to Sprint PCS Management Agreement by and among Sprint Spectrum, L.P., WirelessCo, L.P., APC PCS, LLC, PhillieCo, L.P., Sprint Communications Company L.P. and Shenandoah Personal Communications, LLC, filed as Exhibit 10.46 to the Company’s Quarterly Report on Form 10-Q dated May 2, 2014. |
10.46 | 2014 Equity Plan filed as Appendix A to the Company’s Definitive Proxy Statement filed on March 13, 2014 (No. 333-196990). |
10.47 | Master Agreement dated as of August 10, 2015, by and among SprintCom, Inc. and Shenandoah Personal Communications, LLC, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 11, 2015. |
10.48 | Addendum XVIII dated as of August 10, 2015, to Sprint PCS Management Agreement by and among SprintCom, Inc., PhillieCo, L.P., and Shenandoah Personal Communications, LLC, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, dated August 11, 2015. |
10.49 | Credit Agreement dated as of December 18, 2015, by and among Shenandoah Telecommunications Company, as Borrower, the guarantors party thereto from time to time, CoBank, ACB, as Administrative Agent, and various other agents and lenders named therein, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, dated December 24, 2015. |
10.50 | First amendment to Credit Agreement, dated as of March 29, 2016, by and among Shenandoah Telecommunications Company, as Borrower, CoBank, ACB, as Administrative Agent, and various other lenders named therein, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, dated March 29, 2016. |
10.51 | Amended and Restated Master Agreement, dated as of May 6, 2016, by and between Shenandoah Personal Communications, LLC and SprintCom, Inc, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, dated May 6, 2016. |
10.52 | Addendum XIX to Sprint PCS Management Agreement, dated as of May 6, 2016, by and among Sprint Spectrum L.P., WirelessCo, LLC, APC PCS, LLC, PhillieCo, LLC, Sprint Communications Company L.P., Shenandoah Personal Communications, LLC and SprintCom, Inc, filed as Exhibit 10.2 to the Company's Current Report on Form 8-K, dated May 6, 2016. |
10.53 | Consent and Agreement, dated as of May 6, 2016, by and among Sprint Spectrum L.P., WirelessCo, LLC, APC PCS, LLC, PhillieCo, LLC, Sprint Communications Company L.P., Shenandoah Personal Communications, LLC and SprintCom, Inc. and CoBank, ACB, filed as Exhibit 10.3 to the Company's Current Report on Form 8-K, dated May 6, 2016. |
*21 | List of Subsidiaries. |
*23.1 | Consent of KPMG LLP, Independent Registered Public Accounting Firm. |
*31.1 | Certification of President and Chief Executive Officer of Shenandoah Telecommunications Company pursuant to Rule 13a-14(a)under the Securities Exchange Act of 1934. |
*31.2 | Certification of Vice President and Chief Financial Officer of Shenandoah Telecommunications Company pursuant to Rule 13a-14(a)under the Securities Exchange Act of 1934. |
*32 | Certifications pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. § 1350. |
(101) | Formatted in XBRL (Extensible Business Reporting Language) |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
SHENANDOAH TELECOMMUNICATIONS COMPANY
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.
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES Index to the Consolidated
Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders Shenandoah Telecommunications Company: We have audited Shenandoah Telecommunications Company’s We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 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. A 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. Insufficient number of trained resources with assigned responsibility and accountability for the design, operation and documentation of internal controls over (i) complex, significant non-routine transactions, including the business combination of NTELOS Holdings Corp. (nTelos) and the Sprint asset exchange transaction; (ii) the preparation of the consolidated statements of cash flows; and (iii) their interaction with third party service providers; An ineffective risk assessment process to identify and assess necessary changes in the application of generally accepted accounting principles, financial reporting processes and the design and effective operation of internal controls that were responsive to changes in business operations, specifically changes in the business resulting from the acquisition of nTelos and the Sprint asset exchange transaction; An ineffective information and communication process to identify and assess the source of reliable information necessary for financial accounting and reporting related to complex, significant non-routine transactions and to accurately communicate the information on a timely basis to third party service providers; Ineffective monitoring activities to assess the operation of internal control related to (i) complex, significant non-routine transactions; (ii) accounting for income taxes; and (iii) accuracy of the preparation of the consolidated statements of cash flows; Ineffective design and documentation of process-level controls over complex, significant non-routine transactions including the measurement of the fair value of FCC licenses, property and equipment, customer-based intangible assets, leases, and the affiliate contract expansion intangible asset acquired from nTelos and as result of the Sprint asset exchange transaction; Ineffective design and documentation of process-level controls over the accounting for income taxes; and Ineffective operation and documentation of process-level controls over the accuracy of the preparation of the consolidated statements of cash flows. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Shenandoah Telecommunications Company and subsidiaries as of December 31, In our opinion, because of the effect of the aforementioned material weaknesses on the achievement of the objectives of the control criteria, Shenandoah Telecommunications Company has not maintained effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Shenandoah Telecommunications Company acquired NTELOS Holdings Corp. (nTelos) on May 6, 2016, and management excluded from its assessment of the effectiveness of Shenandoah Telecommunications Company’s internal control over financial reporting as of December 31, 2016, nTelos’ internal control over financial reporting associated with $42.9 million of total assets and $67.7 million of total operating revenues reflected in the consolidated financial statements of Shenandoah Telecommunications Company and subsidiaries as of and for the year ended December 31, 2016. Our audit of internal control over financial reporting of Shenandoah Telecommunications Company also excluded an evaluation of the internal control over financial reporting of nTelos. / Richmond, Virginia March Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders Shenandoah Telecommunications Company: We have audited the accompanying consolidated balance sheets of Shenandoah Telecommunications Company and subsidiaries (the Company) as of December 31, We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Shenandoah Telecommunications Company and subsidiaries as of December 31, As discussed in Note 16 to the consolidated financial statements, on May 6, 2016, the Company completed the acquisition of NTELOS Holdings Corp. and applied the acquisition method of accounting as of the acquisition date and ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, during the measurement period. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), / Richmond, Virginia March SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, in thousands
(Continued) SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, in thousands
See accompanying notes to consolidated financial statements. SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF Years Ended December 31, in thousands, except per share amounts
See accompanying notes to consolidated financial statements. SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended December 31, in thousands, except per share amounts
See accompanying notes to consolidated financial statements. SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, in thousands
SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, in thousands
Non-cash investing and financing activities: At December 31, 2016, 2015 and 2014, accounts payable included approximately $14,386, $5,597 and $6,492, respectively, associated with capital expenditures. Cash flows for accounts payable and acquisition of property, plant and equipment exclude this activity. In conjunction with the acquisition of nTelos, the Company issued common stock to acquire non-controlling interests held by third parties in a subsidiary of nTelos. The transaction was valued at $10.4 million. The Company reclassified $5.2 million of unamortized loan fees and costs included in deferred charges and other assets to long term debt in connection with the new Term loan A-1 and A-2 borrowing related to the acquisition of nTelos. During See accompanying notes to consolidated financial statements. SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Description of Business and Summary of Significant Accounting Policies Description of business: Shenandoah Telecommunications Company and its subsidiaries (collectively, the “Company”) provide wireless personal communications service (“PCS”) under the Sprint brand, and telephone service, cable television, unregulated communications equipment sales and services, and With the recent acquisition of nTelos (see Note 16), the Company's wireless service has expanded to include south-central and western Virginia, West Virginia, and small portions of Kentucky and Ohio. This segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers. The Company is licensed to use the Sprint brand name in this territory, and operates its network under the Sprint radio spectrum A summary of the Company's significant accounting policies follows: Principles of consolidation: The consolidated financial statements include the accounts of all wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company has no involvement with variable interest entities. The Company accounts for investments over which it has significant influence but not a controlling financial interest using the equity method of accounting. Use of estimates: Management of the Company has made a number of estimates and assumptions related to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Management reviews its estimates, including those related to recoverability and useful lives of assets as well as liabilities for income taxes and pension benefits. Changes in facts and circumstances may result in revised estimates, and actual results could differ from those reported estimates. Cash and cash equivalents: The Company considers all temporary cash investments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents at December 31, 2015 included $40.1 million invested in institutional cash management funds. The Company places its temporary cash investments with high credit quality financial institutions. Accounts receivable:Accounts receivable are recorded at the invoiced amount and generally do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience and industry and local economic data. The Company reviews its allowance for doubtful accounts monthly. Past due balances meeting specific criteria are reviewed individually for collectability. All other balances are reviewed on a pooled basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Accounts receivable are concentrated among customers within the Company's geographic service area and large telecommunications companies. Changes in the allowance for doubtful accounts for trade accounts receivable for the years ended December 31,
Investments:The classifications of debt and equity securities are determined by management at the date individual investments are acquired. The appropriateness of such classification is periodically reassessed. The Company monitors the fair value of all investments, and based on factors such as market conditions, financial information and industry conditions, the Company will reflect impairments in values as is warranted. The classification of those securities and the related accounting policies are as follows: Investments Carried at Fair Value:Investments in Investments Carried at Cost: Investments in common stock in which the Company does not have a significant ownership (less than 20%) and for which there is no ready market, are carried at cost. This category includes required investments to obtain services, primarily with CoBank. Information regarding investments carried at cost is reviewed for evidence of impairment in value. Impairments are charged to earnings and a new cost basis for the investment is established. Equity Method Investments: Investments in partnerships and in unconsolidated corporations where the Company's ownership is 20% or more, but less than 50%, or where the Company otherwise has the ability to exercise significant influence, are reported under the equity method. Under this method, the Company's equity in earnings or losses of investees is reflected in earnings. Distributions received reduce the carrying value of these investments. The Company recognizes a loss when there is a decline in value of the investment which is other than a temporary decline. Property, plant and equipment: Property, plant and equipment is stated at Valuation of long-lived assets:Long‑lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value: Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial instruments presented on the consolidated balance sheets The Company measures its interest rate swaps at fair value Asset retirement obligations:The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that results from acquisition, construction, development and/or normal use of the assets. The Company also records a corresponding asset, which is depreciated over the life of the tangible long-lived asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company records the retirement obligation on towers owned and cell site improvements where there is a legal obligation to remove the tower or cell site improvements and restore the site to its original During 2015, new information was received regarding the cost to remove tower site improvements. The Company recorded an adjustment to the wireless segment asset retirement obligation liabilities to reflect changes in the estimated future cash flows underlying the obligation to remove tower site improvements. Changes in the liability for asset removal obligations for the years ended December 31,
The short term portion of the asset retirement obligation of $5.8 million is included in accrued liabilities and other for the year ended December 31, 2016 on the Company's consolidated balance sheets. See note 10 for additional information. Goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than annually if an event or circumstance indicates that impairment is more likely than not to have occurred. In conducting its annual impairment testing, the Company may first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is required. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if the Company elects not to perform a qualitative assessment of a reporting unit, the Company then compares the fair value of the Intangible assets with indefinite lives, primarily cable franchise rights, are assessed annually, at November Changes in the
Intangible assets consist of the following at December 31,
For the years ended December 31, Aggregate amortization expense, including amortization recorded as a contra revenue, for intangible assets for the periods shown is expected to be as follows:
Deferred charges and other assets: Deferred charges and other assets consist of derivatives used for hedging purposes and debt issuance costs related to available lines of credit and other unused funds, which are amortized on a straight-line method over the remaining draw period. Retirement plans: The Company maintains a Supplemental Executive Retirement Plan (“SERP”) for selected employees. This is an unfunded defined contribution plan. The Company created and funded a rabbi trust to hold assets equal to the liabilities under this plan. Through the Company’s acquisition of nTelos, the Company assumed nTelos’ non-contributory defined benefit pension plan (“Pension Plan”) covering all employees who met eligibility requirements and were employed by nTelos prior to October 1, 2003. The Pension Plan was closed to nTelos employees hired on or after October 1, 2003. Pension benefits vest after five years of plan service and are based on years of service and an average of the five highest consecutive years of compensation subject to certain reductions if the employee retires before reaching age 65 and elects to receive the benefit prior to age 65. Effective December 31, 2012, nTelos froze future benefit accruals. The Company uses updated mortality tables published by the Society of Actuaries that predict increasing life expectancies in the United States. IRC Sections 412 and 430 and Sections 302 and 303 of the Employee Retirement Income Security Act of 1974, as amended establish minimum funding requirements for defined benefit pension plans. The minimum required contribution is generally equal to the target normal cost plus the shortfall amortization installments for the current plan year and each of the six preceding plan years less any calculated credit balance. If plan assets (less calculated credits) are equal to or exceed the funding target, the minimum required contribution is the target normal cost reduced by the excess funding, but not below zero. The Company’s policy is to make contributions to stay at or above the threshold required in order to prevent benefit restrictions and related additional notice requirements and is intended to provide not only for benefits based on service to date, but also for those expected to be earned in the future. The Company also assumed one qualified nonpension postretirement benefit plan that provides certain health care benefits for nTelos retired employees that meet eligibility requirements. The health care plan is contributory, with participants’ contributions adjusted annually. This plan is not available to employees hired after April 1993. The accounting for the plan anticipates that the Company will maintain a consistent level of cost sharing for the benefits with the retirees. The Company’s share of the projected cost of benefits that will be paid after retirement is generally being accrued by charges to expense over the eligible employees’ service periods to the dates they are fully eligible for benefits. The Company records annual amounts relating to the Pension Plan and postretirement benefit plan based on calculations that incorporate various actuarial and other assumptions, including discount rates, mortality, assumed rates of return, turnover rates and healthcare cost trend rates. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. We recognize gains and losses on pension and postretirement plan assets and obligations immediately in our operating results. These gains and losses are measured annually at December 31 and accordingly are recorded during the fourth quarter, unless earlier re-measurements are required. The Company maintains a defined contribution 401(k) plan under which substantially all employees may defer a portion of their earnings on a pretax basis, up to the allowable federal None of these plans directly Income taxes: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company evaluates the recoverability of tax assets generated on a state-by-state basis from net operating losses apportioned to that state. Management uses a more likely than not threshold to make that determination and has concluded that at December 31, Revenue recognition: The Company recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered or products have been delivered, the price to the buyer is fixed and determinable and collectability is reasonably assured. Revenues are recognized by the Company based on the various types of transactions generating the revenue. For services, revenue is recognized as the services are performed. For equipment sales, revenue is recognized when the sales transaction is complete. Under the Sprint Management Agreement, postpaid wireless service revenues are reported net of an 8% Management Fee and Earnings per share: Basic net The following tables show the computation of basic and diluted earnings per share for the years ended December 31,
Contingencies: The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity. Adoption of New Accounting Principles During 2016, the Company adopted four recent accounting principles: Accounting Standards Update 2015-3, “Interest – Imputation of Interest” (ASU 2015-3), ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, ASU 2016-9, “Improvements to Employee Share-based Payment Accounting,” and ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.” ASU 2015-3 requires that premiums, discounts, and loan fees and costs associated with long term debt be reflected as a reduction of the outstanding debt balance. Previous guidance had treated such loan fees and costs as a deferred charge on the balance sheet. As a result of implementing ASU 2015-3, the Company reclassified $1.6 million of unamortized loan fees and costs included in deferred charges and other assets as of December 31, Term loan A-1 and A-2 borrowing related to the acquisition of nTelos. Total assets, as well as total liabilities and shareholders’ equity, were also reduced by the same $4.3 million. There was no ASU 2015-17 simplifies accounting for deferred taxes by eliminating the requirement to present deferred tax assets and liabilities as current and non-current in a classified balance sheet. Due to the immaterial balance of current deferred tax assets ($0.9 million as of December 31, 2015), the Company has elected to apply this guidance prospectively, and thus prior periods have not ASU 2016-9 simplifies certain provisions related to the accounting ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. See Note 16 for adjustments recorded during 2016. Note 2. As part of the acquisition of nTelos, the Company acquired the accounts receivable associated with nTelos’ Equipment Installment Plan, (“EIP”). This plan allowed EIP subscribers to pay for their devices in installments over a 24-month period. At the time of an installment sale, nTelos imputed interest on the installment receivable using current market interest rate estimates ranging from approximately 5% to 10%. Additionally, the customer had the right to trade in their original device after a specified period of time for a new device and have the remaining unpaid balance satisfied. This trade-in right was measured at the estimated fair value of the device being traded in based on current trade-in values and the timing of the trade-in. Immediately following the acquisition, the Company terminated the EIP offering but has continued to service the installment receivable and trade in obligation until such time that the customer migrates to Sprint. The There was $0.7 million of unmigrated, acquired EIP receivables as of December 31, 2016. The short term portion of $0.6 million is included in accounts receivable, net. The long term portion of $0.1 million is included in deferred charges and other assets,
Note 3. Investments The Company has three classifications of investments: investments carried at fair value, investments carried at cost, and equity method investments. See Note 1 for definitions of each classification of investment. At December 31,
Investments carried at fair value were acquired under a rabbi trust arrangement related to the Company’s SERP. The Company purchases investments in the trust to mirror the investment elections of participants in the SERP; gains and losses on the investments in the trust are reflected as increases or decreases in the liability owed to the participants. The Company recorded unrealized gains of At December 31,
The Company’s investment in CoBank increased Note 4. Property, Plant and Equipment Property, plant and equipment consisted of the following at December 31,
Note 5. Long-Term Debt and Revolving Lines of Credit Total debt consists of the
On In connection with the security for the obligations under the 2016 credit agreement. The As of December 31, 2016, the Company’s indebtedness totaled $829.3 million, net of unamortized loan fees of $18.6 million, with an annualized overall weighted average interest rate of approximately 3.83%. The The Term Loan A-1 requires quarterly principal repayments of $6.1 million, which began on September 30, 2016, and will continue through June 30, 2017, increasing to $12.1 million quarterly from September 30, 2017 through June 30, 2020, increasing to $18.2 million quarterly from September 30, 2020 thereafter through March 31, 2021, with the remaining expected balance of approximately $260.7 million due June 30, 2021. The Term Loan A-2 requires quarterly principal repayments of $10.0 million beginning on September 30, 2018 through March 31, 2023, with the current remaining expected balance of approximately $185.0 million due June 30, 2023. The 2016 credit agreement also required the Company to enter into one or more hedge agreements to manage its exposure to interest rate movements. The Company elected to hedge the minimum required under the 2016 credit agreement, and entered into a pay fixed, receive variable swap on 50% of the aggregate expected principal balance of the term loans outstanding. The Company will receive one month LIBOR and pay a fixed rate of 1.16%, in addition to the 2.75% initial spread on Term Loan A-1 and the 3.00% initial spread on Term Loan A-2. The 2016 credit agreement contains affirmative and negative covenants customary to secured credit facilities, including covenants restricting 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, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of the Company’s and its subsidiaries’ businesses. Indebtedness outstanding under any of the facilities may be accelerated by an Event of Default, as defined in the The Facilities are secured by a pledge by the Company of its stock in its subsidiaries, a guarantee by the Company’s subsidiaries other than Shenandoah Telephone Company, The Company is subject to certain financial covenants to be measured on a trailing twelve month basis each calendar quarter unless otherwise specified. These covenants include:
all scheduled principal payments on the Term Loans and scheduled principal payments on other indebtedness plus cash interest expense, greater than 2.00 to 1.00;
The Company has no fixed rate debt instruments as of December 31, The Company receives patronage credits from CoBank and certain of its affiliated Farm Credit institutions, which are not reflected in the stated rates shown above. Patronage credits are a distribution of profits of CoBank as approved by its Board of Directors. During Note 6. Income Taxes Total income taxes for the years ended December 31,
The Company and its subsidiaries file income tax returns in several jurisdictions. The provision for the federal and state income taxes attributable to income from continuing operations consists of the following components:
A reconciliation of income taxes determined by applying the federal and state tax rates to income from continuing operations is as follows for the years ended December 31,
The effective Net deferred tax assets and liabilities consist of the following temporary differences at December 31,
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 and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods for which the deferred tax assets are deductible, management believes it more likely than not that the net deferred tax assets will be realized with the exception of certain state net operating As of December 31, The Company files U.S. federal income tax returns and various state and local income tax returns. Note 7. Significant Contractual Relationship In 1999, the Company executed a Management Agreement (the “Agreement”) with Sprint whereby the Company committed to construct and operate a PCS network using CDMA air interface technology. Under the Agreement, the Company was the exclusive PCS Affiliate of Sprint providing wireless mobility communications network products and services on the 1900 MHz band in its territory which extends from Altoona, York and Harrisburg, Pennsylvania, and south along the Interstate 81 corridor through Western Maryland, the panhandle of West Virginia, to Harrisonburg, Virginia. With the recent acquisition of nTelos, the Company’s wireless service area has expanded to include south-central and western Virginia, West Virginia, and small portions of Kentucky and Ohio. The Company is authorized to use the Sprint brand in its territory, and operate its network under Sprint’s radio spectrum licenses. As an exclusive PCS Affiliate of Sprint, the Company has the exclusive right to build, own and maintain its portion of Sprint’s nationwide PCS network, in the aforementioned areas, to Sprint’s specifications. The The Agreement has been amended numerous times. During 2012, the Company amended its Agreement with Sprint in order to build a 4G LTE network in the Company’s service area. In addition to adding 4G services to the Company’s network, the Company received access to additional 1900 and 800 MHz spectrum, extended the initial term of the contract five years from 2019 to 2024 and set the maximum contract length at 45 years. The agreement also increased the cap on the Net Service During During 2015, effective January 1, 2016, the Company amended its Agreement with Sprint in order to better allocate certain costs covered by the Net Service Fee and extended the initial term to 2029. The Net Service Fee was reduced to 8.6%, and certain costs and revenues previously included within the Net Service Fee were broken out of the Net Service Fee and will be separately settled in the future. Separately settled revenues primarily consist of revenues associated with Sprint’s wholesale subscribers using the Company’s network and net travel revenue. In addition, the Company will be charged for the costs of subsidized handsets sold through Sprint’s national channels as well as commissions paid by Sprint to Effective with the acquisition of nTelos on May 6, 2016, the Management Fee charged by Sprint. Under the Sprint agreements, Sprint provides the Company significant support services such as customer service, billing, collections, long distance, national network operations support, inventory logistics support, use of the Sprint brand names, national advertising, national distribution and product development. Cost of equipment transactions between the Company and Sprint relate to inventory purchased and subsidized costs of handsets. These costs also included transactions related to subsidized costs on handsets and commissions paid to Sprint for sales of handsets through Sprint’s national distribution programs. positive cash flow from operations and profits for its PCS operation. Changes in technology, increased competition, or economic conditions in the wireless industry or the economy in general, individually and/or collectively, could have an adverse effect on the Company's financial position and results of operations. Note 8. Related Party Transactions ValleyNet, an equity method investee of the Company, resells capacity on the Company’s fiber network under an operating lease agreement. Facility lease revenue from ValleyNet was approximately Note 9. Retirement Plans The Company assumed, through its acquisition of nTelos, a qualified pension plan and other postretirement benefit plans. We have recorded the fair value of the nTelos plans using assumptions and accounting policies consistent with those disclosed by nTelos. Upon acquisition, the excess of projected benefit obligations over the plan assets was recognized as a liability and previously existing deferred actuarial gains and losses and unrecognized service costs and benefits were eliminated. The following tables provide the benefit obligations, fair value of assets and a statement of the funded status since the acquisition date (in thousands):
The funded status is included in other long-term liabilities on the Company's consolidated balance sheets. The accumulated benefit obligation for the defined benefit pension plan at May 6, 2016 was $37.4 million. The accumulated benefit obligation represents the present value of pension benefits based on service and salary earned to date. The defined benefit plan was frozen for future benefit accruals as of December 31, 2012. Accordingly, the accumulated benefit obligation is equal to the projected benefit obligation. The following table provides the components of net periodic pension (benefit) cost for the plans for the period from acquisition date to December 31, 2016 (in thousands):
We recognize gains and losses on pension and postretirement plan assets and obligations immediately in our operating results. These gains and losses are measured annually as of December 31 and accordingly are recorded during the fourth quarter, unless earlier measurements are required. The assumptions used in the measurements of the Company’s benefit obligations at December 31, 2016 for the plans are shown in the following table:
The assumptions used in the measurements of the Company’s net periodic benefit cost (income) for the consolidated statement of operations for the period from acquisition date through December 31, 2016 are:
The Company reviews the assumptions noted in the above tables annually or more frequently to reflect anticipated future changes in the underlying economic factors used to determine these assumptions. The discount rates assumed reflect the rate at which the Company could invest in high quality corporate bonds in order to settle future obligations. The Company uses the RP-2014 mortality table with generational improvement Scale MP-2016 published by the Society of Actuaries. For measurement purposes, an 8.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2016 for the obligation as of the acquisition date. The rate was assumed to decrease one-half percent per year to a rate of 5.0% for 2022 and remain at that level thereafter. Assumed health care cost trend rates may have a significant effect on the amounts reported for the health care plans. The effect of a 1% change on the medical trend rate per future year, while holding all other assumptions constant, to the service and interest cost components of net periodic postretirement health care benefit costs and accumulated postretirement benefit obligation would be a $41 thousand increase and a $800 thousand increase, respectively, for a 1% increase in medical trend rate and a $32 thousand decrease and a $634 thousand decrease, respectively, for a 1% decrease in medical trend rate. The weighted average expected rate of return on plan assets is based on anticipated performance of the various asset in which the plans invest, weighted by target allocation percentages. Anticipated future performance is based on long-term historical returns of the plan assets, adjusted for the long-term expectations on the performance of the markets. The actual and target allocation for plan assets is broadly defined and measured as follows:
It is the Company’s policy to invest pension plan assets in a diversified portfolio consisting of an array of asset classes. The investment risk of the assets is limited by appropriate diversification both within and between asset classes. The assets are primarily invested in investment funds that invest in a broad mix of publicly traded equities, bonds and cash equivalents (and fair value is based on quoted market prices (“Level 1” input)). The fair value of an investment fund representing 4% of total plan assets, which is included in bond and cash equivalents, is based on significant other observable inputs ("Level 2" input). The allocation between equity and bonds is reset quarterly to the target allocations. Updates to the allocation are considered in the normal course and changes may be made when appropriate. The bond holdings consist of two bond funds split relatively evenly between these funds at December 31, 2016. The maximum holdings of any one asset within these funds is under 4% of this fund and thus is well under 1% of the total portfolio. At December 31, 2016, the Company believes that there are no material concentrations of risk within the portfolio of plan assets. The assumed long-term return noted above is the target long-term return. Overall return, risk adjusted return, and management fees are assessed against a peer group and benchmark indices. There are minimum performance standards that must be attained within the investment portfolio. Reporting on asset performance is provided quarterly and review meetings are held semi-annually. In addition to normal rebalancing to maintain an adequate cash reserve, projected cash flow needs of the plan are reviewed at least annually to ensure liquidity is properly managed. The Company does not expect to contribute to the pension plan in 2017. The Company expects the net periodic benefit income for the defined benefit pension plan in 2017 to be $0.2 million and expects the periodic benefit cost for the other postretirement benefit plans in 2017 to be $0.2 million, excluding actuarial gains and losses which will be recorded in the fourth quarter of 2017. The following estimated future pension benefit payments and other postretirement benefit plan payments which reflect expected future service, as appropriate, are expected to be paid in the years indicated (in thousands):
The Company plans to make contributions to comply with minimum funding requirements of ERISA. In accordance with such practice, no contributions are required for 2017. The Company maintains a defined contribution 401(k) plan. The Company's matching and employer discretionary contributions to the defined contribution 401(k) plan were approximately The Company maintains an unfunded, In order to provide some protection to the participants, the Company created a rabbi trust to hold assets sufficient to pay obligations under the SERP. Assets within the trust were invested to mirror participant elections as to investment options (a mix of stock and bond mutual funds); investment income, gains and losses in the trust were used to determine investment returns on the participants’ balances in the SERP. At December 31, 2016 and 2015, the total liability due to participants in the SERP was $2.9 million and $2.7 million, respectively.
Accrued liabilities and other include the following (in thousands):
Other liabilities include the following (in thousands):
Note The Company Option Awards
A summary of outstanding options at December 31,
There were options for During Stock Awards In $15.01 and In April In February 2015 and 2016, the Company made grants of 48,576 and 44,326, respectively, of non-vested share units to eight management employees. These grants were made under a Relative Total Shareholder Return (“RTSR”) plan structure. Under this structure, the Company’s stock performance over an approximate three year period ending on December 31 in the third year following the grant, will be compared to a group of peer companies, and a payout will be determined based upon the Company’s performance relative to the performance of the peer groups. The payout could range anywhere from zero shares awarded, up to 150% of the granted share units, or 72,864 and 66,489 shares for 2015 and 2016. The fair value of the grants for 2015 and 2016, ($15.66 and $24.10) were determined as of the grant dates using a Monte Carlo simulation. The following assumptions were utilized in the valuations:
In May A summary of outstanding share grants at December 31,
Compensation cost recognized for share awards during As of December 31, Note The Company has one major customer relationship with Sprint that is a significant source of revenue. Approximately Note Effective as of February 8, 2008, the Board of Directors adopted a Shareholder Rights Plan (the “Plan”) Note The Company leases land, buildings and tower space under various non-cancelable agreements, which expire between the years Future minimum lease payments under non-cancelable operating leases, including renewals that are reasonably assured at the inception of the lease, with initial variable lease terms in excess of one year as of December 31, follows:
The Company’s total rent expense was As lessor, the Company has leased buildings, tower space and telecommunications equipment to other entities under various non-cancelable agreements, which require various minimum annual payments. The total minimum rental receipts at December 31,
The Company’s total Note The Company’s objectives in using interest rate derivatives are to add stability to cash flows and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps (both those designated as cash flow hedges as well as those not designated as cash flow hedges) involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company entered into a pay fixed, receive variable interest rate swap of $174.6 million of initial notional principal in September 2012. This interest rate swap was designated as a cash flow hedge. The In May 2016, the Company entered into a pay-fixed, receive-variable interest rate swap of $256.6 million of notional principal with three counterparties. This interest rate swap was designated as a cash flow hedge. The outstanding notional amount of this cash flow hedge was $301.1 million as of December 31, 2016. The outstanding notional amount increases with each expected draw on the term debt and decreases as the Company makes scheduled principal payments on the debt. In combination with the swap entered into in 2012 described above, the Company is hedging approximately 50% of the expected outstanding debt (including expected draws under the delayed draw term loan). The effective portion of changes in the fair value of interest rate swaps designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company uses its derivatives to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings through interest expense. No hedge ineffectiveness was recognized during any of the periods presented. Amounts reported in accumulated other comprehensive income related to the interest rate swap designated and that qualify as cash flow hedges are reclassified to interest expense as interest payments are accrued on the Company’s variable-rate debt. As of December 31, The table below presents the fair value of the Company’s derivative financial instruments as well as its classification on the consolidated balance sheet as of December 31,
The fair value of interest rate swaps is determined using a pricing model with inputs that are observable in the market The table below presents changes in accumulated other comprehensive income by component for the twelve months ended December 31,
On May 6, 2016, the Company completed its previously announced acquisition of NTELOS Holdings Corp. (“nTelos”) for $667.8 million, net of cash acquired. The acquisition was entered into to improve shareholder value through the expansion of the Company's wireless service area and customer base while strengthening our relationship with Sprint. The purchase price was financed by a credit facility arranged by CoBank, ACB, Royal Bank of Canada, Fifth Third Bank, Bank of America, N.A., Capital One, National Association, Citizens Bank N.A., and Toronto Dominion (Texas) LLC. The Company has included the operations of nTelos for financial reporting purposes for the period subsequent to the acquisition. The Company has accounted for the acquisition of nTelos under the acquisition method of accounting, in The following table shows the initial estimate of value and changes recorded through December 31, 2016 (in thousands):
The fair values of the net assets acquired and the liabilities assumed were based on management’s preliminary estimates and assumptions that are subject to change within the purchase price allocation period (generally one year from the acquisition date). While substantially complete, the primary area of the purchase price allocation not yet finalized includes construction in process and income taxes. Closing on the sale of the former nTelos headquarters building held for sale was completed in the fourth quarter of 2016. Revisions to the provisional estimates shown above reflect: revisions to fair value adjustments for financed handset receivables to reflect customer behavior at the time of the acquisition, applied to both the current and long-term portions of these receivables; a reduction in the estimated loss on Android inventory to be sold for salvage post-closing; adjustments to construction materials and inventory, less other fixed assets; an increase to opening taxes receivable based upon completing the 2015 returns the increase in net assets acquired resulting from the settlement of the appraisal rights dispute and an increase in the net debt payoff; reduction in the reserve for health care claims expected to be paid post-closing for medical expenses incurred pre-closing; an adjustment to move unfavorable lease liabilities from assets to other long-term liabilities the value assigned to certain customer based intangibles increased, with an offset to goodwill; and the increase in deferred taxes payable (offset by an increase in goodwill) resulting from several of the changes shown above as well as true-ups in the net tax basis of fixed assets resulting from completion of nTelos' 2015 tax returns. In addition to the changes in balances reflected above, the Company revised the provisional estimated useful lives of certain assets and recorded an adjustment to depreciation expense of $4.6 million relating to the second quarter for these assets. Concurrently with acquiring nTelos, PCS completed its previously announced transaction with SprintCom, Inc., an affiliate of Sprint Corporation (“Sprint”). Pursuant to this transaction, among other things, the Company exchanged spectrum licenses, valued at $198.2 million and customer based contract rights, valued at $206.7 million, acquired from nTelos with Sprint, and received an expansion of its affiliate service territory to include most of the service area served by nTelos, valued at $284.1 million, as well as additional customer based contract rights, valued at $120.9 million, relating to nTelos’ and Sprint’s legacy customers in the Company’s affiliate service territory. These exchanges were accounted for in accordance with ASC 845, “Nonmonetary Transactions”. The transfer of spectrum to Sprint resulted in a taxable gain to the Company which will be recognized as the Company recognizes the cash benefit of the waived management fees over the next approximately six years. The value of the affiliate agreement expansion is based on changes to the amended affiliate agreement that include: an increase in the price to be paid by Sprint from 80% to 90% of the entire business value of PCS if the affiliate agreement is not renewed; extension of the affiliate agreement with Sprint by five years to 2029; expanded territory in the nTelos service area; rights to serve all future Sprint customers in the affiliate service territory; the Company’s commitment to upgrade certain coverage and capacity in its newly acquired service area; and a reduction of the management fee charged by Sprint under the amended affiliate agreement; not to exceed $4.2 million in an individual month until the total waived fee equals $251.8 million, as well as an additional waiver of the management fee charged with respect to the former nTelos customers until the earlier of migration to the Sprint back-office billing and related systems or six months following the acquisition; not to exceed $5.0 million. Intangible assets resulting from the acquisition of nTelos and the Sprint exchange, both described above, are noted below (dollars in thousands):
The affiliate contract agreement intangible asset value was increased by $29.7 million during the third quarter of 2016 and reduced by $3.7 million during the fourth quarter of 2016, and will be amortized on a straight-line basis and recorded as a contra-revenue over the remaining 14 year initial contract term. The Company recorded an adjustment of $0.4 million of additional amortization expense on this asset based on the increase during the third quarter of 2016 that related to the second quarter of 2016, while the fourth quarter decrease resulted in reduced amortization expense of $0.1 million in the third quarter of 2016. The favorable lease intangible assets will be amortized on a straight-line basis and recorded through rent expense. The customer based contract rights will be amortized over the life of the customers, gradually decreasing over the expected life of this asset, and recorded through amortization expense. The customer based contract rights value was reduced by $24.5 million during the third quarter of 2016, and amortization expense was reduced by $0.5 million during the third quarter that related to second quarter 2016. These assets were increased by $7.1 million during the fourth quarter of 2016, resulting in additional amortization expense of $0.3 million and $0.4 million in the second and third quarters, respectively, of 2016. The value of these two assets changed primarily due to the effect on the initial provisional values of where certain cash flows should be reflected in those valuations. The Company has recorded goodwill in its Wireless segment as a result of the nTelos acquisition. This goodwill is not amortizable for tax purposes, as the Company acquired the common stock of nTelos. Prior to the acquisition, nTelos was eligible to receive up to $5.0 million in connection with its winning bid in the Connect America Fund's Mobility Fund Phase I Auction ("Auction 901"). Pursuant to the terms of Auction 901, nTelos obtained a Letter of Credit (“LOC”) in the amount of $2.2 million for the benefit of the Universal Service Administrative Company (“USAC”) to cover each disbursement plus the amount of the performance default penalty (10% of the total eligible award). In accordance with the terms of the LOC, nTelos deposited $2.2 million into a separate account at the issuing bank to serve as cash collateral and this balance was presented as restricted cash. These funds were released to the Company during the fourth quarter of 2016 when the LOC was terminated. Prior to the acquisition, certain third party investors held a non-controlling interest in one of nTelos’ subsidiaries. Concurrently with the acquisition of nTelos, the Company acquired these interests in exchange for 380,000 shares of Company common stock, to be paid in five equal installments, with the first installment paid immediately and the remaining four to be paid over the next 4 years. This transaction was valued at $10.4 million. In connection with the acquisition, at closing, the Company borrowed $810.0 million in term loans with a weighted average effective interest rate of approximately 3.84%. The proceeds were used to finance in part the acquisition, including the repayment of the Company’s term loan of $195.5 million, and the repayment of nTelos’ term loans at the outstanding principal amount of $521.6 million, without penalty. Following are the unaudited pro forma results of the Company for the years ended December 31, 2016 and 2015, as if the acquisition of nTelos had occurred at the beginning of each of the periods presented. (in thousands)
The pro forma disclosures shown above are based upon estimated preliminary valuations of the assets acquired and liabilities assumed as well as preliminary estimates of depreciation and amortization charges thereon, that may differ from the final fair values of the acquired assets and assumed liabilities and the resulting depreciation and amortization charges thereon. Other pro forma adjustments include the following: changes in nTelos’ reported revenues from cancelling nTelos’ wholesale contract with Sprint; the incorporation of the Sprint-homed customers formerly serviced under the wholesale agreement into the Company’s affiliate service territory under the Company’s affiliate agreement with Sprint; the effect of other changes to revenues and expenses due to various provisions of the affiliate agreement, including fees charged under the affiliate agreement on revenues from former nTelos customers, a reduction of the net service fee charged by Sprint, the straight-line impact of the waived management fee, and the amortization of the affiliate agreement expansion intangible asset; and the elimination of non-recurring transaction related expenses incurred by the Company and nTelos; the elimination of certain nTelos operating costs associated with billing and care that are covered under the fees charged by Sprint under the affiliate agreement; historical depreciation expense was reduced for the fair value adjustment decreasing the basis of property, plant and equipment; this decrease was offset by a shorter estimated useful life to conform to the Company’s standard policy and the acceleration of depreciation on certain equipment; and incremental amortization due to the customer-based contract rights associated with acquired customers. In connection with these transactions, the Company chose to proactively migrate the former nTelos customers to devices which can interact with the Sprint billing and network systems, and expects to incur a total of approximately $90 million of integration and acquisition expenses associated with this transaction, excluding approximately $23 million of debt issuance costs. These costs include the nTelos back office staff and support functions until the nTelos legacy customers are migrated to the Sprint billing platform; costs of the handsets to be provided to nTelos legacy customers as they migrate to the Sprint billing platform; severance costs for back office and other former nTelos employees who will not be retained permanently; transaction related fees; net of proceeds from the sale of the former nTelos headquarters building. We have incurred $54.7 million of these costs in the year ended December 31, 2016, including $1.3 million reflected in cost of goods and services and $11.1 million reflected in selling, general and administrative costs in the year ended December 31, 2016. The amounts of operating revenue and income or loss before income taxes related to the former nTelos entity are not readily determinable due to intercompany transactions, allocations and integration activities that have occurred in connection with the operations of the combined company. Note Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision The Wireless segment The Cable segment provides video, internet and voice services in Virginia, West Virginia and Maryland, and leases fiber optic facilities throughout The Wireline segment provides regulated and unregulated voice services, DSL internet access, and long distance access services throughout Shenandoah County and portions of Rockingham, Frederick, Warren and Augusta counties, Virginia. The segment also provides video and cable modem services in (In thousands)
Year ended December 31, 2015 (In thousands)
Year ended December 31, 2014 (In thousands)
A reconciliation of the total of the reportable segments’ operating income to consolidated income from continuing operations before income taxes is as follows:
The Company’s assets by segment are as follows: (In thousands)
Note The following table shows selected quarterly results for the Company. (in thousands except per share data)
Note 19. Subsequent Event On March 9, 2017, the Company and Sprint entered into Addendum XX to the Sprint PCS Management Agreement. Addendum XX provides for (i) an expansion of the Company’s “Service Area” (as defined in the Sprint PCS Management Agreement) to include certain areas in Kentucky, Maryland, Ohio and West Virginia (the “Expansion Area”), (ii) certain network build out requirements in the Expansion Area over the next three years, (iii) the Company’s provision of prepaid field sales support to Sprint and its affiliates in the Service Area, (iv) Sprint’s provision of spectrum use to the Company in the Expansion Area, (v) the addition of Horizon as a party to the Sprint PCS Management Agreement and the Sprint PCS Services Agreement (collectively, the “Affiliate Agreements”) and (vi) certain other amendments to the Affiliate Agreements. In connection with the execution of Addendum XX, on March 9, 2017, the Company and Sprint entered into an agreement to, among other things, transfer to Sprint certain customers in the Expansion Area and the underlying customer agreements and transition the provision of network coverage in the Expansion Area from Sprint to the Company. The completion of the transfer of customers in the Expansion Area is expected to occur during the second quarter of 2017. Exhibits Index
* Filed |