SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

LIABILITIES AND SHAREHOLDERS’ EQUITY
March 31,
2016

December 31,
2015

Current Liabilities
Current maturities of long-term debt, net of unamortized loan fees
$
22,508
$
22,492
Accounts payable 10,720 13,009
Advanced billings and customer deposits 11,981 11,674
Accrued compensation 2,037 5,915
Accrued liabilities and other 7,767 7,639
Total current liabilities 55,013 60,729

Long-term debt, less current maturities, net of unamortized loan fees 171,535 177,169

Other Long-Term Liabilities
Deferred income taxes 71,767 74,868
Deferred lease payable 8,349 8,142
Asset retirement obligations 7,412 7,266
Other liabilities 12,027 9,039
Total other long-term liabilities 99,555 99,315

Commitments and Contingencies

Shareholders’ Equity
Common stock 33,274 32,776
Accumulated other comprehensive income (loss), net of taxes (633 ) 415
Retained earnings 270,628 256,747
Total shareholders’ equity 303,269 289,938

Total liabilities and shareholders’ equity $ 629,372 $ 627,151



LIABILITIES AND SHAREHOLDERS’ EQUITY	March 31, 2017		December 31, 2016

Current Liabilities
Current maturities of long-term debt, net of unamortized loan fees	$	38,124	$	32,041
Accounts payable	25,390		72,810
Advanced billings and customer deposits	21,029		20,427
Accrued compensation	3,678		9,465
Income taxes payable	3,958		435
Accrued liabilities and other	18,174		29,085
Total current liabilities	110,353		164,263

Long-term debt, less current maturities, net of unamortized loan fees	810,873		797,224

Other Long-Term Liabilities
Deferred income taxes	149,763		151,837
Deferred lease payable	19,230		18,042
Asset retirement obligations	19,386		15,666
Retirement plan obligations	17,892		17,738
Other liabilities	26,057		23,743
Total other long-term liabilities	232,328		227,026

Commitments and Contingencies

Shareholders’ Equity
Common stock	46,083		45,482
Retained earnings	245,965		243,624
Accumulated other comprehensive income, net of taxes	7,387		6,788
Total shareholders’ equity	299,435		295,894

Total liabilities and shareholders’ equity	$	1,452,989	$	1,484,407

See accompanying notes to unaudited condensed consolidated financial statements.

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SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND

COMPREHENSIVE INCOME ~~(LOSS)~~

(in thousands, except per share amounts)

Three Months
Ended March 31,

2016 2015

Operating revenues $ 92,571 $ 84,287

Operating expenses:
Cost of goods and services, exclusive of depreciation and amortization shown separately below 31,762 30,691
Selling, general and administrative, exclusive of depreciation and amortization shown separately below
21,758

18,733

Depreciation and amortization 17,739 16,337
Total operating expenses 71,259 65,761
Operating income 21,312 18,526

Other income (expense):
Interest expense (1,619 ) (1,915 )
Gain on investments, net 88 102
Non-operating income, net 468 432
Income before income taxes 20,249 17,145

Income tax expense 6,368 6,859
Net income $ 13,881 $ 10,286

Other comprehensive income:
Unrealized loss on interest rate hedge, net of tax (1,048 ) (907 )
Comprehensive income $ 12,833 $ 9,379

Earnings per share:
Basic $ 0.29 $ 0.21
Diluted $ 0.28 $ 0.21

Weighted average shares outstanding, basic 48,563 48,306

Weighted average shares outstanding, diluted 49,249 48,902



	Three Months Ended March 31,
	2017			2016

Operating revenues	$	153,880		$	92,571

Operating expenses:
Cost of goods and services, exclusive of depreciation and amortization shown separately below	53,761			31,762
Selling, general and administrative, exclusive of depreciation and amortization shown separately below	40,153			21,426
Integration and acquisition expenses	4,489			332
Depreciation and amortization	44,804			17,739
Total operating expenses	143,207			71,259
Operating income	10,673			21,312

Other income (expense):
Interest expense	(9,100		)	(1,619		)
Gain on investments, net	120			88
Non-operating income, net	1,255			468
Income before income taxes	2,948			20,249

Income tax expense	607			6,368
Net income	2,341			13,881

Other comprehensive income (loss):
Unrealized gain (loss) on interest rate hedge, net of tax	599			(1,048		)
Comprehensive income	$	2,940		$	12,833

Earnings per share:
Basic	$	0.05		$	0.29
Diluted	$	0.05		$	0.28
Weighted average shares outstanding, basic	49,050			48,563
Weighted average shares outstanding, diluted	49,834			49,249

See accompanying notes to unaudited condensed consolidated financial statements.

Index

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands, except per share amounts)

Shares
Common
Stock

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)
Total
Balance, December 31, 2014 48,265 $ 29,712 $ 227,512 $ 1,122 $ 258,346

Net income - - 40,864 - 40,864
Other comprehensive loss, net of tax - - - (707 ) (707 )
Dividends declared ($0.24 per share) - - (11,629 ) - (11,629 )
Dividends reinvested in common stock 22 544 - - 544
Stock based compensation - 2,719 - - 2,719
Common stock issued through exercise of incentive stock options
87

996

-

-

996

Common stock issued for share awards 212 - - - -
Common stock issued 1 11 - - 11
Common stock repurchased (111 ) (1,885 ) - - (1,885 )
Net excess tax benefit from stock options exercised
-

679

-

-

679

Balance, December 31, 2015 48,475 $ 32,776 $ 256,747 $ 415 $ 289,938

Net income - - 13,881 - 13,881
Other comprehensive loss, net of tax - - - (1,048 ) (1,048 )
Stock based compensation - 1,215 - - 1,215
Stock options exercised 298 2,806 - - 2,806
Common stock issued for share awards 156 - - - -
Common stock issued 1 3 - - 3
Common stock repurchased (161 ) (3,526 ) - - (3,526 )
Balance, March 31, 2016 48,769 $ 33,274 $ 270,628 $ (633 ) $ 303,269



	Shares		Common Stock			Retained Earnings			Accumulated Other Comprehensive Income, net of tax		Total
Balance, December 31, 2015	48,475		$	32,776		$	256,747		$	415	$	289,938

Net loss	—		—			(895		)	—		(895		)
Other comprehensive gain, net of tax	—		—			—			6,373		6,373
Dividends declared ($0.25 per share)	—		—			(12,228		)	—		(12,228		)
Dividends reinvested in common stock	19		524			—			—		524
Stock based compensation	—		3,506			—			—		3,506
Stock options exercised	371		3,359			—			—		3,359
Common stock issued for share awards	190		—			—			—		—
Common stock issued	2		14			—			—		14
Common stock issued to acquire non-controlling interests of nTelos	76		10,400			—			—		10,400
Common stock repurchased	(198	)	(5,097		)	—			—		(5,097		)

Balance, December 31, 2016	48,935		$	45,482		$	243,624		$	6,788	$	295,894
Net income	—		—			2,341			—		2,341
Other comprehensive gain, net of tax	—		—			—			599		599
Stock based compensation	—		1,822			—			—		1,822
Common stock issued for share awards	129		—			—			—		—
Common stock issued	1		5			—			—		5
Common stock issued to acquire non-controlling interests of nTelos	76		—			—			—		—
Common stock repurchased	(43	)	(1,226		)	—			—		(1,226		)
Balance, March 31, 2017	49,098		$	46,083		$	245,965		$	7,387	$	299,435

See accompanying notes to unaudited condensed consolidated financial statements.

Index

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



	Three Months Ended March 31,
	2017			2016
Cash Flows From Operating Activities
Net income	$	2,341		$	13,881
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	37,878			17,454
Amortization reflected as operating expense	6,926			285
Amortization reflected as contra revenue	4,978			—
Amortization reflected as rent expense	258			—
Provision for bad debt	420			345
Straight line adjustment to management fee revenue	4,206			—
Stock based compensation expense	1,566			1,048
Deferred income taxes	(2,910		)	(1,489		)
Net gain on disposal of equipment	(28		)	(15		)
Unrealized gain on investments	(120		)	(16		)
Net gains from patronage and equity investments	(200		)	(210		)
Amortization of long term debt issuance costs	1,202			132
Other	—			3,039
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable	1,629			2,470
Inventory, net	14,188			(267		)
Other assets	(190		)	988
Increase (decrease) in:
Accounts payable	(39,399		)	1,895
Income taxes payable	3,523			6,981
Deferred lease payable	1,331			208
Other deferrals and accruals	(13,101		)	(3,559		)
Net cash provided by operating activities	24,498			43,170

Cash Flows From Investing Activities
Acquisition of property, plant and equipment	(38,587		)	(20,537		)
Proceeds from sale of equipment	117			145
Cash distributions from investments	3			45
Additional contributions to investments	(14		)	—
Cash disbursed for acquisition	—			(2,480		)
Net cash used in investing activities	(38,481		)	(22,827		)

(Continued)

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SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Three Months Ended
March 31,

2016 2015

Cash Flows From Operating Activities
Net income $ 13,881 $ 10,286
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 17,454 15,931
Amortization 285 406
Provision for bad debt 345 321
Stock based compensation expense 1,048 825
Excess tax benefits on stock awards - (357 )
Deferred income taxes (1,489 ) (1,610 )
Net (gain) loss on disposal of equipment (15 ) 11
Unrealized gains on investments (16 ) (38 )
Net gains from patronage and equity investments (210 ) (202 )
Amortization of long term debt issuance costs 132 146
Other 3,039 226
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable 2,470 1,773
Materials and supplies (267 ) (1,467 )
Income taxes receivable 6,981 9,319
Other assets 988 (3,896 )
Increase (decrease) in:
Accounts payable 1,895 (5,827 )
Deferred lease payable 208 249
Other deferrals and accruals (3,559 ) (2,275 )
Net cash provided by operating activities $ 43,170 $ 23,821

Cash Flows From Investing Activities
Acquisition of property, plant and equipment $ (20,537 ) $ (9,500 )
Proceeds from sale of equipment 145 24
Cash distributions from investments 45 -
Cash disbursed for acquisition (2,480 ) -
Net cash used in investing activities
$
(22,827 )
$
(9,476 )



	Three Months Ended March 31,
	2017			2016
Cash Flows From Financing Activities
Principal payments on long-term debt	$	(6,062	)	$	(5,750	)
Amounts borrowed under debt agreements	25,000			—
Cash paid for debt issuance costs	—			(1,528		)
Repurchases of common stock	(1,226		)	(3,526		)
Proceeds from issuances of common stock	5			2,809
Net cash provided by/(used in) financing activities	17,717			(7,995		)

Net increase in cash and cash equivalents	3,734			12,348

Cash and cash equivalents:
Beginning	36,193			76,812
Ending	$	39,927		$	89,160

Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest, net of capitalized interest of $577 and $146, respectively	$	8,380		$	1,632

Income taxes paid, net of refunds received	$	—		$	876

~~(Continued)~~Non-cash investing and financing activities:

~~Index~~

~~SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES~~

~~UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

Three Months Ended
March 31,

2016 2015

Cash Flows From Financing Activities
Principal payments on long-term debt $ (5,750 ) $ (5,750 )
Cash paid for debt issuance costs (1,528 ) -
Excess tax benefits on stock awards - 357
Repurchases of common stock (3,526 ) (763 )
Proceeds from issuances of common stock 2,809 46
Net cash used in financing activities $ (7,995 ) $ (6,110 )

Net increase in cash and cash equivalents $ 12,348 $ 8,235

Cash and cash equivalents:
Beginning 76,812 68,917
Ending $ 89,160 $ 77,152

Supplemental Disclosures of Cash Flow Information
Cash payments for:

Interest $ 1,632 $ 1,905

Income taxes paid (refunded) $ 876 $ (850 )

At March 31, ~~2016~~2017 and ~~2015,~~2016, accounts payable included approximately ~~$1.2~~$6.4 million and ~~$2.2~~$1.2 million, respectively, associated with capital expenditures. Cash flows for accounts payable and acquisition of property, plant and equipment exclude this activity.

During the quarter ended March 31, 2017, the Company recorded an increase in the fair value of interest rate swaps of $972 thousand, an increase in deferred tax liabilities of $373 thousand, and an increase to accumulated other comprehensive income of $599 thousand.

See accompanying notes to unaudited condensed consolidated financial statements.

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SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.	Basis of Presentation

The interim condensed consolidated financial statements of Shenandoah Telecommunications Company and Subsidiaries (collectively, the “Company”) are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the interim results have been reflected therein. All such adjustments were of a normal and recurring nature. Prior year amounts have been reclassified in some cases to conform to the current year presentation. These financial statements should be read in conjunction with the audited consolidated financial statements and related notes in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016. The accompanying balance sheet information at December 31, ~~2015~~2016 was derived from the audited December 31, ~~2015~~2016 consolidated balance sheet. Operating revenues and income (loss) from operations for any interim period are not necessarily indicative of results that may be expected for the entire year.


2.	Acquisition of NTELOS Holdings Corp. and Exchange with Sprint

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 Corporation ("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 accounted for the acquisition of nTelos under the acquisition method of accounting, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations”, and has accounted for measurement period adjustments under Accounting Standards Update (“ASU”) 2015-16, “Simplifying the Accounting for Measurement Period Adjustments”. Under the acquisition method of accounting, the total purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed in connection with the acquisition based on their estimated fair values.

The preliminary allocation of the purchase price was based upon management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed of nTelos, with the excess recorded as goodwill. During the first quarter of 2017, the Company made adjustments to the preliminary estimates of fair value resulting in immaterial changes to previously estimated fair values of fixed assets, asset retirement obligation liabilities, accounts receivable and deferred taxes. These adjustments resulted in a $1.3 million reduction to goodwill as shown in the table below. The Company continues to review certain tax positions acquired in the nTelos acquisition.

Changes in the carrying amount of goodwill during the three months ended March 31, 2017 are shown below (in thousands):



	December 31, 2016		Purchase Accounting Adjustments			March 31, 2017
Goodwill - Wireline segment	$	10	$	—		$	10
Goodwill - Cable segment	104		—			104
Goodwill - Wireless segment	145,142		(1,255		)	143,887
Goodwill as of March 31, 2017	$	145,256	$	(1,255	)	$	144,001

Following are the unaudited pro forma results of the Company for the period ended March 31, 2016, as if the acquisition of nTelos had occurred at the beginning of the period. (in thousands)



	March 31, 2016
Operating revenues	$	173,248
Income before income taxes	$	16,905

In connection with these transactions, the Company incurs costs which 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

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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; and costs to shut down certain cell sites and related backhaul contracts. We have incurred $7.1 million of these costs in the three months ended March 31, 2017, including $0.1 million reflected in cost of goods and services and $2.5 million reflected in selling, general and administrative costs in the three months ended March 31, 2017.


3.	Property, Plant and Equipment

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

March 31,
2016

December 31,
2015

Plant in service $ 736,146 $ 718,503
Plant under construction 36,981 36,600
773,127 755,103
Less accumulated amortization and depreciation 362,178 345,085
Net property, plant and equipment $ 410,949 $ 410,018



	March 31, 2017		December 31, 2016
Plant in service	$	1,124,446	$	1,085,318
Plant under construction	61,980		73,759
	1,186,426		1,159,077
Less accumulated amortization and depreciation	496,478		460,955
Net property, plant and equipment	$	689,948	$	698,122

3.
4.	Earnings per share

Basic net income per share was computed on the weighted average number of shares outstanding. Diluted net income per share was computed under the treasury stock method, assuming the conversion as of the beginning of the period, for all dilutive stock options. Of ~~991~~ 913 thousand and ~~1,443~~991 thousand shares and options outstanding at March 31, 2017 and 2016, ~~and 2015~~, respectively, ~~136~~125 thousand and ~~168~~136 thousand were anti-dilutive, respectively. These shares and options have been excluded from the computations of diluted earnings per share for their respective period. There were no adjustments to net income for either period.

4.
5.	Investments ~~Carried at Fair Value~~

Investments include ~~$2.7~~$3.1 million and $2.9 million of investments carried at fair value ~~at both~~as of March 31, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively, consisting of equity, bond and money market mutual funds. Investments carried at fair value were acquired under a rabbi trust arrangement related to the Company’s nonqualified Supplemental Executive Retirement Plan (the “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. During the three months ended March 31, ~~2016,~~2017, the Company recognized ~~$64~~$32 thousand in dividend and interest income from investments, and recorded net unrealized gains of ~~$16~~$120 thousand on these investments. Fair values for these investments held under the rabbi trust were determined by Level 1 quoted market prices for the underlying mutual funds.

At March 31, 2017 and December 31, 2016, other investments, comprised of equity securities which do not have readily determinable fair values, consist of the following:



	3/31/2017		12/31/2016
Cost method:	(in thousands)
CoBank	$	6,296	$	6,177
Other – Equity in other telecommunications partners	740		742
	7,036		6,919
Equity method:
Other	513		450
Total other investments	$	7,549	$	7,369

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5.
6.	Financial Instruments

15Acquisition of nTelos and Exchange with Sprint: On May 6, 2016, we completed our previously announced acquisition of NTELOS Holdings Corp. (“nTelos”) for $667.8 million, net of cash acquired. The purchase price was financed by a credit facility arranged by CoBank, ACB. We have included the operations of nTelos for financial reporting purposes for periods subsequent to the acquisition.

The Company expects to incur approximately $23 million of integration and acquisition expenses associated with this transaction in 2017, in addition to the $54.7 million of such costs incurred during 2016. We have incurred $7.1 million of these costs in the three months ended March 31, 2017. These costs include $0.1 million reflected in cost of goods and services and $2.5 million reflected in selling, general and administrative costs in the three month period ended March 31, 2017. In addition to the approximately $78 million of incurred and expected expenses described above, the Company also incurred

Index

approximately $23 million of debt issuance costs in 2015 and 2016 relating to this transaction, for a total expected cost of $101 million.

Results of Operations

Three Months Ended March 31, ~~2016~~2017 Compared with the Three Months Ended March 31, ~~2015~~2016

~~The Company’s~~Our consolidated results for the first quarter of ~~2016~~2017 and ~~2015~~2016 are summarized as follows:

Three Months Ended
March 31,
Change
(in thousands) 2016 2015 $ %
Operating revenues $ 92,571 $ 84,287 $ 8,284 9.8
Operating expenses 71,259 65,761 5,498 8.4
Operating income 21,312 18,526 2,786 15.0

Interest expense 1,619 1,915 (296 ) (15.5 )
Other income, net 556 534 22 4.1
Income before taxes 20,249 17,145 3,104 18.1
Income tax expense 6,368 6,859 (491 ) (7.2 )
Net income $ 13,881 $ 10,286 $ 3,595 35.0



	Three Months Ended March 31,						Change
(in thousands)	2017			2016			$			%
Operating revenues	$	153,880		$	92,571		$	61,309		66.2
Operating expenses	143,207			71,259			71,948			101.0
Operating income	10,673			21,312			(10,639		)	(49.9	)

Interest expense	(9,100		)	(1,619		)	(7,481		)	462.1
Other income, net	1,375			556			819			147.3
Income before taxes	2,948			20,249			(17,301		)	(85.4	)
Income tax expense	607			6,368			(5,761		)	(90.5	)
Net income	$	2,341		$	13,881		$	(11,540	)	(83.1	)

Operating revenues

For the three months ended March 31, ~~2016,~~2017, operating revenues increased ~~$8.3~~$61.3 million, or ~~9.8%~~66.2%. Wireless segment revenues increased ~~$4.0~~$58.9 million compared to the first quarter of ~~2015. Net postpaid service revenue increased $3.3 million, primarily due to~~2016; nearly all of this increase was a ~~reduction, effective January 1, 2016, in~~result of the ~~net service fee charged by Sprint. The net service fee decreased from 14%~~acquisition of net billed revenue to 8.6% of net billed revenue. The reduction in the net service fee was accompanied by separately settling certain expenses, as discussed below. Prepaid net service revenue increased $.5 million, or 4.3%, from 2015, primarily due to changes in the mix of subscribers to higher rate plans.nTelos on May 6, 2016. Cable segment revenues grew ~~$3.1~~$2.6 million primarily as a result of ~~6.2%~~2.2% growth in average subscriber counts and an increase in revenue per subscriber. Wireline segment revenues increased ~~$1.3~~$0.8 million, ~~net of eliminations of intersegment activities,~~ primarily due to increases in fiber sales.

Operating expenses

Total operating expenses were ~~$71.3~~$143.2 million in the first quarter of ~~2016~~2017 compared to ~~$65.8~~$71.3 million in the prior year period. ~~Cost~~Operating expenses in the first quarter of ~~goods~~2017 included $4.5 million of integration and ~~services sold increased $1.1~~acquisition costs associated with the nTelos acquisition, including $3.8 million ~~overall.~~on the Wireless segment ~~cost of goods increased $0.4 million, primarily due to $1.2~~and $0.7 million in ~~incremental separately settled postpaid wireless expenses for handsets sold through Sprint’s national channels, previously settled as part of~~ the net service fee as described above. On-going costs for postpaid handsets sold through our channels decreased $1.4 million as sales of subsidized handsets continued to decline, while prepaid handset subsidies decreased $0.3 million on fewer gross adds and upgrades as well as lower rates. Cable segment cost of goods sold increased $1.0 million, due to increased cable programming and network costs.

Other segment. Selling, general and administrative expenses ~~increased $3.0 million overall, with $2.5 million incurred~~and cost of goods and services in the Wireless ~~segment. This includes $2.4~~segment included an additional $2.6 million ~~in incremental separately settled postpaid wireless~~of nTelos-related customer care and other back office costs related to supporting the nTelos legacy customers until the migration of these customers is completed. Wireless segment operating expenses ~~for national commissions.~~

~~Depreciation~~increased $63.3 million (excluding the $6.4 million of customer care, integration and ~~amortization expense increased $1.4 million,~~acquisition expenses described above), primarily due to ~~ongoing projects~~on-going costs associated with the acquired nTelos operations including $27.3 million of incremental depreciation and amortization expenses. All other operating expenses increased $2.2 million, net of eliminations of intersegment activities.

Acquisition and integration costs on the Other segment primarily consisted of transaction related expenses such as legal and other professional fees. On the Wireless segment, such costs included handsets provided to ~~expand~~nTelos subscribers who needed a new phone to transition to the Sprint billing platform, costs associated with terminating duplicative cell site leases and ~~upgrade~~backhaul circuits, and personnel costs associated with short-term nTelos employees required to migrate former nTelos customers to the ~~wireless, cable~~Sprint back-office.

Interest expense

Interest expense has increased primarily as a result of the incremental borrowings associated with closing the nTelos acquisition and ~~fiber networks.~~the effect of two interest rate increases implemented by the Federal Reserve in late 2016 and early 2017. The impact of the interest rate increases has been offset by a swap that covers 50% of the outstanding principal under the new debt. Other changes include increased debt cost amortization reflecting the incremental costs of entering into the new debt, partially offset by increased capitalization of interest to capital projects.

Index

Income tax expense

The ~~Company’s~~Company's actual effective income tax rate decreased from ~~40.0% for the three months ended March 31, 2015 to~~ 31.4% for the three months ended March 31, ~~2016. This decrease~~2016 to 20.6% for the three months ended March 31, 2017. The difference for both periods between the actual effective income tax rate and the statutory income tax rate results primarily ~~resulted~~ from ~~discrete~~excess tax ~~benefits resulting from the change in accounting for~~deductions on share grant vestings and certain stock option exercises, ~~and share award distributions~~which are recognized as incurred. The Company recognized $1.7 million in excess deductions in the ~~first quarter~~three months ended March 2017 compared to $4.5 million in excess deductions in the same period of ~~2016~~2016; however, the March 31, 2017 excess deductions represented a larger share of pre-tax income, reducing the effective rate more in ~~accordance with ASU 2016-09. In prior periods, such tax benefits were recorded directly to equity.~~in the three months ended March 31, 2017 than the three months ended March 31, 2016.

~~Index~~

Net income

For the three months ended March 31, ~~2016,~~2017, net income ~~increased $3.6~~decreased $11.5 million, or ~~35.0%,~~83.1% over March 31, 2016, primarily reflecting ~~revenue growth in~~increased depreciation and amortization, straight-lining of certain Sprint fee credits, and higher interest on the ~~Wireline and Cable segments and~~increased balance of outstanding debt as a result of the ~~reduction in income tax expense for the tax benefits~~nTelos acquisition, net of ~~stock compensation transactions in the first quarter of 2016.~~taxes.

Wireless

~~The Company’s~~Our Wireless segment ~~provides~~historically provided digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, through Shenandoah Personal Communications, LLC (“PCS”), a Sprint PCS Affiliate. Following the acquisition of nTelos in May 2016, our wireless service territory expanded to include south-central and western Virginia, West Virginia, and small portions of Kentucky and Ohio. Through Shenandoah Mobile, LLC (“Mobile”), this segment also leases land on which it builds Company-owned cell towers, which it leases to ~~affiliated~~affiliates and non-affiliated wireless service providers, throughout the same ~~four-state~~multi-state area described above.

PCS receives revenues from Sprint for subscribers that obtain service in PCS’s network coverage area. PCS relies on Sprint to provide timely, accurate and complete information to record the appropriate revenue for each financial period. Postpaid revenues received from Sprint are recorded net of certain fees retained by Sprint. Through December 31, 2015, these fees totaled 22% of postpaid net billed revenue (gross customer billings net of credits and adjustments to customer accounts, and write-offs of uncollectible accounts), as defined by the Affiliate Agreement with Sprint. EffectiveSince January 1, 2016, the fees ~~charged~~retained by Sprint ~~declined to~~are 16.6%, and certain revenue and expense items previously included in these fees became separately settled. ~~The overall effect of these changes was an increase of $4.9 million of revenue, partially offset by increased expenses totaling $3.6 million.~~

~~The Company~~We also ~~offers~~offer prepaid wireless products and services in ~~its~~our PCS network coverage area. Sprint retains a Management Fee equal to 6% of prepaid customer billings. Prepaid revenues received from Sprint are reported net of the cost of this fee. Other fees charged on a per unit basis are separately recorded as expenses according to the nature of the expense. ~~The Company pays~~We pay handset subsidies to Sprint for the difference between the selling price of prepaid handsets and their cost, recorded as a net cost in cost of goods sold. The revenue and expense components reported to us by Sprint are based on Sprint’s national averages for prepaid services, rather than being specifically determined by customers assigned to our geographic service areas.

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

March 31,
2016

December 31,
2015

March 31,
2015

December 31,
2014

Retail PCS Subscribers – Postpaid 315,231 312,512 291,078 287,867
Retail PCS Subscribers – Prepaid 142,539 142,840 147,783 145,162
PCS Market POPS (000) (1) 2,437 2,433 2,418 2,415
PCS Covered POPS (000) (1) 2,230 2,224 2,210 2,207
CDMA Base Stations (sites) 556 552 542 537
Towers Owned 157 158 154 154
Non-affiliate Cell Site Leases 202 202 199 198



	March 31, 2017	December 31, 2016	March 31, 2016	December 31, 2015
Retail PCS Subscribers – Postpaid	717,150	722,562	315,231	312,512
Retail PCS Subscribers – Prepaid	243,557	236,138	142,539	142,840
PCS Market POPS (000) (1)	5,536	5,536	2,437	2,433
PCS Covered POPS (000) (1)	4,836	4,807	2,230	2,224
CDMA Base Stations (sites)	1,476	1,467	556	552
Towers Owned	196	196	157	158
Non-affiliate Cell Site Leases	206	202	202	202

Three Months Ended
March 31,

2016 2015

Gross PCS Subscriber Additions - Postpaid 17,356 17,105
Net PCS Subscriber Additions - Postpaid 2,719 3,211
Gross PCS Subscriber Additions - Prepaid 21,231 23,620
Net PCS Subscriber Additions - Prepaid (301 ) 2,621
PCS Average Monthly Retail Churn % - Postpaid (2) 1.56 % 1.60 %
PCS Average Monthly Retail Churn % - Prepaid (2) 5.05 % 4.76 %

The changes from March 31, 2016 to December 31, 2016 shown above include the effects of the nTelos acquisition and the exchange with Sprint on May 6, 2016.

Index



	Three Months Ended March 31,
	2017		2016
Gross PCS Subscriber Additions – Postpaid	38,701		17,356
Net PCS Subscriber Additions (Losses) – Postpaid	(5,412	)	2,719
Gross PCS Subscriber Additions – Prepaid	42,168		21,231
Net PCS Subscriber Additions (Losses) – Prepaid	7,419		(301	)
PCS Average Monthly Retail Churn % - Postpaid (2)	2.05	%	1.56	%
PCS Average Monthly Retail Churn % - Prepaid (2)	4.86	%	5.05	%


1)	POPS refers to the estimated population of a given geographic area and is based on information purchased from third party sources. Market POPS are those within a market area which ~~the Company is~~we are authorized to serve under ~~its~~our Sprint PCS affiliate agreements, and Covered POPS are those covered by ~~the Company’s~~our network.


8)	Fiber miles are measured by taking the number of fiber strands in a cable and multiplying that number by the route distance. For example, a 10 mile route with 144 fiber strands would equal 1,440 fiber miles.

Index

Three Months Ended March 31, ~~2016~~2017 Compared with the Three Months Ended March 31, ~~2015~~2016

(in thousands)
Three Months Ended
March 31,
Change
2016 2015 $ %

Segment operating revenues
Service revenue $ 24,340 $ 21,401 $ 2,939 13.7
Other revenue 2,106 1,910 196 10.3
Total segment operating revenues 26,446 23,311 3,135 13.4

Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below 14,647 13,618 1,029 7.6
Selling, general, and administrative, exclusive of depreciation and amortization shown separately below 5,108 4,892 216 4.4
Depreciation and amortization 6,095 5,480 615 11.2
Total segment operating expenses 25,850 23,990 1,860 7.8
Segment operating income (loss) $ 596 $ (679 ) $ 1,275 187.8



(in thousands)	Three Months Ended March 31,				Change
	2017		2016		$			%
Segment operating revenues
Service revenue	$	26,411	$	24,340	$	2,071		8.5
Other revenue	2,602		2,106		496			23.6
Total segment operating revenues	29,013		26,446		2,567			9.7
Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below	15,228		14,647		581			4.0
Selling, general, and administrative, exclusive of depreciation and amortization shown separately below	4,858		5,108		(250		)	(4.9	)
Depreciation and amortization	5,788		6,095		(307		)	(5.0	)
Total segment operating expenses	25,874		25,850		24			0.1
Segment operating income	$	3,139	$	596	$	2,543		426.7

Operating revenues

Cable segment service revenues increased ~~$2.9~~$2.1 million, or ~~13.7%~~8.5%, due to a ~~6.2%~~2.2% increase in average revenue generating units, video rate increases in January ~~2016~~2017 to offset increases in programming costs, and new and existing customers selecting higher-speed data (HSD) access packages.

Other revenue grew ~~$0.2~~$0.5 million, primarily due to new fiber contracts to towers, schools and libraries.

Operating expenses

Cable segment cost of goods and services increased ~~$1.0~~$0.6 million, or ~~7.6%~~4.0%, in the first quarter of ~~2016~~2017 over the comparable ~~2015~~2016 period. ~~Video programming costs, including retransmission fees, increased $0.6 million, primarily due to the increase in subscribers.~~ The ~~remainder of the~~ increase resulted from higher network and maintenance costs.

Selling, general and administrative expenses ~~increased $0.2~~decreased $0.3 million against the prior year quarter due to ~~higher~~lower advertising ~~and commission~~ costs.

Index

Wireline

The Wireline segment provides regulated and unregulated voice services, DSL internet access, and long distance access services throughout Shenandoah County and portions of Rockingham, Frederick, Warren and Augusta counties, Virginia. The segment also provides video 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 Pennsylvania.



	March 31, 2017	Dec. 31, 2016	March 31, 2016	Dec. 31, 2015
Telephone Access Lines (1)	18,160	18,443	19,682	20,252
Long Distance Subscribers	9,134	9,149	9,377	9,476
Video Customers (2)	5,201	5,264	5,232	5,356
DSL and Cable Modem Subscribers (1)	14,527	14,314	14,200	13,890
Fiber Route Miles	1,997	1,971	1,744	1,736
Total Fiber Miles (3)	145,060	142,230	125,559	123,891

~~Index~~

March 31,
2016

Dec. 31,
2015

March 31,
2015

Dec. 31,
2014

Telephone Access Lines (1) 19,682 20,252 21,669 21,612
Long Distance Subscribers 9,377 9,476 9,533 9,571
Video Customers (2) 5,232 5,356 5,599 5,692
DSL and Cable Modem Subscribers (3) 14,200 13,890 13,227 13,094
Fiber Route Miles 1,744 1,736 1,559 1,556
Total Fiber Miles (4) 125,559 123,891 99,523 99,387


1)	Effective October 1, 2015, ~~the Company~~we launched cable modem services on ~~its~~our cable plant, and ceased the requirement that a customer have a telephone access line to purchase ~~DSL~~internet service. As of March 31, 2017, 1,226 customers have purchased cable modem service received via the coaxial cable network.


2)	The Wireline segment’s video service passes approximately ~~16,000~~16,500 homes.

2016 and December 2015 totals include 624 and 420 customers, respectively, served via the coaxial cable network. During first quarter 2016, the Company modified the way it counts subscribers when a commercial customer upgrades its internet service via a fiber contract. The Company retroactively applied the new count methodology to prior periods and the net result was increases in internet subscriber counts of and 804, 402 and 352 subscribers to December 31, 2015, March 31, 2015 and December 31, 2014 totals, respectively.

4)3)

Fiber miles are measured by taking the number of fiber strands in a cable and multiplying that number by the route distance. For example, a 10 mile route with 144 fiber strands would equal 1,440 fiber miles. ~~Fiber counts were revised following a review of fiber records in the first quarter of 2015.~~

Three Months Ended March 31, ~~2016~~2017 Compared with the Three Months Ended March 31, ~~2015~~2016

Three Months Ended
March 31,

Change

(in thousands) 2016 2015 $ %
Segment operating revenues
Service revenue $ 5,537 $ 5,294 $ 243 4.6
Carrier access and fiber revenues 11,969 9,527 2,442 25.6
Other revenue 873 764 109 14.3
Total segment operating revenues 18,379 15,585 2,794 17.9

Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below 8,643 7,334 1,309 17.8
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 1,605 1,498 107 7.1
Depreciation and amortization 3,033 2,924 109 3.7
Total segment operating expenses 13,281 11,756 1,525 13.0
Segment operating income $ 5,098 $ 3,829 $ 1,269 33.1



	Three Months Ended March 31,				Change
(in thousands)	2017		2016		$			%
Segment operating revenues
Service revenue	$	5,602	$	5,537	$	65		1.2
Carrier access and fiber revenues	12,665		11,969		696			5.8
Other revenue	887		873		14			1.6
Total segment operating revenues	19,154		18,379		775			4.2

Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below	9,273		8,643		630			7.3
Selling, general and administrative, exclusive of depreciation and amortization shown separately below	1,676		1,605		71			4.4
Depreciation and amortization	3,132		3,033		99			3.3
Total segment operating expenses	14,081		13,281		800			6.0
Segment operating income	$	5,073	$	5,098	$	(25	)	(0.5	)

Operating revenues

Total operating revenues in the quarter ended March 31, ~~2016~~2017 increased ~~$2.8~~$0.8 million, or ~~17.9%~~4.2%, against the comparable ~~2015 period. Carrier access and fiber revenues increased $2.4 million due to~~2016 period, as a result of increases in fiber and access contracts. ~~The increase in service revenues primarily results from higher revenues for high-speed data services.~~

Index

Operating expenses

Operating expenses overall increased ~~$1.5~~$0.8 million, or ~~13.0%~~6.0%, in the quarter ended March 31, ~~2016,~~2017, compared to the ~~2015~~2016 quarter. The ~~$1.3~~$0.6 million increase in cost of goods and services primarily resulted from costs to support the increase in carrier access and fiber revenues shown above.

Non-GAAP Financial ~~Measure~~Measures

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

Adjusted OIBDA is defined by us as operating income (loss) before depreciation and amortization, adjusted to exclude the effects of: certain non-recurring ~~transactions;~~transactions, impairment of ~~assets;~~assets, gains and losses on asset ~~sales;~~sales, straight-line adjustments for the waived management fee by Sprint, amortization of the affiliate contract expansion intangible reflected as a contra revenue, actuarial gains and losses on pension and other post-retirement benefit plans, and share-based compensation expense. Adjusted OIBDA should not be construed as an alternative to operating income as determined in accordance with GAAP as a measure of operating performance. Continuing OIBDA is defined by us as Adjusted OIBDA, less the benefit received from the waived management fee by Sprint over the next approximately six-year period, showing Sprint's support for our acquisition and our commitments to enhance the network.

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

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

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

●

~~it does~~they do not reflect capital expenditures;

●

~~many of the assets being depreciated and amortized will have to be replaced in the future and adjusted OIBDA does~~many of the assets being depreciated and amortized will have to be replaced in the future and Adjusted and Continuing OIBDA do not reflect cash requirements for such replacements;

●

~~it does~~they do not reflect costs associated with share-based awards exchanged for employee services;

●

~~it does~~they do not reflect interest expense necessary to service interest or principal payments on indebtedness;

●

~~it does~~they do not reflect gains, losses or dividends on investments;

●

~~it does~~they do not reflect expenses incurred for the payment of income taxes; and

●

~~other companies, including companies in our industry, may calculate adjusted~~other companies, including companies in our industry, may calculate Adjusted and Continuing OIBDA differently than we do, limiting its usefulness as a comparative measure.

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

The following table shows ~~adjusted~~Adjusted OIBDA and Continuing OIBDA for the three months ended March 31, ~~2016~~2017 and ~~2015.~~

Three Months Ended
March 31,

(in thousands) 2016 2015
Adjusted OIBDA $ 40,416 $ 35,839

2016.

Index



	Three Months Ended March 31,
(in thousands)	2017		2016
Adjusted OIBDA	$	73,541	$	40,416
Continuing OIBDA	$	64,601	$	40,416

The following table reconciles ~~adjusted~~Adjusted OIBDA and Continuing OIBDA to operating income, which we consider to be the most directly comparable GAAP financial measure, for the three months ended March 31, ~~2016~~2017 and ~~2015:~~2016:

Consolidated:

Three Months Ended
March 31,

(in thousands) 2016 2015
Operating income $ 21,312 $ 18,526
Plus depreciation and amortization 17,739 16,337
Plus (gain) loss on asset sales (15 ) 11
Plus share based compensation expense 1,048 825
Plus nTelos acquisition related expenses 332 140
Adjusted OIBDA $ 40,416 $ 35,839



Consolidated:	Three Months Ended March 31,
(in thousands)	2017			2016
Operating income	$	10,673		$	21,312
Plus depreciation and amortization	44,804			17,739
Plus (gain) loss on asset sales	(28		)	(15		)
Plus share based compensation expense	1,566			1,048
Plus straight line adjustment to management fee waiver	4,206			—
Plus amortization of intangible netted in revenue	4,978			—
Plus amortization of intangible netted in rent expense	258			—
Plus temporary back office costs to support the billing operations through migration ⁽¹⁾	2,595			—
Plus integration and acquisition related expenses	4,489			332
Adjusted OIBDA	$	73,541		$	40,416
Less waived management fee	(8,940		)	—
Continuing OIBDA	$	64,601		$	40,416

(1) Once former nTelos customers migrate to the Sprint back office, the Company incurs certain postpaid fees retained by Sprint that would offset a portion of these savings. For the three months ended March 31, 2017, these offsets were estimated at $0.8 million.

The following tables reconcile adjusted OIBDA and Continuing OIBDA to operating income by major segment for the three months ended March 31, ~~2016~~2017 and ~~2015:~~

Wireless Segment:

Three Months Ended
March 31,

(in thousands) 2016 2015
Operating income $ 19,932 $ 19,439
Plus depreciation and amortization 8,494 7,831
Plus (gain) loss on asset sales 13 25
Plus share based compensation expense 271 186
Adjusted OIBDA $ 28,710 $ 27,481

Cable Segment:

Three Months Ended
March 31,

(in thousands) 2016 2015
Operating income (loss) $ 596 $ (679 )
Plus depreciation and amortization 6,095 5,480
Plus (gain) loss on asset sales (13 ) (13 )
Plus share based compensation expense 358 290
Adjusted OIBDA $ 7,036 $ 5,078

Wireline Segment:

Three Months Ended
March 31,

(in thousands) 2016 2015
Operating income $ 5,098 $ 3,829
Plus depreciation and amortization 3,033 2,924
Plus loss on asset sales - 9
Plus share based compensation expense 169 144
Adjusted OIBDA $ 8,300 $ 6,906

2016:



Wireless Segment:	Three Months Ended March 31,
(in thousands)	2017			2016
Operating income	$	9,137		$	19,932
Plus depreciation and amortization	35,752			8,494
Plus (gain) loss on asset sales	(24		)	13
Plus share based compensation expense	725			271
Plus straight line adjustment to management fee waiver	4,206			—
Plus amortization of intangible netted in revenue	4,978			—
Plus amortization of intangible netted in rent expense	258			—
Plus temporary back office costs to support the billing operations through migration	2,593			—
Plus integration and acquisition related expenses	3,792			—
Adjusted OIBDA	$	61,417		$	28,710
Less waived management fee	(8,940		)	—
Continuing OIBDA	$	52,477		$	28,710

Index



Cable Segment:	Three Months Ended March 31,
(in thousands)	2017			2016
Operating income	$	3,139		$	597
Plus depreciation and amortization	5,788			6,095
Less gain on asset sales	(23		)	(13		)
Plus share based compensation expense	364			358
Adjusted OIBDA and Continuing OIBDA	$	9,268		$	7,037



Wireline Segment:	Three Months Ended March 31,
(in thousands)	2017		2016
Operating income	$	5,073	$	5,098
Plus depreciation and amortization	3,132		3,033
Plus loss on asset sales	30		—
Plus share based compensation expense	146		169
Adjusted OIBDA and Continuing OIBDA	$	8,381	$	8,300

Liquidity and Capital Resources

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

Sources and Uses of Cash. ~~The Company~~We generated ~~$43.2~~$24.5 million of net cash from operations in the first three months of ~~2016,~~2017, compared to ~~$23.8~~$43.2 million in the first three months of ~~2015.~~2016. The ~~increase was driven primarily by higher net income and by~~primary change included the timing of cash ~~receipts and~~ disbursements in early 2017 for ~~prepaid assets, accounts payable and deferred revenues.~~inventories acquired in late 2016.

Indebtedness. As of March 31, ~~2016, the Company’s~~2017, our indebtedness totaled ~~$194.0~~$866.8 million in term loans with an annualized effective interest rate of approximately ~~3.48%~~3.91% after considering the impact of the interest rate swap contract and unamortized loan costs. The balance consists of the $466.8 million Term Loan ~~Facility~~A-1 at a variable rate ~~(2.68%~~(3.73% as of March 31, ~~2016)~~2017) that resets monthly based on one month LIBOR plus a ~~base~~margin of 2.75%, and the $400 million Term Loan A-2 at a variable rate (3.98% as of ~~2.25% currently.~~March 31, 2017) that resets monthly based on one month LIBOR plus a margin of 3.00%. The Term Loan ~~Facility~~A-1 requires quarterly principal repayments of ~~$5.75~~$6.1 million ~~until the remaining expected balance~~through June 30, 2017, then increasing to $12.1 million quarterly through June 30, 2020, with further increases at that time through maturity in June 30, 2021. The Term Loan A-2 requires quarterly principal repayments of ~~approximately $120.75~~$10.0 million ~~is due at maturity~~beginning on September 30, ~~2019.~~2018 through March 31, 2023, with the remaining balance due June 30, 2023.

~~The Company is~~We are bound by certain financial covenants under ~~its Credit Agreement.~~the 2016 credit agreement. Noncompliance with any one or more of the debt covenants may have an adverse effect on our financial condition or liquidity in the event such noncompliance cannot be cured or should we be unable to obtain a waiver from the lenders. As of March 31, ~~2016, the Company was~~2017, we were in compliance with all debt covenants, and ratios at March 31, ~~2016~~2017 were as follows:



	Actual		Covenant Requirement at March 31, ~~2016~~2017
Total Leverage Ratio	2.88	~~1.27~~	~~2.00~~3.75 or Lower
Debt Service Coverage Ratio	4.56	~~4.36~~	~~2.50~~2.00 or Higher
~~Equity to Assets Ratio~~Minimum Liquidity Balance	$113 million	~~48.2%~~	~~35.0%~~$25 million or Higher

In accordance with the Credit Agreement, the total leverage and debt service coverage ratios noted above are based on consolidated EBITDA, cash taxes, scheduled principal payments and cash interest expense for the ~~twelve months ended~~ nine month period ending

Index

March 31, ~~2016.~~2017, divided by three and multiplied by four, all as defined under the Credit Agreement. In addition to the covenants above, ~~the Company is~~we are required to supply the ~~lender~~lenders with quarterly financial statements and other reports as defined by the ~~Credit Agreement. The Company was~~2016 credit agreement. We were in compliance with all reporting requirements at March 31, ~~2016.~~2017.

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

Capital Commitments. ~~Capital~~The Company budgeted $152.3 million in capital expenditures ~~budgeted~~ for ~~2016 total $218.5 million,~~2017, including ~~$120.3~~$86.4 million in the Wireless segment for upgrades and expansion of the nTelos wireless ~~network. In addition, $21.2 million is budgeted for information technology upgrades, new and renovated buildings and other projects, $24.2 million for additional network capacity, and $36.4~~network; $28.1 million for network expansion including new fiber routes, new cell towers, and cable market ~~expansion. Approximately $13.1~~expansion; $27.0 million ~~of the budget is success-based,~~for additional network capacity; and ~~will be scaled back if not supported by customer growth~~$10.8 million for information technology upgrades, new and renovated buildings and other projects. .

For the first three months of ~~2016, the Company~~2017, we spent ~~$20.5~~$38.6 million on capital projects, compared to ~~$9.5~~$20.5 million in the comparable ~~2015~~2016 period. Spending related to Wireless projects accounted for ~~$9.4~~$25.3 million in the first three months of ~~2016,~~2017, primarily for upgrades of former nTelos sites and additional ~~network capacity and technology upgrades.~~cell sites to expand coverage in the former nTelos territory. Cable capital spending of ~~$5.7~~$5.2 million related to network and cable market expansion. Wireline capital projects cost ~~$4.0~~$7.6 million, driven primarily by fiber builds. Other projects totaled ~~$1.4~~$0.5 million, largely related to information technology projects.

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

~~Index~~

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

Recently Issued Accounting Standards

In May 2014, the FASB issued ~~Accounting Standards Update (“ASU”)~~ASU No. 2014-09, “Revenue from Contracts with Customers”, also known as Topic 606, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the FASB issued ASU No. 2015-14, delaying the effective date of ASU 2014-09. Three other amendments have been issued during 2016 modifying the original ASU. As amended, the new standard is effective for the Company on January 1, ~~2018. Early application is~~2018, using either a retrospective basis or a modified retrospective basis with early adoption permitted, but not ~~permitted. The standard permits~~earlier than the ~~use~~original effective date beginning after December 15, 2016. We have formed a project team to evaluate and implement the new standard. As part of ~~either~~our work to date, we have begun documentation and are nearing completion of contract review. We currently plan to adopt this guidance using the modified retrospective ortransition approach, which would result in an adjustment to retained earnings for the cumulative effect, ~~transition method. The Company~~if any, of applying this standard. Additionally, this guidance requires us to provide additional disclosures of the amount by which each financial statement line item is ~~evaluating~~affected in the current reporting period during 2018 as compared to the guidance that was in effect ~~that ASU 2014-09~~before the change. We continue to assess the impact this new standard will have on ~~its consolidated~~our financial ~~statements~~position, results of operations and ~~related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.~~cash flows.

In February 2016, the FASB issued ASU No. 2016-02, “Leases”, also known as Topic 842, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous generally accepted accounting principles. This change will result in an increase to recorded assets and liabilities on lessees’ financial statements, as well as changes in the categorization of rental costs, from rent expense to interest and depreciation expense. Other effects may occur depending on the types of leases and the specific terms of them utilized by particular lessees. The ASU is effective for ~~the Company~~us on January 1, 2019, and early application is permitted. Modified retrospective application is required. ~~The Company is~~We are currently evaluating the ~~effect~~ASU, but expect that ~~ASU 2016-02~~it will have a material impact on ~~its~~our consolidated financial ~~statements and related disclosures.~~statements.

Index


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s market risks relate primarily to changes in interest rates on instruments held for other than trading purposes. The Company’s interest rate risk generally involves three components. The first component is outstanding debt with variable rates. As of March 31, ~~2016,~~2017, the Company had ~~$195.5~~$866.8 million of variable rate debt outstanding (excluding unamortized loan fees and costs of ~~$1.5~~$17.8 million), bearing interest at a weighted average rate of ~~2.68%~~3.85% as determined on a monthly basis. An increase in market interest rates of 1.00% would add approximately ~~$1.9~~$8.7 million to annual interest expense, excluding the effect of the interest rate swap. In ~~2012,~~May 2016, the Company entered into a pay-fixed, receive-variable interest rate swap ~~agreement that covers~~with three counterparties totaling $256.6 of notional principal (subject to change based upon expected draws under the delayed draw term loan and principal payments due under our debt agreements). This swap, combined with the swap purchased in 2012, cover notional principal equal to approximately ~~76%~~50% of the expected outstanding variable rate debt through maturity in ~~2019, requiring the~~2023. The Company is required to pay a combined fixed rate of ~~1.13%~~approximately 1.16% and receive a variable rate based on one month LIBOR ~~(0.43%~~(0.98% as of March 31, ~~2016)~~2017), to manage a portion of its interest rate risk. Changes in the net interest paid or received under the ~~2012 swap~~swaps would offset approximately ~~76%~~50% of the change in interest expense on the variable rate debt outstanding. The ~~2012~~ swap agreements currently ~~adds~~add approximately $0.8 million to annual interest expense, based on the spread between the fixed rate and the variable rate currently in effect on our debt.

The second component of interest rate risk consists of temporary excess cash, which can be invested in various short-term investment vehicles such as overnight repurchase agreements and Treasury bills with a maturity of less than 90 days. As of March 31, ~~2016,~~2017, the cash is invested in ~~a combination of~~ a commercial checking account that has limited interest rate ~~risk, and three money market mutual funds that contain a total investment of $40.1 million.~~risk. Management continually evaluates the most beneficial use of these funds.

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

Management views market risk as having a potentially significant impact on the Company's results of operations, as future results could be adversely affected if interest rates were to increase significantly for an extended period, or if the Company’s need for additional external financing resulted in increases to the interest rates applied to all of its new and existing debt. As of March 31, ~~2016,~~2017, the Company has ~~$47.1~~$433.4 million of variable rate debt with no interest rate protection. The Company’s investments in publicly traded stock and bond mutual funds under the rabbi trust, which are subject to market risks and could experience significant swings in market values, are offset by corresponding changes in the liabilities owed to participants in the Supplemental Executive Retirement Plan. General economic conditions affected by regulatory changes, competition or other external influences may pose a higher risk to the Company’s overall results.

As of March 31, 2016, the Company had $8.2 million of cost and equity method investments. Approximately $2.7 million is invested in privately held companies through investments with portfolio managers. Most of the companies are in an early stage of development and significant increases in interest rates could have an adverse impact on their results, ability to raise capital and viability. The Company’s market risk is limited to the funds previously invested.

Index


ITEM 4.	CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management, with the participation of our President and Chief Executive Officer, who is the principal executive officer, and the Vice President - Finance and Chief Financial Officer, who is the principal financial officer, conducted an evaluation of our disclosure controls and procedures, as defined by Rule 13a-15(e) under the Securities Exchange Act of 1934. ~~Based~~

As disclosed in our Annual Report on ~~this evaluation,~~Form 10-K for our fiscal year ended December 31, 2016, we identified material weaknesses in internal control over financial reporting. The material weaknesses will not be considered remediated until the ~~Company's principal executive officer~~applicable remedial controls operate for a sufficient period of time and ~~its principal financial officer~~management has concluded, through testing, that these controls are operating effectively. As remediation has not yet been completed our President and Chief Executive Officer and our Vice President, Finance and Chief Financial Officer have concluded that ~~the Company's~~our disclosure controls and procedures ~~were effective~~continued to be ineffective as of March 31, ~~2016.~~2017.

Notwithstanding the material weaknesses, management has concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented.

Remediation Efforts

In response to the material weaknesses identified in the Annual Report on Form 10-K for our fiscal year ended December 31, 2016, we expect to:

Seek, train and retain individuals that have the appropriate skills and experience related to financial reporting and internal control related to (i) complex, significant non-routine transactions; (ii) the preparation of the consolidated statements of cash flows; and (iii) the Company’s internal audit function.

Evaluate and develop where necessary policies and procedures to ensure our personnel are sufficiently knowledgeable about the design, operation and documentation of internal controls over financial reporting related to (i) complex, significant non-routine transactions; (ii) accounting for income taxes; and (iii) the preparation of the consolidated statements of cash flows.

Enhance the design of existing control activities and implement additional control activities to ensure management review controls and other controls (including controls that validate the completeness and accuracy of information, data and assumptions) related to complex, significant non-routine transactions and accounting for income taxes, are properly designed and documented.

Evaluate and enhance the Company’s policies, procedures and control activities over communicating with the Company’s third party experts to ensure complete and accurate information is communicated.

Evaluate and enhance the Company’s monitoring activities to ensure the components of internal control are present and functioning related to (i) complex, significant non-routine transactions; (ii) accounting for income taxes; and (iii) the preparation of the consolidated statements of cash flows.

Changes in Internal Control Over Financial Reporting

~~During the first quarter~~The acquisition of ~~2016, there were no changes in the Company's~~nTelos was completed on May 6, 2016. Our Company’s management has extended its oversight and monitoring processes that support internal control over financial reporting ~~that have materially affected, or are reasonably likely~~ to ~~materially affect, its~~include the operations of nTelos. Our management is continuing to integrate the acquired operations into our overall internal control financial reporting process, expected to be complete in 2017.

Except as noted above, there has been no change in the Company’s internal control over financial reporting as of March 31, 2017, that has materially affected or is reasonably likely to material affect, the Company’s internal control over financial reporting.

Other Matters Relating to Internal Control Over Financial Reporting

Under the Company’s agreements with Sprint, Sprint provides the Company with billing, collections, customer care, certain network operations and other back-office services for the PCS operation. As a result, Sprint remits to the Company ~~approximately 57%~~a substantial portion of the Company’s total operating ~~revenues.~~revenues, which will increase as legacy nTelos subscribers migrate to the Sprint billing platform in the future. Due to this relationship, the Company necessarily relies on Sprint to provide accurate, timely and sufficient data and information to properly record the Company’s revenues and accounts receivable, which underlie a substantial portion of the Company’s periodic financial statements and other financial disclosures.

Index

Information provided by Sprint includes reports regarding the subscriber accounts receivable in the Company’s markets. Sprint provides the Company with monthly accounts receivable, billing and cash receipts, average national costs to acquire and support a prepaid customer, certain national channel commission and handset subsidy costs, and travel revenue information on a market level, rather than a subscriber level. The Company reviews these various reports to identify discrepancies or errors. Under the Company’s agreements with Sprint, the Company is entitled to only a portion of the receipts, net of items such as taxes, government surcharges, certain allocable write-offs and the 16.6% of postpaid and 6% of prepaid revenue currently retained by ~~Sprint.~~Sprint (before the effect of fee waivers). Sprint reports directly billed costs and revenues to the Company. Because of the Company’s reliance on Sprint for financial information, the Company must depend on Sprint to design adequate internal controls with respect to the processes established to provide this data and information to the Company and Sprint’s other Sprint PCS affiliate network partners. To address this issue, Sprint engages an independent registered public accounting firm to perform a periodic evaluation of these controls and to provide a “Report on Controls Placed in Operation and Tests of Operating Effectiveness” under guidance provided in Statements on Standards for Attestation Engagements No. 16 (“SSAE 16”). The report is provided to the Company on an annual basis and covers a nine-month period. The most recent report covered the period from January 1, ~~2015~~2016 to September 30, ~~2015.~~2016. The most recent report indicated there were no material issues which would adversely affect the information used to support the recording of the revenues provided by Sprint related to the Company’s relationship with them.

Index


PART II.	OTHER INFORMATION


ITEM 1A.	Risk Factors

~~As previously discussed,~~We discuss in our ~~actual results could differ materially from our forward-looking statements. There have been no material changes in the risk factors from those described in Part 1, Item 1A of the Company’s~~ Annual Report on Form 10-K ~~for~~various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed. As of March 31, 2017, the ~~fiscal year ended December 31, 2015.~~Company has not identified any needed updates to the risk factors included in our most recent Form 10-K.


ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds

The Company maintains a dividend reinvestment plan (the “DRIP”) for the benefit of its shareholders. When shareholders remove shares from the DRIP, the Company issues a certificate for whole shares, pays out cash for any fractional shares, and cancels the fractional shares purchased. In conjunction with exercises of stock options and distributions of vested share awards, the Company periodically repurchases shares from recipients to satisfy some of the exercise price of the options being exercised or taxes payable associated with the distribution of shares. The following table provides information about the Company’s repurchases of shares during the three months ended March 31, ~~2016:~~2017:

Number of Shares
Purchased

Average Price
Paid per Share

January 1 to January 31 644 $ 22.14
February 1 to February 29 116,225 $ 21.42
March 1 to March 31 43,932 $ 27.06

Total 160,801 $ 22.96



	Number of Shares Purchased	Average Price Paid per Share
January 1 to January 31	43,044	$	28.48
February 1 to February 28	—	$	—
March 1 to March 31	—	$	—

Total	43,044	$	28.48

~~Index~~


ITEM 6.	Exhibits


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

Index


~~3.3~~	~~Amended~~
10.54	Addendum XX to Sprint PCS Management Agreement, dated as of March 9, 2017, by and ~~Restated Bylaws of~~among Shenandoah ~~Telecommunications~~Personal Communications, LLC, Sprint Spectrum L.P., Sprint Communications Company, ~~effective April 15, 2016,~~L.P., SprintCom, Inc. and Horizon Personal Communications, LLC, filed as Exhibit ~~3.3~~10.1 to the ~~Company’s~~Company's Current Report on Form 8-K ~~dated April 8, 2016.~~

~~10.50~~	~~First Amendment to the Credit Agreement with CoBank, ACB, as administrative agent and the various financial institutions thereto, effective~~ filed March ~~29, 2016, filed as Exhibit 10.50 to the Company’s Current Report on Form 8-K dated April 4, 2016.~~15, 2017.

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

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

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

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


	101.INS	XBRL Instance Document

	101.SCH	XBRL Taxonomy Extension Schema Document

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	SHENANDOAH TELECOMMUNICATIONS COMPANY
	(Registrant)



	/s/Adele M. Skolits
	Adele M. Skolits
	Vice President - Finance and Chief Financial Officer
	Date: ~~April 29, 2016~~May 4, 2017

Index

EXHIBIT INDEX



Exhibit No.	Exhibit

10.54	~~3.3~~		~~Amended~~Addendum XX to Sprint PCS Management Agreement, dated as of March 9, 2017, by and ~~Restated Bylaws of~~among Shenandoah ~~Telecommunications~~Personal Communications, LLC, Sprint Spectrum L.P., Sprint Communications Company, ~~effective April 15, 2016,~~L.P., SprintCom, Inc. and Horizon Personal Communications, LLC, filed as Exhibit ~~3.3~~10.1 to the ~~Company’s~~Company's Current Report on Form 8-K ~~dated April 8, 2016.~~filed March 15, 2017.

	~~10.50~~	First Amendment to the Credit Agreement with CoBank, ACB, as administrative agent and the various financial institutions thereto, effective March 29, 2016, filed as Exhibit 10.50 to the Company’s Current Report on Form 8-K dated April 4, 2016.

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

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

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

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


	101.INS	XBRL Instance Document

	101.SCH	XBRL Taxonomy Extension Schema Document

	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

	101.LAB	XBRL Taxonomy Extension Label Linkbase Document

	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

3137



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



Large accelerated filer ☑	Accelerated filer ☐	Non-accelerated filer ☐
Smaller reporting ~~company~~ ☐ company☐	Emerging growth company☐

		~~Page~~ ~~Numbers~~
~~PART I.~~	~~FINANCIAL INFORMATION~~

~~Item 1.~~	~~Financial Statements~~

	~~Unaudited Consolidated Balance Sheets March 31, 2016 and December 31, 2015~~	~~3-4~~

	~~Unaudited Consolidated Statements of Income and Comprehensive Income (Loss) for the Three Months Ended March 31, 2016 and 2015~~	5

	~~Unaudited Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2016 and the Year Ended December 31, 2015~~	6

	~~Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015~~	~~7-8~~

	~~Notes to Unaudited Consolidated Financial Statements~~	~~9-14~~

~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	~~15-25~~

~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~	26

~~Item 4.~~	~~Controls and Procedures~~	27

~~PART II.~~	~~OTHER INFORMATION~~

~~Item 1A.~~	~~Risk Factors~~	28

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	28

~~Item 6.~~	~~Exhibits~~	29

	~~Signatures~~	30

	~~Exhibit Index~~	31



		Page Numbers
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Unaudited Condensed Consolidated Balance Sheets March 31, 2017 and December 31, 2016	4	-	5

	Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2017 and 2016	6

	Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2017 and the Year Ended December 31, 2016	7

	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016	8	-	9

	Notes to Unaudited Condensed Consolidated Financial Statements	10	-	17

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18	-	30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31

Item 4.	Controls and Procedures	32

PART II.	OTHER INFORMATION

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 6.	Exhibits	34

	Signatures	36

	Exhibit Index	37

ASSETS	March 31, 2016		December 31, 2015

Current Assets
Cash and cash equivalents	$	89,160	$	76,812
Accounts receivable, net		27,012		29,778
Income taxes receivable		712		7,694
Materials and supplies		4,450		4,183
Prepaid expenses and other		7,623		8,573
Deferred income taxes		-		907
Total current assets		128,957		127,947

Investments, including $2,706 and $2,654 carried at fair value		10,860		10,679

Property, plant and equipment, net		410,949		410,018

Other Assets
Intangible assets, net		67,283		66,993
Deferred charges and other assets, net		11,323		11,514
Other assets, net		78,606		78,507
Total assets	$	629,372	$	627,151



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	Three Months Ended March 31,
	2016			2015

Operating revenues	$	92,571		$	84,287

Operating expenses:
Cost of goods and services, exclusive of depreciation and amortization shown separately below		31,762			30,691
Selling, general and administrative, exclusive of depreciation and amortization shown separately below		21,758			18,733
Depreciation and amortization		17,739			16,337
Total operating expenses		71,259			65,761
Operating income		21,312			18,526

Other income (expense):
Interest expense		(1,619	)		(1,915	)
Gain on investments, net		88			102
Non-operating income, net		468			432
Income before income taxes		20,249			17,145

Income tax expense		6,368			6,859
Net income	$	13,881		$	10,286

Other comprehensive income:
Unrealized loss on interest rate hedge, net of tax		(1,048	)		(907	)
Comprehensive income	$	12,833		$	9,379

Earnings per share:
Basic	$	0.29		$	0.21
Diluted	$	0.28		$	0.21

Weighted average shares outstanding, basic		48,563			48,306

Weighted average shares outstanding, diluted		49,249			48,902

6.
7.	Derivative Instruments, Hedging Activities and Accumulated Other Comprehensive Income

	Derivatives
		Fair Value as of
	Balance Sheet Location	March 31, 2016			December 31, 2015

Derivatives designated as hedging instruments:
Interest rate swap
Accrued liabilities and other		$	(822	)	$	(682	)
Other liabilities			(243	)		-
Deferred charges and other assets, net			-			1,370
Total derivatives designated as hedging instruments		$	(1,065	)	$	688

	Gains and (Losses) on Cash Flow Hedges			Income Tax (Expense) Benefit			Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2015	$	688		$	(273	)	$	415
Other comprehensive loss before reclassifications		(2,020	)		812			(1,208	)
Amounts reclassified from accumulated other comprehensive income (to interest expense)		267			(107	)		160
Net current period other comprehensive loss		(1,753	)		705			(1,048	)
Balance as of March 31, 2016	$	(1,065	)	$	432		$	(633	)



	Gains on Cash Flow Hedges		Income Tax Expense			Accumulated Other Comprehensive Income
Balance as of December 31, 2016	$	11,223	$	(4,435	)	$	6,788
Other comprehensive income before reclassifications	541		(208		)	333
Amounts reclassified from accumulated other comprehensive income (to interest expense)	431		(165		)	266
Net current period other comprehensive income	972		(373		)	599
Balance as of March 31, 2017	$	12,195	$	(4,808	)	$	7,387



	March 31, 2017							December 31, 2016
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Non-amortizing intangibles:
Cable franchise rights	$	64,334	$	—		$	64,334	$	64,334	$	—		$	64,334
Railroad crossing rights	97		—			97		97		—			97
	64,431		—			64,431		64,431		—			64,431

Finite-lived intangibles:
Affiliate contract expansion	284,102		(19,008		)	265,094		284,102		(14,030		)	270,072
Acquired subscribers – wireless	120,855		(25,387		)	95,468		120,855		(18,738		)	102,117
Favorable leases - wireless	16,950		(1,531		)	15,419		16,950		(1,130		)	15,820
Acquired subscribers – cable	25,265		(24,802		)	463		25,265		(24,631		)	634
Other intangibles	3,230		(797		)	2,433		2,212		(754		)	1,458
Total finite-lived intangibles	450,402		(71,525		)	378,877		449,384		(59,283		)	390,101
Total intangible assets	$	514,833	$	(71,525	)	$	443,308	$	513,815	$	(59,283	)	$	454,532



	March 31, 2017		December 31, 2016
Sales and property taxes payable	$	4,742	$	6,628
Severance accrual, current portion	3,553		4,267
Asset retirement obligations, current portion	884		5,841
Other current liabilities	8,995		12,349
Accrued liabilities and other	$	18,174	$	29,085



	March 31, 2017		December 31, 2016
Non-current portion of deferred revenues	$	7,735	$	8,933
Straight-line management fee waiver	16,180		11,974
Other	2,142		2,836
Other liabilities	$	26,057	$	23,743

7.

	Actual	Covenant Requirement
Total Leverage Ratio	2.88	3.75 or Lower
Debt Service Coverage Ratio	4.56	2.00 or Higher
Minimum Liquidity Balance	$113 million	$25 million or Higher

	Wireless		Cable		Wireline		Other			Eliminations			Consolidated Totals
External revenues
Service revenues	$	52,179	$	24,340	$	4,960	$	-		$	-		$	81,479
Other		3,203		1,846		6,043		-			-			11,092
Total external revenues		55,382		26,186		11,003		-			-			92,571
Internal revenues		1,136		260		7,376		-			(8,772	)		-
Total operating revenues		56,518		26,446		18,379		-			(8,772	)		92,571

Operating expenses
Costs of goods and services, exclusive of depreciation and amortization shown separately below		16,578		14,647		8,643		-			(8,106	)		31,762
Selling, general and administrative, exclusive of depreciation and amortization shown separately below		11,514		5,108		1,605		4,197			(666	)		21,758
Depreciation and amortization		8,494		6,095		3,033		117			-			17,739
Total operating expenses		36,586		25,850		13,281		4,314			(8,772	)		71,259
Operating income (loss)	$	19,932	$	596	$	5,098	$	(4,314	)	$	-		$	21,312


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


*	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.

	March 31, 2016		December 31, 2015		March 31, 2015		December 31, 2014
Retail PCS Subscribers – Postpaid		315,231		312,512		291,078		287,867
Retail PCS Subscribers – Prepaid		142,539		142,840		147,783		145,162
PCS Market POPS (000) (1)		2,437		2,433		2,418		2,415
PCS Covered POPS (000) (1)		2,230		2,224		2,210		2,207
CDMA Base Stations (sites)		556		552		542		537
Towers Owned		157		158		154		154
Non-affiliate Cell Site Leases		202		202		199		198


2)	PCS Average Monthly Retail Churn is the average of the monthly subscriber turnover, or churn, calculations for the period.


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.


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.