

		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

~~SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES~~

~~UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS~~

~~(in thousands)~~

ASSETS
June 30,
2016

December 31,
2015

Current Assets
Cash and cash equivalents $ 40,571 $ 76,812
Restricted cash 2,167 -
Accounts receivable, net 77,392 29,778
Income taxes receivable - 7,694
Inventory, net 19,419 4,183
Prepaid expenses and other 18,562 8,573
Deferred income taxes - 907
Total current assets 158,111 127,947

Investments, including $2,784 and $2,654 carried at fair value
12,526 10,679

Building held for sale 4,950 -
Property, plant and equipment, net 653,523 410,018

Other Assets
Intangible assets, net 464,146 66,993
Goodwill 151,730 10
Deferred charges and other assets, net 10,855 11,504
Other assets, net 626,731 78,507
Total assets $ 1,455,841 $ 627,151

~~(Continued)~~

~~Index~~

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

LIABILITIES AND SHAREHOLDERS’ EQUITY
June 30,
2016

December 31,
2015

Current Liabilities
Current maturities of long-term debt, net of unamortized loan fees $ 20,147
$
22,492
Accounts payable 27,951 13,009
Advanced billings and customer deposits 23,024 11,674
Accrued compensation 6,020 5,915
Income taxes payable 29,717 -
Accrued liabilities and other 31,615 7,639
Total current liabilities 138,474 60,729

Long-term debt, less current maturities, net of unamortized loan fees 795,426 177,169

Other Long-Term Liabilities
Deferred income taxes 142,181 74,868
Deferred lease payable 9,370 8,142
Asset retirement obligations 15,769 7,266
Other liabilities 50,514 9,039
Total other long-term liabilities 217,834 99,315

Commitments and Contingencies

Shareholders’ Equity
Common stock 44,344 32,776
Retained earnings 263,633 256,747
Accumulated other comprehensive income (loss), net of taxes (3,870 ) 415
Total shareholders’ equity 304,107 289,938

Total liabilities and shareholders’ equity $ 1,455,841 $ 627,151



ASSETS	March 31, 2017		December 31, 2016

Current Assets
Cash and cash equivalents	$	39,927	$	36,193
Accounts receivable, net	68,709		69,789
Inventory, net	24,855		39,043
Prepaid expenses and other	16,989		16,440
Total current assets	150,480		161,465

Investments, including $3,058 and $2,907 carried at fair value	10,607		10,276

Property, plant and equipment, net	689,948		698,122

Other Assets
Intangible assets, net	443,308		454,532
Goodwill	144,001		145,256
Deferred charges and other assets, net	14,645		14,756
Total assets	$	1,452,989	$	1,484,407

(Continued)

Index

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)



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.

Index

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME AND

COMPREHENSIVE ~~INCOME(LOSS)~~INCOME

(in thousands, except per share amounts)

Three Months Ended
June 30,

Six Months Ended
June 30,

2016 2015 2016 2015

Operating revenues $ 130,309 $ 85,701 $ 222,880 $ 169,989

Operating expenses:
Cost of goods and services, exclusive of depreciation and amortization shown separately below 50,296 30,280 82,057 60,970
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 33,694 18,606 55,120 36,718
Integration and acquisition expenses 20,054 402 20,386 1,024
Depreciation and amortization 32,415 17,663 50,154 34,001
Total operating expenses 136,459 66,951 207,717 132,713
Operating income (loss) (6,150 ) 18,750 15,163 37,276

Other income (expense):
Interest expense (5,904 ) (1,940 ) (7,524 ) (3,855 )
Gain on investments, net 21 98 109 200
Non-operating income, net 146 442 614 874
Income (loss) before income taxes (11,887 ) 17,350 8,362 34,495

Income tax expense (benefit) (4,892 ) 6,876 1,477 13,735
Net income (loss) (6,995 ) 10,474 6,885 20,760

Other comprehensive income (loss):
Unrealized gain (loss) on interest rate hedge, net of tax (3,238 ) 326 (4,285 ) (581 )
Comprehensive income (loss) $ (10,233 ) $ 10,800 $ 2,600 $ 20,179

Earnings (loss) per share:
Basic $ (0.14 ) $ 0.22 $ 0.14 $ 0.43
Diluted $ (0.14 ) $ 0.21 $ 0.14 $ 0.42

Weighted average shares outstanding, basic 48,830 48,380 48,696 48,343

Weighted average shares outstanding, diluted 48,830 49,004 49,415 48,927



	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),
net of tax
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 - - 6,885 - 6,885
Other comprehensive loss, net of tax - - - (4,285 ) (4,285 )
Stock based compensation - 2,404 - - 2,404
Stock options exercised 319 2,942 - - 2,942
Common stock issued for share awards 188 - - - -
Common stock issued 1 5 - - 5
Common stock issued to acquire non-controlling interests of nTelos 76 10,400 - - 10,400
Common stock repurchased (177 ) (4,183 ) - - (4,183 )
Balance, June 30, 2016 48,883 $ 44,344 $ 263,633 $ (3,870 ) $ 304,107



	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)

Six Months Ended
June 30,

2016 2015

Cash Flows From Operating Activities
Net income $ 6,885 $ 20,760
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 42,753 33,189
Amortization reflected as operating expense 7,401 812
Amortization reflected as contra revenue 3,290 -
Provision for bad debt 752 905
Straight line adjustment to reduce management fee revenue 3,406 -
Stock based compensation expense 1,957 1,430
Excess tax benefits on stock awards - (450 )
Deferred income taxes (53,238 ) (3,656 )
Net loss on disposal of equipment 12 227
Unrealized (gain) on investments (83 ) (54 )
Net gains from patronage and equity investments (315 ) (385 )
Amortization of long term debt issuance costs 1,205 289
Other 2,120 647
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (4,332 ) (339 )
Inventory, net (11,424 ) (414 )
Income taxes receivable 7,694 14,752
Other assets 2,066 (3,421 )
Increase (decrease) in:
Accounts payable 5,529 (2,911 )
Income taxes payable 34,195 499
Deferred lease payable 1,228 506
Other deferrals and accruals 9,692 (2,116 )
Net cash provided by operating activities
$
60,793
$
60,270

Cash Flows From Investing Activities
Acquisition of property, plant and equipment $ (60,123 ) $ (25,135 )
Proceeds from sale of equipment 185 52
Cash distributions from investments 53 3
Cash disbursed for acquisition, net of cash acquired (654,832 ) -
Net cash used in investing activities
$
(714,717 )
$
(25,080 )



	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)

Index

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Six Months Ended
June 30,

2016 2015

Cash Flows From Financing Activities
Principal payments on long-term debt $ (201,257 ) $ (11,500 )
Amounts borrowed under debt agreements 835,000 -
Cash paid for debt issuance costs (14,825 ) -
Excess tax benefits on stock awards - 450
Repurchases of common stock (4,183 ) (1,450 )
Proceeds from issuances of common stock 2,948 530
Net cash provided by/(used in) financing activities $ 617,683
$
(11,970 )

Net increase (decrease) in cash and cash equivalents $ (36,241 ) $ 23,220

Cash and cash equivalents:
Beginning 76,812 68,917
Ending $ 40,571 $ 92,137

Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 6,659 $ 3,782

Income taxes paid, net of refunds received $ 12,796 $ 2,139



	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

Non-cash investing and financing activities:

At ~~June 30,~~March 31, 2017 and 2016, ~~and 2015,~~ accounts payable included approximately ~~$5.2~~$6.4 million and $1.2 million, respectively, associated with capital expenditures. Cash flows for accounts payable and acquisition of property, plant and equipment exclude this activity.

~~In conjunction with~~During the ~~acquisition of nTelos,~~quarter ended March 31, 2017, the Company ~~issued common stock to acquire non-controlling interests held by third parties~~recorded an increase in ~~a subsidiary~~the fair value of ~~nTelos. The transaction was valued at $10.4 million.~~

~~The Company reclassified $4.3 million~~interest rate swaps of ~~unamortized loan fees and costs included~~$972 thousand, an increase in deferred ~~charges~~tax liabilities of $373 thousand, and an increase to accumulated other ~~assets to long term debt in connection with the new Term loan A-1 and A-2 borrowing related to the acquisition~~comprehensive income of ~~nTelos.~~$599 thousand.

See accompanying notes to unaudited condensed consolidated financial statements.

Index

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.

~~In connection with the nTelos acquisition and exchange transaction with Sprint (see Note 2), the Company has added the following significant accounting policies:~~

~~Revenue Recognition~~

Under the Company’s amended affiliate agreement, Sprint agreed to waive the management fee, which is historically presented as a contra-revenue by the Company, for a period of approximately six years. The impact of Sprint’s waiver of the management fee over the approximate six-year period is reflected as an increase in revenue, offset by the non-cash adjustment to recognize this impact on a straight-line basis over the contract term of approximately 14 years.

~~Goodwill~~

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 reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized. The Company conducts its annual impairment testing of goodwill as of October 1.

~~Pension Benefits and Retirement Benefits Other Than Pensions~~

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 two qualified nonpension postretirement benefit plans that provide certain health care and life benefits for nTelos retired employees that meet eligibility requirements. The health care plan is contributory, with participants’ contributions adjusted annually. The life insurance plan also is contributory. These obligations, along with all of the pension plans and other postretirement benefit plans, are obligations assumed by the Company. Eligibility for the life insurance plan is restricted to active pension participants age 50-64 as of January 5, 1994. Neither plan is eligible to employees hired after April 1993. The accounting for the plans 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 costs 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 plans 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. The effect of modifications to those assumptions is recorded in accumulated other comprehensive income (loss) and amortized to net periodic cost over future periods using the corridor method.

~~Index~~


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 ~~$663.7~~$667.8 million, ~~in cash,~~ 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, ~~(see Note 14). The Company has included the operations~~Royal Bank of ~~nTelos for financial reporting purposes for the period subsequent to the acquisition.~~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 ~~will account~~has accounted for ~~any~~ 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):

Accounts receivable $ 48,476
Inventory 3,810
Restricted cash 2,167
Investments 1,501
Prepaids expenses and other assets 14,835
Building held for sale 4,950
Property, plant and equipment 223,900
Spectrum licenses 198,200
Customer based contract rights 198,200
Contract based intangible assets 11,000
Goodwill 151,627
Other long term assets 10,288
Total assets acquired $ 868,954

Accounts payable $ 8,648
Advanced billings and customer deposits 12,477
Accrued expenses 25,230
Capital lease liability 418
Deferred tax liabilities 124,964
Retirement benefits 19,461
Other long-term liabilities 14,056
Total liabilities assumed 205,254

Net assets acquired $ 663,700

~~Finalization of the purchase price allocations is dependent on final review and acceptance of the independent appraiser’s valuation report.~~

Immediately after acquiring nTelos, Shenandoah Personal Communications, LLC, (“PCS”) a wholly-owned subsidiary of the Company, 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 $198.2 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 $258.1 million, as well as additional customer based contract rights, valued at $138.3 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”.

~~Index~~

~~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):~~

Useful Life Basis
Affiliate contract agreement 14 years $ 258,100
Customer based contract rights 4-10 years 138,300
Contract based intangible assets 3-19 years 11,000

The affiliate contract agreement intangible asset will be amortized on a straight-line basis and recorded as a contra-revenue over the 14 year contract term. The other contract based intangible assets will be amortized on a straight-line basis and recorded through amortization 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 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 is presented as restricted cash. Such funds will be released to the Company when the LOC is terminated without being drawn upon by USAC.

At the time of the acquisition, certain third party investors held a non-controlling interest in one of nTelos’ subsidiaries. Immediately after 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 four 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 $519.7 million, without penalty.



	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 ~~three and six months~~period ended ~~June 30,~~March 31, 2016, ~~and 2015~~ as if the acquisition of nTelos had occurred at the beginning of ~~each of~~ the ~~periods presented~~period. (in ~~millions):~~

Three Months Ended
June 30,

2016 2015
Operating revenues $ 161.1 $ 170.1
Income (loss) before income taxes $ (7.5 ) $ 13.6

~~Index~~

Six Months Ended
June 30,

2016 2015
Operating revenues $ 334.4 $ 342.8
Income before income taxes $ 9.4 $ 37.1

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:thousands)

●

~~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;~~



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

●

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 ~~committed to Sprint to migrate the former nTelos customers to devices~~incurs costs which can interact with the Sprint billing and network systems and to maintain the nTelos billing, customer care and switching systems until the migration is complete, and expects to incur a total of between $106 million and $126 million of integration and acquisition expenses associated with this transaction, excluding approximately $24 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; ~~cost~~costs of the handsets to be provided to

Index

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 ~~transaction~~costs to shut down certain cell sites and related ~~fees. The Company has~~backhaul contracts. We have incurred ~~$22.4 million and $22.7~~$7.1 million of these costs in the three months ~~and six months~~ ended ~~June 30, 2016, respectively,~~March 31, 2017, including ~~$0.3~~$0.1 million reflected in cost of goods and services and ~~$2.0~~$2.5 million reflected in selling, general and administrative costs in ~~both~~ the three ~~and six month periods~~months ended ~~June 30, 2016.~~
March 31, 2017.

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.

Former nTelos stockholders who held approximately one million shares of nTelos’ common stock have exercised their appraisal rights under Delaware law with respect to the merger consideration of $9.25 per share paid pursuant to the nTelos acquisition. The Company has recorded a payable for the $9.3 million aggregate remaining purchase price due based upon the terms of the merger agreement with nTelos. At this time, the Company is unable to determine an estimate of any final outcome of the appraisal action or the expected timing of resolving the appraisal action. Under Delaware law, the former nTelos stockholders will be entitled to interest at the rate of 6.1% per annum on the unpaid amount when the appraisal action is resolved.

~~Index~~

3.	~~Intangible assets~~

~~Intangible assets consisted of the following (in thousands):~~

June 30,
2016

December 31,
2015

Gross
Carrying
Amount

Accumulated
Amortization

Net

Gross
Carrying
Amount

Accumulated
Amortization

Net

Non-amortizing intangibles:
Cable franchise rights $ 64,374 $ - $ 64,374 $ 64,098 $ - $ 64,098

Finite-lived intangibles:
Affiliate contract expansion rights $ 258,100 $ (3,290 ) $ 254,810 $ - $ - $ -
Acquired subscribers – wireless 138,300 (6,647 ) 131,653 - - -
Favorable leases – wireless 11,000 (183 ) 10,817 - - -
Acquired subscribers – cable 25,265 (24,246 ) 1,019 25,326 (23,805 ) 1,521
Other intangibles 2,168 (695 ) 1,473 1,938 (564 ) 1,374
Total finite-lived intangibles $ 434,833 $ (35,061 ) $ 399,772 $ 27,264 $ (24,369 ) 2,895
Total intangible assets $ 499,207 $ (35,061 ) $ 464,146 $ 91,362 $ (24,369 ) $ 66,993

~~Aggregate amortization expense for intangible assets for the periods shown is expected to be as follows:~~

Year Ending
December 31,

Amount

(in thousands)
2016 Remaining $ 26,061
2017 48,574
2018 41,377
2019 36,619
2020 33,363
2021 30,116
thereafter 183,662
Total $ 399,772

~~Changes in the carrying amount of goodwill during the six months ended June 30, 2016 are shown below (in thousands):~~

Goodwill as of December 31, 2015, Wireline segment $ 10
Goodwill recorded January 2016, Cable segment, Colane acquisition 93
Goodwill recorded May 2016, Wireless segment, nTelos acquisition 151,627
Goodwill as of June 30, 2016 $ 151,730

~~Index~~

4.3.	Property, Plant and Equipment

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

June 30,
2016

December 31,
2015

Plant in service $ 964,601 $ 718,503
Plant under construction 75,949 36,600
1,040,550 755,103
Less accumulated amortization and depreciation 387,027 345,085
Net property, plant and equipment $ 653,523 $ 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

5.
4.	Earnings ~~(loss)~~ per share

Basic net income ~~(loss)~~ 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 ~~964~~ 913 thousand and ~~696~~991 thousand shares and options outstanding at ~~June 30,~~March 31, 2017 and 2016, ~~and 2015~~, respectively, 22125 thousand and 79136 thousand were anti-dilutive, respectively. These shares and options have been excluded from the computations of diluted earnings per share for the six months ended June 30, 2016, and the three and six month periods ended June 30, 2015. Due to the net loss for the three months ended June 30, 2016, no adjustment was made to basic shares, as such adjustment would have been anti-dilutive.their respective period. There were no adjustments to net income for either period.

6.
5.	Investments ~~Carried at Fair Value~~

Investments include ~~$2.8~~$3.1 million and ~~$2.7~~$2.9 million of investments carried at fair value as of ~~June 30, 2016~~March 31, 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 ~~six~~three months ended ~~June 30, 2016,~~March 31, 2017, the Company recognized ~~$153~~$32 thousand in dividend and interest income from investments, and recorded net unrealized gains of ~~$83~~$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.

7.	~~Equipment Installment Plan Receivables~~

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:

~~As part of the acquisition of nTelos, the Company assumed 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.~~



	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

~~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 accounts receivable associated with EIP and the trade-in liability were estimated at its fair value at acquisition date in accordance ~~with ASC 805, “Business Combinations”.~~

~~There was $26.0 million of EIP receivables as of June 30, 2016. The short term portion of $19.5 million is included~~ in ~~accounts receivable, net. The long term portion of $6.5 million is included in deferred charges and other assets, net.~~

~~As of June 30, 2016, the liability associated with the trade-in right was $5.3 million, and is reflected in accrued~~ ~~liabilities and other and other long term liabilities.~~

Index

8.
6.	Financial Instruments

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

9.
7.	Derivative Instruments, Hedging Activities and Accumulated Other Comprehensive Income ~~(Loss)~~

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,~~these objectives, 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 notional principal in September 2012. This interest rate swap was designated as a cash flow hedge. The ~~total~~ outstanding notional amount of ~~the~~this cash flow hedge was ~~$144.1~~ $131.0 million as of ~~June 30, 2016.~~March 31, 2017. The outstanding notional amount decreases ~~as the Company makes~~based upon scheduled principal payments on the 2012 debt.

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 ~~total~~ outstanding notional amount of ~~the~~this cash flow hedge was ~~$273.4~~ $302.4 million as of ~~June 30, 2016.~~March 31, 2017. The outstanding notional amount increases ~~with each~~based upon draws expected ~~draw on~~to be made under a portion of the ~~term~~Company's Term Loan A-2 debt and as the 2012 interest rate swap's notional principal decreases, and will decrease as the Company makes scheduled principal payments on the 2016 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) associated with the nTelos acquisition.~~debt.

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 ~~(loss)~~ 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 ~~(loss)~~ related to the interest rate swaps designated and qualified as a cash flow hedge, are reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of ~~June 30, 2016,~~March 31, 2017, the Company estimates that $~~3.0~~ ~~million~~$237 thousand will be reclassified as an ~~increase~~ toa reduction of interest expense during the next twelve ~~months due to the interest rate swaps since the hedge interest rate exceeds the variable interest rate on the debt.~~months.

The table below presents the fair value of the Company’s derivative financial instrument as well as its classification on the condensed consolidated balance sheet as of ~~June 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 (in thousands):

   Derivatives
Fair Value as of
Balance Sheet
Location

June 30,
2016

December 31,
2015


Derivatives designated as hedging instruments:
Interest rate swap
Accrued liabilities and other $ (3,016 ) $ (682 )
Other liabilities (3,502 ) -
Deferred charges and other assets, net - 1,370
Total derivatives designated as hedging instruments $ (6,518 ) $ 688



	Derivatives
		Fair Value as of
	Balance Sheet Location	March 31, 2017		December 31, 2016
Derivatives designated as hedging instruments:
Interest rate swap
	Prepaid expenses and other	$	237	$	—
	Deferred charges and other assets, net	11,958		12,118
	Accrued liabilities and other	—		(895		)
Total derivatives designated as hedging instruments		$	12,195	$	11,223

~~Index~~

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

Index

The table below presents change in accumulated other comprehensive income ~~(loss)~~ by component for the ~~six~~three months ended ~~June 30, 2016~~March 31, 2017 (in thousands):

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 (7,997 ) 3,243 (4,754 )
Amounts reclassified from accumulated other comprehensive income (to interest expense) 791 (322 ) 469
Net current period other comprehensive loss (7,206 ) 2,921 (4,285 )
Balance as of June 30, 2016 $ (6,518 ) $ 2,648 $ (3,870 )



	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

8. Intangible Assets, Net

Intangible assets consist of the following at March 31, 2017 and December 31, 2016:



	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

Index

~~10.~~
9.	Accrued and Other liabilities

Accrued liabilities and other includes the following (in thousands):



	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

Other liabilities include the following (in thousands):

June 30,
2016

December 31,
2015

Retirement plan obligations $ 21,982 $ 2,654
Due to dissenting shareholder 9,436 -
Non-current portion of deferred revenues 8,968 4,156
Other 10,128 2,229
Other liabilities $ 50,514 $ 9,039



	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

10. Long-Term Debt and Revolving Lines of Credit

Total debt at March 31, 2017 and December 31, 2016 consists of the following:



(In thousands)	March 31, 2017		December 31, 2016
Term loan A-1	$	466,813	$	472,875
Term loan A-2	400,000		375,000
	866,813		847,875
Less: unamortized loan fees	17,816		18,610
Total debt, net of unamortized loan fees	$	848,997	$	829,265

Current maturities of long term debt, net of unamortized loan fees	$	38,124	$	32,041
Long-term debt, less current maturities, net of unamortized loan fees	$	810,873	$	797,224

As of March 31, 2017, our indebtedness totaled $866.8 million in term loans with an annualized effective interest rate of approximately 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 A-1 at a variable rate (3.73% as of March 31, 2017) that resets monthly based on one month LIBOR plus a margin of 2.75%, and the $400 million Term Loan A-2 at a variable rate (3.98% as of March 31, 2017) that resets monthly based on one month LIBOR plus a margin of 3.00%. The Term Loan A-1 requires quarterly principal repayments of $6.1 million 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 $10.0 million beginning on September 30, 2018 through March 31, 2023, with the remaining balance due June 30, 2023.

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:

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 from the closing date through December 30, 2018, then 3.25 to 1.00 through December 30, 2019, and 3.00 to 1.00 thereafter;

Index

a minimum debt service coverage ratio, defined as EBITDA minus certain cash taxes divided by the sum of 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 must maintain a minimum liquidity balance, defined as availability under the revolver facility plus unrestricted cash and cash equivalents on deposit in a deposit account for which a control agreement has been delivered to the administrative agent under the 2016 credit agreement, of greater than $25 million at all times.

These ratios are generally less restrictive than the covenant ratios the Company had been required to comply with under its previously existing debt arrangements. As shown below, as of March 31, 2017, the Company was in compliance with the financial covenants in its credit agreements.



	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


11.	Segment Information

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

~~The~~Prior to the recent acquisition of nTelos, the Wireless segment ~~has~~had provided digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, as a Sprint PCS Affiliate. With the recent acquisition, ~~of nTelos (see Note 2),~~ the ~~Company’s~~Company's wireless service ~~area~~ 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 Cable segment provides video, internet and voice services in Virginia, West Virginia and Maryland, and leases fiber optic facilities throughout southern Virginia and West Virginia. 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 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.

Index

Three months ended June 30, 2016

(in thousands)

Wireless Cable Wireline Other Eliminations
Consolidated
Totals

External revenues
Service revenues $ 86,873 $ 24,167 $ 4,820 $ - $ - $ 115,860
Other 6,280 1,923 6,246 - - 14,449
Total external revenues 93,153 26,090 11,066 - - 130,309
Internal revenues 1,141 311 7,525 - (8,977 ) -
Total operating revenues 94,294 26,401 18,591 - (8,977 ) 130,309

Operating expenses
Costs of goods and services, exclusive of depreciation and amortization shown separately below 35,236 14,564 8,808 - (8,312 ) 50,296
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 23,010 4,794 1,670 4,885 (665 ) 33,694
Integration and acquisition expenses 5,276 - - 14,778 - 20,054
Depreciation and amortization 23,495 5,879 2,933 108 - 32,415
Total operating expenses 87,017 25,237 13,411 19,771 (8,977 ) 136,459
Operating income (loss) $ 7,277 $ 1,164 $ 5,180 $ (19,771 ) $ - $ (6,150 )

Three months ended June 30, 2015

(in thousands)

Wireless Cable Wireline Other Eliminations
Consolidated
Totals

External revenues
Service revenues $ 48,749 $ 22,117 $ 4,889 $ - $ - $ 75,755
Other 2,848 1,850 5,248 - - 9,946
Total external revenues 51,597 23,967 10,137 - - 85,701
Internal revenues 1,105 186 6,326 - (7,617 ) -
Total operating revenues 52,702 24,153 16,463 - (7,617 ) 85,701

Operating expenses
Costs of goods and services, exclusive of depreciation and amortization shown separately below 15,903 13,635 7,677 (16 ) (6,919 ) 30,280
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 8,917 5,084 1,736 3,567 (698 ) 18,606
Integration and acquisition expenses - - - 402 - 402
Depreciation and amortization 8,612 5,859 3,083 109 - 17,663
Total operating expenses 33,432 24,578 12,496 4,062 (7,617 ) 66,951
Operating income (loss) $ 19,270 $ (425 ) $ 3,967 $ (4,062 ) $ - $ 18,750

Three months ended March 31, 2017

(in thousands)



	Wireless		Cable		Wireline		Other			Eliminations			Consolidated Totals
External revenues
Service revenues	$	108,186	$	26,411	$	5,048	$	—		$	—		$	139,645
Other	6,042		2,035		6,158		—			—			14,235
Total external revenues	114,228		28,446		11,206		—			—			153,880
Internal revenues	1,235		567		7,948		—			(9,750		)	—
Total operating revenues	115,463		29,013		19,154		—			(9,750		)	153,880

Operating expenses
Costs of goods and services, exclusive of depreciation and amortization shown separately below	38,318		15,228		9,273		—			(9,058		)	53,761
Selling, general and administrative, exclusive of depreciation and amortization shown separately below	28,464		4,858		1,676		5,847			(692		)	40,153
Integration and acquisition expenses	3,792		—		—		697			—			4,489
Depreciation and amortization	35,752		5,788		3,132		132			—			44,804
Total operating expenses	106,326		25,874		14,081		6,676			(9,750		)	143,207
Operating income (loss)	$	9,137	$	3,139	$	5,073	$	(6,676	)	$	—		$	10,673

Six months ended June 30, 2016

(in thousands)

Wireless
Cable Wireline
Other

Eliminations

Consolidated
Totals

External revenues
Service revenues $ 139,052 $ 48,507 $ 9,779 $ - $ - $ 197,338
Other 9,484 3,768 12,290 - - 25,542
Total external revenues 148,536 52,275 22,069 - - 222,880
Internal revenues 2,276 572 14,901 - (17,749 ) -
Total operating revenues 150,812 52,847 36,970 - (17,749 ) 222,880

Operating expenses
Costs of goods and services, exclusive of depreciation and amortization shown separately below 51,815 29,210 17,450 - (16,418 ) 82,057
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 34,524 9,902 3,275 8,750 (1,331 ) 55,120
Integration and acquisition expenses 5,276 - - 15,110 20,386
Depreciation and amortization 31,988 11,974 5,967 225 - 50,154
Total operating expenses 123,603 51,086 26,692 24,085 (17,749 ) 207,717
Operating income (loss) $ 27,209 $ 1,761 $ 10,278 $ (24,085 ) $ - $ 15,163

Three months ended March 31, 2016

(in thousands)



	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		3,865			(666		)	21,426
Integration and acquisition expenses	—		—		—		332			—			332
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

Index

Company also incurred

Index

~~IRC Sections 412~~approximately $23 million of debt issuance costs in 2015 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. Our 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. We also assumed two qualified nonpension postretirement benefit plans that provide certain health care and life benefits for nTelos retired employees that meet eligibility requirements. The health care plan is contributory, with participants’ contributions adjusted annually. The life insurance plan also is contributory. These obligations, along with all of the pension plans and other postretirement benefit plans, are obligations assumed by us. Eligibility for the life insurance plan is restricted to active pension participants age 50-64 as of January 5, 1994. Neither plan is eligible to employees hired after April 1993. The accounting for the plans anticipates that we will maintain a consistent level of cost sharing for the benefits with the retirees. Our share of the projected costs 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.

~~We record annual amounts~~2016 relating to ~~the Pension Plan and postretirement benefit plans based on calculations that incorporate various actuarial and other assumptions, including discount rates, mortality, assumed rates~~this transaction, for a total expected cost of return, turnover rates and healthcare cost trend rates. We reviews our assumptions on an annual basis and makes modifications to the assumptions based on current rates and trend when it is appropriate to do so. The effect of modifications to those assumptions is recorded in accumulated other comprenhensive income (loss) and amortized to net periodic cost over future periods using the corridor method.$101 million.

Results of Operations

Three Months Ended ~~June 30, 2016~~March 31, 2017 Compared with the Three Months Ended ~~June 30, 2015~~March 31, 2016

Our consolidated results for the ~~second~~first quarter of ~~2016~~2017 and ~~2015~~2016 are summarized as follows:

Three Months Ended
June 30,
Change
(in thousands) 2016 2015 $ %
Operating revenues $ 130,309 $ 85,701 $ 44,608 52.1
Operating expenses 136,459 66,951 69,508 103.8
Operating income (loss) (6,150 ) 18,750 (24,900 ) (132.8 )

Interest expense (5,904 ) (1,940 ) (3,964 ) 204.3
Other income, net 167 540 (373 ) (69.1 )
Income (loss) before taxes (11,887 ) 17,350 (29,237 ) (168.5 )
Income tax expense (benefit) (4,892 ) 6,876 (11,768 ) (171.1 )
Net income (loss) $ (6,995 ) $ 10,474 $ (17,469 ) (166.8 )



	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 ~~June 30, 2016,~~March 31, 2017, operating revenues increased ~~$44.6~~$61.3 million, or ~~52.1%~~66.2%. Wireless segment revenues increased ~~$41.9~~$58.9 million compared to the ~~second~~first quarter of ~~2015;~~2016; nearly all of this increase was a result of the acquisition of nTelos on May 6, 2016. Cable segment revenues grew ~~$2.2~~$2.6 million primarily as a result of ~~6.7%~~2.2% growth in average subscriber counts and an increase in revenue per subscriber. Wireline segment revenues increased $0.8 million, ~~net of eliminations of intersegment activities,~~ primarily due to increases in fiber sales.

Operating expenses

Total operating expenses were ~~$136.5~~$143.2 million in the ~~second~~first quarter of ~~2016~~2017 compared to ~~$67.0~~$71.3 million in the prior year period. Operating expenses in the ~~second~~first quarter of ~~2016~~2017 included ~~$20.1~~$4.5 million of ~~overall~~ integration and acquisition costs associated with the nTelos acquisition, including ~~$5.3~~$3.8 million on the Wireless segment and ~~$14.8~~$0.7 million in the Other segment. Selling, general and administrative expenses and cost of goods and services in the Wireless segment included an additional ~~$2.3~~$2.6 million 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 increased ~~$46.0~~$63.3 million (excluding the ~~$7.6~~$6.4 million of customer care, integration and acquisition expenses described above), primarily due to on-going costs associated with the acquired nTelos operations including ~~$12.8~~$27.3 million of incremental depreciation and amortization expenses. All other operating expenses increased ~~$1.5~~$2.2 million, net of eliminations of intersegment activities.

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

27Interest expense

Interest expense has increased primarily as a result of the incremental borrowings associated with closing the nTelos acquisition and 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

~~Our~~The Company's actual effective income tax rate ~~increased~~decreased from ~~39.6%~~31.4% for the three months ended ~~June 30, 2015~~March 31, 2016 to ~~41.2%~~20.6% for the three months ended ~~June 30, 2016. This increase~~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 ~~second 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 applied against our net loss for~~in the ~~quarter. In prior year periods, such tax benefits were recorded directly to equity.~~three months ended March 31, 2017 than the three months ended March 31, 2016.

Net income

For the three months ended ~~June 30, 2016,~~March 31, 2017, net income decreased ~~$17.5~~$11.5 million, or ~~166.8%,~~83.1% over March 31, 2016, primarily reflecting ~~acquisition and integration costs incurred,~~ increased depreciation and amortization, straight-lining of certain Sprint fee credits, and higher interest on the increased balance of outstanding debt as a result of the nTelos acquisition, net of taxes.

~~Six Months Ended June 30, 2016 Compared with the Six Months Ended June 30, 2015~~

~~The Company’s consolidated results for the first six months of 2016 and 2015 are summarized as follows:~~

Six Months Ended
June 30,
Change
(in thousands) 2016 2015 $ %
Operating revenues $ 222,880 $ 169,989 $ 52,891 31.1
Operating expenses 207,717 132,713 75,004 56.5
Operating income 15,163 37,276 (22,113 ) (59.3 )

Interest expense (7,524 ) (3,855 ) (3,669 ) 95.2
Other income, net 723 1,074 (351 ) (32.7 )
Income before taxes 8,362 34,495 (26,133 ) (75.8 )
Income tax expense 1,477 13,735 (12,258 ) (89.2 )
Net income $ 6,885 $ 20,760 $ (13,875 ) (66.8 )

~~Operating revenues~~

For the six months ended June 30, 2016, operating revenues increased $52.9 million, or 31.1%. Wireless segment revenues increased $45.6 million compared to the first six months of 2015. The new revenues associated with the nTelos customers and the Sprint customers in the nTelos footprint, net of amortization of the expanded Sprint affiliate agreement asset and the straight line adjustment to certain Sprint Fee credits, accounted for most of this increase. Cable segment revenues grew $5.4 million primarily as a result of 6.4% growth in average subscriber counts and an increase in revenue per subscriber. Wireline segment revenues increased $1.9 million, net of eliminations of intersegment activities, primarily due to increases in fiber sales.

~~Operating expenses~~

Total operating expenses increased $75.0 million in the six months ended June 30, 2016 compared to the prior year period. Operating expenses in the six months ended June 30, 2016 included $20.4 million of overall integration and acquisition costs associated with the nTelos acquisition, including $5.3 million on the Wireless segment and $15.1 million in the Other segment. Selling, general and administrative expenses and cost of goods and services in the Wireless segment included an additional $2.3 million 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 increased $49.5 million (excluding the $7.6 million of customer care, integration and acquisition expenses described above), primarily due to on-going costs associated with the acquired nTelos operations and $12.8 million of incremental depreciation associated with the related acquired assets. All other operating expenses increased $2.8 million, net of eliminations of intersegment activities.

Acquisition and integration costs on the Other segment primarily consisted of severance accruals for short-term nTelos personnel to be separated as integration activities wind down, and transaction related expenses (such as investment advisor, legal and other professional fees). On the Wireless segment, such costs included handsets provided to nTelos subscribers who needed a new phone to transition to the Sprint billing platform and personnel costs associated with short-term nTelos employees required to migrate the former nTelos customers to the Sprint back-office.

~~Index~~

~~Income tax expense~~

Our effective tax rate decreased from 39.8% for the six months ended June 30, 2015 to 17.7% for the six months ended June 30, 2016. This decrease primarily resulted from discrete tax benefits resulting from the change in accounting for stock option exercises and share award distributions in the first six months of 2016 in accordance with ASU 2016-09. In prior year periods, such tax benefits were recorded directly to equity.

~~Net income~~

For the six months ended June 30, 2016, net income decreased $13.9 million, or 66.8%, primarily reflecting acquisition and integration costs incurred, increased depreciation and amortization, straight-lining of certain Sprint credits, and higher interest on the expanded outstanding debt as a result of the nTelos acquisition, net of taxes.

Wireless

Our Wireless segment 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 ~~recent~~ 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 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.

We also offer prepaid wireless products and services in 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. 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:

June 30,
2016

December 31,
2015

June 30,
2015

December 31,
2014

Retail PCS Subscribers – Postpaid 717,563 312,512 296,492 287,867
Retail PCS Subscribers – Prepaid 289,311 142,840 145,431 145,162
PCS Market POPS (000) (1) 5,536 2,433 2,421 2,415
PCS Covered POPS (000) (1) 4,528 2,224 2,213 2,207
CDMA Base Stations (sites) 1,425 552 546 537
Towers Owned 177 158 154 154
Non-affiliate Cell Site Leases 211 202 202 198



	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

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

~~The June 30, 2016 numbers shown above include the following amounts acquired in the nTelos acquisition:~~



	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	%

~~Acquired PCS Subscribers – Postpaid~~			~~404,444~~
~~Acquired PCS Subscribers – Prepaid~~			~~154,944~~
~~Acquired PCS Market POPS (000) (1)~~			~~3,099~~
~~Acquired PCS Covered POPS (000) (1)~~			~~2,298~~
~~Acquired CDMA Base Stations (sites) (2)~~			~~868~~
~~Towers~~			20
~~Non-affiliate Cell Site Leases~~			10

Three Months Ended
June 30,

Six Months Ended
June 30,

2016 2015 2016 2015

Gross PCS Subscriber Additions – Postpaid 26,185 17,734 43,541 34,839
Net PCS Subscriber Additions (Losses) – Postpaid (1,319 ) 5,414 1,400 8,625
Gross PCS Subscriber Additions – Prepaid 27,353 19,958 48,584 43,578
Net PCS Subscriber Additions (Losses) – Prepaid (6,912 ) (2,352 ) (7,213 ) 269
PCS Average Monthly Retail Churn % - Postpaid (3) 1.56 % 1.40 % 1.56 % 1.50 %
PCS Average Monthly Retail Churn % - Prepaid (3) 4.74 % 5.07 % 4.90 % 4.92 %

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 we are authorized to serve under our Sprint PCS affiliate agreements, and Covered POPS are those covered by our network.

~~Net of approximately 160 overlap cell sites we intend to shut down in coming months.~~

3)2)

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

~~In addition, 1,260 former nTelos prepaid subscribers switched to postpaid subscribers as they migrated to the Sprint back-office platforms during the three and six months ended June 30, 2016.~~

Three Months Ended ~~June 30, 2016~~March 31, 2017 Compared with the Three Months Ended ~~June 30, 2015~~March 31, 2016

(in thousands)

Three Months Ended
June 30,

Change

2016 2015 $ %
Segment operating revenues
Wireless service revenue $ 86,873 $ 48,749 $ 38,124 78.2
Tower lease revenue 2,812 2,592 220 8.5
Equipment revenue 2,777 1,286 1,491 115.9
Other revenue 1,832 75 1,757 NA
Total segment operating revenues 94,294 52,702 41,592 78.9
Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below 35,236
15,903
19,333 121.6
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 23,010
8,917
14,093 158.0
Integration and acquisition expenses 5,276 - 5,276 NM
Depreciation and amortization 23,495 8,612 14,883 172.8
Total segment operating expenses 87,017 33,432 53,585 160.3
Segment operating income $ 7,277 $ 19,270 $ (11,993 ) (62.2 )



(in thousands)	Three Months Ended March 31,				Change
	2017		2016		$			%
Segment operating revenues
Wireless service revenue	$	108,186	$	52,179	$	56,007		107.3
Tower lease revenue	2,882		2,750		132			4.8
Equipment revenue	3,145		1,454		1,691			116.3
Other revenue	1,250		135		1,115			NM
Total segment operating revenues	115,463		56,518		58,945			104.3
Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below	38,318		16,578		21,740			131.1
Selling, general and administrative, exclusive of depreciation and amortization shown separately below	28,464		11,514		16,950			147.2
Integration and acquisition expenses	3,792		—		3,792			NM
Depreciation and amortization	35,752		8,494		27,258			320.9
Total segment operating expenses	106,326		36,586		69,740			190.6
Segment operating income	$	9,137	$	19,932	$	(10,795	)	(54.2	)

Index

Service Revenues

Wireless service revenue increased ~~$38.1~~$56.0 million, or ~~78.2%~~107.3%, for the three months ended ~~June 30, 2016,~~March 31, 2017, compared to the ~~comparable 2015~~March 31, 2016, period. See table below.

(in thousands)

Three Months Ended
June 30,

Change

Service Revenues 2016 2015 $ %
Postpaid net billings $ 75,219 $ 46,704 $ 28,515 61.1
Sprint fees
Management fee (6,344 ) (3,706 ) (2,638 ) 71.2
Net Service fee (5,307 ) (6,485 ) 1,178 (18.2 )
Waiver of management fee 5,129 - 5,129 NM
(6,522 ) (10,191 ) 3,669 (36.0 )
Prepaid net billings
Gross billings 20,504 12,945 7,559 58.4
Sprint management fee (1,218 ) (783 ) (435 ) NM
Waiver of management fee 966 - 966 NM
20,252 12,162 8,090 66.5

Travel and other revenues 4,260 74 4,186 NM
Accounting adjustments
Amortization of expanded affiliate agreement (3,290 ) - (3,290 ) NM
Straight-line adjustment - management fee waiver (3,046 ) - (3,046 ) NM
(6,336 ) - (6,336 ) NM
Total Service Revenues $ 86,873 $ 48,749 $ 38,124 78.2



(in thousands)	Three Months Ended March 31,						Change
Service Revenues	2017			2016			$			%
Postpaid net billings ⁽¹⁾	$	92,989		$	45,638		$	47,351		103.8
Sprint fees
Management fee	(7,383		)	(3,651		)	(3,732		)	102.2
Net service fee	(7,200		)	(3,934		)	(3,266		)	83.0
Waiver of management fee	7,383			—			7,383			NM
	(7,200		)	(7,585		)	385			(5.1	)
Prepaid net billings
Gross billings	25,945			13,083			12,862			98.3
Sprint management fee	(1,557		)	(785		)	(772		)	98.3
Waiver of management fee	1,557			—			1,557			NM
	25,945			12,298			13,647			111.0
Travel and other revenues	5,636			1,828			3,808			208.3
Accounting adjustments
Amortization of expanded affiliate agreement	(4,978		)	—			(4,978		)	NM
Straight-line adjustment - management fee waiver	(4,206		)	—			(4,206		)	NM
	(9,184		)	—			(9,184		)	NM
Total Service Revenues	$	108,186		$	52,179		$	56,007		107.3

(1) Postpaid net billings are defined under the terms of the affiliate contract with Sprint to be the gross billings to customers within our service territory less billing credits and adjustments and allocated write-offs of uncollectible accounts.

Operating revenues

~~Effective~~The changes in Wireless segment service revenues shown in the table above are almost exclusively a result of the nTelos acquisition in May 6,2016. Postpaid subscribers have increased by 402 thousand from March 31, 2016 ~~we acquired approximately 404,000 postpaid and 155,000~~to March 31, 2017 with 387 thousand of them in the former nTelos service area as of March 31, 2017. Prepaid subscribers have increased by 101 thousand over the same time period. There were 110 thousand prepaid subscribers ~~through our acquisition~~in the former nTelos service area as of ~~nTelos. This acquisition and other changes~~March 31, 2017.

In addition to the postpaid customer gross additions and churn, outlined in the tables above, resulted in an increase of $28.5 million or 61.1% in postpaid net billings. Effective January 1, 2016, the fees retained by Sprint, and deducted from postpaid revenues, decreased from 22% to 16.6% and they agreed to settle certain revenue and expense items separately. As a result, Sprint fees dropped by $4.6 million or 45.5%. Travel revenues, which are now settled separately, and other similarly settled items grew by $4.2 million. Prepaid net billings grew by $7.6 million or 58.4%subscribers acquired as a result of the ~~growth in the customer base related to the nTelos~~ acquisition, ~~and other changes in gross additions and churn outlined in the tables above.~~

Wewe recorded an asset related to the changes to the Sprint affiliate agreement, ~~as described~~including the right to serve new subscribers in the nTelos ~~acquisition footnote above.~~footprint, as previously described. That asset is being amortized through the expiration of the current initial term of that contract in 2029 and, as a result, we recorded ~~$3.3~~$5.0 million in amortization in the ~~second quarter.~~first quarter of 2017. Sprint agreed to waive certain management fees that they would otherwise be entitled to under the affiliate agreement ~~as a result of~~in exchange for our commitment to buy nTelos, upgrade its network and support the former nTelos and Sprint customers. The fees waived ~~will be~~are being recognized on a ~~straight line~~straight-line basis over the remainder of the initial term of the contract through 2029 and, as a result, we recorded an adjustment of ~~$3.0~~$4.2 million in the ~~second quarter.~~first quarter of 2017.

Other operating revenues

The increases in equipment revenue and other revenue also resulted primarily from the nTelos acquisition, with the increase in other revenue primarily representing regulatory recovery revenues ~~recognized by nTelos, whereas historically Sprint has recognized such revenues billed~~related to billings to customers inbefore migration to the Sprint billing system, whereas Sprint retains the billing and related expenses and liabilities under our ~~service area.~~affiliate agreement.

Index

Cost of goods and services

Cost of goods and services increased ~~$19.3~~$21.7 million, or ~~121.6%~~131.1%, in ~~2016~~2017 from the ~~second~~first quarter of ~~2015.~~2016. The increase results primarily from ~~the growth in device subsidies of $3.6 million, new national handsets settled separately under the affiliate agreement of $2.0 million,~~ increases in cell site rent, power, maintenance and backhaul ~~cost~~costs for the incremental 868 cell sites in the nTelos territory of ~~$10.6~~$19.3 million, as well as the related growth in the cost of network technicians to service and maintain these sites of ~~$2.8~~$1.1 million. Cost of goods and services also included ~~$0.3~~$0.1 million of costs to support nTelos legacy billing operations until customers migrate to Sprint’s ~~back-office~~back office systems.

Selling, general and administrative

Selling, general and administrative costs increased ~~$14.1~~$16.9 million, or ~~158.0%~~147.2%, in the ~~second~~first quarter of ~~2016~~2017 from the comparable ~~2015 period. This increase included $5.2~~2016 period, again primarily due to the acquisition of nTelos in May 2016. Increases include $3.2 million of incremental separately settled national channel ~~commissions; $2.4~~commissions, $4.7 million ~~from the operating costs of~~related to incremental stores acquired as a result of the nTelos ~~acquisition; $1.0~~acquisition, $0.9 million in incremental sales and marketing efforts to communicate with ~~the new customers~~ and ~~begin efforts to~~ migrate the remaining nTelos legacy customers over to the Sprint ~~platforms;~~platforms, and ~~$1.8~~$1.3 million in other administrative costs related to the acquired operations. Costs associated with prepaid wireless offerings increased ~~$1.1~~$4.3 million. Selling, general and administrative costs also included ~~$2.0~~$2.5 million of costs to support nTelos legacy billing operations until customers migrate to Sprint’s ~~back-office~~back office systems.

Integration and acquisition

Integration and acquisition expenses of ~~$5.3~~$3.8 million in the ~~second~~first quarter of ~~2016~~2017 include approximately $4$3.7 million for replacement handsets issued to former nTelos subscribers migrated to the Sprint billing platform and ~~$1.3~~$0.7 million in other ~~expenses.~~expenses, partially offset by $0.6 million in reductions of previously estimated costs to terminate duplicative cell site leases and backhaul contracts.

Depreciation and amortization

Depreciation and amortization increased ~~$14.9~~$27.3 million, or ~~172.8%~~321%, in the ~~second~~first quarter of ~~2016~~2017 over the comparable ~~2015~~2016 period, due primarily to ~~$6.1~~$20.0 million in incremental depreciation largely on the acquired fixed assets, and ~~$6.8~~$6.7 million in amortization of customer based intangibles recorded in the acquisition. ~~Customer based intangibles are being amortized over accelerated lives.~~

~~Six Months Ended June 30, 2016 Compared with the Six Months Ended June 30, 2015~~

(in thousands)

Six Months Ended
June 30,

Change

2016 2015 $ %

Segment operating revenues
Wireless service revenue $ 139,052 $ 97,124 $ 41,928 43.2
Tower lease revenue 5,562 5,162 400 7.7
Equipment revenue 4,231 2,767 1,464 52.9
Other revenue 1,967 158 1,809 NA
Total segment operating revenues 150,812 105,211 45,601 43.3
Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below 51,815 32,090 19,725 61.4
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 34,524 17,969 16,555 92.1
Integration and acquisition expenses 5,276 - 5,276 NM
Depreciation and amortization 31,988 16,444 15,544 94.5
Total segment operating expenses 123,603 66,503 57,100 85.9
Segment operating income $ 27,209 $ 38,708 $ (11,499 ) (29.7 )

Index

~~Service Revenues~~

~~Wireless service revenue increased $41.9 million, or 43.2%, for the six months ended June 30, 2016, compared to the comparable 2015 period. See table below.~~

(in thousands)

Six Months Ended
June 30,

Change

Service Revenues 2016 2015 $ %
Postpaid net billings $ 120,857 $ 93,479 $ 27,378 29.3
Sprint fees
Management fee (9,995 ) (7,437 ) (2,558 ) 34.4
Net Service fee (9,241 ) (13,015 ) 3,774 (29.0 )
Waiver of management fee 5,129 - 5,129 NM
(14,107 ) (20,452 ) 6,345 (31.0 )
Prepaid net billings
Gross billings 33,587 25,494 8,093 31.7
Sprint management fee (2,003 ) (1,539 ) (464 ) NM
Waiver of management fee 966 - 966 NM
32,550 23,955 8,595 35.9

Travel and other revenues 6,088 142 5,946 NM
Accounting adjustments
Amortization of expanded affiliate agreement (3,290 ) - (3,290 ) NM
Straight-line adjustment - management fee waiver (3,046 ) - (3,046 ) NM
(6,336 ) - (6,336 ) NM
Total Service Revenues $ 139,052 $ 97,124 $ 41,928 43.2

~~Operating revenues~~

Effective May 6, 2016, we acquired approximately 404,000 postpaid and 155,000 prepaid subscribers through our acquisition of nTelos. This acquisition and other changes to the postpaid customer gross additions and churn, outlined in the tables above, resulted in an increase of $27.4 million or 29.3% in postpaid net billings. Effective January 1, 2016, the fees retained by Sprint, and deducted from postpaid revenues, decreased from 22% to 16.6% and they agreed to settle certain revenue and expense items separately. As a result, Sprint fees dropped by $7.3 million or 35.7%. Travel revenues, which are now settled separately, and other similarly settled items grew by $5.9 million. Prepaid net billings grew by $8.1 million or 31.7% as a result of the growth in the customer base related to the nTelos acquisition and other changes in gross additions and churn outlined in the tables above.

We recorded an asset related to the changes to the Sprint affiliate agreement as described in the nTelos acquisition footnote above. That asset is being amortized through the expiration of the initial term of that contract in 2029 and, as a result, we recorded $3.3 million in amortization in the six months ended June 30, 2016. Sprint agreed to waive certain management fees that they would otherwise be entitled to under the affiliate agreement as a result of our commitment to buy nTelos, upgrade its network and support the former nTelos and Sprint customers. The fees waived will be recognized on a straight line basis over the remainder of the initial term of the contract through 2029 and, as a result, we recorded an adjustment of $3.0 million in the six months ended June 30, 2016.

~~Other operating revenues~~

~~Cost of goods and services~~

Cost of goods and services increased $19.7 million, or 61.4%, in 2016 from the first half of 2015. The increase results from the growth in device subsidies of $1.9 million, new national handsets settled separately under the affiliate agreement of $3.1 million, increases in cell site rent and backhaul cost for incremental 868 cell sites in the nTelos territory of $11.1 million, as well as the related growth in the cost of network technicians to service and maintain these sites of $3.2 million. Cost of goods and services also included $0.3 million of costs to support nTelos legacy billing operations until customers migrate to Sprint’s back-office systems.

~~Index~~

~~Selling, general and administrative~~

Selling, general and administrative costs increased $16.6 million, or 92.1%, in the six months ended June 30, 2016 from the comparable 2015 period. This increase included $7.6 million of separately settled national channel commissions; $2.4 million from the operating costs of incremental stores acquired as a result of the nTelos acquisition; $1.0 million in incremental sales and marketing efforts to communicate with the new customers and begin efforts to migrate the nTelos legacy customers over to the Sprint platforms; and $1.8 million in other administrative costs related to the acquired operations. Costs associated with prepaid wireless offerings increased $0.7 million. Selling, general and administrative costs also included $2.0 million of costs to support nTelos legacy billing operations until customers migrate to Sprint’s back-office systems.

~~Integration and acquisition~~

Integration and acquisition expenses of $5.3 million in the six months ended June 30, 2016, include approximately $4 million for replacement handsets issued to former nTelos subscribers migrated to the Sprint billing platform and $1.3 million in other expenses.

~~Depreciation and amortization~~

Depreciation and amortization increased $15.5 million, or 94.5%, in the six months ended June 30, 2016 over the comparable 2015 period, due primarily to $6.1 million in depreciation on the acquired fixed assets and $6.8 million in amortization of customer based intangibles recorded in the acquisition. Customer based intangibles are being amortized over accelerated lives.

~~Index~~

Cable

The Cable segment provides video, internet and voice services in franchise areas in portions of Virginia, West Virginia and western Maryland, and leases fiber optic facilities throughout its service area. It does not include video, internet and voice services provided to customers in Shenandoah County, ~~Virginia.~~

On January 1, 2016, we acquired the assets of Colane Cable Company. With the acquisition, we received 3,299 video customers, 1,405 high-speed internet customers, and 302 voice customers. These customersVirginia, which are included in the ~~June 30,~~Wireline segment. Increases in homes passed, available homes and video customers between December 31, 2015 and March 31, 2016, ~~totals shown below.~~resulted from the Colane acquisition on January 1, 2016.

June 30,
2016

December 31,
2015

June 30,
2015

December 31,
2014

Homes Passed (1) 184,627 172,538 172,144 171,589
Customer Relationships (2)
Video customers 49,241 48,184 48,659 49,247
Non-video customers 27,230 24,550 22,810 22,051
Total customer relationships 76,471 72,734 71,469 71,298
Video
Customers (3) 51,549 50,215 50,892 52,095
Penetration (4) 27.9 % 29.1 % 29.6 % 30.4 %
Digital video penetration (5) 75.3 % 77.9 % 73.8 % 65.9 %
High-speed Internet
Available Homes (6) 183,743 172,538 172,144 171,589
Customers (3) 58,230 55,131 52,415 50,686
Penetration (4) 31.7 % 32.0 % 30.4 % 29.5 %
Voice
Available Homes (6) 181,006 169,801 169,407 168,852
Customers (3) 21,092 20,166 19,401 18,262
Penetration (4) 11.7 % 11.9 % 11.5 % 10.8 %
Total Revenue Generating Units (7) 130,871 125,512 122,708 121,043
Fiber Route Miles 2,962 2,844 2,839 2,834
Total Fiber Miles (8) 81,305 76,949 73,735 72,694
Average Revenue Generating Units 131,385 124,054 123,159 117,744



	March 31, 2017		December 31, 2016		March 31, 2016		December 31, 2015
Homes Passed (1)	184,819		184,710		181,375		172,538
Customer Relationships (2)
Video customers	47,160		48,512		50,195		48,184
Non-video customers	30,765		28,854		26,895		24,550
Total customer relationships	77,925		77,366		77,090		72,734
Video
Customers (3)	49,384		50,618		52,468		50,215
Penetration (4)	26.7	%	27.4	%	28.9	%	29.1	%
Digital video penetration (5)	77.1	%	77.4	%	74.8	%	77.9	%
High-speed Internet
Available Homes (6)	183,935		183,826		180,814		172,538
Customers (3)	61,815		60,495		58,273		55,131
Penetration (4)	33.6	%	32.9	%	32.2	%	32.0	%
Voice
Available Homes (6)	181,198		181,089		178,077		169,801
Customers (3)	21,647		21,352		20,786		20,166
Penetration (4)	11.9	%	11.8	%	11.7	%	11.9	%
Total Revenue Generating Units (7)	132,846		132,465		131,527		125,512
Fiber Route Miles	3,233		3,137		2,955		2,844
Total Fiber Miles (8)	100,799		92,615		80,727		76,949
Average Revenue Generating Units	132,419		131,218		129,604		124,054


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.

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 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 applied similar logic to certain bulk customers; the net result was reductions in internet subscriber counts of 559, 682 and 673 subscribers to December 31, 2015, June 30, 2015 and December 31, 2014 totals, respectively.


4)	Penetration is calculated by dividing the number of customers by the number of homes passed or available homes, as appropriate.


5)	Digital video penetration is calculated by dividing the number of digital video customers by total video customers. Digital video customers are video customers who receive any level of video service via digital transmission. A dwelling with one or more digital set-top boxes or digital adapters counts as one digital video customer.


6)	Homes and businesses are considered available (“available homes”) if we can connect them to our distribution system without further extending the transmission lines and if we offer the service in that area.


7)	Revenue generating units are the sum of video, voice and high-speed internet customers.


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

Index

Three Months Ended ~~June 30, 2016~~March 31, 2017 Compared with the Three Months Ended ~~June 30, 2015~~March 31, 2016

(in thousands)
Three Months Ended
June 30,
Change
2016 2015 $ %

Segment operating revenues
Service revenue $ 24,167 $ 22,117 $ 2,050 9.3
Other revenue 2,234 2,036 198 9.7
Total segment operating revenues 26,401 24,153 2,248 9.3
Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below 14,564 13,635 929 6.8
Selling, general, and administrative, exclusive of depreciation and amortization shown separately below 4,794 5,084 (290 ) (5.7 )
Depreciation and amortization 5,879 5,859 20 0.3
Total segment operating expenses 25,237 24,578 659 2.7
Segment operating income (loss) $ 1,164 $ (425 ) $ 1,589 373.9



(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 $2.1 million, or ~~9.3%~~8.5%, due to a ~~6.7%~~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 and growth in the HSD and phone customers.~~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 ~~$0.9~~$0.6 million, or ~~6.8%~~4.0%, in the ~~second~~first quarter of ~~2016~~2017 over the comparable ~~2015~~2016 period. ~~Video programming costs, including retransmission fees, increased $0.4 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 decreased $0.3 million against the prior year quarter due to lower advertising ~~and commission costs, down $0.4 million.~~costs.

Index

~~Six Months Ended June 30, 2016 Compared with the Six Months Ended June 30, 2015~~

(in thousands)

Six Months Ended
June 30,

Change

2016 2015 $ %

Segment operating revenues
Service revenue $ 48,507 $ 43,518 $ 4,989 11.5
Other revenue 4,340 3,947 393 10.0
Total segment operating revenues 52,847 47,465 5,382 11.3

Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below 29,210 27,253 1,957 7.2
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 9,902 9,976 (74 ) (0.7 )
Depreciation and amortization 11,974 11,338 636 5.6
Total segment operating expenses 51,086 48,567 2,519 5.2
Segment operating income (loss) $ 1,761 $ (1,102 ) $ 2,863 259.8

~~Operating revenues~~

Cable segment service revenues increased $5.0 million, or 11.5%, due to a 6.4% increase in average revenue generating units, video rate increases in January 2016 to offset increases in programming costs, customers selecting higher-speed data (HSD) access packages and growth in the HSD and phone customers.

~~Other revenue grew $0.4 million, primarily due to new fiber contracts to towers, schools and libraries.~~

~~Operating expenses~~

Cable segment cost of goods and services increased $2.0 million, or 7.2%, in the six months ended June 30, 2016 over the comparable 2015 period. Video programming costs, including retransmission fees, increased $0.8 million, primarily due to the increase in subscribers. The remainder of the increase resulted from higher network and maintenance costs.

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.

June 30,
2016

Dec. 31,
2015

June 30,
2015

Dec. 31,
2014

Telephone Access Lines (1) 19,188 20,252 21,615 21,612
Long Distance Subscribers 9,269 9,476 9,560 9,571
Video Customers (2) 5,327 5,356 5,473 5,692
DSL and Cable Modem Subscribers (3) 14,122 13,890 12,856 13,094
Fiber Route Miles 1,752 1,736 1,590 1,556
Total Fiber Miles (4) 126,639 123,891 102,821 99,387

~~Index~~



	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


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 ~~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.

June 2016 and December 2015 totals include 725 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, 434 and 352 subscribers to December 31, 2015, June 30, 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 ~~June 30, 2016~~March 31, 2017 Compared with the Three Months Ended ~~June 30, 2015~~March 31, 2016

Three Months Ended
June 30,

Change

(in thousands) 2016 2015 $ %
Segment operating revenues
Service revenue $ 5,381 $ 5,530 $ (149 ) (2.7 )
Carrier access and fiber revenues 12,293 10,151 2,142 21.1
Other revenue 917 782 135 17.3
Total segment operating revenues 18,591 16,463 2,128 12.9

Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below 8,808 7,677 1,131 14.7
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 1,670 1,736 (66 ) (3.8 )
Depreciation and amortization 2,933 3,083 (150 ) (4.9 )
Total segment operating expenses 13,411 12,496 915 7.3
Segment operating income $ 5,180 $ 3,967 $ 1,213 30.6



	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 ~~June 30, 2016~~March 31, 2017 increased ~~$2.1~~$0.8 million, or ~~12.9%~~4.2%, against the comparable ~~2015~~2016 period, as a result of increases in fiber and access contracts.

Index

Operating expenses

Operating expenses overall increased ~~$0.9~~$0.8 million, or ~~7.3%~~6.0%, in the quarter ended ~~June 30, 2016,~~March 31, 2017, compared to the ~~2015~~2016 quarter. The ~~$1.1~~$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.

~~Index~~

~~Six Months Ended June 30, 2016 Compared with the Six Months Ended June 30, 2015~~

(in thousands)

Six Months Ended
June 30,

Change

2016 2015 $ %
Segment operating revenues
Service revenue $ 10,917 $ 10,824 $ 93 0.9
Carrier access and fiber revenue 24,263 19,678 4,585 23.3
Other revenue 1,790 1,546 244 15.8
Total segment operating revenues 36,970 32,048 4,922 15.4

Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below 17,450 15,011 2,439 16.2
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 3,275 3,234 41 1.3
Depreciation and amortization 5,967 6,007 (40 ) (0.7 )
Total segment operating expenses 26,692 24,252 2,440 10.1
Segment operating income $ 10,278 $ 7,796 $ 2,482 31.8

~~Operating revenues~~

Total operating revenues in the six months ended June 30, 2016 increased $4.9 million, or 15.4%, against the comparable 2015 period. Carrier access and fiber revenues increased $4.6 million due to increases in fiber and access contracts. The increase in service revenues primarily results from higher revenues for high-speed data services.

~~Operating expenses~~

Operating expenses overall increased $2.4 million, or 10.1%, in the six months ended June 30, 2016, compared to the 2015 period. The $2.4 million increase in cost of goods and services primarily resulted from costs to support the increase in carrier access and fiber revenues shown above.

~~Index~~

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~~Continuing OIBDA, which are considered “non-GAAP financial 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;~~fee by Sprint, amortization of the affiliate ~~agreement~~contract expansion ~~asset;~~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~~Adjusted OIBDA, less the benefit received from the waived management fee by Sprint over the next approximately ~~six–year period.~~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~~Continuing OIBDA and the associated percentage margin calculations are meaningful measures of our operating performance. We use ~~adjusted~~Adjusted OIBDA and ~~continuing~~Continuing OIBDA as supplemental performance measures because management believes 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 OIBDA~~Adjusted and ~~continuing~~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 OIBDA~~Adjusted and ~~continuing~~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 OIBDA~~Adjusted and ~~continuing~~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 ~~OIBDA~~ and ~~continuing~~Continuing OIBDA 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:

●

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 and continuing~~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;

●

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

●

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

●

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

●

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

●

~~other companies, including companies in our industry, may calculate adjusted OIBDA and continuing~~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~~Continuing OIBDA as a financial performance measure that supplements but does not replace the information reflected in our GAAP results.

~~Index~~

The following table shows ~~adjusted~~Adjusted OIBDA and ~~continuing~~Continuing OIBDA for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 and ~~2015.~~2016.

Index

Three Months Ended
June 30,

Six Months Ended
June 30,

(in thousands) 2016 2015 2016 2015
Adjusted OIBDA $ 55,905 $ 37,641 $ 96,271 $ 73,960
Continuing OIBDA $ 49,810 $ 37,641 $ 90,176 $ 73,960



	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~~Continuing OIBDA to operating income, ~~(loss),~~ which we consider to be the most directly comparable GAAP financial measure, for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 and ~~2015:~~2016:

Consolidated:

Three Months Ended
June 30,

Six Months Ended
June 30,

(in thousands) 2016 2015 2016 2015
Operating income (loss) $ (6,150 ) $ 18,750 $ 15,163 $ 37,276
Plus depreciation and amortization 32,415 17,663 50,154 34,001
Plus (gain) loss on asset sales (48 ) 218 (63 ) 229
Plus share based compensation expense 959 608 1,956 1,430
Plus straight line adjustment to reduce management fee waiver 3,046 - 3,046 -
Plus amortization of intangible netted in revenue 3,290 - 3,290 -
Plus temporary backoffice costs to support the billing operations through migration 2,339 - 2,339 -
Plus integration and acquisition related expenses 20,054 402 20,386 1,024
Adjusted OIBDA $ 55,905 $ 37,641 $ 96,271 $ 73,960
Less waived management fee (6,095 ) - (6,095 ) -
Continuing OIBDA $ 49,810 $ 37,641 $ 90,176 $ 73,960



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~~Continuing OIBDA to operating income by major segment for the three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 and ~~2015:~~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

Wireless Segment:

Three Months Ended
June 30,

Six Months Ended
June 30,

(in thousands) 2016 2015 2016 2015
Operating income $ 7,277 $ 19,270 $ 27,209 $ 38,708
Plus depreciation and amortization 23,495 8,612 31,988 16,444
Plus (gain) loss on asset sales (53 ) 8 (39 ) 33
Plus share based compensation expense 311 143 624 334
Plus straight line adjustment to reduce management fee waiver 3,046 - 3,046 -
Plus amortization of intangible netted in revenue 3,290 - 3,290 -
Plus temporary backoffice costs to support the billing operations through migration 2,339 - 2,339 -
Plus integration and acquisition related expenses 5,276 - 5,276 -
Adjusted OIBDA $ 44,981 $ 28,033 $ 73,733 $ 55,519
Less waived management fee (6,095 ) - (6,095 ) -
Continuing OIBDA $ 38,886 $ 28,033 $ 67,638 $ 55,519

Index

Cable Segment:

Three Months Ended
June 30,

Six Months Ended
June 30,

(in thousands) 2016 2015 2016 2015
Operating income (loss) $ 1,164 $ (425 ) $ 1,761 $ (1,102 )
Plus depreciation and amortization 5,879 5,859 11,974 11,338
Plus (gain) loss on asset sales (20 ) 65 (34 ) 52
Plus share based compensation expense 294 217 602 504
Adjusted OIBDA and Continuing OIBDA $ 7,317 $ 5,716 $ 14,303 $ 10,792



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
June 30,

Six Months Ended
June 30,

(in thousands) 2016 2015 2016 2015
Operating income $ 5,180 $ 3,967 $ 10,278 $ 7,796
Plus depreciation and amortization 2,933 3,083 5,967 6,007
Plus loss on asset sales 40 125 40 134
Plus share based compensation expense 136 106 284 246
Adjusted OIBDA and Continuing OIBDA $ 8,289 $ 7,281 $ 16,569 $ 14,183



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

We have ~~four~~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. We generated ~~$60.8~~$24.5 million of net cash from operations in the first ~~six~~three months of ~~2016,~~2017, compared to ~~$60.3~~$43.2 million in the first ~~six~~three months of ~~2015.~~2016. The ~~increase was driven primarily by lower net income and by~~primary change included the timing of cash ~~receipts and~~ disbursements in early 2017 for ~~taxes and materials and supplies.~~inventories acquired in late 2016.

Indebtedness. As of ~~June 30, 2016,~~March 31, 2017, our indebtedness totaled ~~$815.6 million. This included $815.2~~$866.8 million in term loans with an annualized effective interest rate of approximately ~~3.86%~~3.91% after considering the impact of the interest rate swap contract and unamortized loan costs. The balance consists of the ~~$485~~$466.8 million Term Loan A-1 at a variable rate ~~(3.21%~~(3.73% as of ~~June 30, 2016)~~March 31, 2017) that resets monthly based on one month LIBOR plus a margin of 2.75% ~~currently,~~, and the ~~$350~~$400 million Term Loan A-2 at a variable rate ~~(3.46%~~(3.98% as of ~~June 30, 2016)~~March 31, 2017) that resets monthly based on one month LIBOR plus a margin of 3.00%. The Term Loan A-1 requires quarterly principal repayments of $6.1 million ~~beginning September 30, 2016 and continuing~~ through June 30, 2017, then increasing to $12.1 million quarterly ~~thereafter~~ through June 30, ~~2021,~~2020, with ~~the remaining expected balance of approximately $242.5 million due September~~further increases at that time through maturity in 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 remaining ~~expected~~ balance ~~of approximately $210.0 million~~ due June 30, 2023.

We are bound by certain financial covenants under 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 ~~June 30, 2016,~~March 31, 2017, we were in compliance with all debt covenants, and ratios at ~~June 30, 2016~~March 31, 2017 were as follows:



	Actual		Covenant Requirement at ~~June 30, 2016~~March 31, 2017
Total Leverage Ratio	2.88	~~2.93~~	3.75 or Lower
Debt Service Coverage Ratio	4.56	~~3.72~~	2.00 or Higher
Minimum Liquidity Balance	$113 million		$25 million or Higher

In accordance with the Credit Agreement, the total leverage and debt service coverage ratios noted above are based on ~~estimates of~~ consolidated EBITDA, cash taxes, scheduled principal payments and cash interest expense ~~as if~~for the ~~nTelos acquisition had occurred on April 1, 2016,~~nine month period ending

Index

March 31, 2017, divided by three and multiplied by 4.four, all as defined under the Credit Agreement. In addition to the covenants above, we are required to supply the lenders with quarterly financial statements and other reports as defined by the 2016 credit agreement. We were in compliance with all reporting requirements at ~~June 30, 2016.~~March 31, 2017.

~~Index~~

We had no off-balance sheet arrangements (other than operating leases) and 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 ~~six~~three months of ~~2016,~~2017, we spent ~~$60.1~~$38.6 million on capital projects, compared to ~~$25.1~~$20.5 million in the comparable ~~2015~~2016 period. Spending related to Wireless projects accounted for ~~$49.1~~$25.3 million in the first ~~six~~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.

We believe that cash on hand, cash flow from operations and borrowings expected to be available under our existing credit facilities will provide sufficient cash to enable us to fund planned capital expenditures, make scheduled principal and interest payments, meet our other cash requirements and maintain compliance with the terms of 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 our expected growth in demand for our products and services. The actual amount and timing of our future capital requirements may differ materially from our estimate depending on the demand for our products and new market developments and opportunities.

Our cash flows from operations could be adversely affected by events outside our control, including, without limitation, changes in overall economic conditions, regulatory requirements, changes in technologies, demand for our products, availability of labor resources and capital, changes in 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; our ability to develop and implement successful marketing programs and new products and services; and our ability to effectively and economically manage other operating activities under our agreements with Sprint. Our ability to attract and maintain a sufficient customer base, particularly in the acquired cable markets, is also critical to our ability to maintain a positive cash flow from operations. The foregoing events individually or collectively could affect our results.

Recently Issued Accounting Standards

In May 2014, the FASB issued 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, using either a retrospective basis or a modified retrospective basis with early adoption permitted, but not earlier than the original effective date beginning after December 15, ~~2016~~2016. We have formed a project team to evaluate and implement the new standard. As part of our work to date, we have begun documentation and are ~~evaluating~~nearing completion of contract review. We currently plan to adopt this guidance using the modified retrospective transition approach, which would result in an adjustment to retained earnings for the cumulative effect, 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 affected in the current reporting period during 2018 as compared to the guidance that ~~ASU 2014-09~~was in effect before the change. We continue to assess the impact this new standard will have on our ~~consolidated~~ financial ~~statements~~position, results of operations and ~~related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our 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 us on January 1, 2019, and early application is permitted. Modified retrospective application is required. We are currently evaluating the ~~effect~~ASU, but expect that ~~ASU 2016-02~~it will have a material impact on 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 ~~two~~three components. The first component is outstanding debt with variable rates. As of ~~June 30, 2016,~~March 31, 2017, the Company had ~~$835~~$866.8 million of variable rate debt outstanding (excluding unamortized loan fees and costs of ~~$19.4~~$17.8 million), bearing interest at a weighted average rate of ~~3.31%~~3.85% as determined on a monthly basis. An increase in market interest rates of 1.00% would add approximately ~~$8.3~~$8.7 million to annual interest expense, excluding the effect of the interest rate swap. In May 2016, the Company entered into a pay-fixed, receive-variable interest rate swap with three counterparties totaling $256.6 of notional ~~principal. These swaps,~~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 50% of the expected outstanding variable rate debt through maturity in 2023. The Company is required to pay a combined fixed rate of approximately 1.16% and receive a variable rate based on one month LIBOR ~~(0.46%~~(0.98% as of ~~June 30, 2016)~~March 31, 2017), to manage a portion of its interest rate risk. Changes in the net interest paid or received under the swaps would offset approximately 50% of the change in interest expense on the variable rate debt outstanding. The swap agreements currently add approximately ~~$2.1~~$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, 2017, the cash is invested in a commercial checking account that has limited interest rate 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 ~~June 30, 2016,~~March 31, 2017, the Company has ~~$417.5~~$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.

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 ~~June 30, 2016.~~March 31, 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

The acquisition of nTelos was completed on May 6, ~~2016,~~2016. Our Company’s management has extended its oversight and ~~had a material impact on~~monitoring processes that support internal control over financial reporting to include the ~~financial position, results~~operations of ~~operations and cash flows of the Company from the date of acquisition. Management~~nTelos. Our management is ~~integrating~~continuing to integrate the acquired ~~operation~~operations into ~~its business processes and~~our overall internal control ~~structures~~financial reporting process, expected to be complete in 2017.

Except as ~~quickly as possible, although it is certain that~~noted above, there has been no change in the integration of customers and back office operations will not be completed until sometime during 2017. As a result of the acquisition, and the ongoing impact to the business, management has elected to exclude the legacy systems of nTelos from our 2016 assessment ofCompany’s internal ~~controls~~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 a substantial portion of the Company’s total operating 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 (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

We discuss in our Annual Report on Form 10-K 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 Company has not identified any needed updates to the risk factors included in our most recent Form 10-K.

~~In connection with the nTelos acquisition, we incurred significant additional indebtedness, which could materially and adversely affect us, including by decreasing our business flexibility.~~

We have substantially increased indebtedness following completion of the nTelos acquisition in comparison to that of the Company on a recent historical basis, which has increased our interest expense and amortization requirements and could have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions. The amount of cash required to pay interest on our increased indebtedness and the increased amortization requirements to pay down the loan balances following the nTelos acquisition, and thus the demands on our cash resources, could be greater than the amount of cash flows required to service our indebtedness prior to the nTelos acquisition. Our increased levels of indebtedness could also reduce funds available for working capital, capital expenditures, dividends and other general corporate purposes and may create competitive disadvantages for us relative to other companies with lower debt levels. If we do not achieve the expected benefits and cost savings from the nTelos acquisition, or if the financial performance of the combined company does not meet current expectations, then our ability to service this indebtedness may be materially and adversely impacted.

It may be difficult to successfully integrate the business of nTelos and we may fail to realize the anticipated benefits expected from the nTelos acquisition, which could materially and adversely affect our operating results and the market price of our common stock.

If we experience greater than anticipated costs to integrate nTelos into our existing operations or are not able to achieve the anticipated benefits of the nTelos acquisition, our business and results of operations could be materially and negatively affected. In addition, it is possible that the ongoing integration process could result in the disruption of our ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with customers and employees or to achieve the anticipated benefits of the nTelos acquisition. Integration efforts also may divert management attention and resources.

The success of the nTelos acquisition will also depend, in significant part, on our ability to successfully integrate the acquired business and realize the synergies anticipated with the nTelos acquisition. Many of these synergies are not expected to occur for a period of time and will require capital expenditures to be fully realized. If we are unable to integrate nTelos successfully, we may not realize the anticipated benefits of the nTelos acquisition, including the anticipated synergies.


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 ~~June 30, 2016:~~March 31, 2017:

Number of Shares
Purchased

Average Price
Paid per Share

April 1 to April 30 - -
May 1 to May 31 8,672 $ 29.00
June 1 to June 30 6,449 $ 33.25

Total 15,121 $ 30.81



	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

On May 6, 2016, in connection with the closing of the nTelos acquisition, the Company issued 380,000 shares of its common stock as consideration for the acquisition of the non-controlling interests in a subsidiary of nTelos. Such shares were valued at $10.4 million. The sale of these securities was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, based upon representations made to us by the equity holders in purchase agreements we entered into with each equity holder.

~~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 July 18, 2016,~~L.P., SprintCom, Inc. and Horizon Personal Communications, LLC, filed as Exhibit ~~3.1~~10.1 to the ~~Company~~Company's Current Report on Form 8-K ~~dated July 18, 2016.~~filed March 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: ~~August 8, 2016~~May 4, 2017

Index

EXHIBIT INDEX



Exhibit No.	Exhibit

~~3.3~~10.54	~~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 July 18, 2016,~~L.P., SprintCom, Inc. and Horizon Personal Communications, LLC, filed as Exhibit ~~3.1~~10.1 to the ~~Company’s~~Company's Current Report on Form 8-K ~~dated July 18, 2016.~~filed March 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

4937



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 Condensed Consolidated Balance Sheets June 30, 2016 and December 31, 2015~~	~~3-4~~

	~~Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2016 and 2015~~	5

	~~Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2016 and the Year Ended December 31, 2015~~	6

	~~Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015~~	~~7-8~~

	~~Notes to Unaudited Condensed Consolidated Financial Statements~~	~~9-24~~

~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	~~25-43~~

~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~	44

~~Item 4.~~	~~Controls and Procedures~~	45

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

~~Item 1A.~~	~~Risk Factors~~	46

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	46

~~Item 6.~~	~~Exhibits~~	47

	~~Signatures~~	48

	~~Exhibit Index~~	49

(in thousands)	June 30, 2016			December 31, 2015
Wireless	$	1,142,459		$	205,718
Cable		210,542			209,132
Wireline		111,728			105,369
Other		1,083,152			463,390
Combined totals		2,547,881			983,609
Inter-segment eliminations		(1,092,040	)		(356,458	)
Consolidated totals	$	1,455,841		$	627,151



(in thousands)	March 31, 2017			December 31, 2016
Wireless	$	1,039,211		$	1,101,716
Cable	220,519			218,471
Wireline	116,390			115,282
Other	1,070,204			1,059,898
Combined totals	2,446,324			2,495,367
Inter-segment eliminations	(993,335		)	(1,010,960		)
Consolidated totals	$	1,452,989		$	1,484,407



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



	For the quarterly period ended ~~June 30, 2016~~March 31, 2017



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

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016			2015

Operating revenues	$	130,309		$	85,701		$	222,880		$	169,989

Operating expenses:
Cost of goods and services, exclusive of depreciation and amortization shown separately below		50,296			30,280			82,057			60,970
Selling, general and administrative, exclusive of depreciation and amortization shown separately below		33,694			18,606			55,120			36,718
Integration and acquisition expenses		20,054			402			20,386			1,024
Depreciation and amortization		32,415			17,663			50,154			34,001
Total operating expenses		136,459			66,951			207,717			132,713
Operating income (loss)		(6,150	)		18,750			15,163			37,276

Other income (expense):
Interest expense		(5,904	)		(1,940	)		(7,524	)		(3,855	)
Gain on investments, net		21			98			109			200
Non-operating income, net		146			442			614			874
Income (loss) before income taxes		(11,887	)		17,350			8,362			34,495

Income tax expense (benefit)		(4,892	)		6,876			1,477			13,735
Net income (loss)		(6,995	)		10,474			6,885			20,760

Other comprehensive income (loss):
Unrealized gain (loss) on interest rate hedge, net of tax		(3,238	)		326			(4,285	)		(581	)
Comprehensive income (loss)	$	(10,233	)	$	10,800		$	2,600		$	20,179

Earnings (loss) per share:
Basic	$	(0.14	)	$	0.22		$	0.14		$	0.43
Diluted	$	(0.14	)	$	0.21		$	0.14		$	0.42

Weighted average shares outstanding, basic		48,830			48,380			48,696			48,343

Weighted average shares outstanding, diluted		48,830			49,004			49,415			48,927

Accounts receivable	$	48,476
Inventory		3,810
Restricted cash		2,167
Investments		1,501
Prepaids expenses and other assets		14,835
Building held for sale		4,950
Property, plant and equipment		223,900
Spectrum licenses		198,200
Customer based contract rights		198,200
Contract based intangible assets		11,000
Goodwill		151,627
Other long term assets		10,288
Total assets acquired	$	868,954

Accounts payable	$	8,648
Advanced billings and customer deposits		12,477
Accrued expenses		25,230
Capital lease liability		418
Deferred tax liabilities		124,964
Retirement benefits		19,461
Other long-term liabilities		14,056
Total liabilities assumed		205,254

Net assets acquired	$	663,700

	Useful Life	Basis
Affiliate contract agreement	14 years	$	258,100
Customer based contract rights	4-10 years		138,300
Contract based intangible assets	3-19 years		11,000

Year Ending December 31,	Amount
	(in thousands)
2016 Remaining	$	26,061
2017		48,574
2018		41,377
2019		36,619
2020		33,363
2021		30,116
thereafter		183,662
Total	$	399,772

Goodwill as of December 31, 2015, Wireline segment	$	10
Goodwill recorded January 2016, Cable segment, Colane acquisition		93
Goodwill recorded May 2016, Wireless segment, nTelos acquisition		151,627
Goodwill as of June 30, 2016	$	151,730

	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		(7,997	)		3,243			(4,754	)
Amounts reclassified from accumulated other comprehensive income (to interest expense)		791			(322	)		469
Net current period other comprehensive loss		(7,206	)		2,921			(4,285	)
Balance as of June 30, 2016	$	(6,518	)	$	2,648		$	(3,870	)

Six months ended June 30, 2015 (in thousands)
	Wireless		Cable			Wireline		Other			Eliminations			Consolidated Totals
External revenues
Service revenues	$	97,124	$	43,518		$	9,639	$	-		$	-		$	150,281
Other		5,878		3,613			10,217		-			-			19,708
Total external revenues		103,002		47,131			19,856		-			-			169,989
Internal revenues		2,209		334			12,192		-			(14,735	)		-
Total operating revenues		105,211		47,465			32,048		-			(14,735	)		169,989

Operating expenses
Costs of goods and services, exclusive of depreciation and amortization shown separately below		32,090		27,253			15,011		-			(13,384	)		60,970
Selling, general and administrative, exclusive of depreciation and amortization shown separately below		17,969		9,976			3,234		6,890			(1,351	)		36,718
Integration and acquisition expenses		-		-			-		1,024						1,024
Depreciation and amortization		16,444		11,338			6,007		212			-			34,001
Total operating expenses		66,503		48,567			24,252		8,126			(14,735	)		132,713
Operating income (loss)		38,708		(1,102	)		7,796		(8,126	)		-			37,276

2016	$	12,238
2017		36,714
2018		68,593
2019		88,593
2020		100,625
Thereafter		528,650
Total	$	835,413

	Defined Benefit Pension Plan			Other Postretirement Benefit Plans
(In thousands)	2016			2016

Benefit obligations, at acquisition	$	37,443		$	4,568
Fair value of plan assets, at acquisition	$	22,813		$	—
Funded status:
Total liability, at acquisition	$	(14,630	)	$	(4,568	)

	Defined Benefit Pension Plan			Other Postretirement Benefit Plans
(In thousands)	2016			2016
Components of net periodic benefit cost:
Service cost	$	-		$	18
Interest cost		956			108
Recognized net actuarial loss		-			-
Expected return on plan assets		(1,018	)		-
Net periodic benefit cost	$	(62	)	$	126

	Defined Benefit Pension Plan			Other Postretirement Benefit Plans
	2016			2016
Discount rate		3.85	%		3.85	%

	Actual Allocation as of			Fair Value as of May 6,
Asset Category (dollars in thousands)	May 6, 2016			2016
Large Cap Value		32	%	$	7,244
Mid Cap Blend		9	%		2,026
Small Cap Blend		5	%		1,151
Foreign Stock – Large Cap		30	%		6,867
Bond		20	%		4,611
Cash and cash equivalents		4	%		914
Total		100	%	$	22,813

Asset Category	Actual Allocation			Target Allocation
Equity securities		76	%		65-75	%
Bond securities and cash equivalents		24	%		25-35	%
Total		100	%		100	%

(In thousands)	Defined Benefit Pension Plan		Other Postretirement Benefit Plans
2016	$	371	$	96
2017		700		136
2018		720		131
2019		768		134
2020		868		142
Aggregate of next five years		6,219		977


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

	June 30, 2016		December 31, 2015		June 30, 2015		December 31, 2014
Retail PCS Subscribers – Postpaid		717,563		312,512		296,492		287,867
Retail PCS Subscribers – Prepaid		289,311		142,840		145,431		145,162
PCS Market POPS (000) (1)		5,536		2,433		2,421		2,415
PCS Covered POPS (000) (1)		4,528		2,224		2,213		2,207
CDMA Base Stations (sites)		1,425		552		546		537
Towers Owned		177		158		154		154
Non-affiliate Cell Site Leases		211		202		202		198

	Number of Shares Purchased		Average Price Paid per Share
April 1 to April 30		-		-
May 1 to May 31		8,672	$	29.00
June 1 to June 30		6,449	$	33.25

Total		15,121	$	30.81