UNITED STATES OF AMERICA

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)



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



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



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



	For the transition period from__________ to __________

Commission File No.: 000-09881

SHENANDOAH TELECOMMUNICATIONS COMPANY

(Exact name of registrant as specified in its charter)



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

500 Shentel Way, Edinburg, Virginia 22824

(Address of principal executive offices) (Zip Code)

(540) 984-4141

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” ~~and~~ “smaller reporting ~~company”~~company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

The number of shares of the registrant’s common stock outstanding on ~~October 27, 2016~~April 26, 2017 was ~~48,915,405.~~49,109,626.

SHENANDOAH TELECOMMUNICATIONS COMPANY

INDEX


		Page Numbers				Page Numbers
PART I.	FINANCIAL INFORMATION				FINANCIAL INFORMATION

Item 1.	Financial Statements				Financial Statements

	Unaudited Condensed Consolidated Balance Sheets September 30, 2016 and December 31, 2015	3	-	4	Unaudited Condensed Consolidated Balance Sheets March 31, 2017 and December 31, 2016	4	-	5

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2016 and 2015	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 Nine Months Ended September 30, 2016 and the Year Ended December 31, 2015	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 Nine Months Ended September 30, 2016 and 2015	7	-	8	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	9	-	26	Notes to Unaudited Condensed Consolidated Financial Statements	10	-	17

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28	-	46	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18	-	30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47			Quantitative and Qualitative Disclosures about Market Risk	31

Item 4.	Controls and Procedures	48			Controls and Procedures	32

PART II.	OTHER INFORMATION				OTHER INFORMATION

Item 1A.	Risk Factors	49			Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49			Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 6.	Exhibits	50			Exhibits	34

	Signatures	51			Signatures	36

	Exhibit Index	52			Exhibit Index	37

Index

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)


ASSETS	September 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016

Current Assets
Cash and cash equivalents	$	27,531	$	76,812	$	39,927	$	36,193
Restricted cash	2,167		—
Accounts receivable, net	79,944		29,778		68,709		69,789
Income taxes receivable	—		7,694
Inventory, net	14,128		4,183		24,855		39,043
Prepaid expenses and other	17,759		8,573		16,989		16,440
Deferred income taxes	—		907
Total current assets	141,529		127,947		150,480		161,465

Investments, including $2,889 and $2,654 carried at fair value	10,113		10,679
Investments, including $3,058 and $2,907 carried at fair value					10,607		10,276

Building held for sale	4,950		—
Property, plant and equipment, net	667,741		410,018		689,948		698,122

Other Assets
Intangible assets, net	458,401		66,993		443,308		454,532
Goodwill	145,413		10		144,001		145,256
Deferred charges and other assets, net	5,478		11,504		14,645		14,756
Other assets, net	609,292		78,507
Total assets	$	1,433,625	$	627,151	$	1,452,989	$	1,484,407

(Continued)

Index

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)


LIABILITIES AND SHAREHOLDERS’ EQUITY	September 30, 2016			December 31, 2015		March 31, 2017		December 31, 2016

Current Liabilities
Current maturities of long-term debt, net of unamortized loan fees	$	25,972		$	22,492	$	38,124	$	32,041
Accounts payable	34,974			13,009		25,390		72,810
Advanced billings and customer deposits	21,979			11,674		21,029		20,427
Accrued compensation	6,817			5,915		3,678		9,465
Income taxes payable	14,189			—		3,958		435
Accrued liabilities and other	31,533			7,639		18,174		29,085
Total current liabilities	135,464			60,729		110,353		164,263

Long-term debt, less current maturities, net of unamortized loan fees	783,595			177,169		810,873		797,224

Other Long-Term Liabilities
Deferred income taxes	146,966			74,868		149,763		151,837
Deferred lease payable	10,869			8,142		19,230		18,042
Asset retirement obligations	15,828			7,266		19,386		15,666
Retirement plan obligations						17,892		17,738
Other liabilities	42,597			9,039		26,057		23,743
Total other long-term liabilities	216,260			99,315		232,328		227,026

Commitments and Contingencies

Shareholders’ Equity
Common stock	44,427			32,776		46,083		45,482
Retained earnings	256,037			256,747		245,965		243,624
Accumulated other comprehensive income (loss), net of taxes	(2,158		)	415
Accumulated other comprehensive income, net of taxes						7,387		6,788
Total shareholders’ equity	298,306			289,938		299,435		295,894

Total liabilities and shareholders’ equity	$	1,433,625		$	627,151	$	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 September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2016			2015			2016			2015			2017			2016

Operating revenues	$	156,836		$	85,212		$	379,716		$	255,202		$	153,880		$	92,571

Operating expenses:
Cost of goods and services, exclusive of depreciation and amortization shown separately below	58,317			30,570			140,354			91,541			53,761			31,762
Selling, general and administrative, exclusive of depreciation and amortization shown separately below	40,369			18,306			96,263			55,024			40,153			21,426
Integration and acquisition expenses	15,272			2,129			35,801			3,153			4,489			332
Depreciation and amortization	46,807			19,118			96,961			53,119			44,804			17,739
Total operating expenses	160,765			70,123			369,379			202,837			143,207			71,259
Operating income (loss)	(3,929		)	15,089			10,337			52,365
Operating income													10,673			21,312

Other income (expense):
Interest expense	(8,845		)	(1,808		)	(16,369		)	(5,663		)	(9,100		)	(1,619		)
Gain (loss) on investments, net	127			(211		)	237			(12		)
Gain on investments, net													120			88
Non-operating income, net	1,400			391			2,910			1,265			1,255			468
Income (loss) before income taxes	(11,247		)	13,461			(2,885		)	47,955
Income before income taxes													2,948			20,249

Income tax expense (benefit)	(3,651		)	5,465			(2,174		)	19,199
Net income (loss)	(7,596		)	7,996			(711		)	28,756
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	1,712			(979		)	(2,573		)	(1,560		)	599			(1,048		)
Comprehensive income (loss)	$	(5,884	)	$	7,017		$	(3,284	)	$	27,196
Comprehensive income													$	2,940		$	12,833

Earnings (loss) per share:
Earnings per share:
Basic	$	(0.16	)	$	0.17		$	(0.01	)	$	0.59		$	0.05		$	0.29
Diluted	$	(0.16	)	$	0.16		$	(0.01	)	$	0.59		$	0.05		$	0.28
Weighted average shares outstanding, basic	48,909			48,406			48,768			48,364			49,050			48,563
Weighted average shares outstanding, diluted	48,909			49,071			48,768			48,967			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
															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		48,475		$	32,776		$	256,747		$	415	$	289,938
												$	—
Net loss	—		—			(711		)	—			(711		)	—		—			(895		)	—		(895		)
Other comprehensive loss, net of tax	—		—			—			(2,573		)	(2,573		)
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	—		2,980			—			—			2,980			—		3,506			—			—		3,506
Stock options exercised	371		3,362			—			—			3,362			371		3,359			—			—		3,359
Common stock issued for share awards	190		—			—			—			—			190		—			—			—		—
Common stock issued	1		6			—			—			6			2		14			—			—		14
Common stock issued to acquire non-controlling interests of nTelos	76		10,400			—			—			10,400			76		10,400			—			—		10,400
Common stock repurchased	(198	)	(5,097		)	—			—			(5,097		)	(198	)	(5,097		)	—			—		(5,097		)
Balance, September 30, 2016	48,915		$	44,427		$	256,037		$	(2,158	)	$	298,306

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)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2016			2015			2017			2016
Cash Flows From Operating Activities
Net income (loss)	$	(711	)	$	28,756
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net income							$	2,341		$	13,881
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	84,256			51,985			37,878			17,454
Amortization reflected as operating expense	12,705			1,134			6,926			285
Amortization reflected as contra revenue	8,883			—			4,978			—
Amortization reflected as rent expense							258			—
Provision for bad debt	1,278			1,335			420			345
Straight line adjustment to management fee revenue	7,687			—			4,206			—
Stock based compensation expense	2,570			1,893			1,566			1,048
Excess tax benefits on stock awards	—			(655		)
Deferred income taxes	(57,196		)	(7,463		)	(2,910		)	(1,489		)
Net (gain) loss on disposal of equipment	(144		)	229
Unrealized (gain) loss on investments	(180		)	190
Realized loss on disposal of investments	—			20
Net gain on disposal of equipment							(28		)	(15		)
Unrealized gain on investments							(120		)	(16		)
Net gains from patronage and equity investments	(497		)	(540		)	(200		)	(210		)
Amortization of long term debt issuance costs	2,608			430			1,202			132
Other	1,634			323			—			3,039
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable	7,903			(2,989		)	1,629			2,470
Inventory, net	(6,134		)	286			14,188			(267		)
Income taxes receivable	8,294			14,752
Other assets	2,619			(3,990		)	(190		)	988
Increase (decrease) in:
Accounts payable	3,551			(4,174		)	(39,399		)	1,895
Income taxes payable	16,225			1,675			3,523			6,981
Deferred lease payable	2,728			733			1,331			208
Other deferrals and accruals	7,767			(807		)	(13,101		)	(3,559		)
Net cash provided by operating activities	105,846			83,123			24,498			43,170

Cash Flows From Investing Activities
Acquisition of property, plant and equipment	(102,850		)	(39,644		)	(38,587		)	(20,537		)
Proceeds from sale of equipment	287			242			117			145
Cash distributions from investments	2,796			38			3			45
Cash disbursed for acquisition, net of cash acquired	(665,990		)	—
Additional contributions to investments							(14		)	—
Cash disbursed for acquisition							—			(2,480		)
Net cash used in investing activities	(765,757		)	(39,364		)	(38,481		)	(22,827		)

(Continued)

Index

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2016			2015			2017			2016
Cash Flows From Financing Activities
Principal payments on long-term debt	$	(207,816	)	$	(17,250	)	$	(6,062	)	$	(5,750	)
Amounts borrowed under debt agreements	835,000			—			25,000			—
Cash paid for debt issuance costs	(14,825		)	(7,820		)	—			(1,528		)
Excess tax benefits on stock awards	—			655
Repurchases of common stock	(5,097		)	(1,799		)	(1,226		)	(3,526		)
Proceeds from issuances of common stock	3,368			826			5			2,809
Net cash provided by/(used in) financing activities	610,630			(25,388		)	17,717			(7,995		)

Net increase (decrease) in cash and cash equivalents	(49,281		)	18,371
Net increase in cash and cash equivalents							3,734			12,348

Cash and cash equivalents:
Beginning	76,812			68,917			36,193			76,812
Ending	$	27,531		$	87,288		$	39,927		$	89,160

Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest	$	14,671		$	5,550
Interest, net of capitalized interest of $577 and $146, respectively							$	8,380		$	1,632

Income taxes paid, net of refunds received	$	23,851		$	10,235		$	—		$	876

Non-cash investing and financing activities:

At ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ accounts payable included approximately ~~$14.2~~$6.4 million and ~~$1.0~~$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

~~Index~~

~~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.


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 ~~$665.4~~$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.~~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 ~~following table shows~~Company continues to review certain tax positions acquired in the ~~initial estimate~~nTelos acquisition.

Changes in the carrying amount of ~~value and changes recorded~~goodwill during the ~~third quarter of 2016~~three months ended March 31, 2017 are shown below (in thousands):

~~Index~~

Initial Estimate Revisions Revised Estimate
Accounts receivable $ 48,476
$ 1,045
$ 49,521
Inventory 3,810
—
3,810
Restricted cash 2,167
—
2,167
Investments 1,501
—
1,501
Prepaid expenses and other assets 14,835
—
14,835
Building held for sale 4,950
—
4,950
Property, plant and equipment 223,900
3,571
227,471
Spectrum licenses 198,200
—
198,200
Customer based contract rights 198,200
5,162
203,362
Contract based intangible assets 11,000
—
11,000
Goodwill 151,627
(6,328 ) 145,299
Other long term assets 10,288
555
10,843
Total assets acquired $ 868,954
$ 4,005
$ 872,959

Accounts payable $ 8,648
$ (116 ) $ 8,532
Advanced billings and customer deposits 12,477
—
12,477
Accrued expenses 25,230
—
25,230
Capital lease liability 418
—
418
Deferred tax liabilities 124,964
2,758
127,722
Retirement benefits 19,461
(263 ) 19,198
Other long-term liabilities 14,056
—
14,056
Total liabilities assumed 205,254
2,379
207,633

Net assets acquired $ 663,700
$ 1,626
$ 665,326

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

~~Closing on the sale of the former nTelos headquarter building held for sale is expected to be completed in the fourth quarter of 2016.~~

~~Revisions to the provisional estimates shown above reflect:~~

~~adding $4.6 million of construction materials and inventory, less $1.0 million of software and other assets that the Company has determined have no utility to the Company post-acquisition;~~

the increases in accounts receivable and other long term assets relating to an adjustment to the estimated fair value of nTelos' financed handset receivables, applied to the current and long-term portions of these receivables. Losses on migrations of these receivables have been less than initially estimated;

~~the increase in net assets acquired resulting from the settlement of the appraisal rights dispute;~~

~~the value assigned to certain customer based intangibles increased by $5.2 million, with an offset to goodwill; and~~

the increase in deferred taxes payable (offset by an increase in goodwill) resulting from several of the changes shown above as well as true-ups in the net tax basis of fixed assets resulting from completion of nTelos' 2015 tax returns.

In addition to the changes in balances reflected above, the Company revised the provisional estimated useful lives of certain assets and recorded an adjustment to depreciation expense of $4.6 million relating to the second quarter for these assets.

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 $203.4 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 $287.8 million, as well as additional

~~Index~~

customer based contract rights, valued at $113.8 million, relating to nTelos’ and Sprint’s legacy customers in the Company’s affiliate service territory. These exchanges were accounted for in accordance with ASC 845, “Nonmonetary Transactions”. The transfer of spectrum to Sprint resulted in a taxable gain to the Company which will be recognized as the Company recognizes the cash benefit of the waived management fees over the next approximately six years.

~~The value of the affiliate agreement expansion is based on changes to the amended affiliate agreement that include:~~

~~an increase in the price to be paid by Sprint from 80% to 90% of the entire business value of PCS if the affiliate agreement is not renewed;~~

~~extension of the affiliate agreement with Sprint by 5 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 6 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 $ 287,800
Customer based contract rights 4-10 years 113,761
Contract based intangible assets 3-19 years 11,000

The affiliate contract agreement intangible asset value was increased by $29.7 million during the third quarter of 2016 and will be amortized on a straight-line basis and recorded as a contra-revenue over the remaining 14 year initial contract term. The Company recorded an adjustment of $0.4 million of amortization expense on this asset during the third quarter of 2016 that related to the second quarter of 2016. 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 customer based contract rights value was reduced by $24.5 million during the third quarter of 2016, and amortization expense was reduced by $0.5 million during the third quarter that related to second quarter 2016. The value of these two assets changed primarily due to the effect on the initial provisional values of where certain cash flows should be reflected in those valuations.

The Company has recorded goodwill in its Wireless segment as a result of the nTelos acquisition. This goodwill is not amortizable for tax purposes, as the Company acquired the common stock of nTelos.

Prior to the acquisition, nTelos was eligible to receive up to $5.0 million in connection with its winning bid in the Connect America Fund's Mobility Fund Phase I Auction ("Auction 901"). Pursuant to the terms of Auction 901, nTelos obtained a Letter of Credit (“LOC”) in the amount of $2.2 million for the benefit of the Universal Service Administrative Company (“USAC”) to cover each disbursement plus the amount of the performance default penalty (10% of the total eligible award). In accordance with the terms of the LOC, nTelos deposited $2.2 million into a separate account at the issuing bank to serve as cash collateral and is presented as restricted cash. Such funds will be released to the Company when the LOC is terminated without being drawn upon by USAC, which is expected to occur in the fourth quarter of 2016.

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 4 years. This transaction was valued at $10.4 million.

In connection with the acquisition, at closing, the Company borrowed $810.0 million in term loans with a weighted average effective interest rate of approximately 3.84%. The proceeds were used to finance in part the acquisition, including the repayment of the Company’s term loan of $195.5 million, and the repayment of nTelos’ term loans at the outstanding principal amount of $519.7 million, without penalty.

~~Index~~



	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 months~~period ended ~~September 30, 2015 and the nine months ended September 30,~~March 31, 2016, ~~and 2015,~~ as if the acquisition of nTelos had occurred at the beginning of ~~each of~~ the ~~periods presented. The three months ended September 30, 2016 are not presented as those results already include nTelos' results~~period. (in thousands):

Three Months Ended
September 30,
2016 2015
Operating revenues $ N/A $ 166,614
Income before income taxes $ N/A $ 2,588


	Nine Months Ended September 30,
	2016			2015		March 31, 2016
Operating revenues	$	492,114		$	509,415	$	173,248
Income (loss) before income taxes	$	(4,016	)	$	39,680
Income before income taxes						$	16,905

The pro forma disclosures shown above are based upon estimated preliminary valuations of the assets acquired and liabilities assumed as well as preliminary estimates of depreciation and amortization charges thereon, that may differ from the final fair values of the acquired assets and assumed liabilities and the resulting depreciation and amortization charges thereon. Other pro forma adjustments include the following:

~~changes in nTelos’ reported revenues from cancelling nTelos’ wholesale contract with Sprint;~~

~~the incorporation of the Sprint-homed customers formerly serviced under the wholesale agreement into the Company’s affiliate service territory under the Company’s affiliate agreement with Sprint;~~

the effect of other changes to revenues and expenses due to various provisions of the affiliate agreement, including fees charged under the affiliate agreement on revenues from former nTelos customers, a reduction of the net service fee charged by Sprint, the straight-line impact of the waived management fee, and the amortization of the affiliate agreement expansion intangible asset; and the elimination of non-recurring transaction related expenses incurred by the Company and nTelos;

~~the elimination of certain nTelos operating costs associated with billing and care that are covered under the fees charged by Sprint under the affiliate agreement;~~

historical depreciation expense was reduced for the fair value adjustment decreasing the basis of property, plant and equipment; this decrease was offset by a shorter estimated useful life to conform to the Company’s standard policy and the acceleration of depreciation on certain equipment; and

~~incremental amortization due to the customer-based contract rights associated with acquired customers.~~

In connection with these transactions, the Company ~~chose to proactively migrate the former nTelos customers to devices~~incurs costs which can interact with the Sprint billing and network systems, 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; 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; ~~transaction~~and costs to shut down certain cell sites and related ~~fees; net of proceeds from the sale of the former nTelos headquarters building.~~backhaul contracts. We have incurred ~~$20.2 million and $43.9~~$7.1 million of these costs in the three months ~~and nine months~~ ended ~~September 30, 2016, respectively,~~March 31, 2017, including ~~$0.7~~$0.1 million reflected in cost of goods and services and ~~$4.2~~$2.5 million reflected in selling, general and administrative costs in the three ~~month period~~months ended ~~September 30, 2016, and $1.0 million reflected in cost of goods and services and $7.1 million reflected in selling, general and administrative costs in the nine month period ended September 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.

~~Index~~


3.	~~Intangible assets~~

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

September 30,
2016 December 31,
2015

Gross
Carrying
Amount

Accumulated
Amortization
Net
Gross
Carrying
Amount

Accumulated
Amortization
Net
Non-amortizing intangibles:
Cable franchise rights $ 64,431
$ —
$ 64,431
$ 64,098
$ —
$ 64,098

Finite-lived intangibles:
Affiliate contract expansion rights $ 287,800
$ (8,883 ) $ 278,917
$ —
$ —
$ —
Acquired subscribers – wireless 113,761
(11,442 ) 102,319
—
—
—
Contract based intangibles – wireless 11,000
(458 ) 10,542
—
—
—
Acquired subscribers – cable 25,265
(24,452 ) 813
25,326
(23,805 ) 1,521
Other intangibles 2,102
(723 ) 1,379
1,938
(564 ) 1,374
Total finite-lived intangibles $ 439,928
$ (45,958 ) $ 393,970
$ 27,264
$ (24,369 ) 2,895
Total intangible assets $ 504,359
$ (45,958 ) $ 458,401
$ 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 $ 12,463
2017 45,091
2018 39,372
2019 35,428
2020 32,718
2021 30,139
thereafter 198,759
Total $ 393,970

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

Goodwill as of December 31, 2015, Wireline segment $ 10
Goodwill recorded January 2016, Cable segment, Colane acquisition 104
Goodwill recorded May 2016, Wireless segment, nTelos acquisition 145,299
Goodwill as of September 30, 2016 $ 145,413

~~Index~~


4.	Property, Plant and Equipment

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


	September 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
Plant in service	$	1,020,014	$	718,503	$	1,124,446	$	1,085,318
Plant under construction	75,976		36,600		61,980		73,759
	1,095,990		755,103		1,186,426		1,159,077
Less accumulated amortization and depreciation	428,249		345,085		496,478		460,955
Net property, plant and equipment	$	667,741	$	410,018	$	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 ~~the 664~~913 thousand and 991 thousand shares and options outstanding at ~~September 30, 2015, 46~~March 31, 2017 and 2016, respectively, 125 thousand and 136 thousand were ~~anti-dilutive.~~anti-dilutive, respectively. These shares and options have been excluded from the computations of diluted earnings per share for the three and nine months ended September 30, 2015. Due to the net loss for the three and nine months ended September 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 ~~(loss)~~ for ~~any~~either period.


6.5.	Investments ~~Carried at Fair Value~~

Investments include ~~$2.9~~$3.1 million and ~~$2.7~~$2.9 million of investments carried at fair value as of ~~September 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 ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, the Company recognized ~~$161~~$32 thousand in dividend and interest income from investments, and recorded net unrealized gains of ~~$180~~$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~~

~~As part~~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 acquisition of nTelos, the Company acquired the accounts receivable associated with nTelos’ Equipment Installment Plan, (“EIP”). This plan allowed EIP subscribers to pay for their devices in installments over a 24-month period. At the time of an installment sale, nTelos imputed interest on the installment receivable using current market interest rate estimates ranging from approximately 5% to 10%. Additionally, the customer had the right to trade in their original device after a specified period of time for a new device and have the remaining unpaid balance satisfied. This trade-in right was measured at the estimated fair value of the device being traded in based on current trade-in values and the timing of the trade-in.following:

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”.



	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

There was $9.3 million of unmigrated, acquired EIP receivables as of September 30, 2016. The short term portion of $7.4 million is included in accounts receivable, net. The long term portion of $1.9 million is included in deferred charges and other assets, net. An additional $6.3 million of acquired EIP receivables have been subsequently transferred to Sprint and the resulting receivables from Sprint are also included in accounts receivable, net.

Index


8.6.	Financial Instruments

Financial instruments on the condensed consolidated balance sheets that approximate fair value include: cash and cash equivalents, ~~restricted cash,~~ 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 ~~$139.7~~$131.0 million as of ~~September 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 ~~$287.3~~$302.4 million as of ~~September 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 ~~September 30, 2016,~~March 31, 2017, the Company estimates that ~~$2.3 million~~$237 thousand will be reclassified as ~~an increase to~~a 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 ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 (in thousands):


	Derivatives							Derivatives
		Fair Value as of							Fair Value as of
	Balance Sheet Location	September 30, 2016			December 31, 2015			Balance Sheet Location	March 31, 2017		December 31, 2016
Derivatives designated as hedging instruments:
Interest rate swap
	Accrued liabilities and other	$	(2,283	)	$	(682	)	Prepaid expenses and other	$	237	$	—
	Other liabilities	(1,355		)	—			Deferred charges and other assets, net	11,958		12,118
	Deferred charges and other assets, net	—			1,370			Accrued liabilities and other	—		(895		)
Total derivatives designated as hedging instruments		$	(3,638	)	$	688			$	12,195	$	11,223

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 ~~nine~~three months ended ~~September 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 (5,832 ) 2,363
(3,469 )
Amounts reclassified from accumulated other comprehensive income (to interest expense) 1,506
(610 ) 896
Net current period other comprehensive loss (4,326 ) 1,753
(2,573 )
Balance as of September 30, 2016 $ (3,638 ) $ 1,480
$ (2,158 )



	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);:


	September 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
Sales and property taxes payable	$	6,835	$	1,055	$	4,742	$	6,628
Severance accrual, current portion	5,625		—		3,553		4,267
Asset retirement obligations, current portion	8,063		—		884		5,841
Other current liabilities	11,010		6,584		8,995		12,349
Accrued liabilities and other	$	31,533	$	7,639	$	18,174	$	29,085

Other liabilities include the following (in thousands):


	September 30, 2016		December 31, 2015		March 31, 2017		December 31, 2016
Retirement plan obligations	$	22,156	$	2,654
Non-current portion of deferred revenues	8,819		4,156		$	7,735	$	8,933
Straight-line management fee waiver	7,687		—		16,180		11,974
Other	3,935		2,229		2,142		2,836
Other liabilities	$	42,597	$	9,039	$	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 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 wireless service has expanded to include south-central and western Virginia, West Virginia, and small portions of Kentucky and Ohio. This segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers.

~~Index~~

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 ~~September 30, 2016~~March 31, 2017

(in thousands)

Wireless Cable Wireline Other Eliminations
Consolidated
Totals
External revenues
Service revenues $ 111,001
$ 24,948
$ 4,948
$ —
$ —
$ 140,897
Other 7,978
2,031
5,930
—
—
15,939
Total external revenues 118,979
26,979
10,878
—
—
156,836
Internal revenues 1,140
587
7,854
—
(9,581 ) —
Total operating revenues 120,119
27,566
18,732
—
(9,581 ) 156,836

Operating expenses

Costs of goods and services, exclusive of depreciation and amortization shown separately below 43,097
14,654
9,442
—
(8,876 ) 58,317
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 29,892
4,770
1,676
4,736
(705 ) 40,369
Integration and acquisition expenses 14,499
—
—
773
—
15,272
Depreciation and amortization 38,038
5,860
2,822
87
—
46,807
Total operating expenses 125,526
25,284
13,940
5,596
(9,581 ) 160,765
Operating income (loss) $ (5,407 ) $ 2,282
$ 4,792
$ (5,596 ) $ —
$ (3,929 )

~~Index~~



	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

Three months ended ~~September 30, 2015~~

~~(in thousands)~~

Wireless Cable Wireline Other Eliminations
Consolidated
Totals
External revenues
Service revenues $ 47,793
$ 22,284
$ 4,904
$ —
$ —
$ 74,981
Other 2,734
1,882
5,615
—

10,231
Total external revenues 50,527
24,166
10,519
—
—
85,212
Internal revenues 1,109
251
6,759

(8,119 ) —
Total operating revenues 51,636
24,417
17,278
—
(8,119 ) 85,212

Operating expenses

Costs of goods and services, exclusive of depreciation and amortization shown separately below 15,572
14,124
8,212
—
(7,338 ) 30,570
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 9,027
4,948
1,688
3,424
(781 ) 18,306
Integration and acquisition expenses —
—
—
2,129
—
2,129
Depreciation and amortization 9,644
5,948
3,404
122
—
19,118
Total operating expenses 34,243
25,020
13,304
5,675
(8,119 ) 70,123
Operating income (loss) $ 17,393
$ (603 ) $ 3,974
$ (5,675 ) $ —
$ 15,089

~~Index~~

~~Nine months ended September 30,~~March 31, 2016

(in thousands)


	Wireless		Cable		Wireline		Other			Eliminations			Consolidated Totals		Wireless		Cable		Wireline		Other			Eliminations			Consolidated Totals
External revenues
Service revenues	$	250,053	$	73,455	$	14,727	$	—		$	—		$	338,235	$	52,179	$	24,340	$	4,960	$	—		$	—		$	81,479
Other	17,461		5,799		18,221		—			—			41,481		3,203		1,846		6,043		—						11,092
Total external revenues	267,514		79,254		32,948		—			—			379,716		55,382		26,186		11,003		—			—			92,571
Internal revenues	3,417		1,159		22,754					(27,330		)	—		1,136		260		7,376					(8,772		)	—
Total operating revenues	270,931		80,413		55,702		—			(27,330		)	379,716		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	94,892		43,864		26,892		—			(25,294		)	140,354		16,578		14,647		8,643		—			(8,106		)	31,762
Selling, general and administrative, exclusive of depreciation and amortization shown separately below	65,219		14,672		4,951		13,457			(2,036		)	96,263		11,514		5,108		1,605		3,865			(666		)	21,426
Integration and acquisition expenses	19,889		—		—		15,912			—			35,801		—		—		—		332			—			332
Depreciation and amortization	70,026		17,834		8,789		312			—			96,961		8,494		6,095		3,033		117			—			17,739
Total operating expenses	250,026		76,370		40,632		29,681			(27,330		)	369,379		36,586		25,850		13,281		4,314			(8,772		)	71,259
Operating income (loss)	$	20,905	$	4,043	$	15,070	$	(29,681	)	$	—		$	10,337	$	19,932	$	596	$	5,098	$	(4,314	)	$	—		$	21,312

~~Nine months ended September 30, 2015~~

~~(in thousands)~~

Wireless Cable Wireline Other Eliminations
Consolidated
Totals
External revenues
Service revenues $ 144,917
$ 65,802
$ 14,543
$ —
$ —
$ 225,262
Other 8,611
5,495
15,834
—
—
29,940
Total external revenues 153,528
71,297
30,377
—
—
255,202
Internal revenues 3,319
585
18,950

(22,854 ) —
Total operating revenues 156,847
71,882
49,327
—
(22,854 ) 255,202
��
Operating expenses

Costs of goods and services, exclusive of depreciation and amortization shown separately below 47,661
41,378
23,224
—
(20,722 ) 91,541
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 26,996
14,924
4,923
10,313
(2,132 ) 55,024
Integration and acquisition expenses —
—
—
3,153
—
3,153
Depreciation and amortization 26,089
17,286
9,411
333
—
53,119
Total operating expenses 100,746
73,588
37,558
13,799
(22,854 ) 202,837
Operating income (loss) $ 56,101
$ (1,706 ) $ 11,769
$ (13,799 ) $ —
$ 52,365

Index

A reconciliation of the total of the reportable segments’ operating income (loss) to consolidated income (loss) before taxes is as follows:

Three Months Ended
September 30,
(in thousands) 2016 2015
Total consolidated operating income (loss) $ (3,929 ) $ 15,089
Interest expense (8,845 ) (1,808 )
Non-operating income, net 1,527
180
Income (loss) before income taxes $ (11,247 ) $ 13,461


	Nine Months Ended September 30,						Three Months Ended March 31,
	2016			2015
Total consolidated operating income (loss)	$	10,337		$	52,365
(in thousands)							2017			2016
Total consolidated operating income							$	10,673		$	21,312
Interest expense	(16,369		)	(5,663		)	(9,100		)	(1,619		)
Non-operating income, net	3,147			1,253			1,375			556
Income (loss) before income taxes	$	(2,885	)	$	47,955
Income before income taxes							$	2,948		$	20,249

The Company’s assets by segment are as follows:


(in thousands)	September 30, 2016			December 31, 2015			March 31, 2017			December 31, 2016
Wireless	$	1,106,023		$	205,718		$	1,039,211		$	1,101,716
Cable	213,664			209,132			220,519			218,471
Wireline	109,647			105,369			116,390			115,282
Other	1,052,205			463,390			1,070,204			1,059,898
Combined totals	2,481,539			983,609			2,446,324			2,495,367
Inter-segment eliminations	(1,047,914		)	(356,458		)	(993,335		)	(1,010,960		)
Consolidated totals	$	1,433,625		$	627,151		$	1,452,989		$	1,484,407


12.	Income Taxes

The Company files U.S. federal income tax returns and various state and local income tax returns. With few exceptions, years prior to 2013 are no longer subject to ~~examination.~~examination; net operating losses acquired in the nTelos acquisition are open to examination from 2002 forward. The Company is not subject to any state or federal income tax audits as of ~~September 30, 2016.~~March 31, 2017.


13.	Adoption of New Accounting Principles

During ~~2016,~~the first quarter of 2017, the Company adopted ~~four recent~~one new accounting ~~principles:~~principle: Accounting Standards Update ~~2015-3, “Interest – Imputation~~("ASU") No. 2015-11, "Inventory: Simplifying the Measurement of ~~Interest” (ASU 2015-3),~~Inventory". This ASU ~~2015-17, “Balance Sheet Classification~~changes the measurement principle for inventory from the lower of ~~Deferred Taxes”,~~cost or market to lower of cost and net realizable value. The ASU ~~2016-9, “Improvements to Employee Share-based Payment Accounting,” and ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.”~~

ASU 2015-3 requires that premiums, discounts, and loan fees and costs associated with long term debt be reflected as a reduction of the outstanding debt balance. Previous guidance had treated such loan fees and costs as a deferred charge on the balance sheet. As a result of implementing ASU 2015-3, the Company reclassified $1.6 million of unamortized loan fees and costs included in deferred charges and other assets as of December 31, 2015 to long-term debt. Approximately $0.5 million was allocated to current maturities of long-term debt, and $1.1 million to long term debt. Total assets, as well as total liabilities and shareholders’ equity, were also reduced by the same $1.6 million. In addition, the Company reclassified $4.3 million of unamortized loan fees and costs included in deferred charges and other assets to long term debt in connection with the new Term loan A-1 and A-2 borrowing related to the acquisition of nTelos. Total assets, as well as total liabilities and shareholders’ equity, were also reduced by the same $4.3 million. There was no impact on the statements of income or cash flows.

~~Index~~

ASU 2015-17 simplifies accounting for deferred taxes by eliminating the requirement to present deferred tax assets and liabilities as current and non-current in a classified balance sheet. Due to the immaterial balance of current deferred tax assets ($0.9 million as of December 31, 2015), the Company has elected to apply this guidance prospectively, and thus prior periods have not been retrospectively adjusted.

~~ASU 2016-9 simplifies certain provisions related to the accounting for the tax effects of stock-based compensation transactions. In particular for the Company, it~~ eliminates the requirement for entities to ~~determine for each award whether the difference between book compensation and tax compensation results in~~consider replacement cost or net realizable value less an ~~excess tax benefit or~~approximately normal profit margin when measuring inventory. The adoption of this ASU did not have a tax deficiency, which generally speaking, result in an entry to additional paid-in-capital. Under the new guidance, all tax effects for exercised or vested awards are recognized as discrete items in income tax expense. The new guidance also allows an employer to withhold shares to cover more than the minimum statutory withholding taxes (but not more than the maximum statutory withholding requirements) without causing an equity-classified award to become a liability classified award. The other provisions of the new guidance are either not applicable or have no significant impact on the Company’s accounting for stock-based compensation transactions. The Company has elected to early adopt the new guidance and apply it prospectively to tax effects on share-based compensation transactions.

ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. See Note 2 for adjustments recorded during the third quarter of 2016.our financial statements.


~~14.~~	~~Long-term Debt and Revolving Line of Credit~~

~~Total debt consists of the following:~~14. Subsequent Events

(In thousands) September 30,
2016 December 31,
2015
Term loan A $ —
$ 201,250
Term loan A-1 478,937
—
Term loan A-2 350,000
—
828,937
201,250
Less: unamortized loan fees 19,370
1,589
Total debt, net of unamortized loan fees $ 809,567
$ 199,661

Current maturities of long term debt, net of unamortized loan fees $ 25,972
$ 22,492
Long-term debt, less current maturities, net of unamortized loan fees $ 783,595
$ 177,169

~~As previously disclosed, on December 18, 2015,~~On March 9, 2017, the Company and Sprint entered into Addendum XX to the Sprint PCS Management Agreement. Addendum XX provides for (i) an expansion of the Company’s “Service Area” (as defined in the Sprint PCS Management Agreement) to include certain areas in Kentucky, Maryland, Ohio and West Virginia (the “Expansion Area”), (ii) certain network build out requirements in the Expansion Area over the next three years, (iii) the Company’s provision of prepaid field sales support to Sprint and its affiliates in the Service Area, (iv) Sprint’s provision of spectrum use to the Company in the Expansion Area, (v) the addition of Horizon Personal Communications, LLC, as a ~~Credit~~party to the Sprint PCS Management Agreement ~~(as amended,~~and the ~~“2016 credit agreement”~~Sprint PCS Services Agreement (collectively, the “Affiliate Agreements”) ~~with various banks~~ and (vi) certain other ~~financial institutions party thereto and CoBank, ACB, as administrative agent for~~amendments to the lenders, providing for three facilities: (i) a five year revolving credit facility of up to $75 million; (ii) a five-year term loan facility of up to $485 million (Term Loan A-1”); and (iii) a seven-year term loan facility of up to $400 million (“Term Loan A-2”).

Affiliate Agreements.

In connection with the ~~closing~~execution of ~~the nTelos acquisition,~~Addendum XX, on March 9, 2017, the Company ~~borrowed (i) $485 million under Term Loan A-1~~ and ~~(ii) $325 million under Term Loan A-2, which amounts were used~~certain affiliates of Sprint entered into an agreement to, among other things, ~~fund~~transfer to Sprint certain customers in the ~~payment of~~Expansion Area and the ~~nTelos merger consideration, to refinance, in full, all indebtedness under the Company’s existing credit agreement, to repay existing long-term indebtedness of nTelos~~underlying customer agreements, and to ~~pay fees and expenses~~transition the provision of network coverage in ~~connection with~~ the foregoing. In connection with the consummation of the nTelos acquisition, nTelos and its subsidiaries became guarantors under the 2016 credit agreement and pledged their assets as security for the obligations under the 2016 credit agreement. The 2016 credit agreement also includes $75 million available under the Term Loan A-2 as a “delayed draw term loan,” and in June 2016, the Company drew $25 million under this portion of the agreement. Finally, the 2016 credit agreement also includes a $75 million revolver facility.

As of September 30, 2016, the Company’s indebtedness totaled $809.6 million, net of unamortized loan fees of $19.4 million, with an annualized overall weighted average interest rate of approximately 3.83%. The Term Loan A-1 bears interest at one-

~~Index~~

~~month LIBOR plus a margin of 2.75%, while the Term Loan A-2 bears interest at one-month LIBOR plus a margin of 3.00%. LIBOR resets monthly. These loans are more fully described below.~~

~~The Term Loan A-1 requires quarterly principal repayments of $6.1 million, which began on September 30, 2016, and will continue through June 30, 2017, increasing to $12.1 million quarterly~~Expansion Area from September 30, 2017 through June 30, 2020, increasing to $18.2 million quarterly from September 30, 2020 thereafter through March 31, 2021, with the remaining expected balance of approximately $260.7 million due June 30, 2021. The Term Loan A-2 requires quarterly principal repayments of $10.0 million beginning on September 30, 2018 through March 31, 2023, with the current remaining expected balance of approximately $160.0 million due June 30, 2023.

The 2016 credit agreement also required the Company to enter into one or more hedge agreements to manage its exposure to interest rate movements. The Company elected to hedge the minimum required under the 2016 credit agreement, and entered into a pay fixed, receive variable swap on 50% of the aggregate expected principal balance of the term loans outstanding. The Company will receive one month LIBOR and pay a fixed rate of 1.16%, in additionSprint to the ~~2.75% initial spread on Term Loan A-1~~Company. The expanded territory includes approximately 500 thousand market POPs and ~~the 3.00% initial spread on Term Loan A-2.~~

The 2016 credit agreement contains affirmative and negative covenants customary to secured credit facilities, including covenants restricting the ability of the Company and its subsidiaries, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of the Company’s and its subsidiaries’ businesses.

~~Indebtedness outstanding under any of the facilities may be accelerated by an Event of Default, as defined in the 2016 credit agreement.~~

The Facilities are secured by a pledge by the Company of its stock in its subsidiaries, a guarantee by the Company’s subsidiaries other than Shenandoah Telephone Company, and a security interest in substantially all of the assets of the Company and the guarantors.

approximately 21 thousand Sprint customers.

The Company ~~is subject to certain financial covenants to be measured~~and Sprint closed on ~~a trailing twelve month basis each calendar quarter unless otherwise specified. These covenants include:~~

~~a limitation~~this transaction 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;

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 of September 30, 2016, the Company was in compliance with the covenants in the 2016 credit agreement.

~~Future maturities of long-term debt principal are as follows (in thousands):~~

Remainder of 2016 $ 6,062
2017 36,375
2018 68,500
2019 88,500
2020 100,625
Thereafter 528,875
Total $ 828,937

April 6, 2017.

Index


~~15.~~	~~Pension Plan and Other Postretirement Benefits~~

The Company assumed, through its acquisition of nTelos, a qualified pension plan and other postretirement benefit plans. The following tables provide the benefit obligations, fair value of assets and a statement of the funded status as of the acquisition date (in thousands):

Defined Benefit Pension Plan
Other Postretirement
Benefit Plans
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 )
Net pension income (expense) since acquisition date 39
(79 )
Total liability as of September 30, 2016 $ (14,591 ) $ (4,647 )

The accumulated benefit obligation for the defined benefit pension plan at May 6, 2016 was $37.4 million. The accumulated benefit obligation represents the present value of pension benefits based on service and salary earned to date. The defined benefit plan was frozen for future benefit accruals as of December 31, 2012. Accordingly, the accumulated benefit obligation is equal to the projected benefit obligation.

~~The following table provides the components of net periodic benefit cost (income) for the plans for the period from acquisition date to December 31, 2016 (in thousands):~~

Defined Benefit
Pension Plan

Other Postretirement
Benefit Plans
Components of net periodic benefit cost (income):
Service cost $ —
$ 18
Interest cost 956
108
Expected return on plan assets (1,018 ) —
Net periodic cost (income) $ (62 ) $ 126

~~The assumptions used in the measurements of the Company’s benefit obligations at May 6, 2016 for the plans are shown in the following table:~~

Defined
Benefit
Pension Plan

Other
Postretirement
Benefit Plans
Discount rate 3.85 % 3.85 %

The assumptions used in the measurements of the Company’s net periodic benefit cost (income) for the consolidated statement of operations for the period from acquisition date through December 31, 2016 are:

Defined Benefit
Pension Plan

Other
Postretirement
Benefit Plans
Discount rate 3.85 % 3.85 %
Expected return on plan assets 6.75 % — %

~~Index~~

The Company reviews the assumptions noted in the above tables annually or more frequently to reflect anticipated future changes in the underlying economic factors used to determine these assumptions. The discount rates assumed reflect the rate at which the Company could invest in high quality corporate bonds in order to settle future obligations.

~~The Company uses updated mortality tables published by the Society of Actuaries that predict increasing life expectancies in the United States.~~

For measurement purposes, an 8.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2016 for the obligation as of the acquisition date. The rate was assumed to decrease one-half percent per year to a rate of 5.0% for 2022 and remain at that level thereafter.

Assumed health care cost trend rates may have a significant effect on the amounts reported for the health care plans. The effect of a 1% change on the medical trend rate per future year, while holding all other assumptions constant, to the service and interest cost components of net periodic postretirement health care benefit costs and accumulated postretirement benefit obligation would be a $0.1 million increase and a $0.6 million increase, respectively, for a 1% increase in medical trend rate and a $0.1 million decrease and a $0.5 million decrease, respectively, for a 1% decrease in medical trend rate.

In developing the expected long-term rate of return assumption for the assets of the Defined Benefit Pension Plan, the Company evaluated input from its third-party pension plan administrator, including its review of asset class return expectations and long-term inflation assumptions.

~~The average actual asset allocations by asset category and the fair value by asset category as of May 6, 2016 were as follows (in thousands):~~

Asset Category Actual Allocation Fair Value
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

~~The actual and target allocation for plan assets is broadly defined and measured as follows:~~

Asset Category
Actual
Allocation

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

It is the Company’s policy to invest pension plan assets in a diversified portfolio consisting of an array of asset classes. The investment risk of the assets is limited by appropriate diversification both within and between asset classes. The assets are primarily invested in investment funds that invest in a broad mix of publicly traded equities, bonds and cash equivalents (and fair value is based on quoted market prices (“Level 1” input)). The allocation between equity and bonds is reset quarterly to the target allocations. Updates to the allocation are considered in the normal course and changes may be made when appropriate. The bond holdings consist of two bond funds split relatively evenly between these funds at May 6, 2016. The maximum holdings of any one asset within these funds is under 4% of this fund and thus is well under 1% of the total portfolio. At May 6, 2016, the Company believes that there are no material concentrations of risk within the portfolio of plan assets.

The assumed long-term return noted above is the target long-term return. Overall return, risk adjusted return, and management fees are assessed against a peer group and benchmark indices. There are minimum performance standards that must be attained within the investment portfolio. Reporting on asset performance is provided quarterly and review meetings are held semi-

~~Index~~

~~annually. In addition to normal rebalancing to maintain an adequate cash reserve, projected cash flow needs of the plan are reviewed at least annually to ensure liquidity is properly managed.~~

The Company does not expect to contribute to the pension plan in 2016. The Company expects the net periodic benefit income for the defined benefit pension plan in 2016 to be $0.1 million and expects the periodic benefit cost for the other postretirement benefit plans in 2016 to be $0.1 million.

The following estimated future pension benefit payments and other postretirement benefit plan payments which reflect expected future service, as appropriate, are expected to be paid in the years indicated (in thousands):

Defined
Benefit
Pension
Plan

Other
Postretirement
Benefit Plans
Remainder of 2016 $ 186
$ 48
2017 700
136
2018 720
131
2019 768
134
2020 868
142
Aggregate of next five years 6,219
977

~~Note 16. Lease Commitments~~

The Company leases land, buildings and tower space under various non-cancelable agreements, which expire between the years 2016 and 2051 and require various minimum annual rental payments. These leases typically include renewal options and escalation clauses. In general, tower leases have five or ten year initial terms with four renewal terms of five years each. The other leases generally contain certain renewal options for periods ranging from five to twenty years.

Future minimum lease payments under non-cancelable operating leases, including renewals that are reasonably assured at the inception of the lease, with initial variable lease terms in excess of one year as of September 30, 2016, are as follows

~~(in thousands):~~

Remainder of 2016 $ 12,229
2017 48,512
2018 48,135
2019 47,217
2020 46,130
2021 45,950
Thereafter 237,024
$ 485,197

The Company’s total rent expense was $28.6 million and $12.7 million during the nine months ended September 30, 2016 and 2015, respectively. The increase during the year resulted from leases assumed in the acquisition of nTelos.

~~Index~~

As lessor, the Company has leased buildings, tower space and telecommunications equipment to other entities under various non-cancelable agreements, which require various minimum annual payments. The total minimum rental receipts at September 30, 2016 are as follows (in thousands):

Remainder of 2016 $ 1,532
2017 5,643
2018 5,235
2019 4,924
2020 4,241
2021 2,255
Thereafter 2,872
$ 26,702

The Company’s total rent income was $5.3 million and $4.7 million during the nine months ended September 30, 2016 and 2015, respectively. Total rent income includes month-to-month leases which are excluded from the table above.

~~17. Subsequent Events~~

On October 17, 2016, the Company’s Board of Directors approved a dividend of $0.25 per common share to be paid December 1, 2016 to shareholders of record as of the close of business on November 4, 2016. Before dividend reinvestments, the total payout is expected to be approximately $12.2 million.

~~Index~~


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

This management’s discussion and analysis includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions as they relate to Shenandoah Telecommunications Company or its management are intended to identify these forward-looking statements. All statements regarding Shenandoah Telecommunications Company’s expected future financial position and operating results, business strategy, financing plans, forecasted trends relating to the markets in which Shenandoah Telecommunications Company operates and similar matters are forward-looking statements. We cannot assure you that the Company’s expectations expressed or implied in these forward-looking statements will turn out to be correct. The Company’s actual results could be materially different from its expectations because of various factors, including those discussed below and under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, ~~2015.~~2016. The following management’s discussion and analysis should be read in conjunction with the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, ~~2015,~~2016, including the financial statements and related notes included therein.

General

~~Overview.~~Overview: Shenandoah Telecommunications Company is a diversified telecommunications company providing both regulated and unregulated telecommunications services through its wholly owned subsidiaries. These subsidiaries provide wireless personal communications services (as a Sprint PCS affiliate), local exchange telephone services, video, internet and data services, long distance services, fiber optics facilities, and leased tower facilities. We have three reportable segments, which we operate and manage as strategic business units organized by lines of business: (1) Wireless, (2) Cable, and (3) Wireline.

The Wireless segment has historically provided digital wireless service as a Sprint PCS Affiliate to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia. Following the acquisition of nTelos on May 6, 2016, the Company’s wireless service area expanded to include south-central and western Virginia, West Virginia, and small portions of Kentucky and Ohio. In these areas, we are the exclusive provider of Sprint-branded wireless mobility communications network products and services on the 800 MHz, 1900 MHz and 2.5 GHz bands. This segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers.


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

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

A fourth segment, Other, primarily includes Shenandoah Telecommunications Company, the parent holding company, and includes corporate costs of executive management, information technology, legal, finance, and human resources. This segment also includes certain acquisition and integration costs primarily consisting of severance accruals for short-term nTelos employees to be separated as integration activities wind down and transaction related expenses such as investment advisor, legal and other professional fees.

Acquisition of nTelos and Exchange with Sprint: On May 6, 2016, we completed our previously announced acquisition of NTELOS Holdings Corp. (“nTelos”) for ~~$665.4~~$667.8 million, ~~in cash,~~ net of cash acquired. The purchase price was financed by a credit facility arranged by CoBank, ACB. We have included the operations of nTelos for financial reporting purposes for periods subsequent to the acquisition.

Immediately after acquiring nTelos, we exchanged spectrum licenses valued at $198.2 million and customer based contract rights, valued at $203.4 million, acquired from nTelos with Sprint, and received an expansion of our affiliate service territory to include most of the service area served by nTelos, valued at $287.8 million, as well as additional customer based contract rights, valued at $113.8 million, relating to nTelos’ and Sprint’s legacy customers in the our affiliate service territory. 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 and an

~~Index~~

extension of the affiliate agreement with Sprint by five years to 2029. Also included in the value is the expanded territory in the nTelos service area and the accompanying right to serve all future Sprint customers in the expanded territory, our commitment to upgrade certain coverage and capacity in the newly acquired service area, the waiver of a portion of the management fee charged by Sprint, as well as other items defined in the amended affiliate agreement.

The Company expects to incur ~~a total of between $106.0 million and $126.0~~approximately $23 million of integration and acquisition expenses associated with this transaction ~~excluding approximately $24.0~~in 2017, in addition to the $54.7 million of debt issuance costs. In connection with the acquisition, The Company also chose to proactively migrate former nTelos customers to devices that can interact with the Sprint billing and network systems. Expectedsuch costs also include the nTelos back office staff and support functions until the nTelos legacy customers are migrated to the Sprint billing platform; cost of the handsets to be provided to nTelos legacy customers as they migrate to the Sprint billing platform; severance costs for back office and other former nTelos employees who will not be retained permanently; and transaction related fees.incurred during 2016. We have incurred ~~$20.2 million and $43.9~~$7.1 million of these costs in the three months ~~and nine months~~ ended ~~September 30, 2016, respectively.~~March 31, 2017. These costs include ~~$0.7~~$0.1 million reflected in cost of goods and services and ~~$4.2~~$2.5 million reflected in selling, general and administrative costs in the three month period ended ~~September 30, 2016, and $1.0 million reflected in cost of goods and services and $7.1 million reflected in selling, general and administrative costs in the nine month period ended September 30, 2016.~~

~~Critical Accounting Policies And Estimates~~

March 31, 2017. In ~~connection with the nTelos acquisition and exchange transaction with Sprint, we have added the following critical accounting policies:~~

~~Revenue Recognition:~~ Under our amended affiliate agreement, Sprint agreed to waive the management fee, which is historically presented as a contra-revenue by us, 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 our annual impairment testing, we 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 we elect not to perform a qualitative assessment of a reporting unit, we then compare the fair value of the reporting unitaddition to the ~~related net book value. If the net book value~~approximately $78 million of ~~a reporting unit exceeds its fair value, an impairment loss is measured~~incurred and ~~recognized. We conduct our annual impairment testing as of October 1.~~

~~Pension Benefits and Retirement Benefits Other Than Pensions:~~ Through our acquisition of nTelos, we 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. We use 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. Our policy is to make contributions to stay at orexpected expenses described 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~~Company 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.incurred

Index

~~We record annual amounts~~approximately $23 million of debt issuance costs in 2015 and 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 review our assumptions on an annual basis and make 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 ~~September 30, 2016~~March 31, 2017 Compared with the Three Months Ended ~~September 30, 2015~~March 31, 2016

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


	Three Months Ended September 30,						Change					Three Months Ended March 31,						Change
(in thousands)	2016			2015			$			%		2017			2016			$			%
Operating revenues	$	156,836		$	85,212		$	71,624		84.1		$	153,880		$	92,571		$	61,309		66.2
Operating expenses	160,765			70,123			90,642			129.3		143,207			71,259			71,948			101.0
Operating income (loss)	(3,929		)	15,089			(19,018		)	(126.0	)
Operating income												10,673			21,312			(10,639		)	(49.9	)

Interest expense	(8,845		)	(1,808		)	(7,037		)	389.2		(9,100		)	(1,619		)	(7,481		)	462.1
Other income, net	1,527			180			1,347			748.3		1,375			556			819			147.3
Income (loss) before taxes	(11,247		)	13,461			(24,708		)	(183.6	)
Income tax expense (benefit)	(3,651		)	5,465			(9,116		)	NM
Net income (loss)	$	(7,596	)	$	7,996		$	(15,592	)	(195.0	)
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 ~~September 30, 2016,~~March 31, 2017, operating revenues increased ~~$71.6~~$61.3 million, or ~~84.1%~~66.2%. Wireless segment revenues increased ~~$68.5~~$58.9 million compared to the ~~third~~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 ~~$3.1~~$2.6 million primarily as a result of ~~6.8%~~2.2% growth in average subscriber counts and an increase in revenue per subscriber. Wireline segment revenues increased ~~$0.3~~$0.8 million, primarily due to increases in fiber sales.

Operating expenses

Total operating expenses were ~~$160.8~~$143.2 million in the ~~third~~first quarter of ~~2016~~2017 compared to ~~$70.1~~$71.3 million in the prior year period. Operating expenses in the ~~third~~first quarter of ~~2016~~2017 included ~~$15.3~~$4.5 million of integration and acquisition costs associated with the nTelos acquisition, including ~~$14.5~~$3.8 million on the Wireless segment and ~~$0.8~~$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 ~~$4.9~~$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 ~~$71.9~~$63.3 million (excluding the ~~$19.4~~$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 ~~$28.4~~$27.3 million of incremental depreciation and amortization expenses. All other operating expenses ~~decreased $1.4~~increased $2.2 million, net of eliminations of intersegment activities.

Acquisition and integration costs on the Other segment primarily consisted of transaction related expenses such as legal and other professional fees. On the Wireless segment, such costs included handsets provided to nTelos subscribers who needed a new phone to transition to the Sprint billing platform, costs associated with terminating duplicative cell ~~sites~~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.

Interest 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 ~~(benefit)~~

~~Our~~The Company's actual effective income tax rate decreased from ~~40.6%~~31.4% for the three months ended ~~September 30, 2015~~March 31, 2016 to ~~32.5%~~20.6% for the three months ended ~~September 30, 2016. This decrease~~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 ~~state~~excess tax ~~effects~~deductions on share grant vestings and certain stock option exercises, which are recognized as incurred. The Company recognized $1.7 million in excess deductions in the ~~2016~~three months ended March 2017 compared to $4.5 million in excess deductions in the same period ~~resulting from recognizing~~of 2016; however, the March 31, 2017 excess deductions represented a larger share of pre-tax income, reducing the effective rate more in ~~higher tax states and losses~~ in ~~lower tax states as a result of~~ the ~~nTelos acquisition.~~three months ended March 31, 2017 than the three months ended March 31, 2016.

Net income ~~(loss)~~

For the three months ended ~~September 30, 2016,~~March 31, 2017, net income decreased ~~$15.6~~$11.5 million, or ~~195.0%,~~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.

~~Nine Months Ended September 30, 2016 Compared with the Nine Months Ended September 30, 2015~~

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

Nine Months Ended
September 30, Change
(in thousands) 2016 2015 $ %
Operating revenues $ 379,716
$ 255,202
$ 124,514
48.8
Operating expenses 369,379
202,837
166,542
82.1
Operating income 10,337
52,365
(42,028 ) (80.3 )
Interest expense (16,369 ) (5,663 ) (10,706 ) 189.1
Other income, net 3,147
1,253
1,894
151.2
Income (loss) before taxes (2,885 ) 47,955
(50,840 ) (106.0 )
Income tax expense (benefit) (2,174 ) 19,199
(21,373 ) (111.3 )
Net income (loss) $ (711 ) $ 28,756
$ (29,467 ) (102.5 )

~~Operating revenues~~

For the nine months ended September 30, 2016, operating revenues increased $124.5 million, or 48.8%. Wireless segment revenues increased $114.1 million compared to the first nine months of 2015. The new revenues associated with the nTelos customers and the Sprint customers in the nTelos footprint accounted for most of this increase. Cable segment revenues grew $8.5 million primarily as a result of 6.6% growth in average subscriber counts and an increase in revenue per subscriber, while revenues from fiber contracts increased $0.7 million. Wireline segment revenues increased $3.2 million, primarily due to increases in fiber sales.

~~Operating expenses~~

Total operating expenses increased $166.5 million in the nine months ended September 30, 2016 compared to the prior year period. Operating expenses in the nine months ended September 30, 2016 included $35.8 million of integration and acquisition costs associated with the nTelos acquisition, including $19.9 million on the Wireless segment and $15.9 million in the Other segment. Selling, general and administrative expenses and cost of goods and services in the Wireless segment included an additional $8.1 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 $121.3 million (excluding the $28.0 million of customer care, integration and acquisition expenses described above), primarily due to on-going costs associated with the acquired nTelos operations and $43.9 million of incremental depreciation associated with the related acquired assets. All other operating expenses increased $1.3 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, personnel costs associated with short-term nTelos employees required to migrate the former nTelos customers to the Sprint back-office, and costs to shutdown duplicate cell site leases and backhaul circuits.

~~Index~~

~~Income tax expense (benefit)~~

Our effective tax rate increased from 40.0% for the nine months ended September 30, 2015 to 75.4% for the nine months ended September 30, 2016. This increase resulted from discrete tax benefits resulting from the change in accounting for stock option exercises and share award distributions in the first nine months of 2016 in accordance with ASU 2016-09. In prior year periods, such tax benefits were recorded directly to equity. Offsetting the effect of the discrete benefits included the impact of non-deductible expenses as well as the effect of state rate effects when income recognized in higher tax states is combined with losses in states with lower rates.

~~Net income (loss)~~

For the nine months ended September 30, 2016, net income decreased $29.5 million, or 102.5%, primarily reflecting acquisition and integration costs incurred, increased depreciation and amortization, straight-lining of certain Sprint fee 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:

September 30,
2016
December 31,
2015
September 30, 2015
December 31,
2014
Retail PCS Subscribers – Postpaid 718,785
312,512
303,527
287,867
Retail PCS Subscribers – Prepaid 275,446
142,840
145,104
145,162
PCS Market POPS (000) (1) 5,536
2,433
2,421
2,415
PCS Covered POPS (000) (1) 4,715
2,224
2,213
2,207
CDMA Base Stations (sites) 1,425
552
548
537
Towers Owned 181
158
154
154
Non-affiliate Cell Site Leases 186
202
203
198

~~Index~~



	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, ~~2015 to September 30,~~ 2016 shown above include the ~~following amounts acquired in~~effects of the nTelos acquisition and the exchange with Sprint on May 6, ~~2016:~~2016.

Index



~~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 September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2016		2015		2016		2015		2017		2016
Gross PCS Subscriber Additions – Postpaid	41,563		19,638		85,104		54,477		38,701		17,356
Net PCS Subscriber Additions – Postpaid	1,222		7,035		1,829		15,660
Net PCS Subscriber Additions (Losses) – Postpaid									(5,412	)	2,719
Gross PCS Subscriber Additions – Prepaid	35,202		20,228		83,786		63,806		42,168		21,231
Net PCS Subscriber Losses – Prepaid	(13,865	)	(327	)	(22,338	)	(58	)
Net PCS Subscriber Additions (Losses) – Prepaid									7,419		(301	)
PCS Average Monthly Retail Churn % - Postpaid ~~(3)~~(2)	2.01	%	1.40	%	1.71	%	1.47	%	2.05	%	1.56	%
PCS Average Monthly Retail Churn % - Prepaid ~~(3)~~(2)	5.43	%	4.72	%	5.06	%	4.85	%	4.86	%	5.05	%


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


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


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

During the three and nine months ended September 30, 2016, 2,880 and 4,410 former nTelos prepaid subscribers, respectively, switched to postpaid subscribers as they migrated to the Sprint back-office platforms.

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


(in thousands)	Three Months Ended September 30,					Change					Three Months Ended March 31,				Change
	2016			2015		$			%		2017		2016		$			%
Segment operating revenues
Wireless service revenue	$	111,001		$	47,793	$	63,208		132.3		$	108,186	$	52,179	$	56,007		107.3
Tower lease revenue	2,909			2,610		299			11.5		2,882		2,750		132			4.8
Equipment revenue	3,539			1,104		2,435			220.6		3,145		1,454		1,691			116.3
Other revenue	2,670			129		2,541			NA		1,250		135		1,115			NM
Total segment operating revenues	120,119			51,636		68,483			132.6		115,463		56,518		58,945			104.3
Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below	43,097			15,572		27,525			176.8		38,318		16,578		21,740			131.1
Selling, general and administrative, exclusive of depreciation and amortization shown separately below	29,892			9,027		20,865			231.1		28,464		11,514		16,950			147.2
Integration and acquisition expenses	14,499			—		14,499			NM		3,792		—		3,792			NM
Depreciation and amortization	38,038			9,644		28,394			294.4		35,752		8,494		27,258			320.9
Total segment operating expenses	125,526			34,243		91,283			266.6		106,326		36,586		69,740			190.6
Segment operating income (loss)	$	(5,407	)	$	17,393	$	(22,800	)	(131.1	)
Segment operating income											$	9,137	$	19,932	$	(10,795	)	(54.2	)

Index

Service Revenues

Wireless service revenue increased ~~$63.2~~$56.0 million, or ~~132.3%~~107.3%, for the three months ended ~~September 30, 2016,~~March 31, 2017, compared to the ~~comparable 2015~~March 31, 2016, period. See table below.


(in thousands)	Three Months Ended September 30,						Change					Three Months Ended March 31,						Change
Service Revenues	2016			2015			$			%		2017			2016			$			%
Postpaid net billings ⁽¹⁾	$	97,470		$	45,864		$	51,606		112.5		$	92,989		$	45,638		$	47,351		103.8
Sprint fees
Management fee	(7,919		)	(3,687		)	(4,232		)	114.8		(7,383		)	(3,651		)	(3,732		)	102.2
Net Service fee	(6,745		)	(6,453		)	(292		)	4.5
Net service fee												(7,200		)	(3,934		)	(3,266		)	83.0
Waiver of management fee	7,996			—			7,996			NM		7,383			—			7,383			NM
	(6,668		)	(10,140		)	3,472			(34.2	)	(7,200		)	(7,585		)	385			(5.1	)
Prepaid net billings
Gross billings	25,156			12,760			12,396			97.1		25,945			13,083			12,862			98.3
Sprint management fee	(1,521		)	(766		)	(755		)	NM		(1,557		)	(785		)	(772		)	98.3
Waiver of management fee	1,521			—			1,521			NM		1,557			—			1,557			NM
	25,156			11,994			13,162			109.7		25,945			12,298			13,647			111.0
Travel and other revenues	5,276			75			5,201			NM		5,636			1,828			3,808			208.3
Accounting adjustments
Amortization of expanded affiliate agreement	(5,593		)	—			(5,593		)	NM		(4,978		)	—			(4,978		)	NM
Straight-line adjustment - management fee waiver	(4,640		)	—			(4,640		)	NM		(4,206		)	—			(4,206		)	NM
	(10,233		)	—			(10,233		)	NM		(9,184		)	—			(9,184		)	NM
Total Service Revenues	$	111,001		$	47,793		$	63,208		132.3		$	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

The changes in Wireless segment service revenues shown in the table above are almost exclusively a result of the nTelos acquisition ~~and other changes~~in May 2016. Postpaid subscribers have increased by 402 thousand from March 31, 2016 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 in the former nTelos service area as of March 31, 2017.

In addition to the postpaid customer gross additions and churn, outlined in the tables above, resulted in an increase of $51.6 million or 112.5% 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 (in particular, the net service fee) dropped by $5.3 million or 43.8% compared to what it would have been had the fee not been reduced. Travel and other revenues, which are now settled separately, grew by $5.2 million. Prepaid net billings grew by $13.2 million or 109.7%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 ~~$5.6~~$5.0 million in amortization in the ~~third~~first quarter of ~~2016.~~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 ~~$4.6~~$4.2 million in the ~~third~~first quarter of ~~2016.~~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 ~~$27.5~~$21.7 million, or ~~176.8%~~131.1%, in ~~2016~~2017 from the ~~third~~first quarter of ~~2015.~~2016. The increase results primarily from ~~the growth in device subsidies of $2.1 million, new national handsets settled separately under the affiliate agreement of $1.1 million,~~ increases in cell site rent, power, maintenance and backhaul ~~cost~~costs for the incremental 868 cell sites in the nTelos territory of ~~$14.1~~$19.3 million, as well as the related growth in the cost of network technicians to service and maintain these sites of ~~$2.3~~$1.1 million. Cost of goods and services also included ~~$0.7~~$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 ~~$20.9~~$16.9 million, or ~~231.1%~~147.2%, in the ~~third~~first quarter of ~~2016~~2017 from the comparable ~~2015 period. This increase included $5.5~~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; $5.7~~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 ~~$2.3~~$1.3 million in other administrative costs related to the acquired operations. Costs associated with prepaid wireless offerings increased ~~$0.9~~$4.3 million. Selling, general and administrative costs also included ~~$4.3~~$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 ~~$14.5~~$3.8 million in the ~~third~~first quarter of ~~2016~~2017 include approximately ~~$9.9~~$3.7 million for replacement handsets issued to former nTelos subscribers migrated to the Sprint billing platform ~~$4.1~~and $0.7 million in other expenses, partially offset by $0.6 million in reductions of previously estimated costs to terminate duplicative cell site leases and backhaul ~~contracts, and $0.5 million in other expenses.~~contracts.

Depreciation and amortization

Depreciation and amortization increased ~~$28.4~~$27.3 million, or ~~294%~~321%, in the ~~third~~first quarter of ~~2016~~2017 over the comparable ~~2015~~2016 period, due primarily to ~~$22.2~~$20.0 million in incremental depreciation largely on the acquired fixed assets, and ~~$5.1~~$6.7 million in amortization of customer based intangibles recorded in the acquisition. The $22.2 million depreciation included $4.6 million related to the second quarter of 2016 that resulted from depreciating additional assets and shortening the useful lives of other assets as a result of reviewing the preliminary asset valuation work. The $5.1 million of amortization expense included a reduction of $0.8 million relating to the second quarter of 2016 resulting from revisions to the initial valuation of these assets. Customer based intangibles are being amortized over accelerated lives.

~~Nine Months Ended September 30, 2016 Compared with the Nine Months Ended September 30, 2015~~

(in thousands)
Nine Months Ended
September 30, Change
2016 2015 $ %
Segment operating revenues
Wireless service revenue $ 250,053
$ 144,917
$ 105,136
72.5
Tower lease revenue 8,471
7,772
699
9.0
Equipment revenue 7,771
3,871
3,900
100.7
Other revenue 4,636
287
4,349
NA
Total segment operating revenues 270,931
156,847
114,084
72.7
Segment operating expenses

Cost of goods and services, exclusive of depreciation and amortization shown separately below 94,892
47,661
47,231
99.1
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 65,219
26,996
38,223
141.6
Integration and acquisition expenses 19,889
—
19,889
NM
Depreciation and amortization 70,026
26,089
43,937
168.4
Total segment operating expenses 250,026
100,746
149,280
148.2
Segment operating income $ 20,905
$ 56,101
$ (35,196 ) (62.7 )

~~Index~~

~~Service Revenues~~

~~Wireless service revenue increased $105.1 million, or 72.5%, for the nine months ended September 30, 2016, compared to the comparable 2015 period. See table below.~~

(in thousands)

Nine Months Ended
September 30, Change
Service Revenues 2016 2015 $ %
Postpaid net billings $ 218,327
$ 139,342
$ 78,985
56.7
Sprint fees

Management fee (17,914 ) (11,124 ) (6,790 ) 61.0
Net Service fee (15,986 ) (19,468 ) 3,482
(17.9 )
Waiver of management fee 13,126
—
13,126
NM
(20,774 ) (30,592 ) 9,818
(32.1 )
Prepaid net billings

Gross billings 58,744
38,255
20,489
53.6
Sprint management fee (3,524 ) (2,305 ) (1,219 ) NM
Waiver of management fee 2,486
—
2,486
NM
57,706
35,950
21,756
60.5
Travel and other revenues 11,364
217
11,147
NM
Accounting adjustments

Amortization of expanded affiliate agreement (8,883 ) —
(8,883 ) NM
Straight-line adjustment - management fee waiver (7,687 ) —
(7,687 ) NM
(16,570 ) —
(16,570 ) NM
Total Service Revenues $ 250,053
$ 144,917
$ 105,136
72.5

~~Operating revenues~~

The nTelos acquisition and other changes to the postpaid customer gross additions and churn, outlined in the tables above, resulted in an increase of $79.0 million or 56.7% 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 (in particular, the net service fee) dropped by $11.8 million or 42.4% relative to what it would have been had the rate not changed. Travel revenues, which are now settled separately, and other similarly settled items grew by $11.1 million. Prepaid net billings grew by $21.8 million or 60.5% 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 $8.9 million in amortization in the nine months ended September 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 $7.7 million in the nine months ended September 30, 2016.

~~Other operating revenues~~

~~Index~~

~~Cost of goods and services~~

Cost of goods and services increased $47.2 million, or 99.1%, in 2016 from the first nine months of 2015. The increase results from the growth in prepaid device subsidies of $3.7 million, postpaid handset and accessory cost of goods growth of $1.8 million, new national handsets settled separately under the affiliate agreement of $4.2 million, increases in cell site rent and backhaul cost for incremental 868 cell sites in the nTelos territory of $27.1 million, as well as the related growth in the cost of network technicians and other costs to service and maintain these sites of $8.4 million. Cost of goods and services also included $1.0 million of costs to support nTelos legacy billing operations until customers migrate to Sprint’s back-office systems.

~~Selling, general and administrative~~

Selling, general and administrative costs increased $38.2 million, or 141.6%, in the nine months ended September 30, 2016 from the comparable 2015 period. This increase included $13.2 million of separately settled national channel commissions; $9.0 million from the operating costs of incremental stores acquired as a result of the nTelos acquisition; $2.1 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 $4.0 million in other administrative costs related to the acquired operations. Costs associated with prepaid wireless offerings increased $2.4 million. Selling, general and administrative costs also included $7.1 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 $19.9 million in the nine months ended September 30, 2016, include approximately $14.0 million for replacement handsets issued to former nTelos subscribers migrated to the Sprint billing platform, $4.1 million in costs to terminate duplicative cell site leases and backhaul circuits, and $1.8 million in other expenses.

~~Depreciation and amortization~~

Depreciation and amortization increased $43.9 million, or 168.4%, in the nine months ended September 30, 2016 over the comparable 2015 period, due primarily to $29.1 million in depreciation on the acquired fixed assets and $11.0 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, which are included in the Wireline segment.

On Increases in homes passed, available homes and video customers between December 31, 2015 and March 31, 2016, resulted from the Colane acquisition 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 customers are included in the September 30, 2016 totals shown below.2016.


	September 30, 2016		December 31, 2015		September 30, 2015		December 31, 2014		March 31, 2017		December 31, 2016		March 31, 2016		December 31, 2015
Homes Passed (1)	184,698		172,538		172,388		171,589		184,819		184,710		181,375		172,538
Customer Relationships (2)
Video customers	48,924		48,184		48,421		49,247		47,160		48,512		50,195		48,184
Non-video customers	28,469		24,550		23,816		22,051		30,765		28,854		26,895		24,550
Total customer relationships	77,393		72,734		72,237		71,298		77,925		77,366		77,090		72,734
Video
Customers (3)	51,379		50,215		50,839		52,095		49,384		50,618		52,468		50,215
Penetration (4)	27.8	%	29.1	%	29.5	%	30.4	%	26.7	%	27.4	%	28.9	%	29.1	%
Digital video penetration (5)	76.3	%	77.9	%	75.2	%	65.9	%	77.1	%	77.4	%	74.8	%	77.9	%
High-speed Internet
Available Homes (6)	183,814		172,538		172,388		171,589		183,935		183,826		180,814		172,538
Customers (3)	59,852		55,131		53,960		50,686		61,815		60,495		58,273		55,131
Penetration (4)	32.6	%	32.0	%	31.3	%	29.5	%	33.6	%	32.9	%	32.2	%	32.0	%
Voice
Available Homes (6)	181,077		169,801		169,651		168,852		181,198		181,089		178,077		169,801
Customers (3)	21,199		20,166		19,723		18,262		21,647		21,352		20,786		20,166
Penetration (4)	11.7	%	11.9	%	11.6	%	10.8	%	11.9	%	11.8	%	11.7	%	11.9	%
Total Revenue Generating Units (7)	132,430		125,512		124,522		121,043		132,846		132,465		131,527		125,512
Fiber Route Miles	3,124		2,844		2,842		2,834		3,233		3,137		2,955		2,844
Total Fiber Miles (8)	84,945		76,949		75,021		72,694		100,799		92,615		80,727		76,949
Average Revenue Generating Units	131,707		124,054		123,282		117,744		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, 660 and 673 subscribers to December 31, 2015, September 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.

~~Index~~


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


(in thousands)	Three Months Ended September 30,					Change					Three Months Ended March 31,				Change
	2016		2015			$			%		2017		2016		$			%
Segment operating revenues
Service revenue	$	24,948	$	22,284		$	2,664		12.0		$	26,411	$	24,340	$	2,071		8.5
Other revenue	2,618		2,133			485			22.7		2,602		2,106		496			23.6
Total segment operating revenues	27,566		24,417			3,149			12.9		29,013		26,446		2,567			9.7
Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below	14,654		14,124			530			3.8		15,228		14,647		581			4.0
Selling, general, and administrative, exclusive of depreciation and amortization shown separately below	4,770		4,948			(178		)	(3.6	)	4,858		5,108		(250		)	(4.9	)
Depreciation and amortization	5,860		5,948			(88		)	(1.5	)	5,788		6,095		(307		)	(5.0	)
Total segment operating expenses	25,284		25,020			264			1.1		25,874		25,850		24			0.1
Segment operating income (loss)	$	2,282	$	(603	)	$	2,885		(478.4	)
Segment operating income											$	3,139	$	596	$	2,543		426.7

Operating revenues

Cable segment service revenues increased ~~$2.7~~$2.1 million, or ~~12.0%~~8.5%, due to a ~~6.8%~~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 $0.5 million, primarily due to new fiber contracts to towers, schools and libraries.

Operating expenses

Cable segment cost of goods and services increased ~~$0.5~~$0.6 million, or ~~3.8%~~4.0%, in the ~~third~~first quarter of ~~2016~~2017 over the comparable ~~2015~~2016 period. ~~Video programming costs, including retransmission fees, increased $0.3 million, due to a 1.5% increase in average RGU's and programming cost increases of 8% to 10% per affected channel.~~ The ~~remainder of the~~ increase resulted from higher network and maintenance costs.

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

Index

~~Nine Months Ended September 30, 2016 Compared with the Nine Months Ended September 30, 2015~~

(in thousands) Nine Months Ended
September 30, Change
2016 2015 $ %
Segment operating revenues
Service revenue $ 73,455
$ 65,802
$ 7,653
11.6
Other revenue 6,958
6,080
878
14.4
Total segment operating revenues 80,413
71,882
8,531
11.9

Segment operating expenses

Cost of goods and services, exclusive of depreciation and amortization shown separately below 43,864
41,378
2,486
6.0
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 14,672
14,924
(252 ) (1.7 )
Depreciation and amortization 17,834
17,286
548
3.2
Total segment operating expenses 76,370
73,588
2,782
3.8
Segment operating income (loss) $ 4,043
$ (1,706 ) $ 5,749
337.0

~~Operating revenues~~

Cable segment service revenues increased $7.7 million, or 11.6%, due to a 6.6% increase in average revenue generating units, video rate increases in January 2016 to offset increases in programming costs, new and existing customers selecting higher-speed data (HSD) access packages and growth in the HSD and phone customers.

~~Other revenue grew $0.9 million, primarily due to new fiber contracts to towers, schools and libraries.~~

~~Operating expenses~~

Cable segment cost of goods and services increased $2.5 million, or 6.0%, in the nine months ended September 30, 2016 over the comparable 2015 period. Video programming costs, including retransmission fees, increased $0.8 million, primarily due to programming cost increases of 8% to 10% per affected channel. The remainder of the increase resulted from higher network and maintenance costs, up $1.1 million, and video regulatory fees, up $0.6 million.

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.


	September 30, 2016	Dec. 31, 2015	September 30, 2015	Dec. 31, 2014	March 31, 2017	Dec. 31, 2016	March 31, 2016	Dec. 31, 2015
Telephone Access Lines (1)	18,737	20,252	21,598	21,612	18,160	18,443	19,682	20,252
Long Distance Subscribers	9,186	9,476	9,651	9,571	9,134	9,149	9,377	9,476
Video Customers (2)	5,285	5,356	5,375	5,692	5,201	5,264	5,232	5,356
DSL and Cable Modem Subscribers ~~(3)~~(1)	14,195	13,890	13,323	13,094	14,527	14,314	14,200	13,890
Fiber Route Miles	1,916	1,736	1,625	1,556	1,997	1,971	1,744	1,736
Total Fiber Miles ~~(4)~~(3)	133,903	123,891	107,432	99,387	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 internet service. As of March 31, 2017, 1,226 customers have purchased cable modem service received via the coaxial cable network.

~~Index~~


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

September 2016 and December 2015 totals include 911 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, 489 and 352 subscribers to December 31, 2015, September 30, 2015 and December 31, 2014 totals, respectively.


4)	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 ~~September 30, 2016~~March 31, 2017 Compared with the Three Months Ended ~~September 30, 2015~~March 31, 2016


	Three Months Ended September 30,				Change					Three Months Ended March 31,				Change
(in thousands)	2016		2015		$			%		2017		2016		$			%
Segment operating revenues
Service revenue	$	5,516	$	5,596	$	(80	)	(1.4	)	$	5,602	$	5,537	$	65		1.2
Carrier access and fiber revenues	12,365		10,854		1,511			13.9		12,665		11,969		696			5.8
Other revenue	851		828		23			2.8		887		873		14			1.6
Total segment operating revenues	18,732		17,278		1,454			8.4		19,154		18,379		775			4.2

Segment operating expenses
Cost of goods and services, exclusive of depreciation and amortization shown separately below	9,442		8,212		1,230			15.0		9,273		8,643		630			7.3
Selling, general and administrative, exclusive of depreciation and amortization shown separately below	1,676		1,688		(12		)	(0.7	)	1,676		1,605		71			4.4
Depreciation and amortization	2,822		3,404		(582		)	(17.1	)	3,132		3,033		99			3.3
Total segment operating expenses	13,940		13,304		636			4.8		14,081		13,281		800			6.0
Segment operating income	$	4,792	$	3,974	$	818		20.6		$	5,073	$	5,098	$	(25	)	(0.5	)

Operating revenues

Total operating revenues in the quarter ended ~~September 30, 2016~~March 31, 2017 increased ~~$1.5~~$0.8 million, or ~~8.4%~~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 ~~$0.6~~$0.8 million, or ~~4.8%~~6.0%, in the quarter ended ~~September 30, 2016,~~March 31, 2017, compared to the ~~2015~~2016 quarter. The ~~$1.2~~$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~~

~~Nine Months Ended September 30, 2016 Compared with the Nine Months Ended September 30, 2015~~

Nine Months Ended
September 30, Change
(in thousands) 2016 2015 $ %
Segment operating revenues
Service revenue $ 16,433
$ 16,420
$ 13
0.1
Carrier access and fiber revenue 36,628
30,532
6,096
20.0
Other revenue 2,641
2,375
266
11.2
Total segment operating revenues 55,702
49,327
6,375
12.9

Segment operating expenses

Cost of goods and services, exclusive of depreciation and amortization shown separately below 26,892
23,224
3,668
15.8
Selling, general and administrative, exclusive of depreciation and amortization shown separately below 4,951
4,923
28
0.6
Depreciation and amortization 8,789
9,411
(622 ) (6.6 )
Total segment operating expenses 40,632
37,558
3,074
8.2
Segment operating income $ 15,070
$ 11,769
$ 3,301
28.0

~~Operating revenues~~

Total operating revenues in the nine months ended September 30, 2016 increased $6.4 million, or 12.9%, against the comparable 2015 period. Carrier access and fiber revenues increased $6.1 million due to increases in fiber and access contracts.

~~Operating expenses~~

Operating expenses overall increased $3.1 million, or 8.2%, in the nine months ended September 30, 2016, compared to the 2015 period. The $3.7 million increase in cost of goods and services primarily resulted from costs to support the increase in carrier access and fiber revenues shown above.

Non-GAAP Financial ~~Measure~~Measures

In managing our business and assessing our financial performance, management supplements the information provided by financial statement measures prepared in accordance with GAAP with ~~adjusted~~Adjusted OIBDA and ~~continuing~~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.

~~Index~~

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~~Adjusted and ~~continuing~~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~~Adjusted and ~~continuing~~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.

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

Index


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
(in thousands)	2016		2015		2016		2015		2017		2016
Adjusted OIBDA	$	73,746	$	36,804	$	170,166	$	110,759	$	73,541	$	40,416
Continuing OIBDA	$	64,228	$	36,804	$	154,554	$	110,759	$	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 nine~~ months ended ~~September 30, 2016~~March 31, 2017 and ~~2015:~~2016:

Consolidated:
Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands) 2016 2015 2016 2015
Operating income (loss) $ (3,929 ) $ 15,089
$ 10,337
$ 52,365
Plus depreciation and amortization 46,807
19,118
96,961
53,119
Plus (gain) loss on asset sales (81 ) (1 ) (144 ) 229
Plus share based compensation expense 496
469
2,570
1,893
Plus straight line adjustment to management fee waiver 4,640
—
7,687
—
Plus amortization of intangible netted in revenue 5,593
—
8,883
—
Plus temporary backoffice costs to support the billing operations through migration ⁽¹⁾
4,948
—
8,071
—
Plus integration and acquisition related expenses 15,272
2,129
35,801
3,153
Adjusted OIBDA $ 73,746
$ 36,804
$ 170,166
$ 110,759
Less waived management fee (9,518 ) —
(15,612 ) —
Continuing OIBDA $ 64,228
$ 36,804
$ 154,554
$ 110,759

~~Index~~



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 ~~backoffice,~~back office, the Company incurs certain postpaid fees retained ~~by Sprint and prepaid costs passed to us~~ by Sprint that would offset a portion of these savings. For the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2017, these offsets were estimated at ~~$1.3 million and $3.1 million, respectively.~~$0.8 million.

The following tables reconcile adjusted OIBDA and ~~continuing~~Continuing OIBDA to operating income by major segment for the three ~~and nine~~ months ended ~~September 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

Index

Wireless Segment:
Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands) 2016 2015 2016 2015
Operating income (loss) $ (5,407 ) $ 17,393
$ 20,905
$ 56,101
Plus depreciation and amortization 38,038
9,644
70,026
26,089
Plus (gain) loss on asset sales (45 ) 40
(84 ) 73
Plus share based compensation expense 246
109
1,058
441
Plus straight line adjustment to management fee waiver 4,640
—
7,687
—
Plus amortization of intangible netted in revenue 5,593
—
8,883
—
Plus temporary backoffice costs to support the billing operations through migration 4,945
—
8,067
—
Plus integration and acquisition related expenses 14,499
—
19,889
—
Adjusted OIBDA $ 62,509
$ 27,186
$ 136,431
$ 82,704
Less waived management fee (9,518 ) —
(15,612 ) —
Continuing OIBDA $ 52,991
$ 27,186
$ 120,819
$ 82,704


Cable Segment:	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
(in thousands)	2016			2015			2016			2015			2017			2016
Operating income (loss)	$	2,282		$	(603	)	$	4,043		$	(1,706	)
Operating income													$	3,139		$	597
Plus depreciation and amortization	5,860			5,948			17,834			17,286			5,788			6,095
Plus (gain) loss on asset sales	(19		)	(39		)	(53		)	12
Less gain on asset sales													(23		)	(13		)
Plus share based compensation expense	108			164			673			665			364			358
Adjusted OIBDA and Continuing OIBDA	$	8,231		$	5,470		$	22,497		$	16,257		$	9,268		$	7,037


Wireline Segment:	Three Months Ended September 30,					Nine Months Ended September 30,				Three Months Ended March 31,
(in thousands)	2016		2015			2016		2015		2017		2016
Operating income	$	4,792	$	3,974		$	15,070	$	11,769	$	5,073	$	5,098
Plus depreciation and amortization	2,822		3,404			8,789		9,411		3,132		3,033
Plus (gain) loss on asset sales	—		(2		)	40		132
Plus loss on asset sales										30		—
Plus share based compensation expense	49		84			284		330		146		169
Adjusted OIBDA and Continuing OIBDA	$	7,663	$	7,460		$	24,183	$	21,642	$	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 ~~$105.8~~$24.5 million of net cash from operations in the first ~~nine~~three months of ~~2016,~~2017, compared to ~~$83.1~~$43.2 million in the first ~~nine~~three months of ~~2015. Changes~~2016. The primary change included ~~a net loss compared to net income, increases in non-cash~~

~~Index~~

~~expenses including depreciation, amortization, and other items, changes in tax accounts, and by~~ the timing of cash ~~receipts and~~ disbursements in early 2017 for ~~taxes,~~ inventories ~~and other items.~~acquired in late 2016.

Indebtedness. As of ~~September 30, 2016,~~March 31, 2017, our indebtedness totaled ~~$809.6~~$866.8 million in term loans with an annualized effective interest rate of approximately ~~4.16%~~3.91% after considering the impact of the interest rate swap contract and unamortized loan costs. The balance consists of the ~~$478.9~~$466.8 million Term Loan A-1 at a variable rate ~~(3.27%~~(3.73% as of ~~September 30, 2016)~~March 31, 2017) that resets monthly based on one month LIBOR plus a margin of 2.75%, and the ~~$350~~$400 million Term Loan A-2 at a variable rate ~~(3.52%~~(3.98% as of ~~September 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 ~~which began on September 30, 2016 and will continue~~ through June 30, 2017, then increasing to $12.1 million quarterly ~~from September 30, 2017~~ through June 30, 2020, ~~increasing to $18.2 million quarterly from September 30, 2020 thereafter~~with further increases at that time through ~~March 31, 2021, with the remaining balance of approximately $260.7 million due~~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 ~~current~~ remaining ~~expected~~ balance ~~of approximately $160.0 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 ~~September 30, 2016,~~March 31, 2017, we were in compliance with all debt covenants, and ratios at ~~September 30, 2016~~March 31, 2017 were as follows:



	Actual	Covenant Requirement at ~~September 30, 2016~~March 31, 2017
Total Leverage Ratio	~~2.78~~2.88	3.75 or Lower
Debt Service Coverage Ratio	~~4.51~~4.56	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 consolidated EBITDA, cash taxes, scheduled principal payments and cash interest expense for the nine month period ending

Index

March 31, 2017, divided by three ~~months ended September 30, 2016,~~and multiplied by ~~four.~~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 ~~September 30, 2016.~~March 31, 2017.

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 totaled $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. As of September 30, 2016, expectations~~expansion; $27.0 million for ~~2016 total capital spending have been revised downward to $179.4~~additional network capacity; and $10.8 million ~~a decrease of $39.1 million. Of the decrease, $28.0 million is from the Wireless segment,~~for information technology upgrades, new and $19.0 million of that resulted from the additional spending undertaken by nTelos in the last few months before the closing of the acquisition. An additional $7.5 million of the overall decrease is on the Cable segment,renovated buildings and ~~largely relates to a fiber build project that is carrying over into 2017.~~other projects.

For the first ~~nine~~three months of ~~2016,~~2017, we spent ~~$102.9~~$38.6 million on capital projects, compared to ~~$39.6~~$20.5 million in the comparable ~~2015~~2016 period. Spending related to Wireless projects accounted for ~~$65.6~~$25.3 million in the first ~~nine~~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 ~~$16.4~~$5.2 million related to network and cable market expansion. Wireline capital projects cost ~~$12.1~~$7.6 million, driven primarily by fiber builds. Other projects totaled ~~$8.8~~$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.

~~Index~~

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 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 was in effect before the change. We continue to ~~evaluate~~assess the impact ~~that the~~this new standard ~~and available adoption methods~~ will have on our ~~consolidated~~ financial ~~statements~~position, results of operations and ~~related disclosures.~~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 ~~September 30, 2016,~~March 31, 2017, the Company had ~~$828.9~~$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 ~~3.38%~~3.85% as determined on a monthly basis. An increase in market interest rates of 1.00% would add approximately ~~$8.2~~$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 (subject to change based upon expected draws under the delayed draw term loan and principal payments due under our debt agreements). ~~These swaps,~~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 ~~(0.52%~~(0.98% as of ~~September 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 ~~$2.3~~$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 ~~September 30, 2016,~~March 31, 2017, the Company has ~~$402.0~~$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 ~~September 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 ~~September 30, 2016:~~March 31, 2017:

Number of Shares
Purchased

Average Price
Paid per Share
July 1 to July 31 21,841
$ 41.87
August 1 to August 31 —
$ —
September 1 to September 30 —
$ —

Total 21,841
$ 41.87



	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

~~Index~~

$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.


ITEM 6.	Exhibits


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

Index



~~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~~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

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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: ~~November 7, 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~~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

5237



	Initial Estimate		Revisions			Revised Estimate
Accounts receivable	$	48,476	$	1,045		$	49,521
Inventory	3,810		—			3,810
Restricted cash	2,167		—			2,167
Investments	1,501		—			1,501
Prepaid expenses and other assets	14,835		—			14,835
Building held for sale	4,950		—			4,950
Property, plant and equipment	223,900		3,571			227,471
Spectrum licenses	198,200		—			198,200
Customer based contract rights	198,200		5,162			203,362
Contract based intangible assets	11,000		—			11,000
Goodwill	151,627		(6,328		)	145,299
Other long term assets	10,288		555			10,843
Total assets acquired	$	868,954	$	4,005		$	872,959

Accounts payable	$	8,648	$	(116	)	$	8,532
Advanced billings and customer deposits	12,477		—			12,477
Accrued expenses	25,230		—			25,230
Capital lease liability	418		—			418
Deferred tax liabilities	124,964		2,758			127,722
Retirement benefits	19,461		(263		)	19,198
Other long-term liabilities	14,056		—			14,056
Total liabilities assumed	205,254		2,379			207,633

Net assets acquired	$	663,700	$	1,626		$	665,326



	Useful Life	Basis
Affiliate contract agreement	14 years	$	287,800
Customer based contract rights	4-10 years	113,761
Contract based intangible assets	3-19 years	11,000



Year Ending December 31,	Amount
	(in thousands)
2016 Remaining	$	12,463
2017	45,091
2018	39,372
2019	35,428
2020	32,718
2021	30,139
thereafter	198,759
Total	$	393,970



Goodwill as of December 31, 2015, Wireline segment	$	10
Goodwill recorded January 2016, Cable segment, Colane acquisition	104
Goodwill recorded May 2016, Wireless segment, nTelos acquisition	145,299
Goodwill as of September 30, 2016	$	145,413



	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	(5,832		)	2,363			(3,469		)
Amounts reclassified from accumulated other comprehensive income (to interest expense)	1,506			(610		)	896
Net current period other comprehensive loss	(4,326		)	1,753			(2,573		)
Balance as of September 30, 2016	$	(3,638	)	$	1,480		$	(2,158	)



Remainder of 2016	$	6,062
2017	36,375
2018	68,500
2019	88,500
2020	100,625
Thereafter	528,875
Total	$	828,937



	Defined Benefit Pension Plan			Other Postretirement Benefit Plans
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		)
Net pension income (expense) since acquisition date	39			(79		)
Total liability as of September 30, 2016	$	(14,591	)	$	(4,647	)



	Defined Benefit Pension Plan			Other Postretirement Benefit Plans
Components of net periodic benefit cost (income):
Service cost	$	—		$	18
Interest cost	956			108
Expected return on plan assets	(1,018		)	—
Net periodic cost (income)	$	(62	)	$	126



Asset Category	Actual Allocation		Fair Value
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	%



	Defined Benefit Pension Plan		Other Postretirement Benefit Plans
Remainder of 2016	$	186	$	48
2017	700		136
2018	720		131
2019	768		134
2020	868		142
Aggregate of next five years	6,219		977



Remainder of 2016	$	12,229
2017	48,512
2018	48,135
2019	47,217
2020	46,130
2021	45,950
Thereafter	237,024
	$	485,197



Remainder of 2016	$	1,532
2017	5,643
2018	5,235
2019	4,924
2020	4,241
2021	2,255
Thereafter	2,872
	$	26,702



	Number of Shares Purchased	Average Price Paid per Share
July 1 to July 31	21,841	$	41.87
August 1 to August 31	—	$	—
September 1 to September 30	—	$	—

Total	21,841	$	41.87

Defined
Benefit
Pension Plan

Other
Postretirement
Benefit Plans

Discount rate