SEC Filing - Shenandoah Telecommunications Co

Covenant Requirement

Total Leverage Ratio

3.75 or Lower

Debt Service Coverage Ratio

2.00 or Higher

Minimum Liquidity Balance (in thousands)

$25 million or Higher

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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 June 30, 2018



☐	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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



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

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

Indicate by check mark whether the registrant 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 August 1, 2018 was 49,558,696.

SHENANDOAH TELECOMMUNICATIONS COMPANY

INDEX



		Page Numbers
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017	3

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2018 and 2017	4

	Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2018	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7	-	23

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24	-	45

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46

Item 4.	Controls and Procedures	47

PART II.	OTHER INFORMATION

Item 1A.	Risk Factors	48

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48

Item 6.	Exhibits	49

	Signatures	51

Index



SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
	June 30, 2018		December 31, 2017
ASSETS
Current Assets:
Cash and cash equivalents	$	65,569	$	78,585
Accounts receivable, net	58,614		54,184
Income taxes receivable	589		17,311
Inventory, net	6,207		5,704
Prepaid expenses and other	64,163		17,111
Total current assets	195,142		172,895
Investments, including $3,336 and $3,279 carried at fair value	11,949		11,472
Property, plant and equipment, net	668,339		686,327
Other Assets:
Intangible assets, net	396,908		380,979
Goodwill	146,497		146,497
Deferred charges and other assets, net	34,021		13,690
Total assets	$	1,452,856	$	1,411,860
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt, net of unamortized loan fees	$	84,631	$	64,397
Accounts payable	22,674		28,953
Advanced billings and customer deposits	6,668		21,153
Accrued compensation	6,738		9,167
Accrued liabilities and other	18,086		13,914
Total current liabilities	138,797		137,584
Long-term debt, less current maturities, net of unamortized loan fees	715,265		757,561
Other Long-Term Liabilities:
Deferred income taxes	111,125		100,879
Deferred lease	19,309		15,782
Asset retirement obligations	21,867		21,211
Retirement plan obligations	13,223		13,328
Other liabilities	15,080		15,293
Total other long-term liabilities	180,604		166,493
Shareholders’ Equity:
Common stock, no par value, authorized 96,000 shares; issued and outstanding 49,558 shares in 2018 and 49,328 shares in 2017.	—		—
Additional paid in capital	46,172		44,787
Retained earnings	359,893		297,205
Accumulated other comprehensive income (loss), net of taxes	12,125		8,230
Total shareholders’ equity	418,190		350,222
Total liabilities and shareholders’ equity	$	1,452,856	$	1,411,860

See accompanying notes to unaudited condensed consolidated financial statements.

Index



SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share amounts)
	Three Months Ended June 30,						Six Months Ended June 30,
Operating revenues:	2018			2017			2018			2017
Service revenues and other	$	138,021		$	150,308		$	272,174		$	300,829
Equipment revenues	16,009			2,950			33,588			6,309
Total operating revenues	154,030			153,258			305,762			307,138
Operating expenses:
Cost of services	49,134			48,416			98,476			97,193
Cost of goods sold	15,166			4,965			30,971			9,949
Selling, general and administrative	29,915			43,022			58,665			83,175
Acquisition, integration and migration expenses	—			3,678			—			8,167
Depreciation and amortization	41,117			44,925			84,604			89,729
Total operating expenses	135,332			145,006			272,716			288,213
Operating income (loss)	18,698			8,252			33,046			18,925
Other income (expense):
Interest expense	(8,851		)	(9,389		)	(18,183		)	(18,489		)
Gain (loss) on investments, net	56			73			24			193
Non-operating income (loss), net	783			1,224			1,804			2,479
Income (loss) before income taxes	10,686			160			16,691			3,108
Income tax expense (benefit)	2,862			240			4,038			847
Net income (loss)	7,824			(80		)	12,653			2,261
Other comprehensive income (loss):
Unrealized gain (loss) on interest rate hedge, net of tax	833			(1,375		)	3,895			(776		)
Comprehensive income (loss)	$	8,657		$	(1,455	)	$	16,548		$	1,485

Net income (loss) per share:
Basic	$	0.16		$	—		$	0.26		$	0.05
Diluted	$	0.16		$	—		$	0.25		$	0.05
Weighted average shares outstanding, basic	49,547			49,115			49,511			49,083
Weighted average shares outstanding, diluted	50,070			49,115			50,029			49,850

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 amounts)
	Shares of Common Stock (no par value)		Additional Paid in Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, December 31, 2017	49,328		$	44,787		$	297,205	$	8,230	$	350,222
Change in accounting principle - adoption of accounting standard (Note 2)	—		—			50,035		—		50,035
Net Income (loss)	—		—			12,653		—		12,653
Other comprehensive gain (loss), net of tax of $1.4 million	—		—			—		3,895		3,895
Stock based compensation	205		3,407			—		—		3,407
Stock options exercised	15		104			—		—		104
Common stock issued	—		10			—		—		10
Shares retired for settlement of employee taxes upon issuance of vested equity awards	(66	)	(2,136		)	—		—		(2,136		)
Common stock issued to acquire non-controlling interest in nTelos	76		—			—		—		—
Balance, June 30, 2018	49,558		$	46,172		$	359,893	$	12,125	$	418,190

See accompanying notes to unaudited condensed consolidated financial statements.

Index



SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
	Six Months Ended June 30,
	2018			2017
Cash Flows From Operating Activities:
Net income (loss)	$	12,653		$	2,261
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	71,637			76,695
Amortization reflected as operating expense	12,967			12,950
Amortization reflected as rent expense in cost of services	175			593
Bad debt expense	758			886
Stock based compensation expense, net of amount capitalized	3,407			2,418
Waived management fee	18,606			18,107
Deferred income taxes	(9,325		)	(11,954		)
(Gain) loss on investments	(24		)	(187		)
Net (gain) loss from patronage and equity investments	(1,552		)	(1,447		)
Amortization of long-term debt issuance costs	2,365			2,385
Accrued interest and other	101			854
Changes in assets and liabilities:
Accounts receivable	(11,060		)	5,196
Inventory, net	(503		)	25,049
Income taxes receivable	16,722			(1,908		)
Other assets	3,909			(126		)
Accounts payable	2,486			(40,558		)
Income taxes payable	—			(435		)
Deferred lease	1,353			2,493
Other deferrals and accruals	2,469			(6,478		)
Net cash provided by (used in) operating activities	127,144			86,794

Cash Flows From Investing Activities:
Acquisition of property, plant and equipment	(62,322		)	(68,766		)
Proceeds from sale of assets	447			269
Cash distributions (contributions) from investments and other	(3		)	7
Sprint expansion	(52,000		)	(6,000		)
Net cash provided by (used in) investing activities	(113,878		)	(74,490		)

Cash Flows From Financing Activities:
Principal payments on long-term debt	(24,250		)	(12,125		)
Proceeds from revolving credit facility borrowings	15,000			—
Proceeds from credit facility borrowings	—			25,000
Principal payments on revolving credit facility	(15,000		)	—
Taxes paid for equity award issuances	(2,032		)	(1,598		)
Net cash provided by (used in) financing activities	(26,282		)	11,277
Net increase (decrease) in cash and cash equivalents	(13,016		)	23,581
Cash and cash equivalents, beginning of period	78,585			36,193
Cash and cash equivalents, end of period	$	65,569		$	59,774

Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest, net of capitalized interest of $737 and $1,035, respectively	$	16,902		$	17,085
Income tax refunds received, net of taxes paid	$	(3,359	)	$	15,150
Capital expenditures payable	$	6,324		$	4,567

See accompanying notes to unaudited condensed consolidated financial statements.

Index

SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 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 in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial reporting and as required by Rule 10-01 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements may not include all of the information and notes required by GAAP for audited financial statements. The information contained herein should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

Adoption of New Accounting Principles

There have been no developments related to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company's unaudited condensed consolidated financial statements and note disclosures, from those disclosed in the Company's 2017 Annual Report on Form 10-K, that would be expected to impact the Company except for the topics discussed below.

The Company adopted ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606", or "the new revenue recognition standard"), and all related amendments, effective January 1, 2018, using the modified retrospective method as discussed in Note 2, Revenue from Contracts with Customers. The Company recognized the cumulative effect of applying the new revenue recognition standard as an adjustment to the opening balance of retained earnings. The comparative information has not been retrospectively modified and continues to be reported under the accounting standards in effect for those periods.

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize a right-of-use asset and a lease liability for all leases with terms greater than 12 months. The standard also requires disclosures by lessees and lessors about the amount, timing and uncertainty of cash flows arising from leases, as well as changes in the categorization of rental costs, from rent expense to interest and depreciation expense. Other effects may occur depending on the types of leases and the specific terms of them utilized by particular lessees. The ASU is effective for the Company on January 1, 2019, and early application is permitted. Modified retrospective application is required. In September 2017 and January 2018, the FASB issued ASU No. 2017-13, which included Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), and ASU No. 2018-01, Leases (Topic 842), Land Easement Practical Expedient for Transition to Topic 842, and provided additional implementation guidance on ASU 2016-02. The Company has not yet completed its assessment of the impact of the new standard on the Company’s Consolidated Financial Statements. The Company is in the early stages of implementation and currently believes that the most notable impact to its financial statements upon the adoption of this ASU will be the recognition of a material right-of-use asset and a lease liability for its real estate and equipment leases. The Company is continuing to assess potential impacts that the standard may have on current accounting policies and procedures, and is implementing a new lease management system to assist in the application of the new standard.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. Under existing U.S. GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU No. 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act. The amendments in this ASU also require certain disclosures about stranded tax effects. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption in any period is permitted. The Company is currently evaluating the impact of adopting ASU No. 2018-02.

Index

Note 2. Revenue from Contracts with Customers

The Company earns revenue primarily through the sale of our wireless telecommunications services, wireless equipment, and business, residential, and enterprise cable and wireline services that include video, internet, voice, and data services. Revenue earned for the three months ended June 30, 2018 was as follows:



(in thousands)	Wireless			Cable			Wireline			Consolidated
Wireless service	$	93,219		$	—		$	—		$	93,219
Wireless equipment	15,819			—			—			15,819
Business, residential and enterprise	—			29,466			10,513			39,979
Tower and other	3,244			2,645			8,599			14,488
Total revenue	112,282			32,111			19,112			163,505
Internal revenues	(1,244		)	(1,097		)	(7,134		)	(9,475		)
Total operating revenue	$	111,038		$	31,014		$	11,978		$	154,030

Revenues earned for the six months ended June 30, 2018 was as follows:



(in thousands)	Wireless			Cable			Wireline			Consolidated
Wireless service	$	182,978		$	—		$	—		$	182,978
Wireless equipment	33,193			—			—			33,193
Business, residential and enterprise	—			58,597			21,204			79,801
Tower and other	6,509			5,225			17,615			29,349
Total revenue	222,680			63,822			38,819			325,321
Internal revenues	(2,483		)	(2,128		)	(14,948		)	(19,559		)
Total operating revenue	$	220,197		$	61,694		$	23,871		$	305,762

Wireless service

The majority of the Company's revenue is earned through providing network access to Sprint under the affiliate agreement, which represents approximately 61% of consolidated revenues. Wireless service revenue is variable based on billed revenues to Sprint’s subscribers in the Company's affiliate area, less applicable fees retained by Sprint.

The Company's revenue related to Sprint’s postpaid customers is the amount that Sprint bills its postpaid subscribers, reduced by customer credits, write-offs of receivables, and 8% management and 8.6% service fees. The Company is also charged for the costs of subsidized handsets sold through Sprint’s national channels as well as commissions paid by Sprint to third-party resellers in the Company's service territory.

The Company's revenue related to Sprint’s prepaid customers is the amount Sprint bills its prepaid subscribers, reduced by costs to acquire and support the customer, based on national averages for Sprint’s prepaid programs, and a 6% management fee.

The Company considers Sprint, rather than Sprint's subscribers, to be the customer under the new revenue recognition standard and the Company's performance obligation is to provide Sprint a series of continuous network access services. The reimbursement to Sprint for the costs of handsets sold through Sprint’s national channels, as well as commissions paid by Sprint to third-party resellers in our service territory represent consideration payable to a customer that is not in exchange for a distinct service under Topic 606. Therefore, these reimbursements result in increases to our contract asset position that are subsequently recognized as a reduction of revenue over the average subscriber life of approximately two years which is the period the Company expects those payments to result in increased revenues. Historically, under ASC 605 the customer was considered the subscriber rather than Sprint and as a result, reimbursement payments to Sprint for costs of handsets and commissions were recorded as operating expenses in the period incurred. During 2017, these costs totaled $63.5 million recorded in cost of goods and services, and $16.9 million recorded in selling, general and administrative costs.

On January 1, 2018, upon adoption, the Company recorded a wireless contract asset of approximately $42.8 million. During the three months ended June 30, 2018, payments that increased the wireless contract asset balance totaled $14.6 million and amortization reflected as a reduction of revenue totaled approximately $13.7 million. During the six months ended June 30, 2018, payments that increased the wireless contract asset balance totaled $28.4 million and amortization reflected as a reduction of revenue totaled approximately $27.1 million. The wireless contract asset balance as of June 30, 2018 was approximately $44.1 million.

Index

Wireless equipment

The Company owns and operates Sprint-branded retail stores within their geographic territory from which the Company sells equipment, primarily wireless handsets, and service to Sprint subscribers. The Company's equipment is generally sold to subscribers under subsidized plans or to Sprint under equipment financing plans. Under the equipment financing plans, Sprint purchases the equipment from the Company and resells the equipment to their subscribers. Historically, under ASC 605, the Company concluded that it was the agent in these equipment financing transactions and recorded revenues net of related handset costs which were approximately $63.8 million in 2017. Under Topic 606 the Company concluded that it is the principal in these equipment financing transactions, as the Company controls and bears the risk of ownership of the inventory prior to sale, and accordingly revenues and handset costs are recorded on a gross basis, the corresponding cost of the equipment is recorded separately to cost of goods sold.

Business, residential and enterprise

The Company earns revenue in the cable and wireline segments from business, residential, and enterprise customers where the performance obligations are to provide cable and telephone network services, sell and lease equipment and wiring services, and lease fiber-optic cable capacity. The Company's arrangements are generally composed of contracts that are cancellable at the customer’s discretion without penalty at any time. As there are multiple performance obligations in these arrangements, the Company recognizes revenue based on the standalone selling price of each distinct good or service. The Company generally recognizes these revenues over time as customers simultaneously receive and consume the benefits of the service, with the exception of equipment sales and home wiring which are recognized as revenue at a point in time when control transfers and when installation is complete, respectively.

Under the new revenue recognition standard, the Company concluded that installation services do not represent a separate performance obligation. Accordingly, installation fees are allocated to services and are recognized ratably over the longer of the contract term or the period the unrecognized portion of the fee remains material to the contract, typically 10 and 11 months for cable and wireline customers, respectively. Historically, the Company deferred these fees over the estimated customer life of 42 months. Additionally, the Company incurs commission and installation costs related to in-house and third-party vendors that were previously expensed as incurred. Under Topic 606, the Company capitalizes and amortizes these commission and installation costs over the expected benefit period which is approximately 44 months, 72 months, and 46 months, for cable, wireline, and enterprise business, respectively.

Tower / Other

Tower revenues consist primarily of tower space leases accounted for under Topic 840, Leases, and Other revenues include network access-related charges for service provided to customers across the segments.

Index

The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of the new revenue recognition standard were as follows:



(in thousands)	Balance at December 31, 2017		Adjustments due to Topic 606			Balance at January 1, 2018
Assets
Prepaid expenses and other	$	17,111	$	36,577		$	53,688
Deferred charges and other assets, net	13,690		16,107			29,797
Liabilities
Advanced billing and customer deposits	21,153		(14,302		)	6,851
Deferred income taxes	100,879		18,151			119,030
Other long-term liabilities	15,293		(1,200		)	14,093
Retained earnings	297,205		50,035			347,240

The impact of the adoption of the new revenue recognition standard on our consolidated income statement and balance sheet was as follows:



	Three Months Ended June 30, 2018
(in thousands)	As Reported		Balances without Adoption of Topic 606		Effect of Change Higher/(Lower)
Operating revenues:
Service revenues and other	$	138,021	$	156,267	$	(18,246	)
Equipment revenues	16,009		1,799		14,210
Operating expenses:
Cost of services	49,134		48,999		135
Cost of goods sold	15,166		6,328		8,838
Selling, general and administrative	29,915		45,579		(15,664		)



	Six Months Ended June 30, 2018
(in thousands)	As Reported		Balances without Adoption of Topic 606		Effect of Change Higher/(Lower)
Operating revenues:
Service revenues and other	$	272,174	$	310,079	$	(37,905	)
Equipment revenues	33,588		3,858		29,730
Operating expenses:
Cost of services	98,476		98,198		278
Cost of goods sold	30,971		12,446		18,525
Selling, general and administrative	58,665		88,547		(29,882		)

Index



	As of June 30, 2018
(in thousands)	As Reported		Balances without Adoption of Topic 606		Effect of Change Higher/(Lower)
Assets
Prepaid expenses and other	$	64,163	$	26,215	$	37,948
Deferred charges and other assets, net	34,021		18,094		15,927
Liabilities
Advanced billing and customer deposits	6,668		22,704		(16,036		)
Deferred income taxes	111,125		92,190		18,935
Other long-term liabilities	15,080		16,259		(1,179		)
Retained earnings	359,893		307,738		52,155

Future performance obligations

On June 30, 2018, the Company had approximately $3.1 million of transaction price allocated to unsatisfied performance obligations, which is exclusive of contracts with original expected duration of one year or less. The Company expects to recognize approximately $0.4 million of this amount as revenue during the remainder of 2018, $0.6 million in 2019, an additional $0.6 million by 2020, and the balance thereafter.

Contract acquisition costs and costs to fulfill contracts

Capitalized contract costs represent contract fulfillment costs and contract acquisition costs which include commissions and installation costs in our cable and wireline segments. Capitalized contract costs are amortized on a straight line basis over the contract term plus expected renewals. The Company applies the practical expedient to expense contract acquisition costs when incurred if the amortization period would be twelve months or less. The amortization of these costs is included in cost of services, and selling, general and administrative expenses. Amounts capitalized were approximately $9.8 million as of June 30, 2018 of which $4.6 million is presented as prepaid expenses and other and $5.2 million is presented as deferred charges and other assets, net. Amortization recognized during the six-month period ended at June 30, 2018 was approximately $2.7 million.

Note 3. Acquisition

Sprint Territory Expansion: Effective February 1, 2018, the Company signed an expansion agreement with Sprint to expand its wireless service coverage area to include certain areas in Kentucky, Pennsylvania, Virginia and West Virginia, (the “Expansion Area”). The agreement includes certain network build out requirements in the Expansion Area, and the ability to utilize Sprint’s spectrum in the Expansion Area. Pursuant to the expansion agreement, Sprint agreed to, among other things, transition the provision of network coverage in the Expansion Area from Sprint to the Company. The expansion agreement required a payment of $52.0 million for the right to service the Expansion Area pursuant to the Affiliate Agreements plus an additional payment of up to $5.0 million after acceptance of certain equipment at the Sprint cell sites in the Expansion Area. The transaction was accounted for as an asset acquisition.

Index

The Company recorded the following in the wireless segment:



($ in thousands)	Estimated Useful Life (in years)	February 1, 2018
Affiliate Contract Expansion	12	$	45,148
Prepayment of tangible assets	0	6,497
Off-market leases - favorable	16.5	3,665
Off-market leases - unfavorable	4.2	(3,310		)
Total		$	52,000

Estimated useful lives are approximate and represent the average of the remaining useful lives as of the acquisition date.

The Company allocated the purchase price to the components identified in the table above based on the relative fair value of each component. The fair value of the components was determined using an income and cost approach.

The affiliate contract expansion asset is classified as "Intangible assets, net". The prepayment of tangible assets are classified as "Prepaid expenses and other" within current assets on the Company's balance sheet. The off-market leases - favorable and off-market leases - unfavorable, are classified as "Intangible assets, net" and "Deferred lease", respectively, on the Company's balance sheet.

Note 4. Customer Concentration

Significant Contractual Relationship:

In 1999, the Company executed a Management Agreement (the “Agreement”) with Sprint whereby the Company committed to construct and operate a personal communications service (PCS) network using CDMA air interface technology. The Agreement has been amended numerous times. Under the amended Agreement, the Company is the exclusive PCS Affiliate of Sprint providing wireless mobility communications network products and services on the 800 MHz, 1900 MHz and 2.5 GHz spectrum ranges in its territory across a multi-state area covering large portions of central and western Virginia, south-central Pennsylvania, West Virginia, and portions of Maryland, North Carolina, Kentucky, and Ohio. The Company is authorized to use the Sprint brand in its territory, and operate its network under Sprint’s radio spectrum licenses. As an exclusive PCS Affiliate of Sprint, the Company has the exclusive right to build, own and maintain its portion of Sprint’s nationwide PCS network, in the aforementioned areas, to Sprint’s specifications. The initial term of the Agreement extends through November 2029, with two successive 10-year renewal periods, unless terminated by either party under provisions outlined in the Agreement. Upon non-renewal, the Company may cause Sprint to buy or Sprint may cause the Company to sell, the business at 90% of “Entire Business Value” (EBV) as defined in the Agreement. EBV is defined as i) the fair market value of a going concern paid by a willing buyer to a willing seller; ii) valued as if the business will continue to utilize existing brands and operate under existing agreements; and, iii) valued as if Manager (Shentel) owns the spectrum. Determination of EBV is made by an independent appraisal process.

Amendment to the Affiliate agreement related to the acquisition of Expansion Area:

Effective with the acquisition of Expansion Area on February 1, 2018, the Company amended its Agreement with Sprint to expand its wireless service area to include certain areas in Kentucky, Pennsylvania, Virginia and West Virginia. The agreement includes certain network build out requirements in the Expansion Area, and the ability to utilize Sprint’s spectrum in the Expansion Area along with certain other amendments to the Affiliate Agreements. Pursuant to the Expansion Agreement, Sprint agreed to, among other things, transition the provision of network coverage in the Expansion Area from Sprint to the Company.

Note 5. Earnings (Loss) Per Share (EPS)

Basic EPS was computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share was computed under the treasury stock method, assuming the conversion as of the beginning of the period, for all dilutive stock options. Diluted EPS was computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding and potentially dilutive securities outstanding during the period under the treasury stock method. Potentially dilutive securities include stock options and restricted stock units and shares that the Company is contractually obligated to issue in the future.

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The following table indicates the computation of basic and diluted earnings per share:



	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands, except per share amounts)	2018		2017			2018		2017
Calculation of net income (loss) per share:
Net income (loss)	$	7,824	$	(80	)	$	12,653	$	2,261
Weighted average shares outstanding	49,547		49,115			49,511		49,083
Basic income (loss) per share	$	0.16	$	—		$	0.26	$	0.05

Effect of stock options outstanding:
Basic weighted average shares outstanding	49,547		49,115			49,511		49,083
Effect from dilutive shares and options outstanding	523		—			518		767
Diluted weighted average shares outstanding	50,070		49,115			50,029		49,850
Diluted income (loss) per share	$	0.16	$	—		$	0.25	$	0.05

The computation of diluted EPS does not include certain unvested awards, on a weighted average basis, because their inclusion would have an anti-dilutive effect on EPS. The awards excluded because of their anti-dilutive effect were as follows:



	Three Months Ended June 30,		Six Months Ended June 30,
(in thousands)	2018	2017	2018	2017
Awards excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive	23	786	115	87

Note 6. Investments

Other investments, comprised of equity securities which do not have readily determinable fair values, consist of the following:



(in thousands)	6/30/2018		12/31/2017
Cost method:
CoBank	$	7,258	$	6,818
Other – Equity in other telecommunications partners	781		811
	8,039		7,629
Equity method:
Other	574		564
	574		564
Total other investments	$	8,613	$	8,193

The CoBank investment is primarily related to patronage distributions of restricted equity and is a required investment related to the Credit Facility. Refer to Note 12, Long-Term Debt, for additional information.

The Company's investments carried at fair value consisted of:



(in thousands)	6/30/2018		12/31/2017
Domestic equity funds	$	2,933	$	2,856
International equity funds	403		423
	$	3,336	$	3,279

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Investments carried at fair value were acquired under a rabbi trust arrangement related to the Company’s Supplemental Executive Retirement Plan (SERP). The Company purchases investments in the trust to mirror the investment elections of participants in the SERP. The Company recorded net gains of $56 thousand and $68 thousand in the three months ended June 30, 2018 and June 30, 2017, respectively. The Company recorded net gains of $24 thousand and $187 thousand in the six months ended June 30, 2018 and June 30, 2017, respectively. Fair values for these investments are determined by quoted market prices (Level 2 fair values) for the underlying mutual funds, which may be based upon net asset value. Gains and losses on the investments in the trust are reflected as increases or decreases in the liability owed to the participants. The increases or decreases to the liability are recorded as pension expense included within "Non-operating income (loss), net" in the Company's consolidated statements of operations.

Note 7. Fair Value Measurements

The following tables present the hierarchy for financial assets and liabilities measured at fair value on a recurring basis:



(in thousands)	June 30, 2018
Balance sheet location:	Level 1		Level 2		Level 3		Total
Prepaid expenses and other:
Interest rate swaps	$	—	$	4,577	$	—	$	4,577
Deferred charges and other assets, net:
Interest rate swaps	—		13,925		—		13,925
Total	$	—	$	18,502	$	—	$	18,502



(in thousands)	For the year ended December 31, 2017
Balance sheet location:	Level 1		Level 2		Level 3		Total
Cash Equivalents:
Money market funds	$	150	$	—	$	—	$	150
Prepaid expenses and other:
Interest rate swaps	—		2,411		—		2,411
Deferred charges and other assets, net:
Interest rate swaps	—		10,776		—		10,776
Total	$	150	$	13,187	$	—	$	13,337

Level 1- Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

Level 2 - Financial assets and liabilities whose values are based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Financial assets and liabilities whose values are based on unobservable inputs for the asset or liability.

Financial instruments are defined as cash, or other financial instruments to a third party. The carrying amounts of cash and cash equivalents, accounts receivable, other current assets, investments carried at fair value, accounts payable and accrued liabilities approximate fair value due to their short-term nature. The Company's Long-term debt and interest rate swaps approximate fair value because of their floating rate structure.

Derivative financial instruments are recognized as assets or liabilities in the financial statements and measured at fair value on a recurring basis. See Note 10, Derivatives and Hedging, for additional information. The Company measures its interest rate swaps at fair value and recognizes such derivative instruments as either assets or liabilities on the Company’s consolidated balance sheet. Changes in the fair value of swaps are recognized in other comprehensive income, as the Company has designated these swaps as cash flow hedges for accounting purposes. The Company entered into these swaps to manage a portion of its exposure to interest rate movements by converting a portion of its variable rate long-term debt to fixed rate debt.

The Company determines the fair value of its security holdings based on pricing from its vendors. The valuation techniques used to measure the fair value of financial instruments having Level 2 inputs were derived from non-binding consensus prices that are corroborated by observable market data or quoted market prices for similar instruments. Such market prices may be

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quoted prices in active markets for identical assets (Level 1 inputs) or pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs).

The Company has certain non-marketable long-term investments for which it is not practicable to estimate fair value, refer to Note 6, Investments, for additional information.

Note 8. Property, Plant and Equipment

Property, plant and equipment consisted of the following:



(in thousands)	Estimated Useful Lives	June 30, 2018		December 31, 2017
Land		$	6,459	$	6,418
Buildings and structures	10 - 40 years	205,373		195,540
Cable and wire	4 - 40 years	296,276		286,999
Equipment and software	2 - 17 years	756,643		730,228
Plant in service		1,264,751		1,219,185
Plant under construction		67,584		62,202
Total property, plant and equipment		1,332,335		1,281,387
Less accumulated amortization and depreciation		663,996		595,060
Property, plant and equipment, net		$	668,339	$	686,327

Note 9. Goodwill and Other Intangible Assets

Goodwill consisted of the following:



(in thousands)	June 30, 2018		December 31, 2017
Goodwill - Wireless	$	146,383	$	146,383
Goodwill - Cable	104		104
Goodwill - Wireline	10		10
Goodwill	$	146,497	$	146,497

Intangible assets consisted of the following:



	June 30, 2018							December 31, 2017
(in thousands)	Gross Carrying Amount		Accumulated Amortization and Other			Net		Gross Carrying Amount		Accumulated Amortization and Other			Net
Non-amortizing intangibles:
Cable franchise rights	$	64,334	$	—		$	64,334	$	64,334	$	—		$	64,334
Railroad crossing rights	141		—			141		141		—			141
Total non-amortizing intangibles	64,475		—			64,475		64,475		—			64,475

Finite-lived intangibles:
Affiliate contract expansion - wireless	455,306		(137,437		)	317,869		410,157		(105,964		)	304,193
Favorable leases - wireless	15,758		(1,537		)	14,221		13,103		(1,222		)	11,881
Acquired subscribers - cable	25,265		(25,174		)	91		25,265		(25,100		)	165
Other intangibles	463		(211		)	252		463		(198		)	265
Total finite-lived intangibles	496,792		(164,359		)	332,433		448,988		(132,484		)	316,504
Total intangible assets	$	561,267	$	(164,359	)	$	396,908	$	513,463	$	(132,484	)	$	380,979

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Affiliate contract expansion is amortized over the expected benefit period and is further reduced by the amount of waived management fees received from Sprint which totaled $79.2 million since May 6, 2016, the date of the non-monetary exchange.

The gross carrying amount of certain intangibles was affected by the expansion of the Company's wireless service coverage area with Sprint. See note 3, Acquisition for additional information.

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Note 10. Derivatives and Hedging

The table below presents the fair value of the Company’s derivative financial instruments as well as its classification on the consolidated balance sheet:



(in thousands)	June 30, 2018		December 31, 2017
Balance Sheet Location of Derivative Financial Instruments:
Prepaid expenses and other	$	4,577	$	2,411
Deferred charges and other assets, net	13,925		10,776
Total derivatives designated as hedging instruments	$	18,502	$	13,187

The table below summarizes changes in accumulated other comprehensive income (loss) by component:



	Six months ended June 30, 2018
(in thousands)	Gains (Losses) on Cash Flow Hedges		Income Tax (Expense) Benefit			Accumulated Other Comprehensive Income (Loss), net of taxes
Balance as of December 31, 2017	$	13,187	$	(4,957	)	$	8,230
Net change in unrealized gain (loss)	5,315		(1,420		)	3,895
Net current period other comprehensive income (loss)	5,315		(1,420		)	3,895
Balance as of June 30, 2018	$	18,502	$	(6,377	)	$	12,125

The outstanding notional amounts of the cash flow hedge were $406.1 million and $418.3 million as of June 30, 2018 and December 31, 2017, respectively. See Note 7, Fair Value Measurements, for additional information.

Note 11. Other Assets and Accrued Liabilities

Prepaid expenses and other, classified as current assets, included the following:



(in thousands)	June 30, 2018		December 31, 2017
Prepaid rent	$	9,929	$	10,519
Prepaid maintenance expenses	3,806		3,062
Interest rate swaps	4,577		2,411
Deferred contract costs	37,947		—
Other	7,904		1,119
Prepaid expenses and other	$	64,163	$	17,111

Deferred contract and other costs include amounts reimbursed to Sprint for commissions and device costs, and commissions and installation costs in the Company’s Cable and Wireline segments. The deferred contract and other costs increased due to the adoption of Topic 606. Refer to Note 2, Revenue from Contracts with Customers, for additional information.

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Deferred charges and other assets, classified as long-term assets, included the following:



(in thousands)	June 30, 2018		December 31, 2017
Interest rate swaps	$	13,925	$	10,776
Deferred contract costs	15,953		—
Other	4,143		2,914
Deferred charges and other assets, net	$	34,021	$	13,690

Accrued liabilities and other, classified as current liabilities, included the following:



(in thousands)	June 30, 2018		December 31, 2017
Sales and property taxes payable	$	4,805	$	3,872
Severance accrual	13		1,028
Asset retirement obligations	641		492
Accrued programming costs	2,934		2,805
Other current liabilities	9,693		5,717
Accrued liabilities and other	$	18,086	$	13,914

Other liabilities, classified as long-term liabilities, included the following:



(in thousands)	June 30, 2018		December 31, 2017
Non-current portion of deferred revenues	$	12,782	$	14,030
Other	2,298		1,263
Other liabilities	$	15,080	$	15,293

The Company's asset retirement obligations are included in the balance sheet captions "Asset retirement obligations" and "Accrued liabilities and other". The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement and removal of leasehold improvements or equipment. The Company also records a corresponding asset, which is depreciated over the life of the leasehold improvement or equipment. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The terms associated with its operating leases, and applicable zoning ordinances of certain jurisdictions, define the Company’s obligations which are estimated and vary based on the size of the towers.

Note 12. Long-Term Debt

Total debt as of June 30, 2018 and December 31, 2017 consisted of the following:



(in thousands)	June 30, 2018		December 31, 2017
Term loan A-1	$	412,250	$	436,500
Term loan A-2	400,000		400,000
	812,250		836,500
Less: unamortized loan fees	12,354		14,542
Total debt, net of unamortized loan fees	$	799,896	$	821,958

Current maturities of long term debt, net of current unamortized loan fees	$	84,631	$	64,397
Long-term debt, less current maturities, net of unamortized loan fees	$	715,265	$	757,561

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As of June 30, 2018, the Company's indebtedness totaled approximately $799.9 million, net of unamortized loan fees of $12.4 million, with an annualized overall weighted average interest rate of approximately 3.90%. As of June 30, 2018, the Term Loan A-1 bears interest at one-month LIBOR plus a margin of 2.25%, while the Term Loan A-2 bears interest at one-month LIBOR plus a margin of 2.50%. For June 2018, one-month LIBOR was 1.98%. LIBOR resets monthly.

The Term Loan A-1 required quarterly principal repayments of $6.1 million, which began on September 30, 2016 and continued through June 30, 2017, increased to $12.1 million quarterly from September 30, 2017 through June 30, 2020; then increases to $18.2 million quarterly from September 30, 2020 through March 31, 2021, with the remaining balance 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 remaining balance due June 30, 2023.

The 2016 credit agreement also requires the Company to enter into one or more hedge agreements to manage its exposure to interest rate movements. The Company elected to hedge the minimum required under the 2016 credit agreement, and entered into a pay-fixed, receive-variable swap on 50% of the aggregate expected principal balance of the term loans outstanding. The Company will receive one month LIBOR and pay a fixed rate of 1.16%, in addition to the 2.25% initial spread on Term Loan A-1 and the 2.50% 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 and membership interests 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.

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;


•	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; and


•	maintain a minimum liquidity balance of greater than $25 million. The balance includes amounts available 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.

As shown below, as of June 30, 2018, the Company was in compliance with the covenants in its credit agreements.

Credit Facility Modification: On February 16, 2018, the Company, entered into a Second Amendment to Credit Agreement (the “Second Amendment”) with CoBank, ACB, as administrative agent of its Credit Agreement and the various financial institutions party thereto (the “Lenders”), which modifies the Credit Agreement by (i) reducing the interest rate paid by the Company by 50 basis points with respect to certain loans made by the Lenders to the Company under the Credit Agreement, and (ii) allowing the Company to make charitable contributions to the Shentel Foundation, a Virginia nonstock corporation, of up to $1.5 million in any fiscal year.

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Note 13. Income Taxes

The Company files U.S. federal income tax returns and various state and local income tax returns.

The net operating losses acquired in the nTelos acquisition are open to examination from 2002 forward. Tax filings prior to 2014, excluding the acquired net operating losses, are no longer subject to examination. The Company is not subject to any state or federal income tax audits as of June 30, 2018.

The effective tax rate has fluctuated in recent periods due to the minimal base of pre-tax earnings or losses and has been further impacted by share based compensation tax benefits which are recognized as incurred under the provisions of ASC 740, "Income Taxes".

On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted, substantially changing the U.S. tax system. The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017. The 2017 Tax Act also provides immediate expensing for certain qualified assets acquired and placed into service after September 27, 2017 as well as prospective changes beginning in 2018, including acceleration of tax revenue recognition, additional limitations on deductibility of executive compensation and limitations on the deductibility of interest.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. The Company recognized the income tax effects of the 2017 Tax Act in its 2017 consolidated financial statements in accordance with SAB No. 118.

As of June 30, 2018, the Company is continuing to evaluate the provisional amounts recorded related to the 2017 Tax Act at December 31, 2017, and has not recognized any additional adjustments to such provisional amounts.

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Note 14. Segment Reporting

Three Months Ended June 30, 2018



(in thousands)	Wireless		Cable		Wireline		Other			Eliminations			Consolidated
External revenues
Service revenues	$	93,219	$	28,748	$	5,301	$	—		$	—		$	127,268
Equipment revenues	15,819		144		46		—			—			16,009
Other	2,000		2,122		6,631		—			—			10,753
Total external revenues	111,038		31,014		11,978		—			—			154,030
Internal revenues	1,244		1,097		7,134		—			(9,475		)	—
Total operating revenues	112,282		32,111		19,112		—			(9,475		)	154,030
Operating expenses
Cost of services	33,488		15,125		9,373		12			(8,864		)	49,134
Cost of goods sold	15,082		63		20		1			—			15,166
Selling, general and administrative	12,367		4,661		1,686		11,812			(611		)	29,915
Depreciation amortization	31,565		6,179		3,240		133			—			41,117
Total operating expenses	92,502		26,028		14,319		11,958			(9,475		)	135,332
Operating income (loss)	$	19,780	$	6,083	$	4,793	$	(11,958	)	$	—		$	18,698

Three Months Ended June 30, 2017:



(in thousands)	Wireless		Cable			Wireline		Other			Eliminations			Consolidated
External revenues
Service revenues	$	107,681	$	26,883		$	5,128	$	—		$	—		$	139,692
Equipment revenues	2,779		147			24		—			—			2,950
Other	2,439		1,948			6,229		—			—			10,616
Total external revenues	112,899		28,978			11,381		—			—			153,258
Internal revenues	1,234		586			8,195		—			(10,015		)	—
Total operating revenues	114,133		29,564			19,576		—			(10,015		)	153,258
Operating expenses
Cost of services	33,497		14,920			9,329		—			(9,329		)	48,416
Cost of goods sold	4,972		(9		)	1		—			—			4,965
Selling, general and administrative	29,637		4,867			1,683		7,521			(686		)	43,022
Acquisition, integration and migration expenses	4,124		—			—		(446		)	—			3,678
Depreciation and amortization	35,551		6,090			3,155		129			—			44,925
Total operating expenses	107,781		25,868			14,168		7,204			(10,015		)	145,006
Operating income (loss)	$	6,352	$	3,696		$	5,408	$	(7,204	)	$	—		$	8,252

Index

Six Months Ended June 30, 2018



(in thousands)	Wireless		Cable		Wireline		Other			Eliminations			Consolidated
External revenues
Service revenues	$	182,978	$	57,219	$	10,609	$	—		$	—		$	250,806
Equipment revenues	33,193		303		92		—			—			33,588
Other	4,026		4,172		13,170		—			—			21,368
Total external revenues	220,197		61,694		23,871		—			—			305,762
Internal revenues	2,483		2,128		14,948		—			(19,559		)	—
Total operating revenues	222,680		63,822		38,819		—			(19,559		)	305,762
Operating expenses
Cost of services	67,238		30,281		19,175		12			(18,230		)	98,476
Cost of goods sold	30,809		119		42		1			—			30,971
Selling, general and administrative	24,502		9,609		3,403		22,480			(1,329		)	58,665
Depreciation and amortization	65,490		12,203		6,634		277			—			84,604
Total operating expenses	188,039		52,212		29,254		22,770			(19,559		)	272,716
Operating income (loss)	$	34,641	$	11,610	$	9,565	$	(22,770	)	$	—		$	33,046

Six Months Ended June 30, 2017



(in thousands)	Wireless		Cable		Wireline		Other		Eliminations			Consolidated
External revenues
Service revenues	$	215,867	$	53,294	$	10,176	$	—	$	—		$	279,337
Equipment revenues	5,924		329		56		—		—			6,309
Other	5,337		3,800		12,355		—		—			21,492
Total external revenues	227,128		57,423		22,587		—		—			307,138
Internal revenues	2,468		1,154		16,143		—		(19,765		)	—
Total operating revenues	229,596		58,577		38,730		—		(19,765		)	307,138
Operating expenses
Cost of services	66,920		30,098		18,563		—		(18,388		)	97,193
Cost of goods sold	9,868		41		40		—		—			9,949
Selling, general and administrative	58,101		9,725		3,359		13,367		(1,377		)	83,175
Acquisition, integration and migration expenses	7,916		—		—		251		—			8,167
Depreciation and amortization	71,303		11,879		6,286