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Management's Discussion of Results of Operations (Excerpts)

For purposes of readability, Zenith attempts to strip out all tables in excerpts from the Management Discussion. That information is contained elsewhere in our articles. The idea of this summary is simply to review how well we believe Management does its reporting. Also, this highlights what Management believes is important.

In our Decision Matrix at the end of each article, a company with 0 to 2 gets a "-1", and 3 to 5 gets a "+1."

On a scale of 0 to 5, 5 being best, Zenith rates this company's Management's Discussion as a 5.


General

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 provides 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, 
south-central and western Virginia, West Virginia, and small portions of North 
Carolina, 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.

Recent Developments

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

We expect to incur approximately $18.3 million of integration and acquisition 
expenses associated with this transaction in 2017, in addition to the $54.7 
million of such costs incurred during 2016. We have incurred $5.4 and $12.5 
million of these costs in the three and six months ended June 30, 2017, 
respectively. These costs include $0.4 million reflected in cost of goods and 
services, $1.3 million reflected in selling, general and administrative costs 
and $3.7 million reflected in integration and acquisition in the three month 
period ended June 30, 2017. These costs include $1.2 million reflected in cost 
of goods and services, $3.1 million reflected in selling, general and 
administrative and $8.2 million reflected in integration and acquisition costs 
in the six month period ended June 30, 2017. In addition to the approximately 
$73 million of incurred and expected expenses described above, we also incurred 
approximately $28 million of debt issuance, legal and other costs in 2015 and 
2016 relating to this transaction, for a total expected cost of $101 million.

Acquisition of Expansion Area: On April 6, 2017, we expanded our affiliate 
service territory, under our agreements with Sprint, to include certain areas 
in North Carolina, Kentucky, Maryland, Ohio and West Virginia. The expanded 
territory covers the Parkersburg, WV, Huntington, WV and Cumberland, MD basic 
trading areas. Approximately 25,000 Sprint retail and former nTelos postpaid 
and prepaid subscribers in the new basic trading areas will become 
Sprint-branded affiliate customers managed by us. We have authorization to 
serve over 6 million POPs in the mid-Atlantic region as a Sprint PCS Affiliate 
following this expansion. We plan to invest approximately $32 million over the 
next three years to upgrade and expand the existing wireless network coverage 
in those regions. Once the expansion is complete, our plan is to open multiple 
Sprint-branded retail locations in the new area.

Results of Operations

Three Months Ended June 30, 2017 Compared with the Three Months Ended June 30, 
2016

Operating revenues

For the three months ended June 30, 2017, operating revenues increased $22.9 
million, or 17.6%. Wireless segment revenues increased $19.8 million compared 
to the second quarter of 2016; nearly all of this increase was a result of the 
acquisition of nTelos on May 6, 2016. Cable segment revenues grew $3.2 million 
primarily as a result of 1.1% growth in average subscriber counts and an 
increase in revenue per subscriber. Wireline segment revenues increased $1.0 
million, primarily due to increases in fiber sales.

Operating expenses

Total operating expenses increased $8.5 million or 6.3% to $145.0 million in 
the three months ended June 30, 2017 compared with $136.5 million in the prior 
year period. The increase in operating expenses was consistent with the growth 
that occurred in operating revenues, and was partially offset by a decrease of 
approximately $16.5 million of integration and acquisition costs.

Integration and acquisition costs in the Wireless segment primarily consisted 
of handsets provided to nTelos subscribers who needed a new phone to transition 
to the Sprint billing platform, and personnel costs associated with nTelos 
employees retained on a short-term basis who were necessary in the efforts 
required to migrate former nTelos customers to the Sprint back-office billing 
platform. In the Other segment, such costs primarily consisted of 
transaction-related expenses such as legal, severance and other professional 
fees. Acquisition and integration costs were $5.4 million for the three months 
ended June 30, 2017, and were comprised of $0.4 million classified as cost of 
goods and services, $1.3 million classified as Selling, general and 
administrative, and $3.7 million classified as integration and acquisition; 
whereas acquisition and integration costs for the three months ended June 30, 
2016 were $22.4 million, and were comprised of $0.3 million classified as cost 
of goods and services, $2.0 million classified as selling, general and 
administrative, and $20.1 million classified as integration and acquisition. We 
expect integration and acquisition costs related to the nTelos acquisition to 
decrease as integration activities wind down.

For the three months ended June 30, 2017 compared with the three months ended 
June 30, 2016, excluding integration and acquisition costs, the Wireless 
segment operating expenses increased $21.9 million primarily due to on-going 
costs associated with the acquired nTelos operations including $12.1 million of 
incremental depreciation and amortization. Cable segment operating expenses 
increased $0.6 million, primarily due to expansion of network services. All 
other operating expenses increased $3.0 million, net of eliminations of 
intersegment activities.

Interest expense

Interest expense has increased primarily as a result of the incremental 
borrowings associated with closing the nTelos acquisition and the effect of 
increases in the London Interbank Offered Rate in late 2016 and during 2017. 
The impact of the interest rate increases has been partially 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.

Other income, net

Other income, net has increased $1.1 million primarily as a result of interest 
income derived from our investments.

Income tax expense

During the three months ended June 30, 2017, income tax expense increased by 
approximately $5.1 million, compared with the three months ended June 30, 2016. 
The increase is consistent with our growth in income before taxes and was 
partially offset by $0.5 million attributable to acquisition related deferred 
tax adjustments.


Six Months Ended June 30, 2017 Compared with the Six Months Ended June 30, 2016

Operating revenues

For the six months ended June 30, 2017, operating revenues increased $84.3 
million, or 37.8%. Wireless segment revenues increased $78.8 million compared 
to the first six months of 2016; nearly all of this increase was a result of 
the acquisition of nTelos on May 6, 2016. Cable segment revenues grew $5.7 
million primarily as a result of 1.1% growth in average subscriber counts and 
an increase in revenue per subscriber. Wireline segment revenues increased $1.8 
million, net of eliminations and intersegment activities, primarily due to 
increases in fiber sales.

Operating expenses

Total operating expenses increased $80.5 million or 38.8% to $288.2 million in 
the six months ended June 30, 2017 compared with $207.7 million in the prior 
year period. The increase in operating expenses was consistent with the growth 
that occurred in operating revenues, and was partially offset by a decrease of 
approximately $10.3 million in integration and acquisition costs.

Integration and acquisition costs were $12.5 million for the six months ended 
June 30, 2017, and were comprised of $1.2 million classified as cost of goods 
and services, $3.1 million classified as selling, general and administrative, 
and $8.2 million classified as integration and acquisition; whereas acquisition 
and integration costs for the six months ended June 30, 2016 were $22.7 
million, and were comprised of $0.3 million classified as cost of goods and 
services, $2.0 million classified as selling, general and administrative, and 
$20.4 million classified as integration and acquisition. We expect integration 
and acquisition costs related to the nTelos acquisition to decrease as 
integration activities wind down.

Excluding integration and acquisition costs the Wireless segment operating 
expenses increased $87.9 million primarily due to on-going costs associated 
with the nTelos operations that were acquired on May 6, 2016, including $39.5 
million of incremental depreciation and amortization. All other operating 
expenses increased $2.8 million, net of eliminations of intersegment 
activities.

Income tax expense

During the six months ended June 30, 2017, income tax expense decreased by 
approximately $0.6 million, compared with the six months ended June 30, 2016. 
The decrease is consistent with our change in income before taxes and included 
a decrease of $0.5 million of acquisition related deferred tax adjustments, 
offset by $1.3 million attributable to excess tax benefits that are derived 
from exercises of stock options and vesting of restricted stock.


Wireless

Our Wireless segment provides 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, 
south-central and western Virginia, West Virginia, and portions of Maryland, 
North Carolina, Kentucky and Ohio. 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 multi-state area 
described above.

We receive revenues from Sprint for subscribers that obtain service in our 
network coverage area. We rely 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. Since January 1, 2016, the fees retained by Sprint 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 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.

Prepaid subscribers reported in the December 2016 and subsequent periods 
include the impact of a change in the Company's policy as to how long an 
inactive customer is included in the customer counts. This policy change, 
implemented in December 2016, effectively reduced prepaid customers by 
approximately 24 thousand.

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.


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

The losses of prepaid customers in Q2’17 largely relate to government 
recertification requirements for customers renewing their eligibility for the 
government subsidized Assurance Lifeline program offered by Assurance Wireless 
("Assurance"), a lifeline cell phone provider affiliated with Sprint. Churn in 
the Assurance program increased by approximately 4,300 deactivations as a 
result of recertification activity during the quarter. Excluding the impact of 
this activity, prepaid churn would have been 4.91% for both the three-month and 
six-month periods ended 6/30/17.

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

Net of approximately 100 overlap sites we intended to shut down following our 
May 6, 2016 acquisition of nTelos. As of June 30, 2017 we have shut down 96 
overlap sites. dex

Three Months Ended June 30, 2017 Compared with the Three Months Ended June 30, 
2016

(in thousands) Three Months Ended June 30, Change 2017 2016 $ % Segment 
operating revenues

Wireless service revenue $ 107,681 $ 86,873 $ 20,808 24.0

Tower lease revenue 2,861 2,812 49 1.7

Equipment revenue 2,779 2,777 2 0.1

Other revenue 812 1,832 (1,020 ) (55.7 ) Total segment operating revenues 
114,133 94,294 19,839 21.0

Segment operating expenses




Cost of goods and services, exclusive of depreciation and amortization shown 
separately below 38,469 35,236 3,233 9.2

Selling, general and administrative, exclusive of depreciation and amortization 
shown separately below 29,637 23,010 6,627 28.8

Integration and acquisition expenses 4,124 5,276 (1,152 ) (21.8 ) Depreciation 
and amortization 35,551 23,495 12,056 51.3

Total segment operating expenses 107,781 87,017 20,764 23.9

Segment operating income $ 6,352 $ 7,277 $ (925 ) (12.7 )


Service Revenues

Wireless service revenue increased $20.8 million, or 24.0%, for the three 
months ended June 30, 2017, compared with the June 30, 2016, period.

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 
primarily due to the May 6, 2016 acquisition of nTelos. Postpaid subscribers 
have increased by approximately 15 thousand from June 30, 2016 to June 30, 
2017, including approximately 17 thousand subscribers obtained with the 
acquisition of the Expansion Area. Sprint fees include a management fee of 8% 
of total post-paid net billings and a net service fee of 8.6% of net billings 
from the Sprint billing system. The net service fee has grown as a result of 
migrating additional nTelos acquired subscribers to the Sprint billing system 
and growth in total subscribers. Prepaid subscribers have decreased by 
approximately 42 thousand over the same time period. The drop in prepaid 
subscribers includes the impact of a change in our policy as to how long an 
inactive customer is included in the customer counts. It also includes a 
decrease of 4,400 prepaid customers as a result of the government's requiring 
Assurance customers to meet more stringent qualification criteria. This policy 
change, implemented in December 2016 effectively reduced prepaid customers by 
approximately 24 thousand.

In addition to the subscribers acquired as a result of the acquisition, we 
recorded an asset related to the changes to the Sprint affiliate agreement, 
including the right to serve new subscribers in the nTelos 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 
$5.3 million in amortization as a contra revenue item in the second quarter of 
2017. Sprint agreed to waive certain management fees that they would otherwise 
be entitled to under the affiliate agreement in exchange for our commitment to 
buy nTelos, upgrade its network and support the former nTelos and Sprint 
customers. The fees waived are being recognized on a straight-line basis, 
offsetting operating revenues, over the remainder of the initial term of the 
contract through 2029 and, as a result, we recorded an adjustment of $4.4 
million in the second quarter of 2017.

Other operating revenues

The increases in equipment revenue and other revenue also resulted primarily 
from the nTelos acquisition, with the increase in other revenue primarily 
representing regulatory recovery revenues related to billings to customers 
before migration to the Sprint billing system, whereas Sprint retains the 
billing and related expenses and liabilities under our affiliate agreement.

Cost of goods and services

Cost of goods and services increased $3.2 million, or 9.2%, in the second 
quarter of 2017 compared with the second quarter of 2016. The increase results 
primarily from increases in cell site rent, power, maintenance and backhaul 
costs for the incremental 868 cell sites in the nTelos territory of $7.1 
million, as well as the related growth in the cost of agreements to service and 
maintain these sites of $1.3 million, and was offset by lower cost of handsets 
and end user equipment.

Selling, general and administrative

Selling, general and administrative costs increased $6.6 million, or 28.8%, in 
the second quarter of 2017 from the comparable 2016 period, primarily due to 
the May 6, 2016 acquisition of nTelos. Increases include $1.9 million of 
incremental separately settled third party channel commissions, $1.3 million in 
incremental advertising and marketing campaigns, and $0.4 million in other 
administrative costs. Costs associated with prepaid wireless offerings 
increased $3.0 million.

Integration and acquisition

Integration and acquisition expenses of $4.1 million in the second quarter of 
2017 include approximately $3.7 million for replacement handsets issued to 
former nTelos subscribers migrated to the Sprint billing platform and $0.4 
million in other expenses.

Depreciation and amortization

Depreciation and amortization increased $12.1 million, or 51.3%, in the second 
quarter of 2017 over the comparable 2016 period, due primarily to $13.1 million 
in incremental depreciation derived from the May 6, 2016 acquisition of nTelos, 
which was partially offset by a decrease of $1.0 million in amortization of 
customer based intangibles recorded in the acquisition. Amortization of 
customer based intangibles is based on a pattern-of-benefits approach that 
warranted the use of a declining balance amortization method.

Six Months Ended June 30, 2017 Compared with the Six Months Ended June 30, 2016

Service Revenues

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

Operating revenues

Effective May 6, 2016, we acquired approximately 404,000 postpaid and 155,000 
prepaid subscribers through our acquisition of nTelos. This acquisition and 
other changes to the postpaid customer gross additions and churn, outlined in 
the tables above, resulted in an increase of $65.9 million or 54.5% in postpaid 
net billings. Sprint fees include a management fee of 8% of total post-paid net 
billings and a net service fee of 8.6% of net billings from the Sprint billing 
system. The net service fee has grown as a result of migrating additional 
nTelos acquired subscribers to the Sprint billing system and growth in total 
subscribers. Travel revenues grew by $5.0 million as a result of the nTelos 
acquisition. Prepaid net billings grew by $19.5 million or 59.8% 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.

In addition to the subscribers acquired as a result of the acquisition, we 
recorded an asset related to the changes to the Sprint affiliate agreement, 
including the right to serve new subscribers in the nTelos 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 
$10.3 million in amortization as a contra revenue item for the six months ended 
June 30, 2017. Sprint agreed to waive certain management fees that they would 
otherwise be entitled to under the affiliate agreement in exchange for our 
commitment to buy nTelos, upgrade its network and support the former nTelos and 
Sprint customers. The fees waived are being recognized on a straight-line 
basis, offsetting operating revenues, over the remainder of the initial term of 
the contract through 2029 and, as a result, we recorded an adjustment of $8.6 
million for the six months ended June 30, 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 to customers in our 
service area. As migration of nTelos customers is completed we expect 
regulatory recovery revenues to decrease as Sprint will recognize such revenues 
billed to migrated customers in our service area.

Cost of goods and services

Cost of goods and services increased $25.0 million, or 48.2%, in 2017 from the 
first half of 2016. The increase results from increases in cell site rent and 
backhaul costs for the incremental cell sites in the nTelos territory of $25.9 
million, as well as the related growth in the cost of service agreements to 
maintain these sites of $4.4 million and was partially offset by declines in 
costs of new national handsets settled separately under the affiliate agreement 
and end user equipment of $5.4 million. Cost of goods and services also 
included $0.4 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 $23.6 million, or 68.3%, in 
the six months ended June 30, 2017 from the comparable 2016 period. This 
increase included $5.0 million of separately settled third party channel 
commissions; $0.8 million from the operating costs of incremental stores 
acquired as a result of the nTelos acquisition; $7.1 million in incremental 
sales and marketing campaigns. Costs associated with prepaid wireless offerings 
increased $7.7 million. Selling, general and administrative costs also included 
incremental costs of $1.3 million to support nTelos legacy billing operations 
until customers migrate to Sprint’s billing platform. Administrative costs, 
necessary to support our growth and expansion increased $1.6 million.

Integration and acquisition

Integration and acquisition expenses of $7.9 million incurred during the six 
months ended June 30, 2017, include approximately $7.4 million for replacement 
handsets issued to former nTelos subscribers when migrating to the Sprint 
billing platform and $0.5 million in other expenses.

Depreciation and amortization

Depreciation and amortization increased $39.3 million, or 122.9%, in the six 
months ended June 30, 2017 as compared with the comparable 2016 period. As 
related to the May 6, 2016 acquisition of nTelos, depreciation on the acquired 
fixed assets increased $33.6 million and amortization of customer based 
intangibles increased $5.7 million. Customer based intangibles are being 
amortized over accelerated lives, based on a pattern of benefits.

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. Increases in homes 
passed, available homes and video customers between December 31, 2015 and June 
30, 2016, resulted from the Colane acquisition on January 1, 2016.

1) Homes and businesses are considered passed (“homes passed”) if we can 
connect them to our distribution system without further extending the 
transmission lines. Homes passed is an estimate based upon the best available 
information.

2) Customer relationships represent the number of customers who receive at 
least one of our services.

3) Generally, a dwelling or commercial unit with one or more television sets 
connected to our distribution system counts as one video customer. Where 
services are provided on a bulk basis, such as to hotels and some 
multi-dwelling units, the revenue charged to the customer is divided by the 
rate for comparable service in the local market to determine the number of 
customer equivalents included in the customer counts shown above.

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

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

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

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

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

Operating revenues

Cable segment service revenues increased $2.7 million, or 11.2%, due to video 
rate increases in January 2017 to offset increases in programming costs, new 
and existing customers selecting higher-speed data ("HSD") access packages, and 
a 1.1% increase in average revenue generating units.

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

Operating expenses

Cable segment cost of goods and services increased $0.3 million, or 2.4%, in 
the second quarter of 2017 over the comparable 2016 period. The increase 
resulted from higher network and maintenance costs.

Selling, general and administrative expenses increased $0.1 million against the 
prior year quarter due to higher commission and marketing costs.

Six Months Ended June 30, 2017 Compared with the Six Months Ended June 30, 2016

Operating revenues

Cable segment service revenues increased $4.8 million, or 9.9%, due to video 
rate increases in January 2017 to offset increases in programming costs, 
customers selecting HSD access packages and growth in HSD and phone customers, 
and a 1.1% increase in average revenue generating units.

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 $0.9 million, or 3.2%, in 
the six months ended June 30, 2017 over the comparable 2016 period. The 
increase resulted from higher network and maintenance costs.

Wireline

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

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 June 30, 2017, 1,361 customers have 
purchased cable modem service received via the coaxial cable network.

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

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

Three Months Ended June 30, 2017 Compared with the Three Months Ended June 30, 
2016

Operating revenues

Total operating revenues in the quarter ended June 30, 2017 increased $1.0 
million, or 5.3%, against the comparable 2016 period, as a result of increases 
in fiber and access contracts.

Operating expenses

Operating expenses overall increased $0.8 million, or 5.6%, in the quarter 
ended June 30, 2017, compared to the 2016 quarter. The $0.5 million increase in 
cost of goods and services primarily resulted from costs to support the 
increase in carrier access and fiber revenues shown above.

Operating revenues

Total operating revenues in the six months ended June 30, 2017 increased $1.8 
million, or 4.8%, against the comparable 2016 period. Carrier access and fiber 
revenues increased $1.4 million due to increases in fiber and access contracts. 
The increase in service revenues primarily results from higher revenues for 
high-speed data services.

Operating expenses

Operating expenses overall increased $1.6 million, or 5.8%, in the six months 
ended June 30, 2017, compared to the 2016 period. The $1.2 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 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 OIBDA and 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, impairment of assets, gains and losses on asset sales, 
straight-line adjustments for the waived management fee by Sprint, amortization 
of the affiliate contract expansion intangible reflected as a contra revenue, 
actuarial gains and losses on pension and other post-retirement benefit plans, 
and share-based compensation expense. Adjusted OIBDA should not be construed as 
an alternative to operating income as determined in accordance with GAAP as a 
measure of operating performance. Continuing OIBDA is defined by us as Adjusted 
OIBDA, less the benefit received from the waived management fee. The waiver 
will end when the cumulative amount waived reaches $252 million, which we 
expect to occur in five years.

In a capital-intensive industry such as telecommunications, management believes 
that Adjusted OIBDA and Continuing OIBDA and the associated percentage margin 
calculations are meaningful measures of our operating performance. We use 
Adjusted OIBDA and 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 we may again 
report Adjusted and Continuing OIBDA excluding these items and may incur 
expenses similar to these excluded items. Accordingly, the exclusion of these 
and other similar items from our non-GAAP presentation should not be 
interpreted as implying these items are non-recurring, infrequent or unusual.

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

Adjusted and Continuing OIBDA 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 and Continuing OIBDA do not reflect cash 
requirements for such replacements;

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

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

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

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

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


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

(1) Pursuant to the intangible asset exchange with Sprint, we recognized an 
intangible asset for the affiliate contract expansion received. Consistent with 
the presentation of related service fees charged by Sprint, we recognize the 
amortization of this intangible as a contra-revenue over the remaining contract 
term that concludes November 2029. (2) Integration and acquisition costs 
consist of severance accruals for short-term nTelos personnel to be separated 
as integration activities wind down, transaction related expenses, device costs 
to support the transition to Sprint billing platforms, and other transition 
costs to support the migration to Sprint back-office functions. Once former 
nTelos customers migrate to the Sprint 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. (3) As part of our amended affiliate 
agreement, Sprint agreed to waive the management fee, which is historically 
presented as a contra-revenue, 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 remaining 
contract term that concludes November 2029.

Liquidity and Capital Resources

We have three principal sources of funds available to meet the financing needs 
of our operations, capital projects, debt service, 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 $86.8 million of net cash from 
operations in the first six months of 2017, compared with $50.4 million in the 
first six months of 2016.

Indebtedness. As of June 30, 2017, our indebtedness totaled $860.8 million in 
term loans with an annualized effective interest rate of approximately 4.06% 
after considering the impact of the interest rate swap contract and unamortized 
loan costs. The balance consists of the $460.8 million Term Loan A-1 at a 
variable rate (3.98% as of June 30, 2017) that resets monthly based on one 
month LIBOR plus a margin of 2.75%, and the $400.0 million Term Loan A-2 at a 
variable rate (4.23% as of June 30, 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 $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.

We are bound by certain covenants under the 2016 credit agreement. 
Noncompliance with any one or more of the covenants may have an adverse effect 
on our financial condition or liquidity in the event such noncompliance cannot 
be cured or should we be unable to obtain a waiver from the lenders. As of June 
30, 2017, we were in compliance with all covenants, and ratios at June 30, 2017 
were as follows:

Actual Covenant Requirement at June 30,2017 Total Leverage Ratio 2.91 3.75 or 
Lower Debt Service Coverage Ratio 4.35 2.00 or Higher Minimum Liquidity Balance 
133,403 $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 June 30, 2017, divided by three and multiplied by four, all as 
defined under the Credit Agreement. In addition to the covenants above, we are 
required to supply the lenders with quarterly financial statements and other 
reports as defined by the 2016 credit agreement. We were in compliance with all 
reporting requirements at June 30, 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. We budgeted $155.2 million in capital expenditures for 
2017, including $86.4 million in the Wireless segment for upgrades and 
expansion of the nTelos wireless network, $2.9 million for upgrades in the 
Wireless segment Expansion Area; $28.1 million for network expansion including 
new fiber routes, new cell towers, and cable market expansion; $27.0 million 
for additional network capacity; and $10.8 million for information technology 
upgrades, new and renovated buildings and other projects.

For the first six months of 2017, we spent $68.8 million on capital projects, 
compared to $60.1 million in the comparable 2016 period. Spending related to 
Wireless projects accounted for $40.3 million in the first six months of 2017, 
primarily for upgrades of former nTelos sites and additional cell sites to 
expand coverage in the former nTelos territory. Cable capital spending of $15.4 
million related to network and cable market expansion. Wireline capital 
projects cost $11.6 million, driven primarily by fiber builds. Other projects 
totaled $1.5 million, largely related to information technology projects.

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

Our cash flows from operations could be adversely affected by events outside 
our control, including, without limitation, changes in overall economic 
conditions, regulatory requirements, changes in technologies, demand for our 
products, availability of labor resources and capital, changes in our 
relationship with Sprint, and other conditions. The Wireless segment’s 
operations are dependent upon Sprint’s ability to execute certain functions 
such as billing, customer care, and collections; our ability to develop and 
implement successful marketing programs and new products and services; and our 
ability to effectively and economically manage other operating activities under 
our agreements with Sprint. Our ability to attract and maintain a sufficient 
customer base 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”, 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. We plan to adopt the standard effective January 1, 2018 and to adopt 
this standard using the modified retrospective transition approach. We are 
continuing to assess all potential impacts of the standard, including the 
impact to the pattern with which revenue is recognized, the impact of the 
standard on current accounting policies, practices and system of internal 
controls, in order to identify material differences, if any that would result 
from applying the new requirements. In 2016, we identified a project team and 
commenced an initial impact assessment process for ASU 2014-09. We are 
continuing its work toward establishing new policies and processes, and are 
implementing necessary changes to data and procedures necessary to comply with 
the new requirements. Based on the results of the project team’s assessment to 
date, we anticipate this standard will have an impact, which could be 
significant, to the consolidated financial statements. While continuing to 
assess all potential impacts of the standard, we believe the most significant 
impact relates to additional disclosures required for qualitative and 
quantitative information concerning the nature, amount, timing, and any 
uncertainty of revenue and cash flows from contracts with customers, the 
capitalization of costs of commissions, upfront contract costs, the pattern 
with which revenue is recognized, and other contract acquisition-based and 
contract fulfillment costs. 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 ASU and expect that it will have a 
material impact on our consolidated financial statements.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


The Company’s market risks relate primarily to changes in interest rates on 
instruments held for other than trading purposes. The Company’s interest rate 
risk generally involves three components. The first component is outstanding 
debt with variable rates. As of June 30, 2017, the Company had $860.8 million 
of variable rate debt outstanding (excluding unamortized loan fees and costs of 
$16.7 million), bearing interest at a weighted average rate of 4.09% as 
determined on a monthly basis. An increase in market interest rates of 1.00% 
would add approximately $8.4 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). This swap, combined with the swap purchased in 2012, covers 
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 (1.23% as of June 30, 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 reduce annual 
interest expense by approximately $0.8 million, 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 June 30, 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 increases in interest rates that 
may adversely affect the rate at which the Company may borrow funds for growth 
in the future. If the Company should borrow additional funds under any 
Incremental Term Loan Facility to fund its capital investment needs, repayment 
provisions would be agreed to at the time of each draw under the Incremental 
Term Loan Facility. If the interest rate margin on any draw exceeds by more 
than 0.25% the applicable interest rate margin on the Term Loan Facility, the 
applicable interest rate margin on the Term Loan Facility shall be increased to 
equal the interest rate margin on the Incremental Term Loan Facility. If 
interest rates increase generally, or if the rate applied under the Company’s 
Incremental Term Loan Facility causes the Company’s outstanding debt to be 
repriced, the Company’s future interest costs could increase.

Management views market risk as having a potentially significant impact on the 
Company's results of operations, as future results could be adversely affected 
if interest rates were to increase significantly for an extended period, or if 
the Company’s need for additional external financing resulted in increases to 
the interest rates applied to all of its new and existing debt. As of June 30, 
2017, the Company has $430.4 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.