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EX-31.1 - EXHIBIT 31.1 - SHENANDOAH TELECOMMUNICATIONS CO/VA/shenex31109302016.htm
EX-32 - EXHIBIT 32 - SHENANDOAH TELECOMMUNICATIONS CO/VA/shenex3209302016.htm
EX-31.2 - EXHIBIT 31.2 - SHENANDOAH TELECOMMUNICATIONS CO/VA/shenex31209302016.htm

 
UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q

(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2016
 
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
shenimagea01.jpg
SHENANDOAH TELECOMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)

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

500 Shentel Way, Edinburg, Virginia    22824
(Address of principal executive offices)  (Zip Code)

(540) 984-4141
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑   No ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ☑   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑
Accelerated filer ☐
Non-accelerated filer ☐
☐Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐    No  ☑
 
The number of shares of the registrant’s common stock outstanding on October 27, 2016 was 48,915,405. 
 
 




SHENANDOAH TELECOMMUNICATIONS COMPANY
INDEX

 
 
Page
Numbers
PART I.
FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
 
 
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-
 
 
 
 
 
 
-
 
 
 
 
 
Item 2.
-
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 6.
 
 
 
 
 
 
 
 
 
 
 
 






SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

ASSETS
 
September 30,
2016
 
December 31,
2015
 
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
27,531

 
$
76,812

Restricted cash
 
2,167

 

Accounts receivable, net
 
79,944

 
29,778

Income taxes receivable
 

 
7,694

Inventory, net
 
14,128

 
4,183

Prepaid expenses and other
 
17,759

 
8,573

Deferred income taxes
 

 
907

Total current assets
 
141,529

 
127,947

 
 
 
 
 
Investments, including $2,889 and $2,654 carried at fair value
 
10,113

 
10,679

 
 
 
 
 
Building held for sale
 
4,950

 

Property, plant and equipment, net
 
667,741

 
410,018

 
 
 
 
 
Other Assets
 
 

 
 

Intangible assets, net
 
458,401

 
66,993

Goodwill
 
145,413

 
10

Deferred charges and other assets, net
 
5,478

 
11,504

Other assets, net
 
609,292

 
78,507

Total assets
 
$
1,433,625

 
$
627,151




(Continued)



3


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
September 30,
2016
 
December 31,
2015
 
 
 
 
 
Current Liabilities
 
 
 
 
Current maturities of long-term debt, net of unamortized loan fees
 
$
25,972

 
$
22,492

Accounts payable
 
34,974

 
13,009

Advanced billings and customer deposits
 
21,979

 
11,674

Accrued compensation
 
6,817

 
5,915

Income taxes payable
 
14,189

 

Accrued liabilities and other
 
31,533

 
7,639

Total current liabilities
 
135,464

 
60,729

 
 
 
 
 
Long-term debt, less current maturities, net of unamortized loan fees
 
783,595

 
177,169

 
 
 
 
 
Other Long-Term Liabilities
 
 

 
 

Deferred income taxes
 
146,966

 
74,868

Deferred lease payable
 
10,869

 
8,142

Asset retirement obligations
 
15,828

 
7,266

Other liabilities
 
42,597

 
9,039

Total other long-term liabilities
 
216,260

 
99,315

 
 
 
 
 
Commitments and Contingencies
 


 


 
 
 
 
 
Shareholders’ Equity
 
 

 
 

Common stock
 
44,427

 
32,776

Retained earnings
 
256,037

 
256,747

Accumulated other comprehensive income (loss), net of taxes
 
(2,158
)
 
415

Total shareholders’ equity
 
298,306

 
289,938

 
 
 
 
 
Total liabilities and shareholders’ equity
 
$
1,433,625

 
$
627,151


See accompanying notes to unaudited condensed consolidated financial statements.


4


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(LOSS)
(in thousands, except per share amounts)
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Operating revenues
 
$
156,836

 
$
85,212

 
$
379,716

 
$
255,202

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 

 
 

 
 

 
 

Cost of goods and services, exclusive of depreciation and  amortization shown separately below
 
58,317

 
30,570

 
140,354

 
91,541

Selling, general and administrative, exclusive of depreciation and amortization shown separately below
 
40,369

 
18,306

 
96,263

 
55,024

Integration and acquisition expenses
 
15,272

 
2,129

 
35,801

 
3,153

Depreciation and amortization
 
46,807

 
19,118

 
96,961

 
53,119

Total operating expenses
 
160,765

 
70,123

 
369,379

 
202,837

Operating income (loss)
 
(3,929
)
 
15,089

 
10,337

 
52,365

 
 
 
 
 
 
 
 
 
Other income (expense):
 
 

 
 

 
 

 
 

Interest expense
 
(8,845
)
 
(1,808
)
 
(16,369
)
 
(5,663
)
Gain (loss) on investments, net
 
127

 
(211
)
 
237

 
(12
)
Non-operating income, net
 
1,400

 
391

 
2,910

 
1,265

Income (loss) before income taxes
 
(11,247
)
 
13,461

 
(2,885
)
 
47,955

 
 
 
 
 
 
 
 
 
Income tax expense (benefit)
 
(3,651
)
 
5,465

 
(2,174
)
 
19,199

Net income (loss)
 
(7,596
)
 
7,996

 
(711
)
 
28,756

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 

 
 

 
 

 
 

Unrealized gain (loss) on interest rate hedge, net of tax
 
1,712

 
(979
)
 
(2,573
)
 
(1,560
)
Comprehensive income (loss)
 
$
(5,884
)
 
$
7,017

 
$
(3,284
)
 
$
27,196

 
 
 
 
 
 
 
 
 
Earnings (loss) per share:
 
 

 
 

 
 

 
 

Basic
 
$
(0.16
)
 
$
0.17

 
$
(0.01
)
 
$
0.59

Diluted
 
$
(0.16
)
 
$
0.16

 
$
(0.01
)
 
$
0.59

Weighted average shares outstanding, basic
 
48,909

 
48,406

 
48,768

 
48,364

Weighted average shares outstanding, diluted
 
48,909

 
49,071

 
48,768

 
48,967

 
See accompanying notes to unaudited condensed consolidated financial statements.


5


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except per share amounts)

  
 
 
Shares
 
Common
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss),
net of tax
 
Total
Balance, December 31, 2014
 
48,265

 
$
29,712

 
$
227,512

 
$
1,122

 
$
258,346

 
 
 
 
 
 
 
 
 
 
 
Net income
 

 

 
40,864

 

 
40,864

Other comprehensive loss, net of tax
 

 

 

 
(707
)
 
(707
)
Dividends declared ($0.24 per share)
 

 

 
(11,629
)
 

 
(11,629
)
Dividends reinvested in common stock
 
22

 
544

 

 

 
544

Stock based compensation
 

 
2,719

 

 

 
2,719

Common stock issued through exercise of incentive stock  options
 
87

 
996

 

 

 
996

Common stock issued for share awards
 
212

 

 

 

 

Common stock issued
 
1

 
11

 

 

 
11

Common stock repurchased
 
(111
)
 
(1,885
)
 

 

 
(1,885
)
Net excess tax benefit from stock options exercised
 

 
679

 

 

 
679

 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2015
 
48,475

 
$
32,776

 
$
256,747

 
$
415

 
$
289,938

 
 
 
 
 
 
 
 
 
 
$

Net loss
 

 

 
(711
)
 

 
(711
)
Other comprehensive loss, net of tax
 

 

 

 
(2,573
)
 
(2,573
)
Stock based compensation
 

 
2,980

 

 

 
2,980

Stock options exercised
 
371

 
3,362

 

 

 
3,362

Common stock issued for share awards
 
190

 

 

 

 

Common stock issued
 
1

 
6

 

 

 
6

Common stock issued to acquire non-controlling interests of nTelos
 
76

 
10,400

 

 

 
10,400

Common stock repurchased
 
(198
)
 
(5,097
)
 

 

 
(5,097
)
Balance, September 30, 2016
 
48,915

 
$
44,427

 
$
256,037

 
$
(2,158
)
 
$
298,306


See accompanying notes to unaudited condensed consolidated financial statements.


6


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
 
Nine Months Ended
September 30,
 
 
2016
 
2015
Cash Flows From Operating Activities
 
 
 
 
Net income (loss)
 
$
(711
)
 
$
28,756

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 

 
 

Depreciation
 
84,256

 
51,985

Amortization reflected as operating expense
 
12,705

 
1,134

Amortization reflected as contra revenue
 
8,883

 

Provision for bad debt
 
1,278

 
1,335

Straight line adjustment to management fee revenue
 
7,687

 

Stock based compensation expense
 
2,570

 
1,893

Excess tax benefits on stock awards
 

 
(655
)
Deferred income taxes
 
(57,196
)
 
(7,463
)
Net (gain) loss on disposal of equipment
 
(144
)
 
229

Unrealized (gain) loss on investments
 
(180
)
 
190

Realized loss on disposal of investments
 

 
20

Net gains from patronage and equity investments
 
(497
)
 
(540
)
Amortization of long term debt issuance costs
 
2,608

 
430

Other
 
1,634

 
323

Changes in assets and liabilities:
 
 

 
 

(Increase) decrease in:
 
 

 
 

Accounts receivable
 
7,903

 
(2,989
)
Inventory, net
 
(6,134
)
 
286

Income taxes receivable
 
8,294

 
14,752

Other assets
 
2,619

 
(3,990
)
Increase (decrease) in:
 
 

 
 

Accounts payable
 
3,551

 
(4,174
)
Income taxes payable
 
16,225

 
1,675

Deferred lease payable
 
2,728

 
733

Other deferrals and accruals
 
7,767

 
(807
)
Net cash provided by operating activities
 
105,846

 
83,123

 
 
 
 
 
Cash Flows From Investing Activities
 
 

 
 

Acquisition of property, plant and equipment
 
(102,850
)
 
(39,644
)
Proceeds from sale of equipment
 
287

 
242

Cash distributions from investments
 
2,796

 
38

Cash disbursed for acquisition, net of cash acquired
 
(665,990
)
 

Net cash used in investing activities
 
(765,757
)
 
(39,364
)

(Continued)


7


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

 
 
Nine Months Ended
September 30,
 
 
2016
 
2015
Cash Flows From Financing Activities
 
 
 
 
Principal payments on long-term debt
 
$
(207,816
)
 
$
(17,250
)
Amounts borrowed under debt agreements
 
835,000

 

Cash paid for debt issuance costs
 
(14,825
)
 
(7,820
)
Excess tax benefits on stock awards
 

 
655

Repurchases of common stock
 
(5,097
)
 
(1,799
)
Proceeds from issuances of common stock
 
3,368

 
826

Net cash provided by/(used in) financing activities
 
610,630

 
(25,388
)
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
(49,281
)
 
18,371

 
 
 
 
 
Cash and cash equivalents:
 
 

 
 

Beginning
 
76,812

 
68,917

Ending
 
$
27,531

 
$
87,288

 
 
 
 
 
Supplemental Disclosures of Cash Flow Information
 
 

 
 

Cash payments for:
 
 

 
 

Interest
 
$
14,671

 
$
5,550

 
 
 
 
 
Income taxes paid, net of refunds received
 
$
23,851

 
$
10,235


Non-cash investing and financing activities:
 
At September 30, 2016 and 2015, accounts payable included approximately $14.2 million and $1.0 million, respectively, associated with capital expenditures. Cash flows for accounts payable and acquisition of property, plant and equipment exclude this activity.

In conjunction with the acquisition of nTelos, the Company issued common stock to acquire non-controlling interests held by third parties in a subsidiary of nTelos. The transaction was valued at $10.4 million.

The Company reclassified $4.3 million of unamortized loan fees and costs included in deferred charges and other assets to long term debt in connection with the new Term loan A-1 and A-2 borrowing related to the acquisition of nTelos.

See accompanying notes to unaudited condensed consolidated financial statements.


8


SHENANDOAH TELECOMMUNICATIONS COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.
Basis of Presentation

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

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

Revenue Recognition

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

Goodwill

Goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than annually if an event or circumstance indicates that impairment is more likely than not to have occurred. In conducting its annual impairment testing, the Company may first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is required. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if the Company elects not to perform a qualitative assessment of a reporting unit, the Company then compares the fair value of the reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized. The Company conducts its annual impairment testing of goodwill as of October 1.

Pension Benefits and Retirement Benefits Other Than Pensions
 
Through the Company’s acquisition of nTelos, the Company assumed nTelos’ non-contributory defined benefit pension plan (“Pension Plan”) covering all employees who met eligibility requirements and were employed by nTelos prior to October 1, 2003. The Pension Plan was closed to nTelos employees hired on or after October 1, 2003. Pension benefits vest after five years of plan service and are based on years of service and an average of the five highest consecutive years of compensation subject to certain reductions if the employee retires before reaching age 65 and elects to receive the benefit prior to age 65. Effective December 31, 2012, nTelos froze future benefit accruals.  The Company uses updated mortality tables published by the Society of Actuaries that predict increasing life expectancies in the United States.

IRC Sections 412 and 430 and Sections 302 and 303 of the Employee Retirement Income Security Act of 1974, as amended establish minimum funding requirements for defined benefit pension plans. The minimum required contribution is generally equal to the target normal cost plus the shortfall amortization installments for the current plan year and each of the six preceding plan years less any calculated credit balance. If plan assets (less calculated credits) are equal to or exceed the funding target, the minimum required contribution is the target normal cost reduced by the excess funding, but not below zero. The Company’s policy is to make contributions to stay at or above the threshold required in order to prevent benefit restrictions and related additional notice requirements and is intended to provide not only for benefits based on service to date, but also for those expected to be earned in the future. The Company also assumed two qualified nonpension postretirement benefit plans that provide certain health care and life benefits for nTelos retired employees that meet eligibility requirements. The health care plan is contributory, with participants’ contributions adjusted annually. The life insurance plan also is contributory. These obligations, along with all of the pension plans and other postretirement benefit plans, are obligations assumed by the Company. Eligibility for the life insurance plan is restricted to active pension participants age 50-64 as of January 5, 1994. Neither plan is eligible to employees hired after April 1993. The accounting for the plans anticipates that the Company will maintain a consistent level of cost sharing for the benefits with the retirees. The Company’s share of the projected costs of

9


benefits that will be paid after retirement is generally being accrued by charges to expense over the eligible employees’ service periods to the dates they are fully eligible for benefits.
 
The Company records annual amounts relating to the Pension Plan and postretirement benefit plans based on calculations that incorporate various actuarial and other assumptions, including discount rates, mortality, assumed rates of return, turnover rates and healthcare cost trend rates. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. The effect of modifications to those assumptions is recorded in accumulated other comprehensive income (loss) and amortized to net periodic cost over future periods using the corridor method.

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

On May 6, 2016, the Company completed its previously announced acquisition of NTELOS Holdings Corp. (“nTelos”) for $665.4 million in cash, net of cash acquired.  The acquisition was entered into to improve shareholder value through the expansion of the Company's Wireless service area and customer base while strengthening our relationship with Sprint. The purchase price was financed by a credit facility arranged by CoBank, ACB (see Note 14).  The Company has included the operations of nTelos for financial reporting purposes for the period subsequent to the acquisition.  The Company has accounted for the acquisition of nTelos under the acquisition method of accounting, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, “Business Combinations”, and will account for any measurement period adjustments under Accounting Standards Update (“ASU”) 2015-16, “Simplifying the Accounting for Measurement Period Adjustments”.  Under the acquisition method of accounting, the total purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed in connection with the acquisition based on their estimated fair values.

The preliminary allocation of the purchase price was based upon management’s preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed of nTelos, with the excess recorded as goodwill. The following table shows the initial estimate of value and changes recorded during the third quarter of 2016 (in thousands):


10


 
Initial Estimate
Revisions
Revised Estimate
Accounts receivable
$
48,476

$
1,045

$
49,521

Inventory
3,810


3,810

Restricted cash
2,167


2,167

Investments
1,501


1,501

Prepaid expenses and other assets
14,835


14,835

Building held for sale
4,950


4,950

Property, plant and equipment
223,900

3,571

227,471

Spectrum licenses
198,200


198,200

Customer based contract rights
198,200

5,162

203,362

Contract based intangible assets
11,000


11,000

Goodwill
151,627

(6,328
)
145,299

Other long term assets
10,288

555

10,843

Total assets acquired
$
868,954

$
4,005

$
872,959

 
 

 
 
Accounts payable
$
8,648

$
(116
)
$
8,532

Advanced billings and customer deposits
12,477


12,477

Accrued expenses
25,230


25,230

Capital lease liability
418


418

Deferred tax liabilities
124,964

2,758

127,722

Retirement benefits
19,461

(263
)
19,198

Other long-term liabilities
14,056


14,056

Total liabilities assumed
205,254

2,379

207,633

 
 

 
 
Net assets acquired
$
663,700

$
1,626

$
665,326


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

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

Revisions to the provisional estimates shown above reflect:
adding $4.6 million of construction materials and inventory, less $1.0 million of software and other assets that the Company has determined have no utility to the Company post-acquisition;
the increases in accounts receivable and other long term assets relating to an adjustment to the estimated fair value of nTelos' financed handset receivables, applied to the current and long-term portions of these receivables. Losses on migrations of these receivables have been less than initially estimated;
the increase in net assets acquired resulting from the settlement of the appraisal rights dispute;
the value assigned to certain customer based intangibles increased by $5.2 million, with an offset to goodwill; and
the increase in deferred taxes payable (offset by an increase in goodwill) resulting from several of the changes shown above as well as true-ups in the net tax basis of fixed assets resulting from completion of nTelos' 2015 tax returns.

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

Immediately after acquiring nTelos, Shenandoah Personal Communications, LLC, (“PCS”) a wholly-owned subsidiary of the Company, completed its previously announced transaction with SprintCom, Inc., an affiliate of Sprint Corporation (“Sprint”).  Pursuant to this transaction, among other things,  the Company exchanged spectrum licenses valued at $198.2 million and customer based contract rights, valued at $203.4 million, acquired from nTelos with Sprint, and received an expansion of its affiliate service territory to include most of the service area served by nTelos, valued at $287.8 million, as well as additional

11


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

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

an increase in the price to be paid by Sprint from 80% to 90% of the entire business value of PCS if the affiliate agreement is not renewed;
extension of the affiliate agreement with Sprint by 5 years to 2029;
expanded territory in the nTelos service area;
rights to serve all future Sprint customers in the affiliate service territory;
the Company’s commitment to upgrade certain coverage and capacity in its newly acquired service area; and
a reduction of the management fee charged by Sprint under the amended affiliate agreement; not to exceed $4.2 million in an individual month until the total waived fee equals $251.8 million, as well as an additional waiver of the management fee charged with respect to the former nTelos customers until the earlier of migration to the Sprint back-office billing and related systems or 6 months following the acquisition; not to exceed $5.0 million.

Intangible assets resulting from the acquisition of nTelos and the Sprint exchange, both described above, are noted below (dollars in thousands):

 
Useful Life 
 
Basis
Affiliate contract agreement
14 years
 
$
287,800

Customer based contract rights
4-10 years
 
113,761

Contract based intangible assets
3-19 years
 
11,000


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

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

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

At the time of the acquisition, certain third party investors held a non-controlling interest in one of nTelos’ subsidiaries.  Immediately after the acquisition of nTelos, the Company acquired these interests in exchange for 380,000 shares of Company common stock, to be paid in five equal installments, with the first installment paid immediately and the remaining four to be paid over the next 4 years.  This transaction was valued at $10.4 million.

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


12


Following are the unaudited pro forma results of the Company for the three months ended September 30, 2015 and the nine months ended September 30, 2016 and 2015, as if the acquisition of nTelos had occurred at the beginning of each of the periods presented. The three months ended September 30, 2016 are not presented as those results already include nTelos' results (in thousands):
 
 
 
Three Months Ended
September 30,
 
 
2016
 
2015
Operating revenues
 
$ N/A
 
$
166,614

Income before income taxes
 
$ N/A
 
$
2,588

 
 
Nine Months Ended
September 30,
 
 
2016
 
2015
Operating revenues
 
$
492,114

 
$
509,415

Income (loss) before income taxes
 
$
(4,016
)
 
$
39,680


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

changes in nTelos’ reported revenues from cancelling nTelos’ wholesale contract with Sprint;
the incorporation of the Sprint-homed customers formerly serviced under the wholesale agreement into the Company’s affiliate service territory under the Company’s affiliate agreement with Sprint;
the effect of other changes to revenues and expenses due to various provisions of the affiliate agreement, including fees charged under the affiliate agreement on revenues from former nTelos customers, a reduction of the net service fee charged by Sprint, the straight-line impact of the waived management fee, and the amortization of the affiliate agreement expansion intangible asset; and the elimination of non-recurring transaction related expenses incurred by the Company and nTelos;
the elimination of certain nTelos operating costs associated with billing and care that are covered under the fees charged by Sprint under the affiliate agreement;
historical depreciation expense was reduced for the fair value adjustment decreasing the basis of property, plant and equipment; this decrease was offset by a shorter estimated useful life to conform to the Company’s standard policy and the acceleration of depreciation on certain equipment; and
incremental amortization due to the customer-based contract rights associated with acquired customers.

In connection with these transactions, the Company chose to proactively migrate the former nTelos customers to devices which can interact with the Sprint billing and network systems, and expects to incur a total of between $106 million and $126 million of integration and acquisition expenses associated with this transaction, excluding approximately $24 million of debt issuance costs.  These costs include the nTelos back office staff and support functions until the nTelos legacy customers are migrated to the Sprint billing platform; costs of the handsets to be provided to nTelos legacy customers as they migrate to the Sprint billing platform; severance costs for back office and other former nTelos employees who will not be retained permanently; transaction related fees; net of proceeds from the sale of the former nTelos headquarters building. We have incurred $20.2 million and $43.9 million of these costs in the three months and nine months ended September 30, 2016, respectively, including $0.7 million reflected in cost of goods and services and $4.2 million reflected in selling, general and administrative costs in the three month period ended September 30, 2016, and $1.0 million reflected in cost of goods and services and $7.1 million reflected in selling, general and administrative costs in the nine month period ended September 30, 2016.

The amounts of operating revenue and income or loss before income taxes related to the former nTelos entity are not readily determinable due to intercompany transactions, allocations and integration activities that have occurred in connection with the operations of the combined company.



13


3.
Intangible assets

Intangible assets consisted of the following (in thousands):

 
 
September 30,
2016
 
December 31,
2015
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Non-amortizing intangibles:
 
 
 
 
 
 
Cable franchise rights
 
$
64,431

 
$

 
$
64,431

 
$
64,098

 
$

 
$
64,098

 
 
 
 
 
 
 
 
 
 
 
 
 
Finite-lived intangibles:
Affiliate contract expansion rights
 
$
287,800

 
$
(8,883
)
 
$
278,917

 
$

 
$

 
$

Acquired subscribers – wireless
 
113,761

 
(11,442
)
 
102,319

 

 

 

Contract based intangibles – wireless
 
11,000

 
(458
)
 
10,542

 

 

 

Acquired subscribers – cable
 
25,265

 
(24,452
)
 
813

 
25,326

 
(23,805
)
 
1,521

Other intangibles
 
2,102

 
(723
)
 
1,379

 
1,938

 
(564
)
 
1,374

Total finite-lived intangibles
 
$
439,928

 
$
(45,958
)
 
$
393,970

 
$
27,264

 
$
(24,369
)
 
2,895

Total intangible assets
 
$
504,359

 
$
(45,958
)
 
$
458,401

 
$
91,362

 
$
(24,369
)
 
$
66,993


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

Year Ending
December 31,
Amount
 
(in thousands)
2016 Remaining
$
12,463

2017
45,091

2018
39,372

2019
35,428

2020
32,718

2021
30,139

thereafter
198,759

Total
$
393,970

 
Changes in the carrying amount of goodwill during the nine months ended September 30, 2016 are shown below (in thousands):
 
Goodwill as of December 31, 2015, Wireline segment
$
10

Goodwill recorded January 2016, Cable segment, Colane acquisition
104

Goodwill recorded May 2016, Wireless segment, nTelos acquisition
145,299

Goodwill as of September 30, 2016
$
145,413



14


4.
Property, Plant and Equipment

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

 
 
September 30,
2016
 
December 31,
2015
Plant in service
 
$
1,020,014

 
$
718,503

Plant under construction
 
75,976

 
36,600

 
 
1,095,990

 
755,103

Less accumulated amortization and depreciation
 
428,249

 
345,085

Net property, plant and equipment
 
$
667,741

 
$
410,018


5.
Earnings (loss) per share

Basic net income (loss) per share was computed on the weighted average number of shares outstanding.  Diluted net income per share was computed under the treasury stock method, assuming the conversion as of the beginning of the period, for all dilutive stock options.  Of the 664 thousand shares and options outstanding at September 30, 2015, 46 thousand were anti-dilutive.  These shares and options have been excluded from the computations of diluted earnings per share for the three and nine months ended September 30, 2015.  Due to the net loss for the three and nine months ended September 30, 2016, no adjustment was made to basic shares, as such adjustment would have been anti-dilutive.  There were no adjustments to net income (loss) for any period.

6.
Investments Carried at Fair Value

Investments include $2.9 million and $2.7 million of investments carried at fair value as of September 30, 2016 and December 31, 2015, respectively, consisting of equity, bond and money market mutual funds.  Investments carried at fair value were acquired under a rabbi trust arrangement related to the Company’s nonqualified Supplemental Executive Retirement Plan (the “SERP”). The Company purchases investments in the trust to mirror the investment elections of participants in the SERP; gains and losses on the investments in the trust are reflected as increases or decreases in the liability owed to the participants. During the nine months ended September 30, 2016, the Company recognized $161 thousand in dividend and interest income from investments, and recorded net unrealized gains of $180 thousand on these investments. Fair values for these investments held under the rabbi trust were determined by Level 1 quoted market prices for the underlying mutual funds.

7.
Equipment Installment Plan Receivables

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

Immediately following the acquisition, the Company terminated the EIP offering but has continued to service the installment receivable and trade in obligation until such time that the customer migrates to Sprint.  The accounts receivable associated with EIP and the trade-in liability were estimated at its fair value at acquisition date in accordance with ASC 805, “Business Combinations”.

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


15


8.
Financial Instruments

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

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

The Company’s objectives in using interest rate derivatives are to add stability to cash flows and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps (both those designated as cash flow hedges as well as those not designated as cash flow hedges) involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The Company entered into a pay-fixed, receive-variable interest rate swap of $174.6 million of notional principal in September 2012.  This interest rate swap was designated as a cash flow hedge.  The total outstanding notional amount of the cash flow hedge was $139.7 million as of September 30, 2016.  The outstanding notional amount decreases as the Company makes scheduled principal payments on the debt.

In May 2016, the Company entered into a pay-fixed, receive-variable interest rate swap of $256.6 million of notional principal with three counterparties.   This interest rate swap was designated as a cash flow hedge.  The total outstanding notional amount of the cash flow hedge was $287.3 million as of September 30, 2016.  The outstanding notional amount increases with each expected draw on the term debt and decreases as the Company makes scheduled principal payments on the debt.  In combination with the swap entered into in 2012 described above, the Company is hedging approximately 50% of the expected outstanding debt (including expected draws under the delayed draw term loan) associated with the nTelos acquisition.

The effective portion of changes in the fair value of interest rate swaps designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company uses its derivatives to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings through interest expense. No hedge ineffectiveness was recognized during any of the periods presented.

Amounts reported in accumulated other comprehensive income (loss) related to the interest rate swaps designated and  qualified as a cash flow hedge, are reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of September 30, 2016, the Company estimates that $2.3 million will be reclassified as an increase to interest expense during the next twelve months due to the interest rate swaps since the hedge interest rate exceeds the variable interest rate on the debt.

The table below presents the fair value of the Company’s derivative financial instrument as well as its classification on the condensed consolidated balance sheet as of September 30, 2016 and December 31, 2015 (in thousands):
 
  
 
Derivatives
 
 
Fair Value as of
 
 
Balance Sheet
Location
 
September 30,
2016
 
December 31,
2015
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Interest rate swap
 
 
 
 

 
 

 
 
Accrued liabilities and other
 
$
(2,283
)
 
$
(682
)
 
 
Other liabilities
 
(1,355
)
 

 
 
Deferred charges and other assets, net
 

 
1,370

Total derivatives designated as hedging instruments
 
 
 
$
(3,638
)
 
$
688


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


16


The table below presents change in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2016 (in thousands):

 
 
Gains and
(Losses) on
Cash Flow
 Hedges
 
Income
Tax
 (Expense)
 Benefit
 
Accumulated
Other
Comprehensive
Income (Loss)
Balance as of December 31, 2015
 
$
688

 
$
(273
)
 
$
415

Other comprehensive loss before reclassifications
 
(5,832
)
 
2,363

 
(3,469
)
Amounts reclassified from accumulated other comprehensive income (to interest expense)
 
1,506

 
(610
)
 
896

Net current period other comprehensive loss
 
(4,326
)
 
1,753

 
(2,573
)
Balance as of September 30, 2016
 
$
(3,638
)
 
$
1,480

 
$
(2,158
)

10.
Accrued and Other liabilities

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

 
 
September 30, 2016
 
December 31, 2015
Sales and property taxes payable
 
$
6,835

 
$
1,055

Severance accrual, current portion
 
5,625

 

Asset retirement obligations, current portion
 
8,063

 

Other current liabilities
 
11,010

 
6,584

Accrued liabilities and other
 
$
31,533

 
$
7,639



Other liabilities include the following (in thousands):

  
 
September 30,
2016
 
December 31,
2015
Retirement plan obligations
 
$
22,156

 
$
2,654

Non-current portion of deferred revenues
 
8,819

 
4,156

Straight-line management fee waiver
 
7,687

 

Other
 
3,935

 
2,229

Other liabilities
 
$
42,597

 
$
9,039


11.
Segment Information

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

The Wireless segment had provided digital wireless service to a portion of a four-state area covering the region from Harrisburg, York and Altoona, Pennsylvania, to Harrisonburg, Virginia, as a Sprint PCS Affiliate. With the recent acquisition of nTelos (see Note 2), the Company's wireless service has expanded to include south-central and western Virginia, West Virginia, and small portions of Kentucky and Ohio. This segment also owns cell site towers built on leased land, and leases space on these towers to both affiliates and non-affiliated service providers.


17


The Cable segment provides video, internet and voice services in Virginia, West Virginia and Maryland, and leases fiber optic facilities throughout southern Virginia and West Virginia. It does not include video, internet and voice services provided to customers in Shenandoah County, Virginia.

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

Three months ended September 30, 2016 
(in thousands)
 
 
Wireless
 
Cable
 
Wireline
 
Other
 
Eliminations
 
Consolidated
Totals
External revenues
 
 
 
 
 
 
 
 
 
 
 
 
Service revenues
 
$
111,001

 
$
24,948

 
$
4,948

 
$

 
$

 
$
140,897

Other
 
7,978

 
2,031

 
5,930

 

 

 
15,939

Total external revenues
 
118,979

 
26,979

 
10,878

 

 

 
156,836

Internal revenues
 
1,140

 
587

 
7,854

 

 
(9,581
)
 

Total operating revenues
 
120,119

 
27,566

 
18,732

 

 
(9,581
)
 
156,836

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 

 
 

 
 

 
 

 
 

 
 

Costs of goods and services, exclusive of depreciation and amortization shown separately below
 
43,097

 
14,654

 
9,442

 

 
(8,876
)
 
58,317

Selling, general and administrative, exclusive of depreciation and amortization shown separately below
 
29,892

 
4,770

 
1,676

 
4,736

 
(705
)
 
40,369

Integration and acquisition expenses
 
14,499

 

 

 
773

 

 
15,272

Depreciation and amortization
 
38,038

 
5,860

 
2,822

 
87

 

 
46,807

Total operating expenses
 
125,526

 
25,284

 
13,940

 
5,596

 
(9,581
)
 
160,765

Operating income (loss)
 
$
(5,407
)
 
$
2,282

 
$
4,792

 
$
(5,596
)
 
$

 
$
(3,929
)


18


Three months ended September 30, 2015
 (in thousands)
 
 
Wireless
 
Cable
 
Wireline
 
Other
 
Eliminations
 
Consolidated
Totals
External revenues
 
 
 
 
 
 
 
 
 
 
 
 
Service revenues
 
$
47,793

 
$
22,284

 
$
4,904

 
$

 
$

 
$
74,981

Other
 
2,734

 
1,882

 
5,615

 

 


 
10,231

Total external revenues
 
50,527

 
24,166

 
10,519

 

 

 
85,212

Internal revenues
 
1,109

 
251

 
6,759

 


 
(8,119
)
 

Total operating revenues
 
51,636

 
24,417

 
17,278

 

 
(8,119
)
 
85,212

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 

 
 

 
 

 
 

 
 

 
 

Costs of goods and services, exclusive of depreciation and amortization shown separately below
 
15,572

 
14,124

 
8,212

 

 
(7,338
)
 
30,570

Selling, general and administrative, exclusive of depreciation and amortization shown separately below
 
9,027

 
4,948

 
1,688

 
3,424

 
(781
)
 
18,306

Integration and acquisition expenses
 

 

 

 
2,129

 

 
2,129

Depreciation and amortization
 
9,644

 
5,948

 
3,404

 
122

 

 
19,118

Total operating expenses
 
34,243

 
25,020

 
13,304

 
5,675

 
(8,119
)
 
70,123

Operating income (loss)
 
$
17,393

 
$
(603
)
 
$
3,974

 
$
(5,675
)
 
$

 
$
15,089


19


Nine months ended September 30, 2016
 (in thousands)
 
 
Wireless
 
Cable
 
Wireline
 
Other
 
Eliminations
 
Consolidated
Totals
External revenues
 
 
 
 
 
 
 
 
 
 
 
 
Service revenues
 
$
250,053

 
$
73,455

 
$
14,727

 
$

 
$

 
$
338,235

Other
 
17,461

 
5,799

 
18,221

 

 

 
41,481

Total external revenues
 
267,514

 
79,254

 
32,948

 

 

 
379,716

Internal revenues
 
3,417

 
1,159

 
22,754

 


 
(27,330
)
 

Total operating revenues
 
270,931

 
80,413

 
55,702

 

 
(27,330
)
 
379,716

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 

 
 

 
 

 
 

 
 

 
 

Costs of goods and services, exclusive of depreciation and amortization shown separately below
 
94,892

 
43,864

 
26,892

 

 
(25,294
)
 
140,354

Selling, general and administrative, exclusive of depreciation and amortization shown separately below
 
65,219

 
14,672

 
4,951

 
13,457

 
(2,036
)
 
96,263

Integration and acquisition expenses
 
19,889

 

 

 
15,912

 

 
35,801

Depreciation and amortization
 
70,026

 
17,834

 
8,789

 
312

 

 
96,961

Total operating expenses
 
250,026

 
76,370

 
40,632

 
29,681

 
(27,330
)
 
369,379

Operating income (loss)
 
$
20,905

 
$
4,043

 
$
15,070

 
$
(29,681
)
 
$

 
$
10,337


Nine months ended September 30, 2015
 (in thousands)
 
 
Wireless
 
Cable
 
Wireline
 
Other
 
Eliminations
 
Consolidated
Totals
External revenues
 
 
 
 
 
 
 
 
 
 
 
 
Service revenues
 
$
144,917

 
$
65,802

 
$
14,543

 
$

 
$

 
$
225,262

Other
 
8,611

 
5,495

 
15,834

 

 

 
29,940

Total external revenues
 
153,528

 
71,297

 
30,377

 

 

 
255,202

Internal revenues
 
3,319

 
585

 
18,950

 


 
(22,854
)
 

Total operating revenues
 
156,847

 
71,882

 
49,327

 

 
(22,854
)
 
255,202

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses
 
 

 
 

 
 

 
 

 
 

 
 

Costs of goods and services, exclusive of depreciation and amortization shown separately below
 
47,661

 
41,378

 
23,224

 

 
(20,722
)
 
91,541

Selling, general and administrative, exclusive of depreciation and amortization shown separately below
 
26,996

 
14,924

 
4,923

 
10,313

 
(2,132
)
 
55,024

Integration and acquisition expenses
 

 

 

 
3,153

 

 
3,153

Depreciation and amortization
 
26,089

 
17,286

 
9,411

 
333

 

 
53,119

Total operating expenses
 
100,746

 
73,588

 
37,558

 
13,799

 
(22,854
)
 
202,837

Operating income (loss)
 
$
56,101

 
$
(1,706
)
 
$
11,769

 
$
(13,799
)
 
$

 
$
52,365



20


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

 
 
Three Months Ended
September 30,
(in thousands)
 
2016
 
2015
Total consolidated operating income (loss)
 
$
(3,929
)
 
$
15,089

Interest expense
 
(8,845
)
 
(1,808
)
Non-operating income, net
 
1,527

 
180

Income (loss) before income taxes
 
$
(11,247
)
 
$
13,461


 
 
Nine Months Ended
September 30,
 
 
2016
 
2015
Total consolidated operating income (loss)
 
$
10,337

 
$
52,365

Interest expense
 
(16,369
)
 
(5,663
)
Non-operating income, net
 
3,147

 
1,253

Income (loss) before income taxes
 
$
(2,885
)
 
$
47,955


The Company’s assets by segment are as follows:
 
(in thousands)
 
September 30,
2016
 
December 31,
2015
Wireless
 
$
1,106,023

 
$
205,718

Cable
 
213,664

 
209,132

Wireline
 
109,647

 
105,369

Other
 
1,052,205

 
463,390

Combined totals
 
2,481,539

 
983,609

Inter-segment eliminations
 
(1,047,914
)
 
(356,458
)
Consolidated totals
 
$
1,433,625

 
$
627,151


12.
Income Taxes

The Company files U.S. federal income tax returns and various state and local income tax returns.  With few exceptions, years prior to 2013 are no longer subject to examination. The Company is not subject to any state or federal income tax audits as of September 30, 2016.

13.
Adoption of New Accounting Principles

During 2016, the Company adopted four recent accounting principles: Accounting Standards Update 2015-3, “Interest – Imputation of Interest” (ASU 2015-3), ASU 2015-17, “Balance Sheet Classification of Deferred Taxes”, ASU 2016-9, “Improvements to Employee Share-based Payment Accounting,” and ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments.”

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

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

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

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

14.
Long-term Debt and Revolving Line of Credit

Total debt consists of the following:

(In thousands)
 
September 30,
2016
 
December 31,
2015
Term loan A
 
$

 
$
201,250

Term loan A-1
 
478,937

 

Term loan A-2
 
350,000

 

 
 
828,937

 
201,250

Less: unamortized loan fees
 
19,370

 
1,589

Total debt, net of unamortized loan fees
 
$
809,567

 
$
199,661

 
 
 
 
 
Current maturities of long term debt, net of unamortized loan fees
 
$
25,972