NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations
Description of business:
Shenandoah Telecommunications Company and its subsidiaries (collectively, the “Company”) provide wireless personal communications service (“PCS”) under the Sprint brands, and telephone service, cable television, unregulated communications equipment sales and services, and internet access under the Shentel brand. In addition, the Company leases towers and operates and maintains an interstate fiber optic network. Pursuant to a management agreement with Sprint and its related parties (collectively, “Sprint”), the Company has been the exclusive Sprint PCS Affiliate providing wireless mobility communications network products and services on the
800
MHz,
1900
MHz and 2.5 GHz spectrum ranges in a multi-state area covering large portions of central and western Virginia, south-central Pennsylvania, West Virginia, and portions of Maryland, North Carolina, Kentucky, and Ohio. The Company is licensed to use the Sprint brand names in this territory, and operates its network under the Sprint radio spectrum license. The Company also owns cell site towers built on leased land, throughout this region, and leases space on the owned towers to both affiliates and non-affiliated third-party wireless service providers.
The 2016 acquisition of nTelos and the subsequent Sprint expansions (see Note 4,
Acquisitions
) expanded the Company's wireless network coverage area to include south-central and western Virginia, West Virginia, and small portions of Kentucky, and Ohio.
Note 2. Summary of Significant Accounting Policies
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of Shenandoah Telecommunications Company and all of its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates:
The Company has made a number of estimates and assumptions related to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates made by the Company include, but are not limited to: revenue recognition; estimates of the fair value of stock-based awards; fair value of intangibles and goodwill; depreciable lives of property, plant and equipment; and useful lives of intangible assets. Management reviews its estimates, including those related to recoverability and useful lives of assets as well as liabilities for income taxes and pension benefits. Changes in facts and circumstances may result in revised estimates, and actual results could differ from those reported estimates and such differences could be material to the Company's consolidated financial position and results of operations.
Cash and cash equivalents:
The Company considers all temporary cash investments purchased with a maturity of three months or less to be cash equivalents. The Company places its temporary cash investments with high credit quality financial institutions. Generally, such investments are in excess of FDIC or SIPC insurance limits.
Inventories
: The Company's inventories consist primarily of items held for resale such as devices and accessories. The Company values its inventory at the lower of cost or net realizable value. Inventory cost is computed on an average cost basis. Net realizable value is determined by reviewing current replacement cost, marketability and obsolescence.
Property, plant and equipment:
Property, plant and equipment are stated at cost less accumulated depreciation and amortization. The Company capitalizes all costs associated with the purchase, deployment and installation of property, plant and equipment, including interest costs on major capital projects during the period of their construction. Maintenance expense is recognized as incurred when repairs are performed that do not extend the life of property, plant and equipment. Expenses for major renewals and improvements, which significantly extend the useful lives of existing property and equipment, are capitalized and depreciated. Depreciable lives are assigned to assets based on their estimated useful lives. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the lesser of their useful lives or respective lease terms. The Company takes technology changes into consideration as it assigns the estimated useful lives, and monitors the remaining useful lives of asset groups to reasonably match the remaining economic life with the useful life and makes adjustments when necessary. Upon retirement or disposition of property and equipment, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized. See Note 9,
Property, Plant and Equipment,
for additional information.
Goodwill and Indefinite-lived Intangible Assets:
Goodwill represents the excess of acquisition costs over the fair value of tangible net assets and identifiable intangible assets of the businesses acquired. Cable franchise rights, included in indefinite-lived intangible assets provide us with the non-exclusive right to provide video services in a specified area. While some cable franchises are issued
for a fixed time (generally 10 years), renewals of cable franchises have occurred routinely and at nominal cost. Moreover, we have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our cable franchises and as a result we account for cable franchise rights as an indefinite lived intangible asset.
Goodwill and indefinite-lived intangible assets are not amortized, but rather, are subject to impairment testing annually, in the fourth quarter, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. A qualitative evaluation of our reporting units is utilized to determine whether it is necessary to perform a quantitative two-step impairment test. If it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we would be required to perform a two-step quantitative test. If the carrying value of the reporting unit's net assets exceeds the fair value of the reporting unit, then an impairment loss is recorded.
The Company's
2018
impairment tests were based on the operating segment structure, where each operating segment was also considered a reporting unit. During the fourth quarter of
2018
we performed a qualitative assessment for our reporting units that were assigned goodwill. During this assessment, qualitative factors were first assessed to determine whether it was more likely than not that the fair value of the reporting units were less than their carrying amounts. Qualitative factors that were considered included, but were not limited to, macroeconomic conditions, industry and market conditions, company specific events, changes in circumstances, after tax cash flows and market capitalization trends.
Based on our Company's annual qualitative impairment evaluations performed during
2018
and
2017
, we concluded that there were no indicators of impairment and therefore it was more likely than not that the fair value of the goodwill exceeded its carrying amount, for each reporting unit.
Finite-lived Intangible Assets:
On an annual basis and whenever events or changes in circumstances require, the Company reviews its finite-lived intangible assets for impairment. Intangible assets are included in the Company's impairment testing and in the event the Company identifies impairment, the intangible assets are written down to their fair values.
Intangible assets typically have finite useful lives that are amortized over their useful lives and primarily consist of affiliate contract expansion, acquired cable subscribers, and off-market leases. Affiliate contract expansion and acquired cable subscribers are amortized over the period in which those relationships are expected to contribute to our future cash flows and are also reduced by management fee waiver credits received from Sprint in connection with the 2017 non-monetary exchange. Other finite-lived intangible assets, are generally amortized using the straight-line method of amortization. Such finite-lived intangible assets are subject to the impairment provisions of ASC 360,
Property, Plant and Equipment
, where impairment is recognized and measured only if there are events and circumstances that indicate that the carrying amount may not be recoverable. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset group. An impairment loss is recorded if after determining that it is not recoverable, the carrying amount exceeds the fair value of the asset.
Finite-lived intangible assets and liabilities are being amortized over the following estimated useful lives that were established on the dates acquired:
|
|
|
|
|
|
Estimated Useful Life
|
Affiliate contract expansion
|
|
4 - 14 years
|
Favorable and unfavorable leases - wireless
|
|
1 - 28 years
|
Acquired subscribers - cable
|
|
3 - 10 years
|
Other intangibles
|
|
15 - 20 years
|
There were
no
impairment charges on intangible assets for the years ended
December 31, 2018
,
2017
or
2016
.
Valuation of long-lived assets:
Long‑lived assets, such as property, plant, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. If the Company determines that an asset group may not be recoverable, an impairment charge is recorded. There were
no
impairment charges on long-lived assets for the years ended
December 31, 2018
,
2017
or
2016
.
Business combinations:
Business combinations, including purchased intangible assets, are accounted for at fair value. Acquisition costs are expensed as incurred and recorded in selling, general and administrative expenses. The fair value amount assigned to intangible assets is based on an exit price from a market participant's viewpoint, and utilizes data such as discounted cash flow analysis and replacement cost models. The Company's best estimates are employed in determining the assumptions used to derive acquisition date fair value.
Revenue recognition:
Refer to Note 3,
Revenue from Contracts with Customers
for details of the Company's
2018
revenue recognition policy.
For the years ended
December 31, 2017
and
2016
, the Company recognized revenue when persuasive evidence of an arrangement existed, services had been rendered or products had been delivered, the price to the buyer was fixed and determinable and collectability was reasonably assured. Revenues were recognized by the Company based on the various types of transactions generating the revenue. For services, revenue was recognized as the services are performed.
Advertising Costs:
The Company expenses advertising costs and marketing production costs as incurred and includes such costs within selling, general and administrative expenses in the consolidated statements of operations. Advertising expense for the years ended
December 31, 2018
,
2017
and
2016
was
$15.2 million
,
$15.5 million
and
$12.2 million
, respectively.
Income taxes:
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company evaluates the recoverability of deferred tax assets generated from net operating losses. The Company uses a more likely than not threshold to make that determination and has concluded that at
December 31, 2018
and
2017
, a valuation allowance against certain state deferred tax assets is necessary, as discussed in Note 16,
Income Taxes
. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company’s policy is to record interest related to unrecognized tax benefits in interest expense and penalties in selling, general, and administrative expenses
.
Retirement Plans:
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 ("participants"). The Pension Plan was closed to nTelos employees hired on or after October 1, 2003. Pension benefits vested after five years of plan service and were 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 amended the Pension Plan to freeze future benefit plan accruals for participants.
As of
December 31, 2018
and
2017
, the fair value of our pension plan assets and certain other postretirement benefits in aggregate was
$20.7 million
and
$22.6 million
, respectively, and the fair value of our projected benefit obligations in aggregate was
$25.8 million
and
$28.2 million
, respectively. As a result, the plans were underfunded by approximately
$5.1 million
and
$5.6 million
at December 31, 2018 and 2017, respectively, and were recorded as a net liability in our consolidated balance sheets.
The Company intends to make future cash contributions to the pension plan in amounts necessary to meet minimum funding requirements according to applicable benefit plan regulations.
Stock Compensation:
The Company maintains
two
shareholder-approved Company Stock Incentive Plans allowing for the grant of equity based incentive compensation to essentially all employees. The 2005 Plan authorized grants of up to
2,880,000
shares over a
ten
-year period beginning in 2005. The term of the 2005 Plan expired in February 2014; outstanding awards will continue to vest and options may continue to be exercised, but no additional awards will be granted under the 2005 Plan. The 2014 Plan authorizes grants of up to an additional
3,000,000
shares over a
ten
-year period beginning in 2014. Under these Plans, grants may take the form of stock awards, awards of options to acquire stock, stock appreciation rights, and other forms of equity based compensation; both options to acquire stock and stock awards were granted.
The fair value of each option award is estimated on the grant date using the Black-Scholes option valuation model, based on several assumptions including the risk-free interest rate, volatility, expected dividend yield and expected term.
The fair value of each restricted stock unit award is calculated using the share price at the date of grant. Restricted stock units generally have service requirements only or performance and service requirements with vesting periods ranging from one to four years. Employees and directors who are granted restricted stock units are not required to pay for the shares but generally must remain employed with the Company, or continue to serve as a member of the Company’s board of directors, until the restrictions lapse, which is typically four years for employees and one year for directors.
Compensation Costs
The cost of employee services received in exchange for share-based awards classified as equity is measured using the estimated fair value of the award on the date of the grant, and the cost is recognized over the period that the award recipient is required to provide service in exchange for the award. Share-based compensation cost related to awards with graded vesting is recognized using the straight-line method.
Pre-tax share and stock-based compensation charges from our incentive plans included in net income (loss) were as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
2018
|
2017
|
2016
|
Stock compensation expense
|
$
|
5,367
|
|
$
|
4,184
|
|
$
|
3,506
|
|
Capitalized stock compensation
|
408
|
|
604
|
|
485
|
|
Stock compensation expense, net
|
4,959
|
|
3,580
|
|
3,021
|
|
|
|
|
|
Excess tax benefits, net of deficiencies
|
$
|
1,523
|
|
$
|
3,314
|
|
$
|
1,709
|
|
As of
December 31, 2018
and
2017
, there was
$2.7 million
and
$2.5 million
, respectively, of total unrecognized compensation cost related to non-vested incentive awards that are expected to be recognized over a weighted average period of
2.8 years
.
Adoption of New Accounting Principles
The Company routinely assesses recently issued accounting standards. Disclosure guidance applies to all accounting standards which have been issued but not yet adopted, unless the impact on the Company’s balance sheet and statement of operations is not expected to be material. There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company's consolidated financial statements, that would be expected to impact the Company except for the following:
The Company adopted ASU No. 2014-09,
Revenue from Contracts with Customers
("
Topic 606
", or "
the new revenue recognition standard
"), and all related amendments, effective January 1, 2018, using the modified retrospective method as discussed in Note 3,
Revenue from Contracts with Customers
. The Company recognized the cumulative effect of applying the new revenue recognition standard as an adjustment to the opening balance of retained earnings. The comparative information has not been retrospectively modified and continues to be reported under the accounting standards in effect for those periods.
In February 2016, the FASB issued ASU No. 2016-02,
Leases ("Topic 842"),
which requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with terms greater than 12 months. The standard also requires disclosures regarding the amount, timing and uncertainty of cash flows arising from leases.
Other effects may occur depending on the types of leases and on the specific terms that are utilized by particular lessees. Effects such as changes in the categorization of rental costs, from rent expense to interest and depreciation expense are also required. Leases will be classified as either finance or operating leases which will affect the pattern of expense recognition in the consolidated statements of operations.
The Company will adopt the standard on January 1, 2019. The modified retrospective application will be used to implement the adoption of the new standard, which requires the Company to apply the principles of the standard prospectively and to record an adjustment to retained earnings for impacts related to prior periods as of the effective date.
The Company will elect the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carryforward the historical lease classification. The Company will also elect the practical expedient related to land easements, allowing the carry forward of current accounting treatment for land easements on existing agreements. As a lessee, the Company will make an accounting policy election to account for leases with an initial term of 12 months or less similar to existing guidance for operating leases today. The Company will recognize those lease payments in the consolidated statements of operations on a straight-line basis over the lease term.
The Company expects that the most notable impacts to its financial statements upon the adoption of these ASU’s will be the recognition of a material right-of-use asset, recognition of a material lease liability and additional disclosures related to qualitative and quantitative information concerning its portfolio of leases.
The Company is in the process of calculating the right-of-use lease assets and additional lease liabilities that are required to be recognized under Topic 842. A reasonable estimate of the right-of-use lease assets and liabilities that will be required to be
recognized will be available once the necessary software has been successfully implemented. Any difference between the right-of-use assets and lease liabilities amounts that are required to be recognized will be recorded as an adjustment to retained earnings upon adoption. While the Company has not yet completed its implementation, it believes that the adoption of this standard will have a significant impact on its consolidated balance sheets, specifically for the right-of-use assets and liabilities.
The Company does not believe that adoption of the standard will materially affect consolidated net earnings. The standard will have no impact on debt-covenant compliance under current agreements. Refer to Note 13,
Commitments and Contingencies
, for additional information regarding future expected undiscounted lease payments.
Note 3. Revenue from Contracts with Customers
The Company earns revenue primarily through the sale of our wireless telecommunications services, wireless equipment, and business, residential, and enterprise cable and wireline services that include video, internet, voice, and data services. Revenue earned for the year ended
December 31, 2018
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Wireless
|
|
Cable
|
|
Wireline
|
|
Consolidated
|
Wireless service
|
|
$
|
380,818
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
380,818
|
|
Equipment
|
|
67,510
|
|
|
695
|
|
|
193
|
|
|
68,398
|
|
Business, residential and enterprise
|
|
—
|
|
|
117,836
|
|
|
42,445
|
|
|
160,281
|
|
Tower and other
|
|
14,327
|
|
|
10,372
|
|
|
34,504
|
|
|
59,203
|
|
Total revenue
|
|
462,655
|
|
|
128,903
|
|
|
77,142
|
|
|
668,700
|
|
Internal revenue
|
|
(5,016
|
)
|
|
(4,706
|
)
|
|
(28,124
|
)
|
|
(37,846
|
)
|
Total operating revenue
|
|
$
|
457,639
|
|
|
$
|
124,197
|
|
|
$
|
49,018
|
|
|
$
|
630,854
|
|
Wireless service
The majority of the Company's revenue is earned through providing network access to Sprint under the affiliate agreement. Wireless service revenue is variable based on billed revenue to Sprint’s subscribers in the Company's affiliate area, less applicable fees retained by Sprint.
The Company's revenue related to Sprint’s postpaid customers is the amount that Sprint bills its postpaid subscribers, reduced by customer credits, write-offs of receivables, and
8%
management and
8.6%
service fees. The Company is also charged for the costs of subsidized handsets sold through Sprint’s national channels as well as commissions paid by Sprint to third-party resellers in the Company's service territory.
The Company's revenue related to Sprint’s prepaid customers is the amount that Sprint bills its prepaid subscribers, reduced by costs to acquire and support the customers, based on national averages for Sprint’s prepaid programs, and a
6%
management fee.
The Company considers Sprint, rather than Sprint's subscribers, to be the customer under the new revenue recognition standard and the Company's performance obligation is to provide Sprint a series of continuous network access services. The reimbursement to Sprint for the costs of handsets sold through Sprint’s national channels, as well as commissions paid by Sprint to third-party resellers in our service territory represent consideration payable to a customer. These reimbursements are initially recorded as a contract asset and are subsequently recognized as a reduction of revenue over the expected benefit period between
21
and
53
months. Historically, under ASC 605,
Revenue Recognition
, the customer was considered the subscriber rather than Sprint and as a result, reimbursement payments to Sprint for costs of handsets and commissions were recorded as operating expenses in the period incurred. During 2017, these costs totaled
$63.5 million
recorded in cost of goods and services, and
$16.9 million
recorded in selling, general and administrative costs.
On January 1, 2018, the Company recorded a wireless contract asset of approximately
$51.1 million
. During the year ended
December 31, 2018
, payments that increased the wireless contract asset balance totaled
$61.2 million
and amortization reflected as a reduction of revenue totaled approximately
$46.6 million
. The wireless contract asset balance as of
December 31, 2018
was approximately
$65.7 million
.
Wireless equipment
The Company owns and operates Sprint-branded retail stores within their geographic territory from which the Company sells equipment, primarily wireless handsets, and service to Sprint subscribers. The Company's equipment is predominantly sold to subscribers through Sprint's equipment financing plans. Under the equipment financing plans, Sprint purchases the equipment from the Company and resells the equipment to their subscribers. Historically, under ASC 605,
Revenue Recognition
, the Company
concluded that it was the agent in these equipment financing transactions and recorded revenues net of related handset costs which were approximately
$63.8 million
in 2017. Under Topic 606 the Company concluded that it is the principal in these equipment financing transactions, as the Company controls and bears the risk of ownership of the inventory prior to sale, and accordingly, revenues and handset costs are recorded on a gross basis, the corresponding cost of the equipment is recorded separately to cost of goods sold.
Business, residential and enterprise
The Company earns revenue in the Cable and Wireline segments from business, residential, and enterprise customers where the performance obligations are to provide cable and telephone network services, sell and lease equipment and wiring services, and lease fiber-optic cable capacity. The Company's arrangements are generally composed of contracts that are cancellable at the customer’s discretion without penalty at any time. As there are multiple performance obligations in these arrangements, the Company recognizes revenue based on the standalone selling price of each distinct good or service. The Company generally recognizes these revenues over time as customers simultaneously receive and consume the benefits of the service, with the exception of equipment sales and home wiring which are recognized as revenue at a point in time when control transfers and when installation is complete, respectively.
Under the new revenue recognition standard, the Company concluded that installation services do not represent a separate performance obligation. Accordingly, installation fees are allocated to services and are recognized ratably over the longer of the contract term or the period the unrecognized portion of the fee remains material to the contract, typically
10
and
11
months for cable and wireline customers, respectively. Historically, the Company deferred these fees over the estimated customer life of
42
months. Additionally, the Company incurs commission and installation costs related to in-house and third-party vendors that were previously expensed as incurred. Under Topic 606, the Company capitalizes and amortizes these commission and installation costs over the expected benefit period which is approximately
44
months,
72
months, and
46
months, for cable, wireline, and enterprise business, respectively.
Tower / Other
Tower revenue consists primarily of tower space leases accounted for under Topic 840,
Leases
, and Other revenue includes network access-related charges for service provided to customers across the segments.
The cumulative effect of the changes made to the consolidated January 1, 2018 balance sheet for the adoption of the new revenue recognition standard were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Balance at December 31, 2017
|
|
Adjustments due to Topic 606
|
|
Balance at January 1, 2018
|
Assets
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
$
|
17,111
|
|
|
$
|
29,876
|
|
|
$
|
46,987
|
|
Deferred charges and other assets, net
|
|
13,690
|
|
|
31,071
|
|
|
44,761
|
|
Liabilities
|
|
|
|
|
|
|
Advanced billing and customer deposits
|
|
21,153
|
|
|
(14,302
|
)
|
|
6,851
|
|
Deferred income taxes
|
|
100,879
|
|
|
20,352
|
|
|
121,231
|
|
Other long-term liabilities
|
|
15,293
|
|
|
(1,200
|
)
|
|
14,093
|
|
Retained earnings
|
|
297,205
|
|
|
56,097
|
|
|
353,302
|
|
The impact of the adoption of the new revenue recognition standard on the consolidated statements of operations and comprehensive income and consolidated balance sheets was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December, 31 2018
|
(in thousands)
|
|
As Reported
|
|
Balances without Adoption of Topic 606
|
|
Effect of Change Higher/(Lower)
|
Operating revenue:
|
|
|
|
|
|
|
Service revenue and other
|
|
$
|
562,456
|
|
|
$
|
632,340
|
|
|
$
|
(69,884
|
)
|
Equipment revenue
|
|
68,398
|
|
|
8,298
|
|
|
60,100
|
|
Operating expenses:
|
|
|
|
|
|
|
Cost of services
|
|
194,022
|
|
|
193,860
|
|
|
162
|
|
Cost of goods sold
|
|
63,959
|
|
|
28,377
|
|
|
35,582
|
|
Selling, general and administrative
|
|
113,222
|
|
|
175,753
|
|
|
(62,531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
(in thousands)
|
|
As Reported
|
|
Balances without Adoption of Topic 606
|
|
Effect of Change Higher/(Lower)
|
Assets
|
|
|
|
|
|
|
Prepaid expenses and other
|
|
$
|
60,162
|
|
|
$
|
22,204
|
|
|
$
|
37,958
|
|
Deferred charges and other assets, net
|
|
49,891
|
|
|
12,083
|
|
|
37,808
|
|
Liabilities
|
|
|
|
|
|
|
Advanced billing and customer deposits
|
|
7,919
|
|
|
24,414
|
|
|
(16,495
|
)
|
Deferred income taxes
|
|
127,453
|
|
|
103,404
|
|
|
24,049
|
|
Other long-term liabilities
|
|
14,364
|
|
|
15,550
|
|
|
(1,186
|
)
|
Retained earnings
|
|
386,511
|
|
|
319,926
|
|
|
66,585
|
|
Future performance obligations
On
December 31, 2018
, the Company had approximately
$3.3 million
allocated to unsatisfied performance obligations, which is exclusive of contracts with original expected duration of one year or less. The Company expects to recognize approximately
$0.7 million
of this amount as revenue during 2019,
$0.7 million
in 2020, an additional
$0.6 million
by 2021, and the balance thereafter.
Contract acquisition costs and costs to fulfill contracts
Capitalized contract costs represent contract fulfillment costs and contract acquisition costs which include commissions and installation costs in our Cable and Wireline segments. Capitalized contract costs are amortized on a straight line basis over the contract term plus expected renewals or expected period of benefit. The Company elected to apply the practical expedient to expense contract acquisition costs when incurred, if the amortization period would be twelve months or less. The amortization of these costs is included in cost of services, and selling, general and administrative expenses. Amounts capitalized were approximately
$10.1 million
as of
December 31, 2018
of which
$4.6 million
is presented as prepaid expenses and other and
$5.5 million
is presented as deferred charges and other assets, net. Amortization recognized during the year ended
December 31, 2018
was approximately
$5.5 million
.
Sprint Territory Expansion
Effective February 1, 2018, the Company signed an expansion agreement with Sprint to expand its wireless service coverage area to include certain areas in Kentucky, Pennsylvania, Virginia and West Virginia, (the “Expansion Area”). The agreement includes certain network build out requirements in the Expansion Area, and the ability to utilize Sprint’s spectrum in the Expansion Area. Pursuant to the expansion agreement, Sprint agreed to, among other things, transition the provision of network coverage in the Expansion Area from Sprint to the Company. The expansion agreement required a payment of
$52.0 million
for the right to service the Expansion Area pursuant to the Affiliate Agreements plus an additional payment of up to
$5.0 million
after acceptance of certain equipment at the Sprint cell sites in the Expansion Area. The transaction was accounted for as an asset acquisition.
The Company recorded the following in the wireless segment:
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Estimated Useful Life (in years)
|
|
February 1, 2018
|
Affiliate contract expansion
|
|
12
|
|
$
|
45,148
|
|
Prepayment of tangible assets
|
|
N/A
|
|
6,497
|
|
Off-market leases - favorable
|
|
16.5
|
|
3,665
|
|
Off-market leases - unfavorable
|
|
4.2
|
|
(3,310
|
)
|
Total
|
|
|
|
$
|
52,000
|
|
Estimated useful lives are approximate and represent the average of the remaining useful lives as of the acquisition date. Prepayment of tangible assets will be depreciated over the asset life when the underlying assets are placed in service.
The Company allocated the purchase price to the components identified in the table above based on the relative fair value of each component. The fair value of the components was determined using an income and cost approach.
Acquisition of "Parkersburg" Expansion Area
On April 6, 2017, the Company expanded its affiliate service territory, under its agreements with Sprint, to include certain areas in North Carolina, Kentucky, Maryland, Ohio and West Virginia, for total consideration of
$6.0 million
. The expanded territory includes 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 became Sprint-branded affiliate customers managed by the Company.
Acquisition of NTELOS Holdings Corp. and Exchange with Sprint
On May 6, 2016, (the "acquisition date"), the Company completed its acquisition of NTELOS Holdings Corp. nTelos, was a regional provider of wireless telecommunications solutions and was acquired to expand the Company's wireless service area and subscriber base, thus strengthening the Company's relationship with Sprint.
Pursuant to the terms of the Agreement and Plan of Merger between the Company and nTelos (the "Merger Agreement"), nTelos became a direct wholly owned subsidiary of the Company. Pursuant to the terms of the Merger Agreement, the Company acquired all of the issued and outstanding capital stock of nTelos for an aggregate purchase price of
$667.8 million
. The purchase price was financed by a credit facility arranged by CoBank, ACB, Royal Bank of Canada, Fifth Third Bank, Bank of America, N.A., Capital One, National Association, Citizens Bank N.A., and Toronto Dominion (Texas) LLC.
Transaction costs in connection with the acquisition were expensed as incurred and are included in acquisition, integration and migration expenses in the consolidated statement of operations. The results of operations related to nTelos are included in our consolidated statements of operations beginning from the acquisition date.
The Company accounted for the acquisition of nTelos under the acquisition method of accounting, in accordance with FASB's ASC 805,
Business Combinations
, and has accounted for measurement period adjustments under ASU 2015-16,
Simplifying the Accounting for Measurement Period Adjustments
. Estimates of fair value included in the consolidated financial statements, in conformity with ASC 820,
Fair Value Measurements and Disclosures
, represent the Company's best estimates and valuations. In accordance with ASC 805,
Business Combinations
, the allocation of the consideration value was subject to adjustment until the Company completed its analysis, in a period of time, but not to exceed one year after the date of acquisition, or May 6, 2017, in order to provide the Company with the time to complete the valuation of its assets and liabilities. The Company's allocation of the consideration value to assets acquired and liabilities assumed incorporated all measurement period adjustments.
The following table summarizes the final purchase price allocation to assets acquired and liabilities assumed, including measurement period adjustments:
|
|
|
|
|
(in thousands)
|
Purchase Price Allocation
|
Accounts receivable
|
$
|
47,234
|
|
Inventory
|
4,572
|
|
Restricted cash
|
2,167
|
|
Investments
|
1,501
|
|
Prepaid expenses and other assets
|
14,835
|
|
Building held for sale
|
4,950
|
|
Property, plant and equipment
|
227,247
|
|
Spectrum licenses
|
198,200
|
|
Acquired subscribers - wireless
|
205,946
|
|
Favorable lease intangible assets
|
17,029
|
|
Goodwill
|
146,383
|
|
Other long term assets
|
10,843
|
|
Total assets acquired
|
$
|
880,907
|
|
|
|
Accounts payable
|
8,543
|
|
Advanced billings and customer deposits
|
12,477
|
|
Accrued expenses
|
23,141
|
|
Capital lease liability
|
418
|
|
Deferred tax liabilities
|
129,291
|
|
Retirement benefits
|
19,198
|
|
Other long-term liabilities
|
20,085
|
|
Total liabilities assumed
|
$
|
213,153
|
|
|
|
Net assets acquired
|
$
|
667,754
|
|
Concurrently with acquiring nTelos, the Company completed its previously announced transaction with SprintCom, Inc., a subsidiary of Sprint. Pursuant to this transaction, among other things, the Company exchanged spectrum licenses, valued at
$198.2 million
and wireless subscribers, valued at
$205.9 million
, acquired from nTelos with Sprint, and received an expansion of its affiliate service territory valued at approximately
$405.0 million
. These exchanges were accounted for in accordance with ASC 845,
Nonmonetary Transactions
. The expansion intangible was measured at fair valued using an income based model, the Excess Earnings Method, and considered cash flows to be generated from current and future Sprint subscribers. Further, as the value of assets provided to Sprint exceeded the value of assets received in the non-monetary exchange, the Company and Sprint agreed to waive management fees in an amount of approximately
$255.6 million
. The cash flow savings associated with the management fee waiver is incorporated in the fair value estimate.
Goodwill is the excess of the consideration transferred over the net assets recognized and represents the future economic benefits, primarily as a result of other assets acquired that could not be individually identified and separately recognized. The Company has recorded goodwill in its Wireless segment as a result of the nTelos acquisition. Goodwill is not amortized. The goodwill that arose from the acquisition of nTelos is not deductible for tax purposes.
Since the acquisition of nTelos occurred, the Company incurred a total of approximately
$75.7 million
of acquisition, integration and migration expenses associated with this transaction, excluding approximately
$23.0 million
of debt issuance costs. Such costs included support of back office staff and support functions required while the nTelos legacy customers were migrated to the Sprint billing platform; cost of the handsets that were provided to nTelos legacy customers as they migrated to the Sprint billing platform; severance costs for back office and other former nTelos employees who were not retained permanently; and transaction related fees. The Company incurred
$17.5 million
and
$54.7 million
of these costs during the years ended December 31, 2017 and 2016, respectively. These costs include
$1.8 million
and
$1.3 million
reflected in cost of goods and services and
$4.7 million
and
$11.1 million
reflected in selling, general and administrative costs in the years ended December 31, 2017 and 2016, respectively.
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.
The following table presents the unaudited pro forma information, based on estimates and assumptions that the Company believes to be reasonable, for the Company as if the acquisition of nTelos had occurred at the beginning of the period presented:
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Year Ended
December 31, 2016
|
Operating revenues
|
|
|
|
$
|
646,769
|
|
Income (loss) before income taxes
|
|
|
|
$
|
2,989
|
|
The pro forma information provided in the table above is not necessarily indicative of the consolidated results of operations for future periods or the results that actually would have been realized had the acquisition been completed at the beginning of the period presented.
The pro forma information provided in the table above is based upon estimated valuations of the assets acquired and liabilities assumed as well as estimates of depreciation and amortization charges thereon. Other estimated 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 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 affiliate contract expansion intangible asset.
|
The value of the affiliate agreement expansion discussed above 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 if the affiliate agreement is not renewed;
|
|
|
•
|
extension of the affiliate agreement with Sprint by five years to 2029;
|
|
|
•
|
expanded territory in the nTelos service area;
|
|
|
•
|
rights to serve all future Sprint customers in the affiliate service territory;
|
|
|
•
|
the Company's commitment to upgrade certain coverage and capacity in its newly acquired service area; and
|
|
|
•
|
a reduction of the management fee charged by Sprint under the amended affiliate agreement; not to exceed
$4.2 million
in an individual month until the total waived fee equals approximately
$255.6 million
.
|
Note 5. Customer Concentration
Significant Contractual Relationship
In 1999, the Company executed a Management Agreement (the “Agreement”) with Sprint whereby the Company committed to construct and operate a PCS network using CDMA air interface technology. The Agreement has been amended numerous times. Under the amended Agreement, the Company is the exclusive PCS Affiliate of Sprint providing wireless mobility communications network products and services on the
800
MHz,
1900
MHz and 2.5 GHz spectrum ranges in its territory across a multi-state area covering large portions of central and western Virginia, south-central Pennsylvania, West Virginia, and portions of Maryland, North Carolina, Kentucky, and Ohio. Effective February 1, 2018, the Company amended its Agreement with Sprint to expand its wireless service area to include certain areas in Kentucky, Pennsylvania, Virginia and West Virginia. See Note 4 for further information about this expansion agreement. As an exclusive PCS Affiliate of Sprint, the Company has the exclusive right to build, own and maintain its portion of Sprint’s nationwide PCS network, in the aforementioned areas, to Sprint’s specifications. The initial term of the Agreement extends through November 2029, with
two
successive
10
-year renewal periods, unless terminated by either party under provisions outlined in the Agreement. Upon non-renewal by either party, the Company may cause Sprint to buy or Sprint may cause the Company to sell the business at
90%
of Entire Business Value (“EBV”) as defined in the Agreement. EBV in the Agreement is defined as i) the fair market value of a going concern paid by a willing buyer to a willing seller; ii) valued
as if the business will continue to utilize existing brands and operate under existing agreements; and, iii) valued as if Manager (Shentel) owns the spectrum. Determination of EBV is made by an independent appraisal process.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and generally do not bear interest. Accounts receivable are concentrated among customers within the Company's geographic service area and large telecommunications companies.
The Company has
one
major customer relationship with Sprint that is a significant source of revenue.
Accounts receivable from significant clients, those representing 10% or more of total accounts receivable for the dates noted, are summarized below:
|
|
|
|
|
|
|
|
December 31,
|
($ in thousands)
|
|
2018
|
|
2017
|
Sprint
|
|
$43,227
|
|
$43,405
|
% of total accounts receivable
|
|
79%
|
|
80%
|
Correspondingly, revenue from significant clients, those representing 10% or more of total revenue for the respective periods, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
Sprint
|
|
68%
|
|
72%
|
|
69%
|
Note 6. Earnings (Loss) Per Share ("EPS")
Basic EPS was computed by dividing net income or loss by the weighted average number of shares of common stock outstanding during the period. Diluted EPS was computed under the treasury stock method, assuming the conversion as of the beginning of the period, for all dilutive stock options. Diluted EPS was computed by dividing net income (loss) by the sum of the weighted average number of shares of common stock outstanding and potentially dilutive securities outstanding during the period under the treasury stock method. Potentially dilutive securities include stock options and restricted stock units and shares that the Company is contractually obligated to issue in the future.
The following table indicates the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands, except per share amounts)
|
2018
|
|
2017
|
|
2016
|
Calculation of net income (loss) per share:
|
|
|
|
|
|
Net income (loss)
|
$
|
46,595
|
|
|
$
|
66,390
|
|
|
$
|
(895
|
)
|
Basic weighted average shares outstanding
|
49,542
|
|
|
49,150
|
|
|
48,807
|
|
Basic net income (loss) per share
|
$
|
0.94
|
|
|
$
|
1.35
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
Effect of stock options outstanding:
|
|
|
|
|
|
Basic weighted average shares outstanding
|
49,542
|
|
|
49,150
|
|
|
48,807
|
|
Effect from dilutive shares and options outstanding
|
521
|
|
|
876
|
|
|
—
|
|
Diluted weighted average shares outstanding
|
50,063
|
|
|
50,026
|
|
|
48,807
|
|
Diluted net income (loss) per share
|
$
|
0.93
|
|
|
$
|
1.33
|
|
|
$
|
(0.02
|
)
|
Due to the net loss for the year ended December 31, 2016,
no
adjustment was made to basic shares for potentially dilutive securities, as such an adjustment would have been anti-dilutive.
The computation of diluted EPS does not include certain unvested awards, on a weighted average basis, because their inclusion would have an anti-dilutive effect on EPS. The awards excluded because of their anti-dilutive effect are as follows:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
2018
|
|
2017
|
|
2016
|
Awards excluded from the computation of diluted net income (loss) per share because their inclusion would have been anti-dilutive
|
33
|
|
|
21
|
|
|
800
|
|
Note 7. Investments
Investments consist of the following:
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2018
|
|
December 31, 2017
|
Domestic equity funds
|
$
|
1,409
|
|
|
$
|
2,856
|
|
International equity funds
|
370
|
|
|
423
|
|
Total investments carried at fair value
|
1,779
|
|
|
3,279
|
|
|
|
|
|
CoBank
|
7,705
|
|
|
6,818
|
|
Equity in other telecommunications partners
|
782
|
|
|
811
|
|
Total investments carried at cost
|
8,487
|
|
|
7,629
|
|
|
|
|
|
Other
|
522
|
|
|
564
|
|
Total equity method investments
|
522
|
|
|
564
|
|
|
|
|
|
Total investments
|
$
|
10,788
|
|
|
$
|
11,472
|
|
The classifications of debt and equity securities are determined by the Company at the date individual investments are acquired. The appropriateness of such classification is periodically reassessed. The Company monitors the fair value of all investments, and based on factors such as market conditions, financial information and industry conditions, the Company reflects impairments in values when warranted. The classification of those securities and the related accounting policies are as follows:
Investments Carried at Fair Value:
Investments in equity and bond mutual funds and investment trusts held within the Company’s rabbi trust, which is related to the Company’s unfunded Supplemental Executive Retirement Plan, ("SERP"), are reported at fair value using net asset value per share. The Company has elected to recognize unrealized gains and losses on investments carried at fair value in earnings, pursuant to the fair value option in ASC 820,
Fair Value Measurement
. Investments carried at fair value were acquired under a rabbi trust arrangement related to the Company’s SERP. The Company purchases investments in the trust to mirror the investment elections of participants in the SERP. The Company recorded a loss of
$0.2 million
, gain of
$0.5 million
and gain of
$0.1 million
in
2018
,
2017
and
2016
, respectively. Fair values for these investments are determined by quoted market prices for the underlying mutual funds, which may be based upon net asset value. Gains and losses on the investments in the trust are reflected as increases or decreases in the liability owed to the participants and are recorded as pension expense included within "Non-operating income (loss), net" in our consolidated statements of operations.
Investments Carried at Cost:
Investments in common stock in which the Company does not have a significant ownership (less than 20%) and for which there is no ready market, are carried at cost. Information regarding investments carried at cost is reviewed for evidence of impairment. Impairments, if any, are charged to earnings and a new cost basis for the investment is established. The Company’s investment in CoBank increased
$0.9 million
and
$0.7 million
in the years ended
December 31, 2018
and
2017
, respectively, due to the ongoing equity-based patronage earned from the outstanding investment and loan balances the Company has with CoBank.
Equity Method Investments:
Investments in the equity of partnerships and in unconsolidated corporations where the Company's ownership is 20% or more, but less than 50%, or where the Company otherwise has the ability to exercise significant influence, are reported under the equity method. Under this method, the Company's equity in earnings or losses of investees is reflected in earnings. Distributions received reduce the carrying value of these investments. The Company recognizes a loss when there is a decline in value of the investment which is other than a temporary decline. At
December 31, 2018
, the Company had a
23%
ownership interest in Virginia Independent Telephone Alliance and a
20%
ownership interest in Valley Network Partnership.
Note 8. Fair Value Measurements
The Company applies ASC 820-10,
Fair Value Measurements and Disclosures
, which defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and expands required disclosures about fair value measurements. The guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The guidance requires the Company to classify and disclose assets and liabilities measured at fair value on a recurring basis, as well as fair value measurements of assets and liabilities measured on a nonrecurring basis in periods subsequent to initial measurement, in a three-tier fair value hierarchy as described below:
Level 1-Financial assets and liabilities whose values are based on unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2-Financial assets and liabilities whose values are based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3-Financial assets and liabilities whose values are based on unobservable inputs for the asset or liability.
Financial instruments are defined as cash, or other financial instruments to a third party. The carrying amounts of cash and cash equivalents, accounts receivable, other current assets, investments, accounts payable and accrued liabilities approximate fair value due to their short-term nature. The Company's Credit Facility (as defined in Note 14,
Long-Term Debt
) approximates fair value because of its floating rate structure.
Derivative financial instruments are recognized as assets or liabilities in the financial statements and measured at fair value on a recurring basis. See Note 11,
Derivatives and Hedging,
for additional information. The Company measures its interest rate swaps at fair value and recognizes such derivative instruments as either assets or liabilities on the Company’s consolidated balance sheet. Changes in the fair value of swaps are recognized in other comprehensive income, as the Company has designated these swaps as cash flow hedges for accounting purposes. The Company entered into these swaps to manage a portion of its exposure to interest rate movements by converting a portion of its variable rate long-term debt to fixed rate debt.
The following tables present the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
For the year ended December, 31 2018
|
Balance sheet location:
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Prepaid expenses and other
|
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
—
|
|
|
$
|
4,930
|
|
|
$
|
—
|
|
|
$
|
4,930
|
|
Deferred charges and other assets, net:
|
|
|
|
|
|
|
|
Interest rate swaps
|
—
|
|
|
8,323
|
|
|
—
|
|
|
8,323
|
|
Total
|
$
|
—
|
|
|
$
|
13,253
|
|
|
$
|
—
|
|
|
$
|
13,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
For the year ended December, 31 2017
|
Balance sheet location:
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
Money market funds
|
$
|
150
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
150
|
|
Prepaid expenses and other
|
|
|
|
|
|
|
|
Interest rate swaps
|
—
|
|
|
2,411
|
|
|
—
|
|
|
2,411
|
|
Deferred charges and other assets, net:
|
|
|
|
|
|
|
|
Interest rate swaps
|
—
|
|
|
10,776
|
|
|
—
|
|
|
10,776
|
|
Total
|
$
|
150
|
|
|
$
|
13,187
|
|
|
$
|
—
|
|
|
$
|
13,337
|
|
The Company determines the fair value of its security holdings based on pricing from its vendors. The valuation techniques used to measure the fair value of financial instruments having Level 2 inputs were derived from non-binding consensus prices that are corroborated by observable market data or quoted market prices for similar instruments. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs) or pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs).
The Company has certain non-marketable long-term investments for which it is not practicable to estimate fair value with a total carrying value of
$9.0 million
and
$8.2 million
as of
December 31, 2018
and
2017
, respectively, of which
$7.7 million
and
$6.8 million
, respectively, represents the Company’s investment in CoBank. This investment is primarily related to patronage distributions of restricted equity and is a required investment related to the portion of the Credit Facility held by CoBank. This investment is carried under the cost method. See Note 7,
Investments
, for additional information.
Note 9. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
Estimated Useful Lives
|
|
December 31,
2018
|
|
December 31,
2017
|
Land
|
|
|
$
|
6,723
|
|
|
$
|
6,418
|
|
Buildings and structures
|
10 - 40 years
|
|
213,657
|
|
|
195,540
|
|
Cable and wire
|
4 - 40 years
|
|
309,928
|
|
|
286,999
|
|
Equipment and software
|
2 - 17 years
|
|
791,401
|
|
|
730,228
|
|
Plant in service
|
|
|
1,321,709
|
|
|
1,219,185
|
|
Plant under construction
|
|
|
81,409
|
|
|
62,202
|
|
Total property, plant and equipment
|
|
|
1,403,118
|
|
|
1,281,387
|
|
Less accumulated amortization and depreciation
|
|
|
701,759
|
|
|
595,060
|
|
Property, plant and equipment, net
|
|
|
$
|
701,359
|
|
|
$
|
686,327
|
|
Depreciation expense for the years ended
December 31, 2018
,
2017
, and
2016
, was
$142.1 million
,
$151.1 million
, and
124.0 million
, respectively. The Company leases fiber under indefeasible right of use agreements (IRUs). IRU's totaled
$5.6 million
and
$5.9 million
at
December 31, 2018
and
2017
and were classified as capital lease agreements within property, plant and equipment.
At
December 31, 2018
and
2017
, the Company had unamortized capitalized software costs for software in service of
$27.8 million
and $
28.0 million
, respectively.
At
December 31, 2018
and
2017
, plant under construction consisted primarily of equipment and software, which was not placed into service.
Note 10. Goodwill and Intangible Assets
Goodwill by segment consisted of the following:
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31, 2018
|
|
December 31, 2017
|
Wireless
|
$
|
146,383
|
|
|
$
|
146,383
|
|
Cable
|
104
|
|
|
104
|
|
Wireline
|
10
|
|
|
10
|
|
Total Goodwill
|
$
|
146,497
|
|
|
$
|
146,497
|
|
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
(in thousands)
|
Gross
Carrying
Amount
|
|
Accumulated Amortization and Other
|
|
Net
|
|
Gross
Carrying
Amount
|
|
Accumulated Amortization and Other
|
|
Net
|
Non-amortizing intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
Cable franchise rights
|
$
|
64,334
|
|
|
$
|
—
|
|
|
$
|
64,334
|
|
|
$
|
64,334
|
|
|
$
|
—
|
|
|
$
|
64,334
|
|
Railroad crossing rights
|
141
|
|
|
—
|
|
|
141
|
|
|
141
|
|
|
—
|
|
|
141
|
|
Total non-amortizing intangibles
|
64,475
|
|
|
—
|
|
|
64,475
|
|
|
64,475
|
|
|
—
|
|
|
64,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangibles:
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate contract expansion - Wireless
|
455,305
|
|
|
(167,830
|
)
|
|
287,475
|
|
|
410,157
|
|
|
(105,964
|
)
|
|
304,193
|
|
Favorable leases - Wireless
|
15,743
|
|
|
(1,919
|
)
|
|
13,824
|
|
|
13,103
|
|
|
(1,222
|
)
|
|
11,881
|
|
Acquired subscribers - Cable
|
25,265
|
|
|
(25,250
|
)
|
|
15
|
|
|
25,265
|
|
|
(25,100
|
)
|
|
165
|
|
Other intangibles
|
463
|
|
|
(223
|
)
|
|
240
|
|
|
463
|
|
|
(198
|
)
|
|
265
|
|
Total finite-lived intangibles
|
496,776
|
|
|
(195,222
|
)
|
|
301,554
|
|
|
448,988
|
|
|
(132,484
|
)
|
|
316,504
|
|
Total intangible assets
|
$
|
561,251
|
|
|
$
|
(195,222
|
)
|
|
$
|
366,029
|
|
|
$
|
513,463
|
|
|
$
|
(132,484
|
)
|
|
$
|
380,979
|
|
For the years ended
December 31, 2018
,
2017
and
2016
, amortization expense, related to intangible assets was approximately
$24.6 million
,
$27.5 million
and
$34.9 million
, respectively. Affiliate contract expansion was amortized over the expected benefit period and was further reduced by the amount of waived management fees received from Sprint which were
$37.8 million
,
$36.1 million
and
$24.6 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. Since May 6, 2016, the date of the non-monetary exchange, waived management fees received from Sprint totaled
$98.4 million
.
The gross carrying amount of certain intangibles was affected by the expansion of the Company's wireless service coverage area with Sprint. See Note 4,
Acquisitions
for additional information.
Aggregate amortization expense, including amortization classified as a rent expense, for intangible assets for the periods shown is expected to be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Total
|
|
Amount Reflected as Rent Expense
|
|
Amount Reflected as Amortization Expense
|
(in thousands)
|
|
|
|
|
|
|
2019
|
|
$
|
21,094
|
|
|
$
|
991
|
|
|
$
|
20,103
|
|
2020
|
|
18,193
|
|
|
965
|
|
|
17,228
|
|
2021
|
|
15,477
|
|
|
953
|
|
|
14,524
|
|
2022
|
|
14,015
|
|
|
935
|
|
|
13,080
|
|
2023
|
|
13,794
|
|
|
924
|
|
|
12,870
|
|
thereafter
|
|
61,816
|
|
|
9,056
|
|
|
52,760
|
|
Total
|
|
$
|
144,389
|
|
|
$
|
13,824
|
|
|
$
|
130,565
|
|
Affiliate contract expansion will be further reduced by approximately
$157.2 million
for waived management fees as such are received from Sprint. Aggregate amortization of the unfavorable lease liability in the Wireless segment, to be classified as rent expense, is expected to be
$5.1 million
.
Note 11. Derivatives and Hedging
The Company uses derivative financial instruments to manage its exposure to interest rate risk for its long-term variable-rate debt through interest rate swaps. The Company's interest rate swaps are all designated as cash flow hedges, and involve the receipt of variable-rate amounts from counterparties in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company does not use derivative financial instruments for trading or
speculative purposes. Credit risk related to derivative financial instruments is considered minimal and is managed through the use of
four
counterparties with high credit standards and periodic settlements of positions.
The Company entered into a pay-fixed, receive-variable interest rate swap of
$174.6 million
of notional principal in September 2012. The outstanding notional amount of this cash flow hedge was
$100.4 million
and
$117.9 million
as of
December 31, 2018
and
2017
, respectively. The outstanding notional amount decreases based upon scheduled principal payments on the 2012 debt.
In May 2016, the Company entered into a pay-fixed, receive-variable interest rate swap of
$256.6 million
of notional principal with
three
counterparties. The outstanding notional amount of this cash flow hedge was
$283.6 million
and
$300.4 million
as of
December 31, 2018
and
2017
, respectively. The outstanding notional amount increases based upon draws made under a portion of the Company's Term Loan A-2 debt and as the 2012 interest rate swap's notional principal decreases; the outstanding notional amount decreases as the Company makes scheduled principal payments on the 2016 debt.
The Company is hedging approximately
50%
of its outstanding debt through its use of interest rate swaps with outstanding notional amounts totaling
$384.0 million
and
$418.3 million
at
December 31, 2018
and
2017
, respectively. 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 and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. 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.
Interest payments made on the Company's variable-rate debt reported in accumulated other comprehensive income related to the interest rate swaps designated as cash flow hedges are reclassified to interest expense. As of
December 31, 2018
, the Company estimates that
$4.9 million
will be reclassified as a reduction of interest expense during the next twelve months.
The table below presents the fair value of the Company’s derivative financial instruments as well as its classification on the consolidated balance sheet:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31,
2018
|
|
December 31,
2017
|
Balance sheet location of derivative financial instruments:
|
|
|
|
|
Prepaid expenses and other
|
|
$
|
4,930
|
|
|
$
|
2,411
|
|
Deferred charges and other assets, net
|
|
8,323
|
|
|
10,776
|
|
Total derivatives designated as hedging instruments
|
|
$
|
13,253
|
|
|
$
|
13,187
|
|
The table below summarizes changes in accumulated other comprehensive income (loss) by component:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Gains (Losses) on
Cash Flow
Hedges
|
|
Income Tax
(Expense)
Benefit
|
|
Accumulated
Other
Comprehensive
Income (Loss), net of taxes
|
Balance as of December 31, 2017
|
$
|
13,187
|
|
|
$
|
(4,957
|
)
|
|
$
|
8,230
|
|
Net change in unrealized gain (loss)
|
3,384
|
|
|
(804
|
)
|
|
2,580
|
|
Amounts reclassified from accumulated other comprehensive income (loss) to interest expense
|
(3,318
|
)
|
|
788
|
|
|
(2,530
|
)
|
Net current period other comprehensive income (loss)
|
66
|
|
|
(16
|
)
|
|
50
|
|
Balance as of December 31, 2018
|
$
|
13,253
|
|
|
$
|
(4,973
|
)
|
|
$
|
8,280
|
|
|
|
Note 12.
|
Other Assets and Accrued Liabilities
|
Prepaid expenses and other, classified as current assets, included the following:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31,
2018
|
|
December 31,
2017
|
Prepaid rent
|
|
$
|
11,245
|
|
|
$
|
10,519
|
|
Prepaid maintenance expenses
|
|
3,981
|
|
|
3,062
|
|
Interest rate swaps
|
|
4,930
|
|
|
2,411
|
|
Deferred contract costs
|
|
37,957
|
|
|
—
|
|
Other
|
|
2,049
|
|
|
1,119
|
|
Prepaid expenses and other
|
|
$
|
60,162
|
|
|
$
|
17,111
|
|
Deferred contract costs and other include amounts reimbursed to Sprint for commissions and device costs, and commissions and installation costs in the Company’s Cable and Wireline segments. The deferred contract costs increased due to the adoption of Topic 606. Refer to Note 3,
Revenue from Contracts with Customers
, for additional information.
Accrued liabilities and other, classified as current liabilities, included the following:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
December 31, 2018
|
|
December 31, 2017
|
Sales and property taxes payable
|
|
$
|
4,281
|
|
|
$
|
3,872
|
|
Severance
|
|
—
|
|
|
1,028
|
|
Asset retirement obligations
|
|
582
|
|
|
492
|
|
Accrued programming costs
|
|
2,886
|
|
|
2,805
|
|
Other current liabilities
|
|
6,814
|
|
|
5,717
|
|
Accrued liabilities and other
|
|
$
|
14,563
|
|
|
$
|
13,914
|
|
The Company's asset retirement obligations (ARO) are included in the balance sheet caption "Asset retirement obligations" and "Accrued liabilities and other". The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement and removal of leasehold improvements or equipment. The Company also records a corresponding asset, which is depreciated over the lease term. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The terms associated with its operating leases, and applicable zoning ordinances of certain jurisdictions, define the Company’s obligations which are estimated and vary based on the size of the towers.
Changes in the liability for asset retirement obligations for the years ended
December 31, 2018
,
2017
and
2016
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of year
|
$
|
21,703
|
|
|
$
|
21,507
|
|
|
$
|
7,266
|
|
Liabilities acquired in acquisition
|
—
|
|
|
—
|
|
|
14,056
|
|
Additional liabilities accrued
|
3,357
|
|
|
2,404
|
|
|
157
|
|
Changes to prior estimates
|
3,504
|
|
|
(1,695
|
)
|
|
—
|
|
Payments
|
(443
|
)
|
|
(1,296
|
)
|
|
(609
|
)
|
Accretion expense
|
1,045
|
|
|
783
|
|
|
637
|
|
Balance at end of year
|
$
|
29,166
|
|
|
$
|
21,703
|
|
|
$
|
21,507
|
|
Note 13. Commitments and Contingencies
The Company leases land, buildings and tower space under various non-cancelable agreements, which expire between the years 2019 and 2043 and require various minimum annual rental payments. These leases typically include renewal options and escalation clauses. In general, tower leases have
five
or
ten
year initial terms with
four
renewal terms of
five
years each. The other leases generally contain certain renewal options for periods ranging from
five
to
twenty
years.
Future minimum lease payments under non-cancelable operating leases, including renewals that are reasonably assured at the inception of the lease, with initial variable lease terms in excess of one year as of
December 31, 2018
, are as follows:
|
|
|
|
|
|
Year Ending
|
|
Amount
|
(in thousands)
|
|
|
2019
|
|
$
|
55,050
|
|
2020
|
|
53,100
|
|
2021
|
|
51,323
|
|
2022
|
|
49,573
|
|
2023
|
|
48,000
|
|
2024 and after
|
|
168,498
|
|
|
|
$
|
425,544
|
|
The Company’s total rent expense under operating leases was
$59.6 million
,
$53.1 million
, and
$43.8 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. Certain operating leases contain rent escalation clauses, which are recorded on a straight-line basis over the lease term which includes renewals that are reasonably assured at lease inception, with the difference between the rent paid and the straight-line rent recorded as a deferred rent liability. Lease incentives received from landlords are recorded as deferred rent liabilities and are amortized on a straight-line basis over the lease term as a reduction to rent expense.
As lessor, the Company has leased buildings, tower space and telecommunications equipment to other entities under various non-cancelable agreements, which require various minimum annual payments.
The total minimum rental receipts under lease agreements at
December 31, 2018
are as follows:
|
|
|
|
|
|
Year Ending
|
|
Amount
|
(in thousands)
|
|
|
2019
|
|
$
|
7,067
|
|
2020
|
|
6,109
|
|
2021
|
|
4,042
|
|
2022
|
|
2,914
|
|
2023
|
|
1,345
|
|
2024 and after
|
|
4,400
|
|
|
|
$
|
25,877
|
|
Legal Proceedings
From time to time the Company is involved in various litigation matters arising out of the normal course of business. The Company consults with legal counsel on those issues related to litigation and seeks input from other experts and advisers with respect to such matters. Estimating the probable losses or a range of probable losses resulting from litigation, government actions and other legal proceedings is inherently difficult and requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages, may involve discretionary amounts, present novel legal theories, are in the early stages of the proceedings, or are subject to appeal. Whether any losses, damages or remedies ultimately resulting from such matters could reasonably have a material effect on the Company's business, financial condition, results of operations, or cash flows will depend on a number of variables, including, for example, the timing and amount of such losses or damages (if any) and the structure and type of any such remedies. The Company's management does not presently expect any litigation matters to have a material adverse impact on the consolidated financial statements of the Company. Legal fees are expensed as incurred.
Note 14. Long-Term Debt
Total debt consists of the following:
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31,
2018
|
|
December 31,
2017
|
Term loan A-1
|
287,699
|
|
|
436,500
|
|
Term loan A-2
|
497,537
|
|
|
400,000
|
|
|
785,236
|
|
|
836,500
|
|
Less: unamortized loan fees
|
14,994
|
|
|
14,542
|
|
Total debt, net of unamortized loan fees
|
$
|
770,242
|
|
|
$
|
821,958
|
|
|
|
|
|
Current maturities of long-term debt, net of current unamortized loan fees
|
$
|
20,618
|
|
|
$
|
64,397
|
|
Long-term debt, less current maturities, net of unamortized loan fees
|
$
|
749,624
|
|
|
$
|
757,561
|
|
On December 18, 2015, the Company entered into a Credit Agreement (as amended, the “2016 credit agreement”) with various banks and other financial institutions party thereto and CoBank, ACB, as administrative agent for the lenders, providing for
three
facilities: (i) a
five
-year revolving credit facility of up to
$75 million
; (ii) a
five
-year term loan facility of up to
$485 million
(Term Loan A-1”); and (iii) a
seven
-year term loan facility of up to
$400 million
(“Term Loan A-2”), (collectively our "Credit Facility").
In connection with the closing of the nTelos acquisition, the Company borrowed (i)
$485 million
under Term Loan A-1 and (ii)
$325 million
under Term Loan A-2, which amounts were used to, among other things, fund the payment of the nTelos merger consideration, to refinance, in full, all indebtedness under the Company’s existing credit agreement, to repay existing long-term indebtedness of nTelos and to pay fees and expenses in connection with the foregoing. In connection with the consummation of the nTelos acquisition, nTelos and its subsidiaries became guarantors and pledged their assets as security for the obligations under the 2016 credit agreement. The 2016 credit agreement also included
$75 million
available under the Term Loan A-2 as a delayed draw term loan, and as of December 2016, the Company drew
$50 million
under this portion of the agreement and in January 2017 the Company drew the remaining
$25 million
. Additionally, the 2016 credit agreement included a
$75 million
Revolver Facility and permitted the Company to enter into
one
or more Incremental Term Loan Facilities not to exceed
$150 million
in the aggregate.
During
2018
, the 2016 credit agreement was amended (the "amended 2016 credit agreement") to: (i) shift
$108.8 million
in principal from Term Loan A-1 to Term Loan A-2; (ii) reduce near term principal payments; (iii) extend the maturity of Term Loan A-1 to 2023, Term Loan A-2 to 2025 and allow access to the Revolver through 2023; and (iv) reduce the applicable base interest rate by 75 basis points, (collectively our "Amended Credit Facility").
At
December 31, 2018
, the full
$75 million
was available under the Revolver Facility and the Company had not entered into any Incremental Loan Facilities. The debt issuance costs associated with the Revolver Facility are included in deferred charges and other assets, net on the consolidated balance sheets, and are amortized on a straight-line basis over the life of the Revolver Facility.
As of
December 31, 2018
, the Company’s indebtedness totaled approximately
$770.2 million
, net of unamortized loan fees of
$15.0 million
, with an annualized overall weighted average interest rate of approximately
3.97%
. As of
December 31, 2018
, the Term Loan A-1 bears interest at one-month LIBOR plus a margin of
1.75%
, while the Term Loan A-2 bears interest at one-month LIBOR plus a margin of
2.00%
. LIBOR resets monthly.
The amended Term Loan A-1 requires quarterly principal repayments of
$3.6 million
, which began on December 31, 2018 through September 30, 2019, increasing to
$7.3 million
quarterly from December 31, 2019 through September 30, 2022; then increasing to
$10.9 million
quarterly from December 31, 2022 through September 30, 2023, with the remaining balance due November 8, 2023. The amended Term Loan A-2 requires quarterly principal repayments of
$1.2 million
which began on December 31, 2018 through September 30, 2025, with the remaining balance due November 8, 2025.
The 2016 credit agreement required the Company to enter into one or more hedge agreements to manage its exposure to interest rate movements. The amended 2016 credit agreement does not include this requirement; however, the Company made no changes to its existing pay-fixed, receive-variable swaps that were already in place. The Company will receive one month LIBOR and pay a fixed rate of
1.16%
, in addition to the
2.75%
initial spread on Term Loan A-1 and the
3.00%
initial spread on Term Loan A-2.
The amended 2016 credit agreement contains affirmative and negative covenants customary to secured credit facilities, including covenants restricting the ability of the Company and its subsidiaries, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of the Company’s and its subsidiaries’ businesses. In aggregate, dividends paid, distributions and redemptions of capital stock made cannot exceed the sum of
$25 million
plus
60%
of the Company's consolidated net income (excluding non-cash extraordinary items such as write-downs or write-ups of assets) from January 1, 2016 to the date of declaration of such dividends, distributions or redemptions.
Indebtedness outstanding under any of the facilities may be accelerated by an Event of Default, as defined in the amended 2016 credit agreement.
The Amended Credit Facility is secured by a pledge by the Company of its stock and membership interests in its subsidiaries, a guarantee by the Company’s subsidiaries other than Shenandoah Telephone Company, and a security interest in substantially all of the assets of the Company and the guarantors.
The Company is subject to certain financial covenants to be measured on a trailing twelve month basis each calendar quarter unless otherwise specified. These covenants include:
|
|
•
|
a limitation on the Company’s total leverage ratio, defined as indebtedness divided by earnings before interest, taxes, depreciation and amortization, or EBITDA, of less than or equal to
3.50
to 1.00 from December 31, 2018 through December 31, 2019, then
3.25
to 1.00 through December 31, 2021, and
3.00
to 1.00 thereafter;
|
|
|
•
|
a minimum debt service coverage ratio, defined as EBITDA minus certain cash taxes divided by the sum of all scheduled principal payments on the Term Loans and other indebtedness plus cash interest expense, greater than or equal to
2.00
to 1.00;
|
|
|
•
|
the Company must maintain a minimum liquidity balance, defined as availability under the Revolver Facility plus unrestricted cash and cash equivalents on deposit in a deposit account for which a control agreement has been delivered to the administrative agent under the 2016 credit agreement, of greater than
$25 million
at all times.
|
As shown below, as of
December 31, 2018
, the Company was in compliance with the financial covenants in its credit agreements.
|
|
|
|
|
|
|
|
Actual
|
|
Covenant Requirement
|
Total leverage ratio
|
2.54
|
|
|
3.50 or Lower
|
Debt service coverage ratio
|
3.63
|
|
|
2.00 or Higher
|
Minimum liquidity balance (in millions)
|
$
|
159.0
|
|
|
$25.0 or Higher
|
Future maturities of long-term debt principal are as follows:
|
|
|
|
|
|
Year Ending
|
|
Amount
|
(in thousands)
|
|
|
2019
|
|
$
|
23,197
|
|
2020
|
|
34,122
|
|
2021
|
|
34,122
|
|
2022
|
|
37,764
|
|
2023
|
|
183,434
|
|
2024 and after
|
|
472,597
|
|
Total
|
|
$
|
785,236
|
|
The Company has no fixed-rate debt instruments as of
December 31, 2018
. The estimated fair value of the variable-rate debt approximates its carrying value due to its floating interest rate structure.
The Company receives patronage credits from CoBank and certain of its affiliated Farm Credit institutions, which are not reflected in the stated rates shown above. Patronage credits are a distribution of profits of CoBank as approved by its Board of Directors. During the first quarter of the year, the Company receives patronage credits on its average outstanding CoBank debt balance during the prior fiscal year. The Company accrued
$2.8 million
in non-operating income in the year ended
December 31, 2018
, in anticipation of the early
2019
distribution of the credits by CoBank. Patronage credits have historically been paid in a mix of cash and shares of CoBank stock. The
2018
payout mix was
75%
cash and
25%
shares. CoBank also provided a one-time cash
distribution of
$0.2 million
in September 2018 in an effort to share the benefits of federal tax reform legislation with its eligible customer-owners.
Note 15. Related Party Transactions
ValleyNet, an equity method investee of the Company, resells capacity on the Company’s fiber network under an operating lease agreement. Additionally, the Company's Wireless operations leases capacity through ValleyNet.
The following tables summarize the historical transactions that occurred with ValleyNet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
2018
|
|
2017
|
|
2016
|
Consolidated Statements of Operations and Comprehensive Income
|
|
|
|
|
|
Facility lease revenue
|
$
|
1,677
|
|
|
$
|
2,201
|
|
|
$
|
2,384
|
|
Cost of goods and services
|
3,362
|
|
|
3,673
|
|
|
3,067
|
|
|
|
|
|
|
|
(in thousands)
|
December 31,
2018
|
|
December 31,
2017
|
|
|
Consolidated Balance Sheet
|
|
|
|
|
|
Account receivable related to ValleyNet
|
$
|
253
|
|
|
$
|
180
|
|
|
|
Accounts payable related to ValleyNet
|
173
|
|
|
303
|
|
|
|
Note 16. Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax Act”) was enacted, substantially changing the U.S. tax system. The 2017 Tax Act includes a number of changes to existing U.S. tax laws that impact the Company, most notably a reduction of the U.S. corporate income tax rate from 35 percent to 21 percent for tax years beginning after December 31, 2017. The 2017 Tax Act also provides immediate expensing for certain qualified assets acquired and placed into service after September 27, 2017 as well as prospective changes beginning in 2018, including acceleration of tax revenue recognition, additional limitations on deductibility of executive compensation and limitations on the deductibility of interest.
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. The Company recognized a provisional benefit on the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with SAB No. 118.
The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company's deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 35 percent to 21 percent, resulting in a
$53.4 million
income tax benefit for the year ended December 31, 2017 and a corresponding
$53.4 million
decrease in net deferred tax liabilities as of December 31, 2017. The Company completed the accounting for the effects of the 2017 Tax Act during the one-year measurement period prescribed by SAB No. 118. As of December 31, 2018, the Company adjusted the provisional amounts recorded at December 31, 2017 by recording an additional
$0.8 million
of income tax benefit and a corresponding
$0.8 million
decrease in net deferred tax liabilities upon completing the analysis of the 2017 Tax Act and the filing of the 2017 federal income tax return.
Total income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
2018
|
|
2017
|
|
2016
|
Income tax (benefit) expense
|
$
|
15,517
|
|
|
$
|
(53,133
|
)
|
|
$
|
2,840
|
|
Other comprehensive income for changes in cash flow hedge
|
16
|
|
|
522
|
|
|
4,162
|
|
|
$
|
15,533
|
|
|
$
|
(52,611
|
)
|
|
$
|
7,002
|
|
The Company and its subsidiaries file income tax returns in several jurisdictions. The provision for the federal and state income taxes attributable to income (loss) consists of the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
2018
|
|
2017
|
|
2016
|
Current expense
|
|
|
|
|
|
Federal taxes
|
$
|
2,875
|
|
|
$
|
1,552
|
|
|
$
|
44,779
|
|
State taxes
|
6,434
|
|
|
(630
|
)
|
|
10,936
|
|
Total current provision
|
9,309
|
|
|
922
|
|
|
55,715
|
|
Deferred expense (benefit)
|
|
|
|
|
|
Federal taxes
|
6,708
|
|
|
(52,886
|
)
|
|
(47,056
|
)
|
State taxes
|
(500
|
)
|
|
(1,169
|
)
|
|
(5,819
|
)
|
Total deferred provision
|
6,208
|
|
|
(54,055
|
)
|
|
(52,875
|
)
|
Income tax expense (benefit)
|
$
|
15,517
|
|
|
$
|
(53,133
|
)
|
|
$
|
2,840
|
|
Effective tax rate
|
25.0
|
%
|
|
(400.8
|
)%
|
|
146.0
|
%
|
A reconciliation of income taxes determined by applying the federal and state tax rates to income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
2018
|
|
2017
|
|
2016
|
Computed "expected" tax expense
|
$
|
13,044
|
|
|
$
|
4,640
|
|
|
$
|
681
|
|
State income taxes, net of federal tax effect
|
4,748
|
|
|
(1,129
|
)
|
|
6
|
|
Changes in state DTL for mergers
|
—
|
|
|
—
|
|
|
3,320
|
|
Excess share based compensation
|
(1,254
|
)
|
|
(3,314
|
)
|
|
(1,709
|
)
|
Nondeductible merger expenses
|
—
|
|
|
—
|
|
|
801
|
|
Revaluation of U.S. deferred income taxes
|
(760
|
)
|
|
(53,449
|
)
|
|
—
|
|
Other, net
|
(261
|
)
|
|
119
|
|
|
(259
|
)
|
Income tax expense (benefit)
|
$
|
15,517
|
|
|
$
|
(53,133
|
)
|
|
$
|
2,840
|
|
The effective tax rate increased in 2018 primarily due to the recognition of a one-time non-cash tax benefit of
$53.4 million
in 2017 related to the revaluation of deferred tax assets and liabilities as a result of the 2017 Tax Act.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and tax purposes. Net deferred tax assets and liabilities are classified as non-current in the consolidated balance sheets.
Net deferred tax assets and liabilities consist of the following temporary differences:
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31,
2018
|
|
December 31,
2017
|
Deferred tax assets:
|
|
|
|
Deferred revenue
|
$
|
—
|
|
|
$
|
3,907
|
|
Net operating loss carry-forwards
|
12,612
|
|
|
14,983
|
|
Accruals and reserves
|
6,545
|
|
|
5,189
|
|
Pension benefits
|
2,873
|
|
|
3,556
|
|
Asset retirement obligations
|
7,797
|
|
|
4,608
|
|
Total gross deferred tax assets
|
29,827
|
|
|
32,243
|
|
Less valuation allowance
|
(862
|
)
|
|
(862
|
)
|
Net deferred tax assets
|
28,965
|
|
|
31,381
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
Deferred revenue
|
19,554
|
|
|
—
|
|
Plant-in-service
|
99,666
|
|
|
89,494
|
|
Intangible assets
|
32,963
|
|
|
37,682
|
|
Interest rate swaps
|
3,339
|
|
|
3,511
|
|
Other, net
|
896
|
|
|
1,573
|
|
Total gross deferred tax liabilities
|
156,418
|
|
|
132,260
|
|
Net deferred tax liabilities
|
$
|
127,453
|
|
|
$
|
100,879
|
|
In assessing the ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generating future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, taxable income in prior carryback years if available and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods for which the deferred tax assets are deductible, the Company believes it more likely than not that the net deferred tax assets will be realized with the exception of certain state net operating losses in jurisdictions where the Company no longer operates. The Company has a deferred tax asset of
$12.6 million
related to federal and various state net operating losses, of which
$0.9 million
is associated with a valuation allowance. As of
December 31, 2018
, the Company had approximately
$54.4 million
of federal net operating losses expiring through 2035. The Company also had approximately
$39.9 million
of state net operating losses expiring through 2036.
As of
December 31, 2018
and
2017
, the Company had
no
unrecognized tax benefits. It is the Company’s policy to record interest and penalties related to unrecognized tax benefits in selling, general, and administrative expenses.
The Company files U.S. federal income tax returns and various state and local income tax returns. The Company is not currently subject to state or federal income tax audits as of
December 31, 2018
. The Company's returns are generally open to examination from 2015 forward and the net operating losses acquired in the acquisition of nTelos are open to examination from 2002 forward.
Note 17. Segment Reporting
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 ("CODM"). The Company's reportable segments, which the Company operates and manages as strategic business units that are organized according to major product and service offerings, include: Wireless, Cable, Wireline and Other. A general description of the products and services offered and the customers served by each of these segments is as follows:
|
|
•
|
Wireless provides digital wireless service as a Sprint PCS Affiliate to a portion of a multi-state area covering large portions of central and western Virginia, south-central Pennsylvania, West Virginia, and portions of Maryland, North Carolina, Kentucky, and Ohio. 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 spectrum bands. Wireless also owns
208
cell site towers built on leased and owned land, and leases space on these towers to both affiliates and non-affiliated third party wireless service providers.
|
|
|
•
|
Cable provides video, broadband 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, broadband and voice services provided to customers in Shenandoah County, Virginia.
|
|
|
•
|
Wireline provides regulated and unregulated voice services, internet broadband, long distance access services, and leases fiber optic facilities throughout portions of Virginia, West Virginia, Maryland and Pennsylvania.
|
|
|
•
|
Other operations are represented by Shenandoah Telecommunications Company, the parent holding company that provides investing and management services to its subsidiaries.
|
Year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Wireless
|
|
Cable
|
|
Wireline
|
|
Other
|
|
Eliminations
|
|
Consolidated
|
External revenue
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue
|
$
|
380,818
|
|
|
$
|
114,917
|
|
|
$
|
21,521
|
|
|
—
|
|
|
—
|
|
|
$
|
517,256
|
|
Equipment revenue
|
67,510
|
|
|
695
|
|
|
193
|
|
|
—
|
|
|
—
|
|
|
68,398
|
|
Other
|
9,311
|
|
|
8,585
|
|
|
27,304
|
|
|
—
|
|
|
—
|
|
|
45,200
|
|
Total external revenue
|
457,639
|
|
|
124,197
|
|
|
49,018
|
|
|
—
|
|
|
—
|
|
|
630,854
|
|
Internal revenue
|
5,016
|
|
|
4,706
|
|
|
28,124
|
|
|
—
|
|
|
(37,846
|
)
|
|
—
|
|
Total operating revenue
|
462,655
|
|
|
128,903
|
|
|
77,142
|
|
|
—
|
|
|
(37,846
|
)
|
|
630,854
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
131,166
|
|
|
59,935
|
|
|
38,056
|
|
|
—
|
|
|
(35,135
|
)
|
|
194,022
|
|
Cost of goods sold
|
63,583
|
|
|
295
|
|
|
81
|
|
|
—
|
|
|
—
|
|
|
63,959
|
|
Selling, general and administrative
|
47,538
|
|
|
20,274
|
|
|
7,467
|
|
|
40,654
|
|
|
(2,711
|
)
|
|
113,222
|
|
Depreciation and amortization
|
127,521
|
|
|
24,644
|
|
|
13,673
|
|
|
567
|
|
|
—
|
|
|
166,405
|
|
Total operating expenses
|
369,808
|
|
|
105,148
|
|
|
59,277
|
|
|
41,221
|
|
|
(37,846
|
)
|
|
537,608
|
|
Operating income (loss)
|
$
|
92,847
|
|
|
$
|
23,755
|
|
|
$
|
17,865
|
|
|
$
|
(41,221
|
)
|
|
$
|
—
|
|
|
$
|
93,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
$
|
86,146
|
|
|
$
|
26,640
|
|
|
$
|
16,566
|
|
|
$
|
7,289
|
|
|
$
|
—
|
|
|
$
|
136,641
|
|
Year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Wireless
|
|
Cable
|
|
Wireline
|
|
Other
|
|
Eliminations
|
|
Consolidated
|
External revenue
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue
|
$
|
431,184
|
|
|
$
|
107,338
|
|
|
$
|
20,388
|
|
|
—
|
|
|
—
|
|
|
$
|
558,910
|
|
Equipment revenue
|
9,467
|
|
|
724
|
|
|
127
|
|
|
—
|
|
|
—
|
|
|
10,318
|
|
Other
|
9,478
|
|
|
7,855
|
|
|
25,430
|
|
|
—
|
|
|
—
|
|
|
42,763
|
|
Total external revenue
|
450,129
|
|
|
115,917
|
|
|
45,945
|
|
|
—
|
|
|
—
|
|
|
611,991
|
|
Internal revenue
|
4,949
|
|
|
3,245
|
|
|
33,308
|
|
|
—
|
|
|
(41,502
|
)
|
|
—
|
|
Total operating revenue
|
455,078
|
|
|
119,162
|
|
|
79,253
|
|
|
—
|
|
|
(41,502
|
)
|
|
611,991
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
129,626
|
|
|
59,335
|
|
|
38,417
|
|
|
39
|
|
|
(38,696
|
)
|
|
188,721
|
|
Cost of goods sold
|
22,653
|
|
|
14
|
|
|
119
|
|
|
—
|
|
|
—
|
|
|
22,786
|
|
Selling, general and administrative
|
118,257
|
|
|
19,999
|
|
|
6,923
|
|
|
23,564
|
|
|
(2,806
|
)
|
|
165,937
|
|
Integration and acquisition expenses
|
10,793
|
|
|
—
|
|
|
—
|
|
|
237
|
|
|
—
|
|
|
11,030
|
|
Depreciation and amortization
|
139,610
|
|
|
23,968
|
|
|
12,829
|
|
|
600
|
|
|
—
|
|
|
177,007
|
|
Total operating expenses
|
420,939
|
|
|
103,316
|
|
|
58,288
|
|
|
24,440
|
|
|
(41,502
|
)
|
|
565,481
|
|
Operating income (loss)
|
$
|
34,139
|
|
|
$
|
15,846
|
|
|
$
|
20,965
|
|
|
$
|
(24,440
|
)
|
|
$
|
—
|
|
|
$
|
46,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
$
|
82,620
|
|
|
$
|
34,487
|
|
|
$
|
22,581
|
|
|
$
|
6,801
|
|
|
$
|
—
|
|
|
$
|
146,489
|
|
Year ended
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Wireless
|
|
Cable
|
|
Wireline
|
|
Other
|
|
Eliminations
|
|
Consolidated
|
External revenue
|
|
|
|
|
|
|
|
|
|
|
|
Service revenue
|
$
|
359,769
|
|
|
$
|
99,070
|
|
|
$
|
19,646
|
|
|
—
|
|
|
—
|
|
|
$
|
478,485
|
|
Equipment revenue
|
10,674
|
|
|
736
|
|
|
130
|
|
|
—
|
|
|
—
|
|
|
11,540
|
|
Other
|
13,690
|
|
|
7,191
|
|
|
24,382
|
|
|
—
|
|
|
—
|
|
|
45,263
|
|
Total external revenue
|
384,133
|
|
|
106,997
|
|
|
44,158
|
|
|
—
|
|
|
—
|
|
|
535,288
|
|
Internal revenue
|
4,620
|
|
|
1,737
|
|
|
30,816
|
|
|
—
|
|
|
(37,173
|
)
|
|
—
|
|
Total operating revenue
|
388,753
|
|
|
108,734
|
|
|
74,974
|
|
|
—
|
|
|
(37,173
|
)
|
|
535,288
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
103,840
|
|
|
58,290
|
|
|
36,272
|
|
|
—
|
|
|
(34,433
|
)
|
|
163,969
|
|
Cost of goods sold
|
29,273
|
|
|
291
|
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
29,551
|
|
Selling, general and administrative
|
95,851
|
|
|
19,248
|
|
|
6,474
|
|
|
14,492
|
|
|
(2,740
|
)
|
|
133,325
|
|
Integration and acquisition expenses
|
25,927
|
|
|
—
|
|
|
—
|
|
|
16,305
|
|
|
—
|
|
|
42,232
|
|
Depreciation and amortization
|
107,621
|
|
|
23,908
|
|
|
11,717
|
|
|
439
|
|
|
—
|
|
|
143,685
|
|
Total operating expenses
|
362,512
|
|
|
101,737
|
|
|
54,450
|
|
|
31,236
|
|
|
(37,173
|
)
|
|
512,762
|
|
Operating income (loss)
|
$
|
26,241
|
|
|
$
|
6,997
|
|
|
$
|
20,524
|
|
|
$
|
(31,236
|
)
|
|
$
|
—
|
|
|
$
|
22,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
$
|
123,400
|
|
|
$
|
32,400
|
|
|
$
|
20,200
|
|
|
$
|
(2,769
|
)
|
|
$
|
—
|
|
|
$
|
173,231
|
|
A reconciliation of the total of the reportable segments’ operating income (loss) to consolidated income (loss) before taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
(in thousands)
|
2018
|
|
2017
|
|
2016
|
Total consolidated operating income (loss)
|
$
|
93,246
|
|
|
$
|
46,510
|
|
|
$
|
22,526
|
|
Interest expense
|
(34,847
|
)
|
|
(38,237
|
)
|
|
(25,102
|
)
|
Gain (loss) on investments, net
|
(275
|
)
|
|
564
|
|
|
271
|
|
Non-operating income (loss), net
|
3,988
|
|
|
4,420
|
|
|
4,250
|
|
Income (loss) before income taxes
|
$
|
62,112
|
|
|
$
|
13,257
|
|
|
$
|
1,945
|
|
The Company’s CODM does not currently review total assets by segment since the assets are centrally managed and some of the assets are shared by the segments. As of January 1, 2018, the Company records stock compensation expense to Other. Previously recorded stock compensation expense was allocated among all segments.
Note 18. Quarterly Results (unaudited)
The following table reflects selected quarterly results for the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(in thousands, except per share data)
|
March 31, 2018
|
|
June 30,
2018
|
|
September 30, 2018
|
|
December 31, 2018
|
Operating revenue
|
$
|
154,138
|
|
|
$
|
156,501
|
|
|
$
|
158,731
|
|
|
$
|
161,484
|
|
Operating income (loss)
|
16,754
|
|
|
21,169
|
|
|
28,329
|
|
|
26,994
|
|
Net income (loss)
|
6,583
|
|
|
9,626
|
|
|
15,534
|
|
|
14,852
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic
|
$
|
0.13
|
|
|
$
|
0.19
|
|
|
$
|
0.31
|
|
|
$
|
0.31
|
|
Net income (loss) per share - diluted
|
$
|
0.13
|
|
|
$
|
0.19
|
|
|
$
|
0.31
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(in thousands except per share data)
|
March 31, 2017
|
|
June 30,
2017
|
|
September 30, 2017
|
|
December 31, 2017
|
Operating revenue
|
$
|
154,125
|
|
|
$
|
153,867
|
|
|
$
|
152,382
|
|
|
$
|
151,617
|
|
Operating income (loss)
|
10,673
|
|
|
8,252
|
|
|
9,475
|
|
|
18,110
|
|
Net income (loss)
|
2,341
|
|
|
(80
|
)
|
|
3,534
|
|
|
60,595
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic
|
$
|
0.05
|
|
|
$
|
—
|
|
|
$
|
0.07
|
|
|
$
|
1.23
|
|
Net income (loss) per share - diluted
|
$
|
0.05
|
|
|
$
|
—
|
|
|
$
|
0.07
|
|
|
$
|
1.21
|
|
Immaterial Prior Period Adjustment
.
During the three months ended September 30, 2018, the Company determined that the unaudited condensed consolidated financial statements for the three months ended March 31, 2018, and the three and six months ended June 30, 2018, contained an immaterial misstatement. Excess amortization of deferred contract costs that are recognized as a reduction of revenue, as described in Note 3, resulted in an understatement of revenue for the three months ended March 31, 2018, and the three and six months ended June 30, 2018. Additionally, amounts recorded upon the adoption of Topic 606 on January 1, 2018 were misstated. The Company evaluated the materiality of the prior period adjustment quantitatively and qualitatively, under the SEC’s authoritative guidance on materiality, and concluded that the prior period adjustment was not material to the financial statements of any of the impacted unaudited 2018 periods. The Company elected to correct the prior period adjustment by revising the prior period financial statements.
The cumulative effect of the adjustment made to the consolidated January 1, 2018 balance sheet for the adoption of the new revenue recognition standard was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2018
|
(in thousands)
|
As Reported
|
|
Correction of Error
|
|
As Adjusted
|
Prepaid expenses and other
|
$
|
53,688
|
|
|
$
|
(6,701
|
)
|
|
$
|
46,987
|
|
Deferred charges and other assets, net
|
29,797
|
|
|
14,964
|
|
|
44,761
|
|
Deferred income taxes
|
119,030
|
|
|
2,201
|
|
|
121,231
|
|
Retained earnings
|
347,240
|
|
|
6,062
|
|
|
353,302
|
|
The following table presents the effects of the immaterial prior period adjustment on the unaudited condensed consolidated balance sheet as of March 31, 2018 and June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
(in thousands)
|
As Reported
|
|
Correction of Error
|
|
As Adjusted
|
Prepaid expenses and other
|
$
|
64,200
|
|
|
$
|
(5,741
|
)
|
|
$
|
58,459
|
|
Deferred charges and other assets, net
|
33,934
|
|
|
16,410
|
|
|
50,344
|
|
Deferred income taxes
|
115,809
|
|
|
2,853
|
|
|
118,662
|
|
Retained earnings
|
352,069
|
|
|
7,816
|
|
|
359,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018
|
(in thousands)
|
As Reported
|
|
Correction of Error
|
|
As Adjusted
|
Prepaid expenses and other
|
$
|
64,163
|
|
|
$
|
(4,756
|
)
|
|
$
|
59,407
|
|
Deferred charges and other assets, net
|
34,021
|
|
|
17,896
|
|
|
51,917
|
|
Deferred income taxes
|
111,125
|
|
|
3,522
|
|
|
114,647
|
|
Retained earnings
|
359,893
|
|
|
9,618
|
|
|
369,511
|
|
The following tables present the effects of the immaterial prior period adjustment on the unaudited condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2018 and the three and six months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2018
|
(in thousands)
|
As Reported
|
|
Correction of Error
|
|
As Adjusted
|
Service revenue and other
|
$
|
134,153
|
|
|
$
|
2,406
|
|
|
$
|
136,559
|
|
Income tax expense (benefit)
|
1,176
|
|
|
652
|
|
|
1,828
|
|
Net income (loss)
|
4,829
|
|
|
1,754
|
|
|
6,583
|
|
Earnings per share - basic
|
$
|
0.10
|
|
|
$
|
0.03
|
|
|
$
|
0.13
|
|
Earnings per share - diluted
|
$
|
0.10
|
|
|
$
|
0.03
|
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2018
|
(in thousands)
|
As Reported
|
|
Correction of Error
|
|
As Adjusted
|
Service revenue and other
|
$
|
138,021
|
|
|
$
|
2,471
|
|
|
$
|
140,492
|
|
Income tax expense (benefit)
|
2,862
|
|
|
669
|
|
|
3,531
|
|
Net income (loss)
|
7,824
|
|
|
1,802
|
|
|
9,626
|
|
Earnings per share - basic
|
$
|
0.16
|
|
|
$
|
0.03
|
|
|
$
|
0.19
|
|
Earnings per share - diluted
|
$
|
0.16
|
|
|
$
|
0.03
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2018
|
(in thousands)
|
As Reported
|
|
Correction of Error
|
|
As Adjusted
|
Service revenue and other
|
$
|
272,174
|
|
|
$
|
4,877
|
|
|
$
|
277,051
|
|
Income tax expense (benefit)
|
4,038
|
|
|
1,321
|
|
|
5,359
|
|
Net income (loss)
|
12,653
|
|
|
3,556
|
|
|
16,209
|
|
Earnings per share - basic
|
$
|
0.26
|
|
|
$
|
0.07
|
|
|
$
|
0.33
|
|
Earnings per share - diluted
|
$
|
0.25
|
|
|
$
|
0.07
|
|
|
$
|
0.32
|
|